INTRODUCTION OF HBL:

HABIB BANK GROUP is a leader in Pakistan’s services industry. An extensive

network of 1425 domestic branches the largest in Pakistan and 55 international branches to
meet customer needs. Perhaps the HABIB BANK LIMITED establish in 1941 at Bombay.
But its history starts in 1841 when a young boy name Ismail Habib reach Bombay for job.
After some time he got the job with a dealer in utensils and non ferrous metals. Ismail Habib
was very keen and intelligent and became partner of his boss. Later on he was elected as a
president of the market. Many years later he expended his business. He engaged in private
banking. So’ HBL has come a long way from its modest beginnings in Bombay in 25 august,
1941 when it commenced business with a fixed capital of 25000 rupees.
Impressed by its initial performance, Quaid-e-Azam Muhammad Ali Jinnah
asked the bank to move its operation to Karachi after the creation of Pakistan, HBL establish
itself in the Quaid’s city in 1943 and became a symbol of pride and progress for the people of
Pakistan. During the early days of newly born state, government of Pakistan faces the great
problem of fund shortage. This time HBL again helped the governance of Pakistan and came
to rescue to provide Pakistan with assistance of no t less than 8 crore.
Besides this, HABIB BANK has been a pioneer in providing innovative banking
services such as first installation of mainframe computer in Pakistan followed by ATM and
more Internet banking facilities in all branches. The main strength of HBL brand is its great
services to all customers especially to the corporate customers and its prominent head office
building that has dominated Karachi’s skyline for 35 years.

Mission statement
 To be recognized as the leading financial institution of

Pakistan and a dynamic international bank in the emerging markets,

providing our customers with a premium set of innovative products

and services, and granting superior value to our stakeholders –

shareholders, customers and employees .

Values of HBL

• Humility:
We encourage a culture of mutual respect and treat both our team members and
customers with humility and care.
 • Integrity:
For us, integrity means a synergic approach towards abiding our core values. United
with the force of shared values and integrity, we form a network of a well-integrated
team.

• Meritocracy:
At every level, from selection to advancement, we have designed a consistent system
of human resource practices, based on objective criteria throughout all the layers of
the organization. We are, therefore, able to achieve a specific level of performance at
every layer of the organization.
organization.

• Team Work:
Our team strives to become a cohesive and unified force, to offer you, the customer, a
level of service beyond your expectations. This force is derived from participative
and collective endeavors, a common set of goals and a spirit to share the glory and the
strength to face failures together.

• Culture of Innovation:
we aim to be proactively responsive to new ideas, and to respect and reward the
agents, leaders and creators of change.
change.

PRODUCTS AND SERVICES OFFERED BY HBL

PRODUCTS:

o HBL Muhafiz Rupee Travellers Cheques

 o HBL Auto Finance
o HBL Flexi Loans for salaried personnel
o HBL LifeStyles Financing Scheme
o HBL i-Card
o HBL House Financing Loans
o HBL Easy Access
o HBL Fast Transfer
o Haryali Agricultural Loans
o HBL E-Bank

SERVICES:

o Retail Banking

The Retail Banking network, with 1425 branches, is the core strength of
Habib Bank. The network provides HBL with the largest diversified low cost deposit base of
any bank in Pakistan, and forms the basis for many of our other business lines: corporate and
investment banking and treasury activities. The network provides HBL with the largest
diversified low cost deposit base of any bank in Pakistan, and forms the basis for many of our
other business lines: corporate and investment banking and treasury activities.

o Commercial Banking:
 Enterprises operating in the middle market contribute significantly to the
economy of a country. During FY-2000 HBL’s management decided to address this issue.
On November 1, 2000 Commercial Banking came into being.
The objective of setting-up Commercial Banking was two-fold:
 First to stop the erosion of market share in the middle market;
 Second, to regain the lost market share

Commercial Banking is making headway with improvement not only in terms of the business
figures but also in its ambiance. Renovation of is being carried out in order to give a
professional look to all the Commercial Banking Centers.

o Corporate Banking:

The Corporate Banking Group serves large institutional customers who

require sophisticated products in an environment of intense competition. HBL Corporate &
Investment Banking Group is now recognized as a market leader and regularly arranges and
participates in most large structured finance deals.

o International Operations:

HBL’s ability to operate successfully in diversified markets and cultures is

a function of a long history in international banking – when first international branch was
opened in 1951. The Bank’s branches in financial centers continue to provide efficient trade
settlement and reimbursement services to the entire network and business with other banks.

SWOT ANALYSIS
STRENGTHS:

 Goodwill & historical background

 Professional and well trained staff
 Largest customer base
 HBL is Pakistan's largest commercial bank
 HBL has a domestic network of 1,425 branches with an international network of 48
branches in 26 countries
 20% share of HBL in financial market
 Large Balance sheet size
 Decentralized authority

WEAKNESSES:

 Unfavorable union activities and management conflicts

 Checking System is at intra-department level
 Weak marketing policies
 Nepotism & Favorism
 Infected portfolio still exists as bad debts
 Centralized management in particular areas
OPPORTUNITIES:

 Opportunities for growth and expansion in cash management.

 Faster market growth represents opportunity to grow and diversify
 Restoration of investor’s confidence and pick up in private sector investment flows.
 Large deposit base and funds flow can help to avail related market opportunities

THREATS:

 Adverse & unstable government policies

 Political instability
 Advance technology
 Competition from other banks

DEPOSIT DEPARTMENT

Bank deals in money and they are merely mobilizing funds within the economy. They
borrow from one person and lend to another, the difference between the rate of borrowing
lending forms their spread or gross profit. Therefore we can rightly state that deposits are the
blood of the bank which causes the body of an institution to get to work. These deposits are
liability of the bank so from point of view of bank we can refer to them as liabilities.

TYPES OF ACCOUNT:
 1) CURRENT ACCOUNT:

In this type of accounts the client is allowed to deposit or withdraw money as and
when he likes. He may, thus, deposits or withdraws money several times in a day if he likes.
There is also no restriction of amount to be deposited or withdrawn. However, there is
requirement of minimum balance maintenance of Rs.5000/-. Usually this type of account is
opened by the businessmen. No profit is paid by the bank and no service charges are
deducted by the bank on current deposits account.

Eligibility:

i. All Pakistani’s Resident/Non-Resident, Individuals (Single-Jointly) Companies/Firms

etc. can open and operate the Account but he should be a corporate customer.

ii. Any Foreign National Individuals (Single-Jointly) having valid Resident Pakistan
VISA/Work Permit can open and operate the Account.

Requirements for Opening of Account:

 Duly filled prescribed A/C opening FORM.

 Attested photocopy of N.I.C./Passport of Account Holder(s), Proprietor, Partners,
Directors and office Bearers as the case may be.
 Certified true copy of the certificate of incorporation or registration (in case of limited
companies & registered bodies only).
 Certified true copy of the certificate of commencement of business (in case of public
limited companies only).
 Certified true copy of the memorandum and articles of association (in case of limited
companies).
 Certified true copy of rules and regulations or By-Laws (in case of association etc.).
  Certified true copy of the resolution of the Board of Directors/Managing
Committee/Governing Body regarding conduct of the account.

Features:

 Account can be OPENED with Minimum Balance Rs.1000/- with no maximum limit.
 Checking balance at any time during banking hours.
 No profit is paid.
 Statement of Account dispatched on request letter.
 There is no restriction for withdrawals of amount and number of cheque.

2) Profit and loss sharing savings:

This type of account is for those persons who want to make small savings'. This type
of account is opened with a minimum deposit of Rs. 1000/- or the amount prescribed from
time to time. The profit is paid on these accounts on the minimum balance during a month for
the whole of that month. Zakat & other taxes are deducted as per rules of the government.
The requirements for this account is duly filled prescribed A/C opening FORM, Photo Copy
of National Identity Card (Resident Pakistani), two Passport size photographs with
Signatures/Thumb Impression (Resident Pakistani), Photo copy of Passport with Page
bearing Resident Visa of the Country where Pakistani Residing, two Passport size
photographs and signatures on A/C Opening Form for Non-Resident Pakistani with
Signatures/Thumb Impression etc.
Features:

 Account can be OPENED with Minimum Balance Rs.1000/- or prescribed limit that
is announced time to time with no maximum limit.
 Profit is payable at monthly subject to adjustment on deceleration of actual profit rate
declared every half year.
 Profit is calculated on monthly products
 Zakat will be deducted on valuation dates of account.
 Profit is Paid/Credited in Account on half yearly basis in case of six monthly PLS
saving accounts.
 Statement of Account dispatched on half yearly basis after posting of profit.
 There is no restriction for withdrawals of amount and numbers of cheque.

3) PLS special notice deposit:

Special notice deposit is paid on daily product bases. Under this deposit scheme, a
deposit is received from the depositor under the condition that he will intimate the bank
before a certain period in case of withdrawals. There are two types of special notice deposit,
they are 7 days and 30 days notice deposits. The profit is paid on these deposits but it is
nearly equivalent to saving account rate that is paid on special notes.

4) PLS term deposit:

A type of term deposit, in which a receipt is issued for varying tenors

ranging of deposit. It is in the form of receipts and profit on these receipts is paid biannually.
These receipts are encashable after expiry of the period for which they were issued. Different
profit rates are applied to different type of term deposit. It has no maximum limit but not less
than 1 month. Account opening rate is 1000 and the zakat is deducted on the rules and
regulation.

Eligibility:

 All Pakistani’s Resident/Non-Resident individuals, Firms/Companies, Govt/Semi

Govt. Departments can purchase the TD.
 Any Foreign National having valid Resident Pakistan VISA can purchase TD.

 Resident Visa of Pakistan (Foreign Nationals).

5) PLS khas term deposit:

Pls khas term deposits are acceptable for a period ranging from one and half
year to five years in multiple of six months. In this regard the profit is declared from time to
time but will be paid only once at the time of encashment of receipt of maturity. Zakat will
be deducted only once at the time of maturity or before maturity.

Account opening in special cases

Blind person account:

A blind person can easily open an account in the bank like other persons but it is
preferred that he should open a joint account with a normal person. If he wants to open the
account individually, there should be an authorized person with him who checked the
signature and the amount filled by blind person. The banker can not fill the amount and
check the signature. The one thing that is provided extra by the blind person is two
photographs duly attested by an authorized person.
Non resident person account:
Non-resident persons are those who do not live in Pakistan permanently.
According to the tax authority the non-resident persons are those who live in Pakistan:

 In case of foreigner not more than 180 days.

 In case of Pakistani not more than 90 days etc.
 In proceeding 4 years not more than 365 days.

All things will remain same, only one thing that is passport copy of the person will have to
provide to the bank. The logic behind this is that the bank insures the entry and the exit date
of the person in Pakistan. The person has to inform bank 15 days before entering in Pakistan
and the bank also send this information to State Bank of Pakistan. After getting this
information State Bank give instructions to bank about handling of not resident person’s
account.

Zakat treatment on all accounts

Zakat will be deducted on all accounts except the followings:
 Fiqah Gafreia account.
 Non Muslim’s account.
 Trust account.
 Government account.
 Provident fund.
 Defense account.
 Non Pakistani’s account.

SWIFT
 Society for worldwide inter bank financial telecommunication.[SWIFT]
 Only for banks
 Telecommunication not transition
 Head office in Belgium
 Run by different country members
 Lease lining by head office
 Start in pak 1995-96
 Awareness seminars start in 1997
 Work through coding &decoding
 Swift provide to members an id &password for connect
 Charges from customers depend on message size
 Min changes is 120
 Changes for one LC is 1400
 Code not more than three degits (ID and Passward code)
 Authentic mode, people satisfied
 Less chances of fraud
 Work as E Mail
 Version 2 relate to bank to bank information
 Version 4 relate to bank to bank Document
 Version 7 relate to bank to bank LC
 In HBL use in domestic ---------- 70 branches
 In overseas branches ---------- 21
 Centralized system( send message to different countries at once)

REMITTANCES
DEMAND DRAFT:

Demand draft is a written order drawn by a branch of a bank upon the branch of same
or any other bank to pay certain sum of money to or to the order of specified person. It can be
issued to the customers as well as non customer against cash cheque and letter of instruction.
Demand draft is negotiable instruments that can be negotiating at any time before its
cancellation. Its Legal provisions are same as that of cheque.

Following parties are involved in demand draft:

 Applicant

 issuing branch

 drawee branch

 Beneficiary

A demand draft may be issued against the written request of the customer before issuing it
must be seen that the demand draft is in order.

The DD application must be scrutinized by the counter clerk in respect of following points.

 There should be branch where payment is to be made.

 Full name of payer should be mentioned.

 Amount in words and figures must be same

 The applicant on two places should sign application.

TELEGRAPHIC TRANSFER:

Telegraphic transfer means the transfer of funds from one branch to another
branch of the same bank or upon other bank under special arrangements just like a
telegram. Telegraphic transfer is not negotiable and the funds are not payable to bearer.
Minor cannot avail this facility. In telegraphic transfer the bankers use secret codes. One
 code is with issuing person and the second is with an other person. When they combine
the codes it’s become an amount that is called check. The payment is made after the
confirmation of the check.

Following parties are involved in TT

 Applicant

 Drawing branch

 Drawee branch

 Beneficiary

Following important things should be included in TT:

 Full name of the beneficiary or account number should be mentioned in the

application form.

 Instruction regarding mode of payment should be obtained.

 A record in the remittance outward register should be maintained.

 All the remittance must be controlled through number or codes.

PAY ORDER:

Pay order is an instrument through which payment can be made from one bank to
another bank. Pay order is meant for bank own payment but in practice they are also issued to
customers.

Following parties are involved in pay order:

 Applicant

 issuing branch

 Payee
MAIL TRANSFER:

Mail transfer is not negotiable and the procedure of it is same with the procedure of
DD.When a customer request the bank to transfer his money from this bank to any other
bank of the branch of same bank in the city, outside the city of outside the country the first
thing he has to do is to fill an application form. In which he states that I want to transfer the
money from this bank to that specific bank by mail. If the customer is the account holder of
this bank, the bank will debit his account and the concerned officer will fill forms to make
the mail transfer complete.
If the customer is not the account holder of the bank, then firstly he has to deposit the
money and then rest of the procedure will be adopted to transfer his money.
 SBP ERF Scheme
SBP had introduced this scheme to promote country ‘s export and to earn foreign
exchange. This scheme is operated through authorized dealers under SBP control.
This scheme had been amended by time to time.

Features:

• Concessions rate of markup as compare to commercial banks rate of markups.

• Export refinance allow to exporters via authorized dealers.
• In case of default, the SBP recover its principal loan amount, markup & penalty
through the bank to which exporter has submitted his refinance claim.
• Refinance allows against value added products i.e. garments, print, dyed cloths, bed
sets.
• Proceeds repatriated through banking channels.
• Allow credit loan amount within 248 hrs.
• Misutilization of SBP funds has been prohibited, if any violation occurs SBP imposed
penalty.

Risk:

• If the exporter has been / will be defaulted the laps of funds of authorized dealers.
• Cheating or misuse of funds, SBP may cause to impose not any penalty but also
termination of bank employee or change of management or authorized dealer’s
reputation may destroy.
Demand Finance & Running Finance:

Demand finance :

This is common form of financing to commercial industrial concerns and is made

available either on pledge or hypothecation of goods, produce or merchandise. In demand
finance the party is finance up to certain limit either at once or as and when required.
The party due to facility of a paying mark prefers the financing up only on the amount it
actually utilizes.

Running Finance:

This form of financing was known as Overdraft when a bank customer requires
temporary accommodation, his banker allows withdrawals from his account and running
finance thus occurs. The accommodations generally allowed against collateral security. The
customer is in advantageous position in a running finance because he has to pay mark up
only on balance outstanding against him on daily products basis.

Pledge:

It is entitled to the exclusive possession of the property until the debt is charged.

Hypothecation:

When the property in the goods is charged as security of loan from the bank but the
ownership & possess
 Imports and exports department:

Exports:

Introduction and registration:

Imports and exports act 1950 have empowered the federal Govt to control the import
and export in Pakistan. Pakistan is developing country and like other developing countries its
imports exceeds than exports. To control this situation the registration of import and export
has been made obligatory under the registration order 1993. The authority of registration has
been given to export promotion bureau. No importer and exporter who has no granted
registration shall indent, import and export of any good into or out of Pakistan. The
requirements for getting registration are as under:

 Application form.
 Photocopy of I.D card.
 Copy of memorandum and article of association (in case of limited company).
 Ownership deed of office.
 Fee payment.
  Certificate of incorporation.
 Applicant should regular taxpayer.

The major exports from Pakistan are surgical goods, sports goods hand noted goods, leather
goods, textile goods, etc.

Export procedure:

All the exports work under the imports and exports act that is changed by the state in
every year. When the importer send the L.C to bank in respect to import or when the L.C
comes to the advising bank from the issuing bank then the concerned officer allot the number
to the L.C and get registered. The concerned officer write down the name of issuing bank and
the party name in a register and intimate the party about L.C. the exporter after receiving the
L.C from bank will prepare the documents as per the L.C usually the following documents
have to be prepared by the exporter:
 Bill of lading
 Covering letter
 E- Form
 Bill of exchange
 Packing list
 Commercial invoice
 Quota documents in case of quota country
 Certificate of origin
 Special custom invoice
The export form (E-FORM):

E-FORM means “export form” which is the first and foremost requirement for the
exports from Pakistan. It is control instrument by Govt of Pakistan by which it monitors the
receipts from exports and checks the goods that are transferred without foreign exchange. all
banks which are engaged with the foreign exchange are required to print and maintained the
E form that is checked by the state bank of Pakistan. For export an e form is issued by the
bank on the request letter of a company. Two separate registers are maintained by the bank
one for his use and the other one are for the requirement of the SBP. On issuance of E forms
the banker lists it in the register and makes sign from the exporters. Banks record the name of
party, amount, the goods description, port of destination, importer name port of loading etc.

Usage of E- FORM:

E- FORM is an important document for export. It has its own importance such as this
form is used as a checker means it monitor that what things are going abroad and in return
what things we are getting. So it creates a check and balance on the foreign exchange. It
shows the total quantity and quality of the goods that is sending to another country. An E –
Form shoe the party worth that is very helpful for the party and the bank. Bank can create a
party limit for the credit on the behalf of it and a party can arrange a loan for its future
requirements from the bank. It shows the terms of payment by the importer and the delivery
terms by the both parties that is helpful in case of any discrepancy during the contact.

Short shipment notice:

A shipment may be cancelled by the importer or exporter due to many reasons.
The cancellation of the export letter is called short shipment notice. In this situation the
company has to inform the bank. Company has to give a written letter to the bank that he is
not the export so please cancelled their e form. On the other hand bank at the time of
receiving the letter will stop the e form and cancelled the all documents.
 IMPORTS

Imports regulation:

Import is being regulated by the ministry of commerce and the government of

Pakistan under the import and export act:
Categories of imports:
Imports are classified into the following categories:
 Commercial sector imports
 Industrial sector imports
 Public sector imports

Modes of payment:

Sight letter of credit:

The seller submit all the documents with draft in the importer country
 Complying with the all terms and conditions. The payments are made on the presence of
the documents.

Usance letter of credit:

Under these circumstances it is agreed that the payment will be made after a
specified period. So the payment is made after or on the expiry of that date.

Risks for importer and exporter:

Importer’s risks:

 He does not know the seller.

 He does not know that goods will be delivered in time.
 He does not know how to check the goods.

Exporter’s risks:

 He does not know the buyer.

 He does not know the credit worthiness of the buyer.
 He does not wait for payment.
 He does not wait for exchange control.

Buyers and sellers obligations:

The seller’s obligations:

 Provision of goods as per contract.
 License authorization and formalities.
  Contract of carriage and insurance.
 Delivery at time.
 Transfer of risk.
 Division of cost.
 Notice to buyer.
 Proof of delivery.
 Good checking marking and packing.
 Other obligations.

Buyer’s obligations:

 Payment of price.
 License authorization and formalities.
 Contract of carriage and insurance.
 Taking Delivery at time.
 Transfer of risk.
 Division of cost.
 Notice to seller.
 Proof of delivery.
 Inspection of goods.

Possible problems in international trade:

 Non-payment.
 Delay in delivery.
 Financing, how and against what.
 Currency restrictions.
  Regulatory restrictions.
 Documentation and mode of settlement.
 ICC rules and INCO terms.

HUMAN RESOURCE DEPARTMENT

FUNCTIONAL RESPONSIBILITIES:

Right Now the responsibilities assigned to HR department at Corporate Center can

be categorized under three heads:
 Staff matters / Basic HR Functions
 Expenses control
 Security matters
Now I’ll discuss these one by one:

Background:

The banking council of Pakistan was responsible for the recruitment, selection and
allocation of human resources. After the dissolution of the Pakistan Banking Council, the
Banking & Financial Services Commission of Pakistan is responsible for these activities.

Procedure:

Staff requirements are met according to the changing needs of macro environment
scenario and particularly the arising needs of the bank itself. A need analysis is conducted.
After assessing the human resources requirements and screening of the applications, most
probably, the suspects are invited for a written test.
Short listed candidates are called for an interview for personality and social appraisal.
Interviews are a mix of direct and indirect interviewing techniques and information required.
The selected candidates are sent for training of six months training from MDI’s.
The training is through the lectures regarding banking procedural guidelines and other
behavioral aspects. After the completion of training employees are allocated to different
offices. The effective management of people in an organization requires an understanding of
motivation, job design, reward systems, and group influence.

• Recruiting
• Retention
• Succession planning
• Risk Management
• Diversity in our workforce
• Management information
• Progressive compensation and benefits design and implementation
• Employee communications and relations
• Training needs analysis, program design and implementation
• Performance evaluation
• Work-life initiatives

CREDIT & ADMINISTRATION DEPARTMENT

The responsibility of providing administrative support for the lending activities of the
Bank, and day-to-day monitoring of credit-exposure, is vested in the Credit Administration
Department (CAD).

FUNCTIONAL RESPONSIBILITIES:

The main responsibilities under this department are:

• Implementation of credit facility and their maintenance according to terms of credit
approved.
• Ensure that standard loan documentation for each credit facility is maintained and the
correctness & completeness of such documentation and also responsible for custody
of all credit files.
• Maintain the safe custody of all collateral as per bank’s standard operating
procedures; undertake periodic evaluation and inspection of hypothecated/ pledged
inventories in accordance with the terms of credit.
• Ensure compliance with
o Institutional credit policies & procedures
o Local regulatory requirements.
• Prepare various portfolio composition reports and other documentation for
submission to GRM’s & RM’s.

CREDIT FACILITY IMPLEMENTATION PROCEDURE:

Upon approval of credit proposal, the credit proposal and approval are handed over to
CAD. Now CAD determines the nature of documentation required and on receipt of same
ensures that all legal documents are obtained and are legally enforceable. After all these
activities it can release the facility for utilization.

MARKETING DEPARTMENT
The marketing department in HABIB BANK LIMITED is very strong. It is the main
source of gaining and maintains the customers that can give a large profit to the bank. There
are five relationship managers in Habib bank and every person is responsible for the credit of
his party.

CUSTOMER DEALING:

HBL corporate center only deal with the following categories of business:

 The organization that have minimum 250 million sales in a year.

 The organization that have availed 80 million finance
 Agri based industry.
 HBL do not deal with the agriculture sector.

PROCEDURE FOR CREDIT APPROVAL:

It is the responsibility of the relationship manager to provide or fulfill the

requirement of the customer by checking his financial and position. The procedure of
credit approval starts with the credit proposal. First of all the customer request to the bank
for credit and on the behalf of him the RM check the memorandum. The
Memorandum includes:
  The company information.
 Purpose of credit.
 Assessment of management.
 Risks.
 Financial analysis.
 Third party or other bank information.
 Conclusion and recommendations.

Then the RM sends it to the authorities who accept or reject the proposal. If they accept the
proposal they announced a credit range for the party. At the end RM sends the proposal to
CAD deptt custody and check.

EXCESS FACILITY CREDIT BY RM:

Relationship manager is authorized to provide the excess facility to the customer

than the credit line. It may be up to

10 percent of excess amount

OR

12.5 million Whichever is less?

It is not more than 15 days if the customer wants to increase this facility he has to contact
with the head office.

TYPES OF CREDIT FACILITY:

1) fund based:
It is first type of credit facility. In this facility the bank actually provides fund to
customers.
2) non fund base:
Second type of credit facility that does not provides fun but only give the guarantee.
If the customer is unable to make the payment at maturity date then bank will be
responsible to make the payment.
BALANCE SHEET:

particulars Sep 30,03 Sep 30, 04 June 30, 05

Audited Audited 9-Months
Audited

Current ratio 1.1x 0.8x 1.1x

Quick ratio 0.4x 0.2x 0.4x

Leverage( TL/N 1.0x 1.8x 2.7x

W)
Days Receivable 2 6 4

Days Inventory 30 60 136

Days payable 5 3 3

Net Worth 172 176 180

LIQUIDITY:

The current assets increased from 198.582M In 04 to 383.891M in 05, this increase
in current assets is mainly associated with substantial rise in cash & marketable securities and
inventory. Cash and marketable securities were built to accommodate banks for their June
closing figures. In addition to this the amount of cash also includes PKR 74M lying in
escrow account of Bank Alfalah as sponsor’s equity because the company is under process of
expansion for which they have also gone for consortium finance from BAL & ABL.
Sufficient stock at lower prices is inevitable for profitability in textile industry; prices of
cotton went down in early 2005 which prompted the buyers to stock cotton in order to
maximize gains.
Receivables have been nominal over the years, which highlight company’s policy of sales on
cash basis. Receivables stand at 7.566M in year 05 as compared to 16.361M.
The current liabilities increased from 244.565M in 04 to 342..120M in 05, this increase is
mainly due to increase in short term debt (Exposure of Working capital lines from banks) and
this factor is very much obvious due to increase in company’s operations. More precisely, the
short term borrowings were raised by PKR 100M, during the year under review, and the
same has been invested in inventory which increased by PKR 100m fully complying the
matching principle requirement.

LONG TERM LIABILITIES:

Total Long term liabilities increased from 62 .513M in 04 to 139.797M in 2005,

mainly due to increase in Director’s Loan as the company is under process of expansion (new
Ring spinning unit) and has made investment of its share through directors loan as authorised
capital of the company has been matured. In addition to this company has also gone for
syndication with BANK ALFALAH Ltd and ALLIED BANK LTD and cash invested by
the sponsors through directors loan is lying in escrow accounts parked in these banks.

LEVERAGE:

The company has been low leveraged over the years with leverage standing at 1.8 x
& 2..7x in year 04 & 05 respectively, Total Net Worth increased during the period 03-05
from 172M TO 180M due to increase in retained earnings over the period. Paid-up-capital
stays same at 150M during the period 03-05.

CASH FLOW:
 During the year 2005, gross operating funds generated were PKR 28.962M. The
company generated net operating cash deficit of PKR 73.917M during the year. The
operating needs increased by 93.683M owing to growth in sales, on the other side operating
sources were reduced by 9.196 M because of company’s policy of replacing costly market
credit thus rendering increase in working capital requirements by 102..879 M. the inventory
requirements increased by 99.771M which were financed thru increase in short t term
borrowings by PKR. 99.548M and remaining through gross operating funds generated.
CAPEX of PKR 12 .383 was made during the year, which was financed thru gross operating
funds generated of PKR 28.962M.

Projections

The company has projected its total sales to be around 1034M by 30 thJune
2006.These projections are supported by the fact that their sales by the end of 31stDec
2005(from July01, 2005 to Dec31, 2005) were 503.479M. This year company has also routed
export business of 12M to Korea. Net fixed assets are projected to grow around 614M since
company is intending to undertake the expansion project (New Ring Spinning) in the year
under projection. On the source side the long term liabilities are projected to be around
434M, the company wants to finance the proposed project thru Directors loan (222M),in
addition to this the company has also gone for the syndication( Long term senior Debt of
PKR 210M) with BAL & ABL.
Gross operating funds generated are projected to be around 33.747 M. Total Non-Operating
needs in year 06 will be 366 M due to increase in proposed CAPEX, on the other hand the
Non-operating source side will increase by 289M to finance Non-operating need.

7. CRITICAL SUCCESS AND RISK FACTORS

Critical Success Factors :

1- Lower Costs (economies of large scale).

2- Access to required Working Capital Lines.
3- Long experience of spinning.
4- Efficiency of Operations.
5- High Capacity Utilization.

Critical Risk Factors:

1- Recession in the Global Textile Industry.

2- GOP Policies.
3- Deterioration in Law & Order in the country.
4- Margins depend to an extent on size & quality of Cotton Crops.
5- Foreign Competition in wake of WTO.

Mitigating Factors
Mitigating factors to these risks include;

1. New spinning unit will enable the company to enjoy economies of large scale
production, reduce costs, improve quality of their products and enhance their
productive efficiency.
2. GOP policies are comparatively stable and a separate ministry for textile has
been established with a leading Textile figure being in chair.
3. The company has always emphasized on sheer commitment for quality
improvement to capture the market.
4. Regarding risks associated with size / quality of cotton crop, they have
sufficient liquidity (due to availability of required credit lines) which allows
procuring cotton at the right time and competitive prices.
5. Experienced technical and operational staff to ensure smooth operation of the
Unit.
6. The company enjoys the edge of comparatively cheap raw material and labor
force while maintaining strict quality measures at par with international
standards. New spinning unit will enable the company to enjoy economies of
large-scale production.

8. THIRD PARTY INFORMATION:

The sponsors enjoy excellent relationship with banks and are highly regarded for
their reputation of meeting their financial obligations on ti

9.ACCOUNT RELATIONSHIP STRATEGY:

Rafiq is one of our valued clients with clean history of relationship spanning well
over four years. Keeping in view sufficient equity injection, comfortable level of leverage,
momentum of growth in sales and a team of professionals to look after the technical,
operational & marketing aspects of the business we should enhance our relationship with the
customer while opting the “Growth strategy”.

10. CONCLUSION / RECOMMENDATIONS :

RAFIQ has become a creditable name in the textile industry of Faisalabad. In a bid
to prepare itself for the challenges / opportunities of the barrier free trade Textile Vision
2005, their planned spinning unit will help them reap the benefits with competitive edge of
cost effective, quality products. The company has already started exporting quality yarn to
various buyers in the region. We may improve net return on funded facilities from the
relationship by rationalizing the credit portfolio in accordance with their financial
requirements as proposed. In view of the above, we recommend the proposal for approval.