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HISTORY OF BANKING IN PAKISTAN
Pakistan came into being on 14th August, 1947; sufficient banking services were available in
the areas forming Pakistan. Out of the total branches of the nearly 3,500 in the undivided
India, as many as about 1,500 branches were existing in these areas.
It was agreed between the two countries that reserve bank of India shall continue to
function in the Pakistan territory until 30th September 1948 and that Indian notes would
continue to be legal tender at Pakistan until 30th September 1948. Unfortunately, relationship
between the two countries became most strained immediately after independence; banking
was mostly in the lands of Hindus who immediately started transferring their offices and
assets into India. As a result most of the banks in Pakistan were closed down and even those
which were open were not doing any effective business.
The number of banking office in Pakistan came down to about 200 on 30th June 1948.
Branches of some European banks were also functioning in a limited manner, financing in
export of crops, and their number was limited to about 20.
It was only the Habib bank, which transferred its office from Bombay to Karachi
Austral Asia bank was another bank, which was in existence in the Pakistan territory at the
time of independence. Despite of best efforts on the part of government of Pakistan, no heady
way could be made on this behalf and reserve bank of India was in no mood to help the new
country. Imperial bank of India, agent of the reserve bank of India also started closing down
its branches in Pakistan.
Reserve bank also refused to advance money to Pakistan to make essential payments
such as salaries etc, also Pakistan’s share of Rs.75 billion in cash balance was with held by
bank, causing hardships to the newly born state. In view of these hopeless state affairs it was
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agreed between the two countries that reserve bank would serve as monetary authority in
Pakistan only up to 30th June 1948.
NATIONALIZATION OF BANKS
The principle of nationalization of banks is to stream line the operation of commercial banks
in such a way that it may be conductive to the development activities in process in the
country.
Since the commercial banks were owned controlled by big business groups of the
country it was feared that these banks would not maintain uniformity in their operational and
would be instrumental to inflationary pressure. However, the considerations behind
nationalization are
To form uniformity in the policy of the commercial banks so they may serve the best
national interest.
To make the operation of commercial banks highly sensitive and responsive to the policy
of the government relation to financial matters.
To make the credit policy of the commercial banks more purpose full and effective
especially in the development of economic sectors of the country. It acts as an agent of
the State Bank of Pakistan
To make the best use of the funds available at the disposal of these banks for the
economic development of the country.
To eliminate unhealthy and uneconomic competition among commercial banks.
To development strong money banks market in the country so that the value of currency
may be maintained at stable level both in national facilities to exporter and agriculturists
which have not been satisfactory in the past years.
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Public Sector Commercial Banks
National BankNBP
First Women Bank Limited FWB
The Bank of Khyber KB
The Bank of Punjab BOP
Local Private Banks
Askari Commercial Bank Limited
Bank Al-Falah Limited
Bank Al Habib Limited
Meezan Bank Limited
Faysal Bank Limited
Silk Bank Limited
Soneri Bank Limited
Union Bank Limited
Muslim Commercial Bank Limited
Allied Bank of Pakistan
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Union Bank Limited
Foreign Banks
ABN Amro Bank
CITI Bank
Habib Bank A. G. Zurich
Mashreq Bank PJSC
Oman Bank
Barclays Bank
Standard Chartered Bank
Specialized Banks
Zari Tarqiati Bank Ltd.
Industrial Development Bank of Pakistan
Punjab Provincial Cooperative Bank
Limited
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It has not so far been decided as to how the word ‘Bank’ originated. Some author’s opinion
is that, this word is derived from the word ‘Bancus’ or ‘Banque’, which means a bench.
Others authors hold the opinion that the word ‘Bank’ is derived from the German word
‘Back’, which means joint stock fund. It is therefore so much difficult to decide as to which
opinion is correct.
Banking in fact is primitive as human society, forever since man came to realize the
importance of money as a medium of exchange, the necessity of a controlling or regulating
agency or institution was naturally felt. Perhaps it was the Babylonians who developed
banking system as early as 2000bc. It is evident that the temples of the Babylon were used as
‘Banks’ because of the prevalent respect and confidence at the clergy.
At the time of independence there were 631 offices of the scheduled banks in Pakistan,
of which 487 were located in West Pakistan alone. As a new country with resources it was
very difficult for Pakistan to run its own banking system immediately. Therefore the expert
committee recommended that the Reserve Bank of India should continue to function in
Pakistan until 30, September 1948, so that problems of time and demand liability, coinage
currencies, exchange etc, could be settled between India and Pakistan. The non Muslims
started transferring their funds and accounts to India. By the end of June 1948, the number of
officers of scheduled banks in Pakistan declined from 631 to 255. There were 19 foreign banks
with the status of small branch offices that were engaged solely in export crop from Pakistan,
while there were only two Pakistani institutions, Habib Bank, and Australasia Bank, the
customers of the banks are not satisfied with the uncertain condition of banking. Similarly the
Reserve Bank of India was not in the favor of Govt. of Pakistan. The Govt. of Pakistan
decided to establish a full-fledge central bank. Consequently the Governor General of Pakistan
Quaid-e-Azam inaugurated the State Bank of Pakistan on July 1,1948 Thus a landmark was
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made in the history of banking when the State Bank of Pakistan assumed full control of
banking and currency in Pakistan.
THE BANK OF PUNJAB
VISION STATEMENT
“To be a customer focused bank with service excellence.”
MISSION STATEMENT
To exceed the expectations of our stakeholders by leveraging our relationship with the
Government of Punjab and delivering a complete range of professional solutions with a focus
on programmed driven products & services in the Agriculture and Middle Tier Markets
through a motivated team.
CORE VALUES
Our Customer As our first priority.
Profitability For the prosperity of our stakeholders that allows us to constantly invest,
improve and succeed.
Corporate Social Responsibility To Enrich the Lives of community where we operate
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Recognition and Reward For the talented and high performing employees
Excellence In every thing we do.
Integrity In all our dealings.
Respect For our customers and each other.
HISTORY OF BOP
The Bank of Punjab was established in 1989 and was given the status of scheduled bank in
1994. The Bank of Punjab is working as a scheduled commercial bank with a network of
almost 273 branches at all over major locations in the Punjab. The Bank provides all types of
banking services such as Deposits in Local Currency and client foreign currency, remittances,
and advances to business, trade, industry and agriculture. The Bank of Punjab has indeed
entered a new era of science to the nation under experience and professional hands of its
management. The Bank of Punjab plays a vital role in the national economy through
mobilization of hitherto untapped local resources, promoting savings and providing funds for
investments. The bank offers attractive rates of profit on all deposits, opening of foreign
currency accounts and handling of foreign exchange business for example imports, exports
and remittances, financing, trade and industry for working capital requirements and money
market operations. The lending policy of bank is not only cautious and constructive but also
based on principles of prudent lending with maximum emphasis on security.
The Bank provides al ltypes of banking services such as Deposit in Local Currency,
Client Deposit in Foreign Currency, Remittances, Advances to Business, Trade, Industry and
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Agriculture A wholly owned subsidiary of BOP First Punjab Modaraba (FPM) was
established in 1992 and is being managed by Punjab Modaraba Services (Pvt) Ltd , a wholly
owed subsidiary of The Bank of Punjab.
Lending under Islamic mode of finance, main vehicles are Morabaha, Ijarah &
Musharika to encompass requirements of corporate, commercial and individual customers.
Liability generation through COM’s (Certificate of Musharika ) offers attractive
returns to individuals and institutional depositors for fixed tenure instruments. FPM is
working to introduce new and innovative products to enhance its range of services.
AWARDS AND ACHIEVEMENTS
Excellence Award by the Central Board of Revenue
The Central Board of Revenue presented "Excellence Award" to the Bank of Punjab in
recognition of the contribution made by the bank towards Government exchequer.
3rd Kissan Time Awards
In recognition of Bank's contribution in development and growth of agricultural sector, the
Bank honoured with "Top Bank for Agriculture Loans" and "Best Bank Crop Insurance"
under 3rd Kissan Time Awards year 2006.
Best Corporate Report Award
Annual Report of the Bank for the year 2005 won 5th position for "The Best Corporate
Report Award" for the Financial sector, adjudicated jointly by the Institute of Chartered
Accountants of Pakistan and the Institute of Cost and Management Accountants of Pakistan.
16th Bolan Excellence Award
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The Bank was awarded Best Bank Award under 15th Bolan Excellence Awards distributed in
2006.
Achievement Award
The Lahore Chamber of Commerce & Industry (LCCI) awarded the Bank "LCCI
Achievement Award" 2006.
MAJOR CUSTOMERS OF BOP
Some of the major customers of Bank of Punjab are:
Educational Institutes
Agriculturists
Pakistan Telecommunication Private Limited
WAPDA
Pharmaceutical Companies
WASA
MDA
Town Municipal Committees and local governing bodies
PUNJAB GOVERNMENT SHOWS FAITH IN BOP
Punjab Government wishes to state that being the major stake holder in the Bank of
Punjab it has full faith in the new management and operations of the Bank. The government
further pledges its unequivocal support to the Bank and firmly believes that the affairs of the
Bank are sound and its financial health robust.
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Finance Department
Government of the Punjab.
BRANCH NETWORK
Lahore Region
Faisialabad Region
Gujranwala Region
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Rawalpindi Region
Karachi/Queta Region
Multan Region
Gujrat Region
HEIRARHICAL FLOW
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GENERAL BANKING OF THE BANK OF PUNJAB
DEPOSIT DEPARTMENT
In modern times very few business enterprises are carried out solely with the capital of the
owners. Borrowing funds from different sources has becomes an essential feature of today
business enterprise. But in the case of a entire banking system is based on it. The borrowed
capital of the bank is much greater then their own capital. Banks borrowing is mostly in the
form of deposits.
These deposits are lent out to different parties. The larger the difference between the
rate at which the deposits are borrowed and the rate at which they is lent out the greater of the
profit margin of the bank. Furthermore, the larger the deposit the larger will be the funds
available for employment; larger the funds lent out the greater will be the profit of the bank.
To receive the deposit is the basic function of all commercial banks. The bank does
not receive these deposits for save keeping purpose only, but they accept deposits as debts.
When banks receive deposit from a customer, the relationship of a debtor and creditor is
established where by the customer become the creditor and the bank a debtor. When the bank
receives amount of deposit as a debtor, it becomes the owner of it. It may, therefore use it as
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deems appropriate. But there is an implicit agreement that the amount owned would be paid
back by the bank to the depositor after a specified period.
NATURE OF DEPOSIT
Current or demand Deposits
Saving Deposit
Short Notice Term Deposit
Call Deposits
Fixed or Term Deposits
CURRENT DEPOSIT
Current deposit are those which are payable to bank whenever demand by the customer. Bank
doesn’t pay any profit on current deposits. There are of different scheme of saving deposits,
which are classified under different duration purpose and rate of interest. Fixed deposits are
those which are by the bank under the conditions that will not be payable on demand but will
be payable under fixed or determinate future time date.
SAVING DEPOSIT
This type of accounts is one step towards the Islamization of banking system in Pakistan.
There are two types of PLS Accounts.
PLS Saving Account
PLS-TDR (Profit & Loss Sharing Term Deposit Receipts).
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PLS saving accounts can be opened with the minimum sum of Rs. 100 and PLS-TDR
account can be opened for a sum of Rs. 1000 or above. Profit is paid on both types of the PLS
account on half yearly basis.
Under PLS saving account the depositor undertakes to share profit or loss on the deposits
earned or sustained by the bank. Secondly the bank is at the liberty to invest the funds of the
deposits in any avenue, it deems fit. The PLS deposits are invested in non-interested
channels.
SHORT NOTICE TERM DEPOSITS
This kind of deposit is for a short period. The depositor may withdraw his deposit at any time
by giving seven days notice to the bank. This type of deposit facilitates the depositor to
withdrawn his amount with interest of the deposited period.
CALL DEPOSIT
Call deposits are the sorts of deposits, which are deposited with the banker against any
tender. This is without interest deposit. This may be with interest provided the depositor has
agreed to keep this amount with the bank for some fixed period.
TERM DEPOSIT RECEIPTS
This type of deposit is same as the SNTD. The difference is that SNTD is for short period (7- 30 days)
while TDR is for long period (1 month up to 5 years).
ACCOUNT OPENING
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Account opening is the first step towards establishing a relationship between the customer
and the bank. The Bank of Punjab is offering basically two types of account:
Current Deposit Account
Profit and Loss Sharing Account
The necessary condition for a customer, who wants to open an account with the bank, is
introduction, which is preferably by the bank officers or any account holder of the bank. The
different categories of accounts that are available are as under.
Individual Account
Joint Account
Partnership Account
Limited Company Account
Clubs, Society, Association, or Trust Account
SNTD
TDR
Foreign Currency Deposit
ACCOUNT OPENING PROCEDURE
The general banking department performs various functions among them the first and most
important function is Account Opening. The bank reserves the right to open any account,
which in its opinion is suitable as a customer. The process of
opening an account is very simple and any body that would like to open his account could do
it easily without any difficulty.
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The person would like to open his account is required to meet with the manager or
second officer, who will give him an Application form specifically used for account opening.
Along with the form a card for specimen signature is also supplied to the customer. Manager
has every right not to accept this contract if he is not satisfied with the details provided by the
customer. But in case the contract is acceptable to both, the next step is official account
opening.
This begins with the Account Opening Register which can be thought as a customer’s
master file. The manager records the necessary details into this register5 and allots an
“Account Number” from this account opening register. This register is maintained for each
type of accounts and the account numbers are allotted serially. After opening the account
every applicant’s date is entered in the computer to maintain the safe record and application
form is also safely put off, so that it can be available whenever it is needed. Checking officer
is responsible to tally the manual data with computerized account opening file. For fix
deposit only the application form is needed, which is prepared manually, because most of the
procedures of fix deposit is done manually. Signature specimen card contains three
signatures of the applicant, applicant account number, account type, branch code, and title of
account. It will be attached with the account opening form. Banker uses this card when he
receives the cheque, he compares signature on the cheque with the Specimen card, for
avoiding the frauds.
CLEARING DEPARTMENT
This department receives the cheque and other negotiable instruments drawn on local
branches of other banks. State bank of Pakistan has clearing house, in which cheque, and
other negotiable instruments are brought by each local bank representatives and the mutual
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claims of each bank on other and offset and a settlement is made by the payment of
difference. Clearing system is help full for both the customer and saving currency, time and
labor.
Investments which are collected
Cheques
Demand Drafts
Telegraphic transfers
Mail Transfers
Pay Order
Dividend Warrants
CLEARING
Any instruments which drawn on BOP branches and other banks in same city that’s
instruments are called clearing. A clearing and date stamp is a fixed on these instruments
these are two types of clearing!
Outward Clearing
Inward Clearing
Inward clearing means the cheque drawn on BOP and outward clearing means the Cheques
drawn on others
OUTWARD CLEARING
The instrument collected or stored bank wise and a schedules is prepared separately for each
bank mentioning the total number of instruments and the amount of the instruments. Then
these are recorded in a register called “OUTWARD CLEARING REGISTER” then a main
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schedule is prepared showing the total number of cheque and their aggregate amount being
presented in the clearing.
The cheque/instruments are handed over the clearing branch. Central clearing branch issue
CREDIT ADVICE to the branch for passing credit to its customer immediately. The branch
on receiving credit advice debits the clearing account and credit the respective customer
accounts.
INWARD CLEARING
On receiving cheque/instruments from central clearing branch, the in charge checks the
number and amount of cheque received in clearing must tally with the main schedule
received from central clearing branch.
These cheque/instrument are entered in “INWARD CLEARING REGISTER” for the
cheque/instrument passed in clearing is a credit advice for the aggregate amount of cheque
passed in clearing is prepared, drawn on central clearing branch.
RESERVES AT STATE BANK
Deposit held by bank at SBP serves as check clearing and collection balances. Rather than
physically transferring funds between banks, check clearing and collection can be done by
simply debiting or crediting a bank’s account at SBP.
REMITTANCE DEPARTMENT
Remittance is a major function of the bank. It is the transfer of money from one place to
another place. The need for remittance is commonly felt in commercial life particularly and
in everyday life generally.
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By proving this service to the customers the Bank of Punjab earns a lot of income in the form
of service charges.
TYPES OF REMITTANCE
The Bank of Punjab deals with the following type of remittances
Demand Draft (DD)
Mail Transfer (MT)
Telegraphic Transfer (TT)
Pay Order
Now we discuss all these in detail:
DEMAND DRAFT (DD):
Demand draft is a written order given by the one branch of a bank on behalf of customer to
another branch of the same bank to a certain amount to the certain person.
PROCEDURE
1) A draft voucher is filled which contains the following information
Name of the parties involved
Date
Amount to be sent
Account number (if DD is crossed)
2) A credit voucher is filled in order to get the excise duty and exchange commission.
3) The sender deposits the total amount of the two vouchers i.e. the debit and credit
vouchers.
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4) Then the cashier sends the cash receipt voucher to the accounts department and the
account records the amount paid in his cash scroll.
5) Accountant gives the DD leaf along with the DD voucher to his assistant who records
the sender’s name, amount and receiver’s name. After writing all the information in the
DD register he gives it to the officer along with the DD for authentication.
6) After authentication the DD is handed over to the sender and bank sends the advice to
the concerned branch. So when the party presents the DD in the concerned branch its
payment could be made.
PARTIES INVOLVED
The following parties are involved in demand draft;
1) Purchaser or Sender
The purchaser is the person who sends the money to a particular person payable at a
certain branch.
2) Issuing or Drawing Branch
The branch from where the demand draft is issued to another branch of the same
bank.
3) Drawer Branch
Branch in which the draft has drawn and called upon to pay the amount.
4) Payee
The person who is entitled to receive the amount after presenting the demand draft in the
drawer branch.
MAIL TRANSFER
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It is the transfer of money from one branch to another branch of the same bank through mail
service. In mail transfer there is no need of advice as the amount is directly credited to the
receiver’s account.
PROCEDURE
1) First a voucher is filled in whish the sender writes the amount to be sent, name, account
number of the receiving person with the branch name and date.
2) A credit voucher is filled in order to deduct exchange, postage charges according to the
amount of the mail transfer.
3) The sender deposits the total amount in the cash department.
4) The cash officer gives the vouchers to the officer after affixing received cash stamp and
writing the amount in red ink.
5) Then the officer writes the amount paid in the cash scroll and gives the MT to his
assistant.
6) MT leaf is filled according to the information provided in credit voucher. He also writes
the same information in the MT register. Then he gives the MT leaf and MT register to
the officer for authentication.
TELEGRAPHIC TRANSFER
This is the most urgent method of remitting the money from one place to another place. This
method is used when the sender desires to send urgently, in this case the sender request the
manager of the branch to issue TT.
PROCEDURE
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For sending the TT the manager and officer apply a test. In the test the manager and officer
uses a coding technique. They write their own code numbers, which is allotted, to them as the
bank branch code. After making all the conformation the concerned branch makes the
payment to the receiver. If the sender wants to convey the same message through telephone
then he has to pay the charges of telephone along with the TT charges. First the person
deposit the TT amount along with the charges through the credit voucher then his TT sent to
the relevant branch.
PAY ORDER
A pay order is a written order issued by the bank on its own branch, drawn upon and payable
by itself to pay a specified sum of money to the person. The purpose of a pay order is to
transfer the fund from one place to another. It is usually
not issued in favor of the parties of other cities. Usually the pay order is issued for the local
transfer of money from one person to another or from the person to any other department. It
is used for different purposes. The purpose may be the repairs of the branch or renovation of
the branch.
PROCEDURE
The procedure of a pay order varies with the nature of the purpose. If the work is of huge
amount then first the manager writes a letter to the Zonal Chief in order to get sanction of the
work. Then the advertisement of the work is given in the newspaper in order to invite the
contractors. But if the work is small then the branch manager has discretionary power to
select the party whose rate is lowest. After finishing the work the contractor submits the bill
of work on his stamp pad. Then the bank issues a pay order, against the pay order the
contactor gets the amount from the issuing branch.
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.ACCOUNT DEPARTMENT
Account department is the backbone of a bank. It plays a vital in performing different
functions of a bank. The account department of is computerized as well as manual.
Accounting books of different departments are maintained under this department and with the
help of these, accountant prepare the monthly quarterly, semiannually and yearly financial
statement and order statement of the whole bank. All the transaction taking place is recorded
daily in the books of accounts and in computerized ledgers.
For every transaction there is Voucher prepared and through these vouchers contra
entries are passed under different head. Good working of accounts mainly depends on the
voucher system. Accounts department is responsible for proper handling and maintenance of
vouchers of different department
.
MANUAL FUNCTIONS OF ACCOUNTS DEPARTMENT
Accountant prepares vouchers for all daily activities of different departments. Checking
officer checks and tallies these vouchers with their daily transactions and posts their entries
under proper heads.
TYPES OF VOUCHERS
Debit Voucher
Credit Voucher
These two types of vouchers are again classified under following types: -
Cash voucher
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Transfer voucher
Clearing voucher
All the daily transaction in cash, transfer and clearing is done through these vouchers. A
sheet is prepared on which all the vouchers passed during one day are consolidated and
summarized. This sheet is called supplementary sheet. There are two types of supplementary
sheet.
Daily paid voucher sheet
Daily receipt voucher sheet
Paid sheet is used for all debit vouchers and receipt sheet is used for all credit vouchers.
CASH BOOK
Cash book is prepared daily to keep the record of daily paid vouchers. Cash book contains the
opening balance and the closing balance of a working day. Before writing and balance the
cash book firstly there is needed to properly arrange all the vouchers of that day.
MAINTAINING & UPDATING LEDGERS
One of the functions of accounts department is to maintain and update the term deposit
ledgers and books manually. Term deposit receipt or TDR ledger is updated after every
month for estimating profit on customer’s accounts. Accountant prepares different ledger for
all schemes of term deposit. With the help of TDR ledger accountant prepares “provisional
ledger”. From this ledger accountant calculate the monthly product of each account and
estimate the profit for a half-year. The semiannual profit on each account will be the expenses
of branch.
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COMPUTERIZED FUNCTIONS OF ACCOUNTS DEPARTMENT
Most of the daily working is done through ledgers. In BOP all the daily transaction in deposit,
cash, clearing, transfer, remittance and advance are performed these daily ledgers; accounts
department receives the following output of general ledger.
Daily general ledger expense
Daily general ledger income
Daily general ledger assets
Daily general ledger liability
Daily general ledger circle expense
Daily general ledger audit expense
The formats of all these ledgers are same. They contain the following head account no.
description, previous balance. Codes are assigned to all these items.
Income will be credited in the branch account and expenses will be debited I the branch at the
month end.
All the expenses of circle, regional, audit, inspection office is debited in the head
office account, because it is the responsibility of the head office to bear the expenses of its
offices. For all the heads of general ledger there is closing balance and opening balance.
These ledgers are helpful in preparing the daily, monthly, semiannually and yearly
statements. Some of these statements are prepare for the
purpose of record keeping of branches and some are prepared to send to the circle office,
head office and state bank of Pakistan.
Some of these statements are
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Statement of provisional income
Statement of provisional expense
Statement of head office account
Summary of income and expense
Statement of profit and loss on PLS account
Statement of profit and loss PLS 365 account
Balance confirmation report
Statement of affairs
BILLS DEPARTMENT
This department deals in bills for collection for all kinks such as cheque, draft, and pay
orders, call deposits etc. with outstation branches of BOP or with other banks. It provides
service to their customer to get payment from the nearer bank at nominal charges. The four
main heads of bill department is.
Outward Bill for Collection (OBC)
Inward Bills For Collection (IBC)
Outward Documentary Bills For Collection (ODBFC)
Inward Documentary Bills For Collection (IDBFC)
OUTWARD BILLS FOR COLLECTION
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Bills department receive cheque or other of bills from its kinks client whose account must be
opened in that branch. The branch forwards the check with schedule or covering letter to that
branch on which bills is drawn. The checking officer of bills department will cross the cheque
with special bank stamp before forwarding the cheque.
OBC register is also maintained for proper record keeping of outward bills. This register is
updated two times once at the time of receiving bill from clients and the other when the
confirmation advice of this cheque is received from the payable branch. Bank gets a
commission Rs. 25/- and courier charges Rs. 40/- on the service.
INWARD BILLS FOR COLLECTION
The branches which receive bill have to verify these bills for payment. The party account
must be opened in that branch. The responsibility of this branch is to verify the bills for
collection with in three days and send the advice to the originating branch.
In case of verification of bills is approved, banks debit the account of the respective account
holder and send a debit advice to the originating branch and at the same time credit the head
office account for inward bills IBC register is maintaining for keeping the proper record of
the bills.
OUTWARD DOCUMENTARY BILLS FOR COLLECTION
Originating branch receives the documentary bills from their clients and sent them to out
station branches of the same bank or other bank. Customer account must be opened in that
branch. The documentary bills are i.e. trust receipt, railway receipt, sales invoice, receipts of
27
courier service etc. bank gets as commission 0.35% plus postage charges plus courier service
charges of this service. Seller and producer both can avail the facility of bank in case of
selling and purchasing their product or goods.
INWARD DOCUMENTARY BILLS FOR COLLECTION
Bank receives the documentary bills from the other outstation branches of the same banks or
other banks for collection the amount from purchaser.
In this case back acts as a buyer’s bank, when bank receives the documentary bills they send
intimation to buyer about his arrival of goods. If the buyer is the account holder then bank
will debit his account otherwise purchaser deposits the amount of the bills. Bank hand over
these documents to purchase, on behalf of which buyer receives the goods. Bank also charges
commission.
ADVANCES/CREDIT DEPARTMENT
It is the loan function, which produces the major person of bank’s income, and as such it is
the major areas of professional banker’s concern and attention.
PRINCIPLES WHILE ADVANCING
Basically there are five principles that must be duly observed while advancing money
to borrowers.
Safety
Liquidity
Disposal
Remuneration
Suitability
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FORMS OF LENDING
Many there are two types of advances:
Short-term (maturity within one year)
Long term (maturity with the period of more than one year)
However they are further classified as:
Running Finance
Demand Finance
Cash Finance
Letter of Guarantee
RUNNING FINANCE
This form of finance was previously known as “overdraft”. When a customer requires the
temporary accommodation, his bank allows withdrawal his account in excess of credit
balance, which the customer has in its account, a running finance occurs. The accommodation
is thus allowed collateral security. When it is against collateral securities, it is called a
“Secured Running Finance” and when the customer cannot offer any collateral security
except his personal security, accommodation is called a “Clean Running Finance.” The
customer is in advantageous position in running finance because he has to pay the mark-up
only the balance outstanding against him on daily product basis.
DEMAND FINANCE
This is common form of financing to commercial and industrial concerns and is mad
available either against pledge or hypothecation of goods produce or merchandise. In
Demand Finance the party is financed up to a certain limit either at once or as and when
29
required. The party due to facility of paying mark-up only on the amount it actually utilizes
prefers this form of financing
Ordinary Shares
Preferred Shares
Quoted or Unquoted
Registered
Bearer
Inscribed
ADVANCES AGAINST IMMOVABLE PROPERTY
A mortgage is the transfer of and interest in specific immovable property for the purpose of
securing the payment of the money, advanced or to be advanced. By way of loan, and
existing debts or the performances of the engagement this may rise the pecuniary liability.
The transfer is called the ‘mortgager’ and the transferee the ‘mortgagee’ the principal money
and interest of which payment is secured for the time being and instrument by which the
transfer is effected, is called the letter of the mortgage deed.
Availability of adequate flows of credit for industry and agriculture are a sine qua non for the
growth and development of an economy. This acquires added importance when agriculture is
the mainstay of the economy as also the sector where the bulk of the poor are concentrated.
Growth and productivity in Pakistan's agriculture has slowed down in recent years and is,
therefore, of serious concern given its importance for the economic prosperity of the country.
Apart from various other weaknesses in
the infrastructural support of the agricultural sector, inadequacy and lack of efficacy of credit,
flows to support agriculture related activities has been a major constraining factor.
30
Agriculture is the largest sector of the economy. It contributes 25 percent to GDP, provides
raw materials to 80 percent of industry and employment to over 50 percent of the population.
This is a sector that has the shortest gestation period for
investments and, therefore, a remarkable capacity to bring about a turn around in the
economy. This important sector in Pakistan is suffering from a number of maladies and is
consequently witnessing stagnation in productivity.
Due to policy and administrative exigencies, the savings in the agriculture sector remain low
and, therefore, the sector has perpetually remained capital starved. The pricing of input and
output in agriculture over the years has forced the majority of farmers in Pakistan to plough
back their incomes into agriculture and non-institutional credit, and has more often than not
served to sap their potential earnings. Needless to say, that shortage of savings and lack of
availability of capital is one of the major reasons for poverty in the country. The agricultural
and rural sectors in Pakistan in general and in Punjab in particular are, therefore, suffering
from severe under-development. Under a desirable development model, Punjab can:
Increase agricultural production to meet the country's requirement of essential foods items
and industrial raw materials.
Develop agro-based industry in the rural sector for economic value addition;
Generate additional employment opportunities in rural as well as adjacent small
towns/cities
Control massive migration to the urban centers that in turn is causing a number of social,
administrative (i.e. law and order) and economic problems for the urban areas
Elevate poverty and improve the income generating capacity of the agri-based population.
AGRICULTURE SCHEME
31
There are many agriculture promotion schemes provided by BOP.
Green Tractor Lease Finance Scheme
Agri Finance Branches
Agricultural Finance Scheme
Kissan Dost Tractor Scheme
Second Hand Tractor Lease Finance Scheme
Kissan Dost Aabiari Scheme
Kissan Dost Mechanization Support Scheme
Kissan Dost Farm Transport Scheme
Kissan Dost Eslah-E-Arazi Scheme
Kissan Dost Live Stock Development Scheme
Livestock Breed Improvement Trough VVW
Kissan Dost Commercial Agro Services
Kissan Dost Agri Mall Finance Scheme
Corporate Farming Finance Scheme
Commercial Lease Finance Tractor Scheme
Demand Finance-Sheds Construction and Civil Works
Lease Finance Facility for Milch Animals
Running Finance-Livestock/Poultry and Fish Farms
Kissan Dost Model Dairy Farms (PDDC)
Kissan Dost Model Milk Collection Center (PDDC)
Kissan Dost Green House Finance Facility
Kissan Dost Cold Storage Finance Facility
Scheme for Controlled Sheds
Lease Finance Facility for Installation of Biogas Plant
32
Group Financing to Small Farmers
Clean Credit Facility through Syngenta Franchisees
Zarkaashat Drip Irrigation System
Markup of Schemes
BUSINESS PROMOTION SCHEME
BOP Quick Cash
BOP Car Loan
BOP House Loan
BOP SME Loan
BOP Assaish Loan
BOP House Loan For Federal Govt
SERVICES
Commercial Banking
Corporate & Investment
Cash Management Services
Utility Bills
Lockers
COMMERCIAL BANKING
The Commercial Banking Group has been formed to cater the needs of small & medium size
customers for increasing Bank’s business significantly with clear focus, repositioning of
resources and active marketing to improve Bank’s profitability. Commercial Banking will
33
deal with customers having sales turnover and aggregate credit exposure as per benchmarks
prescribed in the SBP’s Prudential Regulations.
This Group’s emphasis will be to meet necessary business needs of customers which are
numerous as compared to CIB clients but their individual credit requirements are relatively
much smaller. In view of this peculiar nature of this business segment that involves a higher
turn over a much wider network is needed. The SME will concentrate on rebuilding its set up
which suits to its peculiar needs on all locations.
CORPORATE & INVESTMENT BANKING
Corporate Banking
The BOP Corporate Banking endeavors to market new clients and retain the existing
relationships and build market share by offering superior services, competitive pricing and
wide product range to valued corporate clients including Public Sector Entities and Multi
National Companies. BOP facilitates its customers for all sorts of their banking needs
including working capital, trade finance, BMR and project financing etc. BOP has worked on
some of the local markets’ largest and most complex transactions and infrastructure projects.
The BOP Corporate Banking Group comprises of seasoned relationship management team to
meet the demanding service standards of large corporations. The group delivers a full range
of high quality advisory, financing and operational service solutions tailored according to
customers’ needs.
Investment Banking
34
The investment Banking Group is entrusted with the prime responsibility of developing and
executing investment banking strategy to enhance and maximize shareholder value and
customer confidence. IBG specializes in providing innovative and unique advice to its clients
to assist them in meeting challenges in an ever-changing market. The team of qualified
professionals operates under a strict risk management framework, following best practices
within their fields and continuously striving for excellence.
Investment Banking Unit offers full spectrum of services, which include TFCs, Syndicated
Finances, Structured Finances, Leveraged Buyouts, Project Finance,
Quasi-Equity Products, Independent Advice, Equity Placements, IPOs, Equity Underwriting,
Mergers, Corporate Restructuring, Acquisitions and other products. IBU also works on and
come up with providing Fund Management Facilities
CASH MANAGEMENT SERVICE
Cash Management is a process of collections & payments on behalf of the Customers using
the Bank Network.The objective is to faciliate organizations with multiple collection points
in gathering Cash / Funds and making them available in the customer operating Account.
Similarly it facilitates disbursement of frequent and or Bulk payment to multiple locations.
This should be accomplished with minimal supervision by the customer, supported by an
automated system to provide timely and requisite MIS / Reconciliation under agreed Service
Levels
35
UTILITY SERVICE
Customers can pay their utility bills e.g. electricity, water gas, telephone, mobile, at any of
our 272 branches across Pakistan. For your convenience bills are collected on all working
days from 9:00 am to 5:00 pm (Monday to Friday) except lunch & prayer breaks and from
9:00 am to 1:30 pm on Saturday.
You can also pay your bills by availing our drop box facility. Just drop your Cheque along
with bill at your branch and collect the receipt in the evening, avoid the hastle of standing in
queues and save your precious time
BOP LOCKER
Discover peace of mind, enjoy personalized service and operate your locker in a friendly and
pleasant environment at The Bank of Punjab.
Locker Size Annual Fee
Small Rs.1,200
Medium Rs.1,800
Large Rs.3,000
Extra Large Rs.6,500
These are the other services provided by the BOP.
ATM Facility
On-Line Banking
36
Lockers Facility
Demand Drafts
Letter of Credit
Pay Order
Mail Transfer
Debit Card
Collection of Utility
AUTOMATED TELLER MACHINHE
Through the ATM’s Customers have access to the various services such as withdrawal,
balance enquiry and mini statement? Complete security is ensured because access to the
account is only possible by entering a four digit personal identification number (PIN) known
only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges
of ATM is Rs.250/- per card.
ONLINE BANKING
BOP is currently offering window-based online banking to its customers, which gives access
to information on their accounts and the liability to act on the latest information received over
the net.
LOCKERS
It is one of the utility services that BOP provides to their customers for keeping jewellery,
important documents and other valuables.
37
DEMAND DRAFT
BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any
person whether an account holder of the bank or not, can purchase a Demand Draft from a
bank branch.
LETTER OF CREDIT
BOP is offering its business customers the widest range of option in the area of money
transfer. BOP’s letter of credit service is with competitive rates, security, and ease of
transaction, BOP Letter of credit is the best way to do the business transactions.
PAY ORDER
BOP provides transfer of money using different facilities. Its pay orders are a secure and easy
way to move the money from one place to another. The charges for this service are extremely
competitive.
MAIL TRANSFER
Moves money safely and quickly from BOP Mail Transfer service. The rates for this service
is quiet impressive as compare to the market.
DEBIT CARD
BOP Apna Cash Card is an ATM plus Debit Card.
1. The front of the card will have the following matter on it:
Card Holder’s Name
38
International Bin Number (6 Digits - XXXXXX)
Magnetic Strip
Signature Panel
Conditions of Usage
M-Net and M-Net logo
LIMITATIONS
Any non-personal account i.e. Companies, Organizations, Trust Account, Government
account and Collection account etc.
Dormant, inoperative, blocked or restricted accounts.
Accounts with “NIL” balance.
Term Deposit Accounts.
NIDF Accounts. (Non Interest Demand Finance Accounts)
Accounts requiring thumb / photo for operation (illiterate accounts) · ATM/Debit cards
can only be issued on local currency accounts.
FINANCIAL ANALYSIS
To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis,
Common size Analysis of the last five years. Importance of Financial Analysis
IMPORTANCE OF FINANCIAL ANALYSIS
Financial analysis involves the use of various financial statements. These statements do
several things. First the balance sheet and the second is income statement. The balance sheet
summarizes the assets, liabilities, and owner’s equity of a business at a point in time, while
the income statement summarizes revenues and expenses of a firm over a particular period of
39
time. A conceptual framework for financial analysis provides the analyst with an interlocking
means for structuring the analysis
2008 2007 (Rupees in ‘000)
Assets
Cash and balances with treasury banks 10,685,057 14,210,302
Balances with other banks 2,178,455 1,927,662Lendings to financial institutions 633,333 2,450,000Investments 22,711,980 73,461,695Advances 131,731,158 133,893,585Operating fixed assets 3,471,838 3,252,759Deferred tax assets 8,388,162 -Other assets 6,109,137 5,805,097
185,909,120 235,001,100
Liabilities
Bills payable 1,219,801 937,647
Borrowings 12,278,773 17,842,915Deposits and other accounts 164,072,532 191,968,909Sub-ordinated loans - - -Liabilities against assets subject to finance lease 30,632 40,321Deferred tax liabilities - 2,205,530Other liabilities 4,564,257 3,009,984
182,165,995 216,005,306
Net Assets 3,743,125 18,995,794
40
Represented By5,287,974 4,230,379
Reserves 7,427,232 7,427,232(Accumulated loss) / Un-appropriated profit 3,452,842
5,056,520 15,110,453
(Deficit) / Surplus on revaluation of assets - net (1,313,395) 3,885,341
3,743,125 18,995,794
Contingencies and Commitments
BALANCE SHEET
INCOME STATEMENT
2008 2007
(Rupees in ‘000)
Mark-up/return/interest earned 17,752,969 17,539,094Mark-up/return/interest expensed 16,614,000 13,939,377
Net mark-up/ interest income 1,138,969 3,599,717
Provision against non-performing loans and advances 18,863,580 1,616,421
Provision for diminution in the value of investments 366,387 24,479Bad debts written off directly - 246,869
19,229,967 1,887,769
Net mark-up/ interest income after provisions (18,090,998) 1,711,948
Non Mark-up/interest Income
Fee, commission and brokerage income 577,630 653,512
Dividend income 2,020,896 1,804,878Income from dealing in foreign currencies 324,328 377,233Gain on sale and redemption of securities 733,787 2,039,535Unrealized gain / (Loss) on revaluation of investments
- -
Other income 526,185 547,635
41
Total non-markup/interest income 4,182,826 5,422,793
(13,908,172) 7,134,741
Non Mark-up/interest ExpensesAdministrative expenses 2,799,933 2,250,777
Provision against other assets 10,101 -Provision against off balance sheet items - 292
Other charges 114,700 37,950
Total non-markup/interest expenses 2,924,734 2,289,019
(16,832,906) 4,845,722
Extra ordinary/unusual items - -(Loss) / Profit Before Taxation (16,832,906) 4,845,722
Taxation - Current 207,600 169,252
- Prior years 1,052,000 (19,921)
- Deferred (8,033,001) 250,772
(6,773,401) 400,103
(Loss) / Profit After Taxation (10,059,505) 4,445,619
Unappropriated profit brought forward 3,452,842 3,219,246
Transfer from surplus on revaluation of fixed assets - net 5,572 5,8663,458,414 3,225,112
(Accumulated loss) / profit available for appropriation (6,601,091) 7,670,731
Basic (loss) / earnings per share (after tax) - Rupees (19.02) 8.41
Diluted (loss) / earnings per share (after tax) - Rupees (19.02) 8.41
FINANCIAL BUSINESS SUMMARY
2004 2005 2006 2007 2008
Operating Results
Markup/ return/ interest earned Rs in m 2,555 6,125 11,579 17,539 17,753
Markup/ return/ interest expenses Rs in m 719 2,669 7,509 13,939 16,614
Net markup income Rs in m 1,836 3,456 4,070 3,600 1,139
Non-markup based Income Rs in m 1,097 1,331 2,954 5,423
42
4,183
Non-markup based expenses Rs in m 1,150 1,291 1,882 2,289 2,925
Provision against NPLs Rs in m 47 331 374 1,888 18,864
Net profit before tax Rs in m 1,736 3,165 4,769 4,846 (16,833)
Net profit after tax Rs in m 1,368 2,353 3,804 4,446 (10,060)
Balance Sheet
Total Assets Rs in m 66,320 111,154 164,855 234,974 185,909
Advances (net) Rs in m 39,439 63,624 101,320 133,894 131,731
Investments Rs in m 16,198 18,026 28,233 73,462 22,712
Shareholders Equity Rs in m 4,420 6,777 10,659 15,110 5,057
Revaluation Reserve Rs in m 3,419 6,893 5,467 3,885 (1,313)
Deposits Rs in m 54,724 88,465 137,728 191,969 164,073
Borrowings from FIs Rs in m 2,832 6,791 6,989 17,843 12,279
RATIO ANALYSIS
43
Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From
ratio analysis it is possible to predict future variances.
Following ratios of BOP has been calculated:
Ratios 2004 2005 2006 2007 2008
Gross spread ratio % 72 56 35 21 6.42
Profit before tax to total income % 59.19 66.11 67.89 53.71 (316.29)
Markup/ Interest cover ratio times 5.08 2.79 1.94 1.65 1.32
Profit after tax to total income % 46.65 49.16 54.16 49.27 (189.03)
Total assets turnover times 0.06 0.07 0.09 0.1 0.12
Return on avg total assets (after tax) % 2.49 2.65 2.76 2.22 (0.05)
Price earning ratio times 7.25 10.23 7.71 9.31 (0.60)
EPS (Non dilutive) Rs./share 9.08 10.01 13.14 10.51 (19.02)
Dividend per share Rs./share 4 5.2 3.25 3.5 -
Market value per share Rs./share 65.9 102.45 101.25 97.8 11.50
Capital adequacy Ratio % 12.83 12.78 10.09 9.69 1.92
GROSS SPREAD RATIO
Gross spread ratio defines the total spread of interest between borrowing and lending.Spread:
Difference between funded revenue as a percentage of average earning assets and the cost of
funds as a percentage of average paying funds.
The higher the spread the higher will be the profit margin.
GSR= Rev/CGS
GSR= (Mark-up earned – Mark-up Expense)/Mark-up earned
GSR is 2nd highest all over the globe in Pakistan.
44
GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest
rates on the deposits.
%
72
56
35
21
6.420
10
20
30
40
50
60
70
80
2004 2005 2006 2007 2008
%
PROFIT BEFORE TAX TO TOTAL INCOME
Operating income less operating cost (profit before tax).
This ratio tells what percent of total income is earned before paying all the taxes.
BOP has a high value of profit before tax to total income and they are decreasing after 2006
because of increase in admin expenses and righting off the bad debts.
The main reasons for reduction in the profitability were additional provision against NPL due
to the elimination of benefit of FSV and downturn in consumer and individual banking
%
59.19 66.11 67.89 53.71
-316.29-350
-300
-250
-200
-150
-100
-50
0
50
100
2004 2005 2006 2007 2008
%
45
INTEREST COVERAGE RATIO
MP/Interest cover ratio= EBIT/Mark-up
This ratio tells what percent of interest is covered from the total income of a firm or a bank.It
tells the ability of a bank to pay its mark-up to the depositors..
times
5.08
2.79
1.941.65
1.32
0
1
2
3
4
5
6
2004 2005 2006 2007 2008
times
PROFIT AFTER TAX TO TOTAL INCOME
This ratio analysis tells profitability of a firm after paying all the taxes to total income.
Profitability of BOP is increased because of decrease in the tax paid to the govt and of high
spread ratio.
BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8%
in 2007 instead of 35%
46
%
46.65 49.16 54.16 49.27
-189.03
-250
-200
-150
-100
-50
0
50
100
2004 2005 2006 2007 2008
%
TOTAL ASSET TURNOVER
Asset turnover= Net Income/ Total assets
This ratio tells the turnover of the asset to generate income.
This ratio is increased during last few years which represent increase in the turnover by
assets.
times
0.060.07
0.090.1
0.12
0
0.02
0.04
0.06
0.08
0.1
0.12
0.14
2004 2005 2006 2007 2008
times
RETURN ON TOTAL ASSET
This ratio gives an idea of returning net profit generated by the bank in comparison with
assets.
Return on assets= Profit after tax / Total Assets
47
This ratio is decreasing in the last year because of decrease in Profit as expenses raised
up.The decrease was mainly due to increased equity as a result of increase in minimum
capital requirements and additional provision due to withdrawal of benefit of FSV for most
types of advances.
%
2.492.65 2.76
2.22
-0.05
-0.5
0
0.5
1
1.5
2
2.5
3
2004 2005 2006 2007 2008
%
PRICE EARNING RATIO
Price Earning Ratio= Market price of a share/ EPS
From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a
share equivalent to the worth of 1 RS MPS by the bank or a firm
times
7.25
10.23
7.71
9.31
-0.6
-2
0
2
4
6
8
10
12
2004 2005 2006 2007 2008
times
48
EARNING PER SHARE
EPS = Net Income/ total shares
Through this ratio it can be analyzed what percent of 1RS share is earned.
9.08 10.01 13.14 10.51
-19.02
4 5.2 3.25 3.5 0
65.9
102.45 101.25 97.8
11.5
-40
-20
0
20
40
60
80
100
120
2004 2005 2006 2007 2008
EPS
DIVIDENT
VALUE
CAPITAL ADEQUACY RATIO
Capital adequacy ratio informs lending up to a certain ratio of equity.
This ratio is set by the State Bank of Pakistan.
C.A
12.83 12.78
10.09 9.69
1.92
0
2
4
6
8
10
12
14
2004 2005 2006 2007 2008
C.A
ADVANCES & DEPOSITS
49
SWOT ANALYSIS
SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats
SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as
well as its environment opportunities and threats.
“SWOT analysis is a situational which includes strengths, weaknesses, opportunities and
threats that affect organizational performance.”
“The overall evaluation of a company strengths, weaknesses, opportunities and threats is
called SWOT analysis
In SWOT analysis the best strategies accomplish an organization’s mission by
:
Exploiting an organizations opportunities and strength.
Neutralizing it threats.
Avoiding or correcting its weakness.
50
SWOT analysis is one of the most important steps in formulating strategy using the
organization mission as a context; managers assess internal strengths distinctive
competencies and weakness and external opportunities and threats. The goal is to then
develop good strategies and exploit opportunities and strengths neutralize threats and avoid
weaknesses.
STRENGTH
The Bank officers of BOP are considered as one of the most able professionals in the
banking world. However, they have added some local flavour in accordance with their
targeted segmented. In my observation that they interact with their clients as if they are
their personal friends and discuss about their problems as their own.
As a result of the compassionate and personalized services of the officers, the clients’
perception for BOP is very high. They have trust and feel themselves to be secure while
dealing with BOP.
BOP has opened all its branches at commercial areas so that the customers or clients face
no problems in reaching to the bank.
BOP has got a reliable and easy to use internal computer system.Every information
regarding the transactions in customers’ deposits has been computerized. Data are
properly maintained.
Good security system
Not excellent but good facilities are given to employees
WEAKNESSES
51
Lack of proper internal controls is one of the major weakness of BOP. It is also pointed
by the auditor in his review.
BOP has formulized a lot of products and services for its customers, even more than other
commercial banks, but any advertisement on electronic media has not been seen.
I observed during my internship that some of the employees were burdened with over
work. So I think that the work should be distributed according to their post and
capabilities.
Biased selection of employees.
OPPORTUNITIES
Satisfy dynamic consumer needs, BOP has made significant in roads in its entire service
spectrum. A lot of products have been introduced especially in Retail Banking
(Agriculture side) and people are increasingly becoming loyal to the bank and because of
feasible transactions. Optimum pricing and branding strategies of the bank are helping to
make customer feel secure and convenient.
All the opportunities of the 21st century are to be availed in the information technology.
Information technology is the future of this dynamic world. Therefore BOP should
emphasize much on IT, especially on E-Banking. Bank can design a universal account
like other foreign banks, to enhance online facilities.
BOP has introduced a number of financial schemes including special ‘Deposit Accounts’.
These accounts have their unique features. During the last three years,
BOP deposits have been increasing @ 40%, which is a very healthy sign. Therefore, with the
commencement of new schemes there can even be a greater increase in its deposits
52
THREATS
Despite the difficult circumstances that confronted the banking sector in particular and the
country in general, BOP has been still highly profitable. But, the facts can’t be denied and
there might be an adverse impact of such situation.
BOP is facing a strong competition by its competitors, Business of all these Banks are
growing at very high pace.
PEST ANALYSIS
PEST analysis of any industry investigates the important factors that affect the industry
and influence the companies operating in the sector. PEST stands for Political, Economic,
Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that
drive the industry and how those factors can influence the industry.
POLITICAL
ECONOMICAL
SOCIO CULTURAL
TECHNOLOGICAL
53
54
SOCIOCULTURAL
CHANGES IN LIFE STYLE
LITERACY RATE
DEMOGRAPHIC OF LARGE POPULATION
SHIFT TOWARDS THE NUCLEAR FAMILY
POLITICAL
GOVERNMENT POLICY & BUDGECT
BUDJECT MEASURES
MONATORY POLICY
FDI LIMIT
Organization Organization
ECONOMICAL
GDP MONSOON INFLATION SAVINGS &
ACCOUNTS AGRICULTURE
CREDIT INTEREST RATES RAISING LIVING
STANDRED DISPOSABLE
INCOME
POLITICAL FACTORS
Government policies affect the banking sector. Sometimes looking into the political
advantage of a particular party, the Government declares some measures to their benefits like
waiver of short-term agricultural loans, to attract the farmer’s votes. By doing so the profits
of the bank get affected. Various banks in the cooperative sector are open and run by the
politicians. They exploit these banks for their benefits. Sometimes the government appoints
various chairmen of the banks. Various policies are framed by the SBP looking at the present
situation of the country for better control over the banks
FOCUS ON REGULATIONS OF GOVERNMENT
Government affects the performance of banking sector most by legislature and framing policy
.government through its budget affects the banking activities securitization act has given
more power to banking sector against defaulting borrowers.
55
TECHNICAL
TECHNOLOGY IN BANKS
CORE BANKING SOLUTIONS
ATM INTERNATE I.T SERVES AND
MOBILE BANKING
MONETARY POLICY
Bank Rate: The Bank Rate has been retained unchanged
Repo Rate It has been reduced under the Liquidity Adjustment Facility (LAF)
Reverse Repo Rate : It has been reduced under LAF by 25 basis points from 3.5% to 3.25%
with immediate effect. RBI has retained the option to conduct overnight or longer term
repo/reverse repo under the LAF depending on market conditions and other relevant factors.
FDI LIMIT
The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent
during the first quarter of this fiscal came as a welcome announcement to foreign players
wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who
are starved of net worth to meet CAR norms. Ceiling for FII investment in companies was
also increased from 24.0 percent to 49.0 percent and have been included within the ambit of
FDI investment
ECONOMIC FACTORS
Banking is as old as authentic history and the modern commercial banking are traceable to
ancient times., banking has existed in one form or the other from time to time. Every year
SBP declares its 6 monthly policy and accordingly the various measures and rates are
implemented which has an impact on the banking sector. Also the Union budget affects the
banking sector to boost the economy by giving certain concessions or facilities. If in the
Budget savings are encouraged, then more deposits will be attracted towards the banks and in
turn they can lend more money to the agricultural sector and industrial sector, therefore,
56
booming the economy. If the FDI limits are relaxed, then more FDI are brought in India
through banking channels
GROWING ECONOMY / GDP
It is great news that today the service sector is contributing more than half of the Indian GDP.
It takes PAKISTAN one step closer to the developed economies of the world. Earlier it was
agriculture which mainly contributed to the GDP. The Pakistani government is still looking
up to improve the GDP of the country and so several steps have been taken to boost the
economy. Policies of FDI
LOW INTEREST RATES
SBP controls the Interest rate, which is based on several monetary policies. Recently SBP has
reduced the interest rate which stimulates the growth rate of banking industry. Call money
rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with
5.25/11.00 per cent on the corresponding date of last year
INFLATION RATES
Inflation represents a rise in general level of prices of goods and services over a period of
time. It leads to erosion in the purchasing power of money. Resultantly, each unit of currency
buys fewer goods and services.
Different fiscal and monetary policies have curbed the Inflation rate. To fight against the
slowdown of the Economy, Government of Pakistan & SBP took many fiscal as well as
57
monetary actions. Clubbed with fiscal & monetary actions, decreasing commodity prices,
decreasing crude prices and lowering interest rate, we expect that Indian Economy could
again register a robust growth rate in the year 2009-10
SAVINGS AND ACCOUNTS
As stated earlier Pakistan continues to remain one of the high savings economies among the
emerging market economies. Gross Domestic Savings (GDS) of the Pakistan economy
constitutes savings of public, private corporate and household sectors. In the recent period the
high growth performance of the Pakistan economy is driven by rise in savings
AGRICULTURE CREDIT
Agriculture has been the mainstay of our economy with 70% of our population deriving their
sustenance from it. In the recent past, the sector has recorded a growth of about 4% per
annum with substantial increase in plan allocations and capital formation in the sector. The
target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To
achieve this, I propose to continue the interest subvention scheme for short term crop loans to
farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this
year, the government shall pay an additional subvention of 1% as an incentive to those
farmers who repay their short term crop loans on schedule
SOCIO CULTUREAL FACTORS
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Socio culture factors also affect the business. They show in which people behave in country.
Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and
consumption habit of people, their language, beliefs and values affect the business. Banking
industry is also operates under this social environment and it is also affect by this factor.
These factor are changing continuously people’s life style, their behavior, consumption
pattern etc. is changing and also creating opportunities and threat for banking industry. There
are some socio-culture factors that affect banking in India have been analyzed below.
SHIFT TOWARDS NUCLEAR FAMILY
Attitude of people of Pakistan is changing. Now, younger generation wants to remain
separate from their parents after they get married. Joint families are breaking up. There are
many reasons behind that. But banking sector is positively affected by this trend. A family
need home consumer durables like freeze, washing machine, television, bike, car, etc. so,
they demand for these products and borrow from banks. Recently there is boost in housing
finance and vehicle loans. As they do not have money they go for installments. So, banks
satisfy nuclear families wants.
CHANGE IN LIFE STYLE
Life style of Pakistan is changing rapidly. They are demanding high class products. They
have become more advanced. People want everything car, mobile, etc.. what their fore father
had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also
want to have well furnished home, television, mobile, vehicle and this has opened
opportunities for banking secter to tap this change. Every thing is available so it has become
easy to purchase anything if you do not have lump sum.
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POPULATION
Increase in population is one of the important factor, which affect the private sector banks.
Banks would open their branches after looking into the population demographics of the area.
Percentage of deposit in any branches of banks depends upon the population demographic of
that area. About 70% of population is below 35 years of age. They are in the prime earning
stage and this increase the earning of the banks. Deposits showed a subdued growth during
2004-05.Income distributions also affects the operations and overall business of private sector
banks.
LITERACY RATE
Literacy rate in Pakistan is very low compared to developed countries. Illiterate people
hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side
of this as well i.e. illiterate people trust more on banks to deposit their money; they do not
have market information. Opportunities in stocks or mutual funds. So, they look bank as their
sole and safe alternative
TECHNOLOGICAL FACTORS
TECHNOLOGY IN BANKS
Technology plays a very important role in bank’s internal control mechanisms as well as
services offered by them. It has in fact given new dimensions to the banks as well as services
that they cater to and the banks are enthusiastically adopting new technological innovations
for devising new products and services.
ATM
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The latest developments in terms of technology in computer and telecommunication have
encouraged the bankers to change the concept of branch banking to anywhere banking. The
use of ATM and Internet banking has allowed ‘anytime, anywhere banking’ facilities.
Automatic voice recorders now answer simple queries, currency accounting machines makes
the job easier and self-service counters are now encouraged.
Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa
card are the two most popular cards used world over. The banks have now started issuing
smartcards or debit cards to be used for making payments. These are also called as electronic
purse. Some of the banks have also started home banking through telecommunication
facilities and computer technology by using terminals installed at customers home and they
can make the balance inquiry, get the statement of accounts, give instructions for fund
transfers, etc.
IT SERVICES & MOBILE BANKING
Today banks are also using SMS and Internet as major tool of promotions and giving great
utility to its customers. For example SMS functions through simple text messages sent from
your mobile. The messages are then recognized by the bank to provide you with the required
information. All these technological changes have forced the bankers to adopt customer-
based approach instead of product-based approach. Technology advancement has changed
the face of traditional banking systems. Technology advancement has offer 24X7 banking
even giving faster and secured service.
CORE BANKING SOLUTIONS
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It is the buzzword today and every bank is trying to adopt it is the centralize banking platform
through which a bank can control its entire operation the adoption of core banking solution
will help bank to roll out new product and services.
SUGGESTIONS FOR REMOVING WEAKNESSES
INTERNAL CONTROL
To me the major and the most important flaw in the BOP is lack of internal controls and inter
communication between different branches of the bank. As far as financial aspect is
concerned there is no proper system is configured that’s why there is always a risk of big
frauds with in the bank. I during my internship also pointed out that point but no one
bothered. To me the bank should install some proper resource planning and controlling
systems like other banks do i.e., oracle financials etc.
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PROFESSIONAL TRAINING
BOP staff lacks professionalism. They lack the necessary training to do the job efficiently
and properly. Although staff colleges are in all major cities of the Punjab but they are not
performing well. For this purpose these staff colleges should be reorganized and their
syllabus should be made in such a way which can help the employee understand the ever-
changing global economic scenario.
Banking council of Pakistan should also initiate some programs to equip the staff with much
needed professional training.
DELEGATION OF AUTHORITY
Employees of the bank should be given a task and authority and they should be asked for
their responsibility. The sense responsibility in employees mind is one of the most important
factors in the success of any organization.
PERFORMANCE APPRAISAL
During Internship I felt that there is no or very less appraisal of any ones cool performance.
The manager should strictly monitor the performance of every staff member. All of them
should be awarded according to their performance and result in the shape of bonuses to
motivated and incite them to work more efficiently.
TRANSFERS
Transfer is not properly carried out. Some of the employees are continually serving at the
same post. They are simply rotated at the same branch. Therefore it is
recommended that evenly rotation of every employee should take place after every three
years in different braches of the bank.
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NEED OF QUALIFIED STAFF
Required, qualified staff should be provided to branch in order to improve the functioning of
the branch. Especially a telephone operator should be appointed
CREDIT CARD FACILITY
BOP should start its operation in credit card. These cards are very helpful for the ordinary
customer in general and the business people in particular. To make it mores secure and to
eliminate the misuse of it, the management is required to keep proper security against the
card.
DECREASING ADMINISTRATIVE EXPENSE
Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year
2007. That can be done by lying off the surplus pool of employee with golden hand shakes
scheme. The branches that are not much used could also be closed. That will give positive
results in the future
SHOULD BE AGGRESSIVE IN CREDIT POLICY
As mentioned earlier, BOP is very conservative in advances and loans policy. It reduces the
investment opportunities. Also loans should be given to the small businessmen and the other
businesses on large scale like in agriculture sector at the low mark-up rate. It should adopt
flexible credit policy while giving credit to the agriculture sector.
TECHNOLOGICAL IMPROVEMENT
I would like to suggest that at least all the main branches of BOP should be fully
computerized in order to expedite the dealing process among bankers and their customers.
Every department should be provided a computer with adequate training (especially
Advances, Deposits and Foreign Exchange departments). Daily records should be entered
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directly into these computers, (instead entering the overall daily transactions after the banking
hours). It will not only reduce transaction time, will increase accuracy but will also be
efficient as well.
Not only it will be economical but will also reduce the extra burden of work of the bank. It
will also help in reducing the use of excessive paper work.
STAFF RELATIOSHIP
Good relationship among staff member leads to the peak performances in any organization. I
observed that the staff relationship was normal other wise but some time I noticed that there
exists little conformity among the staff members. Another syndrome from which the staff
suffered was that all of them considered themselves more important than others.
FAVOURITISM & NIPOTISM
In the branch during my internship I saw that when some of the employees are transfer to
other places, due to their relation with influential people and with top management they can
cancel their transfer in few weeks, when they are unsatisfied at that place.
So I suggest that in the organization there should be no favouritism, nepotism and politics and
their transfer and promotion should be made on merit and according to
the rules and regulations of the bank and provided favourable environment to the employee to
show their performances.
MARKETING POLICY
The branch should adopt various marketing strategy and promotion strategy to promote the
bank and its product.
The most important in my opinion is personal marketing; it is the most effective of all when
you think in term of branch level. But on the whole organization level, they should arrange
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the seminar with in the bank and outside the bank. They should do more advertising through
newspaper and media and through channel of personal contacts.
AVOIDING BAD DEBTS
Great care should be taking while extending the loan. Loans should be awarded against
reasonable securities, where market value should be equal to the loan granted. Policies should
be crafted in a way to ensure that no loan is extended on political pressure. SBP regulation for
loan approval should be strictly followed. According to which the current ration of
borrower’s business must be 1:1 and the debt to equity ratio should be 60:40, means the
liquidity position of business should be healthy.
RECOMMENDATIONS FOR STUDENTS
In this section some recommendations for those students who are planning for an internship
at BOP particularly and in any other bank generally. The most important of all is the
difference between what we learn from the books i.e. the theory and what actually is done i.e.
in practice. This difference is described in detail below:
WORKING IN DIFFERENT DEPARTMENTS
During my internship I observed that other internees in the bank use to stick with one
department only. An internee with specialization in Finance was of the view that he should be
in Finance department same was the case with other specialized Internees. But I would
suggest that one must work in every department for some time
to gain a hand on experience of all the departments. As in real working environment
employee have to coordinate with other departments, so he/she must know what the other
departments operations are and how they work.
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RELATIONSHIP BETWEEN THEORY & PRACTISE
This part of report is the essence of the internship, as this will help other students to better
understand the working environment of the bank by finding the relationship between what is
written in the books and what is actually going on in fields. The theory written in the books in
cases is not implemented as it is. In some cases theory is implemented with a little
modification but in other cases theory has nothing to do with practice. In accounting, banks
don’t prepare worksheet, but part of worksheet is prepared like trial balance, but little
differences, theory and practice has substantial relationship. The securities for the loans are
handled in the same way as theory says like mortgage, pledge, hypothecation, advances
against insurance policies or liquidation procedure is the same. The difference is there in the
case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft,
loans etc., but in practice there are some more terms used like running finance, demand
finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of
credit are in accordance with theory almost. So for a internee it is more important to learn
new things which he/she has never heard about in his/her course book.
To me, Theory gives you the direction to understand the processes and the terminologies
going across the World using best business practices in a broader view covering each and
every aspect of possible business scenarios. On the contrary practical life is specific, enclosed
in a jar. In practical professionalism and firm’s environment is each and every thing.
Professional life only builds on the knowledge based on books even though it may only use
1% of the theoretical knowledge.
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CONCLUSIONS
By analyzing the financial statements of the bank, I came across to know that it is one of the
most growing bank in the subcontinent. Now they should carry on with the present
management which too k it from one of the ordinary bank to this level. No doubt
professionalism and internal controls of the bank are one of the major issues which may
results some major losses to the bank. Bias in hirings and between colleagues should be
removed.
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Bibliography
Books and Other Study Material
Fundamentals of Financial Management by James C. Van Horne and John M.
Wachowicz, JR
The Analysis and use of Financial Statement by Gerald White, Ashwinpaul C.
Sondhi and Dove Fried
International Financial Statements Analysis by: Thomas R. Robinson, Hennie Van
Greuning, Elaine Henry, Michael A. Broihahn
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Financial Statement Analysis Case #1: Dow Chemical Company
Irshad, M. (2007). Money Banking and Finance, Nayyar Asad Printers.
Siddiqui, A. H. (1998). Practice and Law of Banking in Pakistan (2nd Ed.), Karachi:
Decent Print Enterprises P.
Webster’s Pocket Business Dictionary. (2002), (pp-17), United States Of America,
Trident Press International.
Annual reports of the Bank of Punjab (2007-08)
Online References
http://www.bop.com.pk
http://www.sbp.org.pk
http://www.business-standard.com
http: //www.sheshunoff.com
http:// www.blurtit.com/q726435.html
Personal References
Muhammad Imran Khan
Manager: The Bank of Punjab Mall Road Branch Murree.
Shahid Gulzar
Operational manager: The Bank of Punjab Mall Road Branch Murree.
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