Full Report on Al Barakah Islamic Banking

CHAPTER 1

INTRODUCTION TO THE REPORT Students of BBA studying courses leading to Bachelor degree in Business Administration are required to undergo an internship program of six weeks to eight weeks. This is an essential academic requirement. The purpose of this internship report is to study and analyze Al – Baraka Islamic Bank (AIB), particularly its Branch Office working at Abbottabad where I had a chance of working for two months (eight weeks) during February-April (2010) and observed its working environment. The written report is a requirement to earn the BBA Degree from COMSATS Institute of Information Technology, Abbottabad and is graded under a special course with 3 credit hours.

1.1 Objective of Study

The purpose of the study is to work in a real life situation and to apply management skills. In this context its objectives are:

. To review the Banking environment of Al – Baraka Islamic Bank (AIB). . To analyze different working areas associated with Bank. . To analyze the strengths and weaknesses of the Bank and its Banking Practices. . To suggest possible solution in front of Bank Management in order to devise their Practices in a better way.

. To analyze banking operations i.e. operational analysis, financial analysis etc,

. To do practical work in field and apply the knowledge of classroom lectures to the real life situations,

. To suggest concrete and feasible recommendations.

www.vuzs.net 1 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

1.2 Limitations of the Study . Due to the constraint of time the problem of short time period makes the analysis restricted as one cannot properly understand and thus analyze all the operations of a bank just in eight weeks. . More over some of the data was confidential and was not made available to me. . Sometimes due to the busy schedule of the bank, complete information regarding different activities was not provided in time. During the study it was tried to include only relevant material and avoid irrelevant material.

1.3 Merits of the Study The study conducted will benefit the finance students in particular and banking students in general because the third chapter of this report comprehensively encompasses most of the aspects of banking, followed by SWOT analysis, conclusion and recommendations. Furthermore Al – Baraka Islamic Bank Abbottabad may also benefit from the recommendations made at the end of the report.

1.4 Methodology of the Study The report is prepared using both primary and secondary data that included the following methodological tools.

1.4.1 Primary data The data, which is collected for the first time and exist in raw form, is called primary data. It includes: . Personal observations during the eight-week internship program. . Interviews and Discussion with the Bank personnel from time to time.

1.4.2 Secondary Data The data gathered from existing sources are called secondary data. They are in processed form. The main sources of secondary data of Al – Baraka Islamic Bank (AIB) are:

www.vuzs.net 2 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Journals, newspapers and course books. . Previous Annual reports of Al – Baraka Islamic Bank (AIB) . Brochures & Manuals of the Bank. . Websites . Newspapers . Previous Internship Reports

1.5 Scheme of Study This internship report is divided into five chapters the detail of which is given below:

. Chapter one Includes objectives, limitations, merits, methodology, and scheme of study. . Chapter two Includes background and history of banking in , Historical background of AIB Branch, Abbottabad, Organizational Structure, roles, functions and branches. . Chapter three is about the Financial Position and Products and services provided by Al – Baraka Islamic Bank (AIB) . Chapter four describes financial, SWOT analysis and findings of the study

. Chapter five gives feasible and constructive recommendations for different departments of AIB Branch, Abbottabad.

www.vuzs.net 3 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

CHAPTER 2

INTRODUCTION TO THE AL – BARAKA ISLAMIC BANK

2.1 Evolution of Banking Like many other subjects and social sciences no any precise definition can be given for the study of banking also keeping in view the particular function of banking. It is clear that there is a big difference in functions performed by old institutions and modern baking. But the basic idea is same banking has now become a multi-service organization with wider scope and area of its influence .Mr. Gilbert says “bank is dealer in capital or more peculiarly in money. He is an intermediate party between borrower and lender.The definition lay down in the banking companies Act 1962 is "Bankers means a person, transacting the business of accepting for the purpose of landing or investment, of deposits of money from public, repayable on demand or otherwise and withdraw able by cheque, grafts or orders or otherwise and includes any "Post office saving Bank".

In view of the above definitions, in simple words a bank can be defined as an institution dealing in money, accepting deposits and advances loans.

2.2 Banking in Pakistan Banking industry in Pakistan has passed through various transitional phases. The State Bank of Pakistan regulates the banking sector, consisting of the commercial banks, along with all NBFIs, except for the leasing companies. The IMF experts in their reports said that banking industry has developed to cater to the local needs of the financial sector as well as it is highly competitive to serve the customers globally. In the past it never attracted the customers, as the interest rates were higher as compared to other countries in the region. Taxes were all time high. Recoveries were hardly 25%. Political pressures damaged the efficiency. The World Bank and IMF never lent support to the industry.

The State Bank of Pakistan realizing the gravity of the situation introduced reforms. Banking sector reforms have brought in competition within the system, improved internal

www.vuzs.net 4 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking efficiency, reduced the lending rates significantly and broadened access to the middle class. While these results are encouraging, a lot more needs to be done and, we have spelled out the agenda for the second-generation reforms in the financial sector covering the period 2005-2010. Banks in Pakistan account for 95 % of the financial sector and hence good health of banks is directly related to the economic growth and development of Pakistan. Banks in Pakistan had been catering basically to the needs of the government organizations, subsidizing the fiscal deficit, serving a few large corporations and engaging in trade financing. There was no lending to small and medium enterprises, to the housing sector or to the agricultural sector, which create most of the growth and employment in Pakistan. Most important, the financial sector suffered from political interference in lending decisions and also in the appointment of managers. The middle class which is the backbone of any economy was not given due attention by the banking sector. (Hussain, S; Rana, K & Shabbir, A (1991))

Pakistan is one of the few developing countries where the public sector banks went to the private hands in a very short span of time. The government only owns the National Bank, while 80 % of the bank assets are in private hands. And there is tough competition among the banks, as in the private sector everything is performance-based. Unlike the public sector or the government, any employee not producing results is fired because he affects profit of the organization. The bankers these days go out of their cozy offices to market their financial products and build up customer base. The seller market has changed into a buyer market. The customer may choose the bank with best products and services. There was a time, only a few years back, people used to go the banks and the staff treated them shabbily, was generally uncooperative and unfriendly. Now, they are after the customers. Banking sector reforms were thus needed badly to address these and other constraints so that the banks could play their due role in the economic development of the country. Although, there is no room for complacency and a lot still needs to be done, even the worst critics of this government do concede that if there is one sector, which has undergone basic transformation that is the banking sector.

www.vuzs.net 5 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Banks in Pakistan have been catering basically to the needs of the government organizations, subsidizing the fiscal deficit, serving a few large corporations and engaging in trade financing. There was no lending to small and medium enterprises, to the housing sector or to the agricultural sector, which create most of the growth and employment in Pakistan. Most important, the financial system suffered from political interference in lending decisions and also in the appointment of managers.

As private sector credit is rising and money demand is constantly rising from agriculture as well as manufacturing sectors. These are now offering from 7% to 11% return to their depositors on term deposits. So it is also giving a strong indication that the people may not withdraw their savings from banks in an environment where banks have started to give them attractive rates with much better service than the saving centers. Banks have a vast branch network and provide convenience too. Year 2008 is going to be the fourth consecutive year for double-digit profitability growth of the commercial banks. The excellent performance of the bank can be attributable to the prudent fiscal and monetary measures of the government which resulted in the increased credit demand from private sector, improved spreads, exceptionally increased in non interest income of the bank (particularly fee income and dividends).

Some of the major reforms achieved in the banking sector to-date include: . Strong corporate governance by SBP, enforcement of banking license regulations, transparent financial transactions, independent appointment to Board positions and Chief Executive Positions, arms length transactions for Board family member representations, inside trading, regulations of external auditor‟s profession, and prudential guidelines for Board of Directors. . Strict monitoring and reduction of non-performing loans by active involvement of the Corporate Industrial Restructuring Corporation (CRIC) and Committee of Revival of Sick Units (CRSU). . SBPs removal of restrictions imposed on nationalized NCBs for commercial financing and incentive schemes for encouragement of mortgage financing by the banks.

www.vuzs.net 6 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Implementation of Financial Institutions (recovery of finances) Ordinance 2001, and relaxation of licensing and regulatory environment for Micro Credit and Rural Finance Institutions, encouraging their establishments at districts, provincial and national levels with varying capital requirements; . Mandatory requirement for all banks to get themselves evaluated by credit rating agencies in order to facilitate depositors to make informed judgments about placing their savings with the banks.

2.3 Historical Background of Al – Baraka Islamic Bank (AIB) AlBaraka Islamic Bank (AIB) is a member of Albaraka Banking Group (ABG) which is a Bahraini Joint Stock Company listed on and Dubai stock exchanges and one of the well-known leading international Islamic banks. ABG is committed to expanding its presence in Pakistan, which is evident from the rapid growth being undertaken by AlBaraka Islamic Bank in the country and its plans to have its Pakistan operations localized as a Bank registered in Pakistan, over the next few weeks. Building on the expertise and experience of its workforce and the growing awareness of Shari‟ah- compliant banking solutions among the masses, AIB has successfully developed itself as a major unit of ABG operating in the region, capitalizing on the Group‟s geographical presence and high quality research and development in Islamic financial products for its business expansion in the country. Faced with growing challenges in this rapidly developing market, AIB strongly relies on its ability to be an effective and efficient market player through renewed focus on superior customer service, development of Islamic alternatives to conventional financing facilities, and strict adherence to Shari‟ah rulings and principles.

2.3.1 Al – Baraka Islamic Group Albaraka Banking Group is the biggest Islamic banking group listed on the Bahrain Stock Exchange in terms of capitalization. It has been rated by Standard & Poor's as BBB- with a short-term rating of A-3. ABG offers retail, corporate and and treasury services strictly in accordance with the principles of the Shari‟ah. The authorized

www.vuzs.net 7 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking capital of ABG is US$1.5 billion, while the total equity amounts to about US$ 1.59 billion. With assets of US$11.2 billion, the Group has a wide geographical presence in the form of subsidiary banking Units in 12 countries, which in turn provide their services through more than 250 branches. These banking Units are Islamic Bank/ Jordan, Al Baraka Islamic Bank/ Bahrain, Al Baraka Islamic Bank/ Pakistan, Banque Al Baraka D'Algerie/ , Al Baraka Bank /Sudan, Al Baraka Bank Ltd/ , Al Baraka Bank /Lebanon, Bank Et-Tamweel Al- Tunisi Al Saudi/ , The Egyptian Saudi Finance Bank/, Al Baraka Turk Participation Bank/, Albaraka Bank (under establishment), and representative office, .

2.3.2 Subsidiary Banking Units of ABG

Figure 2.1: Subsidiary Banking Units of ABG

Source: Al-Baraka Islamic Bank Annual report 2008

www.vuzs.net 8 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

2.3.3 History

Al-Baraka Islamic Bank (AIB) has the honor of being the pioneer of Islamic banking in Pakistan and has been operating in the country as branches of Al-Baraka Islamic Bank Bahrain since 1991. Over the years, the bank has successfully developed and maintained its identity as one of the leading providers of a host of banking products and services in strict compliance with Shari‟ah principles. Currently operating with 20 branches in 11 major cities of the country, AIB offers a wide array of Islamic financing products such as Murabaha, Ijara, Musharaka and Islamic Export Refinance, etc., catering to a diverse cross-section of the economy, including the Corporate, SME and Consumer sectors. Moreover, various Shari‟ah compliant deposit schemes are available for customers to invest their funds in, along with a variety of other ancillary services such as online banking, ATM/debit card, safe deposit lockers and utility bill payments etc.

2.3.4 Al - Baraka’s Commitment to Islamic Banking Al-Baraka Islamic Bank and Al-Baraka Banking Group are fully committed to develop and promote an integrated Islamic Financial System. Compliance with the rules and principles of Islamic Shariah is the core of the banking and financial activities and its philosophy. All its banking activities are very closely regulated by a Board of Shariah Advisors based at the Head Office in Bahrain and a Shariah Advisor based in Pakistan, to ensure strict compliance with the highest standards of Islamic Banking principles.

2.3.5 Present Status

Currently the authorized capital of Al – Baraka Islamic is US $ 1.5 billion, while the total equity amounts to about US $ 1.5 billion. The Group has a wide geographical presence in the form of Subsidiary banking units in, which in turn provide their services through more than branches. Currently there are 496 employees working at different branches of Al – Baraka Islamic at Pakistan.

www.vuzs.net 9 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

2.3.6 Credit Rating JCR-VIS Credit Rating Company Ltd. has reaffirmed the medium long term rating of Albaraka Islamic Bank BSC © - Pakistan Branches at A ( single A) with a „stable‟ outlook, the shot term rating is A-1 (Single A-one).

2.3.7Auditors Ford Rhodes sidat Hyder & Co., Chartered Accountants, being eligible, have offered themselves to act as auditors of the Bank for the year ending December 31, 2010

2.4 Organizational Structure Al – Baraka Islamic Bank (AIB)

Figure 2.2: Organizational Structure of AIB

BOARD OF DIRECTORS

Executive Committee Audit committee EXECUTIVE COMMITTEE Shariah Board

Country Manager Regional Manager

BRANCH MANAGER

Source: www.albaraka.com.pk

www.vuzs.net 10 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

2.4.2 Al – Baraka Islamic Bank (AIB) Management Structure Chart Figure 2.3: AIB Management Structure Chart

Board of Directors

Country Manager

Regional Manager Regional Manager Regional Manager South Central North

Chief Head of Head Head Head of Head of Financial (HR) of of (IT) (Treasury) (Credit) Officer (Audit)

Regional Chief

Branch Manager

Source: www.albaraka.com.pk

2.5 Our Vision To be a leading and a diversified International Islamic Bank, Offering a wide range of Quality Products and Services and forming strategic alliances for a Competitive Edge.

2.6 The Mission Statement We strive to be a Premier Regional Islamic Bank, Dedicated to the Economic and Social Development of our target market, Maximizing our Clients and Shareholders Value And focusing on the Human Resource Development In an environment of Creativity and Innovation.

www.vuzs.net 11 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

2.7 Objectives . To enhance shareholder value whilst pursing a strategy of business growth and geographical expansion.

. To provide innovative and high quality research and development into Islamic financial products which comply fully with the principles of Shari‟a Law and Islamic values, for the benefit of our customers. . To utilize the Group‟s geographical presence to distribute its products and services and promote cross border services. . To maintain the highest international standards of corporate governance and regulatory compliance.

2.8 Core Values The bank Management has identified the following core values to achieve its targets:-

. Highest quality of service

. Professionalism, Integrity and Team Work

. Innovation & utilization of latest technology

. Corporate & Social Responsibility

. Islamic Banking service

2.9 Corporate Profile The Corporate Profile provides a comprehensive summary of the organization. The Profile contains the following information:  Company Business Description  Industry Classification (Major and Sub Industry)  Address (mailing), Phone Number, Web Address  Exchanges Listed, Ticker Symbol  Senior Officers  Number of Employees

www.vuzs.net 12 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

 Earnings/Dividends  Financial Ratio Analysis  Recent Stock Performance  Sales (recent year)  Shareholder Information  Up to 10-year Analysis Summary (Per Share) o Market Price o Value Ratios . Price/Earnings . Price/Book Value . Dividend Yield o Equity Capital . % Earned Growth . % Profit Rate (ROE) . Beginning of the Year Book Value o Earnings . 12 Month Earnings per Share . Annual percentage Change o Dividends . % Payout Ratio . 12 Month Dividends per Share  Proprietary Wright Quality Rating

2.10 Board of Directors

NAME DESIGNATION

Mr. Khalid Rashid Al Zayani Chairman

Mr. Adnan Ahmad Yousif Vice Chairman

Mr. Othman Ahmed Sulieman Board Member

www.vuzs.net 13 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Mr. Abdul Hameed Nazer Board Member

Mr. Abdul Latif A. Janahi Board Member

Mr., Mousa Adbul aziz Shihadeh Board Member

Mr. Adel Saud Dehlawi Board Member

2.11 Executive Committee Name Designation

Mr. Othman Ahmad Suliman Chairman

Mr. Adnan Ahmad Yousaf Vice chairman

Mr. Abdul Latif A. Janahi Member

Mr. Mohammad Isa Al Mutaweh Member

2.14 Introduction to AIB Abbottabad branch To provide the banking facility to people of Abbottabad Al-Baraka Islamic bank Abbottabad branch Abbottabad was established in 2007 Silk Route Abbottabad. Mr. Tariq Mahmood is the manager of branch. AIB Abbottabad branch started its operations smoothly and profitable and with the passage of time, management improved its efficiency and reputation. The branch is accessible to all remote villages and as well as the posh colonies of Abbottabad. The structure of AIB consists of a branch manager, remittances, clearing and verification, bills department and cash department.

2.14.1 Departmentalization The Al-Baraka Islamic Bank has number of interrelated departments that works together to achieve the specific goals and objectives of the organization. The AIB has built a hierarchical system that includes the sub departments. The AIB‟s exiting system includes following departments.

www.vuzs.net 14 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Cash department . Deposits department . Clearing department . Advances department . Remittances department . Government department

2.14.1 AIB Abbottabad Branch Organizational Chart

Figure 2.4: AIB Abbottabad Branch Organizational Chart

Source: Annual Report 2009

2.14.2 Location The branch is located at Alfateh shopping plaza, Mansehra road, opposite Radio Station, Jhangi, Abbottabad. This is very appropriate location because it is in the centre of the city located on a busy road having offices of many companies and easily accessible to all the inhabitants of the city.

www.vuzs.net 15 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

2.14.3 Number of Employees Total no of employees that are working in AIB Abbottabad branch is 15.

2.14.4 Assets and Liabilities Management Committee (ALCO) Assets and Liabilities Management Committee Include Head of Treasury , Head of operation and Chief financial Officer. . Mr. Waqas Bin Khalid (Head of Treasury)

. Mr. Khawar Khursheed (Head of operation)

. Mr. Ayyaz Ahmad (Chief Financial Officer)

2.14.5 Credit Committee Credit Committee consist Of Country Head, Regional Manager, Chief Financial Officer, Branch Manager, Branch Operational Manager and Branch Credit Officer. At branch level case is prepared and approved by the first three authorities.

The Credit Committee consists of following people . Mr. Shafqaat Ahmed (Country Head) . Mr. Kaleem Iqbal (Regional Manager-North) . Mr. Ayyaz Ahmad (Chief Financial Officer) . Mr.Tariq Mehmood (Branch Manager) . Mr. Waleed (Manager Operation) . Mr. Malik Qasim (Credit Officer)

www.vuzs.net 16 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

CHAPTER 3

PRODUCTS & SERVICES OFFERED BY AL – BARAKA ISLAMIC BANK

Striving to develop and an integrated Islamic Financial System. Compliance with the rules and principles of Islamic Sharia is the core of the banking and financial activities of the Bank. To this end, Albaraka has successfully sought the advice and expertise of Islamic scholars acclaimed for their knowledge and piety from all over the Islamic world to guide its path and monitor its performance. The Banks‟ activities and operations are regularly scrutinized by its Sharia Advisory Board.

3.1 Products and Services of AIB Al-Baraka Islamic Bank in Pakistan offers a comprehensive range of banking products and services. They are:

. Savings and Current Accounts . Term Deposit Accounts . Khazana Accounts . Incentive Accounts . Murabaha Investment Accounts

. Housing Musharakah

3.2 Other Services of AIB Beside of these banks also offer a large range of services.

3.2.1 Demand Drafts If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase AIB‟s (D.D) Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch.

www.vuzs.net 17 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.2.2 Letters of Credit (L/C) AIB is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, AIB Letters of Credit are the best way to do your business transactions.

3.2.3 Letter of Guarantee The advances department also issues Letter of Guarantee. L/G is a form of advances against guarantee. An L/G is an under taking given by a bank to be answered for the debt, default or miscarriage of another person. It is also defined as a contract to perform the promise or discharge the liability of third person in case of default. The L/G is opened in the name of a party when another party with whom they are dealing business requires a bank guarantee.

3.2.4 Travelers Cheque Pak Rupees Traveler‟s Cheque are a negotiable instrument. There is no restriction on the period of validity. Available at all branches of AIB all over the country. There is no limit on purchase. AIB Traveler‟s Cheque are the safest way to carry our money

3.2.5 Pay order AIB provides another reason to transfer money using facilities. Pay orders are a secure and easy way to move money from one place to another. And, as usual, charges for this service are extremely competitive.

3.2.6 Foreign Remittances To facilitate its customers in the area of Home Remittances AIB has taken a number of measures to Increase home remittances through the banking system and Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries.

www.vuzs.net 18 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.2.7 Islamic Export Financing This facility is encouraged to boost exports of the country. Funds are made available from SBP at lower rates.

3.2.8 Foreign Currency Accounts (FCAs) Foreign Currency Account in AIB can be opened in three major currencies of the world, i.e., U.S. Dollars, European Euro and UK Pound Sterling. Only authorized branches of AIB can deal in foreign currency account. The accounts can be opened both by Pakistan citizens and foreigners by introduction and following other procedures required for general accounts with one exception for foreigners that they will have to submit a copy of their passport. Amount deposited in the foreign currency account must be in four currencies, which are mentioned earlier. When the customer will withdraw the money, he/she will receive the amount in the same foreign currency/profit will also be in the same foreign currency. There are two types of foreign currency accounts: . Current Account . Saving Account These accounts are treated in the same manner as Pak Rupee Accounts.

3.2.9 Online Banking You now have access to your account 24 hours a day, 7 days a week. You transfer funds or even pay bills even if it's a holiday; AIB Online is a unique service offering from Al – Baraka Islamic Bank. Through AIB Online, your account in Al – Baraka Islamic Bank is available to you from any of our branches country-wide. No matter where you are in the country and which branch your account is maintained, you can have your cheque encased at any of our branches located in any cities. You can also use the service to deposit cash for instant credit into your account or any other account in Al – Baraka Islamic Bank any branch. Similarly account-to-account Funds Transfer facility is also available for instant remittance.

www.vuzs.net 19 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.2.10 ATM Network Al – Baraka Islamic Bank also provide the facilities of ATM card (Barakash). Customers now have the convenience of withdrawing cash from any of multiple ATMs ("All-Time Banking" locations) conveniently located in major cities like Karachi and Lahore at any time of the day or night even on closed days/holidays. Other services include customer being able to inquire about the AIB balance of his/her account or printing an abbreviated (mini) statement showing the most recent eight transactions up to the previous working day.

3.2.11 Lockers Al – Baraka Islamic Bank Lockers are available in three different sizes Small, Medium and Large on a yearly fee. Locker holders need not have an account in the Bank.

3.2.12 Utility Bills All branches of the Bank collect utility bills of electricity, gas and telephones. For convenience of the customers, Utility Bills are collected by the branches during banking hours and also in the evening-banking on all working days. Bills can be paid through Cash or cheques. Consumers may drop bills with crossed cheques into a drop box available at the branches under "Cheques Drop-in” system.

3.3 Departmentalization The Al-Baraka Islamic Bank has number of interrelated departments that works together to achieve the specific goals and objectives of the organization. The AIB has built a hierarchical system that includes the sub departments.

The AIB‟s exiting system includes following departments.

. Deposits department . Cash department . Clearing department . Advances department

www.vuzs.net 20 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Remittances department All these departments come under the operations, which is headed/ controlled by the Manager Operations.

3.3.1 Deposit Department Basically this department is the pillar of the whole banking system. This is the department which initiates the relationship between the customer and the bank. Here it the responsibility of the officer that there is no element of fraud by the customer. For this purpose the bank fulfills the KYC (Know Your Customer) policy related regulations issued by SBP.

3.3.2 Types of Accounts

Major types of accounts offered in AIB are following:-

. Current Account . PLS Saving Account . Term Deposit Account

3.3.2.1 Current Account This type of account is payable to the customer on demand, hence called current liabilities due to their nature. No profit is given at this account. Minimum amount for opening these types of accounts is normally about Rs: 5,000/-.

3.3.2.2 PLS Saving Account The objective of saving account is to inculcate the saving habit in the general public because profit is paid on this type of account calculated on every month basis. Minimum amount for opening these types of accounts is normally about Rs: 2,000/-.

www.vuzs.net 21 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.3.2.3 Term Deposit Accounts In this category Fixed or Term Deposit accounts are offered by the bank. In these types of accounts the deposit can be withdrawn after a specified period of time. Since the amount in these types of accounts is deposited for a fixed period so the bank can easily invest them in any profitable activity and can get return because there is no burden of with drawl by the customer.

3.3.2.4 Khazana Accounts . Minimum balance Rs. 250,000 . Higher expected returns then saving account . Profit: Quarterly

3.3.2.5 Incentive Accounts

. Minimum balance Rs. 100,000 . Higher expected returns then saving account . Profit: Half Yearly

3.3.2.6 Mahana Amadani Accounts . Minimum balance Rs. 50,000 . Tenure from one Year to Five Years . Profit: Monthly

3.3.3 Opening of Account Following is the procedure to open an account

3.3.3.1 Requirements for Opening an Account At the time of opening an account the customer must have following characteristics:

. Must be an adult/adult guardian. . Must not be bewared under any law from entering into any contract. . Should be known to the any of the banking staff according to KYC policy.

www.vuzs.net 22 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.3.3.2 Account Opening Procedure The following procedure is followed for opening of all the accounts.

. Filling of the application form. . Signing the specimen card/SS Card. . Submission of proper legal documents. . Allotment of account number. . Issuing of check book.

3.3.3.3 Method of Judging the Fraud

. The original CNIC card is checked. . The signature of the customer is checked. In case if customer is illiterate then his photo is attached and thumbs expression is given. . After the account is opened a letter of thanks is issued to the customer. If the customer had given the wrong address the letter will come back and the account is marked as doubtful.

3.3.3.4 Types of accounts: bank offer following type of account to their customers.

. Individual accounts: Individual accounts are the most common personal investment accounts. Opened by single person.

. Joint Account A joint account occurs when two or more than two customers have one account. The parties to a joint account are considered in law as they are one person.

. Business accounts: Business accounts can be opened by institutions, companies, partnerships, trusts and non- profit organizations. Following documents are required.

www.vuzs.net 23 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.3.3.5 General Rules for Various Types of Accounts Following are some general rules, which are applicable to all kinds of accounts:

. Not more then one account of each category may be opened in one and the same branch except joint account with any other individual. . In the event of the death of an account holder the credit balance in the account shall be paid to the legal heirs of the account holder. . The account holder wishes to close the account should surrender all unused checks.

3.3.4 Cash Department The Major function of this system is Receipts & payments to the customers, on behalf of their account, through Cheque or any other negotiable instruments. The cash system mainly encompasses following areas: . Receipts . Payments

3.3.4.1 Receipts The Account holder deposits in their accounts through a deposit slip. The deposit slip contains the account number and the title of account. The amount in figure and words is also written on both side of the slip. The customer then deposits the amount to the cashier, which is dully signed by the cashier and an officer .At last amount is deposited in customers account.

3.3.4.2 Payments The customers withdraw the deposit through their account through cheque.“Cheque is a bill of exchange drawn on a specified banker and expressed to be payable otherwise on demand”.

3.3.4.3 Kinds of checks . Cross cheques . Ordinary cheques

www.vuzs.net 24 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.3.5 Clearing Department The function of this department is getting payment of check, demand draft, payment order, telegraphic transfer, mail transfer or dividends warrants deposited by the customer of the branch and other branch of the same bank. SBP acts as a clearing house.

3.3.5.1 Clearing House In Pakistan, State bank of Pakistan acts as Clearing House to settle the claims of the different banks through their representatives and this function was earlier performed by the National Bank of Pakistan where there is no branch of SBP but now National Institutional Facilitation Technologies (NIFT) is performing the function of Clearing House for all the Banks including Al – Baraka Islamic Bank.

3.3.5.2 Clearing Procedure The following procedure is fulfilled for clearing items. . All instruments for collection (check, drafts, pay orders, etc) received for clearing to be deposited by the customers are be entered on the bank‟s general pay-in slip along with all the details, especially the bank name/code and the document number. . The clearing official of the bank affixes the bank‟s crossing and clearing stamps along with his/her signature. . All these instruments are sorted and posted in the system. . The next day they are presented for clearing in NIFT. . In case there is no objection the customers account is credited. For dishonored instrument the fine is charged from the customer

3.3.6 Remittances Department

The function of the remittance department is the transfer of money/funds from one bank/branch to the other.

www.vuzs.net 25 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

3.3.6.1 Modes/Instruments of Remittance

The Bank of Punjab, like other Commercial Banks undertakes to remit or transfer money from one place to any part of the country and outside the country. The money is remitted mostly by means of:

. Demand Draft (DD) . Pay Order (PO) . Mail Transfer (MT)/Telegraphic Transfer (TT) . Outward Bills for Collection (OBC) . Inward Bills for Collection (IBC)

3.3.6.2 Demand Draft (DD) A demand draft is an order instrument issued for payment of a certain sum of money to the order of certain person and drawn on one office of the bank by another office.

It is made by the banks against payment of cash. The bank recovers different types of charges from the applicant on issuance of DD, covering its commission and other postal charges.

3.3.6.3 Pay Order (PO) It is a check drawn by a bank on itself. The payment orders are generally issued for the payment with in the city where payment through checks is not possible. The bank charges fixed commission for clearing this instrument.

3.3.6.4 Mail Transfer/Telegraphic Transfer These are the faster ways to transfer money. The following procedures are fulfilled in this regard:- . Check the test numbers at the arrival . Verify the signatures of the bank official. . Entered in the relevant register. . Make payment.

www.vuzs.net 26 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. In Telegraphic transfer the specific codes are exchanged by the bank official on telephone but this is normally not followed.

3.3.6.5 Outward Bills for Collection Bills sent to other cities‟ banks for clearing are called outward bills for collection. . Checks are entered in the OBC register, the number is written and clearing stamp is affixed along with the test number entry. . The OBC advice is prepared. . The respective checks are attached with the advice. . This is sent to the relevant city. . Upon clearing that bank credits the bank account and gives advice to the bank.

3.3.6.7 Inward Bills for Collection Bills received from other banks out of city for the local clearing are called inward bills for collection. . The bank received the clearing advice along with the check/draft. . The checks/drafts are recorded in the inward mail and entered in the IBC register. . The checks are lodged for clearing. . After realization the advice is mailed to the branch and its account is credited.

3.3.7 Advances/ Credit Department The function of this department is to lend money in the form of clean advances, against promissory notes, as well as secured advances against tangible and marketable securities. The bankers prefer such securities that do not run the risk of general depreciation due to market fluctuations.

3.3.7.1 Securities Common Securities for the banker‟s advances are as under.

www.vuzs.net 27 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Guarantees When an application for advance cannot offer any tangible security, the banker may rely on personal guarantees to protect himself against loss on advances or overdraft to the applicant.

. Mortgage A mortgage is the transfer of an interest in specific immovable property for the purpose of security the payment of money advanced or to be advanced by way of loan, and existing or future debt, or the performance of an engagement which may rise to a pecuniary liability. The transfer is called a mortgagor, the transferee a mortgage.

. Hypothecation When property in the shape of goods is charged as security for a loan form the bank the ownership and possession is left with the borrower, the goods are said to be Hypothecated The essence of hypothecation is that neither the property in the goods not the possession of them are possession is left with the borrower, the goods are said to be Hypothecated the essence of hypothecation is that neither the property in the goods not the possession of them are possessed by the lender, but the security is granted by means of letter of hypothecation, which usually provides for a banker‟s charge on the hypothecation goods.

. Pledge In a pledge the ownership remains with pledge, but the pledge has the exclusive possession of property until the advance is repaid in full. While in case of the default the pledge has the power of sale after giving due notice.

www.vuzs.net 28 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Promissory Note Sometimes promissory note is also accepted as a security, "A promissory note is an instruments in writing containing an unconditional undertaking signed by the maker, to pay on demand or at a fixed or determinable future time a certain sum of money only, to or to the order of certain persons, or to the bearer or the instrument." A promissory note is incomplete until has been delivered to payee or the bearer. Moreover, the sum promised in a promissory note may be made by two or more makers who may be liable there on jointly and severally.

3.3.7.2 Consumer Finance Schemes Following are the modes used for consumer finance.

. Car Ijarah AlB provide the facilities of car Ijarah/leasing to his customer. AlB provided fund up to 4 million to his customer for the period of 2 to 5 year. No interest concept is involved, therefore profit margin is not announced before transaction .finance on the concept of asset based financing. Therefore no chance of default for bank.

Table 3.1: Features of AIB Car Ijarah

REQUIREMENTS EXPLANATION

RS: 40000000 MAXIMUM FINANCE LIMIT 1-5 YEARS MAXIMUM PERIOD UP TO ASSET BASED FINANCING SECURITY(IES)

www.vuzs.net 29 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Housing Musharakah AlB also provides the facilities of Housing Musharakah to his customer. AlB contribution is 80% of total investment, and client can contribute 20% of the investment. The employee can pay rental and installments to bank in order to get total share of the property or land which they jointly buy. The period is from 1 to 15 year.

Following are some requirements of AIB Housing Musharakah;

Table 3.2: Features of AIB Housing Musharakah

REQUIREMENTS EXPLANATION

80% OF INVESTMENT FINANCING BY BANK 1 TO 15 YEARS MAXIMUM PERIOD UP TO ASSET BASED FINANCING SECURITY(IES)

3.4 Conclusion From the list of products and services mentioned it is obvious that AlB is providing a range of Products and Services in various fields of corporate banking to its customers and its services are spread over many aspects of commercial banking.

3.5 Network of Al – Baraka Islamic Bank, Pakistan Al – Baraka Islamic bank, Pakistan, operates as branch of foreign bank incorporated and domiciled in Bahrain on February 21, 1984 and is a member of Al – Baraka banking Group. The registered office of the bank is situated at 95-B Hali Road, Gulberg II, Lahore and it presently operates through 20 branches (2006: 11 branches) in Pakistan.

www.vuzs.net 30 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

AIB branches network is divided into three regions.

3.5.1 Region: North . Mansehra Branch (01 branch) . Rawalpindi (03 branches) . Mirpur, Azad Kashmir (01 branch) . Peshawar (01 branch) . Abbottabad (01 branch) . Islamabad (01 branch)

2.5.2 Region: Central . Lahore (04 branches) . Gujranwala (01 branch) . Faisalabad (01 branch) . Multan (01 branch)

2.5.3 Region: South . Karachi (05 branches)

www.vuzs.net 31 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

CHAPTER 4

ANALYSIS OF AL-BARAKA ISLAMIC BANK (AIB)

4.1 Financial analysis of AIB Financial measures are also used to rank a company‟s performance. The analysis of financial data employs various techniques to emphasize the comparative and relative importance of the data presented and to evaluate the position of the firm. These techniques include ration analysis, common –size analysis, study o differences in components of financial statements among industries etc.

The information derived from these types of analysis should be blended to determine the overall financial position. No one type of analysis supports overall findings or serves al types of users. Financial statement analysis is a judgmental process. One of the primary objectives is identification of major changes (turning points) in trends, amounts, and relationships and investigation of the reasons underlying those changes. Here only two type of analysis is done . Common size Analysis . Ratio Analysis

4.1.1 Common Size Analysis Common-size analysis expresses comparisons in percentage. The use of percentages is usually preferable to the use of absolute amounts. The use of common-size analysis makes comparisons of firms of different sizes much more meaningful. It has the following types . Horizontal Analysis . Vertical Analysis

www.vuzs.net 32 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

4.1.1.1 Horizontal Analysis

Horizontal analysis compares each amount with a base amount for a selected base year or we take each item of base year as 100% and compare with other items

4.1 .1.1.1 Horizontal Analysis of AIB Balance sheet 2008-09

Table 4.1: Horizontal Analysis of Balance Sheet ASSETS 2007-2008 2008-2009 (%) (%) Cash and balances with treasury bank 14.13 (1.0) Balances with other banks (9.79) (28.52) Lending to financial institutions (20.13) (20.60)

Investment -net 0.44 99.49

Advances-net 25.36 (6.38)

Operating fixed assets (11.45) 440.36

Deferred tax assets 174.8 15.06 Other assets -net (22.97) (5.22)

Total Assets 15.20 23.84

LIABILITIES & OWNERS’ EQUITY

Bills payable (64.9) 87.0

Borrowings (31.08) 465.17

Deposits and other accounts 15.52 6.28 Other liabilities 14.06 32.84

Total Liabilities 11.70 23.19

Owners’ Equity Share Capital 0 25.0

Reserves 8.56 (69.69)

www.vuzs.net 33 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Unappropriated profit (1.53) (267.19)

Surplus on Revaluation (423.5) 175.28

Total Owners' Equity (20.33) 27.36

Interpretation Horizontal analysis of balance sheet shows decrease of bank‟s reserve with treasury i.e. 14.13% in 2008 as compared to year 2009 i.e. -1.0%. But the balance with other banks decreased to -9.79% in 2008 and continuing this trend in 2009 also where it further reduced to -28.52% showing much borrowing on the other hand. The bank‟s lending to other financial institutions recorded much fluctuation where it decreased to -20.13% in 2008 and slightly reduced to -20.60% in the next year (2009). The net investments showed increase to 99.49% in 2009. Similarly the bank‟s net advances also showed considerable decreased i.e. -6.38% in 2009. On the liability side the banks payable bills showed considerable increase to 87.0% in 2009 as compared to -64.9% in 2008 and the bank‟s borrowing also showed much increase of 465.17% in 2009 as compared to -31.08% in 2008. The total owners‟ equity has showed positive signs for the bank‟s growth which increased in 2009 to 2007 to (-20.33% to 27.36%).

4.1.1.1.2 Horizontal Analysis of AIB Income statement (2008-2009)

Table 4.2: Horizontal Analysis of Income statement Income Statement Elements 2007- 2008- 2008 (%) 2009 (%) Mark-up/ return/ interest earned 24.30 14.57

Mark-up/ return/ interest expensed 2.84 25.95

Net mark-up/Return/ interest income 98.31 (5.78)

428.85 Provision against non-performing advances (63.81) (131.87) Net mark-up/interest income after provision 761.32

www.vuzs.net 34 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Non Markup/Interest Income Fee, Commission & Brokerage Income 31.85 22.36 Dividend Income 18.50 (21.88)

Income from dealing in foreign currency 121.63 11880

Other Income 51.50 15.29

12.93 Total non-markup/interest income (54.42)

Non Markup/Interest Expenses Administrative Expenses 25.28 9.86

Other charges 76.40 (58.71)

(3.76) Total non-markup/interest expenses 75.86 (390.81) Profit before taxation 126.22 (335) Taxation 153.37 (563.91) Profit after taxation (37.40)

Interpretation Interest expenses have showed increase to 25.95% in 2009 based with year 2008. This shows that the management has no control over the financial cost and if this trend continued the Bank may show huge loss in profitability in the coming years. The gross profit decreased marginally in year 2009 and recorded -5.78% but increased in 2008 to 98.31% by taking 2007 as base year. Non-markup interest income decreased to -54.42% in 2008 and increased to 12.93% in 2009 which shows good performance but the critical analysis shows that this increase is slightly due to the increase of normal incomes especially income earned in dealing with foreign currency but the major factor contributing to this increase is due to the gains recovered from the sale and redemption of securities.

www.vuzs.net 35 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

The total non mark-up interest expenses have decreased to -3.76% in two years due to increase in the administrative and other expenses showing inefficiency of management. Net profit (Profit after Taxation) of the bank has decreased to -563.91% in 2009 as in 2007 it was -37.40%.

4.1.1.2 Vertical Analysis Vertical analysis compares each amount with a base amount selected from the same year. Simply, we compare the items of balance sheet or income statement vertically by taking one item as 100%.

4.1.1.2.1 Vertical analyses of balance sheet

Table 4.3: Vertical Analysis of Balance Sheet

2009 (%)

Assets 2007 (%) 2008 (%) Cash and balances with treasury bank 4.60 4.97 3.97

Balances with other banks 12.55 10.73 6.2

Lending to financial institutions 9.62 7.28 4.6

Investment -net 29.96 28.67 46.33

Advances-net 33.94 40.35 30.5

Operating fixed assets 0.72 0.6 2.6

www.vuzs.net 36 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Deferred tax assets 0.21 1.27 1.17

Other assets -net 8.4 6.13 4.7

Total Assets 100 100 100

LIABILITIES & OWNERS’ EQUITY 2007 (%) 2008 (%) 2009 (%)

Bills payable 1.17 0.39 0.59

Borrowings from Financial Institutions 4.45 2.90 13.26

Deposits and other accounts 72.06 78.92 67.7

Other liabilities 2.63 2.85 3.05

Total liabilities 80.31 85.06 84.60

Owners’ Equity

Share Capital 13.47 12.77 12.89

Reserves 4.43 4.58 1.16

Unappropriated profit 0.74 0.76 -1.02

www.vuzs.net 37 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Surplus on Revaluation 1.04 (3.20) 1.65

15.40

Total Owners' Equity 19.68 14.91

Interpretation Vertical analysis of balance sheet shows that the bank‟s cash and reserve with the treasury bank has slightly decreased in 2009 as compared to 2007 (4.60% to 3.97%). The bank‟s balance with other banks also decreased from 12.55% to 10.73% in two years (2007 to 2008) and further decreased to 6.2 in 2009. Similarly the bank‟s lending to financial institutions has decreased in 2008 as compared to 2007 (9.62% to 7.28%) and further decrease to 4.6% showing a decrease in lending rates. The net investments decreased from 29.96% to 28.67% in 2007 to 2008 and in 2009 increases to 46.33. The advances rate showed an increase in 2007 and 2008 (33.94% to 40.35%) and in 2009 again decreases to 30.5.

On the liability side the bills payable of the bank decreased in 2007 to 2008(1.17% to 0.39%) and 2009 it became to 0.59%. The banks borrowings showed much fluctuation by decreasing to 2.90% in 2008 from 4.45% (in 2007) and increased to 13.26% in 2009. The Bank‟s deposits increased in 2008 as compared to 2007 (72.06% to 78.92%) and in 2009 decreased to 67.7%.Share capital of the Bank decreased in 2008 as compared to 2007 (13.47% to 12.77%) but slightly increased in 2009 to 12.89%. Reserves of the Bank increased to 4.58% in 2008 as compared to previous year but in 2009 decreases to 1.16%. The Inappropriate profit showed a slight increase of 0.76% in 2008 from 0.74% in 2007 but in 2009 Inappropriate profit decreases to -1.02% . But the greater reduction happened in surplus on revaluation of assets which showed a much decrease. This contributed negative effect on the total owners‟ equity which decreased from 1.04% (2007) to -3.20% in 2008 but in 2009 increased to 1.65%.

www.vuzs.net 38 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

4.1.1.2.2 Vertical analysis of income statement

Table 4.4: Vertical Analysis of Income Statement Income Statement Elements 2007 (%) 2008 (%) 2009 (%) Mark-up/ return/ interest earned 100 100 100 Mark-up/ return/ interest expensed 77.52 64.14 70.5 Net mark-up/Return/ interest income 22.48 35.86 29.5 19.46 Provision against non-performing advances 27.54 6.52 Provision for diminution in the value of 17.75 investments 0.15 1.54 - Bad debts written off directly 0.002 - -7.73 Net mark-up/interest income after provision (5.22) 27.79

Non Markup/Interest Income Fee, Commission & Brokerage Income 3.30 3.75 3.25 Dividend Income 5.33 5.08 3.46 Income from dealing in foreign currency 0.62 1.11 0.09 Gain/Loss on Sale & Redemption of Securities 18.20 (0.019) 1.98 Un realize gain/loss on revaluation of - - (0.03) investment Other Income 4.15 2.04 2.06 11.31 Total non-markup/interest income 26.09 39.28

Non Markup/Interest Expenses Administrative Expenses 21.96 22.13 21.22 Provisions/Write offs - 8.93 5.47 Other charges 0.88 1.25 0.45 27.14 Total non-markup/interest expenses 22.25 32.32 (23.56) Profit before taxation 3.25 6.95 (4.76) Taxation (5.70) 2.31 ( ) Profit after taxation 8.95 4.64

www.vuzs.net 39 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Interpretation Interest expenses have decreased from 77.52% (2007) to 70.5% in 2009 which shows management efficiency to control expenses. The gross profit which increased from 22.48% to 35.86% in a span of one years i.e. from 2007 to 2008 and then decreased to 29.5% in 2009. Non-markup interest income has increased from 26.09% in 2007 to 39.28% in 2008 and decreased during 2009 to 11.31%. But this increase is mostly due to the gains recovered from the sale and redemption of securities and slightly due to increase in dealing with the foreign currency.

The total non-markup interest expenses have increased from 22.25% to 32.32% during 2007 to 2008 and in 2009 these expenses again decreases to 27.14% which is not a healthy sign for the Bank because it shows management inefficiency. Net profit (Profit after Taxation) of the bank has greatly decreased from 8.95% to 0% in the two years i.e. 2007 to 2009 which shows management inefficiency.

4.1.2 Ratio analyses

Table 4.1: Ratio Analysis Financial Ratios Measure 2007 2008 2009

Earning Assets to Total Assets 87.54 % 86.13 87.03 [Earning Assets/Total Assets]

Return on Earning Assets -1.301 % 1.12 1.0 [Net Income/Avg Earning Assets]

Net Interest Margin % 77.52 64.13 70.5

[Interest Expense/Interest Income]

Operating Cost to income Ratio % 247.7 696.7 -144.4

[Non Interest Expense/Net Income]

Credit to Deposit Ratio % 47.10 51.12 45.02

www.vuzs.net 40 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

[Advances/Deposits]

Equity to Total Assets % 19.75 14.93 15.36

[Equity/Total Assets]

. Earning Assets to Total Assets

This ratio tells about how well management puts Bank assets to work. Here the ratio shows a tremendous increase to 87.54% in 2009 from 8.7% in 2008. Above analysis shows that Bank Assets are very efficiently utilized during these years. Figure 4.1: Earning assets to total assets

88 87.5 87 86.5 86 85.5 85 2007 2008 2009

. Net Interest Margin

It is an important measure for the Bank Profitability, providing management‟s ability to control the spread between interest income and interest expense. The bank‟s results are showing negative profitability with decrease from 77.52% in 2007 to64.13% and then increase in 2009 to 70.5%.

www.vuzs.net 41 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Figure 4.2: Net Interest Margin

80 70 60 50 40 30 20 10 0 2007 2008 2009

. Credit to Deposit Ratio

It is a measure of Bank‟s position with regards to taking risk. This ratio increased in 2008 to 51.12% from 47.10% in 2007 and decreased to 45.02% in 2009.

Figure 4.3: Credit to Deposit Ratio

52.00% 50.00% 48.00% 46.00% 44.00% 42.00% 40.00% 2007 2008 2009

. Return on Assets

It tells the efficiency of assets utilized by generating income. The results of the Bank show considerable decrease from 1.12% in 2007 to 1.0% in 2008 and it decreased in 2009 to -1.301%.

www.vuzs.net 42 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Figure 4.4: Return on Assets

1.50% 1.00% 0.50% 0.00% -0.50% -1.00% -1.50% 2007 2008 2009

. Cost to Income Ratio The Cost to Income results of the Bank show considerable increase from 247.7% in 2007 to 696.7% in 2008 and it decreased to -144.4% in 2009. This ratio indicates that Operating Expenses of the Bank have decreased in last year as compared to Net Profit which shows Management‟s inefficiency to control unnecessary expenses of the Bank.

Figure 4.5: Cost to Income Ratio

800.00% 600.00% 400.00% 200.00% 0.00% -200.00% 2007 2008 2009

. Equity to Total Assets

This ratio also shows fluctuating results during three years. This ratio was 19.75% in 2007, decreased to 14.93% in 2008 and then increased to 15.36% in 2009 showing a fluctuating profit of the Bank as compared to Net Assets of the Bank.

www.vuzs.net 43 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Figure 4.6: Equity to Total Assets

20.00%

15.00%

10.00%

5.00%

0.00% 2007 2008 2009

4.1.2.2 Efficiency ratios These ratios indicate the productivity level of the bank‟s employees. Banks can improve these ratios by increasing the technology infrastructure, frequent offering of innovative products and also employee ratio

Table 4.5 Efficiency ratios (Rs in 000)

Efficiency ratios Formulas 2009 2008

Interest income per net interest income/ 1282.69 1022.17 employee number of employees Profit per employee total net profit/ 1016.74 1382.10 number of employees Business per employee total advances/ no of 27163.04 24172.09 employees Business per branch total advances/ no of 33688.77 269880.19 branches

Employees per branch total employees/ total 12 11 branches

www.vuzs.net 44 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Interpretation Interest income per employee shows the interest income generated by each employee, so as the number of employees increased in 2009, they generate more interest income that year. The profit generated by the employees in 2008 is more than 2009.Total deposits and total advances by the employees have decreased in 2009 than 2008. The total deposits and total advances in the branches have also decreased. This shows that the business of the bank has increased last year than before. The number of employees per branch has also decreased in 2009

4.2 SWOT Analysis of AIB

SWOT stands for Strength, Weaknesses, Opportunities and Threats. SWOT is useful tool for providing a framework for analysis of an organization. It is widespread approach to make assessments in terms of internal and external environment of the organization and to formulate strategies by analyzing its internal strengths and weaknesses, external opportunities and threats.

SWOT analysis for Al – Baraka Islamic Bank is as follow:

4.2.1 STRENGTHS

. Commitment to Islamic Shariah Striving to develop and an integrated Islamic Financial System . Compliance with the rules and principles of Islamic Shariah is the core of the banking and financial activities of the Bank. To this end, Albaraka has successfully sought the advice and expertise of Islamic scholars acclaimed for their knowledge and piety from all over the Islamic world to guide its path and monitor its performance. The Banks‟ activities and operations are regularly scrutinized by its Shariah Advisory Board.

www.vuzs.net 45 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Experienced and Qualified Staff During the research it has been observed that the staff/personnel of the organization is qualified and experienced. Many of the bank officials have got advance knowledge and experience in the fields of management, banking law and practice.

. Good PR with Customers The relationship of the manager and the other staff of the organization is really good with the customers, which results in good will and loyalty of the customers towards the organization.

. Good Managerial Skills The managers are fully aware of the recent managerial concepts and are able to deal with any type of scenario.

. Job Satisfaction at All Levels

Job satisfaction is one of the important factors for the employees to be motivated. The people in the organization under consideration were found highly satisfied with there jobs.

. Quarterly Performance Appraisal Performance appraisal is the way by which one can evaluate the employee‟s performance; it results in the enhancement of the organization‟s overall performance. The performance appraisal is done on quarterly basis in this organization, which results in better performance.

. Friendly environment The environment of the organization is very friendly. People over here are very cooperative, not only with the customers but among themselves as well.

www.vuzs.net 46 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Competent senior management The senior management in the organization is very much competent and experienced; they successfully handle different internal and external affairs.

4.2.2 WEAKNESSES

. No HR department level at zonal and branch level

Human resource department is one of the foremost requirements of any organization of this age. The organization under consideration, though contain a HR division at headquarter but there are no sub divisions at the provincial or branch level. So when different problems related to HR are raised, they are left unaddressed.

. Centralized decision making The decision making in the organization is completely centralized which results in the loss of confidence of the employees over the management, employees may not want to follow the dictates, rules and regulations.

. Lack of frequent training Though there is training academy at head office, but the training programs are usually confined to the managerial staff, there is a need of training at all the levels.

. Lengthy recruitment process The recruitment process is quite lengthy which can discourage the new comers. So, there is a need to shorten the whole process.

. Less internal recruitment for new posts

It has been found that in the organization under consideration, if new vacancies are allocated there is a trend of external recruitment, which results in the dissatisfaction of the current employees.

www.vuzs.net 47 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Lack of Marketing Effort The bank does not promote its corporate image, services, etc on a competitive way. Hence lacks far behind in marketing effort. A need for aggressive marketing is there in the era marketing in now becoming a part of every organization.

4.2.3 OPPORTUNITIES

. More qualified people in the market Due to the increase of interest of people in business field, many business institutions have been established, which produces a good lot of qualified and competent business professionals. So, the organization under consideration can hire more qualified people from market.

. Effective utilization of internal human resources People working in the organization get use to the norms and values of the organization, so these expirees can be utilized with in the organization whenever required.

. Training can enhance the employee’s skills. Training and development is one of the important function of human resource management. If the staff of the organization are properly trained and developed they will add to the value of the organization.

4.2.4 THREATS

. Increase in Competition The increasing competition in local as well as national and multinational level also lower down the profitability of the bank and compelling the bank to use a large amount of funds to meet out competition.

www.vuzs.net 48 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Good job opportunities outside. The other organizations of similar nature are offering more salaries and benefit packages to their employees. So, there is a threat to the organization that their current employees may leave it.

. Uncertainty about future change An uncertainty about the future changes has been noticed among the employees of the organization, it results in dissatisfaction and demotivation of the employees, which is a serious threat to the organization.

. Other organizations are using better HR techniques. Other organizations of similar nature are using better and recent HR techniques, so they have got an edge to facilitate their employees whenever they need. It can be a serious threat to this organization as there employees would not be satisfied of their own organization which will effect their performance.

www.vuzs.net 49 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

CHAPTER 05

CONCLUSION AND RECOMMENDATIONS

5.1 Conclusion The Al – Baraka Islamic Bank is a new emerging bank and it is trying to get market share in the presence of national and foreign banks operating in the country. It has played an important role in boosting the economy of the country but there always exists some room for improvement. After observing this AIB very closely and its HR department in particular, following outcomes have been concluded.

. The decision making is still centralized as the middle and low level management is not taken into confidence. . There are no sub divisions at the provincial or branch level. So when different problems related to HR are raised, they are left unaddressed. . Most of the employees working in this branch are not much familiar with computer. They just know how to use their part of software if any problem comes in the computer they can‟t fix it. . The spacing requires expansion. The employees are seated congested .If the customers exceed more than fifteen in number, then the branch get filled with lot of disturbance. . The recruitment process is very lengthy it should be trimmed.

. The marketing efforts at the branch level are less disciplined and there are no integrated efforts from all the staff members. The mobilization of deposits is mainly considered as the responsibility of the branch manager but the rest of the staff is usually least interested. . Bank branches are restricted to some specific cities. . The bank has been applying the modern concepts of management and marketing at both micro levels. The interior and exteriors of the branch have been changed but the staff of the branch has been found less motivated towards the organizational objectives.

www.vuzs.net 50 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

5.2 Recommendations As I have spent two months in AIB Abbottabad Branch for the Internship purpose. During this period I have tried my best to observe the banking environment in the AIB. I have observed a lot of strengths and weaknesses in the branch. On the basis of this observation I have come up with certain recommendations particularly related to the AIB, Abbottabad Branch but generally can be applicable to the whole banking system of Pakistan including all other branches of Al – Baraka Islamic Bank for improvement. These recommendations will help to cope with the problems being faced by the Bank and will enhance the efficiency and performance of the AIB in particular and all the banking sector of the country in general.

From the previous analysis of the financial statements I have realized that that Al – Baraka Islamic Bank is performing very well since its inception. It is quite difficult to give suggestion to improve the banking conditions AIB. As we know that nothing is perfect, there is always a room for improvement, so I will recommend following suggestions for AIB:

. Employees Training programmes must be introduced on continuous basis so that Employees have understanding with the latest developments especially with the customers.

. Bank should introduced incentive plans for employees on regular basis so that if employees may work whole heartedly for the welfare of their organization. While giving incentives qualification, work, experience, hard work and such other factors must be considered.

. Mismanagement of resources must be avoided as much as possible as it decreases profit but also discourage hard worker and honest employees.

. Fresh graduates must be recruited. As the combination of Experienced and fresh can produce better results and it will improve the efficiency of management.

. AIB is going towards mobile banking but the problem is that a common client has no idea of its usage due to lack of marketing. I think that a proper marketing programme must be launched for client‟s awareness.

www.vuzs.net 51 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. Banks different schemes must be conveyed to the targeted customers so that to have a reasonable share in market

. To motivate the employees their remuneration / salaries should be made at par with top tier Banks.

. Aggressive publicity campaign must be introduced through press and Electronic media for new products and scheme by initiating vigorous marketing policy.

. Bank should adopt such an induction plan that when a customer opens his account with the bank he should be supplied with a booklet which enables him to know the procedure of filing the cheques, pay-in-slip etc. It will save a lot of time of the bank staff afterward during the conduct of the account of that customer.

. The attitude of the bankers with all of their customers is not the same; they pay more attention and good service to some of the customers and neglect a major portion of them. Some of the customers approach to the bank officials and get their work done before others; it is not a good practice. All the customers should be treated equally.

. AIB should increase its communication with customers about the terms and conditions of its different products and services.

. Misuse of telephone internet, fax machines and other facilities available to the employees of the bank must be handled properly.

. In AIB mostly recruitments are done through recommendations or references of employees. Recruitment should be strictly on merit with no other favor given to any candidate. Selection should be on the basis of test and interview as like Muslim Commercial Bank (MCB) and other banks etc. this will ensure the entry of competent and worthy employees into the bank.

. Scholarship programs should be designed for senior employees and branch managers. The AIB should get into contract with top foreign universities. Every year the bank should finance and send their senior managers for further education abroad. After completion of higher education employees will be in a better position to attain the strategic objectives of the bank and increase the overall business and profitability portfolio of the bank.

www.vuzs.net 52 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

. The branch network should be improved and number of branches should be increased to reach and provide services to maximum number of customers.

. AIB should conduct meaningful refresher courses, seminars and workshop with a view to improve the knowledge of the staff. The HR Departments arrangement for staff training‟s to coup with new demands that may become threats for interests of the Company. The present conventional training programs need to be made more comprehensive.

. The coordination among employees and different departments should be improved. The coordination between top and lower management also needed to be improved.

. To provide proper information to consumers, information counter should be set where true professionals guide consumers.

www.vuzs.net 53 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

REFERENCES

Al-Baraka Islamic Bank (2009), Annual report 2008, Lahore.

DeCenzo D.A & Robbins S.P (2004); Fundamentals of Human Resource Management,8th ed. John Wiley & Sons .

Hussain, S; Rana, K & Shabbir, A (1991); Banking Currency and Finance, Lahore: Ilmi Kutab Khana.

Waleed (2010); Interview with Mr. Waleed, Manager Operations, Al-Baraka Islamic Bank, Abbottabad, 11 March, 2010

Tariq Mahmood (2010); interview with Mr. Tariq Mahmood, Branch Manager AIB, Abbotabad branch, 15March,2010.

Tamuja Agarwala (2008); Strategic Human Resource Management, 7th ed. Oxford University Press, New Delhi, India . www.ibp.org.pk (Accessed date 03-06-2010) www.albaraka.com.pk (Accessed date 15-06-2010) www.abg.bh/English/home2.html (Accessed date 20-06-2010)

www.vuzs.net 54 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

www.vuzs.net 55 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

www.vuzs.net 56 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

www.vuzs.net 57 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

www.vuzs.net 58 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

Account Opening Form

www.vuzs.net 59 Http://groups.google.com/group/vuzs Full Report on Al Barakah Islamic Banking

ATM Application Form

www.vuzs.net 60 Http://groups.google.com/group/vuzs