ubl report

AN INTERNSHIP REPORT ON UNITED BNAK LIMITEDTAKHT BHAI BRANCH

WAQAR AHMAD

INSTITUTE OF MANAGEMENT STUDIES UNIVERSITY OF PESHAWAR

June 2002


INTERNSHIP REPORT SUBMITTED TO INSTITUTE OF MANAGEMENT STUDIES UOP

IN PARTIAL FULFILLMENT OF THE REQUIREMENT FOR THE DEGREE OF MBA

June 2002

INSTITUTE OF MANAGEMENT STUDIES UOP


SUPERVISOR:

Signature

Name Mr. Abdul Wahid

Designation Coordinator MBA

COORDINATOR R& DD:

Signature

Name Mr. Zia ud Din

PREFACE

The development of skills to perform well in professional life has become a

dire need of every Business Graduate. The very purpose, an internship is to

acquaint the business graduate with empirical business practices.

As a compulsory requirement of Professional Degree in Business

Administration, I opted to join United Bank Limited, to fulfill my degree

requirement. My reason for choosing UBL was to enhance my skills in

Management Finance and Accounts, so that to provide myself the opportunity

to cope with real life situation.

To better understand the report my recommendation would be to look into

different parts mainly covering the overview of UBL, overall management of

Finance and Accounts.

I pay my gratitude to all my teachers, senior staff members of IMS and all my

colleagues. Deep gratitude is extended to Mr. Sarfaraz Khan (Manager UBL,

Takht Bhai Br.). I am also thankful to the staff members of UBL, Takht Bhai

Br. for their continuous help and guidance during my Internship.

I am indebted to Mr. Abdul Wahid who proved to be more than a supervisor,

whose guidance enabled me to write this report. His wisdom, kind

considerations, and unique insights were invaluable and his real world

experience added an extra advantage to my report.

Finally, keeping the tradition alive as well as fulfilling social and ethical

responsibility, my dedications will always go to my dear Parents & Family

and Friends.

Waqar Ahmad

i

LIST OF CONTENTS

Preface I

Acknowledgement Ii

List Of Contents Iii

List Of Graphs

List Of Acronyms

Executive Summary

Section-1

Chapter # 1 _____________________________________________________

INTRODUCTION 1

1.1 Objective of The Study 1

1.2 Scope of The Study 2

1.3 Importance of Study 2

1.4 Research Methodology 3

Section-2

Chapter # 2 _____________________________________________________

IMPORTANCE OF BANKING 4

2.1 Major Functions Of Commercial Banks

2.2 Banking in the World’s Economy 8

2.3 Role of Commercial Banks in the

Economic Development of Pakistan-- 9

ii

Chapter # 3 _____________________________________________________

HISTORY AND GROWTH OF UBL 20

3.1 Number Of Branches

3.2 Services Offered by UBL 23

Chapter # 4_____________________________________________________

ORGANIZATION STRUCTURE OF UBL 26

Chapter # 5 _____________________________________________________

DEPARTMENTATION

6.1 Accounts Department

6.2 Remittances Department

6.3 Deposits Department

6.4 Advances Department

6.5 Foreign Exchange Department

6.6 Clearing House

Chapter # 7 _____________________________________________________

FINANCIAL PRODUCTS OF UBL

7.1 Unicash

7.2 Unisona

7.3 Unizar

7.4 Unisaver

7.5 Tezrafter

Section-3

Chapter # 8 _____________________________________________________

iii

FINANCIAL ANALYSIS

Common Size Analysis of Balance Sheet

Common Size Analysis of Profit and Loss Account

Trend Analysis(Regular)

Trend Analysis(Percentages)

Ratio Analysis

Chapter # 9 _____________________________________________________

SWOT ANALYSIS

9.1 Strengths

9.2 weaknesses

9.3 Opportunities

9.4 Threats

Conclusion

Section-4

Chapter #10

10.1 Problems Faced By Banking Sector In Pakistan

10.2 Conclusion

iv

LIST OF ACRONYMS

AVP Assistant Vice President

IDBP Industrial Development Bank of Pakistan

DD Demand Draft

ADBP Agricultural Development Bank of

Pakistan

GM General Manager

HO Head Office

L/C Letter of Credit

UBL United Bank Limited

OGI Officer Grade I

RTC Rupee Travelers Checks

SBP State Bank of Pakistan

SEVP Senior Executive Vice President

SVP Senior Vice President

TT Telegraphic Transfer

NIB Non Interest Banking

IMF International Monetary Fund

DM Deutsche Mark

FDD Foreign Demand Draft

MT Mail Transfer

VP Vice President

v

EXECUTIVE SUMMARY

Now a days strong and efficient capital and financial institutions are the basic

requirements of each county. So no country can be considered strong without

having strong enough capital and financial institutions and markets. One of the

components of these financial institutions are the banks. No one can deny the

role the banks are playing in the economic development of a country.

In Pakistan’s banking sector, UBL is one of the leading commercial banks.

Very renowned bankers such as I.I. Chundrigar and Agah Hassan Abidi

established UBL in 1959. From the very beginning, UBL was showing very

good performance but in 1974 after the nationalization of commercial banks,

the bank has received some very severe financial shocks. The shocks received

in 1995 were so severe that SBP had to assume the control of the bank in order

to save it from bankruptcy. But after taking over the management of the UBL

by the new set-up under the leadership of Zubyr Soomro, the bank was

successful in rebuilding its shattered image. The new management started new

schemes and injected new concepts in order to improve its services to the

clients. Now the bank is in very good financial position and also has gained its

lost Goodwill.

My two months internship in UBL TAKHT BHAI branch gave me a

very good deal of the practical experience about the bank, its personnel and

various services it offers to the clients. Although two months duration for

studying such a large organization by no means is enough but I have tried my

ever best to cover all the areas of the bank in my report.

I have divided my report in ten chapters.

Chapter # 1 is about the introduction of the report. In this chapter it is

discussed that how the internship is important and what a student can learn

vi

from it. Light is also thrown on the way in which the research has been

conducted.

Chapter # 2 of my report is about the importance of banking. This

chapter contains detailed information that what role the banks play in the

economic development of a country.

Chapter # 3 is about the Evaluation of banking. In this chapter the bank

is defined. Growth of the banking globally as well as in Pakistan is pointed

here.

Chapter # 4 is about the historical background of UBL. The

circumstances in which UBL was established and its growth are discussed

here. This chapter also gives the information about various services offered by

the UBL.

Chapter # 5 of my report is about the organizational structure of UBL.

Hierarchy of staff and various positions of seniority are shown and discussed

through a Chart.

Chapter # 6 covers various departments of UBL. Each department is

separately given due consideration. Various functions performed by different

departments are highlighted.

Chapter # 7 of the report throws light on various financial products

UBL offers to its customers.

Chapter # 8 of the report consists of analysis. Financial statements are

analyzed horizontally and vertically. Also the performance of the bank has

been shown through ratio analysis and trend analysis.

Chapter # 9 includes SWOT analysis of UBL and conclusion based on

SWOT analysis.

vii

Chapter #10 contains problems faced by banking sector. First problems

faced by banking sector in Pakistan are discussed and then problems of each

department of UBL are highlighted and possible suggestions to each problem

are given.

viii

Chapter-1 Introduction

INTRODUCTION

1.1 OBJECTIVE OF THE STUDY

For getting the master degree in business administration, each student is

required to spend at least two months as an internee in a recognized

organization. The students are required to work in their own field in which

they have done their specialization.

Main purpose of this program is to make students familiar with the practical

work, as there is great difference between what they have learnt during their

MBA and how the job is practically done.

Another important aspect of the internship program is that internee is placed in

most of the departments of the organization through job rotation. It provides a

glance of each department, as the period is too short for learning in detail.

1.2 SCOPE OF THE STUDY

1). It is a compulsory requirement for the award of Master’s Degree in

Business Administration.

2). It will help the present and prospective students of the department in

making assignments and writing reports on the UBL, evolution of

baking, importance of banking and different operations.

3). It can also provide help to UBL’s management in identifying their

Strengths, Weaknesses, Opportunities and Threats.

4). It can also provide assistance to students seeking financial data for

analysis.

1.3 IMPORTANCE OF STUDY

Banks play a central and very important role in the economic life of a country,

that’s why they are considered as the lifeblood of modern economy. Today no

1

1


one can deny the importance of banking in the economy. They facilitate and

expedite trade and commerce and provide a variety of services that one can’t

imagine with out banks.

I have chosen the United Bank Limited Takht Bhai branch for my internship

because it has all the departments a bank could have.

Besides this, UBL plays an important role in the economic development of

Pakistan.

1.4 RESEARCH METHODOLOGY

The methodology that I adopted for this research project is based on both the

primary as well as secondary data. The sources of primary data were:

1. Formally arranged interview/ discussions with Management,

Director and Joint Directors.

2. Personal observations.

The sources of secondary data were;

1. Annual reports

2. Over view of the UBL

3. Relevant books.

During the research project, I observed that enough written material regarding

the Bank is not available, so I had count on my personal observation and

interviews with directors.

2


I spent eight weeks in the main branch and one week at each department and

collected information from discussion and interviews with directors, so most

of the data of this report is primary .I also availed assistance from few relevant

books.

3

Chapter-2 Evolution of Banking

4


EVOLUTION OF BANKING

“It has not so far been expressly decided as to how the word “Bank”

originated. Some authors opine that this word is derived from the words

“Bancus” or “Banque” that mean a bench. The explanation of this origin is

attributed to the fact that the Jews in Lombard transacted the business of

money exchange on benches in the market place, and when the business failed,

the Banco was destroyed by the people. Incidentally the word bankrupt is said

to have been evolved from this practice. The opponents of this opinion argue

that if it was so, then how is it that the Italian moneychangers were never

called Banchierei in the middle ages?

Other authorities hold the opinion that the word Bank is derived from the

German word “Back” which means joint stock fund. Later on, when the

Germans occupied major part of Italy, the word “Back” was Italianized into

“Bank”.

It is therefore, not possible to decide as to which of the opinions is correct, for

no record is available to ascertain the validity of any of the opinion1”.

3.1 EARLY GROWTH

“Banking in fact is as ancient as human society. For eversince man came to

realize the importance of money as a medium of exchange. Perhaps these were

the Babylonians who developed banking system as early as in 2000B.C. It is

evident that the temples of Babylon were used as banks because of the

prevalent respect and confidence in the clergy.

1 Siddiqi Asrar H. “Practice and law of Banking in Pakistan” 6th ed. Royal book Co. Karachi

P-1.

2

5


King Hammurabi (1728-1686 B.C.) the founder of the Babylonian empire

drew up a code wherein he laid down standard rules of procedure for banking

operations by temples and great landowners.

It is not certain as to who invented money; but history records that Gyges,

king of Lydia cast electrum (a natural alloy of gold and silver) ingots of

identical shape and of uniform weight with a triple emblem engraved on it as

an official guarantee of value in 687 BC.

Also in Greece, the temples of Epheusus and Delphi were the biggest “Banks”

of their time, where the people deposited their money and other valuables for

safety and security, and were also the first-acted financial agents. After some

time, Aristotle‘s dictum that “ Charging of interest is un-natural and immoral”

became very popular, but the following periods’ growing necessity forced the

acceptance of the principle of interest in lending and borrowing.

The Romans, though they did not organize state banking, nevertheless

regulated the conduct of private banks in such a way that extreme confidence

of the people was created with the “Revival of civilization” (Renaissance) in

the middle of the twelfth century. Trade and commerce started expanding, and

this development compelled the business community to borrow money from

the Hebrew moneylenders on high rates of interest and usury.

Seeing the great demand, these moneylenders started organizing themselves,

and banks started coming up at the principal seaports in southern Europe.

Soon Venice and Genoa became the most important money markets of the

time; and banking, though different from its present form, flourished. What we

know now as “ modern banking” originated in the 14th century in Barcelona.

In 1401 A D a German Public bank was formed comprising the operations of

discounting deposit and transferring of money. By the 16th century, some more

public banks were formed in Venice, Milan, Amsterdam, Hamburg and

6


Nuremberg. Similarly in 1690, the Bank of Hamburg came into existence in

Hamburg with the business of accepting deposits of fine silver or of foreign

moneys and to run accounts on these deposits. This bank rendered great

service to the merchants as well as the countries it dealt with until 1873, when

it was merged with the Reich Bank2”.

3.2 MODERN BANKING

“Despite the classical origin, banking in modern form and structure started in

Britain when many of the Lombard merchants came to England in the

fourteenth century and settled in the parts of the city of London now called

Lombard street. They were so resourceful that even the kings had to depend on

them for loans despite the fact that the church was firmly against usury. They

dealt with not only keeping the money in safe custody but also changed money

for the travelers or merchants engaged in foreign trades.

The discovery of America brought riches to England and gave a tremendous

boost to foreign trade. The merchants now began to hold part of their riches in

cash. These transactions, however, received a big setback in 1640, when King

Charles -I seized 130, 000 pounds and billion left for safe custody with the

city merchants at the Royal Mint.

This shook the confidence of the merchants in the Royal Exchanger and the

Royal Mint. Consequently this business was taken over by the goldsmiths

who, up to that time, were dealing only in gold and silver. These goldsmiths

issued receipts or notes to their depositors in respect of the cash or articles left

with them. These were called Goldsmiths Notes, and carried an undertaking to

return the money and articles to the depositors or bearers on demand.

2 Ibid p-1

7


Over period of time, these goldsmiths discovered that large sums of money

were left in their custody for long periods, therefore, they started the use of

this cash to advance loans to other persons for a fixed period of time and at a

considerably high rate of interest. Moreover, they further encouraged cash

deposits by their customers by offering them a part of the profits earned on the

money. Thus began the “issue” and “deposit” banking of modern times. Some

of the enterprising goldsmiths issued checkbooks for the attraction of their

customers, and thus another important step in the evolution of banking was

taken.

In 1672, however, English banking faced a great crisis when Charles- II

borrowed huge sums of money from the goldsmiths and later refused to pay

them back. Therefore, a number of goldsmith- bankers formed themselves into

a corporation in 1695, known as the Bank of England. This bank lent

1,200,000 pounds at 8% interest to William- III, who in return, allowed a

number of privileges to the bank, specially the right to issue notes payable to

bearer on demand up to the amount of this loan. This was known as fiduciary

issue, not covered by gold.

By the year 1700, the Bank of England was not only issuing notes but was also

conducting accounts for customers. Being a joint stock bank by charter, its

directors were conducting the business like that of limited companies.

In 1854 the joint stock companies Act opened an era of corporation/ and the

limited liability Act 1855, restricted the liability of shareholders of a limited

company to the amount of the successfully paid- up value of the shares held by

them. In the succeeding years, joint stock banks became very common either

by absorption of private banks or amalgamation amongst joint stock banks

themselves. Thus in 1918 came into being eleven clearing Banks of today.

In 1946, the Labor Government nationalized the Bank of England and

transferred the existing stock to the nominee of the British treasury, and

8


empowered the crown to appoint its Governors, deputy Governors and

Directors. The other shareholders of the bank were given in exchange, three

percent long term Government stock, thus keeping the holders content and

happy, as they were getting the same return as before.

In 1955 the British banks made a departure from traditional banking by

undertaking hire- purchase finance for companies buying industrial plants and

machinery, and took interest on hire-purchase finance. The percentage of

interest was so high that a number of companies became subsidiaries of the

lending banks3”.

3.3 EVOLUTION OF BANKING IN PAKSITAN

On 14th August 1947, the partition of the sub-continent came into reality and a

new Muslim country with the name of Pakistan came into being. At this

crucial time, the new country was facing a number of problems including the

shortage of financial institutions.

“At the time of independence, the areas, now constituting Pakistan were very

rich in producing various crops and other agriculture Products. There were

very nominal industries and those industries too were in very bad shape but as

far as the commercial banking facilities are concerned, they were fairly well,

because there were 487 offices of scheduled banks for providing banking

facilities to this area.

For a new country like Pakistan, facing so many problems and having limited

resources, it was very difficult to run its own banking system immediately.

Therefore in accordance with the provision of Indian Independence Act of

1947, an expert committee was appointed to study the issue.

3. Ibid p-3

9


The committee recommended that the Reserve Bank of India should continue

to function in Pakistan until 30th September 1948, so that the problem of time

and demand liability, homage, currencies, exchange etc. be settled between

India and Pakistan. It was also decided that Pakistan would take over the

management of public debt and exchange control from Reserve Bank of India

on Ist April 1948, and that Indian notes would continue to be legal tender in

Pakistan till 30th September 1948. The Hindus residing in the territories now

comprising Pakistan started transferring their assets to India after the partition

of sub- continent and the banks also followed the same move in order to push

the new state into chaos. By 30th June 1948, the number of offices of

scheduled banks in Pakistan declined from 487 to only 195.

At this time there were 19 foreign banks with the status of small branch offices

and only two Pakistani institutions i.e. Habib Bank, and the Australasia Bank.

To rebuild the confidence of the people in these banks, the then Government

promulgated the banking companies ordinance, 19474”.

Pakistan was further pushed into trouble when the imperial bank of India

closed down most of its offices in Pakistan and rejected to accept the token

amount of Government of Pakistan securities. Such circumstances necessitated

the control and management of banking and currencies in Pakistan.

“Government of Pakistan inaugurated the State Bank of Pakistan on July

1,1948, after the State Bank of Pakistan order was promulgated on May

12,1948. In order to bring the situation under control “As the central bank of

the country. The state Bank of Pakistan addressed itself with the equally

urgent task of creating and developing the Baking system of the country. To

achieve this goal, it provided every help and encouragement to Habib Bank to

expand its network of branches and also recommended to Government, the

4 . Ibid. P-17

10


establishment of a new bank which could serve as an agent of the State Bank

of Pakistan in areas where State Bank branches are not present. As a result, the

National Bank of Pakistan came into being in 1940 and by 1952 it became

strong enough to take over the agency functions from the Imperial Bank of

India. In order to develop sound banking and weed out weak institutions, the

Banking companies (control) Act was promulgated in 1949, empowering the

State Bank to control the operations of banking companies in Pakistan. Further

The State Bank of Pakistan limited the opening of new branches by foreign

banks in coastal towns or in big cities from where trade was being carried out

with foreign countries, while Pakistani banks were encouraged to open as

many branches as possible within the country5”. In order to broaden the scope

of banking system in Pakistan, The State Bank of Pakistan also helped in the

establishment of specialized credit institutions in the fields of agriculture and

industry. At the end of June 1958, the number of branches of Pakistani banks

increased from 195 to 307 and, the number of scheduled banks increased to 36

by June 1965. The following figures reflect the rapid development of banking

system in Pakistan from 1948 to 1993.

1948 1993 % increase

Bank Deposit 880m 290,000m 32854

Bank Credit 200m 21,000m 10500

Offices of scheduled

banks

81 7,100 8665

During the five years from 1960 to 1965, the number of scheduled bank

branches rose form 430 at the end of June 1960, to 1591in June 1965. Two

new banks were formed i.e. Commerce Bank and Standard Bank. A dramatic

5 . Ibid P-19

11


change in Pakistani banking system took place when in 1974 the Government

of Pakistan nationalized all commercial banks incorporated in Pakistan. There

were 22 scheduled banks with 3525 branches at the end of December 1973.

The nationalization of banks in Pakistan has brought a new era of development

and growth. It has taken a completely new turn with the induction of interest

free Banking system in January 1981.With the passage of time, the

Government of Pakistan realized that the national economy was being

dominated by public sector, areas such as production, trade and finance were

over regulated. This resulted not only in chronic budget deficit, leaving not

much for physical and social infrastructure but also led to developing such

conditions which could not be changed without the privatization of the

nationalized and public sector. Therefore in order to meet the need of the time,

the Government of Pakistan introduced comprehensive economic reforms

aimed at deregulation of trade, commerce, industry, banking and finance, so

that the role of the public sector in industrial and commercial activities is

reduced and social sector activities are increased. In order to deregulate the

financial sector under these reforms, a program of privatization of public

sector banking and financial institution was started and various governing laws

were amended in 1990 in which strict criteria for selection of good

entrepreneurs as investors was also drawn.

Besides these undertakings, private sector was not only invited but also

encouraged to set up commercial banks and financial institutions in Pakistan.

As a result, a number of banks Modaraba and Leasing companies came into

existence and are now actively operating in private sector. It is hoped that this

polish of liberalization and privatization of financial institutions will make

way for the economic development and professional efficiency in Pakistan.

12

Chapter-3 History and Growth of UBL

HISTORY AND GROWTH OF UBL

Commercial banks play a role of vital importance in the economic growth of a

country. Banks mobilize idle savings of public and provide finance to various

sectors of economy. In spite of vital importance, there was shortage of

branches of commercial banks in the areas of sub-continents, which now

constitute Pakistan. When Pakistan got independence, there were only 487

branches of commercial banks, which were further reduced to 195 as at

30/09/47 due to shifting of a number of branches to India or U.K. The Reserve

Bank of India, which was made responsible to exercise control over banking

sector in both the dominions, did not perform its duties properly in Pakistan.

The State Bank of Pakistan was established on 01/07/1948. After the

establishment of State Bank of Pakistan, banking expansion got momentum

but real progress was not achieved until 1959, when a dynamic banker Mr.

Agha Hassan Abedi conceived the idea of opening a bank different from

others. His dream was translated into reality on November 07/1959 when first

branch of UBL was opened at Macleod Road Karachi (now known as I.I.

Chundrigar Road).

This achievement was secured after passing through many problems and after

completion of a lot of legal formalities. UBL was established on 24-07-59 as a

public limited company with registered office at I.I. Chandrigar road Karachi.

The authorized capital was RS. 20,000,000 issued, subscribed and paid up

capital was. RS. 10,000,000 divided into 1,000,000 shares of RS. 10each.

3

13


The first Board of Governors of UBL consisted of the following members;

1 Mr. Ismail Ibrahim Chandrighar Chairman

2 Mr. Muhammad Shafiq Saigol Managing Director

3 Mr. Muhammad Rafiq Saigol Director

4 Mr. M.Bashir saigol Director

5 Mr. A. Razaq Dada Director

6 Mr. Mian M.Yahya Director

7 Mr. M. Saeed Saigol Director

8 Mr. Agha Hassan Abidi Director and General Manager

Presently UBL is managed by a board of directors including one president, 4

directors from UBL, 1 from Pakistan Banking Council and one from ministry

of finance.

The names and designations of present top management include;

1 Mr. Amar Zafar Khan Chairman and president

2 Mr. Afzal H.Mufti Director

3 Mr. Iltaf M. Saleem Director

4 Mr. Iftikhar Allahwala Director

5 Mr. Munnawar Hameed Director

6 Mr. Syed Shamsul Haq Director

7 Mr. Afaq Tiwana Director

8 Mr. Abdul Ghafoor Corporate Secretary

Since inception, UBL provides personalized, efficient and courteous services

to its customers and has achieved dynamic progress in a short span of time.

14


UBL has achieved the distinction of earning profit in very first year of its

operation. UBL also introduced many remunerative schemes for its depositors

and introduced computer services for the first time in the banking history of

Pakistan. UBL gives advance finances to small, medium and large industries,

commercial establishments, agriculturists, construction companies and other

needy persons. UBL offers computerized services to intending Hajis free of

cost. UBL collects Electricity, Gas and Telephone bills from public and issues

TV licenses on behalf of Pakistan Television Corporation. It also offers

evening banking and lockers facilities at its selected branches. Over 100

branches deal in foreign exchange where facilities to importers, exporters,

travelers and other persons are being given.

UBL arranges prompt payment of inward remittances. Similarly for issues of

outward remittances minimum time is taken. Other auxiliary services such as

unicorn, inland travelers checks, school banking and collection of checks and

other documentary bills drawn on its station drawees are offered.

“The names and tenure of various presidents of UBL after nationalization are

given here under1”;

1 . Daily Dawn “ Amar Zafar Kahn appointed as new president of UBL”, Lahore, Jan 15th

2000, P-11

15


S.N

o.

Name of Presidnet From To

1 Mr. Mushtaq Ahmad Khan Yousafi 01/01/74 31/12/76

2 Mr. Kh. Zai Ud Din 01/01/77 31/12/79

3 Mr. Sami 01/01/80 01/02/82

4 Mr. M. Sadiq Dar (Acting president) 04/02/82 31/12/82

5 Mr. Tajammal Husain 01/01/83 15/07/88

6 Mr. Amjad Ali 16/07/88 04/02/89

7 Mr. Maqbool A Soomro 7/02/89 18/07/89

8 Mr. Salim Malik 19/07/89 01/08/90

9 Mr. Maqbool A Soomro 01/08/90 15/05/93

10 Mr. Aziz ullah Mamon 15/05/93 4/08/96

11 Mr. Shafi Arshad 4/08/96 14/07/97

12 Mr. Zubayr A Soomro 14/07/97 15/01/00

13 Mr. Amar Zafar Khan 15/01/00

4.1 NUMBER OF BRANCHES

UBL has a large network of branches, which extends to the remotest areas of

the country. In December 1983, there were 1623 branches whereas in 1974 it

had only 1238 branches and in December 1999 there were 1417 branches.

16


Overseas Branches

UBL has been very active in increasing its overseas branches network. The

first foreign branch was established in London in 1963. Now UBL has

branches in Bahrain, Qatar, Saudi Arabia, United Arab Emirates, Yemen Arab

Republic, UK, Switzerland, Egypt, Oman and The United States. These

branches are playing a significant role in channeling home remittances and

foreign trade of Pakistan.

Subsidiaries

UBL has two subsidiaries, namely,

United Bank of Lebanon & Pakistan

United bank A. G. Zurich.

United bank of Lebanon and Pakistan was established in 1968, 1st had a paid

up capital of dollars 379,000, deposits of dollars 125,978, advances of dollars

1983,313 and six branches as on December 31,1983.

United Bank A.G. Zurich also was established in 1968 and had a paid –up

capital of dollars 2722 thousand, deposits of dollars 5827 thousand and

advances of dollars 5538 thousand as on December 31, 1962.

Joint Venture

UBL has two ventures, Commercial Bank of Oman limited, established in

1975. It had a paid up capital of dollars 8,700 million, deposits of dollars

7,333 million, advances of dollars 73.993 million and 11 branches as on

December 31,1962.

And United Saudi Commercial Bank Limited (Saudi Arabia), established in

1982.

17


4.2 SERVICES OFFERED BY UNITED BANK LIMITED

Islamic Banking

The interest free banking system was introduced on January 1, 1981. Since

then, UBL has played an important role in the successful operation of this

system. For this purpose, it has established a special division, The Islamic

Banking Cell. The sincere efforts of UBL as making Islamic Banking

successful is proved by the fact that it declared the highest rate of profits for

PLS deposits for the first half year of 1983. This has been due to a sound

planning of all its Islamic Banking efforts.

The bank has provided capital to businessmen and industrialists on the basis of

“Mudaraba and Musharika. Additionally the bank has started interest- free hire

purchase and lease schemes for financing purchase of buses, trucks and

industrial machinery on installments. The bank also provides. “Qarz-e-Hasna”

to needy and deserving students.

UBL has also played important role in Islamic banking and successful

operation of Non - interest based system of banking.

Agriculture

UBL has contributed in full measures to the development of agriculture. It has

always exceeded, by a considerable margin, the targets given by the State

Bank of Pakistan. UBL has also provided loans for a variety of agricultural

activities including tractors, tube-wells, fertilizers, insecticides, poultry

farming, bio-gas plants etc. The banks officers who are qualified agricultural

graduates not only provide loans at the doorsteps of the farmers, they also

render technical assistance to them. To maintain constant liaison with the

farmers, they have been provided with motorcycles.

18


Financing of Small Business

To meet the goals of social justice, the bank has zealously participated in the

small loans scheme. It has always tried to exceed the targets fixed by the state

Bank. A full- fledged department catering the needs of small businessmen is

functioning. To improve its operations, the bank has made arrangements for

overseas training of its staff.

The bank is also participating in the dollars 30 million IDA credit, which will

be provided to small industrialists.

For training its staff, a staff collage was established at Karachi in 1994. Now

there are three such colleges at Karachi, Lahore and Rawalpindi where the

officers and staff are provided extensive training. Furthermore for training

senior officers, a UBL school of Banking has been set up at Karachi. Senior

bankers and management experts provide training to the executives and senior

officers of the bank.

Research Department

UBL was the first commercial bank in the private sector to establish a full-

fledged Research Department. Prominent economists of the country have been

acclaimed both at home and abroad. Not only does this research provides

useful and cogent studies of economic development in Pakistan and abroad, it

also assists in the managerial decision making process.

The Research Department is publishing “Economic Matters” every month

since 1967. It was recently upgraded to UBL Economic Journal. In addition,

the department also brings out the UBL Home Journal.

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Computer Services

UBL was the first bank to introduce computers. The Computer Division was

established in 1968. Presently, UBL has Computer Department at Karachi,

Lahore and Rawalpindi. Many branches have been fully equipped with

computers. . The Computer Division prepares weekly, monthly, quarterly, bi-

annual and annual reports for top services to many Government, Semi

Government and private institutions.

Service to Hajis

For providing prompt and efficient services to the intending Hajis who come

to UBL every year, the bank has introduced the most modern system of

electronic banking which permits all formalities to be completed within a short

time.

This year, UBL received the greatest number of applications from customers

for Hajj, which shows the customers faith in UBL.

Auxiliary Banking Service

The bank provides a number of auxiliary services such as credit cards,

traveler’s checks and school banking.

Collection of Utility Bills

UBL also collects electricity, gas, and telephone bills from the public on

behalf of the respective organizations. The bank also introduced the bills

collection facilities in selected branches in the evening hours for the

convenience of general public.

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Issuance of TV License

UBL also collects TV License fee on behalf of Pakistan Television

Corporation and issues TV Licenses to the general public.

Sports

UBL was one of the first banks to patronize sports. Senior executives at the

highest level supervise the sports activities.

The bank has established a special department to organize its various sports

activities. It has provided parsonage to leading sportsmen. Many outstanding

test players and national players have been on its teams. The bank has won

various trophies in hockey, cricket, badminton, table tennis, rifle shooting etc.

21

Chapter-4 Organizational Structure of UBL

ORGANIZATIONAL STRUCTURE OF UBL

As stated before, a Board of Directors consisting of one President, 4 directors

from UBL, one from Pakistan Banking Council, one from Ministry of Finance

and an additional one who is the secretary of the board manages United Bank

Limited. Hence the board of directors is an 8-member team, which manages

the overall operations of the bank.

Under the board of directors is the executives committee consisting of 7

members including the president/chairman of UBL and the Secretary of UBL.

These members of the Executive Committee, except Secretary, are in-charge

of many divisions. These members are all Senior Executive Vice Presidents

(SEVP). There are 20 divisions, which have their own heads who are Senior

Executive Vice Presidents (SEVP), Executive Vice Presidents (SVP) or Senior

Vice Presidents (SVP). The SVEP of international division manages the

overseas filed operations of the 26 UBL branches located in 10 different

countries.

In the Domestic field operations, UBL has established its presence all over the

country. Its filed operations are one of the most extensive among the leading

banks in Pakistan. Every province has a Provincial Chief, usually an SEVP,

who overlooks the operations of UBL in that particular province. Under the

provincial chief is the General Managers who is either EVP or SVP. The

general managers are responsible for either a number of regional areas or in-

charge of various provincial departments such as Administration, Recovery,

General inspection, Loan etc. The number of general managers depends upon

the complexity and extensiveness of the field operations in the province.

Below the general manager are the circle executives who are senior vice

president (SVP) or Vice-Presidents (VP).

4

22


The circle executives are in-charge of geographical circle areas such as

Islamabad circle, Peshawar North circle, South circle etc. In each circle area,

there are a number of zones such as Peshawar Cantt Zone, Peshawar city Zone

etc. There is Zonal Head for every Zone who is either a Vice President (VP) or

Additional Assistant Vice President (AVP).

In each Zone, there are a number of bank branches, which are managed by

branch managers who are Grade-1or 2 officers. In each branch, in turn, there

are a number of graded officers and non-graded employees (e.g. peon and

gunman).

In the UBL organization, the employees are promoted to higher ranks. In

Grade-1, it includes the AVP, VP, SVP, EVP, and SEVP. The difference in

salaries and power is primarily due to seniority in the organization and

competence.

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UBL ORGANIZATION CHART

Senior Executive Vice–President (SEVP)

Senior Vice President(SVP)

Vice President (VP)

Additional /AssistantVice President

(AVP)

Grade -1

Grade -II

Grade -III

Clerk, Cashier etc

Non –Clerical staff

Executive Vice President

(EVP)

President

25

Chapter-6 Departmentation

DEPARTMENTATION

6.1 ACCOUNTS DEPARTMENT

This department deals with the internal accounts of the bank. The only Book

maintained here is the cashbook. The summary book and main ledger are

maintained through the computer.

The function of cashbook is to balance the daily transactions. At the end of the

day this department receives cash position from the cashier. This position

shows opening and closing balance.

TYPES OF ACCOUNTS:

There are three types of accounts:

Current Accounts

Saving Accounts

Fixed Accounts

A) CURRENT ACCOUNT:

In current account, there is no restriction on the account holder for the

withdrawal of money. He can take as much money as he wants and no profit is

given on this account. It can be further classified into the following types:

* Individual Account:

Individual account is opened in the name of a single person. The person in

whose name is it opened can only operate it. The bank doesn’t pay any interest

on it.

* Joint Account:

6

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Two or more persons open the joint account and the bank follows their

instructions for the conduct of the account.

* Proprietorship Account:

A partnership firm is a business unit whose ownership and management are

vested in one person. This individual assumes all risk of loss or failure of the

enterprise and receives all profits from successful operations.

* Partnership:

Partnership is an avocation of two or more persons who have agreed to share

the profit of a business managed by all or by some of them on behalf of all. A

deed is prepared on the stamp form by the partners approved by Sub-Registrar

and presented to the bank. The bank follows this deed during the conduct of

account. This is, when the partnership is registered.

In case of unregistered firm, the bank takes the instruction from the party at

the bank on account opening form.

* Limited Companies:

There are two types of limited companies;

a. Private Limited Company

b. Public Limited Company

a) Private Limited Company:

The shareholders of limited company are called directors. The board of

directors decides the bank in which they should open their account and the

amount to be kept in current account. The bank requires the following

documents from the board of directors;

- The Article and Memorandum of Association

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- The Certificate of Incorporation

- Resolution of Board of Directors

- List of Directors

b) Public Limited Company:

The public limited company, not only requires the above-mentioned

documents, but in addition to it, it also needs a certificate of commencement

of business.

Power of Attorney: Power of attorney is an instrument in writing in which

one person authorizes another to do any lawful acts on his behalf. The

proprietor can give authority to any person to handle his account in his

absence. The owner of the form writes deed on the stamped form. Oath

commissioner attests it. The bank follows all the instructions given on the

stamp form.

B) SAVING ACCOUNT

In the saving account, the client receives certain profits on his account. The

saving accounts are of two types;

Individual account: It is opened and conducted by a single person.

Joint account: It is opened and operated by two or more persons. The account

holder regarding handling of the account gives instructions.

C) FIXED ACCOUNT

In the fixed account “ the deposits that can be withdrawn after a specified

time are referred to as fixed or term deposits”. The account holder keeps a

specified amount of money for a definite period of time. The amount

deposited is not withdraw able by checks and after the maturity of the account,

28


the account holder receives the actual money along with return at rate,

previously agreed upon.

A single individual, partners and companies, too can maintain such accounts

as well. The period for which the bank keeps these deposits ordinarily varies

from three months to sixty months in accordance with the agreement made

between the customer and the bank.

6.2 REMITTANCES DEPARTMENT

This dept is concerned with transfer of money from one place to another

place. Remittance can take place in three different ways.

a) Mail Transfer

When a customer requests the bank to transfer his money from this bank to

any other bank or the branch of the same bank in the city/ outside the city or

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 another

bank. If the customer is the account bolder of bank, then the bank will debit

his account. The concerned office will fill the different forms to make the mail

transfer complete. Three forms used for this purpose are listed below;

Debit voucher

Credit voucher

Mail transfer register

If the customer is not the account holder of bank, then firstly he has to deposit

the money and then the above said procedure will be adopted to transfer his

money.

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b) Telegraphic Transfer

This type of transfer is simple. After filling the application form, the

concerned officer fills the telegraphic form. This telegram is sent to the

required bank. Which on receiving it immediately makes the payment to the

customer and afterwards the vouchers are sent to the bank by ordinary mail.

c) Demand Draft.

DD is just a check and is issued when the customer wants to take the draft

personally. The idea behind it is that as the cash is not safe to be kept along

and a check in the shape of a draft is safer and one can easily get cash by

presenting it in the bank, on whose favor it has been made.

Draft is only issued when the customer is known to the bank and the bank has

the confidence that the customer will not do anything wrong with the draft.

For the preparation of a draft, first of all customer has to fill an application

form, then the concerned officer fills the following before delivering the draft

to the customer. The forms filled for this purpose are as follows;

Demand draft register

Credit vouchers

6.3 DEPOSITS DEPARTMENT

The main economic function of the commercial bank is to receive surplus

balances of individuals, firms, public institutions and to honor check drawn up

to it. The funds deposited with the commercial banks are classified under four

main heads.

a) Current or Demand Deposits

In this type of deposits, the depositor at any time by presenting a check can

draw his money from the bank. People keep some of their deposits in current

account in order to have ready command over money. No interest is given on

30


current deposits, because it is subject to transfer or cashing by check at sight.

The bank charges commission on the account, which is called bank charges.

b) Saving Deposits

This deposit refers to the deposits, which are kept to meet the customer and

unexpected outlay or to safeguard financial respectability. The bank

undertakes to repay the money on demand up to a certain limit fixed by the

rules of the bank. The bank pays interest to the customers on saving deposits.

The customer has to give a notice to the bank about two weeks in advance for

withdrawal of large amounts.

c) Fixed Deposits

Fixed deposits are those, which are repayable only after the expiry of the

stipulated period i.e. from three months up to sixty months. The rate of interest

depends upon the length of the period. The rate of interest on fixed deposits is

higher than saving account, because the bank can safely utilize these deposits

for a certain period. Customer is allowed to borrow the required amount,

which should not exceed his fixed deposit. The bank charges one or two

percent higher rate of interest than the profit allowed to him at his fixed

deposit. The bank issues a receipt against the fixed disposition stating the

amount and the time of expiry to the customer. There is no paying book or

passbook or checkbook issued to the depositor.

d) Call Deposits

It is a type of bank guarantee on behalf of the depositor given at call. In this

case, Security Deposit Receipt (SDR) is issued by the bank at the instructions

of the depositor, confirming that amount of the SDR is held by the bank, to be

paid whenever called upon to do so by the beneficiary named in the SDR.

6.4 ADVANCES DEPARTMENT

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It is the loan function, which produces the major portion of banks’ income,

and as such it is one of the major areas of professional bankers’ concerns and

attention.

A bank generally deals in following areas;

Agricultural finance

Commercial finance

Industrial finance

Export finance

Import finance

In addition to the above-mentioned broad areas, there are loans available to

small size businessmen, construction companies etc.

In UBL, advances department is responsible to deal with following cases;

1. To handle all the cases of short and long term loans.

2. To process all the cases concerned.

3. To forward the cases for approval and consideration to the higher

authorities.

4. To deal with the borrower directly.

5. To implement the disbursement of the loan.

6. To give feed back to higher authorities in advance.

UBL advances loans in the following manners:

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a) By Cash Credit:

In this form of lending, the bank lends money to the borrower against a

tangible security. The total amount of the loan, which is given, is not paid in

one installment. The borrower has to pay interest on the amount borrowed.

Cash credit is the favorite loan for large commercial and industrial concerns,

on account that the customers need not to borrow at once the whole amount he

is likely to require, but can draw such amount as and when required.

Cash credit is obtained either by Hypothecation or Pledge.

Peculiarities of Hypothecation

1) Custody of the stock remains with the customer.

2) Bank lien on the stock.

3) Stock hypothecated must be insured against fire etc.

4) Customer/ party must submit the stock record on monthly basis.

5) Frequent stock verification may be made by UBL

6) Bank may sent officers or staff for surprise verification.

Peculiarities of Pledge

1. Stock/ Goods are pledged with bank under lock and key.

2. Goods/ stock must be duly insured against fire and burglary.

3. On monthly basis stock report has to be prepared by borrowers/ UBL.

4. Delivery of goods is made against cash payment.

b) By Discounting Bills of Exchange:

It is another method of advancing loans to borrowers. The holder of bills is

paid an amount equal to the face value of the bill after deducting interest at the

33


market rate for the period the bill has to mature. Interest in this type of loan

can be charged as running finance and demand finance.

C) By Over Drafting:

This facility is given to regular, reliable and well- established customers. The

bank charges interest on the extra money, which the borrower takes.

When a customer requires temporary accommodation, he may be allowed to

overdraw his current account usually against collateral security. From the

customers point of view this agreement like cash credit is advantageous, as he

is required to pay interest on the amount actually used by him.

There can be temporary, secured and clear overdraft.

FIM OR FINANCE AGAINST IMPORTED MERCHANDISE

FIM is short-term facility given to such importers who are not in the position

to collect their documents due to unavailability of funds for time being or lack

of finance. Against FIM, amount will be adjusted within three months after the

lapse of six months. In FIM, UBL deals in documents.

34


FIANCE FOR EXPORT MERCHANDISE

It is facility granted to the exporter, it is pre-shipment facility. The exporter

applies for such finance to bank by showing Export L/C. or some export order

from foreign countries excluding Israel. The bank gives him loan, which he

would utilize for the execution of the export order.

PROCEDURE OF APPLYING FOR LOANS

Any customer who applies for loan should have an account (usually current

account) with the UBL branch concerned. That account must be in running

position.

When approval comes, bank gives terms and conditions to the party. Bank

does not advance 100% loan against a security, rather a 30% margin is

deducted from all loans. The borrower has to provide some important

documents.

a. Two personal guarantees

b. Charge forms

c. Confidential report

d. NIB s’ non interest banking

Charge form is taken from party for if it turns bankrupt, bank goes to court of

law then this agreement helps.

6.5 FOREIGN EXCHANGE DEPARTMENT

In modern banking system, foreign exchange department plays very crucial

and important role from every aspect. It is parallel banking with general

banking with an additional function of import and export business controlled

by State Bank of Pakistan. Rules and regulations are framed by state Bank of

Pakistan in the form of manuals.

35


Foreign exchange department under SBP regulations also carries out

international banking of UBL. Foreign exchange is being controlled by SBP.

No transaction can be affected without permission of SBP, under foreign

exchange regulations Act 1947 and notification issued there under. Exchange

control department of State Bank of Pakistan is responsible for day-to-day

administration of exchange control.

All the transactions shall be done at rate authorized by SBP. For this purpose,

US dollar has been fixed by SBP and the rates of other currencies are

calculated in accordance with the formula approved by SBP and as published

daily by the Foreign Exchange Rate Committee in Karachi. Head office

ensures that the branches receive the rates published by Foreign Exchange

Rate Committee on the same day.

The foreign exchange department provides the following services;

6.5.1 Foreign Currency Accounts

Foreign currency in UBL can be opened in 4 major currencies of the world i.e.

US dollar $, Japanese Yen, German Mark, DM and Pound Sterling. Only

authorized branches of UBL can deal in foreign currency account.

Pakistani citizens and foreigners both can open foreign currency account by

introduction and following the procedure required for general accounts with

one exception for foreigners that they will have to submit a copy of their

passport. The account may be personal or joint.

Amount deposited in foreign currency account must be in four currencies,

which were mentioned earlier. When the customer will withdraw the money

he will receive the amount in the same foreingn currency. Profit will also be in

the same currency.

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There are two types of foreign currency account;

a) Current account

b) Saving account

A) Current Account

On current account, no profit is given to the account holder. This account is

exempted from zakat, income tax and wealth tax. Worldwide remittances

(inside and outside) facility is given to customer. Cash travel checks, foreign

exchange bearer certificate, and coming for customer can be deposited in his

account.

Similarly account holder can shift the amount or any part thereof to foreign

countries through exchange remittances service.

B) Saving Account

On saving account, a handsome profit is paid to the account holder. On saving

account, profit is paid to the customer in the same currency in which he had

opened the account. This account is also exempted from zakat, income tax and

wealth tax etc.

Saving account can be opened with an amount of $ 100 equivalent in other

three currencies. The facility of inward and outward remittance is also granted

to the customer. Profit is paid on monthly product basis.

6.5.2 Sale and Purchase of Foreign Currency

UBL is an authorized dealer of State Bank of Pakistan. It can sell and purchase

foreign currency. UBL usually involves sale and purchase of US dollars,

Japanese yen, Pound Sterling, German Mark, Saudi Riyal, and UAE Durham.

Daily exchange rate by SBP from ANZ Grindlays Bank Karachi is sent to all

the branches authorized in foreign exchange. Daily sale and purchase of

37


foreign currencies is done according to that rate sheet issued by SBP on daily

basis. Sale and purchase rates of foreign currency are different.

The purchase of coins is avoided, only notes are purchased. Only those foreign

currencies are purchased for which resale to customer is possible. And only

those persons, who have passport, can sell and purchase foreign currency to or

from UBL. Foreigners can also sell foreign currencies by showing their

passport.

There are 5 rates of foreign currencies:

1. For import

2. Cash purchase

3. Cash sale

4. Travel check purchases

5. Foreign currency

It is the policy of UBL to involve only in the sale of hard currencies i.e. those,

which are easily accepted. Head office of UBL has given certain limits to each

authorized branch about the custody of foreign currency. If the amount

exceeds this limit, the branch must transfer the cash to feeding branch or SBP.

All the authorized branches of UBL must submit following reports about

foreign exchange business;

1. Report to general manager office

2. Monthly business report to SBP

3. Monthly report to head office

6.5.3 Remittances in Foreign Exchange

As we know that the money of one country is not legal tender in other

countries. The monetary device, which has been evolved, for all international

38


payments is the foreign exchange from the exporter and others who have it for

sale and sell foreign currency to importers and others who need it in their own

countries. A transfer from a bank account in the debtor’s country to the

creditor’s country affects the international payments.

Two branches of the same bank or of different banks involve in foreign

remittance. One is called remitting branch or bank and the other is called

receiving branch or bank. In foreign currency, SBP has given general

permission to authorized dealers in foreign exchange including UBL to affect

remittances for specific purposes without referring it to (SBP) for approval i.e.

remittance on account of education subscription, books and periodical of

technical nature.

Remittance can be done in following ways;

1. Telegraphic Transfer (TT)

2. Mail Transfer (MT)

3. Foreign Demand Draft (FDD)

6.5.4 Advance in Foreign Exchange

UBL gives the facility of loan on prime currency scheme in Pakistani rupees.

In other words we say that loan on the basis of foreign currency given only in

Pakistani rupees and not in foreign currency. UBL gives running finance

demand facility to customer when an account holder applies for loan on the

basis of foreign currency account. UBL will keep an eye on his deposits or as

per the sanction of competent authority will allow advance to the customer.

IMPORT EXPORT AND L/C

As import and export business is very risky. The importers want the surety of

goods to be delivered to his prescribed destination while exporter wants surety

of the money to be reached to his prescribed bank. So, with a view to

39


overcome such difficulties a system of L /C is designed and its operation is

controlled under the Article of the Uniform Customs And Practices for

documentary credits as adopted by The Council Of International Chamber Of

Commerce and enforced with effect from Jan 1983.

Different banks are involved in foreign exchange transaction of export and

import.

A) Issuing Bank

It is that bank which opens letter of credit and sends it from where import is to

be made. Issuing bank may send L/C to one of its branches or some agents or

any other bank of the country.

B) Advising Bank

It receives the letter of credit send by the branch of issuing bank or recognized

agent in this connection. Advising bank advises the exporter about L/C so

received.

C) Negotiating Bank

Negotiating bank is that bank which conducts negotiation from exporter’s

side. It may or may not be advising bank. The documents are negotiated as per

the terms of L/C

D) Reimbursing Bank

This is the bank, which reimburses the payment to the negotiating bank. It

may be a special bank or issuing bank.

LETTER OF CREDIT

A letter of credit is a document issued by the importer country’s bank

authorizing the exporter country’s bank to honor the checks of the exporter to

the extent of the amount mentioned there in. In this way, a substitute bank

40


enjoying good faith and credit for that of an importer who is comparatively

unknown protects the exporter. The importer is also protected as the letter of

credit specifies in close details all the things an exporter must do to receive

payment.

TYPES OF LETTER OF CREDIT

Irrevocable Letter of Credit

Irrevocable L/C is one which can’t be cancelled once decided by the parties

and in which the issuing bank gives a lasting undertaking to accept and in due

course to pay bills drawn up to it provided that the exporter fulfils the terms

and conditions stipulated in the letter relating to documents, insurance etc, etc.

Revocable Letter of Credit

This L/C can be modified or cancelled by the issuing bank at any time without

any obligation on its part. This letter is usually not acceptable to the

businessmen.

Unconfirmed Letter of Credit

In unconfirmed L/C, the bank through which the credit is negotiated does not

give any guarantee to the exporter that the issuing bank will honor the bills

drawn.

Clean Letter of Credit

If there are no conditions attached to the bill and the issuing bank makes

payment up to the credit limit, the letter is called “ A clean letter of credit”

OPENING OF L/C

This mechanism of financing trade through letters of credit is quite simple.

The importer or buyer will contact the seller in foreign country for the

purchase of particular goods.

41


The importer will then submit an application to his bank for the issuance of an

individual letter of credit. The bank supplies the form on which the buyer

applies for a letter of credit.

This form contains all the necessary details of course, the description of

merchandise, port of shipment, port of unloading, the document against which

the bank is to honor the draft and the total value of the goods. When the buyer

bank is called upon to honor the draft, the bank will concern it self only with

the features of the contract of sales.

The letter of credit can be opened by mail or by cable. When the letter of

credit is opened by mail, the buyer bank sends the letter of credit and the

carbon copies of the letter to the importer. If an importer directed the bank to

open letter of credit by cable, the buyer’s bank sends a cable (Telex) to the

corresponding bank in the foreign country with request to notify the exporter

of L/C and terms and conditions laid there.

Following documents must be attached with L/C;

1. Application of L/C.

2. Performa invoice of sending foreign company.

3. Membership certificate of chamber of commerce or association.

4. Insurance certificate.

5. IBC charge form.

Negotiation of L/C Documents

Negotiation will take place in following manners;

1. The seller sends the documents evidencing the shipment to the bank

where the credit is available, accompanied by a draft drawn on the

buyer, or on any other drawer specified in the credit at sight or at a

tenure as specified in the L/C.

42


2. After checking that the documents meet the credit requirements, the

bank may negotiate the draft. Negotiating by the issuing bank or any

other bank will be with recourse to the seller.

3. This bank then sends the documents and the drafts to the issuing bank.

Reimbursement is obtained in the per-agreement manners.

6.6 CLEARANCE HOUSE

A clearinghouse is an association of commercial banks, set up in a given

locality for the purpose of inter-change and settlement of credit claims. The

function of clearinghouse is performed by the central bank of a country by

tradition or by law.

In Pakistan, the clearing system is operated by SBP. If the SBP has no office

at a place, the National Bank of Pakistan (NBP) as a representative of SBP

acts as a clearing agent.

The mechanism whereby checks are exchanged in bulk and the cross

obligations of the banks are off set is now explained in brief.

Check as we know, is an effective method of making payments. When checks

are drawn on one bank of drawer, the mutual obligations are settled by the

internal bank administration and there arise no inter-bank debits from the use

of check. The total liabilities of the bank remain unchanged.

In practice, the person receiving a check is rarely a deposition of the check in

the same bank as the drawer. He deposits the check with his bank (other than

that of the drawer) for the collection of the amount. Now the bank in which the

check has been deposited, becomes a creditor of the drawer’s bank. The debtor

bank will pay his amount of the check by transferring it form cash reserves, if

there are no offsetting transactions. In the course of every day life, there is

large number of checks drawn on a bank, deposited in other banks. The banks,

43


on which the checks are drawn, become in-debt to the banks in which the

checks are deposited.

At the same time, the creditor banks receive large amount of checks drawn on

other banks giving claims of payment to them. It will be most uneconomical

and confusing if banks had to transfer cash for meeting each other’s liability.

The easiest safest and the most efficient way is to offset the net payment. This

facility of net inter bank payments is provided by the clearinghouse.

The representatives of the local commercial banks meet at a fixed time on all

the business days of the week. The meeting is held in office of the bank, which

officially performs the duties of a clearinghouse. The representatives of the

commercial banks deliver the cheques payable at other local banks and

received by them. Totals are also made of all the checks presented by or to

each bank. The difference between the total represents the net amount payable

to or by it. Banks keep two books regarding clearinghouse.

Onward clearing book. For the purpose of recording all the checks that are

received by the bank in the first clearing uses this. Details of checks are

recorded in this book.

Outward clearings book. This book uses outward clearing register for the

purpose of recording all the details of the checks that the bank has

delivered to other banks in first clearing.

44

Chapter-7 Financial Products of UBL

FINANCIAL PRODUCTS OF UBL

7.1 UNI CASH

Now a days carrying cash while going out of your home is very risky. Every

body wants maximum security while keeping his money in his pocket. People

make use of TC and various credit cards for this purpose. UBL provides such

facility through UNI CASH. The management of UNI CASH is carried out in

the following way.

Personal identification number

When a Uni-Cash card is issued to a customer, a unique number known as

Personal Identification Number (PIN) is also allotted to him/her. This is a 4

digits confidential number which when used in conjunction with the Uni-Cash

card enables the customer to avail the cash point service. To keep it secret

even from the bank staff, the PIN is generated and printed in a special manner

by the computer on pre-sealed, tamper proof PIN millers. These PIN millers

are designed in such a way that the PIN is only visible after the envelope is

opened by the customer.

Pin change

As an additional safeguard, customer can change his PIN number.

This means that he will allot himself different 4 digits secret number instead of

the one received by him in the pin miller. For this purpose, he may like to

select a number, which he finds easy to remember, but which any other person

cannot easily guess.

Card serial number

The customer will notice that some numbers and alphabets are embossed on

his Uni-Cash card. The first line obtains UNICASH CARD SERIAL

7

45


NUMBER while the other line has customer’s name, account number and card

expiry Month/ Year.

Weekly withdrawal limits

The Uni-Cash card issued to customer carries a weekly withdrawal limit,

which applies to cash withdrawal, made from any of the cash point. This limit

is equal to initial amount deposited by him at the time of applying for his card.

Cash points

For customer’s convenience, a number of cash points are available in the

country. These machines are at customer’s service round the clock on all days

of the year. Uni-Cash card can be used in these machines. Besides cash

withdrawal, cash points would provide the following facilities;

6.7 Balance Inquiry Mini Statement

6.8 Pin Change

Card captures

Cash points will automatically capture card that have been duly reported as

lost or have been cancelled or have expired. Similarly if one fails to key-in his

correct PIN, in three repeated attempts, the card will be captured.

46


Time out

In order to provide added security, UBL cash point has been programmed to

capture the card if the customer forgets to take it back after a transaction.

Similarly if customer forgets to take the cash within a present time limit, the

machine will also take it back. Normal time for recapture of the card/cash is

20 seconds.

Loss of card

In case, customer loses his UNI CASH card or the card is stolen, the matter

should invariably be brought to the notice of the bank personnel.

7.2 UNI SONA

This product has been designed to attract more and more savings. As inflation

in Pakistan is at a very high rate, due to which money has very limited value.

The features of Uni-Sona are the following;

1. The amount deposited in the bank becomes triple after seven years.

2. If person withdraws his money after five years he will get double amount

as compared to its initial deposits.

There is also a facility for partial withdrawal from principle amount. For

example, if a person has deposited Rs.50, 000,000 in January 1993 and he

withdraws Rs.20, 000,000 in January 1995. In 1996 the person has Rs.

30,000,000. This amount will receive the same interest rate and would be

doubled (Rs. 60,000,000) in January 98 and triple (RS. 90,000,000) in January

2000.

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7.3 UNIZAR

It is a special type of foreign currency account and can be opened in two

currencies i.e. US $ and Pound Sterling. Minimum amount required for

opening of this account is 750 pounds or $ 1000. Profit is paid in the currency

in which the account is opened. Rate of return of 2.25% is paid to the

depositor.

A special feature of this account is that withdrawal from the deposits can be

made anywhere in the world in the UBL branch.

7.4 UNISAVER

It is a special type of account designed for corporate savers. This account can

be opened with Rs. 1 m up to Rs. 10 m. The minimum profit rate is 4% while

maximum limit is 8%. Profit is paid on daily product basis. Any one can open

this account.

7.5 TEZRAFTAR

It is an annual home remittance service for overseas remittance, promising

delivery within 24 hours. This facility is a perfect substitute to the Hundi

business.

48

Chapter-8 Financial Analysis

FINANCIAL ANALYSIS

COMMON SIZE ANALYSIS

Balance Sheet as at December 31, (Rs. In thousands)

Assets 2000 1999 1998 2000 1999 1998

Cash &Cash

Reserves

8,129,223 11,657,573 11,1222,801 5.23 7.55 7.94

Balances With Other Banks & Money at Call

10,995,922 12,010,493 10,453,410 7.08 7.77 7.47

Investments 33,101,778 44,953,910 47,955,359 21.32 29.10 34.25

Advance-Performing Non-Performing

74,156,421 61,714,410 48,468,324 47.78 39.95 34.02

Taxes-

Recoverable

6,380,572 5,411,265 – 4.11 3.50 –

Deferred Taxation 8,297,500 9,101,500 – 5.34 5.89 –

Operating Fixed

Assets

2,764,367 2,811,978 2,828,198 1.78 1.82 2.02

Other Assets 11,385,333 6,789,328 19,163,552 7.33 4.39 13.69

Total Assets 155,211,116 154,450,457 139,991,646 100 100 100

Regular %age

8

49


Liabilities 2000 1999 1998 2000 1999 1998

Deposits &Other

Accounts

128,679,245 127,133,204 117,718,301 82.91 82.31 84.09

Borrowings From Other Banks

4,859,758 7,329,160 5,495,192 3.13 4.74 3.92

Bills Payable 1,186,961 1,508,553 865,559 0.76 0.97 0.62

Other Liabilities10,387,683 9,427,031 6,918,942 6.69 6.10 4.94

Deferred

Liabilities

1,294,883 1,002,297 1,278,598 0.83 0.65 0.91

146,408,530 146,400,245 132,276,592 94.33 94.78 94.49

Share Holders’

Equity

6,726,604 5,866,362 5,531,202 4.33 3.80 3.95

Surplus/(Deficit)

on

Revaluation of

Securities

(103,409) – – (0.06) – –

Surplus on Revaluation of Fixed Assets

2,179,391 2,183,850 2,183,850 1.40 1.41 1.56

Total Liabilities 155,211,116 154,450,457 139,991,644 100 100 100

Regular %age

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COMMON SIZE ANALYSIS

Profit & Loss A/C for the year, ended Dec 31, (Rs. In thousands)

2000 1999 2000 1999

Mark Up/ Interest And Discount And /or Return Earned

10,416,460 9,861,676 100 100

Less: Cost/Return on Deposits, Borrowings etc.

(6,740,868) (7,508,557) (64.71) (76.14)

Gross Profit 3,675,592 2,353,119 35.28 23.86

Fees, Commissions & Brokerage

1,180,448 969,051 11.33 9.82

Divided Income 22,733 18,417 .22 .19

Other Operating Incomes 2,293,856 2,139,140 22.02 21.69

Total Income 7,172,629 5,479,727 68.86 55.56

Administrative Expenses (5,159,130) (4,719,951) (49.53) (47.86)

Operating Profit 2,013,499 759,776 19.33 7.70

Provision Against Non-Performing Assets

(120,539) (65,504) (1.16) (.66)

Profit Before Unusual Items 1,892,960 694,272 18.17 7.04

Unusual Items (247,463) 558,787 (2.37) 5.67

Profit Before Taxation 1,645,497 1,253,059 15.80 12.71

Taxation Charges (978,405) (746,000) (9.39) (7.56)

Profit After Taxation 667,092 507,059 6.41 5.14

Regular%age

51


TREND ANALYSIS (REGULAR) (Rs. in thousands)

UBL’S GROWTH IN DIFFERENT AREAS

1995 1996 1997 1998 1999 2000

Authorized Capital 2,950 2,950 2,950 25,000 25,000 25,000

Paid Up Capital 1,482 1,482 1,482 22,482 22,482 22,482

Reserve Fund 2,113 2,133 4,360 383,2 3,761 4,087

Total Assets 124,283 121,820 101,490 139,510 154,450 155,211

Total Deposits 109,260 106,735 106,711 117,718 127,133 128,679

Advances & Investments

95,866 87,787 76,656 96,423 106,668 107,258

Total Expenditure 11,380 10,377 11,293 11,359 12,026 11,899

52


TREND ANALYSIS (PERCENTAGES)

1995 1996 1997 1998 1999 2000

Authorized

Capital

100 100 100 847.45 847.45 847.45

Paid Up Capital 100 100 100 1541.25 1541.25 1541.25

Reserve Fund 100 100.96 163.4 181.35 177.99 193.42

Total Assets 100 98.01 81.66 112.25 124.48 124.88

Total Deposits 100 97.68 97.66 107.74 116.35 117.77

Advances &

Investments

100 91.57 79.96 100.58 111.26 111.88

Total Expenditure 100 91.18 99.23 99.81 105.67 104.56

53


54


55


56


57


58


59


RATIO ANALYSIS

PROFITABILITY RATIOS

1. Gross Profit Margin:

This ratio shows the percentage of gross profit in the total revenues.

Formula: Gross Profit / Revenue X 100

Year 2000 1999 1998

GPM 35.29% 23.86% 19.66%

Analysis:

The ratio is getting better and better after the 1998 collapse.

2. Net Interest to Total Assets:

This ratio shows the net amount of interest earned per 100 dollars of total

assets.

Formula: Net Interest Earned/Total Assets X 100

Year 2000 1999 1998

Net Interest to T. Assets 2.37% 1.52% 1.22%

Analysis:

The ratio reflects the positive change in advances.

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3. Return on Assets After Taxes:

The ratio shows the net amount earned per 100 dollars of assets.

Formula: Net Income/Total Assets X 100

Year 2000 1999 1998

ROA .43% .33% 1.92%

Analysis:

After the 1998 crisis, the ratio is improving.

4. Total Income to Total Assets:

This shows the amount of total income earned per 100 dollars of total assets.

Formula: Total Income/Total Assets X 100

Year 2000 1999 1998

T. I to T. A 4.62% 3.55% 3.22%

Analysis:

The ratio has improved significantly in 2000.

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LIQUIDITY RATIOS

5. Current Ratio:

This ratio shows the relationship b/w current assets and current liabilities i.e

how much of current assets we have, to offset a dollar current liability.

Formula: Current Assets/Current Liabilities

Year 2000 1999 1998

C.R 0.87 0.89 0.90

Analysis:

The gradual decline shows that the bank likes to meet its current liabilities

with minimum current assets.

6. Cash Ratio:

This is relationship b/w cash at hand and current liabilities i.e how much cash

we have against a dollar liability.

Formula: Cash/Current Liabilities

Year 2000 1999 1998

Cash Ratio .056 .080 .085

Analysis:

The bank is currently relying less on cash to meet its current obligations.

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ACTITIVTY RATIOS

7. Assets Turnover Ratio:

The ratio shows the dollar amount of revenue earned per hundred dollars of

assets.

Formula: Revenue/Total Assets X 100

Year 2000 1999 1998

ATO 6.71% 6.38% 6.21%

Analysis:

The ratio is gradually improving.

8. Fixed Assets Turnover Ratio:

This ratio shows the dollar amount of revenue earned per 100 dollars of fixed

assets.

Formula: Revenue/Fixed Assets X 100

Year 2000 1999 1998

FATO 376.8% 350.70% 307.6%

Analysis:

The ratio is improving partially because the bank is slowly and gradually

decreasing its fixed assets.

9. Current Assets Turnover Ratio:

This ratio shows the relationship b/w the revenue earned and current assets

only.

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Formula: Revenue/Current Assets X 100

Year 2000 1999 1998

CATO 8.24% 7.57% 7.37%

Analysis:

The considerable improvement in the ratio last year is due to the increase in

revenue and also decrease in the current assets.

10. Interest Expense to Total Income:

It is a relationship b/w interest paid to depositors and the total income earned.

Formula: Interest Expense/Total Income X 100

Year 2000 1999 1998

I.E to T. Income 93.98% 137.02% 155.20%

Analysis:

Total income is improving substantially against the interest paid.

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11. Taxation to Total Income:

The ratio shows the %age of tax applied to total income.

Formula: Tax/Total income X 100

Year 2000 1999

T.T.I 13.64% 13.61%

Analysis:

As no extraordinary regulatory changes have occurred so the ratio remains

almost the same.

12. Total Expense to Total Income:

This ratio shows the amount of dollars spent to earn a total income of dollar

100.

Formula: Total Expense/Total Income X 100

Year 2000 1999 1998

T.E to T.I 165.90% 223.16% 252.2%

Analysis:

The substantial change is due to decrease in expenditure and also increase in

total income.

65


13. Interest Expense to Deposits:

The ratio reflects the rate at which the bank has honored the depositors.

Formula: Interest Expense/Deposits X 100

Year 2000 1999 1998

I.E to D 5.24% 5.90% 5.94%

Analysis:

The change shows the bank has cut down the rate of return to account holders.

14. Total Expenses to Deposits:

This shows the amount spent to have a deposit of dollar 100.

Formula: Total Expense/Deposits X 100

Year 2000 1999 1998

T.E to D 9.25% 9.62% 9.65%

Analysis:

Despite significant improvement in many areas, improvement here is

negligible.

66

Chapter-9 SWOT Analysis

SWOT ANALYSIS

On the basis of “SWOT” analysis, one can analyze the present status and

performance of an organization and can make conclusions and

recommendations.

The “SWOT” analysis consists of four words that are S, W, O & T, which

stand for Strengths, Weaknesses, Opportunities and Threats respectively.

9.1 STRENGTHS:

Something an organization is good at doing is termed as its strength. UBL’s

strengths are:

1. Experience of operation, as the bank was established in Nov 15 1959.

2. Bank’s emphasis on consumer banking by providing them with innovative

saving schemes, products and services suiting best to their life style.

3. Best and optional policies and attractive compensation packages for

employees, which really improved their commitment, dedication and

hard work towards the accomplishment of bank’s objectives.

4. Easy access to the customers at their residential localities through a well

spread branch network.

5. Professional and skilled management as UBL provides proper training to

their employees.

9.2 WEAKNESSES:

Weakness is something an organization lacks at doing that. For UBL these are:

1. Customers having accounts with small amounts are not given the same

attention given to those with large amounts.

9

67


2. Higher number of branches affecting maintenance in consistency and

same working atmosphere.

3. Political, legal and sauce cultural pressure.

4. Lengthy advancement procedures.

5. Promotion is purely based on seniority, so young processionals having

high qualification are having any chance of promotion.

6. The software developed for daily recording of the operations is under-

utilized

7. Most of the personnel are not qualified, they are mainly rankers so they

don’t know the logic of operation.

9.3 OPPORTUNITIES:

An external situation, which an organization can benefit from, is called

opportunity for that organization. UBL can grab the following opportunities:

1. Growing policies of the Government on business and commerce sector

provides UBL an opportunity to efficiently meet the business people’s

requirements of instant cash financing facilities.

2. Customer’s feedback on different products and services has really

improved the bank’s performance and encouraged the atmosphere for

other future policies.

3. UBL has an opportunity to expand its new technological advancement

like Tele bank and Internet banking facilities in order to serve the

customers more efficiently. Especially E Banking is a new opportunity

which is a flourishing business in foreign countries and can also be

here, if UBL takes the initiatives.

68


4. Due to efficient and experienced management group, UBL can

improve and expand its foreign operations successfully.

5. Increasing need and potential of leasing in Pakistan provides UBL an

opportunity to utilize its skills and efficiencies in leasing business as

well.

9.4 THREATS:

An external situation posed to harm organization’s interests is regarded as

threat to that organization. UBL worries about the following;

1. A tremendous number of foreign banks are opening their branches in

the country.

2. Also the increasing operations of private banks pose threat to UBL.

3. Highly specialized and attractive services offered by foreign banks to

their customers.

4. Lack of consistency in Government’s policies regarding business and

economic sector.

5. Growing global technological advancement.

6. Strict regulations of the Government over credit facilities to the

customers as well as to meet the prudential regulations.

7. Loss of confidence of overseas customers due to freezing of accounts.

The SWOT analysis is a mirror to the bank of its present condition. From this

analysis, we can conclude that the bank has done some professional changes in

its banking system. But still there are chances for improvement. The

management can develop elaborate strategic plans for capitalizing the

available opportunities. One area where the bank has done some work is the

improvement in customer services. But to get the desired results, the bank

69


should develop long-term objectives and prepare appropriate courses in order

to achieve them.

The bank should maintain principle of professional management and adhere to

the sound and sophisticated banking rules and regulations to build confidence

of the people in the institution.

70


CONCLUSION

After the establishment of UBL in he year 1959, the bank was successful in

achieving some of its objectives. In the very first year, the bank earned a

handsome profit.

After the exhaustive era of nationalization, the banks are now again

transforming to private ownership.

The decade of 1960 was dominated by an exceptional increase in economic

activities. This resulted in brining various changes in the management and

structure of the commercial banks. In the area of management, more

professionals were brought in and the same was done with the structure.

UBL was not an exception to these changes. In the last decade of the century,

the bank has witnessed very bad banking business. To rebuild the bank, new

professional people were included, under the leadership of MR. Zahoor

Soomro. Under him, the bank introduced incentive schemes and products such

as CARAMAD, ZAR AMAD and UNI MAHANA etc.

The bank also reshaped the product of Rupee Travelers Check (RTC) with a

new name of HAMRA.

All these schemas were very successful in stopping the capital flight from the

country, which was the result of banning foreign currency accounts in MAY,

1998 after the nuclear blasts.

Now the bank is focusing on improving the standard of its service facilities,

specially improving its corporate banking and more customer satisfactory

culture.

All these new and potential improvements are signs of bright future for the

UBL.

71

Chapter –10 Critical Analysis of Banking Sector

CRITICAL ANALYSIS OF BANKING SECTOR

Exposure to the world through rapid development in the information

technologies has brought about considerable change in our perception about a

number of fields in general and banking in particular. The very access to

information about the development of banking and the level of sophistication

that has been accomplished in this particular sector in the developed

economies has changed our view that we held previously about banking. Our

work with United Bank for two months gave us an opportunity not only to

understand banking but also made the problems faced by our poorly

performing banking sector quite conspicuous.

The main problem that I observed has to do with the general commercial

banking in our country and its functioning in economic, socio-political

environment. It is poorly regulated sector and far from being developed at the

international standards due to the lack of autonomy it has.

A great proportion of their loans is non-performing and is stuck up either in

the public sector enterprises or with a group of politically influential

industrialist class. This class has been termed by Diaz Alejald Ro, a writer

from Latin America, as gropes.

10

72

LIST OF PERSONS INTERVIEWED

1. Mr.Sarfaraz Khan, Manager, UBL Takht Bhai

Branch, July20, 2002

2. Mr.Sajid Anwar, Second Officer, UBL Takht Bhai

Branch, July22, 2002

3. Mr. Abdul Sattar, In-charge Foreign Exchange

Deptt, UBL Mardan Bank Road Branch, July26, 2002

4. Mr. M. Farooq, In-charge Remittances Deptt, UBL

Mardan Bank Road Branch, July29, 2002

5. Mr. M. Tahir, In-charge Accounts Deptt, UBL

Mardan Bank Road Branch, August 8,2002

6. Mr. Jan Muhammad, In-charge Deposits Deptt,

UBL Mardan Bank Road Branch, August 10,2002

7. Mr. Wisal Muhammad, In-charge Bills Deptt, UBL

Mardan Bank Road Branch, August 18,2002

8. Mr. Shahid, Chief Cashier,Cash Deptt, UBL Takht

Bhai Branch, August 20, 2002

73

BIBLIOGRAPHY

1. Annual Report UBL 1999.

2. Annual Report UBL 2000.

3. A Review From Daily “The News” on Monday

March 05,2002.

4. A Case Study of UBL Main Branch Mardan by

Zahid Hussain.

5. A Case Study of UBL Main Branch Bannu by

Muhammad Raza Khan.

6. Iffland, Charles & Langueton, Pierre. (1996)

International Banking, Irwin Book Co., New York.

7. Khan Rana, Safdar Hussain & Khan Rana,

Ahmad Shabir. (1991) Banking Currency And Finance, Ilmi Kutab

Khana, Lahore.

8. Klein, John F. (1998) Money And The Economy,

Mc Grath Hill, New York.

9. Meenai, S A. (1992) Money And Banking In

Pakistan, Habib Publisher, Multan.

10. Saeed, M Nasir. (1994) Economics Of Pakistan,

Ilmi Kutab Khana, Lahore.

11. Siddiqi, Asrar H. (1998) Practice And Law Of

Banking In Pakistan,6th Ed, Royal Book Co,Karachi

74

ubl report

Documents

overview of ubl

growth of ubl

financial products of

staff members of ubl

ratio analysis chapter

financial institutions

accounts department

sarfaraz khan manager