CHAPTER 1 INTRODUCTION TO BANK

INTRODUCTION TO THE REPORT

1.1 Background of the Study
Banking is an important industry in today’s world. Banks are the most
important segment of the economy. In Pakistan too, banking is considered
very important. Because banking system plays a key role in the economic
development of a country. Bank is inevitable for making economy stronger,
efficient and to make it as good as internationally.
The Bank of Khyber was established in 1991 .The network of its
branches is spread all over the country. Now-a-days Bank is playing a vital
role in banking sector especially in North West Frontier Province, so the
primary purpose of the study is to understand the peculiar nature of the Bank.
The problems faced by this organization and the possible remedial actions, as
the study is to find all the facts upon, which analysis of the financial
statements of the organization is to be based.
For getting the master degree in business administration, each student
is required to spend at least two months as an internee in a recognized
organization. The students are required to work in their own field in which
they have done their specialization. This internship report has been written on
The Bank of Khyber Kohat branch.

1.2 Purpose of the Study

The core purpose of this program is to make students familiar with the
practical work, as there is a great difference between what they have learnt
during their MBA and how the job is practically done.

The primary purpose of this report is to gather relevant information to

compile a report on the Bank of Khyber. Along with this, the second basic
purpose is to work in an organization and to compare the theory and
application of management knowledge in real life situation. Another, purpose
is to improve personal skills i.e. human relations and communication skills
that are to interview and work with them. Similarly, the report’s purpose is
also to develop analytical skills by analyzing the financial statements of the

1
CHAPTER 1 INTRODUCTION TO BANK

organization through SWOT analysis. At the end, some recommendations are

also given for the improvement of performance of the Bank.

1.3 Scope of Work

The internship of eight weeks is not a long time for understanding the
overall organization’s functioning. This report will be beneficial to the
students in general and banking students in particular seeking guidance in
future. The management of the Bank generally and officers of the Finance
Division of Bank particularly may also use the information, which will be
useful in their course of duty and supervision.

1.4 Methodology of the Study

The research methodology is a prerequisite of carrying out research. It
defines the procedures followed during the course of research report. Research
methodology provides the guidelines for collecting information. The report
writer used both primary and secondary sources of data for writing this
research report.

1. Primary data collection technique:

It was done through:
i) Personal observations.
ii) Sittings with staff members.
iii) Interviews with senior officers.

2. Secondary data collection technique:

It was done with the help of:
i) Reference books.
ii) Annual and semi annual reports of BoK. (2000 to 2005).
iii) Brochures.
iv) Website of the bank
v) Manuals of the bank.
vi) Internet

2
CHAPTER 2 INTRODUCTION TO BANK

INTRODUCTION TO BANK

2.1 Banking: Historical Perspective

Banking practices are regarded as one of oldest activities in the history of
world. These practices have been recorded since 2000 B.C., in one form or other.
Some times these activities were carried out in temples, on benches and some
time in shops of goldsmiths. But these activities were the beginning of the
banking or it were the early stages of the modern day banking.

Interestingly no exact origin of the word “Bank” exits, and different

authors have attributed it to different origins. Some view that it is derived from
words “bancus” or “banque” meaning a bench, referring to the benches of Jews in
Lombardy, transacting their money exchange. Other researchers say that it is
derived from German word “Back’’ which means “Joint stock funds”, and later
on in Italy this word became “Bank”. However no exact origin exits, and this
shows how old these practices are.

G. Crowther in his famous book, “An outline of money” has traced that,
modern English Commercial Banking has three ancestors i.e. the merchants, the
goldsmiths and the moneylenders. These merchants, goldsmiths, and
moneylenders performed the functions of accepting of deposits/gold, issuance of
notes, payment of interest and charging of interest etc. This was the beginning of
the modern banking.

2.2 Development of Modern Banking

The development of banking is the evolutionary process in which the
ancient banking practices evolved into present day banking. This process has been
traced form 2000 B.C.; “Babylonians” were the first to develop banking system.

Banking activities of the same nature were started in third century B.C. in
the Roman Empire and continued through third century A.D. With the fall of the
old civilizations, banking suffered heavily. Banking activities in either form
remained in China, Egypt and sub-continent.

3
CHAPTER 2 INTRODUCTION TO BANK

In the sub-continent, the British Government started the modern day banking. In
1809 the “Bank of Bengal’ was given charter, it opened more branches in 1839.
1840 saw the establishment of the ‘Bank of Bombay’ followed by ‘Bank of
Madras’ in 1843. “Imperial Bank of India” was founded in 1921 where as
“Reserve Bank of India” was established in 1935 with all the powers as the
central bank.

2.3 Banking in Pakistan

Like many other institutions, at the time of independence of Pakistan, in
1947, it inherited a poor and weak system of banking. It was due to the fact, that
most of the important sectors of the economy including banking were controlled
by Non-Muslims. There were 487 offices of scheduled banks in the territories
now constituting Pakistan. Immediately after creation, it was difficult for Pakistan
to run its own banking system. The Reserve bank of India continued to function in
Pakistan until 30th September 1948, as central bank of Pakistan. But it failed to
safeguard the interests of Pakistan’s banking affairs.

The State Bank of Pakistan was established on 1st July 1948, with its head
office at Karachi. State Bank of Pakistan in addition to its normal duties as central
bank plays a very important role in the development, controlling and modernizing
of the banking system of the country. New banks like National Bank of Pakistan
etc were established while already existing banks like Habib Bank Limited
extended their network of branches through out the country and even outside the
country. Moreover, specialized financial institutions like Industrial Development
Bank of Pakistan, Agriculture Development Bank of Pakistan, Pakistan Industrial
Credit and Investment Corporation, National Development Finance Corporation,
and House Building Finance Corporation were also created to help and finance
the particular sectors of the economy like industry, agriculture, and housing.

In 1974, all the commercial banks including SBP were nationalized. After
1990, the banks are in the process of privatization, because of the new thinking
and for the improvement of performance. Muslim Commercial Bank, Habib Bank
Limited, United Bank Limited, and Allied Bank Limited are already privatized. In

4
CHAPTER 2 INTRODUCTION TO BANK

addition, Government has allowed the establishment of new private banks, of

which many new banks like Indus Bank, Union Bank, Faysal Bank, Bank Al-
Falah, The Bank of Khyber etc. are established, having their branches almost in
all important cities of the country.

2.4 Banking in N.W.F.P

The N.W.F.P is a land of geographical diversity ranging from glacial
mountain ranges in the north to arid and semi arid regions in the south. This
geographical diversity holds a significant potential for development of
agricultural, industry, forestry, hydroelectricity and tourism. The Bank of Khyber
is the first N.W.F.P based bank and assists in the development of sound business
in these areas of growth.

There are about 22 Pakistani scheduled banks operating in N.W.F.P having

1147 branches or about 15% of all the branches of scheduled Pakistani banks, in
the country. In addition 3 foreign scheduled banks with a total of 3 braches are
also operating in the province. Historically banks in N.W.F.P have been able to
mobilize substantial amounts on the total deposits of the country. However their
share of investment in the province has not been proportional. As the development
process has gathered pace over the years, investment within the province has also
increased creating a demand for banking services. A large expatriate community
from N.W.F.P residing overseas especially in the Middle East are also offering
opportunities to banks operating in province

References:

1. Siddiqi. S. Asrar, 2003, Practice and Law of Banking in Pakistan, edition

7th , Royal Book Company, Pakistan, P 2.
2. Siddiqi. S. Asrar, 2003, Practice and Law of Banking in Pakistan, edition
7th, Royal Book Company, Pakistan, p3.
3. Money Banking and Finance

5
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

INTRODUCTION TO THE BANK OF KHYBER

3.1 The Bank of Khyber

The Bank of Khyber (BoK) was established in 1991 under the act of the
N.W.F.P assembly its objectives included promotion of savings and investment in
N.W.F.P. In 1994 it acquired the status of a scheduled bank that allowed it to open
branches outside N.W.F.P, become a member of the clearing house, and engage in
trade finance activity. Advantages of scheduling have had a positive impact on the
Bank after adjustments to State Bank of Pakistan (SBP) requirements during
1995.

The Bank has a paid up capital of Rs. 750 million out of which Rs. 652.50
million has been provided by the government of N.W.F.P, while the remaining Rs.
97 .50 million has been contributed by Deutsche Investitions-und
Entwicklungsgesellscha (DEG), a German Development Bank.

The Bank has 29 branches with 23 in N.W.F.P and 2 at Karachi, one each
at Islamabad, Quetta, Lahore, and Muzzaffarabad, (Azad Jammu and Kashmir).
The Bank has 360 well qualified officers, and it places great importance on their
professional achievements.

3.2 Reaching for Excellence

Directing efforts with precision on maintaining client and employee focus,
Bank is in the process of upgrading its technological infrastructure to allow its
branches to provide a higher standard of service to its customers. For the future,
The Bank is fully geared to become one of the most dominant financial
institutions of Pakistan.
Thus reflecting the Vision:

“Gradual Conversion into

ISLAMIC BANKING
to develop and promote
a true Islamic economic system. ”

6
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

3.3 Mission statement of the Bank

Mission, broadly stating, is the purpose for which an organization exists

and why should it compete in certain sectors and industries. Within mission,
sometimes stated as purpose, the organization addresses itself to what it intends to
accomplish both in the long and short run. Mission is a very broad statement of
organizational direction, and is normally summarized and documented in a
mission statement. In same way, Bank being an organization has a mission
statement, as follow:

“To increase shareholders’ value and provide excellent service &

innovative products to customers through effective corporate governance,
friendly work environment, and contributing towards an equitable
socioeconomic growth.”

3.4 Core Values of the Bank

• Highest quality of services

• Professionalism
• Integrity
• Team Work
• Innovation & utilization of latest technology
• Corporate & Social Responsibility

3.5 Main Objectives of the Bank

Objectives are the ends towards which activities are aimed. In fact these
are the results to be achieved. Bank has certain objectives, which are as follows;
a. To mobilize private savings and public funds for diverting the same into
productive channels and ensure their availability.
b. To promote industrial, agricultural and socio economic processes through
the active participation of private and public sector in the province.
c. Help under develop areas and create employment opportunities, especially
in the rural areas of the province. Further, to guide and assist the people of

7
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

N.W.F.P serving overseas to effectively and profitably invest their foreign

savings in the province as well as the other parts of Pakistan.
d. Create a diversified and sound portfolio for utilization of idle funds and
their investment in the existing and new ventures especially in the
pioneering of high-tech agro based export oriented and engineering
projects to ensure maximum returns.
e. Participate and seek the share of the province in the capital market of
Pakistan by way of subscription through locally pooled resources in the
leading stock exchanges of the country and eventually paving the way for
establishing a stock market in the province.

3.6 Pattern of Shareholding

Table no. 3.1

Number of
No. of Shares Bonus shares
Institution shares as at
as at January received during
Name December 31,
01,2005 the year
2005
Government of 91,350,000 15,750,000 107,100,000
N.W.F.P
DEG 13,650,000 2,353,448 16,003,448
TOTAL 105,000,000 18,103,448 123,103,448

3.6.1 Total No. of Shares and Bonus Shares

Graph no. 3.1

120,000,000
No. of Shares held

100,000,000
80,000,000
60,000,000
40,000,000 Shares @ 01,01,2005
20,000,000
0
DEG
N.W.F.P

Bonus shares

Institute

8
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

3.6.2 Total Shares held by N.W.F.P and DEG in percentage

Chart no. 3.1

13% 0%
N.W.F.P

DEG

87%

3.7 Employees of the Bank

(No. of total permanent employees)

Table no. 3.2

Year No. of Employee
1999 340
2000 358
2001 365
2002 376
2003 368
2004 360
2005 370

Graph no. 3.2

Permanant Employess of Bok

380
Employees

370
No. of

360
350
340
330
1999 2000 2001 2002 2003 2004 2005
Years

9
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

3.8 Branches Network of the Bank

Chart no. 3.3

1 1
2 N.W.F.P
1
1 Balochistan
Islam abad
karachi
23
A. J. Kashm ir
Lahore

No. of Branches

Table no. 3.3

N.W.F.P Islamabad Lahore Karachi Balochistan A. J. Kashmir

23 1 1 2 1 1

3.9 Risk Management at Bank

The financial institutions are exposed to various risks in pursuit of their

business objectives; the nature and complexity of which has changed rapidly over
time. The failure to adequately mange these risks expose financial institutions not
only to business losses, but may also render them unsuccessful in achieving their
strategic business objectives.

3.10 Future Outlook

1. The bank plans to open new braches during the year 2007 in the important
cities and business hubs.
2. All the banking activities are under process to execute one of the major
Banking activities are under process to execute one of the major Risk

10
CHAPTER 3 INTRODUCTION TO BANK OF KHYBER

Management techniques of “Segregation” for effective management

controls.
3. The bank is required to raise its Share Capital to Rs. 1.5 billion during
2005.

References:

1. The Establishment Department of The Bank of Khyber.

2. The Shares Department of The Bank of Khyber.
3. The Micro Finance Department of The Bank of Khyber.
4. The Bank of Khyber Annual Report 2005.

11
CHAPTER 4 DIVISIONS AND DEPARTMENTS

DIVISIONS AND DEPARTMENTS

The following are the Divisions and Departments of the Bank.

Marketing Division

Banking Operations
R&D Department Division

Customer relations
Department Commercial
Lending Division
Product promotion
Department

Internal Audit
Division

Islamic Banking
Division
Finance Division

Information Technology
Department

Micro Finance
Department RRMC & RD

Treasury
Division

12
CHAPTER 4 DIVISIONS AND DEPARTMENTS

International
Banking Division

13
CHAPTER 4 DIVISIONS AND DEPARTMENTS

Chart no. 4.4

Human Resource
Division

14
CHAPTER 4 DIVISIONS AND DEPARTMENTS

Compliance
Department

15
CHAPTER 4 DIVISIONS AND DEPARTMENTS

4.1 Banking Operations

The Banking operation Division is mainly responsible to manage the

operations i.e. work processing functions in the Bank. This division has pivotal
role, as it has to work in close coordination with almost all the other
Divisions/Departments for a smooth functioning of the Bank. The Banking
Operations Division controls branch operation and international banking
departments. The role played by the branch operations department is important
they propose operational polices procedures and ensure strict compliance of the
same through liaison with internal audit Division.

4.2 Marketing Division

The Marketing Division of the Bank is responsible for the formulation and
implementation of Marketing Strategy of the Bank's products both on assets and
liabilities side keeping in view the business environment of the province.
Accordingly the division works to popularize the Bank's deposit schemes and loan
products among the people with a view to improve business and over all image of
the Bank.

The Division works in close coordination with the Branches and other
Divisions/Department of the Bank towards the implementation of the marketing
strategy and achievement of the assigned targets.

4.3 Islamic Banking Division

Aims and target of the Islamic Banking Division is to implement the

decision of the Board of Director to gradually convert the whole Bank into an
Islamic Bank within three years under the supervision of the Shariah Supervisory
Board as per Rules and Regulations of the State Bank of Pakistan. To achieve the
target, Islamic Banking Division has devised an action plan for expansion and
conversion of the whole Bank by December 2006 and to develop the business in
various areas. According to the plan three new braches will be opened and six
branches of the Bank will be converted into Islamic Banking Branches in 2004.

16
CHAPTER 4 DIVISIONS AND DEPARTMENTS

Islamic Banking Division plans to convert 12 more branches in 2005 and the
remaining in 2006.

4.4 Human Resource Division

It is imperative for the Human Resource Division to not only provide

educated and trained manpower so as to enable them to handle their jobs more
professionally and efficiently in all areas of banking but to develop talent and add
value to staff potential to enhance output improve profitability as well.

The Human Resource Division (HRD) puts in its concerted efforts to train,
develop and groom a sound human resource base for the Bank and to work for
continuous learning, adaptation and application of knowledge.

The HRD tries to create an environment of mutual trust and dignity so as

to ensure best positive results. It is playing a proactive role in capacity building,
experience sharing, strengthening analytical and policymaking, skill up-gradation
to help the staff in their endeavors to make Bank competitive, dynamic and one of
the best Banks in the country.

17
CHAPTER 4 DIVISIONS AND DEPARTMENTS

4.5 Credit Division

The credit policy of the Bank is reviewed on periodic basis according to

the target market. It is communicated down the line and clearly spells out the roles
and responsibility of the individuals involved.

The Bank’s credit portfolio is diversified for different client segments. The
consumer finance, car finance and house finance schemes have successfully been
introduced and are in real sense helping common folks in upraising their standard
of living.

4.6 Remedial Risk Management Collections and Recovery

Division

RRMC & RD started functioning under its new name in February 2004,
and assumed the responsibilities for the Recovery of all irregular as well as bad
debts of the Bank.

RRMC & RD coordinates closely with Credit Department, as ongoing

feed back on performance of various segments of the portfolio is critical for fine
tuning/amendment of underwriting credit initiation criteria. The Division also co-
ordinates with IT Department for the automation of most of the processes and
preparation of MIS containing information of all the branches on different types
of loans in order to bring effectiveness and cost control in the Division.

One of the primary responsibilities of RRMC & RD is to develop

performance, monitoring, and evaluation criteria for Lawyers to optimize the
litigation strategy. It also coordinates with National Accountability Bureau for
high balance and political cases..

4.7 Internal Audit Division

The internal audit Division of a Bank is an extension of the management

and is a tool through which they gauge the qualitative and quantitative output of

18
CHAPTER 4 DIVISIONS AND DEPARTMENTS

the field offices. The Internal Audit Division works independent of the
management and reports to Audit Committee of the Board of Directors. The
Internal Audit Division consists of two departments namely Audit and Inspection
and Compliance and Implementation. The Audit and inspection reports are passed
on to the implementation department for implementation/compliance and follow-
up.

The fundamental objective of internal audit is to assist the management in

materializing their pre-determined goals through established and clearly defined
plans, policies and programs, SBP regulations and also to assist them in the
effective discharge of their responsibilities, by providing them with reports,
information, analysis, appraisals, recommendations, and pertinent comments on
the activities reviewed. In short the internal auditor renders services to the
management to attain their over all objectives and to ensure.

• Adequacy and soundness of internal controls within the Bank.

• Implementation of management policies and procedures.
• To safeguard Bank’s assets from all type of losses including fraud.
• To recommend improvements in the systems and operations and pinpoint
inefficient and uneconomical operations.
• Accuracy and reliability of management data.

4.8 Treasury and investment Division

Treasury was a main source of revenue generation during the year 2004,
for the Bank. The year 2004 was marked gradual rise in interest rates of the
country was seen.

Keeping in view gradual rise trend in the interest rates, the treasury moved
quickly to invest in the medium to long-term government papers, which was
giving relatively higher yields. The treasury also traded in the secondary markets
and maintained trading portfolio of Treasury Bills and Pakistan Investment Bonds
(PIBs), which had, generate trading profits.

19
CHAPTER 4 DIVISIONS AND DEPARTMENTS

4.9 International Banking Department

During first half of the year 2005, the Foreign Trade and Exchange
Business of the Bank show a significant increase, which has not only contributed
towards solid earnings of the Bank but also broadened the clientage base on
qualitative basis.

The Bank across the border business has effectively been instrumental
towards the income growth of the Bank, which includes Imports, Exports Foreign
Remittances, Negotiation of Foreign Bills, Collection of Foreign Bills, Export
Refinance and export of Foreign Currency cash in hand.

The Bank correspondent relationship at 1320 destinations of renowned

international banks around the globe, has not only been supportive to Bank in
meeting all kind of business requirements of the customers but also in
strengthening the rapport with them by pledging future business commitments.

The acquired latest mode of financial communication, i.e. “SWIFT”

system has enabled the Bank to remit to and receive funds from anywhere in the
world with in the same business day, which eventually has benefited the clients in
terms of their time constraints in business.

Bank is planning to further expand the network of “foreign exchange

dealing” branches in near future, which will, Inshallah, play a positive role in
further enhancing the profitability of the Bank.

4.10 Compliance Department

Under the directives of the State Bank of Pakistan and the Board of
Directors, a Senior Officer was designated as Chief Compliance Officer in
January 2004. He was given the task to appoint/designate Compliance Officers
down the line at all Branches and give a complete Compliance Program which
would cover the areas of Legal Compliance, Know Your Customer (KYC) and
Anti-Money Laundering (AML) system under the head of Customer Due

20
CHAPTER 4 DIVISIONS AND DEPARTMENTS

Diligence. The Bank developed a Compliance Manual for the general use by all
staff involved at the Bank and especially for the benefit of the Compliance
Officers who were specifically made responsible to monitor and ensure
compliance at their respective areas.

4.11 Information Technology Department

Bank was established in 1991. In order to have an edge over its

competitors and to provide quick and efficient service to the customers, it was
considered mandatory to computerize banking network in the branches. IT
Department was established in 1994 and all the branches were successfully
automated by the year 1998.

IT department has progressed in the last eight years and trying its best to
stay abreast in the field of fast developing technology. In order to achieve its
goals, the management has decided to start on-line banking in the very near
future. IT Department of the Bank is working dedicatedly and with full
enthusiasm to provide best services by efficiently handling the in-house software
development/maintenance, hardware/software trouble shooting and uninterrupted
support to 29 Branches. Besides, Information Technology Department is playing
an important role in development and deployment of Islamic Banking Application
and timely support to the end-user.

4.12 Micro Finance Department

The economic landscape of N.W.F.P is characterized by a number of

flourishing small-scale economic activities scattered throughout the province.
However, financing needs of these entities have not been met by formal sector
financial institutions due to various reasons, which include perceived risks, high
costs and lack of special skills associated with micro finance. Bank has taken up
this challenge and has become the lead Bank in the country as a provider of these
services by not only being the pioneer of micro financing in the formal sector but
also its strong advocate.

21
CHAPTER 4 DIVISIONS AND DEPARTMENTS

Bank believes that poor are bankable and micro finance is commercially viable.
Micro lending operations are structured in a separate department called Micro
Finance Department (MFD) under the Credit Division of the bank. MFD aims to
be the largest Micro Finance provider in N.W.F.P on sustainable basis.

Its main objective is providing access to financial services by the low

income and disadvantaged segment of the society with adequate emphasis upon
women. The pursuit of this objective will significantly contribute to the
improvement of employment opportunities, income-generating activities. This
ultimately supplements government interventions of poverty alleviation in
N.W.F.P. Bank has been lending in remotest inaccessible parts the province under
the government area development projects

4.13 Finance Division

The Finance Division is responsible for overall fiscal managing, financial

control financial reporting, and accounting functions of the Bank. Division
ensures that the accounting records and system are maintained in accordance with
internal policies, regulatory requirements, and international accounting standards.
It establishes policies and procedures relating to the finance function, monitors
returns on earning assets and reports on various performance indicators including
assets/liability mismatch. The Division directs control of the budgeting process in
accordance with the annual plans, policies, management directives, and strategy,
ensuring that quality budgets and forecasts are drawn up and consolidated for
approval.

Finance Division exercise budgetary control on all expense and income

items at both Head Office and branch level, ensuring the effective monitoring
arrangements are in place in respect of adherence to budgets/forecasts. It
continually reviews the accounting and control system, ensures that they are
appropriate to the requirements of the business and that they generate financial
information necessary for effective decision-making.

22
 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
PRODUCTS AND SCHEMES OF BANK OF KHYBER
KOHAT BRANCH.
The basic functions of a Bank of Khyber kohat branch, as we all are aware
are, accepting deposits, and lending of money. But banks, with the passage of
time, development, and growing competition, realized that only these services are
not enough. So banks started providing other services and introducing newer
products to increase their customers in the growing competition.

The Bank is committed of providing innovative and competitive solutions

to all its customers according to their banking needs and a level of service that is
more efficient and personalized. Learning about the needs of its customers is a
continuous process at the Bank. To bring the high quality of banking services to
its customers is the first priority of Bank.

At present, The Bank of Khyber Kohat Branch has the following products
and schemes for its valued customers;

• Assets Products
• Liabilities Products
• Non-Fund Based Services

5.1 Assets Products

Assets products mean advances which are created to attract the people to
borrow from the Bank and start or expand the business to enhance the economic
growth of the country and increase the Gross Domestic Products. To secure the
against interest risk the rates of most of the products have been linked with
Karachi Inter Bank Offered Rate. The following are the asset products of Bank Of
Khyber Kohat Branch.

20
 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
5.1.1 Running Finance

The bank of Khyber Kohat Branch provide special type of product i.e.
running finance which is offered for businessmen holding Pakistan National
Identity Card and resident/residing in N.W.F.P in order to meet their recurring
expenses and their existing business. The repayment is one to two years and
renewal on yearly basis. Mark-up rate is charged on outstanding
balance.Securities for this type of scheme are Registered/Equitable Mortgage,
Personal Guarantee acceptable to Bank and other acceptable securities. The
insurance of property and asset financed is essential.

5.1.2 Demand Finance

The other schemes which are provided by the bank of Khyber Kohat
branch is the demand finance scheme which is introduced to provide opportunities
to all Pakistani Nationals, to start their new businesses or expand the existing
businesses. The eligibility is so simple and that is Pakistani Nationals, holding
National Identity Card and Resident/Residing in N.W.F.P. The loan is sanctioned
as per client’s requirements. The repayment period is upto 2 years.

5.1.3 Micro Finance Operation

Micro finance refers to provision of a wide range of financial services

including loan and saving products to low-income households and micro
enterprises. Loan products characterize smaller loans made to low-income
individuals to sustain self-employment. These loans may serve a number of
purposes like working capital for covering day-to-day expenses, seed capital for
starting up a business or investment capital for purchasing fixed assets.

5.1.3.1 Micro Enterprise Loans:

Micro enterprise loans are provided to individual clients without involving

intermediaries/facilitators; however, lending through organized clusters is
encouraged for its proven advantages. Cluster is taken as a geographical

21
 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
concentration of enterprises engaged in similar or complementing activities,
which plays an important role in promoting entrepreneurial and industrial culture.
Besides mobilizing finances, these clusters can facilitate its members in access to
specialized labor and technical support. Following are the salient features of
micro enterprise loans;

• Financial requirement are met for fixed investment like

machinery/equipment and working capital. Skilled craftsmen are also
encouraged for establishing new enterprises
• Maximum loan limit under this category is Rs. 500,000 for repeat loans
and first time loans are considered for up to Rs. 50,000.
• Loans up to Rs. 50,000 may be considered against hypothecation of stocks
and two personal guarantees acceptable to the Bank. Additional societies
are required for loans exceeding this limit.
• Loan period shall not extend beyond three years repayable in equal
monthly installments. Lump sum repayment and quarterly installments are
considered in specific business situations and sectors.
• Finances under this category are provided at commercial rate. However,
loans financed from credit lines under areas development projects are
charged as per specific agreement.
• Repayment plan is drawn in consultation with clients keeping in view the
nature of the business and payback potential of entrepreneur.
• Other terms and conditions as per specific nature of the business are
settled with prospective clients on case-to-case basis.

5.1.3.2 Motorcycle Finance Loans:

Bank Motorcycle Finance Scheme is another big achievement of the Bank

of Khyber kohat branch. This scheme has facilitated all those lower level of
income employees who couldn’t afford to buy a motorcycle on lump sum amount.
All adults residents of N.W.F.P, getting regular monthly income and have
sufficient repayment capacity to meet their investment obligations are eligible for

22
 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
this scheme.

The minimum age limit is 21 years. At loan maturity age should not
exceed 60 years. The mark-up rate is 16%. The repayment period is fixed and that
is one year, two years and three years.

The minimum down payment is Rs. 10000. Two personal guarantees +

registered mortgage should be provided as securities. The documentation includes
mortgage and legal documentation, charges to be borne by the client. Insurance is
on lessee’s cost from the selected companies.

5.1.4 Consumer Finance Scheme

Bank of Khyber Kohat Branch has launched a Consumer Finance Scheme

for general Public. Under this scheme House Hold products like electronics,
audio-visual equipment and home appliance to be financed to the customers on
easy installments.

5.1.4.1 Eligibility

1. Citizen of Pakistan aged between 25 to 60 years.

2. Scheme will be opened to all permanent employees of Govt. & Semi
Government, Local Government., Non-Government Organizations,
Autonomous Bodies, University, Banks, Reputed Industries, Corporations and
self employed professionals or business man.
3. Applicant must be resident of the city where Bank's Authorized Branch is
operating.
4. The monthly installments must be up to of 1/3 of take home salary of
the applicant. (Take home salary is to be determined by the branch manager).
5. The Borrower has to provide a personal guarantee of a third person as a
security.

5.1.4.2 Guarantee

Guarantor can be a person between the age of 25 and 55 years. Preferably

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
residing in the same area of applicant. Applicant must not be immediate family
member of the borrower. Account holder of Bank is preferred. The applicant shall
not be a Bank's Employee. Two Borrowers cannot provide guarantee to each
other.

5.1.5 Khyber Salary Loan Scheme

Bank Salary Loan Scheme has been introduced to facilitate the employees
of the Bank and other organizations in government sector either provincial or
federal. This loan is provided to the individuals against their salaries. The
eligibility for this scheme is, all employees of Provincial/Federal Government
/Semi Government Autonomous bodies, Corporations etc. the age limit is18 to 55
years.

The size of loan is Rs. 100,000/- or up to fifteen Take Home Salaries

whichever is lower. The markup on this scheme is 11%. The maximum repayment
period is two years.

5.1.5.1 Other Conditions

 To be allowed to regular employees of Government / Semi Government.

 Departments having minimum 3 years service.
 Salary Slip.
 Salary must be routed through client’s account maintained with Bank.
 Employer’s confirmation that in an adverse situation, Bank’s loan shall be
adjusted through terminal benefits of employee.
 Installment amount should be 25% or less of the Net Take Home Salary
(where take home salary is less than or equal to Rs. 15,000/-)
 Installment amount should be 30% or less of the Net Take Home Salary
(where take home salary is greater than Rs. 15,000/-)
 Processing Fee is Nil.

5.1.6 Khyber – Car

Car Lease Scheme another product of Bank of Khyber kohat branch for

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
their valued customers. The eligibility is all adult residents of N.W.F.P getting
regular monthly income and has sufficient repayment capacity to meet their
investment obligations.

The minimum age limit is 21 years. At loan maturity, age should not
exceed 60 years. The maximum size of loan is Rs. 1200,000/-. Mark- up rate is
14%

Repayment period for this scheme is fixed. And that is period of 24 months,
36 months, 48 months, and 60 months. Minimum borrowing equityis 10% and
there is no need of any type of securities.

5.1.7 Suhana Ghar Scheme

This scheme is introduced for construction, purchase, extension and

improvement / renovation of house. The eligibility is like all other schemes that
are all adult residents of Kohat getting regular monthly income and have
sufficient repayment capacity to meet their investment obligations.

The age limit is 18 to 55 years. Size of loan is up to Rs. 1 million. Mark-

up rate is 12.5%. Repayment period for this type of scheme is up to 15 years in
easy installment. Securities include mortgage of the property for which the facility
is allowed. In case of employees of organizations, lien on terminal benefits. Third
party guarantee, if required.

Mortgage and legal documentation charges to be borne by the client and

insurance policy of the property offered as security covering all the related risks.
Processing fee for this scheme is Rs. 100/- per application, for amount up to Rs. 1
million and for above Rs. 1 million, Rs. 500/- per application are to be charged.

5.2 Liabilities Products

It means those products or scheme introduced by the Bank of Khyber Kohat
Branch to inculcate the people to save and invest their idle funds in the Bank in
order to earn profit. Some schemes of Bank are mentioned below;

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH

5.2.1 Current Deposit Account (Rupees)

“The Bank Rupee current deposit account allows the facility of unlimited
withdrawals up to the extent of the balance in account. There will be no tax
deducted on the funds that some one chooses to keep in these accounts”.

• Balance in current accounts are payable on demand. Similarly there

are no restrictions on number of transactions during the day.
• All individuals including foreigners, firms and corporate bodies are
entitled to open and maintain current accounts.
• No profit is paid on current accounts.
• Overdrafts are allowed on this account.

5.2.2 Saving Deposit Account (Rupees)

“The Bank rupee saving deposit account allows the facility of multiple
withdrawals up to the credit balance, while accruing profit on deposits”.

Types of saving deposit accounts.

i. Profit and loss sharing (PLS saving) account.

ii. Special deposit account (SDA).

• Profit is paid bi-annually on minimum monthly balance (January-June

& July-December) which is announced in July and January
respectively.
• Generally, withdrawals from this account are allowed on demand i.e.
without any prior notice of withdrawal.
• Overdraft is not allowed on this account.

5.2.3 Term Deposit Account (Rupee)

“The Bank Rupee Term Deposit Account offers the dual benefit of
attractive returns with high liquidity. Options to take profit monthly, quarterly,

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
semi annually, annually or at maturity. Profit is accrued on a daily balance basis.
There is no penalty for premature encasement. However in case of an early
encasement the rate of the previous tender will be applied. The option of partial
liquidity is allowed i.e. with drawl to a certain percentage from the fixed deposit
without disturbing the remaining deposit is allowed”.

• Term or fixed deposits are accepted by Bank and having maturity from
one month to five years.
• Profit on fixed deposits is paid on the maturity of deposits.
• Each fixed deposit account is considered as a separate contract.

5.2.4 Security Deposit Receipts (SDR’S)

This is a receipt issued by the Bank, at the instructions of the depositor,

confirming that amount of the SDR is held by the Bank to be paid whenever
called upon to do so by the beneficiary named in the SDR.

• A SDR is a non-negotiable instrument.

• SDR’s are generally used to make advance payments or as earnest
money, retention money or security deposits etc.
• A SDR can be repaid to a named beneficiary or the
purchaser/depositor upon proper identification.

5.3 Non-Fund Based Services

5.3.1 Khyber Lockers

The Bank Of Khyber Kohat Branch also provide the facility of Khyber
lockers to all account holders of Bank. All accounts holders can get lockers by
paying a nominal amount to the concerned branch. There are three types of
lockers available, small, medium, and large. For small lockers, the annual fee is
Rs. 750/- per annum, for medium Rs. 1000/- per annum and for large Rs. l500/-
per annum.

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
5.3.2 ATM Facility

The Bank provides facility to its customers to Debit their Accounts

electronically by means of ATM. The customers are allowed to withdraw upto Rs.
10000 in a day, and the bank doesn’t charge any sort of fee or commission on this
type of facility.

5.3.3 Online Banking

By adding this feature now the Bank’s customers can easily debit their
Accounts anywhere in the country through the Bank’s branches. For example, if
customer A has account in the Karachi-I branch so, he can easily withdraw money
from his account by presenting cheque in the Kohat branch on the spot. The Bank
charges only 0.1% on the debited amount.

5.3.4 Remittances

The Bank transfers funds of its customers from one branch to another
branch through D.D, T.T and M.T by charging small amount as commission.

5.3.5 Letter of Guarantee

The Bank provides assurance to the beneficiary of the guarantee about the
satisfactory performance of a certain act by the applicant of the guarantee.

In the letter of guarantee three parties are involved i.e.

1. Bank (provider of guarantee)

2. Applicant of the guarantee (Bank’s customer on whose behalf the Bank
issues a guarantee).
3. Beneficiary (in whose favor the guarantee is issued).
4. The Bank at the request of applicant issue the guarantee and charges
commission for its commitment from the applicant at the exposure is
secured against some security

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 CHAPTER 5 PRODUCTS AND SCHEMES OF BANK
OF KHYBER KOHAT BRANCH
References:

1. The Credit Department of The Bank of Khyber.

2. The Micro Finance Department of The Bank of Khyber.
3. The Remittances Department of the Bank of Khyber

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CHAPTER 6 STRENGTHS, WEAKNESSES,
OPPORTUNITIES, AND THREATS

STRENGTHS, WEAKNESSES, OPPORTUNITIES,

AND THREATS
The main purpose of doing SWOT analysis is to highlight all aspects of
the Bank. We can say that it is a tool to get a quick overview of a firm’s strategic
situation etc. It is an effective technique for analyzing the strengths, weaknesses,
opportunities, and threats to an organization. It tells about the firm position. It
helps the readers to understand the performance of the firm, bank etc vary easily.
It forecasts the future status and points out the problems likely to come in
achieving the specified objectives.

As like the other banks the Bank has some strengths and weaknesses,
opportunities and threats, which are given below:

6.1 Strengths

Strengths are present within an organization and when utilized, become a

means of distinction from competitors.
i. The Bank of Khyber is a schedule commercial Bank with good branch
networks in the NWFP.
Being a provincial government Bank it is considered more secure..
ii. The Bank of Khyber Kohat branch offers new schemes and facilities from
time to time which keeps not only the clients of the Bank committed but also
leads to a growing sound base of deposits.
iii. For the first time extending credit to the rural have-nots
iv. The Bank of Khyber Kohat Branch has open communication system and
friendly environment developed by the Management and staff of the Bank
makes it very easy for the Management of the Bank to take the right decision
at the right time. Most of the banks in the country lack such type of
environment.
v. As compared to the other Pakistani banks its staff is well qualified, skilled,
knowledgeable, courteous, and can handle any situation tactfully.
vi. As it is provincial Bank for N.W.F.P so it is easily access able to the business
committee of the province.

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CHAPTER 6 STRENGTHS, WEAKNESSES,
OPPORTUNITIES, AND THREATS
vii. The Bank’s employees are from the same province so they understand the
environment and easily meet the needs of the people etc.
viii.Due to provincial Bank it is known as the provincial market very well as
compared to other banks.
ix. One of the major strength of the Bank is Micro Finance Unit (MFU) which
ultimate goal is to finance the project in rural areas and approve small loans.

6.2 Weaknesses

Weaknesses are the shortcomings in the structure or functioning of the

organization and need to be taken care of immediately. It is usually because of
these weaknesses that the competitors leave the firms behind in the race.
i. The Bank of Khyber has Unattractive branch’ interior and exterior.
ii. Most of the employees are not motivated and lack technical knowledge
and are scared about their carrier development.
iii. Salary and other benefit are small in number.
iv. As it is Provincial Bank so there is some influence by the provincial
government in decision process.
v. No fix tenure for promotion.
vi. Low level of employee’s satisfaction and commitment.
vii. The space in the Bank Kohat Branch is very limited, The Bank has no
proper marketing..
viii. Lack of staff in micro finance department..

6.3 Opportunities

Opportunities are always present in the external market whoever grabs it

first, is the market leader.
i. Make the MFD more efficient and accessible for the small businesses.
ii. As the Bank is planning to step in the Islamic Banking System so they should
capture this market before any competitor comes in..
iii. There is a good opportunity for the Bank to sponsor games on provincial and
national levels for its publicity.

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CHAPTER 6 STRENGTHS, WEAKNESSES,
OPPORTUNITIES, AND THREATS
iv. Offering of credit facilities to middle and lower income groups can reduce the
default risk and can enhance the Bank goodwill and profitability.

6.4 Threats

Threats are also part of a firm’s external environment and pose a constant
danger to an organization’s operations. However, a proficient is the one that
converts these threats into opportunities for it.
i. Increasing number of private foreign banks in the country.
ii. The main treat to the BOK Micro Finance is from its own. The management
of the bank at many times has changed the basic structure of the Micro
Finance Department
iii. The low rate of savings in the country is a serious threat to the Bank. The
Bank should aware the general public about the advantages of savings and
investments.
iv. Global technology advancement.
v. The decreasing confidence of people on commercial banks on the basis of
offering low returns and charging high interest rates is a threat to the Bank
also.
vi. Quality services provided by the private banks.
vii. Sometime loan disbursement to the blue-eyed clients
viii.Traditional rift between the MFD incharge and the Manager of the
Branch.
ix. Misutilization of the loans by the clients

References:
1. The Bank of Khyber Annual report 2002 to 2005
2. The Bank of Khyber site www.bok.com.pk

31
CHAPTER 7 FINDINGS AND SUGGESTIONS

FINDINGS AND SUGGESTIONS

FINDINGS

SHORT LEAVES.

The leaves for an hour or two are common during the banking hours. The
case becomes more severe when manager is outside the branch.
The branch manager should take serious notice of this matter and employees
should not be allowed to leave the bank unless there is a serious problem.

BURDEN OF WORK
The employees are most of the time over burdened with work. At times
employees have to work even after the working hours of the bank. Sometimes
employees are irritated due to excessive work and long working hours. More over,
officials are not given remuneration for working extra hours.

UNJUST RECRUITMENT
Some of the appointments are made on the recommendations of influential
people. There education is not according to the requirement thatswhy Bank of
Khyber Kohat branch is not showing profitability upto the mark.

NO PROPER MARKETING

There is no proper marketing department in bank of Khyber Kohat branch.

This is also a great threat to the bank.

ACCOMMODATION PROBLEM
The sitting arrangement in the branch is far from being efficient. So proper
seating arrangement should be made for the customers especially for ladies. As an
internee we also face this problem lot of times.

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CHAPTER 7 FINDINGS AND SUGGESTIONS

PROPER DISTRIBUTION OF WORK

In the BOK kohat branch, Some employees have more work to do and are
under stress while others are not fully occupied. The work should be distribute in
such a manner that there should be no undue load or burned on anyone.

NO PROPER PLACING OF STAFF

The most important thing which I have found that there is no proper
placing of staff members according to their job requirement so the proper placing
of staff is very necessary to increase profitability.

SUGGESTIONS

“ADVICE IS SELDOM WELCOME!AND THOSE WHO WANT IT

THE MOST ALWAYS LIKE IT THE LEAST’. Recommendations suggest
improvemrnt in areas,which have room for polishing and progress.

My recommendations are based upon personal observations and most of

them are based upon opinions of the experts of the Bank for the improvement of
profitability and overall performance.

1. The proper placing of staff in different operational areas may result in

improved performance. so, if the Bank overcomes this weakness and place
experts at their proper place, it will increase the success of obtaining
organizational goals.
2. The Bank may increase the Micro Finance portfolio from Rs. 250 million
to Rs. 500 million in order to benefit more low level income holders, and
it will generate economic activities and ultimately unemployment will
decrease.
3. If the Bank adopts a proper product diversification strategy i.e introduces
Debit card, Credit card, and more loans products it may increase the
Bank’s profit.

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CHAPTER 7 FINDINGS AND SUGGESTIONS

4. Today is the age of proper marketing not only of selling. If the Bank
reduces emphasis from selling and adopts proper marketing it may
enhance its efficiency.
5. Today media is getting more important for a proper advertising. If the
Bank adopts media for advertising it will increase the clientale base of the
Bank.
6. If the Bank introduces a proper motivation and incentive plan for its
employees it will fulfill their needs and organizational objectives may be
achieved very efficiently.
7. If the Bank revises the salary of the existing employees the turnover of
professional may be reduced.
8. If the Bank establishes a proper training division it will increase the
efficiency of the employees.
9. Every organization is now focusing on customers (customer satisfaction)
and it is achieved only by proper branch environment (seats arrangement,
branch interior and exterior design etc.) and good employees’ behavior
with customers..
10. In order to reduce banks’ risk, the long term loans trend is reducing and
most of the banks by syndicate this type of facility are providing. If the
Bank adopts this policy and increase short term financing and provides
long term finances by syndicate the Bank’s risk may be reduced.
11. In order to increase productivity and ensure safety the Bank may install
movie cameras at branch.
12. If the Bank establishes a separate information center for students, some
time the Bank may get a good report for enhancing performance without
payment of money.
13. The branch manager should take serious notice on short leaves and
employees should not allowed to leave the bank in working hours.
14. Employees should be selected on merit bases.

34