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INTERNSHIP REPORT ON BANK OF KHYBER

Supervised By:

SIR. SHABIR AHMAD

SubmittedBy:

Tariq azizM.B.AROLL NO. 225

UNIVERSITY

OF MALAKAND

SESSION 2010-12

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DEDICATED TO

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I dedicate this humbleeffort to my

honorable parentsEspecially to mysweet and loving

Mother who alwaysprayed for

My success and

supported meSpiritually andfinancially

In Every stages oflife,

My friends &

teachers.

Tariq aziz

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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-Ulil-

Alamin 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.

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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.

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TABEL OF CONTENTS

S. No Title Page #

Dedication

Acknowledgement

Executive Summary

Chapter 1 Introduction To Report 8

1.1 Objective of the Study 8

1.2 Scope of the Study 8

1.3 Importance of Study 8

1.4 Background of Study 9

1.5 Purpose of Study 9

Chapter 2 Introduction 10

2.1 History Of Bank Of Khyber 10

2.2 Distinctive Feature 102.3 Challenges And Development Plans 10

2.4 Vision Of Bank Of Khyber 11

2.5 Mission Of Bank Of Khyber 11

2.6 Core Valves 11

2.7 Main Objective Of Bank Of Khyber

Chapter 3 Functions And Organization Structure 12

3.1 Functions of Bank of Khyber 12

3.2 Discounting Bills of Exchange 12

3.3 Agency services 12

3.4 Organizational Structure 12

3.5 Organization Hierarchy 13

3.6 Organizational Chart Of Bok 13

Chapter 4 Departmentalization 15

4.1 Account Opening Department 15

2.2 Qualification Of A Customer 16

4.2 Nature Of Accounts 16

4.3 Remittances Deportment 17

4.4 Cash Deportment 19

4.5 ATM Services 19

Chapter 5 Advances Deportment 20

5.1 Fund Based Finance 205.2 Non Based Finance 24

Chapter 6 Islamic Banking 26

6.1 Deposit Schemes 26

6.2 Modes of Islamic Finance 29

Chapter 6 Islamic banking 26

6.1 Deposit Schemes 26

6.2 Mode of Islamic Finance 29

Chapter 7 Financial Statement Analysis 31

7 Financial statement 32

7.1 Ratio analysis 33

7.2 Financial leverage Ratio 34

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7.3 Activity Ratio 35

7.4 Profitability Ratio 36

Chapter 8 SWOT Analysis of Khyber Bank 38

8.1 Strengths 38

8.2 Weakness 38

8.3 Opportunities 388.4 Threats 39

Chapter 9 Conclusion & Recommendations 40

9.1 Conclusion 40

9.2 Recommendations 41

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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.

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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 ADBproject, lending to NGOsin 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 andConventional 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:

3.3.1Collection 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.

ORGANIZATIONAL CHART OF THE BANK OF KHYBER

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Board of

Directors

Managing Director

ShariahSupervisoryCommittee/

ShariahAdvisor

Islamic banking

Division

RiskManagement

Deptt.

Operations Deptt.

Marketing

CreditsTreasury

MISAccount

sSection

Product/Business

Development

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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 accountis 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 ina 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 of

Khyber and the Client.

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 LoanDesigned 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 LoanThis 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 ofpartnership 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.


4. Free Account Statement (Once in a month)

5. No charges for Closing of Account.

6. Free e-mail of account statement.


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.


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


10. Free Account Statement (once in a month).


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

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

Year Current assets Current liabilities Ratio

2009 35,518,519 31,662,763 1.12

2010 47,235,560 40,156,775 1.17

2011 65,103,396 56,221,447 1.15

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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 Cash in hand & other

bank

Current asset Ratio

2009 3,945,800 35,518,519 0.11

2010 6,582,404 47,235,560 0.13

2011 4,330,342 65,103,396 0.15

Analysis

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 Total Equity Ratio

2009 32,848,273 5,962,297 5.5

2010 41,393,930 9,400,373 4.4

2011 58,058,972 10,365,434 5.6

Analysis:

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 Ratio2009 32,848,273 38,810,570 0.84

2010 41,393,930 50,794,303 0.81

2011 58,058,972 68,424,464 0.84

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.

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7.3 Activity Ratio

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

Year Mark up returned

revenue

Total asset Ratio

2009 3,390,014 38,810,570 0.087

2010 4,207,155 50,794,303 0.082

2011 6,946,827 68,424,464 0.1

Analysis:

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 Gross Profit or loss Mark up returned

revenue

Ratio

2009 -798,770 3,390,014 -0.23

2010 713,141 4,207,155 0.16

2011 1,285,458 6,946,827 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 Net profit & loss after

taxes

Mark up returned

revenue

Ratio

2009 -637,183 3,390,014 -0.18

2010 563,486 4,207,155 0.13

2011 872,308 6,946,827 0.12

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.

7.4.3 Return on investment

Net profit & loss / Total assets

Year Net profit & loss after

taxes

Total assets Ratio

2009 -637,183 38,810,570 -0.01

2010 563,486 50,794,303 0.011

2011 872,308 68,424,464 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 Net profit & loss aftertaxes

Shareholders Equity Ratio

2009 -637,183 5,962,297 -0.1

2010 563,486 9,400,373 0.05

2011 872,308 10,365,434 0.08

Analysis:

The ratio was negative as -0.1 in 2009 because of increase Provision against non-performingloans 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 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.
http://www.bok.com.pk/http://www.banking/history/pakistan.comhttp://www.google.com.pk/http://www.bok.com.pk/http://www.banking/history/pakistan.comhttp://www.google.com.pk/

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