Objectives to study the organization

My basic purpose to study the organization is to get practical knowledge

where my education and skills utilize in a most appropriate manner. The

objectives to study the organization are.

The basic to study NBP is to understand banking system.

To observe how to deal with the customers and how motivate them.

To analyze how banks provide services to the public & private

sector.

To study financial transactions performed in a banking sector.

In order to know, how to handle banking documents.

It is second source of getting confident about practical work.

As a student, by doing lot of errors and mistake in practice at last

we able to get experience about a work.

It increases level of communication among employees and

outsiders.

1

To get knowledge how to create relationship and friendly

environment among people of different cultures.

To analyze Strength, Weaknesses, Opportunity, Threats (SWOT) of

the organization.

Provide efficient and effective recommendations on solutions of the

problems that face by the organization.

Brief History and overview of the organization

National Bank of Pakistan (NBP) was established in 1949 under the

National Bank of Pakistan Ordinance 1949 and was 100% government

owned. NBP acted as an agent of the Central Bank wherever the State

Bank did not have its own Branch. It also undertook Government

Treasury operations. By 1952 it’s became strong enough to take over the

agency function from the “Impirical Bank” of India. The NBP also

forward its operation and in 1964 established a people’s credit department

to allow credit facilities to small borrowers. It expanded a nation-wide

presence of supported by a network of online ATMs and expanded its

network of 1,200 branches throughout Pakistan. The bank is listed on the

Karachi, Lahore, and Islamabad stock exchange. It has more than 20

branches in foreign countries and still continues to open. The bank

provides both commercial and public sector banking services.

NBP is a schedule commercial bank and is engaged in business of

banking as well as a government bank services. NBP Advance Salary is a

2

big example of Individual middle class services. It is working under

Banking Companies Ordinance, 1962.

While continuing its journey of success, NBP gets highest profit in 2007

in banking history. As December 31, 2007 the bank has total assets worth

of USD 12.293 billion.

NBP is a commercial organization. It provides both commercial and

public sector banking services. The main focus of NBP is to raise assets

by marketing individual, wholesalers, manufactures, and government

sector in cities as well in urban areas development. This segment

contributes significant revenues to the bank. The liability side remains

focused on the middle and upper class, retired and serving government

servants. It is also a big contributor of foreign trade and serving as a

treasury bank.

In 1971, NBP acquired Bank of China’s two branches, one in Karachi and

one at Chittagong. At separation of East Pakistan NBP lost its branches

there. NBP merged with Eastern Mercantile Bank and with Eastern Bank

Corporation. In June 30, 1974 the government of Pakistan nationalized

NBP when the part of bigger bank amalgamated and NBP acquired Bank

of Bahawalpur. In 1994 NBP remains continue to increase its strength and

merged Mehran Bank.

In 2001, with the cooperative agreement of Pakistani Central Bank SBP

and Bank of England allow only 2 Pakistani banks to operate in the UK.

NBP and United Bank agreed to merge their operations to form Pakistan

International Bank (PIB), of which NBP would own 45% and United

Bank 55%. In 2002, Pakistan International Bank renamed itself United

3

National Bank Limited (UNB). The ownership structure of the UNB

remained as before. The only change to the shareholding structure is that

UBL had recently been privatized in Pakistan and was now owned 49%

by the Government of Pakistan and 51% by a joint foreign consortium of

Abu Dhabi. In 2003, NBP received permission to open new branches in

Afghanistan and Bangladesh, the inaugurated ceremonies of these

branches held in 2007.

Head Office

Head office of NBP in NBP Building, I.I. Chundrigar Road, Karachi,

Pakistan which is “the city of lighting” in Urdu “Uroos-ul-Bilad” which

was also the first capital and ancient place of Pakistan. It carried out its

successful journey to make it an “Asian Tiger”.

Corporate Information

Board of Directors

Syed Ali Raza Chairman & President

Mian Kausar Hameed Director

Muhammad Ayub Khan Director

Mr.Tariq Kirmani Director

Sikandar Hayat Jamali Director

Azam Faruque Director

Muhammad Arshad Chaudhry Director

4

Auditors

The auditors, M/S Ford Rhodes Sidat Hyder & Co. and M. Yousaf Adil

Saleem & Co., Chattered Accountants have completed their assignment

for the year ended Dec.31, 2007. These are the independent external

auditors involved in providing financial services, with the approval of

State Bank of Pakistan.

Customer Services

NBP offers a number of valued products and services to the diverse

market segments. These include.

LIABILITY PRODUCTS ASSETS PRODUCTS

Saving/Time Deposits Personal Finance

NBP Debit Card Home Finance

Utility Bills Payment Business Finance

Travelers Cheques Mortgage/Agricultural

Running Finance

Demand Finance

Awards and Recognition

Over the years, NBP has received several awards for its better quality of

providing banking services to the individual and businesses.

Credit Rating

5

According to annual report the year ended December 31, 2007, the “JCR-

VIS Credit Rating Company Limited”. NBP enjoys the highest credit

rating amongst Pakistani banks. The rating company awarded highest

standalone credit rating of ‘AAA’. The JCR-VIS credit rating Co.

signifies that the organization has been able to strategically manage and

build on its competitive advantages, which has translated into the strong

and well managed in profitability.

Functions of the organization

The financial Intermediaries or banks mean a business that interacts two

types of individuals and institutions for economic development.

Deficit-spending individuals and institutions

Surplus- spending individuals and institutions

Deficit-spending individuals and institutions are those whose expenditures

exceed their income, they need extra money to further carry on their

movements required through capital i.e. through borrowing of money or

issuance of stock.

Surplus-spending individuals and institutions are those whose income

exceed their level of expenditures, they have extra money in his pocket;

they invest surplus money or deposit it for savings.

In small words, a bank is a financial intermediary accepting deposits from

general public and granting loans: offers the widest menu of services of

any financial institutions.

In ancient days, banks were providing separate services as compare to

financial institutions. They were providing specific functions. Now days

6

banks are configured and performing all those activities of products and

service due to the requirement of the customers. NBP is a commercial

bank. NBP is a most powerful organization in Pakistan due to deposits.

The success of NBP hinges on their ability to identify the financial

services the public demand producing those services efficiently and sells

them at a competitive price, the basic purpose to increase shareholder’s

wealth. The main functions and objective of NBP are.

Mobilizing of money for economic development of Pakistan

Acting as a government or local or any other person or persons,

and on behalf of agency of customers.

General utility services

Accepting deposits and providence of loans etc.

Business volume

Rs.in million

Particulars/years 2003 2004 2005 2006 2007Total Assets 468,972 553,231 577,719 635,133 762,194Deposits 395,492 465,572 463,427 501,872 591,907Advances 161,266 220,794 268,839 316,110 340,677Investments 166,196 149,350 156,985 139,947 210,788Shareholder's Equity 18,134 24,900 37,636 53,045 69,271Pre-Tax Profit 9,009 11,978 19,056 26,311 28,061After-Tax Profit 4,198 6,195 12,709 17,022 19,034Earnings Per Share (Rs) 8.53 10.48 17.92 20.88 23.34No of Employees 13,272 13,745 13,824 14,019 14,079

7

Trend Analysis

Rs. in million

Discriptions 2007 (X) YRevenue 42,451 -3Deposits 591,907 -1Advances 340,677 1

Investments 210,788 3Total 1,185,823 0

By Equation,

Y=a+bX

By simplifying,

∑Y=na+b∑X∑XY=a∑X+b∑X2

Hence by putting values, we get

a=0.465b=.00000157

So equation isY=0.465+.00000157X

8

DIFFERENT DEPARTMENTS AND THEIR WORKING

Different Departments

9

Branch Banking

General Banking Credits/Loans

Credit Facilities Loans Documentation

Deposits Cash Account opening TDRs/Non-

Checking Accounts

Remittances DD, TT, PO Online funds

Transfer/MT Traveler Cheques

Collection of Cheques

Clearing Bills

(OBC, IBC, LBC)

AccountsDepartment

Daily Activities Record Keeping

WORKING OF DEPOSITS DEPARTMENT

Deposits are the lifeblood of commercial banks. The main function of a

commercial bank is to mobilize deposits of money from the savers and

lend into for most profitable purposes. The process of collection deposits

is “Deposits Mobilization”.

Deposits can be divided into two categories.

10

Deposits

Checking Accounts

Non-Checking Accounts

NIDA

PLS Saving Account

Special Notice Deposit Accounts

PLS TDR’s

Current Deposit Accounts

Foreign Currency Accounts

Categories of Deposits

There are two broad categories of deposits. These are

Time deposits

Demand deposits

Time Deposits Demand Deposits

These are payable on

maturity

Receive profit with respect to

time period

All TDRs, saving accounts

and other profit bearing

accounts are included.

These are not payable of

maturity but on demand

No profit is given on demand

deposits

They include current

accounts and call deposits

etc.

Current Account

Current accounts are opened on proper introduction and submission of

required documents.

No profit is paid on the current account holders.

No limitation to the number of withdrawal.

11

Statement of Account is issued free of charge to the current account

holders on semi-annual basis.

No zakat is deducted on current account.

No withholding tax.

Basic Banking Accounts

BBA’s are opened on proper introduction and submission of required

documents.

BBA’s are opened for individuals single or joint only.

No profit is paid on Basic Banking Accounts.

In BBA’s maximum two deposits transactions and two chequing

withdrawals are allowed free of charge through cash/clearing in a month.

Charges only made on issuances of ATM, no charges are made on further

transactions from the banks own ATM.

PLS Saving Account

Saving deposits were introduced to encourage the habit of saving among

people. In order to encourage the Islamilisation of the banking system in

the country, the bank is authorized to accept deposits on profit & loss

sharing basis. The bank is authorized to deduct service charges on half

yearly basis. Profit on PLS Saving Account is calculated on minimum

monthly basis and is paid half yearly basis announced by the Head Office

after June 30 and December 31.Zakat at the rate 2.50% is deducted from

the PLS Saving Accounts. A withholding tax at the rate of 10% on profit

is recovered from the account holder.

National Income Daily Account (NIDA)

12

The scheme of NIDA was launched in December 1995 at attract at

corporate customers.

NIDA are opened for individuals single or joint, Charitable institutions,

Provident funds, autonomous bodies, companies, associations,

educational institutions, firms etc.

NIDA is accepted only on the condition that the depositor shall always

maintain a minimum balance in his account.

These are special accounts of savings. Profit is paid to the account holder

on daily basis.

Premium Amdani Account

Premium Amdani Account is opened by all who are allowed to open

current, PLS, NIDA accounts.

It is necessary to maintain minimum balance if not no profit for the month

will be paid to the account holder.

A higher rate of profit as per bank discretion paid to depositors

maintaining balance Rs.300, 000/=

Maximum two debit transactions in a month are allowed free of charge.

On 3rd transaction profit will forward.

Additional amount only accepted in lot Rs.25, 000/= if any customer

wants to deposit money.

Premium Amdani Certificates are issued for the period of five years.

PA deposits are drawn only at maturity if in the event any depositors

wishes to draw before maturity, he will liable to the right to contribute in

loss only.

PLS Term Deposits

13

The bank accepts these deposits with minimum sums as prescribed by the

bank for a fixed period of time.

Terms deposits are accepted for a period of one month to five years.

Minimum deposit is accepted is Rs.25, 000/= with no upper limit.

Available to all types of investors i.e. individuals, partnership firms,

public and private limited companies, corporation, trusts, and government

bodies. Profit is paid on maturity. Profit may be paid in cash, pay order,

demand draft or any other form.

Call Deposits

Call deposits are the sorts of deposits, which are deposited in the bank

against any tender. This is without interest deposit and may be with

interest provided. The depositor has agreed to keep this amount with the

bank for some fixed period.

Foreign Currency Accounts

These are the accounts in US $, Pound, Euro, yen etc. of different account

holders and either saving or current accounts.

Profit is fluctuating as determined by the State Bank of Pakistan on six

monthly basis whereas return on Term deposits/SNTD will paid on

maturity.

The transactions in these accounts are translated into Pak. Rupees at the

exchange rate prevailing on the date of transaction.

WORKING OF DEPOSIT DEPARTMENT

14

Account opening

NBP has the following classification of accounts.

1. Accounts of general customers (Individual accounts)

Minor account

Illiterate person account

Joint account

2. Accounts of special customers

Proprietorship account

Partnership account

Limited company’s account

Accounts of clubs, societies and associations

Agent account

Trust account

Executor’s and administrator’s account

The procedure of opening a new account is as follows: The Account is

opened after obtaining proper information. All the necessary documents

required opening an account according to the account opening type

obtained from the customers.

A distinctive Account number is allotted to each account holder.

The signature of the new account holder is taken on the account opening

from and SS (Sample Signature) Card from individual and in case of the

company.

15

The signature of the introducer is also verified on the account opening

form with CNIC copy.

For illiterate person a picture of the newly account holder is taken and

attached with SS Card.

In case of signature other than English by the account holder vernacular

form is obtained.

First chequebook is issued after all formalities are completed.

Cheque Book Issuance

Before issuance of chequebook all the account opening formalities should

be completed.

First chequebook issued against account opening form with letter of

thanks by the account holder.

The signature of account holder is duly verified with SS Card.

All subsequent cheque books to be issued against the requisition slip

extracted from the previous cheque book.

Name and account number should be written on cheque book and

requisition slip.

Stamp or write down account number on each leaf of the cheque book.

Cheque books issued in the running serial order.

Enter particulars in the cheque book issue register.

Enter detail in the system. These records should be daily checked by the

Daily Cheque Book Report, which should be signed by the authorized

officer after checking cheque book series input number. At the end of the

day all the cheque books should be checked and balanced with the help of

requisition slips.

16

In case of cheque book is issued without the requisition slip of previous

cheque book care must be taken to establish the genuineness of the

customers and Form should be obtained.

In some cases when cheque book is issued by the person duly authorized

by the account holder for obtaining cheque book, a letter of issuance of

cheque book is sent to the account holder for his acknowledgement.

In rare cases when customer demand printed cheque book, requisition slip

with demand letter is sent to the NIFT (National Institutional of

Facilitation Technology) (PVT) Ltd.

WORKING OF REMITTANCE DEPARTMENT

Four main modes of remittance are:

Demand Draft

Pay Order

Mail Transfer/Online Funds Transfer

Telegraphic Transfer

Demand Draft

It is a legal banking document payable on demand for which value has

been received, issued by one branch of the bank drawn by the same

branch of the bank from one city to outside the city. In case of agreement

the other branches of other banks. e.g. can also draw it. DD issued by

NBP payable by HBL.

17

Issuance of Demand Draft

The customer on standard DD application form makes request.

All information such as name of beneficiary, place where the DD is

drawn, amount mode of payment, cash/cheque/debit authority, signature

with name and address is filled.

The issuer checks the information.

Commission as per schedule of charges is charged.

Withholding tax as per applicable rates is recovered.

After the customer has made payment by cash/cheque, get the voucher

from cash department.

The DD of required amount is prepared.

The DD in NBP is manually prepared.

Junior DD can also be used in place of Senior DD if not required by

writing down with SNR DD equal to Rupees --.

Entry is made in DD issued register as well as on the system on which

following entry is passed.

Dr: Cash/Customer’s A/C

Cr: DD issued

Cr: DD issuance charges

Cancellation of DD

If any customer wants to cancel DD, obtain application in writing along

with original DD.

Verify the signature of applicant. This signature should tally with the

signature of DD application form.

Check the DD account into system of payment made or not.

Mark cancellation in DD issued register.

18

Recover cancellation charges.

Payment is made from Suspense Account DD cancelled after recovery of

cancellation cheque is per schedule charges.

Inform the drawee branch regarding cancellation and ask for Inter-Branch

Credit Advice (IBCA).

On the receipt of IBCA adjustment is made.

Lost/Stop payment/Issuance of Duplicate DD

Application form received from purchaser and verifies the signature.

Inform the drawee branch of the loss of DD and advise them to mark

caution against payment if presented.

After necessary checking, the drawee branch will inform the branch about

the status of DD whether it has been paid or still outstanding.

Write on the face of duplicate DD in red ink”Duplicate in lien of original

DD No--- dated ---reported lost”.

The duplicate DD will have the same control number.

The DD serial control is mentioned on application form.

The signing officer must check all the particulars before signing.

Pay order

Pay order issued from one branch is only payable from the same branch. It

is normally issued for payment in the same city and is referred to as

Banker’s Cheque.

Issuance of pay order

Get application form from the customer.

Issue pay order after vouchering all necessary formalities.

19

Get recovering charges and withholding tax in case of cheque deposit for

PO.

Make entry in PO issue register.

All pay order must be crossed “payee’s account only”.

It must be noted that Inter-Branch Clearing Advice is not involved

because it is payable at the same branch and same city only.

Cancellation

Get application for cancellation with original pay order.

Recover cancellation charges.

Signature verified by the officer.

Duplicate PO

Check the record that payment has never been made.

Get application for issuing of duplicate PO.

Recover charges as per schedule.

Issues duplicate PO by writing “ink red” pen “Duplicate PO”.

Mail Transfer/ Online funds Transfer

It is the quickest and safest modes of transfer of funds.

Application form submission is same as DD.

In MT funds are transfer through system within seconds if 2nd branch is

online.

Funds transfer only same branch of the banks.

It is necessary that the customer must have the Branch Code of the host

branch, account number of a drawer, name of place, etc.

Necessary requirements of funds transfer.

20

Account enquiry

Cash transactions

Transfer of funds

Printing statement

Inter-Branch Clearing Advice is involved.

The access can only be made through key password.

If OK message is received by the issuer branch system from host branch

then the source branch to proceed further otherwise not.

Telegraphic Transfer

It is also a quick way of transfer funds from one branch to another of the

same bank through telephone, fax/telex.

Procedure of application and vouchering is same as a DD.

Apply test on the TT message and appropriate codes and instructions such

as advice & credit or advice & debit.

It is mostly cleared through main branch of the same area.

Recover commission, telephonic charges and withholding tax as per

applicable rate.

Schedule of Remittance charges

DD/MT/TT issue a) upto Rs.100,000/- 0.10% min Rs.50/-b) upto Rs.1,000,000/- 0.05% min Rs.100/-c) over Rs. 1,000,000/- 0.04% min Rs.400/-

21

Pay order d) for A/C Holder Rs. 55/-e) for Non-A/C Holder Rs. 110/-f) Issuance of Duplicate DD for A/C Holder

Rs. 200/-

g) Issuance of Duplicate DD for Non-A/C Holder

Rs. 250/-

h) Issuance of Duplicate Pay order for Non-A/C Holder

Rs. 150/-

i) Postage charges on TT only Rs. 75/-j) TT phone charges Rs. 100/-

WORKING OF PENSION/LOCKER DEPARTMENT

Pension is defined as the payment of retired govt. servants, who die

during service but fulfill the age of pensioner, Employees Old Age

Benefits (EOBI), etc.

Types of pension

Govt. servant retired benefits

Benevolent funds

Employees Old Age Benefits

Required documents in case of a new pensioner holder check by the head

of department.

Entries of new pensioner holder are made into the “Pension Register”.

22

If the customers receive Benevolent Funds opportunity entries are also

made into “Benevolent Fund Register”.

Recommend monthly pension according to the permissible amount duly

approved by the competent authority.

In case of a customer wants to transfer pension indirectly in his account

deposit slip is attached with pension form.

The necessities before filling an application of pension form are P.P.No,

Army No, and Railway Station No. etc due to the post and department of

pension where employee.

Entries are made at last into the system.

Locker

It means a box operate by a customer of holder on permanent basis.

There are three types of locker operate in banks.

Small

Medium

Large

An application form is necessary for customer with desire documents and

approval made by the head of department.

Locker operation account is allowed for a account holder, Non-account

holder not able to operate it.

Lien is placed on the account of a locker holder on drawing of amount.

Entries are made on “Locker Register” as well as on the system.

Locker No and Key No is allotted to the locker holder for further

operation.

23

Charges of Locker

Small Rs.8, 000/=Medium Rs.12, 000/=Large Rs.16, 000/=

WORKING OF CLEARING AND CHEQUES COLLECTION DEPARTMENT

Clearing

Clearing is a system by which banks exchange cheques and other

negotiable instruments drawn on each other within a specified area and

thereby secure payment for their clients through the clearinghouse at a

specified time in an efficient way.

Clearing House

National Institutional Facilitation Technology (NIFT) Pvt. Limited is

performing the function of clearing and charges commission against it.

The commission of per collection charges is Rs.2/- per cheque. Before the

NIFT, the State Bank of Pakistan (SBP) with efficient controlling staff

performed the process of clearing.

The process of clearing is carried in two categories.

Inward clearing

Outward clearing

24

Inward Clearing

Cheque received of other parties after clearing are lodged in the system by

vouching date, signature, documents numbers is noted. The cheque

without sufficient balance, changing in amount, signature and verifying

other formalities returned to the customer by attaching return memo

explaining the cause of cheque return. Return cheques also enter into the

return register by writing dates, causes of return, and amount. After

posting summary of cheques is prepared and cheques return to third

parties through NIFT.

Outward Clearing

These are the cross cheques deposited by the customers for credit the

same amount to its account. Before posting following is being performed.

Crossing cheque stamp if not place it.

Title of account and account number from deposit slip is checked.

The deposits slip is handed over to the customers by branch stamping.

Entry is done in daily register.

Add list is being prepared.

Special crossing clearing stamp of next day is affixed.

The payee’s amount will credit stamp is affixed on back of the cheque.

In case of outside city clearing Inter-Branch Clearing Stamp is affixed.

Place all the cheque in a back with special closing and sent to NIFT.

WORKING OF ACCOUNTS DEPARTMENT

25

Daily Activities

The main function of this department is to check daily transactions

whether cash, transfer of payments, billing, and clearing of all the

departments.

Following procedure is followed in checking daily activities carried out in

different departments of the branch.

All the vouchers, advices both manual as well as computerized

obtained for posting in the system of each department.

All the vouchers and advices are further sorted in ascending and

descending order for the sake of convenience in checking and tally

information.

It is checked whether or not the account number, instrument

number, document number and amount appearing in words and

figures are agreed with the information appearing in the

computerized record.

In case of changing or discrepancy informed to the concerned

department.

All the credit, debit and billing voucher bunched separately.

The name of the branch, date of vouchering, title and number of

vouchers is written on voucher must be cover authorized signature.

All the above vouchers assist in case of any enquiry and audit.

Handling of Stationery

26

All the branches of the companies required having a complete record the

stationery to be used. Accounts department also maintain and handle the

record of stationery used during the month.

G-9 NBP branch request to main branch for stationery requirements and

record maintain for this purpose. On receipt of stationery following entry

is passed.

Dr. Stock of Stationery

Cr. Main Branch

Stationery issued into the branch for daily uses and entry is passed.

Dr. Expenditure A/C Stationery

Cr. Stock of Stationery A/C

LEARNING AND PERSONAL INTERNSHIP EXPERIENCE

27

In Allama Iqbal Open University, Islamabad, the students of Department

of Business Administration are required to undergo for eight weeks of

internship to complete the Master degree. For this reason, I carried out my

internship in National Bank of Pakistan, G-9 Markaz, Branch, and

Islamabad and try to prepare my report.

During the session of three month I work in different departments on

weekly basis. The employees of the bank help me and provide me all

required information. I studied major functions, objectives and future

planning. I worked in different departments during working as a internee

which is very beneficial and I am able to get basic concepts of banking

operations.

Deposits Department

The basic purpose of the deposits I stated earlier in previous discussion.

Ms. Seemi Qazi is the head of this department. The main function of this

department are maintaining records of saving, current, call deposit, and

NIDA account holders, their signatures, their balances, issuance of cheque

book, scrutiny of cheques issued.

I worked in Opening accounts, made entries on accounts opening register

and post them into the system. It was crucial to entry made on computer

but after three days it was permission to me to make entries on the system.

I prepared several cheque books and enter the detail into the system as

well as in the cheque books issuance register. I also learnt to cheque

posting on system. In the cheque book posting something which are

necessary, account number, cheque number and amount to be debit or

credit should be matched.

28

Cash session in the bank is one the sensitive place we as a internee also

work there in cash deposit, withdrawal, etc. There is a complete process in

case of cash withdrawal. A person who fills a cheque take the token,

posting is done into the system and then signature is verified. In case of

discrepancies in signatures, date, cutting, and the amounts written on the

cheque in words and figures, the cheque returned to the customers without

any excuse. SS cards verification is one of the most difficult works of this

department; I also go through only specific activities in which the heads

of verified informed me.

Pension/locker department

Mr. Atif Hussain is the head of pension/locker department. During my

internship, I learnt how to handle with new pensioner’s cases, entries

made into the “pension register”, recommend payments of pension on

monthly basis, transfer of payments into the accounts of the customers,

entries made into the system. The most obligatory thing for payment of

pension is to check pension slip in form of cash payment P.P.No., name of

the pensioner, signature, and payment period. In case of pension holder

does not come to receive, it is legally recommended that the pensioner

holder issue authority letter to the desire person otherwise pension will

never be paid in cash.

I carried out my further effort to learn in locker department. In locker

operation, I help in fulfillment locker application form, entries made on

the “locker register” then key no and locker no allotted to the locker

customer.

Remittance Department

29

It is a transfer of money payable at a certain place within or outside the

country. It was my third department. Ms.Seemi Qazi is the head of

department. In this department I learnt about issuance of PO, DD, MT,

and T.T. I made all the four categories of funds transfer. Head of

department help me a lot to achieve this target. I only make entries of PO,

and DD, on the system. MT is an online system it was not permissible to

internee to do it. The Manger only does TT; it is so secret way of transfer

funds.

Accounts Department

In accounts department, Mr. Ahmad Assistant is performed all activities. I

sorted vouchers, check daily activities, and check advices by tallying the

account number, instrument number, document, and amount appearing on

the instrument in words and figures with the information register and on

the system.

Structure and Functions of the Accounts/Finance

Department

30

The department of finance and accounting is a large department and the

head of this department is chief executive Finance and second major

controlling authority is the assistant executive finance and all the

reporting comes to the executive finance in the end. In this major

department there are two major operation authorities, one is the head of

finance department and the second is the head of accounts department and

both the heads have separate duties and responsibilities and they report to

the executive finance in the end.

CFO

Finance Department

Finance Manager Operations &

Business

Senior Business Analyst

Business Analysts

Accounts Department

Accounts Manager

Payroll Manager

Senior Accounts Payable

Accounts Asst Payable

Senior Accounts

Receivable

Accounts Asst Receivable

Asst Finance Officer

31

Head of finance department works with the sub-ordinates like manager

business operations and finance manager business and senior business

analyst etc. and they perform their duties like budgeting controlling and

analyzing the different activities of finance department. And the other

officer is the accounts manager, who performs managing the accounts

operations and reports upon them to the executive finance.

Accounts Department

32

Accounts Department plays a vital role in the development of banking

functions. It’s considering a backbone of the bank. The accounts

department in NBP is functioning computerized as well as manual. It

handles each and every transaction is being made into the bank, and

control expenses and allocation of funds through appropriation of

accounts. The work in accounts department is depending on vouchers and

contra entries are passed through different heads.

This officer is working under the director finance, or in other words

director finance is the higher authority for this department and its

functions are as under.

The functions cover the working in accounts department is as follows.

Budgeting

Controlling

Analyzing

Directing

Coordinating business activities

Reporting to director finance

Admin activities

Finance Department

It is the person, which is also bond to the executive, finance and accounts

because executive finance is the higher authority to this person but the

33

functions of this department are not same in the nature to the above first

department.

The primary responsibility of finance department is making planning,

analyzing, and valuation of financial resources and to provide consistent,

reliable, and timely information to management, stakeholders, regulators,

and internal business groups to help management in appropriate decisions

making for improved performance of the bank.

The main functions of the finance department are as follows.

Analysis of accounts

To maintain inventory records

Finance activities

Audit preparation

To keep record of loans, accounts, cash, and all banking

transactions according to accounting principles

Funds management

Preparation of cash flow, income statement, and balance sheet

The use of effective budgetary techniques for budgets

Preparation of reports/ cash forecast

NBP is a most growing organization and performing a role as a treasury

on behalf of SBP, the whole functions of the bank is totally depend upon

the finance department. It has a core value in the promotion of banking

sector. Budgets and forecasting is further assist for future planning.

Different books of accounts are prepared into the bank through

34

computerized system and manual. The accountants prepare daily, weekly,

monthly, quarterly, and yearly reports.

Preparation of repots

The basic purpose of accounts and finance department is to prepare

financial reports for decision-making and future planning. Different

reports are prepared in NBP due to getting information and time period

requirements. Reports are prepared by using general ledger. The

following reports in accounts and finance department are prepared.

Daily reports: It summarizes the daily position of all the main heads of

the bank i.e. cash, loans, deposits, accounts and ATM’s. Other daily

reports are

Balance Sheet

Reconciliation reports

Trial balance

Financial statement

Daily expense vouchers

Monthly Statement: These reports are monthly basis in order to know

the position of the bank and pay rewards on monthly basis, etc.

Balance sheet

Profit and loss statement

Monthly analysis of expenses

Actual budget analysis

Cost of funds statement

Variance analysis

35

Trial balance

Quarterly Statement: It includes tax statement, reconciliation’s, others

reports and interest statements etc.

Role of Financial Managers

Cash management

Cash includes physical cash comprising of currency notes and coins held

in the office, at the factory, branch or company. There are three major

reasons for holding cash:

Transactional motive

Precautionary (Emergency) motives

Speculative (Investment) motive

As a financial manager, it is the responsibility of a manager to hold cash

up to the point where current ratio should never be decrease in by one.

The focus of manager to holds the optimum, amount of cash in hand at the

right time. Cash management shows that how an organization needs, how

much it as, and where to be collected. The objectives of financial manager

to invest excessive amount for a return while retaining sufficient liquidity

to satisfy future needs and plan where money to be collected or borrowed.

The amount of cash to be held depends upon the following factors.

1. The Manager develops a complete cash management policy.

2. Idle cash should be minimized.

3. The bank should be able to payment obligations on due dates so as

not to lose any goodwill.

4. The bank completely maintains a current liquidity position.

36

5. Forecast short and long-term cash flow.

6. The maintenance of cash flow due to deterioration in economy.

7. The Manager follows a speed up cash receipts methods.

Concentration Banking

Offer cash Discount to the customers

Selling of Account Receivables

Prompt follow up debtors/Reminder

2nd Reminder

Contact to court or recovery department

Credit Management

“It is management of account receivables or the people to whom a

company sells goods or services.” Advances and Deposits are the major

sources of the bank. The volume of banking sector is depending upon

these factors. Financial experts are desired to extend credit due to the

limitations of the customers and capability to pay back. In NBP, G-9,

branch advance salary and subordinated loans are basic and big credits

issued to customers. NBP extend credit in order to.

To attract new customers

By encouraging existing customers to get more deposits and

credit

37

By producing loyalty among customers, leading to client

retention

1. The role of Manager to draw up a complete credit policy to ensure

2. The manager analyzes “Credit Information Bureau Report” (CIBR)

before issuance of credit to any customers. The basic needs to be

discussed and study by the Manager are to see.

Overall parameters for credit volume

Vetting process of new clients

Classifying clients

Procedure for processing orders from clients

Credit records

Follow up procedure

Incentives for prompt settlement

Recovery process

Provision for Bad and Doubtful debts

Periodic review of credit situation

Use of Information Technology in Decision making

Today banking is becoming more and more complex with the introduction

of new products, services and enhancing regulatory compliance

requirements. It is the use of information technology that can improve the

customer’s services and reduce the cost at the same time. NBP adopted

“IBM Software” for service providing motives, the “IBM Software”

categories into two sections.

BBO (Branch Banking Office)

38

EBS (Electronic Banking System)

EBS is used for any kind of transaction within the bank .i.e. Receipts and

payments, Bills Collection, Tax receipts, etc. BBO is use for remittances.

The use of IBM Software is one of the main purposes of collection

electronic data for the bank that further helpful in future in decision

making. Now a day, the bank plans for transformation of the entire I.T.

architecture by implementing a core Banking Solutions.

The bank prepares financial statements, agricultural reports, customer’s

management, risk management and other reports for decision-making

purposes. The I.T. system of the bank not only increases distribution

capabilities but also simplify internal procedures thereby reducing the cost

and lead-time for services. NBP has started a number of projects in

relation to I.T. infrastructure up gradation. The bank is expanding its

ATM (Automatic Teller Machine) network and connectivity to reach to

the customers in every corner. In future, NBP is looking I.T. products for

salary and pension disbursements and E-banking for better services.

Competitor’s analysis

The growth in the banking industry of Pakistan has led to an increase in

the number of banks both domestic and international to be established and

create a competitive industry. NBP competitors come in the form of both

domestic and international banks working in Pakistan because of its

products and services offered. NBP is in position to increase its market

39

share and shareholder’s wealth by enhancing products and services and

become a largest bank in the history of Pakistan in financial year 2007.

Descriptions/Banks NBP MCB UBL Bank Alfalah ACB

Total Assets 762,194374,07

2 383,472 317,711307,03

4

Deposits 591,907281,34

9 335,077 279,917251,71

1

Advances 340,677243,39

2 254,272 197,277114,97

1Capital 69,271 43,259 16,807 14,499 13,053Profit after Tax 19,034 12,444 12,056 10,555 9,097

Source: SBP

Total Assets

NBP is a most growing organization in banking sector. Total assets of

NBP are persistently going to increase and show an upward trend

throughout the financial year. Table show that total assets of the bank for

year 2007 are Rs.762, 194/= in million while increase by 16.6% then last

year. We can see that total assets of the bank are still at top position that

shows its growth due to its competitors. The latest figures show that MCB

at 50.9% less, Bank Alfalah at 58.32% less, UBL at 49.6% less and ACB

at 59.72% less, comparison in financial year 2007. So we can say that

NBP is in strong position in banking sector.

Deposits

Deposits are treated as backbone of the banking sector. Banks offered

different schemes to allocate deposits form general public and lend them

40

to public and corporate sectors. NBP is also one of them. Deposits of NBP

in Rs.591, 907/= in million. NBP now enhance its position by 15.21%

then last year 2006. It shows NBP’s economic stability.

Advances

Loans and advances are the major sources of revenue in banking business.

Advances of NBP in financial year 2007 is Rs.340, 677/=, MCB is at

Rs.243, 392/=, UBL at Rs.254, 272/=, Bank Alfalah at Rs.197, 277/=, and

ACB at Rs.114, 971/= in million mentioned above on the table. It express

that NBP got 7% increase in advances in year 2007.

Capital

The capital is the amount invested by the owners into business. All

shareholders are the owners of the organization. NBP’s balance of at

January 1, 2007 was Rs.7, 090,712/= and issued bonus shares at 15% by

Rs.1, 063,607/=. The table shows persistent growth as its competitors.

Profit after Tax

The profit of NBP is Rs.19, 034/= in million which is the highest rate of

profit in banking sector. So the highest profit shows that NBP received

best return on capital for 2006 amongst all banks in Asia.

Sources of funds

41

Sources of funds reveal the organizations needs for funds, the timing of

these funds when required, and for what purpose these funds are needed.

These are the main elements to carrying out the operations of business. It

involves the analysis of capital uses by the Bank i.e. Debt and Equity

financing.

Debt financing

NBP’s in financial year 2007 get debt in Rs.10, 886/=, and Rs.11, 704/=

in million in year 2006, which is 7.5% low. Bills payable of the bank are

also decreasing by 50% in 2007.

Equity financing

The basic purpose of financing is to get funds from different ways

depending upon capital structure mentioned by the top management

during a period of time. But to finance with lower interest rate and invest

higher return is the business of banks. NBP’s share capital with increase

in 13.05% year 2007 is

Rs.8, 154/=.

Generation of funds

NBP offers different products and services to generate funds. Deposits are

the main heads of generation of funds. The banks receive from public and

invest it for the sake of return. Banks receive fees, commission on

services offering; get interest of investments, and dividend etc.

42

Descriptions/Years 2003 2004 2005 2006 2007Interest income 12,716 14,387 23,312 30,153 33,629Total income 17,345 20,944 30,512 39,945 42,451Net profit 4,198 6,242 12,709 17,023 19,033

Source: annual report

Allocation of funds

The most important functions of banks are to allocate funds and make a

portfolio of funds to profitability. NBP allocate resources from different

ways i.e. reserves, and fixed asset sales.

Reserves

It is the amount set aside to meet statutory requirements of SBP and

maintain liquidity position. The reserves of NBP are Rs.8, 133/- in million

in financial year 2003 and then constant increase with 26.8% in 2004,

17.86% in 2005, 2.54% in 2006 and 12.01% in year 2007. It also

determines the position of the bank during a period of time.

Fixed assets

Fixed assets are immoveable assets of the organization. Financial year

ended December 31, 2007 shows property and equipment of NBP are

Rs.29, 792/= in million before depreciation and after depreciation amount

43

is Rs.25, 454/= in million, it is also a comparative figure to show a bright

future of the bank.

Financial analysis

Financial analysis refers to an assessment of the viability, stability, and

profitability of a business, or projects. It is performed by professionals

who prepare reports using ratios and other analysis that make use of

information taken from financial statement and other reports. These

reports are usually presented to top management as one of their bass in

making business decisions. Or it is a process, which involves

reclassification and summarization of information through the

establishment of ratios and rends.

Balance Sheet as at December 31, 2003-07

Descriptions 2003 2004 2005 2006 2007Assets          Cash and balance banks 59,420,502 94,446,552 71,196,956 78,625,227 94,873,249Balance other banks 24,154,070 49,784,884 31,019,330 40,641,679 37,472,832Lending fin. inst. 30,213,352 10,511,322 16,282,942 23,012,732 21,464,600Investments 166,195,619 144,735,672 156,985,686 139,946,995 210,787,868Advances 160,990,265 221,443,963 268,838,779 316,110,406 340,677,100Other assets 21,946,846 18,339,514 23,941,056 9,681,974 30,994,965

44

Operating fixed assets 8,939,483 9,202,969 9,454,365 ----- 25,922,979Deferred tax assets --- 1,275,949 ------ 27,113,698 ------ Total Assets 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593Liabilities & Capital

         Bills payable 5,496,738 7,214,671 1,741,156 10,605,663 7,061,902Bor. from financial inst. 16,493,514 11,084,790 8,756,847 11,704,079 10,886,063Deposits & accounts 395,568,490 465,571,717 463,426,602 501,872,243 591,907,435Sub-ordinated loans --- ---- ---- ---- ----Lia. financial lease 41,117 17,058 16,629 13,235 33,554Other liabilities 26,080,400 22,916,147 24,974,450 26,596,300 30,869,154Deferred tax liabilities 595,864 ------ 4,462,718 2,387,073 5,097,831Total Liabilities 444,276,123 506,804,383 503,378,402 553,178,593 645,855,939Capital          Share capital 4,103,422 4,924,106 5,908,927 7,090,712 8,154,319Reserves 8,133,312 11,119,613 13,536,041 13,879,260 15,772,124Unappropriated profit 5,897,163 9,213,565 16,713,506 32,074,677 45,344,188Surplus on re. of assets 9,450,117 17,679,158 38,182,238 28,909,469 47,067,023

Total Capital 27,584,014 42,936,442 74,340,712 81,954,118 116,337,654T.Liabilities & Capital 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593

Income Statement at Year 2003-07

Descriptions 2003 2004 2005 2006 2007Mark-up/Return/Interest earn 19,452,317 20,947,333 33,633,735 43,788,628 50,569,481

Mark-up/Return/Interest expense 6,735,579 6,559,398 10,321,768 13,634,912 16,940,011

Net Mark-up/Interest Income 12,716,738 14,387,936 23,311,967 30,153,716 33,629,470

Provision non-performing advance 1,684,777 1,515,354 2,446,739 3,075,723 4,723,084Provision diminution investments 459,523 185,707 -245,881 -709,461 -40,248provision off balance sheet obligations 474,743 14,297 ----- --- ------Bad debts off directly ------ 32,807 23,069 5,284 39,899Net Mark-up/Int.Inc. After provision 10,097,695 12,639,770 21,088,040 27,782,170 28,906,735

NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 3,260,863 5,099,195 4,926,604 6,144,628 6,781,683Dividend Income 1,126,742 1,273,863 1,718,478 2,891,755 3,263,246

45

Gain on sale of securities ----- ----- ----- ----- 2,341,690Income dealing in f.c.’s 710,726 1,008,988 1,205,638 1,333,840 1,042,827

Share of profit of joint venture 108 47,557 ------- -31,964Other income 2,149,800 875,113 1,573,905 627,618 147,363

Total non mark-up/int.incom 17,345,934 20,944,486 30,512,665 12,162,892 13,544,845

NON-MARK-UP/INTEREST EXPNESESAdministrative expenses

Salaries and allowances 4,761,408 8,878,801 11,195,133 13,443,441 14,457,580Charge to defined benefit plans 280,632 ----- ----- ----- -----

Provision handshake scheme 293,612 ------ ----- ----- -----

Other administrative expenses 2,471,083 ------ ----- ----- -----

Other provision/write offs 33,454 32,243 198,298 -17,283 168,027

Other charges 22,894 8,284 63,206 208,327 17,141

Total non mark-up/interest expenses 7,863,083 8,919,328 11,456,637 13,634,485 14,391,079Staff Welfare Fund 474,143 ------- ------ ------ -----profit before tax 9,008,708 12,025,158 19,056,028 26,310,577 28,060,501Taxation -Current 4,650,000 4,950,000 7,154,002 8,695,598 8,311,500

Prior years(s) 1,439,444 847,958 -1,098,709 530,652 391,497Deferred 1,278,839 -15,729 291,291 61,981 323,731Profit after tax 4,198,103 6,242,929 12,709,444 17,022,346 19,033,773

How to drive ratios

1) Working Capital= Current Assets-Current Liabilities

2)Current Ratio= Current Assets/Current Liabilities

3) Acid-test Ratio= (C. Assets-C. Liabilities)/C. Liabilities

46

4)Debt Ratio= Total Debt/Total Assets

5)Long-term Debt Ratio= Long-term debt/Total Assets

6)ROA= N.I (Before-tax)/Total Assets

7)ROE= N.I (Before-tax)/Total Equity

8)NP Margin= N.I/Revenue or Sales * 100

9)Total Assets Turnover = Sales/Revenue /Total Assets

10)Time Interest earned = EBIT/Interest Expense

11) EPS = N.I./No of share outstanding

12) Book value PS = (T. Assets-T. Liab.)/No of share out.13)

Cost to Income Ratio = Cost/Income

14) Fixed Assets Turnover = Sales/Fixed Assets

15)OP. Expense Ratio = EBIT/ Op. Expense

Ratio Analysis

47

Ratios 2003 2004 2005 2006 2007Working Capital in (000)

9,099,364 38,900,632 58,410,275 60,459,328 79,743,881

Current Ratio 1.03 1.08 1.13 1.12 1.13Acid test Ration 1.03 1.08 1.13 1.12 1.13Debt Ratio 94.15% 92.19% 87.13% 87.09% 84.74%Long term Debt Ratio

3.50% 2.02% 1.52% 1.85% 1.43%

Return on Assets(ROA)

2.0% 2.4% 3.4% 4.3% 4.10%

Return on Equity(ROE)

38.66% 36.01% 29.64% 49.6% 45.90%

NP Margin Ratio 24.20% 29.81% 41.65% 42.62% 44.84%Equity Ratio 5.85% 7.81% 12.87% 12.91% 16.36%Total Assets Turnover

0.037 0.038 0.053 0.063 0.056

Operating Expense Ratio

45.33% 42.58% 37.55% 34.14% 33.01%

Time Interest earned 1.34 1.84 1.85 1.93 1.95Earnings per share 8.53 10.48 17.92 20.88 23.34Book value per share

56.05 72.08 104.82 100.53 142.66

Cost to Income Ratio

0.17 0.23 0.24 0.28 0.3

Fixed Assets Turnover

0.44 1.06 1.185 1.22 0.89

Current ratio

48

Current ratio explains the ability of a firm to pay short-term obligations. It

is usually said in business that its current ratio must never decrease by 1:1

because it determine the liquidity position. The table exposes an upward

trend in first three years and in 2007 but year 2006 ratio deduce by 0.88%.

We can analyze that NBP is in a strong position and need to improve

further in next economic years.

Return on Assets

The ratio expresses how effectively the management is using the assets of

the business. There is deterioration in return on assets in year 2007.

Financial year 2007 shows a 4.88% decrease in return on assets then last

year. Whole analysis explains that ROA is growing with from year ended

2003-06 but then decreases. It is need to use assets of the bank to bring

bright future.

Return on Equity

There is variation in ROE throughout five years. Financial year 2007

explains “Golden year in respect of return on capital in 2006” because it

was 49.6% prominent return in the history of banking business in Asia in

2006. NBP does not stable its capacity in current financial year 2007 and

looses at point 7.5% then last year. Now, It is need of time to repeat year

2006 to show its temperament.

Debt ratio

The analysis shows persistently going downward debt ratio, we can say

that bank able to protect itself. Capital structure of NBP expressing

decreases in borrowings and enhance capital by issuing of shares during

five years. Debt in 2003 was at point 94.15% and reduces in financial year

2003 at point 84.74%, shows its strength.

NP margin ratio

49

It shows profitability of the organization against it sales. The table

explains a regular increase in net profit ratio. At the year ended 2003, net

profit against sales was 24.20% and reaches at 44.84% that is double

figure. It says in short that NBP earn Rs.44.84 by investing Rs.100 in year

2007. It is up to the mark but need to improve sale and control cost to earn

better margin.

Total assets turnover

The ratio explains how much in a prominent way the bank using total

assets to increase sales. The first four years shows a regular increase in

turnover but year ended 2007 explains decreases by 11.12% then last

year. So we can say that position to use assets in not satisfactory level.

NBP management can increase its output by using total assets to increase

sale and revenue.

Cost to income ratio

The above table exposes an upward trend in cost against income. But we

know as income increase and inflation come into the economy its effect

on cost. Financial year 2007 defines that NBP’s income in Rs.10 against

investing Rs.3. We can see all four years trend with minimum changing in

figures.

Time interest earned ratio

It is use to find out the ability of a business to cover interest charges. The

ratio occurs that NBP has ability to pay its charges. The bank tries to

increases its EBIT to enhance its position.

Fixed assets turnover

Analysis on table shows upward trend during three consecutive years

from 2004-06. Especially financial year ended 2006 was a golden year in

50

this turnover. The bank does not maintain its position in further and lose

its position in next year with point 27.05% that is very hard figure to

recover but possible in next coming years.

EPS (Earning per share)

Earnings per share show a regular increase in earnings throughout last

five years from 2003-07. It show an upward trend, I observed that NBP is

improve its market condition in a constant year with confident on its

vision-You can trust.

Horizontal Analysis:

It is a procedure to compares a company’s financial statements over a

certain period of time. The analysis stated information about changing

items of financial statements in percentage. Mathematically, we can

calculate it as

H.A. = (current year-old year)/old year * 100

51

Balance Sheet as at December 31, 2003-07

In

percentage

Descriptions 2003-04 2004-05 2005-06 2006-07Assets

Cash and balance wit tr. banks 58.94 -24.62 10.43 20.66Balance with other banks 106.12 -38 31.02 -7.8Lending to financial inst. -65.21 54.9 41.33 -6.7Investments -12.92 8.46 -10.85 50.62Advances 37.55 21.4 17.58 7.78Other assets -16.44 31 -59.56 14.32Operating fixed assets 2.95 3 -100 167.74Deferred tax assets ---- -100 --- ---

Total Assets 16.5 5.00 9.94 20.00

Liabilities & Capital Bills payable 31.25 -75.86 509.12 -33.42Borrowings from financial inst. -32.79 -21 33.66 -6.989Deposits and other accounts 17.69 -0.46 8.29 17.94Sub-ordinated loans ---- --- --- -----Liabilities against. lease -58.5 -2.52 -20.41 153.53Other liabilities -12.13 8.98 6.49 16.06

52

Deferred tax liabilities -100 ---- -46.51 113.56

Total Liabilities 14.07 -0.675 9.89 16.75Capital Share capital 19.99 19.99 19.99 15.00Reserves 36.72 21.73 2.54 13.63Unappropriated profit 56.24 81.4 91.9 41.37Surplus on revaluation of assets 87.08 115.97 -24.28 62.8Total Capital 55.66 73.14 10.24 41.95In the above horizontal analysis we can see that the total assets in the year

2003/04 are 17.5 percent and when we move forward towards the next

years then the percentage goes to 5 percent in the year 2004 and 2005.

Similarly when we can see that the percentage is 9.94 in the year 2005/06

and it is 20 in the year 2006/07.

Now here number of factors can affect this percentage. Here in the table

we can see that the figure of balances with other banks is 1.6 in years

03/04 and it decreases to –38 percent in the next coming years. So here

we can see that why the total result of the total assets varies of much

difference from each other. Similarly the figure of investment also varies

greatly when we move from the year 2003 to the year 2007.

In case of total liabilities it is 14 percent in the year 2003/04 and goes to –

0.675 in the year 2004/05. It has decreasing trend up to the year 2006 and

then it again increases in the year 2006/07. The major factor, which I

think giving the great difference is due to the variation in amounts of, bills

payable. Here we can see that it is about 31 percent in the year 2003/04

and then it decreases to about –75 percent. Here it increases in the next

two years analysis and then it decreases.

When we look at the total capital there is the same pattern. Total capital in

the year 2003/04 is about 55 percent, which increases, in the next year’s

53

analysis and then it decreases and increases in the year 2006/07. The

amounts of reserves and the surplus on revaluation of assets are putting

affect on the total value.

Index Analysis

Balance Sheet as at December 31, 2003-07

In percentage

Descriptions 2003 2004 2005 2006 2007Assets Cash and balance wit tr. banks 100 158.94 119.82 132.32 159.66Balance with other banks 100 206.12 128.2 168.26 155.14Lending to financial inst. 100 34.79 53.89 76.17 71.04Investments 100 87.08 94.45 84.21 126.83Advances 100 137.55 166.99 196.35 211.62Other assets 100 83.56 109.08 123.54 141.23Operating fixed assets 100 102.95 105.75 108.31 289.98Deferred tax assets ------ 100 ---- -------- ------

Total Assets 100 116.51 122.43 134.61 161.53Liabilities & Capital Liabilities Bills payable 100 131.25 31.67 192.94 128.47Borrowings from financial inst. 100 67.21 53.09 70.96 66.00Deposits and other accounts 100 117.69 117.15 126.87 149.64Liabilities against ass. lease 100 41.48 40.44 32.18 81.61

54

Other liabilities 100 87.86 95.76 101.98 118.36Deferred tax liabilities 100 ---- 74.89 400.6 137.63

Total Liabilities 100 114.07 113.31 124.52 140.37Capital Share capital 100 119.99 143.99 172.79 198.72Reserves 100 136.72 166.43 170.65 193.92Unappropriated profit 100 156.24 283.42 391.28 768.92Surplus on re. assets 100 187.08 404.04 305.92 498.06Total Capital 100 155.65 269.51 297.11 421.76Index analysis of Balance Sheet

Index analysis show percentages which compare changes in the current period with that of base period, measures overall changes phenomenon. It can be mathematically expressed as

I.A. =Current year/Base year *100Total assets

Financial year 2003 is a base year. It is equal to 100% value. Total assets due to analysis show an upward trend by 116.51%, 122.43%, 134.61, and 161.21% respectively as compare to base year 2003. The increase in total assets in 2004 only 4.8%, which is very low figure then form years 2003-07. The whole analysis suggests that lending to financial institutions, investments, and other assets are decreased in 2004 and vary during a period of time. The deterioration in figures especially investments and lending can effect economic stability at the long run, so need to work on these figures.

Total liabilities and capital

Liability side, financial year 2005 shows downward trend in bills payable, deposits, and borrowing form financial institutions but increase in share capital and reserves. NBP focus to increase capital through equity in the long run as we see from year 2003-07. Annual year 2007 analyze the upward trend in lending to financial institutions but advances are not up to mark, which are going to decrease yearly. So NBP need to focus especially on advances and loan to carry its financial strength.

55

Vertical Analysis

Balance Sheet at 2003-07

In

percentage

Descriptions 2003 2004 2005 2006 2007Assets Cash and b.wit tr. banks 12.59 17.2 12.33 12.38 12.45Balance with other banks 0.118 9.06 5.37 6.39 4.92Lending to financial inst. 6.41 1.91 2.82 3.63 2.82Investments 35.22 26.3 27.17 22.04 27.65Advances 34.12 40.3 46.54 49.77 44.69Other assets 4.65 3.34 4.14 1.53 4.066Operating fixed assets 1.89 1.67 1.64------- 3.4Deferred tax assets ------ 0.23---- 4.268---- Total Assets 100 100 100 100 100Liabilities & Capital Bills payable 1.164 1.31 0.302 1.669 0.926Borr. from fin. inst. 3.49 2.02 1.52 1.84 1.428Deposits and other accts. 83.83 84.7 80.22 79.02 77.66Sub-ordinated loans ------- ------ ---- ------- -----Liab. against assets 0.009 0 0.003 0.0021 0.004Other liabilities 5.52 4.17 4.322 4.137 4.05Deferred tax liabilities 0.126 ------ 0.772 0.375 0.669Total Liabilities 94.14 92.2 87.14 87.09 84.74Capital Share capital 0.869 0.9 1.023 1.1164 1.069Reserves 1.723 2.02 2.34 2.185 2.069Unappropriated profit 1.249 1.67 2.89 5.05 5.949Surplus on re. assets 2.002 3.22 6.609 4.551 6.175Total Capital 5.843 7.81 12.86 12.902 15.26

56

Total Liab.& Capital 100 100 100 100 100

Vertical analysis

Vertical analysis refers to the view of the financial information for only

one accounting period. Mathematically, it can be expressed by dividing

current amount to the total amount.

Analysis of balance sheet 2003 shows 100% on both sides and further as

well. The cash and balances with treasury banks is 12.59% and cash with

other banks is 5.12%, which are impressive figures to meet the liquidity

position. Lending to financial institutions is 6.41%. Investments and

advances are major components in balance sheet 35.22% and 34.12%

respectively. These two elements are lifeblood of any banking business.

Operating fixed assets and other assets are not up to the mark showing

4.65% and 1.89% only. A deferred tax asset is zero. Deposits are the one

of the main sources of the bank and shows 83.83%, which fulfill the

vision of “NBP-you can trust”, are impressive figure. Total equity is

5.843% in which the higher figure is surplus on revaluation of assets. It

gives view that the bank is strong and need to further expansion because

bills payable and borrowings are 1.64% and 3.49% respectively.

Analysis of year 2004, it exposes regular increase in cash and balance

with treasury banks, balance with other banks, advances, and deferred tax

assets but investments decrease 25.2% and lending to financial

institutions decreases at 70.1%. Deposits and other accounts of the bank

57

jumps at 84.68% that grows 1.02% then last year 2003, decreasing in total

liability by 1.67% in 2004 (94.138% to 92.18). T. Equity grows at 1.96%

in 2004.

With the analysis of 2005, it arises that only 4.9% growths occur, that is

extremely down as compare to financial year 2003-04. In this year, NBP

follows a downward trend in its position but it got overall profitability.

Here only advances jump at a reasonable high other elements of balance

sheet deteriorate. Deposits are the main sources of banks but it got deficit

by 5.2%, which shows that customers are unsatisfactory.

With the analysis of 2006, there is overall increase in total assets of NBP

by 9.02%. Advances in year 2006 are 49.77% that grows 6.5% then last

year. Deferred tax assets go upward at 4.3% in 2006; deposits are still at

downward at 79.02%. Share capital of the bank reaches 1.12% instead of

1.02% in previous year. The overall figure exposes that NBP is growing

in double figure then last year.

Analysis of December 31, 2007, appears both increase and decrease in

balance sheet throughout the year. Cash and balance with treasury banks,

other assets, and operating fixed assets show upward trend, on the other

side deposits are regularly decrease and reaches at point 77.66%. Total

assets of the bank grow by 16.67% then last year that shows quite a

growing volume in competitive market.

Index Analysis

58

Income Statement at Year 2003-07

In percentage

Discriptions 2003 2004 2005 2006 2007Mark-up/Return/Interest earn 100 107.68 172.9 225.11 259.96Mark-up/Return/Interest expense 100 97.38 153.24 202.43 251.5Net Mark-up/Interest Income 100 113.14 183.32 237.12 264.45Provision agaisnt non-performing advance 100 89.94 145.23 182.56 280.34Provision dim.value of inv. 100 40.42 -53.5 -154.4 -8.758provision against off balance sheet obligations 100 3.012----- 100 8.0841Bad debts off directly -------- 100 100----- 180.32

100 66.75 84.92 90.55----Net Mark-up/Interest Income after provision 100 125.17 208.84 275.14 286.67NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 100 156.37 151.08 188.44 207.97Dividend Income 100 113.05 152.49 256.65 289.62Income from dealing in foregin currencies 100 141.96 169.64 187.67 146.73Share of profit of joint venture 100 44034------ ---- -----Other income 100 40.7 73.21 29.19 6.854Total non mark-up/interest income 100 114.57 130.02 167.81 186.87

100 120.75 175.91 230.28 244.7NON-MARK-UP/INTEREST EXPNESESAdministrative expenses Total Administration expenses 100 113.73 143.4 172.21 181.97Other provision/write offs 100 96.38 592.75 -51.66 502.27Other charges 100 36.18 276.08 909.96 74.87Total non mark-up/interest expenses 100 113.43 145.71 173.39 183.02profit before tax 100 133.48 211.53 292.06 311.48Taxation -Current 100 106.45 153.85 190.69 178.74Prior years(s) 100 58.9 -76.33 36.86 27.19Deferred 100 -1.229 22.77 4.45 125.32Profit after tax 100 148.7 302.7 405.48 453.39

Index analysis

59

Profit and loss statement or income and expenditure determine the summary of an organizations revenues and expenses over a specified period ending with net income or loss.

Mark-up/interest Income

Taking financial year 2003 is a base year. Analysis expresses that mark-up/return/interest earned shows upward trend in throughout year 2003-07. These are income generating resources, the net mark-up is 89.9% in year ended 2004 that decreases by 10.06% then last year 2003. NBP got extraordinary mark-up in the financial year ended 2007 and grows more than 30%. Table shows that provisions against NPL’s are gradually increases. The bank’s overall coverage ratio in year ended 2007 is at improving at the rate of 84%.

Non Mark-up/Interest Income

It is the income of the bank generated by providing products and services to the customers. The bank receives fee/commission and brokerage income156.37%, 151.08%, 188.4%, 207.97% respectively yearly. Dividend income shows an upward trend during five year 2003-07. NBP is also dealing in foreign currencies, the income receives from resources are not up to the mark and decreases in point 27.9% then at last year. Other income of the bank also exposes a down ward in the year 2007. If we analyze whole, we can say that total income of the bank before expenses is up scale from years 2003-07. It is already known when profit increases; expenses of the organization also rise. We can see table that total expenses of the bank are also increases.

Profit-before Tax

The pre-tax profit increases in Rs.28.06 billions an increase of 6.6% in 2007 over last year. The pre-tax profit in year 2006 was 292.06% which was extremely high than year 2005. The bank got overall profit but this pre-tax profit is not sufficient if we compare it to the year 2005-06. The bank management further need to work for maintains its capability and customers trust.

60

Horizontal Analysis

Income Statement at Year 2003-07

In

percentage

Discriptions 2003-04 2004-05 2005-06 2006-07Mark-up/Return/Interest earn 7.68 60.56 30.19 17.56Mark-up/Return/Interest expense -2.616 57.36 32.09 23.12

61

Net Mark-up/Interest Income 13.14 62.03 29.35 11.53Provision against non-performing advance -10.056 61.46 25.71 12.65Provision dim. of inv. -59.58 -32.4 -188.54 -221.5provision against off balance sheet obligations-96.98 -100 ----- -----Bad debts off directly ------- -29.68 -77.09 -----

-33.25 27.22 6.64 2.07Net Mark-up/Interest Income after provision 25.17 66.84 31.74 29.12NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 56.37 -3.38 24.73 19.56Dividend Income 13.06 34.9 68.27 57.22Income from dealing in foregin currencies 41.96 19.49 10.64 9.37Share of profit of joint venture 439.34 -100 ----- 42.79Other income -59.29 79.85 -60.13 6.65Total non mark-up/interest income 14.57 13.48 29.05 21.59

20.74 45.68 30.92 24.72NON-MARK-UP/INTEREST EXPNESESAdministrative expenses Total Administration expenses 13.73 26.08 20.08 29.12Other provision/write offs -3.619 515.01 -108.72 35.8Other charges -63.82 662.98 229.6 333.5Total non mark-up/interest expenses 13.43 28.45 19 27.89

26.81 58.47 38.07 34.17profit before tax 33.48 58.47 38.07 6.65Taxation -Current 6.45 44.52 21.55 22.46Prior years(s) -41.09 -29.57 148.29 42.3Deferred -98.77 1951.9 -78.7 66.3Profit after tax 48.708 103.58 33.94 31.97

Horizontal analysis

Horizontal analysis explains the changes in profit and expenses of two consecutive years. It also suggests that overall variation in the statement as compare to its current with old year.

The above table shows that interest earned vary during the five years in analysis, the interest expenses also vary with the same point. Both figures effects on net-mark-up, so we can see that net-mark-up in 2003-04 were 13.14%, 62.03% in 2004-05, 29.35% in 2005-06, and 11.53 in 2006-07.

62

NBP’s performance during in 2004-05 was up to the mark but not to maintain this figure and deduce regularly.

Total mark-up interest income shows little changes in two consecutive years but got a great position in 2005-06, in 2006-07 it’s again come at equal to last year progress.

As all elements exposing decreases, expenses of the bank also decreasing in the table above with different but regular points, pre-tax arises strong in first four years but at a point 6.65% only in financial year 2006-07.

The whole analysis explains that if we compare current and old year, the overall position of the bank decreases in financial year 2007, it is not stable. Every element in income statement showing a downward trend, now, it is the requirement to develop new policies to stabilize its position and compete into the market.

Future prospects of the organization

NBP’s is planning to expand its network of branches especially in Islamic

Banking. The bank’s international operation is focused towards increasing

trade business and expands where the bank has competitive advantage.

The bank is continued to develop liability side products by enhancing

leadership position. The bank is continued to recognize as a largest

treasury in terms of its size. Its target on untapped sectors and provide

63

them professional quality services, through on window operation and

relationship managers stationed.

It’s planning to transformation of the entire I.T. architecture of the bank

by implementing a core banking solution. The bank in future follows up

trust with a message “Excellence Customer Service” by invention of I.T.

products and services. The bank will focus to promote healthy sports

activities in the country.

Performance Analysis

Strength

Over the year, NBP has proved its strength as a leading banking

sector entity and treasury agent on behalf of a SBP by achieving the

following first in Pakistani banking sector.

I. NBP in year 2007 received the award for the best

return on capital for 2006 amongst all banks in

Asia.

II. First bank enjoys the highest credit rating

amongst Pakistani banks.

64

III. First bank with nation-wide branches of over

1200 and over 20 outside Pakistan.

IV. It’s working as a government agent since birth.

V. ROE of the bank stood at 45.9%, which is the

highest in the Asian Banking history.

VI. The first bank in Pakistan with large coverage of

Central Asia, Far East and South Asia.

NB has a wide range of products and services and improves quality

of life of diverse market segments.

The bank continues to monitor the credit and risk exposure by

establishing an Operational Risk Management Unit.

The management of the bank encourages attaining professionals

(MTO’s) and establishing efficient working environment within the

bank.

The bank offer financing facility i.e. agricultural financing, home

financing international trade business loans, govt. loans syndicated

loans, and karobar schemes for the individual serves, student loans

and portfolio investments for the individual savers.

NBP is committed to develop and enhance each employee’s skills

and capabilities through training and job rotations.

It provides timely information to all stakeholders about the

performance of NBP amongst competitors.

The bank uses automated transaction – process system, for back up

support. Well-designed software “IBM Software” which transform

a register (paper) into electronic system.

NBP purpose to become a “Bank of Choice” for the customers, the

effort is continuing to attain this target.

65

As an autonomous body, the strong employee bank relationship and

job security.

To promote healthy sports activates in the country NBP has built a

state-of-the art sports complex at Karachi to full fill social

responsibility.

Weaknesses

The bank I.T system sometime hang or link down can causes a

delay in provision of timely and efficient services to the customers

There is no proper information desk, which guide the customers on

different banking activities.

Return on equity decrease in 2007 at an unacceptable rate that

impact on overall condition of the bank.

Horizontal analysis shows the downward trend in the income

statement can create problem in future.

Deposits of NBP are regularly decreasing in every financial year,

which can lose the trust of employees.

The use of token system by the bank for cash payments produces

and awkwardness among customers.

Turnover fixed assets and total assets both decreasing in financial

year 2007, which can weaken the overall position of the bank.

Mostly, ATM network shows “sorry for inconvenience” picture

especially in first salary days that is hard for customers trust.

66

The lead-time for cheque clearing is three to four days for “Inter

City Clearing” and more days for other cheques.

The bank management feels job security so they misbehave with

customers.

NBP does not have a comprehensive marketing strategy; it

permanently uses print media and billboards for marketing of its

products and services. So there is lack of broad casting media

services.

Sometime, sufficient number of employees are needed is a certain

department but there is mismanagement deployment of employees

that can cause burdened in some departments.

Opportunities

NBP is not only expanding “Kisan Dost” its banking services to

remote and ruler areas but also start “Karobar Schemes”.

As the bank continues its expansion on international coverage the

bank also take opportunity to start Islamic banking is 2007.

NBP plans to set up research centers, which help the bank to

enhance quality of services.

NBP is looking E-banking for better services.

With a provision coverage 84% in fiscal year 2007 and continues is

following years will lead towards banks profitability through

recoveries and reversals.

Amongst highest bank is Asia, NBP further expand its services

proudest and earn more profit.

67

The bank is reshaping its portfolios by investing into higher area of

growth developing core competing as a result to get maximum

return.

I.T and HR are important factors for development in any

organization, NBP continue struggle to achieve this target.

Threats

With the globalization of the world many international banks are

opening this branch into other countries posing a threat for banks,

as the competition would become more acute.

The expansion of banking sector is forcing to offer improved and

innovative products and services in order to stay into competition.

The operating environment for banks in becoming more

challenging in the wake of intense competition is the pricing of

assets and liabilities products and services.

With expansion of branches, help banks to give less attention to

down ward slump, increasing competition between banks and non-

banks can create problems.

The bank face higher operating cost, the advancement in I.T turned

to grip on cost, the use of I.T by foreign banks on providing

extensive product and service can become a problem is future.

68

Conclusion

The bank has been able to strategically manage and build on its

competitive advantage, by knowing customer’s requirements,

understanding employee’s need, modern technology, to making social

responsibility and looking towards stakeholder’s values. The bank is able

to bear new challenges more efficiently. The bank continued its journey to

success on strategy of serving clients- by getting advantage of its unique

domestic and international footprints.

Leadership of Board of Directors makes the bank’s ability to continue as a

going concern. A large number of products, branch network, I.T and

committed workforce are fundamental strength of the bank that enables to

achieve exceptional results in a very competitive market.

69

Recommendation

As analysis shows that NBP is a most growing organization with highest

return on capital, largest market share amongst all Pakistani banks and

cost to income ratio is the highest in banking sector. But there is further

need for improvement. To overcome weaknesses and to maintain its

position as an “Asian Tiger” in banking field, following recommendations

are made:

The bank should focus on enhancing and improving the quality and

effectiveness of banking software, to provide timely technology

based value added services.

There should be a proper desk for customer’s information in every

branch.

The bank should use broad casting media for promotion of its

products and services and to further expand its area through more

aggressive marketing.

Financial analysis shows that NBP gradually loses its deposits and

other accounts that can create problem for the bank to maintain its

stability. The bank should focus to revaluate existing customers and

attract new to enhance it position.

Financial year 2006 exposes that ROE/Capital is in point 49.6% but

in 2007 it loses at point 45.1%, it guides that there is deterioration

in uses total equity, the bank must try to repeat “2006 as a Golden

Year”.

70

Advances and loans of the NBP in year 2007 are brutally down by

10.21% then last year, these are basic tools to earn interest as well

as non-interest income, the bank provides quick and better services

to its customer to continue upward trend.

By analysis we see that assets turnover of the bank decrease in

2007 than last year, so the management try to grip on sales as well

as use assets to create maximum margin.

Horizontal analysis of income statement showing downward trend

in every elements in whole year 2006-07, the management must

control to get overall market share.

References

Books:

James C.Van Horne “Financial Management”

Afza Beig B.Sc Part 1 “Introduction to Statistics”

NBP Annual Reports

71

Internet:

www.nbp.com.pk

www.sbp.com.pk

www.google.com.pk

Organization Structure

72

Executive Committee

President & Chief Exevutivwe

Organization Chart

73

Planning & Corp.

Regions Retail BankingOp. and

credit

Corp. Bankng

Finance

Credit Cards

HR

South-II

Rwp/Isb

Corp. & Merchant

Treasury

International

Inv. products

Assets Product

North

Credit

West

South-I

EastLahore

Legal Affairs

System & OP.

Data Reporting

MIS

EVP OG-IIIAssistantsOG-I

President

SVPOG-IIAsst. MngrsAVP

SEVP

VPManagers

74

75

Chief Executive Audit

Executive Assistant

Group Head Auditor

Area Manager Audit

Branch Manager Audit

Assistant Manager Area Auditor

Assistant ManagerBranch Auditor

Audit Internees

76

Competitors Analysis

Total Assets

0100,000200,000300,000400,000500,000600,000700,000800,000900,000

NBPM

CBUBL

Bank A

lfalah ACB

Total Assets

77

0100000200000300000400000500000600000700000

Descrip

tions

/Ban

ksNBP

MCB

UBL

Bank A

lfalah ACB

Series1

Series2

78

050000

100000150000200000250000300000350000400000

1 2 3 4 5 6

Descriptions/Banks

Advances

79

Capital

020,00040,00060,00080,000

Capital

Profit after Tax

05,000

10,00015,00020,000

NBPM

CBUBL

Bank A

lfalah ACB

Profit after Tax

80