Banking Asignment 1

8/9/2019 Banking Asignment 1

http://slidepdf.com/reader/full/banking-asignment-1 1/16



An Overview of History

Of Banking in World:

During Barter System human society realized enormous difficulties of the Barter System

and then money was evolved, which eliminated the difficulties of the Barter. Banking in

fact is as primitive as human society. Then there was a necessity of a regulating body was

felt and the concept of banking emerged.

Origin of the Word Bank:

Bancus or Banque Means a bench

Back (a German word) Means a joint stock fund

When German occupied Italy the

word BACK was change into

BANK

Earliest known public bank Bank of Venice 1157 A.D

Bank of Barcelona In 1401

Bank of Genoa(Italy) In 1407

Bank of Hamburg In 1690

Foreign Banking in

Pakistan:

The foundation of Banking in Pakistan was very weak and quit insignificant. As the time

of independence of our country, the areas constituting Pakistan had only 487 branches of scheduled banks, out of 350 operating in the whole undivided India.

At the time of Independence, Australasia Bank was inherited by Pakistan from India. It

was a small bank had started in Lahore in 1942. It had only 07 branches with a total

deposit of Rs.4 million. This bank was setup by a rich Muslim family in their private

motor garage just to facilitate collection of rents of the estates and to handle allied



transactions. This family had some business in Australia due to which they had named

the Bank as Australasia Bank.

What is a Bank?

³An institution which takes money as deposits

from households and businessmen and

lend that money as loan to other households and businessmen.´

What is Foreign Bank in Pakistan?

The bank which is incorporated outside the

Pakistan but doing business in Pakistan.

Standard activities Of

Commercial Banks:

Banks act as payment agents by conducting checking or current accounts for customers,

paying cheques drawn by customers on the bank, and collecting cheques deposited to

customers' current accounts. Banks also enable customer payments via other payment

methods such as telegraphic transfer, EFTPOS, and ATM.

Banks borrow money by accepting funds deposited on current accounts, by accepting

term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend

money by making advances to customers on current accounts, by making installment

loans, and by investing in marketable debt securities and other forms of money lending.

Banks provide almost all payment services, and a bank account is considered

indispensable by most businesses, individuals and governments. Non-banks that provide

payment services such as remittance companies are not normally considered an adequate

substitute for having a bank account.



Banks borrow most funds from households and non-financial businesses, and lend most

funds to households and non-financial businesses, but non-bank lenders provide a

significant and in many cases adequate substitute for bank loans, and money market

funds, cash management trusts and other non-bank financial institutions in many cases

provide an adequate substitute to banks for lending savings to.

Wider Commercial Role:

The commercial role of banks is not limited to banking, and includes:

y issue of banknotes (promissory notes issued by a banker and payable to bearer on

demand)

y processing of payments by way of telegraphic transfer, EFTPOS, internet banking

or other means

y issuing bank drafts and bank cheques

y accepting money on term deposity lending money by way of overdraft, installment loan or otherwise

y providing documentary and standby letters of credit (trade finance), guarantees,

performance bonds, securities underwriting commitments and other forms of off-

balance sheet exposures

y safekeeping of documents and other items in safe deposit boxes

y currency exchange

y acting as a 'financial supermarket' for the sale, distribution or brokerage, with or

without advice, of insurance, unit trusts and similar financial products

Channels:

Banks offer many different channels to access their banking and other services:

y A branch, banking centre or financial centre is a retail location where a bank or

financial institution offers a wide array of face-to-face service to its customers.

y ATM is a computerized telecommunications device that provides a financial

institution's customers a method of financial transactions in a public space without

the need for a human clerk or bank teller. Most banks now have more ATMs than

branches, and ATMs are providing a wider range of services to a wider range of

users. For example in Hong Kong, most ATMs enable anyone to deposit cash to

any customer of the bank's account by feeding in the notes and entering theaccount number to be credited. Also, most ATMs enable card holders from other

banks to get their account balance and withdraw cash, even if the card is issued by

a foreign bank.

y Mail is part of the postal system which itself is a system wherein written

documents typically enclosed in envelopes, and also small packages containing

other matter, are delivered to destinations around the world. This can be used to

deposit cheques and to send orders to the bank to pay money to third parties.

Banks also normally use mail to deliver periodic account statements to customers.



y Telephone banking is a service provided by a financial institution which allows its

customers to perform transactions over the telephone. This normally includes bill

payments for bills from major billers (e.g. for electricity).

y Online banking is a term used for performing transactions, payments etc. over the

Internet through a bank, credit union or building society's secure website.

y Mobile banking is a method of using one's mobile phone to conduct simple banking transactions by remotely linking into a banking network.

y Video banking is a term used for performing banking transactions or professional

banking consultations via a remote video and audio connection. Video banking

can be performed via purpose built banking transaction machines (similar to an

Automated teller machine), or via a videoconference enabled bank branch.

FOREIGN BANKS:

y 1. ABN Amro Bank N.V.

y 2. Al-Baraka Islamic Bank B.S.C.(E.C.)

y 3. American Express Bank Limited

y 4. Bank of Cylon

y 5. Credit Agricole Indosuez

y 6. Citibank N.A.

y 7. Deutsche Bank AG

y 8. Doha Bank

y 9. Habib Bank A.G. Zurich

y 10. International Finance Investment & Commerce Bank Limited (IFIC)

y 11. Mashraq Bank psc

y 12. Oman International Bank S.O.A.G.

y 13. Rupali Bank Limited

y 14. Standard Chartered Bank (Pakistan) Limited

y 15. Standard Chartered Grind lays Bank Limited

y 16. The Bank of Tokyo-Mitsubishi Limited

y 17. The Hongkong and Shanghai Banking Corporation Limited



Foreign Banks and

Their Braches in Pakistan:

Al-Baraka Islamic Bank

(29)AbbottabadFaisalabad

GujranwalaGujrat

Hyderabad

Islamabad (2)

-Blue Area Jinnah Avenue-F-10 Markaz

Karachi(7)-Gulshan-e-Iqbal

-Gulshan-e-Maymar -I.I.Chundrigar Road

-Khiaban-e-Jami-Korangi Industrial Area

-PECHS Shahra-E-Faisal-SITE Area

Lahore (5)-64- Circular Road

-Faisal Town-Phase III,DHA

-Race Course Road

-Shahrah-e-Quaid-e-AzamMansehra Mirpur Multan Peshawer

Rawalpindi (3)-Chandni Chowk, Murree

Road-Jinnah Road

-Security Plaza, the MallSahiwal Sialkot

Wah Cantt

Barclays Bank PLC

Pakistan (9)Islamabad (2)

-F-7 Markaz-G.T.Road Rawat

Karachi (3)-M.T.Khan Road

-Shahra-E-Faisal-Khayaban-E-Sheraz Dha

Lahore (2)

-Mall Road

Mangla RawalpindiCiti Bank N.A (26)Faisalabad Hyderabad

Islamabad (2)-94 West Blue Area

- F-11 Sector

Karachi (10)

-AWT Plaza-Dewan Center

-DHA Phase VI-Hassan Centre, Gulshan

-Hyderi Point, N Nazimabad-Khyban-E-Itehad

-I.I. Chundrigar Road-Shahrah-e-Faisal

-Shaheed-E-Millat CopHousing Society

-Clifton

Lahore (7)

-Cavalry Ground-DHA Phase III, Z-Block

-EFU, Jail Road

-Gulberg III-Johar Town-New Garden Town

-Shahrah-e-Quaid-e-AzamGujranwala Jhelum

Multan SialkotRawalpindi

Deutsche Bank AE (3)Islamabad Karachi

Lahore

Oman Int ernational Bank

S.A.O.G (3Karachi Lahore

Gwader

The Bank of Tokyo-

Mitsubishi, Ltd (1)

Karachi

The Hongkong & Shanghai

Banking Corp (9)Islamabad Faisalabad

Karachi (3)

-Al-Karan Centre, Clifton-Shaheen Complex

-Tauheed Commercial Street,Phase V,

DHALahore Multan

Rawalpindi Sialkot

Indian Banks(9)*

Stat e Bank of India (2)Karachi Lahore

The Bank of India (1)Karachi

The C entral Bank of India

(3)

Hyderabad KarachiLahore

The Ori ental Bank of

Commerce (1)

Lahore

The P unjab National Bank (1)Lahore

The Unit ed Commercial

Bank (1)

Karachi



-Commercial Area Phase III

DHA

Foreign Banks Performance

Comparative Real GDP Growth Rates (%)

Country 2005-06 2006-07 2007-08 2008-09 Diff (FY09-

FY-08)

Pakistan 5.8 6.8 4.1 2.4 -1.7

Services Contribution to GDP Growth Rates (%) points

Services 4.4 3.3 3.6 3.41 1.92

Quarterly Performance

Review of the Banking System June 2009:

Overview:

Banking system witnessed some let up in the impacts of macroeconomic pressures

that have been affecting its asset quality and growth for last few quarters, though

overall macroeconomic outlook with slight improvements remained stressful. IMFµs

latest estimates predict that world Gross Domestic Product (GDP) would decline by

1.0 percent in 2009 followed by a modest 3.0 percent growth in 2010. Pakistanµs

economy also grew by 2.0 percent during FY09 ± the lowest for current decade ±

while the projection of 3.3 percent for FY10 also remains low.

Major stress from weakened economic conditions i.e. flow of additional Non

performing Loans (NPLs) that was pronounced in last couple of quarters, pacified to

some extent as NPLs grew at slower pace. Nevertheless, the system continues to facea considerably heightened credit risk, which has built up since later half of CY083.

The systemµs asset and deposit base witnessed noticeable increase as compared to

recent trends. Due to enhanced loan loss provisioning and decline in banks¶ risk

appetite, reflecting in enhanced risk based capital adequacy position, the baseline

solvency indicators registered some improvement. Accordingly, the system continued

to show strong resilience towards unusual shocks in major risk factors.

The asset base of the banking system grew by 6.0 percent. The deposits, which had



been showing stagnancy since Jun-08, registered an appreciable growth of 8.2

percent during the quarter under review. The advances for grew by 5.0 percent;

however, this increase occurred in lending to public sector for its Commodity

Operations and to Public Sector Enterprises (PSEs). Due to risk aversion of banks and

slackened demand from private sector, lending to private sector shed by 1.8 percent.

Further, banks¶ investments in Government papers also significantly grew by 12.9 percent during the quarter under review. Accordingly, asset mix further shifted from

loans and advances to investments in government papers.

The increased macroeconomic vulnerabilities and constrained repayment capacity of

borrowers have resulted in significant increase in NPLs of the banking system during

last two quarters. The quarter under review, however, witnessed slowdown in

infection rate as the NPLs accumulated at relatively passive rate of 4.9 percent to

Rs398 billion (Rs379 billion in Mar-09, and Rs359 billion in Dec-08). Due to a

matching growth in loan portfolio, the infection ratio remained at the last quarter

level. This increase in NPLs occurred in Doubtful and Loss categories and banksalmost fully provided for additional NPLs. Accordingly, net infection and capital

impairment ratios slightly receded, and NPLs coverage after deteriorating over the

last few quarters improved to 70.2 percent.

The significant increase in loans loss provisioning moderated the earnings of the

system: year to date Profit before Tax (PBT) of Rs47.8 billion in Jun-09 as

compared to Rs61.4 billion for corresponding period of CY08. The baseline

indicators of Return on Asset (ROA) and Return on Equity (ROE) remained

significantly lower than the level for corresponding period of last year, though still

higher than entire year results of CY08. Satisfactory earnings, however, were notwidely shared by market players and were skewed towards large and medium-sized

banks as most of the small sized banks¶ earnings remained in red.

Accumulation in year to date earnings led to reasonable increase in equity base of the

system. This growth was also augmented by improvement in revaluation surpluses on

both Available for Sale (AFS) equity investments and fixed income securities due to

favorable movements in market prices. The net worth to total asset ratio slightly came

off. However, improvement in eligible capital and reduction in Risk Weighted Assets

(RWA) as the banks continued to shift their asset mix from private sector credit to

investments in government papers and lending to PSEs, improved the risk based

Capital Adequacy Ratio (CAR) to 13.5 percent (14.0 percent for commercial

banks).

Deposits after showing stagnancy for the last few quarters, witnessed a significant

increase which surpassed growth in advances, and a larger share of fresh deposits was

invested in liquid assets. Resultantly, the liquidity profile of the system further

improved during the quarter. Advances to deposits ratio (ADR) came off to 69.6

percent and liquid assets to total assets ratio improved to 31.2 percent. Similarly, the



market risk of the system with some moderation remained subdued. Strong recovery

by the capital market made for the substantial part of revaluation losses, which

accumulated during later half of CY08. Interest rate risk was also low as the interest

rates gradually declined during the quarter, appreciating the value of fixed income

securities while re-pricing mismatches remained within acceptable ranges.

Going forward, economic slowdown and domestic security issues are likely to

dampen the growth of the banking system. Low demand for banks µcredit from

private sector, increased risk aversion on the part of banks, and public sector demand

for bank credit will further shift asset mix away from advances to government papers

and lending to PSEs. Given the slackened economic activities and constrained

repayment capacity of borrowers, credit risk continues to remain the foremost concern

for the system. However, stress test results indicate that banks are well placed to

withstand any unusual shocks in credit risk factors. Banks have though shown strong

performance in attracting deposits during the quarter under review.

However, future growth in earnings assets and lending to private sector for supporting

the accelerated economic activities during Oct-Dec quarter will largely depend upon

banks¶ ability to mobilize fresh deposits. Therefore, they will have to step up their

efforts for mobilizing deposits, which are again showing some stagnancy in latest post

quarter statistics. Keeping in view some improvements in key economic indicators,

State Bank of Pakistan (SBP) has been following the policy of discreetly easing off

monetary policy for providing impetus to sustainable recovery. Accordingly, the

interest rates are likely to remain relatively low compared to CY08 levels. The

system, on aggregate basis, is expected to post satisfactory earnings, though the

individual banks would experience mixed results, depending upon their size andearning capacities.

Risk Assessment of the Banking System:

Credit Risk:

The NPLs of the banking system increased by 4.9 percent to Rs398 billion during

the quarter. Increase in NPLs is distributed across all banks; however, most of the

increase came from top tier banks. GroupWise, PSCBs and LPBs contributed all the

increase in NPLs of the system. Particularly, NPLs of LPBs increased by Rs16

billion, representing 76 percent of the total increase. Increase in cash recovery and

loan written-off have also to some extent restrained growth in NPLs.

The surge in NPLs was primarily in doubtful and loss categories. Decrease in NPLs in

OAEM and substandard category show some let up in the influx of fresh NPLs,

observed in last two quarters. A significant increase of Rs20 billion took place in loss

category. As a result, share of NPLs in first three categories decreased by 3



percentage points to 42 percent, though still above 33 percent a year ago. With

substantial amount of NPLs in substandard and doubtful categories (39.7 percent),

banks still face a risk of additional loans losses and constrained earnings ahead.

With increase in NPLs and transition of NPLs into higher provisions classification

categories, the provisions increased by Rs16.8 billion. This increase in provisions

almost matched Rs18.6 billion increase in NPLs. Further analysis show change inshare pattern of general and specific provisions. Banks held 84 percent and 16

percent specific and general provisions respectively in Dec-07, which came down to

93 and 7 percent in Jun-09. The decline in general provisions seems to have resulted

from higher specific provisioning requirements and utilization of some of the general

provisions to provide for specific provision over the last two years. Further, the

decrease in consumer portfolio, which involves mandatory general provision, has also

reduced the general provisions12.

Improved provisions, which almost matched increase in NPLs, led to a marginal

increase of 2 percent in net NPLs (48 percent increase in Mar-09). Conservativeapproach of the banks towards utilization of FSV benefit 13 has decelerated growth of

net NPLs; a number of banks are either not taking any benefit or utilizing partial FSV

benefit. Further, up gradation of some NPLs to performing status has limited the

increase in net NPLs.

Increase in advances, deceleration in NPLs and compatible growth in loan loss

provisions, marginally improved the asset quality indicators. NPLs to Loan ratio of

the banking system remained at previous quarterµs level. The ratio increase for

LPBs by only 10 bps to 9.8 percent, while it increased by 90 bps for foreign banks.

Due to the factors highlighted earlier, NPLs to loans ratio (net) witnessed over the

quarter declined of 13 bps to 3.7 percent. The ratio increased for FBs by 7 bps,

remained at previous quarterµs level for LPBs and decreased for rest of the banking

groups.

As increase in provisions largely offset the increase in NPLs which improved the

NPLs coverage ratio to 70 percent in Jun-09. Encouragingly, provisions to NPLs

increased after showing decline for last 5 quarters. Minor increase in net NPLs and

improved capital position of the banks have also improved the capital impairment

ratio; the ratio declined by 60 bps to 19 percent in Jun-09.

Overall trend in asset quality is observable in Segment analysis of NPLs. Increase in

infection ratio has subsided for almost all segments while decreasing for a couple.



Financial Position of Scheduled Banks: Incorporated outside Pakistan:

( End Dec. : Thousand Rupees)

Financial Position Barclay Bank Plc.2008

ASSETS:

Cash & Balances With Treasury Banks 1,609,550

Balances With Other Banks 392,032Lending To Financial Institutions 1,485,808Investments - Net 9,332,849

Advances - Net 9,679,474Other Assets 322,459

Operating Fixed Assets 1,381,260

Deferred Tax Assets 398,188

TOTAL ASSETS:

24,601,620

LIABILITIES:

Bills Payable 256,590

Borrowings From Financial Institution 2,476,155

Deposits And Other Accounts 14,557,453Sub-ordinated Loans -

Liabilities Against Assets Subject To FinanceLease

-

Other Liabilities 979,429Deferred Tax Liabilities -

TOTAL LIABILITIES: 18,269,627

NET ASSETS: 6,331,993

REPRESENTED BY:Share Capital 7,139,900

Reserves -Unappropriated Profit (809,414)Surplus/Deficit On Revaluation Of Assets 1,507

TOTAL:

6,331,993

OPERATING POSITION:

Mark-Up/ Return/Interest Earned 832,665Mark-Up/ Return/Interest Expenses 335,338

Net Mark-Up / Interest Income 497,327

Provisions & Bad Debts Written Off Directly 33,841

Net Mark-Up / Interest Income After Provision 463,486



Fees, Commission & Brokerage Income 16,491

Dividend Income -Income From Dealing In Foreign Currencies 11,764

Other Income 260

Total Non - Markup / Interest Income 28,515

Administrative Expenses 1,700,315Other Expenses 100

Total Non-Markup/Interest Expenses 1,700,415

Extra ordinary/unusual Items (to be specified) -

PROFIT/ (LOSS) BEFORE TAXATION (1,208,414)

Taxation - Current -- Prior Years -

- Deferred (399,000)PROFIT/ (LOSS) AFTER TAX (809,414)

Net Cash Inflow / (Outflow) from OperatingActivities

5,675,423

Net Cash Inflow / (Outflow) from Investing

Activities

(10,813,562)

Net Cash Inflow / (Outflow) from Financing

Activities

7,139,900

Number of Employees 1,431

Citibank N.A.

( End Dec. : Thousand Rupees)

Financial Position Citibank N.A.

2005 2006 2007 2008

ASSETS:

Cash & BalancesWith Treasury

Banks:

8,383,947 5,881,934 7,729,935 10,583,830

Balances With

Other Banks

729,186 539,516 192,370 7,358,861

Lending To

Financial

Institutions

4,796,504 6,267,405 4,530,449 14,166,060

Investments - Net 19,845,100 21,937,387 21,276,196 9,194,307Advances - Net 39,163,339 51,289,271 49,068,211 41,856,749

Other Assets 2,641,794 3,357,063 7,051,616 13,432,726

Operating FixedAssets

340,656 1,186,499 1,420,645 1,474,167

Deferred Tax

Assets

573,115 828,544 1,199,429 3,585,127

TOTAL ASSETS 76,473,641 91,287,619 92,468,851 101,651,827

LIABILITIES



Bills Payable 1,436,826 1,212,275 2,120,612 1,660,227Borrowings From

FinancialInstitution

12,612,553 15,409,454 5,977,312 3,152,988

Deposits And

Other Accounts

53,115,538 63,103,884 68,627,815 65,484,768

Sub-ordinatedLoans

- - - -

Liabilities Against

Assets Subject To

Finance Lease

- - - -

Other Liabilities 3,603,014 5,533,500 9,417,201 22,340,772

Deferred TaxLiabilities

- - - -

TOTAL

LIABILITIES

70,767,931 85,259,113 86,142,940 92,638,755

NET ASSETS5,705,710 6,028,506 6,325,911 9,013,072

REPRESENTED BY:

Share Capital 3,742,948 3,794,244 5,443,260 7,742,345Reserves - - 46,784 75785

UnappropriatedProfit

2,007,769 2,274,831 889,238 1,689,600

Surplus/Deficit On

Revaluation Of Assets

-45,007 (40,569) (53,371) (494,658)

TOTAL 5,705,710 6,028,506 6,325,911 9,013,072OPERATING

POSITION

Mark-Up/

Return/InterestEarned

5,635,170 9,017,327 10,553,668 9,943,656

Mark-Up/

Return/InterestExpenses

2,035,755 4,113,089 5,071,332 4,144,702

Net Mark-Up /

Interest Income

3,599,415 4,904,238 5,482,336 5,798,954

Provisions & BadDebts Written Off Directly

626,950 955,209 2,655,460 4,058,001

Net Mark-Up /

Interest Income

After Provision

2,972,465 3,949,029 2,826,876 1,740,953



Fees, Commission

& BrokerageIncome

1,804,183 1,648,434 1,523,529 1,358,752

Dividend Income - 8,995 - -Income From

Dealing In

ForeignCurrencies

451,897 427,746 855,162 2,142,938

Other Income 336,671 589,435 755,133 44,357

Total Non -

Markup /

Interest Income

2,592,751 2,674,610 3,133,824 3,546,047

Administrative

Expenses

2,962,639 4,053,108 4,807,138 5,127,991

Other Expenses 8,687 (4,630) 22,623 40,160

Total Non-Markup/Interest

Expenses

2,971,326 4,048,478 4,829,761 5,168,151

Extra ordinary/unusual Items (to be specified) -

PROFIT/ (LOSS)

BEFORE

TAXATION

2,593,890 2,575,161 1,130,939 118,849

Taxation - Current 1,221,374 1,332,650 1,330,644 1,466,568- Prior Years - (141,594) (95,394) -

- Deferred (135,738) (261,169) (363,992) (2,148,081)

PROFIT/ (LOSS)

AFTER TAX

1,508,254 1,645,274 259,681 800,362

Net Cash Inflow /

(Outflow) from

Operating

Activities

11,239,293 5,004,128 (2,849,659) (1,086,131)

Net Cash Inflow /

(Outflow) from

Investing

Activities

(17,009,678) (3,940,415) 3,768,274 9,254,001

Net Cash Inflow /(Outflow) from

Financing

Activities

(1,950,756) (1,384,718) (10,274) 2,305,074

Number of

Employees

3,154 4,077 3,766 2,415



Role of Foreign Banks:

Increase in Foreign Investment.

Increase in Value added services.

Increase in Business Opportunities.

Increase in Country GDP.

Increase in Government Tax.

Increase in Employment.

Strongness of Banking System.

Increase in Competition.

More Funds Available to Producers.

High GNP.

Per Capita Income is Also High.

Technological Improvements.

Better Fund Management

Increase in Foreign Exchange Reserves

Increase in Credit Limit

Opening of New Projects

Better Industry Averege

Increase in Foreign Investors

Economical Improvements

Increase inBusiness Activity

Increase in Foreign Trade etc

Banking Asignment 1

Documents

Transcript of Banking Asignment 1