UBL 2
-
Upload
farrukhnaveed7 -
Category
Documents
-
view
118 -
download
0
Transcript of UBL 2
1
PREFACE:
The field of banking has always been a source of inspiration for me during
my entire academic career. To work in a bank, to acquaint with its working
mechanism was always a point of interest for me and God gave me a golden
opportunity to complete my internship at UBL, one of the leading bank in Pakistan
and well known in world due to its appearance in the international markets. I had a
general idea about the banking, but once I practically started the internship in banking
field I observed much about banking, I realized the importance and significance
of commercial banking for the development of economy. To adjust myself in such a
large commercial organization was not an easy task, but by the grace of Almighty
Allah aid my internship in a befitting manner and I learned a lot about the overall
banking arena. This expanded my vision about the banking sector, which in turn enabled
me to make an appraisal of the economic situation of our country.
This report is a thorough essence of my rigorous studies which I undergone through
in a period of two months in a commercial bank. I have exclusively studied and observed
the operations/ functioning of the bank and tried my best to abreast myself with all the
dimensions of the banks. The purpose of this report is to evaluate the performance of UBL
in diversified avenues and give concrete recommendation for further improvement.
Although the bank is functioning satisfactory, but the path to ultimate success is still full of
threats and hurdles. It was a great experience to work there and contribute handsomely in
the process of appraising its pros and cons and feeling to be a significant part of the bank. I
am thankful to all those who helped me in one-way or the other and guided me in the
preparation and compilation of this report in a presentable fashion.
2
PREFACE
TABLE OF CONTENTS
LIST OF TABLES
LIST OF GRAPHS
LIST OF ACRONYMS
EXECUTIVE SUMMARY
INTRODUCTION OF THE REPORT
1.1 Introduction 10
1.2 Purpose of Study 10
1.3 Scope of Study 10
1.4 Limitations of Study 10
1.5 Methodology of Report 10
1.6 Scheme of Report 11
Introduction to UBL
2.1 Banking History 12
2.2 Banking in Pakistan 12
2.3 Towards Islamization of Economy 12
CHAPTER – 1 Section # 1
CHAPTER – 2 Section # 2
LIST OF CONTENTS
3
2.4 Birth of UBL 14
2.5 Number of Branches 14
2.6 Subsidiaries 14
2.7 Functions of UBL 15
2.8 Role of UBL in Banking Sector 15
2.8 Computerization of UBL 16
Deposits, Remittances, Credit & Clearing Departments
3.1 Deposit Department 20
3.1.1 Functions performed by Deposit Department 20
3.1.2 Types of Accounts 20
3.1.3 Nature of Accounts 20
3.2 Remittances Department 22
3.2.1 Demand Draft 22
3.2.2 Telegraphic Transfer 23
3.2.3 Mail Transfer 23
3.2.4 Pay Order 23
3.2.5 Rupee Travelers Cheque 23
3.2.6 Uniremote 24
3.3 Credit Department of UBL 24
3.3.1 Credit department of UBL 24
3.3.2 Procedure for Financing 25
CHAPTER – 3 Section # 2
4
3.4 Clearing Department 27
3.4.1 Procedure for clearing of Cross Cheques 27
3.4.2 IBC 28
3.4.3 LBC 28
3.4.4 OBC 28
Financial Analysis
4.1 Group and its Operations 29
4.2 Basis of Presentation 29
4.3 Significant Account Policies 30
4.4 Risk Management 32
4.5 Concentration of Credits and Deposits 33
4.6 Investment Portfolio 33
4.7 Profitability 33
4.8 Financial Analysis 33
4.8.1 Common size analysis of Balance Sheet 34
4.8.2 Common size analysis of Income Statement 34
4.8.3 Financial Ratios 34
CHAPTER – 4 Section # 3
5
Qualitative Analysis
5.1 Qualitative Analysis of UBL 41
5.2 SWOT Analysis 44
5.2.1 Strengths 44
5.2.2 Weaknesses 45
5.2.3 Opportunities 46
5.2.4 Threats 46
Recommendations
6.1 Recommendations 48
6.1 Human Resource Department 48
6.2 Credits and Advances 51
Implementation Plan
7.1 Action Plan 1 56
7.1.1 Franchise Agriculture Supplies Stores 56
7.2 Action Plan 2 58
7.2.1 Techniques for effective Management and Recovery of Advances 58
7.3 Action Plan 3 61
Bibliography 66
Annexure
CHAPTER – 5 Section # 3
CHAPTER – 6 Section # 4
CHAPTER – 7 Section # 5
6
1 Common size Analysis of Balance Sheet 35
2 Financial Ratios 36
3 Cost Schedule of Action Plan 37
4 Cost/revenue schedule – Marketing Plan 37
1 Organizational Hierarchy of UBL 18
2 Senior Management of UBL 19
AD Authorized Dealer.
ATM Automated Teller Machine
ATR Asset Turn Over
AVP Assistant Vice President
AOF Account Opening Form
BOG Board of Governor
BOD Board of Director
CA Credit approval
CP Credit Proposal
DAC Disbursement Authorization Certificate
LIST OF TABLES
LIST OF GRAPHS & CHARTS
LIST OF ACRONYMS
7
DD Demand Draft
DP Note Demand Promissory Note
EBIT Earnings before Interest & Tax
ESVP Executive Senior Vice President
EVP Executive Vice President
FDD Foreign Demand Draft
FMT Foreign Mail Transfer
FTDR Foreign term Deposited Receipt
FTT Foreign Telegraph Transfer
GM General Manager
GOP Government of Pakistan
GPM Gross Profit Margin
LC letter Of Credit
NPM Net profit Margin
OG1 Officer Grade 1
PLS Profit & Loss Saving Account
PO Pay Order
RF Running Finance
RM Relationship Manager
ROI Return on Investment
RTC Rupee Traveler Cheque
STDR Special term Deposited Receipt
8
EXECUTIVE SUMMARY
1. Banking operations and services are one of the basic needs of an economy. These
include acceptance of deposits and disbursement of advances to individuals and others at
higher rates. Banks perform various fundamental factions, which are directly or
indirectly contributory towards economic and social development of countries. UBL, a
commercial bank was established in 1959 as result of reckless efforts made by Agha Hassan
Abidi. The UBL has shown the fastest growth pattern and in a period of just 27 years
became the second largest bank of Pakistan. The bank image however adversely destroyed
when it suffered heavy losses during its nationalization period due to political and other
factors. The bank is showing re-emerging indications as is evident from its financial
statements. UBL on October 19, 2002 was privatized and bought by two financially sound
parties of international repute i.e. best way group and Abu Dhabi group holding 51% of the
banks share and thus has emerged as the largest private bank surpassing MCB.
2. The purpose of this report is to study operations and analyze performance of UBL
to see whether the bank is successful in its operational performance or not, and
recommending possible solutions for problems. For meeting the purpose both secondary and
primary data have been used
3. The whole report has been divided into five main sections as describe below:
Section I: is introduction to the report and briefly describes the scope, purpose,
methodology and limitations faced during the preparation of the report
Section II: is the review portion and contains five chapters. First chapter is introducing the
organization, UBL which came in to being in 1959. Remaining four chapter are explaining
operations and relevant broader but comprehensive set of information of the functional
departments of the bank. An attempt has been made so that readers of this report should
be able to gain sufficient knowledge of the processing and procedures of the operations carried
out by these departments. However in the chapter pertaining to foreign exchange
department main focus is places on the payments regulations and procedures of letter of
credits in the light of foreign exchange regulation Act, 1947.
Section III: the analysis part of the report and is comprising of two chapters. Chapter 5
is the critical analysis of the departments and its functions. SWOT analysis is an integral
part of this chapter. As an internee I was deeply concerned about the performance level of
the UBL and therefore tried to analyze the bank financial performance that is included in
chapter 4, this chapter reveals that the bank is trying to regain its position in the present
9
more dynamic and competitive environment. Major findings are included in this summary
which is the outcome of these analysis
Section IV: is the recommendation part and is derived from the previous section. Major
findings are stated in the later part of this summary.
Three action plans are included in section V with the hope that if
implemented properly will enhance the bank's overall productivity and will also enable it
to compete more efficiently and effectively. These plans are related to exploration of new
opportunity present in the agriculture sector, effective management and recovery of
advances and marketing activities respectively.
4. During the study, findings extracted are listed below:
i. Mark up expense of the bank has reduced and administrative expenses have shown increase.
ii. Non-performing advances have reduced; deposits show consistency.
iii. Due to lack of job rotation opportunity and lack of informal group existence, employees do
not share each other workload.
iv. The recent downsizing hustle and bustle trends have affected bank’s efficiency due to lay-off
survival syndrome.
v. Presently about 1100 employees have been placed in surplus pools that are unaware of their
future.
vi. Motivation level of employees is not satisfactory which effects their own and as well as
performance of the organization.
vii. In proportion to number of accounts and functions performed sizes of branch’s buildings are
small.
viii. Newly developed account opening form carries restricted space where only two applicant’s
names can be incorporated.
10
CH # 1
INTRODUCTION TO THE REPORT
1.1 INTRODUCTION:
Students of M.B.A are required to undergo an internship program of at least 6 to 8 weeks duration.
This is an essential academic requirement. The internship is followed by comprehensive report
writing, required to submit to the
AIOU Department of Business Administration. This report is properly evaluated on the basis of its
description and analytical capabilities by internal and external examiners. I did my internship in
United Bank Limited colony Branch Tarbela Dam Project.
1.2 PURPOSE OF STUDY:
The purpose of the study is to work in real life situation and learn banking practice by doing. In this
context its objectives are:
i. To analyze banking operations i.e. operational analysis, financial analysis.
ii. To develop concrete and feasible recommendations.
iii. To improve report writing skills.
1.3 SCOPE OF STUDY:
The study is confined to banking operations. An attempt, along with all its limitations, to collect
financial data and general statistics of the bank has been made. Keeping in view the purpose of the
study, which is to make an acquaintance with practical doings in the bank, this seems a
comprehensive effort.
1.4 LIMITATION OF STUDY:
It is to admit that the study attempts only those aspects, which are closely relevant to the purpose of
the study. Facts and figures, which otherwise might be equally important, but not having a direct
bearing on the conclusions arrived at this study, have been ignored. The most important limitation
from which the study suffers is the non-availability of information in a manner required for analysis
and the secrecy of the bank. Another important limitation of the study is time and space constraint.
11
1.5 METHODOLOGY OF STUDY:
Both primary and secondary data were used in compilation of the report. Methodological tools used
were:
i. Primary Data:
Personal Observations
Discussion with Bank Personnel
ii. Secondary Data:
Brochures/ Manuals of the bank
Annual Report
State Bank Foreign Exchange Manual
Bank internship reports on UBL available in library
Journals, newspapers and books
Internet
1.6 SCHEME OF REPORT:
The report is divided into five sections as under:
Section-I consists of chapter 1, which includes background, purpose, scope, limitations,
methodology and scheme of the report.
Section-II consists of five chapters (Chapter 2-3) and includes organizational review. In this section
background history of UBL, its organizational structure; and department operations are discussed.
Section-III consists of chapter 4 and Chapter 5, which include operational and financial analysis of
UBL respectively.
Section-IV summarizes the findings and recommendations of the study.
Section-V deals with action plan to implement the recommendations, identified in the previous
section.
12
CH # 2
INTRODUCTION TO UBL
2.1 BANKING HISTORY:
Consensus on the origination of word “Bank” is not yet reached at. Some author’s opinion is that
this word is derived from the words “Bancus” or “Banque”, which mean a bench and they further
relate banking business inception to Jews in Lombardy. Other authorities state that the word “Bank”
is derived from the German word “Back” which means “Joint Stock fund” and later on due to
German occupation of Italy, this word was italianated into “Bank. Authors quote Babylonians (few
quotes Chinese) who developed banking system as early as2000. B.C1
2.2 BANKING IN PAKISTAN:
Banking started in Pakistan after the bold and emergent decision of formulation of SBP on July 30,
1948. Thereafter this sector has witnessed enormous growth. In 1974 banks were nationalized, in
the hope that new era of growth could be achieved through it. However the process is reverse since
1991, up till now MCB, ABL, and UBL have been privatized and HBL is in the process of its
privatization.
2.3 TOWARDS ISLAMIZATION OF ECONOMY 2 :
Interest based transactions/businesses are “Haram” in Islam. The GOP has shown. Interest to
eliminate “interest” from its economy by developing various alternatives. To achieve this objective
various efforts are made with the following outcomes:
1 S A Haq. (1998) Practice & Law of Banking in Pakistan (6th Ed.)
2 Council Of Islamic Ideology (1980). Elimination of Riba from Economy. Islamabad
2.3.1 Deposits:
◊ PLS (Modarba) Accounts
◊ Current Accounts: (with no return paid)
2.3.2 Loans:
Qarz-e-Hasana
13
Lending on the basis of Service charges
2.3.3 Trade Related Modes of Finances:
Bai Muajjuai; purchases of goods by banks and their sale to clients at appropriate mark-up
in prices.
Bai-Salam; purchase of goods from clients by banks and their resale to the client at
increased prices, to be paid in future.
Financing for development of property on the basis of developmental charges
Purchase of trade bills.
Ijara: leasing.
Hire purchase
2.3.4 Investment Type of Modes of Finances:
Musharaka: financing on the basis of profit and loss sharing.
Modaraba: equity sharing of borrower profit and loss on basis of purchase of modaraba
certificates.
Rent sharing.
Equity participation through purchase of shares
2.4 BIRTH OF UBL:On November 9, 1959, UBL was notified and included as a private
schedule bank with authorized capital of Rs.20 million; issued and paid up capital of Rs.10 million
divided into 1 million shares of Rs.10/ each. Currently BOD and president/ CEO Mr. Amar Zafar
Khan being a member of this newly formed set up manage UBL. Chairman His Highness Shaikh
Nahayan Mabarak Al Nahayan and Deputy Chairman Sir Mohammed Anwar Pervez are the two
supreme controllers of the bank’s affairs. Another development is the appointment of director
operation, Nauman Hussain by the newly privatized bank. Senior management of the bank is shown
in the chart given at the end of chapter.
2.5 NUMBER OF BRANCHS :
14
UBL has a large network of branches, which extends to the remotest areas of the country. In
December 1983, there were 1623 branches whereas in 1974 it had only 1238 branches and in
October 2003 these figures show total number of1007 branches3.
UBL has been very active in increasing its overseas branches network. The first foreign
branches were established in London in 1963. Now UBL has branches in Bahrain, Qatar, Saudi
Arabia, United Arab Emirates, and Yemen Arab Republic, UK Switzerland, Egypt, Oman and the
United States. These branches are playing a significant role in channeling home remittances and
foreign trade of Pakistan.
2.6 SUBSIDIARIES :
UBL has four subsidiaries, namely:
United National Bank Limited (UNB), UK
United Bank AG (Zurich), Switzerland
United Executers and trustees Company Limited
United Bank Financial Services (Private) Limited
________________________________
3 UBL (2003) Annual Report
2.7 FUNCTIONS OF UBL:
UBL is a commercial bank, which transacts the business of banking in accordance with the
provisions of BCO, 1962. Section 7 of the Act authorizes banks to engage in the prescribed form of
business. In the light of this section UBL’s functions can be categorized as under:
Agency services
General Utility Services
Underwriting of loans raised by the Government or public bodies and trading by
corporations etc.
Providing specialized services to customers, and
15
Hajj-related services
2.8 ROLE OF UBL BANKING SECTOR:
The impressive growth and development, which UBL achieve, present it undoubtedly the most
dynamic and progressive. In a very shorter period of time it became one of the leading banks
overtaking several other older and its competitor banks4. The major contributions5 the bank has
made are enlisted below:
Record setting performance and commitment to serve the customers
Personalized service and dynamic approach
Catalyst of changes
Professional management
Modern banking policy
Human resource development
Small loans (or) micro credits
Pacesetter in economic research established in 1967, department for economic research.
Utility bills collection
Credit cards (unicard-1970)
Travelers Cheques (Humarah-1971)
Diaries and calendars – received prizes too
Promotion of sports
2.9 COMPUTERIZATION OF UBL:
UBL has taken leading start in the introduction of computers in (1966-1968)6 in important cities. Its
three computers centers Rawalpindi, Lahore and Karachi are equipped with the modern mainframe
computers of various capacities. Every branch has been decorated with microcomputers. The use of
computers has enabled the bank to save time and efforts raise efficiency and deliver the goods
16
speedily to its customers. This has also allowed the bank to maintain its leadership within the
industry.
◊ UBL - On line System6:
Themes of this service is “Access anytime, anywhere, any device” which symbolizes comfort,
convince and connectivity. UB-Online a web based service that can be accessed through multiple
media link like, (i) PC via internet (00)
Mobile phone with WAP or free SMS) (iii) Personal Digital (iv) assistants and (v)Plain telephone;
following are some of the exciting features:
Accounts statement & electronic data interchange
Graphical analysis
Alerts service /facility, search facility and activity long
________________
6 UBL, (October 8, 2002). PPI Circular. Karachi
17
The banks as another computer-based system known as “UIBANK”7, which is a well-develop
on-line branch-banking package. The system automatically prepares various report, central bank
returns, and statement of accounts for customers.
◊ Money Gram facility:
The bank has recently employed money gram service system, which can affect money transfers
within minutes. Similarly the system used for local transfer of money transactions is called uni-
remote.
◊ Hajj service:
Keeping to its tradition is august 1982 provided electronic facility at its Hajj booth and has installed
now modern computers at designated branches (Hajis) and increasing efficiency. This facility has
reduced the service time to less than six minutes per Haji compare to about half-an-hour to 45
minutes per Haji earlier.
_______________
7 www.ubl.com
18
2.10 FUNCTION HIERARCHY:
Chart 2.1 Organizational Hierarchy of UBL
Source: UBL, (2003). Annual Report Karachi.
Chairman
Managing Director
Board of Directors
Executive Committee
Deputy Chairman
SEVP
EVP
VP
Officer
Grade-III
Officer
Grade-II
Clerical Staff
Non Clerical
Officer Grade-I
19
Chart No 2.2 Senior Management of UBL
HRAudit Committee
BOD
Atif R .Bokhari
President
Tariq Kirmani
Chairman
Risk Management
Committee
Mohammad Asghar Director
Muhammad Ali
Chief Executive
Shabbir Hussan
Director
Ameer karachiwala
Ali Sameer
Director
Saeed Iqbal
Director
Shabbir Hussan
Chairman
Ameer Karachiwala
Saeed Iqbal
Ali Sameer
Chairman
Ameer Karachiwala
Mir Muhammad Ali
Tariq Kirmani
Shabbir Hussan
Saeed Iqbal
20
CH # 3
CASH, REMITTENCES, CREDIT & CLEARING DEPARTMENTS:
3.1 DEPOSITE DEPARTEMNT
As per the definition of “Banking” under see 5(b) of BCO 1992 one of the main functions of a bank
is to accept deposit. Deposits are the backbone of any bank; other functions of the bank primarily
depend upon the type and size of deposits.
3.1.1: Function perfumed by cash and deposit department in UBL
UBL colony Branch accepts deposits under the following three accounts.
i. Current account
ii. PLS saving account
iii. Terms Deposits
3.1.2: Opening of Account:
To open an account in UBL the customer will have to fill an account opening form in front of bank
officer. He has to sign in all required places in front of the officer.
3.1.2.1: Documents Required in Account Opening:
i. N.I.C Copy.
ii. Account opening form (provided by bank)
iii. Two photograph (in case of illiterate person)
iv. Specimen Signature card (Provided By Bank)
v. Cheque Requisition Form
vi. Introduction of Account.
21
3.1.2.2. Types of Account:
a. Individual Account
In this account a single customer operates the account. The banker will run the account according to
the rules, but if the customer gives special instructions the Bank will have to follow it.
b. Joint account:
In this type of account two or more than two persons will open the account. The account will be
operated by one account holder in case of (either of the survival). If the instructions are not given,
all the account holders will have to sign the check.
3.1.3 NATURE OF ACCOUNTS IN UBL COLONY BRANCH
A) Current Account:
These are non-profitable demand accounts. The account can be opened with minimum amount of
rupees 1000/-. These accounts are usually maintained for business purpose. Due to enormous
competition UBL has introduced daily profit current account for corporate clients called
(UNISEVER) minimum balance required is Rs.100,000/-. If minimum balance requirement is not
met, bank is authorized to recover predetermined charges.
B) PLS Saving Account
These accounts were intended with the aim of encouraging thrift among people. These accounts can
be opened either in Pakistani rupees or in few major currencies of the world. Bank offers (4%- 6%)
return on these accounts. The basic feature is the profit and loss sharing as according to non-interest
based banking system. These accounts can be opened in the name of; individuals, joint names, trust
accounts, charitable organizations. Unlike current accounts, Zakat is applicable on local currency
saving accounts. Minor’s accounts can be opened on the condition that their guardians shall operate
these accounts.
C) Term Deposits:
Term deposits are also called fixed deposits. These can be withdrawn after a specified period of
time. Interest is paid to the depositor on all fixed or term deposits. The rate of return varies with the
duration for which the amount is kept with bank
22
There are two types of term deposits.
i. STDR’S – Special Term Deposit Receipt (local currency):
Special Term Deposit Receipts are issued for different periods of maturity ranging from one month
to 5 years, having attractive returns. There is no limit on denominations.
ii. 3.2.3.2 NTDR’s – Notice Term Deposit Receipt (local currency):
These are term deposit with special features that these can be withdrawn any time but after giving a
predetermined and pre agreed early notice.
3.2 REMITANCES DEPARTEMNT:
Current business trends demand fast movement from one geo-graphic end to another. Latest
technology and telecom data transmission has made it possible to make such transactions with in
minutes. UBL Remittances Department performs following functions.
3.2.1 Demand draft (D.D)
D.D is a negotiable instrument issued by branch of the bank drawn on other branch of the same
bank.
A) Procedure for D.D.:
Purchaser is asked to fill in an application form duly singed by applicant. Three things should be
maintained in the form.
Name of Payee
Place of payment
Amount of D.D
Commission is charged on D.D as bank income. The applicant is asked to deposit the cash specified
on the application form to the teller. After depositing cash the remittances in charge prepare a D.D.
That is singed by two officers must having power of attorney. Bank also provides this facility to
general public who don’t have account in UBL.
They will have to submit a N.I.C copy along with D.D application form.
23
3.2.2 Telegraphic transfer (T.T):
Transfer of funds to another branch of the same bank with the help of test numbers. If the test
number agrees the bank make payment to the party.
A) Procedure for T.T:
The procedure for T.T is same as D.D. But in D.D it is given on a printed-paper and singed by two
officers but, in T.T, only test number is given to the customer.
3.2.3. Mail Transfer (MT)
When the money is not required immediately, the remittances can also be made by MT. Here the
selling officer of the bank sends instructions in writing by mail to the paying bank for the payment
of a specified amount of money. The payment under transfer is made by debiting the buyer’s
account at the sending office and crediting it the recipient’s account at the paying bank. UBL takes
mail charges from the applicant where no excise duty is charged.
3.2.4 Pay Orders:
Pay order is banker cheque issued favoring a named beneficiary. The issuance bank is discharged
by payment in due course. Application for the PO stamped and the customer’s account balance is
checked or cash received for the amount PO and other charges. Pay Order leaf is typed and crossed
if required and signed by two authorized persons. Thereafter it is delivered to the customer. PO can
be cancelled at original purchaser’s request in writing and surrender the instrument, which then
marked canceled along with other documents and prior entries.
3.2.5 Rupee Traveler Cheques:
UBL has launched R.T.C Brand named “Hamrah” in November 1996. These are issued to
applicants with varied denominations without excise duty and commission. When issued HO
account is credited and on encashment the same account is debited. RTC’s lost cases are
communicated to HO and client is either repaid or new RTC’s are issued to him/her.
3.2.6 Uni Remote:
This is a new tool for the transfer of money. This is a step towards the online banking taken by
UBL. This tool transfers money from one branch of UBL to other through electronic transfer. The
customer will have to fill the deposit slip. On the slip he will write the name and account number of
24
the person to whom the money will transfer, the name of the branch is also written. The amount is
deposited with teller and the receipt is shown to remittance in charge. One I.D copy is also attached
with slip. The remittances in charge will transfer if by using device (computer) through online
service. The fund transfer is must be supervised by another authorized officer. Every time for this is
five minutes.
3.3 CREDIT DEPARTMENT OF UBL
General
Credit extension is the principal function of a bank, through which pace of activity is accelerated in
the various sectors of economy. Also the indicators, which mainly reflect the high quality of bank’s
management, are its prudent financing decisions, proper control of finance and prompt recovery. In
this regard the credit policy of a bank play a very important role as it provides the overall
framework, responsibilities, and authorities and facilitates decision-making. Credit department
performance is subject to a defined policy on credit control exercised by the SBP. SBP affect credit
decisions through the weapons of bank rate, open market operations, variable reserve requirements,
selective credit restrictions and prudential regulations.
UBL Credit Policy:
Credits operations are undertaken in accordance to bank’s credit policy. The policy strictly prohibits
violation of SBP/Local central bank’s rules and suggests financing of self-liquidating, cash flow
supported and well collateralized transactions, which equate the principle of lending (safety,
liquidity, dispersal, remunerations and suitability).
3.3.1 CREDIT DEPARTMENT OF UBL NOWSHERRA BRANCH
Facilities offered by UBL
Running Finance (for one year)
Demand Finance (3to 5 years)
3.3.2 Procedure for Financing from UBL
When a party comes for financing, banker will ask the following questions
25
3.3.2.1 Purpose:
In this the party mentions the purpose; they want to apply for the finances. No lending is done
without purpose.
3.3.2.2 Business
The party must have some specific running business i.e. general merchandise, construction business
etc.
The second question arises of the cash flow that how much flow is generated by the party from the
current business.
3.3.2.3 Security:
The bank will secure itself against the lending. There can be two type of security.
Commercial
Residential
The bank prefers commercial security. Relationship Manager (RM) is mainly responsible for the
relationship between the bank and party. He acts like a bridge between the two. In the first instance
the party would prepare the following property documents.
AKS Shajarah
Naqsha Tasveeri
Approved Building Plan
Tresh fard
Intaqal Naqal
The party is asked to contact any valuator on the panel of UBL. ICM&L and. The valuator will visit
the site and set market value and FSV of the said property. He prepares report of at least three
pages. This document sent for one page legal opinion to any layer on the panel of UBL. Having
clear legal opinion RM start preparing credit Approval (CA) . The documents are singed by the RM
& AM and then forwarded to UBLRHQ in Peshawar. Here SRM examines the CA if he found some
exception he will send it back to the respective Rm.RM rectifies the acceptation and send it back to
26
SRM. SRM studied and pass it to credit officer. He has three hours of time to study the CA and if
found correct then he pass it to another credit officer. After his examination the CA is passed on to
the credit risk manager. He checks the CA and after signing it sent to CAD. He forwards the CA to
SCO. Whose office is at UBL RUCO at Lahore, after his signature the C.A is sent back to
RCAD.RCAD make a check less list and asked the RM to contact the party to complete the said
documents they are.
Letter of continuity
Personal Guarantee
Letter of hypothecation of stock
D.P Note
Mortgage Deed
NIC of executants and witness
Stock report
Insurance policy
Party profile
After completion of charge document RM send it to RCAD when they found it correct, they issues
DAC. A copy of DAC is sent to RM and NICF account is opened and debit transaction starts.
3.4. CLEARING OF BILLS:
General:
Bank can make payments of only open Cheques on the counter payment. Payment of cross Cheques
cannot be made on counter its payment is possible through collecting bankers. The function of
clearing department is divided into two main classes.
Inter Branch Transaction
Inter Bank Transaction
27
3.4.1 Procedure of Clearance of Cross (Cheques):
Whenever bank receives a cheque of other bank from the client he cannot make payment on the
counter. The first job banker has to perform is to put a special crossing across the face of cheque.
By special crossing cheque is secured. If it is stolen the paying banker would not suffer because of
non-endorsement. On the back of the cheque the stamp is made of payee account will by credited on
realization. It is signed by authorized person. Along with the cross cheque the customer has to fill
the deposit slip. The half part of slip is given back to the customer. after the special crossing and is
necessary endorsement the banker write the amount along with cheque number on paper and attach
with each slip. Then again on the smile paper the amount of all the Cheques along with the bank
names are added and attached to cheque presented for clearing, and advice is also attached with the
cheque presented for clearing. The following entry is passed on sending the cheque for clearing.
Bill lodged for clearing ……. Dr
Bill for collection ………. Cr
The Cheques are sent on the same day for clearing. The bank receives it on other day. The paying
bank receives the receipt and the amount is credited in the respective account.
The paying banker passed the following.
Bill for realization. ……. Dr
Bill lodged. ………. Cr
The other entry passed its Dr. HQ account and Cr Party account.
3.4.2 I B C:
It means “Inter Branch Cheques” when UBL received a cheque a drawn on the customers of his
branch; first they will cheque the amount in the account on which cheque is drawn. Of the required
amount is available in the account they will match the signature on the cheque along with their SS
card. If all the requirement are completed the bank will send an IBCA to the bank from which
cheque is sent
28
3.4.3 L B C:
LBC means local branch Cheques received for collection. UBL received Cheques from their spoke
braches as well as from other UBL branches of the country, drawn of any other bank. They send the
cheque to responding bank and after clearing the cheque through clearing houses (which is NBP) in
Tarbela. They send LBC advised to the bank from which the cheque was received. The following
entry is passed after sending LBCA.
NBP a/c ………. Dr
Ho a/c………. Cr
3.4.4 OBC
When the bank receives the cheque from its customer or from any other spoke branch drawn on any
other bank of any other city. They sent the cheque to the UBL main branch of that city, after
receiving OBCA the bank will pass the following entry.
In case of his own customers
Ho a/c………. Dr
Customer a/c………. Cr
In case of spoke branch
Ho a/c………. Dr
Spoke Branch a/c………. Cr
29
CH # 4
FINANCIAL ANALYSIS :
INTRODUCTION
These section efforts have been made to cover all relevant aspects of the financial performance of
UBL. Overtime comparison and Common Size analysis are carried out with the view to extract
concrete conclusion to describe financial standing and performance of the bank.
4.1 THE GROUP AND ITS OPERATIONS
The group consists of
a) Holding Company
United Bank Limited, Pakistan
b) Subsidiary Companies
United National Bank Limited, UK
United Bank AG (Zurich), Switzerland
United Executers and Trustees Company Limited
United Bank Financial Services (Pvt) Limited
4.2 BASIS OF PRESENTATION
The purchase and sales of UBL are restricted to the amount of facility actually utilized and the
appropriate portion of mark up there on. They strictly observe the rules and regulations as
applicable and promulgated by the GOP and or SBP.
4.3 SIGNIFICANT ACCOUNTING POLICIES
○ Revenue Recognition
Returns on advances and investments are recorded on accrual basis. Debts securities purchased at
premium or discount are amortized over their maturity periods. Dividend income is recognized on
accrual basis of declaration of dividend up to the year-end. Returns on classified assets are recorded
30
on receipt basis, rescheduled and restructured loans are treated in accordance to SBP regulations.
Fees/commissions etc. on Letter of Credit and others are recorded on accrual basis.
○ Advances
These items are stated net of provisions against non-performing loans as per SBP PR – IIIV.
○ Investments:
UBL classify its investments as stated below;
a) Held for trading
b) Held to maturity
c) Available for sale-other than the above two types
In the light SBP regulations quoted securities are shown at market values and any changes arising
are taken to profit and loss account only upon actual realization. Unquoted securities are valued at
the lower of cost and breakup value and difference is charged to income. Provisions for diminution
in the values are made after permanent impairment, if any.
○Lending/Borrowing from Financial Institutions
a) Sales under Purchase Obligation: These are reflected as liabilities and the charges against these
are recorded as an expense on pro rata basis.
b) Purchase under Resale Obligation: The differential of the contracted price and resale price is
amortized over the period of their contract and recorded as income.
○Fixed Assets and Depreciation
a. Owned
Such assets are showed at their cost or revalued amount less accumulated depreciation and
impairment loss, if any. No depreciation is charged on freehold land. During the year, amendment
related to section 235 of the Companies Ordinance 1984, surplus on revaluation can now be
reversed to the extent of incremental depreciation charged. As a result such differentials are now
transferred to retained earnings/accumulated losses as per the Securities and Exchange Commission
of Pakistan’s (SECP) clarifications.
31
Gains and losses on sale of fixed assets are included in income currently, except that the related
surplus on revaluation of fixed assets is transferred directly to retained earnings/accumulated losses.
b. Leased
Assets under financial leases are stated at cost. The outstanding obligations are shown as a liability.
The finance charges are allocated to accounting periods in a manner so as to provide a constant
periodic rate of charge on the outstanding liability.
○Taxation
a) Current
Provision is based on the taxable income for the year or minimum tax computed on the basis of
turnover, whichever is higher.
b) Deferred
The bank accounts for deferred taxation on major timing differences, using the liability method in
respect of those timing differences, which may reverse in the foreseeable future. Deferred tax debits
are, however, recognized only if there is reasonable expectation of realization of the amount.
c) Foreign Currencies:
Balances are translated into rupees at the applicable rate of exchange prevailing at the balance sheet
date or where applicable at contractual rates. During year transactions are converted into Pak rupees
applying the exchange rate at the date of respective transactions. Gains and losses are included in
income currently.
d) Deferred Cost and Lease Payments
These are amortized over a period of five years. Rental obligations under operating leases are
charged to profit and loss account as incurred.
4.4 RISK MANAGEMENT
The bank is primarily subject to interest rate, credit and currency risks. The bank has designated and
implemented a frame work of controls to identify, monitor and manage these risks are as follow;
○ Currency Risk Management
32
For the purpose of efficient management of this risk, the group enters into ready, spot, forward and
swaps transactions in the interbank market and with the State Bank of Pakistan in order to kedge its
assets and liabilities and cover its foreign exchange position.
○ Credit Risk Management
Out of the total assets of Rs.183, 139.879M assets subject to credit risk amounted to Rs.178;
958.323M. The bank’s major credit risk is concentrated in textile sector. To manage it the bank
applies credit limits to its customers and obtains collaterals. Credit risk in the portfolio is monitored
by the CRM who formulate appropriated policies and procedures to ensure building and
maintaining quality credits and efficient credit process.
The bank’s financial institution risk management unit assesses, recommends financial institutions
and also controls cross border/country risk.
○ Interest rate Risk Management
The group is mainly exposed to mark up interest rate risk on its deposit liabilities and its loans and
advances and investment portfolios. The asset liability committee of the bank reviews the portfolio
of the bank to ensure that risk is managed within acceptable limits. Most of the loans and advances
portfolio comprises of working capital, which are reprised on a periodical basis. The group’s
interest is limited since the majority of customer’s deposits are retrospectively reprised on a six
monthly basis due to the profit and loss sharing principles.
4.5 CONCENRATION OF CREDIT AND DEPOSITS 1
The major class of business for UBL related to advances is the textile and private sectors. UBL is
advancing 27.2% to textile and 74.5% to private sector. Majority of the depositors fails in the
category of individuals, contributing 65% of the total deposits.
4.6 INVESTMENT PORTFOLIO 2
UBL employs diversified investment portfolio. The bank invests its funds both in risk free assets as
well as in risky assets. This enables it to minimize its unsystematic risk to a great extent. UBL
values its security holding on market value, in accordance with the guidelines given in SBP circular.
Any unrealized surplus/deficit arising on such revaluation is taken directly to “Surplus/Deficit on
revaluation of securities” in the balance sheet. Where an active market is not available, securities
33
continue to be stated at cost. Provision for diminution in the value of these securities is made after
considering permanent impairment, if any, in their value.
Where securities are sold subject to commitment to repurchase them at a predetermined price, they
remain on the balance sheet and a liability is recorded in respect of the consideration received in
“Borrowing from Bank” or “Deposits” as appropriate. Conversely, securities purchased under
analogous commitments to resell are not recognized on the balance sheet and consideration paid is
record in “lending to financial institutions” or “loans and advances” as appropriate.
4.7 PROFITABILITY 3
The operating profit before provisions and write offs increased by 80%, whereas the profit before
tax and extraordinary items increased by 62% as compared to last year. The increase is mainly
attributed to 14% increase in the net revenue from funds (NRFF), 10% increase in fee and
brokerage income and 75% reduction inn write offs/provisions for non-performing assets as
compared to year 2002.
Performing advances increased by Rs.2 billion as compared to previous year while NPAs decreased
2 UBL (2003) Annual Reports
3 UBL (2003) Annual Reports
by 53%. Presently NPA constitutes 7.4% as compared to 14.6% in 2002 of the total loan portfolio.
The branches reduced to 1077 from 1112. The bank handled over Rs.96 billion of import and export
business during the year, an increase of 24.7% as compared to last year.
4.8 FINANCIAL ANALYSIS
Financial statements are the principal means of reporting the financial condition and results of
operations of a business entity. These statements are meant to assist various parties in decision
making who are interested in the activities of the business. These statements are means to an end of
helping stakeholders in decision-making. To improve the quality of decision making proper analysis
of these statements helps a lot. Financial statements analysis helps in determining the financial
conditions at any particular points in time and effectiveness of operations of a firm during a specific
period.
34
The various stakeholders of business are interested in the analysis of financial statements. But the
focus of interest of all is not the same. For example, creditors and credit reporting agencies are
interested in finding out the credit worthiness of the firm to which they have extended credit or
intend to extend credit. Short term creditors are interested in short term liquidity of the business and
long term creditors are interested in the long term cash flow which the firm can generate over the
long period of time. Investors are interested in the firm’s ability to sustain profitability over a period
of time. Government agencies analyze financial data for tax purposes. The internal users of
financial statements like management also analyze financial data for planning and control.
4.8.1 COMMON SIZE ANALYSIS OF BALANCE SHEET
Common size analysis is an analysis of financial statements where the total assets divide all balance
sheet items of asset side and all credit side balances divided by all liability items, and all income
statement items are divided by net sales/revenues. Common size analyses are extremely helpful to
highlight changes over the time in financial performance and financial conditions of the company.
35
Table: 4-1 Common size analysis of consolidated Balance Sheet
2010 2009 2008 (Rupees in '000)ASSETS Cash and balances with treasury banks 66,068,469 61,160,678 50,143,570Balances with other banks 11,781,938 5,407,470 14,540,306Lending’s to financial institutions 12,498,518 23,162,130 22,805,341Investments 169,145,960 136,145,524 115,057,090Advances 343,339,970 354,091,713 377,945,366Operating fixed assets 22,172,172 21,925,669 19,926,915Deferred tax asset - net 722,575 608,876 2,164,148Other assets 19,452,878 17,241,991 18,124,653 645,182,480 619,744,051 620,707,389LIABILITIES Bills payable 4,101,657 5,147,259 5,210,870Borrowings from financial institutions 47,522,177 35,144,823 44,749,690Deposits and other accounts 499,891,723 492,036,103 492,267,898Sub-ordinated loans 11,987,776 11,989,800 11,993,848Deferred tax liability - net - - Other liabilities 18,116,593 14,489,343 17,087,441 581,619,926 558,807,328 571,311,725NET ASSETS 63,562,554 60,936,723 49,395,664REPRESENTED BY Share capital 12,241,798 11,128,907 10,117,188Reserves 20,203,750 18,959,537 17,256,061Inappropriate profit 22,579,803 22,187,802 17,703,327 55,025,351 52,276,246 47,121,165Surplus on revaluation of assets - net of deferred tax 8,537,203 8,660,477 2274499 63,562,554 60,936,723 49395664
4.8.2 COMMON SIZE ANALYSIS OF INCOME STATEMENT
36
The common size analysis of income statement is given in the table. This shows that the UBL has
been able to control its interest or markup expense. As a result of decrease in markup expense as a
percentage of total revenues the gross profit margin has shown a trend of continuous increase. The
increasing G/P Margin shows efficiency of the bank in controlling cost of sales (Markup expense)
and better strategy of pricing, products and services.
The provision for non-performing loans has a decreasing trend making no provision for non-
performing loans and diminution in value of investment, which increases the profit of current year.
The reduction in provision is a good sign, which shows that the bank is recovering its disbursed
advances. It shows the good credit management of the bank.
There is a great increase in non-markup income, which is about 23%. Among its individual
components investment income has shown a large increase as a percentage of sales. Non markup
expenses also show a rising trend in absolute amount though the common size in percentages has
shown a mixed trend due to the changes in revenue figures. The non-performing expanses also
increased to about 25%, which is a very high percentage, but the other aspect of this is that it
increased the efficiency and credit management of the staff.
4.8.3 FINANCIAL RATIO ANALYSIS
The user of financial statements finds it helpful to calculate ratios when they interpret company’s
financial statements. A financial ratio is simply one quantity divided by another. Ratios focus on
special relationship between two items of balance sheet, income statement or one from each. Ratios
make it easier to understand a specific relationship between various items of financial statements
then looking simply at the raw numbers themselves. The number of financial ratios that might be
created is virtually limitless, but there are certain basic ratios that are frequently used, these ratios
can be placed into six different classes.
Liquidity Ratio
Asset Turnover Ratio
Leverage Ratios
Coverage Ratios
Profitability Ratios
Market Value Ratios
37
4.8.3.1 CURRENT RATIO:
UBL’s current ratio is increasing over the time. Higher the current ratio higher the ability to meet
the short-term obligations as they come due. The change is occurring due to increase in short term
investment and decrease in short term borrowings.
4.8.3.2 ASSETS TURNOVER:
This shows revenue generated per rupee investment in total assets. UBL’s assets turnover ratio has
shown a little decrease. This is because of increase in total assets with proportionate increase in
revenue. Banks have relatively low ATR capital, as they are selective in advancing loans and
generating smaller sales.
4.8.3.3 DEBT TO ASSET RATIO:
The analysis of total debt to assets ratio, there has been decrease of one percent as compared to
previous year. Although the decrease is not large enough but it is a good sign for bank’s creditors.
The decrease may be attributed to the substantial decrease in borrowings from financial institutions
but the affect was weakened by an increase in bills payable and other liabilities.
4.8.3.4 DEBT TO EQUITY:
This ratio measures how the company is leveraging its debt against the capital employed by its
shareholders. Analysis of debt to equity ratio indicates that the current position for the debt to
equity is that for every one rupee in equity provided by the shareholders the bank has Rs. 13.5 as a
debt. This shows that the bank is heavily relying on debt financing.
4.8.3.5 COVERAGE RATIO:
This ratio shows the number of times a company can cover or meet its financial charges or
obligations. One of the most commonly used ratios is the interest coverage ratio that measures the
number of times the income is available to pay interest charges. The UBL interest coverage ratio
has shown significant improvement in these three years.
4.8.3.6 GROSS PROFIT MARGIN:
38
Gross profit margin is the difference between the revenue and cost of goods sold. Gross profit is
critical because it represents the amount of money remaining to pay operating expenses financing
cost and taxes. UBL’s gross profit margin per rupee has shown rising trend in last three years.
4.8.3.7 NET PROFIT MARGIN:
This ratio shows the profit that is available from each rupee of the sale. After all expanses have been
paid. Net profit margin is also showing an increasing trend. UBL has improved net profit margin in
the current years.
4.8.3.8 RETURN ON INVESTMENT:
This ratio measures the profitability per rupee of investment in assets. UBL’s return on investment
has shown an improvement more than 100%. Although the assets have increased but the operational
recovery of the bank is main cause of increasing this ratio.
4.8.3.9 RETURN ON EQUITY:
This ratio shows the profit as a proportion of the book value of the common shareholders. The
return on equity is also shown a great deal of positive change.
4.8.3.10 ADVANCES TO DEPOSIT RATIO:
This ratio shows the companies advances employed per unit of deposit. This ratio of UBL over the
recent three years shows a decreasing trend
4.8.3.11 INVEST TO DEPOSIT:
This ratio shows the company’s investment employed per unit of deposit.
4.8.3.12 CASH RATIO:
It is the ratio of cash and cash equivalent of current liabilities. It shows that how much cash is
available to meet the current liabilities. Although the current liabilities also increased but the
increase in cash is very high.
Spreads and key operating ratios for the bank are shown below:
39
Table4.2
Pattern of Shareholding
The pattern of shareholding as required u/s 236 of the Companies Ordinance, 1984 and Article (xix)
of the Code of Corporate Governance is given in table no 4.2:
Table4.3
40
CH # 5
QUALITATIVE ANALYSIS
5.1 QUALITATIVE ANALYSIS OF UBL
During my two months of internship period I have tried to fully commit myself in the learning
process. I kept critically observing the things that I could analyze and the result of the exercise is
presented as below.
A) Organizational:
Existing organizational hierarchy hinders vertical communication and blocks flow of information
among the levels of management.
The workload is not equally distributed.
Coordination level among divisions/departments and employees are poor, particularly speaking
of between the top and lower levels of management.
There is centralization of authority and branch managers are bound and restricted to take
initiative.
Due to overlapping nature of duties and jobs there exists chaos and confusion in branches.
B) Departmental:
During my internship period in UBL, in various departments, I noticed following departmental
problems.
○ Cash Department:
i. Not very frequently but there are instances of fake currency notes, being identified. At times
notes received from other branches were found to have certain fake currency notes.
ii. Counting mistakes occur due to overcrowding particularly during the collection of utility bills.
Manual counting system also affects efficiency of the bank.
iii. Code of conduct of cashiers is found unsatisfactory.
41
iv. There is generally the lacking in observing and practicing bank’s relevant procedures and
SOP’s.
○ Remittances Department:
i. Application of tests for authentication of TTs is not known to all concerned individuals that
reduces the efficiency and further the wrong application of tests prevent payments and the delay
could dissatisfy customers.
ii. Telegraphic messages require specific skills and training. The employees are partially equipped
of such knowledge.
iii. Preparation, execution and management of TTs and MTs and particularly DDs ask for mastering
applicable rules and regulations and most of the staff was found ignorant of those.
○ Deposit Department:
i. Newly designed AOF has an inbuilt deficiency of restricted space and cannot accommodate more
than two names.
ii. Identification of customer’s signature is very important particularly when cash is to be withdrawn
by him. Manual practices pose problems in those branches where automation has not been done
yet.
iii. In cases where the presence of customer himself is must, is sometime compromised due to
influences of\r fear of loss of customer.
○ Clearing Department:
i. Wrong endorsement and stamping causes loss to the customers and extra efforts for the bank to
repeat the procedures.
ii. Reasons for the return of the cheque at times are not mentioned on the return memos.
iii. At times due to lack of training wrong stamps are applied on instruments.
○ Credit Department:
i. Timelines in cash disbursement is very important which is compromised due to lengthy
processing and documentation requirements.
42
ii. Relationship Managers need to be fully equipped with the requisite knowledge and skills as
presently plain BA/B.Sc. qualified individuals are performing jobs of MBAs.
iii. Lack of infrastructure for carrying out computerized financial analysis of borrower’s business.
iv. Large pool of potential borrowers cannot apply for loans due to lack of collaterals. Heavy
collateral requirements restrict credit business of the bank.
v. The credit proposal and other documents at times are not properly and sufficiently prepared
before taking approval.
vi. Filing and record maintenance of credit related documents are not done efficiently.
○ Bills Department:
i. Bills are sent to other cities; therefore, extra care should be exercised in making entries and stamp
affixing.
ii. Proper scrutiny at times is not carried out and it causes loss to the bank or increase procedural
timings.
iii. Employees at times mismanage their time and fail to forward bills promptly.
○ Foreign Exchange Department:
i. Problems of bills and remittances departments equally apply to foreign exchange department.
There is overlapping of functions and complete separation of function has not been achieved
thus leading to a state of confusion and conflict among employees.
ii. Employees of this department are lacking computer-operating skills.
iii. Knowledge and educational background of employees working in this department do not match
with the job they are doing.
iv. Most of the employees of this department lack the ability to handle the Letters of Credit.
○ Marketing Department
i. Lack of marketing at desk due to lack of training and awareness among employees.
ii. Lack of promotional activities.
43
iii. Little attention to the apparent conditions of the bank exterior, interior layouts and design of
furniture in most of the branches.
5.2 SWOT ANALYSIS:
SWOT is useful tool for providing a framework for analysis of an organization. SWOT stands for
Strengths, Weaknesses, Opportunities and Threats. It is a common approach to make assessments in
terms of internal and external environment of the organization, and to formulate strategies analyzing
its internal strengths and weaknesses, external opportunities and threats, coming up is the SWOT
analysis for the UBL.
5.2.1 STRENGTHS:
It is one of the largest private banks with a deposit base of Rs.94883/- millions showing constant
growth over the period from 1999 till the day.
It has a well-knitted and adequately equipped branch networking system that efficiently covers
both the domestic and international markets.
It is involved in both corporate and retail banking.
The bank is actively emerging and is engaged in international trade and foreign exchange
transactions. Foreign trade volume showed an increase of 17% over the previous year.
Advances investment of the bank shows a constant growth pattern. The current year’s growth rate
is 32%.
The overall efficiency of the bank operations and management ability can be noticed by looking
at to its income pattern and provisions/write off practices.
◊ Net revenue from funds increased by 18% for the current period.
◊ Provisions decreased by 14%.
◊ Total income increased by 16%.
UBL is actively participating in international markets and has recently introduced credit cards in
UAE, Bahrain, and Qatar, being backed up by 24 hours call center out of UAE.
44
The bank is owned by parties of financial repute and credit worthiness like, SBP with 48.69%
interest, Best Way group and Abu Dubai group with 25.50% of interest each. Others are GOP,
NBP Trustee Department, State Life Insurance Corporation etc.
The bank is run by highly professional recruited from and trained by foreign banks like Citi Bank.
5.2.2 WEAKNESSES:
Due to risks such as political, economic and legal etc. the bank has suffered losses the main
reason was that of piling up of large amount of unrecoverable loans and debts which has
adversely affected the image of the UBL.
Accumulated losses pushed the bank to cut down its promotional activities in order to reduce
expenses for last few years.
During the nationalization life span of the bank political lords used influence in bank business and
selection of employee at each level and thus adversely affected the bank’s efficiency and
effectiveness.
Administrative expenses are 51% of the mark up revenue.
Promotions are carried out on annual basis ignoring the importance of capabilities and
performance outputs.
The bank has large number of employees who are simple graduates with no banking knowledge.
Ineffective system of recruiting and selection.
Lengthy credit processing and documentation procedures.
Unsatisfactory working conditions.
5.2.3 OPPERTUNITIES:
Growing policies of the GOP on business and economic sectors provide UBL an opportunity to
efficiently meet with the business people requirements of instant cash facilities e.g. the
government intentions of developing housing and agriculture sectors.
The efficiency of stock market and sound exchange reserve level is providing a good opportunity
for effective investment decisions.
45
Foreign remittances are another area as present worldwide control systems over transfer of
currencies through illegal channels has facilitated the area for the banks.
Reconstruction of Afghanistan is a golden opportunity where the bank can effectively participate.
Expansion of IT platform and internet based banking system.
Interest of businesses in leasing facilities provides a healthy opportunity for banks.
There is a large pool of unemployed MBAs who can be hired to achieve professionalism on its
organizational culture.
Outsourcing of promotional companies or use of available excellent promotional facilities.
Entering new market segments.
Increase the product range to meet the broader range of customers’ needs.
5.2.4 THREATS:
Increase in competition due to increasing number of foreign and domestic private banks offering
highly specialized and attractive services.
Growing global technological advancements and adaptation of modern style of management in
banking sectors.
Extensive promotion campaigns run by competitors.
Unemployment, lower level of income and prices like problems in the motherland coupled with
low rate of industrialization, geo political adverse conditions, religious factor, and lack of
consistency in policies due to political instability are some of the other major threats.
This SWOT analysis is a mirror image of the bank’s present conditions. Some efforts are made and
others are still required to be made in order to improve the situation. The management can develop
elaborate strategic plans for capitalizing the available opportunities. The bank should maintain
principal of professional management and adhere to sound and sophisticated banking rules and
regulations so that confidence and trust of the public in the institutions could be re earned.
46
CH # 6
RECOMMENDATIONS
Recommendations are considered to be the most important part of an internship report, without
which no report is considered complete and meaningful. This part of the report is based on the
47
previous sections i.e. review and analysis. Moreover, for bringing suggestions, discussions have
been conducted with the staff of UBL officers, who not only provided the basis for
recommendations but also pointed out some areas, where the change for the development is utmost
important.
Realizing the importance of this section, efforts have been made to give feasible recommendations,
which are categorized under the following headings.
6.1 HUMAN RESOURCE DEPARTMENT
The importance of manpower cannot be denied in any organization. In case of banks it is the most
valuable asset, because the bank is very sensitive organization and to be in harmony with this
sensitivity, need for proper human resource is felt badly. Critical analysis of UBL necessities
recommending suggestions that would increase bank’s efficiency and effectiveness.
○Development of Managerial Leadership
In services industries like banks the need of managerial skill is much more important. It makes
positive contribution towards higher effective results. Without development of managerial
leadership, the effective utilization of the human resource will be impossible. UBL should also
focus on this area and should avoid deficiencies in managerial leadership, by applying the modern
styles of management.
○Political interference:
The political intervention in the bank needs to be stopped so that the top hierarchy as well as the
personnel placed at other important levels of the institution is not changed Just on political grounds
and the ongoing developmental work is not obstructed. It will enable the management to formulate
long term strategies and their proper implementation because the long term policies, accurately
based on calculated risk, have proved the pivotal role players for organizational sustainable
development.
○ Basis for Promotion:
A sizeable portion of the officers of UBL, are promoted in without test and interviews to officers
cadre. The promotion policy must be too tight and transparent that no one may have the chance to
be promoted on criteria other than the required qualification, experience and performance. As for
the present excess staff those not found up to the required criteria, may be given GHS etc.
48
○ Management Changes on Merit:
In UBL, though vary rare fresh recruitments are made, and the bank faces saturation in personnel,
now clipping will be more helpful. This downsizing will leave the bank with the staff, to be retained
on the basis of ultimate meritocracy with zero tolerance of incompetence. Now in this remaining
workforce, a cultural change right from the top management down to the front line, that better suits
to the present day needs of banking environment could be included through proper discipline and
training.
○ Needs of change in Recruitment Policy:
It is important to say that the external level market is full of the required talent like MBA, M. Com
etc. But on the country only graduation with simple subjects is still the requisite qualification for
officer’s cadre, which has already worked amply in the devastation of UBL. Therefore the
recruitment qualification to the officer’s framework should be enhanced for simple graduation, to
professionally qualify preferably Masters in their respective fields.
○ Refresher Courses:
The Human of the bank should frequently conduct meaningful refresher courses, seminars and
workshops with a view to improve the knowledge of the staff. Due to severe competition and
technological developments, the banking business is experiencing rapid changes therefore the HRD
should have arrangements for staff trainings to cope with the new changes that may become threats
for the interest of the bank.
○ Computer Trainings:
The present conventional and orthodox training programs need to be made more comprehensive and
reinforced with inclusion of computer training courses.
○ Training for Credit Management:
Special trainings on credit management should be imparted to the finance dealing staff. Financing is
main fountain bank’s income. Sound finance are extremely necessary for opening of springs of the
smooth inflow of the income.
○ Training with Clear Objectives:
49
Training needs assessment is necessary so that only the relevant staff is sent for the training courses.
○ Change in Appraisal System:
The present performance appraisal system is good. However, it needs to be implemented in true
sense. The drawbacks that are obvious like nepotism and favoritism etc. need to rooted out and the
culture of ultimate meritocracy in appraising needs be inculcated.
○ Introduction of New Courses:
The human recourses division of the bank should focus on the restoration of the corporate image of
the bank by floating programs such as, marketing excellence, courses on corporate culture and
others. Usually in businesses the wholesalers, retailers and other intermediaries are finished by
opening a network of the business own outlets. It works as profit maximization devise. In my
opinion the above two programs marketing excellence and corporate culture, added with the best
counter service and outdoor informal relationship with the potential customers by the line managers
will save the sum of money spent on various media of advertisement.
○ Cheaper means for Postings etc.
The culture of attachment of hopes with the elements outside UBL, for promotion, transfers,
postings, and other benefits requires eradication from the roots.
○ Customers Orientation:
Every entrepreneur if concerned about the success of his business has to understand, recognize,
carefully and appropriately that his customer is “The King” of the business system and the original
spring of the business revenue.
UBL should recognize its customers as the mainstream of the bank’s revenue. They need to be
provided the deserved respect, quality and in time service and to be politely dealt with.
○ Career Development:
As a matter of personnel policy HRD of UBL should prepare a plan showing the future growth
potential of employees on the job performance and evaluation and it should be made known to the
employees. In this regard, employees should be given opportunities to show their performances,
which would help in their career development.
50
6.2 CREDITS AND ADVANCES DEPARTMENT:
The defaulted loans have showered the process of development of banking sectors in Pakistan and
have reduced the lending capacities of banks. In result of which economic growth has reduced and
rate of industrialization has become lowered.
Defaulted loans being the major cause for this depression, various suggestions and
recommendations have been given with focus on UBL to overcome the drawbacks of this
department.
○ Training for RM’s:
Exclusive mandatory training concerning all possible aspects like, financial management and
organizational management etc. is required to be developed and designed to achieve
i. Risk assessment ability
ii. Understanding of all legal matters
iii. Early detection ability Skill of any loans becoming bad
iv. Ability to develop and suggest sound strategies when needed.
○ Fake financial presentation:
The bank should confirm that the provided figures by the borrowing organization are fairly audited
and that the auditors are on the approved list of the bank and they have clear opinion about the
affairs of company and nothing has been made secret. The bank should have expert to examine
various changes and developments for years in areas of the borrowing corporation like;
i. Financial condition
ii. Cash generation
iii. Ability to pay back
iv. Operational performance
The focus should be on identifying and explaining significant changes and developments in payback
of loans, profit maximization, capital flow and operating expenses etc. the bank should take critical
51
view of the financial and should assess changes occurred during the favorable and slack reason for
the company.
○ Poor Management:
A large number of industrial units and projects become sick because of poor management. When a
business becomes sick or fails it is unable to return the loans, it has taken, and as a result such loans
become bad debts, to avoid this, it is the responsibility of UBL, to ensure that the company to which
loan is sanctioned enjoys good management skills and reputation. This can only be confirmed, if the
bank assesses the management of the borrower party by taking care of
i. Length and type of experience
ii. Qualification and integrity
iii. Reputation of managerial skills and style of management being used
iv. SWOT analysis
v. Financial procedures and documentation followed by employees
vi. Span of authority and responsibility
vii. Decision making skills of employees
viii. Risk management of employees
○ Proper Documentation:
Loans become irrecoverable through court of law in case of default when the bank fails to prove
their claims against the delinquent borrower. If documents are obtained properly as per terms of the
loan it is not difficult for the counsel of the bank to get decree against the defaulter. For proper and
valid documentation the following aspects must be kept in mind.
i. The bank should confirm that standard loan documentation is in place for each credit facility prior
to disbursement. If the documents required are different from the bank’s standard approved
format, arrangement for vetting of the legal counsel.
52
ii. Bank should ensure that the documentation are correct, complete and correspond with the
approved facilities. Also to ensure that blank spaces are filled, documents are dated, signed and
stamped, the signer is authorized to execute such documents and signatures are verified.
iii. Act as custodian for legal borrowing documentation, lodging the documents in vault,
maintaining records as per bank operating procedure.
iv. Keep track of expiry of borrowing documents, insurance policies etc. and follow up for
regulation of any approved documentation deferrals.
v. Maintain documentation checklist, updating it properly each time new documentation received.
vi. Maintaining computerized record of documentation.
vii. Division of documentation on the basis of sector, to which loan is given.
○ Securities:
i. Physical verification of the property offered as a security is must rather to rely on the documents.
Investigation should also be conducted if the property is of ancestral nature or joint property.
ii. The competent consultants should do valuation of the property and mere completion of
formatives should not be taken into account.
iii. Maintain in safe custody all collateral i.e. shares, govt. securities, property title deeds, mortgage
documents etc.
iv. Bank must ensure receipt of periodical statements of stock and receivables from customers, as
per frequency specified in the credit approval.
v. Bank should also do the periodic physical checking and evaluation of pledged inventories as per
terms of the approvals, i.e. using applicable margins, such that the drawing power adequately
covers out standings amount at all times.
vi. Bank officials must ensure that the goods hypothecated or pledged are covered through a valid
insurance policy with appropriate risk coverage, adequately covering the bank’s amount.
vii. Concerned bank staff should ensure compliance with the institutional credit policies and
procedures as lay down in the policy book or credit manual and advised from time to time by the
credit committee or top management.
53
viii. Ensure compliance with local regulatory requirements.
ix. Confirm timely submission of correct information in the prescribed format as may be required
by the central bank.
○ Administrative Reforms:
i. Fast resolving of loan defaults cases is must.
ii. Immediate steps to appoint more banking court’s judges.
iii. Exclusive judges are required for Lahore, Peshawar, Baluchistan, Sindh High Courts.
iv. Informal body to be set up by the banks jointly with the bar councils and chamber to monitor and
publish performance of the banking courts. This body will need statutory authority for protection
from contempt.
v. Use of debt recovery agencies regulated by law is to allow.
CH # 7
IMPLEMENTATION PLAN:
54
Every organization has its own strengths, weaknesses and opportunities for improvements. Nothing
is impossible in this world. Possible can become impossible if untried.
To ensure feasibility of a project, any suggestion or recommendation given for it should be
supported by its implementation plan. An implementation plan consists of action oriented tools and
procedures, which are specific and clear. An implementation plan means that everything except
resources and taking of step to start work is ready which shows that implementation plan is the soul
of a project.
A good implementation plan consists of all the steps needed for the accomplishment of a task or
tasks, it is clear and helps in identifying the problems to be faced in carrying practical work and
provides a full picture of activities and events.
7.1 ACTION PLAN 1:
7.1.1 Franchised Agriculture Supplies Shops:
In order to exploit opportunities available in the existing agriculture market the following steps
should be taken.
○ Establishing franchised supplier shops
UBL should concentrate efforts towards major agriculture union councils and develop franchised
shops; those should provide essential farmer services including leasing of sophisticated farm
machinery and advising farmers how to improve productivity.
○ Location of franchised supplier shops
Preferably such shops should be in close proximity of UBL branches in the area. These branches
should extend credit to the shops for their supplies and equipment’s and to farmer customers, at
market rates, which are well below the 50%to 90% charged by the arties (informal sector).
○ Agri-Officers in Branches:
Such agri credit officers should be employed who possesses requisite knowledge and know how
both of the agricultural field and bank credit fields. The bank already has such assets, available in its
55
existing HR factory and others can be trained for, if so required. These officers should be provided
with motorbikes with per month fixed mileage limit.
○ Cost Schedule
The above-mentioned plan has two major cost categories as given below:
a) Credit amount extension
This amount will be disbursed as per requirement and is to be recovered with added return.
b) Operation cost
Details of the cost are tabulated below and following points are of significance;
i. Fixed cost, cost of motorbike less tax saving due to depreciation expense should be amortized for
a period of five years and distributed equally on average number of customers a mobile agri
credit officer will deal with.
ii. Variable cost which includes petrol and maintenance charges should be incorporated in pricing of
the facility extended on average basis.
Table: 7-1 Cost Schedules of Action Plan
Fixed Cost Total Cost Mileage/year Petrol/Year Petrol Cost Repair Maintenance
Dep. M/Cycle @50km/day @40km/day Rs.85/litre 15000 18000 450 38250
Total Variable Cost
Per year 500
53750TVC + TFC
The above plan could be reinforced and made more effective if following supporting activities are
undertaken.
c) Pakistan loses a significant portion of its agriculture land each year through high soil salinity and
poor water treatment. The bank can finance projects equipped with measures to treat saline/soda
water and soils so as to render if efficacious for agricultural purposes.
d) The bank may help farmers to acquire needed equipment of saline soil treatment thus enhancing
their ability to bring more land under cultivation and improve per area yield.
e) The bank may finance projects such as better storage and marketing services.
56
7.2 ACTION PLAN 2
7.2.1 Technique for Effective Management and Recovery of Advances:
Banks are highly leveraged bodies where advances constitute a major portion of their assets.
Effective management and recovery of advances has to be an ongoing process, if the bank is to
maintain good quality of its assets. In this regard following plan is advised for effective
management and recovery.
○ Through Assessment of Advances:
Bench marketing technique should be used to develop comprehensive proposal perform, though the
existing Performa is not a bad one. Following factors should be carefully examined.
a. Principle of good lending
This includes safety, desirability, liquidity and profitability.
b. Compilation of credit information report
Through investigation of the borrower’s personal and business related aspects should be conducted.
○ Proper and effective Documentation:
Safety of advances depends upon correct documentation. In addition to compliance with all relevant
legal rules and regulations following aspects should be deeply dig into.
a) Executants
Borrowers/executants should be legally authorized to enter into the contract.
b) The Bank’s printed charge Form
The appropriate charge forms such as letters of pledge and hypothecation etc. should be properly
completed and executed.
c) Stamps
Charge form should be properly stamped in accordance with the stamp duty as applicable in the
province, where the documents are executed.
57
d) Execution and Documents:
These charge documents should be executed in the bank premises and should be signed in full as
per borrower’s specimen signatures.
e) Registration of Charged Documents:
Certain charged documents for example, mortgage deed are required to be registered at the office of
registrar. Such registrations must be affected within 21 days of the creation of the charge.
○ Careful Monitoring
As a preventive measure, systematic and continuous evaluation helps to identify potential problem
cases before they reach a critical stage. It is, therefore, essential to monitor advances. Following
could prove good sources for effective monitoring.
i. Financial statements, accounting and management policies.
ii. Bank accounts operations.
iii. Personal contacts and site inspections.
iv. Analysis of overall economic environment.
v. Analysis of industry specific environment.
○ Review Function:
This is periodic monitoring function that should be conducted under following broader guidelines.
i. Analysis of operations on financing account
ii. credit report - bearing up to date information
iii. Financial statements analysis
iv. Inspection and analysis stocks reports
v. Review and updating charge documents
vi. Analysis, revaluation of securities
vii. Other correspondence with borrowers
58
viii. Study of previous review files
ix. Analyzing validity of insurance documents
○ Handling of Delinquent Advances
Through careful monitoring and periodic reviews delinquent advances could be recognized and
should be tactfully and effectively handled. Good relations with such customers should be
maintained endeavors should be focused on ways and means of obtaining repayment without resort
to litigation. Borrower’s situation should be analyzed and suggestions for improvement should be
given. It is a well-established fact that legal suits cost both money and time, which could be used for
more productive endeavors.
○ Recovery of Advances through realization of securities
At times due to unforeseen circumstances beyond the control of the borrower, the normal plan for
repayment may not work out. Then the bank has to rely upon the realization of security to liquidate
the advances. Following steps should be followed.
i. A notice for sale of security, bearing full particulars of the loans and security should be served to
borrower.
ii. Sufficient time should be given to borrower.
iii. Notice should be issued by registered post, acknowledgement due and should be retained as
evidence.
iv. Reputed surveyors should do through, valuation of security.
v. Written offers from several dealers should be invited.
vi. In case of auction, it should be well advertised.
vii. The offer closest to market value should be accepted
7.3 ACTION PLAN FOR MARKETING DEPARTMENT:
This will help the bank to take long-term perspective for its marketing activities, with consideration
on strategic approach of the bank. There are various steps involved in the given implementation
plan, which will come in order, according to their importance and subjection on one another.
59
Moreover, to bring order and efficiency to the difficult task of implementation plan. It has been
broken down into the steps, which believed to be needed, when developing a disciplined
action/implementation plan for launching financial products.
Step 1: Business Review
As we early discussed that this implementation plan will focus on marketing activities of UBL and
as a part of the marketing background component, the business review is must. It includes the
marketing database not only of UBL but also of other banks. To develop marketing database, we
first need to understand the scope of banking followed by a comprehensive situational analysis of
the financial product, and market place, which is relevant to the target market and competition
situation. This will be accomplished through secondary research in Pakistan.
UBL’s own record of financial products and very often-primary research surveys of potential
customers and focus group information. The business review provides a qualitative and quantitative
decision activities and a rational for all the strategic marketing decisions with in the plan.
Step 2: Problems and Opportunities
The problems and opportunities step of UBL is a summary of the challenges that will emerge from
the marketing database. In this step the data collected from the business review is shaped into
meaningful summary points that form the basis of the implementation plan.
Step 3: Quantifiable deposits’ Collection Target
Collection of deposits as an objective represents projected levels of services to be sold. Setting this
objective is critical because it is the first task of this implementation plan and it sets the tone of the
entire implementation plan for the bank. Everything that follows in the plan is designed to meet the
objective of collecting deposits through financial product from defining the size of the specific
target market establishing marketing objectives.
This will also determine the amount of advertising and money spent on it in a quantifiable manner,
e.g. 400 million advertisement expenses in a year, for the first 5 years of its start.
Step 4: Target Markets and Marketing
The target market and marketing objective both are inducted in one step due to their critical link to
one another.
60
Target Market: Once the deposits collection being developed as quantifiable objective, the staff of
marketing department at the Hub branches and Head Office of bank must determine to whom they
will be selling their new financial packages. In response to which bank will raise deposits, making
this determination is really defining a target market. This is a group of people with common
characteristics. This part of implementation plan is concerning on marketing efforts towards the
portion of population with similar banking needs and saving habits.
Marketing Objectives: Marketing objectives for UBL clearly defines what the bank wants from its
target market and potential customers. This part of implementation plan focuses on the behavior of
customers that will help in setting the marketing objectives.
Step 5: Plan Structure
To compete with other banks, UBL needs to set strategies for its new product by including the
postings strategy, it will help in image building of the financial package to be launched.
Posting: Once the bank has defined its potential market and has established marketing objectives, it
must need to develop posting of its financial product. Position is the desired perception of the
product within the market target of the bank for example, if the product is launched.
Its position should be done in such a way, that customer is fully aware of its major characteristics
the bank has stained to build the image of its products as highly profitable package. This positioning
strategy is supported by the strategic consideration on various marketing mix tools e.g.
advertisement, publicity etc.
Marketing Strategies: though marketing strategies are descriptive and non- qualitative yet has a
major impact over getting competitive advantage. These marketing strategies guide to the
development and selection of various tactical marketing mix tools and provide direction in
broadening the target market, set by the bank.
Step 6: Informational Goals:
All steps of this implementation plan are highly dependent, but step 5, 6 & 7 are much more.
Informational goals means to set the target and the market awareness and attitudes package and
fulfill the marketing objective of the bank. Another purpose is to provide direction for what is to be
accomplished by each strategic tool in term of informational context.
Step 7: Strategic Marketing Mix:
61
This step is highly concerned with getting attention of the customers towards the service of the UBL
offering. Here we are concerned with a new package launched by the bank. Focus will be on that
financial product. This step of disciplined implementation plan provides some strategic plans for
marketing of the product.
These strategic and tactical plans incorporate marketing executed. When implemented, will allow
the bank to meet its marketing objectives and fulfill the overall marketing strategies and information
and communication guidelines, established in the start of the plan. Selection of each marketing tool
has its own objective and strategies. Following are the marketing mix tools included in strategic
planning process.
○ Financial package/Product
This is the service which is provide by the bank as a result of which bank gets deposits and
customer takes profit and keeps his money safe
○ Branding
Branding is the naming of new-marketed financial products e.g. present products of UBL i.e., UBL
Sahara, UBL Hamrah Travelers Cheque. This brand or name of service associates with it should be
such, which could communicate some message and attract the customers.
○ Profit Percentage
This is the percentage of profit, which the customer expects receives from the bank against his
deposits in a scheme of financial package.
○ Advertising Media
Promotional campaigns provide added incentive, encouraging the target market to perform some
incremental behavior, which is highly necessary. Communication with the target market should be
always there and Electronic and Print Media should be used for promotion of financial product.
Following is some financial tabulation for UBL based on some data taken from an advertising
agency.
This will show the importance of advertising and its benefits in terms of figures. This table gives the
plan for one year and is for one financial product, for example, a product of UBL like SAHARA. A
conservative approach has been followed to get a framework for reality, and to help in avoiding the
slack season of economy.
62
Table: 7-2 Cost/revenue schedule – Marketing Plan
Cost of Advertising No. Of Customers Attached
Average deposits by Customers
Lending by Bank Total Deposits in Year
Difference (Revenue)
48 Million 1 Million 5000 2% of D=100 5 billion (b x (E -A)= 52
i. The bank’s revenue in the F column does not include advertisement expense, which is a major
cost here in this comparison.
ii. 2% given in column E is the difference of percentage between lending and borrowing which is
again a conservative approach.
iii. Many things in the comparison have been kept constant to understand the importance of
advertisement.
BIBLIOGRAPHY
Aswathpa, K, (2003) Human Resource and Personnel Management: New Delhi: Tata McGraw
Hill Gibson, Charles H, (2002), 7th. Ed, Financial Statement Analysis, Prentice Hall
International Corporation.
63
Meenai, S A, Money & Banking in Pakistan, Karachi: the Elahi’s Book Corporation.
Siddiqui, A H, 6th Edition. Practice and law of banking in Pakistan, Royal Book Company,
Karachi.
UBL Credit Manual. Karachi.
UBL Deposit Manual. Karachi.
UBL Annual Report. Karachi.
Van Horne, J. C & J.M Wachowicz, (1998), 10th Edition. Fundamentals of Financial
Management. New York, Prentice Hall International Corporation.
http/. www.ubl.com.pk