01.

INTRODUCTION
National Bank of Pakistan (NBP) is one of the leading banks in Pakistan, working smoothly and efficiently in the economy of the country which is subject to the fluctuations most of the time. Now a day NBP is having the objective to focus on consumer banking and their services, which gives them edge over the rest of the banks in the country its consumers banking provides consumers with innovative saving schemes, products and services. So far NBP has shown remarkable achievements in fulfilling all of its objectives along with the profit limits. Its products has also presented an admirable response by its clients and contributed a lot in developing the banks repute as well as the economy which is really appreciable. 1.1 . Core Values We aim to be an organization that is founded on

Growth through creation of sustainable relationships with our customers. A national presence with a history of contribution to our communities.

We shall work to

Meet expectations through Market-based solutions and products. Reward entrepreneurial efforts. Create value for all stakeholders.

We 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.

We 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.

1.2. Our Mission To provide reliable banking services to Government, financial institutions, public and to act as an operation alarm of State Bank of Pakistan. 1.3. Our Vision Our vision is to develop the SBP BSC (Bank) into a strong and dynamic institution, equipped with an efficient and professional human resource base, having the requisite technology and fully capable of providing quality service to stakeholders, while complementing the State Bank of Pakistan in achieving its objectives.

02. An Over View Of National Bank of Pakistan

2.1. Brief History of National Bank of Pakistan The history of National Bank of Pakistan is part of Pakistans struggle for economic independence. 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
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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 then, East Pakistan and directed its resources in financing of jute crop. The Banks Karachi and Lahore offices were subsequently opened in December 1949. The National Bank of Pakistan came forward to establish its offices in the Cotton growing areas and extended credit facilities liberally in order to restore stability to the market. In 1951, the country was once again faced with a crisis in the cotton trade when prices was crashed and touched the lowest level since independence following the cessation of hostilities in Korea. The bank in collaboration with the cotton board provided the necessary Credit facilities to the trade and the crisis was tided over. 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 countrys growing trade, which has expanded through the years as diversification took place.1 The National Bank of Pakistan has its headquarters in Karachi, Pakistan. The bank operates 1249(2008) branches in Pakistan and 22(2008) overseas branches. Under a trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. The National Bank of Pakistan has assets worth Rupees 737976.44 million on September 30, 2008.2 National Bank of Pakistan is today a progressive, efficient, and customer focused institution. It has developed a wide range of consumer products, to enhance business and cater to the different segments of society. Some schemes have been specifically

designed for the low to middle income segments of the population. These include NBP Karobar, NBP Advance Salary, NBP Saibaan, NBP Kisan Dost, and NBP Cash n Gold. The National Bank of Pakistan has implemented special credit schemes like small finance for agriculture, business and industries, administrator to Qarz-e-Hasna loans to students, self employment scheme for unemployed persons, public transport scheme. The Bank has expanded its range of products and services to include Shariah Compliant Islamic Banking products. For the promotion of literature, NBP recently initiated the Annual Awards for Excellence in Literature. NBP will confer annual awards to the best books in Urdu and in all prominent regional languages published during the defined period. Patronage from NBP would help creative work in the field of literature. The Bank is also the largest sponsor of sports in Pakistan. It has provided generously to philanthropic causes whenever the need arose. It has taken various measures to facilitate overseas Pakistanis to send their remittances in a convenient and efficient manner. In 2002 the Bank signed an agreement with Western Union for expanding the base for documented remittances. More recently it has started Electronic Home Remittances Project. This project introduces technology based system to handle inward remittances efficiently, by ensuring that the Bank's branches keep a track of the remittance received from abroad till its final receipt. A number of initiatives have been taken, in terms of institutional restructuring, changes in the field structure, in policies and procedures, in internal control systems with special emphasis on corporate governance, adoption of Capital Adequacy Standards under Basel II framework, in the up gradation of the IT infrastructure and developing the human resources.

The precise summary of National Bank of Pakistan regarding its countrywide and overseas operations is as fallows. 1949 National Bank of Pakistan (NBP) was established under the National Bank of Pakistan Ordinance 1949 and was 100% govt.-owned. NBP acted as an agent of the Central Bank wherever the State Bank did not have its own Branch. It also undertook Government Treasury operations. Its first branches were in jute growing areas in East Pakistan. Offices in Karachi and Lahore followed. 1950 NBP established a branch in Jeddah, Saudi Arabia. The Bank in 1950 had one subsidiary The Bank of Bahawalpur on December4, 1947 by the former Bahawalpur State 1955 By this time NBP had branches in London and Calcutta. 1957 NBP established a branch in Baghdad, Iraq. 1962 NBP established a branch in Dar-es-Salaam, Tanganyika. 1964 The Iraqi government nationalized NBP's Baghdad branch. 1965 The Indian government seized the Calcutta branch on the outbreak of hostilities between India and Pakistan. 1967 The Tanzanian government nationalized the Dar-Es-Salaam branch. 1971 NBP acquired Bank of China's two branches, one in Karachi and one at Chittagong. At separation of East Pakistan NBP lost its branches there. NBP merged with Eastern Mercantile Bank and with Eastern Bank Corporation.

1974 The government of Pakistan nationalized NBP. As part of the concomitant consolidation of the banking sector, NBP acquired Bank of Bahawalpur (est. 1947).

1977 NBP opened an offshore brain Cairo. 1994 NBP amalgamated Mehran Bank (est. 1991). 1997 NBP's branch in Ashgabat, Turkmenistan commenced operations. 2000 NBP opened a representative office in Almaty, Kazakhstan. 2001 State Bank of Pakistan and Bank of England agree to allow only 2 Pakistani banks to operate in the UK. NBP and United Bank agreed to merge their operations to form Pakistan International Bank, of which NBP would own 45% and United Bank 55%.

2003 NBP received permission to open a branch in Afghanistan. 2005 NBP closed its offshore branch in Cairo.

03. NATURE OF NATIONAL BANK OF PAKISTAN

National Bank of Pakistan was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank operates 1,249 (2007.1,232) branches in Pakistan and 22 (2007.18) overseas branches (including the Export Processing Zone branch, Karachi). Under a Trust Deed, the bank also provides services as trustee to National investment Trust (NIT) including safe custody of securities on behalf of NIT.3
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The nature of responsibilities of the Bank is different and unique from other banks/financial institutions. The bank also handles treasury transactions for the Government of Pakistan as an agent to the State Bank of Pakistan for handling provincial/Federal Government receipts and payments on their behalf. The National Bank of Pakistan has also played an important role in financing the countrys growing trade, which has expanded through the years as diversification took place. The bank is providing all banking services of mercantile and commercial banking permissible in the country, which include. Accepting of deposits of money on current, fixed, saving, term deposit and profit and loss sharing accounts. Borrowing money and arranging finance from other banks. Advancing and lending money to its clients. Financing of projects, including technical assistance, project appraisal through long term/ short term loans, term finance and musharika certificates, etc. Buying, selling, dealing, including entering into forward contracts of foreign exchange. Financing of seasonal crops like cotton, wheat, rice, sugar cane, tobacco, etc. Receiving of bonds, valuables, etc. for safe custody. Carrying on agency business for any description other than managing agent, on behalf of clients including Government and local authorities. Generating, undertaking, promoting, etc. of issue of shares and, bonds etc.
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Transacting guarantee and indemnity business. Undertaking and executing trusts. Joint venturing with foreign dealers, agents and companies for its representation abroad.

Participating in World Bank and Asian Development Banks lines of credit. Providing personalized Hajj services to intending Hajjis.

04. Business volume of National Bank of Pakistan

Rupees Millions Year Total Assets Deposits Advances Reserves Investments

in
2006 553,231,46 7 465,571,71 7 220,794,07 5 10,813,914 149,350,09 6 2007 577,719,114 463,426,602 268,838,779 13,536,041 156,985,686 2008 645,132,7 11 501,872,2 43 316,110,4 06 13,879,26 0 139,946,9 95 2009 762,193,5 93 591,907,4 35 340,677,1 00 15,772,12 4 210,787,8 68 2010 817,758,32 6 624,939,01 6 412,986,86 5 19,941,047 170,822,4 91

Horizontal Analysis (%)

Total Assets Deposits Advances Reserves Investments
100 100 100 100 100 104 100 122 125 105 117 108 143 128 94
2010) 8

138 127 154 146 141

148 134 187 184 114

Source(Annual Report 2009-

The business volume of National Bank of Pakistan is stated in terms of total assets, deposits, advances, reserves and investments. To analyze the trend in these items the Horizontal analysis of each item is calculated.

05. BRANCH NETWORK OF NATIONAL BANK OF PAKISTAN

With the geographical development of its branches, the National Bank of Pakistan has been able to extend its services to a much larger number of Pakistanis all over the country. Today the Bank has more than 8.8 million accounts & Bank maintains its presence in all the major financial centers of the world through its 22 (2008) overseas branches and 5 representative offices. Of these, three representative offices have recently been set up at Tashkent (Uzbekistan), Baku (Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in CIS countries. Banks role Apart from having a vast branch network, Bank is at the forefront in the acquisition and application of new technologies in every aspect of its banking facilities. It has acquired leased telephone lines for on-line banking. The Bank has 12 Regional Computer Centers to cover various on-line and batch system requirements of branches and controlling offices. Presently the National Bank of Pakistan is divided into various Groups headed by SEVPs/EVPs. Its field operations are controlled by 29 regions ( Annexed II) reporting to as many Regional chiefs, who control 40 zones and 15 single Branch zones headed by Zonal Chiefs; 12 corporate branches and 1249 domestic branches headed by Branch Managers. The bank has 12 SWIFT local centers. Apart from having a vast branch network, Bank is at the forefront in the acquisition and application of new technologies in every aspect of its banking facilities. It has acquired leased telephone lines for on-line banking. Bank has also a presence on the internet.
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The National Bank of Pakistan has 156 online branches throughout the country. It has modernized its services by installing Automated Teller Machines (ATMs) called CASH LINK at selected branches. The Branch network of National Bank of Pakistan is divided into following categories

ATM network ( Total ATMs 101 & Total ATMs machines 104) Domestic network ( 1249 Branches) Islamic network ( 5 Branches) Online network ( 156 Branches) Overseas network ( 29 Branches) Swift network ( 12 Branches) Customer Facilitation Centers (6 Customer Facilitation Centers) Agriculture branches ( 825 Branches)

06. NUMBER OF EMPLOYEES OF NATIONAL BANK OF PAKISTAN

Permanent Temporary/ On Contractual basis Bank's own staff strength at the end of the year Outsourced Total Staff Strength
2010)

13237 842 14079 2350 16429

Source(Annual Report

An employee may be defined as. "A person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be
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performed." 4An employee contributes labor and expertise to an endeavor. Employees perform the discrete activity of economic production. Of the three factors of production, employees usually provide the labour. Specifically, an employee is any person hired by an employer to do a specific "job". In most modern economies, the term employee refers to a specific defined relationship between an individual and a corporation, which differs from those of customer, or client. The relationship between National Bank of Pakistan and its employees is usually handled through the Human Resource Management & Administration Group & Employees benefit disbursement & trustee division. These groups handle the incorporation of new hires, and the disbursement of any benefits which the employee may be entitled, or any grievances that employee may have. There are differing classifications of workers within National Bank of Pakistan, these are. Permanent Temporary / On Contractual Outsourced

The Employees of National Bank of Pakistan are organizing into trade unions, which represent most of the available work force in National Bank of Pakistan. These trade Unions utilize their representative power to collectively bargain with the management of bank in order to advance concerns and demands of their membership.

07. Product Lines

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The most precise definition of product is anything capable of satisfying needs, including tangible items, services and ideas. In marketing, a product is anything that can be offered to a market that might satisfy a want or need. 5 Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things produced. The economic or commercial meaning of product was first used by political economist Adam Smith. In general usage, product may refer to a single item or unit, a group of equivalent products, a grouping of goods or services, or an industrial classification for the goods or services. The consumer banking products include personal accounts, credit cards, loans, investment products, treasury products and many more. The National Bank of Pakistan offering for sale several related products individually, which is commonly known as product lining. A product line is defined as A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through same types of outlets, or fall within the given price ranges.6 The followings are the main consumer banking products of NBP. 7.1. DEPOSITS The National Bank of Pakistan offers to their clients a variety of Deposit Schemes with personalized services at competitive rates of interest. Any Pakistani citizen can open his/her account for any deposit scheme at any of its Branches strategically located throughout Pakistan. The Bank with its huge network of 1243 branches garners savings from both the rich and the poor in urban as well as rural areas. Even a poor farmer in a remote village, with his meager annual income, feels secure to safe keep his minuscule savings in National Bank of Pakistan, Because National Bank of Pakistan has a long heritage of trust and professional commitment.

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7.1.1. CURRENT DEPOSITS These are payable to the customer when ever they are demanded. When a banker accepts a demand deposit, he incurs the obligation of paying all cheques etc, drawn against him to the extent of the balance in the account. Because of their nature, these deposits are treated as current liabilities by the banks. Bankers in Pakistan do not allow nay profit on these deposits, and customers are required to maintain a minimum balance, failing which incidental charges are deducted from such accounts. This is because Current Deposits may be withdrawn by the depositors at any time, and as such the bank is not entirely free to employ such deposits.7 Current Accounts/ Basic Banking accounts are opened, on proper introduction and submission of required documents along with initial deposit prescribed from time to time. Basic banking accounts are opened for an individuals (single or joint) only whereas current accounts are opened for individuals (single or joint) Charitable institution, provident and other funds of benevolent nature of local bodies, autonomous corporations, companies, associations, educational institutions, firms etc. and in all other cases where the accounts are to opened under the order of a competent court of law. No profit is paid on the balances of current/basic banking accounts. The bank is authorized to deduct service charges (incidental charges) on current accounts levied through its half yearly schedule of charges, in case the average balance falls below the minimum balance as prescribed by the bank. No balance maintenance condition is applied on basic banking account. 7.1.2. PLS SAVING DEPOSITS In Pakistan a Savings Deposits Account can be opened with a very small amount of money, and the depositor is issued a cheque book for withdrawals. Profit is paid at a flexible rate calculated on six monthly basis under the Interest Free Banking System. There is no restriction on the withdrawals from the deposit accounts but the amount of
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money withdraw is deleted from the amount to be taken for calculation of products for assessment of profit to be paid to the account holder. It discourages unnecessary withdrawals from the deposits. In order to popularize the scheme the SBP has allowed the Savings Scheme for school and college students and industrial labour also. The purpose of these accounts is to inculcate the habit of savings in the constituents. As such, the initial deposits required for opening these accounts are very nominal.8NBP charge Rs.500 for opening of PLS Savings deposits. The silent features of profit and loss sharing and saving accounts of NBP are as fallows These accounts can be opened by individuals in their own single or joint name. The PLS savings account can also be opened for provident fund or other benevolent funds of companies, firms, organizations, NGOs and educational institutions. PLS saving account can be opened with a minimum amount of Rs.500/- only To share in the profit a minimum balance of Rs.500/- must be maintained in the account. The minimum balance on sixth and last of month will qualify for the profits. The profits will be calculated on the basis of monthly minimum balance for the periods of six months i.e. from January to June and July to December The head office of NBP determines the profit or loss on PLS saving deposits and advice its branches the rate and time of distribution of these profits. There shall be no restrictions on maintaining the maximum balance in PLS saving account.

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On the first day of Ramzan each year the Zakat at the rate of 2.5% will be deducted from these deposits on the balance of that day. But if depositors affix an affidavit of Zakat deduction along with account opening form or he is a nonMuslim, no Zakat will be deducted from his account.

7.1.3. FIXED DEPOSIT ACCOUNT (TIME DEPOSITS) The deposits that can be withdrawn after a specified period of time are referred to as Fixed or Term Deposits. The period for which these deposits are kept by the bank ordinarily varies from three months to five years in accordance with the agreement made between the customer and the banker. Profit/Return is paid to the depositors on all fixed or Time deposits, and the rate of profit/Return varies with the duration for which the amount is kept with the banker. By lending out or investing these funds, the bank earns more than the Profit/Return that it has to pay on them to the depositors. 9 By giving an advance notice to the bank the deposit can be withdraw from the bank before the expiry of the period. Fixed deposit accounts have higher rate of interest as compare to other accounts. The rate of interest rises with the length of period and the amount of deposit. The bank grants to the depositor a fix deposit (FDR) which is not transferable to any other person. The silent features of fixed deposit account of NBP are as fallows The PLS term deposit are opened for individuals in their own single or joint names, companies firms and other organizations. The PLS term deposit receipt are issued for any amount. There is minimum or maximum limit or deposits in a single term deposit account. PLS term depositors may be allowed some facilities against the security of these receipt credits, after making Lien on the relevant receipt and subject to recovery of service charges.
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Under term deposit scheme the depositors not cease to earn the profit immediately, after the respective maturity date.

7.1.4. FOREIGN CURRENCY ACCOUNT Government of Pakistan has introduced many important reforms in Foreign Exchange Control in the country since February, 1990, for the purpose of strengthening the Foreign Exchange Reserves. One of these reforms relates to foreign currency accounts, which can be opened in United States Dollars, Pound Sterling, Euro and Japanese Yen in any of the authorized branches of commercial banks throughout the country.10 Foreign currency accounts are opened, on proper introduction and submission of required documents along with an initial deposit prescribed from time to time. Rates of return on foreign currency deposits are subject to fluctuation as determined in accordance with State Bank of Pakistan directives and will be paid on six monthly basis whereas the return on term deposit/SNTD will be paid on maturity or as prescribed by SBP. The bank shall have no responsibility for or liability to the account holders for any diminution due to taxes imposed or depreciation in the value of funds credited to the account whether due to devaluation or fluctuation in the exchange rate or other wise.

7.1.5. NBP PREMIUM AAMDANI NBP Premium aamdani is a retail product of the bank. The amount of investment required for this account is Rs. 20,000/-to Rs. 5,000,000.The investment period is 5 years. Zakat and withholding tax will be deducted as per rules. In NBP premium aamdani, the account holders have benefit of free demand draft, pay order; free cheque book and NBP cash card (ATM+Debit). The Financing facility is available up to 90% of the deposit value. Profit paid every period as follows.
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Period 1st year 2nd years 3rd years 4th years 5th years

Profit Rates 7.50% 8.50% 9.50% 10.50% 11%

SOURCE(ANNUAL REPORT 2010)

7.1.6. NATIONAL INCOME DAILY ACCOUNT (NIDA) The scheme of National income daily account 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. Deposits in the NIDA accepted on the condition that the depositor shall always maintain a minimum balance as prescribed by the bank in his account. In the event however, that any depositor wishes to withdraw the amount and the balance in his account is less than the required amount, the account will be converted to the ordinary PLS SB account for the purpose of calculating profit. 7.2. ADVANCES National Bank of Pakistan plays a pivotal role in translating the government's development plans in terms of growth in industrial, commercial and agricultural sectors in Pakistan. Accordingly the Bank has formulated its Credit Policy under the guidelines of SBP-the Central Bank of Pakistan. 7.2.1. NBP SAIBAAN The NBP Saibaan is retail product of the bank. It has different product items which are home purchase, home construction, home renovation and purchase of land plus
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construction. If anyone has a Home Finance Facility outstanding with another bank he can have it transferred to NBP through a hassle-free process. 7.2.2. NBP ADVANCE SALARY The NBP Advance salary has been the flag-ship product for NBP. NBP Advance Salary, the leading personal loan product of the country, is maintaining its inimitability ever since it was launched. This was only possible due to its swift growth and remarkable loan disbursement of over 118 billion.11 You can avail up to 20 net take home salaries with easy repayment installments. Its hassle free acquisition with no prior formalities and easy availability in a short turn around time is attributed as the most distinguishing features of the product. The product is offered countrywide. 7.2.3. NBP CASH & GOLD With NBPs Cash & Gold, the customers meet their need for ready cash against their idle gold jewelry. The rate of mark up is 13% p.a. This product has following features12 Facility of Rs. 7,000 against each 10 grams of net contents of gold No maximum limits of cash Repayment after one year Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed schroffs No penalty for early repayment 7.2.4. STUDENTS LOAN SCHEME

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Pursuant to the announcement made by the Federal Finance Minister in his 2001-2002 budget speech, a Student Loan Scheme (SLS) for Education was launched by the Government of Pakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB and ABL). Under the Scheme, financial assistance is provided by way of Interest Free Loans to the meritorious students who have financial constraints for pursuing their studies in Scientific, Technical and Professional education within Pakistan. The Scheme is being administered by a high powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents of the commercial banks and representative of Ministry of Finance, Government of Pakistan.

7.3. CORPORATE ADVANCES

7.3.1. CASH FINANCE This is a very common form of borrowing by commercial and industrial concerns and is made available either against pledge or hypothecation of goods, produce or merchandise. In cash finance, a borrower is allowed to borrow money from the banker up to a certain limit, either at once or as and when required. The borrower prefers this form of lending due to the facility of paying markup/services charges only on the amount he actually utilizes. If the borrower does not utilize the full limit, the banker has to lose return on the un-utilized amount. In order to offset this loss, the banker may provide for a suitable clause in the cash finance agreement, according to which the borrower has to pay markup/service charges on at least on self or one quarter of the amount of cash finance limit allowed to him even when he does not utilize that amount. 7.3.2. RUNNING FINANCE / OVERDRAFT This is the most common form of bank lending. When a borrower requires temporary accommodation his banker allows withdrawals on his account in excess of the balance
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which the borrowing customer has in credit, and an overdraft thus occurs. This accommodation is generally allowed against collateral securities. When it is against collateral securities it is called Secured Overdraft and when the borrowing customer cannot offer any collateral security except his personal security, the accommodation is called a Clean Overdraft. The borrowing customer is in an advantageous position in an overdraft, because he has to pay service charges only on the balance outstanding against him. The main difference between a cash finance and overdraft lies in the fact that cash finance is a bank finance used for long term by commercial and industrial concern on regular basis, while an overdraft is a temporary accommodation occasionally resorted to. 7.3.4. DEMAND FINANCE When a customer borrows from a banker a fixed amount repayable either in periodic installments or in lump sum at a fixed future time, it is called a loan. When bankers allow loans to their customers against collateral securities they are called secured loans and when no collateral security is taken they are called clean loans. The amount of loan is placed at the borrowers disposal in lump sum for the period agreed upon, and the borrowing customer has to pay interest on the entire amount. Thus the borrower gets a fixed amount of money for his use, while the banker feels satisfied in lending money in fixed amounts for definite short periods against a satisfactory security.

7.4. REMITTANCES
7.4.1. DEMAND DRAFTS

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Drafts drawn by one branch on another branch or on the Head Office of same bank or vice versa, are not cheques or bills, as these have no distinct drawer and drawee. Section 85-A reads. Where any draft, that is, an order to pay money, drawn by one office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by payment in due course. Bankers drafts payable to order on demand are within the protection of Sections 10 and 131-A of the Negotiable Instruments Act. However, if a demand draft drawn on a bank by its own branch bears a forged endorsement, the person in possession of it cannot compel that bank to pay it. As far as possible the bankers draft should be crossed and it should never be drawn payable to bearer. When a person requires a draft he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. This application form should be signed by the purchaser or by those persons who have been duly authorized to act on his behalf. When a customer requests his banker to provide him with a bankers draft, the amount of which is to be debited to his account, he should enclose with his written request a cheque covering the amount of the required draft and other charges etc. payable to banker.13 The National Bank of Pakistan provides demand drafts at very reasonable rates with safety, speedy and reliable way to transfer money. Any person whether an account holder of the bank or not, can purchase a Demand Draft form a bank.

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7.4.2. TRAVELERS CHEQUES They are generally issued for the convenience of person travelling abroad, but some Pakistani banks issue them in Pakistan currency also for use within the country as well. Before issuing, the bankers receive an amount equal to the face value of the cheques, and also charge a small commission. The travelers cheques are for fixed amount and are treated as Order cheques payable only to the purchaser whose specimen signature appears on each travelers cheque itself. Foreign currency travelers cheques are issued and encashed in accordance with the provisions of the Exchange Control Regulation Act, 1947. While making payment, the paying banker must insist that the holder signs in his presence. 7.4.3. LETTER OF CREDIT Letters of credit are very useful instruments in facilitating commercial relations between businessmen at various places. Letter of credit state the limit of the credit and the time during which it is held at the disposal of the grantee, but they are neither negotiable nor transferable. Letter of credit may be revocable. There are many kinds of letter of credit such as Revolving credit, Back to Back credit, Claused credit etc.14 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. 7.4.4. FOREIGN REMITTANCES To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to. Increase home remittances through the banking system.
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Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries.

The new features of NBP foreign remittances include. 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 United National Bank (the joint venture between NBP and UBL in UK)., 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.

08. ORGANIZATIONAL STRUCTURE OF NATIONAL BANK OF PAKISTAN

A well-developed and properly coordinate structure is an important requirement for the success of any organization. It provides the basic framework within which functions and procedures are performed. Any organization needs a structure, which provides a framework for successful operations. The operation of an organization involves a number of activities, which are related to decision making, and communication of these decisions. These activities must be well coordinated so that the goals of the organization are achieved successfully.

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The Organization Structure (Annexed I) shows the internal operations and reporting lines of the National Bank of Pakistan. The bank has clearly defined organizational structure, which supports clear lines of communications and reporting relationships. There exists a properly defined financial and administrative power of various committees and key management personnel, which supports delegations of authority and accountability. The internal operations of the Bank are organized into 15 main departments and divisions headed by senior management of the bank and are report directly to the Board of Directors. The organizational structure of National Bank of Pakistan is centralized because all the decisions of the bank are taken by the top Management. The National Bank of Pakistans Departmental key roles and functions are as follows.

8.1. BOARD OF DIRECTORS

Pursuant to Section 11 of The Banks (Nationalization) Act, 1974, the number of Directors of the Bank shall not be less than 5 and not more than 7, excluding the President. The Federal Government may, if deems necessary, appoint a Chairman of the Board in respect of the Bank. At present National Bank of Pakistans Board of Directors consist of 6 Directors and a President who is the Chief Executive of the Bank and presides over the meetings of the Board. The responsibilities of Directors include the followings.15

The Board of Directors shall assume its role independent of the influence of the Management and should know its responsibilities and powers in clear terms. it should be ensured that the Board of Directors focus on policy making and general direction, oversight and supervision of the affairs and business of the

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Bank and does not play any role in the day-to-day operations, as that is the role of the Management.

The Board shall approve and monitor the objectives, strategies and overall business plans of the institution and shall oversee that the affairs of the institution are carried out prudently within the framework of existing laws & regulations and high business ethics.

All the members of the Board should undertake and fulfill their duties & responsibilities keeping in view their legal obligations under all the applicable laws and regulations.

The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policy-making powers to the Management and shall ensure that the Management is in the hands of qualified personnel.

The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury & Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting & Disclosure, and any other operational area which the Board may deem appropriate from time to time. The Board shall also be responsible to review and update policies periodically and whenever circumstances justify.

As regards Internal Audit or Internal Control, a separate department shall be created which shall be manned preferably by professionals responsible to conduct audit of the Bank, Various Divisions, Offices, and Units Branches etc. The Head of this department will report directly to the BOD or Board Committee on Internal Audit.

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The business conditions and markets are ever changing and so are their requirements. The Board, therefore, is required to ensure existence of an effective Management Information system to remain fully informed of the activities, operating performance and financial condition of the institution, the environment in which it operates, the various risks it is exposed to and to evaluate performance of the Management at regular intervals.
o

The Following table mentioned the names & designation of Board of Directors of National Bank of Pakistan.

Name Designation Syed Ali Raza Chairman & President Mr. Sikandar Hayat Jamali Director Mian Kausar Hameed Director Mr. Ibrar A. Mumtaz Director Mr.Tariq Kirmani Director Mr. Muhammad Arshad Chaudhry Director Mr. Mohammad Ayub Khan Tarin Director Mr.Ekhlaq Ahmed Secretary Board of Directors Source (Annual Report 2010)

8.2. SENIOR MANAGEMENT

The senior management of National Bank of Pakistan is consists of Group chiefs, who report directly to the Directors of Bank. The whole functions of National Bank of Pakistan are performed under these Groups. The National Bank of Pakistan has following groups and divisions. Corporate and investment Banking Group

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Operations Group Credit Management Group Audit & Inspection Group Compliance Group HRM & Administration Group Commercial & Retail Banking Group Treasury Management Group Special Assets Management Group Employees benefit & Disbursements Group Overseas & Coordination Group Islamic Banking Core Banking Application, PMO Financial Control Division Information Technology Group

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Name
Masood Karim Shaikh Shahid Anwar Khan Dr. Asif A. Brohi Imam Bakhsh Baloch Ziaullah Khan Dr. Mirza Abrar Baig Amer Siddiqui Muhammad Nusrat Vohra Amim Akhtar Ekhlaq Ahmed Tajammal Hussain Bokharee Mrs. Khurshid Maqsood Ali Tahir Yaqoob Anwar Ahmed Meenai Naeem Syed Aamir Sattar Atif Hassan Khan

Group Name & Designation

SEVP & Group Chief, Corporate & Investment Banking Group SEVP & Group Chief, Credit Management Group SEVP & Group Chief, Operations Group SEVP & Group Chief, Audit & Inspection Group 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 EVP/Divisional Head, Special Assets Management Group EVP & Divisional Head Employee Benefits, Disbursements & Trustee Division EVP & Group Chief, Overseas Coordination & Management Group EVP & Divisional Head, Islamic Banking EVP & Head, Core Banking Application, PMO Financial Controller & Divisional Head, Financial Control Division Group Chief (A), Information Technology Group

Source (Annual Report 2010)

8.2.1. CORPORATE & INVESTMENT BANKING GROUP

The corporate & investment banking group is headed by Mr. Masood Karim Shaikh. This group performs its function through its following two units. Corporate Banking Investment Banking

The corporate and investment banking will continue to play a major role in loan syndications, structured financing and debt / capital raising transactions with the objective of providing entire range of corporate and investment banking solutions to its valued clients under one umbrella. The Corporate Banking Group achieved excellent results in 2007 with a number of landmark transactions in cement, energy, communication and fertilizer sectors. In
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addition to the funded income, our corporate and investment banking has substantially increased its fee base income this year by being the lead advisor in a number of transactions in the corporate world of Pakistan The challenges to corporate business in year 2007 were manifold including reduction in Private Credit Investment as a result of slowing down of economy as well as rising interest rates. The increasing pressure on the textile industry reduced the lending to this sector. In addition the bank's corporate loans yields also faced pressure as substitute form of funding sources are available in the market in form of Islamic financing, mutual funds, issuance of debt instruments like TFCs and Bonds and the Capital markets. Despite these threats and challenges at NBP, our corporate team not only increased the volume as well as the yield of the loans they also maintained a strong franchise with the leading Pakistani corporate so as to ensure that NBP not only maintains its market share but is in a position to meet any challenges in future. NBP during the year also participated in a number of TFC issues and mutual funds subscriptions thereby increasing the overall yield on investment portfolio. NBP has the largest equity portfolio in the banking sector primarily due to 27% holding in NIT units, the largest mutual fund in Pakistan. During the year 2008 the bank redeemed 10% of its NIT holding covered under LoC, which resulted in capital gain of Rs. 1.8 billion in 2008. The National Bank of Pakistan has initiated a structured approach to corporate banking by introducing a single point of contact through Relationship Managers. For this purpose, new Relationship Managers as well as team leaders has been inducted to expedite this process. The Area Managers of National Bank of Pakistan are appointed to manage relationships and to better service the needs of multinationals and large local
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corporate. An investment banking team has also been formed by National Bank of Pakistan to offer specialized services to major relationships including advisory and debt syndications. The National Bank o Pakistan have special focus on Corporate Banking with a presence in all major locations through out the country, offering full range of Banking products / services and one window interface through designated Relationship Managers. Corporate Banking offers tailor made products / solutions as required by corporate customers which includes. The key features of corporate Banking includes.

Funded facilities, ranging from short to medium and long term lending Trade related financing. Foreign currency financing. All sorts of non-funded facilities / services which include Cash receipts / payments, Remittances, Collections, guarantees, letter of credit etc.

Customized products / solutions

8.2.2. COMPLIANCE GROUP

The Compliance Group of National Bank of Pakistan is headed by Mr. Ziaullah Khan and is report directly to the President/ Chief executive of NBP. In order to keep the working of Audit Department aligned with the best international practices 'Compliance Group has been created. This group is responsible for monitoring compliance of various administrative / operative instructions, rules, and regulations by constantly reviewing and reporting status of compliance and non-compliance. The Compliance Group of NBP is set to ensure that all relevant laws are complied with, in letter and

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spirit, and, thus, minimize legal and regulatory risks. The Compliance officers will primarily be responsible for Banks effective compliance relating to.

Relevant provisions of existing laws and regulations. Guidelines for KYC. Anti money laundering laws and regulations. Timely submission of accurate data / returns to regulator and other agencies. Monitor and report suspicious transactions to President / Chief Executive Officer of the bank and other related agencies.

The Compliance Officers will serve as a contact point between President /Chief executive officers and senior management, with regard to functioning of compliance program provide assistance in this area to branches and other departments of the bank, and act as liaison with State Bank of Pakistan concerning the issues related to compliance.

The functions of compliance group of National Bank of Pakistan are as fallows.

Study and emphasize compliance of best international practices in audit of various functions of NBP.

Monitor compliance of Administrative/Operational Instructions, Rules, Regulations issued from time to time by the Management.

Review over the compliance carried out by the audit departments. Prepare and put up a consolidated Report to the Directors of National Bank of Pakistan regarding the status of compliance and non-compliance of the recommendations agreed by the Departmental Management.

8.2.3. ISLAMIC BANKING GROUP

The divisional head of Islamic Banking group is Mr. Anwar Ahmed Meenai. Islamic Banking is one of the emerging field in global financial market, having tremendous
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potential and growing at a very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable during the last Five years. The year 2007 marked the first year of Islamic Banking operations. During the year under review, in addition to active participation in various Sukuk transactions, two more Islamic Banking branches at Lahore and Peshawar started operations. NBP's plans for the year 2008 include opening of Faisalabad and Rawalpindi branches with the focus on growing organically by opening more standalone Islamic Banking branches, utilizing NBP's existing branch network of 1,200 plus conventional branches and looking into strategic acquisitions for expansion in this field. The products & services being offered by National Bank of Pakistans Islamic Banking are fully Shariah Compliant and have been certified by NBPs Shariah Advisor. Deposit Schemes being offered by NBPs Islamic Banking Branches include the following.
Current Deposit Scheme Profit & Loss Sharing (PLS) Deposit Scheme

Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements. Murabaha Murabaha Facility Ijarah (Leasing)

In addition to Shariah acceptable standard general banking services, following services are also being offered at the Islamic Banking Branches. Letter of Credit Facility Handling of Remittances Issuance of Bank Drafts and Pay Orders. Collection of Export Bills.
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Collection of Local Bills. Government Collections Utility Bills Collection

8.2.4. TREASURY MANAGEMENT GROUP

The group chief of Treasury management group of National Bank of Pakistan is Mr. Muhammad Nusrat Vohra. The NBP treasury and capital market group has developed a reputation of being the market leader in coming up with customized solutions for a large and varied client base that is spread virtually all across the country. The client base does not consist of only blue chips ones but encompasses public sector clients, retail sector, multinationals, local conglomerates as well as individuals. National bank treasury is currently regarded as a market leader in both foreign exchange and rupee denominated products because of its emphasis on service quality. The Treasury management group of National Bank of Pakistans offer.16 Narrowest bid / offer spread and quickest on line quotes Customized solutions to minimize risk and optimize returns as per the needs and circumstances of the clients Focus on building sustained and long term relationship with institutional, corporate and retail clients. Local presence across the nation as well as internationally.

Currently the National Bank of Pakistan offer following Treasury Products.17

8.2.5. CREDIT MANAGEMENT GROUP

The group chief of Credit Management Group is Mr. Shahid Anwar Khan. This group usually deals with Banks allocations of payments or cash application, internal fund movements, reconciliations and also maintaining positive working relationships with
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customer during the debt collection or credit review and approval process, screening of customers and only those who is credit worthy are allowed to do business. The divisions of this group are distributed according to different areas which are. NWFP Azad Kashmir Sind & Balochistan area wing Karachi area wing Special Credit Cell & Punjab area Wing

The functions of this department include. Enforcing the State Policies, financial regulations, and credit rules of the bank Framing credit policies and regulations; supervising the staff to execute orders Putting forward the proposal of credit management and development; guiding and supervising the branch-banks to deal with credit business Managing the authorized business; dealing with the legal affairs consulted and coordinated Establishing development rules on credit; dealing with the acceptance draft; estimating the loaning accounts Responsible for reporting the credit statistic statement Responsible for training client managers Responsible for dealing with other work according to the directors of the bank Responsible for the credit-registered consulting system; regulating the fivegraded loans

8.2.6. AUDIT & INSPECTION GROUP

The group chief of National Bank of Pakistans Audit & inspection group is Mr. Imam Bakhsh Baloch. It is one of the core departments at NBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders
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through proactive inspection, compatible with best international practices. This group plays a vital role in meeting NBPs main responsibility of supervising the banks soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess the branches, Audit & inspection group conducts regular audit & inspection of branches. Bank's management has established and is managing an adequate and effective system of internal control which encompasses the policies, procedures, processes and tasks as approved by the Board of Directors that facilitate effective and efficient operations. The management and the employees at all levels within the Bank are required to perform as per these approved Internal Control System components. The Internal Control System ensures quality of external and internal reporting, maintenance of proper records and processes, compliance with applicable laws and regulations and internal policies with respect to conduct of business. The management ensures that an efficient and effective Internal Control System is in place by identifying control objectives, reviewing existing procedures and policies and ensuing that control procedure and policies are amended for time to time wherever required. However, Internal Control System is designed to manage rather than eliminate the risk of failure to achieve objectives and provide reasonable but not absolute assurance against material misstatement or loss.18 The functions of Audit & inspection group of National Bank of Pakistan are as fallows. Examine and evaluate adequacy and effectiveness of the internal control systems in the Bank. Review the applications and effectiveness of risk management procedures and risk assessment methodologies in financial, operational and Corporate Governance aspects of the Banks activities. Review financial, automation technology and MIS.
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Review and ensure accuracy and reliability of accounting records and financial reports.

Perform testing of both transactions and functioning of specific internal control procedures.

Evaluate and ensure that approved policies and procedures meet legal and regulatory requirements.

Examine and evaluate effectiveness of existing policies, procedures and give recommendations for improvements.

Identify opportunities for cost savings in Bank operations and make recommendations.

Examining those resources are acquired economically, used efficiently and safeguarded adequately.

Review various reports of Banks subsidiaries, recommend improvements and provide policy guideline.

8.2.7. HUMAN RESOURCE MANAGEMENT & ADMINISTRATION GROUP

The group chief of Human resource management & administration group is Mr. Dr. Mirza Abrar Baig. This Division is responsible for fresh induction of employees and other professionals through a rigorous induction process in order to ensure presence of quality professionals. Following units and areas of work are the part of this division. This group is responsible to develop annual manpower plan for National Bank of Pakistan, conduct job analysis, prepare job descriptions, and conduct job evaluation process. The other functions of this group include attracting, selecting and recruiting the right people from the market. The group firmly works on adopting latest organizational theories & change management processes to bring in efficiency. This group also performs following functions.
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Deals from placing job advertisements to timely recruitment of competent personnel by using modern selection techniques.

Systematically observes & measures employees/candidates performance for the purpose of recruitment, selection and promotions.

Facilitates in establishing successful productive working relationships through effectively orienting new employees to their respective departments/divisions and to their positions.

Encourages employees to seek promotion/transfers to fill internal openings and meet employees personal objectives.

Foster a culture of acknowledgement and appreciation amongst employees for introducing innovative business practices, showing extra ordinary efforts for achievement of goals and enhancing Banks corporate image uses various methods of recognition ranging from simple Thank you letters to elaborate celebrations and monetary rewards.

Conducting motivation surveys and developing market based employee satisfaction & retention strategies.

Conduction of evaluation of positions and grades to ascertain employees position in the grade structure.

This Group supervises all the staff colleges, at Karachi, Islamabad, Lahore and Peshawar.

8.2.8. FINANCIAL CONTROL DIVISION

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This division is headed by Mr. Atif Hassan Khan, who is also financial controller of National Bank of Pakistan. The financial control division is responsible to perform and manage following functions.

Maintenance of books of accounts and preparation of financial statements of the Bank in accordance with the IAS, as adopted by the Bank.

Coordination and facilitation for Business planning and budgeting function in the Bank and periodic reporting to the management and to the Board.

Preparation of Annual Financial Statements Accounting Policies for the bank. Quarterly profit updates to the Board of Directors. Consolidation of Departmental Budgets. Maintenance of Federal & Provincial Government Account on the basis of receipt and payments.

Monthly Abstract, Daily Reserves and Weekly review reporting. Short/Medium term investment and Swap deposits and maintenance of Foreign Currency accounts and revaluation of Foreign Currency Assets & Liabilities.

Making of payments to external suppliers and employees of the Bank after independent verification of transaction documents on the basis of bills/ invoices/claims approved by the processing units.

Checking and verifying the selected financial transactions to ensure accuracy and compliance to respective rules and regulations.

Assets capitalization, assets transfers and overall responsibility to manage and maintain assets physical inventory, keeping track of physical location of assets.

To ensure the smooth and unhampered running of the Fixed Assets Management function.

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To record all the expenses regarding repair/ maintenance and rent taxes for NBP buildings and equipments.

To deal with various administrative matters arising in the Finance Department. To respond to various queries rose from various internal and external sources.

Comments on the Organization Structure

A well-developed and properly coordinate structure is an important requirement for the success of any organization. It provides the basic framework within which functions and procedures are performed. Any organization needs a structure, which provides a framework for successful operations. The operation of an organization involves a number of activities, which are related to decision making, and communication of these decisions. These activities must be well coordinated so that the goals of the organization are achieved successfully. The organization chart & Organogram of National Bank of Pakistan Rawat Branch is shown on Annexed IV & Annexed V at the end of this report. This chart defines the line of authority in the branch and its departments. It is a sort of visual presentation of the organizational structure. It specifies the duties and responsibilities of the personnel or staff of the branch. The purpose of an organizational structure is to help in creating an environment for human performance. Although the structure must define the task to be done, the rules so established must also be designed in the light of abilities and motivation of the human recourse available. By analyzing the organization structure of the branch following elements can be found in the structure.

9.1. CENTRALIZED DECISION MAKING

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The Branch Manager of National Bank of Pakistan is responsible for all the affairs of the Bank. All the decisions relating to Branch are made by him and the subordinates have to obey these decisions. All the employees of the Bank are report directly to the Branch Manager. The branch has two operation Managers. Operation Manager I controls Clearing house & Remittance Department and Operation Manager II controls Deposits, Advance & Branch accounts department. Both of them are report directly to the Manager regarding affairs of their departments. The Chief Accountant controls Accounts department & is report directly to branch Manager. The branch also has two cashiers responsible for cash & Pension disbursement department reports directly to branch Manger. The BBO (Branch Back Office System) Operator controls computer department of the branch and is report directly to Operation Manager I and Branch Manager. 9.2. DOWNWARD COMMUNICATION Communication is the process by which information is exchanged and understood by two or more people, usually with the interest to motivate or influence the behavior of others in the organization. Downward communication is the message and information sent from top management to subordinates in a downward direction. The same pattern is followed at National Bank of Pakistan Rawalakot branch, the Manager of the branch sent orders, information & messages to following subordinates. Operation Manager I Operation Manager II BBO ( Branch Back Office System) Operator Chief Accountant
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 Cashier I Cashier II Clerk I Clerk II Non Clerical Staff 9.3. CHAIN OF COMMAND The chain of command is an unbroken line of authority that links all persons in an organization and shows who reports to whom. By analyzing the organizational structure of the National Bank of Pakistan Rawat branch it can be found that there is a scalar principle followed with in the branch because each and every employee of the branch knows to whom they can report. The authority and responsibility for different tasks and duties are different, as well as every one knows the successive levels of management all the way to the top. 9.4. AUTHORITY RESPONSIBILITY

AND

The chain of command illustrates the authority structure of National Bank of Pakistan Rawat Branch. Authority is the formal and legitimate right of the manger to make decisions, issues orders and allocates resources to achieve organizational desired outcomes. By analyzing the chain of command of NBP, one can come to the conclusion that, as there is scalar pattern followed at the organizational setup of NBP, therefore it is implied that everyone in his position knows that what is ones authority and what is the responsibility and the authority it allocated.

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9.5. DELEGATION Delegation is the process, which managers use to transfer the authority and responsibility to position below in the hierarchy. Most organizations today encourage managers to delegate authority to the lowest possible level to provide maximum flexibility to meet customer needs and adapts to the environment. At National Bank of Pakistan Rawat branch Operation Managers have some authority & responsibility relating to affairs of the Branch.

10. DEPARTMENTS OF THE BRANCH

Banking procedures are divided between various departments. Different departments do their jobs in occurrence with the bank policies. In National Bank of Pakistan each branch is divided into various departments depending on their size and volume of business. Head of department manages each department & officials of the branch follow procedures. The departments working within National Bank of Pakistan Rawalakott branch are as under. 10.1. CLEARING HOUSE DEPARTMENT As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques/instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from an number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent by the
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collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement. The Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area.

10.2. REMITTANCE DEPARTMENT

The Remittance department deals with the transfer of money from one place to another. Funds transfer facility or remittance of funds is on of the key functions of the banks all over the world. Remittances through banking channels save time, costs less and eliminate the risks involved in physical transportation of money from one place to another. National Bank of Pakistan transfers money in the following ways. Pay Order Demand Draft Mail Transfer Telegraphic Transfer Pay Slip
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Call Deposit Receipt Letter of Credit Travelers Cheque

10.3. ACCOUNT OPENING DEPARTMENT

The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers. It also issues checkbooks to customers. A person who wishes to open an account with the bank has to fill an account opening form obtained from any branch of National Bank of Pakistan. The bank officer tactfully obtains information about character, integrity, responsibility, occupation and the nature of business of the perspective customer. Any individual, who has attained the age of majority and is of sound mind can open and maintain his/her account. Two or more individuals may open an account jointly. Similarly, business organizations such as sole proprietary concerns, partnership firms, and limited liability companies as well as non-profit organizations like clubs, trusts, societies, associations and NGOs etc, may open their accounts. The documents required for National Bank of Pakistans Account opening are showed as Annexed VII at the end of this report. The following requirements are necessary for opening an account. Identification of the new customer. Ascertaining the genuineness of the stated occupation business of the customer. Determining the correct residential and permanent address. Completion of all relevant columns of the Account opening form. Proper completion of documentation.
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10.4. CASH DEPARTMENT

All physical movement of cash in the bank is made through the cash department. As bank is borrowing and lending institution, therefore cash is the top most priority of Bank. Another aspect is that cash department is for the security purpose, security in a sense that there should be no embezzlement of funds or in money leaded to bank by any party or person. The efficiency of bank is also related to this department the more efficient the bank is the stronger and busy is the cash department. Cash department perform following functions Cash department owes its important to the fact that it is a major point of contract between the bank and the customer, the banks most valued relationships. This department is the showcase of the bank and conveys the first impressions about the banks commitment to professionalism in its systems and procedures and to courteous and efficient customer service. Normally cash department performs following functions Collection of funds Acceptance of deposits Collection of utility bills Payment of checks Remittances Act according to any standing instructions
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Transfer of funds from one account to another Verification of signatures Posting Handling of Prize bond

10.5. DEPOSITS DEPARTMENT

The primary function of National Bank of Pakistan is to accept and receive surplus money from the people, which they willingly deposit with the Bank. Like all other Banks, National Bank of Pakistan also take incitation to attract as much depositors as it can. The deposit department accepts/collects deposit from accountholders. The National Bank of Pakistan offer different deposit schemes to its customers, which includes the following. Current Deposits PLS Saving Deposits Fixed Deposit Account ( Time Deposits) Foreign Currency Account NBP Premium Aamdani Foreign Currency Account National Income Daily Account (NIDA)

10.6. ADVANCES DEPARTMENT

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The bank is profit seeking institution. It attracts surplus balance from the customer at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Credit extensions are the most important activity of all the financial institutions, because it is the main source of earnings. Advances department is one of the most sensitive and important department of the bank. The major portion of the profit is usually earned through this department. The job of this department is to make proposals about the loans; the credit management division of head office directly controls all the advances. The advances Department receive application from intending borrowers. After receiving application the advance department processes it further. After analyzing and detailed investigation, they decide whether to approve the loan or not. Some loan approvals are made by the Manager of the branch within his powers as prescribed by the banks higher authorities, while some loan applications are submit to higher authorities for their approval. Some advances are of the following nature Loan against Gold Agriculture advance to farmers Medium term advance for working capital Long term advance for setting industry Short term advance to businessman

10.7. PENSION DISBURSEMENT DEPARTMENT

The National Bank of Pakistan was Pakistans leading institution which performs the function of pension payments or disbursements to pensioners. The pension
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disbursement department is responsible for making pension payments to Government Pensioners. The person who wants to receive his/her pension from National Bank of Pakistan can open an account with any branch of National Bank of Pakistan. The bank performs this function through Demand Draft Purchase or simply called DD Purchase. This department performs following functions. Making Pension Payments Opening of Account of Pensioner Entry of amount paid to pensioner in Government Pensioners Register Verifications of Signatures of Pensioners Making Demand Draft Purchase Register

10.8. ACCOUNTS DEPARTMENT

Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Actually the process of this activity starts from the preparation of all the required vouchers by different related departments. When these vouchers are prepared, these are posted into respective computer terminals by the relevant departments. Before merging, a batch list is printed out by Computer Department and duly checked by the respective departments. After this, merging stage comes, after which a proof list is printed out. This is the stage, where Accounts Department starts performing its function. Proof list is checked by the Accounts Department. The account department prepare following vouchers and reports
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Monthly Profit & Loss account- F48 General Ledger General Ledger- Abstract Check Book Issue Register Western Union payments Register Demand Notices Miscellaneous Book Bank Transfer scroll Posting NBP Advance Salary Daily Statement- F21 General Ledger- Head wise Hash Value Register End of Day register Posting National Income Daily Account (NIDA) Monthly return register Charges A/c register P-L-S Profit list

10.9. Finance Department

10.9.1. 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.

10.9.2. Agricultural Finance Services

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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. 10.9.3. 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 forming.

10.9.4. Agricultural Credit (Medium Term) Production and development Watercourse improvement Wells Farm power Development loans for tea plantation

10.9.5. Farm Credit NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis. Operating loans
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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

10.9.6. 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.

11. Structure of Branchs Accounts Department

The structure of National Bank of Pakistans Accounts department is shown as Annexed VI at the end of this report. The Accounts department of the branch is controlled by the Chief Accountant under direct supervision of Branch Manager. The Branch has one cashier & two clerks for assistance and help of Chief Accountant. The BBO (Branch Back Office system) Operator has also assist Chief Accountant in various tasks. The head of branchs Accounts department is called Chief Accountant, who performs his functions under direct supervision of Branch Manager. The Chief Accountant is responsible for the central accounting records and controls over all financial transactions of the Branch. He also directs a wide variety of accounting activities and meets important deadlines & analyzes and interprets accounting data of the branch. The other responsibilities of Chief Accountant include.

Plans and directs the activities of Cashier, BBO Operator and clerical employees of the branch engaged in the maintenance of a variety of accounting records.
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Directs and participates in the development and revision of procedures in order to meet requirements of law, provide services to Branch Manager, improve efficiency in branch activities, and coordinate branch activities with those of other departments.

Directs and reviews the preparation of periodic and special financial statements, reports, projections, and recommendations, on which important administrative decisions are based.

Directs and reviews the study of new and revised laws, rules, and programs affecting the central accounting system and records and installs or recommends changes as appropriate.

Designing and operating a system to capture, record, process, and store all relevant documents and information about the financial activities of the branch.

11.1. BANK ACCOUNTING OPERATIONS

The National Bank of Pakistans accounting consists in making computerized, written and permanent records of every transaction. For Computerized recording of transactions the bank used software called BBO (Branch Back Office). BBO enable Bank to record a variety of transactions. The most common part of BBO which is operating by the BBO Operator is Individual Ledgers. Individual Ledgers are the accounts in which accounts with depositors are kept. They are kept so that the balance of each depositor's account may at any time be readily seen, and they should be frequently balanced to verify their correctness. The three column form of individual ledger is used because it has a column for checks paid or other debit entries, one for deposits or other items credited, and a third for showing the balance after each entry or the day's entries are
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made in the account. The BBO enlist Chart of Accounts of the Bank shown in Annexed VIII. All the accounts shown in Annexed are opened and managed through BBO. All the Remittances of the bank are recorded managed and control through BBO. The End of the Day report is also generated through BBO. The most important record keeping and report generated by Banks Accounts Department is Statement of the Bank. The statement of the bank shows the general, or control, accounts of the bank, and the various books of the bank show the detail of these items. It would not be impossible, but it would be entirely impractical, to enter every figure directly on the statement of condition. Instead of total deposits, the balance of each depositor would appear opposite his name. On the other side, instead of loans and discounts, there would be an itemized list of the loans with the names of the borrowers. The first principle in bank accounting, as in all other bookkeeping, is that for every debit there must be a credit, and vice-versa. In accordance with this fundamental theory the books are maintained. With respect to the statement, every Rupee of liabilities is accounted for by another Rupee of resources. Similarly each accounts at the end of the day for each item of cash is balanced. Each bank employee has had the experience of remaining at his desk until a late hour at night checking up his day's work searching for a difference of a few cents. Often they become embittered at what seems to them a tyranny when the small sum of money involved is considered. The reason they must settle, however, is not on account of the possible loss of ten cents, but because the most important principle in bank accounting is involved. "Accuracy first" is a motto that should be framed, figuratively at least, upon the wall of every banking room. The books used by National Bank of Pakistan are of various kinds and their purpose is indicated by name. A ledger is a book used to keep a record of balances. To "post" means to enter in the proper columns either the debits or credits on the ledger, and the
53

difference between them represents the balance either due by or to the bank. Another important book which is used by the National Bank of Pakistan is journal, a book in which daily transactions are listed in regular order as to accounts, and the total debit or credit is then posted on the ledgers. All other books, cards and sheets used by bank of whatever nature is a part or subdivisions of these books. Often they become known among the clerks by some other name descriptive of their general appearance. For instance, the general ledger scratcher in one bank is known as the "red book," while the collection scratcher is the "black book." The records made by one clerk upon one set of books go to check the records of another clerk upon a different set of books. For instance, the paying teller and the receiving teller will each keep a record of checks cashed or deposited payable within the bank. The debit postings of the individual bookkeeper would agree with the teller's figures. Skillful accounting lies in making the fullest possible use of original entries, at the same time having a check on all figures to guard against either error or fraud. Every transaction ultimately affects the bank's statement of condition by debit or credit. For example, a deposit of Rs.1000 is made, consisting of Rs.200 cash and checks as follows. Rs.200 on the bank itself and Rs. 600 payable in another city. At the end of the day (assuming this to be the only deposit), on the liabilities side there is an increase of Rs 800 all of which appears in the item "deposits" being the total Rs.1000, less the check for Rs 200 which is charged to the account of the drawer. On the resource side, then, a corresponding increase of Rs.800 and this is made up by an increase in the cash of Rs 200 and an increase of Rs.600 in the item "due from banks." Or a transaction may appear on one side of the statement only. The bank has sold Rs.5, 000.00 of the bonds it owns.

54

11.2. USE OF ELECTRONIC DATA IN DECISION MAKING

The technological development in the field of information systems make it possible for management to use electronic data in decision making. An understanding of the effective and responsible use and management of information systems and technologies is important for managers, business professionals, and other knowledge workers in todays internetworked enterprises. Information systems play a vital role in the ebusiness and e-commerce operations, enterprise collaboration and management, and strategic success of businesses that must operate in an internetworked global environment. Thus, the field of information systems has become a major functional area of business administration. The management of a business can use information systems in their decision making process. Before proceeds its important to discuss precisely about decision making. Decision making can be regarded as an outcome of mental processes leading to the selection of a course of action among several alternatives. Every decision making process produces a final choice.19 The output can be an action or an opinion of choice. A significant part of decision making skills is in knowing and practicing good decision making techniques. One of the most practical decision making techniques can be summarized in following simple decision making steps.

Identify the purpose of your decision. What is exactly the problem to be solved? Why it should be solved?

Gather information. What factors does the problem involve? Identify the principles to judge the alternatives. What standards and judgment criteria should the solution meet?

55

Brainstorm and list different possible choices. Generate ideas for possible solutions. See more on extending your options for your decisions on my brainstorming tips page.

Evaluate each choice in terms of its consequences. Use your standards and judgment criteria to determine the cons and pros of each alternative.

Determine the best alternative. This is much easier after you go through the above preparation steps.

Put the decision into action. Transform your decision into specific plan of action steps. Execute your plan.

The decision making of Management of National Bank of Pakistan rely on information system resources which includes people and a variety of hardware, software, data, and communications network technologies as resources to collect, transform, and disseminate information in Ban

12. NATIONAL BANK OF PAKISTAN, MAIN BRANCH RAWALAKOT

I did my internship in NBP, Main Branch Rawalakot. There are different departments which work properly according to rules and regulation. There are sixteen officers in the branch including manager who carry out the operations of the branch. 12.1. OBJECTIVES OF THE BRANCH Accepting deposits in current, PLS saving and NIDA accounts Collection of the utility bills Collection of passport fee
56

Collection of traffic Chalans Transfer of money through mail transfer Making of demand drafts Give pensions and benevolent funds to the government employees Making payee

12.2. PRODUCTS President Rozgar Scheme 20 months Advance Salary to the Government Employees Cash against Gold Running finance against property Status of checks deposited Pension handling NBP Premium Aamdani (Monthly income Scheme ) NBP Foree Transfer NBP Foree Cash NBP Premium Saver NBP Kisan Dost (Agricultural Forming Program) NBP Saibaan (Home Finance)
57

12.3. INTERNEES JOB AT NBP

During my internship at NBP, Main Branch Rawalakot, my description was as under 12.3.1. CLEARING In the branch I was responsible for the clearing along with Mr. Raheel Ahmed (Credit manager). Clearing is the process by which the banks settle their claim against each other. The process of clearance is carried out through NIFT (National Institutional Facilitation Technologies (Pvt.) Limited) NIFT is responsible for the establishment and management of clearinghouse facilities in PAKISTAN. The clearing process is as under. When the cheques are presented then on its face it is stamped by two stamps. One is the post dated clearing stamp and the other is the crossing stamp of NBP, Corporate Branch. On the back the cheque is stamped by a stamp Payees account will be credited. NBPs round stamp is placed on the on one perforated side of the voucher that is submitted along with the check. This part is sent along the person depositing the cheque. This stamped part of voucher acts as an evidence that the person has deposited the cheque.

58

PAYEE

RETURNED CHEQUE

SC & CHEQUE & ITS RETURN

BANK-1
CHEQUE

AMOUNT AMOUNT

(To whom the check is presented )

CHEQU E

CHEQU E

NIFT BANK-2 (On whom the check is drawn)

PAYEES ACCOUNT

NIFT

REPORT

AND RETURNED CHEQUES SUNDRY ACCOUNT

CLEARING PROCESS

After receiving all the cheques, the account numbers along with the name of the account holder is noted in the clearing register. Then vouchers are separated from the cheques and the cheques are handed over to the NIFT representative for clearance. The vouchers are kept safe in the register until the cheques are cleared. NIFT then sends these checks to the branches, all over the Pakistan through SBP representatives, on whom the cheque is drawn. These branches then verify the cheque and debit the account holder who endorsed the cheque in payees favors. The branch (on whom the cheque is drawn) can refuse to clear the cheque if the account holders balance is not enough or the endorsement is not proper or any other reason. If there is no discrepancy and the cheque is cleared then NIFT generates a report that is communicated to the branch on whose counter the check was presented to be deposited. After this the branch to whom the check was presented to be deposited credits the payees account. The whole amount is not credited rather bank charges its 0.2% commission and also deducts Rs. 75 as PNT charges from the amount of the cheque. If the clearing is intra city then PNT charges are not deducted otherwise deducted.
59

If the cheque is cleared but while crediting the account some ambiguity occurs like the account number and the account name did not match as per the bank records then the bank credits the Sundry Account, which is later on debited when someone claims the cheque. If the bank on whom the check is drawn do not clear the account, then the cheque is returned to the payee. For the cities where there is no NIFT service then the checks are sent through post or courier along with a special document known as SC. The following diagram graphically shows the clearing process.

12.3.2. ACCOUNT OPENING

Following types of accounts are opened in NBP, Main Branch Rawalakot. Current account PLS saving National Income Daily Account (NIDA)

These are discussed below.

12.3.3. CURRENT ACCOUNT

Current accounts are opened, on proper introduction and submission of required documents, along with initial deposit prescribed from time to time. Current accounts are opened for individuals single or joint), firms, limited companies, local bodies, autonomous bodies, educational institutions etc and all other cases where the accounts are to be opened under the order of the competent court of order.

60

No profit is paid on the balances of current account. The bank is authorized to deduct service charges on current account levied through its half yearly schedule of charges, in case the average balance falls below the minimum as prescribed by the bank from time to time.
12.3.4. NIDA

Opened by the government bodies to allocate the idle funds and the profit is calculated on daily basis. The NIDA will be eligible for sharing of profit/loss with the bank at the rate to be determined by the bank at its sole discretion and the banks decision is binding on the depositor. Deposits in the NIDA accepted on the condition that the depositor shall always maintain a minimum balance as prescribed by the bank in his account. In the event however, that any depositor wishes to withdraw the amount and the balance in his account is less than the required amount, the account will be converted to the ordinary PLS account for the purpose of calculation of profit. Payment of profit will be on half yearly basis, with no limits on withdrawals and no notice period required. It is a checking account and a cheque book will be issued as in case of other PLS saving accounts.

12.3.5. PLS Saving Account

PLS SAVING accounts are opened, on proper introduction and submission of required documents, along with initial deposit prescribed from time to time. PLS saving accounts are opened for individuals (single or joint), charitable institutions, provident and other funds of benevolent nature of local bodies, autonomous corporations, associations, firms, educational institutions etc and all other cases where the accounts are to be opened under the order of the competent court of order.
61

There is no limit on maintaining the upper limit of deposit and withdrawals of the amount and number of cheques from PLS saving account. The bank is authorized to deduct service charges on current account levied through its half yearly schedule of charges. Sharing of profit/loss with the bank at the rate to be determined by the bank at its sole discretion and the banks decision is binding on the depositor. Zakat where ever applicable shall be deducted on valuation dates from accounts having balance in excess of the exempted limit as declared for the particular Zakat year. Declaration on the prescribed Performa for exemption of deduction of Zakat will be registered with the bank at least one month prior to the valuation date or as per the Zakat rules applicable from time to time. Withholding tax shall be recovered on the profit amount as per income tax law in force. The bank would be within its right to make investment of deposits in any manner at its own discretion and to make use of funds to the best of its judgment in the banking business under the PLS system. The account holder undertakes to reimburse the bank with any claims in respect of losses/charges on the basis of half yearly/yearly closing banks books of accounts. The bank would be within its rights to debit their accounts for the amounts of such claims in settlement of business accounts of the bank.

12.3.6. Considerations while opening an account are given below.

The persons in whose name the account is being opened should be present at the time of account opening either the account is for an individual or its a joint account.
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The person should bring his original NADRA computerized NI card. The person should have the both side attested photo copy of NADRA computerized NI card.

Introducers attested NADRA computerized NI card photocopy. PLS account holder cannot introduce a person for opening current account and a current account holder cannot introduce a person for opening PLS account.

The introducers signatures should be verified. A person who cannot sign and uses thumb impression will not be accepted as an introducer.

Attested photocopy of Next of kin, that is, a person who should be contacted in the absence of account holder should be attached with the form.

If the person whose account is to be opened uses thumb impression then he should provide 3 pictures. In other case 2 pictures are required.

12.3.7. Cheque Book Issuance

During my tenure I issued a lot of check books under different circumstances. Theses circumstances are as under. Issue for the first time Issue when old one is finished Issue when the old one is lost Issue someone on account holders behalf
63

These are discussed below.

12.3.7.1. ISSUE FOR THE FIRST TIME

Check book is issued to the account holder for the first time after one week of account opening. The account holder should bring with himself the letter of thanks posted by the branch at his address. The account holder then fills the cheque book issuance request slip. After that the person on duty (me) stamps the cheque book with the account number and the branch name. The account holders signatures are taken on the register as a confirmation that the person has taken the cheque book. Two signatures are taken on the back of the request slip as well. No charges are taken from the person at the spot rather an amount is debited from his account.

12.3.7.2. ISSUE WHEN THE OLD ONE IS FINISHED

In this case the account holder brings his old cheque book to the banker. The banker (me) detaches the white leaf in it and writes the beginning and ending leaf numbers of the issuing cheque book. After this he takes two signatures on the back of this leaf. After this he stamps the check book and gets it received by taking signatures on the record register. The cheque book is ready to be issued.

12.7.3. Issue When the Old One Is Lost

The procedure same as explained in first case except that in place of providing the letter of thanks the account holder is supposed to provide the affidavit.

12.3.7.4. Issue Someone on Account Holders Behalf

If bank issues cheque book to someone on account holders behalf then the bank fills a perforated document namely F-508. The upper perforated part is kept with the bank containing credentials of the person who is receiving the check book and the lower perforated part is sent with the receiver of the cheque book for the purpose of getting it
64

signed by the account holder. If the bank does not receive the lower perforated part signed by the account holder then the bank will not honor any checks drawn on it through the cheques of this cheque book.

12.3.7.5. Dispatch
I was responsible for making the dispatch for the bank as well. The dispatch of the branch included mail transfer, SCs, Responding Branch Vouchers, etc. the work involved packing the documents to be dispatched and recording them into TCS register.

13. Critical Analysis (Theory vs Practical)

During Internship it was my prime objective to furnish my knowledge (Theory) to various practical situations. The practical work presents an analytical problem while relating theory with practice. As a result, analysis of practical versus theory requires a distinct approach. This part of report is the essence of the internship, as this will help to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks dont prepare worksheet, but part of worksheet is prepared like trial balance. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. There is some difference lies in types of loans in bank that is theory talks about four or five types of loans that is cash finance, overdraft, loans etc., but in practice there are some more types used by bank like running finance, demand
65

finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. A bank's balance sheet is different from that of a typical company. You won't find inventory, accounts receivable, or accounts payable. Instead, under assets, you'll see mostly loans and investments, and on the liabilities side, you'll see deposits and borrowings.

13.1. Balance Sheet

BALANCE SHEET As on DECEMBER 31st, 2010.

66

Rs. In 000s Assets

Cash and balance with other banks Balances with other banks

Rs. In 000s 2010

115,442,360

2009
115,827,868 28,405,564

30,389,6 64
23,025,156

Lending to financial institutions Investments

19,587,176 217,642,822

301,323,8 04
477,506,564 53,496,240

Advances Other assets Operating fixed assets

475,243,431 59,666,438 25,147,192

26,888,2 26
6,952,666

Deferred tax assets Total assets

3,062,271 944,582,762

1035024680

Liabilities Bills payable Borrowing from financial institutions Deposits and other accounts Liabilities against assets Other liabilities Deferred tax liabilities Total liabilities 10,621,169 45,278,138 727,464,825 42,629 42,269,623 825,676,384 8,006,631 20,103,591 832,151,888 106,704 46,160,038 906,528,85 2

Net assets Share capital Reserves Unappropriated profit Total Surplus on revaluation of assets

118,906,378 10,763,702 22,681,707 65,857,438 94,141,919 24,764,459

128,495,82 8 13,454,628 24,450,244 60,696,510 103,762,31 0 24,733,51 8

Source(Annual Report 20092010) 67

13.2. Profit and Loss Statement

PROFIT AND LOSS STATEMENT For the year ended DECEMBER 31st, 2010.

Particular
Net markup /interest income Net non-markup /interest income Total income Operating expense Administrative expense Other provisions Other charges Total operating expense Profit before tax Net taxes payable Profit after tax Profit available for appropriation Basic Earning per share Diluted Earning per share

Rs. In 000s 2009

77,947,697 40,489,649 37,458,048

Rs. In 000s 2010

88,472,134 45,250,476 43,221,658

22,571,470 620,780 321,647 23,513,89 7 21,300,173 3,738,327 17,561,846 70,141,98 4 13.05 13.05

26,202,577 148,026 118,887 26,469,49 0 24,415,119 6,851,905 17,563,214 17,561,84 6 13.05 13.05

Source(Annual Report 20092010)

68

14. Financial Statement Analysis

14.1. Ratio Analysis 14.1.1.Profitability Ratios a) Return on Total Assets This ratio shows the yield earned by the use of assets in financial year. Formula Return on Total Assets=Profit after tax /total assets * 100 For 2009 =17,561,846/ 944,582,762* 100 =1.559% For 2010 =17,563,214/1,035,024,680 * 100 =1.696% Comments This ratio is increased from 1.559% in the year 2009 to 1.696% in year 2011 due to increase in markup& interest earned during the year 2009in spite of increase in assets by the way of revaluation which is a sign of good performance of the bank during a year.
69

b) Return on Equity
Dividing the earning after tax by shareholders funds carries out this ratio the purpose of calculating the ratio to find out the yield after utilizing the shareholder fund for one year. The way of calculating this ratio is given below. Formula Return On Equity=Net profit after tax / shareholders equity * 100 For 2009s =17,561,846/1,035,024,680 * 100 =163% For 2010 =17,563,214/13,454,628 * 100 =130% Comments The yield on equity has decreased from 163%to 130%due to decrease in markup & interest earned during the year 2010 as compare to 2009 and the mark up and discount paid during the year 2010 has decreased as compare to the year 200

14.1.2. Liquidity and Solvency Ratios

a) Loan to Advances Ratio
70

This ratio is of most importance to the lending institutions. While lending to the banks or other parties the institution keep an eye on the loan to advances ratio. Lower the ratio is better for the lending institution. higher ratio is not good for the lending institution as well as the party. Formula Loan to Advances Ratio=Total loans / total advances * 100

For 2009 =475,243,431 /944,582,762 * 100 =50.03% For 2010 =477,506,564 / 1,035,024,680 * 100 =46.13% Comments As we discussed earlier that the lower the ratio is, the better it is for the lender and as well as to the institution itself. In this case the ratio is increased to 50.03% in 2009 from 46.13%in 2010. It shows that the bank loans have increased more as compare to its advances.

71

b)Proprietary Ratio
It is the ratio of funds belonging to shareholders to the total assets of the company. Funds belonging to share holders mean share capital plus reserves and surplus both of capital and revenue nature. Losses should be deducted. Funds payable to others should not be added. Higher the ratio the better it is for all concerned. It is worked out as. Formula Proprietary Ratio=Shareholders fund / total assets * 100 For 2009 =118,906,378 / 944,582,762 * 100 =12.5% For 2010 =128,495,828/ 1,035,024,680 * 100 =12.54% Comments In the year 2009the ratio is 12.5%it increases to 12.54% in 2011. As discussed earlier the higher the ratio the better it is for the organization.

14.1.3 General Ratios

72

a) Cost of Borrowing It is a comparison between current assets and the current liabilites, the lower the current liabilties better it is for the institution. Formula Cost of Borrowing=Current Assets / Current Liabilities For 2009 =115,827,868/ 10,621,169 =10.9 For 2010 =115,442,360/ 8,006,631 = 14.4 Comments The current assets increase in 2010 as compared to 2009.

b) Administration Expenses to Deposits

It is the ratio between administration expenses and the deposits. It shows the cost incurred to manage and collect the deposits. The lower the ratio the better it is. Formula Admin. Expense to Deposit=Administration expenses / deposits * 100
73

For 2009 =22,571,470/ 727,464,825* 100 =3.10% For 2010 =26,202,577/ 832,151,888* 100 =3.14% Comments The increase in the ratio is the result of the increase in amount of deposit in 2010 as compare to the deposit amount in the year 2009.

15. Horizontal Analysis

15.1. Horizontal Analysis of Balance Sheet
74

HORIZONTAL ANALYSIS BALANCE SHEET

AS ON DEC

31 , 2010.
ST

Assets Cash on Hand Balance with other Banks Lending to Financial Institutions Investments Advances Other Assets Operating Fixed Assets Deferred Tax Assets Total Assets

2009 (Rs.000) 115,827,868 28,405,564 19,587,176 217,642,822 475,243,431 59,666,438 25,147,192 3,062,271 944,582,762

2010 (Rs.000)

Change (Rs.000) 385,508 1,984,100 3,437,980 83,680,98 2 2,263,133 6,170,189 1,741,034 3,890,395 90,441,9 18

115,442,36 0 30,389,6 64 23,025,156 301,323, 804 477,506, 564 53,496,240 26,888,2 26 6,952,666 1,035,024 ,680
8,006,631 20,103,591 832,151,888 106,704 46,160,038 906,528,8 52 128,495,8 28 13,454,628 24,450,244 60,696,510 24,733,518 128,495,8 28

%age chang e 03 10 17 38 .04 10 7 127 10

Liabilities Bills Payable Borrowing from Financial Institutions Deposits and other Accounts Liabilities against assets of leasing Other Liabilities Deferred Tax liabilities Total Liabilities Net assets Share Capital Reserves Un-Appropriated Profit Surplus on revaluation of assets Total

10,621,169 45,278,138 727,464,825 42,629 42,269,623 825,676,384 118,906,378 10,763,702 22,681,707 65,857,438 24,764,459 118,906,378

2,614,538 25,174,54 7 104,687,0 63 64,075 3,890,415 80,852,4 68 9,589,45 0 2,690,926 1,768,537 5,160,928 30,941 9,586,45 0

24 56 14 150 9 10 8 25 8 8 .12 8

Comments

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The horizontal analysis shows that overall there is a positive trend. Interest income, non- interest income, profit before tax, and profit after tax increases and on the other hand the interest expense decreases. Although there is decrease in investment & lending to financial institutions but on the other hand there is also a declining trend in liabilities against assets of leasing. These are all better signs for both bank & investors. 15.2. Horizontal Analysis of Profit & Loss Statement HORIZONTAL ANALYSIS PROFIT & LOSS STATEMENT
FOR THE

DEC 31 , 2010.
ST

Income & Expenditure

2009 (Rs.000)

2010 (Rs.000)

Increase / Decreas e 5,763,61 0 701,188 8,208,97 8 (817,026 ) 1,565,12 0 6,44,04 9 4,760,52 7 2,319,04 9 4,032,42 3 3,631,10 7 4,727,54 202,760 76

%age chang e 15 8 43 27 28 12

Markup/Interest earned Fee Commission and Brokerage income Dividend income Income from Dealings Other income TOTAL OPERATING EXPENDITURE Interest Expense Provision For diminution in the value of investment Profit against non-performing loans and advances Bad debts written off directly Administrative expenses Other provisions Other charges

37,458,0 48 89303 91 1,920,33 6 3,028,16 5 552,21 6 51,889, 156 40,489, 649 605,62 9 11,043,4 69 22,571,4 70 620,7 80 321,64

43,221,6 58 9,631,5 79 1,099,4 93 2,211,13 9 2,171,33 6 58,335, 205 45,250, 476 2,954,67 8 7,011,04 6 26,202, 577 148,02 6 118,88

12

36

16 76 63

7 Taxes Total 3,738,32 7 79,390, 971

7 6,851,90 5 88,537, 595 3,113,57 8 9,146,6 24 83 12

16. Vertical Analysis 16.1. Vertical Analysis of Balance Sheet

VERTICAL ANALYSIS BALANCE SHEET
AS ON DEC

31 , 2010.
ST

77

Assets Cash on Hand Balance with other Banks Lending to Financial Institutions Investments Advances Other Assets Operating Fixed Assets Deferred Tax Assets Total Liabilities Bills Payable Borrowing from Financial Institutions Deposits and other Accounts Liabilities against assets of leasing Other Liabilities Deferred Tax liabilities Total Liabilities Net Assets Share Capital Reserves Un-Appropriated Profit Surplus on revaluation of assets Liabilities & Equity

2009 (Rs.000) 115,827,868 28,405,564 19,587,176 217,642,822 475,243,431 59,666,438 25,147,192 3,062,271 944,582,762 10,621,169 45,278,138 727,464,825 42,629 42,269,623 825,676,384 118,906,378 10,763,702 22,681,707 65,857,438 24,764,459 118,906,378

%age 12 3 2 23 50 6 3 .32 100 1.2 5.4 84 5.1 5 100 9 19 52 20 100

2010 (Rs.000) 115,442,360

%age 11 3 2 29 46 5.3 3 .67 100 .8 2.2 91 .01 5.1 100 10.4 19.2 49.4 21 100

30,389,6 64
23,025,156

301,323,804 477,506,564
53,496,240

26,888,226
6,952,666 1,035,024 ,680 8,006,631 20,103,591 832,151,888 106,704 46,160,038 906,528,85 2 128,495,82 8 13,454,628 24,450,244 60,696,510 24,733,518 128,495,82 8

Comments Cash balance with other treasury banks increase by 12.00%, balances with other banks also increased by 3.00%. Although lending to financial institutions, investments, other assets & operating fix assets decreases but there is an increasing trend in advances up to 46.00%.

78

Bills payable & deposits and other account increases, on the other hand, borrowing from financial institutions, liabilities against assets of leasing decreases. But the net worth increases from to Rs.81954118 million which is a good sign from shareholders point of view.

16.2. Vertical Analysis of Profit & Loss Statement

VERTICAL ANALYSIS PROFIT & LOSS STATEMENT
FOR THE

DEC 31 , 2010.
ST

Interpretation Particulars
Interest Earned Fee Commission income Dividend income Income from dealing Other income Total Operating Expenditure Interest Expense Provision for diminution in the value of investment Profit against non performing loans and advances Bad Debts written off Administrative expenses Other provisions Other Charges Taxes Total and Brokerage

2009 (Rs.000) 37,458,04 8 893039 1 1,920,336 3,028,165 552,216 51,889,156

% age 72 17 3.7 5.9 1 100

2010 (Rs.000) 43,221,6 58 9,631,5 79 1,099,4 93 2,211,13 9 2,171,33 6 58,335,205

% age 74 16 2 4 4 100

40,489, 649 605,629 11,043,46 9 22,571,47 0 620,78 0 321,64 7 3,738,327 79,390,971

51 .76 13.9

45,250, 476 2,954,67 8 7,011,04 6 26,202, 577 148,02 6 118,88 7 6,851,90 5 88,537,595

51 3.4 8

28 .78 .40 4.7 100

30 .016 .13 8 100 79

The vertical analysis of profit and loss statement shows that interest and non-interest expense decreases as compare to previous years that is a positive sign and on the other

17. Future prospects of 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 large network of branches locally, internationally and representative offices. The forward-looking management of NBP is a firm believer in focusing on niches where there is critical mass and to create products that meet that demand. National Bank of Pakistan is gearing up to the challenges faced by the domestic banking industry due to innovations and advances in the international banking world, which is the consequence of globalization. The bank wishes to effectively utilize the financial assistance being extended by the Government of Pakistan for banking sector reforms aimed at reducing operating costs and improving profitability. National Bank of Pakistan is distinct from other banks in that it has a nonprofit and service oriented motive, which has manifested itself in the area of salary deposits of government employees and payment of utility bills. The bank renders these services across the country reaching as far as the remotest regions; from our northern borders to the Arabian Sea. These services do not contribute towards the earnings of the bank; rather they put pressure on banks resources. Nevertheless, the bank is committed to serving small savers and the general public of the country. National Bank of Pakistan is everyones bank and does not only serve corporate customers. To extending and
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targeting research to improve bank earnings, through customer focus of banks commercial and corporate branches, and by enhanced efforts towards the development of human capital, the bank shall very soon transform from a bureaucratic organization to a fast paced, modern, and competitive bank. In conclusion, the National Bank of Pakistan have the vision, which will enable it to achieve even better results, safeguard the interest of their customers and to assist them in their march towards progress and prosperity in future. The National Bank of Pakistan is 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 NBPs current management has boarder vision. They have taken steps to improve customer services, streamline internal procedure and creating a delectating climate for technology initiative. Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. For instance to achieve objectives NBP have taken following measures. Setting of target for of making at least 300 branches country wide on line. Closing of all those branches, which are burden on NBP. Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager.

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Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring.

To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal system.

The actions taken by current management provide a great opportunity for NBP for making it future prosper and can make NBP not less than any modern commercialize bank in Pakistan. The Management of NBP assess that the Internal Control environment is showing signs of improvement as compared to previous years in all areas of the bank. The bank is endeavoring to further refine its internal control design and assessment process as per guidelines issued by the State Bank of Pakistan Accordingly, Bank is making all possible effort to improve the professional skills and competency level of the staff through need based training programs and our valued customers for their support and continued confidence in NBP.

18. Short falls/ Weaknesses of National Bank of Pakistan

The National Bank of Pakistans Advance salary, which has long been the flagship product for NBP, is replete with charges of corruption, default and inefficiency.

The National Bank of Pakistans huge number of borrowers is untraceable or correct whereabouts are not known.

The housing finance product of NBP lacks proper infrastructure including database support even after five years of post launch history. The similar products launched by other commercial banks are much smaller in size are
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running on well-articulated systems and are backed by proper policies and guidelines. The NBP product, despite boasting a sizeable portfolio built around some reckless selling, is mostly infected.

The NBP Karobar scheme is designed around Presidents Rozgar scheme. The scheme which had all the potential to become a landmark was so badly mishandled by National Bank of Pakistan.

The Quality of infrastructure added by National Bank of Pakistan during the last few years is quite substandard as compared to that of peer banks.

In NBPs five year strategic plan 2007-2011 approved by board of directors does not address any serious thinking on Productivity improvement and benchmarking with the competition. Development required for serving major sectors of the economy. Infrastructure to support planned growth and vision. Inducting and leveraging specialized human capital. Bringing the institution on international banking landscape in the coming five years, not to speak of the seven years which the current management has already served.

As for as public interest is concerned there were no service standards benchmarks and guidelines available in NBP. There were only old documents that were crafted at least a decade or more back.

Due to poor planning the bank had book losses of over 1.2 billion rupees in the Karobar Scheme.

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The National Bank of Pakistans outsourced employees (2350) was obtained from a single source. Most of these are performing the core function of the bank outside their assigned duties without any training and supervision.

The National Bank of Pakistan is incurred large expenses in running those branches, which are not producing any income.

The up gradation of human resource is very slow in NBP. The branches of NBP have less number of employees as their requirements. The concept of One Man Show is adopted in many branches to save salary expenditure; even most of the branches use their security guards for various tasks. The one reason for this is that the senior management is able to decrease salary expenditure of the bank, which result an increase in the net profit. For their performance they received handsome amounts of bonus. But in long run it has a negative effect on banks productivity.

The pensions distribution service or payments to EOBI beneficiaries, utility payments; workers remittances are occupied lowest priority level.

In NBP Karobar scheme the product selected by the NBP is of inferior quality and develops faults in the first few months of delivery.

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RECOMMENDATIONS
The National bank of Pakistan should be fully prepared in its management of financial crises and its business continuity planning, within the standing committee framework, and should work with others to strengthen national crises management preparations. The bank should improve the quality of training of its employees and the integrity, controls and efficiency of its systems, processes and financial reporting. The bank should improve its recruitment, retention and development and to reform the Banks pension scheme. The bank should renegotiate the Banks long term financial framework and to overhaul the Banks financial system. The Bank should improve IT capability in the analytical areas and to develop a medium term strategy for banking and market operations. The National bank of Pakistan should monitor the impact of its operations on the environment, which is mainly through the use of power and the generation of waste.

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NBP, being the only lending arm to the government for public sector development should design, develop and deliver product and services for economic growth.

The bank should provide support to the Micro, Small and Medium enterprises thereby reducing unemployment and helping to create a more equitable distribution of wealth.

CONCLUSION
The National Bank of Pakistan plays a key role in the strategic national development. The bank has historically been the financial arm of the government and has enjoyed the blessings of state support in the form of huge public sector funds and deposits. In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP. In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP. The current management of National Bank of Pakistan was hired purely for their international experience, business orientation to turn around a purely public institution into a sustainable and commercially viable bank serving public interest along the lines of a large modern commercial bank.

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The National Bank of Pakistan has effective budgeting system in place. Annual budget of the bank is approved by the Board and monthly comparisons of actual results with the budget are prepared and reviewed by the senior management. The National Bank of Pakistan has a comprehensive framework of written policies and procedures on all major areas of operations such as Credit, Treasury Operations, Finance, Internal audit and Compliance approved by the Board.

References

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http.//www.nbp.com.pk/Aamdani/index.htm http.//www.nbp.com.pk/Premium/index.htm http.//www.nbp.com.pk/advancesalary/index.htm http.//www.nbp.com.pk/CashnGold/index.htm http.//www.nbp.com.pk/StudentLoan/index.htm http.//www.nbp.com.pk/EcomomicBulletin/FS-Complete.pdf NBP Annual Report 2009 NBP Annual Report 2010

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