CHAPTER – 1
EVOLUTION OF BANKING
1.1 INTRODUCTION
The word bank is derived from Latin word “Bancs” or “Banque”, which means a bench. The explanation of this origin is attributed to the fact that the Jews in Lombardy transected the business of money exchange on benches in the market place. When the business failed, the people destroy the bench.
Incidentally the word bankrupt is said to have been evolved from this practice.
The opponents of this opinion argue that if it was so, then how is it that the Italian money changers were never called Banchierei in the middle ages
Other authorities hold the opinion that Bank is derived from German word back which mean joint stock fund. Later on, when the German occupied major part of Italy, the Back was italicized into Bank.
1.2 DEVELOPMENT OF MODERN BANKING
Despite the classical origin, banking in its modern form and structure started in Britain when many of the Lambordary merchants came to England in the fourteen century and settled in the part of the London now called Lombard street.
They were so resourceful that even the kings had to depend on them for loans despite the fact that the church was firmly against usury. They dealt with not only keeping the money in safe custody
but also changed money for the travelers or merchants engaged in foreign trade.
The business of changing money was so lucrative that King Edward III established the office of Royal Exchanger for changing foreign money at a profit for the benefit of the crown.
The discovery of America brought riches to England and gave a tremendous boost to foreign trade. The merchants now began to hold part of their riches in cash. These transactions, however, received a big setback in 1640, when King Charles I seized 130,000 Pounds and bullion left for safe custody with the city merchants at the Royal Mint.
This shook the confidence of the merchants in the Royal Exchanger and Royal Mint. Consequently this business was taken over by the gold smiths, who, up to that time, were dealing only in gold and silver. Since these gold smiths required strong safes for the purpose of their own business, they introduce necessary facilities of safe keeping of the valuables and the cash of their customers. These goldsmiths issued receipts or note to their depositors in respect of the cash or articles left with them. These were called gold smith notes, and carried an undertaking to return the money and articles to depositors or bearers on demand. There were a considerable number of such notes on circulation among various classes of merchants and thus they can be aptly called Bank Notes in their earliest form.
Over a period of time, these goldsmiths discovered that large sums of money were left in their custody for long periods. Therefore, they started the use of this cash to advance loans to other persons for a fixed period of time and at considerably at a higher rate of interest.
Moreover they further encourage cash deposits by their customers by offering them a part of their profit earned on the money. Thus began the issue and deposit banking of modern times. Some of the enterprise goldsmiths issued checkbooks for the attraction of their customers; and thus another important step in the evolution of banking was taken.
In 1672, however, English banking faced a great crisis when Charles II borrowed huge sum of money from the goldsmith bankers formed themselves into a Corporation in 1695, known as the Bank of England. This bank lent 1,200,000 pounds at 8% interest to William III, who in return, allowed a number of privileges to the bank, specially the right to issue Notes payable to bearer on demand unto the amount of this loan. This was known as fiduciary issue, not covered by gold. This new bank became a very serious competitor to the comparatively smaller private banks run by the London goldsmiths.
By the year 1700, the Bank of England was not only issuing Notes but also conducting accounts for customers. Being a joint stock bank by charter, its directors were conducting the business like that of limited companies. The Bank of England was the only joint stock company which was given the monopoly of issuing the Bank Notes.
In 1708 the privilege to issue Notes in England was withdrawn from joint stock banks and confined to the private banks with not more then 6 partners.
Up to 1813 or there about in England, the main profit of banks was derived from the circulation of notes and for many years after that, deposits were treated as very minor matters
1.3 GROWTHS AND HISTORY OF UBL
Commercial banks play a role of vital importance in the economic growth of a country. Banks mobilize idle savings of public and provide finance to various sectors of economy. In spite of vital importance, there was shortage of branches of commercial banks in the areas of sub-continents, which now constitute Pakistan. When Pakistan got independence, there were only 487 branches of commercial banks, which were further reduced to 195 as at 30/09/47 due to shifting of a number of branches to India or U.K. The Reserve Bank of India, which was made responsible to exercise control over banking sector in both the dominions, did not perform its duties properly in Pakistan. The State Bank of Pakistan was established on 01/07/1948. After the establishment of State Bank of Pakistan, banking expansion got momentum but real progress was not achieved until 1959, when a dynamic banker Mr. Agha Hassan Abedi conceived the idea of opening a bank different from others. His dream was translated into reality on November 07/1959 when first branch of UBL was opened at McLeod Road Karachi (now known as I.I. Chundrigar Road).
This achievement was secured after passing through many problems and after completion of a lot of legal formalities. UBL was established on 24-07-59 as a public limited company with registered office at I.I. Chandrigar road Karachi. The authorized capital was RS. 20,000,000 issued, subscribed and paid up capital was. RS. 10,000,000 divided into 1,000,000 shares of RS. 10each.
I. LOCATION
WITH an integrated network of over 1000 branches in Pakistan as well as 15 overseas branches, UBL gives you direct access to a comprehensive range of better banking facilities to help you monitor your business locally as well as internationally.
II. TREASURY
The UBL Treasury & Capital Markets (TCM) has developed a reputation as a proven market leader in converting innovative ideas into profitable ventures for the bank and for its customers. Today the UBL TCM is a frontrunner in providing:
The narrowest bid/ask spreads and the fastest quotes
Dynamic risk-reducing hedging strategies for its customers The best relationships with institutional, corporate and retail clients Year 2007 was a highly lucrative year for the bank with net profits in excess of PKR 4 billion. Treasury and Capital Markets contributed to over 65% of UBL’s total returns. This was due to Government Bond Trading, Equity Trading, Structured Products/Financial Engineering, Corporate Debt trading, and double-Count of revenues.
Under the new management, the TCM expedited the launch of Pakistan’s first derivative money market product-the FRA (forward rate agreement) with Quetta Textile Mills Ltd. in August 2007, and has further closed several similar transactions thereafter.
UBL TCM is a market maker in both the domestic money market as well as the foreign exchange market. Being one of 11 primary dealers (PD), UBL has one of the largest balance sheets amongst banks in Pakistan, and hence our Foreign Exchange
Exposure Limit (FEEL), as imposed by the State Bank of Pakistan, is the highest in the industry.
UBL was the first local bank to establish a Corporate Treasury team in the Treasury dealing room. The Global Corporate Treasury Business is globally responsible for sales of all structured and derivative products for UBL. The bank’s trade volumes and revenues have grown significantly since the introduction of the corporate treasury business.
Equities are responsible for managing the bank’s trading and badla portfolio, and to eventually develop a global equity trading activity for UBL. Structured Products is responsible for developing and packaging plain vanilla derivatives as well as more exotic customer specific products, and pipeline products.
The Strategic Planning and Balance Sheet Management responsibilities include:
Liquidity Management for the domestic balance sheet - This unit is the focal point for all branch-related liquidity issues and will also be responsible for day-to-day management of liquidity for UBL. Overseas Branches Treasury and Capital Markets - we plan to
integrate the treasury activities for all overseas branches, to develop synergies amongst our various treasuries. As our core business in these markets continues to develop, we expect significant opportunities to arise in the trading, funding and gapping areas.
Research - providing market research for internal and external clients in order to support the sales and trading effort.
1.4
THE FIRST BOARD OF GOVERNORS OF UBL
CONSISTED OF THE FOLLOWING MEMBERS
Table – 1.1
1 Mr. Ismail Ibrahim Chandrighar Chairman
2 Mr. Muhammad Shafiq Saigol Managing Director 3 Mr. Muhammad Rafiq Saigol Director
4 Mr. M.Bashir saigol Director
5 Mr. A. Razaq Dada Director
6 Mr. Mian M.Yahya Director
7 Mr. M. Saeed Saigol Director
8 Mr. Agha Hassan Abidi Director and General Manager Source: Rahman ullah, Internship Report on UBL, (2007-2009).
Presently UBL is managed by a board of directors including one president, 4 directors from UBL, 1 from Pakistan Banking Council and one from ministry of finance.
The names and designations of present top management include;
Table – 1.2
1 Mr. Shaikh Nahayan Mubarak Al Nahayan Chairman
2 Mr. Mohammed Anwar Pervez OBE Deputy Chairman
3 Mr. Atif R. Bokhari President & CEO
4 Mr. Omar Ziad Jaafar Al Askari Director 5 Mr. Zameer Mohammed Choudrey Director
6 Mr. Ahmad Waqar Director
7 Mr. Abdul Rauf Malik Director
8 Dr. Ashfaque Hasan Khan Director
Source: www.ubl.com.pk
Since inception, UBL provides personalized, efficient and courteous services to its customers and has achieved dynamic
progress in a short span of time. UBL has achieved the distinction of earning profit in very first year of its operation. UBL also introduced many remunerative schemes for its depositors and introduced computer services for the first time in the banking history of Pakistan. UBL gives advance finances to small, medium and large industries, commercial establishments, agriculturists, construction companies and other needy persons. UBL offers computerized services to intending Hajis free of cost. UBL collects Electricity, Gas and Telephone bills from public and issues TV licenses on behalf of Pakistan Television Corporation. It also offers evening banking and lockers facilities at its selected branches. Over 100 branches deal in foreign exchange where facilities to importers, exporters, travelers and other persons are being given.
UBL arranges prompt payment of inward remittances. Similarly for issues of outward remittances minimum time is taken. Other auxiliary services such as unicorn, inland traveler’s checks, school banking and collection of checks and other documentary bills drawn on its station drawees are offered.
“The names and tenure of various presidents of UBL after nationalization are given here under.”1
Table – 1.3
S.No. Name of President From To
1 Mr. Mushtaq Ahmad Khan Yousafi 01/01/74 31/12/76 2 Mr. Kh. Zai Ud Din 01/01/77 31/12/79
3 Mr. Sami 01/01/80 01/02/82
4 Mr. M. Sadiq Dar (Acting president) 04/02/82 31/12/82 5 Mr. Tajammal Husain 01/01/83 15/07/88
7 Mr. Maqbool A Soomro 7/02/89 18/07/89
8 Mr. Salim Malik 19/07/89 01/08/90
9 Mr. Maqbool A Soomro 01/08/90 15/05/93 10 Mr. Aziz ullah Mamon 15/05/93 4/08/96
11 Mr. Shafi Arshad 4/08/96 14/07/97
12 Mr. Zubayr A Soomro 14/07/97 15/01/00
13 Mr. Amar Zafar Khan 15/01/00
1.5 NUMBER OF BRANCHES
UBL has a large network of branches, which extends to the remotest areas of the country. In December 1983, there were 1417 branches whereas in 1974 it had only 1238 branches and in December 1999 there were 1623 branches and in December 2007 there were 1821 branches. Presently there are 1056 domestic branches and 15 overseas branches.
I. OVERSEAS BRANCHES
UBL, with an integrated network of over 1000 branches globally, with 15 overseas locations, gives their customers direct access to a comprehensive range of better banking facilities to help them monitor their business internationally. They have branches in:
United States of America Qatar
UAE
United Kingdom Bahrain
Zurich
Off Shore banking Unit
II. SUBSIDIARIES
UBL has two subsidiaries, namely, United Bank of Lebanon & Pakistan United bank A. G. Zurich.
United bank of Lebanon and Pakistan was established in 1968, 1st had a paid up capital of dollars 379,000, deposits of dollars 125,978, advances of dollars 1983,313 and six branches as on December 31, 1983.
United Bank A.G. Zurich also was established in 1968 and had a paid –up capital of dollars 2722 thousand, deposits of dollars 5827 thousand and advances of dollars 5538 thousand as on December 31, 1962.
1.6 JOINT VENTURE
UBL has two ventures, Commercial Bank of Oman limited, established in 1975. It had a paid up capital of dollars 8,700 million, deposits of dollars 7,333 million, advances of dollars 73.993 million and 11 branches as on December 31, 1962. And United Saudi Commercial Bank Limited (Saudi Arabia), established in 1982.
1.7 ROLE OF UBL IN N.W.F.P.
The role of UBL has developed largely; through out the country in very short period of forty seven years. The bank is operating in the entire country and has branches all over the country and overseas. In N.W.F.P, UBL is operating successfully. The number of branches of UBL in Peshawar region is 156 up to
dec.2001 i.e. there are total 14 Hub Branches in Peshawar region and under these Hub branches, there are 142 spokes branches. These 156 branches come under the Peshawar Region, for which there is a Regional head Quarter (RHQ) in Peshawar.
The list of hub branches come under the Peshawar Region is as under.
1. Peshawar 6. Haripur 11. Mardan
2. Bannu 7. D.I. Khan 12. Swabi
3. Mansehra 8. Mingora 13. Kohat
4. Timergara 9. Nowshera 14. Abbotabad
5. Hangu 10. Bathela
1.8 MISSION STATEMENT OF UBL
“We shall dominate Pakistan’s financial markets and be the leading bank of Pakistan in term of quality of customer services, assets, profits and reserves. We shall consistently try to be among banks in the Pakistan. Comparing over selves to international standards. We shall be a modern universal bank. Our employees will be efficient, motivated and have corporate pride”
1.9 OBJECTIVES OF UBL
Objectives mean the end towards which an activity is aimed. An organization without objective is like a person who is wandering with no purpose. All the activities of an organization are due to its objectives and goals. And for the attainment of those objectives, various types of financial products and plans are developed. UBL has also some objectives, which are as under.
To ensure growth and development of the bank. To use resources of the bank efficiently.
To get more deposits.
Paying special attention to the areas, which are under developed.
To develop SME’S.
To increase industrialization in the country. To provide financial help to the farmers. To provide employment opportunities.
CHAPTER – 2
SERVICES OFFERED BY UNITED BANK
LIMITED
2.1 CONSUMER BANKING
United Bank limited aspires to be the leading provider of consumer baking services in the country besides the fact that UBL was the Last entrant in the consumer products of the new age but Not The Least. The bank’s operating strategy in this regard has been aligned with the core customer needs of highest value and expert services. The bankers in general are facing challenging time today as bankers; as they should be more than just custodians of client’s funds. Rather they should devise safe and prudent methods of maximizing the returns on hard earned savings and investments of their customers. These corporate values are evident in United Bank’s diversified product portfolio which includes Current a/c, Pls saving, Business Partner a/c, Term Finance Certificate, UBL Profit certificate of deposit, Monthly income, Foreign currency a/c, Rupee travelers’ check, Money gram, Safe deposits, Car finance, Credit card, Personal loans, Housing finance, Business Loans and Running Finance.
In the arena of consumer banking the bank has carved a niche in the market place, with products like car finance, rupee travelers’ checks homes and car loans for U.A.E based non-resident Pakistanis. It has set up strong internal control mechanisms to monitor and measure risks arising out of consumer banking products. The bank is
developing electronic, automated and computerized environment to give impetus to their efforts in consumer banking area.
2.2 CORPORATE BANKING
Systems and operations have to be aligned so that they support the performance of the Organization’s product offering. Consequently, business process re-engineering and quality control are on the main maxims of corporate philosophy. United Bank Limited has the Corporate Banking Group (CBG) which enhanced the image of UBL in the corporate world and also increased the advances, revenues and profit of the bank to the new heights.
United Bank’s product line-up fulfills and satisfies the banking requirements of not just the conventional consumer, but the demanding financial needs of the corporate sector as well. Corporate product includes current deposits, foreign deposits, over draft, term loans, project financing etc. The bank is continuously setting new standards of services in the industry and is becoming reliable financial ally of all the customers.
2.3 INVESTMENT BANKING
Investment Banking Group of UBL (IBG) continues its leadership position in providing innovative and unique financial solution to its clients by anticipating their changing requirements and developing new products & services.
IBG concludes more transactions, both number and volume than any other local and foreign financial institution, including banks, investment banks, and brokerage houses.
More specifically, while IBG maintained its leading status in the traditional business of loan syndication and debt capital markets,
major strides were achieved in the newer value-added business areas of projects and structured finance, equity & advisory services and private equity solutions.
Nowadays IBG is focusing on the fast emerging Technology, Media and Telecom sector where it concluded several unique high-profile transactions. Most significantly UBL is the only major financial institution based in Pakistan to be engaged by a reputable local group to act as financial advisor for the cellular license auction bidding in April 2008.
2.4 AUTOMATED BANKING
Technology and automation play a pivotal role in the progressive development of any organization. It has become impossible to control the operations of a bank effectively in real time situation without the latest technology. The bank continues to invest heavily into the progressive automation and computerization of all banking activities. Its aim is to achieve total connectivity between branches. The objectives are to achieve efficiency in services and to control costs. UBL has recently installed the New-state-of-the-art ATM machines in UAE.
United Bank Ltd provides:
ATM/ UBL Wallet Debit Card Online Banking/ Uni Remote Telephone banking
2.5 ISLAMIC BANKING
UBL has played an important role in Islamic banking and successful operation of Non- interest based system of banking.
The interest free banking system was introduced on January I, 1981. Since then, UBL has played an important role in the successful operation of this system. For this purpose, it has established a special division, “The Islamic Banking Cell”.
The sincere efforts of UBL as making Islamic Banking successful is proved by the fact that it declared the highest rates of profit for PLS deposits for the first half year of 1983. This has been due to a sound planning of all its Islamic Banking efforts.
The bank has provided capital to businessmen and industrialists on the basis of “Mudaraba and Musharika”. Additionally the bank has started interest- free hire purchase and lease schemes for financing purchase of buses, trucks and industrial machinery on installments. The bank also provides “Qarz-e-Hasna” to needy and deserving students.
2.6 AGRICULTURE
UBL has contributed in full measures to the development of agriculture. It has always exceeded, by a considerable margin, the targets given by the State Bank of Pakistan. UBL has also provided loans for a variety of agricultural activities including tractors, tube-wells, fertilizers, insecticides, poultry farming, bio-gas plants etc. The bank officers who are qualified agricultural graduates not only provide loans at the doorsteps of the farmers, but also render technical assistance to them. To maintain constant liaison with the farmers, the bank officers have been provided with motorcycles.
Financing of Small Business to meet the goals of social justice, the bank has zealously participated in the small loans scheme. It has always tried to exceed the targets fixed by the state Bank. A full- fledged department catering to the needs of small businessmen is functioning. To improve its operations, the bank has made arrangements for overseas training of its staff.
The bank is also participating in the dollars 30 million IDA credit, which will be provided to small industrialists.
For training its staff, a staff collage was established at Karachi in 1994. Now there are three such colleges at Karachi, Lahore and Rawalpindi, where the officers and staff are provided extensive training. Furthermore for training senior officers, a UBL school of Banking has been set up at Karachi. Senior bankers and management experts provide training to the executives and senior officers of the bank.
2.7 RESEARCH DEPARTMENT
UBL was the first commercial bank in the private sector to establish a full- fledged Research Department. Prominent economists of the country have been acclaimed both at home and abroad. Not only does this research provides useful and cogent studies of economic development in Pakistan and abroad, it also assists in the managerial decision making process.
The Research Department is publishing “Economic Matters” every month since 1967. It was recently upgraded to “UBL Economic Journal”. In addition, the department also brings out the “UBL Home Journal”.
2.8 COMPUTER SERVICES
UBL was the first bank to introduce computers. The Computer Division was established in 1968. Presently, UBL has Computer Department at Karachi, Lahore and Rawalpindi. Many branches have been fully equipped with computers. The Computer Division prepares weekly, monthly, quarterly, bi- annual and annual reports for top services to many Government, Semi Government and private institutions.
2.9 SERVICE TO HAJJIS
For providing prompt and efficient services to the intending Hajjis who come to UBL every year, the bank has introduced the most modern system of electronic banking which permits all formalities to be completed within a short time. This year 2009, UBL received the greatest number of applications from customers for Hajj, which shows the customers faith in UBL.
2.10 AUXILIARY BANKING SERVICE
Bank provides a number of auxiliary services such as credit cards, traveler’s checks and school banking.
2.11 COLLECTION OF UTILITY BILLS
UBL also collects electricity, gas, and telephone bills from the public on behalf of the respective organizations. The bank also introduced the bills collection facilities in selected branches in the evening hours for the convenience of general public. And now selected UBL branches are collecting the utility bills through online banking.
2.12 ISSUANCE OF TV LICENSE
UBL also collects TV License fee on behalf of Pakistan Television Corporation and issues TV Licenses to the general public.
Sports
UBL was one of the first banks to patronize sports. Senior executives at the highest level supervise the sports activities. The bank has established a special department to organize its various sports activities. It has provided patronage to leading sportsmen. Many outstanding players and national players have been included in its teams. The bank has won United States of America trophies in hockey, cricket, badminton, table tennis, rifle shooting, etc.
Development of Data Base Management System (DBMS)
United bank is the only bank in Pakistan, which is making use of its own data base management system (DBMS) since 1971. The VIS was used in the three main branches of Karachi. After years of deducted efforts on its work, it succeeded in loping UNI Bank Plus.
CHAPTER – 3
ORGANIZATIONAL STRUCTURE
Organizational structure of a firm provides boundaries for authority of persons and clarifies individual responsibility and authority. It shows who is responsible to whom, and who has the authority to give orders to someone. An organization having dual authority or vague structure would not have clear direction and will face hurdles in getting its goals and objectives. Therefore, it is very important for any organization to have a well-established structure of responsibility and authority. An organization structure should be so designated to clarify the environment so that everyone knows his duty and who is responsible for what. It results to remove obstacle to performance caused by confusion and uncertainty of tasks and to furnish a decision making communication network reflecting and supporting enterprise objectives.
3.1 UBL ORGANIZATIONAL STRUCTURE:
UBL also has a well defined formal organizational structure. UBL is a very vast organization. In the organization set up of UBL, the highest authority rests with Board of Directors which consists of Chairman, Deputy Chairman, President & CEO and the directors. In which four directors are from UBL, one from Pakistan Banking Council, one from Ministry of Finance and one who is also the secretary of the board. So the Board of Directors is an eight member team, and is responsible for policy formulation and making important strategic decisions.
THE NAMES OF THE BOARD OF DIRECTORS ARE AS FOLLOWS:
Chairman
H.H Sheikh Nahayan Mabarak Al Nahayan
Deputy Chairman
Mr. Muhammad Anwar Pervez, OBE, HPK
President & CEO
Atif R. Bokhari Director Zameer M. Choudrey Director Omar Z. Al Askari Director
Muhammad Tehsin Khan Iqbal
Director
Ahmad Waqar
Director
Javed Sadiq Malik
The authority, which is second highest, lies with executive committee. It consists of seven members, including the president and secretaries are in charge of divisions. The members are Senior Executive Vice President (SEVP) of UBL. There are twenty divisions, which have their own Senior Executive Vice President (SEVT). Executive Vice President (EVP), or Senior Vice President (SVP), the
SEVP to international divisions manages the operations of foreign countries branches. The rest of the divisions work along their functional lines as shown in the organizational chart.
At the National level, UBL has a network of branches spread allover the country and its field operations are one of the most extensive among the leading banks in Pakistan. At provincial level the bank is managed by SEVP, who is assisted by General Manager (OM), who is EVP or SEVP. The OM is responsible for either a number of regional areas or in charge of various provincial departments such as Administration, General Recovery, Loans, Inspection, etc. The complexity and extensiveness of the operations in a given province determine the number of OMs. OMs are assisted by circles executives who are of the rank of SEVP or VP.
The entire country is divided into Circles which are further divided into Zones.
The circles are administered by circle executive. Each zone is comprised of a number of branches, which are managed by branch managers who are mostly Grade I or Grade II officers. Some large sized branches are also managed by AVPs.
3.2 CONCEPT OF HUB AND SPOKES BRANCHES:
The concept of HUB and Spoke branches was introduced by ANZ Grind lays Bank (now renamed Standard Chattered Bank). The bank couldn’t get the deMr.ed benefits and withdrew form it. Another bank which adopted the concept was National Bank of Pakistan (NBP), which also couldn’t get the deMr.ed results so both the banks disbanded it. Recently UBL has implemented this scheme with high hopes. Under the concept big branches of a zone are given
the status of Hub branches. The Hub branches monitor the activities of spokes branches. The number of branches under a Hub branch depends upon the resources of Hub branch and the location of the spokes branches e.g. in Peshawar there are two hub branches one is Peshawar Cantt branch and the other one is Khyber Bazaar branch. All the spoke and Hub branches work under the concerned area manager. He is responsible for the performance of these branches. He sits in the Hub branch and is assisted by a Vice President. In UBL this new concept of banking has shown tremendous results and is quite successful here. Unlike ANZ and NBP, UBL is getting benefits from it, and has improved its performance quite well.
3.3 DIVISION OF UBL’S OFFICE
Basically there are two types of offices in UBL 1. Head Office
2. Regional Head quarters
1. Head Office
Head office of UBL is in Karachi. It exercises overall control over the bank. The head office (HQ) has various functions. It formulates polices and ensures its implementation.
To supervise and control the operations of the regional offices.
To formulate policies and ensure its implementation by the field offices.
To deal/liaison with foreign donors like IBRD (World Bank), Asian
Development Bank, Islamic Development Bank, KFW (German Bank),
FMO Netherlands etc.
To deal with Ministry of Finance. To supervise RHQs.
To sanction loan applications received from the branches. To deal with ministry of finance.
2. Regional Head Quarters
There are Eleven Regional Offices of UBL which fully cooperate with the Head Office. UBL Regional Offices performance with reference to sanctions, disbursement, recoveries, and deposit mobilization is of vital importance to the bank operations. The functions are as follows:
To implement the policies formulated by the Head Office. To extend the credit facilities by keeping in view all the
prescribed conditions.
To recover/collect the existing long-term credits extended by the bank as per schedule.
To assist customers in the process of development by advancing loans for viable financial projects.
All the 1056 UBL branches are the representatives of the bank. These branches provide commercial as well as non-commercial banking facilities. Various structures involved in the organization of UBL are given below.
3.4 CONCEPT OF CONSUMER ASSETS CENTERS:
As the UBL was privatized the management started thinking about the consumer products as well the commercial products. For this purpose the management started hiring from all over the world in order to collect the cream, and make a world class team without any doubt.
The management took the consumer head from the bank which is consider as the pioneer in the consumer sector “City Bank”, and then he joined hands management and made all the possible ways to make UBL a World Class Bank on the Consumer Side as well in the Commercial Sector. They made collectively the plans to make Consumer Assets Centers in all over the country which was introduced first time in Pakistan.
The UBL’s Consumer Assets Centers are the state-of-the-art in the main cities like Karachi, Lahore, Islamabad and Peshawar. The Consumer Assets Centers are divided in main Head Office, Regional Centers and New Cities. At the time of launch the regions were 10 in the country but now it has been increased to 14.
In Consumer Assets centers the products are divided in to two types: The Secured, and Un-secured Products. The Secured include UBL Autos, UBL Address, and Credit Card while the UBL Money and UBL Cashline comes under the canopy of Un-secured Products.
There is a Group Executive, a Global Sales Head, Head Secured Financing, Head Un-secured Financing, National Sales Managers, Regional Sales Managers, Relationship Managers and the Relationship Officers.
3.5 TOP MANAGEMENT AT THE HEAD OFFICE: I. Board of Directors
The executive authority for the general direction and supervision of the Bank operations or the conduct of business of UBL vests in Board of Directors. The board consists of a Chairman and seven other Directors.
The chairman of the Board of Directors is the “Managing Director”. All the members of the Board of Directors, as well as the Managing Directors are appointed by the government of Pakistan.
II. Executive Committee
Executive committee of UBL consists of seven members. With the expectation of the president, and secretary all other members serves as In charge of many divisions. These members are Senior Executive Vice President (SEVP), or consultants hired on contract basis. The Division Heads that work under SEVP or consultants are either Senior Vice President (SVP), Executive Vice President (EVP) or Vice President (VP). The members of the executive committee other than the M.D. shall hold office for such period as may be determined by the Board. The decisions of the executive committee, other than those, which relate to matters specified by the board in this behalf, shall be laid before the board
Functions of Executive Committee
The members of the executive committee other than the M.D. shall hold office for such period as may be determined by the Board of Directors.
The decisions of the executive committee, other than those, which relate to matters specified by the board in this behalf, shall be laid before the board for approval.
Subject to the general or special direction of the board, The Executive Committee may deal with any matter within the competence of the board.
Managing Director
The Managing Director is responsible for the efficient working of the organization. He performs his duty according to the policies formulated by the Board of Directors and is directly answerable to it.
The Federal Government on such salary and on terms and conditions shall appoint the MD as it might deem fit.
The MD shall hold office for term of three years, which the government may extend from time to time.
The MD shall be the Chief Executive of the organization and shall perform such functions as required by the Ordinance and the rules and regulations made for the past.
ORGANIZATIONAL HIERARCHY CHART Board of Directors Executive Committee President/CEO SEVP EVP SVP VP AVP Office Grade 1
Non Clerical Staff Clerical Staff Officer Grade
III
Officer Grade II
ORGANIZATIONAL HIERARCHY CHART OF
CONSUMER SECTOR IN UBL
Board of Directors Executive Committee
President/CEO Group Executive Global Sales Head Head Secured Financing
National Sales Manager Senior Sales Manager Regional Sales Manager
Non-Clerical Staff Processors Relationship
officers Relationship
Manager
Head Un-secured
Financing
LOCATION MAP
WITH an integrated network of over 1000 branches in Pakistan as well as Overseas, UBL gives you direct access to a comprehensive range of better banking facilities to help you monitor your business locally as well as internationally.
CHAPTER – 4
DEPARTMENTATION
4.1 ACCOUNTS DEPARTMENT
This department deals with the internal accounts of the bank. The only Book maintained here is the cashbook. The summary book and main ledger are maintained.
The function of cashbook is to balance the daily transactions. At the end of the day this department receives cash position from the cashier. This position shows opening and closing balance.
TYPES OF ACCOUNTS
There are three types of accounts: Current Accounts
Saving Accounts Fixed Accounts
4.2 REMITTANCES DEPARTMENT
This dept is concerned with transfer of money from one place to another place. Remittance can take place in three different ways.
I. Mail Transfer
When a customer requests the bank to transfer his money from this bank to any other bank or the branch of the same bank in the city/ outside the city or outside the country, the first thing he has to do is to fill an application form in which he states that I want to transfer the money from this bank to another bank. If the customer is the account bolder of bank,
then the bank will debit his account. The concerned office will fill the different forms to make the mail transfer complete. Three forms used for this purpose are listed below;
Debit voucher Credit voucher Mail transfer register
If the customer is not the account holder of bank, then firstly he has to deposit the money and then the above said procedure will be adopted to transfer his money.
II. Telegraphic Transfer
This type of transfer is simple. After filling the application form, the concerned officer fills the telegraphic form. This telegram is sent to the required bank. Which on receiving it immediately makes the payment to the customer and afterwards the vouchers are sent to the bank by ordinary mail.
III. Demand Draft
DD is just a check and is issued when the customer wants to take the draft personally. The idea behind it is that as the cash is not safe to be kept along and a check in the shape of a draft is safer and one can easily get cash by presenting it in the bank, on whose favor it has been made.
Draft is only issued when the customer is known to the bank and the bank has the confidence that the customer will not do anything wrong with the draft. For the preparation of a draft, first of all customer has to fill an application form, then the concerned officer fills the following before delivering the
draft to the customer. The forms filled for this purpose are as follows;
Demand draft register Credit vouchers
4.3 DEPOSITS DEPARTMENT
The main economic function of the commercial bank is to receive surplus balances of individuals, firms, public institutions and to honor check drawn up to it. The funds deposited with the commercial banks are classified under four main heads.
I. Current or Demand Deposits
In this type of deposits, the depositor at any time by presenting a check can draw his money from the bank. People keep some of their deposits in current account in order to have ready command over money. No interest is given on current deposits, because it is subject to transfer or cashing by check at sight. The bank charges commission on the account, which is called bank charges.
II. Saving Deposits
This deposit refers to the deposits, which are kept to meet the customer and unexpected outlay or to safeguard financial respectability. The bank undertakes to repay the money on demand up to a certain limit fixed by the rules of the bank. The bank pays interest to the customers on saving deposits. The customer has to give a notice to the bank about two weeks in advance for withdrawal of large amounts.
III. Fixed Deposits
Fixed deposits are those, which are repayable only after the expiry of the stipulated period i.e. from three months up to sixty months. The rate of interest depends upon the length of the period. The rate of interest on fixed deposits is higher than saving account, because the bank can safely utilize these deposits for a certain period. Customer is allowed to borrow the required amount, which should not exceed his fixed deposit. The bank charges one or two percent higher rate of interest than the profit allowed to him at his fixed deposit. The bank issues a receipt against the fixed disposition stating the amount and the time of expiry to the customer. There is no paying book or passbook or checkbook issued to the depositor.
Call Deposits
It is a type of bank guarantee on behalf of the depositor given at call. In this case, Security Deposit Receipt (SDR) is issued by the bank at the instructions of the depositor, confirming that amount of the SDR is held by the bank, to be paid whenever called upon to do so by the beneficiary named in the SDR.
4.4 ADVANCES DEPARTMENT
It is the loan function, which produces the major portion of banks’ income, and as such it is one of the major areas of professional bankers’ concerns and attention.
A bank generally deals in following areas; Agricultural finance
Commercial finance Industrial finance Export finance
Import finance
In addition to the above-mentioned broad areas, there are loans available to small size businessmen, construction companies etc.
In UBL, advances department is responsible to deal with following cases;
1. Handle all the cases of short and long term loans. 2. To process all the cases concerned.
3. To forward the cases for approval and consideration to the higher authorities.
4. To deal with the borrower directly.
5. To implement the disbursement of the loan.
6. To give feed back to higher authorities in advance. UBL advances loans in the following manners:
I. By Cash Credit
In this form of lending, the bank lends money to the borrower against a tangible security. The total amount of the loan, which is given, is not paid in one installment. The borrower has to pay interest on the amount borrowed. Cash credit is the favorite loan for large commercial and industrial concerns, on account that the customers need not to borrow at once the whole amount he is likely to require, but can draw such amount as and when required.
II. By Discounting Bills of Exchange
It is another method of advancing loans to borrowers. The holder of bills is paid an amount equal to the face value of the bill after deducting interest at the market rate for the period the bill has to mature. Interest in this type of loan can be charged as running finance and demand finance.
III. By Over Drafting
This facility is given to regular, reliable and well- established customers. The bank charges interest on the extra money, which the borrower takes.
When a customer requires temporary accommodation, he may be allowed to overdraw his current account usually against collateral security. From the customers point of view this agreement like cash credit is advantageous, as he is required to pay interest on the amount actually used by him.
4.5 FOREIGN EXCHANGE DEPARTMENT
In modern banking system, foreign exchange department plays very crucial and important role from every aspect. It is parallel banking with general banking with an additional function of import and export business controlled by State Bank of Pakistan. Rules and regulations are framed by state Bank of Pakistan in the form of manuals. Foreign exchange department under SBP regulations also carries out international banking of UBL. Foreign exchange is being controlled by SBP. No transaction can be affected without permission of SBP, under foreign exchange regulations Act 1947 and notification issued there under. Exchange control department of State Bank of Pakistan is responsible for day-to-day administration of exchange control.
All the transactions shall be done at rate authorized by SBP. For this purpose, US dollar has been fixed by SBP and the rates of other currencies are calculated in accordance with the formula approved by SBP and as published daily by the Foreign Exchange Rate Committee in Karachi. Head office ensures that the branches
receive the rates published by Foreign Exchange Rate Committee on the same day.
The foreign exchange department provides the following services;
1. Foreign Currency Accounts
Foreign currency in UBL can be opened in 4 major currencies of the world i.e. US dollar $, Japanese Yen, German Mark, DM and Pound Sterling. Only authorized branches of UBL can deal in foreign currency account.
Pakistani citizens and foreigners both can open foreign currency account by introduction and following the procedure required for general accounts with one exception for foreigners that they will have to submit a copy of their passport. The account may be personal or joint.
Amount deposited in foreign currency account must be in four currencies, which were mentioned earlier. When the customer will withdraw the money he will receive the amount in the same foreign currency. Profit will also be in the same currency. There are two types of foreign currency account;
a. Current account b. Saving account
I. Current Account
On current account, no profit is given to the account holder. This account is exempted from zakat, income tax and wealth tax. Worldwide remittances (inside and outside) facility is given to customer. Cash travel checks, foreign exchange bearer certificate, and coming for customer can be deposited in his account.
Similarly account holder can shift the amount or any part thereof to foreign countries through exchange remittances service.
II. Saving Account
On saving account, a handsome profit is paid to the account holder. On saving account, profit is paid to the customer in the same currency in which he had opened the account. This account is also exempted from zakat, income tax and wealth tax etc.
Saving account can be opened with an amount of $ 100 equivalent in other three currencies. The facility of inward and outward remittance is also granted to the customer. Profit is paid on monthly product basis.
2. Sale and Purchase of Foreign Currency
UBL is an authorized dealer of State Bank of Pakistan. It can sell and purchase foreign currency. UBL usually involves sale and purchase of US dollars, Japanese yen, Pound Sterling, German Mark, Saudi Riyal, and UAE Durham.
Daily exchange rate by SBP from ANZ Grind lays Bank Karachi is sent to all the branches authorized in foreign exchange. Daily sale and purchase of foreign currencies is done according to that rate sheet issued by SBP on daily basis. Sale and purchase rates of foreign currency are different.
The purchase of coins is avoided, only notes are purchased. Only those foreign currencies are purchased for which resale to customer is possible. And only those persons, who have passport, can sell and purchase foreign currency to or from UBL. Foreigners can also sell foreign currencies by showing their passport.
There are 5 rates of foreign currencies: 1. For import
2. Cash purchase 3. Cash sale
4. Travel check purchases 5. Foreign currency
It is the policy of UBL to involve only in the sale of hard currencies i.e. those, which are easily accepted. Head office of UBL has given certain limits to each authorized branch about the custody of foreign currency. If the amount exceeds this limit, the branch must transfer the cash to feeding branch or SBP.
All the authorized branches of UBL must submit following reports about foreign exchange business;
1. Report to general manager office 2. Monthly business report to SBP 3. Monthly report to head office
3. Remittances in Foreign Exchange
As we know that the money of one country is not legal tender in other countries. The monetary device, which has been evolved, for all international payments is the foreign exchange from the exporter and others who have it for sale and sell foreign currency to importers and others who need it in their own countries. A transfer from a bank account in the debtor’s country to the creditor’s country affects the international payments.
Two branches of the same bank or of different banks involve in foreign remittance. One is called remitting branch or bank and the other is called receiving branch or bank. In foreign currency, SBP
has given general permission to authorized dealers in foreign exchange including UBL to affect remittances for specific purposes without referring it to (SBP) for approval i.e. remittance on account of education subscription, books and periodical of technical nature. Remittance can be done in following ways;
1. Telegraphic Transfer (TT) 2. Mail Transfer (MT)
CHAPTER – 5
BANKING EFFORTS
5.1 COMMERCIAL BANKING
If you have a small or medium-sized business, UBL can assist you with the right mix of banking services that will help you manage and grow your business. Our experts will facilitate you in the varied financial situations that you come across. We will respond to your needs promptly because we understand how many your customers, your employees and you depend on us.
5.2 CONSUMER BANKING
You as an individual can gain and benefit the most through UBL Consumer Banking. In UBL you get friendly, efficient and attentive personalized banking services - a unique banking relationship experienced by each UBL client. You can utilize the following services
UBL Cash line UBL Address UBL Drive PLS Term Deposits PLS Savings Accounts Uni-Saver Remittances
5.3 CORPORATE BANKING
Our mission is to serve all your corporate needs and ensure your full satisfaction through product innovation, personalized banking, and top notch service.
The CBG department of UBL defines corporate banking in Pakistan. Amongst the local banks UBL CBG is the pioneer in providing innovative solutions to its diversified and satisfied customer base. UBL CBG is considered to be a major player in the financial market of Pakistan.
The Corporate Banking Group focuses on attracting and servicing large portfolio customers. Our effort is providing exemplary customer service using the "Single Window" concept and product superiority. The Relationship Management team managed by highly qualified individuals from the industry has steadily expanded our customer base and continues to enhance our cordial relations with our esteemed clients.
Despite the sluggish economic growth in recent years, UBL outperformed all the other local banks in the corporate banking sector primarily due to CBG's emphasis on establishing and enhancing relationships with foreign/local blue chip and middle market customer’s thereby capturing significant market share.
UBL's appetite for large exposures coupled with dedicated Structured Finance Unit, and an innovative team of professionals having extensive experience of Corporate Banking gives it the right platform to succeed in todays competitive and a demanding environment.
The success of CBG has been established from the fact that UBL received the 'No.1Euromoney 2000' Best Local Bank award and recognized it to have out performed all other banks. In year 2000, UBL was also voted as the best Corporate Bank by the customers of a major foreign bank in a survey. Aggressive marketing combined with professionalism has led to an increase in UBL's market share with top corporate customers and in some cases replacing Foreign Banks.
FINANCIAL PRODUCTS
5.4 UNI CASH
Nowadays carrying cash while going out of your home is very risky. Every body wants maximum security while keeping his money in his pocket. People make use of TC and various credit cards for this purpose. UBL provides such facility through UNI CASH. The management of UNI CASH is carried out in the following way.
I. Personal Identification Number
When a Uni-Cash card is issued to a customer, a unique number known as Personal Identification Number (PIN) is also allotted to him/her. This is 4 digits confidential number which when used in conjunction with the Uni-Cash card enables the customer to avail the cash point service. To keep it secret even from the bank staff, the PIN is generated and printed in a special manner by the computer on pre-sealed, tamper proof PIN millers. These PIN millers are designed in such a way that the PIN is only visible after the envelope is opened by the customer.
II. Card serial number
The customer will notice that some numbers and alphabets are embossed on his Uni-Cash card. The first line obtains UNICASH CARD SERIAL NUMBER while the other line has customer’s name, account number and card expiry Month/ Year.
III. Weekly withdrawal limits
The Uni-Cash card issued to customer carries a weekly withdrawal limit, which applies to cash withdrawal, made from any of the cash point. This limit is equal to initial amount deposited by him at the time of applying for his card.
IV. Cash points
For customer’s convenience, a number of cash points are available in the country. These machines are at customer’s service round the clock on all days of the year. Uni-Cash card can be used in these machines. Besides cash withdrawal, cash points would provide the following facilities;
Balance Inquiry Mini Statement Pin Change
V. Card Captures
Cash points will automatically capture card that have been duly reported as lost or have been cancelled or have expired. Similarly if one fails to key-in his correct PIN, in three repeated attempts, the card will be captured.
VI. Loss of Card
In case, customer loses his UNI CASH card or the card is stolen, the matter should invariably be brought to the notice of the bank personnel.
5.5 UNI SONA
This product has been designed to attract more and more savings. As inflation in Pakistan is at a very high rate, due to which money has very limited value.
The features of Uni-Sona are the following;
The amount deposited in the bank becomes triple after seven years.
If person withdraws his money after five years he will get double amount as compared to its initial deposits.
There is also a facility for partial withdrawal from principle amount. For example, if a person has deposited Rs.50, 000,000 in January 1993 and he withdraws Rs.20, 000,000 in January 1995. In 1996 the person has Rs. 30,000,000. This amount will receive the same interest rate and would be doubled (Rs. 60,000,000) in January 98 and triple (RS. 90,000,000) in January 2000.
5.6 UNIZAR
It is a special type of foreign currency account and can be opened in two currencies i.e. US $ and Pound Sterling. Minimum amount required for opening of this account is 750 pounds or $ 1000. Profit is paid in the currency in which the account is opened. Rate of return of 2.25% is paid to the depositor.
A special feature of this account is that withdrawal from the deposits can be made anywhere in the world in the UBL branch.
5.7 UNISAVER
It is a special type of account designed for corporate savers. This account can be opened with Rs.1 m up to Rs. 10 m. The minimum profit rate is 4% while maximum limit is 8%. Profit is paid on daily product basis. Any one can open this account.
CHAPTER – 6
FINANCIAL ANALYSIS
Financial analysis is performed in order to determine whether the business organization is performing satisfactorily or not in respect to other competitive organizations.
Financial analysis is the process of identifying the financial strengths and weaknesses of the firm by properly establishing relationships between the items of balance sheet and profit and loss account. Financial analysis can be undertaken by management of the firm or by parties’ outsides the firm viz. owners, creditors, investors and others. The nature of the analysis depends on the purpose of the analyst.
Trade creditors are interest in firm’s ability to meet their claims over a very short period of time. Their analysis will, therefore, confine to the evaluation of the firm’s liquidity position.
Suppliers of long term debt on the other hand are concerned with the firm’s long term solvency and survival. They analyze the firm’s profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds (capital structure relationship). Long term creditors do analyze the historical financial statements but they place more emphasis on the firm’s projected financial statements to make analysis about its future solvency and profitability.
Investors, who have invested their money in the firm’s share, are most concerned about the firm’s steady growth in earnings. As such, they concentrate on the analysis of the firm’s present and future profitability. They are also interested in the firm’s financial
structure to the extent it influences the firm’s earnings ability and risk.
Management of the firm is interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently and that the firm’s financial condition is sound.
UNITED BANK LIMITED RECASTED BALANCE SHEET
AS AT DEC, 31, 2009
(Rupees in 000)
Assets 2009 2008 2007
Cash and balances with treasury banks 34,062,679 23,844,435 17,274,461 Balances with other banks 12,729,207 17,699,334 11,366,434 Lending to financial institutions 17,867,552 18,360,633 23,096,028
Investments 63,026,944 54,953,728 56,516,760
Advances
Performing 201,152,095 139,699,440 92,513,736 Non-performing 3,658,375 4,481,615 3,611,442 Other assets 7,829,770 4,439,580 3,001,793
Total current Assets 340,326,622 263,448,765 96,125,178
Fixed assets 4,449,324 3,969,006 3,754,236 Deferred tax asset-net 2,273,005 5,194,892 5,486,357
Total Assets 347,048,951 272,612,663 216,621,247
Liabilities
Bills payables 4,159,964 3,811,284 2,975,910 Borrowing from financial institutions 21,790,480 11,975,684 7,710,375 Deposits and other accounts 289,226,299 230,256,627 185,071,502 Subordinated loans 3,999,192 3,500,000 ---Liabilities against assets subject to
finance lease --- 288 39,995 Other liabilities 6,204,746 5,704,749 4,541,704 Total liabilities 325,380,681 225,248,632 200,339,486 Net Assets 21,668,270 17,364,031 16,281,761 Owner’s Equity Share capital 5,180,000 5,180,000 5,180,000 Reserves 6,225,461 5,915,928 4,678,317 Inappropriate profit 7,250,813 3,274,439 1,384,490 18,756,274 14,370,367 11,242,807 Surplus on revaluation of assets 2,911,996 2,993,664 5 ,038,954
Total owner’s equity 21,668,270 17,364,031 16,281,761 Total liabilities and owner’s equity 347,048951 272,612,663 216,621,247
UNITED BANK LIMITED RECASTED INCOME STATEMENT FOR THE YEAR ENDED DEC, 31,2009
(Rupees in 000)
2009 2008 2007
Markup/return/interest earned 20,158,860 9,233,881 8,944,260 Markup/return/interest expensed 6,045,848 1,732,760 1,888,349
Net markup/interest income 14,112,912 7,501,121 7,055,911
Provision against loans and advances-net 1,277,002 435,414 444,871 Provision (reversal) for diminution in value of
investment-net
112,666 (100,381) 104,285 Bed debts written off-directly 38,140 3,841 12,897
1,427,808 338,874 562,053 Net markup/return/interest income after
provision 12,685,104 7,162,247 6,493,858 Net markup/interest income
Fee, commission and brokerage income 2,543,739 1,654,475 1,442,642 Dividend income/ gain on sale of investments 583,982 1,102,510 2,057,314 Income from dealing in foreign currencies 675,109 668,085 436,656 Other income 1,210,202 1,072,750 607,500
Total non-markup/return/interest income 5,013,032 4,497,826 4,544,112 EBIT 17,698,138 11,660,073 11,037,970 Non markup /interest Expense
Administrative expenses 7,874,013 6,794,311 6,153,913 Other provision /write offs/(reversals) 335,409 (34,422) 551,840 Other charges 7,066 10,456 5,501
Total non markup/interest expenses 8,216,488 6,770,345 6,711,254
Extraordinary items ---- --- ---Profit before Taxation 4,889,728 4,326,716 4,889,728 Taxes 498,748 283,083 193,050
Net Profit 4,606,645 4,043,633 3,614,750
6.1 RATIO ANALYSIS
Ratio analysis is a powerful tool of financial analysis. A ratio is defined as “the quotient of two mathematical expression” and as “the relationship between two or more things”. In financial ratio analysis a ratio is used as benchmark for evaluation the financial position and performance of a firm.
STANDARD OF COMPARISON
The ratio analysis involves comparison for a useful interpretation of financial statements. A single ratio is itself does not indicate favorable or unfavorable condition. It should be compared with some standard. Standard of comparison may consist of:
Past Ratios
Ratio calculated from the past financial statements of the same firm.
Competitors Ratios
Ratios of some selected firms, especially the most progressive and successful competitors at the same point in time.
Industry Ratios
Ratios of the industry to which the firm belongs.
Projected Ratios
Ratios developed using he projected, or Performa, financial statements of the same firm.
Table No. 6.1 Financial Ratio’s at a glance 2007, 2008, and 2009 Years 2007 2008 2009
Gross profit margin 78.8% 81.23% 70%
Net Profit Margin 40.41% 43.79% 22.85% Return on Assets 1.67% 1.47% 1.33% Return on Equity 22.20% 23.29% 21.26% Current ratio 0.48 1.17 1.05
Cash ratio 0.14 0.18 0.14
Debt to Equity Ratio 12.30 12.97 15.02
Current Asset Turn Over Ratio 3.76 1.53 1.35 Taxation to Total Income 5.34 7.00 10.83 Assets Turnover Ratio 0.023 0.023 0.013 Fixed Asset Turnover Ratio 0.96 1.02 1.03 Interest Coverage Ratio 1.64 1.72 2.15 Interest Expense to Deposit 3.63 2.94 2.84
6.2 RATIO ANALYSIS DETAILED I. Profitability Ratios
The objective of any firm is to increase the wealth of shareholders. So profitability ratio is calculated in order to determine how much increase or decrease has occurred in the wealth of shareholders of a business.
II. Gross Profit Margin
This ratio tells us the profit of the firm related to sales after deducting the cost of producing the goods or ini other words an indication of the total margin available to cover operating expense and yield a profit.
Formula: {Gross Profit / Net Sales} x 100
Gross Profit Margin (2007) = {7,055,911 / 8,944,260} x 100
Gross Profit Margin (2008) = {7,501,121 / 9,233,881} x 100
Year 2007 2008 2009 Gross Profit Margin 78.8% 81.23% 70%
Graph 6.1 Gross Profit Margin
64 66 68 70 72 74 76 78 80 82 2007 2008 2009 Gross profit ratio Years
The Gross Profit of the bank in 2007 was 78.8%, which increased to 81.23% and then decreased to 70%. The gross profit decreased in 2009 because of increase in cost of goods sold.
III. Net Profit Margin
The net profit margin is a measure through which the fir’s profitability is measured. It tells about the firm’s net income per dollar of sales.
Formula: {Net Income / Net Sales} x 100
Net Profit margin (2007) = {3,614,750 / 8,944,260} x 100 Net Profit margin (2008} = {4,043,633 / 9,233,881} x 100 Net Profit margin (2009} = {4,606,645 / 20,158,860} x 100
Year 2007 2008 2009
Net Profit Margin 40.41% 43.79% 22.85% Graph 6.2 Net Profit Margin
0 5 10 15 20 25 30 35 40 45 2007 2008 2009
Net profit margin
Years
The net profit ratio shows that net profit increased from 2007 to 2008.But decreased in 2009, which is partially because of increase in expenses and cost of goods sold.
IV. Return on Assets
It is the ratio that explains that how efficiently the assets are being utilized. The high return on assets means efficient utilization of the assets.
Formula: {Net Income / Total Assets} x 100
Return on Assets (2007) = {3,614,750 / 216,621,247} x 100 Return on Assets (2008) = {4,043,633 / 272,612,663} x 100 Return on Assets (2009) = {4,606,645 / 347,048,951} x 100 P11 2007 2008 2009 Return on Assets 1.67% 1.47% 1.33%
Graph 6.3 Returns on Assets
0 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 1.8 2007 2008 2009 Return on Asset Years
The return on assets decreases gradually as can be seen from the above table. It shows that the assets are not utilized efficiently. This should be controlled in order to improve the bank financial position and attract more deposits.
