AN INTERNSHIP REPORT ON

ALLIED BANK OF PAKISTAN LIMITED

PRESENTED TO:

PROF. CH. NAZIR AHMED PRINCIPAL HAILEY COLLEGE OF COMMERCE

PRESENTED BY:

NADEEM RAFIQUE ROLL NO: 138 SECTION: B M.COM. FINAL

SESSION (99-01)

FINANCE SPECIALIZATION

HAILEY COLLEGE OF COMMERCE UNIVERSITY OF THE PUNJAB

LAHORE

PREFACE
In fact, for the students of M.Com two months internship is a golden chance to develop their capability and skill of administration and management in the practical environment of different business organization. In this contest, I select the Habib Bank of Pakistan. I have selected this financial institution, as it is one of the oldest commercial banks in Pakistan. Moreover, particularly being a student of commerce, it is necessary for me to get practical knowledge of the managerial and financial activities of the organization. This work is a collection of my observation and experience during the internship period and afterward. The source of my information for the preparation of this report also includes the written notes, literature on banking, and verbal discussion with bank officials, senior students working in banks and my class fellows. In the preparation of this report, I have received valuable assistance from employees of Habib Bank of Pakistan. I am thankful to branch manager and the whole staff for their co-operation. This report provides the complete introduction of Habib Bank as well as the complete financial analysis for the year 2002. SAIMA RAFIQUE ROLL NO 46

ACKNOWLEDGEMENT
First of all I am thankful to Almighty Allah who in spite of all my weaknesses enabled me to prepare this internship report. I am also highly indebted to my learned Prof. Ch. Nazir Ahmed, Principal Hailey College of Commerce and Prof. Abdul Rahim and all other faculty of the College, whose timely help and guidance paved a way for me to complete this internship report. It was surely his method of teaching and eagerness for imparting knowledge that I did not find much difficulty to give ink to my thoughts and information. I am also thankful to all those people who extended or offered to extend their help in order to complete this difficult task.

TABLE OF CONTENTS
Introduction to Banking Importance of Banking Evolution in Indo-Pak Sub Continent Commercial Banking In Pakistan 8 9 6 7

Various Phases of Banking Sector In Pakistan

History of Allied Bank of Pakistan Limited The ESOP Revolution in Retrospect Employee Stock Ownership Plan Financial Data (During 1974) Financial Data (During 1999) Management Remarkable Performance of Allied Bank of Pakistan (During 1998) Field of Activities Deposit Department Clearing Department Advances Department Bills Department Accounts Department Remittance Department Compendium of Work done At the Branch Overall Performance of Allied Bank of Pakistan During Current year (1999) 50 51 46 27 32 24 24 17 18 19 22

23

27

39 44 47

Organizational Hierarchy
Organizational set Up Financial Statements Balance Sheets 56

54
55 56

Profit And Loss Account Balance Sheet Horizontal Analysis Balance Sheet Vertical Analysis Profit And Loss Account Horizontal Analysis Profit And Loss Account Vertical Analysis Ratio Analysis Profitability Ratios Liquidity Ratios Capital Ratios Findings and Recommendations 69 73 58 59 60 61 62

57

62 67

INTRODUCTION TO BANKING

ORIGIN OF THE WORD BANK.

There are many definitions of the word Bank even the standard encyclopedia and law books find it difficult to state exactly what a Bank is. There have been many attempts by different writers to explain the exact significance of the term Bank. Here some of the definitions are quoted as follows. According to the Banking Companies Ordinance 1962 Section 5 (b) defines: Banker means a person transacting the business of accepting, for the purpose of lending or investment, of deposits from the public, and withdrawal by cheques, drafts, order of otherwise, and include any post office saving banks According to Crowther: Bank is a dealer of debt, his own and of other people. According to Gilbert: A bank is a dealer in capital or dealer in money. He is an intermediary party between the borrowers and lenders. According to Samulelson: Commercial banks provide certain services for customers and in return receive payments from them. According to Holder: The modern banker is primarily a dealer in credit.

Thus the comprehensive definition of the bank is: A bank is a financial institution, which deals with money and credit. It accepts deposits from individuals, firms and companies at a lower rate of interest and gives at a higher rate of interest to those who need them. The difference between the terms at which it borrows and those at which it lends forms the source of it profit. A bank, thus, is a profit earning institution.

IMPORTANCE OF BANKING
Banks play very important role in the economic life of a nation. The growth of the economy is dependent upon the soundness of its banking system. Although banks do not create new wealth but borrow, exchange and consume. These make generation of wealth. In this way they become most effective partners in the development of that country.
To encourage the habit of saving and to mobilize these savings is its basic purpose. Banks deposit surplus from the public and then advances these surpluses in the form of loans to the industrialists, agriculturists, businessmen and unemployed people under different schemes so that they set up their own business. Thus banks help in capital formation. If there are no banks, then there would be concentration of wealth in few hands and great portion of wealth of a country would be idle. In the fewer developing countries rate of saving is very low and due to this, rate of investment and rate of growth is also very low. We can take bank just like a heart in the economic structure and capital provided by it is like blood in it. As long as the blood is in circulation, the organs will remain sound and healthy. If the blood is not provided is not provided to any organ then the organ would become useless. So if the finance is not provided to agriculture sector or to industrial sector, it will be destroyed.

Loan facility provided by bank works as an incentive to the producer to increase production. Banks provide transfer of payment facility, which is cheaper, quicker and safe. Many difficulties in the international payment have been overcome and volume of transactions has been increased. These facilities are very much helpful for the development of trade and commerce.

EVOLUTION IN INDO PAK SUB-CONTINENT

The Indian society was quite familiar with the banking, right for the beginning. There is also sufficient evidence to show that during 5th century people were accustomed to use hounds as a credit investment. Loans were given to the people against personal and other securities such as ornaments, goods and other immovable properties.

COMMERCIAL BANKING IN PAKISTAN

It was very difficult for Pakistan to establish its own banking system immediately after independence without resources. Following the announcement of the partition plan in June 1947 there was a haste movement on the part of the banks to transfer their funds and accounts across the borders. The banks having their registered offices in Pakistan were transferred to India. In an effort to bring about collapse of the new state by the persecuting an international policy of withdrawal, the Indian bank offices closed quickly. Those banks, which stayed, were considering the winding up of their business. By 30 th June 1948 the number of scheduled banks in Pakistan declined from mere scratch. Today there are more than 7000 branches of commercial banks along with an established network of supplementary financial institutions. All this development in the banking sector is the result of untiring efforts of four decades.

VARIOUS PHASES OF BANKING SECTOR IN PAKISTAN

Broadly speaking we can divide the development of commercial banking into 4 phases: PHASE-1 PHASE-2 PHASE-3 PHASE-4 1947-74 1974-79 1979-91 1991-2000 Establishment of commercial banking system Nationalization of banks Islamisation process Deregulation process

FIRST PHASE (1947-74)

SET UP OF COMMERCIAL BANKING SYSTEM: This was the first phase of developments of Pakistans commercial banking system, which consists of the circumstances under which the development of banking was started in the country.

INITIAL POSITION OF BANKING IN PAKISTAN:

There were 19 non-Indian foreign banks in Pakistan at the time of independence with the status of small branch network, whose policies and operations were controlled by their head offices abroad. These banks were solely engaged in export of crops from Pakistan. There were only two banks in Pakistan at the time of Partition, Habib Bank, which had transferred its head office from Bombay to Karachi after the announcement of the partition, and Australian Bank, which has been working in Pakistani territories prior to June 1947. The government of Pakistan tried hard to eliminate the banking crises. The imperial bank of India closed down most of its offices in Pakistan, which had been working as the agent of Reserve Bank of India was not willing to purchase even token amounts of the government of Pakistan. Securities on the plea that these securities were not marketable. The Reserve Bank of India was hardly of any help. It refused to help the

govt. of Pakistan with advance argument adhoc securities to enable them to make essential disbursements such as salaries and other obligations to add to the difficulties. The Indian govt. withheld Pakistans share of 750 million in cash balances held by her at the time of independence. The forgoing developments clearly brought home the urgency of assuming the control and currency in Pakistan and brought to the fore the need to setup a central banking institution to take the place of reserve bank of India. Therefore it was agreed between the Govt. of India and Pakistan to authority of Pakistan from 30th September 1947 to 30th June 1948. In order to make necessary arrangements of the establishment of the central bank of Pakistan a committee was appointed to recommend the necessary steps. Consequently the Governor General of Pakistan and father of the nation Quaid-e-Azam Muhammad Ali Jinnah inaugurated the state bank of Pakistan of 1st July 1948. After the SBP order was promulgated on 12th May 1948. When it assumed full control of banking and currency in Pakistan the first important task before the SBP was to issue of currency notes and withdrawal of reserve bank of India, which had been in circulating in Pakistan so far.

SECOND PHASE (1974-79)

NATIONALIZATION OF BANKS: The banking reforms turned out to be a transitional and temporary step and hardly after 18 months the government nationalized the banking system. Thus through the Nationalization Bank Act 1974, SBP and all commercial banks incorporated in Pakistan and carrying on business in or outside the country were brought under the government ownership with effect from January 1974. The ownership and management of all Pakistan banks stood transferred and rested in the federal government. The shareholders were provided compensation in the form of federal government bonds redeemable at par any time with in a period of fifteen years. The amount of compensation was equal to the

break up value of the shares in case of commercial banks. For the SBP shares the amount of compensation was estimated on the basis of average of the clearing quotations during the 6 working days preceding nationalization. The chairman, director and chief executive of various banks were removed from their offices other than those appointed by the federal government and the state bank. The central board of banks, managing committees and similar other bodies were dissolved. A Pakistani banking counsel was established for nationalized commercial banks to co-ordinate their activities. As a result of merger of banks the following five major banking companies were formed: 1: 2: 3: 4: 5: National Bank of Pakistan Habib Bank Limited United Bank Limited Muslim Commercial Bank Limited Allied Bank of Pakistan

CAUSES OF NATIONALIZATION: The nationalization of banks may be justified on the following grounds: 1. Large business and industrial houses dominate the lending policies of the commercial banks, this brought forward the problem of concentration of wealth. 2. Commercial banking operations were guided by profit motives and as a result the backward regions and the small entrepreneurs were never been their favorite customers.

3.

The operation of banks, unlike after business, have direct implication on the entire national economy. For instance if the banks raise the cost of their credit, the cost of every thing may go up.

4.

Unhealthy complications among banks can lead to financial and economic problems.

5.

The flow of bank advances towards national priority sector in general is not forthcoming because private banks are profit oriented.

RESULTS OF NATIONALIZATION: Although there are doubts about the positive results of the nationalization but we can say that the nationalization of banks provided efficient professional management to expand banking services in every nook and corner of the country. Banks laid full emphasis on their lending policies on priority sector and national building projects, which discouraged non-productive and unhealthy activities like speculation and hoarding, there was also a recorded increase in the number of foreign branches of Pakistani banks. The growth of Pakistani banking system was significant. The banking facilities expanded in the rural areas. The bank credit increased sharply especially in the public sector. A part from this expansion the banking systems activity seeking to gain credit targets laid down by National Credit Consultative Counsel (N.C.C.C) and to conform to the priorities over the year to enlarge the flow of credit for the small banker and agriculturist as well as for exports. Bank deposits rose very substantially during a period when total monetary assets also registered a sharp rise. In a remarkable short time banks and their management had adjusted to the realities and compulsion of the new situation and the system as a whole was completely geared to government objectives and policies.

THIRD PHASE (1979-91)

INTRODUCTION OF ISLAMIC BANKING: In 1977 the Bhutto government was toppled. The martial law government planned to reform the banking sector in a novel way. The overall policy was to Islamize the economy and the banking system, being based on interest was an important target of the new policy. The most preferred form of Islamic bank financing profit and loss sharing would receive banks to receive deposit without guaranteeing any return. The Islamic bank has to acquire a high degree of confidence of the saver to make him deposit his money with them. not even the return of the principal amount if guaranteed. The Islamic bank cannot finance the project of an investor merely on the furnishing of collateral. The bank will have to be a partner in the project. This will require to careful security of the project and the assessment of risk involved because profits are the function of the amount of risk in the project. Honesty and trust from both sides of the market are more important to the system of Islamic Banking.

FOURTH PHASE (1991-2000)

PRIVATIZATION AND DE-REGULATION: The government headed by Prime Minister Mr. Nawaz Sharif was not fully satisfied with the performance of nationalized. The areas, which were severely criticized, were the falling standard of banking services and common red-tapism. There were complaints about the services as delay in home remittances, dispatch of cheques, drafts, inefficient counter services, bad debts of the banks etc. were on sector application for privatization of other banks namely UBL and HBL were also invited but the bidding response was quite poor. The privatization of these banks is under consideration. Legislation was enacted to permit the establishment of new banks and the government approved

10application from the private sector for the grant of commercial bank licenses by SBP, out of these 9 new banks have since been incorporated. Till March 1994 there were 20 domestic scheduled banks with 9825 branches and 21 foreign banks with 66 branches in operation in the country. Overall investment of the scheduled banks in the current year rose to 76.7%. At present there are 24 domestic scheduled with 8137branches and 19foreign banks with 71 branches are in operation in the country? Total assets of domestic scheduled banks amounting to Rs.1563.73 billion on 30th March 1996. Overall investment of the domestic scheduled banks in the current year declined by 80% over the same period last year. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Bank of Commerce Al Habib Ltd. Soneri Bank Ltd. Union Bank Ltd. Mehran Bank Ltd. Askari Commercial Bank Ltd. Capital Bank Ltd. Indus Bank Ltd. Prime Commercial Bank Ltd. Bolan Bank Ltd. Republic Bank Ltd.

Now Mehran bank has been absorbed by National Bank Ltd. due to its poor performance and ultimate failure. Now the ABN Amro Bank has also been included in the list of foreign scheduled banks. HISTORY OF ALLIED BANK OF PAKISTAN Allied Bank of Pakistan Limited (formerly Australasia Bank Limited) has witnesses and experienced all political, economic, Financial and Technological changes which have taken place in the south Asian Region since it was incorporated in 1942 at Lahore.

In 1947 when the Bank was in nascent age, it had to undergo a traumatic event which divided Asian sub continent into two independent states, namely, Pakistan and India. Allied Bank, being the only Muslim Bank on the soil of Pakistan lost over 50% of its operations and its assets, which were on the soil of India. The Management undauntedly faced the multiple challenges resulting from huge human and financial losses on the one hand and the task of providing the newly emerged nation with efficient and effective payment system and banking facilities to all sectors of economy on the other hand. The bank rendered valuable treasury services for the Government of Pakistan and despite many constraints played an effective role in socio-economic uplift of the country. In 1965 the Bank shifted its operational head quarters from Lahore to Karachi. In 1971, the bank lost more than half of its assets and network due to cessation of the East Pakistan. The Bank not only survived this crisis but also regained its financial strength maintaining the growth rates in essential performance indicators. In 1974 the Govt. of Pakistan nationalized all financial institutions in the country. Releasing the robust financial strength of Australasia Bank Ltd. among all the nationalized financial institutions, the government decided to merge three financially weak institutions, namely, Sarhad Bank Limited, Lahore Commercial Bank Limited and Pak Bank Limited into Australasia Bank Limited and renamed it as Allied Bank of Pakistan Limited. Allied Bank remained in the public sector for 17 years, during which the quality of its assets remained comparatively better among its peers. During this period the Bank expanded its domestic network and opened its first foreign branch at London, UK in 1977 the performance of the domestic and foreign operations of Allied Bank, during nationalized period, was so good that in 1989 UK operations of Muslim Commercial Bank were merged into Allied Bank of Pakistan Limited. Because of privatization in September 1991, Allied Bank entered in a new phase of its history, as worlds first bank to be owned and managed by its employees.

After privatization, Allied Bank registered an unprecedented growth to become one of the premier financial institutions of Pakistan. Today Allied Banks capital and reserves are over RS.3 billion and deposits are over Rs.94 billion. Allied Bank enjoys an enviable position in the financial sector of Pakistan. As on date the quality of assets of the Bank is one of the best amongst the major banks of the country

THE ESOP REVOLUTION IN RETROSPECT

The concept of Employment Stock Ownership Plan was not only familiarized but practically realized by Allied bank under the dynamic leadership of the then Chief Executive/President Mr. Khalid A. Sherwani. This fact shall definitely be recorded in the history of Pakistan, before going into the success of the ESOP as preached and achieved by the Allied bank; it seems pertinent at this point in time to dwell for moment on the privatization process in Pakistan as per the present day scenario. It is the fact that the privatization policy was rightly said to be corrective process and it was a bold economic initiative of the Govt. of Pakistan. It will lead the country towards self-reliance, economic emancipation of the masses, and eradication of unemployment, poverty and improvement of the quality life of the masses. Whether it is de-regulation, de-nationalization or dis-investments, it aims at productivity through maximum utilization of the resources like, men, money, and market. In the present day world trade rather that aid is what which is sought to be achieved. This can only be possible through increased productivity, reduced cost and competitive marketing ability, which result through open market operations of privatization. Creativity and market research are promoted in a better way and investment from within the country is encouraged. Private ownership is allowed to play its due role in the economy as is being envisaged by the presently Govt. in our country.

EMPLOYEES STOCK OWNERSHIP PLAN (ESOP): The basic principles underlined by Mr. Khalid A. Sherwani when launched this scheme countrywide and the positive response evoked from the Govt. press and public at large. 1. 2. ESOP fosters unity sense of belonging and loyalty to the organization. ESOP is a brand new idea in our country. It has been already stood test of the time. During last 4 years roughly 9000 companies. In America banks have been privatized under ESOP. The taste of pudding lies in eating it. 3. 4. 5. 6. 7. 8. 9. ESOP means Employees Stocks Ownership Plans. ESOP combines knowledge experience and effort of the people. ESOP gives the employees job security, better prospects for career, family, feelings, senses of loyalty and share in the progress and profits of the entity. ESOP is on the lips of every staff member of Allied bank. Imagine 7500 people spread over more than 750 branches raising one slogan ESOP. ESOP is customer oriented. ESOP means one of the all and all for one. It is teamwork. ESOP provides protection to family on retirement. It is an umbrella, which automatically opens as soon as there is a rain. HOW ABL WAS ESPOUSED:

Privatization of ABL under the concept of (ESOP) is a singular story of success anywhere in the world. Dynamic leadership was the main factor in getting the dream of the allied bank translated into reality. At the commencement of the privatization process in the country, Mr. Khalid A Sherwani prepared a working paper on employees stock ownership scheme. Management and staff members numbering over 7500 joined together and united to form Allids Management Group. On 3rd August, 1991 Mr. Khalid Latif discussed with the cabinet committee on privatization the concept of employees stock ownership plan with

particular reference to the transfer of ownership of allied bank to its employees. The deal was finalized after an in depth study of ESOP. On 11 August 1991 Allied Management Group deposited sale price of 26% share in SBP. In its meeting on 10th September 1991. Board of directors of the bank approved sale of 26% shares of the bank to the employees and thereafter vacated their seats for the in coming nominees of Allied Management Group. In its very first meeting the new Board of Directors elected Mr. Khalid A.Sherwani as its Chairman and Chief Executive. Then Govt. of Pakistan in its notification dated 12th September 1991, transferred management to the bank of its employees through their nominees on the Board of Directors. New board of directors constituted:

BOARD OF DIRECTORS OF EIGHT MEMBERS

Khalid A Sherwani
Asif Bajwa Shaukat Hayat Durrani Muhammad Sami Saeed Mozaffer Iqbal Saeed Anwar Justice Retd. Amir Raza. Muhammad Azam Khan

Chairman
Director Director Director Director Director Director Director

FINANCIAL DATA (FOR 1974)

Financial equity Subscribed Capital General and other Reserves

(Rs.In Million) 13,460 6,730

Deposits and Other Accounts: Private Sector Public Sector Investments/Advances Net Pre tax Profit 570,460 110,140 152,010 4,460

BRANCH NETWORK
Number of branches Number of staff Number of accounts 290,732 855 3,256

FINANCIAL DATA (FOR 1999)

Financial Equity Authorized Capital Issued & Subscribed Capital (Shares 106,315,565 @Rs. 10/Share) General & Other Reserves Deposits/ other Accounts Deposits Advances Investments Home Remittances International Business

(Rs.in Miillion) 5,000,000 1,063,156

480,760

93,107,291 55,263,762 26,774,766 4,232,000 37,467,000

BRANCH NETWORK
Number of Branches (Nos.) Number of Staff Number of Clients Circle Offices Domestic Branches Foreign Branches Total Number of Shareholders 855 7,000 5,336,561 23 821 4 7,793

MANAGEMENT
Khalid Shairwani M. Naveed Masud Akhtar Ali Khan
Tahir Saeed Effenndi

President Vice President Head Credit

Head IT & Chief Financial Officer

Muhammad Yaqoob

Head Islamic Banking And Planning Division

SMasud A.Sidique Anwar Zaki Khalid Mahboob

Head Human Resources Head Treasury Head Business Promotion

ALLIED BANK

Achieves Remarkable Growth Rates during are the year 1998 in All the key Performance
Allied Banks 56 Annual General Meeting was held on April 19, 1999 at Karachi. The meeting was chaired by Mr. Khalid A. Sherwani Chairman, Board of Directors of Allied Bank and was attended by a large number of share holders as well as Directors of the Bank and a representative from the State Bank of Pakistan.

The meeting began with the recitation from the Holy Quran. Than a Hammed was sung followed by Naat-e-Rasool-e-Maqbool (PBUH). The shareholder unanimously confirmed the minutes of the 55 AGM and Audited accounts of the Bank for the year ended December 31, 1998 together with Directors and Auditors Reports. The shareholders noted with satisfaction that the Bank had achieved remarkable growth rates in all the key performance indicators. Mr. Rasheed M. Chaudhry, Chairman informed the house that Allied Banks all round progress was evident from the fact that its deposits had increased from the Rs. 63 billion in 1997 to Rs.76 billion at December end 1998, registering a 20% percent rise over the previous years figures. Total assets of the bank increased from Rs. 72 billion in 1997 to Rs. 89 billion in 1998 thereby increasing at the rate of 23.4% over the last year. This is the highest growth rate for the last four years, advances, net of provision, had increased from Rs. 36 billion in 1997 to Rs. 43 billion in 1998 thus increasing by 18% during the year. He further informed that though the advances to private sector had declined countrywide yet incase of our bank share of credit to private sector remained unchanged as compared to the previous year. The investments had increased from Rs. 20 billion in 1997 to Rs. 26 billion in 1998, thus increasing by 27% during the year under review. Equity of the bank increased from Rs. 1.515 billion to Rs. 3.002 billion registering almost 100% rise. Pretax profit of the bank increased form the Rs. 29 million in 1997 to Rs. 170 million in 1998, thereby reflecting a growth rate of almost 490%. The foregoing singular growth rates were achieved by the staff of the bank through their relentless efforts despite the fact that during the year under review the global economy experience the after math of Far East Asian financial crisis resulting in slowing down of average global growth rate of GDP. In South Asia, India and Pakistan detonated their nuclear devices during the first half of 1998 followed by the economic sanctions, which seriously affected the economies of these countries. Immediately after detonation, Pakistan freezed foreign currency accounts which created crisis of confidence. Home remittances, which extend substantial support to foreign

exchange reserves, fell steeply. This situation, combined with economic sanctions, created serious issues of balance and fears of default in repayment of foreign depts. The dispute with IPPs worked as disincentive to foreign investment. As the economy was already in recession, the aforementioned events further deteriorated the economic growth and adversely effected the performance of almost every sector of the economy, as also observed in the State Bank of Pakistan. A special business was also transacted in the meeting and it was resolved to increase the authorized capital of the company from Rs. 2 billion to Rs. 5 billion. The chairman informed the shareholders that the Management would continue to make efforts for further increasing profitability and equity. For improving quality of assets, the management has decided to rigorously implement prudential regulations and bring down the quantum of Non-performing Loans. Besides, for insuring quality of assets the Bank has made a policy decision to encourage short-term self-liquidating trade related secured financing. The management will also continue its computerization program and human resources development on priority bases. The shareholders expressed full confidence in the present management and appreciated its efforts for running the bank on professional and scientific lines.

FIELD OF ACTIVITIES
Allied Bank is performing its activities through the following functions:

DEPOSIT DEPARTMENT
The function of deposit department is to collect deposits from customers. Following type of deposits are offered by Allied Bank. 1) Current deposit

2) 3) 4) 5) 6) 7) 8) 1)

Saving bank deposit Profit and loss saving account Fixed deposit Call deposit Short notice term deposit Foreign currency deposit Cumulative deposit certificate (other) Current Deposits

In the type of account the client is allowed to deposit or withdraw money as and when he likes. He may, thus, deposit or with draw several times in the day if he likes. Usually the bank allows this and service chargers are deducted by the bank and current deposit account.

2)

Saving Bank Deposits

This type of account is for those persons who want to make small savings. This type of account is opened with Rs. 100. In this case deposits can be made only up to a costing amount and with drawls are allowed twice a week. If the depositors wants to withdraw more than Rs. 15000 a seven days notices is required before the withdrawal. 3) Profit and Loss sharing Deposits

These types of accounts are one step towards the Islamisation of Banking system in the Pakistan. Under such types of accounts the bank allows no interest to the customers. The executive board of the bank declares profit or

loss every year. PLS saving account having a running minimum credit balance of Rs. 100 would be eligible for sharing profit/loss of the bank. The ratre of profit or loss on PLS saving accounts shall be determined by the bank at the close of each half year, in its sole discretion and the banks decisions shall be final and binding on the PLS account holder. 4) Fixed Deposits

In the type of account a certain amount is deposited for a certain, period such as six-month, two years or longer. A fix deposit receipts is issued in the same of the depositor. The officer incharge and the bank manager sign the receipt. A notice is given to the depositor requesting the depositor to withdraw his money or to renew this deposit. The interest allowed on fixed varies with the period for which the deposits are made. 5) Call Deposits

Call deposits are the sorts of deposits, which are deposited with the banker against any tender. This is without interest deposits, this may be with interest provided the depositor has agreed to keep its amount with the banker for some fixed period. 6) Short Notice Term Deposits (S.N.T.D)

This kind of deposit is for a short period. The depositor may withdraw his deposit at any time by giving seven days notice to the banker. In this type of

deposit facility the trader is allowed to withdraw his amount with interest of the deposited period. 7) Foreign Currency Accounts

Foreign currency account is opened by depositing foreign currency. In ABL, you can open foreign currency account in: I. US DOLLAR II. POUND STERLING III. JAPANESE YEN IV. DEUTSCHE BOOKS RELATING TO CUSTOMERS a) Pay-in-slip

When money is to be deposited in the bank the pay in slip is to be filled. The object of this book is to provide the customer with the banks acknowledgement for receipt of money to be credited his account. b) Cheque Book

A cheque book contains a number of cheques, which is given to a customer upon written request and after marking the payment for the chequebook. It enables a customer to make withdrawal from his account or make payment to various parties by issue of cheques.

c)

Pass Book

Passbook is a copy of the customer account as it appears in the books of the bank, the clerk in this book records balance. But now a days due to computerization the concept of passbook is not in practice.

GROUNDS FOR CLOSING THE CUSTOMERS ACCOUNT The banker may close the account of the customer due to following reasons: I. Notice by a Customer II. Death of a Customer III. Customers Insolvency IV. Customers Insanity V. By order of court VI. Unsatisfactory operation The explanation of each is as under:I. NOTICE BY CUSTOMER

The banker closes the account of the customer on the application of the customer for closing his account. II. DEATH OF CUSTOMER

On death of his customer, the bank must stop payment on cheques drawn on him by the deceased customer because the death revokes his authority to pay such cheque. The heirs or the executors of the deceased customer are not authorized to operate on the account; it can act only in accordance with provisions mentioned in the letter of probate issued by a competent court not authorized to operate on the account; it can act only in accordance with provisions mentioned in the letter of probate issued by a competent court

III.

CUSTOMERS INSANITY

If the customer becomes insane or mental it terminates the bankers authority to act as his customers agent. Since the banker customer relationship comes to end, I such as situation, it is usually considered that the bankers authority to pay his customers cheques is revoked by notice of insanity. However, the bankers treat their customers as it unless a fairly inclusive evidence of the customers insanity is available to them. IV. ORDER OF COURT A court of law may serve a banker with an order in garnish proceeding in execution of a decree prohibiting him from honoring a customers cheques. V. CUSTOMER INSLOVENCY Insolvency is civil death therefore, the insolvent adjusting loses his rights receiver or liquidator as the banker receives the notice of insolvency of the adjusting, or petition filed for adjusting filled customer insolvency, his

authority to pay cheques or to accept of honor bills to take action on behalf of his insolvent customer. CLEARING DEPARTMENT 1. 2. 3. 4. 5. 6. 7. 8. 9. Introduction Clearing House Advantage of Clearing House Function of Clearing Department Procedure of depositing cheque Types of cheques collected by clearing department Scrutiny of pay in slip Procedure after scrutinizing Procedure of clearing at clearing house INTRODUCTION Every bank acts in two way i.e. i) ii) Paying Bank Collection Bank

Here in theory no legal obligation on a banker to collect cheques, drawn up to other banks for a customer. It is, however, an important function of crossed cheques. A large part of this work is carried out though the bankers clearing house wherever it is established. CLEARING HOUSE

A clearing house is the place where representatives, of all the banks get together for the purpose of off setting the inter bank indebtedness arising from the transfer of deposits by a customer of a particular bank to another bank. ADVANTAGE OF CLEARING HOUSE The advantages are manifold. It prevents the cost and waste involved in collection each and every cheque and claim. Which a banker holds against another, across the counter with all the danger of loss in the transit incumbent upon it. Great economy is also achieved in the employment of liquid cash by setting the difference by simpler transfer of credit from one account to another, there by minimizing the necessity of holding large wash balances, clearing house works under the control of State Bank of Pakistan. A banker has no legal obligation to collect cheque drawn upon other banks for the customers, though modern banks have assumed this important function of their own choice. Therefore, it is very important that since they have assumed this function, the banker should be very careful in their performance, otherwise they will face more difficulties. So, if they provide this facility when the cheques are crossed. FUNCTION OF CLEARING DEPARTMENT The following are the main functions of clearing department. 1) 2) To accept transfer deliveries and clearing cheques from the customer To arrange the payment of cheque drawn on the branch and given for of the branch and to arrange for their collection. collection to any other branch of Allied Bank of Pakistan or any other members, or sub-members of the local clearing house.

3)

To collect amounts of cheques drawn on members, sub-members of

the local clearing house, sent for collection by those Allied Bank Limited, branches which are not represented the local clearing house. PROCEDURE DEPARTMENT Whenever a customer wants to deposit cheque, etc, he fills a pay in slip and hands it over the counter along with the instruments he wants to deposit with bank. As far as possible, the customer desire that on of the staff member fill in a slip for him, he should be obliged promptly. The smaller portion of the perforated pay in slip is handed over to the depositor and the portion becomes the regular portion of a credit voucher. OF DEPOSITING CHEQUES IN CLEARING

TYPES

OF

CHEQUES

COLLEDTED

BY

CLEARING

DEPARTMENT
(a) Transfer Delivery Cheques

Transfer cheques are those cheques, which are collected and paid by the same branch of bank. (b) Transfer Delivery Cheques Transfer Deliver cheques are those cheques, which are collected and paid by two different banches of a bank, situated in the same city.

(c) Clearing Cheques Clearing cheques are those cheques in which the payee (Person who deposit cheques for collection) and the drawer of a cheque maintain the account with different banks. When the cashier receives the cheques, which are to be deposited for clearing purpose, the following points must be verified. 1. The instrument should be neither stale nor post dated. 2. If the instruments is crossed, not negotiable, it can be for the third party (can be endorsee of an order cheque, or a holder of bearer cheque) 3. The instrument should not bear any unauthorized alteration. 4. The amount in words and figures should be the same. 5. The instruments should be drawn on a member, or any of local branches. 6. If the cheque is crossed Account payees Account payee only or Payees Account, it should be accepted for collection for the payees account. 7. The cheques or drafts should not be crossed specially to any other bank. 8. A cheque payable to one of the joint account holder should not be collected for the joint account without the payees endorsement, or consent. 9. A cheque payable to a firm should not be accepted for credit to a partners account.

10. A cheque drawn be a customer in the capacity of an agent. Attorney, or Manager of his company or firm, should not be collected for credit to his personal account. 11. Pay orders, although negotiable, should not be collected for third parties. 12. Do not collect an instrument in the account of an agent, or of the servanrt of the payees of endorsee of the instruments. 13. Mail transfer Receipts pay ships and treasury receipt should not be collected for persons other than the payee. 14. If an account is new, or the balance or operation of the account is not satisfactory, satisfy yourself about the titles of the customer to the instruments before the titles of the customer to the instrument before accepting the deposit. 15. Brach agents permission should be obtained before accepting a third party cheque or draft for creditof the account of the staff member. 16. If the payee is a government department, government official, or a trust account, the instrument cannot be collected, but of the payees account. 17. If the payee of an instrument is Allied Bank Limited, it can collected for credit of the drawers account, or the amount of the instrument may be utilized as desired be the drawer in writing. 18. Cheque payable to a trust, account should not be collected for credit to at trustee account. 19. All the endorsement should be regular, and on endorsement should be missing. After the cashier scrutinizes the cheques he must also scrutinize the pay in slip.

SCRUTINY OF PAY-IN-SLIP The following steps are involved in the scrutiny of pay in slip. 1) On both the counterfoil and the pay in slip following should be checked. i) ii) iii) iv) v) Date of Deposits Account number Title of the account The cheque/number and the drawer bank/name. Total amount in words and figures

Customer should use separate pay in slip for transfer, transfer delivery, and clearing cheques. The amount noted should be the same as the amount of the instruments, and the amount in words and figures should be same. PROCEDURES AFTER SCRUTINIZING After scrutinizing the cheques and other deposit instruments and paying slip at the counter the following procedure is under taken by cashier if he is satisfied. 1) 2) 3) 4) 5) Fixing the stamp. Scrutiny, and receipt by the authorized officer Returning the counter foil to the depositor. Certificates and confirmation by the officer-incharge of the department. Separating the cheque into transfer delivery, and clearing cheque.

PROCEDURE OF CLEARING AT CLEARING HOUSE

The mechanism of setting inter bank indebtedness operates as follows. Clerks representing various banks meet at a common place, the clearinghouse, everyday. Every clerk then delivers to the others the cheques and the other claims which their respective banks hold against his banks hold against his bank cheques and other documents dishonored will be returned to the representative of the respective bank. The various amounts of receipts and deliveries are now added up and a balance is struck there in and the final settlement is effected by the supervisor of the clearing house by transferring balance kept and the central bank by these various clearing banks.

ADVANCES DEPARTMENT
a). b). c). a). Introduction Securities Types of Advances INTRODUCTION

The function of advances department is to lend in the form of clean advances, against promissory notes, as well as secured advances against tangible and marketable securities. The bankers prefer such securities that do to market fluctuations. Common Securities for the bankers advances are as under: b). 1. SECURITIES Guarantees not run the risk of general depreciation due

When an application for advance cannot offer any tangible security, the banker may rely on personal guarantees to protect himself against loss on advances or overdraft to the applicant.
2. Mortgage

A mortgage is the transfer of an interest in specific immovable property for the purpose of security the payment of money advanced or to be advanced by; way of loan, and existing or future debt, or the performance of an engagement which may rise to a pecuniary liability. The transfer is called a mortgagor, the transferee a mortgage.
3. Hypothecation

When property in the shape of goods is charged as security for a loan form the bank the ownership and possession is left with the borrower, the goods are said to be hypothecated.the essence of hypothecation is that neither the property in the goods not the possession of them are possessed by the lender, but the security is granted by means of letter of hypothecation, which usually provides for a bankers charge on the hypothecation goods.
4. Pledge

In a pledge the ownership remains with pledge, but the pledgee has the exlusive possession of property until the advance in repaid in full. While in case of the default the pledgee has the power of sale after giving due notice.
5. Promissory Note.

Sometimes promissory note is also accepted as a security, A promissory note is an instruments in writing containing an unconditional undertaking

signed by the maker, to pay ;on demand or at a fixed or determinable future time a certain sum of money only, to or to the order of certain persons, or to the bearer or the instrument. A promissory note is incomplete until has been delivered to payee or the bearer. Moreover, the sum promised in a promissory note may be made by two or more makers who may be liable there on jointly and severally.

KINDS OF ADVANCES
The advances which are given by Allied Bank Limited are as under: 1. RUNNING FINANCE (Overdraft)

Running finance (old name overdrafts) are advances, which are generally, given to meet temporary requirements of the customers. A good customer use the banks running finance limit as a mean of protecting his credit in the market and as a line of security defense to meet his commitments.

Classification of Running Finance: I Unsecured Under such type of overdraft the bank pay upon the personal security of the customers mentioned on the customers account. II Secured

Under this type of overdraft the bank allows his customer to withdraw more than his deposits after giving security against the amount overdrawn. The Securities against which they given are: a) Share certificate, Saving Certificate

(a) Deposits (b) Mortgage of property (c) Guarantee of person 2. DEMAND FINANCE: (DF)

Demand Finances are those advances which are allowed in lump sum for fixed period and are repayable lump sum or gradually in installments. Classification of (DF) (a) Demand Finance (Packing Credit)

Scheme introduced by SBP for exporter of carpet, surgical instruments, at zero percent rate of interest. While banks provides at concessional rate of interest. (b) Ordinary Loan

Qarz-e-Hasana Scheme Loans are allowed to the students, teachers without any interest or mark up with the recommendation of the MPA ort MNA. (b) Loan for Staff

Loans are offered to the staff of the following four categories. I. II. House Building Loans against mortgage of property. Loan for purchasing vehicles.

III.

Loan equivalent to months salary.

3.

CASH FINANCE (Commercial Loans Inward)

These type of loans are given against following: I. II. III. IV. 4. Against locally manufactured goods. Against pledge Against commodities Against Trust Receipts SMALL LOANS

Loans are allowed to contractors clearing agents. 5. FINANCE AGAINST THE FOREIGN BILLS (FAFB)

This facility is available to both local and foreign bills I. FAFB (local) advance against Railway receipts and truck receipt, a company with bills of exchange and invoices, are given under this head. II. FAFB (foreign) advances against foreign bill covering bills of exchange, bills of lading airway bills of exchange etc. 6. AGRICULTURE LOANS:

Loans to the farmers with holding up to 25 acres for meeting their short term, medium and long term agricultural production requirements, such as: I. II. Agricultural inputs Tube Wells

III. IV. 7.

Live Stock Framing Land improvements INDUSTRIAL LOANS:

Besides the short-term loans which play a part in working capital medium and long-term loans are also given to industrial sector for purchases of machinery and other capital nature goods.

BILLS DEPARTMENT
Bills department the following functions: a. Inward Bills for Collection (IBC) b. Outward Bills for collection (OBC) a) INWARD BILLS FOR COLLECTION (IBC)

These are bills or cheques etc. which is collected locally. These are received from outstation branches banks and parties. Demand Draft: It refers to the payment of money on demand of the holder of draft. Demand draft includes DD issues and DD payable.

b)

OUTWARD BILLS FOR COLLECTION (OBC)

Clean Bills:

These are negotiable instruments, drawn on outstation branches, bills sent for collection on behalf of the customers i.e. cheques , drafts or treasury bills etc. DOCUMENTARY BILLS: These are bills accompanied by documents such as R.R.T.R. Bills of lading etc. having title to goods, collected by the bankers on behalf of their customers. PAY SLIP: Pay slip is an instrument in receipt, issued by the bank in the following cases: a. On account of expenditure incurred by the bank. b. On account of refund of a payment to a persons under certain circumstances. PAY ORDER: Pay order is issued to other banks for collection of payments as said.

ACCOUNTS DEPARTMENT:
Usually accounts are maintained in two ways: a. Journal System b. Voucher System In journal system entries are posted in Journal Books and then posted to ledger. It is adopted by industrial institutions.

Voucher system is use for every transaction. Voucher has to be prepared either in cash or in transfer or in clearing the sheet upon which these vouchers are summarized transactions-wise and consolidated into a figure is called supplementary. Types of Supplementary a. Debit Supplementary b. Credit Supplementary Debit Supplementary is used for debit voucher and credit supplementary is used for credit voucher books and registered by bank are as follows: 1. General ledger 2. Statement of daily affairs. 3. Cash Book or Cash cum day Book 4. Transfer Book 5. Income and expenditure ledger, etc INCOME INCLUDES: 1. Brokerage (A bank sells and buys shares, stocks, debentures, other securities and receives payments for these services) 2. 3. 4. 5. Discount Service Charges Rent (On Building) Commission (from utility services)

EXPENDITURES INCLUDES

1. 2. 3. 4. 5. 6.

Salaries, allowances and provident fund Rent, taxes, insurance, lighting etc. Profit paid on deposits and borrowings Postage, telegram, and stamps Stationary, printing and advertisement charges etc. Auditors fee and legal charges.

REMITTANCEDFE DEPARTMENT
Remittance department performs following functions: i) ii) iii) Mail Transfer Telegraphic Transfer Demand Drafts (MT) (TT) (DD)

MAIL TRANSFER (M.T) When a customer requests the bank to transfer his money from one branch of bank to another branch of the same bank or from one city to another city to the same bank or any other bank. Customer fills the form given by bank. If the customer has an account with that amount as mentioned in the application form then concerned officer will undertake the following procedure to make the mail transfer complete. i) ii) iii) Branch Mail transfer form Receiving Branch Register copy Issuing branch register Copy

iv) v)

beneficiary advice advice to customer

In case where the sustome4r is not account holder of the bank then the customer will have to deposit the amount which he wants to transfer under Mail. Then the above said procedure will be done. TELEGRAHPIC TRANSFER (T.T) This type of transfer is simple. After filling the application form the concerning officer shall fill the telegraphic transfer form. Then it is sent to the required bank which on receiving it immediately makes the payment to the customer and afterwards the voucher are sent to that bank by ordinary mail. DEMAND DRAFT (DD) Demand draft is just like cheques and issued when the customer wants to take cash with him personally. The idea behind is to avoid the risk and burden of currency notes in huge quantity. Demand draft can easily be handled whatever amount it has and the money can easily be taken from the bank when it is presented. In fact, the bank persuades the customer to transfer money by drafts and avoid the risk of frauds involves in MT and T.T. Draft is only issued when the bank knows customer and bank has the confidence in him In case of transfer of money by drafts, the customer has to fill an application form. Then the concerned officer fills the following forms: i) ii) iii) iv) Customers advice Customers debit form Register copy Cover Advice

A foreign bank uses the cover advice if draft is issued to National Bank of Pakistan.

FOREIGN DEMAND DRAFT Foreign Demand Draft is just like demand draft. The only difference is that a bank issues FDD to the bank of another country. It requires foreign exchange and it involves seven forms, which are to be filled.

COMPENDIUM OF WORK DONE AT THE BRANCH

As every body knows that Knowledge without practice is sterile In order to give vent to this idea an internship program of two month has been arrange in different esteemed organizations during M.Com. In this regard on 15th of July I was asked by my principal to go to Allied Bank to have an internship of two months there. So as per standing order I was assigned to work under the supervision of accountant of Food Market Branch, Silanwali, Sargodha. On my 1st day of internship, I took charge of Assistant to Accountant. As three departments namely Accounts, Cash and Building and Clearing were being managed by the Manager in this particular branch. The routine work, which I performed, is as follows: I made postings of cheques and pay in slips in the working hours. I also wrote scroll book for maintaining the record of utility bills. when daily closing was started I also issued DD which were duly signed and checked by accountant. I also maintained transfer book, long book and extract book..

I also carried over the balances from ledger books to balance books after every fifteen days and then these were balanced. I was advised by accountant to be remained vigilant about the fake cheques and wrong postings. Accountant gave me some instructions regarding scrupulous examination of cheques i.e. verification of signature from specimen card and balance verification. So this is the compendium of all work done by me in two months internship at the branch. Resultantly I would really appreciate the collaboration and sincerity of my fellowmen, although it will not be clich to say that I gained a lot from the practical aspects of banking environment. At the end, I would say no doubt; the work I did there must be known to a commerce graduate but I think that a trainee must accentuate on Loans and Advances.

OVER ALL PERFORMANCE OF ALLIED BANK IN CURRENT YEAR (1999)

TOTAL ASSETS: Total assets to the bank increased from Rs.89 (billion) in1998 to Rs.107 (billion) in1999, there by increasing at the rate of 19.66% over the last year. This is the highest growth rate over the last four years. Advances Advances, not of provision, have increased from Rs.43 (billion) in 1998 to Rs.55 (billion) in 1999 thus increasing by 29.37% during the year. However, the advances to private sector have declined countrywide yet in case of allied bank share of credit to private sector remains unchanged as compared to previous year. Investments The investments have increased from Rs.25 (billion) in 1998 to Rs.27 (billion) in 1999, thus increasing by 4078% during the year under review. It is encouraging to observe that

during last years the priority of the management has remained to increase investment after, of course, meeting the genuine needs of our customers. The investment of 90% has been made in Gove. Securities, which mitigates the default risk on statutory liquidity reserve and ensures safe return to the shareholders.

Deposits The peer Banks floated various high cost deposits mobilization hemeduring the year. However, Allied Bank depending ion its quality of service and experienced field force successfully mobilized additional deposit over Rs.16 (billion) during the year reflecting a growth of almost 20.8% over the previous year. Equity Equity has remained one of the main concerns of the management. In order to increase equity, the bank issued 100% right shares in 1995 and 25% in 1996, also ploughing back profits through bonus shares of 25% each in 1995 and 1996. In 1999, the management decided to revalue land and building acquired by the bank several years back and was being carried at book value. However the international properties of the bank have not been revalued. As result of revaluation of domestic land and building of the bank the reserves of the bank have increased by almost Rs.1.5 (billion) thereby increasing the equity of the bank by almost 100%. Now the total equity stands at Rs.3.002 (billion). Profitability Pre-tax profit of the bank decreased from Rs.170 (million) in 1998 to Rs.71 (million) in 1999, thereby reflecting decrease of almost 58.23%. The main reason for decreased profit was decline in yield from Rs.769.09 (million) in 1998 to Rs.334.43 (million) in 1999.

ORGANIZATIONAL HIERARCHY
PRESIDENT

SENIOR EXECUTIVE VICE PRESIDENT

EXECUTIVE VICE PRESIDENT

SENIOR VICE PRESIDENT

VICE PRESIDENT

ASSISTANT VICE PRESIDENT

OFFICERS GRADE I

II

III

ASSISTANTS

CASHIER

PEONS

ORGANIZATIONAL SET UP
OF

ALLIED BANK OF PAKISTAN LIMITED

Head Quarter

(Karachi)

Provincial Head Quarters

Punjab Sindh N.W.F.P & Azad Kashmir Balochistan

(Lahore) (Karachi) (Peshawar) (Quetta)

Circle Offices
Branch Offices