Title

The Implications of Good Governance in Corporate sector

A Case Study of Bank of Khyber
Principle Author/Corresponding
Given Name Dr. Habib ur Rahman, Family Name, Dr. Habib ur Rahman,
Email: hod.ba@suit.edu.pk
Cell+92-300-5872937
Phone+92-91-5846508-9
Affiliation Address: Sarhad University of Science and Information Technology,
36 B, Chinar Road University Town, Peshawar,
Khyber PukhtunKhwa, Pakistan

The Implications of Good Governance in Corporate sector

Abstract.
With ever expansion in the corporate sector, the risk of under utilization as well as misuse of
resources increased manifold which phenomena attracted the attention of the business managers
and company tycoons to manage the hazards and prevent the
crisis from happening. This paper focuses on the root cause of mismanagement and its
consequences on the operational results of the organization. It discusses the role of the
organizational hierarchy, its exposure to accountability and all time auditability of the operational
results of the organization which event alone can ensure the flawless conduct of successful
business the paper explores in detail the ingredients of better management via good governance.
It elaborates the concept of Good Governance for the purpose of better results by explaining the
implication of loose control or for that matter ineffective checks and lack of regulatory
instruments. Explaining the case study of local Bank it concludes that under Good Governance
and with effective management the organizations have always succeeded in achieving their
goals.
Key Words: Good Governance, organizational hierarchy, policy framework and implementation,
Characteristics and role o f management.
Research Methodology: Book Study of literature on Good Governance, literature on the subject
through electronic system. Annual reports of Bank of Khyber from 1995 to 2011
Information through a questionnaire.
Hypothesis: 1. Management through Good Governance results in better performance.
2. Increase in the No. of Branches promotes banking business.

The Implications of Good Governance in Corporate sector

A Case Study of Bank of Khyber
Governance
After World War II many new nations emerged as independent states with determination to
emancipate from the economic clutches of their past rulers. This phenomenon created extra
aggregate effective demand which subsequently stretched the boundaries of the market.
The fast economic growth expanded the corporate sector. Alongside are stretched the dimensions
of the state activities. Socio political awareness and the concept of democratic ruling has created
challenges for not only the industrial and business tycoon but has equally increased the
responsibilities of the state towards its citizens.
Product diversification and increased economic activities resulted in division of work which
ultimately necessitated delegation of power. Enlargement of production and distribution sectors
entailed greater risk of mismanagement and consequent failure in achieving the organizational
goal. Changing economic environment and its impact on socio economic life attracted attention
of the policy makers.
Strong force of profit motive in conflict with goal of social wellbeing of the masses put the
Statesmen as well as the business managers in a deep thinking pond. They are now required to
achieve the only goal of maximizing the overall wellbeing of the society. They have either to
concentrate on the public utilities through development of Social Over Head Capital or creating
surpluses for taxation and funds for welfare dispersal.
Neither todays State nor industrial unit is absolved of its corporate social responsibilities. Hence
the running of the business machinery for its requisite output needs to be properly organized and
operated upon for ensuring the achievement of State goal along with meeting the expectation of
the stakeholders.
Governance is a process of running the affairs of an institution or for that matter of a state with
an objective to ensure rights to the stake holders or citizens of the state with in the approved
statute. The concept of Governance denotes the established administrative practices which focus
on acquiring the resources and directing them towards the use which ensures maximum utility to
the population associated with that particular State or institution. For securing maximum utility
out of the resources needs setting priorities in terms of ground realities. It is, however, of utmost
importance that any action plan must operate within the prescribed dimensions, norms and
values. Any violation of the law/rules in vogue or deviation from common norms of the business
results in deprivation and ultimately leads to frustration and revolt. It has, therefore, now become
vital responsibility of the administrative hierarchy to ensure that process runs along the
alignments and any trespass resulting in violation of rules and regulations is timely controlled
and activities redirected through various check and balancing measures.
The concept of "governance" is not new. It is as old as human civilization. Simply put
"governance" means: the process of decision-making and the process by which decisions are

implemented (or not implemented). The term Governance can be used in several contexts such
as corporate governance, international governance, national governance and local governance.1
Good Governance
The concept of Good Governance denotes a process of policy formulation and
execution/implementation of the schemes or programs of goal achievement with all honesty,
diligence and dedication so as the end a result conforms to the predetermined objectives. In
good governance the activities carried out become transparent and open to every audit /
inspection, verification and the implementing hands ready for accountability. The entire process
basically rests on the strong foundations of sincerity, loyalty to the institution which phenomena
renders the activities immune from every kind of injustice, fraud, corruption and
misappropriation emerging out of favoritism or for that matter self / vested interests.
Empirically the idea materializes only when it functions in a knowledge society with developed
human resource ready to undertake the responsibility of regular monitoring and reporting for
timely correction of the activities not commensurate with the rules of business already embodied
for a specific area of operation. It is because of the reasons that various change agents both
individual and institutions are groomed up to accommodate themselves according to the
situational requirements. Here sense of patriotism on the one hand and hanging hammer of
punitive action on the other hand keeps the machinery function within the dimensions already
drawn.
Ironically the hypothesis in case of under developed and also developing countries does not
prove true. Rather the reality has been found otherwise. Here the elites with vast powers and free
hand have caused the national edifice to collapse instead of strengthening the superstructure. One
reason being the privileged class with authority and liberty to exercise the powers
indiscriminately to strengthen their hold either by show of force or use of resources at their
disposal. Abuse of authority or status sent waves of mismanagement and consequently the lower
strata in the hierarchy did not hesitate in exploiting the potential opportunity to their interest.
Corollary the entire society or that particular institution ultimately is jeopardizes to meet the
doom.
For positive results man and machine must operate together. The formulation of policy is in no
way an end. It is infact means to achieve ends. Ends lie in the honest implementation of the
policies. This gigantic task is tackled by the men at helm of affairs. So when ever Good
Governance is discussed, it is the authority responsible for implementation which attracts the
attention and success or otherwise is attributed to the very man in authority. Admittedly it takes
no time the change in mind takes place. Very painstaking and honest man may next moment turn
to be injurious to the institution. Therefore, the policy must embody the provisions that every
activity is conducted in most transparent manner and is, all the time, exposed to audit and
verification. Likewise the implementation is run with every diligence and the executing agents
are open to accountability.
While discussing the concept of Good Governance the foremost important thing comes for
consideration is the formulation of policy which lays foundation for the entire superstructure of

the building. It is here that a set of guidelines are drawn and over all dimensions are determined
which helps in making decision through out the organization It, therefore, becomes incumbent
upon the executing agents to operate only within these parameters. Any activity carried out
beyond these parameters does not receive approval rather attracts punitive actions. The
legitimacy of achievement of objective depends upon the authenticity of the activity which
determines the legitimacy of the authority of the change agents. The policy implementing agent
must have legitimate authority tested on the criteria of qualification, competence and above all
suitability in terms of track record.
Policy formulation itself is a highly skilled job and needs substantial spade work. Long
experiences and deep observation of the events happening in the area or past operational results
of the organization needs to be properly taken care of while formulating policy.
A scientific study of the existing situation and anticipated issues which are likely to crop up be
the basis for selecting policy ingredients. Policy should be goal oriented and must take into
account the realities which necessitated the formulation of policy. Therefore, its implementation
may also be in letter and spirit. It should not be writing on paper. Rather its implementation be
the top priority. A policy to be worth implementation and effective enough to serve the purpose
for which it is being launched must be with;
1. Clarity. It must draw clear lines within which the organization is supposed to operate. Any
vague or dubious character will leave loopholes which will subsequently be misused by the men
in authority.
2. Specific. The policy objectives must be defined and the areas be covered must be demarcated
so that any deviation can be timely identified for immediate correction.
3. Implementation. The most significant aspect of a policy is its method of implementation. The
execution of schemes of operation, if left at the discretion of the men at the helm of affairs, will
definitely result in fulfillment of vested interest and defeat the purpose for which a policy has
been formulated.
4. Authority. Delegation of powers and Determination of responsibility is a difficult task.
Identifying person of caliber with proven integrity is purely a matter of sincerity to the cause. It
is not the expertise alone which ensure success of the policy but equally important is the loyalty
to the institution which element ultimately leads to the successes of the policy. It is, therefore,
imperative that the person authorized for the implementation of the policy must clearly be
defined with designation, limit of the powers and mode of exercising such authority. No
provision allowed for discretionary powers otherwise the vested interest may dominate and
defeat the objectives. In matter of financial transactions the drawing and disbursing powers be
jointly exercised by peerage so that the chances of abuse of powers can be minimized.
5. Transperency. All activities being undertaken and the process through which these activities
are passed be transparent so that any deviation from the set path is easily and immediately
identified and corrected before it creates cumulative effects. Defined authority and
predetermined responsibility facilitates the surprise inspection or audit and helps in regulating
the activities to right direction before it results in deterioration.

6. Accountability. Every activity disregarding the nature of transactions needs to be verified

with the criteria laid down for a particular transaction and its legitimacy be ascertained so that
any activity not proving the standard be checked before it is carried out. Whimsical decisions
and orders passed without legitimate authority may not be allowed to be implemented. Perpetual
inspection and regular audits helps in identifying the grey areas but implementation of audit
reports is infact most for aiming the instrument of accountability towards hands going astray.
Timely unbiased impartial action saves the situation from deterioration and distortion of the
procedure.
Immunity, Exemptions and Exceptions has tempted the authority to be used for vested interest.
With least fear of punitive action the dishonest authority and their accomplices have always been
the root cause of mismanagement and ultimate failure in Governance.
The policy implementing agents, therefore, be open to accountability disregarding the rank and
rapport.
A State or an Institution /Organization is a composite of a number of units, areas of operation and
sectors of production and distribution. Each unit or organization sets its own goals and objectives
and plans for achievement of the specified predetermined goals/objectives. Notwithstanding the
spirit behind the activities under taken the end result will ultimately depend upon the nature and
style of the leadership. This is because the Governance is a process of decision making and
decision implementation and both the activities involve the efforts of the individuals who are
responsible at the end of the day. A well conceived and thought decision based on established
knowledge and skill ensures viable results provided the implementation of the decision attains
equal significance.
Decisions are primarily ideas put forward for achieving a specific objective and these decisions
materialize only when implemented with same spirit with which they were originally mentioned.
Needles to emphasize that change agent are the person who finally shapes the ideas into reality.
The results therefore depend upon the two important elements.
1. The capacity to implement the decision and accomplish the goal.
2. The Will to deliver the goods as per decision taken.
1. Implimentation of decisions is a team work and requires a group of people - expert in their
own field of operation. To identify and select really genuine and suitable persons is the job of
leader who will get the results achieved in accordance with the pre-specified objectives. It is here
that mistakes committed becomes cumulative and turn the entire efforts a futile exercise.
Generally observed that favoritism prevails which deprives the genuine persons of the
opportunity and the persons deployed fail to deliver due to lack of requisite expertise. In State
Governance in the present era when dominating western interest on pressurizing the developing
countries for introducing and maintaining western democracy. The style of leadership is
absolutely changed from that of traditional. It is now the larger purse or feudalist hold which
decides the person to be leader. So the leadership is more or less in a way imposed though by a
democratic manner. Such a leadership derives its capacity from the bureaucracy and partly from
the public representatives. Scholarly peoples are rarely allowed to partake and contribute. This is

because of the unbiased and scientific approach of the sages which generally contradicts the
statesmans objective.
Notwithstanding the ground realities and national urgency, party politics have been preferred to
public interest and in some cases revenge politics damaged the State Governance principles.
Favoritism, no doubt , helps the non eligible and non deserving to benefit from the blessing of
the man in authority but the organization or nation as whole loses because end results do not
commensurate with goals.
2. Working in contravention of the policy framework or violation of rules and regulation
reflects malafide intention, consequently bringing mishaps and losses to be sustained by the
organization or State. It is here that these acts are termed as actions ultra vires and beyond
jurisdiction. The driving force behind such actions has always been found in vested interest.
The money mongers and power hungry least care for the law limitations. Needless to emphasize
that outcome of the activities carried out by the team in all cases is the responsibility of the
leader. It is a considered opinion that the will to deliver is more instrumental in proper
implementation of the policy /program rather than skill because the will to achieve goal inspire
to acquire skill and utilize the potentials for the best of results. Interestingly Will is a
psychological phenomenon and can be promoted according to the circumstances provided the
force imposing the leader is strong enough to exert its pressure. Loyalty and patriotism
rejuvenate the will of the statesmen or leader and team in the corporate sector.
Governance, besides above, can be made more effective and result oriented if the team members
receive timely appreciation and just compensation which include various types of rewards and
remuneration.
Among the motivational factors, corporate culture and growth prospects have effective nay
decisive role to play. Yet team is always influenced by the leader who has to demonstrate as
model with the following qualities to motivate the rest of the team members.
a) Intelligence. The cognitive quality of a person, the ability to perceive and transform ideas into
reality. The characteristics which enables a person not only observe derive inferences decide an
action plan but also implement the decision so made to achieve the goal. The knowledge and
skills both natural and acquired which elevates the leader as a distinctive personality. It gives the
possessor a decisive power, a leading ability and a controlling instinct.
b) Boldness.
The leader must be in possession of the qualities of initiative and risk taking.
Both in decision making and implementing the decision by the higher hierarchy at host of risks
are involved which often turn the implementation process a total failure. A prudent leader dares
to undertake the operation and ready to face what ever comes out. Timely decision mitigates the
risk s and many a times a bold decision during the implementation process averts the risks and
hazards.
c) Honesty. It is part and parcel of the good conduct. The rare quality but core of the success as
it elevates mankind to its zenith. An unblemished track record and meritorious services rendered
inn the past establishes a man in the community of business tycoons or galaxy of statesmen. The
quality adds value to the and determines integrity in the circle around.
Dr. Muhammad Iqbal, the great thinker - a sage of the age has rightly encompassed the leader in
his poetic stanza translated in the following verse

Imagination soaring, speech heart inspiring and soul ever searching are indeed the qualities
of the leader of men.
Policy formulation and approval
Focusing on the Corporate Governance, team consists on various functional layers which form
organizational hierarchy. Figure No. 1 depicts a contour of the bodies who act to set guidelines,
test the guidelines on the criteria of rules and law of land and finally deploy and help the human
resources to implement the decisions which are part of the policy.
On the top, are the policy makers who set guide lines which helps in decision making. They are
shareholders and owners of the entity and have major stake in the equity, therefore their decision
are primarily goal focused. The goals besides other emphasize on maximization of profit.
Maximum Profit generation and reasonable dividend disbursement enables the organization to
continue with the operation. The task before this team of people has, therefore, always been
determining directions for undertaking activities which ensures maximum profitability. Members
are specifically drawn from the shareholders and sometimes some of the stake holders and
professionals whose wit and wisdom is deployed for achieving the targeted goals by utilizing the
optimal resources. This body of experts in the corporate language is called Board of Governors/
Directors. They also over view the functionaries and evaluate the over all performance for
reviewing the goals in comparison of the achievements. It is incumbent upon the authority to
ensure that the policy contains the program which provides the tailored made products fulfilling
the need of the majority of people instead of a specific group because only then it can receive
public acceptance.
Vetting and verification.
Legitimacy and Rule of Law
Policy decision once made is put to implementation but before it is allowed to operate it must go
through tests and verification for proving the criteria. To make the process more transparent and
open to verification, the practicing tools, methods and accomplishing measures are set after
having been scrutinized and approved by the vetting committee so that chance for legal lacuna
is minimized if not eliminated altogether
This is the most important segment of the organizational setup because all policies once made are
first to be reviewed and verified in terms of law of the land and only policies or part of the policy
will be allowed to be implemented which proves the legal formalities and permissible under the
law of the country. The vetting committee is assigned this vital part of the responsibility to look
into t its legal aspects and verify it as to be in consonance with prevailing law. It if deem
necessary recommends for revisiting the policy for modification, addendum and corrigendum.
No policy is allowed to be implemented unless it seeks approval from the vetting committee.
Therefore, the constitution of such committees is formed of experts on law and prevailing
practices on a particular discipline or line of business.

Final verification by vetting committee ensures that the policy now stands ready for
implementation. The judicious application of rules i.e. enforcement of law without fear or favour
should be the indispensable part of the policy and legal framework.
Organizations Byelaws under the entity is constituted as well as statutory laws
It is in fact the compliance with rules of business and abidance by the law of land which enables
the management to achieve the objectives. Any deviation from the rules and law are meant to
gain undue benefits under vested interest.
The periodical verification of all transactions having an impact on the growth and sustainability
of the organization is mandatory. Mere verification of financial transaction does not serve the
whole purpose. This is because of the reasons that many important aspects like good will and
existing clientele is often lost due to dishonest approach of the men at the helm of affairs. There
fore reasons for deterioration in the operational results be periodically identified and
corrective /remedial measures inline with rules of the organization suggested for maintaining the
tempo of growth be adopted to check .control and regulate the activities.
Executive/Administrative Approval. Policy decision once vetted are put to implementation but
before it is allowed to operate it must seek approval of the competent authority which will be
basis for the authenticity of the actions subsequently taken during the accomplishment of the
goals. To make the process immune from blunders, sketch of specific power delegation and
limitations are drawn for the guidance of the practicing agency and approved by a committee of
experts. This is called an Executive Committee. Each action plan within the overall policy
frame work must first be approved by the executive committee. Once the executive committee
approves the action plan, the implementing agencies become responsible for results as per target
and objectives. However, it does not go without saying that any activity out of the policy frame
work will be an act of violation of the policy and be treated unauthorized and beyond jurisdiction
which may attract penalty. It is utmost important that only legitimate means for achieving the
goals receive sanction. The committee, therefore, continuously reviews the operational results
and verifies the achievements with the approved means/methods and authority.
Figure.1

Board of Governors
(Policy making
&approval authority)

Training and
development
committee

Vetting committee

Procedure and
accounting
Committee

Procedure and Accounting Committee:

The policy approved by the competent authority is segmented by nature of activity and is
subsequently supposed to be undertaken by the relevant sub authority. It is, therefore, imperative
that the strata which is likely to shoulder the responsibility must be familiarized with operational
mechanism and the intricacies involved therein so that its smooth functioning can be timely
ensured. Depending on the nature of business a uniform procedure and accounting system needs
to be evolved by designing the various books of accounts and their maintenance procedure which
will subsequently facilitate the verification of the authenticity of the transaction and also final
results coming out of the business. The proper documentation of the activities and the various
change agents involved in the process must be aware of the specified area of their operation
during the whole host of exercise. Therefore the recording and accounting methodology needs to
be clearly defined which will subsequently help in accountability and fixing of responsibility.
The procedure and accounting committee is concerned with designing, drafting and prescribing
of various proformae, documents and suggesting of mechanism pertaining to the use and
maintenance of these materials for future evidence in support of the transaction carried out with
the help of these instruments.
Training and Skill development Committee
Before putting the policy into operation the workforce and the intermediate agencies must be
given skill to operate in accordance within the guidelines laid down for that particular area of
operation. They are exposed to relevant training for acquainting them with various tools and
techniques of accomplishing the goal but only with in the permissible jurisdiction. The training
enables the hands on to perform as is required for the achievement of specific goals, deviation
from which renders the delinquent liable for disciplinary action against. For successful
implementation the training process is a pre requisite and it must be designed on the basis of
need assessment. In the absence of training even the honest and dutiful workers and men at the
helm of affairs will be put to find out a key to a lock out of a bunch in the dark. Under such
circumstances the chances of deviation from the set path and turn into risk.
Hierarchal Regime
Good Governance is in fact results from joint efforts of all the stake holder of which the policy
implementing class plays a pivotal role. The policy implementation agents are infact the persons
responsible for the management of the program or for that matter running of the organization.
Infact this segment of the hierarchy undertakes to it is because of the fact that results stem from
the operation of the policy. It therefore necessitate a strong hierarchal structure up which
embodies in itself the process of check and balance and consequently allows no loopholes for
misuse of discretionary powers to adversely affect the operational results of the organization.
Depending on the nature of operation of the organization the hierarchal regime helps in
determining the responsibilities and accountability.
In figure No.2, a lay out of such an hierarchal set up guides in assigning the professional
obligations and determining the ultimate responsibilities.
Layer No.1. This diagram has policy makers at the top and therefore holds a decisive position in
the affairs of the organization. This part of the organization has two important tasks to be carried

out. First par o f the task commences with the designing /framing and approving of the policy
while in the second rather the more important one is ultimate approval of the results. Here it over
the sees the entire operational results and achievement or otherwise of the goals necessitates the
review of the policy and also the role of the policy implementing agent.
Layer No. 2. Second part of the hierarchy is indeed of significant role to play in the performance
of the organization. This position is occupied by the chief executive of the organization who is
selected by the shareholders / the owners of the entity with an expectation to achieve the
predetermined and specified objectives. The objectives of the organization will never materialize
until the changing agent play his role honestly, efficiently and with all dedication.
A.C. Fernando, the exponent of Agency Theory, in his work on Corporate Governance had
observed many times the objective are not achieved because the objective of the manager are at
variance from those of the stakeholders. Such a situation he called anAgency Problem. 2
Pakistan Steel Mills is a largest steel manufacturing unit in Pakistan which gad commenced its
operations in 1985. It was a very profitable unit because of monopolist status in case of a number
of products. Unfortunately the loose administrative control during the period from 1989 to 1999
facilitated political interference which besides other implications resulted in large corruption at
all levels. The situation further deteriorated when Mr. Usman Farooqui took over as Chairman of
Pakistan Steel Mills. Consequently the Mills went into heavy losses and even failed to repay the
debt.
Consequently the books of the Mills at end of fiscal year 1999 recorded accumulation of
Pk.Rs.19.1 billions (US$ 318 million), as long term local currency commercial debt. (US$ 318
million), including outstanding principal amount of Pak Rs. 11.3 billion
(US$ 189 million). The Mills could not pay even the accrued interest and other financial
charges of Pak Rs. 7.7 billion (US$129 million). 5
Layer No.3. Third part of the hierarchy relates to the team which simultaneously plays dual role.
It is the team of knowledgeable and skilful members who look at the issues from broader aspects,
makes changes in the operational techniques if needed and ensure the achievement of goal within
the specified parameters using the required work force and resources. For achieving the objective
and from the perspective of good governance
This middle management team needs to be of highly professional caliber with real spirit of
contributing towards the performance of the organization. Effectiveness of this team leads to
creating efficiency in the core work force. Managerial ability of the middle management team is
responsible for the accomplishment of the goal. However, besides the ability of this category of
executive, the real intention and disguised objective most of the times reverts the results. It,
therefore, necessitates the surveillance and check on the activities for regulating them in line
with statutory as well as policy frame work. The fall of Baring Brothers &company in U.K
proved eye opener for those who support management role in Good Corporate Governance.
Barings Bank (1762 to 1995) The oldest merchant bank founded inn London in 1762 by
German-origin Baring family[1]. The bank continued operating for more than a century ultimately
collapsed in 1995 due to imprudent business dealings without any audit and check by Nick
Leeson, one of its chief executive posted in Singapore. The business lost 827 million ($1.3
billion) due to speculative trading and Futures Contracts at the bank's Singapore office 4

Nick Leeson was crafty enough to avail the powers of a senior executive in the organization,
began striking bargains of billions of dollars put at a stake in the business of FUTURES, SWAPS
and OPTIONS. During 1994, Leeson recorded false profit of GBP 28.5MM.. He thus succeeded
in ensuring employees fabulous bonuses that year. And corollary, Leeson was viewed as a star
trader who was not to be interfered with.
Non of the executives in Baring Brothers &company ever cared for the activities of Leeson who
had since began using fictitious Account No.88888 to hide some losses which eventually resulted
in the collapse of the Baring Brothers Bank 3
Mehran bank was established in Pakistan on 31st October, 1991 as a public limited company
paid up capital was Rs 300 million (US $ 10 million)and began its formal operations from 22nd
January, 1992 as Scheduled Bank
And branch network at Karachi, Lahore, Mirpurkhas, Peshawar, Quetta and Rawalpindi r.
Mr.Yunus Habib was appointed as First Chief Executive Officer of the Bank who was accused of
having misappropriated nearly five billion rupees, subsequently used for donations to politicians
and other agencies as well as Prime Minister. He was also convicted in Dollar Bearers
certificates (DBCs) fraud amounting to148.5 million as SEVP of HBL
Mehran Bank was given $40 million worth Dollar Bearer Bonds for sale.
He had admitted that out of $36.7 million being the sale proceeds of Dollars Bearers Bonds he
had paid $20 million to intelligence agency of the country and left over amount was used to
meet the pressing obligations where as the proceeds from the DBCs had to be deposited with
State Bank within 72 hours of the sale. However, he did not meet this deadline [15]. In fact, he
never deposited the money at all. He was arrested on a complaint by the SBP for committing
misappropriation in the sale
Proceeds of Dollar Bearer Certificates (DBCs) to the tune of $36.7 million. He was arrested on a
complaint by the SBP for committing misappropriation in the sale
Proceeds of Dollar Bearer Certificates (DBCs) to the tune of $36.7 million.
The regulatory could not monitor for one reason or the other. The Mehran Bank Collapsed.. In
1995, Mehran Bankwas merged with National Bank In 1996 the NBP had to make provision of
Rs 1.26 billion for Mehran Bank's liabilities. 6
Layer No.4. The fourth layer of the organization is the workforce in the absence of which no
material results are possible and its proper utilization is again the responsibility of the policy
implementing team. Efficient and optimal use of potentials with the help of goal achieving force
is highly perplex job and needs managerial tactics.
It is always here that various motivational factors are employed to keep the will of the workers
alive rather rejuvenate the spirit of this class through increase in knowledge and skill.
Motivational factors most effectively influencing the enthusiasm of the workforce is found in
building confidence in the labour. No doubt material incentives have, many a times, worked but
this has been found temporarily instrumental. In view of the pivotal role of the workforce both
the will and capacity of the labor attains the most importance and priority for continuous
development. Taking care of this particular class of people indeed requires extra abilities because
each individual has his/her own temperament which he /she has developed over a period of time
To use manpower is the responsibility of the policy implementing team which is consisting on
the specialists in their independent field operation. This team is of vital importance because each

department or segment of the organization has its own intricacies and their handling needs a
specific skill without which the required results can be achieved. Such a team again comprise on
sub teams delegated with defined authority and assigned with predetermined goals for
achievement. This sub division of works facilitates the
This hierarchal distribution is represented with the help of the following diagram

Policy Maker
Board of
Governors
Board of Directors

Policy Agent
Chief Executive Officer/ General
Manager/Managing Director

Policy
Implementation Team

Chief

Chief
Financial

Chief HR

Chief

officer

officer

Operation
officer

Task Force
Organizations manpower/
Work force

Audit/inspection

The Bank of Khyber, Peshawar. The Bank of Khyber was incorporated in the year 1991 as a
public sector Provincial Commercial Banking entity and was subsequently allowed to
operate as scheduled bank by the year 1994. Since its inception the bank was headed by
Managing Director hired from Agricultural Development Bank. Being a development
banker he could run the bank only on lines commensurate with his expertise.
Commercial banking has its own mechanism and needs a different temperament.
Commercial bankers unlike development bankers mainly focus on income generation
and, therefore, strive hard to increase the quantum of business by securing maximum
deposits and disbursing quality finances. The Bank could not grow and consequently in
spite of being a Commercial Bank its No. of branches did not exceed 29 till December,
2005.
Being a public sector entity it suffered from continuous political interference and intervention.
This caused frequent changes of charge. The management instability led to performance
slanginess. Least interested management and poor performance put the bank at rear
legs. Frequent change of charge was one of the causes of non continuation of business
policies and resultantly slows growth. The policy itself has never been the solution of
business ills.
Good policies when practiced by least interested, vested interest
or inefficient management has always met a worse type of failure. Organizational goal
achievement is the result of team work and the members willing to work for the
common cause can only contribute. It is here that the policy implementing agent, leader
of the team attains the most importance. His knowledge, skill and approach in other
words professionalism decides the mode of implementation process and ultimate
outcome of the efforts put in. The motivation of the team members and turning them
into ambitious workers is the charisma of the effective leaders.
The slow growth in Bank of Khyber can in one way be attributed to lack of professionalism and
inability to sustain political pressure which phenomena led to excessive staffing and
impudent lending. The Bank resultantly faced difficulty in maintaining quality of
advances and huge amount of provision had to be made to reflect true financial picture
in the balance sheets.
A comparison of the business results of the period from 1995 -2011 revealed by the following
table No.1 gives us a picture of the growth rate which is highly encouraging and worth
appreciation under the present cut throat market competition.

The Bank of Khyber at a Glance

(Amount in millions)

Liabilities

1995

2005

2007

2008

2009

2010

2011

2012

Authorized Capital

1000

2500

8000

8000

8000

8000

10,000

10,000

Paid up/Share Deposit

Money by Govt. of
KPK

245

1,231

4,002

4,002

5,004

5004

8228

9001

Reserves

135

884

1323

1,436

435

548

722

937

Deposits

3677

17,452

21,410

24,732

26,285

36,981

45,548

60,043

12

287

213

137

637

563

872

1,075

713

1,050

3,728

3,362

2,403

1501

1527

1,649

Investment

1,638

7,623

8,945

17,925

19,852

36,684

45,671

Advances

1,038

10,512

10,085

12,643

11,835

18238

22287

26,692

2,869

2,301

3,331

4457

4088

3939

4,335

1,542

2006

2,261

2973

3025

2989

11.30%

5.121%

2.44

12.04%

10.00%

9.00%

10 %

No. of Employees
1. Permanent
2. Contractual
3. Daily wager

370
-

339
159
162

376
154
156

637
119
6

795
492
2

890
492
5

927
501
2

Total

370

660

686

762

1289

1384

1430

29

33

46

57

70

77

Profit after taxation

Property/Assets
Balance
banks

with

other

Non
performing
advances
Provision against non
Performance advances
Return on Equity

No. of Branches

3,008

From the above table it transpires that the bank growth took momentum from the year 2009. Till
2007 there is little growth in the business and one reason being limited number of branches with
restricted clientele. Bank is infact directly dependent on deposits and these deposits can be
secured with the help of branch net work. The increase in the no. of branches leads to larger
extent to depositor as well as the borrowers who eventually avail these surpluses for reinvesting
into the economic process. With increased quantum of deposits the banks have resources to lend
and earn income, the primary objective of a commercial organization. The sufficient liquidity
enables the bank to further generate revenue by disbursing quality finances. It is the lending

alone which results in the success of the banking unit but it is the quality of finances which
determines the future course of business of the bank . A prudent banker always
focus on increasing of profitability which is possible only through securing fresh deposits and
making advances thereof. The increase in deposits is possible only when the No. of clientele is
increased. To achieve this objective the increase in No. of branches has always been imperative.
The present management as matter of policy made an initiative and adopted the measures for
opening new branches across the country. The table above tells that the branch network has
increased at a very fast speed during the period from 2008 to 2011 as the No. of braches rose to
70 at the end of the year 2011 against 33 branches opened up to 2007 since its inception in
1992.During the year 2008 seven more branches were opened. The increase in the No. of
branches directly affected the business of the Bank. The impact can be witnessed from the
overall business and consequent profitability. The growth rate of deposits in the Bank of Khyber
during the period of ten years i.e from 1995 to 2005 is worked out at 374.62% which on average
comes to be 37.46 % per annum. The rate of increase in deposit during the subsequent two years
i,e from 2005 to 2007 is 22.68% or 11.34 % per annum. The portfolio, however, rapidly grew
from Rs.21410/= million as on Dec.2007 to Rs.45548/=millions at the end of year 2011
evidencing an increase of 112.74 % during a period of three years and records an average
growth of 37.58 % annually. The growth rate during the year 2012 is worth appreciation because
the deposit rose to Rs.60043/= millions recording a growth rate of 31.82%. The availability of
surplus liquidity has enabled the management to increase the financing. The disbursement of
finances grew from Rs.10085/= millions in 2007 to Rs.22287/= millions in December,2011
which is 30.5 % per annum on average. Period prior to the existing management ostensibly
shows a big rise Rs.9047 millions However while computed mathematically the increase
during a period of twelve years from 1995 to 2007 it transpires that the additional quantum of
finances/advances stood at Rs.9047/= millions but when worked out on average it is hardly
7.539% per annum. The advances increased from Rs.22287/=at the end of year 2011 to
Rs.26692/millions at the close of 2012 which shows a rise 19.76 % during one year.
The rise in investment has been of much larger scale during the period of incumbency of the
present Chief Executive. Evident from the above table the banks investment portfolio rose from
Rs.8945/= millions in 2007 to Rs.36684/= millions with an increase of Rs.27730/= millions at
the end of December,2011 representing a growth rate of 69% per annum on average compared to
increase of Rs.7307/= millions or average increase of 6% per annum for the period the period
from 1995 to 2007. This portfolio also witnessed a growth by 24.50 % in the year 2012 because
the investment level rose Rs.45671/= millions.
The increase in business gave a momentum to over all growth of the Organization. Boost in
deposits allowed for making further advances and investments and widened revenue generation
sources thus leading to augmented profitability in spite of increased provisioning for non
performing asset and advances portfolio which ultimately led to reclassify the advances . Strict
regulatory measures resulted in re-visiting the advances portfolio warranted further provision in
because of in sufficient cushion made by the past management. As seen from Table I , the
provision had to increase from Rs.2006.00 millions in the year 2007 to Rs.2973.00 millions and
Rs.3025.00 millions for the year 2009 and 2010 respectively.
Consequently the infected portfolio was further adding pressure on the profitability of the Bank
because the bad debts rose from Rs.2301.00 millions in 2007 to Rs.4457.00 millions in month of
Dec.2009. Though this amount fell to Rs.4088.00 millions in Dec.2010 but provision for non

performance loans rose to Rs.3025.00 millions against Rs.2973/= millions reported for the year
2009. This was imperative for providing requisite cushion against bad debt which was
previously not provided for sufficiently.
The quantum of non performing assets subsequently fell to Rs.3939.00 millions at the end of
Dec.2011 and so decreased the amount of provisions which though also fell to Rs.2989.00
millions which is 75.88 % of infected portfolio and is lower

as compared to the year 2007

when it was 87% . To bring the classified in the tight orbit of prudential regulation the further
provisions had been made during the year 2012 raising the total quantum to Rs.4335.00 millions.
The rise in the non performing loans is only 10 %
Profitability is the most significant measuring rod for assessing the performance of a commercial
organization. The Bank of Khyber has succeeded in achieving the objective
The Bank , after strictly following the Prudential Regulation, scrutinized re-assessed the
quality of outstanding advances which process incidentally added to the bad debts column but
simultaneously made substantial provision for meeting the statutory requirement . By adopting
the strict measures it had to set aside a large amount of Rs.2989.00 millions for the year 2011 as
provision but it still earned profit to the tune of Rs.872.00 millions which was the highest profit
ever earned by the bank. The increase in deposits and subsequent increase in the quality
advances and investment gave rapid momentum to the profit of the bank and recorded a growth
rate of 23.82% by earning net profit of Rs.1075/= millions during last accounting year of 2012.
The rise in deposit is the direct result of enlarged network which facilitated the banking services
at the door step of the general public. The increase in No. of branches expanded the scope for
employment of additional workforce ,thus facilitating the job opportunities to additional job
seekers. The No. of employees increased from 660 in the year 2007 to 1430 by the end of year
2012. As a result of expansion in business the bank offered additional jobs to 770 persons thus
enabling the management to shoulder its corporate social responsibility as well.
With a view to know whether the growth is actually the result of good governance which sprang
out of the change in management , a sample inquiry was conducted. A questionnaire was got
responded by a sample group of two hundred officers/employees of the Bank of Khyber in the
following ratio.
Executives

10 %

20

Officers

70%

140

Employees

20%

40

________________
Total

100%

200

To arrive at more reliable results sample was again divided into two sub groups. Seventy five
percent prospective respondents were chosen from the urban branches and offices located in
Peshawar and adjacent area while twenty five percent of the samples was selected from the
upcountry braches and offices.
Questionnaire were distributed among the targeted groups. The responses received have been
tabulated in table No.3 below.
Table No.3
Summary of the answersGrowth in business of Bank of Khyber
Serial Question
No.
1
2
3
4
5
6
7
8
9
10

No. of
Answer
YES
180

No. of
Answer
NO
11

Do not
Know

192

178

10

Due think management could achieve

growth due to policy change?
Did expansion in branch network
increased deposits/advances?
Did bank earned more profit due better
fund management?
Could Bank of Khyber discharge
corporate social responsibility?
Is this performance due to better
service to customers?

175

17

190

10

185

10

160

40

187

10

Did the existing clientele add to the

corporate image of the Bank?
Are you satisfied with customers
facilitation at outlets

175

17

198

Do you think there are positive

changes in the performance of Bank of
Khyber ?
Are you sure that Bank of Khyber has
achieved unprecedented growth/
Is this growth due to Good
Managment?

Out of a total 200 questionnaires 91% answers verified the hypothesis that the unprecedented
growth in Bank of Khyber was achieved due to increase in branch net work which helped in
expanding the business.

The branch expansion was primarily meant to access the maximum No; of clients. This was
infact the core of changed Bank Policy which stemmed from the era of Good Governance.

References.
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p 575
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14.Khyber , 2011,, Annual reports of The Bank of Khyber, Bank of Khyber, Peshawar,Pakistan.
. 15.Khyber , 2012,, Annual reports of The Bank of Khyber, Bank of Khyber, Peshawar,Pakistan