HISTORY OF BANKING IN PAKISTAN

Pakistan came into being on 14th August, 1947; sufficient banking services were available in

the areas forming Pakistan. Out of the total branches of the nearly 3,500 in the undivided

India, as many as about 1,500 branches were existing in these areas.

It was agreed between the two countries that reserve bank of India shall continue to

function in the Pakistan territory until 30th September 1948 and that Indian notes would

continue to be legal tender at Pakistan until 30th September 1948. Unfortunately, relationship

between the two countries became most strained immediately after independence; banking

was mostly in the lands of Hindus who immediately started transferring their offices and

assets into India. As a result most of the banks in Pakistan were closed down and even those

which were open were not doing any effective business.

The number of banking office in Pakistan came down to about 200 on 30th June 1948.

Branches of some European banks were also functioning in a limited manner, financing in

export of crops, and their number was limited to about 20.

It was only the Habib bank, which transferred its office from Bombay to Karachi

Austral Asia bank was another bank, which was in existence in the Pakistan territory at the

time of independence. Despite of best efforts on the part of government of Pakistan, no heady

way could be made on this behalf and reserve bank of India was in no mood to help the new

country. Imperial bank of India, agent of the reserve bank of India also started closing down

its branches in Pakistan.

Reserve bank also refused to advance money to Pakistan to make essential payments

such as salaries etc, also Pakistan’s share of Rs.75 billion in cash balance was with held by

bank, causing hardships to the newly born state. In view of these hopeless state affairs it was

1
agreed between the two countries that reserve bank would serve as monetary authority in

Pakistan only up to 30th June 1948.

NATIONALIZATION OF BANKS

The principle of nationalization of banks is to stream line the operation of commercial banks

in such a way that it may be conductive to the development activities in process in the

country.

Since the commercial banks were owned controlled by big business groups of the

country it was feared that these banks would not maintain uniformity in their operational and

would be instrumental to inflationary pressure. However, the considerations behind

nationalization are

 To form uniformity in the policy of the commercial banks so they may serve the best

national interest.

 To make the operation of commercial banks highly sensitive and responsive to the policy

of the government relation to financial matters.

 To make the credit policy of the commercial banks more purpose full and effective

especially in the development of economic sectors of the country. It acts as an agent of

the State Bank of Pakistan

 To make the best use of the funds available at the disposal of these banks for the

economic development of the country.

 To eliminate unhealthy and uneconomic competition among commercial banks.

 To development strong money banks market in the country so that the value of currency

may be maintained at stable level both in national facilities to exporter and agriculturists

which have not been satisfactory in the past years.

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Public Sector Commercial Banks

National Bank NBP

First Women Bank Limited FWB
The Bank of Khyber KB
The Bank of Punjab BOP

Local Private Banks

Askari Commercial Bank Limited

Bank Al-Falah Limited
Bank Al Habib Limited
Meezan Bank Limited
Faysal Bank Limited
Silk Bank Limited
Soneri Bank Limited
Union Bank Limited
Muslim Commercial Bank Limited
Allied Bank of Pakistan
Union Bank Limited

Foreign Banks

ABN Amro Bank

CITI Bank
Habib Bank A. G. Zurich
Mashreq Bank PJSC
Oman Bank
Barclays Bank
Standard Chartered Bank

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Specialized Banks

Zari Tarqiati Bank Ltd.

Industrial Development Bank of Pakistan
Punjab Provincial Cooperative Bank

Limited

It has not so far been decided as to how the word ‘Bank’ originated. Some author’s opinion

is that, this word is derived from the word ‘Bancus’ or ‘Banque’, which means a bench.

Others authors hold the opinion that the word ‘Bank’ is derived from the German word

‘Back’, which means joint stock fund. It is therefore so much difficult to decide as to which

opinion is correct.

Banking in fact is primitive as human society, forever since man came to realize the

importance of money as a medium of exchange, the necessity of a controlling or regulating

agency or institution was naturally felt. Perhaps it was the Babylonians who developed

banking system as early as 2000bc. It is evident that the temples of the Babylon were used as

‘Banks’ because of the prevalent respect and confidence at the clergy.

At the time of independence there were 631 offices of the scheduled banks in Pakistan,

of which 487 were located in West Pakistan alone. As a new country with resources it was

very difficult for Pakistan to run its own banking system immediately. Therefore the expert

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

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

currencies, exchange etc, could be settled between India and Pakistan. The non Muslims

started transferring their funds and accounts to India. By the end of June 1948, the number of

officers of scheduled banks in Pakistan declined from 631 to 255. There were 19 foreign banks

4
with the status of small branch offices that were engaged solely in export crop from Pakistan,

while there were only two Pakistani institutions, Habib Bank, and Australasia Bank, the

customers of the banks are not satisfied with the uncertain condition of banking. Similarly the

Reserve Bank of India was not in the favor of Govt. of Pakistan. The Govt. of Pakistan

decided to establish a full-fledge central bank. Consequently the Governor General of Pakistan

Quaid-e-Azam inaugurated the State Bank of Pakistan on July 1,1948 Thus a landmark was

made in the history of banking when the State Bank of Pakistan assumed full control of

banking and currency in Pakistan.

THE BANK OF PUNJAB

VISION STATEMENT

“To be a customer focused bank with service excellence.”

MISSION STATEMENT

To exceed the expectations of our stakeholders by leveraging our relationship with the

Government of Punjab and delivering a complete range of professional solutions with a focus

on programmed driven products & services in the Agriculture and Middle Tier Markets

through a motivated team.

5
CORE VALUES

 Our Customer As our first priority.

 Profitability For the prosperity of our stakeholders that allows us to constantly invest,

improve and succeed.

 Corporate Social Responsibility To Enrich the Lives of community where we operate

 Recognition and Reward For the talented and high performing employees

 Excellence In every thing we do.

 Integrity In all our dealings.

 Respect For our customers and each other.

HISTORY OF BOP

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

1994. The Bank of Punjab is working as a scheduled commercial bank with a network of

almost 273 branches at all over major locations in the Punjab. The Bank provides all types of

banking services such as Deposits in Local Currency and client foreign currency, remittances,

and advances to business, trade, industry and agriculture. The Bank of Punjab has indeed

entered a new era of science to the nation under experience and professional hands of its

management. The Bank of Punjab plays a vital role in the national economy through

mobilization of hitherto untapped local resources, promoting savings and providing funds for

investments. The bank offers attractive rates of profit on all deposits, opening of foreign

currency accounts and handling of foreign exchange business for example imports, exports

and remittances, financing, trade and industry for working capital requirements and money

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market operations. The lending policy of bank is not only cautious and constructive but also

based on principles of prudent lending with maximum emphasis on security.

The Bank provides al ltypes of banking services such as Deposit in Local Currency,

Client Deposit in Foreign Currency, Remittances, Advances to Business, Trade, Industry and

Agriculture A wholly owned subsidiary of BOP First Punjab Modaraba (FPM) was

established in 1992 and is being managed by Punjab Modaraba Services (Pvt) Ltd , a wholly

owed subsidiary of The Bank of Punjab.

Lending under Islamic mode of finance, main vehicles are Morabaha, Ijarah &

Musharika to encompass requirements of corporate, commercial and individual customers.

Liability generation through COM’s (Certificate of Musharika ) offers attractive

returns to individuals and institutional depositors for fixed tenure instruments. FPM is

working to introduce new and innovative products to enhance its range of services.

AWARDS AND ACHIEVEMENTS

Excellence Award by the Central Board of Revenue

The Central Board of Revenue presented "Excellence Award" to the Bank of Punjab in

recognition of the contribution made by the bank towards Government exchequer.

3rd Kissan Time Awards

In recognition of Bank's contribution in development and growth of agricultural sector, the

Bank honoured with "Top Bank for Agriculture Loans" and "Best Bank Crop Insurance"

under 3rd Kissan Time Awards year 2006.

Best Corporate Report Award

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Annual Report of the Bank for the year 2005 won 5th position for "The Best Corporate

Report Award" for the Financial sector, adjudicated jointly by the Institute of Chartered

Accountants of Pakistan and the Institute of Cost and Management Accountants of Pakistan.

16th Bolan Excellence Award

The Bank was awarded Best Bank Award under 15th Bolan Excellence Awards distributed in

2006.

Achievement Award

The Lahore Chamber of Commerce & Industry (LCCI) awarded the Bank "LCCI

Achievement Award" 2006.

MAJOR CUSTOMERS OF BOP

Some of the major customers of Bank of Punjab are:

 Educational Institutes

 Agriculturists

 Pakistan Telecommunication Private Limited

 WAPDA

 Pharmaceutical Companies

 WASA

 MDA

 Town Municipal Committees and local governing bodies

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 PUNJAB GOVERNMENT SHOWS FAITH IN BOP

Punjab Government wishes to state that being the major stake holder in the Bank of

Punjab it has full faith in the new management and operations of the Bank. The government

further pledges its unequivocal support to the Bank and firmly believes that the affairs of the

Bank are sound and its financial health robust.

Finance Department

Government of the Punjab.

BRANCH NETWORK

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• Lahore Region

• Faisialabad Region

• Gujranwala Region

• Rawalpindi Region

• Karachi/Queta Region

• Multan Region

• Gujrat Region

HEIRARHICAL FLOW

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 GENERAL BANKING OF THE BANK OF PUNJAB

DEPOSIT DEPARTMENT

In modern times very few business enterprises are carried out solely with the capital of the

owners. Borrowing funds from different sources has becomes an essential feature of today

business enterprise. But in the case of a entire banking system is based on it. The borrowed

capital of the bank is much greater then their own capital. Banks borrowing is mostly in the

form of deposits.

These deposits are lent out to different parties. The larger the difference between the

rate at which the deposits are borrowed and the rate at which they is lent out the greater of the

11
profit margin of the bank. Furthermore, the larger the deposit the larger will be the funds

available for employment; larger the funds lent out the greater will be the profit of the bank.

To receive the deposit is the basic function of all commercial banks. The bank does

not receive these deposits for save keeping purpose only, but they accept deposits as debts.

When banks receive deposit from a customer, the relationship of a debtor and creditor is

established where by the customer become the creditor and the bank a debtor. When the bank

receives amount of deposit as a debtor, it becomes the owner of it. It may, therefore use it as

deems appropriate. But there is an implicit agreement that the amount owned would be paid

back by the bank to the depositor after a specified period.

NATURE OF DEPOSIT

 Current or demand Deposits

 Saving Deposit

 Short Notice Term Deposit

 Call Deposits

 Fixed or Term Deposits

CURRENT DEPOSIT

Current deposit are those which are payable to bank whenever demand by the customer. Bank

doesn’t pay any profit on current deposits. There are of different scheme of saving deposits,

which are classified under different duration purpose and rate of interest. Fixed deposits are

those which are by the bank under the conditions that will not be payable on demand but will

be payable under fixed or determinate future time date.

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SAVING DEPOSIT

This type of accounts is one step towards the Islamization of banking system in Pakistan.

There are two types of PLS Accounts.

• PLS Saving Account

• PLS-TDR (Profit & Loss Sharing Term Deposit Receipts).

PLS saving accounts can be opened with the minimum sum of Rs. 100 and PLS-TDR

account can be opened for a sum of Rs. 1000 or above. Profit is paid on both types of the PLS

account on half yearly basis.

Under PLS saving account the depositor undertakes to share profit or loss on the deposits

earned or sustained by the bank. Secondly the bank is at the liberty to invest the funds of the

deposits in any avenue, it deems fit. The PLS deposits are invested in non-interested

channels.

SHORT NOTICE TERM DEPOSITS

This kind of deposit is for a short period. The depositor may withdraw his deposit at any time

by giving seven days notice to the bank. This type of deposit facilitates the depositor to

withdrawn his amount with interest of the deposited period.

CALL DEPOSIT

Call deposits are the sorts of deposits, which are deposited with the banker against any

tender. This is without interest deposit. This may be with interest provided the depositor has

agreed to keep this amount with the bank for some fixed period.

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TERM DEPOSIT RECEIPTS

This type of deposit is same as the SNTD. The difference is that SNTD is for short period (7- 30 days)

while TDR is for long period (1 month up to 5 years).

ACCOUNT OPENING

Account opening is the first step towards establishing a relationship between the customer

and the bank. The Bank of Punjab is offering basically two types of account:

• Current Deposit Account

• Profit and Loss Sharing Account

The necessary condition for a customer, who wants to open an account with the bank, is

introduction, which is preferably by the bank officers or any account holder of the bank. The

different categories of accounts that are available are as under.

• Individual Account

• Joint Account

• Partnership Account

• Limited Company Account

• Clubs, Society, Association, or Trust Account

• SNTD

• TDR

• Foreign Currency Deposit

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ACCOUNT OPENING PROCEDURE

The general banking department performs various functions among them the first and most

important function is Account Opening. The bank reserves the right to open any account,

which in its opinion is suitable as a customer. The process of

opening an account is very simple and any body that would like to open his account could do

it easily without any difficulty.

The person would like to open his account is required to meet with the manager or

second officer, who will give him an Application form specifically used for account opening.

Along with the form a card for specimen signature is also supplied to the customer. Manager

has every right not to accept this contract if he is not satisfied with the details provided by the

customer. But in case the contract is acceptable to both, the next step is official account

opening.

This begins with the Account Opening Register which can be thought as a customer’s

master file. The manager records the necessary details into this register5 and allots an

“Account Number” from this account opening register. This register is maintained for each

type of accounts and the account numbers are allotted serially. After opening the account

every applicant’s date is entered in the computer to maintain the safe record and application

form is also safely put off, so that it can be available whenever it is needed. Checking officer

is responsible to tally the manual data with computerized account opening file. For fix

deposit only the application form is needed, which is prepared manually, because most of the

procedures of fix deposit is done manually. Signature specimen card contains three

signatures of the applicant, applicant account number, account type, branch code, and title of

account. It will be attached with the account opening form. Banker uses this card when he

15
receives the cheque, he compares signature on the cheque with the Specimen card, for

avoiding the frauds.

CLEARING DEPARTMENT

This department receives the cheque and other negotiable instruments drawn on local

branches of other banks. State bank of Pakistan has clearing house, in which cheque, and

other negotiable instruments are brought by each local bank representatives and the mutual

claims of each bank on other and offset and a settlement is made by the payment of

difference. Clearing system is help full for both the customer and saving currency, time and

labor.

Investments which are collected

• Cheques

• Demand Drafts

• Telegraphic transfers

• Mail Transfers

• Pay Order

• Dividend Warrants

CLEARING

Any instruments which drawn on BOP branches and other banks in same city that’s

instruments are called clearing. A clearing and date stamp is a fixed on these instruments

these are two types of clearing!

• Outward Clearing

• Inward Clearing

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Inward clearing means the cheque drawn on BOP and outward clearing means the Cheques

drawn on others

OUTWARD CLEARING

The instrument collected or stored bank wise and a schedules is prepared separately for each

bank mentioning the total number of instruments and the amount of the instruments. Then

these are recorded in a register called “OUTWARD CLEARING REGISTER” then a main

schedule is prepared showing the total number of cheque and their aggregate amount being

presented in the clearing.

The cheque/instruments are handed over the clearing branch. Central clearing branch issue

CREDIT ADVICE to the branch for passing credit to its customer immediately. The branch

on receiving credit advice debits the clearing account and credit the respective customer

accounts.

INWARD CLEARING

On receiving cheque/instruments from central clearing branch, the in charge checks the

number and amount of cheque received in clearing must tally with the main schedule

received from central clearing branch.

These cheque/instrument are entered in “INWARD CLEARING REGISTER” for the

cheque/instrument passed in clearing is a credit advice for the aggregate amount of cheque

passed in clearing is prepared, drawn on central clearing branch.

RESERVES AT STATE BANK

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Deposit held by bank at SBP serves as check clearing and collection balances. Rather than

physically transferring funds between banks, check clearing and collection can be done by

simply debiting or crediting a bank’s account at SBP.

REMITTANCE DEPARTMENT

Remittance is a major function of the bank. It is the transfer of money from one place to

another place. The need for remittance is commonly felt in commercial life particularly and

in everyday life generally.

By proving this service to the customers the Bank of Punjab earns a lot of income in the form

of service charges.

TYPES OF REMITTANCE

The Bank of Punjab deals with the following type of remittances

• Demand Draft (DD)

• Mail Transfer (MT)

• Telegraphic Transfer (TT)

• Pay Order

• Now we discuss all these in detail:

DEMAND DRAFT (DD):

Demand draft is a written order given by the one branch of a bank on behalf of customer to

another branch of the same bank to a certain amount to the certain person.

PROCEDURE
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 1) A draft voucher is filled which contains the following information

• Name of the parties involved

• Date

• Amount to be sent

• Account number (if DD is crossed)

2) A credit voucher is filled in order to get the excise duty and exchange commission.

3) The sender deposits the total amount of the two vouchers i.e. the debit and credit

vouchers.

4) Then the cashier sends the cash receipt voucher to the accounts department and the

account records the amount paid in his cash scroll.

5) Accountant gives the DD leaf along with the DD voucher to his assistant who records

the sender’s name, amount and receiver’s name. After writing all the information in the

DD register he gives it to the officer along with the DD for authentication.

6) After authentication the DD is handed over to the sender and bank sends the advice to

the concerned branch. So when the party presents the DD in the concerned branch its

payment could be made.

PARTIES INVOLVED

The following parties are involved in demand draft;

1) Purchaser or Sender

The purchaser is the person who sends the money to a particular person payable at a

certain branch.

2) Issuing or Drawing Branch

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 The branch from where the demand draft is issued to another branch of the same

bank.

3) Drawer Branch

Branch in which the draft has drawn and called upon to pay the amount.

4) Payee

The person who is entitled to receive the amount after presenting the demand draft in the

drawer branch.

MAIL TRANSFER

It is the transfer of money from one branch to another branch of the same bank through mail

service. In mail transfer there is no need of advice as the amount is directly credited to the

receiver’s account.

PROCEDURE

1) First a voucher is filled in whish the sender writes the amount to be sent, name, account

number of the receiving person with the branch name and date.

2) A credit voucher is filled in order to deduct exchange, postage charges according to the

amount of the mail transfer.

3) The sender deposits the total amount in the cash department.

4) The cash officer gives the vouchers to the officer after affixing received cash stamp and

writing the amount in red ink.

5) Then the officer writes the amount paid in the cash scroll and gives the MT to his

assistant.

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6) MT leaf is filled according to the information provided in credit voucher. He also writes

the same information in the MT register. Then he gives the MT leaf and MT register to

the officer for authentication.

TELEGRAPHIC TRANSFER

This is the most urgent method of remitting the money from one place to another place. This

method is used when the sender desires to send urgently, in this case the sender request the

manager of the branch to issue TT.

PROCEDURE

For sending the TT the manager and officer apply a test. In the test the manager and officer

uses a coding technique. They write their own code numbers, which is allotted, to them as the

bank branch code. After making all the conformation the concerned branch makes the

payment to the receiver. If the sender wants to convey the same message through telephone

then he has to pay the charges of telephone along with the TT charges. First the person

deposit the TT amount along with the charges through the credit voucher then his TT sent to

the relevant branch.

PAY ORDER

A pay order is a written order issued by the bank on its own branch, drawn upon and payable

by itself to pay a specified sum of money to the person. The purpose of a pay order is to

transfer the fund from one place to another. It is usually

not issued in favor of the parties of other cities. Usually the pay order is issued for the local

transfer of money from one person to another or from the person to any other department. It

21
is used for different purposes. The purpose may be the repairs of the branch or renovation of

the branch.

PROCEDURE

The procedure of a pay order varies with the nature of the purpose. If the work is of huge

amount then first the manager writes a letter to the Zonal Chief in order to get sanction of the

work. Then the advertisement of the work is given in the newspaper in order to invite the

contractors. But if the work is small then the branch manager has discretionary power to

select the party whose rate is lowest. After finishing the work the contractor submits the bill

of work on his stamp pad. Then the bank issues a pay order, against the pay order the

contactor gets the amount from the issuing branch.

.ACCOUNT DEPARTMENT

Account department is the backbone of a bank. It plays a vital in performing different

functions of a bank. The account department of is computerized as well as manual.

Accounting books of different departments are maintained under this department and with the

help of these, accountant prepare the monthly quarterly, semiannually and yearly financial

statement and order statement of the whole bank. All the transaction taking place is recorded

daily in the books of accounts and in computerized ledgers.

For every transaction there is Voucher prepared and through these vouchers contra

entries are passed under different head. Good working of accounts mainly depends on the

voucher system. Accounts department is responsible for proper handling and maintenance of

vouchers of different department

22
 .

MANUAL FUNCTIONS OF ACCOUNTS DEPARTMENT

Accountant prepares vouchers for all daily activities of different departments. Checking

officer checks and tallies these vouchers with their daily transactions and posts their entries

under proper heads.

TYPES OF VOUCHERS

• Debit Voucher

• Credit Voucher

These two types of vouchers are again classified under following types: -

• Cash voucher

• Transfer voucher

• Clearing voucher

All the daily transaction in cash, transfer and clearing is done through these vouchers. A

sheet is prepared on which all the vouchers passed during one day are consolidated and

summarized. This sheet is called supplementary sheet. There are two types of supplementary

sheet.

• Daily paid voucher sheet

• Daily receipt voucher sheet

Paid sheet is used for all debit vouchers and receipt sheet is used for all credit vouchers.

CASH BOOK

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Cash book is prepared daily to keep the record of daily paid vouchers. Cash book contains the

opening balance and the closing balance of a working day. Before writing and balance the

cash book firstly there is needed to properly arrange all the vouchers of that day.

MAINTAINING & UPDATING LEDGERS

One of the functions of accounts department is to maintain and update the term deposit

ledgers and books manually. Term deposit receipt or TDR ledger is updated after every

month for estimating profit on customer’s accounts. Accountant prepares different ledger for

all schemes of term deposit. With the help of TDR ledger accountant prepares “provisional

ledger”. From this ledger accountant calculate the monthly product of each account and

estimate the profit for a half-year. The semiannual profit on each account will be the expenses

of branch.

COMPUTERIZED FUNCTIONS OF ACCOUNTS DEPARTMENT

Most of the daily working is done through ledgers. In BOP all the daily transaction in deposit,

cash, clearing, transfer, remittance and advance are performed these daily ledgers; accounts

department receives the following output of general ledger.

• Daily general ledger expense

• Daily general ledger income

• Daily general ledger assets

• Daily general ledger liability

• Daily general ledger circle expense

• Daily general ledger audit expense

24
The formats of all these ledgers are same. They contain the following head account no.

description, previous balance. Codes are assigned to all these items.

Income will be credited in the branch account and expenses will be debited I the branch at the

month end.

All the expenses of circle, regional, audit, inspection office is debited in the head

office account, because it is the responsibility of the head office to bear the expenses of its

offices. For all the heads of general ledger there is closing balance and opening balance.

These ledgers are helpful in preparing the daily, monthly, semiannually and yearly

statements. Some of these statements are prepare for the

purpose of record keeping of branches and some are prepared to send to the circle office,

head office and state bank of Pakistan.

Some of these statements are

• Statement of provisional income

• Statement of provisional expense

• Statement of head office account

• Summary of income and expense

• Statement of profit and loss on PLS account

• Statement of profit and loss PLS 365 account

• Balance confirmation report

• Statement of affairs

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 BILLS DEPARTMENT

This department deals in bills for collection for all kinks such as cheque, draft, and pay

orders, call deposits etc. with outstation branches of BOP or with other banks. It provides

service to their customer to get payment from the nearer bank at nominal charges. The four

main heads of bill department is.

• Outward Bill for Collection (OBC)

• Inward Bills For Collection (IBC)

• Outward Documentary Bills For Collection (ODBFC)

• Inward Documentary Bills For Collection (IDBFC)

OUTWARD BILLS FOR COLLECTION

Bills department receive cheque or other of bills from its kinks client whose account must be

opened in that branch. The branch forwards the check with schedule or covering letter to that

branch on which bills is drawn. The checking officer of bills department will cross the cheque

with special bank stamp before forwarding the cheque.

OBC register is also maintained for proper record keeping of outward bills. This register is

updated two times once at the time of receiving bill from clients and the other when the

confirmation advice of this cheque is received from the payable branch. Bank gets a

commission Rs. 25/- and courier charges Rs. 40/- on the service.

26
INWARD BILLS FOR COLLECTION

The branches which receive bill have to verify these bills for payment. The party account

must be opened in that branch. The responsibility of this branch is to verify the bills for

collection with in three days and send the advice to the originating branch.

In case of verification of bills is approved, banks debit the account of the respective account

holder and send a debit advice to the originating branch and at the same time credit the head

office account for inward bills IBC register is maintaining for keeping the proper record of

the bills.

OUTWARD DOCUMENTARY BILLS FOR COLLECTION

Originating branch receives the documentary bills from their clients and sent them to out

station branches of the same bank or other bank. Customer account must be opened in that

branch. The documentary bills are i.e. trust receipt, railway receipt, sales invoice, receipts of

courier service etc. bank gets as commission 0.35% plus postage charges plus courier service

charges of this service. Seller and producer both can avail the facility of bank in case of

selling and purchasing their product or goods.

INWARD DOCUMENTARY BILLS FOR COLLECTION

Bank receives the documentary bills from the other outstation branches of the same banks or

other banks for collection the amount from purchaser.

In this case back acts as a buyer’s bank, when bank receives the documentary bills they send

intimation to buyer about his arrival of goods. If the buyer is the account holder then bank

will debit his account otherwise purchaser deposits the amount of the bills. Bank hand over

27
these documents to purchase, on behalf of which buyer receives the goods. Bank also charges

commission.

ADVANCES/CREDIT DEPARTMENT

It is the loan function, which produces the major person of bank’s income, and as such it is

the major areas of professional banker’s concern and attention.

PRINCIPLES WHILE ADVANCING

Basically there are five principles that must be duly observed while advancing money

to borrowers.

• Safety

• Liquidity

• Disposal

• Remuneration

• Suitability

FORMS OF LENDING

Many there are two types of advances:

• Short-term (maturity within one year)

• Long term (maturity with the period of more than one year)

However they are further classified as:

• Running Finance

• Demand Finance

• Cash Finance

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• Letter of Guarantee

RUNNING FINANCE

This form of finance was previously known as “overdraft”. When a customer requires the

temporary accommodation, his bank allows withdrawal his account in excess of credit

balance, which the customer has in its account, a running finance occurs. The accommodation

is thus allowed collateral security. When it is against collateral securities, it is called a

“Secured Running Finance” and when the customer cannot offer any collateral security

except his personal security, accommodation is called a “Clean Running Finance.” The

customer is in advantageous position in running finance because he has to pay the mark-up

only the balance outstanding against him on daily product basis.

DEMAND FINANCE

This is common form of financing to commercial and industrial concerns and is mad

available either against pledge or hypothecation of goods produce or merchandise. In

Demand Finance the party is financed up to a certain limit either at once or as and when

required. The party due to facility of paying mark-up only on the amount it actually utilizes

prefers this form of financing

• Ordinary Shares

• Preferred Shares

• Quoted or Unquoted

• Registered

• Bearer

• Inscribed

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ADVANCES AGAINST IMMOVABLE PROPERTY

A mortgage is the transfer of and interest in specific immovable property for the purpose of

securing the payment of the money, advanced or to be advanced. By way of loan, and

existing debts or the performances of the engagement this may rise the pecuniary liability.

The transfer is called the ‘mortgager’ and the transferee the ‘mortgagee’ the principal money

and interest of which payment is secured for the time being and instrument by which the

transfer is effected, is called the letter of the mortgage deed.

Availability of adequate flows of credit for industry and agriculture are a sine qua non for the

growth and development of an economy. This acquires added importance when agriculture is

the mainstay of the economy as also the sector where the bulk of the poor are concentrated.

Growth and productivity in Pakistan's agriculture has slowed down in recent years and is,

therefore, of serious concern given its importance for the economic prosperity of the country.

Apart from various other weaknesses in

the infrastructural support of the agricultural sector, inadequacy and lack of efficacy of credit,

flows to support agriculture related activities has been a major constraining factor.

Agriculture is the largest sector of the economy. It contributes 25 percent to GDP, provides

raw materials to 80 percent of industry and employment to over 50 percent of the population.

This is a sector that has the shortest gestation period for

investments and, therefore, a remarkable capacity to bring about a turn around in the

economy. This important sector in Pakistan is suffering from a number of maladies and is

consequently witnessing stagnation in productivity.

Due to policy and administrative exigencies, the savings in the agriculture sector remain low

and, therefore, the sector has perpetually remained capital starved. The pricing of input and

output in agriculture over the years has forced the majority of farmers in Pakistan to plough

30
back their incomes into agriculture and non-institutional credit, and has more often than not

served to sap their potential earnings. Needless to say, that shortage of savings and lack of

availability of capital is one of the major reasons for poverty in the country. The agricultural

and rural sectors in Pakistan in general and in Punjab in particular are, therefore, suffering

from severe under-development. Under a desirable development model, Punjab can:

 Increase agricultural production to meet the country's requirement of essential foods items

and industrial raw materials.

 Develop agro-based industry in the rural sector for economic value addition;

 Generate additional employment opportunities in rural as well as adjacent small

towns/cities

 Control massive migration to the urban centers that in turn is causing a number of social,

administrative (i.e. law and order) and economic problems for the urban areas

 Elevate poverty and improve the income generating capacity of the agri-based population.

AGRICULTURE SCHEME

There are many agriculture promotion schemes provided by BOP.

 Green Tractor Lease Finance Scheme

 Agri Finance Branches

 Agricultural Finance Scheme

 Kissan Dost Tractor Scheme

 Second Hand Tractor Lease Finance Scheme

 Kissan Dost Aabiari Scheme

 Kissan Dost Mechanization Support Scheme

 Kissan Dost Farm Transport Scheme

31
  Kissan Dost Eslah-E-Arazi Scheme

 Kissan Dost Live Stock Development Scheme

 Livestock Breed Improvement Trough VVW

 Kissan Dost Commercial Agro Services

 Kissan Dost Agri Mall Finance Scheme

 Corporate Farming Finance Scheme

 Commercial Lease Finance Tractor Scheme

 Demand Finance-Sheds Construction and Civil Works

 Lease Finance Facility for Milch Animals

 Running Finance-Livestock/Poultry and Fish Farms

 Kissan Dost Model Dairy Farms (PDDC)

 Kissan Dost Model Milk Collection Center (PDDC)

 Kissan Dost Green House Finance Facility

 Kissan Dost Cold Storage Finance Facility

 Scheme for Controlled Sheds

 Lease Finance Facility for Installation of Biogas Plant

 Group Financing to Small Farmers

 Clean Credit Facility through Syngenta Franchisees

 Zarkaashat Drip Irrigation System

 Markup of Schemes

BUSINESS PROMOTION SCHEME

 BOP Quick Cash

 BOP Car Loan

 BOP House Loan

32
 BOP SME Loan

 BOP Assaish Loan

 BOP House Loan For Federal Govt

SERVICES

 Commercial Banking

 Corporate & Investment

 Cash Management Services

 Utility Bills

 Lockers

COMMERCIAL BANKING

The Commercial Banking Group has been formed to cater the needs of small & medium size

customers for increasing Bank’s business significantly with clear focus, repositioning of

resources and active marketing to improve Bank’s profitability. Commercial Banking will

deal with customers having sales turnover and aggregate credit exposure as per benchmarks

prescribed in the SBP’s Prudential Regulations.

This Group’s emphasis will be to meet necessary business needs of customers which are

numerous as compared to CIB clients but their individual credit requirements are relatively

much smaller. In view of this peculiar nature of this business segment that involves a higher

turn over a much wider network is needed. The SME will concentrate on rebuilding its set up

which suits to its peculiar needs on all locations.

33
CORPORATE & INVESTMENT BANKING

Corporate Banking

The BOP Corporate Banking endeavors to market new clients and retain the existing

relationships and build market share by offering superior services, competitive pricing and

wide product range to valued corporate clients including Public Sector Entities and Multi

National Companies. BOP facilitates its customers for all sorts of their banking needs

including working capital, trade finance, BMR and project financing etc. BOP has worked on

some of the local markets’ largest and most complex transactions and infrastructure projects.

The BOP Corporate Banking Group comprises of seasoned relationship management team to

meet the demanding service standards of large corporations. The group delivers a full range

of high quality advisory, financing and operational service solutions tailored according to

customers’ needs.

Investment Banking

The investment Banking Group is entrusted with the prime responsibility of developing and

executing investment banking strategy to enhance and maximize shareholder value and

customer confidence. IBG specializes in providing innovative and unique advice to its clients

to assist them in meeting challenges in an ever-changing market. The team of qualified

professionals operates under a strict risk management framework, following best practices

within their fields and continuously striving for excellence.

Investment Banking Unit offers full spectrum of services, which include TFCs, Syndicated

Finances, Structured Finances, Leveraged Buyouts, Project Finance,

34
Quasi-Equity Products, Independent Advice, Equity Placements, IPOs, Equity Underwriting,

Mergers, Corporate Restructuring, Acquisitions and other products. IBU also works on and

come up with providing Fund Management Facilities

CASH MANAGEMENT SERVICE

Cash Management is a process of collections & payments on behalf of the Customers using

the Bank Network.The objective is to faciliate organizations with multiple collection points

in gathering Cash / Funds and making them available in the customer operating Account.

Similarly it facilitates disbursement of frequent and or Bulk payment to multiple locations.

This should be accomplished with minimal supervision by the customer, supported by an

automated system to provide timely and requisite MIS / Reconciliation under agreed Service

Levels

UTILITY SERVICE

Customers can pay their utility bills e.g. electricity, water gas, telephone, mobile, at any of

our 272 branches across Pakistan. For your convenience bills are collected on all working

days from 9:00 am to 5:00 pm (Monday to Friday) except lunch & prayer breaks and from

9:00 am to 1:30 pm on Saturday.

You can also pay your bills by availing our drop box facility. Just drop your Cheque along

with bill at your branch and collect the receipt in the evening, avoid the hastle of standing in

queues and save your precious time

BOP LOCKER

Discover peace of mind, enjoy personalized service and operate your locker in a friendly and

pleasant environment at The Bank of Punjab.

35
 Locker Size Annual Fee

Small Rs.1,200

Medium Rs.1,800

Large Rs.3,000

Extra Large Rs.6,500

These are the other services provided by the BOP.

 ATM Facility

 On-Line Banking

 Lockers Facility

 Demand Drafts

 Letter of Credit

 Pay Order

 Mail Transfer

 Debit Card

 Collection of Utility

AUTOMATED TELLER MACHINHE

Through the ATM’s Customers have access to the various services such as withdrawal,

balance enquiry and mini statement? Complete security is ensured because access to the

account is only possible by entering a four digit personal identification number (PIN) known

36
only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges

of ATM is Rs.250/- per card.

ONLINE BANKING

BOP is currently offering window-based online banking to its customers, which gives access

to information on their accounts and the liability to act on the latest information received over

the net.

LOCKERS

It is one of the utility services that BOP provides to their customers for keeping jewellery,

important documents and other valuables.

DEMAND DRAFT

BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any

person whether an account holder of the bank or not, can purchase a Demand Draft from a

bank branch.

LETTER OF CREDIT

BOP is offering its business customers the widest range of option in the area of money

transfer. BOP’s letter of credit service is with competitive rates, security, and ease of

transaction, BOP Letter of credit is the best way to do the business transactions.

PAY ORDER

37
BOP provides transfer of money using different facilities. Its pay orders are a secure and easy

way to move the money from one place to another. The charges for this service are extremely

competitive.

MAIL TRANSFER

Moves money safely and quickly from BOP Mail Transfer service. The rates for this service

is quiet impressive as compare to the market.

DEBIT CARD

BOP Apna Cash Card is an ATM plus Debit Card.

1. The front of the card will have the following matter on it:

• Card Holder’s Name

• International Bin Number (6 Digits - XXXXXX)

• Magnetic Strip

• Signature Panel

• Conditions of Usage

• M-Net and M-Net logo

LIMITATIONS

• Any non-personal account i.e. Companies, Organizations, Trust Account, Government

account and Collection account etc.

• Dormant, inoperative, blocked or restricted accounts.

• Accounts with “NIL” balance.

• Term Deposit Accounts.

38
• NIDF Accounts. (Non Interest Demand Finance Accounts)

• Accounts requiring thumb / photo for operation (illiterate accounts) · ATM/Debit cards

can only be issued on local currency accounts.

FINANCIAL ANALYSIS

To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis,

Common size Analysis of the last five years. Importance of Financial Analysis

IMPORTANCE OF FINANCIAL ANALYSIS

Financial analysis involves the use of various financial statements. These statements do

several things. First the balance sheet and the second is income statement. The balance sheet

summarizes the assets, liabilities, and owner’s equity of a business at a point in time, while

the income statement summarizes revenues and expenses of a firm over a particular period of

time. A conceptual framework for financial analysis provides the analyst with an interlocking

means for structuring the analysis

39
 BALANCE SHEET

2008 2007
(Rupees in ‘000)
Assets
Cash and balances with treasury banks 10,685,057 14,210,302
Balances with other banks 2,178,455 1,927,662
Lendings to financial institutions 633,333 2,450,000
Investments 22,711,980 73,461,695
Advances 131,731,158 133,893,585
Operating fixed assets 3,471,838 3,252,759
Deferred tax assets 8,388,162 -
Other assets 6,109,137 5,805,097

185,909,120 235,001,100

Liabilities
Bills payable 1,219,801 937,647
Borrowings 12,278,773 17,842,915
Deposits and other accounts 164,072,532 191,968,909
Sub-ordinated loans -- -
Liabilities against assets subject to finance lease 30,632 40,321
Deferred tax liabilities - 2,205,530
Other liabilities 4,564,257 3,009,984

182,165,995 216,005,306
Net Assets 3,743,125 18,995,794
Represented By
5,287,974 4,230,379
Share capital 7,427,232 7,427,232
Reserves
(Accumulated loss) / Un-appropriated profit 3,452,842
(7,658,686)
5,056,520 15,110,453
(Deficit) / Surplus on revaluation of assets - net (1,313,395) 3,885,341

3,743,125 18,995,794

Contingencies and Commitments

40
 INCOME STATEMENT

2008 2007

(Rupees in ‘000)

Mark-up/return/interest earned 17,752,969 17,539,094

Mark-up/return/interest expensed 16,614,000 13,939,377
Net mark-up/ interest income 1,138,969 3,599,717
Provision against non-performing loans and advances 18,863,580 1,616,421
Provision for diminution in the value of investments 366,387 24,479
Bad debts written off directly - 246,869
19,229,967 1,887,769
Net mark-up/ interest income after provisions (18,090,998) 1,711,948

Non Mark-up/interest Income

Fee, commission and brokerage income 577,630 653,512
Dividend income 2,020,896 1,804,878
Income from dealing in foreign currencies 324,328 377,233
Gain on sale and redemption of securities 733,787 2,039,535
Unrealized gain / (Loss) on revaluation of investments
- -
Other income 526,185 547,635
Total non-markup/interest income 4,182,826 5,422,793
(13,908,172) 7,134,741
Non Mark-up/interest Expenses
Administrative expenses 2,799,933 2,250,777
Provision against other assets 10,101 -
Provision against off balance sheet items - 292
Other charges 114,700 37,950
Total non-markup/interest expenses 2,924,734 2,289,019
(16,832,906) 4,845,722
Extra ordinary/unusual items - -
(Loss) / Profit Before Taxation (16,832,906) 4,845,722
Taxation - Current 207,600 169,252
- Prior years 1,052,000 (19,921)
- Deferred (8,033,001) 250,772
(6,773,401) 400,103
(Loss) / Profit After Taxation (10,059,505) 4,445,619
Unappropriated profit brought forward 3,452,842 3,219,246
Transfer from surplus on revaluation of fixed assets - net 5,572 5,866
3,458,414 3,225,112
(Accumulated loss) / profit available for appropriation (6,601,091) 7,670,731
Basic (loss) / earnings per share (after tax) - Rupees (19.02) 8.41
Diluted (loss) / earnings per share (after tax) - Rupees (19.02) 8.41

41
 FINANCIAL BUSINESS SUMMARY

2004 2005 2006 2007 2008

Operating Results

Markup/ return/ interest earned Rs in m 2,555 6,125 11,579 17,539 17,753

Markup/ return/ interest expenses Rs in m 719 2,669 7,509 13,939 16,614

Net markup income Rs in m 1,836 3,456 4,070 3,600 1,139

Non-markup based Income Rs in m 1,097 1,331 2,954 5,423 4,183

Non-markup based expenses Rs in m 1,150 1,291 1,882 2,289 2,925

Provision against NPLs Rs in m 47 331 374 1,888 18,864

Net profit before tax Rs in m 1,736 3,165 4,769 4,846 (16,833)

Net profit after tax Rs in m 1,368 2,353 3,804 4,446 (10,060)

Balance Sheet

Total Assets Rs in m 66,320 111,154 164,855 234,974 185,909

Advances (net) Rs in m 39,439 63,624 101,320 133,894 131,731

Investments Rs in m 16,198 18,026 28,233 73,462 22,712

Shareholders Equity Rs in m 4,420 6,777 10,659 15,110 5,057

Revaluation Reserve Rs in m 3,419 6,893 5,467 3,885 (1,313)

Deposits Rs in m 54,724 88,465 137,728 191,969 164,073

Borrowings from FIs Rs in m 2,832 6,791 6,989 17,843 12,279

42
 RATIO ANALYSIS

Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From

ratio analysis it is possible to predict future variances.

Following ratios of BOP has been calculated:

Ratios 2004 2005 2006 2007 2008

Gross spread ratio % 72 56 35 21 6.42
Profit before tax to total income % 59.19 66.11 67.89 53.71 (316.29)
Markup/ Interest cover ratio times 5.08 2.79 1.94 1.65 1.32
Profit after tax to total income % 46.65 49.16 54.16 49.27 (189.03)
Total assets turnover times 0.06 0.07 0.09 0.1 0.12
Return on avg total assets (after tax) % 2.49 2.65 2.76 2.22 (0.05)
Price earning ratio times 7.25 10.23 7.71 9.31 (0.60)
EPS (Non dilutive) Rs./share 9.08 10.01 13.14 10.51 (19.02)
Dividend per share Rs./share 4 5.2 3.25 3.5 -
Market value per share Rs./share 65.9 102.45 101.25 97.8 11.50
Capital adequacy Ratio % 12.83 12.78 10.09 9.69 1.92

GROSS SPREAD RATIO

Gross spread ratio defines the total spread of interest between borrowing and lending.Spread:

Difference between funded revenue as a percentage of average earning assets and the cost of

funds as a percentage of average paying funds.

The higher the spread the higher will be the profit margin.

GSR= Rev/CGS

GSR= (Mark-up earned – Mark-up Expense)/Mark-up earned

GSR is 2nd highest all over the globe in Pakistan.

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

rates on the deposits.

43
 %

80
70 72

60
56
50
40 %
35
30
20 21
10
6.42
0
2004 2005 2006 2007 2008

PROFIT BEFORE TAX TO TOTAL INCOME

Operating income less operating cost (profit before tax).

This ratio tells what percent of total income is earned before paying all the taxes.

BOP has a high value of profit before tax to total income and they are decreasing after 2006

because of increase in admin expenses and righting off the bad debts.

The main reasons for reduction in the profitability were additional provision against NPL due

to the elimination of benefit of FSV and downturn in consumer and individual banking

100
59.19 66.11 67.89 53.71
50
0
-50 2004 2005 2006 2007 2008
-100
%
-150
-200
-250
-300
-316.29
-350

44
INTEREST COVERAGE RATIO

MP/Interest cover ratio= EBIT/Mark-up

This ratio tells what percent of interest is covered from the total income of a firm or a bank.It

tells the ability of a bank to pay its mark-up to the depositors..

times

5 5.08

3 2.79 times

2 1.94
1.65
1.32
1

0
2004 2005 2006 2007 2008

PROFIT AFTER TAX TO TOTAL INCOME

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

Profitability of BOP is increased because of decrease in the tax paid to the govt and of high

spread ratio.

BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8%

in 2007 instead of 35%

45
 %

100

50 46.65 49.16 54.16 49.27

0
2004 2005 2006 2007 2008
-50
%
-100

-150

-200 -189.03

-250

TOTAL ASSET TURNOVER

Asset turnover= Net Income/ Total assets

This ratio tells the turnover of the asset to generate income.

This ratio is increased during last few years which represent increase in the turnover by

assets.

tim es

0.14
0.12 0.12
0.1 0.1
0.09
0.08
0.07 tim es
0.06 0.06
0.04
0.02
0
2004 2005 2006 2007 2008

RETURN ON TOTAL ASSET

This ratio gives an idea of returning net profit generated by the bank in comparison with

assets.

Return on assets= Profit after tax / Total Assets

46
This ratio is decreasing in the last year because of decrease in Profit as expenses raised

up.The decrease was mainly due to increased equity as a result of increase in minimum

capital requirements and additional provision due to withdrawal of benefit of FSV for most

types of advances.

3
2.65 2.76
2.5 2.49
2.22
2

1.5
%
1

0.5

0 -0.05
2004 2005 2006 2007 2008
-0.5

PRICE EARNING RATIO

Price Earning Ratio= Market price of a share/ EPS

From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a

share equivalent to the worth of 1 RS MPS by the bank or a firm

times

12

10 10.23
9.31
8 7.71
7.25
6
tim es
4

0
-0.6
2004 2005 2006 2007 2008
-2

47
EARNING PER SHARE

EPS = Net Income/ total shares

Through this ratio it can be analyzed what percent of 1RS share is earned.

120

100 102.45 101.25 97.8

80
65.9
60
EP S
40 DIVIDE NT
VA LUE
20
9.08 10.01 13.14 10.51 11.5
4 5.2 3.25 3.5
0 0
2004 2005 2006 2007 2008
-20 -19.02

-40

CAPITAL ADEQUACY RATIO

Capital adequacy ratio informs lending up to a certain ratio of equity.

This ratio is set by the State Bank of Pakistan.

C.A

14
12.83 12.78
12
10 10.09 9.69
8
C.A
6
4
2 1.92
0
2004 2005 2006 2007 2008

ADVANCES & DEPOSITS

48
 SWOT ANALYSIS

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats

SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as

well as its environment opportunities and threats.

“SWOT analysis is a situational which includes strengths, weaknesses, opportunities and

threats that affect organizational performance.”

“The overall evaluation of a company strengths, weaknesses, opportunities and threats is

called SWOT analysis

In SWOT analysis the best strategies accomplish an organization’s mission by

• Exploiting an organizations opportunities and strength.

• Neutralizing it threats.

• Avoiding or correcting its weakness.

49
SWOT analysis is one of the most important steps in formulating strategy using the

organization mission as a context; managers assess internal strengths distinctive

competencies and weakness and external opportunities and threats. The goal is to then

develop good strategies and exploit opportunities and strengths neutralize threats and avoid

weaknesses.

STRENGTH

• The Bank officers of BOP are considered as one of the most able professionals in the

banking world. However, they have added some local flavour in accordance with their

targeted segmented. In my observation that they interact with their clients as if they are

their personal friends and discuss about their problems as their own.

• As a result of the compassionate and personalized services of the officers, the clients’

perception for BOP is very high. They have trust and feel themselves to be secure while

dealing with BOP.

• BOP has opened all its branches at commercial areas so that the customers or clients face

no problems in reaching to the bank.

• BOP has got a reliable and easy to use internal computer system.Every information

regarding the transactions in customers’ deposits has been computerized. Data are

properly maintained.

• Good security system

• Not excellent but good facilities are given to employees

WEAKNESSES

50
• Lack of proper internal controls is one of the major weakness of BOP. It is also pointed

by the auditor in his review.

• BOP has formulized a lot of products and services for its customers, even more than other

commercial banks, but any advertisement on electronic media has not been seen.

• I observed during my internship that some of the employees were burdened with over

work. So I think that the work should be distributed according to their post and

capabilities.

• Biased selection of employees.

OPPORTUNITIES

• Satisfy dynamic consumer needs, BOP has made significant in roads in its entire service

spectrum. A lot of products have been introduced especially in Retail Banking

(Agriculture side) and people are increasingly becoming loyal to the bank and because of

feasible transactions. Optimum pricing and branding strategies of the bank are helping to

make customer feel secure and convenient.

• All the opportunities of the 21st century are to be availed in the information technology.

Information technology is the future of this dynamic world. Therefore BOP should

emphasize much on IT, especially on E-Banking. Bank can design a universal account

like other foreign banks, to enhance online facilities.

• BOP has introduced a number of financial schemes including special ‘Deposit Accounts’.

These accounts have their unique features. During the last three years,

BOP deposits have been increasing @ 40%, which is a very healthy sign. Therefore, with the

commencement of new schemes there can even be a greater increase in its deposits

51
THREATS

• Despite the difficult circumstances that confronted the banking sector in particular and the

country in general, BOP has been still highly profitable. But, the facts can’t be denied and

there might be an adverse impact of such situation.

• BOP is facing a strong competition by its competitors, Business of all these Banks are

growing at very high pace.

PEST ANALYSIS

PEST analysis of any industry investigates the important factors that affect the industry

and influence the companies operating in the sector. PEST stands for Political, Economic,

Social and Technological analysis. The PEST Analysis is a tool to analyze the forces that

drive the industry and how those factors can influence the industry.

 POLITICAL

 ECONOMICAL

 SOCIO CULTURAL

 TECHNOLOGICAL

52
 ECONOMICAL

• GDP
• MONSOON
• INFLATION
• SAVINGS &
ACCOUNTS
• AGRICULTURE
CREDIT
• INTEREST RATES
• RAISING LIVING
STANDRED
• DISPOSABLE
INCOME

SOCIOCULTURAL
POLITICAL
• CHANGES IN
• GOVERNMEN LIFE STYLE
T POLICY & • LITERACY
BUDGECT RATE
• BUDJECT • DEMOGRAPHIC
MEASURES
Organization OF LARGE
• MONATORY POPULATION
POLICY • SHIFT
• FDI LIMIT TOWARDS THE
NUCLEAR
FAMILY

53
POLITICAL FACTORS

Government policies affect the banking sector. Sometimes looking into the political

advantage of a particular party, the Government declares some measures to their benefits like

waiver of short-term agricultural loans, to attract the farmer’s votes. By doing so the profits

of the bank get affected. Various banks in the cooperative sector are open and run by the

politicians. They exploit these banks for their benefits. Sometimes the government appoints
TECHNICAL
various chairmen of the banks. Various policies are framed by the SBP looking at the present
• TECHNOLOGY
situation of the country for better IN
control over the banks
BANKS
• CORE BANKING
SOLUTIONS
FOCUS ON REGULATIONS • OF ATM GOVERNMENT
• INTERNATE
• I.T SERVES
Government affects the performance AND
of banking sector most by legislature and framing policy
MOBILE
.government through its budget BANKING
affects the banking activities securitization act has given

more power to banking sector against defaulting borrowers.

54
MONETARY POLICY

Bank Rate: The Bank Rate has been retained unchanged

Repo Rate It has been reduced under the Liquidity Adjustment Facility (LAF)

Reverse Repo Rate : It has been reduced under LAF by 25 basis points from 3.5% to 3.25%

with immediate effect. RBI has retained the option to conduct overnight or longer term

repo/reverse repo under the LAF depending on market conditions and other relevant factors.

FDI LIMIT

The move to increase Foreign Direct Investment FDI limits to 49 percent from 20 percent

during the first quarter of this fiscal came as a welcome announcement to foreign players

wanting to get a foot hold in the Indian Markets by investing in willing Indian partners who

are starved of net worth to meet CAR norms. Ceiling for FII investment in companies was

also increased from 24.0 percent to 49.0 percent and have been included within the ambit of

FDI investment

ECONOMIC FACTORS

Banking is as old as authentic history and the modern commercial banking are traceable to

ancient times., banking has existed in one form or the other from time to time. Every year

SBP declares its 6 monthly policy and accordingly the various measures and rates are

implemented which has an impact on the banking sector. Also the Union budget affects the

banking sector to boost the economy by giving certain concessions or facilities. If in the

Budget savings are encouraged, then more deposits will be attracted towards the banks and in

turn they can lend more money to the agricultural sector and industrial sector, therefore,

55
booming the economy. If the FDI limits are relaxed, then more FDI are brought in India

through banking channels

GROWING ECONOMY / GDP

It is great news that today the service sector is contributing more than half of the Indian GDP.

It takes PAKISTAN one step closer to the developed economies of the world. Earlier it was

agriculture which mainly contributed to the GDP. The Pakistani government is still looking

up to improve the GDP of the country and so several steps have been taken to boost the

economy. Policies of FDI

LOW INTEREST RATES

SBP controls the Interest rate, which is based on several monetary policies. Recently SBP has

reduced the interest rate which stimulates the growth rate of banking industry. Call money

rates (borrowing & lending) were in the range of 1.50/3.47 per cent as compared with

5.25/11.00 per cent on the corresponding date of last year

INFLATION RATES

Inflation represents a rise in general level of prices of goods and services over a period of

time. It leads to erosion in the purchasing power of money. Resultantly, each unit of currency

buys fewer goods and services.

Different fiscal and monetary policies have curbed the Inflation rate. To fight against the

slowdown of the Economy, Government of Pakistan & SBP took many fiscal as well as

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monetary actions. Clubbed with fiscal & monetary actions, decreasing commodity prices,

decreasing crude prices and lowering interest rate, we expect that Indian Economy could

again register a robust growth rate in the year 2009-10

SAVINGS AND ACCOUNTS

As stated earlier Pakistan continues to remain one of the high savings economies among the

emerging market economies. Gross Domestic Savings (GDS) of the Pakistan economy

constitutes savings of public, private corporate and household sectors. In the recent period the

high growth performance of the Pakistan economy is driven by rise in savings

AGRICULTURE CREDIT

Agriculture has been the mainstay of our economy with 70% of our population deriving their

sustenance from it. In the recent past, the sector has recorded a growth of about 4% per

annum with substantial increase in plan allocations and capital formation in the sector. The

target for agriculture credit flow for the year 2009-10 is being set at Rs.3,25,000 crore. To

achieve this, I propose to continue the interest subvention scheme for short term crop loans to

farmers for loans upto Rs.3 lakh per farmer at the interest rate of 7% per annum. For this

year, the government shall pay an additional subvention of 1% as an incentive to those

farmers who repay their short term crop loans on schedule

SOCIO CULTUREAL FACTORS

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Socio culture factors also affect the business. They show in which people behave in country.

Socio-cultural factors like taboos, customs, traditions, tastes, preferences, buying and

consumption habit of people, their language, beliefs and values affect the business. Banking

industry is also operates under this social environment and it is also affect by this factor.

These factor are changing continuously people’s life style, their behavior, consumption

pattern etc. is changing and also creating opportunities and threat for banking industry. There

are some socio-culture factors that affect banking in India have been analyzed below.

SHIFT TOWARDS NUCLEAR FAMILY

Attitude of people of Pakistan is changing. Now, younger generation wants to remain

separate from their parents after they get married. Joint families are breaking up. There are

many reasons behind that. But banking sector is positively affected by this trend. A family

need home consumer durables like freeze, washing machine, television, bike, car, etc. so,

they demand for these products and borrow from banks. Recently there is boost in housing

finance and vehicle loans. As they do not have money they go for installments. So, banks

satisfy nuclear families wants.

CHANGE IN LIFE STYLE

Life style of Pakistan is changing rapidly. They are demanding high class products. They

have become more advanced. People want everything car, mobile, etc.. what their fore father

had dreamed for. Now teenagers also have mobile and vehicle. Even middle class people also

want to have well furnished home, television, mobile, vehicle and this has opened

opportunities for banking secter to tap this change. Every thing is available so it has become

easy to purchase anything if you do not have lump sum.

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POPULATION

Increase in population is one of the important factor, which affect the private sector banks.

Banks would open their branches after looking into the population demographics of the area.

Percentage of deposit in any branches of banks depends upon the population demographic of

that area. About 70% of population is below 35 years of age. They are in the prime earning

stage and this increase the earning of the banks. Deposits showed a subdued growth during

2004-05.Income distributions also affects the operations and overall business of private sector

banks.

LITERACY RATE

Literacy rate in Pakistan is very low compared to developed countries. Illiterate people

hesitate to transact with banks. So, this impacts negatively on banks. But there is positive side

of this as well i.e. illiterate people trust more on banks to deposit their money; they do not

have market information. Opportunities in stocks or mutual funds. So, they look bank as their

sole and safe alternative

TECHNOLOGICAL FACTORS

TECHNOLOGY IN BANKS

Technology plays a very important role in bank’s internal control mechanisms as well as

services offered by them. It has in fact given new dimensions to the banks as well as services

that they cater to and the banks are enthusiastically adopting new technological innovations

for devising new products and services.

ATM

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The latest developments in terms of technology in computer and telecommunication have

encouraged the bankers to change the concept of branch banking to anywhere banking. The

use of ATM and Internet banking has allowed ‘anytime, anywhere banking’ facilities.

Automatic voice recorders now answer simple queries, currency accounting machines makes

the job easier and self-service counters are now encouraged.

Credit card facility has encouraged an era of cashless society. Today MasterCard and Visa

card are the two most popular cards used world over. The banks have now started issuing

smartcards or debit cards to be used for making payments. These are also called as electronic

purse. Some of the banks have also started home banking through telecommunication

facilities and computer technology by using terminals installed at customers home and they

can make the balance inquiry, get the statement of accounts, give instructions for fund

transfers, etc.

IT SERVICES & MOBILE BANKING

Today banks are also using SMS and Internet as major tool of promotions and giving great

utility to its customers. For example SMS functions through simple text messages sent from

your mobile. The messages are then recognized by the bank to provide you with the required

information. All these technological changes have forced the bankers to adopt customer-

based approach instead of product-based approach. Technology advancement has changed

the face of traditional banking systems. Technology advancement has offer 24X7 banking

even giving faster and secured service.

CORE BANKING SOLUTIONS

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It is the buzzword today and every bank is trying to adopt it is the centralize banking platform

through which a bank can control its entire operation the adoption of core banking solution

will help bank to roll out new product and services.

SUGGESTIONS FOR REMOVING WEAKNESSES

INTERNAL CONTROL

To me the major and the most important flaw in the BOP is lack of internal controls and inter

communication between different branches of the bank. As far as financial aspect is

concerned there is no proper system is configured that’s why there is always a risk of big

frauds with in the bank. I during my internship also pointed out that point but no one

bothered. To me the bank should install some proper resource planning and controlling

systems like other banks do i.e., oracle financials etc.

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PROFESSIONAL TRAINING

BOP staff lacks professionalism. They lack the necessary training to do the job efficiently

and properly. Although staff colleges are in all major cities of the Punjab but they are not

performing well. For this purpose these staff colleges should be reorganized and their

syllabus should be made in such a way which can help the employee understand the ever-

changing global economic scenario.

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

needed professional training.

DELEGATION OF AUTHORITY

Employees of the bank should be given a task and authority and they should be asked for

their responsibility. The sense responsibility in employees mind is one of the most important

factors in the success of any organization.

PERFORMANCE APPRAISAL

During Internship I felt that there is no or very less appraisal of any ones cool performance.

The manager should strictly monitor the performance of every staff member. All of them

should be awarded according to their performance and result in the shape of bonuses to

motivated and incite them to work more efficiently.

TRANSFERS

Transfer is not properly carried out. Some of the employees are continually serving at the

same post. They are simply rotated at the same branch. Therefore it is

recommended that evenly rotation of every employee should take place after every three

years in different braches of the bank.

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NEED OF QUALIFIED STAFF

Required, qualified staff should be provided to branch in order to improve the functioning of

the branch. Especially a telephone operator should be appointed

CREDIT CARD FACILITY

BOP should start its operation in credit card. These cards are very helpful for the ordinary

customer in general and the business people in particular. To make it mores secure and to

eliminate the misuse of it, the management is required to keep proper security against the

card.

DECREASING ADMINISTRATIVE EXPENSE

Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year

2007. That can be done by lying off the surplus pool of employee with golden hand shakes

scheme. The branches that are not much used could also be closed. That will give positive

results in the future

SHOULD BE AGGRESSIVE IN CREDIT POLICY

As mentioned earlier, BOP is very conservative in advances and loans policy. It reduces the

investment opportunities. Also loans should be given to the small businessmen and the other

businesses on large scale like in agriculture sector at the low mark-up rate. It should adopt

flexible credit policy while giving credit to the agriculture sector.

TECHNOLOGICAL IMPROVEMENT

I would like to suggest that at least all the main branches of BOP should be fully

computerized in order to expedite the dealing process among bankers and their customers.

Every department should be provided a computer with adequate training (especially

Advances, Deposits and Foreign Exchange departments). Daily records should be entered

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directly into these computers, (instead entering the overall daily transactions after the banking

hours). It will not only reduce transaction time, will increase accuracy but will also be

efficient as well.

Not only it will be economical but will also reduce the extra burden of work of the bank. It

will also help in reducing the use of excessive paper work.

STAFF RELATIOSHIP

Good relationship among staff member leads to the peak performances in any organization. I

observed that the staff relationship was normal other wise but some time I noticed that there

exists little conformity among the staff members. Another syndrome from which the staff

suffered was that all of them considered themselves more important than others.

FAVOURITISM & NIPOTISM

In the branch during my internship I saw that when some of the employees are transfer to

other places, due to their relation with influential people and with top management they can

cancel their transfer in few weeks, when they are unsatisfied at that place.

So I suggest that in the organization there should be no favouritism, nepotism and politics and

their transfer and promotion should be made on merit and according to

the rules and regulations of the bank and provided favourable environment to the employee to

show their performances.

MARKETING POLICY

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

bank and its product.

The most important in my opinion is personal marketing; it is the most effective of all when

you think in term of branch level. But on the whole organization level, they should arrange

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the seminar with in the bank and outside the bank. They should do more advertising through

newspaper and media and through channel of personal contacts.

AVOIDING BAD DEBTS

Great care should be taking while extending the loan. Loans should be awarded against

reasonable securities, where market value should be equal to the loan granted. Policies should

be crafted in a way to ensure that no loan is extended on political pressure. SBP regulation for

loan approval should be strictly followed. According to which the current ration of

borrower’s business must be 1:1 and the debt to equity ratio should be 60:40, means the

liquidity position of business should be healthy.

RECOMMENDATIONS FOR STUDENTS

In this section some recommendations for those students who are planning for an internship

at BOP particularly and in any other bank generally. The most important of all is the

difference between what we learn from the books i.e. the theory and what actually is done i.e.

in practice. This difference is described in detail below:

WORKING IN DIFFERENT DEPARTMENTS

During my internship I observed that other internees in the bank use to stick with one

department only. An internee with specialization in Finance was of the view that he should be

in Finance department same was the case with other specialized Internees. But I would

suggest that one must work in every department for some time

to gain a hand on experience of all the departments. As in real working environment

employee have to coordinate with other departments, so he/she must know what the other

departments operations are and how they work.

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RELATIONSHIP BETWEEN THEORY & PRACTISE

This part of report is the essence of the internship, as this will help other students to better

understand the working environment of the bank by finding the relationship between what is

written in the books and what is actually going on in fields. The theory written in the books in

cases is not implemented as it is. In some cases theory is implemented with a little

modification but in other cases theory has nothing to do with practice. In accounting, banks

don’t prepare worksheet, but part of worksheet is prepared like trial balance, but little

differences, theory and practice has substantial relationship. The securities for the loans are

handled in the same way as theory says like mortgage, pledge, hypothecation, advances

against insurance policies or liquidation procedure is the same. The difference is there in the

case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft,

loans etc., but in practice there are some more terms used like running finance, demand

finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of

credit are in accordance with theory almost. So for a internee it is more important to learn

new things which he/she has never heard about in his/her course book.

To me, Theory gives you the direction to understand the processes and the terminologies

going across the World using best business practices in a broader view covering each and

every aspect of possible business scenarios. On the contrary practical life is specific, enclosed

in a jar. In practical professionalism and firm’s environment is each and every thing.

Professional life only builds on the knowledge based on books even though it may only use

1% of the theoretical knowledge.

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 CONCLUSIONS

By analyzing the financial statements of the bank, I came across to know that it is one of the

most growing bank in the subcontinent. Now they should carry on with the present

management which too k it from one of the ordinary bank to this level. No doubt

professionalism and internal controls of the bank are one of the major issues which may

results some major losses to the bank. Bias in hirings and between colleagues should be

removed.

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 Bibliography

Books and Other Study Material

• Fundamentals of Financial Management by James C. Van Horne and John M.

Wachowicz, JR

• The Analysis and use of Financial Statement by Gerald White, Ashwinpaul C.

Sondhi and Dove Fried

• International Financial Statements Analysis by: Thomas R. Robinson, Hennie Van

Greuning, Elaine Henry, Michael A. Broihahn

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• Financial Statement Analysis Case #1: Dow Chemical Company

• Irshad, M. (2007). Money Banking and Finance, Nayyar Asad Printers.

• Siddiqui, A. H. (1998). Practice and Law of Banking in Pakistan (2nd Ed.), Karachi:

Decent Print Enterprises P.

• Webster’s Pocket Business Dictionary. (2002), (pp-17), United States Of America,

Trident Press International.

• Annual reports of the Bank of Punjab (2007-08)

Online References

• http://www.bop.com.pk

• http://www.sbp.org.pk

• http://www.business-standard.com

• http://www.sheshunoff.com

• http://www.blurtit.com/q726435.html

Personal References

• Muhammad Imran Khan

Manager: The Bank of Punjab Mall Road Branch Murree.

• Shahid Gulzar

Operational manager: The Bank of Punjab Mall Road Branch Murree.

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