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 lo 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.

LIST OF CONTENTS

S. No. Title Page

1

No.

PREFACEPREFACE I

TABLE OF CONTENTSTABLE OF CONTENTS II

LIST OF TABLESLIST OF TABLES V

LIST OF GRAPHSLIST OF GRAPHS VI

LIST OF CHARTSLIST OF CHARTS VII

LIST OF ACRONYMS LIST OF ACRONYMS VIII

EXECUTIVE SUMMARYEXECUTIVE SUMMARY IX

Section # 1

CHAPTER – 1CHAPTER – 1INTRODUCTION OF THE REPORTINTRODUCTION OF THE REPORT

1.1 Introduction 11.2 Purpose of Study 11.3 Scope of Study 11.4 Limitations of Study 21.5 Methodology of Report 21.6 Scheme of Report 3

Section # 2

Chapter – 2Introduction to UBL Introduction to UBL

2.1 Banking History 42.2 Banking in Pakistan 42.3 Towards Islamization of Economy 42.4 Birth of UBL 62.5 Number of Branches 62.6 Subsidiaries 72.7 Functions of UBL 72.8 Role of UBL in Banking Sector 72.8 Computerization of UBL 9

Chapter – 3

2

Deposits, Remittances, Credit & Clearing DepartmentsDeposits, Remittances, Credit & Clearing Departments3.1 Deposit Department 12

3.1.1 Functions performed by Deposit Department 123.1.2 Types of Accounts 133.1.3 Nature of Accounts 13

3.2 Remittances Department 143.2.1 Demand Draft 143.2.2 Telegraphic Transfer 153.2.3 Mail Transfer 153.2.4 Pay Order 163.2.5 Rupee Travelers Cheque 163.2.6 Uniremote 16

3.3 Credit Department of UBL 173.3.1 Credit department of UBL Nowshera 173.3.2 Procedure for Financing 17

3.4 Clearing Department 193.4.1 Procedure for clearing of Cross cheques 203.4.2 IBC 213.4.3 LBC 213.4.4 OBC 21

Section # 3

Chapter – 4Financial AnalysisFinancial Analysis

4.1 Group and its Operations 224.2 Basis of Presentation 224.3 Significant Account Policies 234.4 Risk Management 254.5 Concentration of Credits and Deposits 264.6 Investment Portfolio 274.7 Profitability 274.8 FINANCIAL ANALYSIS 28

4.8.1 Common size analysis of Balance Sheet 284.8.2 Common size analysis of Income Statement 324.8.3 Financial Ratios 34

3

Chapter – 5Qualitative Analysis Qualitative Analysis

5.1 Qualitative Analysis of UBL 415.2 SWOT Analysis 44

5.2.1 Strengths 455.2.2 Weaknesses 465.2.3 Opportunities 465.2.4 Threats 47

Section # 4

Chapter – 6Recommendations Recommendations

6.1 RecommendationsRecommendations 496.1 Human Resource Department 496.2 Credits and Advances 53

Section # 5

Chapter – 7Implementation PlanImplementation Plan

7.1 Action Plan 1 577.1.1 Franchise Agriculture Supplies Stores 57

7.2 Action Plan 2 597.2.1 Techniques for effective Management and Recovery of

Advances59

7.3 Action Plan 3 62Bibliography 68Annexure 69

4

LIST OF TABLES

S. No. Title Page No.

1 Common size Analysis of Balance Sheet 30

2 Common Size analysis of Income Statement 33

3 Financial Ratios 34

4 Cost Schedule of Action Plan 59

5 Cost/revenue schedule – Marketing Plan 67

5

LIST OF GRAPHS

S. No. Title Page No.

1 Total Current Assets 302 Fixed Assets Distribution 31

3 Short Term Liabilities 31

4 Long term Liabilities 31

5 Income composition 33

6 Current Ratio 35

7 Asset Turnover 35

8 Debt to Assets 36

9 Debt to Equity 36

10 Coverage Ratio 37

11 Gross Profit Margin 37

12 Net Profit Margin 38

13 Return on Investment 38

14 Return on Equity 39

15 Advances to Deposits 39

16 Investment to Deposits 40

17 Cash Ratio 40

6

LIST OF CHARTS

S. No. Title Page No.

1 Senior Management of UBL 102 Organizational Hierarchy of UBL 11

7

List of Acronyms

AD Authorized Dealer.ATM Automated Teller MachineATR Asset Turn OverAVP Assistant Vice PresidentAOF Account Opening FormBOG Board Of GovernorBOD Board Of Director CA Credit approval CP Credit ProposalDAC Disbursement Authorization CertificateDD Demand DraftDP Note Demand Promissory NoteEBIT Earnings Before Interest & TaxESVP Executive Senior Vice PresidentEVP Executive Vice PresidentFDD Foreign Demand DraftFMT Foreign Mail TransferFTDR Foreign term Deposited ReceiptFTT Foreign Telegraph TransferGM General ManagerGOP Government Of PakistanGPM Gross Profit MarginHBL Habib Bank LTDIMS Institute Of Management SciencesLC letter Of CreditMCB Muslim Commercial BankMT Mail TransferNPM Net profit MarginOG1 Officer Grade 1PLS Profit & Loss Saving AccountPO Pay OrderRCAD Regional Credit Administration DepartmentRF Running FinanceRM Relationship ManagerROI Return On InvestmentRTC Rupee Traveler ChequeSTDR Special term Deposited ReceiptSVP Senior Vice PresidentSWOT Strength Weakness Opportunities ThreatsTIE Time Interest Earned

8

TT Telegraphic TransferUBL United Bank LTD

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.

9

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 more dynamic and competitive environment. Major

findings are included in this summary which is the outcome of these

analysis.

Sector 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:

10

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.

5. Recommendations of the report are as under:

i. Training for developing managerial leadership should be

provided.

ii. Political interference in placements etc. should be discouraged.

iii. Exercise should be evolved to bring needed cultural and other

management changes.

iv. Recruitment policies should be changed, MBA’s and other

business related qualified individuals should be hired.

v. HRD should frequently conduct refresher courses.

vi. Computer training courses should be imparted.

11

vii. Staffs who deal with credit, should be properly trained for their

jobs.

viii. HRD should focus on designing new courses to build

organizational image and goodwill.

ix. Use of cheap means for posting etc. should be curbed.

x. Customer orientation culture should be developed among

employees.

xi. For enhancing motivation level fair and clear career

development policies should be implemented.

xii. Relationship managers should be trained to correctly access

credit related risks.

xiii. Skills should be development of employees to assess

management abilities of the borrower’s of their business.

xiv. Credit officers should be enabled to carry out proper and

correct documentation.

xv. Credit officers should be equipped with knowledge and skill to

analyze, verify and maintain securities in handsome manner.

xvi. Various administrative reforms should be made to resolve

quickly default cases.

xvii. Marketing department at Hub branches should be created.

xviii. All employees should participate in marketing operations of the

bank.

xix. Marketing at Desk concepts should be practiced.

xx. Proper promotional campaign on media should be carried out.

12

xxi. Marketing research and development department of the bank

should carry out situational analysis and develop short medium

and long-term plans.

CHAPTER # 1

INTRODUCTION TO THE REPORT

1.1 INTRODUCTION:

Students of M.Com studying courses leading to Master degree in

Commerce are required to undergo an internship programme of two

months duration. This is an essential academic requirement. The

internship is followed by comprehensive report writing, required to submit

to the research and development division (R&DD) of Quaid-e-Azam

College Of Commerce, Peshawar. 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 Nowshera Cantt

Branch.

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:

13

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.

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.

14

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.

15

CHAPTER # 2

INTRODUCTION TO UBL

2.1 BANKING HISTORY:

Consensus on the origination of word “Bank” is not yet reached at. Some

authors 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 form

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 as

2000. 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 ECONOMY2:

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:

2.3.1 Deposits:

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

16

PLS (Modarba) Accounts

Current Accounts: (with no return paid)

2.3.2 Loans:

Qarz-e-Hasana

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:

17

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:

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 of

1007 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, 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

18

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

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 ahs 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

4 Cap. (Rtd) Syed Hamid Ali Shah, (2002) Internship Report On UBL Main Branch Peshawar.

IMS. 5 M. Iqbal Khan,, (2002) Internship Report On UBL Nowshera Cantt Branch. IMS

19

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 speedily to its customers. This has also allowed

the bank to maintain its leadership within the industry.

UBL - On line System7:

Themes of this service is “Access any time, 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:

o Accounts statement & electronic data interchange

O Graphical analysis6 Cap. (Rtd) Syed Hamid Ali Shah, (2002) Internship Report On UBL Main Branch Peshawar.

IMS.7 UBL, (October 8, 2002). PPI Circular. Karachi

20

O Alerts service /facility, search facility and activity long

O The banks as another computer-based system known as “UIBANK”8,

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.

8 www.ubl.com

21

2.10 MANAGEMENT OF UBL:

Chart 2.1 Senior Management of UBL

Source: UBL, (2003). Annual Report. Karachi.

22

Sheikh Nahyan Mabarak Nahayan chairman

Sir Mohammad Anwar Pervez Deputy Chairman

Amar Zafar Khan President

M.A Manna Deputy CEO

Nauman Hussain Director Operations &

Utilities Mansoor M. Khan

Head Corporate Banking Group

Shaharyar Ahmed Head Investment Banking

group Shahid Waqar Mehmood Head Commercial bank

Risha Moheyuddin Global Treasurer

Khalid Munawar-ud-dinHead Credit Policy

Supervision Muhammad Ejazuddin

Audit Chief

Mehboob A.Khan

Aman Aziz Siddique

Head International Operations (Dubai)

Rukhasana Asghar Global Head Human

Resources

Ali sameer Chief SAM (domestic)

Ameer Karachiwala Chief financial Office/HCA

2.11 FUNCTION HIERARCHY:

Chart 2.2 Organizational Hierarchy of UBL

Source: UBL, (2003). Annual Report Karachi.

CH # 3

23

Chairman

Deputy Chairman

Board of Directors

Executive Committee

Managing Director

SEVP

EVP

VP

Officer Grade-I

Non Clerical Staff

Clerical Staff Officer Grade-II

Officer Grade-III

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

Nowshera Cantt Branch.

Nowshera Cantt 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.

24

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 NOWSHEREA

A) Current Account:

These are non-profitable demand accounts. The account can be opened with

minimum amount of rupees 1000/-. These account 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.

25

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 with drawn 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

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 Nowshera 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.

26

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 incharge 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.

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.

27

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 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 inchraged. One I.D

copy is also attached with slip. The remittances incharge 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.

28

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, authorities and facilitate 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 suggest

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 Nowshera.

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.

29

3.3.2.1 Purpose:

In this the party mentions the purpose, they want to apply for the finances. No

lending is done with out 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

Tajak Builder are on the panel of UBL Nowshera. The valuator will visit the site

and set market value and FSV of the said property. He prepare report of at least

three pages. These 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 UBL

30

RHQ 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 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

31

collecting bankers. The functions of clearing department is divided into two main

classes.

Inter Branch Transaction

Inter Bank Transaction

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 he 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.

32

3.4.2 I B C:

It means “Inter Branch Transaction” 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

3.4.3 L B C:

LBC means local branch cheques received for collection. UBL Nowshera,

received cheques from their spoke braches as well as from other UBL branches of

the country, drawn of any other bank in Nowshera. They send the cheque to

responding bank and after clearing the cheque through clearing houses (which is

NBP) in Nowshera. 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 passed 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

33

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.

34

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 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 break up value and

difference is charged to income. Provisions for diminution in the values are made

after permanent impairment, if any.

35

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.

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.

36

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

For the purpose of efficient management of this risk, the group enters into ready,

spot, forward and swap transactions in the inter bank market and with the State

Bank of Pakistan in order to kedge its assets and liabilities and cover its foreign

exchange position.

37

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 DEPOSITS1

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.

1 UBL (2003) Annual Report

38

4.6 INVESTMENT PORTFOLIO2

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 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 PROFITABILITY3

The operating profit before provisions and write offs increased by 80%, where as

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 2002 while NPAs

decreased 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

2 UBL (2003) Annual Report3 UBL (2003) Annual Report

39

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.

The various stakeholders of business are interested in the analysis of financials

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.

40

The table shows common size analysis of the balance sheets for the years 2001,

2002 & 2003.

The common size analysis given in the table shows that there have been

improvements in the current assets in 2003 as compared to 2002, about 17%. But

there has been decrease in fixed assets of about 16%. The main reason for this

change is increase in short term investment showing a constant increase as a

percentage to total assets. This implies that the bank is concentrating now more on

non-interest income and the interest rates are constantly falling.

Short-term advances have shown a significant change of 15% whereas total

advances show a total change of only 6.3%. This is very significant to note that

major decrease has occurred in long-term performing and non-performing

advances.

There is decrease in long term assets of about 17% which mainly cause the

decrease in long term advances which are about 13% and 6% decrease in long

term investment.

On the liability side the total current liability has shown change of about 4%. The

main reason for which is increase in current deposits, which are about 6%. The

long-term liability of the organization is also decreased by 4%. The main reason

for this is that fixed deposits of organization are decreased by 6%, which shows

that there is a slight change in the organization’s position by decrease in fixed

deposits.

41

Table:4-1 Common size analysis of consolidated Balance Sheet

  Rs in '000 Common size (%)assets 2001 2002 2003 2001 2002 2003Cash/Bal. With Banks 3609108 70463707 35591280 21.5 17.93 15.79lending to F.Is 4370006 3627557 19050791 2.6 1.89 8.45Investment (ST) 9190430 33883311 29580252 5.5 17.66 13.12Advances-Performing (ST) 39489369 43632117 89292490 23.4 22.75 39.61Other Assets 8641263 2641471 3509351 5.1 1.38 1.55Total Current Assets 97782157 118177074 177024164 58 61.61 78.54Investment (LT) 19388131 33623058 25007413 11.5 17.53 11.09Advances-Performing (LT) 28477494 26423058 10312297 16.89 13.77 4.57Advances-Non performing (LT) 11813855 5739798 3671991 7.01 2.99 1.62Operating fixed Assets 2864018 2831534 3884990 1.7 1.48 1.72Deferred Tax Assets 8297500 5026459 5486357 4.92 2.62 2.43Total L.T Assets 70840998 73643958 48363048 42 38.39 21.45Total Assets 168623155 191821032 225387212 100 100 100Liabilities            B/Payables 1540592 1847025 2991269 0.91 0.96 1.32Borrowings ST 4004130 174533 174533 2.37 0.09 0.07Deposits - Current 102568752 118167469 152580240 60.83 61.6 67.69Lease and Others 8838842 9986608 5933743 5.24 5.2 2.63Total Current Liabilities 116952316 130175635 161679785 69.36 67.86 71.73Fixed Deposits 38747422 43998916 37252204 22.98 22.94 16.52Other Long term Liabilities 21264831 5212755 10883720 6.21 2.72 4.82Total LT Liabilities 49219400 49211671 48135924 29.19 25.65 21.35Total Liability 166171716 179387306 209815709 98.55 93.52 93.09Shareholder's Equity            Share Capital 22481680 5180000 5180000 13.33 2.7 2.3Reserves 3960453 4258947 4712569 2.35 2.22 2.09Accumulated Losses/Profits -27282709 -722387 454403 -16.18 -0.38 0.2Minority Interest 1168264 1271700 1412932 0.69 0.66 0.62Surplus on revaluation 2123751 2445466 3811599 1.26 1.27 1.69Total 24541439 12433726 15571503 1.45 6.48 6.9Source: UBL (2003) Annual Report

The trend of switching over the investing in share market or other businesses

instead of committing money in advances it is because of fall in interest rates.

42

The share capital of the company is static while in 2002 the share capital was

decreased because of losses faced by the company.

4.8.2 COMMON SIZE ANALYSIS OF INCOME STATEMENT

The common size analysis of income statement is given in the table. Which shows

that the UBL has been able to control its interest or mark up expense. As a result

of decrease in mark up 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 have 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.

Like gross profit the net profit margin before tax has also increased with 24%

rate. The extraordinary item expanse has not occurred in 2003 that caused a slight

increase in the net income. The tax expanse is increased about 7% because of the

increase in profit. Loss brought forward from previous year is reduced by 14%.

43

The common size analysis of the UBL is clearly showing that the bank has shown

a lot of improvement in its performance. The organization shows profit for the

first time in the last 5 years which is a positive sign and it will build up the moral

of the employees by which they can work more effectively and efficiently

increasing the performance of the bank.

Table: 4-2 Common size analysis of consolidated Income Statement

  Rs in Millions Common size (%)

ITEMS 2001 2002 2003 2001 2002 2003

Mark up revenue 11468 11385 9269 100 100 100

mark up expense 6347 5476 1931 55.35 48.09 20.83

gross profit 5121 5909 7338 44.65 51.9 79.89

provisions and B/Debts 1263 746 564 11.02 6.55 6.08

Net Mark up Income 3858 5163 6773 33.64 45.34 73.07

Non Mark up Return            

Commission & Brokrage 1097 2008 2142 9.57 17.63 23.1

Dividends/Exchange and Others 1818 1514 2803 15.85 13.3 30.24

Total Non Mark up Income 2915 3522 4945 25.42 30.94 53.34

Total Income 6773 8686 11718 59 76.2 126.42

Non Mark Up Expense            

Administrative 4669 5879 6639 40.71 51.64 71.62

Other Provision and Charges 632 51 556 5.15 0.44 6

Total non mark up Expenses 5301 5930 7197 46.22 52.08 77.64

Profit Before Extraordinary Items 1472 2756 4521 12.84 24.2 48.77

Extraordinary Items -7200 25 0 62.78 0.21 

Profits before tax -5728 2781 4521 49.95 24.44 48.77

Taxation 1739 1319 1704 15.16 11.59 18.38

Profit/Loss after tax -7467 1462 2818 65.11 12.84 30.39

Share of Minority Interest 6 10 21 0.06 0.09 0.22

Accumulated Loss Brought Frd. 19821 27283 722 172.2 210.64 7.78

Adjustment against sh. Capital 0 25202  0 221.36 0

Appropriation and Transfers            

Surplus on revaluation of Assets 0 238  0 2.1 0

Transfer to Statutory Reserve 2 332 527 0.02 2.91 5.68

Accumulated Loss Brought Frd. 27283 722 454 237.9 16.34 4.9Source: UBL (2003) Annual Report

44

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

The calculation and interpretation of these ratios of financial statements of UBL

are as follows.

Table:4-3 Financial Ratio analysis

YEARS 2001 2002 2003FORMULACurrent Ratio 0.84 0.91 1.15Current Assets / Current LiabilitiesAsset Turnover 0.07 0.06 0.04Markup Revenure / Total AssetsDebt to Asset 0.99 0.94 0.93Total Debt / Total AssetsDebt to Equity 14.54 14.4 13.47Total Equity / Total AssetsCoverage Ratio 0.1 1.15 3.34EBIT / Interest ExpenseGross Profit Margin 44.65% 52.50% 79%Gross Profit / Revenue * 100Net Profit Margin -65.12% 12.69% 30%Net Profit / Revenue * 100Return On Investment -4.43% 0.76% 1.24%Net Profit / Total Assets * 100Return On Equity -887.99% 16.78% 18%Net Profit / Total Equity * 100Advances to Deposit 56.46% 46.74% 45%Advances / Deposits * 100Investment to Deposit 20.22% 41.63% 28%Investment / Deposits * 100Cash Ratio 9.59% 9.23% 28%Cash / Current Liabilities * 100

Source: UBL (2003) Annual Report

45

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 UBL’s current

ratio is increased by 0.18% as compared to 2002. this in turn decreases the risk of

insolvency. 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 2002 and 6% to 2001. in 2001 every rupee one of assets was being

financed by rupees 0.098 or debt and in 2002 it is 0.94 while in 2003 it is reduced

to 0.93 worth of debt per rupee of asset. 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

46

bank is heavily relying on debt financing. The reason for huge difference stated in

the table is because of losses occurred in 2001 and 2002.

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 ratio 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. The ratio is increased from 0.10 to 3.34.

4.8.3.6 GROSS PROFIT MARGIN:

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 expanses financing cost and taxes. UBL’s gross profit margin per

rupee has shown rising trend in last three years. There is an increase of 27% in

2003 as compared to 2002. this shows efficiency of the bank to control the cost of

sales.

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. The net profit margin

has reached to 30% as compared to 2002 in which it was only 12.69%. While in

2001 it was in negative figure. It shows a good impact on the UBL’s Balance

Sheet.

4.8.3.8 RETURN ON INVESTMENT:

47

This ratio measures the profitability per rupee of investment in assets. UBL’s

return on investment has shown an improvement more than 100%. In 2003 the

ratio is 1.24% while in 2002 it was 0.76% and in 2001 it was in –ive figures.

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.

In 2003 the ratio is 45% while in 2002 it was only 16% and in 2001it was in

negative figures.

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. In 2001 it was 56%

while in 2002 it was 46% and in 2003 it is 45%.

4.8.3.11 INVEST TO DEPOSIT:

This ratio shows the company’s investment employed per unit of deposit. This

ratio increased in 2002 as compared to 2001 but in 2003 it again decreased. It is

because of industrial development factors in the country by which lending have

been increased and investment is slightly decreased.

4.8.3.12 CASH RATIO:

48

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. In 2003 this ratio has

increased by 2%. The balance of bank is increased with 20%. Although the

current liabilities also increased but the increase in cash is very high.

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.

49

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.

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 al 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:

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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 cheques 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.

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.

51

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.

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ii. Lack of promotional activities.

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.

o Net revenue from funds increased by 18% for the current period.

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o Provisions decreased by 14%.

o Total income increased by 16%.

UBL is actively participating in international markets and has recently

introduced credit cards in UAE, Behrain, and Qatar, being backed up by

24 hours call center out of UAE.

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.

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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.

Foreign remittances are another area as present world wide 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:

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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, 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.

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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 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

57

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 on going 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.

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.

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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

qualified 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 programmes 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:

Training needs assessment is necessary so that only the relevant staff is sent for

the training courses.

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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 programmes 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 programmes 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.

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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.

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

61

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 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:

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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.

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.

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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 laid down in the policy book or credit

manual and advised from time to time by the credit committee or top

management.

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.

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CH # 7

IMPLEMENTATION PLAN:

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 every thing 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.

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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

equipments 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 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

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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 Variable Cost Total Cost

Dep. M/Cycle

Mileage/year

@50km/day

Petrol/Year

@40km/day

Petrol Cost

Rs.30/litre

Repair Maintenance

Per year TVC + TFC

15000 18000 450 13500 500 29000

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.

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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 digged 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.

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c) Stamps

Charge form should be properly stamped in accordance with the stamp duty as

applicable in the province, where the documents are executed.

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

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ii. Credit report - bearing upto 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

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.

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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. 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

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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.

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. Which is a group of people with

common characteristics. This part of implementation plan is concerning on

marketing efforts towards the portion of population wit similar banking needs and

saving habits.

Marketing Objectives: Marketing objectives for UBL clearly defines

what the bank want from its target market and potential customers. This part of

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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 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.

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Step 7: Strategic Marketing Mix:

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 it’s 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

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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.

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

(7% of

population) 5000

2% of D=100

million

5 billion (b x

c)

(E - A)= 52

million

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.

75

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.

Meenai, S A, (1999) Money & Banking in Pakistan, Karachi: the Elahi’s

Book Corporation.

Siddiqui, A H, (1998), 6th Edition. Practice and law of banking in Pakistan,

Royal Book Company, Karachi.

UBL (1999). Credit Manual. Karachi.

UBL (2000). Deposit Manual. Karachi.

UBL. (2002 – 2003). 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

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