Internship Report On

NATIONAL BANK OF PAKISTAN

Ali Pur Chattha Branch.

Presented By: Shazeb Mehmood B.Com (Accounting) Roll # BC06016 Session: 2006 2010

Banking sector owes a pivotal importance in the economy of any country through its vibrant functions. This is the deep seated motivator that geared up me to join any bank for internship. Moreover, the practice and familiarity learned during this tenure would also attest very helpful and alleviating in the awaiting proficient life. In section 1 I have given the complete information about the banking sector that what is a commercial bank and what are its types and also the relationship between a banker and the customers. In Section 2 I have given the complete information about the history of banking in Pakistan, efforts towards Islamic Banking in Pakistan and also the complete history of National Bank of Pakistan. In section 3 I have given the information about the management hierarchy such as Board of Directors and what are they doing, Senior Management, Organizational Chart Organizational Structure and the Financial Highlights of the Year 2006. In section 4 I have given the detailed information about the NBP Branches & its types, and Divisions of NBP. In section 5 I have given the detailed information about the NBP products and services and also the process of getting those products and services. In section 6 I have given the complete information about field of activities of National Bank of Pakistan and its Departments. In section 7, I have given the information about the major functions of NBP its departments, types of deposits, types of checks collected, Securities & Advances and their types, and also some other services offered by NBP. In section 8, I have given the information about the work done by me during my 6 weeks internship at National Bank of Pakistan main branch Ali Pur Chattha. In section 9, I have conducted the SWOT analysis and on the basis of that I have given the information about the Strengths, Weaknesses, Opportunities, and Threats towards NBP. In section 10, I have given some recommendations and conclusions on the basis of SWOT analysis and in the last Bibliography.
The report is simple and quite easy to understand by even a person having bit knowledge about the organization or any other organization of the same category. I also produced this report because it was also mandatory from our precious institute not only to get our Master degree but also making us able to tackle the challenges in upcoming professional life with honor and proud. I also want to show to my teachers that I will the true picture of our leaders and will become the ambassador of my institute with honor and pride. Thank you sir

In The Name Of Allah, The Most Beneficial, The Most Merciful. All praise is For Allah, The Lord Of The Universe, The Most Beneficial, The Most Merciful. The Master Of The Day Of Judgment.

(Al-Fatiha; verse:1-4 )

DEDICATION

This project is dedicated to my parents who always wished to see me as a successful man in every field of my life. May they live long, praying for me.
(Aamin)

Page #

1. Preface

...

10 12

2. Acknowledgement

Section 1: INTRODUCTION TO BANKING SYSTEM

3. What is Commercial Bank? 4. Types of Banks 5. Banker and Customer Relationship 14 14 16

Section 2:

HISTORY OF BANKING & NBP

20 22
25

6. History of Banking in Pakistan

7. Efforts towards Islamic Banking in Pakistan

8. National Bank of Pakistan

...

Section 3:

ORGANIZATIONAL STRUCTURE

9. Management and Organization of a Commercial Bank

34
35

10. Board of Directors

11. Senior Management 12. What are They Doing

37 38 38 40

13. Organizational Chart of NBP 14. Organizational Structure

15. Financial Highlights of 2006 42

Section 4:

Types of Branches of NBP

45 46 47 47 48 49 49 49

16. Domestic Branches 17. ATM Linked Branches 18. Overseas Branches

19. NBP Swift Local Branches 20. NBP Swift International Branches 21. Division of NBP 21.1 Credit Division

21.2 Corporate Division 21.3 Recovery & Litigation Division

49

Section 5: NBP Products & Services

22. NBP Products a. NBP Premium Aamdani 54 54
6

c. NBP Saibaan

55 57 58 59 61 62 63 64 65 66 68 71 71 71 71 72 72

d. NBP Premium Saver e. Karobar-Presidents Rozgar Scheme f. NBP Investor Advantage g. NBP Advance Salary

h. NBP Cash Cards i. NBP Kisan Dost j. NBP Cash on Gold

k. NBP Pak Remit l. NBP online-Aasan Banking m. NBP Protection Shield 23. NBP Services

a. Demand Draft . .. . .. b. Swift Systems

c. Letter of Credit . .. . .. d. Pay Order . .. . .. e. Mail Order . .. . ..

Section 6:

NBP Fields of Activities

77 78 81 82

24. NBP General Banking 25. NBP Account Department 26. NBP Remittances Department 27. NBP Advance Department

Section 7:

MAJOR FUNCTIONS OF NBP

85 86 89 90 90 90 90 90 91 91 91 92 92

28. Cash Department

29. Deposit Department 30. Ledgers of Deposit Department 31. Types of Checks Collected .. .. .. .. . . 31.1 Transfer Cheques 31.2 Clearing Cheques 31.3 Collection Cheques

32. Advances and Credit Department 33. Securities 33.1 Lien

33.2 Guarantees 33.3 Mortgage 33.4 Hypothecation

33.5 Pledge 34. Types of Advances

92 93 93 93 94 94 94 95 95 95 95 95

34.1 Demand Finance (Ordinary Loans) 34.2 Running Finance (Overdraft) 34.3 Cash Finance 34.4 Small Finance

34.5 Finance against Bills 34.6 Agriculture Loans 35. Other Services

35.1 Utility Bills Collection

35.2 NBP Pak Rupee Traveler Cheque 35.3 Foreign Currency Accounts

Section 8:

Area of Internship
97 97 97 98 98 98
9

36. Work performed during internship a. General Banking b. Cheque at Counter

c. Cheque Payment procedure d. Issuance of Demand Draft e. Bills Collections Department

f. Bill Remittance Department g. Deposit Department 37. financial Analysis h. Ratio Analysis I. Horizontal Analysis J. Vertical Analysis

98 99 103 104 119 134

Section 9:
38. Strengths 39. Weaknesses

SWOT ANALYSIS
153 155 157 159

40. Opportunities 41. Threats

Section 10: RECOMMENDATIONS & CONCLUSIONS

42. Recommendations 161 163

43. Conclusions ..

44. Bibliography 45.Glossary 46. Annexure

165 166 169

10

Banking sector owes a pivotal importance in the economy of any country through its vibrant functions. This is the deep seated motivator that geared up me to join any bank for internship. Moreover, the practice and familiarity learned during this tenure would also attest very helpful and alleviating in the awaiting proficient life. This report is an upshot of my six weeks internship in National Bank of Pakistan, Main Branch, Ali Pur Chattha. National Bank of Pakistan posses an imperative and historical importance in the banking sector of Pakistan. It always remains the center of hustles in business activities. It always endows with great covenant of rally round in terms of funds and services at all epochs of its dynamism. Although, a derisory period of six weeks is not enough to learn the complex operations of National Bank of Pakistan yet I made industrious efforts to converse them comprehensively in this report. Particularly, I have remunerated more accents on study of distinguishing features and services of National Bank of Pakistan. I have made maximum venture to elaborate this report with the material read, listened and observed. I have strong belief that this report will guide and ease the readers to understand the operations of banking system and more prominently have good knowledge about National Bank of Pakistan, one of the most trusty and leading banks in Pakistan. Dear readers, I hope that you will appreciate my report and sense that reading my report is not like to waste the time in any respect because of the four principal reasons as under:

11

1 ... ...

A conscientious attempt is made to provide 100 % realistic knowledge of the real world organization, National Bank of Pakistan.

2 ... ...

Almost all the terms are first explained themselves in a simple and comprehensive way used in this organization before bringing them into play in different dealings so the reader may soundly familiar to the operations performed in the banks.

3 ... ...

No Gup is made from beginning to end in the report not even of a single word.

4 ... ...

Although, it is not a titanic sized report but the material provided is not a bogus. Also, this report is wholly up to date, equipping the information about currently prevailing functioning and services of the Banking System of National Bank of Pakistan.

If any reader likes my report and he want to get a soft copy of the report, so dont worry. You can get the soft copy of my report very easily. What you have to do to get a soft copy of the report? You have to do only one thing for this cause. Please address me your request in my email and I will send a soft copy of my report to the calling ID or otherwise mentioned. I check my email account after 10 days. My email address is as under:

Shazi_paks@yahoo.com

Shazeb Mehmood B.com (Accounting) Roll # BC06016 Session: 2006-2010.

12

I am very gratifying to Almighty Allah who permitted me to be trained in a real world organization, NBP, as well as to complete this report in a very limited time. My thanks are also due to the young, dynamic, congenial, and qualified staff of NBP who never let me alone in different situations related to my internship. Without their humble help, it was not easy. I cannot forget to pay my special thanks to Mr. Akhtar Hussain Malik, Manager and In charge of NBP main branch Ali Pur Chattha, who managed the internship permission for me from the Sub Head Office of NBP D.G. Khan to depute my internship in NBP Branch, Ali Pur Chattha.

Shazeb Mehmood

ection


13

,QWKLVVHFWLRQWZRWRSLFVDUHGLVFXVVHG7KH\DUHDVXQGHU 


7\SHVRI%DQNV
Commercial bank Savings bank Merchant banks Mortgage banks Consumer bank Investment bank Central bank

%DQNHUDQG&XVWRPHU5HODWLRQVKLS

14

A bank is a financial institution which deals with money and credit. It accepts deposits from individuals, firms, and companies at a lower rate of interest and gives at a higher rate of interest to those who apply for loan. The difference between the terms at which it borrows and those at which it lends from the source of its profit. A bank, thus, is a profit earning institute. Any bank that performs this functioning is called the commercial bank.

According to Crowther:
A bank is a firm which collects money from those who have it spare. It lends
money to those who require it.

According to Banking Ordinance 1962:

According to Section 5(b) of Banking Ordinance 1962 , meaning of banking is as under: Banking company is a company which transacts the business of banking in Pakistan, mainly of accepting, for the purpose of lending and investments of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order, or otherwise

Types of Banks
Merchant Banks:
Merchant banks are those, which have been mainly financing the domestic and international trade. During the late 18th and early 19th centuries the trade between countries was financed by bill of exchange by well-reputed merchants houses for which they would charges a commission for their services

Savings Banks:
The basic purpose of these banks is to inculcate the habit of saving in the people.The savings banks deposits are not repayable upon only the written order of depositor but the depositor of his agent has to appear personally at the saving banks to make 15

withdrawal and for this purpose he must present a pass book a certificate of deposit or some similar documents to prove his right to receive his payments. Post office savings banks and savings accounts at national saving organizations are well known national saving banks in Pakistan.

Mortgage Banks:
These banks mainly deal in loans for acquisition or construction of real estate against the securities of mortgage.

Consumer Banks:
These banks providing finance for purchasing consumption goods for the use of Brewers

Investment Banks:
These banks assists business houses and governmental bodies to raise money through the sale of stocks and bond for usually long term purposes these banks perform the usual functions of raising deposits of idle money from the public and finance the business houses other bodies.

Central Banks:
Central banks occupy the unique position in banking structure of a country because they have been interested with the responsibility of controlling the money supply, interest rate, and financial market of a country for the purpose of economic development.

The relationship between the banker and the customer are of utmost importance. Both serve the society and the economy to expand. Before we discuss the relationships

16

between the banker and the customer, it seems necessary that the two terms banker and customer are made clear.

* Banker *
A banker is a dealer in capital or more properly a dealer in money. He is an intermediate party between the lender and the borrower and charges a definite amount of money which is the profit of his.

* Customer *
A customer is a person who maintains a regular account with the bank, without taking into consideration the duration and frequency of operation of his account.

The relations between the banker and the customer are generally studied as under:

*Debtor and Creditor*

The general relationship between banker and customer is primarily that of a debtor and creditor. When customer deposits money with a bank, the bank then is the debtor and the customer is the creditor. The customer expects from the bank that (I) his money will be kept safe by the bank, (II) it will be returned on demand within business hours. The position is reverse if the customer is advanced loan i.e. the banker becomes the creditor and the customer is the debtor.

*Bailer Relationship*

and

Bailment

17

A bailment is the delivery of goods in trust. A banker may accept the valuables of his customers such as jewellery, documents, securities etc. for safe custody. In such a case the customer is the bailer and the bank is the bailee. It charges a very small amount of money as service charges for safe custody of valuables.

*Pledger and Pledgee*

When a customer pledges goods and documents with the bank as security for an advance, he then becomes the pledger and the bank becomes the pledgee. The pledged goods are to be returned intact to the pledger after the debt is repaid by him.

*Mortgager and Mortgagee*

Mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan. When a customer pledges specific immoveable property with the bank as security for an advance, the customer becomes the mortgager and the bank becomes the mortgagee.

*Bank as a Trustee*
The bank acts as a trustee for his customers in those cases where he accepts other valuables for safe custody. In such case, the customer continues to be the owner of the valuables deposited with the bank.

*Executor, Attorney, Guarantor*

The bank also acts as executor, attorney, and generator for his customers.

18

Banking is the business of providing financial services to consumers and businesses. The basic services a bank provides are checking accounts, which can be used like money to make payments and purchase goods and services; savings accounts and time deposits that can be used to save money for future use; loans that consumers and businesses can use to purchase goods and services; and basic cash management services such as check cashing and foreign currency exchange. Four types of banks specialize in offering these basic banking services: commercial banks, savings and loan associations, savings banks, and credit unions. A broader definition of a bank is any financial institution that receives, collects, transfers, pays, exchanges, lends, invests, or safeguards money for its customers. This broader definition includes many other financial institutions that are not usually thought of as banks but which nevertheless provide one or more of these broadly defined banking services. These institutions include finance companies, investment companies, investment banks, insurance companies, pension funds, security brokers and dealers, mortgage companies, and real estate investment trusts.

19

ection 2

In this section three topics are discussed. The major topic of this section is:

History of Banking in Pakistan Efforts towards Islamic Banking in Pakistan National Bank of Pakistan

20

The partition plan was announced on June 3, 1947 and August 15, 1949 was fixed as the date on which independence was to take effect. It was decided that the Reserve bank of India should continue to function in the dominion of Pakistan until September 30, 1948 due to administrative and technical difficulties involved in immediately establishing and operating a Central Bank. At the time of partition, total number of banks in Pakistan were 38 out of these the commercial banks in Pakistan were 2, which were Habib Bank Limited and Australia Bank of India. The total deposits in Pakistani banks stood at Rs.880 million whereas the advances were Rs.198 million. The Governor General of Pakistan, Muhammad Ali Jinnah issued the order for the establishment of State Bank of Pakistan on 1st of July 1948. In 1949, National Bank of Pakistan was established. It started with six offices in former East Pakistan. There were 14 Pakistani scheduled commercial banks operating in the country on December 1973, the name of these were:

1. 2. 3. 4. 5. 6. 7. 8. 9.

National Bank of Pakistan Habib Bank Limited Habib Bank (Overseas) Limited United Bank Limited Muslim Commercial Bank Limited Commerce Bank Limited Australia Bank Limited Standard Bank Limited Bank of Bahawalpur Limited

10. 11. 12.

Premier Bank Limited Pak Bank Limited Lahore Commercial Bank Limited

21

13. 14.

Sarhad Bank Limited Punjab Provincial Co-operative Bank Limited

The Pakistan Banking Council prepared banks amalgamation schemes in 1974 for amalgamation of smaller banks with the five bigger banks of the country. These five banks are as under:

1. 2. 3. 4. 5.

National Bank of Pakistan Habib Bank Limited United Bank Limited Muslim Commercial Bank Limited Allied Bank Limited

So, through the Nationalization of Bank Act 1974, the State Bank of Pakistan, all the commercial banks incorporated in Pakistan and carrying on business in or outside the country were brought under the government ownership with effect from Jan. 1, 1974. The ownership, management, and control of all banks in Pakistan stood transferred to and vested in the Federal Government. The Finance Minister announced plans to start Islamic Banking system in Pakistan in the budget speech on June 26, 1980, but it could not be possible till August, 2007.

22

Pakistan was created in the name of Islam on august 14, 1947. But since then, the interest is paying the cardinal role in resource allocation of the economy. The banking system in Pakistan based on interest divergences with Islamic ideology and is forbidden by Almighty Allah and His Prophet Muhammad (S.A.W).

Any government till now in the country except President Zia-ul-Haq did not dare to change the well-digged system based on interest in banking in Pakistan. The only step taken under this direction is starting of PLS Deposits from January 1, 1982. Only PLS saving account and PLS term deposits shall be accepted on profit and loss sharing basis. The banks were allowed to meet the working capital requirements of their clients on the basis of Musharika, and Leasing, and Hire Purchase. Beside it, different efforts are made time by time in this respect but could not be acted upon at all. Recently in June 2002, the Shariah Applet Bench of Pakistan issued an order to all the banks in Pakistan to change the interest-based banking system to Islamic Modes but the lawyer from the government of Pakistan challenged it by saying that if any affair is in the favor of the public of the country and is also admired by the public then it cannot be abandoned by the government. So this issue is still not resolved. STEPS TO RESTORE NORMAL BANKING FACILITIES: The Government of Pakistan was quite aware of the serious banking caused by withdrawal of deposits and wholesale migration of banking staff to India. It took up challenge and started reorganizing the crippled banking structure. The steps below were taken to rehabilitate commercial banking immediately after partition:

 In order to create confidence and sense of security among the Hindus bank and the non-Muslims banking staff, the Government of Pakistan declared that all 23

bank properties of non-Muslims who wished to continue banking functions would not be treated as an evacuee property.  The banks would be free to secure protection of police.  A moratorium of 3 months ease also allowed to banks that had financial difficulty due to sudden withdrawal of deposits.  In addition to above, the following arrangements were made for facilitating settlement of claims by the Government:  Each bank was to declare one of its offices both in India and Pakistan as a clearing house for transfer of accounts.  Each bank was to open at least one central office in Pakistan where it could consolidate work of all its branches and start paying out to depositors.  The Government took some effective measures far providing banking facilities to Muslims.  There were some complaints that Hindus banks are not honoring the cheques of Pakistani nationals and are also refusing to give securities kept in their custody. The Government issued an ordinance, which empowered it to investigate all such complaints, and if satisfied of their bonafides, the payments should be released. In case the bank insists to non-payments, the Government should realize the assets of the banks, which are sufficient to discharge such liabilities.  The Government of Pakistan also allowed the removal of valuables kept in safe deposits and lockers by submitting an application and getting necessary approval from the custodian of Evacuee Property.

INTER-DOMINION AGREEMENT ON BANKING:  The Government of Pakistan tried to provide all kinds of facilities with sincerity to the non-Muslims bankers for restoring normal banking facilities in the country but the response was discouraging. An International Dominion Agreement was reached between India and Pakistan in April, 1949. The provisions of the agreement were as under:

The accounts of all the Muslims depositors residing in the East Punjab states will be transferred to their respective branches in West Pakistan. If a Muslim depositor wishes to retain the account or does not submit an application for the transfer of 24

funds, his deposits will not to be transferred. The banks were advertise all the proposed transfers in the newspapers so that the depositors could make objections if they so desire.  If the accounts of Muslims depositors are in the banks, which have no offices in West Pakistan, the amounts will be released on the application from the depositors.

If the banks functioning in both the countries have transferred Muslim deposits from Pakistan to India on its own accord, the deposits are to be transferred to the original branches in West Pakistan.

 The Muslims who were residing in other parts of India (excluding East Punjab and East Punjab States) and had migrated to Pakistan were allowed to get their deposits transferred to Pakistan.

The banks wishing to close down their business were allowed to do so provided they keep an amount equal to their outstanding liabilities in bank situated in Pakistan. The banks withdrawing from Pakistan were however permitted to remit surplus funds in India.

 Banks were allowed certain facilities by Government for speedily disposal of stock pledge with them.  The co-operative institutions in East Pakistan had deposited securities valuing Rs.104.66lac with the Punjab Provincial co-operative Bank. The amount was allowed to be transferred to Reserve Bank of India. The CO-operative banks in East Punjab were given permission to transfer the funds to the depositors who had migrated from the provinces. The Inter Dominions Agreement could not fully implement. India delayed the transfer of Muslim deposits to Pakistan. The non-devaluation decision of Pakistan further led to the supervision remittance facilities through normal banking channels. Due to panic withdrawal of deposits, some banks went into liquidation and the payment could not be made to the depositors.

25

In 1949 (September) U.K. devalued its currency, India followed suit but Pakistan did not. India said we had contravened the agreement of keeping both currencies at par. We said we had not done that, India had done it arbitrarily without consulting us. On October 3, 1949 the two central banks were to announce the new par value of both currencies but India denied a day earlier. India also froze our trade - balance surplus that is still an unsettled dispute. India also withdraws the Marwari merchants who were employed annually for movement of jute crop by financing it. There being no jute industry, prices fell sharply, foreign banks and foreign merchants stood aside and an agrarian unrest was threatening

Two Ordinances were, therefore, issued

1. 2.

Jute Board Establishment Ordinance & NBP Ordinance dated 08.11.1949

National Bank of Pakistan 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 20, 1949 at six important jute centers in the East Pakistan and directed its resources in financing of jute crop. The Banks 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 act as the agent to the State Bank of 26

Pakistan for handling Provincial/Federal Government Receipts and Payments on their behalf. Mr.Ghulam Farooq was chairman Jute Board and Mr. Mumtaz Hassan was chairman NBP. Until June, 1950, NBP remained exclusively in jute operations, thereafter-other commodities were also taken-up. After that Mr. Zahid Hussain, Governor SBP assumed additional charge also as chairman NBP's Board of Directors, and Mr.M.A.Muhajir became its first M.D.

In 1952 NBP replaced Imperial Bank of India. This arrangement was negotiated by Mr. Mumtaz Hassan as Acting Governor of SBP.

In 1962 when Mr. Mumtaz Hassan became MD (He had already served NBP for 10 years as its Chairman of government Director), the number of branches had increased from 6 to 239 and deposits from Rs.5 crore (50 million) to 106 crore (one bn & 60 mln), profit from 3 million (3 Lac) to 21 million (2.1. crore) and the staff increased from 380 to 7091, as compared to 1949-50. In Dec. 1966 its 600th branch was opened raising the deposits to 2.31 bn. and staff to 14, 963. Up to 1965, the shareholders had received 225% of their original investment. Now it has more than 21549 employees 1537 branches and Rs.208283 million deposits.

The Bank has also played an important role in financing the countrys growing trade, which has expended through the years as diversification took place. Today the Bank finances import/export business to the tune of Rs.62.17billion, whereas in 1960 financing under this head was only Rs.1.54billion.

The field is being de-layered to improve customer services and enable faster decision making. As a result of this de-layering zones have been eliminated and the numbers of regions have been increased. Organizational hierarchy at the regional level has been restructured and operational and business activities have been completely separated. This separation will improve communication, decision making and promote teamwork.

27

For the third consecutive year, the Bank is recognized as the best Bank in Pakistan for the year 2006 by the prestigious periodical. The Banker UK (a subsidiary of Financial Times Group)

Were expanding horizons, reaching out, being there and bringing something for everyone. After all, we are The Nations Bank.

28

To be the pre-eminent financial institution in Pakistan and Achieve market recognition both in the quality and delivery Of service as well as the range of product offering.

29

To be recognized in the market place by Institutionalizing a Merit & performance culture, Creating a powerful & Distinctive brand identity, achieving top-tier financial Performance, and Adopting & living out our core values.

30

VALUES
NBP aim to be an organization that is founded on a. Growth through creation of sustainable relationships with our customers. b. Prudence to guide our business conduct. c. A national presence with a history of contribution to our communities. NBP shall work to  Meet expectations through Market-based solutions and products.  Reward entrepreneurial efforts.  Create value for all stakeholders. NBP aim to be peopling who  Care about relationships.  Lead through the strength of our commitment and willingness to excel.  Practice integrity, honesty and hard work. We believe that these are measures of true success. NBP have confidence that tomorrow we will be  Leaders in our industry.  An organization maintaining the trust of stakeholders.  An innovative, creative and dynamic institution responding to the changing needs of the internal and external environment

31

OBJECTIVES
Strong emphasis has been laid upon training o f branch officers to better equip them for marketing of retail banking products. Initiatives on similar lines are being launched for the SME sector. In future NBP is going to introduce modern banking services to keep pace with the competition and more important our customer needs. These are as follows:
   

Debit cards Internet banking Call centers Mobile banking

32

MILESTONES

 Best Emerging Market Bank from Pakistan for the year 2005
Global Finance USA, May 2005

 NBP is one of the Top 100 Banks of Asia Euro money UK,
March 2005

 Bank of the year 2001, 2003&2004 for Pakistan The Banker

financial times Group UK.

 Best Foreign Exchange Bank in Pakistan global Finance USA,

March 2004

 Amongst Top 1000 Banks in the world and Number 1 in

Pakistan the Banker Financial Times Group UK, July 2005

33

S


ection




,Q WKLV VHFWLRQ ILYH WRSLFV DUH GLVFXVVHG 7KH PDMRU WRSLFV RI WKLV VHFWLRQDUH


0DQDJHPHQWDQG2UJDQL]DWLRQRID&RPPHUFLDO%DQN
%RDUGRI'LUHFWRUV 6HQLRU0DQDJHPHQW :KDWDUHWKH\GRLQJ" 2UJDQL]DWLRQDO&KDUWRI1%3 2UJDQL]DWLRQDO6WUXFWXUH )LYH<HDU3HUIRUPDQFH

34

The ownership, management, and control of all the commercial banks were taken over by the Government of Pakistan on January 1st, 1974. A banking council was formed under the Nationalization Act 1974. The banking council was set up for making policy recommendations to the Federal Government, formulating policy guidelines for the banks and their reorganization. The management and organizational structure of the nationalized banks have uniformity. This management and organizational structure is briefly described as under:

35

Board of Directors

Mr. S Ali Raza

Chairman & President

Dr. Waqar Masood Khan

Director

Mr. Sikandar Hayat Jamali

Director

Mr. Azam Faruque

Director

Mian Kausar Hameed

Director

Mr. Ibrar A. Mumtaz

Director

Ekhlaq Ahmed
Secretary Board of Directors

Audit Committee
36

Syed Shafqat Ali Shah Jamote (Chairman) M. Zubair Motiwala Muhammad Khalid Malik

Auditors
Taseer Hadi Khalid&Co. Chartered Accountants Ford Rhodes Sidat Hayer&Co. Chartered Accountants

Legal Advisors
Mandviwala & Zafar Advocates & Legal Consultants

Reg iste red & Hea d Off ic e

NBP Building I.I.Chundrigar Road, Karachi, Pakistan

Registrars & Share Registration Office

THK Associates (Pvt.) Shares Department, Ground, Floor, Modern Motors House, Beaumont Road, Karachi, Pakistan

Senior Management

37

Masood Karim Shaikh Shahid Anwar Khan Dr. Asif A. Brohi Imam Bakhsh Baloch

SEVP & Group Chief, Corporate & Investment Banking Group SEVP & Group Chief, Credit Management Group SEVP & Group Chief, Operations Group SEVP & Group Chief, Audit & Inspection Group

Ziaullah Khan

SEVP & Group Chief, Compliance Group SEVP & Group Chief, Human Resources Management & Administration Group SEVP & Group Chief, Commercial & Retail Banking Group SEVP & Group Chief, Treasury Management Group EVP & PSO to the President EVP & Secretary Board of Directors

Dr. Mirza Abrar Baig Amer Siddiqui Muhammad Nusrat Vohra Amim Akhtar Ekhlaq Ahmed

Tajammal Hussain Bokharee EVP/Divisional Head, Special Assets Management Group Mrs. Khurshid Maqsood Ali Tahir Yaqoob Anwar Ahmed Meenai EVP & Divisional Head Employee Benefits, Disbursements & Trustee Division EVP & Group Chief, Overseas Coordination & Management Group EVP & Divisional Head, Islamic Banking Financial Controller & Divisional Head, Financial Control Division Group Chief (A), Information Technology Group

Aamir Sattar

Atif Hassan Khan

38

ORGANIZATION STRUCTURE OF NBP

The structure of National Bank of Pakistan is shown in the organizational chart. As the chart shows the top governing body of National Bank of Pakistan is the board of directors. The board of directors elects a president who then heads the executive board of directors, which comprises of provincial chiefs and division heads etc.

BOARD OF DIRECTORS
The board of directors is the supreme governing body of National Bank of Pakistan. It comprises of a government representative, Pakistan Banking Council Nominee, Nominee of corporate sector and three directors from National Bank of Pakistan.

EXECUTIVE BOARD OF DIRECTORS

The Executive Board of Directors comprises of the four provincial chiefs, the three directors from Board of Directors, and the division heads. These people run the organization. They are answerable to the president and the president is answerable to the Board of Directors.

STRUCTURE OF A PROVINCIAL HEAD OFFICE

A provincial head office is headed by a provincial chief. As the organizational chart shows that under a provincial head office there are regional offices. In Punjab there are about nine regional offices. Under each regional office there are two or three zonal offices and under each office there are fifteen to twenty branches.

ORGANIZATION CHART OF NATIONAL BANK OF PAKISTAN

39

DESIGNATIONS FO HIGHER LEVEL OFFICE PRESIDENT

SENIOR EXECUTIVE VICE PRESIDENT GRADE 22

EXECUTIVE VICE PRESIDENT GRADE 21

VICE PRESIDENT GRADE 20

ASSISTANT VICE PRESIDENT GRADE 19

GRADE I OFFICER GRADE 18

GRADE II OFFICER GRADE 17

GRADE III OFFICER (GRADE 16)

40

ORGANIZATIONAL STRUCTURE
Chief Manager

Chief Operation Manager (CRA)

Manager Credit Processing

Manager Credit Operation

Manager FEX*

Manager JB*

Manager Admin

Manager Compliance

[Sections]

[Sections]

[Sections]

FEX Export Import Remittance F/C A/C

Inquiry Deposits Bills Clearing Utilities Accounts Cash/Chest Govt. Collection

Reconciliation Dispatch Dead Stock Security Staff Welfare

Audit /Inspection To sign all Br. Returns Money laundering .etc

*FEX Foreign Exchange *JB Journal Banking

FINANCIAL HIGHLIGHTS-2008

41

FUTURE OUT LOOK

42

The 2004 results depict the success of the banks restructuring initiatives that were aimed at streamlining of domestic operations and empowerment of the field to facilitate decision making, teamwork and communication. NBP now feel better positioned to pursue its drive for diversification of revenue base to preserve its margins and ensure optimum returns for its stakeholders. These results have been possible due to the commitment and dedication of its staff. NBP express its appreciation to the banks valued customers and the regulators for their confidence as NBP consolidate its position as the Nations Bank.

ection


43


,Q WKLV VHFWLRQ ILYH WRSLFV DUH GLVFXVVHG 7KH PDMRU WRSLFV RI WKLV VHFWLRQDUH


7\SHVRI%UDQFKHV
'RPHVWLF%UDQFKHV 2YHU6HDV%UDQFKHV $WP/LQNHG%UDQFKHV 1%36ZLIW/RFDO%UDQFKHV 1%36ZLIW,QWHUQDWLRQDO%UDQFKHV 

'LYLVLRQVRI1%3
&UHGLW'LYLVLRQ &RUSRUDWH&UHGLW'LYLVLRQ 5HFRYHU\DQG/LWLJDWLRQ'LYLVLRQHWF

There are a lot of different branches of National Bank of Pakistan. We explain them one by one.

 There are main branches in every city. In one city there is only one main branch, it is directly under the zonal office.

 Then there are commercial branches. These are the ordinary branches and are in the commercial areas such as the Mall Road Branch. 44

 The Industrial Branches are exclusively in industrial zones.  There are also Residential Branches. These are exclusively in residential colonies.  Another type is the Mixed Branch such as civil secretariat branch. Every kind of work is done.

 There are also Project Branches created for specific purposes i-e the project and are at the site.

 Another unique type is the Model Branch. No other bank in Pakistan has these. In these branches all the work is done by the officers. Even the officers sit on the counters. Model Branches are in Karachi, Lahore and Islamabad.

 There is one special type known as Drive in Branch. There is one in Karachi known as Kahkashan branch. People go to the bank in the car, hand over the check and get the money sitting in the car.

NBP Branch Network

PUNJAB Bahawalpur D.G. Khan/ RYKhan Faisalabad Gujranwala Sialkot/ Narowal Islamabad Jhang Jhelum/ Gujrat/ Chakwal

45

Lahore Multan/ Baha'nagar Murree/ Attock/ Gilgit Rawalpindi Sahiwal Sargodha/ Sheikhupura NWFP Abbottabad/ Mansehra Bannu/ D.I. Khan Kohat / Mingora Mardan Peshawar SIND Dadu/ Sanghar Hyderabad Jacobabad/ Shikarpur Karachi Larkana Mirpurkhas/ Badin Nawabshah/ N' Feroze Sukkur/ Khairpur Tharparkar BALUCHISTAN Quetta Sibi Kachi Zhob Lasbella Gwadar Kalat AZAD KISHMIR Muzaffarabad Mirpur

ATM Finder

NBP AND 1 LINK ATM NETWORK

NBP has joined 1 Link ATM Network, linking it to the endless ATM Banking opportunities. 1Link is the ATM Network that works for you. Today marks the formation of a formidable banking technology network - 1 Link. Eleven banking powers bring NBP to the largest nation wide ATM Network that provides reliable 24-Hours access to cash. ATM Network supports transactions of following banks: Bank Alfalah, Union Bank, Allied Bank Limited, Askari Bank, Habib Bank, ABN Amro, Soneri Bank, Bank Al Habib, UBL, PICIC commercial Bank at the following places: 46

Burewala Faisalabad Gujar Khan Gujranwala Gujrat Hyderabad Islamabad Karachi Lahore Mirpur

Multan Muzaffarabad Peshawar Quetta Rawalpindi Sheikhupura Sialkot Taxila Wah Cantt.

1 Link ATM Network

NBP Overseas Branches

America and Europe Region SA Canada Germany France Far East Region Hong Kong Japan South Korea China

Middle East, Africa & South Asia Region Bahrain Egypt Bangladesh EPZ

Central Asian Republics Afghanistan Turkmenistan Kyrgyz Republic Kazakhstan Uzbekistan Azerbaijan

47

NBP SWIFT Local Centers

S.No. City 1 FAISALABAD 2 GUJRANWALA 3 HYDERABAD 4 ISLAMABAD 5 LAHORE 6 MULTAN 7 PESHAWAR 8 QUETTA 9 RAWALPINDI 10 SIALKOT 11 MIRPUR 12 MUZAFFARABAD 13 KARACHI 14 KARACHI 15 KARACHI 16 KARACHI BIC code NBPAPKKA02F NBPAPKKA02G NBPAPKKA02H NBPAPKKA02I NBPAPKKA02L NBPAPKKA02M NBPAPKKA02P NBPAPKKA02Q NBPAPKKA02R NBPAPKKA02S NBPAPKKA02U NBPAPKKA02Z NBPAPKKAITD Branch name

(DISTRICT COURT BRANCH) (MAIN BRANCH/CORPORATE BRANCH) (HEAD OFFICE)

NBPAPKKAMBR (MAIN BRANCH) (OVERSEAS BANKING OPERATIONS -HEAD OFFICE KARACHI) NBPAPKKAXXX (HEAD OFFICE) NBPAPKKANEC

NBP SWIFT International Centers

S.No. City 1 FRANKFURT 2 PARIS 3 HONG KONG 4 TOKYO 5 BISHKEK 6 SEOUL 7 ASHKHABAD 8 NEW YORK BIC code NBPA DEFF XXX NBPA FRPP XXX NBPA HKHH XXX NBPA JPJT XXX NBPA KG22 XXX NBPA KRSI XXX NBPA TM22 XXX NBPA US33 XXX Branch name NATIONAL BANK OF PAKISTAN, FRANKFURT NATIONAL BANK OF PAKISTAN, FRANCE NATIONAL BANK OF PAKISTAN, HONG KONG NATIONAL BANK OF PAKISTAN, TOKYO JAPAN NATIONAL BANK OF PAKISTAN, BISHKEK BRANCH NATIONAL BANK OF PAKISTAN, SEOUL BRANCH KOREA NATIONAL BANK OF PAKISTAN, NATIONAL BANK OF PAKISTAN, USA

48

9 MANAMA 10 KABUL

NBPA BHBM NATIONAL BANK OF PAKISTAN, BAHRAIN XXX NBPA AFKA NATIONAL BANK OF PAKISTAN, KABUL XXX

In order to perform all the functions, the National Bank of Pakistan has made some divisions, which perform some specific functions. Following are the divisions:  CREDIT DIVISION The main function of this division is to make the credit policies, and also to do credit ceiling which means the maximum amount of credit that can be given to a certain client. This division also looks for the agricultural and small loans. It also considers the cases of right off i.e. bad debts.

49

 CORPORATE CREDIT DIVISION The major function of this division is to handle the big loans and industrial financing, I.B.R.D. It also does the evaluation of credit ceiling policy devised by the credit division.  INTERNATIONAL DIVISION This division has to look after the administration of National Bank of Pakistan outside Pakistan. It takes care of all the affairs about the advances given outside, the management of the branches of the bank outside Pakistan, the posting of employees outside Pakistan etc.  RECOVERY AND LITIGATION DIVISION This division comes into operation when recovery of advances given becomes difficult or impossible. It is the job of this division to decide whether to go court against the client or not.  AUDIT AND INSPECTION DIVISION The major function of this division is to carry out the inspection of rules and policies. It also inspects the books of accounts, whether they are kept rightly or not.

 ADMINISTRATION DIVISION This division consists of two wings the personnel wing and establishment wing. The personnel wing concerns with employee welfare and administration. It looks after things like rules relating to the administration of employees, the medical bills etc. There is also a disciplinary cell, which is for punishments if an employee does something wrong. The establishment wing has a main function of controlling the debt stock i.e. furniture, transport facility, stationary, sports portfolio, security arrangements, and staff welfare.

 RESEARCH CORPORATE PLANNING AND HUMAN RESOURCE DEVELOPMENT DIVISION

50

Their main job is to do human resource management. For this purpose there are staff collages in Pakistan. There are four of them. They give training to employees outside organization and also outside the country. In 1998 National Bank of Pakistan staff collages have trained about 7992 employees out of which 321 were executives 5553 officers and 1878 other staff. Outside National Bank of Pakistan they trained 128 executives, 113 officers and 2 other staff. They have their own staff and also engage faculty from Punjab University and LUMS.  ENGINEERING AND MAINTENANCE DIVISION The job of this division is maintenance of buildings, construction of projects, project designing. The head of this division is an engineer who has designation of executive vice president.  FINANCE AND INVESTMENT DIVISION It looks after the accounts, investment in resources and decides where to allocate the surplus funds.  CUSTOMER SERVICES DIVISION The main job of this division is to manage the opening and closing of branches, Islamization policy, then there is a complaint cell where the customer makes the complaints if they are not treated well. This division also accepts Hajj applications. This division is very important as it directly concern the customers who are the ones to make the deposits, which the bank invests.  BUSINESS PROMOTION AND MARKETING DIVISION It concerns the marketing and selling of the policies and interest rates of National Bank of Pakistan through advertisements on television or in the papers etc.  LAW DIVISION This division consists of an executives committee and an evaluation committee. Their job is documents evaluation and they give legal opinion to recovery and litigation division also.  COMPUTER DIVISION

51

This division does data processing through computers and develops control systems. All these divisions perform their functions through the branches and they are located at the head office in Karachi.  TREASURY DIVISION NBP boosts the banking sectors largest treasury operation by virtue of being the principal bank for handling the exchequers business. Facing the current competitive interest rate environment, the bank has felt the need to enhance its asset yield through the use of derivative products. The bank recently executed a Quanta Interest Rate Swap aimed at providing cross currency interest rate hedge for one of its prime clients. This is a watershed, being the first such transaction to have been successfully launched in Pakistan and will serve as the foundation stone for the promotion of derivative products.

 INFORMATION TECHNOLOGY NBP has undergone a paradigm shift by synchronizing the adoption of technology with product development as they view it as a tool for optimizing customer satisfaction. Round the clock payment of utility bills in important cities is now in place and branches covering 85% of the banks business will be fully automated on a real time basis. While the One-Link ATM switch sharing arrangement will serve to enhance the 24 hour banking facility available to our customers, NBP is expanding its owned ATM base as well. NBP is also inviting local and international software solution providers for the supply, implementation and maintenance of the Core Banking Application software for its domestic and overseas branch banking operations. In addition to the Core Banking Application it is essential to understand the role of NBP as a major collection agent for the Government of Pakistan with over 34 different types of receipts and disbursements done through 1189plus branches of the bank. On an average the bank has approximately 1.5 million transactions per day for approximately ten million customer accounts across Pakistan. The Project includes computerization of Trade Finance, Retail, General Ledger / Finance, Investment Banking, Corporate Banking, National Investment Trust System, Litigation Monitoring, Credit and Risk Management System and Card Services.

52

 COMPLIANCE DIVISION NBP continually strive to adopt the best corporate governance practices to safeguard the interests of our depositors, customers and shareholders. They have substantially intensified the scope as well as frequency of our internal audit operation while employees are encouraged and rewarded for compliance with the high ethical standards that are been set.

S
DUH

ection

,QWKLVVHFWLRQWZRWRSLFVDUHGLVFXVVHG7KHPDMRUWRSLFVRIWKLVVHFWLRQ

1%3Products
1%33UHPLXP$DPGDQL 1%36DLEDDQ 1%33UHPLXP6DYHU

53

.DUREDU3UHVLGHQW V5R]JDU6FKHPH 1%3,QYHVWRU$GYDQWDJH 1%3$GYDQFH6DODU\ 1%3&DVK&DUGV 1%3.LVDQ'RVW 1%3FDVK *ROG 1%33DN5HPLW 1%32QOLQH$DVDQ%DQNLQJ 1%33URWHFWLRQ6KLHOG

1%36HUYLFHV
'HPDQG'UDIW 6ZLIW6\VWHPV /HWWHURI&UHGLW 3D\2UGHU 0DLO7UDQVIHUV

NBP Premium Aamdani

Monthly Income Scheme Amount of investment required from Rs. 50,000/- to Rs. 5,000,000 Investment period is 5 years Free Demand Draft, Pay Order and NBP Online Aasan Banking* Free Cheque Book / NBP Cash Card (ATM + Debit)

Profit paid every month as follows: Period 1 year 2 years

Profit Rates** 7.50% 8.50%

54

3 years 9.50% 4 years 10.50% 5 years 11% Financing facility available upto 90% of the deposit value Premature encashment will attract penalties Zakat and withholding tax will be deducted as per rules

NBP Saibaan

Product Items Home Finance Home Construction Balance Transfer Facility (BTF)

Home Renovation Purchase of Land + Construction

Home Purchase (House or Apartment) * - Product Detail Financing Amount Upto 35 Million Financing Period 3 to 20 Years Debt to Equity 85:15 (Maximum) 55

Home Construction * - Product Detail Financing Amount Upto 35 Million Financing Period 3 to 20 Years Debt to Equity 85:15 (Maximum) Home Renovation * - Product Detail Financing Amount Upto 15 Million Financing Period 3 to 15 Years Debt to Equity 70:30 (Maximum)

Purchase of Land and for Construction thereon * - Product Detail Financing Amount Upto 35 Million Financing Period 3 to 20 Years Debt to Equity 70:30 (Maximum)

Re-Financing (Balance Transfer Facility (BTF)) - Product Detail If you have a Home Finance Facility outstanding with another bank you can have it transferred to NBP through a hassle -free process. All home financing facilities below Rs. 15 M Debt to Equity Ratio will be 85:15 & for Rs. 15 M and above Debt to Equity Ratio will be 80:20. *50% of the loan will be disbursed at the time of land purchase and rest of the 50% for its construction will be disbursed in 4 trenches.

56

NBP Premium Saver

PLS Saving Account

Minimum saving balance of Rs. 20,000 and a maximum balance of Rs. 300,000* Free NBP Cash Card (ATM + Debit) Two debit withdrawals allowed in a month and no limit on number of deposit transactions Profit calculated monthly and paid on half yearly basis Earn upto 7.25% p.a. Profit rates are expected *Certain conditions apply **Premature encashment will result in lower rates of return ***Expected rates are for the given year For further details and application forms, visit NBP branches nationwide or call 0800-80080 from 8:30 am to 10:00 pm or log on
57

to www.nbp.com.pk. Added convenience of NBP Online Aasan Banking available in 30 cities.

Karobar - President's Rozgar Scheme

Another step towards your prosperity

58

President's Rozgar Scheme, if you are aged between 18 and 45 years, you could be eligible for easy financing for self employment in the categories below:
NBP Karobar Utility Store NBP Karobar Mobile Utility Store NBP Karobar Mobile General Store NBP Karobar Transport NBP Karobar PCO NBP Karobar Tele-Centre

Investor Advantage

59

Financing Facility for Retail Investors

Features y y y y y y Comfortable and secure environment for trading NBP financing at very easy terms requiring minimum documentation Minimum turn around time No security requirement from the customer except for the customer's equity Customer's equity freely available for investment. Equity acceptable in cash or approved share.

Eligibility y y y y y Pakistani National with valid computerized national ID Card Over 21 years of age An account with NBP designated Branch Equity in the form of cash or NBP approved shares No default with any financial institution

Application Procedures y Obtain facility application form the NBP Marginal Desk at designated branches y Fill in the application form and submit it to the branch y On application approval, deposit equity as cash in the margin financing account at the bank. Alternatively NBP approved shares can also be deposited in the NBP CDC Account (CDC A/c No. 2345) y Start trading through comfortable & friendly trading centers establishment for you (In collaboration with Taurus Security Limited a subsidiary of NBP) y Trading limit available for the amount of equity + bank financing.

Product Information
Financing Amount: Rs.50,000/ - To Rs.10,000,000/-

60

Equity Requirement:

In the Form of Cash or Shares or Both (Currently Minimum Rs. 215,000/- @ 30%) As per NBP Approved List Available. Shares In Physical Form Not Acceptable.

Shares:

Trading:

Allowed Only Through Trading Centers Created by NBP and Operated by Taurus Securities Limited (A Subsidiary of NBP)

Pricing Fixed Price At The Time of Facility Sanction, Currently 6 Month Karobar + 3% (Per Annum) Other Charges

Requirements

y y y y y y y y

On Time Application Processing Fee of 0.5% of the loan amount or Rs.5,000/- (Whichever is lower) Brokerage Charges/ Fees/ Taxes/ etc. Charged At Actual On Brokerage Invoices Documentation Fee Would Be Charged On Actual

Photograph of Applicant NBP Account - Current or PLS Marginal Financing Application Form Copy of CNIC Copy of CNIC of Two (2) References Borrower Basic Fact Sheet Duly Filled In Statement of Assets & Liabilities List of Shares, Given as Margin (Optional)

NBP Advance Salary

61

Take upto 20 advance salaries (currently for NBP account holders of govt. or related organization employees).

National Bank of Pakistan (NBP)

In January-2003, National Bank of Pakistan has launched a unique product, NBP-Advance Salary. Currently this product is for fixedincome permanent employees of Federal & Provincial Government, Semi-Government, Autonomous, Semiautonomous, local bodies and other Government organizations. The product is purely cash flow based and offers its holder to avail 20 (twenty) net salaries in one go to be repaid in up to 60 (sixty) months. With no collateral, insurance or requirements, Advance Salary provides rapid disbursement in a short turnaround time.

NBP Cash Card

62

Shop to your heart's desire!

NBP Cash Card is a 24-hour direct access ATM/Debit card to your bank account, which lets you pay directly from your account as an alternative payment method to cash. The transaction is authorized and processed by entering PIN. The NBP Cash Card holders are able to transact at any of the 4000 + Merchants where Orix logo is displayed and can withdraw cash from NBP, 1-Link & M-NET ATMs across the country. Advantages You won't need to carry a lot of cash with you every time you go out. Secure and Safe transaction. Account Information on tips (like: Mini Statement, Balance Inquiry, Utility Bill Payment etc.) Enable To Withdraw Cash From 1-Link ATMs / MNET ATMs. Enable to Make Purchases from Around 4000 POS (Merchants) Countrywide including 2500+ POS in Karachi. No Card Issuance Fee for first 12 Months

y y

63

NBP Kisan Dost

NBP KISAN DOST

NBP Cash n Gold

64

Get extra benefit from your gold

With NBP's Cash n Gold, you can meet your need for ready cash against your idle gold jewelry.

Rate of mark-up 13% p.a. Facility of Rs. 7,000 against each 10 gms of net contents of gold No maximum limits of cash Repayment after one year Roll over facility Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed scruffs No penalty for early repayment

Meet your need for ready cash against your idle gold jewelry with no minimum limits

65

NBP Pak Remit NBP's Internet Based Home Remittance Service

Log in here for Secure Remittance- > https://www.pakremit.com

Product Information:

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 remit funds through this channel. Remitters in USA can log on to our user friendly website, www.pakremit.com and easily remit funds to Pakistan from the comfort of their homes, in a matter of minutes. The service is fully secure with advance encryption application and is available for use 24 hours a day, 7 days a week. Fees and exchange rate have been set at competiive t levels and the remitters have the ability to track delivery of funds as well. Process: y Remitters log on to www.pakremit.com and after completing the registration process, are able to remit funds. The whole process takes a few minutes. y Funds in Pak Rupees can be sent to beneficiaries, having an account with any bank in Pakistan, including NBP. While funds are credited directly to beneficiaries maintaining accounts with NBP, a pay order or demand draft is couriered to other banks for their customers. Pay order or demand draft can also be couriered directly to the beneficiarys office or home, if requested by the remitter. y Funds in US Dollars can be sent only to a Beneficiary maintaining a US Dollar account with one of NBPs Foreign Exchange Branches. Click here for details of NBP Foreign Exchange Branches.

USPs ( Unique Selling Propositions) 1. Convenient and Fast 2. Reliable and Secure 3. Available 24 x 7 Contact Details: E mail: customerservice@nbpusa.com Telephone: +1 (212)- 344-2239 Address: 100 Wall Street, New York, NY 10005 Contact Person: Musa Raza Rizvi.

66

NBP Online - Aasan Banking

KNITTING LINKS

You can avail the services from our Online Branches located in 30 cities:

"NBP Online" offers following services:

Karachi Islamabad

Burewala Multan Muzaffarabad Faisalabad Peshawar Kohat Mirpur (AJK) Gujrat Abbottabad Bahawalpur

D.G. Khan D.I. Khan Jhang Larkana Mardan Sahiwal Sargodha Sukkur Jhelum Wah Cantt

Balance Enquiry Statement of Account Stop payment Cash withdrawal through Cheque Cash deposit to own and third party account Transfer of funds to own and third party account

Rawalpindi Gujar Khan Sailkot Gujranwala Sheikhupura Hyderabad Quetta Lahore

NBP Help Line

67

Call Now -

0800 - 80080

NBP CALL CENTER-WEBSITE INFORMATION In an era of heightened customer demands and increased competition, Call Centers have become a crucially important mechanism to cost-effectively serve customers and sell products. National Bank of Pakistan realized that it needed not only to establish its Call Center by providing a one-stop service for all customer enquiries related to the bank's products & reengineer its delivery processes, but also to ensure that it provides the same level of out-standing service across channels to give a consistent customer experience. To meet this objective, the bank launched a Customer Relationship Management system (CRM) following a proper intensified path & Turn around Time nationwide for resolving Customer Complaints with solutions deployed at all its Regional Head Quarter in the country that are being used by millions of users that use self-service applications in addition to the live agent services. NBP has taken a step towards improving customer services by establishing a state of the art Call Center with a Help Line Toll Fee Number 0800-80080 working in two shifts from 8:30 am till 10:30 pm to provide instant service to all the existing & prospective customers on all the NBP products being offered by the bank specially NBP Karobar. Presently, the Call Center is receiving more than 1500 calls per day for resolving customer based product enquiries and complaints.

NBP Protection Shield

68

Product Information:

Insurance Coverage In case of Accidental Death (Including death due to *Riots, *Strikes, *Civil commotion, *Acts of Terrorism and Natural Calamities like Flood, Earth Quake, Cyclones etc). Coverage of Rs. 200,000/- for Rs. 20/- per month Definitions: *provided the insured is not directly involved in these activities "Accident means unintentional, unfortunate or a harmful event by chance or apparent cause. Accidental Death means death due to accidental injuries, but not illness. Insured Person means a National Bank of Pakistan PLS account holder, aged between 18 years and above, and whose premium is deducted & details are reported to the selected insurance company by NBP. Policy means Group Personal Accident Policy dated 26/09/05 executed between NBP and Insurer. Principal Sum means the amount stated in the Policys Schedule of Benefits as respects each Insured Person. Product Details y No Medical Required y No Documentation y Fixed Auto Premium Deduction Facility (after customers consent) y Choice of Deactivation Eligibility y NBP PLS account holders y 18 years and above

Termination of Coverage y The date the policy executed by NBP with ALICO is terminated. y The date the Insured Person is no longer eligible within the Classification of Insured Person(s). y If the required premium is not paid/deducted for the particular month. y The date the benefits are paid to the extent of the Principal Sum in respect of any Insured Person. y The date the Insured Person cancels coverage under this policy.

General Terms Insurer

Maximum Amount

ALICO (American Life Insurance Company (Pakistan) Limited or such other insurance company as NBP may nominate from time to time. Maximum Sum Assured PKR 1,000,000 (this limit is for multiple accounts of an insured)

69

Joint Account Term Available Claim Payment Claim Requirements

Coverage amount will be distributed proportionately at the time of claim Monthly deduction Within 10 working days upon completion of all documentation / formalities Claimant & Physician statement, original death certificate, hospital death certificate, original NIC, FIR, newspaper clippings (if any) & statement of account.

Disclaimer y The NBP Protection Shield is underwritten by ALICO (American Life Insurance Company (Pakistan) Limited) or such other insurance company as NBP may select from time to time. y NBP will not be responsible in any manner if your claim is rejected or not entertained. y NBP does not offer insurance advice or underwrite or issue insurance policies. y Purchase of insurance/banc assurance product does not represent an investment and does not accumulate a cash value. y The information available here is intended for the customer intimation and understanding only, and is subject to the policy documentation between NBP and ALICO, as may be applicable from time to time.

Please note that in making deduction from the customer's account for the purpose of coverage under the policy the bank is solely acting as the authorized nominee/agent of the customer, provided sufficient funds are available in the relevant PLS Account. Exclusions

The insurance policy does not cover the following and no claim payment shall be made in respect to:

1. intentionally self-inflicted Injury, suicide or any attempt threat while sane or insane; 2. war, invasion, act of foreign enemy, hostilities or warlike operations (whether war
be declared or not), mutiny, civil war, rebellion, revolution, insurrections, conspiracy, military or usurped power, martial law, or state of siege; assault and murder;, shelling, sniping, ambushes, and all acts of similar nature; or any period a Insured Person is serving in the Armed Forces of any country or international authority, whether in peace or war. Riots, strikes, civil commotion and terrorism acts if the insured person is actively involved in any of these activities; any loss sustained or contracted in consequence of a Insured Person being intoxicated or under the influence of any alcohol, narcotic or drug unless administered on the advice of a Physician; any loss of which a contributing cause was the Insured Persons attempted commission of, or willful participation in an illegal act any violation or attempted violation of the law or resistance to arrest by the Insured Person; any loss sustained while flying in any aircraft or device for aerial navigation except as a fare paying passenger (not as an operator or crew member) on a commercial airline operated by properly certified pilot, flying between duly established and maintained airports; congenital anomalies and conditions arising out of or resulting there from; Pre-Existing Conditions; driving or riding as a passenger in or on (a) any vehicle engaged in any race, speed test or endurance test or (b) any vehicle being used for acrobatic or stunt

3. 4. 5.

6. 7. 8.

70

driving;

9. any loss occurring while the Insured Person is participating in competitions, races, 10.
contests, matches in land air or sea; mountaineering, rock climbing, pot holing; paragliding, bungee jumping, parachuting or scuba diving; any claim caused by opportunistic infection or malignant neoplasm, or any other sickness condition, if, at the time of the claim, the Insured Person had been diagnosed as having AIDS (Acquired Immune Deficiency Syndrome), ARC (AIDS Related Complex) or having an antibody positive blood test to HIV (Human Immune Virus).

71

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. 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.

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.

LETTERS 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 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.

TRAVELER'S CHEQUE
Negotiability: Validity: Availability: Encashment: Limitation: Safety: Pak Rupees Travelers Cheques are a negotiable instrument There is no restriction on the period of validity At 700 branches of NBP all over the country At all 400 branches of NBP No limit on purchase NBP Travelers Cheques are the safest way t o carry our money

PAY ORDER
72

NBP provides another reason to transfer your money using our facilities. Our pay orders are a secure and easy way to move your money from one place to another. And, as usual, our charges for this service are extremely competitive.

MAIL TRANSFERS
Move your money safely and quickly using NBP Mail Transfer service. And we also offer the most competitive rates in the market.

FOREIGN REMITTANCES
To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to:
y y

Increase home remittances through the banking system Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries

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.
y y y

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.

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

73

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.
Effective 23rd December 2004 National Income Daily Account (NIDA) Rate Rs. 2 Million & above but below Rs. 25 Million 1.00 % Rs.25 Million & above but below Rs .50 Million 1.10 % Rs.50 Million & above but below Rs.100 Million 1.30 % Rs.100 Million & above but below Rs. 250 Million 1.50 % Rs.250 Million & above but below Rs. 500 Million 1.75 % Rs.500 Million & above but below Rs. 1000 Million 2.00 % Rs.1000 Million & above but below Rs. 2000 Million 2.25 % Rs.2000 Million & above but below Rs. 5000 Million 2.50 % Rs.5000 Million & above 2.75 %
Slab

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.

NBP is involved in the following:

y y

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

AGRICULTURAL FINANCE
NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World.

Agricultural Finance Services:

74

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:y y y

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):

y y y y y y y

Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing Solar energy Farm Credit Production Loans Working Capital and Short Term Loans Medium term loans and Capital Expenditure Financing

   

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. Our syndication capabilities are complemented by our own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction.

75

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.

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, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. The role of the Financial Institution Wing is:y y

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

76

ection

5

General Banking Account Department Remittances Department Advances Department

77

The Departments functioning at NBP as briefed by its concerned officers during the internship are: 1. General Banking Department 2. Account Department. 3. Remittance Department. 4. Advances Department.

GENERAL BANKING
General banking section consists of following sub sections:  Inquiry section  Inland Remittances  Deposits  Cash Department  Utility Bills

INQUIRY SECTION
y y y y

Account opening Issuing Cheque Book Term Deposits Travelers Cheque (TC)

ACCOUNT OPENING
Opening of a new account is like a contract between the bank, NBP and customer which is guided by the people under Inquiry section. The preliminary function of this section is to open various types of accounts, by allotting them their Account numbers.

TYPES OF ACCOUNTS
Following types of accounts are opened 78

PLS ACCOUNT / PLS SAVING ACCOUNT These accounts are opened mainly by those customers whose banking

transactions are not frequent and numerous. Lower and middle income groups, small traders, professionals, farmers and other salaried classes usually make such deposits. Funds can be deposited frequently through cash, cheques, demand drafts, pay orders, telegraphic transfers and other such instruments. The objective of the Bank is to keep such deposits and earn maximum profit by investing the proceeds of the deposits, to help small savers, to fulfill their business needs and to provide assistance in uplifting the economy.

CURRENT ACCOUNT

These are running accounts opened by the individuals .They deposits and withdrawals frequently cheques, demand drafts, pay orders, etc drawn on the branch. Depositors deposit their money and the Bank by accepting these deposits incurs the obligation of paying all types of orders to the extent of the credit balance in the depositors account. These deposits represent current liabilities of the Bank. So the bank has to keep sufficient funds in its hand to meet the requirements of the depositors of these deposits. SALIENT FEATURES 1. The minimum requirement for opening the account is Rs. 5000. 2. There is no limit for maximum deposit. 3. No limit of deposits and withdrawals is definite. 4. The deposits can be lodged in both local as well as foreign currencies. 5. The deposits can be made by:
y y y y y

Individuals Sole proprietary concern Partnership firm Societies and clubs Institutions

79

6. The bank collects cheques, demand drafts, etc. and pay all the bills, cheques, pay orders, etc., on the behalf of its depositors. 7. The bank will not pay any sort of profit to the account holder. 8. After time of opening the account in the name of an individual. The bank will record the name and address of the next of the kin of the account holder as disclosed by him, who can be contacted in the event if account remains inactive for more than three years. 9. The bank would not require any prior permission from the account holder for debiting his/her account for charging expenses, fees, commission, mark-up etc arising out of any dealing or services with the branch. 10. The account holder is expected to maintain a minimum balance of Rs. 500 in his account or whatever the minimum amount is prescribed for the purpose. 11. The banks now a day also provide the ATM card to account holder for 24 hour cash services at annual charges. 12. Account statements are provided to the depositors mostly at monthly/quarterly intervals or whenever is required by him.

BASIC REQUIREMENT OF OPENING AN ACCOUNT

The following are the basic requirements for opening an account: 1. Account Opening Form is filled by the customer as per instructions specified on the form. This form records the complete name and address of the account holder. 2. CNIC Copy is attach with account opening form. 3. Passport size photographs are required . 4. Introducer is a person who provides the reference of the individual who wants to open an account .Introducer must be of the same bank that he must have an account maintained in that bank. He is in a way providing guaranty to the bank that he will not default. His signatures, name and complete address are also taken along with that person on the account opening form.

80

5. Signature specimen Card is also attached with Account opening form with signatures of that individual that will be used later for verification when he /she will come for encashment of their cheques.

CHEQUE BOOK ISSUANCE

After fulfillment of all requirements for opening an account letter of thanks are issued to both individual and introducer. Cheque book is issued at the time when individual came along with that letter. Account number that is also mentioned in the letter is then get stamped on each and every flip of the cheque book.

TERM DEPOSITS
DSC and SSC are the certificates which are issued by the bank under the condition that they will not be payable on demand, but will be payable on a fixed or predetermined future time or date so they are commonly known as term deposits.

TRAVELERS CHEQUE
Travelers cheque is an instrument that is acceptable against money internationally .TC can be encashed anywhere where we have bank account and later those TCs are presented again for clearing on which branch of national bank they are drawn. At NBP Travelers cheque are issued in denominations of 5000, 10000, 50000 and 100000.At the time of issuing TC, a purchase agreement is signed between depositor and bank.

DEPOSIT SECTION
This section is responsible for collecting cheques which are to paid within city or outside of city for the purpose of clearing .This clearing process get completed with in 3 days

81

CASH DEPARTMENT
Cash department is responsible for daily cash receipts and cash payments of cash to general public and other services like: 1. Cash Payments a. C/A b. PLS(Saving) 2. Prize Bond Payments 3. Demand Notice Collection 4. Cash Receipts

UTILITY BILLS SECTION

With the aim of extending this service to the wider range of customers, the number of NBP branches collecting utility bills (gas, electricity, telephone) has been increased to a large number of cities. So that the pubic would have easily access without getting much trouble.

REMITTANCE DEPARTMENT
Function of this department is to help in transferring of funds from one place to another. Transfer of funds from foreign country to Pakistan .i.e. all the payments send from outside country to Pakistan or Transfer of funds from Pakistan to foreign country i.e. all the payments send to outside country Pakistan through NBP. Remittance department here consists of two major sections:
Local Remittance Foreign Remittance

Local Remittance
The term inland remittance means transfer of funds from one branch to another with in the country though following banking instruments:
y y y y y y

Demand Draft Telegraph transfer Mail transfer Pay Order Inland Bills Agency agreement from other banks. 82

Foreign Remittance
The bank provides the facilities of foreign remittance to the domestic residential and foreigners to send money from one country to another.

Types of payments
y y

Commercial Payments Private payment/Family Remittances

ADVANCES DEPARTMENT
Advances Department is lending loans to individuals Companies, Corporations etc. for different purposes. It provides loans for agricultural and industrial development. Its provides these types of finances:   Running Finance. Demand Finance.

83

S
this section are:

ection

In this section a number of topics are discussed. The major topics of

Functions of National Bank of Pakistan

Cash Department Deposit Department Different Types Deposit Department Clearing Department Advances and Credit Department Securities Types of Advances Other Services

84

National Bank of Pakistan is a commercial bank, in modern time it plays a very vital role and its functions are manifold. The main functions are as under: (1) (2) (3) Accepting various types of deposits. Granting loans and advances. Undertaking of agency services and also general utility functions, few of these are as under:a ... ... b ... ... Collecting cheques and bills of exchange for the customers. Collecting interest due, dividend, pensions, and other sum due to customers. c ... ... Providing safe custody and facilities to keep jewellery, documents, and securities etc. d ... ... e ... ... f ... ... Transfer of money from place to place. Acting an executor, trustee or attorney for the customers. Issuing of travelers cheques and letters of credit to give credit facilities to travel. g ... ... h ... ... i ... ... j ... ... Accepting bills of exchange on behalf of customers. Purchasing shares for the customers. Undertaking foreign exchange business. Furnishing trade information and tendering advice to customers.

For proper functioning of all these activities, the bank has divided its operations into different departments that would be discussed next. These departments are as under:

85

(1) (2) (3) (4) (5) (6)

Cash Department Deposit Department Clearing Department Advances and Credit Department Remittance Department Foreign Exchange Department

The following books are maintained in the cash department:-

1 ... ... 2 ... ... 3 ... ... 4 ... ... 5 ... ...

Receiving Cashier Books Token Book Paying Cashier Book Scroll Books Cash Balance Book

When cash is received in counter, it is entered in the Scroll Book and Receiving Cashier Book. At the close of the day, these are balanced with each other. When the cheque or any negotiable instrument is presented at counter for payment, it is entered in the Token Book and Token is issued to the customer. The Token and the cashier make entry in the Payment Book and the payment is made to payee. At the close of the day, the Token Book and paying Cashier Book is balanced. The consolidated figure of receipt and payment of cash is entered in the Balance Book and drawn closing balance of cash.

OPENING BALANCE + RECEIPT PAYMENT = CLOSING BALANCE

86

This is very important department because cash is the most liquid asset and mostly frauds are made in this department, therefore, extra care sis taken in this department and no body is allowed to enter or leave the area freely. Mostly, cash area is grilled and its door is under the supervision of head of that department. Officer checks the books maintained in this department.

IMPORTANCE
Bank deals in money and they are merely mobilizing funds within the economy. They borrow from one person and lend to another, the difference between the rates borrowed and lend from their spread or gross profit. Therefore, we can rightly state that deposits are the blood of the banks which cause the body of an institution to get to work. These deposits are liability of the bank so from the viewpoint of bank we can refer to them as liabilities.

TYPES OF DEPOSITS
Deposits can be segregated on two bases, one is the duration in which these funds are expected to be with the bank, and second is the cost of getting these funds. So we can divide deposits into two classes according to duration:

1 ... ... 2 ... ...

Time Deposits Demand Deposits

And on the basis of the cost of acquire these funds, a deposit can be classified as any one of the following four:

87

a ... ... b ... ... c ... ... d ... ...

High Cost Medium Cost Low Cost No Cost

Bank has different kind of deposit schemes in order to induce deposits. These schemes are a mixture of the above mentioned two types of deposits with and addition of different services and requirements, mode of transactions, basis for calculation of profit, deduction, additional benefits, and eligibility for different groups. In the similar fashion, national Bank of Pakistan has large variety of deposit schemes and some of these are as follows:

(1) CURRENT ACCOUNT

In this type of accounts, the client is allowed to deposit or withdraw money as and when he likes, but there is requirement of maintaining the minimum balance of Rs.5000/- other wise Rs.50/- will be deducted every month. Usually the businessmen open this type of account and the bank pays no profit on it. These types of deposits are also exempt from compulsory deduction of Zakat.

(2) PLS SAVING BANK ACCOUNT

This type of account is for those persons who want to make small savings. This type of account is opened with a minimum deposit if Rs.200/- If the balance in the account falls below the minimum requirement then a flat charge of Rs.150/- is made in the account once in a half year. Zakat and other withholding taxes are deducted as per rules of the government.

88

(3) FIXED DEPOSITS

In this type of account a certain amount is deposited for a certain period such as six months, one year, two year or longer. A fixed deposit receipt is issued in the name of the depositor. The receipt is signed by the officer in charge and the bank manager. A notice is given to the depositor on a prescribed from two weeks before the Fixed Deposit Receipt (FDR) falls due, requesting the depositor to withdraw his money or to renew his deposits. The interest is allowed on fixed deposit varies with the period for which the deposit is made.

(4) SHORT NOTICE TERM DEPOSIT

This kind of deposit is for a short period as the name indicates. The depositor may withdraw his deposit at any time by giving seven days notice to the banker. This type of deposit facilitates the trader to withdraw his amount with interest of the deposited period.

(5) CALL DEPOSIT

Call Deposits are the sorts of deposits, which are deposited with the banker against any tender. This is with out interest deposit, this may be with interest provided with the depositor has agreed to keep this amount with the banker for some fixed period.

(6) CUMULATIVE DEPOSIT

CERTIFICATE
This is just like of fixed deposit. In this kind of deposit, the rate of interest is higher as compared to other kind of deposits, which are mentioned previously. The rate of interest rises gradually as the period extends. Its period ranges from three month to twenty years.

89

(7) MONTHLY INCOME SCHEME

National Bank of Pakistan has also introduced Monthly Income Scheme for the benefits of its customers. An individual or institution, company, corporation etc. can take the advantage of this scheme.

The following types of ledgers are concerned with deposit department:

1 ... ... 2 ... ... 3 ... ... 4 ... ... 5 ... ... 6 ... ... 7 ... ... 8 ... ...

Saving Ledgers Current Ledgers Profit and Loss Sharing Ledgers Fixed Deposit Register Cumulative Deposit Certificate Register Cash Book Daily Profit and Loss Summary Book Voucher Register

Every banker acts both as a paying as well as a collecting banker. It is however an important function of crossed cheques. A large part of this work is carried out through the bankers clearing house. A clearing house is a place where representatives of all the banks of a city get together and settle the receipts and payments of cheques drawn on each other bank. As the collecting banker runs the certain risks in receipt of their ownership, the law has provided certain protections to the banks.

90

(1) TRANSFER CHEQUES

Transfer cheques are those cheques which are collected and paid by two different branches of the same bank situated in the same city.

(2) CLEARING CHEQUES

Clearing Cheques are those cheques which are drawn on the branches of some other bank of the same city or of the same area which covers a particular clearing house.

(3) COLLECTION CHEQUES

Collection Cheques are those cheques which are drawn on the branches of either the same bank or of another bank, but branches are not in the same city or they are not the members of clearing house.

91

The function of Advances and Credit Department is to lend money in the form of clean advances, against the promissory note, as well as secured advances against tangible and marketable securities. The bankers prefer such securities, which do not run the risk of general depreciation due to market fluctuations. Common securities for the bankers advances are as under:

* SECURITIES *
(1) BANKERS LIEN
(Moveable property possessed to the lender cannot be sold in case of default )
Lien is the bankers right to hold the property until the claim on the property is paid. The bankers look at their lien as a protection against loss on loan or overdraft or any other credit facility. In ordinary lien, the borrower remains the owner if the property, but the actual or constructive possession remains with the creditors, though he has no right to sell it.

(2) GUARANTEES
When an application for an advance can offer any tangible security, the banker may rely on personal guarantees to protect himself against loss on advances or overdraft to the applicant.

92

(3) MORTGAGE
(Immoveable property possessed to the lender can be sold in case of default) A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, and existing of future debt, or the performance of an engagement, which may rise to a particular liability. The person in whose interest the property is transfer is called mortgagee.

(4) HYPOTHICATION
(Immoveable property possessed to the borrower can be sold in case of default) When property in the shape of goods is charged as security for a loan from the bank, the ownership and possession is with the borrower, the goods are said to be hypothecated. The essence of hypothecation is that neither the property in goods nor the possession of them passes to the lender, but the security is granted by means of letter of hypothecation which usually provides for a bankers charge on the hypothecated goods.

(5) PLEDGE
(Moveable property possessed to the lender can be sold in case of default) In a pledge, the ownership remains with pledger (borrower), but the pledgee has the possession of property until the advance is repaid in full. While in case of defaulter, the pledge has the right of sale after giving due notice.

93

*TYPES OF ADVANCES *
1 ... ... Demand Finance(Ordinary Loans) 2 ... ... Running Finance(Overdraft) 3 ... ... Cash Finance 4 ... ... Small Finance 5 ... ... Finance against Bills
6 ... ...

Agriculture Loans

(1) DEMAND FINANCE (ORDINARY

LOANS)
These are those advances which are allowed in lump sum for a fixed period and are repayable in lump sum or gradually in installments.

(2) RUNNING FINANCE

Running finance are advances, which are gradually given to meet temporary requirements of the customers. A good customer uses the banks running finance limit, as a mean of protecting his credit in the market and as a line of second defense to meet his commitments. There are two types of running finance:

1) UN-SECURED
Under this type of overdraft, the bank relies upon the personal security of the customer or customers account.

2) SECURED
Under this type of overdraft, the bank allows his customer to withdraw more than his deposit after giving security against the amount overdrawn. The securities against which they are given are as under:

94

a ... ... b ... ... c ... ... d ... ... e ... ...

Share Certificates Savings Certificates Deposits Mortgage Property Guarantee of a person

(3) CASH FINANCE

These types of loans are given against the following:

1 ... ... 2 ... ... 3 ... ... 4 ... ... 5 ... ...

Against locally manufactured goods Cash finance against rice and paddy Against pledge Against commodities Besides advances against the above commodities bank may be approached by parties for advances against other commodities like tobacco, oil, etc.

6 ... ...

Against Trust Receipts

(4) SMALL LOANS

Loans are allowed to contractors clearing and forwarding agents. These loans are repayable within a year.

(5) FINANCE AGAINST BILLS

The advances are allowed both on local and foreign bills such as:

a ... ... b ... ...

Bill of Exchange and Invoices Bill of Landing

95

(6) AGRICULTURE LOANS

Agriculture loans are given to the farmers with holding up to 25 acres for meeting their short medium and long term production requirements such as: a ... ... b ... ... c ... ... d ... ... e ... ... Agriculture inputs Tractors instruments Tube wells Live stock farming Land Improvements

(7) OTHER SERVICES

* UTILITY BILLS COLLECTION
For the convenience of the customer, National Bank of Pakistan also collects different kinds of utility bills such as: Electricity Bills, Sui-Gas Bills, Telephone Bills etc.

* NBP PAK RUPEE TRAVELER CHEQUE

NBP Pak Rupee traveler Cheque is better than cash, because you get the power to purchase as well as your money can be refunded in case you would loss your cheque. It is a safe and convenient way of purchase.

* FOREIGN CURRENCY ACCOUNTS

Launched to attract deposits in foreign currencies like US Dollars, Pound Sterling, Dutch Mark, and Japanese Yen. Whether you are a resident or a nonresident of Pakistan, NBP invites all to operate in a foreign currency account. 96

ection

In this section topic discussed is as under:

Work performed during internship

97

* WORK PERFORMED DURING INTERNSHIP *

I joined National Bank of Pakistan, Branch Ali Pur Chattha on 12 July, 2010. First day, the manager introduced me about the functioning of the branch and the staff. The manager told me that counter is the most important place of the bank. During the six weeks of my internship, I worked in different sections of the branch and did the maximum practice of banking system details of which is as under:

GENERAL BANKING
First of all, I was asked to work in different sections of general banking. I was attached to Counter with Mr.Aslam Sial manager operations that has good command on this section. Here we dealt with new customer who wanted to get information and to deal with the branch. This is a very interesting department because here we met people of different types and deal with them accordingly. In this section, I observed the following functions:

CHEQUE AT COUNTER
A cheque to withdraw the amount is presented on the counter with the following requisites:

1 ... ... 2 ... ... 3 ... ... 4 ... ... 5 ... ...

Name of the Account Holder Current or previous date Amount in figures Amount in wording One signature of the account holder in the right bottom corner of the cheque and two signature of the bearer on the back

6 ... ...

Branch Stamp in front of the cheque

98

7 ... ...

If the Account Holder uses thumb instead of signature then the Pass Book or attested copy of CNIC is necessary with the cheque.

Operations officer checks and verifies all these requisites. If it fulfills all the requisites, it is forwarded for payment after a certain procedure.

CHEQUE PAYMENT PROCEDURE

After all the requisites are verified and then the excessive balance is checked and prescribed amount is deducted narrated on the cheque, then SIGNATURE VERIFIED stamp (in case of signature only) on the signature and a PAY CASH stamp are fixed and a Token is given to the cheque bearer after writing Token No. on the specified cheque. Then the Officer G-II verified the cheque and forwarded it to the cashier where the cheque bearer receives the amount from the account.

ISSUANCE OF DEMAND DRAFT

A Demand Draft is provided to the client in which he has to specify that bank it is drawn. The amount both in words and figures is written on Demand Draft.

BILLS COLLECTIONS DEPARTMENT

I spent second week of my training in bills collection department. Mr. Muhammad Rasheed who is the in charge of this section. Here we collected utility bills like electricity bills, gas bills, and telephone bills.

BILL REMITTANCE DEPARTMENT

This is very important and interesting department. This section deals with the transfer of money from one branch to another branch. Nearly four drafts are issued daily from this department. Here I know how the amount is transferred and what the procedure is. This department also deals with TT transfer of money. I worked nearly two weeks in this department.

99

DEPOSIT DEPARTMENT
Deposit department deals with Current, Savings, and Fixed Accounts. In current account the bank does not give any interest and you can deposit the whole amount in lump sum in business hours.

However in PLS savings account we can only withdraw up to Rs.25000/without any notice otherwise a prior notification of a weak is required to the bank if the amount to be withdrawn is more than Rs.25000/-

Old ages are interested in Fixed Account usually. The rate of interest is higher more than that of in Current and PLS savings Account but the amount cannot be withdrawn before a specific time fixed by the client. To open the account customer have to fulfill an application form and submit to the concerning authority. In Current and PLS saving Account, a Cheque Book is issued to the client and he becomes the Account Holder of NBP. I worked in this department for one and a half week.

100

Balance Sheet
Rupees in Millions ASSETS Cash and balances with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax assets
2005 2007 2008 2008 2009

94,446,552 71,196,956 78,625,227 94,873,249 106,503,756 49,784,884 31,019,330 40,641,679 37,472,832 38,344,608 10,511,322 16,282,942 23,012,732 21,464,600 17,128,032 149,350,096 156,985,686 139,946,995 210,787,868 170,822,491 220,794,075 268,838,779 316,110,406 340,677,100 412,986,865 19,141,569 23,941,056 27,113,698 30,994,965 44,550,347 9,202,969 9,454,365 9,681,974 25,922,979 24,217,655 _ _ _ _ 3,204,572 553,231,467 577,719,114 635,132,711 762,193,593 817,758,326

LIABILITIES Bills payable 7,214,671 1,741,156 10,605,663 7,061,902 10,219,061 Borrowings from financial institutions 11,084,790 8,756,847 11,704,079 10,886,063 40,458,926 Deposits and other accounts 465,571,717 463,426,602 501,872,243 591,907,435 624,939,016 _ Sub-ordinated loans _ _ _ _ Liabilities against assets subject to 17,058 16,629 13,235 33,554 25,274 finance lease Other liabilities 23,068,314 24,974,450 26,596,300 30,869,154 39,656,831 Deferred tax liabilities net 29,185 4,462,718 2,387,073 5,097,831 _ 506,985,735 503,378,402 553,178,593 645,855,939 715,299,108 NET ASSETS 46,245,732 74,340,712 81,954,118 116,337,654 102,459,218

REPRESENTED BY Share capital Reserves Unappropriated Profit

4,924,106 10,813,914 9,161,747 24,899,767 21,345,965 46,245,732

5,908,927 13,536,041 16,713,506 36,158,474 38,182,238 74,340,712

7,090,712 13,879,260 32,074,677 53,044,649 28,909,469 81,954,118

8,154,319 15,772,124 45,344,188 69,270,631 47,067,023

8,969,751 19,941,047 52,456,204 81,367,002 21,092,216

Surplus

116,337,654 102,459,218

101

Income Statement
Rupees in Millions
Markup/return/interest earned Markup/return/interest expensed Net markup/interest income Provisions against non-performing advances provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly

2005 2007 2008 2008 2009 20,947,333 33,692,665 44,100,934 50,569,481 60,942,798 6,559,398 10,321,768 13,947,218 16,940,011 23,884,768 14,387,935 23,370,897 30,153,716 33,629,470 37,058,030 1,515,354 2,446,739 3,075,723 4,723,084 10,593,565
185,707 -245,881 -709,461 -40,248 373,249 14,297 Nil Nil Nil 4,000 32,807 23,069 5,284 39,899 Nil 1,748,165 2,223,927 2,371,546 4,722,735 10,970,814 12,639,770 21,146,970 27,782,170 28,906,735 26,087,216

Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + non-Interest) NON MARKUP/ INTERSET EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxation Current Prior years Deferred PROFIT AFTER TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation Profit available for appropriation

5,099,195 1,273,863 1,008,988 47,557 Nil 875,113 8,304,716

4,926,604 6,144,628 6,781,683 7,925,370 1,718,478 2,891,755 3,263,246 2,878,932 1,205,638 1,333,840 1,042,827 3,969,057 1,365,771 1,169,515 2,341,690 395,427 -1,979 -4,464 -31,964 1,707 177,839 627,618 147,363 1,245,369 9,392,351 12,162,892 13,544,845 16,415,862

20,944,486 30,539,321 39,945,062 42,451,580 42,503,078

8,878,801 11,221,789 13,443,441 14,205,911 18,171,198 32,243 198,298 -17,283 168,027 747,521 8,284 63,206 208,327 17,141 583,361 8,919,328 11,483,293 13,634,485 14,391,079 19,502,080

11,977,601 19,056,028 26,310,577 28,060,501 23,000,998 4,950,000 7,154,002 8,695,598 8,311,500 11,762,650 847,958 -1,098,709 530,652 391,497 Nil -15,729 291,291 61,981 323,731 -4,220,242 5,782,229 6,346,584 9,288,231 9,026,728 7,542,408 6,195,372 12,709,444 17,022,346 19,033,773 15,458,590 5,892,902 9,161,747 19,372,523 32,074,677 45,344,188
45,496 43,221 41,060 39,007 130,456 12,133,770 21,914,412 36,435,929 51,147,457 60,933,234

102

Financial Statements Anal ysis

Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. The goal in analyzing financial statements is to assess past performance and current financial position and to make predictions about the future performance of a company. Investors who buy stock are primarily interested in a company's profitability and their prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Creditors and investors who buy debt securities, such as bonds, are more interested in liquidity and solvency: the company's short-and long-run ability to pay its debts. Financial analysts, who frequently specialize in following certain industries, routinely assess the profitability, liquidity, and solvency of companies in order to make recommendations about the purchase or sale of securities, such as stocks and bonds. The analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business. The users of the financial information often find analysis desirable for the interpretation of the firms activities. The overall objective of financial statement analysis is the examination of a firms financial position and returns in relation to risk. This must be done with a view to forecasting the firms future prospective. Analysts can obtain useful information by comparing a company's most recent financial statements with its results in previous years and with the results of other companies in the same industry. Three primary types of financial statement analysis are commonly known as horizontal analysis, vertical analysis, and ratio analysis.

103

Ratio Analysis
Ratio analysis enables the analyst to compare items on a single financial statement or to examine the relationships between items on two financial statements. After calculating ratios for each year's financial data, the analyst can then examine trends for the company across years. Since ratios adjust for size, using this analytical tool facilitates intercompany as well as intercompany comparisons. Ratios are often classified using the following terms: profitability ratios (also known as operating ratios), liquidity ratios, and solvency ratios. Profitability ratios are gauges of the company's operating success for a given period of time. Liquidity ratios are measures of the short-term ability of the company to pay its debts when they come due and to meet unexpected needs for cash. Solvency ratios indicate the ability of the company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time. Financial ratios allow for comparison: Between companies Between industries Between different time periods for one company Between a single company and its industry average

a) Profitability Ratios
The continued viability of any bank depends on its ability to earn an appropriate return on its assets and capital. Good earnings performance enables a bank to fund its operations, remain competitive in the market and increase or decrease in market funds. Profitability ratios relate profit to sales and investments. These ratios indicate the firms overall effectiveness of operations and give us idea how well firm utilized its resources in generating profit and shareholder value.

Gross Profit Margin Ratio

Gross profit margin ratio is used to assess the profitability of a Bank's core activities. Gross profit margin indicates the relationship between gross profit and interest earned. A high gross profit margin indicates that a Bank can make a reasonable profit. Formula = Gross Profit / Interest earned (Revenue) 104

2005 2006 2007 2008 2009 Year 57.17 56.55 59.65 55.48 37.74 Ratio %

80 60 40 20 0 2005 2006 2007 2008 2009

ly

The Year 2007 has been an outstanding year with the bank recording the highest profit in its history i.e.., 59.65 %.The National Bank of Pakistans wide range of product offering, large branch network and committed workforce are some of fundamental strengths that enabled NBP to achieve exceptional in a very competitive market. The gross profit is 37.74% in 2009. The lowest percentage among all years.

Net Profit Margin Ratio

Net profit margin measures the percentage of revenue remaining after all cost and expenses, including interest and taxes have been deducted. Formula = Net Profit after Taxes / Interest earned
2005 2006 2007 2008 2009 Year Ratio % 29.57 37.72 38.59 37.63 25.36

105

Net
60 40 20 0 2005 2006

2007

2008

2009

Analysis Net profit margin shows positive trend till 2007 and was the highest in the same year as it was 38.59%, the percentage is decreased in 2008 as it was 37.63%. The net profit margin is on its lowest level at the end of 2009 as it indicates a percentage of 25.63%. The primary reason of this decline is current global economic conditions and current political crisis in Pakistan.

Assets Turnover
This ratio is useful to determine the amount of revenue that is generated from each Rupee of assets. The Banks with low profit margins tend to have high asset turnover, those with high profit margins have low asset turnover. Formula = Revenue/ Total Assets Year 2005 2006 2007 2008 2009 Ratio 0.03 0.05 0.06 0.05 0.05

Assets
0.08 0.06 0.04 0.02 0 2005 2006 2007

er

2008

2009

106

Analysis The year 2005 represents a ratio of 0.03, lowest among all years. The years 2005, 2008 and 2009 indicates almost same percentage of 0.05% on account of banks assets turnover. The National Bank of Pakistans assets turnover in 2007 is 0.06, peak ratio among all years.

Return on Capital Fund

This ratio relates the net profits to the amount of capital funds that have been employed in making that profit. Formula = Net markup received / Capital Funds Year Ratio
2005 2006 2007 2008 2.92 3.95 4.25 4.12 2009 4.13

Return n
6 4 2 0 2005 2006 2007

tal und

2008

2009

Analysis The above given ratios suggest that the profitability of the bank has a mixed trend during five years. The first three years 2005 (2.92), 2005 (3.95), 2007 (4.95) shows an increasing trend, indicating more profitable operations of the bank. It was decreased in the year 2008 (4.12) and has increased in 2009 as the ratio was 4.13.

Return on Investment
This ratio indicates the profit earned by the bank on the resources employed. Formula = Net income after taxes / Total Assets Year 2005 2006 2007 2008 Ratio 0.011 0.021 0.026 0.024
2009 0.018

107

Return n nvestment
0.03 0.02 0.01 0 2005 2006 2007 2008 2009

Analysis There was an increase in the utilization of the resources till 2007 i.e.., 0.011(2005), 0.021 (2005) and 0.026 (2008). The ratio was decreased to 0.024 (2008) and 0.018 (2009).

Return on Deposits
This ratio indicates to what extent deposits which represent funds mobilization on the part of the bank contribute towards income generation. Formula = Net income before taxes / Total Deposits Year 2005 2006 2007 2008 Ratio 0.025 0.041 0.052 0.047
2009 0.036

Return n eposits
0.06 0.04 0.02 0 2005 2006 2007 2008 2009

Analysis During all five years the return on deposits ratio of National Bank of Pakistan shows a mix trend. The year 2007 (0.052) was the best year for bank in terms of its funds mobilization. Although the ratio was decreasing in 2009 (0.036), indicating Bank is more keen to kept deposits and a change in policy of the Bank regarding its funds mobilization. 108

Effective Tax Rate

This ratio is a measurement of a company's tax rate, which is calculated by comparing its income tax expense to its pretax income. This amount will often differ from the company's stated jurisdictional rate due to many accounting factors, including foreign exchange provisions. This effective tax rate gives a good understanding of the tax rate the company faces. Formula = Income Tax expense/ Pretax Income
2005 2006 2007 2008 2009 Year Ratio % 0.48 0.33 0.35 0.32 0.32

Effective ax rate
0.6 0.4 0.2 0 2005 2006 2007 2008 2009

Analysis The effective tax rate of National Bank of Pakistan was highest in the year 2005 (0.48%). However bank is able to reduce its tax burden because the Bank is able to adopt Tax management techniques to lessen the tax burden. A relatively stable effective tax rate percentage, and resulting net profit margin, would seem to indicate that the Bank's operational managers are more responsible for a company's profitability than the company's tax accountants.

b) Liquidity Ratios
The liquidity position of a bank is like a reservoir. It may be adequate, although nearly depleted, just before the start of the rainy season. Or it may be inadequate, although three quarters full just before the summer drought. Liquidity can be defined as: The banks ability not only to meet possible deposit withdrawals but also to provide for the legitimate needs of the economy as well 109

Current Ratio
Current ratio is a measure of the current adequacy of company's current assets to meet its current obligations. It must be greater than 1. If it is less than 1, liabilities exceed current assets. For every Rs.1 of liabilities, the company has a ratio amount of current assets available. The concept behind this ratio is to ascertain whether a company's short-term assets (cash, cash equivalents, marketable securities, receivables and inventory) are readily available to pay off its short-term liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). In theory, the higher the current ratio, the better. Formula = Current Assets / Current Liabilities
Year Ratio 2005 2006 2007 2008 0.83 0.96 1.02 1.00 2009 1.12

Current Ratio
1.5 1 0.5 0 2005 2006 2007 2008 2009

Analysis The year 2005 (0.83) and 2005 (0.96) were not satisfied for bank as current assets are less than current liabilities. However, in 2007 (1.02) the management of National Bank of Pakistan is able to overcome this problem. The year 2008 (1.00) is also good for bank as per standards of this ratio. Again in the year 2009 (1.12) the management of bank is able to increase its current ratio.

Cash Ratio
This ratio shows that the cash is enough for payment of current liabilities or not. This ratio is obtained by dividing cash by current liabilities. For a bank this is the cash held by the bank as a proportion of deposits in the bank. Formula = Cash / Current Liabilities

110

Year Ratio

2005 2006 2007 2008 2009 4.09 2.85 2.96 3.07 2.69

Cash atio
5 4 3 2 1 0 2005 2006 2007 2008 2009

Analysis The cash ratio of National Bank of Pakistan shows a mixed trend during five years of operations. During all years, the ratio is satisfactory as per standards of this ratio. The year 2005 (4.09), representing highest and 2005 (2.85) & 2009 (2.69), representing lowest ratio in all five years.

Advances to Deposit Ratio

It demonstrate the degree to which bank has already used up its available resources to accommodate the credit needs of its customers. Formula = Advances / Total Deposits Year Ratio%
2005 2006 2007 2008 47.42 58.01 62.99 57.56 2009 66.08

Advances to Deposits
80 60 40 20 0 2005 2006 2007 2008 2009

111

Analysis This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans sanctioned by the bank in relation to total amount of money deposited with the bank, stands highest in 2009 ( 66.08%) as compared with the previous year figures. This shows that the bank has greater potential to advance additional loans. During all other years the ratio is quiet satisfactory representing National Bank of Pakistans credit management decisions.

Due from Banks to Total Assets

It is an indication of Banks funds management policies. Formula = Due from banks / Total Assets Year Ratio
2005 2006 2007 2008 0.019 0.028 0.036 0.028 2009 0.021

Due from anks to otal Assets

0.0 0.0

0 005 006 007 008

Analysis The National Bank of Pakistans due from banks to total assets ratio is fluctuating and indicates a mixed trend during all years. The ratio is 0.019 in 2005 and 0.028 in the year 2005. The year 2007 represents highest ratio of 0.036 among all years. There was a decrease in ratio at the end of financial year 2008 that is 0.028. The year 2009 represents a decrease in ratio (0.021) on account of due from banks to total assets.

Due from Banks to Due to Banks

It shows the relationship between what the bank owes from other banks and what is due to it. Formula = Due from banks / Due to banks

009

112

2005 2006 2007 2008 Year Ratio% 94.83 185.95 196.62 197.18

2009 42.33

Due from anks to Due to anks

005

006

007

008

Analysis The ratio indicates an increasing trend till 2008 that is 94.83 (2005), 185.95 (2005), 196.62 (2007) and 197.18 in 2008. The year 2009 represents the lowest percentage of 42.33 on account of due from banks to due to banks.

Due to Banks to Total Deposits

This ratio is an indicative of the proportion of the lending from the financial institutions in relation to the total funds raised by the bank in the form of deposits. Formula = Due to banks / Total Deposits Year
2005 2006 2007 2008 2009
0.065

Ratio 0.024 0.019 0.023 0.018

Due to anks to otal Deposits

0.08 0.06 0.04 0.02 0 2005 2006 2007 2008 2009

00 00 00 0 009

113

Analysis The due to banks to total deposits ratio of National Bank of Pakistan is fluctuating and indicates a mixed trend during all years. The ratio is 0.024 in 2005 and decreased to 0.019 in 2005. The ratio is increased in 2007 as the ratio is 0.023. The year 2008 represents the lowest percentage of 0.018 and the year 2009 represents the peak percentage of 0.065.

c) Debt Ratios
These ratios give users a general idea of the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount of debt held by a company the greater the financial risk of bankruptcy.

The Debt to Equity Ratio

The debt-equity ratio compares a company's total liabilities to its total shareholders' equity. This is a measurement of how much suppliers, lenders, creditors and obligors have committed to the company versus what the shareholders have committed. To a large degree, the debt-equity ratio provides another vantage point on a company's leverage position, in this case, comparing total liabilities to shareholders' equity, as opposed to total assets in the debt ratio. Similar to the debt ratio, a lower the percentage means that a company is using less leverage and has a stronger equity position. Formula = Total Liabilities/ Total Shareholders equity
2005 2006 2007 2008 2009 Year Ratio 112.35 97.77 89.57 93.47 91.17

Debt to Equity
150 100 50 0 2005 2006 2007 2008 2009

114

Analysis The debt to equity ratio of National Bank of Pakistan shows a ratio of 112.35 % in 2005. The ratio is decreased to 97.77% in the year 2005. The ratio is further decreased in 2007 as it shows a percentage of 89.57%. There was an increase in the ratio as it shows a percentage of 93.47%. The year 2009 represents the ratio of 91.17% .

Interest Coverage Ratio

It shows whether the bank is earning enough profit before mark up charges to be paid to the financiers and the taxation obligations due to the government in order to remain solvent. The interest coverage ratio is used to determine how easily a company can pay interest expenses on outstanding debt. The ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) by the company's interest expenses for the same period. The lower the ratio, the more the company is burdened by debt expense. When a company's interest coverage ratio is only 1.5 or lower, its ability to meet interest expenses may be questionable. Formula = Earnings before interest & Taxes / Interest expense

Year Ratio

2005 1.83 times

2006 1.85 times

2007 1.89 times

2008 1.66 times

2009 0.97 times

Interest Coverage
2 1.5 1 0.5 0 2005 2006 2007 2008 2009

Analysis The amount of interest a Bank pays in relation to its revenue and earnings is tremendously important. The National Bank of Pakistans interest coverage ratio is 1.83 times in the year 2005. The ratio was increased in the years 2005 and 2007 as it was

115

1.85 times & 1.89 times respectively. There sudden decrease of 1.66 times is observed in 2008. The ratio is further decrease to 0.97 times in 2009, representing the lowest ratio among all years.

Loan Loss Coverage Ratio

Banks use the loan-loss coverage ratio to define the quality of its assets and how well it protects itself from losses caused by problematic loans. The higher this ratio is, the better the bank is handling itself in regards to loans. Formula = Provision against non-performance loans & advances/ Profit or loss before taxation

Year 2005 2006 2007 2008 2009 Ratio 0.13 0.13 0.12 0.17 0.47

Loan Loss Coverage

0.6 0.4 0.2 0 2005 2006 2007 2008 2009

Analysis The loan loss coverage ratio of National Bank of Pakistan is almost same in the years 2005 and 2005 as it was 0.13 in both years. There was a slight decrease in this ratio as it was 0.12 in 2007. The year 2007 shows an increase in loan loss coverage ratio as it was 0.17. The year 2009 represents highest ratio of 0.47 on account of loan loss coverage, as compare to all years.

d) Capital Adequacy Ratios

Capital Funds to Total Assets
This ratio indicates the extent of the funds employed by the bank in the total resources as shown in the balance sheet. 116

Formula = Capital Funds / Total Assets

2005 2006 2007 2008 Year Ratio% 0.89 1.02 1.10 1.07 2009 1.09

Capital funds to otal Assets

1.5 1 0.5 0 2005 2006 2007 2008 2009

Analysis The National Bank of Pakistans Capital funds to Total Assets ratio is increased during all years. The ratio is 0.89 in 2005, representing lowest ratio in all years. The ratio is increased in 2005, 2007 and 2008 as the graph shows ratios of 1.02, 1.10 & 1.07 respectively. The ratio is keeping its trend and also increases in the year 2009 as it was 1.09.

e) Operating Performance Ratios

Each of these ratios have differing inputs and measure different segments of a company's overall operational performance, but the ratios do give users insight into the company's performance and management during the period being measured. These ratios look at how well a company turns its assets into revenue as well as how efficiently a company converts its sales into cash. Basically, these ratios look at how efficiently and effectively a company is using its resources to generate sales and increase shareholder value. In general, the better these ratios are, the better it is for shareholders. In this section, we'll look at the fixed-asset turnover ratio and the sales/revenue per employee ratio, which look at how well the company uses its fixed assets and employees to generate sales.

117

Fixed Assets Turnover

This ratio is a rough measure of the productivity of a company's fixed assets (property, plant and equipment etc) with respect to generating revenue. For most companies, their investment in fixed assets represents the single largest component of their total assets. This annual turnover ratio is designed to reflect a company's efficiency in managing these significant assets. Formula = Revenue/ Operating Fixed Assets
2005 2006 2007 2008 2009 Year Ratio % 2.28 3.23 4.13 1.64 1.76

Fixed Assets urnover

6 4 2 0 2005 2006 2007 2008 2009

Analysis The fixed assets turnover ratio of National Bank of Pakistan has an increasing trend till 2007. The ratio increases 2.28 (2005) to 3.23 (2005). The year 2007 represents highest fixed assets turnover ratio for National Bank of Pakistan i.e.., 4.13. The banks efficiency to utilize these assets has been decreased to 1.64 in the year 2008 however it was increased in 2009 as the ratio is 1.76.

Sales or Revenue Per Employee

As a gauge of personnel productivity, this indicator simply measures the amount of Rupees sales or revenue, generated per employee. The higher the Rupee figures the better. Formula = Revenue/ Number of Employees

118

2005 2006 2007 2008 2009 Year Ratio 1274.85 1858.87 2431.38 2583.94 2587.08

Revenue er Employee
3000 2000 1000 0 2005 2006 2007 2008 2009

Analysis The ratio has been showing an increasing trend till 2008 i.e.., 1274.85 (2005), 1858.87 (2005), 2431.38 (2007) and 2583.94 (2008). There was a marginal increase in the year in the year 2009 i.e.., 2587.08, representing the peak percentage in all years.

Horizontal Analysis
This technique is also known as comparative analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios. Formula = Current Year amount / Base Year amount * 100 Horizontal analysis, whilst simple to execute and useful to a certain extent, has its limitations. These limitations include:

119

Being highly dependent on the selection of base year and the period under examination in the financial model. Horizontal analysis provides little insight into why the trend occurred in a financial model. Horizontal analysis does not provide insight into whether the trend in the financial model results was superior/inferior to some benchmark. Horizontal analysis does not address the challenge of negative numbers.

120

Horizontal Analysis of Balance Sheet

Horizontal Analysis (%)
ASSETS Cash Balances with other banks Lendings to fin. institutions Investments Advances Operating fixed assets Other assets Total Assets LIABILITIES Share Capital Reserves Unappropriated profit Surplus On Reval. of assets Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Deferred tax liabilities net Other liabilities Total Liabilities
150 100 0 0 100 3

2005
100 100 100 100 100 100 100 100

2006
75 62 155 105 122 103 125 104

2007
83 82 219 94 143 105 194 117

2008
100 75 204 141 154 282 162 138

2009
113 77 163 114 187 263 233 148

2005
100 100 100 100 100 100 100 100 100 100 100

2006
120 125 182 179 24 79 100 97 15291 108 104

2007
144 128 350 135 147 106 108 78 8179 115 117

2008
166 146 495 221 98 98 127 197 17467 134 138

2009
182 184 573 99 142 365 134 148 Nil 172 133

113

Cash

2005 Base Year

200

100

200

200

200

121

Analysis The National Bank of Pakistans Cash & balance with treasury banks shows a mixed trend during all years. It was decreased by 25% in 2005 and 17% in 2007. There was a marginal increase in the year 2008. In 2009 the percentage is increased by 13% as compare to base year.
120 100 0 0 40 20 0 100 2

Balances with other banks

Analysis The Balances of National Bank of Pakistan with other banks shows a decreasing trend as compare to base year. The year 2005 represents lower percentage (38%), while the year 2007 represents highest percentage of 18%.

100

Lending'

inancial insitutions

Analysis The lendings to financial institutions by National Bank of Pakistan fluctuates during all years. The lendings increased 55 % in 2005. The year 2007 represents highest percentage of 119 % among all years on account of lendings to financial institutions. The year 2008 also shows an increase of 104 % as compare to base year. The year 2009

005 Base Year

006

007

008

155



00 00 100 0

19

16

009

2005 Base Year

200

2007

77

 

 

 

200

200

122

indicates an increase of 63% as compare to base year but lendings decreased by 41 % in 2009 as compare to the year 2008.
150 100 100 50 0
105

141 114 94

Analysis The investments made by National Bank of Pakistan fluctuate during all years. There was an increase of 5 % in 2005. The year 2007 indicates a decrease of 6% in investments. The year 2008 represents an increase of 41 %, highest among all years. The investments are increased 14 % in 2009 as compare to base year; however investments are decreased 27 % as compare to the year 2008.
200 143 150 100 50 0 122 100 187 154

Analysis The advances made by National Bank of Pakistan shows an increasing trend in all years as compare to base year. This implies that National Bank of Pakistan is keener to advance money to lenders. The advances were increased 22 % in the year 2005 and 43 % in 2007 as compare to base year. The year 2008 represents an increase of 54 % and 2009 represents highest percentage among all years that is 87 % as compare to base year.

2005Base Year

200

2005Base Year

200

2007

200

2009

Investments

2007

2008

2009

Advances

123

300 200 100 100 0 103 105

Operating Fixed Assets

Analysis The operating fixed assets of National Bank of Pakistan shows a mixed trend during all years. There was an increase of 3 % in 2005 & 5 % in 2007. There was a very sharp increase in operating fixed assets in the year 2008 of 182 % as compare to base year. There was an increase of 163% in 2009 as compare to base year but the same was decreased by 19% as compare to 2008.

Analysis The other assets of National Bank of Pakistan are fluctuating during all years. The other assets are increased 25 % in 2005 and 94 % in 2007. The year 2008 indicates an increase of 62% as compare to base year. The other assets of National Bank of Pakistan are on their peak percentage of 133 % in 2009 as compare with base year.
200 144 150 100 50 0 2005 Base Year 2006 2007 2008 2009 100 120 166 182

Analysis The Share capital refers to the portion of a Bank's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value. The share capital of National Bank of Pakistan shows an increasing trend in all years as compare 124

"

2005 Base Year

200

2007

2008

Share Capital

"

282

2 3

2009

to base year. The increase in share capital during all years indicates share holders concern toward National Bank of Pakistan and efficient banks Management policies.
200 146 150 100 100 50 0 2005 Base Year 2006 2007 2008 2009 125 128 184

Reserves

Analysis The Banks reserves are banks' holdings of deposits in accounts with their central bank plus currency that is physically held in bank vaults (vault cash). The reserves of National Bank of Pakistan fluctuate during all years as they show an increasing trend. The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2007 & 2008 respectively. The year 2009 represents highest increasing percentage of 84% as compare to base and previous years.
800 600 400 200 0 2005 Base Year 2006 2007 2008 2009 100 182 350
495 573

Unappropriated Profit

Analysis The Unappropriated profit are Earnings of National Bank of Pakistan not paid out as dividends but instead reinvested in the core business or used to pay off debt. Unappropriated profit is part of shareholder equity. The banks Unappropriated profit is increasing very sharply during all years as compare to base year, indicated banks strict dividend payout policy and concern towards reinvestment options.

125

250 200 150 100 50 0

221 179 135 100 99

2005 Base Year

2006

2007

2008

2009

Surplus on revaluation of assets

Analysis The National Bank of Pakistans surplus on revaluation of assets fluctuates and shows a mixed trend during all years. It was increased 79% in 2005 and 35% in 2007. The year 2008 represents highest percentage of 121%. The percentage is decreased by 1% in 2009 as compare to base year and 122% as compare to 2008.
200 147 150 100 100 50 0 2005 Base Year 2006 2007 2008 2009 24 98 142

Bills Payable

Analysis The National Bank of Pakistans bills payable is showing a mix trend during all years. The year 2005 is best for bank in terms of reduction in bills payable. The year 2007 represents a higher percentage of banks liability as it increase 47% as compare to base year. The year 2009 also shows an increase in banks bills payable as it increases to 42% as compare to base year.

126

400 300 200 100 100 0 2005 Base Year 2006 2007 2008 79 106 98

365

2009

Borrowings

Analysis The National Bank of Pakistans borrowings fluctuates during all years and shows a mixed trend. The borrowings were decreased 21 % in 2005; however same are increased 6 % in 2007 as compare to base year. There was a marginal decrease of 2% in banks borrowings in the year 2008. The year 2009 represents highest percentage of borrowings as these were increased to 265 % comparing with base year and are increased 267 % as compare to 2008.
150 100
100

127 100 108

134

50 0 2005 Base Year 2006 2007 2008 2009

Deposits & other accounts

Analysis The deposits and other accounts of National Bank of Pakistan show a mixed trend during all years. In the year 2005, the deposits were increased very marginally, with the year 2007 represents an increase of 8%. The deposits are increased 27% & 34% in the years 2008 and 2009 respectively

127

250 200 150 100 50 0

197 148 100 97 78

2005Base Year

2006

2007

2008

2009

Liabilities against assets subject to finance lease

Analysis The National Bank of Pakistans Liabilities against assets subject to finance lease were fluctuate during all years, with the year 2005 (3% decrease) and 2007 (22% decrease) shows a decreasing trend and the year 2008 (97% increase) & 2009 (48 % increase) shows an increasing trend as compare to base year.
200 150 100 50 0 2005 Base Year 2006 2007 2008 2009 100 108 115 134 172

Other Liabilities

Analysis The other liabilities of National Bank of Pakistan are fluctuating during all years and show an increasing trend. The year 2005 indicates an increase of 8 % and 2007 indicates an increase of 15%. The other liabilities in the year 2008 represent an increase of 34%. There was a sharp increase in 2009 as it indicates a percentage of 72%, highest among all years.

Horizontal Analysis of Income Statement

Rupees in Millions
Markup/return/interest earned Markup/return/interest expensed

2005 100 100

2006 161 157

2007 211 213

2008 241 258

2009 291 364

128

Net markup/interest income Provisions against non-performing advances provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + non-Interest) NON MARKUP/ INTERSET EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxation Current Prior years Deferred PROFIT AFTER TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation Profit available for appropriation

100 100

162 161

210 203

234 312

258 699

100 -132 -382 -22 201 100 Nil Nil Nil 28 100 70 16 122 Nil 100 127 136 270 628 100 167 220 229 206

97 121 133 155 135 227 256 226 119 132 103 393 2,872 2,459 4,924 831 Nil Nil Nil Nil Nil 100 20 72 17 142 100 113 146 163 198

100 100 100 100

100

146

191

203

203

100 100 100 100

126 615 763 129

151 -54 2,515 153

160 521 207 161

205 2,318 7,042 219

100 100 100 100 100 100 100

100 100

159 145 -130 -1,852 110 205 155

95 181

220 176 63 -394 161 275 329

90 300

234 192 168 238 46 Nil -2,058 26,831 156 130 307 544
86 422

250 769
287 502

129

400 291 300 211 200 100 100 0 2005 base 2006 2007 2008 2009 161 241

Interest earned

Analysis The interest earned by National Bank of Pakistan fluctuates during all years, as it was increased during all years as compare to base year. The interest earned is increased 61% in 2005 and 111% in 2007. The year 2008 represents second highest percentage on account of interest earned as it was increase 141 %. The year 2009 represents peak percentage of 191 % as compare to all years.

3 2 1

Interest expensed

Analysis The interest expense of National Bank of Pakistan shows an increasing trend in all years, as it was increased 57 % (2005) and 113 % (2007). The year 2008 represents second highest percentage on account of interest expensed as it was increases to 158% as compare to base year. The year 2009 shows an increase of 264 %, highest among all years.

$$

$$

$$

$$

$$

##

# ## ## ## ##

364 258 213 157 1

5 Base Year

2 6

2 9

130

300 210 200

100

234

258

162

100 0 2005 Base Year 2006 2007 2008 2009

Net markup/ Interest income

Analysis The net markup/ Interest income of National Bank of Pakistan fluctuates during all years as it shows an increasing trend. It was increased 62 % in 2005 and 110% in 2007 as compare to base year. The year 2008 represents second highest percentage on account of Net markup/ Interest income as it was increased to 134%, comparing with base year. The percentage is increased 158 % in 2009, highest among all years.
167

Net er / I terest i c r visi s

e after

Analysis The net markup/ interest income after provisions fluctuates and shows a mixed trend during all years. It was increased 67% (2005), 120% (2007) and 129% in 2008. The income is increased 106 % as compare to base year but the same was decreased by 23% as compare to 2008.

%%

%%

%%

%%

210 ) (' % %

%%
5 s 2 6

2 8

& && && &&

3 2 1

&

22

229

2 6

2 9

131

200 150 100 50 0 2005 Base Year 2006 2007 2008 121 100
97

155 133

2009

Fee, Commission & brokerage income

Analysis The Fee, Commission and brokerage income of National Bank of Pakistan fluctuates during all years. It was decreased 3% in the year 2005 and increases 21 % in the year 2007. The year 2008 represents an increase of 33%. The year 2009 represents peak percentage of 55%.
300 250 200 150 100 50 0 2005 2006 2007 2008 2009 135 100 227 256 226

Dividend income

Analysis The dividend income of National Bank of Pakistan fluctuates during all years, as it shows a mixed trend during all years. The dividend income is increasing 35 % in the year 2005 and 127 % in 2007. It was increased 156% in 2008, represents higher percentage among all years. The year 2009 represents an increase of 126 % as compare to base year and a decrease of 30% as compare to 2008.

132

500 393 400 300 200 100 0 100 119 132 103

Inco e fro

Analysis The National Bank of Pakistans income from dealing in foreign securities fluctuates during all years as it shows an increasing trend. It was increased 19 % in 2005 and 32 % in 2007. The income has its lowest percentage in 2008 as it was increased 3 %. The year 2009 represents highest percentage on account of banks income from dealing in foreign securities as it was increased 293 % as compare to base year and 290% as compare to the year 2008.
150 100 100 50 0 2005 Base Year 2006 2007 2008 2009 20 72 17 142

Analysis The other income of National Bank of Pakistan fluctuates during all years as it shows a mixed trend. It was decreased 80 % in 2005 and 28% in 2007 as compare to base year. The year 2008 represents the lowest decreasing trend of 83%. There was a sharp increase in National Bank of Pakistans other income as it was increased to 42% as compare to base year and increased 125% as compare to 2008. to 63%, comparing with base year. The percentage is increased 52 % in 2009 as compare to base year, but it was decreased 11% as compare to 2008.

4 3

2005 as Y ar

2006

2007

2008

2009

dealing in foreign securities

Other income

133

250 200 150 100 50 0

198 146 100 113 163

2005 Base Year

2006

2007

2008

2009

Total non markup/ Interest income

Analysis The Total non- markup/ Interest income of National Bank of Pakistan shows an increasing trend during all years. It was increased 13% in 2005 and 46% in 2007. The income is increased 63 % in 2008, second highest among all years. There was an increase of 98% in 2009, highest among all years.

Vertical Analysis
When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies. Vertical analysis is a technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100. In a balance sheet, for example, cash and other assets are shown as a percentage of the total assets and, in an income statement, each expense is shown as a percentage of the sales revenue. In Vertical analysis, various components of the financial statements are standardized by expressing them as a percentage of some bases. Examples of common-sized statements include: Components of the balance sheet expressed as a percentage of total assets

134

Components of the income statement expressed as a percentage of sales or revenue

Vertical Analysis of Balance Sheet

ASSETS Cash Balances with other banks Lendings to fin. institutions Investments Advances Operating fixed assets Other assets Total LIABILITIES Share Capital Reserves Unappropriated profit Surplus On Reval. of assets Bills payable Borrowings Deposits and other accounts Liabilities against assets subject to finance lease Deferred tax liabilities net Other liabilities Total 2005
17.07 9.00 1.90 27.00 39.91 1.66 3.46 100

Vertical Analysis (%) 2006 2007 2008

12.32 5.37 2.82 27.17 46.53 1.64 4.14 100 12.19 6.30 3.57 21.69 49.00 1.50 5.75 100 12.45 4.92 2.82 27.66 44.70 3.40 4.07 100

2009
13.02 4.69 2.09 20.88 50.50 2.96 5.45 100

2005
0.89 1.95 1.66 3.86 1.30 2.00 84.15 0.0031 0.01 4.17

2005
1.02 2.34 2.89 6.61 0.30 1.52 80.22 0.0029 0.77 4.32

2007
1.10 2.15 4.97 4.48 1.64 1.81 77.79 0.0021 0.37 4.12

2008
1.07 2.07 5.95 6.18 0.93 1.43 77.66 0.0044 0.67 4.05

2009
1.09 2.43 6.41 2.57 1.25 4.94 76.42 0.0030 Nil 4.85

100

100

100

100

100

135

20 15 10
5

17.07
12.32

12.19

12.45

13.02

0 2005 2006 2007 2008 2009

Cash

Analysis The cash balance of National Bank of Pakistan fluctuates during all years. The year 2005 representing highest percentage of cash balance among all years that is 17.07%. The cash balance percentage is decreasing in 2005 (12.32 %) and 2007 (12.19%). There was a slight increase in the year 2008 as compare to the years 2005 & 2007, of 12.45%. The year 2009 indicates second highest level of National bank of Pakistans cash balance as it was 13.02%.
10 9 6.

4 2 0 2005 2006 2007

Balances with ther Banks

Analysis The National Bank of Pakistans balances with other banks has its peak percentage of 9% in the year 2005. The percentage is decreased to 5.37% in 2005 and has increased slightly in 2007, indicates 6.3%. The percentage is again decreased in 2008 with a percentage of 4.92 % and a percentage of 4.69% in 2009.

7 9

5.

65

.92

4.69

2008

2009

136

4 2.82 3 1.9 2
1

3.57 2.82 2.09

0 2005 2006 2007 2008 2009

Lendings to Finanial Insitutions

Analysis The lendings to financial institutions by National Bank of Pakistan shows a mixed trend. In the year 2005 percentage is 1.90%. The year 2005 along with the year 2008 indicates the same percentage of 2.82%. The year 2007 represents peak percentage of 3.57% for National Bank of Pakistan regarding its lendings to financial institutions. The percentage is decreased in 2009 indicating a percentage of 2.09%, second lowest among all years.

In estments

Analysis The investments made by National Bank of Pakistan are fluctuating and showing a mixed trend. The year 2005 shows a percentage of 27% and the year 2005 show 27.17%. The percentage is decreased to 21.69% in 2007; however it was increased in 2008 to 27.66 %, representing peak percentage among all years. The percentage is again decreased to 20.88% in the year 2009.

@@

@@

@@

@@

@@

@ A
2 5 2 6 2 7 2 8

27

27.17 21.69

27.66 2 .88

2 9

137

60 46.53 39.91 40 20 0 2005 2006

49

50.5 44.7

2007

2008

2009

Advances

Analysis The advances made by National Bank of Pakistan are fluctuating and indicates mixed trend in all years. The first three years of analysis shows an increasing trend that is 39.91% (2005), 46.53% (2005) and 49% in the year 2007. There was a decrease in banks advances to 44.7% in 2008; however in 2009 the percentage is increased to 50.5%, representing peak rate among all previous years.
4 3 2 1 0 2005 2006 2007 2008 2009 1.66 1.64 1.5 3.4 2.96

Operating fixed Assets

Analysis The operating fixed assets of National Bank of Pakistan shows a percentage of 1.66% in the year 2005. There was a slight decrease of 1.64% in 2005 and 1.50% in 2007. The operating fixed assets are increased to 3.40% in 2008. The year 2009 indicates a decrease in banks operating fixed assets as it reduces to 2.96%.

138

5.75
6 5

5.45 4.07

4.14
3.46

4 3
2 1 0

2005

2006

2007

2008

2009

Other Assets Analysis The other assets of National Bank of Pakistan fluctuate during all years. The year 2005 has a percentage of 3.46%, which is increased till 2007 that is 4.14% (2005) and 5.75% (2007). The percentage of other assets is decreased to 4.07% in the year 2008; however it was increased to 5.45% in the year 2009.
1.2 1 0.8 0.6 0.4 0.2 0 2005 2006 2007 2008 2009 0.89 1.02 1.1 1.07 1.09

Share Capital

Analysis The share capital of National Bank of Pakistan shows a mixed trend in all years. It was 0.89% in 2005 and shows an increasing trend of 1.02% in 2005. The percentage of share capital is further increased in 2007 and shows 1.10%. There was a slight decrease in 2008 as percentage was 1.07%. The year 2009 represents highest percentage of 1.09% among all years.

139

3 2.5
1.95

2.34

2.43 2.15 2.07

2 1.5 1 0.5 0 2005 2006 2007 2008 2009

Reserves

Analysis The reserves of National Bank of Pakistan fluctuate and indicate a mixed trend. The above graph shows a percentage of 1.95% in 2005 with an increasing trend of 2.34% in the year 2005. The reserves of the bank are decreasing in 2007 & 2008, shows a percentage of 2.15% and 2.07% respectively. Despite the decreasing trend in previous two years, the National Bank of Pakistan is being able opt achieve highest percentage of reserves in 2009 as the percentage increased to 2.43%.
5.95 4.97 2.89 1. 2 4

Unappropriated Profit

Analysis The Unappropriated profit of National Bank of Pakistan is increased during all years. It shows a percentage of 1.66% in 2005, 2.89% in 2005, 4.97% in 2007, 5.95% in 2008 and a peak percentage of 6.41% in 2009.

DD

DD

DD

BDD

2 5

2 7

.41

DD

BB
2 9

B C

140

7 6 5 4 3 2 1 0

6.61 4.48 3.86

6.18

2.57

2005

2006

2007

2008

2009

Surplus on revaluation of Assets

Analysis The surplus on revaluation of assets is fluctuating and shows a mix trend. It shows a percentage of 3.86% in 2005. The year 2005 represents highest percentage of 6.61%, but it was decreased in 2007 as percentage is decline to 4.48%. There was a sharp increase in 2008 of 6.18%, however surplus is again decline in 2009 and shows a percentage of 2.57%, lowest among all years.
2 1.5 1
0.5 1.3 1.64

1.25 0.93 0.3

0 2005 2006 2007 2008 2009

Bills Payable

Analysis The bills payable by National Bank of Pakistan indicates a percentage of 1.3% in 2005. The percentage is decline in 2005 as it shows a decrease of 0.3%, lowest percentage in all years. There was a sharp increase in 2007 of 1.64% with a decline of 0.93% in 2008. The percentage is again increased in 2009 as it shows a percentage of 1.25%.

141

6 5 4 3 2 1 0 2005 2006 7 2008

4.94

2 1.52

1.81

1.43

2009

Borrowings

Analysis The Borrowings of National Bank of Pakistan shows a mixed trend in all years. The percentage is 2% in 2005 with a decline in 2005 shows a percentage of 1.52%. The borrowings are increased in 2007 shows a percentage of 1.81%. The year 2008 represents lowest percentage of 1.43% of banks borrowing among all years. There was a sharp increase in banks borrowing in the year 2009 as it shows a percentage of 4.94%.
86 84 82 80 78 76 74 72 84.15 80.22 77.79 77.66 76.42

2005

2006

2007

2008

2009

Deposits & other accounts

Analysis The deposits and other accounts of National Bank of Pakistan decreased during all years. The year 2005 represents peak percentage of 84.15%. The deposits are decline to 80.22% in 2005, 77.79% in 2007, 77.66% in 2008 and 76.42 % in 2009.

142

5 4.8 4.6 4.4 4.2 4 3.8 3.6

4.85

4.32 4.17 4.12 4.05

2005

2006

2007

2008

2009

Other liabilities

Analysis The other liabilities of National Bank of Pakistan fluctuate and show a mix trend in all years. The percentage of other liabilities in 2005 is 4.17%. The year 2005 represents percentage (4.32%) of banks other liabilities. The other liabilities were decline in 2007 and 2008 shows a percentage of 4.12% and 4.05% respectively. The National Bank of Pakistan is not being able to reduce its other liabilities in 2009 as the graph shows a percentage of 4.85%, highest percentage among all years.

143

Vertical Analysis of Income Statement

2005 100 31 69 7
1 0 Nil 0 8 60

Markup/return/interest earned Markup/return/interest expensed Net markup/interest income Provisions against non-performing advances provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly

2006 110 34 77 8
-1 Nil 0 7 69

2007 110 35 75 8
-2 Nil 0 6 70

2008 119 40 79 11
0 0 Nil 11 68

2009 143 56 87 25
1 0 26 61

Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + non-Interest) NON MARKUP/ INTERSET EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxation Current Prior years Deferred PROFIT AFTER TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation Profit available for appropriation

24 6 5 0 Nil 4 40

16 6 4 4 0 1 31

15 7 3 3 0 2 30

16 8 2 6 0 0 32

19 7 9 1 0 3 39

100

100

100

100

100

42 0 0 43

37 2 0 38

34 0 1 34

33 1 0 34

43 5 1 46

57 24 4 0 28 30 28
0 58

62 23 -4 1 21 42 30
0 72

66 22 1 0 23 43 48
0 91

66 54 20 28 1 Nil 1 -10 21 18 45 76
0 120

36 107
0 143

144

200 143 150 100 100 50 0 2005 2006 2007 2008 2009 110 110 119

Interest earned

Analysis
The interest earned by National Bank of Pakistan fluctuates and shows an increasing trend during all years. The year 2009 is unique in terms of banks interest earned. The bank earned 143% interest in this year. All other years shows an increasing trend that is 100% in 2005, 110% in 2005, 110% in 2007 and 119% in 2008.
60 50 40 30 20 10 0 2005 2006 2007 2008 2009 31 34 35 40 56

Interest expensed

Analysis
The interest expense of National Bank of Pakistan shows an increasing trend during all years. In the year 2005, the interest expensed is 31%. The interest expense is increase in 2005 as it shows a percentage of 34%. There was a marginal increase in 2007, as

145

interest expanse shows a percentage of 35%. The year 2008 also shows an increase of 40%. The year 2009 represents a percentage of 56%, highest among all years.

100
80

69

60 40 20 0 2005 2006 2007 2008 2009

Net ma kup/ nte est income

Analysis The net markup/ interest income of National Bank of Pakistan fluctuates and shows a mixed trend during all years. The percentage is 69% in 2005 and shows an increasing trend in 2005 as percentage is 77%. There was a slight decrease in net markup/ Interest income as the percentage is 75%. There was an increase in income in 2008, as the graph indicating a percentage of 79%. The year 2009 represents peak percentage of 87% of net markup/ Interest income.
75 70 65 60 60 55 2005 2006 2007 2008 2009
61

69

70 68

Net markup/ Interest income after provisions

Analysis The net markup/ Interest income after provisions fluctuates and shows a mixed trend. The percentage is 60% in 2005, lowest among all years. The year 2005 represents an increasing trend as percentage is 69%. There was a marginal increase in 2007 as the percentage is 70%. The banks income is decreasing in 2008 & 2009 as the percentage is 68% and 61% respectively.

77

79

87

146

30 24 25 19 20 15 10 5 0 2005 2006 2007 2008 2009 16 15 16

Fee, Commission & brokerage income

Analysis The Fee, Commission & brokerage income of National Bank of Pakistan fluctuate and show a mixed trend during all years. The year 2005 represents highest percentage of 24% on account of fee, commission & brokerage income. The percentage is decreased in 2005 & 2007 as percentage is 16% & 15% respectively. There was a slight increase in 2008 & 2009 as percentage is 16% & 19% respectively.
10 8
6

8 7 6 6 7

4 2 0 2005 2006 2007 2008 2009

Dividend income

Analysis The dividend income of National Bank of Pakistan is showing a mixed trend during all years. The year 2005 and 2007 indicates almost same percentage of 6%. The year 2007 & 2009 shows a percentage of 7% each. The year 2008 represents a peak percentage of 8% on account of dividend income.

147

10 8 6
4

5 4
3

2 2 0 2005 2006 2007 2008 2009

Income from dealing in foreign currencies

Analysis The National Bank of Pakistans income from dealing in foreign securities shows a percentage of 5% in 2005. The percentage is decreased in 2005, 2007 and 2008 as the percentage in these years is 4%, 3% and 2% respectively. The year 2009 represents highest percentage of 9% on account of income from dealing in foreign securities.
50 40
30

40 31 30 32

39

20 10 0 2005 2006 2007 2008 2009

Total non markup/ Interest income

Analysis The Total non markup/ Interest income of National Bank of Pakistan fluctuates and indicates a mixed trend during all years. The year 2005 represents highest percentage of 40% among all years. The percentage is decreased in 2005 as it was 31%. There was a slight decrease in 2007 as percentage is 30%. The years 2008 and 2009 indicates an increasing trend as percentage is 32% & 39% respectively.

148

50 40
30

42 37 34 33

43

20 10 0 2005 2006 2007 2008 2009

Adminstration expenses

Analysis The administrative and operating expenses of National Bank of Pakistan are 42% in 2005, representing second highest percentage among all years. The expenses are decreased in 2005 as percentage is 37%. The year 2007 and 2008 also shows a decreasing trend as percentage is 34% & 33% respectively. The administrative and operating expenses of bank are increased in the year 2009 as the percentage is 43%, highest among all years.
50
40

43 38
34 34

30 20 10 0 2005 2006 2007 2008 2009

Total non markup/ Interest expenses

Analysis The total non markup/ Interest expenses of National Bank of Pakistan are 43% in 2005, representing second highest percentage among all years. The expense is decreased in 2005 as percentage is 38%. The year 2007 and 2008 also shows a decreasing trend as percentage is 34% in each year. The total interest expense of bank is increased in the year 2009 as the percentage is 46%, highest among all years.

F
149

30 23 20 10 0 2005 2006 2007 2008 23 22 20

28

2009

Current Taxation

Analysis The National Bank of Pakistans current taxation fluctuates and shows a mixed trend in all years. The percentage is 23% in the year 2005. The years 2005, 2007 and 2008 shows a slight decrease in banks current taxation as percentage in these years is 23%, 22% and 20% respectively. The year 2009 represents peak percentage of 28% on account of current taxation.
70 60 50 40 30 20 10 0 57 62 66 66 54

2005

2006

2007

2008

2009

Profit before Taxation

Analysis The National Bank of Pakistans Profit before taxation is 57% in the year 2005.The percentage is increased in 2005 as it shows a percentage of 62%. The year 2007 and 2008 shows almost same increasing trend as percentage is 66%. There was a decrease in banks Profit before taxation as percentage is reduces to 54%, lowest among all years.

150

4 3 2
1

Profit after Taxation

Analysis The National Bank of Pakistans Profit after taxation is 30% in the year 2005, representing the lowest percentage among all years. The percentage is increased in 2005 as it shows a percentage of 42%. The year 2007 and 2008 shows a slight increasing trend as percentage is 43% & 45% respectively. There was a decrease in banks Profit before taxation as percentage is reduces to 36%.

GG

GG

GG

GG

GG

G
2 5 2 6 2 7 2 8 2 9

G H G G G G

42 3

43

45 36

151

ection

SWOT ANALYSIS
In this section four topics are discussed. They are a s under:
Strengths Weaknesses Opportunities Threats

152

* SWOT ANALYSIS *
STRENGTHS
National Bank the Nations Bank
State Bank of Pakistan is government owned bank that is why Pakistani nation has a trust on the bank that their deposits are secured. Due to this reason the deposits of the banks are increasing with the passage of time.

Agent of State Bank of Pakistan

National Bank of Pakistan also works as an agent of State bank of Pakistan in those cities where SBP branches are not working.

Agency Arrangements
National Bank of Pakistan is enjoying with deposit of different Govt. organization like Pakistan Railways, PIA, WAPDA, Sui-gas due to agency arrangements.

Deposits
National bank of Pakistan is the largest commercial bank of the country and has Total Deposits of Rs. 362.87 billion and becomes the first bank to cross the deposit of Rs. 350 billion.

153

Profitability
The pre-tax profits of NBP have gone up to Rs. 6.05 billion.

Corporate Branches
National Bank of Pakistan is now the biggest financial institution with assets totaling over Rs.310 billion with 1428 local and 23 foreign branches. The bank is the higher financer in agriculture and commodity operation sector.

Collection of Cash from Shrines

Cash collected from different shrines is also deposited in National Bank of Pakistan.

Comprehensive Range of Financial Products

In order to facilitate the customers, NBP is offering the comprehensive range of financial products which are as follows:

 Credit Cards  Foreign Exchange Bearer Certificates  National Bank Daily Accounts  Travelers Cheques etc.

Investing in Capital Market

NBP has decided to diversify the fund base by investing in capital markets not only in Pakistan but also in the foreign countries.

154

WEAKNESSES
Lack of Implementation of Rules and Regulations
Because NBP is a govt. owned organization so there is a lack of implementation of rules and regulations.

Poor Working Conditions

Despite, cultural change program the working condition of the NBP is not up to standard.

Recruitment Policy
In NBP, employees are recruited on the basis of favoritism or through other tools of corruption.

Incompetent Staff
Due to wrong recruitment policy staff of NBP is not proficient in their work.

Irregularities in Promotion
In NBP there is no smooth and continuous promotion system. Unfair means are used in order to get the promotion especially the promotion of the managers.

155

Individual Difference
In NBP the individual difference have strong impact on the organizations performance due to the wrong criteria of selection of the employee. So with the passage of time individual differences are increasing which are undermining the good will of the organization.

No Major Use of Computer

In NBP there is no major use of computer for maintaining the records of branches as compared to other banks of the country.

Strong Union
Union has strong impact on performance of NBP. So the top management is unable to punish the violators and shrieks.

Organizational Structure
In this organizational the organizational structure is bureaucratic which is a barrier in rapid and effective decision making.

156

OPPRTUNITIES
Consumer Banking
The basis need of the consumer such as housing, transportation and other durable goods are not adequately financed by the banks. So by initiating these services, the bank can enjoy with more funds.

Investing in the Foreign Capital Market

NBP can enjoy handsome return its funding base by investing in capital markets in the foreign countries.

Investment Banking
Until recently the bank perceived as purely commercial banking entity so in order to expand its business the bank may start investment banking by investing in the portfolio of handsome return.

New Branches
NBP by establishing new branches in foreign countries can expand its business and can enjoy with the profit.

Issuance of Bonds
To enjoy with large amount, NBP can introduce a comprehensive range of bonds.

157

Night Banking
Despite of poor customer service of NBP, people still come to NBP because of its Govt. ownership as they feel it secure therefore bank improve its deposit by giving facility of night banking and also can compete its competitors with positive steps.

Advisory Services
It can establish advisory services in order to facilitate the customers in investing in the securities.

158

THREATS
Competition
The no. of banks in Pakistan is increasing with the passage of time. So due to poor working condition and poor customer service it may be possible NBP will lose its market share in future.

Inflation
In our country, the rate of inflation is increasing along with the unemployment. So due to the increase in price of the products, the savings of the nation is decreasing with the passage of time. So it is the threat for the banking sector. In the future, the deposits of the bank will decrease.

Government Policy
On NBP Govt. policies have strong impact. A slight change in Govt. policies may affect the performance of the bank. The bank has to work with in the regulation frame work.

159

ection

RECOMMENDATIONS
In this section two topics are discussed that are:

Recommendations Conclusions

160

*RECOMMENDATIONS*
PROPER PLANNING
Bank should make a plan to gear up its recovery efforts on war footing and reorganize the recovery function of global bases. In addition, bank should tighten up control on expenditure

USE OF COMPUTERS
To save the time of the customers and other clients, bank should adopt computerized system for book keeping and other filling systems. It will increase the efficiency of the bank. I know that there are some branches which are computerized but most of the branches in various cities of the country are not computerized. So the bank should mechanize all its branches in the country.

161

ADOPTION OF ADVERTISING
Bank should launch advertising campaigns through out the year to promote the habits of savings in the people. Bank should open more branches in the remote areas of the country to get deposits and idle resources. Bank should provide similar facilities to all its branches in big cities. The standard of service and other facilities are far better as compared to smaller cities.

PROPER GUIDANCE
Bank should adopt such an induction plan that when a customer opens his account with the bank, he should be supplied with a booklet which enables him to know the procedure of filling the cheques and pay-in-slip etc. It will save a lot of time of the bank staff afterward during of the conduct of the account of that customer.

DIVISION OF WORK
The billing system of national bank of Pakistan must be improved to facilitate the customers and workers. The work should be divided among the staff e.g. collection of bills, countering of cash and then entry of these.

CHECK ON EXPENDITURES
Expenditures must be controlled which are very high and unnecessary.

BORROWING AT LOW COST

Deposits must be taken at a lower cost and given at higher interest rate.

162

*CONCLUSIONS*
National Bank of Pakistan is government owned bank that is why Pakistani nation trust on the bank that their deposits are secured due to this the deposits of the bank are increasing day by day. In my point of and with respect to my all analysis National Bank is the leading bank because after all its our nations own bank. During my internship I personally learn very well which all application of my practical knowledge. All the services provided by the bank are according to standard which are internationally described. National bank of Pakistan is enjoying the deposits of Pakistan Railways, PIA, Wapda, and Sui Gas due to agency arrangements I learn maximum during my internship. It the good effort of practical knowledge. But there is some deficiency with respect to their management because of lack of implementation of rules and regulations, if they can control over these deficiencies they can facilitate their clients. After making the SWOT analysis, we have concluded that the banks strength is of that the bank is the government owned bank and people trust a lot. But the bank lacks of proper implementation of rules and regulations and the recruitment of the employees is mostly based on favoritism. Due to wrong recruitment policy the staff of NBP is not proficient in their work. NBP can enjoy handsome return its funding base by investing in capital markets in the foreign countries NBP can enjoy handsome. NBP by establishing new branches in foreign countries can expand its business and can enjoy with the profit. It can establish advisory services in order to facilitate the customers in investing in the securities. The no. of banks in Pakistan is increasing with the passage of time. So due to poor working condition and poor customer service it may be possible

163

NBP will lose its market share in future. On NBP Govt. policies have strong impact. A slight change in Govt. policies may affect the performance of the bank. The bank has to work with in the regulation frame work. Bank should make a plan to gear up its recovery efforts on war footing. To save the time of the customers and other clients, bank should adopt computerized system for book keeping and other filling systems. It will increase the efficiency of the bank.. Bank should launch advertising campaigns through out the year to promote the habits of savings in the people. Bank should open more branches in the remote areas of the country to get deposits and idle resources. Bank should provide similar facilities to all its branches in big cities. The standard of service and other facilities are far better as compared to smaller cities.

164

*BIBLIOGRAPHY*
y Introduction of National Bank of Pakistan http\\: www.nbp.com.pk y Lawrence J. Gitman (2004), Principles of Financial Management, Pearson Education (Dorling Kindersley (India) Pvt Ltd.) Page No# 281 305 y James C. Van Horne (2004), Financial Management & Policy, PrenticeHall India (2004) Page No# 369-387 y History of National Bank of Pakistan \\: www.nbp.com.pk (Internet) y NBP Products & Services \\: www.nbp.com.pk (Internet) y Saif Malik, Work done by me (2010), National Bank of Pakistan Distt. Ali Pur Chattha. y Malik Aslam Sial, Work done by me (2010), National Bank of Pakistan Distt. Ali Pur Chattha. y Malik Ashraf Gorcha, Work done by me (2010), National Bank of Pakistan Distt. Ali Pur Chattha. y Amjad Hussain Shah, Work done by me (2010), National Bank of Pakistan Distt. Ali Pur Chattha.

165

Bank:
Bank is an institution which receives deposits and advances loans and spread between the deposits and advances is called the profit of the bank.

Bank Note:
A non-interest-bearing promissory note of a Federal Reserve Bank which is payable to the bearer on demand and can be used as cash.

Bank reconciliation:
The process of adjusting an account balance reported by a bank to reflect transactions that have occurred since the reporting date.

Banking:
Banking means the accepting fro the purpose of lending or investing of deposits of money from the public repayable in demand or otherwise and withdraw able by cheque, draft order or otherwise.

Barren money:
Money that is not currently earning interest.

Cash reserve:
Cash reserves simply means the cash that is held by bank at any part cular i moment.

166

Cheque:
A cheque (or check - USA) is a negotiable instrument[1] instructing a financial institution to pay a specific amount of a specific currency from a specific demand account held in the maker/depositor's name with that institution. Both the maker and payee may be natural persons or legal entities.

Commercial Bank:
Commercial bank means any bank who takes the activities of banking to earn the profit is called commercial bank.

Credit card:
Which is issued by the bank to customer to make the transactions on credit basis.

Credit Union:
A non-profit financial institution that is owned and operated entirely by its members. Credit unions provide financial services for their members, including savings and lending.

Debit card:
It works just like as credit card but on cash basis. It means the card which is issued by the bank to the client up to the amount which client has in the form of cash in the bank account.

167

Demand loan:
A loan which is repayable on demand (i.e. without prior notice), rather than on a specific date.

E-Banking:
Banking through electronically / electronic Channels. Online and mobile is possible due to E-Banking.

Finance:
All those activities which have to do with the provisions and management of funds for the satisfactory conduct of business.

Financial market:
financial market is a mechanism that allows people to easily buy and sell (trade) financial securities (such as stocks and bonds), commodities (such as precious metals or agricultural goods), and other fungible items of value at low transaction costs and at prices that reflect the efficient market hypothesis.

Hypothecation:
When moveable property/ goods are charged with the amount of debt but neither the ownership nor the possession is passed to the lender. It is said to be hypothecated. By virtue of letter of hypothecation bank can take possession of hypothecated goods in case of default of the borrower.

Insurance
A promise of compensation for specific potential future losses in exchange for a periodic payment. Insurance is designed to protect the financial well-being of an individual, company or other entity in the case of unexpected loss.

Letter of credit:
L/C. A binding document that a buyer can request from his bank in order to guarantee that the payment for goods will be transferred to the seller. 168

169