Chapter # 1

1. WHAT IS BANK?

A bank is an institution for the custody, loan or exchange of money for sanctioning credit, for

transferring funds by domestic foreign bills of exchange. It is a pipeline through which currency

moves into and out of circulation.

As it is clear from the definition of banking, the main activity or function of banking is borrowing

and lending of money with a margin of gain. However, as far as the present day banking is

concerned, there are a number of different banks, set up under specific different objectives,

performing various functions.

1.1 BANKING BACKGROUND IN PAKISTAN:

At the time of independence there were 487 offices of scheduled banks in the territories of Pakistan.

The Reserve Bank of India was the only bank to settle the problem of coinage, currencies and

exchange etc. There were 19 non- Indian foreign banks with the status of small branch offices, which

were engaged solely in export of corps from Pakistan, while there were only 3 Pakistan institution i.e.

Muslim commercial bank, Habib bank LTD, and the Australasia bank.

State bank of Pakistan was established on July 1, 1948 and assumed full control of banking and

currency in Pakistan. In order to develop sound banking & weeding out weak institutions, the

Banking Companies Central Act was promulgated in 1949, empowering the State Bank to control the

operations of banking in Pakistan.

1
Another very significant event in the development of banking in Pakistan was the appointment of the

Credit Inquiry Commission in 1959 to examine the scope and working of the institution providing

credit facilities to agriculture, trade, commerce and industry and recommended measures for further

improvements.

Today the banking industry is flourishing due to many more advancements and technology. Now the

focus of banking sector is more on giving loans to construction industry for the period of 20 to 30

years. The need for loans in this industry is due to attractiveness by the foreign investors or the

earthquake in last year in Pakistan. Due to growth of construction industry, cement industry will also

grow and the more employment will be generated. Hoping that due to its banking industry will also

be at boom.

1.2 BANKING INDUSTRY OF PAKISTAN

Banking is one of the most sensitive businesses all over the world. Banks play very important role

in the economy of a 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.

It is purchase of car or buildings of home banks are always there to serve you better. It is play

ground or any educational or healthy societal activity the money of banks nurtures them. It is an

industrial project or agricultural development of the country the sponsor-ship of banks is very much

involved. Banks play very positive and important role in the overall economic development of the

country.

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

2
requirements of specific sectors. The country started without any worthwhile banking network in

1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a

flourishing banking sector.

Financial Sector – Consolidating after regulatory restrictions:

 There has been a continuous improvement in Pakistan’s financial sector in last 2 decades.

 The State Bank of Pakistan along with Ministry of Finance initiated a broad-based program

of reforms in the financial sector in the early 1990s and efforts has increased manifold since

2000.

 Banks grabbed huge profits from year 2003 to 2006, mainly due to mushroom growth in

consumer banking and a big gap between rates offered to customer on his deposits and taken

from him on lending.

The year 2007 was a volatile year for the banking sector in terms of profitability, which increased

up to the second quarter but declined in next 2 Quarters mainly after amendment in SBP's

regulation regarding NPL and FSV. The overall profitability of the banking sector in FY07 was at

Rs 75.86 billion, declining by 5.6% from FY06.

Banking sector depicted a growth of 53.2% in the profitability until SBP proposed full provisioning

against Non-performing loans (NPLs) and withdrew the facility of forced sales value (FSV). As a

result, banks had to make additional provisioning against their NPLs. The total NPLs of the banking

sector reached at Rs 164 billion at the end of September 2007.The net interest income, earned by

the banking sector in FY07, posted a growth of about 17% due to higher spreads this year, which

remained at 7.3% on average.

Year 2008 saw another set of regulations from Central Bank in May, when it increased certain

reserve requirements and make 5% as minimum return on deposits. This decision has come as blow

3
for big banks which were mainly playing on their low cost of funds. Central bank has also increased

discount rate by 150 basis point, mainly to reduce money in the system but, it has made lending,

especially consumer lending more difficult for banks.

Financial Sector – Consolidating after liquidity Crises:

Financial sector, especially banking sector, has seen major liquidity crises over last 3-4 months,

mainly due to prevailing political uncertainty along with lack of confidence on financial sector due

to global financial market crises.

Central bank has intervened and it has reduced cash reserve requirement by 3%. It has also waived

the requirement of SLR on term deposits having maturity of more than 1 year. Hence, PKR 360

billion has been released to the banks in order to curb their liquidity issues.

Central bank has also instructed banks to maintain their Advance to deposit (ADR) ratio of 70%.

Most of the banks are already above this benchmark, so they have been told to regularize it by

March 31st, 2009.

Lending has almost stopped in the market due to ADR & liquidity crises along with increased

interest rates. Consumer financing is the largest victim of this liquidity crises as most of the banks

have shut down their business. Mortgage business has been highly affected with this down turn as

customers are not willing to enter in any long term commitment.

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 Chapter # 2

2. INDUSTRY OVERVIEW

2.1 HISTORY & BACKGROUND OF SILK BANK:

SILK Bank Limited (formerly Saudi Pak Commercial Bank Limited) was incorporated in Pakistan

on April 04, 1994 as a public limited company under the Companies Ordinance, 1984. The Bank

commenced commercial operations on May 07, 1995. Its shares are quoted on all the Stock

Exchanges in Pakistan. The Bank is engaged in banking services as described in the Banking

Companies Ordinance, 1962. It operates through 100 branches (2008: 65) in Pakistan with the

registered office located at SILK Bank Building, I.I. Chundrigar Road, Karachi. The short-term and

long term credit rating of the bank rated by JCR-VIS Credit Rating Company Limited in July 2009

is 'A-3' and 'A-' respectively. But is 2010 the credit rating of Silk is ‘A’.

Majority shareholding (86.69%) in the Bank as on December 31, 2009 hold by a consortium

comprising of bank Muscat S.A.O.G, Nomura European Investment Limited, International Finance

Corporation (IFC) and executives of the Senthos Capital Advisors Limited. As a result of a rights

issue which is in process of subscription as disclosed in notes 20. 3 and 20.6, the majority

shareholding in the Bank will change upon full subscription towards the rights.

OBJECTIVES OF SILK
Following are some of the main objectives of SILK
 To earn profit for the Bank itself and maximize its shareholder’s value.

 To provide solutions for multiple requirements of clients of diverse financial nature.

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  To manage with the changing trends of the modern day financial market.

 To be a diversified bank by offering all basic consumer services along with specialized

services

 Honest and ethical conduct, including ethical handling of actual or apparent conflicts of

interest between personal and professional relationship.

 To provide employment opportunities to people.

 To help in development and industrialization of the country.

SILK’s Vision, Mission and Values

Vision
Benchmark of Excellence in premier banking.

Mission
To be the leader in premium banking trusted by customers for accessibility, service & innovation,

be an employer of choice creating value for all shareholders.

Core Values
The intrinsic values, which are corner stone’s of SILK corporate behavior, are:

• Commitment
• Integrity
• Fairness
• Team-work
• Service

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2.2 BRANCHES OF SILK BANK:
The Bank is committed to combine all its energies and resources to bring higher value, security and

satisfaction to its customers, employees and shareholders. The Bank follows a strategy of optimum

financial and quality human resource allocation in order to enhance the performance potential of all

its branches.

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 2.3 ORGANIZATION STRUCTURE
Any organization needs a structure, which provides a framework for successful operations. The
operation of an organization involves a number of activities, which are related to decision-making,
and communication of these decisions. These activities must be well coordinated so that the goals
of the organization are achieved successfully.

ORGANIZATIONAL STRUCTURE OF HABIB BANK LIMITED

PRESIDENT AND CEO

7 MEMBERS OF BOARD OF DIRECTORS

G.E, IOBG G.E, CPOD G.E, CPCS G.E, RBG G.E, CIBG G.E, ARM G.E, AGA HEAD OF
IT
HEAD OF HR HEAD OF FINANCE

SENIOR VICE PRESIDENTS

VICE PRESIDENTS

ASSISTANT VICE PRESIDENTS

GRADE I OFFICERS

GRADE II OFFICERS

GRADE III OFFICERS

CLERICAL STAFF

NON-CLERICAL STAFF

2.4 CORPORATE INFORMATION:

2.4.1 Board of Directors
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Munnawar Hamid, OBE Chairman

Ahmed Bin Mohamed Bin Abdullah Al-Abri Director

Humayun Bashir Director

Javed Hamid Director

Sadeq Sayeed Director

Arif Mahmood Ali Director

Arshad Ghaffur Director

Azmat Shahzad Ahmed Tarin President & CEO

2.4.2 Company Secretary

Syed Liaquat Ali, FCA

2.4.3 Audit Committee

Humayun Bashir Chairman

Sadeq Sayeed Member

Arif Mahmood Ali Member

Arshad Ghaffur Member

2.4.4 Auditors

Anjum Asim Shahid Rahman

Chartered Accountants

2.4.5 Legal Advisor

Cornelius, Lane & Mufti

2.4.6 Registered Office:

Silk bank Limited

Silk bank Building, I.I. Chundrigar Road, Karachi.

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Telephone No: +92 21 111 007 455 Ext. 414 & +92 21 32460025 Fax No: +92 21 32460464

Website: www.silkbank.com.pk

2.4.7 Share Registrar:

Noble Computer Services (Pvt.) Limited

Mezzanine Floor, House of Habib Building (Siddiqsons Tower) 3-Jinnah Cooperative Housing
Society, Main Shahrah-e-Faisal Karachi – 75350

Phone: + 92 21 34325482-87 Fax: + 92 21 34325442

E-mail: ncsl@noble-computers.com Website: www.noble-computers.com

2.5 MANAGERIAL POLICIES

3.5.5 Financial policies

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 2.5.2 Marketing policies

2.5.3 Promotional policies

2.5.4 Lending policies

2.5.5 Personal policies

2.5.1 FINANCIAL POLICIES:

The financial policies of any bank are the most important policies through which the whole banking

activity is conducted. These policies are primarily conducted on:

• Source of funds

• Use of funds

SOURCE OF FUNDS:
The bank finance policy is acquiring funds from the following sources:

• Deposits of account holders.

• Interest on advances and loans granted to the borrowers.

• Income and commission from the services provided by the bank.

• Bank opens various types of accounts for its customers Services are provided for earning.

• Interest income and commission bank providing the services to its customer.

USE OF FUNDS:

After the acquisition of the funds their acquisition becomes necessary. The bank seeks the best

way for making investment to get more profit with the maximum security. The bank has an

investment portfolio in which it allocate its funds for crediting to borrowers, investment in the

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 stock market, investment in the real estate property etc. for allocation of funds a bank has to

follow some banking policies and the prudential regulations of SBP these are:

• A bank has to maintain liquidity with central bank, i.e. 25 %of its total deposits.

• A bank cannot invest all of its funds otherwise it will be difficult to meet urgent needs.

• A substantial part of funds is received from interest on loans and advances. Before granting

a loan the bank analyzes and observes the borrower and conduct a complete ratio analysis. Bank

prepares credit line for this purpose the major thing is granting an advance is the security offered by

the borrower and its actual market value.

2.5.2 MARKETING POLICIES:

Marketing policies are also one of the most important policies because they are related

to the growth of the organization. Marketing for a bank would mean:

1. Creation of new product and services.

2. The bank marketing must be consumer oriented.

Following are the marketing policies of the Silk Bank.

a. Keeping the track of latest development in the world and incorporating the latest

and most modern equipment to make the banking procedures simple and easy for the customers.

. Development of products for the customers.

Giving good services and maintaining good relations with the customers.

These policies can be implemented by providing the right product and service to the customer at the

right place, at the right time, at the right price. It is necessary for the managers to keep in touch

with consumers, observe their needs and develop products, which meet their needs.

3.5.5 PROMOTIONAL POLICIES:

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Public relation and advertising has assumed a great importance in the modern banking business. As

for as promotional activities are concerned, the main objective of the bank is to inform the existing

clients and other people about its new products or change in the existing services. Silk Bank

establishes its purpose through:

1. Direct contact with customers.

2. Relation with business organizations.

3. Community relations.

LENDING POLICIES:

Every bank has its own lending policies except for those, which are common for all the banks, i.e.

the policies, which are imposed on all the commercial banks by the SBP, are known as prudential

regulations. The lending policies of Silk Bank are as follows:

1. The bank only invests in those sound and viable projects, which have good rate of return.

2. Bank prefers to advance loan to their account holders.

3. Loan is given to reliable person only.

4. Any account holder can apply for running finance or demand finance. The manger appraises

the past record of account holder and his credit worthiness. If he finds anything wrong he

can refuse to sanction the amount.

5. No political loan is sanctioned by bank.

6. The bank while taking security prefers govt. Securities to shares.

7. It also advances working capital loans.

2.5.5 PERSONAL POLICIES:

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Personal policies have an important role in the success of any organization. Silk Bank has its proper

personal policies. Good personal policies motivate the employees towards hardworking.

Following are the main personal policies of Silk Bank:

1. Selection of employees on merit

2. Selection of capable employees.

3. Attractive salary package for motivation of employees.

4. To train and develop the future management of the bank.

5. Every employee must have certain set of clearly defined duties

6. Effective communication at all levels of the organization.

Chapter # 3

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 DEPARTMENTS:

Banking procedures are divided between various departments. Different departments do

their jobs in occurrence with the bank policies. In Silk Bank each branch is divided into various

departments. Head of department manages each department & officials of the branch follow

procedures.

The departments working within a branch are as:

3.1 Account Opening Department

3.2 Remittances Department

3.3 Cash Department

3.4 Human Resource Department

3.5 Credit and Administration Department

3.1 ACCOUNT OPENING DEPARTMENT:

Account Opening In-charge

Officer Officer

3.1.1 Functions of Account Opening Department:

• Providing account opening form according to the customer's requirements,

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 • Guide the customer about the requirements of the account opening and form filling,

• Check the forms whether they are correctly completed or not,

• Preparing checklist,

• Stamping on the form,

• Maintaining account opening register,

• Pasting of forms in register after release from general banking in charge,

• Issuance of cheque books,

• Issuance of accounts maintenance certificate,

• Closure of account

• Verification of signature in case of cheque presented before releasing of account opening

from SS card is not yet scanned

TYPES OF ACCOUNTS
3.1.2

Current Saving

A) ACCOUNTS OF GENERAL CUSTOMERS:

 Current Online Express Account

 All-in-one Current Account

 Basic Banking Account (salaried person)

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  Personal Saving Account

 Super Saver Account

a. Current Online Express Account:

 Initial Deposit 1000/-

 If average balance is less than 50000/- then minimum Rs. 50/- charge per month.

 Business a/c, Personal a/c, Corporation a/c open this account

 Profit & zakat deduction are not exists

b. All-in-one Account:

 Initial Deposit 1000/-

 If average balance is less than 100000/- then minimum Rs500/- charge per month.

 Benefits are the recovery of vital documents, cash, mobile & Home contents.

 Profit & zakat deduction are not exists

c. Basic Account (salaried person):

 Initial Deposit 1,000/-

 These accounts are mostly opened by salaried person

 No deductions are exists

d. Super Saver Account:

 Initial amount 1,000/-

 Minimum average balance is Rs. 50000/-

17
  Profit & Zakat deductions are exists.

 Profit calculated on daily balance and paid on monthly basis.

e. Personal Saving Account:

 Initial amount 1,000/-

 Minimum average balance is Rs. 50000/-

 Profit & Zakat deductions are exists.

 Profit calculated on monthly balance and paid on semi-annually.

B) ACCOUNT OF SPECIAL PERSONS:

• Proprietorship account

• Partnership account

• Limited company’s account

• Accounts of club societies and associations

• Agent’s accounts

• Trust account.

• Govt. institute account

• Other

Also offering foreign currency accounts to the customers in Dollar, Pound & Euro.

There is minimum balance is 500/- Dollar, Pound & Euro.

Zakat Treatment on All Accounts

Zakat will be deducted on all accounts except the followings:

18
  Fiqah Gafreia account.

 Non Muslim’s account.

 Trust account.

 Government account.

 Provident fund.

 Defense account.

 Non Pakistani’s account.

3.2 REMITTENCE DEPARTMENT

3.2.1 DEMAND DRAFT:

Demand draft is a written order drawn by a branch of a bank upon the branch of same or any other

bank to pay certain sum of money to or to the order of specified person. It can be issued to the

customers as well as non customer against cash cheque and letter of instruction. Demand draft is

negotiable instruments that can be negotiating at any time before its cancellation. Its Legal

provisions are same as that of cheque.

Following parties are involved in demand draft:

 Applicant

 Issuing Branch

 Drawee Branch

 Beneficiary

A demand draft may be issued against the written request of the customer before issuing it must be

seen that the demand draft is in order.

19
The DD application must be scrutinized by the counter clerk in respect of following points.

 There should be branch where payment is to be made.

 Full name of payer should be mentioned.

 Amount in words and figures must be same

 The applicant on two places should sign application.

3.2.2 TELEGRAPHIC TRANSFER:

Telegraphic transfer means the transfer of funds from one branch to another branch of the same

bank or upon other bank under special arrangements just like a telegram. Telegraphic transfer is not

negotiable and the funds are not payable to bearer. Minor cannot avail this facility. In telegraphic

transfer the bankers use secret codes. One code is with issuing person and the second is with an

other person. When they combine the codes it’s become an amount that is called check. The

payment is made after the confirmation of the check.

Following parties are involved in TT

 Applicant

 Drawing branch

 Drawee branch

 Beneficiary

Following important things should be included in TT:

 Full name of the beneficiary or account number should be mentioned in the application

form.

 Instruction regarding mode of payment should be obtained.

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  A record in the remittance outward register should be maintained.

3.2.3 PAY ORDER:

Pay order is an instrument through which payment can be made from one bank to another bank. Pay

order is meant for bank own payment but in practice they are also issued to customers.

Following parties are involved in pay order:

 Applicant

 Issuing Branch

 Payee

3.2.4 MAIL TRANSFER:

Mail transfer is not negotiable and the procedure of it is same with the procedure of DD. When a

customer request the bank to transfer his money from this bank to any other bank of the branch of

same bank in the city, outside the city of outside the country the first thing he has to do is to fill an

application form. In which he states that I want to transfer the money from this bank to that specific

bank by mail. If the customer is the account holder of this bank, the bank will debit his account and

the concerned officer will fill forms to make the mail transfer complete.

If the customer is not the account holder of the bank, then firstly he has to deposit the money and

then rest of the procedure will be adopted to transfer his money.

3.3 CASH DEPARTMENT

All physical movement of cash in the bank is made through the cash department. Normally cash

department performs following functions

 Receipt

 Payments

21
  Act according to any standing instructions

 Transfer of funds from one account to another

 Handling of ATM

 Verification of signatures

3.3.1 Cash Receipt Section:

In this section the cashier in following manner receives cash:

PROCESS OF DEPOSITS
Deposited on
Fill- up
Receipt
deposit slip
Customer

Cashier counts
Cashier counts the
the amount and
amounts and fulfills
fulfills other
other requirement
requirements
3.3.2 Cash Payment Section:
In this section honoring the cheque through following process makes payment.

PROCESS OF PAYMENTS

Cheque is presented Cheque is recorded

at token counter & token # is allotted

Cashier counts Cancellation officer

the amount & cancels cheque
payment is made

22
 Two signatures on
Posting is made
back of the cheque
by customer

3.4 HUMAN RESOURCE DEPARTMENT

FUNCTIONAL RESPONSIBILITIES:
Right Now the responsibilities assigned to HR department at Corporate Center can be categorized

under three heads:

 Staff matters / Basic HR Functions

 Expenses control

 Security matters

Now I’ll discuss these one by one:

BACKGROUND:

The banking council of Pakistan was responsible for the recruitment, selection and allocation of

human resources. After the dissolution of the Pakistan Banking Council, the Banking & Financial

Services Commission of Pakistan is responsible for these activities.

PROCEDURE:

Staff requirements are met according to the changing needs of macro environment scenario and

particularly the arising needs of the bank itself. A need analysis is conducted. After assessing the

human resources requirements and screening of the applications, most probably, the suspects are

invited for a written test.

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Short listed candidates are called for an interview for personality and social appraisal. Interviews

are a mix of direct and indirect interviewing techniques and information required.

The selected candidates are sent for training of six months training from MDI’s.

The training is through the lectures regarding banking procedural guidelines and other behavioral

aspects. After the completion of training employees are allocated to different offices. The effective

management of people in an organization requires an understanding of motivation, job design,

reward systems, and group influence.

• Recruiting

• Retention

• Succession planning

• Risk Management

• Diversity in our workforce

• Management information

• Progressive compensation and benefits design and implementation

• Employee communications and relations

• Training needs analysis, program design and implementation

3.5 CREDIT & ADMINISTRATION DEPARTMENT:

The responsibility of providing administrative support for the lending activities of the Bank, and

day-to-day monitoring of credit-exposure, is vested in the Credit Administration Department

(CAD).

FUNCTIONAL RESPONSIBILITIES:

The main responsibilities under this department are:

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 • Implementation of credit facility and their maintenance according to terms of credit

approved.

• Ensure that standard loan documentation for each credit facility is maintained and the

correctness & completeness of such documentation and also responsible for custody of all

credit files.

• Maintain the safe custody of all collateral as per bank’s standard operating procedures;

undertake periodic evaluation and inspection of hypothecated/ pledged inventories in

accordance with the terms of credit.

• Ensure compliance with

o Institutional credit policies & procedures

o Local regulatory requirements.

• Prepare various portfolio composition reports and other documentation for submission to

GRM’s & RM’s.

CREDIT FACILITY IMPLEMENTATION PROCEDURE:

Upon approval of credit proposal, the credit proposal and approval are handed over to CAD. Now

CAD determines the nature of documentation required and on receipt of same ensures that all legal

documents are obtained and are legally enforceable. After all these activities it can release the

facility for utilization

25
 Chapter # 4
3. COMPANY'S ANALYSIS

4.1 SWOT ANALYSIS (Internal)

STRENGTHS
 Professional and well trained staff.
 20% share of SILK in financial market
 Large Balance sheet size
 Decentralized authority
WEAKNESSES
 Checking System is at intra-department level
 Weak marketing policies
 Nepotism & Favorism
 Infected portfolio still exists as bad debts
 Centralized management in particular areas
OPPORTUNITIES
 Opportunities for growth and expansion in cash management.
 Faster market growth represents opportunity to grow and diversify
 Restoration of investor’s confidence and pick up in private sector investment flows.
 Large deposit base and funds flow can help to avail related market opportunities

26
THREATS
 Adverse & unstable government policies
 Political instability
 Advance technology
 Competition from other banks

4.2 PEST ANALYSIS AND ENVIRONMENTAL SCANING

A broad view of market is important when management is interested in introducing better services

for customers. Rapid technological change, global competition and the diversity of buyers

preferences in many markets require the constant attention of the market vouchers to identify

promises business opportunities, see the shifting requirements of the buyers, evaluate changes in

competitors positioning and guide the choice of which buyers to target and classify them according

to respective segments.

Identification of external and macro factors that influence buyers and thus change the size and

composition of market overtime involves initially building customer profiles. These influences

include:

 Political and legal environment

 Economic trends
 Socio cultural environment
 Technological factors

27
POLITICAL AND LEGAL ENVIRONMENT:
Banks are strongly affected by the political and legal considerations. This environment is

composed of regulatory agencies and government law that influence and limit various organizations

and individuals. Mostly these laws create new opportunities for business.

Business legislation has following main purposes

 To protect banking companies from unfair competition.

 To protect consumers from unfair business practices adopted by banking companies
 To protect the interest of the society from unbridled business behavior.
ECONOMIC TRENDS:
A banking market requires better consumer market in volume along with higher borrowing power.
The available borrowing power depends on:
 Consumer income
 Saving rates
 Consumption patrons
 Rates of interest
 Budget deficit
 Exchange rates
 Cost of living
 Inflation

SOCIO-CULTURAL ENVIRONMENT:
A society is shaped by beliefs, norms and values. People in a society consciously and unconsciously
interact with:
 Themselves
 Others
 Organization
 Society
 Nature

28
Following are the main factors. Which arise because of change in socio-cultural environment?
 Consciousness about services
 Concern for environment
 Improved customer relation

TECHNOLOGICAL FACTORS:
Forces of technological advancement have played the most dramatic role in shaping the lives of

people. The rate of change of technology has greatly affected the rate of growth of economy. New

technology is creating deep rooted affects which could be observed in long run. The improvement

techniques involved in online banking. In brief, PEST analysis affects the overall banking

companies and provides us the information about the external macro condition.

Chapter # 5
FINANCIAL ANALYSIS
IMPORTANCE:

Analysis is vital to figure out, weigh up and evaluate the operating performance of the firm.

Another reason that depicts the importance of ratio is that investors make their investment

decision in certain firm based on these ratios.

ANALYSIS OF FINANCIAL STATEMENTS:

Financial analysis involves the use of various financial statements, e.g. balance sheet, income

statement etc. There are various stakeholders such as owners, managers, creditors, government

agencies, employees, prospective investors etc. interested in the financial condition and results of

operations of a business enterprise. In general, the varying interests of all groups fall in four broad

categories:

29
 • Solvency

• Profitability; and

• Stability

• Efficiency

Solvency refers to the company’s ability to meet its debt on due dates. Profitability means the

success that the firm has had in earning a return on the assets. Stability is composed of several

factors, a continues demand for a company’s product or services, a reasonable and stable relation

between revenues and expenses and sufficient shows net income to pay a regular dividend.

Efficiency ratio shows the performance the company that how effective it is working.

5.1 RATIO ANALYSIS:

Financial ratios are calculated from one or more pieces of information from a company’s financial

statements. For example, the “gross margin” is the gross profit from operations divided by the total

sales or revenues of a company, expressed in percentage terms. In isolation, a financial ratio is a

useless piece of information. In context, however, a financial ratio can give a financial analyst an

excellent picture of a company’s situation and the trends that are developing. In this project the

following ratios are calculated;

• Liquidity Ratios

• Debt Management Ratios

• Profitability Ratio

5.1.1 LIQUIDITY RATIO:

30
Liquidity is a pre-requisite for the very survival of a firm. It is the ability to meet current I short

term obligations. Since a bank is also a business firm so to maintain adequate liquidity is also

crucial to carry out business activity.

Current Ratio = Current Assets / Current Liabilities (Rupees in ‘000)

2009 2008
Current Ratio 7.35 9.74
Current Assets 132,346,081 102,216,286
Current Liabilities 179,479,65 104,980,03
This shows the degree of high liquidity, maintained by the bank. The policy of high liquidity

however is not maintained at the cost of profitability. The bank is maintaining optimal balance

between liquidity and profitability in order to keep competitive edge on its competitors. The current

ratio is decreasing from 9.74 to 7.35, which is covering the minimum limit of current ratio for Bank

i.e. 3. So the company position is best in the industry.

5.1.2 DEBT RATIOS SOLVENCY RATIOS:

Long-term solvency of a firm is examined by leverage or capital structure ratio. It is the ability of
the bank to assure following payments:
2009 2008
Debt Ratio 0.8474 0.8713
Total Debt 645,855,939 503,378,402
Total Asset 762,193,593 577,719,114
Debt to Asset Ratio shows that how much asset the company has to honor their obligations. Ratio is
decreasing from .8713 to .8474. This is very good for the company because the company has I asset
to Pay .8474 debts.
Debt to Equity =Total Debt /Total S.H.Equity (Rupees in ‘000)
2009 2008
Debt to Equity Ratio 9.323 13.921
Total Debt 645,855,939 503,378,402
Total Equity 69,270,631 36,158,474

High total debt ratio of shows that the creditors have faith in the bank and they feel comfortable to

invest in this bank. Debt to equity ratio is the relationship between borrowed funds and owners

31
capital and Equity multiplier is the relationship between total assets and total equity. But it is good

that the this ratio is decreasing from 13.921 to 9.323

The overall leverage position is showing better trend as compare to previous year. The contribution

of equity in total assets is decreasing, while the debt contribution is decreasing which is better for

business. Equity ratio is decreased which don’t show the better condition of the bank. Solvency

Ratio is in good condition. So we can say that overall Solvency condition of the NBP is better with

the comparison to the previous year.

5.1.3 PROFITABILITY RATIO:

Net Profit Margin= Net Profit / revenue *100 (Rupees in ‘000)
2009 2008
Net Profit Margin 37.64 % 38.60 %
Net Profit 19,033,773 17,022,346
Revenue 50,569,481 44,100,934

Results of the ratios indicates net profit margin ratio more than average. In 2009 and 2008 the ratios

are less their general and operating expenses are increasing with the same rate of increasing in their

revenues. So that’s why their net income is not so much high. In 2009 the company position is good

because the 37.64 is a percentage between net profit and Revenues

Return on Equity= Net Income I Average total Equity (R in ‘000)

2009 2008
Return On Equity 27.48 % 32.09%
Net Income 19,033,773 17,022,346
Equity 69,270,631 53,044,649

This ratio shows that how much equity is generating income for the company .it is decreasing every
year with different rate.

32
 Return on Total Assets= Net Income / Average Total Assets *100 (Rupees in 000)
(Rupees in 000) 2009 2008
ROA 2.50 % 2.68 %
Net Income 190,337,73 17,022,346
Total Assets 762,193,593 635,132,711

Results of the ratios are more than its average which shows the ability to utilize its assets to create

profits. Higher the percentage is good, the value decreases by 0.18 as compare to the 2008, but still

performing well.

Profitability analysis shows the entire performance of a business and if we study the profitability

trend of bank then it will clear to us that it showing a positive trend. Net profit after tax is increased

as compare to previous year, due to it return on assets and investment is increasing.

5.1.4 Bank Special Ratio:

Investment to Total Assets = Investment / Assets (Rupees in ‘000)

2009 2008
Investment to total assets 0.28 0.22
Investment 210,787,868 139,946,995
Total Assets 762,193,593 635,132,711

This ratio indicates that out of total asset how much bank utilize its asset for further investing. This
ratio is increasing through out of the period which is very useful for the bank to enhance its
revenues
Advances to Deposit Ratio= Total advances / Total deposits (Rupees in ‘000)
2009 2008
Advances to Deposit Ratio 57.55% 27.88 %
Total Advances 340,677,100 139,946,995
Total Deposits 591,907,435 501,872,243
Loans or advances are the major assets of a bank while deposits are major liabilities of a bank.
Higher ratio shows the better solvency of bank. This ratio is increased instead of previous years

33
because advances of the bank are increased as previous years although deposits are also increased
this years but its ratio is less.

Cash to Deposit Ratio= Cash /Deposit (Rupees in ‘000)

2009 2008
Cash to Deposit Ratio 16.03% 15.6%
Cash 94,873,249 78,625,227
Total Deposit 591,907,435 501,872,243

This ratio shows that how much cash you have to pay the liabilities (deposits). As this ratio show

that company has fewer amounts of cash than deposits. It also indicates that bank is investing so the

bank is enhancing its business. But at the same time it could be risk for bank for liquidation.

Equity to Assets= Equity / Assets (Rupees in ‘000)

2009 2008
Equity to Assets 9.09% 8.35 %
Equity 69270631 53044649
Assets 762193593 635132711

This ratio shows the position of equity in total assets of business. In both years this ratio is in
increasing trend. But the bank should increase its equity by increasing the wealth of shareholders.

Equity to Deposits= Equity / Deposits (Rupees in ‘000)

2009 2008
Equity to Deposits 11.70% 10.57%
Equity 69,270,631 53,044,649
Deposits 591,907,435 501,872,243

This ratio shows that how much equity part is there in total structure. The capital advocacy
requirement is 8%. The bank was not fulfilling the requirement in 2009 but now bank has 11.70%
which is good.

34
Earnings per Share= Net Income / No of Ordinary Shares (Rupees in ‘000)

2009 2008
Earnings Per Share Rs. 23.34 24
Net Income 19,033,773 17,022,346
No of Ordinary Shares 815,431,989 709,071,295

As their basic earnings per common share are increasing year-by-year it means that results of the

ratio indicate that firm has paid a handsome return on investment showing the profit generations.

Because the company’s net income is increasing gradually. As shown in table the company’s Basic

Earnings per share is increasing due to increase in net income. This shows how much profit each

share has earned in any particular year. It is most important ratio for peoples who decide about

investing their money.

5.2 VERTICAL ANALYSIS OF BALANCE SHEET

35
Assets 2009 2008
4.545
Cash and balance with treasury banks 125 5.517211
0.220
Balances with other banks 009 0.341803
1.554
Lending’s to financial institutions 967 2.473977
29.388
Investments 368 21.587160
46.745
Advances 004 55.867056
5.418
Operating fixed assets 671 5.395697
5.790
Deferred tax assets 704 4.697505
6.336
Other assets 654 4.119592

TOTAL ASSETS 100 100

Liabilities
0.928
Bills payable 578 0.628473
21.974
Borrowings 043 12.726571
72.250
Deposits and other accounts 069 59.793234
0.015
Liabilities against assets subject to finance lease 257 0.057863

Deferred tax liabilities - 0

2.264
Other liabilities 360 1.438001
Net assets 100 100

Represented by
Share capital 13.111828 13.111828
Reserves 0.327170 0.318296
Accumulated losses -13.152233 -8.929976
TOTAL S.H.E 0.286765 4.500148
Surplus on revaluation of assets - net of tax 2.280928 1.895253
Total liabilities + S.H.E 100 100
5.3 HORIZONTAL ANALYSIS OF BALANCE SHEET

36
 2009 2008
Assets
Cash and balance with treasury banks 5.608527 5.517211
Balances with other banks 0.271484 0.341803
Lending’s to financial institutions 1.918776 2.473977
Investments 36.264232 21.587160
Advances 57.681722 55.867056
Operating fixed assets 6.686454 5.395697
Deferred tax assets 7.145529 4.697505
Other assets 7.819213 4.119592
TOTAL ASSETS 100 100

Liabilities
Bills payable 1.145833 0.775514
Borrowings 27.115211 15.704149
Deposits and other accounts 89.154093 73.782788
Liabilities against assets subject to finance
lease 0.018826 0.071401
Deferred tax liabilities 0 0
Other liabilities 2.794142 1.774444
Net assets 100 100

Represented by
Share capital 16.179543 16.179543
Reserves 0.403716 0.392767
Accumulated losses -16.229402 -11.019282
TOTAL S.H.E 0.353858 5.553027
Surplus on revaluation of assets - net of tax 2.814586 2.338677
Total liabilities + S.H.E 3.168444 7.891704

Chapter # 6

37
 LEARNING & EXPERIENCE

6.1 INTERNSHIP DURATION AND RATIONALE FOR SELECTION:

Internship in SILK was my first working experience in my career. Before this as a student, I

remained stick to academic books and there had never been such requirement of internship by my

any institute. So it was an opportunity for me to explore my abilities and to implement the course,

which I studied specially in MBA. I did my internship in SILK (Westridge Branch, Rwp) for six

weeks and in that duration; I got the opportunity to know about the banking environment. The

reason for selecting bank for internship is that it is the sector, which provides multi-services under

one umbrella. In banks one can explore his/her interpersonal skills by dealing different types of

customers. My internship experience gave me a good learning experience because I had the

privilege to work with such cooperative and experienced staff.

Details of Training:

In first and second week, I worked in remittance department where I got the opportunity to get

familiar with different kinds of remittance, the bank deal in which are the Demand Draft (Demand

Draft is drawn by one branch on another branch or on the Head Office of the same bank. Demand

Draft is basically a bill of exchange, that is, an order to pay money) Telegraph Transfer(Telegraph

Transfer is a massage transmitted via telegraph, fax or telephone after the customer fills in and

sign the application form one place to another) Online Transfer(Transfer through branch to

branch) Mail Transfer, Payment Order and Travelers Cheques.

38
In the next week I worked in the Cash and Deposited department. In this I learnt how the Cheques

deposit and how pay the Cash to the customers.

In the next week I learned the methodology of opening of accounts and how these accounts are

maintained. The relationship of customer starts with this department. Everyone is not allowed to

come and open an account in the Bank, for this purpose there should be an introducer who himself

is the account holder in the same branch. He has to introduce the new client by signing the

opening account form and then his signature is verified. Once the account opened Silk Bank issues

the cheque books to the customer so that they could withdraw their money whenever they like. My

experience in this department was really very good. I leant how to handle different customers;

how to fill Account Opening Form, what are the required documents that should be with you in

order to open an account. After that I spent last week in E-remittance department and clearing

department.

After six weeks of being here, I feel that I was lucky to end up perhaps one of the most

challenging, stimulating, and friendly working places in banking industry. Not only is the work

exciting, learning is integral part of daily processes here in the bank. I daily filled the customer

remittance forms which are DD, MT, and Pay Orders. I have also filled the form of account

opening of the customer

6.2 LEARNING ACHIVEMENTS:

I have learnt a lot about banking during my internship period. I learnt dealing with different ways.

First of all I have punctuality, rules, and regulation. I know how to open an account, what kinds of

documents are required. Mostly the products of different banks are same but the only the

differences is of services. The internship teaches me the practical side of banking.

39
6.3 SKILL USED AND ACQUIRED:

I acquired many new skills and developed many already existing skills including working in a

team based environment, dealing with management and customers, and communication skills. I

gained a lot of skills in regarded with coordination with the members of other departments. My

internship provided me with the opportunity of more professionalism. SILK has provided me with

an excellent opportunity to enhance my professional skills. I learnt that a mature person has to

behave he is doing a job. These skills were developed in the workforce.

40
 Chapter # 7

7.1 CONCLUSION:

After completing six weeks in different departments of the bank I got good knowledge through

practical experience. It is a good opportunity for the students to come in practical life and put his

knowledge in practical environment. The staff of Silk bank is good, cooperative and well qualified.

All the employee’s are hard worker and loyal with duties and perform the duties with in time

period.

In the end I want to say that my internship experience at SILK have strengthened my career plans

toward joining banking sector and I hope skills and knowledge which I gained their will help me in

perusing my career plans.

7.2 RECOMMENDATIONS:

After completing my six weeks in different department of the bank I can suggest different

recommendation which I can feel deficiency in different department. If we adopt these

recommendations I believe that the performance of the bank will improve day by day and achieve

maximum markets share due to his performance and through proper management.

 Adoption of Effective technology

 Revival of the Charges

 Decentralization

 Perquisites and Allowances

41
 Job Training Programs

 Permanent Hiring

 Job Security

 Flexible Policies

 Control Extra Expenses

 Control Extra Circular Activities

 Efficient Use of Resources

 Use latest Knowledge which is Helpful for our Branch

 Social Welfare programs

 Time Management

 Friendly Environment

 Promotion Chances

42
References:
• Ahmed, S., Safdar, H., &khan R. (1991). Banking currency and Finance.
• Huertas, T. (1988). Can Banking & Commerce Mix. Catu Journal (7,743 – 769)
• Irshad, M. (2001), Money Banking & Finance.
• James, R., Donald, R., James, W. (2004). Commercial Banking. London: John Wiley &
Sons INC.
• Roger, L., David, D. (1930). Modern Money & Banking (3rd ED). New York: McGraw

On Line References:
• www.silkbank.com.pk
• www.investopedia.com/university/ratios
• www.enwikipedia.org/wiki/bank
• www.enwikipedia.org/wiki/habib-bank
• www.google.com
• www.dogpile.com

Personal References:
• Kibria Sana (Branch Manager)
• Moazzam Ali (Operational Manager)

43
ANNEXURE:
BALANCE SHEET AS AT DECEMBER 31, 2009

2009 2008
Assets
Cash and balance with treasury banks 3,120,880 3,070,067
Balances with other banks 151,068 190,197
Lending’s to financial institutions 1,067,708 1,376,651
Investments 20,179,329 12,012,233
Advances 32,097,149 31,087,373
Operating fixed assets 3,720,695 3,002,450
Deferred tax assets 3,976,149 2,613,939
Other assets 4,351,022 2,292,358
TOTAL ASSETS 68,664,341 55,645,268
Liabilities
Bills payable 637,602 431,537
Borrowings 15,088,332 8,738,616
Deposits and other accounts 49,610,034 41,056,630
Liabilities against assets subject to finance
lease 10,476 39,731
Deferred tax liabilities - -
Other liabilities 1,554,808 987,394
Net assets 1,763,089 4,391,360
Represented by
Share capital 9,003,150 9,003,150
Reserves 224,649 218,556
Accumulated losses -9,030,894 -6,131,709
TOTAL S.H.E 196,905 3,089,997
Surplus on revaluation of assets - net of tax 1,566,184 1,301,363
Total liabilities + S.H.E 1,763,089 4,391,360

44
 PROFIT & LOSS STATEMENTS AS AT DECEMBER 31, 2009

2009 2008
Mark-up / return / interest earned 5,913,317 4,588,299
Mark-up / return / interest expensed 5,855,517 4,218,901
Net mark-up / interest income 57,800 369,396
Provision against non-performing loans and
advances 2,170,738 1,663,314
(Reversal) against consumer finance -5,803 -12,163
(Reversal) / provision for diminution in the
value of investments 6,144 -11,668
Impairment value for sale securities 138,276 -
Bad debts written off directly – 2,610
2,309,355 1,642,093
Net mark-up / interest loss after provisions -2,251,555 -1,272,695
Non mark-up / interest income
Fee, commission and brokerage income 327,949 188,596
Dividend income 27,921 27,173
Income from dealing in foreign currencies 113,733 53,343
Gain on sale of investments 58,640 19,536
Unrealized gain on revaluation investment 69 -
Other income 133,875 95,862
Total non-markup / interest income 662,187 384,510
Non mark-up / interest expenses -1,589,368 -888,185
Administrative expenses 2,747,856 1,935,732
Other provisions / write offs -102,246 9,489
Other charges 17,481 849
Total non-markup / interest expenses 2,663,091 1,946,070
Extra ordinary / unusual items – –
Loss before Taxation -4,252,459 -2,834,255
Taxation
– current 8,414 16,462
– prior years' 34,616 -
– deferred 1,392,584 -836,449
-1,349,554 -819,987
Loss after Taxation -2,902,905 -2,014,268

45
Basic / diluted Loss per share - Rupees -3.22 -2.83

CASH FLOW STATEMENT AS AT DECEMBER 31, 2009

2009 2008
CASH FLOW FROM OPERATING ACTIVITY
Loss before taxation -4,252,459 -2,834,255
Add: Dividend income -27,921 -27,173
ADJUSTMENT FOR NON- CASH CHARGES -4,280,380 -2,861,428
Depreciation 216,437 160,236
Amortization of intangible assets 6,635 15,979
Provision against non-performing advances (net) 2,176,831 1,663,314
Provision/(Reversal) against consumer financing -5,803 -12,163
Provision for diminution in the value of investments / other
assets 6,144 -11,668
Unrealized gain on revaluation of Investment -69 -
Gain on sale of operating fixed assets -9,387 -7,708
Finance charges on leased assets 4,375 9,489
Other provisions / write offs -102,246 9,489
Bad debts written offs - 2,610
Provision for gratuity 34,960 26,517
2,327,877 1,855,638
(Increase) / Decrease in operating assets -1,952,503 -1,005,790
Lending’s to financial institutions -242,208 -764,459
Held-for-trading securities -1,782,703 9,720
Advances-net -3,175,052 -6,863,552
Other assets-net -1,935,733 -704,269
Increase/(decrease) in operating liabilities -7,135,696 -6,793,642
Bills payable 206,065 -139,219
Borrowings from financial institutions 6,349,716 1,858,167
Deposits and other accounts 8,553,404 -1,317,080
Other liabilities (excluding current taxation) 511,727 35,786
15,620,912 437,654
Cash flow before tax 6,532,713 7,361,778
Income tax paid -22,303 -26,202
NET CASH INFLOW / OUTFLOW FROM
OPERATING ACTIVITY 6,510,410 -7,387,980

46
CASH FLOW FROM INVESTING ACTIVITY
Net investments in available-for-sale securities -6,343,789 5,150,758
Net investments in held-to-maturity securities 252,236 508,825
Net investments in subsidiary / associate -40,789 -72,000
Dividend income 27,921 27,173
Investments in operating fixed assets - net of adjustment -993,235 -420,971
Sale proceeds of operating fixed assets - disposed off 40,620 28,895
NET CASH INFOW/OUTFLOW FROM INVESTING
ACTIVITY (7,016,247) 5,294,680

CASH FLOW FROM FINANCING ACTIVITY

Payment of sub-ordinated loans-net
Payments of lease obligations - -650,000
Issue of share capital -33,630 -49,456
NET CASH INFOW/OUTFLOW FROM FINANCING
ACTIVITY - 4,001,400
(Decrease) / Increase in cash and cash equivalents -33,630 3,301,944
Cash and cash equivalents at beginning of the year -539,467 1,208,644
CASH & CASH EQUIVALENTS AT TE END OF THE
YEAR 4,561,415 3,352,771

47