CHAPTER – 1

INTRODUCTION OF THE STUDY

1.1 Background of the Study

This study is focused the Bank of Khyber Pakistan, which is the govt. bank, owned by the NWFP
Provincial Govt.
The study is carried out to familiarize the students with the working of banks and banking
environment and to produce a comprehensive report on it.

1.2 Purpose of the Study

The purpose of this study is to fulfill the requirement of Bachelor Degree at Institute Of
Management Studies, University Of Peshawar. Being a student of business, especially of human
resource management, the purpose of conducting this study is also to develop some insight into the
working of banks in the field of human resource, the bank of Khyber especially here. More
thoroughly, after some what understanding the procedures of the Bank, the aim is to make a
critical analysis of it and suggest recommendations.
Along with being a course requirement, the purpose of this study is to develop and enhance the
analytical skills of students.

1.3 Scope of the Study

The scope of this particular study confined to the Bank of Khyber Human Resource Division. and
the main focus is the Personnel and Training Department of the bank. Emphasis has been laid to
study their approach towards recruitment and selection, training and development, compensation
and benefits, performance appraisal, workload study and retirement and firing practices.

1.4 Methodology of the Report

The method of data collection is mostly based on personal observations and experiences of
actually working at the Bank. Every effort has been made to collect data and information of the
working of the organization; however the following data collection methods have been mainly
used for the compilation of this report.
Primary Data

The data in the raw form collected for the first time is called primary data. The data is collected
during the time period of two months internship in Bank of Khyber and the sources for this data
are:

• Observations
• Discussions with Bank officers.

Secondary Data

The data which has undergone through some mathematical or statistical technique after being
collected and is visible in tabulated form is known as secondary data. The sources for secondary
data are:

• Manuals and brochures

• Annual Reports
• Information Memorandum
• Internet.
• Prior internship reports

1.5 Scheme of the Report

The entire report is organized in the following manner.

Chapter one (already covered) gives the background of the study, the purpose of the study, the
scope and methodology that is used to collect all the relevant data and the scheme of the report
itself.
Chapter two is about the organizational review i.e. the history of the bank of Khyber, mission
statement, organizational structure and chart etc.
Chapter three give the Islamabad Branch overview where the Internship is conducted.
Chapter four is about the various financial products and services offered by the Bank of Khyber.
Chapter five emphasis on the department of specialization i.e. operation department and the
various types of facilities given by it.
Chapter six covers the financial analysis of the bank.
Chapter seven consists of the recommendations based on the findings from the study.
CHAPTER – 2

ORGANIZATIONAL REVIEW

2.1 The Bank of Khyber Pakistan

The Bank of Khyber (BOK) was established in 1991 under the act of the NWFP assembly its
objectives included promotion of savings and investment in the NWFP. In 1994 it acquired the
status of a scheduled bank that allowed it to open branches outside NWFP, 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. 652.5 million has been provided
by the government of NWFP, while the remaining Rs. 97 .50 million has been contributed by
DEG, a German Development Bank.
BOK is distinguished by the fact that it is not only a schooled commercial bank but it also plays a
role of a development agent, through systematic long-term lending, specially to small and medium
size business. Separate project financing departments namely, long-term projects department and
Micro Finance Unit have been set up for this purpose. BOK has arranged several line of credit
from international agencies for meeting the funding requirements of development projects in
NWFP.
BOK has 43 branches with 26 in NWFP and 4 at Karachi and 9 at Lahore, one each at Quetta, and
Muzzaffarabad, (Azad Jammu and Kashmir). The Bank also has 2 sub-branches. The Bank has 346
well-qualified officers, and it places great importance on their professional achievements.

2.2 Mission Statement

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, the Bank of Khyber being an organization, has a
mission statement, as follow:
 “To excel as a quality service provider, in a supportive environment with a special focus on micro-
business and to exploit the indigenous resources, while maintaining a highly motivated staff”.1

2.3 Main Objectives of the BOK

Objectives are the ends towards which activities are aimed. In fact these are the results to be
achieved. The bank of Khyber has certain objectives, which are as follows;2
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, specially in the rural areas
of the province. Further, to guide and assist the people of NWFP 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 specially 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.

2.4 Organizational Structure

“Organizational structure” is the frame work that defines the boundaries of the formal organization
and within which the organization operates”:3
The organizational structure of BOK is also aimed at achieving specific corporate objectives. The
Board of Directors controls all the activities and functions of BOK.

Board of Directors

The existing board of directors comprises the following:

Mr. Ghulam Dastgir Akhtar Chairman
Additional Chief Secretary Govt. of KHYBER PAKHTU
Mr. Bilal Mustafa- The Bank Of Khyber Managing Director/CEO
Sahibzada Saeed Ahmad Director/Secretary Finance Govt. of KHYBER
PAKHTUNKHAWA
Mir Javed Hashmat Member Board of Directors/ Executive Director
Mr. Muhammad Maqsood Khan Director
Mr. Maqsood Ismail Director
Mr. Muhammad Asif Director/Chairman Audit Committee
Mr. Amjid Pervez Director

2.5 Organizational Chart

The BOK is a centralized organization in which little authority is given to the lower levels of
management.
The head office of BOK is divided into two divisions and each division has its own set of
departments, these two are:
• Banking operation division
• Personnel and establishment division
There are also two other independent departments.
• Long term projects
• Audit department
Long term projects (LTP) handles the investment proposals of huge industrial and agricultural
projects. Where as the audit department is responsible for having an internal control.
 Organizational Chart

THE BANK OF KHYBER

Organization

Board of Directors

Managing Director Long Term Projects

Resident Directors
AUDIT
Managing Committee

Banking Operation Division Personnel & Establishment Division

Branch Operations
Deptt. Investment

Accounts &
Treasury Deptt.
Computers
Foreign Exchange
Deptt.
M.B.D

Credits Deptt.

P & E Deptt.
Monitoring &
Recovery Deptt.
Public Relation
Branches Deptt.
43
2.6 Human Resource Policies

“Human Resource Management is the part of the organization that is concerned with the staffing,
training, development, motivation and maintenance of employees”.4
HRM is a step-by-step process, which is followed by many companies all over the world. The
personnel and establishment department of BOK performs all the above mentioned functions BOK
is also aware of the growing importance of personnel and its role in an organization. Therefore it
lays great emphasis on this aspect of management. BOK has a personnel programme, which
constitutes administrative matters relating to personnel right from recruitment to selection. Salary
administration, promotion, demotion, dismissal, disciplinary action, training, improving
performance, motivation and developing employees and retirement matters.

a. Recruitment in BoK

Recruitment is the process of discovering potential candidates for actual or anticipated

organizational vacancies”5.

Recruitment Procedures

A candidate while coming to the services of BOK must be pass through a selection process.

Application Forms

When BOK advertise posts, the applicants are required to apply through a form, through this form
the bank tries to get as much information about the candidate as possible.

Test

The candidate fulfilling other requirements are then called for written test. This written test is
taken in three major subjects i.e. English, General knowledge and Arithmetic.
Interview

The candidates who qualify the written test, are then called for interview, the main purpose of the
interview is to judge the personal qualities of the candidate.

Physical Examination

The selected candidate are required to bring a medical fitness certificate from any registered
medical practitioner, the main purpose of the certificate is to make sure the physical fitness of the
candidate at the time of appointment.

Appointment

The selected candidates receive their appointment letter through post at the address they have
given in the form. They are appointed for the period of one-year as probationary office. At the time
of appointment they have to submit the following documents.
a) Bank secrecy bond that they will not lack out secrecy to any one outside the bank.
b) Surety bond.
c) Service agreement bond.

Probation

The selection candidates remain under probation for the period of one year. They receive pre entry
training at Union Bank Academy Lahore as BOK does not have its own training academy
probationary office receive a fixed salary.

Confirmation

After the successful completion of the probation period the probation officers are confirmed and
their services are secured. For confirmation they have to pass a test and fi they pass this test they
are permanently recruited as office Grade-III.

B. TRAINING

“A learning experience that seeks a relatively permanent change in an individual that will improve
his or her ability to perform on the job”6. Towards this main objectives training courses have been
organized, initiating a self-development process in order to accelerate organizational growth and to
further improve the bank’s level of expertise and efficiency.
C. TRAINING PROGRAM

The institute of Bankers in Pakistan (IBP) arranges training programs for all the banks including
the Bank of Khyber, to upgrade their management skills. IBP also programs seminars, conferences
and training programs for one to two or more days.
IBP conducted three exams in the full service of a banker, part-I, part-II, and part-III. It is called
DAIBP (Diploma Associates Institute of Bankers in Pakistan). If a banker clears all the papers in
the first chance so he or she would get a cash prize.
After clearing Part-I, a lower grade officer is given the option of their taking the cash prize or a
promotion. In grade II only the cash prize is offered.
For improving the skills and knowledge of its employees, the management of the BOK has on job
training, job rotation and off the job training.

On- The-Job Training

On-the-job training is normally given by a senior employee or supervisor to the trainee in order to
enhance and polish the skills of his or her. The bank provides the opportunity to take part in the
courses and seminars conducted by the institute of Bankers Pakistan and other professional
institutes.

Job Rotation

Job rotation is defined as “An alternative to job specialization that involves systematically moving
employees from one job to another”.7 It enables the employees to work on different positions and
get an overall picture of the bank’s operations.

Off Job Training

Off job training in BOK includes conferences, seminars, meetings and refresher courses. This
mode to training is done to enable employees to upgrade their knowledge to new developments in
the banking profession and also to broaden their outlook.

D. PROMOTION

Main criteria for promotion are the performance and skills of the individual, though seniority is
also taken into consideration but it is secondary importance.
BOK has defined perfect career paths for its employees and that staff gets accordingly in their
grades by way of transferring from one position to the others.
The MD on the recommendations of the promotion committee approves promotions up to the Joint
Director. The Board of directors on the recommendation of the MD approves promotions of
officers to the post of Director and above.
To keep the employees motivated the MD may promote and officer out of turn (who has not
completed 3 years of services in the grade) up to 10% of those eligible for promotion. Junior
offices and officers who pass DAIBP part-1& II have the option of promotion to the next higher
grade or to get the cash award.
Normally employees are promoted to the next grade after 3 years but promotion is totally based on
3 years performance of the employee.

e. Performance Appraisal

“A formal assessment of how well an employee is doing his or her job”.8 Performance appraisal is
evaluating the performance of employees for a given period of time. it is a systematic evaluation of
the individual with respect to his performances on the job and his potential for development. The
performance of employees at the BOK is appraised on the basis of annual confidential reports. A
Performa made by head office is sent to immediate superior for filling.
Increments are decided on the basis of these appraisal reports according to the performance of the
employees. These increments or appraisals play a very important role in the development and
encouragement of the staff.

F. ALLOWANCES AND FRINGE BENEFITS

Allowances

• House Rent
• Conveyance/maintenance allowance.
• Utilities allowance.
• Medical allowance
Benefits

“Things of value other than compensation that an organization provides to its workers”. 9 The BOK
allows the following benefits to its executives and managers only.
• Residential telephone
• Entertainment allowance
• Bank car
• Residential facilities

G. DISCIPLINARY RULES

Discipline is a force that prompts individuals or groups to observe rules, regulations and
procedures that are demand to be necessary for the effective function of the organization.
Discipline; in ordinary conduct of affairs by the members is to maintain harmony and peace in
organization willingly. Following are the examples of indiscipline.
• Absence from duty
• Misconduct
• Disobedience with any lawful and reasonable order of the supervisor i.e. transfers.
• Fraud and forgeries
• Damage or loss (bank property)
• Sleeping while on duty
• Striking
• Unauthorized use of bank property
Any violation in these disciplinary rules the different types of penalties are given.

H. PENALTIES

Any employee found guilty under any rule or any offense of misconduct is liable to one or more of
the following penalties.
• Reprimand
• With holding for a specified period confirmation on promotion of increment.
• Recovery from salary of the whole or part of any particular loss caused to the bank
by the employee.
 • Demotion to any lower grade.
• Removal (Dismissal) from service.
• Termination by way of punishment.
• Compulsory retirement from the services with or without retirement benefits.

i. Separation in BOK

Any employee of the bank is separated from the service by three different ways.

i. Retirement

Any employee will retire from the service either on the completion of 25 years continuous service
or by attaining the age of 60 years.

ii. Resignation

An employee can leave the service of the bank on his own disposal by tendering resignation in
writing, but he is required to give a prior notice of 3 months in case of officer and one month in
case of clerical staff. If he fails to do so 3 months pay will be forfeited in case of officer and one
month in case of clerical staff. Although the bank authorities accept resign but he has to give a
genuine reason for the resignation

iii. Dismissal

Any act of an employee against the discipline may lead the termination from the services. By
doing wrong any employee of the bank can be separated as a punishment from the service, but this
will require a proper inquiry of the case.
CHAPTER – 3

The bank of Khyber any Branch Overview

3.1 Departmentation of branches:

Departmentation is, “grouping activities and people into departments make it possible to expand
organizations”.1

Chart – 3.1

The Bank of Khyber

Branches
Organization Chart
Chief Manager

Manager Operation

Foreign Exchange General Banking Credit

Department (Operation) Department Department

Source: Account
Personal Observation.
Cash Remittances Bills Clearing
Opening
Department Department Department Department
Department

Account Opening Department

The opening of an account is the establishment of banker-customer relationship. This department

performs the duty of opening accounts for customers. It also issues checkbooks to customers. A
person who wishes to open an account with the bank has to fill an account opening form obtained
from any branch of BOK at the time of opening of account. The bank officer tactfully obtains
information about character, integrity, responsibility, occupation and the nature of business of the
perspective customer.

Cash Department

Cash department owes its important to the fact that it is a major point of contract between the bank
and the customer, the bank’s most valued relationships. This department is the showcase of the
bank and conveys the first impressions about the bank’s commitment to professionalism in its
systems and procedures and to courteous and efficient customer service. This department performs
the function of receipts and payments.

Remittance Department

Funds transfer facility or remittance of funds is on of the key functions of the banks all over the
world. Remittances through banking channels save time, costs less and eliminate the risks involved
in physical transportation of money from one place to another. BOK transfers money in the
following ways.
1. Pay orders (P/O).
2. Demand draft (DD)
3. Mail transfer (MT)
4. Telegraphic transfer (TT)

Bills Department

The Bills department deals with the collection, purchase and discounting of bills on behalf of the
customers. The collection of cheques and other instruments has become a very important service
that commercial banks render to their clients. While collecting cheques and other instruments, a
bank acts as an agent of its customers and therefore, the banker – customer relationship in this case
changes from the debtor – creditor relationship to the agent – principal relationship.
The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both,
collecting as well as paying, banks have certain obligations to each other and to their customers.
They have certain legal rights also and legal protection is available against fraudulent transactions
under various sections of the Negotiable Instruments Act, 1881.
Clearing Department

BOK along with their daily business activity also provides the facility of collecting credit claims
for customers i.e. when a customers deposits a cheque or draft for collection which is of the some
other bank. Then bank collects this instrument for its customer through clearing and similarly in
case of payment the bank makes payment through clearing for the instruments (cheques or drafts)
which are given by its customer for his obligation fulfillment to customer of some other bank. The
function of clearing house system is operated by the State Bank of Pakistan (SBP) if SBP has no
office at a place then National Bank of Pakistan (NBP) as a representative of SBP acts as a
clearing house.

Credit Department

The bank is profit seeking institution. It attracts surplus balance from the customer at low rate of
interest and makes advances at a higher rat eof interest to the individuals and business firms. Credit
extensions are the most important activity of all the financial institutions, because it is the main
source of earnings. Credit departments is one of the most sensitive and important department of the
bank. The major portion of the profit is usually earned through this department. The job of this
department is to make proposals about the loans, the credit management division of head office
directly controls all the advances.

Foreign Exchange Department

The foreign exchange means that the amount of any foreign currency that will available in a
market at any given time against or in exchange for a particular country’s currency. This value of
rate or exchange may show a stable, rising or downward trend of position day to day and even at
different times during the same day.
Foreign Exchange Department is the main source of income for the commercial banks as well as
for the State bank. Commercial banks earn commission and service charges through letter of credit
and letter of guarantee. While the state Bank collects with-holding tax for the supply of goods
through letter of credit and govt. earns from stamps duties applicable to issuance bills of exchange
in case of L/C. it promotes the import and export business. It facilitate the local trade and foreign
trade.
Foreign Exchange Department deals with foreign currency accounts (FC A/C), letter of credit
(L/C) and letter of guarantee (L/G).
CHAPTER – 4

FINANCIAL PRODUCTS AND SERVICES

4.1 Current Deposit Account (Rupees)

“The BOK 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 choose
to keep in these accounts”.1
• Balance in current accounts are payable on demand. Any amounts can be with
drawn without prior notice. 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.
• An overdraft is allowed on this account.

4.2 Saving Deposit Account (Rupees)

“The BOK rupee saving deposit account allows the facility of multiple withdrawals up to the credit
balance, while accruing profit on deposits”. 2
Types of saving deposit account.
i. Profit and loss sharing (PLS saving) account.
ii. Special deposit account (SDA).
iii. PLS 7 days Notice Deposits.
iv. PLS 30 days Notice Deposits
• Profit is paid bi-annually on minimum monthly balance (Jan-June & July-Dec)
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.

4.3 Term Deposit Account (Rupee)

“The BOK Rupee Term Deposit Account offers the dual benefit of attractive returns with high
liquidity. Options to take profit monthly, quarterly, bi-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”.3
• Term or fixed deposits are accepted by BOK mature between 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.

4.4 Foreign Currency Account

• All individuals including resident citizens, firms and corporate bodies can open and
maintain foreign currency savings and current accounts.
• Formalities for opening FC accounts are similar to those of rupee accounts.
• Facility is presently available in four major currencies i.e. US dollar ($), Pound
sterling, (L), deutsche mark (DM) and Japanese Yen (Y).
• Foreign currency saving accounts is interest based. Interest rates are fixed by bank
every month within the parameters given by SBP. The rates so announced unchanged
during respective month.

4.5 Khyber Monthly Scheme (KMS)

On KMS the BOK gives monthly interest on amount deposited with the bank. This is a sort of
fixed deposit and the customers will have to keep the deposits for the five years.
4.6 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.
• No profit is paid on call deposits.
• A SDR can be repaid to a named beneficiary or the purchaser/depositor upon proper
identification.

4.7 Khyber Rupee Travelers Cheques

“They are generally issued for the convenience of persons traveling abroad, but some Pakistani
banks issue them in Pakistan currency for use within the country as well. Before issuing, the
bankers receive an amount equal to the face value of the cheques, and also charge a small
commission. The travelers cheques are for fixed amount and are treated as order cheques payable
only to the purchaser whose specimen signature appears on the travelers cheques itself. Foreign
currency travelers cheques are issued and encashed in accordance with the provision of the
exchange control regulation Act 1947.”4
“Khyber Rupee Travelers cheque (KRTC) is a negotiable instrument, which can also be used for
remittance fund and as an alternate to cash”.5
KRTC is available in the denomination of Rs. 5,000, Rs. 10,000, and Rs. 50,000.
 Table
Deposit Rates
Half Yearly Profit Rate On PLS Deposits
December 31, 2001
PLS saving account 5.50%
SDA (up to 99,999/-) 4.20%
SDA (100,000/- to 5,000,000/-) 5.50%
SDA (5,000,001/- to 8,000,000/-) 7.00%
SDA (8,000,001/- and above) 8.00%
PLS 7 days Notice Deposits 4.00%
PLS 30 days Notice Deposits 4.50%
TERMS DEPOSITS
Two months 7.00%
Three months 7.50%
Six months 8.00%
Nine months 8.00%
One year 8.50%
Two years 9.00%
Three years 10.00%
Four years 10.50%
Five years 11.00%
Khyber monthly scheme 11.00%

Source: The Bank of Khyber Circular January 18, 2002

4.8 Consumer Financing

4.8.1 Fund Base Facilities

Fund base facilities are those which involve a cash disbursement at the time of allowing the
facility.

Running Finance

This is a working capital finance facility available for one year and renewed subject to satisfactory
utilization there of. Markup is charged on outstanding balance.

Demand Finance

It is a term loan disbursed in lump sum and repayable in 2 years in the form of monthly or
quarterly installments.
Advance against Salaries

This facility is available to government and semi-government employees up to five gross salaries.

4.8.2 Non-Fund Base Facilities

The non-fund base facilities are those in which the bank does not invest its own funds rather its
commitment is involved against which the bank chargers a certain amount in shape of commission.
These facilities are available in the form of letter of credit and letter of guarantee.

Letter off Credit

Letter of credit is required in the settlement of international trade some times local transactions are
also done through the letter of credit which are termed as inland LCs.
Usually, there are four parties are involved in LCs.
1. Importer
2. Exporter
3. Importer’s bank
4. Exporter’s bank
LCs may be on sight or issuance’s basis. In sight based LCs, the importer has to pay the amount
upon payment of the value. In case of issuance LCs the exporter extends credit to the importer. The
documents are handed over to the importer against his acceptance of the bill and assurance of
payment on the maturity date of acceptance.

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).
The banks 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.
CHAPTER – 5

OPERATION DEPARTMENT

5.1 ACCOUNT OPENING REQUIREMENTS AND DOCUMENTATION

Account opening is the first step towards establishing Banker-Customer relationship. Any
individual, who has attained the age of majority and is of sound mind can open and maintain
his/her account. Two or more individuals may open an account jointly. Similarly, business
organizations such as sole proprietary concerns, partnership firms, and limited liability companies
as well as non-profit organizations like clubs, trusts, societies, associations and NGO’s etc, may
open their accounts.
The following requirements are necessary for opening an account.
• Identification of the new customer.
• Ascertaining the genuineness of the stated occupation business of the customer.
• Determining the correct residential and permanent address.
• Completion of all relevant columns of the AOF.
• Proper completion of documentation.

Personal Accounts

Accounts opened by individuals in their personal capacity are termed as personal or private
accounts. A personal account may be a PLS saving or current account in local currency or saving
or current account in foreign currency. There is no restriction as to number of accounts that an
individual may have with the bank.
Verification of Identity1

a) Under recognized legal principles, banking conventions and SBP’s prudential

regulations (Regulation XI & XII), banks are required to institute effective procedures
to ensure true identity of their customers.
b) Federal Ombudsman also, vide his ruling on a complaint, directed the banks to
retain a photocopy of the NIC with AOF of the person desiring to open an account as
well as of the introducer.
c) Account opening procedures at Bank of Khyber, therefore, have been adopted to
fulfill above requirements.
d) Authorized officers, therefore obtain NIC’s and photocopies of the new account
holder as well as of the introducer and then return the originals after attesting the
retained copies. Inquires are necessary to avoid potential frauds and losses not only for
our own bank but also to save other banks and general public and to claim legal
protection in the case of any such happening.
e) The identity of an individual can also be established by obtaining a copy of their
passport, driving license, or any other documents that certifies the customer’s name,
address, date of birth, citizenship, photograph, and signature etc.

Introduction

a) Whether introduced by a customer or banker, proper introduction is a mandatory

requirement under SBP’s BCD circular No. 29 of 1968.
b) Generally, new customers are introduced by the existing customers, Staff members
themselves may introduce new accounts, provided they know the new customer, his/her
occupation and permanent residence etc. and are otherwise satisfied with his/her past
conduct or record with respect to financial dealings and bank relationships.
Following Steps Are Taken To Ensure Proper Introduction2

a) Introductions from saving account holders for current accounts normally

discouraged. However, an introduction from a savings account holder who is well know
to the manager and whose account has been well conducted may be accepted, under the
manager’s authorization.
b) Whether the introducer/referee accompanies the account holders to the branch or
not, he/she properly identified by an authorized officer under his signature written
across the rubber stamp reading “Signature Verified” affixed in close proximity to the
introducer’s signature. A letter of thanks sent to the introducer. A copy of the letter
retained in the Account File.

Some Basic Information Regarding Account Opening Form & Procedures

• The bank officer takes the interview of the customer to know his purpose of account
opening, identity and status.
• The full name of the individual or the business is given as title to the account.
• The permanent (Corresponding) address of the client is required in this regard.
• The account holder describes his occupation in definite and adequate terms. In case
of employee the name and address of the employer is noted on AOF.
• Clear instructions are obtained regarding operations on the account and for
repayment of the balance in the event of the death of any of the joint account holders
and in case of single account holder.
• Signatures of the account holders are taken on AOF and SS Card.
• An account in the name of minor may opened jointly with a parent or guardian
with the condition that account will be operated by the guardian. No overdraft is
allowed in a minor’s account.
• An illiterate person can open account with banks. This account will be Photo
account one photo is pasted on AOF and one is on SS Card. Left thumb impression in
case of male and right thumb in case of female account holders is obtained in place of
specimen signatures on SS Card. Such a person will put his thumb impression in the
cheque in the presence of bank officer.
 • The married women can open bank account with banks. However, they can’t bind
their husbands for any debts or borrowings obtained without their consent except
necessities of life.
• Joint Accounts: Two are more persons may open an account jointly. AOF & SS
card are signed by all the parties. Special instructions are required for the operation of
account at the time of opening the account. Similarly instructions regarding operation
of account and payment of balance to the survivors are required in case of the death of
one party or more.
• Sole proprietor ship account is the individual account in the name of business
concern.
• All the partners of the Partnership firm will sign the AOF & SS card and it is
operated by any one or more partners.
• The account of the company is opened on the resolution of the Board of Directors,
which nominates the persons authorized to operate upon the account. The signs of all
the members of the Board of directors will be provided to the bank.

DOCUMENTS REQUIRED FOR ACCOUNT OPENING FOR DIFFERENT PARTIES

Individual/Joint Accounts

a) Account opening form (AOF) and specimen Signature (SS) card.

b) A copy of NIC (National Identity Card).

Sole Proprietorships

a) AOF & SS cards.

b) A copy of NIC
c) Letter / declaration of sale proprietor ship.

Partnership

a) AOF & SS cards

b) Copies of NIC’S
c) Letter of partnership
d) Partnership deed.
 e) Mandate form, if applicable.

Limited Companies

a) AOF & SS cards.

b) Copies of NIC ARE of the directors & authorized officials.
c) Memorandum and articles of association.
d) Certified true copy of the Resolution of the board of directors authorizing opening
of the account.
e) Certificate of incorporation original may be returned after inspection and a certified
true copy retained.
f) Certificate of commencement of Business (applicable only in case of public Ltd.
Companies)
g) Copies of the latest audited balance sheet and profit and loss account.

Trusts

a) AOF & SS cards.

b) Copy of the trust deed.
c) A certified true copy of the certificate of registration of the public trust.
d) A certified true copy of the resolution of the board of trustees for opening and
operation of the trust account with the Bank.

Societies, Associations, Clubs Etc.

a) AOF & SS cards.

b) Certified true copy of by laws/ rules and regulations.
c) Certified true copy of the resolution by the society / association or club, authorizing
opening and operation of the account.
d) A list of members of the executive / managing committee.
Local Authorities, Municipal Corporations Etc.

a) AOF & SS cards.

b) Certified true copy of the statute under which the body was created by governed.
c) Mandate authorizing designated persons who would operate the account.

5.2 Remittances

Funds transfer facility or Remittance of Funds is one of the key functions of the banks all over
the world. Remittances through banking channels save time cost less and eliminate the risks
involved in physical transportation of money from one place to another. Besides earning
commission, banks also get much-needed short term (cost free) liquid funds right from the receipt
of value till final payment.
Any person who is of sound mind and can sign the application form as a contracting party may
make a remittance.
Customers, in order to remit money from one place to another, have a variety of options or modes
available to them according to their needs.

Types of Remittances

Remittances can broadly be classified as Outward and Inward remittances. When a bank / branch
instructs another bank/branch to effect a remittance or payment, it is said to be effecting an
Outward remittance. While when a bank/branch is itself affecting a payment/disbursement at the
instructions of another bank/branch, it is said to be handling an Inward remittance. Different
modes and means of remittance are discussed below.

DIFFERENT MODES & MEANS OF REMITTANCES

Demand Draft

A demand draft is basically a bill of exchange. It is an order to pay money Drawn by one office of
a bank upon another office of the same bank or another bank. When it is drawn upon another office
of the same bank it is covered under Sec. 85 A of the Negotiable Instruments Act. However, when
it is drawn upon an office or branch of another bank it is considered as a bill of exchange under
Sec. 5 of the same Act. Also called DDs’ meaning local Demand Drafts and FDD’s meaning
Foreign Demand Drafts.

Salient Features

a) Demand draft is a negotiable instrument.

b) An order instrument payable on payee’s identification or through credit into payee’s
bank account.
c) Legal provisions as to crossings, endorsements, collections and payment in due
course are similar to those for cheques and other negotiable instruments.

Parties to a Draft

Following are the parties to a banker’s draft:

• The person who pays the value and on whose behalf draft is issued is called the
purchaser.
• The branch/office, which issues a draft on another branch or office, is called the
drawer/issuing branch.
• The branch/office on which draft is drawn is called the drawee branch.
• The person entitled to receive the payment is called the payee.

Telegraphic Transfer

The transfer of funds from one branch of a bank to another branch of the same bank or to a
correspondent bank/office for payment to the beneficiary through telex/fax or telegram is called a
telegraphic transfer. It is also called TT.

Salient Features

a) TT’s are affected through internal procedures of the bank and no instrument is
given to the remitter.
b) Telegraphic transfers are not negotiable.
c) Funds remitted through TT’s cannot be paid to order/bearer. Payment can be made
to the payee only upon identification or through a bank account.
d) TT instructions are sent under a coded number known as Test Number.
e) Telegraphic transfers are not affected on the branches within the same city.
Mail Transfer

The transfer of funds from one branch to another branch/office of the same bank or a
correspondent bank through mail or courier service is known as Mail Transfer (MT).

Salient Features

a) Mail Transfer is not negotiable.

b) Like TT’s, funds remitted through MT’s are not payable to the bearer/order.
c) Mail transfer is internal instrument of the bank and, therefore, unlike DD, it is not
handed over to the remitter.

Pay Order

Pay order is also called bankers cheque, drawn upon the issuing branch/office itself. It is not
negotiable and, therefore, the instrument should be crossed, “Payee’s Account only” to avoid the
possibility of dealing with instruments with forged endorsements.

Main Characteristics

a) It is not negotiable under The Negotiable Instruments Act.

b) Protection available to collecting bankers in case of promissory notes, bills of
exchange and cheques under the above mentioned Act is not available in case of pay-
orders.
c) It is issued by, drawn upon and is payable at the same branch of the bank.
d) Pay order is used as a substitute for demand draft within local/city limits.
e) Being a banker’s cheque, pay order is also used to make the bank’s own payments.

Basic Procedure In Case Of Issuance & Payment Of Different Remittances Instruments

The remitting bank collects the actual amount of remittance plus the commission, postage charges
and tax amount if the tax form is not attached with the application form. these amounts may be
collected by cash, Cheque or by authority letter (given by the customer to debit my account for
actual amount plus charges etc).

Application &Agreement of Test Cod

When TT & MT is issued then on the advice the special test code is applied. For this purpose
special test keys are provided to every branch and the HO also has. In case of payment of TT &
MT test is checked either it is agreed or not. If it is agreed then customer’s A/C is credited or TTR
is issued in case when the customer doesn’t have the A/C with the bank.
• When the amount of DD exeedsRs10, 000 then test code is applied to it.
• “Not over Rs ---------- only”
• When DD, P/O &Pay slip is issued this statement is protect graphed or is written
with red ink/ ballpoint on the instrument. e.g Not over RS 10,000 only.
• For the issuance &payment of any instrument an entry is passed in their respective
register and the particulars are fed to the terminal and authenticated the transaction and
proper vouchers are prepared.
5.3 COLLECTIONS

The collection of cheques and other instruments has become a very important service that
commercial banks render to their clients. While collecting cheques and other instruments, a bank
acts as an agent of its customers and therefore, the banker – customer relationship in this case
changes from the debtor – creditor relationship to the agent – principal relationship.
The collection of bills usually involves two banks; the Collecting bank and the Paying bank. Both,
collecting as well as paying, banks have certain obligations to each other and to their customers.
They have certain legal rights also and legal protection is available against fraudulent transactions
under various sections of the Negotiable Instruments Act, 1881.

Duties of a Collecting Bank

♦ To act in Good Faith

♦ To exercise due care and diligence and not be negligent
♦ To act according to the instructions of the customer/principal
♦ To follow the accepted norms and practices of banking
♦ To abide by all the rules and regulations governing collections.
♦ To account for the proceeds and charges/levies deducted from it, to the customer.

Duties of Paying Bank

The paying bank, in order to claim proper discharge.

♦ Should make the payment according to the apparent tenor of the instrument
♦ Should act according to the instructions of the Collecting Bank
♦ Payment should be in good faith
♦ Should act expeditiously and without negligence
♦ Payment should be in the normal course of business.
Outward Clean Bills For Collection

Cheques and other instruments, which are drawn on other banks or BOK branches in other
towns/cities or countries (outside clearing or transfer delivery arrangements), received for account
of the bank’s customers, are lodged in Outward Collections Register either as OBC’s or FBC’s.
The procedure for handling these bills is discussed below.

Initial Scrutiny

On receipt of bills for collection from the customers an initial scrutiny is conducted with the
following consideration.

Date

Cheques and other instruments should not be without a date, post-dated that is bearing a future date
or stale that is bearing an old date that is no more legally valid or is outdated.

Payee

Payee should be a customer of the bank whose account is required to be credited with the proceeds
of collection. In case a customer wants to deposit a cheque/instrument, which shows someone else
as the payee, there should be an appropriate endorsement by the named payee in favor of our
customer.

Amount

Currency and amount of the cheque/instrument should be mentioned both in words and figures and
the amounts in words and figures should be the same.

Drawer(s) Signatures

The drawer(s) should properly sign the cheques/instruments.

Material Alterations

Date, payee’s name, drawer’s signature, and amount are all material parts of a cheque. Full
signatures of the drawer(s) should confirm any material alterations, in these parts.
Crossings

Cheques/instruments must be crossed before processing them for collection. Sec. 125 of the
Negotiable Instruments Act allows a collecting banker to cross a cheque generally as well as
especially for collection/clearing purposes. An un-crossed cheque is liable to be
misused/appropriated, since it would be payable to the bearer.

Endorsements

Order cheques should be properly endorsed if being collected for 2nd or subsequent payees.

Mutilations

Cheques/instruments should not be mutilated to the extent that they can be misinterpreted or not be
correctly read.

Procedure for Handling Outward Bills3

After scrutiny, if instrument is found in order, a Special Crossing stamp of the bank is affixed on
the face of the instrument. Where a cheque bears across its face an addition of the name of a
banker, with or without two transverse parallel lines, the cheque shall be deemed to be crossed
specially to that banker. Payment of an instrument which bears special crossing of a bank can’t be
made to any one except the named bank or another bank who acts as a collecting agent of the first
one ‘a bank which acts as a collecting agent for some other bank is also authorized to put its own
special crossing.
In addition to the special crossing, the collecting bank has to give a certificate/discharge on the
reverse side of the cheque/instrument to the effect that proceeds of the instruments
will be credited to the payee’s account. A stamp containing discharge is affixed as under:

Payee’s Account will be credited on realization.

For The Bank of Khyber
Manager Officer
In case, cheque or instrument is endorsed by the first payee in favor of another person discharge
will be as under:

First payee’s endorsement Confirmed,

Second payee’s Account Will be credited on realization.
For The Bank of Khyber
Manager Officer

Another stamp known as ‘OBC STAMP’ is also affixed on the face of the cheque/instrument,
which indicates name of the collecting bank, OBC reference number and date of lodgment for
further reference. Form or style of an OBC stamp may differ from bank to bank and even branch to
branch, however, contents remain the same. A specimen is given below.
The Bank of Khyber
OBC NO. …………….
DATED ………………
Lodgment

After initial scrutiny and stamping, bills are lodged for collection by being recorded in the OBC
Register or by using an appropriate computer option. An officer authorized to authenticate who
uses an appropriate computer option to authenticate the transaction should authenticate the entry.
Upon authentication, the computer generates an accounting entry (Vouchers are manually passed
where the branch is not fully computerized.)
The entry is made to record the fact that the bank has accepted the liability for collection of a
certain bill and simultaneously has obtained the right to receive the payment as a collecting agent.
When collection is realized or is returned by the drawee this entry is reversed since the liability of
the collecting banker as well as the right to receive payment does not exist any more.

Collection Schedules

The next step after computer processing is to prepare collection schedules/orders addressed to the
bank/branch, which we have chosen as our collecting agent.
Dispatch of Items for Collection

After completion of above procedure, collections are sent to the designated collecting agents or
drawee banks/branches, as appropriate.

Commission & Charges

Commission on clean bills should be recovered strictly at the rate specified in the Bank’s schedule
of charges. Collecting agent’s charges will be extra if the collecting bank is other than the Bank of
Khyber. Mail/telegram/trunk call/fax charges should also be recovered, as per the schedule of
charges if fate of the instrument is asked for by telegram/telephone or fax etc. Cheque returning
charges should be recovered as per the schedule, in case the instruments are returned unpaid. If
collections are send by courier service, courier charges are also recovered. Normal postal
charges/registered mail charges for bills sent for collection are in-built in the commission.

Realisation

If a collection is realized through one of our own branches, proceeds are received by means of a
credit advice (IBCA) or telephonic/fax message depending upon instructions contained in the
collection schedule. Where collections are sent directly to the drawee banks/branches other than
our own branches or correspondent banks with whom we have agency arrangements, proceeds are
received by means of a demand draft which is finally collected through clearing.
Bills Returned Unpaid

If a cheque/ Instrument is returned unpaid by a drawee bank/branch due to any procedural mistake
made by the collecting bank such as “banks discharge irregular/required”, “endorsement requires
bank’s guarantee/confirmation” or “ OBC stamp or special crossing required” etc., the mistake is
rectified immediately and collection is presented again by fastest available means such as courier
service/urgent mail service etc.
If collection is returned due to lack of funds in the drawer’s account or due to ‘stop payment’ made
by the drawer or difference in drawer’s signature etc., the customer is immediately contacted and
informed. Proper entry is made in the Cheque Return Register. The returned instrument together-
with objection memo is handed over to the customer or his/her authorized representative after
getting acknowledgement on cheque return register. If a customer is not available, the returned
instrument may be send by registered mail or local express mail/courier service etc. depending
upon situation and circumstances in each case.

Inward Clean Bills For Collection

Bank receives cheques, drafts and other instruments for collection from its own branches or from
branches of other banks, which are not included in local clearinghouse arrangements. These bills
would be its outward bills for collection (OBC’s) or bills purchased but they become inward bills
for collection (IBC’s) for it.

Initial Scrutiny

Immediately upon receipt, all instruments are scrutinized on the following points:
• Whether or not all instruments are apparently in order viz. a viz. genuineness, date
payee’s name, amount, and drawer’s signatures etc?
• Whether or not instruments are drawn on our branch or banks/branches with whom
we have arrangements through clearing or transfer delivery procedures?
• If the answer is ‘yes’ only then instruments are processed further, otherwise they
are returned to the concerned banks or branches with relevant objection.
PROCEDURE FOR HANDLING INWARD BILLS

Recording Receipt

• Mail Received stamp is affixed on all collection schedules received which indicates
the date of receipt of each and every inward collection.
• All inward collections are entered in the IBC Register and every collection is
allotted a serial number called IBC Number.
• IBC stamp is also affixed on the face of the instrument.
• Instruments are segregated department-wise Cheques, TDR’s, ad CDR’s, etc. are
handed over to the Deposits department while DD’s TTR’s, MTR’s and PO’s are given
t the Remittance department.
• Instruments, which are drawn on other banks or branches, are handed over to the
clearing department. However, only designated branches perform this last function.
• Computer entry is made where a branch is computerized, otherwise manual entries
are passed.

Commission & Charges

No commission or service charge is recovered from the collections received from bank own
branches except withholding tax, if applicable. Only collecting branch is supposed to recover
commission and other charges. However, commission at the prescribed rate for the issuance of
draft plus courier charges and government levies like withholding tax and excise duty are
recovered, in case collections are received direct from other Banks.
DD along with a covering letter is sent to the bank concerned, mentioning their Ref. No. or OBC
No. and details of commission, charges, taxes etc. deducted from the bill amount. If any instrument
is drawn on some other Branch or other Bank in the city, it is processed in the transfer delivery or
clearing respectively, to pay the proceeds. Inward collections are generally routed through the
Main Branch or some specially designated Branch.
Local Bills Collection

The bank of Khyber Islamabad Branch collects its local Bills, through its collecting agent Muslim
Commercial Bank Rawalpindi.
The cheques DD, P/O etc of the customers of Islamabad branch or OBC’s of other branches which
are drawn on at any Bank in Pindi are sent to the MCB Pindi for collection. The MCB will present
these instrument in clearing at SBP Rawalpindi.
Before to send these instruments the entries are made for these in LBC Register. Proper stamp is
affixed on the Back side of the instrument.
The Next day the statement comes from MCB Pindi. The cleared (Passed) instruments are credited
to the client’s A/C and instruments returned are sent to Drawer back and an entry is made in the
LBC Register.

5.4 CLEARING

As part of their daily business activity, banks receive cheques and other financial instruments from
their customers drawn on other banks, to be collected and credited to their accounts. Similarly,
banks receive cheques/instruments from other banks, deposited by customers of the banks drawn
on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they
send cheques/instruments for collection and as paying Banks, when they receive
cheques/instruments for collection from other banks. Since each bank receive and sends
cheques/instruments for collection to and from an number of banks, the process of settlement
would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent
by the collection bank to each of the drawee banks or branch upon which different collection items
are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in
for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement.
Working of the Clearing Process

Under the clearing arrangements, the Central Bank or the State Bank of Pakistan (SBP) in our
country, offers a Clearing House or a centralized exchange facility, which works on the following
general lines:
• All the banks operating in a city who are members of the Clearing House maintain
an account with the SBP’s Clearing House.
• Every day representatives of all the banks in every city meet the Clearing House,
first meeting in the morning, at an appointed time, for the purpose of depositing their
own customers, cheques/instruments to be collected from other banks and receiving
cheques/instrument drawn on their account holders from the others banks.
• At the Clearing House accounts of all the banks are debited by the total amount of
cheques/instruments drawn on their customer’s accounts and credited with the amount
of their customer’s cheques/instruments drawn on other banks, as per the list of cheques
submitted by each bank.
• The cheques/instruments received, also called Inward Clearing, and are take back
by each bank to its bank/branch. The amounts of each cheques/instrument is debited or
recovered from each drawee customers’ account and credited to the Clearing House
account. Similarly, against the amount credited by the Clearing House as Outward
Clearing, the appropriate customers’ accounts are credited and clearing House account
is debited.
• Any cheques/instruments received by a bank that cannot be paid, due to insufficient
balance in its customer’s account or for any other reason, are returned back to the
Clearing House and a credit is claimed and obtained there against.
Thus the Clearing System enables cheques to be paid or cleared centrally and settlement made for
receivables and payables between the banks. The SBP co-ordinates clearing activity through its
offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain
its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function.
But the clearing house facility is available only for cheques/instruments drawn on banks situated
within the same city/clearing house area.
First Clearing & Second Clearing

The business of the Clearing House is normally conducted in two sessions called First Clearing’
and ‘Second Clearing’. During first clearing, receipts/payments are adjusted arising out of cheques
delivered and received against each other. In the second clearing, cheques which could not be paid
due to any reason, accompanied with objection memo, are also handed over or received back form
the member banks and adjustments made accordingly.

Where there are no Clearing Houses

At places where there are no clearing houses or clearing arrangements, local cheques drawn on
other banks are presented for clearance through and authorized representative under cash
received/payment received discharge arrangement. Under this arrangement the
cheques/instruments have to be presented by an authorized officer of a bank over the counters of
the drawee/paying bank and the cash so received is credited to the customer’s/beneficiaries
accounts.

Outward Clearing

Cheques received by a bank from its customers to be collected from other banks are considered to
be in the Outward Clearing arrangement. The procedures and considerations that apply to Outward
Clearing are discussed below:

Initial Scrutiny

While accepting cheques for collection/clearing, the pay-in-slips and the cheques and other
negotiable instruments are properly scrutinized with respect to following points.
• Payee/beneficiary must be customer of the Bank.
• Separate pay-in-slips should be filled out for local cheques drawn on our own
Branches and on other Banks.
• Title and account number should be mentioned.
• Amount of the pay-in-slips tallies with that of the cheque.
• There are no unauthorized alterations.
• The amount, account number and the title of account on the counterfoil are the same
as on pay-in-slip.
 • The pay-in-slip bears the signature of the depositor at the specified place.
In addition to the above, cheques/instruments are scrutinized on the following points:
• Endorsements (if any) must be regular.
• There are no previous special crossings.
• The cheque is not post-dated, stale or undated.
• The cheque payable to a firm, company or institution should not be accepted for
credit to the account of a partner, director, agent/attorney or manager of the firm,
company or institution.
• Cheques/instruments crossed ‘Payee’s Account only’ should not be deposited or
collected in any other account.
• The first payee in favour of the depositor, if collected for another account, must
have properly endorsed order cheque.

Stamping4

After conducting initial scrutiny and being satisfied in all respects, the special crossing stamp of
the bank and clearing stamp are affixed on the face of the cheque/instrument without spoiling
material contents such as date, amount, payee’s name and drawer’s signatures etc. given below is
the specimen of the stamps.
 THE BANK OF KHYBER The Bank of Khyber
Branch ____________ Jinnah Avenue Br. (Blue Area)
Date ______________ ISLAMABAD

CLEARING
The Clearing Stamp Crossing Stamp
Banker’s Discharge

According to the type of cheque/instrument, appropriate discharge or endorsement on the reverse

side of the cheque/instrument has to affixed. Which is referred to as the Banker’s Discharge. If an
instrument is being collected for the payee named on the instrument, discharge would be simple as
‘payee’s account credited’. In case of endorsements, there may be second or subsequent payees
involved, in which case the discharge would be like ‘First payee’s endorsement confirmed, second
payee’s account credited or ‘All endorsements confirmed, final payee’s account credited ‘ etc.,
depending upon the nature and type of the instrument.
The Discharge stamps look something like this:

Payee’s Account Credited. First Payee’s Endorsement

For The Bank of Khyber Confirmed
______________Branch Second Payee’s Account Credited
OFFICER OR For The Bank of Khyber
_________Branch
OFFICER

All Endorsements Confirmed.

Final Payee’s Account Credited.
For The Bank of Khyber
_________ Branch
OFFICER

Segregation of Instrument and Forwarding Schedule

All cheques are sorted out and segregated bank-wise and Branch-wise. A schedule or summary is
prepared bank-wise, in triplicate, which gives the total number of cheques and the total amount
receivable form a particular bank. This schedule is prepared manually or generated on computer.
Procedure at Clearing House

• Bank-wise schedules together with the cheques are delivered to the representatives
of drawee banks and master schedule is delivered to the In-charge of the Clearing
House.
• In-charge of the Clearing House obtains acknowledgement from each drawee bank
and passes a consolidated accounting entry for the total amount of outward clearing.

Dishonor or Returns

• In case any cheque is not paid or honored then it is send back to the clients.

Completing The Process

After realization and accounting for returns, an appropriate option is used to close the clearing
process on the computer terminals. Then through another appropriate option a new schedule is
printed for the newly received items for the next day’s clearing.

INWARD CLEARING

Procedure at Drawee Branches

• The Drawee branches immediately scrutinize the cheques and other instruments
received under inward clearing on the following points:
→ Whether all cheques/instruments are drawn on/payable at the receiving
branch?
→ Whether all cheques/instruments are genuine, properly dated and made out?
• If answers to the above questions are ‘yes’ then instruments are segregated
department-wise. Cheques and CDR’s etc. are handed over to the deposits department
while DD’s, Pay Orders, are given to Remittances Department.
• Appropriate accounting entries are passed for the Inward Clearing items.
• If there are any cheques/instruments to be returned unpaid, due to any reason,
appropriate computer entries are passed and it is ensured that the original
cheques/instruments returned unpaid are delivered to the collecting bank in second
clearing.
Returns After Clearing Hours

If a cheque or instrument is not returned in time (during second clearing) then it cannot be returned
through the Clearing House. The Branch concerned immediately contacts the collecting
Bank/Branch and requests them not to release the funds against said collection item. The
cheque/instrument in question along with an objection memo is returned to the Collecting Bank
through a special representative/staff member. The Collecting Bank is requested to issue a Pay
Order in favor of the Bank for the amount of the cheques/instrument returned.
CHAPTER – 6

FINANCIAL ANALYSIS

6.1 Financial Analysis

Financial analysis is the process of identifying the financial strengths and weaknesses of the firm
by properly establishing relationships between the items of balance sheet and profit and loss
account.
The analysis of bank statements is undertaken by analyst, depositors, regulatory authorities,
stockholders, borrowers, the bank management etc. A depositor is interested in the solvency of the
bank, i.e. the safety and availability of his funds. The regulatory authorities desire to assure
themselves that the banks are operating in accordance with the requirements of the law and are in
sound financial conditions. Stockholders are interested in the general financial condition of the
bank and the earnings, the dividends, and the management’s policy with reference to the
accumulation of surplus. The borrower is interested in knowing the extent of available funds and
the use that is made of the bank’s resources.
Financial ratio that relates two accounting numbers and is obtained by dividing one number by the
other.

6.2 ASSUMPTIONS

1. Ratios are calculated for three (3) years i.e. 1999, 2000 and 2001.
2. All the figures are taken in thousands i.e. “Rs. In thousands “.
3. Figures are rounded off up to 2 decimal points.

6.3 Financial Ratios

1. CASH RATIO

Cash ratio is the ratio of cash and its equivalents to current liabilities. It shows that how much cash
is available to cover the current liabilities.
Cash
Cash Ratio =
Current liabilitie s
 818 ,000
Ratio for 1999 = x 100 = 6.95%
11 ,769 ,737

389 ,907
For 2000 = 14 ,042 ,592
x 100 = 2.78%

810 ,424
For 2001 = x 100 = 5.35%
15 ,146 ,407

Analysis

The cash ratio for the year 2000 decreased as compare to 1999. The exact decrease is 4.17% and in
the year 2001, the cash ratio increased. The exact increase is 2.57%. This shows that bank has
improved its liquidity in the year 2001 as compare to 2000.

2. RETURN ON ASSETS AFTER TAXES

This ratio is used in evaluating whether management has earned a reasonable return on the assets
under its control. It measures the over all effectiveness of the available assets in generating profits.
Net Income (profit after tax)
Return on assets after taxes =
Total Assets
38 ,554
Ratio for 1999 = x 100 = 0.29%
13 ,200 ,097
−157 ,375
For 2000 = x 100 = -1.02%
15 ,356 ,007
231 ,040
For 2001 = x 100 = 1.34%
17 ,228 ,792

Analysis

ROA ratio in 2001 is higher than that of 2000 i.e. There is a sufficient increase in the ratio. This
shows that the bank has efficiently managed its assets portfolio to earn a reasonable return on total
assets in the year 2001 as compare to 2000.
3. TOTAL INCOME TO TOTAL ASSETS RATIO

It is a ratio of total income to total assets. This ratio tells us that how much total income is
generated on available total assets.
Total Income
Total income to total assets = x 100
Total Assets
Total income = Mark up earned + non-mark up income
1,662 ,123
Ratio for 1999 = 13 ,200 ,097 x 100 = 12.6%

1,861489
For 2000 = 15 ,356 ,097 x 100 = 12.1%

1,877 ,917
For 2001 = 17 ,288 ,792 x 100 = 10.9%

Analysis

There is a persistent decrease in this ratio in the previous two years. In the year 2000 the exact
decrease is 0.5% as compare to 1999. While in the year 2001 it is 1.2% as compare to 2000. This
shows that bank has poorly utilized its total assets to generate total income.

4. TOTAL EXPENDITURE TO TOTAL INCOME RATIO

This ratio shows the relationship between total expenditure and total income i.e. how much
expenditure is incurred to generate total income.
Total expenditur e
Total expenditure to total income = x 100
Total income
Total expenditure = Total operating cost + Mark-up expensed
Total operating cost = Non-mark up expense + provision against non-performing advances
+ reversal of provision for diminution in value of investments + bad debts
written off directly.
1,598 ,794
Ratio for 1999 = x 100 = 96.19%
1,662 ,123
2,017 ,412
For 2000 = 1,861 ,489
x 100 = 108.38%

1,715 ,195
For 2001 = 1,877 ,917 x 100 = 91.33%
Analysis

This ratio is high in 2000 as compare to 2001 and 1999. The exact decrease in 2001 is 17.05% as
compare to 2000. This shows that bank has managed efficiently its operation to earn total income
with low total expenditure.

5. Operating Cost to Total Income Ratio

It shows the relationship between operating cost and total income. It tells us that how much
operating cost is incurred in generating total income.
Operating cost
Operating cost to total income = x 100
Total income
277 ,254
Ratio for 1999 = 1,662 ,123 x 100 = 16.68%

519 ,034
For 2000 = 1,861 ,489 x 100 = 27.88%

314 ,050
For 2001 = 1,877 ,917 x 100 = 16.72%

Analysis

In the year 2001, this ratio is decreased by 11.16% as compare to 2000. This shows that the bank is
efficient in its operation in the year 2001 and it generates its total income with low operating cost.

6. Debt to Equity Ratio

This ratio shows the extent to which the firm is financed by debt.
Total debt (total liabilitie s)
Debt to equity ratio = Total equity

12 ,491 ,192
Ratio for 1999 = = 17.62 times
708 ,905
14 ,909 ,976
For 2000 = = 33.43 times
446 ,031
16 ,253 ,780
For 2001 = = 16.67 times
975 ,012

Analysis
This analysis shows that bank is trying to reduce dependence on debt financing i.e. bank is trying
to finance its assets more by equity.

7. Return on Equity

This ratio shows that how much profit is generated by shareholder’s equity.
Pr ofit after taxe s
Return on equity = Total equity
x 100

38 ,554
Ratio for 1999 = x 100 = 5.44%
708 ,905
157 ,375
For 2000 = 446 ,031 x 100 = – 35.28%

231 ,040
For 2001 = 975 ,012 x 100 = 23.70%

Analysis

The analysis shows that the return on equity has been improved in 2001. The exact figure of
improvement is 58.98% in 2001.

8. Operating Cost to Deposits Ratio

This ratio reflects the relative extent to which operating cost is incurred on deposits.
Operatin cost
Operating cost to deposits = Deposits
x 100 = 4.21%

277 ,654
Ratio for 1999 = 10 ,307 ,311 x 100 = 2.69%

519 ,034
For 2000 = 12 ,332 ,253 x 100 = 4.21%

314 ,050
For 2001 = 14 ,122 ,946 x 100 = 2.22%

Analysis

This analysis shows that operating cost to generate and operate the deposits was high in 2000
while it was low in 1999 and 2001. There is 1.99% decrease in the year 2001 is compare to 2000.

9. Interest Expense to Deposits

This ratio shows the relationship between interest expense and deposits. It tells us about the
interest expense paid on different types of deposits.
Interest expense
Interest expense to deposits = Deposits
x 100

1,321 ,140
Ratio for 1999 = 10 ,30 ,7,311 x 100 = 12.82%

1,498 ,378
For 2000 = 12 ,332 ,253 x 100 = 12.15%

1,401 ,145
For 2001 = 14 ,122 ,946 x 100 = 9.92%

Analysis

The interest expense to deposits ratio is decreasing in the previous two years. The exact decrease in
this ratio is 2.23% in the year 2001 as compare to 2000. This shows that deposits of bank are
increased in this period while the interest expense is decreased due to reduction in the profit rates
on various accounts.

10. Total Expenditure to Deposits

It reflect the extent to which total expenditure is incurred on deposits.

Total expenditur e
Total expenditure to deposits = Deposits
x 100

1,598 ,794
For 1999 = 10 ,307 ,311 x 100 = 15.51%

2,017 ,412
For 2000 = 12 ,332 ,253 x 100 = 16.36%

1,715 ,195
For 2001 = 14 ,122 ,946 x 100 = 12.14%

Analysis

Total expenditure to deposits ratio first increased in the year 2000 and then decreased in the year
2001. The exact decrease is 4.22% in the year 2001 as compare to 2000. This decrease is due to
efficient control of cost by the bank’s management.

11. Advances to Deposits Ratio

This ratio shows the relative extent to which deposits are lended in the form of advances.
Advances
Advances to deposits ratio = Deposits x 100

5,760 ,125
Ratio for 1999 = 10 ,307 ,311 x 100 = 55.88%

5,746 ,240
For 2000 = 12 ,332 ,253 x 100 = 46.60%

6,925 ,680
For 2001 = 14 ,122 ,946 x 100 = 49.04%

Analysis

In the year 2000 this ratio is decreased and in 2001, this ratio is increased the exact increase is
2.44% in 2001 as compare to 2000. In the year 2001 this ratio is 49.04%. This means that this year
49.04% deposits are lent in form of advances.

12. Interest Earned to Advances Ratio

This ratio reflects the relative extent to which interest is earned on advances.
Interest earned
Interest earned to advance = x 100
Advances
1,242 ,217
Ratio for 1999 = 5,760 ,125 x 100 = 21.57%

1,732 ,140
For 2000 = 5,746 ,240 x 100 = 30.14%

1,728 ,599
For 2001 = 6,925 ,680 x 100 = 24.96%

Analysis

The ratio of interest earned to advances in high is the year 2000 as compare to 1999 and 2001.
Interest earned on advances is high in 2000 because return on deposits of the Bank of Khyber with
financial institutions is high.

13. Asset Growth Ratio

This ratio highlights the percentage increase or decrease in the volume of total assets over a period
of time.
Assets growth ratio
Current year' s total assets - previos year' s total assets
= Previous year' s total assets
x 100
13 ,200 ,097 −12 ,049 ,200
Ratio for 1999 = x 100 = 9.55%
12 ,049 ,200
15 ,356 ,007 −13200 ,097
For 2000 = 13 ,200 ,097
x 100 = 16.33%

17 ,228 ,792 −15 ,356 ,007

For 2001 = 15 ,356 ,007
x 100 = 12.20%

Analysis

Analysis shows that asset growth ratio is lower in 1999 and 2001. There is a decreasing trend in
this ratio in 2001. The exact decrease is 4.13% in 2001.
14. Deposit Growth Ratio

This ratio reflects the percentage increase or decrease in the volume of deposits over a period of
time.
Current year' s deposits - previous year' s deposits
Deposit growth ratio = Previous year' s deposits
x100

10 ,307 ,311 −9,630 ,454

Ratio for 1999 = 9,630 ,454
x 100 = 7.03%

12 ,322 ,253 −10 ,307 ,311

For 2000 = x 100 = 19.65%
10 ,307 ,311
14 ,122 ,946 - 12,322,253
For 2001 = x 100 = 14.52%
12,322,253

Analysis

The deposits growth is higher in 2000 as compare to 1999 and 2001. There is 5.13% decrease in
deposit growth ratio in 2001.

15. Advances Growth Ratio

This ratio highlights the percentage increase or decrease in the volume of advances over a period
of times.
Advances growth ratio
Current year' s advances - Previous year' s Advances
= previous year' s Advancdes
x 100

5,760 ,125 −5,512 ,194

Ratio for 1999 = 5,512 ,194
x 100 = 4.50%

5,746 ,240 - 5,760,125

For 2000 = x 100 = - 0.24%
5,760,125
6,925 ,680 - 5,746,240
For 2001 = x 100 = 20.53%
5,746,240
Analysis

Advances growth was low in the year 2000. Due to better credit management and attracting new
and maintaining the existing clients the advances growth ratio grew high in 2001.
6.4
COMMON SIZE ANALYSIS
THE BANK OF KHYBER
BALANCE SHEETS
AS AT DECEMBER 31,
Regular (Rs. In thousands) Common Size Analysis
Assets 2002 2003 2004 2002 2003 2004
Cash and balances with treasury 818,000 389,907 810,424 6.20 2.54 4.70
banks
Balances with other banks 697,512 602,264 1,153,70 5.28 3.92 6.70
8
Money at call and short notice 30,000 460,000 200,000 0.23 3.00 1.16
Lemding to financial institutions - 4,123,503 926,000 - 26.85 5.37
Investments 4,858,31 2,894,786 5,712,88 36.81 18.85 33.16
0 7
Advances 5,760,12 5,746,240 6,925,68 43.64 37.42 40.20
5 0
Capital work in progress 2,568 - 1,297,68 0.02 - -
9
Other assets 907,421 1,010,438 - 6.87 6.58 7.53
Operating fixed assets 114,641 110,828 133,635 0.87 0.72 0.66
Deferred taxation 11,520 18,041 88,769 0.09 0.12 0.52
Total Assets 13,200,0 15,356,00 17,228,7 100 100 100
91 1 92
Liabilities and owner’s equity
Bills payable 64,798 42,615 82,975 0,49 0.28 0.48
Borrowing from financial institutions 1,397,62 1,667,724 940,724 10.59 10.86 5.46
8
Deposits and other accounts 10,307,3 12,332,25 14,122,9 78.09 80.31 81.97
11 3 46
Liabilities against assets subject to 8,245 2,148 28 0.06 0.01 0.00
finance leases
Other liabilities 704,278 865,236 1,107,34 5.34 5.63 6.43
5
Provision for staff retirement gratuity 8,932 - - 0.07 - -
Total equity 708,905 446,031 975,012 5.37 2.90 5.66
Total liability and equity 13,200,0 15,356,00 17,228,7 100 100 100
97 7 92
6.5
Common size analysis
The Bank of Khyber
Profit and loss accounts
For the ended December 31.

Regular (Rs. In thousands) Common Size Analysis (%)

2002 2003 2004 2002 2003 2004
Markup/interest earned 1,242,21 1,732,14 1,728,59 100 100 100
7 0 9
Markup/interest expensed 1,321,14 1,498,37 1,401,14 106.35 86.50 81.06
0 8 5
Net markup/interest income -78,923 233,762 327,454 -6.35 13.50 18.06
Provision against non- performing 77,081 309,971 79,458 6.21 17.90 4.60
advances
Reversal of provision for diminution in -4,088 -179 -2,835 -0.31 -0.01 -0.16
Value of investments
Bad debts written off directly - - - - - -
Net markup/interest income/loss after -151,916 -76,030 250,831 -12.23 -4.39 14.51
provisions
Non markup/interest income
Fee, commission and brokerage income 61,156 44,999 44,300 4.92 2.60 2.56
Dividend income 20,510 50,075 48,193 1.65 2.89 2.79
Income from dealing in foreign currency - 24,718 43,318 - 1.43 2.51
Profit from investment securities 260,226 - - 20.95 - -
Other income 78,025 9,557 13,507 6.28 0.55 0.78
268,001 53,319 400,149 21.57 3.08 23.15
Non markup/interest expense
Administrative expenses 204,661 208,212 234,153 16.48 12.02 13.55
Provision against an other assets - - 3,188 - - 0.18
Other charges 1,020 1030 86 0.08 0.06 0.00
Profit/(loss) before taxation 62,320 -155,923 162,722 5.02 -9.00 9.41
Taxation – current and deferred 23,766 1,452 -68.318 1.91 0.08 -3.95
Profit/Loss after taxation 38,554 -157,375 231,041 3.10 -9.09 13.37
Unappropriated (Loss)/profit brought 1,351 1,194 -156,181 0.11 0.07 -9.04
forward
Profit/(loss) available for appropriation 39,905 -156,181 74,859 3.21 -9.02 4.33
Appropriations transfer to
Statutory reserve 7,711 - 46,208 0.62 - 2.67
Revenue reserve 31,000 - . 25,000 2.50 - . 1.45
Un-apprepriated profit/(Loss) carried 1,194 -156,181 3,651 0-.10 -9.02 0.21
forward
6.6
INDEX ANALYSIS
THE BANK OF KHYBER
BALANCE SHEETS
AS AT DECEMBER 31,
Regular (Rs. In thousands) Index Analysis (%)
Assets 2002 2003 2004 2002 2003 2004
Cash and balances with treasury banks 818,000 389,907 810,424 100 47,67 99.07
Balances with other banks 697,512 602,264 1,153,708 100 86.34 165.40
Money at call and short notice 3,000 460,000 200,000 100 1533.3 666.67
3
Lending to financial institutions - 4123,503 926,000 100 - -
Investments 4,858,310 2,894,786 5,712,887 100 59.58 117.59
Advances 5,760,125 5,746,240 6,925,680 100 99.76 120.23
Capital work in progress 2,568 - - 100 - -
Others assets 907,421 1,010,438 1,297,689 100 111.35 143.01
Operating fixed assets 114,641 110,828 113,635 100 96.67 99.12
Deferred taxation 11,520 18,041 88,769 100 156.61 770.56
Total assets 13,200,097 15,356,007 17,228,792 100 116.33 130.52
Liabilities and owner’s equity
Bills payable 64,798 42,615 82,975 100 65.77 128.05
Borrowings from financial institutions 1,397,628 1,667,724 940,486 100 119.33 67.29
Deposits and other accounts 10,360,311 12,332,253 14,122,946 100 119.65 137.02
Liabilities against assets subject to 8,245 2,148 28 100 26.05 0.34
finance leases
Other liabilities 704,278 865,236 1,107,345 100 122.85 157.23
Provision for staff retirement gratuity 8,932 - - 100 - -
Total equity 708,905 446,031 975,012 100 62.92 137.54
Total liabilities and equity 13,200,097 15,356,007 17,228,792 100 116.33 130.52
6.7
INDEX ANALYSIS
THE BANK OF KHYBER
PROFIT AND LOSS ACCOUNTS
FOR THE YEAR ENDED DECEMBER 31,

Regular (Rs. In thousands) Index Analysis (%)

2002 2003 2004 2002 2003 2004
Markup/interest earned 1,242.21 1,732,14 1,728,59 100 139,44 139.15
7 0 9
Markup/interest expensed 1,321,14 1,498,37 1,401,14 100 113,42 106.06
0 8 5
Net markup/interest income -78,923 233,762 327,454 - - -
Provision against non-performing 77,081 309,971 79,458 100 402,14 103.09
advances
Reversal of provision for diminution in -4,088 -179 -2,835 100 - -
Value of investments
Bad debts written off directly - - - - - -
Net markup/interest income/(Loss) after -151,916 -76,030 250,831 100 - -
provisions
Non markup/interest income
Fee, commission and brokerage income 61,156 44,999 44,300 100 73,58 72.44
Dividend income 20,510 50,075 48,193 100 244.15 234.97
Income from dealing in foreign - 24,718 43,318 - - -
currencies
Profit from investment securities 260,226 - - 100 - -
Other income 78,025 9,557 13,507 100 12.25 17.31
268,001 53,319 400,149 100 19.90 149.31
Non markup/interest expense
Administrative expenses 204,661 208,212 234,153 100 101,74 114,41
Provision against on other asset - - 3,188 - - -
Other charges 1,020 1030 86 100 100.98 8.43
Profit/(Loss) before taxation 62,320 -155,923 162,722 100 - 261,11
Taxation – current and deferred 23,766 1,452 -68,318 100 6,11 -
Profit/(Loss) after taxation 38,554 -157,375 231,041 100 - 599.27
Appropriated (Loss)/profit brought 1,351 1,194 -156,181 100 88,38 -
forward
Profit/(Loss) available for appropriation 39.905 -156,181 74,859 100 - 187.59
Appropriation transfer to
Statutory reserve 7,711 - 46,208 100 - 599.25
Revenue reserve 31,000 - 25,000 100 - 80.65
Un-appropriated profit/(Loss) carried 1194 -156,181 3,651 100 - 305.78
forward
6.8 Graphical Representation of Financial Analysis

1. Balance with other banks, (Rs. In “000”)

Interpretation

es with
There is 1400000
increase in balances with other banks in the year 2001, i.e. Rs. 1,153,708
Balanc

banks
other
1153708
from Rs.1200000
602, 264, 264 in 2000. The net increase is 91.56%.
1000000

800000 697512
2. Investments (Rs. In “000”)
602264
600000

400000

200000
0 5712887
6000000
4858310
2002
5000000 2003 2004
ments
Invest

4000000 Years
2894786
3000000
2000000
1000000
0

2002 2003 2004

Years

Interpretation

There is increase in investments in a year 2003 i.e. Rs. 5,712,887 from Rs.
2,894,786 in the year 2002The net increase is 97.35%.

3. Advances (Rs. In “000”)

8000000
6925680
7000000
5760125 5746240
6000000
Advan

5000000
ces

4000000
3000000
2000000
1000000
0

2002 2003 2004

Years
Interpretation

There is increase in the advances in the year 2003 i.e. Rs. 6,925,680 from Rs.
5,746,240 in the year 2002 The net increase is 20.53%. This increase is in
advances is due to increase in loans, cash credits, running finance are etc.
 4. Borrowings from Financial Institutions (Rs. In “000”)

Institut
Financ
wings
Borro

from

ions
ial
1800000 1667724
1600000
1397628
1400000
1200000
940486
1000000
800000
600000
400000
200000
0

12002 2003 2004

Years

Interpretation

There is decrease in borrowings from financial institutions in the years 2003. Rs.
940,486 from Rs. 1,667724 in the year 2002 The net decrease is 44.61%.

5. Deposits and Others Accounts (Rs. In “000”)

&
Deposi

Accou

16000000
Other

14122946
nts

14000000
ts

12332253
12000000
10307311
10000000
8000000
6000000
4000000
2000000
0

12002 2003 2004

Years

Interpretation

There is increase in deposits and other accounts in the year 2003 i.e.
Rs.14,122,946 from 12,332,253 in the year 2002 The net increase is 14.52%. The
increase in deposits and other accounts is due to increase in the fixed deposits,
savings deposits current accounts and call deposits.
 6. Markup/interest earned (Rs. In “000”)

2000000

earned
p/inter
Marku
1800000 1732140 1728599

est
1600000
1400000 1242217
1200000
1000000
800000
600000
400000
200000
0

2002 2003 2004

Years

Interpretation

There is decrease in the markup/interest earned in the year 2003 i.e. Rs. 1,728,599
from Rs. 1,732,140 in the year 2002 The net decrease is 0.20%.

7. Markup/interest expensed (Rs. In “000”)

expens
p/inter
Marku

1550000
1498378
est

ed

1500000

1450000
1401145
1400000
1350000 1321140

1300000

1250000
1200000
2002 2003 2004
Years

Interpretation 0

There is decrease in markup/interest expensed in the year 2003 i.e. 1,401,145

from 1,498,378 in the year 2002 The net decrease is 6.49%.
 8. Fee, Commission & Brokerage Income (Rs. In “000”)

Broker
Comm

Incom
Fee,
70000

age
61156

&

e
60000

50000 44999 44300

40000

30000

20000

10000
0

2002 2003 2004

Years

Interpretation

There is decrease in the fee commission and brokerage income in the year
2003i.e. Rs. 44,300 from 44,999 in the year 2002 The net decrease is 1.55%.

9. Administrative Expenses (Rs. In “000”)

expens
Admin

240000
strativ

234153
235000
es

230000
e

225000
220000
215000
208212
210000 204661
205000
200000
195000
190000
185000
2002 2003 2004
Years

Interpretation

There is increase is the administrative expenses in the year 2003 i.e. Rs. 234,145
from Rs. 208,212 in the year 2002 The net increase is 12.46%.
 10. Profit/(Loss) after Taxation (Rs. In “000”)

300000
Profit/

Taxati

231041
Loss
after

250000
on

200000
150000
100000
38554
50000
0

-50000 2002 2003 2004

-100000
-150000
-200000 -157375

Years

Interpretation

There is sufficient increase in profit after taxes in the year 2003 i.e. Rs. 231,041
while there is loss in they year 2002 i.e. –157,375.
CHAPTER – 7

FINDINGS AND RECOMMENDATIONS

The Bank of Khyber is a new emerging bank and it is trying to get the market
share in the presence of national and foreign banks. It has played an important
role in certain areas, but there always exists some room for improvement. The
following findings and recommendations are based on personal observations and
analysis. The given recommendation will help to cope the problems being faced
by the bank and will enhance the efficiency and performance of the BOK.

1. Decentralization

In the BOK the decision making process is centralized. Decisions are

taken by top management. Staff at middle and lower level do not participate in
decision making process. Decisions taken by top level are implemented on all the
levels of organization. An entirely centralized decision making is not conducive
for proper work environment because it reduces the interest and loyalty of the
employees towards the organization. Due to this the communication cost
increases and it causes delays in banking operations because of which ultimately
customers suffer.
Due to this facts some authority and responsibility should be delegated at the
branch level i.e. there should be decentralization. It will improve the working
condition and employees will be more confident. It may result the best and
prompt improvement of the overall bank’s operations.
2. Training Academy

The BoK does not have its own training academy. The training to newly recruited
employees is given in the training academies of other banks. Similar is the case
for existing employees.
To fulfill the requirements of training of the new and existing employees the BoK
should establish the training academy. This will enable the employees to receive
training of the peculiar and specific working functioning of the BoK.
3. Space Shortage
During my internship in the Islamabad branch I observed that there is shortage of
space at branch. There is no proper and easy seating arrangement for the
customers. And the cash counter is so small that employees face difficulty while
working there. This thing greatly affects the operations and performance. To over
come this problem, the bank may either hire the upper portion of the plaza or
simply can shift to some other place.

4. Increase in Number of Terminals

The BoK Islamabad branch is a computerized branch but still, there is shortage of
terminals and personal computers. This thing also affect the speed and accuracy.
For the increase in number of terminals and purchase of personal computers the
branch may request to the head office. The provision of above facilities will
improve the accuracy and speed and will enhance the efficient working.

5. Customer Care Counter

“Customer is the king”. Customers satisfaction is the key to success. They need
proper attention and guidance. The Islamabad branch is understaffed and
employees are over loaded, it creates more problems for them when customers
disturb and interrupt them while working. So for the benefit of customers and
smooth working of bank, there should a customer care counter to guide and help
the customers.
6. Proper Checking

There is no proper checking and observation system on the entrance of Islamabad

branch. For safety purposes there should scanning checking and should install
special checking instruments in the main entrance.

7. Branch Net Work

The BoK has 29 branches all over Pakistan and Azad Kashmir. 23 of the total
branches are located in N.W.F.P. and there is only one branch for the whole of
Punjab province located in Lahore. For Sindh province there are two branches
both located in Karachi and similarly one branch for whole Azad Kashmir and
one for Islamabad. This branch network is too small to compete with other banks.
The branch network should be improved and number of branches should increase
to reach and provide services to maximum number of customers.

8. Product Line

The product line of the BoK is narrow. It provides few services and financial
products to its customer.
The bank should increase its product line and should introduce the Automated
teller machines (ATM) facility, car financing, credit and home financing scheme
etc to attract new customers and retain the existing loyal customers.

9. Promotional Activities

BoK is a new bank as compared to others. From marketing point of view every
new organization must pay more attention to the promotional activities. The BoK
management does not care about this important issue. The BoK should start a
heavy promational campaign to atract more and more customers. For this purpose
both the print as well as electronic media should used. In this age of competition
the BoK should adopt the policy of marketing penetration through a heavy
promotional and advertisement campaign. The BoK can distribute diaries,
calendars and brochures for promotion. And it should give ads on TV and news
papers.
10. Marketing Department

In to day world of tough competition an organization has to undergo an intensive

marketing campaign to win customers. The BoK does not have a marketing
department. In branches the marketing task is given to branch manager who has
no time to carry out the marketing activities. The BoK should establish a
marketing department so that is could improve the image of the bank. In this
manner, the bank will attract more and more customers. The customers need to be
convinced.

11. Meritorious Recruitment

In the BoK mostly recruitment are done through recommendation of the

employees or connecting play an important role in recruitment decisions.
Recruitment should be strictly on merit basis with no other favor given to any
candidates. Selection should be on the basis of test and interview as like in
Muslims commercial bank Ltd (MCB) and other banks etc. this will ensure the
entry of competent and worthy employees in to the bank.

12. Shortage of Employees

Shortage of employees increases the work load on existing employees and

ultimately reduces the output and motivation level of employees. To overcome
this problem job descriptions should be revised and grouped together in order to
create new jobs. The Islamabad branch specifically faces the problem of
employees shortage. Recruitment should be done in order to fill out these new
vacancies. This way the work load on employees will be reduced, operations will
be stream lined and employees will feel comfortable in performing their duties.
13. Scholarship Programs for Senior Employees

Scholarship programs should be designed for senior employees and branch

managers. The Book should get into contract with top foreign universities. Every
year the bank should finance and send their senior managers for further education
abroad. After completion of higher education the employees will be in a better
position to attain the strategic objectives of the bank and increase the over all
business and profitability portfolio of the bank.