66-p- bank al falah
TRANSCRIPT
ACKNOWLEDGEMENT
First of all I must thank Almighty Allah for helping me in many
ways to complete this report. Second to my parents whose guidance and
encouragement made this task easier. I would like to thank the Manager
Operations and staff of the Bank, who assisted me in every possible way
for completion of this report, which will definitely help in my career
building.
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INTRODUCTION
Bank Alfalah Limited is growing day by day in the banking sector of
Pakistan and is fully equipped to face the future challenges of
banking sector. In Pakistan the main office of the Bank Alfalah
Limited situated at B.A. Building, I.I.Chundrigar Road, Karachi.
Bank Alfalah Limited has expanded into a nation-wide presence of
more than 109 branches in 37 cities. A shared network of online
ATMs covering all major cities in Pakistan supports the delivery
channels for customer service.
The management of Bank Alfalah Limited has experienced
professionals in the fields of banking and finance thereby
encouraging a culture of innovation, and total customer satisfaction.
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OBJECTIVES OF STUDYING THE ORGANIZATION
I selected the bank Alfalah Limited as may project keeping the
following objectives:-
How it operates its financial functions.
What type of services it provides to its customers.
How the organizational structure is defined.
What type of financing policies is adopted?
How they manage their working capital and credit policies.
How bank Alfalah interacts with the state bank regarding its
laws.
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OVERVIEW OF THE ORGANIZATION
Brief History
Bank Alfalah Limited was incorporated on June 21st, 1997 as a public
limited company (Annual Report 2005). Its banking operations
commenced from November 1st, 1997. The bank is currently
operating through 109 branches in 37 cites, with the registered
office at Bank Alfalah Building, I.I.Chundrigar, Road, Karachi.
Bank Alfalah Limited is consistently focusing on building long-term
shareholders’ value, as its primary objective. The strength of its
brand name, supported by strategic expansion and the depth of
their customer relationships, gives the bank strong foundation on
which to build and continue growing in the times ahead. The bank
facilitates its commitment to a culture of innovation and seeks out
synergies with clients and service providers to ensure uninterrupted
services to its customers. It perceives the requirements of its
customers and matches them with quality products and service
solutions. During the past five years, it has emerged as one of the
foremost financial institution in the region endeavoring to meet the
needs of tomorrow today.
During the year the bank’s profit before provisions and tax stood at
Rs. 2,965.558 million, this increase in profit is primarily attributable
to overall increase in business volumes.
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Nature of the Organization
Bank Alfalah Limited like all other banks is involved in financial
business. Bank receives the money from the general public who
have surplus money and lends to those who are in need. Now a days
banking sector is growing very fast. New innovations are being
introduced. Bank Alfalah is fully equipped to meet these new
challenges. The mission of the bank is to be the leading private
sector bank in Pakistan with an international presence, delivering
quality service through innovative technology and effective human
resource management in a modern and progressive organizational
culture of meritocracy, maintaining high ethical and professional
standards, while providing enhanced value to all the stakeholders,
and contributing to society.
Knowing the customers and their needs is the key to bank’s business
success. Bank’s products and services are as diverse as its market
segments. Bank’s client relationship managers are well equipped
and well trained to provide the most efficient and personalized
service to the customers.
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Business Volume
Bank Al-Falah Limited has a large client base exceeding 700,000
customers spread throughout the country. During the year 2005
bank’s profit before provisions and tax stood at Rs.2,942.425
million. During 2005 bank increased its strategic stake in Alfalah
Securities Private limited, a subsidiary company from 70% to
76%.
Years DepositsRs. In Million
AdvancesRs. In Million
2001 30,207 19,131
2002 51,685 28,319
2003 76,698 49,216
2004 129,715 88,931
2005 222,345 118,864
Showing the profit before tax and after tax of last five years.
Years Profit Before Tax Profit After Tax
2001 510 311
2002 948 446
2003 3,593 2,123
2004 2,026 1,092
2005 2,942 1,702
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Profile of Employees
Total number of employees working in the Bank Al-Falah as on 31-
12-2005 is 5,218. With respect to Branch I have worked in, there are
only 12 employees. Chief Manager is head, who is supported by the
Manager Operations and Manager Credit, two-officer grade II, two
Officer grade III, one cashier and two Cash assistants and two
security guards. All the staff members are liable against Manager
Operations except manager Credit. Chief Manage5 is head of the
branch.
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Product Lines
Bank Al-Falah Ltd. is one of the few banks in the country, which has
been continuously adding various investment products to its range
of banking services. The bank has taken progressive steps and has
introduced innovative products and services to provide a variety of
banking and financing services. Some of them are: -
Car/Auto Finance:
Car finance is one of its most successful products in the market.
With one of the largest entrant into the market, bank is please to
state here that bank now the market leaders in the industry with a
Car Finance portfolio of around Rs.11.700 billion. This product has
really made car affordable for the salaried individuals/middle class.
Bank recently started “Car Leasing” as well for some of our selected
corporate clientele. Bank Al-Falah offers unmatched rates on the
lease finance.
Features:
• Quickest processing• No hidden charges• Minimum down payment• Complete repayment at any point of time• Balance transfer facility for existing as well as new clients from
other banks.• Tenure period ranging from 1 to 5 years.• Financing of all brand new locally assembled vehicles and used
cars.• Financing limit ranging b/w Rs. 200,000/- to Rs. 2000,000/- for
brand new cars
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House Finance:
House Finance is the latest addition to the long list of its products.
With the flexible financing options, this product has become popular
in very short span of time. The bank offer competitive financing
option to the general public. With this facility, a customer no longer
needs to just dream about the home he wants for himself and his
family. Payment period ranges from 3 to 20 years.
Rupee Traveler Cheque (RTC):
Bank Alfalah limited is always been at the forefront in identifying and
meeting the financial needs of its valued customers and provides
convenient denominations for its customers. Bank Alfalah presents
Rs.1,000/-, 5,000/- and 10,000/- denominations of traveler’s
cheques, making it very convenient to carry money while traveling
or keeping their emergency cash safe.
Credit Cards:
Bank Alfalah Credit Card is a partner everywhere and is globally
accepted and welcome at locations displaying the VISA logo. It is
accepted at nearly 30 million merchants and 1 million ATMs in more
than 150 countries around the globe and over 10,000/-
establishments in Pakistan.
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Alfalah VISA card provides a customer facility to pay for shopping,
travel, entertainment, and meals and much more, card members are
facilitated through a number of promotions from time to time. In
addition, there are number of strategic business partnerships with
leading local and international brands for purchase of home
appliances at exciting Step-By-Step monthly installment plan with
free home delivery at lowest interest rates.
Alfalah Hilal Card:
Bank Alfalah Limited presents the Alfalah Hilal Card, the first Visa
Electron International Debit Card that gives its customer an
unlimited access to their current/savings account with a simple
swipe, at millions of retail shops and ATMs, worldwide. The Alfalah
Hilal Card comes with a host of conveniences and benefits combined
with the wide reach of Visa Network enabling it to be accepted at
more than 840,000 ATMs and 13 million retail outlets around the
world, making it the most acceptable Debit Card available in
Pakistan. It is easy to operate and can be used on any electronic
self-printing POS machine where VISA is accepted, locally and
internationally.
Money Gram:
Bank Alfalah Limited, in collaboration with Money Gram, offers
remittance service to Pakistan. Money Gram is person-to-person
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money transfer service that allows consumers to receive money in
just a few minutes. An extensive network of quality agents, linked by
computer, transfer its customer’s money safely and ensure that it is
handled with care and without delay. Thousands of people already
use the Money Gram service all over the world. It is trusted for its
reliability and security. Money gram is available in over 154
countries and in more than 40,000 locations worldwide. With Money
Gram customer’s money is transferred immediately and usually
arrives at the receiving end within 10 minutes while other services
can take days or weeks. There is also an added personal touch a
customer can receive a 10-word message from the sender with
every transaction at no extra cost.
Agri Loans:
Bank Alfalah Limited Agri Finance program has been named as
Bank Alfalah Zarie Sahulat”. Bank is extending this service to the
clients on a competitive markup rate. Bank Alfalah Limited model is
in letter and spirit based on SBP instruction. The scheme now covers
financing of a multitude of activities related to crop production,
harvesting, transportation, marketing, storage, processing, packing,
export, agri development, working capital and fixed investment
financing of agri non crop activities, storage, silos, etc. making it
quite exhaustive and comprehensive. The products have been,
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therefore, designed keeping in mind objectivity of practical
applicability in market scenario and to cater to the most commonly
demanded items of agricultural financing by farmers.
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Organizational Structure
Departments of the Bank Al-Falah
1. Credit Department: Credit department is responsible in giving credit to
individual and corporate customers according to the policies set by
the Head Office.
2. Finance Department: Finance department makes major polices of the
bank such as budget, allocation of resources, tax adjustment etc. all
policies regarding financial matters are being discussed in this
department and accounting department implements them.
3. Audit & Account Department: Audit department check the audit matters
of the bank. Accounts department maintains all related mattes of
accounting, salary, and wages, proper making of accounting etc.
accounting department implements the policies of finance
department.
4. Foreign Currency Department: Bank’s foreign currency department
deals in accounts in foreign currency and loan options in foreign
currency especially USD, GBP and EURO.
5. Marketing Department: Bank’s has special marketing department and
marketing personnel; they work for the promotion of the products of
the bank.
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6. Human Resource Department: HR department of the bank maintains
human resources of the organization. Selection and recruitment are
the major functions of the department.
7. Information Technology: Information technology deals all related
matters of computes and checking of problems in computers and
making of software.
8. Customer Care Department: Bank has special customer care
department, which receives suggestions and complaints from
customers and tries to solve the complaints and implement
suggestions.
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Main offices
Head Office
BANK AL-FALAH LIMITEDB.A. Building, I.I.Chundrigar Road, Karachi.
Bank Al-Falah Limited has expanded into a nation-wide presence of
109 branches including 01 branch at Dhaka Bangladesh located
at 37 major cities across the country.
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Comments On The Organizational Structure
The bank Alfalah organizational structure (Placed in the annexure)
follows the autocratic style. As decisions are more important so
there are fewer people who can take decisions effectively in this
organization. A pyramid of authority concept is followed by this
organization. As explained below:-
Staff level – 4 Senior Management (Chairman, BOD, President)
Staff level – 3 Administrative Management (SEVP, EVP, SVP)
Staff level – 2 Junior Management (Vice President, AVP)
Staff level – 1 Supervisors (Officer Group I, II, III)
The staff at level 1 looks to their leader from level 2 to give them
“permission” to act. At level-2 all the team leaders could together
decided on a course of action. However, without the permission from
their leaders at level 3 this cannot happen so it realizes that the
organization has pyramid-like structure with the greatest authority
vested at the top. Under which the span of control is very low and
the decision power is centralized to the top. Under which the span of
control is very low and the decision power is centralized to the top-
level management. Due to which the bank cannot operate
independently and decision takes the time.
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STRUCTURE OF THE FINANCE DEPARTMENT
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Number Of Employees Working In The Finance Department
Accounts Department has been playing its vital role in the
organizational structure of Bank Al-Falah Limited. There are 110
employees working in the finance department at various
managerial levels. Out of 110, only 4 members are placed at the
top-level management and 6 at middle level management and
remaining 100 are working at front level management.
Top Level Management 04
Middle Level Management 06
Low level Management 100
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Finance & Accounting Operations
It is very clear that Finance and Accounts are two different fields but
a deep insight reveals that they are inter-linked. There are Different
activities performed by Bank Alfalah, which are as follows.
Posting of Cheques: When customer wants to draw the money from his
account, he/she will draw cheque to withdraw money. Proper date,
name of drawer, correct amount figure should be mentioned in the
cheque. His signature should be must; the stamp of the branch must
be on the cheque. After checking these, the bank person checks the
balance of his account; if balance exists he makes entry in the
ledger. After entry he checks the specimen care of account holder
and matches the sign with this card, if sign is matched then he
stamps his cheque “posted” stamp. Then cheque is presented to he
cashier he stamps the “Cash Received” and pays the money to the
customer.
Clearing: It is a system by which banks exchange cheque and other
negotiable instruments, drawn on each other, within a specified
area, and secures payment for their clients through clearing house
at specified time by book entries. Each branch of bank collects
outward clearing cheques for its clients and sends them to their
Clearing Department. National Institution of Facilitation
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Technology (NIFT) is performing the clearing function for banks. At
Clearing House, each bank maintains its own desk.
Transferring: In bank there is transferring department. The cheque
that is drawn by the same bank branch i.e. if cheque is drawn from
the Bank Alfalah and presented to other branch of Bank Alfalah then
it will be simply stamped with “Transfer” stamp.
Depositing: The main activity of bank is depositing. Bank provides
service to their respected customers for investing money in bank
into different accounts. Customer deposits his money in the account
of PLS, CD etc. when customer deposits his money, bank’s person
fills deposit slip for customer and writes the particular amount,
which the customer is going to deposit. The cashier stamps this slip
with “Cash Received” and receives money from the client and
returns the depositor copy to the client.
Remittances: Remittance means transfer of funds from one place to
another. The following modes are available to a banker for
transferring the money from one city to another city. The
instruments used for remittances are Demand Draft, Telegraphic
transfer, Mail Transfer and Travelers Cheques.
Debit/Credit Supplementary of (PLS/CD): After completing the whole
process of bank at last the bank person prepares the summary
report of the daily transactions of saving and current deposits. This
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summary total should be matched with the receipt and payment
books of cashier.
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FUNCTIONS OF THE FINANCE DEPARTMENT
The general functions of Finance Department are, making the funds
available at right time and at right place and utilization of funds in
an appropriate way. The major function of Finance Department is to
control the Cash Receivable and Cash Payments. Accounts Payable
Section is making all the payments. Bank Al-Falah’s Finance
Department perform the following functions:
Central Payments: Central Payment section issues currency to different
branches of bank. They can be regional branches, area branches,
domestic branches etc. This section issues all payments of bank.
They keep record of every branch, how much amount is issued to
the branch. The employees payroll statements are issued from this
section and they issue payments to them, income statements are
issued from this section and they issue payments to them, income
and expenditure reports are presented to this department so
according to demand of bank, they do payment to them.
PLS Return Record: PLS return section is forth section of finance
department. It keeps record of PLS accounts. The accounts of PLS
with have been closed during Financial period are entered in return
section.
Income Tax Deductions: Another function of Finance Department is
Income tax Deductions. Income Tax cell imposes taxes on deposits,
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salaries, demand drafts, traveler cheques, telegraphic transfers etc.
The Income Tax Cell also makes deductions from employees’
salaries as income tax.
Audit: Audit department do the audit of bills/vouchers according to
the audit rules and policies of the bank. The audit section of bank
audits balance sheet of the financial year. It checks assets and
liabilities of bank and compare with balance sheet statement and
check all the financial statements of the bank.
Sales Section is maintaining the receipts for the sale of Bank Alfalah
Limited products and services and, the salaries and wages are being
prepared by account Sections.
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Accounting System of the Organization
Accounting system of Bank Al-Falah Limited is based on Double
Entry System and is on line electronic data processing system. It is
query base Accounting system. Advanced accounting software is
used for processing of the data. The package is a comprehensive
management information and financial system. As a result this
equation always remains balance. In addition, the system makes
possible the measurement of net income and the use of error
detecting devices such as trial balance. Further for having strong
internal control over cash disbursement voucher system is designed.
Under this system any transaction that will result in cash payment is
verified, approved and recorded before a cheque is issued.
Finance System of the Organization
There are different projects of the organization which need proper
financing in order to keep flowing the pace of required targets at
different stages. These projects require long-term, medium and
short-term financing both in term of local currency and foreign
exchange. The local currency is required to meet the operational
demands, and day-to-day expenditure, whereas, foreign currency is
required for the foreign market transactions.
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Use of Electronic Data in Decision-Making
Management Information System is main key for making the
decision by the management of Bank Al-Falah Limited. An electronic
Data from all bank branches received through main server, which is
connected by all branches through local area network regarding
business activities and on the basis of this management, takes the
decisions of business.
Management information system section is fully updated with the
information of day-to-day transactions, and this section is supporting
the management for making decisions on the basis of financial
analysis of budgeted cost and actual expenditure.
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Mobilization of Funds
One of the basic functions of a bank is to mobilize funds. For the
development and for its efficiency Bank Al-Falah Limited mobilizes
its funds effectively and actively. Organization mobilizes it funds
according to the plans and policy. Bank Al-Falah Limited mobilized
its funds in different investments like Federal Government
Securities, Term Finance Certificates, Overseas Government
Securities, investments in listed companies shares and investments
in different mutual funds. Bank also mobilizes its funds through
different types of advances.
Years DepositsRs. In Million
AdvancesRs. In Million
2001 30,207 19,131
2002 51,685 28,319
2003 76,698 49,216
2004 129,715 88,931
2005 222,345 118,864
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Generation of Funds:
Funds are generated by bank in a number of ways. By offering
remittances facilities i.e. transfer of money from one place to
another place in or outside the country, by pay order, demand draft,
and telegraphic transfer etc. bank earns commission on providing
such facilities. Bank advances loans to its customers; bank earns
interest on such loans. Bank earns funds by earning commission on
providing utility services. Bank purchases securities of different
organization and earn on these securities.
Years Profit After TaxRs. In Million
2001 311
2002 4462003 2,1232004 1,0922005 1,702
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Sources of Funds:
The main sources of funds are bank’s own funds and borrowed buds.
Bank own funds are:
Paid up capital
Reserve funds
Portion of undistributed profit
The borrowed funds are:
Borrowing from Central Bank
Deposits i.e. Current deposits, PLS deposits, Fixed Deposits
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Allocation of Funds:
Bank is allocating its funds to different assets in order to proper
utilization of the available resources. Finance Department of the
organization is responsible for making the policies regarding
allocation of funds. We can properly understand by seeing the
bank’s performance for the last five years.
(Rs. In Million)Allocation 2001 2002 2003 2004 2005
Long Term Investment 11,397 24,470 28,904 35,503 57,426
Total Assets 40,098 65,167 98,952 154,835 248,314
Advances 19,131 28,319 49,216 88,931 118,864
From the above-mentioned table we can understand that bank is
allocating its resources to different assets and for payment of
outstanding liabilities. Bank is earning while giving more and more
cash in form of advances to its customers.
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CRITICAL ANALYSIS BETWEEN THEORETICAL CONCEPTS & PRACTICAL EXPERIENCE
This part of report is the essence of the internship, because finding
the relationship between what is written in the books and what is
actually going on in field is the main concern. The Balance Sheet,
Income Statement and other books of Accounts are prepared as per
accounting rules. The theories and models prescribed in Corporate
Finance and Financial Management are being utilized and
implemented by the Financial Planning Officers for the valuation of
various projects by applying different tools like NPV, Payback Period,
and IRR etc.
Other analysis like ratios is also used for knowing the financial
position of the company from time to time. Besides this, Internal
Audit Department is also functioning effectively adhering the rules,
regulations and procedures framed by the Board for every
contractual payments and procurement.
As studied in the books of business administration, it is found that
many rules and regulations are not being administered in the true
letter and sprit. Employees are working at the same job for the last
many years without rotation. There is a lack of proper training of
the employees; due to this efficiency of each employee is also being
affected. As the accounting system is computerized and all the work
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of banking is involved on facts and figures many wrong entries are
often recorded in the system and there is always a need for review
by the sectional in-charges. All is relevant with proper and periodic
training of the employees.
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Financial Analysis
Public Companies always have a variety of stakeholders, such as
shareholders, bondholders, bankers, lenders, suppliers, employees
and management etc. Their stakeholders always have a need to
monitor how well their interests are being safeguarded. They rely on
the company’s periodic financial statements for the basic
information on the profitability of the firm. These financial
statements are used to analyze the firm’s overall performance and
assess its current financial standing.
We all have heard the stories of financial whizzes that can take a
company’s accounts apart in minutes and find its innermost secrets
in financial ratios. The truth, however, is that financial ratios are no
substitute for a crystal ball. They are just a convenient way to
summarize large quantities of financial data and to compare firm’s
performance.
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Ratio Analysis Of The Bank AL-Falah Limited
Ratios 2001 2002 2003 2004 2005
LIQUIDITY
Current Ratio 1.010 1.009 1.024 1.008 1.017
Quick Ratio 1.010 1.009 1.024 1.008 1.017
ACTIVITY/EFFICIENCY RATIO
Adequacy Ratio 9.56 8.70 8.45 8.16 8.65
PROFITABILITY RATIO
Income/Expense Ratio 5.07 4.43 4.12 2.67 3.34
Return on Equity 27.49 29.95 79.08 26.89 30.65
Return on Investment 0.90 0.85 2.59 0.86 0.84
Market Value Analysis
Dividend Yield Ratio - 53.33 125 25 45.33
Earning Per Share 3.65 2.23 8.49 3.90 5.75
Price-Earning Ratio 7.89 16.38 2.80 5.40 4.33
DEBTS RATIO
Advances/Deposits Ratio 63.33 54.79 64.17 68.56 53.46
OTHER RATIO
Sock Dividend - 33.33 100.00 25.00 33.33
Cash dividend 0 25 25 0 12
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LIQUIDITY RATIOS:
Current Ratio: Current ratio may be defined as the relationship
between current asset and current liabilities. It is a measure of the
general liquidity and is most widely used to make the analysis for a
short-term financial position or liquidity of the firm. Current ratio of
the company in year 2003 was 1.024, in year 2004 it was 1.008 & in
2005 it is 1.017. The current ratio of last three years of Bank Al-
Falah Limited is between 1.00 to 1.02, which shows the satisfactory
trend, and the ability of the company to pay its current obligations in
time as and when they become due.
Quick Ratio: A somewhat more accurate guide to liquidity is the
quick/acid test ratio. This ratio is same as the current ratio except
that it excludes inventories – presumable the least liquid portion of
current asset from the numerator. The ratio concentrates on cash,
marketable securities, and accounts receivable, in relation to current
obligations. The last three years ratio as shown in the table and
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graph is almost to one, which shows that the firm is able to meet its
current liabilities at par.
ACTIVITY/EFFICIENCY RATIO
Adequacy Ratio: this ratio measures the efficiency or effectiveness
with which a firm manages its resources or assets. the adequacy
ratio of the bank is between 8.16% to 8.70% from last four years
which shows that the efficiency of the bank is on a same level.
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PROFITABILITY RATIO
Income/Expense Ratio: This ratio indicates the time of income earned
during the year from different operations as compared to the
expenditure incurred. The bank is earning 2-4 times more income
than its expenses in each year. It means that the bank is generating
more income by incurring less expense.
Return on Equity: Return on equity is the relationship between profits
of a company and its equity. Through return on equity profitability
and performance of the company should be judged. The return on
equity of Bank Al-Falah was 27.49 in 2001, in 2002 it was 29.95%, in
2003 it was 79.08% than 26.89% in 2004 and 30.65% in 2005 which
shows the that the overall bank performance is satisfactory.
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Return on Investment: This ratio is used for measuring the overall
efficiency of a firm. This ratio reveals how well the resources of a
firm are being used, higher the ratio better are results. The inter-firm
comparison of this ratio determines whether the investments in the
firm are attractive or not as the investors would like to invest only
where the return is high. The above ROI shows that investment
opportunities are very less attractive for the investors except in
2003.
MARKET VALUE ANALYSIS
Price/Earning Ratio: Price earning ratio is the ratio between market
price per equity share and earnings per share. The price of the share
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is always higher than it’s earning per share. It shows that the share
of the bank is floating in the market at reasonable price. The
investors are fully interested in the share of Bank Al-Falah Ltd.
Dividend Yield Ratio: The dividend per share with respect to the
market price of the share is very impressive. It means that dividend
if paid to share holders each year shows the reasonable change in
the price and demand of the shares by the investor is also high.
Earning Per Share: E.P.S. is a small variation of return on equity capital
and is calculated by dividing the net profit after taxes and
preference dividend by the total number of equity shares. EPS shows
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the earning power of the organization. EPS of Bank Al-Falah Ltd. was
3.65 in 2001. In 2002 it was 2.23, in 2003 it was 8.94 in 2004 it
become 3.90 in 2004 and in 2005 it become 5.75 which shoes the
profitability and earning power of the bank is satisfactory.
DEBTS RATIO
Advances/Deposits Ratio: Advances are less than deposits for the last
five years. It means that liabilities are more than assets of bank. It
has been the practice of the bank to advance less amount out of
deposits kept with it. Reason to have cushion for emergency money
needed.
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Vertical Analysis of Balance Sheet of Bank Al-Falah Ltd. for Last Five Years
ASSETS 2001 2002 2003 2004 2005Cash and balances with treasury bank
10% 2.94 8.51 12.73 9.98
Balance with other banks 3 0.36 0.63 2.06 3.91Lending to financial institutions 4 7.11 7.52 - 10.89Investments 28.3 37.89 29.21 22.93 23.13Advances 48 43.46 49.74 57.43 47.87Other assets 3 1.51 1.57 2.08 1.55Operating fixed assets 4 2.7 2.82 2.77 2.67Deferred tax assets 1.7 - - - -Total assets 100 100 100 100 100LIABILITIESBills payable 0.76 1.17 1.22 1.44 1.50Borrowing from financial institutions
16.73 9.27 13.27 0.22 2.35
Deposits and other accounts 75.33 79.31 77.51 83.78 89.54Sub-ordinate loans - 0.99 0.66 1.23 1.30Other liabilities 1.79 1.84 2.21 1.76 2.10Deferred tax liabilities - 1.2 0.33 0.18 0.19Total liabilities 94.6 94.40 95.19 96.6 96.99Share Capital 1.87 1.53 2.02 1.61 1.21Reserves 0.90 0.56 0.80 0.65 0.95Un-Appropriated Profit 0.62 0.38 0.97 0.56 0.56Surplus on revaluation of assets 0.99 3.13 1.02 0.58 0.29
100 100 100 100 100
Vertical analysis means how much portion an asset has in total
assets and similarly how much percentage portion a liability has in
total liabilities. Accordingly, total assets and total liabilities have
been considered as base for each asset and liability item
respectively. The major portion of total assets lies in long-term
investments and long-term advances in all the five years under
review. This is not a bad strategy as these two are the major sources
on which huge amounts of income could be earned. Fewer amounts
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are held in highly liquid as well as fixed assets. The lion’s share of
total liabilities lies in deposits kept with bank. Bank has to pay
interest on these deposits. It has been in the range of 75-89% in the
five years period, which shows effective strategy made and
implemented by the bank.
The analysis reflects good policy regarding assets and liabilities.
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Vertical Analysis of Income Statement of Bank Al-Falah Ltd. for Last Five Years
2001 2002 2003 2004 2005Net Markup/Interest Income After Provisions
100 100 100 100 100
Non Markup/Interest IncomeFee, commission, brokerage income
16.54 21.6 20.83 27.58 24.85
Dividend Income 4.71 4.24 5.84 1.87 1.12Income from dealing in Foreign Currency
12.79 6.50 5.57 7.78 6.22
Other Income 8.39 9.96 123.79 20.36 15.97Total non markup/interest income 42.43 42.06 176.9 54.04 4.16Non Markup/Interest ExpensesAdministrative Expenses 83.5 80.85 93.86 95.19 92.51Other Provision/Write offs - - 0.10 - 0.22Other Charges 0.07 0.07 0.098 0.06 0.45Total non Markup/Interest Expenses
83.57 80.92 94.06 95.25 93.18
Profit Before Taxation 58.86 61.15 124.62 58.79 54.98Taxation 23.97 30.69 49.15 19.15 18.04Profit After Taxation 34.88 30.69 75.47 38.82 36.51
Similar to the vertical analysis of balance sheet, net profit of the
bank for the five years has been taken as base for vertical analysis
of income statement. Each item of income and expense has been
related to the net profit to see its contribution therein. It can be seen
clearly that major source of income is interest income for all the
years under review. In first three years, it is many times more than
net profit. However, in subsequent years, it has decreased. As
interest income and interest expense are highly inter-related
because these are two sides of the same picture, therefore, it can be
seen that interest expense has also on very high side and
43
continuous increasing year by year. Non-interest income is also on
the move but the trend is same as in interest income. However, non-
interest expense has greatly declined in the current years, which
shows efforts of the management to control its routine and other
peripheral expenditure.
Overall profitability of the bank is appreciable.
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Horizontal Analysis of Balance Sheet of Bank Al-Falah Ltd. for Last Five Years
ASSETS 2001 2002 2003 2004 2005Cash and balances with treasury bank
100 116.85% 216.78 507.22 637.96
Balance with other banks 100 2.53 57.98 294.48 898.38Lending to financial institutions
100 272.78 437.78 - 1592.17
Investments 100 216.68 253.62 311.52 503.88Advances 100 148.03 257.25 464.84 621.30Other assets 100 83.41 131.53 273.29 326.19Operating fixed assets 100 123.57 195.92 300.41 464.65Deferred tax assets 100 0 0 0 0Total assets 100 162.52 246.77 386.14 619.27LIABILITIESBills payable 100 248.37 395.56 731.03 1221.74Borrowing from financial institutions
100 89.99 195.67 189.65 87.11
Deposits and other accounts 100 171.10 253.91 429.42 736.06Sub-ordinate loans 100 0 0 0 0Other liabilities 100 166.98 305.21 380.3 728.52Deferred tax liabilities 100 100 - - -Total liabilities 100 162.14 24.83 394.25 634.84Share Capital 100 133.33 266.67 333.33 400.00Reserves 100 101.14 218.58 278.98 650.24Un-Appropriated Profit 100 100.14 385.68 344.53 555.40Surplus on revaluation of assets
100 512.03 252.22 224.00 12.24
100 162.52 246.77 386.14 619.27
2001 has been considered as base year and subsequent years
percentage worked out accordingly. Overall increase in financial
position is 619% as compared to 2001, meaning thereby both assets
and liabilities have increased more than twice in five years. This is
good sign showing healthy financial position.
Major increase in assets side can be shown in cash & cash
equivalents in long-term advances. Increase in both segments in due
45
to high graph of business growth. Increase in liabilities is
represented by fiancé lease liabilities and borrowings from financial
institutions.
46
Horizontal Analysis of Income Statement of Bank Al-Falah Ltd. for Last Five Years
2001 2002 2003 2004 2005Net Markup/Interest Income After Provisions
100 164.29 215.29 315.87 523.51
Non Markup/Interest IncomeFee, commission, brokerage income
100 214.81 271.18 526.18 786.79
Dividend Income 100 148.12 267.27 125.36 124.11Income from dealing in Foreign Currency
100 83.53 93.79 192.07 254.64
Other Income 100 189.69 897.56 402.51 594.19Total non markup/interest income
100 162.86 897.56 402.51 594.19
100 163.87 41.55 341.61 544.57Non Markup/Interest ExpensesAdministrative Expenses 100 159.08 241.99 360.01 580.02Other Provision/Write offs 100 - - - -Other Charges 100 149.10 281.54 255.26 316.77Total non Markup/Interest Expenses
100 159.07 242.30 359.99 583.69
Profit Before Taxation 100 170.69 668.85 315.49 489.03Taxation 100 210.24 647.44 263.09 393.91Profit After Taxation 100 143.49 683.56 351.53 547.98
Like horizontal analysis of balance sheet, 2001 has been considered
as base year to work out the performance of bank over the five
years. Increase in interest income is less than increase in interest
expense. It means that bank has earned less les interest on advance
while paid more interest to the depositors. The reason behind this is
the relationship discussed earlier between advances and deposits.
As bank keeps much of deposits with it and advances out less
47
amount, therefore, it has to pay more amount as interest to its
depositors and receive less amount from its advances.
As compared to non-interest income, increase in non-interest
expenses is on low side, which is positive sign for the bank. Increase
in taxation is equal to the deferred tax asset, which shows that what
the bank has to pay on account of tax is nothing, as it has to receive
the same amount on same account.
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Critical Analysis Of Bank Al-Falah Limited With Reference To Banks Listed On Stock Exchange
The Bank Al-Falah Limited is listed in the banking Sector of Karachi
Stock Exchange. Some of the other public limited banks listed in this
sector are Union Commercial Bank Limited, Askari Bank Limited,
Faysal Bank, Muslim Commercial Bank, National Bank of Pakistan &
Bank of Punjab.
Union Bank Limited was listed on Stock Exchange in 1992 and has a
paid up capital of Rs. 2794.444 million. The bank paid 66.67% right
shares to its shareholders in 2001, 66.67% right shares in 2002. In
2003 bank paid 10% dividend plus 10% bonus shares, 10% dividend
plus 25% bonus shares & 9.8% right shares in 2004 & 15% bonus
shares in 2005. The profit of the bank in 2005 was 1744.7 million.
Al-Falah Bank was listed on Stock Exchange in 2004 and has a paid
up capital of Rs. 3000.00 million. The bank paid 25% bonus and 25%
right shares to its shareholders in 2004 & 12% dividend plus 33.33%
bonus shares paid in 2005. The profit of the bank in 2005 was
1702.10 million.
Faysal Bank was listed on Stock Exchange in 1995 and has a paid up
capital of Rs. 3684.484 million. The bank paid dividend to its
shareholders @ 10% in 2001, 17% dividend in 2002. In 2003 bank
paid 45% dividend plus 10% bonus shares, 45% dividend plus 10%
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bonus shares in 2004 & 15% dividend plus 15% bonus shares in
2005. The profit of the bank in 2005 was 3069.5 million.
Muslim Commercial Bank Limited was listed on Stock Exchange in 1992
and has a paid up capital of Rs. 4265.327 million. The bank paid
dividend to its shareholders @ 25% in 2001, 25% bonus plus 25%
dividend in 2002. In 2003 bank paid 27.5% dividend plus 10% bonus
shares, 25% dividend plus 10% bonus shares in 2004 & 42.5%
dividend plus 20% bonus shares in 2005. The profit of the bank in
2005 was 8922.4 million.
National Bank of Pakistan was listed on Stock Exchange in 2002 and
has a paid up capital of Rs. 4924.106 million. The bank paid dividend
to its shareholders @ 12.5% in 2001, 12.5% dividend plus 10%
bonus shares in 2002. In 2003 bank paid 12.5% dividend plus 20%
bonus shares, 15% dividend plus 20% bonus shares in 2004 & 25%
dividend plus 20% bonus shares in 2005. The profit of the bank in
2005 was 12709.4 million.
Bank of Punjab was listed on Stock Exchange in 1991 and has a paid
up capital of Rs. 2349.719 million. The bank paid 2.5% bonus shares
to its shareholders in 2001, 17.5% dividend plus 15% bonus shares
in 2002. In 2003 bank paid 25% bonus shares, 40% bonus shares in
2004 & 52% bonus shares in 2005. The profit of the bank in 2005
was 2353.2 million.
50
Askari Commercial Bank Limited was listed on Stock Exchange in 1992
and has a paid up capital of Rs. 1507.108 million. The bank paid
dividend to its shareholders @ 20% in 2001 & 2002, in 2002 bank
also paid 5% bonus shares. In 2003 bank paid 20% dividend plus
10% bonus shares, 20% dividend plus 20% bonus shares in 2004.
The profit of the bank in 2005 was 2022.00 million.
Comparison of Profit with Other Banks (2005)
(Rs. In Million)Banks Askari
Commercial Bank
Al-Falah Bank
Faysal Bank
Muslim Commercial Bank
National Bank of Pakistan
Union Bank
Bank of Punjab
Profits 2022 1702.1 3069.5 8922.4 12709.4 1744.7 2353.2
In light of the above we can hope that Bank Al-Falah Limited will
prosper in future in the banking sector although its profit during
2005 is less from other banks. The bank is growing day by day in the
51
banking sector and its innovative products attracting the new
customers, which increases the deposits of the bank.
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Future Prospects Of The Organization
Company is focusing on long-term objectives and future prospects
are as follows:
Making Customer Complaint Center at all Regional Headquarters.
Promotion of sports i.e. hiring of services of international players
and provide coaching facilities to young players.
Helping the government in supporting education programs.
Starting training programs at all Regional Headquarters.
Training is the most effective tool to run any business. A well-trained
employee is better than ten ill-trained employees. Investment by an
organization on its workforce/manpower gives it many times return
and reward in future. Keeping in view all the above factors, bank is
in a position to grow in an improved manner. Its progress graph
seems to be inclined towards optimum level. If all the above
strategies are planned properly and undertaken accordingly, there
may be on hindrance on its way to success and prosperity.
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SHORT-FALLS/WEAKNESSES OF THE FINANCE DEPARTMENT
In the light of Audit Objections any my work with the Finance
Department for the three months, I noticed following shortfalls in
Finance Department in the bank:
Employees are lacking motivation because there is definite
channel of promotion as compared it competitors like MCB,
Union Bank because they have systematic procedure regarding
promotion of their employees.
Bank is not utilizing its IT tools to its full limit and thus reducing
the efficiency while its competitors fully utilizing the IT tools.
Bank has no training facilities for working employees; there is
also workload on employees which hurdles in the way of training
also. As training requires heavy investment in respect of time,
money and other resources, it makes people think several times
before initiating such facility. Moreover, benefits of training
cannot be forecasted on confirmed manner; only a guess can be
made. Furthermore, as stated earlier, employees are over-
burdened by their routine work.
The bank especially in finance department does not hire
qualified professional like Chartered Accountants, Cost &
Management Accountants. While its competitors getting
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services of professional like CMA’s CAs & ACCAs in its Finance
Department.
The budget, which is set by the Finance Department usually,
got over budgeted. Routine expenses are more employees and
expensing on training and other allied expenditure, the branch
is unable to control its routine expenditure.
Communication is the mandatory part of teamwork. When we
talk of managing teams, we are most concerned with
communication. Success of any organization depends on how
effectively communication process takes place. It is observed
that there is lack of communication in Finance Department.
Every one is blaming about workload. Due to remaining busy in
his own work, nobody has time to share his ideas, thoughts and
plans with other companions.
Presently manually vouchers are prepared in Bank Al-Falah
while its competitors using the computerized vouchers systems
as well.
Tax is of so specialized nature that there must be a person of
the required level of knowledge and competence. But
importance of the required level of knowledge and competence.
But importance of this post is entirely ignored at branch level
and no person is hired as tax officer, etc. to deal with routine
tax cases.
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Tax authorities have specified various statements to be filed
with the tax department on various occasions. For instance,
section 149 of Income Tax Ordinance, 2001 says that statement
of deduction of tax from the salaries of employees should be
filed with the tax department on monthly, quarterly as well as
annual basis. Particulars of employee who is not liable to tax
deduction should also be enclosed therein. If statement is not
filed will-in-time, penalty is imposed on the employer (i.e. Bank
in our case).
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RECOMMENDATION FOR IMPROVEMENT
I would suggest following in order to increase the positive
functioning of the branch.
E-Banking: To become the market leader in the financial sector,
Bank Alfalah has a golden opportunity if its start the use of new
technologies in its banking. It can start “internet Merchant Accounts’
in the country as SBP has allowed all the financial institutions to
start E-Banking but any Bank has taken no initiative yet. Similarly
also other functions of E-Banking like providing different services to
the customers on internet, will increase the customers of the Bank,
due to the growing number of internet users, thus will become the
market leader.
Micro Credit Financing: the bank should introduce new scheme of
micro credit financing for self-employment of the general masses on
soft terms and conditions. Micro level credit having less risk of
default should be enhanced helping the government in poverty
alleviation, thus strengthening the overall economic situation of the
country.
Services: the services provided by the bank are of good quality but
looking and responding to the problems of the customers will
improve the image and goodwill of the bank. It should be done
through quick counter responses, minimizing the hard and fast rules
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for the credit facilities and reducing the time frame for the approval
of credit applications etc.
Increase the Number of ATMs: Bank Alfalah can improve its
customer’s network by providing the ATM facility at least in every
city providing 24 hours each facility to the customer and at their
doorstep.
Encouragement of innovation: Being one of the modern banks in
Pakistan, Bank Alfalah has become a market leader in the banking
industry. It has always introduced new products/services in the
banking sector through innovation. The bank should encourage the
process of innovation, strengthening of R&D for the launching of new
and unique products.
Increase Marketing Activities: Bank Alfalah should increase
marketing activities, through reminder advertisements, increasing
customer relations, pronominal campaigns with products, and other
tools of marketing. This will increase the credibility and image of the
bank.
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CONCLUSION
The Bank Al-Falah Limited has an important position in the banking
sector. The bank performance during the year 2005 has significant
improvement in all areas of risk management and corporate
governance. Bank’s spreads kept a healthy trend, despite tough
market competition, as a result of high yielding consumer assets.
The bank achieved a post tax profit Rs. 1702 million for the year
2005, which depicts a healthy increase of 155.86% compared to last
year. The non-fund income also increased by 20.2% and stood at Rs.
14492 million at year-end. The net interest margin rose by 8.65% to
41.17% to total interest income. Earning per share stood at Rs. 5.75.
Total deposits grew by 71.4% to Rs. 222.34 million. The total assets
showed an increase of 62% and stood at Rs. 188.86 million.
From the analysis, it can be hoped that Bank Al-Falah Limited with
its evolving portfolio, strategy and management system, would
continue to prosper coping with pressure on margins and tough
competition.
REFERENCES & SOURCES USED
59
Annual Reports of Last five years of Bank Al-Falah
Limited
www.bankalfalah.com.pk
www.kse.com.pk
The Business Recorder, Karachi
60
Annex-I
ORGANIZATIONAL STRUCTURE
Chairman
Board of Directors
President
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Assistant Vice President
Officer Group-I Officer Group-II Officer Group-III
Annex-II
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62
Annex-III
63
Annex-IV
BALANCE SHEET COMPARISON OF LAST FIVE YEARS
ASSETS 2001 2002 2003 2004 2005Cash and balances with treasury bank
3,885,612 4,540,486 8,423,399 19,708,518 24,788,625
Balance with other banks 1,081,208 232,728 626,917 3,183,957 9,713,369Lending to financial institutions
1,698,969 4,634,398 7,437,733 - 27,050,493
Investments 11,396,616 24,694,397 28,903,596 35,503,196 57,425,700Advances 19,131,494 28,319,401 49,216,120 88,931,400 118,864,014Other assets 1,180,775 984,847 1,553,108 3,226,959 3,851,529Operating fixed assets 1,424,883 1,760,774 2,791,626 4,280,504 6,620,067Deferred tax assets 298,538 - - - -Total assets 40,098,095 65,167,031 98,952,499 154,834,534 248,313,793LIABILITIESBills payable 305,558 758,961 1,208,671 1,233,671 3,733,124Borrowing from financial institutions
6,709,054 6,037,576 13,127,754 12,723,830 5,844,389
Deposits and other accounts
30,207,324 51,684,984 76,698,322 129,714,891 222,345,067
Sub-ordinate loans 650,000 649,740 1,899,480 3,223,355Other liabilities 716,475 1,196,342 2,186,754 2,725,344 5,219,666Deferred tax liabilities - 1,186,501 323,010 275,834 484,066Total liabilities 37,938,411 61,514,364 94,194,251 149,573,050 240,849,667Net assets 2,159,684 3,652,667 4,758,248 5,261,484 7,464,126REPRESENTED BYShare Capital 750,000 1,000,000 2,000,000 2,500,000 3,000,000Reserves 361,591 365,727 790,374 1,008,772 2,351,218Un-Appropriated Profit 249,701 250,050 963,042 860,300 1,386,845
1,361,292 1,615,777 3,753,416 4,369,072 6,738,063Surplus on revaluation of assets
398,392 2,036,890 1,004,832 892,412 726,063
2,159,684 3,652,667 4,758,248 5,261,484 7,464,126
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Annex-V
PROFIT & LOSS STATEMENT COMPARISON OF LAST FIVE YEARS
2001 2002 2003 2004 2005Net markup/interest income after provision
890,566 1,463,115 1,917,294 2,813,020 4,662,172
NON MARKUP/INTEREST INCOMEFee, Commission, brokerage income
147,277 316,368 399,383 775,868 1,158,747
Dividend income 41,910 62,077 112,017 52,539 52,014Income from dealing in foreign currency
113,923 95,165 106,848 218,820 290,091
Other Income 74,756 141,808 2,373,503 572,822 744,518Total non markup/interest income 377,886 615,418 3,391,751 1,520,049 2,245,370
1,268,432 2,078,533 5,309,045 4,333,069 6,907,542NON MARKUP/INTEREST EXPENSESAdministrative expenses 743,602 1,182,887 1,799,490 2,677,635 4,313,023Other provision/write offs - - 2,000 - 10,125Other charges 666 993 1,875 1,700 21,104Total non markup/interest expenses 744,268 1,183,880 1,803,365 2,679,335 4,344,252PROFIT BEFORE TAXATION 524,164 894,653 3,505,860 1,653,734 2,563,290Taxation (213,552) (448,974) (1,382,626) (561,836) (841,196)PROFIT AFTER TAXATION 310,612 445,679 2,123,234 1,091,898 1,702,094Un-appropriated profit brought forward
1,211 249,701 250,050 463,042 860,300
Transfer from general reserve - 85,000 - - -Transferred from surplus on revaluation of fixed assets
- - 14,405 23,667 24,870
Prior years - 38,098 - - -Current year-net of tax - 20,708 - - -
- 58,806 - - -Profit available for appropriation 311,823 839,186 2,637,689 2,078,698 2,587,264APPROPRIATIONS Transfer to statutory reserve (62,122) (89,136) (424,647) (218,398) (340,419)Issue of bonus shares-interim @ 33.33%
- (250,000) (1,000,000) (500,000) -
Cash dividend - (250,000) (250,000) (500,000) (360,000)(62,122) (589,136) (1,674,647) (1,218,398) (1,200,419)
Un-appropriated profit carried forward
249,701 250,050 963,042 860,300 1,386,845
Basic and diluted earning per share 3.65 4.46 8.49 4.37 5.75
65