Dedication To my dearest parents, my family, friends and respected teachers who motivated, supported and encouraged me in every aspect of my life. Abstract Internship training for the students of Business Administration is a complimentary portion of the education, where students are
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Dedication
To my dearest parents, my family,friends and respected teachers who motivated,
supported and encouraged me in every aspect of my life.
Abstract
Internship training for the students of Business Administration is a complimentary portion of the
education, where students are put at various organizations of their respective specialization; to
see and apply their theoretical knowledge what they have studied during their academic program
at the institute.
BankIslami is one of those organizations where student can achieve his/her academic and
professional knowledge productively.
I was put in the BankIslami Jhelum Branch to complete financial system was studied i.e. cash
balances, advances, loans ,turnover, chronological development and growth ,its relative study
and financial ratios were thoroughly studied.
As BankIslami is newly opened Islamic bank in the market where it is facing a tough
competition from other public sector and private banks therefore financial SWOT analysis was
also made however focus of the study has been on the analysis of financial ratios.
Table of ContentAcknowledgements
Abbreviations
Executive summary
CHAPTER 1 Page No.
Introduction to the Report1.1 Back ground of studies 121.2 Purpose of the studies 121.3 Research Metholodagy 12
1.3.1 Primary data 13
1.3.2 Secondary data 131.4 Scope of studies 131.5 Merits of the study 131.6 Limitation of the study 131.7 Scheme of study 14
Chapter # 2
Introduction to Banking & BankIslami:2.1 Back Ground Introduction 16
2.1.1 Banking Industry in Pakistan 162.1.2 Growth of Pakistan’s Banking Industry 172.1.3 Banking Law in Pakistan 172.1.4 State Bank of Pakistan (Central Bank) 182.2 Banks in Pakistan 18
2.2.1 Government banks 182.2.2 Private Banks 182.2.3 Foreign Banks 19
2.3 Introduction to the BankIslami 202.3.1 What is BankIslami? 202.3.2 Competition Situation 202.3.3 BankIslami Idea 202.3.4 History BankIslami 212.3.5 Accreditation by State Bank of Pakistan 232.3.6 Initial Public Offering of BankIslami 232.3.7 Network Expansion
3.2.1 Operations Department: 303.2.1.1Nature of the deposits 303.2.1.2Kinds of Accounts 343.2.1.3Procedures for account opening 35
3.2.2 Remittances Department 373.2.3 Cash Department 38
3.2.3.1Kinds of cheques 393.2.4 Credit Department 40
3.2.4.1 Musharakah Financing 403.2.4.2 Mudarabah Financing 403.2.4.3 Working Capital Finance 403.2.4.4 Project Financing 42
3.2.5 Consumer banking 423.2.5.1 Online Banking 423.2.5.2 Inter Bank Transfer Fund 433.2.5.3 ATM or Debit Card 43
3.2.5.4 Biometric ATM 433.2.5.5 Lockers 44
Chapter #4
Analysis4.1 Financial information: 46
4.2 Analysis of the Report 474.2.1 Financial Statement Analysis 47
4.2.1.1Common Size Analysis 474.2.1.1.1 Vertical Analysis of Balance Sheet 504.2.1.1.2 Vertical Analysis of Income Statement 524.2.1.1.3 Horizontal Analysis of Balance Sheet 524.2.1.1.4 Horizontal Analysis of Income Statement 53
4.3 Financial Ratio Analysis 544.3.1 Profitability Ratio 54
4.3.1.1 Gross Profit Margin 544.3.1.2 Net Profit Margin 554.3.1.3 Return on Assets 554.3.1.4 Return on Equity 554.3.1.5 Earning per Share 554.3.1.6 Operating cost to income ratio 564.3.4.7 Debit to Equity Ratio 564.3.4.8 Debit Ratio 56
4.4.2 Efficiency Ratio 574.4.2.1 Interest income per employee 574.4.2.2 Profit per employee 574.4.2.3 Business per employee 574.4.2.4 Business per branch 574.4.2.5Employee per branch 584.4.3.6 Total Advances to total Deposit Ratio 584.4.3.7 Total advances to total Assets 584.4.3.8 Fixed Assets to Total Assets 58
LIST OF TABLESTable 4.1 Financial information 45Table 4.2 Profit &loss Account 45Table 4.3 Financing 46Table 4.4 Common Size Vertical Analysis of Balance Sheet 50Table 4.5 Common Size Vertical Analysis of Income Statement 51Table 4.6 Common Size Horizontal Analysis of Balance Sheet 52Table 4.7 Common Size Horizontal Analysis of Income Statement 53
Consumer banking is the Marketing Department of the BankIslami. At BankIslami, consumers
are treated very well. They are of the opinion that customers must be satisfied with the services
provided by the Bank. All of the Branches try to make sure that customers are satisfied with the
services being provided by the Bank.
3.2.1 Operations Department:
BankIslami accounts are same as other commercial banks accounts but in some accounts they
can offer Islamic mode transactions. Accounts are given below.
3.2.1.1 Nature of the deposits
Bank deposits can be broadly classified as
• Islami current Accounts
• Islami foreign current Account
• Islami Bachat account
• Islami Mahana Munafa Account
• Islami Amadni Certificate
a) Islami current Accounts
With our Islami Current Account, you can have complete peace of mind that your funds are safe
and utilized in Halal avenues only. Islami Current Account is ideal for customers who have
frequent transaction needs and require unlimited access to their account to meet their personal or
business expenses. Also, you have access to our entire online network of for convenience of
instant and secure intercity transactions. So enjoy full control over your funds in a Shariah
compliant manner.
• A minimum balance of Rs. 1,000/- only to open the account
• Joint Account facility up to four joint account holders
• Access to the entire online branch network
• Free unlimited online intercity transactions
• Free 1 Card, BankIslami's ATM & Debit card
• Access to all ATMs linked to MNET and 1 Link throughout Pakistan
• InterBank Funds transfer facility through ATM
• Facility of making instant payments at Orix terminals for grocery, fuel ,dining and other
purchases
• Free Internet Banking service
• Free Account statement facility
• Hold mail and Stop payment facility
b) Islami foreign current Account
BankIslami Islami Foreign Currency account is ideal for businesses and individuals who would
like to diversify their investment in different currencies to ensure security against currency
fluctuations or want to keep foreign currency account to meet their business needs. Also, you can
have easy access to foreign currency with no hassles of foreign exchange conversion when you
have to travel abroad or remit funds abroad to meet education, leisure or business needs.
• Safe Deposit Lockers
• Hold Mail & Stop payment facility
• A minimum balance of USD 100/-or equivalent in GBP or EURO to open the account
• Joint Account facility up to four joint account holders
• Available in USD, GBP & EURO
• Free Account statement facility
• Free Internet Banking service
c) Islami Bachat Account
Our Islami Bachat account is a bundle of benefits. It helps you keep up with your tradition of
savings with the convenience and safety of a professional and understanding bank. Also,
you earn highly attractive profits on your savings with the flexibility of making as many
transactions on your account as you want. Islami Bachat Account is ideal for customers who
need to draw money for monthly expenses but would also like to earn on your hard earned
savings. Corporate Employers can also avail this account to provide convenience, flexibility and
halal profits to their employees by opening their salary accounts with us.
• Monthly profit/loss payment on daily product basis
• Differential and specific pool allocation possible for large deposit holders
• Profit announcement at the end of every month
• A minimum balance of Rs. 5,000/- only to open the account
• Joint Account facility up to four joint account holders
• Access to the entire on line network of 102 Branches in 49 Cities
• Unlimited over the counter deposits and withdrawals, free of charge
• No restrictions on intercity transactions
• Free 1 Card, BankIslami's ATM & Debit card
• Access to all ATMS linked to MNET and 1 Link throughout Pakistan
• Facility of making instant payments at Orix terminals for grocery, fuel ,dining and other
purchases
• Free Internet Banking service
d) Islami Mahana Munafa Account
Long term investments yield high returns but delayed profit payment. With our Islami Mahana
Munafa Account you don't compromise on any. Now you can enjoy the freedom of halal
monthly gains for a prosperous present while building your wealth for a secure future. Also,
Islami Mahana Munafa Account will provide you with security, convenience and flexibility of
investment tenure to suit your needs.
• Free Internet Banking Service
• Hold Mail & Stop payment facility
• Safe Deposit Lockers
• 100% interest free
• Available in Pak Rupees
• Tenure of investment are 1, 2, 3, 5 & 10 years
• Minimum amount of investment is Rs. 10,000/- only
• Profit/loss payment on monthly basis until the maturity date
• Payment of amount of investment on the maturity date
• Differential and specific pool allocation possible for large deposit holders
• Profit announcement at the begining of every month
• Free facility of transfer of profit and invested funds in nominated Islami Current or Islami
Bachat Account
• Monthly profit/loss payment on daily product basis
• Free Six monthly Account Statement facility
e) Islami Amadni Certificate
Why take interest when you can earn Halal profit on your investment. With Islami Amadni
Certificate your hard earned investment works harder to yield high expected profits so you can
build your wealth for a prosperous future. You get the best of both worlds in a safe, secure and
flexible package to perfectly meet your needs.
If you are a salaried individual, a businessperson or a corporate entity with some long term
investment funds to spare, our Islami Amadni certificate is an ideal solution for you. With our
Islami Amadni Certificate, the higher your investment the higher will be your return and that too
in a Shariah compliant manner. Also, you have the flexibility to choose amongst various
investment tenures to suit your personal or business needs.
Islami Amadni Certificate offers you the following key salient features:
• Available in Pak Rupees
• Investment can be done for 1, 3, 6, 12, 24, 36 or 60 months
• Minimum amount of investment is Rs. 10,000/- only
• Payment of profit/loss and amount of investment on the maturity date
• Quarterly profit payment for investment of 12 months and above
• Differential and specific pool allocation possible for large deposit holders
• Profit announcement at the end of every month
• Free Account statement facility
• Free facility of transfer of profit and invested funds in nominated Islami Current or Islami
Bachat Account
• Free Internet Banking service having free Term deposit enquiry facility
• Facility of premature encashment available. In such a case, the corresponding period
weightage would apply, unless stated otherwise
3.2.1.2 Kinds of Accounts
Accounts can be classified in the following types
• Individual accounts
• Joint accounts
• Partnership accounts
• Minor accounts
a) Individual Accounts
Individual accounts are the account, which is opened and operated by a single person. Before
opening the account bank sees proper identity and introduction of the individual. Individual’s
instructions are strictly observed in operation of the account.
b) Joint Account
Two or more persons who are neither partners nor trustees can open this type of account. At the
time of opening account specials instructions are taken by the account holders that who is going
to operate the account they are asked whether it will be operated singly or jointly and to whom
the balance will be transferred at the death of an account holder on the basis of either or survival.
If the joint account holder wishes to delegate their authority to operate on the account to an
outside party all the joint parties should sign this authority.
c) Partnership Account
Partnership accounts are opened in the name of the business e.g. M/S ABC Electronics etc. for
opening of this account a partnership deed NIC required. Bank staff acquires special instructions
by all partners for the operation of the account. Partnership account can only be opened in the
form of a current account
d) Minor Account
The contract act 1872 has disqualified a minor from entering into a contract except the one for
his necessities. According to Pakistan Law a person is regarded as a minor until he has attained
the age of 18 years. However under section 3 of majority act 1875 if a competent court of law
appoints a guardian of his person or property before his 18 years the majority extends to the age
of 21 years. Bankers in Pakistan have allowed the opening of minors account only with the idea
of inculcating in them the habit of saving. So guardian requests in the name of the minor for
opening of an account. There are other accounts, which are called specialized accounts. These
are given below.
• Joint stock account
• Accounts of clubs, societies and associations
• Agent accounts
• Executors and administrators accounts
• Pak rupee non-resident account
3.2.1.3Procedures for account opening
In order to operate an account with the bank, a customer has to open an account. In large
branches Grade 1, II or III officers is made responsible for opening new accounts. However in
small branches, the manager himself fulfills all the formalities for opening new accounts. It is
necessary because in case of fraud unintended overdraft, or negligence, the bank will have a
source to trace out the customer. Such source is established by asking the customer to bring an
existing customer of the bank that will introduce him to the bank. In order to protect against
losses resulting from fraud or unintended overdraft the account opening activity has been
formalized through certain steps. These steps include
• Formal Application: Customers are required to fill in the prescribed account opening
form, which the bank provides to the customers free of cost. In this basic information
about himself is provided by the customer like his name, address, occupation and nature
if account he wants to operate.
• Obtaining introduction: Introductory references are quid pro quo for opening the
account. For this it is necessary that an existing customer verify the authenticity of the
facts provided in the account opening form.
• Specimen Signature: The customer gives the banker a specimen signature generally
taken on a card specially designed for this purpose. Name of the customer and account
number are entered on it. This specimen signature is used later on by the bank to verify
the signature on cheques drawn on the bank by comparing these signatures on the card
and the other on the cheques.
• Minimum Initial Deposits: The customer has to make a certain minimum deposits to
open an account. However, later on customer can withdrawn part of this amount but must
maintain minimum deposits to avoid closure of the account or service charges.
• Operating the Account: When the account is opened banker customer relationship is
established. The customer in order to be able to operate the account is given the following
documents:
• Pay-In-Slip Book: This book is issued to the customer containing slips upon which
money is deposited. Each slip contains blank spaces for amount, account number, date,
depositor signature and name of the account holder.
• Cheque Book: The customer to withdraw the money from the bank uses Chequebook.
Chequebook consists of 10, 25, 100 leaves. When new cheque book is required by the
customer he has to fill in the cheque book” requisition slip” with two signature on it and
give it to the concerned officer who on verification of the signature will issue new cheque
book.
• Qualification of the Customer: The relation of the banker and the customer is purely a
contractual one. Therefore any person who is capable of entering into a contract
according to the Section 11 of the contract Act 1872 can be a customer. However the
following qualifications are necessary for a person to become a customer.
• He must be of the age of majority
• He must be of sound mind
• He must not be disqualified under any law.
3.2.2 Remittances Department
One of the important functions of a bank is to transfer funds for customers from one location to
another. Remittances department deals with the transfer of money for customer from one bank to
another or from one branch to another. Instrument used by the BankIslami for remittances
includes:
• Telegraphic transfer
• Demand draft
• Mail transfer
• Pay order
a) Telegraphic Transfer
Telegraphic transfer is one of the quickest modes of transferring funds. It is an electronic system
of transferring funds that is why it is used by most of the businesses for the purpose of
transferring funds.
b) Demand Draft
A draft is just like an order cheque. A draft is drawn by one branch of a bank upon the other
branch of the same bank. The late down procedure is that the sender has to fill the beneficiary
name, account number and his name in the form. After the deposit DD is given to the customer
and transaction is registered in the issuing register and an advice is sent to the branch to which
the DD is sent. It is common mode of fund transfer. It is different from telegraphic transfer and in
sense that funds are not immediately to the collecting branch and the receipt of the branch. The
collecting branch will credit the account of the beneficiary at the receipt of advice from the
paying branch. Demand draft can be open, which can be cashed at cash counter after properly
identifying the true beneficiary, or crossed which can only be cashed by crediting is to the
account of the beneficiary.
c) Mail Transfer
Mail transfer (MT) is same as Demand Draft, but the characteristic which makes it different
from Demand Draft that in case of demand draft bank physically hands the DD to the customer
and upon presenting the draft the amount can be withdrawn. But as regards the mail transfer one
branch sends instruction to the other branch ordering it to the credit the amount to the account of
the person in whose favor the amount is deposited.
d) Pay Order
Pay order is the most convenient, simple and secure way of transfer money. It is just like demand
draft except that pay order is made for local order of money where as demand draft is meant for
remittances of funds from one city to other.
3.2.3 Cash Department
Cash department basically handles cash receipts and cash payments. The procedure for which is
given below
a) Receipts
Cash department receives money from customers for crediting it to their respected accounts for
which then used for paying their bills or remitting to their creditors and suppliers as the case may
be. When depositing cash the client fills the prescribed form of pay and slips where in he
provides basic information like the amount to be deposited, date, account nature and number etc.
then he hands over the form and paying slip along with the money to the cashier to the counter.
The cashier signs and stamps the form or paying slips and returns one copy of the same to the
depositors. After the hours, all pay and slips to the computer section, which credits the same,
their respective accounts.
b) Payments
When bank receives money from customers, it undertakes to repay the same upon demand. The
money can be withdrawn through cheques, drafts or pay orders. However before making
payments, bank satisfies itself that the instrument is valid and there is sufficient balance in the
customer account to support the payment. For making payments the procedure followed.
Cheque is first presented to token clerk. Token clerk notes down date, amount on the cheque, and
account number in token register, assign token number to cheque on the back of it gives token to
the customer and then forwards the cheque to an officer to the check the signature and verify it
with signature on specimen card which the customer signed at the time of opening the account.
The cheque is then forwarded to the computer department for verification of the balance. The
cheque is then forwarded to the cashier who makes payment to person who presents the token.
The process may differ from what mentioned above depending the nature of cheque.
A cheque is defined as written order of a depositor to pay to or to order of a designated party or
bearer, a specified sum of money on demand.
3.2.3.1 Kinds of chequesBasically there are three types of cheques. They are as follows.
• Bearer cheque: It is en cashable at the counter. Payments of the cheque can be made to
any people who present it to the bank.
• Order cheque: It is also en cash able on the counter. But its holder must satisfied the
banker that he/she is true holder and entitled to collect the payment of the cheque for this
he/she has to prove his/her identity through an existing account holder of the bank.
• Crossed cheque: It is not en cash able on the counter. It can only be credited to the
payees account. If there are two persons having accounts at the same bank and one of
account holder issues cross cheque in favor of the other then the cheque will be credited
to the account of the person to whom the cheque was issued at debited from the account
of the person who had issued the cheque.
3.2.4 Credit Department
BankIslami offer different mode of financing according to Islamic mode. There are main to types
of Financing modes in bankislami Mudarabah and Musharakah. Other modes of financing are
divided in to categories Short term financing and long term financing.
3.2.4.1 Musharakah Financing
In Musharakah, a joint enterprise is formed for conducting some business in which all partners
share the profit according to a mutually agreed pre-determined ratio, whereas, the loss is shared
in the ratio of capital investment. From Shariah perspective, Musharakah is one of the preferred
modes of financing.
The scope of Musharakah is broad. Musharakah can be applied to fulfill project financing needs
as well as working capital financing needs of Corporate Clients. Since Musharakah transactions
are based on pure profit and loss sharing arrangement, therefore, the risks associated with such
transactions are greater as compared to other financing modes. Due to this reason, Musharakah
transactions are executed subject to satisfactory review of feasibility of the proposed
transaction/project.
3.2.4.2 Mudarabah Financing
Mudarabah is a kind of partnership where one partner gives money to another for investing in a
commercial enterprise. The investment comes from the first partner who is called 'Rabb-ul-Maal'
while the management of the business is an exclusive responsibility of the other, who is called
'Mudarib'. The profits generated are shared according to a mutually agreed pre-determined ratio,
whereas, loss is borne by Rabb-ul-Maal unless the loss is due to negligence of Mudarib.
3.2.4.3 Working Capital Finance (shot term financing)
At BankIsami, we understand that your business needs constant access to low cost and flexible
financing, in order to meet day-to-day funding needs. Our teams of experienced Relationship
Managers with wide sector experience offer you effective cash flow management by way of
financing arrangements suitably structured to your needs and your risk profile.
Cash is the lifeline of your business. Let your business have a blooming & prosperous life with
our Working capital finance facility. To fulfill your working-capital financing requirements,
BankIslami offers a wide range of products as follows:
a) Murabahah Financing:
Murabahah is a type of sale in which the seller discloses the cost of goods and profit to the buyer.
Through this short-term financing mode, BankIslami can finance the asset purchase requirement'
of the Corporate Customers.
The Customer, intending to utilize the Murabahah facility, identifies the commodities ('assets') it
needs to purchase through Murabahah facility. BankIslami purchases the assets from Supplier
and then sells the same to the Corporate Customer against an agreed price (including disclosed
profit portion) on deferred payment basis.
b) Istisna Financing:
Istisna is a contract of sale of specified items to be manufactured/constructed, with an obligation
on the part of the manufacturer/seller to deliver them to the buyer upon completion.
Istisna can be used for made-to-order commodities where the buyer (BankIslami) would order a
specific good with some specifications to be manufactured by the Corporate Client in a particular
period of time and deliver to BankIslami after completion.
c) Salam Financing:
Salam is a sale, whereby, the seller undertakes to supply some specific commodity to the buyer at
a future date in exchange for an advanced price fully paid on the spot. As a matter of principle,
the sale of a commodity which is not in the possession of the seller is unlawful. Thus, the
practice of Salam is legalized as an exception and is allowed under certain term and condition.
Salam is allowed for commodities only which are homogeneous and fungible in nature i.e. every
unit of the commodity should be identical and substitutable in nature e.g. sugar, rice, wheat etc.
Therefore, Salam is an ideal mode for financing for agricultural concerns. Salam financing can
also fulfill all working capital requirements of manufacturers/traders dealing in homogeneous
commodities.
3.2.4.4 Project Financing (medium and long term)
BankIslami offers medium and long-term financing facilities for infrastructure, BMR and
industrial projects in all sectors directly or on syndication basis.
a) Ijarah:
Ijarah is a contract, whereby, BankIslami will lease out an asset to the Corporate Client and
receive periodical rentals from the Client for the use of that asset. The asset will remain in the
ownership of the Bank throughout the term of Ijarah. At the end of the Ijarah term, the asset can
be purchased by the Client at an agreed price.
Ijarah is mainly used for long and medium term fixed asset financing for infrastructure, BMR
and industrial projects.
b) Diminishing Musharakah:
The product of Diminishing Musharakah is offered on the basis of 'Shirkat-ul-Milk'. Shirkat-ul-
Milk means partnership of persons in an undivided property. Process of Diminishing
Musharakah financing involves BankIslami taking share in the ownership of a specific asset
along with the Corporate Client and then gradual purchase of the Client of BankIslami's
ownership share in the asset through out the term of Diminishing Musharakah. At the end of the
Diminishing Musharakah term, Client becomes the sole owner of the asset. Diminishing
Musharakah is mainly used for long and medium term fixed asset financing for infrastructure,
BMR and industrial projects. Diminishing Musharakah is also an ideal mode for Real Estate
Financing.
3.2.5 Consumer banking
Same as other BankIslami offers Same services as online banking, Transfer funds, Lookers
facilities, ATM card facilities.
3.2.5.1 Online Banking
BankIslami's has a wide network of 102 Branches in 49 Cities all of which provide Online
Banking services. Online Banking means that all our 102 Branches in 49 Cities are connected
with each other so that you can instantly access your account and make transactions in any
BankIslami Branch. The following are the key benefits that you will get out of using our Online
branch network:
• Cash Deposit for immediate credit to a remote branch.
• Remote Cheque Encashment from any Online branch.
• Instant Funds Transfer between any 2 Online branches.
• Balance Enquiry and Statement of Account from any Online branch
3.2.5.2 Inter Bank Transfer Fund
Do you want to provide ease and convenience to your friends, family, colleagues and business
associates. With our Interbank funds transfer (IBFT) facility you can easily transfer funds in their
accounts via your ATM. Now, when dealing with you they can ensure hasslefree funds transfer in
their accounts. No nuisance of waiting for Cheque clearance or going to the branch to deposit
Cash or Cheque.
IBFT facility enables you to send and receive funds Online from and to any Account holder of
1Link IBFT participating member Banks. Following are the key benefits that you will get out of
using our IBFT facility:
3.2.5.3 ATM or Debit Card
is a Shariah compliant ATM/Debit card, all in one, which acts as a complete replacement for
cash. Now you have the freedom to access your Bank account 24 hours a day to make instant and
cashless payments at a multitude of shops, outlets and restaurants in addition to its use on our
ATM network.
ATM Card:
You can withdraw cash anytime and anywhere from around 2,500 ATMs countrywide linked to
both the M-Net and 1-Link switches.
Debit Card:
You can buy grocery, fill fuel, dine-out and make purchases at over 3,600 retail outlets linked to
the Orix Network countrywide.
3.2.5.4 Biometric ATM
Enjoy secure and safe ATM transactions with BankIslami’s Biometric ATM based on
BankIslami’s One Card, which provides maximum security since it uses the most authentic way
to verify your identity. How? Apart from a pin-code, you can also use your finger or thumb
impression for identification purposes. After all, your fingerprints are yours and they cannot be
copied. Amazing! Isn't it?
Built with the state-of-the-art technology, these ATMs are the first of its kind in Pakistan.Insert your One Card in the Biometric ATM machinePlace your Right/Left thumb impression on the space provided at the right side of the machine.
• Select the type of account from which you want to withdraw funds
• Select the amount to withdraw
• Take your Cash
• Take your Receipt
3.2.5.5 Lockers
Let us make this world safer and secure for you and your family. Our Safe Deposit Locker
facility enables you to store your valuables in strong heat resistant steel lockers with 24 hour
security. Be it jewellery, passports, share certificates or title deeds, you can rest assured that your
valuables are not prone to loss, fire or theft. You can also nominate/authorize your dear and loved
ones to operate the Locker. Now you can live a carefree & stress free life while we take care of
your valuables while retaining your privacy.
Following are the key benifits that you will get out of using safe deposit locker facility
• Protection against weather conditions & power failures with smoke-sensor's, backed by
fire fighting equipment and 24 hour manned security.
• A Locker custodian to offer friendly and personalized assistance.
• Maximum of four (4) deposit operators per Locker.
• Safety of your valuables from loss, fire and theft.
• Unlimited free visits to your Locker.
Chapter #4
Analysis
4.1 Financial information:The financial information of the BankIslami is summarized as under:
Table 4.1 Financial information
FINANCIAL HIGLIGHTS 2008 2007
Rs.(Million) Rs.(Million)
Total Deposits 12,478 9,934
Total Assets 19,089 14,447
Total financing-net 6,528 3,963
Total Investment 5,020 3,864
Shareholder's Equity 5,192 3,845
Branches 102(units) 36(units)
Employees 1,188(units) 563(units)
Table 4.2 Profit &loss AccountPROFIT/LOSS ACCOUNT 2008 2007 Rs.Million Rs.MillionReturn Earned 1468.69 602.06Profit Paid 729.53 303.84Net Spread 739.16 298.22Fee, Exchange income 141.39 71.46Core Banking income 880.55 369.68Provision -130.56 -28.37Other income 54.75 68.82Operating Expenditure -1033.9 -510.59Profit/loss before tax -229.15 -100.46Taxation 176.22 63.44Loss after tax -52.93 -37.02
Table 4.3 Financing made by bank
FINANCINGS 2008 2007
Rs.'000 Rs.'000
Financing in pakistan
-Murabaha 2363736 581505
-Istin'a 184797 31886
-Diminishing Mushraka-Housing 682141 179213
-Diminishing Mushraka-other 1457729 1576705
-Againt Bills-Murabaha 3576 6158
-salam - 105000
-Musawamah 3387 66362
-Financing to employees 200664 112592
4896030 2659421
Net investment in Ijarah financing 1791430 1332819
Financing- gross 6687460 3992240
Provision for non performing financing
-specific -141687 -20285
-General -18242 -9088
Financing- Net 6527531 3962867
4.3 Analysis of the Report
4.3.1 Financial Statement Analysis
Financial statement analysis are the principal means of reporting the financial condition and
result of operations of an organization, or in other words we can that financial analysis are
carried out for the purpose of identifying the financial strengths and weaknesses of an
organization by properly establishing relationships between the balance sheet and the income
statement items. This analysis helps various parties in decision making who are interested in the
activities of business. To improve the quality of decision making, proper analysis of these
statements helps a lot. The firm itself and the outsider providers of capital, creditors and
investors all undertake financial statement analysis. The type of analysis varies according to the
specific interests of the party involved.
The financial data of BankIslami is analyzed in the following two ways:
• Common Size Analysis.
• Ratio Analysis.
Common Size analysis and ratio analysis are used to measure firm’s performance over time and
while making comparisons with different balance sheet and income statement items. In the
common size analysis we use the balance sheet and income statement and measure their
performance as compared to other years and in the same year, by generating a percentage
increase or decline.
4.3.2 Common Size Analysis
An analysis of percentage financial statements where total assets divide all balance sheet items
and all income statement items are divided by net sales or revenues is called common size
analysis. Common size analysis can give analyst valuable insight into changes that have occurred
in a firm’s financial condition and performance. As common size analysis gives us relative
percentage of an item with respect to total, so the growth or decline in various items of balance
sheet and income statement can not be detected from common size percentages.
It further consists of
• Vertical Analysis
• Horizontal Analysis
a) Vertical analysis
Vertical analysis compares each amount with a base amount selected from the same year. Simply,
we compare the items of balance sheet or income statement vertically by taking one item as
100%
b) Horizontal analysis
Horizontal analysis compares each amount with a base amount for a selected base year or we
take each item of base year as 100% and compare with other items.
The internee has limited her analysis to vertical analysis only.
Table 4.4 COMMON SIZE (VERTICAL) ANALYSIS OF BALANCE SHEET
ASSETS 2007 2008
Cash and Balance with treasury bank 9.91% 11.39%
Balance with other banks 17.80% 11.56%
Lending to Financial Institutions 4.32% 0.20%
Investments 26.77% 26.29%
Advances 27.42% 34.19%
Operating fixed assets 7.56% 10.00%
Deferred tax assets 0.62% 1.30%
Other Assets 5.54% 4.93%
Total Assets 100% 100%
LIABILITIES
Bills payments 0.58% 1.85%
Borrowings 0.48% 1.28%
Deposits and other accounts 68.76% 65.37%
Sub-Coordinated Lone - -
Other liabilities 3.55% 4.29%
Deferred tax liabilities - -
Total liabilities 73.39% 72.80%
SHAREHOLDERS EQUITY
Share capital 22.15% 27.66%
Reserves - -
ACCUMLATED LOSS -0.31% -0.51%
Total equity 21.83% 27.14%
Total liabilities and Total equity 100.00% 100.00%
4.3.2.1 Vertical Analysis of Balance Sheet
Vertical analysis shows the proportionate percentage of different items of the balance sheet with
respect to Total Assets. The vertical analysis of Bankislami shows that there are different
proportions of different assets and liabilities over the time period. This is due to many reasons.
First of all the assets have changed and increased over the time period. The change in assets
affects the over all vertical analysis as the change is analyzed with respect to assets. The major
components in the balance sheet of banks are deposits, advances and investment, as the major
expense and income occurred due to these respectively. So looking closely to these items
advances increased from 2007 to 2008. On other hand the investment remains same in both
years. Bankers are left with only option of investing in short-term investments, to increase their
profit margin. Investments, as being a non-interest source of income are more promising than
advances that are becoming less profitable due to declining interest rates. Bankers prefer to give
advances when the interest rate was high but then prefer to invest in non interest income in 2007
when the income from investment was higher than the interest rate. Now our discussion comes to
deposits. Deposits also increase in year 2008. Now coming to other important items i.e. cash in
hand and balance with other banks. These items show the liquidity of the organization and
meeting short term liabilities. The cash in hand is increasing from 2007 to 2008, but the balance
with other bank is decreasing. Thus showing that now the bank is more liquid, and liquidity is
inversely proportion to profit. The cash in hand should be invested in short term investments, so
that the organization can earn profit on idle money. Now coming to the share holder’s equity, the
equity has been increased from 22% to 27% of total asset over the time period. This shows that
either people are interested to invest in the BankIslami, or reserves has increased or valuation of
assets is the cause behind this increase.
Table 4.5 COMMON SIZE (VERTICAL) ANALYSIS OF INCOME STATEMENT
2007 2008Markup Revenue 100% 100%Markup Expense 50.3% 49.65%Gross Profit 49.5% 50.34%Provision for Advances 4.6% 8.85%Provision for Investments - -Bad debts written off - -
4.6% 8.85%Net Markup Income 44.68% 41.41%
NON-MARKUP INCOMEFee and Commission 10.13% 7.6%Dividend Income 3.8% 1.9%Exchange income 1.66% 2.1%Other income 1.4% 1.4%Total non-markup income 27.88% 41.88%Total Income 68.10% 54.76%NON-MARKUP EXPENSEAdmin Expenses 84.21% 70.02%Other provisions - -Other charges 0.48% 0.3%Total non-markup expense 84.71% 70.36%
lOSS Before Tax -16.61% -15.59%LOSS After Tax -6.14% -3.54%
4.3.2.2 Vertical Analysis of Income Statement
The Vertical analysis of Income statement of BankIslami as given in the above table is showing a
percentage change with respect to the sales or markup income. There is a consistent decreasing
trend in the bank’s gross profit. The main reason behind this is that the bank has not controlled its
markup expenses in relation to total markup revenue. In simple words we can say that this
inclining trend in the markup expenses resulting in the decreased gross profits. This can be
because of decreasing interest rate on advances or increasing interest rates on deposits to
encourage savings. Markup expenses are actually cost of sale in case of a bank. Furthermore this
decreasing trend in gross profit shows the inefficiency of the bank’s management in controlling
markup expenses. So this decreasing trend of gross profit is a negative or unhealthy sign and the
bank’s management should consider it and take some actions to improve its position.
Table 4.6 COMMON SIZE (HORIZANTAL) ANALYSIS OF INCOME STATEMENT
2006 2007 2008
Markup Revenue 100% 502% 1369%
Markup Expense 100% 1527.87% 3808.53%
Gross Profit 100% 267.90% 812.35%
Provision for Advances 100% 2734.67% 12943.56%
Provision for Investments - - -
Bad debts written off - - -
100% 2734.37% 12942.56%
Net Markup Income 100% 235.87% 657.52%
NON-MARKUP INCOME
Fee and Commission 100% 1684.46% 3168.72%
Dividend Income 100% 70.61% -87.17%
Exchange income 100% 1284.86% 3855.81%
Other income 100% 163.39% 29.17%
Total non-markup income 100% 214.91% 345.45%
Total Income 100% 228.39% 548.39%
NON-MARKUP EXPENSE
Admin Expenses 100% 248.56% 606.56%
Other provisions - - -
Other charges 100% -75.74% -58.85%
Total non-markup expense 100% 220.55% 549.07%
lOSS Before Tax 100% 192.05% 566.16%
LOSS After Tax 100% 343.18% 533.59%
4.3.2.3 Horizontal Analysis of Income Statement
Horizontal analysis of income statement shows three year in which year 2006 is as base year and
value of year 2007 and 2008 will be calculated on the bases of year 2006. we see too much
difference between the values that is because of big difference between the values in these years
and bank are at the begging stage .
Table 4.7 COMMON SIZE (HORIZANTAL) ANALYSIS OF BALANCE SHEET
ASSETS 2006 2007 2008
Cash and Balance with treasury bank 100.00% 223.96% 143.49%
Balance with other banks 100.00% 126.20% 79.37%Lending to Financial Institutions 100.00% -49.70% -190.29%