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MONEY BANKING
Submitted By USMANMASOODKHAN 2093224(MBA) SALMAN ZAFAR 2102061(MBA) Submitted To SIR SIKANDAR AZIZ
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EXECUTIVE SUMMARY
This report is about The Bank of Punjab, its history, and the functions of the bank. This report contains detail about what I have learned. It starts with the short history and background and brief introduction about the departments, product and services and financial analysis of The Bank of Punjab. The vision of the bank along with its mission and existing status has also been discussed. This report contains detail about ´business practices in The Bank of Punjab.
The purpose of this exercise was to learn while working in the practical field specially, the knowledge related to the General Banking, foreign exchange and advances. It has really helped me observe to what extent the bookish knowledge is being practiced in real field.
This report contains the Comparison of other banks with the bank of Punjab, current financial position of the bank, the business process of the bank and all my learning, during the period.
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ACKNOWLEDGEMENT
All praises and thanks for ALLAH and source of all knowledge and wisdom and endowed to mankind who bestowed me a potential and ability to contribute a drop material to the existing ocean of knowledge. I am extremely grateful to my teacher ´MR. HAIDER MAHMOODµ Who always provided constructive comments and challenged to state our ideas clearly and to say only what needed to be said. He has provided us a useful information as well as relevant material in every possible matter. It was only possible to finish this project on ´The Bank of Punjabµ. I am really pleased here to acknowledge the sheer efforts and extreme of Numerous people, those who have provided me their relentless service in the completion of my internship report on ´Business practices at The Bank of Punjabµ. I would like to express my gratitude to my advisors in The Bank of Punjab who support me to understand the working in the bank. They really helped me a lot to gain practical knowledge about general banking and corporate banking. I am also grateful to Mr.Adil khan (Manager) and all my supervisors during the period without their guidance, this exercise of financial analysis would not have resulted in a success.
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HISTORY OF PUNJAB BANK
Established in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with its network of 266 branches at all major business centers in the country. The Bank provides all types of banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency, Remittances, and Advances to Business, Trade, Industry and Agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. Attractive rates of profit on all types of deposits, opening of Foreign Currency Accounts and handling of Foreign Exchange business such as Imports, Exports and Remittances, Financing, Trade and Industry for working capital requirements and money market operations are some facilities being provided by the Bank. The lending policy of Bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. As agriculture is considered as backbone of our economy the Bank of Punjab has introduced "Kissan Dost Agriculture Finance Scheme" to small farmers
ESSENCE OF BUSINESS
The essence of our business philosophy is to cater the banking requirements of small and medium sized entrepreneurs, providing them qualitative and competitive services with emphasis on encouraging exports.
STATUS & NATURE
The bank of Punjab was incorporated under BOP Act 1989. It was given the status of a scheduled bank by the SBP on September 19, 1994. It is principally engaged in commercial banking and services with its registered office at 7-Egerton Road, Lahore
MAIN SPONSORS
The bank of Punjab was incorporated under BOP Act 1989.its shares are listed on all the stock exchanges in Pakistan i.e. Karachi, Lahore and Islamabad. The Govt. of Punjab holds the majority shares of the bank
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OWNERSHIP
In 1989, 60% of its shares ownership was with the Govt. of Punjab and 40% with the autonomous bodies, general public and others. After the inclusion of foreign investors, ratio was disturbed and market price of BOP shares rose up to 150 rupees from 13 rupees and up to the end of 1991 it was nearly Rs.175, which was ever highest price in the history of BOP till that time.
BUSINESS PROFILE
The bank of Punjab is working as scheduled commercial bank with its network of 242 branches at all major business centers in the country. The Bank provides all types of banking services such as deposits in local currency, client deposits in foreign currency, remittances, and advances to business, trade, industry and agriculture. The bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. Attractive rates of profit on all types of deposits, opening of foreign currency accounts and handling of foreign exchange business such as import, export and remittances, financing, trade and industry for working capital requirements and money market operations are some facilities being provided by the bank. The lending policy of bank is not only cautious and principles of prudent lending with maximum emphasis on security.
Vision
To be a customer focused bank with service excellence.
Mission
To exceed the expectation of our stakeholders by leveraging our relationship with the Govt. of Punjab and delivering a complete range of professional solutions with a focus on program driven products and services in the agriculture and middle tier markets through a motivated team.
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Branches in pakistan
Head Office
Main Branch, Lahore (Pakistan)
7 - Egerton Road, Lahore (Pakistan)
Chief Manager
Tel: (042) 9200421-33
Tel: (042) 9200419,9200187
Fax: (042) 9200229
Fax: (042) 9200351
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BANK MANAGEMENT HIERARCHY
Senior executive vice president
Executive vice president
Senior vice president
Vice president
Assistant Vice president
Officer grade l
Officer grade ll
Officer grade lll
A.
PRPDUCT AND SERVICES
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1) AGRICULTURAL BANKING 2) BUSINESS PROMOTION BANKING 3) INTERNATIONAL BANKING 4) E-BANKING 5) GENERAL BANKING 6) DIFFERENT SERVICES 7) AND MANY MORE 8) COMMERCIAL BANKING
In fact, BOP is playing a very important role, along with the other banks in the country, in mobilization of hitherto untapped local resources by offering a reasonable and attractive rate of profit on savings, promoting saving and providing funds for investment
AGRICULTURAL BANKING
Different types of KISSAN DOST schemes are offered by the bank which includes:
Kissan Dost Agricultural Finance Scheme Kissan Dost Tractor Finance Scheme Kissan Dost Mechanization Support Scheme Kissan Dost Farm Transport Scheme Kissan Dost Eslah-E-Arazi Scheme Kissan Dost Live Stock Development Scheme Kissan Dost Live Stock Scheme Kissan Dost Commercial Agro Services Finance Scheme Kissan Dost Agri Mall Finance Scheme
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INTERNATIONAL BANKING
Banks is performing international banking function through its corresponding relationship with many famous local and international banks. Its international division is playing a very important role in this regard
E-BANKING
Currently 147 branches in different regions are online as announced by information technology division of bank. Bank is providing e-banking services so without any inconvenience now customers can deal with the bank online. They can have many services available online without any delay in this fast info -techno progressing era.
GENERAL BANKING
Account maintenance Clearing Cash management Remittances Deposits department Other department
Commercial Banking
Running Finance for Working Capital requirements (RF) Finance Against Packing Credit for Pre-shipment (FAPC) Finance Against Foreign Bills for Post-shipment (FAFB) Finance Against Imported Merchandise (FIM) Finance Against Trust Receipt (FATR) Demand Finance: Medium Term Loans (DF) Letter of Credit (LC)
o o DA ( Usance) DP ( Sight)
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2. Business Promotion Finance Schemes
y y y y y y BOP Quick Cash BOP Car Loan BOP House Loan BOP SME Loan BOP Assaish Loan BOP House Loan For Federal Govt
2.1. BOP CAR LOAN BOP car loan is a demand financing facility to purchase brand new locally manufactured/Assembled cars for personal use. This facility can be availed by salaried person of different nature and by the business persons. All must have the holdings of NIC. 2.2. BOP Aasaish Loan
BOP Aasaish loan is demand finance facility for purchase of consumer durable goods like TV, Refrigerators, Mobiles, Microwave Oven, Fans, Audio/Video system etc with no down payment, in addition with the free home delivery. The financing tenure of this product is max 36 months. The nature of employment should be salaried or the business man.
DIFFERENT SERVICES
These are the services provided by the BOP. y y y y y y y y y y y y y ATM Facility Letter of Credit Pay Order On-Line Banking E-Banking Debit Card Consumer Financing Agriculture Financing Corporate Financing Commission free Remittance Demand Drafts Collection of Utility Lockers Facility
3.1. Automated Teller Machine (ATM)
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Through the ATM s Customers have access to the various services such as withdrawal, balance enquiry and mini statement? Complete security is ensured because access to the account is only possible by entering a four digit personal identification number (PIN) known only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card. 3.2. Online Banking BOP is currently offering window-based online banking to its customers, which gives access to information on their accounts and the liability to act on the latest information received over the net. 3.3. Lockers It is one of the utility services that BOP provides to their customers for keeping jewellery, important documents and other valuables. 3.4. Demand Drafts BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 3.5. Letters of Credit BOP is offering its business customers the widest range of option in the area of money transfer. BOP s letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter of credit is the best way to do the business transactions. 3.6. Pay Order BOP provides transfer of money using different facilities. Its pay orders are a secure and easy way to move the money from one place to another. The charges for this service are extremely competitive. 3.7. Mail Transfer Moves money safely and quickly from BOP Mail Transfer service. The rates for this service is quiet impressive as compare to the market. 3.8. Short Term Investment BOP offers excellent rates of profit on all its short term investment accounts. The packages are starting from 3 months. BOP s rates of profit are extremely attractive, along with the security and service only BOP can provide. 3.9. Agricultural Finance It help farmers utilize funds efficiently to further develop and achieve better production. Provides farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.
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Major Customers of BOP
Some of the major customers of Bank of Punjab are: Educational Institutes Agriculturists Pakistan Telecommunication Private Limited WAPDA Pharmaceutical Companies WASA MDA
B.
1)
DEPARTMENT OF BOP
ACCOUNT DEPARTMENT
Account department is the backbone of a bank. It plays a vital in performing different functions of a bank. The account department of is computerized as well as manual. Accounting books of different departments are maintained under this department and with the help of these, accountant prepare the monthly quarterly, semiannually and yearly financial statement and order statement of the whole bank. All the transaction taking place is recorded daily in the books of accounts and in computerized ledgers. For every transaction there is Voucher prepared and through these vouchers contra entries are passed under different head. Good working of accounts mainly depends on the voucher system. Accounts department is responsible for proper handling and maintenance of vouchers of different department MANUAL FUNCTIONS OF ACCOUNTS DEPARTMENT Accountant prepares vouchers for all daily activities of different departments. Checking officer checks and tallies these vouchers with their daily transactions and posts their entries under proper heads. TYPES OF VOUCHERS Debit Voucher Credit Voucher Cash voucher Transfer voucher Clearing voucher Daily paid voucher sheet Daily receipt voucher sheet
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2)
CLEARING DEPARTMENT
Clearing is the most important department of the bank performing various functions.
1. Clearing House:
A clearinghouse is an organization of the member banks, working under SBP and which is for the purposes of setting inter banks claim resulting from transmission of funds from one bank to another. The branch cheque/instruments are credited into the account of the customer. The clearing can be: j Outward j Inward
2. Outward Clearing
The instrument collected or stored bank wise and a schedules is prepared separately for each bank mentioning the total number of instruments and the amount of the instruments. Then these are recorded in a register called OUTWARD CLEARING REGISTER then a main schedule is prepared showing the total number of cheque and their aggregate amount being presented in the clearing. The cheque/instruments are handed over the clearing branch. Central clearing branch issue CREDIT ADVICE to the branch for passing credit to its customer immediately. The branch on receiving credit advice debits the clearing account and credits the respective customer accounts.
3. Inward Clearing
On receiving cheque/instruments from central clearing branch, the in charge checks the number and amount of cheque received in clearing must tally with the main schedule received from central clearing branch. This cheque/instrument are entered in INWARD CLEARING REGISTER for the cheque/instrument passed in clearing is a credit advice for the aggregate amount of cheque passed in clearing is prepared, drawn on central clearing branch.
3)
BILLS DEPARTMENT
This department deals in bills for collection for all kinks such as cheque, draft, and pay orders, call deposits etc. with outstation branches of BOP or with other banks. It provides service to their customer to get payment from the nearer bank at nominal charges. The four main heads of bill department is. Outward Bill for Collection (OBC) Inward Bills For Collection (IBC) Outward Documentary Bills For Collection Inward Documentary Bills For Collection
(ODBFC) (IDBFC)
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1. OUTWARD BILLS FOR COLLECTION
Bills department receive cheque or other of bills from its kinks client whose account must be opened in that branch. The branch forwards the check with schedule or covering letter to that branch on which bills is drawn. The checking officer of bills department will cross the cheque with special bank stamp before forwarding the cheque. OBC register is also maintained for proper record keeping of outward bills. This register is updated two times once at the time of receiving bill from clients and the other when the confirmation advice of this cheque is received from the payable branch. Bank gets a commission Rs. 25/- and courier charges Rs. 40/on the service.
2. INWARD BILLS FOR COLLECTION
The branches which receive bill have to verify these bills for payment. The party account must be opened in that branch. The responsibility of this branch is to verify the bills for collection with in three days and send the advice to the originating branch. In case of verification of bills is approved, banks debit the account of the respective account holder and send a debit advice to the originating branch and at the same time credit the head office account for inward bills IBC register is maintaining for keeping the proper record of the bills.
3. OUTWARD DOCUMENTARY BILLS FOR COLLECTION
Originating branch receives the documentary bills from their clients and sent them to out station branches of the same bank or other bank. Customer account must be opened in that branch. The documentary bills are i.e. trust receipt, railway receipt, sales invoice, receipts of courier service etc. bank gets as commission 0.35% plus postage charges plus courier service charges of this service. Seller and producer both can avail the facility of bank in case of selling and purchasing their product or goods.
4. INWARD DOCUMENTARY BILLS FOR COLLECTION
Bank receives the documentary bills from the other outstation branches of the same banks or other banks for collection the amount from purchaser. In this case back acts as a buyer s bank, when bank receives the documentary bills they send intimation to buyer about his arrival of goods. If the buyer is the account holder then bank will debit his account otherwise purchaser deposits the amount of the bills. Bank hand over these documents to purchase, on behalf of which buyer receives the goods. Bank also charges commission
4)
ADVANCES/CREDIT DEPARTMENT
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It is the loan function, which produces the major person of bank s income, and as such it is the major areas of professional banker s concern and attention.
A. PRINCIPLES WHILE ADVANCING
Basically there are five principles that must be duly observed while advancing money to borrowers. y Safety y Liquidity y Disposal y Remuneration y Suitability 1) FORMS OF LENDING Many there are two types of advances: y Short-term (maturity within one year) y Long term (maturity with the period of more than one year) However they are further classified as: y Running Finance y Demand Finance y Cash Finance y Letter of Guarantee 2) RUNNING FINANCE This form of finance was previously known as overdraft . When a customer requires the temporary accommodation, his bank allows withdrawal his account in excess of credit balance, which the customer has in its account, a running finance occurs. The accommodation is thus allowed collateral security. When it is against collateral securities, it is called a Secured Running Finance and when the customer cannot offer any collateral security except his personal security, accommodation is called a Clean Running Finance. The customer is in advantageous position in running finance because he has to pay the mark-up only the balance outstanding against him on daily product basis 3) DEMAND FINANCE This is common form of financing to commercial and industrial concerns and is mad available either against pledge or hypothecation of goods produce or merchandise. In Demand Finance the party is financed up to a certain limit either at once or as and when required. The party due to facility of paying mark-up only on the amount it actually utilizes prefers this form of financing
y y
Ordinary Shares Preferred Shares
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y y y y
Quoted or Unquoted Registered Bearer Inscribed
B. ADVANCES AGAINST IMMOVABLE PROPERTY
A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of the money, advanced or to be advanced. By way of loan, and existing debts or the performances of the engagement this may raise the pecuniary liability The transfer is called the mortgager and the transferee the mortgagee the principal money and interest of which payment is secured for the time being and instrument by which the transfer is affected, is called the letter of the mortgage deed. Agriculture is the largest sector of the economy. It contributes 25 percent to GDP, provides raw materials to 80 percent of industry and employment to over 50 percent of the population. This is a sector that has the shortest gestation period for Investments and, therefore, a remarkable capacity to bring about a turnaround in the economy. This important sector in Pakistan is suffering from a number of maladies and is consequently witnessing stagnation in productivity. Due to policy and administrative exigencies, the savings in the agriculture sector remain low and, therefore, the sector has perpetually remained capital starved. The pricing of input and output in agriculture over the years has forced the majority of farmers in Pakistan to plough back their incomes into agriculture and non-institutional credit, and has more often than not served to sap their potential earnings. Needless to say, that shortage of savings and lack of availability of capital is one of the major reasons for poverty in the country. The agricultural and rural sectors in Pakistan in general and in Punjab in particular are, therefore, suffering from severe under-development. Under a desirable development model, Punjab can: y y y y Increase agricultural production to meet the country's requirement of essential foods items and industrial raw materials. Develop agro-based industry in the rural sector for economic value addition; Generate additional employment opportunities in rural as well as adjacent small towns/cities Elevate poverty and improve the income generating capacity of the agri-based population.
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5)
Remittance Department
Remittance is a major function of the bank. It is the transfer of money from one place to another place. The need for remittance is commonly felt in commercial life particularly and in everyday life generally. By proving this service to the customers the Bank of Punjab earns a lot of income in the form of service charges. The Bank of Punjab deals with the following type of remittances: Demand Draft (DD) Mail Transfer (MT) Telegraphic Transfer (TT) Pay Order Now we discuss all these in detail
1) DEMAND DRAFT (DD):
Demand draft is a written order given by the one branch of a bank on behalf of customer to another branch of the same bank to a certain amount to the certain person. Procedure for Prepare Demand Draft. A draft voucher is filled which contains the following information A credit voucher is filled in order to get the excise duty and exchange commission. The sender deposits the total amount of the two vouchers i.e. the debit and credit vouchers. After authentication the DD is handed over to the sender and bank sends the advice to the concerned branch. So when the party presents the DD in the concerned branch its payment could be made. Parties involved in the Demand Draft The following parties are involved in demand draft; Purchaser or Sender The purchaser is the person who sends the money to a particular person payable at a certain branch. Issuing or Drawing Branch The branch from where the demand draft is issued to another branch of the same bank. Drawer Branch Branch in which the draft has drawn and called upon to pay the amount. 1. 2. 3. 4.
2) MAIL TRANSFER (MT):
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It is the transfer of money from one branch to another branch of the same bank through mail service. In mail transfer there is no need of advice as the amount is directly credited to the receiver s account. Procedure 1. First a voucher is filled in which the sender writes the amount to be sent, name, account number of the receiving person with the branch name and date. 2. A credit voucher is filled in order to deduct exchange, postage charges according to the amount of the mail transfer. 3. The sender deposits the total amount in the cash department. 4. The cash officer gives the vouchers to the officer after affixing received cash stamp and writing the amount in red ink.
3) TELEGRAPHIC TRANSFER (TT):
This is the most urgent method of remitting the money from one place to another place. This method is used when the sender desires to send urgently, in this case the sender request the manager of the branch to issue TT. Procedure; For sending the TT the manager and officer apply a test. In the test the manager and officer uses a coding technique. They write their own code numbers, which is allotted, to them as the bank branch code. After making all the conformation the concerned branch makes the payment to the receiver. If the sender wants to convey the same message through telephone then he has to pay the charges of telephone along with the TT charges. First the person deposit the TT amount along with the charges through the credit voucher then his TT sent to the relevant branch.
4) Pay Order (PO):
A pay order is a written order issued by the bank on its own branch, drawn upon and payable by itself to pay a specified sum of money to the person. The purpose of a pay order is to transfer the fund from one place to another. It is usually not issued in favor of the parties of other cities. Usually the pay order is issued for the local transfer of money from one person to another or from the person to any other department. It is used for different purposes. The purpose may be the repairs of the branch or renovation of the branch
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C.
FINANCIAL ANALYSIS
To analysis the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years. Importance of Financial Analysis Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owner s equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis Ratio analysis is a useful tool for analyzing financial statements. Calculating ratios will aid in understanding the bank s strategy and in understanding its strengths and weaknesses relative to other companies and over time. They can sometimes be useful in identifying earnings management and in understanding the effect of accounting choices on the firm s reported profitability and growth. Finally, the ratios help in obtaining a better understanding of a firm s current profitability, growth, and risk which can improve forecasts of future profitability and growth and estimates of the cost of capital.
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Balance sheet
2008 2007
(Rupees in µ000)
Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets
10,685,057 2,178,455 633,333 22,711,980 131,731,158 3,471,838 8,388,162 6,109,137 185,909,120 14,210,302 1,927,662 2,450,000 73,461,695 133,893,585 3,252,759 5,805,097 235,001,100
Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities
1,219,801 12,278,773 164,072,532 -30,632 4,564,257 182,165,995 937,647 17,842,915 191,968,909 40,321 2,205,530 3,009,984 216,005,306 18,995,794
Net Assets Represented By
3,743,125
5,287,974
4,230,379 7,427,232 3,452,842
Share capital Reserves (Accumulated loss) / Un-appropriated profit
7,427,232
(7,658,686) 5,056,520
15,110,453 3,885,341 18,995,794
(Deficit) / Surplus on revaluation of assets - net
(1,313,395) 3,743,125
Contingencies and Commitments
INCOME STATEMENT
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(Rupees in µ000)
Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/ interest income Provision against non-performing loans and advances Provision for diminution in the value of investments Bad debts written off directly Net mark-up/ interest income after provisions Non Mark-up/interest Income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale and redemption of securities Unrealized gain / (Loss) on revaluation of investments classified as held Other income for trading Total non-markup/interest income Non Mark-up/interest Expenses Administrative expenses Provision against other assets Provision against off balance sheet items Other charges Total non-markup/interest expenses Extra ordinary/unusual items (Loss) / Profit Before Taxation Taxation - Current - Prior years - Deferred (Loss) / Profit After Taxation Inappropriate profit brought forward Transfer from surplus on revaluation of fixed assets - net of tax (Accumulated loss) / profit available for appropriation Basic (loss) / earnings per share (after tax) - Rupees Diluted (loss) / earnings per share (after tax) - Rupees
17,752,969 16,614,000 1,138,969 18,863,580 366,387 19,229,967 (18,090,998)
17,539,094 13,939,377 3,599,717 1,616,421 24,479 246,869 1,887,769 1,711,948
577,630 2,020,896 324,328 733,787 526,185 4,182,826 (13,908,172) 2,799,933 10,101 114,700 2,924,734 (16,832,906) (16,832,906) 207,600 1,052,000 (8,033,001) (6,773,401) (10,059,505) 3,452,842 5,572 3,458,414 (6,601,091) (19.02) (19.02)
653,512 1,804,878 377,233 2,039,535 547,635 5,422,793 7,134,741 2,250,777 292 37,950 2,289,019 4,845,722 4,845,722 169,252 (19,921) 250,772 400,103 4,445,619 3,219,246 5,866 3,225,112 7,670,731 8.41 8.41
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FINANCIAL BUSINESS SUMMARY
2004 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m 1,664 484 1,180 831 1,002 8 1,002 689
2005
2006
2007
2008
2,555 719 1,836 1,097 1,150 47 1,736 1,368
6,125 2,669 3,456 1,331 1,291 331 3,165 2,353
11,579 7,509 4,070 2,954 1,882 374 4,769 3,804
17,539 13,939 3,600 5,423 2,289 1,888 4,846 4,446
Balance Sheet Total Assets Advances (net) Investments Shareholders¶ Equity Revaluation Reserve Deposits Borrowings from FIs Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m 43,621 18,344 11,458 3,052 2,155 34,938 2,684 66,320 39,439 16,198 4,420 3,419 54,724 2,832 111,154 63,624 18,026 6,777 6,893 88,465 6,791 164,855 101,320 28,233 10,659 5,467 137,728 6,989 234,974 133,894 73,462 15,110 3,885 191,969 17,843
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Common Size Analysis
Horizontal Analysis
This type of analysis represents the percent change in specific line item of the Income statement or the balance sheet from the last year. This analysis is used to comment on the growth of specific line item in the industry or the firm.
2004 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Balance Sheet Total Assets Advances (net) Investments Shareholders¶ Equity Revaluation Reserve Deposits Borrowings from FIs % % % % % % % 32.2964 63.9065 27.6052 22.5754 55.9165 31.9738 51.9374 34.22648 53.48766 29.26287 30.95023 36.96987 36.15598 5.225989 40.33503 38.01239 10.14091 34.7794 50.39896 38.14051 58.29775 32.57469 37.2049 36.15273 36.41993 -26.0838 35.76833 2.833023 29.84117 24.3282 61.56789 29.45731 -40.7207 28.25508 60.83058 % % % % % % % % -24.399 105.785 9.0678 54.994 4.09182 -575 56.8862 58.7808 34.8728 32.68428 35.72985 24.24795 12.86957 82.97872 42.28111 49.6345 58.28571 73.06107 46.875 17.58077 10.92177 85.8006 45.15008 41.86145 47.10251 64.45599 15.086 54.94245 31.40276 11.49733 33.63389 38.14406 33.98141 46.12956 -13.0556 45.52831 17.78069 80.19068 1.588939 14.43995 2005 2006 2007 2008
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Analysis (Income Statement)
Total earnings mark-up & non mark-up was rising 33% from last year. As deposits and the landings of the banks are rising up. Administrative expenses are increased with a great pace in last few years because of high rate of inflation. Rise in expenses results decrease in the 22% percent profit from last year.
Analysis (Balance Sheet)
Total assets were increased in last few years. 22% increase in the assets from the last year represents growth in the Bank. As bank increase their paid up capital because of which SOE increase at the end of 2006. BOP is grabbing the confidence of their customers results increase in the deposits
Vertical Analysis
It represents the percent of a line item (expenses, tax, interests, dividends) impacts on total revenues.
2004 2005 2006 2007 2008
Markup/ return/ interest earned Non-markup based Income Markup/ return/ interest expenses Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax
% % % % % % %
66.69 33.31 19.40 40.16 0.32 40.16 27.62
69.96 30.04 19.69 31.49 1.29 47.54 37.46
82.15 17.85 35.80 17.31 4.44 42.45 31.56
79.67 20.33 51.67 12.95 2.57 32.81 26.17
76.38 23.62 60.70 9.97 8.22 21.10 19.36
Analysis
Markup interest earned is increased because of increase in 30% landings from the last year. Net profit before and after tax is decreased because of huge rise up in the admin expenses.
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RATIO ANALYSIS
Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of BOP has been calculated:
Ratios Gross spread ratio Profit before tax to total income Markup/ Interest cover ratio Profit after tax to total income Total assets turnover Return on avg total assets (after tax) Price earnings ratio EPS (Non dilutive) Dividend per share Market value per share Capital adequacy Ratio % % times % times % times Rs./share Rs./share Rs./share %
2004 72 59.19 5.08 46.65 0.06 2.49 7.25 9.08 4 65.9 12.83
2005 56 66.11 2.79 49.16 0.07 2.65 10.23 10.01 5.2 102.45 12.78
2006 35 67.89 1.94 54.16 0.09 2.76 7.71 13.14 3.25 101.25 10.09
2007 21 53.71 1.65 49.27 0.1 2.22 9.31 10.51 3.5 97.8 9.69
2008 6.42 (316.29) 1.32 (189.03) 0.12 (0.05) (0.60) (19.02) 11.50 1.92
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1. GROSS SPREAD RATIO
Gross spread ratio defines the total spread of interest between borrowing and lending.Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds. The higher the spread the higher will be the profit margin. GSR= Rev/CGS GSR= (Mark-up earned Mark-up Expense)/Mark-up earned GSR is 2nd highest all over the globe in Pakistan. GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits.
2. PROFIT BEFORE TAX TO TOTAL INCOME
Operating income less operating cost (profit before tax). This ratio tells what percent of total income is earned before paying all the taxes. BOP has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts. The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking
3. Mark-up/ Interest cover ratio
This ratio tells what percent of interest is covered from the total income of a firm or a bank. It tells the ability of a bank to pay its mark-up to the depositors.. MP/Interest cover ratio= EBIT/Mark-up
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4. INTEREST COVERAGE RATIO
MP/Interest cover ratio= EBIT/Mark-up This ratio tells what percent of interest is covered from the total income of a firm or a bank.It tells the ability of a bank to pay its mark-up to the depositors
5. PROFIT AFTER TAX TO TOTAL INCOME
This ratio analysis tells profitability of a firm after paying all the taxes to total income. Profitability of BOP is increased because of decrease in the tax paid to the govt and of high spread ratio. BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%
6. TOTAL ASSET TURNOVER
Asset turnover= Net Income/ Total assets
This ratio tells the turnover of the asset to generate income. This ratio is increased during last few years which represent increase in the turnover by assets.
7. RETURN ON TOTAL ASSET
This ratio gives an idea of returning net profit generated by the bank in comparison with assets. Return on assets= Profit after tax / Total Assets This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
8. PRICE EARNING RATIO
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Price Earnings Ratio= Market price of a share/ EPS From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm
9. EARNING PER SHARE
EPS = Net Income/ total shares Through this ratio it can be analyzed what percent of 1RS share is earned.
10.
CAPITAL ADEQUACY RATIO
Capital adequacy ratio informs lending up to a certain ratio of equity. This ratio is set by the State Bank of Pakistan.
11.
Return on equity
Profit before tax as a percentage of total equity. The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
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D.
RECOMMENDATIONS
In this section some recommendations for those students who are planning for an internship at BOP particularly and in any other bank generally. The most important of all is the difference between what we learn from the books i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below:
Working in different departments
During my internship I observed that other internees in the bank use to stick with one department only. An internee with specialization in Finance was of the view that he should be in Finance department same was the case with other specialized Internees. But I would suggest that one must work in every department for some time to gain a hand on experience of all the departments. As in real working environment employee have to coordinate with other departments, so he/she must know what the other departments operations are and how they work.
Relationship between Theory and Practice:
This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks don t prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firm s environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.
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E.
Conclusions
By analyzing the financial statements of the bank, I came across to know that it is one of the most growing banks in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hiring s and between colleagues should be removed.
F.
References
Reference material used for compiling this report is gathered from these sites. www.bop.com.pk www.jpmorgan.com www.kpmg.com.pk www.sbp.gov.pk www.globalbanking.com www.Scribd.com
www.google.com
Money & Banking
MONEY BANKING
Submitted By USMANMASOODKHAN 2093224(MBA) SALMAN ZAFAR 2102061(MBA) Submitted To SIR SIKANDAR AZIZ
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EXECUTIVE SUMMARY
This report is about The Bank of Punjab, its history, and the functions of the bank. This report contains detail about what I have learned. It starts with the short history and background and brief introduction about the departments, product and services and financial analysis of The Bank of Punjab. The vision of the bank along with its mission and existing status has also been discussed. This report contains detail about ´business practices in The Bank of Punjab.
The purpose of this exercise was to learn while working in the practical field specially, the knowledge related to the General Banking, foreign exchange and advances. It has really helped me observe to what extent the bookish knowledge is being practiced in real field.
This report contains the Comparison of other banks with the bank of Punjab, current financial position of the bank, the business process of the bank and all my learning, during the period.
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ACKNOWLEDGEMENT
All praises and thanks for ALLAH and source of all knowledge and wisdom and endowed to mankind who bestowed me a potential and ability to contribute a drop material to the existing ocean of knowledge. I am extremely grateful to my teacher ´MR. HAIDER MAHMOODµ Who always provided constructive comments and challenged to state our ideas clearly and to say only what needed to be said. He has provided us a useful information as well as relevant material in every possible matter. It was only possible to finish this project on ´The Bank of Punjabµ. I am really pleased here to acknowledge the sheer efforts and extreme of Numerous people, those who have provided me their relentless service in the completion of my internship report on ´Business practices at The Bank of Punjabµ. I would like to express my gratitude to my advisors in The Bank of Punjab who support me to understand the working in the bank. They really helped me a lot to gain practical knowledge about general banking and corporate banking. I am also grateful to Mr.Adil khan (Manager) and all my supervisors during the period without their guidance, this exercise of financial analysis would not have resulted in a success.
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HISTORY OF PUNJAB BANK
Established in 1989, in pursuance of The Bank of Punjab Act 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with its network of 266 branches at all major business centers in the country. The Bank provides all types of banking services such as Deposit in Local Currency, Client Deposit in Foreign Currency, Remittances, and Advances to Business, Trade, Industry and Agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. Attractive rates of profit on all types of deposits, opening of Foreign Currency Accounts and handling of Foreign Exchange business such as Imports, Exports and Remittances, Financing, Trade and Industry for working capital requirements and money market operations are some facilities being provided by the Bank. The lending policy of Bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. As agriculture is considered as backbone of our economy the Bank of Punjab has introduced "Kissan Dost Agriculture Finance Scheme" to small farmers
ESSENCE OF BUSINESS
The essence of our business philosophy is to cater the banking requirements of small and medium sized entrepreneurs, providing them qualitative and competitive services with emphasis on encouraging exports.
STATUS & NATURE
The bank of Punjab was incorporated under BOP Act 1989. It was given the status of a scheduled bank by the SBP on September 19, 1994. It is principally engaged in commercial banking and services with its registered office at 7-Egerton Road, Lahore
MAIN SPONSORS
The bank of Punjab was incorporated under BOP Act 1989.its shares are listed on all the stock exchanges in Pakistan i.e. Karachi, Lahore and Islamabad. The Govt. of Punjab holds the majority shares of the bank
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OWNERSHIP
In 1989, 60% of its shares ownership was with the Govt. of Punjab and 40% with the autonomous bodies, general public and others. After the inclusion of foreign investors, ratio was disturbed and market price of BOP shares rose up to 150 rupees from 13 rupees and up to the end of 1991 it was nearly Rs.175, which was ever highest price in the history of BOP till that time.
BUSINESS PROFILE
The bank of Punjab is working as scheduled commercial bank with its network of 242 branches at all major business centers in the country. The Bank provides all types of banking services such as deposits in local currency, client deposits in foreign currency, remittances, and advances to business, trade, industry and agriculture. The bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. Attractive rates of profit on all types of deposits, opening of foreign currency accounts and handling of foreign exchange business such as import, export and remittances, financing, trade and industry for working capital requirements and money market operations are some facilities being provided by the bank. The lending policy of bank is not only cautious and principles of prudent lending with maximum emphasis on security.
Vision
To be a customer focused bank with service excellence.
Mission
To exceed the expectation of our stakeholders by leveraging our relationship with the Govt. of Punjab and delivering a complete range of professional solutions with a focus on program driven products and services in the agriculture and middle tier markets through a motivated team.
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Branches in pakistan
Head Office
Main Branch, Lahore (Pakistan)
7 - Egerton Road, Lahore (Pakistan)
Chief Manager
Tel: (042) 9200421-33
Tel: (042) 9200419,9200187
Fax: (042) 9200229
Fax: (042) 9200351
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BANK MANAGEMENT HIERARCHY
Senior executive vice president
Executive vice president
Senior vice president
Vice president
Assistant Vice president
Officer grade l
Officer grade ll
Officer grade lll
A.
PRPDUCT AND SERVICES
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1) AGRICULTURAL BANKING 2) BUSINESS PROMOTION BANKING 3) INTERNATIONAL BANKING 4) E-BANKING 5) GENERAL BANKING 6) DIFFERENT SERVICES 7) AND MANY MORE 8) COMMERCIAL BANKING
In fact, BOP is playing a very important role, along with the other banks in the country, in mobilization of hitherto untapped local resources by offering a reasonable and attractive rate of profit on savings, promoting saving and providing funds for investment
AGRICULTURAL BANKING
Different types of KISSAN DOST schemes are offered by the bank which includes:
Kissan Dost Agricultural Finance Scheme Kissan Dost Tractor Finance Scheme Kissan Dost Mechanization Support Scheme Kissan Dost Farm Transport Scheme Kissan Dost Eslah-E-Arazi Scheme Kissan Dost Live Stock Development Scheme Kissan Dost Live Stock Scheme Kissan Dost Commercial Agro Services Finance Scheme Kissan Dost Agri Mall Finance Scheme
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INTERNATIONAL BANKING
Banks is performing international banking function through its corresponding relationship with many famous local and international banks. Its international division is playing a very important role in this regard
E-BANKING
Currently 147 branches in different regions are online as announced by information technology division of bank. Bank is providing e-banking services so without any inconvenience now customers can deal with the bank online. They can have many services available online without any delay in this fast info -techno progressing era.
GENERAL BANKING
Account maintenance Clearing Cash management Remittances Deposits department Other department
Commercial Banking
Running Finance for Working Capital requirements (RF) Finance Against Packing Credit for Pre-shipment (FAPC) Finance Against Foreign Bills for Post-shipment (FAFB) Finance Against Imported Merchandise (FIM) Finance Against Trust Receipt (FATR) Demand Finance: Medium Term Loans (DF) Letter of Credit (LC)
o o DA ( Usance) DP ( Sight)
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2. Business Promotion Finance Schemes
y y y y y y BOP Quick Cash BOP Car Loan BOP House Loan BOP SME Loan BOP Assaish Loan BOP House Loan For Federal Govt
2.1. BOP CAR LOAN BOP car loan is a demand financing facility to purchase brand new locally manufactured/Assembled cars for personal use. This facility can be availed by salaried person of different nature and by the business persons. All must have the holdings of NIC. 2.2. BOP Aasaish Loan
BOP Aasaish loan is demand finance facility for purchase of consumer durable goods like TV, Refrigerators, Mobiles, Microwave Oven, Fans, Audio/Video system etc with no down payment, in addition with the free home delivery. The financing tenure of this product is max 36 months. The nature of employment should be salaried or the business man.
DIFFERENT SERVICES
These are the services provided by the BOP. y y y y y y y y y y y y y ATM Facility Letter of Credit Pay Order On-Line Banking E-Banking Debit Card Consumer Financing Agriculture Financing Corporate Financing Commission free Remittance Demand Drafts Collection of Utility Lockers Facility
3.1. Automated Teller Machine (ATM)
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Through the ATM s Customers have access to the various services such as withdrawal, balance enquiry and mini statement? Complete security is ensured because access to the account is only possible by entering a four digit personal identification number (PIN) known only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card. 3.2. Online Banking BOP is currently offering window-based online banking to its customers, which gives access to information on their accounts and the liability to act on the latest information received over the net. 3.3. Lockers It is one of the utility services that BOP provides to their customers for keeping jewellery, important documents and other valuables. 3.4. Demand Drafts BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 3.5. Letters of Credit BOP is offering its business customers the widest range of option in the area of money transfer. BOP s letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter of credit is the best way to do the business transactions. 3.6. Pay Order BOP provides transfer of money using different facilities. Its pay orders are a secure and easy way to move the money from one place to another. The charges for this service are extremely competitive. 3.7. Mail Transfer Moves money safely and quickly from BOP Mail Transfer service. The rates for this service is quiet impressive as compare to the market. 3.8. Short Term Investment BOP offers excellent rates of profit on all its short term investment accounts. The packages are starting from 3 months. BOP s rates of profit are extremely attractive, along with the security and service only BOP can provide. 3.9. Agricultural Finance It help farmers utilize funds efficiently to further develop and achieve better production. Provides farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.
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Major Customers of BOP
Some of the major customers of Bank of Punjab are: Educational Institutes Agriculturists Pakistan Telecommunication Private Limited WAPDA Pharmaceutical Companies WASA MDA
B.
1)
DEPARTMENT OF BOP
ACCOUNT DEPARTMENT
Account department is the backbone of a bank. It plays a vital in performing different functions of a bank. The account department of is computerized as well as manual. Accounting books of different departments are maintained under this department and with the help of these, accountant prepare the monthly quarterly, semiannually and yearly financial statement and order statement of the whole bank. All the transaction taking place is recorded daily in the books of accounts and in computerized ledgers. For every transaction there is Voucher prepared and through these vouchers contra entries are passed under different head. Good working of accounts mainly depends on the voucher system. Accounts department is responsible for proper handling and maintenance of vouchers of different department MANUAL FUNCTIONS OF ACCOUNTS DEPARTMENT Accountant prepares vouchers for all daily activities of different departments. Checking officer checks and tallies these vouchers with their daily transactions and posts their entries under proper heads. TYPES OF VOUCHERS Debit Voucher Credit Voucher Cash voucher Transfer voucher Clearing voucher Daily paid voucher sheet Daily receipt voucher sheet
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2)
CLEARING DEPARTMENT
Clearing is the most important department of the bank performing various functions.
1. Clearing House:
A clearinghouse is an organization of the member banks, working under SBP and which is for the purposes of setting inter banks claim resulting from transmission of funds from one bank to another. The branch cheque/instruments are credited into the account of the customer. The clearing can be: j Outward j Inward
2. Outward Clearing
The instrument collected or stored bank wise and a schedules is prepared separately for each bank mentioning the total number of instruments and the amount of the instruments. Then these are recorded in a register called OUTWARD CLEARING REGISTER then a main schedule is prepared showing the total number of cheque and their aggregate amount being presented in the clearing. The cheque/instruments are handed over the clearing branch. Central clearing branch issue CREDIT ADVICE to the branch for passing credit to its customer immediately. The branch on receiving credit advice debits the clearing account and credits the respective customer accounts.
3. Inward Clearing
On receiving cheque/instruments from central clearing branch, the in charge checks the number and amount of cheque received in clearing must tally with the main schedule received from central clearing branch. This cheque/instrument are entered in INWARD CLEARING REGISTER for the cheque/instrument passed in clearing is a credit advice for the aggregate amount of cheque passed in clearing is prepared, drawn on central clearing branch.
3)
BILLS DEPARTMENT
This department deals in bills for collection for all kinks such as cheque, draft, and pay orders, call deposits etc. with outstation branches of BOP or with other banks. It provides service to their customer to get payment from the nearer bank at nominal charges. The four main heads of bill department is. Outward Bill for Collection (OBC) Inward Bills For Collection (IBC) Outward Documentary Bills For Collection Inward Documentary Bills For Collection
(ODBFC) (IDBFC)
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1. OUTWARD BILLS FOR COLLECTION
Bills department receive cheque or other of bills from its kinks client whose account must be opened in that branch. The branch forwards the check with schedule or covering letter to that branch on which bills is drawn. The checking officer of bills department will cross the cheque with special bank stamp before forwarding the cheque. OBC register is also maintained for proper record keeping of outward bills. This register is updated two times once at the time of receiving bill from clients and the other when the confirmation advice of this cheque is received from the payable branch. Bank gets a commission Rs. 25/- and courier charges Rs. 40/on the service.
2. INWARD BILLS FOR COLLECTION
The branches which receive bill have to verify these bills for payment. The party account must be opened in that branch. The responsibility of this branch is to verify the bills for collection with in three days and send the advice to the originating branch. In case of verification of bills is approved, banks debit the account of the respective account holder and send a debit advice to the originating branch and at the same time credit the head office account for inward bills IBC register is maintaining for keeping the proper record of the bills.
3. OUTWARD DOCUMENTARY BILLS FOR COLLECTION
Originating branch receives the documentary bills from their clients and sent them to out station branches of the same bank or other bank. Customer account must be opened in that branch. The documentary bills are i.e. trust receipt, railway receipt, sales invoice, receipts of courier service etc. bank gets as commission 0.35% plus postage charges plus courier service charges of this service. Seller and producer both can avail the facility of bank in case of selling and purchasing their product or goods.
4. INWARD DOCUMENTARY BILLS FOR COLLECTION
Bank receives the documentary bills from the other outstation branches of the same banks or other banks for collection the amount from purchaser. In this case back acts as a buyer s bank, when bank receives the documentary bills they send intimation to buyer about his arrival of goods. If the buyer is the account holder then bank will debit his account otherwise purchaser deposits the amount of the bills. Bank hand over these documents to purchase, on behalf of which buyer receives the goods. Bank also charges commission
4)
ADVANCES/CREDIT DEPARTMENT
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It is the loan function, which produces the major person of bank s income, and as such it is the major areas of professional banker s concern and attention.
A. PRINCIPLES WHILE ADVANCING
Basically there are five principles that must be duly observed while advancing money to borrowers. y Safety y Liquidity y Disposal y Remuneration y Suitability 1) FORMS OF LENDING Many there are two types of advances: y Short-term (maturity within one year) y Long term (maturity with the period of more than one year) However they are further classified as: y Running Finance y Demand Finance y Cash Finance y Letter of Guarantee 2) RUNNING FINANCE This form of finance was previously known as overdraft . When a customer requires the temporary accommodation, his bank allows withdrawal his account in excess of credit balance, which the customer has in its account, a running finance occurs. The accommodation is thus allowed collateral security. When it is against collateral securities, it is called a Secured Running Finance and when the customer cannot offer any collateral security except his personal security, accommodation is called a Clean Running Finance. The customer is in advantageous position in running finance because he has to pay the mark-up only the balance outstanding against him on daily product basis 3) DEMAND FINANCE This is common form of financing to commercial and industrial concerns and is mad available either against pledge or hypothecation of goods produce or merchandise. In Demand Finance the party is financed up to a certain limit either at once or as and when required. The party due to facility of paying mark-up only on the amount it actually utilizes prefers this form of financing
y y
Ordinary Shares Preferred Shares
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y y y y
Quoted or Unquoted Registered Bearer Inscribed
B. ADVANCES AGAINST IMMOVABLE PROPERTY
A mortgage is the transfer of an interest in specific immovable property for the purpose of securing the payment of the money, advanced or to be advanced. By way of loan, and existing debts or the performances of the engagement this may raise the pecuniary liability The transfer is called the mortgager and the transferee the mortgagee the principal money and interest of which payment is secured for the time being and instrument by which the transfer is affected, is called the letter of the mortgage deed. Agriculture is the largest sector of the economy. It contributes 25 percent to GDP, provides raw materials to 80 percent of industry and employment to over 50 percent of the population. This is a sector that has the shortest gestation period for Investments and, therefore, a remarkable capacity to bring about a turnaround in the economy. This important sector in Pakistan is suffering from a number of maladies and is consequently witnessing stagnation in productivity. Due to policy and administrative exigencies, the savings in the agriculture sector remain low and, therefore, the sector has perpetually remained capital starved. The pricing of input and output in agriculture over the years has forced the majority of farmers in Pakistan to plough back their incomes into agriculture and non-institutional credit, and has more often than not served to sap their potential earnings. Needless to say, that shortage of savings and lack of availability of capital is one of the major reasons for poverty in the country. The agricultural and rural sectors in Pakistan in general and in Punjab in particular are, therefore, suffering from severe under-development. Under a desirable development model, Punjab can: y y y y Increase agricultural production to meet the country's requirement of essential foods items and industrial raw materials. Develop agro-based industry in the rural sector for economic value addition; Generate additional employment opportunities in rural as well as adjacent small towns/cities Elevate poverty and improve the income generating capacity of the agri-based population.
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5)
Remittance Department
Remittance is a major function of the bank. It is the transfer of money from one place to another place. The need for remittance is commonly felt in commercial life particularly and in everyday life generally. By proving this service to the customers the Bank of Punjab earns a lot of income in the form of service charges. The Bank of Punjab deals with the following type of remittances: Demand Draft (DD) Mail Transfer (MT) Telegraphic Transfer (TT) Pay Order Now we discuss all these in detail
1) DEMAND DRAFT (DD):
Demand draft is a written order given by the one branch of a bank on behalf of customer to another branch of the same bank to a certain amount to the certain person. Procedure for Prepare Demand Draft. A draft voucher is filled which contains the following information A credit voucher is filled in order to get the excise duty and exchange commission. The sender deposits the total amount of the two vouchers i.e. the debit and credit vouchers. After authentication the DD is handed over to the sender and bank sends the advice to the concerned branch. So when the party presents the DD in the concerned branch its payment could be made. Parties involved in the Demand Draft The following parties are involved in demand draft; Purchaser or Sender The purchaser is the person who sends the money to a particular person payable at a certain branch. Issuing or Drawing Branch The branch from where the demand draft is issued to another branch of the same bank. Drawer Branch Branch in which the draft has drawn and called upon to pay the amount. 1. 2. 3. 4.
2) MAIL TRANSFER (MT):
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It is the transfer of money from one branch to another branch of the same bank through mail service. In mail transfer there is no need of advice as the amount is directly credited to the receiver s account. Procedure 1. First a voucher is filled in which the sender writes the amount to be sent, name, account number of the receiving person with the branch name and date. 2. A credit voucher is filled in order to deduct exchange, postage charges according to the amount of the mail transfer. 3. The sender deposits the total amount in the cash department. 4. The cash officer gives the vouchers to the officer after affixing received cash stamp and writing the amount in red ink.
3) TELEGRAPHIC TRANSFER (TT):
This is the most urgent method of remitting the money from one place to another place. This method is used when the sender desires to send urgently, in this case the sender request the manager of the branch to issue TT. Procedure; For sending the TT the manager and officer apply a test. In the test the manager and officer uses a coding technique. They write their own code numbers, which is allotted, to them as the bank branch code. After making all the conformation the concerned branch makes the payment to the receiver. If the sender wants to convey the same message through telephone then he has to pay the charges of telephone along with the TT charges. First the person deposit the TT amount along with the charges through the credit voucher then his TT sent to the relevant branch.
4) Pay Order (PO):
A pay order is a written order issued by the bank on its own branch, drawn upon and payable by itself to pay a specified sum of money to the person. The purpose of a pay order is to transfer the fund from one place to another. It is usually not issued in favor of the parties of other cities. Usually the pay order is issued for the local transfer of money from one person to another or from the person to any other department. It is used for different purposes. The purpose may be the repairs of the branch or renovation of the branch
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C.
FINANCIAL ANALYSIS
To analysis the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years. Importance of Financial Analysis Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owner s equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis Ratio analysis is a useful tool for analyzing financial statements. Calculating ratios will aid in understanding the bank s strategy and in understanding its strengths and weaknesses relative to other companies and over time. They can sometimes be useful in identifying earnings management and in understanding the effect of accounting choices on the firm s reported profitability and growth. Finally, the ratios help in obtaining a better understanding of a firm s current profitability, growth, and risk which can improve forecasts of future profitability and growth and estimates of the cost of capital.
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Balance sheet
2008 2007
(Rupees in µ000)
Assets Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other assets
10,685,057 2,178,455 633,333 22,711,980 131,731,158 3,471,838 8,388,162 6,109,137 185,909,120 14,210,302 1,927,662 2,450,000 73,461,695 133,893,585 3,252,759 5,805,097 235,001,100
Liabilities Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities
1,219,801 12,278,773 164,072,532 -30,632 4,564,257 182,165,995 937,647 17,842,915 191,968,909 40,321 2,205,530 3,009,984 216,005,306 18,995,794
Net Assets Represented By
3,743,125
5,287,974
4,230,379 7,427,232 3,452,842
Share capital Reserves (Accumulated loss) / Un-appropriated profit
7,427,232
(7,658,686) 5,056,520
15,110,453 3,885,341 18,995,794
(Deficit) / Surplus on revaluation of assets - net
(1,313,395) 3,743,125
Contingencies and Commitments
INCOME STATEMENT
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(Rupees in µ000)
Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/ interest income Provision against non-performing loans and advances Provision for diminution in the value of investments Bad debts written off directly Net mark-up/ interest income after provisions Non Mark-up/interest Income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on sale and redemption of securities Unrealized gain / (Loss) on revaluation of investments classified as held Other income for trading Total non-markup/interest income Non Mark-up/interest Expenses Administrative expenses Provision against other assets Provision against off balance sheet items Other charges Total non-markup/interest expenses Extra ordinary/unusual items (Loss) / Profit Before Taxation Taxation - Current - Prior years - Deferred (Loss) / Profit After Taxation Inappropriate profit brought forward Transfer from surplus on revaluation of fixed assets - net of tax (Accumulated loss) / profit available for appropriation Basic (loss) / earnings per share (after tax) - Rupees Diluted (loss) / earnings per share (after tax) - Rupees
17,752,969 16,614,000 1,138,969 18,863,580 366,387 19,229,967 (18,090,998)
17,539,094 13,939,377 3,599,717 1,616,421 24,479 246,869 1,887,769 1,711,948
577,630 2,020,896 324,328 733,787 526,185 4,182,826 (13,908,172) 2,799,933 10,101 114,700 2,924,734 (16,832,906) (16,832,906) 207,600 1,052,000 (8,033,001) (6,773,401) (10,059,505) 3,452,842 5,572 3,458,414 (6,601,091) (19.02) (19.02)
653,512 1,804,878 377,233 2,039,535 547,635 5,422,793 7,134,741 2,250,777 292 37,950 2,289,019 4,845,722 4,845,722 169,252 (19,921) 250,772 400,103 4,445,619 3,219,246 5,866 3,225,112 7,670,731 8.41 8.41
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FINANCIAL BUSINESS SUMMARY
2004 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m 1,664 484 1,180 831 1,002 8 1,002 689
2005
2006
2007
2008
2,555 719 1,836 1,097 1,150 47 1,736 1,368
6,125 2,669 3,456 1,331 1,291 331 3,165 2,353
11,579 7,509 4,070 2,954 1,882 374 4,769 3,804
17,539 13,939 3,600 5,423 2,289 1,888 4,846 4,446
Balance Sheet Total Assets Advances (net) Investments Shareholders¶ Equity Revaluation Reserve Deposits Borrowings from FIs Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m Rs in m 43,621 18,344 11,458 3,052 2,155 34,938 2,684 66,320 39,439 16,198 4,420 3,419 54,724 2,832 111,154 63,624 18,026 6,777 6,893 88,465 6,791 164,855 101,320 28,233 10,659 5,467 137,728 6,989 234,974 133,894 73,462 15,110 3,885 191,969 17,843
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Common Size Analysis
Horizontal Analysis
This type of analysis represents the percent change in specific line item of the Income statement or the balance sheet from the last year. This analysis is used to comment on the growth of specific line item in the industry or the firm.
2004 Operating Results Markup/ return/ interest earned Markup/ return/ interest expenses Net markup income Non-markup based Income Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax Balance Sheet Total Assets Advances (net) Investments Shareholders¶ Equity Revaluation Reserve Deposits Borrowings from FIs % % % % % % % 32.2964 63.9065 27.6052 22.5754 55.9165 31.9738 51.9374 34.22648 53.48766 29.26287 30.95023 36.96987 36.15598 5.225989 40.33503 38.01239 10.14091 34.7794 50.39896 38.14051 58.29775 32.57469 37.2049 36.15273 36.41993 -26.0838 35.76833 2.833023 29.84117 24.3282 61.56789 29.45731 -40.7207 28.25508 60.83058 % % % % % % % % -24.399 105.785 9.0678 54.994 4.09182 -575 56.8862 58.7808 34.8728 32.68428 35.72985 24.24795 12.86957 82.97872 42.28111 49.6345 58.28571 73.06107 46.875 17.58077 10.92177 85.8006 45.15008 41.86145 47.10251 64.45599 15.086 54.94245 31.40276 11.49733 33.63389 38.14406 33.98141 46.12956 -13.0556 45.52831 17.78069 80.19068 1.588939 14.43995 2005 2006 2007 2008
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Analysis (Income Statement)
Total earnings mark-up & non mark-up was rising 33% from last year. As deposits and the landings of the banks are rising up. Administrative expenses are increased with a great pace in last few years because of high rate of inflation. Rise in expenses results decrease in the 22% percent profit from last year.
Analysis (Balance Sheet)
Total assets were increased in last few years. 22% increase in the assets from the last year represents growth in the Bank. As bank increase their paid up capital because of which SOE increase at the end of 2006. BOP is grabbing the confidence of their customers results increase in the deposits
Vertical Analysis
It represents the percent of a line item (expenses, tax, interests, dividends) impacts on total revenues.
2004 2005 2006 2007 2008
Markup/ return/ interest earned Non-markup based Income Markup/ return/ interest expenses Non-markup based expenses Provision against NPLs Net profit before tax Net profit after tax
% % % % % % %
66.69 33.31 19.40 40.16 0.32 40.16 27.62
69.96 30.04 19.69 31.49 1.29 47.54 37.46
82.15 17.85 35.80 17.31 4.44 42.45 31.56
79.67 20.33 51.67 12.95 2.57 32.81 26.17
76.38 23.62 60.70 9.97 8.22 21.10 19.36
Analysis
Markup interest earned is increased because of increase in 30% landings from the last year. Net profit before and after tax is decreased because of huge rise up in the admin expenses.
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RATIO ANALYSIS
Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of BOP has been calculated:
Ratios Gross spread ratio Profit before tax to total income Markup/ Interest cover ratio Profit after tax to total income Total assets turnover Return on avg total assets (after tax) Price earnings ratio EPS (Non dilutive) Dividend per share Market value per share Capital adequacy Ratio % % times % times % times Rs./share Rs./share Rs./share %
2004 72 59.19 5.08 46.65 0.06 2.49 7.25 9.08 4 65.9 12.83
2005 56 66.11 2.79 49.16 0.07 2.65 10.23 10.01 5.2 102.45 12.78
2006 35 67.89 1.94 54.16 0.09 2.76 7.71 13.14 3.25 101.25 10.09
2007 21 53.71 1.65 49.27 0.1 2.22 9.31 10.51 3.5 97.8 9.69
2008 6.42 (316.29) 1.32 (189.03) 0.12 (0.05) (0.60) (19.02) 11.50 1.92
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1. GROSS SPREAD RATIO
Gross spread ratio defines the total spread of interest between borrowing and lending.Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds. The higher the spread the higher will be the profit margin. GSR= Rev/CGS GSR= (Mark-up earned Mark-up Expense)/Mark-up earned GSR is 2nd highest all over the globe in Pakistan. GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits.
2. PROFIT BEFORE TAX TO TOTAL INCOME
Operating income less operating cost (profit before tax). This ratio tells what percent of total income is earned before paying all the taxes. BOP has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts. The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking
3. Mark-up/ Interest cover ratio
This ratio tells what percent of interest is covered from the total income of a firm or a bank. It tells the ability of a bank to pay its mark-up to the depositors.. MP/Interest cover ratio= EBIT/Mark-up
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4. INTEREST COVERAGE RATIO
MP/Interest cover ratio= EBIT/Mark-up This ratio tells what percent of interest is covered from the total income of a firm or a bank.It tells the ability of a bank to pay its mark-up to the depositors
5. PROFIT AFTER TAX TO TOTAL INCOME
This ratio analysis tells profitability of a firm after paying all the taxes to total income. Profitability of BOP is increased because of decrease in the tax paid to the govt and of high spread ratio. BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%
6. TOTAL ASSET TURNOVER
Asset turnover= Net Income/ Total assets
This ratio tells the turnover of the asset to generate income. This ratio is increased during last few years which represent increase in the turnover by assets.
7. RETURN ON TOTAL ASSET
This ratio gives an idea of returning net profit generated by the bank in comparison with assets. Return on assets= Profit after tax / Total Assets This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
8. PRICE EARNING RATIO
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Price Earnings Ratio= Market price of a share/ EPS From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm
9. EARNING PER SHARE
EPS = Net Income/ total shares Through this ratio it can be analyzed what percent of 1RS share is earned.
10.
CAPITAL ADEQUACY RATIO
Capital adequacy ratio informs lending up to a certain ratio of equity. This ratio is set by the State Bank of Pakistan.
11.
Return on equity
Profit before tax as a percentage of total equity. The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.
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D.
RECOMMENDATIONS
In this section some recommendations for those students who are planning for an internship at BOP particularly and in any other bank generally. The most important of all is the difference between what we learn from the books i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below:
Working in different departments
During my internship I observed that other internees in the bank use to stick with one department only. An internee with specialization in Finance was of the view that he should be in Finance department same was the case with other specialized Internees. But I would suggest that one must work in every department for some time to gain a hand on experience of all the departments. As in real working environment employee have to coordinate with other departments, so he/she must know what the other departments operations are and how they work.
Relationship between Theory and Practice:
This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks don t prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firm s environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.
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E.
Conclusions
By analyzing the financial statements of the bank, I came across to know that it is one of the most growing banks in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hiring s and between colleagues should be removed.
F.
References
Reference material used for compiling this report is gathered from these sites. www.bop.com.pk www.jpmorgan.com www.kpmg.com.pk www.sbp.gov.pk www.globalbanking.com www.Scribd.com
www.google.com
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