shahab final report

Internship Report on Bank of Khyber

CHAPTER -1

INTRODUCTION TO THE REPORT

1.1 BACKGROUND OF THE STUDY

For the completion of Bachelor Degree in Business Administration, every student

is required to undergo eight weeks internship within organization.

I selected the Bank of Khyber of Pakistan for my internship, and this report is

concerned with the banking function in Bank of Khyber. The internship is to serve the

purpose of acquainting the students with the practice of knowledge of business

administration.

1.2 PURPOSE OF THE STUDY

The main purpose of this study is to fulfill the requirements of Bachelor Degree in

Business Administration (Major Finance) at University of Peshawar, and to get the

relevant information in order to complete this internship report.

1.3 SCOPE OF THE STUDY

The scope of the study is to inform the banking function of IBD of BOK as well as its

entire department, its products, services and on its functions and procedures.

1.4 RESEARCH METHODOLOGY

Two months rigorous internship in the BOK, give me knowledge and confidence

to write this report. Every effort has been made to collect data and information about the

working of the organization however the following data collection methods have been mainly

used for the completion of this report.

Institute of Management Studies, UOP 1


1.4.1 PRIMARY DATA

a. Observation

Being an internee in Head Office of the Bank of Khyber, I observed all the

practices and dealing in the whole office, which helped me to have deep insight about the

problems and issues concerning the bank.

b. Discussions

To know about employee’s commitment, motivation and their out look towards

the management of the bank, I Discussed many issues with the Head of the department,

senior member and with lower level management member.

1.4.2 SECONDARY DATA

The data collected earlier by someone else and which has gone through

mathematical and statistical techniques after its collection, is called secondary data.

Secondary data has been collected from different sources of the bank including

Annual reports,

Information memorandum,

Bank manuals, training manuals,

Service role of the bank and all the other documents provided to me by the bank.

News papers and magazines

Internet websites



1.5 SCHEME OF THE REPORT

Section-I

Chapter One contains the background of study, purpose of study, scope of study and

research methodology.

Section-II:

Chapter Two containing History of Banking.

Chapter Three containing Banking Sector.

Chapter Four containing Introduction, vision, mission, objectives and organizational structure

of BOK.

Chapter Five containing Products and different departments of the head office.

Section-III

Chapter Six containing Recommendations and Implementation.

Section-IV

Chapter Seven containing financial analysis, Ratio Analysis, SWOT analysis, and Suggestions.



CHAPTER- 2

Chapter 1

HISTORY OF BANKING

2.1 WHAT IS BANK?

A federally regulated financial institution that, in general, engages in the business

of taking deposits, lending and providing other financial services.

Institution for receiving, lending and safeguarding money. It may receive money

on deposit, cash checks, or bills of exchange, make loans, discount commercial paper,

and issue bank notes (promissory notes payable to bearer).

An organization, usually a corporation, chartered by a state or federal

government, which does most or all of the following: receives demand deposits and time

deposits, honors instruments drawn on them, and pays interest on them; discounts notes,

makes loans, and invests in securities; collects checks, drafts, and notes; certifies

depositor's checks; and issues drafts and cashier's checks.

2.2 EVOLUTION OF BANKING

It has not so far been decided as to how the word 'Bank' originated. Some authors

opine that this word is derived from the words 'Bancus' or 'Banque' which mean a bench.

The explanation of this origin is attributed to the fact that the Jews in Lombardy

transacted the business of money exchange on benches in the market-place; and when the

business failed, the 'Banco' was destroyed by the people. Incidentally the word 'Bankrupt'

is said to have been evolved from this practice. The opponents of this opinion argue that

if it was so, then how it that the Italian money changers were naver is called 'Banchierei'

in the Middle Ages?



Other authorities hold the opinion that the word 'Bank' is derived from the

German word 'Back' which means 'joint stock fund'. Later on, when the Germans

occupied major part of Italy, the word 'Back' was initialized to 'Bank'.

It is therefore, not possible to decide as to which of the opinions is correct, for no record

is available to ascertain the validity of any of the opinions.

2.3 MODERN BANKING

Despite the classical origin, banking in its modern form and structure started in

Britain when many of the Lombardy merchants came to England in the fourteenth

century and settled in the parts of the city of London now called Lombard Street. They

were so resourceful that even the Kings had to depend on them for loans despite the fact

that the Church was firmly against usury. They with not only keeping the money in safe

custody but also changed money for the travelers or merchants engaged in foreign trades.

Consequently this business was taken over by the goldsmiths who, up to that time, were

dealing only in gold and silver. They introduced necessary facilities of safe-keeping of

the valuables and cash of their customers. These goldsmiths issued receipts or notes to

their depositors in respect of the cash or articles left with them. These were called

Goldsmiths Notes, and carried an undertaking to return the money and articles to the

depositors or bearers on demand.



CHAPTER – 3

Chapter 1

BANKING SECTOR

3.1 BANKING IN PAKISTAN

At the time of independence, the areas which now constitute Pakistan were

producing only food grains and agricultural raw material for Indo-Pakistan subcontinent.

There were practically no industries, and whatever raw material was produced was being

exported from Pakistan. However, commercial banking facilities were provided fairly

well here.

As a new country without resources it was very difficult for Pakistan to run its

own banking system immediately. Therefore, in accordance with the provision of Indian

Independence Act of 1947, an Expert Committee was appointed to study the issue. The

Committee recommended that the Reserve Bank of India should continue to function in

Pakistan until 30th September 1948, so that the problems of time and demand liability,

coinage, currencies, exchange etc. be settled between India and Pakistan. It was also

stipulated that Pakistan would take over the management of public debt and exchange

control from Reserve Bank of India on 1st April, 1948, and that the Indian Notes would

continue to be legal tender in Pakistan till 30th September, 1948. Following the

announcement of Independence Plan in June 1947, the Hindus residing in the territories

now comprising Pakistan started transferring their assets to India.

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

which were engaged solely in export of crops from Pakistan, while there was 2 Pakistani

institutions i.e. Habib Bank and the Australasia Bank. The panic of uncertain future

shook the confidence of people. The Government, therefore, promulgated the Banking



Companies Ordinance, 1947, to safeguard the interests of both the bankers and the

customers.

The Imperial Bank of India which had been acting as the Agent of Reserve Bank

of India closed down most of its offices in Pakistan, and also was not willing to purchase

even token amounts of Government of Pakistan securities on the plea that these securities

were not marketable.

In order to make necessary arrangements for the assumption of control an Expert

Committee was appointed to recommend necessary steps, including the required

legislation to establish a Central Bank for Pakistan. Consequently the Governor- General

of Pakistan and the Father of the Nation, Quid-i-Azam Mohammad Ali Jinnah,

inaugurated the State Bank of Pakistan on July1, 1948, after the State Bank of Pakistan

Order was promulgated on May12, 1948.Thus the State Bank of Pakistan assumed full

control of Banking and currency in Pakistan.

The first important task which the State Bank of Pakistan had to attend to was the

issue of currency notes and withdrawal of Reserve Bank of India notes with over-printing

there of Government of Pakistan, which had been in circulation in Pakistan so far.

As the Central Bank of the country, the State Bank addressed itself with the equally

urgent task of creating a national banking system. In order to attain this goal it provided

very help and encouragement to Habib Bank to expand its network of branches, and also

recommended to Government the establishment of a new bank which could serve as an

agent of the State Bank. As a result, The National Bank of Pakistan came in to being in

1949; and by 1952 it became strong enough to take over the agency function from the

Imperial Bank of India.

In order to develop sound banking and weeding out weak institutions, the banking

companies (Control) Act was promulgated in 1949, empowering the State Bank to

control the operations of Banking Companies in Pakistan, including preparation of the

required trained man-power. Further, the State Bank restricted the opening of new



branches by foreign banks in port towns or in big cities from where trade was being

carried out with foreign countries, while Pakistani banks were allowed to open as many

branches as possible within the country.

Pakistan now entered into a phase of planned economic development in 1956; and

naturally, further expansion in the banking and credit facilities was essential. Though

there had been a remarkable expansion in the number of offices of Pakistani banks since

Independence, it has remained heavily concentrated in large cities. Therefore, the State

Bank had to accord priority to the establishment of branches in the interior of the country.

Development of agriculture largely depends on agricultural finance, but the

scheduled banks were not very willing to undertake this risky venture. Therefore, the

State Bank sponsored the establishment of Agriculture Development Bank to attend

exclusively to agricultural finance. Moreover the functions of the State Bank were also

broadened by the State Bank of Pakistan Act, 1956, conferring the powers to increase

credit facilities for both agriculture and industry. All these measures had positive effect

on Pakistan’s economy during 1956-58. Money supply increased greatly as the

Government borrowed heavily against treasury bills from State Bank; but the credit

demand in the private sector did not rise so sharply due to rigorous restrictions on

imports. During this period a new Pakistani bank was registered and scheduled as the

National Commercial Bank Limited; and Government also established Pakistan Industrial

Credit and Investment Corporation- a new institution in the field of industrial finance.

In 1958, when the Government liberalized imports and transferred the food grain

trade to the private sector, the commodity market became firm, and demands for funds

became very acute. This caused some stringency to the banks during the busy season.

Therefore, the banks had to reduce down their excess reserve and increased their

indebtedness to the State Bank. The expansion in the banking and credit facilities was

further enlarged when during 1959-60 two more Pakistani banks, namely Eastern

Mercantile Bank Limited and the United Bank Limited were established and scheduled.



Another very important event in the development of banking in Pakistan was the

appointment of the Credit Enquiry Commission in 1959 to examine the scope and

working of the institutions providing credit facilities to agriculture, trade, commerce and

industry, and recommend measures for further improvements.

More Pakistani scheduled banks continued to be established, which included the

Commerce Bank Limited and the Standard Bank Limited. However, despite the pressing

needs, private enterprise was not forthcoming in East Pakistan. Consequently the State

Bank established a regional bank by the name of Eastern Mercantile Bank by

contributing 40 percent of its share capital. In June 1948 (West) Pakistan had only 81

offices of scheduled banks; but by June 1993 their number has been increased to 7100 in

every nook and corner of Pakistan. Besides this growth, specialized credit and financial

institutions have also developed over the years, and cater to the needs of the specific

sectors. National Investment Trust, Peoples Finance Corporation, Equity Participation

Fund, and National Development Finance Corporation, Banker's Equity Ltd., Small

Business Finance Corporation etc. are contributing their due share in the country's

economic life.

The nationalization of banks in Pakistan since January 01, 1974, has heralded a

new era of development and progress. It has taken a completely new turn with the phased

introduction of interest free banking system with effect from January, 1981.

At present the banking structure in Pakistan comprises of the following:

3.1.1 STATE BANK OF PAKISTAN

As the Central Bank of the country with its offices at Karachi, Lahore, Peshawar,

D.I.Khan, Quetta, Faisalabad, Rawalpindi, Islamabad, Multan, Gujranwala, Sialkot,

Sukkar and Hyderabad.



3.1.2 COMMERCIAL BANKS

Commercial Banks have been the most effective mobilizers of savings and have

been providing short-term requirements of working capital to trade, commerce and

industry.

Presently these commercial banks are operating in the nationalized and private

sectors both, after the amendments in the Bank's Nationalization Act, 1974 in 1991.

3.2 WHAT IS ISLAMIC BANKING?

Islamic banking has been defined as banking in consonance with the ethos and

value system of Islam and governed, in addition to the conventional good governance and

risk management rules, by the principles laid down by Islamic Shariah. Interest free

banking is a narrow concept denoting a number of banking instruments or operations,

which avoid interest. Islamic banking, the more general term is expected not only to

avoid interest-based transactions, prohibited in the Islamic Shariah, but also to avoid

unethical practices and participate actively in achieving the goals and objectives of an

Islamic economy.

3.2.1 BASIC PRINCIPLES OF ISLAMIC BANKING

The fact that a global network of Islamic banks, investment houses and other

financial institutions has started to take shape based on the principles of Islamic finance

laid down in the Quran and the Prophet’s traditions 14 centuries ago. Islamic banking,

based on the Quran prohibition of charging interest, has moved from a theoretical concept

to embrace more than 100 banks operating in 40 countries with multi-billion dollar

deposits worldwide.

Islamic banking is widely regarded as the fastest growing sector in the Middle

Eastern financial services market. Exploding onto the financial scene barely thirty years

ago, an estimated $US 70 billion worth of funds are now managed according to Shariah.

Deposit assets held by Islamic banks were approximately $US5 billion in 1985 but grew

over $60 billion in 1994.



The rules regarding Islamic finance are quite simple and can be summed up as follows:

a. Any predetermined payment over and above the actual amount of principal is prohibited

Islam allows only one kind of loan and that is Qard-el-hassana (literally good

loan) whereby the lender does not charge any interest or additional amount over the

money lent. Traditional Muslim jurists have construed this principle so strictly that,

according to one commentator “this prohibition applies to any advantage or benefits that

the lender might secure out of the Qard (loan) such as riding the borrower’s mule, eating

at his table, or even taking advantage of the shade of his wall.” The principle derived

from the quotation emphasizes that associated or indirect benefits are prohibited.

b. The lender must share in the profits or losses arising out of the enterprise for which the money was lent.

Islam encourages Muslims to invest their money and to become partners in order

to share profits and risks in the business instead of becoming creditors. As defined in the

Shariah, or Islamic law, Islamic finance is based on the belief that the provider of capital

and the user of capital should equally share the risk of business ventures, whether those

are industries, farms, service companies or simple trade deals. Translated into banking

terms, the depositor, the bank and the borrower should all share the risks and the rewards

of financing business ventures. This is unlike the interest-based commercial banking

system, where all the pressure is on the borrower: he must pay back his loan, with the

agreed interest, regardless of the success or failure of his venture.

Islam encourages investments in order that the community may benefit. However,

it is not willing to allow a loophole to exist for those who do not wish to invest and take

risks but rather content with hoarding money or depositing money in a bank in return for

receiving an increase on these funds for no risk (other than the bank becoming insolvent).

Islam encourages the notion of higher risks and higher returns and promotes it by leaving

no other avenue available to investors. The objective is that high-risk investments provide

a stimulus to the economy and encourage entrepreneurs to maximize their efforts.



c. Making money from money is not acceptable in Islamic

Money is only a medium of exchange, a way of defining the value of a thing; it

has no value in itself, and therefore should not be allowed to give rise to more money, via

fixed interest payments, simply by being put in a bank or lent to someone else. The

human effort, initiative, and risk involved in a productive venture are more important

than the money used to finance it. Muslim jurists consider money as potential capital

rather than capital, meaning that money becomes capital only when it is invested in

business.

Accordingly, money advanced to a business as a loan is regarded as a debt of the

business and not capital and, as such, it is not entitled to any return (i.e. interest).

Muslims are encouraged to purchase and are discouraged from keeping money idle. In

Islam, money represents purchasing power, which is considered to be the only proper use

of money. This purchasing power (money) cannot be used to make more purchasing

power (money) without undergoing the intermediate step of it being used for the purchase

of goods and services.

d. Investments should only support practices or products that are not forbidden

Islam discourages it. Trade in alcohol, for example would not be financed by an

Islamic bank; a real-estate loan could not be made for the construction of a casino; and

the bank could not lend money to other banks at interest.



CHAPTER – 4

Chapter 1

AN INTRODUCTION TO BANK OF KHYBER

4.1 BRIEF HISTORY

The Bank of Khyber was established in 1991 as a provincial commercial bank

through an act of the NWFP Assembly. The Bank of Khyber reached the status of

scheduled bank in 1994. The provincial government is its major shareholder, owning

87% of the capital. It has a network of 34 branches serving more than 100,000 account

holders. The micro-finance operations of The Bank of Khyber started in 1995, aimed at

the provision of micro credit to small and medium enterprises. In 1997 The Bank of

Khyber extended its operations to rural areas, providing smaller loans to micro-

enterprises and individual clients through its cooperation with NGOs and Rural Support

Programs (RSP). In 1999 The Bank of Khyber created its Micro finance Unit as a

separate profit centre, developing specific products. The Bank of Khyber is the first

formal and structured initiative by a commercial bank in Pakistan to broaden its client

base and reach the micro-enterprise market.

4.2 METHODOLOGY & DISTINCTIVE FEATURES

The Bank of Khyber provides micro credit services through its branch network

where credit officer of the micro finance unit are based. Bank of Khyber adopts a four-

pronged strategy in its lending methodology:

Direct lending to individual micro-entrepreneurs

Group lending through facilitators in rural areas

Lending through business clusters in urban centers and small towns

Wholesaling of funds to facilitators (NGOs, RSPs) for on lending in rural

areas



The Bank of Khyber is currently a partner to an ADB project, lending to NGOs in

Malakand region. The Bank of Khyber is able to provide micro finance services to clients

with no previous banking history. For micro finance services, The Bank of Khyber does

not require physical collateral.

4.3 CHALLENGES AND DEVELOPMENT PLANS

Providing micro finance services through a commercial banking structure, not

adapted to service grassroots clients, The Bank of Khyber has to cover high costs in its

lending delivery. Moreover, The Bank of Khyber has a limited outreach in micro finance,

particularly amongst women. The Bank of Khyber is restricted by its practice of lending

through branches, but is planning at developing mobile banking.

MISSION AND VISION OF BANK OF KHYBER “Allah has permitted trade and forbidden usury”

4.4 VISION

Gradual conversion into ISLAMIC BANKING for development and promotion of

true Islamic Economic System.

4.5 MISSION

To increase shareholders' value and provide excellent service and innovative

products to customers through effective corporate governance, friendly work

environment, and contributing towards an equitable socioeconomic growth.

4.6 CORE VALUES

Highest quality of service.

Professionalism, integrity and team work.

Innovation and utilization of latest technology.

Risk mitigation.

Corporate social responsibility.



4.7 ACHIEVMENTS

The bank has shown in deposits and achieved the deposit target set for 2007. To

increase outreach, the Bank has successfully opened 5 new branches in 2007, with 4

branches in major business area viz Karachi, Lahore Faisalabad & Rawalpindi. This takes

the total number of branches of the bank to 34. The Bank expects to receive further

license for branches in the forthcoming year.

The Bank’s paid up capital as on December 31,2007 stood at Rs. 4.00 billion

which was raised successfully by offering 100% Right Issue at Rs. 12.75 per share.

4.8 BANK’S PERFORMANCE REVIEW

In the year under purview, the performance of the bank was satisfactory but it

could not extract its share from the Banking sector. As compared to last year the profit

was lower but the bank still earned an after tax profit of Rs. 219.437 million after

absorbing impact of provision of Rs. 655.624 million as required by the State Bank of

Pakistan under the new provisioning regulations. Apart from profit the Bank has shown

positive growth in Deposits and Advances. During the year, Bank maintained its strategy

of concentrating on growth while placing its customers at the centre of its activities. This

was achieved with the consistent dedication shown by Bank’s team of committed

professionals. Long term customer’s relationship has been developed through

enhancement in service quality.

To avoid any unexpected losses, a Risk Management Division has been set up and

the integrated Risk Management framework is in line with the evolving tends and

growing avenues of business. Thus it aims to align its systems and processes with best

international practices.

The bank’s rating has improved from BBB and A-2 to BBB+ and A-2; and

increase of one notch, as rated by JCR-VIS rating Agency. This up-gradation is due to

improvement in the management and assets quality of the Bank.



4.9 FUTURE OUTLOOK

The economic outlook for the coming year is promising. The government is

expected to continue with its proactive policies and executive corrective measures if and

when required. Though strong inflationary pressure persist but they are likely to ease off

due to tight monetary posture by the State Bank. Bank is determined to grow in view of

the structure improvements introduced in the bank and is well poised for all around

4.9.1 PEOPLE

A well trained and industrious work force is our most important assets. Our aim is

to manage this asset in such a way so as to improve its competitive advantage. Though

the journey has begun, we are confident that we will be able to strengthen our

performance culture, provide greater value to the organization and promote employees

satisfaction and growth. The bank laid special emphasis on development of its human

resources. We are striving towards making our human resources fit to respond to the

challenger that lies ahead.

4.10 OBJECTIVES OF THE BANK OF KHYBER

Under the Bank of Khyber act of 1991of the provincial Assembly of N.W.F.P the

banks objectives are as follows” To mobilize private savings and public funds for

diverting the same into productive channels and ensure their availability. To promote industrial,

agricultural and socio-economic processes through the active participation of private and public

sector in the province. Help under-developed areas and create employment opportunities, especially

in the rural areas of the province. Further, to guide and assist the people of N.W.F.P serving overseas

to effectively and profitably invest their foreign savings in the province as well as in other parts of

Pakistan.

Create a diversified and sound portfolio for utilization of idle funds and their

investment in the existing and new ventures especially in the pioneering of high-tech agro-based

export oriented and engineering projects to ensure maximum returns. Participate and seek the



share of the province in the capital market of Pakistan by way of subscription through locally pooled

resources in the leading stock exchanges of the country and eventually paving the way for

establishing a stock market in the province.

4.11 ORGANIZATIONAL STRUCTURE

“Organization is a group of people working together in a structured and co-

ordinate fashion to achieve a set of goals.” The essence is that the people who are

structured and coordinated will definitely be working in a proper system. This system

includes both organizational hierarchy and organizational chart.

4.11.1 Organization hierarchy

To avoid the conflict in the organization, all organizational positions are detailed

described and the duties, goals, functions, responsibilities and authority at each position

are made crystal clear. The channel which delegates these activities is called organizational

hierarchy and this must be set in such a manner to best accomplish the organizational

goals. The Bank of Khyber ultimate governing body is the Board of Directors while the

day to day affairs of the Bank are managed by a Managing Director appointed by the Board of

Directors for a term of three years on contract with the consent of the Government of

N.W.F.P. Under the supervision of MD, there are EVP's the senior most officials in the

bank hierarchy each heading a Bank unit, after EVP there are SVP's and VP's heading their

respective divisions and Departments.

At the branch network of BOK there are Branch Managers and Assistant Branch Managers.

Under Branch Managers there are Branch Departmental Heads responsible for their

respective Branch Department. The nomenclature of various posts in the Bank is as under:

Board of DirectorsManaging DirectorExecutive Vice PresidentSenior Vice PresidentVice PresidentAssistant Vice PresidentBranch Manager



Assistant Branch ManagerOfficer Grade-1Officer Grade-IIOfficer Grade-IIIJunior Officer.Driver.

ORGANIZATIONAL CHART OF THE BANK OF KHYBER


Board of Directors

Managing Director

Shariah Supervisory Committee/

Shariah Advisor

Islamic bankingDivision

Risk Management

Deptt.

Operations Deptt.

Marketing

Credits Treasury

MIS

Accounts

Section

Product/ Business

Development

IBB(s)


4.11.2 BOARD OF DIRECTORS

The bank ultimate governing body is the "Board of Directors" comprising of eight

members including a Chairman and MD. The Chairman of the Board is nominated by the

Govt. of N.W.F.P who will be a senior banker/ diplomat of repute. The two members of the board

are also nominated by the Govt. as Govt. is the major stakeholder of the bank. Usually

these two members are secretary finance Govt. of N.W.F.P and Assistant chief secretary

N.W.F.P. One member of the board is nominated by DEG (A German Development Bank) a 15%

Stakeholder of the bank. While two members are selected by the Government from

public / private sector. The Managing Director of the Bank represents the bank in the Board and

acts as a member of the Board.

Board of Directors of BOK

Mr.Javed Iqbal Chairman

Mr.Bilal Mustafa Managing Director

Mr.Zia-ur-Rehman Director

Mr.Muhammad Maqsood Khan Director

Mr.Muhammad Asif Director

Mr.Muhammad Shakir Siddiqui Director



C CHAPTER -5

DEPARTMENTATION OF THE BANK

5.1 DEPARTMENTS

5.1.1 INFORMATION TECHNOLOGY DEPARTMENT

The Bank of Khyber was established in 1991. In order to have an edge over its

competitors and to provide quick and efficient service to the customers, it was considered

mandatory to computerize banking network in the branches. IT Department was

established in 1994 and all the branches were successfully automated by the year 1998.

IT Department has progressed in the last eight years and trying its best to stay abreast in

the field of fast developing technology. In order to achieve its goals, the IT Department

has started on-line banking in almost all of its Branches. IT Department of the Bank is

working dedicatedly and with full enthusiasm to provide best services by efficiently

handling the in-house software development/maintenance, hardware/software trouble

shooting and uninterrupted support to 29 Branches. Besides, IT Department is playing an

important role in development and deployment of Islamic Banking Application and

timely support to the end-user. Moreover, The Bank of Khyber has joined 1Link ATM

Switch and has also installed ATM machines at 12 branches. Branches where ATM has

been successfully installed are:

Corporate Main Branch Hayatabad Branch G.T Road Branch Islamabad Branch Kohat Branch D.I Khan Branch Karachi Branch Abbotabad Branch Mingora Branch Civil Secretriate Branch Mansehra Branch



Mardan Branch

5.1.2 RISK MANAGEMENT DEPARTMENT

Risk Management Department (RMD) oversees the risks faced by the Bank in its

internal operations and from external environment. The Department initiates steps for

early identification of risks inherent in the Banking activities/functions; and recommend

remedial measures to the Bank’s Senior Management. Presently, key risk areas like

credit, operation, market and liquidity are focused on consolidated and integrated basis.

The Bank has been presently aligning its Risk Management framework while using Risk

Mapping technique, which has been diverted to remold the Job Descriptions of all

important functions.

At Branch level, certain amendments have been made to improve supervisory level of

Branch Managers. Risk Management has been ensured at Branches by introducing the

Key Risk areas in close supervision and monitoring through important checklist, which

have been implemented at Branches and its performance and implementation is

monitored at the Risk Management Department. The Department has also been working

actively on the implementation of Basel-II. While the Bank’s risks assessments at

Treasury have been ranked as per Basel-II, the Credit portfolio is under process for

external rating in order to assess the total Risk Weighted Assets and Bank’s Capital

Adequacy, as per State Bank of Pakistan guidelines. The Department also conducts

regular review of Bank’s Risk assets under stress situations in order to assess the Bank’s

shocks absorption capability.

5.1.3 CREDIT ADMINISTRATION DEPARTMENT

The Bank’s Credit Monitoring Cell was converted into a full fledged department

as Credit Administration. Being Middle Office of credits, the Department looks after the

risks identification, recommending, necessary remedial measures and act as control

function of credits. Credit Administration Department ensures complete and error free

documentation as per sanctions and simultaneously would work on the Internal Rating of

the borrowers.



Department maintains comprehensive Management Information System relating

to credits to cater for requirements of Senior Management, External Auditors and State

Bank of Pakistan. The Department is also responsible to monitor all credits which include

proper documentation, adequate collaterals, stock Inspection, and effective

Insurance/Risk coverage. NPL preparation is also within the ambit of the Department for

collection and classification of the information according to the prescribed criteria...

5.1.4 MICRO FINANCE DEPARTMENT

Micro Finance has proved to be one of the most effective tools for facilitating

socio-economic development through increased access to financial services. The

economic landscape of NWFP is characterized by a number of flourishing small-scale

economic activities scattered throughout the cities, towns and rural areas. However, these

smaller enterprise entities have never been a focused market for formal financial

institutions operating in this region.

Contributing significantly to income and employment generation, The Bank of

Khyber (BOK) considers the promotion of micro-enterprises as one of the alternative

economic development strategies for the province. For this purpose the BOK launched its

micro business development in 1995 and rural financial services in 1997. This was the

first formal and structured initiative by a commercial bank to broaden the base for micro

enterprise market. The initiative was further strengthened and encouraged by various

multilateral institutions such as Asian Development Bank (ADB), International Fund for

Agricultural Development (IFAD), KFW (German Development Bank) and Swiss

Agency for Development Cooperation (SDC) through credit lines and technical

assistance.

Encouraged by these developments a new unit called micro finance unit was instituted in

November 1999, which presently functions as Micro Finance Department (MFD) under

the umbrella of Credit Division. BOK aims to be the largest Micro Finance provider in

NWFP on sustainable basis. Our main Objective is providing access to financial services

to the low income and disadvantaged segment of the society to raise their standard of



living with specific emphasis upon women. The pursuit of this objective will significantly

contribute to the improvement of employment opportunities, income generating activities

and subsequently poverty alleviation.

Pursuing its objective the BOK provides micro enterprise and group loans for existing

and new enterprises engaged in value addition process, requiring technology

improvement or working capital. MFD offers the following loan products:

Micro-enterprise Loans to a maximum of Rs. 100,000 however fresh loans are considered

for below Rs. 50,000.

Group Loans to members of organized rural communities and urban clusters to a

maximum of Rs. 30,000 per member.

Domestic Consumption Loans to a maximum of Rs.100, 000 to employees of government

/ semi government organizations subject to prior Institutional Arrangements.

Tea Development Loans for tea growers in Mansehra.

Motorcycle financing to individuals and Institutions.

CNG Auto Rickshaw finance

CNG Kit Conversion finance

Credit Line to qualifying Rural Support Programs and NGOs for on lending in rural

areas.

BOK has made a modest beginning but a great potential for growth is still to be explored.

As of June 30, 2006, BOK has disbursed total loans of Rs.1.2 billion to more than 24,000

borrowers with majority of the loans below Rs.50,000 per client. Current outstanding

portfolio remains at Rs.207.7 million with an active clientele of 6,587.

5.2 DIVISIONS

5.2.1 FINANCE DIVISION

The Finance Division is responsible for overall fiscal managing, financial control,

financial reporting and accounting functions of the Bank. Division ensures that the



accounting records and system are maintained in accordance with internal policies,

regulatory requirements and international accounting standards. It establishes policies and

procedures relating to the finance function, monitors returns on earning assets and reports

on various performance indicators including assets/liability mismatch. The Division

directs control of the budgeting process in accordance with the annual plans, policies,

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

drawn up and consolidated for approval.

Finance Division exercise budgetary control on all expense and income items at

both Head Office and branch level, ensuring the effective monitoring arrangements are in

place in respect of adherence to budgets/forecasts. It continually reviews the accounting

and control system, ensures that they are appropriate to the requirements of the business

and that they generate financial information necessary for effective decision-making. It

monitors capital adequacy in accordance with regulatory directives. It liaises with

external auditors, tax authorities and SBP inspectors, and facilitates their duties. It

provides necessary assistance to the rating agencies. The Division maintains financial

databank and carries out industry financial analysis vis-a-vis Banks strength and

opportunities. The Division has well-trained, experienced and qualified human resource,

automation of processes and effective communication with all operating units. The future

focus of the Division would be to improve automation of the accounting processes and

enhance the quality and effectiveness of MIS.

5.2.2 COMPLIANCE DIVISION

Under the directives of the State Bank of Pakistan and the Board of Directors had

appointed a senior officer as Chief Compliance Officer in January, 2004. The bank has

now hired the services of an officer from SBP on deputation as CCO for effective

implementation of the directives of SBP particularly on KYC and Anti Money

Laundering. The Compliance Division directly reports to the Managing Director of the

bank. We have designated Compliance Officers in all our branches who perform their

function as per TORs provided to them and report to Chief Compliance Officer. The bank

prepared a Compliance Manual in 2004 which is now being updated in the light of best



international practices. Compliance divisions consist of the following departments headed

by Chief Compliance Officer:

5.2.3 Compliance Department & Monitoring and Implementation Department

In order to enhance capacity building of Compliance Officers, a comprehensive

training program on Compliance will be held in May, 2006. Furthermore, a consolidated

training material was prepared on the basis of SBP's Prudential Regulations, Banking

Operations Instructions, Bank's Own Policies etc and the same disseminated to all

Compliance Officers for meticulous compliance of SBP's as well as H.O. instructions.

5.2.4 HUMAN RESOURCE DIVISION

It is imperative for the Human Resource Division to not only provide educated

and trained manpower so as to enable them to handle their jobs more professionally and

efficiently in all areas of banking but to develop talent and add value to staff potential to

enhance output improve profitability as well. The Human Resource Division (HRD) puts

in its concerted efforts to train, develop and groom a sound human resource base for the

Bank and to work for continuous learning, adaptation and application of knowledge. The

HRD tries to create an environment of mutual trust and dignity so as to ensure best

positive results. It is playing a proactive role in capacity building, experience sharing,

strengthening analytical and policymaking, skill up-gradation to help the staff in their

endeavors to make BOK competitive, dynamic and one of the best banks in the country.

The HRD aims to transform BOK into a modern and dynamic bank, highly

professional and efficient, fully equipped to play a meaningful role, on sustainable basis,

in the economic and social development of NWFP as well as the country

5.2.5 INTERNAL AUDIT DIVISION

The internal audit Division of a bank is an extension of the management and is a

tool through which they gauge the qualitative and quantitative output of the field offices.

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

Committee of the Board of Directors. The Internal Audit Division consists of two



departments namely Audit & Inspection and Compliance & Implementation. The Audit

and inspection reports are passed on to the implementation department for

implementation/compliance and follow-up. The internal Audit Division conducts risk

based Audit of the bank on the risk matrix mechanism including compliance audit, IT

Audit and Management Audit.

The fundamental objective of internal audit is to assist the management in

materializing their pre-determined goals through established and clearly defined plans,

policies and programs, SBP regulations and also to assist them in the effective discharge

of their responsibilities, by providing them with reports, information, analysis, appraisals,

recommendations and pertinent comments on the activities reviewed. In short the internal

auditor renders services to the management to attain their over all objectives and to

ensure.

Adequacy and soundness of internal controls within the Bank.

Implementation of management policies and procedures.

To safeguard Bank's assets from all typed of losses including fraud.

To recommend improvements in the systems and operations and pinpoint

inefficient and uneconomical operations.

Accuracy and reliability of management data.

5.2.6 ISLAMIC BANKING DIVISION

ALHAMDULILLAH

The Bank of Khyber has started Islamic Banking by converting all assets and

liabilities of Hayatabad Branch Peshawar on 27th Ramadan (22nd November 2003). The

Branch is now working according to the guideline of Shariah Supervisory Board. Aims

and target of the IBD is to implement the decision of the Board of Director to gradually

convert the whole Bank into an Islamic Bank within three years under the supervision of

the Shariah Supervisory Board as per rules and regulations of the State Bank of Pakistan.

To achieve the target, Islamic Banking Division has devised an action plan for expansion

and conversion of the whole bank by December 2006 and to develop the business in



various areas. According to the plan three new branches will be opened and six branches

of the Bank will be converted into IBBs in 2004. Islamic Banking Division plans to

convert 12 more branches in 2005 and the remaining in 2006.

Apart from branch expansion, Islamic Banking Division is planning to start

accepting deposits from all branches of the Bank of Khyber as per standing instructions

of the State Bank of Pakistan. Disbursement of funds under Islamic Financing Modes

through other branches of the Bank will also be started very soon. Development of

Business through Internet is also under active consideration. This will cover the

dissipation of information on the Internet, collection of information, applications (mainly

for consumer products Car, House, and consumer goods), and disposal of application.

Presently Islamic Banking Branch is offering Ijara, Murabaha. Diminishing

Musharaka and Guarantees as Islamic Finance Services and investing the idle funds

through Treasury in the Capital Market as well as placing funds with other Islamic

Banks. While Consumer Financing Schemes under Islamic modes of financing, Housing

Finance Scheme, House Construction Scheme is in launching phase. Future products

under planning are Export Finance Scheme, Foreign Exchange Accounts, Musharakah

business etc.

5.2.7 MARKETING DIVISION

The Marketing Division of the Bank is responsible for the formulation and

implementation of Marketing Strategy of the Bank's products both on assets and

liabilities side keeping in view the business environment of the province. Accordingly the

division works to popularize the Bank's deposit schemes and loan products among the

people with a view to improve business and over all image of the Bank. The Division

works in close coordination with the Branches and other Divisions/Department of the

bank towards the implementation of the marketing strategy and achievement of the

assigned targets.

The Division is comprised of three departments viz Research and Development

Department, Customer Relations Department and Product Promotions Department. The



responsibility of the Research and Development Department is to search and develop new

products according to the requirement of the market and Banks' marketing strategy as

well as to make the existing products more attractive for the customers. Research &

Development Department studies the offerings of the competitors for making the Bank's

products more competitive.

The Customer Relations Department is responsible for the implementation of the

marketing strategy. For this purpose the Department has to maintain a liaison with the

Branch Customer relation Officers and Managers, hold meetings with corporate clients

for business and coordinate the activities between Branches and Head Office for better

services provision to clients. The Product Promotion Department has been assigned with

the promotion of the products through electronic and print media and various other means

of promotion in vogue.

5.2.8 TREASURY & INVESTMENT DIVISION

Treasury & Investment Division has been the main earning during 2005. Main

source of income of the Division are Government Securities, Shares Investment and CFS

portfolio, Corporate Bonds and Forex Transactions. BOK Treasury & Investment

Division is an active player in the local inter bank market. Activities of Foreign Exchange

Desk includes ready and spot purchases/sales, Swaps and Arbitrages. Money Market

Desk mainly deals in purchase/sales of Government Securities, Corporate Bonds,

Repurchase Agreements, Call Lending/Placements transactions. Investment Division

Includes shares Trading both ready and future markets, CFS transactions and strategic

investments. The BOK Treasury & Investment reiterates its pro active role in serving its

customers, both individuals and corporate clients

5.2.9 RESEARCH AND DEVELOPMENT DIVISION

RDD started functioning under its new name in February 2004, and assumed the

responsibilities for the Recovery of all irregular as well as bad debts of the Bank. RDD

coordinates closely with Credit Department, as ongoing feed back on performance of

various segments of the portfolio is critical for fine tuning/amendment of underwriting



credit initiation criteria. The Division also co-ordinates with IT Department for the

automation of most of the processes and preparation of MIS containing information of all

the branches on different types of loans in order to bring effectiveness and cost control in

the Division. One of the primary responsibilities of RDD is to develop performance,

monitoring and evaluation criteria for Lawyers to optimize the litigation strategy. It also

coordinates with NAB for high balance and political cases.

RDD is also responsible for the capacity planning and hiring of the staff based on

number of accounts & training programs in order to ensure that Collection Officers

understand the imperatives of handling the customers according to the policy of the bank.

They must also understand the product in order to negotiate with the customers

effectively. As a part of action plan and recovery strategy, the Bank's BOD has conferred

powers upon Settlement Committees at different levels, which is used as a major tool to

affect recovery by offering out of court settlement to NPL customers. Moreover, the

Provincial assembly has recently amended BOK Act 1991 and put the bank under the

ambit of Land Revenue Act of the Province, which will be utilized as a deterrent tool for

recovery of infected loans of the bank.

A Vice President, who took over charge early this, year, leads the division. Due to

his able leadership, professional qualities and expertise in the recovery field, the division

has achieved remarkable results in reduction in NPLs amounting to Rs.262 million up to

June 30, 2004. Based on its half yearly performance, it is hoped that the Division will

achieve its annual recovery target of Rs.480. Million with considerable margin.

5.2.10 COMMERCIAL LENDING DIVISION

The credit policy of the bank is reviewed on periodic basis according to the target

market. It is communicated down the line and clearly spells out the roles and

responsibility of the individuals involved. Our credit portfolio is diversified for different

client segments. The consumer finance, car finance and house finance schemes have

successfully been introduced and are in real sense helping common folks in upraising

their standard of living. We significantly finance to corporate sector and actively



participate in syndication-bridge financing type of business opportunities. The

commercial lending is our regular feature and is always tailored according to current

requirement of business community. Lending under the mode of Islamic Banking is

another addition to our credit portfolio and we feel proud to mention that we have started

Murabaha and Ijara financing.

Under consumer financing we plan to include some new household items that will

further facilitate the common man. A policy to finance agricultural sector is being

formulated and should be part of our credit portfolio in near future. We are also playing

our due role in poverty alleviation by offering credits at micro level and our micro

finance unit has specially been established in this regard, through which we have

significantly financed in undeveloped areas of NWFP. To ensure quality lending we

conduct pre disbursement audit and Credit Administration Department has been

established for proper monitoring of the process of documentation.

A) CONSUMER FINANCE DEPARTMENT

Under the umbrella of Consumer Finance BoK offers following type of Credit facilities

Home Loan

Car Finance

Consumer Durables Finance

Salary Loans for (Govt. Employees)

B) AGRICULTURE CREDIT DEPARTMENT

Pakistan is blessed with one of the most unique land features spread over an area

of 79.61 million hectares of which around 28% is under cultivation. The Country also

possesses one of the best irrigation systems in the world supplemented by ideal climatic

conditions and plenty of hard working and dedicated manpower. All these factors add up

to create an ideal situation for a vibrant agriculture sector that can contribute towards the

economic growth of Pakistan.

Moreover the need to encourage use of modern techniques in the shape of improved



seeds, tillage methods and utilization of farm machinery cannot be over-emphasized but

this requires availability of adequate capital. The Bank of Khyber, being fully committed

to this cause of National concern has established a separate Agriculture Credit

Department for provision of required capital to the agriculture sector.

The Agriculture Credit Department of the Bank has introduced the “Sada Bahar Zari

Loan” Scheme. The salient features of the scheme are as under:

Purpose of loan Purchase of agriculture inputs like seed, fertilizers, pesticides etc.

Loan limitMaximum Rs.500,000/- assessed under SBP per acre credit limits for various crops.

Security

Charge on Agriculture land through Agriculture Pass Book. Or Registered / Equitable Mortgage of urban property. Or Two Personal guarantees of reputable persons (at least one guarantor should be a government servant.) Note: The Credit facility in this case will be up to a maximum of Rs. 30,000 only.

Insurance Crop loan insurance cover from an approved Insurance Company.

Mark-up Market based (linked with KIBOR.)

RepaymentMark-up payment on half-yearly basis against out standing amount & once in a year full adjustment of Principal + Mark-up at the end of the year.

Following Branches of the Bank have been designated to offer agriculture Loans.

Dera Ismail Khan

Mardan

Kohat

G.T Road

Chitral

Charsadda

Mingora

Haripur

Mansehra

5.2.11 RISK MANAGEMENT DIVISION



Risk Management Division (RMD) was formed in November 2005, in order to

implement the directives of the Regulatory for monitoring, and timely remedial measures

of Risk Management functions at various levels in the areas of Operations, Market,

Credits and Liquidity etc. The Division was also assigned the task of implementing Base

I-II in the Bank. Risk Management Division was entrusted with the responsibility to

identify risks, suggest risk mitigation policies, review Bank's Policies, Procedures,

Methods etc in collaboration with the related functional Department/Division and

coordinate with Credit Division and Treasury Division to cover risks in the areas of

macro Lending/Borrowing, Investments and the lateral operational risks.

Under the umbrella of Risk Management Division, the following four departments

report to the Head of Risk Management Division:

1. Risk Management Department

2. Credit Administration Department

3. Method, Procedure and Policy Department

4. Treasury Middle Office

Risk Management Division undertakes to monitor risks, critically analyze, evaluate

negative impact, suggest mitigation methods in collaboration with the functional

Department/Division and report Bank's Risk Level to Senior Management and the

Board's Risk Management Committee.

5.3 PRODUCTS OF BANK OF KHYBER

5.3.1 RUNNING FINANCE

This is a working capital finance facility available for one year and renewed

subject to satisfactory utilization thereof. Markup is charged on outstanding balance.



5.3.2 DEMAND FINANACE

It is a term loan disbursed in lump sum and repayable in 2 years in the form of monthly or quarterly installments.

5.3.3 LOAN AGAINST SALARIES

BOK provides loan against salary to employees of Government / Semi-

Government organizations for domestic consumptions. The employee must be confirmed

having minimum of three years of service. However, the remaining service period of the

employees must not be less than three years. To avail this facility, the employee must be

account holder of the bank. Loan limit is up-to 5 gross salaries but not exceeding Rs.50,

000. This facility is available for a period of 2 years but it can be allowed for shorter

period.

5.3.4 WORKING CAPITAL FINANCE

Working Capital Funds are provided to traders and manufacturers for their

operational requirements.

5.3.5 EXPORT FINANACE

This facility is encouraged to boost exports of the country. Funds are made

available from SBP at lower rates. Please email here for further queries.

5.3.6 MICO FINANCE UNIT

This facility is available at the counter of our Micro Finance Unit, which in the

true sense reinforces the support to grass root level development. The purpose is to

empower the lower strata of the economy by providing speedy access to funds thus

generating employment and eradicating poverty.

5.3.7 DOCUMENTARY LETTER OF CREDIT

Import and Export Letter of Credit Facility enhances trade with our countries.



Standby Letter of Credit It is approved as and when the need is felt.

Letter of Guarantee Guaranties are issued on behalf of customers to meet their commitments.

5.3.8 SCHEMES

The Bank of Khyber is pleased to launch a Consumer Finance Scheme for general

Public with immediate effect. Under this scheme House hold product like electronics,

audio-visual equipment home appliance shall be financed to the customers on easy

installments.

SALIENT FEATURES

Eligibility for the scheme shall be as under:

a) Citizen of Pakistan aged between 25 to 60.

Scheme will be opened to all permanent employees of Govt. & Semi Govt. Local

Govt., NGO, Autonomous Bodies, University, Banks, Reputed Industries , Corporations

and self employed professionals or business men.

Applicant should be resident of the city where Bok's Authorized Branch is operating.

The monthly installments should be maximum of 1/3 of take home salary of the

applicant. (Take home salary is to be determined by the branch manager).

The Borrower will provide a personal guarantee of a third person as a security.

b) Guarantor can be a person

Aged between 25 to 55 years. Preferably residing in a same area as of applicant.

Applicant must not be immediate family member of the borrower. BoK's Account holder

will be preferred. Shall not be a Bok's Employee. Two Borrowers can not provide

guarantee to each other.

c) Tenure: The tenure of the scheme shall be for 36 months, 24 months, 18 months and 12 months.



Amount of Loan: Amount of loan shall be from Rs.5000/- to Rs.99,000/-.

Advance Payment: A sum of 5% shall be received from the customer as advance payment.

Processing Fee: No Processing fee will be charged.

d) Mark up Rate: Mark up rate is 14%. per annum.

e) Charge Documents to be obtained by the Branch.

Agreement for financing. Letter for comfort / Guarantee from employer. Letter

of personal Guarantee. Comprehensive insurance of assets (Premium to be borne by

customer). D.P note for marked up price.

f) Documents to be submitted by customer along with applications. Attested

copy of N.I.C Copy of any recent Utility Bill. Bank statement for the last six months.

g) For Salaried Persons. Employment Certificate from HR/Personnel Deptt

(stating Designation, Tenure of employment Gross and net salary) or latest salary slip

duly attested by HR.

h) For Self Employed Persons.

Professional Association certificate for self employed professional like doctors,

Lawyers, Charted Accountants , Engineers etc stating the number of years in profession.

i) Guarantor's Documents.

Copy of N.I.C duly attested by branch manager. Bank statement for last six

month. Copy of last paid utility bill. Detail of Business or Profession. Bank's Performa

showing worth of Guarantor duly filled in (attached) Customer shall have to open an

account with branch (if not already open) and post dated cheques for all installments due

will be obtained from him.



5.3.8 ATM SERVICES

In order to keep pace with advancements in the field of technology, The Bank of

Khyber has joined the electronic platform of MNet switch. This will facilitate consumers

by providing them access to their funds through the existing ATM network of the

country. Also, BOK has installed its first ATM at Corporate Branch Peshawar.



CHAPTER -6

RECOMMENDATION AND IMPLEMENTATION

6.1 RECOMMENDATIONS

In the end of this report I am giving the recommendation in order to improve the

efficiency of the bank. These recommendations are primarily based on the analysis.

These recommendations, if followed will have a positive effect on the profitability, and

the role it plays in the development of province.

6.1.1 Better Training Program

It has been noticed that the training program of BOK is not adequate. Special

marketing training should be given to employees for motivating customers. The training

program of bank should include scientific techniques to improve decision making and

inter-personal as well as individual needs of an employee.

6.1.2 Enhance Customers Services

Constant improvements in customer’s services are needed in today’s competitive

environment. Personalized banking should be introduced to attract more customers. Equal

respect should be given to all the customers.

6.1.3 Automated Teller Machines (ATM)

The bank should provide a (ATM) facility to its customers at some branches. This

facility will enable the customers to use the card facility, within the same branch where

they have account. This facility is used in holidays and other than banking hours.

Customers can get information and with draw their money with the help of this facility at

any time.



6.1.4 Job Rotation

The employees of BOK are specialists in their fields but they need straightening

in general banking. They generally confine to their own work and do not give sufficient

consideration to other department. They must have some basic information of other

departments; it is recommended that there must be proper job rotation.

6.1.5 Proper job Analysis

A detailed and systematic study of the job should be done to know the nature and

characteristics of the people to be employed. This will help in identifying the training

needs, evaluating the job and in appraising the performance of the employees.

6.1.6 Introduction Career Planning

As a matter of personnel policy, personnel department of BOK should prepare a

career plan showing their future growth, potential, depending on the job performance and

evaluation, which should be made known to the employees. In this regard the employees

should be given opportunities to show their performance.

6.1.7 Better Working Condition

The working are is comparatively smaller as compared to the needs of the branch.

As a result there is lesser working space provided to employees. They have to work from

8P.M and some time even longer time period. The congested places affect their efficiency

at work. It is suggested that better working conditions should be provided for effective

and efficient out-put.

6.1.8 Promotions and Publicity

BOK should advertise itself and introduce its services in detail through media to

people. This is the best way to enhance its business like other successful banks. They

should adopt strong strategies for promotion and publicity of their services they offer.

6.1.9 International Banking

Bok should expand its branches. They should expand their branches not only in

Pakistan but also outside the country.



6.1.10 Use of Media

Bok is new organization in order to increase its customers and add to its publicity,

it is recommended that the bank should advertise itself and introduce its services in detail

through media.

6.1.11 Latest Computer Equipment

Latest software should be installed in the bank so that the data processing speed of

computers can be enhanced.

6.1.12 Proper Distribution of work

In Bok the distribution of work needs further streamlining. Some employees have

more work to do and are under stress while others are not fully occupied. The work

should be distributed in such a manner that there should no undue load or burden on any

one.

6.1.13 Friendlier Environment

Most friendly environment should be created because it will help to gain the

interest of employees in work. Noise in the office should be reduced because it has

unfavorable impact on the working environment. Separate place or section should be

created for each separate task and more space should be provided. It would also be of

greater help in establishment of friendly environment.

6.2 IMPLEMENTATION PLAN

The recommendations of any report are useless unless there is proper

implementation. We are, therefore, giving the implementation plan of the

recommendations of my report, which is as follows.



6.2.1 Better Training Programs

There are many training institutions in the province imparting training in various

themes. A training calendar may be devised and every officer of BOK should undergo

two weeks training in a year in various disciplines. This will enhance the quality and

performance of the officials.

6.2.2 Enhance Customer Services

The training imparted by the officers of BOK will automatically enhance

customer services. More clients will be attracted though enhancing customer services.

6.2.3 Job Rotation

A comprehensive plan must be prepared and every officer of BOK must be

transferred to other departments after every one-year and their rotation should continue.

Every employee will get to know about the working of each department.

6.2.4 Better Working Condition

The working conditions are not conducive. There is a space problem and longer

duty hours. Both the problems must be rectified. A bigger building must be acquired and

main branch be shifted there within one year. The hours should be curtailed by one hour.

This will encourage the employees of BOK to work with more dedication.

6.2.5 Promotion and Publicity

The BOK must allocate funds for publicity. At least one-minute advertisement on

daily basis must be launched on PTV for the publicity of BOK. This will increase the

business of the BOK.



6.2.6 Latest Computer Equipment

This is an era of information technology. The BOK must acquire latest computers

and software within 6 months to enhance its efficiency. Quick decision will be taken with

the latest computer equipment.

6.2.7 Proper Distribution of Work

The Bank must prepare job Description of each employee and implement it within

three months. Thus no one will feel embraced while working according to his job

description.



CHAPTER -7

FINANCIAL ANALYSIS AND SWOT ANALYSIS

FINANCIAL ANALYSIS

Financial analysis is the process of identifying the financial strength and

weakness of the firm by properly establishing between the items of balance sheet and

profit and loss account.

The analysis of the bank statement is undertaken by annalist, depositors,

regulatory authorities, stock holders, borrower, the bank management etc. A depositor is

interested in the solvency of the bank, i.e. the safety and availability of his funds. The

regulatory authorities desire to ensure themselves that the banks are operating in the

accordance of the law and are in sound financial condition of the bank and the

accumulation of surplus. The borrower is interested in knowing the exact of available

funds and the use that is made of the banker’s resources.

Financial ratio that relates two accounting numbers and is obtained by dividing

one number by other.

Assumptions

1. Ratios are calculated for two (2) years i.e. 2006 and 2007.

2. Figures are rounded off up to 2 decimal points.



7.1 FINANCIAL RATIOS

7.1.1 Current Ratio

Cash ratio is the ratio of cash and its equivalent to current liabilities. It shows that

how much cash is available to cover the current liabilities.

Current assetsCurrent ratio = ___________________ × 100

Current liabilities

26982365Ratio for 2007 = ___________________ × 100 = 1.2:1

23081176

25578042Ratio for 2006= ___________________ × 100 = 1:1

23552808

Interpretation

The current ratio is gradually increasing and is increased by 0.2 in 2007 as compared to

the previous year. The gradual increase in the ratio shows that the bank has improved its

liquidity from year to year.

7.1.2 Return On Assets After Tax

This ratio is used in evaluating whether management has earned a reasonable

return on the assets under its control. It measures the overall effectiveness of the available

assets in generating profits.

Net income (profit after tax)Return on assets after tax = __________________________

Total assets



219,437Ratio for 2007 = ___________________ × 100 = 0.73%

29,739,717

203,013Ratio for 2006 = ___________________ × 100 = 0.74%

27,183,212

Interpretation

There is no big deference or fluctuation in the ratios of 2007 and 2006, it is 0.73%

in 2007 while 0.74% in 2006. Return on assets after Tax is slightly decreases in 2007.

7.1.3 Operating Cost To Total Income Ratio

It shows the relationship between operating cost and the total income. It tells us

how much operating cost is incurred in generating total income.

Operating costOperating cost to total income = ___________________ × 100

Total income

543,763Ratio for 2007 = ____________________ × 100 = 88%

621,188

375,957For 2006 = ____________________ × 100 =66.3 %

567,219



Interpretation

In the year 2007, this ratio is increased by 21.7% as compared to 2006, which

shows that the bank has incurred more operating expenses in 2007 and its total income

with low operating cost.

7.1.4 Debt To Equity Ratio

This ratio shows the extent to which the firm is financed by debt.

Total debt (total liabilities)Debt to equity ratio = _________________________

Total equity

23,863,487Ratio for 2007 = _______________________ = 4.3 times

5,568,253

24,182,304For 2006 = ________________________ = 8.6 times

2,796,222

Interpretation

By analyzing this ratio we can conclude that the bank is trying to reduce

dependence on debt financing and is trying to finance its assets more by equity; the trend

of the ratio is reducing one from year to year.



7.1.5 Return On Equity Ratio

This ratio shows that how much ratio is generated by shareholder’s equity.

Profit after TaxReturn on equity = ___________________ × 100

Total equity

219,437Ratio for 2007 = ____________________ × 100 = 3.94%

5,568,253

203,013For 2006 = ____________________ × 100 = 7.3%

2,796,222

Interpretation

The analysis shows that the return on equity is declining in 2007. It gives a

negative indication from shareholders point of view at the beginning but is good at the

end.

7.1.6 Interest expense to deposits ratio

This ratio shows the relationship between the interest expense and the deposits. It

tells about the interest expense paid on different types of deposits.

Interest expenseInterest expense to deposits = ____________________ × 100

Deposits

1,845,360Ratio for 2007 = ____________________ × 100 = 8.62%

21,410,828

1,304,742For 2006 = ____________________ × 100 = 6.84%

19,076,564



Interpretation

The interest expense to deposits ratio is increasing from year to year. The exact

increase in this ratio is 1.78% in the year 2007 as compare to 2006. This shows that the

deposits of bank are increased in this period while the interest expense is also increased

due to reduction in the profit rates on various accounts.

7.1.7 Interest earned to advance ratio

This ratio shows the relative extant to which interest is earned on Advances.

Interest earnedInterest earned to advances = _____________________ × 100

Advances

2,380,380Ratio for 2007 = ______________________ × 100 = 23.6 %

10,085,640

1,924,279For 2006 = ________________________ × 100 = 21%

9,189,447

Interpretation

The interest earned to deposits ratio is high in 2007. The fluctuation is due to the

return on deposits of the Bank of Khyber with financial institution.

7.1.8 Deposits growth ratio

This ratio reflects the percentage increases or decreases in the volume of deposits

over a period of time.



Current year deposits- previous year depositsDeposits growth ratio = ____________________________________________ × 100

Previous year deposits

21,410,828-19,076,564Deposit growth for 2007 = __________________________ × 100 = 12.23%

19,076,564

19,076,564-16,025,525Deposit growth for 2006 = ___________________________ × 100 = 19%

16,025,525

Interpretation

The deposits in 2007 have decreased due to the stiff competition in the bank markets.

7.1.9 Advances Growth

Current year Advances-previous year AdvancesAdvances growth = ____________________________________________ × 100

Previous year Advances

10,085,640-9,189,447Advances growth for 2007 = _______________________ × 100 = 9.7%

9,189,447

9,189,447-8,560,250Advances growth for 2006 = _______________________ × 100 = 7.3%

8,560,250



Table: 7.1: Summary of Financial Ratios

Institute of Management Studies, UOP

SUMMARY OF RATIOS 2007 2006

CURRENT RATIO 1.2 1

RETURN ON ASSETS AFTER TAX 0.73 0.74

OPERATING COST TO TOTAL INCOME RATIO 88 66.3

DEBT TO EQUITY RATIO 4.3 8.6

RETUEN ON EQUITY RATIO 3.94 7.3

INTEREST EXPENSE TO DEPOSITS RATIO 8.62 6.84

INTEREST EARNED TO ADVANCES RATIO 23.6 21

DEPOSITS GROWTH RATIO 12.23 19

ADVANCES GROWTH RATIO 9.7 7.3

49


7.2 TREND ANALYSIS

BALANCE SHEETAs at December 31, 2007

2007 2006 Rupees in ‘000’

ASSETSCash and balances with treasury banks

1,364,853 1,574,531

Balances with other banks 3,728,016 3,755,151Lending to financial institutions

2,858,000 2,493,430

Investments 8,945,856 8,565,483Advances 10,085,640 9,189,447Operating fixed assets 213,025 142,002Deferred tax assets 48,683 75,365Other assets 2,495,644 1,387,803

29,739,717 27,183,212LIABILITIESBills payable 348,952 150,435Borrowings 1,321,396 4,325,809Deposits and other accounts 21,410,828 19,076,564Sub-ordinated loans - -Liabilities against assets subject to finance lease

- -

Deferred tax liabilities - -Other liabilities 782,311 629,496

23,863,487 24,182,304NET ASSETS 5,876,230 3,000,908REPRESENTED BYShare capital 4,002,984 2,000,949Reserves 1,323,077 728,631Unappropriated profit 242,192 66,642

5,568,253 2,796,222Surplus on revaluation of assets

307,977 204,686

5,876,230 3,000,908



PROFIT AND LOSS ACCOUNTFor the Year Ended December 31, 2007

2007 2006 Rupees in’000’

Mark-up/return/interest earned 2,380,380 1,924,279Mark-up/return/interest expensed 1,845,360 1,304,742Net mark-up/interest income 535,020 619,537Provision against non-performing loans and advances 655,624 348,995Provision for doubtful placement with a financial institution

- 10,000

Provision for diminution in the value of investments 3,700 -Bad debts written off directly 60 -

659,384 358,995Net Mark-up/interest income after provisions (124,364) 260,542NON MARK-UP/INTEREST INCOMEFee, Commission and brokerage income 78,790 67,883Dividend Income 126,878 120,743Income from dealing in foreign currencies 14,856 12,572Gain on sale of securities 433,333 65,079Unrealized gain/loss on revaluation of investments classified as held for trading

(6,990) 382

Other income 98,685 40,018745,552 306,677

Total non mark-up/interest income 621,188 567,219NON MARK-UP/INTEREST EXPENSESAdministrative expenses 522,723 372,129Other provision/write offs - -Other charges 21,040 3,828

543,763 375,957Total non mark-up/interest expense 77,425 191,262Extra ordinary/unusual items - -PROFIT BEFORE TAXATION 91,014 203,469Taxation Current 22,318 13,574Prior years - (16,340)Deferred (150,741) 3,222

(128,423) 456PROFIT AFTER TAXATION 219,437 203,013Unappropriated profit brought forward 66,642 176,089Profit available for appropriation 286,079 379,102Basic and diluted earnings per share 0.62 1.04



CASH FLOW STATEMENT for the Year Ended December 31, 2007

2007 2006

Rupees in “000”

CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxation 91,014 203,469

Less: dividend income 126,878 120,743

(35,864) 82,726

Adjustments:

Depreciation 18,214 16,534

Amortization 1,758 1,768

Provision against non-performing advances 655,624 348,995

Unrealized gain/(loss) on revaluation of investments classified as held for trading

6,990 (382)

Provision against doubtful placement with financial institution

- 10,000

Provision for diminution in the value of investments/other assets

3,700 -

Bad debts written off directly 60 -

(Gain) on sale of fixed assets (407) (634)

Share in results of an associate before taxation (13,589) (12,207)

672,350 364,074

636,486 446,800

(Increase)/ decrease in operating assets:

Lending to financial institutions (13,000) (127,810)

Net investments in held for trading securities (17,917) 288,593

Advances (1,551,877) 1,023,691

Other assets (excluding advance taxation) (1,036,076) (423,394)

(2,618,870) 761,080

Increase/(decrease) in operating liabilities:

Bills payable 198,517 31,127

Borrowings (3,004,413) (48,345)

Deposits and other accounts 2,334,264 1,624,394



Other liabilities (excluding current taxation) 152,815 (2,037)

(318,817) 1,605,139

Cash (used in)/ generated from operations (2,301,201) 2,813,019

Income tax paid (89,225) (67,619)

Net cash (used in)/ flow from operating activities (2,390,426) 2,745,400

CASH FLOW FROM INVESTING ACTIVITIES

Net investments in available-for-sale securities 291,150 (1,923,498)

Net investments in held-to-maturity securities (374,447) 485,938

Dividend received 126,092 121,153

Investments in operating fixed assets (91,033) (21,122)

Sale proceeds of property and equipment disposed-off 827 1,657

Net cash used in investing activities (47,411) (1,335,872)

CASH FLOW FROM FINANCING ACTIVITIES

Issue of right shares 2,002,035 409,915

Share premium received against issuance of shares 550,559 204,958

Net cash flow from financing activities 2,552,594 614,873

Increase in cash and cash equivalents

Cash and cash equivalent at beginning of the year 114,757 2,024,401

Cash and cash equivalent at the end of the year 7,513,112 5,488,711

7,627,869 7,513,112



7.3 SWOT ANALYSIS

STRENGTH, WEAKNESSES, OPPERTUNITIES, THREATS

SWOT an acronym that stands for strengths, weaknesses, opportunities and

threats.SWOT analysis is a careful evaluation of an organization’s internal strengths,

weaknesses as well as its environmental opportunities and threats. In SWOT analysis the

best strategies accomplish in organization’s mission by:

Exploiting opportunities and strengths.

Neutralizing its threats and

Avoiding its weaknesses.

Following is a list of SWOT of BOK

7.3.1 STRENGTHS Following are the main strengths of IBD of BoK.

The main strength of IBD of BoK is that its major stake holder is the Government of

NWFP so it is provincial government bank, so it has a say in the provincial government

and are not facing as many difficulties in regulations etc. as faced by another banks.

The provincial government has made it compulsory for all the provincial Department /

Institutions to keep 33% of their deposits with BoK. Due to this order the deposits of IBD

of BoK has grown substantially.

Now-a-days one of the important strength of the IBD of BoK is its small branch

network. The bank does not have branches in such areas where there is no business. The

other private and nationalized commercial banks are closing their unprofitable branches

and are passing through a paradigm shift; IBD of BoK is not facing such a situation at

this time. They intend to open new branches in strategic business areas.

As compared to other Pakistani banks its staff is well qualified, skilled, knowledgeable,

and courteous and can handle any situation tactfully.



The senior management of the bank is competent and takes expatriate decisions to

make the bank profitable.

As all the major activities of branches and head office has been computerized.

Which gives a leading edge to the bank? The bank works hard to start their credit cards

and online banking.

Another leading point of the bank is the trust and help expressed by international

financial institutions like IFC and DEG, which have opened new ways for the bank to

generate funds.

As BoK is not only a commercial bank but also acts as a development bank so its

corporate strategy is according to the cry of the day. Which is to strengthen the SME’s

and local industry to cope with globalization challenges. This leads to the increased

utility and importance of the bank.

The open communication and friendly environment developed by the

management and staff of the banks makes it very easy for the management of the bank to

take the right decision at the right time. Most of the banks in the country lack such type

of environment.

The banks offers new schemes and facilities from time to time which keeps not only the

clients of the bank committed but also leads to a growing sound base of deposits.

The Good thing in IBD of IBD of BoK that major decisions are made in light of SSC

Member (means they review every decision in compliance with Shariah)

7.3.2 WEAKNESSES

“Organizational weaknesses are skills and capabilities that do not enable an

organization to choose and implement strategies that support its mission”.

The major weaknesses of IBD of BoK are listed below:

As it is a provincial government bank so the unwanted interruption by provincial

government authorities hampers the bank good well, position and profitability.



The other major weakness of IBD of BoK is that far it has not been able to receive

the branch-opening license of proposed branches in the country and outside the country

from SBP.

The space of BoK Head Office is very limited so the bank has shifted some of

their departments to State Life Building but still the departments are overcrowded which

effects the employees performance at the head office.

Substantial bad debts of the bank effect are liquidity and profitability. This is the

weakness on the part of Recovery Department that they have not been able to recover it.

Lack of transparent system of recruitment and selection.

Lack of sound training system according to organizational goals.

Coordinated and targeted marketing activities are lacking in IBD of BoK and also the

Marketing Department has no value and presence in the bank.

Most of the employees are unmotivated and lack of technical knowledge and are scared

about their career development.

Most of the employees are having the lack of Islamic banking knowledge.

Not consistency in training programs.

Non aggressive policies (due to that IBD) are losing his experienced personnel.

7.3.3 OPPORTUNITIES

Organizational opportunity is defined as “An area in the environment that if

exploited may generate high performance”.

The Bank of Khyber can avail the following opportunities if they keep a vigil eye on the

environment and the changes, which are occurring in the environment.

As the situation in Afghanistan is getting better slowly and gradually

multinational companies and other rehabilitation agencies are opening their offices in

Afghanistan. To facilitate the rehabilitation process and the trade between Afghanistan

and other countries including Pakistan IBD of BoK should open their branches in Kabul



and Jalalabad inside Afghanistan and at Landi Kotal, Miran Shah and Para Chinar in

N.W.F.P., Pakistan.

As IBD of BoK is not only engaged in commercial banking but also acts as development

bank, so their development banking sector is according to the current government

policies and also with in accordance with the policies of international financial and

development situations so they can avail this opportunity by joining hands with the

government and DFI’s in the investments in development sector.

As BoK is planning to step in the Islamic Banking System so they should capture this

market before any competitor comes in.

Construction work is in progress on Deans Trade Centre the biggest Trade Centre

of Asia. It will attract the business community and multinational companies to flourish

over here. IBD of BoK can avail this opportunity by opening a new branch in Deans.

The bank should expend their branches and lower in come groups can reduce the default

risk and can enhance the bank good will and profitability.

Strong promotional strategies can attract huge deposits for the bank.

7.3.4 THREATS

Organizational threat “An area in environment that increases the difficulty of an

organization’s achieving high performance”.

The threat faced by IBD of BoK, if not faced tactfully it will harm the bank image,

performance and profitability. These are:

The Electronic banking facility offered by different national and international banks

is a serious threat to IBD of BoK. IBD of BoK should soon offer the e-banking facility to

maintain their customers.

In modern banking the ATM facility is of immense importance. IBD of BoK should

install ATM’s at their major branches to cope with the ongoing competition between

commercial banks.



The low rate of savings in the country is a serious threat to IBD of BoK. They should

aware the general public about the advantages of savings and investments.

The distributed political and legal environment of the country is also a threat to the

bank.

The decreasing confidence of people on commercial banks on the basis of offering low

returns and charging high interest rates is a threat to the IBD of BoK also.

Stagnation of the industry and economy in the country in general and in the province in

particular is a serious threat to IBD of BoK.

The failure of other NWFP based banks has shattered the bank image and the

confidence of the investors.

Major Banks have started their Islamic banking system which is the major threat

for IBD of BoK.

Of the most banks they have adopted the aggressive policy due to which the turn over

rate is very high at IBD of BoK.

7.4 SUGGESTIONS

Regardless of it that the problem is of the external nature or that of internal nature, it

is necessary for the bank administration to solve them properly so that the bank can run

better towards the achievements of its pre-determined objectives. Using the proper way

of administration could solve both the external and internal problem.

All the employees working in the bank may be granted motorcycle advance, which

may be recovered in easy installments, while sanctioning the advance period of the

service should not be taken into account because it closes the way for newly recruited

employees. Also there should be one or two tea breaks for the relaxation of the

employees during the working hours. Approximately one or two clerks may be appointed

other than the sanctioned strength, so that one the time when one takes leave could be



replaced by the person in extra. This may cause some financial problems to the bank for

which an institution always tries to get rid off. But it will help the bank in negotiating the

public properly, which will increase the goodwill of the bank the eyes of public that will

result in the increase in the business of bank and profit of bank. The workers should give

leave at any emergent time. This will increase the desires of workers for worker.

Proper remuneration to a worker brings positive results for the institution. It is

therefore suggested that if any employee works more than four hours, as overtime should

be given full delayed assigning jobs according to their knowledge and skills. The

computers should be utilized properly in order to decrease the expense of bank and

increase the ratio of work done per hour. In this regard the computer literate person

should be recruited and proper programs should be purchased because the computer

works much faster than the human being.



BIBLIOGRAPHY1. James C. Van Horne & John M. Wachowicz. (2001). Fundamentals of Financial

Management. India: Saurabh Print O Pack.

2. Meiges, Robert. F. (1999). Accounting: The Basis for Business Decisions. Boston: Irvin Inc.

3. Human Resource and personnerl Management by Werther and Davis4. Griffin R. W. (1997). Management. Delhi: A.I.T.B.S. Publishers & Distributors

5. Howard, M. A. (1979). Management Essentials; Concepts and Application. Chicago: Science Research Associates, Inc.

6. Kenney, R. D and S. Y. Mc Mullen. (1978). 6th Edition. Financial Statements: Form, Analysis, and Interpretation. London: Irwin-Dorsey International.

7. Robert, F. M, JR. Williams, S.F. Haka, and M. S Bettner. (1999). 11th Edition, Accounting; the Basis for Business Decisions. New York: Irwin McGraw-Hill.

8. Samuel, C. C. (1989). 4th edition, Principles of Modern Management. Massachusetts:

9. Sayers, R. S. Modern Banking. Oxford: The Clarendon Press.

Periodicals

1. Brouchers of Bank of Khyber.

2. Manuals of Bank of Khyber.

Reports

1. The Bank of Khyber, Annual Report 2007.

2. The Bank of Khyber, Information Memorandum 2005.

Websites :

1. www.bok.com.pk

2. www.banking/history/pakistan.com

3. www.google.com.pk .

Contact:

Shahab Ahmed, IMS University of Peshawar.

Mobile: 03459034858

E-Mail: [email protected]


http://www.google.com.pk/

http://www.banking/history/pakistan.com

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