ACKNOWLEDGMENT

Countless thanks to Almighty Allah (The most merciful the most beneficial).
The only creator of universe who enabled me to complete this project, in
spite of various difficulties. All respects to the Holy Prophet (P.B.U.H) who
enable us to recognize our greater and whose spiritual teaching guide us in
every matter of the life.

I am immeasurably, indebted to Professor “Ch. Nazir Ahmed” who kindly

provided program in a good organization like Bank Alfalah Limited. It was
valuable experience for me to do such an interesting work and it was really a
delightful job for me to do.

I am esteemed thankful to Professor “Abdul Rahim” for his guidance and

suggestions in different phases of this study.

A very special thanks to all the people at Bank Alfalah Limited, who helped
me to collect information, which was necessary for the completion of this
report.

Here I would like to mention the name of Mrs.Afshan Naqvi, Mr.Qaiser,

Mr.Najam-ul-Zaman and miss zehra Tayib, all of whom contributed
invaluably and incompliantly to this endeavor.

Once again, I am thankful to all those who directly or indirectly helped me

in writing this report.

1
 PREFACE

The internship is an essential part of M.Com degree program because

through this training students come to know the real difference between
theory and practice and they also introduced to the outside business world.
An important requirement of this training program is to compile a report
about the activities of that organization in which student has done the
internship.

I have done my internship in Bank Alfalah Limited, Kashmir Road, Lahore.

The internship provided me great opportunity to equip myself with
knowledge, techniques, application and tools used in an organization.

I have tried to choose suitable words to lighter the subject of this report.
Because words are the symbols used to express ideas. There are the tools of
affective writing. There importance lies in the power, when they have
suitably chosen and arranged to convey and through to other in language,
that is the understandable clearly and understood readily.

An important requirement of this report is that it should be comprehensive

and written in good style, I have tried my best to make the style of this
report as good, as possible, because style in writing as in other walks of life,
is a quietly peculiar to the individual, as not to people write alike.
Background, training, experience and the way a person thinks determine it.

The source of information for the preparation of report includes the written
notes extracts from banking literature and verbal discussion with bank
officials.

I hope this report will help in understanding various aspects and features of
Bank Alfalah Ltd. and will be equally important for commerce students and
persons making future banking.

Saher Mumtaz
M.Com final semester.

2
 INTRODUCTION

THE BANK

Bank Alfalah during the past five years, has assumed a brand new identify
thanks to a progressive and forward looking approach and revived
commitment following the privatization of H.E.C.B in 1997.
Since then, the Board and Management of the Bank have implemented
strategies and policies to carve a distinct position for the Bank in the market
place.
In a bid to satisfy Bank Alfalah's shareholders and valued clients, the
management initiated the process of realization of the Bank's vision by
consolidating its financial position and creating a large and diversified
business base.
The Abu Dhabi Group, principal owners of the Bank, played a pivotal role in
helping the Bank cross major milestones as a single-source financial services
provider of Corporate and Retail banking solutions.

THE MANAGEMENT

Alfalah’s management is known for their hard work, innovative spirit and
dedication to create exceptional value of the Bank's clients and to keep the
Bank ahead of competition.
With a team of talented, and dedicated professional bankers, the Bank
commits all its energies, resources and time to cater to banking and financial
needs of its valued clients.

THE PRODUCT LINE

Bank’s performance over the years has seen it excel even when faced with
challenging economic conditions. This has been a result of its highly
prioritized and specifically tailored products and services designed to suit
the needs and preferences of our highly valued customers.
True to its strategy of becoming a highly effective financial supermarket,
Bank Alfalah provides a complete range of products to its corporate clients,
commercial enterprises and to the consumers. 
To the larger corporate clients Alfalah offers syndicated loans and structured
financial products.
For commercial entities bank offer current and saving accounts, on-line

3
services, commercial credit, trade finance and speedy and personalized
service.
Our Consumer Banking product range includes successful products like Car
Finance, Rupees Travelers Cheques, Anmol Saving Certificates, Home
Loans for NRPs, Online Banking and Money Gram Remittance service.
To further strengthen our customer's trust in our innovative abilities, Bank
Alfalah is soon going to launch a new range of products including Credit
Cards, Leasing, ATMs Phone Banking and Debit Cards.
Our primary commitment is to understand and support our client's business
objectives and financial needs. At Bank Alfalah, all this is ensured through
constant R & D focus and training & development of staff.

COMMUNITY DEVELOPMENT

Based on client's trust in our performance, our resolve today is to actively

pursue enrichment of Pakistan’s economy through sophisticated products
and high quality service customized to their needs.
This serves to reinforce our vision of carving out a brighter future for
Pakistan, its business enterprises and its people.
The Bank sponsors a number of sporting and community development
initiatives to play its part as a responsible corporate citizen.

THE VISION

Bank Alfalah professes to be a financial supermarket with innovative

products to suit the needs of our corporate customers, commercial enterprise
and consumer banking clients. 
Our Vision is to become a leading financial institution offering complete
banking solutions to our clients, and to maintain a systematic focus in areas
where we have a competitive advantage. Our focus is on improving
performance in each of our businesses to achieve consistent and superior
returns for our highly valued stakeholders

FINANCIAL HIGHLIGHTS

Notwithstanding the taken completion and difficult business climate, the

Bank made significant improvements in its operating results The Bank
earned a pre-tax profit of
Rs.524.164 million, a 31% growth over last year. Our goal is to be a top tier
bank in terms of professionalism, profitability and market position. Returns
on equity, protection of depositors funds and efficient funds and efficient
risk managements are our priority concerns We were successful during 2001
on the further mobilization of resources by attracting low cost and stable

4
deposits. Our deposit base as on December 31,2001 stood
at Rs.30.207 billion as against Rs.20.482 billion at the close of year
2000.We developed innovative and attractive product for our depositors and
offered them branded deposit schemes. The market response to these has
been more than encouraging .We looks forward to an even greater increase
in our deposit base, with the addition of new branches to our network. Our
Loan & Advance portfolio grew by 23.62% to Rs.20.220 billion.
Our objective is to increase revenue while limiting our exposure to risk.
Through disciplined management and careful selection of clients, business
and products we maintain quality and foster productive growth. 
                                                                                                                        

5
 ORGANIZATION PROFILE

Name of the organization: Bank Alfalah Limited

Chairman: H.H sheikh Nahayan Mubarak

Al-Nahayan

BOARD OF DIRECTORS:
 Mr. Omar Z.Al. Askari
 Mr. Abdullah Khalil Al Mutawa
 Mr. Abdulla NaseerHawaieel Al Mansoori
 Mr. Ikram Ul Majeed Sehgal
 Mr. Nadeem Iqbal Sheikh
 Mr. Mohammad Saleem Akhthar

Location: LDA Plaza,Kashmir Road,Lahore.

Telephone: 92-042-6306201-10

UAN: 111-777-786

Fax: 92-042-6368905

Telex: 44651 FALAH PK

Email: [email protected]

Web Site: www.bankalfalah.com

BOARD ADVISORY COMMITTEE:

 Mr. Omar Z. Al Askari
 Mr. Ganpat Singhvi
 Mr. Bashir A. Tahir

EXECUTIVE COMMITTEE:
 Mr. Mohammad Saleem Akhter
 Mr. Ikram Ul Majeed Sehgal

6
  Mr.M. Waqas Mohsin
 Mr. Tanveer A Khan
 Mr. Mohammad Yousaf

AUDITORS OF THE BANK:

M/s A.F. FERGUSON &CO. CHARTERED ACCOUNTANTS

LEGAL ADVISORS OF THE BANK:

 Zafar Laws Associates
 Sajad Law Associates
 Samee & Bilal Associates
 Ansari Laws Associates

7
 BRANCH NETWORK

 KARACHI
 Bahadurabad branch
 Clifton branch
 Cloth market
 Defense branch Karachi
 Gulshan-e-Iqbal branch
 Jodia bazaar branch
 Korangi industrial area branch
 M.A jinnah road branch
 Main branch
 North Karachi industrial area
 North Napier branch
 Paper market branch
 S.I.T.E branch
 Sharah-e-Faisal branch
 Stock market branch
 Timber market branch

 LAHORE
 Allama Iqbal town
 Badami bagh branch
 Circular road
 Credit card center
 Defense branch
 Gulberg branch
 LDA plaza branch
 Shahalam market
 Township branch

 COUNTRYWIDE
 Bahawalpur
 D.G.Khan
 Faisalabad
 Gujranwala
 Gujrat

8
 Head office
 Hyderabad
 Islamabad
 Jehlum branch
 Mardan
 Multan
 Peshawar
 Quetta
 Rawalpindi
 Rahimyar khan
 Sahiwal
 Sialkot
 Sargodha
 Sukkar

9
 HISTORICAL BACKGROUND OF BANK

Bank Alfalah Limited was being formed after going through different
changes. At first the Bank Alfalah Limited was working with the name of
Bank of Credit and Commerce International (BCCI). BCCI was incorporated
in Luxembourg on September 21,1972. At that time its paid up capital was
US $ 2.50 million.
By early 1973 BCCI has established its first four branches in three countries.
1.Luxembourg
2.UAE
3.UK
with the passage of time the branch network of Bank Alfalah Limited was
expand rapidly in different region of the world i.e Far east, Middle east,
Africa, Europe and Western and Latin America.
Its founders were an influential and professional team possessing an intimate
knowledge of East Asian and Middle Eastern countries, particularly those
with oil resources and expertise for sophisticated operation of three most
important elements in the early formation of organization, e.g.
 Investor from the oil producing countries of Middle East.
 A business connection in expanding markets.
 A well developed and fully equipped management structure.

MAJOR FUNCTIONS OF BCCI

BCCI performed the following international function along with the

domestic commercial banking
 International banking services to meet the needs of individual.
 An intermediary bank between importer and exporter.
 Advanced loans for the persons involved in foreign trade.
 Domestic commercial banking services to its clients in shape of
deposits advances the loans and guarantees.
 Due to its prominent position in the middle east the group has been
instrumental in issuing bid bonds, performance bonds etc.
 Advanced computer system to facilitate the clients.
 Provisioning of effective services of foreign trade.
 Bills for collection, inward and outward both clean and documentary
are attached by BCCI, which provide fast and efficient remittances

10
 operations from many third world countries to multinational
corporations.

BRANCHES OF BCCI IN PAKISTAN

There were three branches of BCCI in Pakistan. These were

 Karachi
 Lahore
 Rawalpindi

The Lahore branch was opened on 15th December 1978. This branch was
opened at that time when some other international banks like Citi Bank,
Bank of America, and American Express etc. were already working. But
within a few years this branch crossed mostly all the other banks in case of
deposits, advances, imports and exports dealings, guarantees, traveler’s
cheque sales etc.

LIQIUDATION OF BCCI

BCCI was liquidated on July 5,1991.At that time BCCI was opening in
almost 69 countries in the world. When financial authorities launched a
coordinated swoop in what was alleged to be the biggest international fund
in history.

INCORPORATION OF HABIB CREDIT AND EXCHANGE BANK

(HCEB)

In July 1991, the branches of BCCI in Pakistan at that time took over by
ministry of finance and SBP. All three branches were emerged in HBL after
valuation of its assets for 15 million dollars. It worked with Habib Bank Ltd.
For around about 10 months from 14 March 1992 to 31st October 1992.

PRIVATIZATION OF HABIB CREDIT AND EXCHANGE BANK

HCEB was privatized on July 7, 1997. Management was taken over by Abu
Dubai based Alnahan consortium. This consortium consists of foreign
investors of UAE and highly professional Pakistani bankers. Mr.Sheikh
Pervaiz and Mr. Omer Khan represent this consortium in Pakistan. The bank
was sold for Rs.39 per share for buying 70% shares.
The government decides to sell 10% shares to employees and rest of the
shares was privatized by stock exchange.

11
EMERGANCE OF BANK ALFALAH LTD.

Following the privatization in July 7,1997 Habib Credit and Exchange Bank
assumed a new identity of Bank Alfalah on February 25,1998. Bank is
committed to develop products that give more value to its customers. With
its deposits already soaring by more than 40% after privatization, Bank
Alfalah has embarked upon expansion program to ensure physical presence
in all cities of Pakistan. With a team of talented, service dedicated
professional bankers, Bank Alfalah commits all its energies, resources and
time to cater to all banking and financial needs.

STATUS AND NATURE OF BUSINESS

Bank Alfalah Limited was incorporated on June 21,1992 as public limited

company under the companies ordinance 1984 and it commenced banking
operation from November1,1992. It is engaged in commercial banking
related services as defined in the banking Companies Ordinance 1962.

12
 MANAGEMENT SYSTEM

It is fortunate for Bank Alfalah Limited that the leaders e.g. the top
management is very much qualified and has the ability to lead in a good and
effective manner. In Bank Alfalah Limited all kinds of policies and
strategies are formulated and worked out by the board of directors and the
executive committee. The leadership style at Bank Alfalah can rightly be
mentioned as the customer oriented. Some individual persons have some
leadership traits in their personality. The top management should have a
contact with such persons, as it will help them in achieving their objectives.

MISSION STATEMENT
The bank has the same mission of Habib Credit & Exchange Bank and the
BCCI. The following are the main points of mission statements of the Bank
Alfalah.
 To provide best banking services to its clients.
 To earn maximum profit for its shareholders.
 To make maximum contributions in national savings.

OBJECTIVES OF THE ORGANIZATION

Objectives are the ends of towards which all activities of the organization
are directed. Without a clear objective no organization can survive in the
competitive business environment. Any organization involves in business
has profit earning as the most important and primary objective. So the
primary objective of Bank Alfalah is the profit earning.

13
 MANAGEMENT HIERARCHY

CHIEF MANAGER

MANAGER
OPERATIONS

Manager Accounts Manager Credits

Manager Administration Manager SAM*

Manager Foreign Currency Manager General Banking

Accounts

Manager International Manager Marketing

Banking

* SAM (Special Asset Management)

14
 STRUCTURE OF VARIOUS DEPARTMENTS

1. ACCOUNTS DEPARTMENT

MANAGER ACCOUNTS

Officer (1) Officer (2) Officer (3) Officer (4)

BRIEF DESCRIPTION

OFFICER (1)
Is principally engaged in following three types of functions:
 Daily funds management
 Various type of reporting
 Monitoring of new and old foreign currency forward contracts with
SBP.

OFFICER (2)
Is responsible for daily activity checking

OFFICER (3)
Is responsible for making daily weekly and monthly reporting to different
types of Bank’s operation.

OFFICER (4)
Is responsible for applying test keys for security of foreign remittances

15
2. CREDIT DEPARTMENT

MANAGER

CREDIT MARKETING CREDIT ADMIN

Office In charge
Credit Officer (1) Credit Officer (2)

Officer (1) Officer (2)

Credit Officer (3) Credit Officer (4)

Credit Officer (5)

BRIEF DESCRIPTION

 CREDIT MARKETING
o In credit marketing there are five officers who work jointly and
are responsible for:
o Marketing activities
o Making credit proposals to send to head office for sanctioning
 CREDIT ADMIN

In credit admin there are two officers one of them is responsible for scrutiny of
loans, which are to be dispersed, and other one is monitoring of repayments
schedules as monitoring accruals of markup etc.

16
3. FOREIGN CURRENCY ACCOUNTS

Head of Department

Officer 1 Officer 2 Officer 3

BRIEF DESCRIPTION:

OFFICER (1)
Is responsible for cancellation of cheques drawn on foreign currency accounts and
deposit of foreign currency.

OFFICER (2)
Is responsible for foreign remittances both inward and outward

OFFICER (3)
Is responsible for cases of Special US Dollars Bonds

17
4. TRADE FINANCE

HEAD OF DEPTT.

EXPORT IMPORTS

E-Form Collection LC Opening LC Return

Checking Officer Officer Officer

Export Refinance
Officer Negotiation

Scrutiny & Lodgment of

Documents

Scrutiny & Lodgment of

Documents

BRIEF DESCRIPTION
Imports section
In imports section there are two Officers one of them is responsible for LC
opening and other is for LC return
Exports section
In exports there are six officers as follows
 First one is responsible for E-form certification and LC advising
 Is responsible for realization of exports
 Is responsible for collection of document under/without LC
 Is responsible for exports refinance
 Is responsible for scrutiny of lodgment of negotiable documents
 Is responsible for realization of negotiable document

18
 ACCOUNT OPENING DEPARTMENT

The primary function of a commercial bank is to receive deposits and

advance loans. Deposits are the lifeblood of a bank. These are also the main
source of bank’s funds.

WORKING OF DEPOSIT DEPARTMENT

The deposit department deals with the following functions;
1. Opening of new accounts
2. Issuance of cheque books
3. Miscellaneous function

ACCOUNT OPENING
The bank open the account of its customers which includes
 An individual
 A firm
 Company
 Corporation or association

ACCOUNT OPENING PROCEDURE

In order to open the account with the Bank Alfalah Limited a proper method
is followed for this purpose. For account opening a proper method is
followed mainly in following steps
 First of all a customer must have his original identity card (in case of
residents customer) and original passport (in case of nonresidents
customers).
 The client is provided with a set of forms containing account opening
form, SS card and requisition slip to be filled.
 The forms are properly verified.
 Then the customer is allocated an account no.
 In order to operate the account a cheque book is issued to the
customer.
Now we discuss the particulars of these forms one by one.

1. Account opening form

This form contains the following details;
 Currency in which client wants to open account (e.g. local or foreign).
 Types of account (saving or current or royal profit account).
 Title of account (name of account holder) and his address.

19
  Nature of account (single or joint), in case of joint accounts the
required details of joint account holder.
 Name & address of nominee/next of kin (the person who is legally
entitled to receive the balance in case of death of account holder).
 Type of organization, if any (partnership, sole proprietorship,
club/society/association, or company that may be either limited, or,
public, or private etc.
 Details of other accounts, if any.
 Undertaking to be filled by the client to abide by the terms and
conditions of bank.
 A mandate to be filled by the joint account holders.
 A list of required documents for limited co., partnership or society is
given at the end.

2. SS card
Along with the account opening form, specimen signature card is to be
filled
Requiring the following details;
 Type of account (saving/current/royal profit)
 Telephone number
 Nature of account
 Operating instructions (in case of joint account)
 Specimen signatures

2. Requisition slip
This slip is filled for getting cheque book issues.

ISSUANCE OF NEW CHEQUE BOOK

After an account holder uses his chequebook completely, he can apply for
another. The procedure is as follows;
 He takes the requisition from the old chequebook and submits to the
bank after filling it.
 The officer will match the signature in the bank’s record.
 If the sign matches, the chequebooks according to the account type are
issued, as separate chequebooks are maintained for different accounts.
 After issuing the entry is made in the register as well as in the
computer.

20
MISCELLANEOUS FUNCTIONS

The deposit department deals with several other miscellaneous functions

such as;
 Closing of account
 Amendments in the account
 Letter of thanks

Closing of account
For closure of account, the customer has to request the bank by written
application. He surrenders the remaining cheque book to the bank. He has to
submit Rs.200 if he is closed within 6 months from opening.

Amendments in account
If the customer wants to make change in the address or any details or change
authority for account operating, he has to fill a letter for that he changes or
fill the mandate with the bank.

Letter of thanks
At the end of the day, the letter of thanks is issued to the new account
openers and also to the introducers.

TYPES OF ACCOUNT
BAL opens the following accounts;
 Current account (both in foreign and local currency)
 Saving account (both in foreign and local currency)
 Royal profit account ( in pak. Rs.)

CURRENT ACCOUNT
Every bank maintains the current account with its customers;

“A current account is running account which is continuously in operation by

the customer on all working days of the bank”.

The customer withdraws money from current account without prior notice to
the bank. In short, in current account, the banker incurs an obligation to
honors all the cheques drawn by the customer so long as there is enough
money to credit of the client.

21
Interest on current account
The banks don’t usually pay any interest on current account in local as well
as foreign currency. The amount can be withdrawn at any time, so the bank
can’t comply these funds due to fear of withdrawal.

Who are interested in opening current account?

The current account is operated by traders, business companies, institutions,
public bodies, industrialists who
 Wish to have working capital in their custody
 Like to receive and make payments through cheques
 Are interested in keeping their money liquid and safe
 Utilize the agency services of the bank frequently

Advantages of having current account

The customer gets the following advantages on behalf of current account;
 The bank collects properly endorsed cheques on behalf of current
account holders
 The bank may allow the facility of overdraft on prior arrangements to
the trustworthy customers.
 Loans and advances may be sanctioned to the creditworthy clients
with ease.
 On line facility alternative of cash transaction is also provided to
customers having min. balance of Rs.500,000/- in their current
account.

Initial deposit
The minimum initial deposit for current account in local currency in
Rs.1000. where as for maintain current account min.Rs. 5000 is must;
otherwise the bank will take Rs.200 for not maintaing account properly.
Initial deposit in foreign currency current account is US$ or UK pound 500.
Summing up, the current account doesn’t earn but serves the cause of
industry trade and commerce.

22
SAVING ACCOUNT
Saving deposit account is an ideal account for those who have money to save
but cannot profitably invest it anywhere else, as amount is too small.

Saving deposit is an important source of fund for commercial banks. It is

opened to encourage thrift among the persons of small means. Saving
account is opened both in local and foreign currency.

Withdrawal of amount
The depositors are normally allowed to draw a limited amount of money
only twice a week. If a customer wants to withdraw a large sum of money,
he then has to give a prior notice of 7 to 15 days in writing to the bank.

The bank can safely invest the deposits of saving account, as it knows that
only the customer withdraws a small percentage of this account.

Interest on saving account

On Pak. Rs. Account the bank usually pays interest according to prescribed
rates by the central bank. This amount is credited to the customer’s account
after every 6 months. The rate doesn’t remain the same but fluctuates due to
many reasons e.g. conditions of the bank, bank’s total deposit’s position,
inflationary and deflationary powers in the economy etc.
The rate of interest on foreign account is as follows;
 US$ saving account (new) 2.25%
 UK pound saving account (new) 2.00%
 While interest rate on the old foreign currency accounts is 1.00%
both for initial deposit, while in foreign currency account the
minimum amount is 500$ or p.stg.

ROYAL PROFIT ACCOUNT

Royal profit account is just like the saving account with the following major
differences;
 The royal profit account is opened only in local currency.
 Minimum balance for opening royal profit account is Rs.25000/.
Rate of profit is higher.

23
 CASH AND DEPOSIT

As name implies this is preliminary deals with the cash, which involves
payment of cheques issued by the customer and receipt of the cash deposited
by the customer and receipt of the cash deposited by the customers in their
accounts.

The procedure involved in payment and receipt of cash is given below.

Cash payments

Payment of cash to customer involves the following procedure

1. The cheque is presented to the cashier first, who takes care of
following precautions
a) It should not be out dated.
b) There should not be any crossing on it, if so the signature should be
with cutting.
c) Two signature of the customer receiving the cheque should be in the
back of the cheque.
d) There should not be any difference between the amount and figures
e) It should not be crossed.
2. The cheque is entered in the computer by the cashier and customer
account is debited.
3. If the amount of the cheque exceed the customer balance in that
account a note regarding this will automatically appeared on the
computer screen. Such entries are immediately scratched.
4. Finally the cheque goes to the officer, who first, checks the signatures,
whatever it is according to the specimen signature card, he will also
check the conditions mentioned in no.1. If he has any doubt he will
reject the transaction. Otherwise he authenticated the transaction and
sign on the cheque.
5. The cheque is finally returned to the cashier for payment.
6. If the cheque is dishonored due to any reason Rs.200 is deducted from
the account of the customer as a penalty for that return.
7. At the start of next day all the cheques, which are honored by the bank
on previous day, are sent to account department for permanent record.

24
Stop check report
At the end of the day, a stop check report is prepared which is used in the
next day. This list is fed in the computer. This report indicates the special
instructions made to honor the cheque drawn by him to any reason.

Lien marked
Lien marked means a certain amendment, which is freezing in the account of
the customer. So the customer has to keep minimum cash balance with the
bank. Lien is marked usually when the customer has taken a loan from bank
or he is required to deposit a margin amount for the issuance of letter of
credit.

Debit Cash Vouchers

When the cash is deducted from a certain account by the instruction of bank,
a debit cash voucher is prepared. Debit cash voucher must be signed by the
two responsible bank officers with the reason for deduction of cash
mentioned on it. Usually debit cash voucher is prepared for the payment of
expenses like salary of clearing staff, payment of demand draft etc.

Cash Paid Register

When all the cheques are paid then all entries regarding payment of cash is
entered if the cash paid register by the cashier & total payment during the
day is computed. This sum is then subtracted from the opening balance of
the cash. The responsible officer then verifies all these entries.

Receipt Of Cash
Receipt of cash involves the following procedures.
1. All the cash is deposited on a specific deposit slip. The depositor has
to mention specific deposit account number, name of the account
holder and the amount which he wish to deposit in his account on this
slip.
2. This slip is presented to the cashier along with the currency note, he
count the notes and stamp the slip with “cash received” if he is
satisfied, then he enters the slip in the computer by crediting the
account.
3. Finally the trans action regarding deposit of cash is authenticated by
the responsible officer and put his signature on the slip. Now the
transaction is permanently stored in the computer.
4. At the start of next day all deposit slip of the previous day is sent to
accounts department for permanent record.

25
Cash Received Register
At the end of day when all the cash has received it is manually entered in a
cash receipt register. This sum is added in the opening balance of the cash
and hence closing balance is calculated.

Physical Checking of Closing Balance

(opening balance + receipt – payment) is physical checking by cashier after
closing hours. There should not be any difference between the two balances,
if any he is not allowed to leave counter unless the reason for difference is
traced out.

Cash Required In Emergency

A certain amount of cash is kept in bank lockers for meeting daily
requirement but if any further cash is required in emergency due to some
heavy payment, such cash is called from other branches or from ABP. Such
cash reached within one or two hours.

GOVERNMENT SECURITIES

This department is handling in purchase and sale of Government securities

i.e. Defence saving certificate and special saving certificate. The profit for
DSC is given after one and year and for SSC is given after six months.

26
 CLEARING DEPARTMENT

Function:
The major functions of clearing department are to receive the cheques,
which are drawn on some other bank. The customers can get many cheques
in his account at BAL from the cheques drawn on other banks. The bank
accepts these cheques and collects the amount from other bank. Bank
charges some commission of these facilities. This department is controlled
by the operation Manager or the Head of the department.

PROCEDURE FOR CLEARING OF CHEQUES

1.Pay-In-Slip:
The customer fills pay-in slip; this slip is just like deposit slip. The cheque
number, account number and amount must be mentioned in this slip.

2.Stanping and Scrutinizing:

The officer on receipt of cheque will stamp ‘cheque received’
and give a portion of slip to the costumer and remaining portion of attached
with original cheque. The following stamps are affixed in the cheque.

(i)BANK ALFALAH LIMITED

(ii) OBC’ out ward bill for collection’

At the end of the day all cheques are counted and then scrutinized bank wise
and sent to clearing house.

3.Clearing HOUSE:
This is a facility provided by SPB by acting as clearinghouse. A
representative of all bank gathered daily at evening. Each bank collects the
cheque on behalf of their customers and handed over the cheques, which are
not drawn on their bank, to their representatives. Clearinghouse is present in
all major cities and where their branches of SPB the National Bank Of
Pakistan provides this facility.

27
Types Of Clearing

1.Inward clearing
2.Outward clearing
3.With in bank transfer

Inward Clearing:
Inward clearing means the cheques, which are to be honored by bank, which
are received through other bank representative. These cheques are honored
by the same process mentioned in each department.

Outward Clearing:
Outward clearing means the collection of cheques on behalf of draw of
customers drawn of other bank. Outstanding cheques are sent through SMS,
courier or registered post to their original source. All the risk and
responsibility for the lost of cheques are born by customer.

With In Bank Transfer:

If the cheque is drawn on BAL with in of same branch or any other branch,
it is called with in bank transfer. Such cheques are marked with ‘Transfer’
stamp.

28
 FOREIGN CURRENCY ACCOUNTS

This department deals with foreign currency. Working in foreign currency

department is as follows:
1. Account opening in foreign currency
2. US$ bonds
3. Foreign remittances
 Inward remittances
 Outward remittances
4. Issuance of foreign currency traveler’s cheques
5. Term deposit receipts (TDR)
6. Bills for collection

1.ACCOUNT OPENING IN FOREIGN CURRENCY

BAL opened foreign currency accounts both current account and PLS saving
account of it’s customers.
The procedure for opening the foreign currency account is the same as local
currency account except that minimum requirement for to open foreign
currency account in BAL is US$ 500/-

2.US $ BONDS

The US $ bonds are issued by foreign currency account department only to

those account holders whose accounts were frozen on 28 May,1998.

Types of US$ Bonds

 Special US $ bonds
 US $ bearer bonds

The major difference between these is that any person who holds the bond
can receive the profit of bearer bonds. But the profit of special US $ bonds
can be received only by the legal holder of the bond whose name is written
on it.

3 years 5 years 7 years

May 1998 Libor+2% Libor+3% Libor+2%
1998 to 02/09/99 Libor+1% Libor+1.5% Libor+1%

LIBOR: London inter branch offered rates

29
Denominations
The worth of bond also varies. It may be of US $100,1000,10000 & 100000.
These are issued for 3 years, 5 years and 7 years respectively.

Profit on US $ Bonds
The profit is calculated according to LIBOR that is received daily.
Bondholder is entitled to receive profit after every six months.
Profit is paid by two methods;
1. Cash debit vouchers
2. Party credit vouchers

Encashment of US $ Bonds
On maturity bank send a request to state bank for encashment of money.
There are three methods of encashment:
 5% premium
 In dollars
 Reinvestment

3.FOREIGN REMITTANCES

 Inward remittances
BAL receives the inward remittances in the form of foreign telegraphic
transfer only.
The following procedure is applied;
1.A telex message is received from abroad showing the following details
 Originator’s name
 Beneficiary’s name
 Beneficiary’s bank
 Beneficiary’s account number
 Value date
 Amount (in US$ or p. stg)

2. A particular test is applied on the face of FTT by foreign bank that has to
be testified by BAL. (Test is a language of signs and symbols use by the
different banks of the world and confirm that particular FTT has been
received from that bank)

3.After the bank verifies the test, the bank will debit the account due from
treasury and credits the beneficiary’s account.

30
  Outward remittances
Outward remittances can be made by two ways
 Through foreign telegraphic transfer (FTT)
 Through foreign demand draft (FDD)

Foreign Telegraphic Transfer

For getting foreign telegraphic transfer issued the person must be an account
holder of the bank.

Procedure of issuing FTT

1. First, the client has to fill an application from mentioning the
following details:
 Originator’s name
 Beneficiary’s name
 Beneficiary’s bank
 Beneficiary’s account number
 Amount in foreign currency
 Equivalent Pak. Rupees
 Value date

2. The bank will deduct its charges and prepare the telex message
showing the same
details.
3. Then the test is applied and is sent to AMEX Karachi and from
they’re onward to AMEX New York.
4. AMEX N.Y will pay to intermediary bank (the corresponding bank of
beneficiary bank in New York).
5. On getting intimation of payment, the bank debits the party’s account
and credits the due from treasury account.

Foreign Demand Draft

The facility of outward remittances can be provided in form of foreign
demand draft (FDD).

Conditions
1. The originator must be foreign currency account holder.
2. The foreign demand draft must drawn on some bank;
 HBL N.Y (in case of US $)
 HBL London

31
Procedure of issuing FDD
 The client has to fill an application form
 The bank deducts the following charges

US $ or equivalent Pak. Rupees in case DD through

debit of account

US $+0.5%(min. 5$ or equivalent Pak. Rupees) Against surrender of foreign

currency notes

 A cheque is required drawn in favor of BAL to authorize it to debit

the client’s account.
 Due from treasury account (in case of new foreign currency account)
 Head office account (in case of old foreign currency account)
 After fulfilling the requirements the demand draft is handed over to
the client showing all the details.

Cancellation of foreign demand draft

 The bank deducts the following charges in this relation

 On the cancellation Rs.200+actualtelex and postage charges
 On issuing duplicate demand draft RS.200 + actual telex and
postage charges

3.FOREIGN CURRENCY TRAVELERS CHEQUES

BAL issues foreign currency travelers cheques in US$ to the foreign

currency account holders.

Types of Traveler’s Cheques

Two types of traveler’s cheques are issued;

 Traveler’s cheque through foreign currency account
 Traveler’s cheque issued through travel quota

32
  Traveler’s cheque through foreign currency account
In this case, the traveler’s cheque is issued through debiting the account of
the client.1% commission is charged by the bank on the total amount of
traveler’s cheques.

 Traveler’s chequs issued through travel quota

In this case the traveler’s cheques are issued by
 Private travel quota
 Business travel quota

Private travel quota

In this method, traveler’s cheques are issued on the basis of visit visa of the
client.
 The client has to fill the form T-I showing the following details;

 Name of the client

 Ticket’
 Passport
 Visa
 Amount
 Endorsement is done on the ticket and on the passport to show that

particular traveler’s cheque has been issued on the travel quota basis.
 Through travel quota max.2100 $ (51$ x 42 days) are issued on the

inter-bank rates provided by state bank of Pakistan.

Business travel quota

Through business travel quota, the client fills the form T-II verified by any
trade union that the particular person’s aim is to expand the business abroad
on behalf of his firm/organization. 1% commission is charged by the bank.

Encashment of Taveler’s cheques

The encashment is only done in the following cases:
 It traveler’s cheques had been issued by the same bank.
 If party has the good credit standing.

Cancellation of Traveler’s cheques

The cancellation is done in the following conditions:
 The client surrender’s unused quota.
 Reported to Sate Bank of Pakistan.
 Passport is endorsed showing the number of unused days.

33
  Traveler’s cheques can be cancelled if more travelers’ cheques have
been issued by mistake of the bank officer.

4.TERM DEPOSIT SCHEME (TDR)

The term deposit receipts (TDR) is very similar to term/fixed deposit in

which money is kept for a certain specified period (Maximum up to 1 year)
on fixed rates. These rate varies with the duration. The following rates are
applied:

New foreign currency accounts Old foreign

currency accounts

30/90 days 2.50% 1.25%

180 days 2.75% 1.75%
365 days 3.00% 1.50%

TDR deals with

 Royal Patriot
 Term deposit

ROYAL PATRIOT
This is the one of bank’s products. The main difference between royal
patriot and term deposit is that rate for royal patriot varies with period of
deposit as well as amount.

TERM DEPOSIT
These are classic profit & loss-based deposits, where bank and client share
profit and loss.
Minimum limits for these schemes are:
 Royal patriot Rs.25000
 Term deposit Rs.25000 (classic PLS deposits)

Cancellation of Term Deposit Receipts

2% charges are deducted on cancellation, on the remaining period of TDR.

34
 6. BILLS FOR COLLECTION

This department deals with the outstation cheques and payments. All
clearing of these cheques and payment is done by clearing section of cash
department through NIFT. The department keeps record and prepares
vouchers for incoming & outgoing cheques for collection purposes. So this
department has two major dealings in
1. Outward bills for collection (OBC)
2. Inward bills for collection (IBC)

Outward Bills for collection

These are the cheques presented Bank Alfalah Lahore branch but are drawn
on different banks/or our bank branch outside Lahore. The amount is
collected on these cheques.

Inward Bills For Collection

These are the cheques drawn on different banks/Bank Alfalah in Lahore but
are presented in our banks outside Lahore. So, tha bank has to pay the
amount on these cheques.

35
 CREDIT DEPARTMENT

INTRODUCTION
The credit department plays a key role in a bank it earns considerate income
in form of mark up on its advances.

SECTIONS
The credit department has been sub-divided into two sections
1.Credit Marketing
2.Credit administration & Monitoring

1.CREDIT MARKETING

The main function of this department is to market a customer for the bank.

Credit Policy of the Bank

The credit policy of any banking institution is the combination of certain
globally and locally accepted time standards and other dynamic factors
dictated by realities in ever-challenging market and industry.

“The extension of a credit facility should add value to the bank’s assets”
should be borne by the bankers. For this purpose the bank takes special care
for judging the
1.Ability to repay
2.Willingness to pay

1.Ability to pay
The ability of a client to repay can be judged by the financial statements of
the customer’s company. To avoid the danger of fake statements the SBP
has put on some regulations on all the banks, which are called as prudential
regulations. Every financial institution is bound to follow these rules in
advancing loans, e.g. all the credit institutions is bound to lend the customers
having current ratio of their assets equal to minimum 1:1.

2.Willingness to repay
The willingness to repay can be determined by verbal discussion with him or
CIB (credit information bureau) report.

36
TYPES OF BORROWER
Individuals
 Existing account holders
 Staff members
 Relatives of staff members
 Employees of other banks
 Joint account

Business entities
 Sole proprietorship
 Partnership
 Limited companies
 Joint ventures
 Group accounts

Other accounts
 Traders
 Club/associations
 Federal, provincial, local government bodies
 Manufactures

Steps Taken in Advancing Loans

The following are the steps taken in advancing loans to its borrowers;
 When customer is marketed, the officer takes a sort of interview from
its prospective customer.
 The request is written form is received and a visit report is prepared.
 If viable, the request is given to the credit officer.
 Then the bank request is given to the credit officer.
 Then the bank requests the SBP to provide him the CIB report of the
customer.
 If irregularity occurs the proposal is returned to the customer for
regularization/rectification, and if not then CLP (credit line proposal)
is prepared.

Facilities provided by the Bank

The credit marketing provides the customer only with non-funded facilities,
i.e. Letter of Guarantee.

37
GUARANTEE
A guarantee may be defined as
“An undertaking given by a person to be answerable for the debt, default or
miscarriage of another person”.

Advances against guarantee

Guarantee as a security for advances arises only when the borrower is not
able to satisfy the bank for his credit worthiness. The banker will ask for
guarantee only if acceptable collateral securities are provided to him.

Parties of a guarantee
Are as follows

I. Guarantor
The person who gives the guarantee.

II. Creditor
The person to whom the guarantee is given.

III. Principal debtor

The person for whom the guarantee is given.

TYPES OF GUARANTEE

 Performance bond
When the contact is on performance basis.

 Bid Bond
When the applicant is bidding for a contract. In this case.2% of the
amount of bid has to be substituted to the bank.

 Retention Money Guarantee

In which certain %age of money is withheld pending for satisfactory
performance.

 Advance Payment Guarantee

In which, the applicant assures the beneficiary for an advance
payment up to signing a deal.

38
 PROCEDURE FOR ISSUING LETTER OF GUARANTEE

 The letter of guarantee is opened on request of customer, who is a

current account holder of the bank.

 In letter of guarantee all the relevant details are mentioned.

 A customer guarantee is taken from the customer authorizing the

bank to sell out the securities held with the bank in case of default.

 The bank requires a letter of Lien, pledge and authority for shares,
stocks and securities in case the security is deposited is other than
margin (cash).

 The guarantee is issued in the name of creditor on a stamp paper

after all the legal documentation showing the date of issue, expiry
amount, reference of the contract between debtor & creditor.

Commission of the Bank

The bank charges commission at a fixed rate i.e. . 0.5% per quarter on the
amount of guarantee.

EXPIRY OF LETTER OF GUARANTEE

When the period for which the letter of guarantee was issued expires, the
customer brings the letter of guarantee back to the bank. The bank cancels
the letter of guarantee by drawing two lines across the face of it.

2. CREDIT ADMINISTRATION & MONITORING

The credit administration & monitoring department performs many

functions. Some of them are
a) Perfection of securities
b) Perfection of legal documentation
c) Management information system (MIS)
d) On going monitoring of account
e) Facilities provided by the bank

39
(a) Perfection of securities
The main function of this department is the security consideration.

SECURITY
“A security is an interest or right in property given to the creditor to convert
it into cash, in case debtor fails to meet the principal amount & interest on
the loan”.

MODES OF SECURING ADVANCES

 Hypothecation
 Pledge
 Mortgage

1.Hypothecation
It may be defined as

“A legal transaction whereby goods may be made available as security for a

debt without transferring property or possession to the lender (bank).”

The advancing against goods without taking their possession is very risky
for bank on two grounds;
 As the goods are in the custody of the customer (owner), the borrower
may take out the goods without informing the bank.
 Secondly, the bank does not have legal claim as it does not have a
valid charge over the goods.
Therefore the bank takes special care in this case.

Rights of the Bank

The bank can exercise the following rights in case of hypothecation;
 The bank has the right to inspect the godowns. It can also demand
periodic report of the stock.
 The hypothecation goods are to be issued by customer. In case the are
not insured the bank has right to get them insured and recover those
charges from the borrower.
 In case, the bank finds the contract is being violated, it has the right to
obtain stop orders from appropriate authority.

2.PLEDGE
It can be defined as:
“A pledge is a contract whereby a good is deposited with the lender as
security for repayment of the loan”.

40
Transferring the goods from owner’s godowns may make the delivery of
goods or keys of owner’s godowns are handed over to the bank or his
appointed Muccaddam. (Muccaddam is the organization providing the
facility of agents on behalf of banks. The appointed Macadam must be on
the list of approved Macadam’s).

Rights of the Bank

The bank can exercise the following rights in case of pledge;
 The bank can retain the goods pledge not only for payment but also
for the interest and other charges incurred by bank.
 In case of default of customer the bank can dispose of the goods after
giving proper notice to the borrower.
 The bank has the right of full value of goods till such time; the entire
debt is not discharged.

3.MORTGAGE
It ‘s means
“A mortgage is the transfer of interest in a specific immovable property for
the purpose of securing money advanced by the way of loan, an existing of
future debt”.

Condition
The main condition for mortgage is that only the immovable property can be
secured. The lending of money on real estate (immovable property) is not
very popular with most of the commercial banks. However in the last few
decades the loan on real estate are growing.

Difficulties faced by the bank in case of mortgage

The bank has to lock their funds in the loans having long-term maturity. The
loans on real estate lack liquidity. In case of their default, there are no
organized markets where that property and amount recovered to pay off the
loan. Since other for unpopularity are as under;
 Legal hindrances
 Heavy expenses of legal mortgage
 Lack of liquidity
 Difficulty in valuation
 Delay in recovery of loans
 Finding of tenants and their repairs costs

41
Preliminary inquires for advances against mortgage
To secure its position, the bank takes into account the following inquires in
case of real estate;
 Proper valuation of real estate
 Inquiry about title to property
 Preparation of title deed
 Search for prior charges

(b) Perfection of legal documentation

In this department the documentation is checked and analyzed, whether all
the terms and conditions are as per the contract between the customer and
bank and no clause of contract causes may harm to bank’s interest.

(c) Management Information system

The basic purpose of this department is
1. Reporting to state bank of Pakistan about various details of bank’s
advance position that helps in preparing the ultimate CIB report.
2. Reporting to government about total financing of bank for various
purposes.
3. Reporting to head office on daily, weekly and monthly basis about
 Credit position of each and every customer
 Total financing of the bank in the cotton & textile sectors
etc.

(d) On Going Monitoring of Customer’s Account

It is the inspection of customer’s account and monitoring securities from
time to time.e.g.
 Godowns inspection in case of pledges
 Analyzing client’s report about hypothecated goods
 Project examination for which the guarantee has been taken
 Interim review

(e) Facilities provided by the bank

The credit administration provided the customers with the following fund
based facilities;

1.Current Finance/Running Finance/Overdraft

“An overdraft is the right given by a bank to his customer to draw in excess
of his current account up to a certain fixed limit”.

42
Condition
The bank gives the facility to overdraw by cheques allowed only in current
account. The CF or overdraft facility enable a customer to draw over and
above his own balance up to the extent of limit as agreed, e.g. if there is a
credit balance of Rs.6000/- in the current account of Mr. A and he is
sanctioned an o/d limit of Rs.10,000/-, he can draw up toRs.16,000/- by
cheques.

Interest
The customer is given the option to withdraw this amount either in
installment or in lump sum. The interest is charged only on the –ve balance.

Procedure of granting Current finance

The bank does not provide the facility of CF to all the customers.
 The bank scrutinize the application
 Examine the credit worthiness of client
 Then approves the upper limit to overdraw the current account with or
without the security. But generally security is demanded.

2.Term Finance/Cash credit

“A cash credit is an arrangement by which a bank allows his customer to
borrow money up to a certain limit”

The banker determines the limit of TF on considering

 The nature and scope of activities of customer
 Total turn over of business
 Value of assets & liabilities
 Evaluation of securities offered
 The purpose of loan applied for

Condition
Term finance is self-liquidity commercial loan. Arrangements are usually
made against the securities of goods hypothecated or pledge with the bank.

Procedure of granting Term Finance

1. It is a contractual advance and is operated through a separate TF
account.
2. It is advanced to commercial and industrial concerns against
hypothecation and pledges of goods and produce.
3. Before granting TF facility the bank takes special care in

43
  Trust & credit worthiness of customer
 Familiarity salable commodities
 Familiarity with the fluctuation of prices of goods to be secured
against TF
 Proper valuation of goods
 Insurance of goods pledge

Interest
In TF, the customer is given the facility of withdrawing the whole amount of
loan at one time or partially as and when required. Interest is charged only
on the amount actually withdrawn by the customer. The bank then loses the
interest on the un-utilized amount. To avoid the loss, the bank binds the
client in TF agreement to pay interest on the prevailing rate on ½ or ¼
portion of the amount of TF limit.

Difference between Current & Term Finance

 The term finance is an arrangement for a long period for industrial and
commercial concerns doing regular business with the bank, while
Current finance facility is given for a shorter period.
 The rate of interest is high in case of Term finance and low in case of
current finance.
 The overdraft facility is provided only in the current account, while
separate account to be maintained in the case of cash credit.

 FIM (finance against import merchandize)

 FATR (finance against trust receipt)
 LBP-D (local bills purchased)

Summing up the credit department helps in

 Development of bank by earning income in the form of mark-up.
 Development of whole economy by financing the development
projects both in private and public sector and help in accelerating the
rate of growth.
 This department facilitates the trade activities both inside and outside
the country

44
 ACCOUNTS DEPARTMENT

INTRODUCTION
The accounts department deals with various routine activities for the bank.
The main activities performed by it are
1.Budgeting
2.Reporting
3.Maintainance & depreciation of fixed assets
4.Miscellaneous function

1.BUDGETING
Accounts department of a bank, for a year makes budget of every branch.
Fiscal year of bank starts from January and ends on December. The accounts
department starts preparing budget from October the next year.

Procedure
The budget is based on forecasting through past performance.
 First of all, the bank reviews what are its sources of funds and where
it can utilize these funds?
 The main sources of the bank are deposits, securities issued by the
bank, borrowing from other banks, borrowing from SBP, bank’s paid-
up capital, its reserve fund, profit generated by the bank.
 The bank may employ these funds in lending to others at a high rate of
mark-up. Investment in securities, placement in inter-bank markets
etc.
 It also takes into account the income from other sources, cost of funds,
administrative expenses, and utilities expenses.
 Then the budget is submitted to the head office for recommendation
and modification.
 Monthly budget meeting is held by branch managers to analyze the
monthly performance. Budget and actual performances are employed
and variance is computed for analysis.
 Variance can be negative or positive. Variance does not mean that it
will have positive effect on the overall profitability e.g. positive
increase in deposits is not always coupled with positive increase in
advances.
 The management will then drive the reasons for the variance and take
remedial measures to achieve the targets.

45
2.REPORTING
The accounts department in the form of reports clubs and details of various
departments together. Each and every minute detail is provided in weekly,
monthly and annual reports. The reports are submitted to head office, SBP
and to the government.

Kinds of Reports
 Following reports are prepared by the accounts department on daily
basis.
 Statement of affairs
 Income & expenditure
 New FCY report
 Royal profit report
 Outstand receipt report
 Subsidiary statement
 Currency wise deposits report
 Subb 66 report

Following are the reports that are prepared on the basis of reports granted
from mainframe. These are very important for proper analysis and feedback.

Daily advance and deposit position

 Daily exchange position
 Daily fund management

Closing Reports
 Monthly assets & liabilities
 Monthly budget review report
 Monthly monitory statement
 Monthly performance review report
 Schedule of maturity distribution

3.MAINTAINING OF FIXED ASSETS & THEIR DEPRICIATION

Accounts department maintains the record of all the assets and charges
depreciation on them. The bank normally uses the straight-line method to
compute the depreciation.

46
Department prepares asset purchase report and asset sale report after every 6
months that helps in changing the depreciation. It is calculated on monthly
basis and charged yearly. Bank not only depreciates the existing assets but
also the assets but also the assets transferred in and transferred out.
The rate of depreciation for different fixed assets is as follows:
Equipment 20%
Building 2.5%
Vehicles 25%
Furniture 10%
Carpets & curtains 25%

4.MISCELLANEOUS FUNCTION
The accounts department also performs some other miscellaneous functions:
a. Daily activity checking
b. Reconciliation statements
c. Test keys
d. Closing entries
e. Foreign exchange forward transaction

(a) Daily Activity Checking

The accounts department the vouchers with daily activity report generated
by the computer. The vouchers are then sorted out into bundles according to
their categories and comparing with the activity report checks the posting of
transaction.

(b) Reconciliation statements

The bank prepares reconciliation statement with head office and SBP.

Head office
Reconciliation with head office is done in reconciliation department. The
branches sent out the head office. They check the posting of all the entries if
outstanding, which has not been posted by branch or head office.
The reconciliation is carried out in the head office and accounts department
handles quarries.

State Bank of Pakistan

The SBP keeps the record of every scheduled bank. The bank statements and
statements of SBP are reconciled on daily basis. Reconciliation is basically
setting of outstanding entries. The reconciliation statement contains two
sides. One contains entries originated from bank but not responded by SBP
and on the other side entries originated by SBP but not responded by bank.

47
(c) Test Keys
Test keys are used to authenticate and secure the transaction. These keys are
used for both inward and outward transactions. In local transfer double
coding is used while in foreign transaction single coding is used.

Each bank to arrive at the code uses separate test keys. Four things must be
carefully checked because code is based these four items;
 Branch name
 Date
 Currency
 Amount

The basic purpose of test is to secure the transaction.

(d) Closing Entries

Accounts department also passes the closing entries on monthly, 6 monthly
and yearly bases to calculate the profit and analyze the overall performance
for a certain period.

(e) Foreign Exchange Forward Transaction

In the past, the banks has to keep their foreign exchange with SBP on the
agreement that SBP will purchase the foreign exchange on book rate and
charge a fee for covering the risk. This whole transaction was known as
foreign transaction. Now this facility is not available.
To bank on new accounts, but they can avail it by renewing their limit on old
accounts with SBP.

Bank carries out this transaction through Treasury has two options:
 They can invest foreign exchange in the international market but they
will have to pay high-risk fee.
 They can also deposit with SBP that will offer 3.15% on these new
foreign currency accounts. The bank offers 2.25% to its customers;
net saving by the ban is almost 0.9%.
But it is up to treasury where to invest foreign exchange.

Summarizing up
We can say that the accounts department holds a sort of internal check on
the branch relating to its income and expenditures.

48
 TRADE FINANCE

TRADE
Trade deals with entry/departure of goods into/from one country to another
country International trade basically is a consequence of an agreement
between buyer and a seller separated by geographical boundaries.

To ensure secured transfer of goods to the right buyer and a right seller, the
services at the financial institutions are of great importance. In this relation
the banks have proved to be not merely dealers but also the leaders.
Summing up, the banks are the nerve center of all the economic activities
including international trade.

SECTION OF TRADE DEPARTMENT

This department deals in trade financing. It has further two departments:

1. Import section
2. Export section

IMPORT SECTION

Introduction:
In the common words import means bringing of commodities into a country
from outside by sea or air.

Requirements to be fulfilled:
When a person wants to import, he must have to register his name, his
company name. The EPB makes a registration with an application. There are
two requirements that he has to fulfill;
 Importer must have a current account in that bank.
 He should be the member of chamber of commerce.

Letter of Credit:
It is a conditional bank undertaking of payment. It is defined as;
“An L/C is a commitment on the part of buyer’s bank to pay or accept draft
drawn upon it provided draft doesn’t exceed a specified amount.”

49
TYPES OF LETTER OF CREDIT:

There are various types of L/C’s used in trade. The main kinds are as
follows;

1- Revocable Letter of Credit:

It is the one, which can be cancelled or modified by the issuing bank at
any time without any notification to the seller. Since it offers little
security to the seller, it is hardly used in foreign trade by the exporter.

2-Irrevocable Letter of Credit:

It is the L/C that can be amended or cancelled only with the agreement of
issuing bank, confirming bank and seller. This L/C gives more security to
exporter as compared to revocable L/C.

3-Confirmed Letter of Credit:

The letter of credit is that which has the protection of credit standing of
importer as well as exporter’s bank. The exporter’s bank that confirms
the Letter of credit takes the liability of paying agents, in case of issuing
ban fails to make payment to the exporter.

4-Unconfirmed Letter of credit:

Under the un confirmed Letter of credit the advising bank (through
whom the credit is negotiated) does not give any kind of guarantee to the
exporter that, the bill drawn will be honored by the issuing bank.

Parties of Letter of Credit:

It has following parties:

 Importer (buyer)
 Opening bank (bank that issues L/C)
 Exporter
 Negotiating bank (who makes the payment)

Condition for opening Letter of Credit

The bank will open Letter of Credit only if importer has an import license.
Import license in Pakistan is issued on the following basis:

50
 C&F (Cost and Freight)
Insurance of shipment is borne by importer, while exporter pays the
freight under this condition.

 CIF (cost insurance and freight)

Exporter has to pay both insurance and freight under this condition, but
not applicable in Pakistan.

 CIF & C.I

When goods are shipped on CIF and C.I (commission and interest) basis,
it means the price quoted includes cost, freight, insurance, commission
and interest.

 FOB (Freight on Board)

When freight of goods shipped, is not realized in advance by shipping
company, it is then to be paid by the importer on delivery of goods at the
port of destination.

PROCEDURE FOR OPENING LETTER OF CREDIT

Buyer and seller enter into a sale contract providing for payment through
Letter of credit. The importer will request his own bank or some other
bank that deals in foreign trade transactions to issue a Letter of Credit in
favor of exporter. The issuing bank asks for another bank to advice for
confirm the letter of credit (advising bank is the bank that takes
reasonable care to check the apparent authenticity of the credit that it
advises).

When seller receives the Letter of credit and it satisfies with its terms and
conditions, it is the position to dispatch the goods. After making the
shipment the seller sends the documents evidencing the shipment to bank
where credit is available.

The bank checks them against the Letter of Credit. If documents are as
per Letter of Credit, the bank will pay. The bank will send the documents
to issuing bank. Issuing bank will check the documents and if they are as
per the requirement of Letter of Credit, it will affect payment. Issuing
bank after it is satisfied will send the documents to the importer upon
terms agreed between buyer and issuing bank. Buyer takes the transport
documents to the transporter of goods to have delivery of shipment.

51
 Documents required by L/C:
It includes;
1.Transport documents
 B/L (incase of sea)
 WB (incase of air transport)
2.Insurance documents (issued by insurance co.)
3.commercial invoice (description of goods)
4.Other documents
 Certificate of origin
 Packing list
 Bills of exchange

Modes of payment:
The payment of goods may be in the following ways;

1.Sight/CAD
The Letter of credit in which the payment is received with in two weeks
from dispatch of documents.

2.Usance
The payment is made after a specified number of days after the presentation
of required documents by beneficiary.

3.Short-term finances
 FIM (finance against importer merchandize)
 FATR (finance against trust receipt)

EXPORT SECTION

Introduction:
Export plays the major role in the economic development of the country; it is
the one of the major sources of earning foreign exchange without additional
burden of the economy.

“Exports means export of all eligible commodities through authorized

banking channels admissible under exchange control regulation”.

SECTION
Export department has three branches;
(a) Collection-registration

52
 (b) Negotiation
(c) Export refinance

(a) Export Registration Procedure:

The exporter must have export license and a current account with bank.
When party has registered then either he enters into a contract with reporter
or receives L/C. then he prepares goods and ship them, but before shipment
and after contract he comes to bank and gets 4 copies of E-form against
invoice fills out and takes them to custom department after getting certified
by the bank, where the E-forms are verified documents required for exports:

 E-form (duplicate & triplicate)

 Request letter by party
 Insurance certificate
 Invoices
 Packing lists
 Bills of exchange
 Bills of lading or air way bills
 Certificate of origin

E-form:
E-form is the first and foremost requirement of export. It confirms that
exporter is known to bank. It is a form whereby a exporter a declaration
about;
 Full details of receipt quantity and value of goods

 Term of sale

 CAD
 L/C
 CIF (cost insurance & freight)
 C&F (cost & freight)
 DA basis (documents against acceptance)
 Trust receipt
 Name & address of importer and exporter

 Modes of transport & transport documents

 Destination

Copies of E-form:
E-form consists of 4 copies;
1-orignal copy is for custom authority (sent to SBP at time of shipment)
2-duplicate copy is for bank’s record

53
3-triplicate is sent by bank to SBP at time of realization
4-quardruplicate is for exporter’s (client) on record

Issuance of E-form:
E-form is issued to exporter after receiving the documents bank attaches
recovering letter with them that contains the instructions for payments and
documents are sent to foreign banks. All payments are received through
telex then client’s account is credited. Triplicate copy of E-form is
completed and attached, bank charges are filled on it and documents are
submitted to SBP and thus export file is close.

(b) Negotiation
Negotiation means discounting of a foreign bill of exchange. Bank provides
another facility by providing finance in the form of negotiation of a bill. The
bank purchases the bill and provides funds to party against;

Process:
The exporter receives his L/C form importer through advising bank. Then he
ships the goods and comes to bank for negotiation i.e. he sells the documents
to bank and gets payment after complete checking of documents. Now bank
is responsible for further process. The bank receives the payment and the file
is closed.

But if client does not negotiate the document and gets a loan against the
documents then he will be responsible till the amount realized at maturity.
The bank receives mark-up on the loan.

Scrutiny of documents
The most importer job is to scrutinize the documents whether they are
according to the requirements of Letter of Credit or not.

Cases of Negotiation:
The bank negotiates in 3 cases;
1.If the bank is satisfied with documents, it makes payments on the spot.
2.when exporter has sent documents for collection and bank receives
acceptance through telex it will pay.
3.Without getting acceptance the bank may negotiate depending on the will
of the customer.
4.In case the bank is not satisfied it takes an Identity from client.

Discounting the Bill:

54
Exporter has to meet various payments & expenses, so in order to meet the
customer’s needs; the exporter avails this facility and discounts the bill.
After discounting the bill amount is credited to customer’s a/c, the
discounted amount is expense of party and on the other side, income of the
bank documents required for negotiation:

Only those documents are required that are backed by Letter of Credit
because only in this case bank is secured for receiving the payment.

Uniform customs and practice for documentary credits 1993 revision, ICC
publication no.500 shall apply to all documentary credits.
If documents are correct, payments made to party the foreign currency a/c
amount is converted into Pak. Rupees, on the OD buying rate. In case of
usance bill the foreign currency is converted into Pakistani rupees at relevant
export buying rates.

In case of both sight & usance when their proceeds are credited to bank’s
abroad a/c, in books of branches the conversion is made at T.T documentary
buying rates. It yields the bank considerate exchange earning.

Discrepancies in the documents:

After checking the documents discrepancies are pointed out, the exporter
takes them back & remove them. Then again presents documents for
negotiation. If documents with discrepancies are sent to foreign banks, it
informs the importer if importer accepts the documents with error then
importers bank is authorize to deduct the discrepancy fee under foreign bank
charges. Normally discrepancies are of nature as follows;
 Late submission of documents
 Late shipment
 L/C expired
 Invoice mistakes
 L/C overdrawn
 Name and addresses of exporter are not as per L/C

(c)Export Refinance:
State bank of Pakistan introduced this scheme this year 1975 to facilitate and
encourage Pakistani export. The salient features of export finance scheme
envisages the provision of financing facility to exporter by schedule banks
types of export refinance
(a) Part I
(b) Part II

55
(a) Part I
There are two types of part I
1. FAPC (pre shipment)
2. FAFB (post shipment)

FAPC (pre shipment):

It is financing against patching list. The purpose of this financing is to
provide funds to exporter to produce or purchase goods for export. The loan
has to be repaid by exporter within 180 days. If exporter does not pay, the
bank repays it to SBP. The facility is also called percipient. The following
documents are required;
 D.P note (demand promissory paper)
 Annexure ‘A’ (on stamp paper)
 Contract of sales
 E.C form (prepared by exporter for details of contract)
 D.E form
 Undertaking

FAFB: (post shipment):

If is financed against foreign bills and also known as post shipment finance.
This facility is achieved after exporter shops the goods and sends shipping
documents in collection. The rest of the condition remains same as under
FAPC. The documents required are;
 Original contract
 Annexure ‘A’
 D.P note
 Invoices
 AWB or B/C
 EC form
When payment is received, we adjust our loan a/c with the balance. Then
amount is paid to SBP accompanied with a covering schedule.

Part II:
This facility is provided to clients who have shown special performance in
exports last year. The SBP established a limit for financing. Maximum limit
is 180 days. The performance is checked by EE statement in which details
are clearly mentioned. Then statement is verified by SBP. The exporter can
get max.½% of last year’s exports. This is to be paid in one year e.g. if total
worth of exports in 2001 was 5million he will get a part II limit up to ½ %
i.e. 2.5 million in 2002, also exporter will be required to show export

56
performance of at least 5 million in 2002, to get a borrowing of up to 2.5
million in 2003.

Mark up calculation:
(Total amount x mark up % age) x number of
days/360

Summing up, trade & finance department is one of the most important
department of the bank, as it determines the
 Fluctuation in foreign currency’s rates
 Balance of trade
 Methods of exchange Control

57
 INTERNSHIP ACTIVITIES

This chapter is based on my observation and experience during my

internship in Bank Alfalah Limited, Kashmir Road, Lahore.

ACCOUNT OPENING DEPARTMENT:

In account opening department I learnt about:
 Account opening procedure
 The persons who are eligible to open an A/C
 Kinds of A/C offered by BAL
 Information about Royal profit
 Documents required by different categories of persons
 Issuance of cheque book
 Preparation of debit and credit vouchers
 Details about loose cheques
 Procedure of closing an A/C
 Information about zakat exemption formations

REMITTANCES DEPARTMENT:
In remittances I have learned about transfer of money through
 Demand draft (D.D)
 Pay order (P.O)
 Pay slip (P.S)
 Telegraphic transfer (T.T)
 Mail transfer (M.T)
 Local remittances and outgoing remittances
 Schedule of bank charges for remittances
 Calculation of taxes on remittances
 Calculation of taxes on remittances
 How to prepare pay order, demand draft

TERM DEPOSIT AND O.B.C DEPARTMENT:

In term deposit department I learnt about:
 Notice of deposit
 Term deposit (TDR)
 Calculation of profit
 Information about royal group

58
  Information about Royal Patriot
 Outstation bills for collection
 Maintenance of O.B.C register
 Procedure of O.B.C
 Commission for O.B.C
 Lockers facility & its charges

GOVERNMENT SECURITIES:
In government security department I learnt about:
 Defense saving certificate
 Special saving certificate
 Calculation of profit
 Commission of BAL
 Zakat implementation of DSC & SSC
 Preparation of credit voucher

CLEARING DEPARTMENT:
In this department I learnt about:
 Procedure of clearing a cheque
 Checking of cheques
 Inward and outward clearing
 Within bank transfer
 Different reason of returning a cheque
 Types of clearing stamps

CREDIT DEPARTMENT:
In this department I learnt about:
 Credit facilities for customers
 Long term & short term loans
 Employees loan
 Securities for credit
 How to give credit to customers
 Five C’s of credit
 How to prepare credit line proposal
 Parts of credit file
 Facilities for borrowers
 Study the prudential register
 How to recover the loan
 Funded facilities
 Non funded facilities

59
  Letter of guarantee and its types

IMPORT DEPARTMENT:
In import department I learnt about:
 Issuance of import registration certificate
 Parties of L/C
 Letter of credit opening procedure
 Types of L/c
 Import license (registration of import in EPB)
 Import bill
 Checking an scrutinizing of documents
 Mode of payment

EXPORT DEPARTMENT:
There are three sections in export department namely documentation
collection and refinance section in documentation and collection section.
Here I learnt about:
 Procedure of registration as an exporter
 Documents needed for export
 Form “E”
 Checking of documents
 Exchange control regulation
 How to make foreign documents bills for collection
 How to make export payment realization certificate
 How to fill covering letter
 Mode of payment

EXPORT REFINANCE DEPARTMENT:

In this department I learnt about:
 Different kinds of refinance scheme
 Procedure of getting the facility
 Documents required for the avail the facility
 Different fines from SBP
 Mark up calculation

60
 BALANCE SHEET AS AT DECEMBER 31, 2002

Note 2002 2001

(Rupees in ‘000)
ASSETS
Cash and balances with treasury banks 6 4,540,486 3,885,612
Balances with other banks 7 232,728 1,081,208
Lendings to financial institutions 8 4,634,398 1,698,969
Investments 9 24,694,397 11,396,616
Advances 10 28,319,401 19,131,494
Other assets 11 984,847 1,180,775
Operating fixed assets 12 1,760,774 1,424,883
Deferred tax asset 13 - 298,538
65,167,031 40,098,095
LIABILITIES
Bills payable 14 758,961 305,558
Borrowings from financial institutions 15 6,037,576 6,709,054
Deposits and other accounts 16 51,684,984 30,207,324
Sub-ordinated loans 17 650,000 -
Liabilities against assets subject to finance lease - -
Other liabilities 18 1,196,342 716,475
Deferred tax liabilities 13 1,186,501 -
61,514,364 37,938,411
NET ASSETS 3,652,667 2,159,684
REPRESENTED BY
Share capital 19 1,000000 750,000
Reserves 365,727 361,591
Unappropriated profit 250,050 249,701
1,615,777 1,361,292
Surplus on revaluation of assets 20 2,036,890 798,392
3,652,667 2,159,684
CONTINGENCIES AND COMMITMENTS 21

The annexed notes form is integral parts of these accounts.

61
 PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED
DECEMBER 31, 2002

Note 2002 2001

(Rupees in ‘000)

Mark-up/return/interest earned 22 4,630,494 3,391,935

Mark-up/return/interest expensed 23 3,112,313 2,515,074
Net mark-up/interest income 1,518,181 876,861
Provision against non-performing loans and 10.4 (53,619) 13,705
advances-net
Provision for diminution in the value of - -
investments
Bad debts written off directly (1,447) -
(55,066) 13,705
Net mark-up/interest income after provisions 1,463,115 890,566
NON MARK-UP/INTEREST INCOME
Fee commission and brokerage income 316,368 147,277
Dividend income 62,077 41,910
Income from dealing in foreign currencies 95,165 113,923
Other income 24 141,808 74,756
Total non-mark-up/interest income 615,418 377,865
2,078,533 1,268,432
NON MARK-UP/INTEREST EXPENSES
Administrative expenses 25 1,182,887 743,602
Other provisions/write offs - -
Other charges 26 993 666
Total non-mark-up/interest expenses 1,183,880 744,268
PROFIT BEFORE TAXATION - 894,653 524,164
Taxation 27 (448,974) (213,552)
PROFIT AFTER TAXATION 445,679 310,612
Unappropriated profit brought forward 249,701 1,211
Transfer from general reserve 85,000 -
Transferred from surplus on revaluation of fixed
Assets
- Prior year 38,098 -
- Current year – net of tax 20,708 -
58,806
Profit available for appropriation 839,186 311,823
APPROPRIATIONS
Transfer to statutory reserve (89,136) (62,122)
Issue of bonus shares – interim @ 33.33% (250,000) -
(2001: Nil)
Cash dividend @ 25% (2001: Nil) (250,000) -
(589,136) (62,122)
Unappropriated profit carried forward 250,050 249,701
Basic and diluted earnings per share 28 4.46 365

The annexed notes form an integral parts of these accounts.

Chief executive Officer Director Director Chairman

62
 CASH FLOW STATEMENT FOR THE YEAR ENDED
DECEMBER 31, 2002

Note 2002 2001

(Rupees in ‘000)

CASH FLOW FROM OPERATING ACTIVITIES

Profit/(Loss) before taxation 894,653 524,164
Less: Dividend income (62,077) (41,910)
832,576 482,254
Adjustments for non-cash charges
Depreciation 141,235 80,862
Amortization – intangible assets 1,898 347
Amortization – deferred cost 7,989 7,989
Provision against non-performing advances 53,619 (13,705)
Bad debts written off directly 1,447 -
Gain on sale of fixed assets (2,568) (401)
Provision for gratuity 15,925 11,646
219,545 86,738
1,052,121 568,992
(Increase)/Decrease in operating assets
Lendings to financial institutions (2,535,429) (178,654)
Advances (9,242,973) (3,875,472)
Others assets 77,083 (70,355)
(11,701,319) (4,124,481)
(Increase)/Decrease in operating assets
Bills Payable 453,403 199,205
Borrowings from financial institutions (671,478) 792,451
Deposits 21,477,660 9,725,756
Other liabilities 196,464 285,498
21,456,049 11,002,910
10,806,851 7,447,421
Gratuity paid (3,490) (2,675)
Income tax paid (277,366) (270,633)
Net cash flow operating activities 10,525,995 7,174,113
CASH FLOW FROM INVESTING ACTIVITIES
Net investments in available-for-sale securities (13,584,669) (5,346,241)
Net investments in held-to-maturity securities 3,012,810 (1,194,705)
Dividend received 78,714 29,178
Investments in operating fixed assets (481,755) (221,688)
Sale proceeds of fixed assets disposed of 5,299 3,352
Net cash flow from investing activities (10,969,601) (6,730,104)
CASH FLOW FROM FINANCING ACTIVITIES
Issue of share capital - 150,000
Issuance of Term Finance Certificates 650,000 -
Dividend paid - (210,000)
Net cash flow from financing activities 650,000 (60,000)
Increase/(Decrease) in cash and cash equivalents 206,894 384,009
Cash and cash equivalent at beginning of the year 29 5,116,820 4,932,811
Cash and cash equivalents at end of the year 29 5,323,214 5,116,820

The annexed notes form an integral parts of these accounts.

Chief executive Officer Director Director Chairman

63
 AUDITORS’ REPORT TO THE MEMBERS

We have audited the annexed balance sheet of Bank Allah Limited as at December
31, 2002, and the related profit and loss account, cash flow statement and
statement of changes in equity together with the notes forming part thereof (here in
after referred to as the “financial statements”) for the year ended December 31,
2002, in which are incorporated the un audited certified returns from the branches
except for fifteen branches which have been audited by us and we state that we
have obtained all the information and explains which, to the best of our knowledge
and belief were necessary for the purposes of our audit.

It is the responsibility of the bank’s management to establish and maintain a

system of internal control, and prepare and present the internal statements in
continuity with approved accounting standard and the requirements of the Banking
Companies Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984
(XLVII of 1984). Our responsibility is to express an opinion on these statements
based on our audit.

We conducted, our audit in accordance with the International Standard on

Auditing as applicable in Pakistan. These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of any material misstatement. An audit includes examining, on
a test basis, evidence supporting amounts and disclosures in the financial
statements. An audit also included assessing accounting policies and significant
estimates made by management, as well as, evaluating the overall presentation of
the financial statements. We believe that our audit provides a reasonable basis for
our opinion and after due verification, which in case of loans and advances
covered more than sixty percent of the total loans and advances of the bank, we
report that:

(a) in our opinion, proper books of account have been kept by the bank as
required by the Companies Ordinance, 1984 (XLVII of 1984) and the
returns referred to above received from the branches have been found
adequate for the purposes of our audit;
(b) in our opinion:
(i) the balance sheet and profit and loss account together with the notes
thereon have been drawn up in conformity with the Banking Companies
Ordinance, 1962 (LVII of 1962), and the Companies Ordinance, 1984
(XLVII of 1984), and are in agreement with the books of account and are
further in accordance with which we concur;
(ii) The expenditure incurred during the year was for the purpose of bank’s
business; and
(iii) The business conducted, investments made and the expenditure incurred
during the year were in accordance with the objects of the bank and the

64
 transactions of the bank which have come to our notice have been within
the powers of the bank;
(c) In our opinion and to the best of our information and according to the
explanations given to us the balance sheet, profit and loss account, cash
flow statements and statement of changes in equity together with the notes
forming part thereof conform with approved accounting standards as
applicable in Pakistan, and give the information required by the Banking
Companies Ordinance, 1962 (LVII of 1962), and the Companies
Ordinance, 1984 (XLVII of 1984), in the manner so required and give a
true and fair view of the state of the bank’s affairs as at December 31, 2002,
its true balance of profit, its cash flows and changes in equity for the year
ended December 31, 2002, and
(d) In our opinion Zakat deducible at source under Zakat and User Ordinance,
1980 (XVIII of 1980) was deducted by the bank and deposited in the
Central Zakat Fund established under section 7 of that Ordinance.

Karachi: A.F. Ferguson & Co.

Dated: 10 March 2003 Chartered Accountants

65
 BALANCE SHEET ANNUAL REPORT
AS AT DECEMBER 31, 2002

Note 2002 2001

(Rupees in thousands)
ASSETS
Cash 4 2,044,725 1,687,250
Balance with other banks 5 1,798,086 1,161,434
Money at call and short notice 890,000 100,000
Investments 6 4,967,542 4,993,035
Advances – net of provision 7 15,242,317 10,327,325
Operating fixed assets 8 1,231,161 1,153,607
Other assets 9 1,403,328 1,596,952
27,577,159 21,019,608
LIABILITIES
Deposits and other accounts 10 20,481,568 15,820,473
Borrowings from other banks, agents etc. 11 4,639,130 2,972,240
Bills payable 106,353 120,868
Other liabilities 12 625,312 372,855
Deferred liabilities – staff retirement gratuity 6,694 6,892
25,859,057 19,293,328
NET ASSETS 1,718,102 1,726,280
REPRESENTED BY
Share capital 13 600,000 600,000
Reserve fund and other reserves 14 299,469 286,399
Unappropriated profit 1,211 8,931
Shareholders equity 900,680 895,330
Surplus (deficit) on revaluation of investments 15 (13,528)
887,152 895,330
Surplus on revaluation of fixed assets 16 830,950 830,950
1,718,102 1,726,280
MEMORANDUM ITEMS
Bills of collection 17 3,528,206 1.9
Acceptances, endorsements and other obligations 4,586,797 1.1
Contingent liabilities and commitments 18

The annexed notes form an integral part of these accounts

Chief Executive Officer Director Director Chairman

PROFIT AND LOSS ACCOUNT ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2000

Note 2000 1999

(Rupees in thousands)
Mark-up/interest and discount and / or return earned 2,258,527 1,905,808
Less: Cost/return on deposits, borrowings etc. 1,724,041 1,474,343
534,486 431.465
Fees, commissions and brokerage 103,838 58,043
Profit from investment securities 19,617 13,792
Dividend income 8,951 -
Other operating income 19 138,963 114,250
271,369 186,085
805,855 617,550
Operating expenses:
Administrative expenses 20 503,256 402,559

66
Provision against non-performing advances – net 7.2 (103,950) (136,076)
Bad debts written off directly - 175
Provision for other losses 7,619 -
406,925 266,658
398,930 350,892
Other income 21 1,420 3,523
Profit before taxation 400,350 354,415

Taxation - current (170,000) (22,000)

- prior 175,000 58,663
- deferred (190,000) (36,554)
(185,000) (197,891)
Profit after taxation 215,350 156,524
Unappropriated profit brought forward 8,931 3,712
Profit available for appreciation 224,281 160,236
Appropriations:
Transfer to statutory reserve (43,070) (31,305)
Transfer from general reserve 30,000 -
Proposed dividend @ Rs.3.5 per share (1999: Rs.2 (210,000) (120,000)
per share)
(223,070) (151,305)
Unappropriated profit carried forward 1,211 8,931

Chief Executive Officer Director Director Chairman

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 CASH FLOW STATEMENT ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 2000

Note 2000 1999

(Rupees in thousands)
CASH FLOW FROM OPERATING ACTIVITIES
Profit before taxation 400,350 354,415
Less: Profit from investment securities (19,617) (13,792)
Dividend income (8,951)
371,782 340,623
Adjustment for non-cash charges
Depreciation 60,169 26,668
Amortization of deferred cost 7,989 7,989
Provision against advances written back (103,950) (136,076)
Provision for gratuity 12,469 7,824
Profit on sale of fixed assets (1,420) (3,523)
(24,743) (97,118)
347,039 243,505
(Increase)/Decrease in operating assets
Government securities 86,538 (1,535,869)
Other securities (160,031) -
Advances (4,870,043) (2,433,540)
Other assets (206.051) (120,818)
(5,149,587) (4,090,227)
Increase/(Decrease) in operating liabilities
Deposits and other accounts 4,661,095 3,942,252
Bills payable (14,515) 69,131
Other liabilities 153,052 79,535
4,799,632 4,090,918
Cash flow before gratuity and tax (2,916) 224,196
Gratuity paid (3,262) (11,642)
Income tax refunded/(paid) 214,020 (144,385)
Net cash inflow from operating activities 207,842 88,169
CASH FLOW FROM INVESTING ACTIVITIES
Purchase of term finance certificates - (114,875)
Proceeds from the redemption of term finance 144,458 64,223
certificates
Profit received on investment securities 19,617 13,792
Dividend income 1,617 -
Fixed capital expenditure (138,502) (86,355)
Sale proceeds of fixed assets 2,199 4,313
Net cash inflow/(outflow) from investing 29,389 (118,902)
activities
CASH FLOW FROM FINANCING ACTIVITIES
Borrowings from other banks, agents etc 1,666,890 1,623,927
Dividend paid (120,000)
Net cash inflow from financing activities 1,546,890 1,623,927
Increase in cash and cash equivalents during the 1,784,121 1,593,194
year
Cash and cash equivalents at the beginning of the 2,948,690 1,355,496
year
Cash and cash equivalents at the end of the year 4,732,811 2,948,690

Cash and cash equivalents

Cash 2,044,725 1,687,256

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 Balances with other banks 1,798,086 1,161,434
Money at call and short notice 890,000 100,000
The annexed notes form an integral part of these 4,732,811 2,948,690
accounts

Chief Executive Officer Director Director Chairman

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AUDITORS’ REPORT TO THE MEMBERS ANNUAL REPORT

We have audited the annexed balance sheet of Bank Alfalah Limited as at December 31,
2000 and the related profit and loss account, statement of changes in equity and cash flow
statement, together with the notes forming part thereof for the year then ended, in which
are incorporated the unaudited certified returns from the branches except for nineteen
branches which have been audited by us and we state that we have obtained all the
information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit and, after due verification thereof, found them
satisfactory and we report that:

a). In our opinion, proper books of account have been kept by the bank as required by
the Companies Ordinance, 1984, and the returns referred to above received from
the branches have been found adequate for the purposes of our audit:

b). In our opinion:

(i) The balance sheet and profit and loss account together with the notes thereon have
been drawn up in conformity with the Banking Companies Ordinance. 1962 and
the Companies Ordinance. 1984 and are in agreement with the books of account
and are further in accordance with accounting policies consistently applied except
for the change in accounting policy as explained in note 3.3 with which we
concur:

(ii) The expenditure incurred during the year was for the purpose of the bank’s
business: and

(iii) The business conducted, investments made and the expenditure incurred during
the year were in accordance with the objects of the bank, and the transactions of
the bank which have come to our notice have been within the powers of the bank.

(c) In our opinion and to the best of tour information and according to the
explanations given to us the balance sheet. Profit and loss account statement of
changes in equity and cash flow statement together with the notes forming part
thereof give the information required by the Banking Companies Ordinance, 1962
and the Companies Ordinance, 1984. In the manner so required and give a true
and fair view of the state of the bank’s affairs as at December 31, 2000 and its
true balance of profit, changes in equity and cash flows for the year then ended:
and
(d) In our opinion. Zakat deductible at source under the Zakat and Ushr Ordinance.
1980 was deducted by the bank deposited in the Central Zakat Fund established
under section 7 of that Ordinance.
A. F. Ferguson & Co.
Chartered Accountants

Dated: March 27, 2001

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 RATIO ANALYSIS

Ratio means “one number expressed in term of another a ratio is statistical

yardstick by mean of which relationship between two or various figures can
be compared or measured. The ratio analysis can be done under

1. Profitability ratios
 Net profit margin
 Return on equity
 Return on total assets
 Return on fixed assets
 Earning per share

2. Liquidity ratios
 Current ratio
 Current asset to total deposit

3. Coverage ratio
 Debt ratio

4. Activity ratios
 Fixed asset turnover ratio
 Total asset turnover ratio

5. Special bank ratios

 Total advances to total deposits
 Total advances to total deposits
 Fixed assets to total assets

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 NET PROFIT MARGIN

Net profit margin = Net profit after tax * 100

Total Revenue

1999 2000 2001 2002

Net Profit Margin 8.21% 9.53% 9.16% 9.62%

INTERPRETATION

The ratio provides us with the percentage net profit after tax of the total
revenue of the business. In Bank Alfalah Limited profit margin has
increased from 8.21% in 1999 to 9.62% in 2002. Which is good sign its
mean; the bank has enough caution to meet its further obligation. The
increase in the net profit margin also shows management efficiency to
control the internal as well as external factors affecting the profit of the
organization.

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 RETURN ON EQUITY

Return on equity = Net income *100

Shareholder equity

1999 2000 2001 2002

Return On Equity 17.48% 23.91% 22.82% 27.58%

INTERPRETATION

The return on equity indicates the equity utilization of the company to

produce profits. The ratio tells the shares holders about their expected profit
on their equity in a business. The ratio indicates sharply increasing trend of
net profit from 17.48% in 1999 to 27.58%. This sharply increase in the
return on equity is a favorable point for the organization and its
shareholders.
Moreover it shows that the bank prefer to pay dividend to its shareholders
rather to create extra reserves.

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 RETURN ON TOTAL ASSETS

Return On Total Assets = Net Profit After Tax * 100

Total Assets

1999 2000 2001 2002

Return On Total Assets 0.89% 0.89% 0.90% 0.85%

INTERPRETATION

Turn on total assets measures the firms overall effectiveness in generating

profit with its available assets. The higher the company’s return on total
assets, the better. The return on total assets on Bank Alfalah is showing an
decrease from 0.89 % in 1999 to 0.85% in 2002 which is not favorable.

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 RETURN ON FIXED ASSETS

Return on fixed assets = Net profit after tax * 100

Fixed Assets

1999 2000 2001 2002

Return on fixed Assets 13.57% 17.12% 18.20% 25.31%

INTREPRETATION

The ratio increases from 13.57% in 1999 to 25.31% in 2002 which is a

decent increase in Bank Alfalah Ltd. Return on fixed assets.

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 EARNING PER SHARE

Earning per share = Net income

No. of shares outstanding

1999 2000 2001 2002

Earning Per Share 2.61 3.59 3.65 4.46

INTREPRETATION

The company earnings per share are generally of interest to present or

prospective stockholders and to management. The earning per share
represents the number of Rs. Earned on behalf of each outstanding share.
The earning per share of Bank Alfalah increased from2.61 to 4.46, which is
favorable for bank.

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 CURRENT RATIO

Current Ratio = Current Assets

Current liability

1999 2000 2001 2002

Current Ratio 1.03:1 1.02:1 1.02:1 1.03:1

INTERPRETATION

This ratio tells us about short- term solvency of the organization. Current
ratio shows the availability of the ready current assets to meet the short- term
liabilities of the organization. The current ratio shows continuous increase
over four years due to excessive cash available to banks and moreover the
balance maintain by the Bank Alfalah Ltd. Also increased. On the other
hand liabilities are decreasing. This trend improves the current ratio of the
bank.

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 CURRENT ASSETS TO TOTAL DEPOSIT RATIO

Current assets to total deposits= Current assets

Total deposits

1999 2000 2001 2002

Current asset to total deposit 0.13 1.29 1.28 1.23

INTREPRETATION

Current assets to total deposit show the availability of liquidity to meet its
obligation e.g. deposits, in case of contingencies or normal case as well.
Current total assets to total deposits shows increase in the past two years but
the there is a slight decline.
The increasing trend is favorable for the bank.

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 DEBT RATIO

Debt Ratio = Total liabilities

Total assets

1999 2000 2001 2002

Debt Ratio 92.1% 94.3% 95.7% 94.3%

INTERPRETATION

The debt ratio measures the proportion of total assets financed by the
company’s creditors. The higher is the ratio, the greater is the amount of
other people’s money being used in an attempt to generate profit. So bank is
using a great deal of people’s money to generate profit.

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 FIXED ASSETS TURNOVER RATIO

Fixed assets Turnover Ratio = Markup Interest

Fixed assets

1999 2000 2001 2002

Fixed Assets Turnover Ratio 1.65 1.83 1.97 2.63

INTERPETATION

Fixed asset turnover indicates the efficiency with which the company uses
its assets to generate sales. Generally, the higher a company’s fixed asset
turnover, the more efficiently its assets have been used. The ratio for bank is
favorable.
This ratio determines the return on investment on fixed assets. This ratio is
showing an increase from 1.65 in 1999 to 2.63 in 2002 which is good for
Bank Alfalah Ltd.

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 TOTAL ASSETS TURNOVER RATIO

Total assets turnover = Markup interest

Total assets

1999 2000 2001 2002

Total Assets Turnover Ratio 0.09 0.08 0.08 0.07

INTERPRETATION

Total asset turnover indicates the efficiency with which the company uses its
assets to generate sales. Generally, the higher a company’s total asset turn
over, the more efficiently its assets have been used. The ratio for bank is
satisfactory.

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 TOTAL ADVANCES TO TOTAL DEPOSITS RATIO

Total advances to total Deposits = Total Advances

Total Deposits

1999 2000 2001

2002

Total Advances To Total Deposits 65.27% 74.42% 63.33% 54.79%

INTERPRETATION

This ratio tells us that how much of the bank has advanced. This ratio must
not be less then 100% to be favorable. Otherwise it is unfavorable.
Here the ratio has decreased from 65.28% in 1999 to 54.79% in 2002, which
is not favorable.

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 TOTAL ADVANCES TO TOTAL ASSETS

Total Advances to total assets = Total advances *100

Total Assets

1999 2000 2001 2002

Total Advances To total Assets 49% 55% 48% 43%

INTERPRETATION

This ratio shows the advances, which the bank makes as the percentage of
its total assets. If the advances of the banks increasing within increase in the
total assets it is favorable for the bank business. Because there are more
advances, there is more income of the bank and respectively more profit.

Total advances to total assets variation is showing increasing trend in the last
year’s whish shows that the management of the bank is increasing the
portion of its advances then compare to increase in the total assets which is
favorable

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 FIXED ASSETS TO TOTAL ASSETS

Fixed Assets to total assets = Fixed Assets * 100

Total assets

1999 2000 2001 2002

Fixed Assets To Total Assets 5.49% 4.46% 4.23% 3.72%

INTERPRETATION

In the bank, another financial institution, fixed assets are comprised of

equipment, furniture and building. These assets have great importance in
banks in order to maintain the working condition that up to that mark.

Fixed assets and total assets both increasing in the last two years, therefore,
this ratio is increasing.

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 SWOT ANALYSIS

As the Bank Alfalah Ltd is one of the fastest growing banks, its business is
growing at an excellent rate. In the light of situation we can make analysis
by using following factors:

 Strengths

 Weaknesses

 Opportunities

1. STRENGTHS

Following are the strengths of BAL

1. one of the leading banks in Pakistan due to its fastest growing rate.
2. It’s increasing goodwill and loyal staff.
3. BAL has strong finical position, as its owner’s are always willing to
inject more equity in it
4. Bank has successfully launch new product with the passage of time.
5. Increasing number of branches in different areas due to its strong
financial position is also major strength.
6. Attractive and fully maintained branches
7. One of the main strength of BAL is that it have strong relationships
with foreign business organizations and financial institutions
8. Each department of bank is fully allowed to take adequate decision on
its own, saving the time and helps in achieving the objectives.
9. Provide facilities to all types of customers like individuals, firms,
company, associations, etc.
10.Its main policy is to provide excellent customer services
11.Use f modern technology in working which results in more efficient
results.
12. Well-experienced and quality staff is another strength of BAL.

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 13.Efficient internal communication system
14.The business community more relying on BAL for their business
deals due to the better services of the bank.

WEAKNESSES

Although the BAL is very strong bank, and one of the fastest growing bank
but there are also some weaknesses in the bank which the BAL faced and
should remove to enhance its business. These weaknesses are as under:

1. Lake of modern advertisement techniques

2. Inadequate staff due to which the burden on the existing staff is more
which reduces their efficiency
3. The staff of the BAL is not satisfied with the salary structure given to
them.
4. Lake of suing information technology
5. Negative influence of the management regarding favoritism
6. Gives its employees less record and other benefits. Its results in less
efficient team of workers.

STRESS AND STRAIN

No work can be carried out with, mild level of stress. Therefore, it is some
time more helpful to create some stressful situation for getting more
productivity on making people more stress
As for as Bank Alfalah Limited is concerned there are few situations present
at BAL which are as follows

1. Excessive load of work.

2. Late sitting
3. Time constraint and responsibilities.

OPPERTUNITIES

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Some opportunities BAL have are as fallows:
1. BAL can introduce new product
2. Can introduce Modaraba and Musharka
3. With approval of SBP more branches can be opened in different
region of the Pakistan

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 SUGGESTION AND RECOMMENDATION FOR
BANK ALFALAH LIMITED

Bank Alfalah, one of the leading banks in Pakistan. However, there are some
suggestion for it’s Lahore branch in order to improve its current operation

1. BAL should improve its marketing department and tried to use modern
advertisement techniques.
2. BAL should diversify its loan disbursing structure to big as well as small
business houses.
3. IT techniques should be introduced in its branches and proper training
should be provided to its staff.
4. Should try to enhance the public image, goodwill and attraction of
customers.
5. E-commerce should be implemented.
6. Bal should launch ATM in its branches.
7. Priority should be given to the Masters in Commerce in employment.
8. BAL recently introduced car financing. This product can capture the
market with proper marketing.
9. Should provide more incentive to big depositors and valued customers.
10.A good communication link between top management and the employees
should be developed.
11.Recruitment for new jobs should be done fairly and on merit.
12.Smoking during working hours should be prohibited as it imparts a
healthy and mannered image to customers.
13.Proper training programs should be introduced to train the less educated
old staff.

In the light of above suggestions, I think that Bank Alfalah Limited can
improve its goodwill and reputation in the eyes of every community. More
fame of bank means more trust of people and more trust means more profits
of bank.

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 CONCLUSION

At present there is no such organization in the world that is free from

problems and challenges every concern has to strive and struggle a lot to be
the more profitable and to get a more competitive edge.

The management of BAL is presently taking significant strategic steps to

enable the bank to emerge as a strong and progressive institution.
Concurrently it continues to make effort to refine its products and operations
to make them more compatible. New deposit scheme has been introduced
and an action plans to maintain the revenue growth in place.

Business and economic conditions remain uncertain BAL continues its effort
to develop the new products like it did during prior years and successfully
launched one of them in current year. Its relative ranking with other banks
and its history past success and prosperous future reveals the facts that
where it is standing today.

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