Internship Report For Bank OF KHYBER

Submitted By: MEHRAN KHALIL MB09143

Submitted To: Sir Rizwan Danish Head OF Department Submitted On: 8 September 2011

University OF The Punjab (Gujranwala Campus)

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PREFACE

Internship training program provide me a great chance to make myself familiar with the actual business environment. It also provides me an opportunity to study the theories of books in practice. This is the reason why I decided to complete the internship program from a well reputable institution/organization. After completing internship it is required to write an internship report, that covers all the aspects of that organization. This is report written on Bank of Khyber, which is divided into four parts covering all the aspect, working and behavior of organization.

ACKNOWLEDGMENT

By the grace of ALLAH almighty, who has enabled me to do this entailing hard work. It is a matter of pleasure and privilege for me to complete the internship and also to complete this internship report on Bank Of Khyber Shahab Pura Branch Sialkot. I would like to warmly thank

Mr. Behzad Rasheed

Manager of Khyber

Bank Shahab Pura Branch who allowed me to work with their team. I am most humbly thankful to all the employees of Khyber Bank Shahab Pura Road Branch and especially to these personalities

Mr. Syed Naveed Ahmed Rizvi Mr. Muhammad Mahmood Mr. Amir Mr. Mohammad Farooq Mr. Yasir

(Operation Manager) (Credit Manager (Foreign Head) (Operation Officer) (Credit Officier)

for their continuous support and precious time with me.

Executive Summary

Banking operations and services are one of the basic needs of an economy. These include acceptance of deposits and disbursement of advances to individuals and others at higher rates. Banks perform various fundamental factions, which are directly or indirectly contributory towards economic and social development of countries. There are a number of different banks established in Pakistan, including local incorporated commercial banks, foreign incorporated commercial banks, development

financial institutions, investment banks, housing finance companies, micro finance banks and Islamic banks. The Bank of Khyber (BOK) was established in 1991 through Act No. XIV, passed by the Provincial Legislative Assembly of the KHYBER PAKHTUNKHWA Province of Pakistan The Bank was formally launched on November 1, 1991 and its first branch office commenced commercial operations on University Road, Peshawar on December 22 of the same year. The Bank launched its micro-business development program in 1995 and began extending rural financial services in 1997. Today BOK has 57 branches which are operating in different part of country. At present, 21 of its branches functioning as dedicated Islamic Banking Branches. The company is committed to its clients best interests as well as preserving a good relationship by defining realistic objectives. BOK is continuously innovating, delivery creative and high-quality solutions which fit best its clients needs. It maintains a high ethical standards and unconditional compliance with regulations and laws. It values its integrity and actively promotes the KNOW YOUR CUSTOMER (KYC) policy amongst BOK employees to ensure that the company is not involved in any money laundry operation.

LIST OF CONTENTS
Page no
Executive Summary 4

1 INTRODUCTION TO THE REPORT

1.1 Introduction 1.2 Purpose of Study 1.3 Scope of Study 4 8 8 9

1.4 Methodology of Report 1.5 Scheme of Report

9 10

2 Organization Review
2.1 History of BOK in Pakistan 2.2 Mission Statement 2.3 Vision Statement 2.4 Objectives of BOK 2.5 Organization Structure 2.6 Organization Chart 2.7 HR Policies 11 13 13 14 15 19 20

3 BOK Sialkot Branch Review

3.1 Introduction 3.2 Departmentation 3.3 Departmentation Chart 30 31 31

4 Financial Products & Services

4.1 Current Deposit Account 4.2 Saving Deposit Account 4.3Term Deposit Account 4.3.1 BBMA 4.3.2 MMMS 4.3.3 Regular Amdani Scheme 4.3.4 Zabardast Amdani Scheme 4.3.5 Foreign Currency Deposits 4.4 KMS 4.5SDR 4.6Khyber Rupees Traveler Cheque 4.7 Term Deposits Rates Chart 4.8 Funding Facilities 4.8.1 Fund Based Facilities Islamic Banking Facilities in BOK 4.8.2 Non Fund Based Facilities 5Operation Departments & Its Working 5.1 A/C opening procedure & Requirements 5.2 Major Work done by A/C Opening Department 5.2.1 Stop Payment 73 78 78 35 36 37 38 39 40 40 41 42 42 43 44 45 45 58 70

5.2.2 Bank Statement &Bank Balance 5.2.3 A/C Opening 5.2.4 A/C Department 5.3 Remittance Department 6Quantitative Analysis OR Administrative Department Organizational Departmental Opportunities & Threats Task Environment (Industry) SWOT Analysis 7Financial Analyses Analysis of Balance Sheet Analysis of Income Statement Generalized Ratios Analysis Cash Flow Analysis Specialized Ratios Analysis Graphical Representation of Ratios 8 Finding & Recommendations

78 79 79 98

105 106 108 109 111

120 122 124 126 128 135 155

List Of Acronyms

AD ATM AVP AOF BOD CA CP DAC

Authorized Dealer. Automated Teller Machine Assistant Vice President Account Opening Form Board Of Director Credit approval Credit Proposal Disbursement Authorization Certificate 6

DD PO EVP FDD FMT TDR FTDR TT FTT C&F CIF FOB GOP FAPC LC OG1 PLS CAD RF TC STDR SVP SWOT

Demand Draft Pay Order Executive Vice President Foreign Demand Draft Foreign Mail Transfer Term Deposit Receipt Foreign term Deposited Receipt Telegraph Transfer Foreign Telegraph Transfer Cost & Frade Cost Insurance Frade Forward on Board Government Of Pakistan Finance Against Packaging Credit letter Of Credit Officer Grade 1 Profit & Loss Saving Account Credit Administration Department Running Finance Traveler Cheque Special term Deposited Receipt Senior Vice President Strength Weakness Opportunities Threats

PART ONE
INTRODUCTION OF THE STUDY

1.1 Background of the Study

This study is focused the Bank of Khyber Pakistan, which is the govt. bank, owned by the NWFP Provincial Government. The study is carried out to familiarize the students

with the working of banks and banking environment and to produce a comprehensive report on it.

1.2 Purpose of the Study

Being a student of business administration the purpose of conducting this study is to develop some insight into the working of banks, the bank of Khyber especially here. More thoroughly, after some what understanding the procedures of the Bank, the aim is to make a critical analysis of it and suggest recommendations. Along with being a course requirement, the purpose of this study is to develop and enhance the analytical skills of students

1.3 Scope of the Study

The study is confined to banking operations. An attempt, along with all its limitations, to collect financial data and general statistics of the bank has been made. The scope of this particular study confined to the Bank of Khyber Sialkot Branch. More specifically, the operation department and Credit Department of the above mentioned bank branch is the major emphasis of the study

1.4 Methodology of the Report

The methods of data collection are mostly based on personal observations and experiences of actually working at the Bank. Dealings with customers, along with general procedures involved were observed. Moreover, as the departments are always bustling 8

with activity, there was not enough time to carry out formal interviews or surveys, the methods used for data collection are:

Primary Data
Observations Discussions with Bank officers.

Secondary Data
Manuals Annual Reports Information Memorandum Internet

1.5 Scheme of the Report

The entire report is organized in the following manner.

Part One (already covered) gives the background of the study, the purpose of the
study, the scope and methodology that is used to collect all the relevant data and the scheme of the report itself.

Part Two is about the organizational review i.e. the history of the bank of Khyber,
mission statement, organizational structure and chart etc.

Part three give the Sialkot Branch overview where the Internship is conducted.

Part four is about the various financial products and services offered by the Bank
of Khyber.

Part five emphases on the department of specialization i.e. operation department and
the various types of facilities given by it

Part six covers the financial analysis of the bank Part SEVEN covers the quantitative analysis of the bank Part EIGHT covers the major departments where I worked during internship Part NINE consists of the recommendations based on the findings from the study.

PART TWO
ORGANIZATIONAL REVIEW
2.1 The Bank of Khyber Pakistan
The Bank of Khyber (BOK) was established in 1991 through Act No. XIV, passed by the Provincial Legislative Assembly of the KHYBER PAKHTUNKHWA Province of Pakistan The Bank was formally launched on November 1, 1991 and its first branch office commenced commercial operations on University Road, Peshawar on December 22 of the same year. The Bank of Khyber Act was based on the provisions of the 1973 Constitution which permits provinces of the country to conduct banking business within

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the province through organizations controlled by it. Consequently the Bank of Khyber was the second provincial bank established in the country after the Bank of Punjab established in 1989. In1994 it acquired the status of a scheduled bank that allowed it to open branches outside NWFP, become a member of the clearing house, and engage in trade finance activity. Advantages of scheduling have had a positive impact on the Bank after adjustments to State Bank of Pakistan (SBP) requirements during 1995. The Bank launched its micro-business development program in 1995 and began extending rural financial services in 1997. This was the first formal and structured initiative by a commercial bank to broaden the base for the micro enterprise market. The initiative was further strengthened and encouraged by the Asian Development Bank (ADB), International Fund for Agricultural Development (IFAD), the German Development Bank (KFW), the Swiss Agency for Development

Cooperation (SDC) and the Pak-Swiss Small-Scale Enterprise Promotion (SSEP) Programme through credit lines and technical assistance. The bank has a paid up capital of Rs. 750 million out of which Rs. 652.5 million has been provided by the government of NWFP, while the remaining Rs. 97 .50 million has been contributed by DEG, a German Development Bank. BOK is distinguished by the fact that it is not only a schooled commercial bank but it also plays a role of a development agent, through Systematic long-term lending, specially to small and medium size business. Separate project financing departments namely, long-term projects department and Micro Finance Unit has been set up for this purpose .Several line of credit from international agencies have been arranged by BOK for meeting the funding requirements of development projects in NWFP.BOK has 57 branches with 34 in NWFP, 13 in Punjab and 6 in Sindh, 2 in Balochoistan , and 2 in Azad Kashmir The Bank has 346 well qualified officers, and it places great importance on their professional achievements. Among these 57 branches. At present, 21 of its branches functioning as dedicated Islamic Banking Branches

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The major objective behind the establishment of the Bank is to provide the much-needed banking facilities to traders and industrialists of the region and to augment the agricultural, industrial and economic development of the province. Other objectives include creation of employment opportunities in the rural areas of the province; to guide and assist overseas workers from the province to profitably invest their savings in the province; utilization of funds generated by the Bank in agro-based, hi-tech and exportoriented projects; and to eventually pave the way for the establishment of a stock exchange in the province.

2.2 Mission Statement

Mission, broadly stating, is the purpose for which an organization exists and why should it compete in certain sectors and industries. Within mission, sometimes stated as purpose, the organization addresses itself to what it intends to accomplish both in the long and short run. Mission is a very broad statement of organizational direction, and is normally summarized and documented in a mission statement. In same way, the Bank of Khyber being an organization has a mission statement, as follow: 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 sub-economic growth.

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2.3 Vision Statement

To become a leading bank of Pakistan providing efficient and dynamic banking services in both conventional and Islamic sectors.

2.4 Main Objectives of the BOK

Objectives are the ends towards which activities are aimed. In fact these are the results to be achieved. The bank of Khyber has certain objectives, which are as follows;

a. To mobilize private savings and public funds for diverting the same
channels and ensure their availability

into productive

b.

To promote industrial, agricultural and socio economic processes through the

active particular of private and public sector in the province

c. Help under develop areas and create employment opportunities, especially in the
rural areas of the province. Further, to guide and assist the people of NWFP serving overseas to effectively and profitably invest their foreign savings in the province as well as the other parts of Pakistan.

d. 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.

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e.Participate and seek the share of the province in the capital market of Pakistan byway
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.

2.5 Organizational Structure

Organizational structure is the frame work that defines the boundaries of the formal organization and within which the organization operates: The organizational structure of BOK is also aimed at achieving specific corporate objectives. All the activities and functions of BOK are controlled by the Board of Directors.

Board of Directors
The existing board of directors comprises the following: Mr. Mr. Attaullah Khan Mr. Sahibzada Saeed Ahmad Mr. Mr. Bilal Mustafa Mr. Mir Javed Hashmat Mr. .Muhammad Maqsood Khan Mr. Maqsood Ismail Mr. Muhammad Asif Chairman Director/Secretary Finance Managing Director/CEO Executive Director Director Director Director/Chairman Audit Committee

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Mr. Amjid Pervez

Director

Management Information

Mr.Imran Samad M. Ayub Hamid M. Ayub Hamid Mr.Imran Samad Mr.Naushad Muhammad Mr. Shakir Ur Rehman Mr. .Ali Nawaz Gilani Mr. Qiaz Mr.Suleman Akhtar

Group Head Credit Management Group Group Head Human Resource Group Executive Vice President of Human Resource Group Executive Vice President of Credit Management Group Senior Vice President of Management Department Vice President of Banking Operation Department Vice President of Marketing Department Vice President of Agriculture Finance Department Vice President of Implementation Department (IAD) Recovery and Asset

Mr. Abdul Quddus Khan Mr.Nusrat Jabeen Mr. Muhammad Asad

Vice President of Consumer & Micro Finance Department Vice President of Finance Department Vice President of Shariah Compliance IBG Department

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2.6 Organizational Chart

The BOK is a centralized organization in which little authority is given to the lower levels of management. The head office of BOK is divided into two divisions and each division has its own set of departments, these two are: Banking operation division Personnel and establishment division There are also two other independent departments. Long term projects Audit department Long term projects (LTP) handles the investment proposals of huge industrial and agricultural projects. Where as the audit department is responsible for having an internal control.

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Organization Chart

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2.7 Human Resource Policies

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Human Resource Management is the part of the organization that is concerned with the staffing, training, development, motivation and maintenance of employees. HRM is a step-by-step process, which is followed by many companies all over the world. The personnel and establishment department of BOK performs all the above mentioned functions BOK is also aware of the growing importance of personnel and its role in an organization. Therefore it lays great emphasis on this aspect of management. BOK has a personnel program which constitutes administrative matters relating to personnel right from recruitment to selection. Salary administration, promotion, demotion, dismissal, disciplinary action, training, improving performance, motivation and developing employees and retirement matters.

a. Recruitment in BOK
Recruitment is the process of discovering potential candidates for actual or anticipated organizational vacancies

Recruitment Procedures
A candidate while coming to the services of BOK must be pass through a selection process.

Application Forms
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When BOK advertises posts, the applicants are required to apply through a form, through this form the bank tries to get as much information about the candidate as possible.

Test
The candidates fulfilling other requirements are then called for written test. This written test is taken in three major subjects i.e. English, General knowledge and Arithmetic

Interview
The candidates who qualify the written test, are then called for interview, the main purpose of the interview is to judge the personal qualities of the candidate.

Physical Examination
The selected candidate are required to bring a medical fitness certificate from any registered medical practitioner, the main purpose of the certificate is to make sure the physical fitness of the candidate at the time of appointment.

Appointment

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The selected candidates receive their appointment letter through post at the address they have given in the form. They are appointed for the period of one-year as probationary office. At the time of appointment they have to submit the following documents a) Bank secrecy bond that they will not lack out secrecy to any one outside the bank. b) Surety bond c) Service agreement bond.

Probation
The selection candidates remain under probation for the period of one year. They receive pre entry training at Union Bank Academy Lahore as BOK does not have its own training academy probationary office receive a fixed salary.

Confirmation
After the successful completion of the probation period the probation officers are confirmed and their services are secured. For confirmation they have to pass a test and fit hey pass this test they are permanently recruited as office Grade-III.

B. TRAINING
A learning experience that seeks a relatively permanent change in an individual that will improve his or her ability to perform on the job Towards this main objectives training

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courses have been organized, initiating a self-development process in order to accelerate organizational growth and to further improve the banks level of expertise and efficiency.

C. TRAINING PROGRAM
The institute of Bankers in Pakistan (IBP) arranges training programs for all the banks including the Bank of Khyber, to upgrade their management skills. IBP also programs seminars , conferences and training programs for one to two or more days .IBP conducted three exams in the full service of a banker, part-I, part-II, and part-III. It is called DAIBP (Diploma Associates Institute of Bankers in Pakistan). If a banker clears all the papers in the first chance so he or she would get a cash prize .After clearing Part-I, a lower grade officer is given the option of their taking the cash prize or a promotion. In grade II only the cash prize is offered .For improving the skills and knowledge of its employees, the management of the BOK has on job training, job rotation and off the job training.

On- The-Job Training

On-the-job training is normally given by a senior employee or supervisor to the trainee in order to enhance and polish the skills of his or her. The bank provides the opportunity to take part in the courses and seminars conducted by the institute of Bankers Pakistan and other professional institutes. 23

Job Rotation
Job rotation is defined as An alternative to job specialization that involves systematically moving employees from one job to another. It enables the employees to work on different positions and get an overall picture of the banks operations.

Off Job Training

Off job training in BOK includes conferences, seminars, meetings and refresher courses .This mode to training is done to enable employees to upgrade their knowledge to new developments in the banking profession and also to broaden their outlook.

D. PROMOTION
Main criteria for promotion are the performance and skills of the individual, though seniority is also taken into consideration but it is secondary importance BOK has defined perfect career paths for its employees and that staff gets accordingly in their grades by way of transferring from one position to the others.

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Promotions up to the Joint Director are approved by the MD on the recommendations of the promotion committee. Promotions of officers to the post of Director and above are approved by the Board of directors on the recommendation of the MD. To keep the employees motivated the MD may promote and officer out of turn (who has not completed 3 years of services in the grade) up to 10% of those eligible for promotion .Junior offices and officers who pass DAIBP part-1& II have the option of promotion to the next higher grade or to get the cash award. Normally employees are promoted to the next grade after 3 years but promotion is totally based on 3 years performance of the employee.

e. Performance Appraisal
A formal assessment of how well an employee is doing his or her job. Performance appraisal is evaluating the performance of employees for a given period of time. it is a systematic evaluation of the individual with respect to his performances on the job and his potential for development. The performance of employees at the BOK is appraised on the basis of annual confidential reports. A proforma made by head office is sent to immediate superior for filling .Increments are decided on the basis of these appraisal reports according to the performance of the employees. These increments or appraisals play a very important role in the development and encouragement of the staff.

F. ALLOWANCES AND FRINGE BENEFITS

Allowances
House Rent Conveyance/maintenance allowance. Utilities allowance.

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 Medical allowance

Benefits Things of value other than compensation that an organization provides to its workers.
The BOK allows the following benefits to its executives and managers only.

Residential telephone Entertainment allowance Bank car Residential facilities

G. DISCIPLINARY RULES
Discipline is a force that prompts individuals or groups to observe rules, regulations and procedures that are demand to be necessary for the effective function of the organization. Discipline; in ordinary conduct of affairs by the members is to maintain harmony and peace in organization willingly. Following are the examples of indiscipline. Absence from duty Misconduct Disobedience with any lawful and reasonable order of the supervisor i.e. transfers.

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Fraud and forgeries Damage or loss (bank property) Sleeping while on duty Striking Unauthorized use of bank property any violations in these disciplinary rules the different types of penalties are given.

H. PENALTIES
Any employee found guilty under any rule or any offense of misconduct is liable to one or more of the following penalties. Reprimand With holding for a specified period confirmation on promotion of increment

Recovery from salary of the whole or part of any particular loss caused to the bank by the employee. Demotion to any lower grade. Removal (Dismissal) from service. Termination by way of punishment. Compulsory retirement from the services with or without retirement benefits. 27

Separation in BOK
Any employee of the bank is separated from the service by three different ways. i.

Retirement

Any employee will retire from the service either on the completion of 25 years continuous service or by attaining the age of 60 years.

ii.

Resignation

An employee can leave the service of the bank on his own disposal by tendering resignation in writing, but he is required to give a prior notice of 3 months in case of officer and one month in case of clerical staff. If he fails to do so 3 months pay will be forfeited in case of officer and one month in case of clerical staff. Although the bank authorities accept resign but he has to give a genuine reason for the resignation

iii. Dismissal
Any act of an employee against the discipline may lead the termination from the services. By doing wrong any employee of the bank can be separated as a punishment from the service, but this will require a proper inquiry of the case.

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PART 3
The bank of Khyber Sialkot Branch Overview

3.1 Introduction

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Sialkot branch is one of the important branch of BOK. It is a corporate branch. It performs all the functions of a commercial bank, from deposits to advances, and from remittances to safe custody service. Profit wise this branch is on the most profitable top branch and recently it has got a shield and rewards in this regard. The manager of this branch is Mr.

Behzad Rasheed; he is a prudent and experienced banker. He

manages all the activities of bank with good and effective manners with the help and support of the staff. Al the team members are very competent and highly committed with their jobs.

3.2 Departmentation

Departmentation is, grouping activities and people into departments make it possible to expand organization

The Bank of Khyber Sialkot Branch Organization Chart

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3.2.1Account Opening Department

The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers. It also issues check books to customers. A person who wishes to open an account with the bank has to fill an account opening form obtained from any branch of BOK at the time of opening of account. The bank officer tactfully obtains information about character, integrity, responsibility, occupation and the nature of business of the perspective customer.

3.2.2Cash Department

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Cash department owes its important to the fact that it is a major point of contract between the bank and the customer, the banks most valued relationships. This department is the showcase of the bank and conveys the first impressions about the banks commitment to professionalism in its systems and procedures and to courteous and efficient customer service. This department performs the function of receipts and payments.

3.3.3Remittance Department
Funds transfer facility or remittance of funds is on of the key functions of the banks allover the world. Remittances through banking channels save time, costs less and eliminate the risks involved in physical transportation of money from one place to another. BOK transfers money in the following ways.

1 .Pay orders (P/O). 2. Demand draft (DD) 3. Mail transfer (MT) 4. Telegraphic transfer (TT)

3.3.4Bills Department
The Bills department deals with the collection, purchase and discounting of bills on behalf of the customers. The collection of cheques and other instruments has become a very important service that commercial banks render to their clients. While collecting cheques and other instruments, a bank acts as an agent of its customers and therefore,

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the banker customer relationship in this case changes from the debtor creditor relationship to the agent principal relationship. The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both, collecting as well as paying, banks have certain obligations to each other and to their customers.

3.3.5Clearing Department
BOK along with their daily business activity also provides the facility of collecting credit claims for customers i.e. when a customer deposits a cheque or draft for collection which is of the some other bank. Then bank collects this instrument for its customer through clearing and similarly in case of payment the bank makes payment through clearing for the instruments (cheques or drafts) which are given by its customer for his obligation fulfillment to customer of some other bank. The function of clearing house system is operated by the State Bank of Pakistan (SBP) if SBP has no office at a place then National Bank of Pakistan (NBP) as a representative of SBP acts as a clearing house.

3.2.6Credit Department
The bank is profit seeking institution. It attracts surplus balance from the customer at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Credit extensions are the most important activity of all the financial institutions, because it is the main source of earnings. Credit departments is one of the most sensitive and important department of the bank. The major portion of the profit is usually earned through this department. The job of this department is to make proposals about the loans, the credit management division of head office directly controls all the advances.

3.2.7Foreign Exchange Department

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The foreign exchange means that the amount of any foreign currency that will available in a market at any given time against or in exchange for a particular countrys currency. This value of rate or exchange may show a stable, rising or downward trend of position day to day and even at different times during the same day .Foreign Exchange Department is the main source of income for the commercial banks as well as for the State bank. Commercial banks earn commission and service charges through letter of credit and letter of guarantee. While the state Bank collects with-holding tax for the supply of goods through letter of credit and govt. earns from stamps duties applicable to issuance bills of exchange in case of L/C. it promotes the import and export business. It facilitates the local trade and foreign trade. Foreign Exchange Department deals with foreign currency accounts (FC A/C), letter of credit (L/C) and letter of guarantee (L/G).

PART 4 FINANCIAL PRODUCTS AND SERVICES

4.1 Current Deposit Account (Rupees)
Current is a non profit account, flexible account with a great convenience for individuals (in single or joint names), minors (to be operated by the guardian), charitable institutions, limited companies, firms, associations, educational institutions, etc.
The BOK Rupee current deposit account allows the facility of unlimited withdrawals up to the extent of the balance in account. There will be no tax deducted on the funds that some one choose to keep in these accounts.

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Current Account entitles account holder to avail amazing facilities such as:

No limit on a number of transactions Free Cash Deposit and Withdrawal facilities through your bank branch Free Clearing facility to deposit cheques of other banks within the city Free Online Funds Transfer through Cheques to any account across Pakistan through
your bank branch

Online Cash Deposit, Withdrawal and Funds Transfer through cheques from any of
our branch across Pakistan Remittance facilities such as Payment Orders, Demand

.Draft, Telegraphic Transfers

Rupee Travelers Cheque through your bank branch Import, Export and other business transactions Standing Orders facilities Safe Deposit Locker at designated branches Statement of Account on six monthly bases Usage of Electronic Banking through:
ATMs across Pakistan owned by Khyber Bank and other banks

4.2 Saving Deposit Account (Rupees)

The BOK rupee saving deposit account allows the facility of multiple withdrawals up to the credit balance, while accruing profit on deposits.

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Types of saving deposit account.

i. Profit and loss sharing (PLS saving) account. ii. Special deposit account (SDA). iii. PLS 7 days Notice Deposits. iv. PLS 30 days Notice Deposits

Profit is paid bi-annually on minimum monthly balance (Jan-June & July-Dec) which is announced in July and January respectively. Generally, withdrawals from this account are allowed on demand i.e. without any
prior notice of withdrawal. Overdraft is not allowed on this account.

4.3 Term Deposit Account (Rupee)

Term deposits are also called fixed deposits. These can be with drawn after a specified period of time. Interest is paid to the depositor on all fixed or term deposits. The rate of return varies with the duration for which the amount is kept with bank
The BOK Rupee Term Deposit Account offers the dual benefit of attractive returns with high liquidity. Options to take profit monthly, quarterly, bi-annually, annually or at maturity. Profit is accrued on a daily balance basis. There is no penalty for premature encasement. However in case of an early encasement the rate of the previous tender will be applied. The option of partial liquidity is allowed i.e. with drawl to a certain percentage from the fixed deposit without disturbing the remaining deposit is allowed.

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Term or fixed deposits are accepted by BOK mature between one month to five years. Profit on fixed deposits is paid on the maturity of deposits. Each fixed deposit account is considered as a separate contract.

Following are the some important Deposits schemes of BOK along with their silent Features

4.3.1- Bae Baha Mahana Amadani (BBMA) Salient features of the Be-Baha Mahana Amadani (BBMA)
1. Tenor of the scheme will be 3 months, 6 months and 1 year. 2. Minimum deposit requirement is Rs 1,00,000/-. 3. Expected rate of profit will be 10.50 % per annum for 3 months, 11.00 % per annum for 6 months and 11.50 % per annum for 1 Year. 4. Profit payable on monthly basis.

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5. With-holding tax and Zakat to be deducted as per the Government rules.

Value added features

1. Free issuance of Cheque-book 2. Free issuance of ATM Card 3. Free quarterly statement of account 4. 90 % financing Facility will be made available to the depositor.

4.3.2 Maala

Maal Munafa Scheme (MMMS)

Salient features of the Maala Maal Munafa Scheme (MMMS)

1. Tenor of the scheme will be two years. 2. Minimum deposit requirement is Rs.1,00,000/-, and multiples thereof. 3. Expected rate of profit will be 10.00% per annum for the First Year, 11.00% per annum for the Second Year and for Senior Citizens 11.25 % per annum for the First Year and 11.50 % per annum for the Second Year.

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4. Profit payable on monthly basis. 5. Financing Facility will be made available to the depositor as per the relevant rules for advances against deposits. 6. With-holding tax and Zakat to be deducted as per the Government rules. 7. Pre-mature withdrawals to be allowed at the last declared rates.

4.3.3Regular Amdani Scheme

Salient features of the Regular Amdani Scheme are: 1. The tenure of the deposit will be for 5 years. 2. No premature termination prior to completion of one full year. 3. If terminated before completion of full 12 months period, any profit already disbursed will be deducted from principal at settlement. 4. Profit will be paid at 6 monthly rests as per schedule shown below. 5. If terminated within a 6 months payment period, after completion of one year, the rate applicable will be as used in premature termination of regular TDR. No penalties will be charged.

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6. Minimum deposit requirement will be Rs.100, 000/- for individuals and Rs.1, 000,000/- for corporate. 7. Withholding Tax and Zakat will be applicable as per rules. 8. The TDR certificate stationery will be used for this scheme also.
9. Short term financing facility will be available against lien on this certificate under consumer

finance products.

4.3.4Zabardast Amdani Scheme

Salient features of the Zabardast Amdani Scheme (ZAS) are: 1. Minimum deposit required for individuals: Rs.100,000/2. Deposits in multiples of Rs.1000/- will be accepted for a term of 3 years. 3. Expected rate of profit will be 10.60% p.a. for the entire scheme to be calculated at daily product basis.

4. Expected Profit will be payable at monthly rests. 5. Finance will be allowed against these certificates as per our relevant rules for advances against deposits. 6. Withholding Tax and Zakat will be applied as per relevant laws. 7. Under this scheme, pre-mature withdrawals of deposits will be permitted without penalties at following rates: Before 6 months : Last declared PLS SB rate Between 6 12 month : Last declared PLS TD rate for 6 months After 12 months : Last declared PLS TD rate for 12 months

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4.3.5Foreign Currency Deposits

1. Foreign Currency Current Accounts 2. Foreign Currency Saving Accounts
These accounts are available in US Dollar, Pound Sterling and EURO. Interest rates on saving Accounts are announced on monthly basis.

Foreign Currency Account

All individuals including resident citizens, firms and corporate bodies can open and maintain foreign currency savings and current accounts. Formalities for opening FC accounts are similar to those of rupee accounts.

Facility is presently available in four major currencies i.e. US dollar ($), Pound sterling, (L), Euro and Japanese Yen (Y). Foreign currency saving accounts is interest based. Interest rates are fixed by bank every month within the parameters given by SBP. The rates so announced

unchanged during respective month.

4.4 Khyber Monthly Scheme (KMS)

On KMS the BOK gives monthly interest on amount deposited with the bank. This is a sort of fixed deposit and the customers will have to keep the deposits for the five years.

4.5 Security Deposit Receipts (SDRS)

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This is a receipt issued by the bank, at the instructions of the depositor, confirming that amount of the SDR is held by the bank to be paid whenever called upon to do so by the beneficiary named in the SDR.

A SDR is a non-negotiable instrument. SDRs are generally used to make advance payments or as earnest money, retention money or security deposits etc. No profit is paid on call deposits. A SDR can be repaid to a named beneficiary or the purchaser/depositor upon identification.

proper

4.6 Khyber Rupee Travelers Cheques

They are generally issued for the convenience of persons traveling abroad, but some Pakistani banks issue them in Pakistan currency for use within the country as well. Before issuing, the bankers receive an amount equal to the face value of the cheques, and also charge a small commission. The travelers cheques are for fixed amount and are treated as order cheques payable only to the purchaser whose specimen signature appears on the travelers cheques itself. Foreign currency travelers cheques are issued and encashed in accordance with the provision of the exchange control regulation Act 1947. Khyber Rupee Travelers cheque (KRTC) is a negotiable instrument, which can also be used for remittance fund and as an alternate to cash. 42

KRTC is available in the denomination of Rs. 5,000, Rs. 10,000, and Rs. 50,000

Table Deposit Rates Half Yearly Profit Rate On PLS Deposits June 2011

RATES

TERM DEPOSITS
THREE MONTHS TDR SIX MONTHS TDR ONE YEAR TDR 5.20% 5.30%

5.50% 6.00%
TWO YEARS TDR

6.50%
THREE YEARS TDR

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7.0%
FOUR YEARS TDR

8.00%
FIVE YEARS TDR REGULAR AMDANI SCHEME (5 years) 7.25% to 11.30% ZABARDAST AMDANI SCHEME MAALA MAAL MUNAFA SCHEME 1st Year MAALA MAAL MUNAFA SCHEME 2st Year MAALA MAAL MUNAFA SCHEME 1st Year (Senior Citizen) MAALA MAAL MUNAFA SCHEME 2st Year (Senior Citizen) 10.60% 10.00%

11.00% 11.25% 11.50%

BE- BAHA MAHANA AMADANI SCHEME

THREE MONTHS 10.50%

11.0% SIX MONTHS 11.5%

ONE YEAR TDR

Types of Facilities
There are two types of facilities that BOK offers 1) Fund Based Facilities 2) Non Fund Based Facilities 4.8. Fund Base Facilities
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Fund base facilities are those which involve a cash disbursement at the time of allowing the Facility . In fund base facilities the banks directly provide cash to the lender. Following are the fund based facilities in which bank deal.

Running finance facility (RFF) Cash finance facility (CFF)

Temporary Overdraft (TOD) Temporary Running finance Term Loans (Syndicate/Project financing)-Medium term financing Term Loans (Syndicate/Project financing)-Long term financing Demand finance facility Export Refinance Murabaha finance for purchasing of products (Islamic Finance) Ijarah Financing Suhana Ghar Scheme-House finance Scheme (Consumer finance facility) Auto/Car finance Facility (Consumer finance facility) Loan Against Salary (Consumer finance facility) (Consumer finance facility)

Loan for household durable goods Motorcycle loan Cycle Loan

(Consumer finance facility) (Consumer finance facility)

Running Finance
This is a working capital finance facility available for one year and renewed subject to satisfactory utilization there of. Markup is charged on outstanding balance. It is a short

45

term loan for the financing of working capital to the firms. The tenor of running finance can be increased after lender request for extension.

Cash Finance
Cash finance is extended to manufacturing concerns for meeting their seasonal requirements (against pledge).

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

Loan against Salaries

BOK provides loan against salary to employees of Government / Semi- Government organizations for personal 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 terms of the loan. To avail this facility, the employee must be account holder of the bank. Loan limit is up-to 15 Take Home Salaries but not exceeding Rs. 1.00 million. This facility is available for a maximum period of 4 years but can be allowed for a shorter period.

Export Refinance Scheme (ERF)

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This facility is encouraged to boost exports of the country. Funds are made available from SBP credit facilities. Its export scheme introduced by the SBP to motivate the exporters to export products as much as possible. In this scheme on the recommendation of SBP loan is given to exporters at low interest rate as compared to the KIBOR. Now a day the rate which is going to be in the market for this scheme is 11%

ERF scheme consists of two parts i. ii. FAPC I (Finance against packaging Credit I ) FAPC II Finance against packaging Credit II )

i.

FAPC I
It is the pre shipment performance based finance.

ii.

FAPC II

It is the post shipment performance based finance. In this financing scheme the bank or SBP will extend loan to exporter on the bases his export performance of last year. Usually the exporters prefer this financing scheme.

Following are the documents that we must have to be considered while granted loan for FAPC II to the borrower or exporter.

Scrunity Sheet (contained bank name& address and name of borrowers and their particulars)

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Demand Promissory Dare Undertaking as per Instruction Form DE-3 dully filled in and signed by the exporter (giving particulars of borrowing limit) Letter of Certificates EP (Export Performance) statement

Targeted Areas
Following are the major targeted areas in which Bank of Khyber basically finance.

Corporate Finance Wing Syndicate/Medium to long finance wing SME Finance Micro Finance Consumer Finance Wing Agriculture Finance Islamic Finance

Micro Finance Loans

BOK is offering Micro Finance facilities that aim at poverty alleviation by creation of income and employment generation activities

Corporate Finance Wing

BOK is fully geared to meet the changing economic challenges present in Pakistan. We are ever striving to build meaningful relationships with our customers and become 48

partners in their growth and progress by acting as financial advisors and consultants as well as financiers. Our Corporate Finance Group extends both short and long term financing facilities designed to fulfill the individual need of each corporate customer.

SME Finance
Small and Medium Enterprise (SME) unit of the Bank is geared towards catering to the banking requirements of small to medium businesses in a timely and therefore cost effective manner. All the branches of Khyber Bank are equipped to speedily attend incoming financing requests from SMEs. We help our customers grow from strength to strength by acting as their bankers and financial advisors.

Agriculture Credit
1. Sada Bahar Zarai Loan: Designed to serve the working capital requirements of Agriculture Based activities especially, the cost of various inputs including seed, fertilizers, pesticides, labor, utility charges etc. 2. Khyber Tractor Loan: This Scheme is aimed at financing of Tractors required by the farming community. The intending borrower can select a tractor of his choice from the open market or through booking from a Manufacturer. 3. Tube Well & Farm Machinery / Equipments Loan:

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This product is aimed at mechanization of the agriculture activities and can be used for financing of Tube Wells and other farm machinery like Tractor trolleys, Threshers, Blades, Ploughs, etc.

Consumer Finance Schemes

The Bank of Khyber is offering Consumer Finance to the general Public and Government Employees for meeting their personal and domestic financial requirements. BOK offers 3 loan facilities i.e. 1. Loans Against Salaries, 2. Car Finance 3. Suhana Ghar under consumer finance.

1. LOAN AGAINST SALARIES

The Bank provides loan against salary to employees of federal / provincial governments, autonomous & semi-autonomous bodies and corporations listed on stock exchange for personal and domestic consumptions. 1. Branches Offering Loan Against Salaries 2. All BOK Conventional Branches 3. Eligibility Criteria a) Nationality All Pakistani residents holding computerize National Identity Card b) Age of applicant 21 to 55 years

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c) Period of Employment Salaried persons having an employment history of at least 3 years or more in a permanent cadre. d) Income Monthly take home salary after the deduction of Salary finance installment should not be less than 2/3rd of the total salary. Moreover, the proposed loan installment plus other finance facilities installments (if any) should be less than 50% of the take home salary / income. e) Routing of Salary At least two salaries must be routed through BOK Branch. 4. Maximum limit 15 Take Home Salaries (Maximum limit up to Rs. 1.00 Million)

5. Pricing Criteria Risk Rating Based For Example: Six Months KIBOR + 500 BPS with floor rate of 18%. The mark up will be revised on 1st January and 1st July each year according to the KIBOR rate at that day.

6. Schedule of Charges Processing Fee Rs. 500/ Early termination / settlement charges to be calculated on daily product basis

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7. Required Documents Clients request Borrower Basic Fact Sheet e-CIB Account statement for the past 6 months Application of finance on prescribed format Proof of income i-e salary slips Attested photocopy of valid CNIC 01 passport size color photograph attested photocopies of CNIC of two references Copy of valid CNIC & income proof of guarantor

8. Repayment Frequency Monthly installment through post dated cheque Time Period 01 04 years

2.Car Finance
1. Branches Offering Car Finance All BOK Conventional Branches 2. Eligibility Criteria a) Nationality All Pakistani residents holding valid computerized National Identity Card b) Age of applicant 21 to 55 years for salaried person and 21 to 60 years for businessman / self employed persons. c) Period of Employment/ Engagement in business or profession Salaried persons having an employment history of at least 2 years or more. Self employed

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and business persons engaged in profession or business for at least 3 years. d) Income i) Salaried Persons Monthly take home salary should be 2/3rd times of the amount of monthly installment. ii) Self Employed/Business Persons Average monthly verifiable income should be 3 times of monthly installment. Individuals who earn less than Rs. 15,000/- per month or Rs. 180,000/- per annum shall not be eligible for financing. 3. Maximum limit Rs.1.20 Million 4. Down Payment Minimum Down Payment for the facility will be 20%. 5. Pricing Criteria Risk Rating Based For Example: Six Months KIBOR + 500 BPS with a floor rate of 18%. The mark up will be revised on 1st January and 1st July each year according to the KIBOR rate at that day. 8. Title of the Vehicle Title of the vehicle shall be joint i.e. The Bank of Khyber and the Client. 9. Schedule of Charges Processing charges Rs. 2,500/ Early termination / settlement charges to be calculated on daily product basis Re-possession charges as Actual. 10. Required Documents Clients request Borrower Basic Fact Sheet 53

 e-CIB Account statement for the past 6 months Application of finance on prescribed format Proof of income i-e salary slips, income tax return or affidavit, whichever is applicable Attested photocopy of valid CNIC 01 passport size color photograph Copy of Valid Driving License Quotation from authorized dealer. Copy of valid CNIC & income proof of guarantor 11. Repayment Frequency Monthly installments through post dated cheques Time Period 01 05 years 12. Penalties etc A penalty of 2% over and above the levied mark up will be charged on each delayed installment. 13. How to Apply Through BOK Conventional Branches where application form is available in all branches.

SUHANA GHAR
.1 Branches Offering Housing Finance. All BOK Conventional Branches. 2. Banks policy on Mortgage Financing. The house financed by the Banks shall be mortgage in Banks favor by way of equitable and/or Registered Mortgage. 3. Eligibility Criteria

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e) Nationality All Pakistani residents holding a valid computerized National Identity Card f) Age of applicant Between 22 and 55 years g) Period of Employment/ Engagement in business or profession Salaried person having an employment history of at least 5 years or more with a continuous employment of 2 years with the same employer. Self employed and business persons engaged in a profession or business for at least 5 years. h) Income i) Salaried Persons Monthly take home salary should be 2/3rd of the amount of monthly installment. ii) Self Employed/Business Persons Average monthly verifiable income should be 3 times of monthly installment. Individuals who earn less than Rs. 15,000/- per month or Rs. 180,000/- per annum shall not be eligible for financing. (i) Title of the Property Title of the property should be clear and marketable. The property shall be free from all encumbrances and charges. Permission to mortgage from the lessor or lessee (in case of sub-lease) shall invariably be required if term of lease/sublease provides for such permission before mortgage of the property. j) Purpose Financing shall be allowed for House Purchase, Construction and Renovation.

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4. Maximum limit Rs.10.00 Million 5. Pricing Criteria Risk Rating Based For Example: Six Months KIBOR + 500 BPS with a floor rate of 18%. The mark up will be revised on 1st January and 1st July each year according to the KIBOR rate that day.

6. Schedule of Charges Processing charges 0.1% of the facility amount Early termination / settlement charges to be calculated on daily product basis Partial payment charges 5% of the amount to be adjusted 7. Required Documents Clients request Borrower Basic Fact Sheet e-CIB Account statement for the past 6 months Application of finance on prescribed prorforma Proof of income i-e salary slips, income tax return or affidavit, whichever is applicable Attested photocopy of valid CNIC 01 passport size color photograph Property Documents NOC from the concerned Authority to mortgage where applicable Property valuation certificate from bank approved evaluator Copy of valid CNIC & income proof of guarantor 8. Repayment Frequency Monthly installments through post dated cheques 56

 Time Period 1 15 years 9. Rates and Charges of Agencies other than BOK Evaluator Fee as Actual Lawyer Fee as Actual

10. Penalties etc. A penalty of 2% over and above the levied mark up will be charged on each delayed installment.

Islamic Financing in BOK

Islamic Banking Industrys market share has grown at a relatively rapid pace of close to 7 percent in seven years, when compared to other countries such as Bahrain where the market share stands at around 8 percent in 30 years and Malaysia where the market share is around 12 percent after 25 years of existence of Islamic banks there. The Islamic banking industry will continue to post impressive growth. Over the past two years; BOK established 5 new Islamic banking branches, 2 Islamic banking sub subbranches and which are fully functional and 5 will be opened by the end year 2011 making a total dedicated Islamic Banking branches to 26. In addition, all conventional banking branches have Islamic Banking Counters. The recent economic crises have increased the general publics trust in Islamic banking as robust institutions and believe that the future is bright for this industry. DEPOSIT SCHEMES UNDER ISLAMIC BANKING

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The profit of the Islamic Banking Branch (es) is distributed among the depositors on the basis of weight ages assigned to their deposit categories in proportion of their deposit amount. The bank is offering following deposits schemes for the customers to enable them to channalize their funds in the investment activities of the bank.

Current Account
The Deposits in current accounts are received on Qard-e-Hasana basis. The funds received in Current Accounts are not used in any interest based banking activities. The account opening facility is available in all the Islamic banking branches of The Bank of Khyber and Islamic Desks at all other branches of The Bank of Khyber.

Key Features of Current Account

No limit on withdrawal. No Profit No loss. Free On-Line deposit/ Withdrawal. Free Account Statement (once in a month). Free ATM Card. No charges for Closing of Account. Free e-mail of account statement. All other service charges are 50% for Senior Citizens.

Interest Free PLS Saving Accounts

Deposit in Profit and Loss Saving Accounts in BOK Islamic Banking are accepted on Musharaka basis strictly in conformity with the principles of Islamic Shariah. The deposits received in PLS accounts are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharaka or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to

58

customers on monthly basis. The PLS account opening facility is available in all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK.

Key Features of PLS Account

Profit Payment on monthly Basis. Profit Calculation on average Daily Balance. Free On-Line deposit/ Withdrawal. Free Account Statement (Once in a month) No charges for Closing of Account. Free ATM Card Free e-mail of account statement. All other service charges are 50% for Senior Citizens.

Riba Free Certificates (RFCs)

Riba Free Certificates of BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in RFCs are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharakah or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers at their choice. RFCs are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. Riba Free Certificates are issued to customers against their deposit amount. Key Features of RFCs

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 Minimum Investment Rs.10,000/ Profit Payment on every 5th working day of each month or at discretion of the customer. Investment slabs are 6 Months, 1Year, 2Years, 3Years and 5Years. Pre-Mature termination allowed subject to adjustment of profit. All other service charges are 50% for Senior Citizens. 90% Financing available.

Khyber Pak Munafa Scheme

Khyber Pak Munafa Scheme Certificates of BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in Khyber Pak Munafa Scheme are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharakah or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers. Khyber Pak Munafa Scheme Certificates are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. Key Features of Khyber Pak Munafa Scheme

Minimum Investment Rs.100,000/ Investment for 5 Years. Profit Calculation on average Daily Balance. Profit payment on Monthly Basis Profit Payment on every 5th working day of each month. Profit up to 14% (based on previous history) Pre-Mature termination allowed subject to adjustment of profit

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 Free On-Line deposit/ Withdrawal. Free Account Statement (once in a month). All other service charges are 50% for Senior Citizens. 90% Financing available.

RFSD Pool (Riba Free Special Deposits Certificates) RFSC

In this pool selective deposits are accepted against special assets and expected profit rates.

Riba Free Special Certificates in BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in RFSCs are invested in Islamic assets like Ijarah, Diminishing Musharaka or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers on monthly basis. The RFSCs are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. These deposits are tagged with special assets and deposits are accepted only when there is some opportunity of investment. These deposits are restricted and require special permission.

Key Features of RFSCs

Minimum Investment one million. Profit Payment on monthly basis. Investment for 1month, 3 months and 6 months. Pre-Mature termination allowed subject to adjustment of profit. Free On-Line deposit/ Withdrawal.

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 Free Account Statement (once in a month). Free Closing of Account. All other service charges are 50% for Senior Citizens.

RFSD-Banks Pool (Riba Free Special Certificates-Banks) RFSDBanks

In this pool only Banks deposits are accepted against specially allocated assets of the Bank. Riba Free Special Certificates-Banks (RFSD-Banks) in BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in RFSD-Banks are invested in Islamic assets like Ijarah, Diminishing Musharaka or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers on monthly basis. The RFSD-Banks are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. These deposits are tagged with special assets and deposits are accepted only when there is some opportunity of investment. These deposits are restricted and require special permission.

Key Features of RFSD-Banks

Only Banks deposits are accepted. Profit Payment on monthly basis.

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 Profit Calculation on average Daily Balance. Investment for 1month. Pre-Mature termination allowed subject to adjustment of profit. Free On-Line deposit/ Withdrawal. Free Account Statement (once in a month). Free Closing of Account.

RFSD-Corporate Pool (Riba Free Special Deposit Certificates Corporate) RFSCC

In this pool selective deposits are accepted against special assets and expected profit rates. Riba Free Special Certificates Corporate (RFSCCs) in BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in RFSCc are invested in Islamic assets like Ijarah, Diminishing Musharaka or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers on monthly basis. The RFSCC are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. These deposits are tagged with special assets and deposits are accepted only when there is some opportunity of investment. These deposits are restricted and require special permission. Key Features of RFSCC

Profit Payment on monthly basis. Profit Calculation on average Daily Balance. Minimum Investment Twenty million. Investment for 1month and 3 months. 63

 Pre-Mature termination allowed subject to adjustment of profit. Free On-Line deposit/ Withdrawal. Free Account Statement (once in a month). Free Closing of Account. All other service charges are 50% for Senior Citizens. CRITTERIA AND DOUCMENTS REQUIRED FOR GETTING LOAN Following is the list of documents (can be amended as and when required) mandatory to be obtained from the customer and submit to the H.O along with the credit request which forms the basis of assessment for each credit application.

Credit application request of borrower and having signed of authorize person. Borrowers Basic Fact Sheet dully filled in , having signed and stamp of lender or its firms stamp ECIB report of the business from the state bank of Pakistan or Stock Exchange (if it is registered firm) as well as sponsor of the business to knew its past track record. Audited financial statement of the business or the firm of past 2 to 5 years. Latest valuation of the business or the assets of the firm Visit the Pledge property to know that whether it is urban or rural area. Mostly property located in urban areas is preferred than property located in rural areas. If pledges documents are for Public limited companies than Memorandum & AoA and Form 29 must be attached. Bank Statement of the last year Cash flow statement Form H For registered partnership companies Original documents and copies of pledge firm Copies of CNIC Letter of Lien

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 Letter of Comfort = if it is necessary Letter of Guarantee

Working Criteria for Approving finance facility to clients

Firstly the client or borrower gives a credit application request to the credit manager. Then credit manager will review the client application and ask the client to knew that on which behalf he want to get loan .Whether he want to get loan for corporate purpose or for individual purpose .If borrower want to get loan for corporate purpose then the credit manager will give a Basic Borrower Fact Sheet to the client .The BSSC for corporate includes the following components which are as follows. 1. BORROWERS PROFILE Borrower file includes the following information about client Name of Borrower Address of Borrower Phone no , Fax no , Email address NIC No National Tax # Import Registration # Export Registration

2. Details of Directors/Owners/Partners

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3. MANAGMENT Executive Directors and their particulars Non Executive Directors and their particulars

4. Corporate status 5 Nature of business 6 Requested limit 7. BUSINESS HANDLED/EFFECTED WITH ALL FINANCIAL INSTITUTIONS DURING THE LAST ACCOUNTING YEAR: 8 EXISTING LIMITS AND STATUS:

9 ANY WRITE-OFF, RESCHEDULING/ RESTRUCTURING AVAILED DURING THE LAST THREE YEARS: 10. DETAILS OF PRIME SECURITIES MORTGAGED/ PLEDGED 11. DETAILS OF SECONDARY COLLATERAL MORTGAGED/ PLEDGED: 12. CREDIT RATING 13. DETAILS OF ASSOCIATED CONCERNS 14. DETAILS OF PERSONAL GUARANTEES PROVIDED BY THE DIRECTORS/PARTNERS ETC. TO FIs TO SECURE CREDIT: 15. DIVIDEND DECLARED (AMOUNT) DURING THE LAST THREE YEARS 16. SHARE PRICES OF THE BORROWING ENTITY: 17. NET-WORTH (PARTICULARS OF ASSETS OWNED IN THEIR OWN NAMES BY THE DIRECTORS/PARTNERS/PROPRIETORS 18. DETAILS OF ALL OVERDUES (IF OVER 90 DAYS):

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After filling the above BSSC the client or borrower will handover it to the credit manager. Then credit manager will get ECIB report of the client or borrower from the SBP to know that form which institutes the borrower is already enjoying the finance facilities. More ever, to knew the past track record of the business using ECIB report which shows him the current business status of the borrower business. After getting the ECIB report the credit manager will give a Loan Application form to the borrower. The borrower filled the loan application form and returns it back to the credit manager. Then credit manager will analyze the financial statements of the business of last 3 years in order to know the financial position of the business. The credit manager not only analyze the financial statements one by one but also write and give his comments on the financial statements of the business. On the bases of these financial statements the credit manager prepared CRR (Customer Risk Rating) and FRR (Facility Risk Rating) report. If the CRR and FRR meet the minimum requirements of the bank credit policy requirement then credit manager will complete the remaining requirements of the credit proposal otherwise he will reject the loan or sent it to branch manager to review it . If the CRR and FRR is satisfactory then credit manager will asked the client to present the security documents on which behalf the client want to get finance facility. Then credit manger will sent the security documents to any institute working under PBA (Punjab Banks Association) to know the value of pledge documents. After setting the minimum face value of pledge documents the PBA will sent it back to the credit manager. If the face value of pledge documents is higher then the sanction value of facility that clients want then credit manager along with the branch manager visit the place where corporate is located or which property clients want to pledge. If the pledge property is located in well established or urban area then Branch Manger will signed a certificate as per BOD (Board of Director) in which he granted that I personally visit the pledge property and pledge property is not only in good position but also located in the urban areas that banks mostly prefer. Then credit manager will sent the pledge documents to legal advisor of the bank or any legal advisory company for Pre Mortgage Legal Opinion. The bank will asked Legal advisor to issue a letter of transfer of deed of pledge documents on the name or behalf of the bank. The legal advisor will issue a letter of deed and PT.1 on the behalf of the bank which states that property has been transferred in the name of the bank all 67

will remains pledge under bank custody till the owner returns facility to the bank and interest as per banks terms and conditions stated . In case if client didnt return loan then bank have fully right to sold the property to the general public in order to cover its exposures. After getting letter of transfer Deed the bank issued a letter of promissory note to client or borrower to signed it in which it is stated that the client or borrower has got loan facility from the bank and he is responsible to return it back to bank along with interest rate as per stated before maturity date. Finally credit manager complete all the remaining official requirements of credit proposal. And prepared a complete proposal the credit manager sent it to the branch manager. The branch manager personally review whole credit proposal and sent it to the CMD (Credit Administration Division) for approval. The CMD has further two departments. 1. SME 2. Corporate & Syndicate

SME (Small Medium Enterprise) Credit proposal with the scrutiny up to RS.15 Million has been sent to the SME for approval. The SME further sent it to the SME Incharge . SME incharge sent it to the CMD head of the bank .CMD analyze the whole credit proposal and further sent it to the RMD(Risk Management Division) .Under RMD two departments risk management division and CAD(Credit Administration Division)analyze the whole credit proposal to identify the risk associated with that credit proposal and suggested bank some risk mitigate policies to overcome the risk with that bank.Then CAD sent it back to the SME Incharge where SME incharge prepared sactions related to that project and sent proposal to the RCAD who then issued a DAC (Disbursement Adjusted Certificate )and then funds released to bank which bank further released to the client or borrower.

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4.8.2 Non-Fund Base Facilities

The non-fund base facilities are those in which the bank does not invest its own funds rather its commitment is involved against which the bank chargers a certain amount in shape of commission. These facilities are available in the form of letter of credit and letter of guarantee.

Letter off Credit

A letter of credit is a written undertaking by a bank (issuing bank) given at the request and accordance of a buyer (the applicant) to the seller (the beneficiary) to a fact payment up to a stated amount of money within prescribed time limit provided that the terms and conditions are complied with. Letter of Credits issued in the international trade business. Letter of credit is required in the settlement of international trade some times local transactions are also done through the letter of credit which are termed as inland LCs. Usually, there are four parties are involved in LCs. 1. Importer 2. Exporter 3. Importers bank 4. Exporters bank LCs may be on sight or issuances basis. In sight based LCs, the importer has to pay the amount upon payment of the value. In case of issuance LCs the exporter extends credit to the importer. The documents are handed over to the importer against his acceptance of the bill and assurance of payment on the maturity date of acceptance.

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Letter of Guarantee
Letter of guarantees is a guarantee that the bank gives to an organization on behalf of the bank. Letter of Guarantees are mainly used when a tender for a specific job is filled by a customer. The bank provides assurance to the beneficiary of the guarantee about the satisfactory performance of a certain act by the applicant of the guarantee. In the letter of guarantee three parties are involved i.e. 1. Bank (provider of guarantee) 2. Applicant of the guarantee (Banks customer on whose behalf the bank issues a guarantee). 3. Beneficiary (in whose favor the guarantee is issued). The banks at the request of applicant issue the guarantee and charges commission for its commitment from the applicant at the exposure is secured against some security.

There are three main types of LGs: Bid Bond:

Bid Bond are filled at the time of filling out the tender and states that if the company is given the tender, it will start working on it and will not walk away .

Performance Bonds:
Performance Bonds are issued to the beneficiary, to guarantee him that the applicant of the tender will perform the contract under a specific period of time. Performance bonds are issued after the tender is approved of the applicant.

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Mobilization against LG (MALG): This is a guarantee that the bank gives when
the beneficiary (the firm that issued the tender) that pays an advance of tender to the applicant (the firm that gets the tender), that he will return that advance amount.

Process for LCs & LGs

The process for LCs and LGs is a ten step process: 1. A request letter for the facility is received by the bank 2. All documents pertaining to the facility are received 3. Documents are looked over by the lawyers 4. CCIR is received from the CIB 5. A CLP is made 6. Borrowers Basic Fact Sheet (BBFS) is made 7. Credit Facility Application Form is filled by the customer 8. Documents are sent to the Area Office for approval 9. Documents relating to the security is kept by the bank 10. Letter is issued to the customer

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CHAPTER 5 OPERATION DEPARTMENT

5.1 ACCOUNT OPENING REQUIREMENTS AND DOCUMENTATION Account opening is the first step towards establishing Banker-Customer relationship. Any individual, who has attained the age of majority and is of sound mind can open and maintain his/her account. Two or more individuals may open an account jointly. Similarly, business organizations such as sole proprietary concerns, partnership firms ,and limited liability companies as well as non-profit organizations like clubs, trusts ,societies, associations and NGOs etc, may open their accounts .The following requirements are necessary for opening an account. Identification of the new customer. Ascertaining the genuineness of the stated occupation business of the customer. Determining the correct residential and permanent address. Completion of all relevant columns of the AOF. Proper completion of documentation.

Personal Accounts
Accounts opened by individuals in their personal capacity are termed as personal or private accounts. A personal account may be a PLS saving or current account in local currency or saving or current account in foreign currency. There is no restriction as to number of accounts that an individual may have with the bank.

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Verification of Identity
a) Under recognized legal principles, banking conventions and SBPs prudential regulations (Regulation XI & XII), banks are required to institute effective procedures to ensure true identity of their customers. b) Federal Ombudsman also, vide his ruling on a complaint, directed the banks to retain a photocopy of the NIC with AOF of the person desiring to open an account as well as of the introducer. c) Account opening procedures at Bank of Khyber, therefore, have been adopted to fulfill above requirements. d) Authorized officers, therefore obtain NICs and photocopies of the new account holder as well as of the introducer and then return the originals after attesting the retained copies. Inquires are necessary to avoid potential frauds and losses not only for our own bank but also to save other banks and general public and to claim legal protection in the case of any such happening. e) The identity of an individual can also be established by obtaining a copy of their passport, driving license, or any other documents that certifies the customers name, address, date of birth, citizenship, photograph, and signature etc.

Introduction

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a) Whether introduced by a customer or banker, proper introduction is amendatory requirement under SBPs BCD circular No. 29 of 1968. b)Generally, new customers are introduced by the existing customers, Staff members themselves may introduce new accounts, provided they know the new customer, his/her occupation and permanent residence etc. and are otherwise satisfied with his/her past conduct or record with respect to financial dealings and bank relationships.

Following Steps Are Taken To Ensure Proper Introduction

a) Introductions from saving account holders for current accounts normally discouraged. However, an introduction from a savings account holder who is well know to the manager and whose account has been well conducted may be accepted, under the managers authorization. b) Whether the introducer/referee accompanies the account holders to the branch or not, he/she properly identified by an authorized officer under his signature written across the rubber stamp reading Signature Verified affixed in close proximity to the introducers signature. A letter of thanks sent to the introducer. A copy of the letter retained in the Account File.

Some Basic Information Regarding Account Opening Form & Procedures

The bank officer takes the interview of the customer to know his purpose of account
opening, identity and status.

The full name of the individual or the business is given as title to the account.
The permanent (Corresponding) address of the client is required in this regard.

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The account holder describes his occupation in definite and adequate terms. Incase of
employee the name and address of the employer is noted on AOF.

Clear instructions are obtained regarding operations on the account and for repayment
of the balance in the event of the death of any of the joint accountholders and in case of single account holder.

Signatures of the account holders are taken on AOF and SS Card. An account in the name of minor may opened jointly with a parent or guardian with the
condition that account will be operated by the guardian. No overdraft is allowed in a minors account.

An illiterate person can open account with banks. This account will be Photo account
One photo is pasted on AOF and one is on SS Card. Left thumb impression in case of male and right thumb in case of female account holders is obtained in place of specimen signatures on SS Card. Such a person will put his thumb impression in the cheque in the presence of bank officer.

The married women can open bank account with banks. However, they cant bind
their husbands for any debts or borrowings obtained without their consent except necessities of life.

Joint Accounts:
Two are more persons may open an account jointly. AOF &SS card are signed by all the parties. Special instructions are required for the operation of account at the time of opening the account. Similarly instructions regarding operation of account and payment of balance to the survivors are required in case of the death of one party or more.

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Sole proprietor ship account is the individual account in the name of business concern.
All the partners of the Partnership firm will sign the AOF & SS card and it is operated by

any one or more partners. The account of the company is opened on the resolution of the Board of Directors, which nominates the persons authorized to operate upon the account. The signs of all the members of the Board of directors will be provided to the bank.

Basic Requirements for Account Opening

The basic requirements to open an account for individuals/self employed are as follows: CNIC Source of income (salary slip etc) NTN certificate (optional) Company letterhead or authorization (as required) The basic requirement to open an account for a partnership Partnership Deed Partners CNIC 76

 Company Letterhead NTN certificate (optional) The basic requirement to open an account for companies: Memorandum of Association Article of Association Directors CNIC Company Letterhead NTN certificate (optional)

5.2 Major Work Done by Account Opening Department

5.2.1Stop Payment
If a customer looses their cheque book, then that customer will have to come to the bank and firstly report the loss and then stop payment, by telling the series of cheque he has lost. By stopping payment, the customer is guaranteed that no illegal payment is made from their account. The process for stopping payment, after the customer tells that he has lost is cheque book is that he fills a Form B, which is same as a cheque book requisition form and an indemnity form, stating no responsibility on behalf of the bank if any illegal payment is made before the time of announcing a cheque book lost. As part of my internship, I was to assist a customer towards the whole process of stopping payment.

5.2.2Bank Statement and Bank Balance

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A bank statement tells the whole activity of a bank account over a period of time. Customers often come and want their bank statements and have to fill a form, relating to the time period for which the bank statement is needed. As part of my internship, I was to assist the customer to fill the Bank Statement Form and produce the statement through the banks software and print it as well. Often customers want to know their accounts balance over the phone and thus I had to tell them their account balances using the banks information system

5.2.3Account Opening
Whenever a customer comes to open their account, they have to fill a relationship contract with the bank. As part of my internship I had to fill these forms and then use the appropriate bank stamps to complete these forms. Also as part of the relationship form, I also had to do a Verisys, a verification system started by NADRA on the CNIC of the
new account opener. A Verisys tells, if more information pertaining to the customer is needed to open the account or not.

5.2.4Accounts Department
Accounts department is a backend department at Bank of Khyber that performs the following functions

1. Reports
It generates reports like Statement of Account Activity (a report on the activity of all accounts at Bank Of Khyber), Statement liabilities of Bank Of Khyber), Statement

of Affairs (a report on the assets and

of Foreign Exchange (a report on

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the foreign exchange currencies at the bank) and

Statement of Profit & Loss

(a report on the income and expenditures of Bank Of Khyber). These reports can be generated at daily, weekly, monthly, quarterly or yearly basis as required by the bank.

2. Income and Expense

The department also needs to calculate the revenues and expenses, control expenditure and forecast profits every month.

3. Activity Checking
Daily activity checking and monitoring is done by the accounts department of the whole bank

4. Storage of Records
Accounts Department also has the duty to store vouchers and system generated reports.

5. Payments
The accounts department is responsible to pay vendors on behalf of the bank with authorization from the branch manager. It also has to amortize large payments and calculate depreciation of branch assets.

Activity Checking

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In the accounts department, I had to do daily activity checking and there are four stages in which activity checking takes place: 1. Collecting vouchers, cheques etc from all departments 2. Sorting Vouchers 3. Checking Activity 4. Packing

Collecting Vouchers
The first stage of activity checking is collecting all vouchers, cheques, DDs, pay order, pay slips etc from all departments of the bank. Mainly vouchers come from the operations department. After collecting these vouchers etc from the departments, we need to check if all stamps are stamped on these vouchers etc.

Sorting Vouchers
After all vouchers are collected, they need to be sorted into eight categories: 1. Customer Debit: Includes debit vouchers and cheques 2. Customer Credit: Includes credit vouchers and credit slips 3. Income: Income vouchers 4. Expenditure: Expenses vouchers and payment vouchers 5. Others: Includes vouchers about excise duty, FED, teller, ATM, payables etc 6. Online: Contain online vouchers and online credit slips etc 7. Head Office (H.O): Includes HO vouchers and IBCA, DD advices 8. Bills Payable General (BPG): Includes vouchers and DD, Pay orders, Pay slip

Checking Activity

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After sorting takes place, daily activity is checked using the statement of account activity, which contains all daily activity of the accounts in the bank. Activity checking is done by seeing if the values and account numbers in the sorted vouchers match that of the activity and whether or not there is any missing activity that is not in the vouchers.

Packing
After the activity is checked, all sorted vouchers are counted, both debit and credit and then packed by totaling the vouchers.

COLLECTIONS
The collection of cheques and other instruments has become a very important service that commercial banks render to their clients. While collecting cheques and other instruments, a bank acts as an agent of its customers and therefore, the banker customer relationship in this case changes from the debtor creditor relationship to the agent principal relationship .The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both, collecting as well as paying, banks have certain obligations to each other and to their customers. They have certain legal rights also and legal protection is available against fraudulent transactions under various sections of the Negotiable Instruments Act, 1881.

Duties of a Collecting Bank

To act in Good Faith To exercise due care and diligence and not be negligent To act according to the instructions of the customer/principal To follow the accepted norms and practices of banking To abide by all the rules and regulations governing collections. To account for the proceeds and charges/levies deducted from it, to the customer .

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Duties of Paying Bank

The paying bank, in order to claim proper discharge. Should make the payment according to the apparent tenor of the instrument Should act according to the instructions of the Collecting Bank Payment should be in good faith Should act expeditiously and without negligence Payment should be in the normal course of business

Outward Clean Bills For Collection

Cheques and other instruments, which are drawn on other banks or BOK branches in other towns/cities or countries (outside clearing or transfer delivery arrangements), received for account of the banks customers, are lodged in Outward Collections Register either as OBCs or FBCs. The procedure for handling these bills is discussed below.

Initial Scrutiny
On receipt of bills for collection from the customers an initial scrutiny is conducted with the following consideration.

Date
Cheques and other instruments should not be without a date, post-dated that is bearing a future date or stale that is bearing an old date that is no more legally valid or is outdated.

Payee

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Payee should be a customer of the bank whose account is required to be credited with the proceeds of collection. In case a customer wants to deposit a cheque/instrument, which shows someone else as the payee, there should be an appropriate endorsement by the named payee in favor of our customer.

Amount
Currency and amount of the cheque/instrument should be mentioned both in words and figures and the amounts in words and figures should be the same,

Drawer(s) Signatures
The drawer(s) should properly sign the cheques/instruments.

Material Alterations
Date, payees name, drawers signature, and amount are all material parts of a cheque. Full signatures of the drawer(s) should confirm any material alterations, in these parts.

Crossings
Cheques/instruments must be crossed before processing them for collection. Sec. 125 of the Negotiable Instruments Act allows a collecting banker to cross a cheque generally as well as especially for collection/clearing purposes. An un-crossed cheque is liable to be misused/appropriated, since it would be payable to the bearer.

Endorsements
Order cheques should be properly endorsed if being collected for 2nd or subsequent payees.

Mutilations
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Cheques/instruments should not be mutilated to the extent that they can be misinterpreted or not be correctly read.

Procedure for Handling Outward Bills

After scrutiny, if instrument is found in order, a Special Crossing stamp of the bank is affixed on the face of the instrument. Where a cheque bears across its face an addition of the name of a banker, with or without two transverse parallel lines, the cheque shall be deemed to be crossed specially to that banker. Payment of an instrument which bears special crossing of a bank cant be made to any one except the named bank or another bank who acts as a collecting agent of the first one a bank which acts as a collecting agent for some other bank is also authorized to put its own special crossing In addition to the special crossing, the collecting bank has to give a certificate/discharge on the reverse side of the cheque/instrument to the effect that proceeds of the instruments will be credited to the payees account. A stamp containing discharge is affixed as under:

Payees Account will be credited on realization For The Bank of Khyber Manager Officer

In case, cheque or instrument is endorsed by the first payee in favor of another person discharge will be as under.

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First payees endorsement Confirmed, Second payees Account will be credited on realization For The Bank of Khyber Manager Officer

Another stamp known as OBC STAMP is also affixed on the face of the cheque /instrument, which indicates name of the collecting bank, OBC reference number and date of lodgment for further reference. Form or style of an OBC stamp may differ from bank to bank and even branch to branch, however, contents remain the same. A specimen is given below The Bank of Khyber OBC NO. Dated

Lodgment
After initial scrutiny and stamping, bills are lodged for collection by being recorded in the OBC Register or by using an appropriate computer option. An officer authorized to authenticate who uses an appropriate computer option to authenticate the transaction should authenticate the entry. Upon authentication, the computer generates an accounting entry (Vouchers are manually passed where the branch is not fully computerized.)The entry is made to record the fact that the bank has accepted the liability for collection of a certain bill and simultaneously has obtained the right to receive the payment as a collecting agent. When collection is realized or is returned by the drawee this entry is reversed since the liability of the collecting banker as well as the right to receive payment does not exist any more.

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Collection Schedules
The next step after computer processing is to prepare collection schedules/orders addressed to the bank/branch, which we have chosen as our collecting agent

Dispatch of Items for Collection

After completion of above procedure, collections are sent to the designated collecting agents or drawee banks/branches, as appropriate.

Commission & Charges

Commission on clean bills should be recovered strictly at the rate specified in the Banks schedule of charges. Collecting agents charges will be extra if the collecting bank Is other than the Bank of Khyber. Mail/telegram/trunk call/fax charges should also be recovered, as per the schedule of charges if fate of the instrument is asked for by telegram/telephone or fax etc. Cheque returning charges should be recovered as per the schedule, in case the instruments are returned unpaid. If collections are send by courier service, courier charges are also recovered. Normal postal charges/registered mail charges for bills sent for collection are in-built in the commission.

Realization
If a collection is realized through one of our own branches, proceeds are received by means of a credit advice (IBCA) or telephonic/fax message depending upon instructions contained in the collection schedule. Where collections are sent directly to the drawee banks/branches other than our own branches or correspondent banks with whom

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we have agency arrangements, proceeds are received by means of a demand draft which is finally collected through clearing.

Bills Returned Unpaid

If a cheque/ Instrument is returned unpaid by a drawee bank/branch due to any procedural mistake made by the collecting bank such as banks discharge irregular/ required, endorsement requires banks guarantee/confirmation or OBC stamp or special crossing required etc., the mistake is rectified immediately and collection is presented again by fastest available means such as courier service/urgent mail service etc. If collection is returned due to lack of funds in the drawers account or due to stop payment made by the drawer or difference in drawers signature etc., the customer is immediately contacted and informed. Proper entry is made in the Cheque Return Register. The returned instrument together-with objection memo is handed over to the customer or his/her authorized representative after getting acknowledgement on cheque return register. If a customer is not available, the returned instrument may be send by registered mail or local express mail/courier service etc. depending upon situation and circumstances in each case

Inward Clean Bills For Collection

Bank receives cheques, drafts and other instruments for collection from its own branches or from branches of other banks, which are not included in local clearing house arrangements. These bills would be its outward bills for collection (OBCs) or bills purchased but they become inward bills for collection (IBCs) for it.

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Initial Scrutiny
Immediately upon receipt, all instruments are scrutinized on the following points: Whether or not all instruments are apparently in order viz. a viz. genuineness ,date payees name, amount, and drawers signatures etc? Whether or not instruments are drawn on our branch or banks/branches with whom we have arrangements through clearing or transfer delivery procedures? If the answer is yes only then instruments are processed further, otherwise they are returned to the concerned banks or branches with relevant objection.

PROCEDURE FOR HANDLING INWARD BILLS Recording Receipt

Mail Received stamp is affixed on all collection schedules received which indicates the date of receipt of each and every inward collection. All inward collections are entered in the IBC Register and every collection is allotted a serial number called IBC Number. IBC stamp is also affixed on the face of the instrument. Instruments are segregated department-wise Cheques, TDRs, ad CDRs, etc.are handed over to the Deposits department while DDs TTRs, MTRs and POs are given t the Remittance department. Instruments, which are drawn on other banks or branches, are handed over to the clearing department. However, only designated branches perform this last function. Computer entry is made where a branch is computerized, otherwise manual entries are passed

Commission & Charges

No commission or service charge is recovered from the collections received from bank own branches except withholding tax, if applicable. Only collecting branch is supposed to recover commission and other charges. However, commission at the prescribed rate for the issuance of draft plus courier charges and government levies like

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withholding tax and excise duty are recovered, in case collections are received direct from other Banks .DD along with a covering letter is sent to the bank concerned, mentioning their Ref. No. or OBC No. and details of commission, charges, taxes etc. deducted from the bill amount .If any instrument is drawn on some other Branch or other Bank in the city, it is processed in the transfer delivery or clearing respectively, to pay the proceeds. Inward collections are generally routed through the Main Branch or some specially designated Branch.

Local Bills Collection

The bank of Khyber Sialkot Branch collects its local Bills, through its collecting agent Muslim Commercial Bank Rawalpindi . The cheques DD, P/O etc of the customers of Islamabad branch or OBCs of other branches which are drawn on at any Bank in Pindi are sent to the MCB Pindi for collection. The MCB will present these instruments in clearing at SBP Rawalpindi .Before to send these instruments the entries are made for these in LBC Register. Proper stamp is affixed on the Back side of the instrument .The Next day the statement comes from MCB Pindi. The cleared (Passed) instruments are credited to the clients A/C and instruments returned are sent to Drawer back and an entry is made in the LBC Register

CLEARING
As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques /instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks.

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Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from an number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent by the collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement.

Working of the Clearing Process

Under the clearing arrangements, the Central Bank or the State Bank of Pakistan (SBP) in our country, offers a Clearing House or a centralized exchange facility, which works on the following general lines: All the banks operating in a city who are members of the Clearing House maintain an account with the SBPs Clearing House. Every day representatives of all the banks in every city meet the Clearing House, first meeting in the morning, at an appointed time, for the purpose of depositing their own customers , cheques/instruments to be collected from other banks and receiving cheques/instrument drawn on their account holders from the others banks. At the Clearing House accounts of all the banks are debited by the total amount of cheques/instruments drawn on their customers accounts and credited with the amount of their customers cheques/instruments drawn on other banks, as per the list of cheques submitted by each bank. The cheques/instruments received, also called Inward Clearing, and are take back by each bank to its bank/branch. The amounts of each cheques/instrument is debited or recovered from each drawee customers account and credited to the Clearing House account. Similarly, against the amount credited by the Clearing House as Outward Clearing, the appropriate customers accounts are credited and clearing House account is debited. 90

Any cheques/instruments received by a bank that cannot be paid, due to insufficient balance in its customers account or for any other reason, are returned back to the Clearing House and a credit is claimed and obtained there against. Thus the Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area.

First Clearing & Second Clearing

The business of the Clearing House is normally conducted in two sessions called First Clearing and Second Clearing. During first clearing, receipts/payments are adjusted arising out of cheques delivered and received against each other. In the second clearing, cheques which could not be paid due to any reason, accompanied with objection memo, are also handed over or received back form the member banks and adjustments made accordingly.

Where There are no Clearing Houses

At places where there are no clearing houses or clearing arrangements, local cheques drawn on other banks are presented for clearance through and authorized representative under cash received/payment received discharge arrangement. Under this arrangement the cheques/instruments have to be presented by an authorized officer of a bank over the

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counters of the drawee/paying bank and the cash so received is credited to the customers/beneficiaries accounts

Outward Clearing
Cheques received by a bank from its customers to be collected from other banks are considered to be in the Outward Clearing arrangement. The procedures and considerations that apply to Outward Clearing are discussed below:

Initial Scrutiny
While accepting cheques for collection/clearing, the pay-in-slips and the cheques and other negotiable instruments are properly scrutinized with respect to following points. Payee/beneficiary must be customer of the Bank. Separate pay-in-slips should be filled out for local cheques drawn on our own Branches and on other Banks. Title and account number should be mentioned Amount of the pay-in-slips tallies with that of the cheque. There are no unauthorized alterations. The amount, account number and the title of account on the counterfoil are the same as on pay-in-slip. The pay-in-slip bears the signature of the depositor at the specified place.In addition to the above , cheques/instruments are scrutinized on the following points: Endorsements (if any) must be regular. There are no previous special crossings. The cheque is not post-dated, stale or undated.

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The cheque payable to a firm, company or institution should not be accepted for credit to the account of a partner, director, agent/attorney or manager of the firm, company or institution. Cheques/instruments crossed Payees Account only should not be deposited or collected in any other account. The first payee in favour of the depositor, if collected for another account,must have properly endorsed order cheque.

Stamping
After conducting initial scrutiny and being satisfied in all respects, the special crossing stamp of the bank and clearing stamp are affixed on the face of the cheque/instrument without spoiling material contents such as date, amount, payees name and drawers signatures etc. given below is the specimen of the stamps

THE BANK OF KHYBER Branch ____________ Date ______________ CLEARING THE CLEARING STAMP

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THE BANK OF KHYBER Shahab Pura Branch Sialkot CROSSING STAMP

Bankers Discharge
According to the type of cheque/instrument, appropriate discharge or endorsement on the reverse side of the cheque/instrument has to affixed . This is referred to as the Bankers Discharge. If an instrument is being collected for the payee named on the instrument, discharge would be simple as payees account credited. In case of endorsements, there may be second or subsequent payees involved, in which case the discharge would be like First payees endorsement confirmed, second payees account credited or All endorsements confirmed, final payees account credited etc., depending upon the nature and type of the instrument .The Discharge stamps look something like this

Payees Account Credited. For The Bank of Khyber ______________Branch OFFICER

All Endorsements Confirmed.

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Final Payees Account Credited. For The Bank of Khyber _________ Branch OFFICER

Segregation of Instrument and Forwarding Schedule

All cheques are sorted out and segregated bank-wise and Branch-wise. A schedule or summary is prepared bank-wise, in triplicate, which gives the total number of cheques and the total amount receivable form a particular bank. This schedule is prepared manually or generated on computer.

Procedure at Clearing House

Bank-wise schedules together with the cheques are delivered to the representatives of drawee banks and master schedule is delivered to the In-charge of the Clearing House. In-charge of the Clearing House obtains acknowledgement from each drawee bank and passes a consolidated accounting entry for the total amount of outward clearing.

Dishonor or Returns
In case any cheque is not paid or honored then it is send back to the clients.

Completing the Process

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After realization and accounting for returns, an appropriate option is used to close the clearing process on the computer terminals. Then through another appropriate option anew schedule is printed for the newly received items for the next days clearing

INWARD CLEARING Procedure at Drawee Branches

The Drawee branches immediately scrutinize the cheques and other instruments received under inward clearing on the following points: whether all cheques/instruments are drawn on/payable at the receiving branch? whether all cheques/instruments are genuine, properly dated and made out?

If answers to the above questions are yes then instruments are segregated department t-wise. Cheques and CDRs etc. are handed over to the deposits department while DDs, Pay Orders, are given to Remittances Department. Appropriate accounting entries are passed for the Inward Clearing items If there are any cheques /instruments to be returned unpaid, due to any reason, appropriate computer entries are passed and it is ensured that the original cheques/instruments returned unpaid are delivered to the collecting bank in second clearing.

Returns After Clearing Hours

If a cheque or instrument is not returned in time (during second clearing) then it cannot be returned through the Clearing House. The Branch concerned immediately contacts the collecting Bank/Branch and requests them not to release the funds against said collection item. The cheque/instrument in question along with an objection memo is returned to the Collecting Bank through a special representative/staff member. The

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Collecting Bank is requested to issue a Pay Order in favor of the Bank for the amount of the cheques/instrument returned.

5.3 Remittances DEPARTEMNT:

Current business trends demand fast movement from one geo-graphic end to another. Latest technology and telecom data transmission has made it possible to make such transactions with in minutes. Funds transfer facility or Remittance of Funds is one of the key functions of the banks all over the world. Remittances through banking channels save time cost less and eliminate the risks involved in physical transportation of money from one place to another. Besides earning commission, banks also get much-needed short term (cost free)liquid funds right from the receipt of value till final payment .Any person who is of sound mind and can sign the application form as a contracting party may make a remittance .Customers, in order to remit money from one place to another, have a variety of options or modes available to them according to their needs.

Types of Remittances
There are two main types of instruments that are used to transfer money, which are as Follows: Pay order: Used to transfer money within the city Demand Draft: Used to transfer money outside the city

PAY ORDER

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Pay orders are made to transfer money within the city and this is a safe way to transfer money as the person who makes the transfer through pay order pays in advance. The procedure that is carried out in transferring money through pay order is as follows

Procedure for Transferring Money through Pay Order

The customer will come to the bank and fill in the pay order application, giving in the details to which account the money is being transferred, the amount etc and attach a cheque to pay for the pay order. Pay orders can also be made through cash but mainly it is made through cheque. The officer checks all the details in the application, makes out the charges for the transfer that the customer will pay and then make the pay order for the customer and pass the following entry:

Customer A/c Pay order payable

When the customer in favor of whom the pay order was made gives the pay order to his Branch, the entries passed are:
Pay order payable Customer A/c

Main Characteristics
a) It is not negotiable under The Negotiable Instruments Act.

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b) Protection available to collecting bankers in case of promissory notes, bills of exchange and cheques under the above mentioned Act is not available in case of pay-orders. c) It is issued by, drawn upon and is payable at the same branch of the bank. d) Pay order is used as a substitute for demand draft within local/city limits. e) Being a bankers cheque , pay order is also used to make the banks own payments

Demand Draft
A demand draft is basically a bill of exchange. It is an order to pay money Drawn by one office of a bank upon another office of the same bank or another bank. When it is drawn upon another office of the same bank it is covered under Sec. 85 A of the Negotiable Instruments Act. However, when it is drawn upon an office or branch of another bank it is considered as a bill of exchange under Sec. 5 of the same Act. Also called DDs meaning local Demand Drafts and FDDs meaning Foreign Demand Drafts.

Salient Features
a) Demand draft is a negotiable instrument. b) An order instrument payable on payees identification or through credit into payees bank account. c) Legal provisions as to crossings, endorsements, collections and payment in due course are similar to those for cheques and other negotiable instruments

Parties to a Draft
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Following are the parties to a bankers draft: The person who pays the value and on whose behalf draft is issued is called the purchaser . The branch/office, which issues a draft on another branch or office, is called the Drawer/issuing branch . The branch/office on which draft is drawn is called the drawee branch . The person entitled to receive the payment is called the payee .

Procedure for D.D.:

Purchaser is asked to fill in an application form duly singed by applicant. Three things should be maintained in the form. Name of Payee Place of payment Amount of D.D

Commission is charged on D.D as bank income. The applicant is asked to deposit the cash specified on the application form to the teller. After depositing cash the remittances in charge prepare a D.D. That is singed by two officers must having power of attorney. Bank also provides this facility to general public who dont have account in BOK. They will have to submit a N.I.C copy along with D.D application form.

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Telegraphic transfer (T.T)

The transfer of funds from one branch of a bank to another branch of the same bank or to a correspondent bank/office for payment to the beneficiary through telex/fax or telegram is called a telegraphic transfer. It is also called TT.

Salient Features
A) TTs are affected through internal procedures of the bank and no instrument is given to the remitter. B) Telegraphic transfers are not negotiable. C ) Funds remitted through TTs cannot be paid to order/bearer. Payment can be made to the payee only upon identification or through a bank account. D) TT instructions are sent under a coded number known as Test Number. E) Telegraphic transfers are not affected on the branches within the same city

Procedure for T.T:

The procedure for T.T is same as D.D. But in D.D it is given on a printed-paper and singed by two officers but, in T.T, only test number is given to the customer.

Mail Transfer (MT)

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When the money is not required immediately, the remittances can also be made by MT. Here the selling officer of the bank sends instructions in writing by mail to the paying bank for the payment of a specified amount of money. The payment under transfer is made by debiting the buyers account at the sending office and crediting it the recipients account at the paying bank.

Salient Features
a) Mail Transfer is not negotiable. b) Like TTs, funds remitted through MTs are not payable to the bearer/order .c) Mail transfer is internal instrument of the bank and, therefore, unlike DD, it is not handed over to the remitter

Basic Procedure In Case Of Issuance & Payment Of Different Remittances Instruments

The remitting bank collects the actual amount of remittance plus the commission, postage charges and tax amount if the tax form is not attached with the application form. These amounts may be collected by cash, Cheque or by authority letter (given by the customer to debit my account for actual amount plus charges etc

Application &Agreement of Test Cod

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When TT & MT is issued then on the advice the special test code is applied. For this purpose special test keys are provided to every branch and the HO also has. In case of payment of TT & MT test is checked either it is agreed or not. If it is agreed then customers A/C is credited or TTR is issued in case when the customer doesnt have the A/C with the bank. When the amount of DD exeedsRs10, 000 then test code is applied to it. Not over Rs ---------- only When DD, P/O &Pay slip is issued this statement is protect graphed or is written with red ink/ ballpoint on the instrument. E.g. Not over RS 10,000 only. For the issuance &payment of any instrument an entry is passed in their respective register and the particulars are fed to the terminal and authenticated the transaction and proper vouchers are prepared

Chapter 6

QUALITATIVE ANALYSIS

QUALITATIVE ANALYSIS OF BOK

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During my six weeks of internship period I have tried to fully commit myself in the learning process. I kept critically observing the thing that I could analyze and the result of the exercise is presented as below.

Organizational:
Existing organizational hierarchy hinders vertical communication and blocks flow of information among the levels of management. The work load is not equally distributed. Coordination level among divisions/departments and employees are poor, particularly speaking of between the top and lower levels of management. There is centralization of authority and branch managers are bound and restricted to take initiative.

Departmental:
During my internship period in BOK, in various departments, I noticed following departmental problems. Cash Department Counting mistakes occur due to overcrowding particularly during the collection of utility bills. Manual counting system also affects efficiency of the bank.

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 . Code of conduct of cashiers is found unsatisfactory. . There is generally the lacking in observing and practicing banks relevant procedures and SOPs.

Deposit Department: Newly designed AOF has an inbuilt deficiency of restricted space and cannot accommodate more than two names. Identification of customers signature is very important particularly when cash is to be withdrawn by him. Manual practices pose problems in those branches where automation has not been done yet.

Clearing Department: Wrong endorsement and stamping causes loss to the customers and extra efforts for the bank to repeat the procedures. Reasons for the return of the cheques at times are not mentioned on the return memos. At times due to lack of staff and over burdance wrong stamps are applied on instruments sometime. Credit Department: Timelines in cash disbursement is very important which is compromised due to lengthy processing and documentation requirements. 105

 Lack of infrastructure for carrying out computerized financial analysis of borrowers business. . Large pool of potential borrowers cannot apply for loans due to lack of collaterals. Heavy collateral requirements restrict credit business of the bank. Filing and record maintenance of credit related documents are done efficiently but its record keeping is manual which still need to be turned into database for fully securitization of documents. Marketing Department i. There is no marketing desk due to the lackage of infrastructure and staff. ii. Lack of promotional activities.

External Environment: Opportunities and Threats

Societal Environment Following are the forces which are currently affecting Khyber Bank and the Banking industry: a) Economic

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The main things affecting Khyber Bank and the banking industry are which is benchmark for industry lending is at highest ever point. b) Technological

increase

interest rates, and the rising inflation rate in the economy, for example, currently KIBOR

Developments like introduction of oracle financial systems, symbols, and different application are increasing productivity of the Khyber Bank as well as the banking industry, but on the other its initial implementation costs are causing increased administrative cost to BOK. c) Socio cultural Socio cultural forces like values, demographic characteristics, etc. are also affecting BOK as well as the banking sector. Because of these values some professionals dont want to join banking sector, and some people dont keep their money in the banks, because of religious believes. But on the other hand such believes are also helping banks to introduce Islamic products.

d) Political-legal These include the forces like political conditions in country, SBP regulations, etc are also affecting BOK as well as banking sector. For example, SBP is increasing discount rates, Minimum Capital Requirement (MCR), cash reserve ratio, etc. which is causing liquidity problems for BOK as well as banking sector. Due to MCR, various mergers took placed in the banking sector, and few mergers are also expected in near future.

Task Environment (Industry)

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Many forces in the industry are causing competition, these include, technology i.e. communication system like Symbols, Sun, Oracle, etc, larger branch network, ATM locations, unique products, entry of foreign banks, etc. Task environment of BOK can be discussed through following Porter Model: a) Threat of new entrants Opening of braches by Barclays (which in international reputable bank), threat of entering of Bank of China (BOC) by acquiring SME Bank, and Industrial Development Bank of Pakistan (IDBP), while BOC is also planning to acquire 26% stakes in National Bank of Pakistan. b) Bargaining power of buyers Due to increase in interest rates, small firms are not in a position to take loan from banks, while number of corporations in Pakistan, is limited. Therefore, key customers/buyers (corporate customers) of banks have gained substantial power and now they can bargain the spread with the relationship managers due of availability of the large number of the banks.

c) Threat of Substitute products or Service As such there is no significant threat of substitute products or service, but few services like investment related services are offered by various Mutual Funds, and Security Dealers, but these services are limited to big cities. While, on deposits side, National Saving Organization, is providing substitute products to the depositors of the banks through attractive packages, at very attractive rates. d) Bargaining power of suppliers

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Currently this is big problem for BOK as well as industry, because of liquidity crisis and Pakistans poor international financial rating, all fund suppliers are avoiding to supply credit to Pakistani industry, moreover depositors bargaining power has also been increase due to high mark up rate offered by various banks, and due to dearth of deposits with bank e) Rivalry among competing firms Banking sector is facing severe competition, due to availability of many national and international banks in the industry. Currently HBL bank, is leading with 40% market share, while MCB with highest profits and National Bank of Pakistan with largest deposits.

SWOT Analysis

SWOT is useful tool for providing a framework for analysis of an organization. SWOT stands for Strengths, Weaknesses, Opportunities and Threats. It is a common approach to make assessments in terms of internal and external environment of the organization, and to formulate strategies analyzing its internal strengths and weaknesses, external opportunities and threats, coming up is the

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SWOT analysis for the BOK.

Strengths
Based on financial strength and superior performance, BOK Limited has been assigned the short term rating of A2 and A-for the long term by JCR-VIS (credit rating Company). Better technology like Symbols, implementation of Financial Oracle, HRMS. Very attractive salary packages to employees. Heavy internal financing i.e. from heavily growing deposits. The bank is actively emerging and is engaged in international trade and foreign exchange transactions .

Weaknesses
Weak branch network across the country. High employee turnover. Low number of ATMs. Attracting only upper and middle class customers. Market share is declining from new competition. Employees frustration due to excessive work burden. 110

 The bank has large number of employees who are simple graduates with no banking knowledge.

Opportunities
It can capture agriculture market by offering innovative agriculture finance products. Impressive print and electronic media campaign highlighting BOK role in the development of rural economy of Pakistan can give it competitive edge over its competitors. Through re-branching, BOK can capture lot of new customers. Expansion of IT platform and internet based banking system. Interest of businesses in leasing facilities provides a healthy opportunity for banks. There is a large pool of unemployed MBAs who can be hired to achieve professionalism on its organizational culture. Entering new market segments. Increase the product range to meet the broader range of customers needs.

Threats

Declining trend in banking sector, which can affect it to large extent because of its big corporate customers which are few in number. Arrival of Barclays and Bank of China in Pakistan, which can increase the competition in banking sector. 111

 Decreasing trend in Earning per share and stock prices. Moving of key employees, e.g. Corporate Relationship Managers, which means moving of corporate clients to other banks. Increase in competition due to increasing number of foreign and domestic private banks offering highly specialized and attractive services. Growing global technological advancements and adaptation of modern style of management in banking sectors.

This SWOT analysis is a mirror image of the banks present conditions. Some efforts are made and others are still required to be made in order to improve the situation. The management can develop elaborate strategic plans for capitalizing the available opportunities. The bank should maintain principal of professional management and adhere to sound and sophisticated banking rules and regulations so that confidence and trust of the public in the institutions could be re earned.

PART SEVEN Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of balance sheet 112

and profit and loss account .The analysis of bank statements is undertaken by analyst, depositors, regulatory authorities, stockholders, borrowers, 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 assure themselves that the banks are operating in accordance with the requirements of the law and are in sound financial conditions. Stock holders are interested in the general financial condition of the bank and the earnings, the dividends, and the managements policy with reference to the accumulation of surplus. The borrower is interested in knowing the extent of available funds and the use that is made of the banks resources .Financial ratio that relates two accounting numbers and is obtained by dividing one number by the other. In banks we basically done two type of financial analysis 1. General Analysis 2. Specialized Analysis In General analysis I calculated the following ratios which are as follows. i. ii. iii. iv. Solevancy Ratios (Payments of Original Debts) Profitability Analysis (Return Analysis) Investor Analysis (Marketability & Investor Analysis) Cash Flow Analysis

113

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115

116

117

COMMON SIZE ANALYSIS OF BALANCE SHEET

118

Common size analysis is an analysis of financial statements where the total assets divide all balance sheet items of asset side and all credit side balances divided by all liability items, and all income statement items are divided by net Sales/revenues. Common size analyses are extremely helpful to highlight changes over the time in financial performance and financial conditions of the company. The table shows common size analysis of the balance sheets for the years 2001, 2009 & 2010. The common size analysis given in the table shows that there have been improvements in the current assets in 2010 as compared to 2009. But there has been decrease in fixed assets. The main reason for this change is increase in short term investment showing a constant increase as a percentage to total assets. This implies that the bank is concentrating now more on non-interest income and the interest rates are constantly falling. There is an significant changes in advances of bank in 2010 as compared to 2009.There is an about 54% increases in advances of the bank in 2010.. This is very significant to note that major decrease has occurred in long-term performing and non-performing advances.

There is decrease in long term assets of about 17% which mainly cause the decrease in long term advances which are about 13% and 6% decrease in long 119

term investment.

On the liability side the total current liability has shown a significant change. The main reason for which is increase in current deposits, which are about 41%. The long-term liability of the organization is also decreased. The main reason for this is that fixed deposits of organization are decreased which shows that there is a slight change in the organizations position by decrease in fixed deposits.

COMMON SIZE ANALYSIS OF INCOME STATEMENT

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The common size analysis of income statement is given above which shows that the BOK has been able to control its interest or mark up expense. As a result of decrease in mark up expense as a percentage of total revenues the gross profit margin has shown a trend of continuous increase. The increasing G/P Margin shows efficiency of the bank in controlling cost of sales (Markup expense) and better strategy of pricing, products and services.

The provision for non-performing loans has a decreasing trend making no provision for non-performing loans and diminution in value of investment, which increases the profit of current year. The reduction in provision is a good sign, which shows that the bank is recovering its disbursed advances. It shows the good credit management of the bank.

Non markup expenses also show a rising trend in absolute amount though the common size in percentages have shown a mixed trend due to the changes in revenue figures. The non-performing expanses also increased to about 3.38%, which is a little high percentage, but the other aspect of this is that it increased the efficiency and credit management of the staff.

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Like gross profit the net profit margin before tax has also increased with a very big precentage rate. The extraordinary item expanse has not occurred in 2010 that caused a slight increase in the net income. The tax expanse is increased about 19% because of the increase in profit. The common size analysis of the BOK is clearly showing that the bank has shown a lot of improvement in its performance. The organization shows profit for the first time in the last 5 years which is a positive sign and it will build up the moral of the employees by which they can work more effectively and efficiently increasing the performance of the bank.

Ratios Calculations
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Profitability Ratios
Name of Ratio ROA Current Year 2010 1.11% Base year 2009 - 1.64% Results Favorable

ROE

6.01%

- 10.69 %

Favorable

ROI

1.85 %

- 3.12 %

Favorable

ROOA

16.85 %

6.35 %

Favorable

Comment
The Overall effectiveness of the management toward the use of the resources is not effective in the current year as compared to the base year as all of the indicators shows unfavorable impact for the BOK. The major reason of this favorable impact is the better utilization of deposits toward the generation of the profit or return in the current year as compared to the base year. ROA has shown an improvement more than 100% in the current year. In 2010 the ratio is 1.11% while in 2009 it was in negative figure which is-1.64. % . The return on equity is also shown a great deal of positive change. In 2010 the ratio is 6.01% while in 2009 it was in negative figures.

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Marketability & Investor Analysis

BOK does not declare its cash dividend so we cant calculate its Dividend Yield and Dividend Payout ratios.

Name of Ratio

Current Year 2010 1.13

Base year 2009

Results

EPS(Diluted)

(1.27)

Favorable

Dividend Yield ratio Dividend Payout P/E Ratio

3.59

(3.18)

Favorable

Book Value per share

1.88

1.19

Favorable

Comment
The marketability analysis of the BOK shows the favorable aspect for the bank. The current year result also indicates that market potential of the bank has been increase in the current year as compared to the base year. The P/E ratio is much stronger in the 2010 which was 3.59 while it was negative in the 2009.Similarly book value par share has also been increased in the 2010 which is 1.88 while it was 1.19 in 2009.

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Cash Flow Analysis

1. Operating Cash to Total Debt

Name of Ratio

Current Year 2010

Base year 2009

Results

O.C to Total Debt

0.04

0.20

Unfavorable

Comment
The solvency with reference to cash flow is unfavorable in the comparative year. The reason of this favorable impact is the decrease in operating cash of the bank in current year. More ever the current year answer also indicates that company is less focusing on lending to the financial institution in the current year as compared to the 2009.Another major reason of this unfavorable impact is that operation assets of the banks has been decrease in 2010 and in the same time operating liabilities has been increased in current year while in the base year it was inverse

2. Operating Cash To Shares

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Name of Ratio

Current Year 2010

Base year 2009

Results

O.C to Shares

0.36

1.28

Unfavorable

Comment
The comparative analysis of two years shows that investor would consider the payout policy of the Bank as positive sign on the part of the Bank as the Bank has more cash than its EPS.

3. Operating Cash to Dividend

Name of Ratio O.C to Dividend Current Year 2010 Base year 2009 Results -

Comment
Due to the undeclaration of cash dividend we cant calculate operating cash to dividend ratio of the bank.

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Specialized Ratios Analysis

Name of Ratio Earning Assets To T. Assets Current Year 2010 82.99 % Base year 2009 87.54 % Results Unfavorable

Return on Earning Assets Net Margin To Earning Assets

1.69 %

- 2.35%

Favorable

3.81 %

0.77 %

Favorable

Loan Loss Coverage Ratio Deposit Time Capital Loan To Deposit

15.58 %

- 0.21 %

Favorable

7. 39 %

5.25 %

Favorable

1.23 %

1.18 %

Favorable

Equity To Total Assets

0.0985 %

0.1289 %

Unfavorable

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Earning Assets to Total Assets

Name of Ratio Earning Assets To T. Assets

Current Year 2010 82.99 %

Base year 2009 87.54 %

Results Unfavorable

Comment
The analysis of bank shows that the bank has put its majority of assets in the work in both year but the results of the current year indicates that a slight decrease in the manager efficiency .In current year the bank has make more investment.

Return on Earning Assets

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Name of Ratio

Current Year 2010

Base year 2009

Results

Return on Earning Assets

1.69 %

- 2.35%

Favorable

Comment
The analysis of bank profitability shows that management is considered efficient towards the return of investment in earning assets. The increase in mark-up return with the decrease in mark-up expense has made it indicator successful on banking behalf.

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Net Margin To Earning Assets

Name of Ratio

Current Year 2010

Base year 2009

Results

Net Margin To Earning Assets

3.81 %

0.77 %

Favorable

Comment
The analysis of the bank management efficiency tells us in current year that portfolio of managers of the bank have successfully meet or controlled the spread of Mark-up Income over Mark-up Expense.

Loan Loss Coverage Ratio

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Name of Ratio

Current Year 2010

Base year 2009

Results

Loan Loss Coverage Ratio

15.58 %

- 0.21 %

Favorable

Comment
The protection to the depositors has increased in the current period 2010 as compared to the base year 2009.It means that now bank is in a better position to protects its depositors loan to bank as compared to the base year. Not only the bank has earned more income but also reduces its non-performing loans in the current year as compared to the last year.

Deposit Time Capital

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Name of Ratio

Current Year 2010

Base year 2009

Results

Deposit Time Capital

7. 39 %

5.25 %

Favorable

Comment
The current year indicator suggests that the performance of the bank with respect to the confidences of depositors is better in 2010 as compared to the 2009. The increase in the amount of earning asset is also associated with the amount of deposit. It also means that profitability of the bank should be strong as it is in current period. A slight concern is the solvency of the bank with respect to the overalls investment but it is secondary issue.

Loan to Deposits

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Name of Ratio

Current Year 2010

Base year 2009

Results

Loan To Deposit

1.23 %

1.18 %

Favorable

Comment
The relationship of the assets and liabilities with all the requirements of the country central bank shows that favorable results in the current period as compared to the base year because of the two reasons. 1) Increase in Equity 2) Monetary Policy

Graphical representation of specialized ratios

Earning Assets to Total Assets

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A1

Earning Assets to Total Assets shows decreasing trend in 2010 as compared to 2009. In 2010 there is a slight decrease in is increasing trend. In 2009 this percentage was about 85% which decreases in 2009 and became almost 84.99% in 2010.

Return on Earning Assets

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Return on Earning Asset has shown an increasing trend in the current year . Banks strategy about to increase its earning asset becomes successful. But the proportion of increasing of return on earning assets is lesser than the increase of earning assets to total assets. If bank concentrate to increase the return of earning asset, it can increase. There is an very huge increase in return on earning assets of the bank .In 2009 this percentage was in negative which increase in current year and becomes 1.69 %.

Net Margin To Earning Assets

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The analysis of the bank management efficiency tells us in current year that portfolio of managers of the bank have successfully meet or controlled the spread of Mark-up Income over Mark-up Expense. The current year result shows that management is more efficient in 2010 as compared to the 2009.

Loan Loss Coverage Ratio

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Loan loss coverage ratio of the bank has also been increased in 2010.In 2010 this percentage was in negative i-e -0.21 which increase in 2010 and becomes almost 16% It means that now bank is in a better position to protect its depositors loan to bank as compared to the base year. Not only the bank has earned more income but also reduces its non-performing loans in the current year as compared to the last year.

Deposit Time Capital

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The current year indicator suggests that the performance of the bank with respect to the confidences of depositors is better in 2010 as compared to the 2009. The increase in the amount of earning asset is also associated with the amount of deposit. It also means that profitability of the bank should be strong as it is in current period. A slight concern is the solvency of the bank with respect to the overalls investment but it is secondary issue.

Loan to Deposits
138

The relationship of the assets and liabilities with all the requirements of the country central bank shows that favorable results in the 2010 as compared to the 2009.In 2010 this percentage was 1.23% which is slight better than 2009 where that percentage was 1.18%.

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ADVANCES

The above figure shows the fact that advances has been increased at a steady rate in 2010 as compared to 2009 which not only shows the excellent policies of the top management but also immense confidence of the customers to take advances from the bank. In 2009 the advances was 11935962 which increased in 2010 and becomes 18238333.

PART EIGHT Departments Worked During Internship

140

I did my internship Bank of Khyber, for a total duration of six weeks and the departments that I worked during this time are as follows

Account Opening Department

Account opening is the first step in business of banking to create the relation of public with bank as a customer. Now customer becomes creditor of bank. It is most important department of bank and bank officers must take special care before opening the account Account Of General Customers Illiterate person account Joint Account Accounts Of Special Customer Proprietor Ship Account Partnership Account Limited Companys Account Agents Account Clubs, Societies /Association Accounts Trusts Local Bodies Etc.

Account opening procedure

The general procedure of all account's opening is same but the document required to open the account is different according to type of account .The branch manager is responsible to handle job of account opening but in some cases, it is assigned to other responsible officers. Information at the time of opening of account, the bank officer must assure that customer has the following characteristics: The customer must have the age of majority, it means he must be the age of 18 according to law.

141

The customer must be of sound mind. The customer must not be insolvent and bankrupt. .Also the bank officer must take proper information from the customer about his Means, line and place of business

Account Opening Form (AOF)

The bank officer must assure that the customer fills each and every column of account opening form correctly with all necessary details. The specific information about the business or occupation of the customer is recorded in the form. It is preferred that the customer in the presence of introducer fills account opening form

Introduction of Accounts
It is a most important column of AOF. Without the proper introduction, the new account cannot be opened. The bank officer consider following precaution in this respect. The introducer should come with the prospective customer to the bank, so there will be no doubt about the identity of customer. If the introducer does not come then bank officer must take extreme care about his signature verification. The staff member can become introducer if they personally known to the prospective customer.

National Identity Card

The bank officer check that number of national identity card is correctly recorded in the AOF and a copy of national identity card is kept in record by the bank.

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Specimen Signature Card (SS Card)

The bank officer takes signature of customer on AOF and specimen signature card. NADRA Verification Verification of customer ID card is also necessary from NADRA. NADRA also provide there software to FBL that they personally take verification in Bank

Indemnity Form
If the customers signature are shaky than he will also sign the indemnity form in which he mentioned that Bank is not responsible for any obligation about his signature.

KYC (Know Your Customer) Form

In this form bank write all information about customer e.g. title of account, Account number, business detail etc.

Visa Credit Card Application Form

If customer also wants to gain facility of Credit Card or ATM card than this application form is also filled by customer. After filling this application by customer this application is forward to head office, than head office sends the ATM card.

Two Photographs of customer:

With form two photographs of customer is also attach with form if the customer is illiterate and use thumb impression instead of signature, if the signature are in English or Urdu than photographs are not required.

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Letter of Thanks
A letter of thanks is sent to customer through mail to verify his address. If the address is not sending his address than bank quickly take action and can close the account

Individual Accounts
Individual accounts are classified as :i. Accounts of illiterate ladies and gentlemen ii. Joint Accounts

Documents required to open individual account are

a. Account Opening form (AOF) b. Specimen Signature Card c. Copy of NIC Accounts of illiterate ladies and gentlemen In case of illiterate ladies and gentlemen, three photographs are required. Two is pasted on AOF and other is pasted n SS card. Instead of signature, left-hand thumb impressions are obtained on specimen signature card from gents and right hand thumb impression from ladies .At the encashment of Cheque, these customers are advised to attend bank personally and put their thumb impression on the Cheque. If the cheque is presented through clearing then it will also only pay to the customer. Joint Accounts

144

The bank will fulfill the stop payment instruction of any cheque lodged by any member of joint account but removal of these instruction must be signed by all the member If any member dies then there will be no transaction in the account and balance in the account will be paid according to instruction recorded at the account opening form. The member of joint account can delegate authority to any third party to operate the account. All the members Sign such mandate but it will be cancelled if any of the member dies or insolvent.

Account of Special Customers Partnership Firm Account

The documents required for these accounts are: Account Opening Form SS Card Copy of NIC of all Partners Copy of registration certificate Copy of partnership Deed The partnership accounts are opened under the following conditions: Partnership firms can open only current account due to business concern All partners must sign the account opening form Account is opened with the name of Company When the changes are taking place in the firm structure or if the firm is declared as insolvent then transaction in the account will be stopped. In case of insolvency, the personal accounts of partner will also become inoperative.

Joint Stock Company Account

Joint Stock companies include 145

1. Private Limited Companies The companies whose share capital is not offered to the general public instead the offer is restricted to particular class of society or within the family members called private limited. These companies are not listed in stock exchange and are not transferable. 2. Public Limited Companies Promoters and general public contribute the share capital of these companies. These companies are listed in stock exchange and their shares are transferable and brought and soled freely in stock exchange. The document required for these accounts are: Account Opening Form SS Card Up to date Memorandum Article of Association Certificate of incorporation. Certificate to commence business. Resolution of board passed under company seal to open account. NIC Passport of all the directors authorized signatures. List of directors authorized signature

The specific conditions to open the account of Joint Stock Company are:

146

 Introduction is not required for these accounts because companies are legal entities Death, retirement or dismissal of any director does not affect operation on the account. However, death, retirement or dismissal of the directors authorized to operate upon the accounts temporarily put embargo on operations of the account. In such cases, fresh resolution authorizing another person to operate upon the account is to be called for from the company. The Cheques signed by the directors before their death retirement or dismissal will be considered as valid instrument. The operation on the account will be stopped when company terminates its career.

Accounts of Clubs & Societies

These are non-trading/non-profit organizations and are formed for the promotion of culture, education, recreation activities and charitable purpose etc. Account opening procedure is same as mentioned before. Title of the Account Account must be opened in the name of the organization.

The document required for these accounts are:

Copy of Bye-laws/regulations List of members of managing/Executive committee Copy of certificate of registration (if registered) Copies of NICs of the members of executive committee

Issuance of Cheque Book

147

The customer fills the Requisition slip for issuance of cheque books along with the AOF. The requisition slip is duly signed then bank officer enters cheque book series on it. The officers enter the series of cheque book in register in a sequence .The Bank issue 25, 50, 100 leaves cheque books. When cheque book issue than bank take signature on cheque book register and also on requisition form.

Maintenance of Account:
If amount in account is less than 5000 than 80 Rs. Per month will be deduct as a maintenance charges

Dormant Account
If there is no transaction in any account within 6 months then account will become inactive. Now the account will be active only by crediting some amount. Basically account is deactivating for the verification of customer.

Closing of Account
If the customer wants to close the account then he will fill the closing application form along with unused cheque book in the bank. The bank will pay remaining balance to account holder.

Western Union Department

148

Basically Western union department provide service for receiving of money from different countries. Through western union you can only receive money but cannot send the money to other country .The main advantage of western union is that it is not necessary that the person who is going to receiving money has account in bank .The customer directly receive the money from bank. Mostly the amounts are in the form of PKR, Dollar Euro and in Pond. Documents required for western union Western union form CNIC copy

Process of western union

The person who is going to transfer money he had swift code which is issued by the foreign bank from where he is going to transfer money. The person already mentions the name to whom he transfers the money. When he transfers the money in FBL then that person came with its ID card and after verification he can receive money.

Cash Department
Cash department is the most important because it is point of contact between the bank and the customer. The FBL provides efficient and personalized services to their customer. This department creates the impression of bank commitment of professionalism in its system and procedure. So the staff of cash department is well equipped and trained not only in technical handing of cash but also in the art of customer.

Functions of Cash Department

It includes:

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 Receiving cash from the customer. Making payment to the customers against their Cheques or other payment instruments. Handling cash withdrawal and deposit into the bank account with state bank of Pakistan and with other branches of bank. Ensuring proper storage safety and security of the cash in cash. Ensuring proper cash management and sorting out of issue able cash. Maintaining daily cash position in SYMBOL system. Transfer of Cheques from one account to another.

Cash department has two counters,

1. Cash Receipt Counter 2. Cash Payment Counter

Cash Receipt Counter

If the customer wants to deposit in his account then he fills the deposits slip. In deposit slip, the customer writes his account title, account no, the amount in figures & words, particulars mention the mode of deposit either cash or cheque and sign it. The customer makes the payment to cashier along with the deposit slip. This department of bank deals in operation, relating to cash A/C. i.e. cash receipt, cash deposit, sale and purchase of prize bond.

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Cash Payment Counter

When the customer present the cheque to withdraw the money the cashier check its date, amount in figure, signature and either it is BOK ,BOKbranch or any other branch or it is of BOK branch of other bank. If it is of BOK, BOKbranch with right date then cashier enter into cash payment book and transfer to the officer. The officer feed the account number to check that demanded amount is available in his account. If amount is available then he verifies his signature from SS card already feed in computer. The officer passes the cheque and debits the customer account with the same amount and posts the stamp of transfer on it. Then cashier makes the payment to the customer and writes the detail of notes at the back of cheque to maintain daily cash position.

Remittance Department
Remittance department plays an important role in transfer of funds from one place to another. Khyber bank provides this service to their customer, as well as general clients. Different instruments are use to remit the money. The following different instruments are used to remit the funds in FBL. 1. Demand Draft 2. Pay Order 3. Call Deposit Receipt

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Demand Draft:
Demand draft is used to transfer amount from one city to other city where there is no branch of BOK than demand draft is used. When there is no branch of BOK than in that city there will be another bank which provides agency services to that bank. Habib bank provides agency service to BOK e.g. in khanpur there is no branch of BOK than DD will pay to Habib bank.

Pay Order
Pay order is issued for payment in the same city because it is issued form one branch can only be payable from the same branch.. Through pay order customer can transfer money from one branch to another branch. BOK charge no 80 Rs. Per pay order. In starting of Khyber Bank pay order is only payable in that branch from where it is issued but now a day it is payable in any branch of BOK in Pakistan.

Difference between Pay order & DD

The main difference between DD and Pay order is that pay order is payable with in city and DD is payable outside the city. Pay order is payable in only that branch from where it is issued while DD is payable in any branch of BOK.

Call Deposit Receipt (CDR)

It is also called pay slip and it is used for security purpose. If any person makes contract with Govt. for a specific purpose e.g. for construction of roads than he makes CDR. Bank Dr the account of client and Cr the CDR if road is damage before time. But if road is not damage till contract than bank refund the money

Clearing Department
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All the cheque and negotiable instrument, which are drawn or received from other bank, are processed and subsequently settle by the clearing department. For a bank, following are the requirements of being a member of clearing house: It must be scheduled bank i.e. it is registered It must have account with State Bank of Pakistan Sufficient balance should be in his account Normally clearing is carried out in SBP, but in the city where there is no branch of SBP than National Bank work as subsidiary of SBP.

Types of Clearing:
There are two types of clearing 1. Inward Clearing 2. Outward Clearing In inward clearing the Cheques of other banks comes in Khyber Bank while in outward clearing the Cheques of Khyber Bank goes to other banks

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PART 9

Finding And Recommendations

The Bank of Khyber is a new emerging bank and it is trying to get the market share in the presence of national and foreign banks. It has played an important role in certain areas, but there always exists some room for improvement. The following findings and recommendations are based on personal observations and analysis. The given recommendation will help to cope the problems being faced by the bank and will enhance the efficiency and performance of the BOK.

1. Decentralization
In the BOK the decision making process is centralized. Decisions are taken by top management. Staffs at middle and lower level do not participate in decision making process. Decisions taken by top level are implemented on all the levels of organization. An entirely centralized decision making is not conducive for proper work environment because it reduces the interest and loyalty of the employees towards the organization. Due to this the communication cost increases and it causes delays in banking operations because of which ultimately customers suffer. Due to these facts some authority and responsibility should be delegated at the branch level i.e. there should be decentralization. It will improve the working condition and employees will be more confident. It may result the best and prompt improvement of the overall banks operations.

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2. Training Academy
The BOK does not have its own training academy. The training to newly recruited employees is given in the training academies of other banks. Similar is the case for existing employees. To fulfill the requirements of training of the new and existing employees the BOK should establish the training academy. This will enable the employees to receive training of the peculiar and specific working functioning of the BOK.

3. Space Shortage
During my internship in the Sialkot branch I observed that there is shortage of space at branch. There is no proper and easy seating arrangement for the customers. And the cash counter is so small that employees face difficulty while working there. This thing greatly affects the operations and performance. To over come this problem, the bank may either hire the upper portion of the plaza or simply can shift to some other place.

4. Increase in Number of Terminals

The BOK Sialkot branch is a computerized branch but still, there is shortage of terminals and latest personal computers. These things also affect the speed and accuracy. For the increase in number of terminals and purchase of personal computers the branch may request to the head office. The provision of above facilities will improve the accuracy and speed and will enhance the efficient working.

5. Customer Care Counter

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Customer is the king. Customers satisfaction is the key to success. They need proper attention and guidance. The Sialkot branch is understaffed and employees are over loaded, it creates more problems for them when customers disturb and interrupt them while working. So for the benefit of customers and smooth working of bank, there should a customer care counter to guide and help the customers.

6. Branch Net Work

The BOK has 57 branches all over Pakistan and Azad Kashmir. 34 of the total branches are located in N.W.F.P. and among these 57 branches 13 branches located in Punjab, 6 operating in Sindh, 2 in Balochistan and 2 in Azad Kashmir there is only one branch for the whole of Punjab province located in Lahore. And at present only branch is operating in Sialkot . This branch network is too small to compete with other banks. The branch network should be improved and number of branches should increase to reach and provide services to maximum number of customers.

7. Promotional Activities
BOK is a new bank in Sialkot as compared to others. From marketing point of view every new organization must pay more attention to the promotional activities. The BOK management does not care about this important issue. The BOK should start a heavy promotional campaign to attract more and more customers. For this purpose both the print as well as electronic media should used. In this age of competition the BOK should adopt the policy of marketing penetration through a heavy promotional and advertisement campaign. The BOK can distribute diaries, calendars and brochures for promotion. And it should give ads on TV and news papers.

8. Marketing Department
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In to day world of tough competition an organization has to undergo an intensive marketing campaign to win customers. The BOK does not have a marketing department. In branches the marketing task is given to branch manager who has no time to carry out the marketing activities. The BOK should establish a marketing department so that is could improve the image of the bank. In this manner, the bank will attract more and more customers. The customers need to be convinced.

9. Meritorious Recruitment
In the BOK mostly recruitment are done through recommendation of the employees or connecting play an important role in recruitment decisions. Recruitment should be strictly on merit basis with no other favor given to any candidates. Selection should be on the basis of test and interview as like in Muslims commercial bank Ltd (MCB) and other banks etc. this will ensure the entry of competent and worthy employees in to the bank. 10. Shortage of Employees There is much shortage of employers in Sialkot branch of BOK. So this shortage of employees not only increases the work load on existing employees and ultimately reduces the output and motivation level of employees. To overcome this problem job descriptions should be revised and grouped together in order to create new jobs. The Islamabad branch specifically faces the problem of employees shortage. Recruitment should be done in order to fill out these new vacancies. This way the work load on employees will be reduced, operations will be stream lined and employees will feel comfortable in performing their duties.

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11. Scholarship Programs for Senior Employees Scholarship programs should be designed for senior employees and branch managers. The Book should get into contract with top foreign universities. Every year the bank should finance and send their senior managers for further education abroad. After completion of higher education the employees will be in a better position to attain the strategic objectives of the bank and increase the over all business and profitability portfolio of the bank.

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