CHAPTER 1 Introduction to the report

This Internship report is aimed at studying and analyzing Allied Bank LTD (ABL) in general and its Pine View Branch Abbottabad, in particular. The main purpose of the internship is to prepare and submit a report as a partial fulfillment for the BBA degree from COMSATS Institute of Information Technology Abbottabad. 1.1 Background of the Study Pakistans economy by the Grace of God is growing with an appreciable rate. Sound banking system for this growing economy is the need of the day, which must meet the financial needs of the growing agriculture, industrial and commercial/services sector. Allied Bank has played an essential role in the development of Pakistan. Like other multinational banks, ABL has adopted a customer-oriented approach, in order to provide quality products according to customer needs and stands as a role model for the other banks. In this report I have tried to cover all the aspects of ABL banking operations. 1.2 Purpose of the Internship The primary purpose of the internship is to fulfill the academic requirements of my study. The secondary purpose of the internship is to evaluate the banking practices, in corporate world and to compare these practices with the contemporary banking practices. The purpose of the study also is, to do practical work, in the field and apply the knowledge of classroom lectures to the real life situations, which thus enables a student to be a future banking practitioner. 1.3 Objective of Study The purpose of this report is an essential part of the BBA degree requirements that is offered by the COMSAT institute of information and technology. It is based on some particular weeks internship program that the students had to undergo with the major banks, manufacturing concerns or any other recognized organization and is required to be submitted to COMSAT institute of information and technology. The purpose of the study is to experience real life banking practices in order to bridge the gap between the

theoretical and the actual for better comprehension and knowledge of the different aspects of this vast field of profession. The main purpose of this report is to critically analyze and comprehend banking operations and suggest measures in the form of concrete and weighted recommendations. Besides, the report also aims to inculcate amongst the students the method of collecting relevant material and shaping it in the form of formal report writing. 1.4 Limitations of the study I faced some difficulties during data collection which were: The time period of internship was very limited for a complete understanding of operations. Because of employees busy schedule, complete information was not provided. Annual Report of 2009 was not available for analysis. There was non accessibility to the confidential data due to secrecy of some private information of the bank. 1.5 Merits of the study Through participation in the banking operations of Allied Bank, I gain experience in the banking sector. I came to know about the financial practices and their implications practically. And how to gather and analyze financial data to interpret the financial position of any company. 1.6 Methodology of the Study The methodology of the report for collection of data is primary as well as secondary. The biggest source of information is my personal observation while working with staff and having discussions with them. Formally arranged interviews and discussions also helped me in this regard 1.6.1 Primary data Personal observation. Interviews of staff 2

Discussion with officers. 1.6.2 Secondary data Annual Reports. Manuals. Brochures. Newspapers. Websites. Reference Books. Internship Reports. Financial journals.

CHAPTER 2 Introduction to Allied Bank

2.1 Evolution of Banking There are various views about the origin of the word banking. This word is derived from the words bancus or banque which means a bench. Other authorities state that the word Bank is derived form the German word Back which means Joint Stock fund and later on due to German occupation of Italy, this word was italianated into Bank. Authors quote Babylonians developed banking system as early as 2000 B.C. It is evident that the temples of Babylon were used as banks because of the prevalent respect and confidence in the clergy. Banking in fact is as ancient as human society. Also in Greece, the temples of Ephesus and Delphi were the biggest Banks of their time, where the people deposited their money and other valuables for safety and security, and were also the first-acted financial agents. After some time, Aristotles dictum that Charging of interest is un-natural and immoral became very popular, but the following periods growing necessity forced the acceptance of the principle of interest in lending and borrowing. The Romans, though they did not organize state banking, nevertheless regulated the conduct of private banks in such a way that extreme confidence of the people was created with the Revival of civilization (Renaissance) in the middle of the twelfth century. Seeing the great demand, these moneylenders started organizing themselves, and banks started coming up at the principal seaports in southern Europe. Soon Venice and Genoa became the most important money markets of the time; and banking, though different from its present form, flourished. What we know now as modern banking originated in the 14th century in Barcelona. This let to the development of different banks and after 1854 joint stock Company Act was passed. This happened due to the absorption of private banks and the amalgamation analysis joint stock banks. First, emergence of a small number of large banks with a wide

network of branches; and second, increases in the popularity of bank accounts and the use of cheaques in large scale. 2.1.1 Present-day banking According to growth the present-day banker has three ancestors the merchants the gold smiths and moneylender. In short we can define bank as a financial institution, which deals with money and credit, it accepts deposits from individuals firm and companies at a lower rate of interest and gives at higher rate of interest to those who need them. 2.1.2 Banking in Pakistan Banking started in Pakistan after the bold and emergent decision of formulation of SBP on July 30, 1948. Thereafter this sector has witnessed enormous growth. In 1974 banks were nationalized, in the hope that new era of growth could be achieved through it. However the process is reverse since 1991, up till now MCB, ABL, and UBL and HBL have been privatized. 2.2 Historical Background of Allied Bank The history of Allied bank is explained as follows 2.2.1 History Allied Bank is the first Muslim bank, to have been established on the territory that became Pakistan. Established in December 1942 as the Australasia Bank at Lahore with a paid-up share capital of Rs. 0.12 million under the Chairmanship of Khawaja Bashir Bux, the Bank had attracted deposits, equivalent to Rs. 0.431 million in its first eighteen months of business. Total assets then amounted to Rs. 0.572 million. The Allied Bank's story is one of dedication, commitment to professionalism, adaptation to changing environmental challenges resulting into all round growth and stability, envied and aspire Later in 1973, Government of Pakistan decided to nationalize all banks of the country and in the process; three smaller banks namely Sarhad Bank, Lahore Commercial Bank and Pakistan Bank were merged with a relatively bigger and stronger Australasia Bank. A joint force with fresh zeal and enthusiasm was emerged, named as Allied Bank of Pakistan Limited. Being a National Bank, ABL kept moving forward steadily,

contributing towards economic growth of country. As time passed, our nation entered into the phase of denationalization and privatization. During 1991, the Government of Pakistan decided to privatize Allied Bank of Pakistan Limited. Prime Minister Mian Muhammad Nawaz Sharif during his first regime handed over management of the bank to its own employees, as a unique phenomenon in the country. Trading of the shares of the Bank was commenced on the following dates. Islamabad Stock Exchange Lahore Stock Exchange Karachi, Stock Exchange 2.2.2 Present status Allied Bank is now one of the largest banks in Pakistan, operating through a network of 766 branches in over 300 cities and towns offering real-time online banking. The bank has in place the largest ATM network in the country with 502 ATMs in more than 145 cities and towns across Pakistan. The number of employee of Allied Bank was up to 8,325 in 2008. At present the employees are acquiring 51% shares where as the rest of 49% are held by Federal Government. Apart from holding 49% banks shares, the Government has also representation of 3 Directors in the total strength of 7 member of Board of Directors of the bank who are fully and actively involved in the banks affairs such as policy making and other financial matters. 2.2.3 Credit rating Based on its financial performance and significant improvement in areas of risk management and corporate governance, the Pakistan Credit Rating Agency (PACRA) maintained the long-term credit rating of Allied Bank to AA (double A) and short-term rating to A1+ (A one plus). Also, JCR-VIS Credit Rating Company Limited had assigned a corporate governance rating of CGR-8 to the bank during the last year, which denotes high level of corporate governance. 2.2.4 Auditors Sheikh Mukhtar Ahmad 8th August 2005 10th August 2005 17th August 2005

Chairman Farrakh Qayyum Member Sheikh Jalees Ahmed Member 2.2.5 Audit Committee The Audit Committee consists of one chairman and three members of the company. Primary responsibilities of the Audit Committee are to determine appropriate measures to safeguard banks assets, ensure consistency of accounting policies, review financial statements and recommend appointment of and coordinate with external auditors. 2.3 Vision and Mission 2.3.1 Vision To become a dynamic and efficient bank providing integrated solutions in order to be the first choice bank for the customers. 2.3.2 Mission To provide value added services to our customers. To provide high tech innovative solutions to meet customers requirements. To create sustainable value through growth, efficiency and diversity for all stakeholders. To provide a challenging work environment and reward dedicated team members according to their abilities and performance. To play a proactive role in contributing towards the society.

2.4 Objectives The main objective of the bank is to accept deposits and provide loans to its customers and also to be more efficient in providing services. The bank maintained its commitment to most efficient and personalized services to its customers. Allied bank gives advances to small, medium and Big industries, commercial establishment, agriculture construction

companies and other needy persons Beside all of these objectives, profit is the primary objective of all financial organizations, and all different activities are aimed towards its achievement. 2.5 Core Values Integrity Excellence in service High performance Innovation and growth 2.6 Corporate profile The Board of Directors of Allied Bank is providing strategic input and guidance to the management through its various committees which include Audit Committee, Strategic Planning and Monitoring Committee, Human Capital Committee and e-Vision Committee. The Board oversight of the management ensures effective implementation of its policy directives in line with its strategic vision to promote a risk culture in the bank. The management of the bank comprises of bankers led by CEO and is divided into different groups on functional basis. 2.6.1 Management Committees At the management level, there are six major committees that are: Management Committee, Human Resource Committee, Risk Management Committee, Assets and Liabilities Committee, Compliance Committee and IT Steering Committee. 2.6.2 Board of Directors The board of directors consists of one chairman, five Non Executive Directors including two government nominees, one Executive Director, three Independent Directors and one Chief Executive Officer.

2.6.3 Executive Committee Executive committee consists of: Chief Executive President Executive Vice President (EVP) Senior Vice President (SVP) Vice President (VP) Assistant Vice President (AVP)

CHAIRMAN
2.7 Organizational Structure Figure 2.1

CHIEF EXECUTIVE OFFICER (CEO)/PRESIDENT HAIRMAN SENIOR EXECUTIVE VICE PRESIDENT (SEVP)

SENIOR VICE PRESIDENT (SVP)

EXECUTIVE VICE PRESIDENT (EVP)

ASSISTANT VICE PRESIDENT (AVP)

OFFICERS GROUP (MG9,MG10, MG11)

SUPPORTING STAFF

Source: Annual Report 2009.

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2.8 Location Allied Bank, Pine View Branch is situated in Cant. Plaza Abbottabad. Its branch code is 0002. 2.8.1 Number of Employees There are 8 employees in this branch including manager, customer support manager (CSM), officers, tellers/ cashiers, messenger and guards. 2.9 Organizational Structure of Allied Bank, Cant. Branch Figure 2.2

Branch Manager

Customer Service Manager

Billing Department

Cash Department

Clearing Department

Remittance Department

Non Clerical Staff (peon, Messengers, Guards)

2.9.1 Assets and Liabilities Management Committee (ALCO) The company also has an income fund, launched in September 2008. ABL AMC has surpassed many old players in the market by growing its fund size to over Rs. 9 Billion in a relatively shorter operational period. To provide a wide array of investment products, Allied Bank launched its asset management company, ABL Asset Management Company Limited, with a paid up capital of Rs. 500 million. The company was incorporated in October 2007 and also received its license for Asset Management and Financial Advisory. The company

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launched its mutual fund in 2008. By the year end, ABL Income Fund became the best performing fund among all Income Funds in Pakistan, posting an annualized return of over 15 percent since its inception. The Fund size grew close to Rs. 2,000 million by December 31, 2008 at a time when the Asset Management Industry posted a decline of over 50 percent in Funds Under Management and had the distinction of being the only Income Fund in Pakistan to post increase in Assets during September-December 2008 period.

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CHAPTER 3 Financial position and products & services provided by Allied Bank and its Branch located in Abbottabad. 3.1 Business Overview Allied Bank offers banking products and services with a focus on service delivery through technology. The business of the bank is to satisfy customers who seek assistance and advice in meeting their financial goals. Its primary emphasis is general banking services, namely deposits, loans, payment and collection. Fund management services, merchant banking and leasing, credit for small and large enterprises etc. are also being offered by the bank. It has selectivity entered into new areas that broaden the range of services, logically extend the existing strengths and match and surpass competitor offerings. Pakistan is its principal market. Abroad it has presence in the United Kingdom, along with a number of representative and correspondent banks around the Globe. Its rapidly seeking expansion in the Middle East and Central Asia. 3.1.1 Corporate and Investment Banking Corporate and Investment Banking Group offers a wide range of financial services to medium and large sized private and public sector entities. These services include providing and arranging term financing, underwriting, cash management, trade products, corporate advisory, corporate finance products and customer services on all bank related matters through the concept of relationship management. Allied Bank is one of the leading investment banks in the country because of its role in the major investment and corporate banking transactions that has been awarded Corporate Finance House of the Year (Banks) for the second consecutive year by CFA Association of Pakistan and received international recognition when The Banker magazine UK, conferred the Deal of the Year 2008 Pakistan. The bank played a key role in the economic growth of Pakistan by financing all the major sectors of the economy including the industrial and corporate sectors.

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3.1.2 Commercial Banking The Commercial & Retail Banking Group (CRBG) offers a variety of asset and liabilitybased retail products to its customers. With commercial banking, the bank meets the needs of individuals, middle sized customers, Small and Medium Enterprises (SMEs) and agriculture sector. It provides to its customers with integrated financing and investment options and offers various deposits solutions including speedy funds transfer through its extensive online network. This segment is overseen by four geographical groups and is further divided into 27 regions in order to effectively service its customers needs. 3.1.3 SME Finance The Commercial and Retail Banking Group (CRBG) caters to the needs of commercial entities and small and medium enterprises. A dedicated team of Relationship Managers first identifies the specific needs of each customer segment, then designs and delivers a facility package, which is in conjunction with those needs, and provides customers the full support and opportunity to take advantage of the various business prospects available in the market. 3.1.4 Consumer banking In line with the banks policy to provide complete suite of products and services to its customers, substantial ground work was done to establish consumer banking business. In 2008, the Consumer Banking re-branded Visa Debit Card was established. Furthermore to achieve this objective, professionals from across the industry have been recruited into areas of product development, sales, credit policy, research, consumer analytics, call centers and service quality departments. 3.2 Overall Financial Position Allied Bank has performed well despite various challenges faced by the country on domestic front and led by the global recessionary trend. The banking sector faced a daunting task of maintaining stable balance sheet while ensuring to secure profitability margins for the shareholders. The bank has posted an operating profit of Rs.9.8 billion, which is up by 10% over Rs.8.8 billion registered during last year. Profit before and after tax stood at Rs.6.12 billion and 14

Rs4.16 billion respectively compared to Rs.5.95 billion and Rs.4.08 billion last year. The banks operating expenses rose toRs.8.4 billion or 36% over last year. Return on Equity (RoE) and Return on Assets (RoA) stood at 21.2% and 1.21% respectively. Mark-up / interest income of the Bank grew by 40.6% to reach Rs.18700 million led by earning assets growth coupled with the re-pricing at higher interest rates. Average earning assets rose by 21%. EPS of Bank increased to Rs. 2.27 during three months ended March 31, 2010 compared to Rs. 1.85 in the corresponding period of previous year. Deposits of the bank stood at Rs. 317,742 million as at March 31, 2010, which grew by 11.6% over corresponding period last year with CASA mix increased to 56% as against 54.3% and 52.6% compared to December 31, 2009 and March 31, 2009, respectively. This deposit growth enabled to increase market share by 40 basis points, in only one years time, to reach7.8% by end of the year 2008. Loan portfolio of bank grew by25.3% to Rs.223.6 billion represented by 72% corporate loan book and 19%SME loan book. These results, under the circumstances, show a strong resilience by the bank to the tough challenges. 3.3 Balance sheet of the bank Table 3.1 Assets Operating Assets Investments Other Assets Liabilities Current Deposits Saving Deposits Time Deposits Other Liabilities Equity Total (Rs in 000) 22,784,138 94,199,004 16,658,039 317,742,186 72,448,664 105,939,618 13,629,361 22,235,899

3.4 Products and services offered by Allied Bank 3.4.1 Products: Allied bank offers a wide range of products. They have skillfully crafted their products to use them as their core competencies and also as their tools for competitive strategy. The following products are available for customers: Rupees Deposit Accounts 15

Foreign Currency Accounts Allied Cash+ Card Online Banking Internet Banking Master Card Lending Products Seasonal Finance Agricultural Finance Import Export Business/Trade Finance Running Finance Demand Finance 3.4.1.1 Rupees Deposit Account The following accounts are the parts of rupee deposits accounts: Current Account Saving Account Allied Profit Plus Deposit Account Allied Monthly Income Scheme 3.4.1.1.1 Current Account Allied Bank offers Current Account facility for individuals as well as for institutions and commercial customers. There are free services for the depositors who maintain minimum balance of Rs. 0.1 (M) in previous month.it offers different benefits to its customers like: Free Online Transactions Free issuance of Payment Orders Free Issuance of Deposit at Call Receipts 3.4.1.1.2 PLS Account Allied Bank offers PLS Savings Account facility to its customers with the attractive features like attractive return up to 5.00% per annum, no service charges on active accounts, complementary ATM cards and for depositors maintaining a minimum balance of Rs. 0.5 (M) in the previous month.

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3.4.1.1.3 PPA (profit plus account) Allied Profit PlusDeposit Account is a profit bearing checking account with the payment of profit on a monthly basis. The estimated rate of profit is given below: Table 3.2 Rs 5(M) to less than Rs 10 (M) Rs 10(M) to less than Rs 25 (M) Rs 25(M) & above 6.50% 7.50% 8.00%

Source: Circular NO .P/INST-2000/69, March 5, 2009, issued by bank. The applicable profit rate would be based on amounts maintained on average monthly basis and the profit credited in the account on monthly basis. There is no restriction for maintenance of any minimum balance in the account. 3.4.1.1.4 Monthly Income Scheme It is a unique product with attractive returns. It provides an opportunity for a regular monthly income. The period of deposit under this scheme is 3 years. The schedule of income scheme is as follows: Table 3.2 Minimum Amount Profit Projected profit rates Eligibility Rs 100,000. Payable on monthly basis. Rs 850/month on deposit of Rs 100,000- @ 10.20% /annum. All individuals & institutions

other than Financial Institutions. Period 3 years. Source: Circular NO .P/INST-2000/69, March 5, 2009, issued by bank. The Scheme provides the following special benefits: Complementary ATM card for depositor and spouse. Profit to be credited in the depositors PLS saving A/C and can be withdrawn through ATM free of charge. Complementary credit card with approved credit limit. Free transfer of monthly profit to any branch of ABL all over the Pakistan. Loan facility against deposit. 17

3.4.1.2 Allied Cash+ CARD Allied Bank ATM Card also referred to as "Allied Cash+", can also be used as a debit card at merchant locations/service. 3.4.1.3 Online Banking Allied bank is providing the facility of online banking. Allied Online is a unique service offering by Allied Bank Limited. This facility allows a customer to send or deposit money through cash or a cheques to an account of any other branch of ABL. It also gives the facility of balance inquiry and cash with drawl from a certain account of any other branch of ABL through cheques. Other services available to accountholders are Allied Online provides a secure, efficient and convenient facility for making payments to beneficiary accounts from any of branches countrywide. Corporate customers requiring funds collection or disbursement facility can use it for cash management services. By Allied bank Online you can: Check your account balances Transfer funds between your own accounts and to a third party account You can use your card for loan account payments Check transaction history of your accounts Get your account statement through fax Receive information on various Allied bank products and services Find out status of your card or loan application Request balance or reference certificate Get currency exchange rates Issue stop payment instructions Report loss of your cheque book Balance Enquiry and Account Statement at remote branches. Account-to-account Funds Transfer facility is also available for instant remittance. 3.4.1.4 Internet Banking

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Allied Direct Internet Banking offers the convenience to manage and control banking and finances. To use Allied Direct Internet Banking, one should be a registered Allied Bank Account holder with a valid ATM Card. If some one does not have an account, he may visit any of the nearest branch and open his account and obtain an ATM Card. The Allied Direct is simple, convenient, secure, faster an all the time accessible. 3.4.1.5 Master Card Allied Bank under license from Master Card International, U.S.A issues its Master Card to anyone meeting the eligibility criteria. With the Allied Bank - Master Card the consumers will be assured of a service meeting the highest international standards maintained by Master Card. Cardholders are given the opportunity to take pleasure in areas like shopping in their favorite store, dining in the finest restaurants or taking that dream vacation. Simply putting it, the Allied Bank MasterCard makes everything in life become more valuable. 3.4.1.6 ABC Cash card Allied Bank recently launched its new Absolute Banking Convenience Cash Card (ABC Cash Card). It has no expiry date and no monthly minimum maintaining balance requirement. 3.4.1.7 Seasonal Finance Seasonal Finance facility is allowed against pledge of produced Crops harvested in that particular crop season. The delivery of pledged stocks/goods is made against appropriate cash payment. 3.4.1.8 Agricultural Finance Bank under Agricultural Financing Scheme envisaged by the State Bank Of Pakistan extends short, medium and long term, farm and non-farm credits. The farm credits are extended for production (inputs) and development purposes. Non-farm credits are allowed for livestock (goats, sheep and cattle), poultry, factory including social forestry and fisheries (inland and marine excluding deep sea fishing). 3.4.1.9 Trade Finance 19

Allied Bank provides highly efficient trade finance services for import/export business to his clients through large number of authorized branches where trained and motivated staff is available to handle the business on behalf of customer. 3.4.1.10 Running Finance It is a short-term loan allowed by the bank for a period of one year. The running finance account can be operated on daily basis. The mark-up is recovered on the products of daily outstanding balance. The running finance is suitable for meeting day-to-day financial needs of the business 3.4.1.11 Demand Finance It is disbursed in lump sum or in accordance with the agreed disbursement schedule and it is repayable as per the agreed installments, which could be monthly, quarterly, biannual or annual. 3.4.1.12 Leasing Allied Bank Limited commenced lease operations with Ibrahim Leasing Limited. Facilities include leasing for machinery, commercial vehicles and equipments. The Bank provides lease facilities for balancing, modernization, replacement and expansion schemes to corporate and commercial clients in all industrial enterprises. Leasing is a popular mode of financing due to its distinctive features like tax shield, preserve working capital, easy documentation and less processing time. Lease applications are entertained at all Bank branches in Pakistan. 3.4.2 Services: Services are the main tool through which the bank acquires new customers and retain them. These services are not merely meant to earn profit, but also to keep pace with the changing needs of the customers and modern days banking trends. Allied Bank offers the following services to its customers: Home Remittances Remittances Hajj Services

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Lockers Commodity Operation Bank insurance Deposit related services Trust banking services Fund transfer and payment services Loans and other credit facilities Merchant banking services Micro finance Treasury services Customer Service Center Foreign Exchange Foreign Currency Accounts Discounting bills of exchange Agency services to customers General utility services Network of ATM 1-Link Network Banking Instruments Availability 3.4.2.1 Remittances The bank transfers a large proportion of money from one place to another or from person to person. The department, which deals with transfer of money, is called Remittance Department. Transfer of money takes place through the following bills of exchange. Mail Transfer (MT) Telegraphic Transfer (TT) Demand Draft (DD) 3.4.2.2 Hajj Facilities The Bank serves the intending pilgrims by helping them in performing this religious obligation. The bank provides the forms and other related services. However, the terms and conditions for accepting the Hajj forms from intending pilgrims are in accordance

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with the Hajj Policy announced by the government, each year. Hajj applications are available with all branches during Hajj season, immediately after the Government of Pakistan announces the Hajj policy. 3.4.2.3 Lockers Many banks provide the facility of lockers but not in their all branches but Allied bank is the only bank that provides the lockers facility to their customers at their all branches. Allied Bank Lockers are available in three different sizes i-e Small, Medium and Large on a yearly fee. Locker holders need not have an account in the Bank. 3.4.2.4 Bank insurance Bank provides insurance of homes, motor vehicles and assets through the Allied bankers Insurance Corp. 3.4.2.5 Deposit related services Allied Bank provides with other services that add value and ease in the banking needs anytime, anywhere and anyhow. 3.4.2.6 Trust banking services Allied Bank offers Fiduciary services such as Living Trust, Property Administration, Accumulation Trust, Estate Planning, Retirement Plans as well as pooled and individualized investment services. 3.4.2.7 Fund transfer payment and collection services Allied Bank offers fast, reliable and safe means of sending money to the beneficiaries. Its worldwide network of tie-ups and correspondent banks can assist the needs of customers. 3.4.2.8 Loans and other credit services The borrowers can enjoy the best rates in the market and experience efficient handling by the best loan officers of the Allied Bank. 3.4.2.9 Merchant banking services

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Allied Bank underwrites securities and bonds, which are normally performed by an investment house and is actively engaged as custodian of Special Financing Programs. Financial advisory services are available for clients who plan to venture into project development and financing. 3.4.2.10 Micro finance With the Banks newest lending service, the Micro-Finance Wholesale Lending, bank can address the funding needs of rural banks, NGOs and cooperatives for their microfinance retail lending activities. 3.4.2.11 Treasury services The bank treasures the investments of its customers and makes their money work for them. 3.4.2.12 Customer Service Center Bank has customer care center for its customers. They have toll free numbers on which customers can dial and they have not to pay any thing for it. This center also provides the facility to the customers on spot and helps them whatever the matter is. 3.4.2.13 Foreign Exchange Allied bank provides the facility of foreign exchange to its customer. The customers may also open their accounts in foreign currency. The bank provides the facility of letter of credit and other export/import facilities to its customers. The customers may get the facility of money exchange on the current rates. To get the latest rates, the head office provides them with the fax facility of daily rates of foreign currency. 3.4.2.14 Foreign Currency Accounts Allied bank deals in following foreign currencies: US Dollars Great Britain Pound Euro Japanese Yen

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3.4.2.15 Discounting bill of exchange The bank utilizes its surplus funds in another important way. They discount the bills of exchange at their market worth, i.e., the pay to the holders of the bill an amount equal to their face value after deducting interest at the current market rate for the period the bill has to mature. The bills of exchange are a very liquid asset for a bank to hold. These bills are usually drawn for three months and are used for financing internal as well as external trade. 3.4.2.16 Agency services to customers Following are the agency services to ABL. Collection of cheques Collection of dividends Purchase and sale of securities Transfer of funds Acts as an agent 3.4.2.17 General utility services ABL also performs a number of other general utility services to his clients like: Acts as a referee Acceptance of bills of exchange Collection of utility bills 3.4.2.18 Network of ATM The number of ATMs of Allied Bank has increased to 502. It is the bank with highest number of ATMs. This achievement is enhanced with an extended reach covering 145+ cities thereby making it the widest geographical network for ATM based services amongst all the banks in Pakistan. 3.4.2.19 1-Link Network Allied Bank is a member of 1-LINK ATM sharing switch comprising of over 600 ATM's nationwide. Consequently, the Bank's ATM cardholders can avail services of 1-LINK ATM's. The cardholders of the bank will be able to access member banks ATMs for

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balance inquiry and cash withdrawal simultaneously. The cardholder's member banks will access the bank ATMs. 3.4.2.20 Banking Instruments Availability In Pakistan where ever the customer is, business account holder can easily get the pay order and demand draft from any of the Allied bank branch. 3.5 Financial Position of Allied Bank Abbottabad Branch Table 3.3 Financial Position Total Advances Total Deposits Current Saving Time Total Rs 11,125,264 388,689,596 118,999,020 96,851,950 172,838,626

Source: Statement of Condition as on 31 March 2010, given by branch.

CHAPTER 4 Analysis 4.1 Financial Analysis Financial analysis refers to an assessment of the viability, stability and profitability of a business. Financial analysis is an evaluation of a firms past financial performance and its prospects for the future. The main purpose of financial analysis is to give a clear picture 25

of the financial position by studying the relationship and comparisons between the items in the financial statement. Financial statements report both on a firms position at a point in time and on its operations over some past period. However, the real values of financial statements lie in the fact that they can be used to predict future earning, dividends and cash flows. From investors point of view, predicting the future is what financial statement analysis is all about, while from management stand point, financial statement analysis is useful both to help anticipate future conditions and more important, as a starting point for planning actions that will improve the firms future performance. It consists of applying analytical tools and financial ratios to obtain useful information. Financial ratios are designed to help evaluate financial statements. The interested parties need to interpret this information about performance of the company through the use of financial ratios and tools. Keeping in view its importance I have done the financial analysis by using the Balance Sheet and Income Statement of the bank for the years 2007, 2008 an 2009. I have calculated the ratios to find out the financial health of the bank and also have done the common size analysis of the balance sheet and the income statement. 4.1.1 Common size analysis Common Size analysis can be helpful to highlight the changes overtime in the financial performance and financial conditions of the bank. The common size analysis of Allied Bank is as follows: Vertical analysis of income statement For the vertical analysis of income statement I compared each amount of every year with their respective base amount selected from the same year which is the interest income earned. The income statement is attached as Annexure-A. Table 4.1: Vertical analysis of income statement

Income statement

2007(%)

2008(%)

2009(%)

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Mark up/interest earned 100 Mark up/interest expense 48 Net interest income 52 Provision against non-performing loans and advances net 13 Provision for diminution in the value of investments - net Bad debts written off directly Net Interest income after provisions Non markup/ interest income Fee, commission & brokerage income Dividend income Income from foreign currency dealing Gain on sales from security Unrealized gain/loss on revaluation of investment classified as held for trading Other income Total non markup/interest income non markup /interest expenses Administrative expenses Provision against other assets net Provision against off-balance sheet obligation Other charges Total non interest expenses Extra-ordinary/unusual items Profit before taxation Taxation Current Deferred Profit after taxation Unappropriated profit brought forward Transferred from revaluation of fixed asset Profit available for distribution Interpretation: 3.4 5.6 40 9.7 0.7 0.9 6.8 (6.9) 0.4 18.5 28 0.6 0.2 1.2 30 28 8.9 (0.05) 19 26 0.2 46

100 55 46 4.5 6.0 0.008 35.4 7.5 4.5 0.75 0.49 0.01 0.2 14 27 1.7 1.6 1.2 29 20 6.0 0.4 13 23 0.05 36

100 54.49 45.50 7.68 2.59 0.68 0.00 34.54 6.80 6.80 3.35 1.85 2.67 -0.08 0.08 147.71 0 23.13 -0.13 -0.06 0.16 23.62 25.69 8.63 17.37 20.59 0.07 38.05 100 54.49

The vertical analysis shows that in 2009 the interest expense is 55% in 2008 as compared to 55% in 2008, so the interest expense has no such increase or decrease in 2009 compared to 2008 because of increased investments to generate revenue. The net interest

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income is 46% in 2009, but this amount has decreased 6% compared to 2008. The bad debts are only 0.008% that shows company good performance. There is 6% decrease in bad debts as compared to 2008 in 2009. The profit after tax was 13% in 2009 while in 2008 it was 19%, so there is 6% decline in 2008 in converting the part of income into profit after deducting taxes. The profit for distribution is 36% in 2009 as compared to 46% in 2008. Thus less proportion of income earned is being available as profit available for distribution last year. 4.1.1.2 Horizontal analysis of balance sheet In the horizontal analysis I compared each amount of 2008 and 2009 years balance sheet with the base amounts of the base year that is 2007. The balance sheet of the bank is attached as annexure B.

Table 4.2 Horizontal analysis of balance sheet Assets Cash and balance with treasury bank Balance with other banks Short term Lending Investment Advances Operating fixed assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and other accounts 2007(%) 100 100 100 100 100 100 100 100 100 100 100 2008(%) 102 123 83 176 148 173 161 171 130 97 144 99 266 147 124.82

2009(%)
88.88 191.57 152.68 168.11 113.43 140.95 164.98 168.11 139.57 90.50 90.50 173.62 219.96

Sub-ordinated loans 100 Deferred tax liability 100 Liabilities against assets subject to finance lease Other liabilities Total liabilities 100 100 100 28

129.59

Share capital Reserves Retained earning Surplus on revaluation of asset Total liabilities and equity Interpretation:

100 100 100 100 100

144 95 151 102 126

131.99 108.79 174.44 276.37 150.50

The horizontal analysis of the balance sheet for 2007, 2008 and 2009 shows that the Cash and balance with treasury bank has increased 2 % in 2009 but compared to 2008 figure, it has decreased 27%. Short term Lending to Financial Institutions has also decreased in last two years. The investment has increased 78% as compared to investment in 2007. In 2009, the overall assets of the bank have increased 45 % compared to 2006, and 18% compared to 2008. Advances last year have increased 48 % than 2007 and 31% than 2008. The deposits of the bank in 2009 have increased 44% than in 2007 and 16% than in f2008. Total liabilities have also increased 47% in 2009 as compared to 2007 and from 2008 the liabilities have increased 19%. The Share capital of Allied Bank increased 44% this year compared to 2006 and 25% compared to 2008.the retained earnings have grown 27% last year. Total liabilities and equity also increased 12% last year compared to 2007 figure. 4.1.2 Profitability Ratios Profitability is the net result of a number of policies and decisions. It is ability to earn income and sustain growth in both short-term and long-term. Profitability ratios measure the firm's use of its assets and control of its expenses to generate an acceptable rate of return.The ratios examined provide useful clues as to the effectiveness of firms operations. The profitability ratios of the bank are as follows: 4.1.2.1 Earning Assets to Total Assets This ratio shows how well bank management puts bank assets to work. High performance bank have a high ratio. Earning assets includes loans, leases, investment securities and money market assets.

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Formula: Earning Assets to Total Assets = 4.1.2.2 Net interest margin (NIM) Interest expenses are their main costs for the banks and interest income is their main source of revenue. The difference between interest income and expense is known as net interest income. It is the income, which the bank earns from its core business of lending. Net interest margin is the net interest income earned by the bank on its average earning assets. Higher ratio means the better the bank is utilizing its earning assets. Formula: NIM = Interest income Interest expenses/ average earning assets 4.1.2.3 Operating profit margins (OPM) Operating margins of the bank are profits earned by the bank on its total interest income. Banks operating profit is calculated after deducting administrative expenses, which mainly include salary cost and network expansion cost. Formula OPM = Net interest income operating expenses/ Total interest income 4.1.2.4 Cost to income ratio This ratio is calculated as a proportion of operating profit including non-interest income. The operating expenses of the bank that are required for technology up gradation etc results in higher cost to income ratio but in long term they help the bank in improving its return. Formula: Cost to income ratio = Operating expenses/ net interest income + non interest income 4.1.2.5 Credit to deposit ratio (CD ratio) The ratio shows percentage of funds lent by the bank out of the total amount raised through deposits. Higher ratio reflects ability of the bank to make optimal use of the available resources. Earning assets/ Total assets

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Formula: Credit to deposit ratio = advances/deposits 4.1.2.6 Non Performing Assets ratio The net non-performing assets to loans ratio is used as a measure of the overall quality of the banks loan book. Higher ratio reflects rising bad quality of loans. Formula: Non Performing Assets ratio = Net non-performing assets/ loans given. 4.1.2.7 ROA Returns on asset ratio is the net income generated by the bank on its total assets. This ratio indicates how profitable a company is relative to its total assets. It shows the managements ability to effectively manage the banks assets to make a profit. The higher the return, the more efficient management is in utilizing its asset base. Formula: ROA = Net profits/ Avg. total assets Table 4.3 Profitability Ratios Profitability Ratios Earning Assets to Total Assets Net interest margin Operating profit margin Cost to income ratio Credit to deposit Non Performing Assets ratio ROA Loan loss coverage ratio (Rs in 000) Interpretation 2007(% ) 84.6% 4% 1.3% 40% 64% 1.5% 1.3% 2,715 2008(% ) 84.9% 5% 1.4% 45% 72% 0.6% 1.1% 7,303 2009(%) 85.7% 4.8% 18.357% 46.24% 71.60% 5.7% 1.81% 4608

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As the earning ratio to total assets ratio increased to 85.7 % in 2009 which is an increase of about 1% compared to previous year, so this shows bank management puts bank assets to work effectively. The performance of the bank is high. The net interest margin of the bank has increased 4.8% in 2009 compared to 2008, so the companys earning has decreased from 2008. Operating profit margin of the bank remains almost same for 2007 and 2008. The cost to income ratio increased almost 2% in 2009 compared to 2008 figures. But this will not effect the position of the bank in the long term as these expenses will help the bank in improving its return later on. The credit to deposit ratio for the bank has increased 8% compared to 2007 and 2% compared to 2008. As the ratio has increased than last two years, the higher ratio reflects ability of the bank to make optimal use of the available resources. As the 2009 value of non performing assets ratio is less than 2008, it means the bank is going well and it has reduced the bad quality of loans. It is reducing the value of nonperforming loans. As the results of ROA for 2008 and 2009 are same, the company is maintaining a balance in utilizing its assets but not as efficient as before. Efficiency ratios These ratios indicate the productivity level of the banks employees. Banks can improve these ratios by increasing the technology infrastructure, frequent offering of innovative products and also employee rationalization. Table 4.4 Efficiency ratios (Rs in 000) Efficiency ratios Interest income per employee Profit Formulas net interest income/ number of employees total net profit/ number of employees total deposits/ no of employees total advances/ no of employees total deposits/ no of 2007 1,359 499 2008 1,687 492 2009 2179 832.2

Business per employee

20,585 32,205 222,46

25,588 35,733

38285 27364

Business per branch

278,094 422172

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branches total advances/ no of branches Employees per branch Interpretation total employees/ total branches

6 388,348 348,04 4 10 10.75 304727 11

Interest income per employee shows the interest income generated by each employee, so as the number of employees increased in 2009, they generate more interest income that year. The profit generated by the employees is almost maintained both the years but this profit is increased in 2009. Total deposits and total advances by the employees have increased in 2009 than 2008 and 2007. This shows that the employees are working very effectively and efficiently for the bank. The total deposits and total advances in the branches have decreased. This shows that the business of the bank has not increased than before. The number of employees per branch has also increased. 4.2 SWOT Analysis SWOT is the abbreviation of four words that are S stands for strength W stand for weaknesses O stands for opportunities and T stands for threats. Strength and weaknesses are the internal factors of the organization and these are also known as the micro factors but the opportunities and threats are the external factors and these are known as the macro factors. Micro factors are the controllable factors but the macro factors are uncontrollable. The easiest way to know about any organization is the SWOT analysis. So to reveal the hidden factors I did a SWOT analysis of the Allied bank. It is not the SWOT analysis of ABL as a whole but only of the branch where I worked. Many aspects are same almost in every branch of the Allied bank. 4.2.1 Strengths

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Allied bank has maximum number of branches in all over Pakistan. It has more than 735 branches connected to each other through an online network. The online banking feature provides less chances of fraud because whenever some transactions take place, they can be checked any time and their receipts are given to the customers. The facility of online banking allows a customer to send or deposit money through cash or a cheque to an account of any other branch of ABL. It also gives the facility of balance inquiry and cash with drawl from a certain account of any other branch of ABL through cheques. Allied bank is the only bank that provides the lockers facility to their customers at all of their branches. The bank provides the foreign exchange facilities including foreign currency accounts, L/C and other export/import facilities. The customers get the facility of money exchange on the current rates which are provided by the head office daily. The customer care center of Allied Bank provides toll free numbers on which customers can dial without paying anything to get support on the spot. At Allied bank the customers having more than one account can have the facility of the same account number only the suffix is changed. This facility provides the customer with easy remembering of the account number. Allied bank offers loans to its customers on very low rates. This thing invites the customers to do a business with ABL. Cameras are installed in all the branches of the bank to ensure security.Also security guards are available through out the day. The performance appraisal is done on quarterly basis in this organization, which results in its better performance. The bank also conducts seminars on certain topics like how to improve their service quality and the concerned person from almost every branch of the region attends these seminars sharing their knowledge and experience with each other. Staff of the bank is qualified and experienced. The bank officials have got advance knowledge and experience in the fields of management, banking law and practice.

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The relationship of the manager and the other staff of the organization is really good with the customers, which results in good will and loyalty of the customers towards the organization. For employees the relaxation is that the employees may get the 36 medical leaves and 1month vacation in one year with their pay in case of some emergency. 4.2.2 Weaknesses The decision making in the bank is completely centralized. The manager has no power to take decisions by himself in some important aspects like the extent of credit to customers. This takes a lot of time for processing and causes a delay for the customer. Secondly, lack of computerized systems in the branch is another major weakness in the bank. The MIS system is operated at the regional level but not at the branch level. 4.2.3 Opportunities Allied Bank is still working in the corporate sector and its missing a big market share of consumer banking. If it enters this market than this bank can become the biggest and the most efficient bank of Pakistan. Due to the increase of interest of people in business field, many business institutions have been established, which produces a lot of qualified and competent business professionals. So, the bank can hire more qualified people from market. 4.2.4 Threats The main competitors in the banking sector are the Bank-Alfalah, Faysal Bank, Muslim Commercial Bank and Meezan bank etc. Due to the tough competition the bank is forced to lower its rates and other services at minimized cost. This reduces the profit margin which is a big hurdle in the way of innovation and extended customer services. The Tax charged on the income of banking companies is much higher than on the income of other companies causing threat to the bank. The Govt. revises the tax policies on continuous basis, which often are not in the interest of the industry including the banking sector.

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Political conditions in Pakistan have been unstable since a very long period. Continuous changes of regimes and military intervention in the political affairs are great threat towards the healthy growth of the industry as a whole. Sudden rise and fall in the trade and industry conditions of the country also adversely affect the growth of banking sector. Unemployment, unfavorable balance of payment and trade, decreased per capita income; inflation and deflation, recession and boom are the source to the handicapped progress of banking sector. The other organizations of similar nature are offering more salaries and benefit packages to their employees. So, there is a threat to the organization that their current employees may leave it.

CHAPTER 5 5.1 Conclusion: 1. The branch manager is usually given very little regarding sanction of advances and over draft whereas the responsibilities are numerous. 2. The marketing efforts at the branch level are less disciplined and there are no integrated efforts from all the staff members. The mobilization of deposits is mainly considered as the responsibility of the branch manager but the rest of the staff is usually least interested 3. The bank has been applying the modern concepts of management and marketing at both micro levels. The interior and exteriors of the branch have been changed but the staff of the branch has been found less motivated towards the organizational objectives. 4. Employees of the branch are fed up with their work they feel bore from their daily work especially the manager. 5. There is a lack of use of modern technology and most of the important tasks are performed manually.

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6. The decision making is still centralized as the middle and low level management is not taken into confidence. 7. The promotional policy of the bank was observed as without any specific direction. Though the bank has defined its mission and vision but no specific plan has been designed so far. 8. Most of the employees working in this branch are not much familiar with computer. They just know how to use their part of software if any problem comes in the computer they cant fix it. 9. The relationship between the employees of the branch is not that good because of which the whole environment of the branch becomes less favorable for work. 10. Miss utilization of office utilities, especially the telephone. 5.2 Recommendations I spent six weeks of my internship in Allied Bank Limited, Abbottabad. This was my first experience of working in a bank, and I tried to learn a lot from this opportunity. Based on my experience & observation regarding the operations and policies of Allied Bank, I have tried to come up with some recommendations for further improvement. 1. The branch manager should arrange a training program for its existing employees to help them perform their duties more effectively. 2. There should be a proper platform provided to its employees from where they can help the management in achieving its objectives. 3. The branch should try to enter into the market of Islamic banking it would increase its competitive edge over the other banks. 4. Most of the bank employees, are sticking to one seat only with the aim that they become master of one particular job and are loosing their grip on other banking operation. In my opinion all the employees should have regular job experience all out-look towards banking. The promotion policy should be adjusted. 5. Recruitments should be strictly on merit basis and induction should be after proper and extensive training. 6. Working environment, equipment, furniture and staff dressing should be according to the modern banking style.

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7. The bank should appoint customers relation officer where the volume of work is too high. This will give an impression to client for personal Banking. This will help in improving the image of the bank and hence will attract more clients. 8. The existing customers of this branch are of the opinion that customer services are not up to the mark. According to them customer services provided by MCB, Bank Alfalah, Askari Bank and others are far better than ABL services. There must be a separate information counter in this branch of ABL. So that as the customer enters in he can clearly see someone who would help him. 9. ABL is not very well known bank in the market. Their market standing is not as strong as there competitors. For this ABL should opt for heavy advertisement both electronically and on print media to create public awareness. 10. The bank must ensure the participation of the staff in all promotional activities of the bank to this end the bank must adhere to the policy of fringe benefits rapid promotion of capable management and official. The old age benefit of the bank employee must be increased to motivate fee staff. References Annual Report (2009-10) Allied Bank Limited; Annual Report of Allied Bank Limited. Gibson, Charles H. (1998); Financial Statement Analysis. 7th ed, USA: International Thomson Publishing Co. Muhammad Ali (2009); Interview with Muhammad Ali, Customer Support Manager, Allied Bank, the Pine View, Abbottabad, May 15, 2010. www.abl.com.pk [Accessed June 2010] http://www.alliedbank.com/branch_search.asp [Accessed June 2010] http://cpaclass.com/fsa/ratio-01a.htm [Accessed June 2010] http://en.wikipedia.org/wiki/Financial_analysis [Accessed June 2010]

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http://en.wikipedia.org/wiki/Allied_Bank_Limited [Accessed June 2010] http://investopedia.com/bankrate/BankRateMainFrame.aspx [Accessed June 2010] http://www.kse.com.pk/listing-companies/quarterly-reasult.php?id=3&sid=3.05 [Accessed June 2010] http://www.kse.com.pk/listing-companies/analysis_report.php?id=3&sid=3.07 [Accessed June 2010] http://www.main.suit.edu.pk [Accessed June 2010] http://www.sbp.org.pk [Accessed June, 2010]

Balance Sheet of Allied Bank Ltd. Annexure_A

Asset Cash and balance with treasury bank Balance with other banks Lending to Financial Institutions Other assets Investment Advances Operating fixed assets Deferred tax assets Net Total assets Liabilities Bills payable Borrowing Other liabilities Liabilities against finance lease
2007 2008 2009 26,435,683 1,280,591 28,122,932 17,986,438 94,673,100 237,382,522 12,459,586 418,340,852 3,162,429 39,818,532 11,067,164

29,739,878 668,449 18,419,241 10,698,979 83,458,463 168,407,280 7,551,848 662,416 299,726,393 3,494,384 22,933,656

23,653,754 2,097,611 15,793,183 17,388,612 82,433,998 213,020,108 11,150,129 1,031,049 19,880,161 2,952,490 27,778,151 13,629,361 -

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Deferred tax liability Deposits Long term borrowing Subordinated loans Long term liabilities Total liabilities Share capital Reserves Retained earning Surplus on revaluation of asset Total liabilities and equity

263,469,594 2,499,000 299,726,393 5,386,370 6,050,713 6,973,227 1,469,851 19,880,161

297,474,543 2,498,000 344,332,545 6,463,644 5,804,776 8,475,791 1,491,688 22,235,899

3,374 328,872,559 5,497,000 388,421,058 7,110,008 6,582,845 12,164,662 4,062,279 29,919,794

Income Statement of Allied Bank Ltd. Annexure_B

Mark up/interest earned Mark up/interest expensed Net interest income Provision against loans Provision for decrease in value of investment Provision against lending to financial institutions Bad debts written off directly Net interest income after provisions Non interest income Fee, commission & brokerage income Dividend income Income from foreign currency dealing Gain on sales from security 2007 21,201,422 10,086,420 11,115,002 2,712,936 719 2008 30,594,020 16,549,601 14,044,419 1,372,155 1,840,249 2009
41,144,667 22,421,218 18723449 3,162,963 1,067,608 280,595

1,187 8,400,160

2,736 10,829,279

2,980 14,212,283

2,062,677 147,184 194,879 1,439,387

2,299,024 1,426,378 230,060 150,537

2,800,306 1,378,919 761,934 1,101,477

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Unrealized gain/ loss on revaluation of investment classified as held for trading Other income Total non-interest income non interest expanses Administrative expanses Provision against other assets ikProvision against off-balance sheet obligation Other charges Total non interest expanses Profit before taxation Taxation Profit after taxation Undistributed profit Transfer from revaluation of asset Profit available for distribution

-1,463 77,435 12,320,259 5,947,977 39,805 256,869 6,364,230 5,956,029 1,877,952 4,078,077 5,607,796 32,701 9,718,574

3,201 59,934 8,941,491 8,145,506 214,284 190,824 390,877 8,941,491 6,056,922 1,963,061 4,093,861 6,973,227 17,541 11,084,629

-365 35,986 60,778,257 9,517,584 -56,431 -25,353 67,377 9,718,918 10,571,622 3,551,493 7,149,310 8,475,791 32,360 15,657,461

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