In Masters of Business Administration, Internship Program is an important part to give students an opportunity to have experience of practical field. Unless and until the students experience the novelty of practical work, their knowledge of what they study in theoretical courses remains incomplete. The most important point in an Internship Program is that the student should spend their time in a true manner and with the spirit to learn practical orientation of theoretical study framework. This internship report is on my six weeks practical training at Bank of Punjab Civil Secretariat Lahore. In this internship report I have tried to give details about the Bank of Punjab, working and the functions of different departments of the bank.
First and foremost all praise be to Almighty Allah to gave me the courage and patience to carry out this responsibility successful.
I also wish to tender grateful acknowledgements with profound respect and gratitude to respected Dr.Muhammad Zaffarullah director of Institute of management Science B.Z.University, Multan& Internship coordinator Mr. Reza Ali for providing me an excellent opportunity to explore ourselves by practical experience of internship.
I am highly indebted to Mr.Shahzad Siddique ( Senior Chief Manager) & Mr.Sohail Tanveer (Operations Manager) of Bank of Punjab Civil Secrtetariat Lahore.
I also feel indebted to all the respected staff of Bank of Punjab Civil Secrtetariat Lahore who gave me very effective guidance to make this work successful.
Bank Of Punjab has started its work as a non scheduled bank in 1989 and was given the status of scheduled bank in1994.It is performing specialized services to the government of Punjab. It has not able to show a remarkable performance. Further, the privatization of other banks has also created a competitive environment in banking industry.
Bank Of Punjab currently has a wide network of branches in side the province and other province of the country as well. Through this huge network of branches the bank is providing all sort of services that have become part of the modern banking. Bank Of Punjab successfully adopts innovation and new products which are rapidly adding up in the product mix of banking industry, all.
The bank is providing deposits facilities to more than 200000 customers in the country and which is increasing by the time. The bank has been providing a service to the Government of making salary payments to government employees on behalf of the government. These payments are sent to the bank of distribution from the provincial division of concerning departments.
In the deposits area the bank is providing special account such as PLS term deposits, which provides a monthly withdraw able return on the account. And there is a national income daily account carrying hybrid characteristic of saving and current account distributes all profit on daily product basis to the account holders. The bank is trying revolutionizing the services that are provided over the counter and is working for an early change in all branches of the bank.
In the advances side the bank has been successful in deploying its resources in the best way in all commercial, industrial and agricultural sector of the country. The advances have been increasing with the increasing trade and commerce and bank has been able to meet the requirements up to the maximum extent. The introduction of a new setup of services in shape of foreign currency account has further given a sharp rise in the banking field. This has made easy for the formers residing in Pakistan to be encouraged.
The financing process of all international trades, which modern banking made less complicated and more secur have increased with the global villege in the world. For banks it is an oppourtunity to grasp the maximum share as possible through being more
efficient to reach the customer. BANK OF PUNJAB has been providing these financing services with great esteem and devotion to public and private enterprises. Further due to being under the influence the bank has been forced to make unprofitable commitments too.
The management is considering the facts and doing planning for the sake of getting it through the unjustified pressures but still not be able to implement them in good manner. This is a further disturbed by the demotivated an unqualified staff that is workling with the bank.
To be able to regain the level of performance and profitability the bank has to take serious measures to escape from the political influence, build a competent and qualified cool pf employees, make all possible efforts to introduce the modern technology that is serving in the world and to enhance the confidence of the customer, all necessary steps be taken by the bank.
HISTORY OF BANKING
“Bank is a pipeline through which currency moves into and out of circulation.”
Bank accepts deposits and repays cash to its customers on their demand. The Bank borrows money at a lesser rate of interest and lends it to the borrowers at a higher rate. It is thus a profit-lending concern. Bank cannot lend all the money that has been deposited with it. It has to keep a certain portion of the total deposits in cash with them in order to meet the cash requirements of the individuals and business concern.
Word Bank is said to be derived from the words Banc us or Banque or Bank.The history of banking is traced to as early as 2000 BC. The priests in Greece used to keep money and valuables of the people in temples. These priests thus acted as financial agents. The origin of banking is also traced to early goldsmiths. They used to keep strong safes for storing the money and valuables of the people. The persons who had surplus money found it safe and convenient to deposit their valuables with them. The FIRST STAGE in the development of modern banking, thus, was the accepting of deposits of cash from those persons who had surplus money with them.
The goldsmiths used to issue receipts for the money deposited with them. These receipts began to pass from hand to hand in settlement of transactions because people had confidence in the integrity and solvency of goldsmiths. When it was found that these receipts were drawn in such a way that it entitles any holder to claim the specified amount of money from goldsmiths. A depositor who is to make the payments may now get the money in cash from goldsmiths or pay over the receipt to the creditor. These receipts were the earlier bank notes. The SECOND STAGE in development of banking thus was the issue of bank notes.
The goldsmiths soon discovered that all the people who had deposited money with them did not come to withdraw their funds in cash. They found that only a few persons presented the receipt for encashment during a given period of time. They also found that most of the money deposited with was lying idle. At the same time, they found that they were being constantly requested for loan on good security. They thought it profitable to lend at least some of the money deposited with them too the needy persons. This proved quite a profitable business for the goldsmiths. They instead of charging interest from the depositors began to give them interest on the money deposited with them. This was the THIRD STAGE, in the development of banking.
By experience the banks came to know that they could keep a small proportion of the total deposits for meeting the demands of customers for cash and the rest they could easily lend. They allowed the depositors to draw over and above the money actually standing to their credit. In Economics terminology we can say that they allowed the overdraft facilities to their depositors. This was the FOURTH STAGE, in development of banking.
When every bank issues receipts and most of them allowed the overdraft facilities, there was then too much confusion in the banking system. The banks in order to earn profits could not keep adequate reserves for meeting the demands of the customers for cash. The failures on the part of the bankers to return money caused widespread distress among the peoples.
In order to create confidence among the people, steps were taken to regulate the banking organization. A conference was held in Nuremberg in 1548. It was decided that a bank should be set up by the state, which should streamline the banking organization and technique. The first central bank was formed in Geneva in 1578. Bank of England was established in 1694. The responsibility of issuing of notes is now entrusted to a central bank of each country.
COMMERCIAL BANKING INPAKISTAN:
At the time of partition total number of banks were 38 only. Out of these Banks the Pakistani Banks were only 2, Indian Banks 29 & Exchange Banks were 7. The total of deposits of Pakistani Banks was Rs.880 Million. & advances were Rs: 198 Million. According to banking companies ordinance Banks are the companies, which transacts the business of Banking in Pakistan.
Commercial Banks have constituted the most important [part of the intuitional credit in the economy of Pakistan. Being the largest source of credits, Banking Industry is a pivot of whole the economic activities in Pakistan. Section 37(2A) of State Bank of Pakistan Act 1965 lays down that the Banks must have paid-up capital & reserve of not less then Rs: 5 Lac & fulfilling certain other requirements for declaring as “Scheduled Bank”.
At the time of independence Bank services was badly affected. But with the passage of time these are improving. The government of Pakistan nationalized all Banks in early 1974. This act was done to minimize control of few hands over banking. But this step was proved e futile for the Banking in Pakistan. So the Govt. had to revise its decision in1990. Two Banks (Allied Bank of Pakistan Limited & Muslim commercial Bank of Pakistan Limited have been denationalized. Since then Banks were working well. Now slogan of the Banks is to serve their customers in the best possible manner.
“Banks are the guardian & distributor of money “.
Similarly we can say that it is a pipeline thorough which currency moves into & outside the circle. Banks accept deposited of money and repay it on demand. Bank borrows money at lesser rate of interest & lends it at higher rate of interest. In this way Banks earn money. Bank do not lend all money they collect, they keep certain portion of it as reserve to meet the uncertain demand of the customer.
FUNCTIONS OF A COMMERCIAL BANK
In general terms the functions of a commercial bank can be classified under the following main heads.
1. ACCEPTING DEPOSITS
Some people have an excess money and they want to deposits it to some honest man or an institution which can give them some profit. So the first function of commercial bank is to receive deposit there are three types of deposits.
1.1 Demand Deposits or Current Deposits
Some people deposit their excess money in the current accounts and they can withdraw their money deposited in this account at any time during the banking hours, so bank is not ready to give interest on it.
1.2 Fixed Deposits
These deposits are fixed for a particular period. Commercial banks also pay an interest on these accounts. An important thing related to it is the varying interest rates for the different period deposits. Interest rate increases with the increase in the fixed deposit period.
1.3 Saving Deposits
To create the habit of savings, bank accepts the saving deposits and pays an interest on these deposits. And this rate of interest is greater than the demand deposits.
2. ADVANCING LOANS
Bank also advances the loans to the merchants and charges the interest. It is the major source of its income. It also issues the loan for short term, medium term and for long term. And bank receives the higher interest from the borrower for the long term loans offered.
3. DISCOUNTING OF BILL
Commercial banks also discount the bills and facilitate the business; for example one businessman purchases anything from another person and promises to pay after one month. The seller will write a bill to the buyer and there will be an order that after one month the buyer will pay the amount to the seller. Buyer will sign on the bill. In other words buyer will accept the responsibility of that amount. If seller is in need of money, he will take it to the bank and will receive the money by discounting the bills. The commercial bank also may rediscount it from the central bank.
4. CHEAP MEDIUM OF EXCHANGE
By issuing cheques and drafts bank provides cheap, medium of exchange.
5. TRANSFER OF MONEY
The commercial bank is very helpful in transferring the money from one place to another by issuing the drafts. This is very popular concept in the modern world and widely used in the business community.
6. CUSTODIAN OF PRECIOUS ARTICLES
Banks also provide lockers for the safety of precious articles. So now everyone can secure his precious metals like gold, silver, etc., and bank charges a very nominal charge for this facility.
7. AGENCY SERVICES
Commercial Banks also perform the duty of an agent. It collects and pays on the behalf of the customers.
On behalf of the customers all the banks also make an investment in different companies and industries. And banks receive nominal charge from the customers.
9. CREATION OF CREDIT
It also creates and extends the volume of credit.
10. FACILITATING TRADE ACTIVITIES
It also provides the finance to the foreign trade. Letter of credits are issued by the commercial banks for the foreign payments.
11. PURCHASE AND SALE OF SECURITIES
The commercial bank purchases and sells the securities, for itself and sometimes on the behalf of the costumes.
12. ACTING AS A TRUSTEE
If a client directs his bank to act as a trustee in the administration of a business, the bank performs this responsibility.
ROLL OF COMMERCIAL BANK IN THE ECONOMY DEVELOPMENT OF PAKISTAN:
Banks play an important role in the economic development of country. If our Banking system is not in accordance to the economic requirement then how it can play a vital role in our developments. The State Bank of Pakistan is at the apex and all the commercial Banks have to follow the rules of State Bank of Pakistan. Role of the banking sector can be judged by the following facts:
The commercial Banks namely United Bank Limited Pakistan, Habib Bank Ltd, Allied Bank of Pakistan Ltd. National Bank of Pakistan & Bank of Punjab has opened Branches in urban areas & rural areas to mobilize savings of people.
FINACCING OF DEVELOPMENT PROJECTS:
Banks & other financial institutions like ADBP, IDBP, and PICIC etc. Advances short & medium terms loans for financing of the development projects both in the private & public sectors .So they helping to accelerate the rate of progress (Economic) in the country.
ENHANCING TRADE ACTIVITIES:
The credit institutions collect the savings of people & make them available for facilitating the trade activities both inside & outside the country.
CREATING CLIMATE FOR CAPITAL FORMATION:
A developed baking system stimulates the growth of economy by creating favorable climate for capital formation in the Country.
HELP OF STATE BANK OF PAKISTAN IN ACHIEVING MONETARY PUBLISHES:
Commercial Banks under the supervision & guidance of the S.B.P help in implementing & achieving the objective of monetary policy, which vary from time to time.
ASSISST IN PLANNED DEVELOPMENT:
Commercial Banks are profit-seeking enterprises. In order to maximize profit they have the incentive from S.B.P to maximize the limit of finance. An organized Banking system keeps BOPance between the liquidity * profitability, thus assists in the planed development of the Country.
PROFIT SHARING SCHEME:
Commercial Banks receive surplus BOPance of the households and business & pay interest on the deposit of client. The depositors instead of having a fixed return on the deposit will share in the profit & loss of the Bank. The profit & loss scheme arrangement is the alternative to interest, under an Islamic economic system, which is since on the experimental basis in Pakistan.
On behalf of the Board of Directors, I am pleased to present accounts of the Bank of Punjab for the 1st quarter of the year ended March 31, 2006. Pakistan’s economy is on a high growth trajectory with GDP expanding by 8.4% during FY 2005. While growth has tapered during the first half of FY 2006, most macroeconomic indicators suggest that the economy is in good shape and real GDP growth of 6.0% during FY 2006 is forecasted. Policy makers are faced with the unenviable task of boosting economic growth potential while keeping inflationary pressures under check. The overall balance of payments situation remains manageable as growing remittances and an encouraging jump in both FDI and portfolio investment have helped eased the burden of a large trade deficit. Inflation has picked up after hitting an all time low in FY 2003 and is presently uncomfortably close to double digit levels, driving the SBP to maintain its tightened monetary stance.
The performance of your Bank remained satisfactory during the 1st quarter of the year. The Bank earned a pre-tax profit of Rs.822 million during the quarter as compared to Rs.565 million for the similar period last year indicating 46% growth. Profit after tax of Rs.585 million is 61% higher than the figure of last year’s corresponding period. Despite accounting for the dilution impact of about 58% bonus issue made by the bank for the year 2005, earning per share for the 1st quarter comes to Rs.2.04. Bank’s deposits rose to a level of Rs. 90,089 million at the end of the quarter. Advances portfolio of the bank has increased to Rs.71,385 million showing 12% increase over December 31, 2005. The capital and reserves of your bank have now grown up to Rs.7,362 million with a rise of 9% over the level as of December 31, 2005.
The staff of the Bank also deserve for an appreciation for their untiring efforts to achieve the targeted results. For and on behalf of the Board
INTRODUCTION of BANK of PUNJAB
The Bank of Punjab was established in 16 November, 1989 under The Bank of Punjab Act 1989. Main Branch Lahore was the first Branch that was opened. In 1989 BOP was mended as a non – scheduled bank on in the province of Punjab. In beginning the main deposits were the government. Because it was opened to support the government of Punjab. In 19th Sept 1994 the Bank of Punjab was converted into a scheduled bank, The permission was being given by the Government of Punjab. After being converted into scheduled bank it opened its first branch in the city of Islamabad (Blue Area ) on the date 19th Sept 1994. The total numbers of staff of BOP is approx. 4000 most of the employees are master degree holder and are highly qualified and are working efficiently. It quickly expanded its operations in the Punjab province by opening its branches. Approximately one branch was opened in a day. The strength of branches in the province of Punjab is 255. .Now the total number of branches is 266. Today they established 266 Branches allover the country as:
Names of the cities No. of Branches
Total Branches: – 266
Bank earned a pre – Tax profit of Rs. 3165million for the year 2005 with aremarkable growth of 82% over the previous year.
The Bank paid-up capital in 2005 Rs. 851.880 million.
Macro economic management is the major concern of an economy. In Pakistan over a long period of time, the gaps in saving and investment and BOPance of trade deficit have become the serious problem to achieve the desire level of growth.
The Bank of Punjab by the grace of ALLAH has the privilege to discharge its responsibilities to words national progress and prosperity with in the little period if its scheduling.
Awards and Achievements
Best Corporate Awards
The Joint Committee of the ICAP and ICMAP selected the BOP for winning 3rd position for The Best Corporate Report Award 2004 for the financial sector
Merit Award by South Asian Federation of Accounts (SAFA)
On the basis of evaluation of the Annual Report 2004, SAFA adjudged the bank of Punjab as the recipient of “Merit Award” under the “Banking Sector subject to Prudential Supervision” category.
2nd Kissan Time Awards
The Bank was adjudged as “Best Agri Loan Bank” and has been awarded 2nd Kissan Time award.
15th Bolan Excellence Award
The Bank was awarded Best bank Award under 15th Bolan Excellence Award distributed in 2005.
The Lahore Chamber of Commerce & Industry rated the Bank as “Best Performance Bank” In year 2005.
To be a customer focused bank with service excellence
To exceed the expectation of our stakeholders by leveraging our relationship with the Government of Punjab and delivering a complete range of professional solutions with a focus on programme driven products and services in the agriculture and middle tier markets through a motivated team.
To achieve this objective the bank aims to:
Ensure that its performance in all facts of its operations more than matches that of its competitors.
Maintains a comprehensive range of domestic and international activities.
Maximize contributions from its key sources of personal machines brands representation and capital.
Be innovative progressive and the need of its customers with in the frame work of operational and prudent risk taker.
Act as a reputable efficient and responsible organization.
Pursue personal policies which recognize the aspirations and performance of individual and which are suited to the devise levels of skills.
Board of Director
The Board of Directors oversees the Bank’s strategic direction, policy formulation, its organizational structure its activity and succession planning of senior executives. The board meeting held in every quarter to review performance of the bank. Additional meeting may be called by the chairman to discuss specific issues of critical importance based on bank’s exigencies. Board committees have been estabilished for more in-depth analysis and review of varius issues. The committees then report to the board aftr each meeting. The Managing Director, who is also the chief executive officer of the bank, is powered for operational issues and day to day running of the bank. In carrying out of these duties the Managing Director is assisted by ateam of professional management through various committees as follows:
Asset liability Committee
Central Credit Committee
I.T. Steering Committee
Special Management Committee
Mr. Shahzad Hassan Pervez Chairman
Mr. Hamesh Khan President
Mr. Salman Siddique Director
Mr. Qaiser Zulfiqar Khan Director
Mr. Sikandar Musatafa Khan Director
Mian Muhammad Latif Director
Syed Salman Ali Shah Director
Mr. Shahzad Ali Malik Director
Mr. Gohar Ejaz Director
Mr. Jahangir Siddiqui Director
Mr. Azizul Hameed Secretary to board
Mr. Qaiser Zulfiqar Khan Chairman
Syed Salman Ali Shah Member
Mr. Shahzad Ali Malik Member .
Salman Siddique Member
A.F.Ferguson & Co. Chartered Accountants
7-Egerton Road, Lahore- Pakistan
Senior Executive Vice President (SEVP)
Executive Vice President (EVP)
Senior Vice President (SVP)
Vice President (VP)
Assistant Vice President (AVP)
Officer Grade 1 (OG 1)
Officer Grade 2 (OG 2)
Officer Grade 3 (OG 3)
Branch Level Hierarchy
General banking area is also call the operations group. It consist on following section
CONSUMER AND RETAIL BANKING
Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Actually the process of this activity starts from the preparation of all the required vouchers by
different related departments. When these vouchers are prepared, these are posted into respective computer terminals by the relevant departments. Before merging, a batch list is printed out by Computer Department and duly checked by the respective departments. After this, merging stage comes, after which a proof list is printed out. This is the stage, where Accounts Department starts performing its function. Proof list is checked by the Accounts Department.
This section performs the following functions:
Opening of Accounts
Issuance of checque books
Closing of accounts
Payment of Cheques
Types of accounts
Following types of accounts are open in BOP
Current or demand account
Saving account (PLS)
This type of account is designed to encourage the saving habit of the customer and lead to a long-term banking or investment relationship .Bank saving accounts are in the nature of deposits accounts and are not normally available for drawings. Rates of interest are typically ahead, by a small margin. Saving accounts with the banking sector represent a very small proportion of total deposits. Customer can make any withdrawals from type of account. The cash reserve ratio is typically low them the current account because the withdrawals against this account is very low. The minimum BOPance for this account is Rs.100 and interest rate is
Current or demand account
These are those deposits, which can be drawn by the depositor at any time by presenting a cheque to the bank. People deposit their money in this account they gave a ready command on their account in developed and under developed countries of the world, a very significant part of money is kept under current or demand account. On this type of account of interest transfer of cash or by cheque takes place at sight. The cash reserve ratio for this account is very high. The operating cost for the handling of this type of account is very high because withdrawals are very regular.
Fixed accounts are those, which are deposited for a fixed period of time and are repayable after the expiry of stipulated time to the customers. Those people who have surplus funds and want to have save investments deposit the amount in the fixed account. The rate of interest given to depositor varies with the length of deposit, i.e. it is higher for longer period and lowers for shorter period. The rates on this type of deposits are higher than the saving bank accounts. The cash reserves against this deposit are very low because there is no fear of withdrawal of a month before the stipulated of time. No paying books or passes book or cheque book is issued to the customers against this deposit to the depositors
The authorities of bank of Punjab have the right to revise all these rates of interest with out any notice to customers generally rates of interest are revised after six months. The amount deposited for 7 and 30 days short term notice and accumulated for the period exceeding the limit and the customers can get the interest of the extra days of deposit but in the case of months and years the customer did not get any additional interest for the exceeding period of deposit.
Procedure for Opening an Account
First of all, the customer gets an application from the bank, which requires all information necessary for opening account and also the documents required. An account can be opened as:
An individual account
Limited company account
Club, society, association and trust
Information Required by the Bank
Currency of Account
Nature of Business
Country of Residency
Special instructions regarding the account
Documentation In case of limited company accounts
Photocopy of National Identity Card of each director
Copy of company’s memorandum and articles of association
List of directors
Copy of board resolution
Certificate of incorporation
Their signature cards
Certificate to commence business
Documentation In case of Partnership Account
A copy of partnership deed
Signature cards of partners
Registration certificate copy
A copy of National Identity Card of each partner
Documentation In case of Club, Society, Association or Trust
Copy of rules
Certified copy of resolution
When the concerned officer is satisfied then he opens the account and gives an account number that will be used in all communications with the bank in regard to the account and when making deposits and withdrawals.
Bank has the right not to open an account without assigning any reason or to close the account if it is not operated in a satisfactory manner by the instructions of the head office
Issuance of Cheque Book
After opening the account, a cheque book is given to the customer to sign upon which the number of cheque book issued and the name of the customer is written. Bank issues a cheque book against requisition. A cheque book may be of 25(PLS), 50 or 100 leaves (current A/C). Rs. 3 per leaf as excise duty is charged to the customer.
A cheque book register is maintained by the office. In this register, the cheque book inventory, cheque books issuance is recorded.
If any customer forgets or leaves his cheque book at his home, which is far away from the bank or whatever the case may be, the customer applies with the bank for the issuance of loose cheque by the bank as he does not has his cheque book with him and the money is urgently required, the this cheque is called the loose cheque.
Bank issues a loose cheque for Rs. 50 as charges for the issuance of the loose cheque plus Rs. 3 as excise duty.
Payment of Cheques
It is bank’s primary function to repay the money required for its customer’s account usually by honoring his cheques. It is a contractual obligation of a banker to honor its customer’s cheque if the following essential are fulfilled
Cheque should be in a proper form
Cheque should not be mutilated
Cheque should be drawn in this particular branch
Cheque should not be damaged
No unauthorized material alterations
Funds must be sufficiently available
Cheque should not be post date or stale
Cheque should be presenting during the banking hours
Procedure for Closing an Account
The customer can close the account. Customer is required to submit an application for closing the account. Then the account is closed out and his BOPance is paid to him after deducting the closing charges, i.e., Rs. 200 and the application is filed in Account Closing File. Remaining leaves of cheques will also be collected from the customer.
The activities of Accounts Department can further be divided as:
Routing of expenses vouchers
Preparation of daily activity reports
Preparation of weekly and monthly statements
Preparation of statements for tax purpose.
Routing of Expenses
Vouchers of all expenses and material purchases are routed out through this department. As far as the expenses are concerned, they include the heads of salaries paid to confirmed employees of bank, wages paid to employees that are on contractual basis, rent of the building, lease installment and insurance premium paid to insurance company for the insurance of vehicles and cash in safe and counter. Expenses also include the utility bill, which consists of courier, electricity, water and gas bills, medical expenses, which are reimbursed.
Preparation of Daily Activity Reports
As far as the daily activity reports of this department are concerned, these include the following heads:
Voucher collecting of
General ledger transactions
Foreign currency related transactions
Fixed deposit related transactions
The checking is on daily basis.
Preparation of Daily, Weekly Monthly and Annual Statements
These statements are sent daily to Main Office Lahore. These are:
Daily Affair Statement, which is same as BOPance Sheet
Statement of Income and Expenditure, which includes the details of income generated and expenses incurred by the bank.
These statements are generated on weekly basis for the purpose of sending it to Head Office. These also include:
Statement of affair
Deposit and advances position of the bank
These statements are prepared on monthly basis and also sent to Head Office. These include:
Provisional statement of income and expenses. This statement adjusted for accruals and pre-payments.
Monthly BOPance Sheet and Income Statement
Statements for Tax Purpose
The department also prepares two statements for the purpose of paying tax on monthly and annual basis. These statements are generated for the purpose of submitting to Central Board of Revenue. These are:
Statement of deduction of income chargeable under the head salary under Section 53 (Tax deducted at source)
Withholding Tax from the payments made to vendors, suppliers and other parties providing various services. The rate of withholding tax is as follows:
For other parties 5%
Transfer of money or equivalent to money from one branch to another branch of the same bank is called remittance. Now it has become an easier and safer method both for the client and banker to transfer their money from one branch to another within the city or Outside City.
In case of remittances normally two banks are involved, are as under:
Originating Bank Branch
It is the branch, which issued the instrument for remittance.
Responding Bank Branch
The branch that receives the instruments for remittances, also known as drawee’s branch:
TYPES OF REMITTANCE
Remittances are classified into the following two types:
It is a transfer of money from one branch to another branch of the same bank within the same country. In this case both the parties will be of the same country and same bank.
Remittances can be made through:
Instrumental transfers are following
It is an instrument, which is payable on demand and it is only presentable in the city/country. When any draft, i.e., an order to pay money, drawn by an office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by the payment in due course.
When a person requires a draft, he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. The person to those persons, who have been duly authorized to act on his behalf, should sign this application form. An advice is prepared and two copies of this advice are sent to the Head Office. The bank charges 3% withholding tax and commission according to the rate list (minimum is Rs. 200).
It is an instrument, which is payable in demand and only presentable in city.
Pay order is also called the banker’s cheque drawn upon the issuing bank itself. It is not negotiable and therefore, bankers tend to cross the instrument “Payee’s account only” to avoid the possibility of dealing with instruments with forged endorsement. The pay order is issued favoring individuals, commercial concerns, government departments. On the presentation of pay order, the bank is liable to pay the amount to the customer. Bank charges excise duty of Rs. 4 and service charges of Rs. 100.
It is an instrument, which is issued by bank and used for expenditure purposes, i.e., electricity bills, maintenance bills, security bills, fixture and fitting, etc.
Call deposit are not actual deposits of bank. It is in fact the liability of the bank. Call deposit are oftenly prepaid by the bank for contractors
Following steps are involved
1) Depositor fill the credit vouchers for call deposit. He writes the following information
Name of company
2) He deposits the cash along with filled voucher in the cash department
Encashment of CD
For the encashment of call deposit needed
5 rupee stamp
two signature of customer on the back side of CD
accountant make entry in the CD register show that it has returned
Electronic transfer is of following types
It is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of telex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawee office upon identification or through credit into beneficiary’s bank account. As such remitting office is not required to issue any instrument payment to the remitter for delivery to the beneficiary.
Issuance and Payment of Telegraphic Transfer Outgoing
Application form is filled by the client in which the name and account number of the beneficiary, which is to be credited and name of customer is required. For telegraphic transfer, the payment can be made in case or by cheque or by debiting the customer’s account if he is the account holder. The amount of Telegraphic Transfer should be written on the form. The amount is transferred to beneficiary’s account in the other bank. An advice is given to the customer but application is filled in the record of the bank.
If the beneficiary is not the account holder of DBL, bank credits a Telegraphic Transfer payable account and when payment is made to the beneficiary, TT payable account is debited.
Issuance and Payment of Telegraphic Transfer Incoming
When a TT is received then an entry is passed in TT incoming register after verifying the test. When a person comes and wants to encash his TT, bank checks the statements of that person. If the bank finds any account credited to the person’s account against TT, bank prepares a voucher for this payment against that TT. The customer then presents that certificate to the cash counter and collects money.
It is the same like TT, but in this type, the message is sent through mail rather than telex. The procedure is same as TT, but the advice is sent through mail rather than wired.
Bank of Punjab also provides lockers facility in the country. The lockers issued only to the depositors. No lockers are issued to any unknown person.
The dual control system is used for lockers. The officer has master key to apply on the locker but he cannot open the locker of any person. The locker holder provides the bank has specimen signature. Whenever the locker holders come to open the locker, his signatures are verified by the officer and then will be able to open his locker. If the key of the locker is lost company providing these lockers breaks the locker and new lock is fitted in its locker and lock is destroyed in the presence of the locker holder and bank charges RS 1200 for that. In case the locker holder dies, the court opens his locker in the presence of his heir as mentioned in his will or and his belongings are given to them and the locker is closed.
Billing And Government Receipt/Payment
This department is performing following functions
Ø Collection of utility bills
Ø Payment of salaries
Ø Payment of zakat
The major function of Clearing Department is to receive the cheques, which are drawn on some other bank. The customer can get the money in his account at BOP, from the cheques drawn on another bank. The bank accepts these cheques and collects the amount from that bank on which cheque is drawn through the Clearing House. Bank charges some commission for this function.
Procedure for Clearing the Cheques
The customer fills pay-in slip. This slip is just like deposit slip. The cheque number, date, amount and account number must be written on this slip.
Stamping and Scrutinizing
The officer on receipt of cheques and pay-in slip will stamp the pay-in slip with “cheque received” and give a portion of slip to customer and the remaining portion is attached with the original cheque.
The original cheque will be marked with two stamps.
Bank of Punjab
At the end of day, all cheques are counted and then scrutinized in bank-wise and sent to the Clearing House
This department basically deals in bills, which come in bank for collection. The bills are cheques, call deposit, drafts and pay order. These bills are from outstation branches of BOP or of other banks. This department provides services to customers at low charges to get their amounts from the nearest branch.
HEADS OF BILLS
There are two main heads of the bills i.e.
Outward Bills For Collection (OBC)
Inward Bill For Collection (IBC)
Outward Bills for Collection
Bills department receives cheques or other kinds of bills from its clients. The condition under Outward Bills for Collection is that the customer must have his account in the branch. This branch forwards the cheque with schedule or covering letter to that branch on which bill is drawn. The checking officer of bills department will cross the cheque with special bank stamp before forwarding the cheque to the other branch.
Outward bills for collection register
Outward bills for collection register is maintained in order to deep the records of all bills for outward collections. This register is updated two times, first at time of receiving the OBCs and secondly at the time when confirmation advice is received from the other branch, either the cheque will be paid or not by the other bank branch. After confirmation of the amount, confirmation advice is transferred to the sender branch. After confirmation of the amount and bills, the account of the customer is credited against reasonable charges, which is income for the bank.
Inwards Bill for Collection
These bills come to branch for payments so branch has to verify these cheques, pay orders, drafts and call deposits etc. The party account must be opened in that branch which sends it to paying branch .The responsibility under IBCs of the branch is to verify all the bills within three days, and should send the bank advice to the originating branch.
Inward bills for collection register
Inward bills for collection register are maintained for future record purposes. Care is made while posting the amount of bills in the register. Each bill is assigned a number according to the register series. Every year the number starts from one and continues for the whole year and next year again from one and so on.
Credit is defined as the sale of goods, services and money claims in the present in return for a promise to pay in the future. While in banking sector advance is the promise that carries the repayment of the original amount plus an interest on the principal amount, extended as advance. The credit/advance is given on the base of the confidence/trust and on the belief that the customer will be able and willing to pay on the demand or at some future time.
The term credit may not be confused with term Debt. Credit and debt are merely the same things looked at from two different points of view. When a lender extends credit, the borrower acquires it. The lender or the creditor has the right to get back payment and the borrower has the obligation to pay back. Credit can be defined in these words: “credit is the right to receive payment or the obligation to make payment on demand or at some future time on account of immediate transfer of goods”. The first phrase right to receive payment is used from the point of view of the creditor, as he is to exchange present goods for the right to receive payment in future. The second phrase, an obligation to make payment on demand, which is from the debtor point of view. The debtor has an obligation to pay in the future for the goods required. Credit and debt are two sides of the same shield.
PROCEDURE FOR ADVANCES
The credit officer will have to see the following information from the company:
Name of the Company
Names of Principal Shareholders/Directors.
Line of Business.
Financial Standing & Respectability.
Your Credit experience including the use of credit facilities.
For this purpose the credit officer takes following steps before advancing credit:
Step 1: Applicant is required to serve some documents to the credit officer whenever required by him. These documents may include certified Financial Statements, legal documents regarding property occupied by the borrower. And some other certificates required by law and prudential regulations of State Bank of Pakistan like property deed, mortgage of property etc.
Step 2: Now the credit officer will have to analyze the provided financial statements critically. He will have to see the summary of financial health of the company, or partnership or the sole trader ship. Then he will have to fill the form containing information
In ratio anlaysis, credit officer has to see the Liquidity, Marketability, Profitability, and Activity ratios. After this he has to see the comparative Operating/Non-operating Cash generation statement.
Step 3: While doing this job the credit officer will have to see that the financial statements are reflecting the true picture according to the GAAP or not, and must fulfill the requirement of Checklist—-Prudential Regulations. This form consists of three pages regarding the subject matter. For this purpose he has to see the competitors, suppliers, customers and bankers with whom he is dealing.
Step 4: If the credit officer is satisfied with the financial performance of the company and other documents, he will write a credit approval containing the relevant information about the business. He attaches these documents with the proposals he made and forwards to the Zonal Office. The Zonal Office advance department ensures that the requisite documents are in order. Further they applied various financial tests, client business reliability and competitiveness. If the Zonal Chief has the power to sanction the loan, then he will prepare the sanction advice and sent it back to the relevant branch. If beyond his limits/powers then send it to regional office.
ELEMENTS OF CREDIT SELECTION
Five C’s are the main elements used for credit selection:
The loan officer checks the character of the applicant, his family background, mode of living, & business.
The loan officer checks the paying ability of the applicant by his previous experience.
Loan officer checks the business capital and liquid assets worth.
The loan officer checks collateral like stocks, bonds, B/Es,
The loan officer also checks the economic condition inside the country and outside the country. If economic condition is favorable than loan is sanctioned otherwise not.
SECTORS FOR ADVANCES
There are two main sectors for which BOP is advancing loans. These sectors are:
These loans are given specially to employees, traders, businessmen, small industrial units, including cottage and small-scale industries, agriculturists. Thus BOP is ensuring an equitable distribution of credit among various sectors of the country’s economy. Different industry codes are used for different kind of industries.
These loans are given to employees including lower scale employees and higherl-scale employees and other people up to or less than Rs. 50 thousand. Loans amount shall not exceed amount specified by marginal restriction on the type of securities offered. Consumer loans are granted by analyzing the requirements .
Loan period, loans are allowed for a maximum period of 3 years including a maximum grace period of one year. In special cases up to 5 years loan period can be extended, depending on the merit of the case.
Total principal amount of loans to a single borrower shall not exceed to Rs.0.3 million, including loans to dependent members of the family. Maximum maturity period is 3 years, also depending upon the nature and types of the loans, extended.
Mark-up, will be charged as per existing rate, which is subject to change from time to time. Presently it is 0.51 paisas per day on per thousand/1000. Mode of paying back, the borrowed amount can repay back in the form of quarterly, equal monthly or semi-annually with interest, or as the case decided.
Securities against Commercial Loans
Loan can be made against any or more of the following securities:
Mortgage of immovable property (land and Building).
Pledge of stocks, raw materials and finished goods.
Hypothecation of stocks, raw materials and finished goods
Financial Analysis of The Bank of Punjab
Assets Year 2005(Rs.’000′) Year 2004(Rs.’000′)
Cash and Balance wirh treausery banks 8787387 5579566
Balances with other banks 9367595 2118242
Lending to financial instittons 7593681 1019488
Current Asset 25748663 8717296
Investments 18026181 16197505
Advances 63623705 39438923
other Asset 2040568 1277201
Operating Fixed Asset 1715061 689486
Defferd tax Asset – –
Total Asset 111154178 66320411
Bills payable 478001 267113
Borrowings from Financial Institutions 6791007 2831605
Current account balance 15499755 12964045
Current LIABILITIES 22768763 16062763
Deposits and other accounts 72965296 41760266
Subordinates loan – –
Liabilities against Asset subject to lease 55403 81795
Other Liabilities 1474425 567540
Deferd Tax Liabilities 220177 8964
Total Liabilities 97484064 58481328
Net Asset 13670114 7839083
Share Capital 2349719 1506230
Reserves 4257337 2770645
Unappropriate profit 169817 143590
Total Profit before taxation 6776873 4420465
Surplus revaluation of asset 6893241 3418618
Total Representation 13670114 7839083
Liabilities + Representation 111154178 66320411
Current Ratio 1.1309 0.5427
Cash to current liabilities Ratio 0.7974 0.4792
Cash to total asset 0.1633 0.1161
networking Capital 2979900 -7345467
Debt Ratio 87.70166426 88.17998429
Equity Ratio 7.131181496 7.460225641
Equity Multiplier 8.131181496 8.460225641
Gross profit 56.42941258 71.85663311
Operating Profit ratio 51.67198278 67.94193748
Net profit ratio 40.81567415 57.52839781
Return on Investment 2.249126434 2.216320704
Return On Equity 18.28805524 31.89145975
Price Earning ratio 2.197802198 1.780068729
Horizontal Analysis of Balance Sheet
2005(Rs’000′) 2004(Rs ‘000)
Cash and Balance wirh treausery banks 8787387 57.4923 5579566
Balances with other banks 9367595 342.2344 2118242
Lending to financial instittons 7593681 644.8524 1019488
Current Asset 25748663 195.3744 8717296
Investments 18026181 11.2899 16197505
Advances 63623705 61.3221 39438923
Other Asset 2040568 59.7687 1277201
Operating Fixed Asset 1715061 148.7449 689486
Defferd tax Asset – –
Total Asset 111154178 67.6018 66320411
Bills payable 478001 78.9509 267113
Borrowings from Financial Institutions 6791007 139.8289 2831605
Current account balance 15499755 19.5596 12964045
Current LIABILITIES 22768763 41.7487 16062763
Deposits and other accounts 72965296 74.7242 41760266
Subordinates loan – –
Liabilities against Asset subject to lease 55403 -32.266 81795
Other Liabilities 1474425 159.7923 567540
Deferd Tax Liabilities 220177 2356.2361 8964
Total Liabilities 97484064 66.6926 58481328
Net Asset 13670114 74.3841 7839083
Share Capital 2349719 56 1506230
Reserves 4257337 53.6587 2770645
Unappropriate profit 169817 18.2652 143590
Total Profit before taxation 6776873 53.3068 4420465
Surplus revaluation of asset 6893241 101.6382 3418618
Total Representation 13670114 74.3841 7839083
Liabilities + Representation 111154178 67.6018 66320411
Vertical Analysis of Balance Sheet
Bank of Punjab
2005(Rs’000’) 2004(Rs ‘000)
Cash and Balance wirh treausery banks 8787387 7.91 5579566 5.02
Balances with other banks 9367595 8.43 2118242 1.91
Lending to financial instittons 7593681 6.83 1019488 0.92
Current Asset 25748663 23.16 8717296 7.84
Investments 18026181 16.22 16197505 14.57
Advances 63623705 57.24 39438923 35.48
other Asset 2040568 1.84 1277201 1.15
Operating Fixed Asset 1715061 1.54 689486 0.62
Defferd tax Asset – –
Total Asset 111154178 ) 66320411 )
Bills payable 478001 0.4903 267113 0.274
Borrowings from Financial Institutions 6791007 6.9663 2831605 2.9047
Current account balance 15499755 15.8998 12964045 13.2986
Current LIABILITIES 22768763 23.3564 16062763 16.4773
Deposits and other accounts 72965296 74.8484 41760266 42.838
Subordinates loan – –
Liabilities against Asset subject to lease 55403 0.0568 81795 0.0839
Other Liabilities 1474425 1.5125 567540 0.5822
Deferd Tax Liabilities 220177 0.2259 8964 0.0092
Total Liabilities 97484064 100 58481328 59.9907
Net Asset 13670114 7839083
Share Capital 2349719 17.1887 1506230 11.0184
Reserves 4257337 31.1434 2770645 20.2679
Unappropriate profit 169817 1.2423 143590 1.0504
Total Profit before taxation 6776873 49.5744 4420465 32.3367
Surplus revaluation of asset 6893241 50.4256 3418618 25.008
Total Representation 13670114 100 7839083 57.3447
Liabilities + Representation 111154178 66320411
Vertical Analysis of Profit and loss Statement
Bank of Punjab
Analyzing a company’s financial statements includes the methods of calculating and interpreting financial ratios to compare the company’s performance of the present year with the past and the analysis is also done to predict the future performance. The company whose annual performance you are going to evaluate, its annual report should be fulfilling the criteria:
Financial statement should be audited and prepared by a certified chartered accountant.
Financial statement should be prepared according to the Generally Accepted Principle of Accounting.
The Performance of at least three years is required. These years include the data of past one year and the year of which performance is going to be analyzed.
To assess the firm’s present performance as well as the future, three basic tools are used as:
1. Ratio Analysis
2. Common Size Statement Analysis
3. Performa Analysis
The firms whose performance is going to be evaluated (Bank of Punjab) fulfill these requirements that are why it is chosen to be analyzed. Here in this report, we are using the first two instruments to analyze that either company is best in terms of short term solvency, long term debt paying ability, and the profitability.
Ratio analysis is used to compare the figures of the company’s past year’s performance with the present or to compare one company’s liquidity.
Basically, ratio analysis consist a complex set of ratios which are further divided into categories. These ratios include:
Short Term Debt Paying Ability Ratios
Long Term Debt Paying Ability Ratios
SHORT TERM DEBT PAYING ABILITY RATIOS
These ratios measure the efficiency of the firms to pay back the short term contractual obligations on the due date.
The liquidity ratios of Bank of Punjab for the last two years are given below
No Ratios 2005(‘000’) 2004(000)
1. Net Working Capital 297900 -7345467
2. Current Ratio (%) 1.1309 .5427
3. Cash to total asset Ratio (%) 0.1633 0.1161
4. Cash to current Ratio (%) 0.7974 0.4792
Net Working Capital = Current Assets-Current Liabilities
By seeing at the working capital, it is obvious that company is in a very good position to pay its short-term contractual obligations. Because it is shown from the table that the trend is consistently increasing.
But it is important to note that net working capital is not a very good estimate to assess the short term solvency of the firm that’s why we go for other liquidity ratios.
To analyze the short term solvency ratios of Bank of Punjab we see the current asset structure of this firm which is as follows
No Items 2005 2004
1. Cash and Balance with treasury banks
2. Balances with other banks
3. Lending to financial institutions
4. Total current assets 100% 100%
Analysis of short-term solvency ratios
When we see the over all picture of the firm’s short term solvency ratios we conclude that firm is in a very good position with prospective of short term debt.
The reason is that it’s current, quick and cash ratio is continuously increasing. Now we find out the causes behind them
The current assets are the major part of the total assets. In 2005 the current assets were the near about the 23.15% of the total assets and they were 7.84% in 2004.
Cash ratio has also the increasing trend and the reason is that the contribution of cash is increasing in the total current assets.
The overall all these ratios are showing the very good positive trend and this is mainly due to the reason that shows that management of the company is increasing their efficiency.
LONG TERM DEBT PAYING ABILITY AND COVERAGE RATIO
In the long run, a relationship exists between the reported income resulting from the use of accrual accounting and the ability of the firm to meet its long term obligations. Although the reported income does not agree with the cash available in the short run, the revenue and expenses items eventually do result in cash movements. Because of the close relationship between the reported income and the ability of the firm to meet its long run obligations, the entity’s profitability is an important factor when determining long-term debt paying ability.
The long-term debt paying ability ratios of Bank of Punjab are given below.
No Ratios 2005 2004
4. Debt ratio 87 % 88 %
5. Debt equity ratio 71% 75%
6. Debt to tangible net worth 8.13 8.46
ANALYSIS OF LONG TERM DEBT PAYING ABILITY RATIOS
The debt ratio is showing the decreasing trend. This trend is due to liabilities against subject to lease fix asset is decreasing by 32% it is a good sign for the short term & long term investor because firm is going to discharge its leased asst payment but risk is also going to decrease in long run..
It is clear from the table that like debt ratio the debt to equity ratio is also decreasing. The trend is declining and showing that equity proportion is gradually becoming higher as compared to total liabilities. In 2005, the equity was approximately 71 % of the total liabilities and equity but in 2004 it was 75%. This is clear that every year the part of equity in total liability is increasing. This indicates that firm is financed from capital money to finance the assets.
Profitability is the ability of the firm to generate earning. Analysis of profit is of vital concern to stockholders since they derive revenue in the form of dividends. Further, increased profits can cause a rise in market price, leading to capital gains. Profits are also important to creditors because profits are one source of funds for debt coverage. Management uses profit as a performance measure.
So, the profitability ratios measure firm’s efficiency in terms of earning profit by utilizing resources.
The profitability ratios of Bank of Punjab. are given below
No Ratios 2005 2004
1. Net profit margin 40% 57%
2. Gross Profit Margin 56.% 72%
3. Operating Profit Margin 52% 68%
4. Return On Asset 2.24% 2.21%
5. Return On Equity 18.28% 31.89%
Analysis of Profitability Ratios
Almost all the profitability ratios have the not favorable trend it means that this company is not highly profitable in 2005.
The net profit margin is decreasing in 2005 and the reason is that each year the markup earning of the company is increasing but they have a not considerable control on the cost of funds. The reason for this inefficient funds management may be that now the company is not utilizing its human resource in more sophisticated for the management of funds.
Form the table it is clear that return on total assets is also decreasing in year 2005. This shows that the company is not utilizing their assets in more efficient manner in year 2005.
Sr# Ratios 2005 2004
1. Price earning ratio 2.198 3.78
Ø As earning per share has reduced which because price-earning ratio to increase market price of their stock is also reduced significantly which is not good sign for the company.
Now based on the ratio analysis we will see that whether this firm is attractive for the short-term investor and long-term investor.
Here we will also see whether this firm is attractive for the investing purpose or not.
Short-term creditors point of view
This firm has very good short-term solvency ratios. Even its cash amounts in 2005 and 2004 are higher than its total liabilities. This shows that BOP has a very less chances of technical insolvency. The other important thing is that the firm has considerable facilities of short-term finances under mark up arrangements available from various banks . Therefore, we can say that over all position of the firm is very secure for the short-term creditors and this is a very attractive firm for the short-term investors.
Long-term investor’s point of view
The firm’s profitability ratios are very attractive and almost all ratios have the favorable trend.
So, we can say that it is very good for the long term investors to invest in this firm. The reason is that this is a highly profitable firm.
Horizontal Analysis of Balance Sheet
Bank Of Punjab
Cash and balance with treasury bank increase by 57.49% from previous year due regulatory authority regulations and circulars.
Balance with other banks is increased by 36.38%.
Due to excess of liquidity in the market, bank has reduced its lending to other financial institution as they have liquidity .it is decrease by 44.85% as compare to last year.
Current Asset has increase to 11.29%.
Bank has increased its advances to the people of country by 61.32% in this year 2005
Operating fixed asset has been increased by 48.75% from previous year.
Total asset has been increased by 59.76%.
In this year bank bills payable has been increased by 78.95%.
As cash balance with other bank and treasury has shown that bank has enough liquidation there for bank has decrease its borrowing from other financial institution by 39.83%
Bank has reduced its liability against asset subject to lease finance by 32.26%.
Bank has also reduced its other liabilities by 59.79% which is a healthy sign for the Bank of Punjab.
Total liabilities have been increased by 14.82% but this increase is less than increase in total assets .the increase in total asset is 17.22%.
Share capital is increased by 56% overall there is an increasing trend in profit .
The whole balance sheet also shows that bank assets has been increased as compare to bank liabilities the profit before taxation is also showing an increasing trend which is a good sign. The whole horizontal analysis of the bank is showing the healthy position of the bank .after analyzing the balance sheet horizontally we can assume that bank is doing a very good job in increasing their share holders wealth.
Horizontal analysis of Profit and Loss Account
Bank of Punjab
Bank markup earned from lending is increased by 39.72% which is a good sign for the health of a bank.
Markup Expense has been decrease to 71.135% which is a good sign and showing the management efficiency in the field of deposit collection.
Net Markup Income is also increase by 56.43%.
Bank has controlled its loans to going into bas debts which is showing from decrease of provision against non performing advances that are reduced by 28.94% as compare to previous year.
It is the amazing sign that bank has increase its net markup after provision by 74.71% as compare to last year. That shows that bank is running on profitable path.
Fee commissioned earned brokerage income is also increased by 4.16% as compare to last year.
Profit before tax is also increased by 51.67% as compare to last year it is totally due to bank has reduce its expense in this year and increase its income also.
Profit after tax is also increase by 38.42% as compare top last year .it is higher than last year. That shows the management efficiency and stake holder trust.
Profit available for appropriations increased by 59.27% as compare to last year. This is due to decrease in cost and increase in income of the bank as compare to last year. in this year bank has also decrease its administrative expense which is a good sign.
As bank profit for appropriation is increase due to healthy status in the economy and trust worthiness of the bank the earning per share is also increased by 48.65% as compare to last year its shows that bank is in a good position.
All the horizontal analysis of income statement showing the strong financial position of the bank .bank has cut their cost as well as increases its profit as compare to last year. both short term investor and long term investor can trust on the bank and can invest into the bank .bank is adding value to the stake holder equity. It is increasing the net worth of the investor which is a goal of financial manager. it also shows that bank human resource is doing very well as compare to last yare.
Vertical Analysis of Balance Sheet
Bank of Punjab
Cash and balance with treasury bank is the 7.91% of the total asset in year 2005 and in year 2004 it was just 5.02% of total asset this shows clearly the bank has increase its cash balance with treasury bank. it is due to high liquidation in the market and bank has more deposits bank has to increase its time & demand liability and increase its deposit with treasury.
Balance with other banks in year 2005 is 8.43% and in year 2004 was only 1.91% it is also due to high liquidation and foreign remittances increase .it is a very good sign.
Lending to financial institution was 6.83% in year 2005 of total asset and 0.92% in 2004.this decreasing trend is due to more money come to country in 2004 banks has enough surplus of money to start their projects so bank do not in need of finance from the bank of Punjab there for the lending to financial institution is decreased.
Investment are 16.22% of total asset in year 2005 and 14.5% in year 2004 which shows a decreasing trend in investment it is due to excessive liquidity trend in the economy of Pakistan in year 2005.
Advances are 57.24% of total asset in year 2005 and 35.4% in 2004 this is a big difference between the year 2005 and 2004. Bank has more lend so its profit will also increase in this regard .bank is going in a good direction and it will increase overall worth of the bank in banking industry.
Bills payable are 0 .4903% of total Liability in year 2005 and 0.27% in 2004 very small increase in bill payable liability in 2004.this is due to bank total liability in more increase to its bills payable liability.
Deposits and other accounts all are 74.85% of total liabilities in 2005 and 42.82% of total liabilities in 2004 as you know that deposits are blood of bank therefore increase in term deposit and saving deposits is the good sign for the bank and showing the trust of customer on the bank.
Total profit before tax is 49.57% in total representation in year 2005 while in 2004 it was just 32.34% it is due to more lending and increase in non markup income of the bank. it is a very good sign and showing that bank is in a good financial position and its profitability is increased.
Vertical Analysis of Profit and loss account
Bank of Punjab
The markup expense is 43.57% of total markup earned in 2005 which is less than the previous year it shows that bank management has controlled their expenses very efficiently on its deposits and it is reduced to 17% as compare to previous year although the markup earned is increased.
The decrease in markup expense is cause of increase in net markup income which is 56.43% of total markup earned in 2005 which is 5% more than previous year.
Provision against non performing loan ahs also decreased 5.35% as compare to previous year .the management efficiency is clearly shown by this head.
Fee commission brokerage income in 2005 is 4.16% of total commission earned and 1.84% of total markup earned in 2004 it clearly shown the 3% more income in 2005.
Bank has also decrease its administrative expenses just because of cutting the administrative and deposit expense cost. Other charges are also decrease by .0475%.
Profit after tax is also increase by 38.42% of markup earned which is due to more income and cutting cost of expense. this showing that bank of Punjab management is very efficient in decreasing of cost it can be a competitive edge for the bank
BOP is one of the fastest growing banks in Pakistan. In the light of these situations we can make an analysis.
Bank is supported by Punjab Government
Bank is in its growing stages so there is good financial position.
Professional and Committed workforce
Low cost than other major banks
Increasing the number of branches in the country
Successfully launching new Product Lines
Well experienced and quality staff
Efficient internal communication system
Each department in the bank is fully allowed to take adequate decisions of its own, saving the time and help in achieving the objectives
Although the bank is growing fastly but it has some weaknesses which it should remove to make itself further strong.
Slow in introducing new products
The staff is not satisfied with the salary structure
Gives its staff less benefits
Extension of national network of the branches
Introduction of innovative products
ATM facility for all customers
Uncertain economic conditions
Action taken by competitors
The bank of Punjab’s equity base is good and it plans to expand its expand its business by introducing Islamic banking , deposit and investment new products as well as focusing towards developing business in the consumer finance segment.
They have planned to open more branches in the different cities of Punjab as well as in other Provinces.
SUGGESTIONS AND RECOMMEATIONS
The political influence should be minimized on all type of the operations of BOP.
The customer satisfaction should be guaranteed through rapid delivery of financial products and services.
Implementation on the rules, regulation and policies should be done at all cost.
Advances of the non-productive investment should be stopped.
The influence of the employees union should be minimized.
The bank should develop a comprehensive recruitment policy in order recruit the competent people.
The professional people should be recruited at least executive level.
The employees should be promoted according to their turn.
In order to improve the productivity the pays of employees should be compatible to banking industry.
For checking the implementation of policies task force should be formed.
All the branches of BOP should be computerized.
The bank should spend more on the promotional activities.
For the development of the Human Capital the bank should conduct a series of training program to achieve the mission.