CHAPTER 1

Introduction to Report

1.1 Background of the study

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 of the

Government of Pakistan with special emphasis on fostering Pakistan’s economic growth

through aggressive and balanced lending policies, technologically oriented products and

services are offered through its extensive network of 1254 branches.

Unlike other BBA programs, where the students are required to undergo a four weeks

internship in any organization not necessarily a banking institution, we the students of

Banking & Finance were required to undergo eight weeks internship and I opted for

NBP for my Internship.

1.2 Purpose of the Study

The purpose of this study apart from stated above is to understand the peculiar nature of a

specific business organization like NBP and to work in a real life situation and to apply

management skills. In this context its objectives are:

i) To work in an organization to get acquainted with the practical side of

management.

ii) To know how different operations are carried out in the bank.

iii) To define and describe various functions of the bank.

iv) To get exposure and to develop the interpersonal communication skills.

v) To analyze the different aspects of the organization and also to produce some

solutions for the problems pertaining to the organization.

vi) To improve report writing skills.

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1.3 Scope of the Study

The Scope of the study is confined to banking operations. As an internee in NBP the

main focus of my study was on general banking procedures in the branches of NBP. In

the first two months my focus was on the Deposits and Remittances departments. In the

next two months I studied the Advances and Finances departments. The Foreign

Exchange section of the bank was covered in the last two months of the internship.

1.4 Limitation of the Study

The most important limitation of the study is caused by the non-availability of

information in a manner required for analysis, and secondly the secrecy of the bank

regarding its operations due to which certain information which are available but are not

disclosed to the outsiders.

1.5 Research Methodology

Both Primary and Secondary sources of data were used for writing this report. The

biggest source of information is however, my personal observations while working with

the staff and having discussions with them. Formally arranged interviews and discussions

also helped me in this regards.

1.5.1 Sources of Primary data

Primary data has been collected by two methods.

Personal Observations

Discussions/Interviews with bank employees.

1.5.2 Sources of Secondary Data

Secondary data has been collected from the following sources.

Previous Internship Reports.

Brochures.

Manuals of different departments of the bank.

Annual Reports of NBP.

Journals & Newspapers.

Internet.

Relevant books.

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1.6 Scheme of the Report

The report is arranged in the following sequence:

Chapter 1 is an introductory chapter, which describes the background, purpose, scope,

limitations, methodology and scheme of the report.

Chapter 2 is about the importance of banking, and the various activities performed

therein. This chapter encompasses a brief history of banking and an over all review of

banking sector in Pakistan. Similarly the history of NBP and its vision and mission

statement are also included in this chapter and it also tells about the organizational

structure of NBP.

Chapter 3 gives details about the financial position and products & services provided by

National Bank of Pakistan and its Branch located at Mandian Abbottabad. It also

describes the overall financial position of the Bank and tells about the several functions

of the advances department of the bank. It includes the different types of credit facilities

and the procedures used by bank for extending them.

Chapter 4 makes the detailed analysis of NBP (Both financial & non-financial).

Financial analysis is made on the national performance of the bank, followed by a SWOT

analysis of the NBP. Different types of ratios of the bank are shown with the help of

graphs.

Chapter 05 gives findings and recommendations to the organization for a still better

performance in the future.

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Chapter 2:

Introduction to National Bank of Pakistan

2.1 Historical Introduction to the organization (National Bank of Pakistan)

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 nation wide branches.

2.1.1 Historical Background of National Bank of Pakistan

National Bank of Pakistan (the Bank) was established on November 9, 1949 under the

National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions

which were developed after trade deadlock with India and devaluation of Indian Rupee

in 1949. Initially the Bank was established with the objective to extend credit to the

agriculture sector. The normal procedure of establishing a banking company under the

Companies Law was set aside and the Bank was established through the promulgation of

an Ordinance due to the crisis situation that had developed with regard to financing of

jute trade.

The Bank commenced its operations from November 30, 1949 at six important jute

centers in the then East Pakistan and directed its resources in financing of jute crop. The

Bank's Karachi and Lahore offices were subsequently opened in December 1949. The

nature of responsibilities of the Bank is different and unique from other banks/financial

institutions. The Bank acts as the agent to the State Bank of Pakistan for handling

Provincial/Federal Government Receipts and Payments on their behalf. The Bank has

also played an important role in financing the country's growing trade, which has

expanded through the years as diversification took place.

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2.1.2 Present Status

National Bank of Pakistan has a network of 1,254 domestic branch and 15,204 employees

for subsidiaries, 22 Oversea branches, 4 reparative offices, 1 joint venture and subsidiary

(overseas) all the world the local branches are controlled through 29 regional offices and

overseas are managed through 4 overseas regional offices. It is the largest contributory

agent of government requirement. NBP provide wide range of services and including

collection of taxes and deliveries of salaries, person to public sector employees. It has

lowest rate on exports and other borrowings.

NBP not only enjoy a unique position in the banking sector in Pakistan but also in the

global banking and the financial sector. National Bank of Pakistan has been included in

the top ten huge banks of the world, it is only domestic bank of the country of which has

been awarded “The Best Domestic bank” NBP, in its domestic operations has a total

network of 1189 domestic branches, 29 regional offices, along with 9 regional Audit

offices and 4 local subsidiaries including, National Bank of Pakistan mudaraba

management company national capital limited NBP exchange company Taurus securities

limited.

National bank of Pakistan, overseas operation comprises 22 overseas branches, 4

representative offices, one international subsidiary bank of NBP in Amatory and one joint

venture with the United Kingdom. NBP with its commitment to invest in development of

the bank’s I.T infrastructure have now developed on line branches with modern by highly

professional bankers. NBP has launched an ambitious business reprocessing programmed

to make the bank more attractive with the eventual aim of privatization. The largest bank

in the country with a customer base 9.00 billion in poised for take off.

2.1.3 Credit Rating

NBP enjoys the highest rating of ‘AAA’ in the industry assigned by M/s JCR-VIS Credit

Rating Company. The ratings assigned to NBP are primarily driven by the bank’s role in

the national economy as an agent of the State Bank of Pakistan and as a bank to the

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Government of Pakistan. Additionally, ratings also derive strength from the bank’s

consistently high capitalization levels, and nationwide access that has enabled it to secure

a cost effective and diversified deposit base.

2.1.2 Auditors

Auditors of NBP are Ford Rhodes Sidat Hyder and Co, M. Yousaf Adil Saleem and Co. Legal

advisor are Mandviwala and Zafer.

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2.2 Organizational Structure of National Bank of Pakistan

Chart 2..1(Organizational structure of NBP)

Source: www.nbp.com.pk

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President & Chairman

President Secretariat

Board of Director

Secretariat

Corporate & Investment Banking Group

Commercial & Retail Banking Group

Operations Group

Audit & Inspection Group

Compliance Group

Financial Control Division

Employees Benefits, Disbursements & Trustee Division

Special Assets Management Group

Organization Development & Training group

Overseas Co-Ordination & Management Group

Information Technology Group

Risk Management Group

Treasury Management Group

Human Resources Management & Admin Group

2.2.1Corporate Profile

Chart 2.2 :Corporate Profile

Board of directors

Syed Ali Raza (Chairman & President)

Mr. Tariq Kirmani

Mrs. Haniya Shahid Naseem

Ms. Nazrat Bashir

Mr. Ekhlak Ahmed(Secretary to BOD)

Audit Committee

Mr. Ibrar A.Mumtaz

Mr. Tariq Kirmani

Mian Kausar Hammed

Auditors

M. Yousaf Adil Saleem and Co.

Chartered Accountants

Anum Asim Shahid Rahman & Co.

Chartered Accountants.

Legal Advisors Mandviwala & Zafar

Advocates & Legal Consultants

Registered & Head Office

NBP Building

I.I. Chundrigar Road, Karachi, Pakistan

Registrars & Share Registraton Office

Central Depository Co. of Pakistan, Main Shahrah-e-Faisal, Karachi.

Source: www.nbp.com.pk

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2.3 BRANCH NETWORK

Figure 2..1: Branch Network

Source: www.nbp.com.pk

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2.3.1 Head Office

The head office of national bank of Pakistan is situated in Karachi. All branches, zonal offices, corporate branches and regional offices work according to head office rules and regulations. The head office is operationally in charge of central affairs including the delegation of powers and authority to the 9 regional head quarters throughout the country

2.3.2 Domestic Network

Bank expanded its operations in previous year and 11 more branches across Pakistan were opened taking the domestic branch network to 1254. NBP has a well defined strategy for branch expansion to enter the untapped markets and to strike a balance between its rural and urban coverage.. Its subsidiaries are:

• NBP Leasing Limited (formerly NBP Capital Limited)

• NBP Modaraba Management Company Limited

• NBP Exchange Company Limited

• Taurus Securities Limited

NBP’s regional offices are different cities of Pakistan that are Karachi (South, West), Hyderabad, Larkana, Sukkur, Quetta, Gawadar, Lahore (Central, East), Gujranwala, Sialkot, Faisalabad, Jhang, Sargodha, Multan, Bahawalpur, Dera Ghazi Khan, Sahiwal, Federal Capital–Islamabad, Gilgit, Rawalpindi, Jhelum, Gujrat, Peshawar, Mardan, Dera Ismail Khan, Abbottabad, Muzaffarabad (A.K.),Mirpur

2.3.3 Overseas Network

National bank of Pakistan has 24 overseas branches and 09 regional offices in different part of the world. They are in USA, Germany, France, Egypt, Uzbekistan, Bahrain, Bangladesh, Hong Kong, Japan, China, Kyrgyzstan, Turkmenistan, Azerbaijan, Afghanistan and Canada

2.4 Vision Statement

To be recognized as a leader and a brand synonymous with trust, highest standards of service quality, international best practices and social responsibility.

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2.5 Mission Statement

NBP will aspire to the values that make NBP truly the Nation’s Bank by:

Institutionalizing a merit & performance culture, creating a distinctive brand

identity by providing high standard of services, adopting the best International

management practices, maximizing stakeholders value and discharging our

responsibility as a good corporate citizen of Pakistan& in countries where we

operate.

2.6 Organizational Objectives:

All the objectives of the National Bank of Pakistan are compatible with the mission

statement of the bank. As a business organization its main objective is profit

maximization, the only yard stick used for measuring performance. NBP tries to

maximize its profits by concentrating on two activities i.e. enhancing customers’

deposits, and increasing advances to the borrowers.

2.6.1 Increase Deposits

Presently tough competition is experienced in every field, and the banking sector is no

exemption to the rule. Whether the bank is Pakistani, Private, Foreign or Nationalized,

competition is there. In the competition NBP has the goal to achieve the greatest possible

amount of deposits. The tool used by the bank in order to increase its deposits was to

provide the best of facilities to their customers.

2.6.2 Extension of Loans

The profitability of a bank greatly depends upon the amount of credit extended to the

people. The loans provided by NBP accounts for the major source of its profit. The mark

up charged by the bank varies with the type of loan issued to the customer; the terms and

conditions of the loans are negotiable depending upon the relationship between the

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customer and the bank, the purchase for which the facility is offered, and of course on

the security offered for acquiring it.

CHAPTER # 3

Products and Services of National Bank of Pakistan (Mandian Branch)

3.1 Departmentation

The organization of NBP is a complete banking system. This banking system is collection

of interrelated departments that works together to achieve the objectives of the

organization. I can rightly say that NBP is a hierarchical system in that it includes other

sub departments and these are integrated to work together.

The NBP existing system includes following departments.

Deposit Department

Cash Department

Remittance of bills

Accounts Department

Credit Department

3.1.1 Deposit Department

In this department NBP accepts money deposits from customers, which provide basic core

of all resources available to a bank. NBP accepts surplus money deposits from individuals,

firms and corporations. In order to attract these funds it has introduced a number of

savings accounts and investment schemes. These schemes may suit to the needs and taste

of large number of depositors. There it is said, “Deposits are necessary for making the

branches and assets are necessary for making banks”.

3.1.1.1 Functions of Deposit Department

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Provide guidance to the persons wishing to open an account by assistance of account

opening form and specimen signature (SS) card. Major functions of deposit department in

NBP include:

To maintain existing accounts.

To dispatch letters to customers if needed e.g. letter of thanks to introducer and

new account holder.

Posting of vouchers and cheques in computer and maintain records in form of

printouts.

Cancellation of cheques.

Issuance of cheque book.

Sorting is also done of accounts to check dormant and inoperative accounts and

also for recovery of incidental charges.

It also deals in deduction and refund cases of zakat.

Maintenance and handling of various deposit schemes e.g. PLS, saving and current

accounts.

Making stop payments of cheques and noting cautions regarding death, insolvency,

insanity of account holder.

Transfer and closing of accounts.

Keeping the records of death/credit balance confirmations and statement of

account.

Provide confidential inquiries to other banks, government departments and other

agencies.

3.1.1.2 Types of Accounts Offered NBP

Current deposit account

Pls. saving accounts

Pls. term deposit accounts

Pls. short term deposit account

1: Current Deposit Accounts

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“These accounts are for the current deposits i.e. customer can deposit and withdraw the

amount any time and no profit is paid.” This account is operating through cheques. The

customer is required to maintain a minimum balance in this account.

2: PLS (Profit Loss Sharing) Saving Account

Pls. saving accounts opened by individuals (single or joint), for charitable institutions,

companies, educational institutions, firms etc. This account can be opened with a very

small amount, withdrawals from this account is made through cheques. Return/profit is

paid at flexible rate calculate on six months basis however, withdrawals of limited amount

are generally allowed only twice a week. The customer has to give a notice of about two

weeks before the withdrawals of large amounts.

3: PLS Term Deposit Account

The deposits that can be withdrawn after a specified period of time are known as fixed or

term deposits. In this account person or account holder keeps the money for definite

period of time. The amount deposited is not withdrawn able by cheques. After the

maturity of account, account holder receives the actual money along with the profit given

after each six months during deposited period.

4: PLS Short Term Deposit Account

The short-term deposit account is opened for the period of 7 days notice or 30 days notice.

All other conditions for opening, closing and operating conditions are same as described

in pls. Term short deposit account.

3.1.2 Cash Department

The main function of this system is Receipts & payments to the customers, on behalf of

their account, through Cheques or any other negotiable instruments. All those transactions,

which are held on the counter on cash basis lies under the cash department.

The cash system mainly deals with following areas:

Receipts

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Payments

3.1.2.1 Receipts

The customer deposits in there accounts through a deposit slip. The deposit slip contains

the account number and the title of account. The amount in figure and words is also

written on both side of the slip. The customer deposits the amount to the cashier, which is

dully signed by the cashier and an officer, the amount is thus credited to the account

holder.

3.1.2.2 Payments

The amount of money is repaired to the cheque.

“Cheque is a bill of exchange drawn on a specified banker and expressed to be payable

otherwise on demand”.

3.1.2.3 Sufficiency of Funds

“The drawee of a cheque having sufficient funds of the drawer in his hands properly

applicable to the payment of such cheques must pay the cheque when duly required to do,

and in default of such payment must compensate the drawer for any loss or damage caused

by such default.

Usually following objection are applied in case of insufficiency of funds:

Not sufficient

Exceed arrangement

Not provided for

Full covered not received

Refer to drawer

Account closed

Present again

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3.1.3 Remittance Department

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

place. An inland remittance means a transfer of money payable at a certain place within

the country. Inland remittances can be classified as in the following:

Within Locality

Outside Locality

3.1.3.1 within locality

When a branch situated in Abbottabad is required to send drafts of any branch/branches

situated in the same city, the process is known as within locality. For example, the NBP

branch is known as local or with in locality for branches in Abbottabad.

3.1.3.2 Outside locality

Outside locality is an important type of inland remittance. Outside locality means the

transfer of money payable outside the city. For example NBP Abbottabad Branch sends

any draft to a branch situated at Peshawar it is commonly done through:

1. Mail Transfer (M.T)

2. Telegraphic Transfer (T.T)

3. Demand draft (D.D)

3.1.3.2.1 Mail Transfer

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

or the branch of the same bank in the city/ outside the city or outside the country, the first

thing he has to do is to fill an application form in which he states that I want to transfer the

money from this bank to another bank. If the customer is the account bolder of bank, then

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

the mail transfer complete. Three forms used for this purpose are listed below:

Debit voucher

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Credit voucher

Mail transfer register

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

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

3.1.3.2.2 Telegraphic Transfer

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

fills the telegraphic form. This telegram is sent to the required bank. Which on receiving it

immediately makes the payment to the customer and afterwards the vouchers are sent to

the bank by ordinary mail.

3.1.3.2.3 Demand draft (D.D)

A bank draft is an order by one branch of bank to another branch of the same bank to pay

a certain amount of money on demand to the person named there in.DD is just a check and

is issued when the customer wants to take the draft personally. The idea behind it is that as

the cash is not safe to be kept along and a check in the shape of a draft is safer and one can

easily get cash by presenting it in the bank, on whose favor it has been made.

3.1.4 Accounts Department

This is one of the most important departments in NBP. The bank daily transactions are

recorded in computers, nowadays, so the function of this department is to get a summary

of all the transactions. The credit and debit vouchers are arranged and saved for the record

purpose. It also indicates, head office entries as clearing, transfer delivery etc. On the

weekend it has to prepare the extract which is sending to head office for reconciliation.

The month ends will summaries of all the monthly statements and profit and loss is

determined. Thus this department will create a link between head office and branch office

and above all maintains disc of all the transaction of current day at home so that in any

mishap the customer benefit is save. The functions of Accounts department are as follows:

Maintenance of book of the accounts of head office.

Salary disbursement and investment of staff.

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Arrangement of stationary for bank.

Dealing with disposal of commercial external audit reports and state bank of

Pakistan instructions.

Pre audit checking of all bank transactions.

3.1.5 Credit Department

NBP is the profit seeking institution. It attracts surplus balance from customers at lower

rate of interest and makes advances at higher rate of interest. NBP make advances mainly

in two sectors:

i) Industry

ii) Trade and commerce

The main difference between two sectors is the amount. The industrial credit involves a

heavy amount while trade and commerce amounts are low.

The finance system deals with providing finances (loans) and ensuring the guarantees.

Three basic types of finances are:

Demand finance

Running finance

Cash finance

3.1.5.1 Types of Advances Offered By NBP:

NBP Credit department deals with all the advances, which are made to the customers.

Advances are important for the banking business because it gives the bank interest on the

amount loaned. NBP is also very active in advancing loans to customers, thus helping the

economy of the country in its development. It provides the following finances:

3.1.5.1.1 Running Finance

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This is a type of finance, which meets the day-to-day finance requirements of the business.

The amount is transferred to the debtor’s current account and can be withdrawn through

cheques. The limit on this type of finance is 35000 and the maximum period for this type

of finance is one year and can be renewed by a new application. Repayment is on

discretion of the customer to pay back a lump sum amount or otherwise.

3.1.5.2 Secured Running Finance

It is also called overdraft. In such type of finance a customer is authorized to borrow up to

an agreed amount in excess of his bank balance NBP provides this facility to its customer.

Usually such loans are extended for small amounts at lower rates for shorter periods. The

time period for this type of finance is less than one year. The mark up is paid on a monthly

basis and the principal amount is repaid at a specific date.

3.1.5.3 Cash Finance

Cash finance is also called working capital. It is a short-term loan. Probably the most

popular form of providing funds to the clients in the banking sector is the Cash Finance

system or traditionally known as Cash Credit. In this, the bank lends money to borrowers

against tangible security. The total amount of loan, which is granted, is not paid in one

installment. The borrowers have to pay markup on the amount borrowed. Cash finance is

obtained either by

3.2 Products provided by NBP

Bank offers the following Products:

Premium Aamdani

Premium Saver

Karobar

Saibaan

Advance Salary

Cash Card

Investor Advantage

Cash n Gold

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Kisan Taqat

Pak Remit

Protection Shield

3.2.1 Premium Aamdani:

Premium Aamdani is a monthly income scheme. Minimum money required for this

account is twenty thousands and maximum limit is five million. Financing facility

available up to ninety percent of the deposit value. Zakat and withholding tax will be

deducted as per rules. Premature encashment will attract penalties

Profit paid every month as follows:

Table 3.1: Expected profit rates

PeriodExpected Profit Rates for years

1st year 7.50%

2nd year 8.50%

3rd year 9.50%

4th year 10.50%

5th year 11%

Source:www.nbp.com.pk

3.2.2 Premium Saver

In Premium saver bank offers “PLS Saving Account”. Minimum saving balance is

required is Rs. 20001 and the maximum limit is 300,000. Bank provides free ATM and

Debit card to account holders. Account holder can withdraw money only two times in a

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month and no limit for number of deposit transaction. Profit rate is 7.25% p.a. Profit

calculated on monthly and paid on half yearly basis

3.2.3 Karobar

3.2.3.1 President’s Rozgar Scheme

NBP Karobar under the “President’s ROZGAR SCHEME” recovered excellent growth

after its full launch in April 2007.People aged between 18 to 45 can apply for this loan.

Minimum down payment is 10% of asset price. The time period of loan is 1 to 5 years,

Grace period of 3 months will be given to customer. Maximum loan amount is Rs.

200,000. Mark-up is calculated KIBOR plus 2% p.a. The customer will pay markup at the

rate of 6% p.a., rest will be borne by Government of Pakistan. This product not only

serves the bank’s commercial strategy but is also an effort towards poverty alleviation in

the country. As well as providing free life and disability insurance to the NBP. The

portfolio at year end was over Rs.2 billion. The target was almost 1.8 million customers

in the next five years. The bank plans on disbursing almost Rs.100 billion which will

touch the lives of almost thirty million citizens.

3.2.4 Saibaan

In 2007, NBP Saibaan has been the market leader in housing finance as the overall

disbursements were at an average of approximately Rs.350 million each month, which is

by far head of the competition. Tthe NBP Saibaan has become the leader amongst the top

five banks of Pakistan in mortgages.

Saibaan includes Home Purchase, Home Construction, Home Renovation, Purchase of

Land plus Construction. Maximum amount that customer can borrow for Purchase of

Land plus Construction, Home Purchase, Home Construction is 35 million, financing

period is 3 to 20 years and maximum debt to equity ratio is 85:15. Whereas for Home

Renovation maximum financing amount is 15 million, financing period is 3 to 5 years,

and maximum debt to equity ratio will be 80:20. Markup rate is SBP discount rate with

2%( 12 month repurchasing). Processing fee for government employee is Rs. 500

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irrespective of financing amount. For other customers up to the one million it is Rs. 1000,

amount between 1 to 4 million is Rs. 3000 and above 4 million is 6000.

The person is eligible for the loan if he/she fulfils following criteria:

Must be Pakistani Resident (National)

Aged between 21 and 65 years at the time of application/disbursement of loan.

Salaried Person, Self-employed professionals and businessmen.

Property located in NBP approved localities.

Service duration: Two years for salaried class Three years for

self-employed/business class.

3.2.5 Advance Salary

The flagship NBP Advance Salary product continued to grow in 2007 and maintained its

position as the single largest product in the country with its accumulated disbursement

crossing Rs.138 billion. The number of organizations whose employees are entitled to

avail this scheme is gradually being increased ensuring continued growth. The latest

addition is the Pakistan Army and the target is almost half a million new customers in the

next three years in addition to the existing base of one million satisfied customers

approximately.

Permanent Employees of Government, Semi-Government, Autonomous, Semi

Autonomous, Local & other bodies who are maintaining their Salary A/Cs at NBP are

eligible for this product. Repayment will be the direct deduction from the salary account.

Maximum repayment period for the loan is 5 years. Customer can avail up to 20 net take

home salaries with easy repayment installments. The markup rate is SBP discount rate

plus 5%.processing fee will be 1% of loan amount. For this loan customer’s salary

account must be in NBP.

3.2.6 Pakremit

Pakremit is an internet based Home Remittance Service. This service is available to U.S.

residents for sending money to their family and friends in Pakistan. One must have a

valid US Dollar account with a U.S. bank or a US Dollar credit or debit card in order to

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remit funds through this channel. The service is fully secure with advance encryption

application and is available for use 24 hours a day, 7 days a week.

3.2.7 Investor Advantage

NBP provides Personal Accidental Insurance. Insurance Coverage Includes death due to

Riots, Strikes, Civil commotion, Acts of Terrorism and Natural Calamities like Flood,

Earth Quake, Cyclones etc. Monthly premium is Rs. 20 and coverage is up to Rs. 200000.

Person must be account holder of NBP, aged between 18 and above. Customer also has

choice of deactivation. NBP gives Auto Premium deduction facility to its Account

Holders.

3.3 Services offered by NBP

3.3.1 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 your

business and personal needs.

3.3.2 Letter of Credit:

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 their 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.

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3.4 Traveler’s Cheques:

Table 3.2 Travelers Cheque

Negotiability: Pak Rupees Traveler’s Cheques are a negotiable

instrument

Validity:    There is no restriction on the period of validity 

Availability: At 700 branches of NBP all over the country 

Encashment:     At all 400 branches of NBP 

Limitation:      No limit on purchase 

Safety:         NBP Traveler’s Cheques are the safest way to carry our

money 

Source: Annual Report 2009

3.5 Pay Order:

NBP provides another reason to transfer customer’s money using their facilities.  Their

pay orders are a secure and easy way to move customer’s money from one place to

another.  And, as usual, their charges for this service are extremely competitive.

Table3.3: Rates charged against pay orders

a. Issuance of Pay order  

1. For NBP Account Holder Rs. 50/- (Flat)

2. For NBP Non-Account Holder Rs. 100/- (Flat)

b. Issuance of duplicate Pay order  

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1. For NBP Account Holder Rs. 100/- (Flat)

2. For NBP Non-Account Holder Rs. 150/- (Flat

Source: Annual Report 2009

3.6 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

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

beneficiaries

3.6.1. 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.

3.7 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, NBP’s rates of profit are

extremely attractive, along with the security and service only NBP can provide.

3.7.1 National Income Daily Account (NIDA)

25

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.  

3.8 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.

 3.8.1. NBP is involved in the following: 

Investment into the capital market

Introduction of capital market accounts (under process)

NBP’s involvement in capital markets is expected to increase its earnings, which would

result in better returns offered to account holders.

3.9 Commercial Finance:

Let them help make your dreams become a reality

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

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

customer’s best resource in making NBP’s products and services work for them.

3.10 Trade Finance other business loans:

3.10.1 Agriculture Finance:

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

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

26

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.

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.

Agricultural Credit (Medium Term): 

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Solar energy

Equipment for sprinklers

Farm Credit:

27

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

renewal basis. 

Operating loans

Land improvement loans

Equipment loans for purchase of tractors, farm implements or any

other equipment

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

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. 

3.10.2 Corporate Finance:

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

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 their clients’ vision.  This type of long term financing proves the bank’s

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

Loan Structuring and Syndication:

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National Bank’s leadership in loan syndicating stems from ability to forge strong

relationships not only with borrowers but also with bank investors.  Because they

understand their syndicate partners’ asset criteria, they 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. 

Their syndication capabilities are complemented by their own capital strength and by

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

Cash Management Services:

With National Bank’s Cash Management Services (in process of being set up), the

customer’s sales collection will be channeled through vast network of NBP branched

spread across the country.  This will enable the customer to manage their company’s total

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

advantage of NBP outstanding range of payment, ejection, liquidity and investment

services.  In fact, with NBP, you’ll be provided everything, which takes to manage your

cash flow more accurately.

3.11 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 NBP’s exposure to foreign and domestic

correspondence

Manage the monetary aspect of NBP’s relationship with the correspondents to

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

bank’s profitability

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CHAPTER # 4

Analysis of National Bank of Pakistan

4.1 Financial statement analysis

Financial Statement Analysis is the scales due to which we can measure the financial

position of a firm. It also helps us for measuring the end result from the operation of that

firm. This analysis also helps us in determining the strengths and weakness of a firm. Or

in other words we can say that financial analyses are done for the purpose of identifying

the financial strength and weaknesses of an organization. This analysis provides

information to different parties in marketing the decision of the organization. For

achieving the goals and objectives of an organization and strategy making analysis helps

a lot. The creditors, investors and other providers of capital also take on the financial

statement analysis.

The creditors are interested in the liquidity of the firm, to meat their short term

obligations and also having the ability for payment of these obligations. The bondholders

are interested more in the cash flow of the firm and bond holder's claims are long-term.

The investors in a company’s common stock are interested with present and expected

future earning of the firm and the stability of these earnings. Usually investors analyze

the profitability of the firm if the profitability of a firm is high and stabile the investor

confidence increases and they invest more in that firm. Management uses the financial

statement for managing the internal activities of the firm. The suppliers seek the financial

statement for providing more and government use if for the purpose of tax collection.

4.2 The financial data of NBP is analyzed in the following two ways

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The given below types of analyses are used to measure firm’s performance over time. In

the common size analysis we use the balance sheet and income statement and measure

their performance as compared to other years and in the same year, by generating a

percentage increase or decline. The following types are as follows:

4.2.1 Common size analysis

Common size analysis expresses comparison in percentage. For example, if cash is Rs

30,000 and the total asset is Rs 1, 00,000 then cash represents 30% of total assets. The

use of common size analysis makes comparisons of firms for different sizes mush more

meaningful. A small change in amount can results in a very substantial percentage

change. This is the analysis where total assets are divided by all balance sheet items, and

all income statement items are divided by net sales or revenue is called common size

analysis. Common size analysis can give analyst valuable approaching into changes that

have occurred in a firm’s financial condition and performance. As common size analysis

gives us relative percentage of an item with respect to total, so the growth or decline in

various items of balance sheet and income statement can not be detected from common

size percentages. It has the following types:

4.2.1.1 Horizontal analysis:

Horizontal analysis compares each amount for a selected base year or we take each item

of base year as 100% and compare with other items.

Table 4.1 common size (Horizontal) analysis of balance sheetASSETS 2006 2007 2008Interest Earned 100% 110% 120%

Cash and balance with treasury

bank

100% 159.66% 112%

Balance with other banks 100% 155.14% 102%

Lending to Financial Inst 100% 71.7% 79.9%

Investments 100% 126.83% 80%

Advances 100% 211.25% 121%

Other assets 100% 162.63% 143%

31

Operating fixed assets 100% 289.98% 93%

Total Assets 100% 162.52% 107%

LIABILITIES 100% 103% 110%

Bills payments 100% 128.47% 144%

Borrowings 100% 65.7% 174%

Deposits and other accounts 100% 149.66% 105%

Finance lease 100% 81.61% 75%

Other liabilities 100% 133.1% 128%

Deferred tax liabilities 100% 855.54% -----

Total liabilities 100% 146.32% 128%

SHAREHOLDERS EQUITY 100% 88% 88%

Share capital 100% 198.72% 110%

Reserves 100% 193.92% 126%

Unappropriated profit 100% 768.92% 115%

Total equity 100% 421.76% 88%

Total liabilities and Total

equity

100% 162.52% 107%

4.2.1.1.1 Trend Analysis of Income Statement

The Trend analysis that we conclude from the above table gives us a clear view of the

bank’s income statement. Here we find an absolute increase in the gross profit. This is

mainly due to the fact that NBP has a good control over its markup expenses, in relation

to its total markup revenue. As we can see that markup expenses are gradually being

increased, that ultimately gives boost to the gross profit of the bank from the base year.

The markup expense stands as the cost of sales. The increase in the gross profit shows

that the management has been able to gain control over the markup expenses then

32

previous year this shows that the bank is moving in a trend where it would lead into the

achievement of the goals it has set.

The total income of the bank has increased from the base year mainly due to the fee and

commission reduction, as they kept on an increase from the past few years. The bank

tackled the situation, by reducing the markup expense, that balanced the effect and

ultimately the profit after tax has increased. The ultimate increase in the profit after tax

also comes due to the fact that NBP has relieved itself from the provisions against the

balance sheet liabilities, which have reduced the expenditure

Table 4.2 Trend Analysis of Income Statement

  2006 2007 2008

Markup Revenue 100 225.11 259.97

Markup Expense 100 202.43 251.5

Gross Profit Margin 100 237.12 264.45

Provision for Advances 100 182.56 280.34

Provision for Investments 100 154.39 8.76

Bad debts written off      

  100 90.55 180.32

Net Markup Income 100 275.13 286.27

       

NON-MARKUP INCOME      

Fee and Commission 100 188.44 207.97

Dividend Income 100 256.65 289.62

Exchange income 100 187.67 146.73

Other income 100 29.19 6.85

Total non-markup income 100 167.8 186.87

Total Income 100 230.28 244.74

NON-MARKUP EXPENSE      

33

Admin Expenses 100 162.34 171.55

Other provisions 100 51.66 502.26

Other charges 100 909.96 74.87

Total non-markup expense 100 163.54 172.61

       

Profit Before Tax 100 292.06 311.48

Provision for Taxes 100 193.08 187.64

Profit After Tax 100 405.48 453.39

4.2.1.2 Vertical analysis:

Vertical analysis compares each amount with a base amount selected from the same year.

Simply, we compare the items of balance sheet or income statement vertically by taking

one item as 100%.

Table 4.3 common size (vertical) analysis of balance sheetASSETS 2006 2007 2008Cash and balance with treasury

bank

12.38% 12.45% 13.02%

Balance with other banks 6.40% 4.92% 4.68%

Lending to Financial Inst 3.62% 2.82% 2.094%

Investments 22.03% 27.66% 20.8895

Advances 49.77% 44.70% 50.50%

Other assets 4.27% 4.07% 5.4%

Operating fixed assets 1.52% 3.40% 2.96%

Total Assets 100% 100% 100%

LIABILITIES

34

Bills payments 1.67% 0.93% 1.24%

Borrowings 1.84% 1.43% 4.94%

Deposits and other accounts 79.02% 77.66% 76.42%

Finance lease 0.00% 0.00% .003%

Other liabilities 4.19% 4.05% 4.84%

Deferred tax liabilities 0.04% 0.67% -

Total liabilities 87.10% 84.74% 87.47%

SHAREHOLDERS EQUITY

Share capital 1.12% 1.07% 1.09%

Reserves 2.19% 2.07% 2.43%

Inappropriate profit 5.05% 5.95% 6.41%

Revaluation 4.55% 6.12% 2.57%

Total equity 12.90% 15.26% 12.52%

Total liabilities and Total

equity

100% 100% 100%

Cash and balance with treasury

bank

12.38% 12.45% 13.02%

4.2.1.2.1 Vertical analysis of balance sheet

Vertical analysis shows the proportionate percentage of different items of the balance

sheet with respect to Total Assets. The vertical analysis of NBP shows that there are

different assets and liabilities aver the time period. This is due to many reasons. First of

all the assets have changed and increased over the time period. The change in assets

affects the over all vertical analysis as the change is analyzed with respect to assets. The

major components in the balance sheet of banks are deposits, advances and investments,

as the major expense and income occurred due to these respectively.

So looking closely to these items advances decreased from 2006 to 2007 but than

increased from 2007 to 2008. On other hand the investment increases from 2006 to 2007

but decrease in 2008. This is due to low interest rates in 2007 and higher interest rates in

35

2008. Bankers are left with only option of investing in short-term investments, to increase

their profit margin. Investments, as being a non-interest source of income are more

promising than advances that are becoming more profitable due to inclining interest rates.

Bankers prefer to give advances when the interest rate was high but then prefer to invest

in noninterest income in 2008 when the income from investment was higher than the

interest rate. Now our discussion comes to deposits.

The main reasons for the decrease in deposits are the increasing inflation and decrease in

savings. As inflation is rising day by day with an accelerating rate, especially the people

in Pakistan don’t have enough to meet their daily expenses then how can they think of

saving money? Thus this might be a major reason for decrease in deposits. Other reason

can be that people are shifting to private sector bank; banks are offering low interest rates

so people prefer to invest their money in other source of incomes. Now coming to other

important items i.e. cash in hand and balance with other banks. These items show the

liquidity of the organization and meeting short term liabilities.

The cash in hand is increasing from 2006 to 2008, but the balance with other bank is

decreasing. Thus showing that now the bank is more liquid, and liquidity is inversely

proportion to profit. The cash in hand should be invested in short term investments, so

that the organization can earn profit on idle money. Now coming to the share holder’s

equity, the equity has been increased from 13% to 15%and decreases to 12% in 2008 of

total asset over the time period. This shows that either people are not interested to invest

in the NBP in 2008, or reserves have increased or valuation of assets is the cause behind

this increase. In NBP share holder equity the major cause of increase is the revaluation of

assets and increase in inappropriate profits. Reserves have increased over the time period

but share holder equity decreased a little with respect to assets.

Table 4.4 common size (vertical) analysis of income statement

2006 2007 2008

Markup Revenue 100% 100% 100%

36

Markup Expense 31.63 33.50 33.19%

Gross Profit 68.37 66.50 60.80%

Provision for Advances 6.97 9.34 17.38%

Provision for Investments 1.61 0.08 0.61%

Bad debts written off 0.01 0.08 -

Net Markup Income 62.99 57.16 42.80%

NON-MARKUP INCOME

Fee and Commission 13.93 13.41 13%

Dividend income 6.56 6.45 4.72%

Exchange income 3.02 2.06 6.5%

Other Income 1.42 0.29 2.04%

Total non-markup income 27.58 26.78 26.93%

Total income 90.58 83.95 69.74%

NON-MARKUP

EXPENSES

Admin Expenses 30.48 28.09 29.8%

Other provisions 0.04 0.33 1.22%

Other charges 0.47 0.03 0.95%

Total non-markup expense 30.92 28.40 32%

Profit Before Tax 59.66 55.49 37.74%

Provision for Taxes 21.06 17.85 12.37%

Profit After Tax 38.60 37.64 25.36%

4.2.1.2.2 Vertical analyses of income statement

The Vertical Analyses of Income Statement of NBP as given in the above table is

showing a percentage change with respect of the sales or markup income. There is a

consistent decreasing trend in 2006-2007 and then increasing trend in 2008 in the banks

gross profit. The main reason behind this is that the bank has controlled its markup

expenses in relation to total markup revenue. In simple words we can say that this

inclining trend in the markup expenses resulting in the increased gross profit. This can be

37

because of increasing interest rate on advances or increasing interest rate on deposits to

discourage savings. Markup expenses are actually cost of sale incase of a bank.

Furthermore this increasing trend in gross profit shows the efficiency of the bank’s

management in controlling markup expenses. So this increasing trend of gross profit is a

positive or healthy sign and the bank’s management should consider it and take some

more actions to improve its position.

Now if we take a look at the figure of total income of the bank, there is consisting

decrease in it as well. As total income is the summation of both markup income and the

non markup income. This decrease in total income is due to the decrease in the markup

income. My organizations total non markup income consists of fees and commissions,

dividend income, exchange income and other income. If the look at the figure of non

markup expense there is a increasing trend and this increasing trend in these expense is

due to the increase in administrative expenses. This increase in non markup expense will

help to increase the effect of increasing markup expenses.

Net profit margin has also shown an increasing trend over all. The increase in gross profit

percentage is lower then the increase in the net profit percentage. The reason behind this

is that the increase in non markup expenses will proportionate increase in the non markup

income. Furthermore, the taxation percentage was high for 2007 but for 2008 the taxation

percentage decreases due to decrease in profit before tax. The combine defect of all of

these has resulted in lower percentage increase in the net profit as compare to decrease of

gross profit.

4.2.2 Financial ratio analysis

A financial ratio is an index that relates two accounting numbers and is obtain by

dividing one number by other. One may consider that why there is a need to mingle with

these ratios and not take the actual figures straightforwardly. Among various reasons one

strong reason can be put forward that ratios help in comparison. When analysis is two

compare the internal performance of the organization in relation to time, only ratios

analysis is the viable option for them. Along with it, comparison with the other

38

competitors in the same industry can only be carried out with the help of financial ratios.

The number of financial ratios might be created in virtually unlimited, but there are

certain basic ratios that are frequently used specially for measuring the banks

performance. There are some ratios that are used for the analysis of the banks these are:

1. Earning assets to total assets

2. Return on earning assets

3. Interest margin to average earning assets

4. Loan loss coverage ratio

5. Equity capital to total assets

6. Deposit times capital

7. Loan to deposits

4.2.2.1 Earning assets to total assets

Earning assets includes loans, leases, investment securities, and money market assets. It

excludes cash and non earning deposits plus fixed assets. This ratio shows how well bank

management puts banks assets to work. High performance banks have a high ratio.

Formula Earning assets / Total assets

2007 = 591,907,435 / 762,193,593

= 77%

2008 = 624,939,016/ 817,758,326

=76.4%

39

This represents the earning assets to total assets ratio which has decrease from 0.77 to

0.764 which is the slight decrease.

4.2.2.2 Return on earning assets

Return on earning assets, computed by dividing net income by average earning assets, is

a profitability measure to be viewed in union with return on assets and return on equity.

Formula Net income / Average earning assets

2007 = 19,033,773 / 565,057,106

=0.033

2008 = 15,458,590 / 624,842,198

=0.024

This ratio is decreased moderately in 2008.

4.2.2.3 Interest margin to average earning assets

40

This is the key determinant of bank profitability for it provides an indication of

management's ability to control the spread between interest income and interest expense.

Formula Interest margin / Average earning assets

2007 = 33,629,470 / 56,505,710

=0.595

2008 = 37,058,030 / 624,842,198

=0.0593

This ratio shows the decline in profitability.

4.2.2.4 Loan loss coverage ratio

This ratio is computed by dividing pre-tax income plus provision for loan losses by net

charge offs, and helps determine the assets quality and the level of protection of loans.

Formula Pre-tax income + provision for loans losses / Debt written offs

2007 = 28,060,501 + 4,723,084 / 39,899

= 821.66

2008 = 23,000,998 + 10,593,565 / 1

=33,594,563

This ratio is increased in 2008 and has no loss.

41

4.2.2.5 Equity capital to total assets

This ratio, also called funds to total assets measures the extent of equity ownership in the

bank. This ownership provides the cushion against the risk of using debt and leverage.

Formula = Equity / Total assets

2007 = 61,157,640 / 698,663,152

= 0.087

2008 = 75,318,816.5 / 789,975,959.5

=0.0953

This ratio is increased in 2008 by 0.09 from 0.08 in 2007 and appears to be very good.

4.2.2.6 Deposit times capital

This ratio concerns both the depositor and the stockholders. To some extent, it is a type of

debt, equity ratio, indicating a banks debt position. More capital implies a greater margin

of safety, while larger deposit base gives a prospect of higher return to stock holders

since more money available for investment purposes.

42

Formula = Average deposits / Average stockholders equity

2007 = 546,889,839 / 61,157,640

= 8.94

2008 = 608,423,225.5 / 75,318,816.5

=8.077

This ratio shows the decrease in 2008.

4.2.2.7 Loan to deposit

Average total loans to average deposits are a type of assets to liability ratio. Loans make

up a large proportion of the banks assets. And its principle obligations are the deposits

that can be with drawn on request with in time limitations. This is the type of debt

coverage ratio and it measures the position of the bank with regard to taking risk.

Formula Average total loans / Average deposits

2007 = 328,393,753 / 546,889,839

=0.600

2008 = 376,652,897.5 / 608,423,225.5

=0.619

This ratio shows that loan to deposit increased slightly in 2008 and indicates increase in

risk from a debt standpoint.

43

4.2.2.8 Operating cost to income ratio

Formula Non interest cost / Net income

2007 = 14,391,079 / 19,033,773

=0.756

2008 = 19,502,080 / 15,458,590

=1.261

This ratio shows the increase in the 2008.

4.2.2.9 Interest income per employee

Formula Interest income / Total no of employees

2007 = 13,544,845 / 14,019

=966.17

2008 = 16,415,862 /15,204

= 1079.7

44

4.2.2.10 Profit per employee

Formula Profit after tax / Total no of employee

2007 = 19,033,773 / 14,079

=1,351.91

2008 = 15,458,590 /15,204

=1016.74

4.2.2.11 Business per employee

Formula Total advances / Employee

2007 = 340,318,930/14,079

=24,172.54

2008 = 412,986,865 /15,204

=27,163.04

Formula Total deposits / Employee

2007 = 591,907,435 / 14,079

=36,927.866

2008 = 624,939,016 /15204

=41,067.7

45

4.2.2.12 Business per branch

Formula Total deposits / No of branch

2007 = 591,907,435 / 1,250

=473,525.948

2008 = 624,939,016 /1254

=498,356.48

Formula Total advances / No of branch

2007 = 340,318,930 / 1,250

=272,255.144

2008 = 170,822,491 /1254

= 136,222.081

46

4.2.2.13 Employees per branch

Formula Total no of employees / No of branches

2007 = 14,019 / 1,250

= 12

2008 = 15,204/ 1254

= 12.12

≈ 12

4.3 Branch Analysis

When we analysis the branch the following ratios show the financial position of

Mandian branch Atd

4.3.1 Business per branch

Formula = Total deposits / No of branch

2008 = 624,939,016 /1254

Average deposits by single Branch =498,356.47

Deposits by Mandian Branch Atd = 19,075,858

As the deposits of main branch are more than the deposit of average deposits because it is

main branch and the number of transaction, deposit and advances are much higher than

the averages branches

47

Formula = Total advances / No of branch

2008 = 170,822,491 /1254

Average advance by single Branch =136,222.08

In the case of advances of main branch are more than the advances of average deposits

because it is main branch and the number of deposit and higher than the average branches

due to high deposits the rate of advances is high and the total advances are much more

than the averages branches.

4.3.2 Branch Deposit to Total Deposit

= Branch Deposit /Total Deposit

=19,075,858/621,939,016

=0.03067

=3.06%

The 3.06% of total deposit came from Mandian branch

The share of main branch deposit is 3.06% in total deposit, its mean that 3.06%

advances came from main branch and this ratio is increasing by every year

4.3.3 Branch advance to Total Advance

=Branch Advance/Total Advance

=4,629,578.4/412,986,865

=0.01120

=1.12%

The total contribution of NBA Mandian branch is 1.12%.Means 1.12% of advance came

from this branch

4.3.4 Advance to Deposit Ratio of Branch

Formula = Total Advance/Total Deposit

48

=4,629,578/19,075,850

= 0.246

= 24%

4.3.5 Business of branch per Employee

Formula = Total deposits / No of employee

2008 = 4,629,578/30

Deposits per employee in Mandian Branch Atd = $154,319

Formula = Total advances / No of employee

2008 = 1,266,326.464 /30

Advances per employee in Mandian Branch Atd =$42,210

4.4 SWOT analysis

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

threats SWOT analysis is careful evaluation of an organization’s internal strengths and

weakness as well as its environment opportunities and threats. “SWOT analysis is a

situational which includes strengths, weaknesses, opportunities and threats that affect

organizational performance."." The overall evaluation of a company strengths,

weaknesses, opportunities and threats is called SWOT analysis.”

In SWOT analysis the best strategies accomplish an organization’s mission by

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.

3. Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the

organization mission as a context, managers assess internal strengths distinctive

competencies and weakness and external opportunities and threats. The goal is to develop

49

good strategies and exploit opportunities and strengths neutralize threats and avoid

weaknesses.

4.4.1 Strengths

These are the distinctive competencies of the NBP:

4.4.1.1 Oldest institution

NBP in 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.

4.4.1.2 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.

4.4.1.3 More deposits than other bank

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 privileged

and oldest bank in banking sector of Pakistan enjoys this edge over all others, lacking it.

4.4.1.4 Employee benefits

The employers at NBP are offered reasonable monetary benefit. Normally two bonuses are

given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and competency

for the bank and a source of motivation for the employees.

4.4.1.5 Broad network

The bank has another competency i.e. it has broad-basses network of branches throughout

the country also more than one branch in high productive cities. The customers are

provided services at their nearest possible place to confirm customer satisfied.

4.4.1.6 Strictly followed rules & regulation

50

The employees at NBP are strict followers of rule & regulation imposed by bank. The

disciplined environment at NBP bolsters its image and also enhances the over all out put

of the organization.

4.4.1.7 Professional competence

The employees at NBP here have a good hold on their descriptions, as they are highly

skilled Professionals with back ground in business administration, banking, economics etc.

These professional competencies enable the employees to understand and perform the

function and operation in better way.

4.4.1.8 Healthy environment

The working condition in the NBP branch here is very conductive and favorable for better

output. The informal environment affects the performance of the employees in a positive

way.

4.4.1.9 Relation between staff and other employees

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.

4.4.2 Weaknesses

These are the external opportunities or the internal weaknesses:

4.4.2.1 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.

4.4.2.2 NBP under political pressure

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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.

4.4.2.3 Favoritism and nepotism

The promotions and bonuses etc in the bank are often powered by senior’s favoritism or

depends upon their wills and decision. This adds to the negative factors, which

denominate the employees thus resulting in affecting their performance negatively.

4.4.2.4 Lack of financial 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.

4.4.2.5 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 stages

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

because they are not well served.

4.4.2.6 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.

4.4.2.7 Lack of modern equipment

The bank lacks the modern Equipment that is note counting machine computers. Even if

there is any equipment they lack to fall in the criteria of being rearmed as update and

upgraded

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4.4.2.8 Uneven work distribution

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

de motivation factor for employees performing above average work.

4.4.3 Opportunities

These are the competitor’s weaknesses and the NBP’s opportunities:

4..4.3.1 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.

4.4.3.2 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.

4.4.4 Threats

Threats are the major external forces effecting on the NBP:

4.4.4.1 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.

4.4.4.2 Political pressure by elected government

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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.

4.4.4.3 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.

4.4.4.4 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.

4.5 Competitive analysis

There is NBP’s competitive analysis which is as follows:

4.5.1 Porter’s 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.

4.5.1.1 Rivalry among competitive firms

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

“Nation’s Bank”.

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4.5.1.2 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 new bank can take

over it.

4.5.1.3 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 that’s why sawing PLS accounts are more then current

accounts. The next examples will ATM which substitute presenting Cheque at counter and

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

competitors.

4.5.1.4 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 with

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 that’s it gives

competitions to other banks.

4.5.1.5 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

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customers. NBP have a large number of customs. Now it must offer good services and

products to their customers to attract them to come in the NBP.

CHAPTER # 5

Conclusion And Recommendations

If I have to express my experience of internship in National Bank Mandian Branch

Abbottabad I would briefly say that National Bank is a good Organization in the way that

anybody can join it for his/ her long-term career. Overall working environment is

comfortable. Management of branch cares a lot of its employees and considers them as the

Asset of bank. Behavior of senior executive of bank is very polite and they are caring

about the individual’s career and their growth.

However management is very demanding about the targets but good reward at the

achievement of assigned targets is awarded. Employees at Bank are quite efficient. As the

branch is renovated and new employees are hired, its employees have to bring their bank

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among the list of good banks. Therefore, they work more than their working hours and it

is all according to their will. It also shows their loyalty, commitment to organization.

Employees are given the benefits like bonus, gratuity funds, loans, increments, and

medical. All the customers are entertained individually. Same kind of behavior and

attention is given to all the customers. Getting ideas for improvement from customer side

is a new idea and that is working very well in National Bank. All the customers are asked

to fill a suggestion form and the standards of the bank are improved through them.

Prioritizing its product portfolio in line with its corporate and consumer needs and wants

the bank is committed to develop products that give more value to its customers in both

the sectors. In bank, the work is done on computers as well as manually. All the entries are

made in computer. Balance is fed into the computer. This increases efficiency of the bank.

During my internship training I gathered information regarding how a successful bank

operational aspect decorticated with the practical.

I found my internship training at National Bank Mandian Branch Abbottabad to be a very

rewarding experience. The training was beneficial because it helpful me to aware a real

life working environment.

So far my learning is concerned; all the employees at branch were quite cooperative. They

helped me to understand the activities of a bank to possible extent. Their good attitude

gave me more confidence to learn more and to ask if I have any query in my mind.

Besides their ever going activities they never get irritant by my questioning. I had made an

honest efferent to present the working & operation at Branch in simplest way. I feel

pleasure that I have really gained a lot during 8 weeks & enjoyed working with

experienced cooperative & intelligent staff.

5.1 Financial Sector Problems and Recommendations

Although NBP is the largest commercial bank in Pakistan and it is functioning very

efficiently and effectively, but there is always some room for improvement and

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efficiency. Some of these recommendations are based upon my analysis and some are my

general observations.

5.1.1 Earning assets to total assets

This ratio shows how well bank management puts banks assets to work. High

performance banks have a high ratio. But in this ratio the decrease of 0.6% this is due to

of earning assets are not increasing with the proportion of total assets, the total of NBP

increased more then earning assets that’s why little decline in it

Suggestion

Manager should take keen interest to increase the figure of earning assets as total assets

increase the earning assets should also increase because earning assets will increase the

total revenue

5.1.2 Loan loss coverage ratio

This ratio helps determine the assets quality and the level of protection of loans.

Suggestion:

This ratio is increased in 2008 and has no loss because debt written off were in 2008 were

zero this shows that either loan amount were not so much higher or every once cannot get

the loan so bank have to revise their policy and increase the lending because as lending

increase the markup will increase

5.1.3 Equity capital to total assets

This ratio, also called funds to total assets measures the extent of equity ownership in the

bank. This ownership provides the cushion against the risk of using debt and leverage.

This ratio is increased in 2008 by 9.5% from 8.7% in 2007 and appears to be very good.

Suggestion

As size of total assets increased so the equity is also increasing per year as equity has

increased by 0.8% management have to keep maintain the ratio

5.1.4 Deposit times capital

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This ratio concerns both the depositor and the stockholders. More capital implies a

greater margin of safety, while larger deposit base gives a prospect of higher return to

stock holders since more money available for investment purposes.

This ratio shows the decrease of 0.863% in 2008.

Suggestion

This ratio show the negative trend in last year this is due to increase in equity and if bank

management become succeed in increasing deposit then this ratio will be increased

5.1.5 Loan to deposit

Average total loans to average deposits are a type of assets to liability ratio. Loans make

up a large proportion of the bank’s assets. This is the type of debt coverage ratio and it

measures the position of the bank with regard to taking risk.

This ratio shows that loan to deposit increased 1.9% slightly in 2008 and indicates

increase in risk from a debt standpoint.

Suggestion

60% of deposit was used as loan but last year it increased and as portion of loan increased

the whole profit will increased and management has to take effective exposure

5.1.6 Business per employee

If we divide total advance by total employee then we get this ratio but this ratio has

increasing trend and the value increased $2,991 from previous year

Suggestion

The increased in value is due to increase in Advances, as the deposit increase the

advances will increase so the value has increasing trend. Bank management have to

increase the advance or maintain the value. Second reason of increasing of this value is

average employee are remain same to branches

Average deposit to each employee, increase value is $4,140 from previous year. The

reason is due to increasing in deposit. As the deposit increased the deposit per employee

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value will increased, as we know bank business revolve around advance and deposit so

bank have to increased the deposit more and more this will increase the advances.

5.1.7 Business per branch

Business per branch value is increasing trend $17,779 this is due to number of deposit

increased.

Suggestion

National bank take the advantage of “Being the first in market rather then to be best in

market” NBP identified the market and open its branches and become successful in

market share.

5.2 Over All Problems and Recommendations

These recommendations and suggestion are as below:

5.2.1 Performance of general banking departments

General banking department, particularly the account opening section is not performing

well. The people who are working in the account opening sections are not properly

trained in public dealings. Their behaviors with the clients were not appreciable.

Suggestion

All departments should be careful about their performance. Branch should be inspected

by inspecting parties. They should especially examine the public dealings of the

employees.

5.2.2 Lack of proper training

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There is not proper training system among the staff. Training is necessary to show good

performance and efficiency.

Suggestion

I suggest that an arrangement of refresher courses and in service training must be made to

increase the knowledge and skills of the employees. This will help enabling them to meet

modern banking requirement and to fill the efficient staff qualities.

5.2.3 Interference of union

The elected unions are headache for management now days, they interfere in

administrative matters. So there is heavy pressure of union on management, due to which

they remain under stress and pressure. If management wants to take disciplinary action

against an employee, it can not be taken due to the pressure of union.

Suggestion

Bank should not influence by union. Rules and regulations should be followed strictly.

Management would be diplomatic towards the union.

5.2.4 Delegation of authority

There is no proper delegation of authority

Suggestion

Executive at all level should be given sufficient power and authority to make quick

decisions. This will increase the effectiveness and efficiency of the organization.

5.2.5 Distribution of work

There is no proper distribution of work.

Suggestion

All work must be distributed properly among the employees.

5.2.6 in adequacy of staff

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In my observation, I felt that the strength of the present staff is insufficient. The staff is

affecting badly due to burden of over work.

Suggestion

The shortage of staff must be fulfilled immediately, in this way, the staff will be able to

perform its duties appropriately.

5.2.7 Inadequate building

The building hired by the bank is not only a good one 'jut also is insufficient for proper

functioning of the staff.

Suggestion

I suggest that it should be either changed or widened.

5.2.8 Non-installation of computer

This is an era of science and computer. Most of the banks functioning in Pakistan have

adopted computer system. This branch is deprived of this facility yet.

Suggestion

I suggest that bank must be computerized. In this way, it will be easy to keep up to date

records, of all accounts. So the bank must gain benefit from this modern electronics.

5.2.9 Lack of library

The library is an essential requirement for the bank. But this bank has no library yet.

Suggestion

The bank must establish a library having all kinds of books, particularly about the

banking, economic and accounts.

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References

Brealey, Marcus, J. (2007); Principles of Corporate Finance. 3rd Edition, Prentice Hall

International Corporation, UK.

Gibson, Charles H, (2002); Financial Reporting & Analysis, 7th Edition Prentice Hall

International Corporation”, UK.

Hussain, ,Rana, (1991);Banking Currency and Finance,(2nd Edition),Ilmi Kutab Khana,

Lahore.

Siddiqi,Asrar (2008);Practices and law Banking in Pakistan,(8th Edition),Royal Book

Company, Karachi.

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NBP Annual report (2008); National Bank of Pakistan 2009

http:// www.nbp.com.pk/Publications

http://www.sbp.org.pk/stats

ANNEXURES

(A) NBP Profit & Loss Account

For the year ended December 31, 2008

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Source: Annual Report 2009

(B)National Bank of Pakistan

Balance Sheet

As at December 31, 2008

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Source: Annual Report 2009

Consolidated Cash flowDecember 31,2008

66

Source: Annual Report 2009

6 Years performance

67

Source: Annual Report 2009

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