Internship Report on Financial Statements and Ratio Analysis

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HISTORICAL BACKGROUND

Bank Alfalah Limited is not as old a bank that it should have such significant history. But there are certain events in the past, which make the history worth mentioning. The history of Bank Alfalah Limited dates back to September 21, 1972, when Bank of Credit and Commerce International (BCCI) were incorporated in Luxemburg.  “From Bank of Credit and Commerce International to bank Of Crooks and criminals International”.
BCCI's conception, growth, collapse, and criminality are inextricably linked with the personality of its founder, Agha Hassan Abedi, who in turn was a product of the unique conditions of Muslim India in the final period of British rule prior to partition, and the first years after partition. These were years of fundamental change in the region, involving the creation of an entire new ruling class in both Hindu and Muslim India to replace the departing British Foreign Service. While the period created special opportunities for a newly emerging professional class in countries, Abedi and many of the others who later became prominent in Pakistani Banking made up a special class.

The Habibs ran the bank like a family business. All decisions were centralized with family members and working hours were long and hard. Agha Hassan Abedi rose very rapidly but soon found the atmosphere to be too restrictive for the great number of ideas welling up inside him. In 1958, he left Habib Bank and was able to get together Investors to form a new bank to be known as United Bank.

Within ten years, United Bank became the second largest bank in Pakistan and all that Mr. Abedi envisioned, relating to the facilities, the staff, and relating to the high quality of appearance of the offices, and to the modern outlook of the Bank, had been achieved.  

Internal BCCI documents make clear Abedi's ability to motivate his employees to work exceptionally hard. Additionally, the Bank had opened branches overseas in quite a few

countries including the Middle East. The Bank was already poised to become the largest bank in Pakistan but political conditions were making it apparent to Mr. Abedi that Pakistan could probably not form the basis for an operation of the size which he and his team were capable o
By the early 1970's, there was an ongoing tension between Abedi's ambition to move beyond Pakistan, and that of the Pakistani government to keep Pakistani institutions generally and Abedi's bank specifically under its control. From the time he took power, Pakistani Prime Minister Zulfiqar Ali Bhutto, typifying the socialist cast of much of the former colonial world in this period, was threatening to nationalize the banks, as he already had nationalized other sectors. Accordingly, Abedi began moving forward with the initial steps to form BCCI as a Pakistani-managed bank outside of Pakistan. When Bhutto in turn learned about Abedi's attempt to circumvent his new socialist order, he not only went ahead with plans for nationalizing the United Bank, but promptly placed Abedi under house arrest.

While under house arrest, Abedi further developed his scheme for his new institution. Unlike United Bank, it would operate in a manner to defy the ability of the Pakistani government, or any other, to impede any objective it might seek. It would be the first international, and indeed, trans-national bank, and something more: a charity, a foundation, a shipping empire, an insurer, a brokerage firm, a commodities exchange, a publishing house, a world-class hospital for the rich, a real estate empire, an employee cooperative, an Islamic investment bank, and a Third World powerhouse.

The most critical of these five elements was the relationship between BCCI and Abu Dhabi. Abu Dhabi is the largest and wealthiest member of the United Arab Emirates, an oil-rich federation of sheikhdoms with a combined population of about 1.5 million,

bordering Saudi Arabia and Oman, with one of the world's highest standards of living as a result of oil wealth. As early as 1967 Abedi's high net worth customers included the ruler of Abu Dhabi, Sheikh Zayed bin Sultan Al Nahayan, and his family. By 1967,

what had begun with Abedi handling the Sheikh's falconry and bustard-hunting trips in Pakistan, and the finances of Pakistani workers in Abu Dhabi, wound up with Abedi running the Sheikh's financial life. As far as Pakistani bankers observing the relationship were concerned, Abedi coordinated everything for Sheikh Zayed, from the building of the Sheikh's palaces in Pakistan, the furnishing of his villas in Morocco and Spain, his medical appointments, to the digging of wells for his homes in the desert.

Throughout the first critical decade of BCCI's eighteen year existence, as much as 50% of BCCI's overall assets were from Abu Dhabi and the Al Nayhan family, who were earning about $750 million a year in oil revenues in the early 1970's, an amount that rose to nearly $10 billion a year by the end of the decade. Until the formation of a separate affiliate, the Bank of Credit and Commerce Emirates (BCCE), BCCI functioned as the official bank for the Gulf emirates, and handled a substantial portion of Abu Dhabi's oil revenues.

Throughout the 1970's, BCCI expanded rapidly, with Abedi adding new corporate members to the BCCI family by the month. Initially, BCCI was incorporated in one location only, Luxembourg. Two years later, a holding company was created, BCCI Holdings, with the bank underneath it BCC S.A., split into two parts, BCCI S.A., with head offices in Luxembourg, and BCCI Overseas, with head offices in Grand Cayman. Luxembourg was used mostly for BCCI's European and Middle East locations, and the Grand Caymans mostly for Third World Countries. The following profile of the first five-years of BCCI's performance demonstrates this fact:

From BCCI to Bank Alfalah Limited The Long Journey

            I.      Liquidation 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.

         II.      Incorporation of Habib Credit and Exchange Bank (H.C.E.B)

In July 1991, the branches of BCCI in Pakistan at that time were taken over by The Ministry Of Finance and SBP. All three branches were emerged in Habib Bank Limited after valuation of its assets for 15 million dollars. It worked with Habib Bank Limited for around about 10 months from 14 March 1992 to 31st October 1992.

     III.      Privatization of Habib Credit and Exchange Bank

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

     IV.      Emergence of Bank Alfalah Limited

Following the privatization in July 1997, Habib Credit & Exchange Bank assumed the new identity of Bank Alfalah Limited on February 25, 1998. And with this a challenge

was launched, the challenge to transform this bank into a highly professional, most efficient & service oriented institution.

Charged with the strength of the Abu Dhabi based consortium, and under the leadership of His Highness Sheikh Nahayan Mabarak Al-Nahayan, Minister of Education, Government of Abu Dhabi, and a prominent member of Royal Family – the bank is energized with the vision, envisaging the development of consumer sector in Pakistan.

Bank Alfalah has emerged as one of the leading commercial banks in the financial sector of Pakistan. This bank has made significant contributions in building and strengthening both the corporate and retail banking in Pakistan.

To make banking solutions become accessible to more and more people, Bank Alfalah Limited has embarked upon a rapid expansion program, aiming to provide a networking that makes its services available to any of its customers in all the major urban centers of Pakistan.

  HISTORY OVERVIEW

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced   from November1st, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through 104 branches in 36 cities, with the registered office at B.A.Building, I.I.Chundrigar, Karachi.

Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies  and  policies  to  carve  a distinct position for the bank in the market place.
Strengthened with the banking of the  Abu Dhabi  Group  and driven  by the  strategic  goals set  out  by  its  board of  management, the   Bank   has   invested   in   revolutionary technology to have an  extensive  range  of  products  and  services.

This  facilitates  our commitment to a  culture  of  innovation  and  seeks  out  synergies with clients and service providers to ensure  uninterrupted  services to its customers.  We perceive the requirements of our customers and match them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today.


OBJECTIVES

*      Bank Alfalah believes in the phrase “customer comes first”. BAL’s objective is to please their customers by fulfilling the financial needs as best as possible. They believe in placing the client at the center of business and all of the products and services.
*      Service excellence is one of the objectives of Bank Alfalah.


*      Alfalah strives continually on the development of new areas of activities to distinguish itself in the market place along with traditional banking activities of resource mobilization and credit disbursement.

*      Bank focus is on Foreign Trade as primary niche of business.

*      Alfalah’s objective is the complete automation and computerization of all of its banking activities.

*      Alfalah Training and Development program of its employees is aimed at developing skills of its employees. It makes positive contribution to the service culture of the banking system as a whole.

*      They are committed to put all their energies, resources and time to bring higher  value and satisfaction to their customers, employees and shareholders.

*      The introduction and development of innovative financial instrument will      another major objective of Bank Alfalah Limited.
  

MANAGEMENT STRUCTURE

Bank Alfalah is proud of its Human Resource, as almost all the employees have been hand picked by the management. However, in this section, I would discuss those people who are responsible for hiring such a bright staff and establishing such a magnificent bank. They are the higher management of Bank Alfalah Limited.


THE CHAIRMAN (NEW)

H. E. Sheikh Hamdan Bin Mabarak Al-Nahayan

Organization Profile


Name of the organization:                 Bank Alfalah Limited

Chairman:                                           H. E. Sheikh Hamdan Bin Mabarak Al-Nahayan

BOARD OF DIRECTORS

Mr. Mohammad Saleem Akhtar                                Chief Executive Officer
Mr. Abdulla Naseer Hawalileel Al Mansoori            Director
Mr. Abdulla Khalil Al Mutawa                                      Director
Mr.Ikram-ul-Majeed Sehgal                                         Director
Mr.Khalid Mana Saeed Al Otaiba                                Director
Mr. Nadeem Iqbal Sheikh                                            Director

BOARD ADVISORY COMMITTREE

Mr. Abdulla KhalilAl Mutawa                                       Director
Mr. Khalid Mana Saeed Al Otaiba                               Director
Mr. Bashir A. Tahir                                                      Member
Mr. Ganpat Singhvi                                                       Member
Mr. M. Iftikhar Shabbir                                                Secretary

COMPANY SECRETARY
                 Mr. Hamid Ashraf

CHIEF FINANCIAL OFFICER

                Mr. Zahid Ali H. Jamall

AUDITORS

 Taseer Hadi Khalid and company
  Chartered Accountants

REGISTERED/ HEAD OFFICE

B A Building,                                                                           
I. I. Chundrigar Road,
P. O. Box 6773,
Karachi.
Financial Statements

Balance Sheet of Bank Alfalah Limited


2006
2007
2008
Assets
Cash and balances with treasury banks
27,859,360
29,436,378
32,687,335
Balances with other banks
12,731,952
18,380,738
21,581,043
Lending to financial institutions
12,456,653
3,452,059
3,315,500
Investments
56,502,210
88,491,564
75,973,238
Advances
149,999,325
171,198,992
192,671,169
Other assets
5,633,051
6,013,097
8,989,186
Operating fixed assets
10,502,990
11,922,324
13,773,293
Deferred tax asset



TOTAL ASSETS
275,685,541
328,895,152
348,990,764
LIABILITIES & EQUITY
Bills payable
3,091,135
4,138,243
3,452,031
Borrowings from financial institutions
8,394,130
21,230,697
13,690,222
Deposits and other accounts
239,509,391
273,173,841
300,732,858
Subordinated loans
3,222,106
3,220,858
2,571,169
Liabilities against assets subject to finance lease
-
-
-
Other liabilities
7,305,496
9,531,860
11,291,280
Deferred tax liabilities
1,921,338
1,379,809
208,465
TOTAL LIABILITIES
263,443,596
312,675,308
331,946,025
REPRESENTED BY



Share capital
5,000,000
6,500,000
7,995,000
Reserves
2,749,533
2,414,833
3,166,056
Unappropriated profit
2,823,072
4,851,840
3,447,467
Surplus on revaluation of assets
1,669,340
2,453,171
2,436,216
Total EQUITY
12,241,945
16,219,844
17,044,739
Total Liabilities and Equity
275,685,541
328,895,152
348,990,764
















Income Statement of Bank Alfalah Limited



2006
2007
2008
Mark-up/return/interest earned
21,191,470
25,783,871
31,046,583
NON MARK-UP /INTEREST INCOME
Fee, Commission and brokerage income
1,804,998
2,429,599
2,539,321
Dividend income
37,393
64,722
300,943
Income from dealing in Foreign currency
386,997
474,510
914,845
Gain on sale of securities
180,751
2,053,192
424,220
Unrealized (loss) /gain on revaluation of Investments
(27,599)
(14,929)
(181,571)
Other income
842,099
1,031,372
1,247,669
Total Non mark-up/ Interest income
3,224,639
6,038,466
5,245,427
TOTAL INCOME
24,416,109
31,822,337
36,292,010
EXPENSES
Mark-up/return/interest earned expensed
15,232,886
16,620,963
20,331,194
Provision against non-performing loans and advances-net
697,690
2,370,867
2,035,997
Provision for the diminution in the value of investments
-
-
1,479,062
Bad debts written off directly
1,537
5,844
28,298


Administrative expenses
5,874,745
8,272,587
10,471,399
Other Provisions/Write Offs
-
6,959
28,582
Other charges
43,306
9,565
122,758
Total non mark-up/ Interest expenses
5,918,051
8,289,111
10,622,739
Extraordinary / Unusual items



PBT
2,565,945
4,535,552
1,794,720
Taxation

        -Current
476,226
1,726,810
1,730,051
        -Prior years
(100,874)
-
(221,797)
        -Deferred
427,902
-321,487
(1,014,835)
TOTAL EXPENSES
22,653,418
28,692,108
34,990,709
PAT
1,762,691
3,130,229
1,301,301


























Financial Analysis

       Horizontal Analysis

Horizinatal Analysis of Balance Sheet


2006
2007
2008
Assets

Cash and balances with treasury banks
100.0
105.6
117.3
Balances with other banks
100.0
144.3
169.5
Lending to financial institutions
100.0
27.71
26.61
Investments
100.0
156.6
134.5
Advances
100.0
114.1
128.7
Other assets
100.0
106.7
159.6
Operating fixed assets
100.0
113.5
131.13
Deferred tax asset
-
-
-
TOTAL ASSETS
100.0
119.3
126.6
LIABILITIES & EQUITY

Bills payable
100.0
133.9
111.7
Borrowings from financial institutions
100.0
252.9
163.1
Deposits and other accounts
100.0
114.05
125.56
Subordinated loans
100.0
99.96
79.79
Liabilities against assets subject to finance lease
-
-
-
Other liabilities
100.0
130.5
154.5
Deferred tax liabilities
100.0
71.81
10.85
TOTAL LIABILITIES
100.0
118.7
126.0
REPRESENTED BY

Share capital
100.0
130.0
159.9
Reserves
100.0
87.83
115.1
Unappropriated profit
100.0
171.86
122.1
Surplus on revaluation of assets
100.0
146.9
145.9
Total EQUITY
100.0
132.5
139.2
Total Liabilities and Equity
100.0
119.3
126.6





Comments on Horizontal Analysis of Balance Sheet:

Assets:

  1. The reason of increasing in cash because bank is maintaining more cash in hand for liquidity problem, so bank increase cash in hand and reason of increase in cash with treasury bank is that bank is maintaining the reserve with the SBP and other foreign central banks to maintain the minimum capital requirement.
  2. The reason of increasing in the balance with other banks is that rate of return that in this year the bank-earning rate is between 10%-19% as compared to last year, which is 7.8%-8.95percentage in Pakistan.
  3. The reason of decreasing in lending to financial institution is that bank prefers the Call Money Lending and bank not prefer in this year reverse repo.
  4. Bank investment increase in various companies like Pakistan Dollar Bond newly purchased, but bank investment decrease due to the provision create by bank.
  5. Bank advances increase due to increase in deposits of bank. But there is special provision create by bank which is very high as compared to last year, its mean that credit portfolio of bank is not performing well. Bank is needed to improve in this area because it is the basic income generated item for the banking sector.
  6. Fix assets increase due to increase in the value of asset due to the gain on revaluation by the bank and bank purchase further fix assets to meet the business requirement.
  7. Bank has not a deferred tax asset in this year as well as previous year because bank has not a claim on tax department.
  8. Other assets increase due to increase in the accrued mark up. That is bad sign for the bank collection department or credit department, so the bank should pay attention to improve this sector because mark up is income of the bank.
  9. Bank total assets increase due increase in nearly every head of the assets but it is not a good increasing in the assets because the bank has a provision and accrued interest, so the bank has to improve in this sector to improve the total assets.

Liabilities:

  1. The reason of decreasing in the bill payable is that the local market of Pakistan was not suitable for business in this year because there was inflation prevailing in the country.
  2. The reason of decreasing in borrowing from other financial institution is that bank has a sufficient deposit account in this year so the bank has not need to borrow from the other financial institutions.
  3. It is a good sign for the bank to increase in deposit. Bank has a good manage in deposit it is working on increase fixed as well as saving account but bank should further more increase in current account because in this account bank has not paid mark up on such that account
  4. It is sign that bank has not increasing in further more subordinate loan and the bank has received back the term loan and not further sanction loan as a subordinate loan.
  5. Bank has not any liabilities against asset subject to finance lease as well as in previous year.
  6. Due to decrease on deferred tax. It means that bank not pay in future to the Federal Board of Revenue.
  7. The reason of increasing of liabilities of bank is that bank has increase in deposit and other liabilities. It is a good sign for the bank because it is income-generated item.
  8. It is a good sign for the bank is that its assets are more as compare to the liabilities of the bank. Bank will not face a liquidity problem in future.

Equity:

  1. The reason of increasing in the share capital of bank is that the bank has issued the bonus shares instead of paying dividend to its shareholder and the paid up capital remaining the same.
  1. Bank has increase in reserve due to increase in the deposits of the bank because the bank has mandatory to create a 5% of deposit so the bank has increase in the reserve.
  2. The reason of decreasing in unappropriated profit is that the bank has issued bonus shares instead of paying divided to its shareholders.
  3. The reason of decreasing in the value of surplus on revaluation of assets is that the bank has deficit on the government securities.

Horizontal analysis of Income Statement:


2006
2007
2008
Mark-up/return/interest earned
100.0
121.6
146.5
NON MARK-UP /INTEREST INCOME
Fee, Commission and brokerage income
100.0
134.6
140.7
Dividend income
100.0
173.1
804.8
Income from dealing in Foreign currency
100.0
216.85
418.08
Gain on sale of securities
100.0
1,135.92
234.70
Unrealized (loss) /gain on revaluation of Investments
100.0
54.09
657.89
Other income
100.0
122.4
148.2
Total Non mark-up/ Interest income
100.0
186.3
162.7
TOTAL INCOME
100.0
130.3
148.6
EXPENSES
Mark-up/return/interest earned expensed
100.0
109.1
133.5
Provision against non-performing loans and advances-net
100.0
339.8
291.8
Provision for the diminution in the value of investments
-
-
-
Bad debts written off directly
100.0
380.2
1841.1
NON MARK-UP/ INTEREST EXPENSES
Administrative expenses
100.0
140.8
178.2
Other Provisions/Write Offs
-
100.0
410.7
Other charges
100.0
22.1
283.4
Total non mark-up/ Interest expenses
100.0
140.1
179.5
Extraordinary / Unusual items



PBT
100.0
176.7
69.9
Taxation



      -Current
100.0
362.6
363.3
      -Prior years
100.0
0.00
(7214.2)
      -Deferred
100.0
-75.1
(273.1)
TOTAL EXPENSES
100.0
126.6
154.5
PAT
100.0
177.6
73.8


















 

Comments on Horizintal Analysis of Income Statement:

Non Mark- up/ Interest Income:

  1.  Mark up increase due to increase in advances of the bank. Bank has ea
  2. rned more from its primary objective mean sanction loan to its customer. Bank has also earn from other sources like investment, deposit with financial institutions, securities purchase under resale agreement.
  3. Net mark up increase normally as increase in previous ratio. It is a good sign for the bank that the bank has maintained the previous ratio and increase in it slightly. Bank should more work to increase in this ratio.
  4. There is little bit increase in fee, commission and brokerage income. Its mean that bank is not much more interest in giving a facility as an agent or may be it is the effect due to the economy condition of the country.
  5. Bank has earned more from the investment in this year as compared to previous year. Bank has a nearly 68% increase in this income.
  6. Bank has earned more in foreign currency because in this year the rates of foreign currencies increase to its peak point so the bank has more gain on this item.
  7. The reason of decreasing in gain of sale of securities the bank has a little bit less gain in listed shares but the bank has a much more less gain in un-listed shares which is nearly 91%.so the bank has decrease in gain on sale of securities.
  8. The reason of increasing in the value of unrealized loss on revaluation of investment is that the stock market condition of Pakistan. The stock market is decline to its minimum level. So the bank has a loss on such that investment.
  9. Other income increases due to increase in operation of the bank because without it a bank cannot run its business. It is better for the bank and bank has a good control on it.
  10. As compared to total non-mark up income with previous year, it is decreased. Because the bank has more loss on revaluation of investment and in this year bank has a very less income from gain on sale of securities.
Expenses:

  1. Mark up expense increased because deposits of bank increase. Bank has paid more on deposit and in this year bank has paid more on short-term borrowing from other institution, which is nearly 51% increase.
  2. Net mark up increase normally as increase in previous ratio. It is a good sign for the bank that the bank has maintained the previous ratio and increase in it slightly. Bank should more work to increase in this ratio.
  3. It is a good sign for the banking credit management that bank has created less provision as compared to previous year. Its mean that the recovery system is working good and the credit department is doing proper job about the securities and loan.
  4. In current year the bank has create provision for the loss in investment, which is 1.479 Billion. It is very big loss in this year, by this fact the bank has a negative effect on its profit.
  5. The bank has write off more as compared to previous year. Bank has nearly 80% write off in this year. This is a bad sign that the bank is not recovered much more as they can do.
Non Mark-Up / Interest Expenses:

  1. Admin expense increase due to increase in salaries of the employee and the rent also increase due to increase in inflation in this year.
  2. This is effect due to exchange adjustment increase in this year. Therefore, the bank has created a provision against off balance sheet items.
  3. Other charges increase due to increase in penalty imposed by SBP and bank has created in this year worker welfare fund, which is 106.621 million so the other charges head increase
  4. Total non-mark up expense increase due to increase in admin expenses and other expenses.
Taxation:

  1. Current year tax increases because the bank has net profit more as compared to previous year
  2. Bank has a prior year tax on tax department, which is adjusted in this year.
  3. Bank has deferred tax for the coming year in this year much more as compare to previous year.
Vertical Analysis
                            
Vertical Analysis of Balance Sheet

2006
2007
2008
Assets
Cash and balances with treasury banks
10.11
8.95
9.37
Balances with other banks
4.62
5.59
6.18
Lending to financial institutions
4.52
1.05
0.95
Investments
20.50
26.91
21.77
Advances
54.41
52.05
55.21
Other assets
2.04
1.83
2.58
Operating fixed assets
3.81
3.62
3.95
Deferred tax asset
-
-
-
TOTAL ASSETS
100.00
100.00
100.00
LIABILITIES & EQUITY
Bills payable
1.12
1.26
0.99
Borrowings from financial institutions
3.04
6.46
3.92
Deposits and other accounts
86.88
83.06
86.17
Subordinated loans
1.17
0.98
0.74
Liabilities against assets subject to finance lease
-
-
-
Other liabilities
2.65
2.90
3.24
Deferred tax liabilities
0.70
0.42
0.06
TOTAL LIABILITIES
95.56
95.07
95.12
REPRESENTED BY
Share capital
1.81
1.98
2.29
Reserves
1.00
0.73
0.91
Unappropriated profit
1.02
1.48
0.99
Surplus on revaluation of assets
0.61
0.75
0.70
Total EQUITY
4.44
4.93
4.88
Total Liabilities and Equity
100.00
100.00
100.00



































                   Vertical Analysis of Income Statement


2006
2007
2008
Mark-up/return/interest earned
86.79
81.02
85.55
NON MARK-UP /INTEREST INCOME
Fee, Commission and brokerage income
7.39
7.63
7.00
Dividend income
0.15
0.20
0.83
Income from dealing in Foreign currency
1.59
1.49
2.52
Gain on sale of securities
0.74
6.45
1.17
Unrealized (loss) /gain on revaluation of Investments
(0.11)
(0.05)
(0.50)
Other income
3.45
3.24
3.44
Total Non mark-up/ Interest income
13.21
18.98
14.45
TOTAL INCOME
100.00
100.00
100.00
EXPENSES
Mark-up/return/interest earned expensed
62.39
52.23
56.02
Provision against non-performing loans and advances-net
2.86
7.45
5.61
Provision for the diminution in the value of investments
-
-
4.08
Bad debts written off directly
0.01
0.02
0.08
NON MARK-UP/ INTEREST EXPENSES
Administrative expenses
24.06
26.00
28.85
Other Provisions/Write Offs
-
0.02
0.08
Other charges
0.18
0.03
0.34
Total non mark-up/ Interest expenses
24.24
26.05
29.27
Extraordinary / Unusual items



PBT
10.51
14.25
4.95
Taxation



           -Current
1.95
5.43
4.77
           -Prior years
(0.41)
0.00
(0.61)
           -Deferred
1.75
(1.01)
(2.80)
TOTAL EXPENSES
92.78
90.16
96.41
PAT
7.22
9.84
3.59





































                                       
RATIO ANALYSIS

Ratio analysis includes calculating different ratios for the Organization of the figures taken from its financial statements. The basic purpose of ratio analysis is that absolute figures often give misleading image so comparison with other figures is necessary which
Can be done through ratio analysis.

Profitability Ratio:

Return on Assets:

                        Net profit after tax      x 100
                                 Total assets


2006
2007
2008
ROA
0.67
1.04
0.38



ROA is the most comprehensive measure of bank’s earning capacity. Net profit margin ignores ‘efficiency concept.ROA takes both perspectives into account. That’s why it is most widely used indicator for representing the earnings of bank over time period. Higher it is better it is. An increasing trend of this ratio signifies increased efficiency of management of a bank to improve upon its earnings capacity.
ROA shows decreasing trend in starts but it increased in 2007 and reaches 1.04% to its peak and now it decreases drastically and reaches 0.38%.

Return on Equity:

                        Net profit after tax         x 100
Share Holder’s Equity


2006
2007
2008
 ROE
20.37
25.72
9.17




This is another measure of overall performance of bank. This ratio is of great importance to the present and prospective shareholders as well as the management of the company. As the ratio reveals how well the resources of a firm are being used, higher the ratio better it is.

Net Profit Margin Ratio and Gross Spread Ratio:


2006
2007
2008
Net profit margin
8.31
12.14
4.19
Gross spread ratio
28.12
35.54
34.51
           





Net Profit Margin:                                         Gross Spread Ratio:
            Net Profit After Taxes *100              Net Mark-up income
            Sales                                                   Gross Mark-up income

Net profit margin measures the percentage of sales
revenue remaining after all cost and expenses, including interest and taxes have been deducted. The net profit margin has also decreased to considerable low level of 4.19% from previous year’s 12.14%.
Gross spread ratio measures the percentage of sales revenue earned to the gross mark up after deducting the markup expense. Gross spread ratio has decreased slightly compared to 2007 and it was lowest 28.12% in 2006.

Debt Management Ratios:

Debt Ratio = Total Liabilities / Total Assets
Debt ratios tell us about the firm’s overall debt position and as well as it mixes of equity and debt. These ratios will also give general idea about the  level of financial risk faced by firm. This ratio measures the portion of total assets  financed by the firm’s creditors. Higher this ratio, the greater the amount of other people’s money being used in an attempt to generate profits. Even though debt ratio is in decreasing trend but this ratio is very high. Higher this ratio means higher the financial risk so it’s a negative sign for bank.
Debt to equity compares the debt size as compared to equity. The Debt to equity is lowest in FY07 and it has increased slightly in 2008.
However the deposits make the 90.5% of the total debt. The ratio of deposit time capital shows the deposit size as compare to the invested capital. The debt management figures show that the assets of the bank have become less leveraged till 2007. This was due to the fact that the debt has increased but equity has increased by a greater percentage in

recent years. But it increased slightly in 2008. Equity increased by 5%in FY08. However, liabilities rose by 6.1%.


2006
2007
2008
Debt to equity
21.52
19.28
19.47
Debt Ratio
0.96
0.95
0.95
Deposit times capital
19.56
16.84
17.64

PORTFOLIO MANAGEMENT RATIOS:

Portfolio refers to the assets held by an investor taken as a group. From banking point of view it means how the bank is maintaining its advances, investments and lending to financial institutions with respect to its total assets. The portfolio of the bank should be so that it contribute to overall profitability of the bank.

“Portfolio management deals with managing Advances, investments and lending to financial Institutions with respect to the total assets of the Bank”

ADVANCES TO TOTAL ASSET RATIO:

 Advances     x 100
Total Assets
                       
2006
2007
2008
54.40 %
 54.42%
51.72%





This ratio indicates proportion of advance to total assets. This is main earning assets of bank. It has two distinct features. It is most risky earning asset and highest return getting asset. As we know a proper balance should be maintained between risk and return so bank should 120 attain such level of advances. However a rising trend is desirable. It indicates banks ability to compete in the market and generate sufficient subsequent deposits.

RATE OF LENDING RATIO:

This is comparison of mark up earned with the investment, advances and lending to financial institutions.

Formula:   

Rate of lending =       Mark up\interest received                *100    
                           Investment+ advances + lending to financial institutions


2006
2007
2008
Mark up\ interest earned.
 21,191,470
25,783,871
 31,046,583
Investment
 56,502,210
88,491,564 
75,973,238 
Advances
149,999,325 
171,198,992 
192,671,169 
Lending to Financial Institutions
 12,456,653
 3,452,059
 3,315,500

a.       Calculation:
Years
Working
Rate of Lending
2008
31,046,583/271,959,907*100
11.42%
2007
25,783,871/263,142,615*100
9.80%
2006
21,191,470/218958188*100
9.60%

Comments:
In current year, the bank has increased in rata of lending because in this year mark up income increased and little bit increase in advances, remaining things are nearly same, so in this year the bank has increased in its rate of lending ratio.

                          ii)          RATE OF DEPOSIT:

Formula
                             Mark up expensed   *100
                                        Deposit + Borrowing

Years
Working
Rate of Deposit
2008
20,331,194/314,423,083*100
6.47%
2007
16,620,963/294,404,538*100
5.65%
2006
15,232,886/247903521*100
6.14%

Article II.         Comments:

The reason of increasing in this ratio is that in this year mark up expenses increase more as compare to the deposit +borrowing ratio. This is not a good sign for the bank.

ADMINSTRATIVE EXPENSE TO DEPOSITS RATIO:

Formula:
                   =       Admin expenses   * 100
Deposits Calculation

Years
Working
Advances to total assets
2008
10,471,399/300,732,858*100
     3.48%
2007
8,272,587/273,173,841*100
3.03%
2006
5,874,745/239,509,391*100
2.45%

Comments:

This is very bad impression for the bank because this ratio should not be increased from 3%, but as compared to previous year, there is big increase and it crossed the alarming point that is not better for the bank. The reason of increasing in the admin expense is that bank has paid more to its employee, rent increase, entertainment allowance increase, so the bank should take some necessary steps to overcome on it. 

ADVANCES TO DEPOSITS RATIO:

Formula:
= Advances       *100
                             Deposits
Calculation

Years
Working
Advances to Deposits
2008
192,671,169/300,732,858*100
64.07%
2007
171,198,992/273,173,841*100
62.67%
2006
149,999,325/239,509,391*100
62.62%

Comments:
The reason of increasing in this ratio is that bank has more sanctioned loan in this year as compared to previous year. The reason of increasing in this ratio is the stock market in which there was no more opportunity for investment because of its recession. Bank should increase this ratio at least 70%.

CASH RESERVE RATIO:

Formula:   =
Cash & balance with Treasury Bank *100
Deposits

Calculation:

Years
Working
Cash Reserve Ratio
2008
32,687,335/300,732,858*100
10.87%
2007
29,436,378/273,173,841*100
10.78%
2006
27,859,360/239,509,391*100
11.63%

Comments:

 It is a good sign for the bank that bank is fulfilled the requirement of SBP. This ratio is considered good because it is between the 6-13%.

SWOT Analysis on Financial Position of Company:

SWOT is stands for strengths, weaknesses, opportunities and threats. SWOT analysis is a careful evaluation of an organization’s internal strengths and weaknesses as well as its environmental opportunities and threats. In SWOT analysis the best strategies accomplish an organization’s mission by exploiting an organization’s opportunities and strengths while neutralizing its threats and avoiding its weakness. During my internship I also observe these factors of bank and made a conclusion which is as follows:

Strengths

  • Strong book of advances & deposits
  • Healthy equity base with continuous growth trend
  • Increased reserve base of bank
  • Strong footage of paid up capital
  • Rapid growth in business figures
  • Balances with other Banks increases
  • Investments also increases over time period
  • Operating fixed Assets & Other Assets also increases
  • Bills Payables decreasing trend
  • Borrowing from other Banks decreases bank prefer to finance from its own Balances
  • Deposits and other Accounts increases
  • Bank is expanding its branches and offering new products
Weakness

·        High cost of deposits
·        Low control over administrative expenses
·        Low non mark-up / non-interest income
·        Earning Per Shares value decreases due to decreasing trend in Profitability
·        Paid Expenses are increasing over Period

·        Provision on Investments showing increase
Opportunities

  • Reduction in deposit cost for improved profit margins
  • Control over admin expenses leading toward increased profitability
  • Effective and efficient utilization of strong financial footage
  • Recovery of NPLs for converting losses onto profitability
  • Introduction of new Products in Liability side to achieve its deposits target as well as decrease in other financial institution investments.
Threats

·        Very high % of Non Performing Loans (NPLs)
·        Huge provision against NPLs
·        Huge provision against investments / decrease in value of investments
·        Increasing trend of total expenses
·        Decreasing trend in profitability
·        Share value decreases due to Low Profitability/Political Instability
·        Slow Product Development Process
·        Competition with New Emerging Islamic Banking Groups

Projected Financial Statement for 2009

Projected Balance Sheet for Year 2009
Assets

Cash and balances with treasury banks
30,178,792
Balances with other banks
16,103,825
Lending to financial Insitutions
4,447,572
Investments
77,616,646
Advances
177,634,702
Fixed assts
13,956,610
Deffered tax assets
 -
Other assrts
8,885,606

328,823,753


Liabilities

Bills payable
3,907,226
Borrowings
16,573,124
Deposits and Other accounts
273,258,711
Sub-ordinated loans
2,571,169
Liabilities against assets subject to finance lease
 -
Deffered tax liabilities
230,087
Other liabilities
11,025,442

307,565,759


Net Assets
21,257,994


Represented By

Share capital
7,995,000
Share application money
3,359,787
Reserves
3,315,125
Unappropriated profit
3,812,335

18,482,247


Surplus on revaluation of assets - net of tax
2,775,747

21,257,994

Projected Income Statement for the year 2009
Mark-up / return / interest earned
9,274,618
Mark-up / return / interest expensed
-6,508,779
Net mark-up / interest income
2,765,839


Provision against loans and advances – net
-555,213
Provision for diminution in the value of investment
-18,444
Bad debts written of directly
-4,515

-578,172
Net mark-up / interest income after provision
2,187,667


Non mark-up / interest income

Fee, commission and brokerage income
614,774
Dividend Income
30,145
Income from dealing in foreign currencies
94,854
Gain on sale of securities
169,938
Unrealized loss / gain in revaluation  of investment

 classified as held trading
3,736
Other Income
314,095
Total non-markup / interest income
1,227,542

3,415,209
Non mark-up / interest expenses

Adminestrative expenses
2,724,226
Provision against off balance sheet obligations
172
Other charges
25,630
Total non-markup / interest income
2,750,028

665,181
Extra ordinary / unsual Items
 -
Profit before taxation
665,181


Taxation

Current
381,294
Deferred
-164,516

216,778
Profit after taxation
448,403

Financial Analysis:

Financial Analysis of the business of the customer constitutes the most important part of a proposal. Banker makes an analysis on liquidity, leverage and profitability of his business.

Finally along with other information banker must himself gives his comments and recommendations for the proposal.

              ELECTRONIC BANKING

ATM

Bank Alfalah Limited presents the Alfalah HilalCard, the first Visa Electron International Debit Card which gives an unlimited access to current / savings account

with a simple swipe, at millions of retail shops and ATMs, worldwide. The Alfalah Hilal Card comes with a host of conveniences and benefits combined with the wide reach of Visa Network enabling it to be accepted at more than 840,000 ATMs and 13 million retail outlets around the world, making it the most acceptable Debit Card available in Pakistan.

What's more, it is easy to operate and can be used on any electronic self-printing POS machine where VISA is accepted, locally and internationally. No more hassle of remembering your PIN for retail transactions and no need to go to the ATM for cash withdrawal, one swipe and your transaction is complete.

Online Banking

BAL is one of the few banks in Pakistan that offers On-line Banking facilities. Customers have the convenience of walking into the nearest branch of Bank Alfalah in any of the cities of Pakistan and operate their accounts. Bank Alfalah provides on-line services to its customers. At present, this service facilitates the customers to deposit and


transfer their amounts from one branch to another of BAL. It is being planned to launch a universal account to update this facility and make it more extensive

Problems
I did my internship in Bank Alfalah Limited, Shahdara Branch, Lahore. I have analyzed some problems in the bank.
·        staff strength is low
·        Branch is not having the enough facilities, it has a very congested space.
·        Political environment.
·        Professional jealousy among the employees.
  • Employees are not getting benefits as compared to their work.

RECOMMENDATIONS

I spent Six weeks of my internship in BAL Shahdar Branch. During these weeks, I felt myself to be a part of BAL. Even, this was my first experience of working in a banking organization. Before this I know a little about the banks, its working system and environment, so I learned a lot from this experience. Based on my experience & observation regarding the operations and policies of Bank Alfalah, there are some recommendations which include short term as well as long term issues for the improvement.

There is no efficient method introduced by BAL for his assessment of performance of employees. Promotions are completely relying on higher management like managers est.’s there can be some sort of favoritism. So to avoid all this, there should be a proper method to judge the employees.

Bank Alfalah Limited needs to use more marketing channels to make the public aware of its products and services. In the age of competition Bank Alfalah Limited has to realize the importance of marketing.

Bank Alfalah Limited should continue to expand its business, by increasing its deposit portfolio through aggressive market penetration strategies.

Bank Alfalah Limited needs to improve its website. More information relating to financial performance of the bank should be available on the website.

Bank Alfalah Limited should evolve a very serious management policy to attract multi national corporations as its clients. This action, if actualized, would not only prove to


be highly profit generating, but it would also contribute a lot towards Bank Alfalah’s image building.

The number of women hired by Bank Alfalah Limited is very less. Bank Alfalah Limited should employ more women. Moreover it should also recruit women for working in “Credits”.

*      One of the most pressing needs of the time is to advertise Bank Alfalah Limited in the electronic media. BAL has not, till date, employed advertisement in electronic media as a full fledge marketing tool. I think it is high time that BAL does this.

*      Presently, like most of the commercial banks working in Pakistan, a high percentage of Bank Alfalah’s credit client hail from two or three industrial sectors. In the near future the management of Bank Alfalah Limited should try
its level best to diversify as regards the mix of its advances; reason being over                   reliability on one sector of the economy could hurt the financial soundness of the bank if any adverse change in the external environment takes place.

CONCLUSION
The two months spent at BAL Shahdara Branch were, no doubt a source of great learning for me about a lot of things particularly working in bank’s atmosphere and system of bank. It’s my quite first experience to do work practically in some organization. This practical training program did not only help me acquire loads of knowledge about the predominant functions performed by banking companies, but also imparted a lot of training as regards the set of behavioral traits which distinguish a particular person from the rest of the lot in a professional environment.

*      During my internship I concluded that currently bank Alfalah has a high market share and is not facing any type if risk.
*      Due to highly trained professionals it is used to make progress leaps and bound.
*      The main objective of bank is to build strong relationship with the customers and make them believe that bank Alfalah is right for them by providing effective and efficient services.
*      It has also created a strong goodwill and trust in the market.
*      At this point it is significant to write a word of gratitude for the institute, which makes it sure, that all the students get an exposure to practical life in relatively well-reputed organizations
*      I must underscore the fact that writing this internship report was an evenly memorable experience as actually doing the internship. I honestly tried my level best to come up with an original piece of writing that could serve as a vivid proof of the fact that students at Hailey college of Commerce, University of the Punjab, are certainly doing the internship.

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