CHAPTER # 1
Introduction of the Organization
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1. INTRODUCTION
Faysal Bank is operations in Pakistan since 1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a locally incorporate Pakistani bank under the present name of Faysal Bank Limited. On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger and much more versatile institution. In fact it has the highest share capital amongst private banks in Pakistan and is amongst the largest in terms of equity. Faysal Bank Limit ed is a full service banking institution offering consumer, corporate and investment banking facilities to its customers. The Bank’s widespread and growing network of branches in the four provinces of the country and Azad Kashmir, together with its corporate offices in major cities, provides timely and differentiated services in an effective manner. The strength and stability of Faysal Bank Limited is evident through the Credit Rating assigned by JCR-VIS Credit Rating Company Limited of “AA” (Double A) for long to medium term and “A-1+” (A One Plus) for short term. The majority share holding of Faysal Bank Limited is held by Ithmaar Bank B.S.C an investment bank listed in Bahrain. The remaining shareholders comprise of general public, NIT and other Pakistani institutions.
1.1 VISION
“Excellence in all that we do.”
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1.2 MISSION
“Achieve leadership in providing financial services in chosen markets through innovation.”
1.3 Group Information
Ithmaar Bank B.S.C. is licensed by the Central Bank of Bahrain and listed on the Bahrain Stock Exchange (ITHMR). It has a paid-up capital of US$360 million, total equity of US$1.1 billion and is a full investment bank with its direct business covering the Middle East and North Africa (MENA) region, as well as South Asia, Asia-Pacific and Europe. Besides holding significant investments in the banking, financial services and real estate sectors in different markets, the main activities of the Bank include underwriting (equity and other financings), private equity (structuring, participation and portfolio management ), Islamic financing, private banking, and advisory services covering project financing, investments, capital markets and mergers & acquisitions.
1.4 Capital and Ownership
The majority share holding of Faysal Bank Limited is owned by companies of the Dar Al Maal Al Islami Trust (DMI) including Shamil Bank of Bahrain E.C. The remaining shareholders comprise of the general public, NIT and other Pakistani institutions. The Bank’s shares are quoted on the Karachi and Lahore Stock Exchanges.
1.5 Conformity to Islamic Sharia’a
The Holy Quran outlines for Muslims a complete code of life for dealing individually or collectively. This is future amplified by saying and practice of Holy Profit(May be upon him) From these guidel ines , an Islamic economic system can be elaborated upon, aimed at creating a socially, economically and politically viable and just environment supporting the universal well being of humanity 3
In this context all functions of the bank are performed in strict adherence to the principles of Islamic Sharia’a. In order to ensure such conformity of Sharia’a, the Bank operations are checked and monitored by its Religion Supervisory Board to whom the management reports periodically. In case of new operations and activities prior approval of Religious Supervisory Board is invariably obtained by the bank management. The Religious Supervisory Board of the bank itself comprises eminent scholars of Islamic Sharia’a from Bahrain, Egypt, Saudi Arabia, Turkey, and Pakistan possessing in-death knowledge of the conditi ons in which the Bank operates. The Groups Relig ion Board, composed also of many internationally renowned Islamic Scholars, provides advice from time on issue that pertain to Group level implementation The members of the board are highly respected individuals who have substantial knowledge and experience of corporate law and regulatory practices and running successful businesses, industries and financial sector enterprises. The day to day affairs of the bank are managed by professionally qualified and experienced finance, business and banking professionals with substantial exposure in their respective fields of specialization providing the bank with a fine blend of expertise in various financials/banking disciplines under one roof.
1.6 PRODUCTS AND SERVICES
FBL is offering a wide range of banking products and services to public and private sector corporations, partnerships, individuals, professional, and expatriate Pakistan working abroad. These include:
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1.2.1 Faysal Savings Account
Faysal Savings is specially designed to cater to the need of those who like to earn on their hard earned savings. This account provides convenience for the account holders.
1.2.2 Faysal Sahulat
Faysal Sahulat is a transactional account specially designed for individuals and business customers who seek instant access to their funds at any FBL branch in Pakistan. 1.2.3 Rozana Munafa Plus
Rozana Munafa Plus is a savings account in which profit is calculated on day end balance, and is disbursed on a monthly basis. The customer gets benefited because it provides customer
with
the
option
of
a
high
value,
monthly
profit
account.
1.2.4 Basic Banking Account
As per SBP prudential communicated via BPD circular No.30, Faysal Bank has introduced the Basic Banking Account (BBA) to cater the needs of low income groups having the following features. 1.2.5 Faysal Moavin Savings Account
Faysal Moavin is a Savings account made for genuine individual savers. Faysal Moavin offers the perfect combination of savings account matched with the flexibility of a current account. 1.2.6 Faysal Premium
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Faysal Premium is a savings account specially designed for high value deposits with attractive profit rates. 1.2.7 Faysal Izafa
Faysal Bank realizes that every customer's financial needs are different. As a result, the Faysal Izafa Term Deposit is designed to provide individuals and corporate customers an opportunity to grow their money securely and earn attractive profits. 1.2.8 Faysal Mahfooz Sarmaya
Faysal Bank endeavors to build and strengthen customer relationships by providing innovative banking products and services. To provide convenience and value to customers with foreign currency related needs, Faysal Bank's Mahfooz Sarmaya foreign currency account offers attractive features: 1.2.9 FCY Saving Plus
FCY Saving Plus is a new foreign currency savings account with attractive profit rates where customers get their profit on a monthly basis.
1.2.10 Consumer Finance Products •
Faysal Car Finance
•
Faysal Housing Finance
•
Faysal Finance
1.2.11 Faysal House Finance Product Features •
Buying a new home. 6
•
Building a new home.
•
Buy a Land plus construction.
•
Remodeling or Renovation of Existing home.
1.2. 12 Corporate and Investment Banking •
Corporate Financing
•
SME Finance
•
Trade Financing
•
Treasury & Capital Markets
•
Investment Banking
•
Agricultural Financing
•
Cash Management
1.2.13 Corporate Fina ncing
Faysal Bank Limited is fully geared to meet the changing
economic challenges present in
Pakistan. FBL is ever striving to build meaningful relationships with its customers and become partners in their growth and progress by acting as financial advisors and consultants as well as financiers. Its Corporate Finance Group extends both short and long term financing facilities designed to fulfill the individual need of each corporate customer. 1.2. 14 Small and Medium Enterprise Financing
Small and Medium Enterprise (SME) unit of the Bank is geared towards catering to the banking requirem ents of small to medium businesses in a timely and therefore cost effective manner. All the branches of Faysal Bank are equipped to speedily attend incoming financin g
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requests from SMEs. FBL helps its customers grow from strength to strength by acting as their bankers and financial advisors.
1.2.15 Trade Financing
Faysal Bank has established a strong presence globall y in Trade Financing through its network, affiliates and correspondents. The Bank has conveniently maintained relationships with major banks in the international financial market and continues to develop new ones wherever needed. Its Trade Finance services include a full range of import, export and guarantee products, thus offering tailor-made solution to fit the individual need of each customer. 1.2.16 Treasury and Capital Markets
Faysal Bank's Treas ury is one of the leading market makers in quoting competiti ve prices in all major currencies and provides dynamic corporate and institutional marketing teams with up-to-date market information. The bank’s cutting edge is the in-time advice and execution of deals for its customers. Faysal Bank's treasur y team strives to satisfy the customer's financial needs in a timely and a flawless manner. Faysal Bank has earned immaculate reputation in the field of Capital Markets, which is quite evident from its track record and market share in this area. 1.2.17 Investment Banking
With the ever-changing business environment in Pakistan, companies need expert partners with a keen understanding of business to help achieve profit objectives. At Faysal Bank, the leaders of businesses and institutions are offered, corporate advisory services and a wide array of tools to help them accomplish their goals. The bank advises and facilitates the arrangement of commercial paper, syndications, mergers, acquisitions and underwriting 8
arrangements amongst many others. Whether the customers require financing of a project or managing of investments, it can guide them through the markets and tailor a solution to meet their specific needs. 1.2.18 Agricultural Financing
Faysal Bank offers specialized products for the agricultural sector. All of its branches located in agricultural areas of Pakistan are equipped to help the local farmers improve their yield and methods of farming by offering timely and affordable modes of financing to suit their needs. To increase its outreach into agricultura l regions of Pakistan, Faysal Bank has entered into strategic partnership with the specialized entities engaged in the Agro related supplies and services. 1.2.19 Cash Management
Faysal Bank's Cash Management department has emerged as one of the leading cash management solution providers in strategic markets such as local corporates, multi-national companies, and mid-tier markets. Faysal Bank's role in these segments, span the entire spectrum of services including, but not limited to Strategic Receivables/Payables Management, Corporate Electronic Banking, Payroll and Fund Management Services, Dividend Processing, and Process Re-engineering. Success of Cash Management services is primarily attributable to its focus on providing streamlined and customized solution that adds value to business process of its clients. 1.2.20 PocketMate Visa Debit Card
Combining the wide acceptability of a credit card and the thoughtful prudence of an ATM card, Faysal Bank PocketMate is the most convenient way to carry cash. No more fear of overspending. No more searching for the nearest ATM. PocketMate Visa Debit Card provides customers with the freedom of world wide acceptability at over 27 million merchant 9
outlets as an ATM card operative at all ATMs in Pakistan plus at over 1 Million ATMs worldwide bearing VISA logo. 1.2.21 Travelers Cheques
Customers can purchase American Express, US Dollar and Pound Sterling Travelers cheques at selected branches of Faysal Bank. 1.2.22 Transfer of Funds
Customers can deposit and withdraw cash from any branch of Faysal Bank, regardless of which branch the account is in. Customers need only to carry their cheque book. 1.2.23 Money Transfer through SWIFT and Western Union Service
Customers of Faysal Bank can now easily and speedily transfer funds in foreign currency through the SWIFT system installed at the Bank. Customers who receive money transfers from overseas through the Western Union service can now withdraw their funds through any Faysal Bank branch. 1.2.24 Safe Deposit Lockers
At Faysal Bank, customers are offered Safe Deposit Lockers in a pleasant and secure environment. All lockers are discretely placed within the Bank’s professionally guarded premises. Lockers are available in three different sizes to suit individual customer needs at reasonable rentals. Faysal Bank also offers an added insurance feature with locker. 1.2.25 Non Stop Banking
All branches of Faysal Bank remain open for business from 9 a.m. to 5 p.m. from Monday to Thursday and Saturday. On Friday, the bank is open from 9 a.m. to 12.30 p.m. and then again
10
from 3 p.m. to 5 p.m. To suit customer needs, FBL has extended its banking hours on Saturdays. Now customers can enjoy its consistent and quality service from 9 a.m. to 5 p.m.
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CHAPTER # 2
DEPARTMENTLIZATION
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2 DIFFERENT DEPARTMENTS OF FBL Different departments of Faysal Bank are as under: 2.1.1 Operations Department
Operations Department is subdivided into following four departments:
•
Remittance
•
Cash
•
Account Opening
•
Customer Service
2.1.2 Agri-Finance Department
This department provides agriculture loans to the formers at nominal rates with easy terms. It includes short term financing for fertilizers, seeds, pestic ides etc and long term financing for purchase of harvesting machines and installation of tube-wells etc. 2.1.3 Credit Administration Department
This department supervises the loans either given or received in the form of deposits. It administers the conditions imposed at the time of delivering of loan like security etc. 2.1.4 Marketing Department
It peruse the customers to make business with the bank either in the form of deposits or by applying for financing. Different tools and techniques of marketing are used such as making
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contact personall y with the customers, advertise ment through television, news papers and on the website. 2.1.5 Consumer and Finance Department
This department provides loans to the ultimate consumer in the form of car leasing, house financing and as well as personal loans. Besides this it also administers the loans already given. 2.1.6 Documentary Credit and Foreign Trade Department
This department provides assistance to customers regarding foreign trade, such as it deals with the international companies and provides goods and services required by customers. The kind of assistance it provides includes letter of credit facility, guarantor and also helps in foreign remittances.
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CHAPTER # 3
WORK DURING INTERNSHIP WORK DURING INTERNSHIP
15
Departments, I served
During my internship at FBL, I got a chance to work in three main departments. These are: •
Clearing Department
•
Account Opening
•
Remittance
3.1 Clearning
I started my internship in the clearing department where my supervisor was Madam Shabnam Riaz. I spent 4 weeks in this department. During my stay in this department, my supervisor told me the basics and the practical work involved in cheque clearing and cheques received for collection purposes. I would like to start from cheque clearing. The major things involved in this context are to be discussed here. 3.1.1 Types of Clearing
The Clearing process is of two types: •
Inward clearing
•
Outward clearing
The clearing facility is provided by the state bank of Pakistan for offsetting of cross obligations between the different banks. The facility is now handed over to NIFT abbreviated as National Institutional Facilitation Technologies Pvt. Limited. I will discus both clearing through SBP and through NIFT and their roles after discussing inward and outward clearing.
16
Inward Clearing
Inward clearing is where the FBL customer draws cheque in the favor of a non- FBL customer. The inward clearing process decreases the deposits of the bank. In FBL, inward clearing is now centralized and the CPU (Central Processing Unit) at the Mall does all the inward clearing like verification of cheques, stamping and posting etc. In case of any difficulty, the CPU sends faxes to the respective FBL branches regarding the confirmation of client and also the signature verification of the client. The branches then reply to the faxes after necessary verification and fax them back if the status of the client is ok and ask the CPU to make the payment. In case of any difference in the signatures of the client as per stored signature database, the bank carefully monitors and discourages the payment of such doubtful cheque. The branch only maintains all the correspondence with the CPU in a separate file named as “Inward Clearing to CPU”.
Outward Clearing
Outward clearing means cheques drawn by non- FBL customers in favor of the FBL customers and deposited in one of the branches of the FBL. The outward clearing increases the deposits of the bank.The outward cheque clearing process is now centralized meaning there by all the posting of the cheques is done at the CPU. When a branch receives cheques to be sent for local clearing, the following work is done:
•
Counter foil of the pay-in slip signed by an authorized officer of the branch bearing the stamp “Received for Clearing” is returned to the customer for his/her record.
•
The cheques received at the counter are then given to the clearing department for the purpose of clearing.
•
The clearing officer does all the necessary scrutiny of the cheques like:
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•
Checks the date of the cheque. This is the most important thing in the cheque clearing process. The post dated cheques should not be received for clearing. They should be received on the date mentioned on the cheques.
•
The amount in words and figures must be matched.
•
The account title must be same on the cheque and the bank’s copy of the deposit slip.
•
The cheques are checked for crossing whether it is simple crossing or payee account crossing. In simple crossing, the cheque is deposited in the account but it can be endorsed in favor of another party other than the name of the payee on the cheque. In account payee crossing, the amount must be credited in the account bearing the name on the cheque.
•
The clearing officer also checks that there should not be any cutting and overwriting on the cheques.
•
The cheque should not be mutilated. If so, the stamp of “Mutilation Guaranteed” must be affixed at the back of the cheque and is duly signed by the authorized officer.
After looking for the necessary components of the cheque, the next procedure is to affix stamps on the cheque and the deposit slips. 3.1.2 Stamping on the Cheques and Deposit Slips
For cheques, two stamps are affixed: •
“Payee’s Account Credited” on the back of the cheque.
•
“Clearing Stamp” on the front of the cheque.
For deposit slips, only one stamp is used:
•
Clearing stamp.
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•
The stamps are duly signed by the authorized officer of the bank. In FBL new garden town branch, the manager operations Mr. Ahsan Iqbal Sheikh signs the stamps.
The date on the clearing stamp is always one day ahead, because the cheques are presented in the concerned branches the next day for payment. 3.1.3 Preparation of Excel Sheet
All the cheques are ente red in the excel sheet in lots of 50. In the excel sheet, follo wing are the fields that are filled:
•
Cheque amount.
•
Deposit slip amount.
•
Depositor’s account number.
3.1.4 Jotting
After the preparation of excel sheet the cheques and the deposit slips are separated and jotting of cheques and deposit slips is separately done in order to assure that the total of all cheques agrees to the total of deposit slips/vouchers. 3.1.5 Cheques ready to sent for clearing
After jotting of cheques, the cheques are bundled in lots of 50 and a bundle cover is attached to the cheques which are provided by the NIFT containing the following information: •
Bank /Branch code.
•
No. of Instruments.
•
•
Date. Amount of total cheques. 19
•
Signature by the Manager Operations
After preparing bundle covers, a sheet is prepared named as “Outward cheques for Clearing” which includes the total number of instruments and the deposit slips and the consolidated amount of the cheques. The sheet is duly signed by the Manager Operations and is then attached with the bundle of cheques and the deposit slips and send for the purpose of clearing to the CPU Mall where these cheques are again scrutinized and entries are posted in the system. After posting the cheques, the NIFT riders come to CPU and collect the cheques for clearing. 3.1.6 Filing of Documents
NIFT sends daily scroll sheet to the bank’s branches which contains the detail of both
inward
and outward cheques returns. This sheet is kept along with the print out of daily excel sheets in a separate file named as “Outward Cheques for Clearing”. 3.1.7 Same Day Clearing
The practice of issuing SBP cheque on behalf of the customers for the purpose of same day adjustment adopted by the banks have been dis-continued and a system has been introduced for same day clearing through NIFT. 3.1.8 Pre- Requisites for Same Day Clearing
The following are the requirements for availing this facility:
•
Same day clearing is restricted to instruments valued at Rs. 500,000/- and above and received by 10:00 AM.
•
The depositor must make specific request to the branch for same day clearing.
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•
The same day clearing is restricted to the branches that are designated only
which
will ensure that the timings in this respect are strictly followed. 3.1.9 Cheques Returned in Outward Clearing
The cheques which are sent for local clearing may be returned for the following reasons:
•
Funds Insufficient
•
Signatures Differs
•
Dormant Account
•
Stop Payment by the Drawer etc.
The return ed cheques are entered in the separat e register calle d “Returned Cheques in Outward Clearing” the day when they received. After making the entries, the client is called for the collection of such cheques. If the client does not come to the bank after the reasonable time period, the cheque is then dispatched to the customer along with the letter containing the details of the cheque like cheque date, cheque number and the reason for return of the cheque. The photocopy of both the cheque and the letter is kept in a file called “Returned Cheques Dispatched”. If the client comes to collect the cheque, photocopy of the cheque and the return memo is also kept and then receiving of the client is taken on the cheque return register and the photocopies of both the cheque and the return memo are kept in a file named as “Returned Cheques”. Now I would like to discuss the procedure of clearing through State Bank of Pakistan and the role of NIFT in the clearing process.
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3.10 Cheques on Collections
Cheques for collection are those which are not included in the local clearing. They are outsidcity cheques. There treatment is somewhat different as compared to local clearing cheques.
Procedure for Cheques on Collection (COC’s)
The collection is also handled by the clearing officer. When the concerned staff at the counter collects the cheque for collection purposes, the customer’s copy of the deposit slip is returned by affixing the stamp “Cheque Received Subject to Realization”, which means that on the realization of the cheque, amount will be transferred to the customer’s account. The same scrutiny of the cheques is done as in the case of clearing.
Stamping of the cheques
The following stamps are used for collection:
•
Crossing stamp of “Faysal Bank Limited” on the face of the cheque.
•
“Payee’s Account will be Credited on Realization” stamp on the back of the cheque.
•
“Outward Collection Number” stamp on the back of the cheque. The same stamp is also affixed on the deposit slip.
Entries in the Register
After stamping, the entries of the cheques are made in a register called “Outward Bills for Collection” (OBC). The register contains the following fields:
•
Date.
•
Beneficiary Name. 22
•
Cheque Number.
•
Account Number.
•
Amount.
•
Bank Name and Address.
Posting Entries in the System
After stamping and entries, the cheques are posted in the system. The software used for this purpose in Faysal Bank is “SYMBOLS”. After posting of cheques, the letters are printed from the system containing the address, name, cheque number, amount of the cheque. The letter is stamped with the Faysal Bank crossing stamp and is duly signed and stamped by the authorized officer, here in this case is the Manager Ope rations of the bank. The stamps are also signed by him.
Collection Area where FBL has its Branch
For those outside city areas, where Faysal bank has its branches, cheques on collection are sent to these branches which collects the funds from the branches on which cheque is drawn and then credits the same in the customer account. This branch sends those cheques in its local clearing and after the clearing process the funds are transferred to the customer’s account.
Collection Area where FBL has no Branch
Those areas where FBL has no branch, the cheques are directly sent to the branches on which the cheques are drawn. These branches draws a Demand Draft in favor of Faysal Bank which when received by the branch lodge in the local clearing for the release of funds. 23
Time Period for Collection
Where FBL has a Branch
3 Days
Where FBL has no Branch
7 Days
Filing of Documents
After the preparation of the letters and cheques, the photocopies of the cheques and the letters and also the deposit slips are kept for the bank’s record and are maintained in the file called “Cheques on Collection (COC)”. The cheques along with the original letters are then dispatched to the respective branches for collection purpose. Reminders for Delayed COC’S
The cheques which are sent for collection, if not realized after a reasonable period of time, reminders are issued to the respective bank’s branches. For record purposes, photocopies of reminders are maintained in the file called “COC Reminders”. Realization of COC’S
When cheques are sent for collection, they are treated as a liability for the bank. When COC gets realized, the entries are made in the OBC (Outward Bills for Collection) register bearing the realization date. The realized cheques on collection are also kept in separate file called as “COC Realized”. COC Returned
Those cheques which are returned in the collection are recorded in the returned register in the collection returns portion. 24
3.2 ACCOUNT OPENING
After working in the clearing department, I was moved to the account opening department where my supervisor was Madam Rabia Shafqat. She told me the basics of account opening. I spent one week in this department. The things which I have learned in this department are shown as below:
3.2.1 Procedure of Account Opening
Account opening is the most important department of a bank; the reason is that it is where a customer- banker relation starts. The procedure which I am going to explain is the general procedure of account opening which is applicable to all categories of accounts. The required documentation is discussed after the procedure for each category of account. The three significant steps in the account opening process are: •
Obtaining the Required Documents.
•
Proper Introduction of the Account.
•
Know your Customer (KYC) details.
The following procedure is followed for account opening purposes: •
Introduction of Account.
•
Introduction by Staff.
•
Obtaining CNIC from the Customer.
•
CNIC Verification from NADRA.
•
Verification of the Customer’s Name.
•
Occupation/ Employment Evidence.
•
Customer Profile Form (CPF). 25
•
Verification of signatures on Account Opening Form and SSC (Signature Specimen Card).
•
Signature Scanning from AOF/SSC.
•
Sending Documents to CPU.
•
Initial Deposit.
•
Letter of Thanks.
•
Issuance of Cheque Book.
Introduction of Account
Introduction of an account is one the essentials from State Bank of Pakistan. The introduction of an account can be given by the Faysal Bank’s existing customer and in this case the bank ensures that the account is at least 3-6 months old with satisfactory conduct. The account opening officer verifies the signature of the introducer from the system containing his/her information.
Introduction by Staff
The introduction of the new customer can be given by the permanent staff member of the bank. In this case the name of such staff member is provided on the AOF [CRF] by means of a notation underneath the introducer’s column “Personally Known to me”.
Obtaining CNIC from Customer
After the introduction of the account, the customer is given the account opening form and he/she fills out the necessary colum ns which are required for the purpose of account opening. After filling out the form, photocopy of the CNIC is obtained from the customer. The account opening officer ensures in this case that CNIC must not be expired. For expired CNIC’s,
26
customer has to submit copy of expired CNIC and a NADRA receipt in evidence of having applied for renewal of CNIC.
CNIC Verification from NADRA
The CNIC’s of the customers are verified through the NADRA’S specialized software which is called as “VERISYS”. This software is being used in FBL for the purpose of the confirmation of the client’s information regarding address, name, CNIC number etc. which is provided by him/her in the account opening form.
Verification of the Customer Name
The person’s name whose account is to be opened is confirmed from the following two documents: •
OFAC (Office for Foreign Asset Control).
•
Concerned Party List (CPL).
The OFAC and the CPL contains the list of those customers which have been blocked for any kind of financial and public dealings.
Occupation/Employment Evidence
The occupation or the employment evidence is obtained from the customer in the shape of a letter confirming occupation, alternatively a business card (only subject to on spot verification) or a valid student ID (If student account is being opened).
Customer Profile Form (CPF)
The customer profile form serves the purpose of identifying the customer’s various credentials such as how marketed, past banking history, introducer’s particulars, expected transactional activity and average amount of transactions etc. 27
The CPF also pinpoints based on the above parameters as a derived conclusion whether the customer is rated as an average risk as (or) higher than average risk customer by the bank. The completion of this form as a part of KYC strategy is fundamental to account opening formalities.
Verification of Signatures on AOF and SSC
The signatures on the completed AOF and SSC must match with each other. The account opening officer must give reasonable attention for the purpose of verification of the signatures. This is manually done by the officer without using the system.
Signature Scanning from AOF and SSC
It is a decentralized activity. The branch is responsible for the scanning of signatures from SSC and AOF. The scanned signatures are recorded in the database of the system and are promptly considered for future transactions of the customer.
Stamping of the Account Opening Form
After gathering the necessary information from the customer along with the documents and internal documentation of the bank, the stamping is done on the AOF. The following stamps are required for this purpose: •
“A/c Opening in my Presence” stamp.
•
“OFAC/CPL Checked” stamps.
•
B.M and O.M stamps and their signatures.
•
“Original Seen” stamp on ID cards.
Sending Documents to CPU
After stamping on the account opening form, the account opening set is sent to the Central Processing Unit (CPU) for the purpose of the verification of the account opening document s 28
because the account opening process is also centralized. The account opening set contains the following things: •
Cheque Book Requisition.
•
SSC (Signature Specimen Card).
•
A/c Opening Form.
Initial Deposit
After the confirmation from CPU after three working days that the account has been opened for the customer, the account number is allotted to the customer and the customer deposits an initial amount in cash. Cheques may only be accepted as part of the initial deposit in the case of undoubted customers and on the personal responsibility of the branch manager.
Letter of Thanks
Letter of thanks is the letter issued by the bank to the customer for two purposes: •
First purpose is to say thanks to the customer for opening the account in their bank.
•
Second purpose is to confirm the address provided by the customer while opening the account.
Issuance of Cheque Book
Cheque book is issued to the customer after sending the letter of thanks when the customer comes with the letter of thanks and requests for the issuance of the cheque book. A cheque book (usually having 25 leaves) is issued to the customer. The first cheque book is issued free of cost, but the subsequent are charged Rs. 5/- for every leaf. The procedure in this manner is to complete the cheque book requisition containing title of account, account number, type of currency and signature of the customer. Signature of the customer on the cheque book 29
requisition is verified through the system. Particulars are entered in the cheque book issuance register. After taking these necessary steps, the customer is given the cheque book and the concerned staff takes the customer’s signatures on the cheque book issuance register and affix stamp of signature verificat ion. After verifying signatures from the system, the account opening person signs the stamp and issues the cheque book after taking signatures of the account holder on the cheque book requisition acknowledging that he/she has taken the cheque book.
Closing of Account
At any time the customer can come to the bank and ask for the closing of the account. For this purpose, the following requirements are to be fulfilled: •
Filling the Closing A/c Form.
•
The cheque Book is Torne.
•
Nil the A/c of the Customer.
After doing this, the documents which are to be sent to the Central Processing Unit (CPU) are: •
A/C Opening Form.
•
Inter Office Memorandum (IOM) containing the basic details of the Account Holder.
•
Closing A/c Form.
•
Statement describing the Nil A/c.
The CPU confirms the credentials of the account holder and after necessary verification, closes the account of the customer and confirms the branch via fax.
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3.2.2 Categories of Accounts
An account can be opened in any of the following categories: •
An Individual Account.
•
Joint Account.
•
Proprietorship Account.
•
Limited Company Account.
•
Partnership.
•
Club, Society, Association and Trust.
3.2.3 Documentation In Case Of Limited Company Accounts
•
Photocopies of National Identity Cards of each Director.
•
Copy of Company’s Memorandum and Articles of Association.
•
List of Directors.
•
Copy of Board Resolution.
•
Certificate of Incorporation.
•
Power of Attorney/ Mandate.
3.2.4 Documentation In case of Partnership Account
•
Certified Copy of Partnership Deed.
•
Power of Attorney/ Mandate (If Required).
•
Attested Copy of Registration Certificate with the registrars of Firms.
•
CNIC Copy of Partners.
•
Partnership Mandate. 31
•
Original Authority Letter of Partners Favoring Persons Authorized to Operate the Account.
3.2.5 Documentation In Case of Club, Society, Association or Trust
•
Certified Copy of (By- laws rules and Regulations and Certificate of Registration).
•
Certified Copy of the Resolution of the Governing Body for Opening the Account and Authorizing the person(s) to operate the Account.
•
Copy of CNIC of Authorized Persons.
•
Undertaking signed by all Authorized Persons Mentioning Intimation to the Bank in case of change of Authorized Persons Operating the Account.
3.2.6 Documentation In Case of Individual/ Proprietorship
•
Copy of CNIC.
•
Copy of Services Card or any other proof of employment.
•
Power of Attorney.
•
Declaration of Proprietorship.
3.2.7 Documentation In Case of Joint Account
•
Copy of CNIC.
•
Completed Signature Specimen Card.
•
Power of Attorney.
•
Income Proof.
•
Any Other. 32
3.3 REMITTANCE DEPARTMENT
In the last week of my internship I was moved to the remittances department where my supervisor was Mr. Siddiq Ahmed. He was very encouraging personality and helped me in each and every way to know the domain of remittances and the practical work involved in it. Before discussing in depth about the remittances, I should first define the term remittance: “It refers to the transfer of money from an individual, usually a person who has emigrated from his/her city or country of srcin, to another individual, usually a relative who remains at home.”
Remittances are financial flows arising from the movement or transfers of money from one place to another within or outside the city or country. Remittances contribute to economic growth and to the livelihoods of needy people worldwide. Moreover, remittance transfers can also promote access to financial services for the sender and recipient, there by increasing financial and social inclusion. My supervisor told me that the remittance includes the following things:
•
Pay Orders.
•
Demand Drafts.
•
Traveler’s Cheques.
•
Tele-graphic Transfer through SWIFT.
•
Western Union Money Transfer.
3.3.1 Pay Orders
33
Pay order abbreviated as “P.O” is a negotiable instrument (such as a draft) which instructs a payer bank to pay a certa in sum to a third party within the city . It is a payment instrum ent which is used by the banks to settle payment obligations on behalf of their customers. This instrument is guaranteed by the bank for its full value and is similar to a demand draft. In FBL, P.O is payable at any of the Faysal bank’s branch in Pakistan. Paym ent through pay order is a confirmed payment. The reason is that when pay order is made, the applicant who has an account with the Faysal bank is debited and the amount is added to the pay order account. And from that account, the beneficiary account is credited for the amount of pay order. FBL only issues “Payee Account Only” pay orders. Pay orders in cash are not issued in FBL. 3.3.2 Validity
Pay order is valid for 6 months after the date of issue. If the customer does not claim the payment within 6 months of the issue then the amount of the pay order is included in the “Unclaimed Account” and the amount stays there for 10 years. 3.3.3 Procedure for the Issuance of Pay Order
When a customer comes for the issuance of pay order, the processing steps includes the following:
•
The customer is given the “Funds Transfer- Application Form”.
•
The customer fulfills the application form which includes the following details:
o
Transaction Details.
It includes Amount in Figures and Words.
34
•
The desired Currency. Mode of Payment.
o
Beneficiary Details (In whose favor P.O is issued).
o
Applicant’s Detail (Who Requests for P.O).
The filled form along with the cheque is given to the remit tance officer who veri fies the form through the following stamps:
o
Sign Verification (Where the customer has done the Signatures) on the application form.
o
Transfer Posted (Means amount is transferred from the Applicants account to the Beneficiaries Account).
o
Time Stamp (Contains the Date and the Time of Receiving of Application).
The remittance officer then makes the necessary entries in the system by debiting the account of the applicant and crediting the account of the beneficiary. The commission is deducted at the time of issuance of the P.O. The commission charges are flat Rs. 80/-which are charged to the applicant’s account. After the entries, the P.O is ready to be given to the customer. 3.3.4 Demand Draft
A demand draft referred to as “DD” is a banker’s own draft drawn upon another banker as per agency arrangement (or) upon one of its own branches payable on presentation by the drawee bank.
35
Types
•
Local DD.
•
Foreign DD.
Local DD
In FBL, local demand drafts are not issued. Local DD’s are those which are issued by the banks for the settlement of funds between the cities.
Foreign DD
Foreign currency demand drafts are issued in FBL. Foreign DD is the banker’s own draft drawn upon another bank/ correspondent bank in a country other than the country from where it is issued and drawn and payable in currency of the country in whose bank/ branch it is drawn. For this purpose, the bank has maintained its “Nostro A/c” with Standard Chartered Bank, HSBC and Mashriq Bank for demand draft Purposes. FBL does its remittance in abroad with HBL. Through Nostro account, outward remittance in DD takes place. I will explain the term Nostro A/C for outward and Vostro A/c for inward remittances as follows:
3.3.5 Nostro A/c
To best remember it is “Our account with them in their currency”. Nostro accounts are usually in the currency of the foreign country. This allows for easy cash management because currency does not need to be converted.
36
3.3.6 Vostro A/c
To best remember it is “Their account with us in our currency”. These accounts are maintained by the correspondent banks in the currency of the country in which the account is opened. These accounts are also known as “Loro Account”. For the purpose of inward foreign currency demand drafts, FBL is maintaining Vostro account of Shamil Bank of Behrain and Qatar International Islamic Bank. 3.3.7 Traveler’s Cheques
Traveler cheques (TC) is form of currency cheques for travelers which is convenient to carry and incase of misplace or lost one can easily have their cash again. In previous years businessmen were mostly carrying their cash in form of currency notes, usually they were worried about their cash, and it shouldn’t be stolen or lost by them. For those reasons and for the comfort of the business commun ity internationally countries decided to issue them travelers’ cheques, and now a day’s business community could use it easily without any fear of lost and steal. In Faysal Bank, the traveler’s cheques are issued at the selected branches. In Faysal Bank new garden town branch, traveler’s cheques are not issued. 3.3.8 Telegraphic Transfer through SWIFT
It is largely the obsolete method of transferring funds through a telegraph or telex link from one country to another. With the help of this service a customer can transfer money to the bank account of a beneficiary in most foreign countries of the world also called wire transfer; it has been replaced by secure cable and wireless telecommuni cations networks. In FBL, the transfer of funds through this medium is implement ed through SWIFT which is the standard in all banks of the industry. The telegraphic transfer is of two types: 37
•
Local TT.
•
Foreign TT.
Local TT
In local telegraphic transfer, the funds are transferred from one city to another. The local transfer system is not been used in FBL. The method was that the customer who wanted to avail this facility was given the funds transfer application. The person who wanted to remit the money used to provide the details of the receiving person. The transaction was done between the banks. The bank remitting the money used to credit the account of the person sending the money and the paying bank used to debit such account and made payment to the receiving person. The payments were done on the counters. The NIC of the persons were taken in that kind of transactions. This system has not been used today because the SBP has started restricted the counter payments due to the fraudulent nature of the transaction.
Foreign TT
The foreign telegraphic transfer means the transfer of funds to a foreign country. Both inward and outward is done at FB L. The foreign TT is do ne through SWIFT which is acting as a quickest mode for the transfer of funds to abroad. The TT is only done account to account in FBL. The procedure for the foreign TT followed by the remittance officer is explained as:
•
The customer comes to the bank for the purpose of TT.
•
The customer is given the Funds Transfer Form on which the customer provides the details like:
o
Amount of the Transaction in Words and Figures. o
The Desired Currency. 38
•
o
Beneficiary Details to whom the funds are to be transferred.
o
Beneficiary Bank’s details in the abroad.
o
Applicant’s Details.
After filling out the information, the customer signs the form and hands it over to the remittance officer along with the cheque.
•
The remittance officer in the scrutiny process assures himself that the requirements of the Anti- Monet Laundering (AML) regulation of the SBP in this context are fulfilled.
•
The name of the person who is remitting is confirmed from the Office for Foreign Asset Control (OFAC) list.
•
The Know Your Customer (KYC) requirements are duly accounted for.
•
The remittance officer makes sure that the purpose of the remittance must be provided by the customer.
•
The charges of TT are deducted from the account which is flat 16 US dollars.
•
The stamping is done on the form and the remittance officer signs the form.
•
The form also gets signed by the operations manager.
The completed form along with the cheque is sent to the FBL head office where all the SWIFT operations are taken place. The head office makes all the dealing with the correspondent banks in abroad for the purpose of TT.
39
3.3.9 THE ROLE OF SWIFT IN TELEGRAPHIC TRANSFER
SWIFT stands for the Society for Worldwide Interbank Financial Telecommunication, a member-owned cooperative through which the financial world conducts its business operations with speed, certainty and confidence. Over 8,300 banking organizations, securities institutions and corporate customers in more than 208 countries are the members of SWIFT and every day exchange millions of standardized financial messages. Its role is two-fold. They provide the proprietary communications platform, products and services that allow its customers to connect and exchange financial information securely and reliably. They also act as the catalyst that brings the financial community together to work collaboratively to shape market practice, define standards and consider solutions to issues of mutual interest. SWIFT enables its customers to automate and standardize financial transactions, thereby lowering costs, reducing operational risk and eliminating inefficiencies from their operations. By using SWIFT customers can also create new business opportunities and revenue streams. SWIFT has its headquarters in Belgium and has offices in the world's major financial centers and developing markets. SWIFT is solely a carrier of messages. It does not hold funds nor does it manage accounts on behalf of customers, nor does it store financial information on an ongoing basis. As a data carrier, SWIFT transports messages between two financial institutions. This activity involves the secure exchange of proprietary data while ensuring its confidentiality and integrity. 3.3.10 Services Provided by SWIFT
SWIFT network provides the following services to the banks: •
The exchange of real-time messages using XML standards. 40
•
The exchange of bulk messages (e.g. non-urgent and low value payments).
•
A secure browser for accessing account information.
3.3.11 Joining SWIFT
In Pakistan the banks get the membership of SWIFT through State Bank of Pakistan. The Financial documents along with the registration application are submitted to State Bank and from where thes e are transferred to the SWIFT.
After verification SWIFT gives the
membership to the Bank.
Following are the steps below to learn how to join SWIFT, connect to the SWIFT network and become fully operational.
Procedure
Every client has its own SWIFT BIC code, in order to identify Financial Institutions. BIC stands for Bank Identifier Code. To transfer messages securely and efficiently, the client bank connects through SWIFTNet network by the assigned SWIFT BIC code.
SWIFT clients can
configure their existing email infrastructure to pass email messages through the highly secure and reliable SWIFTNet network instead of the open Internet. SWIFTNet Mail is intended for the secure transfer of sensitive business documents, such as invoices, contracts and signatories, and is designed to replace existing telex and courier services, as well as the transmission of security-sensitive data over the open Internet. SWIFT code
The SWIFT code is 11 characters made up of:
41
•
4 characters: Bank code (only letters).
•
2 characters: 3166-1 alpha 2 country code (only letters).
•
2 characters: location code (letters and digits).
•
3 characters: Branch code, optional (xxx for primary office) (letters and digits).
Procedure for International Clearing Outward Transfer
For the purpose of outward transfer, as the foreign bank branch receives the SWIFT message, the Nostro account is debited for the bank’s record. The transferee has account with the foreign bank, the funds simply transfers to the transferee’s account. Inward Transfer
For the purpose of inward transfer, as the domestic bank branch receives the SWIFT message, the Vostro account is debited for the bank’s record. The transferee has account with the domestic bank, the funds simply transfers to the transferee’s account. Western Union Money Transfer
The Western Union Company, under the Western Union, Orlandi Valuta and Vigo brands, touches people around the world with 379,000 Agent locations in 200 countries and territories. Hundreds of millions of people currently live outside of their home countries and use Western Union services to remain connected to their families and homelands. Western union money transfer is a fastest way to receive money worldwide. There are other banks and institutions that are dealing in Western Union. They include National Bank of Pakistan, Pakistan Postal Service, Dollar East, and Master Currency etc.
42
FBL acts as agent between the sender and the receiver. Only receivi ng money option is there in FBL.
Procedure of Payment
The Western Union is a counter payment which means that the sender of the money does not need to have an account with FBL. The procedure followed by the remittance officer in this context is as follows:
•
The person who wants to receive money is given the Western Union Money Transfe r form.
•
The person fulfils the following details on the form:
•
Date.
•
MTCN (Money Transfer Control Number). It is a unique number which is given to the person remitting the money abroad by the money exchanger of that particular country.
•
Sender Name. The name of the sender must include the surname.
•
Sender Country.
•
Amount in PKR (Approximate Amount).
•
Receiver Contact.
43
When the customer completes the form, the remittance officer asks for the photocopy of the valid identity card of the receiving person. If the ID card is not available, the photocopy of the passport is taken from the customer. The officer then makes the needed entries in the Western Union software which is installed at FBL. The entries are made in the software in the form called as “To Receive Money”. After making the entries, the print out of the form is taken, the officer signs the western union form. The money transfer form is kept by the bank for its own record purposes. The customer is given the “To Receive Money” form and the customer puts his/her signatures on the form and takes the payment from the counter by presenting such form and photocopy of ID card. At the remittance department , my supervisor also told me how to issue a term deposit receipt because this was also the responsibility of the remittance officer.
3.3.12 Term Deposit Receipt (TDR)
TDR is an amount of money either in Pak rupee or foreign currency kept for a fixed term subject to profit and loss. The receipt is a non- negotiable item. The minimum amount for opening a TDR is Rs. 25000. 3.3.13.WrackRate Wrack rate is the normal rate which is decided on the basis of KIBOR. It is a bi-annually rate. This rate is given to most of the customers. There is no special approval for this rate. This rate is negotiable on the basis of the amount of investment. 3.3.14 Grid Rate
Grid rate is the special rate which is given to the prime customers and is determined on daily basis. In FBL, the approval is to be taken from the area manager for providing such rate to the customer. 44
3.3.15 Processing of a New TDR
When the customer comes to the bank for the opening of a new TDR, then the following procedure is adopted for this purpose:
•
The customer is given the Term/Notice Deposit- Application Form.
•
The customer fulfills the form which contains the following fields:
o
Title Account.
o
Amount of Investment in Words and Figures.
o
Term/Notice Deposit Duration.
o
Profit Payment Frequency (Monthly, Quarterly, Half Yearly, Yearly, and On Maturity).
After filling the application form, the customer signs the form and hands it over to the remittance officer. The remittance officer after scrutiny of the form affixes the following stamps on the form:
•
Time Stamp.
•
Sign Verification stamp
After stamping, an Inter Office Memorandum (IOM) is prepared which contains the TDR amount, its tenure, profit rate, account number. The IOM is duly signed by the branch manager and the manager operations. The completed form, IOM and the profit rate approval sheet from the branch manager or area manager is sent to the FBL head office (Karachi) for the approval of TDR. 45
3.3.16 Redemption of TDR
On the date of maturity, the customer has the option to re-invest the amount. There are three options available to the customer:
•
Principal Re-investment.
•
Principal plus Profit Re-investment.
•
No Re-investment.
3.3.17 Premature withdrawal of TDR
The premature withdraw al occurs where the customer encashes the TDR before the expiry of the term (Mat urity).
Penalty is impose d on the premat ure encash ment. The penalt y is
imposed as:
3.4 NEW THINGS LEARNED
My internship experience has given me a realistic preview of my field of education. Now I feel that I am better prepared to enter the world of professional work. I feel honored that I have worked with such experienced professionals. I must admit that such interaction in this respectable professional communi ty will help me in seeking out job opportunities in the near future. Each task I performed was a different experi ence in itself. By the end of it, I must say I realize my potentials, I have realized that earning money is not so easy after all, it takes a lot of hard work and devotion, and not to forget time. I definitely have learned things, which will impact my career and my character. The overall experience of my internship was very good; I have learnt the sense of responsibility in its literal meaning. I am now capable of dealing with different sort of customers, and how to be patient while doing so. Besides this I also gained 46
knowledge about banking which I previously lacked and many more products being offered by the bank. So in a nutshell, this internship gave me the experience, which would no doubt boost my confidence to work in future.
47
CHAPTER # 4 FINANCIAL ANALYSIS
48
Faysal Bank
Summarized Balance Sheet of 5 years Years
2008
2007
2006
2005
2004
6872032
7207998
6696726
5048395
2866278
Assets:
Cash BalancewithotherBanks
3708451
2883040
2045887
3564030
648660
Lending to Fin.Institutions
7078102
4608205
10742841
4417378
872132
Investment net of provision
31553108
22525358
23887864
1150280 5
Loans and advances
87346401
74468644
62035978
5137325 4
2204368
1537764
2371825
1473952
1183315
2514959 _
2239392 _
2882441 _
1158407
1030352 160936
141277421
11547040 1
11066358 2
7853822 1
47606397
BillsPayable
2406927
4516125
1193309
905637
430862
Borrowings from Fin. Institutions
9995855
14965037
15295730
8478048
6529810
102067422
74413641
74595564
OtherAssets OperatingFixedAssets Differed Tax Assets
Total Assets
_
11218501
29626223
Liabilities:
Deposits and Other Accounts Sub-ordinated loans Liabilities against assets subject to financiallease Defferedtaxliability OtherLiabilities
Total Liabilities
Net Assets
1000000_
5646032 9 _
7827
14664
122549
2691466
1839860
1269113
31332172
_
18434
16404
166442 _
6951421
5924440
3527023
125120918
10167376 7
96003288
6832378 9
39627685
14660294
1021443 2
7978712
16156503 49
13796634
2294899
1318437
Share Holders Equity
ShareCapital
5296445
4237157
3684484
2912635
2647850
CapitalReserve
3567033
3079527
2516211
2259101
2115989
Unappropriated Profit & Reserves
1481668
1815643
1938651
1079492
846016
Total Equity of the Bank Surplus on Revaluation of Assets
10345146 5811357
9132327 4664307
8139346 6251228 5609855 6520948 3963204 2368857
16156503
13796634
14660294
1021443 2
7978712
11547040 1
11066356 2
7897134 8
47606397
Total Share Holders Equity
Total Liabilities And Equity
141277421
50
Faysal Bank Vertical Analysis of Balance Sheet 2008
2007
2006
2005
2004
Assets
CashAnBalanceWithTreasuryBanks
4.86%
6.24%
6.05%
6.39%
6.02%
BalanceWithOtherBanks
2.62%
2.49%
1.84%
4.51%
1.36%
Lending To Financial Institutions
5.01%
3.99%
9.70%
5.59%
1.83%
Investment
22.33%
19.50%
21.58%
14.94%
23.56%
Advances
61.82%
64.49%
56.05%
63.63%
62.23%
OperatingFixedAssets
1.78%
1.93%
2.60%
3.00%
2.48%
DeferredTaxAssets-Net
0.00%
0.00%
0.00%
0.00%
0.33%
OtherAssets
1.56%
1.33%
2.14%
1.92%
2.16%
Total Assets
100%
100%
100%
100%
100%
Liabilities
BillPayable
1.70%
3.91%
1.07%
1.14%
0.90%
Borrowing From Financial Institutions
7.07%
12.96%
13.82%
10.73%
13.71%
72.11%
64.25%
67.40%
71.49%
65.81%
DepositsAndOtherAccounts Sub-OrdinateLoans
0.70%
0.00%
0.00%
0.00%
0.00%
Liabilities Against Assets Subject To FinanceLease
0.00%
0.01%
0.11%
0.02%
0.03%
DeferredTaxLiabilities-Net
1.90%
1.59%
1.14%
0.21%
0.00%
OtherLiabilities
4.92%
5.13%
3.18%
2.90%
2.76%
Total Liabilities
88.43%
87.86%
86.75%
86.51%
83.24%
ShareCapital
3.74%
3.66%
3.32%
3.68%
5.56%
Reserves
2.52%
2.66%
2.27%
2.86%
4.44%
InappropriateProfit
1.06%
1.64%
1.75%
1.36%
1.77%
MinorityInterest
0.05%
0.08%
0.00%
0.00%
0.00%
51
SurplusOnRevaluationOfAssets
4.11%
4.03%
5.55%
5.01%
4.97%
TotalLiabilitiesAndEquity
100%
100%
100%
100%
100%
Faysal Bank Ltd Horizontal Analysis of Balance sheet 52
Years
2008
2007
2006
2005
2004
Assets
Cash An Balance With Treasury Banks BalanceWithOtherBanks Lending To Financial Institutions
239.75% 571.71% 811.58%
251.47% 444.46% 528.38%
233.63% 315.40% 1231.79%
176.13% 549.44% 506.50%
100% 100% 100%
Investment
281.26%
200.78%
212.93%
105.18%
100%
Advances
294.82%
251.36%
209.39%
169.62%
100%
OperatingFixedAssets
212.53%
189.24%
243.59%
200.23%
100%
DeferredTaxAssets-Net
0.00%
0.00%
0.00%
0.00%
100%
213.94%
149.24%
230.19%
147.29%
100%
OtherAssets Total Assets
296.76%
242.55%
232.45%
165.88%
100%
1048.15 %
276.95%
210.19%
100%
Liabilities
Bill Payable Borrowing From Financial Institutions DepositsAndOtherAccounts
558.62% 153.08%
229.18%
234.24%
129.83%
100%
325.15%
236.79%
238.08%
180.19%
100%
47.71%
89.39%
747.06%
112.37%
100%
Sub-Ordinate Loans Liabilities Against Assets Subject To FinanceLease
Deferred Tax Liabilities-Net
1617.36%
1106.48 %
762.49%
100.00%
OtherLiabilities
527.27%
449.37%
267.51%
174.06%
100%
TotalLiabilities
315.26%
256.02%
242.26%
172.41%
100%
ShareCapital
200.02%
160.02%
139.15%
110.00%
100%
Reserves UnappropriatedProfit MinorityInterest Surplus On Revaluation Of Assets Total Liabilities And Equity
168.57%
145.53%
177.89%
224.29%
78.12%
100.00%
245.32% 296.76% 53
196.90% 242.55%
118.91% 229.15%
259.55% 232.45%
106.76% 127.59%
167.30% 165.88%
100% 100%
100% 100%
Faysal Bank Ltd Summarized Income Statement Of 5 years Years
MarkUp/InterestIncome Fee, Commission And Brokerage
2008
2007
2006
2005
2004
11610781
9728046
6319498
2753451
2074611
743913
603667
581854
397064
251189
54
Income DividedIncome
1221217
1249522
Income After Dealing In Foreign Currencies
313597
Other Income
43821
120992
-1024 7717583
13933329
12149935
Less: Mark Up / Interest Expenses
7459392
6089255
6473937
6060680
697499
95451
447708
TotalIncome:
Gross Profit
721804
3309989
162444
107473
5050
2554
4015508 1118118
4407594
763697
2897390
3199524 946485 2253039
Less: OPERATING EXPENSES
AdministrativeExpenses
2799747
Provision Against Non Performing Loans Bad Debts Written Off Directly OtherProvisions/WriteOffs Other Charges TotalOperatingExpenses
1866584
1797432
1428830
517027
1134672
-19026
67
-
6061
-
834754
51609
208097
1118
141 1742
-
9855
32857
2220
1150
11935
4613095
2416535
1412024
2377098
1056669
Profit Before Tax
2697827
Less:Tax
425719
Profit After Tax
2272108
3870340 1053768 2816572
4018476
2207470
2745272
902338
454000
593928
3116138
1753470
2151344
Faysal Bank Ltd Vertical analysis of Income statement Years
MarkUp/InterestIncome
2008
100.00
2007
100.00 55
2006
100.00
2005
100.00
2004
100.00
Fee, Commission And Brokerage Income
6.41
6.21
9.21
14.42
12.11
10.52
12.84
11.42
25.33
36.81
2.70
1.24
1.51
5.90
5.18
0.38
4.60
-0.02
0.18
0.12
120.00
124.90
122.12
145.84
154.22
64.25
62.59
52.38
40.61
45.62
55.76
62.30
69.75
105.23
108.60
24.11
19.19
22.61
41.21
40.24
15.48
5.31
-0.30
1.87
10.03
Divided Income Income After Dealing In Foreign Currencies
Other Income
Total Income:
Less: Mark Up / Interest Expenses
Gross Profit
Less: OPERATING EXPENSES
Administrative Expenses Provision Against Non Performing Loans
0.00
0.00
0.00
0.04
0.01
Bad Debts Written Off Directly 0.05
0.00
0.00
0.00
0.08
Other Provisions / Write Offs Other Charges
0.08
0.34
56
0.04
0.04
0.58
39.73
24.84
22.34
86.33
50.93
23.24
39.79
63.59
80.17
132.33
3.67
10.83
14.28
16.49
28.63
19.57
28.95
49.31
63.68
103.70
Total Operating Expenses
Profit Before Tax
Less: Tax
Profit After Tax
Faysal Bank Ltd Horizontal analysis of Income statement Years
2008
2007
2006
2005
2004
559.66
468.91
304.61
132.72
100
296.16
240.32
231.64
158.07
100
159.91
163.61
94.51
91.33
100
291.79
112.58
88.81
151.15
100
1715.78
17529.68
-40.09
197.73
100
435.48
379.74
241.21
125.50
100
Mark Up / Interest Income Fee, Commission And Brokerage Income
Divided Income Income After Dealing In Foreign Currencies
Other Income
Total Income: Less:MarkUp/InterestExpenses
788.12
643.35
57
349.71
118.13
100
287.34
269.00
195.63
128.60
100
335.40
223.61
171.17
135.93
100
863.75
248.45
-9.14
24.80
100
0.00
47.52
Gross Profit Less: OPERATING EXPENSES
Administrative Expenses Provision Against Non Performing Loans
0.00
792.91
0.00
0.00
100
Bad Debts Written Off Directly 347.93
0.00
100
Other Provisions / Write Offs 82.57
275.30
18.60
9.64
100
436.57
228.69
133.63
224.96
100
98.27
140.98
146.38
80.41
100
71.68
177.42
151.93
76.44
100
105.61
130.92
144.85
81.51
100
Other Charges
Total Operating Expenses
Profit Before Tax
Less: Tax
Profit After Tax
58
4.2 RATION ANNALYSIS
Short Term Liquidity Analysis: Current Ratio
Current ratio =Current Assets/Current liabilities
Year
Current ratio
2004
1.49
2005
2006
1.588
1.48
59
2007
1.75
2008
2.08
Current Ratio 2.5 2 1.5
Current Ratio
1 0.5 0 2004
2005
2006
2007
2008
Years
Interpretation:
Current ratio is used to assess the short term debt paying ability of the firm. FBL in starting was not good in paying its short term debt but now in 2008 it is very good in short term paying ability .Its reason is FBL now have much focus on deposits and reserves, now they can
Quick Acid Test Ratio
Acid-test ratio =Current assets – Inventory/Current liabilities Year
2004
Quick acid test ratio
1.35
2005
2006
1.48
1.37
2007
1.75
Quick Acid Test Ratio 2.5 2 1.5
Quick Acid Test Ratio
60
1 0.5 0 2004
2005 2006 2007
2008
2008
2.0
Interpretation: Acid test ratio is useful in measuring the liquidity position of the firm. It is more liquid ratio than current ratio. Here the result of current ratio and Acid test ratio is almost same because the reason is that FBL has no inventory so, the result of both ratios are same.
Cash Ratio
Cash ratio =Cash Equivalents + Marketable Securities/Current liabilities
Year
2004
Cash Ratio
2005
0.113
2006
0.178
0.121
2007
0.161
Cash Ratio 0.2 0.15 0.1
Cash Ratio
0.05 0 2004
2005
2006
2007
Years
61
2008
2008
0.163
Interpretation:
The cash ratio indicates the immediate liquidity of the firm. A high cash ratio indicates that the firm is not using its cash in a better way. While the cash ratio which is too low could indicate an immediate problem with paying bills. The cash ratio of FBL in 2007 and in 2008 is remain stable. Working Capital
Working capital= Current asset – Current liabilities
Year
2004
2005
2006
2007
2008
Working capital(Rs )
1525389 1
2836702 2
3532790 4
4750053 0
7030864 6
Working Capital 80000000 60000000 40000000
Working Capital
20000000 0 2004 2005 2006 2007 2008 Years
Interpretation:
It is also used to indicate the short term solvency of the business. The higher the ratio the better the position of company in debt paying. The working capital ratio of FBL is sharply increases every year from 2004 to 2008 because its liabilities are decreases.
62
Profitability Analysis Ratio:
Net Profit Margin
Net profit margin = Net profit / Total income
Year
2004
2005
2006
2007
2008
NPM (%)
23.13%
35.70%
35.08%
23.79%
9.15%
Net Profit Margin 40.00% 30.00% 20.00%
Net Profit Margin
10.00% 0.00% 2004 2005 2006 2007 2008 years
Interpretation:
This ratio is used to measure the profit return on sales. It is used to measure net income generated by each rupee of sale. The higher the ratio the better the company in profitability. The ratio of FBL is going to decrease from 2006 to 2008; this thing indicates that FBL is not in position in profitability.
63
Return on Average Asset
Return on average assets = Net operating income/ Total assets
Year
2004
2005
2006
ROA (%)
5.11%
2.78%
3.25%
2007
2.5%
2008
1.77%
Return on Assets 6.00% 4.00%
Return on Assets
2.00% 0.00% 2004 2005 2006 2007 2008 year
Interpretation: It is also called firms return on investment (ROI). It measures the overall effectiveness of management in generating profit with its available assets. Higher this ration better is company, but FBL ROA show decreasing trend expect of 2004. This show that FBL is not in good in profitability.
64
Return on Equity
Return on equity (ROE) = Net Income/ Average stockholder’s equity
Year
ROE (%)
2004
2005
2006
2007
2008
44.22%
29.57%
42.74%
32.67%
23.33%
Return on total Equity 60.00% 40.00%
Return on total Equity
20.00% 0.00% 2004 2005 2006 2007 2008 Years
Interpretation:
It measures the overall effectiveness of management in generating profit with its Shareholder’s equity. Shareholders of the bank may be interested in this ratio as to check the firm’s effectiveness in using the capital provided by them. This ratio measure both common and preferred shareholders. Higher this ratio, more effective the firm is .Return on total asset ratio of FBL shows decreasing trend. 65
Return on Common Equity
Return on common equity = Net income/ Average total asset
Year
Return on common equity
2004
2005
2006
2007
44.22%
29.57%
42.74%
32.67%
2008
23.33%
Return on Common Equity 60.00% 40.00%
Return on Common Equity
20.00% 0.00% 2004 2005 2006 2007 2008 Years
Interpretation:
It measures the return only to the common shareholders. The Return on equity of FBL is decreasing in 2007 and in 2008. Its mean that the profit by using common equity is decreasing.
66
Long term Solvency Ratio: Debt Ratio
Debt Ratio = Total Liabilities/Total Assets
Year
2004
2005
2006
2007
Debt Ratio (%)
83.24%
86.57%
86.75%
88.05%
Debt Ratio 90.00% 88.00% 86.00% 84.00% 82.00% 80.00%
Debt Ratio
20042005 20062007 2008 year
67
2008
88.56%
Interpretation:
The debt ratio indicates the percentage of assets financed by creditors, and how well creditors are protected in case of solvency. The lower the ratio the better the company position in long term liability. Here the debt ratio of FBL is going to increase from 2004 to 2008, so, this thing is not better for FBL. Debt to Equity Ratio
Debt equity ratio =Total liabilities/Shareholders Equity
Year
2004
2005
2006
2007
2008
Debt to Equity ratio
706%
117.9%
109%
108.9%
119.6%
Debt To Equity Ratio 800% 600% Debt To Equity Ratio
400% 200% 0% 20042005200620072008 year
Interpretation:
It also tells that creditors are protected in case of insolvency. The lower the ratio the better the company's debt position. Debt/Equity Ratio indicate the outsider's portion of equity. The outsider's proportion in total equity is decreasing each year in previous 5 years but it is still very bad for FBL because its proportion is so high.
68
Analysis for the Investor: Earnings per Share
Earning per share (EPS) = Net Income/ Weighted average no of shares outstanding
Year
2004
EPS
2005
8.12
2006
6.02
8.33
2007
6.65
2008
4.29
EPS(Rs) 10 8 6 4
EPS(Rs)
2 0 2004
2005
2006
2007
2008
Years
Interpretation: It represents the number of rupee earned on behalf of each outstanding share of common stock. The graph shows the decreasing trend in 2007 and in 2008 while in 2006 the ratio is high but after that decreases.
69
Price Earning Ratio Price earning ratio = Market price of common stock per share/ Earning per share.
Year
P/E (%)
2004
2005
2006
2007
4.43%
7.23%
8.89%
9.10%
2008
15.35%
Price Earning Ratio 20.00% 15.00%
Price Earning Ratio
10.00% 5.00% 0.00% 2004 2005 2006 2007 2008 Years
Interpretation:
It measures the amount investors willing to pay for each rupee of the firm’s earning. It also shows the degree of confidence of investors on firm. Higher this ratio higher is the investor’s confidence. Here this ratio indicates the increasing trend from 2004 to 2008 and its better for company.
70
Dividend Payout Ratio Dividend payout =Dividend per Common share/Diluted earning per share
Year
2004
2005
2006
2007
2008
Dividend payout ratio
55.42%
74.75%
42.01%
75.19%
58.27%
Dividend Payout Ratio 80.00% 60.00% 40.00% 20.00%
Dividend Payout Ratio
0.00% 2004 2005 2006 2007 2008 Years
Interpretation:
This ratio indicates that from earnings what percent of it given to outsiders inform of dividends. Here it shows that from 100 Rs earnings a big portion of it is given to outsiders. This thing FBL is very attractive for investors.
71
Dividend Yield
Dividend Yield =Dividend per common share/ Market price per common share
Year
Dividend yield ratio(%)
2004
2005
2006
12.50%
10.34%
4.72%
2007
8.26%
2008
3.79%
Dividend Yield 12.50% 15.00% 10.00%
Dividend Yield 12.50%
5.00% 0.00% 2003
2004
2005
2006
Years
Interpretation:
This ratio indicates that from investment how much dividend is generated. The higher the ratio the better the position of company. Here the ratio has decreasing trend from 2004 to 2008 and it is very disappointed for investors.
72
Book Value per Share (Rs)
Total stockholder equity –preferred stock equity/ No. of common shares outstanding
Year
Book Value per share(Rs)
2004
2005
2006
2007
2008
21.19
21.46
22.02
21.55
19.53
Book Value Per Share(Rs) 23 22 21 20 19 18
Book Value Per Share(Rs)
2004 2005
2006 2007 2008 Years
Interpretation:
It indicates the amount of stockholders equity that relates to each share of outstanding common stock. It also compare with market price per share. If book value is less than market price per share its mean it is overprice share bur if book value is high than market value per share than it is under price.
73
4.3 SWOT ANALYSIS
Strengths
•
•
FBL has strong background because it is backup by sheikh of Saudi Arabic. FBL has much focus on personal marketing for this purpose they send letters to every client whenever they launch any new product or service.
•
The software which is used in FBL is managed in Singapore.
•
Its deposits are 48 cruor in Rahim Yar Khan branch , it is on second in R.Y.K
•
The bank has established a good branch network within a short span of time.
•
FBL has a countrywide network of online branch banking business and ATM’s in all major cities of the country.
•
Bank has well-developed intra-net and inter-net communication network.
•
FBL offer Pocket mate card which is acceptable worldwide at more than 10 lack ATM machines.
•
•
During the year Faysal bank was placed in the top 25 performing companies by the Karachi Stock Exchange (KSE) for the year 2003. The annual report of Faysal bank for 2006 won the first price in the Best Corporate Rewards
Weaknesses •
•
Bank has no adequate number of branches as compared to its competitors like Askari Bank etc. To improve the services and to handle the problem of customers, the bank has no customer complaint department.
•
The procedure and documentation for loaning is very difficult.
•
No job security is there for the employees, and no union exits to secure them.
•
•
•
As every person in the bank has his/her own computer in the branch but he or she are not well equipped with the knowledge of using the computer efficiently. Bank has no grievance-handling department for the internal problems of the employees. Due to lack of computer specialist at branch level it has to take assistance from the head office so in case they waste their lot of time.
74
Opportunities
•
FBL can introduce special schemes of lending for potential small industries.
•
Increase the capacity of branch instead of going towards overstaffing.
•
Bank has no foreign branches so it should open its branches outside the country
•
FBL has applied for a license for separate "Islamic banking branches"
•
Barclays' which is an American bank wants to takeover FBL, in this situation there overall system become international.
Threats
•
•
•
•
•
•
SBP levy heavy penalties on bank in case of violating the prudential regulations especially in case of advances. Now the other players of banking are also providing the modern technology based services like online and Internet banking facility so there is no more competitive advantage in this area The bank stop it's working in case of system failure or in load shading. Responding to the SBP's l regulations management takes too much care while granting loans. Because of takeover of Barclays it is a big threat that the top management will totally change. Because the takeover of Barclays new and strike rules and regulations will impose on employees.
75
CHAPTER # 5 CONCLUSION AND RECOMMENDATIONS
76
5.1 CONCLUSION
Faysal Bank Limit ed is a full service banking institution that offers consumer, corporate and investment banking facilities to its customers. The bank offers a variety of consumer products such as auto finance, home loans, saving schemes and debit cards. The bank also offers specialized products for the agricultural sector. Its trade finance services include a range of import, export and guarantee products. The bank also offers services such as cash management, automated teller machines, traveler’s cheque, transfer of funds, safe deposit lockers and non stop banking. Faysal Bank continues to pursue a goal of improving upon its risk management procedures with the aim of attaining full compliance of the State Bank of Pakistan guidelines. I observed Faysal Bank Limited a financially sound bank. Its profits are increasing year by year. Its staff is very good and sincere with bank. Faysal Bank views specialization and service excellence as the cornerstone of its strategy. The people at Bank realize that innovation, creativity, reliability, customized services and their execution are the key ingredients for their future growth They are aware that they have stepped into 21st century and they must meet its challenges by acquiring the highest level of technology. They will thus be accelerating their technological advance to enable them to distribute their products and services through most efficient and modern technology means.
5.2 RECOMMENDATIONS
Global competition, customer attrition and the pressures to reduce the operating costs have created a harsh environment for the world’s financial institutions. Banks face many 77
challenges in today’s dynamic market place. In a global economy, bank needs efficient development of products that can quickly satisfy a more demanding customer base and build long term customer trust. Customers now have many choices than ever before. Many institutions are struggling to find the right mix of retail and commercial strategies as well as the optimal way to combine their self service, online and branch channels. In order to cope with today’s turbulent environment, Faysal Bank must adopt a strategic approach toward information and process management that enables customer centricity, demonstrates a commitment to world class customer service and improve the depth of their relationship with customers. I have a very limited knowledge to give suggestions about the bank. But my stay in Faysal Bank as an internee has given the chance to explore different aspects of the organization. In view of these aspects, I have some suggestions for the bank which are as follows:
•
Faysal Bank should increase the efficiency and effectiveness of their marketing campaigns.
•
Faysal Bank should have a close look on regularity measures of anti-money laundering.
•
Effective implementation of corporate governance is the key for sustainability of banking sector. Faysal Bank should also consider this point.
•
The promotion criterion in Faysal Bank is not satisfactory . It must initiate reasonable steps for the improvement of this system and should develop a performance based reward system.
•
One way to retain customers is to offer a wide range of services such as tax advice, free life insurance equivalent to amount deposited, shares portfolio management and 78
fund management facility etc. Banks should have a slightly different mix of services and means of providing these such that customers can choose the mix that suits them best.
•
The top management should immediately start thinking in terms of rotating the employees in various departments, as this transforms work force into human capital. If a particular individual keeps on employing his/ her efforts in one sphere of banking it would not only create a sense of monotony and boredom, but also let the employees not interested in polishing their skills.
•
One of the most pressing needs of the time is to advertise the products and services in the electronic media. Faysal Bank Limited has not yet employed advertisement in electronic media as a full fledge marketing tool, It should start doing this as a mean to attract potential customers.
/.. 5.3 RFERENCES
Van horne,j.c and j.m wachowicz 1998. Jr.12th edition, ‘fundamental of financial management’ new jersey: prentice-hall.
Barely,Richard a, and stewart c.myers.2004.principles of corporate finance,8 th ed.new York:mcgraw-hill.
79
Emery,d.r, j.d finnerty and j.d stowen,(1998). Principles of financial management (1 st ed). New jersey:prentice-hall.
m.y.khan and p.k.jain, ‘financial management’3rd edition,mcgraw hill.
Online reference
Http:/www.faysalbank.com
http:/www.google.com.pk
http:/www.brecorder.com
http:www.kse.com
ANNEXTURE 80
Faysal Bank
Summarized Balance Sheet of 5 years Years
2008
2007
2006
2005
2004
6872032
7207998
6696726
5048395
2866278
Assets:
Cash BalancewithotherBanks
3708451
2883040 81
2045887
3564030
648660
Lending to Fin.Institutions
7078102
4608205
10742841
4417378
872132
Investment net of provision
31553108
22525358
23887864
1150280 5
Loans and advances
87346401
74468644
62035978
5137325 4
OtherAssets
2204368
1537764
2371825
1473952
1183315
OperatingFixedAssets
2514959
2239392
2882441
1158407
1030352
_
_
_
Differed Tax Assets
_
11218501
29626223
160936
141277421
11547040 1
11066358 2
7853822 1
47606397
BillsPayable
2406927
4516125
1193309
905637
430862
Borrowings from Fin. Institutions
9995855
14965037
15295730
8478048
6529810
Total Assets
Liabilities:
Deposits and Other Accounts Sub-ordinated loans Liabilities against assets subject to financiallease Defferedtaxliability OtherLiabilities
102067422
74413641
5646032 9
74595564
1000000_
_
7827
14664
122549
2691466
1839860
1269113
31332172
_
18434
16404
166442 _
6951421
5924440
3527023
2294899
1318437
Total Liabilities
125120918
10167376 7
96003288
6832378 9
39627685
Net Assets
16156503
13796634
14660294
1021443 2
7978712
ShareCapital
5296445
4237157
3684484
2912635
2647850
CapitalReserve
3567033
3079527
2516211
2259101
2115989
Unappropriated Profit & Reserves
1481668
1815643
1938651
1079492
846016
Share Holders Equity
Total Equity of the Bank
Surplus on Revaluation of Assets
10345146 5811357
9132327 4664307
82
8139346 6520948
6251228 3963204
5609855 2368857
Total Share Holders Equity
Total Liabilities And Equity
16156503
141277421
13796634
14660294
1021443 2
7978712
11547040 1
11066356 2
7897134 8
47606397
Faysal Bank Ltd Summarized Income Statement Of 5 years Years
MarkUp/InterestIncome Fee, Commission And Brokerage Income
2008
11610781
2007
9728046
743913
83
603667
2006
6319498
581854
2005
2753451
397064
2004
2074611
251189
DividedIncome
1221217
1249522
Income After Dealing In Foreign Currencies
313597
Other Income
43821
120992
-1024 7717583
13933329
12149935
Less: Mark Up / Interest Expenses
7459392
6089255
6473937
6060680
697499
95451
447708
TotalIncome:
Gross Profit
721804
3309989
162444
107473
5050
2554
4015508 1118118
4407594
763697
2897390
3199524 946485 2253039
Less: OPERATING EXPENSES
AdministrativeExpenses
2799747
Provision Against Non Performing Loans Bad Debts Written Off Directly OtherProvisions/WriteOffs Other Charges TotalOperatingExpenses
1866584
1797432
517027
1428830
1134672
-19026
67
-
6061 9855
-
4613095
Profit Before Tax
2697827
Less:Tax
425719
Profit After Tax
2272108
208097
1118
141
-
2220
1150
2416535
1412024
2377098
1053768
84
51609
32857
3870340
2816572
834754
1742 11935 1056669
4018476
2207470
2745272
902338
454000
593928
3116138
1753470
2151344
