CHAPTER 1

Introduction to Report

1.1 Background of the study

National Bank of Pakistan maintains its position as Pakistan’s premier bank determined
to set higher standards of achievements. It is the major business partner of the
Government of Pakistan with special emphasis on fostering Pakistan’s economic growth
through aggressive and balanced lending policies, technologically oriented products and
services are offered through its extensive network of 1254 branches.

Unlike other BBA programs, where the students are required to undergo a four weeks
internship in any organization not necessarily a banking institution, we the students of
Banking & Finance were required to undergo eight weeks internship and I opted for
NBP for my Internship.

1.2 Purpose of the Study

The purpose of this study apart from stated above is to understand the peculiar nature of a
specific business organization like NBP and to work in a real life situation and to apply
management skills. In this context its objectives are:

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

management.
ii) To know how different operations are carried out in the bank.
iii) To define and describe various functions of the bank.
iv) To get exposure and to develop the interpersonal communication skills.
v) To analyze the different aspects of the organization and also to produce some
solutions for the problems pertaining to the organization.
vi) To improve report writing skills.

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1.3 Scope of the Study
The Scope of the study is confined to banking operations. As an internee in NBP the
main focus of my study was on general banking procedures in the branches of NBP. In
the first two months my focus was on the Deposits and Remittances departments. In the
next two months I studied the Advances and Finances departments. The Foreign
Exchange section of the bank was covered in the last two months of the internship.

1.4 Limitation of the Study

The most important limitation of the study is caused by the non-availability of
information in a manner required for analysis, and secondly the secrecy of the bank
regarding its operations due to which certain information which are available but are not
disclosed to the outsiders.

1.5 Research Methodology

Both Primary and Secondary sources of data were used for writing this report. The
biggest source of information is however, my personal observations while working with
the staff and having discussions with them. Formally arranged interviews and discussions
also helped me in this regards.

1.5.1 Sources of Primary data

Primary data has been collected by two methods.

 Personal Observations
 Discussions/Interviews with bank employees.
1.5.2 Sources of Secondary Data
Secondary data has been collected from the following sources.

 Previous Internship Reports.

 Brochures.
 Manuals of different departments of the bank.
 Annual Reports of NBP.
 Journals & Newspapers.
 Internet.

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  Relevant books.

1.6 Scheme of the Report

The report is arranged in the following sequence:

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

limitations, methodology and scheme of the report.

Chapter 2 is about the importance of banking, and the various activities performed
therein. This chapter encompasses a brief history of banking and an over all review of
banking sector in Pakistan. Similarly the history of NBP and its vision and mission
statement are also included in this chapter and it also tells about the organizational
structure of NBP.

Chapter 3 gives details about the financial position and products & services provided by
National Bank of Pakistan and its Branch located at Mandian Abbottabad. It also
describes the overall financial position of the Bank and tells about the several functions
of the advances department of the bank. It includes the different types of credit facilities
and the procedures used by bank for extending them.

Chapter 4 makes the detailed analysis of NBP (Both financial & non-financial).
Financial analysis is made on the national performance of the bank, followed by a SWOT
analysis of the NBP. Different types of ratios of the bank are shown with the help of
graphs.

Chapter 05 gives findings and recommendations to the organization for a still better
performance in the future.

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Chapter 2:

Introduction to National Bank of Pakistan

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

National Bank of Pakistan maintains its position as Pakistan's premier bank, determined
to set higher standards of achievements. It is the major business partner for the
Government of Pakistan with special emphasis on fostering Pakistan's economic growth
through aggressive and balanced lending policies, technologically oriented products and
services offered through its nation wide branches.

2.1.1 Historical Background of National Bank of Pakistan

National Bank of Pakistan (the Bank) was established on November 9, 1949 under the
National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions
which were developed after trade deadlock with India and devaluation of Indian Rupee
in 1949. Initially the Bank was established with the objective to extend credit to the
agriculture sector. The normal procedure of establishing a banking company under the
Companies Law was set aside and the Bank was established through the promulgation of
an Ordinance due to the crisis situation that had developed with regard to financing of
jute trade.

The Bank commenced its operations from November 30, 1949 at six important jute
centers in the then East Pakistan and directed its resources in financing of jute crop. The
Bank's Karachi and Lahore offices were subsequently opened in December 1949. The
nature of responsibilities of the Bank is different and unique from other banks/financial
institutions. The Bank acts as the agent to the State Bank of Pakistan for handling
Provincial/Federal Government Receipts and Payments on their behalf. The Bank has
also played an important role in financing the country's growing trade, which has
expanded through the years as diversification took place.

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2.1.2 Present Status

National Bank of Pakistan has a network of 1,254 domestic branch and 15,204 employees
for subsidiaries, 22 Oversea branches, 4 reparative offices, 1 joint venture and subsidiary
(overseas) all the world the local branches are controlled through 29 regional offices and
overseas are managed through 4 overseas regional offices. It is the largest contributory
agent of government requirement. NBP provide wide range of services and including
collection of taxes and deliveries of salaries, person to public sector employees. It has
lowest rate on exports and other borrowings.

NBP not only enjoy a unique position in the banking sector in Pakistan but also in the
global banking and the financial sector. National Bank of Pakistan has been included in
the top ten huge banks of the world, it is only domestic bank of the country of which has
been awarded “The Best Domestic bank” NBP, in its domestic operations has a total
network of 1189 domestic branches, 29 regional offices, along with 9 regional Audit
offices and 4 local subsidiaries including, National Bank of Pakistan mudaraba
management company national capital limited NBP exchange company Taurus securities
limited.

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

representative offices, one international subsidiary bank of NBP in Amatory and one joint
venture with the United Kingdom. NBP with its commitment to invest in development of
the bank’s I.T infrastructure have now developed on line branches with modern by highly
professional bankers. NBP has launched an ambitious business reprocessing programmed
to make the bank more attractive with the eventual aim of privatization. The largest bank
in the country with a customer base 9.00 billion in poised for take off.

2.1.3 Credit Rating

NBP enjoys the highest rating of ‘AAA’ in the industry assigned by M/s JCR-VIS Credit
Rating Company. The ratings assigned to NBP are primarily driven by the bank’s role in

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the national economy as an agent of the State Bank of Pakistan and as a bank to the
Government of Pakistan. Additionally, ratings also derive strength from the bank’s
consistently high capitalization levels, and nationwide access that has enabled it to secure
a cost effective and diversified deposit base.

2.1.2 Auditors

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

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 2.2 Organizational Structure of National Bank of Pakistan

Chart 2..1(Organizational structure of NBP)

President & Chairman

President Secretariat

Board of Director

Secretariat

Corporate & Investment Banking Group

Commercial & Retail Banking Group

Operations Group

Audit & Inspection Group

Compliance Group

Financial Control Division

Employees Benefits, Disbursements & Trustee Division

Special Assets Management Group

Organization Development & Training group

Overseas Co-Ordination & Management Group

Information Technology Group

Risk Management Group

Treasury Management Group

Human Resources Management & Admin Group

Source: www.nbp.com.pk

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2.2.1Corporate Profile

Chart 2.2 :Corporate Profile

Syed Ali Raza (Chairman & President)

Board of directors Mr. Tariq Kirmani

Mrs. Haniya Shahid Naseem

Ms. Nazrat Bashir

Mr. Ekhlak Ahmed(Secretary to BOD)

Mr. Ibrar A.Mumtaz

Audit Committee Mr. Tariq Kirmani

Mian Kausar Hammed

M. Yousaf Adil Saleem and Co.

Auditors Chartered Accountants

Anum Asim Shahid Rahman & Co.

Chartered Accountants.

Legal Advisors Mandviwala & Zafar

Advocates & Legal Consultants

NBP Building

Registered & Head Office I.I. Chundrigar Road, Karachi, Pakistan

Registrars & Share Central Depository Co. of Pakistan, Main Shahrah-e-Faisal,

Registraton Office Karachi.

Source: www.nbp.com.pk

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2.3 BRANCH NETWORK

Figure 2..1: Branch Network

Source: www.nbp.com.pk

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2.3.1 Head Office

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

2.3.2 Domestic Network

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

• NBP Leasing Limited (formerly NBP Capital Limited)

• NBP Modaraba Management Company Limited

• NBP Exchange Company Limited

• Taurus Securities Limited

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

2.3.3 Overseas Network

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

2.4 Vision Statement

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

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2.5 Mission Statement

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

 Institutionalizing a merit & performance culture, creating a distinctive brand

identity by providing high standard of services, adopting the best International
management practices, maximizing stakeholders value and discharging our
responsibility as a good corporate citizen of Pakistan& in countries where we
operate.
2.6 Organizational Objectives:

All the objectives of the National Bank of Pakistan are compatible with the mission
statement of the bank. As a business organization its main objective is profit
maximization, the only yard stick used for measuring performance. NBP tries to
maximize its profits by concentrating on two activities i.e. enhancing customers’
deposits, and increasing advances to the borrowers.

2.6.1 Increase Deposits

Presently tough competition is experienced in every field, and the banking sector is no
exemption to the rule. Whether the bank is Pakistani, Private, Foreign or Nationalized,
competition is there. In the competition NBP has the goal to achieve the greatest possible
amount of deposits. The tool used by the bank in order to increase its deposits was to
provide the best of facilities to their customers.

2.6.2 Extension of Loans

The profitability of a bank greatly depends upon the amount of credit extended to the
people. The loans provided by NBP accounts for the major source of its profit. The mark
up charged by the bank varies with the type of loan issued to the customer; the terms and
conditions of the loans are negotiable depending upon the relationship between the
customer and the bank, the purchase for which the facility is offered, and of course on
the security offered for acquiring it.

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CHAPTER # 3

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

3.1 Departmentation

The organization of NBP is a complete banking system. This banking system is collection
of interrelated departments that works together to achieve the objectives of the
organization. I can rightly say that NBP is a hierarchical system in that it includes other
sub departments and these are integrated to work together.

The NBP existing system includes following departments.

• Deposit Department
• Cash Department
• Remittance of bills
• Accounts Department
• Credit Department

3.1.1 Deposit Department

In this department NBP accepts money deposits from customers, which provide basic core
of all resources available to a bank. NBP accepts surplus money deposits from individuals,
firms and corporations. In order to attract these funds it has introduced a number of
savings accounts and investment schemes. These schemes may suit to the needs and taste
of large number of depositors. There it is said, “Deposits are necessary for making the
branches and assets are necessary for making banks”.

3.1.1.1 Functions of Deposit Department

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Provide guidance to the persons wishing to open an account by assistance of account
opening form and specimen signature (SS) card. Major functions of deposit department in
NBP include:

• To maintain existing accounts.

• To dispatch letters to customers if needed e.g. letter of thanks to introducer and
new account holder.
• Posting of vouchers and cheques in computer and maintain records in form of
printouts.
• Cancellation of cheques.
• Issuance of cheque book.
• Sorting is also done of accounts to check dormant and inoperative accounts and
also for recovery of incidental charges.
• It also deals in deduction and refund cases of zakat.
• Maintenance and handling of various deposit schemes e.g. PLS, saving and current
accounts.
• Making stop payments of cheques and noting cautions regarding death, insolvency,
insanity of account holder.
• Transfer and closing of accounts.
• Keeping the records of death/credit balance confirmations and statement of
account.
• Provide confidential inquiries to other banks, government departments and other
agencies.
3.1.1.2 Types of Accounts Offered NBP

• Current deposit account

• Pls. saving accounts
• Pls. term deposit accounts
• Pls. short term deposit account

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1: Current Deposit Accounts

“These accounts are for the current deposits i.e. customer can deposit and withdraw the
amount any time and no profit is paid.” This account is operating through cheques. The
customer is required to maintain a minimum balance in this account.

2: PLS (Profit Loss Sharing) Saving Account

Pls. saving accounts opened by individuals (single or joint), for charitable institutions,
companies, educational institutions, firms etc. This account can be opened with a very
small amount, withdrawals from this account is made through cheques. Return/profit is
paid at flexible rate calculate on six months basis however, withdrawals of limited amount
are generally allowed only twice a week. The customer has to give a notice of about two
weeks before the withdrawals of large amounts.

3: PLS Term Deposit Account

The deposits that can be withdrawn after a specified period of time are known as fixed or
term deposits. In this account person or account holder keeps the money for definite
period of time. The amount deposited is not withdrawn able by cheques. After the
maturity of account, account holder receives the actual money along with the profit given
after each six months during deposited period.

4: PLS Short Term Deposit Account

The short-term deposit account is opened for the period of 7 days notice or 30 days notice.
All other conditions for opening, closing and operating conditions are same as described
in pls. Term short deposit account.

3.1.2 Cash Department

The main function of this system is Receipts & payments to the customers, on behalf of
their account, through Cheques or any other negotiable instruments. All those transactions,
which are held on the counter on cash basis lies under the cash department.

The cash system mainly deals with following areas:

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• Receipts
• Payments

3.1.2.1 Receipts

The customer deposits in there accounts through a deposit slip. The deposit slip contains
the account number and the title of account. The amount in figure and words is also
written on both side of the slip. The customer deposits the amount to the cashier, which is
dully signed by the cashier and an officer, the amount is thus credited to the account
holder.

3.1.2.2 Payments

The amount of money is repaired to the cheque.

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

otherwise on demand”.

3.1.2.3 Sufficiency of Funds

“The drawee of a cheque having sufficient funds of the drawer in his hands properly
applicable to the payment of such cheques must pay the cheque when duly required to do,
and in default of such payment must compensate the drawer for any loss or damage caused
by such default.

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

• Not sufficient
• Exceed arrangement
• Not provided for
• Full covered not received
• Refer to drawer
• Account closed
• Present again

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3.1.3 Remittance Department

This department of NBP is concerned with transfer of money from one place to another
place. An inland remittance means a transfer of money payable at a certain place within
the country. Inland remittances can be classified as in the following:

• Within Locality
• Outside Locality

3.1.3.1 within locality

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

situated in the same city, the process is known as within locality. For example, the NBP
branch is known as local or with in locality for branches in Abbottabad.

3.1.3.2 Outside locality

Outside locality is an important type of inland remittance. Outside locality means the
transfer of money payable outside the city. For example NBP Abbottabad Branch sends
any draft to a branch situated at Peshawar it is commonly done through:

1. Mail Transfer (M.T)

2. Telegraphic Transfer (T.T)
3. Demand draft (D.D)

3.1.3.2.1 Mail Transfer

When a customer requests the bank to transfer his money from this bank to any other bank
or the branch of the same bank in the city/ outside the city or outside the country, the first
thing he has to do is to fill an application form in which he states that I want to transfer the
money from this bank to another bank. If the customer is the account bolder of bank, then
the bank will debit his account. The concerned office will fill the different forms to make
the mail transfer complete. Three forms used for this purpose are listed below:

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• Debit voucher

• Credit voucher

• Mail transfer register

If the customer is not the account holder of bank, then firstly he has to deposit the money
and then the above said procedure will be adopted to transfer his money.

3.1.3.2.2 Telegraphic Transfer

This type of transfer is simple. After filling the application form, the concerned officer
fills the telegraphic form. This telegram is sent to the required bank. Which on receiving it
immediately makes the payment to the customer and afterwards the vouchers are sent to
the bank by ordinary mail.

3.1.3.2.3 Demand draft (D.D)

A bank draft is an order by one branch of bank to another branch of the same bank to pay
a certain amount of money on demand to the person named there in.DD is just a check and
is issued when the customer wants to take the draft personally. The idea behind it is that as
the cash is not safe to be kept along and a check in the shape of a draft is safer and one can
easily get cash by presenting it in the bank, on whose favor it has been made.

3.1.4 Accounts Department

This is one of the most important departments in NBP. The bank daily transactions are
recorded in computers, nowadays, so the function of this department is to get a summary
of all the transactions. The credit and debit vouchers are arranged and saved for the record
purpose. It also indicates, head office entries as clearing, transfer delivery etc. On the
weekend it has to prepare the extract which is sending to head office for reconciliation.
The month ends will summaries of all the monthly statements and profit and loss is
determined. Thus this department will create a link between head office and branch office
and above all maintains disc of all the transaction of current day at home so that in any
mishap the customer benefit is save. The functions of Accounts department are as follows:

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• Maintenance of book of the accounts of head office.
• Salary disbursement and investment of staff.
• Arrangement of stationary for bank.
• Dealing with disposal of commercial external audit reports and state bank of
Pakistan instructions.
• Pre audit checking of all bank transactions.

3.1.5 Credit Department

NBP is the profit seeking institution. It attracts surplus balance from customers at lower
rate of interest and makes advances at higher rate of interest. NBP make advances mainly
in two sectors:

i) Industry

ii) Trade and commerce

The main difference between two sectors is the amount. The industrial credit involves a
heavy amount while trade and commerce amounts are low.

The finance system deals with providing finances (loans) and ensuring the guarantees.
Three basic types of finances are:

• Demand finance
• Running finance
• Cash finance
3.1.5.1 Types of Advances Offered By NBP:
NBP Credit department deals with all the advances, which are made to the customers.
Advances are important for the banking business because it gives the bank interest on the
amount loaned. NBP is also very active in advancing loans to customers, thus helping the
economy of the country in its development. It provides the following finances:

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3.1.5.1.1 Running Finance

This is a type of finance, which meets the day-to-day finance requirements of the business.
The amount is transferred to the debtor’s current account and can be withdrawn through
cheques. The limit on this type of finance is 35000 and the maximum period for this type
of finance is one year and can be renewed by a new application. Repayment is on
discretion of the customer to pay back a lump sum amount or otherwise.

3.1.5.2 Secured Running Finance

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

an agreed amount in excess of his bank balance NBP provides this facility to its customer.
Usually such loans are extended for small amounts at lower rates for shorter periods. The
time period for this type of finance is less than one year. The mark up is paid on a monthly
basis and the principal amount is repaid at a specific date.

3.1.5.3 Cash Finance

Cash finance is also called working capital. It is a short-term loan. Probably the most
popular form of providing funds to the clients in the banking sector is the Cash Finance
system or traditionally known as Cash Credit. In this, the bank lends money to borrowers
against tangible security. The total amount of loan, which is granted, is not paid in one
installment. The borrowers have to pay markup on the amount borrowed. Cash finance is
obtained either by

3.2 Products provided by NBP

Bank offers the following Products:

• Premium Aamdani
• Premium Saver
• Karobar
• Saibaan
• Advance Salary
• Cash Card

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 • Investor Advantage
• Cash n Gold
• Kisan Taqat
• Pak Remit
• Protection Shield

3.2.1 Premium Aamdani:

Premium Aamdani is a monthly income scheme. Minimum money required for this
account is twenty thousands and maximum limit is five million. Financing facility
available up to ninety percent of the deposit value. Zakat and withholding tax will be
deducted as per rules. Premature encashment will attract penalties

Profit paid every month as follows:

Table 3.1: Expected profit rates

Expected Profit Rates for years

Period

1st year 7.50%

2nd year 8.50%

3rd year 9.50%

4th year 10.50%

5th year 11%

Source:www.nbp.com.pk

3.2.2 Premium Saver

In Premium saver bank offers “PLS Saving Account”. Minimum saving balance is
required is Rs. 20001 and the maximum limit is 300,000. Bank provides free ATM and
Debit card to account holders. Account holder can withdraw money only two times in a

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month and no limit for number of deposit transaction. Profit rate is 7.25% p.a. Profit
calculated on monthly and paid on half yearly basis

3.2.3 Karobar

3.2.3.1 President’s Rozgar Scheme

NBP Karobar under the “President’s ROZGAR SCHEME” recovered excellent growth
after its full launch in April 2007.People aged between 18 to 45 can apply for this loan.

Minimum down payment is 10% of asset price. The time period of loan is 1 to 5 years,
Grace period of 3 months will be given to customer. Maximum loan amount is Rs.
200,000. Mark-up is calculated KIBOR plus 2% p.a. The customer will pay markup at the
rate of 6% p.a., rest will be borne by Government of Pakistan. This product not only
serves the bank’s commercial strategy but is also an effort towards poverty alleviation in
the country. As well as providing free life and disability insurance to the NBP. The
portfolio at year end was over Rs.2 billion. The target was almost 1.8 million customers
in the next five years. The bank plans on disbursing almost Rs.100 billion which will
touch the lives of almost thirty million citizens.

3.2.4 Saibaan

In 2007, NBP Saibaan has been the market leader in housing finance as the overall
disbursements were at an average of approximately Rs.350 million each month, which is
by far head of the competition. Tthe NBP Saibaan has become the leader amongst the top
five banks of Pakistan in mortgages.

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

Land plus Construction. Maximum amount that customer can borrow for Purchase of
Land plus Construction, Home Purchase, Home Construction is 35 million, financing
period is 3 to 20 years and maximum debt to equity ratio is 85:15. Whereas for Home
Renovation maximum financing amount is 15 million, financing period is 3 to 5 years,
and maximum debt to equity ratio will be 80:20. Markup rate is SBP discount rate with
2%( 12 month repurchasing). Processing fee for government employee is Rs. 500

21
irrespective of financing amount. For other customers up to the one million it is Rs. 1000,
amount between 1 to 4 million is Rs. 3000 and above 4 million is 6000.

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

• Must be Pakistani Resident (National)

• Aged between 21 and 65 years at the time of application/disbursement of loan.
• Salaried Person, Self-employed professionals and businessmen.
• Property located in NBP approved localities.
• Service duration: Two years for salaried class Three years for self-
employed/business class.
3.2.5 Advance Salary

The flagship NBP Advance Salary product continued to grow in 2007 and maintained its
position as the single largest product in the country with its accumulated disbursement
crossing Rs.138 billion. The number of organizations whose employees are entitled to
avail this scheme is gradually being increased ensuring continued growth. The latest
addition is the Pakistan Army and the target is almost half a million new customers in the
next three years in addition to the existing base of one million satisfied customers
approximately.

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

Autonomous, Local & other bodies who are maintaining their Salary A/Cs at NBP are
eligible for this product. Repayment will be the direct deduction from the salary account.
Maximum repayment period for the loan is 5 years. Customer can avail up to 20 net take
home salaries with easy repayment installments. The markup rate is SBP discount rate
plus 5%.processing fee will be 1% of loan amount. For this loan customer’s salary
account must be in NBP.

3.2.6 Pakremit

Pakremit is an internet based Home Remittance Service. This service is available to U.S.
residents for sending money to their family and friends in Pakistan. One must have a
valid US Dollar account with a U.S. bank or a US Dollar credit or debit card in order to

22
remit funds through this channel. The service is fully secure with advance encryption
application and is available for use 24 hours a day, 7 days a week.

3.2.7 Investor Advantage

NBP provides Personal Accidental Insurance. Insurance Coverage Includes death due to
Riots, Strikes, Civil commotion, Acts of Terrorism and Natural Calamities like Flood,
Earth Quake, Cyclones etc. Monthly premium is Rs. 20 and coverage is up to Rs. 200000.
Person must be account holder of NBP, aged between 18 and above. Customer also has
choice of deactivation. NBP gives Auto Premium deduction facility to its Account
Holders.

3.3 Services offered by NBP

3.3.1 Swift System:

The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has
been introduced for speedy services in the area of home remittances. The system has
built-in features of computerized test keys, which eliminates the manual application of
tests that often cause delay in the payment of home remittances. The SWIFT Center is
operational at National Bank of Pakistan with a universal access number NBP-APKKA.
All NBP overseas branches and overseas correspondents (over 450) are drawing
remittances through SWIFT.

Using the NBP network of branches, you can safely and speedily transfer money for your
business and personal needs.

3.3.2 Letter of Credit:

NBP is committed to offering its business customers the widest range of options in the
area of money transfer. If you are a commercial enterprise then their Letter of Credit
service is just what you are looking for. With competitive rates, security, and ease of
transaction, NBP Letters of Credit are the best way to do your business transactions.

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3.4 Traveler’s Cheques:

Table 3.2 Travelers Cheque

Negotiability: Pak Rupees Traveler’s Cheques are a negotiable instrument

Validity: There is no restriction on the period of validity

Availability: At 700 branches of NBP all over the country

Encashment: At all 400 branches of NBP

Limitation: No limit on purchase

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

Source: Annual Report 2009

3.5 Pay Order:

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

Table3.3: Rates charged against pay orders

a. Issuance of Pay order

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

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

b. Issuance of duplicate Pay order

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

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

Source: Annual Report 2009

24
3.6 Foreign Remittances:

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

· Increase home remittances through the banking system

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

3.6.1. New Features:

The existing system of home remittances has been revised/significantly improved and
well-trained field functionaries are posted to provide efficient and reliable home
remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides
Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia.

• Zero Tariffs: NBP is providing home remittance services without any charges.
• Strict monitoring of the system is done to ensure the highest possible security.
• Special courier services are hired for expeditious delivery of home remittances to
the beneficiaries.

3.7 Short Term Investments:

NBP now offers excellent rates of profit on all its short term investment accounts.
Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are
extremely attractive, along with the security and service only NBP can provide.

3.7.1 National Income Daily Account (NIDA)

The scheme was launched in December 1995 to attract corporate customers. It is a current
account scheme and is part of the profit and loss system of accounts in operation
throughout the country.

3.8 Equity Investments:

25
NBP has accelerated its activities in the stock market to improve its economic base and
restore investor confidence. The bank is now regarded as the most active and dominant
player in the development of the stock market.

3.8.1. NBP is involved in the following:

• Investment into the capital market

• Introduction of capital market accounts (under process)

NBP’s involvement in capital markets is expected to increase its earnings, which would
result in better returns offered to account holders.

3.9 Commercial Finance:

Let them help make your dreams become a reality

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

agriculturists, large and small business and other segments of the economy. They are the
customer’s best resource in making NBP’s products and services work for them.

3.10 Trade Finance other business loans:　

3.10.1 Agriculture Finance:

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

• Agricultural Finance Services:

“I Feed the World” program, a new product, is introduced by NBP with the aim to help
farmers maximize the per acre production with minimum of required input. Select farms
will be made role models for other farms and farmers to follow, thus helping farmers
across Pakistan to increase production.

26
Agricultural Credit:

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

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better production

Provide farmers an integrated package of credit with supplies of essential inputs, technical
knowledge, and supervision of farming.

Agricultural Credit (Medium Term):

• Production and development

• Watercourse improvement
• Wells
• Farm power
• Development loans for tea plantation
• Fencing
• Solar energy
• Equipment for sprinklers

Farm Credit:

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

• Operating loans
• Land improvement loans
• Equipment loans for purchase of tractors, farm implements or any
other equipment
• Livestock loans for the purchase, care, and feeding of livestock

27
Production Loans:

Production loans are meant for basic inputs of the farm and are short term in nature.
Seeds, fertilizers, sprayers, etc are all covered under this scheme.

3.10.2 Corporate Finance:

Working Capital and Short Term Loans:

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

shipment and Post-shipment financing to exporters – Running finance – Cash Finance –
Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Pre-shipment /
Post Shipment Agricultural Production Loans

Medium term loans and Capital Expenditure Financing:

NBP provides financing for its clients’ capital expenditure and other long-term investment
needs. By sharing the risk associated with such long-term investments, NBP expedites
clients’ attempt to upgrade and expand their operation thereby making possible the
fulfillment of their clients’ vision. This type of long term financing proves the bank’s
belief in its client's capabilities, and its commitment to the country.

Loan Structuring and Syndication:

National Bank’s leadership in loan syndicating stems from ability to forge strong
relationships not only with borrowers but also with bank investors. Because they
understand their syndicate partners’ asset criteria, they help borrowers meet substantial
financing needs by enabling them to reach the banks most interested in lending to their
particular industry, geographic location and structure through syndicated debt offerings.
Their syndication capabilities are complemented by their own capital strength and by
industry teams, who bring specialized knowledge to the structure of a transaction.

Cash Management Services:

With National Bank’s Cash Management Services (in process of being set up), the
customer’s sales collection will be channeled through vast network of NBP branched

28
spread across the country. This will enable the customer to manage their company’s total
financial position right from your desktop computer. They will also be able to take
advantage of NBP outstanding range of payment, ejection, liquidity and investment
services. In fact, with NBP, you’ll be provided everything, which takes to manage your
cash flow more accurately.

3.11 International Banking:

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

proven by the fact that NBP has its branches in all of the major financial capitals of the
world. Additionally, NBP have recently set up the Financial Institution Wing, which is
placed under the Risk Management Group. The role of the Financial Institution Wing is:-

• To effectively manage NBP’s exposure to foreign and domestic

correspondence
• Manage the monetary aspect of NBP’s relationship with the correspondents to
support trade, treasury and other key business areas, thereby contributing to the bank’s
profitability

CHAPTER # 4

Analysis of National Bank of Pakistan

4.1 Financial statement analysis

Financial Statement Analysis is the scales due to which we can measure the financial
position of a firm. It also helps us for measuring the end result from the operation of that

29
firm. This analysis also helps us in determining the strengths and weakness of a firm. Or
in other words we can say that financial analyses are done for the purpose of identifying
the financial strength and weaknesses of an organization. This analysis provides
information to different parties in marketing the decision of the organization. For
achieving the goals and objectives of an organization and strategy making analysis helps
a lot. The creditors, investors and other providers of capital also take on the financial
statement analysis.

The creditors are interested in the liquidity of the firm, to meat their short term
obligations and also having the ability for payment of these obligations. The bondholders
are interested more in the cash flow of the firm and bond holder's claims are long-term.
The investors in a company’s common stock are interested with present and expected
future earning of the firm and the stability of these earnings. Usually investors analyze
the profitability of the firm if the profitability of a firm is high and stabile the investor
confidence increases and they invest more in that firm. Management uses the financial
statement for managing the internal activities of the firm. The suppliers seek the financial
statement for providing more and government use if for the purpose of tax collection.

4.2 The financial data of NBP is analyzed in the following two ways
The given below types of analyses are used to measure firm’s performance over time. In
the common size analysis we use the balance sheet and income statement and measure
their performance as compared to other years and in the same year, by generating a
percentage increase or decline. The following types are as follows:

4.2.1 Common size analysis

Common size analysis expresses comparison in percentage. For example, if cash is Rs
30,000 and the total asset is Rs 1, 00,000 then cash represents 30% of total assets. The
use of common size analysis makes comparisons of firms for different sizes mush more
meaningful. A small change in amount can results in a very substantial percentage
change. This is the analysis where total assets are divided by all balance sheet items, and
all income statement items are divided by net sales or revenue is called common size

30
analysis. Common size analysis can give analyst valuable approaching into changes that
have occurred in a firm’s financial condition and performance. As common size analysis
gives us relative percentage of an item with respect to total, so the growth or decline in
various items of balance sheet and income statement can not be detected from common
size percentages. It has the following types:

4.2.1.1 Horizontal analysis:

Horizontal analysis compares each amount for a selected base year or we take each item
of base year as 100% and compare with other items.
Table 4.1 common size (Horizontal) analysis of balance sheet

31
 ASSETS 2006 2007 2008
Interest Earned 100% 110% 120%
Cash and balance with treasury 100% 159.66% 112%
bank
Balance with other banks 100% 155.14% 102%

Lending to Financial Inst 100% 71.7% 79.9%

Investments 100% 126.83% 80%

Advances 100% 211.25% 121%

Other assets 100% 162.63% 143%

Operating fixed assets 100% 289.98% 93%

Total Assets 100% 162.52% 107%

LIABILITIES 100% 103% 110%

Bills payments 100% 128.47% 144%

Borrowings 100% 65.7% 174%

Deposits and other accounts 100% 149.66% 105%

Finance lease 100% 81.61% 75%

Other liabilities 100% 133.1% 128%

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

Total liabilities 100% 146.32% 128%

SHAREHOLDERS EQUITY 100% 88% 88%

Share capital 100% 198.72% 110%

Reserves 100% 193.92% 126%

Unappropriated profit 100% 768.92% 115%

Total equity 100% 421.76% 88%

Total liabilities and Total 100% 162.52% 107%

equity
4.2.1.1.1 Trend Analysis of Income Statement

32
The Trend analysis that we conclude from the above table gives us a clear view of the
bank’s income statement. Here we find an absolute increase in the gross profit. This is
mainly due to the fact that NBP has a good control over its markup expenses, in relation
to its total markup revenue. As we can see that markup expenses are gradually being
increased, that ultimately gives boost to the gross profit of the bank from the base year.
The markup expense stands as the cost of sales. The increase in the gross profit shows
that the management has been able to gain control over the markup expenses then
previous year this shows that the bank is moving in a trend where it would lead into the
achievement of the goals it has set.
The total income of the bank has increased from the base year mainly due to the fee and
commission reduction, as they kept on an increase from the past few years. The bank
tackled the situation, by reducing the markup expense, that balanced the effect and
ultimately the profit after tax has increased. The ultimate increase in the profit after tax
also comes due to the fact that NBP has relieved itself from the provisions against the
balance sheet liabilities, which have reduced the expenditure

Table 4.2 Trend Analysis of Income Statement

2006 2007 2008

Markup Revenue 100 225.11 259.97

Markup Expense 100 202.43 251.5

Gross Profit Margin 100 237.12 264.45

Provision for Advances 100 182.56 280.34

Provision for Investments 100 154.39 8.76

Bad debts written off

100 90.55 180.32

Net Markup Income 100 275.13 286.27

NON-MARKUP INCOME

33
Fee and Commission 100 188.44 207.97

Dividend Income 100 256.65 289.62

Exchange income 100 187.67 146.73

Other income 100 29.19 6.85

Total non-markup income 100 167.8 186.87

Total Income 100 230.28 244.74

NON-MARKUP EXPENSE

Admin Expenses 100 162.34 171.55

Other provisions 100 51.66 502.26

Other charges 100 909.96 74.87

Total non-markup expense 100 163.54 172.61

Profit Before Tax 100 292.06 311.48

Provision for Taxes 100 193.08 187.64

Profit After Tax 100 405.48 453.39

34
4.2.1.2 Vertical analysis:
Vertical analysis compares each amount with a base amount selected from the same year.
Simply, we compare the items of balance sheet or income statement vertically by taking
one item as 100%.

Table 4.3 common size (vertical) analysis of balance sheet

ASSETS 2006 2007 2008

Cash and balance with treasury 12.38% 12.45% 13.02%
bank
Balance with other banks 6.40% 4.92% 4.68%
Lending to Financial Inst 3.62% 2.82% 2.094%
Investments 22.03% 27.66% 20.8895
Advances 49.77% 44.70% 50.50%
Other assets 4.27% 4.07% 5.4%
Operating fixed assets 1.52% 3.40% 2.96%
Total Assets 100% 100% 100%

LIABILITIES
Bills payments 1.67% 0.93% 1.24%
Borrowings 1.84% 1.43% 4.94%
Deposits and other accounts 79.02% 77.66% 76.42%
Finance lease 0.00% 0.00% .003%
Other liabilities 4.19% 4.05% 4.84%
Deferred tax liabilities 0.04% 0.67% -
Total liabilities 87.10% 84.74% 87.47%
SHAREHOLDERS EQUITY
Share capital 1.12% 1.07% 1.09%
Reserves 2.19% 2.07% 2.43%
Inappropriate profit 5.05% 5.95% 6.41%
Revaluation 4.55% 6.12% 2.57%
Total equity 12.90% 15.26% 12.52%
Total liabilities and Total 100% 100% 100%
equity
Cash and balance with treasury 12.38% 12.45% 13.02%
bank

35
4.2.1.2.1 Vertical analysis of balance sheet
Vertical analysis shows the proportionate percentage of different items of the balance
sheet with respect to Total Assets. The vertical analysis of NBP shows that there are
different assets and liabilities aver the time period. This is due to many reasons. First of
all the assets have changed and increased over the time period. The change in assets
affects the over all vertical analysis as the change is analyzed with respect to assets. The
major components in the balance sheet of banks are deposits, advances and investments,
as the major expense and income occurred due to these respectively.

So looking closely to these items advances decreased from 2006 to 2007 but than
increased from 2007 to 2008. On other hand the investment increases from 2006 to 2007
but decrease in 2008. This is due to low interest rates in 2007 and higher interest rates in
2008. Bankers are left with only option of investing in short-term investments, to increase
their profit margin. Investments, as being a non-interest source of income are more
promising than advances that are becoming more profitable due to inclining interest rates.
Bankers prefer to give advances when the interest rate was high but then prefer to invest
in noninterest income in 2008 when the income from investment was higher than the
interest rate. Now our discussion comes to deposits.

The main reasons for the decrease in deposits are the increasing inflation and decrease in
savings. As inflation is rising day by day with an accelerating rate, especially the people
in Pakistan don’t have enough to meet their daily expenses then how can they think of
saving money? Thus this might be a major reason for decrease in deposits. Other reason
can be that people are shifting to private sector bank; banks are offering low interest rates
so people prefer to invest their money in other source of incomes. Now coming to other
important items i.e. cash in hand and balance with other banks. These items show the
liquidity of the organization and meeting short term liabilities.

The cash in hand is increasing from 2006 to 2008, but the balance with other bank is
decreasing. Thus showing that now the bank is more liquid, and liquidity is inversely
proportion to profit. The cash in hand should be invested in short term investments, so

36
that the organization can earn profit on idle money. Now coming to the share holder’s
equity, the equity has been increased from 13% to 15%and decreases to 12% in 2008 of
total asset over the time period. This shows that either people are not interested to invest
in the NBP in 2008, or reserves have increased or valuation of assets is the cause behind
this increase. In NBP share holder equity the major cause of increase is the revaluation of
assets and increase in inappropriate profits. Reserves have increased over the time period
but share holder equity decreased a little with respect to assets.

Table 4.4 common size (vertical) analysis of income statement

2006 2007 2008

Markup Revenue 100% 100% 100%
Markup Expense 31.63 33.50 33.19%
Gross Profit 68.37 66.50 60.80%
Provision for Advances 6.97 9.34 17.38%
Provision for Investments 1.61 0.08 0.61%
Bad debts written off 0.01 0.08 -
Net Markup Income 62.99 57.16 42.80%
NON-MARKUP INCOME
Fee and Commission 13.93 13.41 13%
Dividend income 6.56 6.45 4.72%
Exchange income 3.02 2.06 6.5%
Other Income 1.42 0.29 2.04%
Total non-markup income 27.58 26.78 26.93%
Total income 90.58 83.95 69.74%
NON-MARKUP
EXPENSES
Admin Expenses 30.48 28.09 29.8%
Other provisions 0.04 0.33 1.22%
Other charges 0.47 0.03 0.95%
Total non-markup expense 30.92 28.40 32%
Profit Before Tax 59.66 55.49 37.74%
Provision for Taxes 21.06 17.85 12.37%
Profit After Tax 38.60 37.64 25.36%

4.2.1.2.2 Vertical analyses of income statement

37
The Vertical Analyses of Income Statement of NBP as given in the above table is
showing a percentage change with respect of the sales or markup income. There is a
consistent decreasing trend in 2006-2007 and then increasing trend in 2008 in the banks
gross profit. The main reason behind this is that the bank has controlled its markup
expenses in relation to total markup revenue. In simple words we can say that this
inclining trend in the markup expenses resulting in the increased gross profit. This can be
because of increasing interest rate on advances or increasing interest rate on deposits to
discourage savings. Markup expenses are actually cost of sale incase of a bank.
Furthermore this increasing trend in gross profit shows the efficiency of the bank’s
management in controlling markup expenses. So this increasing trend of gross profit is a
positive or healthy sign and the bank’s management should consider it and take some
more actions to improve its position.

Now if we take a look at the figure of total income of the bank, there is consisting
decrease in it as well. As total income is the summation of both markup income and the
non markup income. This decrease in total income is due to the decrease in the markup
income. My organizations total non markup income consists of fees and commissions,
dividend income, exchange income and other income. If the look at the figure of non
markup expense there is a increasing trend and this increasing trend in these expense is
due to the increase in administrative expenses. This increase in non markup expense will
help to increase the effect of increasing markup expenses.

Net profit margin has also shown an increasing trend over all. The increase in gross profit
percentage is lower then the increase in the net profit percentage. The reason behind this
is that the increase in non markup expenses will proportionate increase in the non markup
income. Furthermore, the taxation percentage was high for 2007 but for 2008 the taxation
percentage decreases due to decrease in profit before tax. The combine defect of all of
these has resulted in lower percentage increase in the net profit as compare to decrease of
gross profit.

4.2.2 Financial ratio analysis

38
A financial ratio is an index that relates two accounting numbers and is obtain by
dividing one number by other. One may consider that why there is a need to mingle with
these ratios and not take the actual figures straightforwardly. Among various reasons one
strong reason can be put forward that ratios help in comparison. When analysis is two
compare the internal performance of the organization in relation to time, only ratios
analysis is the viable option for them. Along with it, comparison with the other
competitors in the same industry can only be carried out with the help of financial ratios.
The number of financial ratios might be created in virtually unlimited, but there are
certain basic ratios that are frequently used specially for measuring the banks
performance. There are some ratios that are used for the analysis of the banks these are:

1. Earning assets to total assets

2. Return on earning assets
3. Interest margin to average earning assets
4. Loan loss coverage ratio
5. Equity capital to total assets
6. Deposit times capital
7. Loan to deposits

4.2.2.1 Earning assets to total assets

Earning assets includes loans, leases, investment securities, and money market assets. It
excludes cash and non earning deposits plus fixed assets. This ratio shows how well bank
management puts banks assets to work. High performance banks have a high ratio.

Formula Earning assets / Total assets

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

= 77%
2008 = 624,939,016/ 817,758,326
=76.4%

39
 77.20%
77.00%
76.80%
76.60%
EarningAsset to Total Asset
76.40%
76.20%
76.00%
2006 2007 2008

This represents the earning assets to total assets ratio which has decrease from 0.77 to
0.764 which is the slight decrease.

4.2.2.2 Return on earning assets

Return on earning assets, computed by dividing net income by average earning assets, is
a profitability measure to be viewed in union with return on assets and return on equity.

Formula Net income / Average earning assets

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

=0.033
2008 = 15,458,590 / 624,842,198
=0.024
This ratio is decreased moderately in 2008.

5.00%

4.00%

3.00%
ReturnonEarningAssets
2.00%

1.00%

0.00%
2006 2007 2008

4.2.2.3 Interest margin to average earning assets

40
This is the key determinant of bank profitability for it provides an indication of
management's ability to control the spread between interest income and interest expense.

Formula Interest margin / Average earning assets

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

=0.595
2008 = 37,058,030 / 624,842,198
=0.0593
This ratio shows the decline in profitability.

59.7
59.6
59.5
59.4 Interest Marginto averare earning
assets
59.3
59.2
59.1
2006 2007 2008

4.2.2.4 Loan loss coverage ratio

This ratio is computed by dividing pre-tax income plus provision for loan losses by net
charge offs, and helps determine the assets quality and the level of protection of loans.

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

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

= 821.66
2008 = 23,000,998 + 10,593,565 / 1
=33,594,563
This ratio is increased in 2008 and has no loss.

41
 1200
1000
800
600
Loanlosscoversge
400
200
0
2006 2007 2008

4.2.2.5 Equity capital to total assets

This ratio, also called funds to total assets measures the extent of equity ownership in the
bank. This ownership provides the cushion against the risk of using debt and leverage.
Formula = Equity / Total assets
2007 = 61,157,640 / 698,663,152
= 0.087
2008 = 75,318,816.5 / 789,975,959.5
=0.0953
This ratio is increased in 2008 by 0.09 from 0.08 in 2007 and appears to be very good.

10.00%

8.00%

6.00%

4.00% Equitycapital to total assets

2.00%

0.00%
2006 2007 2008

4.2.2.6 Deposit times capital

This ratio concerns both the depositor and the stockholders. To some extent, it is a type of
debt, equity ratio, indicating a banks debt position. More capital implies a greater margin
of safety, while larger deposit base gives a prospect of higher return to stock holders
since more money available for investment purposes.

42
Formula = Average deposits / Average stockholders equity
2007 = 546,889,839 / 61,157,640
= 8.94
2008 = 608,423,225.5 / 75,318,816.5
=8.077
This ratio shows the decrease in 2008.

9
8.8
8.6
8.4
8.2 Deposit timescapital
8
7.8
7.6
2006 2007 2008

4.2.2.7 Loan to deposit

Average total loans to average deposits are a type of assets to liability ratio. Loans make
up a large proportion of the banks assets. And its principle obligations are the deposits
that can be with drawn on request with in time limitations. This is the type of debt
coverage ratio and it measures the position of the bank with regard to taking risk.

Formula Average total loans / Average deposits

2007 = 328,393,753 / 546,889,839
=0.600
2008 = 376,652,897.5 / 608,423,225.5
=0.619
This ratio shows that loan to deposit increased slightly in 2008 and indicates increase in
risk from a debt standpoint.

43
 62%

60%

58%
Loanto Deposit

56%

54%
2006 2007 2008

4.2.2.8 Operating cost to income ratio

Formula Non interest cost / Net income

2007 = 14,391,079 / 19,033,773
=0.756
2008 = 19,502,080 / 15,458,590
=1.261
This ratio shows the increase in the 2008.

4.2.2.9 Interest income per employee

Formula Interest income / Total no of employees
2007 = 13,544,845 / 14,019
=966.17
2008 = 16,415,862 /15,204
= 1079.7

44
 1100
1050
1000
950
Interest income per employee
900
850
800
2006 2007 2008

4.2.2.10 Profit per employee

Formula Profit after tax / Total no of employee

2007 = 19,033,773 / 14,079

=1,351.91

2008 = 15,458,590 /15,204

=1016.74
4.2.2.11 Business per employee

Formula Total advances / Employee

2007 = 340,318,930/14,079
=24,172.54

2008 = 412,986,865 /15,204

=27,163.04

Formula Total deposits / Employee

2007 = 591,907,435 / 14,079
=36,927.866
2008 = 624,939,016 /15204
=41,067.7

45
 50000

40000

30000
Advance per Employee
20000 Deposit per Employee
10000

0
2006 2007 2008

4.2.2.12 Business per branch

Formula Total deposits / No of branch

2007 = 591,907,435 / 1,250

=473,525.948

2008 = 624,939,016 /1254

=498,356.48

500000
490000
480000
470000
Busiessper Branch
460000
450000
440000
2006 2007 2008

Formula Total advances / No of branch

2007 = 340,318,930 / 1,250

=272,255.144
2008 = 170,822,491 /1254
= 136,222.081

46
4.2.2.13 Employees per branch

Formula Total no of employees / No of branches

2007 = 14,019 / 1,250

= 12
2008 = 15,204/ 1254
= 12.12
≈ 12

4.3 Branch Analysis

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

4.3.1 Business per branch

Formula = Total deposits / No of branch

2008 = 624,939,016 /1254

Average deposits by single Branch =498,356.47
Deposits by Mandian Branch Atd = 19,075,858
As the deposits of main branch are more than the deposit of average deposits because it is
main branch and the number of transaction, deposit and advances are much higher than
the averages branches

47
 Formula = Total advances / No of branch
2008 = 170,822,491 /1254
Average advance by single Branch =136,222.08

In the case of advances of main branch are more than the advances of average deposits
because it is main branch and the number of deposit and higher than the average branches
due to high deposits the rate of advances is high and the total advances are much more
than the averages branches.

4.3.2 Branch Deposit to Total Deposit

= Branch Deposit /Total Deposit
=19,075,858/621,939,016
=0.03067
=3.06%
The 3.06% of total deposit came from Mandian branch
The share of main branch deposit is 3.06% in total deposit, its mean that 3.06%
advances came from main branch and this ratio is increasing by every year

4.3.3 Branch advance to Total Advance

=Branch Advance/Total Advance
=4,629,578.4/412,986,865
=0.01120
=1.12%
The total contribution of NBA Mandian branch is 1.12%.Means 1.12% of advance came
from this branch

4.3.4 Advance to Deposit Ratio of Branch

Formula = Total Advance/Total Deposit

48
 =4,629,578/19,075,850
= 0.246
= 24%

4.3.5 Business of branch per Employee

Formula = Total deposits / No of employee

2008 = 4,629,578/30
Deposits per employee in Mandian Branch Atd = $154,319

Formula = Total advances / No of employee

2008 = 1,266,326.464 /30
Advances per employee in Mandian Branch Atd =$42,210

4.4 SWOT analysis

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and
threats SWOT analysis is careful evaluation of an organization’s internal strengths and
weakness as well as its environment opportunities and threats. “SWOT analysis is a
situational which includes strengths, weaknesses, opportunities and threats that affect
organizational performance."." The overall evaluation of a company strengths,
weaknesses, opportunities and threats is called SWOT analysis.”

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

1. Exploiting an organizations opportunities and strength.
2. Neutralizing it threats.
3. Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the
organization mission as a context, managers assess internal strengths distinctive

49
competencies and weakness and external opportunities and threats. The goal is to develop
good strategies and exploit opportunities and strengths neutralize threats and avoid
weaknesses.

4.4.1 Strengths
These are the distinctive competencies of the NBP:

4.4.1.1 Oldest institution

NBP in one of the oldest bank of Pakistan and first nationalized bank Hence its customer
base is strength from this plus point as customers have more confidence in the bank. The
additional value services as the privilege for the bank.

4.4.1.2 Alternate duties in SBP absence

The NBP performs additional services for its customers as well as the other bank customer
in the absence of SBP.

4.4.1.3 More deposits than other bank

NBP has the relative competence in having more deposits than the other bank. This is
because of the confidence the customer have in the bank. The bank being the privileged
and oldest bank in banking sector of Pakistan enjoys this edge over all others, lacking it.

4.4.1.4 Employee benefits

The employers at NBP are offered reasonable monetary benefit. Normally two bonuses are
given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and competency
for the bank and a source of motivation for the employees.

4.4.1.5 Broad network

The bank has another competency i.e. it has broad-basses network of branches throughout
the country also more than one branch in high productive cities. The customers are
provided services at their nearest possible place to confirm customer satisfied.

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4.4.1.6 Strictly followed rules & regulation
The employees at NBP are strict followers of rule & regulation imposed by bank. The
disciplined environment at NBP bolsters its image and also enhances the over all out put
of the organization.

4.4.1.7 Professional competence

The employees at NBP here have a good hold on their descriptions, as they are highly
skilled Professionals with back ground in business administration, banking, economics etc.
These professional competencies enable the employees to understand and perform the
function and operation in better way.

4.4.1.8 Healthy environment

The working condition in the NBP branch here is very conductive and favorable for better
output. The informal environment affects the performance of the employees in a positive
way.

4.4.1.9 Relation between staff and other employees

The bank enjoys a good plus point when it comes to the employee manager relationship
the hearing as removing of discrepancies if any, between the employees, and between the
manager and employees.

4.4.2 Weaknesses
These are the external opportunities or the internal weaknesses:

4.4.2.1 Lack of marketing effort

The bank does not promote its corporate image, services, etc on a competitive way. Hence
lacks far behind in marketing effort .A need for aggressive marketing in there in the era
marketing in now becoming a part of every organization.

4.4.2.2 NBP under political pressure

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The strong political hold of some parties and government and their dominance is affecting
the bank in a negative way. They sometime have to provide loan under the pressure, which
leads to uneven and adjusted feeling in the bank employees.

4.4.2.3 Favoritism and nepotism

The promotions and bonuses etc in the bank are often powered by senior’s favoritism or
depends upon their wills and decision. This adds to the negative factors, which
denominate the employees thus resulting in affecting their performance negatively.

4.4.2.4 Lack of financial product

The bank falls far behind when the innovative and new schemes are considered. It has not
been involved in the tug of war between the competitors to the accounts and strengthens
the existing customer base. This stands out to be the major incompetence and weakness of
the banks.

4.4.2.5 Inefficient counter services in the rush hours

During the rush hours, the bank is founded out to be a total flop to handle the mob of
people peaking from windows and doors. The bank has deficiency to operate in the stages
of rush hours where the people find them services entangled in a situation of nowhere
because they are not well served.

4.4.2.6 Lack of computerized network

The bank lack the strength of being powered by the network of computers, which have
saved time, energy and would have lessened the mental stress, the employees have
currently. This would add to the strength if it were powered by network of computers.

4.4.2.7 Lack of modern equipment

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

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4.4.2.8 Uneven work distribution
The workload in NBP is not evenly distributed and the workload tends to be more on
some employees while others abscond away from their responsibilities, which server as a
de motivation factor for employees performing above average work.

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

4..4.3.1 Electronic banking

The world today has become a global village because of advancement in the technologies,
especially in communication sector. More emphasis is now given to avail the modern
technologies to better the performances. NBP can utilize the electronic banking
opportunity to ensure on line banking 24 hours a day. This would give a competitive edge
over others.

4.4.3.2 Micro financing

Because of the need for micro financing in the market, there are lot of opportunities in this
regard. Other banks have already initiated, now the time has arrived when the NBP must
realize it and take on step to cater an ongoing demand.

4.4.4 Threats
Threats are the major external forces effecting on the NBP:

4.4.4.1 Emergence of new competitors

The bank is facing threats with the emergence of new competitors especially in terms of
foreign banks. These foreign banks are equipped with heavy financial power with
excellent and innovative ways of promoting and performing their services. The bank has
to take initiative in this regard or will find itself far back in competition.

4.4.4.2 Political pressure by elected government

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The ongoing shift in power in political arena in the country effects the performance of the
bank has to forward loans to politically powerful persons which create a sense of
insecurity and demoralization in the customer as well as employees.

4.4.4.3 Downsizing
The bank is currently acting upon the policy of downsizing which threaten the
environment of the bank Employees feel insecurity in doing their jobs and work, hence
affecting the over all performance of employees negatively.

4.4.4.4 Customers complaints

There exists no regular and specific system of the removal of customer complaints. Now a
day a need for total customer satisfaction is emerging and in their demanding
consequences customer's complaints are ignored.

4.5 Competitive analysis

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

4.5.1 Porter’s five forces model

This approach is widely used for competitive analysis. It is because of the high intensity of
competition among companies there five main competitive forces.

4.5.1.1 Rivalry among competitive firms

It is a very powerful force among the competitive forces the strategies pursued by one firm
can be successful only to extent that they provide competitive advantages over the
competitor. These competitive strategies may be lowering prices, best quality series. The
NBP offering very low charges an demand draft, telegraphy transfer, mail transfer and
give other additional services to the customers and to the Nation. Because NBP is a
“Nation’s Bank”.

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4.5.1.2 Potential entry of new competitors
Whenever new firms ca easily enters a particular industry, the competition increases. The
gout restriction, tariffs, patents etc can stop new firm to enter into the business as per
Banking industry is concerned this market is already very situated in Pakistan and there
are banks with quality services and low charges. So there is no threat to NBP from
potential entry and NBP is also a public sector bank because of that no new bank can take
over it.

4.5.1.3 Potential Development of substitute products

This is the third factor affecting the competitions. There may be some other product can
be substitute the product of that industry. For example banks offering sawing schemes in
Pakistan and these schemes are also offered by GPOs in Pakistan so they must compete
them in this field. If they offer low rates than GPOs so people will go to deposit in GPOs.
People concentration high rates so that’s why sawing PLS accounts are more then current
accounts. The next examples will ATM which substitute presenting Cheque at counter and
cash it. The NBP is lacking in this field. It must improve in this field to compete the
competitors.

4.5.1.4 Bargaining Power of Suppliers

The bargaining power of supplier affects the intensity of competition, especially when
there are a large number of suppliers. In case of banks the suppliers are customers they
supply the money to banks. Now they must offer good services, quality, and safety with
Low charges etc to customers. In this field NBP is very good. B/C at offers good quality
services to customers. They charge low charges on remittances. So that’s it gives
competitions to other banks.

4.5.1.5 Bargaining Power of Consumers

When customers are concentrated or large, or buy in volume, their bargaining power
represents a major force affecting intensity of competition. Now the number customers in
Pakistan for banks are very high. Banks offering variety of products and services to their

55
customers. NBP have a large number of customs. Now it must offer good services and
products to their customers to attract them to come in the NBP.

CHAPTER # 5

Conclusion And Recommendations

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

Abbottabad I would briefly say that National Bank is a good Organization in the way that
anybody can join it for his/ her long-term career. Overall working environment is
comfortable. Management of branch cares a lot of its employees and considers them as the
Asset of bank. Behavior of senior executive of bank is very polite and they are caring
about the individual’s career and their growth.

However management is very demanding about the targets but good reward at the
achievement of assigned targets is awarded. Employees at Bank are quite efficient. As the
branch is renovated and new employees are hired, its employees have to bring their bank

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among the list of good banks. Therefore, they work more than their working hours and it
is all according to their will. It also shows their loyalty, commitment to organization.

Employees are given the benefits like bonus, gratuity funds, loans, increments, and
medical. All the customers are entertained individually. Same kind of behavior and
attention is given to all the customers. Getting ideas for improvement from customer side
is a new idea and that is working very well in National Bank. All the customers are asked
to fill a suggestion form and the standards of the bank are improved through them.

Prioritizing its product portfolio in line with its corporate and consumer needs and wants
the bank is committed to develop products that give more value to its customers in both
the sectors. In bank, the work is done on computers as well as manually. All the entries are
made in computer. Balance is fed into the computer. This increases efficiency of the bank.
During my internship training I gathered information regarding how a successful bank
operational aspect decorticated with the practical.
I found my internship training at National Bank Mandian Branch Abbottabad to be a very
rewarding experience. The training was beneficial because it helpful me to aware a real
life working environment.

So far my learning is concerned; all the employees at branch were quite cooperative. They
helped me to understand the activities of a bank to possible extent. Their good attitude
gave me more confidence to learn more and to ask if I have any query in my mind.
Besides their ever going activities they never get irritant by my questioning. I had made an
honest efferent to present the working & operation at Branch in simplest way. I feel
pleasure that I have really gained a lot during 8 weeks & enjoyed working with
experienced cooperative & intelligent staff.

5.1 Financial Sector Problems and Recommendations

Although NBP is the largest commercial bank in Pakistan and it is functioning very
efficiently and effectively, but there is always some room for improvement and

57
efficiency. Some of these recommendations are based upon my analysis and some are my
general observations.

5.1.1 Earning assets to total assets

This ratio shows how well bank management puts banks assets to work. High
performance banks have a high ratio. But in this ratio the decrease of 0.6% this is due to
of earning assets are not increasing with the proportion of total assets, the total of NBP
increased more then earning assets that’s why little decline in it
Suggestion
Manager should take keen interest to increase the figure of earning assets as total assets
increase the earning assets should also increase because earning assets will increase the
total revenue

5.1.2 Loan loss coverage ratio

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

Suggestion:
This ratio is increased in 2008 and has no loss because debt written off were in 2008 were
zero this shows that either loan amount were not so much higher or every once cannot get
the loan so bank have to revise their policy and increase the lending because as lending
increase the markup will increase

5.1.3 Equity capital to total assets

This ratio, also called funds to total assets measures the extent of equity ownership in the
bank. This ownership provides the cushion against the risk of using debt and leverage.
This ratio is increased in 2008 by 9.5% from 8.7% in 2007 and appears to be very good.
Suggestion
As size of total assets increased so the equity is also increasing per year as equity has
increased by 0.8% management have to keep maintain the ratio

5.1.4 Deposit times capital

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This ratio concerns both the depositor and the stockholders. More capital implies a
greater margin of safety, while larger deposit base gives a prospect of higher return to
stock holders since more money available for investment purposes.
This ratio shows the decrease of 0.863% in 2008.
Suggestion
This ratio show the negative trend in last year this is due to increase in equity and if bank
management become succeed in increasing deposit then this ratio will be increased

5.1.5 Loan to deposit

Average total loans to average deposits are a type of assets to liability ratio. Loans make
up a large proportion of the bank’s assets. This is the type of debt coverage ratio and it
measures the position of the bank with regard to taking risk.
This ratio shows that loan to deposit increased 1.9% slightly in 2008 and indicates
increase in risk from a debt standpoint.

Suggestion
60% of deposit was used as loan but last year it increased and as portion of loan increased
the whole profit will increased and management has to take effective exposure

5.1.6 Business per employee

If we divide total advance by total employee then we get this ratio but this ratio has
increasing trend and the value increased $2,991 from previous year

Suggestion
The increased in value is due to increase in Advances, as the deposit increase the
advances will increase so the value has increasing trend. Bank management have to
increase the advance or maintain the value. Second reason of increasing of this value is
average employee are remain same to branches
Average deposit to each employee, increase value is $4,140 from previous year. The
reason is due to increasing in deposit. As the deposit increased the deposit per employee

59
value will increased, as we know bank business revolve around advance and deposit so
bank have to increased the deposit more and more this will increase the advances.

5.1.7 Business per branch

Business per branch value is increasing trend $17,779 this is due to number of deposit
increased.
Suggestion
National bank take the advantage of “Being the first in market rather then to be best in
market” NBP identified the market and open its branches and become successful in
market share.

5.2 Over All Problems and Recommendations

These recommendations and suggestion are as below:

5.2.1 Performance of general banking departments

General banking department, particularly the account opening section is not performing
well. The people who are working in the account opening sections are not properly
trained in public dealings. Their behaviors with the clients were not appreciable.

Suggestion
All departments should be careful about their performance. Branch should be inspected
by inspecting parties. They should especially examine the public dealings of the
employees.

5.2.2 Lack of proper training

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

Suggestion
I suggest that an arrangement of refresher courses and in service training must be made to
increase the knowledge and skills of the employees. This will help enabling them to meet
modern banking requirement and to fill the efficient staff qualities.

5.2.3 Interference of union

The elected unions are headache for management now days, they interfere in
administrative matters. So there is heavy pressure of union on management, due to which
they remain under stress and pressure. If management wants to take disciplinary action
against an employee, it can not be taken due to the pressure of union.

Suggestion
Bank should not influence by union. Rules and regulations should be followed strictly.
Management would be diplomatic towards the union.
5.2.4 Delegation of authority
There is no proper delegation of authority

Suggestion
Executive at all level should be given sufficient power and authority to make quick
decisions. This will increase the effectiveness and efficiency of the organization.

5.2.5 Distribution of work

There is no proper distribution of work.

Suggestion
All work must be distributed properly among the employees.

5.2.6 in adequacy of staff

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In my observation, I felt that the strength of the present staff is insufficient. The staff is
affecting badly due to burden of over work.

Suggestion
The shortage of staff must be fulfilled immediately, in this way, the staff will be able to
perform its duties appropriately.

5.2.7 Inadequate building

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

Suggestion
I suggest that it should be either changed or widened.

5.2.8 Non-installation of computer

This is an era of science and computer. Most of the banks functioning in Pakistan have
adopted computer system. This branch is deprived of this facility yet.
Suggestion
I suggest that bank must be computerized. In this way, it will be easy to keep up to date
records, of all accounts. So the bank must gain benefit from this modern electronics.

5.2.9 Lack of library

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

Suggestion
The bank must establish a library having all kinds of books, particularly about the
banking, economic and accounts.

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References

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

International Corporation, UK.

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

International Corporation”, UK.

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

Lahore.

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

Company, Karachi.

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

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

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

ANNEXURES
(A) NBP Profit & Loss Account
For the year ended December 31, 2008

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Source: Annual Report 2009
(B)National Bank of Pakistan
Balance Sheet
As at December 31, 2008

65
Source: Annual Report 2009

Consolidated Cash flow

December 31,2008

66
Source: Annual Report 2009

6 Years performance

67
Source: Annual Report 2009

68