CHAPTER-1 INTRODUCTION TO THE REPORT

1.1 Background of Study

It is a common practice at universities during the completion of the masters and bachelors program to attain practical experience in different fields. IBMS Auricular University, in the case of BBA (Hons) requires students to undergo a Two months internship program. Institute of Bankers Pakistan provides internship in different banks. The institute requires an internship report based on the theoretical and practical learning of the student. The concern of this report is to study and analyze the performance of Habib Bank in the banking industry of Pakistan. Habib bank is considered to be one of the most prominent and outstanding bank as far its reputation and progress is concerned.

1.2

Purpose of Study

The purpose of the report is to review and analyze the functions performed by HBL. Also to get training in real life situations, applying management knowledge in practice, improving personal skills i.e., human relations, working with people and interviewing people. To write an analytical report on the systems and procedures followed by the organization.

1.3

Scope of Work

This report is concerned with the performance of branch namely, HBL Zaida Branch Swabi. The report brings to light the various functions at the branches however the financial analysis is based on the national operations of the bank. All the branches perform banking services for its customers such as remittances, deposits, advances, foreign exchange etc. The report also covers the credit process including credit procedure and problems relating to the credit.

1.4

Focus of the Study

This study is confined to the Zaida, Branch Swabi. . The study was carried out in different departments of the Branch, but the focus is on General Banking. 1.4.1 Limitations of the Study The vast scope of the operations of a bank is difficult to analyze in a short span on two months. Thus, the time factor is a limitation of this study. Another limitation is lack of information at the branch, which made it impossible to analyze the working of the branch. As no information was available about the competitors, therefore it was not possible to do a comparative analysis. However, an analysis based on the overall operations of the bank on the audited annual reports for the year 2009 and 2010. 1.4.2 Merit of the Study The study done will benefit students in general and banking students in particular seeking guidance in future. The officers of the branch can also use the information, which will be useful in their course of duty and supervision. They can use this report for solving problems faced by their branch.

1.5 METHODOLOGY OF REPORT

The methodology for the collection of information and data is based on the two primary modes of data. Primary Data: i. Personal Observation in case where compilation of the data related to 2010 was required which was only possible through personal observation. Secondary Data: i. ii. iii. iv. v. vi. vii. Previous internship Reports. Brochures. Books. Web sites. Annual Reports. Bank Manual. News Papers.

CHAPTER-2 OVERVIEW OF THE ORGANIZATION

2.1. INTRODUCTION TO BANKING

2.1.1 EVOLUTION OF BANKING It has not so far been decided as to how the word Bank originated. Some authors opine that this word is derived from the words Bancus or Banque which means a bench. The explanation of this origin is attributed to the fact that the Jews in Lombardy transacted the business of money exchange on benches in the market place. Incidentally the word Bankrupt is said to have been evolved from this practice. The opponents of this opinion argue that if it was so, then how it that the Italian moneychangers were never is called Banchierei in the Middle Ages Other authorities are of the opinion that the word Bank is derived from the Genevan word Back, which means joint stock fund. Later on, when the Germans occupied major part of Italy, the word Bank was italinized into Bank. In the middle of 12th century banks were established at Venice and Genoa. Again in 14 th century, money lenders in Florence were found. They received money as deposits and also lended money. Generally the word Bank originated in Italy. In the middle of 12 th century there was a great financial crisis in Italy due to the war. To meet the war expenses the Government of the period imposed a forced subscribed loan on citizens of the country at the interest of 5% annum. Such loans were known as compara Mintuo etc. The development of banking can be divided into various stages. Some are also of the opinion that the word Bank has been derived from the Italian word Banco which means a branch. The Jew money lenders in Italy used to transact their business settings on branches at different market places, if one of them failed to meet his obligations, his Banco or branch would be broken by the angry creditors. The word bankrupt seems to have

evolved from such broken Bancos. Since the banking system originated from money lending business, it is rightly argued that the word bank originated from the word Banco. The 1st stage in development of banking was accepting of deposits of cash from people. The 2nd stage included issuance of bank notes by gold smiths for the money deposited with them. In the 3rd stage the lenders started to enjoy charging interests. The 4th stage allowed the depositors overdraft facilities.

2.2. MODERN DEFINITION OF BANKING

Banks are the companies which transact the business of banking. The companies operate in accordance with the provisions of the Banking companies ordinance, 1962 section 5(b), which states that: banking means the accepting of money from saver or from surplus economic unit to depict economic unit for investment on its interest rate

2.3. HISTORY OF HABIB BANK LIMITED

HBL was established on 21st August 1941, an auspicious day in the economics history of the Muslims in India. In 1947, HBL shifted its registered office to Karachi. It was a time when the independence plan of India had been already announced. Consequently there was a serious risk on the banks for transfer of funds of accounts. Pakistans banking system at that time consisted principally of about 19 non Indian foreign banks, no higher in status then small branch offices, whose policies were controlled by their Head Office. These banks were engaged solely in the movement of export crops and had only limited interest in the fortunes of new born state. The only Pakistan institution was the Habib Bank, which had transferred its head office from Bombay to Karachi and the Australia Bank, which had been functioning in the Pakistan territories prior to June 1947.

On August 25, 1991, Habib Bank completed its 50 years of service. The bank has now shaped into one of the most dynamic financial organizations in the world.

2.4. STORY OF GROWTH- HABIB BANK LTD

When Habib Bank Ltd. was established in 1941 it had only 3 offices in undivided India at Bombay, Calcutta & Delhi. At the time of partition, the bank decided to transfer its Head Office (HO) from Bombay to Karachi. The gigantic movement of men and money was in a state of doubt and confusion. But, with clear sightedness and true signify, the bank gave immigrants the boldest remittance facilities which save Muslims wealth in India from greater annihilation. Another important service that this timely influx performed was to fill the intensifying vacuums that the exodus of Hindu Wealth from Pakistan ruthlessly created. While Pakistan was getting on its economics feet, the bank played the most creditable role. Its large subscription to Government loans, its generous support to institutions, like the Pakistan Industrial Development corporation (now the industrial development bank of Pakistan) in it nascent stage and its continuous and uninterrupted support to every form of industry and nation building projects are the story of singular decimation. The reward is the satisfying knowledge of the good that has been achieved and the increased opportunity to serve. New Pakistan bank secured their early nucleus of officers and staff largely from trained personnel of Habib Bank. This is itself was a service to banking in Pakistan in general apart from the many first that it secured on the banking horizon of the country such a school banking schemes. Agricultural Credit, Deposit Growth Certificate, Credit Cards not to mention the towering contribution of introducing automation through computers on the banking scenario. The story of the banks growth fills every nationals heart pride. It has achieved fourth place amongst the banks world, which have shown larger growth.

In its tradition of enlightening and total competence it is to climb greater highs and acceptance the humility and devotion with which it serves.

2.5 MISSION STATEMENT

To be the dominant, financial institution in Pakistan and a leading international bank in the emerging markets, providing a premier set of innovative products and services to our target markets, and providing superior value to our stake holders shareholders, customers and employees.1

2.6

OBJECTIVES OF HABIB BANK LTD

Objectives are the ends towards which activity is aimed. These are the result to be

achieved. As a commercial bank the primary objectives is to earn profit and maximize it as far as possible, keeping in view the society. Objectives can be expressed either in behavioral items or in end-result terms (by end of the nest fiscal year, five new retail stores should be open, and each should be stopped by a manger, an assistant manager and three clerks). So the objectives are the ends towards which the organization and individual activities are directed. The goal of every manager is to create surplus and clear and verifiable objectives facilitate the measurement of effectiveness and efficiency of managerial actions. As a commercial business the Habib Bank Ltd. Has the following main objectives. To take measure to promote business in the country. To procure beforehand self-employment schemes to the people. To supply or provide employment opportunities to the people. To earn profit for the bank itself and for its shareholders. To help in development and industrialization of the country.

2.7

POLICIES OF HABIB BANK LTD

Policies are general statements or the understanding that guide or channel thinking in decision making. It provides direction for action and regularizes. The decision making in certain circumstances. A policy defines area within which a decision is to be made, and ensure that the decision will be consistent with, and contribute to, and objective. Policies help decide issues before they become problems. Thus, policies provide opportunity to manger to delegate authority ad still maintain control over what their subordinates do. Policies ordinary exists at all level of the organizations, and ranges from department policies to minor or derivative policies, applicable to smallest section of organization. So policies are identified as guides to thinking in decision making. They assume that when decisions are made that will fall within certain boundaries. Policies do not require actions but are intended to guide manager in their decision commitments when they do mistakes.

2.7.1

OPERATIONAL POLICIES

Operational policies deal with the running or operation of the bank. It is about introducing now schemes in order to improve HBL operations and to take measure for better service. These operations may be divided into;

2.7.2

A- INTERNATIONAL OPERATIONS

The bank overseas branches are continuously rendering satisfactory service and are also contributing significantly towards channeling home remittances of Pakistani expatriates. The HBL has 65 branches in other countries. It has 2 affiliates and 2 representatives offices. HBL has also two subsidiaries, of their own, in Hong Kong and Australia that shown improved operational results. The bank has two joint ventures in Nigeria and Nepal, Himalayas Bank Ltd. has shown good progress during few years of operations.

2.7.3

B- DOMESTIC OPERATIONS:

The HBL making successful domestic operations. it has a regional head quarters comprising of 48 regions and 1424, branches under these regions. HBL also established corporate centers in various regions to caller industrial clients and serve then better. Numbers of corporate centers are 12 and sub-corporate centers are 64.the bank has presently one wholly owned subsidiary Habib bank financial services. (Pvt.) Ltd. it has shown Improved operational results during the year. 2.7.4 MARKETING POLICIES:

Marketing is the process of playing and executing the conception, pricing, promotion and distribution of ideas, good and services to create exchanges that satisfy individual and organizational objectives.

HBL also adopts certain marketing techniques to enhance the image of the bank. Most of the marketing takes place through various deposits mobilization schemes through advertising in news paper and other media and there is more emphasis on customer services to have more satisfied client who can recommend to their associates and friends.

2.7.5

MANAGEMENT POLICIES:

Managerial policies are those, which deals with the management issues and formulation of strategies. HBL is headed by a president, and then there are 5 banking groups, each one headed by a group executive. Each group executive has the client responsibilities for his group. Similarly these groups are also responsible for developments in their respective fields. This new structure was developed 1997, prior to which bank was working on geographical basis. While afterwards, it is working our functional basis.

2.8

FUNCTIONS OF HABIB BANK LIMITED:

Functions of Habib Bank Limited are summarized as: 2.8.1 ACCEPTING DEPOSITS:

The main function of any commercial bank is to receive surplus balances from individuals and organizations. The funds deposited with HBL are as follows: 2.8.2 CURRENT DEPOSITS:

Currency deposits are those deposits, which can be withdrawn at any time by drawing a cheque on the bank.

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2.8.3

PROFIT AND LOSS SHARING ACCOUNT (SAVING):

These are savings accounts. The bank undertakes to repay deposits on demand up to certain limit. On such deposit they pay interest to the customers. 2.8.4 FIXED DEPOSTS:

These deposits are repayable only after the expiry of the period for which they are deposited. The bank allows high rate of interest on them depending on the time period. 2.8.5 FINANCING:

The other important function of HBL is to provide finances or advances to the individuals and business houses against securities at a certain fixed rate of interest. Follow 7 types of financing takes place a HBL. a. b. c. d. e. f. g. Demand Finance. Running Finance. Cash Finance. Fixed Assets Finance. Export Refinance. Local Manufacturing Machinery. Temporary Overdraft.

2.8.6

DISCOUNTING BILLS OF EXCHANGE:

The bank utilizes their surplus funds in another important way. They discount the bills of exchange at their market worth, i.e. they pay to the holders of the bill an mount equal to their face value after deducting interest at the current market rate for the period the bills has to mature. The Bill of Exchange are a very liquid assets for bank to hold. These bills are usually drawn for three months and are used for financing internal as well as external trade.

2.8.7

AGENCY SERVICES TO CUSTOMERS:

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Following Agency Service of HBL: i) Collection of Cheques: HBL acts as an agent to its customers in the collection and payment of cheques , bills and promissory notes. ii) Collection of Dividend: The bank provides a very useful service in collection of dividends or interest earned on stocks as shows held by his customers. The customers are simply to inform the issues of the securities that the interest of the securities is to be credited to his account in the bank. Bank charges 30% on this collection. iii) Purchase & Sales of Securities: HBL also if authorized by its customers can purchase or sell securities for them. iv) Transfer of Funds: HBL also performs the function of transferring funds of the customers from one bank to another bank, for which they charge commission, but a reduced rate. v) Acts as an Agency: HBL also acts as an agent for his customers at home and abroad. 2.8.8 i) GENERAL UTILITY SERVICES: Foreign Exchange Business: HBL transact foreign exchange business by discounting foreign bills of exchange in order to facilitate the financing of foreign trade.

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ii)

Acts as a Referee:

HBL provides a useful service to his customer by acting as a referee for his credit worthiness. The information is supplied in almost secrecy and is based impartially on the respectability of financial standing of clients.

iii)

Accepting Bills of Exchange:

HBL also deals with acceptance of bills of exchange and thus enables its customers in obtaining the desired credit.

iv)

Issue of Travelers Cheques:

HBL also issue Travelers Cheques for the convenience for the travelers the HBLs traveler cheque is known as Muhafiz Rupee Traveler Cheque.

v)

Collection of Activity Bills: Electricity, telephone and Sui Gas other such bills can also be deposited with the HBL.

vi)

Lockers:

HBL also provide locker facilities to its clients where valuables of people can be kept.

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ORGANIZATIONAL STRUCTURE AND MANAGEMENT REVIEW

2.9

ORGANIZATIONAL STRUCTURE OF HBL

Organizing is a process of breaking down the overall tasks of the enterprise into individual assignments / activities and then getting them put together in units or departments or groups along with the delegation of authority to a manager of a unit / departments / group.1 Organizational structure implies a formalized intentional structure of roles and position. This is not the end in itself, rather a means with which to help achieve certain objectives. A well developed and properly coordinated structure is an extremely important requirement for the successful operation of any organization. It provides the basic framework within which functions and procedures are performed. Organizational structure is the formal hierarchy for management, decision making, establishing accountability, reporting & control. The structure defines line of authority and is based on the functions of the organization and its business, segmented in to departments but interlinked according to the nature of activities performed. There are four main types of organizational structures. 1. Vertical organization 2. Flat organization 3. Matrix organization 4. Hybrid organization Vertical structure is a management structure characterized by an overall narrow span & relatively more hierarchal levels 1.It is also called top to bottom structure .On the other hand, flat structure is a management structure characterized by an overall broad span of control & relatively few hierarchal levels. The flat level is horizontally dispersed & is a new type of structure. Matrix Structure is an organizational structure that assigns specialists from different functional departments to work on one or more projects being led by project managers. Hybrid structure is a blend of two or more different types of organization design. A hybrid organization is formed that has different levels of the organizational design.

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The organization chart is represented in the form of an organizational chart, arranged. The chart provides the picture of the operating structure and the decision of labor total representation from the private sector and of professional senior management. These changes were a breakthrough to inoculate a commercial sense in the orthodox banking system of the country, modernize the financial institutions, to improve the operations and to prepare the banks privatization in the shortest possible period of time. In September 1997, the bank was reorganized throughout its domestic and overseas operations on functional lines creating discreet business groups to focus against the customer profile available to the bank. . Through this process, the following business groups have been created. i. ii. iii. iv. Retail Banking Group Corporate and Investment Banking Group Global Treasury Group International & Overseas Banking Group

The creation of business groups has allowed the bank to focus and develop products within these business groups for its customers. To date in the retail banking group the bank has successfully launched 4 different products, which include Muhafiz Rupee Travelers Cheque Converted Rupee Saving Account Monthly Income Scheme New Foreign Currency Accounts.

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Treasury Group The role of treasury in Habib Bank is reviewing and streamlining the Banks domestic and international money and foreign exchange markets related operations for the maximization of return on assets and equity. A Treasury Marketing has been setup to further improve customer relationships with valued clients. This provides upto date rates and product information. Transparency up to date rates and product information. Transparency and accountability is essential for risk management and control. To achieve better risk management and processing, treasury operations activities and dealings rooms are strictly segregated. A new system Treasury Power Pack has acquired and implemented providing an integrated system for back office and front operations, online monitoring, risk management, audit controls, automated deal transfer to back office, MIS reports and inputs controls. Retail Banking Group The retail banking network with 1425 branches, is the care strength of Habib Bank. Its extensive reach in all geographic locations throughout the country, provides access to over 5 million customers across all sectors of the economy. RBG has three principle areas of activity, the retail network for deposit mobilization, commercial banking group to serve small and medium enterprises and the consumer banking group. Deposits mobilization has performed strongly in 2004 with deposits growing by 12%. CBG was established in late 2004, it now covers 25 branches in the six major industrial cities of Pakistan. Government is also taking step to the development of a housing finance market. Due to its extensive branch network and large customer base HBL can play an important role in development of economy. HBL has introduced Personal Loans, car financing, and consumer Durable Financing are the three major products of consumer financing. To increase the number of products for small and medium size farmers, HBL has initiate the Haryali scheme for farmers has introduced which is a 3 year revolving facility rather than the traditional short term seasonal financing. Quality of customer service is also improving through investing in technology, training and upgrading of branches. A debit card program has also been introduced which will be available in over 1,000 point of sale terminals within the country.

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To improve the process of inward remittances, the fast transfer service and fully automated processing center in Karachi ensures that all remittances are delivered within 24 hours in urban areas and 48 hours in rural areas. Corporate & Investment Banking Group CIBG is serving the largest names of the market through its 12 dedicated corporate banking centers in all major cities. CIBG is known as market leader, in fulfilling the requirements of its customers in a comprehensive way. The group has increasingly focused on providing value addition services to our customer e.g. payroll & cash management services. The bank has become a leader in cash management services. The bank is providing such services to large & medium sized corporations, including the Pakistani units of some fortune 500 companies. In January 2004 HBL introduced a new product Foreign Currency Financing to exporters. This has lowered the financing costs to this customer segment when it was under pressure from appreciation of the PAK rupee & slows down in the market. In 2004, CIBG continued to expend the scale of its activities. The groups immediate priority is to increase fee-based income. An investment banking unit has been established which will focus on loan syndications, development of local currency corporate bonds (TFCs) & advisory services. With the help of this investment banking unit, CIBG now has a fully integrated corporate & investment banking capability. The group executives who are specialists in their relevant fields head the groups. These groups look after the interests / operations all over Pakistan through a network of administrative setups. The regional headquarters are headed by Regional Chief Executives and branches are by managers.

2.12 ORGANIZATIONAL HIERARCHY OF HABIB BANK LTD.

PRESIDENT Board of Directors Director Director Director Director Director Director

CHAIRMAN

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Executive Committee Member SEVP Member SEVP Member SEVP E.V.P. S.V.P. V.P. A.V.P. OGI OGII OGIII Clerical Staff N.C.S. Member SEVP Member SEVP Member SEVP

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SECTION III

CHAPTER 3 FINANCIAL RATIO ANALYSIS

3.1 FINANCIAL RATIO ANALYSIS

The financial ratio analysis is a must to know the standing of an organization. This analysis contains a number or ratios which are computed with the help of a formula. In the following table the ratios for the years 2009, 2010, and 2009 have been calculated and analyzed.

Table 3.1 Financial Ratios

2009 Years Current ratio Asset turn over Debt to asset Coverage ratio Gross profit margin Net profit margin Return on investment Return on equity Debt to Equity Advances to Deposits Investment to Deposits .96 0.08 0.96 3.12 32.88% 1.91% 0.15% 3.93% 25.22 65.74% 2.56% 1.00 0.08 0.96 0.14 42.74% 4.13% 0.33% 8.68% 25.05 59% 20.31% 1.03 0.06 0.95 0.35 51.66% 8.94% 0.50% 10.32% 19.45 51.05% 43.54% 1.07 0.05 0.95 0.52 60.55% 11.03% 0.76% 12.4% 17.6 47.05% 54.42% Current Assets/Current Liabilities Mark up Revenue/ Total Assets Total Debts/ Total Assets EBIT/ Interest Expense Gross Profit/ Revenue *100 Net Profit/ Revenue * 100 Net Profit/ Total Assets * 100 Net Profit/ Total Equity * 100 Total Debts/ Total Equity Advances/ Deposits*100 Investment/Deposits*100 2010 2009 2010 Formula

Source: HBL 2010 Annual Report, I/S & Balance Sheet 2010.

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Interpretation of ratios:
To evaluate a firms financial condition and performance, the financial analyses to needs to perform checkups on various aspects of a firms financial health. A tool frequently used during these checkups is a financial ratio, which relates two pieces of financial data by dividing one quantity by the other. We calculate ratios because in this way we get a comparison that may prove more useful than the numbers by themselves. Following is the ratio calculation and interpretation of HBL.

Current Ratio The current ratio of HBL is increasing over time as evident from the table 7.1. It was 0.96 in 2009 and is 1.07 in 2010.This means that the higher the current ratio the higher is HBLs ability to meet the short term obligations as they become due. This in turn decreases the risk of short term insolvency due to inability of meeting with short term obligations.

Asset Turn Over Ratio

This shows revenue generated per rupee investment in total assets. HBLs assets turn over ratio is showing a decrease in 2010 i.e. 0.05 as shown in graph .This was because the increase in total assets was not in proportion with the increase in revenue. Banks have relatively low ATR as they are selective in advancing loans and thus generating smaller sales/revenue figures.

Debt to Asset Ratio

This ratio shows the companys assets financed by debt. Creditors would like to see this ratio low. The debt to asset ratio of HBL over the recent 3 years show that almost 95% of HBLs assets are financed by debt. Since HBL is a nationalized bank, they can afford to have such higher leverages. However, they must reduce their debt to asset ratio and inject more capital in their business.

Coverage Ratio

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This ratio shows the number of times a company can cover or meet a particular financial charge or obligation. The most commonly used ratios is the interest coverage or times interest earned ratio that measures the number of times the income is available to pay interest charges. HBLs interest coverage ratio has shown a slight improvement from 2009 to 2010.

Gross Profit Margin

Gross profit is the difference between revenue and cost of goods or services sold. Gross profit is critical because it represents the amount of money remaining to pay operating expenses, financing costs and taxes and to pay for profit. HBLs gross profit margin per rupee has shown a rise from 2009 to 2010 due to generating more revenue. This shows efficiency of the bank in controlling cost of sales (m.up expense) and/or better strategy of pricing products.

Net Profit Margin

This ratio shows the profit that is available from each rupee of sales after all the expenses have been paid, including cost of sales, selling, general and administrative expenses like gross profit margin. Net profit margin of HBL shows an improvement overtime. This means that though the spread has increased or cost of funds has decreased, the other expenses of the bank like operating, general, administrative or selling expenses have shown a slight increase.

Return on Investment
This ratio measures the profitability per rupee of investment in assets. HBLs ROI has shown improvement from 2009 till 2010. This is due to increase in net profit margin of HBL.

Return on Equity

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This ratio shows the residual profit as a proportion of the book value of common shareholders equity. The ROE of HBL has shown great improvement in the last 3 years due to improvement in net profit margin i.e. 11.03 and asset turn over ratio i.e. 0.05.

Debt to Equity
This ratio shows the total proportion of debt acquired to total share holder equity. HBL had a consistent ratio in the previous 2 years but in 2010, it has decreased to 19.45. This shows that the debt acquired for boosting up banks performance has decreased with a reasonable change in the equity of the bank.

Advances to Deposit This ratio shows the companys advances employed per unit of deposit. This ratio of HBL over the recent 3 years has shown mixed trend and during 2010 it has come down to 60.55% from 59% for the previous year as shown in graph The deposits have shown increase and total advances have reduced but not in proportion to each other.

Investments to Deposit
This ratio shows the companys investments employed per unit of deposit. This ratio of HBL over the recent 4 years has shown continuous increase as shown in graph . This is because of the lowering interest rates trend and other negative industrial developmental factors in the country.

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FINANCIAL HIGHLIGHTS OF HABIB BANK LIMITED

Table Financial Highlights

Number of Branches

Years of Staff Number BALANCE SHEET OTHERS

Total Deposits Home Remittances Total Assets Advances Liquid Assets Share Holders equity Capital Adequacy Ratio Total Investments 22545

1755 2009 22779

1516 2010 19352

1468 2009 19005

2010

266052 22267 328605 69499 12534 8.57% 68069

283445 38229 333751 94703 12610 8.86% 57792

328182 403013 147822 19706 10.02% 142877

360648 434931 158870 23717 12.2% 158870

174894 167523 166354 Source: HBL 2010 Annual Report, 167225 I/S & Balance Sheet 2010.

PROFIT & LOSS

Total Income Total Expenditure Provision for Loans Profit Before Taxation Profit After Taxation Earning Per Share 14613 12233 1411 968 493 0.40 16846 11912 2710 2224 1112 0.92 18564 11748 2512 4088 2033 1.68 20258 10122 54847 5469 4017 3.30

COMMON SIZE ANALYSIS

In common base analysis a base year is selected and the figures of that year are considered to be equal to 100 percent. It is an analysis of percentage financial statements. Here all the items of subsequent financial statements are expressed as percentages of their values in the base year. Common base analysis of balance sheet of 2007, 2009 and 2010.
Items Cash Bank balances Lendings Advances Fixed assets 2007 100% 100% 100% 100% 100% 2009 112.38% 103.33% 79.14% 121.36% 93.42% 2010 121.91% 74.32% 90.44% 139.62% 96.79%

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Investment Other assets Bills payable Borrowings Deposits Lending against assets D.tax liabilities Other liabilities Share capital Reserves Unapportioned profit Minority interest Surplus on revaluation

100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%

80.72% 143.53% 144.70% 353.37% 105.66% 74.92% 0 127.54% 110.00% 125.02% 115.86% 102.70% 45.34%

102.61% 189.57% 150.40% 399.56% 122.75% 126.36% 0 134.82% 132.00% 138.48% 132.69% 0 52.65%

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Common base analysis of Income Statement of 2007, 2009 and 2010. Items Interest earned Interest expensed Net interest income Dividend income Fee &commission Gain on sale of securities Other income Total net interest Admn expenses Other charges Profit before taxation Profit after taxation Profit for appropriation 2007 100% 100% 100% 2009 120.27% 140.23% 110.22% 2010 153.31% 231.92% 113.72%

100% 100%

88.05% 116.11%

58.56% 129.85%

100%

16.86%

195.03%

100% 100% 100% 100% 100%

820.26% 119.67% 127.62% 3403.30% 81.71%

360.66% 136.47% 156.87% 1876.47% 78.37%

100%

123.64%

116.11%

100%

119.18%

135.99%

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CHAPTER 4

RECOMMENDATIONS USING QUALITATIVE ANALYSIS AS A BASE

4.1 RECOMMENDATION FOR HBL

Following are the recommendations for HBL Need to diversify HBL is very innovative indeed, keeping in view the introduction of almost all the banking products. But for the past couple of years, HBL was not able to diversify its deposit product base. HBL has a well identified target market. Hence to better achieve what it has in target, a well properly attributed product line is the cry of the day. Lack of Motivation My internship was completed wholly in Peshawar Region. The employees working in these branches lack motivation. Their needs have to be assessed, valuated and properly interpreted. This will help increase their motivation and boost up their morale. Training required The Standard Operating Procedures (SOP) and the Turn around Time (TAT) of these branches is unsatisfactory. This need to be geared up, which will require proper training and planning. Lack of opportunities for growth There is lack of career development opportunities in HBL. A proper career development programme is also necessary for the employees. Poor feedback system There is no knowledge of appraisal among the employees of HBL in Peshawar. This in turn results in a fear of downsizing among the employees. A proper appraisal system might be effective in gaining the confidence of the employees.

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R&D required for future prospects Afghanistan is an open golden opportunity for every organization. It is presently in the recovery stage after the devastating war effects. Hence, it is a proper time to conduct a research on the different market situation there. The Bank should utilize this opportunity to its maximum Marketing research Marketing is the only means left for organizations to get an edge over each other in this competitive scenario. HBL has to work hard in this area. Good marketing research and advertisements having good cost benefit aspects must be incorporated. Expansion of ATM facility ATM facility of HBL is restricted. People nowadays dont have that much time to stand in long queues. They want auto encashment facility almost everywhere. Expanding the ATM network will catch more customers. Trend of evening banking There is no Evening Banking in Peshawar. Evening Banking can be a good start in Peshawar and HBL has the potential to avail this opportunity being the largest banking institution in Pakistan and having the oldest experience curve. Lack of banking knowledge The employees in most of the branches have banking experience but they lack banking knowledge. Fresh graduates specialized in banking and finance can be acquired and trained for better functioning of the bank. Outdated buildings The physical outlook and appearance of HBL branches in Peshawar are outdated. They require attention from the higher level management of the bank. A nice and decent appearance will help in improving the image of HBL more appropriately. Proper monitoring system A proper dress code is there for the employees but due to the lack of monitoring, the employees are least bothered about it. Discipline and proper dress code should be highly recommended.

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Lack of computer know how The most common and biggest drawback of the employees working in Peshawar Region is their lack of knowledge about computer knows how. A great deal of emphasis is required from the management side in this regard. Proper computer training should be provided for each and every employee of the bank. HBL should offer some stipend to its internee so that they can meet some of their expenses during their internship. Also there applications for internship should be processed quickly in order to save their time. Branch managers should be asked to give full attention to internees and give them as much as possible practical training. The bank should ensure the quality of staff. Capable people should be placed for every position rather than fulfilling it. The process of golden handshake & some other compensation schemes are good methods to reduce the unqualified staff. The job of employee should be clear to him or her, for that proper job analysis for each member of the staff should be done. Each employees job, responsibilities, duties and functions must be in written and well-defined manner. Setting of targets and tasks for each job, thus invoking professionalism and removing lethargy from the staff. Target should be decided on data basis and only realistic achievable targets should be allotted. Further the target must pertain to the areas of operation of the concerned staff.

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4.2 Recommendation on the Basis of Financial Analysis

1. Debt to equity ratios shown in the above table have a positive increase during the last four years so it means that they can have lots of investment opportunities in the market which can lead to a much profitable portfolio of the bank. 2. Current asset test implies that MCB has the liquid securities on hand floating these marketable securities can earn more than expected. in the cross sectional analysis of the three banks HBL has an advantage so it should get and explore new channels of investment (short term). 3. Due to the unstable economic conditions of the country and interest rates are not stable which have an effect on the asset turn over ratios. Which implies that MCB is not effectively using its assets to generate revenues. 4. Comparison between the debt and assets speaks loudly the requirement of increasing its both current and long-term assets. But it is growing with slow pace. 5. Coverage ratios indicates the covering of earning over the interest which shows a positive trend during the years. 6. Due to the diversified products and products innovations has a shown a good impact on the profit margin. 7. Investing is the main function of any financial institution .HBL realizing the need for diversified investment portfolio have achieved good results. 8. Equity is the reserves of the bank which he utilizes in case of emergencies or it can create opportunity or experimenting different5 products in the market. HBL has adequate supply of equity, which shows positive trends during the five years analysis. 9. Deposits are the lifeblood of the bank. Banks mostly make advances from its deposits HBL has a positive graph against its deposits so it means they have a good or positive advances portfolio. 10. Analysis of the balance sheet reveals a very good picture because balance sheet is a picture at particular point but when it is compared with the previous balance sheet of the previous years it shows changes. And if that change shows positive trends it means that the organization is staidly approaching and adopting the newer trends of the banking industry. HBL after privatization is now considering to review all its functions and operation throughout the organization .so its focus is mainly of the 29

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Asset management Investing activities Foreign reserves Tax efficiency And handling its liquid securities.

Due to the strong hold on the money laundering now the people have started using banking channels for the remittances so it is found in theses years that many banks have developed very efficient system for fund transfer around the globe. It is now a growing trend and earning a lot of revenues on the service charges.

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Government reviews its monetary and fiscal policies from time to time. Banks are required to adapt changes in such a way that at any time or point it do not coincides with each other which can leave a bad impact on the operation of the overall bank.

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HBL realizing the need of the efficient labor has invested a lot on its employees as an off job and on job training during recent years. 24 hours cash access is one of the most important functions of the bank these days. HBL has increased its no of ATM machines round the country to facilitate its customers in time. This system has many problems but time and technology is helping it a lot.

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Lastly project financing is the link between development and revenues. Bank should initiate and implement efficient steps to improve its goodwill and development in country.

CONCLUSION
From above analysis it can be concluded that the management of the Bank can adopt more systematic planning for the bank growth and introduce different newer schemes. Also

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technological advancement can help a lot should be done. HBL controls a larger segment of customers as compared to the other banks. If proper attention and services are provided to the customers it will be the leading bank in Pakistan in no time at all. Customers need to be made the prime focus. Among balance sheet items, fixed deposits have shown a decrease, which is a matter of concern for the bank as fixed deposits constitute the main source of funds, which a bank can safely advance. In short, HBL has overtaken some of its competitors in the performance race. To HBL now, it is quite obvious that if it keeps its performance consistent over the next couple of years, it will outperform all of its competitors easily. Now that Habib bank limited has been sold for 22.409 billion to AKFED, Agha khan fund for economic development, 51% of its shares and the management has been handed over to them. There are greater chances of increased productivity, profitability and growth. Thus, making it in the real sense the power to lead.

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