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Chapter #01

INTRODUCTION

BACK GROUND OF STUDY

In a modern economy of today, banks play a very important role in the economicdevelopment of a country so we can say that banks play a role of backbone in theeconomy of any country. A Bank is also known as banke, banc, banque, is a businessthat provides a banking service profit. Bank is a financial intermediary between the

borrowers and lenders. It borrows from one party and lends to another and thedifference between the terms in which it borrows and lends is the source of its profit.

The banker business is to take the debts of the other people to offer his own inexchange and there by creates money. The banks influence the economic activity intwo ways. Firstly the lowering of interest rate makes the investment more profitableand an increase in the interest rate discourages investment. Secondly, the making ofcapital available to the investors increases investment, production and trade in theeconomy and vice versa.Different sectors works in a particular economy. Where the financial sector play aleading role the economy of that particular country. The financial sector in Pakistancan be grouped into banking and non-banking financial institutions (NBFIs). Bankinginstitutions include large public sector scheduled banks; private sector banks andforeign banks while NBFIs include development finance institutions (DFIs), private

sector investment banks, leasing companies modarabas and mutual funds.At the time of independence of the county Pakistan, In 1974, under the Banks(Nationalization) Act 1974, 13 commercial banks were nationalized and weremerged/amalgamated into five commercially viable units i.e. Habib Bank Limited,

National Bank of Pakistan, United Bank Limited, Muslim Commercial Bank, andAllied Bank Limited on the basis of their respective strengths and weaknesses.Pakistan Banking Council (PBC) was set up in 1974 to look after the administrativematters of nationalized commercial banks and co-ordinate their activities within theframework of basic policies laid down by the State Bank.

OBJECTIVES OF STUDYING THE ORGANIZATION

The aim of assigning this project was to apply theoretical knowledge in practical field.It was a good opportunity for me to develop new concepts and test the learnedconcepts in the presence of organizational complexity. In order to practice anddevelop personal skill in an organizational setting I have completed this project.I have been given an excellent opportunity by my adviser to study operation to BankAlfalah Limited, as an internee at its Jinnah Road Rawalpindi Branch. Bank Alfalah isthe only Islamic Bank working in the Pakistan. Keeping in view the great reputationof Bank Alfalah, I have tried my best to explain all the banking operation learnedduring my internship and to remain very careful while problem identification andgiving suggestions as well as I can.

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I availed the opportunity of getting experience in five departments that are CustomerServices Department, Marketing Department, Documentary Credit Department,Account Department, Credit DepartmentThis report is one of the necessary elements to get the Master of BusinessAdministration Degree from the Allama Iqbal Open University. As a part of my MBAstudies I went through six weeks internship at Bank Alfalah. During the internship

period, I hope that this report will give a detail and true picture of the Bank and what Idid and learnt during my training program. I also try my best to write this report insuch a way that gives more information about the financial accounting systems andratio analysis techniques to the reader in simple language. For the sake of simplicity, Ihave divided this report in portions. So, reader will not face any difficulty inunderstanding this report. I have also tried my level best to obtain as accurate data and

present all what I have learnt in the following pages. I hope that this report will be atrue representative of my efforts and will satisfy the purpose, which I was meant to

achieve.

BANKING SECTOR OF PAKISTAN

Banks in a Public Sector

Such banks work under the direct control and authority of the government. These arealso owned by the government. The chief executive of such banks is appointeddirectly by the federal government. The banks provide finance for the developmentscheme launched by the Government priority. Public sector which is the large part ofthe economy has scheduled commercial banks, namely National Bank of Pakistan andFirst Women Bank are owned by the government of Pakistan (GoP). Although other

banks, Habib bank limited, Muslim Commercial Bank, Allied Bank Limited andUnited bank Limited were privatized but still GOP has significant stakes in them.These six large banks are dominant in terms of total number of branches, deposits andadvances, collectively accounting for 72% to 74% of total deposits and advances.

Banks in a Private Sector:

These banks are controlled by individuals or private organization, in any economy the private sector is the dominant sector of the economy. Private sector banks arerelatively new compared to public sector banks. These banks are still very small in

terms of branch network and level of operations. They focus on very selective marketsegments where they are quite successful. Despite a lower profile in total deposits andadvances, these banks account for 22% of the total profitability of the sector.These banks are Askari Commercial Bank, Bank Al Falah Limited, Bolan bankLimited, bank Al- Habib limited, Faysal bank Limited, KASB bank Limited, Meezan

bank Limited, Metropolitan bank Limited, Prime Commercial bank Limited, NationalInvestment bank Limited, Saudi-Pak commercial Limited, Soneri bank Limited andStandard Chartered bank limited.

Foreign banks:

The banks which have there head offices in some other countries or incorporated in

foreign country are known as foreign banks. According to the development of theparticular country some time we must also concern with the financial system of the

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foreign countries. Owing to the inefficiencies of the public sector scheduled bankswhich stem from their nationalization in the 70s, the relatively lower standing of the

private sector banks and the dollarisation of the economy, foreign banks have beenable to perform extremely well by exploiting gaps in the local banking sector. Thereare 16 foreign banks operating in the country:ABN AMRO, Al-Baraka Islamic bank, American express bank Limited, bank ofTokyo Mitsubishi Limited, Bank of Ceylon, Credit Agricole, Indosuez, Citi bank

N.A, Deutsche bank A.G, Doha bank, Habib bank A.G Zurich, Hong Kong &Shanghai Banking Corporation Limited, International Finance Investment &Commerce bank Limited, Mashreq bank P.S.C, Oman International Bank S.O.A.G,Rupali bank Limited, Standard Chartered bank.The foreign banks have a strong presence in all the major cities and are targeting highnet worth individuals and blue chip companies. Their strategy is quite successful asthey account for 34% of total sector profits, despite having only 5% of deposits and

6% of advances.Micro Finance banksCurrently there are two micro finance banks are operating in Pakistan. One isKhushhali bank and other is the first micro finance bank Ltd.

PURPOSE FOR UNDERSTANDING THE BANKTo get knowledge about daily business activitiesTo apply knowledge in practiceTo understand the policiesTo study the status of the organizationTo understand the managerial efforts

To find out problems and give their recommendations.To gain experience of banking applications and procedures.To fulfill the requirement for award of degree.

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Chapter #02

OVER REVIEW OF BANK ALFALAH LIMITED

VISION

To be the premier organization operating locally &

internationality that provides the complete range of

financial services to all segments under one roof.

MISSION

To develop & deliver the most innovative products,

manage customer experience, deliver quality services that

contributes to brand strength, establishes a competitive

advantage and enhances profitability, thus providing

value to the stakeholders of the bank.

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History of Bank Alfalah limitedBank Alfalah Limited was incorporated on June 21st, 1997 as a public limitedcompany under the Companies Ordinance 1984. Its banking operations commenced

from November 1st, 1997. The bank is engaged in commercial banking and relatedservices as defined in the Banking companies ordinance, 1962. The Bank is currentlyoperating through 234 branches in 74 cities, with the registered office atB.A.Building, I.I.Chundrigar, Karachi.Since its inception, as the new identity of H.C.E.B after the privatization in 1997, themanagement of the bank has implemented strategies and policies to carve a distinct

position for the bank in the market placeStrengthened with the banking of the Abu Dhabi Group and driven by the strategicgoals set out by its board of management, the Bank has invested in revolutionarytechnology to have an extensive range of products and services.This facilitates our commitment to a culture of innovation and seeks out synergies

with clients and service providers to ensure uninterrupted services to its customers.We perceive the requirements of our customers and match them with quality productsand service solutions. During the past five years, we have emerged as one of theforemost financial institution in the region endeavoring to meet the needs of tomorrowtoday.

A Progressive Bank with Its Own Style and Philosophy

With the shortest period of time BAL emerged as a dynamic and a large internationalorganization. In 1969 the management of the union bank limited in corporate informer East Pakistan was handed over to BAL which was later merged with BAL inearly seventies.In view of highly impressive growth and development achieved during its 43 year ofexperience, BAL has come to be accepted has one of the most progressive anddynamic component of the banking industry in Pakistan.

Record Performance

The financial results of the early years of the banks operation shows that the newbank got off to a flying start and was set to beat past record of growth in Pakistans

banking history. Although the bank use the conventional banking apparatus of theday, its approach was market oriented and appealed to the customers. In fact everyfeatures and aspect of BALs behavior reflected and highlighted the differences. Mostsignificantly the style of the addresses to the customers differed.

Catalyst of change

BALs emergence proved a catalyst and brought changes in the banking sector as awhole. The Bank customer relations attained a new dimension and courtesy,

politeness and efficiency gained fundamental importance. Convenience of thecustomers remained the core and criterion of this relationship. BAL the scene in the

office and the branches redesigned and modernized

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Ready for 21st CenturyBank Alfalah Limited has stepped in to the 21st century with confidence. Now that theBank has privatized and 51% shares have been purchased by investors i. e. The Best

Way group UK and Abu Dhabi consortium electing HH. Sheikh Nahyan al Mubarikas Chairman, who have retained Mr. Amar Zaffar Khan as President and CEO of BALin order to continue toe policies of dynamism and therefore. BAL has geared itself to

provide the services which the customers in the modern day banking expect from abank.The Bank also ha plans to play its dynamic role in the overall development of thecountry. It is now well equipped with the last technologies and professionalexperience to face the future with determination and confidence and with its highaims and sense of direction to serve the Nation with zeal and devotion.

VALUES OF AL FALAH BANKAl Falah Bank is firmly grounded with a corporate philosophy that incorporates fivesolid values which each individual associated with the bank abides by.

HumilityAl Falah encourages a culture of mutual respect and treats between team membersand customers with humility and care.

IntegrityFor Al Falah, integrity means a synergic approach towards abiding their core values.United with the force of shared values and integrity, Al Falah forms a network of awell-integrated team.

Meritocracy

At every level, from selection to advancement, Al Falah has designed a consistentsystem of human resource practices, based on objective criteria throughout all the

IntegrityHumility

Team Work

Meritocracy

Culture of

Innovation

Al

Falah

bank

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layers of the organization. Al Falah therefore able to achieve a specific level ofperformance at every layer of the organization.

Team WorkTeamwork becomes a cohesive and unified force, to offer the customer, a level ofservice beyond their expectations. This force is derived from participative andcollective endeavors, a common set of goals and a spirit to share the glory and thestrength to face failures together.

Culture of InnovationAl Falah aim to be proactively responsive to new ideas, and to respect and reward theagents, leaders and creators of change.

BUSINESS VOLUME

Abu Dhabi Group is represented in Pakistan by the following entities;

Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limitedcompany. Bank Al Falah wholly owned other organizations namely United Bank(PVT) LTD., Al Falah Insurance Co LTD, Al Falah Securities PVT Ltd.Al FalahGHP, Warid Telecom and Wateen Telecom. The market share of HBL is 16% of total

banking sector in Pakistan.

Business volume:

Rs. In million

2004 2005 2006 2007 2008

Assets 154835 248314 275686 328895 348991

Investment 35503 57416 56502 88492 75973

Deposits 129715 222345 239509 273174 300733

Advances 88931 118864 149999 171199 192671

EBIT 2026 2966 3264 6906 3831

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Business Volume

0

50000

100000

150000

200000

250000

300000

350000

400000

2004 2005 2006 2007 2008

Assets

Investment

Deposits

Advances

EBIT

Balance Sheet (Rs. in million)

2007 2008Total deposits 273,174 300,733Total assets 328,895 348,991Advance 171,199 192,671Share holders equity and Revaluation surplus 13,767 14,609Capital adequacy ratio 9.85% 8.03%

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

Total

deposits

Advance

Capital

adequacy

ratio

2008

2007

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GROUPS OF BANK AL FALAH LIMITED

Bank Al Falah hits the different market segments and for each segment a differentGROUP is maintained for this purpose. Each group fulfills the needs of the customers

by giving desired products. Retail Banking

Corporate Banking

International and Overseas Banking

Global treasury

Corporate planning and information technology

Global compliance

Human resource and organizational development

2,007 2,006

(Rs. In '000)

Profit Before Provision and Taxation 6,906,419 3,830,717

Provisions (2,370,867) (2,035,997)

Profit Before Taxation 4,535,552 1,794,720

Taxation (1,405,323) (493,419)

Profit After Taxation 3,130,229 1,301,301

Earning Per Share Rs 3.92 Rs 1.63

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CONTRIBUTION FOR SOCIAL WELFARE

Apart from playing a historical role and pivot role in banking bank Alfalah has

reflected its interests in humanitarian goals contributing the social welfare of thepeople. Various secular institutions have been established through out the country andgrants, stipends and scholarships are regularly given to students with high academicmerits.Special support has also been extended to health awareness programs for the illiterate,as how to safeguard health through preventive measures and control or cure commondisease. Greater emphasize is given to preventive measures, hygienic habits andchildcare to combat the high infant mortality rate.In times of natural disasters such as floods, earthquake and other such phenomenon itis in keeping with the spirit and tradition of the banks pioneer to come to the forefrontin helping to alleviate the resulting misery of the affected victims by providing money

and kind.Commitment and dedication to a nation is at the core of its success and development.The bank takes pride in playing its role towards the betterment of society and furtherserving the nation.Bank Alfalah not only playing an economy in Pakistan, but has also played a majorrole in promoting national sports. It has thereby inspired a sporting spirit, which isreflected by of its players earning international fame in the field of cricket endhockey.

Number of Employees

Human Resource being the pulse of any organization and is its most precious asset.Training of this resource is of vital importance. With this key factor in mind BankAlfalah pioneered its first training programme in 1997, in which youth were recruitedafter an extensive tour of leading academic institution.Training programs are conducted with the latest aids and equipment and involveextensive to new recruits and existing staff with specialized courses that cater to thedifferent cadre of personnel on topics of management, marketing, selling, accountingand finance, banking law and practice and internal procedure. The total numbers ofemployees were 7584 on 31/12/2008.

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Chapter #03

PRODUCTS AND SERVICES

Current Account:

Non interest bearing checking account. Minimum account opening requirement of Rs. 10,000 only. Free debit card can be used to withdraw cash and make purchases at thousands

of outlets across Pakistan which provides access to funds 24 hours a day. No restriction on number of withdrawals and on number of deposits

PLS Savings Account:

Profit & Loss Sharing Saving Bank Account. Minimum account opening requirement of Rs. 5,000 only. No restriction on number of withdrawals and number of deposits. Profit on saving accounts is credited to the customer account on half-yearly

basis. Free debit card can be used to withdraw cash and make purchases at thousands

of outlets across Pakistan which provides access to funds 24 hours a day.

Royal Profit:

Minimum Deposit requirement of Rs. 50,000 only. Higher returns on higher balances. No restriction on number of withdrawals and on number of deposits. Free debit card can be used to withdraw cash and make purchases at thousands

of outlets across Pakistan which provides access to funds 24 hours a day.Profit is credited to the customer account on monthly basis.

Basic Banking Account:

Initial deposit for account opening is Rs. 1,000 with no minimum balancerequirement.

Non interest bearing checking account. Maximum 2 deposits & 2 withdrawals through cheque is allowed. Free debit card can be used to withdraw cash and make purchases at thousands

of outlets across Pakistan which provides access to funds 24 hours a day. No restriction on ATM withdrawal.

Any Pakistani resident over the age of 18 can open this account. This account is for

individual/joint customers only. Other customers like companies, corporate etc are noteligible for opening of this account.

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Minimum balance requirement for opening this account is Rs. 10,000/- with amaximum of Rs.1, 000,000/- Three debit transactions are allowed in a month eitherthrough cheques or Debit Card/POS machine. There is no restriction on deposittransactions.The bank will issue the first cheque book of 25 leaves and a Debit card free of cost.When will the profit be credited in the account? Profit will be calculated on monthlyminimum balance basis and will be credited in the account on quarterly basis. No

profit shall be payable for a particular month, if the minimum balance for anyparticular day of said month falls below the amount of Rs. 10,000/-. Yes it is. (Subjectto fulfillment of all related requirements) All service charges are as per the prevailingSchedule of Charges Only one account per customer will be allowed across all

branches of Bank Alfalah. Account statement will be generated on half yearly basis.

Alfalah Mahana Amdan

Alfalah Mahana Amdan is a 3 year TDR with expected rate of profit of 10% p.a. Thisterm deposit will provide an opportunity to individual/joint customers to enjoy higherreturns that will automatically be credited to his/her current/PLS/RP/BBA account on1st working day of each month. This facility is not available for business andcorporate customers.

Lockers

Bank Alfalah provides safe deposit locker facility to its customers for safe keeping oftheir valuables like documents, securities and jewellery etc.

Important features of lockers facility are as follows:

Various sizes to choose from small, medium & large. Annual locker rent ranges from Rs.1,000/- to Rs.3,500/-. Locker rent is waived for customers maintaining a minimum deposit of Rs.2

million in current account or above US $25,000/- in a current account or US$50,000/- in a savings account.

ATM/Debit Card

In our endeavor to provide you versatile banking options to fulfill your financialneeds, Bank Alfalah Limited presents the Alfalah HilalCard, a Debit Card whichgives you unlimited access to your current / savings account with a simple swipe atmillions of retail shops and ATMs worldwide. The Alfalah HilalCard comes with ahost of conveniences and benefits combined with the wide reach of Visa Network,enabling it to be accepted at more than 1 million ATMs and 29 million retail outletsaround the world, making it the most acceptable Debit Card available in Pakistan.What's more, it is easy to operate and can be used on any electronic self-printing POSmachine where VISA is accepted, locally and internationally. No more hassle of

remembering your PIN for retail transactions and no need to go to the ATM for cashwithdrawal! One swipe and your transaction is complete.

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The Alfalah HilalCard can be used electronically at any retail outlet or ATM thataccepts VISA cards and displays these logos:Personal Identification Number (PIN):Debit cards that are currently available in Pakistan require the card member to enterthe PIN number in order to complete a transaction. The Alfalah HilalCard is a "One-Swipe Card" and does not require you to remember any PIN in order to execute retailtransactions. The PIN which will be delivered to you for Visa Electron will berequired for ATM based transactions only.Special POS Machines:In order to use other debit cards currently in the market you would need to find outletsthat carry special POS machines where these cards can be used. Alfalah HilalCard isaccepted at all outlets displaying the VISA/Electron logo worldwide and having self-

printing POS terminals.

Global Acceptability:The Alfalah HilalCard is globally accepted welcomed at all locations displaying theVISA/ ELECTRON/PLUS logos with self-printing POS terminals. Your card isaccepted at nearly 29 million physical locations in more than 150 countries round theglobe with above 22,000 major establishments in Pakistan.With your Alfalah HilalCard, you can pay for shopping, meals, travel, entertainment,holiday, petrol and much more. Also it gives you access to ready cash through yourPIN (Personal Identification Number) at more than 1 million ATMs to withdraw anyamount up to your available bank account balance. This premier card service is aconvenient point-of-sale alternative for ATM cardholders who do not qualify for Visacredit purchasing power. Through Alfalah HilalCard, you can access your Bank

Alfalah's account from anywhere in the world.24-Hour Customer ServiceThey will assist you in:

ShahDin Manzil

Bank Alfalah is committed to the projection of Pakistan's rich cultural heritage. Westrongly believe that the all must fulfill our social responsibilities in addition toachievement of the commercial objectives. A few examples set by Bank Alfalah areAlfalah Square, Alfalah Mini Golf, the resurrection of Shahdin Manzil, right across

the main Mall road (Shahrah-e-Quaid-e-Azam), Lahore.

Shahdin Manzil symbolizes more than an ideal colonial architecture. It is known bythe name of and stands testimony to the memory of its owner, the first Muslim judgeof the Lahore High Court - Justice Shaahdin Humayun and substantiates Lahore'sclaim as a centre of academic and cultural excellence. It has always remained as alandmark in the historic city of Lahore with its typical architectural beauty. Over theyears, the elements of nature and neglect had rendered the building uninhabitable. Themanagement of Bank Alfalah has chose to resurrect Shahdin Manzil to its originalsplendor and grandeur. The restoration work is resulted in a fusion of the old with thenew, together with some interesting new design elements. This spirit of merger that is

being carried into the new design with modern building techniques and materialsassures us that the old blends seamlessly with the new, and yet hold its own place.

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Bank Alfalah has also allotted 3/4th of a floor of this building to house an I.T. librarywith round the clock research facilities for I.T. developers and researchers. The bankhas not changed its name and the renovated, refurbished and redecorated building willcontinue with its original name i.e. "SHAHDIN MANZIL".

Shahdin Manzil has developed into a state-of-the-art, technologically advanced andintelligent office premises, which incorporates all the concepts of a modern officewhile maintaining the rich facade of the building. It has been made structurally soundwith most modern and high-tech office facilities within its walls but would retain itsoriginal and historic look from its exterior. The new look of Shahdin Manzil standsout as a model of most modern facilities blended with history and grandeur of the

past. Shahdin Manzil will always continue to remain a landmark of Lahore, and will be a proof of Bank Alfalah's mission to contribute towards the welfare of thecommunity and heritage at large. You will receive your PIN within 7-10 working days

after receiving the Card for usage on Visa/Electron/ PLUS branded ATMs worldwide.Please beware that your PIN is very confidential.

Shopping - Local and International Usage

Alfalah HilalCard is accepted at over 29 million physical locations in more than 150countries around the globe, with more than 22,000 establishments in Pakistan

Your Alfalah HilalCard is welcomed at all merchant outlets with self-printingterminals that display the VISA/ ELECTRON sign in Pakistan and around theworld.

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Financial Services

Structured Finance

Structured Finance Department comprises a team of hand picked professionals,dedicated to syndicated loans and structured products. The teams expertise is wellknown in the marketplace with its capability to assist public & private sector entities,major financial institutions, multinational corporations, domestic & internationalinstitutional investors in innovative financing including underwriting & private

placements.

The scope of SFUs activities also encompasses advisory assignments, such as privatization, Mergers & Acquisitions (M&As), domestic listings, IPOs andrestructuring.

During the past few years, SFU has been successful in sourcing and participating in anumber of prestigious transactions involving large amounts.Some of the value added services offered by SFU include the following:

Loan syndication Public floatation of Term Finance Certificates (TFCs) and equity Private placement of Term Finance Certificates (TFCs) and equity

underwriting. Guarantee syndications Financial restructuring Mergers & Acquisitions (M&As) Fostering joint ventures Privatization Sale side and buyers side advisory Structuring new financial instruments

In future, SFU is envisaged to supplement the enhanced profile and profitability ofBank Alfalah Limited through its value added services, through both asset buildingand income generating aspects

Inspired by a challenging spirit and an unyielding desire to create a sound and reliablenetwork of correspondent relationships, the bank has placed great emphasis towards itgrowth. Accomplishing something for the first time requires a special focus. Itdemands foreseeing possibilities. In our endeavor to do so, we successfullysurmounted problems and difficulties arising out of issues relating to weak economicconditions of the economy and a continuous deteriorating status of country risk.

The incertitude and skepticism of the international banking community towardsfinancial institutions from emerging markets remained intact. Our persistence duringthe past four years allowed us to make significant inroads into the arena ofcorrespondent banking. Large international banks, after critically evaluating us,agreed to enter into relationship.

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During 2002 we added 81 banks to our network of correspondents, bringing the totalnumber over 170. Of these relationships, there are now several banks that rankamongst, the top financial institutions in the world. Our geographical coverage nowextends to over 100 countries, which is adequately compatible with our trade flows.

Our correspondents, during the year extended us unqualified support, which enabledus to undertake a healthy quantum of foreign trade business. There are manychallenges ahead for the bank, in the coming year, our bank will not only continue toreview its efforts on existing correspondents to make the relationship more beneficial,

but will also add more correspondents to establish a comprehensive internationalnetworking to facilitate our customers transaction as well as the Banks proprietaryneeds.

We have provided against the list of correspondents their world and country ranking.

These ranking have been taken from The Bankers Almanac July 2001 issue.

We would like to emphasize that correspondent arrangements do not necessarilyimply the existence of account relationship. We are in the process of rationalizing ourcurrent nostro account relationships. We shall continue to open new accounts invarious currencies based on our trade flows and business requirements.

The correspondents are listed on a country-wise basis. The banks are listedalphabetically.International Banking Division

Small and Medium Enterprise (SME)

Small and Medium Enterprise (SME) means an entity, ideally not a public limitedcompany, which does not employ more than 250 persons (if it is manufacturing /service concern) and 50 persons (if it is trading concern) and also fulfills thefollowing criteria of either a and c or b and c as relevant:

(a) A trading / service concern with total assets at cost excluding land and building upto Rs 50 million.

(b) A manufacturing concern with total assets at cost excluding land and building upto Rs 100 million.

(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs300 million as per latest financial statements.

An Individual, if he or she meets the above criteria, can also be categorized as anSME.

Realizing its corporate social responsibility and carrying forward the image of "The

Caring Bank", Bank Alfalah started a separate department at the Head Office level inearly 2004. The SME Department was established with a mandate to foster SME

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finance at BAL, explore opportunities for developing structured product programs forSMEs, introduce the concept of Dedicated SME officers and finding market basedsolutions to fill the financing gap to this important and under-served businesssegment.

Bank Alfalah believes in innovation, simplification of procedures, and reduction inturnaround time and customer friendly service. To accomplish this resolve, the SMEDepartment is supported by 86 dedicated officers in 57 branches of the bank who arenurturing valuable relationships in the SME sector.

ALFALAH KAROBAR FINANCE

Bank Alfalahs first SME product Alfalah Karobar Finance is a running finance

facility based on projected cash flows. Under AKF, we offer working capital finance(Rs.0.5 million to Rs. 10 million) to SMEs at highly competitive rates. We have ateam of professional credit officers who provide expert financial advice along withcustomized packages to a diverse range of business clientele. The product is availableto SMEs through our 86 branches in 38 cities.

AKF is a Running Finance facility between Rs 0.50M to Rs 10.0M. Tailor-made product for SMEs for their working capital financing based on

the cash flow methodology. (Our Edge = Better pricing, quicker TAT andlow processing charges.)

At Bank Alfalah, 86 branches are designated to deal with AKF business in the

entire country. The purpose of the AKF is financing procurement of raw material, finished

goods and receivables of SME businesses. SME Customers with following acceptable criteria are entertained in this

product:

1. Resident Pakistanis2. Individuals/ sole proprietors aged up to 60 years.3. In the same business for the last three years4. Could offer mortgage urban residential/commercial/ industrial

properties (third party collateral also allowed)

5. Overall debt burden not to exceed 40% of the projected cash flowsover the period of financing.

6. Maximum AKF entitlement to be worked out by considering thelowest of: 60% of assessed market value of the mortgaged property, or35% of sales turnover or condition # 5 above.

Validity of the AKF shall be initially for a period of one year. Quarterly mark-up shall be serviceable within 15 days of its becoming due. Turn-around-time for the approval of AKF would be 20 working days from

the date of receipt of complete LAF along with its attachment. Processing charges of Rs 2,000/- are recovered upfront with Loan Application

Form.

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Clean-up requirement: At least 25% of the AKF approved limit shall be required to becleaned-up for two days in six months.

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Alfalah Milkiat Finance (AMF)

Alfalah Milkiat Finance (AMF) is a unique long term financing facility offered to

SMEs to purchase, renovate or expand their business premises. It is being offeredkeeping in mind requirements of the small business owner who needs to take his/herbusiness to the next level.

AMF is grouped into four sub categories to help you identify which arrangement suitsyour needs best. .

AMF-1: Acquisition of rented commercial/ industrial property by present tenant..

AMF-2: Construction on owned and in possession commercial/ industrial premises/plot.

AMF-3: Purchase of constructed commercial/ industrial property.

AMF-4: Renovation of owned and in possession commercial / industrial property.

Salient Features

AMF 1,2 & 3 shall be repayable in 2-12 years whereas AMF-4 shall be repaidin 2-4 years.

Mark up shall be (SBP discount rate + 4%) Monthly installments will be hassle free through post dated cheques. AMF shall be disbursed approximately within one month after completion of

documentary requirements by you. The property being financed shall be mortgaged in favor of the bank

Lease finance:

In modern days leasing has now become an economic and financial reality of primaryimportance. It is the originality of the leasing techniques and its economicaladvantages, which has enabled it to enter the world of industrial investment inPakistan and on the international scene.

Lease finance provides a significant source of funds for companies to acquire or useassets. Leasing provides additional earning opportunities to acquire assets and to getthe inflows simultaneously out of the operations of the same assets. The ownership ofthe asset is vested with the Bank (lesser) and in return for rental payments; the client(lessee) has full use of the asset. Being a medium to long term mode of financing, itallows the lessee to use the funds for other profitable purposes which otherwise wouldhave been tied up in case of immediate payment for purchase of the asset.

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Bank Alfalah Credit Card

Your Bank Alfalah Credit Card is your partner everywhere and is globally acceptedand welcomed at locations displaying the VISA logo. It is accepted at nearly 29million locations in more than 150 countries around the globe and over 22,000 BankAlfalahs establishments in Pakistan.

Alfalah VISA lets you pay for shopping, travel, entertainment, meals and much more.Card members are facilitated through a number of promotions from time to time. Inaddition, there are a number of strategic business partnerships with leading local andinternational brands for purchase of home appliances at exciting Step-BY-Step (SBS)monthly installment plan with free home delivery at lowest interest rates. Salientfeatures are:

No Joining / Annual / Renewal fee Electricity, Sui Gas, PTCL and Warid bills payment through 24 hour Call

Center and Auto Debit instructions SMS for card usage, mini statement, payment receipt confirmation, etc. Cash withdrawal at all 1LINK ATMs Special offer on Warid post paid connections

MASTER CARDS

Your Bank Alfalah Titanium MasterCard is your partner everywhere and is globallyaccepted and welcomed at locations displaying the MasterCard logo. It is accepted atnearly 25 million locations around the globe and at over 22,000 Bank Alfalahsmerchant establishments in Pakistan.

Alfalah Titanium MasterCard lets you pay for shopping, travel, entertainment, mealsand much more. You have access to cash at more than 1 million ATMs worldwideand 2200 1Link ATMs in Pakistan. With your Alfalah Titanium MasterCard and PIN(Personal Identification Number) you can withdraw any amount up to 50% of yourassigned credit limit.

You can generate PIN through IVR (Interactive Voice Response). Please ensure thatyour PIN is kept safe and confidential. In case it gets known to someone else reportthe matter to our Toll Free number 0800-22225.

You also have the option of withdrawing cash by requesting an Over-the-CounterCash Advance at 300,000 financial institutions worldwide or at any Bank AlfalahBranch/ATM or participating VISA member banks in Pakistan.

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HOME FINANCE

With this facility, you no longer need to just dream about the home you want foryourself and your family .We will provide you up to 80% of the purchase price of theproperty, so that you can realize your dream and enter the reality of owning a home!.

Payment period ranges from 3 to 20 years.

You own a plot but need financing to construct a home that excites everyone in yourfamily! No problem. We will provide up-to 100% of the construction cost enablingyou to say good-bye to rent forever! Even if you don't have a plot, we will provide upto 60% of the value of the plot that you have selected to purchase!

Payment period ranges from 3 to 20 years.

You already own a home, but need extra space for a growing family or want to seesome rooms get a new look. Simply apply for financing ofup to Rs. 3.50 million or40% of the surveyed value of your home and get yourself the extra space!The crown jewel of our Home Finance scheme, the golden opportunity for someonestarting a career to buy an already constructed housing unit early in life! We offer amoratorium of up to 3 years in principal payments, for a financing of up to 20 years.You service only the mark-up element initially, and principal repayment starts afterthe end of moratorium period.Home Startis specially designed for young professionals to own a quality asset.

Quickest processing. No hidden charges. Minimum down payment. Complete repayment at any point of time. Balance transfer facility {BTF} for existing as well as new clients from other

Banks. Tenure period ranging from 1 to 5 years. Financing of all brand new locally assembled vehicles and used cars. Financing limit ranging between Rs. 200,000/- to Rs. 2000,000/- for brand

new cars.Corporate & Individual Car Leasing

BALs recently introduced car leasing facility for individuals and corporate sectorhas set new dimensions for the product. Now you are provided with the option ofeither to get the vehicle leased or financed.

Treasury & Investment

Money Market

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Short term money market inter-bank trading. Active Treasury Bills trading in secondary market. Forward forward inter-bank money market trading. Money market linked lending to and borrowing from corporate clients.

Foreign Exchange Market

Active trading in ready and forward USD/PKR. Active quotations of foreign exchange rates in fifteen major currencies. Information in respect of prevailing rates of most of the currencies of the

world for corporate clients and individuals. Forward Forward foreign exchange rates of USD/PKR. Active swap trading in USD/PKR and other major currencies such as EUR,

GBP, JPY and CHF.

Investment

Active Investment in treasury bills (TBs). Active Trading in Pakistan Investment Bonds (PIBs). Active investment in Certificate of Investment (COIs) Active investment in Terms Finance Certificates (TFCs)

Government Securities

Efficient service for individuals and corporate clients for buying and sellinggovt securities on their appropriate requests.

Custodianship

Investment Securities Portfolio Accounts of Customers for holding on theirbehalf Treasury Bills, Pakistan Investment Bonds.

Financial Advisory Services

Briefing on current information available in market in respect of prevailing

rates of USD/PKR.

Briefing on current information available in market in respect of foreign exchange

rates of major foreign currencies. Future expectations and sentiments on major foreign

currencies including Pak.Rupees.

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ISLAMIC BANKING

Introduction:

The thrust for Islamic Banking is founded on the desire to submit to the DivineInstructions on all transactions, particularly those involving exchange of money formoney. However, it would be quite unfair to limit Islamic Banking to elimination of

Riba only. Riba is but one of the major undesirable elements of an economictransaction, the others being Gharar (uncertainty) and Qimar (speculation). Whileelimination of these objectionable aspects in a transaction is indeed a critical aim ofIslamic banking system, it is by no means its ultimate objective. At the heart ofIslamic Banking is a system of commercial transactions that not only providesHalalmodes of commercial transactions by avoiding that which is obnoxious and

objectionable, but also fosters ethical, fair and just practices.

A key element of Islamic economics is distribution of equitable rewards to thedifferent factors of production. Islamic economic system seeks system ofRedistributive justice where concentration of wealth in a few hands is countered andflow of money into economy is fluent. Islamic Banking is, therefore, seen as alynchpin to achieving the economic and social goals of the Islamic economic system.

Riba:

It has been argued in vain for long in some circles that the prohibition in Islam is thatof excessive interest only. Or that it is the interest on consumptive loans that has beenforbidden and as such loans extended for commercial purposes are entitled to anexcess over the principal amount lent. Such tendentious arguing fails to give dueunderstanding to verses 278 and 279 of Surah Al-Baqarah (quoted below).

O ye who believe! Be afraid of Allah and give up what remains (due to you)

from Riba (usury) (from now onwards) if you are (really) believers! 2:278

And if you do not do it, take notice of war from Allah and His Messenger! But if

you repent, you shall have your capital sums 2:279

However, this does not mean that Islam prohibits any gain on principal sums. InIslam, profit is the recognized reward for capital. When capital employed in

permissible business yields profit that excess over capital becomes the rightful andjust claim of the owner of the capital. As a corollary, the risk of loss also restsexclusively with the capital and no other factor of production is expected to incur it.

Another important element of Islamic finance is that profit or reward can only beclaimed in the instance where either risk of loss has been assumed or effort has beenexpended. Profit is therefore received by the provider of capital and

wages/remuneration by labor/manager.

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A depositor in an Islamic bank can therefore make earnings on his or her deposit inseveral ways. Through return on his capital when that capital is employed in a

business venture; through sharing of profit when his capital is part of the capital thatis employed in a partnership, and finally through rental earnings on an asset that has

been partially financed by his capital.

Islamic financing: Asset-based financing

A key feature of Islamic banking is that unlike conventional banks which dealprimarily in money and financial securities, Islamic financing is related to an assetthat is a feature of the transaction, and quite often the principal feature itself. Fromthis springs an important distinguishing feature of Islam wherein Islamic financing isalways based on illiquid assets that have intrinsic value. Profit to Islamic financing isgenerated through bonafide sale of these assets.

Conventional banking, on the other hand, is free of such limitations. It lends moneyand makes its earnings through this act of lending. Its earnings are unconcerned withthe economic fate of its lending.

A Perspective:

The history of Islamic banking from its recorded inception is less than 40 years old.From a humble beginning in a small village in Egypt in the late 60s, it has spread tothe four corners of the world. By normal standards in a time span that is less than halfa century it could have hardly been expected to establish foothold in Muslim world,

let alone make its presence felt in Muslim-minority countries. Yet such has been itsphenomenal rate of growth that not only is it taking firm roots in its homestead, but isalso attracting genuine interest among the standard bearers of conventional bankingand in swathes of land where Muslims are a small minority only.

Still there is much ground left to cover. In Pakistan, Islamic Banking is less than 3%of the Banking sector. Even in the Gulf states, where it has a larger footprint, in nosingle country is the volume of Islamic banking more than a third of the entire sector.

Many blame Islamic Bankings small share against conventional banking to a smallerportfolio of products. A standard complaint against Islamic banks is that they do not

have the same variety of financial instruments as found in conventional banking.Though valid to an extent, this popular jeremiad needs to be seen in the perspective ofIslamic Bankings brief history against more than two centuries of conventional

banking adopted in full force across the globe, its competition against an entrenchedsystem of banking and the constraints within which it must operate.

Notwithstanding, Islamic banking is still growing at more than twice the growth rateof conventional banking worldwide, and while it may not have the latters plethora offinancial products, its repertoire of Islamic financial products is steadily increasing.

In the following space, principal Islamic instruments are briefly described to acquaintthe reader with their fundamental aspects. Following that, Islamic Products in BAL-IBDs portfolio are illustrated in terms of their features. Principle Islamic Instrument

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Musharakah:

Musharakah is one of the two ideal modes of Islamic financing. The other one beingMudarabah. Musharakah is a contractual relationship formed through mutual consentof the parties for sharing of profits and losses in a joint venture. Assets in the ventureare jointly owned in proportion to each partners contribution. The profits are sharedin a pre-agreed ratio. Losses, however, are incurred in proportion to each partnersinvestment. Islamic Bank representing share of its depositors invests funds in the jointventure alongside other investor(s).

Mudarabah:

Like Musharakah, Mudarabah is also a form of partnership. Whereas all partners inMusharakah contribute capital, under Mudarabah partnership is formed betweenprovider of capital and provider of expertise or human resource. Proportions forsharing profit are decided upfront. Losses are incurred solely by the partnercontributing capital.

Murabaha:

Murabaha is a non-participatory mode of Islamic financing where the bank sells theasset required by its client to the client on cost-plus basis. The asset is first purchased

by the bank and the bank incurs the risk of any loss or damage to the asset as long as

the asset remains under its ownership. Upon sale of the asset, the Islamic bank isobligated to inform the client of the exact cost incurred in the purchase of the assetand the margin of profit incorporated in the sale price. Payment by the client of thesale price may be deferred in which case it would becomeMuajjal. The selling priceonce agreed cannot be changed even when the client fails to pay on the agreed date.

Ijara:

Under this facility a client may take on rent, property, vehicle or any other real assetbelonging to the bank. The bank transfers the right of use of the asset to the client,while retaining the ownership of the asset. The client pays periodic rent to the bank

for the use of the asset. Basis for rentals can be fixed as well as floating. Any changeis rental may be made through mutual consent.

Salam:

Salam is a contract of advanced payment against deferred delivery of goods. Goodspaid for in advance by the buyer are delivered by the seller after an interval of time.The Seller receives in advance fully paid price of the goods at the time of contractundertaking to deliver the goods specified by the buyer at a future date.

Istisna:

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Manufacture of a specific product against precise specifications by a manufacturer fordelivery to buyer. It is necessary that the price of the product and productspecifications are fully agreed upon by the manufacturer and the buyer, and that thematerial required for manufacture is arranged by the manufacturer.

CH# 05

ORGANIZATIONAL STRUCTURE

Organizational structure is the framework which defines the boundaries of the formalorganization and with which the organization operates. A suitable organizationstructure for the nature of the organization leads to better performance. TheOrganizational Structure of Bank Alfalah Limited is as follow:-

ORGANIZATIONAL STRUCTURE OF BANK

ALFALAH LIMITED

PRESIDENT

BOARD OF DIRECTORS

GROUP OPERATION

CHIEFCREDIT COMMITTEE

REGIONAL

OPERATIONS CHIEF REGIONAL

MANAGEMENT

COMMITTIE

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Comments:

The organizational structure of the bank constitutes of a Board of Directors and anexecutive committee as the governing bodies. Bank Alfalah Limited (BAL) continueto his strengthen his presence in the market place and as of year end 2008, we have anetwork of 282 branches that include 48 Islamic banking branches, seven foreign

branches 5 Bangladesh and 2 in Afghanistan and one offshore banking unit inBahrain.. The Head Office of Bank Alfalah is situated at Karachi. All Branches,Regional Offices and Corporate Branches are under the distractive control of Head

Office. The Head Office of Bank Alflah Limited is responsible for making / executionof polices. The Organizational Structure of BAL is as follow:-

The organization wide restructuring process has culminated. At this stage thecentralization segment has almost completed. Branches are operating as customercontact points providing a culture free environment and better customer service.Centralization process has led to marked improvement in turnout times and greatercustomer satisfaction for more focus and improvement in procedure controls anddelivery channels.

PACRA, a premier rating agency of the country, has rated the bank AA (double A),Entity Rating for long term and A1+ (A one plus) for the short term. These ratingsdenote a very low expectation of credit risk, strong capacity for timely payment offinancial commitments in the long term and by highest capacity for timely repaymentin the short term, respectively. The ratings of first and second and third unsecuredlisted and subordinated TFC issues of PKR 650 million, PKR 1,250 million andRs.1,325 million have been maintained at AA- (Double A minus).

Board of Directors

H.E. Sheikh Hamdan Bin Mubarak Al Nahayan

Chairman

Mr. Abdulla Nasser Hawalileel Al-Mansoori

DirectorMr. Abdull Khalil Al MutawaDirector

Mr.Khalid Mana Saeed Al OtaibaDirector

Mr. Ikram Ul-Majeed SehgalDirector

OPERATION

MANAGER AT

BRANCH

REGIONAL BUSINESS

CHIEF

& REGIONAL RISK

MANAGEMENT CHIEF

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Mr. Nadeem Iqbal Sheikh

Director

Mr. Sirajuddin Aziz

Director & CEO

Management

Mr. Sirajuddin AzizChief Executive Officer

Mr. Parvez A. ShahidCo-Chairman Central Management Committee

Mr. Arfa Waheed Malik

Group Head Corporate & Investment BankingMr. Shakil SadiqGroup Head Branch Banking & SME

Mr. Ijaz FarooqGroup Head Islamic Banking

Mr. Adil RashidGroup Head Consumer Finance

Mr. Nadeem Ul HaqGroup Head Operations

Mr. Mohammad YousufGroup Head Credit & Collections

Mr. Bakhtiar KhawajaGroup Head Training & Development

Mr. A. Wahid DadaGroup Head Commercial Banking

Mr. Hamid AshrafGeneral Manager Legal Affairs Division & Company Secretary

Mr. Zahid Ali H. JamallChief Financial Officer

Mr. Mohammad Iqbal SaifeeGroup Head Audit & Inspection Division

Mr. Talib RizviGroup Head Priority Banking & Wealth ManagementMr. Tariq MirGeneral Manager International Business

Mr. Ather ShehabExecutive Incharge Establishment & Administration

Mr. Mahmood AshrafGeneral Manager Credit Monitoring Division

Mr. Falak SherChief Compliance Officer

Mr. Imtiaz Ahmad Sheikh

Head of Information TechnologyMr. M. Mudassar Aqil

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General Manager Human Resource & Quality Assurance

Mr. Haroon KhalidHead of Risk Management

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STRUCTURE & FUNTIONS OF DEPARTMENTS

BRIEF DESCRIPTION OF THE DEPARTMENT WORKED IN

ACCOUNT DEPARTMENT

Account Opening and Maintenance:

Functions:

This department deals in account opening. This department is made for theconvenience of customers having dealings of PAK rupees. It makes easy for accountwhether it is individual account, company account etc For individual account

minimum Rs 500 up to Rs 10000 required to open account. For company accountminimum Rs 1000 required to open account. This department, s deals to open accountof the department or customers are in the Pakistan. It also deals to make followingaccountIndividual accountPartnership accountProprietorship accountProprietorship account, joint account etc

Major Tasks Learnt:

I was placed in account opening department. I learnt the various functions carried outby the account opening department and got an opportunity to help in the dailyactivities. The account opening department is handed by Mr. Faisal. During myinternship I worked under his supervision

Daily Activities:Deals with the customers guide them about the functions of account in BAL. Fillingof account opening forms are maintained on daily basis. To check the account serialnumbers which are daily allotted to customers. A/C opening forms are checked andstamped duly signed. Supporting documents are also checked such that CNIC, jobletters, student card, department card etc Letter of banks and opening letters are also

sent to the customers and introducers of account holders.The Account opening forms are authorized by BCSM and supervisor by

depositing in charge after being feed in the computer.

After feeding of a/c opening form are filed in the account opening files of currentaccount or saving a/c in the serial numbers.The SS Card is scanned on daily basis in computer.Maintaining KYC,s of account holders.

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DEPOSIT DEPAARMENTFunctions:This department deals the depositing. This department is made for the convenience

of customers having a/c in the UBL. It make easier to get information about balanceof accounts or depositing. This department also deals with the issuance of certificate.All funds of collection account are made by this department. Issuance of check books,statement of accounts, supervisions of signs on the checks and up dating.Closing and activation of accounts are also made by this department.

MAJOR TASKS LEARNT:I was placed in the depositing department. I learnt various functions carried out by thedepartment and got an opportunity to help in the daily activities. The depositingdepartment handled by two officers. During my internship I also worked under their

supervision.

Daily Activities:Debit and credit vouchers are posted pertaining to customer deposit.Vouchers having amount more then Rs. 50000 are supervised by deposit in charge.Check books are issued to the customers on daily basis.Accounts are closed and activated by this department.Accounts are closed and activated by this department.Check received and clearing are also deposited by deposited by deposit departmentThey maintain and look after the account opening files of the costumers

Statements of account holders are also up to dated from this department.Signatures of the customers are also up to dated from this department.Changes in addresses or costumers missing CNIC and changes in SS cards are alsochecked.All funds of collection accounts are also transferred to different accounts are made ondaily basis.

Pay OrderIt is an instrument that is issued if the payment is to be made in the same city or ifyou want to send money in the same city then you will make PO. Pay order issuedfrom one branch can only be payable from the same branch. It is normally referred toas banker, s Cheque. Important point cancel it but the one who has deposited money

once, cannot get it back it is non refundable. It is issued in a manner that form is givento the customer; he fills and signs it. After proper checking and charging bankcommission according to the schedule of charges, the cash amount stamped andhanded over to the applicant as a receipt. After the pay order receipt is filled, an entryis made in the pay order issue register. After checking properly, concerned officersigns it. The order is then handed over to the applicant after obtaining his signature onthe PO Form. A voucher is also made and posted at the computer.

After the issuance there comes payment step. When the pay order receipt is presentedtwo authorized officers of the branch sign the receipt. PO entry is made in the POissue register. Then the amount is credited to the account of the customer. Then PO is

posted at the computer.

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BAL provides another reason to transfer your money. Pay order is a secure and easyway to move your money from one place to another. And, the charges for this serviceare extremely competitive.

Maintenance of Cheque Books:Cheque books are maintained on daily basis. I also made the Cheque books. The

procedure of maintaining the Cheque books is that if account is newly open then theCheque book requisition slip is filled by the customer, there is clearly mentioned theleaves of the Cheque book. Daily number of customers gives request for new Cheque

book. If customer has an old Cheque book then he / she will fill the Cheque that ispresent in the Cheque book and give it to the Cheque book issuance counter. Time forreceiving new one is one week. If Cheque book is not collected within 60 days then itis destroyed automatically.

Procedure for Issuing Now Cheque Book:When Cheque book requisition slips are received, on the same date the accountnumbers and name of the customers should write in the Cheque book register. Thenthat Cheque book requisition slip is send through NIFT to Karachi Head Office. WhenCheque books are made in the Karachi Head office then these are send back through

NIFT.

Charges for Cheque Book

The amount is R S.3 per leave. Cheque books mostly contains of 25 leaves.Customers pay cash against the Cheque Book then there will be no deduction in theaccount of the customer, if customer does not make payment against the Cheque bookthen account is automatically Dr by Rs. 75. There are no Cheque book charges for theBAL Staff is free of cost.

Certificate of Insurance:This scheme is introduced for all BAL account holders. Insurance is for the permanentdisability and permanent partial disability. No benefit will be given in case oftemporary disability. Rs. 50000/- will be given in case of temporary permanent partialdisability. In case of joint account, only the primary account holder will be offeredinsurance coverage.Customers having more than one account with the bank shall be offered single

insurance coverage.

Verification of CNIC through NADRA:When account is opened, the CNIC is verified through NADRA. All the accountnumbers and CNIC of the customers are sending to NADRA. After that NADRA send

back the original the original CNIC of the customers with there account numbers.These are then matched by the CNIC that are attached with the account opening foam,after this stamp of CNIC verified and signatures are done by the person who checksthe CNIC.Guidelines for using special purpose software for CNIC verification

To implement prudential Rules and Regulations as per SBP, s Circular dated July 08,

2006, pertaining to CNIC verification, saying It is mandatory for the Banks to get theCNICs verified from NADRA, for their Customer Accounts.

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ADVANCES DEPARTMENT

Bank is a profit seeking institution. It attracts surplus balances from the customers at alow rate of profit and makes advances / finances to individuals and business firms athigher rate of mark up.Financing is a principal function of a bank through which pace of activity isaccelerated in the various sectors of economy. Through this medium, the wheels oftrade, commerce and industry are set in motion and an effective financial contact ismaintained with people in every walk of life. Also, the indicators which reflect thehigh quality of a Banks management are its prudent financing decisions, propercoated of finance and prompt recovery of banks dues are per borrowerscommitment/repayment schedule.

Running FinanceAmong the various modes of Bank financing, credit lines offered to customers underthe above head (R/F) are the most commonly used. Withdrawals on the currentaccount are allowed in excess of the credit balance which the customer hasmaintained therefore, creating a R/F (Overdraft). Under this type of financialaccommodation, the borrower is required to adjust the finance provided by the bankwithin the stipulated expiry time. Mostly this facility is provided to businessmen whoneed cash to run their business daily.At the time of entering into an agreement with the customer the bank is required toobtain all relevant security documents completed in all respect particularly thefollowing:An application for loan is given.Promissory Note duly stamped is submitted.Mark-up agreement for the total amount involved i.e., purchases price, mark-up forthe agreed period and mark-up for the cushion period of 210 days.Sufficient tangible prime/collateral securities of stable value and of an easilyrealizable nature the relevant documents are submitted (lien and related documents).Two personal guarantees are presented.Adequate insurance as appropriate covering charged in banks favor. The cost ofinsurance to be borne by the borrower.

Demand FinanceA fixed amount of financing accommodation is allowed to the borrower for a fixedperiod repayable either in periodic installments or in lump sum at a fixed future date.This accommodation is extended in lump sum for the mutually agreed period and the

borrower has to repay the entire amount of finance together with mark-up at theagreed rate.The procedure for D/F is the same as that of R/F. In case a party does not adjust theoutstanding amount on due date, falling on last day of the month the Mark-up would

be adjusted / worked out from the first to last day of expiry.

Personal Loans

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Customers whose salary account is maintained by bank are eligible for this type ofloan. It is up to three basic salaries of employees of government organization. Theobjective of this type of loan is to improve the life style of customers.

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Staff Loans

These types of loans include house loans, car loan etc. they are long term loans.Amount is deducted every month from the salary of employee.

Loan Sanctioning Powers

For Firms

Head office can sanction 40 million rupees or above firmsRegional headquarter can sanction maximum 20 million rupees for firmsZonal Chief can sanction maximum one million.For Individuals

Head office can sanction 10 million rupees or above for individuals.Regional headquarter can sanction maximum 10 million rupees Zonal Chief cansanction 0.5 million rupees for individuals.

REMITTANCE DEPARTMENT

The word "Remittance" means to send money by mail or any other method. Fundstransfer is one of the basic functions of the Banking sector. These transfers may be inthe form of domestic remittance or to/from foreign location. Banking channels aremost frequently used for remittances due to its large network, reliability, safety,legitimacy and timely delivery to the right beneficiary. Banks use their largecommunication and branch network for ensuring efficient delivery of funds in theshortest possible time.Outward / Inward Remittances

When the bank sends a telegram etc, to another bank (concerned branch) for paymentto the customers, it is called outward remittance. The sender is required to applythrough a firm in which he will give all the necessary about the sender and the

beneficiary. The signature of the customers is verified. The details regardingdocuments attached and exchange control regulations are scrutinized. Telexes optionand transaction number is recorded on the source document. This source document isthen forward for verification. No instrument is given to the customers. Customer canreceive the TT receipt at the end of the day and document is credited to the

beneficiary account.

When TT through telexes etc is drawn on NBP Branch, it is called inward remittance.Message is received from the Telex Department. The concerned office duly checksauthentication and purpose of remittance it is received from abroad. In NBPremittance takes places in the following ways.Telegraphic / Mail Transfers (TTs)Demand Draft(D.D) / Pay Orders (POs)Collection / Clearance of ChequesTelegraphic / Mail Transfer

In a number of cases, funds are needed to be urgently remitted to the beneficiaries bythe remitters. This service is readily provided by the bank both to customers and non-

customers and funds are transferred to the destination through telegram / tele fax toensure payment to the beneficiaries at the earliest. The message communicating the

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transfer of funds is sent to the drawer branch in coded language which is supported bya confidential number known as TEST NUMBER to establish its genuineness andauthenticity. The salient features and procedure of TT is similar to DD.In case of MT, there is no need to dispatch anything to the payee. The bank makesspecial arrangement for the payment to the beneficiary through mail/courier service,which is Mail Transfer.The salient features and procedure are similar as that of DD and TT.

Demand Draft

The Demand Draft is a written order (Bill of Exchange) drawn by one branch at abank upon another branch of the same bank in another city to pay a certain sum ofmoney to or to the order of a specified person.

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SOURCES OF FUNDS

Bank Alfalah is a business Organization and its main objective is to earn profit. It

provides a number of services to its customers in order to achieve its objective. Itoffers a variety of interests bearing obligations to the public. These obligations are thesources of funds for the bank and are shown on the liability side of the balance sheetof the bank. The main sources of funds of BAL are:

Fixed DepositsSaving DepositsCurrent Deposits

These deposits are the major sources of funds of BAL.

Fixed Deposits:Time deposits are lodged with the bank for a fixed period of time. The bank paysinterest to the depositors.

Rs. In 000

2006 2007

Fixed Deposits 100,017,399 128,403,278

Saving Deposits:

Saving deposits is an important source of BAL funds. The bank pays interest on theminimum monthly balance to the depositors at the end of the June and Decemberevery year. The depositors are normally allowed to withdraw a limited amount ofmoney only twice a week.

Rs. In 000

2006 2007

Saving Deposits 170,256,433 188,687,111

Current Deposits:A current account is a running account which is continuously in operation. The bankdoes not pay any interest on these deposits.

Rs. In 000

2006 2007

Current

Deposits

173,828,526 216,576,895

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Capital Accounts:Capital accounts are an important source of bank funds. There are four common form

of capital account.

Capital Stock:It consist of total common stock outstanding valued at par.

Surplus:This is a portion of undivided profit set a side.

Rs. In 000

2006 2007

Surplus 5,368,099 20,543,099

Undivided Profit:Undivided Profit consists upon net difference between the total assets of the bank &the sum of liabilities capital stock surplus & other contingencies undivided profit isthe balancing item on the balance sheet.

Reserve for contingency:Reserve for contingency is an account held by the bank for the purpose ofaccommodating losses realizes insecurities and certain other considerations.

Other Borrowing:Borrowing is another item on the liability side of the balance sheet of a bank. TheBAL can also raise fund for short period of time by borrowing from the central bank.The BAL also borrows funds by the sale of promissory notes, loams & securities.

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ALLOCATION OF FUNDS

Interest Income:The major portion of its income is the interest, which is charged on different types ofloans granted.

Rs. In 000

2006 2007

Interest Income 30,153,716 33,629,470

Profit:BAL has started different projects on the partnership basis and the profit from that

project is distributed between bank and partners according to the agreed ratio.

Rs. In 000

2006 2007

Profit before Taxation 2,565,945 4,535,552

Profit after Taxation 1,762,691 3,130,229

Profit on Securities:BAL has invested major portion of its sources in different marketable and nonmarketable securities and profit received on securities investment.

Locker Rent:BAL has locker which are available to public for saving different precious things anddocuments. The bank received the rent for the use of that locker.

Collection charges on Utilities Bills:BAL also received the utility bills from public.

Service Charges:BAL charged service charges from account holders and on banking instruments.

Commission:BAL is performed different services for its customers and commission is charged forthe award of these services.

Rs. In 000

2006 2007

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Commission 6,144,628 6,781,683

Collection Charges:BAL collects the amount of customer from other banks and institutions on that

collection, collection fee is charged at the rate of 2% of total amount.

Discounting on the Bills of Exchange:BAL is discounting on the bill and discount received on that bill discounted at the rateof 9% of total amount.

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MOBILIZATION OF FUNDS

ASSETS

Cash and balances with treasury banks:

Cash is declining by 0.92% as compared with the previous year. Cash with other

banks comprises of balance in local currency, in foreign currency in hand as well ascash in transits and then the cash balances with the State Bank named as localcurrency current account, local currency deposit account and foreign currency deposit

account and some of the cash is also maintained with international banks. Cash andbalances with treasury banks, which is a part of current assets changes according tothe organizations needs.

Balances with other banks:

It comprise of balances maintained with local banks and foreign banks. It showed asubstantial increase that is of 338% from the previous year, as the economy ofPakistan is growing with the pace of 7% and demand for money is increasing. In orderto liquidate the transactions, BAL has to maintain balances with other banks. To meetthe demands of local and international customers BAL increased the percentage of

balances with other banks.

Assets

Balances with other banks

2%

Investments - Net

26%

Advances - Net

54%

Other Assets - Net

2%

Operating Fixed Assets

3%

Lendings to financial institution

4%

Cash and balances with treasury

banks

9%

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Lending to Financial Institution:

Due to excess liquidity in the market and low interest rates, Rupee is easily availablein all the corners of economy. Therefore, lending to financial institutions increased by

5.3%. The story of excess liquidity is the case with all the financial institutions;therefore the other financial institutions also made fewer borrowings as compare tothe growth in economy. Furthermore, BAL is not willing to lend heavy amount onlow rates.

Investments:

Investments form the second largest part, after advances, of the total assets of BALwith 26%. There is a massive decline in the investments from last year, the mainreason being the Prudential Regulations, a policy of State Bank of Pakistan torestrict commercial banks not to invest more then 20% of their equity in share market.For that reason BAL has squared its position in stock exchanges and reduced their

portfolio of investments.

Advances:Advances form the largest part of the total assets i.e., 54%. Substantial increase has

been recorded in advances from 2003 to 2004. As the economy is expanding rapidlyand the quest for money is increasing, after the permission of SBP, commercial banks,including BAL have started schemes for Car Financing, House Financing. The modeof banking operations have changed, from conventional banking SBP has nowallowed commercial banks to enter in the leasing market, which has resulted inincrease in Advances as well as the Income of Commercial Banks.

Investments by Segments

Subsidiaries and Associated

Undertakings

2%

TFC's, Debentures, Bonds

and PTC's

8%Unlisted Companies shares

1%

Listed Companies' shares

6%

Federal Government

Securities

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Liabilities

Bills Payable

3%

Borrow ings from

financial institutions

4%

Deposits and other

accounts

89%

Sub-ordinate loan

1%

Other liabilities

3%

Deferred liabilities -

Net

0%

LIABILITIES

Bills Payable:

There is a decrease of 9.88% in Bills payable this year. Excess liquidity is the mainreason, no doubt banking operations have increased, but now banks avoid credit andused their own resources to pay off their bills.

Borrowings from Financial Institutions:

There is a substantial decline of 73% in borrowings from financial institutions. This ismainly due to the fact that BAL has enough liquidity to meet its obligations so theydont need to go to market and borrow from other financial institutions, as well as thefact that State Bank is providing rupee at the cheapest cost.

Deposits:

As the crack down continues on Muslims in USA and UK, especially on Pakistanis inthe wake of 9/11, some Pakistanis living abroad for 20 years have been deported backto Pakistan and their accounts are being frozen due to suspect linkages with Al-Qaida.This fear element has forced Pakistanis to send their savings back to their home land.

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This resulted in record foreign remittances for Pakistan and foreign reserves went upto $ 12.88 billions.

Indirectly it has also affected the deposits of local commercial banks. BAL is well

known internationally, has a good reputation in the eyes of Pakistanis abroad, so theyuse BAL as a channel to send their remittances back to the country.

Furthermore, as the crackdown is made on money laundering by US officials, most ofthe Pakistanis, who previously used these illegal channels for sending money toPakistan, have started sending their income and savings through banking channels,which resulted in soaring foreign reserves.

Sub-ordinate Loans:

Sub-ordinated loans basically include Term Finance Certificates and the mark-up onTFCs. These term finance certificates have mutual sharing of profit and loss. There isa decrease in investments in term finance certificates. This is because interest rateshave decreased and now there is lower profit on them.

Deferred Tax Liabilities:

Deferred tax is the difference between tax payable and tax expense. This differencearises due to different accounting methods used for reporting and for taxation

purposes. Deferred tax liabilities have shown a large decrease from 2003-04. Thisdecrease is mainly due to the revaluation of securities. The revaluation has caused thevalue of the securities to decline substantially.

SHAREHOLDERS EQUITY

Shareholders equity has increased because all its elements, that is, share capital,retained earnings and reserves are increasing. Share capital has increased because the

bank has issued bonus shares while reserves and retained earnings have increased

ADVANCES37%

DEPOSITS

63%

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because profit after tax has increased and the company is retaining most of theseprofits.

FINANCIAL

STATEMENTS

ANALYSIS

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BANKING/REGULATORY RATIOS

Advances to Deposit Ratio

Advances to Deposit Ratio= Total advances/ Total deposits

Rs. in million

2008 2007 2006 2005 2004

Advances toDeposit Ratio

64.06 62.67% 62.63% 53.46% 68.56%

Total Advances 192671 171119 149999 118864 88931

Total deposits 300733 273174 239509 222345 129715

Advances to Deposit

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

2008 2007 2006 2005 2004

Advances to Deposit

Comments:

The Advances to Deposit ratio is showing healthy growth, it was 64.17% in 2003 andit becomes 66.06% in 2007. This reflects that bank is playing its role in the economicgrowth of the country by providing main factor of production Capital. Due toincrease in the advances the banks profitability also increased.

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Cash to Deposit Ratio

Cash to Deposit Ratio= Cash / Deposit

Rs. in million 2008 2007 2006 2005 2004

Cash to Deposit Ratio 10.87 10.77 11.63 11.14 15.19

Cash 32687 29436 27859 24788 19708

Deposits 300733 273174 239509 222345 129715

Cash to Deposit Ratio

0

2

4

6

8

10

12

14

16

2008 2007 2006 2005 2004

Cash to Deposit

Ratio

Comments:The cash to deposit ratio is also decreasing. In 2003 it was 10.98, whereas in 2007 itreduces to 10.77 of the deposit. It shows the bank is utilizing its assets more

productively in investment. The cash in hand is the only asset on which there is noearning, by reducing this figure and utilizing it for investment is good approach of themanagement.

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CAPITAL ADEQUACY RATIO

Equity to Assets= Equity / Assets

Rs. in million

2004 2005 2006 2007 2008

Equity to Assets 2.82 2.71 3.81 4.19 4.18

Equity 4369 6738 10573 13767 14609

Assets 154835 248314 275686 328895 348991

Equity to Assets

0

0.5

1

1.5

2

2.5

3

3.5

44.5

2004 2005 2006 2007 2008

Equity to Assets

Comments:

The equity to asset ratio is also increasing. In 2003 it was 3.79 and in 2007 it becomes4.18 almost satisfactory increases in 5 years. The increasing equity shows healthy signof bank financial stability.

Equity to Deposits

Equity to Deposits= Equity / Deposits

Rs. in million

2008 2007 2006 2005 2004

Equity toDeposits

4.86 1.37 1.82 3.03 3.37

Equity 14609 3753 4369 6738 4369

Deposits 300733 273174 239509 222345 129715

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0

1

2

3

4

5

2004 2005 2006 2007 2008

Equity To Deposits

Comments:

The equity to deposit ratio is also increasing consistently. In five years it reaches to1.82 from 17.95. The good point is that deposit of the bank increased and equity isgoing decrease. The bank uses properly the deposits.

PROFITABILITY RATIOS

Net Profit Margin

Net Profit Margin= Net Profit / Net Sales *100

Rs. in million

2008 2007 2006 2005 2004

Net Profit Margin 3.58 9.84 7.22 11.73 15.29

Net Profit 1301 3130 1763 1702 1092

Net Sales 36292 31822 24416 14515 7140

Net Profit Margin

0

2

4

6

8

10

12

14

16

18

2008 2007 2006 2005 2004

Net Profit Margin

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Comments:

The profitability of the bank increased tremendously from 4% to 30%. It shows thatbank decreases its expenses and increases the sources of revenues. The provisionexpense also decreases in the last 5 years by adopting the policy of prudent lending;this cut off in the provision also enhanced the net profit margin of the bank.

Return on Equity

Return on Equity= Dividend / Average total Equity

Rs. in million

2008 2007 2006 2005 2004

Return On Equity 9.17 25.72 20.37 30.65 26.89

Return On Equity

0

5

10

15

20

25

30

35

2008 2007 2006 2005 2004

Return On Equity

Comments:

The return on equity looks at the return earned by management on the stockholdersinvestment that is on owners equity. The return on equity is net income, which

represents the return from all sources, operating and non- operating. The return onequity of the bank shows a consistent and very well growth in last 5 years. The returnon equity in 2003 was 25.72, whereas in 2007 it becomes 79.08. It means bank is

paying handsome amount in the form of dividend to its shareholders. And getmaximum return and give satisfaction to his share holders

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ACTIVITY RATIOS

Return on Total Assets

Return on Total Assets= Net Income / Average Total Assets *100

Rs in million

2008 2007 2006 2005 2004

Return on Total Assets 10.39 9.68 8.86 5.85 4.61

Net Income 36292 31822 24416 14515 7140

Total Assets 348991 328895 275686 248318 154835

0

2

4

6

8

10

12

2004 2005 2006 2007 2008

Return on Total Assets

Comments:

The return on total assets measures the efficiency with which management hasutilized the assets under its control regardless of whether these assets were financedwith debt or equity. The return on total assets also showing healthy growth in last 5years. It was 7.5 in 2003 and reaches to 9.68 in 2007. It indicates that bank is utilizingits assets in a professional way. This trend should be maintained to be competitive inthe market.

Earning Per ShareEarning Per Share= Net Income / No of Ordinary Shares

Rs in million

2008 2007 2006 2005 2004

Earning Per Share 1.63 3.92 2.91 3.92 3.90

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0

0.5

1

1.5

2

2.5

3

3.5

4

2004 2005 2006 2007 2008

Earning Per Share

Book Value Per Share Excluding Revaluation of Assets

Rs in million2008 2007 2006 2005 2004

Earning Per Share 18.27 21.18 21.15 22.46 17.48

0

5

10

15

20

25

2004 2005 2006 2007 2008

Book Value P/S

Book Value Per Share Including revaluation of Assets

Rs in million

2008 2007 2006 2005 2004

Earning Per Share 21.32 24.95 24.48 24.88 21.05

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19

20

21

22

23

24

25

2004 2005 2006 2007 2008

Book Value P/S

Comments:

Earning per share is perhaps the most widely used of all accounting ratios. The trend

is earning per share and the expected earnings in future periods are major factorsaffecting the market value of a companys share. The EPS share is encouraging forthe investor. In 2004 EPS was 3.90 and in 2007 it becomes 4.82 This consistentgrowth shows better policies and utilization of available resources.

LIQUIDITY RATIOS

Current Ratio

Current Ratio= Current Assets / Current Liabilities

Rs in million

2008 2007 2006 2005 2004

Current Ratio 2.92 1.85 3.48 4.81 1.35

Current Assets 57583 53047 51269 61552 22892

Current Liabilities 19713 28589 14707 12800 16856

Current Ratio

0

1

2

3

4

5

6

20