internship report ztbl, hailey college

INTERNSHIP REPORTZARAI TARAQIATI BANK LTD.Submited to:

Sir, Fida Hussain BukhariSubmitted by: Adnan Ijaz M08MBA071 Specialization in Finance

MBA Banking & Finance 2008-2010

Hailey College of Banking & Finance University of Punjab

Internship Report on Zarai Taraqiati Bank Ltd.

2010

In the name of ALLAH the most benificent, the most merciful

Internship Report on Zarai Taraqiati Bank Ltd. 2010

ACKNOWLEDGEMENTI have great sense of gratitude for the most Beneficent and Merciful Allah who has always helped me in all matters of life .I tried but He rewarded me more than the tried. I have deep feelings for whole of my family, in general, and for my Father, my Mother and my elder brother, in particular .They have always soothed me, elevated me and their words and dua has floated me in the deep seas of troubles. All of my successes are due to the prayers of my family. I am thankful to all of my teachers and my class fellows and friends whom cheerfulness and guidance is an asset for me .I am especially thankful to the bank staff who has given me opportunity to get precious practical knowledge and also for their guidance during my internship. Without the help of all these I was not able to complete this report.

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PrefaceThis Internship report is the compulsion put in by Hailey College of Banking and Finance for the award of master degree in business administration. In order to accomplish the task of completion of the degree, I choose the renowned and reputed organization that is the Zari Taraqiati Bank Ltd. I went through 6 weeks internship training in the bank in order to perceive the true art and the practical picture of banks working and to go through the process by which the organization is making very good out of its limited resources. The report is based on the introduction of the bank, products offered, financial analysis and assignments I handled during my internship. The report is divided into two main parts; the first part includes the introduction of bank, its products and financial analysis while the second part is based on the assignments I handled during my internship. I am positive that the college will oblige me by giving its recommendation and consent for the approval of the degree and the purpose for which I have gone through training and report writing procedure will be served positively.


Table of ContentsPart One___________________________________________________________________8 Ch. 1:____________________________Introduction of Zarai Tarqiati Bank Ltd. 8 Chapter 1__________________________________________________________________9 History___________________________________________________________________9 Credit Rating__________________________________________________________11 Corporate Vision_______________________________________________________12 Corporate Mission______________________________________________________12 Corporate Objectives__________________________________________________13 Transformation of ZTBL to R.F.I of the country and road to excellence._14 Branch Network_______________________________________________________16 Management Hierarchy_______________________________________________17 Board of Directors_____________________________________________________19 A Brief Resume of President____________________________________________20 Kissan Support Services Ltd._________________________________________23 KSS Aim_______________________________________________________________23 KSS Operation_________________________________________________________23 Objectives_____________________________________________________________23 Services/Activities so far undertaken by KSS___________________________24 Chapter 2________________________________________________________________25 Products and Services________________________________________________25 ZTBL Locker Facility___________________________________________________25 Products offered to Meet Finance Need of Farmers________________26 Types of Loans Advanced______________________________________________26 Loan Schemes_________________________________________________________27 Supervised agriculture scheme:________________________________________27 Zarkhaiz (one window operation)______________________________________27 Sada Bahar Scheme___________________________________________________27 Tea financing scheme__________________________________________________28 Crop maximization project_____________________________________________28 PER ACRE CREDIT LIMITS_____________________________________________30 Major Crops____________________________________________________________30 Minor Crops____________________________________________________________30 Growing Agro Forest Trees_____________________________________________31 Growing Orchards_____________________________________________________31

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Mature Orchard/Fruits crops___________________________________________32 Types of Security______________________________________________________33 Immovable Property___________________________________________________33 Moveable Property and Guarantees____________________________________33 Personal Surety________________________________________________________34 Debt Equity Ratio______________________________________________________35 Repayment Periods___________________________________________________36 Recovery Procedure___________________________________________________36 A) Recovery Schedule__________________________________________________36 b) Issuance of Notices_________________________________________________36 c) Legal Action_________________________________________________________36 d) Rescheduling of Loan Repayment Facility___________________________37 d) Down Payment for Rescheduling of Loans___________________________37 Chapter 3________________________________________________________________38 Horizontal Analysis of Balance Sheet________________________________38 Vertical Analysis of Balance Sheet___________________________________39 Horizontal Analysis of Profit & Loss__________________________________40 Vertical Analysis of Profit & Loss_____________________________________42 Interpetation of Horizontal and Vertical Analysis___________________44 Interpetation of Horizontal and Vertical Analysis of Balance Sheet _________________________________________________________________________49 Cash and Balance with Treasury Banks______________________________49 Ratios__________________________________________________________________52 Key Financial Trends of 2009_________________________________________55 Credit Risk_____________________________________________________________57 Market Risk____________________________________________________________58 Liquidity_______________________________________________________________59 Profitability____________________________________________________________60 Capitalization__________________________________________________________61 Chapter 4________________________________________________________________65 SWOT Analysis_________________________________________________________65 Strengths______________________________________________________________65 Weaknesses___________________________________________________________66 Opportunities__________________________________________________________67 Threats________________________________________________________________68 Part Two_________________________________________________________________69

Internship Report on Zarai Taraqiati Bank Ltd. 2010Ch. 5:_____________________Assignments I handled during my Internship. 69 Chapter 5________________________________________________________________70 Organogram of Mian Channu Branch________________________________70 Redemption of loan___________________________________________________71 Opening of Current Account__________________________________________74 1: Acquiring Original CNIC______________________________________________74 2: Filling Current Account Form________________________________________74 3: Filling of Know Your Customer Form_________________________________75 4: Current Account Specimen Card_____________________________________76 5: Registering name in the Current Account Register (Issuance of A/C No.)___________________________________________________________________76 6: Filling of Deposit Slip of starting amount_____________________________77 7: Signing by AMO and Manager_______________________________________77 8: Issuance of Cheque book____________________________________________78 9: Opening account in the ledger of bank______________________________78 ZTBL Flood Relief Fund 2010___________________________________________81 Writing of Vouchers___________________________________________________83 1. Debit Voucher_______________________________________________________83 2. Credit Voucher______________________________________________________83 3. Transfer Voucher____________________________________________________83 Sample of Debit/Credit Voucher______________________________________84 Sample of Transfer Voucher__________________________________________89 Daily Transaction Scroll_______________________________________________90 Making Entries in the Ledgers________________________________________92 Disbursement and Recovery Entries_________________________________92 Revolving SBS Loan___________________________________________________94 Opening and Closing Cash____________________________________________97 Key Register___________________________________________________________97 Safe Register:_________________________________________________________97 Dispatch and Diary____________________________________________________98 Recommendations_____________________________________________________98 Conclusion____________________________________________________________100

Conclusion

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Part OneCh. 1:Introduction of Zarai Tarqiati Bank Ltd. Ch. 2:Products Offered Ch. 3:Financial Analysis Ch. 4:SWOT Analysis


Chapter 1

The Zarai Taraqiati Bank Limited (ZTBL) (formerly known as Agricultural Development Bank of Pakistan) is the largest public sector financial development institution with a wide network of 27 Zonal Offices, 9 Audit Zones and 352 branches in Pakistan. The bank serves around half a million clients annually and has over one million accumulated account holders.

HistoryPakistan is an agricultural country and more than 60% of its population is working related to agriculture. A development in the agricultural sector will no doubt result in the development of the whole country. To keep With a view to meet this basic need the Agricultural Development Finance Corporation was set-up in 1951, and was entrusted with the task of providing financial facilities for the development and modernization of agriculture, including: Forestry, Fishery, Animal Husbandry, Poultry, Dairy Farming. Later on the Agricultural Development Bank of Pakistan was also established in September 1957, under the Agricultural Development Bank Act. The Bank is to provide credit in cash or in kind, warehousing and storage facilities to agriculturists, cooperative societies and other bodies, of which the majority of members are agriculturists. 9


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As the functions of the Agricultural Development Finance Corporation and Agricultural Development Bank were similar and since both were working with capital provided by the Government, they were merged into one organization known as Agricultural Development Bank of Pakistan on February 18. 1961. The Agricultural Development Bank of Pakistan was a banking company for the purpose of the Banking Companies Ordinance and the State Bank of Pakistan Act. On 14 December 2002 the Federal Government has converted the Agricultural Development Bank of Pakistan (ADBP) into Zarai Taraqiati Bank Ltd (ZTBL) and the new venture has started its operation with immediate effect. The new corporate structure redefines the banks statue as a public limited company with an independent Board of Directors promulgated under the presidential ordinance which, aims at ensuring good governance, autonomy, delivering high quality, viable and timely financial services to a greater number of clientele in the agricultural and rural segment of the country with adequate returns to the stakeholder. After this incorporation all the assets and liabilities of ADBP became the assets and liabilities of ZTBL. This restructure was carried out with the aim to improve the working and role of bank in the agricultural development. The bank is completely owned by the government and it has head office in Islamabad. Ownership Type of Institution Established President & CEO Equity Headquarters Total Deposits Total Disbursement Homepage Government Specialized Bank 1961 Muhammad Zaka Ashraf 18.7 Billion (2009) Islamabad, Pakistan PKR 8.8 billion (as Dec.31st, 2009) PKR 77.7 billion (as Dec.31st, 2009) www.ztbl.com.pk


ZTBL is providing affordable, rural and agriculture financial services to the rural Pakistan, comprising 68 % of the total population. The Bank through a country-wide network of 352 branches is serving around half a million clients annually and over one million accumulated account holders with the average loan size of around Rs.89,000.

Credit RatingIn August 2010, ZTBL continued to achieve AAA credit rating by JCRVIS. Yea Entity r 201 AAA/ 0 A-1+ 200 AAA/ 9 A-1+ Stand Alone B+/ B B+/ B e Stabl e Outl ook Stabl

The credit rating of the bank is due to the reason that bank enjoys sovereign guarantee of the federal government that covers its debt obligations to State Bank of Pakistan (SBP) and ensures safety of deposits under the Banks (Nationalization) Act 1974. The banks lending book is largely funded through SBPs credit lines while contribution from deposits remains nominal. ZTBL is actively exploring different options for resource mobilization including bilateral/multilateral arrangements with financial institutions. In case these efforts materialize; it would diversify the existing funding source of the bank, thereby reducing reliance on the SBP.

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Corporate VisionDedicated to serve the needs of the farming community, by delivering financial products and technical services on a competitive and sustainable basis, in a convenient, efficient and professional manner, leading to success of the Bank and the farmers.

Corporate Mission

To play effective role in the promotion of economic growth, by enhancing the availability of credit to the agriculture sector, through reliable access to sustainable financing, special lending programs, technical assistance, and other products & services, and to promote career development opportunities for increasing professionalism and technical proficiencies of employees.


Corporate Objectives1. Develop and operate as a financially and operationally sustainable R.F.I of the country. 2. Assist rural community, particularly the small farmers, in raising their productivity and income levels through timely delivery of credit, advisory and ancillary services. 3. Build ZTBL's image as a proactive, client friendly, financially & operationally sustainable with indigenous product deployment. 4. Establish and provide backward and forward linkages to strengthen agri. value added commodity chains.5. Engage in public - private and wholesale - retail partnership to deepen outreach and

reduce operating cost. 6. To function as a rural commercial bank to mobilize rural capital formation and to commercialize the agriculture sector by delivering the true value of credit to the client. 7. Provide a wide range of risk insurance products to its clients.8. Open up its venues of operation to Domestic & International Banking Industry to avail

comparative advantages.

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Transformation of ZTBL to R.F.I country and road to excellence.

of

the

The conversion of ADBP into ZTBL had a conditionality of the Asian Development Bank (ADB) loan framework as per which a restructuring exercise was initiated. The restructuring process entailed ADBs Rural Finance Sector Development Program (RFSDP) with the objective to transform ZTBL into a sustainable Rural Finance Institution. It also included the up-gradation of Information technology (IT) infrastructure for which funds from ADBs loan were to be utilized. Healthy and well-functioning rural finance markets are directly related to achieving the two key national policy objectives of accelerating rural/agriculture growth and reducing poverty. The realization of these objectives depends on the simultaneity of developments in rural finance and non-financial markets to foster the creation of diverse sources of rural finance to build sustainable financial institutions, and stimulate products and capital flows in the rural sector. For this, rural finance must be seen as an integral part of equitable development within a framework of macroeconomic stability. For the majority, access to affordable rural finance services is also important to enable them to compete in the post-World Trade Organization scenario. Inability to compete because of high financial costs could reduce income of the majority of farmers and rural clients, particularly the small and subsistence clients. Lack of access to affordable rural finance services will also prevent the clients from switching to non-farm activities. The ZTBL restructuring plan covering the following; Governance: establish an environment that facilitates good governance and accountability; Systems: modernize operations through use of technology, networking, and communication tools; Business processes: streamline products and delivery systems so as to reduce transaction costs, simplify operations, and increase outreach; Products and services: introduce products and services that are financially economically viable;

Internship Report on Zarai Taraqiati Bank Ltd. 2010 Human resource development: improve standards and skills of management and staff and strengthen training capacity; and Information Technology: establish new hardware and software platform to support MIS, accounting system including forensic accounting, and risk management functions. The reforms shall establish ZTBL as a key R.F.I of the country. By expanding its private sector role, the bank aims to establish network of high tech rural and agri. financial services through intermediations under public private participation and whole-sale -retail lending mechanism.

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Branch Network

Islamabad, Pakistan

Head Office

Details of Regional Offices


Punjab

Sindh

Balochista nD.I. Khan 14 Branches Turbat 6 Branches Quetta 18 Branches D.M. Jamali 7 Branches

Khaber Pakhtunk hawAbbottabad 7 Branches Mingora 15 Branches Peshawar 20 Branches

Gilgit BalitistanGilgit 7 Branches

Islamabad 13 Branches Multan 8 Branches D.G.Khan 6 Branches Sahiwal 15 Branches Lahore 20 Branches Gujranwala 18 Branches Bahawalpur 13 Branches Faisalabad 20 Branches Sargodha 16 Branches Vehari 11 Branches

Karachi 15 Branches Hyderabad 14 Branches Mirpur Khas 14 Branches Sukkur 15 Branches Larkana 18 Branches S.B. Nazirabad 14 Branches

Total ZonesMuzafargar h 11 Branches R.Y. Khan Total Audit Zones Muzafar.Ab 7 Branches ad 10 Branches Total Branches

27 9 352

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Management HierarchyThe general direction and superintendence of the affairs of the bank are entrusted to a 12 members Board of Directors consisting of a chairman appointed by the Federal Government, the Federal Government officers from the Ministries of Finance and Food and Agriculture, four officers of the four Provincial Governments and one non official nominated by each province. One member on this board represents the State Bank of Pakistan also. However, at present the bank has 7 directors including chairman. The bank also has a president appointed by the federal government and a company secretary. In ZTBL, the president supervises and directs the Chief Executive Officer who supervises and directs the Head of Department, who then supervise and direct the officers under them. The management hierarchy of bank is as follows;

Earlier the bank was functioning like a pure government institution and permission has to be sought on every step for moving forward. Now the bank management board will be fully empowered to run the affairs of the ZTBL. More than 2,000 employees of the bank have opted for Voluntary Golden Hand Shake Scheme, offered by the bank to its employees. Bank has established a task force for improving the operational performance of the staff and it was monitoring the disbursement, recovery operations and performance of field functionaries. The task force comprised 10-15 officers and each officer will head a desk exclusively to monitor 3-4 regions. This task force will be responsible to evaluate performance of each MCO, Manager and Regional Manager on the achievement of banks policies regarding credit and recovery periodically.


Board of DirectorsSyed Qamar-Uz-Zaman Shah Chairman Board Mr. Muhammad Zaka Ashraf President/ CEO

Mrs. Nazrat Bashir Director

Mr. Shafqat Hussain Naghmi Director

Mr. Muhammad Khan Mohmand Director

Iftikhar

Mr. Tauqir Ahmad Faiq Director

Dr. Khalid Ahmad Khokhar Director

Mr. Imam Sheikh Director

Bux

Mr. Muazam Ali Company Secretary

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A Brief Resume of President

Mr. Muhammad Zaka AshrafPresent Portfolios President/Chief Executive Officer, Zarai Taraqiati Bank Ltd. Chairman & Chief Executive, Ashraf Group of Industries Chairman, Pakistan Sugar Mills Association (Punjab Zone) from October, 2006 (Second Tenure) Chairman, Sugarcane Research & Development Company, Agriculture Department, Government of Punjab President, Petarian Association, Lahore Patron-in-Chief Sindh Abadgar Welfare Association (Sindh) Posts Held Advisor to Chief Minister Sindh from 1989 to 1990 Member Executive Committee, Lahore Chamber of Commerce & Industry from October 2002 to September 2004 Central Chairman All Pakistan Sugar Mills Association from October 2004 to October 2006 Vice Chairman of The Federation of Pakistan Chambers of Commerce & Industrys Standing Committee on Food & Agriculture from January 2007 to December 2007 Academic Institutions Member Board of Governors of Sadiq Public School, Bahawalpur, from 1st January 1989 to 2008


Ms. Nazrat BashirDirector Ms. Nazrat Bashir belongs to District Management Group of Civil Services of Pakistan. She is Masters in Economics from New York University, New York, USA and Master in Psychology from Peshawar University, Peshawar. She has extensively traveled abroad and has attended various international Seminars and Conferences such as on Micro Finance, Anti Money Laundering, and Instruments of Financial Markets etc. Domestically too she has attended various programmes in some of very prestigious institutions of Pakistan. She possesses 29 years of administrative experience in government service in economic & financial policy and its implementation. At present, she is working as Additional Finance Secretary, Internal Finance, Finance Division, GoP, Islamabad. She is a certified Director on the Panel of Pakistan Institute of Corporate Governance (PICG). Besides Zarai Taraqiati Bank Limited, she is on the Board of Directors of National Investment Trust (NIT) and NBP.

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Mr. Shafqat Hussain Nagmi Director Mr. Shafqat Hussain Naghmi is a civil servant from DMG Group and currently posted as an Additional Secretary I in Federal Ministry of Commerce, Islamabad. Previously he was posted as Chief Operating Officer (COO) in Pakistan Cricket Board.

Tauqir Ahmad FaiqDirector Tauqir Ahmad Faiq represents the Ministry of Food and Agriculture, Government of Pakistan on ASFs Board of Directors. An expert in District Management, Secretariat Affairs, Development Project Management and International Cooperation with combined experience of 34 years having held the office of Secretary at Government of Punjabs Zakat and Usher, and Social Welfare Departments; he is currently Additional Secretary at the Ministry of Food and Agriculture, Government of Pakistan. Tauqir Ahmad Faiq has served as Director General Lahore Development Authority Government of Punjab and has

Internship Report on Zarai Taraqiati Bank Ltd. 2010 also been member the Board of Revenue and Population Welfare Department of Government of Punjab.

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Kissan Support Services Ltd.Subsidiary of ZTBLKissan Support Services Ltd. Is a subsidiary of ZTBL which is established with a capital investment of 100 Million to help ZTBL in the achievement of its objective and also to make availability of trained human capital to the bank.

KSS AimTo provide support staff to ZTBL & under take its non core activities.

KSS OperationKissan support services operates under its Memorandum & Articles of Association.

ObjectivesThe main objective of KSS are following: To provide to the Bank all kinds of support staff and ancillary services To plan, organize and establish training facilities to impart training to the banks staff Drip Irrigation System to assist the bank clients in marketing of their product and provide storage facilities To assist the bank clients in marketing of their product and provide storage facilities To provide welfare services to the employees of the Bank including education, vocational training, sports and recreation facilities To invest any surplus money of the company not immediately required

Internship Report on Zarai Taraqiati Bank Ltd. 2010 To carry on any business, which may seem to the company capable of being conveniently carried on To liaison & establish contracts with agricultural research organizations for development of efficient, effective and appropriate technologies To carry on business of providing consultancy, advisory and other agency services and support services to Zarai Taraqiati Bank Limited To provide to the Banks clients quality products and services for efficient and improved farming Etc.

Services/Activities so far undertaken by KSS Security Services to ZTBL Recruitment/provision of staff janitorial Services provided to: a. ZTBL Head office buildings b. Ztbl Farms c. Staff college d. Printing stationery office e. AV Unit f. Old record office g. Sports club h. Warehouse Management of Sports Activities Management of Sports Activities Photocopy Services Day to day minor repair and maintenance of ZTBL HQ Buildings

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Chapter 2Products and ServicesZTBL Locker FacilityZarai Taraqiati Bank Ltd. apart from its core functional activity marked with country based agri-business, has started to serve its valued customers by offering lockers facility. Initially, this facility is being offered at following 11 branches:S.No 1 2 3 4 5 6 7 8 9 10 11 Name of Branch Islamabad Branch Main Branch Lahore Peshawar Branch Gujranwala Branch Faisalabad Branch Multan Branch Sahiwal Branch Sargodha Branch Khan Pur Branch Shafi Court Branch Main Branch Gulshan-e-Johar

Following are the approved rates for rent of lockers and key deposits against which lockers will be allocated: Specificatio Rent Per n Annum Small 6-1/2"x4Rs.1,200/1/2"x23" Mediu 13-1/2"x4Rs.1,800/m 1/2"x23" Large 13-1/2"x8Rs.2,500/1/2"x23" Life Time Locker Facility Type Rent after grace Key period Deposit Rs.1,500/Rs. 5,000/Rs.2,250/Rs.3,125/Rs. 10,000/Rs. 15,000/-

On lump-sum payment of locker rent for ten years entitle the lessee to

Internship Report on Zarai Taraqiati Bank Ltd. 2010 avail the locker facility for life time, without key deposit.

Products offered to Meet Finance Need of FarmersZarai Taraqiati Bank Limited (ZTBL) is a specialized bank providing agricultural credit in rural areas of the country. Pakistan is an agricultural country and near about 60% of its population is working directly or indirectly related to agriculture industry. But instead of being an agricultural country Pakistan is still not gaining benefits from this sector which it can gain. Some time we even does not able to fulfill our food requirement and sometime we have bumper crop but does not have facilities to store them properly, in this way we are wasting our resources. To gain benefit from agriculture sector it is required to be modernized to increase the per acre production and also to build warehouses to store. The main hindrance in the modernization of agriculture is the unavailability of finance. The other financial institutions feel reluctant in giving finance to farmers due to high level of risk in the production of this field. To facilitate farmers and to help in modernization of agriculture sector the government has established this bank which is contributing its part in achieving government objective from many decades. ZTBL is offering a blend of products to fulfill the need of different types of customers.

Types of Loans Advanced1. Short Term LoansShort term loans are loans for shorter period of less than a year. It includes, crop production working capital loans recoverable in lump sum commencing after the harvest/marketing of respective crops and within maximum period of 12 months.

2. Medium Term LoansMedium term loans are for a period of more than a year but less than 5 years. In includes, dairy farming and livestock etc. The installments of these loans are usually paid able in quarterly or half yearly basis.

3. Long Term LoansLong term loans are for a period of more than 5 years. These are development loans which require large amount and also need some time to show its result in the shape of better production. It includes loans for tractor, agricultural machinery, poultry farming,

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godowns and orchard in yearly/half yearly installments within maximum period of 8 years.

Loan SchemesZTBL is offering the following loan schemes to the farmers.

Supervised agriculture scheme:Under this scheme agriculture loans are given for short, medium and long term loans up to Rs. 1.00 million per borrower/per case. The loans are sanctioned for In Fats, livestock, orchard, tractor, agricultural machinery, tube well and irrigation facilities etc. under the scheme besides provision of credit, information are provided to the farmers for planning the farm, production, guidance for implementation of the scheme, marketing and repayment of loans.

Zarkhaiz (one window operation)For timely and conveniently provision of credit to purchase inputs, loans are provided to the borrowers under One Window Operation being conducted twice a week during Rabi and Kharif seasons. Applications processed on the same day whereas sanction payments are made within three days at Branch. For Rabi Crops one window operation from October to January and for Kharif Crops from April to September each year which is extendable as per requirement of particular area.

Sada Bahar SchemeFor providing timely input loans for crops and working capital for poultry and fishery etc, the Bank has launched a Sada Bahar Scheme. Assessment for inputs requirements for the whole year is made at the time of first application. The amount so assessed is treated as Revolving Limit provided it is within the security limit. The Managers

Internship Report on Zarai Taraqiati Bank Ltd. 2010 are authorized to sanction such loan limits up to Rs.O.500 million. Schemes main features are as under: Revolving Credit Limit is fixed to cater production credit and ancillary requirements of the farmers during one year period. The documentation once completed remains applicable for three years with yearly cleanup/renewal without any further documents. The borrowers can draw the credit in lump sum or in installments according to his requirement. Like-wise he can repay in lump sum or in installments during the year when his cash position allows him. Pass Book containing transactions in his SBS Account is supplied to every borrower free of cost.

Tea financing schemeIn order to increase the tea cultivation in District Mansehra, Swat, Mutta, Shangla par and Dir in Malakand Division, tea financing scheme has been introduced which would not only save the hard earned foreign exchange but would also help improve the socio-economic condition of the inhabitants of the area. The salient futures of the scheme are given as under: Maximum Credit Ceiling of Rs.60, 000/- per acre has been fixed. Farmers owing land up to five acres are eligible to avail loans. Credit will be given in 3 installments: first year Rs.30, 000/-, 2nd year Rs.15,000/- 3rd year Rs.15,000/- provided the disbursed loan is used properly. The credit would be repayable within 1 year with 6 years grace period with prescribed markup of 9% per annum. Rebate of 1 % will be allowed in mark-up on timely repayment and proper utilization of the loan. 29


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Crop maximization projectMinistry of Food, Agriculture and Livestock (MINF AL), Government of Pakistan has launched Crop Maximization Project in 109 villages in various districts throughout the country to increase the productivity/yield of crops. Under the project MINFAL has to provide funds of Rs, 299.893 million to ZTBL for disbursing loans to the project farmers for purchase of inputs. Till the time funds of Rs.468 Million have since been received by the Bank for the purpose. These funds are to be revolved for meeting input credit needs in the project villages till 30th June, 2014 after which Bank will return the principal amount to MINFAL. Accordingly Credit needs of the project farmers are being met by respective ZTBL branches through Village Organizations formed for the purpose. Duly the currency of the project Bank is authorized to charge 4% per annum mark-up on loans to project growers to meet its operational cost, however in case of default Banks normal rate of return i.e. 9% p will be applicable.


PER ACRE CREDIT LIMITSMajor CropsWheat Paddy (Rice) Sugarcane Cotton Maize 16,000 19,000 30,000 21,000 20,000

Minor CropsOverall Credit Limit Per Borrower Rs.1.000 Million Sada Bahar Scheme under one window operation or Rs.0.500 otherwise Million Potato Tobacco Mustard Mung Tomato Mash Lentil Groundnut Sunflower Soyabean Canola Rape Seed Til(Sesame) Suger beet 36000 29000 11000 19000 3000 11000 14000 15000 12000 13000 11000 12500 12000 31 Bajra Jawar Gram Guara Caster Oil Barlay Berceme Janter Garloc Turmeric Ginger Lacern & Shaftal 11000 11000 12000 3000 6000 9000 4900 4000 26000 25000 30000 4500


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Growing Agro Forest TreesSNo. 1 Trees Bamboo 1st Year 34,000 2nd Year 8,000 3rd Year 3,000

Mature Orchard/Fruits cropsPear 24000 Loquat 24000 Plum 33000 Growing Orchards Apple 37000 Papaya 22600 2nd S. 1st Trees Almond 32000 Year No. Year Coconut 21000 1 Mango 24,000 13,000 Lichi Citrus 32000 2 21,000 12,000 Cherry Apple 33000 3 23,000 12,000 Mango Banana 37000 4 29,000 20,000 Apricot Jujuba 31000 9,000 5 19,000 BananaGuava 37000 6 21,000 12,000 Peach Coconu 32000 7 29,000 Citrus t 34000 6,000 Palm 8 18,000 6,000 Oil 9 Dated 33,000 12,000 Dates Strawberry Tea Guava Pomegrante 3rd 4th Year Palm Year Olive Oil 13,000 13,000 Walnut 11,000 13,000 Persimen 12,,000 12,000 Zizi Phus(Bher) 23,000 30,000 Melon 10,000 10,000 Water Melon 11,000 13,000 Musk Melon 6,000 7,000 7,000 11,000 7,000 12,000 31000 25000 60000 24000 33000 5th Year 22000 13000 14,000 23000 13,000 15000 14,000 25000 26,000 16000 10,000 16000 13,000 16000 8,000 7,000 13,000


Types of SecurityImmovable Property Under Pass Book System 80% Outside Pass Book System 70% Under Alienability Certificate 66% Commercial/Industrial Land under Pass Book 80%

Agricultural Land

Outside Passbook System Urban Residential/Commercial Plots in all localities outside Pass Book 75% Alienability Certificate 66% Residential/Commercial Buildings 70% Lease hold rights of a leased land of CDA/KDA with 99 years lease 70%

Moveable Property and Guarantees1. Unconditional Bank guarantee from scheduled BanksUp to maximum amount of an un-conditional Bank guarantee after keeping sufficient margin for un-paid mark-up, cost, charges and expenses.

2. Guarantee issued by Central or Provincial GovernmentFull amount of loan plus return and other charges.

3. Government securities85% of face value or market value whichever is less.

4. Defense Savings & FEB Certificates75% of value of certificates presented as security.

5.

Fix Term Deposits Receipts33


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85% of face value of deposits receipts.

6. NIT Units80% of the face value or market value whichever is less.7.

Life Insurance policies85% of surrender value

8.

Pledge of Potatoes/Seed Potatoes price or market value which ever is less Up to 75% of Govt. support.

Personal SuretyAgainst a bond with two sureties under General Credit and one surety in Special Schemes up to Rs.25,000/- or Up to 50% of appraised value of properties of sureties.


Debt Equity RatioFor Tubewell/Tractors/Implements/Attachments/Equipment sAll kinds of Tubewells/ Turbines New Tractor 25% Within 5 years in annual/bi-annual installments commencing one year after first disbursement No equity Within 8 years in monthly/quarterly but 10% or half yearly installments to be of the decided by Manager in consultation loan is to with borrower. be needed in PLS Account -doWithin 5 years in monthly/quarterly or half yearly installments to be decided by the Manager in consultation with borrower.

Used Tractor, Equipments/ attachments/ implements and used tractor

Except Tubewell/Tractors/Implements/ Attachments/Equipments Production Loan upto Rs.0.100 Million NIL Land holding upto 25 acres/loan amount upto Rs.0.2 15% Million Land holding beyond 25 acres to 50 acres/loan amount 25% beyond Rs.0.2 Million upto Rs.0.5 Million Land holding beyond 50 acres/loan amount beyond Rs.0.5 30% Million upto Rs.1 Million.

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Repayment PeriodsS. No. 1 Types Loans of Recovery PeriodCrop production working capital loans recoverable in lump sum commencing after the harvest/marketing of respective crops and within maximum period of 12 months. Dairy farming and livestock etc. In yearly/half yearly/monthly installments and within maximum period of 5 years. Tractor, agricultural machinery, poultry farming, godowns and orchard iIn yearly/half yearly installments within maximum period of 8 years and. above. Short Term Loans Medium Term Loans Long Term Loans

2 3

Recovery ProcedureA) Recovery Schedule Recovery schedule in each loan case as per terms of sanction of loan is fixed and communicated to the borrowers after disbursement of loan. In case of default or failure in repayment of any installment on due date the mark-up shall continue to be charged and last installment due to this may differ from the amount of installments fixed at the time of disbursement.

b) Issuance of NoticesDemand notice is issued before the due date of every installment. A Legal Notice is issued one month after the due date informing the borrower that if the amount is not repaid within next one month, further legal action will be taken to recover the dues.


c) Legal Action

Legal action can be initiated against the defaulter if loan is not repaid even after expiry of legal Notice period. Where the court in bank's favour has decreed a case, account is to be settled by recovery of amount from the auction of the mortgaged property. The bank may purchase the mortgaged property if considered feasible to dispose it off later on through auction or in any manner deemed fit for getting the best price. The bank may dispose off the mortgaged properties of defaulters for satisfaction of its dues with out intervention of courts under Financial Institutions (Recovery of Finances) Ordinance 2001.Rescheduling of Loan Repayment Facility .

d) Rescheduling of Loan Repayment Facility ZTBL allows rescheduling of repayment of installments to its borrowers in order to maintain credit discipline and to mitigate their genuine problems in real hardship cases and in areas declared as calamity hit by the respective Provincial Governments The Rescheduling facility is to be considered by bank on case tocase basis and is to be allowed on borrower's request only. The relaxation in recovery period shall not be allowed beyond one year in any case. The borrowers shall have to execute a supplementary loan agreement on Non Judicial Stamp Paper of appropriate value to give legal cover to extended period. The borrowers shall have to pay the return for the extended period.

d) Down Payment for Rescheduling of LoansRescheduling Number Rate of down payment as against due installments to be rescheduled 37

Internship Report on Zarai Taraqiati Bank Ltd. 1st 2nd 3rd 10% 20% 30%

2010


Chapter 3Horizontal Analysis of Balance SheetParticularsASSETSCash & balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Operating fixed assets Other assets - net

2008%8.695 973.720 77.413 28.689 16.981 -8.284 21.936

2007%31.983 707.49 7 166.84 5 12.842 -11.432 1.860 11.267

2006%-18.724 426.05 8 97.724 13.212 -16.375 -10.364 1.813

2005%-0.532

2004%100 100

428.274 100 349.899 -2.595 -29.360 -14.614 -0.098 100 100 100 100

LIABILITIESBills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liability Other liabilities 210.675 0.000 73.764 0.000 86.149 19.942 32.729 98.915 0.000 38.465 0.000 46.641 10.705 14.307 39.962 0.000 -7.681 0.000 9.006 1.418 3.948 19.402 0.000 -15.296 0.000 3.013 -0.086 -0.162 100 100 100 100 100 100 100

NET ASSETS REPRESENTED BYShare capital Reserves Unappropriated profit Surplus on revaluation assets - net of tax of

5.500 404.287 278.696 30.315 260.729 32.729

0.000 162.74 1 112.92 5 10.222 400.12 5 14.307

0.000 66.838 17.022 2.245 164.83 8 3.948

0.000 13.928

100 100 100

-18.478 -0.998 78.773 -0.162

100 100 100

39


2010

Note: In this Horizontal Analysis the year 2004 is taken as a baseyear to calculate the change in other financial years. All the columns are representing change with respect to 2004.


Vertical Analysis of Balance SheetParticularsASSETS Cash & balances with treasury banks Balances with other banks Lendings to financial institutions Investments - net Advances - net Operating fixed assets Other assets - net

2008% 1.693 15.518 0.000 4.940 68.324 1.117 8.408 100.00 0 0.722 60.320 6.385 3.771 0.000 0.218 28.584 100.00 0 100.00 0

2007% 2.253 12.79 0 0.000 8.143 65.65 5 0.927 10.23 3 100.0 00 0.501 65.35 3 5.512 4.086 0.000 0.152 24.39 6 100.0 00 100.0 00 83.17 9 3.966

2006% 1.516 9.106 0.000 6.594 71.98 7 0.956 9.841 100.0 00 0.385 71.33 8 4.012 4.460 0.000 0.011 19.79 6 100.0 00 100.0 00 89.66 9 2.715

2005% 1.891 9.319 0.000 15.290 63.121 0.823 9.554 100.00 0 0.333 72.412 3.736 4.527 0.000 0.000 18.989 100.00 0 100.00 0

2004% 1.899 1.762 0.000 3.395 64.73 9 1.164 11.17 8 100.0 00 0.279 72.35 0 4.407 4.523 0.000 0.000 18.41 8 100.0 00 100.0 00 91.68 2 1.664

LIABILITIES Bills payable Borrowings Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deferred tax liability Other liabilities

NET ASSETS REPRESENTED BY Share capital Reserves

74.223 6.438 41

92.606 1.914

Internship Report on Zarai Taraqiati Bank Ltd. Unappropriated profit

2010

Surplus on revaluation of assets - net of tax

19.339 100.00 0 2.847 100.00 0

12.85 5 100.0 00 4.584 100.0 00

7.616 100.0 00 2.669 100.0 00

5.480 100.00 0 1.876 100.00 0

6.655 100.0 00 1.048 100.0 00


Horizontal Analysis of Profit & LossParticularsMark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against nonperforming loans and advances Provision/(reversal) for diminution in the value of investment Write offs under Government relief packages Bad debts written off directly Net mark-up/interest income after provisions NON MARK-UP/INTEREST INCOME Fee, commission and brokerage income Dividend income Other income Total non mark-up/interest income NON MARK-UP/INTEREST EXPENSES Administrative expenses Provision against other assets Provision for stolen fixed assets Other charges Total non mark-up/interest expenses 85.474 12392.99 5 55.459 2574.166 13.261 54846.18 2 7.184 379.466 0.000 0.000

2008 %4.501 11.279 0.224 -43.546 27.355 0.000

2007 %-13.362 9.002 -27.473 -9.279 -168.737 4286.557

2006 %-26.024 -10.618 -35.745 -48.118 913.026 15739.29 3

2005 %-15.825 -87.507 29.405 38.920 158.617 0.000

2004 %0.000 0.000 0.000 0.000 0.000 0.000

-16.749 14.982

58.214 -101.980

65.541 -123.815

105.258 -36.551

0.000 0.000

82.822 89.283 514.594 506.732 144.932

-2.988 -64.283 509.536 500.567 57.249

5.560 7.133 486.610 478.468 35.344

30.996 7.133 -11.859 -12.217 -30.120

0.000 0.000 0.000 0.000 0.000

98.750 241.700

58.105 55.455

73.490 -100.000

6.965 107.828

0.000 0.000

43

Internship Report on Zarai Taraqiati Bank Ltd.PROFIT BEFORE TAXATION Taxation - Current - Prior years - Deferred

2010

241.700 175.783 266600.0 00 175.638 291.769

52.854 25.485

-44.586 -56.772

107.828 -92.363 12240.0 00 -92.483 119.457 160.791 -26.348 -26.348 117.742

0.000 0.000

2231120. 000 49.299 55.548 205.182 105.262 105.262

189060.0 00 -54.893 -36.775 112.603 12.854 12.854

0.000 0.000 0.000 0.000 0.000 0.000

PROFIT AFTER TAXATION Unappropriated profit brought forward Profit available for appropriation Transfer to statutory reserve Transfer to contingency reserve 455.289 346.096 346.096

Profit caried forwardBasic earnings per share (Rupees)

235.049

33.028

-43.548

0.000

Note: In this Horizontal Analysis the year 2004 is taken as a baseyear to calculate the change in other financial years. All the columns are representing change with respect to 2004.


Vertical Analysis of Profit & LossParticularsMark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against nonperforming loans and advances Provision/(reversal) for diminution in the value of investment Write offs under Government relief packages Bad debts written off directly Net mark-up/interest income after provisions NON MARK-UP/INTEREST INCOME Fee, commission and brokerage income Dividend income Other income Total non mark-up/interest income NON MARK-UP/INTEREST EXPENSES Administrative expenses Provision against other assets Provision for stolen fixed assets Other charges Total non mark-up/interest expenses

2008 %170.058 70.058 100.000 99.934 0.066 0.000 0.000 100.000 34.539

2007 %194.831 94.831 100.000 84.502 -0.019 15.517 0.000 100.000 -0.926

2006 %187.772 87.772 100.000 46.186 0.264 53.549 0.000 100.000 -12.946

2005 %106.091 6.091 100.000 99.740 -0.012 0.273 0.000 100.000 66.804

2004 %163.09 8 63.098 100.00 0 147.36 8 0.043 0.000 0.000 100.00 0 73.574

0.076 0.197 99.727 100.000

0.041 0.038 99.922 100.000

0.046 0.117 99.837 100.000

0.377 0.771 98.853 100.000

0.252 0.631 98.451 100.00 0 100.00 0 99.651 0.110 0.000 0.000 100.00 0

100.000 92.994 6.934 0.053 0.019 100.000

100.000 97.983 1.866 0.000 0.151 100.000

100.000 65.056 34.937 0.000 0.007 100.000

100.000 99.855 0.494 0.000 0.145 100.000

45

Internship Report on Zarai Taraqiati Bank Ltd.45.070 PROFIT BEFORE TAXATION Taxation - Current - Prior years - Deferred PROFIT AFTER TAXATION Unappropriated profit brought forward Profit available for appropriation Transfer to statutory reserve Transfer to contingency reserve 100.000 100.052 0.909 -0.961 100.052 58.644 41.356 100.000 0.000 0.000 100.000

2010

31.938 100.000 84.049 1.103 14.848 84.049 50.603 49.397 100.000 0.000 0.000 100.000

0.000 100.000 95.833 0.000 4.167 95.833 37.410 62.590 100.000 0.000 0.000 100.000

-3.619 100.000 101.605 0.000 -1.605 101.605 -17.641 117.641 100.000 0.000 4.096 100.000

32.306 100.00 0 99.999 0.000 0.001 99.999 66.776 33.224 100.00 0 13.355 0.000 100.00 0

Profit caried forward


Interpetation of Horizontal and Vertical AnalysisMarkup/ Return/ Interest Earned Note:The Financial statement for the year of 2009 is not available online. Markup/return/interest earned is the amount which the bank earns ZTBL is government institute and it is not listed in any stock from its primary function of lending money to its customers. Increase exchange. I have tried to get copy of financial statement from the in this income shows that bank is growing, the reason of this growth offices of bank but I failed to find any copy from the branch where I can be either the increase in customer base or in the increase of rate have completed my internship then I have contacted zonal offices of lending. When I compare the markup/return/interest earned by the and they also did not have any copy of the financial statement of bank in the past 5 years it shows that the bank has improved its year 2009. With the reference of branch manager I have requested it primary function in recent years. The year from 2005 to 2007 shows a from the Head Office but I came to know that publication department decline in this income which is a clear sign that in that specific years has not published the financial statement for the year 2009. The last the bank performance was not satisfactory, the reason of this financial statement which is available in the printed form is of year performance can be the political unrest in the country due to which 2007. The financial statement of year 2008 is also not available in sufficient attention couldnt be given to banks working or it can be printed form however it is available on internet in the excel format result of large NPLs. which does not include director and auditor report. This is the reason that the horizontal and vertical analysis is done from 2004 to 2008. In the notes related to markup/return/interest earned it shows that the bank is earning a major part of its income from the loans given to However, the Key Financial Trends of year 2009 is included in the customers, the bank has less focus of investment. However, it is report which I have obtained from the credit rating report published earning a handsome amount from the placement which it has made by Japan Credit Rating Agency on August 2010. The internship report with other banks. also includes a glimpse view of banks performance from 1997 till 2009 which I have collected from the banks website, other websites Markup/Return/ Interest Expensed and newspapers. Markup/Return/ Interest Expensed is the expense of bank on taking deposits and borrowings from the SBP. This expense shows an increase as compared to previous years which shows that banks cost of deposits and borrowings has been increased. This increase can be due to two reasons, it can be due to increase in the amount of deposits and borrowing or it can be due to increase in the rate the bank offered on deposits and on borrowing from SBP. In the notes it shows that bank is paying a large amount on borrowing from the SBP rather than on the deposits. It can be due to two reasons that either bank has deposits in the current account on which it has to pay no or less cost or it is due to less deposits. From the amount of deposits in the balance sheet it is clear that the deposits of bank are 47


2010

not of significant amount as compared to borrowing. I also know that bank is working manly on the amount borrowed from SBP rather than on deposits collected from the general public and institutes. An increase in markup/return/interest expensed is not a bad sign if the markup/return/interest income is also increasing, however if the increase in expense is more than the increase in the income than it will be a negative sign. From the vertical analysis of Profit and Loss account it is clear that the income is much more than the expense which shows that the bank has cushion to confront with other expenses incurred due to secondary functions of the bank which is a positive sign.

Net Markup/Interest IncomeIt is the income which the bank is earning after paying the markup/return/interest expensed. From the horizontal analysis of the profit and loss it is clear that there are many ups and downs in this income which is result of decline in the markup/return/interest income of the bank. But in the year 2008 it shows recovery and it is increased as compared to previous two years of 2006 and 2007. When I look net income in terms of amount in the profit and loss accounts of last five years I find it positive and a handsome amount to bear the other expenses of the bank. Because the horizontal analysis is showing result by taking 2004 as a base year that is why in the year 2006 and 2007 it shows negative sign which means that in these two years the net income of the bank has been decreases as compared to year 2004. But in the year 2008 it again shows recovery.

Provision again Non-Performing LoansThis shows the cost bank is charging to it P&L account against those loans which may become bad debts; almost all banks try to reduce this cost. This shows the customer base of the bank to which bank is lending, the lesser the cost the better and trustworthy client base the bank has. Horizontal analysis of P&L A/C shows the decline in the recent years in this provision which is a positive sign for the bank. Which shows that banks credit and recovery departments has improved their workings.


Provision/ (reversal) against diminution in the value of investmentThis shows any provision required to charge or reverse for the investment made by the bank. An increase in the provision shows that the investments of the banks are declining in value which will definitely result in loss and if the provision made before is reversed it shows that the value of the investment is increasing. The horizontal analysis of the P&L account shows that the provision created by the bank is reduced in 2008 as compare to 2007 which is a positive sign. The reason of large provision in 2007 can be due to uncertainty in the stock market etc.

Write offs under Government Relief Packages

ZTBL is a government bank due to which the government can ask it to give relief to loanees of particular regions of category which also increase the cost for the bank. The flood of 2010 is expected to increase this cost in this financial year too because a large number of farmers have been effected with this flood and they are not in the situation to return their borrowed amount to the bank. For the year 2008 there is not any amount which is asked by the government to write off but in the year of 2007 and 2006 there is some amount which banks directly written off on the instructions of the government.

Net markup/ Interest income after provisionsThis is net income after charging provisions. An increase in this income is a positive sign which can be due to two reasons that either the net markup/return/interest income has increased or the provision required to be charged by the bank is reduced due to less number of NPLs loans. So, if the net markup/interest income after provision is increasing it is a positive sign because the bank will have more amounts to pay its other expenses like admin expenses etc. and it will result in more Gross Profit.

Non Markup/Interest IncomeIt is the income which the bank in earning from its secondary functions. An increase in this income is also a positive sign it shows that the bank is also making its secondary functions profitable. The secondary functions shows the amount earned from the commission charged in the services offered by the bank, the dividend income etc.

49


2010

But this income may also have a portion of income gained by the bank by the sale of scrap or old machinery etc. It is not a positive sign if this income is larger part of total non markup/interest income. Because, the bank will not have the scrap to sale in all years and having larger part of this income of sale of scrap will definitely depicts that the banks profitability can be affected in the coming years. However, if the bank has sold old machinery and in the meanwhile new machinery is added in the assets of the bank than it will be a positive sign because it will show that the bank is working on BMR (Balancing, Modernizing and Restructuring) which will result in better performance. The profit and loss account of the bank is showing an increase in the non markup/interest income which is a positive sign. The vertical analysis of the profit and loss shows that other income is the larger part in non markup/interest income and from the notes it is clear that in the other income, the amount recovered which has been written off previously is making a bigger portion. Recovering a previously written off loan is a positive sign because it is causing an increase in the income of the bank.

Non Markup/Interest ExpensesIt consist on the expenses bank payed for admin expenses and some other expenses. But the admin expenses is usually a large part of this non markup/interest expenses and also it is most important expenditure to have a look upen because it shows that whether the bank is utilizing its human capital efficiently or not. A larger admin expenses is not a negative sign if it is also increasing the income of the bank. However, if the percentage change in the increase in the admin expenses is more than the percentage in the increase in the income than it is a negative sign beacause is paying more to increase its income. Almost all banks try to control this income so that to increase their income. The ratio of Admin Expenses to Deposits is used to check the cost bank is facing on collecting of deposits which is the main source of money bank required to lend to others to make income. However, in ZTBL the bank relies on borrowing from SBP more than on deposits so the efficiency of admin expenses can not be judge from the ratio of admin expenses to deposits. So, it is difficult to say anything about the cost of admin expenses.


From the horizontal analysis it is clear that the admin expenses has been increased in 2008 but the profit of the bank is also increased so it is not a negative sign. By looking in the notices of financial statement it is found that admin expenses consists on a number of expenses, salaries of the staff no doubt a major a part of it but other expenses like traveling expenses, motor vehical cost of repairing etc are also effecting this cost a lot. Because I know that the MCO scheme has become a major part of the banks working so increase in the cost of traveling, rapairing is not a surprise.

Profit before TaxationThe profit before taxation has been significantly increased in the recent years, the financial statement for the 2009 is still not available on internet nor in print format but some key facts which has been published by the bank for the 2009 shows that bank continues making profit in year 2009 also. When I look in the previous year it found that the profit before taxation is 2.5 times more than it was in 2004. However, the increase in the profitiability is not constant there are ups and downs in it. Like in 2005 and 2006 the profit of the bank has been decresed as comapred to 2004 and in 2007 it again started increasing and this continues till 2009 which have result of more than 2 Billion.

TaxationDue to increase in the profit the tax has been also increased, it is almost doubled in the last 5 years like the profit of the bank which has been also doubled. So, it not a negative sign. By compare the increse in the profit before tax and the increase in tax, I come to know that the increase in the tax is less than increase in profit which can be due to two reason that whether the rate of tax is not increased as the income of the bank or the bank is managing its tax efficiently.

Profit after Tax

The after tax profit of the bank continued to increase in the recent years which is a good sign and also shows that bank has improved its working a lot than few years before. The profit for the year 2008 is almost 300% more than the 2004 which show that the profit of the bank is tripled in last five years. The same trend continued in 2009 in which the bank also made a record profit.

51


2010

Interpetation of Horizontal and Vertical Analysis of Balance SheetCash and Balance with Treasury BanksIt shows the amount placed with SBP in order to fulfill the requirement of banking companies ordinance, 1962. There is a decline in the amount with respect to previous year, the reason of it can be the decrease in the volume of deposits due to which the bank is not required to maintain higher placement with SBP. However, the deposits also show an increase in it, so the reason of this decrease in the cash and balances with treasure bank is uncertain. One other can be this that the bank has placed higher amount with SBP than required in the previous year and that is why in this year the bank has withdrawal the money from its account with SBP.

Balances with other BanksHorizontal analysis of Balance sheet shows significant increase in the placement with other banks. It is not a good sign if the placement is in ideal state and is not generating any revenue for the bank. However, from the notes of ZTBL it is clear that the bank has placed amount with other banks in the accounts which are giving markup to the bank. Placing money with other institutions is not a good thing for any bank when does on a large scale because it cannot generate enough money to compensate the opportunity cost the bank is bearing on not investing or advancing this money to its customers. However, the case of ZTBL is different. It borrows money from SBP at fewer rates and lends it to farmers. The rate it charges to farmers is less than the prevailing rate in the market (currently 9%) so by depositing money with other financial institution it can earn more than the rate it is offering to its clients. Because it is an institute developed just for the improvement of agricultural sector so the banks main focus is on lending rather than investing.

Investments-net

There are ups and downs in the amount of investment made by the bank in the previous five years. From the notes to the account it is

Internship Report on Zarai Taraqiati Bank Ltd. 2010 clear that bank usually invest in less risky investment like Market Treasury Bills and Pakistan Investment Bonds. The less risky investment will result in less gain on investment but here the return on investment is not the main focus of the bank. The money the bank owns is largely consist on the borrowed money from SBP, so the bank cannot use the borrowed money in a more risky adventure.

Advances-netThe bank continues to increase the amount of advances to facilitate more and more farmers every year. The data of 2009 shows a record increase in lending to farmers; the bank has disbursed 77.7 Billion rupees in 2009 as compared to 70.7 Billion in 2008. The percentage increase in the horizontal analysis also shows this continuous increase in the trend of advancing.

Operating Fixed AssetsThe assets of the bank are also increased in 2008 and in 2009 the president of the bank also announced to increase it further by constructing new buildings. Increase in the fix assets shows that the bank is optimistic about its future.

BorrowingsIt is the amount which bank has borrowed from SBP. There is no change in this loan from 2004 the reason is that neither SBP has given new loan to ZTBL nor ZTBL has returned any principal amount of loan back to SBP due to which the amount of loan borrowed remain unchanged. ZTBL and SBP is now negotiating on terms and conditions of returning principal amount in 15 equal installments.

DepositsDeposits are the backbone in any bank operations because the primary function of any bank is to take deposit from depositors and then lend it again to other who needs it. But as I have written before ZTBL does not rely on deposits more like any other bank. However, in recent years the bank is trying to shift its dependence from SBP to other resources and due to this it starts increasing its deposits by marketing. But the efforts in this respect is still need improvements as the products offered by ZTBL is not as attractive as offered by other commercial banks.

Share Capital53


2010

In 2008 the bank has issued bonus shares to increase its paid up capital. The reason of this increase can be the requirement of SBP to maintain a minimum equity level. Currently the paid up capital of the bank is 12.5 Billion.

Reserves

Reserves are made for the development of the organization or for the contingencies which can affect in the future. There is continuous increase in the reserves of the bank from last five years which is a good sign. These reserves also include the statutory reserve requirement according to banking companies ordinance, 1962.

Surplus on Revaluation of Assets-Net of Tax

It is surplus amount which is the bank expect to get if it will sell these assets. The market conditions never remain certain; the price of anything can rise or fall in matter of second. This is the reason that organizations use to revalue their assets to record their value according to prevailing market rates. The revaluation of fixed assets also helps banks in raising their equity which result in more lending power of the bank.

ConclusionAlthough the bank needs improvements in many fields, the overall performance of the bank is satisfactory. The bank has made many efforts in the recent years and it is clearly visible in the result of its financial statements. The reduction in NPLs is also a positive sign and will definitely result in good performance. Besides a government institution the bank has made before tax profit of 4.9 Billion which is great achievement. If the process of improvement continues than it can make more profit in the upcoming years and its success will also result improvement in financing facilities to people of rural area.

Internship Report on Zarai Taraqiati Bank Ltd. 2010Ratios Avg. Rate of lending Avg. Rate of borrowing Admin Expenses Cost of funds Spread 2008 % 11.297 6.156 83.322 89.479 -78.182 2007 % 10.190 6.150 87.643 93.793 -83.603 2006 % 8.929 5.177 95.770 100.947 -92.017 2005 % 10.377 0.727 98.778 99.505 -89.128 2004 % 14.174 5.766 78.062 83.828 -69.654

RatiosThe reason of negative spread is that the bank use to borrow from SBP rather than getting deposits from the general public due to which the ratio of admin expenses depicts a large cost than expected because this ratio is calculated by dividing admin expenses with the deposits. In my opinion the admin expenses is required to be calculated by adding borrowing also with the deposit. For example if we will calculate this ratio by adding borrowing with deposits than the result for 2008 will be 7.975 rather than 83.322 which is acceptable. By calculating all admin expenses with this formula the result of spread will be like this.

Ratios Avg. Rate of lending Avg. Rate of borrowing Admin Expenses Cost of funds Spread Ratios Net markup to total income Return on assets Return on Equity Breakup Value Infection Ratio Provision to classified advances Advances to deposits

2008 % 11.297 6.156 7.975 14.131 -2.834 2008 % 84.239 2.542 15.418 12.605 16.697 60.426 1433.48 5

2007 % 10.190 6.150 6.817 12.967 -2.777 2007 % 65.875 1.106 7.238 11.546 23.686 55.227 1631.69 0

2006 % 8.929 5.177 5.099 10.276 -1.346 2006 % 71.387 0.491 3.171 10.849 28.201 48.630 2473.33 2

2005 % 10.377 0.727 4.846 5.573 4.804 2005 % 138.212 -0.154 -1.008 10.592 36.180 50.457 2448.135

2004 % 14.174 5.766 4.482 10.248 3.926 2004 % 142.862 0.791 5.129 10.726 -

55


2010

By calculating the admin expenses in this way the result of spread is still in negative but not as much as it was before. However, all this shows that there is still problem the bank is not utilizing its human capital as it needs to. The main reason behind this is the working style of the bank, because it a government institute so the wastage of resources is not a surprise thing. However, the bank is continually improving its working style and also moving towards making high profit. Ratio of net markup to total income shows that bank has improved its secondary function as wel. But this improvement is not stable one when I look the ratios of previous years, it shows ups and downs in it.

Return on assetsReturn on assets is a ratio uses to gain information that how much assets of the company producing profit, the more the result of this ratio the more efficently the bank is utilizing its assets. More than 2 is considerd a good ratio and the result of ZTBL is also showing good result, the ratio of 2009 is also more than 2 which is found in the report published by Japan Credit Rating Agency.

Infection ratioIt is an important ratio which shows that how much advances of the bank is placed under classified advances. In other words, it shows that how much loans given by the bank is considered to become bad debts. The more this ratio is, the more the bank needs to maintain the provisions against these loans and which will result in lesser profitability. Usually, ideal situation is conisdered where this ratio is less than 5%, in this situation the bank has a biger portion of customers which are trust worthey and have credit worthiness. The infection ratio of ZTBL is very high which can be considered a negative sign. However, keeping in view the previous records it is clear that bank has improved it a lot and all this improvement is giving

Internship Report on Zarai Taraqiati Bank Ltd. 2010 sense that if bank continue working with the same pace than in the next two to three years this ratio will decrease significantly and can come under satisfactory level. The record of NPLs is given in the Quick View of ZTBLs Performance.

Provision to Classified AdvancesThis ratio tells that how much provision the bank is maintaing against its classified advances. The more this provision is, the more it can be assumed that the classified advances of bank is in the category of loss. Maintaing provision is the requirement of Prudential Regulations of State Bank of Pakistan, the more risky the loan is the more provision the bank is required to maintain. The bank has to keep its classified advances in the four categories, (1) Other Assets Especially Mentioned (2) Substandard (3) Doubtful (4) Loss. Each category has its own requirement of provision, the higher the category, the higher the provision required to maintain. The ratio calculated from the financial statement of ZTBL shows a continuous increase, it is a negative sign because the bank is maintaining larger provision which shows that a large part of classified advances are in the category of loss. And it shows that bank is not doing enough to recover these loans.

Advances to DepoistsAdvances to deposit shows that how much part of deposit is used by bank to advance. Usually this ratio remains with in range of 70 to 75 % because 25% of all bank deposits is required to be kept in statutory reserve to maintain minimum liqudity requirement. The ratio of ZTBL is presenting a different scenerio, it is more than 1400% for the year 2008 which an abnormal result. I have mentioned the reason of it many times before in this report, the reason is that ZTBL is advancing a large part out of the loan it has obtained from the SBP. The borrowing of the bank is much larger than the deposits it has this is the reson that this ratio is showing such result.

57


2010

Key Financial Trends of 2009According to Japan Credit Rating Agency on August 2010

Note: The following is the extract from the report of JapanCredit Rating Agency issued on August 2010 showing the new credit rating of ZTBL. Balance sheet footing of the bank was higher at year-end 2009 at Rs. 113.6b. Net advances increased to Rs. 83.6b (2008: Rs.69.b) representing a higher proportion of total assets at 74% at year-end 2009. While various new loan products have been launched been launched by the bank in 2009, Sada Bahar Scheme has remained the flagship product of the bank. For all new borrowers of crop production loans, Awami Zarai Scheme (AZS) has been launched by the bank; outstanding balance against this scheme may also show increase over time. To ensure proper utilization of loan, the bank has incorporated a

Internship Report on Zarai Taraqiati Bank Ltd. 2010 wholly owned subsidiary to make arrangement for in-kind lending to farmers. The IT infrastructure of the bank has improved considerably over time. With the implementation of various applications at branch-level to consolidate loan disbursement & recovery data, monitoring of lending activities has improved, though there may still be a need to further strengthen the loan recovery mechanism. Gross infection has declined from16.7% in 2008 to 15.8% in 2009; however there is still need for further strengthening the recovery mechanism. Net infection hovered at prior years level at 11.5%. Net NPLs in relation to Tier-1 capital stood at almost 57% at year-end 2009. ZTBL has arranged crop loan insurance for wheat, cotton, sugarcane, rice and maize. As the insurance coverage is enhanced, the risk of loss in case of calamities will be reduced.

Growth in loan portfolio during 2009 absorbed some of the liquidity held by the bank. Liquid assets to total borrowings and deposits declined to 27%. The bank has made efforts to enhance its deposit base, though these continue to represent a small proportion of the total resource base. The bank had outstanding borrowings of Rs. 54.5b from SBP at year-end 2009. The terms of restructuring of SBP debt have yet to be finalized, which would have significant implications for the risk profile of the institution. The bank has so far not made any interest or principal payments against these credit lines. While there is some cushion available to the bank in terms of markup differential receivable from the GoP vis--vis interest payable to SBP, liquidity profile may be significantly compromised if payment is required against the principal portion. One of the proposals under consideration entailed debt to equity swap, which if finalized, would support 59


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capitalization levels and facilitate in furthering the governments economic objective pursued through the bank.

Credit RiskGross advances of the bank considerably grow over 2009, with yearend outstanding balance of Rs. 89.4b (2008: Rs. 77.8b). Loan disbursements of around Rs. 78b were made by the bank in the outgoing year. Loan disbursement target for fiscal year 2010 was Rs. 80b. ZTBL is used as an arm by the Government, with disbursement target stipulated as part of the annual budget process. For FY10, 22.7% of the loan disbursement target pertained to development loans, while remaining was for production loans. All targets are allocated by SBP. While various new loan products have been launched by the bank, Sada Bahar Scheme has remained the flagship product of the bank. Loan products launched in 2009 include, Green Tractor Scheme, Crop Productivity Scheme and Rural Development Scheme. Green tractor scheme is specifically for the province of Punjab and entails subsidy of RS. 200,000 per unit for 10,000 tractors. Banazir tractor scheme is applicable to all areas of Pakistan. On receiving complaints from borrowers regarding non-cooperative attitude of tractor dealers, a tractor delivery system has been developed through KSSL in the outgoing year. Awami Zarai Scheme (AZS) has been launched by the bank for all new borrows of production loans, pertaining to inputs required at the time of crop cultivation. As per the scheme, agriculture inputs will be supplied by KSSL to farmers in lieu of cash. Quantity of input needed for each crop on a per acre basis has been predetermined by the bank. The farmers will be provided a specific quantity of inputs according to cultivable land.

Internship Report on Zarai Taraqiati Bank Ltd. 2010 The purpose of AZS is to ensure proper utilization of loan proceeds. Crop productivity scheme is specifically for financing of fertilizer. Rural development scheme has been launched to provide assistance for dairy, poultry, sheep and goat farming in the rural areas of AJ&K; especially earthquake affected areas. The bank has also setup a pilot project for a model village in collaboration with ministry of food & agri./ provincial agri. Departments. Crop loan insurance has been made compulsory by SBP for wheat, cotton, sugarcane, rice and maize financing. To facilitate loan insurance, the bank has to pay the premium for subsistence farmers, which is subsequently reimbursed by GOP on a half yearly basis. ZTBL has arranged crop loan insurance with Adamjee insurance company limited (AICL). Premium is charged @ 1.3% of loan sanctioned. The implementation of software applications has facilitated monitoring of lending activities at branch level. The need for strengthening the collection mechanism however remains, as may be ascertained form the portfolio quality indicators. NPLs increased to Rs. 14.2b (2008: Rs. 13b) during 2009. During the out-going year, an amount of Rs. 2.6b was charged off against provisions as per the prudential regulations, with cumulative balance of charged off loans standing at Rs.34.98b at the end of December 2009. This amount was lower than the balance of Rs. 36.30b at the end of December 2008, on amount of recoveries of 4.29b made against charge off amount. At year-end 2009, gross infection in the loan portfolio of the bank remained high at 15.8% (2008: 16.7%). The overall agriculture loan portfolio of the banking sector had gross infection of 16.1% (2008:15.3%) at end-December 2009. Around 52 %( 2008: 47%) of NPLs were classified as OAEM at year-end. On account of this,, provisioning coverage against total NPLs Is low. Net infections (NPLs adjusted for specific provisioning only was 11.5% (2008:11.2%). Minimum recovery target set by the bank entails 90.8% of current dues and 75% of past dues. In 2009, recovery of 91% was achieved against current dues, while 72.4% recovery was made against past dues. Recovery targets are monitored on a branch-wise basis; in branches 61


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where overall recovery is less than 75% loan approval authority is retracted. The bank held fixed income securities of Rs. 6.7b at December 2009, increasing form Rs. 4.5b at the end of the preceding year. Of these, only Rs. 283.65m was placed in COIs whiles remaining comprised government paper, credit risk associated with which is considered minimal. COIs are also placed with counterparties of sound risk profile. In addition to the above, the bank has Rs. 100m invested in a wholly owned subsidiary.

Market RiskNet investments of the bank increased to Rs. 7.2b (2008: Rs. 5.1b) at end- December 2009. Around 73% of net investments comprised shortterm treasury bills. Price risk on the same is considered low. Fixed-rate long term PIBs represented 14% of net investments. These carry markup rates in the range of 12-13% and have maturities between Aug-Dec11. Recent increase in benchmark rate is expected to have reduced the market value of fixed income instruments held in the portfolio. However, the bank has both the intent & ability to hold these to maturity. Investment in equities at cost was maintained at Rs. 100.6m, comprising exposure in unlisted securities amounting to Rs. 10.5m. Investment in unlisted securities has been fully provided for various reasons. Investment in listed equities of Rs 89.3m had a market value of Rs 537m.

LiquidityTotal borrowings and deposits of the bank where higher at Rs. 63.2b (2008:Rs. 59.9b) at year end 2009 with increase in deposit to Rs. 8.75b (2008: Rs 5.43b). Borrowings were maintained at Rs. 54.5b at year-end 2009. Liquidity profile of the bank declined in relation to 2008, with liquid assets to total borrowing and deposits reducing to 27 %( 2008:36%). Depositors of the bank are primarily individuals. Proportion of current and saving accounts in the deposit mix was maintained at 94%. Since deposits still comprise a small proportion of funding mix; improvement

Internship Report on Zarai Taraqiati Bank Ltd. 2010 in the deposits does not have a material impact on the cost of funding for the bank. The bank had outstanding borrowings to the tune of Rs. 54.5b from SBP at year-end 2009. These borrowings were obtained to provide finance to clients for agriculture. At the time of reorganization of ADBP into ZTBL, these credit lines were restructured and a moratorium was given to ZTBL according to which it had been allowed to repay SPB debt in 15 years (in 30bi-annual installments) with a grace period of 3 years starting from July 2003 and the last payment was supposed to be of Rs. 3.20b, representing the subordinated loan. At the time of restructuring, the bank had proposed to cap the markup on these borrowings at 2.3558 %( 12 month t-bill rate as at July 01, 2003) for five years but the matter had not been acceded to by the SBP. Since then, various restructuring proposals have been discussed by the bank with the ministry of Finance and SBP, though an agreement on this issue has still to be achieved. The bank has not made any principal repayment on the premise that the restructuring terms have not been finalized. These loans are secured by way of federal government guarantee. Presently, the bank is accruing interest expense on these at varying rates. Three credit lines amounting to Rs. 1.577b carry interest rate of 4% p.a. while remaining thirty two lines amounting to Rs. 48.597b are based on PLS subject to maximum share of profit to SBP ranging from 4-10% p.a. markup on subordinated loan is being charged at weighed average yield of t-bills of 12 months maturity. No return however has been actually paid by the bank, with a total payable of Rs. 19.54b having been accrued by December 32, 2009. Any plan requiring immediate payment of the either the interest expense or principal may place significant stress on the bank, as it does not have the required liquidity. However, the bank also has markup differential of Rs. 17.74b receivable from the government. This amount is not recognized on books. There are also other amounts recoverable from the government in lieu of relief packages, with outstanding balance of Rs. 956.27m at year-end 2009.

ProfitabilityReturn on markup bearing assets declined to 9.8% on account of decline in high-yielding lending to financial institutions. Nevertheless, interest income of the bank increased to Rs. 8.7b (2008: Rs 8.5b) attributable to overall higher average markup bearing assets during 63


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2009. Net interest income of the bank also depicted an increase to Rs. 5.1b (2008: Rs.4.98b). Cost of funding hovered at 6%, thus spreads declined to 4%. Cash outlay has not been made by bank for payment of interest on borrowings, and interest in only being accrued on books. Non interest income of the bank was higher at Rs. 38.2 m attributable to increase in dividend income on investments. Other revenues primarily comprising recoveries on charged off loan amounts was Rs. 4.3b (2008: Rs 4.8), taking total revenues, net of financial charges, to Rs. 11.2b (2008: Rs. 10.4b). Administrative expenses of the bank inclined to Rs. 5.2b (2008:Rs. 4.5b), in line with inflationary trends in the economy. While salary expense experienced growth of 12% staff strength of the bank was rationalized to 5,352(2008: 5,370). In December 2005, the bank had introduced SR-2005, a retirement benefit scheme for its employees. A significant proportion of employees switched to SR 2005 from their existing pension scheme in 2005. The scheme was re-opened in 2009 and 1,097 Executives/officers of the bank opted for SR-2005, resulting in an expense of Rs. 677.8 to bank in 2009. Incremental provisioning against non-performing loans declined to Rs. 563 (2008: Rs. 1.9b). The bank posted profit before tax of Rs. 4.6b (2008: Rs. 3.99b) for 2009. Profit for 2009 was reduced to Rs. 1.8b (2008: Rs. 2.6) after adjustment of tax expense of Rs. 2.8b (2009: Rs. 1.4b) which pertained to current and prior year.

CapitalizationAs of December 31, 2009 equity of the bank was higher at Rs. 18.7b (2008: Rs. 16.9b), exceeding the minimum capital requirement of Rs. 6b mandated by SBP. Capital Adequacy Ratio of the bank was slightly lower at 21.7% (2008: 22.9%). Net NPLs to Tier 1 capital stood at 57% at end-December 2009. If the proposal of loan conversion into equity materializes, it will provide considerable momentum to capitalization of the institutions.


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Quick View of ZTBLs Performance till 2009


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Chapter 4SWOT AnalysisStrengths ZTBL has brand name in agricultural loaning.

It is first and large financial institution established in Pakistan to promote agricultural financing. The bank has more than 350 branches throughout Pakistan and has presence in all the provinces of the country which enables it to capture and facilitate a large number of customers.

The bank enjoys sovereign guaranty of Federal Government that covers its debt obligation to State Bank of Pakistan. The Bank has the most experienced and the least experienced staff, which is a good combination of experienced heads and exuberance of youth.

The bank has ability to launch successful products for agricultural industry due to know how of the agricultural system of the country.

Mobile Credit Officer is the unique concept which is helping in remaining more near to its customers and also helps in recovery. Concept like these helps bank in safeguarding itself in the risky adventure of financing to small farmers.


Weaknesses

ZTBL have not introduced any Islamic product in financing. Islamic banking is becoming popular in these days and to sustain and increase the number

internship report ztbl, hailey college

Documents

merciful internship

introduction of bank

prefacethis internship

zari taraqiati bank

bank staff

weeks internship training

finance mba banking

kss operation