Chapter # 1: Introduction To The Report

CHAPTER # 1
INTRODUCTION TO THE REPORT

1.1
INTRODUCTION:
Students of BBA (HONS) Finance studying courses leading to Bachelor degree in

Business Administration are required to undergo an internship program of two months
duration. This is an essential academic requirement. The internship is followed by
comprehensive report writing, required to submit to Supervisor Government College
of Management Sciences Abbottabad. This report is properly evaluated on the basis of
its description and analytical capabilities by internal and external examiners.
1.2
PURPOSE OF STUDY:
The purpose of the study is to work in real life situation and learn banking practice. In
this context its objectives are:
To analyze banking operations i.e. operational analysis, financial
analysis.
To develop concrete and feasible recommendations.
To improve report writing skills.
1.3
SCOPE OF STUDY:
Banking is much diversified field and has various dimensions and treatments.
However, for a meaningful dialogue resulting in a definitive conclusion the
study for this report has been confined to banking operations as the objective is
to make an acquaintance with the practical aspect of banking.
1.4
LIMITATION OF STUDY:
It is to admit that the study attempts only those aspects, which are closely relevant to
the purpose of the study facts and figures, which otherwise might be equally
important, but not having a direct bearing on the conclusions arrived at this study,
have been ignored.
The most important limitation from which the study suffers is the non-availability of
information in a manner required for analysis and the secrecy of the bank. Another
important limitation of the study is time and space constraint.
1.5
METHODOLOGY OF STUDY:
The report was prepared using both primary and secondary data that included the
following methodological tools
i.
Primary Data:
Personal Observations.
Discussion with Bank Personnel.
ii.
Secondary Data:
Brochures/ Manuals of the bank.
Annual Report
Journals, newspapers and books.
Internet
1.6
Scheme of the Report
Firstly, the report has been divided into four sections and then these sections are
further divided into chapters. These four sections are:
1.
Section 1
Introduction to the Report,
2.
Section 2
Review of the Organization
3.
Section 3
Analysis
4.
Section 4
Recommendations in order to improve the discrepancies
CHAPTER # 2
INTRODUCTION TO BANK OF KHYBER

2.1
Origin of Banking
There is but little information available as to the kind of banks that existed in the
earlier ages, or on what system they conducted their business. As most of the nations
of antiquity subsisted chiefly on agriculture, they probably had little occasion for
banks; for it is only in commercial countries that these institutions have attained to
any high degree of prosperity. And as even the commercial nations of antiquity were
unacquainted with joint-stock companies or commercial corporations, and had not
discovered the use of paper-money or bills of exchange, the business of a banker, even
among them, must have been somewhat different from that of a banker of the present
day.
The merchants of those early times employed as money, gold and silver bullion; and
received it and paid it away by weight. It is probable that the merchants would require
that the precious metals they received should be of a certain degree of fineness. Thus
when we read of a father in Israel weighing out as a payment 400 shekels of silver,
current money with the merchant (Genesis XXIII, 16) - the phrase implies that the
money current with the merchant was different from that in ordinary use.
After bullion was superseded by coin, and each nation had a coin of its own, the
merchants would necessarily in the course of their business receive coins belonging to
different nations, and hence would be applied to by strangers who wished to exchange
their own money for the money of the country in which they sojourned. This would
take place more particularly in those oriental countries whose inhabitants were
accustomed in certain seasons to meet together for the celebration of public festivals.
It is very difficult to trace out the exact origin of banks. It is said that the evolution of
banking business is as old as the concept of money. Crothers in his book AN
OUTLINE OF MONEY says that the present day banker has three ancestors
merchants, money lenders and gold smiths. A modern bank is something of these. It is
believed that goldsmiths and grocers of primitive days started keeping deposits of
valuables and jewelleries people on the basis of their sound financial position in the
community. They charged a certain amount from the depositors for the services
rendered in keeping and preserving the valuables in safe custody. But they soon
realized that only a small portion of metal and valuable deposited were taken bark by
4
the people even at the expiry of the stipulated period. They therefore began to make
profit by lending a part of these deposits. In case of lending, it was not always gold or
silver, but issued their receipts which would pass among the people as if they were
gold just like cheques in modern banks. The present day banks are performing the
same functions as performed by the money lenders and goldsmiths of older days.
Therefore it is believed that goldsmiths and moneylenders are the ancestors of banks.
2.2 Nature of Banking
The term bank is supposed to be derived from banco, the Italian word for bench, the
Lombard Jews in Italy having benches in the market-place where they exchanged
money and bills. When a banker failed, his bench was broken by the people, and he
was called a bankrupt.
This derivation of the term, however, is probably wrong. "The true original meaning
of banco,"says MacLeod,"is a heap, or mound, and this word was metaphorically
applied to signify a common fund, or joint stock, formed by the contributions of a
multitude of persons."
A brief account of the first banking operations in Venice will dispel the haze
enveloping this subject. In 1171 the financial condition of Venice was strained in
consequence of the wars in which the people were engaged. The great council of the
republic finally determined to raise a forced loan. Every citizen was obliged to
contribute the hundredth part of his possessions to the State, receiving therefor
interest at the rate of five per cent. The public revenues were mortgaged to secure the
interest, and commissioners were appointed to pay the interest to the fund holders and
to transfer the stock. The loan had several names in Italian, Compare, Mutuo, but the
most common was Monte, a joint stock fund. Afterward, two more loans were
contracted, and in exchange for the money contributed by the citizens, the
commissioners gave stock certificates bearing interest, and which could be sold and
transferred.
2.3 Banking
Mankind has always been seeking security and protection. This need has led him to
scientific and technological development on one hand and banking development on
the other.
In modern times the banking has become so necessary that if is excluded from any
economic system the whole business and economic world will collapse like house of
cards
In this banking development the services of three groups of persons cannot be ignored
1. Money Lender
2. Merchants
3. Gold smiths
The bank of Venice is perhaps the first ever regular bank in the banking history and
was established in 1157 followed by these banks as under:
Bank of Barcelona in 1401
Bank of Genoa(Italy) in 1407
Bank of Amsterdam in 1609
2.5
Banking in Pakistan
The areas constituting Pakistan at the time of its creation were producing only food
grains and agricultural raw material for the Indo-Pak subcontinent. There were
practically no industries, and whatever raw material was produced was being exported
from Pakistan. There were 487 offices of scheduled banks in the territories now
constituting Pakistan.
It was very difficult for the newly born Pakistan to run its own banking system
immediately. Therefore, in accordance with the provision of Indian Independence Act
1947, an Expert Committee was appointed to study the issue. The Committee
recommended that the Reserve Bank of India continue to function in Pakistan until
30th September 1948.Following the announcement of Independence Plan in June
1947, the Hindus residing in the territories now comprising Pakistan started
transferring their assets to India. Moreover, the banks including those having their
registered offices in Pakistan transferred them to India. By 30th June 1948, the number
of offices of scheduled banks in Pakistan declined from 487 to only 195. There were
19 non-Indian foreign banks while there were only 2 Pakistani institutions i.e. Habib
Bank and the Australasia Bank. The Government then promulgated the Banking
Companies Ordinance, 1947, to safeguard the interests of both the bankers and the
customers. Governor-General of Pakistan Quaid-e-Azam Muhammad Ali Jinnah
inaugurated the State Bank of Pakistan on May 12 th, 1948. The Banking Companies
(Control) Act was promulgated in 1949, empowering the State Bank to control the
operation of Banking Companies in Pakistan. The State Bank sponsored the
enticement of Agricultural Development Bank to attend exclusively to agricultural
Business Administration. Moreover, the State Bank of Pakistan Act, 1956 also
broadened the functions of the State Bank conferring the powers to increase credit
facilities for both agriculture and industry. During this period a new Pakistani bank
was registered and scheduled as the National Commercial Bank Limited in order to
solve the jute export problem in 1949. The expansion in the banking and credit
facilities was further enlarged when during 1959-60 two more Pakistani banks,
namely Eastern Mercantile Bank limited.
2.6
HISTORICAL BACKGROUND OF THE BANK OF KHYBER
The Bank of Khyber was established through the Bank of Khyber Act passed by the
Provincial Assembly in June 1991. It is the only Bank in Pakistan having its head
office at Peshawar.
Meet demand of the business community to have a bank with its head office in
the Province.
Have accessibility of local businessmen to senior management of the bank for
the prompt credit decision making there by accelerating investment in K.P
Have maximum utilization of funds generated in the Province for the
economic development of K.P
It has the credit to introduce Islamic banking in Pakistan.
2.7
Scheduled Bank Status
Up to 1994 the Bank was operating at provincial level as unscheduled bank under the
auspices of the provincial government. But in 1994 it got the status of the scheduled
bank and came under the regulatory framework of SBP, currently operating at the
national level. Due to this status the BoK is also engaged in foreign trade business
directly. And moreover in next year they are planning to open branches in Afghanistan
and Dubai.
2.8
The Paid up Capital of the Bank
The initial paid up capital of the Bank was Rs. 400 million, which has now been
raised to Rs. 1,050 million.
The point of distinction between BOK and other national banks is that it acts not only
as a commercial bank but also strives to be a development bank through its emphasis
on financial support, especially to small and medium sized businesses. The Bank has
been showing improvement in all the lines of its business, mainly deposits advances
& profits. The Bank has undertaken a complete computerization of its branch
operations and has also issued Traveler Cheques and it has entered with American
Express and Diners Club Pakistan limited for issuance of their respective credit cards
from BoK counters. BoK has correspondent banking relationship with several
international banks and financial institutions, and is competing hard with other banks
for its share of business.
2.9
BRANCHES IN PAKISTAN
Currently the bank has a total branch network of 107 Branches Plus 4 sub branches
throughout the country. At present, 40of its branches functioning as dedicated Islamic
Banking Branches, whereas 63 branches are conventional banking branches.
THE VISION
To become a leading Bank providing
efficient and Dynamic Banking Services in
both Islamic and Conventional Sectors.
THE MISSION
To increase shareholders' value and
provide excellent service and innovative
products to customers through effective
corporate governance, friendly work
environment, and contributing towards an
equitable sub-economic growth
2.10
CORE VALUES OF BANK OF KHYBER

The core values of BOK are as follows
Highest quality of service

Professionalism, Integrity and Team work
Innovation and utilization of latest technology
Corporate Social Responsibility
2.11 OBJECTIVES OF BANK OF KHYBER

Under the Bank of Khyber act of 1991 of the provincial assembly of N.W.F.P. the
banks objectives are as follows:
To mobilize private savings and funds for diverting the same in to
productive channels and ensure their availability.
To promote industrial agricultural and socio -economic processes

through the active participation of private sector in the province.
To provide employment opportunities.
To make people more of mind to have savings habits.
To increase wealth of stockholders and see the bank earning
To ensure growth and development of the bank. To use resources of the
bank efficiently and effectively.
To increase the deposit base of the bank.
To participate in the development of the country.
Help under-developed areas and create employment opportunities, especially in the
rural areas of the province.
Create a diversified and sound portfolio for utilization of idle funds and their
investment in the existing and new ventures especially in the pioneering of high- tech
agro-based export oriented and engineering projects to ensure maximum returns.
Participate and seek the share of the province in the capital market of Pakistan by way
of subscription through locally pooled resources in the leading stock exchanges of the
country and eventually paving the way for establishing a stock market in the province.
2.12 Functions of bank of Khyber

Like other banks, BOK is also performing all those functions that are expected of any
scheduled bank. To achieve its objectives of participating in the development of
Pakistan and its economy, efficient and effective use of the banks resources to ensure
its sustain BOK growth and earn profits for the shareholders and itself, BOK performs
various functions.
10
2.12.1 To Accept Deposits

Deposits are the life blood of a bank as it largely depends on them for earning profits
by advancing the deposited amounts of its customers. These are of several kinds at
BOK they are as follows.
2.12.2 Current Deposits

Current deposits are the demand liability of a bank. Businessmen usually open these
and the bank does not pay much interest on them. Hence, they are also termed as nonprofit BOK demand accounts that can be opened with a minimum balance of Rs.
5000/-.
2.12.3 PLS- Saving Deposits

These are also called the checking accounts because the depositor can withdraw
money by way of cheque and deposit amounts while filling in the pay in slips. Profit
on these is calculated on monthly basis but is paid every months after declaring the
profit rate. The basic feature of this kind of account is the idea of sharing profit and
losses as per the Islamic teachings and non-interest based banking. This is opened
with a balance of Rs. 100/-
2.12.4 Fixed Deposit Account

These are also called Fixed Deposits and can be withdrawn by the customers after a
stipulated period of time. Profit is paid to the depositor depending on the duration for
which the amount is kept with the bank.
2.12.5 To make Advances

The money taken from the customers in the form of deposits is utilized by the bank in
the form of advances and credits given to corporate and retail customers depending on
their eligibility. Thus, by doing so the bank performs an intermediary function by
acting as a bridge between those who need funds for specific purposes and those who
have surpluses. The credit facilities given by the bank are of two kinds fund based and
non-fund based. The first includes short, medium and long-term loans and the second
type letters of credit and guarantees.
11
2.12.6 Agency Services

BOK provides agency services to its customers besides the customary deposit and
advances function. These include,
Collection of cheques, bills and promissory notes.
Clearance of utility bills such as electricity and Challans for its customers
Cheque encashment facility for those customers who have their accounts
maintained at designated branches and who do not wish to carry cash with
them while traveling.
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CHAPTER # 3
BOARD OF DIRECTORS
3.1 Board of Directors
The banks ultimate governing body is the Board of Directors comprising of eight
members. The government of KHYBER PAKHTUNKHWA is the major stakeholder
of the bank therefore the chairman and all the members of the board are nominated by
it.
The Managing Director of the Bank represents the management in the Board and acts
as a member of the Board. There is a company secretary who calls meeting of the
board and maintains the minutes and proceeding of the Board of Directors. The
current members of BOD are as follows:
3.2 MANPOWER POSITION

According to the manpower position report of 31th December, 2013 the bank had
hired a total of 1800 employees, among which 1200 are permanent employees of the
bank while the others employees are serving the Bank on contractual and casual basis.
The contractual and casual staff includes tea boys other supportive staff, and some of
the employees at officer cadre. Besides this staff there are free lancers attached with
the Bank that serves and guides the bank in different matters. These include Legal
Advisors, Contractors etc.
3.3 ORGANIZATIONAL STRUCTURE OF BANK OF KHYBER

Organizational structure is defined as the set of elements that can be used to
configure an organization1. As technology, environment, size, lifecycle and strategy
can all influence an organizational design, it should come as no surprise that
organizations adopt many different kinds of design. Most design, however, fall into
one of the four basic categories. Others are hybrids based on two or more of the basic
forms.
The organization structure of BOK is based on functional (U-Form) design. The
Functional
Design
is
an
arrangement
based
on
functional
approach
to
13
departmentalization. Functional approach to departmentalization means grouping

together those jobs, which involves similar activities. This design has been termed the
U-Form (for unitary) by the noted economist Oliver E. Williamson 2. Under the UForm arrangement, the members and units in the organization are grouped into
functional departments such as production and marketing etc.
3.4
ORGANIZATION HIERARCHY
At each position the duties, goals, functions, responsibility and authority are clearly
explained. The channels that delegate these activities are called organization
hierarchy. This must be set in such a manner to best accomplish the organizational
goals. The Bank of Khyber ultimate governing body is the board of directors while
the day-to-day affairs of the bank are managed by a Managing Director appointed by
the board of directors for a term of three years on contract with the consent of the
Government of KHYBER PAKHTUNKHWA. Under the supervision of MD there
are executive vice presidents (EVP) the senior most officials in the banks hierarchy
each heading a bank unit Next to EVP there are senior vice presidents (SVP) and vice
presidents (VP) heading their respective divisions and departments At the branch
network of BOK there are branch managers and assistant branch managers.
The nomenclature of various posts in the bank is as under:

2
14
Executive Vice President
Senior Vice President
President
Assistant Vice President
Officer Grade-I
Grade-II
Grade-III
Junior officer
3.5 DEPARTMENTALIZATION OF BOK:

15
Departmentalization is the process of grouping jobs according to some logical

arrangement. The manner in which activities should be divided and formed into
specialized group usually referred to as departmentalization. BOK has used the most
common
base
for
departmentalization
i.e.
the
functional
approach
to
departmentalization. Functional departmentalization means where grouping of jobs

takes place according the same, or similar activities. The word function is used here to
mean organizational functions such as Business Administration and production, rather
than the basic managerial functions such as planning or controlling. The head office
of BOK is divided into the following departments
Credit Division
Business Administration Division
Islamic Banking Division
Internal Audit Division
Information Technology Division
Human Resource Division
Treasury and Investment Division
Banking operations Division
Marketing Division
3.6 Credit Division:

Credit division of BOK continuously tailored its policy frameworks in accordance
with the tough competition faced in the wake of reducing mark up rates scenario and
increase liquidity in the market. Introduction of new schemes like house, consumer,
car and Micro financing will definitely improve and enhance the credit portfolio.
BOK is strengthening its grip on the target market for these schemes the credit
monitoring cell, credit department, consumer Business Administration department and
micro Business Administration department comes under the umbrella of credit
division.
16
3.7 Business Administration Division:

The Business Administration division is responsible for fiscal managing, financial
control, financial reporting and accounting function of the bank. This division ensures
that the accounting record and systems are maintained in accordance with the internal
policies, regulatory requirements and international accounting standards. It establishes
policies and procedures relating to the Business Administration functions, monitors
returns on earning assets and report on various performance indicators including
assets/liabilities mismatch. The division directs control of the budgeting process in
accordance with the annual plans, policies, managements directives and strategies.
Internal auditors, tax authorities and SBP inspectors are the advisories of this
department.
3.8 Islamic Banking Division (IBD):

The division is working according to the guideline of Shariah supervisory board. The
objective of the IBD is to implement the decision of the board of directors to
gradually convert the whole bank into an Islamic bank within three years under the
supervision of the Shariah supervisory board as per rules and regulations of the SBP.
IBD plans to convert twelve more bank branches in 2013 and the remaining in 2014.
3.9 Internal Audit Division (IAD):

The internal audit division works independent of the management and reports to audit
committee of the board of directors (BOD). The audit committee comprises of three
non-executive directors and the head of IAD has freely access to the chairman of the
committee. The IAD consist of two departments namely audit & inspection and
compliance & implementation.
IAD provide regular training to its personnel in various field of banking to enhance
their skills and proficiency. It provides guidance and creates awareness among the
employees of the Bank regarding banks policies, procedures and regulations and
compliance thereof.
3.10 Information Technology Division (ITD):

Information technology department progressed in the last eight years and trying its
best to stay abreast in the field of fast developing technology. In order to achieve its
goals, the management has decided to start on-line banking in the very near future,
17
this will facilitate the customers of the BOK and they will be BOK to transfer money
between any two BOK branches and throughout the country.
3.11 Human Resource Division (HRD):

HRD plays a vital role in carving the present and future image of an organization by
managing the employees in most beneficial and effective manner. The functional area
of HRD consists of recruitment, training, performance appraisals, planning and career
development and above all grooming of staff to adhere to office ethics and social
norms. HRD provides on the job as well as off the job training to the staff in diverse
areas of banking and management. The training relies on both internally arranged
courses as well as external courses at institute of repute in the country.
3.12 Treasury and Investment Division:

BOK is now gearing towards revamping its treasury, would soon assume a more proactive role in serving BOK customers, especially the corporate clients. Upgrading the
human resource skills is enhancing its capacity and the I.T system .In future BOK will
be BOK to manage corporate customer funds and quote money market related rates
for short-term corporate size loans.
3.13 Banking Operations Division:

The Banking operations Division is mainly responsible to manage the operations i.e.
work processing functions in the bank. The banking operations division controls
branch operations and international banking department. This division propose
operational polices, procedures and ensure strict compliance of the same through
liaison with internal audit division.
3.14 Marketing:
The marketing division of the bank is responsible for the formulation and
implementation of Marketing Strategy of the Banks products both on assets and
liabilities keeping in mind the business environment of the province. Accordingly the
division works to popularize the Banks deposit schemes and loan products among the
people with a view to improve business and over all image of the Bank.
18
3.14 SAMD:
The main responsibilities of the division include the recovery of all irregular as well
as bad debts of the bank. As a part of re-engineering of the division, a full-fledged
collection unit was established whose major assignment is to follow-up the delayed
accounts from the very 1st day of default in order to mitigate the risk of further
infection.
In order to bring effectiveness and cost control SAMD coordinators closely with
credit, IT and MIS division.
3.15 BOK Plan For Future:

On-line Banking
Installation of ATMs at designated branches.
Opening of new branches
Established of Exchange Company in Middle East
BOK brokerage house.
Share flotation
Islamic banking products
19
CHAPTER # 4
SOURCES AND USES OF FUNDS
4.1 Sources of fund of BOK:
BOK is a business firm and its main objective is to earn profit. It provides a number
of services to its customers in order to achieve its objective. It offers a variety of
interests bearing obligations to the public. These obligations are the sources of funds
for the bank and are shown on the liability side of the balance sheet of a bank. The
main sources of funds of BOK are deposits.
Fixed Deposits
Saving Deposits
Current Deposits
These deposits are the major sources of funds of BOK.
4 1.1
Fixed Deposits
Time deposits are lodged with the bank for a fixed period of time. The bank pays
interest to the depositors.
4.1.2 Saving Deposits
Saving deposits is an important source of BOK funds. The bank pays interest on the
minimum monthly balance to the depositors at the end of every month. The depositors
are normally allowed to withdraw a limited amount of money only twice a week.
4.1.3 Current Deposits
A current account is a running account which is continuously in operation. The bank
does not pay any interest on these deposits.
4.1.4
Reserve for contingency
Reserve for contingency is an account held by the bank for the purpose of
accommodating losses realizes insecurities and certain other considerations.
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4.1.5 Other Borrowing

Borrowing in an other of on the liability side of the balance sheet of a bank. The BOK
can also raise fund for short period of time by borrowing from the central bank. The
BOK also borrows funds by the sale of promissory notes, loams & securities.
4.2 Uses of Funds

The use of funds is an important side of the bank operation.
BOK uses of funds mainly consists upon
4.2.1 Primary Reserve

The primary reserve is the each asset held by the bank The cash assets include
Required reserve with central bank
Cash in currency coins
Demand balance with other banks
Cash items in the process of collection.
4.2.2 Bank Loans

The bank loans considered are an important component of uses of funds of BOK. The
BOK advance loan to individuals, financial institutions, trades, farmers, industrialists,
security broker dealer etc, for different periods of time. Most of the bank loans are
advances are against security. The bank thus covers the risk of loss in case the
borrower is unwilling to pay the loan at maturity.
4.3 SOURCES OF INCOME OF BANK OF KHYBER

BOK is profit oriented organization as already discussed that it was established in
private sector to earn the profit and it continued its function.
Source of income are:1) Interest:The major portion of its the interest, which is charge on different types
of loans granted.
21
2) Profit: BOK has started different projects on the partnership basis and the profit
from that project is distributed between bank and partners according to the agreed
ratio.
3) Collection charges on Utilities Bills and Chileans:
BOK also received
the utility bills from public, Rs.8 is charged for the collection of per electricity bill,
Rs.10 charged per Chelan.
4) Commission:
BOK is performed different services for its customers and
commission is charge for the award of that service on line commission of BOk is
Rs220 of on line charges and Rs.110 commission is on Demand draft.
4.4 EXPENSES OF BOK

1) Interest on Deposits:
BOK knows its money for lending. It used the money of public and interest is paid on
that deposit to the depositors. Different rates of interest are fixed for different schemes
offered by BOK.
2) Expenses of Management:
BOK has employees and also retired employees. The salary, pensions and other
allowances are paid to them
3) Marketing Expense:
All the expenses of management of research, salaries and advertising are considered
as marketing expenses.
4) Bad debts or Loan written off: A huge portion of income is become expenses in
the shape of bad debts.
22
CHAPTER # 5
CASH, REMITTENCES, CLEARING DEPARTMENTS

5.1 Deposited department:
As per the definition of Banking under sec 5(b) of BCO 1992 one of the main
functions of a bank is to accept deposit. Deposits are the backbone of any bank other
functions of the bank primarily depend upon the type and size of deposits.
5.1.1
Function perfumed by cash and deposit department in BOK Abbottabad

Branch (0113):
Jinnah road Abbottabad Branch accepts deposits under the following three accounts.
Current account
PLS Saving account
Terms Deposits
5.1.2
Opening of Account:
To open an account in BOK the customer will have to fill an account opening form in
front of bank officer. He has to sign in all required places in front of the officer.
5.1.3: Documents Required in Account Opening:
N.I.C Copy.
Account opening form (provided by bank)
Two photograph (in case of illiterate person)
Specimen Signature card (Provided By Bank)
Cheque Requisition Form
Introduction of Account.
5.1.4 Types of Account:
a.
Individual Account:
In this account a single customer operates the account. The banker will run the
account according to the rules, but if the customer gives special instructions the Bank
will have to follow it.
23
b.
Joint account:
In this type of account two or more than two persons will open the account. The
account will be operated by one account holder in case of (either of the survival). If
the instructions are not given, all the account holders will have to sign the check.
5.1.5
NATURE OF ACCOUNTS IN BOK
A)
Current Account:
These are non-profit BOK demand accounts. The account can be opened with
minimum amount of rupees 5000/-. These accounts are usually maintained for
business purpose. Due to enormous competition BOK has introduced daily profit
current account for corporate clients called (UNISEVER) minimum balance required
is Rs. 100,000/-. If minimum balance requirement is not met, bank is authorized to
recover predetermined charges.
B)
PLS Saving Account:
These accounts were intended with the aim of encouraging thrift among people. These
accounts can be opened either in Pakistani rupees or in few major currencies of the
world. Bank offers (4%- 6%) return on these accounts. The basic feature is the profit
and loss sharing as according to non-interest based banking system. These accounts
can be opened in the name of; individuals, joint names, trust accounts, charity BOK
organizations.
Unlike current accounts, Zakat is applicable BOK on local currency saving accounts.
Minors accounts can be opened on the condition that their guardians shall operate
these accounts.
C) Term Deposits:
Term deposits are also called fixed deposits. These can be with drawn after a specified
period of time. Interest is paid to the depositor on all fixed or term deposits.
5.2 Remittances department:

Current business trends demand fast movement from one geo-graphic end to another.
Latest technology and telecom data transmission has made it possible to make such
transactions with in minutes. BOK Remittances Department performs following
functions.
24
5.2.1 Demand draft (D.D):

D.D is a negotiable instrument issued by branch of the bank drawn on other branch of
the same bank.
A) Procedure for D.D:
Purchaser is asked to fill in an application form duly singed by applicant. Three things
should be maintained in the form.
Name of Payee
Place of payment
Amount of D.D
Commission is charged on D.D as bank income. The applicant is asked to deposit the
cash specified on the application form to the teller. After depositing cash the
remittances incharge prepare a D.D. That is singed by two officers must having power
of attorney.
Bank also provides this facility to general public who dont have account in BOK.
They will have to submit a N.I.C copy along with D.D application form
5.2.2 Telegraphic transfer (T.T):
Transfer of funds to another branch of the same bank with the help of test numbers. If
the test number agrees the bank make payment to the party.
A)
Procedure for T.T:
The procedure for T.T is same as D.D. But in D.D it is given on a printed-paper and
singed by two officers but, in T.T, only test number is given to the customer.
5.2.3 Mail Transfer (MT):

When the money is not required immediately, the remittances can also be made by
MT. Here the selling officer of the bank sends instructions in writing by mail to the
paying bank for the payment of a specified amount of money. The payment under
transfer is made by debiting the buyers account at the sending office and crediting it
the recipients account at the paying bank. BOK takes mail charges from the applicant
where no excise duty is charged.
25
5.2.4
Pay Orders (PO):
Pay order is banker Cheque issued favoring a named beneficiary. The issuance bank is
discharged by payment in due course. Application for the PO stamped and the
customers account balance is checked or cash received for the amount PO and other
charges. Pay Order leaf is typed and crossed if required and signed by two authorized
persons. Thereafter it is delivered to the customer. PO can be cancelled at original
purchasers request in writing and surrender the instrument, which then marked
canceled along with other documents and prior entries.
5.3 Clearing of bills:

General:
Bank can make payments of only open Cheques on the counter payment. Payment of
cross Cheques cannot be made on counter its payment is possible through collecting
bankers. The function of clearing department is divided into two main classes.
Inter Branch Transaction
Inter Bank Transaction
5.3.1 Procedure of Clearance of Cross (Cheques):

Whenever bank receives a cheque of other bank from the client he cannot make
payment on the counter. The first job banker has to perform is to put a special
crossing across the face of cheque. By special crossing cheque is secured. If it is
stolen the paying banker would not suffer because of non-endorsement. On the back
of the cheque the stamp is
Made of payee account will by credited on realization. It is signed by authorized
person. Along with the cross cheque the customer has to fill the deposit slip. The half
part of slip is given back to the customer. after the special crossing and is necessary
endorsement the banker write the amount along with cheque number on paper and
attach with each slip. Then again on he smile paper the amount of all the Cheques
along with the bank names are added and attached to cheque presented for clearing,
and advice is also attached with the cheque presented for clearing. The following
entry is passed on sending the cheque for clearing.
26
Bill lodged for clearing . Dr

Bill for collection . Cr
The Cheques are sent on the same day for clearing. The bank receives it on other day.
The paying bank receives the receipt and the amount is credited in the respective
account. The paying banker passed the following.
Bill for realization. . Dr
Bill lodged. . Cr
The other entry passed its Dr. HQ account and Cr Party account.
5.3.2 I B C:
It means Inter Branch Transaction when BOK received a cheque a drawn on the
customers of his branch; first they will cheque the amount in the account on which
cheque is drawn. Of the required amount is availed in the account they will match the
signature on the cheque along with their SS card. If all the requirement are completed
the bank will send an IBCA to the bank from which cheque is sent
5.3.3 OBC:
When the bank receives the cheque from its customer or from any other spoke branch
drawn on any other bank of any other city They sent the Cheque to the BOK main
branch of that city, after receiving OBCA the bank will passed the
Following entry In case of his own customers.
Ho a/c. Dr
Customer a/c. Cr
In case of spoke branch
Ho a/c. Dr
Spoke Branch a/c. Cr
27
CHAPTER # 6
CREDITS
6.1 INTRODUCTION:
What is Credit?
The amount extended to a borrower for a certain period at a rate of interest and at
terms of repayments as agreed b/w the borrower and the lender backed by a collateral
or loan security; synonymous to debt, loan and borrowing.
6.2 FUNDAMENTALS OF CREDIT:
How much money do you want?
What do you want the money for?
For how long do you want the money for? (short-term is less than 1 year; long
term is more than 1 year)
How will you repay the loan?
6.3 CREDIT INITIATION:
OBJECTIVES:
To implement a solid credit initiation process whereby the inherent risk in
each credit proposal are properly analyzed and effectively controlled .
Recommendations for all types of credit facilities across the bank are
submitted in the form of standardized credit approval package
Establishing/Maintaining contact with prospects/Clients
Receiving credit requests from prospects/ clients
Collecting the required information from the applicants as well as independent
sources.
28
Incorporating the information in the forms

.
CREDIT POLICY:
This section outlines the basic principles, which the Bank will pursue for extending
credit facilities. These principles will serve as useful guidelines and precautionary
measures for prudent lending.
Bank will not extend and such credit facilities, which violate the rules and
regulations, prescribed by SBP/local central banks from time to time.
Bank will participate in syndicate financing if the transaction fulfils the
parameters established by the Bank.
Bank will prior to allowing the facilities satisfy it that these are properly
secure with all security angles perfect.
Bank will ensure that facilities allowed are well aligned to customers credit
structure and specific needs.
Facilities provided by the Bank will be well diversified into such
industrial/trading sectors where the Bank has the skills and resources to
achieve a strong market position and adequate return on capital
Customers liquidity and repayment capacity will be determined by a careful
analysis of Cash Flow statements to ensure that customers financial condition
remains satisfactorily liquid to repay the Banks dues and the invested funds
are not locked up.
It will be against Banks policy to provide financing for speculative,
Undesirable activities such as gambling, gun-running, drug pushing etc.
Bank shall not allow any credit facility to clients, who have been allowed
waiver/write offs in the bank. Any exception to this will need approval of the
highest level including the President
Bank shall require and maintain adequate margin against credit facilities in
accordance with State Bank of Pakistans Prudential Regulations/local central
29
banks instructions. However, the appropriate sanctioning authority, if deemed

necessary, may stipulate a higher minimum margin.
Mark-up/Interest rates prescribed in credit proposal shall not contravene the
relevant State Bank of Pakistan/local central banks regulations, under any
circumstances. The Bank will issue guidelines on charging of markup/interest, from time to time, keeping in view the changing credit/market
condition.
Bank shall continue to invest on management development to ensure
maximum output/utmost participation of concerned staff in credit operation.
The highest Credit Committee will approve any addition/amendment/deletion/
deviation in this Manual to meet the regulatory/legal requirement of any
overseas location. However, if any addition/amendment/deletion/ deviation
weakens any provision
In this Credit Manual the same shall require ratification by the Board of
Directors.
6.4 CREDIT STRUCTURING & APPROVAL:
All credits will be approved by at least four members of the credit committee
One of the credit committee members individual limit must cover the amount
of proposal
Each credit committee member will independently review the proposal from
his own judgment and approve the credit
Written comments will be provided by any of the credit committee member in
case of his disagreement or any amendment in the terms and conditions of
credit.
It is the responsibility of RM to ensure that complete and legally enforceable

documentation is obtained.
30
All Documents intended as security or support for credit facilities must be

selected and reviewed for appropriateness to the transaction, adequate
coverage of
The risk involved completeness, proper execution and registration if required.
The documents shall be wetted by the legal advisor of the bank / legal
division.
6.5 Importance of Loan Documents:
Legal requirements.
Evidence of authority to borrow.
Evidence of indebtedness.
Evidence of the loans terms and conditions.
Evidence of collateral in the case of secured loans.
Bank can enforce its right only if documents are adequate, perfect and
proper. All
forms/documents must be completed in respect of name, date, place, amount, expiry,

witnessing. During documentation bank gets to know of existing encumbrances on
assets, if any documentary evidences.
6.6 CREDIT DISBURSEMENT:

The object is to protect banks interest and ensure recovery of banks facilities
extended to customers.
No disbursement or booking of any facility will be permitted before it has
been ensured that all required documents have been obtained
The DAC will not be issued unless all the required security/support
documentation have been received and lodged in the vault.
31
Except otherwise provided all documents received as security or support will

be lodged with CAD at branch or region which will constitute necessary
custodian
After receiving the documents CAD will issue DAC (Disbursement
Authorization Certificate)
6.7 CREDIT APPROVAL:
OBJECTIVE:
To approve all credits jointly by the designated officer and to ensure and achieve
the best credit judgments.
POLICY:
All credits will be approved by at least four (4) members of the credit committee. One
of the Credit Committee members individual limit must cover the amount of
proposal. The composition and respective limits of Credit Committees and individual
members will be decided and announced by the President from time to time.
CREDIT APPROVAL RESPONSIBILITIES
Each Credit Committee member will independently review the proposal, from
his own judgment and approve the credit. Written comments will be provided
by any of the Credit Committee members in case of his disagreement or any
amendment in the terms and conditions .credit.
32
6.8 CREDIT MANAGEMENT IN BANK AIMS & OBJECTIVES:

In order to ensure that desired directives are clear and communicated to the concerned
functionaries/departments, the Bank normally formalizes their credit policy manual
with the aim to achieve the following main objectives:
To define the credit policies

To maintain the desired mix and volume of loan portfolio in relation to the
Banks total deposits.
To ensure higher returns on Business Administrations
To improve the quality of Banks credit portfolio
To achieve targeted financial results with a higher degree of reliability and

avoid losses through a strong credit process and an efficient and effective risk
management system.
CHAPTER # 7
SWOT ANALYSIS
7.1 SWOT Analysis (Strength Weaknesses Opportunities & Threat)
The main purpose of doing SWOT analysis is to highlight all aspect of the bank. We
can say that it is a tool to get a quick overview of firms strategic situation etc. it is an
effective technique for analyzing the strengths, weakness, and opportunities and threat
to an organization. It tells about the firm position. It helps the readers to understand
the performance of the firm, bank etc vary easily. It forecast the future status and
points out the problems likely to come in achieving the specified objectives.
As like the other bank the BOK have some strength, weakness, opportunities and
threats, which are.
33
7.1.1 Strength
Strength is present within an organization and when utilized, become a means of
distinction from competitors.
BOK is a schedule commercial bank with good branch network in
NWFP.
Being a provincial govt. bank it is considered more secure.
Have branches in all the provincial capitals.
The banks offers new schemes and facilities from time to time which
keeps not only the clients of the bank committed but also leads to a
growing sound base of deposits.
Another leading point of the bank is the trust and help expressed by
international financial institutions like IFC and DEG, which have
opened new ways for the bank to generate funds.
The open communication system and friendly environment developed
by the Management and staff of the bank makes it very easy for the
Management of the bank to take the right decision at the right time.
Most of the banks in the country lack such type of environment.
As compared to the other Pakistani banks its staff is well qualified,
skilled, knowledgebase, courteous and can handle any situation
tactfully.
As it is provincial bank for KHYBER PAKHTUNKHWA so it is easily
access BOK to the business committee of the province.
The banks Head office in the Province so the business people can
easily access to the top management
Low level of employee satisfaction and commitment.
The bank employees are from the same province so they understand
the environment and easily meet the need of the people etc.
The bank has the authority to deal in foreign exchange and guarantee
for importers and exports
34
Due to provincial bank it knows the provincial market very well as

compare to other banks.
One of the major strength of the bank is Micro Business
Administration Unit (MFU) which ultimate goal is to Business
Administration the project in rural area and approve a small lone.
As it is provincial bank it has more branches and therefore accessible
to more potential customer then any other bank in the province.
7.2 Weakness
Weaknesses are the shortcoming in the structure or functioning of the organization
and need to be taken care of immediately. It is usually because of these weaknesses
that the competitors leave us behind in the race.
Lack of transparent system of recruitment and selection.
Numbers of branches are very low as compare to other bank for the
competition.
Unattractive branch locations and interior.
Most of the employees are not motivated and lack technical knowledge
and are scared about their career development.
Salary and other benefit are small in number.
As it is Provincial bank so there is some influence by the provincial
government in decision process.
No fix tenure for promotion.
Overstaffing.
Low level of employees satisfaction and commitment.
The space in BOK head office is very limited so the bank has shifted
some of their departments to State Life Building but still the
departments
are
overcrowded
which
affects
the
employees
performance at the head office.

The bank has no proper marketing.
35
Lack of sound training system according to organizational goals.

Over reliance on Govt. of KHYBER PAKHTUNKHWA deposits, few
deposits from private sector.
7.3 Opportunities
Opportunities are always present in the external market whoever grabs it first, is the
market leader.
Conversion of existing branches to Islamic banking.
As the situation in Afghanistan is getting better slowly and gradually
multinational companies and other Rehabilitation Agencies are
opening their offices in Afghanistan. To facilitate the rehabilitation
process and the trade between Afghanistan and other countries
including Pakistan. BOK should open their branches in Kabul and
Jalalabad inside Afghanistan and at Landi Kotal, Miran Shah and Para
Chinar in NWFP, Pakistan.
As BOK is planning to step in the Islamic Banking System so they
should capture this market before any competitor comes in.
Construction work is in progress on Deans Trade Center the biggest
Trade Center of Asia. It will attract the business community and
multinational companies to flourish over here. BOK can avail this
opportunity by opening a new branch in Deans.
The bank has opportunities to invest in the mineral resource sector of
the KHYBER PAKHTUNKHWA. As the lending rate are coming
down so the bank can Business Administration the small project vary
easily.
Access
to
gulf
countries
where
thousands
of
KHYBER
PAKHTUNKHWA manpower forces is working.

There is good opportunity for the bank to sponsor games on provincial
and national levels for its publicity.
Strong promotional strategies can attract huge deposits for the bank.
36
The bank can expend their branch to other industrial cities in the
country.
The bank has a major opportunity to invest in different project in
Afghanistan.
The bank has also to invest in small loan to promote leather products.
In the present time the Overseas Pakistani are interested to invest in
Pakistan so the bank has the opportunity to invest with them in a
different project.
The bank has an opportunity to invest in the new mark segments like
IT, business, software business etc.
Offering of credit facilities to middle and lower in come groups can
reduce the default risk and can enhance the bank good will and
profitability.
7.4 Threats
Threats are also part of your external environment and pose a constant danger to an
organizations operations. However, a proficient is the one that converts these threats
into opportunities for it.
Increasing number of private foreign bank in the country.

The e- banking facility offered by different national and international
banks is a serious threat to BOK. The bank should soon offer the ebanking facility to maintain their customers.
The low rate of savings in the country is a serious threat to BOK. They
should aware the general public about the advantages of savings and
investments.
Global technology advancement.
The disturbed political and legal environment of the country is also a
threat to the bank.
37
Reducing in business activities.

The decreasing confidence of people on commercial banks on the basis
of offering low returns and charging high interest rates is a threat to the
BOK also.
The failure of other KHYBER PAKHTUNKHWA based banks has
shattered the bank image and the confidence of the investors.
No proper marketing of the BOK.
Quality services provided by the private bank.
CHAPTER # 8
FINANCIAL ANALYSIS
8.1 THREE YEARS BALANCE SHEET
ASSETS
2012
2013
2014
38
Cash & balances with treasury banks
32,687,335
24,789,070
19,708,518
Balances with other banks
21,581,043
9,713,369
3,183,957
Lending to financial institutions
3,315,500
27,050,493
Investments
75,9732,38
57,416,255
-35,503,196
Advances
192,671,169
118,864,010
83,931,400
Fixed assets
13,773,293
6,620,067
4,280,504
Deferred tax assets

Other assets
8,989,186
275,685,541
Liabilities
3,851,529
328,895,152
2012
3,226,959
348,990,764
2013
2014
Bills Payable
32,687,335
24,789,070
19,708,518
Borrowings
21,581,043
9,713,369
3,183,957
Deposits & other accounts
3,315,500
27,050,493
Sub- Ordinated loans
75,9732,38
57,416,255
-35,503,196
Lia against asset subj to finance lease
192,671,169
118,864,010
83,931,400
Fixed Liabilities
13,773,293
6,620,067
4,280,504
Deferred tax liabilities

Other liabilities
8,989,186
263,443,596
3,851,529
312,675,308
3,226,959
331,946,025
39
8.2 THREE YEARS PROFIT AND LOSS STATEMENT

Liabilities
Mark-up / return / interest earned
2012
43,788,628
2013
2014
50,569,481
60,940,798
Mark-up / return / interest expensed
13,634,912
16,940,011
23,884,768
Net mark-up / return / interest income
30153,716
33,629,470
37,058,030
3,075,723
4,723,084
10,590,565
(709,461)
(40,248)
373,249
Provision against non-performing advances

Provision for / (reversal of) diminution in the value of
Investments
Provision against off balance sheet obligations
Bad debts written off directly
5,284
Net mark-up /interest income after provisions
4,000
39,899
____-___
2,371546
4,722,735
10,970,814
27,782,170
28,906,735
26,087,216
Non mark-up / interest income
6,144,628
6,781,683
7,925,370
Fee, commission and brokerage income
2,891,755
3,263,246
2,878,932
Dividend income
1,333,840
1,042,827
3,969,057
Income from dealing in foreign currencies
1,169,515
2,341,690
395,427
Gain on sale of securities-net
(4,464)
(31,964)
Unrealized gain/(loss) on revaluation of investments
627,618
147,363
i)
1,707
Classified as held for trading
12,162,892
13,544,845
1,245,369
Other income
39,945,062
42,451,580
16,415,862
Total non-markup / interest income

ii)
Non mark-up / interest expense
42,503,078
13,443,441
14,205,911
Administrative expenses
(17,283)
168,027
18,171,198
Other provisions / write offs
208,327
17,141
747,521
13,634,485
14,391,079
583,361
26,310,577
28,060,501
19,502,080
Other charges
Total non-markup / interest expenses
Extra ordinary / unusual items
iii)
Profit before taxation
Taxation - Current
iv)
26,310,577
28,060,501
23,000,998
-
8,695,598
8,311,500
23,000,998
- Prior years
530,652
391,497
11,762,650
- Deferred
61,981
323,731
Profit after taxation
9,288,231
9,026,728
Unappropriated profit brought forward
17,022,346
19,033,773
Transferred from surplus on revaluation of
19,372,523
32,074,677
--------------
39,007
fixed assets on account of incremental depreciation

Profit available for appropriation
36,394,869
51,147,457
(4,220,240)
7,542,40815
,458,590
45,344,188
130,456
60,933,234
20.88
23.34
17.48
(Data Source: BOK Financial Statements)
8.3 RATIO ANALYSIS

40
Ratios provide the means of showing the relationship, which exists between, figures
of the Balance Sheets and Income Statements. The analysis is undertaken to assess
important characteristics of business like liquidity, solvency and profitability. A study
of these aspects enables drawing conclusions as to financial requirements and
capabilities of business units. Ratios may be classified in a number of ways to suit any
particular purpose. Different kinds of ratios are selected for different types of
situations. Some of the ratios calculated for BOK are given below.
8.3.1 LIQUIDITY RATIO
Comparison gives an indication of the short-term debt paying ability of an entity.
Since a bank is also a business firm so to maintain adequate liquidity is also crucial to
carry out business activity.
8.3.1.1 Current Ratio
It is used to measure the ability of an enterprise to meet its current liabilities out of
current assets.
Current Ratio = Current Assets / Current Liabilities
(Rupees in000)
2012
2013
2014
Current Assets
19,425,608
29,526,710
33,228,530
Current liabilities
16,952,908
26,983,946
29,328,629
1.15
1.09
1.13
Current Ratio
INTERPRETATION
The current ratio of BOK, for the year 2014, is 1.13 times of current liabilities. It is
good to meet the short-term obligations, when compared with the current ratio 2013,
which is 1.09 times of current liabilities. The company should maintain minimum
limit of current ratio for Bank i.e.1.
8.3.1.2 Net Working Capital
Working capital compares current assets to current liabilities, and serves as the liquid
reserve available to satisfy contingencies and uncertainties. A high working capital
balance is mandated if the entity is unable to borrow on short notice. The ratio
41
indicates the short-term liquidity of a business and in determining if a firm can pay its
current liabilities when due.
Net Working Capital = Current Assets Current Liabilities
(Rupees in 000)
2012
2013
2014
Current Assets
19,425,608
29,526,710
33,228,530
Current liabilities
16,952,908
26,983,946
29,328,629
2,542,764
3,899,901
Net Working Capital
2,472,700
INTERPRETATION
Net working capital of 2014 increases from year 2013. This is safety cushion to
creditors. The volume of net working capital is showing positive trends.
8.3.2 DEBT RATIOS / SOLVENCY RATIONS
Solvency is a companys ability to meet its long-term obligations as they become due.
An analysis of solvency concentrates on the long-term financial and operating
structure of the business.
8.3.2.1 Debt to Asset / Debt Ratio
Provides information about the company's ability to absorb asset reductions arising
from losses without endangering the interest of creditors.
Debt Ratio = Total Liabilities / Total Assets
(Rupees in 000)
2012
2013
2014
Total Assets
21,308,247
32050073
35,368,894
Total liabilities
16,952,908
26,983,946
29,328,629
0.7956
0.8419
0.8292
Debt Ratio
DEBT RATIO
42
INTERPRETATION
Creditors prefer low debt ratio, debt ratio shows that how much asset the company has
to honor their obligations. This ratio is increased from 0.8419 to 0.8292. This is a
good for the company because the company has 1 asset to pay 0.8292 debts.
8.3.2.2 Debt to Equity Ratio
Indicates how well creditors are protected in case of the company's insolvency. The
debt to equity is a significant measure of solvency since a high degree of debt in a
capital structure may make it difficult for the company to meet interest chargers and
principal payments at maturity.
Debt to Equity Ratio = Total Debt / Total Stockholders Equity
(Rupees in 000)
2012
Total Debt
Total Equity
Debt to Equity Ratio
2013
2014
26,983,946
29,328,629
5,126,230
6,017,780
6,776,030
3.307
4.484
4.328
16,952,908
INTERPRETATION
Debt to equity ratio is the relationship borrowed funds and owners capital and equity
multiplier is the relationship between total assets and total equity. But it is good that
the ratio is decreasing in 2012 than 2014. The overall leverage position is showing
better trend as compare to previous years.
8.3.3 PROFITABILITY RATIOS
This ratio shows that what percentage of net profit to the total income is.
8.3.3.1 Net Profit Margin
This ratio measures the firms profitability of sales/ interest earned after taking
account of all expenses and income taxes. This ratio can be calculated as:
43
Net Profit Margin = Net Profit / Revenue *100

(Rupees in 000)
2012
Net Profit
2013
2014
1,903,377
1,545,859
4,378,862
5,056,948
6,094,079
38.87%
37.64%
25.37%
1,702,234
Revenue
Net Profit Margin
NET PROFIT MARGIN

INTERPRETATION
From the calculation it is very much clear that the performance of BOK is very good
still to 2012. And the trend is upward. It tells us a firms net income per rupee of
revenue. As the trend is upward it shows the high profits in revenue per rupee in case
of BOK. It is because of high advances the BOK has given to the people but in 2013
the ratio trend is downward which not good for BOK.
8.3.3.2 Return on Equity

Measures the income earned on the shareholder's investment in the business.
Return on Equity = Net Income / Average Total Equity
(Rupees in 000)
2012
Net Profit
1,702,234
2013
2014
1,903,377
1,545,859
(After Tax Profit)

Total Equity
5,304,464
6,927,063
8,136,700
Return on Equity
32.09%
27.48%
18.99%
INTERPRETATION
It is decreasing every year with different rate. This condition is not good for BOK
because every investor want to earn high income on his investment.
8.3.3.3 Return on Total Assets
Measures the company's ability to utilize its assets to create profits.
44
Return of Total Assets = Net Income / Average Total Assets *100

(Rupees in 000)
2012
Net Profit
1,702,234
2013
2014
1,903,377
1,545,859
(After Tax Profit)

Total Assets
63,513,271
76,219,359
81,775,832
Return on Total
2.68%
2.50%
1.89%
Assets
INTERPRETATION
The results show that the Return on Asset are decreased which show that the BOK
Assets are not properly utilize in 2014 or may be there are no proper environment for
Banking sector because in 2013 Pakistan face the economic crisis.
8.3.4 BANK SPECIAL RATIO
8.3.4.1 Investment to Asset Ratio
Investment to Total Assets = Investment / Total Assets
(Rupees in 000)
2012
Investment
Total Assets
Investment to Total
2013
2014
3,019,266
2,822,723
21,308,247
32,050,073
35,368,894
0.14
0.09
0.08
2,974,087
Assets
INTERPRETATION
45
This ratio indicates that out of total asset how much bank utilize its asset for further
investing. This ratio in decrease in 2014, which is not useful for the bank to enhance
its revenues.
8.3.4.2 Advances to Deposit Ratio
Advances to Deposit Ratio = Total Advances / Total Deposit
(Rupees in 000)
2012
Total Advances
Total Deposit
2013
11,347,979
2014
18,073,501
20,589,613
16,114,461
25,458,910
27,980,906
70.42%
70.99%
73.58%
Advances to Deposit
Ratio
INTERPRETATION
Loans or advances are the major assets of a bank while deposits are major liabilities
of a bank. Higher ratio shows the better solvency of bank.
8.3.4.3 Cash to Deposit Ratio

Cash to Deposit Ratio = Cash / Deposit
(Rupees in 000)
2012
2013
2014
Cash
1,992,425
2,691,572
2,932,264
Total Deposit
16,114,461
25,458,910
25,980,906
12.36%
10.57%
11.29%
Cash to Deposit
Ratio
INTERPRETATION
This ratio shows that how much cash you have to pay the liabilities (deposits). As this
ratio show that company has fewer amounts of cash than deposits. It also indicates
that bank is investing so the bank is enhancing its business. But at the same time it
could be risk for bank for liquidation.
46
8.3.4.4 Equity to Assets

Equity to Assets = Equity / Total Assets
(Rupees in 000)
2012
Equity
2013
5,126,230
Total Assets
2014
6,017,780
8,136,700
21,308,247
32,050,073
35,368,894
24.06%
18.78%
19.16%
Equity to Total
Assets
INTERPRETATION
This ratio shows the position of equity in total assets of business. This ratio is in
increasing trend. But the bank should increase its equity by increasing the wealth of
shareholders.
8.3.4.5 Equity to Deposits

Equity to Deposit = Equity / Deposits
(Rupees in 000)
2012
Equity
2013
5,126,230
2014
6,017,780
8,136,700
Total Deposits
16,114,461
25,458,910
25,980,906
Equity to Total
31.81%
23.64%
31.32%
Deposits
INTERPRETATION
This ratio shows that how much equity part is there in total structure. The capital
advocacy requirement is 28%. The bank was not fulfilling the requirement in 2013 &
2014but now bank has 31.32%, which is good.
8.3.4.6 Earning Per Share
Earning Per Share = Net Income / No of Ordinary Shares
47
(Rupees in 000)
2012
Net Profit
2013
1,702,234
(After Tax Profit)

No of Ordinary
2014
1,903,377
1,545,859
70,907,129
81,543,198
89,697,510
24
23.34
17.23
Shares
Earning Per Share
(EPS)
INTERPRETATION
As their earnings per common share is good year by year it mean that results of the
ratio indicate that firm has paid a handsome return on investment showing the profit
generations. Because the companys net income is increasing gradually. As shown
above the bank basic earning per share is increasing due to increase in net income.
This shows how mush profit each share has earned in any particular year. It is most
important ratio for peoples who decide about investing their money. Although it
decreased in 2014 but the overall performance is good.
8.3.3.3 Return on Total Investment
Measures the income earned on the shareholder's investment in the business.
Return on Investment = Net Income / Total Investment
(Rupees in 000)
2012
Net Profit
(After Tax Profit)
Total Investment
Return on
1,702,234
2013
2014
1,903,377
1,545,859
5,304,464
6,927,063
8,136,700
32.09%
27.48%
18.99%
Investment
INTERPRETATION
It is decreasing every year with different rate. This condition is not good for BOK
because every investor want to earn high income on his investment.
48
8.3.3.3 Return on Fixed Assets

Measures the company's ability to utilize its fixed assets to create profits.
Return on Fixed Assets = Net Income / Average Fixed Assets *100
(Rupees in 000)
2012
Net Profit
2013
1,702,234
(After Tax Profit)

Total Fixed Assets
2014
1,903,377
1,545,859
63,513,271
76,219,359
81,775,832
2.68%
2.50%
1.89%
Return on Fixed
Assets
INTERPRETATION
The results show that the Return on Asset are decreased which show that the BOK
Assets are not properly utilize in 2014 or may be there are no proper environment for
Banking sector because in 2013 Pakistan face the economic crisis its assets to create
profits.
8.4 VERTICAL ANALYSIS
In vertical analysis a significant item of a financial statement is used as a base value,
and all other items of the financial statement are compared to it. In balance sheet, total
assets are assigned 100%. Each asset account is expressed as a percentage of total
assets. Total liabilities and stockholders equity is also assigned 100%. Each liability
and equity account is then net income is given the value of 100% and all other
amounts are evaluated in comparison to net sales. The resulting figures are then given
a common size statement.
Vertical Analysis (Rs 000)

Bank of Khyber Pakistan Ltd. Balance Sheet
For the year ended Dec 31, 2014
49
ASSETS
2012
2013
2014
12.38
12.45
13.03
6.40
4.92
4.69
Investments-net
22.03
27.70
20.89
3.62
2.82
2.09
Advances- net
49.77
44.65
50.50
Operating Fixed assets
1.52
3.40
2.96
0.39
4.27
4.07
5.45
Deferred Tax Assets

Other assets-net
Total Assets
100
100
100
LIABILITIES
Bills Payable
1.92
1.09
1.45
Borrowings
2.12
1.68
5.65
90.2
91.65
87.36
Liabilities against asset subject to finance
.002
0.005
.003
0.43
0.78
0.00
5.80
4.79
5.54
100
100
100
Share capital
8.65
7.00
8.75
Reserve
16.94
13.56
19.46
Unappropriated profit
39.14
38.98
51.19
64.73
59.55
79.40
35.27
40.46
20.60
lease
Deferred tax liabilities-net
Other liabilities
Total liabilities
NET ASSETS PRESENTED BY
Surplus on revaluation of assets
Total Liabilities and Equity
100
100
100
Bank of Khyber Pakistan Ltd.

Profit & Loss Account
Vertical Analysis (Rs 000)
50
2012
2013
2014
%
100
%
100
%
100
31.63
33.50
39.19
Net mark-up / return / interest income
68.37
66.50
60.81
Provision against non-performing
6.97
9.34
6.98
(1.61)
(0.08)
0.61
0.006
Investment
0.01
0.08
Provision against off balance sheet
5.37
9.34
7.96
63.00
57.16
52.85
13.93
13.41
13.21
6.56
6.45
3.16
Dividend income
3.02
2.06
6.64
Income from dealing in foreign
2.65
4.67
1.04
(0.01)
(0.06)
0.21
1.42
0.29
0.23
27.57
26.78
26.54
90.58
83.95
70.64
30.48
28.09
26.21
(0.04)
0.33
0.41
0.47
0.03
0.85
30.92
59.66
28.46
55.49
31.73
38.91
advances
Provision for diminution in the value of
obligations
Net mark-up /interest income after provisions
Non mark-up interest income

Fee, commission and brokerage
income
currencies
Gain on sale of securities-net
Unrealized gain/(loss) on
revaluation of investments
Other income
Other charges
Total non-markup / interest expenses
Profit before Taxation
51
Taxation Current
- Prior years
- Deferred
Profit After Taxation
Unappropriated profit brought
forward
19.72
16.44
19.03
1.20
0.77
0.14
21.06
38.60
0.64
17.85
37.64
(6.92)
12.11
26.68
44.24
63.42
74.40
0.08
0.21
82.84
101.14
101.29
Transferred from surplus on

revaluation of fixed assets
on account
of incremental depreciation
Profit available for
appropriation
In balance sheet of bank the most important item is earning assets. There are four
earning assets. Bank has strong earning assets like advances investments and lending
to financial institutions has major percentage in of assets of bank. In liability and
equity analysis the borrowing from financial institutions and deposits have major
portion and reserve and share capital has major portion in equity. Out of the three
earning assets (lending to financial institutions, advances and investments) only
advances have recorded a growth while Lendings to financial institutions and
Investments fell respectively.
Vertical analysis of profit and loss shows increase or decrease in each item as a
percentage of sales means that sales are chosen as key figure. As we have seen in the
table the interest expense is increasing with the turnover so the bank is more utilizing
on expenses. Net Interest income was 10% higher this year to Rs 37.058 billion owing
to volume growth. The interest earned in the 12 months of 2014 is 21% higher than
that of 2013 but it was matched by more than proportionate increase in the interest
expenses, which rose by 41%. So in vertical analysis the net interest income is
decreased in 2014 as compare to 2013.
BOK directors give some of reasons in increasing in interest expenses.
Firstly, the banks have been imposed a minimum of 5% deposit rate on all the
savings schemes. This had previously been left at the banks' discretion as to how
much they have to pay. A few of the banks have also been penalized by the SBP for
acting like cartel in deposits.
52
Secondly, there has been other attractive scheme from the National Savings,
which offered better rates and drained the liquidity from banking sector.
Furthermore, the economy was going through high inflation, so the people were
not too optimistic about saving in banks as the money was losing its value very fast.
Administrative expenses shows decreasing trend also the profit after tax is in
decreasing position during last two years, that position in not good for the company.
Only profit available for appropriation is increasing as compare to previous years,
which is 101.29% in 2014.
8.5 HORIZONTAL ANALYSIS

In horizontal analysis different periods data is compared and in one year item is
selected and item is compared with the same category of item of next period. In this
analysis the year should be consecutive for the analysis and then percentage
difference is taken to see the performance over the period of time. This analysis is
used to evaluate the trend in the accounts over the year.
53

Balance Sheet
Horizontal Analysis (Rs 000)
2012%
2013%
2014%
ASSETS
20.67
12.26
11.35
(7.80)
2.32
20.41
(6.73)
(20.02)
(40.25)
Investments-net
50.87
(19.09)
(15.50)
Advances- net
7.65
21.35
15.55
167.74
6.58
24.12
14.31
43.73
7.69
20.01
7.29
23.37
44.71
24.60
Operating Fixed assets

Other assets-net
Total Assets
100
LIABILITIES
Bills Payable
(33.41)
Borrowings
(6.99)
17.94
Liabilities against asset subject to finance
153.52
lease
113.56
Deferred tax liabilities-net
16.07
Other liabilities
Total liabilities
16.75
274.09
6.24
(24.67)
(100)
28.17
10.75
(90.90)
25.17
(32.15)
25.14
23.45
(24.69)
100
54
NET ASSETS
PRESENTED BY
Share capital
Reserve
Unappropriated profit
15.00
13.64
41.37
30.59
10.00
19.35
26.43
30.22
15.68
16.35
17.46
25.35
62.81
(55.18)
41.95
(11.93)
(41.89)
Surplus on revaluation of assets
Total Liabilities and Equity
49.38
100
55

Profit & Loss Account
Horizontal Analysis (Rs 000)
2012
14.67
2013
20.93
2014
35.23
40.96
10.84
22.48
30.15

Net mark-up / return / interest
21.46
11.53
income
66.50
Provision against non-performing
53.56
124.23
46.25
advances
-94.33
-265.22
175.25
Provision for diminution in the value
53.56
-92.13
40.35
of Investment
655.09
-89.97
-35.45
Provision against off balance sheet
99.14
133.13
55.16
obligations
Net mark-up /interest income after
4.05
-9.14
40.75
provisions
Non mark-up interest income
57.16
10.37
17.75
20.89
12.85
(36.04)
64.23
Dividend income
(21.82)
285.6
236.25
Income from dealing in foreign
100.23
(83.04)
(75.16)
616.04
(502)
(302)
(76.52)
745.10
421.23
Fee, commission and

brokerage income
currenciesGain on sale of securitiesnet

Unrealized gain/(loss) on
revaluation of investments
11.36
21.19
25.36

Other income
6.27
0.12
27.26
83.95
56

5.67
29.27
24.25
1072.21
344.88
362.21
Other charges
(91.77)
347.19
204.10
Total non-markup / interest
5.55
expenses
Profit before Taxation
55.49
35.51
70.29
(4.42)
41.95
40.36
- Prior years
(26.22)
(100)
90.25
- Deferred
Profit After Taxation
422.31
11.82
Taxation Current
36.88
(1403.62)
(18.73)
60.25
(1254)
52.45
37.64
65.57
41.37
100.45
100
234.44
175.88
depreciation
Profit available for
40.38
19.13
72.65
appropriation
101.14
Unappropriated profit b/f transferred

Trans from surplus on revaluation of
fixed assets on account of incremental
The horizontal analysis of the balance sheet of the bank shows that current assets
increases over the period of time, the increase in cash and decrease in loan shows that
company wants to have more cash in hand rather than lending it to others and losing
the return on that investment. as for as the fixed assets of company are concern they
are showing increasing trend and same is case with the current and long term
liabilities but the increasing trend in assets is lower than the increasing trend in
liabilities which in not a good position for the bank .as shown in the table borrowing
are more increase in 2014.
The horizontal analysis of Profit & Loss account of years 2012-2014 shows a
continuous decrease in mark up, non mark up and also there is a rapid and huge
57
decrease in the profits in 2013. The administrative expenses have been decrease in
2013 but again it will increase in 2014
The income after tax is decrease, which was 19% lower than the income earned in
2012. The bank profits before tax are increasing trend, which is 18% higher than the
previous year of 2013. The management of the bank gives many reasons of the radical
change in profitability. First of all, adverse economic conditions domestically, the law
and order, power shortages, record high inflation, liquidity in the banking system,
steep rise in interest rates, increase in government borrowing from the central bank,
rising import bill and resulting growth in fiscal deficit.
The interest expense is also increase in 2013-2014. The management give different
reasons that the banks have been imposed a minimum of 5% deposit rate on all the
savings schemes. This had previously been left at the banks' discretion as to how
much they have to pay. A few of the banks have also been penalized by the SBP for
acting like association in deposits. Secondly, there has been other attractive scheme
from the Savings, which offered better rates and drained the liquidity from banking
sector. Furthermore, the economy was going through high inflation, so people were
not too optimistic about saving in banks as the money was losing is value very fast.
The provisions against non-performing loans were 124% higher as compared to 2012.
The advances recorded an increase because the bank was lending though very
prudently due to increasing NPLs (Non-performing loans). Along with the increase in
Advances, the composition has also changed a bit. A shift from long-term to shortterm loans is observed.
58
CHAPTER # 9
RECOMMENDATIONS
& CONCLUSION
BOK has a very important role in the economy of Pakistan. It has a significant share
in the up gradation of banking sector of Pakistan and also in the development of the
people of Pakistan.
BOK (Abbottabad) is getting better and better with every passing year which shows
that bank has sufficient funds to overcome the liabilities. The profitability position
shows decline with the passage of every years. It is not good because they have low
profit and they will have not much to pay shareholder.
The over all consolation after the financial analysis is that although BOK is
performing excellent job in the banking sector and has a high and gradually position
but still its profit is declining either in return on assets, return on equity which is a
discouraging thing for the existing as well as interesting shareholder and it is due to
the insufficient use of assets and unnecessary expenditure.
During the short span of two months internship in BOK Abbottabad branch and
roughly spent one week on each counter, this short span is not sufficient for having all
the information about the organization. But although though some observations it is
pointed out that there are some shortcomings in the bank, which are absorbed and
experienced, and also narrated by the concerned personnel of the bank
9.0 Recommendations
The Bank of Khyber is a new emerging bank and it is trying to get the market share in
the presence of national and foreign banks. It has played an important role in certain
areas, but there always exists some room for improvement. The following findings
and recommendations are based on personal observations and analysis.
The given recommendation will help to cope the problems being faced by the bank
and Will enhance the efficiency and performance of the BOK.
59
9.1
Bank of Khyber can improve the profit by adopt following
policies.
Forecasting:
Efficient forecasting may increase the profitability of the any organization. So
Forecasting needs to be introduced at BOK. Before packing any major decision it is
proper to judge decision, which they are likely to take, have any good or bad
implications for the bank and for the economy as a whole. It will help in better
planning.
Cost minimizing Strategy:
Decreasing the administrative expenses this was very high in 2013. That can be done
by lying off the surplus pool of employees with golden handshakes scheme. The
branches that are not much used could also close. That will give the positive result to
overcome the unnecessary expense and improve the profit.
Needs to be flexible in credit Policy:
BOK is very conservative in advances and loans policy it reduces the investment
opportunities. Also loans should be given to the small businessmen and the agriculture
sector at high markup rate. It should adopt credit policy while giving credit to
agriculture sector
Marketing Policy:
The branch should adopt various marketing strategy and promotion strategy to
promote the bank and its products. The most important in my opinion personal
marketing; it is the most effective of all when u think in term of branch level. But on
the whole organization level, they should arrange the seminar with in the bank and out
side the bank.
They should various prizing scheme just like allied bank (kar amed scheme) bank
Alfalfa (monthly income earning scheme) and various others. With the help of these
policies BOK can improve the profit in future.
9.2
TRAINING PROGRAM:
The BOK does not have its own training academy. The training to newly recruited
Employees are given in the training academies of other banks. Similar is the case for
Existing employees to fulfill the requirements of training of the new and existing
60
Employees the BOK should establish the training academy. This will enable the
employees to receive training of the peculiar and specific working functioning of the
BOK
9.3
NEGLIGANCE OF HUMAN RESOURCE RULES:
In many organizations, human resource department is considered to be the key

department as it focuses on providing the organization with skilled personnel. In BOK
the prescribed rules are not being followed in their true spirit. It is recommended that
selection should strictly be made on the merit basis. Moreover, the employees should
be given job security they can concentrate on their jobs without any fear of losing the
job.
9.4
EDUCATING IN THE COMPUTER EXPERTISE:
BOK should take some steps in educating its employees in computer education. This
will enable them to work more efficiently towards the achievement of organizational
goals. The bank should float their shares and should raise their paid up capital to meet
the fund needs of the bank in future.
9.5
MISUSE OF OFFICE EQUIPMENT:
Misuse of telephone Internet, fax machines and other facilities available to the
employees of the bank must be handled properly.
9.6
RECRUITMENT ON MERIT BASIS:
In the BOK mostly recruitment are done through recommendation of the employees
or connecting play an important role in recruitment decisions. Recruitment should be
strictly on merit basis with no other favor given to any candidates. Selection should be
on the Basis of test and interview as like in Muslims commercial bank Ltd (MCB) and
other Banks etc. this will ensure the entry of competent and worthy employees in to
the bank.
9.7 SCHOLORSHIP PROGRAMS
Scholarship programs should be designed for senior employees and branch managers.
The Book should get into contract with top foreign universities. Every year the bank
61
Should Business Administration and send their senior managers for further education
abroad. After Completion of higher education the employees will be in a better
position to attain the strategic objectives of the bank and increase the over all business
and profitability portfolio of the bank.
9.8 IMPROVEMENT OF BRANCH NETWORK

The BoK has 34 branches all over Pakistan and Azad Kashmir. 23 of the total
branches are located in N.W.F.P. and there is only one branch for the whole of Punjab
province located in Lahore. For Sindh province there are two branches both located in
Karachi and similarly one branch for whole Azad Kashmir and one for Islamabad This
branch network is too small to compete with other banks. The branch network should
be improved and number of branches should increase to reach and provide services to
maximum number of customers.
9.9 SHORTAGE OF EMPLOYEES

Shortage of employees increases the workload on existing employees and
ultimately reduces the output and motivation level of employees. To overcome
this problem job descriptions should be revised and grouped together in order
to create new jobs.
Recruitment should be done in order to fill out these new vacancies. This way the
workload on employees will be reduced, operations will be stream lined and
employees will feel comfortable in performing their duties.
9.10
STAFF BEHAVIOUR
The behavior of the staff with customers is not very good. It needs improvement, and
should train employees regarding customers needs and requirements. In societal
marketing approach customer is the king. Also Lack Of Coordination among
employees.
62
REFERNCES
Books & Journals
1. Avashti, Shariran, (1983), Public Administration; sixth Ed, New

York: MC Graw Hill Book Company.
2. Asrar, H. siddique, (1983), Practice and law of banking in Pakistan;
3rd Ed, Royal Book Co. Karachi.
3. Chhabra, T.N (1985), Principles and practice of management;
Delhi, D.R printing services.
4. Chruder Sherman, (1983) managing human resources; 7 th Ed,
South Western pub.Co. Dallas, n.d.
5. Dewitt, K.K (1984), modern economic theory ; 3 rd Ed, Bombary:
move publishing company.
6. Bank of Khyber, Annual Reports (2012,2013,2014)
WEB
1. http://www.BOK.com.pk/annualreports.html
2. http://www.google.com
3. http://www.sbp.org.pk
63

Chapter # 1: Introduction To The Report

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Chapter # 1: Introduction To The Report

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CHAPTER # 1

INTRODUCTION TO THE REPORT

Students of BBA (HONS) Finance studying courses leading to Bachelor degree in

Scheme of the Report

Introduction to the Report,

Review of the Organization

Recommendations in order to improve the discrepancies

INTRODUCTION TO BANK OF KHYBER

HISTORICAL BACKGROUND OF THE BANK OF KHYBER

Scheduled Bank Status

The Paid up Capital of the Bank

CORE VALUES OF BANK OF KHYBER

Highest quality of service

2.11 OBJECTIVES OF BANK OF KHYBER

To promote industrial agricultural and socio -economic processes

2.12 Functions of bank of Khyber

2.12.1 To Accept Deposits

2.12.2 Current Deposits

2.12.3 PLS- Saving Deposits

2.12.4 Fixed Deposit Account

2.12.5 To make Advances

2.12.6 Agency Services

3.2 MANPOWER POSITION

3.3 ORGANIZATIONAL STRUCTURE OF BANK OF KHYBER

departmentalization. Functional approach to departmentalization means grouping

The nomenclature of various posts in the bank is as under:

Executive Vice President

Senior Vice President

Assistant Vice President

3.5 DEPARTMENTALIZATION OF BOK:

Departmentalization is the process of grouping jobs according to some logical

departmentalization. Functional departmentalization means where grouping of jobs

Business Administration Division

Islamic Banking Division

Internal Audit Division

Information Technology Division

Human Resource Division

Treasury and Investment Division

Banking operations Division

3.6 Credit Division:

3.7 Business Administration Division:

3.8 Islamic Banking Division (IBD):

3.9 Internal Audit Division (IAD):

3.10 Information Technology Division (ITD):

3.11 Human Resource Division (HRD):

3.12 Treasury and Investment Division:

3.13 Banking Operations Division:

3.15 BOK Plan For Future:

Reserve for contingency

4.1.5 Other Borrowing

4.2 Uses of Funds

4.2.1 Primary Reserve

4.2.2 Bank Loans

4.3 SOURCES OF INCOME OF BANK OF KHYBER

BOK also received

BOK is performed different services for its customers and

4.4 EXPENSES OF BOK

CASH, REMITTENCES, CLEARING DEPARTMENTS

Function perfumed by cash and deposit department in BOK Abbottabad

NATURE OF ACCOUNTS IN BOK

PLS Saving Account:

5.2 Remittances department:

5.2.1 Demand draft (D.D):