SUMMER INTERNSHIP REPORT

On

Submitted by

Abdul Moeed Qureshi

01-122081-130

MBA-2(C)

Submitted to

Prof. Col. Imtiaz A Mohr

Internship Coordinator

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Table of Contents

1. Executive Summary

2. Introduction

2.1 Company background information

2.2 Company background

3 Company’s Analysis

3.1 Operation Analysis

3.1.1 Business and Branch Network

3.1.2 Information Technology

3.2 Financial Analysis

3.2.1 Operational analysis

3.2.2 Balance sheet analysis

3.2.3 Ratio analysis

3.3 Human resource assessment

3.3.1 Board of directors

3.3.2 Management team

3.4 Marketing analysis

3.4.1 Electronic

3.4.2 Print

4 Environmental Analysis

4.1 Industry and market analysis

4.1.1 Major product lines market segments

4.1.1.1 Major product line

4.1.1.2 Market segments

4.1.2 Growth rate for the entire industry

4.2 Competitor analysis

4.2.1 Major competitors

4.2.2 Their market shares

4.2.3 Their goals their strategies

4.2.3.1 Askari bank

4.2.3.2 Faysal bank

4.2.3.3 KASB bank

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4.2.3.4 Bank al-habib

4.2.3.5 Atlas bank

4.3 Technology analysis

4.3.1 Technical methods that affect the industry

4.3.2 Innovation

5 Brief on the department worked during internship and specific/leading

contribution made

5.1 Brief Introduction

5.2 Department overview

6 Identification of a main problem

7 Findings

8 Conclusions and Recommendations

9 Appendix

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1 Executive Summary

Banking sector of Pakistan has been transformed within a short period of 5 years

(CY2000-05) from a sluggish and government-dominated sector to a much more

agile, competitive and profitable industry. Speed and sequencing of banking sector

transformation and its role in promoting economic growth is now a leading story of a

sector success. Within Pakistan SBP offers a story of what effective leadership of

regulator and change management and corporate governance can achieve and offer.

Outside Pakistan it is serving to offer rich lessons in what difference governance of

regulator can make and how bank restructuring and privatization can change the

landscape of the industry.

Arif Habib Bank Limited started operations in August 2006 and became a profitable

entity within one year. AHBL had started off with a high capital base and is

positioned to take advantage of the business synergies and complementaries afforded

to it by its sponsoring group. The bank has a quality management team, a first-class

technology platform, and commitment to global practices. Its business strategy is

based on the "block-building" principle wherein profitable niches are tapped

progressively.

I did my eight weeks internship at Arif Habib Bank Limited F-6 Super Market

Branch. This branch also serves as Regional Office of AHBL in Islamabad and

Rawalpindi Zone. During internship I was rolled over in departments but my

penetration was developed in CIBD (Corporate & Investment Banking Division).

The work that I did during my internship primarily includes voucher checking,

checking a/c opening pre-requisites, a/c opening backlog checking, analyzing inward

and outward clearing at closing, making credit proposal, credit analysis of clients,

ratio analysis of statements, preparing standard credit memorandum (SCM).

The main problem that I identified during my internship period was the lack of

awareness about exact job descriptions of employees, the inability of employees to

approach higher officials easily, undefined job tasks in operations.

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Some of the suggestions in this respect were the introduction of compulsory weekly

meeting of all staff at branch level to discuss the discrepancies in every regard,

introducing job specific training to employees and adhering to the criteria laid out by

the HR department for job advancements in complete faith and employee training

sessions on regional level.

2 Introduction

2.1 Central Background Information

State Bank of Pakistan (SBP) which is the Central Bank of the country has been

entrusted with the responsibility for an ongoing effective supervision of the banking

sector. The relevant provisions of law which vest powers in State Bank of Pakistan

(SBP) to carry out inspection of banks are contained in the Banking Companies

Ordinance, 1962. Besides, State Bank of Pakistan Act, 1956 and the Bank’s

Nationalization Act, 1974, The Financial Institutions (Recovery of finances)

Ordinance, 2001, Companies Ordinance, 1984 and Statutory Regulatory Orders

(SROs) are the relevant legislations, which cover the activities concerning the banking

sector.

The financial sector in Pakistan comprises of Commercial Banks, Development

Finance Institutions (DFIs), Microfinance Banks (MFBs), Non-banking Finance

Companies (NBFCs) (leasing companies, Investment Banks, Discount Houses,

Housing Finance Companies, Venture Capital Companies, Mutual Funds),

Modarabas, Stock Exchange and Insurance Companies. Under the prevalent

legislative structure the supervisory responsibilities in case of Banks, Development

Finance Institutions (DFIs), and Microfinance Banks (MFBs) falls within legal ambit

of State Bank of Pakistan while the rest of the financial institutions are monitored by

other authorities such as Securities and Exchange Commission and Controller of

Insurance.

Under the WTO (World Trade Organization) commitments the operational status of

branch network of foreign banks operating in Pakistan as on 31-12-1997 has been

protected and frozen. However, existing foreign banks having less than 3 branches

can have branches to the extent of maximum number of 3 only. New foreign banks

desirous of entering banking business in Pakistan will now be required to incorporate

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as domestic bank under the local laws. The branches of foreign banks operating in

Pakistan can also be converted into a local commercial bank by incorporating under

the local laws and subject to a minimum paid up capital of Rs.1 billion provided

foreign share holding is restricted to a maximum of 49%.

At present there are 41 scheduled banks, 6 DFIs, and 2 MFBs operating in Pakistan

whose activities are regulated and supervised by State Bank of Pakistan. The

commercial banks comprise of 3 nationalized banks, 3 privatized banks, 15 private

sector banks, 14 foreign banks, 2 provincial scheduled banks, and 4 specialized banks.

Under the Banking Companies Ordinance, 1962 the State Bank of Pakistan is fully

authorized to regulate and supervise banks and development finance institutions.

During the year 1997 some major amendments were made in the banking laws, which

gave autonomy to the State Bank in the area of banking supervision. Under Section

40(A) of the said Ordinance it is the responsibility of State Bank to systematically

monitor the performance of every banking company to ensure its compliance with the

statutory criteria, and banking rules & regulations. In every case in which the

management of a bank is failing to discharge its responsibility in accordance with the

applicable statutory criteria or banking rules & regulations or is failing to protect the

interests of the depositors or for advancing loans and finance without due regard for

the best interests of the bank or for reasons other than merit, the State Bank is

empowered to take necessary remedial steps. The State Bank of Pakistan can, interlay,

exercise the following powers vested upon it under the Banking Companies

Ordinance:-

Prohibiting the bank from giving loans, advances & credits.

Prohibiting the bank from accepting deposits.

Cancel license of a bank.

Give directions to the bank as it deem fit.

Remove chairman, directors, chief executive or other managerial persons from

the office and appoint a person as chairman, director or chief executive.

Supersede the Board of Directors.

Direct prosecution of directors, chief executive or other officer.

Caution or prohibit bank against entering into any particular transaction(s).

Require bank to make changes in management.

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Appoint its officers to observe the manner in which affairs of bank/its

branches/office are conducted.

Winding up the bank through high court.

Apply to Federal Government for an order of moratorium in respect of a bank

and to prepare scheme of reconstruction or amalgamation.

Impose penalties including civil money penalties.

The State Bank has framed Prudential Regulations for banks and Rules of Business

for DFIs that present a prudent operating framework within which banks and DFIs are

expected to conduct their business in a safe and sound manner taking into account the

risks associated with their activities. These regulations incorporate the spirit and

essence of BIS regulations and are constantly watched for possible improvement so

that their enforcement yields the best results to promote the objectives of supervision.

The State Bank is empowered to determine Statutory Liquidity and Cash Reserve

Requirements for banks/DFIs. Presently the Cash Reserve Requirement is 5% on

weekly average basis subject to daily minimum of 4% of Time & Demand Liabilities.

In addition to that banks are required to maintain Statutory Liquidity Requirement

(SLR) @ 15% of their Time & Demand Liabilities. Similarly, DFIs are required to

maintain SLR of 14% and Cash Reserve of 1% of their specified liabilities.

Additionally, The Banking Companies Ordinance had been amended in 1997 which

empowers the State Bank to prescribe capital requirements for banks. In exercise of

these powers the State Bank has laid down Minimum Capital Requirements for banks

based on Basle capital structure. The banks have to maintain a Capital Adequacy

Ratio in a way that their capital and unencumbered general reserves are, at the

minimum, 8% of their risk weighted assets, and effective from 1st January, 2003

banks are required to maintain a minimum paid up capital level of Rs.1 Billion.

The State Bank of Pakistan announced over 50 percent reduction in minimum capital

requirement (MCR) to facilitate the banking sector. This decision has been taken in

view of the general global slowdown in growth and capital accumulation by financial

institutions and representations from shareholders, the SBP said., “Now the banks are

required to raise their minimum paid up capital (free of losses) to Rs 10 billion by

December 31, 2013, instead of earlier set limit of Rs 23 billion”1

1 SBP BSD Circular No 7 of April 15, 2009

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According to the circular, the banks will now be required to raise their minimum paid-

up capital (free of losses) to Rs 6 billion by December 31, 2009; Rs 7 billion by

December 31, 2010; Rs 8 billion by December 31, 2011; Rs 9 billion by December

31, 2012; and Rs 10 billion by December 31, 2013.

Scheduled Private Commercial Banks in Pakistani Banking Industry2 are as followed:

Allied Bank of Pakistan

Arif Habib Bank Limited

Askari Bank

Atlas Bank

Bank AL Habib

Bank Alfalah

Barclays Bank

Faysal Bank

First Women Bank

Habib Bank

Habib Metropolitan Bank

JS Bank

KASB Bank

MCB Bank

My Bank

National Bank of Pakistan

NIB Bank

Royal Bank of Scotland

Samba Bank

Saudi Pak Commercial Bank

Soneri Bank

Standard chartered Bank

United Bank

2.2 Company Background

2 Source: http://www.sbp.org.pk/f_links/index.asp (Due to focus of this study on commercial banks, only private commercial banks incorporated in Pakistan are quoted)

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Arif Habib Group is among the largest, most innovative and fastest growing Business

Group in Pakistan. In addition to Financial Services (Asset Management, Brokerage

Services, Corporate Finance and Project Advisory, Private Equity and Commercial

Bank), the Group has also interest in Fertilizer, Cement and Real Estate.

This has been made possible by a strong brand franchise built on decades of first-rate

services to clients. Managing assets in excess of PRs. 37 billion (US$ 617 million),

the Group holds interests in the securities brokerage, investment and financial

advisory, investment management, commercial banking, commodities, private equity,

cement and fertilizer industries.

The Group takes pride in its orientation towards client service. It believes that its key

success factors include continuous investment in staff, systems and capacity building,

and its insistence on universal best practices at all times.

The   holding   company of the Group.  Holds controlling

interest in the enterprises listed below.

The securities brokerage company. Member of all three stock

exchanges and the National Commodities Exchange.

The AM2 rated asset management company. Manages a

number of mutual funds and investment plans.

The commercial bank with the mission to be "The bank for

everyone".

The proposed private equity venture with the objective to

develop a vast new industry in Pakistan.

The upcoming commodities firm at the (DMCC).

Arif Habib Bank Limited is one of the fastest growing Commercial Banks of the

country supported by the strong sponsorship of Arif Habib Group.

AHBL started operations in August 2006 and became a profitable entity within one

year. AHBL had started off with a high capital base and is positioned to take

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advantage of the business synergies and complementaries afforded to it by its

sponsoring group. The bank has a quality management team, a first-class technology

platform, and commitment to global practices. Its business strategy is based on the

"block-building" principle wherein profitable niches are tapped progressively.

The Bank has an Authorized Share Capital of 6.0 Billion and Paid-up Share Capital of

5.0 Billion. The management intends to double it in a short period by injection of

fresh capital which will strengthen the bank further.

The Bank has a network of 35 Branches/Sub Branches3. The branch network covers

Sindh, Punjab, NWFP, and Azad Jammu and Kashmir. The Bank plans to open

further offices to better cover all four provinces within a short time span.

All branches are Real Time Online providing customers the facility to deposit at or

withdraw from any of our Branches anywhere in Pakistan without incurring any

additional charges making banking with us a faster, reliable and a convenient

experience.

Objective:

To be a Universal Bank in terms of providing products and services in all key

segments of Banking.

Vision

“We are committed to be recognized as the preferred supplier of financial services to

the markets we serve”

Mission:

3 AHBL Quarterly_Report_March_2009

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“To differentiate ourselves as an institution built on Trust, Integrity, Good

Governance, and Commitment to deliver value to all stakeholders i.e. customers,

creditors, employees, investors and the community at large. Reach out and provide

financial services to under-served and un-served customer segment”

Devotion

“To be recognized as a preferred supplier of financial services to the markets we

serve”

Business Approach & Core Values

It is their business objective to be a Universal Bank in terms of providing products

and services in all key segments of banking i.e. Corporate, Wealth Management,

Commercial Mid Market / SMEs and Consumer Banking.

Branch expansion plan is carried out to have a network of 100 Branches by 2011. The

projected Branch network is based on centralized processing centre (factory and

boutique concept) with secure and Real Time IT capability. Hence the Delivery

Channel configuration is dependent upon the potential in each location in terms of

size, Product Delivery Template and Head Count for each Branch.

In terms of Statutory Capital Requirement, they are determined to meet and in fact

exceed the Minimum Capital Requirement-MCR benchmark via injection of Capital

and retention of Retained Earnings. Mandatory allocation of 20% of after tax profit as

Free Reserves until such time our free reserves are equal to MCR will further

strengthen their equity base.

3 Company’s Analysis

3.1 Operation Analysis

3.1.1 Business and Branch Network

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AHBL is currently operating with 35 branches throughout Pakistan (breakup is given

in coming part). The Bank’s strategy is to establish a network of 100 branches during

the next three to five years. Several new sites have already been identified at strategic

locations. All branches are online, equipped with state of the art technology capable

of providing Real Time banking services to the clients. A professional team has been

developed to meet the expectations of demanding customers. This is in line with the

Bank’s strategy to build an infrastructure of international standard to attract and retain

a sizeable client base.

The growth in the economy provided them numerous opportunities and they remained

selective pursuing business through which strike a balance between growths and

prudent like risk taking and diversification. AHBL’s performance in 2007 was a result

of the pragmatic and well planned efforts of the management to attain present

strategic goals aimed at providing quality services to their customers and at the same

time enhance the shareholders value.

Despite the high growth level, they continued to ensure that high customer

satisfaction and service quality levels are maintained and they are appreciative of the

trust and confidence that their customers place in them. Management firmly believe

that the success of the Bank lies in expanding their way of financial services and

seamlessly delivering innovative solutions to meet customer requirements across all

the platforms. Accordingly, they work closely with their customers in order to

understand their business needs and to address them with high quality tailored

financial products so that they are viewed as a strategic partner in the business

growth. Management is pleased and encouraged to receive a very favourable response

to their endeavours from their respective customers.

In all, management believes that the economic outlook for the coming year is bright

with the right mix of products and services and their committed workforce; they can

deliver yet another superior performance in next year. Bank will continue to build

infrastructure, leverage the cutting edge technology in plan, introduce products and

services, manage risk efficiently and effectively and generate alternative revenue

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streams. Management has ambitious plans for the coming year and they are all ready

to make it happen to the benefit of our stakeholders.

Bank’s focus and energy for the coming years evolve around customer base and look

to expand network of branches throughout the country. Arif Habib Bank has a

network of 354 Branches/Sub Branches in major districts of Pakistan. The branch

network covers Sindh, Punjab, NWFP, and Azad Jammu and Kashmir and details are

as under:

Sindh

Head Office, Karachi (Arif Habib Centre)

I.I Chundrigar Road Brach, Karachi

Boat Basin Branch, Karachi

Gulshan-e-Iqbal Branch, Karachi

Atrium Mall Saddar Branch, Karachi

Karachi Stock Exchange Branch, Karachi

Cloth Market Branch, Karachi

Gulsha-e-Johar (Sub Branch), Karachi

Korangi Branch, Karachi

Adamjee Nagar (Sub Branch) , Karachi

Bahadurabad (Sub Branch) , Karachi

S.I.T.E (Sub Branch) , Karachi

Dolmen City (Sub Branch) , Karachi

Hyderi (Sub Branch) , Karachi

Nooriabad (Sub Branch) , Karachi

Khayaban-e-Jami Branch, Karachi

M.A Jinnah Road Branch, Karachi

Punjab

Yarn Market Branch, Faisalabad

Liaquat Road (Sub Branch), Faisalabad 

GT Road Branch, Gujranwala

GT Road Branch, Gujrat

Y Block DHA Branch, Lahore

4 AHBL Quarterly_Report_March_2009

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Lahore Stock Exchange, Branch 

Multan Road (Sub Branch), Lahore

Ferozpur Road (Sub Branch), Lahore

Gulberg Branch, Lahore

Abdali Road Branch, Multan

Hussain Agahi (Sub Branch), Multan

Bank Road, Rawalpindi

Sadiqabad Branch, Sadiqabad

Paris Road Branch, Sialkot

Federal Capital

Super Market Branch, Islamabad

Islamabad Stock Exchange (Sub Branch), Islamabad

NWFP

Islamia Road Branch, Peshawar

Azad Jammu and Kashmir

Mirpur AJK Branch, Mirpur

3.1.2 Information Technology

The Management is committed to service excellence, cost efficiencies and sound risk

management policies, which are closely integrated with business objectives and

AHBL’s growth strategy. Furthermore, Bank’s planning process considers both

current and further needs vis-à-vis emerging best practices and new technology. As

they claim that, “we strive to design solutions for accelerated progress”

The core banking application software hPlus5 is functioning successfully in all the

branches. hPlus is proven, integrated banking application capable of generating

standard and customised reporting system. All the branches are Real Time on line and

have fully functional ATMs.

In addition to a host of normal business activities, they are formulating an IT strategy

roadmap to reach end-state vision designed to incorporate leading edge technologies

and processes across all IT domains. Their implementation provides the framework

5 Linux based application software

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and capabilities to better align business and IT, and support long term transformation

initiatives for AHBL.

3.2 Financial Analysis

Talking about AHBL specifically, this Bank is purely a fresh Bank with strong

sponsors. Since Bank’s inception economic shocks were usual and banks are no

exemption to these shocks. The instability in economy also affected the Bank’s

performance for the year under review. Still the profit for previous years shows

managements’ effective policies and viability. President of AHBL is recently changed

and now the person who is holding the seat of President and CEO is highly

experienced and known as the master of acquisition as he led a consortium of

acquiring the small scale banks in Pakistan to make a single but highly strong bank.

He is none of the other former MCB President & CEO Mr. Husain Lawai. So let’s see

the financial results of AHBL.

In analysis portion, this financial analysis is segregated in to:

Operational Analysis

Balance Sheet Analysis

Ratio Analysis

3.2.1 Operational Analysis

In operational assessment we will mainly focus on advances, deposits, investments,

earning per share, profit/losses and capital detail. These will be on primary focus and

more detail will be discussed about their trend throughout the period given.

Financial Highlights of the Bank for the year ended December 31, 2008 are as

follows:

Operational Highlights

 

2008 2007

Rupees in '000

   

(Loss)/Profit for the year before taxation (347,274) 326,918

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Equity 61,321,731 6,324,139

Paid-up Capital 5,000,000 4,500,000

Deposits 16,616,466 9,464,785

Advances (Net of Provisions) 15,758,678 8,029,248

Investments 5,094,613 5,408,425

Advances to Deposit Ratio 94.84% 84.83%

Earnings per share (0.38) 1

No. of Branches 33 12

The Bank continued its growth momentum on the operational front. The Branch

network of the Bank expanded from 12 to 33 and 35 according to the 1H ending

report 2009. While the deposits and advances increased by 96% and 76%, to Rs.

15,758 million and Rs. 16,616 million respectively, during the year under report. The

Bank incurred a loss before tax of Rs.347.3 million as compared to a profit before tax

of Rs. 326.9 in the preceding year. This was mainly due to provisions for classified

advances, amounting to Rs.623.2 million. The Bank posted a loss after tax of Rs.

191.4 million during the year as against profit after tax of Rs.230.165 million for the

previous year. The equity of the Bank stood at Rs. 6.133 billion as at end 2008,

decrease of 3.03% over the previous year. Pursuant to the global financial and

economic crises, coupled with the local problems, capital markets of Pakistan

recorded a substantial decline in the last quarter of 2008. This decline triggered the

impairment testing under the International Accounting Standard ‘Financial

Instrument: Recognition and Measurement’ (IAS 39) and ‘Impairment of Assets’

(IAS 36) respectively. The State Bank of Pakistan vide BSD Circular No. 4 dated

February 13, 2009 allowed banks to benefit from the Securities and Exchange

Commission of Pakistan (SECP) notification vide SRO 150(I)/2009 dated February

13, 2009 allowing the impairment loss, if any, recognized as on December 31, 2008

due to mark to market valuation of listed equity investments held as “Available for

Sale”, to be taken directly to equity. The amount taken to equity, including any

adjustment / effect for price movements, shall be taken to profit and loss account on

quarterly basis during the year ending December 31, 2009. The Bank accordingly

decided to charge the impairment directly to equity, considering this as a temporary

decline. During the year under review, the management has decided to charge the

goodwill amounting to Rs. 60.79 million to the profit and loss account, which was

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recognized at the time of acquisition of Rupali Bank Limited – Pakistan Operations in

the year 2006.

During 2009, the Bank will have access to additional resources generated through a

wider network of branches. These resources will be invested prudently to generate

additional and incremental revenue streams to improve the profitability of the Bank.

The cost of operations will receive particular attention of the management to keep it

under control.

Future Prospects of AHBL

The Bank is improving its out reach by installing ATM machines at selected PSO

petrol pumps in Karachi, Lahore, Faisalabad and Islamabad. This initiative will

greatly facilitate the customers, and enable the Bank to win over new customers as

well.

Share Capital and Listing6

During the year, Bank's shares were listed on all the stock exchanges in Pakistan

through offer for sale of shares by Arif Habib Securities Limited (AHSL- the holding

company). AHSL disinvested 119,748,500 ordinary shares from their equity in the

Bank. Further, shares amounting to Rs 500 million were issued as bonus to its

shareholders in October, 2008 out of the share premium account of Rs. 1,500 million,

thus increasing the paid up capital of the Bank to Rs 5,000 million.

Credit Rating for CY2008

JCR-VIS Credit Rating Company Limited has assigned the Bank credit ratings of ‘A’

for the medium to long-term and ‘A-2’ for short term, with a stable outlook.7

3.2.2 Balance Sheet Analysis

A comprehensive 3 year trend is depicted in yearly form to see the

decreasing/increasing trend in balance sheet of AHBL as under:

6 AHBL Yearly report 20087 Annual Report 2007 AHBL

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Comparative Financials of AHBL (03 years)

 

Rupees in millions

2006 2007 2008

ASSETS      

Cash and Balances with treasury banks 228.374 753.845 1,349.649

Balances with other banks 645.650 52.551 65.580

Lending to financial institutions 1,079.286 2,855.582 200.000

Investments-Gross 1,752.655 5,441.370 5,575.553

Advances-Gross 1,564.608 8,157.709 16,540.341

Operating fixed assets 385.074 597.515 927.882

Deferred tax assets     360.893

Other assets 227.130 447.992 1,069.894

Total Assets-Gross 5,882.777 18,306.564 26,059.792

Provision against non performing advances (140.239) (128.461) (751.663)

Surplus/Deficit on revaluation of investments (21.787) (32.945) (480.940)

Provision held against other assets (24.372) (24.372) (24.372)

TOTAL ASSETS - NET OF PROVISIONS 5,696.379 18,120.786 24,802.817

       

LIABILITIES      

Deposits and other accounts 2526.271 9464.785 16616.466

Borrowings   1748.603 1869.94

Bills payable 3.899 384.603 75.963

Sub-ordinated loans      

Deffered tax liabilities 0.105 39.867  

Other liabilities 93.328 181.776 420.328

NET ASSETS / LIABILITIES 3072.776 6301.576 5820.12

       

REPRESENTED BY      

Equity      

Share capital 3000 4500 5000

Share premium   1500 1000

Statutory reserves 18.795 64.828 64.828

General reserves   66.567 250

Un appropriated profit 75.179 192.744 (182.097)

Total Equity 3093.974 6324.139 6132.731

Deficit on revaluation of assets-net (21.198) (22.563) (312.611)

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RESULTS OF OPERATIONS      

Mark up / Returns / Interest earned 142.802 617.854 2471.982

Mark up / Returns / Interest expensed 23.309 252.338 1585.875

Net Mark up / Interest Income 119.493 365.516 886.107

Total Non-Mark up / Interest Income 21.214 345.904 262.905

Non Mark up / Interest Expense 90.654 384.502 776.959

Profit before provisions 50.053 326.918 (970.476)

Provision against Non Performing Loans and

Advances 0.024   (623.202)

Profit before taxation 50.029 326.918 (347.274)

Taxation (43.945) 96.753 (155.866)

Profit After Taxation 93.974 230.165 (191.408)

The total assets for 2008, amounted to Rs. 24,802,817 (‘000), advances of the bank,

which include the loan and other services that the bank receives interest on, had the

greatest share of Rs. 157,586,678 (‘000), followed by investments made by the bank,

for Rs. 5,094,613 (‘000). The total liabilities for the year 2008 amounted to Rs.

18,982,697(‘000), of which deposits and other accounts amount to Rs.

16,646,466(‘000) setting 88% of the total liabilities for Arif Habib Bank. While

talking about Equity of AHBL, it remained Rs. 5,000,000 (‘000) in 2008 after an

increase of 11.11% of 2007’s equity. For the year under review, due to different

reasons majorly the economic downfall AHBL faced an after tax Loss of Rs. 191,408

(‘000) a major setback of 16.8% as compared to FY2007’s profit after tax Rs. 230,165

(‘000). AHBL’s top squad must focus this major downfall seriously and must design

efficient strategies involving regional quad also to cope up with 2008’s loss.

3.2.3 Ratio Analysis

In this portion we will analyze important financial ratios of AHBL, also the

comparative results in yearly form are depicted in table to see the trend of ratios and

reason for increase or decrease can be identified.

Comparative Financials Information of AHBL (03 years)

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Rupees in '000

2006 2007 2008

FINANCIAL RATIOS      

Return on Equity - ROE 3.06% 3.65% -3.29%

Return on Assets - ROA 1.65% 1.27% -0.77%

Profit before tax ratio 35.03% 52.91% -14.05%

Gross spread ratio 83.68% 59.16% 35.85%

Advances to deposit ratio - Gross 61.93% 86.19% 99.36%

Advances to deposit ratio - Net 56% 84.83% 94.84%

Income to expenses ratio - times 1 2 2

Cost to revenue ratio 43.45% 64.76% 70.36%

Debt to equity ratio 81.65% 177.31% 301.44%

Total assets to shareholder's fund - times 2 3 4

NPL ratio 8.96% 1.57% 6.97%

Capital adequacy ratio 56.22% 45.03% 20.85%

SHARE INFORMATION      

Weighted average of number of shares outstanding 85.1 351.78 459.59

Earning per share - EPS 1.1 0.65 (0.380)

Market value of shares   15570 2925

Price earning ratio - PE   67.65 (15.280)

Book value of shares 10.24 14 11.640

NON FINANCIAL INFORMATION      

Non performing loans - NPLs 140.215 128.461 1150.46

Number of employees 192 319 541

Number of branches 7 12 33

Return on Equity

Return on Equity for FY2008 remained negative 3.29% showing approx 200% down

as compared to FY2007 3.65%. Where as in FY2007 20% increase was seen than

previous year. ROE for the year under review shown low results because of the after

tax loss born and also the 11.11% increase in paid up capital of AHBL.

Return on Assets - ROA

AHBL since its inception is in continuous cycle of expanding its branch network and

hr side etc. In this scenario, assets of AHBL are also increasing proportionally to

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expansion. But the net income of AHBL is not meeting up the pace of growing assets

of company. The assets and income are in similar trend up till 2007 and showing

growth but mismatch of their increasing trend affected company’s ROA. After 2006

ROA from positive side 1.65 times deteriorated to fall by 23% at 1.27 times in 2007.

In the year under review due to major setback in non performing loans and other

aspects, AHBL faced loss and ROA further deteriorated by 160% to negative 0.77%.

Non-Performing Loans

Year 2007-08 remained very costly for every lender and they faced the inability of

their customer to meet the obligation. In the year under review the NPLs stood at 7%

which marked increase of 344% as compared to year 2007 1.57%. This area strongly

affected AHBL profitability.

Profit before tax ratio

Negative 14.05% in year 2008, due to one or the other reason this ratio also got

affected and it appeared in negative region. Till 2007 AHBL earned profit in almost

double increasing rate but in year under review it faced before tax loss.

Debt to equity ratio

According to this ratio, AHBL is highly leveraged company because debt financing is

exceeding the equity financing by almost 2 times i.e. 301% in year under review as

compared to 2007 177%. So the company is efficiently using the debt financing tool

to get leverage.

Earning per share – EPS

Surprisingly, the results in year 2007 remained in falling trend. EPS seems on

continuous deterioration and stood at negative 0.380. Stock prices of almost all the

companies in FY 2007_08 recorded major decreases in their share price due to stock

exchange crashes and economic unstableness.

Advances to deposit ratio – Net

In today’s scenario if any bank’s advances are more than deposits, it is seemed to be

burdened. So let’s take the insight of AHBL’s advances to deposits ratio. So for the

year under review, the banks advances are 94.84% of the deposits and still a margin

of 4% is left, it means there is still a breath taking space to continue in the industry.

This ratio has shown an increase of 11.8% as compared to the year 2007 which

depicts 84.83%.

3.3 Human Resource Assessment

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Work force of AHBL is very few in number as compared to other banks but if we

compare their qualification and diversified experience, they would surely be ahead of

them. The leadership matters here, i.e. Arif Habib himself remained the Chairman of

KSE and also the Chairman of AH group. So continuing the niche of experience, he

has accumulated best top management people from Pakistan and abroad in his squad.

3.3.1 Board of Directors

Mr. Arif Habib   Chairman

  Mr. Husain Lawai   President and CEO

  Mr. Mirza Qamar Beg (Resigned)   Director

  Mr. Asadullah Khawaja   Director

  Mr. Md. Abdul Hamid Miah   Director

  Mr. Nasim Beg   Director

The BOD is accountable to the shareholders for setting the board policy guidelines

and strategic directions, and the creation and delivery of strong sustainable financial

performance and long term shareholder value. The chairman is responsible for leading

the board ensuring its effectiveness, monitoring the performance and supporting the

Executive Management. The Board’s role includes the task of monitoring

management in such a manner as to appropriate policies and processes are in place,

that they are operating effectively and that Bank is meeting its plans and budget

targets.

3.3.2 Management Team

The management’s worth speaks itself if we critically analyze the experience and

banking integration of each personnel in this team headed by Mr. Husain Lawai.

The brief detail of the whole management team is as under.

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Husain LawaiPresident and CEO

Mr. Lawai is a seasoned banker having vast experience in the banking and financial services industry. He holds a Masters Degree in Business Administration from Institute of Business Administration, Karachi. Mr. Lawai worked as President & Chief Executive Officer at Muslim Commercial Bank; Director, Security Investment and Finance Ltd, UK. He established Faysal Islamic Bank, Pakistan Branches, first Islamic Sharia compliant Bank (now known as Faysal Bank Limited) in Pakistan and was General Manger, Emirates NBD Bank for Pakistan and Far East (now known as Emirates Bank Limited). He was nominated Director in the Board of Directors of PIA and is also serving as the Chairman of their Audit Committee.

Kalim ur RahmanChief Operating Officer

Mr. Kalim-ur-Rahman joined AHBL as the Chief Operating Officer (COO) in December 2008. He graduated with honours from Government College, Lahore, and is a Fellow of the Institute of Bankers in Pakistan and the Institute of Chartered Secretaries and Managers. He has International and Domestic banking experience of over 44 years to his credit, out of which 30 years has been with foreign banks. He has worked with Grindlays Bank, Middle East Bank, Union Bank and Askari Bank in senior positions. At Askari Bank, he was President & CEO for seven years. His last assignment was with Arab Emirates Investment Bank PJSC, Dubai as the General Manager.

Syed Mohammad Anwar LutfullahHead of Operations & Information Technology

Mr. Anwar Luftullah has joined us as SEVP / Head of Banking Operations & Information Technology. Mr. Anwar Lutfullah has ample experience in the disciplines of Information Technology and Banking Operations. He has more than 25 years of rich international and domestic work experience. Prior to joining AHBL he was with Financial Technology and Consulting (pvt.) Limited holding the office of Chief Executive. He has worked at Faysal Bank as Executive Vice President/ Group IT and Operations Manager; at Chase Manhattan Bank, NA as Programmer and Systems Analyst & at Unilevers as Analyst/ Programmer. He is a Gold medalist and a graduate of N.E.D. University of Engineering and Technology, Karachi. He is also a Chartered Information System Practitioner, UK & a professional member of British Computer Society (BCS). He was selected by Marquis Who's Who in Finance and Industry 1998-1999 and 1999-2000 and Electronic Payments International as Who's Who in Middle Eastern

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Electronic Banking in 1994.

Mohammad Zahir EsmailRetail/Branch Banking, Consumer, SME and Commercial Banking

Mr. Esmail joined Arif Habib Bank as Head of Retail/Branch Banking, Consumer, SME and Commercial Banking. He has over 40 years of banking experience to his credit. He Graduated from Karachi University, did his Diploma in Accountancy and Post Graduate Diploma in Islamic Banking. Mr. Esmail has worked locally as well as internationally with Habib Bank AG Zurich at Dubai/Oman, HBZ South Africa (subsidiary of HB AG Zurich) as Executive Director and General Manager, South Africa operations; Habib Bank AG Zurich, Pakistan as Country Manager Pakistan Operations; Habib Metropolitan Bank as Chief Executive Vice President, on deputations of HB AG Zurich, Zurich, Switzerland; BankIslami Pakistan as Head of Corporate and Retail Banking.

Khurshid ZafarHead of Corporate and Investment Banking Division

Mr. Khurshid Zafar has joined the Bank as Senior Executive Vice President in February, 2008. Mr. Zafar is an MBA from Quaid-e-Azam University and has vast experience of over 17 years of Corporate and Investment Banking. Prior to his joining the Bank he was serving as Country Head Investment Banking Group at Faysal Bank Limited. He has also headed the Corporate and Investment Banking at Saudi Pak Investment Company. Mr. Zafar served on the Boards of various Companies representing various financial institutions.Asif QasimHead of Treasury Division

Mr. Asif Qasim has more than 14 years experience in Treasury and Capital Markets. Prior to joining AHB, Mr. Asif Qasim has worked as Head of Treasury Division in Pak Oman Investment Company Limited. He started his Banking career with Metropolitan Bank and played a key role in establishing and managing Treasury Division of Metropolitan Bank Limited for more than 12 years.

Syed Asif Ali Head of Risk Management Division

Mr. Asif Ali is a Business graduate and has done Masters in Management from U.S.A. He has more than 22 years of experience of working with national and multinational financial institutions. Prior to joining the AHB, he was heading Credit & Risk Management Department of Pak Oman Investment Company.

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Pervez MobinHead of Human Resource Management & Administration

Mr. Pervez Mobin holds Degrees in Business / Human Resource Management from Washington D.C. USA and MBA from University of Glasgow, UK.Pervez has almost 20 years of diversified experience in banking and industry. Prior to joining AHB, Pervez has been working at PICIC Limited, Meezan Bank and Islamabad Serena Hotel as Head of Human Resource & Development. He has also worked in managerial positions at ANZ Grindlays Bank, Standard Chartered Bank, United Bank Limited and Bankers Equity Limited - BEL in Human Resources Divisions.

Syed Hasan JafriHead of Information Technology Division

Mr. Hasan Jafri has to his credit more than 22 years of comprehensive IT related experience in various organizations at senior levels. He has accomplished projects in terms of systems, software support, IT related communication and Networking. Mr. Hasan Jafri has worked on a number of credible operating platforms and system solutions.

Gulrays KhanHead of Internal Audit Division

Mr. Gulrays Khan has worked in State Bank of Pakistan since May 1994. His more than 12 years of experience is in Banking Supervision, Banking Inspection and Compliance. For his outstanding performance, he has received an achievement award from SBP in 2005. He has conducted audits/inspections of various foreign and local Banks in Pakistan. He has also been responsible for monitoring of assigned banks through a system of Institutional Risk Assessment Framework-IRAF. He has participated in various domestic and international seminars.

Karim SultanaliHead of Credit and Credit Administration

Mr. Karim Sultanali joined the Bank as an Executive Vice President in October 2007. He is an MBA from IBA and is a CFA charter holder from the CFA Institute, USA. He has over 19 years of Corporate Banking and Credit Risk experience. Prior to joining AHBL he was serving in Habib Bank Limited's Risk Management Division. He has also headed the Corporate Banking Division at Societe Generale Bank.

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Muhammad Amin BhooriHead of Finance Division

Mr. Bhoori is an Associate Member of the Institute of Chartered Accountants of Pakistan. He has over 9 years of diversified experience in the field of finance, audit and tax. He is in financial services industry for 4 years. He played vital role for the establishment of the Bank including its incorporation and takeover of Rupali Bank. Prior to joining Arif Habib Bank Mr. Bhoori has served Arif Habib Investment Management Limited in the capacity of Vice President Operations and Head of Internal Audit.

Tasnim BegHead of Wealth Management

Ms. Tasnim Beg qualified as Chartered Accountant in 1975 from England and Wales. Earlier, she has acquired Bachelor of Arts Degree from Punjab University. She has almost 30 years of diversified experience. In initial stages, she was associated with Peat, Marwick in London and subsequently worked with A.F. Ferguson, PIA, Pak Saudi Fertilizers, UNICEF and World Bank.

Aziz MorrisHead Compliance Division

Aziz Morris has 10 years of rich experience working with State Bank of Pakistan. During his stay at the central bank, he worked 6 years with Banking Inspection Department examining affairs of various commercial banks in the areas of Asset Quality, Management, Risk Management, Internal Controls etc. The other 4 years, he served at Banking Supervision Department looking after Off-site monitoring of banks and contributing towards various publications of SBP. His last assignment at SBP was overseeing implementation of Basel II Capital Accord in Pakistan. He attended a number of national / international seminars and trainings on banking and risk management during his stay at SBP. He was also an active resource person for trainings on risk management and Basel II for both commercial and central bankers.

Farhan FaruqiFinancial Institutions Division & Cash Management

Farhan Faruqi joined the bank in June 2008 as Vice President in Financial Institutions & Cash Management Division. He is MBA in Banking & Finance & has a 9 years multidimensional banking experience in Correspondent Banking, Corporate Banking & Financial Institutions in various Foreign & local banks such as American Express, Mashreqbank, UBL, Emirates Bank International. Prior to his joining, he was working for Emirates Bank International in Dubai in Financial Institutions Division. During that

28

period, he served as Relationship Manager for MENA & Asia Pacific regions.Sabeen IbrahimMarketing

Sabeen Ibrahim joined the Bank in June 2007. She holds a Bachelor of Science in Information Technology from University of West Virgina (London Campus), London, England. She has experience in Public Relations, Advertising and Marketing. Prior to joining AHBL she has been working in the capacity of a Public Relations Consultant for several well known local and int. companies.Ehsan ul HaqStrategic Planning and Development Division

Ehsan has been with AHBL since the Bank started its operations. He is a Commerce Graduate and an ACCA finalist. Being in SPD he has been dealing with many areas of the Bank including Business Strategies, Branch Expansion, Budgeting, Liability Management, Branch Expansion, Insurance, Deposit Analysis, etc.

Benefits provided by AHBL to employees

Some of the monetary and non monetary benefits that Arif Habib Bank provides to its

employees are as follows:

Attractive Salary Package

Employee Provident Fund

Gratuity Fund

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Medical Insurance

Bonuses

Life Insurance

Promotions

Various types of Staff Loans

3.4 Marketing Analysis

In today’s contemporary business world, marketing plays an important role and

banks, such as AHBL, that has little penetration in banking industry with low market

share, need to use their marketing plan and strategies effectively to attract customer

loyalty for its customer.

The major ways in which AHBL markets itself and its products are through the

following ways:

Electronic

Print

3.4.1 Electronic

The major way in which today’s organizations promote its products and services is

through television, not only because it’s economical but also because the visual and

audio aids help in promoting its product.

Television ads8 for AHBL mainly try to emphasis the ‘The Bank that talks with

Everyone, A Bank that walks with Everyone, A bank that grows with everyone. Arif

Habib Bank is truly the Bank for everyone” message in its advertisements, by

showing how its services can help you everyday financial needs that you face in your

every day life.

Another major way in which Arif Habib Bank advertises its products electronically is

through its website, which is designed in an effective manner with detailed

information, so that visitors can effectively know about the different services that the

bank provides.

3.4.2 Print

Print advertisements are another major way in which Arif Habib Bank advertises its

product to the masses. Print media advertisements are mainly printed in major English

and Urdu newspapers across Pakistan. Another way it uses to market the products is

8 http://www.youtube.com/watch?v=Rsf6UqcO2qc

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little pamphlets which are colourful and have sufficient detail to attract a customer.

An example of pamphlets of AHBL is as under:

4 Environmental Analysis

4.1 Industry and market analysis

4.1.1 Major product lines market segments

4.1.1.1 Major Product Line

Now Banking products has so much deepened that customers have to do an analysis

before pursuing any product of a bank. Competition has gone very intense. So

keeping the diversified range of banking product available in market, a very general

product line of banks is presented as under:

Deposits

Term Deposit Receipts

Daily Product

Current Account

Saving Account (PLS)

BBA Account

Corporate Banking

Deposits

Lending

Syndication

SME Banking

Deposits

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Lending

Trade Finance

Letter of Credit

Letter of Guarantee

Bank Guarantee

Consumer Banking

Auto Loans

House Loans

Personal/Individual Loans

Credit/Debit Cards

4.1.1.2 Market Segments

There are different strategies for different banks as per their top management to target

certain segments but If we have to draw a generalized segment format for bankers, the

segments would be:

Individuals

Salaried persons

Sole Proprietor

Retailers

Small and Medium enterprises

Corporate bodies

Trusts

NGOs

Autonomous and Semi-Autonomous Bodies

Partnerships

Clubs

Societies

Multinational Companies

4.1.2 Growth rate for the entire industry

Overview:

The banking system effectively coped with several challenges emanated from the

economic slowdown both at home and abroad due to strong resilience built over the

32

years and effective regulatory and supervisory regime. According to the State Bank of

Pakistan’s quarterly performance review9 of the banking system for the quarter ended

December 31, 2008 released on Saturday, asset base of the banking system grew 2.6

per cent over the quarter to reach Rs 5,653 billion, well-supplemented by 3.6 per cent

and 7 per cent growth in deposit and shareholders’ equity, respectively.

The liquidity profile of the banking system remained constrained for most part of the

quarter. However, post quarter statistics indicate a significant easing of the liquidity

profile because of gradual increase in deposits and reduction in banks’ advances.

The in line with the deterioration in macroeconomic indicators, the credit risk

remained high during the quarter. However, satisfactory earnings enabled the system

to cover these loan losses. The NPLs are covered by loan loss provisions to the extent

of 75 per cent, but on account of these increased loan provisions in absolute amounts,

earnings of the banking system came under pressure and remained lower than the last

couple of years. Return on Assets (ROA) was 1.2 per cent for the year 2008 versus

1.5 per cent for 2007 and 2 per cent for 2006. Overall solvency position of the

banking system showed an improvement.

The Capital Adequacy Ratio (CAR) under Basel-II framework, which also accounts

for the operational risk charge, improved to 12.2 per cent (12.6 per cent for

commercial banks) due to fresh injection of equity and satisfactory earnings. The

CAR improved to 13 per cent jointly for banks and development finance institutions

(DFIs). “Banking system shows strong resilience to unusual shocks in major risk

factors. This strength of the banking system largely came from the prudent regulatory

and supervisory regime, strengthening of risk management and governance standards

in banks as well as the improved solvency position,”

“Going forward, due to constrained economic environment both at home and globally,

the credit risk, earnings and growth rates of the banking system are likely to remain

under some strain in coming quarters,” the report anticipated. The banking system has

gained stability over the last couple of years through sustained growth in asset and

customer-base. Currently, a decline in the demand for credit from different sectors 9 The growth rate of entire banking industry is compositely gained from State Bank of Pakistan's Quarterly Performance Review of the Banking System for the quarter ended December 31, 2008 and the 1st Quarter ended March 31,2009. Also the Business Recorder Report of March 24, 2009.

33

was witnessed. Banks, as a result, had to divest their asset mix from loans towards

investments. Similarly, further tightening of monetary policy squeezed the surplus

liquidity from the market. (SBP 1HFY08)

In-Depth Banking Industry

Growth rates, credit risk and earnings of the banking system are likely to remain

under strain in future due to constrained economic environment both at home and

global fronts. (SBP’s Quarterly Performance Review of the Banking System for the

quarter ended December 31, 2008)

Pakistan's banking system effectively coped with several challenges emanated from

economic slowdown, both at home and abroad, due to strong resilience built over the

years and effective regulatory and supervisory regime. However, going forward, the

impending economic slowdown may dampen the growth rate of the banking system in

coming quarters of CY2009.

Low demand for banks' advances will shift asset mix away from advances to

government papers, and deposits are likely to grow at a steady pace. This respite in

liquidity may have positive bearing on interest rates.

The latest post quarters statistics of March 2009 also vindicate these trends. Since the

last week of December 2008, the asset base over these weeks has grown by 2.3

percent with 1.8 percent and 11.3 percent increase in deposits and investments,

respectively, while advances declined by 2.3 percent.

The present tough economic environment will also heighten the credit risk and affect

the earnings due to increased loan loss charges and constrained incomes. The system

is expected to remain profitable in the coming quarters, though this phenomenon may

not be widely shared across the market players.

Though the concerns about the solvency of top banks of the world are weighing on

the investor confidence across the globe, the banks in Pakistan are still maintaining

their resilience.

34

The strength of the banking system largely comes from the prudent regulatory and

supervisory regime strengthened risk management and governance standards in banks

as well as the improved solvency and earning capacity of banks.

Asset base of the banking system grew 2.6 percent over the quarter to reach Rs 5,653

billion, well supplemented by 3.6 percent and 7 percent growth in deposit and

shareholders' equity, respectively.

The liquidity profile of the banking system remained constrained for most part of the

quarter. However, post quarter statistics indicate significant easing out in liquidity

profile because of the gradual increase in deposits and reduction in banks' advances.

According to SBP, in line with deterioration in macroeconomic indicators, the credit

risk remained heightened during the quarter. Non-performing Loans (NPLs) of the

banking system increased to Rs 313 billion (Rs 278 billion in September-2008) giving

infection ratio of 9.1 percent and net infection ratio of 2.5 percent.

However, satisfactory earnings enabled the system to cover these loan losses. NPLs

are covered by the loan loss provisions to the extent of 75 percent, but due to these

increased loan provisions in absolute amounts, earnings of the banking system came

under pressure and remained lower than last couple of years' levels

Overall solvency position of the banking system registered an improvement. The

Capital Adequacy Ratio (CAR) under Basel-II framework, which also accounts for

the operational risk charge, improved to 12.2 percent (12.6 percent for commercial

banks) due to fresh injection of equity and satisfactory earnings. The CAR improved

to 13 percent jointly for banks and Development Finance Institutions (DFIs).

"Banking system shows strong resilience to unusual shocks in major risk factors. This

strength of the banking system largely came from the prudent regulatory and

supervisory regime, strengthening of risk management and governance standards in

banks as well as the improved solvency position,"

During the quarter under review, the banking system successfully weathered a

liquidity stress. The stress emerged in usual timeframe i.e. Eid-ul-Fitr deposit

withdrawal and a number of global, domestic and industry specific factors further

35

compounded it. Specifically, the news of failures of some global financial giants

burdened the liquidity profile of banks that together with closure of capital market

raised concerns about the strength of the Pakistani banks.

The situation aggravated by the intensive rumour mongering, leading to deposit

withdrawal from the banking system and severely affecting some banks. However,

strong capacity developed by the banks and regulators over the years and the

offsetting measures taken by the State Bank of Pakistan (SBP) enabled the system to

avert this transitory stress from converting into a financial crisis.

This temporary liquidity stress however decelerated growth of the system, which had

already been showing the signs of stabilisation for the last one-year or so. The quarter

under review, which is historically characterised by acceleration in economic

activities and strong growth in bank credit and deposits witnessed a passive growth.

Despite slight increase in credit risk and some relapse in the earnings, key financial

soundness indicators of the banking system remain within satisfactory ranges, though

challenged considerably. The stress testing results also substantiate strong resilience

of the banking system towards the major risk factors, as capital base of the system

remains strong.

Loan growth also remained low i.e. 3.7 percent with a significant portion of these

additional loans going to public sector enterprises (PSEs). Building vulnerabilities in

the credit risks and constrained liquidity profile increased the banks' interest in short-

term government papers.

However, the liquidity profile of the banking system remained constrained during

most part of the quarter. Relatively stronger advance growth in the recent quarters had

significantly increased Advances to Deposit Ratio (ADR) of the system by the

inception of December-2008 quarter.

Further, due to the shift in asset mix away from marketable government papers, the

fund-based liquidity of the system had also contracted. However, the post-quarter

figures indicate a reversal in trend and gradual improvement in liquidity of banks.

36

Due to slower growth in advances, which carry higher risk weights, Risk Weighted

Assets (RWA) remained stable at the previous quarter's level. Further, fresh injection

of equity and satisfactory earnings improved Capital Adequacy Ratio (CAR) of the

banking system under Basel-II framework to 12.2 percent (12.6 percent for

commercial banks), while the CAR improved to 13.0 percent jointly for banks and

Development Finance Institutions (DFIs).

The composition of the risk-based regulatory capital also improved with contraction

of the supplementary capital due to write down in revaluation surpluses, thus

improving the core capital to RWA ratio of banks to 10.2 percent. The report said that

the worsening business and economic environment somewhat increased the credit

risk, which compelled banks to adopt cautious lending strategy, particularly in

consumer sector where the advances have been decreasing since the start of CY08.

The banking system maintained its strong earning capacity and posted a profit after

tax (PAT) of Rs 63 billion, though lower than last couple of years, the report said. The

aggressive asset loss recognition strategy of some banks, additional provisions for the

loan loss charges and the proportionately higher increase in operating expenses has to

some extent affected the profitability and brought the key earning indicators under

pressure over the past quarter.

"The pre-tax ROA deteriorated to 1.7 percent (2.0 percent in September-2008 and 2.2

percent in CY07). The SBP, keeping in view the present depressing environment, has

devised a comprehensive strategy and contingency plan for effectively managing

troubled banks and coping with any liquidity stress, burgeoning NPLs and solvency

issues, the report said. This together with a multifaceted approach developed for the

resolution of solvency issues provides SBP with host of options for tackling problem

banks.

4.2 Competitor analysis

4.2.1 Major competitors

The augmentation in the banking industry of Pakistan has directed to an increase in

the number of banks both domestically and internationally to be established and create

a competitive industry. For Arif Habib Bank its competitors come in the form of

domestic commercial banks established in Pakistan

37

Private Local Commercial Banks in Pakistan

Allied Bank of Pakistan Limited, Karachi

Arif Habib Bank Limited, Karachi

Askari Commercial Bank Limited, Rawalpindi

Atlas Bank Limited, Karachi

Bank Al Habib, Karachi

Bank Al Falah Limited, Karachi

BankIslami Pakistan Limited, Karachi

Samba Bank, Karachi

Dawood Bank Limited, Karachi

Faysal Bank Limited, Karachi

Habib Bank Limited, Karachi

Habib Metropolitan Bank, Karachi

JS Bank

KASB Bank Limited, Karachi

Meezan Bank Limited, Karachi

MCB Bank, Islamabad

MyBank Limited, Karachi

NIB Bank Limited, Karachi

Saudi Pak Commercial Bank Limited, Karachi

Soneri Bank Limited, Karachi

United Bank Limited, Karachi

Arif Habib Bank feels that its major competitors are as follows:

Askari Commercial Bank

Bank Al-Habib

Faysal Bank

KASB Bank

Atlas Bank

4.2.2 Their market shares

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There are many criteria on the base of which we can assign market shares of Banks in

Banking Industry. Second thing is that on which data we can declare Bank’s market

share? So keeping this thing in view, the data provided be regulatory bank i.e. State

Bank of Pakistan is felt reliable for this calculation.

The report published by SBP “Quarterly Performance Review December 2008” is

used for overall values of banking sector. There can be different criteria for this

calculation but I am considering Bank’s Deposits and Bank’s Advances both for this

purpose.

According to latest figures released by the central bank at December closing of

200810, advances of the sector stood at Rs 3.15 trillion, total customer deposits of the

banking industry reached Rs 3.8 trillion.

Bank Deposit % age Advances %age

Askari Bank 167,676,572,000 4.2% 128,812,242,000 3.3%

Bank Al-Habib 144,340,496,000 3.7% 100,217,408,000 2.5%

Faysal Bank 92,327,158,000 2.3% 91,341,492,000 2.3%

KASB Bank 35,087,477,000 0.9% 32,240,196,000 0.8%

Atlas Bank 18,646,412,000 0.4% 20,549,869,000 0.5%

4.2.3 Their goals and strategies

4.2.3.1 Askari Bank

Askari Bank was incorporated in Pakistan on October

9, 1991, as a public limited company. It commenced operations on April 1, 1992, and

is principally engaged in the business of banking, as defined in the Banking

Companies Ordinance, 1962. The Bank is listed on Karachi, Lahore and Islamabad

Stock Exchanges. Askari Bank has expanded into a network of 200 branches / sub

branches, including 20 dedicated Islamic banking branches, and a wholesale bank

branch in Bahrain. A shared network of 2,991 online ATMs covering all major cities

in Pakistan supports the delivery channels for customer service. As at December 31, 10 SBP Quarterly Performance Review Dec 2008 (www.sbp.org.pk)

39

2008, the Bank had equity of Rs. 12.97 billion and total assets of Rs. 206.19 billion,

with 816,629 banking customers, serviced by our 6,496 employees.

Vision

To be the bank of first choice in the region

Mission

To be the leading private sector bank in Pakistan with an international presence,

delivering quality service through innovative technology and effective human

resource management in a modern and progressive organizational culture of

meritocracy, maintaining high ethical and professional standards, while providing

enhanced value to all our stakeholders, and contributing to society.

Thinking

Consolidation and creating opportunities with innovation

Values

The intrinsic values, which are the corner stones of our corporate behavior, are:

Commitment

Integrity

Fairness

Teamwork

Service

Objectives

To achieve sustained growth and profitability in all areas of business.

To build and sustain a high performance culture, with a continuous

improvement focus.

To develop a customer–service oriented culture with special emphasis on

customer care and convenience.

To build an enabling environment, where employees are motivated to

contribute to their full potential.

To effectively manage and mitigate all kinds of risks inherent in the banking

business.

To maximize use of technology to ensure cost–effective operations, efficient

management information system, enhanced delivery capability and high

service standards.

To manage the Bank’s portfolio of businesses to achieve strong and

sustainable shareholder returns and to continuously build shareholder value.

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To deliver timely solutions that best meets the customers’ financial needs.

To explore new avenues for growth and profitability.

Strategic Planning

To comprehensively plan for the future to ensure sustained growth and

profitability.

To facilitate alignment of the Vision, Mission, Corporate Objectives and with

the business goals and objectives.

To provide strategic initiatives and solutions for projects, products, policies

and procedures.

To provide strategic solutions to mitigate weak areas and to counter threats to

profits.

To identify strategic initiatives and opportunities for profit.

To create and leverage strategic assets and capabilities for competitive

advantage.

Credit Ratings

Long Term: AA Short Term: A1 + by PACRA as of 02-03-2009.

4.2.3.2 Faysal Bank

Faysal Bank started operations in Pakistan in

1987, first as a branch set-up of Faysal Islamic Bank of Bahrain and then in 1995 as a

locally incorporated Pakistani bank under the present name of Faysal Bank Limited.

On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in

Pakistan, merged into Faysal Bank Limited which resulted in a larger, stronger and

much more versatile institution.

Faysal Bank Limited is a full service banking institution offering consumer, corporate

and investment banking facilities to its customers. The Bank's widespread and

growing network of branches in the four provinces of the country and Azad Kashmir,

together with its corporate offices in major cities, provides efficient services in an

effective manner.

Major Shareholding

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The majority share holding of Faysal Bank Limited is held by Ithmaar Bank B.S.C an

investment bank listed in Bahrain.

Vision

Excellence in all that we do.

Mission

Achieve leadership in providing financial services in chosen markets through

innovation.

Credit Rating

The strength and stability of Faysal Bank Limited is evident through the Credit Rating

assigned by JCR-VIS Credit Rating Company Limited of "AA" (Double A) for long

to medium term and "A-1+" (A One Plus) for short term.

4.2.3.3 KASB Bank

The KASB Group, established by Khadim Ali Shah Bukhari

in 1958, has a long-standing tradition of excellence in financial services in Pakistan,

known primarily for investment banking, research/trading and asset management. In

1993, KASB became the local partner for the international investment banking firm,

Merrill Lynch. Recently, Merrill Lynch acquired an equity stake in KASB Funds.

The Group is now made up of KASB Securities, KASB Funds, KASB Direct and

KASB Bank, added in 2002, and recently, KASB Modarba to complete its financial

services portfolio. The group has also diversified its interest with investments in real

estate, technology, and oil and gas, while solidifying its leadership in financial

services. Our continued success and growth are a reflection of our innovative

approach to business and commitment to customers and community

V ision Client Focus

A ttitude Proactive, Based on Commitment & Respect

L eadership Based on Integrity, Trust & Teamwork

U pright Integrity

E xcellence In Services Quality

S ynergy In Team Performance

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Mission

Committed to achieve excellence in service quality, dedicated to building long term

relations based on trust and prudent practices, generating sustainable growth in profit

whilst making a contribution to the community.

Vision

To be a strong and profitable institution known for its service excellence, innovative

products, maximizing the KASB Group synergies and Corporate Citizenship

Strategies

The way we interact with society has an impact on our business and on our reputation.

As a firm and as individuals we strive to give back to society by contributing our time

and resources through four key initiatives:

We train our employees to be leaders in their field

We help shape policies of the country through active exchange of views and

ideas

We are committed to social welfare projects

We promote development of sports and culture

4.2.3.4 Bank Al-Habib

BAHL’s sponsors are members of the Habib Family, the oldest and a

distinguished name in Pakistan’s banking circles. They are active in the management

of the Bank and are backed by a team of experienced professionals most of which

have been with the bank since its inception.

Dawood Habib Group, which is the sponsor of Bank AL Habib Limited, have a very

long track record of banking which dates back to 1920s. They were among the

founder members of Habib Bank Limited which played a major role in meeting the

financial and banking needs of Pakistan, and which was nationalized along with other

Banks in Pakistan on December 31, 1973.

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Under the privatization policy of Government of Pakistan, the DAWOOD HABIB

GROUP was granted permission to set up a commercial bank. Bank AL Habib was

incorporated as a Public Limited Company in October 1991 and started banking

operations in 1992.

(Late) Hamid D. Habib, grandson of the founder of Habib Group, was the Chairman

of Bank AL Habib Limited. He was the Director in Habib Bank Limited form 1954

and it's Chairman from 1971 until nationalization. After the death of Mr. Hamid D.

Habib in May 2000, Mr. Ali Raza D. Habib, who was Director on the Board, was

appointed the Chairman of the Bank.

(Late) Rashid D. Habib, who was the Managing Director of Habib Bank Limited in

1953 till it's nationalization, was appointed as the Managing Director & Chief

Executive of Bank AL Habib Limited which post he held till he expired in 1994. After

his death, Mr. Abbas D. Habib who was the Joint Managing Director and closely

associated with the bank since it's inception 1991 was appointed as the Managing

Director & Chief Executive of the Bank.

The bank’s main activities are short-term lending, mainly trade finance related and

seasonal running finance. Its future strategy envisages growth through further

expansion of branch network, while maintaining the Habib hallmark of a constructive

risk profile. BHAL continues to strengthen its technological platform and human

resource base.

Vision

To be a quality financial service provider maintaining the highest standards in

banking practices.

Mission

To be a strong and stable financial institution offering innovative products and

services while contributing towards the National economic and social development.

Credit Ratings

PACRA has rated BAHL as A1+ in short term and AA in long term as of 02-03-2009.

4.2.3.5 Atlas Bank

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Atlas Bank Limited is supported by the trusted equity of Atlas

Group, a leading manufacturing, financial services and trading group that has been at

the forefront of country’s economic development since 1962. Atlas Bank began its

journey back in the year 1990 when Atlas Group and the Bank of Tokyo-Mitsubishi

Limited entered a joint venture as Atlas Investment Bank Limited. Later in 2002, the

Bank established a merger with Atlas Lease Limited and acquired Dawood Bank

Limited in December 2005 and renamed it as Atlas Bank Limited and merged Atlas

Investment Bank in to Atlas Bank in 2006. Atlas Capital Markets (Private) Limited

was also incorporated in 2006 and is currently a wholly owned subsidiary of the bank.

Envisioned to operate as a progressive and dynamic banking entity, Atlas Bank today

stands as a firm reality with a futuristic approach to help manage personal and

commercial finances with ease and convenience.

Poised to offer an extensive range of commercial banking services, lucrative assets

and liability products, Atlas Bank will be catering to satisfy and exceed the needs of

its valuable customers. With a devoted and professional team endeavouring to top off

the satisfaction of the customers, Atlas Bank will provide leasing, financing and trade

finance along with export re-finance and wealth management services. In addition,

brokerage and corporate advisory services will also be offered through its wholly

owned subsidiary. The wide range of asset and liability products being designed will

not only suit the needs of customers but will also make financial management

convenient for them through innovative deposit schemes that will provide most

favourable profit and security with monthly, quarterly, semi-annual and term income

options or alternatively nest eggs for long term planning. It will provide solutions for

multiple requirements of clients of diverse financial nature on both institutional and

individual levels through its array of funded and non-funded products and services.

Atlas Bank, having a futuristic approach, is positioned to improvise with the changing

trends of the modern day financial market. Operating through a growing network of

branches across Pakistan, the entire retail network is real-time online, providing

banking convenience, especially for those on the move. Enjoying the privilege of

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having diverse groups as its valued customers, Atlas Bank serves through its strong

network of branches, backed by advanced computerized and control system,

positioning its priorities in accordance with the needs, convenience and satisfaction of

its customers and stakeholders.

'With equity of over Rs.4.25 billion and assets base of over Rs.28.97 billion, Atlas

Bank is determined to expand within and contribute aggressively to the growing

economy of Pakistan and its flourishing banking sector. To stand out in the market

through competitive positioning as its prime objective, Atlas Bank will always be

committed to deliver consistent quality services and customer satisfaction

The Pakistan Credit Rating Agency (PACRA) has assigned a long-term rating of “A-”

(A minus) and a short-term rating of “A2” (A Two) to Atlas Bank Limited (ATBL).

These ratings denote a low expectation of credit risk emanating from a strong capacity

for timely payment of financial commitments.

4.3 Technology Analysis

4.3.1 Technical Methods that Affect the Industry

Technology is having a major impact on the banking industry. Direct deposit allows

companies and governments to electronically transfer payments into various accounts.

Debit cards, which may also be used as ATM cards, instantaneously deduct money

from an account when the card is swiped across a machine at a store’s cash register.

Electronic banking by phone or computer allows customers to access information

such as account balances and statement history, pay bills, and transfer money from

one account to another.

Advancements in technology have also led to improvements in the ways in which

banks process information. The use of check imaging allows banks to store

photographed checks on the computer instead of paper files. Also, the

Some of the technical methods that are used and affect the banking industry are as

follows:

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Availability and growing use of credit scoring software allows lending

departments to approve loans in minutes, rather than days (already in use of

American Bankers). It is a perfect example of electronic decision maker, it can

give relief to credit department personnel by way of auto calculating the

manual calculation by single click of mouse.

Computer networking within branch level and all of the branches through

WAN. SBP is certainly networked with banks for different purposes e.g. E-

CIB report. This creates better performance from bank employee in less time.

Technological improvements, such as digital imaging and computer

networking, are likely to lead to a decrease or change in the nature of

employment of the “back-office” clerical workers who process checks and

other bank statements. Employment of customer service representatives,

however, is expected to increase as banks hire more of these workers to staff

phone centres and respond to e-mails (European Approach)

Internet as a distribution channel is also eroding traditional barriers between

financial service providers (Banks) and technology firms which are ultimately

boosting revenue for banking and telecom industry.

Banks are increasingly providing technology services, such as account

reconciliation software and "web-enabling" assistance, while technology firms

are making inroads into services once the domain of banks and brokerage

firms, such as financial planning and bill payment. Indeed, many banks are

beginning to think of technology firms as competitors – or are contemplating

ways to partner with them.

Today, information of all kinds is transmitted easily, inexpensively and

instantaneously around the world, providing finger-tip access to anyone with a

laptop computer, cellular phone or PDAs (Personal Digital Assistant).

Such technologies, and the innovation they enable, have reduced the costs of financial

transactions, improved the allocation of financial resources, increased the

competitiveness and efficiency of financial institutions and markets, and opened new

avenues through which individuals and institutions can better diversify and hedge

their risks.

4.3.2 Innovation

47

Innovation is a necessity in contemporary times, as it is becoming one of the reasons

of competitive advantage in banking industry. It helps banks to compete in today’s

highly technologically driven industry. Some of the innovations that the banking

industry is looking forward are:

Advanced means of connectivity between branches through better and

advanced software and hardware to maintain connections within banks in

remote areas and during natural calamities in Pakistan. This includes better

connection through WiFi or WiMax.

Credit scoring software which allows lending departments to approve loans in

minutes, it will provide a major edge to credit officers in Pakistani scenario

Information systems in banks that are more protected than prior to eliminate

any probability of fraud and which are even more users friendly to help

employees to use them not only to make key decisions but also satisfy

customer need in a more well-timed manner.

Advancements in online transfer from inter branch to an even more helpful

inter bank transfers.

Automation of simple operations task that will not only improve efficiency but

also reduce costs like stationery and courier services, like automation of check

books etc.

Digital imaging of cheques will also be an innovative technology for Pakistani

Bankers to follow and introduce paper free environment.

Banks in Pakistan are trying internet, mobile and telephone banking in its

operations to major extent so that customer driven banking can be

implemented.

5 Brief on the department worked during internship and specific/leading

contribution made

5.1 Brief Introduction

I did my eight weeks internship at Arif Habib Bank Limited F-6 Super Market

Branch. This branch also serves as Regional Office of AHBL in Islamabad and

Rawalpindi Zone. During internship I was rolled over in departments but my

penetration was developed in CIBD (Corporate & Investment Banking Division).

The work that I did during my internship primarily includes voucher checking,

checking a/c opening pre-requisites, a/c opening backlog checking, analyzing inward

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and outward clearing at closing, making credit proposal, credit analysis of clients,

ratio analysis of statements, preparing standard credit memorandum (SCM).

5.2 Department overview

CIBD (Corporate & Investment Banking Division), this was the department which

attracted me the most and due to my interest in finance I started penetrating in CIBD.

A very brief overview of this department is that it tends to focus on corporate lending

and somewhat syndications also; indeed it covers the lending modes in corporate

sector. Hierarchy of this specific department is as under:

Relationship Officer

Relationship Manager / AVP I

Relationship Manager / AVP II

Regional Head / SVP

Zone Head / SEVP

Country Head

This department is totally dependent on some other departments for the sake of

client’s verification and legal provisions. The lending case is started at the lower level

i.e. R.O or R.M. The case is then forwarded to Regional level and then Head office

level for final approval. The final decision is held to the discretion of Country Head.

Currently this department is led by Mr. Khurshid Zafar who occupies his office in

Arif Habib Centre (H.O).

Documents to be acquired from prospective client while request of lending is

received:

Proprietor Ship/Partnership Companies

Quotation (s) Invoices(s)

Bank Certificate for Proprietorship or Partnership deed/

Copy of NIC(s) of Proprietorship/Partnership deed/Directors.

Audited financial statements for three years along with cash flows(If Applicable).

Bank Statement for the last six months.

Copy of NTN certificate/Assessment Order/Tax returns/

Company profile

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Bio-data of the directors along with NIC of directors

Details of finance requirement

Request letter

Names of financial institutions dealing with the company along with addresses

Borrowers Basic Fact Sheet (BBFS)

Feasibility/projections

Private/public limited Companies

Certificate of Incorporation

Memorandum and Articles of Association

Form-29

Form-A

Bio-data of the directors along with NIC of directors

Tax Return Copies of directors

NTN of the company

Company profile

Audited accounts of the company for the last three years

Audited accounts of group companies

Details of finance requirement

Justification/Request letter

Names of financial institutions dealing with the company along with addresses

6 Identification of a main problem

The main problems that I identified during my internship period were:

The lack of awareness about exact job descriptions among employees

The inability of employees to approach higher officials easily (lower level of

centralization)

Undefined job tasks in CIBD and Operations department

Lack of IT specialist at branch level

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Lack of amenity and common room

Incentives like study scholarships, performance awards etc

Unhealthy product line

7 Findings

Now coming towards the most crucial part of internship report, the findings limited to

my opinion are:

AHBL is backed by high level corporate giants

AHBL to some extent enjoyed the encashment of parent company’s market

leadership

Top management is highly qualified and as per my assessment the most highly

paid individuals of private commercial banks in Pakistan.

AHBL has failed to penetrate in market due to:

o No consumer products (consumer banking)

o Continuous expansion

o Economic instability

o SBP’s regulatory requirements

In recent findings, due to suspect of fulfilling the capital requirement, AHBL

is in deal of being acquired by Lawai led consortium to take more than 51%

shareholding and also Mybank to be now operated under AHBL line.

8 Conclusions and Recommendations

Some of the suggestions in this respect were

The introduction of compulsory weekly meeting of all staff at branch level to

discuss the discrepancies in every regard

Introducing job specific training to employees

Adhering to the criteria laid out by the HR department for job advancements

Employee training sessions on regional level led by Regional Heads to take

insight of their employees

There should be a prayer room developed in all branches as many employees

want to pray, but do not have the proper place to do it.

There are some departments in the bank that do not have enough employees,

while some have more than needed like CIBD

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Their should be a common room, so as to give employees a relaxing

environment when they have a break

New and innovative products should be introduced by AHBL, like other bank

such as Citibank and Standard Chartered Bank develops for their customer.

For this purpose, special teams should be developed that include professional

from all departments of the banks to come with ideas. This process will

increase the number of ideas generated and even produce innovative products

for the bank that might give them the edge

Incentive schemes should be developed for the employees that can help

motivate them, which might include:

o Scholarship programs for all employees for further study.

o Introducing employee awards at branch and regional levels.

o Job rotation programs to enhance the skills of employees.

A proper IT department should be established in all branches, with

professional having the knowledge to maintain a secured connection with

other banks. Also scheduled backups of data should be done with in the bank.

9 Appendix

Web References

www.arifhabibbank.com

www.sbp.org.pk

www.brecorder.com

www.garp.com

www.dailytimes.com.pk

www.nation.com.pk

www.bmacapital.com

www.ibp.com.pk

www.pba.com.pk

www.research.bmacapital.com

www.nytimes.com

www.investopedia.com

www.arifhabibltd.com.pk

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Documental References

Annual Report 2006 (AHBL)

Annual Report 2007 (AHBL)

Annual Report 2008 (AHBL)

Quarterly Report 2009 (AHBL)

Annual Report 2008 (Askari Bank)

Corporate Profile 2009 (Askari Bank)

Annual Report 2008 (Faysal Bank)

Annual Report 2008 (Bank Al-Habib)

Annual Report 2008 (KASB Bank)

Annual Report 2008 (Atlas Bank)

SBP Quarterly Performance Report of Banking Industry for 4Q 2008

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