Final Report

Internship Report on The Bank of Khyber by Imran Khan Afridi

CHAPTER 1

INTRODUCTION

This is an essential and pre-requisite academic requirement to complete an

internship program of eight weeks/two months in an organization of repute. Report

writing follows the internship, which is an integral part in fulfillment of requirements for

degree of MBA and also it is an opportunity for a student to work practically in an

organization. The main purpose of an internship is to show a difference in practical work

and theoretical. A report encompasses the experience of the internee, his learning, and

analysis in the light of which recommendations are made. During my internship I felt that

the practical field is much easier than the theoretical approach.

This internship report has been written on The Bank of Khyber, Saddar Road Branch

Peshawar Cantt.

1.1) Background of the study

Today, banks are the most important financial institutions, which play a vital role

throughout the world’s economic system. Because most of the sectors like

Industries, Commerce and Agriculture need financial assistance, it is the banks,

which carefully entertain them.

A resolution was passed in the Provincial Assembly of NWFP, in the year 1991

for the establishment of a provincial bank. It proved successful and the result was

the emergence of a new bank in the banking sector, i.e. The Bank of Khyber


Pakistan. In the year 1994 it became a scheduled bank. The Head Office is situated

at 24-The Mall, Peshawar Cantt. NWFP-Pakistan. This bank has been playing an

important role for the development of different sectors in Pakistan and especially

in NWFP. It has a network of 29 branches, which are located in different locations

of our country. Despite difficult economic conditions, like lack of suitable lending

opportunities, volatility of interest rate and equity prices, the bank manages to

show good results for every year.

1.2) Purpose of the Study

Then basic purpose was to work in an organization and to compare the theory and

application of the management knowledge in real life situation. Another purpose was to

improve personal skills i.e. human relations and communication skills that is to interview

and work with them, similarly the report’s purpose is also to develop analytical skills by

analyzing the working of the organization through, critical and financial analysis.

Moreover, it is also required to analyze different aspects of the organization and to

forward suggestions to put right problems, which are being faced by the banks- if

possible.

1.3) Scope of the study

The internship report is the reflection of analytical power of the students in case of BoK.

Main emphasis has been given to the ratio analysis by merging theoretical aspects and

practical outcome of different situation for example increase and decrease of financial

trends because of the operations of the bank. This report may help students in future to

understand banking practices in our country. It would also attempt to evaluate the overall

performance of The BoK through a thorough & detailed analysis of its daily working.


1.4) Research Methodology

Majority of the data presented in the report is primary. Mainly interviews

in this regard have been conducted. Three modes of interviewing have been used

that are structured, semi structured and unstructured. These interviews were taken

mainly from the persons in authority of the concerned posts.

Secondary data has also been used. Which is gathered from Management

and Human Resource Management books for the definitions and elaborations of

certain topics; Documents published by The Bank Of Khyber (BOK) i.e. The

Bank Of Khyber Annual Report 2003 and The Bank Of Khyber Official Website:

i.e. www.bok.com.pk.

The methods of data collection are mostly based on personal observations

and experiences of actually working at the Bank. Dealings with customers, along

with general procedures involved were observed. Moreover, as the departments

are always bustling with activity, there was not enough time to carry out formal

interviews or surveys, the methods used for data collection are:

a Primary Data

The data, which is collected for the first time and exist in raw form, is called

Primary data.i

Sitting with Staff Members.

Observations

Discussions with Bank officers.

Annual Reports

b Secondary Data


The data gathered from existing resources are called Secondary data. They are in

processed form.

Reference Books

Brochures

Newspapers

Manuals Of The Bank

Information Memorandum

Internet.

1.5) Scheme of the study

The entire report is organized in the following manner.

Chapter1:

Gives the background of the study, the purpose of the study, the scope of

methodology that is used to collect all the relevant data and the scheme of the report

itself.

Chapter2:

This chapter is about introduction to the Banking sector, history and

establishment of the bank of Khyber.

Chapter3:

Is about organizational review i.e., mission statement, scheduled Bank status

Organizational structure, List of division/Deptt at Head Office and Manpower position at

BOK.

Chapter4:

About Khyber Bank Saddar Road Branch.

Chapter5:Micro Finance Unit {MFU}in Khyber Bank Saddar Road Branch.


CHAPTER 2

THE BANK OF KHYBER

Banking Sector in Pakistan

2.1) DEFINITION OF BANK

The term “Bank” means a “bench” or institution or an exchange company.

Caircross defines bank as a financial intermediary and a dealer to create credits.

Some authors are of the opinion that the word ‘Bank’ is derived from the German

word ‘Back’ which means ‘joint stock fund’. Later on, when the Germans

occupied a major part of Italy, the word ‘Back’ was Italianized into ‘Bank’.

Different authors have given different opinion but!

According to section 5 (b & c) of the Banking Companies Ordinance

1962ii “Banking means the accepting ,for the purpose of lending or investment, of

deposits of money from the public, repayable on demand or otherwise, and

withdraw-able by cheques, drafts, order or otherwise.” Where as banking

company means any company, which transacts the business of banking in

Pakistaniii

2.2) FUNCTIONS OF BANK:

According to section 7 of the BCO, 1962, the banks in Pakistan are authorized to

engage in any one or more of the following forms of business, namely:

a) the borrowing ,raising or taking up of money;


b) the lending or advancing of money either upon or without security;

c) the drawing, making, accepting, discounting, buying, selling, collecting and

dealing in bills of exchange , promissory notes, drafts, bills of lading warrants,

debentures(musharika and mudaraba certificates);

d) the granting and issuing of letters of credit, travelers’ cheque and circular

notes;

e) the buying and selling of foreign exchange including foreign bank notes;

f) the acquiring, holding, issuing on commission, underwriting and dealing in

stock fund, share debenture stock, bonds, obligations, securities;

g) The receiving of all kinds of bonds, scripts or valuables on deposit or for safe

custody or otherwise, the providing of safe deposit vaults, the collecting and

transmitting of money and securities.

h) Acting as agents for any government or local authority or any other person or

persons;

i) Acting as “Mudaraba company” under the provisions of the Mudaraba

Companies Ordinance 1980;

j) Contracting for public and private loans and negotiating and issuing the same;

k) The effecting ,insuring, guaranteeing, underwriting, participating in managing

and carrying out of any issue, public and private, government, municipal, or

other loans or of shares, stock, debentures or debenture stock of any company,

corporation or association and the lending of money for the purpose of any

such issue;

l) Carrying on and transacting every kind of guarantee and indemnity business;


Purchase or acquisition in the normal course of its banking business of any

property, including commodities, patents, designs, trade-marks, and copy rights,

with or without buy-back arrangements by the seller, or for sale in the form of

hire-purchase or on deferred payment basis with markup or for leasing or

licensing or for rent-sharing or for any other mode of financing;

m) Managing, selling and realizing any property which may come into the

possession of the company in satisfaction or part satisfaction of any of its

claims.

2.3) ESTABLISHMENT OF BANKING SECTOR IN PAKISTAN:

Prior to pre-partition the entire banking sector was dominated by the Hindus

which created a great financial vacuum after the shifting of their business to India (post-

Partition). Our great leader, the founder of Pakistan, Mohammad Ali Jinnah, had at that

critical period, accepted this challenge with faith and confidence on Almighty Allah and

to continue with his mission. At the time of independence there were 487 offices of

scheduled banks, out of which 197 left over to Pakistan because of Hindu domination

over the banks. There were 19 non- Indian foreign banks with the status of small branch

offices, which were engaged solely in the export of crops from Pakistan, and there were

only two other Pakistani institutions, i.e. Habib Bank and Australisia Bank. The panic of

an uncertain future shook the confidence of the people. In response, the govt, therefore,

promulgated the Banking Companies Ordinance 1947 to safeguard the interest of both the

bankers and the customers. Meanwhile, 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. The Indian govt. withheld Pakistan’s share of rupees 75 Crores in cash

balances held by them at the time of partition. Because there was an urgency of assuming

control of banking and currency in Pakistan, in 1947, an expert committee was appointed


to deal with this major issue. This committee recommended that the Reserve Bank of

India would continue its function in Pakistan. Consequently, SBP was established on July

1st, 1948, The SBP assumed full control of banking and currency in Pakistan. The

first Pakistani note was issued in October, 1948, in the denomination of Rs. 5, 10 & 100.

Following this, the SBP decided to expand the network of Habib Bank and recommended

to the govt. to establish an agent of SBP. As a result, the NBP came into being in 1949

and in the year 1952 it took over the agency function.

Consequently the outbreak of the Korean War in 1950 provided a great boom for

Pakistan’s exports and thus the demand for banks, advances increased sharply. However,

with the end of the Korean War 1952, there was a short fall in the country’s export

earnings with no appreciable change in its imports. This naturally caused a drain on the

Foreign Exchange Reserves and in turn affected the balance of payment position.

Consequently, this induced banks to provide working capital for industries & as a result

SBP sponsored the setting up of an Industrial Finance Corporation.

In the period of 1956-58 further expansion in the banking & credit facilities

resulted in the establishment of two more banks. The National Commercial Bank Ltd and

the Pakistan Industrial Credit and Investment Corporation (PICIC). 1959-66 saw the

establishment of two more Pakistani banks, i-e The Easter Mercantile Bank Ltd and

United Bank Ltd. Another very significant 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 in agriculture, trade,

commerce and industry and to recommend measures for further improvements in the field

of banking. In 1960 the Rural Credit Fund was also setup with an appropriation of

Rupees one crore to provide medium and long term credits in the rural areas. In the hope

that banking would enter into a new era of further development and progress, Pakistani

commercial banks were, nationalized in Pakistan from January 1, 1974, however, it was


later realized that this tip proved to be counter productive; hence a reversal has been

initiated since January 1991. By June 1997, more than 7000 branches of the above

mentioned banks were expanded and mobilized more than Rs. 887.000 billion in deposits

and provided finance to various sectors amounting more than Rs. 548.000 million. Over

the years some specialized credit and financial institutions have also developed

like the National Investment Trust (NIT), the People Finance Corporation, the Equity

Participation Fund & the National Development Finance Corporation & the Small

Business Finance Corporation to name a few, all of which are contributing their due share

in the country’s economic life.

2.4) HISTORICAL BACKGROUND OF THE BANK OF KHYBER

The Bank of Khyber was established through the Bank of Khyber Act passed by

the Provincial Assembly in June 1991.It is the only bank in Pakistan having its Head

office at Peshawar.

The BOK was established toiv:

Meet demand of the business community to have a bank with its Head Office in

the province.

Have accessibility of local businessmen to senior management of the bank for the

prompt credit decision making there by accelerating investment in N.W.F.P.

Have maximum utilization if funds rose in the Province for the economic

development of N.W.F.P.

The point of distinction between BOK and other national banks is that it acts not

only as a commercial bank but also strives to be a development bank through its

emphasis on financial support, especially to small and medium sized businesses, Whose

access to credit is not always easy. For these purposes the bank has established a Project

Finance Department and Long Term Project Department. The government of NWFP and


other International Agencies also sponsors these programs of the bank, mainly by

international finance commission (IFC), which has already extended a US $ 10 million

direct credit line to the bank.

The Bank has been showing improvement in all the lines of his business, mainly

deposits advances & profits. The bank has undertaken a complete computerization of its

branch operations and has also issued Traveler Cheques and has entered with American

Express and Diners Club Pakistan limited for issuance of their respective credit

cards from BOK counters. BOK has established correspondent banking relationship with

several international banks and financial institutions, and is competing hard with other

banks for its share of business.

The Bank Of Khyber was established in 1991 under the Bank Of Khyber Act of the

Provincial Assembly of N.W.F.P. The main objectives for establishment of the bank are

to:

To mobilize private saving and public funds for delivering the same into

productive channels and ensuring their availability.

To promote industrial, agricultural and socio-economic processes through the

active participation of private and public sector in the province.

To 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

saving in the province as well as in other parts of the country.

To create a, diversified and portfolio for utilization of idle funds and their

investment in the pioneering of high-tech agro based export oriented and

engineering projects to ensure maximum returns.

To participate and seek the share of the province in the capital market of Pakistan

by way of subscription through locally pools resources in the loading stock


exchanges of the country and eventually paving the way for establishing a stock

market in the province.

2.5) MISSION STSTEMENT

Mission, broadly stating is the purpose for which an organization exists and why

should it compete in certain sectors and industries, within mission, sometime stated as

purpose, the organization addresses itself to what it intends to accomplish both in the l

long and short run. Mission is a very broad statement of organizational direction and is

normally summarized and documented in mission statement. In the same way, the Bank

of Khyber being an organization has a mission. The mission, documented in the mission

statement as follows:

“We are committed to ensure our ability and to provide resources with high quality

services to our client and to help create a supportive environment for micro business and

export-based venture, while maintains a highly motivated staff”.

2.6) PURPOSE

One of the purposes behind the establishment of Bank of Khyber was to fulfill the

demand of the business community of N.W.F.P, and to have a Commercial Bank with its

Head Office in the Province, to serve more effectively the people of the province. The

Head Office of the bank started functioning in November 1991. Investment processes

previously suffered, due to the time delays, since credit proposals were sent to Karachi

for consideration and approval. Accessibility of local business to senior management of

Bank of Khyber has accelerated the credit decision-making process.

Historically, there has been a net outflow of funds from the province as deposit due to

lack of investment avenues within the province and the absence of locally based


Commercial bank. The Bank of Khyber has filled this gap successfully as it aims to vcorrect the resulting imbalance of promoting savings and investments within N.W.F.P. in

particular, and the country in general.

By that time Bank of Khyber has been working as non-scheduled provincial batik

with the N.W.F.P. Government holding 51% Share while 49% earmarked for the general

public, which had to be offered for subscription at the leading stock exchanges of the

country. The share offering to the general public was expected to be made by end of the

year 1993. The Bank of Khyber is the second provincial bank established in the country

after the Bank of Punjab, which was established in 1989 by the Government of Punjab.

2.7) SCHEDULED BANK STATUS

Since 1994, the Bank of Khyber has come under the regulatory framework of

State Bank of Pakistan and operates as a Scheduled Bank at the National level.

Compliance with reserve requirement and other regulatory restriction has a negative

impact on the Bank’s profitability in 1995. However, the ensuring growth in business

expanded the profits of the bank reaching Rs.85 million in the year 1997.

2.7.1 Benefits of Scheduled Bank:

Following are the benefits of scheduled bank status achieved by

The Bank Of Khyber:

Membership of the clearing House of Status achieved by Pakistan.

Compliance with the server requirements of the State Bank Of Pakistan.

Ability to open branches outside the N.W.F.P.

Ability to engage in foreign trade business directly.


Bank of Khyber has 29 Branches all over the country having Head Office in

Peshawar, Out of these 29 branches, 23 are in N.W.F.P, 2 at Karachi, 1 each at

Islamabad, Quetta, Azad Kashmir and Lahore.

2.8 THE NETWORK OF BRANCHESThe BOK has a network of 29 branches, which are located at different places of our

country. In order to strengthen the operation network in the country. The management is

planning to open new branches at important cities locations.


THE BOK’S BRANCH NETWORK

HEAD OFFICE

BranchesIn

Peshawar

BranchesIn

Peshawar

Ashraf Road

SecretariatBranch

Hayatabad

SaddarRoad

Saddar, Road

UniversityRoad

Kohat,Road

G.T.Road

MAIN BRANCH

OUT DOOR BRANCHES

Nowshera,Branch

Mardan, Branch

Mingora,Branch

Haripur,Branch

Tank,Branch

Muzaffarbad,branch

Lahore,Branch

Chitral,Branch

Mansehra,Branch

Charsadda,Branch

D.I.khan,Branch

Abottabad Branch

Bannu Branch

Hattar,Branch

Hangu,Branch

Timergara,Branch

Islamabsd,Branch

Quetta,Branch

KARACHI Karachi 1,BranchKarachi 11,Branch


2.9 COMPUTERIZATION OF BRANCHS:

All the branches of BoK is fully computerize by new modern technology , before there

was only 19 branches who were computerize out of 29 branches but now all branches are

computerize. The program which used in BoK was “U Bank” which is now recently

change and brought a new program named “U plus”. The bank expecting more change in

the computer department to increase the efficiency of the bank.

2.10 EMPLOYEES OF THE BANK:

Bank is service oriented organization which need more professional and skillful people,

the Bank of Khyber is also managed by experienced and well qualified team of

professional that is lead by a distinguished banker of the country.

Currently the bank employs are 351 regular officers in various departments. They include

01 Ph.D., 168 postgraduates including MBA/MPA/M.COM/M.A/M.Sc from foreign and

local universities and 169 gradates and 13 LLB. The bank provides them with on the job

training. As well as exposure to advance courses and seminars conducted by the Institute

of Bankers, Pakistan and other professional institutes the bank places high priority on

professional education and encourages its employees to sit in the professional

examinations conducted by the Institute of Bankers, Pakistan.

2.11 CREDIT CARDS:

BoK has entered into arrangements with American express and diners club Pakistan (Pvt)

Ltd, for issuance of their respective credit cards.


2.12 CAPITAL STRUCTURE:

Shareholder Paid-up Capital Bonus Total

Govt. of NWFP 652.50 261.00 913.50

DEG 97.50 39.00 136.50

Total 750.00 300.00 1,050.00

CHAPTER 3


ORGANIZATIONAL AND FUNCTIONAL SETUP OF BOK

3.1) ORGANIZATIONAL STRUCTURE

Organization is defined as a system in which individuals and groups operating at

different levels perform the task assigned to them within the framework of delegated

authority and responsibility which are rationally coordinated to achieve the desired

organizational goalsvi.

Organization makes management easier, effective and result oriented. In

organization designed and structured on planned lines promotes collaboration and

negotiation among individuals in a group and thus improves the effectiveness and

efficiency of communication within the organization. This function creates clear cut lines

of authority and responsibility in the organization.

The word “Organization” has two meanings, firstly, it means an institution or

structure, viz. a bank is an institution with its organizational structure of Head Office,

local office, district offices and branches. Secondly, it means a process of an ongoing

activity i.e., the process of organizing, locating and bringing about relationships among

men, money and services. In fact organization establishes relationships among the people

so that they collectively contribute to the attainment of organizational goals effectively.

Thus organization is a means to an end. It is also an important part of management. vii

Similarly, organizational structure or hierarchy of a firm provides boundaries for

authority of persons which further clarifies responsibility and the scope of authority.

Basically, it shows who is responsible to whom and who has the authority to give orders

to someone. Actually these are the tools by which a manger is able to exercise discretion

and create an environment for individual performance.

The organizational structure of The BOK also has some specific aims and

objectives. In The BOK, all the structural procedures and systems are designed to serve


customers of the BOK in the best possible manner. The BOK is governed by a board of

directors, consisting of five members, in which the Managing Director of the BOK may

also hold the position of a Chairman of the Board.

3.2) ORGANIZATION HIERARCHY

To avoid the duties, goals, functions, responsibility and authority at each position

are clearly explained.

The channels that delegate these activities are called organization hierarchy. This

must be set in such a manner to best accomplish the organizational goals.

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

Executive Vice President

Senior Vice President

Vice President

Assistant Vice President

Officer Grade-I

Officer Grade-II

Officer grade-III

Junior officer

Driver

3.3 BOARD OF DIRECTORS

According to the BoK Act, the affairs of the Bank have been entrusted to a board of

directors. They comprise of eight directors. Among them four directors are nominated by

the provincial government while three directors are nominated by shareholders. Currently

the board of director is comprise of

i. Managing director (chairman)

ii. Additional chief secretary.

iii. Secretary finance government of NWFP.


iv. Secretary industries government of NWFP.

v. Secrtary Food and Agriculture

A law graduate works as secretary to the board of directors. He calls the board meeting

and maintains the minutes and proceedings of the Board of Directors.

Chairman/Managing Director

Secretary finance

Govt of N.W.F.P

Additional chief

secretary NWFP

Secretary Food\AgriSecretary Industries

Secretary to BoD is Secretary to Director P&E Khyber Bank.


Organizational Chart of BOK

Organization

Board of Directors

Managing Committee

Long Term Projects Resident Directors AUDIT

Managing Director

Personnel & Establishment Division

Banking Operation Division

Branch Operations Department

Accounts & Treasury Department

International Banking Department

Credit Divisions

Assets Management Department

Investment

Computers

MFD

P,T&E Deptt.

Public Relation Department

Branches 29 Marketing Department


3.4) DEPARTMENTATION

Departmentation is the logical process of grouping of activities, or the process of

grouping jobs in a logical arrangement through which the organizational goals or

objectives can be achieved. It is also the process of division of work into various sections

or departments or divisions, over which a manager has authority & responsibility for

performance of specified activities. Basically there are four ways for organizational

departmentation.viii

i) Departmentation by function

ii) Departmentation by product

iii) Departmentation by geography

iv) Departmentation by customer

The Head Office of BOK is divided into the following departments”

Credit

Finance

Islamic Banking

Internal Audit

Information Technology

International Banking

Human Resource


Treasury

3.4.1) CREDIT DEPARTMENT

Credit division of BOK continuously review its policy frameworks in

accordance with the tough competition faced in the wake of reducing mark up rates

scenario and increased liquidity in market.

Credit monitoring is being strengthened with a view to develop early

warning signals through constant monitoring of loans from different angles, risk

management plan is being developed giving a rating to the clients, based on industry

status, financial strength of the client, security offered, repayment behavior, among

other factors. SME financing and micro loans were also given due importance,

inorder to cater to the financial requirements of neglected sector of economy.

Introduction of new schemes like house finance, car finance, consumer finance and micro

finance will definitely improve and enhance the credit portfolio. Bank of Khyber has

strengthened its grip on the target market for these schemes. BOK concentrated on

timely reduction of Mark up rates.

3.4.2) FINANCE

The finance division is responsible for overall fiscal managing, financial

control, finacial 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, monitoring 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,


polices, management directives and strategy, ensuring that quality budgets and forecasts

are drawn up and consolidated for approval. ix

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. It monitors capital adequacy in accordance with regulatory directives.

It leases with external auditors, tax authorities and SBP inspector, and facilitates their

duties. It provides necessary assistance to rating agencies. The maintains financial data

bank and carries out industry financial analysis vis-à-vis banks strength and

opportunities.

3.4.3) ISLAMIC BANKING

The Bank of Khyber has taken the first step towards Islamic banking and for this

purpose an Islamic banking division has been established to complete the necessary

regulatory and operational formalities thereby paving the way for conversion of all

branches of BOK into Islamic Banking Branches

The Islamic Banking aims and targets to implement the decisions of the board of

Directors to gradually convert the whole bank into an Islamic bank within three years

under the supervision of the Shariah Supervisory Board as per Rules and Regulations of

the State Bank of Pakistan. To achieve the target, Islamic Banking Division has devised

an action plan for the expansion and conversion of the whole bank by December 2006

and to develop the business in various areas. According to the plan six branches of the

Bank will be converted into IBBs at the end of 2005 and the remaining in 2006.

Hayatabad Branch (23-11-2003)

Quetta Branch (01-10-2004)

Bannu Branch (01-11-2004)


Nowshera Branch (01-11-2005)

Islamic Banking Division is planning to start accepting deposits from all branches

of the Bank of Khyber as per standing instructions of the SBP. Disbursement of the funds

under Islamic Financing Modes through other branches of the Bank well also be

started very soon. Development of Business through Internet is also under active

consideration.

3.4.4) INTERNAL AUDIT

The Internal Audit Division works independent of the management and reports to

Audit Committee of the Board of Directors. The audit committee comprises of three non-

executive directors and the head of Internal Audit Division has freely access to the

chairman of the committee. The Internal Audit Division consists of two departments

namely Audit &inspection and compliance &implementation. x

The internal Audit Division conducts risk based of the bank on the risk matrix

mechanism including compliance audit.I.T Audit and management Audit.

Internal Audit Division provides regular training to its personnel in various fields

of banking to enhance their skill and proficiency. It ensures efficient/effective utilization

of resources and is on the front line with management for risk management, internal

controls and achievements of goals.

3.4.5) INFORMATION TECHNOLOGY


The I.T department of the Bank was established in 1994 at State Life Building

and all branches were successfully automated by the year1998. IT department has

progressed in the last eight year and trying its level best to abreast in the field of fast

developing technology. In order to achieve its goals, the management has decided to start

on-line Banking in the very near future, this will facilitate the customers of the bank of

Khyber and they will be able to transfer money between any two BOK Branches through

out the country. Recently, The Bank of Khyber has joined MNet ATM Switch, which is

operated by MCB and allows Bank customers to have access to over 200 ATMs

throughout Pakistan. They are even available in areas like Murree, Abbottabad

and Swat.MNet ATMs are also present in all three main Airports& Islamabad

International Airport. The Network is expected to grow in future.

3.4.6) INTERNATIONAL BANKING

The principle line of business of International Banking is foreign trade and

exchange dealings. In year 2003 there was a sign9ificant improvement in all the areas of

international operations. As compared to the year 2002,the import and export business of

the bank witnessed a remarkable growth of 56% and 32% respectively. xi

The correspondent relationship with international Bank has significantly been expanded

and the bank enjoys direct financial communication relationship at 1300 destinations of

58 renowned international Banks in 711 countries around the Globe.

The S.W.IF.T.system acquired in the bank has proved very useful for secure global

access for trade communication, which has further strengthened the confidence of

international traders and our customers in Pakistan, on bilateral basis.

The Bank has established agency arrangements with international exchange companies in

order to facilitate the overseas Pakistanis with a Banking channel for their home

remittances.


3.4.7) HUMAN RESOURCE

Human resource division (HRD) plays a vital role in carving the present and

future image of an organization by managing employees in the most beneficial and

effective manner, the functional arena of HRD consists of recruitment, training,

performance appraisals, planning and career development and above all grooming of staff

to adhere to office ethics and social norms.

The manpower is the most important and precious asset. The HDR tries to create

an environment of mutual trust and dignity and trying hard to pursuit the expression:” We

rather than I” so as to ensures best positive results. It is playing a proactive role in

capacity buildind, experience sharing, strengthening analytical and policymaking, skill

up-grading to help the staff in their endeavors to make BOK competitive,

dynamic and one of the best banks in the country.

HRD provides on the job as well as off-site to the staff in diverse areas of banking and

management. The training relies on both external courses at institutes of repute in the

country and internally arranged courses.

3.4.8) TREASURY

Treasury was a main source of revenue generation during 2003,for BOK .The

year 2003 was marked with low interest rate, robust capital activities in the capital

market. xii

Keeping in view downward trend in the interest rates, the treasury department has moved

quickly to invest in the medium to long-term government papers, which was giving

relatively higher yields. The treasury also traded in the secondary markets and maintained

trading portfolio of TBs and Pakistan Investment Bonds (PIBs) that had generated trading

profits.

Bank of Khyber is now gearing towards revamping its Treasury would soon assume a

more pro-active role in serving BOK customers, especially the corporate clients. In future


the department will be able to manage corporate customer funds and quote money market

related rates for short-term corporate size loans.

3.4.9 PERSONNEL & TRAINING DEPARTMENT

Personnel and Training Department is working in the bank since its anticipation

in 1991. An Assistant Vice President heads the department. The P&T department has

staff strength of seven members.

The P&T department is maintaining all the Human Resource records of salary, leaves,

qualification, promotions and ACR’s.

The functions include:

1. Recruitment

2. Training

3. Allocation of Administrative Budget to Branches & Head Office.

4. Promotion

5. Staff Advances

6. Disciplinary Proceedings

7. Resignation

8. Transfer-posting

9. Salaries, other Fringe Benefits

10. TA/DA

11. Leaves

12. Creation of posts

13. Payment of Dues to Employees Leaving the Bank.

14. Insurance Coverage for employees House Building Advance.

15. Enlistment of Lawyers on Bank’s Panels.

16. To arrange Group Team Insurance for Employees.


17. Hiring of Legal Advisors on Retainership.

18. Enlistment of Courier Companies.

19. Enlistment of Insurance Companies.

This department also carries an annual performance appraisal of the bank officers

and plains for training, and development of their human resources. The P&T has a vital

role in the bank. But the due recognition, which its needs, has not been given to it.

The functions of P & T department are

1. Selection And Evaluation

2. Training and development

3. Compensation

4. Maintenance

5. Discipline and general conduct

6. Delegation of Powers

The following are the responsibilities:

1. Over all supervision of personnel deptt particularly appointments, resignation,

transfers, postings in line with the Bank’s Service Rules/Policies.

2. Looking after training needs, Liaison with IBP and other training institutes.

3. Checking, exercising control over daily expenses etc.

4. Implementation of decisions/policies as approved by the controlling/

component authorities.

5. Surprise inspection of Branches and different departments of H.O regarding

uniform, time observance and cleanliness etc.

3.4.10 ADMINISTRATION & ESTABLISHMENT.

The administration and establishment department of the Bank works under the

human resource department .The Assistant Vice President (A.V.P) of HRD

department is responsible for the tasks of these departments .The working strength of

A&E Department is three members. This department works with public relations and


personnel and training departments to accomplish the goals and objectives of HRD

Department.

Works and Responsibilities of Administration & Establishment Department

The works and responsibilities of A& E Departments is as under

1. Hiring of place for Branches.

2. Purchase of Land/Building for Bank.

3. Renovation of Bank/Premises.

4. Repair of Buildings.

5. Purchase of Bank Vehicles and other Assets.

6. Arrangement Insurance Coverage to Bank’s Assets.

7. Arrangement security for Bank branches/Head Office.

8. Arrangement for Electricity, Water, Telephone and other installation.

9. Arrangement for installation of Bank’s Neon Sign/Holdings and other

publicity items.

10. Procurement of Bank’s Furniture, and other Equipment like A/Cs,

Photocopier, Fax Machine etc.

11. Recovery from Insurance Companies against lodged claims.

12. Co-coordination between different departments of the bank.

13. Arrangement for Uniforms/liveries for casual staff.

The administration department is assigned the following responsibilitiesxiii:

1. Acquisition, Disposal / Replacement of Fixed Assets, including Vehicles.

2. Maintenance, up-keep / renovation of Fixed Assets.

3. Routine visits to Branches, HO Departments.

4. Negotiation, liaison with suppliers, contractors, Architects and Land Lords

(lessor).


5. Arrangement of premises for branches, HO and execution of Lease

Agreement.

6. Check, pass and process TA/DA bills of Head office /Branch staff

7. Inviting of Tenders / Quotations for such job / works / goods.

8. Obtaining approval from competent authority for such works / goods.

9. Payments of Bills, pertaining to such works.

10. Matters pertaining to Insurance Claim.

11. Capital Budgeting of Bank.

12. Supervision of Administrative matters and general conditions / cleanliness of

branches and HO.

13. Liaison with branches regarding up-keep, maintenance, acquisition of such

assets and general condition of branches.

3.4.11) STATIONERY DEPTT.

Stationary department perform following functions:

1. Printing of security stationary.

2. Printing of other printing stationary.

3. Procurement of other petty stationary.

4. Safe custody and distribution of security and printed stationary to different

branches/Head office.

5. Enlistment of printers.

Works and responsibilities of Stationary department:

6. Administrative and over all supervision of the deptt as incharge of the deptt.

7. Putting notes for seeking prior administrative approval of printed and security

stationary from purchase committee and after approval; order and placed to

printer. After receipt of respective consignments; payment notes are submitted

to purchase committee.


8. Correspondence with HO/Branches / Departments.

9. Being Secretary of Stationary Committee, meetings of committee are arrange

for making decision with regard to introduction of new items; amendments of

existing forms and pads with consultation and consent of members of

committee.

10. Rectification of audit objections and removal of any complaint of the Branch I

Department in respect of supply of items at the stationary required.

11. Any other matter which management wants to discuss in respect of supply of

printed and security stationary items.

3.4.12 PUBLIC RELATION DEPTT.

An Assistant Vice President (A.V.P) heads the public relations department of HRD. An

officer grade-II is responsible for providing better quality stationary to the employees of

the Bank. PR also deals with coordination with other banks, financial intuitions and

government agencies. This department also helps in arranging bank functions, programs,

& seminars. This department carries out all the activities that will bring good name to the

Bank. This department has connections with the national print & electronic media to give

due coverage to the bank activities.

The job profile including the following:

1. Design and Launch publicity of the Bank of Khyber.

2. Arrange high-level meetings with Governors/CheifMinister/Provincial &

Federal Ministers Arrange high level Government Officials.

3. Accompany the Managing Director at the meeting as Principal Staff Officer.

4. Generate English Bulletin on Political/cultural/social/economic news.

5. Conduct Protocol duties with the visiting dignitaries, delegation and other

luminaries.

6. Prepare press release in English & Urdu.


7. Keep close liaison with all Pakistani Political/social leaders.

8. Keep close liaison with all the International Organizations like

UNHCR/UNOCHA/Afghan Commissionerate, NWFP, Peshawar too

coordinate in relation to issues of BOK.

9. Keep close contact with local industries, businessmen and Sarhad Chamber of

Commerce & Industry for promoting mutual trade relations.

10. Handle correspondence with Government Semi-Government Private

Institutions on various matters.

11. Make arrangements for all ceremonies organized by the Bank of Khyber.

12. Perform duty assigned by the Management.

13. Boarding/Lodging Arrangements for Bank’s Guests from SBP/Ferguson’s and

Bank’s Executives/Officers.

14. Supervise inland/foreign TA/DA bills of Executive/Officers.

15. Supervise Sports, Donation and other Social Welfare/Cultural activities of the

Bank

3.5 Network of Foreign correspondent Banks.

The Bank Of Khyber has a Network of Correspondent Banks all over the world. The bank is working hard to provide its customers the state of art Facilities.


CHAPTER 4

REVIEW OF BANK OF KHYBER, “UNIVERSITY ROAD

“BRANCH”

4.1 Branch hierarchy

University ROAD BRANCH

Consumer Finance

Department

Foreign Exchange

Department

Advances Department

Micro Finance

Department

Cash Department

Clearing Department

Accounts & Deposits

Department

Bills & Remittance

s

Department

Saddar Branch

Manager


4.2 DEPOSIT DEPTT:

The main objective of all commercial banks is to accept/ mobile deposits of

money from the public and lend to invest them into the most profitable avenues possible.

The Banker customer relationship is initially established at the time of opening an

account and acceptance of deposit. Commercial banks mobilize savings and channels

them predominantly, into short term investments such as advances, to meet working

capital and trade finance requirements of business and industry. The banks have also

ventured into long term or fixed investment financing to a certain extent. The accounts

opened by the bank are as follows.

4.2.1 TYPES OF ACCOUNT:

4.2.1.1 CURRENT ACCOUNT:

This type of account is mostly maintained by businessmen, business organization,

and other institution for their day to day cash management. Balance are payable on

demand, no restrictions on number of transaction i.e any amount can be withdrawn

without prior notice, no profit or return is paid on current accounts. This type of account

is opened by Rs 500/-

4.2.1.2 PLS. SAVING ACCOUNTS:

This type of account is opened by Rs 100/-. This is mostly introduce for the

people who have small saving. Profit or return is paid bi-annually on minimum monthly

balance. In case of more withdrawal at least a week’s notice is given to bank, by the

customer.

4.2.1.3 FIXED DEPOSITS:

Deposits kept with the bank for a fixed period of time, as against deposits that can

be withdraw on demand are called fixed or term deposits. It can be accepted between one

month to five years and profit is paid on maturity date.


The other type of accounts which are opened by the bank are:

i. Security Deposit receipts (SDP’s)

ii. PLS. Notice Deposits or Notice Deposit receipts (NDP’s)

iii. Accounts of minors

iv. Joint accounts

v. Account of sole proprietor

vi. Accounts of partnership firms

vii. Accounts of limited companies

viii. Trust accounts.

ix. Societies/Associations/clubs accounts

4.3 CASH DEPTT:

Cash dept is important as the fact that it is a major point of contact between the

bank and the customer. This dept of the bank conveys the first impressions and

commitment to professionalism in its systems and procedures, courteous and efficient

customer service.

This dept has the following responsibilities.

i. Receipt and payment of cash.

ii. Receipt voucher positing.

iii. Verification of income and expense transactions.

iv. Cash receipt and payment reports verification.

4.4 REMITTANCES DEPTT:

Remittances mean fund transfer by the bank from one place to another for his

customer to facilitate them. It may be inward and outward. It is one of the important key

functions of the bank, through which customer is save his time, eliminate his risk and

transportation of money from one place to another.


For remittances there is no need to open account, as when required. Any person who is of

sound mind according to contract act may involve and can sign the application to enter in

a contract of remittances.

4.5 BILLS DEPTT:

Today’s commercial world has minimized the use of hard cash to a great extent

and as such settlement of drafts and other obligations are generally performed through

cheque and other financial instruments, the payments against which are received by the

beneficiaries through their bank accounts.

4.6 CLEARING DEPTT:

Bok along with their daily business activity also provides the facility of collection

credit claims for customers. Main functions of the clearing dept, is to interchange and

settle the credit claims. The function of clearinghouse is performed by the central bank,

i.e. in case of Pakistan the clearing system is operated by the SBP. If SBP has no office at

a place, then NBP as a representative of SBP act as a clearinghouse.

Clearing system is a device, which enables bankers to settle cheque and other

instruments, drawn on each other. The system is of immense value in saving a lot of

labor, time and expenditure and is increasing the efficiency of the banking system.

4.7 MICRO FINANCE UNIT (MFU):

It is established on November 1, 1999, the Micro Finance Unit (MFU) of the

Bank of Khyber carries with itself the portfolios and experiences of the Micro Business

Development dept, of the Bok. The Micro Business Development dept was created by the

Bank in 1995 to support micro businesses. In 1997 this department took the shape of the

Micro Business and Rural Development dept by expansion of its operation in the rural

areas for income generation activities. The MFU is the outcome of these structured

development effort of the Bok.


This was the first formal sector of micro finance operation of any of the commercial

banks in the country. So because of the perceived risks associated with micro financial

operations and its high cost of operations, the Bok renamed its micro business

development deptt, to MFU so as to run it as a profit center and demonstrative the

commercial viability of micro finance.

4.8 CONSUMER FINANCE DEPARTMENT;

This department is engaged in providing electronic household items on a monthly

installment basis that can easily paid by salaried persons or businessmen. The said facility

may be availed after providing one personal guarantor and some documentary evidence,

which can identify the applicant and guarantor. It may be allowed from one year to three

years time period.

Mr. Johar Ayub Khan is Incharge of this department at Saddar road branch.


CHAPTER 5

MICRO FINANCE UNIT{MFU}

SADDAR ROAD BRANCH

5.1 MICRO FINANCE UNIT (MFU):

It is established on November 1, 1999, the Micro Finance Unit (MFU) of the

Bank of Khyber carries with itself the portfolios and experiences of the Micro Business

Development dept, of the Bok. The Micro Business Development dept was created by the

Bank in 1995 to support micro businesses. In 1997 this department took the shape of the

Micro Business and Rural Development dept by expansion of its operation in the rural

areas for income generation activities. The MFU is the outcome of these structured

development effort of the Bok.

5.2 Mission statement of MFU

“ Contribute to socio-economic development of NWFP by promoting Micro

Business through sustainable micro finance”.

5.3 OBJECTIVES:

Following are the main objective of MFU:

i. Equal distribution of financial resources.

ii. Involvement of small unit of business to long units.

iii. Promotion of employment and income generation.

iv. Creation of sustainable structures to improve access of credit to low income and

disadvantaged segment of the society.

v. Expose the small business product to a large market.


5.4 DIFFERENT TYPES OF LOAN FACILITIES BY BoK

In the beginning MFU facilitated its customer with following 5 types of loan

facilities:

i) DFM {Demand Financing Loan}

ii) MCF {Motorcycle Financing}

iii) SCF {Staff computer loan}

iv) STL{Staff Loan}.

v) DCL {Domestic Consumption Loan}

vi) MDCL {For CDMD}

At present the Bank Of Khyber provides only the first three loan facility to its

customers.

i) DFM:

DFM is provided to all people no matter whether they are government servent or

not.Saddar Road branch has power to issue loan upto Rs 50,000.

The bank issue loan in this category in the following manner:

. First time loan given up to 30,000 with markup 20% for 1½ Year.

Second time loan issued up to 40,000 with markup 18% for 2 Years.

Third time loan issued up to 50,000 with markup 18% for 3Years.

REQUIREMENTS FOR DFM LOAN

REQUIRE MENT FOR GOVERNMENT EMPLOYEES:

i) NIC + Service Card.

ii) CIB (given by State Bank of Pskistan.}

iii) Salary Slip.

iv) 2 Guarantors {also their NICs and Salary Slips}

REQUIREMENTS FOR NON GOVERNMENT EMPLOYEES:

i) NIC.

ii) CIB.

iii) Business Proof.


iv) Stock Report.

v) 2 Guarantors {Their NIC and Stock report}.

ii) MCF:

Bank of Khyber issues loan for motorcycle. For the last 3 to 4 months Bank of Khyber

restricted this facility to only Poloce and Post office employees. Due to high default rate

non governmental employees has been exempted from this facility.

REQUIREMENT FOR MCF LOAN:

i) NIC.

ii) CIB.

iii) Salary Slip

iv) Driving Lience.

v) 2 Guarantor {same department guarantors, letter of comfort}.

vi) Guarantors’ NIC and Salary Slip.

This loan is given for 3 Years with Markup 16%.

iii) SCF:

The Bank of Khyber also issues loan to its staff. Limit of this loan is up to 40,000 for

3 Years.

REQUIREMENT FOR SCF:

i) NIC.

ii) Staff Loan Performa {signed by head of that department of which the

borrower is employee}.

iii) Employee on contract will show guaranty of Permanent employees.

iv) Permanent employees needs no guaranty.

v) Markup for Graduate employee is up to 14%

vi) Markup for below graduate employee is up to 16%.

vii) Staff Loan


The BOK offers the following types of loans to their staff.

1. House building finance

2. Car/motor cycle

3. Personal loans

4. Car lease finance

Procedure for the Staff Loans

Every November 15 to December 15 a circular to all branches of the BOK in

order to make aware all the wishing employees if they want to avail this facility

offered by the bank to them during this period. These employees or staff members

then forward their applications to the concerned person in the Personnel Department.

These applications are then checked according to the criteria given for each type of

loan, those found eligible, their applications are accepted according to the set

procedure and are forwarded for the due procession.

Purpose of Staff Loans

The basic purpose of staff loans is to relieve their employees or staff members

from and type of problem they are facing regarding their accommodation, connivance

or any problem that is going to hurt their performance while they are on the job.

Total Share of the Staff Loans

BOK offers 5% of the total deposits of the year for the staff loans. For example, if

the total deposits for the year are 100,000/- then the staff loan for that year will be 5%

of 100,000/- i.e. 5000/-

Criteria and Procedure for House Building


The criteria and procedure followed for the House Building Finance is as follows;

The employees applying for this loan should have a length of service

of three years.

The selected employee for the loan will be paid a loan equal to his

eighty (80) basic pays.

This loan will be paid in two equal installments. The first installment

will be paid when the application is accepted and the second

installment is given after the property on which the house is going to

be built is Mortgage with the Bank.

The length of recovery for this type of loan is twenty years (20) OR

240 installments.

The rate of Mark up for this type of loan is 8%.

Criteria and Procedure for Car/Motor Cycle Loan

The criteria and procedure for this type of loan is followed as;

The person applying for this loan should have a service period of at

least one year.

The amount of loan payable for the car is one hundred and fifty

thousand rupees only. (150,000/-) with a mark up rate of 8%.

The amount of loan payable for the motorcycle is forty thousand

rupees only (40,000/-). There is no mark up on these loans; it is free

of mark up.

The recovery period for this type of loan is 10 years.

House Building Encashment

This type of loan comes into the frame when an employee or staff member who

has already applied for the house building loan and is accepted for that purpose as


well and during this course he either gets promotion or his salary increase by any

special increment so he becomes eligible for this loan, two things should be checked

while giving this loan,

Evaluation of the property, what is the value of the property for which

he is asking for this type of loan. For example, if he the loan available

for him is 150,000, then the value of the property should be round

about 170,000/-

Legal opinion must be taken from the Lawyers in order to avoid the

complications of Audit.

Personal Loans

The criteria and procedure for the personal is that the applicants should havexiv

Completed at least one year of his service.

The applicant is entitled for three year basic pays for the loan.

The rate of mark up for this loan is 11%

It is payable within three (3) years.

The employee can avail this loan for three to four times during his/her

service.

Car Lease

This loan was first started on commercial basis for general public, but due to the

consistent demand of the staff members of the BOK, it was approved by the higher

authorities and the bank started offering this to its own employees as well.

Lease is an Islamic mode of financing and is in accordance with the statement of

BOK as well, which states that the bank will develop into a full fledge Islamic bank

with the passage of time.


Criteria and Procedure for Car Lease

The criteria and procedure for the Car lease is as follows;

The employee applying for this should have five (5) years as a length of

service.

He/She will have to pay 10% as a down payment.

The mark up rate will be 6%.

He/She will have to pay 3% as Insurance per annum.

The vehicle should be registered at the name of the bank.

If the employees ha already availed the car loan then it should be

adjusted before disbursement.

Junior officer, OG-I, OG-II can avail up to Rs.300, 000/-

OG-I and AVP can avail up to Rs.500, 000/-

VP and above can avail up to Rs.700, 000/-

5.5 Fundamentals of lending

5.5.1 “5Cs”

Before issuing credit facility to customer the credit officer must see the following

Cs.

i. Character : - The credit officer must analyze the honesty and integrity of the

borrower’s.

ii. Capital : - The lender must decide whether the business has sufficient financial

strength or not.

iii. Capacity : - The credit officer must analyze that the borrower has the ability to

operate business which has more profit to meet the obligation.

iv. Conditions : - This includes all the economic and industry factors that effect the

borrower’s operations. So the lender should also see about each and every aspect

of the business.


v. Collateral : - Risk analysis generally includes a consideration of the borrower’s

ability to pledge assets of on going value.

5.5.2 INFORMATION REQUIREMENTS:

To satisfy the majority, if not all, of the principles of lending above, the branch

should collect information on the following question.

1. Who is the borrower? Is the branch satisfied about the character? Is the purpose of

borrowing consistent with objective of the company?

2. Is the purpose is legal? What is the amount required? Is the security offered

acceptable and adequate?

3. What is the period of advance and what is the rate of mark up charged? Will it be

profitable to the bank?

Description of credit facilities in the statement of Affairs

5.6 TYPES OF FACILITIES:

The branch may extend various types of facilities to its customers and each type

of facility has its peculiarities and full knowledge of the implications, desired controls

and methods of handling is essential for the concerned staff.

Facilities may be allowed either on:

i. Unsecured basis: - A facility, according to the Prudential Regulation in force,

should not exceed Rs. 100,000/- to a customer.

ii. Secured basis: - A facility which should be appropriately approved by the

required level of the sanctioning authority and sources of repayment should be

specified.

5.7 ASSESSMENT OF CREDIT REQUIREMENT OF A BORROWER


To attend the customer varied borrowing need, banks make loans which may be

classified as consumer loans or corporate credits. So during the course of a assessing

borrower’s credit needs, visiting the borrower’s premises and preparation of call/credit

report is of vital importance.

5.7.1 VISITING BORROWER:

It is necessary for the credit officer that he visits the borrower premises and

satisfies himself that the loan is taking for the suitable purpose and during visit he must

get the idea about the borrower’s assets and their quality. A credit officer during his visit

asks a set of questions considering a credit facilities for a typical manufacturing unit.

i. Are the borrowers premises are new?

ii. How easy is it for vehicles to get in?

iii. Can borrower’s premises be expanded?

iv. Is production well organized?

v. What is the condition of equipments?

vi. Is storage facility is adequate?

vii. Are the safety precautions against fire, theft, rainwater, spoilage etc adequate?

viii. Is there an insurance policy for goods?

These are sum information which the credit officer can get at the time of visit.

5.7.2 BORROWER’S ACCOUNTS-FINANCIAL ANALYSIS OF

BALANCE SHEET, PROFIT & LOSS STATEMENT AND FUND

FLOW STATEMENTS.

To check the credit worthiness of the borrower Balance Sheet and P/L a/c is one way to

check the ability of the borrower business position. The credit officer obtain the

knowledge of the borrower’s current financial position, his past success or failures etc.

the objective of analyzing financial statement is to understand the manner in which the

borrower’s own resources are employed, his liquidity position, the ratio of net worth to

borrowing and of current assets to current liabilities.


The analysis of account should provide answers of the following major areas.

i. Whether the borrower’s net worth justifies the level of credit facilities being

requested.

ii. Whether the current assets are able to meet the current liabilities.

iii. Whether there are sufficient earnings to repay the credit facilities.

iv. How does the amount of equity in the business compare with the borrowed fund?

v. When assessing the borrower’s liquidity position and profitability.

The analysis of financial statements on a going concern basis takes two main forms, first,

various relating to the business at a particular data are examined and various relationships

between them are computed. So this analysis can be vary useful to the credit officer in

understanding the historical cash flow profile of a business.

5.8 procedure for sanctioning of credit facilities.

5.8.1 LENDING ORGANIZATION.

The implementation of the credit policy as determined by the board of directors

and in accordance with the statutory regulations in force is vested in the following level

of authority.


A. BOARD OF DIRECTORS:

It decides all credit matter, fund-base above Rs 150 M and non-fund based above

Rs 200 M.

B. EXECUTIVE COMMITTEE:

It decides all credit matter fund based above Rs. 30 M up to Rs 150 M and non-

fund based above Rs 50 M up to 200 M.

C. CREDIT COMMITTEE:

The board of directors has delegated credit sanctioning to the managing director who

constituted the credit committee for sanctioning the credited facility they sanction fund

base facilities up to Rs 1 M and non-fund base facilities up to Rs 2 M and scrutinizes all

the proposals received.

5.8.2 CREDIT PROPOSAL:

A credit proposal; include all relevant information of a business i.e. name nature,

legal status, details of entrepreneur or director of a business, also included existing limit,

nature of security, highlights of financial accounts, branch manager’s recommendation

for the facilities etc.

In case of restructuring or amendment of existing limit, a detailed proposal in all

respect should be prepared. The sanction of credit limits should be obtained only after

careful assessment of the borrower’s over all requirements.

Appropriate record of all credit proposals considered along-with the decision taken there

on must be maintained by respective level of authority or unit considering the credit

proposal.


5.9 CONTROL AND MONITORING

After sanctioning of loan facility it is the duty of the credit officer to ensure that

the credit is utilized for the purpose for which they were sanctioned.

The primary responsibility of monitoring credit facilities rest with the branch

since it has direct contact with the borrower’s. Control over credit facilities can be

achieved partly through the maintenance of a good diary system of record such items as:

i. Payment of life policy premium.

ii. Payment of fire & burglary policy premium.

iii. Expiry or renewal of guarantee.

iv. Expiry or renewal of facilities.

v. Expiry or renewal of fixed deposit receipts.

The credit officer also insures that insurance policy is kept by the prompt payment

of premium. Regular inspections should be carried out to insure that the value and

salability of the goods continue to justify the level of the advance. An initial valuation

report by a chartered bank’s approved evaluator must be obtained. Periodical check of the

cash security held by way of lien on deposits or other form of liquid security will be

check by the credit officer, hence the credit officer will monitor all the activity of the

borrower to insure himself.


5.10. LOAN PROCESS

Before process of loan the Banker’s customer relation should be established, by

opening of an account. The relationships develop the understanding of the customer

corporate status, nature of business, receipt and payment etc.

The following steps should be taken by the credit officer in loan process

5.10.1. CREDIT INVSTIGATION: -

It involves the following steps.

A. PRELIMINARY ENQUIRER: -

The credit officer in initial investigation approach other banks in same area and

gather information about his credit worthiness also the references given by the

customer are used for gathering information. Central information bureau (CB) of the

state bank of Pakistan is another source for collecting information.

B. CREDIT ANALYSIS: -

Credit analysis refers to the process through which qualitative and quantitative factors

having direct bearing on the business of the customer are analyzed

C. QUALITATIVE ANALYSIS: -

i

ii

iii

iv

v

vi

vii

viii

ix

x

xi

xii

xiii

xiv


It is carried out to ensure that the credit is extended to ensure that the credit is

extended to a genuine borrower who has the capacity to borrow and a good intention

to pay back the loan to the bank on due date with profit. In this case information is

obtained from the borrowers, their competitors and other stakeholders or the general

observation of the lending bank.

D QUANTITATIVE ANALYSIS: -

For quantitative analysis financial statement provide a summarized view of the

financial position and operations of the business. The analysis of financial statement

is a process of evaluating relationship between the component parts of the financial

statements to obtained better understanding of the firm’s position and performance.

5.10.2. MARKET APPRAISAL: -

To give the loan facility to customer the credit officer must analysis the market

situation and take care following points.

a) Demand for product and supply situation.

b) Domestic and international major producers/ suppliers of the product and their

market share.

c) Local distribution channels, price and the credit term.

5.10.3. EVALUATION OF FEASIBILITY REPORTS: -

Feasibility report is a detailed report on a project which explain every thing so the

credit officer study the report and become in a position to determine the break even

quantities, revenues and profit & loss of the firm at different operating capacities.

5.10.4. CREDIT REPORTS: -

It is obtained from other banks and central information Bureau of the SBP, which

provide a base for the lending decision of a banker.

5.10.5. PROBLEM IDENTIFICATION: -


The main objective of credit analysis is to avoid problems that may crop up due to

lack of good judgment with regard to the following:

a) Negative Macro indicators.

b) Negative Business factors.

c) Negative management factors.

d) Negative financial indicators.


5.10.6. PROCESSING OF CREDIT PROPOSAL: -

Once preliminary inquires and credit analysis are completed and a favorable

decision regarding the grant of credit is arrived at, the credit officer, process formal

proposal for sanction. Normally standard formats designed by the banks are used for this

purpose where in all the relevant information and recommendations for grant of credit are

recorded.

5.10.7. SANCTION OF CREDIT: -

Credit are sanctioned either at the branch level within the discretionary powers of

the branch management or by the competent authorities at the controlling officer in

accordance with the regulations of the central bank and credit policy of the bank.

5.10.8. SECURITY DOCUMENTATION: -

After sanction but before disbursement, the credit officer must insure that charge

documents are obtained from the borrower, if the credit facility is sanction against

mortgage of fixed assets then it should be register with registrar, in case of company it

should be register within 21 days with the registrar of the company.

5.10.9. DISBURSEMENT: -

Upon the completion of the security / charge documents and acceptance of loan

facility, so can be made in the following mode

RUNNING FINANCE FACILITY: -

The approval limit of the credit facility is recorded and withdrawals by the borrower

through checkups. Markup account with nominal interest of the borrower is opened to

record the accrual and payment of markup on quarterly or half yearly basis. This type of

finance is given only for the working capital requirement.


CASH FINANCE: -

A separate account is opened in the name of the borrower and the cheque book is issued

for withdrawals, and a markup account is opened to record the accrual and payment on

quarterly and half-yearly basis.

DEMAND/ TERM FINANCE: -

In both the case demand / term finance, a liability account with the name of borrower is

debited for the amount of loan and credit to the current or saving deposit account of the

borrower. In case of demand finance it will be repayable in lump sum while term finance

in installment.

Markup account for the concerned borrower is also to record the accrual and payment

of markup.

5.10.10 MONITORING AND PERIODIC EVALUATION: -

The credit office is responsible to ensure that the credit customers:

i) Maintain their accounts regularly and pay profit.

ii) Pay the markup accrued on their accounts within and reasonable period.

iii) Pay installment on due date.

iv) Adjust their liability accounts as per stipulation of the loan agreement.

5.11. RECOVERY: -

This is the most critical activity of credit officer, the following steps are involved

in the recovery process.

i) Verbal and written reminders to the credits customers for payment of the

banks dues.

ii) In case of protected default, service of legal notice upon the defaulting

borrower.


iii) In case of continued non-adherence, making preparation for seeking legal

remedy,

iv) Filing of recovery suit and follow up the legal process.

v) Tracing out assets of the defaulting and putting the same to auction

through the court.

vi) Collection of proceeds and adjustment of the liability account.


CHAPTER 6

CONCLUSION AND RECOMMENDATION

BOK is one of the leading financial institutions in Pakistan. Since its

establishment it has revolutionized the banking industry of Pakistan by introducing

state of the art banking products and services.

BOK has provided an enthusiasm among the young business graduates to

adopt banking as a promising career. This happened because of the BOK’s

dynamic strategies that gave a totally new look to the banking industry of

Pakistan.

Making recommendations is an effort to outline the basic tactics to cope

with the change. It involves suggesting new methods of doing business, modifying

older ones, searching for new lines of business or leaving the ones, which are no

more attractive. Based on the analysis and finding, recommendations are given

below,

1. In order to survive and grow in intense competition, the Bank should pay

more and more attention to “Business Development”. Business

development means policies and programs to promote the proper marketing

of different scheme and services that has been already offered.

2. In most of the cases market research and analysis is not carried out.

Projects are launched with pre-conceived ideas, based on personal

judgments and guess. It is very essential for the Bank to carry out a detailed


market research/analysis and in such way can prepare best products like

Maal- A-Maal scheme in the market.

3. The rules and the regulations within the organization and the procedure

must be dynamic, flexible and subject to continuous monitoring and

evaluation.

3 The selection and recruitment of employees is not done on merit. The

recruitment process suffers from serious drawbacks. There is no concept of

job description. For recruiting competent employees, hiring process and job

description should be modified and improved. Should not totally relying on

internal recruitment.

4 In any organization, human resource department is considered the key

department as it focuses on providing the skilled personnel for it. In BOK, I

observed that during selection, the prescribed rules are not followed in their

true spirit. I suggest that selection should be strictly on merit. Moreover, the

employees should be given job security so that they can optimistically

concentrate on their jobs.

6. Proper training programs and refresher courses should be designed for employees

to increase their performance and nurture them with new concepts of banking and

finance of the banking world.

7. The BOK lacks female staff in their various branches. It is suggested that

more female staff should be recruited and open new female branches.


8. Loan procedure should not be cumbersome and should be made easy.

Prolonged documentation should be avoided.

9. BOK needs to expand technological advancement like, Tele banking and

internet banking facilities in order to serve customer more efficiently and

according to the international or modern banking techniques. In such way

they can capture a high market share, especially in Deposit

10. The communication system between departments, branches circle offices

should be improve to make correct decision at correct time. New

equipment should be installed for this purpose i.e. Networking facilities

between branches of BOK. In such way there will be no delay in

transferring of message to one and another and to customer also.

11. The loan and advances departments should be made free from the political

influence. Because we observe the situation in the past. The political

influence created the stuck up loan problem. And it is very difficult to get

back loans from those people. So BOK should have the policy to

investigate those customers who get loans for a productive purpose or for

any purpose, and after the complete verification the loan should be sanction

then the stuck up loan or bad debt ratio can be decreased.

12. The top management of the bank should make a committee for proper

research and development to identify the customer’s needs and design

some new scheme and strategies to overcome the stated weakness and use

the opportunities. BOK should take some steps to face the threats and they


have to properly plan for the growth of the bank and introduce some new

scheme such as “Apna karobar” scheme to encourage entrepreneurship

development in the province.

13. BOK should have the policy to transfer their employees time to time from

one department to another department then they can have knowledge of

more departments and the job rotation factor can be solved. Then the

employees feel not bored and can work efficiently and effectively.

14. The bank should be made independent of political influence, which will

ensure the efficiency of the bank to vigorously pursue the policies of the

bank for the development of the province

15. To improve the lending position of the bank, BOK must reduce the mark-

up rates. As well as the procedure of loan securing should be made

convenient

16. The bank must increase its network of branches especially in rural areas to

mobilize their savings effectively.

17. The management of the BOK must improve the upward communication so

as to have proper feedback and also to increase employee’s involvement in

the bank operations.

18. One of the problems in BOK is that all the activities and functions are

centralized, which is adversely affecting the performance of the bank.

There is a need of decentralizing some of the functions due to which the


decision making process will be improved and unnecessary delay can

easily be avoided.

19. To avoid the problem of unavailability of information. Bank should

provide brochures etc and there should be a specific person who should

available to provided information to clients

20. The bank should start online banking transitions so as to facilitate the

customer. Because the majority of the private banks have already started

offering this facility. This help BOK to offer 4 hours service and the

concept of banking hours will diminish and the general hesitancy of

customers to walk into a bank will be reduced.


MICRO FINANCE DEPARTMENT PROBLEMS AND ISSUES

1. Need for simplified legal procedure – e.g power given to bank managers for

sealing of businesses and arrest of borrower (making default a criminal offense).

2. Credit Information Bureau for small loans to check for creditworthiness.

3. Reduce charge document (i.e DP note, Finance Agreement etc) fees for small

clients – e.g. for all loan sizes DP Note amount stamps cost is the same i.e. Rs

100.

4. Simplification of documentation procedure so that one charge document be taken

as a proof of claim against the party.

5. Similarly simpler and less costly method of mortgaging property required in case

of small loans by reducing and/or removing mortgage registration fees.

6. The problem of loaning to pardanashin women in rural areas who have ID cards

without pictures.

7. Restriction on cash receipts from clients outside branch premises.

8. Requirement of less costly funds for on lending. Micro finance operations are

more costly than the normal commercial banking operations. In order to reduce

cost to the borrower (lower markup rate) and increase profitability (higher

spread), cheaper funds in the form of credit line is required..


BIBLOGRAPHY

1) Sekaran, Uma (1999). Research Method for Business, 3rd edition, New York

2) Mr. M.Mumtaz (AVP) HRD at Head office

3) The Bank of Khyber Info Memo 1999

4) Stephen P. Robbins and Mary Coulter, Management, Ed. 5th, USA: Prentice Hall Inc, 1998, p329.

5) Annual Report 2003 of BOK p 15

6) Personal Communication, interview, Mr.Zahid Sahibzada OG-I at Head Office

7) Personal Communication, interview, Mr.Naseer Khan, Public Relation Deptt at Head office

8) Personnel Communication, Asad Ullah Khan Saddar Road Branch.

9) Internet (www.bok.com.pk)

10) Rose Peters. (1991). Commercial Bank Manaement.Boston: Donnelley & son

Company.

11) Personal visit to head office & Interview with Mr.Mumtaz Ahmad In

charge HRD

12) Findings during internship at Saddar road branch.

13) CONSUMER FINANCE manual 2006.Information provided by Mr.Yousaf (In charge consumer finance Saddar road branch).

14) Information provided by Mr. Abdul Hameed Marwat (Credit officer Saddar road branch).

15) The Bank of Khyber, Annual Report, 2002.

http://www.bok.com.pk/


16) The Bank of Khyber Annual Report, 2003

17) The Bank of Khyber Annual Report, 2004

18) The Bank of Khyber, Information Memorandum 2005-06

19) The Bank of Khyber, Branch Operation Manual 2006.

20) The Bank of Khyber, Personnel and Administration Department Manual 2006.

21) The Bank of Khyber, Consumer Finance Manual 2006.22) The Bank of Khyber MFU (2005-06), Micro Finance Unit an Overview.

Peshawar.23) Lot of information from Mr Shahid Amin OG 3 MFU Saddar road.