Internship Report on Bank Alfalah Limited

Submitted by: Hassan Aurangzeb Roshan Registration#: FA07-BBA-026

Supervised by: Maam Faiza Sajjad

Department of Management Sciences COMSATS Institute of Information Technology Abbottabad

June, 2011

Internship Report on Bank Alfalah Limited

Submitted by: Hassan Aurangzeb Roshan Registration#:FA07-BBA-026

Supervised by: Maam Faiza Sajjad

This internship report is submitted in partial fulfillment of the requirements for the degree of Bachelor of Business Administration awarded by the COMSATS Institute of Information Technology, Abbottabad.

Department of Management Sciences COMSATS Institute of Information Technology Abbottabad

June, 2011

Department of Management Sciences COMSATS Institute of Information Technology Abbottabad

Approval Sheet
Approval Committee

1. External Examiner

Mr. ____________________________________________Signature_______________

2. Supervisor

Mr. ____________________________________________Signature_______________

3. Head of Department

Mr. ________________________________________Signature ________________

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DEDICATION

To my mother Who is always praying for my success and her prayers that I am able to complete the last document of my bachelors degree & My teachers who always trusted me

Abstract
The development of skills to perform well in professional life has become a dire need of every BBA Graduate. The very purpose, an internship is to acquaint the BBA graduate iv

with empirical business practices, particularly in banks which is nowadays the main area of interest of most of the graduates whether an information technologist or a business graduate. As a compulsory requirement of Professional Degree in BBA, I opted to join Bank Alfalah Limited, to fulfill my degree requirement. My reason for choosing BAL was to enhance my skills and techniques, so that to provide myself the opportunity to cope with real life situation and I found BAL one of the best banks in Pakistan. To better understand the report, my recommendation would be to look into different parts mainly covering the overview of BAL, overall management of Finance and Accounts. The BAL organizational model has been thoroughly studied and analyzed. This report comprehends basic information about BANK ALFALAH LIMITED general and its branches in particular. Then it includes departments and products offered by BAL. In the report, I have carried out a detailed analysis of BAL branch and a detailed commentary is available on the overall activities of the bank and findings. A few recommendations have been given for improvement of the bank. At the end conclusion is also given.

TABLE OF CONTENTS
Acknowledgement Abbreviations Executive summary x xi ix

Internship Report on Bank Alfalah Limited.......................................................................i Internship Report on Bank Alfalah Limited.......................................................................i Abstract..........................................................................................................................iv Table of Contents................................................................................................................v CHAPTER 1.....................................................................................................................xii Introduction to the Report ..........................................................................................xiii Objective of Study.......................................................................................................xiii 1.2 Limitations.............................................................................................................xiv 1.3 Merits of the study ...............................................................................................xiv 1.4 Methodology of the Study................................................................................xv CHAPTER 2.....................................................................................................................xv History and Introduction to BAL................................................................................xvi 2.1 History of banking in Pakistan..............................................................................xvi 2.2 Brief history of the organization...........................................................................xvi 2.3 Nature of the organization ....................................................................................xx 2.4 Vision statement.....................................................................................................xx 2.5 Mission Statement ................................................................................................xxi 2.6 Core Objectives of Bank Alfalah Limited............................................................xxi 2.7 Core Philosophy...................................................................................................xxii 2.8 Business volume...........................................................................................xxii 2.9 Efficiency of the BAL Branch Abbottabad.........................................................xxii 2.10 Organization Structure of Bank Branch ...........................................................xxiv Mr. Taimor .................................................................................................................xxv 2.11 Executive Committee.......................................................................................xxv CHAPTER 3..................................................................................................................xxvi Products & services ..................................................................................................xxvi 3.1 Deposit products..................................................................................................xxvi 3.2 CONSUMER FINANCE PRODUCTS..............................................................xxix CHAPTER 4......................................................................................................................xl Financial Analysis.........................................................................................................xl 4.1.1 Vertical Analysis.................................................................................................xli 4.2.1 Horizontal Analysis..........................................................................................xliii 4.3. Ratio Analysis.....................................................................................................xlvi 4.4.2 Efficiency ratios:.................................................................................................lii 4.5 SWOT ANALYSIS (Overall and Branch).............................................................lv CHAPTER 5...................................................................................................................lviii Conclusion and Recommendations..............................................................................lix 5.1 Conclusion............................................................................................................lix 5.2 Recommendations..................................................................................................lix Reference......................................................................................................................lxi Annexure A ...................................................................................................................lxiii Annexure B.....................................................................................................................lxiv Annexure C......................................................................................................................lxv List of figures Figure 2.9 Organization Branch Structure Chart Figure 4.3.1.1 Return on Assets

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Figure 4.3.1.2 Return on Equity Figure 4.3.2 Net Interest Margin (NIM) Figure 4.3.3 Earning Assets to Total Assets Figure 4.3.4 Return on Earning Assets Figure 4.3.5 Equity to Total Assets Figure 4.3.6 Credit to deposit ratio Figure 4.3.7 Loan Loss Coverage Ratio Figure 4.4.1 Income per employee Figure 4.4.2 Profits per employee Figure 4.4.3 Business per employee Figure 4.4.4 Business per branch Figure 4.4.5 Employees per branch List of Table Table: 6 lockers Table: 4.1.1 vertical analysis of balance sheet Table: 4.1.2 vertical analysis of profit and loss statement Table: 4.2.1 horizontal analysis of balance sheet Table: 4.2.2 horizontal analysis of profit and loss statement Table: 4.3.1.1 Return on assets Table: 4.3.1.2 Return on Equity Table: 4.3.2 Net Interest Margin (NIM) Table: 4.3.3 Earning Assets to Total Assets Table: 4.3.4 Return on Earning Assets Table: 4.3.5 Equity to Total Assets Table: 4.3.6 Credit to deposit ratio (CD ratio) Table: 4.3.7 Loan Loss Coverage Ratio Table: 4.4.1Interest income per employee Table: 4.4.2 Profits per employee Table: 4.4.3 Business per employee Table: 4.4.4 Business per branch Table: 4.4.5 Employees per branch

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List of Annexure Annexure A Annexure B Annexure C BALs Comparative Balance Sheet for 2008, 2009 BALs Comparative Profit and Loss Statement for 2008, 2009 BALs Comparative Cash Flow Statement for 2008, 2009

Acknowledgements

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God Al-Mighty is Worthy of all acknowledgements Whose Grace has no limits and who gave me the strength and will to complete this report. Secondly I am thankful to my parents who supported me morally and financially for the last four years despite of their limited resources and social pressures. Special thanks to my internship supervisor Mr. Awais Rashid for his kind co-operation, guidance and support to compile this report. I would like to pay special thanks to Mr.Imdad (Manager of BAL Abbottabad Branch) for his constant guidance and motivation. And last but not the least, the entire staff at BAL, for being very cooperative and courteous with me and providing me with the congenial environment at the bank during my six weeks stay at BAL. Special gratitude to all my honorable teachers who taught me different courses during the last four years with addict zeal and zest. I am indebted to Mr. Awais Rashid, who proved to be more than a supervisor whose guidance enabled me to write this report. His wisdom, kind considerations, and unique insights were invaluable and his real world experience added an extra advantage to my report. Finally, keeping the tradition alive as well as fulfilling social and ethical responsibility, my dedications will always go to my dear Parents & Family, Friends and my best friend zara.

LIST OF ABBREVIATIONS

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BAL IDBP SBP ADBP L/C ATM PLS A/C BBA IT BTF FC PLS MT SBU MIS FDD CD

Bank Alfalah Ltd. Industrial Development Bank of Pakistan State Bank of Pakistan Agricultural Development Bank of Pakistan Letter of Credit Auto Teller Machine Profit and Loss Account Business Banking Account Information Technology Balance Transferred Facility Foreign Currency Profit & Loss Sharing Mail Transfer Standard Basic Unit Management Information System Foreign Demand Draft Credit Deposits

Executive Summary
Pakistan after getting its independence, did not inherit a strong banking industry and since then saw a number of events in the industry, like the nationalization of banks in the 1970s. However today, the banking industry of Pakistan has been growing over the past few years, mainly because of the consistent policies implemented by the Government of Pakistan, including the privatization of banks in Pakistan. Also the State Bank of Pakistans monetary policy has been very friendly toward the banking industry. There is a number different banks established in Pakistan, including local incorporated commercial banks, foreign incorporated commercial banks, development financial institutions, investment banks, discount & guarantee houses, housing finance companies, venture capital companies, micro finance banks and Islamic banks. Bank Alfalah was incorporated in 1997 and was later privatized by the Government of Pakistan. The Abu Dhabi Group bought the majority shares of the bank and so got the rights to control the banks operations. Since the privatization of the bank, Bank Alfalah has implemented different policies to make it one of the best banks of Pakistan, which included introducing new products and services and increase its operations by opening new branches in Pakistan. Today Bank Alfalah is operating in more than 90 cities of Pakistan and operating its foreign branches in Bangladesh, Afghanistan and Bahrain. The total employees of Bank Alfalah approximate around 23.25%. The increase in the number of employees joining Bank Alfalah shows that people feel confident in Bank Alfalah as a prospect employer. The financial statistics of Bank Alfalah are also as impressive as their human resource but due to 2009 crises, it has been decreased to a large extent. The stock prices and earnings per share of the bank have increased over the years. Bank Alfalah promotes its products and services through print and electronic media. Bank Alfalah also promotes itself by sponsoring different events. For Bank Alfalah, it has to compete in an industry that has grown in 2009 in overall assets and profits growth. The major competitors of Bank Alfalah, pose close competition and are mainly large nationally incorporated banks and a few international banks, that all want to become the leading banks of Pakistan, by creating some edge in the industry. To create this edge, technology has played an important role in the industry as banks are continuously trying to improve its products and services by introducing innovative products.

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I did my six weeks internship at Bank Alfalah Limited, Abbottabad Branch and worked in account opening, operations, accounts, and credits department. The work that I did in these departments included making proposals for loans, collecting cheques, filling account opening forms, activity checking and making a borrowers basic fact sheet. Some of the problems found in the working of Bank Alfalah include less training of the employees, incentive schemes and product innovation, less staff and long working hours.Some of the recommendations include workshops for employees, job rotation, and teams work to find innovative products and scholarship programs for employees. Lastly Bank Alfalah has seen a rapid growth in its activities by introducing a range of products and services and showing its presence in the country by opening new branches and in future should keep this momentum and always strive to become the best.

CHAPTER 1

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Introduction to the Report This Internship report is aimed at studying and analyzing Bank Alfalah limited (BAL) in general and its branch office at Abbottabad, in particular. During the internship we gain the practical knowledge of the banking industry. The main purpose of the internship is to prepare and submit a report as a partial fulfillment for the award of BBA degree from COMSATS Institute of Information Technology Abbottabad.

Objective of Study Internship is the one of the crucial and important part of the BBA course and this provide the practical knowledge of what students read about business in their books. Internship report is prepared to form full fledge analysis of an organization. As this is the only field experience that students gain before entering practically into the market. During this internship students been rotated in different departments i.e. accounts, bills and remittances, cash, credit, foreign exchange & internet banking etc. This movement and rotation provide a complete knowledge of each department. This knowledge and practical experience is the major component that helps student to complete the internship report. Banking leads business & Bank ALFALAH is of great importance in banking sector which is one of the premier banks in the country. BAL is a highly profitable organization, having a huge network within and out of the country. Although BAL is a new financial institution, but is one of the most professional and posh banks and has developed a great reputation in the market, to apply knowledge in practice, to analyze the performance. To understand the policies, To study the status of the organization, to understand the managerial efforts, To calculate the profit & loss in comparison with different skill, To fulfill the requirement for award of degree Banks reputation & prestige attracted for the report, To find out the strength and weaknesses. To establish necessary suggestions and recommendations, to gain experience of banking applications and procedures thats why I choose bank Alfalah. BAL also covers each and every area of the banking, to pursue my career as a responsible worker, to unearth my individual excellence, To acquaint myself with day-to-day working of public & private enterprises, To get some practical learning & acquire knowledge by working in a friendly & dynamic environment, I am capable of working in challenging

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environment & BAL is an innovative, creative & dynamic institution responding to the changing needs of the internal & external environment, so I select BAL. BAL is a strong, respected & trusted name in Pakistan. The objective of the study is to evaluate the functions and different procedures of the bank. While working there the aim was to analyze the function of management, there working procedures, and identifying some of the weaknesses of the bank and suggest recommendations. The recommendations, if supplemented by an action plan, will further facilitate the improvement process. The main objective of the study is to elaborate the banking operations and increasing the knowledge base of the banks working operations. In short the report will prove to be a yardstick in determining how tasks should be performed and how are they being performed in reality. In modern day world where banking has become very complex, as it ranges from basic deposits to relationship management, it is very difficult to cover each and every aspect of a banking institution. Moreover the bank does not provide data particularly about the rightsizing of employees and stuck-up loans due to various reasons. Doing internship in bank is risky when you are not employee over there, which also restrict your activities.

1.2

Limitations

As an internee we have to honor the secrecy of the bank private data, hence we were not allowed to access it and therefore not included in this report. This study was conducted in accordance with the objectives of the study. The problem of short time period also makes the analysis restricted as one cannot properly understand and thus analyze all the operations of a bank. All the operations of the bank are automated not manual. BAL uses SWIFT Software, which is not assessed by the internees, so limits them from entering into main source of data where transactions are recorded.

1.3

Merits of the study

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It is a compulsory requirement for the award of Bachelors Degree in Business Administration The study conducted will benefit the finance students in particular and banking students in general. It will help the present and prospective students of the department in making assignments and writing reports on the BAL, evolution of banking, and importance of banking and different operations.

The third chapter of this report comprehensively encompasses most of the aspects of banking. The forth chapter of this report include SWOT analysis, conclusion and recommendations. Furthermore, BAL branch Abbottbad may also benefit from the recommendations made at the end of the report.

It can also provide assistance to students seeking financial data for analysis. It can also provide help to BAL management in identifying their Strengths, Weaknesses, Opportunities and Threats.

1.4

Methodology of the Study

This study involves two types of data for report writing. 1.4.1 Primary data Interviews and discussion with staff members Personal observations

1.4.2 Secondary data Annual reports of BAL Brochures & Manuals. Websites Newspapers

CHAPTER 2

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History and Introduction to BAL 2.1 History of banking in Pakistan

Banking is one of the most sensitive businesses all over the world. Banks play an important role in the economy and are considered as the backbone of an economy in every country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in decades to come. By 1970, it had acquired a flourishing banking sector. Nationalization of banks in the seventies was a major upset to domestic banking industry of the country, which changed the whole complexion of the banking industry. With irrational decision at the top, all the commercial banks were made subservient to the political leadership and the bureaucracy. The commercial banks thus lost their assets management equilibrium, initiative and growth momentum. They ceased to be a business concern and became big bureaucracies. The era of nineties was the climax of privatization, deregulation and restructuring in the domestic banking industry and financial institutions. The Muslim Commercial Bank was the first bank to privatize. Followed by Allied Bank limited, United Bank Limited and Habib Bank Limited have all been privatized 2.2 Brief history of the organization

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through 195 branches in 74 cities, with the registered office at B.A.Building, I.I.Chundrigar, Karachi. Since its inception, as the new identity of H.C.E.B after the

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privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates our commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. We perceive the requirements of our customers and match them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today. The potential exist in the Pakistani market for the banking sector. In a result of research conducted by Abu Dhabi consortium, they also get awareness about the Pakistans wide market and its potential benefits. Furthermore changing and supportive government policies also encourage them to invest in this market. That is why they decided to share the burden of implementation of growth strategies that seems to be beneficial for their future. Being a Muslim country Pakistan is having a special consideration for the initiators of Bank Alfalah in Abu Dhabi i.e. the members of Abu Dhabi Consortium. Their relations and association with Pakistan is based on tradition value and brotherly ties. By starting up their banking business in Pakistan they have extending these relations into economic as well as social ventures. After BANK of Credit and Commerce International, ceased to perform its services allover the world in July 5, 1991 (Bank of Commerce and Credit International (BCCI), international bank, founded in 1972. By 1990 BCCI had offices in 69 countries, $15 billion in deposits, and $20 billion in assets. In July 1991 evidence of widespread systematic fraud at BCCI led regulators in seven countries to seize the banks assets. The banks operations in the remaining 62 countries were gradually shut down. A subsequent investigation resulted in a New York criminal indictment of the institution and four of its units, as well as the arrest of about 20 BCCI officials in the emirate of Abu Dhabi, United Arab Emirates, for alleged fraud.

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BCCI was founded by Pakistani banker Agha Hasan Abedi, who remained its chairman until 1989. From March 1990 it was under the control of Sheikh Zayed bin Sultan alNahyan, the ruler of Abu Dhabi. In July 1990 in Tampa, Florida, five former BCCI officials were convicted of laundering $32 million in cocaine profits for Colombias Medelln drug cartel. Despite these convictions and later evidence of BCCIs fraudulent conduct, regulatory control was difficult. The bank had no central office under the jurisdiction of an individual government; its two central offices were located in Luxembourg and the Cayman Islands, both tax havens with secretive banking rules. In October 1994 a U.S. federal court sentenced Swaleh Naqvi, former chief executive of BCCI, to an 8-year prison term for his role in defrauding investors. This was in addition to a 14-year sentence he had already been given in Abu Dhabi. In addition, Naqvi was ordered to pay more than $250 million to U.S. investors. The government of Abu Dhabi, which held a 77 percent share in the collapsed bank, reached an agreement with the banks liquidators in March 1994. The government agreed to reduce its claims against BCCI and contribute $1.8 billion to creditors, a move approved by the High Court in London in December 1994.) Ministry of finance and State Bank of Pakistan took over the hold on management of the network and merged all the branches in HBL at 14 March 1992. This merger with Habib Bank LTD continued for 10 month i.e. till 31st October 1992. It was on 7th July 1997 when government decided to privatize Habib Credit and Exchange Bank a subsidiary of Habib Bank LTD. To reinforce the transparency of the transaction, the bidding process was televised live on the national network. The whole procedure was completed with success and this turned out to be the first Commercial Bank privatization by the Government. The bid was won by the famous Abu Dhabi consortium that put the highest bid in the process amounting US$ 40.5 million and successfully got seventy percent (70%) shareholdings of the Bank. So in this way bank got its new and reviewed identity on 25th February 1998 as Bank Alfalah. Bank Alfalah Limited was incorporated in 21st June 1997, as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. The bank is engaged in commercial banking and related xviii

services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through 195 branches that include 23 Islamic Banking Branches and five Foreign Branches in Bangladesh and Afghanistan and one Wholesale Banking in Bahrain, with the registered office at B.A.Building, I.I.Chundrigar Karachi. After the privatization in 1997, since its initiation, the management of the bank is focusing on the implementation of such strategies and policies that prove helpful in achieving a distinct position for the bank in the whole banking sector. Bank is inclined to have better technology thats why its investment in adaptation in modern technology is considerable. Bank is also focusing on having a wide range of products and services using this technology. Under the control of the Abu Dhabi based consortium, and under the leadership of his highness sheikh Nahayan Mubarak Al-Nahayan, Minister of higher Education, Government of Abu Dhabi and a prominent member of Royal Family the bank is energized with the vision, envisaging the development of consumer sector in Pakistan. Bank Alfalah with a team of talented, service-dedicated professional bankers commits all its energies, resources and time to cater to every banking and financial needs of its customer. The strength and stand of Abu Dhabi Group, principal owners of BAL, have helped Bank Alfalah Limited launch high quality consumer and corporate banking operations in Pakistan. Bank Alfalah Limited have embarked upon a rapid expansion program to make sure that the services reach more and more people, BAL is headed towards an optimum sized network reaching major urban centers in Pakistan. The Bank is well positioned and geographically poised, to cater for increased business demands, from its existing and potential clientele. The bank is not only making its contribution in accelerating Pakistans economy. With the implementation of the office automation and communication system BAL will be poised to compete with the best in quality and speed of customer services. Recently WARID telecom private limited signed strategic alliance agreement with Ericsson. Earlier, a letter of intent was signed in this regard on 5th September 2004. The chairman of Abu Dubai consortium, and of Warid telecom, his Highness Sheikh Nahayan Mubarak Al-Nahayan was the chief guest of the ceremony. Under this Strategic alliance agreement, Ericsson will provide Warid telecom a complete turnkey state of the art xix

network GSM online. Bank Alfalah Limited continually endeavors to develop wider spectrum of innovative financial products based on consumer needs. 2.3 Nature of the organization

Bank Alfalah is bank and banking means the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on Demand or otherwise, and withdraw able by cheques, draft, and order or otherwise; Bank Alfalah Limited was incorporated in Pakistan on June 21, 1992 as a public limited company under the Companies Ordinance, 1984. It commenced its banking operations from November 1, 1992. The banks registered office is at B.A .Building, I.I. Chundrigar Road, Karachi and is listed on the Karachi and Lahore stock exchange. The Bank is engaged in banking services as described in the Banking Companies Ordinance, 1962 and is operating through 166 conventional banking (2005: 128 branches)15 Islamic banking (2005: Nil branches) and 5 overseas (2004: 4 branches)and 1 offshore banking unit (2005: Nil). Banking Company means any company which transacts the business of banking in Pakistan; Any company which is engaged in the manufacture of goods or carries on any trade and which accepts deposits of money from the merely for the purpose of financing its business as such manufacturer or trader shall not be deemed to transact the business of banking within the meaning of this clause; 2.4 Vision statement

Vision statement identifies where the organization intends to be in the future or where it should be to best meet the needs of stakeholder. The Vision of Bank Alfalah is: To be the premier organizations operating locally & internationally that provides the complete range of financial services to all segments under one roof. Bank Alfalah is one of the leading financial institutes, Bank Alfalah day by day increasing its products for all the segments in Pakistan i.e. for Businessmen, Industrialists, and Agriculturists and for the Government bodies in the country. Bank Alfalah is trying to reach each segment in Pakistan, and trying to provide his products at lowest charges and with easiest way, under one roof.

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2.5

Mission Statement

It addresses the basic question that faces all strategists. A clear mission statement describes the values and priorities of an organization. Mission statement of Bank Alfalah is: To develop & deliver the most innovative products, manage customer experience, deliver quality service that contributes the brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank. In the above Mission the Management of Bank Alfalah emphasis on the following areas:

To provide the new and more innovative products than the other banks to the customers. This is a one of the main component of Bank Alfalah Mission Statement that to deliver high quality and quick services to the customers, who are keep great value for Bank Alfalah. Bank Alfalah tries to promote those activities, which give the fruitful result to the customers and the stakeholder of the bank.

2.6

Core Objectives of Bank Alfalah Limited

Objectives are essential for organizational success because they state direction; aid in evaluation; create synergy; reveal priorities; focus coordination; and provide a basis for effective planning, organizing, motivating, and controlling activities. Bank Alfalah Limited objectives are as follows:

To create maximum economic value for shareholders through a constant relationship focuses on financial services. Leveraging BAL Investments in the IT field. Ongoing assessment of opportunities for customers, leading to the constant development of new products and services. To promote industrial, agricultural and socio economic processes through the active participation of private and public sector in the country.

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2.7

Core Philosophy

The core philosophy of honesty, transparency in customer dealing, product innovation, excellence in customer services and our commitment of being a responsible corporate citizen pervades the whole business. 2.8 Business volume

For the year ended December 31, 2006 the Bank's profit before provision and taxation stood at Rs. 2,406.712 million as compared to Rs.2, 342.019 million for the previous comparable period, registering an increase of 2.76%. In compliance with the current prudential regulations on consumer banking, the Bank has created general provisions amounting to Rs.149.880 million against the consumer portfolio, for the year ended December 31, 2006. Right share issued in the year 2006 are 500,000,000 (five hundred million only). Total Paid UP Capital is 3,000,000,000/-(Three Billion only) On 28 October 2005 the Board of Directors of the Bank approved a plan to segregate its business of Islamic Banking into a separate entity. The segregation reflects Bank's plan to remain competitive with ever increasing competition in the local market and become the premier Islamic bank. Resultantly, in order to achieve this objective the Board feels that the Islamic Banking Division should be converted into a wholly owned subsidiary of the Bank. As on 31 December 2006 the Islamic Banking Division's assets were Rs. 19,465 million and its liabilities were Rs. 17,990 million. After period ended 31 December 2006, Islamic Banking Division earned revenue of Rs. 992.406 million, incurred expenses of Rs. 844.833 million and earned a pre-tax profit of Rs. 147.573 million with a related tax expense (including current and deferred tax) of Rs. 43.298 million.

2.9 2.9.1

Efficiency of the BAL Branch Abbottabad Deposits (for the year 2006)

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The BAL branch Abbottabad has improved its customer base, which shows increase in the deposits of the branch. Different deposit accounts participation in the total deposit of the bank is as follows. Rs Million PLS term deposit PLS saving account PLS Royal Call deposit Current account Others TOTAL 2.9.2 Deposit Bank Alfalah 239,509,391 195 239,509,391 / 195 1,228,253.287 1228253.287 / 239,509,391 x 100 = 0.5128 % 87,067 157,235 83,429 3,469 391,378 --------------------724,920

Total Deposit Total Branches Average Deposit of Each Branch Average of Each Branch

2.9.3 Deposit Of Bank Alfalah Abbottabad Deposits = Percentage of BAL Branch Abbottabad = 0.3027% This percentage shows that the participation of BAL Branch in the deposit of BAL HO is very less. The percentage of deposits has increased but more effort has to be put. Home finance department has to work more and with their flexible rates they can acquire more customers. 2.9.4 Total number of employees involved Branch Total number of employees involved Contribution of each employee Total number of employees of BAL 26 employees 724,920 / 26 27,881.538 6,543 xxiii 724,920 724,920 / 239,509,391

Contribution of each employee

239,509,391/ 6,543 36,605.44

2.10 Organization Structure of Bank Branch Fig 2.10 (Organization Structure)

Area Manager

Corporate Manager

Branch Manager
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Operation Manager

OPERATION DEPARTMENT

FOREIGN EXCHANGE DEPARTMENT

CREDIT DEPARTMENT

Mr. Taimor
Cash Department Imports CMD CAD Home Finance Agri-Finance

Exports A/C Opening

Remittance Dept. Accounts Dept.

Source: Bank Alfalah Limited 2.11 Executive Committee Mr. Mohammad Saleem Akhtar Mr. Ikram Ul-Majeed Sehgal Mr. Parvez A. Shahid Mr. Mohammad Yousuf Mr. Tanweer A. Khan Mr. Sirajuddin Aziz Mr. Mahmood Ashraf 2.11.1 Location 27-A, Supply Bazar, Main Mansehra Road, Abbottabad (old) Jab pul, near SUI gas office, Manshera road, Abbottabad (new) (Chief Executive Officer) Member Member Member Member Member Member

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Ph#0992-344753 Fax # 0992-344736 2.11.2 Credit Committee Mr. Abdullah Khalil Al Muawa Mr. Khalid Mana Saeed AL Otaiba Mr. Ganpat Singhvi Mr. Bashir A. Tahir Mr. M. Iftikhar Shabbir Director Director Member Member Secretary

CHAPTER 3
Products & services With the mission to provide all-encompassing banking services to the customers, Bank Alfalah has a uniquely defined menu of financial products. Currently it is one of the most comprehensive portfolios of personalized financial solutions that are customtailored to serve the requirements not only of conventional customers but also fulfill the needs of the corporate sector

3.1

Deposit products

1. PLS Saving (Rupee) Accounts Saving accounts are designed to mobilize savings primarily from a large number of individuals and house hold. Any one or more individuals or partners can open a PLS saving account with the Bank. Salient features of PLS account are as follows:13

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Minimum initial deposit is Rs.500/A smaller deposit can be accepted at the discretion of branch management if Profit on PLS saving accounts is calculated on minimum monthly balance basis. Profit rates are announced and paid biannually in January and July respectively. Profit rate on the PLS saving is 2.25% per annum. However profit rates are

average deposit is expected to remain above Rs.5,000/-

subject to change in response to change in the return earned by the Bank on deployment of funds. 2. Current Rupee Account Individual, partnerships, companies, associations, clubs, societies and NGOs are eligible to open current accounts. Salient features are as follows: Minimum initial deposit is Rs.5,000/Minimum average balance is Rs.10,000/There is no restriction on number of transactions. There is no limitation on amount of withdrawal. No profit is paid on credit balance in current accounts.

3. Royal Profit Savings (Rupee) Accounts Royal profit is a high yield rupee account intended to provide higher rates of profit to high net worth customers and greater flexibility and convenience in terms of transactions. Current rates of profit are as follows: Table AMOUNT From 50,000 To 999,999 From 1,000,000 To 9,999,999 From 10,000,000 To 49,999,999 From 50,000,000 To 149,999,999 From 150,000,000 & Above Source: BAL Abbottabad Branch Features: xxvii PROFIT % 1.50% 1.75% 2.00% 2.50% To be quoted by treasury

Savings account with facility of a current account. Minimum balance for individuals Rs.50,000/Minimum balance for companies Rs.250,000/Disbursement of profit is on monthly basis Personalized cheque book.

4. Royal Patriot (Rupee Term Deposit) Royal Patriot is a rupee term deposit scheme with competitive rate of profit. Current rates of profit are as follows: Table Tenure 1 Month 3 Month 6 Months 1 Year 25,000999,999(deposit) 1.50 % 1.75 % 2.00 % 2.25 % 1,000,0004,999,999(deposit) 1.60 % 1.85 % 2.10% 2.35 % 5,000 & Above (deposit) 1.70% 1.95% 2.20% 2.45%

Source: BAL Abbottabad Branch Features: Short to long term deposits Choice of term 1, 3, 6, 12 & 24 months Minimum balance required Rs.25,000/Profit paid on maturity of respective term. Profit rates increase with tenure and amount.

5. Foreign Currency Accounts This Account is offered to resident and non-resident Pakistanis as well as foreigners can open foreign currency accounts. A foreign currency account is opened either as savings account or current account. 6. Safe Deposit Lockers

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Bank Alfalah provides safe deposit lockers facilities to its customers for safe keeping of their valuables like documents, securities and jewellery etc. Important features of lockers facility are as follows: Various sizes to choose from small to extra large: small, medium & large Annul locker rent ranges from Rs.1,000/- to Rs.3,500/-. Locker rent is waived for customers maintaining a minimum deposit of Rs.2 Current account or above US $25,000/- in a current account or US $ 50,000/- in The key deposit of the Locker is Rs.1,000/- which is refundable.

million. a savings account.

Locker Rates The annual license fees of the following sizes of lockers will be as per Bank's Schedule of Charges, which are: Table Locker Size Small Medium Large Special Source: BAL Abbottabad Branch. 3.2 CONSUMER FINANCE PRODUCTS Charges per annum Rs.1000/Rs.1500/Rs.3000/Rs.3500/-

Consumer finance is a fast growing segment of banking business in Pakistan. Credit cards, car finance, personal loans, loans for purchasing household appliances, xxix

computers and related accessories and housing financing are the principal consumer finance products. Being a market oriented bank; Bank Alfalah also has a strong focus on consumer banking and consumer finance. A brief description of products is as follows: 1. Auto Leasing & Financing a. Car Finance Alfalah car scheme enables customers to own a car at easily affordable and flexible installments with minimum down payment and insurance. Benefits and Features Quickest processing No hidden charges Minimum down payment Complete repayment at any point of time Balance transfer facility {BTF} for existing as well as new clients from other Tenor period ranging from 1 to 7 years Financing of all brand new locally assembled vehicles. Financing limit ranging b/w Rs. 200,000/- to Rs. 2000,000/Hypothecation of vehicle in the name of the Customer.

Banks

b. Corporate & Individual Car Leasing BALs recently introduced car leasing facility for individuals and corporate sector has set new dimensions for the product. Now customers are provided with the option of either to get the vehicle leased or financed. Features Renowned and reliable Insurance companies are offering the competitive rates of Insurance. Customer can pay year insurance premium in advance {at the time of down payment} and remaining in the subsequent equal monthly installment.

xxx

Offering lowest rate of markup of 9.5%, {per annum}. Easily affordable installments on monthly basis. Hypothecation of vehicle in the name of the Bank Alfalah Limited. BAL Acting as a co borrower, will enables customers family members

{spouse, children- 18 year and above} to avail the financing facility and can get the car registered in their names as well. Documents required Two passport size photographs. Copy of National ID card. Bank statement for the last six months. Salary certificate in case of salaried individual}. Business proof for self employed and business people}. National Tax Number (NTN) Co borrowers NIC copy {if it is a co borrower case}.

Eligibility Pakistani National Identity Card holder. Over 20 years of age (Maximum 60 years in case of salaried and 62 in case of a Salaried, Businessman or self employed.

business person at the time of maturity of the loan).

2. Credit Cards Credit Cards are increasingly becoming way of life in Pakistan. Bank Alfalah (visa) Credit Card product was launched in Dec, 2002. In a short period of time, it has achieved an unprecedented success. BAL Credit Card is unique in the sense that there is no cared issuance fee as it is free forever. Features No Joining Fee No Annual / Renewal Fee Lowest Markup xxxi

Only Bank Alfalah gives to customers the unmatched feature of the lowest mark up of 2.25% per month. Balance Transfer Facility

Bank Alfalah offers balance transfer facility to all its Card members - the easy and convenient way to settle unsettled credit card payments on all existing credit cards in Pakistan. As an Alfalah VISA Card member you can avail balance transfer facility at a low rate of only 1.50% per month (for initial six months), which happens to be the lowest in Pakistan. The balance transfer facility can only be availed only if the total outstanding balance does not exceed beyond the credit limit assigned by Bank Alfalah for Alfalah VISA card. Global Acceptability

Bank Alfalah VISA card is a partner everywhere and is globally accepted and welcomed at locations displaying the VISA logo. It is accepted at nearly 24 million locations in more than 130 countries around the globe and at over 10,000 establishments in Pakistan. Cash Withdrawal

Alfalah VISA credit card lets customers to pay for shopping, travel, entertainment, meals and much more. Customers have access to ready cash at 784,190 ATMs. With VISA card and PIN (Personal Identification Number) customers can withdraw any amount up to 50% of your assigned credit limit. Customers can withdraw cash by requesting an Over-the-Counter Cash Advance at 360,000 financial institutions worldwide or at any of Bank Alfalah branches, or other VISA member banks in Pakistan. Revolving Credit

xxxii

With Alfalah Visa customer have the option of paying only 5% (minimum Rs. 500/-) of outstanding balance by the payment due date. Service charges at the rate of 2.25% per month will be levied on the balance unpaid and carried forward. These charges are calculated on a daily basis from the transaction date for all cash and retail transactions. The following month is the option of either the full amount payment or if customers wish, to pay only the minimum amount due and revolve again. Zero Loss Liability Bank Alfalah ensures his customer have complete peace of mind even if customer Loose his card. Customers are completely secure against loss or theft. 3. ALFALAH Hilal Card Bank Alfalah through its commitment to provide superior and improved services to its valued customers, has unveiled a nationwide network of ATMs. Bank Alfalah introduce Alfalah Hilal Card the revolutionary, new-age form of cash that provides greater freedom, security and convenience combined with the wide reach of Visa Network. This card can be use for all financial needs around the world, round the clock, wherever; Visa electron cards are accepted locally and internationally. It gives an unlimited access to the current/Saving account with a simple swipe, at millions of retail shops or ATMs, worldwide. Bank Alfalah Limited ATM network is geared up to exploit the latest technology, and is equipped to meet the highest standards of security and efficiency. Features: No Interest No minimum Income Requirement- only it needs to do is open an account in No PIN required for Retail Transactions-the only one swipe care in Pakistan Photograph and Signatures for added security Accepted at more than 840,000 ATMs and 13 Million retail outlets around the

any branch of Bank Alfalah Limited.

world.

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Customer can get balance inquiry on the ATM card. Customer can get an instant printout o the account Balance. Customer can get a printout of the last transaction (Mini-statement) on the spot.

4. Consumer Durables Bank Alfalah continually strives to improve and add products to its consumer banking service. BAL launched Micro-Financing of consumer durables on August 04, 2003, which is yet another milestone towards its commitment of meeting all the financial needs of esteemed customers. The scheme is basically a term finance facility repayable in monthly installments, giving customers an opportunity to own housed products. In this way, this product is facilitating the customers and helping them out to improve their standard of living. Features 0% Down Payment Lowest Mark-up No Processing Charges* No Early Payment Charges 12,18,24 & 36 Months Tenure Financing from Rs.10,000 to Rs.500,000 Free Doorstep Delivery Free Credit Life Insurance Coverage

*Actual Stamp Duty and legal charges will be applicable. Eligibility criteria Total gross salary / income of Rs.15,000/- or more per month. Aged between 25 to 60 years (60 years at maturity of facility). Customer should be Pakistani.

Documents required For salaried persons xxxiv

One (1) copy of N.I.C. Employment certificate with date of joining, current designation emolument. Most recent salary slip. Income & wealth tax returns (for the last three years) [if required].

For self employed One (1) copy of N.I.C. Bank statement for the last six months. Copy of last utility bill (residence). Proprietorship certificate / partnership deed (where applicable). Income & wealth tax returns (for last three years) [if required].

5. Home Finance This product which was launched on September 01, 2003, provides a wider range of Home Finance tailor-made plans, designed specially to meet customers need at a very competitive rate. At present, Bank Alfalah is the only Bank in the market, which offers a house finance scheme for non-resident Pakistani customers based in the UAE besides Pakistani residents. Housing finance is available from Rs.0.500 million to Rs.7.50 million to purchase, renovate or construct a house/apartment. Important points are as under: Payment period ranges from 3 to 20 years. Owner only invest 30% of the value of property. Loan can be repaid before maturity without any penalty. Borrowers age must be between 25 to 65 years. Salaried persons, businessmen and self-employed people are eligible. Financing is also available for purchase of residential land. Complete freedom to move between floating and fixed rates. Financing available to resident & non-resident Pakistanis. Minimum amount will be Rs.05.500 million & maximum of Rs.7.50 million. Mark-up option available for floating & fixed rates.

xxxv

The Eligibility Criteria Pakistani Nationality. Age should between 25 and 65 years. Continuous employment in a permanent position for 2 years or more. 3 years (or more) of business or professional experience. Gross annual income is Rs.200,000/- or more [spouses income (up to 50%) can Customer has been a Bank Alfalah borrower for past one year with clean

also be combined]. payment record. Documents Required The following documents are required to be submitted by an applicant with the completed application. For Salaried Person: 2 passport size photographs. Copy of NIC. Copies of last Salary / Pay Slip duly attested by the HR department. Salary Certificate (original) from the employer, showing the gross salary and Employment verification form from the employer.

deductions.

For Self-Employed & Business person 2 passport size photographs. Copy of NIC. Certified Copy of last Six Months bank Statement. Copy of current professional association membership / trade body membership Copy of Latest Form 29 duly attested by the company secretary Letter from company secretary confirming the status and share-holding.

certificate (if Applicable).

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6. Alfalah Karobar Finance Alfalah Karobar Finance is a new Product of BAL, which is launched recently. It is a hassle-free running finance facility for SMEs that meets all the business needs like no other. Features Financing facility up to Rs.10 million Single-digit markup rate Quickest processing time Lowest processing fee Special incentive for BTF Customers

7. Alfalah Zarie Sahulat Bank Alfalah Ltd. (BAL) agri finance program has been named as "Bank Alfalah Zarie Sahulat. Bank Alfalah is extending this service to the clients on a competitive markup rate. The scheme now covers financing of a multitude of activities related to crop production, harvesting, transportation, marketing, storage, processing, packing, export, agri development, working capital and fixed investment financing of agri non crop activities, storage, silos, etc. making it quite exhaustive and comprehensive. The products have been, therefore, designed keeping in mind objectivity of practical applicability in market scenario and to cater to the most commonly demanded items of agricultural financing by farmers. Documents Required The following documents are required by BAL for agriculture financing: Pass Book issued by Revenue department. Copy of Khasra Gardawri. Proof of leased in land if any. Other documents required according to nature of finance.

Eligibility Criteria:

xxxvii

Finance can be provided to all categories of farmers (owners, owner-cum-tenant, & tenant). The under mentioned criteria shall be observed while extending agri finance to the farmers under various products of Bank Alfalah Zarie Sahulat : The applicant is a genuine farmer. The applicants name must appear in the Revenue records. The applicant is not a defaulter of the banking system. The applicant must be able to produce proper securities / sureties / passbook.

8. Structured Finance Established in 1998 in order to provide innovative investment banking services to valued clients, A team of handpicked professionals, dedicated to syndicated loans and structured products. The teams expertise is well known in the marketplace with its capability to assist public & private sector entities, major financial institutions, multinational corporations, domestic & international institutional investors in innovative financing including underwriting & private placements. . The scope of SFUs activities also encompasses advisory assignments, such as privatization, Mergers & Acquisitions (M&A), domestic listings, IPOs and restructuring. During the past few years, SFU has been successful in sourcing and participating in a number of prestigious transactions involving large amounts. Some of the value added services offered by SFU include the following: Loan syndication Public floatation of Term Finance Certificates (TFCs) and equity Financial restructuring Private placement of Term Finance Certificates (TFCs) and equity Guarantee syndications Mergers & Acquisitions (M&As) Fostering joint ventures Privatization Sale side and buyers side advisory Structuring new financial instruments xxxviii

underwriting

In the future, SFU is envisaged to supplement the enhanced profile and profitability of Bank Alfalah Limited through its value added services, through both asset building and income generating aspects. 9. Travellers Cheque Bank Alfalah presents Rs.1, 000, 5,000 and 10,000 denominations of travelers cheque, making it very convenient to carry money while traveling or keeping your emergency cash safe. Features Maximum security features Special embossed intaglio printing in the UK,

Alfalah security thread and Alfalah watermark. Just some of the advanced features that make TCs secure Fully Refundable Transferable and endorsable Unlimited validity No account needed Network of Branches

10. Money Gram Bank Alfalah limited, in collaboration with Money Gram, offers remittance service to Pakistan. Money Gram is person to person money transfer service that allows consumers to receive money in just a few minutes. Features Secure and reliable: An extensive network of quality agents, linked by computer, will transfer your money safely and ensure that it is handled with care and without delay. Thousands of people already use the Money Gram service all over the world. It is trusted for its reliability and security.

xxxix

Convenient and fast:

Money Gram is available in over 154 countries and in more than 40,000 locations worldwide. With Money Gram money is transferred immediately and usually arrives at the receiving end within 10 minutes while other services can take days or weeks. There are no complicated procedures and do not need a bank account or a credit card. Free message service (for senders):

There is also an added personal touch can receive a 10 word message from the sender with every transaction at no extra cost. 11. Online Banking Bank Alfalah now offers the facility of on-line banking to its customers through its country wide network of branches. Customers can use the ATMs or the banking counters of any branch for day-to-day banking needs, irrespective of branch where they maintain their accounts. For Corporate customers centralized Cash Management facility is also offered through on-line banking.

CHAPTER 4
Financial Analysis Financial analysis is the most important part of this report, hence due care has been taken to give true picture of the bank. Financial statements such as balance sheet and income statement have been analyzed to give true and fair current picture of the bank. Financial analysis is an evaluation of a firms past financial performance and its prospects for the future; it consists of applying analytical tools and techniques to financial statements and other relevant data to obtain useful information. The financial statements with the attached schedules and Director Reports on past performance and future prospects give rather insufficient information. The interested parties need complete information, thats why the financial analysis has been developed. Its main

xl

purpose is to clearly highlight the financial position by studying various aspects. Keeping in view importance of financial statements, I had used ratio analysis in order to know the financial strength & efficiency of Bank Alfalah. 4.1.1 Vertical Analysis Balance Sheet As at December 31, 2008-2010 Assets Cash and balance with treasury banks Balance with other banks Investments Advances Fixed Assets Deferred tax to assets Total assets LIABILITIES Bills payments Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities NET ASSETS REPRESENTED BY Share capital Reserves Inappropriate profits Surplus or 0.62 5.42 0.60 5.68 Profit and Loss Account For the year ended December 31, 2007-2009. xli 0.69 4.88 2010% 10.01 10.01 3.93 27.56 50.34 3.45 100 1.16 3.52 90.96 1.94 0 0.02 2.37 94.57 5.42 3.27 0.92 0.58 4.79 2009% 9.01 9.01 3.84 25.48 48 3.72 3.76 100 0.96 5.30 83.47 1.94 0 0.04 2.57 94.31 5.68 3.46 0.92 0.69 5.08 2008% 9.36 9.36 0.95 21.76 54.95 3.94 2.82 100 0.98 3.92 86.17 0.73 0 0 3.23 95.11 4.88 2.29 0.90 0.98 4.12

revaluation of asset

4.1.2

2009% mark up/ return/ Interest Earned mark up/ return/ Interest Earned Net mark-up/Interest income Provision against loans and advances Provision for Diminution in value of Investments Bad debt written off directly 52.23 36.67 15.56 54.04 4.63 0.87 59.56

2008% 44.91 29.77 15.13 29.38 21.34 0.40 51.13 100

2007% 37.94 24.92 13.02 34.93 30.45 0.08 40.32 100

Net mark-up/ interest income after provisions 100 Non markup/interest income Fee, commission and brokerage income 27.98 Dividend income 3.63 Income from dealing in foreign currencies 14.91 Gain on sale of securities 10.07 Unrealized gain/loss on revaluation of investments 27.98 classified as held for trading 0.04 Other income 19.15 Total non-mark-up /interest income 75.81 175.81 Non mark-up/ interest expenses Administrative expenses (Reversal)/ Provision against off- b/s obligations Other charges Total non mark-up/ interest expenses 0.04

36.64 4.34

35.80 0.95

13.20 6.12

6.99 30.35

36.64 -3 18.00 69.60 169.60 -3

35.80 -0.31 15.19 88.98 188.98 -0.31

159.80 -0.02 1.16

141.51 0.41 1.77

121.90 0.10 0.14

xlii

160.94 Extra -ordinary/ unusual items Profit before taxation Taxation Current Deferred prior years Profit after taxation Inappropriate profit brought forward Transferred from surplus on revaluation of fixed assets - net of tax Profit available for appropriation 14.86

143.70 25.90

122.14 66.83

14.86 15.59 -11.2 -2.62 1.74 13.12

25.90 24.96 -16.61 -1.23 7.12 18.78

66.83 25.44 0 -4.73 20.70 46.12

50.43 0.36

70.02 0.35

41.60 0.36

4.2.1 Horizontal Analysis Balance Sheet As at December 31, 2007-2009 2009 % Assets Cash and balance with treasury banks Balance with other banks Investments Advances Fixed Assets Deferred tax to assets Other assets LIABILITIES Bills payments Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease 119.09 123.62 433.00 112.05 110.00 0 121.55 91.00 97.28 118.88 235.03 0 xliii 2008% 111.04 117.41 96.04 86.00 112.02 0 115.52 83.41 64.48 110.08 79.82 0 2007% 100 100 100 100 100 0 100 100 100 100 100 0

Deferred liabilities Other liabilities

tax 13.03 104.98 117.35 136.45 207.56 148.58 55.45 143.60 or 96.33 136.45 99.30 105.08 100 100 15.10 118.45 106.16 105.08 123.00 131.10 71.05 106.11 100 100 100 100 100 100 100 100

NET ASSETS REPRESENTED BY Share capital Reserves Unappropriated profits Surplus

revaluation of asset

Balance Sheet Comments: Horizontal analysis is applied when a firm wants to evaluate performance over time. Developing trends can be seen by using multiyear comparisons, and knowledge of these trends assists the organization in planning future operations. Any significant yearto-year changes can be evaluated to assess whether they are symptomatic of a major problem.

4.2.2 2009% mark up/ return/ Interest Earned mark up/ return/ Interest Earned Net mark-up/Interest income Provision against loans and advances Provision for Diminution in value of Investments Bad debt written off 137.92 148.33 119.03 155.83 0 1023.56

Profit and Loss Account For the year ended December 31, 2007-2009. 2008% 120.10 123.30 114.28 85.87 0 484.22 2007% 100 100 100 100 0 100

xliv

directly 148.77 Net mark-up/ interest income after provisions Non markup/interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale of securities Unrealized gain/loss on revaluation of investments classified as held for trading Other income Total non-mark-up /interest income Non mark-up/ interest expenses Administrative expenses (Reversal)/ Provision against off- b/s obligations Other charges Total non mark-up/ interest expenses Extra -ordinary/ unusual items Profit before taxation Taxation Current Deferred prior years Profit after taxation Unappropriate profit brought forward Transferred from surplus on revaluation of fixed assets - net of 100.72 78.73 383.51 214.90 33.44 78.73 -13.23 126.96 85.82 93.70 -13.23 104.51 464.97 192.79 20.59 104.51 843.33 120.96 79.87 91.63 843.33 129.47 102.10 100 100 100 100 100 100 100 100 100 100 100 100 -

132.04 -20.39 830.67 132.72 22.40 22.40 61.74 55.88 8.48 28.65 122.11 0 100.45

118.53 410.71 1283.40 120.12 39.57 39.57 100.18 26.63 35.11 41.57 171.86 0 100.00

100 100 100 100 100 100 100 100 100 100 100 0 100

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tax Profit available for appropriation 73.08 103.34 100

4.3. Ratio Analysis 4.3.1 Profitability Ratios: Definition Profitability ratios measures the earning ability of the firm (Gibson 1989) It measures how efficiently managers are using the organizations resources to generate profits. Analysis of the profit is vital concern to stock holders since they derive revenue in the form of dividend. Types of Profitability Ratios The types of Profitability ratios computed are: Return on Assets Return on Equity

4.3.1.1 Return on assets Definition Return on assets is, A measure of how effectively the firms assets are utilized to generate profits. ROAs measures the firms ability to utilize its assets to create the profits by comparing them with the assets that generate profits. Calculations for three years return on assets for Bank Alfalah is as follows: Return on Assets = Net Income/ Total Assets 2010 0.24% 2009 0.24% 2008 0.38%

xlvi

1.2 1 0.8 0.6 0.4 0.2 0 2007 2008 2009 ROA

EXPLANATION Return on Assets in 2007 for the bank is higher which 1.04 is as compared to other two years 2008-09. These two years shows the continuous decrease trend in the ratios showing that the firm is not utilizing its assets, efficiently and effectively to be profitable. This ratio should be increased for bank in order to be profitable. ROA ratio should be higher. 4.3.1.2 Return on Equity Definition It compares net profit after taxes to, the equity that shareholders have invested in the bank. Return on equity reveals how much profit a company earned in comparison to the total amount of shareholder equity found on the balance sheet. It is actually the bottom line measure for the shareholders measuring the profits earned for each dollar Invested in the firms stock. Calculations for three years return on equity of Bank Alfalah are as follows: Return on Equity = Net Income/ Shareholders Equity 2010 4.90% 2009 5.22% 2008 9.17%

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30 25 20 15 10 5 0 2007 2008 2009 ROE

Explanation ROE for year 2007 is 25.7 which is higher and shows that bank is capable of generating cash internally. Higher ROE value often reflects the firms acceptance of strong investment opportunities and effective expense management. In year 2008 ROE has declined showing the value of 9.17 and in 2009 there is slight increase showing the value of 5.22. So overall position in 2009 the ROE has decreased. A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part, the higher a companys return on equity compared to its industry, the better it is. 4.3.2 Net Interest Margin (NIM) Net interest margin is a measurement of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits). It is considered similar to the gross margin of nonfinancial companies. This figure is available in the Income statement.

NIM= (Interest income-Interest expenses)/Average earning income. 2009 0.030 2008 0.029 2007 0.016

xlviii

0.035 0.03 0.025 0.02 0.015 0.01 0.005 0 2007 2008 2009 NIM

Explanation NIM for year 2007 is 0.016 which is higher and shows that bank is capable of generating cash internally. Higher NIM value often reflects the firms acceptance of strong investment opportunities and effective expense management. In year 2008 NIM has declined showing the value of 0.029 and in 2009 there is slight increase showing the value of 0.030 So overall position in 2009 the NIM has increased. 4.3.3 Earning Assets to Total Assets = Earning Assets/ Total Assets Earning Assets include Loans, Leases, Investment securities and money market assets. It excludes cash and non-earning deposits and fixed assets. 2009 0.83
0.855 0.85 0.845 0.84 0.835 0.83 0.825 0.82 2007 2008 2009
Earning assets to Total assets

2008 0.83

2007 0.85

Explanation Earning assets to total ratio tells us about the bank management efficiency to utilize the earning assets to get return. Earning assets include loans, investment securities and money market assets. The BAFL earning assets to total assets is slightly decline as xlix

compare to previous year. But after comparison with last year we can easily find out that total assets and earning assets are increasing because BAFL is going to expand its network. 4.3.4 Return on Earning Assets: = Net Income /Average Earning Assets 2009 0.033
0.036 0.035 0.034 0.033 0.032 0.031 0.03 2007 2008 2009 ROEA

2008 0.035

2007 0.032

Explanation ROEA for year 2007 is 0.032 which is higher and shows that bank is capable of generating cash internally. In year 2008 ROEA has increased showing the value of 0.035 and in 2009 there is slight decrease showing the value of 0.033. So overall position in 2009 the ROEA has decreased. 4.3.5 Equity to Total Assets: = Equity/ Total Assets 2009 0.050
0.06 0.05 0.04 0.03 0.02 0.01 0 2007 2008 2009 Equity to Assets

2008 0.041

2007 0.041

Explanation

Equity to assets for year 2007 is 0.041 which is higher and shows that bank is capable of generating cash internally. In year 2008 EOA has showing the constant value of 0.041 and in 2009 there is slight increase showing the value of 0.050. So overall position in 2009 the ETTA has increased. 4.3.6 Credit to deposit ratio (CD ratio) =Advances/Deposits & other Accounts*100 2009 0.57
0.64 0.62 0.6 0.58 0.56 0.54 2007 2008 2009 Non-perporming loans

2008 0.63

2007 0.62

Explanation A No- performing loan for year 2007 is 0.62 which is higher and shows that bank is capable of generating cash internally. In year 2008 non-performing loans has increased showing the value of 0.63 and in 2009 there is slight decrease showing the value of 0.57. So overall position is that in 2009 the Non-performing loans has decreased. 4.3.7 Loan Loss Coverage Ratio: = (Pre-tax income + provision for loan losses) / debts written off 2009 79.7 2008 135.3 2007 1181.7

li

1400 1200 1000 800 600 400 200 0 2007 2008 2009 Loan loss coverage ratio

Explanation Loan loss coverage ratio for year 2007 is 1181 which is higher and shows that bank is capable of generating cash internally. In year 2008 LLCR has decreased showing the value of 135 and in 2009 there is slight decrease showing the value of 79.7. So overall position in 2009 the LLCR has decreased. 4.4.2 Efficiency ratios: 4.4.1 Interest income per employee =Interest income/Total no. employee 2009 1.46
1.5 1.45 1.4 1.35 1.3 1.25 1.2 1.15 1.1 2007 2008 2009 interest income per employee

2008 1.38

2007 1.24

Explanation Interest income/ employee for year 2007 is 1.24 which is higher and shows that bank is capable of generating cash internally. In year 2008 interest income per employee has

lii

increased showing the value of 1.38 and in 2009 there is slight increase showing the value of 1.46. So overall position in 2009 the interest income has increased. 4.4.2 Profits per employee =Net income/ No of employees 2009 1.46 2008 1.38 2007 1.24

1.5 1.45 1.4 1.35 1.3 1.25 1.2 1.15 1.1 2007 2008 2009 profit per employee

Explanation Profit/ employee for year 2007 is 1.24 which is higher and shows that bank is capable of generating cash internally. In year 2008 profit per employee has increased showing the value of 1.38 and in 2009 there is slight increase showing the value of 1.46. So overall position in 2009 the profit has increased. 4.4.3 Business per employee = Deposits+Advances+Investments/No. of employees 2009 82.0 2008 74.9 2007 72.2

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84 82 80 78 76 74 72 70 68 66 2007 2008 2009

business per employee

Explanation Business/ employee for year 2007 is 72.2 which is higher and shows that bank is capable of generating cash internally. In year 2008 business per employee has increased showing the value of 74.2 and in 2009 there is slight increase showing the value of 82.0. So overall position is that in 2009 the business has increased.

4.4.4 Business per branch =Deposits+Advances+Investments/No. of Branches 2009 1906680

2150000 2100000 2050000 2000000 1950000 1900000 1850000 1800000 2007 2008 2009 bussiness per branch

2008 2015317

2007 2109809

Explanation Business per branch for year 2007 is 2109809 which is higher and shows that bank is capable of generating cash internally. In year 2008 business per branch has increased showing the value of 2015317 and in 2009 there is slight decrease showing the value of 1906680. So overall position in 2009 the business per branch has decreased. 4.4.5. Employees per branch =No. of Employees/No. of Branches

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2009 23.25
35 30 25 20 15 10 5 0 2007

2008 27

2007 29.13

employees per branch

2008

2009

Explanation Employee per branch for year 2007 is 29.13 which is higher. In year 2008 Employee per branch has decreased showing the value of 27 and in 2009 there is slight decrease showing the value of 23.25. So overall position in 2009 the Employees per branch have decreased. 4.5 SWOT ANALYSIS (Overall and Branch) 4.5.1 Strengths By the grace of the Almighty, Alfalah have moved rapidly in expanding branches network and deposit base, along with making profitable advances and increasing the range of products and services. Alfalah have made a break-through in providing premier services at an affordable cost to our customers. As BALs pursuing the path of excellence, customer satisfaction remains its priority. It is only when we know our customers better, can we deliver a higher quality of services, thereby adding synergy to our existing management expertise, financial strength and profitability. Bank Chairman Message our core philosophy of honesty, transparency in customer dealings, product innovation, excellence in customer service and our commitment to being a responsible corporate citizen As a premier organization operating locally & internationally that provides the complete range of financial services to all segment under one roof. Bank Alfalah developing & delivering the most innovative products, manage customer experience, deliver quality service that contribute to brand strength,

lv

establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank. Most of the customers are satisfied with the bank services and friendly environment of the bank. In comparison to other banks Alfalah providing high excellence services like home, car, agri-financing, which facilitate bank to get market excellence and move towards prosperity and development. Customers behavior shows that they feel proud to being as an account holder in Bank Alfalah and also refer people to enjoy different schemes and open their accounts. Customer gives suggestion for the improvement of bank and these suggestions are listened carefully and communicated to the higher management so that action taken on relative deficiencies immediately. Bank having good friendly environment, security system concentration like cameras installed and security guards available all the time. Modernized banking system with highly integrated informative system, record kept properly, online banking, and integrated circuits between branches and personal computer provided at every desk. Higher management committed to the development, quality, and continuous improvement. Salaries are very reasonable, so the employees are not financially disturbed and they devote their selves fully to their work. They have wide area network in all over the Pakistan, so that they cover a lot of portion of cash transactions and make customer satisfied. Entertainment facilities are available in the Bank when customer goes to the Bank for a longer time they will enjoy newspaper, magazines, television and serve with tea, soft drink, sweets and snakes etc.

4.5.2

Weaknesses

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The majority of people are not well aware about the products of Bank Alfalah. Therefore it should advertise extensively especially home, agri & car loans, RTC and Credit Cards.

Mismanagement of time is another big mistake in Bank Alfalah branches, the bank official time of closing is 6:00pm but due Mismanagement of time employees leave their desk at 8.00pm which is so hectic and cause employee frustration.

A behavior has been noted that bank tries to feel at ease with good looking rich and educated people and the un-educated and old customers feel some bit strange in the environment of the bank.

Proper guideline should be given to the customer about bank products. They facilitate with current information. Many of the customers complaint that there should be two or more person who will guide people at entrance where they have to move, concerned person and department, teach how to fill forms, slips and cheques.

The number of cash counter must be increased because the customer has to wait at peak hours on the counter for deposit, withdrawals and online.

4.5.3 Opportunities 1 In the prevailing scenario, Bank Alfalah could penetrate further and could capture various corporate customers in addition to the retail customers by expanding their network. In addition to the excellent routine banking, it has earned a good name by offering special products like car financing, home financing and credit card. So, the penetration of these products could enhance the market share. In the rapidly growing industry of Pakistan, launching of another SBU, Alwarid Mobile will be an excellent addition towards the credibility as well as enhancement of Bank Alfalahs market share. Bank Alfalah has launched another division known as Islamic Banking. This new aspect will also attract a large number of people, who dont want to deal with interest bearing banking. Hence, its a new opportunity where competitors are limited.

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Proper utilization of the internal expertise can bring a major change as People working in the organization get use to the norms and values of the organization, so they can be used in the organization whenever required.

Being the bank with largest branch network and capital structure in Pakistan. BAFL can avail economies/of scale by increasing monopolistic hold.

Customer's feedback on different products and services has really improved the bank's performance and encouraged the atmosphere for other future policies.

4.5.4 Threats Bank Alfalah has many competitors who are continuously increasing their products and marketing aggressively it may cause its customer to shift to its competitors. The Competition has become severe by the entrants of so many banks, So to exist one will have to prove himself in its services through excellent management and will have to satisfy its shareholders. Otherwise he will be out the market. The decrease purchasing power of consumer in the current economic situation of the country affecting the business activity speed too much and the result is the low investment from the investors in new projects can create problem for the bank because it is working a lot in trade. The privatization of other banks is also a threat for the Bank. Due to the privatization of the different bank e.g. MCB; the competition has increased a lot. Furthermore many private banks have come in the sector due to which it is becoming more difficult day by day to attract the customers. The biggest threat in the banking sector is the continuous downfall of the country economy since the last few years. If this downfall remains for more few years then it may be the great hindrance in achieving the Banks objectives.

CHAPTER 5

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Conclusion and Recommendations 5.1 Conclusion The economy of the country is in depression and because of it certain non developmental policies have been introduced by the government to give relief of the people of Pakistan and to increase the flow of money in the market to reduce the inflation and increase the employment rate in the country, as banks are use to deposit savings on high returns the direct impact on the betterment of society is low therefore government have to impose certain non friendly policies to the banking industry in the country, that have direct impact on the businesses of banks. From 2007 onwards and especially in 2009 banks have to put forward their defensive positions to protect their business and products and to counter with the current situation. Along with the economy the security conditions of the country have put direct impact on the foreign direct investment reducing the scope of the business to the local industry and investments. In the case of bank Alfalah business was good until the rumor of default of the bank in 2008, by which the trust of the customers was hardly shaken, although now bank Alfalah is regaining that trust and market share by every day that pass. The top management of the bank is always developing strategies that cope with unexpected challenges to deliver products and services more efficiently. Furthermore, as the bank is growing, the number of employees at Bank Alfalah are increasing, which shows that Bank Alfalah is being considered as a better employer, that provides its employees with a challenging environment to work in, where they can harness their full potential and shows confidence as an employer by the employees of the bank. Lastly, Bank Alfalah has to benchmark its services to its major competitors in the industry or the market leader in the industry and provide a continuous mean of improvement in its existing products and services, while introducing new ones to the industry.

5.2 Recommendations Finally suggestions and recommendations for Bank Alfalah Limited, These suggestions are based on my experience with bank and the result shown by the ratio analysis in chapter 4. The management should try to increase the profits and reduce the internal costs by taking the following steps:

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1. Resources must be allocated properly to utilize them more effectively & efficiently. 2. ROA is low and bank has to target new business and sector of economy to boost its returns. 3. As the ROA is low the net income will be low and that put direct impact on the ROE, which is not favorable for the bank, hence profitable investments are the need of the day. 4. Due to the overall economic conditions the earning assets of the bank are less and that are giving bad impression to the investors, bank should increase the earning assets by investing in more profitable securities or businesses. 5. The loans given in 2009 are less than previous years and is affecting the internal income of the bank, so bank should offer more credit related products that can increase the credit to deposit ratio. 6. The business of each branch has reduced that shows the over all less investment(deposits) are made in the bank and the investor lacks the interest in the product and services of the bank, therefore new and interesting packages and products should be introduced by the bank and management should focus on every branch and should motivate the employees. 7. Focus on the uncertainty factors & try to mitigate the risk to best possible extent. 8. Introducing new and efficient products. 9. Employees should be involved in decisions affecting them. 10. New talent/professionals should be hired to cope with the competitive demand in the industry. 11. Information technology should be introduced in all branches to enhance the efficiency. 12. Employee induction, promotion and transfer must always be made on merit. 13. To motivate the employees, their remuneration/salaries should be made at par with top tier banks. 14. There are two officers involved in cash deposit process, which is time consuming. Cashier should be given certain powers to receive cash of US$ & DM to provide prompt services. 15. Similarly, there are two officers involved in cheque payment process, which is time consuming.

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16. Cheques, which are drawn on Bank Alfalah Branch and returned unpaid in clearing, are not reflected in the statement of account of the customers. This cheque must be reflected in the accounts so that credibility of the customers may be assessed. 17. Audit should be held internally, rather there should be an audit department in the branch to make audit on daily basis. This can become so, helpful as different banks are having this department of their own.

Reference

Robert H. Cole (1984); Consumer and Commercial Credit Management Richard D. Irwin Inc, 5th Edition (pg.57) Siddique, Dr. Asrar H. (1975); Practice and Law of Banking in Pakistan. Pakistan: Decent print enterprises, 7th Edition (Pg.36) Asrar-ul-Haq Siddique (1998); Commercial Banking, 5th Edition (pg.124)

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Annual Report (2005); Bank Alfalah Limited Annual Report (2006); Bank Alfalah Limited Annual Report (2007); Bank Alfalah Limited Annual Report (2008); Bank Alfalah Limited Annual Report (2009); Bank Alfalah Limited

Websites

http//:www.bankalfalah.com [accessed October 25,2010] http//:www.knowledge.com [accessed November 30,2010] http//:www.sbp.org.pk [accessed December 15,2010] http//:www.meezanbank.com [accessed December 17,2010]

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Annexure A

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Annexure B

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Annexure C

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