INTERNSHIP REPORT

Specialization:
Submitted To:

Banking and Finance

Chairman

Department of Business Administration

Submitted By:

Name: Roll No:

Adnan Umar AD514963 09-PLR-08174

Registration No: Mailing Address:

9, Weavers Faisalabad.

P No#76,77/B, Street # colony No# 1, G.M Abad,

Contact No:

03457770037 / 03137711137

Date of submission: 10.11.2011

DEPARTMENT OF BUSINESS ADMINISTRATION

ALLAMA IQBAL OPEN UNIVERSITY ISLAMABAD

Acknowledgement

ACKNOWLEDGEMENT
All praise is for ALLAH, the most merciful and his Prophet Muhammad (P.B.U.H) for every torch of guidance and knowledge for humanity. I offer humblest and sincerest words of thanks to GOD Almighty WHO blessed me with potential and ability to make material contribution to already existing ocean of knowledge. I would like to convey my cordial thanks to my father Mr. Umar Hayat and my family who help and guidance I am enabling to acquire knowledge and get a respectable position in the society. They always appreciated and prayed for my success in life. I am also very much thankful to my admirable teacher Mr. Ejaz Baig as well extremely thankful to all my other honorable teachers. Their dedication and guidance to complete my studies with their utmost devotion and professional commitment is superb and sublime. It would not be fair if I don't express my profound gratitude to National Bank of Pakistan, Ghulam Muhammad Abad Branch Faisalabad for providing me proper assistance to get some practical experience of Financial Analysis. Brief interaction with National bank was a great opportunity for me to understand practical aspects of business in general and Finance in particular. I hope this report will be according to the requirements and will help the reader to understand the various aspects of National Bank of Pakistan.

Adnan Umar

Table of Contents

TABLE OF CONTENTS
Ch. No 1 2 2.1 2.2 2.3 2.4 2.5 3 4 4.1 4.2 4.3 4.4 4.5 4.6 4.7 5 6 6.1 6.2 6.3 6.4 6.5 6.6 6.7 7 8 9 10 11

Topics
Objectives of Studying the Organization Overview of the Organization National Bank Brief History Nature of the Organization Business Volume Number of employees Product line Review of Various Departments Structure and Functions of the Accounts Departments Structure of Account Department Accounting Procedure in NBP Role of Financial Manager Electronic Data in Decision Making Sources of Fund for last Latest Five years Generation of Fund for last Latest Five years Allocation of Funds for last Latest Five years Critical Analysis of the theoretical concepts relating to practical Financial Analysis experience Five Latest years Latest Balance Sheets Five Last year latest Income Statements Ratio Analysis for last Latest five years Horizontal Analysis of Balance Sheet Horizontal Analysis of Income statement Vertical Analysis of Balance Sheet Vertical Analysis of Income statement Compare the Organization with its Competitors Future prospects of the National bank of Pakistan SWOT Analysis Conclusion RECOMMENATIONS

P. No 01 03 04 06 06 06 07 21 26 27 32 32 33 35 36 38 39 41 42 44 47 63 66 70 72 74 78 80 84 87

References Annexes

91 93

List of Tables

List of TABLES
Sr. No. 1 2 3 4 5 6 7 8 9

Table Name
Business Volume Number of Employees Balance Sheets Income Statements Horizontal Analysis of Balance Sheets Horizontal Analysis of Income Statements Vertical Analysis of Balance Sheets Vertical Analysis of Income Statements Compare the Organization with its Competitors

Page No.

06 06 42 44 63 66 70 72 74

OBJECTIVES OF STUDYING ORGANIZATION

Chapter No. 1

OBJECTIVES OF STUDYING ORGANIZATION

The objectives of internship are to learn the existing accounting and finance practices being followed in the bank. The main objectives are given as under: 1. To understand financial system of banking. 2. To understand role of banking sector in financial system of country. 3. I want to get job in bank so I select bank for studying. 4. To understand the application of theoretical knowledge in practical life. 5. To understand application of Prudential Regulation issued by SBP. 6. To study the accounting and financial internal control system of National Bank of Pakistan. 7. To attain specialization in banking and finance. 8. To review its appraisal and auditing system. 9. To be a part of a competitive environment and enhances my skills. 10. To analyze the financial system and financial reports. 11. To printout/identify problems, opportunities and providing recommendation there on. 12. To study the role of National bank of Pakistan in banking Sector of Pakistan. 13. To get the thorough knowledge of different credits offered by bank. To develop understanding of finance and accounting function integrated, National Bank of Pakistan is an organization, which can help a student to learn finance and accounting practices in a system fully equipped with latest technology to cater for the needs of present business environment.

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Overview of National Bank of Pakistan

11

Chapter No. 2

Overview of National Bank of Pakistan

2.1: BRIEF HISTORY National Bank of Pakistan is the premier commercial Bank of the country. National Bank of Pakistan was established under the National Bank of Pakistan Ordinance 1949 and is listed on all the stock exchanges in Pakistan. Its registered and head office is situated at I.I. Chundrigar road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan (GOP) as agent to State Bank of Pakistan (SBP). National Bank of Pakistan has built an extensive branch network with 1289 branches in Pakistan and operates in major business centre abroad. The Bank has representative offices in Beijing , Tashkent , Chicago and Toronto .Under a Trust Deed, the bank also provides services as trustee to National Bank of Pakistan investment Trust (NIT) including safe custody of securities on behalf of NIT. At the time of independence in 1947, Government of Pakistan decided that Reserve Bank of India would act as the common monetary authority of both countries up to September, 1948. But this arrangement did not worked due to certain reasons. In October 1947, there was fighting in Kashmir and India refused to pay the share of Pakistan amounting Rs.550 million. Due to Indian government attitude and role of Reserve Bank of India in creating problems to cater to the banking needs of Pakistan. Government of Pakistan established its own central bank SBP on 1st July 1948. Soon after independence of Pakistan, most of our foreign trade was with India and Britain. Britain and other countries of Commonwealth devaluated their currencies. India also followed Britain and devalued her currency. They were also compelling Pakistan to do so. But the Government of Pakistan felt that devaluation of currency was not in the interest of the country, so GOP refused to follow instructions of Commonwealth countries. It resulted in a very serious situation. Stocks of jute in East Pakistan and that of cotton in West Pakistan were accumulating. At that time to rescue the economy of the country, the Government of Pakistan established National Bank of Pakistan under National Bank of Pakistan Ordinance 1949. NBP acted promptly and advanced loans to the farmers. National Bank of Pakistan was set up with authorized and paid-up share capital of Rs.30

12

(M). The government held 75% of shareholding and remaining 25% of the share capital was held by the private sector. In 1952 NBP replaced Imperial Bank of India. This arrangement was negotiated by Mr. Mumtaz Hassan as Acting Governor of SBP. In 1962 when Mr. Mumtaz Hassan became MD (He had already served NBP for 10 years as its Chairman or Government Director), at that time NBPs branches were increased from 6 to 239 and deposits from Rs.5 core (50 million) to 106 core (1 billion & 60 million), profit from 0.3 million (3 lac) to 21 million (2.1 core) and the staff increased from 380 to 7091 as compared to year 1949-50. In December, 1966 its 600th branches was opened raising the deposits to 2.31 billion and staff to 14, 963. Upto 1965, the shareholders had received 225% of their original investment. In 1974 during the era of nationalization, different small banks including Bank of Bahawalpur were merged in National Bank of Pakistan. In addition to this Bank of Mehran and NDFC were merged in it. 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. National Bank has earned recognition and numerous awards internationally. It has been the recipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The Banker Magazine, the Best Foreign Exchange Bank Pakistan for 2004, 2005, 2006 and 2007, Global Finance, Worlds Best Foreign Exchange Bank 2008 awarded by worlds leading financial journal Global Finance and Bank of the Year awarded for the year 2010 by the world renowned. The Banker magazine owned by the Financial Times Group, London, Global Finance, Kissan Time Awards 2005 for NBP's services in the agriculture field. It is listed amongst the Region's largest banks and also amongst the largest banks in South Asia 2005, The Asian Banker. It has also been presented a Recognition Award 2004 for having a Gender Sensitive Management by WEBCOP AASHA besides other awards.

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2.2: NATURE OF THE ORGANIZATION National Bank of Pakistan maintains its position as Pakistan's premier bank, determined to set higher standards of achievements. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GOP) as an agent to the State Bank of Pakistan. Under trust deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. 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 1250 branches. 2.3: BUSINESS VOLUME 2006 Revenue Deposits Advances Investments
43,789 501,907 316,110 139,947

(Rs. In Million) 2007

50,569 591,907 340,319 211,146

2008
60,943 624,939 412,987 120,822

2009
77,948 726,465 475,243 217,643

2010
88472 832,152 477,507 301,324

2.4: NUMBER OF EMPLOYEES 2006 Permanent Temporary/on contractual basis Daily wages Commission based Outsourced Total Staff at the end of the years
13,434 775 1,362

2007
11,264 2,815 -

2008
11,403 3,801 -

2009
14,796 1,452 -

2010
14,963 1,494 -

15,571

14,079

15,204

16,248

16457

Data Source: National Bank of Pakistan Annual Reports from 2006 to 2010.

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2.5: PRODUCT LINE Product and Services: National Bank of Pakistan provides the following main services to its customers: It acts like a financial intermediary between importers and exporters. Better computer system through which statement of accounts of a client Full and efficient services of foreign trade. It provides services in share of deposits, advances guarantees etc.

could be made rapidly.

Product of a bank includes all those services which a customer can use effectively in his general and business life. NBP offer a wide range of banking service to public and private sector corporations, individuals and others. However, some of these basic services which at present offered to its customers include: 1. Commercial and Retail banking 2. Corporate & investment 3. Agricultural banking 4. Islamic Banking 5. NBP Cash Card 6. Treasury Product 1) Commercial and Retail Banking: NBP has the largest retail client base in the country with one of the highest retail portfolios. The banks retail strategy focuses on its extensive branch network and leveraging the customer base. In 2009 however due to the high interest rate environment and pressure due to non performing loans, the consumer advances registered decline. Despite an ailing economy and adverse macroeconomic factors, the Commercial & Retail Banking Group (C&RBG) closed 2009 with the key performance indicators being positive. The absolute domestic deposits base increased by 22% with emphasis on growth in low 15

cost deposits. As a major initiative in this direction the bank launched CASA Deposit Mobilization Scheme in late 2009 aimed at mobilizing Current / Saving Accounts through incentivizing employees. With the increase in NPLs, the focus on recoveries has been heightened, along with prudent growth in advances. SME financing is an area of good future potential. Due to negative impact of high inflation & interest rates, power shortages, fluctuation in commodity prices and reduction in export orders, this sector suffered considerable pressure that reduced the repayment capacity of the borrowers for existing loans and also their willingness to go for fresh financing. Due to these factors SME loans registered decline. Commodity support prices were raised by the Government to provide much needed support and encouragement to the growers and as a result the loans under commodity operations witnessed robust growth during 2009 and increased by 110% and in 2010 slightly increased up to 135% just because of banking sector decline along with business sector . These loans are fully backed by GOP guarantee. Products
1. NBP Premium Saver

2. NBP Premium Aamdani 3. NBP Saibaan

4. NBP Advance Salary (Personal Loan) 5. NBP Card (ATM + Debit Card) 6. NBP Investment Certificate 7. Cash in Gold (Small Finance)

8. 9.

NBP Kisan Taqat NBP Kisan Dost

10. NBP PakRemit 11. NBP Protection Shield

12. Cash Finance (SMEF) 13. Cash Management Services

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14. Rupee traveler cheques 15. Student Loan

Cash in Gold: Under this type of loan which is granted to the borrower. The Head Cashier estimates the value of Gold or Gold ornaments through an agent (Gold smith) and keeps a margin of 40 to 50 per cent. After the opening the gold loan account a token is given to the borrower that is a bank receipt. On repayment of loan, the gold or ornaments held as security for it, together with the demand promissory note duly discharged is returned to the borrower and his receipt for the gold ornament taken in the demand loan ledger. This receipts states that the ornaments returned are complete and in order. Part delivery of ornaments is given against part payment of a loan but care is taken that the ornaments still in the banks possession fully covers the balance of the loan outstanding. The interest on gold loan is to be applied with quarterly rests. Features:
Facility of Rs. 35, 000/-against each 10 gms of net weight of Gold Ornaments

Markup Rate 15.50% P/A No maximum limit of cash Repayment after one year
Renewal facility

Weight and quality of gold to be determined by NBP's appointed schroffs

No penalty for early repayment

Required Documents: Application form Introductory reference sanction advice Valuation certificate by gold smith Insurance letter IB-12 (Promissory Note) 17

 IB-26 (Letter of Pledge) IB-6A (Agreement Form) Delivery letter(f.205) Only N.B.P. performs the function of advancing of loan against pledging gold. No other bank advance gold pledged loan. ADVANCE SALARY: This loan is given to those peoples who are permanent employees of Government, Semi Government, Autonomous bodies and receive salaries through NBP account. They can get a loan up to the salary of twenty months, no minimum income collateral or insurance charges are required and maximum loan limit is Rs.250,000. Payment period is 1 to 60 months at your choice and mark up rate is 19% p.a. Cash Finance: Under this type of credit N.B.P grant loan to its customers in cash. Under the cash credit arrangement a customer is granted an advance up to certain limit which is sanctioned by the head office, which he can draw time to time as required by him. In this case, a new cash credit account is opened in the name of customers. These are long term loans. Features: 3 Month KIBOR + 4.25% Quarterly Payment Time Period One Year No Maximum Limit for Cash Finance Securities: Hypothecation of stock Mortgage of properties
Personal guarantees of all the partners of directors and owners of property.

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NBP Card (ATM + Debit Card): This facility provides by the NBP very efficiently, you can withdraw cash up to Rs.20,000/- per day. Automatically account balance inquiry, mini statement and NBP also provides PIN Change facility. Automated Teller Machine enables a customer to perform basic banking activities (checking balance, withdrawing or transferring funds) even when the bank is closed. A card entitling the owner to make automatic withdrawals from a bank account to make purchases or to receive cash. That is, when one uses a debit card, the issuing bank transfers funds from the holder's account to the seller electronically. The holder of a debit card may therefore use it to buy a good or service. NBP Premium Aamdani: Under this scheme you can earn up to 11.25% per year and for this return minimum amount must be Rs. 20,000/- and maximum deposit of Rs. 10,000,000/- for 5 years. This scheme is also provide the running finance facility up to 90% of deposit value and free cost services for Demand Draft, Pay Order, NBP Cash Card (ATM + Debit) and Cheque Book. It is also called monthly income scheme. Profit paid every month as follows: Year 1st 2nd 3rd 4th 5th Profit Rates (%) 11.25 11.50 11.75 12.00 12.25

NBP Karobar:

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This scheme is also called Presidents Rozgar Scheme and has been specifically designed for the low income segment of the population who are not in a position to run your business. Under this scheme you can get up to Rs. 200,000/- for tenure 1 to 5 years (for PCO 2years) and the age for gaining the loan is 18-45 years. The customer can get three months grace period facility. The mark up is 1 year KIBOR + 2% p.a (for the first year mark up will be 12%) and the customer will pay markup at 6% p.a as long as GOP provides the balance mark up to NBP on a monthly basis (rest will be borne by GOP). The customer life and disability insurance is paid by Government of Pakistan (GOP). NBP give loan for self employment in following categories: NBP Karobar Utility Store NBP Karobar Mobile Utility Store NBP Karobar Mobile General Store NBP Karobar Transport NBP Karobar PCO NBP Karobar Tele-Centre Required minimum down payment is 10% of asset and 5% for PCO and Tele-Centre. STUDENT LOAN: This scheme is especially designed for those students who are not in a position to continue their study due to finance problem and under this scheme interest free loan is give to students who have obtained 70% marks in the last public examination, age not exceeding 20 years for graduation, 30 years for post-graduation and 35 years for Ph.D at the time of admission and are unable to pursue their studies within Pakistan due to financial difficulties. Loan is granted only to those students who have been admitted to the approved under noted Affiliated Colleges /Universities selected subjects. The detail of subjects is as under:

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 Engineering Oil Gas & Petro-Chemical Technology Medicine Chemistry Mathematics DAWA and Islamic Jurisprudence (LL.B/ LL.M Sharia) Economics, Statistics and Econometrics Commerce Electronics Agriculture Physics Biology, Molecular Biology & Genetics Other Natural Sciences Computer Science/ Information System and Technology including hardware.
Business Management Sciences
ELIGIBILITY:

Under the scheme the students are eligible to apply for loans provided.

He/She has obtained admission on merit through normal course/procedure in the approved Universities/Colleges of the public sector mentioned hereunder. He/She falls at the time of admission within the age bracket of. For Graduation For Post-Graduation For Ph.D Not exceeding 21 Years Not exceeding 31 Years Not exceeding 36 Years

He/She has secured 70% marks in the last public examination. He/She has undertaken the study of the subjects given below. He/She is unable to pursue studies due to financial constraints. TYPES OF LOAN The loan facility will be available for entire duration of the study for Schedule Fee Paid directly to the

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Boarding expenses excluding meal charges

University/College

Procurement of textbooks--- Disbursed directly to the student The loan facility will be available for entire duration of the study for Institution fee and boarding expenses excluding meal charges are paid directly to Institution and the expenses of purchasing textbooks are directly paid to the student. The maximum period of repayment of loan is 10-Years from the date of disbursement of first installment .The borrower shall repay the loan in monthly installment after six months from the date of first employment or one year from the date of completion of studies, whichever is earlier. The following documents are required for processing the loan:
1) Attested copies of all Education Certificates, Domicile, Computerized NIC, and

Three Photographs. 2) A certificate from the Vice Chancellor/Principal/Registrar of concerned University Letter Head confirming date of admission and completion date of study. 3) Attested Photocopies of fee challan demanded by the Institution and Boarding expenses excluding meal expenses. 4) Four un-stamped self-addressed envelope (5 X 11) TRAVELER CHEQUES: When a traveler proceeds from one place to another he needs money at different places. The remittances explained so far will be available to the beneficiary only at a particular place, and that too all in one time; whereas the requirement of a traveler may be otherwise. National Bank of Pakistan has designed its own travelers cheques to be used in Pakistan only. For different denominations their colors are different.

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The denominations of travelers cheques provided by National Bank of Pakistan are: Rs.5, 000/-Rs.10, 000/-Rs.50, 000/-Rs.100, 000/ -The face of Traveler Cheque consists of: Signature of the purchaser, Name of the purchaser, Name of issuing office and the date of issue On the back of the cheque this can preferably be done by means of small rubber stamp. Application for the purchase of the cheque application forms is taken. The original remains with the issuing office as voucher and the duplicate is passed to the main branch of the bank where account of bank is kept. Recording: The issuance of cheque is recorded in the travelers cheque issue register .The total amount of T.C. sold is credited to the main branch of the bank and the exchange charged credited to the branch exchange account. Delivery: The travelers cheques are delivered to the purchaser in thick cardboard cover for their safety. NBP PREMIUM SAVER: Under this scheme the Profit and d Loss Saving Account (PLS) is introduce. PLS Saving account: In profit and loss saving account you can earn up to 8.50% per year and for it minimum balance should be Rs. 20,000/- and maximum balance of Rs.1,000,000/-.The Depositor will have the flexibility to withdraw a part or the whole of their balances at any time as per their requirement and there is no limit on number of deposit transactions.

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Profit calculated on monthly basis and paid on half yearly basis. The Bank will give profit to the Depositors on the basis of agreed ratio of actual profits to be announced by the Bank from time to time. In the case of financial loss, the depositors will bear the loss in proportion of their investment. The Depositors will not participate in the management of the business of the Bank other terms and conditions as well as rules for PLS Deposit Account to be advised by the Bank at the time of opening of Account. 2) Corporate and Investment: Corporate & Investment Banking Group enjoys robust relationship with premier corporate clients. The length and breadth of corporate clientele has been built on corporate strategy of providing comprehensive and customized financial solutions to corporate customers. Varied banking and investment products are offered to the corporate clients: Working capital financing Infrastructure project financing Structured and syndicated financing, Divestitures financing Financial restructuring, Mergers financing Acquisitions assignments associated financing solutions This group facilitated 122 projects and syndicate financing proposals which were mainly in financing for energy and power sectors. Advisory fee on corporate finance was a major contributor as the bank executed a number of large transactions in the energy and infrastructure projects. The bank also focused on increasing trade finance income by leveraging the banks relationship with clients. Corporate & Investment Banking Group is geared to take advantage of tremendous growth potential of corporate accounts and continued its efforts to remain a major contributor to the banks earnings. It is striving to market new clients and retain the existing relationships 24

and build market share through offering superior services, competitive pricing and wide product range to valued corporate clients. 3) Agriculture Finance: The bank aims to cater to the entire farming and non-farming agriculture business and provides finances ranging from short to long term for the production and development of crops and non-crop items for agriculture business related to packing, grading, processing, storage, marketing and exports. Pakistans rural economy has high growth potential and offers attractive opportunities. The banks product and services are offered to address the needs of both the farm and nonfarm sectors. Presently, the agriculture financing facility is offered under the product category of NBP Kisaan Dost where 30 agriculture financing schemes are offered. The importance of agriculture financing cannot be over emphasized as agriculture is key to Pakistans future. Rural banking in Pakistan is in nascent stages and deployment of technology and modern banking channels continue to be an evolving process. NBP Kisaan Dost: The Kisaan Dost Agriculture Farming Program (KDAFP) has been designed to meet credit requirements of farmers on the most convenient, flexible, easy terms and conditions. The program features:
Competitive mark-up rate 16.5% p.a

Quick & easy processing Delivery at the farmers doorstep Technical guidance to farmers Wide range of financing schemes for farmers
Finance facility up to Rs. 100,000/- for landless farmers against personal guarantee

Financing

available

against

pass

book,

residential/commercial

property, gold ornaments and paper security

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 Loan facility on revolving basis for three years (renewable on yearly basis without documentation and approval) 4) Islamic Banking: NBP is proud to expand its range of products and services to include Shariah Compliant Islamic Banking products, now available at our dedicated Islamic Banking Branches at Karachi, Lahore and Peshawar. The bank believes that Islamic Banking offers good potential for growth. The bank has opened eight (8) branches since 2007, of which three were opened in 2009. During the last two years its asset size has grown significantly with offering of market-driven products like Murabaha and Ijarah. Islamic Banking is making its mark by catering to the Banks already existing large customer-base as well as exploring new and untapped markets including SME, Commercial and Corporate. Islamic Banking is developing policies for new products like Diminishing Musharikah, Salam and Istisna to meet customers needs. The overall operations showed loss as a result of higher start up cost of three new branches opened this year. Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements: Murabaha: Murabaha may be defined as a contract between a Buyer and Seller under which the Seller discloses to the Buyer the cost of goods being sold and adds an agreed profit. Price is payable on spot or at a certain future date, in lump sum or in installments (deferred payments). Murabaha Facility: Under the MURABAHA FACILITY, the Bank will first purchase the required goods directly or through an Agent. All costs incurred on such purchases will be borne by the Bank.

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 Subsequently the Bank will sell the goods to the customer on deferred payment basis (30 days to one year) at an agreed price comprising cost of goods purchased and Bank's profit. On due date the customer will pay to the Bank the agreed price, in lump sum or as per the agreed installment schedule. Ijarah (Leasing): Ijarah means to give something on rent. The term IJARAH is analogous to the English term leasing. Firstly the Bank will purchase the Assets as required by the Customer and subsequently the assets will be leased to the Customer on the terms and conditions as agreed with him. Ijarah Facility will be offered for the following assets: Vehicles (both Commercial and Private) Office Equipment Plant and Machinery 5) ATM + Debit Card: This facility provides by the NBP very efficiently, you can withdraw cash up to Rs.20,000/- per day. Automatically account balance inquiry, mini statement and NBP also provides PIN Change facility. Automated Teller Machine enables a customer to perform basic banking activities (checking balance, withdrawing or transferring funds) even when the bank is closed. A card entitling the owner to make automatic withdrawals from a bank account to make purchases or to receive cash. That is, when one uses a debit card, the issuing bank transfers funds from the holder's account to the seller electronically. The holder of a debit card may therefore use it to buy a good or service. 6) Treasury Product:

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Pakistan Investment Bonds issued by Government of Pakistan are a preferred means for a majority of institutional investors to invest their surplus funds for a longer time horizon. This way they are able to lock a higher yield for a relatively long term rather than take the risk of re-pricing after relatively shorter time periods. Furthermore, PIBs are highly secured and risk free as they are guaranteed by the government of Pakistan. NBP is the leading Primary Dealer for PIBs primarily because of its inventory size and the appetite for such a long-term instrument given its deposit base. While most foreign / private banks would have to go to the secondary market in order to satisfy a large order from an institutional investor, NBP can execute such large orders through its own book. This means that it can offer tight prices for large amounts even under volatile market conditions.

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Review of Various Departments

29

Chapter No. 3

Review of Various Departments

VARIOUS DEPARTMENTS OF THE ORGANIZATION This Group is responsible for serving the needs of large corporate clients in public and private sector, managing correspondent banking relationships and undertaking money market transactions. The Group is organized in the following divisions: CREDIT DIVISION: The main function of this division is to make the credit policies, and also to do credit ceiling which means the max amount of credit that can be given to a certain client. This division also looks for the agricultural and small loans. It also considers the cases of right off i-e bad debts. CORPORATE CREDIT DIVISION: The major function of this division is to handle the big loans and industrial financing, I.B.R.D. It also does the evaluation of credit ceiling policy devised by the credit division. INTERNATIONAL DIVISION: This division has to look after the administration of National Bank of Pakistan outside Pakistan. It takes care of all the affairs about the advances given outside, the management of the branches of the bank outside Pakistan, the posting of employees outside Pakistan etc. RECOVERY AND LITIGATION DIVISION: This division comes into operation when recovery of advances given becomes difficult or impossible. It is the job of this division to decide whether to go court against the client or not.

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AUDIT AND INSPECTION DIVISION: The major function of this division is to carry out the inspection of rules and policies. It also inspects the books of accounts, whether they are kept rightly or not. The bank has an independent Internal Audit group that Conducts audit of all Branches Regions and Groups at Head Office ongoing basis to evaluate the efficiency and effectiveness of Internal Control System. In addition to that Compliance group is also in place with independent Compliance Officer in 119 Branches and 29 regional Compliance Chiefs with supporting staff to take care of compliance related issues to strengthen the control environment. For year 2008 the bank has made its best efforts to ensure that an effective Internal Control system continues to perform in letter and spirit. The observation made by the external auditors is reviewed and measures are taken by the management to address the internal control. It is asses that the internal Control environment is showing signs of improvement as compared to previous years in all areas of the bank. The bank 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 efforts to improve the professional skills and competency level of the staff through need based training programs Treasury Management: NBP has the largest treasury in terms of size. Its function includes liquidity, exchange and interest rate management. The Bank is a major player in the foreign exchange and money market and is a primary dealer of government securities. It has the capability to offer structured products to its customers, including derivatives. For the banking industry, the year was very volatile in terms of interest rates, varying liquidity conditions, global credit tightening, depreciation of Pak Rupee and high inflation resulting in significant movements

31

in yield curve. Treasury Management Group actively managed its portfolio and optimized yields.

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

DEVELOPMENT DIVISION: Their main job is to do human resource management. For this purpose there are staff collages in Pakistan. There are four of them. They give training to employees outside organization and also outside the country. In 1998 National Bank of Pakistan staff collages have trained about 7992 employees out of which 321 were executives 5553 officers and 1878 other staff. Outside National Bank of Pakistan they trained 128 executives, 113 officers and 2 other staff. They have their own staff and also engage faculty from Punjab University and LUMS ENGINEERING AND MAINTENANCE DIVISION: The job of this division is maintenance of buildings, construction of projects, project designing. The head of this division is an engineer who has designation of executive vice president. FINANCE AND INVESTMENT DIVISION: It looks after the accounts, investment in resources and decides where to allocate the surplus funds.

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CUSTOMER SERVICES DIVISION: The main job of this division is to manage the opening and closing of branches, Islamization policy, then there is a complaint cell where the customers make the complaints if they are not treated well. This division also accepts Hajj application. This division is very important as it directly concern the customers who are the ones to make the deposits, which the bank invests. BUSINESS PROMOTION AND MARKETING DIVISION: It concerns the marketing and selling of the policies and interest rates of National Bank of Pakistan through advertisements on television or in the papers etc. LAW DIVISION: This division consists of an executives committee and an Evaluation committee. Their job is documents evaluation and they give legal opinion to recovery and litigation division also. COMPUTER DIVISION: This division does data processing through computers and develops control systems. All these divisions perform their functions through the branches and they are located at the head office in Karachi.

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Structure and functions of accounts Deptt

35

Chapter No. 4

Structure and functions of accounts deptt.

4.1: STUCTURE OF ACCOUNT DEPARTMENT Branch Manager Mr. Asim Waseem Operational Manager Muhammad Sarfraz Arshad Incharge Account Department Mr. Assad Abbas ACCOUNTS DEPARTMENT: The main function of the accounts department of NBP is to maintain general ledger accounts and after the business hours the function of the accounts officer is to close books. FUNCTIONS There are many other important functions performed by accounts department of NBP. So I am going to discuss these functions in three steps: General Ledger Voucher system GENERAL LEDGER: It is the prime record of the branch reflecting its assets and liabilities and serves as the master control of accounting system of the branch. It consists of only those accounts, which are authorized by the head office.

36

VOUCHER SYSTEM: Voucher is a written authorization sued in approving a transaction for recording and payment. Voucher is a system, which is generally designed to provide strong internal control over the transaction, which takes place during the business hours. Whenever a transaction takes place in any department of the bank. One debit and one credit voucher is prepared. At the end of the day, these vouchers are collected and recorded i.e., Debit vouchers are used in two cases -Whenever any expense is incurred. -When a depositor withdraws some amount from his account -The account of the customer is debited with the amount and debit voucher is prepared. The format of the debit voucher includes: -Name of branch -Date -Branch No. -Account No. -Transaction Code -Amount and other details (Narration) CREDIT VOUCHERS: There are two types of transaction in which credit vouchers are used. When a depositor deposits any amount in his account because the liability of bank. Any income received by the bank e.g. bank draft. Different types of credit vouchers are used. Now in second set these three important functions of Account department of NBP are described briefly. 37

 All expenses vouchers are routed ask through Accounts Department. Preparation of various statements. Preparation daily activity report at the end of each day. EXPENSE VOUCHER All the expense vouchers passed by each department are routed through accounts department. These expenses include: Salaries given to all employees of the bank Wages Rent Lease installments Insurance - vehicle Insurance - cash Utility Bills Medical allowances (reimbursed) Cash carrying charges etc. SALARY STRUCTURE: Salary included the following: Bonuses These bonuses are credited after every six months i.e. June and December. These are first and second profit bonuses and are equal to one month's basic salary. Allowances: Allowances included house allowances, transport allowance and utility allowance.

38

Provident Fund: Provident fund is provided to each employee on his retirement. Contribution by employer and employee is 8.3%. Preparation of statements: Second major functions of accounts department are the preparation of various statements. These statements are: 1) Weekly Statements: These weekly statements are sent at first to NBP head office Karachi. 2) Monthly Statements: These monthly statements are sent at first to NBP head office Karachi and then these statements are sent to head office affairs in consolidated form. All vouchers and statements signed and approved by manager accounts or who has authority to sign on behalf of the bank and whose signatures appear in one of the banks book of specimen signatures or a person who has authority to sign internal vouchers and records extent of its authority will be made by the country manager. PREPRATION OF DAILY ACTIVITY REPORTS: It is also duty of accounts department to prepare daily activity report at the end of each day. It includes the details of the following: Loans transactions General Ledger transactions Foreign currency related transactions Fixed deposits transactions All vouchers prepared by different relative departments on computer. In third and last step the following functions of accounts department of NBP are described as follows: 39

 Approval of daily expenses voucher SBP balance Tax returns Budgeting Forward Cover Fee Debit Balance Calculation Pay order/telegraphic commission transfer Deposit entry Depreciation Result/budget Head office report Trial balance Commitment return Sources and uses Activity report Statistics of activity Monthly assets and liability Liquidity 1, 2, 3, 4, 5 years Excise duty balancing EOM/EOY Print files floppy Customer's/internal A/c statements Computer complete back up Quarterly statements size wise FCY interest reporting FCY interest checking Service Charges A/c to be dormant Letters to customers Classification of deposits 40

 List of deposits A/c opening and closing Staff loans A/c blocked and unblocked Monthly resident and non resident Zakat Calculations. 4.2: ACCOUNTING PROCEDURE IN NBP: Various departments use debit and credit voucher for recording the transactions. Accounting department receives the departmental journal from the departments to gather with all the vouchers. Verify correction of total of all into departmental entries in departmental journals. Sort vouchers into general ledger a/c order debit separately from debit for each account. From departmental journals add all debits and all credits for each general ledger account and write total for each account in relative account and extend new balances. Prove debit and credit totals to department journal total. Write total obtained from machines list for each contingent accident in general ledger and up data balances. 4.3: ROLE OF FINANCIAL MANAGER The financial manager does all financial transactions with other financial institutions: Payment of cheques Payment of demand draft Cash receive from other financial institutions Included Cheques Demand Draft

41

 Travel Cheques All these transactions done by financial manager of bank, he can receive and pay all such kind of payments with all other financial institutions. And all other transactions with any financial institutions are also done by financial manager. Lend money to other banks and also borrow money from other banks is also responsibility of financial manager in bank. Preparing the bank's annual accounts and coordinating external audit is also a direct function of the finance manager. 4.4: ELECTRONIC DATA IN DECISION MAKING Banks use different types of electronic data in decision making. Internet is the major source for collecting data. With the help of internet and intranet banks perform their lot of transactions and it make possible to do E banking. Electronic data which is most useful in decision making include D.D. System: Data related to computerized demand draft also include in decision making in banks Computerized D.D. includes electronic and hard copy demand draft. O.B.C (Outward Bill for Collection): Banks add data of cheques which is sent by bank to other banks for collection. Electronic Reports: After getting information from ATM and Emails banks make electronic reports. Such kinds of reports are very helpful in decision making.

42

Software used by Bank: Functions on Software Debit and Credit Transfer balance Account Opening Electronic Vouchers Commission Charges Cheque Book charges Closing Format (day end) Weekly Format Basic Data (monthly closing report) Monthly tax statement Zakat Deduction Enquiry Statements

43

4.5: SOURCES OF FUNDS FOR LAST FIVE YEARS

Rupees in 000

2005 Customers: Fixed deposits Savings deposits Current accounts Remunerative Current Accounts Non Remune. Financial Institutions: Remunerative deposits Non-remunerative deposits Particulars of Deposits: In Local Currency In Foreign Currency
357,033,410 106,393,192 463,426,602 38,174,088 21,604,526 80,924,830 165,513,085 54,519,134

2006

2007

2008

2009

2010

100,017,399 170,256,433 54,359,662

128,403,278 188,687,111 76,708,879

14,949,041 179,807,400 50,893,400

194,731,591 196,373,780 741,133,946

218,559,101 266,342,659 68,393,177

102,690,939

119,468,864

139,868,016

143,216,221

169,043,847

194,393,878

39,196,100 18,573,785

31,180,729 27,059,422

38,438,503 70,634,451

48,428,983 43,752,678

31,232,041 53,231,032

390,605,310 111,266,933 501,872,243

486,881,474 105,025,961 591,907,435

470,716,922 154,222,094 624,939,016

575,078,424 151,386,401 726,464,825

688,966,742 143,185,146 832,151,888

Total Deposits

Data Source: National Bank of Pakistan Annual Reports from 2006 to 2010.

44

4.6: GENERATION OF FUNDS FOR LAST FIVE YEARS INVESTMENTS Rupees in 000
2006 Fully Paid up Ordinary Shares Federal Securities Provincial Securities Foreign Securities Investment Associates Investment Ventures Investment subsidiaries in Govt. 2,090,780 79,449,271 36,513 2007 3,036,763 148,738,405 36,513 Govt. in Joint in 5,618,324 9,79,864 1,312,335 1,352,458 4,595,982 5,418,086 959,669 1,312,335 1,352,458 4,508,548 4,807,856 959,669 1,312,335 1,352,458 2,808,298 1,602,171 1,185,085 2,412,261 1,939,953 10,613,109 20,440,171 1,645,129 2,574,164 2,274,306 3,368,961 2008 4,389,715 123,203,207 2009
16,252,173

2010
19,903,410

143,304,875

200,294,506

Govt.

Debenture, Bonds, Partici. Term Certificate and Term Finance Certificates Mushkara, Foreign Currency Debts Securities and Sukuk Bonds Other/ Outside Pakistan Investments Total investment at cost Less: Provision for Diminution in value of Investment Investments provisions) (net of

7,959,446

6,454,359

17,695,681

29,914,446

61,799,389

10,698,378 114,093,351 (1253429)

8,614,636 167,708,327 (1542273)

11,175,276 180,431,772 (1173593)

4,284,602 210,279,084 (2141534)

4,363,295 298,732,672 (6,720,091)

112,839,922 (4464)

166,166,054 1707

179,258,179 (31964)

208,137,550 2355

292,012,581 6,730

Surplus/Deficit on revaluation of held for

45

Sale Securities Surplus revaluation Available for Securities on of sale

27,111,537

4,654,730

31,919,823

9,502,917

9,304,493 301,323,804

Total investments at carrying value:

139,946,995

170,822,491

211,146,038

217,642,822

Data Source: National Bank of Pakistan Annual Reports from 2006 to 2010.

46

4.7: ALLOCATION OF FUNDS FOR LAST FIVE YEARS ADVANCES Rupees in 000
2006 Loans, cash credits, running finances, etc. Bills discounted purchased and 330,945,727 17,384,518 40,213 2007 354,963,801 18,817,686 1,308,715 2008 435,142,715 22,492,752 192,562 2009 508,035,607 22,765,823 60,963 348,370,458 375,090,202 457,828,029 530,862,393 538,609,196 2010 506,703,380 31,905,816

Margin Financing /Financing in respect of continuous funding system Advances gross Less : Provision against non performing advances Net Advances

(32,260,052) 316,110,406

(34,413,102) 340,677,100

(44,841,164) 412,986,865

(55,618,962) 475,243,431

61,102,632 477,506,564

LOANS Rupees in 000

2006 Call money loans Repurchase agreement lending Purchase under resale arrangement of equity securities Letter of placements Others Total Loans 8,014,000 14,998,73 2 23,012,732 2007 2,306,676 19,157,92 4 21,464,600 2008 3,529,000 13,461,03 2 186,000 17,128,032 2009 1,153,000 18,356,17 6 174,000 19,587,176 231,846,671 2010 1,006,015 21,932,156

246,500

Data Source: National Bank of Pakistan Annual Reports from 2006 to 2010.

47

CRITICAL ANALYSIS OF PRACTICAL EXPERIENCE RELATING TO THE THEORETICAL CONCEPTS

48

Chapter No. 5

CRITICAL ANALYSIS OF PRACTICAL EXPERIENCE RELATING TO THE THEORETICAL CONCEPTS:

During our education we study many subjects but during any job applications of all these subjects are not possible. But some of them must apply in any job/ business. Organizations must follow theoretical concepts but its not possible to apply as well as. Its possible they use such concepts in their own way. So during my MBA I study 20 subjects but I observe that few of them applicable in bank like FINANCIAL MANAGEMENT, COST ACCOUNTING, INVESTMENTS, FINANCIAL ACCOUNTING, CREDIT MANAGEMENT, and BANKING LAW. Which concepts I study during my college work, I observe during my internship bank also apply these concepts. I am not saying that they apply as well as but they follow such rules and laws. For example we study about bank accounts, bank also follows such rules but they divide the features of such accounts according to their products. Theoretical concepts are relating to the rules of state bank of Pakistan and the banks also work under the SBP. Theoretical concepts about debit, credit, vouching, general entries, ledgers, financial statements have the same application in bank.

49

Financial Analysis

50

Chapter No. 6

Financial analysis
6.1: FIVE YEAR LATEST BALANCE SHEETS Rupees in 000

ASSETS:
2006 Cash and Balance with Treasury Banks Balance with other banks Lending to financial institutions Investments Advances Operating Assets fixed 78,625,227 40,641,679 23,012,732 139,946,995 316110406 9,681,974 2007 94,873,249 37,472,832 21,464,600 211,146,038 340318930 25,922,979 2008 10,6503,756 38,344,608 17,128,032 170,822,491 412,986,865 24,217,655 3,204,572 44,550,347 2009 115,827,868 28,405,564 19,587,176 217,642,822 475,243,431 25,147,192 3,062,271 59,316,438 2010 115,442,360 30,389,664 23,025,156 301,323,804 477,506,562 26,888,227 6,952,666 53,496,240

Deferred tax assets Other Assets Total Assets

27,113,698

30,994,965

635,132,711

762,193,593

817,758,326

944,232,762

1,035,024,680

51

LIABILITIES:
2006 Bills Payable Borrowings Deposits and other accounts Sub-ordinate loans Liabilities against assets subject to finance lease Deferred liabilities Other liabilities Total Liabilities tax 10,605,663 11,704,079 501,872,243 13,235 2007 7,061,902 10,815,176 591,907,435 33,554 2008 10,219,061 40,458,926 624,939,016 25,274 42,629 2009 10,621,169 45,278,138 726,464,825 2010 8,006,630 20,103,590 832,151,888 106,704

2,387,073 26,596,300 553,178,593

5,097,831 30,940,041 645,855,939

39,656,831 715,299,108 42,269,623 824,676,384

46,160,040 906,528,852

NET ASSETS

81954118

116337654

102459218

119556378

128,495,828

52

6.2: LATEST FIVE YEAR INCOME STATEMENTS Rupees in 000

2006 Mark_up/Return/Interest earned Less, Mark_up/Return/Interest expense Net markup/Interest income Provision nonperforming advances against loan and 43,788,62 8 13,634,91 2 30,153,71 6 3,075,723 2007 50,569,481 16,940,01 1 33,629,47 0 4,723,084 2008 60,942,79 8 23,884,76 8 37,058,03 0 10,593,565 2009 77,947,697 39,489,649 2010 88,472,134 45,250,476

38,458,048 11,043,469

43,221,658 7,011,046

Provision for diminution in the value of investments-net Provision against off balance sheet obligations Bad debts directly Total written off

(709,461) 5,284 2,371,546

(40,248) 39,899 4,722,735

373,249 4,000 10,970,81 4

605,629 20,237 11,669,335

2,954,678 3,965 9,969,689

Net markup / Interest income after provision

27,782,170

28,906,735

26,087,216

25,788,713

33,251,969

53

Add Non markup /Interest income:

2006 Fee, Commission & Brokerage income Dividend income Income from dealing in foreign currency Gain on sale and redemption of securities-net Un realized loss/gain on revaluation of investments Other income Total non markup/interest income 6,144,628 2,891,755 1,333,840 2007 6,781,683 3,263,246 1,042,827 2008 7,925,370 2,878,932 3,969,057 2009 8,930,391 1,920,336 3,028,165 2010 9,631,579 1,099,493 2,211,139

1,365,771

2,341,690

39,5427

4,591,894

2,512,363

(4,464)

31,964

1,707

2,355

6,730

627,618 12,162,892

147,363 13,544,845

1,245,369 16,415,862

552,216 19,025,357

2,171,336 17,632,640

39,945,062

42,451,580

45,814,070

44,814,070 50,884,609

Less Non markup/interest expenses:

Administrative expenses Other provisions / write offs Other charges Total expenses 13,443,441 (17,283) 208,327 13,634,485 14,205,911 168,027 17,141 14,391,079 18,171,198 747,521 583,361 19,502,080 22,571,470 620,780 321,647 23,513,897 26,202,577 148,026 118,887 26,469,490

Profit before tax

2,631,057

28,060,501

23,000,998

21,300,173

24,415,119

54

Less Taxation:
Current year Prior years Deferred Total Tax 8,695,598 530,652 61,981 9,288,231 8,311,500 391,497 323,731 9,026,728 1,1762,650 (4,220,242) 7,542,408 8,871,513 (4,133,282) (999,904) 3,738,327 9,835,048 (939,256) (2,043,887) 6,851,905

Profit after tax

17,022,346

19,033,773

15458590

17,561,846

17,563,214

Un-appropriated profit brought forward Transfer from surplus on revaluation of fixed assists on A/C of incremental depreciation Profit available for appropriation

19,372,523

32,074,677

45,344,188

52,456,204

60,696,510

39,007

130,456

123,934

117,738

36,394,869

51,147,457

60,933,234

70,791,984

78,377,462

55

6.3: RATIO ANALYSIS FOR THE LAST FIVE YEARS CURRENT RATIO Formula = Current Asset / Current Liabilities

Rupees in 000
2006 Current Assets Current Liabilities 119,266,906 512,477,906 2007 132,346,081 598,969,337 2008 144,848,364 635,158,077 2009 144,233,432 737,085,994 2010 145,832,024 840,158,518

Ratio

0.23:1

0.22:1

0.23:1

0.20:1

0.17:1

Interpretation: General and quick way to measure the liquidity of a firm current ratio is highly used. A relatively high current ratio is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they due and on the other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and firm wouldnt be able to pay its current liabilities in time without facing difficulties. There is large difference in the current assets and current liabilities of the bank in this assessment period and it is not a good sign for the bank at all.

56

DEBT TO EQUITY RATIO Formula = Total Debt / Share holder Equity

Rupees in 000

2006 Total Debt Share holder equity 553,178,593 53,044,649

2007 645,855,939 69,270,631

2008 715,299,108 81,367,002

2009 824,676,384 94,791,919

2010
906,528,852

103,762,000

Ratio

10.4:1

9.3:1

9.8:1

9.7:1

8.8:1

Interpretation: This ratio indicates the proportionate claims of owners and the outsiders against the firms assets and provides a short picture of financial position of the firm. The purpose is to get an idea of the cushion available to outsider on the liquidation of the firm. There is high ratio in 2006 and then begin to decrease from 2006 to 2010. High ratio in 2010 is a good sign for organization.

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CAPITAL ADEQUACY RATIO Formula = Total eligible regulatory capital/ Total Risk Weighted Assets Rupees in 000

2006 Total eligible regulatory capital Total risk weighted assets 68,258,037

2007 92,905,004

2008 90,222,627

2009 107,781,74 0

2010 115,025,272

413,634,331

462,360,580

543,214,422

625,211,356 667,501,605

Ratio

17%

20%

17%

17.24%

17.23%

Interpretation: Risk weighted assets to capital ratio, calculated in accordance with the State Bank of Pakistans guideline instructions on capital adequacy and the ratio increase from 2006 to 2007 and then decrease in 2008 and again increases from 2009 to 2010.

58

INTEREST COVERAGE RATIO Formula = Earning before Interest and Tax / Interest Expense

Rupees in 000
2006 Earning Interest expense 39,945,062
13,634,485

2007 42,451,580
14,391,079

2008 45,814,070
19,502,080

2009 44,965,545
23,513,897

2010 51,653,038
27,030,751

Ratio

2.9:1

2.9:1

2.3:1

1.9:1

1.9:1

Interpretation: Interest coverage ratio indicates a company's capacity to meet interest payments and indicates weather the business has earned sufficient profit to pay periodically the interest amount. A high ratio secure and assure the lender a regular and periodical interest income but the weakness of the ratio may create some problems to the financial manage in raising funds from dent sources. Interest Coverage Ratio is high in 2006 and 2007 it good singe for the bank and the other period ratio are low but 2010 ratio is also low, it is not good sing for bank.

59

DEBT TO ASSETS RATIO Formula = Total Debt / Total Assets Rupees in 000

2006 Total debt Total assets 553,178,593 635,132,711

2007 645,855,939 762,193,593

2008 715,299,108 817,758,326

2009 824,676,384 944,232,762

2010
906,528,852 1,035,024,680

Ratio

0.87:1

0.85:1

0.88:1

0.87:1

0.88:1

Interpretation: This ratio is used to get information about without jeopardizing the interest of creditors the company's ability to absorb asset reductions arising from losses. Debt to Assets ratio almost same and less then 1 throughout evaluation period and in 2010 it is also favorable.

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Profitability to Investment Ratio Formula =Net Profit after Tax / Investment

Rupees in 000
2006 Net profit after tax Investment 17,022,346 139,947,00 0 2007 19,033,773 211,146,000 2008 15,458,590 170,822,000 2009 17,450,811 217,643,000 2010 17,809,304 301,324,000

Ratio

0.12:1

0.09:1

0.09:1

0.08:1

0.06:1

Interpretation: Profit regarding investment shows what a organization have to invest and what they gain as a reward of their investment. Investment interest earning capacity in 2006 is extremely very good and then constant in 2007 and 2008 after this a declining trend we can see on ward from 2009 to 2010.

61

RETURN ON INVESTMENT Formula = Net Profit after Tax/ Total Assets Rupees in 000

2006 Net profit after tax Total assets 17,022,346 635,132,711

2007 19,033,773 762,193,593

2008 15,458,590 817,758,326

2009 18,211,846 944,232,762

2010 17,738,405
1,035,024,680

Ratio

0.027:1

0.025:1

0.019:1

0.019:1

0.17:1

Interpretation: Return on investment ratio measures the income earned on the invested capital. As the primary objective of business is to maximize its earnings (Profit) , this ratio indicates the extent and the ability of firms assets production in which this primary objective of business is being achieved. The Ratio of return on investment is the same and good in 2006 but a very vast decline is shown onward form 2007 to 2010.

62

ASSETS TURN OVER RATIO Formula = Total Earning / Total Assets

Rupees in 000
2006 Total earning Total assets 26,311,000 635,132,711 2007 28,061,000 762,193,593 2008 23,001,000 817,758,326 2009 21,300,000 944,232,762 2010 24,415,000
1,035,024,680

Ratio

0.41:1

0.37:1

0.28:1

0.022:1

0.024:1

Interpretation: Measuring the activity of the assets and the ability of the business to generate sales (Production) through the use of the assets. The ratio is good in 2006 and in 2007, 2008, 2009 and 2010 slightly decreases because earning capacity against assets decreases due to recession in financial economy of the whole world.

63

LOANS TO TOTAL ASSETS RATIO Formula = Total Loans / Total Assets Rupees in 000

2006
Total loans Total assets
23,012,732 635,132,711

2007
21,464,600 762,193,593

2008
17,128,032 817,758,326

2009
19,587,176 944,232,762

2010
231,846,671 1,035,024,680

Ratio

0.04:1

0.03:1

0.02:1

0.02:1

0.22:1

Interpretation: Loan to total assets ratio indicates the empirical relation between loan and assets acquired by the bank. Lower the ratio is better for the institution. The loan to assets ratios are fluctuate in the whole period, in 2006 increase, in 2007 return back and in 2008,2009 ratios are same and against increases in 2010.

64

INTEREST EXPENSE TO INTEREST INCOME RATIO Formula = Interest Expense / Interest Income Rupees in 000

2006 Interest expense Interest income 13,634,912 43,788,628

2007 16,940,011 50,569,481

2008 23,884,768 60,942,798

2009 21,198,842 44,965,545

2010 24,622,287 51,653,038

Ratio

0.31:1

0.33:1

0.39:1

0.47:1

0.48:1

Interpretation: Interest expense to interest income ratio tells about how much expenses are occurred against the income and the result of low ratio is in favor of the bank. Interest Expense to income ratio constantly increases in the whole period of 2006 to 2010. The 2006 and 2007 ratio is better because in this ratio expense are less than all other period and the ratio of 2010 is not better because in this ratio expenses is greater as compare to their interest income.

65

MARK UP TO NON MARK UP INCOME RATIO Formula = Mark up Income / Non Mark up income Rupees in 000

2006 Mark up income Non mark up income 43,788,628 12,162,892

2007 50,569,481 13,544,845

2008 60,942,798 16,415,862

2009 77,947,697 19,109,332

2010 88,472,134 18,150,883

Ratio

3.6:1

3.7:1

3.7:1

4.1:1

4.9:1

Interpretation: Markup to Non Markup income ratio increase constantly from 2006 to 2010. The changing percentages are high in 2009 and 2010. The big ratio in the whole period is 2010 ratio 4.9:1.

66

MARK UP EXPENSE TO MARK UP INCOME RATIO Formula = Mark Up Expense / Mark Up Income Rupees in 000

2006 Mark up expense Mark up income 13,634,912 43,788,628

2007 16,940,011 50,569,481

2008 23,884,768 60,942,798

2009 40,489,649 77,947,697

2010 45,250,476 88,472,134

Ratio

0.31:1

0.34:1

0.39:1

0.46:1

0.51:1

Interpretation: Mark up to Non Markup expense ratio show the ability to recover a firms expenses form their earning which good in 2006 after 2006 it is slightly increases from 2007 to 2010 and the ratio increase in 2010 are high from previous period which is a very good sign for banks.

67

NON MARK UP EXPENSE TO NON MARK UP INCOME RATIO Formula = Non Mark Up Expense / Non Mark Up Income

Rupees in 000
2006 13,634,485 12,162,892 2007 14,391,079 13,544,845 2008 19,502,080 16,415,862 2009 23,513,897 19,025,357 2010 26,469,490 17,632,640

Non mark up expense Non mark up income

Ratio

1.12:1

1.06:1

1.19:1

1.24:1

1.50:1

Interpretation: This ratio show the relation between Non mark up expense and Non mark up income that how much expenses are occurred against the income. Non Mark up expense to non mark up ratio is decrease from 2006 to 2007 but in 2008 it once again increase up to 2010 which is not good for bank.

68

ADMIN EXPENSE TO TOTAL MARKUP RATIO Formula = Admin Expense/ Markup Income Rupees in 000

2006 Admin expense Markup income 13,443,441 43,788,628

2007 14,205,911 50,569,481

2008 18,171,198 60,942,798

2009 22,571,470 77,947,697

2010 26,202,577 88,472,134

Ratio

0.31:1

0.28:1

0.30:1

0.29:1

0.30:1

Interpretation: Admin expense to markup income ratio is decrease from 2006 to 2007, increase in 2008 and then decrease in 2009 and again increases in 2010. The ratio of 2007 is better because the ratio of that year is low from all other year ratios.

69

RETURN ON EQUITY (ROE) Formula = Net Profit after Tax / Share Holder Equity

Rupees in 000
2006 Net profit after tax Share holder equity 17,022 53,0445 2007 19,034 69,271 2008 15,459 81,367 2009 18,212 94,792 2010 17,563 103,762

Ratio

0.320:1

0.275:1

0.190:1

0.184:1

0.169:1

Interpretation: As the primary objective to business is to maximize its earnings/ profit, this ratio indicates the extent to which this primary objective to business is being achieved. As this ratio reveals how well the resources of a firm are being used, high the ratio, better are the results. Return on equity ratio constantly decrease in the whole period of 2006 to 2010. In first two years the change is very slightly but a very vast decline in 2008. This is due to very small profit in 2008.

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EARNING PER SHARE Formula =Net Profit after Tax / Total No. of Shares Rupees in 000

2006 Net profit after tax Total no. of shares 17,022,346 1,345,640

2007 19,033,773 1,345,143

2008 15,458,590 1,345,395

2009 17,450,811

2010 17,809,304 1,345,463

1,345,463

Ratio

12.65:1

14.15:1

11.49:1

13.24:1

12.97:1

Interpretation: Earnings per Share ratio are very small and greater then 1. It is 12.65 in 2006 and then in 2007 increases which is very good then large decline in 2008 then again increases in 2009 and again slightly decreases in 2010.

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6.4: HORIZONTAL ANALYSIS OF THE BALANCE SHEET FOR THE LAST FIVE YEARS
2007 Assets Cash and Balance with Treasury Banks Balance with other banks Lending to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other Assets 125% 112% 107% 150% 194% 106% 108% 125% 112% 106% 143% 200% 105% 100% 109% 124% 110% 106% 145% 199% 105% 100% 110% 124% 110% 106% 151% 195% 105% 101% 109% 2008 2009 2010

Total Assets

902%

1000%

999%

1001%

2007

2008

2009

2010

Liabilities:
Bills payable Borrowings Deposits and other accounts Sun-ordinate loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 102% 104% 281% 100% 102% 109% 103% 108% 277% 100% 110% 102% 107% 278% 100% 109% 102% 104% 282% 100% 109%

Total liabilities

798%

698%

696%

697%

Net assets

104%

302%

303%

304%

72

HORIZONTAL ANALYSIS OF BALANCE SHEET The purpose of Horizontal Analysis of Balance Sheet for the last five years 2006 to 2010. I selected 2006 as a base year and evaluate assets and liabilities of all other four years on the base of 2006 and compare all this period. Cash and Balance with Treasury Banks, 112% in 2006 and then increase 125% in 2007 the again same in 2008 then slightly decrease up to 124% and in 2009 and then constant 124% in 2010. Balance with other banks go up from 2006 to 2007 with 107%, 112% and then constant in 2008 then slightly decreased up to 110% and constant respectively in 2009 and 2010 but the 2010 increasing ratio is minimum from all previous years. Lending to financial institutions increase in 2006 and 2007 by 104% to 107% respectively but after this it is slightly decreases in 2008 by 106% and then constant this result up to 2010. Investments repeatedly increase with 122% in 2006, 150% in 2007, 143% in 2008, 145% in 2009 and 151% in 2010 as compare to 2006. Advances of the organization continually grow in whole evaluation period, if we compare it with base year 149% in 2006, growth in 194% in 2007, and 200% expansion in 2008, and 199% in 2009 then 195% in 2010 but a high growth of 200% in 2008. Operating fixed assets also grow from 102% in 2006 and 106% in 2007 and then 105% constant from 2008 to 2010. There is a growth every year as compare to their base year 2006 but a great growth is take place in 2007 in five year period. Other Assets also increase constantly in evaluation period, 104% in 2006 then increase in 2007 by 108%, 109% in 2008, 110% in 2009 and 109% slightly decrease in 2010 but a big change in 2009 of 110% as compare to 2006 in five year period. This continuity in expansion is due to enlarge in assets of organization every year. Total Assets of the organization are also continually rise from base year 2006 to final year 2010 it is 800% in 2006, then constantly increases by 902% in 2007, 1000% in 2008, 999% in 2009 and 1001% in 2010 as compare to 2006. Bills Payable is the first item of liability side, and it fluctuates during its growth. 101% In 2006, 102% in 2007 with increase then 103% in 2008, 102% in both 2009 and 2010 it increases in 2007 and 2008. Borrowings capacity of the organization in the selected period increase continually such as 102% in 2006, 104% in 2007, 108% in 2008, 107% in 2009 and 104% in 2010 as compare to 2006 year 2007 and 2008 are high growth years and 73

growth again decreases in 2009 and 2010 slightly. Deposits and other accounts regularly rise with the passage of time, 190% in 2006 then increases by 281% in 2007, 277% in 2008, 278% in 2009 and 282% growth in 2010 as compare to base year. Liabilities against assets subject to finance lease are constant by 100% from 2006 to 2010 as compare to base year 2006. Deferred tax liabilities is 101% in 2006 and also increase 102% in 2008 as compare to base year 2006. Other liabilities are 104% in 2006 then gradually increases, 109% in 2007, 110% in 2008, 109% in 2009 and 109% in 2010 as evaluate to 2006 that is selected as base year. Total Liability side of the balance sheet also go up continually, 698%, 798%, 698%, 696%, 697% from 2006 to 2010 on the behalf of base year 2006. Net Assets ( Total assets Total liabilities) are also continually grow up as compare to base year,102%, 104%, 302%, 303% and 304% growth from 2006 to 2010.

74

6.5: HORIZONTAL ANALYSIS OF INCOME FOR THE LAST FIVE YEARS

2007 Mark-up/Return/Interest earned Less Mark-up/Return/Interest expense Net markup/Interest income Provision against nonperforming loan and advances Provision for diminution in the value of investments-net Provision against off balance sheet obligations Bad debts written off directly 0.97% 0.4% 0.2% 0.4% (20%) (22%) (24%) (49%) 151% 49% 102% 180% 2008 148% 52%% 96% 178% 2009 142% 58% 84% 176% 2010 143% 57% 85% 152%

Net markup / Interest income after provision

262%

252%

236%

189%

Add Non markup /Interest income

2006 Fee, Commission & Brokerage income Dividend income Income from dealing in foreign currency Gain on sale and redemption of securitiesnet Un realized loss/gain on revaluation of investments Other income 50% 23% 10% 11% (0.50%) 5% 2007 100% 48% 18% 28% (0.30%) 6% 2008 98% 40% 35% 14% (0.40%) 13% 2009 97% 34% 27% 35% (0.44%) 8% 2010 105% 24% 24% 26% (0.70%) 18%

Total non markup/interest income

98.5%

199.7% 199.6% 200.5% 196.3%

Total Income Less Non markup/interest expenses:

216.5% 461.7% 451.6% 436.5% 385.3%

75

2006 Administrative expenses Other provisions / write offs Other charges Total expenses 99% -1% 2% 100%

2007 197% 1.25% 2% 196.25%

2008 191% 4% 5% 200%

2009 195% 3% 3% 201%

2010 194% 1% 2% 197%

Profit before tax Less Taxation

116.5%

265.4%

251.6%

235.5%

188.3%

2006 Current year Prior years Deferred 83% 6% (20%)

2007 185% (16%) (23%)

2008 167% (29%) (27%)

2009 157% (35%) (22%)

2010 168% (32%) (27%)

Total Tax

69%

146%

111%

100%

109%

Profit after tax

48%

120%

141%

135%

79%

HORIZONTAL ANALYSIS OF INCOME STATEMENT

76

For the purpose of Horizontal Analysis of Income Statement for the last five years 2006 to 2010. I select 2006 as a base year and evaluate incomes and expenditures of all other four years on the base of 2006 and compare all this period. Markup Earned of the bank is fluctuate in the whole period, it is 77% in 2006 then increase 151% in 2007, 148% in 2008, 142% in 2009 and 143% in 2010 as compare to base year 2006. Markup Expense gradually increase in evaluation period, thus 23% in 2006 then increase 49% in 2007, 52% in 2008, 58% in 2009 and then 57% in 2010. This expense increase gradually due to increase in deposits of the bank every year. Net Markup also rises constantly due to rise in markup income and it is 54% in 2006 and growth up to 102% in 2007, 96% in 2008 and 84% in 2009 and 85% in 2010 as compare to 2006. Provision against nonperforming loan and advances rapidly increase from base year 2006 to final year 2010. It rise 81%, 180%, 178%, 176% and then 152% from 2006 to 2010. Provision for diminution in the value of investment are 18%% in 2006, 20% in 2007, 22% in 2008, 24% in 2009and 49% in 2010 as compare to base year 2006. Bad debts written off directly are 0.14% in 2006 and increased 0.97% in 2007. Net Markup after Provision fluctuate in evaluation period it is 118% in 2006 and then grow by 262% in 2007, 252% increase in 2008 , 236% increase in 2009 and 189% in 2010 as compare to base year on base of 2006..Non Markup Income, include Fee or Commission gradually rise with 50%, 100%, 98%, 97% and 105% from 2006 to 2010 on the base of 2006. Divident income is 23% in 2006 and after this it is increased 48% in 2007, 40% in 2008, 34% in 2009 and 24% in 2010 on the base of 2006. Income from Foreign Currency is 10% as well grow gradually 18% in 2007, 35% in 2008, 27% in 2009 and 24% in 2010 as compare to base year 2006. Gain on sale of

77

investment is increased is 11% in 2006, 28% in 2007, 14% in 2008, 14% in 2009, 35% in 2009 and 26% in 2010 in the whole period from the base year 2006 a growth trend is exist. Other Income are 5% in 2006, 6% in 2007, 13% in 2008, 8% in 2009 and 18% in 2010 from 2006 to 2010 on the base of 2006. After addition of all these income 216.5% in 2006 then increase by 461.7% in 2007, 451.6% in 2008 and 436.5% in 2009 and 385.3% in 2010. .Non Markup Expense include Administrative Expenses are 99%, 197%, 1191%, 195% and 194% from 2006 to 2010 on the base year 2006. Other Charges expense make a big difference as compare to base year 2%, 2%, 5%, 3% and 2% from 2006 to 2010 fluctuate. Profit before Tax is 116.5% in 2006 and then rise in start 265.4% in 2007, 251.6% in 2008, 235.5% in 2009 and 188.3% in 2010 as compare with base year 2006. Total Tax are fluctuate with ratio 69% in 2006, 146% in 2007, 111% in 2008, 100% in 2009 and 109% in 2010 on the base year 2006. Profit after Tax increase with ratio 48% in 2006, 120% in 2007,141% in 2008, 135% in 2009 and 79% in 2010.

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6.6:

VERTICAL ANALYSIS OF BALANCE SHEET FOR THE LAST FIVE YEARS

2006 2007 2008 2009 2010

Assets
Cash and Balance with Treasury Banks Balance with other banks Lending to financial institutions Investments Advances Operating fixed assets Deferred tax assets Other Assets 4.2% 12.38% 6.40% 3.62% 22.03% 49.77% 1.52% 4.06% 12.45% 4.92% 2.82% 27.70% 44.65% 3.40% 13.02% 4.69% 2.09% 20.89% 50.50% 2.96% 0.39% 5.46% 12.27% 3.01% 2.07% 23.05% 50.33% 2.66% 0.32% 6.29% 11% 3% 2% 29% 46% 3% 1% 5%

Total Assets

100% 100% 100% 100% 100%

2006

2007

2008

2009

2010

Liabilities:
Bills payable Borrowings Deposits and other accounts Sun-ordinate loans Liabilities against assets subject to finance lease Deferred tax liabilities Other liabilities 1.92% 2.12% 90.73% 0.002% 0.43% 4.81% 1.09% 1.67% 91.65% 0.005% 0.79% 4.79% 1.43% 5.66% 87.37% 0.004% 5.54% 1.29% 5.49% 88.09% 0.005% 5.13% 0.88% 2.22% 92% 0.02% 4.88%

Total liabilities

100%

100%

100%

100%

100%

79

VERTICAL ANALYSIS OF BALANCE SHEET For the purpose of Vertical Analysis of Balance Sheet for the last five years 2006 to 2010. I evaluate assets and liabilities of the organization that how much its share includes in total. Cash and Balance with Treasury Banks have 12.38%, 12.45%, 13.02%, 12.27%, 11% share out of 100% in from 2006 to 2010 respectively. Balance with other banks have 6.40%, 4.92%, 4.69%, 3.01%, 3% shares out 100% from 2006 to 2010 respectively. Lending to financial institutions has 3.62%, 2.82%, 2.09%, 2.07%., 2% share out of 100% from 2006 to 2010 respectively. Investments have 22.03%, 27.70%, 20.89%, 23.05%, 29% shares out of 100% of total assists from 2006 to 2010 respectively. Advances have 49.77%, 44.65%, 50.50%, 50.33%, 46% shares in 100% of total assets form 2006 to 2010 respectively. Operating fixed assets have 1.52%, 3.40%, 2.96%, 2.66%, 3% shares out of 100% of total assets from 2006 to 2010 respectively. Deferred tax assets have 0.39%, 0.32% and 1% shares out of 100% of total assets and Other Assets have 4.2%, 4.06%, 5.46%, 6.29%, 5% shares out of 100% total assets from 2006 to 2010 respectively. On liability side Bills Payable has 1.92%, 1.09%, 1.43%, 1.29%, 0.88% share out of 100% total liabilities from 2006 to 2010 respectively. Borrowings has 2.12%, 1.67%, 5.66%, 5.49%, 2.22% shares out of 100% total liabilities from 2006 to 2010.The largest contribution in liabilities is Deposits and other accounts that is 90.73% in 2006, 91.65% in 2007, 87.37% in 2008, 88.09% in 2009 and 92% in 2010 out 100% of total liabilities in all five years. Sub-ordinate loans have no share in total liabilities. Liabilities against assets subject to finance lease has 0.002%, 0.005%, 0.004%, 0.005%, 0.02% share in 100% total liabilities from 2006 to 2010 respectively .Deferred tax liabilities has 0.43%, 0.79%, share out of 100% total liabilities respectively. Other liabilities have 4.81%, 4.79%, 5.54%, 5.13%, 4.88% share out of 100% total liabilities from 2006 to 2010 respectively.

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6.7:

VERTICAL ANALYSIS OF THE INCOME STATEMENT FOR THE LAST FIVE YEARS

2006 Net Mark-up/Return/ Interest earned Non markup Income Fee, Commission Dividend income Income from dealing in foreign currency Gain on sale of investments Un realized gain Other income Total non markup/interest income 70% 15.38% 7.24% 3.34% 3.42% -0.011% 1.57% 30.45%

2007 68% 15.98% 7.69% 2.46% 5.52% 0.075% 0.35% 31.91%

2008 57% 17.30% 6.28% 8.66% 0.86% 0.004% 2.72% 35.83%

2009 63% 21.01% 4.52% 7.12% 10.80% 0.006% 1.30% 44.76%

2010 66% 18.57% 2.12% 4.26% 4.84% 0.02% 4.19% 34%

Total Income 100% Less Non markup/interest expenses

Administrative expenses Other Provisions/ Write off Other charges Total expenses 2006 33.65% -0.04% 0.52% 34.13%

100%
2007 33.46% 0.40% 0.04% 33.90%

100%
2008 39.66% 1.63% 1.27% 42.57%

100%
2009 53.11% 1.46% 0.76% 55.32%

100%
2010 50.72% 0.29% 0.24% 51.25%

Profit before tax Less Taxation

Current year Prior years Deferred

65.87%

66.10%

50.21%

52.47%

48.75%

2006 21.77% 1.33% 0.16

2007 19.58% 0.92% 0.76

2008 25.67% 0 -9.21%

2009 21.70% -9.72% -2.35%

2010 28.06% -10.33% -15.98%

Total Tax

23.25%

21.26%

16.46%

9.62%

1.75%

Profit after tax

42.62%

44.84%

33.74%

42.85%

47%

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VERTICAL ANALYSIS OF INCOME STATEMENT

Vertical Analysis of the organization from 2006 to 2010. I get interest income plus noninterest income as 100 % as base and compare all other income statement figures with it I evaluate all the incomes and expenditure for all five years. Mark up earned is the main source of income and mark up expense is the main expenditure of bank. Markup are 70% in 2006, 68% in 2007, 57% in 2008, 63% in 2009 and 66% in 2010 of interest income. Total non markup income is 30.45% in 2006, 31.91% in 2007, 35.83% in 2008, 44.76% in 2009 and 34% in 2010 out of total income. So the total income is 100%. Then less non markup expenses 34.13% in 2006, 33.90% in 2007, 42.57% in 2008, 55.32% in 2009 and 51.25% in 2010. We get profit before tax 6.59% in 2006, 7% in 2006, 66% in 2007, 50% in 2008 and 52% in 2009 out of total income of bank and the total taxes of these five years are 21%,23%, 21%, 16%, and 10% from 2005 to 2009. After subtracting total tax we obtain Profit after Tax, 65.87% in 2006, 66.10% in 2007, 50.21% in 2008, 52.47% in 2009 and 48.75% in 2010 out of total revenue of bank. So the year 2007 is the maximum profit year.

82

Compare the organization with its Competitors

83

Chapter No. 7

Compare the organization with its competitors

NATIONAL BANK OF PAKISTAN VS. MUSLIM COMMERCIAL BANK LTD Rupees in 000 Particulars Assets Liabilities Profit after Tax Balance Sheet Ratios Particulars Current Ratio Debt Ratio Debt to Total Asset Ratio Profitability Ratios Particulars Profitability in Relation Investment Return on Equity Interest Coverage Ratio to National Bank of Pakistan 2009 2010
0.019:1 0.019:1 1.9:1 0.058:1 0.017:1 1.9:1

National Bank of Pakistan 2009 2010

944,232,762 824,676,384 17,561,846 1,035,024,680 906,528,852 17,563,214

Muslim Commercial Bank 2009 2010

509,223,727 439,483,714 9,215,656 567,553,000 488,349,000 16,873,000

National Bank of Pakistan 2009 2010

0.20:1 9.7:1 0.87:1 0.17:1 8.8:1 0.88:1

Muslim Commercial Bank 2009 2010

0.85:1 7.20:1 0.86:1 0.11:1 7.06:1 0.86:1

Muslim Commercial Bank 2009 2010

0.05:1 0.40:1 2.12:1 0.08:1 0.24:1 3.05:1

Data Source: Annual Reports of Banks

84

NATIONAL BANK OF PAKISTAN VS. BANK ALFALAH LTD Rupees in 000 National Bank of Pakistan 2009 Assets Liabilities Profit after Tax Balance Sheet Ratios Particulars National Bank of Pakistan 2009 Current Ratio Debt Ratio Debt to Total Asset Ratio Profitability Ratios Particulars National Bank of Pakistan 2009 Profitability in Relation to Investment Return on Equity Interest Coverage Ratio
0.019:1 0.192:1 1.9:1 0.20:1 9.7:1 0.873:1 944,232,762 824,676,384 17,561,846

Particulars

Bank Alfalah Ltd 2009

389,070,055 366,936,635 897,035

2010
1,035,024,680 906,528,852 17,563,214

2010
411,483,839 389,178,295 968,000

Bank Alfalah Ltd 2009

2.37:1 18.6:1 0.94:1

2010
0.17:1 8.8:1 0.88:1

2010
0.16:1 20.18:1 0.97:1

Bank Alfalah Ltd 2009

0.002:1 0.005:1 0.09:1

2010
0.058:1 0.017:1 1.9:1

2010
0.009:1 0.045:1 1.57:1

Data Source: Annual Reports of Banks

85

NATIONAL BANK OF PAKISTAN VS. HABIB MATROPOLITAN BANK LTD Rupees in 000 National Bank of Pakistan 2009 Assets Liabilities Profit after Tax
944,232,762 824,676,384 17,561,846

Particulars

Habib Matropolitan Bank Ltd 2009

237,158,501 218,406,844 5,838,330

2010
1,035,024,680 906,528,852 17,563,214

2010
252,130,881 231,820,564 2,809,369

Balance Sheet Ratios Particulars National Bank of Pakistan 2009 Current Ratio Debt Ratio Debt to Total Asset Ratio Profitability Ratios Particulars National Bank of Pakistan 2009 Profitability Investment in Relation to
0.019:1 0.192:1 0.95:1 0.20:1 9.7:1 0.873:1

Habib Matropolitan Bank Ltd 2009

0.22:1 11.6:1 0.92:1

2010
0.17:1 8.8:1 0.88:1

2010
0.10:1 11.06:1 0.92:1

Habib Matropolitan Bank Ltd 2009

0.02:1 0.31:1 1.16:1

2010
0.058:1 0.017:1 1.9:1

2010
0.03:1 0.14:1 1.43:1

Return on Equity Interest Coverage Ratio

Data Source: Annual Reports of Banks.

86

Future Prospects of the National Bank

87

Chapter No. 8

Future prospects of the national bank

The operating environment for banks in 2011 will be very challenging in the wake of intense competition in the pricing of asset and liability products. Effective asset liability management together with banks ability to offer improved and innovative products will play a key role in producing better results. National Bank of Pakistan has made the plane to online all the branches, providing the ATM & Western Union facility at all branches because it is necessary to compete with competitors and computerized the all system of banking which completed until 2012. NBP has plan for the expansion of its nation-wide and domestic wide branch network which is in progress. In 2011, NBP will further consolidate its corporate identity and offer to the clients a better -service and more customized products. Through this more focused approach, NBP plans to out perform the competition. NBP should be consistently focused on building long term shareholders value, as the primary objective. The strength of the brand name, supported by strategic expansion and the depth of the customer relationships, gives NBP a strong foundation on which to build and continue growing in the times ahead. The key elements of planning have been to increase market share, mobilize resources, develop retail, agriculture and Islamic banking, introduce fresh initiatives for corporate and investment banking, capitalize on new business opportunities and implement various technology initiatives.

88

SWOT Analysis

89

Chapter No. 9

swot analysis
STRENGTHS
1. The National Bank brand image is its major strength. It has always been considered as the pillar of the country's economic scenario asset wise or balance sheet wise. Its image, work force, network and reputation have created a sentimental and emotional attachment of the people with the bank. 2. National bank of Pakistan on June 30, 2010 became the first ever bank of the country to cross the One Trillion Rupee bench mark.
3. NBP total assets stand at Rs. 1,035,025 Million at the year ended December 2010. 4. NBP deposits Rs. 832,152 Million at the year ended December 2010 and increased

by Rs. 104,687 Million compared to last year 2009 at year end December 2010.
5. NBP advances registered Rs. 477,507 Million at the year ended December 2010

which are increased by Rs.2264 Million as compare to previous year 2009.

6. NBP has an extensive domestic branch network of 1289 (according to the latest

data 2010) branches located all over Pakistan. The Bank also has a presence in 18 international locations including the USA, United Kingdom, Europe and the Far East. 7. NBP is working as right arm government of Pakistan as it is responsible for all claims of government for recovery as well as payment. All depositor of NBP are in relief that their money security is guaranteed by government of Pakistan. 8. NBP organization culture was very friendly and interesting. Employees have created a very cooperative environment among each other. They have created loyalty toward the organization by deviating their future efforts and energies. The employees take the organizational problem personals and try their best for the prosperity of the organization. 9. NBP helps the government on the implementation of its industrial policies with respect to economic growth of the country.

90

WEAKNESSES
Perfection is only the claim of Allah Almighty. No other being living or dead can say this for itself. Similarly, National Bank of Pakistan also has some shortcomings that need to be mentioned: 1. It is seemed that the recovery system of NBP is not effective that's why number of defaulters are increasing at the growing age.
2. The general outlook and interior layout of branches are not as required

according to modern banking.

3. NBP is far behind in offering modern banking facility like automated

teller machines then other commercial bank in Pakistan as only eighteen branches in all over country have this facility.
4. NBP has only forty-four on line branches. While from remaining branches

data gathering is time consuming, and not fool proof. Quantum of settlement within different branches is pending because of this updating daily record is becoming very difficult. 5. Customers have to fallow long lengthy procedure for opening of account as well applying for debt. Which discourage most of the people to invest in NBP.

OPPORTUNITIES
1. The world today has become a global village because of advancement in technologies, especially in communication sector. More emphasis is now given to avail the modern technologies to better the performances. NBP can utilize the electronic banking opportunity to ensure online banking 24 hours a day. This would give the competitive edge over others.
2. NBP has advantage of generating more deposits and attracting valuable customers

due to its better image in the business community. 3. Training and Development of employees, Training and development is a good opportunity to get a competitive edge.

91

4. Offer new and innovative products to complete rest of the banks. 5. With proper planning can hunt more and more business from the public and private

sector as people still trust over it.

THREATS
If there is a threat to the whole economy, it will pose a threat for National Bank. National bank does not consider small bank a threat to its existence because the way national bank can accommodation large customer, these small banks cannot and others are: 1. Freezing of accounts by State Bank of Pakistan have also caused problems for National Bank. But the recent facts and figures indicate that the banks major rivals lime MCB and HBL are causing threats to the bank in the long run. 2. The political officials influence NBP in financing those projects which are not viable or write off those loans which are still able to pay, this political influence cause many problems in daily business thus profitability of NBP. 3. Political industrial is even a threat for NBP in the sense that once the policies and procedures are approved by government. 4. NBP's sick projects are increasing day by day due to economic downfall. As our economy is weakening day by day the no of side projects are becoming sick increasingly thus influencing the profitability even survival of NBP.

92

Conclusion

93

Chapter No. 10

CONCLUSION
NBP is the major business partner for the government of Pakistan with special emphasis on fostering Pakistans economic growth through aggressive and balance lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. In November 2009, the Bank completed its 60th year of services to the country.2010 was a milestone year for the bank as NBP became the first ever bank of the country to cross the One Trillion Rupee bench mark. Total assets of the bank were at Rs.1.035 trillion at the year end, up by 9.6% from year end 2009, an appreciable growth in a challenging economic environment. Pre-tax profit increased by 15% from Rs. 21.3 billion to Rs. 24.4 billion. The increase is owing to higher core revenues and lower provision charge. Net interest income has been increase by 15% from last year, while fee income was up by 8% on account of higher trade finance and general banking income. After tax profit, however, remained at last year level of Rs.17.6 billion due to prior years tax reversal of Rs.4.1 billion in 2009.Operating revenue increased by 8% from Rs. 56.5 billion in 2009 to Rs. 60.9 billion in 2010. Net interest income increases by 15.3% or Rs. 5.8 billion from the corresponding period last year due to higher balance sheet size and re-profiling of liability side. The banks total deposits increased by Rs. 105 billion or 14%. Investments registered a growth of 38% or Rs. 84.0 billion as the surplus liquidity was invested in Government treasury instruments. The core revenue generated from the fee business increased by 8%. Dividend income has declined by Rs. 821 million in 2010 mainly due to no dividend on NIT units as most of the units were redeemed in 2009.Provision charges against advances decreased by Rs. 4.0 billion, from Rs. 11.0 billion in 2009 to Rs.7.0 billion in 2010. The decline in provision charge against advances is due to enhanced focus on recoveries and restructuring. Earnings per share are constant in 2009 and 2010 which is Rs: 13.05. At the end of year December 2010 the employees pension fund is Rs. 22,382,345 and employees provident fund is Rs. 8,909,272. From the above discussion it is evident that the bank is progressing. Being a Nations bank it has been able to satisfy its customers with the latest technology. The expansion of the network of branches of the bank will further enable it to maintain its competitive position.

94

Recommendations

95

Chapter No. 11

RECOMMENDATIONS
NBP is an effective operating and profit making organization. But I have suggestions, which in my view can add some input for efficiency and better performance of NBP as an organization in general and city branch In Ghulam Muhammad Abad. The recommendations are as follows: INFORMATION TECHNOLOGY: This age is the age of information technology. Today the world has become a global village and the fastest mediums of communication are adopted all over the world. And it is a fact that more the latest technology and methods of work are adopted more will be the productivity. In the National Bank of Pakistan (G. M. Abad branch) there are only four computers available for carrying on the business of the bank. NBP should introduce new Software which easily use and fill up all the aspects. I suggest that the computer should be on every counter of the bank and they should be interlinked together (NETWORKING) so that various services provided by the bank can be provided in a more efficient and fast way. Validator, ATM and Western Union Facility: Validator machine is used to count the currency notes and its installation will help to eliminate to counting errors and will save time. This branch is situated in city, which is supported to be the hub of business activities. In this area an auto teller machine ATM is need of the hour businessmen can easily check their balance in the bank and also with draw their money conveniently and also provide the Western Union Facility.

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Compliance of customer: There should be an information desk to provide the information and to receive the complaints of the customer in the bank. There is no complaint box available in the branch and not any person appointed to hear the complaints. Every person cannot go to the manager for the complaints because most of the people are hesitant. So I suggest management to install a complaints box in the branch, and recruit a special person for that guidance of the customer when they are unable to manage some difficulties in banking matters. Marketing Policy: The NBP should adopt various marketing strategy and promotion strategy to promote the bank and its product. The most important in my opinion is personal marketing : it is the most effective of all when you think in term of branch level but on the whole organization level, they should arrange the seminar within the bank and outside the bank. They should introduce various prizing schemes just like Tameer Micro Finance Bank, allied bank, karamad scheme, Bank Al-Falah (monthly income earning scheme) and others They should more advertising through newspaper, media and through channel of personal contacts. To Overcome the Problem of Space and Furniture: In the critical analysis this, problem is discussed. To overcome this problem it is suggested that a special section should be made inside the branch. Which should only handle the treasure function, salaries and pensions of federal personnel or the bank should do these functions in the evening time. Also management should purchase more furniture and arrange them in such a way provides maximum space and convenient customers. Increase sitting capacity in reception area. Installation of Generator as load Shedding was a common problem during summer. Installation of good Quality Air Conditioner.

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STAFF SHORTAGE: I discussed with bank personnel and they gave their views about staff shortage. They told me that staff is very short and all the staff is overloaded with work. Thats why the staff posted in the branch has to face many problems to finish its daily work. There is huge number of people for depositing utility bills and govt. Dues at the branches, as a result of which the work of regular customer of the bank is delayed. To overcome the problem, a few banking booths at various places should be established which deals with Govt. taxes and bills. I suggest that number of staff in the branch should be increased so that they can meet their customers requirements quickly and efficiently.

Hopefully National Bank of Pakistan will compete to its competitors in the future and will provide quality services to its customers.

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References

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References

Van horne, James C. (2000). Financial Management, 13th edition. Williams, Haka, Bettner, & Carcello. (2001) Financial and managerial accounting, 14th edition.

Jones, Charles P. Investment Analysis, 9th edition. N. Khurram, (Personal communication, September, 2010). http://www.mcb.com.pk.html http://www.bankalfalah.com.pk.html http://www.hmp.com.pk.html http://www.bankalfalah.com.pk.htm Audited Financial Reports of Nationl Bank of Pakistan

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Annexures

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Organizational structure
STUCTURE OF OVERALL ORGANIZATION Board of Directors Qamar Hussain (Chairman & President)

Mr. Tariq Kirmani (Director)

Ms. Nazrat Bashir (Director)

Mrs. Haniya Shahid Naseem (Director)

Senior Management Qamar Hussain (President, NBP) Dr. Asif A. Brohi (SEVP & Group Chief, Operations Group) Asif Hassan (SEVP & Group Chief Small & Inspection Group) Amir Shehzad (SVP & Divisional Head Islamic Banking Division) Syed Iqbal Ashraf ( SEVP & Group Chief Corporate & Investment Banking Group)

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Raza Mohsin Qizilbash (EVP & Divisional Head Legal Division) Yasir Ishaq Ansari (SVP & Divisional Head Information Technoloty Division) Ziaullah Khan (SEVP & Group Chief Agriculture Finance Group) Shahid Anwar Khan (SEVP & Group Chief, Overseas Banking Group / Corporate & Investment Banking Group) Amer Siddiqui (SEVP & Group Chief, Commercial & Retail Banking Group) Dr. Mirza Abrar Baig (SEVP & Group Chief, Human Resources Management & Administration Group) Tariq Jamali (SEVP & Group Chief, Compliance Group) Khalid Bin Shaheen (SEVP & Group Chief, Global Home Remittance Management Group) Nadeem A. Ilyas (SEVP Group Chief, Assets Recovery Group & PSO to President) Muhammad Nusrat Vohra (SEVP & Group Chief, Treasury Management Group) Imam Bakhsh Baloch (SEVP & Group Chief, Audit & Inspection Group) Ekhlaq Ahmed (EVP & Secretary Board of Directors) Shafique Ahmed Khan (EVP & Divisional Head, Islamic Banking Division) Aamir Sattar (SVP & Divisional Head, Financial Control Division) Tahira Raza (EVP & Head Risk Review Division, Credit and Risk Management)

Senior Management Overseas Operations

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R.A. Kaleemi (SEVP & Chief Representative, Canada Office ) Zubair Ahmed (SEVP & Regional Chief Executive, Middle East, Africa & South Asia Region) M. Rafiq Bengali (SEVP & Regional Chief Executive, Americas Region) Nausherwan Adil (SEVP & Regional Chief Executive, Europe Region) Asif Hassan (SEVP & Regional Chief Executive, Far East Region) Khawar Saeed (SVP & Regional Chief Executive, Central Asian Republics Region) Muhammad Hanif Khan (SVP & Coordinator, Afghan Operations) Audit Committee Mr. Ibrar A. Mumtaz Nazrat Bashir Haniya Shahid Naseem (Chairman) (Member) (Member)

I.T Committee Mr. Tariq Kirmani (Chairman)

HR Management Committee Mrs. Hania Shahid Naseem (Chairman) Agriculture Finance Committee Mrs. Haniya Shahid Naseem (Chairman) Board Risk Committee Mrs. Nazrat Bashir (Chairman) Islamic Banking &Subsidiaries Committee Mr. Tariq Kirmani (Chairman)

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Sports & Culture Committee Mr. Sikander Hayat Jamali Chairman) Auditors M.Yousaf Adil Saleem & Co. (Chartered Accountants)

Anjum Asim Shahid Rahman & Co. (Chartered Accountants)

Legal Advisor Mandiwala & Zafar (Advocate & Legal Consultants)

REGISTERED OFICE/ HEAD OFFICE NBP Building, I.I.Chundrigar Road Karachi, Pakistan.
Telephone No. 021-99213026 and 99212100 Fax. 021-99213021

REGISTRAR & SHARE REGISTRATION OFFICE Central Depository Co. of Pakistan CDC House, 99-B, B-Block, S.E.C.H.S., Mian Shara-e-Faisal Karachi, Pakistan WEBSITE www.nbp.com.pk

ORGANIZATION CHART PRESIDENT

GROUP CHIEF ADDIT & INSPECTION EXECUTIVE GROUP CHIEF REGIONAL AUDIT INCHARGE RISK MANAGEMENT LEGAL AFFAIRS DIVISION

GROUP CHEIF
MANAGER BUSINESS EXECUTIVE TRANING & STAFF COLLEGE GROUP CHEIF 105 INCHARGE DEVELOPMENT MANAGER OPERATIONS FOR & INSPECTION COMMERCIAL & AUDIT TRAINING RETAIL BANKING BRANCH STAFF

GROUP CHEIF HUMAN RESOURCE EXECUTIVE GENERAL &GROUP CHEIF DEVELOPMENT INCHARGE MANAGER OPERATION FINANCE DIVISION HRD

CHIEF

STRUCTURE OF THE G.M.ABAD BRANCH

STRUCTURE OF THE G.M. ABAD BRANCH Branch Manager Mr. Asim Waseem Operations Manager Mr. Muhammad Sarfraz Arshad B.B.O (Deposit Officer) Mr. Hafiz Zahoor Credit Officer Mr.Khurram Shuja Joint Custodian Mr.Bashir Account Opening Officer Mr. Asad Abbas Head Cashier Mr.Ghulam Qader Cashier Mr.Arfan

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BRANCH CHART

BRANCH MANAGER

OPERATIONS MANAGER

Credit Officer

Deposit Officer

Joint Custodian Officer

Head Cashier

Account Opening Officer

Cashie r

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