Internship Final Report Sarwar Ali

8/3/2019 Internship Final Report Sarwar Ali

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Internship Report

Master of Business Administration Program (B&F)

Internee name: Shafaq Shaker

Supervisor Name: Mr. Arbab Nasibullah

Specialization: Banking and finance

E-mail address: [email protected]

BUITEMS City Campus

Company Name: NATIONAL BANK OF PAKISTAN

Postal address: NBP (SECTRATE BRANCH)

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Shafaq Shaker

MBA (Banking & Finance)

NATIONAL BANK OF PAKISTAN

Masters in Business Administration

All right reserved

. No part of this work covered by the copyright hereon may be reproduced or

used in any form or by any means graphic, electronic, or mechanical, including

photocopying, recording, taping, web distribution or information storage and

retrieval systems without the written permission of the internee.

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ACKNOWLEDGMENT

I am highly grateful to almighty Allah who gave me the power to complete this report.

I am also highly thankful to my honorable teachers for theirs guidance.

I am indebted to all the employees of National Bank of Pakistan sectrate Branch

Quetta and Special thanks to Mr.Abdul Sami Lehri and all other employees of the

branch for their

Cooperation

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LETTER OF TRANSMITAL:

To,

The internship Coordinator

BUITEMS,

Quetta.

Sir,

I am submitting you the internship report the report is entitled

Internship in NBP Sectrate Branch Quetta.I have completed thisreport in due course of time and hope that it would help in

enhancing the knowledge about Internship in NBP.

Sincerely yours,

Shafaq shaker

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Table of Contents

Contents chapters Page #

Executive Summery 7

Introduction of Study Ch #1 8

Evolution of Banks in Pakistan Ch #2 11

Information and Departmentalization

of NBP

Ch #3 21

SWOT Analysis Ch #4 45Financial Analysis Ch #5 50

Finding and offer Conclusion Ch #6 61

Case study of NBP 66

Short briefing of Activities..(what I

did)

70

Recommendation and Suggestion Ch #7 71

References 78

Appendix 79

1. Executive Summary

This report is based on internship in National Bank of Pakistan sectrate branch Quetta.

This report includes the information about the banking sector of Pakistan. NBP is a

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famous and reputed bank of Pakistan. National Bank of Pakistan maintains first

position in banking sector in Pakistan. This report is based on the activities which are

performed in this bank. This report contains financial analysis, pest analysis, SWOT

analysis, bank tariffs and exchange rates of National Bank of Pakistan. There are also

stated the activities which I performed during my internship in the branch. In this

report also discuss the industry analysis of banking system in Pakistan. There are also

mentioned the way of investment, rates of investment, all types of financing and loans

facilities the National Bank of Pakistan provides. The problems in this branch are also

discussed. Some useful suggestions are also provided in the report for the bank. This

report also intimates about the daily reserves which are required by the branch to meet

the need of its daily transactions

CHAPTER # 1 INTRODUCTION OF STUDY

1.1 Introduction

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As part of the academic requirement for completing MBA (BnF) Master of Business

Administration. The students are required to under go for two (1-1/2) months of

internship with an organization. The internship is to serve the purpose of acquainting

the students with the practice of knowledge of the discipline of banking

administration.

This report is about National Bank of Pakistan. NBP was established in 1949 and

since then, it has expended its network, becoming the largest commercial Bank of the

country. It offers different products of services to its customers.

Purpose of the Study

The main purpose of the study in hand is together relevant information to compile

internship report on National Bank of Pakistan.

To observe, analyze and interpret the relevant data competently and in a useful

manner.

To work practically in an organization.

To develop interpersonal communication.

Scope of Study

As an internee in National Bank of Pakistan the main focus of my study research was

on general banking procedures in one of the branches of NBP. These operations

include remittances, deposits, advances and foreign exchange.

Similarly different aspects of overall of NBP are also covered in this report

1.4 Objectivesof the Study

Discuss thorough study of National Bank of Pakistan.

To understand the various operations and to equip with practical knowledge of

the National bank of Pakistan.

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1.5 Limitation of the Study

Some thing is better than nothing. No matter how efficiently a study is conducted, it

cannot be perfect in all respects. This study was conducted in accordance with the

objectives of the study. The study may not include broad explanations of facts and

figures due to the nature of the study. Secondly, the limitation, which affects the

study, is the restriction on mentioning every fact of the bank due to the problem of

secrecy of the bank. In addition, the availability of required data was a problem as all

the documents and files are kept strictly under lock and key due to their strictly

confidential nature. Thirdly, the problem of short time period also makes the analysis

restricted as one cannot properly understand and thus analyze all the operations of a

bank just a very short time of eight weeks.

1.6 Benefit of The Study

The study done will benefit the finance students in particular and banking students in

general because the financial analysis section of this report comprehensively

encompasses all respects of financial analysis. Furthermore, NBP Balakot Branch,

Balakot may also benefit from the recommendations made at the end of the report.

1.7 Research Methodology

The report is based on my two months internship program in National Bank of

Pakistan. The methodology reported for collection of data is primary as well as

secondary data. The biggest source of information is my personal observation while

working with staff and having discussion with them. Formally arranged interviews

and discussions also helped me in this regards.

Primary data: Primary data include, Personal observation andInterviews of The Staff Members

Secondary data: Secondary data consist of Manuals, Journals,

magazines, Annual Reports and Internet

1.8 Scheme of Study

SECTION 1

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Chapter 1: An introductory chapter that discuss the introduction of study of report, its

Background, Purpose, Scope, Methodology, limitations and Scheme of the report.

SECTION 11

Chapter2:This chapter concludes brief history of banking in general, evolution of

banking, , History of NBP, mission statement, and its objectives, functions of

National Bank of Pakistan.

Chapter3:In this chapter the services of NBP were discussed and the departmentation

of NBP is explained as well as NBP BMC Branch.

SECTION III

Chapoter4: It tells about Strengths, Weaknesses, Opportunities and Threats of i.e.

SWOT analysis of NBP

Chapter5: It consists of comprehensive performance of NBP through past several

years. Ratio analysis and those parties that are interested in financial performance of

Bank.

SECTION IV

Chapter 6: It covers the critical analysis of the bank. This chapter has been divided

into four parts i.e. Problems at the Branch, Functional analysis, Administrative

analysis, and Personal Management Analysis.

CHAPTER # 2

EVOLUTION OF BANKS IN PAKISTAN

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2.1 INTRODUCTION

There are different opinions that how the word Bank originated. Some of the

authors opinion that this word is derived from the word Bancus or Banque, which

means 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 people destroyed the bench. Incidentally the word

Bankrupts said to have evolved from this practice.

Some of the authors are of opinion that the word Bank is derived from the German

word back, which means joint stock fund. Later on when the German occupied

major part of the Italy the word Back was italicized into Back.

present form, flourished. What we know as modern banking originated in the 14 th

century in Barcelona.

2.2 Definitions of Bank

"A financial institution, which deals with money and credit. It accepts

Deposits from individuals, firms and companies at a lower rate of Interest and givesat higher rate of interest to those who need them.

By banking, we mean the business of dealing in credits and by a Bank we

include every person, firm or company having a place of business where credits are

opened by deposits of collection of money or currency. Subjects to be paid or remitted

on Cheques or order, money is advanced or loaned on stocks, bonds, bullion, bill of

exchange, promissory notes are received for discount or sale.

Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in

November 1949. It started with six offices in the former East Pakistan. In view of the

special role assigned to the new institution, contrary to traditional practices the

Governor of the state bank was appointed to head its Board of Director in 1950.

Under the fostering care of the state bank and the support of the government, the new

institution developed rapidly. By using its special powers, the state bank made liberal

advances to the new bank to help it expand credit facilities in the country. By 1952,

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the National bank of India shortly, afterwards, in November 1952, the governor of the

state bank ceased to function as the president of National bank of Pakistan.

2.6.4 HISTORY OF NBP :

The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.

British Govt. devalued its currency in September 1949, India devalued its rupees but

Pakistan did not. It led to a crisis in trading between the two countries and India

refused to lift the Pakistan Jute. To solve this problem i.e. to export jute NBP was

established through an Ordinance of GOP.National Bank of Pakistan maintains its

position as Pakistan's premier bank determined to set higher standards of

achievements. It is the major business partner for the Government of Pakistan with

special emphasis on fostering Pakistan's economic growth through aggressive and

balanced lending policies, technologically oriented products and services offered

through its large network of branches locally, internationally and representative

offices.

The Bank in 1950 had one subsidiary The Bank of Bahawalpur on December4, 1947

by the former Bahawalpur State.

NBP was undertaking Treasury Operations and Managing Currency Chests or Sub

Chests at 57 of its offices where the turnover of the business under the head amounted

to Rs.2460 million.

i) Deposits held by NBP constituted about 3.1% of total deposits of all

Pakistani Banks in 1949, which rose to 38% in 1952.

ii) Growth in Deposits was accompanied by increase in Bank portfolio in

advances. NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in

support of agriculture and commerce.

iii) NBP advances reached Rs.554.4 million by December 1959, which was one

third of the total schedule bank credit.

MISSION STATEMEN

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To make the Bank complete and competitive with all international

Standard in performing, quality of, operations, staff, financial strength. And

products and services To develop a culture of excellence in every spare of activity

of the bank.

2.6.4.2 GOALS AND OBJICTIVES

An organizational objective is the intended goal that prescribes definite scope and

suggests direction to the panning efforts of a organization.

2.6.4.3 GOALS AND OBJICTIVES NBP

To be the pre-eminent financial institution in Pakistan and achieve marketrecognition both in the quality and delivery of service as well as the range of product

offerings.

2.6.4.4 BOARD OF DIRECTORS

NBP, Board of Directors list consist the following members and their designation.

2.6.5 MANAGEMENT

Management is a distinct process consisting of activities of planning, organizing,

actuating and controlling performed to determine and accomplish stated objectives

with the use of human being and other resources.The management has two types.

1. Centralized. 2. Decentralized.

Centralized Management tends to concentrate decision making at the top of the

Organization.Decentralized disperses decision-making and authority throughout and

further down the organizational hierarchy.

NBP have a centralized type of management because the top management takes all

the decisions.

2.6.5.1 SENIOR MANAGEMENT OF NBP .

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Senior Management of NBP consists of following member and their respective

designation.

)

2.6.6 Net Work of Branches:

NBP have wide range of branches inside the country and outside the country.

In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.

In overseas it has 16 overseas branches, 6 other branches.

.2.6.7 Objectives of NBP

National bank of Pakistan is also a commercial organization and its main objective is

profit maximization. This is achieved in two ways:

1. By increasing deposits.

2. By charging interest on loans provided to the private sector and business

community. These are explained as:

2.6.7.1 Increase in deposits:

Competition in banking is intense and every bank whether it is Pakistani, foreign,

private or nationalized tries to increase its deposits by providing better facilities to its

customers. By increasing its deposits a bank can extend greater amount of loan and

hence achieves higher profit. NBP is also improving its facilities and services to

attract customers with higher volume of deposits. There are two main factors involved

in increasing the deposits. These factors are improving the services and courtesy. NBP

is continuously working on these two factors to increase its deposits.

2.6.7.2 Extension of loans:

The profitability of a bank largely depends on the amount given to people as loan and

the type of people to whom credit is given i.e. the credit worthiness of the borrowers.

This strategy has worked quite well for NBP. Deposits are collected from the people

and invested in different projects. NBP prefers to give loans to financially sound and

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reliable parties, after securing the collators. NBP has an extremely well organized

section. The staff is adequately trained, and educated and competent. They carry out

extensive financial analysis before deciding on the loan. Interest charged on the loans

potentially contributes to higher profits.

Some of the other objectives of NBP are:

i. Improve customer services. ii. Quick disposal of credit cases

iii. Efficient operation of the branches. iv. Better Public Relations.

v. Operational and advisory services for foreign exchange accounts activities

2.6.8 Functions of NBP

Since NBP is a commercial bank, it performs a variety of functions.Like other

commercial banks, NBP is engaged in financing international trade. Its other major

functions include receiving deposits, advancing loans and discounting of exchange.

The functions performed by NBP are:

2.6.8.1 Accepting Deposits

This function is important because banks largely depend on the funds deposited with

them by its customers. Deposits are of many types:

I. Current deposits

Current deposits are also called demand liability on current deposits. NBP pays

practically no interest on current deposits. Businessmen usually open current

accounts. In NBP current account can be opened with a minimum amount of

Rs.500/-.

II. PLS saving deposit

III. Profit and loss sharing deposits (PLS) are also called checking accounts. One

can deposit and draw money easily. Profit on PLS is calculated every month

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but paid after six months. PLS account can be opened with a minimum amount

of Rs.500/-

IV. PLS term deposits

Fixed term deposits are deposits with the bank for certain fixed period before the

expiry of which they cannot be withdrawn unless giving due notice. In this case the

rates of profit will be different depending upon the time period.

2.6.9 Discounting bills of exchange

Discounting of bill is practically speaking lending for exchange at their market rate

i.e. it pays to holder of the bill an amount equal to the face value after deductinginterest at the current market rate for the period. This bill has to be mature. This is the

common way used for keeping a part of assets of the bank in a liquid form.

2.6.10 Agency service

NBP also provides best and unique service to its valued customers. NBP provide the

following agency services to the customers:

i. Collection of dividends

ii. As NBP deals with the purchase and sale of various types of securities,

therefore NBP also provide dividend or interest earned on share or bonds or

invested money.

ii. Collection of Cheques In the collection and payment of Cheques, bills and

promissory notes etc. National bank of Pakistan acts as an agent for its customers.

iii. Acting as an agent also acts as an agent correspondent or representative for

its customer at home or abroad.

iv. General utility services: Utilities provided by NBP are as follows:

a. Clearance of utility bills provides the service of clearing the utility bills i.e.

electricity, gas and telephone bills of its customers. For this purpose it also provides

evening banking services

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b. Lockers facility National bank of Pakistan also provides locker facilities to its

customers to keep their valuable assets in it. The charges of different size of lockers

are different.

c. Acts as a referee provides useful services to its customers by acting as a

referee to their credit worthiness.

d. Supply of information NBP provides operational and advisory service for

foreign exchange accounts/activities.

2.6.11 Unmatched Banking Facilities

Deposit security, Guaranteed by Government of Pakistan.

Highest rates of return to attract the savings.

Lowest rates on exports and other borrowings

Largest contribution towards Government and Semi-Government

requirements.

Agents of the SBP handling Treasury Functions, receipts of Taxes & other

Revenues.

Handling of salaries & pensions of federal/provincial/defense personnel.

Utility Bills collections. Hajj arrangements Sale and encashment of prize

Bonds..

Sale and encashment of Defense Savings and Special Savings Certificates

.Safe Deposit Lockers for customers. Rational Human Resource

Management.

The prestigious periodical The Banker UK recognized NBP as the best bank for

2001-2002 and NBP is the bank of the year for 2004-2004 of Pakistan.

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i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit

Rating Agency for 2001.

ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit

Rating Agency for 2002

2.6.12 NBP at the forefront of Pak-Afghan trade

i. Booth at dry port Peshawar ii. Booth at Pak Afghan border (Torkham)

NWFP

iii. Booth at Pak Afghan border (Chamman). Baluchistan.

iv. Establishing branch at Kabul.

2.6.13 Summation

We discussed in this chapter the evaluation of banking in Pakistan, banking reforms

1972, Nationalization of banks, History of NBP, Mission Statement of NBP. The next

and onward chapter we will discuss the general banking information and

departmentalization of NBP.

CHAPTER # 3

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INFORMATION & DEPARTMENTALIZATION OF NBP

3.1 INTRODUCTION

This chapter presents the services and departmentalization of NBP.

Services are outputs of the firm, which are in intangible form. Which are the

backbones of any organization to earn profit. NBP offers the following services to the

people.

3.2 DEMAND DRAFTS

If you are looking for a safe, speedy and reliable way to transfer money, you can now

purchase NBPs Demand Drafts at very reasonable rates. Any person whether an

account holder of the bank or not, can purchase a Demand Draft from a bank branch.

3.3 SWIFT SYSTEM

The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication)

has been introduced for speedy services in the area of home remittances. The system

has built-in features of computerized test keys, which eliminates the manual

application of tests that often cause delay in the payment of home remittances. The

SWIFT Center is operational at National Bank of Pakistan with a universal access

number NBP-APKKA. All NBP overseas branches and overseas correspondents

(over 450) are drawing remittances through SWIFT.

Using the NBP network of branches, you can safely and speedily transfer money for

our business and personal needs.

3.4 LETTERS OF CREDIT *

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NBP is committed to offering its business customers the widest range of options in

the area of money transfer. If you are a commercial enterprise then our Letter of

Credit service is just what

you are looking for. With competitive rates, security, and ease of transaction, NBP

Letters of Credit are the best way to do your business transactions.

3.5 TRAVELER'S CHEQUES

Travelers cheques are negotiable instruments, and there is no restriction on the

period of validity of the cheques. Rupee travelers cheque is available at all 700

branches of NBP. This can be encashed in all 400 branches of NBP. There is no limit

on purchase of this cheque. It is one of the safest ways for carrying money.

3.6 PAY ORDER

NBP provides another reason to transfer your money using our facilities. NBP pay

orders are a secure and easy way to move your money from one place to another.

And, as usual, NBP charges for this service are extremely competitive. The charges of

NBP are very low all over the Pakistan. It charges Rs 50/- for NBP account holders on

issuing one payment order. And charges Rs 100/- for NBP non-account holders on

issuing one payment order. It charges Rs 25/- for students on payment of fees of

educational institutions. If some one want a duplicate of payment order they charges

Rs 100/- for NBP account holders and Rs 150/- for non account holders.

3.7 AIL TRANSFERS

Move your money safely and quickly using NBP Mail Transfer service. And NBP

also offers the most competitive rates in the market. They charges Rs 50/- exchange

rate and RS 75/- postage charges on issuing mail transfer.

3.8 FOREIGN REMITTANCES:

To facilitate its customers in the area of Home Remittances, National Bank of

Pakistan has taken a number of measures to:

Increase home remittances through the banking system

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Meet the SBP directives/instructions for timely and prompt delivery of

remittances to the beneficiaries

3.8.1 New Features:

The existing system of home remittances has been revised/significantly improved and

well-trained field functionaries are posted to provide efficient and reliable home

remittance services to nonresident Pakistanis at 15 overseas branches of the Bank

besides Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia.

Zero Tariffs: NBP is providing home remittance services without any charges.

Strict monitoring of the system is done to ensure the highest possible security.

Special courier services are hired for expeditious delivery of home remittances

to the beneficiaries.

3.9 SHORT TERM INVESTMENTS

NBP now offers excellent rates of profit on all its short-term investment accounts.

Whether you are looking to invest for 3 months or 1 year, NBPs rates of profit areextremely attractive, along with the security and service only NBP can provide.

3.10 National Income Daily Account (NIDA)

The scheme was launched in December 1995 to attract corporate customers. It is a

current account scheme and is part of the profit and loss system of accounts in

operation throughout the country.

3.10.1 Salient Features:

Rs 2-million are required to open an account and there is no maximum limit.

Profit is paid on half yearly basis on monthly balances.

The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2

million to 2,000 million, the rate fluctuates from 1.4 to 1.75

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It is a checking account and there is no limit of withdrawals.

3.10.2 Rates on NIDA

From Rs 2/- million to Rs 50/- the rate is 1.4%.

From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.

From Rs 500/- million but below Rs 1000/- the rate is 1.6%.

From Rs 1000/- and above the rate is 1.75%.

3.11 EQUITY INVESTMENTS

NBP has accelerated its activities in the stock market to improve its economic base

and restore investor confidence. The bank is now regarded as the most active and

dominant player in the development of the stock market.

3.11.1 NBP is involved in the following:

Investment into the capital market

Introduction of capital market accounts (under process)

NBPs involvement in capital markets is expected to increase its earnings, which

would result in better returns offered to account holders

3.12 COMMERCIAL FINANCE

NBP dedicated team of professionals truly understands the needs of professionals,

agriculturists, large and small business and other segments of the economy. They are

the customers best resource in making NBPs products and services work for them.

3.13 TRADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.

3.13.1 AGRICULTURAL FINANCE

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NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers

who produce some of the best agricultural products in the World.

3.13.1.1 Agricultural Finance Services:

I Feed the World program, a new product, is introduced by NBP with the aim to

help farmers maximize the per acre production with minimum of required input.

Select farms will be made role models for other farms and farmers to follow, thus

helping farmers across Pakistan to increase production.

3.13.1.2 Agricultural Credit:

The agricultural financing strategy of NBP is aimed at three main objectives:-

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better

production

Provide farmers an integrated package of credit with supplies of essential

inputs, technical knowledge, and supervision of farming.

3.13.1.3 Agricultural Credit (Medium Term):

Production and development Watercourse improvement

Wells Farm power Development loans for tea plantation

Fencing Solar energy Equipment for sprinklers

3.13.1.4 Farm Credit:

NBP also provides the following subsidized with ranges of 3 months to 1 year on a

renewal basis.

Operating loans Land improvement loans

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Equipment loans for purchase of tractors, farm implements or any other

Equipment Livestock loans for the purchase, care, and feeding of livestock.

3.13.1.5 Production Loans:

Production loans are meant for basic inputs of the farm and are short term in nature.

Seeds, fertilizers, sprayers, etc are all covered under this scheme.

If you require any further information, please do not hesitate to e-mail us.

3.13.2 CORPORATE FINANCE

3.13.2.1 Working Capital and Short Term Loans:

NBP specializes in providing Project Finance Export Refinance to exporters Pre-

shipment and Post-shipment financing to exporters Running finance Cash Finance

Small Finance Discounting & Bills Purchased Export Bills Purchased / Pre-

shipment / Post Shipment Agricultural Production Loans

3.13.2.2 Medium term loans and Capital Expenditure Financing:

NBP provides financing for its clients capital expenditure and other long-term

investment needs. By sharing the risk associated with such long-term investments,

NBP expedites clients attempt to upgrade and expand their operation thereby making

possible the fulfillment of our clients vision. This type of long term financing proves

the banks belief in its client's capabilities, and its commitment to the country.

3.13.2.3 Loan Structuring and Syndication: National Banks leadership in

loan syndicating stems from ability to forge strong relationships not only with

borrowers but also with bank investors. Because we understand our syndicate

partners asset criteria, we help borrowers meet substantial financing needs by

enabling them to reach the banks most interested in lending to their particular

industry, geographic location and structure through syndicated debt offerings.

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Our syndication capabilities are complemented by our own capital strength and by

industry teams, who bring specialized knowledge to the structure of a transaction.

3.13.2.4 Cash Management Services:

With National Banks Cash Management Services (in process of being set up), the

customers sales collection will be channeled through vast network of NBP branched

spread across the country. This will enable the customer to manage their companys

total financial position right from your desktop computer. They will also be able to

take advantage of our outstanding range of payment, ejection, liquidity and

investment services. In fact, with NBP, youll be provided everything, which takes to

manage your cash flow more accurately

3.14 INTERNATIONAL BANKING

National Bank of Pakistan is at the forefront of international banking in Pakistan,

which is proven by the fact that NBP has its branches in all of the major financial

capitals of the world. Additionally, NBP have recently set up the Financial Institution

Wing, which is placed under the Risk Management Group. The role of the Financial

Institution Wing is:

To effectively manage NBPs exposure to foreign and domestic

correspondence

Manage the monetary aspect of NBPs relationship with the correspondents to

support trade, treasury and other key business areas, thereby contributing to

the banks profitability

Generation of incremental trade-finance business and revenues

3.14.1 NBP offers:

The lowest rates on exports and other international banking products

Access to different local commercial banks in international banking

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3.15 Cash and Gold Finance. Cash and Gold finance means that loan is given

against the gold. The gold is mortgaged with the bank and loan is taken. It is the area

of consumer finance. And borrower can take loan for common use.

3.16 Advance salary loan:

This loan is given to those people who are govt servants. They can get a loan up to the

salary of fifteen months.

3.17 DEPARTMENTALIZATION 2

Dividing an organization into different parts according to the functions is called

departmentation. So NBP can be divided into the following main departments.

A) DEPARTMENTATION OF NBP

3.17.1 CASH DEPARTMENT

Cash department performs the following functions

3.17.1.2) Receipt

The money, which either comes or goes out from the bank, its record should be kept.

Cash department performs this function. The deposits of all customers of the bank are

controlled by means of ledger accounts. Every customer has its own ledger account

and has separate ledger cards.

3.17.1.3) Payments

It is a bankers primary contract to repay money received for this customers account

usually by honoring his cheques.

3.17.1.4) Cheques and their Payment

The Negotiable Instruments. Act, 1881 3

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Cheque is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand.

Since a Cheque has been declared to be a bill of exchange, it must have all its

characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881.

Therefore, one can say that a Cheque can be defined as an:

An unconditional order in writing drawn on a specified banker, signed by the

drawer, requiring the banker to pay on demand a sum certain in money to, or to the

order of, a specified person or to the bearer, and which does not order any act to be

done in addition to the payment of money.

3.17.1.5) The Requisites of Cheque

There is no prescribed form of words or design of a Cheque, but in order to fulfill the

requirements mentioned in Section 6 above the Cheque must have the following.

a) It should be in writing The unconditional order

b) Drawn on specific banker only Payment on Demand

c) Sum Certain in money Payable to a specific person Signed by the drawer

3.17.1.6) Parties to Cheque

The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or

no payee but bearer.

a) The Drawer The Drawee The Payee

3.17.1.7) Types of Cheques Bankers in Pakistan deal with three types of

cheques

a) Bearer Cheques Bearer cheques are cashable at the counter of the bank. These can

also be collected through clearing.b) Order cheque These types of cheques are also

cashable on the counter but its holder must satisfy the banker that he is the proper man

to collect the payment of the cheque and he has to show his identification. It can also

be collected through clearing.

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c) Crossed Cheque These cheques are not payable in cash at the counters of a banker.

It can only be credited to the payees account. If there are two persons having

accounts at the same bank, one of the account holder issues a cross-cheque in favour

of the other account holder. Then the cheque will be credited to the account of the

person to whom the cheque was issued and debited from the account of the person

who has actually issued the cheque.

3.17.1.8) Payment of Cheques

It is a bankers primary contract to repay money received for his customers account

usually by honouring his cheques. Payment of money deposited by the customer is

one of the root functions of banking. The acid test of banking is the receipt of money

etc. from the depositors, and repayment to them. This paying function is one, which is

the distinguishing mark of a banker and differentiates him from other institutions,

which receive money from the public. However the bankers legal protection is only

when payment is in Due Course. The payment in due course means payment in

accordance with the apparent tenor of the instrument, in good faith and without

negligence to any person in possession thereof under circumstances, which do not

afford a reasonable ground of believing that he is not entitled to receive payment of

the amount therein mentioned. It is a contractual obligation of a banker to honor his

customers cheques if the following essentials are fulfilled.

a) Cheques should be in a proper form:

b) Cheque should not be crossed:

c) Cheque should be drawn on the particular bank:

d) Cheque should not mutilated:

e) Funds must be sufficient and available:

f) The Cheque should not be post dated or stale:

g) Cheque should be presented during banking hours:

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h) 3.17.2 CLEARANCE DEPARTMENT

A clearinghouse is an association of commercial banks set up in given locality for the

purpose of interchange 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 the SBP. If SBP has no office at a place, then NBP, as

a representative of SBP act as a clearinghouse.

After the World War II, a rapid growth in banking institutions has taken place. The

use of cheques in making payments has also widely increased. The collection as

settlement of mutual obligations in the form of cheques is now a big task for all the

commercial bank. When Cheque is drawn on one bank and the holder (payee)

deposits the same in his account at the bank of the drawer, the mutual obligation are

settled by the internal bank administration and there arises no inter bank debits from

the use of cheques. The total assets and total liabilities of the bank remain unchanged.

In practice, the person receiving a Cheque as rarely a depositor of the cheque at the

same bank as the drawer. He deposits the cheque with his bank other than of payer for

the collection of the amount. Now the bank in which the cheque has been deposited

becomes a creditor of the drawers bank. The depositor bank will pay his amount of

the cheque by transferring it from cash reserves if there are no offsetting transactions.

The banks on which the cheques are drawn become in debt to the bank in which the

cheques are deposited. At the same time, the creditors banks receive large amounts of

cheques drawn on other banks giving claims of payment by them.

The easy, safe and most efficient way is to offset the reciprocal claims against the

other and receive only the net amount owned by them. This facility of net inter bank

payment 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 the office of the bank that officially

performs the duties of clearinghouse. The representatives of the commercial banks

deliver the cheques payable at other local banks and receive the cheques drawn on

their bank. The cheques are then sorted according to the bank on which they are

drawn. A summary sheet is prepared which shows the names of the banks, the total

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number of cheques delivered and received by them. Totals are also made of all the

cheques presented by or to each bank. The difference between the total represents the

amount to be paid by a particular bank and the amount to be received by it. Each bank

then receives the net amount due to it or pays the net amount owed by it.

3.17.2.1) In-Word Clearing Books

The bank uses this book for the purpose of recording all the cheques that are being

received by the bank in the first clearing. All details of the cheques are recorded in

this book.

3.17.2.2) Out-Word Clearing Book:

The bank uses outward clearing register for the purpose of recording all the details of

the cheques that the bank has delivered to other banks.

3.18 ADVANCES DEPARTMENT

Advances department is one of the most sensitive and important departments of the

bank. The major portion of the profit is earned through this department. The job of

this department is to make proposals about the loans. The Credit ManagementDivision of Head Office directly controls all the advances. As we known bank is a

profit seeking institution. It attracts surplus balances from the customers at low rate of

interest and makes advances at a higher rate of interest to the individuals and business

firms. Credit extensions are the most important activity of all financial institutions,

because it is the main source of earning. However, at the same time, it is a very risky

task and the risk cannot be completely eliminated but could be minimized largely with

certain techniques.

Any individual or company, who wants loan from NBP, first of all has to undergo the

filling of a prescribed form, which provides the following information to the banker.

3.18.1) Name and address of the borrower.

a) Existing financial position of a borrower at a particular branch.

b) Accounts details of other banks (if any).

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c) Security against loan.

d) Exiting financial position of the company. (Balance Sheet & Income

Statement).

e) Signing a promissory note is also a requirement of lending, through this note

borrower promise that he will be responsible to pay the certain amount of

money with interest.

3.18.2) Principles of Advances

There are five principles, which must be duly observed while advancing money to the

borrowers.

a. Safety Liquidity Dispersal Remuneration Suitability

a. Safety

Bankers funds comprise mainly of money borrowed from numerous customers on

various accounts such as Current Account, Savings Bank Account, Call Deposit

Account, Special Notice Account and Fixed Deposit Account. It indicates that

whatever money the banker holds is that of his customers who have entrusted the

banker with it only because they have full confidence in the expert handling of money

by their banker. Therefore, the banker must be very careful and ensure that his

depositors money is advanced to safe hands where the risk of loss does not exist. The

elements of character, capacity and capital can help a banker in arriving at a

conclusion regarding the safety of advances allowed by him.

b. Character

It is the most important factor in determining the safety of advance, for there is no

substitute for character. A borrowers character can indicate his intention to repay the

advance since his honesty and integrity is of primary importance. If the past record of

the borrower shows that his integrity has been questionable, the banker should avoid

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him, especially when the securities offered by him are inadequate in covering the full

amount of advance.

It is obligation on the banker to ensure that his borrower is a person of character and

has capacity enough to repay the money borrowed including the interest thereon.

c. Capacity

This is the management ability factor, which tells how successful a business has been

in the past and what the future possibilities are. A businessman may not have vast

financial resources, but with sound management abilities, including the insight into a

specific business, he may make his business very profitable. On the other hand if a

person has no insight into the particular business for which he wants to borrow funds

from the banker, there are more chances of loss to the banker.

d. Capital

This is the monetary base because the money invested by the proprietors represents

their faith in the business and its future. The role of commercial banks is to provide

short-term capital for commerce and industry, yet some borrowers would insist that

their bankers provide most of the capital required. This makes the banker a partner.

As such the banker must consider whether the amount requested for is reasonable to

the borrowers own resources or investment.

e. Liquidity

Liquidity means the possibilities of recovering the advances in emergency, because all

the money borrowed by the customer is repayable in lump sum on demand. Generally

the borrowers repay their loans steadily, and the funds thus released can be used to

allow fresh loans to other borrowers. Nevertheless, the banker must ensure that the

money he is lending is not blocked for an undue long time, and that the borrowers are

in such a financial position as to pay back the entire amount outstanding against them

on a short notice. In such a situation, it is very important for a banker to study his

borrowers assets to liquidity, because he would prefer to lend only for a short period

in order to meet the shortfalls in the wording capital. If the borrower asks for an

advance for the purchase of fixed assets the banker should refuse because it shall not

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be possible for him to repay when the banker wants his customer to repay the amount.

Hence, the baker must adhere to the consideration of the principles of liquidity very

careful.

f. Dispersal

The dispersal of the amount of advance should be broadly based so that large number

of borrowing customer may benefit from the bankers funds. The banker must ensure

that his funds are not invested in specific sectors like textile industry, heavy

engineering or agriculture. He must see that from his available funds he advances

them to a wide range of sector like commerce, industry, farming, agriculture, small

business, housing projects and various other financial concerns in order of priorities.

Dispersal of advances is very necessary from the point of security as well, because it

reduces the risk of recovery when something goes wrong in one particular sector or in

one field.

g. Remuneration

A major portion of the bankers earnings comes form the interest charged on the

money borrowed by the customers. The banker needs sufficient earnings to meet the

following:

a) Interest payable to the money deposited with him.

b) Salaries and fringe benefits payable to the staff members.

c) Overhead expense and depreciation and maintenance of the fixed assets of the

bank.

d) An adequate sum to meet possible losses.

e) Provisions for a reserve fund to meet unforeseen contingencies.

f) Payment of dividends to the shareholders.

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DD is prepared and given to the customer. NBP officials note the transaction in

issuance register on the page of that branch of NBP on which DD is drawn and will

prepare the advice to send to that branch. The account of the customer is credited

when the DD advice from originating branch comes to the responding branch and the

account is debited when DD comes for clearance. DD are of two types.

a) Open DD: Where direct payment is made.

b) Cross DD: Where payment is made though account.

NBP CHARGES FOR DD

I. Up to Rs. 50,000/- is Rs 50/- only

II. Over Rs. 50,000/- is 0.1%

3.19.2) Pay Order

Pay order is made for local transfer of money. Pay order is the most convenient,

simple and secure way of transfer of money. NBP takes fixed commission of Rs. 25

per pay order from the account holder and Rs. 100 from a non-account holder.

3.19.3) Telegraphic Transfer

Telegraphic transfer or cable transfer is the quickest method of making remittances.

Telegraphic transfer is an order by telegram to a bank to pay a specified sum of

money to the specified person. The customer for requesting TT fills an application

form. Vouchers are prepared and sent by ordinary mail to keep the record. TT charges

are taken from the customer. No excise duty is charged on TT. The TT charges are:

Telegram/ Fax Charges on TT = Actual-minimum Rs.125.

Cable telegram transfer costs more as compared to other title of money. In cable

transfer the bank uses a secret system of private code, which is known to the person

concerned with this department and branch manager.

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3.19.4) Mail Transfer

When the money is not required immediately, the remittances can also be made by

mail transfer (MT). Here the selling office of the bank sends instructions in writing by

mail to the paying bank for the payment of a specified amount of money. Debiting to

the buyers account at the selling office and crediting to the recipients account at the

paying bank make the payment under this transfer. NBP taxes mail charges from the

applicant where no excise duty is charged. Postage

charges on mail transfer are actual minimum Rs. 40/- if sent by registered post locally

Rs.40/- if sent by registered post inland on partys request.

3.21) DEPOSIT DEPARTMENT: -

It controls the following activities:

c) a) A/C opening. b) Issuance of chequebook. Current a/c Saving a/c

Cheque cancellation Cash

3.21.1 Account opening

The opening of an account is the establishment of banker customer relationship.

Before a banker opens a new account, the banker should determine the prospective

customers integrity, respectability, occupation and the nature of business by the

introductory references given at the time of account opening. Preliminary

investigation is necessary because of the following reasons.

i. Avoiding frauds Safe guard against unintended over draft. Negligence.

ii. Inquiries about clients.

There are certain formalities, which are to be observed for opening an account with a

bank.

Formal Application Introduction Specimen Signature Minimum Initial Deposit

Operating the Account

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1. Pay-In-Slip Book

2. Pass Book

3. Issuing Cheque Book

a) Qualification of Customer

The relation of the banker and the customer is purely a contractual one, however, he

must have the following basic qualifications.

He must be of the age of majority. He must be of sound mind.

Law must not disqualify him the agreement should be made for lawful object,

which create legal relationship not expressly declared void.

b) Types of Accounts

Following are the main types of accounts

1) Individual Account Joint Account

2) Accounts of Special Types

Partnership account Accounts of clubs, societies and associations

Joint stock company account Agents account Trust account

Executors and administrators accounts Pak rupee non-resident accounts

Foreign currency accounts

3.21.2 Issuing of chequebook:

This deptt issue cheque books to account holders.

Requirements for issuing chequebook

a) The account holder must sign the requisition slip

b) Entry should be made in the chequebook-issuing book

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b) Three rupees per cheque should be recovered from a/c holder if not then debit

his/her account.

c) 3.21.3 Current account

These are payable to the customer whenever they are demanded. When a banker

accepts a demand deposit, he incurs the obligation of paying all cheques etc. drawn

against him to the extent of the balance in the account. Because of their nature, these

deposits are treated as current liabilities by the banks. Bankers in Pakistan do not

allow any profit on these deposits, and customers are required to maintain a minimum

balance, failing which incidental charges are deducted from such accounts. This is

because the depositors may withdraw Current Account at any time, and as such the

bank is not entirely free to employ such deposits.

Until a few decades back, the proportion of Current Deposits in relation to Fixed

Deposits was very small. In recent years, however, the position has changed

remarkably. Now, the Current Deposits have become more important; but still the

proportion of Current Deposits and Fixed Deposits varies from bank to bank, branch

to branch, and from time to time.

3.21.4 Saving account

Savings Deposits account can be opened with very small amount of money, and the

depositor is issued a chequebook for withdrawals. Profit is paid at a flexible rate

calculated on six-month basis under the Interest-Free Banking System. There is no

restriction on the withdrawals from the deposit accounts but the amount of money

withdrawn is deleted from the amount to be taken for calculation of products for

assessment of profit to be paid to the account holder. It discourages unnecessary

withdrawals from the deposits.

In order to popularize this scheme the State Bank of Pakistan has allowed the Savings

Scheme for school and college students and industrial labor also. The purpose of these

accounts is to inculcate the habit of savings in the constituents. As such, the initial

deposit required for opening these accounts is very nominal.

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3.21.5 Cheque cancellation:

This deptt can cancel a cheque on the basis of;

a) Post dated chequeStale cheque

b) Warn out cheque

c) Wrong sign etc

3.21.6 Cash

This deptt also deals with cash. Payment of cheques, deposits of cheques etc.

3.22 FOREIGN EXCHANGE/DEPARTMENT:

This deptt mainly deals with the foreign business. The main functions of this deptt

are:

a) L/C dealing. Foreign currency accounts dealing. Foreign Remittance dealing.

3.22.1 L/C dealing

NBP is committed to offering its business customers the widest range of options in

the area of money transfer. If you are a commercial enterprise then our Letter of

Credit service is just what you are looking for. With competitive rates, security, and

ease of transaction, NBP Letters of Credit are the best way to do your business

transactions.

3.22.2 Foreign currency account dealing:

This deptt deals with the foreign currency accounts which mainly include dollar

account, euro account etc.

3.22.3Foreign Remittance dealing.

This is very important function of this deptt.

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B) DEPARTMENTATION OF BMC BRANCH .

Dividing an organization into different parts according to the functions iscalled departmentation. So NBP BMC has just one part that is cash department.

1. Cash Department

3.17 Cash Department:

To facilitate people in the payments of their bills and taxes and repayments of cash

There are two main functions of cash department.

i. Payment ii. Receipts

i. Payments are the function that they pay their cheques and pay cash.

ii. Receipts mean collection of utilities bills, taxes etc.

3.18.1 Remittances Department:

The objective of this department is:-

To transfer the money of people from one place to another place in safe and

comparable way

The main functions of this department are:

i. Issuing of demand draft. Issuing of Mail transfer.

ii. Issuing of Telegraphic transfer. Issuing of payment

order.

iii. Issuing of call deposit. Pension payments etc.

iv. Closing and scrolling of government collections.

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3

i. In word clearing books:

The bank uses this book for the purpose of recording all the cheques that are

being received by the bank in the first clearing. All detail of the cheques are recorded

in this book.

ii. Out word clearing book:

The bank uses outward clearing register for the purpose of recording all the details

of the cheques that the banks have delivered to other banks.

3.18.4 Computer Department:

The objective of this Department is to facilitate customers in payment of their

cheques.

The main functions performed by this department are:

a) Checking balance. Deduction from balance on clearing cheques.

b) Issuing bank statements. Dealing Western Union.

c) Employees salaries distribution. Employees bonuses etc.

3.19 Summation

We discussed in this chapter, the General Banking information about NBP i.e the

services, the departmentalization of NBP as well as the departmentalization of NBP

Balakot Branch. The next chapter is about the SWOT Analysis and Financial Analysis

of NBP.

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CHAPTER # 4

SWOT ANALYSIS

4.1 INTRODUCTION

To carryout the SWOT and Financial Analysis of NBP through the help of calculating

necessary ratios in this section.

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and

threats SWOT analysis is careful evaluation of an organizations internal strengths

and weakness as well as its environment opportunities and threats.

In SWOT analysis the best strategies accomplish an organizations mission by:

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.3. Avoiding or correcting its weakness.

4.2 STRENGTH

4.2.1 OLDEST INSTITUTION:

NBP is one of the oldest bank of Pakistan and first nationalized bank Hence its

customer base is strength from this plus point as customers have more confidence in

the bank. The additional value services as the privilege for the bank.

4.2.2 ALTERNATE DUTIES IN SBP ABSENCE

The NBP performs additional services for its customers as well as the other bank

customer in the absence of SBP.

4.2.3 MORE DEPOSITS THAN OTHER BANKS

NBP has the relative competence in having more deposits than the other bank. This is

because of the confidence the customer have in the bank. The bank being the

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The bank enjoys a good plus point when it comes to the employee manager

relationship the hearing as removing of discrepancies if any, between the employees,

and between the manager and employees.

4.3 WEAKNESSES

4.3.1 LACK OF MARKETING EFFORT:

The bank does not promote its corporate image, services, etc on a competitive way.

Hence lacks far behind in marketing effort .A need for aggressive marketing in there

in the era marketing in now becoming a part of every organization.

4.3.2 NBP UNDER POLITICAL PRESSURE

The strong political hold of some parties and government and their dominance is

affecting the bank in a negative way. They sometime have to provide loan under the

pressure, which leads to uneven and adjusted feeling in the bank employees.4.3.3

FAVORITISM AND NEPOTIS

The promotions and bonuses etc in the bank are often

powered by seniors favoritism or dependupon their wills and decision. This adds to

the negative factors, which denominate the employees thus resulting in affecting their

performance negatively.

4.3.4 LACK OF FINACIAL PRODUCT

The bank falls far behind when the innovative and new schemes are considered. It has

not been involved in the tug of war between the competitors to the accounts and

strengthens the existing customer base. This stands out to be the major incompetence

and weakness of the banks.

4.3.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS

During the rush hours, the bank is founded out to be a total flop to handle the mob of

people peaking from windows and doors. The bank has deficiency to operate in the

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stages of rush hours where the people find them services entangled in a situation of

nowhere because they are not well served.

4.3.6 LACK OF COMPUTERIZED NETWORK

The bank lack the strength of being powered by the network of computers, which

have saved time, energy and would have lessened the mental stress, the employees

have currently. This would add to the strength if it were powered by network of

computers.

4.3.7 LACK OF MODERN EQUIPMENT

The bank lacks the modern Equipment that is note counting machine computers. Evenif there is any equipment they lack to fall in the criteria of being rearmed as update

and upgraded

4.3.8 UNEVEN WORK DISTIBUTION.

The workload in NBP is not evenly distributed and the workload tends to be more on

some employees while others abscond away from their responsibilities, which server

as a demotivation factor for employees performing above average work.

4.4 OPPORTUNITIES

4.4.1 ELECTRONIC BANKING

The world today has become a global village because of advancement in the

technologies, especially in communication sector. More emphasis is now given to

avail the modern technologies to better the performances. NBP can utilize the

electronic banking opportunity to ensure on line banking 24 hours a day. This would

give a competitive edge over others.

4.4.2 MICRO FINANCING

Because of the need for micro financing in the market, there are lot of opportunities in

this regard. Other banks have already initiated, now the time has arrived when the

NBP must realize it and take on step to cater an ongoing demand.

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4.5 THREATS

4.5.1 EMERGENCE OF NEW COMPETITORS

The bank is facing threats with the emergence of new competitors especially in terms

of foreign banks. These foreign banks are equipped with heavy financial power with

excellent and innovative ways of promoting and performing their services. The bank

has to take initiative in this regard or will find itself far back in competition.

4.5.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT

The ongoing shift in power in political arena in the country effects the performance of

the bank has to forward loans to politically powerful persons which create a sense of

insecurity and demoralization in the customer as well as employees

4.5.3 DOWNSIZING

The bank is currently acting upon the policy of downsizing which threaten the

environment of the bank Employees feel insecurity in doing their jobs and work,

hence affecting the over all performance of employees negatively.

4.5.4 CUSTOMERS COMPLAINTS

There exists no regular and specific system of the removal of customer complaints.

Now a day a need for total customer satisfaction is emerging and in their demanding

consequences customer's complaints are ignored.

4.6 COMPETITIVE ANALYSIS

Porters five forces model:

This approach is widely used for competitive analysis. It is because of the high

intensity of competition among companies there five main competitive forces.

4.6.1 Rivalry among competitive firms:

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It is a very powerful force among the competitive forces the strategies pursued by

one firm can be successful only to extent that they provide competitive advantages

over the competitor. These competitive strategies may be lowering prices, best

quality series. The NBP offering very low charges an demand draft, telegraphy

transfer, mail transfer and give other additional services to the customers and to

the Nation. Because NBP is a Nations Bank.

4.6.2 Potential entry of new competitors:

Whenever new firms ca easily enters a particular industry, the competition

increases. The gout restriction, tariffs, patents etc can stop new firm to enter into

the business as per Banking industry is concerned this market is already very

situated in Pakistan and there are banks with quality services and low charges. So

there is no threat to NBP from potential entry and NBP is also a public sector bank

because of that no other new bank not takes over it.

4.6.3 Potential Development of substitute products:

This is the third factor affecting the competitions. There may be some other

product can be substitute the product of that industry. For example banks offering

sawing schemes in Pakistan and these schemes are also offered by GPOs in

Pakistan so they must compete them in this field. If they offer low rates than

GPOs so people will go to deposit in GPOs. People concentration high rates so

thats why sawing PLS accounts are more then current accounts. The next

examples will ATM which substitute presenting cheques at counter and encash it.

The NBP is lacking in this field. It must improve in this field to compete the

competitors.

4.6.4 Bargaining Power of Suppliers:

The bargaining power of supplier affects the intensity of competition, especially

when there are a large number of suppliers. In case of banks the suppliers are

customers they supply the money to banks. Now they must offer good services,

quality, and safety. Low charges etc to customers. In this field NBP is very good.

B/C at offers good quality services to customers. They charge low charges on

remittances. So thats it is a competition to other banks.

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4.6.5 Bargaining Power of Consumers:

When customers are concentrated or large, or buy in volume, their bargaining

power represents a major force affecting intensity of competition. Now the

number customers in Pakistan for banks are very high. Banks offering variety of

products and services to their customers. NBP have a large number of customs.

Now it must offer good services and products to their customers to attract them to

come to NBP.

4.7 Summation

The summary of is SWOT Analysis of NBP. To know how NBP can compete well

and how to maintain its position in the market as a best services organization.

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CHAPTER# 5

FINANCIAL ANALYSIS

5.1 INTRODUCTION

Financial analysis, though varying according to the particular interests of the analyst,

always involves the use of various financial statements primarily the balance sheet

and income statement. The balance sheet summarizes the assets, liabilities, and

owners equity of a business at a point in time, and thee income statement summarizes

revenues and expenses of the over a particular period of time. A conceptual

framework for financial analysis provides the analyst with an interlocking means for

structuring the financing.

5.2 National Bank of Pakistan Ten Years Performance at glance 1

NBP is one of the leading bank in Pakistan. The fact that it is the best bank of

Pakistan is obvious from the performance shows in the table below.

From the above table it is very much clear that the NBP performance is going higher

and higher total assets are at the crest in 2004. If we draw a graph this will shows thatthe graph is upward trend. Profit is increasing from year to year. NBP decrease the

number of its branches and employees because of automation and large networks of

other banks. But this bank can compete and now NBP is the best bank of year.

5.3 RATIOS ANALYSIS 2

Financial analysis is the process of identifying the financial strengths and weakness of

the firm by properly establishing relation ship between the items of balance sheet and profit and loss account, in order to make rational decision in keeping with the

objective of the organization, for that purpose the management use analytical tools.

To evaluate the financial condition and performance of the business entity, the

financial analyst needs to perform "checkups" on various aspects of the business

financial health.

A tools frequently used during these checkups is a financial ratio analysis, which

relates two piece of financial data by dividing one quantity by the other we calculate

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ratios because in this way we get a comparison that may prove more useful than the

raw number by themselves. The business itself and outside providers of capital

(creditors and investors) all undertake financial statement analysis. The type of

analysis varies according to the specific interest party involved. The nature of analysis

is depending at the purpose of analyst.

5.3.1 Parties interested in ratio analysis

5.3.1.1 Trade creditors

Trade creditors are interested in firm's ability to meet their claims over a very short

period of time. Their analysis will, there fore confine to the evaluation of the firm's

liquidity positions.

5.3.1.2 Suppliers of long-term debt

Suppliers of long-term debt on the other hand are concerned with firm's long-term

solvency and survival. They analysis the firms profitability over time, its ability to

generate cash to be able to pay interest and repay interest and repay principal and the

relationship between various source of funds. (Capital structure relationship).

Long-term creditors do analyses the historical financial statements but they place

more emphasis on the firm's projected financial statement to make analysis about its

future solvency and profitability.

5.3.1.3 Investors

Investors who have invested their money in the firms share are most concerned about

the firm steady growth in earning. As such, they concentrate on the analysis of thefirm's present and future profitability. They are also interested in the firms financial

structure of the extent it influence the firms earning ability and risk.

5.3.1.4 Management.

An organization would be interested in every aspect of the financial analysis. It is

their overall responsibility to see that the resources of the firm are used most

effectively and efficiently and that the firm's financial condition is sound.

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So thus management employee financial analysis for the purpose of internal control

and to better provide what capital supplier seeks in financial condition and

performance from the business and from an internal control standpoint, management

needs to take financial analysis in order to plan and control effectively.

5.4 Ratios analysis

Ratio is the comparison between two figures of balance sheet and income statement.

5.4.1 Cash Ratio:

This ration is obtained by dividing cash by current liabilities / liabilities.

This ratio shows that the cash is enough for payment of current liabilities or not. It is

calculated as cash Ratio=Cash/current liabilities

It means that how much cash is available for payment its current liabilities. This ratio

of NBP shows a downward trend. Because of high advances cash is less to cover its

current liabilities.

5.4.2 Gross Profit Margin Ratio:

This ratio shows the profit margin in sales/ revenue.

This is calculated as.

Gross profit/ interest earned

G. Profit margin relates profit of the organization to its sales (interest earned in case

of Bank).

From calculation it is very much clear that the gross profit margin ration have upward

trend which shows that how much they using their deposits to earn interest. This

shows the profit of the firm relative to its revenue. It is a measure of the efficiency of

the firms operations too. As it is clear that the ratio gong high this is the indication of

good performance.

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5.4.3 Net Profit Margin:

This ratio measures the firms profitability of sales/ interest earned after taking

account of all expenses and income taxes.

This ratio can be calculated as:

Net profit margin ration = Net Profit after taxes / interest earned

Explanation: from the calculation and graph it is very much clear that the performance

of NBP is very good. And the trend is upward. It tells us a firms net income per rupee

of revenue. As the trend is upward it shows the high profits in revenue per rupee in

case of NBP. It is because of high advances the NBP has given to the people.

5.4.4 Return on Equity:

Dividing profit after taxation by shareholders equity. ROE compares net profit after

taxes to the Shareholders Equity.

This ratio is calculated as:

ROE=Profit after taxes/Share holders Equity

Explanation: from the calculation it is clear that the ROE Ratio have an upward trend

of NBP. It is because of high net profit they have earned. It tells us the earning power

on the shareholders investments. It is because of high investments by NBP and

effective expense management.

5.4.5 Return On Assets:

This ratio shows the efficiency of organization that how efficiently utilizes their

assets. This ratio relates profits to assets.

It is calculated as:

Profit after Tax/Total Assets

From calculation it is clear that this ration of NBP is going high and high. It shows

that NBP using its assets very efficiently. That is why they are earning very high

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profits. This shows that how efficiently they investing the assets thats why they are

earning high profits.

5.4.6 Investment deposit Ratio:

This ratio shows the comparison of investments and deposits. This is calculated as.

Investment deposit Ratio=Investment/deposits

Explanation: From above table and graph it is very much clear that NBP are using

their deposit very efficiently. And earning high profits. The ratio has an upward trend,

which shows the performance of NBP is very good. Now it is the retraction from top

management to invest 30% of its deposits. This may reduce its profits. But can befruitful in long term.

5.4.7 Debit to Equity Ratio:

This ration shows the amount contributed by creditors and shareholders. It shows to

what extent the firm is using borrowed money. It is computed simply dividing the

total debt of the fire by its shareholders equity.

This calculated as.

Total debt/shareholders equity

From the table and graph it is clear that this ratio is decreasing which show the high

efficiency of NBP. In 2002 it was high but in 2004 it decreases to 24.5 from 28.6

which is a good sign. Here the creditors are interested in low ratio. The lower the ratio

the high the level of the fires financing that is being provided by the shareholders.

5.4.8 Debt to assets ratio:

This ratio shows that to which extent the organization assets are financed by debit. It

is calculated as.

Total debt/total asset

This ration is directly related to risk high ratio means high risk and low ratio means

low risk. From calculation it is clear that the ratio is decreasing which show low risk.

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This ratio serves the similar purpose to the debt to equity ratio. This ratio is high

because of more deposits in the bank, and deposits are the liability of customer on

bank

5.4.9 Advances deposit Ratio:

This ratio show that how much efficiently the bank advances the deposits of their

customer to borrower.

It is calculated as.

Advances deposit ratio = Advances/ deposit

From above table and graph it is clear that the ratio is going high. Which means the

efficiency on NBP is good and they use their deposits efficiently in advancing to

borrowers. Here high ratio is required. The next side of the picture is that the people

will think that is risky to deposit the money in the bank.

5.4.10 Assets Turnover Ratio:

The relationship of net sales /revenue to total assets is known as the total asset

turnover ratio. It is calculated as.

Total revenue / total assets

Explanation: This ratio shows us the relative efficiency with which a firm utilizes its

total assets to generate revenue. We can see that the ratio is going high and which is a

good sign and shows that NBP is utilizing its assets efficiently.

5.4.11 Price to earning Ratio:

This ratio show the relation ship b/w face price per share and earning per share. This

ratio is calculated as:

Price to earning ratio= face price of share/earning per share

As from the above calculations it is clear that the ratio decreased tremendously in

2004, it is because of the reason that earning per share increased resulting in

decreasing price to earning ratio.

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From calculation it is clear that it have a downward slope. It is b/c of increase in

earning per share.

5.4.12 Dividend yield: Anticipated annual dividend divided by the market price of

the stock. It is calculated as.Dividend yield =Total dividend/ market price

Year 2000 was best as far as dividend yield is concerned; it was mainly due to the

decreased amount of number of shares outstanding. In year 2001 increase in

outstanding shares decreased dividend yield, but due to increase in total dividend in

2002 it has recovered to 2.45.

From the above table it is clear that the dividend is increasing but in 2004 it is low. It

is because of high market price and low dividend.

5.4.13 Deposit growth Ratio:

This ratio shows the growth rate of deposits.

This is calculated as

Current year deposits- previous year deposits /previous year deposit

Explanation: This ratio shows an excellent move from 1997 to 2004. It upward slope

which shows that the people trust NBP and its management that our money is in safe

hands. The reason for this good move is only govt support to this bank.

5.4.14 Advances Growth Ratio:

This ratio shows the growth rate of advances. This is calculated as

Current year advances- previous year advances / previous year advances.

Explanation: from calculation and graph it is clear that NBP show a good growth rate

in respect of advances. Only in 2002 it is negative b/c of high advances in 2001 and

low advances in 2002. This shows that NBP is utilizing the deposits efficiently.

The over all performance of NBP is very good. Thats why it is declare the best bank

of the year 2004.

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5.5 Predicting failure:

Where one wants to lend money to a company that is about to fail. The ability to

predict corporate failure before the event has been the holy grail of financial analysis

for move than 50 years. The collapse comes much unsaddled. One a company will be

successful and next year it will be fail. For this a tool is used which is

Z=0.012A+ 0.014B + 0.033C + 0.006D = 0.010E

Where

A = net current assets total assets.B = Retained earnings total assets.

C = Profit before interest and tax total assetsD = capitulation total debt

E = Sales total assets

Now Z score blow 1.8 was an indicator of probable failure, and a score of over 3 was

seen as a clean bill of health the advantage of this approach is that using a

combination of several financial ratios makes it less likely that the result will be

affected by manipulation of financial statements.

If the portion of current asset is greater compared with total assets the healthier is

short-term position.

If the retained earning is greater the greater is the extent of the companys self-

financing. The profit before tax and interest in the third ratio indicates the contribution

of a companys profitability toward the end index score. In fourth ratio the investors

view of the further potential of the company is set against total debt. The last ratio

shows the ability of the company to use its assets to generate revere.

Predicting failure of NBP - 1998.

Z = 0.012(.86) + 0.014(0.026) + 0.033(0.014) + 0.006(0.13) +0.010 (0.11)

= 0.010 + 0.0004 + 0.0005 + 0.0008 + 0.001 = 0.0129

This shows that the calculation is below 1.8 and it is an indicator of failure

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5.6 Summation We discussed in brief the financial analysis of NBP. Calculating

various ratios, interpretation of these ratios, and different tools and techniques is used

in order to arrive the conclusion.

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Chapter # 6

FINDING AND OFFER CONCLUSION

6.1 INTRODUCTION

I have divided this section in four parts. Which are as under. These analysis are

mainly based on my practical experience at the NBP.

Problems at the branch.

Function analysis.

Administrative analysis.

Personal managements analysis.

6.2 PROBLEMS AT THE BRANCH

6.2.1 Customer Satisfaction

In NBP customer dealing is will, but during rush hour the customer has to wait for a

long time for their turn. Its quite hard for a new customer or potential customer to get

the required information.

6.2.2 Poor record management and filing system

During my internship I observed that filing system of branch is not good. When

certain record is needed the staff has to struggle to find it out and a lot of time is

wasted.

6.2.3 Unequal distribution of work

Work is not equally distributed. On one hand some employee have to work all day

without relaxing while some others have nothing to do at all. This not only creates

confusion among employees but also hurting and disturbing for overall setup of the

bank. And above all it results in dissatisfaction among customers as well.

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6.2.4 Marketing visits

A useful mode of contact is through personal marketing visits. Such visits are

important in informing and perusing the existing and potential customers about the

products and creating a sense of belongingness with them.

6.3 FUNCTIONAL ANALYSIS

6.3.1 Formal Organization

Formal organization includes the activities of two or more person, which are

cautiously determined groups and coordinated towards a given objective. It provides

base when people are able to communicate with other, when they have commonpurpose and they are willing to work.

In NBP, we find a formal organization. Bernard referred to an organization as a

formal when the activities of two or more persons are coordinated towards a given

objective. The formal organization comes into being when people are able to

communicate with one another or willing to act and share a purpose.

In this formal organization of NBP the activities are carried out in a more formal way.In theoretical terms it provides basis for communication with one another but in

practice it is not exercised because an employee at high level cannot get straight away

to manager or SVP and ask him about of his problem faced by him, because first he

has to talk to his immediate superior and follow a proper channel of communication.

6.3.2 Difference between theory and practice

A vast difference exists between theory and practice and NBP has written procedurebut practical work done by employees is a bit different from written procedures.

6.3.3 Bank duty to maintain secrecy.

They dont care about maintaining secrecy, especially during the rush hours. They

speak loudly about the account position and while getting clearance of cheque the

person can easily get the whole information from the ledge. The deposit clerk must be

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careful while passing any cheque. In this regard another shortfall is in giving the

information about the balance on telephone.

6.3.4 Excessive paper work

It is notified that due to the lengthy procedure of paper work the bank employee are

over burdened. They are unable to give proper attention to the clients and face

difficulties in getting their job done. One reason for lengthy procedure and excessive

paper work in the bank is the lack of computerized technology.

6.3.5 More accounts fewer deposits.

Efficient banking is one, which does not emphasize on number of accounts but ongreater amount of deposits. NBP is more interested in increasing its number of

Internship Final Report Sarwar Ali

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