INTERNSHIP REPORT ON BANK OF KHYBER

Supervised By:

SIR. SHABIR AHMAD

Submitted By:

Tariq aziz
M.B.A
ROLL NO. 225

UNIVERSITY OF MALAKAND SESSION 2010-12

DEDICATED TO
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I dedicate this humble effort to my honorable parents Especially to my sweet and loving Mother who always prayed for My success and supported me Spiritually and financially In Every stages of life, My friends & teachers.

Tariq aziz

ACKNOWLEDGEMENT
I have no words to express our gratitude to Almighty Allah, the most Merciful and Compassionate, the most Gracious and Beneficent, who enabled me to complete this Report. This gratitude would remain incomplete without paying Darood-o-salam on the Rahmat-UlilAlamin Hazrat Muhammad Mustafa (Peace be upon him). I extend our deepest gratitude and profound regards to my Supervisor Mr.Shabir Ahmad and also thankful to Muhammad Zeeshan operation manager of BOK for constant supervision, inspiring guidance, valuable suggestions and constructive criticism throughout the course of this Report. I am also thankful to him for his moral support. In the last I dedicate this report to my mother and sisters whose prayers made me what I am today, though I have many shortcomings.

EXECUTIVE SUMMARY
Banking system is the back bone of a country economy system which plays an important role for the stability of financial policies and for the establishment of socio economic growth of a country. Banks Operating in a dynamic environment and remain very active to keep up with the pace of changing circumstances. Establishment of The Bank of Khyber, is the development of Khyber Pukhtunkhwa, is now a scheduled bank performing commercial, investment and development programs all over the country with particular emphasis on the needs of Khyber Pukhtunkhwa through its modern schemes in all areas of operations. Analyzing of different department is the main focus of my study where the internship was performed in different departments. Identification of problems during the course of internship is low salaries for employees, Unequal distribution of work, Absence of marketing department for Awareness, Lack of effective promotional tools for improving personal capacity, Political interference Lack of specialized training for management of department and Delays in advancing loans. Recommendations are given base of my observation during internship program.

TABEL OF CONTENTS
S. No Title Dedication Acknowledgement Executive Summary Introduction To Report Objective of the Study Scope of the Study Importance of Study Background of Study Purpose of Study Introduction History Of Bank Of Khyber Distinctive Feature Challenges And Development Plans Vision Of Bank Of Khyber Mission Of Bank Of Khyber Core Valves Main Objective Of Bank Of Khyber Functions And Organization Structure Functions of Bank of Khyber Discounting Bills of Exchange Agency services Organizational Structure Organization Hierarchy Organizational Chart Of Bok Departmentalization Account Opening Department Qualification Of A Customer Nature Of Accounts Remittances Deportment Cash Deportment ATM Services Advances Deportment Fund Based Finance Non Based Finance Islamic Banking Deposit Schemes Modes of Islamic Finance Islamic banking Deposit Schemes Mode of Islamic Finance Financial Statement Analysis Financial statement Ratio analysis Financial leverage Ratio Page #

Chapter 1 1.1 1.2 1.3 1.4 1.5 Chapter 2 2.1 2.2 2.3 2.4 2.5 2.6 2.7 Chapter 3 3.1 3.2 3.3 3.4 3.5 3.6 Chapter 4 4.1 2.2 4.2 4.3 4.4 4.5 Chapter 5 5.1 5.2 Chapter 6 6.1 6.2 Chapter 6 6.1 6.2 Chapter 7 7 7.1 7.2

8 8 8 8 9 9 10 10 10 10 11 11 11 12 12 12 12 12 13 13 15 15 16 16 17 19 19 20 20 24 26 26 29 26 26 29 31 32 33 34

7.3 7.4 Chapter 8 8.1 8.2 8.3 8.4 Chapter 9 9.1 9.2

Activity Ratio Profitability Ratio SWOT Analysis of Khyber Bank Strengths Weakness Opportunities Threats Conclusion & Recommendations Conclusion Recommendations

35 36 38 38 38 38 39 40 40 41

CHAPTER 1 INTRODUCTION TO REPROT

1.1 Objective of the Study
Completing the Master degree of MBA, each student is required to make a project report on a recognized organization. The students are required to work according to their own field in which they are doing their specialization. Main purpose of this program is to make students familiar with the practical work, as there is great difference between what they have learnt during their course and how the job is practically done. Another important aspect of making a project report is to implement the knowledge so far one has acquired.

1.2 Scope of the Study

It is a compulsory requirement for the award of Master degree. It will help the present and prospective students of the department in making assignments and writing reports on the BOK, evolution of banking, and importance of banking and different operations. It can also provide help to BOKs management in identifying their Strengths, Weaknesses, Opportunities and Threats. It can also provide assistance to students about the banking system and is management practices.

Significance of Study
Banks play a central and very important role in the economic life of a country, thats why they are considered as the lifeblood of modern economy. Today no one can deny the importance of banking in the economy. They facilitate and expedite trade and commerce and provide a variety of services that one cant imagine without banks have chosen the Bank Of Khyber for our mini project because it has all the departments a bank could have and is the largest network nationwide. Besides this, BOK plays an important role in the economic development of Pakistan.

1.4 Background of Study

The socio economic growth of any developing country depends mainly on the health of its monetary based institutions. The banking sector is one such example, which plays a vital role in the development of the economy. Its involvement in the industrial sector, trade and commerce of the country makes it an integral organ of the overall development of the county. Bank of Khyber was established under the ordinance 1949. The primary objective of the setting of BOK was the purchase of jute from the growers in the former East Pakistan and also to perform the commercial banking the bank is also authorized to act as an agent and trustee of State bank where the State bank of Pakistan (SBP) has no branches. The bank therefore performs dual responsibility, one as commercial bank in its own right and at the same time a trustee of business finance.

1.5 Purpose of Study

The purpose of this study is to fulfill an important requirement of MBA course that is to write an internship report. The main focus of this study is on retail banking. Apart from this there are other purposes such as: To get practical knowledge about the working of the bank, i.e. the procedures followed for the retail banking. To get used to the working conditions of an organization. To analyze the weaknesses of the said organization and give some solutions to overcome these weaknesses. To have a working experience.

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CHAPTER 2 INTRODUCTION OF BOK

2.1 History of Bank of Khyber
The Bank of Khyber was established in 1991 as a provincial commercial bank through an act of the Khyber Paktunkhwa Assembly. The Bank of Khyber reached the status of scheduled bank in 1994. The provincial government is its major shareholder, owning 87% of the capital. It has a network of 34 branches serving more than 100,000 account holders. The micro-finance operations of The Bank of Khyber started in 1995, aimed at the provision of micro credit to small and medium enterprises. In 1997 The Bank of Khyber extended its operations to rural areas, providing smaller loans to micro-enterprises and individual clients through its cooperation with NGOs and Rural Support Programs (RSP). In 1999 The Bank of Khyber created its Micro finance Unit as a separate profit centre, developing specific products. The Bank of Khyber is the first formal and structured initiative by a commercial bank in Pakistan to broaden its client base and reach the micro-enterprise market.

2.2 Distinctive Features

The Bank of Khyber provides micro credit services through its branch network where credit officer of the micro finance unit are based. Bank of Khyber adopts a four-pronged strategy in its lending methodology Direct lending to individual micro-entrepreneurs Group lending through facilitators in rural areas Lending through business clusters in urban centers and small towns Wholesaling of funds to facilitators (NGOs, RSPs) for on lending in rural areas The Bank of Khyber is currently a partner to an ADB project, lending to NGOs in Malakand region. The Bank of Khyber is able to provide micro finance services to clients with no previous banking history. For micro finance services, The Bank of Khyber does not require physical collateral.

2.3 Challenges and Development Plans

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Providing micro finance services through a commercial banking structure, not adapted to service grassroots clients, The Bank of Khyber has to cover high costs in its lending delivery. Moreover, The Bank of Khyber has a limited outreach in micro finance, Particularly amongst women. The Bank of Khyber is restricted by its practice of lending through branches, but is planning at developing mobile banking.

2.4 Vision of Bank of Khyber

To become a leading Bank providing efficient and dynamic Services in both Islamic and Conventional banking through expanded nationwide network.

2.5 Mission of Bank of Khyber

To increase shareholders' value and provide excellent service and innovative products to customers through effective corporate governance, friendly work environment and contributing towards an equitable socioeconomic growth.

2.6 Core Values

Highest quality of Service, Professionalism Integrity Team Work Innovation & Utilization of latest technology Risk mitigation Corporate Social Responsibility

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CHAPTER 3 FUNCTIONS AND ORGANIZATION STRUCTURE

3.1 Functions of Bank of Khyber
Since BOK is a commercial bank, it performs a variety of functions. Like other commercial banks, BOK is engaged in financing international trade. Its other major Functions include receiving deposits, advancing loans and discounting of exchange. The functions performed by BOK are:

3.1.1 Accepting Deposits: This function is important because banks largely depend on the funds deposited with them by its customers. Deposits are of many types. 3.1.2 Current Deposits:
Current deposits are also called demand liability on current deposits. BOK pays practically no interest on current deposits. Businessmen usually open current accounts. In BOK current account can be opened with a minimum amount of Rs.3000/-.

3.1.3 PLS Saving Deposits: Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit and draw money easily. Profit on PLS is calculated every month but paid after six months. PLS account can be opened with a minimum amount of Rs.2000/3.1.4 PLS Term Deposits: Fixed term deposits are deposits with the bank for certain fixed period before the expiry of which they cannot be withdrawn unless giving due notice. In this case the rates of profit will be different depending upon the time period.

3.2 Discounting Bills Of Exchange:

Discounting of bill is practically speaking lending for exchange at their market worth i.e. it pays to holder of the bill an amount equal to the face value after deducting interest at the current market rate for the period. This bill has to be mature. This is the common way used for keeping a part of assets of the bank in a liquid form.

3.3 Agency Service:

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BOK also provides best and unique service to its valued customers. BOk provide the following agency services to the customers:

3.3.1 Collection of Dividends:

As BOK deals with the purchase and sale of various types of securities, therefore BOK also provide dividend or interest earned on share or bonds or invested money.

3.3.2 Collection of Cheques:

The collection and payment of Cheques, bills and promissory notes etc. Bank of Khyber acts as an agent for its customers.

3.3.3Acting as an Agent:
BOK also acts as an agent correspondent or representative for its customer at home or abroad.

3.3.4 General Utility Services:

Utilities provided by BOK are as follows:

3.3.5 Clearance of Utility Bills:

BOK provides the service of clearing the utility bills i.e. electricity, gas and telephone bills of its customers. For this purpose it also provides evening banking services.

3.3.6 Lockers Facility:

The Bank of Khyber also provides locker facilities to its customers to keep their valuable assets in it. The charges of different size of lockers are different.

3.3.7 Acts As A Referee:

BOK provides useful services to its customers by acting as a referee to their credit worthiness.

3.3.8 Supply of Information:

BOK provides operational and advisory service for foreign exchange accounts/activities.

3.4 Organizational Structure

Organization is a group of people working together in a structured and co-ordinate fashion to achieve a set of goals. The essence is that the people who are structured and coordinated will definitely be working in a proper system. This system includes both organizational hierarchy and organizational chart.

3.5 Organization Hierarchy

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To avoid the conflict in the organization, all organizational positions are detailed described and the duties, goals, functions, responsibilities and authority at each position are made crystal clear. The channel which delegates these activities is called organizational hierarchy and this must be set in such a manner to best accomplish the organizational goals. The Bank of Khyber ultimate governing body is the Board of Directors while the day to day affairs of the Bank are managed by a Managing Director appointed by the Board of Directors for a term of three years on contract with the consent of the Government of Khyber Pakhtunkhwa. Under the supervision of MD, there are EVP's the senior most officials in the bank hierarchy each heading a Bank unit, after EVP there are SVP's and VP's heading their respective divisions and Departments. At the branch network of BOK there are Branch Managers and Assistant Branch Managers. Under Branch Managers there are Branch Departmental Heads responsible for their respective Branch Department. The nomenclature of various posts in the Bank is as under: Board of Directors Managing Director Executive Vice President Senior Vice President Vice President Assistant Vice President Branch Manager Assistant Branch Manager Officer Grade-1 Officer Grade-II Officer Grade-III Junior Officer. Driver.
Risk Management Deptt. Operations Deptt. Islamic banking Division Marketing Managing Director Shariah Supervisory Committee/ Shariah Advisor

Board of Directors

Product/ Business Development

ORGANIZATIONAL CHART OF THE BANK OF KHYBER

Credits Treasury MIS Account s Section

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IBB(s)

CHAPTER 2

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CHAPTER 4 DEPARTMENTALIZATION
4.1 Account Opening Department
The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers.

4.1.1 Account Opening Procedure

The opening of an account is the establishment of banker customer relationship. Before a banker open a new account, the banker should determine the prospective customers integrity, respectability, occupation and the nature of business by the introductory references given at the time of account opening. Preliminary investigation is necessary because of the following reasons. 1. Avoiding frauds 2. Safeguard against unintended overdraft. 3. Negligence. 4. Inquiries about clients.

4.1.2 Formal Application

The customers are to fill in an account opening form. It is a formal request by a customer to the bank to allow him to have and operate upon the account.

4.1.3 Obtaining Introduction:

Before opening an account the banker requires introduction of the customer from an old customer.

4.1.4 Specimen Signature:

The customer gives the banker specimen signatures generally taken on a card supplied by the bank which is specially designed for the purpose. Operating instructions from the customer, title of account, and account number are entered on it. It expresses customers authority for the payment of cheques drawn on his banker.

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4.1.5 Minimum Initial Deposit: The customer must have to maintain at all times not less than the minimum required balance according to the requirements by the bank. 4.1.6 Operating the Account: 1. After opening an account the banker gives to the customer 2. Pay-in-slip book 3. Cheque book, with the account number assigned to the customer.

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4.2 Qualifications Of A Customer:

The relation of the banker and the customer is purely a contractual one. For keeping an account he/she must have the following basic qualifications 1. He must not be a minor. 2. He must be of sound mind.

3. He must not be disqualified by law to open an account. 4. The agreement should be made for lawful object, which create legal relationship
5. Not expressly declared void.

4.3 Nature of Accounts

The different types of accounts being generally opened by a bank are as follows:

4.3.1 Individual Accounts

The accounts opened in the name of persons are called individual or personal accounts. While opening the individual account, the details about following columns should be taken carefully: 1. Occupation 2. Address 3. Special instructions 4. Next of kin 5. Copy of N.I.C.

4.3.2 Partnership Firms Account:

A partner is the agent of the firm having powers to execute transactions for the purpose of the business of the firm. A retiring partner has no liability so far as the transactions after his/her retirement are concerned, if a notice of such retirement has been given to the bank. Otherwise, the retiring partner continues to be liable, even for finances made after his/her retirement.

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In case of the death of a partner, the firm will be dissolved. The account should therefore, be closed and a new account will be opened with the remaining partners. The following procedure and documents should be obtained: 1. The names of all partners should be written in the AOF. 2. Specimen signatures of all partners. 3. On SS card & on form A only authorized person(s) will sign. 4. Letter of partnership should be obtained. 5. If the firm wants to authorize manager to operate the account then they will sign Partnership deed is to be obtained (but it is not necessary).

4.3.3 Joint Accounts

The account in the name of more than one person is called joint account. The account shall be operated on by: 1. Any one singly or survivor or either or survivor(s). 2. Any two or jointly or survivor(s). 3. All jointly or survivor(s). 4. The survivorship mandate should be taken. 5. Signature of all partners should be obtained at the specified places.

4.3.4 Joint Stock Companies Account

Accounts opened by organizations formed by incorporation under Companies Ordinance, 1984 are called Companies Accounts. A company is an artificial person created by law and the assent of this artificial person is signified by means of a common seal and perpetual succession. Just like an individual, it can hold property and incur liabilities. It can sue and can be sued in the same way as that of an individual. Bank is a joint stock company registered under Companies Ordinance, 1984.

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While opening the account of the company the following documents should be taken: 1. Attested copy of the N.I.C of each Director. 2. Copy of the Certificate of Incorporation. 3. Copy of Memorandum and Articles of Association. 4. Copy of the Resolution of the Board of Directors to open an account with the bank. 5. List containing the names and signatures of the Directors. 6. Copy of the Certificate of Commencement of Business (in case of public limited company)

7. Audited Balance Sheets.

4.4 Remittances Department

Funds transfer facility or Remittance of Funds is one of the key functions of the banks all over the world. Remittances through banking channels save time cost less and eliminate the risks involved in physical transportation of money from one place to another. Besides earning commission, banks also get much-needed short term (cost free) liquid funds right from the receipt of value till final payment .Any person who is of sound mind and can sign the application form as a contracting party may make a remittance .Customers, in order to remit money from one place to another, have a variety of options or modes available to them according to their needs. BOK transfers money in the following ways. 1. Pay orders (P/O). 2. Demand draft (DD) 3. Mail transfer (MT)

4. Telegraphic transfer (TT)

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4.4.1 Clearing
As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques/instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from a number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques /instrument had to be sent by the collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement. Working of the Clearing Process Under the clearing arrangements, the Central Bank or the State Bank of Pakistan (SBP) in our country, offers a Clearing House. or a centralized exchange facility, which works on the following general lines: All the banks operating in a city who are members of the Clearing House maintain an account with the SBPs Clearing House. 1. Every day representatives of all the banks in every city meet the Clearing House, first meeting in the morning, at an appointed time, for the purpose of depositing their own customers , cheques/instruments to be collected from other banks and receiving cheques/instrument drawn on their account holders from the others banks. 2. At the Clearing House accounts of all the banks are debited by the total amount of cheques/instruments drawn on their customers accounts and credited with the amount of their customers cheques/instruments drawn another banks, as per the list of cheques submitted by each bank. 3. The cheques/instruments received, also called Inward Clearing, and are take back by each bank to its bank/branch. The amounts of each cheques /instrument is debited or recovered from each drawee customers account and credited to the Clearing House account. Similarly, against the amount credited by the Clearing House as Outward Clearing, the appropriate customers accounts are credited and clearing House account is debited.

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4. Any cheques/instruments received by a bank that cannot be paid, due to insufficient

balance in its customers account or for any other reason, are returned back to the Clearing House and a credit is claimed and obtained there against. Thus the Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns .Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area. First Clearing & Second Clearing The business of the Clearing House is normally conducted in two sessions called First Clearing and Second Clearing. During first clearing, receipts/payments are adjusted arising out of cheques delivered and received against each other. In the second clearing, cheques which could not be paid due to any reason, accompanied with objection memo, are also handed over or received back form the member banks and adjustments made accordingly. 5. Where There are no Clearing Houses At places where there are no clearing houses or clearing arrangements, local cheques drawn on other banks are presented for clearance through and authorized representative under cash received/payment received discharge arrangement. Under this arrangement the cheques/instruments have to be presented by an authorized officer of a bank over the counters of the drawee/paying bank and the cash so received is credited to the customers/beneficiaries accounts.

4.5 Cash Department

Cash department control the flow of the cash in the bank. Cash department perform the following functions.

4.5.1 Cash Receipt

The cash department should keep its record the money, which either comes or goes out from the bank. The deposits of all customers of the bank are controlled by means of ledger accounts. Every customer has its own ledger account and has separate ledger cards.

4.5.2. Cash Payment:

It is a bankers primary contract to repay money received for this customers account usually by honoring his cheques.

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4.6 ATM Services

In order to keep pace with advancements in the field of technology, The Bank of Khyber has joined the electronic platform of MNet switch. This will facilitate consumers by providing them access to their funds through the existing ATM network of the country. Also, BOK has installed its first ATM at Corporate Branch Peshawar

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CHAPTER 5 ADVANCES DEPORTMENT

5.1 Fund Based Finances
5.1.1 Running Finance
This is a type of Finance which meets the day to day financial requirements of the business. The amount is transferred to the debtors current account and can be withdrawn through cheques. The limit for this type of finance is Rs. 35,000 and the maximum period which it is extended is one year, and can be renewed by a new sanction. Repayment is on discretion of the customer to repay in lump sum or in periodic instalments.

5.1.2 Demand Finance

Initially they were called Loan ordinary. When a customer borrows from a banker a fixed amount repayable either in periodic installments or in lumps sum at a fixed future times, the amount of loan is placed at the borrower disposal in lump sum for the period agreed upon, and the borrowing customer has to pay interest on the entire amount. The borrower gets a fixed amount of money for his use, while the banker feel satisfied in lending money in fixed amounts for definite short period against a satisfactory security.

5.1.3 Cash Finance

Cash finance is also called working capital finance. It is a short-term credit facility. Probably the most popular form of providing funds to the clients in the banking sector is the Cash Finance system or traditionally known as Cash Credit. In this, the bank lends money to borrowers against tangible security. The total amount of loan, which is granted, is not paid in one instalment. The borrowers have to pay mark-up on the amount borrowed. Hypothecation of stock when goods are not physically handed over to the bank as security for loan advanced, but the bank has a lien over the goods through the letter of hypothecation. Pledge when goods are physically handed over to the bank as security for loan advanced. Borrowers prefer this type of facility because they have to pay on amounts actually utilized. The time period for this type of finance is normally one year but also depends on the manufacturing cycle of the organization.

5.1.4 Loan against Salaries

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BOK provides loan against salary to employees of Government / Semi- Government organizations for personal domestic consumptions. The employee must be confirmed having minimum of three years of service. However, the remaining service period of the employees must not be less than terms of the loan. To avail this facility, the employee must be account holder of the bank. Loan limit is up-to 15 Take Home Salaries but not exceeding Rs. 1.00 million. This facility is available for a maximum period of 4 years but can be allowed for a shorter period.

5.1.6 Consumer Finance BOK has launched a scheme for the all types of Electronics. Customer will get a TV set, microwave oven, air conditions, tape recorder and all house hold items. and also car and house finance have to pay monthly instalments to the bank. 5.1.6.1 Car Finance
Eligibility Criteria 1 .Nationality: All Pakistani residents holding computerize National Identity Card 2. Age of applicant: 21 to 55 years for salaried persons and 21 to 60 years for businessmen. 3. Period of Employment/ Engagement in business or profession: Salaried persons having an employment history of at least 2 years or more. Self employed and business persons engaged in a profession or business for at least 3 years. 4. Income: Salaried Persons: Monthly take home salary should be three times of the amount of monthly installment. Self Employed/Business Persons: Average monthly verifiable income should be three times of the amount of monthly installment. Individuals who earn less than Rs. 15,000/- per month or Rs. 180,000/- per annum shall not be eligible for financing. 5. Maximum loan limit: Rs. 2 Million (rupees two Million only) 6. Down Payment: Minimum Down Payment for the facility will be 20%. 7. Pricing Criteria: Risk Rating Based, for example, Six Months KIBOR + 600 BPS. Mark up will be revised on 1st January and 1st July each year according to the change in KIBOR. 8. Title of the Vehicle: The vehicle shall be registered jointly in the name of The Bank Khyber and the Client. of

Required Documents:
1. Clients request 2. Borrower Basic Fact Sheet

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3. Account statement for the past 6 months 4. Application of finance on prescribed Performa 5. Proof of income i-e salary slips, income tax return or affidavit, whichever is applicable 6. Attested photocopy of valid CNIC 7. 01 passport size color photograph 8. Copy of Valid Driving License 9. Quotation from authorized dealer. 10. Copy of valid CNIC & income proof of guarantor

5.1.5 Agriculture Credit

1. Sada Bahar Zarai Loan Designed to serve the working capital requirements of Agriculture Based activities especially, the cost of various inputs including seed, fertilizers, pesticides, labor, utility charges etc. 2. Khyber Tractor Loan This Scheme is aimed at financing of Tractors required by the farming community. The intending borrower can select a tractor of his choice from the open market or through booking from a Manufacturer. 3. Tube Well & Farm Machinery / Equipments Loan This product is aimed at mechanization of the agriculture activities and can be used for financing of Tube Wells and other farm machinery like Tractor trolleys, Threshers, Blades, Ploughs, etc.

5.1.7 Commercials Finance:

Market appraisal becomes imperative when credit facilities are desired by a customer desirous to establish a new manufacturing unit. In order to determine the extent of demand for the products of the proposed industrial unit, the banker must apprise himself of the ground situation with regard to the following Demand and supply situation. Major producers and local distribution channels. Price and credit terms availed by the retailers 1. Evaluation of Feasibility Reports: The projections and forecasting contained in the feasibility reports need to be checked and adjusted by using varied standards. As a result of this exercise, the banker is in a position to

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determine the break-even quantities, revenues and profit and loss of the firm at different operating capacities. 2. Credit Reports: Credit reports obtained from other banks and the CIB report provide a base for the lending decision of a banker. 3. Problem Identification: The main objective of credit analysis is to avoid problems that may crop up due to lack of good judgment with regard to the following: 4. Negative Macro Indicators Including: a) Unfavourable change in the government policies. b) Excessive and negative competition. c) Change in consumers tastes, fashion, income and spending. d) Labour unrest or deteriorating law and order situation. 5. Negative Business Factors Including: Inconsistent business structure and Ineffective business plan. Inadequate market share and unplanned expansion. Plant and machinery obsolescence and loss of stakeholders confidence. 6. Negative Management Factors Including: Change in ownership and unnecessary centralization. Evasive style and lavish spending behaviour. Unsatisfactory past performance. 7. Negative Financial Indicators Including: Change in auditors, and accounting policy.

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Late submission of statements. Climbing up debt-equity ratio and abnormal reduction in fixed assets. 8. Processing of Credit Proposal: Normally standard formats designed by the banks are used for this purpose wherein all relevant information and recommendations for grant of credit are recorded. Necessary documents are attached with proposal like request letter, financial statements, resolution of the Board of directors, letter of partnership etc. 9. Sanction of Credit: Credits are sanctioned either at the branch level or by the competent authority at the controlling offices. At the controlling office the credit proposal are assessed and approved on the basis of accuracy of credit analysis and other considerations as recommended by the branch management. Sanction advice is issued which is important and essential to ensure proper record of the terms and conditions of a credit, for legal purpose, execution of the required security documents, monitoring recoveries, timely renewal, and audit purpose. 10. Security Documentation: After sanction but before disbursement of a loan, the credit administration department must ensure that charge documents are obtained from the borrower in accordance with the nature of credit facility, terms of credit and nature of approved security. The charge documents must be properly filled in, signed by the customer and designated officer and two witnesses where required. In case of mortgage registration is effected by the Registrar of Assurances before disbursement is done. In case of a limited company, charge is to be created on the assets of limited company with the Securities & Exchange Commission within 21 days. In case of partnership firm, authorized officials of the borrowing firm must sign the documents in their official capacity and affix their stamp thereon. In the meanwhile facility letter is issued wherein the terms and conditions of the loan are intimated to seek his acceptance thereto. 11. Disbursement: Disbursement of the credit facility is made through either of the following method i.e. Running finance/Cash finance/Term finance. 12. Monitoring and Periodic Evaluation:

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The credit administration department is responsible to ensure that the borrowing customers: Maintain their accounts regularly with the bank and pay amounts due in time. Pay the mark up accrued on their accounts within a reasonable period. Pay instalments on due date. Adjust their liability accounts as per stipulation of the loan agreement. 13. Recovery and Follow Up of Advances This is the most critical activity of the credit administration department. Default puts a bank in an embarrassing situation as not only its funds are tied up for indefinite period, but in most of the cases involve it in circuitous litigation entailing high cost. The following steps are involved in the recovery process: Verbal and written reminders to the customer for the payment of overdue amounts. To serve of legal notice, in case of ignoring reminders issued. Making preparations for taking legal action. Filing of recovery suit and follow up of legal process. Tracing out the assets of the defaulters and putting the same to auction through the court, and making efforts to make recovery from the proceeds of assets auctioned.

5.2 Non- Fund Based

The non-fund Based facilities are those in which the bank does not invest its own funds rather it commitment is involved against which the bank charges a certain amount in the shape of commission these facilities are available in the form of letter of credit and letter of guarantees.

5.2.1 Letter Of Credit (Lc)

Letter of credit is required in the settlement of international trade, some time local transaction are also done through the letter of credit which are termed as in the land L/Cs. usually there are four parties involved in L/Cs: A: Importer

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B: Exporter C: importers bank D: exporters bank L/C may be on the sight or issuances basis .in sight based L/Cs, the importer has to pay the amount upon payment of value. In case of issuance L/Cs, the exporter extends credit to importer. The document is handed over to the importer against his acceptance of bill and assurance of payment of the maturity date of acceptance.

5.2.2 Letter of Guarantee (L/G)

The bank provides assurance to beneficiary of the guarantee about the satisfactory performance of certain act by the application of the guarantee. In the letter of guarantee, there parties are involved i.e. 1. Bank (provide of guarantee) 2. Application of the guarantee (Bank customer on whose behalf the banks issue a guarantee) 3. Beneficiary (in whose favor the guarantee is issued) The bank at request of application issues the guarantee and charges commission for it commitment from the application at exposure is secured against some security.

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CHAPTER 6 ISLAMIC BANKING

6.1 Deposit Schemes
The profits of the Islamic Banking Branch (es) are distributed among the depositors on the basis of weightages assigned to their deposit categories in proportion of their deposit amount. The bank is offering following deposits schemes for the customers to enable them to channelize their funds in the investment activities of the bank.

6.1.1. Current Account

The Deposits in current accounts are received on Qard-e-Hasana basis. The funds received in Current Accounts are not used in any interest based banking activities. The account opening facility is available in all the Islamic banking branches of The Bank of Khyber and Islamic Desks at all other branches of The Bank of Khyber. Key Features of Current Account. 1. No limit on withdrawal. 2. No Profit No loss. 3. Free On-Line deposit/ Withdrawal. 4. Free Account Statement (once in a month). 5. No charges for Closing of Account. 6. Free e-mail of account statement. 7. All other service charges are 50% for Senior Citizens.

6.1.2. Interest Free PLS Saving Accounts

Deposit in Profit and Loss Saving Accounts in BOK Islamic Banking are accepted on Musharaka basis strictly in conformity with the principles of Islamic Shariah. The deposits received in PLS accounts are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharaka or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers on monthly basis. The PLS account opening facility is available in all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK.

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Key Features of PLS Account. 1. Profit Payment on monthly Basis. 2. Profit Calculation on average Daily Balance. 3. Free On-Line deposit/ Withdrawal. 4. Free Account Statement (Once in a month) 5. No charges for Closing of Account. 6. Free e-mail of account statement. 7. All other service charges are 50% for Senior Citizens.

6.1.3. Riba Free Certificates (RFCs)

Riba Free Certificates of BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in RFCs are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharakah or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers at their choice. RFCs are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK. Riba Free Certificates are issued to customers against their deposit amount. RFCs are issued for fixed period with profit payment options given in brackets at the discretion /Choice of the depositor.

RFC (6 Months) RFC 1 Year (Monthly) RFC 1 year (6 Months) RFC 1Year(Maturity) RFC 2 years (Monthly) RFC 2 years (6 Months)

Key Features of RFCs 1. Minimum Investment Rs.10, 000/2. Profit Payment on every 5th working day of each month or at discretion of the customer. 3. Investment slabs are 6 Months, 1Year, 2Years, 3Years and 5Years. 4. Pre-Mature termination allowed subject to adjustment of profit. 5. All other service charges are 50% for Senior Citizens. 6. 90% financing available.

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6.1.4. Khyber Pak Munafa Scheme Khyber Pak Munafa Scheme Certificates of BOK Islamic Banking are issued on Musharakah basis strictly in conformity with the principles of Islamic Shariah. The deposits received in Khyber Pak Munafa Scheme are invested in Islamic assets like Murabaha, Ijarah, Diminishing Musharakah or Islamic Sukuks which are duly approved by Shariah Supervisory Committee. The profit is calculated on monthly basis and disbursed to customers. Khyber Pak Munafa Scheme Certificates are issued from all BOK Islamic Branches as well as Islamic Desks established in all Conventional branches of BOK.
Key Features of Khyber Pak Munafa Scheme 1. Minimum Investment Rs.100, 000/2. Investment for 5 Years. 3. Profit Calculation on average Daily Balance. 4. Profit payment on Monthly Basis 5. Profit Payment on every 5th working day of each month 6. Profit up to 14% (based on previous history) 8. Pre-Mature termination allowed subject to adjustment of profit 9. Free On-Line deposit/ Withdrawal. 10. Free Account Statement (once in a month). 11. All other service charges are 50% for Senior Citizens. 12.90% financing available.

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6.2 Modes of Islamic Finance

6.2.1. Mudaraba
Mudaraba" is a special kind of partnership where one partner gives money to another for investing it in a commercial enterprise. The investment comes from the first partner who is called "rabb-ul-mal", while the management and work is an exclusive responsibility of the other, who is called "Mudarib". Type of Mudaraba The Mudaraba has, therefore, been classified into following two types 1. General Mudaraba Under the contract of general Mudaraba, the entrepreneur is provided with the required capital for investment. The development of fund is not pre-conditioned. The Mudaraba is at liberty to use the capital for the purpose of investment in any lucrative business venue. He has the discretion of choosing the type of business for maximizing the profit. There is no restriction to continue the investment to any pre-determined field of operation. 2. Specific Mudaraba

In the contract of specific Mudaraba, the nature and extent of business activities to be undertaken are described in detail. The type of business and amount of investment is laid down. It also limits out the frequencies of business transaction in a given field of operation. 6.2.2. Musharaka
Musharaka is a word of Arabic origin which literally means sharing. In the context of business and trade it means a joint enterprise in which all the partners share the profit or loss of the joint venture. It is an ideal alternative for the interest-based financing with far reaching effects on both production and distribution. In the modern capitalist economy, interest is the sole instrument indiscriminately used in financing of every type. Since Islam has prohibited interest, this instrument cannot be used for providing funds of any kind. Therefore, 'Musharakah' can play a vital role in an economy based on Islamic principles.

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6.2.3. Ijarah
"Ijarah" is a term of Islamic Fiqh. It means 'to give something on rent'. In the Islamic jurisprudence, the term 'Ijarah' is used for two different situations. In the first place, it means 'to employ the services of a person on wages given to him as a consideration for his hired services." The employer is called 'mustajir' while the employee is called 'ajir'. The second type of Ijarah relates to the use of assets and properties, and not to the services of human beings. 'Ijarah' in this sense means 'to transfer the use of a particular property to another person in exchange for a rent claimed from him.' In this case, the term 'Ijarah' is analogous to the English term 'leasing'. Here the lessor is called 'Mujir', the lessee is called 'mustajir' and the rent payable to the lessor is called 'ujrah'.

6.2.4. Diminishing Musharakah

Another form of Musharakah, developed in the near past, is 'Diminishing Musharakah'. According to this concept, a financier and his client participate either in the joint ownership of a property or an equipment, or in a joint commercial enterprise. The share of the financier is further divided into a number of units and it is understood that the client will purchase the units of the share of the financier one by one periodically, thus increasing his own share till all the units of the financier are purchased by him so as to make him the sole owner of the property, or the commercial enterprise.

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Ratios Analysis:
Financial ratios use to determine how well their firm is performing in order to evaluate where the firm can improve. Investors use financial ratios to see if the firm is a good investment. By comparing financial ratios between companies and between industries, investors can better determine the best investment. Shortly ratio analysis means to evaluate the business performance and position.

7.1.1 Liquidity Ratio

Current ratio = Current assets / Current liabilities

Year 2009 2010 2011

Current assets 35,518,519 47,235,560 65,103,396

Current liabilities 31,662,763 40,156,775 56,221,447

Ratio 1.12 1.17 1.15

Analysis
Current ratio matches current assets with current liabilities and tells us whether the current assets are enough to settle current liabilities. Less than 1 current ratio show difficulty in

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obligation and more than 2 show inefficiency. The current ratio of Khyber bank was 1.12 in 2009 and 1.17 in 2011 is good ratio. Current ratio is high due to payment of current liability and more investment in current asset.

7.1.2 Cash Ratio

Cash Ratio = Cash in hand + balance with other banks/Current assets

Year 2009 2010 2011 Analysis

Cash in hand & other bank 3,945,800 6,582,404 4,330,342

Current asset 35,518,519 47,235,560 65,103,396

Ratio 0.11 0.13 0.15

Cash ratio shows the extent to which readily available funds can pay off current liabilities. Cash ratio of 1.0 and above means that the business will be able to pay all its current liabilities in immediate short term. But ratios that are too high may show poor asset utilization for a company holding large amounts of cash on its balance sheet. The bank ratio was 0.11 in 2009 and .15 in 2011.increase in ratio shows good asset utilization.

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7.2 Financial Leverage Ratios

7.2.1 Debt to Equity Ratio
Debt to Equity Ratio = Total Debt / Total Equity

Year Total Debt 2009 2010 2011 Analysis:

Total Equity Ratio 32,848,273 5,962,297 41,393,930 9,400,373 58,058,972 10,365,434

5.5 4.4 5.6

Debt-to-Equity ratio is the ratio of total liabilities of a business to its shareholders' equity. It is a leverage ratio and it measures the degree to which the assets of the business are financed by the debts and the shareholders' equity of a business. The above ratios show that bank is finance is less then it debt. As the bank is profitable organization which attract the investors to in invest their capital in business. The ratios are very high which is good for banking sector. 7.2.2 Debt to Total Asset Ratio Debt ratio= Total liabilities/ Total asset Year Total debt Total asset 2009 32,848,273 38,810,570 2010 41,393,930 50,794,303 2011 58,058,972 68,424,464 Analysis: The debt ratio measures the proportion of assets financed by the outsiders money. The higher the ratio the greater the amount of other peoples money being used to generate the revenue. The bank has almost same ratio in the two years that shows its assets are financed up to 84% by the credit money that is not a good sign because it reduces the confidence of investors and this is acceptable up to 60% only. This ratio shows that bank has taken so many loans to run its affair. Ratio 0.84 0.81 0.84

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7.3 Activity Ratio

Tot assets or capital turnover ratio = Mark up returned revenue/Total Assets

Year 2009 2010 2011 Analysis:

Mark up returned revenue 3,390,014 4,207,155 6,946,827

Total asset 38,810,570 50,794,303 68,424,464

Ratio 0.087 0.082 0.1

Asset turnover (total asset turnover) is a financial ratio that measures the efficiency of a company's use of its assets to product sales. There is no set number that represents a good total asset turnover value because every industry has varying business models. The bank ratio was 0.087 in 2009 and 0.1 in 2011 show increase in asset turnover ratio.

7.4 Profitability Ratio

7.4.1Profitability in relation to sale
Gross Profit or loss / Mark up returned revenue

Year 2009 2010 2011

Gross Profit or loss -798,770 713,141 1,285,458

Mark up returned revenue 3,390,014 4,207,155 6,946,827

Ratio -0.23 0.16 0.18

Analysis
This ratio measures the efficiency of firms operating. The ratio -0.23 was negative in 2009 but in 2011 which show 18% gross profit. The loss occurred due to more expanses and more investment Provision against non-performing advances. In 2011 decrease in Provision against non-performing advances show 18 %profit.

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7.4.2 Net Profit Margin Net profit & loss after taxes / Mark up-returned revenue Year 2009 2010 2011
Analysis: Net profit margin (or profit margin, net margin, return on revenue) is a ratio of profitability calculated as after-tax net income (net profits) divided by sales (revenue).In 2009 -0.18 The loss occurred due to more expanses and more investment Provision against non-performing advances but in 2011 decrease in Provision against non-performing advances show 12%profit.

Net profit & loss after taxes -637,183 563,486 872,308

Mark up returned revenue 3,390,014 4,207,155 6,946,827

Ratio -0.18 0.13 0.12

7.4.3 Return on investment

Net profit & loss / Total assets

Year 2009 2010 2011

Net profit & loss after taxes -637,183 563,486 872,308

Total assets 38,810,570 50,794,303 68,424,464

Ratio -0.01 0.011 0.012

Analysis
Return in investment ratio showed in 2009 negative -0.01 because of Investment in low income project and 2011 ratio 0.012 show positive return because of less investment in in Provision against non-performing advances

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7.4.4. Return on Equity

Net profit after taxes / Shareholders Equity

Year 2009 2010 2011

Net profit & loss after taxes -637,183 563,486 872,308

Shareholders Equity 5,962,297 9,400,373 10,365,434

Ratio -0.1 0.05 0.08

Analysis:
The ratio was negative as -0.1 in 2009 because of increase Provision against non-performing loans and advances and decreased in Provision against non-performing Loans and advances in 2011show 0.08 return.

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CHAPTER 8 SWOT ANALYSIS OF BOK

8.1 Strengths
1. First bank to start Islamic banking in Pakistan. 2. Provincial government backing and confidence of people due to government bank. 3. It has modern technology and resources. 4. Staff has combination of young and rich in experience and working skill. 5. Officer attractive schemes and more saving for customer from time to time. 6. The Bank of Khyber has market confidence in providing products and services to the customers over the year. 7. Bank of Khyber has the ability to cope with pressure of competition. 8. Bank has the good with of the people and it is also an asset to it. 9. Banks management has the motivation to make it best bank of the country.

8.2 Weakness
1. Employees are lacking motivation. Bank is not limits and Thus reducing the efficiency. 2. Communication gap between different levels of management. 3. The lower level management lacks clear direction and is not having the managerial depth. 4. Lack of experienced commercial bankers in the top management positions 5. Lack of modern banking approaches like ATM and commerce on line banking. 6. Marketing skills of the bank are good but they have little presence at different media. 7. Low salary structure as compare to competitors. 8. Not in the position to compete with other banks.

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9. Lack of highly trained resource staff. 10. Lack of modern technology.

8.3 Opportunities
1. Opportunity to open branches in northern areas specially Because there is 100% current deposit. 2. Extending banking hours and providing more branches facilities to customers. 3. All branches are computerized therefore no difficulty in thinking it into on line banking. 4. Bank should take interest in the new market segments like IT business, software business etc. 5. A new serves to its product line. 6. Increasing credit facilities to lower income groups, thus reducing the risk of loss and also improving the image of the bank. 7. To open a branch in Afghanistan.

8.4 Threats
1. Political, economical situation of the country. 2. Deteriorating confidence of people in bank uncertainties of the investors. 3. Modern technology used by other commercial banks. 4. Starting Islamic banking is threats for BoK because if it is flop it will be a big loss for BOK. 5. Increasing number of private/foreign banks in the country. 6. Reducing the rates of savings in different segments of people. 7. Bank Alfalah and other commercial banks is the biggest threat for BOK. 8. Qualified staff working in other banks.

Internship Report on BOK

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For SWOT analysis we can conclude that the management of the bank should adopt systematic planning for the bank growth, talking with them all management levels of the banks, discover new segments of the customers, offering schemes for its customers. Similarly Bank of Khyber has to focus on potential customers and give proper attention to every customer and their need then it will become one of the leading and comprehensive bank. Emphasis on present customers by giving them personal Services and targeting the private potential customers instead of Government deposits at high interest rates. Creeping trend of non-performing loans.

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CHAPTER 9 CONCLUSION & RECOMMENDATIONS

9.1 CONCLUSION
After doing this internship I acquired partially the skills of analyzing & observing the system & corporate culture, values, norms. It was really an excellent experience for me as it polishes my analytical skills & enhances my visions. I become more confident, punctual, regular & responsible. I learn how to deal with customers and your behavior must be cooperative towards customer. How to behave to your peers and help your peers if anyone has some difficulty. How to behave to the upper and lower level of hierarchy of management. Now I think that I can work more effectively & efficiently in a group/team with the ability to manage all levels. During my internship training at Khyber bank ashraf road branch, I have learned a lot. It was a geed experience for me .First bank to start Islamic banking in Pakistan Provincial government backing and confidence of people due to government bank. Keeping in view the financial ratios it is observed that Net assets of the BOK are increasing day by day. The net profit is also increasing which may attract the investors. The profit of Khyber bank of Pakistan is also increasing day by day that attract the customers and investors. This ratio of BOK is increasing which shows large numbers of the assets are financed by the equity which is good. Positive working capital ratio shows that its assets are more than liabilities, so the bank is capable to pay its liabilities. Ratio shows that BOK is utilizing its Assets efficiently. BOK should fully concentrate to improve its performance and standards to meet the challenges by the economy as well as by the competitors and for this purpose it needs to overcome the problems and improve the quality of services specially in advance section, that will prevent it from huge loses.

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9.2 RECOMMENDATION
The following findings and recommendations are based on personal observations and analysis. The given recommendations will help to cope the problems being faced by the bank and will enhance the efficiency and performance of the bank of Khyber.

1. Space Shortage:
During my internship in the ashraf road branch Peshawar I observed that there is shortage of space at branch. There is no proper and easy seating arrangement for the customers. To over come this problem, the bank either may hire the adjacent building or simply can shift to some other place.

2. Better Communication

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The management of BoK should concentrate on improving upward communication so as to have better feedback system involvement in the bank operation.

3. Shortage Of Employees
Shortage of employees increases the workload on existing employees and ultimately reduces the output and motivation level of employees. To overcome this problem job description should be revised and grouped together in order to create new jobs. Recruitment should be done in order to fill up these new vacancies. In this way the workload on employees will be reduced, operations will be stream lined and employees will feel comfortable in performing their duties more effectively.

4. More Friendly Environment

Friendlier environment should be created because it will help to gain the interest of employees in work. Noise in the office should be reduced because it has unfavorable impact on the working environment. Separate place or section should be created for each separate task and more space should be provided. It would also be greater help in establishment of friendly environment.

5. Proper Job Analysis

A detail and systematic study of the job should be done to know the nature and characteristics of the people to be employed. This will help in identifying the training needs, evaluating the job and in appraising the performance of the employees.

6. Professional Attitude: More professional attitude is required from the bankers. The management should curtail the unnecessary expenses to improve profitability. All loop holes must be closed that are used to incur expenses in respect of telephone, fuel, electricity, fringe benefits etc. the bank should analyze each activity on cost and benefit basis (cost benefit analysis). 7. Consumer Satisfaction: In todays world of competition only consumers satisfaction can reduce competitive advantage. As said in critical analysis there are some problems related to the dissatisfaction of consumers.

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The Bank of Khyber has to improve services provided to the pensioners and also they have to adopt scientific methods of paying utility bills. Improving the quality of consumer service can do all these things. If the consumers are satisfied from the service he will expand his business with the bank. But if the level of services is not good then the bank will lose its customers. For this proper training has to be imparted to the employees. 8. International Banking
BOK should expand its branches, not only in Pakistan but also outside the country now.

9. Latest Computer Equipments

Latest software should be introduced in the bank so that the data processing speed of the computer can be enhanced.

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Bibliography
Broachers of Bank of Khyber. Manuals of Bank of Khyber. The Bank of Khyber, Annual Report 2010-2011 The Bank of Khyber, Information Memorandum 2010-2011 www.BOK.com.pk www.banking/history/pakistan.com www.google.com.pk.

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