Professional Documents
Culture Documents
CHAPTER -1
I selected the Bank of Khyber of Pakistan for my internship, and this report is
concerned with the banking function in Bank of Khyber. The internship is to serve the
purpose of acquainting the students with the practice of knowledge of business
administration.
The main purpose of this study is to fulfill the requirements of Bachelor Degree in
Business Administration (Major Finance) at University of Peshawar, and to get the
relevant information in order to complete this internship report.
The scope of the study is to inform the banking function of IBD of BOK as well as its
entire department, its products, services and on its functions and procedures.
Two months rigorous internship in the BOK, give me knowledge and confidence
to write this report. Every effort has been made to collect data and information about the
working of the organization however the following data collection methods have been mainly
used for the completion of this report.
a. Observation
Being an internee in Head Office of the Bank of Khyber, I observed all the
practices and dealing in the whole office, which helped me to have deep insight about the
problems and issues concerning the bank.
b. Discussions
To know about employee’s commitment, motivation and their out look towards
the management of the bank, I Discussed many issues with the Head of the department,
senior member and with lower level management member.
The data collected earlier by someone else and which has gone through
mathematical and statistical techniques after its collection, is called secondary data.
Secondary data has been collected from different sources of the bank including
Annual reports,
Information memorandum,
Bank manuals, training manuals,
Service role of the bank and all the other documents provided to me by the bank.
News papers and magazines
Internet websites
Section-I
Chapter One contains the background of study, purpose of study, scope of study and
research methodology.
Section-II:
Chapter Two containing History of Banking.
Chapter Three containing Banking Sector.
Chapter Four containing Introduction, vision, mission, objectives and organizational structure
of BOK.
Chapter Five containing Products and different departments of the head office.
Section-III
Chapter Six containing Recommendations and Implementation.
Section-IV
Chapter Seven containing financial analysis, Ratio Analysis, SWOT analysis, and Suggestions.
CHAPTER- 2
Chapter 1
HISTORY OF BANKING
Institution for receiving, lending and safeguarding money. It may receive money
on deposit, cash checks, or bills of exchange, make loans, discount commercial paper,
and issue bank notes (promissory notes payable to bearer).
It has not so far been decided as to how the word 'Bank' originated. Some authors
opine that this word is derived from the words 'Bancus' or 'Banque' which mean a bench.
The explanation of this origin is attributed to the fact that the Jews in Lombardy
transacted the business of money exchange on benches in the market-place; and when the
business failed, the 'Banco' was destroyed by the people. Incidentally the word 'Bankrupt'
is said to have been evolved from this practice. The opponents of this opinion argue that
if it was so, then how it that the Italian money changers were naver is called 'Banchierei'
in the Middle Ages?
Other authorities hold the opinion that the word 'Bank' is derived from the
German word 'Back' which means 'joint stock fund'. Later on, when the Germans
occupied major part of Italy, the word 'Back' was initialized to 'Bank'.
It is therefore, not possible to decide as to which of the opinions is correct, for no record
is available to ascertain the validity of any of the opinions.
Despite the classical origin, banking in its modern form and structure started in
Britain when many of the Lombardy merchants came to England in the fourteenth
century and settled in the parts of the city of London now called Lombard Street. They
were so resourceful that even the Kings had to depend on them for loans despite the fact
that the Church was firmly against usury. They with not only keeping the money in safe
custody but also changed money for the travelers or merchants engaged in foreign trades.
Consequently this business was taken over by the goldsmiths who, up to that time, were
dealing only in gold and silver. They introduced necessary facilities of safe-keeping of
the valuables and cash of their customers. These goldsmiths issued receipts or notes to
their depositors in respect of the cash or articles left with them. These were called
Goldsmiths Notes, and carried an undertaking to return the money and articles to the
depositors or bearers on demand.
CHAPTER – 3
Chapter 1
BANKING SECTOR
At the time of independence, the areas which now constitute Pakistan were
producing only food grains and agricultural raw material for Indo-Pakistan subcontinent.
There were practically no industries, and whatever raw material was produced was being
exported from Pakistan. However, commercial banking facilities were provided fairly
well here.
As a new country without resources it was very difficult for Pakistan to run its
own banking system immediately. Therefore, in accordance with the provision of Indian
Independence Act of 1947, an Expert Committee was appointed to study the issue. The
Committee recommended that the Reserve Bank of India should continue to function in
Pakistan until 30th September 1948, so that the problems of time and demand liability,
coinage, currencies, exchange etc. be settled between India and Pakistan. It was also
stipulated that Pakistan would take over the management of public debt and exchange
control from Reserve Bank of India on 1st April, 1948, and that the Indian Notes would
continue to be legal tender in Pakistan till 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.
There were 19 non-Indian foreign banks with the status of small branch offices
which were engaged solely in export of crops from Pakistan, while there was 2 Pakistani
institutions i.e. Habib Bank and the Australasia Bank. The panic of uncertain future
shook the confidence of people. The Government, therefore, promulgated the Banking
Companies Ordinance, 1947, to safeguard the interests of both the bankers and the
customers.
The Imperial Bank of India which had been acting as the Agent of Reserve Bank
of India closed down most of its offices in Pakistan, and also was not willing to purchase
even token amounts of Government of Pakistan securities on the plea that these securities
were not marketable.
The first important task which the State Bank of Pakistan had to attend to was the
issue of currency notes and withdrawal of Reserve Bank of India notes with over-printing
there of Government of Pakistan, which had been in circulation in Pakistan so far.
As the Central Bank of the country, the State Bank addressed itself with the equally
urgent task of creating a national banking system. In order to attain this goal it provided
very help and encouragement to Habib Bank to expand its network of branches, and also
recommended to Government the establishment of a new bank which could serve as an
agent of the State Bank. As a result, The National Bank of Pakistan came in to being in
1949; and by 1952 it became strong enough to take over the agency function from the
Imperial Bank of India.
In order to develop sound banking and weeding out weak institutions, the banking
companies (Control) Act was promulgated in 1949, empowering the State Bank to
control the operations of Banking Companies in Pakistan, including preparation of the
required trained man-power. Further, the State Bank restricted the opening of new
branches by foreign banks in port towns or in big cities from where trade was being
carried out with foreign countries, while Pakistani banks were allowed to open as many
branches as possible within the country.
Pakistan now entered into a phase of planned economic development in 1956; and
naturally, further expansion in the banking and credit facilities was essential. Though
there had been a remarkable expansion in the number of offices of Pakistani banks since
Independence, it has remained heavily concentrated in large cities. Therefore, the State
Bank had to accord priority to the establishment of branches in the interior of the country.
In 1958, when the Government liberalized imports and transferred the food grain
trade to the private sector, the commodity market became firm, and demands for funds
became very acute. This caused some stringency to the banks during the busy season.
Therefore, the banks had to reduce down their excess reserve and increased their
indebtedness to the State Bank. The expansion in the banking and credit facilities was
further enlarged when during 1959-60 two more Pakistani banks, namely Eastern
Mercantile Bank Limited and the United Bank Limited were established and scheduled.
Another very important event in the development of banking in Pakistan was the
appointment of the Credit Enquiry Commission in 1959 to examine the scope and
working of the institutions providing credit facilities to agriculture, trade, commerce and
industry, and recommend measures for further improvements.
The nationalization of banks in Pakistan since January 01, 1974, has heralded a
new era of development and progress. It has taken a completely new turn with the phased
introduction of interest free banking system with effect from January, 1981.
As the Central Bank of the country with its offices at Karachi, Lahore, Peshawar,
D.I.Khan, Quetta, Faisalabad, Rawalpindi, Islamabad, Multan, Gujranwala, Sialkot,
Sukkar and Hyderabad.
Commercial Banks have been the most effective mobilizers of savings and have
been providing short-term requirements of working capital to trade, commerce and
industry.
Presently these commercial banks are operating in the nationalized and private
sectors both, after the amendments in the Bank's Nationalization Act, 1974 in 1991.
Islamic banking has been defined as banking in consonance with the ethos and
value system of Islam and governed, in addition to the conventional good governance and
risk management rules, by the principles laid down by Islamic Shariah. Interest free
banking is a narrow concept denoting a number of banking instruments or operations,
which avoid interest. Islamic banking, the more general term is expected not only to
avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid
unethical practices and participate actively in achieving the goals and objectives of an
Islamic economy.
The fact that a global network of Islamic banks, investment houses and other
financial institutions has started to take shape based on the principles of Islamic finance
laid down in the Quran and the Prophet’s traditions 14 centuries ago. Islamic banking,
based on the Quran prohibition of charging interest, has moved from a theoretical concept
to embrace more than 100 banks operating in 40 countries with multi-billion dollar
deposits worldwide.
Islamic banking is widely regarded as the fastest growing sector in the Middle
Eastern financial services market. Exploding onto the financial scene barely thirty years
ago, an estimated $US 70 billion worth of funds are now managed according to Shariah.
Deposit assets held by Islamic banks were approximately $US5 billion in 1985 but grew
over $60 billion in 1994.
The rules regarding Islamic finance are quite simple and can be summed up as follows:
a. Any predetermined payment over and above the actual amount of principal
is prohibited
Islam allows only one kind of loan and that is Qard-el-hassana (literally good
loan) whereby the lender does not charge any interest or additional amount over the
money lent. Traditional Muslim jurists have construed this principle so strictly that,
according to one commentator “this prohibition applies to any advantage or benefits that
the lender might secure out of the Qard (loan) such as riding the borrower’s mule, eating
at his table, or even taking advantage of the shade of his wall.” The principle derived
from the quotation emphasizes that associated or indirect benefits are prohibited.
b. The lender must share in the profits or losses arising out of the enterprise for
which the money was lent.
Islam encourages Muslims to invest their money and to become partners in order
to share profits and risks in the business instead of becoming creditors. As defined in the
Shariah, or Islamic law, Islamic finance is based on the belief that the provider of capital
and the user of capital should equally share the risk of business ventures, whether those
are industries, farms, service companies or simple trade deals. Translated into banking
terms, the depositor, the bank and the borrower should all share the risks and the rewards
of financing business ventures. This is unlike the interest-based commercial banking
system, where all the pressure is on the borrower: he must pay back his loan, with the
agreed interest, regardless of the success or failure of his venture.
Islam encourages investments in order that the community may benefit. However,
it is not willing to allow a loophole to exist for those who do not wish to invest and take
risks but rather content with hoarding money or depositing money in a bank in return for
receiving an increase on these funds for no risk (other than the bank becoming insolvent).
Islam encourages the notion of higher risks and higher returns and promotes it by leaving
no other avenue available to investors. The objective is that high-risk investments provide
a stimulus to the economy and encourage entrepreneurs to maximize their efforts.
d. Investments should only support practices or products that are not forbidden
Islam discourages it. Trade in alcohol, for example would not be financed by an
Islamic bank; a real-estate loan could not be made for the construction of a casino; and
the bank could not lend money to other banks at interest.
CHAPTER – 4
Chapter 1
The Bank of Khyber provides micro credit services through its branch network
where credit officer of the micro finance unit are based. Bank of Khyber adopts a four-
pronged strategy in its lending methodology:
4.4 VISION
4.5 MISSION
Risk mitigation.
Corporate social responsibility.
4.7 ACHIEVMENTS
The bank has shown in deposits and achieved the deposit target set for 2007. To
increase outreach, the Bank has successfully opened 5 new branches in 2007, with 4
branches in major business area viz Karachi, Lahore Faisalabad & Rawalpindi. This takes
the total number of branches of the bank to 34. The Bank expects to receive further
license for branches in the forthcoming year.
The Bank’s paid up capital as on December 31,2007 stood at Rs. 4.00 billion
which was raised successfully by offering 100% Right Issue at Rs. 12.75 per share.
In the year under purview, the performance of the bank was satisfactory but it
could not extract its share from the Banking sector. As compared to last year the profit
was lower but the bank still earned an after tax profit of Rs. 219.437 million after
absorbing impact of provision of Rs. 655.624 million as required by the State Bank of
Pakistan under the new provisioning regulations. Apart from profit the Bank has shown
positive growth in Deposits and Advances. During the year, Bank maintained its strategy
of concentrating on growth while placing its customers at the centre of its activities. This
was achieved with the consistent dedication shown by Bank’s team of committed
professionals. Long term customer’s relationship has been developed through
enhancement in service quality.
To avoid any unexpected losses, a Risk Management Division has been set up and
the integrated Risk Management framework is in line with the evolving tends and
growing avenues of business. Thus it aims to align its systems and processes with best
international practices.
The bank’s rating has improved from BBB and A-2 to BBB+ and A-2; and
increase of one notch, as rated by JCR-VIS rating Agency. This up-gradation is due to
improvement in the management and assets quality of the Bank.
The economic outlook for the coming year is promising. The government is
expected to continue with its proactive policies and executive corrective measures if and
when required. Though strong inflationary pressure persist but they are likely to ease off
due to tight monetary posture by the State Bank. Bank is determined to grow in view of
the structure improvements introduced in the bank and is well poised for all around
4.9.1 PEOPLE
A well trained and industrious work force is our most important assets. Our aim is
to manage this asset in such a way so as to improve its competitive advantage. Though
the journey has begun, we are confident that we will be able to strengthen our
performance culture, provide greater value to the organization and promote employees
satisfaction and growth. The bank laid special emphasis on development of its human
resources. We are striving towards making our human resources fit to respond to the
challenger that lies ahead.
Under the Bank of Khyber act of 1991of the provincial Assembly of N.W.F.P the
banks objectives are as follows” To mobilize private savings and public funds for
diverting the same into productive channels and ensure their availability. To promote industrial,
agricultural and socio-economic processes through the active participation of private and public
sector in the province. Help under-developed areas and create employment opportunities, especially
in the rural areas of the province. Further, to guide and assist the people of N.W.F.P serving overseas
to effectively and profitably invest their foreign savings in the province as well as in other parts of
Pakistan.
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.
To avoid the conflict in the organization, all organizational positions are detailed
described and the duties, goals, functions, responsibilities and authority at each position
are made crystal clear. The channel which delegates these activities is called organizational
hierarchy and 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
N.W.F.P. Under the supervision of MD, there are EVP's the senior most officials in the
bank hierarchy each heading a Bank unit, after EVP there are SVP's and VP's heading their
respective divisions and Departments.
At the branch network of BOK there are Branch Managers and Assistant Branch Managers.
Under Branch Managers there are Branch Departmental Heads responsible for their
respective Branch Department. The nomenclature of various posts in the Bank is as under:
Board of Directors
Managing Director
Board of
Directors
Shariah
Managing Director Supervisory
Committee/
Shariah
Advisor
Islamic banking
Division
Marketing
Operations Deptt.
Risk Product/
Management Business
Deptt. Development
Credits
Treasury Account
MIS s
Section
IBB(s)
The bank ultimate governing body is the "Board of Directors" comprising of eight
members including a Chairman and MD. The Chairman of the Board is nominated by the
Govt. of N.W.F.P who will be a senior banker/ diplomat of repute. The two members of the board
are also nominated by the Govt. as Govt. is the major stakeholder of the bank. Usually
these two members are secretary finance Govt. of N.W.F.P and Assistant chief secretary
N.W.F.P. One member of the board is nominated by DEG (A German Development Bank) a 15%
Stakeholder of the bank. While two members are selected by the Government from
public / private sector. The Managing Director of the Bank represents the bank in the Board and
acts as a member of the Board.
C CHAPTER -5
5.1 DEPARTMENTS
The Bank of Khyber was established in 1991. In order to have an edge over its
competitors and to provide quick and efficient service to the customers, it was considered
mandatory to computerize banking network in the branches. IT Department was
established in 1994 and all the branches were successfully automated by the year 1998.
IT Department has 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 IT Department
has started on-line banking in almost all of its Branches. IT Department of the Bank is
working dedicatedly and with full enthusiasm to provide best services by efficiently
handling the in-house software development/maintenance, hardware/software trouble
shooting and uninterrupted support to 29 Branches. Besides, IT Department is playing an
important role in development and deployment of Islamic Banking Application and
timely support to the end-user. Moreover, The Bank of Khyber has joined 1Link ATM
Switch and has also installed ATM machines at 12 branches. Branches where ATM has
been successfully installed are:
Corporate Main Branch
Hayatabad Branch
G.T Road Branch
Islamabad Branch
Kohat Branch
D.I Khan Branch
Karachi Branch
Abbotabad Branch
Mingora Branch
Civil Secretriate Branch
Mansehra Branch
Mardan Branch
Risk Management Department (RMD) oversees the risks faced by the Bank in its
internal operations and from external environment. The Department initiates steps for
early identification of risks inherent in the Banking activities/functions; and recommend
remedial measures to the Bank’s Senior Management. Presently, key risk areas like
credit, operation, market and liquidity are focused on consolidated and integrated basis.
The Bank has been presently aligning its Risk Management framework while using Risk
Mapping technique, which has been diverted to remold the Job Descriptions of all
important functions.
At Branch level, certain amendments have been made to improve supervisory level of
Branch Managers. Risk Management has been ensured at Branches by introducing the
Key Risk areas in close supervision and monitoring through important checklist, which
have been implemented at Branches and its performance and implementation is
monitored at the Risk Management Department. The Department has also been working
actively on the implementation of Basel-II. While the Bank’s risks assessments at
Treasury have been ranked as per Basel-II, the Credit portfolio is under process for
external rating in order to assess the total Risk Weighted Assets and Bank’s Capital
Adequacy, as per State Bank of Pakistan guidelines. The Department also conducts
regular review of Bank’s Risk assets under stress situations in order to assess the Bank’s
shocks absorption capability.
The Bank’s Credit Monitoring Cell was converted into a full fledged department
as Credit Administration. Being Middle Office of credits, the Department looks after the
risks identification, recommending, necessary remedial measures and act as control
function of credits. Credit Administration Department ensures complete and error free
documentation as per sanctions and simultaneously would work on the Internal Rating of
the borrowers.
Micro Finance has proved to be one of the most effective tools for facilitating
socio-economic development through increased access to financial services. The
economic landscape of NWFP is characterized by a number of flourishing small-scale
economic activities scattered throughout the cities, towns and rural areas. However, these
smaller enterprise entities have never been a focused market for formal financial
institutions operating in this region.
Encouraged by these developments a new unit called micro finance unit was instituted in
November 1999, which presently functions as Micro Finance Department (MFD) under
the umbrella of Credit Division. BOK aims to be the largest Micro Finance provider in
NWFP on sustainable basis. Our main Objective is providing access to financial services
to the low income and disadvantaged segment of the society to raise their standard of
living with specific emphasis upon women. The pursuit of this objective will significantly
contribute to the improvement of employment opportunities, income generating activities
and subsequently poverty alleviation.
Pursuing its objective the BOK provides micro enterprise and group loans for existing
and new enterprises engaged in value addition process, requiring technology
improvement or working capital. MFD offers the following loan products:
Micro-enterprise Loans to a maximum of Rs. 100,000 however fresh loans are considered
for below Rs. 50,000.
Group Loans to members of organized rural communities and urban clusters to a
maximum of Rs. 30,000 per member.
Domestic Consumption Loans to a maximum of Rs.100, 000 to employees of government
/ semi government organizations subject to prior Institutional Arrangements.
Tea Development Loans for tea growers in Mansehra.
Motorcycle financing to individuals and Institutions.
BOK has made a modest beginning but a great potential for growth is still to be explored.
As of June 30, 2006, BOK has disbursed total loans of Rs.1.2 billion to more than 24,000
borrowers with majority of the loans below Rs.50,000 per client. Current outstanding
portfolio remains at Rs.207.7 million with an active clientele of 6,587.
5.2 DIVISIONS
The Finance Division is responsible for overall fiscal managing, financial control,
financial reporting and accounting functions of the Bank. Division ensures that the
accounting records and system are maintained in accordance with internal policies,
regulatory requirements and international accounting standards. It establishes policies and
procedures relating to the finance function, monitors returns on earning assets and reports
on various performance indicators including assets/liability mismatch. The Division
directs control of the budgeting process in accordance with the annual plans, policies,
management directives and strategy, ensuring that quality budgets and forecasts are
drawn up and consolidated for approval.
Finance Division exercise budgetary control on all expense and income items at
both Head Office and branch level, ensuring the effective monitoring arrangements are in
place in respect of adherence to budgets/forecasts. It continually reviews the accounting
and control system, ensures that they are appropriate to the requirements of the business
and that they generate financial information necessary for effective decision-making. It
monitors capital adequacy in accordance with regulatory directives. It liaises with
external auditors, tax authorities and SBP inspectors, and facilitates their duties. It
provides necessary assistance to the rating agencies. The Division maintains financial
databank and carries out industry financial analysis vis-a-vis Banks strength and
opportunities. The Division has well-trained, experienced and qualified human resource,
automation of processes and effective communication with all operating units. The future
focus of the Division would be to improve automation of the accounting processes and
enhance the quality and effectiveness of MIS.
Under the directives of the State Bank of Pakistan and the Board of Directors had
appointed a senior officer as Chief Compliance Officer in January, 2004. The bank has
now hired the services of an officer from SBP on deputation as CCO for effective
implementation of the directives of SBP particularly on KYC and Anti Money
Laundering. The Compliance Division directly reports to the Managing Director of the
bank. We have designated Compliance Officers in all our branches who perform their
function as per TORs provided to them and report to Chief Compliance Officer. The bank
prepared a Compliance Manual in 2004 which is now being updated in the light of best
international practices. Compliance divisions consist of the following departments headed
by Chief Compliance Officer:
5.2.3 Compliance Department & Monitoring and Implementation Department
It is imperative for the Human Resource Division to not only provide educated
and trained manpower so as to enable them to handle their jobs more professionally and
efficiently in all areas of banking but to develop talent and add value to staff potential to
enhance output improve profitability as well. The Human Resource Division (HRD) puts
in its concerted efforts to train, develop and groom a sound human resource base for the
Bank and to work for continuous learning, adaptation and application of knowledge. The
HRD tries to create an environment of mutual trust and dignity so as to ensure best
positive results. It is playing a proactive role in capacity building, experience sharing,
strengthening analytical and policymaking, skill up-gradation to help the staff in their
endeavors to make BOK competitive, dynamic and one of the best banks in the country.
The HRD aims to transform BOK into a modern and dynamic bank, highly
professional and efficient, fully equipped to play a meaningful role, on sustainable basis,
in the economic and social development of NWFP as well as the country
ALHAMDULILLAH
The Bank of Khyber has started Islamic Banking by converting all assets and
liabilities of Hayatabad Branch Peshawar on 27th Ramadan (22nd November 2003). The
Branch is now working according to the guideline of Shariah Supervisory Board. Aims
and target of the IBD is to implement the decision of the Board of Director 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 State Bank of Pakistan.
To achieve the target, Islamic Banking Division has devised an action plan for expansion
and conversion of the whole bank by December 2006 and to develop the business in
various areas. According to the plan three new branches will be opened and six branches
of the Bank will be converted into IBBs in 2004. Islamic Banking Division plans to
convert 12 more branches in 2005 and the remaining in 2006.
The Marketing Division of the Bank is responsible for the formulation and
implementation of Marketing Strategy of the Bank's products both on assets and
liabilities side keeping in view the business environment of the province. Accordingly the
division works to popularize the Bank's deposit schemes and loan products among the
people with a view to improve business and over all image of the Bank. The Division
works in close coordination with the Branches and other Divisions/Department of the
bank towards the implementation of the marketing strategy and achievement of the
assigned targets.
The Division is comprised of three departments viz Research and Development
Department, Customer Relations Department and Product Promotions Department. The
responsibility of the Research and Development Department is to search and develop new
products according to the requirement of the market and Banks' marketing strategy as
well as to make the existing products more attractive for the customers. Research &
Development Department studies the offerings of the competitors for making the Bank's
products more competitive.
Treasury & Investment Division has been the main earning during 2005. Main
source of income of the Division are Government Securities, Shares Investment and CFS
portfolio, Corporate Bonds and Forex Transactions. BOK Treasury & Investment
Division is an active player in the local inter bank market. Activities of Foreign Exchange
Desk includes ready and spot purchases/sales, Swaps and Arbitrages. Money Market
Desk mainly deals in purchase/sales of Government Securities, Corporate Bonds,
Repurchase Agreements, Call Lending/Placements transactions. Investment Division
Includes shares Trading both ready and future markets, CFS transactions and strategic
investments. The BOK Treasury & Investment reiterates its pro active role in serving its
customers, both individuals and corporate clients
RDD started functioning under its new name in February 2004, and assumed the
responsibilities for the Recovery of all irregular as well as bad debts of the Bank. RDD
coordinates closely with Credit Department, as ongoing feed back on performance of
various segments of the portfolio is critical for fine tuning/amendment of underwriting
credit initiation criteria. The Division also co-ordinates with IT Department for the
automation of most of the processes and preparation of MIS containing information of all
the branches on different types of loans in order to bring effectiveness and cost control in
the Division. One of the primary responsibilities of RDD is to develop performance,
monitoring and evaluation criteria for Lawyers to optimize the litigation strategy. It also
coordinates with NAB for high balance and political cases.
RDD is also responsible for the capacity planning and hiring of the staff based on
number of accounts & training programs in order to ensure that Collection Officers
understand the imperatives of handling the customers according to the policy of the bank.
They must also understand the product in order to negotiate with the customers
effectively. As a part of action plan and recovery strategy, the Bank's BOD has conferred
powers upon Settlement Committees at different levels, which is used as a major tool to
affect recovery by offering out of court settlement to NPL customers. Moreover, the
Provincial assembly has recently amended BOK Act 1991 and put the bank under the
ambit of Land Revenue Act of the Province, which will be utilized as a deterrent tool for
recovery of infected loans of the bank.
A Vice President, who took over charge early this, year, leads the division. Due to
his able leadership, professional qualities and expertise in the recovery field, the division
has achieved remarkable results in reduction in NPLs amounting to Rs.262 million up to
June 30, 2004. Based on its half yearly performance, it is hoped that the Division will
achieve its annual recovery target of Rs.480. Million with considerable margin.
The credit policy of the bank is reviewed on periodic basis according to the target
market. It is communicated down the line and clearly spells out the roles and
responsibility of the individuals involved. Our credit portfolio is diversified for different
client segments. The consumer finance, car finance and house finance schemes have
successfully been introduced and are in real sense helping common folks in upraising
their standard of living. We significantly finance to corporate sector and actively
participate in syndication-bridge financing type of business opportunities. The
commercial lending is our regular feature and is always tailored according to current
requirement of business community. Lending under the mode of Islamic Banking is
another addition to our credit portfolio and we feel proud to mention that we have started
Murabaha and Ijara financing.
Under consumer financing we plan to include some new household items that will
further facilitate the common man. A policy to finance agricultural sector is being
formulated and should be part of our credit portfolio in near future. We are also playing
our due role in poverty alleviation by offering credits at micro level and our micro
finance unit has specially been established in this regard, through which we have
significantly financed in undeveloped areas of NWFP. To ensure quality lending we
conduct pre disbursement audit and Credit Administration Department has been
established for proper monitoring of the process of documentation.
Under the umbrella of Consumer Finance BoK offers following type of Credit
facilities
Home Loan
Car Finance
Consumer Durables Finance
Salary Loans for (Govt. Employees)
Pakistan is blessed with one of the most unique land features spread over an area
of 79.61 million hectares of which around 28% is under cultivation. The Country also
possesses one of the best irrigation systems in the world supplemented by ideal climatic
conditions and plenty of hard working and dedicated manpower. All these factors add up
to create an ideal situation for a vibrant agriculture sector that can contribute towards the
economic growth of Pakistan.
Moreover the need to encourage use of modern techniques in the shape of improved
seeds, tillage methods and utilization of farm machinery cannot be over-emphasized but
this requires availability of adequate capital. The Bank of Khyber, being fully committed
to this cause of National concern has established a separate Agriculture Credit
Department for provision of required capital to the agriculture sector.
The Agriculture Credit Department of the Bank has introduced the “Sada Bahar Zari
Loan” Scheme. The salient features of the scheme are as under:
Purpose of loan Purchase of agriculture inputs like seed, fertilizers, pesticides etc.
Maximum Rs.500,000/- assessed under SBP per acre credit limits for
Loan limit
various crops.
Charge on Agriculture land through Agriculture Pass Book.
Or
Registered / Equitable Mortgage of urban property.
Or
Security Two Personal guarantees of reputable persons (at least one guarantor
should
be a government servant.) Note: The Credit facility in this case will
be up to
a maximum of Rs. 30,000 only.
Insurance Crop loan insurance cover from an approved Insurance Company.
Mark-up Market based (linked with KIBOR.)
Mark-up payment on half-yearly basis against out standing amount
Repayment & once in a year full adjustment of Principal + Mark-up at the end of
the year.
Following Branches of the Bank have been designated to offer agriculture Loans.
Dera Ismail Khan
Mardan
Kohat
G.T Road
Chitral
Charsadda
Mingora
Haripur
Mansehra
Under the umbrella of Risk Management Division, the following four departments
report to the Head of Risk Management Division:
1. Risk Management Department
2. Credit Administration Department
3. Method, Procedure and Policy Department
4. Treasury Middle Office
This is a working capital finance facility available for one year and renewed
subject to satisfactory utilization thereof. Markup is charged on outstanding balance.
It is a term loan disbursed in lump sum and repayable in 2 years in the form of
monthly or quarterly installments.
Working Capital Funds are provided to traders and manufacturers for their
operational requirements.
This facility is encouraged to boost exports of the country. Funds are made
available from SBP at lower rates. Please email here for further queries.
This facility is available at the counter of our Micro Finance Unit, which in the
true sense reinforces the support to grass root level development. The purpose is to
empower the lower strata of the economy by providing speedy access to funds thus
generating employment and eradicating poverty.
Import and Export Letter of Credit Facility enhances trade with our countries.
5.3.8 SCHEMES
The Bank of Khyber is pleased to launch a Consumer Finance Scheme for general
Public with immediate effect. Under this scheme House hold product like electronics,
audio-visual equipment home appliance shall be financed to the customers on easy
installments.
SALIENT FEATURES
Scheme will be opened to all permanent employees of Govt. & Semi Govt. Local
Govt., NGO, Autonomous Bodies, University, Banks, Reputed Industries , Corporations
and self employed professionals or business men.
Applicant should be resident of the city where Bok's Authorized Branch is operating.
The monthly installments should be maximum of 1/3 of take home salary of the
applicant. (Take home salary is to be determined by the branch manager).
The Borrower will provide a personal guarantee of a third person as a security.
c) Tenure: The tenure of the scheme shall be for 36 months, 24 months, 18 months
and 12 months.
Agreement for financing. Letter for comfort / Guarantee from employer. Letter
of personal Guarantee. Comprehensive insurance of assets (Premium to be borne by
customer). D.P note for marked up price.
i) Guarantor's Documents.
Copy of N.I.C duly attested by branch manager. Bank statement for last six
month. Copy of last paid utility bill. Detail of Business or Profession. Bank's Performa
showing worth of Guarantor duly filled in (attached) Customer shall have to open an
account with branch (if not already open) and post dated cheques for all installments due
will be obtained from him.
In order to keep pace with advancements in the field of technology, The Bank of
Khyber has joined the electronic platform of MNet switch. This will facilitate consumers
by providing them access to their funds through the existing ATM network of the
country. Also, BOK has installed its first ATM at Corporate Branch Peshawar.
CHAPTER -6
6.1 RECOMMENDATIONS
In the end of this report I am giving the recommendation in order to improve the
efficiency of the bank. These recommendations are primarily based on the analysis.
These recommendations, if followed will have a positive effect on the profitability, and
the role it plays in the development of province.
6.1.1 Better Training Program
It has been noticed that the training program of BOK is not adequate. Special
marketing training should be given to employees for motivating customers. The training
program of bank should include scientific techniques to improve decision making and
inter-personal as well as individual needs of an employee.
6.1.2 Enhance Customers Services
The bank should provide a (ATM) facility to its customers at some branches. This
facility will enable the customers to use the card facility, within the same branch where
they have account. This facility is used in holidays and other than banking hours.
Customers can get information and with draw their money with the help of this facility at
any time.
The employees of BOK are specialists in their fields but they need straightening
in general banking. They generally confine to their own work and do not give sufficient
consideration to other department. They must have some basic information of other
departments; it is recommended that there must be proper job rotation.
6.1.5 Proper job Analysis
A detailed and systematic study of the job should be done to know the nature and
characteristics of the people to be employed. This will help in identifying the training
needs, evaluating the job and in appraising the performance of the employees.
6.1.6 Introduction Career Planning
BOK should advertise itself and introduce its services in detail through media to
people. This is the best way to enhance its business like other successful banks. They
should adopt strong strategies for promotion and publicity of their services they offer.
6.1.9 International Banking
Bok should expand its branches. They should expand their branches not only in
Pakistan but also outside the country.
Bok is new organization in order to increase its customers and add to its publicity,
it is recommended that the bank should advertise itself and introduce its services in detail
through media.
Latest software should be installed in the bank so that the data processing speed of
computers can be enhanced.
In Bok the distribution of work needs further streamlining. Some employees have
more work to do and are under stress while others are not fully occupied. The work
should be distributed in such a manner that there should no undue load or burden on any
one.
Most friendly environment should be created because it will help to gain the
interest of employees in work. Noise in the office should be reduced because it has
unfavorable impact on the working environment. Separate place or section should be
created for each separate task and more space should be provided. It would also be of
greater help in establishment of friendly environment.
There are many training institutions in the province imparting training in various
themes. A training calendar may be devised and every officer of BOK should undergo
two weeks training in a year in various disciplines. This will enhance the quality and
performance of the officials.
The working conditions are not conducive. There is a space problem and longer
duty hours. Both the problems must be rectified. A bigger building must be acquired and
main branch be shifted there within one year. The hours should be curtailed by one hour.
This will encourage the employees of BOK to work with more dedication.
The BOK must allocate funds for publicity. At least one-minute advertisement on
daily basis must be launched on PTV for the publicity of BOK. This will increase the
business of the BOK.
This is an era of information technology. The BOK must acquire latest computers
and software within 6 months to enhance its efficiency. Quick decision will be taken with
the latest computer equipment.
The Bank must prepare job Description of each employee and implement it within
three months. Thus no one will feel embraced while working according to his job
description.
CHAPTER -7
FINANCIAL ANALYSIS
Financial ratio that relates two accounting numbers and is obtained by dividing
one number by other.
Assumptions
1. Ratios are calculated for two (2) years i.e. 2006 and 2007.
2. Figures are rounded off up to 2 decimal points.
Cash ratio is the ratio of cash and its equivalent to current liabilities. It shows that
how much cash is available to cover the current liabilities.
Current assets
Current ratio = ___________________ × 100
Current liabilities
26982365
Ratio for 2007 = ___________________ × 100 = 1.2:1
23081176
25578042
Ratio for 2006= ___________________ × 100 = 1:1
23552808
Interpretation
The current ratio is gradually increasing and is increased by 0.2 in 2007 as compared to
the previous year. The gradual increase in the ratio shows that the bank has improved its
liquidity from year to year.
219,437
Ratio for 2007 = ___________________ × 100 = 0.73%
29,739,717
203,013
Ratio for 2006 = ___________________ × 100 = 0.74%
27,183,212
Interpretation
There is no big deference or fluctuation in the ratios of 2007 and 2006, it is 0.73%
in 2007 while 0.74% in 2006. Return on assets after Tax is slightly decreases in 2007.
It shows the relationship between operating cost and the total income. It tells us
how much operating cost is incurred in generating total income.
Operating cost
Operating cost to total income = ___________________ × 100
Total income
543,763
Ratio for 2007 = ____________________ × 100 = 88%
621,188
375,957
For 2006 = ____________________ × 100 =66.3 %
567,219
Interpretation
In the year 2007, this ratio is increased by 21.7% as compared to 2006, which
shows that the bank has incurred more operating expenses in 2007 and its total income
with low operating cost.
This ratio shows the extent to which the firm is financed by debt.
23,863,487
Ratio for 2007 = _______________________ = 4.3 times
5,568,253
24,182,304
For 2006 = ________________________ = 8.6 times
2,796,222
Interpretation
By analyzing this ratio we can conclude that the bank is trying to reduce
dependence on debt financing and is trying to finance its assets more by equity; the trend
of the ratio is reducing one from year to year.
This ratio shows that how much ratio is generated by shareholder’s equity.
219,437
Ratio for 2007 = ____________________ × 100 = 3.94%
5,568,253
203,013
For 2006 = ____________________ × 100 = 7.3%
2,796,222
Interpretation
The analysis shows that the return on equity is declining in 2007. It gives a
negative indication from shareholders point of view at the beginning but is good at the
end.
This ratio shows the relationship between the interest expense and the deposits. It
tells about the interest expense paid on different types of deposits.
Interest expense
Interest expense to deposits = ____________________ × 100
Deposits
1,845,360
Ratio for 2007 = ____________________ × 100 = 8.62%
21,410,828
1,304,742
For 2006 = ____________________ × 100 = 6.84%
19,076,564
Interpretation
The interest expense to deposits ratio is increasing from year to year. The exact
increase in this ratio is 1.78% in the year 2007 as compare to 2006. This shows that the
deposits of bank are increased in this period while the interest expense is also increased
due to reduction in the profit rates on various accounts.
This ratio shows the relative extant to which interest is earned on Advances.
Interest earned
Interest earned to advances = _____________________ × 100
Advances
2,380,380
Ratio for 2007 = ______________________ × 100 = 23.6 %
10,085,640
1,924,279
For 2006 = ________________________ × 100 = 21%
9,189,447
Interpretation
The interest earned to deposits ratio is high in 2007. The fluctuation is due to the
return on deposits of the Bank of Khyber with financial institution.
This ratio reflects the percentage increases or decreases in the volume of deposits
over a period of time.
21,410,828-19,076,564
Deposit growth for 2007 = __________________________ × 100 = 12.23%
19,076,564
19,076,564-16,025,525
Deposit growth for 2006 = ___________________________ × 100 = 19%
16,025,525
Interpretation
The deposits in 2007 have decreased due to the stiff competition in the bank
markets.
10,085,640-9,189,447
Advances growth for 2007 = _______________________ × 100 = 9.7%
9,189,447
9,189,447-8,560,250
Advances growth for 2006 = _______________________ × 100 = 7.3%
8,560,250
BALANCE SHEET
As at December 31, 2007
2007 2006
Rupees in ‘000’
ASSETS
Cash and balances with 1,364,853 1,574,531
treasury banks
Balances with other banks 3,728,016 3,755,151
Lending to financial 2,858,000 2,493,430
institutions
Investments 8,945,856 8,565,483
Advances 10,085,640 9,189,447
Operating fixed assets 213,025 142,002
Deferred tax assets 48,683 75,365
Other assets 2,495,644 1,387,803
29,739,717 27,183,212
LIABILITIES
Bills payable 348,952 150,435
Borrowings 1,321,396 4,325,809
Deposits and other accounts 21,410,828 19,076,564
Sub-ordinated loans - -
Liabilities against assets - -
subject to finance lease
Deferred tax liabilities - -
Other liabilities 782,311 629,496
23,863,487 24,182,304
NET ASSETS 5,876,230 3,000,908
REPRESENTED BY
Share capital 4,002,984 2,000,949
Reserves 1,323,077 728,631
Unappropriated profit 242,192 66,642
5,568,253 2,796,222
Surplus on revaluation of 307,977 204,686
assets
5,876,230 3,000,908
2007 2006
Rupees in’000’
Mark-up/return/interest earned 2,380,380 1,924,279
Mark-up/return/interest expensed 1,845,360 1,304,742
Net mark-up/interest income 535,020 619,537
Provision against non-performing loans and advances 655,624 348,995
Provision for doubtful placement with a financial - 10,000
institution
Provision for diminution in the value of investments 3,700 -
Bad debts written off directly 60 -
659,384 358,995
Net Mark-up/interest income after provisions (124,364) 260,542
NON MARK-UP/INTEREST INCOME
Fee, Commission and brokerage income 78,790 67,883
Dividend Income 126,878 120,743
Income from dealing in foreign currencies 14,856 12,572
Gain on sale of securities 433,333 65,079
Unrealized gain/loss on revaluation of investments (6,990) 382
classified as held for trading
Other income 98,685 40,018
745,552 306,677
Total non mark-up/interest income 621,188 567,219
NON MARK-UP/INTEREST EXPENSES
Administrative expenses 522,723 372,129
Other provision/write offs - -
Other charges 21,040 3,828
543,763 375,957
Total non mark-up/interest expense 77,425 191,262
Extra ordinary/unusual items - -
PROFIT BEFORE TAXATION 91,014 203,469
Taxation
Current 22,318 13,574
Prior years - (16,340)
Deferred (150,741) 3,222
(128,423) 456
PROFIT AFTER TAXATION 219,437 203,013
Unappropriated profit brought forward 66,642 176,089
Profit available for appropriation 286,079 379,102
Basic and diluted earnings per share 0.62 1.04
2007 2006
Rupees in “000”
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation 91,014 203,469
Less: dividend income 126,878 120,743
(35,864) 82,726
Adjustments:
Depreciation 18,214 16,534
Amortization 1,758 1,768
Provision against non-performing advances 655,624 348,995
Unrealized gain/(loss) on revaluation of investments 6,990 (382)
classified as held for trading
Provision against doubtful placement with financial - 10,000
institution
Provision for diminution in the value of 3,700 -
investments/other assets
Bad debts written off directly 60 -
(Gain) on sale of fixed assets (407) (634)
Share in results of an associate before taxation (13,589) (12,207)
672,350 364,074
636,486 446,800
(Increase)/ decrease in operating assets:
Lending to financial institutions (13,000) (127,810)
Net investments in held for trading securities (17,917) 288,593
Advances (1,551,877) 1,023,691
Other assets (excluding advance taxation) (1,036,076) (423,394)
(2,618,870) 761,080
Increase/(decrease) in operating liabilities:
Bills payable 198,517 31,127
Borrowings (3,004,413) (48,345)
Deposits and other accounts 2,334,264 1,624,394
7.3.1 STRENGTHS
The main strength of IBD of BoK is that its major stake holder is the Government of
NWFP so it is provincial government bank, so it has a say in the provincial government
and are not facing as many difficulties in regulations etc. as faced by another banks.
The provincial government has made it compulsory for all the provincial Department /
Institutions to keep 33% of their deposits with BoK. Due to this order the deposits of IBD
of BoK has grown substantially.
Now-a-days one of the important strength of the IBD of BoK is its small branch
network. The bank does not have branches in such areas where there is no business. The
other private and nationalized commercial banks are closing their unprofitable branches
and are passing through a paradigm shift; IBD of BoK is not facing such a situation at
this time. They intend to open new branches in strategic business areas.
As compared to other Pakistani banks its staff is well qualified, skilled, knowledgeable,
and courteous and can handle any situation tactfully.
The senior management of the bank is competent and takes expatriate decisions to
make the bank profitable.
As all the major activities of branches and head office has been computerized.
Which gives a leading edge to the bank? The bank works hard to start their credit cards
and online banking.
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.
As BoK is not only a commercial bank but also acts as a development bank so its
corporate strategy is according to the cry of the day. Which is to strengthen the SME’s
and local industry to cope with globalization challenges. This leads to the increased
utility and importance of the bank.
7.3.2 WEAKNESSES
The space of 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
effects the employees performance at the head office.
Substantial bad debts of the bank effect are liquidity and profitability. This is the
weakness on the part of Recovery Department that they have not been able to recover it.
Lack of transparent system of recruitment and selection.
7.3.3 OPPORTUNITIES
Afghanistan. To facilitate the rehabilitation process and the trade between Afghanistan
and other countries including Pakistan IBD of BoK should open their branches in Kabul
and Jalalabad inside Afghanistan and at Landi Kotal, Miran Shah and Para Chinar in
N.W.F.P., Pakistan.
As IBD of BoK is not only engaged in commercial banking but also acts as development
bank, so their development banking sector is according to the current government
policies and also with in accordance with the policies of international financial and
development situations so they can avail this opportunity by joining hands with the
government and DFI’s in the investments in development sector.
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 Centre the biggest Trade Centre
of Asia. It will attract the business community and multinational companies to flourish
over here. IBD of BoK can avail this opportunity by opening a new branch in Deans.
The bank should expend their branches and lower in come groups can reduce the default
risk and can enhance the bank good will and profitability.
Strong promotional strategies can attract huge deposits for the bank.
7.3.4 THREATS
The threat faced by IBD of BoK, if not faced tactfully it will harm the bank image,
performance and profitability. These are:
The Electronic banking facility offered by different national and international banks
is a serious threat to IBD of BoK. IBD of BoK should soon offer the e-banking facility to
maintain their customers.
In modern banking the ATM facility is of immense importance. IBD of BoK should
install ATM’s at their major branches to cope with the ongoing competition between
commercial banks.
The low rate of savings in the country is a serious threat to IBD of BoK. They should
aware the general public about the advantages of savings and investments.
The distributed political and legal environment of the country is also a threat to the
bank.
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 IBD of BoK also.
Stagnation of the industry and economy in the country in general and in the province in
particular is a serious threat to IBD of BoK.
The failure of other NWFP based banks has shattered the bank image and the
confidence of the investors.
Major Banks have started their Islamic banking system which is the major threat
for IBD of BoK.
Of the most banks they have adopted the aggressive policy due to which the turn over
rate is very high at IBD of BoK.
7.4 SUGGESTIONS
Regardless of it that the problem is of the external nature or that of internal nature, it
is necessary for the bank administration to solve them properly so that the bank can run
better towards the achievements of its pre-determined objectives. Using the proper way
of administration could solve both the external and internal problem.
All the employees working in the bank may be granted motorcycle advance, which
may be recovered in easy installments, while sanctioning the advance period of the
service should not be taken into account because it closes the way for newly recruited
employees. Also there should be one or two tea breaks for the relaxation of the
employees during the working hours. Approximately one or two clerks may be appointed
other than the sanctioned strength, so that one the time when one takes leave could be
replaced by the person in extra. This may cause some financial problems to the bank for
which an institution always tries to get rid off. But it will help the bank in negotiating the
public properly, which will increase the goodwill of the bank the eyes of public that will
result in the increase in the business of bank and profit of bank. The workers should give
leave at any emergent time. This will increase the desires of workers for worker.
BIBLIOGRAPHY
1. James C. Van Horne & John M. Wachowicz. (2001). Fundamentals of Financial
Management. India: Saurabh Print O Pack.
2. Meiges, Robert. F. (1999). Accounting: The Basis for Business Decisions. Boston:
Irvin Inc.
3. Human Resource and personnerl Management by Werther and Davis
4. Griffin R. W. (1997). Management. Delhi: A.I.T.B.S. Publishers & Distributors
Periodicals
1. Brouchers of Bank of Khyber.
2. Manuals of Bank of Khyber.
Reports
1. The Bank of Khyber, Annual Report 2007.
2. The Bank of Khyber, Information Memorandum 2005.
Websites :
1. www.bok.com.pk
2. www.banking/history/pakistan.com
3. www.google.com.pk.
Contact:
Shahab Ahmed, IMS University of Peshawar.
Mobile: 03459034858
E-Mail: brown_ozar@yahoo.com