Project Report Bank Alfalah

Presented To:Prof. Tehseen Presented By:Ali Raza Tahir Hafiz Saboor Farrukh Khan Imran Qayyum Nabeel Ahmad L1S08BBAM0096 L1S08BBAM2140 L1S08BBAM2142 L1S08BBAM0161 L1S08BBAM2099

Section Date:

08-06-2011

History of Bank
Bank Alfalah Limited was incorporated on June 21st, 1992 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st ,1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through various branches in Pakistan, Bahrain, Bangladesh & Afghanistan, with the registered office at B.A. Building, I.I. Chundrigar, and Karachi. Since its inception, as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place. Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates our commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers. We perceive the requirements of our customers and match them with quality products and service solutions. During the past five years, we have emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow today.

Vision
To be the premier organization operating locally & internationality that provides the complete range of financial services to all segments under one roof.

Mission
To develop & deliver the most innovative products, manage customer experience, deliver quality services that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank.

Management
Mr. Sirajuddin Aziz
Chief Executive Officer

Mr. Shakil Sadiq

Chief Operating Officer

Mr. Mohammad Yousuf

Chief Risk Officer

Mr. Ijaz Farooq

Group Head Islamic Banking

Mr. Adnan Anwar Khan

Group Head Retail & Middle Market, Central

Mr. S.M. Talib Rizvi

Group Head Retail & Middle Market, North

Mr. Shahab Bin Shahid

Group Head Retail & Middle Market, South

Mr. Arfa Waheed Malik

Group Head Corporate & Investment Banking

Mr. Adil Rashid

Group Head Consumer Finance

Mr. Yasar Rashid

Group Head Audit & Inspection

Mr. Nadeem Ul Haq

Group Head Admin, Technology, System & Operations

Mr. A. Wahid Dada

Group Head Operations

Mr. Zahid Ali H. Jamall

Chief Financial Officer

Mr. Imtiaz Ahmad Sheikh

Chief Information Officer

Mr. Ather Shehab

General Manager Management Services Division

Mr. M. Mudassar Aqil

General Manager HR, QA & Learning

Mr. Hamid Ashraf

General Manager Legal Affairs Division & Company Secretary

Mr. Shahid H. Kazi

General Manager International Business, Marketing & Business Initiatives

Mr. Sajan Hamid Malik

General Manager Credit Division

Mr. Haroon Khalid

General Manager Risk Management

Mr. Riaz Hussain Hamdani

Chief Compliance Officer

Network
The detail of Bank Alfalah Network in over Pakistan is as under:

Sr. No.

Branch KARACHI

Phone Number

1.

Main Branch B.A. Building, I.I Chundrigar Road, Karachi

111-777-786 021-2414030-9 021-583778-2 021-5065701-2 021-7750627-30 021-4313536-8 021-5374330-5 021-4984937 021-2401621-26 021-7532482-84 021-698760 021-2417515-9 021-2211353-8 021-7540067-68 021-2582114-16 021-4535861-2 021-7750635-9

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16.

Clifton Branch, Karachi Korangi Industrial Area Branch, Karachi Muhammad Ali Jinnah Branch, Karachi Sharah-e-Faisal Branch, Karachi Defence Branch, Karachi Gulshan-e-Iqbal, Karach Cloth Market Brach, Karachi Jodiah Bazar Branch, Karachi North Karachi Branch, Karachi KESC Branch, Karachi Paper Market Branch, Karachi North Napier Road, Branch, Karachi S.I.T.E Branch, Karachi PECHS Branch, Karachi Timber Market Branch, Karachi

Sr. No. 17.

Branch Bahadurabad Branch, Karachi LAHORE

Phone Number 021-4128578-81

18. 19. 20. 21.

LDA Plaza Branch, Lahore Defence Branch, Lahore Township Branch, Lahore Gulberg Branch, Lahore

042-6306201-10 042-5729772-6 042-5114722-23 042-5877800-8 042-5757791-2

22. 23. 24. 25. 26. 27.

Circular Road Branch, Lahore Badami Bagh Branch, Lahore Allama Iqbal Brach, Lahore Shah Alam Branch, Lahore Shadman Branch, Lahore Mall Road, Brnach, Lahore RAWALPINDI

042-7638256-8 042-7708291-5 042-5432961-3 042-7673401-6 042-7538116-8 042-7350033-35

28.

Main Branch, The Mall, Rwp.

051-5582288 051-566084-6

29.

Satellite Town, Branch, Rwp ISLAMABAD

051-4424080-5

30.

Blue Area Branch, Islamabad

051-2275286 051-2270193 051-206986-7

Sr. No.

Branch Branches in Other Cities

Phone Number

31. 32. 33. 34. 35. 36. 37. 38. 39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49.

Liaqat Road Branch, Sargodha Sarwar Road Branch, Sahiwal College Road Branch, D.I Khan Saidu Sharif Road Branch, Mangora Saddar Branch, Hyderabad Islamia Road Branch, Peshawar Cantt Branch, Peshawar Hospital Road, Nawabshah Liaquat Bazar, DG Khan Circular Road, Gujrat Bank Road Branch, Mardan The Mall Branch, Wah Cantt. Circular Road Branch, Bahulpur Cantt. Branch Jhelum Abdali Road Branch, Multan Paris Road, Branch, Sialkot Liaquat Road Branch, Faisalabad G.T Road Branch, Gujranwala Frefre Road Branch, Sukkur

0451-724138-9 0931-73631-2 0961-711730-3 0936-726745-6 0221-786020-2 091-287051-5 091-287051-5 0214-62127-9 0641-468201-4 0433-530219 0931-73631-2 0596-539426-8 0621-889922-5 0541-610022 061-546792-6 0342-591741-43-44 041-617436-39 0431-255556-16 071-28173-75

Sr. No. 50. 51.

Branch Shahi Road Branch, Rahim Yar Khan M.A Jinnah Road Branch, Quetta

Phone Number 0731-84771-73-79 081-827567

ISLAMIC BANKING BRANCH NETWORK 1. Islamic Banking Main Branch 66, Main Boulevard, Gulberg, Lahore 2. Islamic Banking Y-Block Branch 93-Y, Phase-3-C, DHA, Lahore Cantt 3. Islamic Banking Katchery Branch Kutchyery Bazar, Faisalabad 4. Islamic Banking Jinnah Avenue Branch REDCO Plaza, 8-E, Blue Area, Islamabad 5. Islamic Banking Uni Tower Branch UNI Tower, I.I Chundriger Road, Karachi 6. Islamic Banking McLeod Road, Branch Plot No. 13, McLeod Road, Lahore 7. Islamic Banking Faisal Arcade, Branch G.T Road, Gujranwala 8. Islamic Banking Murree Road Branch Near Ministry of Defence 0431-557301-5 042-7211640 021-2472001 051-2879589 041-603021-25 042-5746191-95 042-5715241-5

Types of Deposit
Current Account
Current Accounts are non interest bearing accounts that have a minimum account opening requirement of Rs 10,000. No Zakat is deducted on the accounts balance. Furthermore all current account holders receive a Hilal debit card and there are no restriction on the number of withdraws or deposits made to and from the account.

Profit& Loss Saving Account

Profit& Loss saving accounts can be opened with a minimum balance requirement of Rs 5,000 and profit is credited on a half yearly basis. There are no restrictions on the number of deposits and withdrawal made to and from the account and all account holders receive a Hilal debit card as well. Profit and loss saving account cannot be opened by a business corporation, however can be jointly opened by individuals. Profits are paid at 2% on all account balances.

Basic Banking Account (BBA)

Basic Banking Account was introduced by banks on an order by the State Bank of Pakistan and is current in nature. There is no minimum balance requirement for BBA, however initial deposit must be Rs 1000. Maximum two withdrawals and deposits are allowed by cheque, while there is no restriction on ATM withdrawals.

Royal Profit Account

Royal profit accounts are opened with a minimum balance requirement of Rs 50,000. The basic aim of this account is that the higher the balance the higher the return, as profit is credited on a monthly basis. The profit paid to account holders is as follows:

Kifayat Account
Kifayat account is another saving account product that can be opened with a minimum balance requirement of Rs 10,000, with a maximum limit of Rs 1 million. Profit is calculated on a monthly basis, while it is credited on quarterly basis. Bank Alfalah pays 7% pay interest on Kifayat Account.

Mahana Amdan Account

Mahana Amdan account is Term Deposit Receipt (TDR) for three years that can be opened with a minimum balance requirement of Rs 100,000, with a maximum limit of Rs 15 million. Profits are paid at 10% pa, credited on a monthly basis. Other features of this account include free personal accident insurance and automatic renewal for another 3 years, after the expiry of original period.

Alfalah Education
Alfalah education is a one year TDR that can be purchased by people having school going childrens. A person can purchase a unit for Rs 100.000, with a maximum of 3 years. This TDR pays 7%, paid at maturity and gives an additional advantage of giving monthly school fee of the childrens if the breadwinner of the family dies.

Equity of Bank Alfalah

Share Capital

Statutory Reserve (a)

Reserve for issue of Bonus Shares

Exchange Inappropriated translation Profit (b) Reserve

Total

Balance as at January 1, 2010 Changes in Equity for nine months period Ended Sep 30, 2010 Comprehensive income for nine months period ended sep 30, 2010 Transfer from surplus on revaluation of fixed assets to inappropriate profit Transfer to statutory reserve Issue of Right shares Transfer to reserve for issue of bonus shares Issue of bonus shares for the year ended Dec 31, 2009 @ 12.5% Balance as at Sep 30, 2010 Changes in equity for the quarter ended Dec 31, 2010

7,995,000

2,588,035

578,021

3,447,467 14,608,523

33,453

1,561,555

1,595,008

18,439 312,311 3,997,500 -312,311

18,439

3,997,500

1,499,063

-1,499,063

1,499,063 13,491,563 2,900,346

-1,499,063 611,474 3,216,087 20,219,470

Comprehensive income for quarter ended Dec 31, 2010 Transfer from surplus on

209,053

-664,520 6,257

-455,467 6,257

revaluation of fixed assets to inappropriate profit Transfer from statutory reserve Balance as at Dec 31, 2009
Changes in equity for the nine months period ended Sep 30, 2010 Comprehensive income for nine months period ended Sep 30, 2010 Transfer from surplus on revaluation of fixed assets to unappropriated profit Transfer to statutory reserve Final cash dividend for the year ended Dec 31, 2010 at the rate of Re. 0.80 per share Balances as at Sep 30, 2011

-132,904 13,491,653 2,767,442 820,527

132,904 2,690,728 19,770,260

147,734

1,501,517

1,649,251

22,272 300,303 -300,303

22,272

-1,079,325 13,491,563 3,067,745 968,261

-1,079,325

3,834,889 20,362,458

Weighted Average Cost of Capital

Rate Weight % 13491563 0.59 0.66 0.390917 3067745 0.84 0.15 0.126552 968261 3834889 20362458 0.59 0.89 0.05 0.028055 0.19 0.167615 0.713139

Share capital Statuary Reserve Exchange Translation Reserve Inappropriate Profit Total

Hence the cost of capital of Bank Alfalah is 71.31%.

Types of Loans
Mortgage Loan
A mortgage loan is a loan secured by real property through the use of a mortgage note which evidences the existence of the loan and the encumbrance of that realty through the granting of a mortgage which secures the loan. The two basic types of amortized loans are: 1. Fixed rate mortgage (FRM) 2. Adjustable-rate mortgage (ARM). A fixed rate mortgage (FRM) is a mortgage loan first developed by the Federal Housing Administration (FHA) where the interest rate on the note remains the same through the term of the loan, as opposed to loans where the interest rate may adjust or "float."

An adjustable-rate mortgage (ARM) or tracker mortgage is a mortgage loan with the interest rate on the note periodically adjusted based on an index which reflects the cost to the lender of borrowing on the credit markets. Personal or Commercial Loan The two basic types of personal loans are: 1. Credit cards 2. Installment loans 3. Payday loans A credit card is a small plastic card issued to users as a system of payment. It allows its holder to buy goods and services based on the holder's promise to pay for these goods and services. An installment loan is a loan that is repaid over time with a set number of scheduled payments. The term of loan may be as little as a few months and as long as 30 years. A mortgage, for example, is a type of installment loan. A payday loan is a small, short-term loan that is intended to cover a borrower's expenses until his or her next payday. The loans are also sometimes referred to as cash advances, though that term can also refer to cash provided against a prearranged line of credit such as credit cards. Loan Payment Formula

Detail of Assets
The banks investment does not show any significant change in the year 2009 but in 2010 it rises by 47%, which was mainly because of the investment in FIB, T-Bills and prize bonds. The Advances of the bank increases consistently. This is a very good sign for the bank and it also shows that the business of the bank is growing. The increase in the level of advances has also led to an increase in the mark up income received. Operating fixed assets of the bank rises immensely in the year 2009, which shows that the bank is in its growing stages. It also shows a little increase in the year 2010. The total assets of the bank increased by 46% in 2009 and 31% in the year 2010 signifying an increase in the business of the bank. Leased: Assets held under finance lease are accounted for by recording the assets and the related liabilities at the amounts determined on the basis of lower of fair value of the assets and present value of minimum lease payments. Investment Investments are stated at cost, net off provisions made for diminution in value. Profits and losses on sale of investment are dealt with through the profit and loss account in the year in which they arise. Advances Advances are stated net off provisions for bad and doubtful debts. Specific and general provisions for bad and doubtful debts are determined by the management keeping in view the requirements of the Prudential Regulations issued by the State Bank of Pakistan.

Foreign Currencies Assets and liabilities in foreign currencies have been translated into Pak Rupees at the rates of exchange approximating those ruling at the Balance Sheet date except those covered by forward exchange contracts which are converted at contracted rates. Exchange gains and losses are included in income currently.

Detail of Liabilities:
The deposits of the bank are increasing steadily and consistently in the previous years. Increasing trend in the deposits is a very encouraging trend for the bank. Borrowings from other banks have been on the rise too. There was 120% increase in 2010. This shows that the bank is a regular borrower from the interbank money market. Rather than going for deposits, it finds it easier to borrow from the money market. This is having an adverse effect on the banks cost of capital. The total liabilities of the bank rise in the recent years but the increase matches the increase in the assets so it is not alarming for the bank. Slowdown in advances is also due to the high interest rates in the economy as the cost of borrowing money has rapidly risen in light of a tight monetary policy being followed by the State Bank of Pakistan. Industry figures also show that banks have shown an increase in investment portfolios somewhat corresponding to the decline in loans, showing a shift in banks policy towards lower risks and returns.

External Rating of Bank Alfalah

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

NPLs
The non-performing loans (NPLs) have shown variable behavior during the period of analysis, first increasing from Rs 2.93 billion in FY03 to Rs 2.94 billion in FY04, then decreasing by almost two thirds of that to Rs 1. 06 billion in FY05 then rises again in FY06. During FY09, NPLs rose by 81% from Rs 8.93 billion to Rs 16.2 billion despite beliefs that the economy was stabilizing. In relation to advances, NPLs were 8. 6% of the aggregate amount, which is much higher than last year s value of 4.7% indicating higher defaults and credit riskiness. However, the bank s provisions for NPLs also increased in FY09 to compensate for the credit risk.

This rise in NPLs can be more accurately attributed to the rapid rise in interest rates during this period than to any lapse in the bank s screening procedures, as the State Bank has taken definite measures to tighten its monetary policy. At the same time there is a high level of indebtedness in both the private sector and consumer markets. There was a slowdown in the rapid decline in industry NPLs, which stood at Rs 175 billion at the end of FY06. Disaggregated industry analysis revealed that there were plenty of fresh NPLs incurred during this period. However, extensive write-offs and recoveries managed to reduce the overall level of NPLs. The bank is now making greater efforts aimed at the recovery of NPLs, and a tightening of the loan policies is expected.

Provisioning against NPLs grew phenomenally during FY07 and amounted to Rs 2.3 billion over Rs 697.6 million in FY06. Bank Alfalah made incremental provisioning of Rs 1.0 billion during the year due to the withdrawal of FSV benefit which was the major reason behind the upsurge in the provisions. This trend continued over the next three fiscal years. In terms of profits the Pakistani banking sector ranks amongst the top ten in the world. Bank Alfalah has had its share in the phenomenal profits growth of the banking sector.

Note:
Calculation of profit on deposit and calculation of Markup on loan are calculated on excel file attached with this project. Deposit and loan example we have presumed.