Internship Report Silkbank

INTERNSHIP REPORT

SILK BANK

MBA (Banking & Finance)

Submitted to:

Chairman,

Department Of Business Administration

Submitted by:

Nazia Amin

95209995

07-FID-0079

Block# 4-C, Flat# 4,

G-9/2 Islamabad.

Date of submission:

ALLMA IQBAL OPEN UNIVERSITY, ISLAMABAD.

In The Name Of

ALLAH

Most Merciful and Compassionate the Most Gracious

and Beneficent whose help and guidance I always

Solicit at every step, at every moment.

PREFACE

This Report is specially meant for the student of MBA. It is concerned to a brief study of

the operation, Function, tasks and services of Silk Bank of Pakistan.

Banking play very important role in the commerce and economic development of a

country. Now-a-days banks are using different modern technologies, which influence the

managerial activities, that’s why I decided to do my internship Training in the bank.

In preparation of this Report is have tried my best to provide all Possible information

about the operation, function and tasks of Silk bank in brief and comprehensive form. It

also includes a brief department worked during internship. I have also tried my best to

use simple and easy words and language.

Then internship report ends with some recommendation after identification of some

problems observed during the course of internship.

Nazia Amin

Acknowledgement

All praise is to Allah Almighty who granted me insight and devotion to perform such

creative work. I am grateful to all those who helped me completing this internship report.

I am thankful to all members of Department of Business Administration, Allama Iqbal

Open University for extending cooperation to enter Silk Bank as an internee.

TABLE OF CONTENTS

Objectives of Studying the Organization

1. Overview of the Organization

2.1 History Of Silk bank

2.2 Nature of the Organization

2.3 Business Volume

2.4 Number of Employees

2.5 Product Lines & Services of Silk bank

2. Organizational Structure

3.1 Overall Organizational Structure

3.2 Organizational Structure of Silk bank G-9 Branch

3.3 Various Departments of Silk bank

3. Structure of Finance/Accounts Department

4.1 Structure of Finance/Accounts Department

4.2 Finance & Accounting Operations

4.3 Role of Financial Manager

4.4 Technical Methods (Use of Electronic data)

4.5 Funds Management

4. Theoretical and Practical Concepts

5.1 Daily Schedule For Evaluate A Bank’s Money

Position

5.2 Account Opening Procedure

5.3 Customer Privacy

5. Financial Analysis

6.1 Balance Sheet

6.2 Income Statement

6.3 Ratio Analysis

6.4 Horizontal Analysis of Balance Sheet

6.5 Horizontal Analysis of Income Statement

6.6 Vertical Analysis of Balance Sheet

6.7 Vertical Analysis of Income Statement

6.8 Organizational Analysis

6.9 Future Prospects of Silk bank

6. Weaknesses of Silk bank

7. Conclusion

8. Finding and Recommendations

9. References

Chapter 1:

Objectives of Studying

The

Organization

Why I studied the organization?

My real objectives of the studying the organization are based on following facts:

To study accounting finance issue of the organization its weakness strength

To fulfill the requirement of department of Business Administration (AIOU) for

the degree of MBA (Banking Finance)

To improve my knowledge about finance department other different department of

this organization

To be a better manager of finance activities of huge organization

To high light strength identify weakness residing internally with finance

department of this organization

To make better understanding of theoretical financial concepts being implemented

in real world setting

To have more insights into the type of situation actually being encountered in a

daily organizational work

Chapter 2:

Overview

Of the

Organization

ilk bank is the Public sector financial institution. The Silk bank was established

on 1949, to serve as an agent to the SBP. Silk bank head office is in Karachi. It

has 1249 regional branches and 18 overseas branches. Silk bank is a 52% share

owned by the Government of Pakistan (GOP). Silk bank's total assets stood at PKR820

billion on mid of 2009. This included total earning assets of about PKR268 billion with

gross loan portfolio of PKR140 billion. The bank also has an investment portfolio of

PKR171 billion, which comprises treasury securities, corporate bonds, shares and other

securities.

S

History of Silk bank

On September15 2001 under the supervision of State Bank of Pakistan (SBP), the

institution thenknown as prudential bank was acquired by management associates of

Saudi Pak industrial and agriculture investment company (Pvt) Ltd (SAPICO). Silk Bank

(formerly Saudi Pak Commercial Bank) came into existence when a consortium of

investors, comprising Bank Muscat SAOG, Nomura European Investments Limited and

International Finance Corporation signed a share purchase agreement with the Saudi Pak

investment group. On March 31, 2008 the consortium acquired 86.55% of the bank for

around USD 26million or $0.47 per share (Rs 29.3 equivalent per share). Under the new

leadership, the bank will continue to focus on SME and consumer financing resulting in

efforts of increased profitability. In December 2009, after completing all regulatory

requirements, the bank announced a Rights Issue of 311% at a discount of Rs 7.5 per

share to generate additional capital of Rs 7.0billion to meet the MCR of the State Bank of

Pakistan (SBP).

On March 31, 2008, a consortium comprising of IFC, Bank Muscat, Nomura

International and Sinthos capital and led by senior bankers Shaukat Tarin and Sadeq

Sayeed acquired an 85.55% stake in Silk bank for around $ 213 million or $ 0.47 per

share (PKR 29.3 equivalent per share). Under the new leadership, the bank will continue

focus on SME consumer financing resulting in efforts of increased profitability.

“Saudi Pak Bank name changed Silk Bank”

The State Bank of Pakistan notified Friday the change of name of Saudi Pak Commercial

Bank Limited to Silk Bank Limited with effect from June 1, 2009. This change has been

notified by the central bank in exercise of the powers conferred on it (SBP) by clause of

sub-section (2) of Section 37 of the SBP Act, 1956.

Nature of the Organization

The main objective of the bank is to accept deposits and provide loans to its customers

and also to be more efficient in providing services. The bank maintained its commitment

to most efficient and personalized services to its customers. Silk bank of Pakistan

introduced many remunerative schemes for its depositors and introduced computer

services for the first time in the banking history of Pakistan. Silk bank gives advances to

small, medium and big industries, commercial establishment, agriculture, construction

companies and other needy persons. Silk bank collects electricity gas and telephone bills

from public and over hundred branches of Silk bank Ltd. deal in foreign exchange were

facilities are given to financial and commercial so its ultimate objective is to receive

funds from the depositors and provides loans/credit facilities to different sector including

trade, industry and agriculture in its most branches.

Business Volume

Description

(in Million) 2005 2006 2007 2008 2009

Share Capital 3,848 3,848 5,002 9,003 9,003

Investments 12,465 15,829 17,859 12,012

20,179

Deposits 37,136 49,015 42,374 41,056 49,610

Advances 19,513 29,022 25,875 31,087 32,097

Volume of Share Capital has been increased since 2004.Volume of investment has been

increased since 2004 because of increase in long –term investments by Silk Bank.

Volume of Deposits has also increased in year 2009 and the volume of Advances has also

been increased since 2008.

Value of contribution made by Bank in Employees’ Provident Fund schemes for the year

2009 is as under:

Provident Fund Rs 43.87 million

Gratuity Scheme Rs 34.96 million

Number of Employees

Followings are the no of employees working in 83 branches of Silk Bank in 32 cities

Staff Strength (Permanent/temporary or contractual) 1,259

Support Staff 700

Total Number of Employees of Silk Bank 1,959

Following is the total no of employees working in Silk Bank G-9 branch

Management Employees 5

Support Staff 8

Total Number of Employees of Silk Bank G-9 Branch 13

Product Line of Silk bank

Loan and Advances

M’Power

Turnover is vanity, profit is sanity but cash is reality and good cash flow is the key to

success of any business. Silk Bank M’Power offer running finance against your land,

residential & commercial properties insuring a steady life line for your business.

Convenient

Land, residential and commercial properties acceptable as security

Flexible

Ever green facility with no principle repayment

Affordable

Mark up calculation on daily utilized amount only

Accessible

Visa debit card acceptable internationally

Available in all major cities of Pakistan i-e Karachi, Lahore, Rawalpindi,

Islamabad & Gujranwala

Online banking facility in 32 cities of Pakistan

Fast process

Fast processing with simple and hassle free documentation

Eligibility

Resident of Pakistan

Self employed professional &businessmen in going concern over 3 to 5 year

Monthly income of 50,000

Age 25-60 years

Real estate collateral in shape of land, residential &/or commercial properties

Insurance Products

Roshan Mustaqbil

Sunehra Kal

Mehfooz Her Pal

Silk Health Plan

Roshan Mustaqbil

A child is the most precious gift for any quality education is the best gift parents can give

to their children

Silk bank Roshan Mustaqbil Bancassurance is an education plan exclusively designed to

cater your needs. The plan is underwritten by EFU Life Assurance Ltd.

Roshan Mustaqbil is a flexible, tailor-made, complete financial package that facilitates

you to plan your children’s future education requirements and guarantees a financially

secure tomorrow even in case of any mishap.

Sunehra Kal

Silk Bank Sunehra Kal bancaassurance is a saving and investment plan exclusively

designed to cater all your needs.

The plan is underwritten by EFU Life Assurance Ltd.

Sunehra Kal is comprehensive financial planning package that gives you the dual benefit

of protection along with potentially higher returns over a long- term on your saving and

investment. The most important benefit of Sunehra kal is its flexibility to suit your needs.

Sunehra Kal is an ideal, regular premium unit-linked plan, to all your dreams into reality.

Mehfooz Har Pal

Silk Bank Mehfooz Har Pal bankassurance is a simple yet comprehensive accident and

hospitalization plan providing 24 hour worldwide coverage to the entire family. Mehfooz

Har Pal guarantees your financial well by paying out cash on death, disSilkbankement or

prolonged absence from work as a result of an accident or hospitalization due to an

accident. The plan is underwritten by EFU Life.

Silk Health Plan

Health is undoubtedly the real wealth. In fact, good health is a treasure that every

individual cherish the most .but unfortunately illness and disease are part and parcel of

life and always exist. With the health care costs, sickness may not only lead to mental

distress for the whole family but could also adversely affect the finance for a long time to

come. The implications become even more severe if the illness result in prolonged

hospitalization.

With a mission to help people live healthier, wealthier and more successful lives Silk

bank offers Silk Health Plan, a comprehensive healthcare package that provides financial

protection in case of illness or accident that leads to hospitalization. The plan is

underwritten by Allianz EFU.

Utility Bills

All branches of the Bank collect utility bills of electricity, gas and telephones. For

convenience of the customers, Utility Bills are collected by the branches during banking

hours and also in the evening banking on all working days. Bills can be paid through cash

or checks. Consumers may drop bills with crossed checks into a drop box available at the

branches under “Checks Drop-in” system.

Foreign currency transactions

Transactions in foreign currencies are translated to rupees at the foreign exchange rates

ruling on the transaction date. Monetary assets and liabilities in foreign currencies are

expressed in rupee terms at the rates of exchange ruling on the balance sheet date except

that certain deposits, which are covered by forward foreign exchange contracts, are

translated at contracted rates.

Forward foreign exchange contracts and foreign bills purchased are valued at forward

rates applicable to their respective maturities.

Non-monetary assets and liabilities are translated using exchange rates that existed when

the values were determined.

Technology Products

Visa Debit Card

Mobile Banking

E-Statements

Sms Alert

Silk Bank-Direct

Visa Debit Card

With Silk Bank Debit Card get 24-hours access to cash anytime and anywhere around the

world.

Silk Bank Debit Card offers international acceptance and enables to draw cash, direct

from account anywhere, any time.

In case of stolen or lost cards, you can protect against fraudulent transaction made on

your card after you report the lost.

Mobile Banking

Silk-Direct Internet Banking is accessible through GPRS enable mobile phones.

Facilities of Mobile Banking are:

Balance Inquiry

Mini Statement

Check Book Request

Account Statement Request

E-Statement

E-Statement facilities

No Hassles

Simple Registration Process

Desired Frequently Options

Customers can request e-statement on a daily, monthly, quarterly, half-yearly and

annually frequency.

SMS Alert:

Silk Bank Sms Alert offer to customers the ability to stay informed around the clock, any

time.

Once enrolled for SMS Alert, you will receive alert on transactions you select, from the

following set of option:

Banking Transaction:

All Transactions

Transaction of Rs.50, 000 & above


Internet/ATM Transaction:

All Transactions


Silk Bank-Direct

With Silk Bank Internet banking service we can access and manage our accounts

anywhere, any time.

With Silk Bank-Direct we can enjoy these amazing convenient internet banking facilities:

Balance Inquiry

Mini Statements

Transaction Details

Low Balance Alerts

Accounts Statements Requests

Fund Transfers

Pay Order/Demand Draft Requests

Cheque Book Requests

Deposits Accounts

Current Accounts

o Online Express

With Silk Bank Online Express you can enjoy complete online banking solution, all

under one roof. And that’s not all; your online Express account opens the doors of the

world for you with the power of the Silk Bank Visa Debit Card.

o Basic Banking Account

Opening an account was never so easy. Now open an account with Silk Bank with no

premium balance requirement, with only Rs. 1,000.

Two deposit transaction and two cheque withdrawals are allowed, free of charges, per

month. Bank will charge Rs.100/- per transaction over and above the allowed free

transactions.

ATM withdrawals from all Silk Bank ATM free. In case of withdrawal from BBA

through the ATM machine of other banks. Switch charges will apply in accordance with

Schedule of charges.

In case where balance in BBA remains ‘nil’ for continuous six-month period, the account

will be closed.

o Al-In-One Account

Silkbank All-in-one Account provides you the ultimate security and protection, amazing

banking facilities and much more convenience……all absolutely free.

Unmatched Auto-Insurance Benefits!

Now can avail an unbeatable auto-insurance rate as low as 2.5%, offered exclusively for

Silk bank All-in-one customers!

Worry-free Cash Withdrawals

Liberate yourself from the fear of being robbed of your cash. Silk bank All-in-one

Account provides you free snatching and holdup cover of up to Rs.25, 000 per annum for

ATM and over-the-counter cash withdrawals across Pakistan.

Use your Mobile Phone without Fear

Free yourself from the in securing of having your mobile snatched. Silk bank All-in-one

Account provides you free cover of Rs.5, 000 for mobile snatching. This facility can be

utilized once a year.

Lost Your Document? No Problem!

Liberate yourself from the stress of losing your vital documents, such as CNIC, Credit

Card, Driving License and Passport. Silk bank All-in-one Account provides you free

cover of Rs. 5,000 for theft or loss of your vital documents. This coverage can be utilize

once a year and is designed to reimburse you for the cost of re-insurance of these

documents.

Liberate yourself from the fear of Home Burglary

Feel protect at home with silk bank All-one-one Account. Your account provides you free

cover for burglary of your house valuable up to Rs.100,000.

Protect for your Family in case of Accidental Death or Disability

o Silk bank All-in-one Accounts provides you free world-wide cover of

up to Rs.200, 000 for accidental death and permanent disability.

What’s more, you get the following benefits free:

Free Pay Oder & Demand Drafts

Free Intercity Transactions

Free VISA Debit Card

Free withdrawals from all ATMs

Free Internet Banking

Free SMS Alerts

Free Statements through Your Email

Saving Accounts

o Super Saver

Highest Returns

VISA Debit Card

Higher the deposit, higher the returns

Profit calculated on Daily Product Basis

Can be operated by Individuals or Companies

Profit is Payable monthly

o PLS Account

Through Silk Bank Saving PLS account, can avail now the benefit of saving of a Saving

Account with the convenience of a current Account

Profit paid out twice a year

Monthly Profit of 5% on all Tiers

VISA Debit Card

Profit calculated on minimum balance every month

Can be operated by Individuals or Companies

Minimum balance required is Rs. 50,000

o Foreign Currency Account

Invest in Silk bank Foreign Currency Account to earn remarkable profit twice a year.

Profit calculated on the minimum balance during the month

Profit credited after every 6 months

Can be operated by Individual or Companies

Term Deposits

o Munafa Hi Munafa

With Silk bank Munafa Hi Munafa Term Deposit Account can earn now the highest

profit on a monthly basis

Munafa Hi Munafa Term Deposit Account can open now with minimum balance of only

Rs. 100,000.

o Salana Munafa

With Silkbank Munafa Hi Munafa Term Deposit Account can now earn the highest

return on the lowest investment and the following returns:

Overdraft facility of up to 90%

ATM/Debit Card with account

Online banking, E-Statement and Internet banking facilities

Pay Order/Demand Draft facility with base account

o 7 Days Notice Deposits

Silk Bank Special Notice Account is also available for 7 and 30 days.

o Other Term Deposits

With Silk bank Term Deposit Account can choose from a wide of tenures of 1 month, 3

months, 6 months and 1 year, based on customer requirements. With a minimum deposit

of only Rs. 100,000, have the opportunity to earn higher returns on your deposits

Automated Teller Machine (ATM)

The Silk Bank Automated Teller Machine (ATM) launched means of providing

customers with 24 hour cash convenience. Over the years its success has encouraged the

bank to expand its network to major cities. In the past years, Silk Bank installed this

convenience in Karachi, Lahore, Hyderabad, Islamabad / Rawalpindi, Faisalabad,

Multan, Gujranwala, Quetta, Sialkot and ISLAMABAD. Further expansion plans to other

cities are on the way.

Debit Card Facilities

1. Funds transfer on ATM

A cardholder can transfer funds on the ATM from his account to any other account

in any branch of Silk Bank up to a maximum of Rs. 100,000 per day.

2. ATM Daily Withdrawal Limit

Previously the card holders were allowed to withdraw Rs 25, 000 per day, which

has now been enhanced as follows:

ATM Cash Withdrawal Limit:

Per transaction limit Daily limit

Rs. 25,000 Rs 100,000

3. Other Enhancements

For the convenience of the Cardholders the following enhancements have also

been incorporated:

Screens have now become bilingual and the card holder has the option to

operate the ATM in English or Urdu language.

Fast cash maximum amount, which was previously Rs. 10,000, has now

been enhanced to Rs. 25,000.

Guide Lines for Standardization of ATM Operations.

1. Cash Balancing Procedure

The actual cash in ATM is to be balanced with ATM Journal Roll, in order to

identify the suspect transaction

Following steps must be taken before end of day

o Put the ATM in Supervisory mode.

o Obtain ATM Cash position on ATM Journal Roll

The physical Cash in ATM must b equal to the amount appearing in the ATM

Receipt. Under no circumstances the physical Cash should be placed shot

in ATM while checking the cash in ATM, cash in the Reject Bin should also be

checked and taken into account and the print in ATM journal for Reject Cash

should also be verified.

In case the physical / actual cash in ATM is more than the cash appearing in the

journal then it means that customer’s account has been debited without cash

disbursement, now the individual suspected transactions are to be identified on the

basis of the verification from ATM Journal Roll, Branches should immediately

complete process of “Automatic Credit” as per procedure and time frame

mentioned below.

2. Procedure and Timelines for Automatic Credit

Same Bank-Same Branch:

Branch to credit customer account on next business day.

Same Bank-Different Branch (within same city)

ATM acquiring branch after verification of the transaction from their ATM

Journal Roll, must issue Credit Advice to the card issuing branch (the branch from

where the card was issued / account of the card holder is maintained) on next

business day.

Same Bank – Different branch (different cities)

ATM acquiring branch after verification of the transaction from their ATM

Journal, Roll, must issue Credit Advice to the card issuing branch (the branch

from where the card was issued / account of the card holder is maintained) on next

business day. This whole process should be completed within maximum 4

business days.

3. ATM Cash Replenishment

ATM cash replenishment is done on daily basis, which is joint operation.

The locking / opening of ATMs for replenishment are under dual control of the

officers assigned by the customer services manger.

All remaining physical cash in ATM shall be taken out and counted.

Fresh currency notes shall be fed in to ATM according to assigned branch limit.

COMMERCIAL FINANCE

Silk bank dedicated team of professionals truly understands the needs of professionals,

agriculturists, large and small business and other segments of the economy. They are the

customer’s best resource in making Silk bank’s products and services work for them.

TRADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.

AGRICULTURAL FINANCE

Silk bank provides Agricultural Finance to solidify faith, commitment and pride of

farmers who produce some of the best agricultural products in the World.

a. Agricultural Finance Services:

“I Feed the World” program, a new product, is introduced by Silk bank with the aim to

help farmers maximize the per acre production with minimum of required input. Select

farms will be made role models for other farms and farmers to follow, thus helping

farmers across Pakistan to increase production.

b. Agricultural Credit:

The agricultural financing strategy of Silk bank is aimed at three main objectives:-

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better

production

Provide farmers an integrated package of credit with supplies of essential inputs,

technical knowledge, and supervision of farming.

c. Agricultural Credit (Medium Term):

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Chapter 3:

Organizational Structure

Of

Silk bank

Organizational Structure of Silk Bank

Overall Organization Structure of Silk Bank

The day-to-day affairs of Silk bank are managed by Management of Silk bank who has to

report to Board of Directors of Silk bank.

Their reporting lines are given as follows:

Head Office

Regional Offices

Zonal Offices

Branches

PRESIDENTPRESIDENT

EXECUTIVE VICE PRESIDENTEXECUTIVE VICE PRESIDENT

VICE PRESIDENTVICE PRESIDENT

ASSISTANT VICE PRESIDENTASSISTANT VICE PRESIDENT

OFFICER GRADE IOFFICER GRADE I

OFFICER GRADE 2OFFICER GRADE 2

OFFICER GRADE 3OFFICER GRADE 3

MESSENGERMESSENGER

PEONPEON

SWEEPERSWEEPER

BRAN

CH H

IERA

RCH

YBR

ANCH

HIE

RARC

HY

SENIOR VICE PRESIDENTSENIOR VICE PRESIDENT

MEMBER BOARDMEMBER BOARD

SENIOR EXECTIVE VICE-PRESIDENTSENIOR EXECTIVE VICE-PRESIDENT

Organizational Structure of Silkbank G - 9 Branch

I did internship in (Silk bank), G-9 Branch, Islamabad. This branch was founded in July

1962. From last many years this branch is not only achieving its targets of deposits and

advances rather it remains above the targets. According to the financial record of last year

this branch was earning more than 20% of total profit of the region.

Every year the targets of this branch are increasing by 20 to 25 percent but still there is a

potential in the market to meet these additional targets. This branch is performing its

functions in traditional style and now it has been converted into an online branch.

First two weeks I worked in operation department, for next two weeks I worked in credit

department and for rest of the time I worked with Business Manager where I learned lot

of things including how to deal with corporate customers, with individual customer and

how loans can be recovered from the customers.

During the internship session I got the chance to perform on different activities, which

are listed below, and short explanation is also given.

Account Opening Department

To open an account the customer have to meet the general banking manager with an

introducer (the person who is going to introduce that person in the bank) and get an

application form used for account opening. Different color-coded application forms are

available for each type of account. Along with the form a card for specimen signature is

also supplied to customer. Manager has every right not to accept this contract if he is not

satisfied by the details provided by the customer. In case the contract is acceptable to

both, now it is ready to open the account formally.

Account Types

Though in theory they’re many types of accounts but commonly account operators can be

classified in one of the following categories, each have different documentation

requirements:

Single

Joint

Partnership

Private Limited

Credit Department

The earning of a commercial bank is chiefly derived from interest charges on loans and

discounts it. Now loans are recognized as advances or finances. The advances are made

through the deposits that are kept in the bank by the customers. The bank pays profit on

the deposited amount and receives mark up on the advances made of different amounts.

Silk bank introduced the mark up based advancing in Jan1, 1985 when the Islamization

of the economy was influence under this system of advancing the bank is entitled to

receive a constant sum of money on the amount that is outstanding on the account of the

party.

Foreign Exchange

To promote flow of foreign exchange in the country, the Government of Pakistan started

a new scheme of opening of bank accounts in foreign currency. These accounts were

entitled to receive profit percentage in shape of the currency in which the account was

kept (Dollar account shall be paid profit in dollars). This has increased the flow of foreign

currency especially from the Pakistani foreign residents, who used to send money to their

families at home. The State Bank of Pakistan was given special rights to control and

monitor the performance of the “Authorized Dealers” in foreign exchange accounts.

Authorized Dealer is a person or an institution, which can deal with the foreign

exchange. The authority is given by SBP to all those scheduled Banks who have adequate

trained staff and facilities. These scheduled banks are given license to deal in foreign

currency transactions.

Remittance Department

Remittance department provides services to the customer of the bank. The main function

of this department is transfer of funds.

Instruments of Bills and Remittance Department

The instruments that are handled in the Remittance department are as follow:

Demand Draft.

Mail transfer.

Telegraphic transfer.

Pay order.

Pay slip.

OBC (outward bill for collections).

IBC (inward bill for collections).

Clearing Department

There is no legal obligation on a banker to collect cheques drawn upon other banks for a

customer. However it is function of almost every modern bank of the collection of

cheques and bills on behalf of the customer.

Clearing department services are provided in order to make arrangements for the

economic collection of the cheques, DD and other negotiable instruments. A large part of

this work is carried on through the clearinghouse.

After joining the bank in internship I got the practical exposure of all the above-described

activities. The mechanism is not too simple to understand easily but still lots of

complexities have been solved.

Various Departments of Silkbank

Cash Department

Cash department performs the following functions

Receipt

The money, which either comes or goes out from the bank, its record should be kept.

Cash department performs this function. 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.

Payments

It is a banker’s primary contract to repay money received for this customer’s account

usually by honoring his cheques.

The Requisites of Cheque

There is no prescribed form of words or design of a Cheque, but in order to fulfill the

requirements mentioned in Section 6 above the Cheque must have the following.

a) It should be in writing

b) The unconditional order

c) Drawn on specific banker only

d) Payment on Demand

e) Sum Certain in money

f) Payable to a specific person

g) Signed by the drawer

Parties to Cheque

The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no

payee but bearer.

a) The Drawer

b) The Drawee

c) The Payee

Clearance Department

A clearinghouse is an association of commercial banks set up in given locality for the

purpose of interchange and settlement of credit claims. The function of clearinghouse is

performed by the central bank of a country by tradition or by law. In Pakistan, the

clearing system is operated by the SBP. If SBP has no office at a place, then Silk bank, as

a representative of SBP act as a clearinghouse.

After the World War II, a rapid growth in banking institutions has taken place. The use of

cheques in making payments has also widely increased. The collection as settlement of

mutual obligations in the form of cheques is now a big task for all the commercial bank.

When Cheque is drawn on one bank and the holder (payee) deposits the same in his

account at the bank of the drawer, the mutual obligation are settled by the internal bank

administration and there arises no inter bank debits from the use of cheques. The total

assets and total liabilities of the bank remain unchanged.

In practice , the person receiving a Cheque as rarely a depositor of the cheque at the same

bank as the drawer. He deposits the cheque with his bank other than of payer for the

collection of the amount. Now the bank in which the cheque has been deposited becomes

a creditor of the drawer’s bank. The depositor bank will pay his amount of the cheque by

transferring it from cash reserves if there are no offsetting transactions. The banks on

which the cheques are drawn become in debt to the bank in which the cheques are

deposited. At the same time, the creditors’ banks receive large amounts of cheques drawn

on other banks giving claims of payment by them.

The easy, safe and most efficient way is to offset the reciprocal claims against the other

and receive only the net amount owned by them. This facility of net inter bank payment

is provided by the clearinghouse.

The representatives of the local commercial banks meet at a fixed time on all the business

days of the week. The meeting is held in the office of the bank that officially performs the

duties of clearinghouse. The representatives of the commercial banks deliver the cheques

payable at other local banks and receive the cheques drawn on their bank. The cheques

are then sorted according to the bank on which they are drawn. A summary sheet is

prepared which shows the names of the banks, the total number of cheques delivered and

received by them. Totals are also made of all the cheques presented by or to each bank.

The difference between the total represents the amount to be paid by a particular bank

and the amount to be received by it. Each bank then receives the net amount due to it or

pays the net amount owed by it.

Advances Department

Advances department is one of the most sensitive and important departments of the bank.

The major portion of the profit is earned through this department. The job of this

department is to make proposals about the loans. The Credit Management Division of

Head Office directly controls all the advances. As we known bank is a profit seeking

institution. It attracts surplus balances from the customers at low rate of interest and

makes advances at a higher rate of interest to the individuals and business firms. Credit

extensions are the most important activity of all financial institutions, because it is the

main source of earning. However, at the same time, it is a very risky task and the risk

cannot be completely eliminated but could be minimized largely with certain techniques.

Principles of Advances

There are four principles, which must be duly observed while advancing money to the

borrowers.

Safety

Liquidity

Dispersal

Remuneration

Forms of Loans

In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the

form of cash finance, overdrafts and loans. Silk bank provides advances to different

people in different ways as the case demand.

a) Cash Finance

This is a very common form of borrowing by commercial and industrial concerns and is

made available either against pledge or hypothecation of goods, produce or merchandise.

In cash finance a borrower is allowed to borrow money from the banker up to a certain

limit, either at once or as and when required. The borrower prefers this form of lending

due to the facility of paying markup/services charges only on the amount he actually

utilizes.

If the borrower does not utilize the full limit, the banker has to lose return on the un-

utilized amount. In order to offset this loss, the banker may provide for a suitable clause

in the cash finance agreement, according to which the borrower has to pay

markup/service charges on at least on self or one quarter of the amount of cash finance

limit allowed to him even when he does not utilize that amount.

b) Overdraft/Running Finance

This is the most common form of bank lending. When a borrower requires temporary

accommodation his banker allows withdrawals on his account in excess of the balance,

which the borrowing customer has in credit, and an overdraft thus occurs. This

accommodation is generally allowed against collateral securities. When it is against

collateral securities it is called “Secured Overdraft” and when the borrowing customer

cannot offer any collateral security except his personal security, the accommodation is

called a “Clean Overdraft”. The borrowing customer is in an advantageous position in an

overdraft, because he has to pay service charges only on the balance outstanding against

him. The main difference between a cash finance and overdraft lies in the fact that cash

finance is a bank finance used for long term by commercial and industrial concern on

regular basis, while an overdraft is a temporary accommodation occasionally resorted to.

Deposit Department

It controls the following activities:

a) A/C opening.

b) Issuance of cheque book.

a) Current a/c

b) Saving a/c

c) Cheque cancellation

d) Cash

Types of Accounts

Following are the main types of accounts

1) Individual Account

2) Joint Account

3) Accounts of Special Types

Partnership account

Joint stock company account

Accounts of clubs, societies and associations

Agents account

Trust account

Executors and administrators accounts

Pak rupee non-resident accounts

Foreign currency account

Chapter 4:

Structure and Functions of

Finance Department

Of

Silk bank

Structure & Function Of Finance Department Of Silk bank

Structure of Finance/Accounting Department of Silk bank

Silk bank has separate departments for accounts and finance. Both of these departments

are controlled by CFO. Accounts Department has further Accounting and Operation

Department, Accounting & Audit Department and Control Department whose officers

report to CFO. Finance Department has further Portfolio Management Department and

Investment and Finance Planning Department whose officers also report to CFO.

Portfolio Department has further sub-department of lending who report to Portfolio

Officer. Investment and Finance Planning Department has further sub-department of

Funds Raising who report to Financial Planning Officer.

Finance & Accounting Operations:

o Generation of Accounting Information

Finance and accounting policies and procedures are strictly followed. With them

departments and divisions to help management more effectively focus and control the

bank’s resources e.g. fund raising and fund management division, funds allocation

department, portfolio management department, personal financial services division,

investment and funding group etc. These departments and divisions require the

appointment of bank management and staff that can devote more time to surveying

customer surveys, and modifying old service offerings to reflect changing customer

needs. The technology of financial services production and delivery has shifted more and

more in recent days towards computer-based system and electronic service delivery.

Automated bookkeeping has reduced the time managers spend in routine operations, thus

allowing greater opportunity for planning new services and new operations.

o Recording of Accounting Information

Accounting information handle by preparing journal, ledger and trial balance and

information recorded electronically. The preparation of financial statements in

conformity with approved accounting standards requires the use of certain critical

accounting estimates, judgments and assumptions that affect the reported amounts of

assets and liabilities and income and expenses. It also requires management to exercise its

judgment in the process of applying the accounting policies. Estimates and judgments are

continually evaluated and are based on historic experience and other factors, including

expectations of future events that are believed to be reasonable under the circumstances.

Role of Financial Manager

Financial manager mainly emphasize on maximize shareholder’s wealth. All important

decisions related to finance and investment that must improve the success of the

organization. Financial manager also perform several tasks as follows:

Advice institutions on high net worth individual customer on investing funds,

managing assets, reorganizations, raising capital.

Purchase short term assets (mainly accounts receivable) from business in exchange

for supplying temporary financing.

Purchase short term credit to improve commercial use.

Offer saving deposit plans and housing related credit predominantly to individual.

Execute customer buy and sell orders for marketable securities and exchange

traded financial futures and option contracts and provide other full service

brokerage functions.

Control of the composition of a bank’s assets to provide adequate liquidity and

earnings.

Control over a bank’s liabilities, usually through changes in interest rates offered

to provide the bank with adequate liquidity.

Invest in corporate stock to help finance the start of new branches to support the

expansion of existing business.

Use of Electronic Data

Any new technology in banking sector has its own effects because new technology

indicates the improved operation and performance of the sector. Introduction of new

technology has an extensive effect on customers. So the quick adopters of new

technologies have an edge over others in the industry. Silk bank use Linux and UNI

BANK. Silk bank uses new technology in different department, which improved the

quality of services of that department.

Cash Department

Cash department involves receipts and payments process manually. But now ATM is

used which has affected the cash department in some extent.

Before

Before ATM and online technology SILK BANK was able to provide only 8 hours

services for payment.

Customers were enforced to wait in huge lines for getting payments.

To check the total amount of account customer had to give application to the bank

Needs number of cashier and clerks

Everything took a long time.

After

Now SILKBANK can provide 24 hour banking to its customers so that customers

can withdraw money at any time.

Now customers have no need to wait for the payment in long queues.

When customer withdrawal the money and mini statement of his account is shown

to the customer.

ATM technology reduces the extra burden on the cashier, and now bank don’t

need extra cashier and clerks

Remittances Department

The remittances department transfers the funds from one bank to other bank and from one

place to another place. ATM and online banking has also effected the remittances

department and increased its efficiency.

Before

Before ATM if customer wanted to transfer his fund to other bank account or other

branch account, then he had to submitted a cheque which takes a lot of time for

clearance process

Before online banking to transfer the funds to other branches or to other banks

bankers had to use demand draft, telephonic transfer pay order and mail transfer

etc.

After

Now customer can transfer money from his account to any other account at any

time anywhere in Pakistan, without waiting for the clearance process.

Through online banking bankers has no need to send cheque or money through

demand draft or telephonic transfer etc. the banker can access any branch and

transfers funds to it with in no time.

In online transaction the account holder has account in another bank. The account

holder sent the amount to his account. Online transaction is made only

SILKBANK to SILKBANK. So they can transfer the amount, they can cash the

amount they can find the balance & receive the statement of his account in another

branch. In this type of transactions the application is filling for this purpose.

Date

Name

Remote

Account number

Amount

Online Banking

Allied Online Banking is a unique service being offering from Silk bank. Through this

service, account in Silk bank is available to from any of branches countrywide.

SILKBANK is the first bank in the history of Pakistan which connects with each branch

of it through online banking. These branches can offer the facilities of remote cheque

encashment, cash deposit, funds transfer, balance enquiry and statement of account

printing to customers of other online branches besides issuance of ATM cards to their

own account holders.

Rules

With the introduction of online banking services in branches, the computerized

operations of the banking system in branches has become even more sensitive that’s why

the top management has set some rules and given some guidelines to each and every

branch to be followed:

1. Only authorized persons should be allowed access to the computer system of the

branch. Physical access to the branch server machine should especially control.

All maintenance activity, whether by IT Centre personnel for trouble-shooting or

by authorized service providers for hardware / communication support should be

documented. For this purpose, a separate register should be maintained in the

branch where in the name / identity of the person concerned along with the date

and time of such activity should be recorded.

2. Personnel of the branch who have been authorized to use the system to enter

transaction or carry out end of day processing should not divulge their password

to anyone under any circumstances, in case, it is felt by the password holder that

his password has become known to someone else, it should be changed immediately.

3. It is the responsibility of the branch to take back-ups on daily basis and to ensure

that these are sent to the IT Center as per laid down procedure, Taking of backup

or restoring of backup of the branch based system should never be allowed to be

carried out by an outsider, Under no circumstances, should a backup be carried

out of the branch by and unauthorized person, The dispatch of backup of IT

Center/Division should only be handled by designated couriers in sealed

envelopes.

4. Use of PC workstations having removable drives and/or modem is not allowed,

Internet access / Internet mail I not permitted on any workstation of the branch

system. Strict compliance of this must be ensured.

5. In case of any problems related to end-of-day processing or in respect of

hardware/ software, the matter should invariably b referred to the IT Centre.

Attempts to the fix problems without the knowledge of IT Centre staff must b

avoided.

Transaction Amount Limits

1. Cash Withdrawals: As per standing instruction the online transactions are

restricted to a maximum of Rs. 500,000/- per instance for Cash Withdrawals.

2. Third Party Cheques Encasement: The customers can encash third party

cheques of an account holder of Silk bank subject to a maximum of Rs. 25,000/-

per instance.

3. Funds Transfer: The maximum amount is restricted to Rs. 500,000/- for funds

transfer except when the customer is transferring funds from the branch where his

account is maintained, to any other account in any SILKBANK branch.

4. Deposit of Third Party Cheques for Instant Credit: The account holders can

deposit third party cheques, either drawn in his favor or bearer, at the branch

where he holds an account for instant credit.

The maximum value of each third party cheque, which is being deposited, should

not exceed Rs. 500,000/- and utmost precautions must be undertaken to ensure

authenticity and genuineness of the third party cheques.

Physical Presence Of Account Holder

It is essential for the account holder to present a cheque in person at the remote

branch for encashment from his account at the parent branch, The presence of

customer is necessary in case of Funds Transfer transactions, however customer

presence is not necessary for cash deposit or third party encashment of cheques up

to Rs 25,000/- .

Fund Transfer

The customers will be allowed to transfer funds from an account in the local

branch to an account in the remote branch and vice versa. In this case the “from”

account must b Customer’s own account whether in the local branch or the

destination branch and a cheque for the transfer would be required to be presented.

Supervision Of Transactions

All cash and Fund Transfer transactions require immediate online supervision at

the local branch before being transmitted to the remote branch for acceptance;

Supervision requires re-entry of all transactions particulars by the Supervisor,

Transactions relating to Balance Enquiries and Display of statements of account

do not require and supervision

KYC / Customer Due Diligence

The banks are required to perform KYC / customer Due Diligence as per

Prudential Regulation issued by State Bank of Pakistan, Accordingly, all

abnormally high / suspicious transactions particularly cash transactions, are

required to be examined and reported to the concerned departments.

Funds Management

Funds management deals with following aspects;

Sources of funds

Generation of funds

Allocation of funds

Sources of Funds

Following are the sources of funds of Silk bank and their figures for last 5 years:

Description (in millions)

2005 2006 2007 2008 2009

Share Capital

3,847,500 3,847,500 5,001,750 9,003,150 9,003,150

Reserves 218,556 218,556 218,556 218,556 224,649

Deposits 49,015,090 49,015,090 42,373,710 41,056,630 49,610,034

Inter bank borrowings

5,481,288 4,236,775 6,880,449 8,738,616 49,015,090

Bank’s major source of funding is individuals who deposit their funds. Bank also have

other sources e.g. borrow from other banks and financial situation and in time of need it

also approach state bank of Pakistan for extra funds and state bank provide funds after

fulfilling basic requirements according to prudential regulations.

Generation of Funds

Following figures shows the generation of funds in last 5 years of ABL:


2005 2006 2007 2008 2009

Interest Earned

2,632,485 3,712,420 4,799,853 4,588,299 5,913,317

Fee, Commission, Brokerage Income

275,685 305,464 369,468 188,596 327,949

Capital Gain & Dividend Income

41,347 59,851 44,465 27,173 27,921

Non-interest Income

626,783 706,003 776,825 384,510 662,187

Funds are mostly generated from the interest income earned by banks. Other places from

where funds are generated include commission earned, capital gain and dividend income

and non-interest income earned by bank.

Allocation of Funds

Following are the places where funds are allocated and their figures for last five years:


2005 2006 2007 2008 2009

Interest Expensed

1849189 3260952 4440116 4218901 5855517

Operating Expenses

732803 1262448 1270317 1935732 2747856

Taxation 75857

105282

279358

819987

1349554

The main place where banks allocate its funds is in interest expenses. Other main place of

allocation of funds is the operating expenses. Banks are heavily taxed which is a major

portion of allocation of bank’s funds.

Chapter 5:

Theoretical

And

Practical Concepts

Application of Learned Concepts

After getting entered into practical life this is a common complaint that practically things

are quite different from theoretical learning, but I did not face such big difference because

the concepts I got from the course of “Money and Banking” and “Business Institutions”

were so much close to the real world. In management and marketing style of the

employees there were somehow differences exist.

While doing internship I got lot of experience and I got the chance to apply my

knowledge practically, which helped me in getting interest in learning new concepts.

After doing this practice I feel that I can even compare my practical knowledge in further

studies.

Chapter 6:

Financial Analysis

Of

Silk bank

Balance Sheet of Silk Bank (five years data) Assets 2009 2008 2007 2006 2005

Current Assets Cash and balances with treasury banks 3,120,880 3,070,067 3,223,780 3,994,136 2,525,340 Balances with other banks 151,068 190,197 128,991 613,678 923,044 Lendings to financial institutions 1,067,708 1,376,651 839,959 4,747,567 8,831,063 Total Current Assets 4,339,656 4,636,915 4,192,730 9,355,381 12,279,447 Fixed Assets

Investments - net 20,179,329 12,012,233 17,859,169 15,828,682 12,464,577

Advances - net 32,097,490 31,087,373 25,874,972 29,021,974 19,513,727

Operating fixed assets 3,720,695 3,002,450 2,367,883 2,322,371 1,541,536

Deferred tax assets - net 3,976,149 2,613,939 1,767,715 1,015,123 911,307

Other assets - net 4,351,022 2,292,358 1,598,131 1,657,318 1,037,955

Total Fixed Assets 64,324,685 51,008,353 49,467,870 49,845,468 35,469,102

Total Assets 68,664,341 55,645,268 53,660,600 59,200,849 47,748,549

Liabilities 2009 2008 2007 2006 2005 Current Liabilities Bills payable 637,602 431,537 570,756 408,342 199,143 Borrowings 15,088,332 8,738,616 6,880,449 4,236,775 5,481,288 Deposits and other accounts 49,610,034 41,056,630 42,373,710 49,015,090 37,136,042 Sub-ordinated loan - - 650,000 650,000 650,000

Liabilities against assets subject to finance lease 10,476 39,731 80,155 63,030 569

Deferred tax liabilities - net - - - - - Total Current Liabilities 65,346,444 50,266,514 50,555,070 54,373,237 43,467,042 Other liabilities/long term debt 1,554,808 987,394 925,091 829,573 474,905

Total Liabilities 66,901,252 51,253,908 51,480,161 55,202,810 43,941,947 Capital Share capital/TOS 9,003,150 9,003,150 5,001,750 3,847,500 3,847,500 Reserves 224,649 218,556 218,556 218,556 218,556 Accumulated Loss (9,030,894) (6,131,709) (4,119,537) (1,080,726) (860,072)

Surplus on revaluation of assets - net of tax/SOR 1,566,184 1,301,363 1,079,670 1,012,709 600,618

Total Equity 1,763,089 4,391,360 2,180,439 3,998,039 3,806,602

Total Equity and Liabilities 68,664,341 55,645,268 53,660,600 59,200,849 47,748,549

Profit and Loss Account for Silk Bank (five years data)Particulars

2009 2008 2007 2006 2005

Mark-up / return / interest earned 5,913,317 4,588,299 4,799,853 3,712,420 2,632,485

Mark-up / return / interest expensed 5,855,517 4,218,901 4,440,116 3,260,952 1,849,189Net mark-up / interest income

57,800 369,398 359,737 451,468 783,296Provision for diminution in the value of investments - net 6,144 (11,668) 3,074 (56,808) 671

Provision against loans and advances - net 2,170,738 1,663,314 3,134,651 463,988 490,471

Bad debts written off directly - 2,610 - - 729

Reversal against consumer finance (5,803) (12,163) (5,281) 915 26,778

Impairment of available for sale security 138,276 - - - -

Total Provision 2,309,355 1,642,093 3,132,444 408,095 518,649

Net mark-up / interest income after provisions (2,251,555) (1,272,695) (2,772,707) 43,373 264,647

Non-mark-up / interest income

Fee, commission and brokerage income 327,949 188,596 369,468 305,464 275,685

Income earned as trastee to different funds - - - - -

Dividend income 27,921 27,173 44,465 59,851 41,347

Income from dealing in foreign currencies 113,733 53,343 64,312 56,907

Gain on sale of securities - net 58,640 19,536 210,855 145,177 43,975

Unrealized gain on revaluation of investments classified as held for trading 69 - - - -

Other income - net 133,875 95,862 87,725 138,604 265,776

Total non-mark-up / interest income 662,187 384,510 776,825 706,003 626,783

Total Interest Income/Loss

(1,589,368) (888,185) (1,995,882) 749,376 891,430

Non-mark-up / interest expenses

Administrative expenses 2,747,856 1,935,732 1,270,317 1,262,448 732,803

Other provision / (reversal) - net (102,246) 9,489 38,019 (202,435) 729

Other charges 17,481 849 14,737 75,700 11,300

Unrealized loss on revaluation of investment classified as held for trading - - 1,310 5,962 -

Total non-mark-up / interest expenses 2,663,091 1,946,070 1,324,383 1,141,675 744,832

Gross Income/Loss (4,252,459) (2,834,255) (3,320,265) (392,299) 146,598

Amortization of deferred cost - - - 16,667 6,128

Extra ordinary / unusual item --

- - -Profit/Loss before taxation

(4,252,459) (2,834,255) (3,320,265) (408,966) 140,470

Taxation

Taxation - Current year 8,414 16,462 35,382 - 156,100

- Prior years 34,616 - 439,351 - -

- Deferred (1,392,584) (836,449) (754,091) (105,282) (80,243)

Share of tax of associated - - - - -

Total Taxation (1,349,554) (819,987) (279,358) (105,282) 75,857

Loss after taxation

(2,902,905) (2,014,268) (3,040,907) (303,684) 64,613

Accumulated loss brought forward - (6,133,805)

1,080,726 778,532

Accumulated Losses carried forward - - (4,121,633) (1,082,216) 64,613

Ratio Analysis of Silk Bank (five years data) Ratios 2009 2008 2007 2006 2005

Liquidity Ratios 1 Current Ratio CA/CL 6.64% 9.22% 8.29% 17.21% 28.25%

2

Quick/Acid test Ratio CA-Inventory/CL 5.01% 6.49% 6.63% 8.47% 7.93%

Leverage Ratio 1 Debt to asset ratio TD/TA 2.26% 1.77% 1.72% 1.40% 0.99% 2 Debt to equity ratio TD/TE 3794.55% 1167.15% 2361.00% 1380.75% 1154.36%

Profitability Ratio 1 Loan to deposits ratio Loan/Deposits 47.01% 28.11% 26.59% 14.60% 28.09% 2 Return on Asset EAT/T.A -4.23% -3.62% -5.67% -0.51% 0.14% 3 Net Profit after tax EAT/IE -49.58% -47.74% -68.49% -9.31% 3.49% 4 Gross Spread ratio NMI/GMI 52.95% 44.90% 83.51% -11.06% 180.53% 5 Return on Equity EAT/E -164.65% -45.87% -139.46% -7.60% 1.70%

Interest Coverage Ratio 1 Interest coverage(before tax) EBIT/IE -72.62% -67.18% -74.78% -12.54% 7.60% 2 Interest coverage(after tax) EAT/IE -49.58% -47.74% -68.49% -9.31% 3.49%

Activity Ratios 1 Total Assets Turnover NS/TA 8.61% 8.25% 8.94% 6.27% 5.51% 2 Fixed Assets Turnover NS/FA 9.10% 8.27% 8.98% 6.54% 5.21%

Market Ratios 1 Earnings Per Share EAT/TOS -32.24% -22.37% -60.80% -7.89% 1.68% 2 Book Value per Share TSE/TOS 19.58% 48.78% 43.59% 103.91% 98.94% 3 Revaluation per Share SOR/TOS 88.83% 29.63% 49.52% 25.33% 15.78%

Comments:

Debt ratio of Silk bank in 2005 was 0.99% , then continuously increase till 2009,

the increase in total debt is greater whereas the increase in total assets is

comparatively less.

Return on assets after 2005 continuously decrease till 2009, reason behind this

increase in income is less then the increase in total assets.

Return on equity decrease from 2007 till 2009 so that is starts falling.

Debt to equity ratio shows upward trend from 2005 till 2009, reason behind this

increase in total debt increases.

Current Asset in 2005 was 28.25% after that start falling till 2009, coz of decrease in current asset.

Book Value/Share Ratio shows a firm’s ability to meet its current needs. Silk

bank book value increase in 2007 then start decreasing till 2009, reason is that Silk

bank current assets are decreasing as compared with its current liabilities.

Fixed asset shows the normal position of the bank and bank liquidity is batter

position in any case of the debt payoff in emergency.

Horizontal Analysis Balance Sheet of Silk Bank (five years data)

Assets 2009 2008 2007 2006 2005 Current Assets

Cash and balances with treasury banks 123.58% 121.57% 127.66% 158.16% 100.00%

Balances with other banks 16.37% 20.61% 13.97% 66.48% 100.00%

Lendings to financial institutions 12.09% 15.59% 9.51% 53.76% 100.00%

Total Current Assets 35.34% 37.76% 34.14% 76.19% 100.00% Fixed Assets Investments - net 161.89% 96.37% 143.28% 126.99% 100.00% Advances - net 164.49% 159.31% 132.60% 148.73% 100.00% Operating fixed assets 241.36% 194.77% 153.61% 150.65% 100.00% Deferred tax assets - net 436.31% 286.83% 193.98% 111.39% 100.00% Other assets - net 419.19% 220.85% 153.97% 159.67% 100.00% Total Fixed Assets 181.35% 143.81% 139.47% 140.53% 100.00% Total Assets 143.80% 116.54% 112.38% 123.98% 100.00%

Liabilities 2009 2008 2007 2006 2005 Current Liabilities Bills payable 320.17% 216.70% 286.61% 205.05% 100.00%

Borrowings 275.27% 159.43% 125.53% 77.30% 100.00%

Deposits and other accounts 133.59% 110.56% 114.10% 131.99% 100.00%

Sub-ordinated loan Nil Nil nil 100.00% 100.00%

Liabilities against assets subject to finance lease 1841.12% 6982.60% 14086.99% 11077.33% 100.00%

Deferred tax liabilities - net

Total Current Liabilities 150.34% 115.64% 116.31% 125.09% 100.00%

Other liabilities/long term debt 327.39% 207.91% 194.79% 174.68% 100.00% Total Liabilities 152.25% 116.64% 117.15% 125.63% 100.00% Capital Share capital/TOS 234.00% 234.00% 130.00% 100.00% 100.00% Reserves 102.79% 100.00% 100.00% 100.00% 100.00% Accumulated Loss 1050.02% 712.93% 478.98% 125.66% 100.00%

Surplus on revaluation of assets - net of tax/SOR 260.76% 216.67% 179.76% 168.61% 100.00%

Total Equity 46.32% 115.36% 57.28% 105.03% 100.00% Total Equity and Liabilities 143.80% 116.54% 112.38% 123.98% 100.00%

Comments:

Total Assets have greatly increased in 2009 on terms of increase in cash, net investments,

advances and operating fixed assets. Liabilities have also increased due to a very great

increase in inter bank borrowings. Total equity decrease in 2007 then increase in 2008,

due to a great increase in reserves of Silk bank , but in 2009 a big decrease.

These analysis shows that Silk bank is going through a growth phase due to which it is

incurring great increases in various items of balance sheet.

Horizontal Analysis of Balance Sheet also shows that Silk bank is in good financial

health and is following proper strategies for expanding its business. Comparing the asset

composition in the two years the advances of the Silk bank have increased considerably,

and also the amount of the total assets has been increased. The increase in the advances

shows that customers have trust over the banks money and they are getting more and

more money from their bank and also the collection policy is fair and successful.

Horizontal Analysis Profit & Loss Account of Silk Bank (five years data)

Particulars 2009 2008 2007 2006 2005 Mark-up / return / interest earned 224.63% 174.30% 182.33% 141.02% 100.00%Mark-up / return / interest expensed 316.65% 228.15% 240.11% 176.34% 100.00%Net mark-up / interest income 7.38% 47.16% 45.93% 57.64% 100.00%

Provision for diminution in the value of investments - net 915.65% -1738.90% 458.12% -8466.17% 100.00%

Provision against loans and advances - net 442.58% 339.13% 639.11% 94.60% 100.00%Bad debts written off directly 0.00% 358.02% 0.00% 0.00% 100.00%Reversal against consumer finance -21.67% -45.42% -19.72% 3.42% 100.00%

Impairment of available for sale security Total Provision 445.26% 316.61% 603.96% 78.68% 100.00%

Net mark-up / interest income after provisions -850.78% -480.90% -1047.70% 16.39% 100.00% Non-mark-up / interest income

Fee, commission and brokerage income 118.96% 68.41% 134.02% 110.80% 100.00%

Income earned as trastee to different funds nil nil nil nil nilDividend income 67.53% 65.72% 107.54% 144.75% 100.00%

Income from dealing in foreign currencies nil nil nil nil nilGain on sale of securities - net 133.35% 44.43% 479.49% 330.14% 100.00%

Unrealized gain on revaluation of investments classified as held for trading Other income - net 50.37% 36.07% 33.01% 52.15% 100.00%

Total non-mark-up / interest income 105.65% 61.35% 123.94% 112.64% 100.00% Total Interest Income/Loss -178.29% -99.64% -223.90% 84.06% 100.00% Non-mark-up / interest expenses Administrative expenses 374.98% 264.15% 173.35% 172.28% 100.00%Other provision / (reversal) - net -14025.51% 1301.65% 5215.23% -27768.86% 100.00%Other charges 154.70% 7.51% 130.42% 669.91% 100.00%

Unrealized loss on revaluation of investment classified as held for trading nil nil nil nil nil

Total non-mark-up / interest expenses 357.54% 261.28% 177.81% 153.28% 100.00% Gross Income/Loss -2900.76% -1933.35% -2264.88% -267.60% 100.00%Amortization of deferred cost 0.00% 0.00% 0.00% 271.98% 100.00%

Profit/Loss before taxation -3027.31% -2017.69% -2363.68% -291.14% 100.00% Taxation Taxation - Current year 5.39% 10.55% 22.67% 0.00% 100.00%- Prior years - Deferred 1735.46% 1042.39% 939.76% 131.20% 100.00%Share of tax of associated Total Taxation -1779.08% -1080.96% -368.27% -138.79% 100.00% Loss after taxation -4492.76% -3117.43% -4706.34% -470.00% 100.00%

Comments:

Profit and loss after taxation of Silk bank has increased/decreased in the past three years

due to the following factors:

Fee, Commission, brokerage income was increased in the past four years.

Gross Income was decreased proportionally.

Interest Income of Silk bank was increased till 2007 then decrease in 2008 but in

2009 also increased on account of consumer deposits.

Non-interest Income has also increased in from 2005 to 2007 then decrease in 2008 but in

2009 also increases due to increase in income dealings in foreign currencies. And loss

after taxation is also increasing from 2006 to 2009

Mark-up / interest income of the Bank grew led by earning assets growth coupled with

the re-pricing of assets at higher interest rates.

With the quality of growth given priority, average earning assets rose. Further, the

management was able to structure its assets to ensure that assets are re-priced adequately

in the rising interest rate scenario.

Vertical Analysis Balance Sheet of Silk Bank (five years data) Assets 2009 2008 2007 2006 2005 Current Assets

Cash and balances with treasury banks 4.55% 5.52% 6.01% 6.75% 5.29%

Balances with other banks 0.22% 0.34% 0.24% 1.04% 1.93% Lendings to financial institutions 1.55% 2.47% 1.57% 8.02% 18.49% Total Current Assets 6.32% 8.33% 7.81% 15.80% 25.72% Fixed Assets Investments - net 29.39% 21.59% 33.28% 26.74% 26.10% Advances - net 46.75% 55.87% 48.22% 49.02% 40.87%

Operating fixed assets 5.42% 5.40% 4.41% 3.92% 3.23% Deferred tax assets - net 5.79% 4.70% 3.29% 1.71% 1.91% Other assets - net 6.34% 4.12% 2.98% 2.80% 2.17% Total Fixed Assets 93.68% 91.67% 92.19% 84.20% 74.28% Total Assets 100.00% 100.00% 100.00% 100.00% 100.00%

Liabilities 2009 2008 2007 2006 2005 Current Liabilities Bills payable 0.93% 0.78% 1.06% 0.69% 0.42% Borrowings 21.97% 15.70% 12.82% 7.16% 11.48% Deposits and other accounts 72.25% 73.78% 78.97% 82.79% 77.77% Sub-ordinated loan 0.00% 0.00% 1.21% 1.10% 1.36%

Liabilities against assets subject to finance lease 0.02% 0.07% 0.15% 0.11% 0.00%

Deferred tax liabilities - net 0.00% 0.00% 0.00% 0.00% 0.00% Total Current Liabilities 95.17% 90.33% 94.21% 91.85% 91.03% Other liabilities/long term debt 2.26% 1.77% 1.72% 1.40% 0.99% Total Liabilities 97.43% 92.11% 95.94% 93.25% 92.03% Capital Share capital/TOS 13.11% 16.18% 9.32% 6.50% 8.06% Reserves 0.33% 0.39% 0.41% 0.37% 0.46% Accumulated Loss -13.15% -11.02% -7.68% -1.83% -1.80%

Surplus on revaluation of assets - net of tax/SOR 2.28% 2.34% 2.01% 1.71% 1.26%

Total Equity 2.57% 7.89% 4.06% 6.75% 7.97% Total Equity and Liabilities 100.00% 100.00% 100.00% 100.00% 100.00%

Comments:

Deposits hold a portion of 80 to 98 percent of the total liabilities and equity this shows

how much customer deposits Silk bank has. Total Equity holds only 6 to 7 percent of the

total liabilities and equity which shows that Silk bank mainly generates its funds from

deposits rather than equity financing.

Current and fixed assets show the normal vertical trend. The vertical analyses reveal that

significant portion of balance sheet comprises of fixed asset and current assets.

Bank liabilities analyses shows that banks liabilities are not increasing which is good sign

of the stability go the bank. In last five years bank borrowing are in same trend and bank

have no much amount of liabilities.

Banks most of the shares are the property of government so the increasing and decreasing

cant effect the bank position because bank have the back of government.

Vertical Analysis Profit & Loss Account of Silk Bank (five years data)

Particulars 2009 2008 2007 2006 2005 Mark-up / return / interest earned -139.06% -161.89% -144.56% -907.76% 1874.05%Mark-up / return / interest expensed -137.70% -148.85% -133.73% -797.37% 1316.43%Net mark-up / interest income -1.36% -13.03% -10.83% -110.39% 557.63%

Provision for diminution in the value of investments – net -0.14% 0.41% -0.09% 13.89% 0.48%Provision against loans and advances – net -51.05% -58.69% -94.41% -113.45% 349.16%Bad debts written off directly 0.00% -0.09% 0.00% 0.00% 0.52%Reversal against consumer finance 0.14% 0.43% 0.16% -0.22% 19.06%Impairment of available for sale security -3.25% nil nil nil nilTotal Provision -54.31% -57.94% -94.34% -99.79% 369.22%

Net mark-up / interest income after provisions 52.95% 44.90% 83.51% -10.61% 188.40% Non-mark-up / interest income Fee, commission and brokerage income -7.71% -6.65% -11.13% -74.69% 196.26%income earned as trastee to different funds nil nil nil nil nilDividend income -0.66% -0.96% -1.34% -14.63% 29.43%Income from dealing in foreign currencies -2.67% -1.88% -1.94% -13.91% 0.00%Gain on sale of securities - net -1.38% -0.69% -6.35% -35.50% 31.31%Unrealized gain on revaluation of investments classified as held for trading nil nil nil nil nilOther income – net -3.15% -3.38% -2.64% -33.89% 189.20%Total non-mark-up / interest income -15.57% -13.57% -23.40% -172.63% 446.20% Total Interest Income/Loss 37.38% 31.34% 60.11% -183.24% 634.61% Non-mark-up / interest expenses Administrative expenses -64.62% -68.30% -38.26% -308.69% 521.68%Other provision / (reversal) – net 2.40% -0.33% -1.15% 49.50% 0.52%Other charges -0.41% -0.03% -0.44% -18.51% 8.04%Unrealized loss on revaluation of nil nil -0.04% -1.46% nil

investment classified as held for trading Total non-mark-up / interest expenses -62.62% -68.66% -39.89% -279.16% 530.24% Gross Income/Loss 100.00% 100.00% 100.00% 95.92% 104.36%Amortization of deferred cost Extra ordinary / unusual item

Profit/Loss before taxation 100.00% 100.00% 100.00% 100.00% 100.00% Taxation Taxation - Current year -0.20% -0.58% -1.07% 0.00% 111.13%- Prior years -0.81% 0.00% -13.23% 0.00% 0.00%- Deferred 32.75% 29.51% 22.71% 25.74% -57.12%Share of tax of associated nil nil nil nil NilTotal Taxation 31.74% 28.93% 8.41% 25.74% 54.00% Loss after taxation 68.26% 71.07% 91.59% 74.26% 46.00%

Comments:

From the vertical analysis, it is clear that Silk bank like any other banks earns its most

income from interest income earned on giving out consumer and business loans. They

hold almost 80 to 170 percentage of the gross income. Interest expenses also incur to a

great deal on account of giving out deposits to consumers and businesses.

The vertical analyses of the income shows that major portion of the income statement

consist markup because bank give the advances to the people on interest banks markups

are not much due to bank depository services not compatible. Vertical analyses show the

stable trend in income of the bank.

Organizational Analysis

Although Silk bank is in an industry where it has many competitors but it is being

compared as following two biggest competitors which are MCB and HBL:

Description (in

millions)

Silk bank MCB HBL

Assets 55,645,268 443,615 717,302

Liabilities 51,253,908 385,179 652,257

Profitability (2,014,268) 20,526 10,001

If Silk bank is compared with MCB and HBL, it is observe that HBL is a big banking

group as compare to Silk bank and MCB. Deposit wise HBL is in front of both ABL and

MCB. Although Silk bank is in good position as compare to HBL in deposit situation. It

shows customer’s trust on bank. Silk bank ahead in case of advances portfolio as

compare to HBL and MCB. Here health portfolio of advances places the Silk bank in

second position which is a good indicator. But profit wise MCB is in front of both HBL

and Silk bank in year 2008. Branches of HBL are greater than Silk bank and MCB. MCB

has greater number of employees as compared to Silk bank and HBL.

These figures show that HBL and MCB are in much better position than Silk bank in

profit. Short-term liquidity, including internal operating factors and / or access to

alternative sources of funds, is outstanding and safety is just below risk free Government

of Pakistan's short-term obligations.

The Bank is making every effort to meet the up-coming challenges through strategic

planning and making the best use of the resources at its command. These financial figures

and improving condition of the bank shows that ABL is among the leading commercial

banks of Pakistan.

Future Prospects of Silk bank

Silk bank aims to offer products that will change the industry norms by providing

innovations, options and flexibility unmatched so far by any other bank due to the

investment made in the state-of-the-art systems at Silk bank. Silk bank plans to expand

the market by its vast distribution network. Bank’s products & services are being

developed keeping in view the increased level of consumer awareness due to increased

accessibility of information, and hence the demand for better products and services with

options.

Management believes that their business process reengineering initiative supported by

their customized core banking technology platform will also help them to compete more

effectively in the changing landscape of the Pakistani banking sector. Bank’s Credit Risk

Environmental and Monitoring system which is in its final stages of implementation is

expected to assist them in more effective post disbursement monitoring.

Macro economic and political instability, going forward, will continue to impact growth

and profitability of the banking sector. Management believes that political reconciliation

will result in renewed attention to economic management and hence improvement in the

operating environment.

Management is focusing on converting the manual branches into online branching system

and also to expend their branch network domestically and internationally. Management is

also keen to increase the ATM network in future and plans have prepared for it.

Management believes the bank is well positioned to take advantage of the next economic

upturn.

Chapter 7:

Weaknesses

Of

Silk bank

Weak Aspects of Silk bank

Every organization has some area of improvement which is normally called

shortfall/weakness. These weaknesses can be converted into strength and

opportunities if these are planned and implement properly. I also noticed some

shortfall and weaknesses in Silk bank as an internee. Some major weaknesses are

mentioned below:-

1. Slow growth in advances.

2. Banks debts are at dangerous level.

3. Lack of investment in different sector.

4. Bank’s interest income is deceasing every year.

5. Lack of proper planning and evaluation of finance department.

6. New product are not launching as per time requirement.

7. Lack of research and analysis for availing new opportunities.

8. Bank’s performance evaluation/appraisal system is not efficient.

9. Poor network system to connecting the network and database.

Innovative Products

There are lack of new and innovative products which can be attract the customer and will

effective to the banking achievements.

Incentives

If we observe the employees satisfaction scheme we can observe that the lack of

satisfaction as an employee.

Technological Advancements

Silk bank has not using technological enhancement for their benefits.

Staff combination

The Branch has a good staff combination on the basis of experience, but their training

capabilities are not up to the requirements of the fast changing banking environment.

Technical training

The technical training of the staff is negligible e.g. in case of the absence of computer

there is no alternate trained personal who can record the daily transactions.

Chapter 8:

Conclusion

What I concluded?

It has been only one year since the establishment of Silkbank, and since its establishment

it has aimed to become the leading bank of Pakistan by that provides outstanding services

to its customers.

The bank has seen phenomenal growth in the past year by opening more branches in the

country, increasing the deposit base, while also increasing the assets and profits of the

bank.

The services that Silkbank provides have a great market penetration not only because of

their features but also the profit and markup rates that they charge. Also the products that

Silkbank provides cater to sector of the economy.

The top management of the bank is always developing strategies that cope with

unexpected challenges to deliver products and services more efficiently.

Furthermore, as the bank is growing, the number of employees at Silkbank are increasing,

which shows that Silkbank is being considered as an employer, that provides its

employees with a challenging environment to work in, where they can harness their full

potential and shows confidence as an employer by the employees of the bank.

Lastly to become the leading bank of Pakistan, Silkbank has to benchmark its services to

its major competitors in the industry or the market leader in the industry and provide a

continuous mean of improvement in its existing products and services, while introducing

new ones to the industry.

Chapter 9:

Findings

And

Recommendations

What I found and What I Suggest to Silk bank?

Based on the analysis of the Silk bank, it is observed that the Bank like the other public

sector industries has not been showing up to mark performance. There is a long list of

weaknesses that is given on the previous page. Most of them are going along since long

time and that all efforts made to remove them have not succeeded. On the basis of SWOT

analysis of the Bank the following suggestions and recommendations are given.

Bank should try to get rid of the political influence to be able to compete in the

industry with prudent and strong policies.

The undue reliance on the public sector be minimized and ventures of private sectors

should be taken as well.

Redefining of rules, regulations and policies should be made implemented at all costs.

Efforts of great importance to be made for the over the counter services of general

banking making it more simple and faster to get a better response of the customers.

The behavior of the employee, especially on the counter has to be strictly monitored

and checked.

The still existed bureaucratic approval system has to be demolished.

All advances should be made by getting the maximum security and should focus on

productive work.

Better and comprehensive long-term and short-term planning should be made to

forecast the future needs.

There is a possibility of establishing a task force to ascertain the effectiveness of the

policies being implemented.

The Bank should develop a comprehensive recruitment policy to make only the

competent ones to be on the job.

There is a still a vast pool of incompetent employees that has to right sized.

There is a lack of promotional element in the planning and budgetary decisions of the

Bank that has to think seriously.

All branches of the Bank should be computerized for increasing the effectiveness and

efficiency of its employees.

Efforts should be continued to keep the powers of employees union to the minimum,

like the current situation.

Promotions must not be delayed and should be made on time to further increase the

commitment and efficiency of the employees.

These and many other that can make a good set of recommendations, which have to be

made possible to escape from the threats and weaknesses and the risks in environment

that surrounds the Bank. The management do considers the policy matter that is not

helping the Bank, but is still in practice due the absence of prudentially regulated system

to protect them and the Bank.

Efforts have been made with serious concern to give Silk bank a status that it has to

maintain by having practices of:

Right sizing of the employees.

By closing unprofitable branches.

By introducing a merit based selection criteria.

Promotions made conditional with qualifications.

REFERENCES

1. Maryam yasir. Branch manager, Silk bank G.9 Islamabad.

2. Wajid , Relationship manager, Silk bank G-9 Islamabad.

3. Hasnain , Branch Operation manager , Silk bank G-9 Islamabad.

4. Imran . Cash Services Manager, Silk Bank G-9 Islamabad.

5. Saudi Pak Bank Ltd Annual report (2006), Karachi.

6. Silk Bank Ltd Annual report (2007), Karachi.

7. Silk Bank Ltd Annual report (2008), Karachi.

8. http://www.silkbank.com.pk

http://www.silkbank.com.pk/

Internship Report Silkbank

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Transcript of Internship Report Silkbank