Financial management project

Financial management Project

GROUP MEMBER:
AUMM-E-HANI MUNIR MARIA UMER SAMARA ZAKAWAT SEHRISH NISAR RAKSHANDA BATOOL FAIZA MUNIR` 1615/FBAS/BSCS/S08 1622/FBAS/BSCS/S08 1629/FBAS/BSCS/S08 1631/FBAS/BSCS/S08 1627/FBAS/BSCS/S08 1618/FBAS/BSCS/S08

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ACKNOWLEDGEMENT
Any accomplishment requires the effort of many people and this work is no different. we like to thank Mr.Khurshid for giving me an opportunity to make a project on the bank of Punjab. I would also like to thank him for his guidance in completion of the project. Regardless of the source, we wish to express our gratitude to those who have contributed to this work even though anonymously.

AUMM-E-HANI MUNIR MARIA UMER SAMARA ZAKAWAT SEHRISH NISAR RAKSHANDA BATOOL FAIZA MUNIR`

INTRODUCTION
The Bank of Punjab was established in 16 November, 1989 under. The Bank of Punjab act 1989. the first Branch which opened was the Main Branch Lahore. In 1989 BOP was mended as a non scheduled bank on in the province of Punjab.In beginning the main deposits were the government. Because it was opened to support the government of Punjab.In 1994 the BOP was converted into a scheduled Bank it opened its Branches in allover the country. The Bank has 272 branches (2007: 272 branches) in Pakistan and Azad Jammu and Kashmir at the year
end. The Bank is listed on Lahore, Karachi and Islamabad Stock Exchanges. The majority shares of the Bank are

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held by the Government of Punjab.

The total numbers of staff of BOP is approx. 4000 most of the employees are master degree holder and are highly qualified and has working. In the beginning the main area of procurement of deposits were the government based organizations. The reason being that, it was opened to support the government of Punjab. It quickly expanded its operations in the city of Punjab by opening branches through out the province. Approximately one branch was opened a day. The strength of branches in the province of Punjab is 237. In 19th Sept 1994 the Bank of Punjab was converted into a scheduled bank, The permission being given by the Government of Punjab. After being converted into scheduled bank it opened its first branch in the city of Islamabad (Blue Area ) on the date 19th Sept 1994. now the total number of branches is 252. being towards the roads of prosperity and establishment BOP expanded its network throughout the country the details of branches are as under. The total number of staff of BOP is approx. 4000. The staff of BOP is highly qualified and hard working. Most of the employees are Master degree holder. If we highlight the fact of network BOP is the 6th largest among both the local & foreign banks, in the last years ratings it was at 7th position among the top ten banks in Pakistan. Bank earned a pre Tax profit of Rs. 124.739 million and the deposits of the Bank Rs. 15,014.100 million as on 31-12-1999.The Banks paid-up capital in 1999 Rs. 851.880 million. Macro economic management is the major concern of an economy. In Pakistan over a long period of time, the gaps in saving and investment and balance of trade deficit have become the serious problem to achieve the desire level of growth. The Bank of Punjab by the grace of ALLAH has the privilege to discharge its responsibilities to words national progress and prosperity with in the little period if its scheduling.

CORPORATE OBJECTIVES
MISSION STATEMENT To provide a Comprehensive range of financial and related services and so earn profit. GOALS To achieve this objective the bank aims to: Ensure that its performance in all fact of its operations more than matches that of its competitors. Maintains a comprehensive range of domestic and international activities. Maximize contributions from its key sources of personal machines brands representation and capital. Be innovative progressive and the need of its customers within the frame work of operational and prudent risk taker. Act as a reputable efficient and responsible organization. Pursue personal policies which recognize the aspirations and performance of individual and which are
suited to the devise levels of skills.

STRATEGIC AUDIT FOR BANK OF PUNJAB (BOP):

1. Mission To exceed the expectations of our stakeholders by leveraging our relationship with the Government of Punjab and delivering a complete range of professional solutions with a focus on program driven products & services in the Agriculture and Middle Tier Markets through a motivated team. 2.Objectives To be a diversified bank by offering all basic consumer products along with specialized agricultural finance products for farmers To provide solutions for multiple requirements of clients of diverse financial nature. To grow in banking sector by asset expansion To manage with the changing trends of the modern day financial market. 3.Strategies The bank approaches organizations and then seeks to become the exclusive consumer in terms of consumer financing Targeting main sector of Pakistan i.e. Agriculture sector by offering Kissan schemes Making financial management easy through differentiated products Operations through strong network of branches, backed by advanced computerized and control system Strengthening of capital base to meet requirements of State Bank 4. Policies BOP is an equal opportunity provider so no hiring on gender basis Hiring of educated people & compensating them accordingly Promotion from within the company Decentralized decision making 5. Review of Current Mission, Objectives & Strategies BOPs current mission is well-focused towards its customers who are the first priority for it. Objectives are based on customers needs as well as they also necessitate that changing trends of modern financial markets should be improvised. They are associated with each other hence plays a vital role in step by step achievement of goals & objectives. BOPs strategy for consumer lending is a bit unique as it continues to follow a more focused strategy. The bank approaches organizations and then seeks to become the exclusive consumer loans provider for its employees. This strategy has the potential to work well.
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I. CURRENT SITUATION A. Current Performance Poor financials showing losses on gross spread, profit before & after tax, & return on investment since 2006.

Board of Directors & Top Management:

A. Board of Directors (BOD) & Top Management There are 5 BOD members all internal. They have no international background or experience, serving in the board since last July after ex-BOD members were arrested by National Accountability Bureau. Entire top management is newly hired in BOP. Country heads and chief executives are highly professional & experienced people. They are developing new policies for bank & are introducing participative management by developing proper internal controls Societal Environment (Please see annexure 2) Societal Environment 1. Economic It appears that the economy will face tremendous challenges and some difficult decisions in 2008-09, as inflationary risks persist. The uptrend witnessed in CPI inflation during the last few months is largely a result of continued rising food prices. Energy crisis is looming in the country, because of an increase in demand and a rather slow improvement in supply. Economic instability prevailing in worldwide financial markets & investors are loosing their confidence in banks 2. Technological Advanced computerized and control system Growing network of online branches throughout the country Strategic plan 2005-10 of SBP for all Pakistani banks ensures technological advancements in the whole banking sector 3. Political-Legal Agriculture contributes to poverty reduction for vast majority of the poor live in rural areas. Government has taken initiatives in agriculture and rural development. Government of Pakistan through SBP has provided backing to the banking industry by decreasing cash reserve requirements (CRR) to 6% from 8%. This has provided liquidity to banks worth Rs. 180 Billion Improvement in law and order and elimination of political unrest are very much imperative for the Government in order to provide investment conducive environment to both local and foreign investors. 4. Sociocultural Visible chaos in society is prompting people to take out their investments & valuables from banks as there are huge chances of banks liquidation The huge culture of opening bank accounts, investment making, credit & debit cards now seems to moving towards declining phase B. Task Environment Bank of Punjab. (2007) Pakistans banking industry is at declining stage due to which it has become slow growing. a. New entrants have been reduced significantly because mushroom growth of banks has been recently controlled by SBP b. Bargaining Power of Buyers has been medium to high because usually the cost of switching bank is not too significant. c. Threat of Substitute Product or Service is minimized as the whole worlds banking sector is facing drastic slump d. Bargaining Power of Suppliers is high incase of Pakistan because SBP is liquidity & credit supplier to the whole sector. It possesses all the authority e. Rivalry among competing firms is increasing consequently due to mergers of small & medium banks to form bigger ones. C. Overview on the Major Players of Bank Industry Strengths & Weaknesses of Major Competitors of BOP Following are the strengths of major competitors
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Strong balance sheet showing strong position of company with less deferred costs, enough retained earnings & equity & large asset base. Sales revenues increasing every year & there is simultaneous increase in profits after taxes Relatively larger market share of all equivalent banks Stable financial position & increasing return on assets Following are the weaknesses of major competitors: In some of the government banks corporate culture is invisible i.e. they have poor infrastructure Charging very high rates which are a burden in consumers e.g. HBL charging 19% 2. Key factors currently affecting the corporation are customers (as they are taking out their investments), competitors (asking for mergers), suppliers (government &SBP) & shareholders (asking for refunding of their shares) IV. Internal Environment A. Corporate Structure Divisional structure; so decision making is decentralized throughout the bank. BOP is structured on the basis of functions performed by different departments so there is a well-defined hierarchy of organizational structure. B. Corporate Culture (Please see Annexure 3) Core Values & Culture BOPs corporate culture is based on values defined by BOPs management; focusing on concern for quality customer services, satisfactory employee compensation, concern for innovation, diversity & most important, performance. Results of the survey conducted show that there is a professional culture at BOP however flaw of punctuality lies here as only 45% of employees are punctual due to numerous reasons. (Please See Survey Annexure) Employee Survey C. Corporate Resources 1. Marketing (Please see Annexure 5) Marketing Analysis Marketing department of BOP is weak in terms of promotional activities. However, now print media advertising has been started but if it becomes more active it will increase customer base & help developing BOPs credibility. b) Marketing Mix i) Product (Products, n.d.). Product Consumer Finance Agricultural ii) Price (Personal Communication, October 02, 2008.). Price charged is higher due to prevailing economic crisis & lending rate is 1819% as compared to 8% few months ago. Hence price factor is important as the whole banking sector is under its influence. iii) Promotion Selling Expenses 2006 1,751,970 2007 2,250,777 Selling Expenses as % to Revenue 15.13% 12.83% (Annual Report, 2007) The analysis shows that during year 2007, BOP cut down its advertising expenditures which mean that it is cutting cost through cutting off its promotional expenditures.

SOURCE OF BANK
The bank of Punjab release funds for the purpose of his business from the following sources. 1. Capital
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Financial management project 2. Reserves 3. Liquid Assets 4. International Bank 5. Enter Bank 6. Deposits

1.Capital: - The main source of fund realization of the BOP is its own capital. The bank use its capital for the purpose of investment, lending and other activities to earn profit. 2.Reserve Fund: - It is the rule of the BOP that when they earn profit. He does divided whole the trading profit some portion of such profit which are undivided profit are keep as reserve by bank. 3.Liquid Assets: The bank required to maintain a liquid assets as instruction by State Bank of Pakistan percentage. So this amount also use as funds. 4.International Banks: - The bank of Punjab also borrow money or realize funds from international banks to meet their requirements.

5.Enter Bank: - The Bank of Punjab also deal or release funds from other banks like. Habib Bank Ltd. Muslim Commercial Bank Ltd. UBL NBP Premier Bank Ltd. Etc.

Markets Served:
BOP serves the following markets: Agriculture Market Household Consumers from middle to low income group Commercial Consumers from middle to low income group Corporate Customers As it is already serving all the Pakistani markets it does not need to extend its operations to other markets as well.

Human Resource Management (HRM)

HRM is an active department having good relations with employees 85% employees are satisfied with their salary package 45% employees are punctual only so HRM could initiate flex-time for employees HRM objectives are fully consistent with mission & values of BOP. However if employees are allowed flex time they will feel more satisfied. According to In flex time employees are allowed to work in a time frame of flexible hours for work i.e. relaxation at slow hours but ensuring to be at workplace during peak hours.It will not only increase their productivity but will ensure a better culture in the organization. It is beneficial for both, the organization & workers in every aspect & as such no con appear for anyone.

Segments by sector:

Sector Advance % Deposits %

Public 3.14 50.16 49.84

Private 96.86

Finance Analysis
Net income down to 19% from 26% Gross spread ratio down to 21% from 35% Market value per share down to Rs. 97 from Rs. 101

NET Revenue Forecasting

2008 - 6,164,210

2009

- 9,082,416

2010

-7,087,868

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2012

11,579,729

PRINCIPLES OF INNOVATION FOR BOP MARKETS :

1.Focus on price performance 2. Innovation requires hybrid solutions 3. Solutions must be scalable and transportable across countries,cultures and languages 4. Innovations should be eco-friendly 5. Product development must start from a deep understanding of functionality (as marginal changes to products developed for the first world will not do). 6. Process innovations are just as critical as product innovations 7. Work must be deskilled 8. Education of customers on product usage is a key 9. Products must work in hostile environments 10. The design of the interfaces must be carefully thought 11. Designing methods for accessing the poor at low cost is critical 12. As feature and function evolution in BOP markets can be very rapid,product developers must focus on the platform so that new features can be easily incorporated.

FOREIGN TRADE &FOREIGN EXCHANGE

During the year under the review , the foreign exchange business of bank registered a steady growth . the foreign currency deposit rose by 144 per cent and the number of foreign currency account registered an increase of over 102% . import and export business rose by 20% the number of authorized branches dealing in foreign currency has also grown to 34 as compared to 22 branches of proceeding year.

Bank finance information:

Year
Equity Share capital Reserve Retained earnings Customer deposit Bank loan

2008
5,057 millions 5,287,974 7,427,232 16,833 millions 164,073 millions 2,104,428

2007
15,110 millions 4,230,379 7,427,232 4,846 millions 191,969 millions 7,065,752

CURRENT ASSETS AND LABILITIES Comparison: WCM=CA-CL YEAR 2008

CA-CL -635,062

2007
-2,642,598

Current Labilites in 2008 is less than 2007. Current asset increase in 2008 by making strategies work and increasing services. Bankers look at Net Working Capital over time to determine a company's ability to weather financial crises. Loans are often tied to minimum working capital requirements.

Ratio Analysis of two years 2007 & 2008: Reasons of fluctuation:

Poor revenues of BOP could be seen due to huge losses faced as a result of credit scam on the part of directors & Presidents at BOP. BOPs cost of deposits has significantly increased over the past three years as the bank has aggressively raised its deposit base. The banks cost on average interest bearing liabilities has risen to 6.3% in 2007. This is a result of the increase in its fixed deposit base, as demand deposits have been hard to come by.BOP is loosing revenues, profits & return on investment every year. Similarly it is loosing customer base because of current global financial crisis & chances that Pakistani banks would also default. Credit scam by the President of BOP has worsened its credibility & bank is currently facing worse situation both financially & in terms of its market position. No long term policy is made for the long run operational development of BOP. The main reasons for reduction in the profitability were additional provision against Non Performing Loans due to the elimination of benefit of future sales

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value and downturn in consumer and individual banking. Enlargement in the Banks network, & adoption of latest available technological tools also increased expenses. During the year 2007 administrative expenses increased to Rs.2,251 Million showing a rise of 28% over previous years administrative expenses. Increase in admin expenses in 2008 and total asset decrease.

Constraints
Following are the constraints for BOP; External Presently, SBP has constrained all the commercial banks of Pakistan to increase their statutory legal reserve to $13 billion. This is a major constraint for smaller & medium banks. Global liquidity crisis has constrained banks to stop lending High inflation rates have increased interest rates charged by banks considerably Internal Current financial crisis has limited many options for BOP. Thats why it cannot reward its employees properly Recent credit scam by President of BOP has suspended many new policies that the bank was going to announce for its valuable customers & is trying to regain its position in market.

Equity ratio: year

Liability/Equity

2008
=0.0360

2007
=0.0142

=182,165,995/5,057,000,000 =216,005,306/15,110,000,000

Contingent Liability/Equity =46,864,755/5,057,000,000=57,306,726/15,110,000,000 =9.267x10^-3 =3.792x10^-3

Asset ratio: year

Profit/Total asset

2008
=54.112

2007
=18.919

=10,060,000,000/185,909,120 =4,446,000,000/235,001,1

Admin expenses/Assets =2,799,933/185,909,120=0.015 =2,250,777/235,500,100 =9.57x10-3 Equity/Total asset =5,287,974/185,909,120=0.0284 =4,230,379/23,500,100=0.0180

Deposit Ratio: year 2008

= 1.48229

2007
=73,461,695/13,490,398=5.445

Investment/Total deposit =22,711,980/1,532,204

Advance/Total deposit

=131,731,158/15,322,204=8.597 =133,893,585/13,490,398=9.925

Direct Cost/Total deposit =2,799,933/15,322,204=0.827 =2,250,777/13,490,398=0.16684

Other Ratio:
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year

2008
=2799933/6,164,210

2007
=2,250,777/26,562 =84.736

Admin expenses/Revenue =4.543

Return on total funds = EAT/Total assets =3,458,414/185,909,120=0.0186 =322,512/23,500,100= 0.0137

Borrowing/Total liabilities=12,278,773/182,165,995=0.0674 =17,842,915/216,005,306=0.0826

Profitability Ratio: year 2008 2007

=3,458,414/5,287,974=0.0654 =3,225,112/4,230,379=0.76236 ROE=EAT/share holder equity

ROI=EAT/Total asset

=3,458,414/185,909,120=0.0186 =3,225,112/235,001,100=0.01372

year
EPS Book Value P/E= MPPS / EPS

2008(Rs.)
=19.02 =9.56 =11.50/19.02 =0.604

2007(Rs.)
=10.51 =10.5 =97.80/10.51 =9.305

Marketability Ratio:

Leverage: year
Operating Leverage:

2008
0.999

2007
0.999

Financial Leverage:

15.58

4.871

Total Leverage:

15.57

4.866

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Dividend Policy :
Dividend policy adopted:
The Board of Directors of the Bank of Punjab (BOP) has declared an interim stock dividend of 10 per cent for shareholders for the year 2007. DPS(2008)=2,020,896/528,797,376=3.821 DPS(2007)=1,804,878/515,679.42=3.821

Growth rate=figure 2007/figure 2008 =3.50/3.821

Fund flow statement:

In cash flow from operating activities, profit before taxation is about four times greater in 2008 than 2007.however dividend income is twice in 2008 than in 2007.the abruptly difference is in provision against non-performing advances.Net cash generated from operating activities is greater in 2008 i.e. 48,385,008. In cash flow from investing activities the net investments in held to maturity securities is much greater in 2008 than in 2007.But the sale proceeds of property and equipment deposed-off is greater in 2007. In cash flow from financing activities, payment of lease obligations is high in 2008 i.e. 9,689 than in 2007 i.e. 667

Strategic Alternatives & recommended Strategy

a. Strategic Alternatives
1. Profit Strategy is a decision to not altering any operation by doing something new & hence carrying on existing operations & policies for probable future. It also includes reducing investment & discretionary expenditures. However it will have to raise its equity to come out of financial crisis & vulnerability. 2. Pull Strategy in which advertising pulls the product through distribution channels. BOP will have to spend heavily on advertisement to create bankers product awareness.

b. Recommended Strategy:

Profit strategy is the recommended strategy as BOP is currently loosing its financial stability, margins & net profit. So stability in operations & cutting in expenditures would definitely work to enhance financial performance of BOP. However as the situation becomes better, BOP can restart its expansion & growth.But it will have to issue Term Finance Certificates i.e. bonds to raise banks capital & generate liquidity. Or it can get additional financing from Government of Punjab as it backs up the bank through financing. VII. Implementation To cut optional expenditures, top management should set limits for staff e.g. cancellation of Banks sponsored vocational trips for senior executives, reducing banks sponsored international & national traveling (by air). These programs should be developed by those who are involved in strategic decision making i.e. top level management & branch managers should be in charge for executing them.The recommended programs are 100% financially feasible & expenditure cutting limit should be set say 25% of total expenditures. No new Standard operating procedures will be required. VIII. Evaluation & Control If the bank works on profit strategy it can rest for a while by suspending its operational growth however it can generate liquidity to run its future operations but as the recommended strategy do not require any extensive change in policies or strategies, so the control measures are perfectly conducive with the recommended strategy.

Summary of Key Problems &Opportunities

Key problems of BOP according to situational analysis are as follows; Constrain in operating region BOPs focus has been Punjab as that is the banks key responsibility, since it is owned by the Punjab government. Most of its 266 branches lie in Punjab. Unless the bank spreads out its operational presence and expands its branch network, future growth opportunities may be limited.Late entrant in consumer lending Being a late entrant, BOP will have to fight aggressively for market share. The well established banks in consumer lending, such as UBL and Bank Al-Falah & the foreign banks Standard Chartered, ABN AMRO, and Citibank, are likely to be tough competitors. Industry focus on unsecured consumer lending is also an area of concern. Unsecured consumer lending such as credit cards and personal loans account for 52% of its total consumer loans disbursed.

Opportunities for BOP:

Opportunities for BOP are as follows; BOP should start its operation in credit card. These cards are very helpful for the ordinary customer in
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general and the business people in particular. They lack the necessary training to do the job efficiently and properly. Employees of the bank should be given a task and authority and they should be asked for their responsibility. Performance appraisal are done annually only they could be made at regularly after every three or six month to ensure more effectiveness of employees.

CONCLUSION:
By analyzing the financial statements of the bank, I came across to know that it is one of the most growing bank in the subcontinent. Now they should carry on with the present management which too k it from one of the ordinary bank to this level. No doubt professionalism and internal controls of the bank are one of the major issues which may results some major losses to the bank. Bias in hirings and between colleagues should be removed.

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