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1- INTRODUCTION OF BANKING1.1 Bank How Originated Its not so far been decided that how the Bank is originated. From the point of view of some authors it is said that the word Bank is derived from the word bancus or banque which means a bench. Bench also has its own history because some authors said that this word Bank is derived from German word Bank. Some authors also trace .its origin from the French word Benqui and the Italian word Banca. Bank or banker is a dealer in credit or dealer in money. That is an intermediate party or lender. The difference between the terms on which a bank borrows and lends the money is called his profit. 1.2 Definition of Bank Bank is an institution for the keeping, lending and exchanges etc. of money. Crowther, The bankers business is to take the debts of other people to offer his own in exchange and there by create money. Grower says Bank is dealer in debts his own and of other people Kent says, that bank is an organization whose principle operations are concerned with the accumulation of the money from public for the purpose of advancing to others for expenditures. From the point of view of Sayers transferring of bank deposits from one person or corporation to another giving the secured or unsecured promises of businessmen repay is called bankDepartment of Business Administration Faculty of Administrative Sciences Kotli1

Banking infect is one primitive as human society. When human know the importance of money as a medium of exchange, the necessity of a controlling agency or regulating institution was felt naturally. Banking is the acceptance, transfer, and most important creation of deposits. Banking consists of transfer of funds facilitating or lending loans, guaranteeing credit worthiness, and exchange of money. These services are provided by the institutions like commercial banks, saving banks, finance companies, merchant banks trust companies etc. 1.3 History of Banking The history of banking is traced to as early as 2000BC by Babylonians. The priests in Greece used to keep money and valuable of the people in temples. These priests act as financial agents the origin of banking is also traced to earlier Goldsmith. They use to keep strong safes for stoning the month. Despite the classical origin, Banking in its modern form and structure started in Britain in fourteenth century, from the Lombard merchants. Hen they came in England, they were so powerful and resourceful that even the king also depends upon them for loans. After this discovery of America gave modern banking a tremendous boost. In 1965 a number of Goldsmith bankers formed themselves into a corporation known as the bank of England. In 1700 Bank of England start to issuing the notes and conducting the accounts for customers. This bank was only authorized, to issue bank notes. After a time the same process was developed in London that withdrawn from joint stock banks and was referred to private banks.

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Joint stock companies take another step in 1854 and that was the era of corporations. In 1946 the labor govt. nationalized the bank of England. From 1955 the British Banks made a departure from traditional banking by undertaking the hire purchase finance by buying industrial plants and machinery. Now the modern Banking was born. 1.3.1 Banking in Indo-Pak Sub Continent The Hindustani society was quite familiar with banking quite from the beginning. During the fifty century people were used Hindus as a credit instrument. Loans were given to the people against personal and other securities such as ornaments goods and immovable properties and banker and customer has a very cordial relation. They were charging very high rate of interest per annum against their standing crops. Agriculture sector plays a vital role in Indian society. Muslim rulers provide substantial encouragement to the formers by giving them interest free loans and grants in cash on one hand and allowing them to pay the land revenue in cash or king other hand. Muslims of 12th have also mentioned some bankers known as mutani-a-shroffs who were acting as agents to the Govt. to collect revenue as also to change money to Government. Muhammad toughly was the first king to have introduced taken currency in India. Shershah-sure and the Mughal emperors further streamlined this system. They did not introduce banks but they revolutionized structure in India. 1.3.2 Emergence of Public Banks in India In the 17th century when English traders came to India public banks are introduce in India. The east India Company appointed their own agency houses for his purposes. ButDepartment of Business Administration Faculty of Administrative Sciences Kotli3

Indian govt. did not take any step towards the establishment of the banks till 1809. After this the bank of Bengal was introduce then bank of Bombay and in 1843 the bank of Madras was establish. Then the a. Joint stock Bank c. Imperial Bank of India 1.4 Banking in Pakistan When Pakistan came into being, the areas that constitute. Pakistan was producing only food grains and agriculture raw material for indo- Pakistan subcontinent. Pakistan inherited a weak banking system at the time of independence 1947. Commercial facilities are not also good. Only 487 officers received by Pakistan at the time of independence. To regulate the growth of banking on sound bases government of Pakistan took all possible measured to attract and dominate the enterprise in Pakistan. A committee was formed to study the issue of banking system in Pakistan. In 1948 Pakistan decided to establish a full- fledged central Bank in Pakistan. Consequently the Governor General and father of the nation, Quaid-e-Azam inaugurated the state Bank of Pakistan or July 1st, 1948. The first task which the S.B.P had to attend was the issue of currency notes in Pakistan and that was issued in October, 1948in the denomination of RS. 5.10 and 100. In order to develop sound banking, the banking Companies Act was also implemented in 1949. The Korean War in 1950, provided a great boom for Pakistani experts, as a result the demand for bank advances increased sharply. The separation of East Pakistan and its b. Exchange Bank d. Reserve Bank of India was established.

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results in the form of economic depression caused a lot of difficulties to the Banking system in Pakistan. Besides this growth, specialized credit and financial institution have also developed over the year. National Investment Trust (NIT). People finance corporations equally participating in funds and small business corporations are contributing remarkable role in economic development of the country. Banking sector as a economic factor in Pakistan In 1947 January 01, nationalization of banks has opened a great era of development. Till then to now a day the banks are doing a great job in economy of Pakistan. The fact shows that the banking sector has made a tremendous progress and achieved a phenomenal growth and played a vital role in mobilizing the saving of people in

countrys economy. State Bank of Pakistan established on July 01, 1948 stands at the apex and is responsible for the operation of the banking system in Pakistan. The other banks which from the banking structure in Pakistan are playing an active role in the economic development of the country. Here is an effort to summaries the role of banking in the economy of the country Saving Mobilization The three nationalized banks namely, National Bank of Pakistan Habib Bank of Pakistan First Women Bank And other privatized banks like, United Bank LimitedDepartment of Business Administration Faculty of Administrative Sciences Kotli5

Muslim Commercial Bank Allied Bank limited Have opened their branches in rural and urban areas to mobilize the saving of the people. Providing trade activities The credit institutions collect the saving of the people and make them available for facilitating the trade activities in both domestic as well as international level. Role of State Bank of Pakistan SBP as the Central Bank control and regulate the money and capital market in the best interest of the country. It is also the chief instrument of the Government for implementation of the monitory policies. Financing Development for capital Formation The banks advance short, intermediate and long term loans for financing of public development and other projects Assisting in the Development The commercial banks are the profit generating and seeking enterprises. In order to maximize the profits, they have the incentives to maximize the loans, and accelerate the rate of growth and investment in the countries. Less Reliance on Foreign Trade A well planned banking system can easily meet the capital development and requirements in the country. Thus the company will rely less upon imports and make a free and open environment for domestic investment projects.

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1.4.1 The Central Bank Decock A bank which constitute the apex of monetary and banking structure of its country and which performs as best as it can in the national economic interest. Vera smith A banking system in which a single bank has either complete Control or a residuary monopoly of note issue. Hawtrey A central bank is that which is the lender of the last resort. Functions of Central Bank As the note issuing agency; As the banker to the state; As the bankers bank; As the guardian of the money market, through control of credit; As the lender of the last resort; It undertakes to maintain the external value of the domestic currency; It ensures the stability of the internal value of the currency; It undertakes exchange control operations It fights economic crises and fluctuations and ensures economic stability of the country.

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Changing Scenario for Banks Operating in Pakistan The banking sector environment in Pakistan has been undergoing a phenomenal change since 1990. These changes from the major plans of the ongoing economic reforms in Pakistan. Financial reforms have been all encompassing institutional strengthening, restructuring of the banks and development finance institutions and improvement in regulatory framework. Reforms were aimed to instill competition and switch over to market based and relatively more efficient monetary and credit mechanism. In the recent past (FY99-01), a tight monetary policy was pursued to contain price increases and buttress exchange rates so to build exchange reserves. It was only later, July 2001 that the State Bank of Pakistan began the process of easing of monetary policy with a percentage point cut in discount rate. This was subsequently followed by more such reductions, reducing the rate to 7.5% by November2002, a level left unchanged since. It was for the first time under the market-based mechanism of interest rate determination that discount rate was cut and interest rates lowered. The year 2002 witnessed a change in the interest rate environment. Lending rates come down significantly from 13.4% in December 01 to 10.3% in December02, While lending spread was reduced to 6.7 %( 8.4%in December01). The rate plunged to 8.3% by end March 2003 and to 7.09% by May same year. Meanwhile, the spread has come down to 4.68%. With in the banking sector, all banking groups made the cuts in lending rates.

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Presently privatized banks average lending rates are the lowest (6.07%) followed by nationalized banks (6.48%). The spread for both banks categories in also lower than that of all groups.

In 2002, of their respective investment for the year investment in market treasury bills were high. National Bank of Pakistan has invested 54%, Muslim Commercial Bank 61%, Bank Al- Falah 485, Credit Agricole Indosuez 93%, Standard Chartered 88%, American Express83%, Habib Bank AG Zurich 29%, Bolan Bank 45%, among others. Along with decline in lending rates, return on Government securities and national saving Schemes have fallen. Falling returns makes investment in government securities no more an attractive avenue for investment. This plus an abundance of liquidity with commercial banks, plus decline in banking spreads is posing a serious challenge to the banking sector. These developments are likely to affect the sectors profitability, unless the banks diversify their lending their portfolio lower the stock of non provisioned non-performing loans and increase their non-interest income. This change in scenario, where banks are teeming with liquidity and are faced with a significant decline in their interest income, has led them to explore new avenue and launch new products. Consumer finance has emerged `as one of the sectors where commercial banks move into. This offers banks an opportunity to increase their non fund income, do their job of allocating capital in the economy and at the same time has ushered in a phase where consumer financing would contribute to increase demand, promote production and generate employment. It would give an impetus to the development of a wide range of industries including, housing, automobiles, and varied household items.Department of Business Administration Faculty of Administrative Sciences Kotli9

The move towards consumer banking is not some thing specific to Pakistan, banks all over the world are turning towards consumer banking. While earlier only the foreign banks had ventured in this area, now the big nationalized commercial banks National

Bank of Pakistan and Habib Bank Ltd. Along with the private banks are doing consumer financing. Liquidity of the banking sector can now finance household loan requirements. These banks are now offering products like, car financing, house financing, loans for consumer durable and other facilities like payment of utility bills, ATMs phone banking, credit cards, smart cards. Consumer durable is the hire major segment of consumer banking, the other two being car financing and house financing. Banks are also investing in the capital market. Aware of the new challenges facing the sector, new line of business have been developed by the banks to beef up competition and boost profitability. Competition has grown amongst the banks, for most of the banks are now offering similar schemes. 1.4.2 Habib Bank Limited Habib bank was established on Augut25, 1941 on Bombay (India). This was the first bank to be established by Muslims in the subcontinent and its primary objective is to help Muslims entrepreneurs in supplementing their financial requirements through providing various facilities as offered by a typical commercial bank. In 1974, the banks head office was shifted to Karachi. Habib Bank has made a welcome return to its policy of providing aggressively for its non-performing loans. The bank has posted an after tax loss of around Rs 9 billion as a result of provisioning of about Rs 5 billion. The policy is aimed towards attaining aDepartment of Business Administration Faculty of Administrative Sciences Kotli10

stronger financial health and part of plan for listing the Bank at local stock exchanges. The listing of the Bank promises to be a milestone. The 100 per cent right issues, and its

subsequent sale to general public is the part of privatization of the Bank. In a weak interest rate environment, the Bank is expected to experience in NLP and also to benefit from last year's recovery campaign. 1.4.3 United Bank Limited United bank limited started his functioning as a scheduled bank from november7, 1959.on January, 1974 it was nationalized under the Banks (nationalization) Act, 1974. The erstwhile commerce bank limited was merged with united bank limited on 30 th December 1974. United Bank made substantial progress in its overall restructuring program during the year 1999. The highlights are: an operating profit of Rs 1.4 billion, an increase in NRFF and growth in fee-based income and about 9 per cent growth in deposits. This growth was mostly driven from corporate customers where advances increased by 92 per cent to Rs 25 billion. There was a significant reduction in non-performing loans (NPL). Net of provisions, the Bank's NLP as a percentage of net advances decreased to 29 per cent from 35 per cent in the previous year. As regards international operations, all overseas units reported profit during the year. The highlights were: an across the board shedding of expensive deposits, a significant rationalization and upgrading of human resource base, substantial recoveries, and a shift away from lending and focus on network business and trade finance.Department of Business Administration Faculty of Administrative Sciences Kotli11

1.4.4 Muslim Commercial Bank limited Muslim commercial bank was incorporated and registered in Calcutta in July, 1947. After partition registered office of the bank was shifted to Dacca where it commenced business

from August 1948. In August 1956 the registered office was shifted to Karachi. The bank was nationalized in January 1974 and the Premier Bank Limited was merged with it in June 1974. Muslim Commercial Bank managed to achieve a significant growth of over 42 per cent in its pre tax profit for the year 1999 over the previous year despite depressed level of economic activity in the country. The profit after tax came to about Rs 569 million slightly more than our forecast. Even after distribution of 15 per cent dividend for the year 1999, the Bank's capital adequacy ratio was 8.46 per cent. Despite shedding expensive accounts, the Bank recorded over 6 per cent increase in deposits from Rs 128.8 billion to Rs 130.34 billion. Due to more stringent credit extension policy advances came down during the year 1999 and the Bank maintained 60 per cent loan-to-deposit ratio. The 10 per cent bonus share are to be issued on paid-up capital of Rs 1.82 billion. A financially stronger position of the Bank would pave the way for off loading of 24 per cent shares at premium. 1.4.5 Allied Bank Limited Allied bank limited is a post nationalized phenomenon which came into existence from July, 1974 with the merged of Sarhad Bank Limited, Lahore Commercial Bank Limited, Pak Bank Limited Australia Bank Limited for the purpose of carrying on the business of banking in Pakistan and elsewhere in the world 1.4.6 National Bank of PakistanDepartment of Business Administration Faculty of Administrative Sciences Kotli12

The National Bank of Pakistan was established on 20th November 1949 under the National Bank of Pakistan Ordinance No. X1X of 1949, promulgated on 8 th November 1949, describing it as a semi- commercial bank. The bank operates like any other

commercial bank in the country, seeking funds from the depositors and providing credits for all sectors of the economy including agriculture, industry, trade etc.

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2. AN OVER VIEW OF NATIONAL BANK OF PAKISTANThe National Bank of Pakistan was established on 20th November 1949 under the National Bank of Pakistan Ordinance No. X1X of 1949, promulgated on 8 th November 1949, describing it as a semi- commercial bank. The bank operates like any other commercial bank in the country, seeking funds from the depositors and providing credits for all sectors of the economy including agriculture, industry, trade etc. The National Bank has a distinction, in addition, to act as an agent of the Central Bank and operates treasuries where the State Bank does not any branch. The bank was nationalized in January 1974 when the banks were taken over by the Government; the Bank of Bahawalpur was subsequently merged in the National Bank. National Bank of Pakistan has not released its annual report as yet. National Bank of Pakistan maintains its position as Pakistanis 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 Pakistanis economic growth through aggressive and balanced lending policies technologically oriented products and services offered through its large network of branches. 2.1 Management An Executive Board composed of six Senior Executives of the Bank and the President who is also the Chief Executive supervises the affairs and business of the Bank.Department of Business Administration Faculty of Administrative Sciences Kotli14

Board of Directors The supreme governing body of the National Bank of Pakistan is the Board of Directors. Governments representatives, Pakistan Banking Council nominee, nominee of corporate sector and three members from the National Bank of Pakistan are the summary of the board. The members of the board are 1- Mr. S. Ali Raza 2- Dr. Waqar Masood Khan 3- Iftikhar Ali Malik 4- Syed Shafaqat Ali Shah 5- Sikandar Hayat Jamali 6- M.Zubair Motiwala7 - M.Khalid

Chairman& President Director Director Director DirectorDirector

Malik

DirectorDirector

8- Azam Faruque

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Senior Management of National Bank of Pakistan 1- Masood Karim Shaikh 2- Shahid Anwer Khan 3- Dr. Asif A. Brohi 4- Muhammad Sardar Khawaja 5- S.M Rafique 6- Imam Bakhsh Baloch 7- Ziaullah Khan 8- Imim Akhter 9- Javed Mahmood 10- M. Nusrat Vohra 11- Nadeem A. Dogar 12- Dr. Mirza Abrar Baig 13- Mrs. Khurshid Maqsood Ali 14- Tahir Yaqoob 15- Mrs. Uzma Bashir SEVP SEVP SEVP SEVP SEVP SEVP SEVP EVP EVP EVP EVP EVP EVP EVP Group Chief, Organization Development and Training group 16- Syed Farhan Ahmed17-

Financial Controller Group Chief, Information Technology Group

Atif Hussain Khan

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2.2 Vision of NBP

We want to be the pre-eminent financial institution in Pakistan and achieve marketrecognition both in quality and delivery of service as well as the range of product offering.

2. 3 Mission Statement of NBP To be recognized in the market place by Institutionalizing a merit & performance culture, Creating a powerful & distinctive brand identity, Achieving top-tier financial performance, and Adopting & living out our core values

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2.4 Nature of National Bank of Pakistan. National Bank of Pakistan is one of the scheduled leading Bank of Pakistan. It performed General Banking, Finances, Government / Treasury operations and Foreign Exchange Services. It is rending services to its customers and not goods. It also under takes the government transactions, like government accounts, government drafts and payment and pensions etc. this is the reason by why National Bank of Pakistan can denationalized. This Bank serviced government as well as general public both. National Bank of Pakistan operates in accordance with the previous of banking companies ordinance 1962. Section 5(b) of this ordinance says Banking means the accepting for the per pose of landing or investment of deposits of money from the public, repayable of demand or other wise, and with draw by cheques, drafts, pay orders or other wise, 2.5 Function of the National Bank 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. not be

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NBP aim to be an organization that is founded on Growth through creation of sustainable relationships with our customers. Prudence to guide our business conduct. A national presence with a history of contribution to communities.

NBP shall work to

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

NBP aim to be people who

Care about relationships Lead through the strength of our commitment and willingness to excel. Practice integrity, honesty and hard work. We believe that these are measures of true success.

NBP have confidence that tomorrow we will be Leaders in our industry. An organization maintaining the trust of stakeholders. An innovative, creative and dynamic institution responding to the changing needs of the internal.

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2.6 Objectives of National Bank of PakistanObjectives are the means to reach some beneficial end. No one can achieve any target before setting it firstly. So in the same way National bank has some objectives, which it is trying to achieve. Following are some of them: To maximize profit To provide all sort of banking services. To serve the humanity in all parts of the world through its network of branches throughout the world. To satisfy customers beyond their expectations by providing personalized effective & efficient services in best & possible manner. To serve Pakistan better in order to give socio-economic uplift. To provide the maximum profit to depositors by achieving sound profitable growth. To develop & enhance its system & technology. To train its staff. Providing information & advice to its customers. Providing facilities of foreign currency accounts.

2.7 Services Provided By National Bank of Pakistan National Bank of Pakistan provides following main services to its customers:

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2.7.1 Demand Drafts If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase NBPs Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. Swift System The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-APKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs. To View SWIFT Codes of NBP - Click here Letters Of Credit NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and easy of transaction, NBP Letters of Credit are the best way to do your business transactions.

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Traveler's Cheque

Negotiability: Pak Rupees Travelers Cheques are a negotiable instrument Validity: There is no restriction on the period of validity Availability: At 1,242 branches of NBP all over the country Encashment: Limitation: Safety: At all 400 branches of NBP No limit on purchase NBP Travelers Cheques are the safest way to carry our money

2.7.2 Pay Order NBP provides another reason to transfer your money using our facilities. Our pay orders are a secure and easy way to move your money from one place to another. And, as usual, our charges for this service are extremely competitive. a. Issuance of Pay order 1. for NBP Account Holder Rs. 50/- (Flat) 2. for NBP Non-Account Holder Rs. 100/- (Flat) Rs. 25/- (Flat) from student for payment of fee favoring educational institution b. Issuance of duplicate Pay order 1. for NBP Account Holder Rs. 100/- (Flat) 2. for NBP Non-Account Holder Rs. 150/- (Flat) 2.7.3 Mail Transfers Move your money safely and quickly using NBP Mail Transfer service. And NBP also offer the most competitive rates in the market.

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2.7.4

Telegraphic transfer (TT)

Generally a mail transfer takes 3 to 4 days to reach its destination. T.T is the fastest mode of transferring funds from one bank to another bank not in days but in hours or minutes. In such cases transfer of funds message is passed on through a telegram, to the drawee branch of the same bank. When the urgency of situation demands that the payment is to be made immediately then the message is conveyed to the drawee branch by telephone. Payment to the beneficiary is effected directly by the drawee office upon identification or through credit into beneficiary's bank account. 2.7.5 Foreign Remittances To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to: Increase home remittances through the banking system Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries 2.7.6 Other Features The existing system of home remittances has been revised/significantly improved and NBPll-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 18overseas branches of the Bank besides Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia. Zero Tariffs NBP is providing home remittance services without any charges.

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Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. Short Term Investments NBP now offers excellent rates of profit on all its short term investment accounts. Whether you are looking to invest for 3 months or 1 year, NBPs rates of profit are extremely attractive, along with the security and service only NBP can provide. 2.8 NBP- Relief Fund for Earthquake Victims 2005 The National Bank of Pakistan (NBP) has announced a relief package for the earth quake victims. The Bank has donated Rs. 100 Million to Presidents Relief fund for earth quake victims-2005. The employees of the Bank have also voluntary donated one-days basic salary to the fund. NBP has initiated he process of formulation to special teams at local level for providing on the spot financial and other aid in earth quake affected areas. Special arrangements have made for collection of donations at all domestic and overseer branches. An Emergency Relief Committee has been formed which is empowered to provide immediate reliefs in terms of blankets / tents /food / medicines for the NBP employees and their dependents affected by the earth quake. Arrangement for collection of donations. For providing relief to the people in the wake of recent earthquake in Pakistan and to mobilize resources and proactively rendering a helping hand and the relief efforts to the people affected by the earth quake, all branches of NBP have opened account of

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presidents Relief fund for earth quake victims 2005 and payments into the aforesaid fund are accepted by issuing receipts duly signed by Brach officials.

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03- OVERSEAS AND DOMESTIC OPERATION OF NBP

3.1 National Bank of Pakistan among Top 10 Global Banks Karachi National Bank of Pakistans profitability has earned it a place among the top ten banks of the world. Global finance intelligence magazine, The Banker published by the financial times group, London has complied a merit list of 1000 banks on the basis of best profit on capital, capital to assets and profit on assets ratios. On the best profit on capital scale, National Bank of Pakistan has been rated as the highest in Asia and the 8th in the world. The survey also showed that banks from the Islamic world are becoming more efficient in performance. This year, five banks from the Muslim countries including Pakistan, Turkey, Indonesia and Libya are placed in the best ten banks of the world in terms of return on capital. 3.2 National Bank of Pakistan and Western Union NBP teams up with Western Union Financial Services Inc. a worldwide money transfer service, to facilitate the remittance of money through legal channels. This mode of transfer will ensure that the remittances reach the mainstream of national economy and are able to contribute to its growth. This will also assist in reaching the Governments goal in revitalizing the economic sector, attaining self-reliance and achieving transparency.

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3.3 National Bank of Pakistan and Saibaan Is set to make your dreams come true National Bank of Pakistan has announced the launch of a housing scheme to cover a section of the society with monthly income starting from as low as Rs. 5000/- per month Branded as NBP Saibaan (Housing for all), the scheme offers a maximum loan of Rs. 10 million in accordance with the debt burden criterion. Loans are available for home construction, home purchase and home improvement. For home improvement loans the maximum amount is Rs. 2.00 million. Home construction and home purchase loans can be repaid over a period of 20 years, whereas the repayment period for home improvement loan is 15 years. The scheme was launched at a function in Karachi presided over by Mr. Shoukat Aziz Pakistans Finance Minister and now the Prime Minister of Pakistan. Introduction to NBP Saibaan NBP Saibaan is the most affordable with easy installments house financing scheme. Customers can avail now and repay over a 3 to 20 years period. Home purchase loans up to million. Home reconstruction loans up to million. Home improvement loans up to 2.0 million (3 to 15 years) It has flexible mark-up choices and grace period option. It is convenient structured and programmed with minimum approval and disbursement timing.Department of Business Administration Faculty of Administrative Sciences Kotli27

The rules and regulations and documents and other requirements can be had from the application form of Saibaan that is attached at the end of he report.

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3.4

Hierarchical Structure of Regional Office Mirpur

Chief Manager

Operational Manage r Compliance Offi Administration Manage

Foreign Ex. HeadPension Dept.

Accounts

Dept.

Remittance Dept. Advances

Clearing

Dept.

Dept.

Officers dealingExports Assistant

Clerical Staff

Officers

Officers

D

Officers

D Officers

Clerical Staff

Postage Officer

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3.5 Branches of National Bank of Pakistan 3.5.1 Overseas Branches

Total branches Representative offices Subsidiary Joint venture 3.5.2 Regional Branches

18 04 01 01

1224 Total branches 29 Representative offices 04 Subsidiary

The Bank had a network of 1224 branches in the county and 18 branches in foreign countries. These countries are as follows:

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United States Of America, United Kingdom, France, Germany, Bahrain, Japan, Republic Of Korea, Bangladesh and Peoples Republic of China, Canada, Egypt, Azer baijan , Turkmenistan, Kazakhstan, Afghanistan etc. 3.6 Financial performance The year 2005 saw NBP continue its journey of remarkable growth and performance as the bank once again posted the highest ever profit in he Pakistans financial sector history, this performance is a reflection of the strategic business and organizational initiatives taken over the last few years coupled with the consistent and effective economic polices of the government leading to impressive growth in all the sectors of the economy. For the year 2005 the bank earned a pre-tax profit of over Rs. 12 billion, and increase of 50 % over last year. The performance is based on growth in all the key performance indicators. Pre-tax return on equity stood at 55% pre-tax return on assets further improved to 2.4% from 2.0% of the last year, cost to income ratio of 0.67 remained very impressive, which is appreciably the lowest amongst the peer banks in Pakistan. Earning per share jumped to Rs. 21.51 from Rs. 10.48 of last year, one of the highest in the banking sector. All the above mentioned ratios are in the top tier by global standards. It is also important to note that the increase in profits by Rs. 5.5 million was achieved through strong growth in core banking income by Rs. 5 million over last year. In spite of

soft interest rates. Which continued for major part of 2005 causing spreads to decline, the bank enhanced its net interest income by Rs.23.2 million (16%) through growth in theDepartment of Business Administration Faculty of Administrative Sciences Kotli31

loan portfolio which increase by Rs. 60 billion (37%). The growth was across all sectors, in particular the high yielding consumer and retail banking sector, interest rates started to climb up in the latter half of 2004, however, the impact of this increase well be reflected in 2005, when the assets and liabilities are re-priced. Non-interest based revenue excluding capital gains increased by impressive Rs. 23.2 million due to higher fee related income. The bank continued its policy of strengthening its balance sheet and proactively made additional provision for further discounting of 10% forced sale values of mortgaged assets on the basis of new prudential regulations issued by SBP Non-performed loans reduced Rs. 3.6 billion due to cash recoveries and restructuring. Net non-performing loans were down to Rs. 7 billion from Rs. 12 billion a year ago. The banks loan loss provision to non-performing loans improved to 80% from the last years 70% going forward, restructuring of NPLS should continue to contribute to the bottom line given the 80% cash provision coverage. Total assets at the year end stood at Rs. 570 Million an increase of Rs. 23 Million, Deposits decreased by Rs. 2 Million to Rs. 2.1 Million. The bank remains well capitalized and its capital adequacy ratio is well above the banking industry average.

3.6.1 FINANCIAL HIGHLIGHTS- 2005

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S.No.1 2 3 4 5 6 7 8 9 10 11 Authorized Capital Paid-up Capital Shareholders Equity and Reserves Deposits Advances Net Investment Net Total Assets Pre-tax Profit Profit After Tax No. of Branches No. of Employees

(Rs. in million)7500 5909 74341 463427 268839 156986 577719 19056 12709 1242 13824

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04

Departments of NBP

4.1 Accounts Department In almost all the banks have their opening and closing departments and this is the especially function of A/C department. Firstly all types of Accounts which can be opened in NBP has been described: Categories of Accounts Current account Saving account Fixed account. Current Accounts This type of account is basically used to meet the daily transactions. Current account provides safety to the customer's money, gives the advantage of paying debts by the convenient and safe means of sending cheques through the post thus avoiding the trouble and loss that units in PKR, US$, GBP and DM.Department of Business Administration Faculty of Administrative Sciences Kotli34

Saving Account This is the profit oriented category of the accounts. There is a time limit for drawing cash; customer cannot draw money before a certain time. In NBP saving a/c is used as current a/c, & there is no main difference between current & saving account except profit. This account can be opened by limited company, Partnership Company, club societies & associations, joint & sole proprietorship.

Fixed account These deposits are fixed for particular period. Commercial Banks also pay an interest on these accounts. 4.2 Cash Dealing Department Cash department of NBP is given the complete responsibility of handling all receipts & disbursement of cash, as a result of transaction in both local & foreign currencies & near cash items such as traveler cheque etc (when they are issued against cash). As a consequence it is also responsible for the bookkeeping of these transactions & the safe custody of cash & near cash securities. Following are the major functions of the cash dealing department of NBP: Cash receipts (or receive deposits) Encashment of cheque

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Cash department of NBP is a separate close part covered with glasses. No one other than cash department's employee is allowed to enter into that area. Cash Receipt The depositor uses cheque deposit slip (or cash deposit slip) for depositing the amount. There are two types of cash deposit slip: One for current account-holders Other for saving account holders. Both are in different colours for clear identification. There are two parts of cash deposit slips:

Counter foil Adjacent credit voucher Procedure The cashier first verifies all the requirements of the cash deposit slip that whether these are fulfilled or not & verifies the amount written in words & figures. After that he enters the detail of the receipt in the "Inward Cash Register". The deposit slip is stamped, cash is received & counter foil is given to the depositor. The adjacent credit voucher is used for recording & posting purposes. Encashment of Cheque Cheque encashment involves following four main steps. These steps are: Accepting of chequesDepartment of Business Administration Faculty of Administrative Sciences Kotli36

Affirmation of signatures Computer terminal process Payment of cash Following requirements are essential to encash a cheque. No Stop Payment Instruction No stop payment instruction is presented for the account. Instrument in Writing It must be in writing. However, there is no bar on writing material but the cheque written with lead pencil is not honored by the bank in practice because unauthorized alternations

can also easily be made are difficult to detect so a cheque should be either typed or pen written or printed. Cheque must not be crossed The cheque which could be presented to the drawee bank for encashment over the counter should not be crossed whereas crossed cheques are deposited into account. The sum of money must be certain A cheque must contain an order to pay a certain sum of money only amount in figures and words must be same. Drawer's Signature The document in order to be validly called a cheque must bear the drawer's (account holder) signature or that of his authorized person. At the time of opening an account aDepartment of Business Administration Faculty of Administrative Sciences Kotli37

customer provides a banker with a specimen of his signatures, so the signature on the cheque must tally with that. Sufficient Balance Sufficient balance should be present in the customer's (drawer's) account to encash cheque. If a customer lost his cheque book he would make stop payment instruction to cash department of NBP. Stop payment instructions can be made in two ways. Verbal Written

The customer could inform the cash department on telephone or face to face meeting to stop payment, but later a written instruction must be made on a prescribed form. If customer make stop payment instruction to the bank and bank make payment to some one else after lodgment of stop payment instruction in the computer, Bank would become liable for this fault. Acceptance of Cheque The cash is paid against the cheque of the client. The following points are kept in mind while receiving the cheque from the client. Cheque should be drawn on NBP. It should not be post dated.Department of Business Administration Faculty of Administrative Sciences Kotli38

It should be a bearer cheque so the word bearer should not be crossed. Payment is not stopped by the drawer. Amount in words & figure should be same. Alternation in date/figure/word require drawer's full signature, with signature on the cheque. If signatures are not the same then it is returned back otherwise forwarded to computer terminal. Affirmation of Signatures After receiving the cheque the officer verifies the signature of the account-holder with the signature on the cheque. If signatures are not the same then it is returned back otherwise forwarded to computer terminal.

Computer Terminal Process The cheque is received in computer terminal, where the computer operator checks the balance of the account holder. The operator also sees whether the stop payment instructions are received from account holder or not. After considering these two points computer operator posts the cheque in account holder ledger & returns the cheque back to the officer. Payment of Cash

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The cheque is cancelled after posting & is returned to cashier. The cashier enters the cheque in "cash paid register" & pays against the second signature of the receiver on the back of the cheque. Nearly everyday in the morning time, cash comes from State Bank of Pakistan through Brinks (which provide safe cash delivery services). This cash is required by the bank to meet the current needs of cash. This cash is received from the Brinks in the presence of an authorized officer & cashier of bank, with full satisfaction. 4.3 Clearing Department

Almost all commercial banks engage to furnish a wide variety of services to their customers. Clearing service is one of more significance and important activity of all commercial banks. The elementary function of clearing department is to facilitate the customers to with regard to collection of their cheques pertain to other banks, regardless related with inside or outside the city. The customer can amass money in his account at

NBP from the cheques issued on another bank. First of all, bank accepts the cheque in the clearing department & afterward on collects these cheque from the bank on which it is issued through the clearinghouse i.e. SBP. For instance, an account holder of NBP presents a cheque, which is not issued on NBP but the, but the person has an account in NBP, in this situation bank accepts this Cheque in clearing department & subsequent to collecting the amount from that bank on which cheque is issued, NBP credits the account of customer. This task is called clearing function.Department of Business Administration Faculty of Administrative Sciences Kotli40

Clearing It can be demonstrated as shift of funds from one branch of bank to the other branch of the identical bank or the dissimilar bank on which the instrument is issued, without linking cash through State Bank's clearing house or in other words cheques which can not be cashed at the cash counter of the bank. Clearing House This services is directly related with central bank i.e., SBP to the other commercial banks. SBP is considering a single provider clearing house facility. Many commercial banks are the members of the clearinghouse. All banks represent their bank in the clearinghouse. More specifically it can be explained in the following way. A clearinghouse is an association of commercial banks set up in a given locality for the purpose of interchange & settlement of credit claims.

As mentioned earlier a representative of each bank represents his bank in the clearinghouse and represents its cheques on behalf of its banks account holder cheques, which are not issued on their own bank in the clearinghouse. Clearing house hand over these cheques to the respective banks on which these cheques are drawn & receives cheques from other banks, if any. The SBP maintains the accounts of the NBP like other scheduled banks and debits the account of the drawee bank and credits the presented bank which is NBP in that case.Department of Business Administration Faculty of Administrative Sciences Kotli41

The NBP Distt. Courts Branch Kotli deals with such type of cheques. These can be demonstrated in the following way. Local cheque Out station cheque In house cheque Local Cheque It can be explained in the following way as collection of cheques from the banks which are the members of the clearinghouse and which are placed within the city. Out Station Cheque It means collection of cheque from the banks, which are positioned outside the city and presenter bank and the bank on which the cheque is issued are not placed in the same city. In House Cheque It indicates that the house cheques, which are issued on one branch of NBP and presented to another branch of NBP such cheques, are marked with transfer stamp.

Types of Clearing Now I would like to explain the dealing of clearance department. Actually it deals with the two type of the clearance. Inward clearance Outward clearance Inward ClearanceDepartment of Business Administration Faculty of Administrative Sciences Kotli42

It means cheque issued on NBP and offered to other Banks or handed over to NBP agent in clearing house. It is an inward clearance for NBP and causes outflow of money to collecting banks dropping the balance in the clearing account. Outward Clearance It is the reciprocal of inward clearance. It reveals cheque which is issued on other, bank and presented to NBP are known as outward clearance for NBP and causes inflow of money from paying bank into the clearing account maintained with the clearing house, rising the balance in the clearing account. However outward clearing may be due to: Local clearing Outstation clearing

As mentioned earlier surplus of outward clearing over inward clearing delivers a net increment in the clearing account balance. Surplus of inward clearing over outward Clearing delivers a net decrease in the clearing account balance. The first situation is consider as favorable clearing & the second situation is consider as unfavorable clearing. The balance of incoming & outgoing clearing should be nil (zero).

Probable Instruments at Clearing Department I found the following instruments which are exploited in the clearing department: Cheques Demand drafts Pay orders43

Department of Business Administration Faculty of Administrative Sciences Kotli

Collection of Cheques First of all the Pay-in-slip is verified then treated as inward collection or outward collection. Subsequent to making the entry the counter foil is reverted to the client. Inward Bills for Collection (IBC)

It indicates that the cheque received & drawn on NBP for payment. Inward bills for collection depicts those cheques received from another branch for clearing. First of all, these cheques are cleared and then departed to the account of branch account e.g. cheque deposited in Mirpur branch for UBL, Kotli branch, will receive in Kotli branch at first then issued for clearing in UBL. Outward Bills for Collection: (OBC)

It is the reciprocal of inward bills for collection. It indicates that outward collection means the cheque of other banks that is drawn on bank & deposited in other bank. For instance, Z, who is in Hajira and payment? Now seller will deposit the cheque deposit slip in his bank, UBL Hajira. UBL will prepare a draft & letter & send it to NBP Distt.courts branch, Kotli.NBP Distt.courts Branch; Kotli will debit his customer Z's a/c & credit

clearing. This draft will be then return back to Hajira through clearing where credit will be given to customer & debit to clearing house. Within 3 days payment should be

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received otherwise evoke will be send to the payer to pay amount either through courier service or TCS etc. If payment is not received within 15 days then evoke should be send after 8 days of 15 days limit. Stamping Now I would like to spotlight the following stamps, which are exploited for IBC & OBC functions. Stamp of OBC (or IBC) whichever is the case. Crossing stamp. Payee's a/c will be credited.

First two stamps are plotted on front side of cheque whereas the 3rd stamp is plotted on the backside of the cheque. Treatment is enrolled in the register of OBC (or IBC) and from the register the no. Of OBC (or IBC) is given on the cheque. Procedure of Clearing the Cheques Pay in Slip

This the pay slip which is filled by the customer. It is identical with deposit slip. It includes cheque number, date, amount, & account number.

Stamping and Scrutinizing45

Department of Business Administration Faculty of Administrative Sciences Kotli

When the officer receives the pay slip then he will stamp it with Cheque Received and furnishes a fraction of slip to customer and the rest fraction is close with the creative cheque. The creative cheque will manifest with two stamps: NBP Clearing Stamp Remember before 12:30 P.M all cheques are counted and then secused in bank wise and communicate to clearing house. Stamping Of The Instruments

The related officer who conducts secused of the instruments receives the stamped instrument at the counter of the bank. If no mistakes are noted then the officer should sign the pay-in-slip and its counter foil. The counter-foil & the pay-in-slip should then be stamped in the following manner. The clearing stamp bearing the date of the next working day should be affixed on the face of the cheques. Special crossing stamp containing "the name & branch name of bank" should also be affixed on the face of the cheques. The third necessary stamp indicates the paying bank to "credit payee's account". It is the conformation of outward clearing. If "payee's account only" is mentioned on the cheque, the payee should sign on the back of cheque for endorsement of cheque to another person.

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Forms of Clearing Local clearing Collection Local Clearing

It means mean collection of cheques from the banks, which are member of clearinghouse within the city. Banks take responsibility by endorsing these cheques. Explore out these cheques bank wise; prepare the settlement sheet bearing the name of the bank and number of cheques with total amounts. Now I would like to explain the time for presenting the cheques in clearinghouse. If before that time cheques are not sent to clearing house. Then they will be postponed for next day. Because on the specific time gate of clearing house has been shutdown and no one can insert into it and next Islamabad t day bank presents cheques in clearing house. However, cheque sent to clearing department must be debited to SBP and credited to customer account, and when bank receive back these cheques then debits customer and credits SBP. Collection It is a kind cheque clearing facility enjoyed by those banks that are not the memberclearing house. The bank present or receives cheques through collection. Items to Be Checked On Clearing Cheques

It indicates that when cheques are received from the clearing demands that following items should be checked instantly:

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Note

Cross stamp Clearing stamp Date (which should be current) Endorsement stamp on backside Amount in figures and words should be matched

Bank, which is sending the cheque, make its stamp on backside so that other bank will pay him. It is called endorsement stamp when there is a stamp of SBP on front size then there is no need of endorsement stamp. Cheque Returned As name indicate that when the bank returns cheque when it is received from clearing. This may be due to or more than one reasons. These reasons are mentioned on the slip, which is then affiliated with the returned cheque by marking (x) against that reason for which cheque is return. This slip is called "cheque returned slip" and contains following items: Cheque no., Amount of cheque, Name of a person who has drawn it and Date This cheque return slip contains the list of following reasons: Refer to drawer

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Not arranged for Payment stopped by drawer Exceeds arrangement Amount in words and figures differs Drawer's signature incomplete/required Drawer's signature differs Bank discharge irregular Cheque is mutilated Cheque post dated/out of date Alteration in date/words/figures requires signature Goods not yet received please present again Payees endorsement required Payees endorsement irregular Endorsement requires Bank's guarantee/confirmation Clearing bank's endorsement required Clearing stamp required Payee's discharge on revenue stamp required Advice not received Crossed cheque must be presented through a bank Account closed Effects not cleared please present again49

Department of Business Administration Faculty of Administrative Sciences Kotli

4.4 Remittance Department Remittance is the monitory transfer from one place to another place or from one country to another country to fulfill the requirements of the customers by the order of the customer. Category of Remittance: 1. 2. Local Remittance Foreign Remittance

Local Remittance: Local remittance section deals with remittance (incoming and outgoing but only in local i.e. Pakistan rupee and within Pakistan. Local remittances include the following eight functions in NBP: a) b) c) d) e) f) g) Transfer through pay order Transfer through demand draft Telegraphic transfer Issuing of SBP cheques Mail transfer Local/internal transfer Preparation of balance certificates

Transfer through Pay Order: Pay order is also called as cashier order, manager's cheque, & banker's cheque, & cheque on services.Department of Business Administration Faculty of Administrative Sciences Kotli50

Pay order is an instrument through which payment can be made from one bank to another bank within city. In case of NBP, pay orders are also used, instead of demand drafts; outside the city where NBP does not has its branch. So, we can say except Karachi for all other cities pay orders are issued by NBP. Transfer through Demand Draft: It has been defined as an unconditional order in writing addressed by one person to another, signed by the person giving it (the drawer), and requiring the person to whom it is addressed (the drawee) to pay on demand or at a fixed or determinable future time a certain sum of money to or to the order of, a specified person (the payee) or to the bearer. Demand Draft (DD): Demand draft is an instrument which is payable on demand, & through which funds are transferred outside the city or country, where NBP has its branch. Main Purpose: The main & important purpose of issuing the demand draft from the bank is that environment of our country is not too good to carry cash from one place to another. So demand draft helps us to overcome this situation to some extent because it avoids carrying cash amount with us. Telegraphic transfer (TT): Generally a mail transfer takes 3 to 4 days to reach its destination. T.T is the fastest mode of transferring funds from one bank to another bank not in days but in hours or minutes.Department of Business Administration Faculty of Administrative Sciences Kotli51

In such cases transfer of funds message is passed on through a telegram, to the drawee branch of the same bank. When the urgency of situation demands that the payment is to be made immediately then the message is conveyed to the drawee branch by telephone. Payment to the beneficiary is effected directly by the drawee office upon identification or through credit into beneficiary's bank account. SBP Cheques: In this country where law and order situation is getting worse and worse every day, SBP cheque is another way to ensure safety in carrying the amount from one place to other. SBP cheques are issued on the request of clients of bank who do not want to carry cash. On the written request of the account holder, account officer is asked to issue SBP cheque. SBP cheques are issued in favour of individuals and beneficiary. Bank receives the cheque on the day of issuance. SBP cheques are allowed within city or clearinghouse. Mail Transfer (MT): This is an order to pay money, drawn by one branch of a bank upon another branch of the same bank or Mail transfer is the transfer of funds from one branch to another branch of the same bank within Pakistan. If such balance is transferred by means of mail, it is described as mail transfer remittance. Local/Internal Transfer (LT):

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Local or Internal transfer is the transfer of funds from one account to another account within the same branch i.e., Main branch, Lahore.

Preparation of Balance Certificates: It is also the duty of remittance department to prepare the balance certificates of their clients. These certificates are prepared on monthly basis. These certificates show the balance (or amount) of the clients in their account, & can also be prepared on the request of the client when he needs it as early as possible. These certificates of balance are then sent to the clients on the address of their offices or on residence address. So that they remain aware of the position of their accounts in the bank. Foreign Remittances Foreign Remittances section deals with remittances (incoming and outgoing) but in foreign currency and outside Pakistan. Funds are transferred into four types of currencies by Remittance department. i. USD ii. GBP iii. JPY iv. DEM

This section of foreign remittance is divided into two parts: 1. 2. Outgoing FCY Remittance Incoming FCY Remittance

These terms outgoing & incoming remittance means sale & purchase of foreign exchange in the above four currencies.

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4.5 Foreign Exchange Department Foreign exchange department of NBP deals in four currencies namely; 1) 2) 3) 4) US$ (U.S. Dollar), GBP (Great Britain Pounds) DEM (German Mark) YEN (Japanese YEN)

As fluctuations in PAK. Rupees are very frequent so accounts in foreign currency are profitable for customers. Functions This department performs the following functions: 1. 4. 1. Spot sell Forward purchase 2. 5. Spot purchase Deposit 3. 6. Forward sell Clearing

Spot sell Sale of Dollars on daily basis is called a spot sell.

2.

Spot purchase

When dollars are purchase for fulfilling the daily needs of the payment, this process is called a spot purchase. 3. Forward sell

If the payment is received in advance then these dollars will be sold at current rate, this is called forward sell.Department of Business Administration Faculty of Administrative Sciences Kotli54

4.

Forward purchase

When dollars are required in future, then these are purchase at current rate for future purposes. This is called a forward purchase. 5. Deposit

In this case, $100,000 comes in any customers account of NBP; the bank is not allowed to keep extra dollar amount (or foreign currency) with them but to sell them to SBP. So these dollars (or any foreign currency) will be sold and forward booking will be made for that customer, in case he demands for his money. So whenever the customer demands his money it will be given to him at current rate (if need in Pak rupee). 6. Clearing

Foreign exchange department also performs this function. We can define clearing that transfer of funds from one branch of bank to the other branch of same bank or the other bank on which the instrument is drawn without involving cash, through the State Bank of Pakistanis clearing house. Whenever there is need of sale or purchase of dollars e.g. in import, export, credit, cash, or remittance department they are reported under foreign exchange department & its commission is given to the credit department. Banks are not allowed to keep dollars with them but sell them. So purchase the dollars only, when they are needed. Head office is responsible for sale or purchase of currencies, in the market at market rate. 4.6 Export Department

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There is no single country in the world, which is self-sufficient. In order to survive in the international market and fulfill its needs a country needs foreign exchange. Export is a major source of earning foreign exchange. Contrary to imports, every country wants to

increase its exports because the foreign exchange earned through exports can help in meeting the other need of the country. As exports play a major role in the economic development of a country, governments take major steps to boost the export of the country. If country has more exports than imports, then the balance of payments is favorable or surplus. On the other hand if the exports are less than imports then the balance of payment is unfavorable or deficit. Conditions for Exporter: For export purpose following requirements are necessary. * * * * Export registration fee is Rs.1500 Exporter has to fill E-Form and to attach invoice with it. Realization Certificate for rebate purpose. Test Agrees: This stamp should be on L/C which is received by exporter's bank

otherwise L/c will not be accepted by NBP as Negotiating/Remitting Bank. The bank hands over the L/C to the exporter after receiving the L/C from the L/C advising bank. The exporter prepares the goods according to the instructions of the L/C. When the shipment is ready then the documents are prepared according to the instructions as mentioned in the L/C. The main documents L/C are: 1. Bill of exchange 2. Airway bill/bill of lading56

Department of Business Administration Faculty of Administrative Sciences Kotli

3. 5. 7.

Invoice performs Form of country of origin Insurance (if any)

4. E-Form 6. Packing list

The importer's bank receives these documents and verifies with the letter of credit. After verification the documents are handed over to the importer. The importer takes the documents and releases the shipment from port. At maturity importer bank makes the payment to the beneficiary's bank. The bank receives the payment and after deducting the commission, service charges etc., the proceeds are credited to the party's account. 4.7 Credit Department In NBP the credit activities are played under a separate department. So the main activities of this department are: a) b) c) To give credit to customers Closely monitor the development in different accounts Reporting to SBP & head office.

What is credit? "Credit means any arrangement, however named or described, whereby a bank (the issuing Bank) acting at the request and on the instructions of a customer (the applicant), or on its own behalf". i) It is to make a payment to or to the order of a third party (the beneficiary) or is to

accept and pay bills of exchange (drafts) drawn by the beneficiary. ii) A authorizes another bank to effect such payment, or to accept and pay such bills

of exchange (draft).Department of Business Administration Faculty of Administrative Sciences Kotli57

Types of Credit Facilities: The types of credit facilities offered to customer are of two basic kinds. 1. 2. 1. Funded facilities/cash credit Non funded facilities/Non cash credits Cash Credits

Cash credits are those where the bank actually advances money against further repayment. These are also known as funded facilities. 2. Non-Cash Credits

Non cash credits are those where the bank substitutes its own credit for that of its customer e.g. * * 1. Opening import letters Issuance of bank guarantee CASH CREDITS

Cash credits or funded facilities are of the following types. a) b) c) d) Running finance/overdraft Demand finance Term finance Discount/purchase export bills

Running Finance / Over Draft:Department of Business Administration Faculty of Administrative Sciences Kotli58

Running finance is a credit facility established usually in local currency for a specified period of time at fluctuating rates of mark up (interest) whereby the customer is allowed to overdraw his account to an agreed amount.

Mark up is charged on the outstanding balance. Demand Finance: Demand finance is a credit facility, which is different from running finance in the sense that a fixed amount is credited to the customers account, which can be drawn by customer at any time at lump sum. Interest or mark up is charged on the full amount whether it is utilized or not. The demand finance facility falls into two categories: Demand Finance (Secured) Demand Finance (Unsecured) Demand loan is short-term loan, which usually involves less than one-year period. Term Finance: Terms loan is provided for a fixed period of time. Time period for term finance is more than one year and mark up rate depends upon the period-involved customer credit worthiness and SBP regulation. Discount / Purchase of Export Bills: Lahore Main branch of NBP provides loan against export documents by purchasing or discounting them for its customers. The Bank charges mark up on the credit amount till it is reimbursed by importer's bank. 2. Non Cash Credits59

Department of Business Administration Faculty of Administrative Sciences Kotli

Non-cash credit or non-funded facilities are described below: a) b) Letter of credit (L/C) Guarantees

a)

Letter of Credits (L/C)

From the lending or risk point of view, L/Cs are the facilities involving the substitution of the bank's credit for that of the customer whereby they takes on the commitment to pay a third party subject only to the terms and conditions of the L/Cs can be divided into two categories. Sight L/Cs .Usance L/Cs Sight L/Cs: Sight L/Cs is letter of credits where the bank will engage to honour the beneficiary sight draft upon representation provided that the document is in accordance with the condition of the L/C. Draft drawn at sight simply serves as receipts for payment. Usance Letter Of Credit: Usance LCs is similar to sight L/Cs but call for a time or usance draft payable after a specified period of time. Bank usually limits the usance period to 90 days. Exceptionally for undoubted customers, a maximum period of 180 days may be allowed.

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05- SWOT ANALYSISThis analysis is important because the department is under consideration are personal loan department, case remittance, clearing department. SWOT analysis is useful in assessing the department of such nature. 5.1 Strength These departments firstly have the name of very prestigious bank attached as with the bank that these department represents has good image of providing quality services to customers or looking for the best. The major strength of NBP Kotli distt.courts Branch team work. All the members are cooperative and positive due to this achieving the high targets easily and timely. The products of this department are offering have a clearing edge over its competitors in certain areas. This allows the term of branch to market something that is better then what the market offers, The repute of the bank is very positive, therefore customers are willing to enjoy with the NBP Kotli Branch. This results bank getting the customers without proper presentation. The major weakness of the NBP Kotli distt.courts branch is that it is not offering credit cards which create dissatisfaction because other banks are offering these facilities in the area. These customers having slight impact on bank image. This has direct impact on the personal loan department of the branch. 5.2 Weaknesses

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This branch at present is facing problems of continues hiring and firing of employees. This is resulting greater difficulty in the co ordination and synergy that may exit in the stable environment. During the course internship one people who have left the job and one new hired in the branch.

The management environment of the branch promotes fear and adopted leadership style is to treat the employees as theory X workers. This is resulting dissatisfaction and promotes sense of insecurity among employees.

Shortage of the staff is also prevailing in the branch which disturbs the efficiency of employs and overall productivity of the branch. Some employees in the bank just do the same job, they become the master of practicing job but they know almost nothing or loss their knowledge about other jobs.

The bank pays high profits to its customers and provide excellent services but there is lack of publicity of its services on the part of the clients. The pay scale of NBP employees is less then other banks which is an indication of discouragement among employees. The employees have no direct access to high authorities and a large hierarchy of person is involved. These create frustration in employees in solving their problems.

In most branches, there are no facilities of fax machines which results in late delivery of messages and dealings. The size of almost all branches of NBP is very small. It creates difficulty for the customers as well as staff members for proper dealings which always gives a congested atmosphere

5.3 Opportunities The major opportunity for NBP Distt.courts branch Kotli is it can increase its customers by hiring new qualified persons in the branch.Department of Business Administration Faculty of Administrative Sciences Kotli62

Another opportunity is rate of conservations which exiting customers can be increased for new contacts.

5.4 Threats The major threat that this branch is the stress level that are running high due to this certain employees not being able to meet their targets. This is having negative

impact on the figures for the entire branch and causing increasing tensions this may results in decaling customers if it is not resolved in an manner.

appropriate

Another threat is entry of new banks into the area. As more banks are starting to offer same or more facilities and services so this industry is becoming competitive and already saturated target market is nor showing great potential for growth.

5.5 Suggestion and Recommendations for Improvement Separate desk or counter should be established in every branch to provide the information as required by the clients. The environment of the office should be comfortable so that the client and feel comfort during business in bank. Every branch should be linked with other branches through internet etc. For improving the efficiency of marking message connivance should be provided. The competition of NBP get legal document signed during the time of approval of applications where as in case of NBP the legal documentation is carried out only after approved of application and amount of loan for a particular case. If process of the banks is applied extra time can be saved. Unsecured loan are not to be provided in case of bank directions, their families, companies or firms.

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There are some client having sound and successful plan but without financially sound and providing securities bank should from such polices which may solve the problem.

Every year some of the employees should be sent for training to other countries and employees should have their courses according to their requirement.

Most of the bank employees are striking to one seat only; with lose their grip on other banking operation. In my opinion each employee should have regular job change.

In commercial institutions like bank, reward and punishment system should be introduced mean active and progressive staff should be rewarded and appreciated and lazy, lethargic staff should be warned and punished.

The employees should be assigned jobs for specific period and then they should shift to other department so that they can give knowledge of other jobs. The National Bank of Pakistan should properly advertise and communicate to the public the services provided by it so that more customers will be attracted. The Bank management should give more incentives and pay scale of officers should revise and improved. In order to enter information fast moving world, the bank must be fully equipped with fax machines and computer application. The size of all branches must be enhanced and working condition should be improved. It will increase the productivity and efficiency of employees and the bank will get major benefits after some expenditure.

Some people in the bank are over burdened with work. For this, the work should be divided equally and in some cases more employees should be employed. In main cities the bank should start cash counter as well as ATM facilities to compete with other banks.

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How Quality can be improved The quality of any service relies as much on products it self as it relies on the staff that it requires. The selection of the staff on merit ensures batter quality. The NBP head office should change the salary of employ and strength the commission on performance. The procedure of approval loan should be easy. The NBP Distt.courts branch Kotli should start credit card scheme as soon as possible. Employees should be hired that have a skills and appropriate qualification because they work hardly and developed different strategies according to the situation and get maximum results. 5.6 Financial Position of NBP National Bank of Pakistan Consolidated Balance Sheet As at December 31st, 2004-05

ASSETSCash and balances with treasury banks

(Rupees in 000) 2004 2005

Balances with other banks Leadings to financial institutions Investments Advances Other Assets Operating fixed assets Deferred tax assets net

94,446,552 49,784,884 10,511,322 149,350,096 220,794,075 19,141,569 9,202,969---

553,213,467

71,196,956 31,019,330 16,282,942 156,985,686 268,838,779 23,941,056 9,454,365 --577,719,114

LIABILITIESBills Payable 7,214,671 Borrowing from financial institutions 11,084,790 Deposits & other accounts 465,571,717 Sub-ordinated loans ---Department of Business Administration LiabilitiesFaculty of Administrativefinance lease 17,058 against assets subject to Sciences Kotli Other liabilities 23,068,314 Deferred tax liabilities 29,185 NET ASSETS 506,985,735 46,245,732 1,741,156 8,756,847 463,426,602 ---16,629 24,974,450 4,462,718 503,378,402 74,340,712

65

Represented by: Share capital Reserves Inappropriate profit Surplus on revaluation of assets net of tax Contingencies and commitments

4,924,106 10,813,914

5,908,927 13,536,041

9,161,747 16,713,506 24,899,767 36,158,474 21,345,965 38,182,238 46,245,732 74,340,712

National Bank of Pakistan Consolidated Profit & Loss Account For the year ended December 31st, 2004-052004 2005 (Rupees in 000) 20,947,333 33,633,735 6,559,398 10,321,768 14,387,935 23,311,967 1,515,394 2,446,739 185,707 (245,881) 14,297 ---32,807 23,069 1,748,165 2,223,927 12,639,770 21,088,040 5,099,195 4,926,604 1,273,863 1,718,478 1,008,988 1,205,638 875,113 1,573,905 8,257,159 20,896,929 30,512,665 11,195,133 198,298 63,206 66

Mark-up/return/interest earned Mark-up/return/interest expensed Net mark-up/interest income Provision against non-performing advances Provision against for diminution in the value of investments Provision against off balance sheet obligations Bad debts written off directly Net mark-up/interest income after provisions

Non mark-up/interest incomeFee, commission and brokerage income Dividend Income Income from dealing in foreign currencies Other income Total non-mark-up/interest income 9,424,625

Non mark-up / interest expenseAdministrative expenses Other provisions/ write offs net Other charges 8,878,801 32,243 8,284

Department of Business Administration Faculty of Administrative Sciences Kotli

Total non mark-up / interest expenses Extra ordinary items PROFIT BEFORE TAXATION Taxation-current prior year deferred Profit after taxation Unappropriated profit brought forward Transfers from surplus on revaluation of fixed assets

8,919,328 11,977,601 11,977,601 4,950,000 847,958 (15,729) 5,782,229 6,195,372 5,892,902 45,496 5,938,398

11,456,637 19,056,028 19,056,028 7,154,002 (1,098,709) 291,291 6,346,584 12,709,444 9,161,747 43,221 9,204,968 21,914,412

PROFIT Available For Appropriation APPROPRIATIONS Transferred to: Statutory reserves Capital reserves Revenue reserves Reserves for issue of bonus shares at the rate 20% Proposed cash divided Rs. 1.50 per share Unappropriated profit carry forward Basic diluted earnings per share (Rupees)

12,133,770

(1,248,586) ----------(984,821) (738,616) (2,972,023) 9,161,747 10.48

(2,541,889) ---------(1,181,785) (1,477,232) (5,200,906) 16,713,506 21.51

National Bank of Pakistan

Consolidated Cash Flow StatementFor the period ended December 31st, 2004-052004 2005 (Rupees in 000) CASH FLOW FROM OPERATING ACTIVITIES

Profit before taxationLess: Dividend Income ADJUSTMENT FOR NON-CASH CHARGES Deprecation Provision against non-performing advances Provision for diminution in the value of investment Provision against off balance sheet obligations Bad debts written off directly Reversal/provision for voluntary handshake scheme Gain: on sale of fixed assets Financial charges on leased assets Other provisions

11,977,6011,273863 10,703,738 434,273 1,515,354 185,707 14,297 32,807 (369,475) (1,806) 4,549 32,243 1,847,949 12,551,687

19,056,028 1,718,478 17,337,550 567,438 2,446,739 (245,881) 23,069 (28,635) (17,922) 2,216 198,298 2,945,322 20,282,872 67

Department of Business Administration Faculty of Administrative Sciences Kotli

(INCREASE)/DECREASE IN OPERATING ASSETS Lending to financial institutions Held for trading securities Advances Other assets INCREASE / (DECREASE) IN OPERATING LIABILITIES Bills payable Borrowing from financial institutions Deposits Other liabilities Income tax paid Voluntary handshake scheme cost received/ paid Financial charges paid

19,426,535 (245,231) (61,076,476) (3,006,702) (44,901,874) 1,717,933 (5,601,619) 70,079,386 (404,977) 65,790,723 (2,906,037) 362,605 (4,549) (2,547,981)

(5,771,620) 279,072 (50,514,512) (3,033,624) (59,040,684) (5,473,515) (1,724,818) (2,145,115) 1,166,962 (8,176,486) (8,019,454) 27,106 (2,216) (7,994,564) (54,928,862)

Net cash flow from operating activities CASH FLOW FROM INVESTMENT ACTIVITIES Net investment available-for-sale securities Net investment in held to maturity securities Dividend received Investment in fixed operating assets Investment in subsidiary joint associates and joint ventures Sale proceeds of property and equipment disposed off

30,892,255

39,121,839 (9,667,572) 1,273,863 (697,759) 5,837 4,080 30,040,288

6,189,586 7,193,074 1,718,478 (804,423) (29,705) 23,861 14,290,871

Net cash flows from investment activities

30,040,288

14,290,871

CASH FLOW FROM FINANCING ACTIVITIESDividend paid Payment of lease obligations Net cash used in financing activities Effects of exchange rates changes on cash and cash equivalents Increase/decrease in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at the end of the year (512,149) (24,059) (536,208) 143,493 60,540,128 82,455,432 142,995,560 (736,529) (20,779) (757,308) (16,726) (41,412,025) 142,995,560 101,583,535

Department of Business Administration Faculty of Administrative Sciences Kotli

68

5.7 Activities performed By Me at the BankWhat so ever I was to perform at the bank is given as follows: 5.7.1 Accounts Department In this department, I gain the practical knowledge about opening account. This department deals with opening current and saving account for its customers and all matters regarding thereof. The customers opening current/saving accounts can be categorized as following: Individual, Firm, Company, Trust, Staff, &Others 5.7.2 Opening an Account In order to open an account, first of the entire customer has to fill a form prescribed by the bank. The person is required to bring some reference or introduction for opening the account. Introducer may be the person who has any account with NBP. Some important information regarding introducer e.g. the name and account number of the introducer is written on the space provided on the specimen signature card. Then in order to find out whether he is a true introducer or not, a letter is sent to him thanking him for this introduction so that anything wrong may come into notice. There are different requirements for different types of accounts and accountholders.Department of Business Administration Faculty of Administrative Sciences Kotli69

5.7.3 Deposits The procedure undertaken upon receiving deposits from the customer is as follows: i) Examining the deposit slip to ensure that the name and the account numbers are clearly indicated.

ii) iii)

Counting the cash/cheques and agree the total with the amount on the deposit slip. After that the payin slip is validated for cash transaction / transfer / clearing transfer as appropriate before the counterfoil is handed over to the customer.

iv)

Cheques signed by directors, partners or employees of a company, drawn in favour of themselves and credited in their account in the bank are to be scrutinized.

5.7.4 Withdrawals Amount can be withdrawn by cheques. The withdrawals can be made only at the branch where the account is maintained. All cash withdrawals are authorized by the officer under his full signature. No third party withdrawal is permitted. In current account, the bank does not offer any interest. We can deposit or withdraw any amount during banking hours. 5.7.5 Issuance of Cheque Book The account older requests for the new cheque book by presenting the requisition slip along with the authority letter to the concerned office. His signatures are verified before giving him a new cheque book. The presence of the account older is compulsory to get aDepartment of Business Administration Faculty of Administrative Sciences Kotli70

new cheque book. But if he sends a third person to get his cheque book then the procedure is as follows: i) ii) An authority letter is given to the third party by the account holder. The account holder verifies the signature of the third person on that authority letter.

iii)

The bank officer gets the signature of that third person to confirm whether he is the same to whom the accountholder has sent.

iv)

The bank issues the new cheque book and authority letter is kept by the bank.

5.7.6 Clearing Department In this department, I have worked for two weeks. Main branch receives the cheques from all of its branches and makes the lots of these cheques again. Main branch send these cheques to the State Bank of Pakistan where a clearinghouse exists. In this clearing house the representatives receive their cheques and go back to their bank's main branch. Then main branch sends these cheques to their relevant branches where the validity of these cheques are verified and the accounts of the relevant clients are affected. The statement of clearing was submitted before 1.00 P.M. daily. The whole procedure of clearing is completed within 2 days. 5.7.7 Remittances Department I worked in this department for one week. This department deals in transfer of money from one place to another or country by: 1. Demand Drafts71

Department of Business Administration Faculty of Administrative Sciences Kotli

2. 3.

Mail transfer Telegraphic Transfer

In this department internees are advised only to observe the working of transfer of money from one place to another place or country by the above mo