Bank of Punjab Report[1]

8/3/2019 Bank of Punjab Report[1]

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BANK OF PUNJAB


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Table of Content

TABLE OF CONTENT...................................................................................................................1

1 INTRODUCTION: .....................................................................................................4

1.1 EXECUTIVE SUMMARY: ..................................................................................... ..............4

1.2 OBJECTIVES OF STUDYING THE ORGANIZATION ...................................................... ...4

2 OVERVIEW OF THE ORGANIZATION ...................................................................5

2.1 HISTORY OF BANKING IN PAKISTAN ..................................................................... ..... ....5

2.1.1 NATIONALIZATION OF BANKS ........................................................................... ................6

2.2 HISTORY & NATURE OF BOP ...................................................................... ......... ..... .......7

2.2.1 MISSION STATEMENT ....................................................................................................... .8

2.2.2 VISION STATEMENT ....................................................................................................... ...8

2.2.3 BUSINESS VOLUME .......................................................................................................... ..8

2.2.4 BODS, MANAGEMENT AND EMPLOYEES ........................................................................9

2.2.5 PRODUCTS ........................................................................................................................12

2.3 SERVICES .................................................................................................... .............. ......14

2.4 MAJOR CUSTOMERS OF BOP ........................................................... ............... .............15

3 ORGANIZATIONAL STRUCTURE ........................................................................15

3.1 MAIN OFFICES ........................................................................................................ .........15

4 STRUCTURE & FUNCTIONS OF THE ACCOUNTS/ FINANCE/ AUDIT

DEPARTMENT ..........................................................................................................16

4.1 STRUCTURE AND FUNCTIONS OF FINANCE DEPARTMENT .................... ......... .........16

4.2 USE OF ELECTRONIC DATA IN DECISION MAKING ................................ ..... ..... ...........16

4.3 SOURCES OF FUNDS TREND ........................................................................ ..... ..... ......16

4.4 ALLOCATION OF FUNDS TREND .................................................................................. ..16

4.4.1 LONG TERM FINANCING ........................................................................................ .........16

4.4.2 SHORT TERM FINANCING ............................................................................................. ...17

4.4.3 AGRICULTURE FINANCING ..................................................................................... .........17

4.4.4 E-BANKING ....................................................................................................... .................17

4.4.5 UTILITY BILLS ........................................................................................................... .........17

4.4.6 LOCKERS .................................................................................................................... .......17

4.4.7 CONSUMER FINANCING ..................................................................................................17

4.4.8 AGRICULTURE FINANCING ..................................................................................... .........17

5 CRITICAL ANALYSIS ............................................................................................18

5.1 CRITICAL ANALYSIS OF THE PRACTICAL EXPOSURE RELATING TO THEORETICAL

CONCEPTS ................................................................................................... ..............18

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5.1.1 COMPUTER SYSTEM ..................................................................................................... ...18

5.1.2 RIGHT PERSON FOR RIGHT JOB ......................................................................... ...........18

5.1.3 CUSTOMER PROBLEM ............................................................................................ .........18

5.1.4 DEFICIENCY IN MANAGEMENT .............................................................................. .........18

5.2 FINANCIAL ANALYSIS ................................................................................................ ......19

5.2.1 INTRODUCTION AND IMPORTANCE OF FINANCIAL ANALYSIS ....................................19

5.2.2 FINANCIAL STATEMENTS (2006-07) ......................................................................... ...... .19

5.2.3 COMMON SIZE ANALYSIS ................................................................................................22

5.2.4 RATIO ANALYSIS ............................................................................................... ................24

5.3 ORGANIZATIONAL ANALYSIS ........................................................................ ................29

5.3.1 HIERARCHICAL FLOW ........................................................................................... ...........29

5.3.2 INTRODUCTION (SWOT ANALYSIS) ................................................................ ................30

5.3.3 STRENGTH ..................................................................................................... ........... ...... .30

5.3.4 WEAKNESSES ........................................................................................................... ........30

5.3.5 OPPORTUNITIES ..............................................................................................................31

5.3.6 THREATS ........................................................................................................................... .31

5.4 FUTURE PROSPECTS ............................................................................................... ......31

5.4.1 FINANCIAL VALUATIONS AND THE FUTURE PROSPECT OF BOP ...............................31

6 INDUSTRIAL ANALYSIS .......................................................................................32

6.1 OVERVIEW ON THE MAJOR PLAYERS OF BANK INDUSTRY .................... ......... ........32

6.2 COMPARISON OF THE BANK INDUSTRY MAJOR VS MEDIUM VS SMALL BANKS .. ..33

7 WEAKNESSES AND THEIR RECOMMENDATIONS (FINANCIAL &

ADMINISTRATIVE ASPECTS) .................................................................................357.1.1 INTERNAL CONTROLS ................................................................................ .....................35

7.1.2 PROFESSIONAL TRAINING .............................................................................................35

7.1.3 DELEGATION OF AUTHORITY .........................................................................................35

7.1.4 PERFORMANCE APPRAISAL .......................................................................... .................35

7.1.5 TO OVER COME PROBLEM OF SPACE AND FURNITURE ............................................35

7.1.6 TRANSFER ..................................................................................................................... ....35

7.1.7 CHANGES IN POLICIES ........................................................................................ ............36

7.1.8 NEED OF QUALIFIED STAFF ............................................................................................36

7.1.9 UTILITY BILL CHARGES ............................................................................................... ..367.1.10 LINK WITH THE HEAD QUARTER ..................................................................................36

7.1.11 CREDIT CARD ............................................................................................................ ......36

7.1.12 CLEAN LOANS .......................................................................................................... .......36

7.1.13 CASH FINANCING .......................................................................................... .................36

7.1.14 DECREASING ADMINISTRATIVE EXPENSES ...............................................................36

7.1.15 SHOULD BE AGGRESSIVE IN CREDIT POLICY ............................................................37

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7.1.16 TECHNOLOGICAL ADVANCEMENT ............................................................ ...................37

7.1.17 STAFF RELATIONSHIP .............................................................................................. ......37

7.1.18 IMPROPER DISTRIBUTION OF WORK ........................................................ ........... ...... .37

7.1.19 FAVOURITISM AND NEPOTISM ......................................................................................37

7.1.20 INTER DEPARTMENTAL TRANSFER ...................................................................... ...... .38

7.1.21 MARKETING POLICY ................................................................................ ......................38

7.1.22 COMPLAINTS OF CUSTOMER ......................................................................... ..............38

7.1.23 ORGANIZATIONAL COMMITMENT ......................................................................... ........38

7.1.24 CREDIT MONITORING ............................................................................................ .......38

7.1.25 EXTENDED BANKING HOURS .......................................................................................38

7.1.26 HOUSING AND HOUSE HOLD GOODS LOANS ............................................. ...... .........39

7.1.27 AVOIDING BAD DEBTS ........................................................................... ........................39

7.2 RECOMMENDATIONS FOR STUDENTS ...................................................................... ...39

7.2.1 WORKING IN DIFFERENT DEPARTMENTS ............................................................. ........39

7.2.2 RELATIONSHIP BETWEEN THEORY AND PRACTICE: ............................................. ......39

8 CONCLUSIONS .....................................................................................................40

9 REFERENCES .......................................................................................................40

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1 Introduction:

1.1 Executive Summary:I have done my internship at The Bank of Punjab, Khanewal road branch Multan. There are four

departments in the branch, and I worked as an assistant in that branch. For the first two weeks I worked in

deposit department under the supervision of Mr. Arshad, where I have to perform following tasks:

Entering information in KYC (know your customer) forms.

Scanning and arranging specimen signature cards.

Inform customer of essential conditions under which the account will be operated.

Afterwards I have learnt about vouchers, checking of vouchers is essential to confirm that correct

calculation has been done. Vouchers are properly bind sealed, and checking by the manager. I have

checked the following things:

The check should not be post-dated/anti-dated.

Amount in words and figures tallies.

Cash paid stamps (with dates) are duly affixed in case of cash cheques and in case of clearing

stamps is affixed.

Cutting/over writings are duly authenticated by the account holder, etc

Then another task for me was issuing of cheques books. It is one of the most interesting works that I

have learnt in the bank. Cheques books should be issued only after all the formalities of the account

opening forms, which have been checked by the branch manager.

Maintaining Dispatch register and Inward Mailing register was also included in duties assigned to me.

I also used to help different employees in their work.

My work timings were from 9am to 5pm, six days in a week.

1.2 Objectives of Studying the Organization

Major objectives to study this organization are:

1.To get awareness about the business development & financial techniques.

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2.Comparison of the assets of organization with other organizations.

3.Policies followed by the organization enforced through laws of SBP.

4.Study the facilities provided by the organization to common public in various forms.

5.To study the terms & conditions for fringe benefits provided to employees of the organization at the ageof superannuation.

6.To get MBA (Masters in Business Administration) degree.

7.To apply theoretical concepts in practical aspects.

2 Overview of the Organization

2.1 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.

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Reserve bank also refused to advance money to Pakistan to make essential payments such as salaries

etc, also Pakistans 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 agreed between the two countries that reserve

bank would serve as monetary authority in Pakistan only up to 30th June 1948.

2.1.1 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

1.To form uniformity in the policy of the commercial banks so they may serve the best national interest.

2.To make the operation of commercial banks highly sensitive and responsive to the policy of the government

relation to financial matters.

3.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

4.To make the best use of the funds available at the disposal of these banks for the economic development of

the country.

5.To eliminate unhealthy and uneconomic competition among commercial banks.

6.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.

Table 1: Public Sector Commercial Banks

Askari Bank ASKARIBANK

First Women Bank Limited FWB

The Bank of Khyber KB

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The Bank of Punjab BOP

Table 2: Local Private Banks

Askari Commercial Bank Limited

Bank Al-Falah Limited

Bank Al Habib Limited

Bolan Bank Limited

Faysal Bank Limited

Saudi Pak Commercial Bank Ltd

Soneri Bank Limited

Union Bank Limited

Muslim Commercial Bank Limited

Allied Bank of Pakistan

Union Bank Limited

Table 3: Foreign Banks

ABN Amro Bank

CITI Bank

Habib Bank A. G. Zurich

Mashreq Bank PJSC

Oman Bank

Rupali Bank

Standard Chartered Bank

Table 4: Specialized Banks

Zari Tarqiati Bank Ltd.

Industrial Development Bank of Pakistan

Punjab Provincial Cooperative Bank Limited

2.2 History & Nature of BOP

The Bank of Punjab was established in 1989 and was given the status of scheduled bank in 1994.

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The Bank of Punjab is working as a scheduled commercial bank with a network of almost 280 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.

Source: http://www.bop.com.pk/

2.2.1 Mission StatementTo 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 program driven products and services

in the agriculture and middle tire markets through a motivated team.


2.2.2 Vision Statement

To be a customer focused bank with service excellence.


2.2.3 Business Volume

These are the quick facts of the business in October 2007. At that instant BOPs business volume is as under.

Assets(Current + Fixed) US$ 2.7 Billion PKR 164.7 Billion

Loans US$ 1.7 Billion PKR 103.7 Billion

Deposits US$ 2.3 Billion PKR 140.3 Billion

Business Volume in terms of Investment, Current & Fixed Assets, Share Capital, Revenues, Deposits,Advances, Income, and EPS for the last 5 years is as under:

2003 2004 2005 2006 2007

Total assets RS (M) 43,621 66,320 111,154 164,855 234,974

Revenue RS (M) 3,675 5,488 10,912 18,603 26562

Shareholder's Equity RS (M) 3052 4,420 6,777 10,659 15,110

Investment RS (M) 11,458 16,198 18,026 28,233 73,462

Deposits RS (M) 34,938 54,724 88,465 137,728 191,968

Advances (net) RS (M) 18,344 39,439 63,624 101,320 133,894

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3,859

3,6813,4303,144

3,019

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

2003 2004 2005 2006 2007

Numbers

Staff Strength

43,621

34,938

3052

66,320

54,724

4,420

111,154

88,465

6,777

164,855

137,728

10,659

234,974

191,968

15,110

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

400,000

450,000

Rs.

(M)

2003 2004 2005 2006 2007

BalanceSheet Overview

Total Assets Deposits Shareholder's Equity

3,67

5

1,002

831 5,4

88

1,73

6

1,368

10,912

3,16

5 2,353

18,603

4,769

3,80

4

26562

4,846

4,446

0

5,000

10,000

15,000

20,000

25,000

30,000

Rs(M)

2003 2004 2005 2006 2007

Imcome Statement Overview

Total Revenues Net profit before tax Income

Income RS (M) 831 1,368 2,353 3,804 4,446

EPS (Rs/share) Rs 6.86 9.08 10.01 13.14 10.51

ROI % 7 8 13 13 6

Over last five years, Pakistan economy

grown with real pace. Because of whichrecord growth in Banking sector.


2.2.4 BODs, Management and Employees

2.2.4.1 Staff Strength

The total number of employees in the organization is 3859. Which is increasing. Regular hirings are takingplace.

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2.2.4.2 Board of Directors (BOP)

01 MR. JAVED MAHMOODCHAIRMAN

02 MR. SAJJAD HUSSAIN ACTING PRESIDENT

03 MR. SOHAIL AHMADDIRECTOR

04 MR. ALMAN ASLAMDIRECTOR

05 MR. ANEEQ KHAWARDIRECTOR

06 MR. SHAFQAT ELLAHIDIRECTOR

07 MR. SHAFQAT MAHMOOD DIRECTOR

01 MR. RAZA SAEEDSECRETARY

TO THE BOARD

2.2.4.3 BOP Top Level Management

Mr. Naveed Hafeez Shaikh Acting General Manager HR

Mr. Nadeem Amir General Manager Finance

Mr. Sharjeal Masud General Manager Operations

Mr. Muhammad Salim Mirza General Manager Treasury

Mr. Shaheen N. Qureshi General Manager Special Assets

Dr. Shahid A. Zia General Manager T.R.C. & P Division

Mr. Feisal Azmat Khan General Manager IT

Mr. Muhammad Hanif Head Audit & Inspection

Mr. Salman Saeed Head Credit Policy

Mr. Moazzam M Maneka Head Agriculture Credit Department

2.2.4.4 Hierarchical View of Management Khanewal branch

Total number of employees in Khanewal Road branch where I did my internship is eleven. The branch washeaded by Branch manager Mr Manzoor Hussain Maher. The flow of responsibilities and designations areshown in managements hierarchy.

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Branch

Manager

OperationalManager

Credit Remittances Advances Foreign Trade

Import

Export

Short-termloans

MortgageLoans

Account Opening

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2.2.5 Products

2.2.5.1 CONSUMER PRODUCTS

1. Saving Accounts

2. Current or demand accounts

3. Fixed accounts

1. SAVING ACCOUNTS(PLS)

These types of accounts are designed to encourage the saving habit of the customer andlead to long term or invest relationship. Bank saving account are in the nature of deposit accounts and are notnormally available for drawings.

Rates of interest are typically ahead, by a small margin. Savings accounts with the banking sector represent avery small proportion of total deposits. Customer can make withdrawals from this type of account. The cashreserve ratio is typically low then the current account because the withdrawals against this account are verylow.

2. CURRENT OR DEMAND ACCOUNT

These are those deposits, which can be drawn by the depositor at any time by representing acheque to the bank. People deposits their money in this account they gave a ready command on their account indeveloped countries of world, a very significant part of money is kept under current or demand account. On thistype of account of interest transfer of cash or by at sight. The cash reserve ratio for his account is very high.The operating cost for the handling of this type of account is very regular.

3. FIXED OR TERMS ACCOUNT

Fixed accounts are those which are deposited for a fixed period of time and repayableafter the expiry of stipulated time to the customer. Those people who have surplus funds and want to have saveinvestment deposit the amount in the fixed account.

The rate of interest given to depositor varies with the length of deposit, i-e. It is higher for longerperiod and lower for shorter period.

The rate of this type of deposits is higher the saving bank accounts. The cash reserve against this deposit arevary low because there no fear of with draw of a month before the stipulated of time.

2.2.5.2 FINANCE PRODUCTS

1. Agriculture Schemes

2. Business Promotion Finance Schemes

1. Agriculture Schemes

There are many agriculture promotion schemes provided by BOP.

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Kissan Dost Agricultural Finance Scheme

Kissan Dost Tractor 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

Kissan Dost Live Stock Scheme

Such type of schemes provides farmers a real plate form to accelerate. Some facilities given by Kissan DostAgricultural finance scheme are:

- Purpose

Provision of financial facility to farmers for purchase of inputs (Seed, fertilizer, pesticides, fungicides etc).

- Amount

Maximum of Rs.500000 according to per acre limit of the crop.

- Security

Charge on Agriculture Land through Agriculture Pass Book.

- Insurance

The borrower will have to arrange life assurance under the Banks charge.

- Mark-up

9% mark-up per Annum.

2. Business Promotion Finance Schemes

BOP Quick Cash

BOP Car Loan

BOP House Loan

BOP SME Loan

BOP Assaish Loan

BOP House Loan For Federal Govt

2.1. BOP CAR LOAN

BOP car loan is a demand financing facility to purchase brand new locally manufactured/Assembled cars forpersonal use. This facility can be availed by salaried person of different nature and by the business persons. Allmust have the holdings of NIC.

2.2. BOP Aasaish Loan

BOP Aasaish loan is demand finance facility for purchase of consumer durable goods like TV, Refrigerators,Mobiles, Microwave Oven, Fans, Audio/Video system etc with no down payment, in addition with the free

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home delivery. The financing tenure of this product is max 36 months. The nature of employment should besalaried or the business man.

2.3 SERVICES

These are the services provided by the BOP. ATM Facility

Letter of Credit

Pay Order

On-Line Banking

E-Banking

Debit Card

Consumer Financing

Agriculture Financing

Corporate Financing

Commission free Remittance

Demand Drafts

Collection of Utility

Lockers Facility

3.1. Automated Teller Machine (ATM)

Through the ATMs Customers have access to the various services such as withdrawal, balanceenquiry 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 withdrawallimit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card.

3.2. Online Banking

BOP is currently offering window-based online banking to its customers, which gives access toinformation on their accounts and the liability to act on the latest information received over the net.

3.3. Lockers

It is one of the utility services that BOP provides to their customers for keeping jewellery,important documents and other valuables.

3.4. Demand Drafts

BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Anyperson whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch.

3.5. Letters of Credit

BOP is offering its business customers the widest range of option in the area of moneytransfer. BOPs letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter ofcredit is the best way to do the business transactions.

3.6. Pay Order

BOP provides transfer of money using different facilities. Its pay orders are a secure and easyway to move the money from one place to another. The charges for this service are extremely competitive.

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3.7. Mail Transfer

Moves money safely and quickly from BOP Mail Transfer service. The rates for this serviceis quiet impressive as compare to the market.

3.8. Short Term Investment

BOP offers excellent rates of profit on all its short term investment accounts. The packages

are starting from 3 months. BOPs rates of profit are extremely attractive, along with the security and serviceonly BOP can provide.

3.9. Agricultural Finance

It help farmers utilize funds efficiently to further develop and achieve better production.Provides farmers an integrated package of credit with supplies of essential inputs, technical knowledge, andsupervision of farming.

2.4 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

3 Organizational Structure

3.1 Main Offices

Head Office and the main branch of BOP is in Gulberg 3, Lahore & Egerton, Lahore Respectively.

The Bank has been divided into seven regions

Each consisting a number of branches.

Lahore Region

Faisialabad Region

Gujranwala Region Rawalpindi Region

Karachi/Quetta Region

Multan Region

Peshawar Region

Rest are the branches working under these regions. Which are almost 270 in all over Pakistan.

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4 Structure & Functions of the Accounts/ Finance/ Audit Department

4.1 Structure and functions of Finance DepartmentThe management of BOP comprises of two types i.e. Chairmans Secretariat & President Secretariat.

Chairmans secretariat deals with finance division. Mr Nadeem Amir is general manager of finance division ofmentioned secretariat. The financial analyst related to BOP matters of chairmans secretariat is Mr. MasroorZaigham. The manager of finance division is Mr. Muhammad Ijaz Aziz. Mr. Muhammad Arshad is the head offinance division of BOP. The finance department deals in authenticity of cheques, proper utilization of funds,preparation of day end statements, online banking, collection of mails, opening & closing account of customers& companies etc.

4.2 Use of electronic data in decision making

Electronic data gives exact values and figures which top level management required. Because of

electronic data they came across to know those minute things which impacts a lot on final place.Through this they can measure exact profit and loss accounts, assets and liabilities up to a branch levelfrom where they can decide which should be kept and which should not.

Through this top level management is able to decide which product should be taken into course forfurther level or which should stop.

Electronic data make management able to take decision at any point of time.

4.3 Sources of Funds trend

The major sources of funds are:

Public Source

As the largest regional bank of Pakistan according to asset base with specialized in Agriculture has a

large deposits with 80% from the rural areas of the Punjab. The Banks major source of funds is from thePublic.

Money Market

Figurative expression for the informal network of dealers and investors over which short-term debtsecurities are purchased and sold. Money market securities generally are highly liquid securities thatmature in less than one year, typically in less than ninety days.

Corporate treasuries and Government Institutions

Corporate sector is one of the major sources of funds in all types of Banking. All major organisations,financial institutions and government & private organisations are the major sources of the funds e.g.,WAPDA.

4.4 Allocation of Funds trend

BOPs funds are allocated to the following departments. The banks major focus is on short termfinancing. Major allocation of funds are on these divisions.

4.4.1 Long Term Financing

Long term financing includes a tenure more than one year.

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4.4.2 Short Term Financing

Short term financing includes period less than one year. The banks major focus is on short termfinancing.

From the above it is further sub distributed to

1. SME Division

2. Agriculture financing

3. Consumer financing

4. Corporate financing

The distribution of funds to these departments are Banks internal matter and they avoid to disclose.Through Financial Statements it is only possible to analyze long term and short term financing.

4.4.3 Agriculture financing

The bank provides adequate and timely financial assistance to the farmers to improve productionpotential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are allsource of money for the bank.

4.4.4 E-Banking

The bank has a centralized database that is web-enabled. All the services that the bank has permitted onthe internet are displayed in menu. Any service can be selected and further interaction is dictated by the natureof service.

4.4.5 Utility bills

The bank also makes possible the payment of electricity, gas and telephone bills for its customerscharging some commission on each payment.

4.4.6 Lockers

Commission charged on lockers provided by bank for customers, is also a source of inflow for thebank.

4.4.7 Consumer financing

Personal Finance, mortgage finance, business finance, smart cash, auto financing and travelerscheques are all sources of funds for the bank. The bank finances all these loans and facilities on competitivemark up rates.

4.4.8 Agriculture financing

The bank provides adequate and timely financial assistance to the farmers to improve productionpotential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are allsource of money for the bank.

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5 Critical Analysis

5.1 Critical Analysis of the practical exposure relating to theoretical concepts

This part of report is the essence of the internship, as this will help other students to better understand theworking 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 casestheory is implemented with a little modification but in other cases theory has nothing to do with practice. Inaccounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but littledifferences, theory and practice has substantial relationship. The securities for the loans are handled in the sameway as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidationprocedure is the same. The difference is there in the case of loans. Theory talks about four or five terms ofloans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like runningfinance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of creditare in accordance with theory almost. So for a internee it is more important to learn new things which he/shehas never heard about in his/her course book.

To me, Theory gives you the direction to understand the processes and the terminologies going across theWorld using best business practices in a broader view covering each and every aspect of possible businessscenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firms

environment is each and every thing. Professional life only builds on the knowledge based on books eventhough it may only use 1% of the theoretical knowledge.

5.1.1 Computer system

The system has not totally shifted on computer. Manual procedure is still there hence computer facility is notfully availed. There should be a system at each counter for quick processing.

5.1.2 Right person for right job

During my internship I have observed the person who has came as customer Relationship Officer was acting asCashier. It should not be like this. The person should be posted according to his qualification, profession skillsand experience.

5.1.3 Customer problem

People have to wait for en-cashing their cheques for about 10-20 minutes, which is not good for thereputation of bank, the delay is due to manual work. Therefore I suggest that computers and other electronicmachines should be installed in bank so that time could be saved.

5.1.4 Deficiency in management

I felt at some places the BOP need to have employees, because a lot of work is to be done by a single employeethat will result in work overload and employee might not perform his/her job with full devotion.

18


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5.2 Financial Analysis

To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis, Common sizeAnalysis of the last five years.

5.2.1 Introduction and Importance of Financial Analysis

Financial analysis involves the use of various financial statements. These statements do several things. First thebalance sheet and the second is income statement.

The balance sheet summarizes the assets, liabilities, and owners equity of a business at a point in time, whilethe income statement summarizes revenues and expenses of a firm over a particular period of time. Aconceptual framework for financial analysis provides the analyst with an interlocking means for structuring theanalysis.

5.2.2 Financial Statements (2006-07)

5.2.2.1 Balance Sheet

Balance Sheet

As of DEC 31, 2007

2006 2007

Rupees in 000

Assets

Cash and balances with treasury banks 14,054,859 14210302

Balances with other banks 3,722,089 1927662

Lendings to financial institutions 11,846,823 2450000

Investments 28,233,211 73461695

Advances 101,319,954 133893585

Operating fixed assets 2,068,744 3252759

Deferred tax assets - -

Other assets 3,609,457 5778192

164,855,137 234974195

Liabilities

Bills payable 856,448 937647

Borrowings 6,989,424 17842915

Deposits and other accounts 137,727,606 191968909

Sub-ordinated loans - -

Liabilities against assets subject to finance lease 40,988 40321

Deferred tax liabilities 298,616 2205530

Other liabilities 2,816,341 2983079

148,729,423 215978401

Net Assets 16,125,714 18995794

Represented By

Share capital 2,902,490 4230379

Reserves 4,537,232 7427232

Unappropriated profit 3,219,246 3452842

19


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10,658,968 15110453

Surplus on revaluation of assets - net 5,466,746 3885341

16125714 18995794

5.2.2.2 Income Statement

Income Statement

As of the year ended Dec 31, 2007

2006 2007

Rupees in 000

Mark-up/return/interest earned 11,579,036 17,539,094

Mark-up/return/interest expensed 7,508,795 13,939,377

Net mark-up/ interest income 4,070,241 3,599,717

Provision against non-performing loans and advances 340,626 1,616,421

Provision for diminution in the value of investments 33,000 24,479

Bad debts written off directly 100 246,869

373,726 1,887,769

Net mark-up/ interest income after provisions 3,696,515 1,711,948

Non Mark-up/interest Income

Fee, commission and brokerage income 473,212 653,512

Dividend income 1,385,875 1,804,878

Income from dealing in foreign currencies 239,804 377,233

Gain on sale and redemption of securities 389,063 2,039,535

Unrealized gain / (Loss) on revaluation of investments

classified as held for trading

Other income 466,435 547,635

Total non-markup/interest income 2,954,389 5,422,793

6,650,904 7,134,741

Non Mark-up/interest Expenses

Administrative expenses 1,751,970 2,250,777

Provision against lending to financial institutions 130,000 -

Provision against off balance sheet items 175 292

Other charges 38 37,950

Total non-markup/interest expenses 1,882,183 2,289,019

4,768,721 4,845,722

Extra ordinary/unusual items - -

Profit Before Taxation 4,768,721 4,845,722

Taxation - Current 880,997 169,252

- Prior years (19,921) -

- Deferred 83,469 250,772

964,466 400,103

Profit After Taxation 3,804,255 4,445,619

Unappropriated profit brought forward 169,817 3,219,246

Transfer from surplus on revaluation of fixed assets -net of tax 6,174 5,866

175,991 3,225,112

Profit available for appropriation 3,980,246 7,670,731

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Operating Results

0

5,000

10,000

15,000

20,000

25,000

2003 2004 2005 2006 2007

RSinMillion

Total Income/ Revenues Total Expenses Net profit before tax Net profit after tax

Balance Sheet

0

50,000

100,000

150,000

200,000

250,000

2003 2004 2005 2006 2007

RsinMillion

Total Assets Investments Shareholders Equity Deposits Borrowings from FIs

Basic Earnings per share - Rupees 9.01 10.51

Diluted Earnings per share - Rupees 9.01 10.51

5.2.2.3 Financial Business Summary (5Yrs)

2003 2004 2005 2006 2007

Operating Results

Markup/ return/ interest earned Rs in m 1,664 2,555 6,125 11,579 17,539

Markup/ return/ interest expenses Rs in m 484 719 2,669 7,509 13,939

Net markup income Rs in m 1,180 1,836 3,456 4,070 3,600

Non-markup based Income Rs in m 831 1,097 1,331 2,954 5,423

Non-markup based expenses Rs in m 1,002 1,150 1,291 1,882 2,289

Provision against NPLs Rs in m 8 47 331 374 1,888

Net profit before tax Rs in m 1,002 1,736 3,165 4,769 4,846

Net profit after tax Rs in m 689 1,368 2,353 3,804 4,446

Balance Sheet

Total Assets Rs in m 43,621 66,320 111,154

164,85

5 234,974

Advances (net) Rs in m 18,344 39,439 63,624

101,32

0 133,894

Investments Rs in m 11,458 16,198 18,026 28,233 73,462

Shareholders Equity Rs in m 3,052 4,420 6,777 10,659 15,110

Revaluation Reserve Rs in m 2,155 3,419 6,893 5,467 3,885

Deposits Rs in m 34,938 54,724 88,465

137,72

8 191,969

Borrowings from FIs Rs in m 2,684 2,832 6,791 6,989 17,843

5.2.2.3.1 Graphical Representation of Financial Summary (Income statement)

BOPs income statement for the last five

years represents a high growth in it.

Its all due to the increase in equity , and

increase in the deposits of the bank.

Rise in the Markup Interest earning income

results rise up in the profit of bankrepresents increase in lending by the bank.

5.2.2.3.2 Graphical Representation of Financial Summary (Balance Sheet)

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Deposits are almost rose upto around 300% in last 5 years.

As last 5 years were really good for banking sector. Assets of the banks are risen upto 400%

particularly in 2007 just because of crescent towers.

5.2.3 Common Size Analysis

5.2.3.1 Horizontal Analysis

This type of analysis represents the percent change in specific line item of the Income statement or the balancesheet from the last year. This analysis is used to comment on the growth of specific line item in the industry orthe firm.

2003 2004 2005 2006 2007Operating Results

Markup/ return/ interest earned % -24.399 34.872858.2857

147.1025

1 33.98141

Markup/ return/ interest expenses %-105.78

532.6842

873.0610

764.4559

9 46.12956

Net markup income % 9.067835.7298

5 46.875 15.086 -13.0556

Non-markup based Income % 54.99424.2479

517.5807

754.9424

5 45.52831

Non-markup based expenses % 4.0918212.8695

710.9217

731.4027

6 17.78069

Provision against NPLs % -575

82.9787

2 85.8006 11.49733 80.19068

Net profit before tax % 56.8862 42.2811145.1500

833.6338

9 1.588939

Net profit after tax % 58.7808 49.634541.8614

538.1440

6 14.43995

Balance Sheet

Total Assets % 32.296434.2264

840.3350

332.5746

9 29.84117

Advances (net) % 63.906553.4876

638.0123

9 37.2049 24.3282

Investments % 27.605229.2628

710.1409

136.1527

3 61.56789

Shareholders Equity % 22.5754

30.9502

3 34.7794

36.4199

3 29.45731

Revaluation Reserve % 55.916536.9698

750.3989

6 -26.0838 -40.7207

Deposits % 31.973836.1559

838.1405

135.7683

3 28.25508

Borrowings from FIs % 51.93745.22598

958.2977

52.83302

3 60.83058

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Income Statement

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

2003 2004 2005 2006 2007

Percentage

Total Earnings (Markup/Non Markup) Total Expense Net profit after tax

5.2.3.1.1 Graphical Representation (Income Statement)

Total earnings mark-up & non mark-up were rising 33% from last year. As deposits and the lendings

of the banks are rising up.

Administrative expenses are increased with a

great pace in last few years because of highrate of inflation.

Rise in expenses results decrease in the 22%

percent profit from last year.

5.2.3.1.2 Graphical Representation (BalanceSheet)

Total assets were increased in last few years.

22% increase in the assets from the last year

represents growth in the Bank.

As bank increase their paid up capital

because of which SOE increase at the end of2006.

BOP is grabbing the confidence of their

customers results increase in the deposits.

5.2.3.2 Vertical AnalysisIt represents the percent of a line item (expenses, tax, interests, dividends) impacts on total revenues.

2003 2004 2005 2006 2007

Markup/ return/ interest earned % 66.69 69.96 82.15 79.67 76.38

Non-markup based Income % 33.31 30.04 17.85 20.33 23.62

Markup/ return/ interest expenses % 19.40 19.69 35.80 51.67 60.70

Non-markup based expenses % 40.16 31.49 17.31 12.95 9.97

Provision against NPLs % 0.32 1.29 4.44 2.57 8.22

Net profit before tax % 40.16 47.54 42.45 32.81 21.10

Net profit after tax % 27.62 37.46 31.56 26.17 19.36

5.2.3.2.1 Graphical Representation

Balance Sheet

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

45.00

2003 2004 2005 2006 2007

Percentage

Total Assets Shareholders Equity Deposits

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Markup interest earned is increased because

of increase in 30% lendings from the lastyear.

Net profit before and after tax is decreased

because of huge rise up in the adminexpenses.

5.2.4 Ratio Analysis

Ratio analysis is used to calculate the profitability,liquidity/leverage etc. of the firm. From ratio analysisit is possible to predict future variances.

Following ratios of BOP has been calculated:

Ratios 2003 2004 2005 2006 2007

Gross spread ratio % 71 72 56 35 21Profit before tax to total income % 49.8 59.19 66.11 67.89 53.71

Markup/ Interest cover ratio times 5.15 5.08 2.79 1.94 1.65

Profit after tax to total income % 34.26 46.65 49.16 54.16 49.27

Total assets turnover times 0.06 0.06 0.07 0.09 0.1

Return on avg total assets (after tax) % 1.88 2.49 2.65 2.76 2.22

Price earning ratio times 5.09 7.25 10.23 7.71 9.31

EPS (Non dilutive) Rs./share 6.86 9.08 10.01 13.14 10.51

Dividend per share Rs./share 2.5 4 5.2 3.25 3.5

Market value per share Rs./share 34.95 65.9 102.45 101.25 97.8

Capital adequacy Ratio % 15.5 12.83 12.78 10.09 9.69

No. of branches No. 241 253 266 266 272Staff Strength No. 3,019 3,144 3,430 3,681 3,859

Gross margins % 4.00% 3.51% 4.19% 3.10% 3.30%

Net margin % 3.30% 3.41% 3.99% 3.03% 3.16%

Net Interest Margin % 3.23% 3.34% 3.90% 2.95% 3.09%

Total revenue % 5.50% 5.34% 5.39% 4.81% 4.91%

Equity / Assets % 11.60% 11.90% 12.10% 10.80% 10.30%

RoE % 16.20% 21.00% 21.90% 25.50% 25.40%

Cost/Income % 49.80% 38.10% 26.90% 26.40% 24.70%

5.2.4.1 Gross spread ratio

Gross spread ratio defines the total spread

of interest between borrowing andlending.

Spread: Difference between funded

revenue as a percentage of averageearning assets and the cost of funds as apercentage of average paying funds.

56

35

21

71 72

0

10

20

30

40

50

60

70

80

2003 2004 2005 2006 2007

Gross spread ratio

Vertical Analysis

0.00

10.00

20.00

30.00

40.00

50.00

60.00

70.00

80.00

90.00

2003 2004 2005 2006 2007

%age

Markup/ return/ interest earned Non-markup based Income

Markup/ return/ interest expenses Non-markup based expenses

Provision against NPLs Net profit before tax

Net profit after tax

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5.15 5.08

2.79

1.941.65

0

1

2

3

4

5

6

2003 2004 2005 2006 2007

Markup/ Interest cover ratio

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.

GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates onthe deposits.

5.2.4.2 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 after2006 because of increase in admin expensesand righting off the bad debts.

The main reasons for reduction in the

profitability were additional provisionagainst NPL due to the elimination ofbenefit of FSV and downturn in consumer and individual banking.

5.2.4.3 Mark-up/ Interest cover ratio

This ratio tells what percent of interest is

covered from the total income of a firm or abank.

It tells the ability of a bank to pay its mark-

up to the depositors.. MP/Interest cover ratio= EBIT/Mark-up

53.71

67.8966.11

59.19

49.8

0

10

20

30

40

50

60

70

80

2003 2004 2005 2006 2007

%a

ge

Profit before tax to total income

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0.06 0.06

0.07

0.09

0.1

0

0.02

0.04

0.06

0.08

0.1

0.12

2003 2004 2005 2006 2007

Total assets turnover

5.2.4.4 Profit after tax to total income

This ratio analysis tells profitability of a firmafter paying all the taxes to total income.

Profitability of BOP is increased because of

decrease in the tax paid to the govt and of highspread ratio.

BOP negotiated their taxes with the government

and only paid 20% tax in 2006 and only 8% in2007 instead of 35%

5.2.4.5 Total assets 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 byassets.

5.2.4.6 Return on Total assets (after tax)

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

This ratio is decreasing in the last year because

of decrease in Profit as expenses raised up.

Profit after tax to total income

34.26

46.6549.16

54.16

49.27

0

10

20

30

40

50

60

2003 2004 2005 2006 2007

Profit after tax to total income

1.88

2.49

2.652.76

2.22

0

0.5

1

1.5

2

2.5

3

2003 2004 2005 2006 2007

Return on avg total assets (aft er tax)

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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.

5.2.4.7 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 ashare equivalent to the worth of 1 RS MPS by

the bank or a firm.

5.2.4.8 Earning Per Share

EPS = Net Income/ total shares

Through this ratio it can be analyzed what

percent of 1RS share is earned.

5.09

7.25

10.23

7.71

9.31

0

2

4

6

8

10

12

2003 2004 2005 2006 2007

Price earning ratio

3.5

34.95

65.9

102.45 101.25 97.8

6.86 9.0810.01 13.14 10.51

3.255.242.50

20

40

60

80

100

120

2003 2004 2005 2006 2007

Rs.PerShare

EPS (Non dilutive) Dividend per share

Market value per share

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5.2.4.9 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.

5.2.4.10 Net Interest Income

Difference between funded revenue as a percentage

of average earning assets and the cost of funds as apercentage of average paying funds.

5.2.4.11 Return on equity

Profit before tax as a percentage of total equity.

The decrease was mainly due to increased equity

as a result of increase in minimum capitalrequirements and additional provision due towithdrawal of benefit of FSV for most types ofadvances.

5.2.4.12 Cost/Income

15.5

12.78

9.69

12.83 10.09

0

2

4

6

8

10

12

14

16

18

2003 2004 2005 2006 2007

Capital adequacy Ratio

3.30% 3.41%

3.99%

3.03%3.16%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

2003 2004 2005 2006 2007

Net Interest Margin

16.20%

21.00%21.90%

25.50% 25.40%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2003 2004 2005 2006 2007

RoE

49.80%

38.10%

24.70%

26.90% 26.40%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2003 2004 2005 2006 2007

Cost/ Income

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Operating cost includes all expenses charged to arrive at profit before tax excluding cost of funds,

provisions and head office expenses. Head office expenses are not considered since all banks do notaccount for head office expenses in their financial statements.

Operating income means funded and non-funded revenue less cost of funds and provisions.

As administrative costs are increased because of which results decrease in the cost to Income ratio.

5.3 Organizational Analysis

5.3.1 Hierarchical Flow

PRESIDENT

CORPORATE HEADCOMMERCIAL HEAD CONSUMER HEAD

RETAIL HEAD

REGIONAL HEADS

BRANCH

BRANCH

BOARD OF DIRECTORS

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5.3.2 INTRODUCTION (SWOT Analysis)

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis iscareful evaluation of an organizations internal strengths and weakness as well as its environment opportunitiesand threats.

SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affectorganizational performance.

The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOTanalysis.

In SWOT analysis the best strategies accomplish an organizations mission by:

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.

3. Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the organization mission as acontext; managers assess internal strengths distinctive competencies and weakness and external opportunitiesand threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralizethreats and avoid weaknesses.

5.3.3 STRENGTH

The Bank officers of BOP are considered as one of the most able professionals in the bankingworld (some belong to BCCI). 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 theirpersonal friends and discuss about their problems as their own.

As a result of the compassionate and personalized services of the officers, the clients perceptionfor 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 noproblems in reaching to the bank. For example, Khanewal Road Branch is being situated inbusiness and commercial hub of Multan as big volume in trade.

BOP has got a reliable and easy to use internal computer system. Every information regarding thetransactions in customers deposits has been computerized. Data are properly maintained.

Good security system

Not excellent but good facilities are given to employees

5.3.4 WEAKNESSES

Lack of proper internal controls is one of the major weakness of BOP. It is also pointed by theauditor in his review.

BOP has formulized a lot of products and services for its customers, even more than othercommercial 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 Ithink that the work should be distributed according to their post and capabilities.

Biased selection of employees.

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34.95

65.9

97.8

125

101.25

102.45

0

20

40

60

80

100

120

140

2003 2004 2005 2006 2007 E 2008

Rs/Shar


5.3.5 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 peopleare increasingly becoming loyal to the bank and because of feasible transactions. Optimum pricingand 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. Informationtechnology 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 enhanceonline facilities.

BOP has introduced a number of financial schemes including special Deposit Accounts. Theseaccounts 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 caneven be a greater increase in its deposits

5.3.6 THREATS

Despite the difficult circumstances that confronted the banking sector in particular and the countryin general, BOP has been still highly profitable. But, the facts cant be denied and there might be anadverse impact of such situation.

BOP is facing a strong competition by its competitors, Business of all these Banks are growing atvery high pace.

5.4 Future Prospects

5.4.1 Financial Valuations and the future prospect of BOP

BOPs share is currently trading at PKR 97.80 (On closing of fiscal year at 30 th June, 2007). And by looking at

the growth track of BOP it can be analyzed that it will real grow up. Through different estimations and byviewing remarks of analysts it is expected that it would grow up to PKR 125 by DEC. It shows real futureprofit.

This evaluation is based on a normalized ROE of 25.3% (ROA of 2.7%), cost of

Equity of 17.0 % and a long-term growth rate of 11.2%.

A sensitive analysis shows:

With every 10% change in credit

costs, fair value would change by3.3%.

For every 10% change in NIM,

BOPs fair value would change by7.5%.

A100bp change in loan growth

estimates for 2007, 2008, and 2009would cause a

Change of 1.0% in fair value.

The calculations made in sensitivity of changes inthe cost of equity and the

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Terminal growth rate. The cost of equity is based on a 10.2% risk free rate, a 6%

equity risk premium, and a fundamental risk-weighted of 1.13. The perpetual

growth assumption implies a dividend payout ratio of 25%. For every 50% change in

the cost of equity, and the terminal growth rate the banks fair value

would change by 4.6%.It can be confirmed by looking at share price performance. BOPs share price has performed well in the lastyear. It is up 31.2% in the past 12 months, and is up 21.1% YTD. The stock has outperformed the localbenchmark KSE-100 by 5.0%. Performance is quiet amazing.

6 Industrial Analysis

6.1 Overview on the Major Players of Bank Industry

The brief overview on the bank industry and the major players involved on it. The combined values of all

major players are collected from their financial statements of 2007.

Assets

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

NBP HBL UBL MCB BAF ABL SCB BOP

RsinM

Cash & bank

Investments

Lendin To FinancialInstitutions

Advances

Op Fixed Assets &

Intangible Assets

Other assets

Total

Liabilities & Equity

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

NBP

HBL

UBL

MCB

BAF

ABL

SCB

BOP

RsInMillions

Bills Payable

Borrowings

Deposits

SubOrdinated Loans

Other Liabilities

Equity

Total

As graphical shows NBP (National Bank of Pakistan) is the key player and the leader in the industry

with total assets and liabilities of RS. 764,609. While BOP is RS. 234,991.

Major Player Includes NBP, HBL, UBL, BAF, ABL, SCB and BOP.

Total Assets of the major players in the industry are RS. 3,561,195 (M).

BOP is considered as one of the major banks in Pakistan by assets.

Like major Player NBP has the largest Profit before and after Tax i.e., 28,452(M) and 19,405 (M)

respectively. While BOP has PBT RS. 4,856 (M) and PAT RS. 4,454 (M) only

The total Profit before and after tax of the major players are RS. 99,835 (M) and RS. 70,045 (M)

respectively.

32


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Income Comparison

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

NBP HBL UBL MCB BAF ABL SCB BOP

RsInMillion

Spread

Provision

Non Markup Interst

Income

Operating Income

Operating Expenses

PBT

Tax

Profit after Tax

6.2 Comparison of the Bank Industry Major Vs Medium Vs Small Banks

Total Assets

0

500000

1000000

1500000

2000000

2500000

3000000

3500000

4000000

Ca

sh&

bank

Investm

ents

LendinTo

Financial

Adva

nces

OpF

ixed

Asse

ts&

O

ther

assets

Total

RsInMillions

Major Players

Medium Players

Small Players

Liability Comparison

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Bills

Pay

able

Borrowi

ngs

Depo

sits

SubO

rdinated

Loa

ns

Other Liabilitie

sEq

uity

Total

Rs.InMillions

Major Players

Medium Players

Small Players

Major Players in the Medium category of the Banking industry are AB, NIB, ABN, Citi, SB BAH, FB.

Total Assets and liabilities of this level comprised on RS. 1,091,083(M)

Net Income of this level is RS. 9,567 (M)

This level is giving a tough competition to the major players and trying to grab there share.

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Income Comparison

-50,000

0

50,000

100,000

150,000

200,000

Spre

ad

Pro

vision

/Rev

ersa

ls

NonMa

rkup

/Inte

rstI

ncom

e

Ope

ratin

gIn

come

Ope

ratin

gEx

pens

es PBT

Tax

Profit

afte

rTax

RsinMillion

Major Players

Medium Players

Small Players

Few mergers are taking place and in future it is expected to be more because to maintain SB Standard

reserve ratio.

Major Players in the Small category of the Banking industry are ATLAS KASB, JS etc.

Total Assets and liabilities of this level comprised on RS. 411,077 (M)

Net Income of this level is RS. (2,176) (M)

These Banks are going in loss overall in 2007. Since they are new players in Pakistani Market. It is

expected that they will give return in future.

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7 Weaknesses and their Recommendations (Financial &Administrative Aspects)

7.1.1 Internal Controls

To me the major and the most important flaw in the BOP is lack of internal controls and inter communicationbetween different branches of the bank. As far as financial aspect is concerned there is no proper system isconfigured thats why there is always a risk of big frauds with in the bank. I during my internship also pointedout that point but no one bothered. To me the bank should install some proper resource planning and controllingsystems like other banks do i.e., oracle financials etc.

7.1.2 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 purposethese staff colleges should be reorganized and their syllabus should be made in such a way which can help theemployee understand the ever-changing global economic scenario.

Banking council of Pakistan should also initiate some programs to equip the staff with much neededprofessional training.

7.1.3 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 anyorganization.

7.1.4 Performance Appraisal

During Internship I felt that there is no or very less appraisal of any ones cool performance. The managershould strictly monitor the performance of every staff member. All of them should be awarded according totheir performance and result in the shape of bonuses to motivated and incite them to work more efficiently.

7.1.5 To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a special

section should be made inside the branch. Which should only handle the treasury function, salaries andpensions of federal personnel or the bank should do these functions in the evening time. Also managementshould purchase more furniture and arrange them in such a way which provides maximum space andconvenient especially in deposit department and there should also be convenient sitting place for customers.

7.1.6 Transfer

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Transfer is not properly carried out. Some of the employees are continually serving at the same post. They aresimply rotated at the same branch. Therefore it is recommended that evenly rotation of every employee shouldtake place after every three years in different braches of the bank.

7.1.7 Changes in Policies

There should not be any abrupt policies change by the upper management, as this practice hurts the customerconfidences in the bank. Government should make long-term policies

7.1.8 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.

7.1.9 Utility Bill Charges

Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite this working

resulting in a loss to then Rs 3 to5 per transaction. These charges should be increased to RS 10 per bill toenable the branch to cover their handling costs and make some profit.

7.1.10 Link with the Head Quarter

100 major branches of BOP should established a direct link with the, head quarter in Lahore, through Internetor Intranet. This will make the functions and decision making of the management easier and convenient.Though management has a plan to connect all branches via WIMAX technology. Which would really bring agreat future aspects.

7.1.11 Credit Card

BOP should start its operation in credit card. These cards are very helpful for the ordinary customer in generaland the business people in particular. To make it mores secure and to eliminate the misuse of it, themanagement is required to keep proper security against the card.

7.1.12 Clean Loans

Clean loan or clean overdraft is the credit facility extended to the customers to the customers without anysecurity. These types of small term loans should not be extended to anybody, because sometime these loans areprovided to blue-eyed people of the management and they become a part of bad debts.

7.1.13 Cash Financing

In this mode of financing the amount of credit not utilized by the borrower is remained tax-free. It isrecommended that a small amount of interest should be charged on this amount as well because the bank gaskept-aside the amount for that borrower and can not advance it anywhere.

7.1.14 Decreasing Administrative Expenses

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Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year 2007. That can bedone by lying off the surplus pool of employee with golden hand shakes scheme. The branches that are notmuch used could also be closed. That will give positive results in the future.

7.1.15 Should be Aggressive in Credit Policy

As mentioned earlier, BOP is very conservative in advances and loans policy. It reduces the investmentopportunities. Also loans should be given to the small businessmen and the other businesses on large scale likein agriculture sector at the low mark-up rate. It should adopt flexible credit policy while giving credit to theagriculture sector.

7.1.16 Technological Advancement

I would like to suggest that at least all the main branches of BOP should be fully computerized in order toexpedite the dealing process among bankers and their customers. Every department should be provided acomputer with adequate training (especially Advances, Deposits and Foreign Exchange departments). Dailyrecords should be entered directly into these computers, (instead entering the overall daily transactions after thebanking 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 inreducing the use of excessive paper work.

7.1.17 Staff Relationship

Good relationship among staff member leads to the peak performances in any organization. I observed that thestaff relationship was normal other wise but some time I noticed that there exists little conformity among thestaff members. Another syndrome from which the staff suffered was that all of them considered themselvesmore important than others. Some of the officers used to say that if I am absent for a day the bank would stopworking. So this sort of attitude is not good because it mars bank image and juniors willingness learn and workhard and in the end will hurt the whole team.

7.1.18 Improper Distribution of Work

Proper distribution of work leads to success in every organization. Proper distribution of work prevents theemployee from over and under work situation. So for a smooth running of an organization proper distributionof work is the hint to be followed.

During my internship I observed that there was no proper distribution of work in the bank. I saw that some ofthe employee worked like ants other sat idle staring here and there. So this created a lot of over work situationfor while relaxation for other.

7.1.19 Favouritism and Nepotism

In the Main 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 fewweeks, 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 andpromotion should be made on merit and according to the rules and regulations of the bank and providedfavourable environment to the employee to show their performances.

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7.1.20 Inter Departmental Transfer

I watched during my internship that, there employees who have worked on one seat for many a year. It canhave negative effects motivation of employee who is hard working and intelligent. Take the example ofadvances section. In advance section if the employee is transfer after sixth month or seven month, how can hebe able to show his performances and how can he be able to know the bank customer in a short period of time.

7.1.21 Marketing Policy

The branch should adopt various marketing strategy and promotion strategy to promote the bank and itsproduct.

The most important in my opinion is personal marketing; it is the most effective of all when you think in termof branch level. But on the whole organization level, they should arrange the seminar with in the bank andoutside the bank. They should introduce various prizing schemes just like Allied Bank. Karamad Scheme, BankAl-Fallah (monthly income earning scheme) and various others.

They should do more advertising through newspaper and media and through channel of personal contacts.

7.1.22 Complaints of Customer

There should be an information desk to provide the information and to receive the complaints of the customerin the bank.

There is no complaint box available in the branch and not any person appointed to hear the complaints.

Every person cannot go to the manager for the complaint because most of the people are hesitant. So I suggestmanagement to install a compliant box in the branch, and recruit a special person for that guidance of thecustomer when they are unable to manage some difficulties in banking matters.

7.1.23 Organizational Commitment

It is suggested that employees working on daily wages basis should be given some benefits, which the otheremployees are getting. Their salaries must increase according to efficiency, performance and service this willincrease there commitment to the organization.

7.1.24 Credit Monitoring

The credit department of the bank should carry out vigilant credit monitoring. They should ensure the properpayment of instalments and the mark-up by the borrower.

The staff members who have done all the paper work of the loan extension should perform the monitoring, ashe/she will be having more information about the borrower.

7.1.25 Extended Banking Hours

The banking hours may be extended up to six, as being practiced by UBL opposite to it. Some of the businesscommunity due to law and order situation are now reluctant to keep the fund in their premises and would wantto depart with it. Therefore, Main Branch may extend the night banking to cater to demand of this businesscommunity. The branch could also be opened to cater the requirements of this business community

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7.1.26 Housing and House Hold Goods Loans

Bank should initiate these loans because most of banks customers are middle class and they cannot afford tobuy house or household goods at once by their own.

7.1.27 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 forloan approval should be strictly followed. According to which the current ration of borrowers business must be1:1 and the debt to equity ratio should be 60:40, means the liquidity position of business should be healthy.

7.2 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 thebooks i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below:

7.2.1 Working in different departments

During my internship I observed that other internees in the bank use to stick with one department only. Aninternee with specialization in Finance was of the view that he should be in Finance department same was thecase with other specialized Internees. But I would suggest that one must work in every department for sometime to gain a hand on experience of all the departments. As in real working environment employee have tocoordinate with other departments, so he/she must know what the other departments operations are and howthey work.

7.2.2 Relationship between Theory and Practice:

This part of report is the essence of the internship, as this will help other students to better understand theworking environment of the bank by finding the relationship between what is written in the books and what isactually going on in fields. The theory written in the books in cases is not implemented as it is. In some casestheory is implemented with a little modification but in other cases theory has nothing to do with practice. Inaccounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but littledifferences, theory and practice has substantial relationship. The securities for the loans are handled in the sameway as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidationprocedure is the same. The difference is there in the case of loans. Theory talks about four or five terms ofloans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like runningfinance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of creditare 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 theWorld using best business practices in a broader view covering each and every aspect of possible businessscenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firmsenvironment is each and every thing. Professional life only builds on the knowledge based on books eventhough it may only use 1% of the theoretical knowledge.

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8 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.

9 ReferencesReference material used for compiling this report is gathered from these sites.

www.bop.com.pk

www.jpmorgan.com

www.kpmg.com.pk

www.sbp.gov.pk

www.globalbanking.com
http://www.bop.com.pk/http://www.jpmorgan.com/http://www.kpmg.com.pk/http://www.sbp.gov.pk/http://www.bop.com.pk/http://www.jpmorgan.com/http://www.kpmg.com.pk/http://www.sbp.gov.pk/

Documents

Bank of Punjab Report[1]