askari bank internship report.docx
TRANSCRIPT
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INTERNSHIP REPORT ON
ASKARI BANK LIMITED
Maham Malik
Submitted in partial fulfillment of the requirements
for the degree of Bachelor of Business Administration
at
National University of Modern Languages
Islamabad, Pakistan
June 2013
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NATIONAL UNIVERSITY OF MODERN LANGUAGES
Faculty of Management Sciences
It is hereby certified that the report has been thoroughly and carefully read and recommended to
the faculty of management sciences for acceptance of the Final Internship Report, by Maham
Malik, Roll number IC-2144, session Aug 2009-June 2013, morning, in partial fulfillment of the
requirements for the degree of bachelor of business administration of national university of
modern languages Islamabad.
Dated ______________
Supervisor name _____________
Supervisor signature ______________
Panel member name _______________
Panel member signature _____________
Head of department: _______________
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Acknowledgement
I am thankful to Almighty ALLAH who gave me courage and strength to successfully complete
my internship report on Askari bank ltd. I also express my gratitude to all the individuals who
have helped me with my internship report. I most courteously acknowledge the great help and
support of Mr. Munnawar ( Vice President Credit Risk Management) and Mr. Daniyal ( Credit
Risk Analyst at Risk Management Askari bank) Who provided support and guidance to me
during my internship period.
I am highly indebted to my course instructors who provided me with the opportunity to learn
about practical work and its implementation. I am also thankful to my supervisor maam Bushra
who helped me at every step for the completion of my task.
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Executive Summary
This report is on the internship experience gathered by me. The objective of this internship
program was to acquire practical knowledge in the business sector. I did internship at Askari
Bank Limited which provided me with the opportunity to learn about the banking sector.
The purpose of this report is to present the experience gained during my tenure with Askari Bank
and also provides an overview of the performance of Askari Bank.
Askari Bank has aggressive growth plans in Pakistan. Its name is generally considered for
quality and reputation. It offers a broad range of products to target different market segments.
My working experience with the company was informative. I learned a lot about the working of
the organization and how it plans to minimize risks and maximize profits. The information that I
have gathered in the limited time as an intern is briefly described in this report.
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Table of Contents
Chapter 1 ......................................................................................................................................... 1
1.1 History of the organization ................................................................................................... 2
1.2 Information about the organization ....................................................................................... 3
1.4 Products/Services. .......................................................................................................... 4
1.4 Organizational structure ........................................................................................................ 6
Chapter 2 ......................................................................................................................................... 7
Critical Analysis.............................................................................................................................. 7
2.1 Operational Risk Analysis .................................................................................................... 7
2.2 PEST Analysis .................................................................................................................... 10
Chapter 3 ....................................................................................................................................... 12
Internship Experience ................................................................................................................... 12
3.1 Concerned department information & Work Experience ................................................... 12
Chapter 4 ................................................................................................................................... 31
4.1 Financial Analysis ............................................................................................................... 31
Chapter 5 ....................................................................................................................................... 44
5.1 Conclusion. ......................................................................................................................... 44
5.2 Recommendations ............................................................................................................... 45
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Chapter 1
Introduction
Banking in primitive societies existed in some form. The initial business was done on barter
which meant an exchange of commodity for commodity. There is a myth also about the
invention of money, which tells that king Midas of Libya invented money in 800 B.C. Another
statement states that the king of Babylonian empire named as King Hammurabi in 1700 B.C.
made all the rules and regulations of lending and borrowing and interest etc. He wrote them on
an eight feet stone in the center of the city. Two famous temples are also remembered for the
lending and borrowing in different transactions. One was the temple of Ephesus and the second
was known as the temple of Delphi.
It is said that the first bank was established in Barcelona in Spain. Another statement tells that
Venice and Genoa were the hub of financial transactions and the first bank was founded
there in 14th
century. The first public bank that was formed was in Germany in later part of the
time.
Banking and Financial services sector in Pakistan comprise of the commercial banks and the
non-banking financial institutions, including the development finance institutions (DFIs), leasing
companies, and investment banks. These are controlled and regulated by the State Bank of
Pakistan (SBP). Islamic banking is becoming popular as well and most of the banks including
Askari Bank Limited also now provide a range of Islamic facilities in addition to the normal
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banking facilities offered by the bank. The number of banks operating in Pakistan has also
increased, which in turn has resulted in increased competition. The banking sector, in general,
has shown good progress during the last few years.
Opportunities for new foreign banks exist in consumer banking, corporate bonds, investment
banking, leasing and housing finance sectors.
1.1 Hi story of the organization
Askari Bank Ltd was incorporated in Pakistan on October 09, 1991, as a Public Limited
Company. It commenced operations on April 1, 1992 and is principally engaged in the business
of banking, as defined in the Banking Companies Ordinance, 1962. The Bank is listed on the
Karachi, Lahore & Islamabad Stock Exchanges.
Askari Bank has since expanded into a network of 245 branches / sub-branches, including 31
dedicated Islamic banking branches, and a Wholesale Bank Branch in the Kingdom of Bahrain.
A shared network of 5,319 online ATMs covering major cities of Pakistan, internet banking (i-
net) and call centers operating on 24/7 basis supports the alternate delivery channels for customer
service.
As at December 31, 2012 the Bank had equity of Rs. 19.7 billion and total assets of Rs. 353
billion, with 907,984 banking customers, serviced by our 5,597 employees. Askari Investment
Management Limited and Askari Securities Limited are subsidiaries of Askari Bank primarily
engaged in managing mutual funds and share brokerage, respectively.
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Askari Bank Limited ensures a commitment to a culture of innovation which seeks out synergies
with clients and service providers to ensure uninterrupted services to its customers. They
perceive the requirements of the customers and match them with quality products and service
solutions. During the past five years, they have emerged as one of the foremost financial
institution in the region endeavoring to meet the needs of tomorrow and today.
1.2 In formation about the organization
1.2.1 Vision
The institutions vision is to be the bank of first choice in the region. This demands continuous
strive for creation of business opportunities with innovation while maintaining core values to
meet commitment to all stakeholders.
1.2.2 M ission
The mission statement of the bank is:
To be the leading private sector bank in Pakistan with an international presence, delivering
quality services through innovative technology and effective resource management in a modern
and progressive organization culture of meritocracy, maintaining high ethical and professional
standards, while providing enhanced value to all the their stakeholders, and contributing to
society
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1.2.3 Core Values
Commitment Integrity Fairness Teamwork Service
1.4 Products/Services.
Branch Banking Deposits includes following current, saving and term deposit products
1. Value Plus Current Account2. Paishgi Munafa Account3. Askari Bachat Account4. Rupee Travelers Cheque
Lockers
Consumer Banking Credit Cards Auto Loans Home Loans Consumer Durables
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Electronic Banking Phone Banking ATMs Online Banking
Corporate Banking Trade Finance Structured Finance
Treasury and Investment Money Market Investments
Islamic Banking Services Ijjarah Bi Sayyarah Home Musharika
Corporate/Commercial/SME Advances Product Running Finance Term Finance Finance Against imported Merchandise Finance Against Foreign Bills
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1.4 Organi zational structure
President
Commercial &
Retail BankingRegional
BusinessRegional Marketing
Branch Managers
Corporate
Investment
Banking Group
Corporate Head
North&
Cor orate Head
Special Assets
Management
H.R.M.
Grou Chief
Regional GM
H.R.M.
Operations Group
Chief
Risk Management
Group Chief
Audit Inspection
Grou Chief
Regional
O erations Chief
Regional
Compliance
Chief
Operations
Department of
the Region
Branch
Operations
Manager
Branch Credit
Officer
Credit Department
of Region
Regional Risk
Management
Area Audit
Chiefs
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Chapter 2
Critical Analysis
The company analysis of a firm comprises of many factors and revolves around all the internal
activities, which refer to the operations carried out, strategies that are a part of the marketing mix
and the environment in which the firm or company has to survive. All these factors are linked to
one another in some form and make a chain of necessities for the achievement of a successful
status in the market. Askari Bank is no different than any other firm and faces the same
challenges on its face ahead.
2.1 Operati onal Risk Analysis
The operational risk analysis indicates the risk of loss to the bank resulting from failed or
inadequate people, process, systems and external events. The techniques used by the bank in this
regard are Risk and Control Self-Assessment (RCSA), Key Risk Indicators (KRIs), Loss Data
Analysis and Scenario Analysis. This tools enlighten the effectiveness of procedures and
methods that a firm adopts to carry out and perform its work. Different departments are
accordingly formed and tasks are specified properly.
2.1.1 Strengths
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Askaris image and reputation in the market is its major strength. Askari has a strong ownership
structure. Their motto is inspiring relationships which shows their positive relation and care for
their customers and employees, providing them with a diversified portfolio of products.
Easy access to the customers at their residential localities because of its suitable location is an
added benefit for the customers. The head office is situated in the heart of the city of Rawalpindi.
Askari has always hired motivated and loyal bankers. Best and attractive compensation packages
for employees have really improved their commitment, dedication and hard work towards the
accomplishment of particular branch objectives. Training sessions further polish their skills so
that they can deliver at their best. The bank has an extensive branch network which helps in
business booking. The automation within the bank is a major strength which improves the
turnaround time. The bank offers customized solutions to its customers across the network.
2.1.2 Weaknesses
Although Askari Banks one of the leading banks of Pakistan but it still has some areas for
improvement. The network of branches covering the whole area of Islamabad and Rawalpindi is
not quite enough to compete with the local giants like NBP, UBL, and MCB.
Askari also needs to improve its IT Information Security Section as fire walls need to be built to
secure the system to avoid hoax mail. Service quality and marketing efforts at the branch level
also needs improvement for mobilization of CASA deposit.
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Recently, there has been a change of ownership and management of the bank. The new
management is making a lot of changes in the bank by firing the experienced staff across the
bank. This has created dissatisfaction and frustration amongst the staff who are now looking for
jobs elsewhere. This is hampering the operations of the bank.
2.1.3 Opportuni ties
International presence should be taken as an opportunity to get more business and to be known
all over the world. The network within Pakistan should be expanded since the industry is
growing and flourishing. Recently the ownership of the bank has changed from Army Welfare
Trust to Fauji Foundation Group. This group is a diversified financial conglomerate with
tremendous growth opportunities. The bank needs to capture a significant portion of their
business to improve profitability. The bank has recently started branchless banking. However,
full potential has not been capitalized as there are unbanked sectors to which the bank needs to
increase its outreach and financial inclusion.
2.1.4 Threats
There are a significant number of large and middle tier banks which are providing tough
competition to Askari bank in terms of capturing low cost deposit, growth in advances, alternate
delivery channels etc.
These banks provide highly specialized and attractive services to their customers. Growing global
technological advancement is another threat because the bank has to keep updated with the latest
advancements to stay in competition.
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Keeping the staff motivated in the environment of uncertainty and change management is a
threat to the organization.
2.2 PEST Analysis
2.2.1 Poli tical Analysis
Askari Bank is operating in one of the worlds most volatile political environment. On one side
there is a very week and unpopular government and on the other there is war against terror going
on. Since Askari bank was a part of Army Welfare Trust which is run by Pakistan Army so it has
the advantage of not being interfered directly by the government but political forces impact
Askaris business through consumers and businesses which are affected directly by political
instability.
2.2.2 Economic Analysis
The outlook for the Pakistani banking sector remains relatively downbeat despite the potentially
vast consumer market in the country. The purchasing power of the customers is seriously
hampered because of the weak economic indicators such as high inflation, unemployment, etc.
Pakistan has several characteristics that make for a favorable banking sector outlook for instance
buoyant demographics, a domestic economy geared towards private consumption and an
extremely under-banked population. However, we should not expect rapid sector development
over the medium term as these positive factors are neutralized by an unstable security/economic
outlook , effecting the repayment capacity of the borrowers , a below-potential growth path for
the economy , and domestic/international recession that has put a lot of pressure on the economy.
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2.2.3 Social Analysis
There has been a marked increase in the use of credit cards in Pakistan but the usage is currently
limited to educated middle class only. At the same time accelerated by the spread of internet in
the country people are more inclined to use the net to do banking transactions specially bill
payments and within the bank transactions. Since Askari bank has the reputation of being a
conservative bank some consumers are quite loyal and will stay with the bank even under tough
economic situation or in the presence of alternatives.
2.2.4 Technological Analysis
Technology makes it possible to empower the system and establish a competitive advantage.
Pioneering the new ideas, adding the skills and operational excellence are part of the guiding
principle of the organization. Askari has recently been investing heavily in information
technology. They use state of the art software Flex cube for branch banking which captures
almost all the requisite details of the customer and various MIS reports for senior management
analysis and decision making can be facilitated from the said software.
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Chapter 3
Internship Experience
3.1 Concerned department inf ormation & Work Exper ience
I was placed in the Risk Management Division (Credit Risk Department) as a Risk Analyst
during my internship period. Credit Risk department basically works to mitigate the credit risk
(Risk of borrowers default) faced by the bank by evaluating credit proposals on the basis of
State Bank of Pakistans regulations and banks risk management policies set by the senior
management. RMD in Askari Bank performs the following basic functions in order to manage
the risks across all business segments.
1. Maintaining an effective risk review system that identifies loan with creditweaknesses.
2. Identifying relevant trends affecting collectibles of the loan portfolio and isolatethe problem areas.
3. Formulation/review of credit policy and procedures.4. Identification, reporting measurement, monitoring and controlling all major risks
created at all levels through risk quantification based on qualitative and
quantitative factors.
5. Recommend in the risk appetite, the tolerance limits in consultation with relevantauthorities for various business segments and industries to ensure minimum
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expected and unexpected losses, under Basel 2 accord and establish a risk based
capital framework.
6. Periodic reporting to the board of directors and RMC (Risk ManagementCommittee) about adequate system controls, risk appetite compared to its
exposure and any exceptions there to.
7. Review of credit procedure manual for implementation of the policy incoordination with credit division.
8. Periodical review of financial results to determine if changes need to be made tothe credit risk policy/risk appetite
9. To address the issue of the prudent size/maximum exposure on the clients, RMDon the basis of risk management guidelines issued by SBP must formulate the
following:
Define banks overall risk tolerance in relation to credit risk. Banks overall credit risk exposure is maintained at prudent levels and
consistent with the available capital of bank.
Risk appetite of the bank in relation to client segment, product economicsector, geographical location, currency and maturity.
Establish exposure (financing) limits for single obligors and group entitieswhile remaining within the exposure limits set by SBP (State Bank of
Pakistan).
Target market each lending segment, preferred level of diversification ofconcentration.
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RMD has two units for managing credit risk in the bank. These units are credit risk review unit
for risk review, credit appraisal unit for loan approval and administration.
1. Risk Appetite/ toleranceA comprehensive risk appetite framework evaluates the proposal at hand in light of risk
profile currently on banks portfolio as of now and consequently take the decision within
the risk tolerance levels set for similar proposals. Portfolio should be repeatedly
benchmarked against the risk profile and deviations and exceptions should be highlighted
and justified.
For prudent credit management it is vital that portfolio is well diversified. In order to
strategically monitor the credit portfolio and reduce risks arising from factors such as
concentrations, AKBL is working on the following in house risk limits
Industry exposures Business exposures Maximum exposure under various risk grades Borrower Maximum exposure against various collaterals
Going forward in order to set concentration limits, a model has been formed at Askari Bank to
calculate borrower wise and industry wise limits. These models are updated on a periodic basis
as required by changes in the economic scenarios and internal risk appetite of the bank.
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2. Risk PricingRisk pricing is multifactor function where quantitative and qualitative factors should be
considered to price a particular product competitively. The function includes the
following factors:
Internal and external credit rating Collateral offered Industry positioning Term Structure Prevailing interest rate scenario Minimum acceptable return on capital deployed
3. Credit Risk ReviewRMD will review a sample of credit exposures in order to reassess the financial condition
of the company as well as the outlook for these borrowers. The purpose of the review is
reassessing the risk profile of the borrower and to reevaluate the credit risk implied in the
banks credit exposure to the company.
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3.1.1 Responsibi li ty of RMD
The proposal initiating units compile information in the proposals, evaluate them and assign the
initial credit grades. The relevant credit committee assesses these proposals and approves or
rejects them. The function of RMD is to identify risk in banks credit portfolio by undertaking
the following:
o Conducting post facto reviews of loans to identify loans with credit weaknesses so thattimely action can be taken to minimize credit loss;
o Identifying relevant trends affecting the collectability of the loan portfolio and isolatepotential problem areas.
o Ensure investment grade changes are made when needed or where necessary to assessloan provisions.
o Assess the adequacy of, and adherence to, loan policies and procedures, and to monitorcompliance with relevant laws and regulations.
Following are the general considerations for credit proposal and the procedure adopted by Askari
Bank for the credit approval and review process.
3.1.2 Factors involved in consideration of Credit Proposals
The bank before granting any credit facility to its customers usually analyzes the following
factors.
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3.1.3 Optimization of r isk return trade off
The extension of credit facilities to a customer should focus on maximization of profitability
while keeping risk at minimum.
5.3.1.4Five Cs of Credit
The bank makes sure that there is sufficient assurance that the customer can and will pay back a
loan. In this regard the management considers the five Cs of credit each time a loan is
processed. They briefly are the following:
CharacterThe integrity of the borrower is of paramount importance and can take precedence over
the value of securities offered. The sponsors and management shall be the persons of
undoubted integrity. Information should be obtained as to whether they have been
known to keep their commitments or have been defaulters in respect of any facility
allowed in the past by the bank or any other bank. It shall also be ensured that none of
the concerns in which they have been actively engaged has been liquidated or has not a
bad reputation. Independent enquiries from the market/suppliers, other banks,
Government departments may be tapped by credit officers in this respect.
Capacity (Source of Repayment)While sanctioning a credit facility one of the prime concerns is the source of
repayment. It is expected that the facility extended by the bank should be utilized in a
productive manner for business purpose and repayment of the loan is through internal
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cash generation of the entity. Repayment capacity of the borrower can be analyzed by its
cash flow projections. Analysis of the cash flow projections would depict the inability /
ability of the business to repay the advances as per repayment schedule through internal
cash generation.
Capital (Equity Contribution)The customer should have sufficient funds as his own stake in the business. Prudent
bankers are reluctant to finance borrowers who do not invest enough of their own in the
business. A credit proposal should, among other considerations, be judged from the
angle of the borrowed funds to equity ratio to establish customers stake in the business.
Collateral / SecurityTo protect the interest of the bank against any risk, the credit facilities should be
adequately secured. Security accepted should be enforced in accordance with the laws
and practice of the country. The security ideally should be readily realizable and to
which bank has unhindered access.
ConditionsBusiness and economic conditions such as strikes and acts of God are often outside our
control and hard to quantify. However, the bank shall analyze the possible impacts of
worst case scenario on the business of the borrower.
3.1.5 Purpose and amount of facil ity
The purpose and amount of advance shall be within the policy of the bank and should be
according to the external and internal regulatory requirements. It should be ensured that the
advance is not to be used for any speculative purpose. In case of limited liability companies it
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shall be established that the purpose of the facilities is within the scope of the business of the
company as set out in the memorandum and articles of the company.
3.1.6 Ethics
Askari Banks image can be affected by transactions in which it takes part. The bank sets the
very highest standards of integrity and complies with all the ethical, regulatory, legal and tax
rules established in the country. Askari Bank respects the rights of all external parties.
3.1.7 Settl ement Risk
This category of credit risk represents the potential loss in the event that the
counterparty/borrower defaults prior to the settlement of the contract/obligations. The banks
therefore keep in view the settlement risk and ensure adequate securities against them to protect
the bank from the potential loss.
3.1.8 Credit I ni tiati on Process in Askari Bank
Credit initiation process in Askari Bank is briefly discussed in the following paragraphs.
A thorough credit and risk assessment exercise is conducted prior to the granting of loans and
thereafter annually for all facilities. The result of this assessment is in a credit approval. The RM
(Regional Manager) should be the first owner of the customer relationship and to ensure the
accuracy of the entire CA (Credit Approval) submitted for approval at the time of initiation of
proposal it must be ensured that all the banks lending guidelines are meticulously complied and
due diligence on borrower/guarantors is carried out.
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It is essential that RMs know and ensure compliances to Askari banks know your customer
(KYC) and money laundering guidelines, and all the instruction circulars issued from time to
time. Credit approvals should summarize the results of the RMs risk assessment and include, as
a minimum the following details
Amount and type of loan proposed Purpose of loans Loan structure Security arrangements
In addition the following risk areas should be addressed in CAs:
Relationship managers will be responsible for credit initiation and for accuracy of information in
the CA package. Preparation of the CA package will involve the following broad steps:
1. Establish and maintaining contact with clients.2. Receiving credit requests from clients.3. Collecting required information from applicants and independent sources.4. Analyzing financial and market position of applicants.5. Assessing security and support being offered.6.
Negotiating appropriate pricing and terms and conditions.
7. Incorporating required information into respective forms.8. Compliance with prudential regulation and credit policy.9. Ensure that any errors omissions and deviations from the above are highlighted.
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10.Assign CA reference numbers and ensure all relevant documents are attached e.g. BBFS (Borrowers Basic Fact Sheet detailing all the basic es sential facts about
the potential borrower). It is a regulatory requirement by SBP and contains
information regarding the business, its sponsors and management. It is imperative
that the Credit In charge attaches a correctly filled BBFS with each fresh proposal
to avoid violation of SBP instructions.
Credit Memo (Detailing the purpose of the credit ensuring it is aligned with thebusiness of the customer and its needs)
Risk Rating Scorecard. Risk rating sheet derives an risk rating for the borrower onthe qualitative and quantitative information. Rating is a scientific method of
assessing the credit risk associated with new credit applications. Statistical models
derive predictive relationships between application information and the likelihood
of satisfactory repayment.
Models are empirically designed in this respect that is they are entirely developed
from information gained through prior experience. Therefore, rating is an
objective risk assessment tool opposed to subjective methods.
CIB Report (Consumer Information Bureau Report which shows customersprevious credit history and the current credit position of the customer) is obtained
from the State Bank of Pakistan. This report sheds light on the veracity of the
customer as it informs about the over dues or defaults by the business entity /
directors with other lending organizations. For any credit request CIB not older
than one month would be acceptable.
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Trade and Credit Checking. Market checking and credit worthiness of theborrowers are one of the most critical decisive factor in credit decision making. In
this regard the third party credit checking provides key information about the
borrowers character, repayment behavior, market reputation, relationship with
suppliers and history of business dealings.
Prudential Regulations (PR) Compliance Check off list. Adherence to PrudentialRegulations is a mandatory requirement. In case there are exceptions to the
compliance of the said regulations they should be clearly mentioned.
Financials of the client preferably audited and in case where exposure is morethan 200 million (Proposed lending>200M) then financials should be audited by
the firm having satisfactory QCR (Quality Control Review) conducted by the
ICAP. (Institute of Chartered Accountants of Pakistan)
Furthermore AKBL has developed its own standardize credit line description which should be
strictly followed by all the credit initiation units in order to bring uniformity in the credit
initiation process.
The ability to initiate and manage a credit relationship entirely depends upon the credit officers
and RMs in depth knowledge of the customers and their businesses. The importance of
customers knowledge cannot be further stressed upon. It is the responsibility of the credit
officers and managers to gather as much information about their existing and potential customers
as it is possible at the time of initiation of a relationship and keep it current at all times thereafter.
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The credit application must also be submitted in other circumstances including but not limited to
when deteriorating conditions make it necessary to reevaluate credit facilities extended to a client
interim proposals for requests on one off basis, restructuring of facilities and for temporary
extensions and for annual reviews.
1. Borrower analysisThe majority shareholders, management team and group or affiliate companies should
be assessed. Any issues regarding lack of management depth, complicated ownership
structures or intergroup transactions should be addressed to mitigate the risk.
2. Industry analysisThe key risk factors of the borrowers industry should be assessed. Any issues
regarding the borrowers position in the industry, overall industry concerns or
competitive forces should be addressed and the strengths and weaknesses of the
borrower relative to its competition should be identified thereby giving the Credit
Approval authority an in depth analysis and the power of foresight for any possible
circumstance of default.
3. Supplier/ buyer analysisAny customer or supplier concentration should be addressed as these could have a
significant impact on the future viability of the borrower.
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4. Historical financial analysisAn analysis of the minimum 3 years historical audited financial statements of the
borrower should be presented. Where reliance is placed on corporate guarantors,
guarantors financial statements should also be analyzed. The analysis should address
the quality and sustainability of earnings, cash flows and the strength of the
borrowers balance sheet. Specifically cash flow, leverage and profitability must be
analyzed.
5.
Projected financials
Where term facilities are being proposed a projection of the borrowers future
financial performance should be provided matching with the term of the loan,
indicating an analysis of the sufficiency of cash flow to service debt repayments.
Loans should not be granted if projected cash flow is insufficient to repay debts.
6. Account conductFor existing borrowers, the historic performance in meeting repayment obligations,
obligors previous track record, trade and credit checking, payments behaviors,
principal etc. is assessed.
7. Adherence to lending guidelines / prudential regulationsCredit approvals should clearly state whether or not the proposed application is in
compliance with banks lending guidelines and other regulatory requirements.
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8. Risk mitigating factorsMitigating factors for risk identified in the credit assessment should be identified.
Possible risks include but are not limited to
Possession of collateral (Security against which loan is issued). physical damage to collateral Margin sustainability and or volatility Technology obsolete collateral High debt load overstocking or debtor issues
Rapid growth acquisition or expansion.
New business line expansion Management changes or succession issues Customer or supplier concentrations and lack of transparency or industry
issues.
9. Loan structureThe amounts and tenors of financing proposed should be justified based on the
projected repayment ability and loan purpose. The long tenor or excessive amount
relative to business needs may pose the risk of diversion in funds and may adversely
impact the borrowers repayment ability.
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10. SecurityCurrent valuation of collateral should be obtained and the quality and priority of
security being proposed should be assessed. Financing is considered with two ways
out first cash flow of the company and second secured against tangible, easily
realizable security in the shape of land and building etc. loans should not be granted
based solely on security. Adequacy and the extent of the insurance coverage should
be assessed.
3.1.9 Credit Risk Management in Askar i Bank
Credit risk management will be viewed as an ongoing activity where credit risks are regularly
identified and assessed. It determines the quality of credit portfolio and assists line management
in optimizing risk reward tradeoffs. The role of risk management department is completely
independent from credit initiation, there is minimal customer contact and the reporting is directly
to the senior management.
An effective credit review program helps improve the quality of the banks loan portfolio,
provide early warning of loan quality deterioration and contribute to profitability by reducing
losses attributed to anticipated bad loans.
Committees originally approving the exposure forwards one copy of approved CA to risk
management division for its review.
Documents submitted for post facto review are as follows:
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1. Complete set of approved CA package2. Financials3. Valuation reports4. Call/Visit reports5. Accounts turn over/statistics6. Yield etc.
Post facto reviewincludes:
a.
Identification of loans with credit weaknesses so that timely action can be taken to
minimize credit loss;
b. Assessment of adequacy of, and adherence to, loan policies and procedures and tomonitor compliance with relevant laws and regulations.
Committees performing post facto review will identify the weakness/flaws in credit initiation
approval process, credit maintenance, adequacy of security/support, utilization of credit etc. and
highlight the issues and assign target date for regularization.
Loan review finding will be forwarded to respective approving units for their review and
implementation of observations if any, at the time of approval.
I was given the role ofRisk Analystand my job description was mainly to identify and evaluate
the credit risk in the credit approvals in the region and highlight them by reporting to my senior
staff. I evaluated the following benchmarks while analyzing the credit approvals.
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1.Borrowers Industry and macroeconomic factorsBy subscribing to investment research firms the credit risk review department monitors
industry and economic up dates of the environment where the borrower operates. Any
deteriorating scenario needs to be thoroughly evaluated and examined whether it will
affect the borrowers ability to repay in the future and what are the steps he has taken to
overcome these deteriorating situations.
2.The purpose of credit and sour ce of r epayment
Thorough review of the proposal content of credit approval account being reviewed,
referring to credit proposal of any other customer operating in that industry, general
financing requirement of similar size entity operating in the industry and analyzing the
business model of the counterparty, analyst establishes the genuineness, the purpose and
adequacy of the limit amount and source of repayment.
3. The track record / repayment h istory of the borrowerAnalyst will review the repayment behavior with the Bank and also looks at the latest
financial statements and e-CIB for apparent delayed payment/defaults.
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4. The proposed terms / conditions and covenants along with adherence to internalpolicies and procedures, and applicable laws and regulations
Review unit goes through the proposal clauses to assess if any additional clause needs to
be included and also assess, from expectation report and financial statements, that
customer is adhering to these conditions and covenants or not.
5. Assets / evaluate the repayment capacity of the borrowerAnalyst revisits the financial commentary in the CA. Proposal initiating authority should
pursue for the latest financial statements. The Risk Analyst evaluates the financial worth
of the borrower by using a range of techniques like ratio analysis, reviewing future cash
flow projections etc.
6. Adequacy and enforceabil ity of Col laterals (Securi ty)Adequacy of collateral in terms of value and salability will be ascertained. Perfection of
charge will also be ascertained from exception report.
7. Approval fr om appropriate authori tyAdherence to approving authority is also checked and should be as per the policies and
protocol set by Askari Bank.
8. Adequate pri cingNet return on capital as per yield statement must be greater than cost of funds.
Comparison is also made with the Weighted Average Cost of Capital.
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While conducting the post facto review of an account, Credit Risk Rating is also recalculated to
verify the score assigned by the field. In case a difference arises during such review, the risk
assigned by RMD prevails and in case, the RMD feels that the concerned branch has deficiencies in
calculation of risk rating, it then instructs the relevant Area Office to review all ratings assigned by
that branch and take appropriate remedial actions.
During the period I served, I reviewed many credit approval accounts on the concepts and
procedures adhered by Askari Bank and were a great learning experience. My skills of using MS
office really helped in enhancing my performance and i learned a whole lot of new things in MS
office which further substantiated my skills in using it. I had the chance to see the practical
implementation of the concepts studied in financial
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Chapter 4
4.1 F inancial Analysis
*Audited financial statements 2012 2011 2010 2009 2008
Assets
Cash and balances with treasury banks 24,435 26,168 22,565 19,386 16,030
Balances with other banks 8,864 6,235 3,785 8,364 3,955
Lending to financial institutions 6,319 1,592 9,172 4,614 4,480
Investments 145,378 133,757 102,260 67,046 35,678
Advances 143,727 150,711 152,784 135,034 128,818
Operating fixed assets 8,841 9,349 9,988 9,262 8,266
Other assets 15,491 15,945 14,190 10,621 8,964
Liabilities
Bills payable 3,700 2,756 3,090 2,946 2,585
Borrowings' 8,373 17,273 25,555 19,300 15,190
Deposits and other accounts 306,937 291,503 255,937 205,970 167,677Sub-ordinated Loans 6,987 6,990 5,993 5,995 2,996
Deferred tax liabilities 118 83 86 334 13
Other liabilities 7,252 7,374 8,081 4,833 4,759
Profit and Loss
Mark up / return / interest earned 32,402 32,766 27,329 22,587 18,393
Mark up / return / interest expensed 22,974 22,700 17,937 13,554 10,651
Provision against non performing loans 2,342 1,630 2,319 2,324 3,825Non Markup interest income 4,117 2,903 2,800 2,707 2,707
Profit before taxation 1,730 2,413 1,273 461 461
------------------Rs in Millions*--------------------
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Horizontal Analysis
Horizontal Analysis
2012 Vs
2011
2011 Vs
2010
2010 Vs
2009
2009 Vs
2008
2008 Vs
2007
Assets
Cash and balances with treasury banks -17% 16% 16% 21% 20%
Balances with other banks 42% 65% -55% 111% 13%
Lending to financial institutions 297% 83% 99% 3% -69%
Investments 9% 31% 53% 88% -10%
Advances -5% -1% 13% 5% 28%
Operating fixed assets -5% -6% 8% 12% 61%
Other assets -3% 12% 34% 18% 62%
Liabilities
Bills payable 34% -11% 5% 14% -2%
Borrowings' -52% -32% 32% 27% -13%
Deposits and other accounts 5% 14% 24% 23% 17%
Sub-ordinated Loans 0% 17% 0% 100% 0%
Deferred tax liabilities 43% -3% -74% 2471% -97%
Other liabilities -2% -9% 67% 2% 48%
Profit and Loss
Mark up / return / interest earned -1% 20% 21% 23% 21%
Mark up / return / interest expensed 1% 27% 32% 27% 23%
Provision against non performing loans 44% -30% 0% -39% -2%
Non Markup interest income 42% 4% 3% 0% -41%
Profit before taxation -28% 90% 176% 0% -80%
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Vertical Analysis
Vertical Analysis 2012 2011 2010 2009 2008
Assets
Cash and balances with treasury banks 7% 8% 7% 8% 8%
Balances with other banks 3% 2% 1% 3% 2%
Lending to financial institutions 2% 0% 3% 2% 2%
Investments 41% 39% 32% 26% 17%Advances 41% 44% 49% 53% 62%
Operating fixed assets 3% 3% 3% 4% 4%
Other assets 4% 5% 5% 4% 4%
100% 100% 100% 100% 100%
Liabilities
Bills payable 1% 1% 1% 1% 1%
Borrowings' 3% 5% 9% 8% 8%
Deposits and other accounts 92% 89% 86% 86% 87%Sub-ordinated Loans 2% 2% 2% 3% 2%
Deferred tax liabilities 0% 0% 0% 0% 0%
Other liabilities 2% 2% 3% 2% 2%
100% 100% 100% 100% 100%
Profit and Loss
Mark up / return / interest earned 100% 100% 100% 100% 100%
Mark up / return / interest expensed 71% 69% 66% 60% 58%
Provision against non performing loans 7% 5% 8% 10% 21%Non Markup interest income 34% 34% 33% 28% 35%
Profit before taxation 5% 7% 5% 2% 3%
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Horizontal Analysis
Assets
Cash and bank balances with treasury banks decreased to -7% in 2012 as compared to2011. Highest increase in balances with treasury banks can be seen in 2009 compared to
2008.
Balances with other banks depict an increase of 42% in 2012 as compared to 2011 andshows 65% increase in 2011 as compared to 2012. The main reason behind this increase
can be associated with high deposit rates.
Lending to financial institutions increased by 297% in 2012 as compared to 2011. Thehighest increase during the previous five years due to high deposit rates offered to the
bank.
Advances decreased by 5% in 2012 as compared to 2011. In 2010 there was an increaseof 13% from 2009. Recession in overall economy was the main factor for the current
decline and banks policy to hold further advances due to increase in non-performing
portfolio in textile and other sectors as a result of power shortfall. Therefore the bank has
followed a cautious lending strategy keeping in view its risk appetite.
The investment portfolio of the bank is showing a continuous rising trend .This is mainlybecause of banks policy to consolidate and invest funds in less risky portfolio. i.e.
government securities.
Operating fixed and other assets also depict a declining position mainly due to sale ofassets in current and recent financial years.
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Liabilities
The major chunk of the liabilities portion relates to deposits and other accounts (Rs306,937 Mn). Customer deposits as on Dec 31, 2012 registered a growth of around 5.3%
over last year. The major increase was in current and saving accounts (CASA), which
climbed by 14.5% while term deposits registered a decrease of 15.5%. The average
deposit size almost maintained its level. It is a deliberate attempt by the bank to reduce its
cost of deposit to improve profitability.
Profit and Loss
Operating profit of the Bank registered an increase of 4.1 percent in 2012 despite
reduction in net interest spreads as cut in policy rates introduced by the SBP in the second
half of 2012 negatively affected the net interest margins of the Bank. However, profit
before and after taxation declined by 28.3% and 22.9% compared to 2011 mainly due to
46.8% increase in provision against non-performing assets, charged to the revenues
provision against non-performing loans (NPLs) increased by 43.8% while provision /
impairment on investments surged by 71.6%. The increase in provision against NPLs is
attributable to (a) net reduction in the benefit of forced sale value (FSV) of collaterals
amounting to Rs 597 Mn, (b) increase in NPLs by 12.1% and (c) further downgrading in
the categories of classifications requiring additional provisions.
Despite slowdown of trading volumes and dwindling margins on this business, the Bankmanaged to post a health increase of 41.8% in non-markup income in 2012 as compared
to 2011. The main contributors of this increase were a one off dividend income with an
increase of 258% and gain on sale of investments that increased by 121.9% over 2011.
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Income from dealing in foreign currencies recorded an increase in of 14.5%. The fee and
commissions and other income remained more or less at the last years level.
Vertical Analysis
Common size Analysis, also called Vertical Analysis, or Component Percentage, or 100
percent Statements as the total assets are taken 100% in the balance sheet each individual item
is stated as a percentage of 100%.Similarly in income statement the total revenue is expressed as
100% and other items are indicated as percentage of 100.
Assets
Cash and bank balances with treasury banks amounted to 7% of the total assets of thebank and this percentage is pretty consistent in the range of 7-8% during the five years
period. Investments constituted 41% of the total assets of the bank in 2012. Substantial
increase is noted in investments as it was only 17% in 2008. Advances also constituted
41% of the total assets in 2012 but it is a declining trend mainly due to recession in
economy and nonperforming assets. Operating fixed assets and other assets depict same
proportion in the range of 4-5% of total assets consistently during the past five years.
Liabilities
Deposits form the major chunk of the total liabilities 92% in 2012 and the same trendapproximately is seen from 2008-2011 as well in the region of 85-90%. The major
increase was in current and saving accounts (CASA), which climbed by 14.5% while
term deposits registered a decrease of 15.5%. The average deposit size almost maintained
its level.
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Profit and Loss
Mark up expense increased as a percentage of mark up earned during 2012 as comparedto previous years proportion of total mark up earned mainly due to increase in deposit
rates offered by the bank. Provision against non-performing loans was 7% as compared to
5% in 2011 which shows deteriorating position of non-performing assets.
Non mark up interest income was 34% of the total markup earned during the year. Itstrend remained consistent over the five years.
Profit before taxation shows a declining trend of the markup earned. The main reason isdue to increase in operating expenses as well as increase in provisioning of non-
performing loans. Taxation rate remained the same throughout the five years.
Ratio Analysis
Profitability RatioNetProfit afterTax Ratio = Earnings aftertax / Interest earned
2012 2011 2010 2009 2008
Profit after tax 1,255 1,628 943 1,108 386
Interest earned 32,402 32,766 27,329 22,587 18,393
% 4% 5% 3% 5% 2%
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I nterpretation:
Profitability ratio of 2012 is 4% which is less than compared to 2011. But there is an increase
from 2% in 2008.
Gross Spread Ratio. Gross SpreadRatio = NetMark-upIncome / Gross Mark-upIncome
2012 2011 2010 2009 2008
Net mark up income 9,428 10,067 9,392 7,743 7,743
Gross mark up income 32,402 32,766 27,329 22,587 18,393
% 29% 31% 34% 34% 42%
0%
1%
2%
3%
4%
5%
2012 2011 2010 2009 2008
4%
5%
3%
5%
2%
Profitability Ratio
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I nterpretation:
Gross spread has decreased during the five years from 42% to 29%. Main factors behind this
deteriorating trend are increase in deposits and increase in deposit rates during the five years.
Return on equityReturn onEquity Ratio (ROE) =Earnings AfterTax /Total Share HolderEquity
2012 2011 2010 2009 2008Profit after tax 1,255 1,628 943 1,108 386
Total shareholders equity 17,677 16,509 14,821 13,143 12,035
% 7% 10% 6% 8% 3%
0%
10%
20%
30%
40%
50%
2012 2011 2010 2009 2008
29% 31%34% 34%
42%
Gross Spread Ratio
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I nterpretation:
Return on equity decreased during the period as result of decrease in profit after tax from 2012 to
2011. The remaining periods also show a mixed trend for return on equity.
Return on assetsReturn on Assets Ratio (ROA) = Profit afterTax / Total Assets
2012 2011 2010 2009 2008
Profit after tax 1,255 1,628 943 1,108 386
Total assets 353,056 343,756 314,745 254,327 206,191
% 0.36% 0.47% 0.30% 0.44% 0.19%
0%
2%
4%
6%
8%
10%
2012 2011 2010 2009 2008
7%
10%
6%
8%
3%
Return on equity
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I nterpretation:
The return on assets of the bank for the year 2012 decreased by around 13bps mainly due to 22.9
percent decline in profits after taxation along with increase in average assets by 5.8 percent of
the bank during 2012.
Activity RatioTotal Assets Turn over = Net Sale / Total Assets
2012 2011 2010 2009 2008
Net mark up income 9,428 10,067 9,392 7,743 7,743
Total assets 353,056 343,756 314,745 254,327 206,191
% 2.67% 2.93% 2.98% 3.04% 3.76%
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
2012 2011 2010 2009 2008
0.36%
0.47%
0.30%
0.44%
0.19%
Return on assets
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I nterpretation:
These ratios (Activity ratio) also known as efficiency or turnover ratios, measure how
effectively the organization is using its assets. Total asset turnover shows that by
investment of Rupee One in average total assets, of the entity how much sale is generated.
There is decreasing trend in total assets turnover ratio from 2008 to 2012 due to growth in assets
and reduction in net mark up income.
Earnings per shareEarningsper share = Earnings afterTax / Total Outstanding Share
2012 2011 2010 2009 2008
Profit after tax 1,255 1,628 943 1,108 386
Total assets 813 707 643.00 507.00 406.00
Earnings/share 1.54 2.30 1.47 2.19 0.95
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2012 2011 2010 2009 2008
2.67%2.93% 2.98% 3.04%
3.76%
Activity Ratio
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I nterpretation:
Earnings per share decreased during the year 2012 as compared to 2011 as a result of
provisioning / impairment of non performing advances.
Credit Rating by External Agency
Askari Bank has been assigned the long term rating of AA and short term rating of A1+ by
the Pakistan Credit Rating Agency (Pvt) Limited (PACRA). The ratings reflect the Banks strong
capital structure supported by sound profitability. Taking note of the fast changing banking
dynamics, the management has put in place a well-conceived strategy to improve the Banks
performance and ensuring its strong standing within the sector.
0.00
0.50
1.00
1.50
2.00
2.50
3.00
2012 2011 2010 2009 2008
1.54
2.30
1.47
2.19
0.95
Earnings per share
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Chapter 5
5.1 Conclusion.
In my view Askari Bank should introduce new products & services which will have to be
introduced in the bank by analyzing the customer needs and market demands which will
build the image and prestige of the Bank among the customers. Bank has lot of potential to
become a leader in the banking sector.
The experience in working as an intern was very informative and I learned a lot about the
functions and responsibility of oversight performed by the Risk Management Division of Askari
Bank especially in credit risk area. I was given ample time and opportunity to learn and my
supervisors were very satisfied with my performance.
I was also helped with the fact that my supervisors were very supportive and helped me all along
in understanding any complexity I encountered. So, overall it was a great experience for me to
work in Askari Bank and it helped me in nurturing my professional upbringing, which is still in
its infancy stage as I am a full time student of business at the university.
This internship report compiles the experience gained by me during the course of my internship
period with Askari Bank. I sincerely appreciate them for giving me this opportunity.
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5.2 Recommendati ons
This is a fact that in this universe nothing is perfect. In every field of life there are some pluses
and minuses. But the best institutions are those, which learn from the changing
environment and competition. So it is necessary for them to remain updated with
the changing environment. I recommend the following improvements to askari bank , which if
followed can improve the efficiency and performance of the bank.
Marketing department is very active but the feedback or the follow up of the customersshould be improved.
The ATM service should be provided 24 hours. Because customers feel upset when mostof the times the machine is out of order.
Complaints handling mechanism must be refined and clear policies and procedures be setout in order to smooth the process and provide quick relief to the customer complaining
about any product. This will favorably increase the repute of the organization.
Further increase their network of branches to capture more business and increase theirmarket share.
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Low performing branches suppress overall network performance and reduce return oninvested capacity. Appraisals should be linked directly to the performance targets of
employees which automatically assigns them responsibility for the achievement of those
targets. This in turn would increase profitability.
High performing employees must be applauded for their efforts and incentive schemesmust be aligned with their achievements which would encourage the rest of the work
force and motivate them to work more efficiently.
Decision makers count on having unimpeded access to the right information at the righttime, in the right format. Therefore a mechanism of timely reporting to the senior
management should be in place to help the decision makers in this dynamic and ever
changing business environment.
More social gatherings and annual award ceremonies should be arranged and managers ofdifferent branches of Askari from all over Pakistan should be invited. This will boost the
motivational level of the workforce.