1- EXECUTIVE SUMMARY This report is based on my service experience in Bank Alfalah LTD of Pakistan. It is a famous and reputed bank of Pakistan. Bank Alfalah LTD maintains seventh position in banking sector in Pakistan. This report is based on the activities which are performed in this bank. After completion of final semester of my MBA, I asked my branch manager for practice in all departments of Bank Al- Falah Ltd., Hussain Agahi branch. He welcomed me and inquired me about my educational status. He guided me about the banking operations and asked me about my intentions for the overall branch banking. Later he directed me to account opening department where I start my practice, so that I might understand the basic banking operations. Officer account opening was assigned the task of guiding me about working of department. In this report, my effort has been to stipulate my experiences and observations, during my practice in Bank Alfalah which would always be memorable for me. My report contains overview of the organization, organizational structure, functions of finance department, critical analysis of theoretical concepts, financial analysis 1
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1- EXECUTIVE SUMMARY
This report is based on my service experience in Bank Alfalah LTD of Pakistan. It is a
famous and reputed bank of Pakistan. Bank Alfalah LTD maintains seventh position in
banking sector in Pakistan. This report is based on the activities which are performed in
this bank.
After completion of final semester of my MBA, I asked my branch manager for practice in
all departments of Bank Al-Falah Ltd., Hussain Agahi branch. He welcomed me and
inquired me about my educational status. He guided me about the banking operations and
asked me about my intentions for the overall branch banking. Later he directed me to
account opening department where I start my practice, so that I might understand the basic
banking operations. Officer account opening was assigned the task of guiding me about
working of department.
In this report, my effort has been to stipulate my experiences and observations, during my
practice in Bank Alfalah which would always be memorable for me.
My report contains overview of the organization, organizational structure, functions of
finance department, critical analysis of theoretical concepts, financial analysis of the
organization, weaknesses of the organization, conclusions and recommendations as
required.
1
2. OBJECTIVES OF STUDYING THE ORGANIZATION THE
BANK ALFALAH
The primary purpose of the Bank Alfalah is to fulfill the academic requirements of my
study and to evaluate the banking practice, in corporate world and to compare these
practices with the contemporary banking practices. The purpose of the study also is, to do
practical work, in the field and apply the knowledge of classroom lectures to the real life
situations, which thus enables a student to be a future banking practitioner. Besides this,
some other purpose are associated, which include:
To give a comprehensive review of BAL
To analyze BAL organizational, financial and other aspects.
To identify the areas of the bank that needs some improvement.
To present feasible solutions for the problem pertaining to BAL.
To apply the knowledge gained in practical field.
The study conducted will benefit the finance students in particular and banking students in
general because the third chapter of this comprehensively encompasses most of the aspects
of banking, followed by SWOT analysis, conclusion and recommendations. Furthermore,
Hussain Agahi Branch of the bank may also benefit from the recommendations made at the
end of the report.
Banking has a very broad scope. In only six weeks of internship, it is very difficult to
understand each and every aspect of bank. Due to the barriers of limited time and space, the
scope of work is usually confined. However this study of BAL will help the management to
identify their weakness and threats and overcome them by using strength and capitalizing
on the opportunities. This internship report will be source of financial data for all those
who are interested in financial statement analysis of BAL.
2
3- OVER VIEW OF BANK ALFLAH
Bank Alfalah Limited was launched on June 21, 1992 as a public limited company under
the Companies Ordinance 1984. The bank commenced its operations on November
1, 1992. The bank introduced commercial banking and related services as defined in the
Banking companies’ ordinance, 1962.
After a few years, the bank introduced its new identity of H.C.E.B after the privatization in
1997. The management of the bank had implemented strategies and policies so the bank
would become a major player in the market. With a partnership with the Abu Dhabi Group
the position of the bank became stronger which allowed the bank to invest more in
revolutionary technology to increase its range of products and services.
3.1- HISTORY OF BANK ALFLAH
After the disaster of BCCI (Bank of credit and Commerce instruments), the Ministry of
Finance (Govt. of Pakistan) acquired its three branches and Habib Credit & Exchange Bank
was incorporated on June 21, 1992 as a public limited company under the Companies
Ordinance, 1984 and commenced banking operations from November 1, 1992. It engaged
in commercial banking and related services as defined in the baking Companies Ordinance,
1962.
Following the privatization in July, 1997, Habib Credit & Exchange Bank assumed the new
identity of Bank Alfalah on February 25, 1998. And with this a challenge was launched, the
challenge to transform this bank into a highly professional, most efficient & service
oriented institution.
Charged with the strength of the Abu Dhabi based consortium, and under the leadership of
Highness Sheikh Nahayan Mabarak Al-Nahayan, Minister of Education, Government of
Abu Dhabi, and a prominent member of Royal Family – the bank is energized with the
vision, envisaging the development of consumer sector in Pakistan.
3
Bank Alfalah has emerged as one of the leading commercial banks in the financial sector of
Pakistan. Bank has made significant contribution in building and strengthening both the
corporate and retail banking in Pakistan.
Prioritizing its product portfolio in line with consumer needs and wants, the bank is
committed to develop products that give more value to its customer – be it a simple bank
account or complex financing of a major project. Designing product portfolio in response
to customer’s preferences, bank’s products like Royal Profit, Royal Patriot and Royal
Custodial are prime examples of quality and innovation – providing timely banking
opportunities to its customers.
Assessment of the needs and wants of its customers is an on going process at Bank Alfalah,
which helps it to continually develop new products and services. Some of our new products
in the pipeline include Royal Force, ATM Network and a credit card.
To continuously offer courteous, professional and advanced banking solutions, going
through training programs with a focus on Information Technology has recently
rejuvenated bank’s team. With a team of talented, service-dedicated professional bankers,
Bank Alfalah commits all its energies, resources and time to cater to all banking and
financial needs of customers.
To make banking solutions become accessible to more and more people, BAL has
embarked upon a rapid expansion program, aiming to provide a networking that makes its
services available to any of its customers in all the major urban centers of Pakistan – with a
view to go international by the coming millennium.
With its key indicators of progress already soaring to new heights, the bank is committed to
put all its energies, resources and time to bring higher value and satisfaction of its
customers, employees and shareholders.
Technological developments are opening up new vistas of solutions for distributing
traditional financial products. Concurrently, rapid change in customer preferences has
resulted in a major shift from manual to automated services of the bank. Information
4
technology today, is the key to sustain and succeed in the corporate world. Therefore,
during the year 2004, Bank Alfalah made heavy investments, towards enhancing its
capabilities in the area of automation and technology. BAL is well positioned to meet client
needs, with improved competitive advantage.
Bank Alfalah is on the way of expansion of its business and branch network. Presently,
there are 282 branches of BAL, spread all over the Pakistan covering major business
centers and principle cities.
3.2- NATURE OF THE ORGANIZATION
Bank Alfalah Pvt Ltd is actually a banking company under the companies’ ordinance 1984
and banking companies ordinance 1962. It is known as a financial institution which
provides finance to the different sectors of the country and as well as providing other
banking services. It is bound to the roles of state bank in the country and works according
to the prudential regulations of the state bank, compliance with the state bank of Pakistan.
3.3- BUSINESS VOLUME
2005 2006 2007 2008 2009
Paid up Capital 3372 4265 5463 6283 6283
Total Assets 311094356 344224743 377355130 410485517 443615904
Deposit & other
accounts221069 229342 257462 292098 330274
Advances 137318 180323 198239 218961 262510
Investment 67195 69481 63486 113089 96257
Mark up/Return
Earned9084 17756 25778 31787 40044
5
Profit Before Tax 4058 13018 18501 21308 21867
Profit after tax 2432 8922 12142 15266 15374
Source: Financial reports of Bank Alfalah
Explanation:
In the above table the business volume of Bank Alfalah LTD has been shown for the last
five years. Paid up Capital of Bank Alfalah LTD was 3372 million in 2006 and it started to
increase 2009 and reached to 6283. The increase in Paid up Capital means the increase in
the business volume and also increase in financial position of the organization. The total
assets are also increasing from 2005 to 2009 and other elements that are discussed in the
above table also showing in the increase in the financial position of the organization.
3.4- NUMBER OF EMPLOYEES BY GIVING CADRE
(DESIGNATION) VISE BREAK UP
Sr. No Designation
1 President 1
2 Chief Operating Officer(COO) 1
Executives
3 Senior Executive Vice President 1
4 Executive Vice President 1
5 Senior Vice President 1
6 Vice President 1
7 Assistant Vice President 1
Officers
8 Officer Grade-I 5
9 officer Grade-II 5
10 officer Grade-III 7
Clerical Staff
11 Assistant 4
12 Cashier 5
13 Godown Keeper 1
Non Clerical Staff
6
14 Messenger 1
15 Driver 1
16 Chowkidar 1
17 Godown Chowkidar 1
18 Guard 1
19 Frash 1
20 Sweeper 2
3.5 PRODUCTS / SERVICES
Due to trend setting and innovative banking, Bank Alfalah presents a range of quality
products with revolutionary perks and convenience. BAL provides a wide range of
products/ services to its customers, which can be compared with any foreign, or national
bank in terms of quality and reliability.
Here is an overview of different products and services formulated by Bank Alfalah.
a) Consumer Banking Services
Personal Finance
Mortgage Finance
Business Finance
Smart Cash
BAL Debit card
Travelers’ cheques
Value plus Deposits
Profit / Markup Rates on Products
b) Islamic Banking Services
Islamic Corporate Banking
Islamic Investment Banking
Islamic Trade Finance
7
Islamic General Banking
Islamic Consumer Banking
c) Agriculture Finance
Kiss an Ever Green Finance
Kissan Farm Mechanization Finance
Kissan Aabpashi Finance
Kissan Livestock Development Finance
Kissan Farm Mechanization
Kissan Farm Transport finance
d) Other consumer product
Apart from the accounts offered for deposits of customers, BAL also provides a lot of other
consumer products like:
Alfalah Car
Alfalah Car is a consumer-financing scheme that enables a customer to own his desired car
at easily affordable and flexible installation with minimum down payment and insurance.
All businessmen, Corporate Employees, Salaried and self-employed professionals having
net take home income in excess of three times the monthly installment are eligible to take
the advantage of this scheme.
Salient Features:
Lowest Financing cost available in the market 8.5%
Tenure of 1 to 7 years as per requirement of customer
Quickest processing
Minimum documentation required
Minimum Down payment requirement of 10%
Repayment through monthly installments
Lowest insurance rates available from bank’s approved insurance companies
Documents Required:
National I.D card copy
Registered utility bill copy (Electricity/Phone/Gas)
8
Last six months Bank Statement (Duly Signed & Stamped by Bank)
Signature Verification by Banker
Salary Certificate with break up of salary
Sole-Proprietary Letter from the Bank
Sole-Proprietary Declaration on Business Letter Head or on Stamp Paper of Rs.20/-
NTN Certificate
Partnership Deed copy (if necessary)
NOC from other partners
Recent Tax return of Firm
Form 29 of Limited Company
Form A of Limited Company
Salary Certificate of Director
Tax Return of Director
Basic Fact Sheet of Individuals
CIB Report
Bal Rupee Travelers Cheque
Bank Alfalah issued its own rupee travelers Cheques with highest denominations. BAL
RTCs have been presented with ultimate combination of features, which allows the
customers the best way to make and accept payments (as it is called safe cash), or to save in
a rewarding way. Differentiating features of BAL TCs are as follows:
The highest denominations available as only BAL offers Rs.5 Lac and Rs.2 Lac
Traveler cheques
Widest range of travelers cheques as Rs. 1,000, Rs.5,000, Rs.20,000, Rs.50,000,
Rs.100,000, Rs.200,000 and Rs.500,000.
After 3 days of holding the TCs, customer may earn daily points and can exchange
these points for great gifts.
Another unmatched benefit of Bank Alfalah TCs is the commission on encashment.
Customer may receive a commission of 0.15% in case of encashment after 7 days.
Special invisible UV printing, high definition micro-lines, anti-scanner effect,
mould based paper, Alfalah watermark and printing in the UK, are just some of the
security features of TCs which prevent counterfeiting.
9
BAL TCs are fully refundable. Customer can refund the TCs without any penalty or
loss.
A customer can transfer or endorse its TCs over to anyone.
Customer doesn’t need to be an account holder to get BAL TCs benefits.
Alfalah Lockers
The client can also avail the facility of rent-free safe deposit lockers for their valuables.
The distinguishing features of these lockers are:
Highly effective security system
Fully refundable security deposit
Convenient locations
Flexible operating hours
Bal Home Loans: (For Overseas Pakistanis in UAE)
Alfalah Home Loan is specially designed for those NRP’s in UAE whose families live in
Pakistan. BAL provides following types of Home Loans:
To purchase a new house
To renovate the existing house
To construct a house
Requirements:
A person can get a Home Loan from BAL if he fulfills the following conditions:
Non Resident Pakistani of UAE, holding a valid Pakistani passport
Valid UAE Visa
Pakistani National Identity Card
Must be 21 years of age or over
Salaried, Businessman or Self Employed person
Similar to Home Loans scheme, Bank Alfalah has also offered Alfalah Car for
Overseas Pakistanis in UAE.
10
4- ORGANIZATIONAL STRUCTURE
4.1- OVERALL ORGANIZATIONAL STRUCTURE
The organizational structure of the bank Alfalah is very important for the running of this
bank infact it that is good and smooth. So Alfalah is one if the fastest growing banks in
Pakistan and its structure involve president which is the higher authority of the bank and
then chief operating officer which is the second higher authority of bank Alfalah. After that
there is executive vice president and country operations manager and country risk mangers
executive vice president and the low authorities like information department and then the
area mangers and branch managers who reports to the top authorities. Organizational
Structure of Bank Alfalah is attached in Annexure I.
4.2- ORGANIZATIONAL STRUCTURE OF F-10 MARKAZ BRANCH
There several departments of the bank which working for bank Alfalah the manger reports
upon their work to the head offices Karachi. The branch of F-10 Markaz Islamabad is
reporting to the main office of Lahore which is located in Sha din manzil Lahore. And the
main office of bank Alfalah in Islamabad is located in blue Area Islamabad. Organizational
Structure of F-10 Markaz, Bank Alfalah is attached in Annexure II.
4.3- REVIEW OF THE VARIOUS DEPARTMENTS OF THE
ORGANIZATION
The bank has following department:
A. Account Opening department
B. ATM Department
C. Accounts Department
D. Credit Department
11
E. Credit Card Department
F. Remittance Department
G. Foreign Trade Department
H. Cash Department
I. Clearing Department
A. Account Opening Department
Borrowing funds from different sources has become an essential feature of today's business
enterprises. But in the case of a bank borrowing funds from outside parties is al l the more
vital because the entire banking system is based on it. The borrowed capital of a bank is
much greater their own capital. Banks borrowing is mostly in the form of deposits. These
deposits are lent out to different parties. Such deposit creation is done through opening an
account in the Bank.
In Bank the account opening department along with performing some auxiliary functions of
Check Book Issuing
Types of Accounts
In Bank Alfalah Limited, there are the following types of accounts:
a. Current account.
b. Saving Account.
c. Alfalah Special Deposit Account.(ASDA)
d. Term Deposit.
a. Current Account
In current account there is no interest on it. It is for only transaction purposes. They are
paid on demand. When a banker accepts a demand deposit, he incurs the obligation of the
12
paying all cheques drawn against him to the extended of the balance in the account. As
there is no profit paid on this account it is also called chequing account because cheques
can be drawn on it. Current account is mostly opened for business.
b. Saving Account
The purpose of this account is to induce the habit of saving individuals in the
neighborhood. The minimum deposit for opening the account is Rs.5, 000/- (as obvious in
the Annexure).
Though individuals open such accounts for saving purpose, persons belonging to Armed
forces and different military institutions are free to use this account on current basis.
c. Alfalah Special deposit Account
ASDA account is an interest bearing current account interest is paid. The payment of return
is monthly, where as the rate of return with aspect to the amount of minimum deposit clear.
It is also chequing account because cheques can be drawn on it. It is necessary for this
account that the client must maintain a minimum balance of Rs.50, 000 at the end of the
month. That’s why it is similar to current account. It is mostly opened by Business but
individuals too open this account.
Tax of 0.3% would be deducted on ASDA if withdrawals are more than Rs.25,000.
d. Term Deposits
A term deposit is a deposit that is made for a certain periods of time at the end of the
specific period. The customer is allowed to with draw the principle amount.
BAL Term deposits are of types clear in the deposit scheme. One of them is "Alfalah"
Advantage one month. The rate of return on this account is set by head office. The term
deposit account varies one month to 1 year for all following accounts.
The amount of profit is given to depositors in three ways:
By cash
13
By sending a bank Draft to depositors Home address or Officers or whichever is
specified as mailing Address.
The amount is credited in any one of the checking Accounts of the depositor.
Account Opening Procedure
For the chequing accounts (C/A, ASDA, SAVING), there are different types of account
holders are required for all these types of account holders. The operation /procedure
requirement that is needed for " Individual Account " differ greatly from " Joint account "
proprietorship "Partner ship “, "Limited Company" And "Club society or Association” as
explained below.
a. ndividual's Account
When a single man or women opens an account in his/her own name and has the right to
operate it is called individual Account.
Documentation
For literate person copy of National Identity Card is required as a primary requirement. For
illiterate person and Veiled Women, along with the copy of National Identity Card
requirement he or she must come in person for opening the account.
Operation
The person place a "Check Mark " in the type of account and type of operation
required
He/She fills in part-I of the form , a fix his /her either two or four similar signature
(or thumb expression in the signature space and get it introduced and signed by a
person who already has an account with the bank and write his account no in the
specific rows in a specific space.
14
The person fills in "next of Kin " position where he/she father, mother,
husband/wife or any other relative's name, his /her address, phone no and affix
his/her signature to certify this requirement. This requirement is needed because in
his/her absence bank can have correspondence with the specific person.
The person put her /his signature (" or thumb expression) on the signature Specimen
Card (SS CARD) similar in the area on the form. One the back of S.S card mailing
address, telephone no, Person to contact and introducer space is filled in. All these
requirement are necessary for future
The person deposits the initial amount for opening account on to the cash counter.
The person put his signature on form -A (check book requisition) on two places in
"authorized signature" and fills in the "Title of Account space by writing his name.
If the person put his signature in Urdu or any language other than English, he
signed a "Vernacular form" where under take that affixed signature are original and
his own signature and two postal size photos are needed.
The next day is the opening of account.
b. Joint Account
When two or more persons, neither partners, nor trustees, open an in their name is called
Joint Account. Husband and wife or two persons of same sex can open joint account.
Documentation
For joint account copy of National Identity Card of all the persons is obtained other things
remaining same as in individuals account.
Operation
The person checks the type of amount and type of operation required in the
respective box on the form.
The persons fill in the Part-I and part-II in the form.
15
Signatures of both persons are obtained on the form in the area specified for
signature and S.S. Card.
In the title of account space names of all the persons are mentioned.
Accounts holder specified in the form that they will operate the form singly or
jointly.
c. Proprietorship Account
When an owner of a firm operating singly, opens an account in his firm name, this account
is called a proprietorship Account the proper himself liable for all his acts.
Documentation
For this kind of account, an application for opening the account on the firm letter -pad
(having the firm name) is required along with the NIC Card of proprietor.
Operation
All operation remains the same except that the firm name is written in the "Title of the
Account” area and signature of the proprietor are affixed in the S.S. Card and the area
specified for signatures on the form.
d. Partnership Account
The account is opened in the firm name and all partner designate one two persons to act on
behalf of the partner ship firmer all acts on behalf of firm. The partners in the partnership
firm are liable for the acts of the firm jointly and severely. Every partner has in a firm has
an implied authority bind his co. partners by drawing and enclosed cheques.
Documentation
Copy of N.I.C card of all partners
Application to open the account on the firm letter pad.
16
Partner ship deed in case registered partnership firm.
Letter showing the implied Authority of one or more partners to act on behalf of the
firm.
In case of non -registered partnership firm, understanding on behalf of the firm to
remain liable for all acts of the firm.
Name, address of all partners is written on the pad.
Operation
All other requirement remain same except that the form is dully signed by all partners cards
are signed by all those partners who will act on behalf of the firm and along filling part-I ,
Part-Iv is also filled.
e. Limited Company Account
This account is for limited companies. In order to facilitate their transaction with outside
parties, bank provides many facilities.
Documentation
Memorandum of Association.
Articles of the Association
Resolution of the Board of Director.
Certificate of Incorporation.
Certificate of commencement of business
N-I-C
Operation
The persons authorized in the Resolution of the Board of Directors put their signatures on
S.S Cards. Next of kin "requirement "is not need in case of a Limited Company. After
completing each and every formality, introducer signature is verified by S.S card and is
17
stamped "Verified" customer signatures are admitted by stamping “Admitting" near
signature and again signatures on S.S card are admitted in the same way. The same process
of verification and admission of the signatures is repeated on Form-A and next of Kin area.
After completing each and every formality, Accountant is open in the computer by writing
name, address, A/C Number etc.
Receiving Inward Cheques
Another responsibility and function of account Opening Department is to receive Inward
cheques for collection of other Banks as well as of Bank Alfalah Limited. Then these
cheques are sent to clearing official who clears these checks at SBP from other banks.
Account Closing
Account is closed on the written request of the customer Bank Alfalah Limited free of cost.
But to surrender the cheque book yet if some leaves are yet to be write to the bank as a
necessary requirements for closing the account.
Procedure
The customer for individuals account write an application to the manager of the
bank an a simple paper about the closing of his account with the bank (In case of
proprietor ship partnership and limited company account the application should be
written an firm or company letter –head)
The individual or in case of other type- proprietor firm and company surrender the
cheque book to the bank.
The cheque book is then torn from one side and is attached with the application.
In case of Ltd. Company account resolution of the board of directors is also
obtained to attach it with the application.
The account opening form of the account holder is taken from the account-opening
file, and the application, cheque book, and resolution of board of directors in case of
limited company account are attached with the form.
18
Lastly, it is written in “Red Ink on the form that account closed” and “Date of
account closing.”
B. ATM- Cards Department
This department deals in issuing ATM-Card, term deposits and Alfalah Bachat Certificate.
ATM Card
ATM – Cards are only issue to Account Holder
Issuing Procedure
The person, first open the account within the blank.
Then he fills the ATM application form in which name of account holder, Fathers
name account number and N.I.Card number are mentioned.
A copy of N.I. card is also attached with the application form.
After completing this process, the application package is sent to head office
Bank Alfalah Limited head office takes a period of 3-4 days for preparing and
processing of ATM – cards. First, list of card holder is issued and then after 15 days
cards are send to Bank Alfalah Limited issuing branch. The card and list are not
sent simultaneously in order to avoid any mishandling.
Bank Alfalah Limited takes Rs. 350/- for 1st time issuance as charges for a $card
Biannually takes Rs 75.
C. Accounts Department
Accounts department is a department which deals and checks all the activity of all the
department .It also deals in expression of finance of the bank. Salary payment is also one
function of the bank.
19
Checking Bank’s Daily Activity
Accounts department deals and checks the entire working of the Branch; all the vouchers
that have been posted at the computer are scrutinized in accounts department. The “End of
Day” i.e. computer print is also received from the computer. The next day the activity is
separated some statements from the “End of Day”. Then next day activity separated some
statements from the “End of Day”. The vouchers are sorted out head wise. The vouchers
are matched with the entries in the statements.
Any abnormality if occurs, is immediately dealt with. All the vouchers and instruction are
checked individually are checked individually against the computer printouts. After
checking they are signed.
Other Activities
Preparation of daily bank positions statement
Payment of salaries
Preparation of the statements
Depreciation calculation
Lockers Issuance
D. Credit Department
After working for two weeks in Accounts Department, I was moved on to the Credit
Department. Manager Credits welcomed me in his department. For him, I would just say,
that I did not find such a lenient and cooperative person in my career.
In Credit department, I worked for the last two weeks. One major difference that I observed
in credit department and other departments was the difference in the nature of work. After
working in credit department, I realized the importance of lending operations for a bank.
Here, I have tried to describe my experience and observation in credit department.
Lending Operations
20
Since, the basic function of a bank is to receive deposits (at low rate of return) and to lend
money (at high rate of return). So, the lending operations of a bank constitute the most vital
part of its business.
Bank’s funds comprise mainly of money borrowed from numerous customers on various
accounts such as saving accounts, current accounts, fixed deposits and notice deposits etc.
whereas, the major part of total income of a bank is generated through the utilization of
these funds.
Kinds of Credit
Bank provides credit facilities to its customers for a specific maturity. This maturity or
duration of credit is not an independent factor; it depends upon the purpose of the loan.
According to the maturity of credit, it has three basic kinds.
a) Short Term Credit
b) Medium Term Credit
c) Long Term Credit
Short Term Credit:
The period of a short-term credit is generally less than or equal to one year. This credit is
used for the creation of current assets e.g. for the purchase of raw material and to meet the
working capital requirements.
Medium Term Credit:
Medium term credit is normally issued for one to three years. It is used for the purchase of
machinery, furniture etc. by the firms.
Long Term Credit:
Credit facilities sanctioned for 3 to 5 years are considered as the long-term credit. Long-
term credit is required for capital expenditures, such as purchase of building and heavy
machinery.
21
EXPORT OPERATIONS
In trade finance department, I was much desirous to know that how the export transactions
are carried out through bank, along with the imports. The export transactions in BAL were
not of such extensive nature as imports due that specific area. So the processing of a normal
export transaction has been discussed.
Condition for Exporters
Like an importer, there are certain conditions that a person must fulfill to become an
exporter.
2) The person must be an account holder of BAL.
3) No one can export any commodity until and unless he/she is a Pakistani and
has a valid export registration with the EPB.
4) The person must process a valid membership certificate of Trade
Organization, licensed and recognized by Federal Government like a
Chamber of Commerce .
5) The person must possess a valid NTN (National Tax No.) certificate.
6) A person cannot export any good unless he files a Form E (E stands for
exports) with his application to the bank. The form E must be filled in
writing and all specifications stipulated on the form, must be met.
7) The person must have the Sales Tax Registration Certificate.
Complete export cycle
The process of export starts with the receipt of the letter of credit (or contract) by the
bank. The issuing bank sends the L/C to BAL through the advising bank. Upon receipt of
L/C, an intimation letter is prepared and is sent to the beneficiary of the L/C, advising him
that his reached BAL and he should collect it immediately.
As mentioned earlier, an E-form is necessary for exports out of the country. It is a part
of exchange control mechanism of the State Bank of Pakistan. When an exporter receives
an L/C, the next job is to get an E-form from the bank. The E-form is a quadruplicate and
contains the following information.
The Commodity
22
The quantity
The price
The port of shipment
The port of destination
Terms of shipment
Export registration number
After filling in the complete information about the goods to be exported, the exporter
brings the E-form to the bank for verification. The bank verifies the contents in accordance
with the documents and not by physical checking.
After getting the E-form verified from bank, the exporter starts preparing for his
shipment. As the banks only deal in documents, so in order to receive the payment for his
good to be exported, the exporter has to send certain documents to the L/C issuing bank via
negotiating bank. These documents have already been discussed in import section.
A very important step in the export process is to scrutinize the documents, before
sending them to the issuing bank. It requires utmost care and attention of the bank officer.
When the documents are presented in the bank, they are always scrutinized and they must
be in accordance with the requirements stipulated on the L/C. Any deviation could result in
rejecting the documents by the importer, hence causing loss to the exporter or even to the
bank if the documents are to be negotiated.
COLLECTION / NEGOTIATION
When the exporter comes to the bank with the documents, he has two options:
a) Send them for collection
b) Get them negotiated
1) Collection:
The bank sends the documents on behalf of the exporter to the issuing bank and payment
against them is received after a specific period. In collection, the exporter is paid only when
the bank obtains reimbursement from reimbursing bank. The payment is made to the
23
exporter in PKR (Pak Rupees) and the exchange rate is the buying rate of the day normally
called T.T Buying Rate.
Deduction of Tax:
Withholding Tax is deducted on the realization of export proceeds, under Income Tax
Ordinance 1979. The rate of tax varies from 0.75 to 1.25 percent, depending upon the
nature of commodity, as:
• 0.75% for the export of finished goods
• 1.00% for the export of finished goods
• 1.25% for the export of finished goods
2) Negotiation:
In case of Negotiation, the bank purchases the documents (clean documents having no
discrepancy, against L/C’s only) from the exporter, i.e. the exporter gets them discounted
before their maturity. For example, if the payment against documents for the exports has to
be received after 60 days. The exporter might not want to block his payment for this period.
So, he can get his documents negotiated by the bank, the day he presents them to the bank.
In this case, the exchange rate he will get is called O.D Buying Rate. This rate is slightly
less than TT buying rate because the bank pays him an amount that it is going to receive
after 60 days. These buying rates are updated every day (like selling rates) and are
available to the exporter before he decides whether to get his bills discounted or not.
Contracts are however not negotiated in any case. This is because, they are unsafe
documents and the bank does not take the risk of being denied the payment by the importer
after having made the payment to the exporter.
Fund Based Loan
Running Finance (R/F)
It is popularly known as overdraft. It is offered for working capital requirement of the
customer. It is created in current account adjustment from time to time finally on expiry
date. This facility is normally issued against hypothecation of immovable property. It is
24
allowed to the borrower under a pre-sanctioned limit. A current account is opened and the
conduct of this account is kept under review for a period of three to six months. Repayment
in monthly installments is not required.
Cash Finance (C/F)
It is also offered for the working capital requirement of the customer. It is the type of loan
in which client is given cash in lump sum it is offered against the pledge of moveable
property or stock of borrower. In majority of the cases this finance is allowed against
pledge of stock. The amount of finance is credited to borrowers CD account and he/she
utilizes it for business purposes. Repayment is not made by monthly installments.
Adjustments are linked with delivery of goods kept under bank’s pledge. Goods are
depledging when the payment is done on delivery order of the bank.
Term Finance (T/F)
Term finance is offered to client for investment in any project or business. It is issued for
fixed time period. The amount of finance is credited to borrower’s personal account by
debiting the Term Finance Account. The amount of finance is credited to borrower’s
personal account by debiting the Term Finance Account. The amount of Finance is
disbursed in lump sum. The repayment of Term Finance is usually in installments and with
other documents a letter of installments is taken from the borrower at the time of
disbursement. By that letter, the borrower binds him to pay the installments at regular
intervals. Monthly repayment amount is calculated by dividing the principal amount by
time period plus mark-up.
Non-Fund Based Facilities
Letter Of Credit
Letter of Credit issued by the bank can broadly be classified as under: -
Sight letter of credit.
Usance letter of credit.
The sight L/Cs calls for the draft to be drawn ‘at sight’. Documents negotiated and received
against sight are held as security till their retirement. Drafts drawn under usance are for a
25
tenure specified in the L/C and are payable by the customer on due date. Credit line
proposal must clearly state the type of letter of credit the branch is intended to issue.
F. Credit Cards Department
Credit cards are dealt in this department. He told me that the bank is authorized to issue the
credit card of two companies, which are under bank of America.
Master Card
Visa Card
Master Card
There are following types of master card.
Silver card
Local silver card
Gold card
These are different due to their credit amount limit. For example for silver card, cardholder
can take the maximum amount ranging between Rs. 25,000 to Rs, 200,000. While the local
silver cardholder can use this card up to Rs. 25,000 to 500,000 for gold cardholder this
limit has been extended to Rs. 300,000.
Issuing Charges
When the card is given to cardholder, there are certain fee charges to by the bank, which is
different for different cards.
Local cardholder is charged Rs. 1200 but if the cardholder is Army officer there
is special discount for him. And he is special charged Rs. 750.
Silver cardholder is charged Rs. 2500.
Gold cardholder is charged Rs. 3500.
Issuing Procedure
Credit card is issued to three types of parties.
Professional (Govt & private officers)
Business man
26
Landlord.
Professionals
For professionals bank require
Authorized letter from the concerned organization in which he works. This letter shows all
particulars about the person, on the basis of these particulars; bank open on account and
some feasible amount is required.
Business Men
In the case of businessman bank need
Balance sheet of businessman.
Type of business.
Turnover of 5 years.
And then when it is sured that the business has the ability to cover the expenses of credit
card and to pay it at any time, the bank issues the credit card.
Land Lord
In the case, the person is totally new, and the bank doesn’t know anything about him. For
this bank need an account having the amount over and above the credit card limit of that
credit card. Usually, there is more chance of default in this case; so, the bank avoids issuing
credit card to that person.
Payment Procedure
The cardholder should have to pay all the amounts what he has consumed. But in order to
facilitate the cardholder, 5% is the minimum limit that the bank requires and that should be
paid monthly. If you paid only 5% then 2% interests will be charged on remaining amount
and it is added into the next month payments.
If that 5% is not paid then Rs. 100 are the additional charges charged to the next month
payment a part form the 2% interest.
F. Remittance Department
27
The need of remittance is commonly felt is commercial life particularly and in everyday
life generally. The main function of the remittance department is to transmit money from
one place to another. By providing this service to the customer, Bank earns a lot of income.
Also customer is able to meet its day to day financial requirements.
Demand Draft
It is an instrument payable on demand for which value has been received, issued by the
branch of the Bank drawn i.e. payable at some other place (branch) of the same Bank. If
two Banks are involved then the DD is sent to other Bank but in other case it is handed
over to the applicant.
Issuance Procedure
A demand draft application is given to the customer; he fills in relevant information
and signs it.
The officer checks the information form.
The Bank charges such as commission, excise duty is charged as per effective
schedule of charges. If he fills the tax exemption form, tax is not charged.
In case of cash deposit, the cashier counts the amount and signs the DD application
and enters it in the register.
Then the officer of remittance department signs it and operation manager counter
signs it.
The entry is made in the DD issuing register, DD is given to the customer.
Vouchers are prepared and posted.
DD advises are printed and mailed to the respective branch.
Payment Procedure
The Bank receives DD.
The DD credit advice is received through mail. The numbers are checked and
signatures are verified.
An entry is made on the DD payable register and the vouchers are made.
DD credit is attached with the vouchers and given for posting to the computer.
When DD is received the test numbers are checked and the payment is made.
28
Vouchers are given for posting and the entry that was made in the register is closed
i.e. DD payable is Nil.
Pay Order
It is an instrument issued for payment in same city. Pay order issued from one branch can
only be payable from the same branch. It is normally referred to as Banker’s cheque. It is
also called confirmed cheque, because Bank issues this on it own guarantee.
Issuance Procedure
The standard form is given to the customer. He fills in the details and signs it.
The concerned officer checks the form.
Bank charges (or commission) as per the schedule of charges and the withholding
tax of 0.3% are applied.
The cash amount of the pay order is received.
A cash memo is signed, stamped and handed over to the applicant as a receipt.
Then the pay order receipt is filled accordingly.
Counter foil is also filled.
An entry is made in the pay order issue register.
Then the authorized officer signs it after checking the pay order.
The order is then handed over to the applicant after obtaining his signature on the
PO Form.
A voucher is also made and posted at the computer.
Payment Procedure
On presentation of the pay order receipt, two authorized officers of the branch sign
the receipt.
PO entry is made in the PO issue register.
Then the amount is credited to the account of the customer or pain in cash.
PO is posted at the computer.
Outward Bills for Collection
29
The bills, which are received by the Bank and sent to other cities (branches) for the local
clearing in that city, are called Outward Bills for Collection.
Procedure:
The cheques that are of other cities are separated.
They are entered in the OBC Register and OBC numbers are given to them.
The OBC forwarding schedules are prepared for different branches.
The respective cheques are attached with the schedule.
The office copy is filled and original schedule is mailed.
On clearing, the respective Banks send back the OBCs along with the IBCA (Inter
Branch Credit Advice).
The OBC numbers are checked from the OBC register, after those entries are made.
Commission charges are deducted from the account.
Inward Bills for Collection
The bills, which are received by the Bank from other branches out of the city for local
clearing, are called Inward Bills for Collection.
Procedure
The OBC of other branches will be the IBC of this branch. So an OBC forwarding
schedule is received by mail.
The cheques are entered in the IBC register. The IBC numbers are allotted to them.
The cheques are lodged for clearing.
After realization, an IBCA is prepared and mailed to the branch from where the
cheque was received.
At the end of the day, two vouchers are prepared and posted.
G. Foreign Trade Department
Foreign trade department deals in:
Foreign currency account
Exports
30
Imports
Foreign Currency Account
Mainly this account deals in individual, personal and companies account
Criteria for Opening Foreign Currency Account
There are not hard and fast rules for becoming the Foreign Currency Account holder. Bank
wants only introduction of the Client and very little about the background. I.D card is also
not necessary, if someone has; well and good, otherwise no restriction will be there for
him.
Features of Foreign Currency Accounts
There will be legal protection for the account holders.
According to foreign exchange rules and regulation every citizen of Pakistan, either
within the Pakistan or outside the Pakistan, can open the foreign currency account.
Resident firms and Resident Companies including investment Banks can open
Foreign Currency Accounts.
All foreign nationals and foreign Companies in Pakistan or abroad can open
Foreign Currency Accounts.
Opening of Foreign Currency Accounts in the joint names of residents/non-
residents is permissible. Foreign Currency can be deposited by:
Remittance received from abroad
Foreign Currency Notes
There will be no restriction and questioning to him about the currency, which he
wants to deposit that from where he got that money.
No Zakat will be deducted on these accounts; no Income Tax deduction, no Wealth
Tax deduction will be there.
These incentives reinforce and motivated the people to invest in foreign currency
accounts rather to keep the foreign currency idle.
Foreign currency accounts can easily be transferred from one person to another, one
place to another, with in the ACBL Branches or in other Bank.
31
The account holder can transfer the funds freely, in any currency to any part of the
world.
Foreign currency Accounts can be used for payment of purchases at Duty Free
shops.
Facilities
This account provides following facilities:
Traveling quota
Out ward remittances
In ward remittances receiving
To make remittances procedure flexible
Export
The international trade transaction in which one country sells its goods to other country is
called Export. The controlling body of export in Pakistan is Export Promotion Bureau; it
gives different incentives to the businessmen for enhancing the exports and reducing the
Balance of payment deficit. It restricts the export of some goods and reinforces export of
other. The steps involved in import are described earlier from the importer’s point of view.
The procedure of export is same, as it can be described from exporter's point of view. The
activities, which are different, described here.
Foreign Bill Purchased (FBP)
Following requirements must be fulfilled before the purchase of Foreign Export Bills.
Exporter should be account holder of the bank. Bank issues the Form-E. Form-E should be
filled correctly and then bank authenticates the E-Form. Exporter goes to the custom
authorities for custom clearance. Shipping Company issues Bill of Lading or Airway Bill.
Exporter should bring other documents like certificates of Origin, commercial invoice,
packing list etc. Bank scrutinizes the documents.
32
After fulfilling these requirements, bank purchases the export bill and makes payment for
the value of goods in Pak Rupee to the Exporter.
Foreign Documents Bill for Collection (FDBC)
In FBP bank purchase the export bills from the exporter and make payment to the exporter
before the maturity of that bill, while in FDBC banks collect the export bill on the behalf of
exporter on the date of maturity. In FDBC bank acts as a intermediary party. Bank gets
little amount of commission for the collection of FDBC. Like FBP exporter deposit all the
important documents of export bill to the bank, bank lodged this FDBC, it means bank
record this export bill in the FDBC register where name of exporter, name of importer,
bank which open the LC, Tenor, maturity date is written.
Advance Payment of Bills
This is another function which the export department of Bank Alfalah Limited performs.
In advance payment bank pay the amount of export bill to the exporter before the shipment
of goods. For this purchase of bill bank gets more charges as compare to FBP. Mainly
export deals in:
Negotiation of documents
Sending the documents for collection
Pre-shipment financing
Post-shipment financing
Remittance against agent commission
Forward covered booking
Handling the documents for negotiation according to the UCP 500 (uniform custom
and practices)
Handling the documents for collection according to URR (uniform rules for
collection)
Submission of monthly returns to SBP regarding the export on form A-2/O-2
33
Import
Opening the letter of credit
Scrutinize the documents receive from flowing bank under letter of credit. Account
to UCP 500 and extending the credit facility to the importer informs FIM (finance
against imported merchandise) FATR (finance against trust receipt).