1 Introduction: 1.1 Executive Summary: I have done my internship at The Bank of Punjab, Jauharabad Branch.

There are four departments in the branch, and I worked as an assistant in that branch. For the first two weeks I worked in deposit department under the supervision of Muhammad Faisal, where I have to perform following tasks: Entering information in KYC (know your customer) forms. Scanning and arranging specimen signature cards. Inform customer of essential conditions under which the account will be operated.

Afterwards I have learnt about vouchers, checking of vouchers is essential to confirm that correct calculation has been done. Vouchers are properly bind sealed, and checking by the manager. I have checked the following things: The check should not be post-dated/anti-dated. Amount in words and figures tallies. Cash paid stamps (with dates) are duly affixed in case of cash cheques and in case of clearing stamps is affixed. Cutting/over writings are duly authenticated by the account holder, etc

Then another task for me was issuing of cheques books. It is one of the most interesting works that I have learnt in the bank. Cheques books should be issued only after all the formalities of the account opening forms, which have been checked by the branch manager. Maintaining Dispatch register and Inward Mailing register was also included in duties assigned to me. I also used to help different employees in their work.

My work timings were from 9am to 5pm, six days in a week. 1.2 Objectives of Studying the Organization

Major objectives to study this organization are: 1. To get awareness about the business development & financial techniques. 2. Comparison of the assets of organization with other organizations. 3. Policies followed by the organization enforced through laws of SBP. 4. Study the facilities provided by the organization to common public in various forms. 5. To study the terms & conditions for fringe benefits provided to employees of the organization at the age of superannuation. 6. To get MBA (Masters in Business Administration) degree. 7. To apply theoretical concepts in practical aspects. 2 Overview of the Organization

2.1 HISTORY OF BANKING IN PAKISTAN

Pakistan came into being on 14th August, 1947; sufficient banking services were available in the areas forming Pakistan. Out of the total branches of the nearly 3,500 in the undivided India, as many as about 1,500 branches were existing in these areas. It was agreed between the two countries that reserve bank of India shall continue to function in the Pakistan territory until 30th September 1948 and that Indian notes would continue to be legal tender at Pakistan until 30th September 1948. Unfortunately, relationship between the two countries became most strained

immediately after independence; banking was mostly in the lands of Hindus who immediately started transferring their offices and assets into India. As a result most of the banks in Pakistan were closed down and even those which were open were not doing any effective business. The number of banking office in Pakistan came down to about 200 on 30th June 1948. Branches of some European banks were also functioning in a limited manner, financing in export of crops, and their number was limited to about 20. It was only the Habib bank, which transferred its office from Bombay to Karachi Austral Asia bank was another bank, which was in existence in the Pakistan territory at the time of independence. Despite of best efforts on the part of government of Pakistan, no heady way could be made on this behalf and reserve bank of India was in no mood to help the new country. Imperial bank of India, agent of the reserve bank of India also started closing down its branches in Pakistan. Reserve bank also refused to advance money to Pakistan to make essential payments such as salaries etc, also Pakistans share of Rs.75 billion in cash balance was with held by bank, causing hardships to the newly born state. In view of these hopeless state affairs it was agreed between the two countries that reserve bank would serve as monetary authority in Pakistan only up to 30th June 1948. 2.1.1 Nationalization of Banks

The principle of nationalization of banks is to stream line the operation of commercial banks in such a way that it may be conductive to the development activities in process in the country. Since the commercial banks were owned controlled by big business groups of the country it was feared that these banks would not maintain uniformity in their operational and would be instrumental to inflationary pressure. However, the considerations behind nationalization are 1. To form uniformity in the policy of the commercial banks so they may serve the best national interest.

2. To make the operation of commercial banks highly sensitive and responsive to the policy of the government relation to financial matters. 3. To make the credit policy of the commercial banks more purpose full and effective especially in the development of economic sectors of the country. It acts as an agent of the State Bank of Pakistan 4. To make the best use of the funds available at the disposal of these banks for the economic development of the country. 5. To eliminate unhealthy and uneconomic competition among commercial banks. 6. To development strong money banks market in the country so that the value of currency may be maintained at stable level both in national facilities to exporter and agriculturists which have not been satisfactory in the past years. Table 1: Public Sector Commercial Banks

Askari Bank ASKARI BANK First Women Bank Limited FWB The Bank of Khyber KB The Bank of Punjab BOP

Table 2: Local Private Banks

Askari Commercial Bank Limited Bank Al-Falah Limited Bank Al Habib Limited Bolan Bank Limited

Faysal Bank Limited Saudi Pak Commercial Bank Ltd Soneri Bank Limited Union Bank Limited Muslim Commercial Bank Limited Allied Bank of Pakistan Union Bank Limited

Table 3: Foreign Banks

ABN Amro Bank CITI Bank Habib Bank A. G. Zurich Mashreq Bank PJSC Oman Bank Rupali Bank Standard Chartered Bank

Table 4: Specialized Banks

ZariTarqiati Bank Ltd. Industrial Development Bank of Pakistan

Punjab Provincial Cooperative Bank Limited

2.2 History & Nature of BOP The Bank of Punjab was established in 1989 and was given the status of scheduled bank in 1994. The Bank of Punjab is working as a scheduled commercial bank with a network of almost 280 branches at all over major locations in the Punjab. The Bank provides all types of banking services such as Deposits in Local Currency and client foreign currency, remittances, and advances to business, trade, industry and agriculture. The Bank of Punjab has indeed entered a new era of science to the nation under experience and professional hands of its management. The Bank of Punjab plays a vital role in the national economy through mobilization of hitherto untapped local resources, promoting savings and providing funds for investments. The bank offers attractive rates of profit on all deposits, opening of foreign currency accounts and handling of foreign exchange business for example imports, exports and remittances, financing, trade and industry for working capital requirements and money market operations. The lending policy of bank is not only cautious and constructive but also based on principles of prudent lending with maximum emphasis on security. Source: http://www.bop.com.pk/ 2.2.1 Mission Statement To exceed the expectations of our stakeholders by leveraging our relationship with the government of Punjab and delivering a complete range of professional solutions with a focus on program driven products and services in the agriculture and middle tire markets through a motivated team. Source: http://www.bop.com.pk/ 2.2.2 Vision Statement To be a customer focused bank with service excellence.

Source: http://www.bop.com.pk/ 2.2.3 Business Volume These are the quick facts of the business in October 2007. At that instant BOPs business volume is as under.

Assets(Current + Fixed) US$ 2.7 Billion PKR 164.7 Billion Loans US$ 1.7 Billion PKR 103.7 Billion Deposits US$ 2.3 Billion PKR 140.3 Billion

Business Volume in terms of Investment, Current & Fixed Assets, Share Capital, Revenues, Deposits, Advances, Income, and EPS for the last 5 years is as under:

2003 2004 2005 2006 2007 Total assets RS (M) 43,621 66,320 111,154 164,855 234,974 Revenue RS (M) 3,675 5,488 10,912 18,603 26562 Shareholder's Equity RS (M) 3052 4,420 6,777 10,659 15,110 Investment RS (M) 11,458 16,198 18,026 28,233 73,462 Deposits RS (M) 34,938 54,724 88,465 137,728 191,968 Advances (net) RS (M) 18,344 39,439 63,624 101,320 133,894 Income RS (M) 831 1,368 2,353 3,804 4,446 EPS (Rs/share) Rs 6.86 9.08 10.01 13.14 10.51 ROI % 7 8 13 13 6

 Over last five years, Pakistan economy grown with real pace. Because of which record growth in Banking sector.

Source: http://www.bop.com.pk/ 2.2.4 BODs, Management and Employees

2.2.4.1 Staff Strength The total number of employees in the organization is 3859. Which is increasing. Regular hirings are taking place.

2.2.4.2 Board of Directors (BOP)

01 MR. JAVED MAHMOOD CHAIRMAN

02 MR. SAJJAD HUSSAIN ACTING PRESIDENT 03 MR. SOHAIL AHMAD DIRECTOR

04 MR. ALMAN ASLAM DIRECTOR

05 MR. ANEEQ KHAWAR DIRECTOR

06 MR. SHAFQAT ELLAHI DIRECTOR

07 MR. SHAFQAT MAHMOOD DIRECTOR

01 MR. RAZA SAEED SECRETARY TO THE BOARD

2.2.4.3 BOP Top Level Management

Mr. NaveedHafeezShaikh Acting General Manager HR Mr. Nadeem Amir General Manager Finance Mr. SharjealMasud General Manager Operations Mr. Muhammad SalimMirza General Manager Treasury Mr. Shaheen N. Qureshi General Manager Special Assets Dr. Shahid A. Zia General Manager T.R.C. & P Division Mr. Feisal Azmat Khan General Manager IT Mr. Muhammad Hanif Head Audit & Inspection Mr. Salman Saeed Head Credit Policy

Mr. Moazzam M Maneka Head Agriculture Credit Department

2.2.4.4 Hierarchical View of Management Khanewal branch

Total number of employees in Khanewal Road branch where I did my internship is eleven. The branch was headed by Branch manager MrManzoorHussain Maher. The flow of responsibilities and designations are shown in managements hierarchy.

2.2.5 Products 2.2.5.1 CONSUMER PRODUCTS

1. Saving Accounts 2. Current or demand accounts 3. Fixed accounts 1. SAVING ACCOUNTS(PLS) These types of accounts are designed to encourage the saving habit of the customer and lead to long term or invest relationship. Bank saving account are in the nature of deposit accounts and are not normally available for drawings. Rates of interest are typically ahead, by a small margin. Savings accounts with the banking sector represent a very small proportion of total deposits. Customer can make withdrawals from this type of account. The cash reserve ratio is typically low then the current account because the withdrawals against this account are very low.

2. CURRENT OR DEMAND ACCOUNT These are those deposits, which can be drawn by the depositor at any time by representing a cheque to the bank. People deposits their money in this account they gave a ready command on their account in developed countries of world, a very significant part of money is kept under current or demand account. On this type of account of interest transfer of cash or by at sight. The cash reserve ratio for his account is very high. The operating cost for the handling of this type of account is very regular. 3. FIXED OR TERMS ACCOUNT Fixed accounts are those which are deposited for a fixed period of time and repayable after the expiry of stipulated time to the customer. Those people who have surplus funds and want to have save investment deposit the amount in the fixed account. The rate of interest given to depositor varies with the length of deposit, i-e. It is higher for longer period and lower for shorter period.

The rate of this type of deposits is higher the saving bank accounts. The cash reserve against this deposit are vary low because there no fear of with draw of a month before the stipulated of time.

2.2.5.2 FINANCE PRODUCTS

1. Agriculture Schemes 2. Business Promotion Finance Schemes

1. Agriculture Schemes There are many agriculture promotion schemes provided by BOP. Kissan Dost Agricultural Finance Scheme Kissan Dost Tractor Finance scheme Kissan Dost Aabiari Scheme Kissan Dost Mechanization Support Scheme Kissan Dost Farm Transport Scheme Kissan Dost Eslah-E-Arazi Scheme Kissan Dost Live Stock Development Scheme Kissan Dost Live Stock Scheme

Such type of schemes provides farmers a real plate form to accelerate. Some facilities given by Kissan Dost Agricultural finance scheme are: - Purpose

Provision of financial facility to farmers for purchase of inputs (Seed, fertilizer, pesticides, fungicides etc). - Amount Maximum of Rs.500000 according to per acre limit of the crop. - Security Charge on Agriculture Land through Agriculture Pass Book. - Insurance The borrower will have to arrange life assurance under the Banks charge. - Mark-up 9% mark-up per Annum.

2. Business Promotion Finance Schemes BOP Quick Cash BOP Car Loan BOP House Loan BOP SME Loan BOP Assaish Loan BOP House Loan For Federal Govt

2.1. BOP CAR LOAN

BOP car loan is a demand financing facility to purchase brand new locally manufactured/Assembled cars for personal use. This facility can be availed by

salaried person of different nature and by the business persons. All must have the holdings of NIC.

2.2. BOP Aasaish Loan

BOP Aasaish loan is demand finance facility for purchase of consumer durable goods like TV, Refrigerators, Mobiles, Microwave Oven, Fans, Audio/Video system etc with no down payment, in addition with the free home delivery. The financing tenure of this product is max 36 months. The nature of employment should be salaried or the business man. 2.3 SERVICES

These are the services provided by the BOP. ATM Facility Letter of Credit Pay Order On-Line Banking E-Banking Debit Card Consumer Financing Agriculture Financing Corporate Financing Commission free Remittance Demand Drafts

 Collection of Utility Lockers Facility

3.1. Automated Teller Machine (ATM) Through the ATMs Customers have access to the various services such as withdrawal, balance enquiry and mini statement? Complete security is ensured because access to the account is only possible by entering a four digit personal identification number (PIN) known only to the account holder. Cash withdrawal limit is up to Rs.20, 000 per day. Annual charges of ATM is Rs.250/- per card. 3.2. Online Banking BOP is currently offering window-based online banking to its customers, which gives access to information on their accounts and the liability to act on the latest information received over the net. 3.3. Lockers It is one of the utility services that BOP provides to their customers for keeping jewellery, important documents and other valuables. 3.4. Demand Drafts BOP provides safe, speedy and reliable way to transfer money at vary reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 3.5. Letters of Credit BOP is offering its business customers the widest range of option in the area of money transfer. BOPs letter of credit service is with competitive rates, security, and ease of transaction, BOP Letter of credit is the best way to do the business transactions. 3.6. Pay Order

BOP provides transfer of money using different facilities. Its pay orders are a secure and easy way to move the money from one place to another. The charges for this service are extremely competitive. 3.7. Mail Transfer Moves money safely and quickly from BOP Mail Transfer service. The rates for this service is quiet impressive as compare to the market. 3.8. Short Term Investment BOP offers excellent rates of profit on all its short term investment accounts. The packages are starting from 3 months. BOPs rates of profit are extremely attractive, along with the security and service only BOP can provide. 3.9. Agricultural Finance It help farmers utilize funds efficiently to further develop and achieve better production. Provides farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.

2.4 Major Customers of BOP Some of the major customers of Bank of Punjab are: Educational Institutes Agriculturists Pakistan Telecommunication Private Limited WAPDA Pharmaceutical Companies WASA MDA

3 Organizational Structure 3.1 Main Offices

Head Office and the main branch of BOP is in Gulberg 3, Lahore &Egerton, Lahore Respectively. The Bank has been divided into seven regions Each consisting a number of branches.

Lahore Region Faisialabad Region Gujranwala Region Rawalpindi Region Karachi/Quetta Region Multan Region Peshawar Region Rest are the branches working under these regions. Which are almost 270 in all over Pakistan.

4 Structure & Functions of the Accounts/ Finance/ Audit Department

4.1 Structure and functions of Finance Department The management of BOP comprises of two types i.e. Chairmans Secretariat & President Secretariat. Chairmans secretariat deals with finance division.

MrNadeem Amir is general manager of finance division of mentioned secretariat. The financial analyst related to BOP matters of chairmans secretariat is Mr. MasroorZaigham. The manager of finance division is Mr. Muhammad Ijaz Aziz. Mr. Muhammad Arshad is the head of finance division of BOP. The finance department deals in authenticity of cheques, proper utilization of funds, preparation of day end statements, online banking, collection of mails, opening & closing account of customers & companies etc.

4.2 Use of electronic data in decision making Electronic data gives exact values and figures which top level management required. Because of electronic data they came across to know those minute things which impacts a lot on final place. Through this they can measure exact profit and loss accounts, assets and liabilities up to a branch level from where they can decide which should be kept and which should not. Through this top level management is able to decide which product should be taken into course for further level or which should stop. Electronic data make management able to take decision at any point of time. 4.3 Sources of Funds trend The major sources of funds are: Public Source As the largest regional bank of Pakistan according to asset base with specialized in Agriculture has a large deposits with 80% from the rural areas of the Punjab. The Banks major source of funds is from the Public. Money Market Figurative expression for the informal network of dealers and investors over which short-term debt securities are purchased and sold. Money market securities generally are highly liquid securities that mature in less than one year, typically in less than ninety days.

 Corporate treasuries and Government Institutions Corporate sector is one of the major sources of funds in all types of Banking. All major organisations, financial institutions and government & private organisations are the major sources of the funds e.g., WAPDA.

4.4 Allocation of Funds trend BOPs funds are allocated to the following departments. The banks major focus is on short term financing. Major allocation of funds are on these divisions. 4.4.1 Long Term Financing Long term financing includes a tenure more than one year. 4.4.2 Short Term Financing Short term financing includes period less than one year. The banks major focus is on short term financing.

From the above it is further sub distributed to 1. SME Division 2. Agriculture financing 3. Consumer financing 4. Corporate financing

The distribution of funds to these departments are Banks internal matter and they avoid to disclose. Through Financial Statements it is only possible to analyze long term and short term financing.

4.4.3 Agriculture financing The bank provides adequate and timely financial assistance to the farmers to improve production potential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are all source of money for the bank.

4.4.4 E-Banking The bank has a centralized database that is web-enabled. All the services that the bank has permitted on the internet are displayed in menu. Any service can be selected and further interaction is dictated by the nature of service. 4.4.5 Utility bills The bank also makes possible the payment of electricity, gas and telephone bills for its customers charging some commission on each payment. 4.4.6 Lockers Commission charged on lockers provided by bank for customers, is also a source of inflow for the bank. 4.4.7 Consumer financing Personal Finance, mortgage finance, business finance, smart cash, auto financing and travelerscheques are all sources of funds for the bank. The bank finances all these loans and facilities on competitive mark up rates. 4.4.8 Agriculture financing The bank provides adequate and timely financial assistance to the farmers to improve production potential of agriculture sector. Insurance of leased assets, animals, crops and life assurance of borrowers are all source of money for the bank. 5 Critical Analysis

5.1 Critical Analysis of the practical exposure relating to theoretical concepts This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. So for a internee it is more important to learn new things which he/she has never heard about in his/her course book. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firms environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.

5.1.1 Computer system The system has not totally shifted on computer. Manual procedure is still there hence computer facility is not fully availed. There should be a system at each counter for quick processing. 5.1.2 Right person for right job

During my internship I have observed the person who has came as customer Relationship Officer was acting as Cashier. It should not be like this. The person should be posted according to his qualification, profession skills and experience. 5.1.3 Customer problem People have to wait for en-cashing their cheques for about 10-20 minutes, which is not good for the reputation of bank, the delay is due to manual work. Therefore I suggest that computers and other electronic machines should be installed in bank so that time could be saved. 5.1.4 Deficiency in management I felt at some places the BOP need to have employees, because a lot of work is to be done by a single employee that will result in work overload and employee might not perform his/her job with full devotion.

5.2 Financial Analysis To analyse the financial position of BOP, different tools are use, which includes Ratio Analysis, Common size Analysis of the last five years.

5.2.1 Introduction and Importance of Financial Analysis Financial analysis involves the use of various financial statements. These statements do several things. First the balance sheet and the second is income statement. The balance sheet summarizes the assets, liabilities, and owners equity of a business at a point in time, while the income statement summarizes revenues and expenses of a firm over a particular period of time. A conceptual framework for financial analysis provides the analyst with an interlocking means for structuring the analysis.

5.2.2 Financial Statements (2006-07)

5.2.2.1 Balance Sheet

Balance Sheet As of DEC 31, 2007 2006 2007 Rupees in 000 Assets Cash and balances with treasury banks 14,054,859 14210302 Balances with other banks 3,722,089 1927662 Lendings to financial institutions 11,846,823 2450000 Investments 28,233,211 73461695 Advances 101,319,954 133893585 Operating fixed assets 2,068,744 3252759 Deferred tax assets - Other assets 3,609,457 5778192 164,855,137 234974195 Liabilities Bills payable 856,448 937647 Borrowings 6,989,424 17842915

Deposits and other accounts 137,727,606 191968909 Sub-ordinated loans - Liabilities against assets subject to finance lease 40,988 40321 Deferred tax liabilities 298,616 2205530 Other liabilities 2,816,341 2983079 148,729,423 215978401 Net Assets 16,125,714 18995794 Represented By Share capital 2,902,490 4230379 Reserves 4,537,232 7427232 Unappropriated profit 3,219,246 3452842 10,658,968 15110453 Surplus on revaluation of assets - net 5,466,746 3885341 16125714 18995794

5.2.2.2 Income Statement

Income Statement As of the year ended Dec 31, 2007 2006 2007 Rupees in 000

Mark-up/return/interest earned 11,579,036 17,539,094 Mark-up/return/interest expensed 7,508,795 13,939,377 Net mark-up/ interest income 4,070,241 3,599,717 Provision against non-performing loans and advances 340,626 1,616,421 Provision for diminution in the value of investments 33,000 24,479 Bad debts written off directly 100 246,869 373,726 1,887,769 Net mark-up/ interest income after provisions 3,696,515 1,711,948 Non Mark-up/interest Income Fee, commission and brokerage income 473,212 653,512 Dividend income 1,385,875 1,804,878 Income from dealing in foreign currencies 239,804 377,233 Gain on sale and redemption of securities 389,063 2,039,535 Unrealized gain / (Loss) on revaluation of investments classified as held for trading Other income 466,435 547,635 Total non-markup/interest income 2,954,389 5,422,793 6,650,904 7,134,741 Non Mark-up/interest Expenses Administrative expenses 1,751,970 2,250,777 Provision against lending to financial institutions 130,000 Provision against off balance sheet items 175 292

Other charges 38 37,950 Total non-markup/interest expenses 1,882,183 2,289,019 4,768,721 4,845,722 Extra ordinary/unusual items - Profit Before Taxation 4,768,721 4,845,722 Taxation - Current 880,997 169,252 - Prior years (19,921) - Deferred 83,469 250,772 964,466 400,103 Profit After Taxation 3,804,255 4,445,619 Unappropriated profit brought forward 169,817 3,219,246 Transfer from surplus on revaluation of fixed assets - net of tax 6,174 5,866 175,991 3,225,112 Profit available for appropriation 3,980,246 7,670,731 Basic Earnings per share - Rupees 9.01 10.51 Diluted Earnings per share - Rupees 9.01 10.51

5.2.2.3 Financial Business Summary (5Yrs)

2003 2004 2005 2006 2007 Operating Results Markup/ return/ interest earned Rs in m 1,664 2,555 6,125 11,579 17,539

Markup/ return/ interest expenses Rs in m 484 719 2,669 7,509 13,939 Net markup income Rs in m 1,180 1,836 3,456 4,070 3,600 Non-markup based Income Rs in m 831 1,097 1,331 2,954 5,423 Non-markup based expenses Rs in m 1,002 1,150 1,291 1,882 2,289 Provision against NPLs Rs in m 8 47 331 374 1,888 Net profit before tax Rs in m 1,002 1,736 3,165 4,769 4,846 Net profit after tax Rs in m 689 1,368 2,353 3,804 4,446

Balance Sheet Total Assets Rs in m 43,621 66,320 111,154 164,855 234,974 Advances (net) Rs in m 18,344 39,439 63,624 101,320 133,894 Investments Rs in m 11,458 16,198 18,026 28,233 73,462 Shareholders Equity Rs in m 3,052 4,420 6,777 10,659 15,110 Revaluation Reserve Rs in m 2,155 3,419 6,893 5,467 3,885 Deposits Rs in m 34,938 54,724 88,465 137,728 191,969 Borrowings from FIs Rs in m 2,684 2,832 6,791 6,989 17,843

5.2.2.3.1 Graphical Representation of Financial Summary (Income statement)

BOPs income statement for the last five years represents a high growth in it. Its all due to the increase in equity , and increase in the deposits of the bank.

 Rise in the Markup Interest earning income results rise up in the profit of bank represents increase in lending by the bank.

5.2.2.3.2 Graphical Representation of Financial Summary (Balance Sheet)

Deposits are almost rose upto around 300% in last 5 years. As last 5 years were really good for banking sector. Assets of the banks are risen upto 400% particularly in 2007 just because of crescent towers.

5.2.3 Common Size Analysis 5.2.3.1 Horizontal Analysis This type of analysis represents the percent change in specific line item of the Income statement or the balance sheet from the last year. This analysis is used to comment on the growth of specific line item in the industry or the firm.

2003 2004 2005 2006 2007 Operating Results Markup/ return/ interest earned % -24.399 34.8728 58.28571 47.10251 33.98141

Markup/ return/ interest expenses % -105.785 32.68428 73.06107 64.45599 46.12956 Net markup income % 9.0678 35.72985 46.875 15.086 -13.0556 Non-markup based Income % 54.994 24.24795 17.58077 54.94245 45.52831 Non-markup based expenses % 4.09182 12.86957 10.92177 31.40276 17.78069 Provision against NPLs % -575 82.97872 85.8006 11.49733 80.19068 Net profit before tax % 56.8862 42.28111 45.15008 33.63389 1.588939 Net profit after tax % 58.7808 49.6345 41.86145 38.14406 14.43995 Balance Sheet Total Assets % 32.2964 34.22648 40.33503 32.57469 29.84117 Advances (net) % 63.9065 53.48766 38.01239 37.2049 24.3282 Investments % 27.6052 29.26287 10.14091 36.15273 61.56789 Shareholders Equity % 22.5754 30.95023 34.7794 36.41993 29.45731 Revaluation Reserve % 55.9165 36.96987 50.39896 -26.0838 -40.7207 Deposits % 31.9738 36.15598 38.14051 35.76833 28.25508 Borrowings from FIs % 51.9374 5.225989 58.29775 2.833023 60.83058

5.2.3.1.1 Graphical Representation (Income Statement)

Total earnings mark-up & non mark-up were rising 33% from last year. As deposits and the lendings of the banks are rising up. Administrative expenses are increased with a great pace in last few years because of high rate of inflation.

 Rise in expenses results decrease in the 22% percent profit from last year.

5.2.3.1.2 Graphical Representation (Balance Sheet)

Total assets were increased in last few years. 22% increase in the assets from the last year represents growth in the Bank. As bank increase their paid up capital because of which SOE increase at the end of 2006. BOP is grabbing the confidence of their customers results increase in the deposits.

5.2.3.2 Vertical Analysis It represents the percent of a line item (expenses, tax, interests, dividends) impacts on total revenues.

2003 2004 2005 2006 2007

Markup/ return/ interest earned % 66.69 69.96 82.15 79.67 76.38 Non-markup based Income % 33.31 30.04 17.85 20.33 23.62 Markup/ return/ interest expenses % 19.40 19.69 35.80 51.67 60.70 Non-markup based expenses % 40.16 31.49 17.31 12.95 9.97

Provision against NPLs % 0.32 1.29 4.44 2.57 8.22 Net profit before tax % 40.16 47.54 42.45 32.81 21.10 Net profit after tax % 27.62 37.46 31.56 26.17 19.36

5.2.3.2.1 Graphical Representation

Markup interest earned is increased because of increase in 30% lendings from the last year. Net profit before and after tax is decreased because of huge rise up in the admin expenses.

5.2.4 Ratio Analysis Ratio analysis is used to calculate the profitability, liquidity/leverage etc. of the firm. From ratio analysis it is possible to predict future variances. Following ratios of BOP has been calculated: Ratios 2003 2004 2005 2006 2007

Gross spread ratio % 71 72 56 35 21 Profit before tax to total income % 49.8 59.19 66.11 67.89 53.71 Markup/ Interest cover ratio times 5.15 5.08 2.79 1.94 1.65 Profit after tax to total income % 34.26 46.65 49.16 54.16 49.27

Total assets turnover times 0.06 0.06 0.07 0.09 0.1 Return on avg total assets (after tax) % 1.88 2.49 2.65 2.76 2.22 Price earning ratio times 5.09 7.25 10.23 7.71 9.31 EPS (Non dilutive) Rs./share 6.86 9.08 10.01 13.14 10.51 Dividend per share Rs./share 2.5 4 5.2 3.25 3.5 Market value per share Rs./share 34.95 65.9 102.45 101.25 97.8 Capital adequacy Ratio % 15.5 12.83 12.78 10.09 9.69 No. of branches No. 241 253 266 266 272 Staff Strength No. 3,019 3,144 3,430 3,681 3,859 Gross margins % 4.00% 3.51% 4.19% 3.10% 3.30% Net margin % 3.30% 3.41% 3.99% 3.03% 3.16% Net Interest Margin % 3.23% 3.34% 3.90% 2.95% 3.09% Total revenue % 5.50% 5.34% 5.39% 4.81% 4.91% Equity / Assets % 11.60% 11.90% 12.10% 10.80% 10.30% RoE % 16.20% 21.00% 21.90% 25.50% 25.40% Cost/Income % 49.80% 38.10% 26.90% 26.40% 24.70%

5.2.4.1 Gross spread ratio

Gross spread ratio defines the total spread of interest between borrowing and lending. Spread: Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.

 The higher the spread the higher will be the profit margin. GSR= Rev/CGS GSR= (Mark-up earned Mark-up Expense)/Mark-up earned GSR is 2nd highest all over the globe in Pakistan. GSR of the bank is decreasing because of the decrease in margin, a SBP rise up the interest rates on the deposits.

5.2.4.2 Profit before tax to total income

Operating income less operating cost (profit before tax). This ratio tells what percent of total income is earned before paying all the taxes. BOP has a high value of profit before tax to total income and they are decreasing after 2006 because of increase in admin expenses and righting off the bad debts. The main reasons for reduction in the profitability were additional provision against NPL due to the elimination of benefit of FSV and downturn in consumer and individual banking.

5.2.4.3 Mark-up/ Interest cover ratio

 This ratio tells what percent of interest is covered from the total income of a firm or a bank. It tells the ability of a bank to pay its mark-up to the depositors.. MP/Interest cover ratio= EBIT/Mark-up

5.2.4.4 Profit after tax to total income

This ratio analysis tells profitability of a firm after paying all the taxes to total income. Profitability of BOP is increased because of decrease in the tax paid to the govt and of high spread ratio. BOP negotiated their taxes with the government and only paid 20% tax in 2006 and only 8% in 2007 instead of 35%

5.2.4.5 Total assets turnover

Asset turnover= Net Income/ Total assets

 This ratio tells the turnover of the asset to generate income. This ratio is increased during last few years which represent increase in the turnover by assets.

5.2.4.6 Return on Total assets (after tax)

This ratio gives an idea of returning net profit generated by the bank in comparison with assets.

Return on assets= Profit after tax / Total Assets

This ratio is decreasing in the last year because of decrease in Profit as expenses raised up.

The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.

5.2.4.7 Price earning ratio

Price Earning Ratio= Market price of a share/ EPS From this ratio it is analyzed what % of EPS is the part of MPS. What percent earned from a share equivalent to the worth of 1 RS MPS by the bank or a firm.

5.2.4.8 Earning Per Share

EPS = Net Income/ total shares Through this ratio it can be analyzed what percent of 1RS share is earned.

5.2.4.9 Capital adequacy Ratio

Capital adequacy ratio informs lending up to a certain ratio of equity. This ratio is set by the State Bank of Pakistan.

5.2.4.10 Net Interest Income

 Difference between funded revenue as a percentage of average earning assets and the cost of funds as a percentage of average paying funds.

5.2.4.11 Return on equity

Profit before tax as a percentage of total equity.

The decrease was mainly due to increased equity as a result of increase in minimum capital requirements and additional provision due to withdrawal of benefit of FSV for most types of advances.

5.2.4.12 Cost/Income

Operating cost includes all expenses charged to arrive at profit before tax excluding cost of funds, provisions and head office expenses. Head office

expenses are not considered since all banks do not account for head office expenses in their financial statements. Operating income means funded and non-funded revenue less cost of funds and provisions. As administrative costs are increased because of which results decrease in the cost to Income ratio.

5.3 Organizational Analysis 5.3.1 Hierarchical Flow

5.3.2 INTRODUCTION (SWOT Analysis)

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis is careful evaluation of an organizations internal strengths and weakness as well as its environment opportunities and threats. SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affect organizational performance. The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOT analysis.

In SWOT analysis the best strategies accomplish an organizations mission by: 1. Exploiting an organizations opportunities and strength. 2. Neutralizing it threats. 3. Avoiding or correcting its weakness. SWOT analysis is one of the most important steps in formulating strategy using the organization mission as a context; managers assess internal strengths distinctive competencies and weakness and external opportunities and threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralize threats and avoid weaknesses.

5.3.3 STRENGTH

The Bank officers of BOP are considered as one of the most able professionals in the banking world (some belong to BCCI). However, they have added some local flavour in accordance with their targeted segmented. In my observation that they interact with their clients as if they are their personal friends and discuss about their problems as their own. As a result of the compassionate and personalized services of the officers, the clients perception for BOP is very high. They have trust and feel themselves to be secure while dealing with BOP. BOP has opened all its branches at commercial areas so that the customers or clients face no problems in reaching to the bank. For example, Khanewal Road Branch is being situated in business and commercial hub of Multan as big volume in trade. BOP has got a reliable and easy to use internal computer system. Every information regarding the transactions in customers deposits has been computerized. Data are properly maintained.

Good security system Not excellent but good facilities are given to employees 5.3.4 WEAKNESSES

Lack of proper internal controls is one of the major weakness of BOP. It is also pointed by the auditor in his review. BOP has formulized a lot of products and services for its customers, even more than other commercial banks, but any advertisement on electronic media has not been seen. I observed during my internship that some of the employees were burdened with over work. So I think that the work should be distributed according to their post and capabilities. Biased selection of employees.

5.3.5 OPPORTUNITIES

Satisfy dynamic consumer needs, BOP has made significant in roads in its entire service spectrum. A lot of products have been introduced especially in Retail Banking (Agriculture side) and people are increasingly becoming loyal to the bank and because of feasible transactions. Optimum pricing and branding strategies of the bank are helping to make customer feel secure and convenient. All the opportunities of the 21st century are to be availed in the information technology. Information technology is the future of this dynamic world. Therefore BOP should emphasize much on IT, especially on E-Banking. Bank can design a universal account like other foreign banks, to enhance online facilities. BOP has introduced a number of financial schemes including special Deposit Accounts. These accounts have their unique features. During the last three years,

BOP deposits have been increasing @ 40%, which is a very healthy sign. Therefore, with the commencement of new schemes there can even be a greater increase in its deposits 5.3.6 THREATS

Despite the difficult circumstances that confronted the banking sector in particular and the country in general, BOP has been still highly profitable. But, the facts cant be denied and there might be an adverse impact of such situation. BOP is facing a strong competition by its competitors, Business of all these Banks are growing at very high pace.

5.4 Future Prospects 5.4.1 Financial Valuations and the future prospect of BOP BOPs share is currently trading at PKR 97.80 (On closing of fiscal year at 30th June, 2007). And by looking at the growth track of BOP it can be analyzed that it will real grow up. Through different estimations and by viewing remarks of analysts it is expected that it would grow up to PKR 125 by DEC. It shows real future profit. This evaluation is based on a normalized ROE of 25.3% (ROA of 2.7%), cost of Equity of 17.0 % and a long-term growth rate of 11.2%. A sensitive analysis shows: With every 10% change in credit costs, fair value would change by 3.3%. For every 10% change in NIM, BOPs fair value would change by 7.5%. A100bp change in loan growth estimates for 2007, 2008, and 2009 would cause a Change of 1.0% in fair value.

The calculations made in sensitivity of changes in the cost of equity and the Terminal growth rate. The cost of equity is based on a 10.2% risk free rate, a 6% equity risk premium, and a fundamental risk-weighted of 1.13. The perpetual growth assumption implies a dividend payout ratio of 25%. For every 50% change in the cost of equity, and the terminal growth rate the banks fair value would change by 4.6%. It can be confirmed by looking at share price performance. BOPs share price has performed well in the last year. It is up 31.2% in the past 12 months, and is up 21.1% YTD. The stock has outperformed the local benchmark KSE-100 by 5.0%. Performance is quiet amazing.

6 Industrial Analysis

6.1 Overview on the Major Players of Bank Industry The brief overview on the bank industry and the major players involved on it. The combined values of all major players are collected from their financial statements of 2007.

As graphical shows NBP (National Bank of Pakistan) is the key player and the leader in the industry with total assets and liabilities of RS. 764,609. While BOP is RS. 234,991. Major Player Includes NBP, HBL, UBL, BAF, ABL, SCB and BOP. Total Assets of the major players in the industry are RS. 3,561,195 (M).

 BOP is considered as one of the major banks in Pakistan by assets. Like major Player NBP has the largest Profit before and after Tax i.e., 28,452(M) and 19,405 (M) respectively. While BOP has PBT RS.4,856 (M) and PAT RS. 4,454 (M) only The total Profit before and after tax of the major players are RS. 99,835 (M) and RS.70,045 (M) respectively.

6.2 Comparison of the Bank Industry Major Vs Medium Vs Small Banks

Major Players in the Medium category of the Banking industry are AB, NIB, ABN, Citi, SB BAH, FB. Total Assets and liabilities of this level comprised on RS. 1,091,083(M) Net Income of this level is RS. 9,567 (M) This level is giving a tough competition to the major players and trying to grab there share. Few mergers are taking place and in future it is expected to be more because to maintain SB Standard reserve ratio.

 Major Players in the Small category of the Banking industry are ATLAS KASB, JS etc. Total Assets and liabilities of this level comprised on RS. 411,077 (M) Net Income of this level is RS. (2,176) (M) These Banks are going in loss overall in 2007. Since they are new players in Pakistani Market. It is expected that they will give return in future.

7 Weaknesses and their Recommendations (Financial & Administrative Aspects)

7.1.1 Internal Controls

To me the major and the most important flaw in the BOP is lack of internal controls and inter communication between different branches of the bank. As far as financial aspect is concerned there is no proper system is configured thats why there is always a risk of big frauds with in the bank. I during my internship also pointed out that point but no one bothered. To me the bank should install some proper resource planning and controlling systems like other banks do i.e., oracle financials etc. 7.1.2 Professional Training

BOP staff lacks professionalism. They lack the necessary training to do the job efficiently and properly. Although staff colleges are in all major cities of the Punjab but they are not performing well. For this purpose these staff colleges should be reorganized and their syllabus should be made in such a way which can help the employee understand the ever-changing global economic scenario. Banking council of Pakistan should also initiate some programs to equip the staff with much needed professional training. 7.1.3 Delegation of Authority

Employees of the bank should be given a task and authority and they should be asked for their responsibility. The sense responsibility in employees mind is one of the most important factors in the success of any organization. 7.1.4 Performance Appraisal

During Internship I felt that there is no or very less appraisal of any ones cool performance. The manager should strictly monitor the performance of every staff member. All of them should be awarded according to their performance and result in the shape of bonuses to motivated and incite them to work more efficiently. 7.1.5 To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a special section should be made inside the branch. Which should only handle the treasury function, salaries and pensions of federal personnel or the bank should do these functions in the evening time. Also management should purchase more furniture and arrange them in such a way which provides maximum space and convenient especially in deposit department and there should also be convenient sitting place for customers. 7.1.6 Transfer

Transfer is not properly carried out. Some of the employees are continually serving at the same post. They are simply rotated at the same branch. Therefore it is recommended that evenly rotation of every employee should take place after every three years in different braches of the bank. 7.1.7 Changes in Policies

There should not be any abrupt policies change by the upper management, as this practice hurts the customer confidences in the bank. Government should make long-term policies 7.1.8 Need of Qualified Staff

Required, qualified staff should be provided to branch in order to improve the functioning of the branch. Especially a telephone operator should be appointed. 7.1.9 Utility Bill Charges

Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite this working resulting in a loss to then Rs 3 to5 per transaction. These charges should be increased to RS 10 per bill to enable the branch to cover their handling costs and make some profit. 7.1.10 Link with the Head Quarter

100 major branches of BOP should established a direct link with the, head quarter in Lahore, through Internet or Intranet. This will make the functions and decision making of the management easier and convenient. Though management has a plan to connect all branches via WIMAX technology. Which would really bring a great future aspects. 7.1.11 Credit Card

BOP should start its operation in credit card. These cards are very helpful for the ordinary customer in general and the business people in particular. To make it mores secure and to eliminate the misuse of it, the management is required to keep proper security against the card. 7.1.12 Clean Loans

Clean loan or clean overdraft is the credit facility extended to the customers to the customers without any security. These types of small term loans should not be extended to anybody, because sometime these loans are provided to blue-eyed people of the management and they become a part of bad debts.

7.1.13 Cash Financing

In this mode of financing the amount of credit not utilized by the borrower is remained tax-free. It is recommended that a small amount of interest should be charged on this amount as well because the bank gas kept-aside the amount for that borrower and can not advance it anywhere. 7.1.14 Decreasing Administrative Expenses

Bank should decrease their administrative expenses. This was Rs 2.25 billion in the year 2007. That can be done by lying off the surplus pool of employee with golden hand shakes scheme. The branches that are not much used could also be closed. That will give positive results in the future. 7.1.15 Should be Aggressive in Credit Policy

As mentioned earlier, BOP is very conservative in advances and loans policy. It reduces the investment opportunities. Also loans should be given to the small businessmen and the other businesses on large scale like in agriculture sector at the low mark-up rate. It should adopt flexible credit policy while giving credit to the agriculture sector. 7.1.16 Technological Advancement

I would like to suggest that at least all the main branches of BOP should be fully computerized in order to expedite the dealing process among bankers and their customers. Every department should be provided a computer with adequate training (especially Advances, Deposits and Foreign Exchange departments). Daily records should be entered directly into these computers, (instead entering the overall daily transactions after the banking hours). It will not only reduce transaction time, will increase accuracy but will also be efficient as well.

Not only it will be economical but will also reduce the extra burden of work of the bank. It will also help in reducing the use of excessive paper work. 7.1.17 Staff Relationship

Good relationship among staff member leads to the peak performances in any organization. I observed that the staff relationship was normal other wise but some time I noticed that there exists little conformity among the staff members. Another syndrome from which the staff suffered was that all of them considered themselves more important than others. Some of the officers used to say that if I am absent for a day the bank would stop working. So this sort of attitude is not good because it mars bank image and juniors willingness learn and work hard and in the end will hurt the whole team. 7.1.18 Improper Distribution of Work

Proper distribution of work leads to success in every organization. Proper distribution of work prevents the employee from over and under work situation. So for a smooth running of an organization proper distribution of work is the hint to be followed. During my internship I observed that there was no proper distribution of work in the bank. I saw that some of the employee worked like ants other sat idle staring here and there. So this created a lot of over work situation for while relaxation for other.

7.1.19 Favouritism and Nepotism

In the Main branch during my internship I saw that when some of the employees are transfer to other places, due to their relation with influential people and with

top management they can cancel their transfer in few weeks, when they are unsatisfied at that place. So I suggest that in the organization there should be no favouritism, nepotism and politics and their transfer and promotion should be made on merit and according to the rules and regulations of the bank and provided favourable environment to the employee to show their performances. 7.1.20 Inter Departmental Transfer

I watched during my internship that, there employees who have worked on one seat for many a year. It can have negative effects motivation of employee who is hard working and intelligent. Take the example of advances section. In advance section if the employee is transfer after sixth month or seven month, how can he be able to show his performances and how can he be able to know the bank customer in a short period of time. 7.1.21 Marketing Policy

The branch should adopt various marketing strategy and promotion strategy to promote the bank and its product. The most important in my opinion is personal marketing; it is the most effective of all when you think in term of branch level. But on the whole organization level, they should arrange the seminar with in the bank and outside the bank. They should introduce various prizing schemes just like Allied Bank. Karamad Scheme, Bank AlFallah (monthly income earning scheme) and various others. They should do more advertising through newspaper and media and through channel of personal contacts. 7.1.22 Complaints of Customer

There should be an information desk to provide the information and to receive the complaints of the customer in the bank. There is no complaint box available in the branch and not any person appointed to hear the complaints. Every person cannot go to the manager for the complaint because most of the people are hesitant. So I suggest management to install a compliant box in the branch, and recruit a special person for that guidance of the customer when they are unable to manage some difficulties in banking matters. 7.1.23 Organizational Commitment

It is suggested that employees working on daily wages basis should be given some benefits, which the other employees are getting. Their salaries must increase according to efficiency, performance and service this will increase there commitment to the organization. 7.1.24 Credit Monitoring

The credit department of the bank should carry out vigilant credit monitoring. They should ensure the proper payment of instalments and the mark-up by the borrower. The staff members who have done all the paper work of the loan extension should perform the monitoring, as he/she will be having more information about the borrower. 7.1.25 Extended Banking Hours

The banking hours may be extended up to six, as being practiced by UBL opposite to it. Some of the business community due to law and order situation are now reluctant to keep the fund in their premises and would want to depart with it.

Therefore, Main Branch may extend the night banking to cater to demand of this business community. The branch could also be opened to cater the requirements of this business community 7.1.26 Housing and House Hold Goods Loans

Bank should initiate these loans because most of banks customers are middle class and they cannot afford to buy house or household goods at once by their own. 7.1.27 Avoiding Bad Debts

Great care should be taking while extending the loan. Loans should be awarded against reasonable securities, where market value should be equal to the loan granted. Policies should be crafted in a way to ensure that no loan is extended on political pressure. SBP regulation for loan approval should be strictly followed. According to which the current ration of borrowers business must be 1:1 and the debt to equity ratio should be 60:40, means the liquidity position of business should be healthy. 7.2 RECOMMENDATIONS FOR STUDENTS

In this section some recommendations for those students who are planning for an internship at BOP particularly and in any other bank generally. The most important of all is the difference between what we learn from the books i.e. the theory and what actually is done i.e. in practice. This difference is described in detail below: 7.2.1 Working in different departments

During my internship I observed that other internees in the bank use to stick with one department only. An internee with specialization in Finance was of the view that he should be in Finance department same was the case with other specialized

Internees. But I would suggest that one must work in every department for some time to gain a hand on experience of all the departments. As in real working environment employee have to coordinate with other departments, so he/she must know what the other departments operations are and how they work. 7.2.2 Relationship between Theory and Practice:

This part of report is the essence of the internship, as this will help other students to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance, but little differences, theory and practice has substantial relationship. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. The difference is there in the case of loans. Theory talks about four or five terms of loans that is cash finance, overdraft, loans etc., but in practice there are some more terms used like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. So for a internee it is more important to learn new things which he/she has never heard about in his/her course book. To me, Theory gives you the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar. In practical professionalism and firms environment is each and every thing. Professional life only builds on the knowledge based on books even though it may only use 1% of the theoretical knowledge.

8 Conclusions

By analyzing the financial statements of the bank, I came across to know that it is one of the most growing bank in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hirings and between colleagues should be removed