INTERNSHIP REPORT

NATIONAL BANK OF PAKISTAN

SPECIALIZATION IN (BANKING&FINANCE)

SUBMITTED TO:

CHAIRMAIN, DEPARTMENT OF BUSINESS ADMINISTRATION

SUBMITTED BY:

Name Mujeeb Ur
Rehman

DEPARTMENT OF BUSINESS ADMINISTRATION

ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD

ACKNOWLEDGEMENT
I am highly grateful to almighty Allah who gave me the power to complete this report.
I am also highly thankful to my honorable teachers for theirs guidance. I am indebted
to all the employees of National Bank of Pakistan MAIN Branch Taunsa Sharif
Special thanks to “Mr. Saif Ullah Khan” OG#1 of National Bank of Pakistan main
Branch) And all other employees of the branch for their cooperation

TABLE OF CONTENTS
EXECUTIVE SUMMARY..................................................................................................................viii
CHAPTER NO 1......................................................................................................................................1
1 INTRODUCTION.................................................................................................................................1
1.1 Brief History of National Bank of Pakistan.................................................................................1

2
 1.2 Business volume of National Bank of Pakistan...........................................................................3
1.3 Product Lines..................................................................................................................................8
1.3.1 Deposits.....................................................................................................................................8
1.3.2 Current Deposits.......................................................................................................................8
1.3.3 PLS Saving Deposits................................................................................................................9
1.3.4 Fixed Deposit Account (Time Deposits)................................................................................10
1.3.5 Foreign Currency Account....................................................................................................11
1.3.6 NBP Premium Aamdani........................................................................................................11
1.3.7 National Income Daily Account (NIDA)..............................................................................12
1.4 Advances................................................................................................................................13
1.5 NBP Advance Salary....................................................................................................................14
1.6 NBP Cash & Gold........................................................................................................................14
1.7 Students Loan Scheme.................................................................................................................15
1.8 NBP Karobar- President’s Rozgar Scheme...............................................................................15
1.9 Corporate Advances....................................................................................................................16
1.9.1 Cash Finance..........................................................................................................................16
1.9.2 Running Finance/ Overdraft...................................................................................................16
1.9.3 Demand Finance.....................................................................................................................16
1.10 Remittances.................................................................................................................................17
1.10.1 Demand Drafts.....................................................................................................................17
1.10.2 Travelers Cheques................................................................................................................17
1.11 Letter Of Credit.........................................................................................................................18
1.12 Foreign Remittances..................................................................................................................18
1.13 Swift System................................................................................................................................19
1.14 Mail Transfer..............................................................................................................................19
1.15 Telegraphic Transfer.................................................................................................................20
1.16 Pay Order....................................................................................................................................20
CHAPTER NO 2....................................................................................................................................21
2 Organizational Structures..................................................................................................................21
2.1 Organizational Structure of National Bank of Pakistan..........................................................21
2.2 Board of Directors........................................................................................................................21
2.3 Senior Management.....................................................................................................................24
2.4 Corporate & Investment Banking Group..................................................................................25
2.5 Compliance Group.......................................................................................................................27
2.6 Islamic Banking Group...............................................................................................................28
2.7 Treasury Management Group....................................................................................................29
2.8 credit management group...........................................................................................................30

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 2.9 Audit & Inspection Group..........................................................................................................30
2.9.1 Internal Audit..............................................................................................................................31
2.9.2 External Audit.............................................................................................................................32
2.9.3 Statutory Audit............................................................................................................................32
2.10 Human Resource Management & Administration Group.....................................................33
2.11 Overseas Coordination & Management Group......................................................................34
2.12 Commercial & Retail Banking Group.....................................................................................34
2.13 Special Assets Management Group..........................................................................................35
2.14 Employee Benefits, Disbursements & Trustee Division.........................................................36
2.15 Defined Benefit Plans.................................................................................................................36
2.15.1 Pension Scheme.........................................................................................................................36
2.15.2 Post retirement medical benefits...............................................................................................37
2.15.3 Benevolent scheme....................................................................................................................37
2.15.4 Gratuity scheme........................................................................................................................37
2.16 Provincial & Regional Management.......................................................................................37
2.17 Branch Management.................................................................................................................38
2.18 Hierarchy of National Bank of Pakistan.................................................................................38
2.19 Centralized Decision Making...................................................................................................39
2.19.1 Downward Communication......................................................................................................39
2.19.2 Chain of Command...................................................................................................................40
2.20 Departments of the Branch......................................................................................................40
2.20.1 Clearing House Department....................................................................................................41
2.20.1.2 Remittance Department..........................................................................................................43
2.20.2 Account Opening Department...............................................................................................44
2.20.3 Cash Department....................................................................................................................45
2.20.4 Deposits Department.................................................................................................................47
2.20.5 Accounts Department.............................................................................................................48
2.20.6 Bank Accounting Operations...................................................................................................49
2.20.7 Internal and External Reporting..............................................................................................52
Use of Electronic Data in Decision Making.........................................................................................52
CHAPTER NO 3....................................................................................................................................54
3 Information System Resources of NBP.............................................................................................54
3.1 People Resources..............................................................................................................................54
3.2 Hardware Resources........................................................................................................................54
3.3 Software Resources..........................................................................................................................54
3.4 Data Resources.................................................................................................................................55
3.5 Network Resources..........................................................................................................................55

4
3.6 Sources of Funds..............................................................................................................................55
3.7 Critical Analysis (Theory vs Practical)..........................................................................................62
3.8 Conclusion.........................................................................................................................................62
CHAPTER NO 4....................................................................................................................................63
4 FINANCIAL REPORTS....................................................................................................................63
4.1 Balance Sheet................................................................................................................................63
4.2 Income Statement.........................................................................................................................64
4.3 Financial Statements Analysis....................................................................................................65
4.3.1 Ratio Analysis............................................................................................................................66
4.3.1.1 Profitability Ratios.............................................................................................................67
4.3.1.2 Liquidity Ratios..................................................................................................................67
4.3.1.3 Debt Ratios.........................................................................................................................67
4.3.2 Horizontal Analysis...................................................................................................................71
4.3.3 Horizontal Analysis of Balance Sheet...................................................................................72
4.3.4 Horizontal Analysis of Income Statement.............................................................................73
4.3.5 Vertical Analysis.....................................................................................................................74
4.3.6 Vertical Analysis of Balance Sheet........................................................................................75
4.3.7 Vertical Analysis of Income Statement.................................................................................76
4.3.8 Bank Analysis with refernce to commercial Banks listed on stock exchange.............................77
CHAPTER NO 5....................................................................................................................................81
5.1 Future prospects of National Bank of Pakistan............................................................................81
5.2 Short falls/ Weaknesses of National Bank of Pakistan.................................................................82
5.3 Conclusions.......................................................................................................................................83
5.4 Recommendations............................................................................................................................84
References...............................................................................................................................................86
References

FIGURE TABLE

5
Table 1.1.....................................................................................................................................................3
Table 1.2.....................................................................................................................................................4
Table 1.3.....................................................................................................................................................4
Table 1.4.....................................................................................................................................................5
Table 1.5.....................................................................................................................................................6
Table 1.6.....................................................................................................................................................6
Table 1.7.....................................................................................................................................................7
Table 1.8...................................................................................................................................................13
Table 3.1..................................................................................................................................................56
Table 3.2..................................................................................................................................................56
Table 3.3..................................................................................................................................................57
Table 3.4..................................................................................................................................................58
Table 3.5..................................................................................................................................................59
Table 3.6..................................................................................................................................................59
Table 3.7..................................................................................................................................................60
Table 3.8..................................................................................................................................................61

6
EXECUTIVE SUMMARY

In this internship report there are five major parts first part consist of introduction and

product lines of the organization and also discuss the business volume of the

organization. The second part of this report is organizational structures and discusses

the whole groups that are working in the organization and also describe decision

making power in this organization. Third part of the report is the resources of the

organization if the resources of the organization are fully utilized than no organization

go to failure and also describe the resources of funds. The fourth part of the report is

very important part that is analysis of financial reports and balance sheet and ratio

analysis of the organization. The last part consists of future prospect, strength,

weakness, conclusion and recommendation for the organization. In last all annexure

are attached with the report

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 CHAPTER NO 1

1 INTRODUCTION

1.1 BRIEF HISTORY OF NATIONAL BANK OF PAKISTAN

The history of National Bank of Pakistan is part of Pakistan’s struggle for economic
independence. National Bank of Pakistan was established on November 9, 1949 under
the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis
conditions which were developed after trade deadlock with India and devaluation of
Indian Rupee in 1949. Initially the Bank was established with the objective to extend
credit to the agriculture sector. The normal procedure of establishing a banking
company under the Companies Law was set aside and the Bank was established
through the promulgation of an Ordinance, due to the crisis situation that had
developed with regard to financing of jute trade. The Bank commenced its operations
from November 20, 1949 at six important jute centers in the then, East Pakistan and
directed its resources in financing of jute crop. The Bank’s Karachi and Lahore
offices were subsequently opened in December 1949. The National Bank of Pakistan
came forward to establish its offices in the Cotton growing areas and extended credit
facilities liberally in order to restore stability to the market. In 1951, the country was
once again faced with a crisis in the cotton trade when prices was crashed and touched
the lowest level since independence following the cessation of hostilities in Korea.
The bank in collaboration with the cotton board provided the necessary Credit
facilities to the trade and the crisis was tided over. The nature of responsibilities of
the Bank is different and unique from other banks/financial institutions. The Bank
acts as the agent to the State Bank of Pakistan for handling Provincial/Federal
Government Receipts and Payments on their behalf. The Bank has also played an
important role in financing the country’s growing trade, which has expanded through
the years as diversification took place.1

The National Bank of Pakistan has its headquarters in Karachi, Pakistan. The bank
operates 1249(2008) branches in Pakistan and 22(2008) overseas branches. Under a
trust Deed, the bank also provides services as trustee to National Investment Trust
(NIT) including safe custody of securities on behalf of NIT. The National Bank of
Pakistan has assets worth Rupees 737976.44 million on September 30, 2008.2

1
National Bank of Pakistan is today a progressive, efficient, and customer focused
institution. It has developed a wide range of consumer products, to enhance business
and cater to the different segments of society. Some schemes have been specifically
designed for the low to middle income segments of the population. These include
NBP Karobar, NBP Advance Salary, NBP Saibaan, NBP Kisan Dost, and NBP Cash
n Gold.

The National Bank of Pakistan has implemented special credit schemes like small
finance for agriculture, business and industries, administrator to Qarz-e-Hasna loans
to students, self employment scheme for unemployed persons, public transport
scheme. The Bank has expanded its range of products and services to include Shariah
Compliant Islamic Banking products. For the promotion of literature, NBP recently
initiated the Annual Awards for Excellence in Literature. NBP will confer annual
awards to the best books in Urdu and in all prominent regional languages published
during the defined period. Patronage from NBP would help creative work in the field
of literature. The Bank is also the largest sponsor of sports in Pakistan. It has provided
generously to philanthropic causes whenever the need arose.

It has taken various measures to facilitate overseas Pakistanis to send their remittances
in a convenient and efficient manner. In 2002 the Bank signed an agreement with
Western Union for expanding the base for documented remittances. More recently it
has started Electronic Home Remittances Project. This project introduces technology
based system to handle inward remittances efficiently, by ensuring that the Bank's
branches keep a track of the remittance received from abroad till its final receipt.

A number of initiatives have been taken, in terms of institutional restructuring,

changes in the field structure, in policies and procedures, in internal control systems
with special emphasis on corporate governance, adoption of Capital Adequacy
Standards under Basel II framework, in the up gradation of the IT infrastructure and
developing the human resources.

National Bank has earned recognition and numerous awards internationally. It has
been the recipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The
Banker Magazine, the Best Foreign Exchange Bank –– Pakistan for 2004, 2005, 2006
and 2007, Global Finance, Best Emerging Market Bank from Pakistan for the year
2005, Global Finance, Kisan Time Awards – 2005 for NBP's services in the
agriculture field. It is listed amongst the Region's largest banks and also amongst the

1
 largest banks in South Asia 2005, The Asian Banker. It has also been presented a
Recognition Award –– 2004 for having a Gender Sensitive Management by
WEBCOP AASHA besides other awards.3

1.2 BUSINESS VOLUME OF NATIONAL BANK OF PAKISTAN

TABLE 1.1

Rupees in
Millions
Year 2005 2006 2007 2008 2009
645,132,71
Total Assets 553,231,467 577,719,114 1 762,193,593 862,556,378
465,571,71 501,872,24
Deposits 7 463,426,602 3 591,907,435 726,464,825
316,110,40
Advances 220,794,075 268,838,779 6 340,677,100 475,243,431
Reserves 10,813,914 13,536,041 13,879,260 19,941,047 22,681,707
139,946,99
Investments 149,350,096 156,985,686 5 210,787,868 217,642,822
Horizontal Analysis
(%)
Total Assets 100 104 117 138 155.912386
Deposits 100 100 108 127 156.037147
Advances 100 122 143 154 215.242837
Reserves 100 125 128 146 209.745583
Investments 100 105 94 141 145.726603

(National Bank of Pakistan, 2010)

(Retrieved July 12, 2010, from nbp.com/http://www.nbp.com/annualreports/)

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

TABLE 1.2

2
(Total Assets)

Analysis

The Total Assets of National Bank of Pakistan fluctuates during all years as they
show an increasing trend. The total assets are increased 4 % in 2005 and 17 % in
2006. The year 2007 represents second highest percentage on account of total assets
as it was increased to 38%. There was an increase of 48 % in 2008 as compare to base
year and 10% as compare to 2007.

TABLE 1.3
(Deposits and other Accounts)

A NALYSIS
The deposits and other accounts of National Bank of Pakistan show a mixed trend
during all years. In the year 2005, the deposits were increased very marginally, with
the year 2006 represents an increase of 8%. The deposits are increased 27% & 34% in
the years 2007 and 2008 respectively.

TABLE 1.4
(Advances)

A NALYSIS
The advances made by National Bank of Pakistan shows an increasing trend in all
years as compare to base year. This implies that National Bank of Pakistan is keener
to advance money to lenders. The advances were increased 22 % in the year 2005 and
43 % in 2006 as compare to base year. The year 2007 represents an increase of 54 %

1
and 2008 represents highest percentage among all years that is 87 % as compare to
base year.

TABLE 1.5
(Reserves)

A NALYSIS
The Banks’ reserves are banks' holdings of deposits in accounts with their central
bank plus currency that is physically held in bank vaults (vault cash). The reserves of
National Bank of Pakistan fluctuate during all years as they show an increasing trend.
The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007
respectively. The year 2008 represents highest increasing percentage of 84% as
compare to base and previous years.

TABLE 1.6
(Investments)

A NALYSIS
The investments made by National Bank of Pakistan fluctuate during all years. There
was an increase of 5 % in 2005. The year 2006 indicates a decrease of 6% in
investments. The year 2007 represents an increase of 41 %, highest among all years.
The investments are increased 14 % in 2008 as compare to base year; however
investments are decreased 27 % as compare to the year 2007.

2
TABLE 1.7
Number of Employees of National Bank of Pakistan

Permanent 13237
Temporary/ On Contractual basis 842
Bank's own staff strength at the end of the year 14079
Outsourced 2350
Total Staff Strength 16429
http://www.nbp.com.pk/nbp/About_Us/About_US.jsp

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

There are differing classifications of workers within National Bank of Pakistan, these
are:

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

1.3 PRODUCT LINES

1
The most precise definition of product is anything capable of satisfying needs,
including tangible items, services and ideas. In marketing, a product is anything that
can be offered to a market that might satisfy a want or need. 5 Since 1575, the word
"product" has referred to anything produced. Since 1695, the word has referred to
"thing or things produced”. The economic or commercial meaning of product was
first used by political economist Adam Smith. In general usage, product may refer to a
single item or unit, a group of equivalent products, a grouping of goods or services, or
an industrial classification for the goods or services. The consumer banking products
include personal accounts, credit cards, loans, investment products, treasury products
and many more. The National Bank of Pakistan offering for sale several related
products individually, which is commonly known as product lining. A product line is
defined as “A group of products that are closely related because they function in a
similar manner, are sold to the same customer groups, are marketed through same
types of outlets, or fall within the given price ranges”.6 The followings are the main
consumer banking products of NBP.

1.3.1 DEPOSITS
The National Bank of Pakistan offers to their clients a variety of Deposit Schemes
with personalized services at competitive rates of interest. Any Pakistani citizen can
open his/her account for any deposit scheme at any of its Branches strategically
located throughout Pakistan. The Bank with its huge network of 1243 branches
garners savings from both the rich and the poor in urban as well as rural areas. Even a
poor farmer in a remote village, with his meager annual income, feels secure to safe
keep his minuscule savings in National Bank of Pakistan, Because National Bank of
Pakistan has a long heritage of trust and professional commitment.

1.3.2 CURRENT DEPOSITS

These are payable to the customer whenever they are demanded. When a banker
accepts a demand deposit, he incurs the obligation of paying all cheques etc, drawn
against him to the extent of the balance in the account. Because of their nature, these
deposits are treated as current liabilities by the banks. Bankers in Pakistan do not
allow nay profit on these deposits, and customers are required to maintain a minimum
balance, failing which incidental charges are deducted from such accounts. This is
because Current Deposits may be withdrawn by the depositors at any time, and as
such the bank is not entirely free to employ such deposits.7 Current Accounts/ Basic
Banking accounts are opened, on proper introduction and submission of required

3
documents along with initial deposit prescribed from time to time. Basic banking
accounts are opened for an individuals (single or joint) only whereas current accounts
are opened for individuals (single or joint) Charitable institution, provident and other
funds of benevolent nature of local bodies, autonomous corporations, companies,
associations, educational institutions, firms etc. and in all other cases where the
accounts are to opened under the order of a competent court of law. No profit is paid
on the balances of current/basic banking accounts. The bank is authorized to deduct
service charges (incidental charges) on current accounts levied through its half yearly
schedule of charges, in case the average balance falls below the minimum balance as
prescribed by the bank. No balance maintenance condition is applied on basic banking
account.

1.3.3 PLS SAVING DEPOSITS

In Pakistan a Savings Deposits Account can be opened with a very small amount of
money, and the depositor is issued a cheque book for withdrawals. Profit is paid at a
flexible rate calculated on six monthly basis under the Interest Free Banking System.
There is no restriction on the withdrawals from the deposit accounts but the amount of
money withdraw is deleted from the amount to be taken for calculation of products for
assessment of profit to be paid to the account holder. It discourages unnecessary
withdrawals from the deposits. In order to popularize the scheme the SBP has allowed
the Savings Scheme for school and college students and industrial labour also. The
purpose of these accounts is to inculcate the habit of savings in the constituents. As
such, the initial deposits required for opening these accounts are very nominal.8NBP
charge Rs.500 for opening of PLS Savings deposits.

The silent features of profit and loss sharing and saving accounts of NBP are as
fallows

• These accounts can be opened by individuals in their own single or joint name.
The PLS savings account can also be opened for provident fund or other
benevolent funds of companies, firms, organizations, NGO’s and educational
institutions.
• PLS saving account can be opened with a minimum amount of Rs.500/- only
• To share in the profit a minimum balance of Rs.500/- must be maintained in
the account. The minimum balance on sixth and last of month will qualify for
the profits. The profits will be calculated on the basis of monthly minimum

2
 balance for the periods of six months i.e. from January to June and July to
December
• The head office of NBP determines the profit or loss on PLS saving deposits
and advice its branches the rate and time of distribution of these profits.
• There shall be no restrictions on maintaining the maximum balance in PLS
saving account.
• On the first day of Ramzan each year the Zakat at the rate of 2.5% will be
deducted from these deposits on the balance of that day. But if depositors affix
an affidavit of Zakat deduction along with account opening form or he is a
non-Muslim, no Zakat will be deducted from his account.

1.3.4 FIXED DEPOSIT ACCOUNT (TIME DEPOSITS)

The deposits that can be withdrawn after a specified period of time are referred to as
Fixed or Term Deposits. The period for which these deposits are kept by the bank
ordinarily varies from three months to five years in accordance with the agreement
made between the customer and the banker. Profit/Return is paid to the depositors on
all fixed or Time deposits, and the rate of profit/Return varies with the duration for
which the amount is kept with the banker. By lending out or investing these funds, the
bank earns more than the Profit/Return that it has to pay on them to the depositors. 9
By giving an advance notice to the bank the deposit can be withdraw from the bank
before the expiry of the period. Fixed deposit accounts have higher rate of interest as
compare to other accounts. The rate of interest rises with the length of period and the
amount of deposit. The bank grants to the depositor a fix deposit (FDR) which is not
transferable to any other person. The silent features of fixed deposit account of NBP
are as fallows

• The PLS term deposit are opened for individuals in their own single or
joint names, companies firms and other organizations.
• The PLS term deposit receipt are issued for any amount. There is
minimum or maximum limit or deposits in a single term deposit account.
• PLS term depositors may be allowed some facilities against the security of
these receipt credits, after making “Lien” on the relevant receipt and
subject to recovery of service charges.
• Under term deposit scheme the depositors not cease to earn the profit
immediately, after the respective maturity date.

2
1.3.5 FOREIGN CURRENCY ACCOUNT
Government of Pakistan has introduced many important reforms in Foreign Exchange
Control in the country since February, 1990, for the purpose of strengthening the
Foreign Exchange Reserves. One of these reforms relates to foreign currency
accounts, which can be opened in United States Dollars, Pound Sterling, Euro and
Japanese Yen in any of the authorized branches of commercial banks throughout the
country.10 Foreign currency accounts are opened, on proper introduction and
submission of required documents along with an initial deposit prescribed from time
to time. Rates of return on foreign currency deposits are subject to fluctuation as
determined in accordance with State Bank of Pakistan directives and will be paid on
six monthly basis whereas the return on term deposit/SNTD will be paid on maturity
or as prescribed by SBP. The bank shall have no responsibility for or liability to the
account holders for any diminution due to taxes imposed or depreciation in the value
of funds credited to the account whether due to devaluation or fluctuation in the
exchange rate or other wise.

1.3.6 NBP PREMIUM AAMDANI

NBP Premium aamdani is a retail product of the bank. The amount of investment
required for this account is Rs. 20,000/-to Rs. 5,000,000.The investment period is 5
years. Zakat and withholding tax will be deducted as per rules. In NBP premium
aamdani, the account holders have benefit of free demand draft, pay order; free
cheque book and NBP cash card (ATM+Debit). The Financing facility is available up
to 90% of the deposit value.11 Profit paid every period as follows:

Period Profit
Rates
1st year 7.50%
2nd years 8.50%
3rd years 9.50%
4th years 10.50%
5th years 11%
1.3.7 NATIONAL INCOME DAILY ACCOUNT (NIDA)
The scheme of National income daily account was launched in December 1995 to
attract corporate customers. It is a current account scheme and is part of the profit
and loss system of accounts in operation throughout the country. Deposits in the
NIDA accepted on the condition that the depositor shall always maintain a minimum
balance as prescribed by the bank in his account. In the event however, that any
depositor wishes to withdraw the amount and the balance in his account is less than

1
the required amount, the account will be converted to the ordinary PLS SB account
for the purpose of calculating profit. An example of how the NIDA accounts are
maintained is shown on the next page.

R ATES ON N ATIONAL INCOME DAILY ACCOUNT

• From Rs 2/- million to Rs 50/- the rate is 1.4%.

• From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.

• From Rs 500/- million but below Rs 1000/- the rate is 1.6%.

• From Rs 1000/- and above the rate is 1.75%.

S ALIENT F EATURES

• Rs 2-million is required to open an account and there is no maximum limit.

• Profit is paid on half yearly basis on monthly balances.

• The rates of profit vary according to the slabs of deposit. On Deposits of

Rs.2 million to 2,000 million, the rate fluctuates from 1.4 to 1.75

• It is a checking account and there is no limit of withdrawals

(NIDA 1)

Description of Debit Day

Date C Credit (+) Balance Products
Transaction (-) s
01/05/2008 Balance 10,000,00 10,000,000
05/05/2008 Cash 500,000 0 9,500,000 4 38000000
08/05/2008 Cash 100,000 9,600,000 3 28800000
11/05/2008 Transfer 75,000,00 84,600,000 3 25380000
15/05/2008 Cash 3,000,00 0 81,600,000 4 32640000
0
18/05/2008 Cash 0 78,600,00 160,200,000 3 48060000
0
20/05/2008 Cash 1,000,00 0 159,200,000 2 31840000
0
22/05/2008 Cash 0 5,000,000 164,200,000 2 32840000
0
23/05/2008 Cash 700,000 163,500,000 1 16350000
0
25/05/2008 Cash 10,000 163,510,000 2 32702000
0
0
2
 27/05/2008 Cash 300 163,509,700 2 32701940
31/05/2008 Transfer 500,000 164,009,700 4 65603880
0
01/06/2008 Cash 2,100,00 161,909,700 1 16190970
0
06/06/2008 Transfer 0 36,000,00 197,909,700 5 98954850
0
10/06/2008 Cash 9,870,00 0 188,039,700 4 75215880
0
0
(Retrieved July 12, 2010, from nbp.com/http://www.nbp.comproducts/nida.index/) 0

1.4 ADVANCES
National Bank of Pakistan plays a pivotal role in translating the government's
development plans in terms of growth in industrial, commercial and agricultural
sectors in Pakistan. Accordingly the Bank has formulated its Credit Policy under the
guidelines of SBP-the Central Bank of Pakistan.

Table 1.9

TYPE OF Financing Financing Debt to equity

ADVANCE Amount Period Ratio
Home Purchase (House or Rs. 35 Million 3 to 20 years 85:15
Apartment) (maximum)
Home Rs. 35 Million 3 to 20 years 85:15
Construction (maximum)
Home Rs. 15 Million 3 to 15 years 80:20
Renovation (maximum)
Purchase of land Plus Rs.35 Million 3 to 20 years 80:20
Construction (maximum)

1.5 NBP ADVANCE SALARY

The NBP Advance salary has been the flag-ship product for NBP. NBP Advance
Salary, the leading personal loan product of the country, is maintaining its
inimitability ever since it was launched. This was only possible due to its swift growth
and remarkable loan disbursement of over 118 billion.12 You can avail up to 20 net
take home salaries with easy repayment installments. Its hassle free acquisition with
no prior formalities and easy availability in a short turn around time is attributed as
the most distinguishing features of the product. The product is offered countrywide.
The terms and conditions of NBP Advance salary is shown on next page:

1
1.6 NBP CASH & GOLD

With NBP’s Cash & Gold, the customers meet their need for ready cash against their
idle gold jewelry. The rate of mark up is 13% p.a. This product has following
features13

• Facility of Rs. 7,000 against each 10 grams of net contents of gold

• No maximum limits of cash
• Repayment after one year
• Only gold ornaments acceptable
• Weight and quality of gold to be determined by NBP's appointed schroffs
• No penalty for early repayment

1.7 STUDENTS LOAN SCHEME

Pursuant to the announcement made by the Federal Finance Minister in his 2001-
2002 budget speech, a Student Loan Scheme (SLS) for Education was launched by
the Government of Pakistan in collaboration with major commercial banks of
Pakistan (NBP, HBL, UBL, MCB and ABL). Under the Scheme, financial assistance
is provided by way of Interest Free Loans to the meritorious students who have
financial constraints for pursuing their studies in Scientific, Technical and
Professional education within Pakistan. The Scheme is being administered by a high
powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents
of the commercial banks and representative of Ministry of Finance, Government of
Pakistan. 14

1.8 NBP KAROBAR- PRESIDENT’S ROZGAR SCHEME

The solution of Pakistan’s major socio-economic problems primarily lies in the
development and growth of small & micro businesses. These will not only provide
employment opportunities to ever-growing population demand but will also become
the catalyst for breaking the vicious circle of poverty. In this regard, NBP has
developed a full range of Products under the President’s Rozgar Scheme with a brand
name of “NBP KAROBAR”. The scheme will be offered to eligible young and
literate citizens of Pakistan, falling within an age group of 18-40 years having a
minimum qualification of Matriculation (except for females in the PCO/Tele-center
product). The eligible borrowers will be required to make a down payment of 15%.
Asset and Life & Disability insurances will be mandatory under this scheme. The

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15% down payment will include 1st year’s asset insurance premium. However, the
cost of life and disability insurance will be borne by GOP. The mark-up rate for the
1st year will be 12% and for the subsequent years it will be 1 year KIBOR + 2%. Fifty
percent (50%) of this rate will be paid by the customer i.e. 6% and the balance of 6%
will be borne by GOP. Additionally, first 10% of the losses under the scheme will be
taken-up by GOP. Initially, under the President’s Rozgar scheme, NBP will offer
following products:

• NBP Karobar Utility Store (under a Franchise with Utility Stores Corporation)
• NBP Karobar Mobile General Store (without USC Franchise)
• NBP Karobar Transport
• NBP Karobar PCO

1.9 CORPORATE ADVANCES

1.9.1 CASH FINANCE
This is a very common form of borrowing by commercial and industrial concerns and
is made available either against pledge or hypothecation of goods, produce or
merchandise. In cash finance, a borrower is allowed to borrow money from the banker
up to a certain limit, either at once or as and when required. The borrower prefers this
form of lending due to the facility of paying markup/services charges only on the
amount he actually utilizes. If the borrower does not utilize the full limit, the banker
has to lose return on the un-utilized amount. In order to offset this loss, the banker
may provide for a suitable clause in the cash finance agreement, according to which
the borrower has to pay markup/service charges on at least on self or one quarter of
the amount of cash finance limit allowed to him even when he does not utilize that
amount.

1.9.2 RUNNING FINANCE/ OVERDRAFT

This is the most common form of bank lending. When a borrower requires temporary
accommodation his banker allows withdrawals on his account in excess of the balance
which the borrowing customer has in credit, and an overdraft thus occurs. This
accommodation is generally allowed against collateral securities. When it is against
collateral securities it is called “Secured Overdraft” and when the borrowing customer
cannot offer any collateral security except his personal security, the accommodation is
called a “Clean Overdraft”. The borrowing customer is in an advantageous position in
an overdraft, because he has to pay service charges only on the balance outstanding

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against him. The main difference between a cash finance and overdraft lies in the fact
that cash finance is a bank finance used for long term by commercial and industrial
concern on regular basis, while an overdraft is a temporary accommodation
occasionally resorted

1.9.3 DEMAND FINANCE

When a customer borrows from a banker a fixed amount repayable either in periodic
installments or in lump sum at a fixed future time, it is called a “loan”. When bankers
allow loans to their customers against collateral securities they are called “secured
loans” and when no collateral security is taken they are called “clean loans”.

The amount of loan is placed at the borrower’s disposal in lump sum for the period
agreed upon, and the borrowing customer has to pay interest on the entire amount.
Thus the borrower gets a fixed amount of money for his use, while the banker feels
satisfied in lending money in fixed amounts for definite short periods against a
satisfactory security.

1.10 REMITTANCES

1.10.1 DEMAND DRAFTS

Drafts drawn by one branch on another branch or on the Head Office of same bank or
vice versa, are not cheques or bills, as these have no distinct drawer and drawee.
Section 85-A reads:

“ Where any draft, that is, an order to pay money, drawn by one office of bank upon
another office of the same bank for a sum of money payable to order on demand,
purports to be issued by or on behalf of the payee, the bank is discharged by payment
in due course”.

Banker’s drafts payable to order on demand are within the protection of Sections 10
and 131-A of the Negotiable Instruments Act. However, if a demand draft drawn on a
bank by its own branch bears a forged endorsement, the person in possession of it
cannot compel that bank to pay it. As far as possible the banker’s draft should be
crossed and it should never be drawn payable to bearer.

When a person requires a draft he should be asked to complete the prescribed

application form in which he should state the amount of the draft, the name of the
payee, and the place of payment. This application form should be signed by the

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purchaser or by those persons who have been duly authorized to act on his behalf.
When a customer requests his banker to provide him with a banker’s draft, the amount
of which is to be debited to his account, he should enclose with his written request a
cheque covering the amount of the required draft and other charges etc. payable to
banker.15

The National Bank of Pakistan provides demand drafts at very reasonable rates with
safety, speedy and reliable way to transfer money. Any person whether an account
holder of the bank or not, can purchase a Demand Draft form a bank.

1.10.2 TRAVELERS CHEQUES

They are generally issued for the convenience of person travelling abroad, but some
Pakistani banks issue them in Pakistan currency also for use within the country as
well. Before issuing, the bankers receive an amount equal to the face value of the
cheques, and also charge a small commission. The travelers’ cheques are for fixed
amount and are treated as Order cheques payable only to the purchaser whose
specimen signature appears on each traveler’s cheque itself. Foreign currency
travelers cheques are issued and encashed in accordance with the provisions of the
Exchange Control Regulation Act, 1947. While making payment, the paying banker
must insist that the holder signs in his presence.16

The National Bank of Pakistan provides their services for traveler’s cheque at very
reasonable and competitive rates. It has following features

Negotiability Pak Rupees Traveler’s Cheques are a negotiable

instrument
Validity There is no restriction on the period of validity
Availability At 700 branches of NBP all over the country
Encashment At all 400 branches of NBP
Limitation No limit on purchase
Safety NBP Traveler’s Cheques are the safest way to carry our money

1.11 LETTER OF CREDIT

Letters of credit are very useful instruments in facilitating commercial relations
between businessmen at various places. Letter of credit state the limit of the credit and
the time during which it is held at the disposal of the grantee, but they are neither
negotiable nor transferable. Letter of credit may be revocable. There are many kinds

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of letter of credit such as Revolving credit, Back to Back credit, Claused credit etc.17
NBP is committed to offering its business customers the widest range of options in the
area of money transfer. If you are a commercial enterprise then our Letter of Credit
service is just what you are looking for. With competitive rates, security, and ease of
transaction, NBP Letters of Credit are the best way to do your business transactions.

1.12 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.
• The new features of NBP foreign remittances include:

• The existing system of home remittances has been revised/significantly

improved and well-trained field functionaries are posted to provide efficient
and reliable home remittance services to nonresident Pakistanis at 15 overseas
branches of the Bank besides United National Bank (the joint venture between
NBP and UBL in UK)., and Bank Al-Jazira, Saudi Arabia.
• Zero Tariffs: NBP is providing home remittance services without any charges.
• Strict monitoring of the system is done to ensure the highest possible security.
• Special courier services are hired for expeditious delivery of home remittances
to the beneficiaries.

1.13 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-PKKA. All NBP overseas branches and overseas correspondents (over
450) are drawing remittances through SWIFT. Using the NBP network of branches,
we can safely and speedily transfer money for our business and personal needs.

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1.14 MAIL TRANSFER
A Mail Transfer is a form of remittance in which the amount remitted by a customer
or a non-customer is directly credited to the account of the beneficiary with another
branch. Move your money safely and quickly using NBP Mail Transfer service. And
NBP also offer the most competitive rates in the market. They charges Rs 50/-
exchange rate and RS 75/- postage charges on issuing mail transfer. When the money
is not required immediately, the remittances can also be made by mail transfer (MT).
Here the selling office of the bank sends instructions in writing by mail to the paying
bank for the payment of a specified amount of money. Debiting to the buyer’s account
at the selling office and crediting to the recipient’s account at the paying bank make
the payment under this transfer. NBP taxes mail charges from the applicant where no
excise duty is charged. Postage charges on mail transfer are actual minimum Rs. 40/-
if sent by registered post locally Rs.40/- if sent by registered post inland on party’s
request.

1.15 TELEGRAPHIC TRANSFER

Telegraphic Transfer is a form of remittance, which is advised by telegram, telex or
fax machines. The fundamental principles of such transfer are otherwise identical with
the Mail Transfer. It is the message, which is sent from one branch to another on the
order of payer to payee through wire. It is one of the quickest means to transfer fund
through the use of telex/fax/internet or cable

1.16 PAY ORDER

NBP provides another reason to transfer your money using our facilities. NBP pay
orders are a secure and easy way to move your money from one place to another.
And, as usual, NBP charges for this service are extremely competitive. The charges of
NBP are very low all over the Pakistan. It charges Rs 50/- for NBP account holders on
issuing one payment order, and charges Rs 100/- for NBP non-account holders on
issuing one payment order. It charges Rs 25/- for students on payment of fees of
educational institutions. If some one want a duplicate of payment order they charges
Rs 100/- for NBP account holders and Rs 150/- for non account holders.

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 CHAPTER NO 2

2 ORGANIZATIONAL STRUCTURES

2.1 ORGANIZATIONAL STRUCTURE OF NATIONAL BANK OF PAKISTAN

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

The Organization Structure (Annexed I) shows the internal operations and reporting
lines of the National Bank of Pakistan. The bank has clearly defined organizational
structure, which supports clear lines of communications and reporting relationships.
There exists a properly defined financial and administrative power of various
committees and key management personnel, which supports delegations of authority
and accountability.

The internal operations of the Bank are organized into 15 main departments and
divisions headed by senior management of the bank and are report directly to the
Board of Directors. The organizational structure of National Bank of Pakistan is
centralized because all the decisions of the bank are taken by the top Management.
The National Bank of Pakistan’s Departmental key roles and functions are as follows:

2.2 BOARD OF DIRECTORS

Pursuant to Section 11 of The Banks’ (Nationalization) Act, 1974, the number of

Directors of the Bank shall not be less than 5 and not more than 7, excluding the
President. The Federal Government may, if deems necessary, appoint a Chairman of
the Board in respect of the Bank. At present National Bank of Pakistan’s Board of
Directors consist of 6 Directors and a President who is the Chief Executive of the
Bank and presides over the meetings of the Board. The responsibilities of Directors
include the followings:18

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1. The Board of Directors shall assume its role independent of the influence of
the Management and should know its responsibilities and powers in clear
terms. it should be ensured that the Board of Directors focus on policy making
and general direction, oversight and supervision of the affairs and business of
the Bank and does not play any role in the day-to-day operations, as that is the
role of the Management.
2. The Board shall approve and monitor the objectives, strategies and overall
business plans of the institution and shall oversee that the affairs of the
institution are carried out prudently within the framework of existing laws &
regulations and high business ethics.
3. All the members of the Board should undertake and fulfill their duties &
responsibilities keeping in view their legal obligations under all the applicable
laws and regulations.
4. The Board shall clearly define the authorities and key responsibilities of both
the Directors and the Senior Management without delegating its policy-
making powers to the Management and shall ensure that the Management is
in the hands of qualified personnel.
5. The Board shall approve and ensure implementation of policies, including but
not limited to, in areas of Risk Management, Credit, Treasury & Investment,
Internal Control System and Audit, IT Security, Human Resource,
Expenditure, Accounting & Disclosure, and any other operational area which
the Board may deem appropriate from time to time. The Board shall also be
responsible to review and update policies periodically and whenever
circumstances justify.
6. As regards Internal Audit or Internal Control, a separate department shall be
created which shall be manned preferably by professionals responsible to
conduct audit of the Bank, Various Divisions, Offices, and Units Branches
etc. The Head of this department will report directly to the BOD or Board
Committee on Internal Audit.
7. The business conditions and markets are ever changing and so are their
requirements. The Board, therefore, is required to ensure existence of an
effective ‘Management Information system’ to remain fully informed of the
activities, operating performance and financial condition of the institution, the
environment in which it operates, the various risks it is exposed to and to
evaluate performance of the Management at regular intervals.

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8. The Board should meet frequently (preferably on monthly basis, but in any
event, not less than once every quarter) and the individual directors of an
institution should attend at least half of the meetings held in a financial year.
The Board should ensure that it receives sufficient information from
Management on the agenda items well in advance of each meeting to enable it
to effectively participate in and contribute to each meeting.
9. The Board should carry out its responsibilities in such a way that the external
auditors and supervisors can see and form judgment on the quality of Board’s
work and its contributions through proper and detailed minutes of the
deliberations held and decisions taken during the Board meetings.
10. To share the load of activities, the Board may form specialized committees
with well-defined objectives, authorities and tenure. These committees,
preferably comprising of ‘Non- Executive’ Board members, shall oversee
areas like audit, risk management, credit, recruitment, compensation etc. these
committees of the Board should neither indulge in day-to-day
affairs/operations of the bank and enjoy any credit approval authority for
transaction/limits. These committees should apprise the Board of their
activities and achievements on regular basis.
11. The Board should ensure that it receives management letter from the external
auditors without delay. It should also be ensured that appropriate action is
taken in consultation with the Audit Committee of the Board to deal with
control or other weaknesses identified in the management letter. A copy of
that letter should be submitted to the State Bank of Pakistan so that it can
monitor follow-up actions.
The Following table mentioned the names & designation of Board of
Directors of National Bank of Pakistan:

Name Designation
Syed Ali Raza Chairman & President
Mr. Sikandar Hayat Jamali Director
Mian Kausar Hameed Director
Mr. Ibrar A. Mumtaz Director
Mr. Tariq
Kirmani Director
Mr. Muhammad Arshad Chaudhry Director
Mr. Mohammad Ayub Khan Tarin Director

1
 Mr. Ekhlaq Secretary Board of
Ahmed Directors

2.3 SENIOR MANAGEMENT

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

• Corporate and investment Banking Group

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

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Name Group Name & Designation
SEVP & Group Chief, Corporate & Investment Banking
Masood Karim Shaikh Group
SEVP & Group Chief, Credit Management
Shahid Anwar Khan Group
Dr. Asif A. Brohi SEVP & Group Chief, Operations Group
SEVP & Group Chief, Audit & Inspection
Imam Bakhsh Baloch Group
Ziaullah Khan SEVP & Group Chief, Compliance Group
SEVP & Group Chief, Human Resources Management & Administration
Dr. Mirza Abrar Baig Group
SEVP & Group Chief, Commercial & Retail Banking
Amer Siddiqui Group
Muhammad Nusrat SEVP & Group Chief, Treasury Management
Vohra Group
Amim Akhtar EVP & PSO to the President
EVP & Secretary Board of
Ekhlaq Ahmed Directors
Tajammal Hussain Bokharee EVP/Divisional Head, Special Assets Management Group
EVP & Divisional Head Employee Benefits, Disbursements & Trustee
Mrs. Khurshid Maqsood Ali Division
Tahir Yaqoob EVP & Group Chief, Overseas Coordination & Management Group
Anwar Ahmed Meenai EVP & Divisional Head, Islamic Banking
Naeem
Syed EVP & Head, Core Banking Application, PMO
Aamir Financial Controller & Divisional Head, Financial Control
Sattar Division
Group Chief (A), Information Technology
Atif Hassan Khan Group

2.4 CORPORATE & INVESTMENT BANKING GROUP

The corporate & investment banking group is headed by Mr. Masood Karim Shaikh.
This group performs its function through its following two units:
• Corporate Banking
• Investment Banking
The corporate and investment banking will continue to play a major role in loan
syndications, structured financing and debt / capital raising transactions with the

1
objective of providing entire range of corporate and investment banking solutions to
its valued clients under one umbrella.

The Corporate Banking Group achieved excellent results in 2007 with a number of
landmark transactions in cement, energy, communication and fertilizer sectors. In
addition to the funded income, our corporate and investment banking has substantially
increased its fee base income this year by being the lead advisor in a number of
transactions in the corporate world of Pakistan

The challenges to corporate business in year 2007 were manifold including reduction
in Private Credit Investment as a result of slowing down of economy as well as rising
interest rates. The increasing pressure on the textile industry reduced the lending to
this sector. In addition the bank's corporate loans yields also faced pressure as
substitute form of funding sources are available in the market in form of Islamic
financing, mutual funds, issuance of debt instruments like TFCs and Bonds and the
Capital markets.

Despite these threats and challenges at NBP, our corporate team not only increased
the volume as well as the yield of the loans they also maintained a strong franchise
with the leading Pakistani corporate so as to ensure that NBP not only maintains its
market share but is in a position to meet any challenges in future. NBP during the year
also participated in a number of TFC issues and mutual funds subscriptions thereby
increasing the overall yield on investment portfolio.

NBP has the largest equity portfolio in the banking sector primarily due to 27%
holding in NIT units, the largest mutual fund in Pakistan. During the year 2008 the
bank redeemed 10% of its NIT holding covered under LoC, which resulted in capital
gain of Rs. 1.8 billion in 2008.

The National Bank of Pakistan has initiated a structured approach to corporate

banking by introducing a single point of contact through Relationship Managers. For
this purpose, new Relationship Managers as well as team leaders has been inducted to
expedite this process. The Area Managers of National Bank of Pakistan are appointed
to manage relationships and to better service the needs of multinationals and large
local corporate. An investment banking team has also been formed by National Bank
of Pakistan to offer specialized services to major relationships including advisory and
debt syndications. The National Bank o Pakistan have special focus on Corporate

2
Banking with a presence in all major locations through out the country, offering full
range of Banking products / services and one window interface through designated
Relationship Managers. Corporate Banking offers tailor made products / solutions as
required by corporate customers which includes:

The key features of corporate Banking includes:

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

2.5 COMPLIANCE GROUP

The Compliance Group of National Bank of Pakistan is headed by Mr. Ziaullah Khan
and is report directly to the President/ Chief executive of NBP. In order to keep the
working of Audit Department aligned with the best international practices
'Compliance Group’ has been created. This group is responsible for monitoring
compliance of various administrative / operative instructions, rules, and regulations by
constantly reviewing and reporting status of compliance and non-compliance. The
Compliance Group of NBP is set to ensure that all relevant laws are complied with, in
letter and spirit, and, thus, minimize legal and regulatory risks. The Compliance
officers will primarily be responsible for Bank’s effective compliance relating to:
• Relevant provisions of existing laws and regulations.
• Guidelines for KYC.
• Anti money laundering laws and regulations.
• Timely submission of accurate data / returns to regulator and other agencies.
• Monitor and report suspicious transactions to President / Chief Executive
Officer of the bank and other related agencies.
• The Compliance Officers will serve as a contact point between President
/Chief executive officers and senior management, with regard to functioning
of compliance program provide assistance in this area to branches and other
departments of the bank, and act as liaison with State Bank of Pakistan
concerning the issues related to compliance.

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The functions of compliance group of National Bank of Pakistan are as fallows:
• Study and emphasize compliance of best international practices in audit of
various functions of NBP.
• Monitor compliance of Administrative/Operational Instructions, Rules,
Regulations issued from time to time by the Management.
• Review over the compliance carried out by the audit departments.
• Prepare and put up a consolidated Report to the Directors of National Bank of
Pakistan regarding the status of compliance and non-compliance of the
recommendations agreed by the Departmental Management.

2.6 ISLAMIC BANKING GROUP

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

1
 • Letter of Credit Facility
• Handling of Remittances
• Issuance of Bank Drafts and Pay Orders.
• Collection of Export Bills.
• Collection of Local Bills.
• Government Collections
• Utility Bills Collection

2.7 TREASURY MANAGEMENT GROUP

The group chief of Treasury management group of National Bank of Pakistan is Mr.
Muhammad Nusrat Vohra. The NBP treasury and capital market group has developed
a reputation of being the market leader in coming up with customized solutions for a
large and varied client base that is spread virtually all across the country. The client
base does not consist of only blue chips ones but encompasses public sector clients,
retail sector, multinationals, local conglomerates as well as individuals.
National bank treasury is currently regarded as a market leader in both foreign
exchange and rupee denominated products because of its emphasis on service quality.
The Treasury management group of National Bank of Pakistan’s offer:19
• Narrowest bid / offer spread and quickest on line quotes
• Customized solutions to minimize risk and optimize returns as per the needs
and circumstances of the clients
• Focus on building sustained and long term relationship with institutional,
corporate and retail clients.
• Local presence across the nation as well as internationally.

2.8 CREDIT MANAGEMENT GROUP

The group chief of Credit Management Group is Mr. Shahid Anwar Khan. This group
usually deals with Bank’s allocations of payments or cash application, internal fund
movements, reconciliations and also maintaining positive working relationships with
customer during the debt collection or credit review and approval process, screening
of customers and only those who is credit worthy are allowed to do business. The
divisions of this group are distributed according to different areas which are:

1
 1) NWFP Azad Kashmir Sind & Baluchistan area wing
2) Karachi area wing
3) Special Credit Cell & Punjab area Wing
The functions of this department include:
• Enforcing the State Policies, financial regulations, and credit rules of the bank
• Framing credit policies and regulations; supervising the staff to execute orders
• Putting forward the proposal of credit management and development; guiding
and supervising the branch-banks to deal with credit business
• Managing the authorized business; dealing with the legal affairs consulted and
coordinated
• Establishing development rules on credit; dealing with the acceptance draft;
estimating the loaning accounts
• Responsible for reporting the credit statistic statement
• Responsible for training client managers
• Responsible for dealing with other work according to the directors of the bank
• Responsible for the credit-registered consulting system; regulating the five-
graded loans

2.9 AUDIT & INSPECTION GROUP

The group chief of National Bank of Pakistan’s Audit & inspection group is Mr.
Imam Bakhsh Bloch. It is one of the core departments at NBP. Its mission is to strive
for soundness & stability of the financial system and safeguard interest of
stakeholders through proactive inspection, compatible with best international
practices. This group plays a vital role in meeting NBP’s main responsibility of
supervising the bank’s soundness of the system and protection of the interest of
depositors, thereby ensuring public confidence in the system. In order to assess the
branches, Audit & inspection group conducts regular audit & inspection of branches.
Bank's management has established and is managing an adequate and effective system
of internal control which encompasses the policies, procedures, processes and tasks as
approved by the Board of Directors that facilitate effective and efficient operations.
The management and the employees at all levels within the Bank are required to
perform as per these approved Internal Control System components. The Internal
Control System ensures quality of external and internal reporting, maintenance of
proper records and processes, compliance with applicable laws and regulations and
internal policies with respect to conduct of business. The management ensures that an

1
efficient and effective Internal Control System is in place by identifying control
objectives, reviewing existing procedures and policies and ensuing that control
procedure and policies are amended for time to time wherever required. However,
Internal Control System is designed to manage rather than eliminate the risk of failure
to achieve objectives and provide reasonable but not absolute assurance against
material misstatement or loss.20 The audit system of National Bank of Pakistan
consists of following:
a) Internal Audit
b) External Audit
c) Statutory Audit

2.9.1 INTERNAL AUDIT

The Bank has an independent Internal Audit Group that conducts audit of all
Branches, Regions and Groups at Head Office on an on-going basis to evaluate the
efficiency and effectiveness of Internal Control System. In addition to that,
Compliance Group is also in place with independent Compliance Officer in 119
Branches and 29 Regional Compliance Chiefs with supporting staff to take care of
compliance related issues to strengthen the control environment.21

For the purpose of inspection the National Bank of Pakistan inspects its branches
through inspectors. Inspections are conducted on regular basis in the branches. The
current chairmen of audit committee of NBP are Azam Faruque, Ibrar. A. Mumtaz &
Mian Kausar Hameed. The State Bank of Pakistan conducts the regular full scope
examination of banks pursuant to an inspection schedule; however, flexibility exists in
policy for frequency of inspections depending upon the need to maintain safety &
soundness. The CAMELS (Capital, Asset Quality, Management, Earnings, Liquidity,
Sensitivity and System & Controls) rating is a criteria to determine the frequency of
inspection of banks as weak institutions are given greater attention. Special
investigations (targeted inspections) are also conducted as and when circumstances so
warrant on the basis of complaints or market reports about specific institution.

2.9.2 EXTERNAL AUDIT

The Board of Directors on the recommendations of Audit Committee has also

recommended name of Messer’s Ford Rhodes Sidat Hyder, Chartered Accountants
and Yousaf Adil Saleem & Co. as auditors of National Bank of Pakistan.

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2.9.3 STATUTORY AUDIT

The statutory audit of National Bank of Pakistan is conducted to meet the particular
requirements of State Bank of Pakistan. The scope and audit programs are set by the
State Bank of Pakistan. The National Bank of Pakistan has to pay a penalty of
Rs.20000 for each mistake in the Books and procedures as prescribed by the law plus
surcharge of per day from the date of mistake to the date of statutory audit.

The functions of Audit & inspection group of National Bank of Pakistan are as
fallows:

• Examine and evaluate adequacy and effectiveness of the internal control

systems in the Bank.
• Review the applications and effectiveness of risk management procedures and
risk assessment methodologies in financial, operational and Corporate
Governance aspects of the Bank’s activities.
• Review financial, automation technology and MIS.
• Review and ensure accuracy and reliability of accounting records and financial
reports.
• Perform testing of both transactions and functioning of specific internal
control procedures.
• Evaluate and ensure that approved policies and procedures meet legal and
regulatory requirements.
• Examine and evaluate effectiveness of existing policies, procedures and give
recommendations for improvements.
• Identify opportunities for cost savings in Bank operations and make
recommendations.
• Examining those resources are acquired economically, used efficiently and
safeguarded adequately.
• Review various reports of Bank’s subsidiaries, recommend improvements and
provide policy guideline

2.10 HUMAN RESOURCE MANAGEMENT & ADMINISTRATION GROUP

The group chief of Human resource management & administration group is Mr. Dr.
Mirza Abrar Baig. This Division is responsible for fresh induction of employees and
other professionals through a rigorous induction process in order to ensure presence of
quality professionals. Following units and areas of work are the part of this division.

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This group is responsible to develop annual manpower plan for National Bank of
Pakistan, conduct job analysis, prepare job descriptions, and conduct job evaluation
process. The other functions of this group include attracting, selecting and recruiting
the right people from the market. The group firmly works on adopting latest
organizational theories & change management processes to bring in efficiency. This
group also performs following functions:
• Deals from placing job advertisements to timely recruitment of competent
personnel by using modern selection techniques.
• Systematically observes & measures employee’s/candidate’s performance for
the purpose of recruitment, selection and promotions.
• Facilitates in establishing successful productive working relationships through
effectively orienting new employees to their respective departments/divisions
and to their positions.
• Encourages employees to seek promotion/transfers to fill internal openings
and meet employees’ personal objectives.
• Foster a culture of acknowledgement and appreciation amongst employees for
introducing innovative business practices, showing extra ordinary efforts for
achievement of goals and enhancing Bank’s corporate image uses various
methods of recognition ranging from simple “Thank you” letters to elaborate
celebrations and monetary rewards.
• Conducting motivation surveys and developing market based employee
satisfaction & retention strategies.
• Conduction of evaluation of positions and grades to ascertain employees’
position in the grade structure.
• This Group supervises all the staff colleges, at Karachi, Islamabad, Lahore and
Peshawar.

2.11 OVERSEAS COORDINATION & MANAGEMENT GROUP

The group chief of NBP’s overseas coordination & management group is Mr. Tahir
Yaqoob. This department is in charge of the management and operation of foreign
exchange business including marketing and operating of the financial products and
trade financing of foreign exchange in the light of National foreign exchange
management policy, and is the governing department of foreign exchange. The
functions of this group are as follows:

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 • Establishing marketing strategy, policy and management system of foreign
exchange.
• Making annual operating and working plan.
• Selecting and opening overseas account under supervision, and establishing
and harmonizing the business among agent banks.
• Corresponding and dealing with foreign exchange business among branches.
• Showing business requirement of costumers and development of new
products; publicizing foreign exchange business; training managers of
customer-service for foreign exchange business.

2.12 COMMERCIAL & RETAIL BANKING GROUP

The group chief of National Bank of Pakistan’s commercial & retail Banking group is
Mr. Amer Siddiqui. Retail banking includes retail lending and deposits, banking
services, trust and estates, private lending and deposits, banking service, trust and
estates investment advice, merchant / commercial / corporate cards and private labels
and retail.22 Commercial banking includes project finance, real estate, export finance,
trade finance, factoring, lending, guarantees, bills of exchange and deposits.
This group is responsible for serving the needs of the retail and commercial market,
focusing on individual consumers and small and medium size enterprises. This group
is responsible for developing and managing brands which serve the investment needs
of the consumer market, and focuses on deposit mobilization, provision of value
added services based on modern technology and undertaking the centralized
marketing and advertising for the Bank. This group is engaged in the development
and management of retail credit schemes. The consumer market in Pakistan has not
only grows exponentially over the last decade or so, but the needs of this segment
have become extremely diverse. In order to sustain competition, it is but imperative to
continue offering innovative consumer credit schemes.

The National Bank of Pakistan plan to establish commercial centers across the
country looking at the business potential in the area, size of the branch and its
capabilities to deliver the desired service in order to attract quality customers. The
objective is to target the untapped sectors and provide them professional quality
service, through one window operations and Relationship Managers stationed at those
centers. We expect and hope to reduce the turn around time and become more
competitive and market oriented. Further this customer friendly and dedicated set up
at convenient locations would help in improving the image of the Bank as well. These

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Centers would work in conjunction with the existing set–up of Commercial Lending
done throughout the NBP branch network. The main purpose of these centers is to
generate ancillary business in addition to funded and non-funded facilities, with quick
turn around time in decisions for customer satisfaction.

2.13 SPECIAL ASSETS MANAGEMENT GROUP

The group chief of Special assets management group is Mr. Tajammal Hussain
Bokharee. The Special Asset Management Group (SAMG) is a group of people with
specialized skills in managing the "stressed" assets of National Bank of Pakistan. The
group was created with a view to enable restructuring and recoveries through various
initiatives like innovative work-outs, merger & acquisition strategies, asset stripping,
security enhancements and structured sell-downs. The group has also been working
with / advising various governmental and regulatory bodies in evolving a framework
for implementing international best practices like asset reconstruction companies in
the country.
With provision coverage of 84% we believe that going forward our Special Assets
Management Group will make major contribution towards the Bank's profitability
through recoveries and reversal of provision charge as a result of declassification /
rescheduling. We have revamped our special assets management business and have
coordinated our efforts to expedite recoveries and settlements.

2.14 EMPLOYEE BENEFITS, DISBURSEMENTS & TRUSTEE DIVISION

The divisional head of this division is Mr. Mrs. Khurshid Maqsood Ali. The function
of the National Bank of Pakistan’s Employee benefits, disbursement & trustee
division is to handle the administration of trust funds, provide estate planning support,
and in some cases see to the disposition of the estate of a deceased customer. One of
the factors that make the use of this department so attractive is that it tends to be
somewhat conservative with their management approach. This means that this
department is likely to take time to evaluate all options when involved in settling
estates, establishing guardianships, or administering trusts that have been set up for
the survivors of a major depositor. This methodical approach is often in line with the
motivation for establishing the asset in the first place, which was to provide a source
of financial support for loved ones, even after a parent or significant other has died.

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Along with estate settlement, this department also provides a number of other agency
services, such as functioning as the trustee of record for corporate bonds or
administering a pension or profit sharing plan. As a means of ensuring that the
resources of the bank safely protect the investments involved, the department makes it
relatively easy for the client to deal with other matters. Thus, the investor can focus
more on family or other business matters, and be less involved in the task of
protecting assets that are already established and set on a path of consistent growth.

2.15 DEFINED BENEFIT PLANS

2.15.1 PENSION SCHEME

The bank operates defined benefit approved funded pension scheme for its eligible
employees. The bank’s costs are determined based on actuarial valuation carried out
using Projected Unit Credit Method. Net cumulative un-recognized actuarial
gains/losses relating to previous reporting period in excess of the highest of 10% of
present value of defined benefit obligation or 10% of the fair value of plan assets are
recognized as income or expense over the estimated working lives of the employees.
Where the fair value of plan assets exceeds the present value of defined benefit
obligation together with unrecognized actuarial gains or losses and unrecognized past
service cost, the bank reduces the resulting asset to an amount equal to the total of
present value of any economic benefit in the form of reduction in future contributions
to the plan and unrecognized actuarial losses and past service costs.

2.15.2 POST RETIREMENT MEDICAL BENEFITS

The bank operates an un-funded defined post retirement medical benefits scheme for
all of its employees. Provision is made in the financial statements for the benefit
based on actuarial valuation carried out using the Projected Unit Credit Method.
Actuarial gains/losses are accounted for in a manner similar to the pension scheme.

2.15.3 BENEVOLENT SCHEME

The bank also operates an un-funded defined benefit benevolent scheme for its
eligible employees. Provision is made in the financial statements based on the
actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are
recognized in the period in which they arise.

2.15.4 GRATUITY SCHEME

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The bank also operates an un-funded defined benefit gratuity scheme for its eligible
contractual employees. Provision is made in the financial statements based on the
actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are
accounted for in a manner similar to pension scheme.

2.16 PROVINCIAL & REGIONAL MANAGEMENT

There are four executives of National Bank of Pakistan to supervise the Bank’s maters
of every province, as they are called Provincial Chiefs. These provincial chiefs are
responsible for the entire banking operations in their respective provinces. The
provincial management includes:
• The Provincial Chief Punjab
• The Provincial Chief Sind
• The Provincial Chief Baluchistan
• The Provincial Chief N.W.FP & Kashmir
These provinces are sub-divided into regions, the regions are controlled and manage
by Regional heads, which are responsible for the supervision in their circles and deal
with the problems of their respective Regions. The regional management of National
Bank of Pakistan is divided into two areas which are:
• Overseas
• Countrywide
The overseas regions include Middle East, Far East, Europe & USA, and Central
Asia. The country has been divided into 29 regions by National Bank of Pakistan to
facilitate its functions. The detail about National Bank of Pakistan’s regions is shown
as Annexed-II at the end of the report. These regions are sub divided into Zones, the
in charge of a Zone is called Zonal Chief.

2.17 BRANCH MANAGEMENT

The National Bank of Pakistan, in order to facilitate its functions on branch level
appoints Branch Managers & other staff according to branch’s activities and volume
of business. The branch managers are responsible for all functions and staff within the
branch office. The job of branch managers is to take charge of the entire operation of
his branch, making sure that everything runs smoothly. The other functions involves
scheduling of employee work hours, overseeing training, hiring and firing, assuring
that proper procedures are followed, and reporting to upper management any
problems or providing reports and updates as required by bank’s protocol.

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2.18 HIERARCHY OF NATIONAL BANK OF PAKISTAN

The Hierarchy (An arrangement of objects, people, elements, values, grades, orders,
classes etc., any system of persons or things ranked one above another) of National
Bank of Pakistan is shown as Annexed III at the end of this report. The hierarchy may
include:

• Categorization of a group of people according to ability or status.

• A body of clergy organized into successive ranks or grades with each level
subordinate to the one above.
• A series in which each element is graded or ranked
• A body of officials disposed organically in ranks and orders each subordinate
to the one above it; a body of ecclesiastical rulers.
• An organization with few things, or one thing, at the top and with several
things below each other thing.
The President of National Bank of Pakistan is ranked Top at the hierarchy. The other
six directors of National Bank of Pakistan are ranked second in the hierarchy. The
Provisional, Regional & Zonal chiefs are ranked 3rd, 4th & 5th respectively. The vice
President & assistant vice Presidents of National Bank of Pakistan are ranked 6 th & 7th
respectively. The Officers Grade I, II & III are ranked 8th at the hierarchy of National
Bank of Pakistan. The lower level of National Bank of Pakistan is consist of Clerical
& non- clerical staff.

2.19 CENTRALIZED DECISION MAKING

The Branch Manager of National Bank of Pakistan is responsible for all the affairs of
the Bank. All the decisions relating to Branch are made by him and the subordinates
have to obey these decisions. All the employees of the Bank are report directly to the
Branch Manager. The branch has two operation Managers. Operation Manager I
controls Clearing house & Remittance Department and Operation Manager II controls
Deposits, Advance & Branch accounts department. Both of them are report directly to
the Manager regarding affairs of their departments. The Chief Accountant controls
Accounts department & is report directly to branch Manager. The branch also has two
cashiers responsible for cash & Pension disbursement department reports directly to
branch Manger. The BBO (Branch Back Office System) Operator controls computer
department of the branch and is report directly to Operation Manager I and Branch
Manager.

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2.19.1 DOWNWARD COMMUNICATION

Communication is the process by which information is exchanged and understood by

two or more people, usually with the interest to motivate or influence the behavior of
others in the organization. Downward communication is the message and information
sent from top management to subordinates in a downward direction. The same pattern
is followed at National Bank of Pakistan Rawat branch, the Manager of the branch
sent orders, information & messages to following subordinates

• Operation Manager I
• Operation Manager II
• BBO ( Branch Back Office System) Operator
• Chief Accountant
• Cashier I
• Cashier II
• Clerk I
• Clerk II
• Non Clerical Staff

2.19.2 CHAIN OF COMMAND

The chain of command is an unbroken line of authority that links all persons in an
organization and shows who reports to whom. By analyzing the organizational
structure of the National Bank of Pakistan Rawat branch it can be found that there is a
scalar principle followed with in the branch because each and every employee of the
branch knows to whom they can report. The authority and responsibility for different
tasks and duties are different, as well as every one knows the successive levels of
management all the way to the top

2.20 DEPARTMENTS OF THE BRANCH

Banking procedures are divided between various departments. Different departments

do their jobs in occurrence with the bank policies. In National Bank of Pakistan each
branch is divided into various departments depending on their size and volume of
business. Head of department manages each department & officials of the branch
follow procedures. The departments working within National Bank of Pakistan Main
branch are as under:

1. Clearing House Department

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 2. Remittance Department
3. Computer Department
4. Deposits Department
5. Advances Department
6. Account Opening Department
7. Accounts Department
8. Cash Department
9. Pension Disbursement Department

2.20.1 CLEARING HOUSE DEPARTMENT

As part of their daily business activity, banks receive cheques and other financial
instruments from their customers drawn on other banks, to be collected and credited
to their accounts. Similarly, banks receive cheques/instruments from other banks,
deposited by customers of the banks drawn on the customers of the drawee banks.
Therefore, the banks act as Collecting Banks when they send cheques/instruments for
collection and as paying Banks, when they receive cheques/instruments for collection
from other banks. Since each bank receive and sends cheques/instruments for
collection to and from an number of banks, the process of settlement would clearly be
very cumbersome and time consuming if every cheques/instrument had to be sent by
the collection bank to each of the drawee banks or branch upon which different
collection items are drawn and to individually pay the proceeds to each of the bank
sending cheques/instrument in for collection. Therefore, the banks have evolved what
is called the Bankers Clearing arrangement.

The Clearing System enables cheques to be paid or cleared centrally and settlement
made for receivables and payables between the banks. The SBP co-ordinates clearing
activity through its offices, called the Clearing Houses, set up in big cities and towns.
Where SBP does not maintain its own office, some other bank, usually National Bank
of Pakistan (NBP) performs this function. But the clearing house facility is available
only for cheques/instruments drawn on banks situated within the same city/clearing
house area.

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2.20.1.1 W ORKING OF THE C LEARING P ROCESS
Under the clearing arrangements, the State Bank of Pakistan (SBP) offers a Clearing
House or a centralized exchange facility, which works on the following general lines:

• All the banks operating in a city who are members of the Clearing House
maintain an account with the SBP’s Clearing House.
• Every day representatives of all the banks in every city meet the Clearing
House, first meeting in the morning, at an appointed time, for the purpose of
depositing their own customers , cheques/instruments to be collected from
other banks and receiving cheques/instrument drawn on their account holders
from the others banks.
• At the Clearing House accounts of all the banks are debited by the total
amount of cheques/instruments drawn on their customer’s accounts and
credited with the amount of their customer’s cheques/instruments drawn on
other banks, as per the list of cheques submitted by each bank.
• The cheques/instruments received, also called Inward Clearing, and are taking
back by each bank to its bank/branch. The amounts of each
cheques/instrument is debited or recovered from each drawee customers’
account and credited to the Clearing House account. Similarly, against the
amount credited by the Clearing House as Outward Clearing, the appropriate
customers’ accounts are credited and clearing House account is debited.
• Any cheques/instruments received by a bank that cannot be paid, due to
insufficient balance in its customer’s account or for any other reason, are
returned back to the Clearing House and a credit is claimed and obtained there
against.

R ULES & R EGULATIONS OF C LEARING H OUSE

• Timing:(Monday to Saturday)
○ 1st Clearing at 10:00 a.m.

○ 2nd Clearing at 2.30 p.m.

• Each bank will send competent representative to exchange the cheques.

• Each bank is required to insure that all cheques and other negotiable
instruments are properly stamped and suitably discharged
• An objection memo must accompany each and every cheque when return
unpaid duly initialed.

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 • Each bank is required to maintain sufficient funds in the principal account
with SBP to meet the payment obligations.
• The State Bank of Pakistan debit the account of each member of the
clearinghouse with the proportionate working expenses incurred on the
operation of clearing house. These expenses are very nominal.

O UTWARD C LEARING AT THE B RANCH

The following points are to be taken into consideration while an instrument is
accepted at the counter to be presented in outward clearing:

• The name of the branch appears on its face where it is drawn.

• It should not stale or post dated or without date.
• Amount in words and figures does not differ.
• Signature of the drawer appears on the face of the instrument.
• Instrument is not mutilated.
• There should be no material alteration, if so, it should be properly
authenticated.
• If order instrument suitably indorsed and the last endorsee’s account being
credited.
• Endorsement is in accordance with the crossing if any.
• The amount of the instrument is same as mentioned on the paying-in-slip
and counterfoil.
• The title of the account on the paying-in-slip is that of payee or endorsee
(with the exception of bearer cheque).
• If an instrument received other than National Bank of Pakistan then special
crossing stamp is affixed across the face of the instrument. Clearing stamp
is affixed on the face of the instruments, paying-in-slip and counterfoil
(The stamp is affixed in such a manner that half appears on counterfoil and
paying-in-slip). The instrument is suitably discharged, where a bearer
cheque does not require any discharge and also an instrument in favor a
bank not need be discharged.

2.20.1.2 REMITTANCE DEPARTMENT

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The Remittance department deals with the transfer of money from one place to
another. Funds transfer facility or remittance of funds is on of the key functions of the
banks all over the world. Remittances through banking channels save time, costs less
and eliminate the risks involved in physical transportation of money from one place to
another. National Bank of Pakistan transfers money in the following ways.

• Pay Order
• Demand Draft
• Mail Transfer
• Telegraphic Transfer
• Pay Slip
• Call Deposit Receipt
• Letter of Credit
• Traveler’s Cheque
The Job responsibilities & requirements of remittance department include:

• Responsible for money transfers, issuance of pay-orders & drafts, collection

items, maintenance of cheque books & ATM cards and all other counter
specific products and services
• Ensure highest level of customer service in a professional and competent
manner
• Must ensure that the activities are carried out strictly in accordance with the
laid down procedures/processes, and SBP/Compliance guidelines
• Responsible for Cash, Clearing, Inland remittances including Demand Drafts
and Pay Orders
• Ensure high standards of customer services within the assigned turn around
time
• Ensure compliance with SBP's regulations and internal controls
• handling cash, clearing, local remittances, and other related activities at branch
level

2.20.2 ACCOUNT OPENING DEPARTMENT

The opening of an account is the establishment of banker-customer relationship. This

department performs the duty of opening accounts for customers. It also issues
checkbooks to customers. A person who wishes to open an account with the bank has
to fill an account opening form obtained from any branch of National Bank of

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Pakistan. The bank officer tactfully obtains information about character, integrity,
responsibility, occupation and the nature of business of the perspective customer. Any
individual, who has attained the age of majority and is of sound mind can open and
maintain his/her account. Two or more individuals may open an account jointly.
Similarly, business organizations such as sole proprietary concerns, partnership firms,
and limited liability companies as well as non-profit organizations like clubs, trusts,
societies, associations and NGO’s etc, may open their accounts. The documents
required for National Bank of Pakistan’s Account opening are showed as Annexed
VII at the end of this report.

The following requirements are necessary for opening an account.

• Identification of the new customer.

• Ascertaining the genuineness of the stated occupation business of the
customer.
• Determining the correct residential and permanent address.
• Completion of all relevant columns of the Account opening form.
• Proper completion of documentation.

2.20.2.1 F UNCTIONS O F A CCOUNT O PENING D EPARTMENT

• Providing account opening form according to the customer's requirements,
• Guide the customer about the requirements of the account opening and
form filling,
• Check the forms whether they are correctly completed or not,
• Preparing checklist,
• Stamping on the form,
• Maintaining account opening register,
• Pasting of forms in register after release from general banking in charge,
• Issuance of cheque books,
• Issuance of accounts maintenance certificate,
• Closure of account
• Verification of signature in case of cheque presented before releasing of
account opening from SS card is not yet scanned

2.20.3 CASH DEPARTMENT

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All physical movement of cash in the bank is made through the cash department. As
bank is borrowing and lending institution, therefore cash is the top most priority of
Bank. Another aspect is that cash department is for the security purpose, security in a
sense that there should be no embezzlement of funds or in money leaded to bank by
any party or person. The efficiency of bank is also related to this department the more
efficient the bank is the stronger and busy is the cash department. Cash department
perform following functions

Cash department owes its important to the fact that it is a major point of contract
between the bank and the customer, the bank’s most valued relationships. This
department is the showcase of the bank and conveys the first impressions about the
bank’s commitment to professionalism in its systems and procedures and to courteous
and efficient customer service.

Normally cash department performs following functions

• Collection of funds
• Acceptance of deposits
• Collection of utility bills
• Payment of checks
• Remittances
• Act according to any standing instructions
• Transfer of funds from one account to another
• Verification of signatures
• Posting
• Handling of Prize bond
The two main activities of cash department are as fallows:

D EPOSIT C ASH I N C USTOMER ’ S A CCOUNT

When the customer want to deposit amount in his account at opening of account or
after that then he has to fill a deposit slip that shows the amount and the account in
which the cash will be deposited. Then teller will receive amount and credit the
customer’s account that shows increase in customer’s bank account.

M AKE P AYMENTS F ROM C USTOMER ’ S A CCOUNT

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When the customer draws a cheque on the bank to pay a certain amount then BBO
Operator will debit the customer’s account that shows reduction in his account
balance.

C HEQUE ENCASHMENT PROCEDURE

R ECEIVING O F C HEQUES
The cash is paid against the cheques of the client. The following points are important.
• Cheque is drawn on same branch
• Cheque is not post dated.
• Amount in words and figure are same.
• It should be bearer cheques so the word bearer should not cross.

V ERIFICATION OF S IGNATURE
After receiving the cheques the cheques the operation manager verify the signature of
the account holder and the signature on the cheques. If the signature is not same it is
returned back otherwise forward to BBO Operator for posting.

C OMPUTER T ERMINAL P ROCESS

The cheque is received in computer terminal, where BBO operator checks the balance
of the account holder. The BBO operator also sees the stop payment instructions,
whether received from account holder or not. After considering these points BBO
Operator post the cheque in BBO (Branch back office system) and forward to
operation manager.

P AYMENT O F C ASH
After posting the cheque the operation manager cancelled the cheque and returned
back to cashier. The cashier enters the cheque in cash paid registered and pays against
the second signature of receiver on the back of the cheque.

2.20.4 DEPOSITS DEPARTMENT

The primary function of National Bank of Pakistan is to accept and receive surplus
money from the people, which they willingly deposit with the Bank. Like all other
Banks, National Bank of Pakistan also take incitation to attract as much depositor’s as
it can. The deposit department accepts/collects deposit from accountholders.

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 The National Bank of Pakistan offer different deposit schemes to its customers,
which includes the following:

• Current Deposits
• PLS Saving Deposits
• Fixed Deposit Account ( Time Deposits)
• Foreign Currency Account
• NBP Premium Aamdani
• Foreign Currency Account
• National Income Daily Account (NIDA)

2.20.5 ACCOUNTS DEPARTMENT

Accounts Department of the bank can be considered the most important department.
This department is basically concerned with processes and activities of recovering,
sorting, summarizing and reporting data resulting from the whole day transactions of
all the departments. Actually the process of this activity starts from the preparation of
all the required vouchers by different related departments. When these vouchers are
prepared, these are posted into respective computer terminals by the relevant
departments. Before merging, a batch list is printed out by Computer Department and
duly checked by the respective departments. After this, merging stage comes, after
which a proof list is printed out. This is the stage, where Accounts Department starts
performing its function. Proof list is checked by the Accounts Department. The
account department prepare following vouchers and reports

• Monthly Profit & Loss account- F48

• General Ledger
• General Ledger- Abstract
• Check Book Issue Register
• Western Union payments Register
• Demand Notices
• Miscellaneous Book
• Bank Transfer scroll
• Posting NBP Advance Salary
• Daily Statement- F21
• General Ledger- Head wise
• Hash Value Register

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 • End of Day register
• Posting National Income Daily Account (NIDA)
• Monthly return register
• Charges A/c register
• P-L-S Profit list
• Weekly Telegram
• Mail Transfer Register
• Government Scroll
• Provident file
• Government Scroll Debit & Credit
• Transfer Responding Advice Dispatched Register-F15
• Cash Remittance IN
• Cash Remittance OUT
• NBP General Account
• Utilities register
• Statement of affairs
• Closing entries
• Daily activity checking

2.20.6 BANK ACCOUNTING OPERATIONS

The National Bank of Pakistan’s accounting consists in making computerized, written

and permanent records of every transaction. For Computerized recording of
transactions the bank used software called BBO (Branch Back Office). BBO enable
Bank to record a variety of transactions. The most common part of BBO which is
operating by the BBO Operator is Individual Ledgers. Individual Ledgers are the
accounts in which accounts with depositors are kept. They are kept so that the balance
of each depositor's account may at any time be readily seen, and they should be
frequently balanced to verify their correctness. The three column form of individual
ledger is used because it has a column for checks paid or other debit entries, one for
deposits or other items credited, and a third for showing the balance after each entry
or the day's entries are made in the account. The BBO enlist Chart of Accounts of the
Bank shown in Annexed VIII. All the accounts shown in Annexed are opened and
managed through BBO. All the Remittances of the bank are recorded managed and
control through BBO. The “End of the Day” report is also generated through BBO.

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The most important record keeping and report generated by Bank’s Accounts
Department is Statement of the Bank. The statement of the bank shows the general, or
control, accounts of the bank, and the various books of the bank show the detail of
these items. It would not be impossible, but it would be entirely impractical, to enter
every figure directly on the statement of condition. Instead of total deposits, the
balance of each depositor would appear opposite his name. On the other side, instead
of loans and discounts, there would be an itemized list of the loans with the names of
the borrowers. The first principle in bank accounting, as in all other bookkeeping, is
that for every debit there must be a credit, and vice-versa. In accordance with this
fundamental theory the books are maintained. With respect to the statement, every
Rupee of liabilities is accounted for by another Rupee of resources. Similarly each
accounts at the end of the day for each item of cash is balanced. Each bank employee
has had the experience of remaining at his desk until a late hour at night checking up
his day's work searching for a difference of a few cents. Often they become
embittered at what seems to them a tyranny when the small sum of money involved is
considered. The reason they must settle, however, is not on account of the possible
loss of ten cents, but because the most important principle in bank accounting is
involved. "Accuracy first" is a motto that should be framed, figuratively at least, upon
the wall of every banking room.

The books used by National Bank of Pakistan are of various kinds and their purpose is
indicated by name. A ledger is a book used to keep a record of balances. To "post"
means to enter in the proper columns either the debits or credits on the ledger, and the
difference between them represents the balance either due by or to the bank. Another
important book which is used by the National Bank of Pakistan is journal, a book in
which daily transactions are listed in regular order as to accounts, and the total debit
or credit is then posted on the ledgers. All other books, cards and sheets used by bank
of whatever nature is a part or subdivisions of these books. Often they become known
among the clerks by some other name descriptive of their general appearance. For
instance, the general ledger scratcher in one bank is known as the "red book," while
the collection scratcher is the "black book."

The records made by one clerk upon one set of books go to check the records of
another clerk upon a different set of books. For instance, the paying teller and the
receiving teller will each keep a record of checks cashed or deposited payable within
the bank. The debit postings of the individual bookkeeper would agree with the

1
teller's figures. Skillful accounting lies in making the fullest possible use of original
entries, at the same time having a check on all figures to guard against either error or
fraud.

Every transaction ultimately affects the bank's statement of condition by debit or

credit. For example, a deposit of Rs.1000 is made, consisting of Rs.200 cash and
checks as follows: Rs.200 on the bank itself and Rs. 600 payable in another city. At
the end of the day (assuming this to be the only deposit), on the liabilities side there is
an increase of Rs 800 all of which appears in the item "deposits" being the total
Rs.1000, less the check for Rs 200 which is charged to the account of the drawer. On
the resource side, then, a corresponding increase of Rs.800 and this is made up by an
increase in the cash of Rs 200 and an increase of Rs.600 in the item "due from banks."
Or a transaction may appear on one side of the statement only. The bank has sold
Rs.5, 000.00 of the bonds it owns.

R ESPONSIBILITIES TOWARDS B OARD OF D IRECTORS

The Chief Financial Officer is required to furnish necessary and classified information
to the board of directors along with his analysis and suggestions as the Chief Financial
Officer attends the board meetings, any issue with financial implications is being
discussed, the person likely to be most in command of these implication is on the spot
and immediately available for questions.

In order to strengthen and formalize corporate decision-making process, significant

issues are required to be placed for the information, consideration and decision of the
boards of directors by the CFO. These are:

• Annual business planes, cash flow projection, forecasts and long term
planes.
• Budgets include capital, manpower and overhead budgets along with
variance analyses.
• Quarterly operating results of the company as a whole and in terms of
its operating divisions or business segments.
• Details of joint ventures or collaboration agreements or agreements with
distributors, agents, etc.
• Default in payment of principal and/or interest, including penalties on
late payments and other dues, to a creditor, bank or financial institution,
or default in payment of public deposit.

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 • Failure to recover material amounts of loans, advances, and deposits
made by the company, including trade debts and inter-corporate
finances.
• Significant public or product liability claims likely to be made against
the company, including any adverse judgment or order made on the
conduct of the company.

2.20.7 INTERNAL AND EXTERNAL REPORTING

Chief Financial Officer now has extensive responsibilities for internal and external
reporting. All the information required for decision-making by the Board of Directors
and Chief Executive is processed and furnished by the Chief Financial Officer. Apart
from this, external reporting requirement is fulfilled by Chief Financial Officer, the
accounts and financial statements are signed by the Chief Financial Officer before
they are sent to concerned authorities.CCG requires that the listed companies submit
their quarterly accounts to the shareholders within one month of the close of the first
and third quarter of year of account. The CCG does not prescribe the time for
submitting half yearly accounts to the shareholders. Here we can refer to section 245
of companies’ ordinance 1984 for this purpose, which requires half yearly accounts to
be submitted within two months of the close of first half. The CCG requires a limited
review of half yearly accounts by external auditor. Annual audited accounts are now
required to be submitted within four months of the close of financial year.

The Securities and Exchange Commission of Pakistan is exercising strict vigilance to

ensure compliance of 4th and 5th schedule of the Companies Ordinance, 1984 and
timely submission of accounts by companies. It has recently imposed penalties on
Directors of nine listed companies who failed to prepare and circulate the quarterly
accounts. Furthermore, fines have been imposed on chief executives.

USE OF ELECTRONIC DATA IN DECISION MAKING

The technological development in the field of information systems make it possible
for management to use electronic data in decision making. An understanding of the
effective and responsible use and management of information systems and
technologies is important for managers, business professionals, and other knowledge
workers in today’s internetworked enterprises. Information systems play a vital role in
the e-business and e-commerce operations, enterprise collaboration and management,
and strategic success of businesses that must operate in an internetworked global

1
environment. Thus, the field of information systems has become a major functional
area of business administration. The management of a business can use information
systems in their decision making process. Before proceeds it’s important to discuss
precisely about decision making.

Decision making can be regarded as an outcome of mental processes leading to the

selection of a course of action among several alternatives. Every decision making
process produces a final choice.23 The output can be an action or an opinion of choice.
A significant part of decision making skills is in knowing and practicing good
decision making techniques. One of the most practical decision making techniques
can be summarized in following simple decision making steps:

1. Identify the purpose of your decision. What is exactly the problem to be

solved? Why it should be solved?
2. Gather information. What factors does the problem involve?
3. Identify the principles to judge the alternatives. What standards and
judgment criteria should the solution meet?
4. Brainstorm and list different possible choices. Generate ideas for possible
solutions. See more on extending your options for your decisions on my
brainstorming tips page.
5. Evaluate each choice in terms of its consequences. Use your standards and
judgment criteria to determine the cons and pros of each alternative.
6. Determine the best alternative. This is much easier after you go through the
above preparation steps.
7. Put the decision into action. Transform your decision into specific plan of
action steps. Execute your plan.
8. Evaluate the outcome of your decision and action steps. What lessons can
be learnt? This is an important step for further development of your decision
making skills and judgment.

CHAPTER NO 3

3 INFORMATION SYSTEM RESOURCES OF NBP

3.1 PEOPLE RESOURCES

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People are required for the operation of all information systems. These people
resources include end users and Information system Specialists. The Management and
employees of National Bank of Pakistan are end users and Knowledge workers of
information system. These are the employees of the Bank who spend most of their
time communicating and collaborating in teams and workgroups and creating, using
and distributing information.

The Information systems Specialist are people who develop and operate information
systems. They include System analysts, software developers, system operators, and
other managerial, technical, and clerical IS personnel of National Bank of Pakistan.
The system analysts of National Bank of Pakistan design information systems of the
Bank based on the information requirements of the end users. The software
developers create computer programs based on the specification of system analysts of
National Bank of Pakistan.

3.2 HARDWARE RESOURCES

The Hardware resources of National Bank of Pakistan include all physical devices and
materials used in information processing. Specifically, it includes not only machines,
such as computers and other equipments, but also all data media, that is, tangible
objects on which data are recorded, from sheets of paper to magnetic or optical disks.

3.3 SOFTWARE RESOURCES

The software resources of National Bank of Pakistan include all sets of information
processing instructions. It also includes sets of operating instructions called programs,
which direct and control computer hardware. The followings are the examples of
National Bank of Pakistan’s software resources:

• System Software: The National Bank of Pakistan uses Windows Operating

Systems for controls and supports the operations of a computer system.
• Application Software: These are the programs that direct processing for a
particular use of computers by employees of the Bank. Bank uses BBO
system, Microsoft Office suit as application software.

3.4 DATA RESOURCES

• The data resources of National Bank of Pakistan are typically organized,
stored, and accessed by a variety of data resource management technologies.

1
 The data about Branch transactions is accumulated, processed, and stored in a
BBO system that can be accessed by Manager for an analysis and decision
making.

3.5 NETWORK RESOURCES

• The network resources of National Bank of Pakistan include:

• Communication Media: The Bank’s communication media include cellular

and landline.
• Network Support: The Bank uses hardware, software, and data technologies
which are needed to support the operation and use of a communication
network. The Bank uses communication processers such as Modems and
internetwork processors, and communication control software such as network
operating systems and Internet Browser packages (Opera).

3.6 SOURCES OF FUNDS

TABLE 3.1

Rupees in Millions
Year 2005 2006 2007 2008 2009
Share Capital 4,924,106 5,908,927 7,090,712 8,154,319 9,969,751
Reserves 10,813,914 13,536,041 13,879,260 15,772,124 20,941,047
Borrowings 11,084,790 8,756,847 11,704,079 10,886,063 40,458,926
Deposits 465,571,717 463,426,602 501,872,243 591,907,435 624,939,016

2
 Other Liabilities 23,068,314 24,974,450 26,596,300 30,869,154 39,656,831
Horizontal Analysis (%)
Share Capital 100 120 144 166 182
Reserves 100 125 128 146 184
Borrowings 100 79 106 98 365
Deposits 100 100 108 127 134
Other Liabilities 100 108 115 134 172
www.nbp.com.pk/quarterly report/index “NBP Quarterly Report June 2010"

The National Bank of Pakistan’s sources of funds includes share capital, reserves,
borrowings, deposits and other liabilities etc. To analyze trend, Horizontal analysis of
each item is calculated.

TABLE 3.2
(Share Capital)

A NALYSIS
The Share capital refers to the portion of a Bank's equity that has been obtained by
trading stock to a shareholder for cash or an equivalent item of capital value. The
share capital of National Bank of Pakistan shows an increasing trend in all years as
compare to base year. The increase in share capital during all years indicates share
holder’s concern toward National Bank of Pakistan and efficient bank’s Management
policies.

TABLE 3.3
(Reserves)

A NALYSIS
The Banks’ reserves are banks' holdings of deposits in accounts with their central
bank plus currency that is physically held in bank vaults (vault cash). The reserves of
National Bank of Pakistan fluctuate during all years as they show an increasing trend.
The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007

2
respectively. The year 2008 represents highest increasing percentage of 84% as
compare to base and previous years.

TABLE 3.4
(Borrowings)

A NALYSIS
The National Bank of Pakistan’s borrowings fluctuates during all years and shows a
mixed trend. The borrowings were decreased 21 % in 2005; however same are
increased 6 % in 2006 as compare to base year. There was a marginal decrease of 2%
in bank’s borrowings in the year 2007. The year 2008 represents highest percentage of
borrowings as these were increased to 265 % comparing with base year and are
increased 267 % as compare to 2007.

TABLE 3.5
(Deposits & other Accounts)

A NALYSIS
The deposits and other accounts of National Bank of Pakistan show a mixed trend
during all years. In the year 2005 the deposits were increased very marginally, with
the year 2006 represents an increase of 8% as compare to base year. The year 2007
represents second highest percentage as deposits are increased to 27%. The year 2008
indicates an increase of 34%, highest among all years.

TABLE 3.6
(Other Liabilities)

2
 A NALYSIS
The other liabilities of National Bank of Pakistan are fluctuating during all years and
show an increasing trend. The year 2005 indicates an increase of 8 % and 2006
indicates an increase of 15%. The other liabilities in the year 2007 represent an
increase of 34%. The other liabilities were on their peak percentage in 2008 as the
shows an increase of 72%.

TABLE 3.7
(Generation of funds)

Rupees in
Millions
Year 2005 2006 2007 2008 2009
Markup/return/interest 20,947,33 33,692,66 44,100,93 50,569,48 60,942,79
earned 3 5 4 1 8
14,387,93 23,370,89 30,153,71 33,629,47 37,058,03
Net markup/interest income 5 7 6 0 0
Net markup/interest income after 12,639,77 21,146,97 27,782,17 28,906,73 26,087,21
provisions 0 0 0 5 6
12,162,89 13,544,84 16,415,86
Total non-markup/ Interest income 8,304,716 9,392,351 2 5 2
20,944,48 30,539,32 39,945,06 42,451,58 42,503,07
Total income ( Interest + non-Interest) 6 1 2 0 8
PROFIT BEFORE 11,977,60 19,056,02 26,310,57 28,060,50 23,000,99
TAXATION 1 8 7 1 8
Horizontal Analysis (%)
Markup/return/interest 100 161 211 241 291

1
 earned
Net markup/interest income 100 162 210 234 258
Net markup/interest income after
provisions 100 167 220 229 206
Total non-markup/ Interest income 100 113 146 163 198
Total income ( Interest + non-Interest) 100 146 191 203 203
PROFIT BEFORE
TAXATION 100 159 220 234 192
“NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009

The National Bank of Pakistan’s generation of funds include

• Interest earned
• Net interest income
• Net interest income after provisions
• Total non markup interest income
• Total income ( Interest plus non- Interest)
• Profit before Taxation

TABLE 3.8

(ALLOCATION OF FUNDS)
Rupees in
Millions
Year 2005 2006 2007 2008 2009
Lending’s to Financial Institutions 10,511,322 16,282,942 23,012,732 21,464,600 17,128,032
Investments 149,350,096 156,985,686 139,946,995 210,787,868 170,822,491
Advances 220,794,075 268,838,779 316,110,406 340,677,100 412,986,865
Operating Fixed Assets 9,202,969 9,454,365 9,681,974 25,922,979 24,217,655
Other Assets 19,141,569 23,941,056 37,113,698 30,994,965 44,550,347
Horizontal Analysis (%)
Lending’s to Financial Institutions 100 155 219 204 163
Investments 100 105 94 141 114
Advances 100 122 143 154 187
Operating Fixed Assets 100 103 105 282 263
Other Assets 100 125 194 162 233
“NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009

2
After the acquisition of the funds their allocation becomes necessary. The Bank seeks
the best way for making investment to get more profit with the maximum security.
The Bank has an investment portfolio in which it allocate its funds for crediting to
borrowers, investment in the stock market etc. The National Bank of Pakistan allocate
its funds in Lending’s to financial institutions, investments, advances, operating fixed
assets and other assets etc.

3.7 CRITICAL ANALYSIS (THEORY VS PRACTICAL)

During Internship it was my prime objective to furnish my knowledge (Theory) to
various practical situations. The practical work presents an analytical problem while
relating theory with practice. As a result, analysis of practical versus theory requires a
distinct approach. This part of report is the essence of the internship, as this will help
to better understand the working environment of the bank by finding the relationship
between what is written in the books and what is actually going on in fields. The
theory written in the books in cases is not implemented as it is. In some cases theory
is implemented with a little modification but in other cases theory has nothing to do
with practice.

In accounting, banks don’t prepare worksheet, but part of worksheet is prepared like
trial balance. The securities for the loans are handled in the same way as theory says
like mortgage, pledge, hypothecation, advances against insurance policies or
liquidation procedure is the same. There is some difference lies in types of loans in
bank that is theory talks about four or five types of loans that is cash finance,
overdraft, loans etc., but in practice there are some more types used by bank like
running finance, demand finance etc. All other concepts of remittances, bills, foreign
exchange deposits, letters of credit are in accordance with theory almost. A bank's
balance sheet is different from that of a typical company. You won't find inventory,
accounts receivable, or accounts payable. Instead, under assets, you'll see mostly
loans and investments, and on the liabilities side, you'll see deposits and borrowings.

3.8 CONCLUSION
To me, Theory gives the direction to understand the processes and the terminologies
going across the World using best business practices in a broader view covering each
and every aspect of possible business scenarios. On the contrary practical life is
specific, enclosed in a jar.

1
 CHAPTER NO 4

4 FINANCIAL REPORTS

4.1 BALANCE SHEET

Rupees in Millions

3
ASSETS 2006 2007 2008 2009 2010
Cash and balances with treasury 106,503,75
banks 78,625,227 94,873,249 6 115,827,868 7 2,390,482

Balances with other banks 40,641,679 37,472,832 38,344,608 28,405,564 2 5,161,056

Lending’s to financial institutions 23,012,732 21,464,600 17,128,032 19,587,176 3 2,799,388

139,946,99 210,787,86 170,822,49
Investments 5 8 1 217,642,822 2 58,269,514
316,110,40 340,677,10 412,986,86
Advances 6 0 5 475,243,431 4 47,997,394

Other assets 27,113,698 30,994,965 44,550,347 25,147,192 2 6,059,519

Operating fixed assets 9,681,974 25,922,979 24,217,655 3,062,271 5,126,048
Deferred tax assets _ _ 3,204,572 59,666,438 6 1,056,095
635,132,71 762,193,59 817,758,32
1 3 6 944,582,762 9 28,859,496

LIABILITIES

Bills payable 10,605,663 7,061,902 10,219,061 10,621,169 7,203,785

Borrowings from financial
institutions 11,704,079 10,886,063 40,458,926 45,278,138 2 0,222,427
501,872,24 591,907,43 624,939,01
Deposits and other accounts 3 5 6 727,464,825 7 44,095,539
Sub-ordinated loans _ _ _
Liabilities against assets subject
to finance lease 13,235 33,554 25,274 4 2,629 102,539
Other liabilities 26,596,300 30,869,154 39,656,831 42,269,623 3 8,574,956
Deferred tax liabilities net 2,387,073 5,097,831 _
553,178,59 645,855,93 715,299,10
3 9 8 825,676,384 8 10,199,246
116,337,65 102,459,21
NET ASSETS 81,954,118 4 8 118,906,378 1 18,660,250

REPRESENTED BY
Share capital 7,090,712 8,154,319 8,969,751 10,763,702 13,454,628
Reserves 13,879,260 15,772,124 19,941,047 22,681,707 2 3,995,080
Unappropriated Profit 32,074,677 45,344,188 52,456,204 60,696,510 6 0,248,197
53,044,649 69,270,631 81,367,002 94,141,919 9 7,697,905
Surplus 28,909,469 47,067,023 21,092,216 24,764,459 2 0,962,345
116,337,65 102,459,21
81,954,118 4 8 118,906,378 1 18,660,250

www.nbp.com.pk/quarterly report/index “NBP Quarterly Report June 2010"

4.2 INCOME STATEMENT

3
 Rupees in Millions

2005 2006 2007 2008 2009

20,947,33 50,569,48
Markup/return/interest earned 3 33,692,665 44,100,934 1 60,942,798
16,940,01
Markup/return/interest expensed 6,559,398 10,321,768 13,947,218 1 23,884,768
Net markup/interest 14,387,93 33,629,47
income 5 23,370,897 30,153,716 0 37,058,030
Provisions against non-performing advances 1,515,354 2,446,739 3,075,723 4,723,084 10,593,565
provision for/(reversal of) diminution in the
value
of investments 185,707 -245,881 -709,461 -40,248 373,249
provision against off balance sheet obligations 14,297 Nil Nil Nil 4,000
bad debts written off directly 32,807 23,069 5,284 39,899 Nil
1,748,165 2,223,927 2,371,546 4,722,735 10,970,814
12,639,77 28,906,73
Net markup/interest income after provisions 0 21,146,970 27,782,170 5 26,087,216
NON MARKUP/ INTEREST
INCOME
Fee, Commission & brokerage income 5,099,195 4,926,604 6,144,628 6,781,683 7,925,370
Dividend income 1,273,863 1,718,478 2,891,755 3,263,246 2,878,932
Income form dealing in foreign currencies 1,008,988 1,205,638 1,333,840 1,042,827 3,969,057
Gain on sale & redemption of securities-net 47,557 1,365,771 1,169,515 2,341,690 395,427
Investments classified as held for trading Nil -1,979 -4,464 -31,964 1,707
Other income 875,113 177,839 627,618 147,363 1,245,369
13,544,84
Total non-markup/ Interest income 8,304,716 9,392,351 12,162,892 5 16,415,862
Total income ( Interest + non- 20,944,48 42,451,58
Interest) 6 30,539,321 39,945,062 0 42,503,078
NON MARKUP/ INTERSET
EXPENSES
14,205,91
Administration expenses 8,878,801 11,221,789 13,443,441 1 18,171,198
Other provisions written off 32,243 198,298 -17,283 168,027 747,521
Other charges 8,284 63,206 208,327 17,141 583,361
14,391,07
Total non markup/ Interest expenses 8,919,328 11,483,293 13,634,485 9 19,502,080
PROFIT BEFORE 11,977,60 28,060,50
TAXATION 1 19,056,028 26,310,577 1 23,000,998
Taxatio
n Current 4,950,000 7,154,002 8,695,598 8,311,500 11,762,650
Prior years 847,958 -1,098,709 530,652 391,497 Nil

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 Deferre
d -15,729 291,291 61,981 323,731 -4,220,242
5,782,229 6,346,584 9,288,231 9,026,728 7,542,408
PROFIT AFTER 19,033,77
TAXATION 6,195,372 12,709,444 17,022,346 3 15,458,590
32,074,67
Unappropriated Profit brought forward 5,892,902 9,161,747 19,372,523 7 45,344,188
Transfer from surplus on revaluation of fixed
assets on account of incremental depreciation 45,496 43,221 41,060 39,007 130,456
12,133,77 51,147,45
Profit available for appropriation 0 21,914,412 36,435,929 7 60,933,234
www.nbp.com.pk/quarterly report/index “NBP Quarterly Report June 2010"

4.3 FINANCIAL STATEMENTS ANALYSIS

Financial analysis is a process which involves reclassification and summarization of
information through the establishment of ratios and trends. Financial statement
analysis is the process of examining relationships among financial statement elements
and making comparisons with relevant information. It is a valuable tool used by
investors and creditors, financial analysts, and others in their decision-making
processes related to stocks, bonds, and other financial instruments. The goal in
analyzing financial statements is to assess past performance and current financial
position and to make predictions about the future performance of a company.
Investors who buy stock are primarily interested in a company's profitability and their
prospects for earning a return on their investment by receiving dividends and/or
increasing the market value of their stock holdings. Creditors and investors who buy
debt securities, such as bonds, are more interested in liquidity and solvency: the
company's short-and long-run ability to pay its debts. Financial analysts, who
frequently specialize in following certain industries, routinely assess the profitability,
liquidity, and solvency of companies in order to make recommendations about the
purchase or sale of securities, such as stocks and bonds.

The analysis of financial statement refers to the examination of the statements for the
purpose of acquiring additional information regarding the activities of the business.
The users of the financial information often find analysis desirable for the
interpretation of the firm’s activities.

2
The overall objective of financial statement analysis is the examination of a firm’s
financial position and returns in relation to risk. This must be done with a view to
forecasting the firm’s future prospective.

Analysts can obtain useful information by comparing a company's most recent

financial statements with its results in previous years and with the results of other
companies in the same industry. Three primary types of financial statement analysis
are commonly known as horizontal analysis, vertical analysis, and ratio analysis.

4.3.1 RATIO ANALYSIS

Ratio analysis enables the analyst to compare items on a single financial statement or
to examine the relationships between items on two financial statements. After
calculating ratios for each year's financial data, the analyst can then examine trends
for the company across years. Since ratios adjust for size, using this analytical tool
facilitates intercompany as well as intercompany comparisons. Ratios are often
classified using the following terms: profitability ratios (also known as operating
ratios), liquidity ratios, and solvency ratios. Profitability ratios are gauges of the
company's operating success for a given period of time. Liquidity ratios are measures
of the short-term ability of the company to pay its debts when they come due and to
meet unexpected needs for cash. Solvency ratios indicate the ability of the company to
meet its long-term obligations on a continuing basis and thus to survive over a long
period of time. Financial ratios allow for comparison:

• Between companies
• Between industries
• Between different time periods for one company
• Between a single company and its industry average
4.3.1.1 PROFITABILITY RATIOS
The continued viability of any bank depends on its ability to earn an appropriate
return on its assets and capital. Good earning performance enables a bank to fund its
operations, remain competitive in the market and increase or decrease in market
funds. Profitability ratios relate profit to sales and investments. These ratios indicate
the firm’s overall effectiveness of operations and give us idea how well firm utilized
its resources in generating profit and shareholder value.

4.3.1.2 LIQUIDITY RATIOS

1
 The liquidity position of a bank is like a reservoir. It may be adequate, although
nearly depleted, just before the start of the rainy season. Or it may be inadequate,
although three quarters full just before the summer drought.

Liquidity can be defined as:

“The bank’s ability not only to meet possible deposit withdrawals but also to provide
for the legitimate needs of the economy as well”

4.3.1.3 DEBT RATIOS

These ratios give users a general idea of the company's overall debt load as well as its
mix of equity and debt. Debt ratios can be used to determine the overall level of
financial risk a company and its shareholders face. In general, the greater the amount

Ratio Analysis of National Bank of Pakistan

2005 2006 2007 2008 2009

Profitability Ratios % % % % %
Gross Profit Margin 57.17 56.55 59.65 55.48 40.45
Net Profit Margin 29.57 37.78 38.59 37.63 25.36
Total Asset Turn over 3 5 6 5 4
Return on Capital Fund 2.92 3.95 4.25 4.12 4.15
Return on Investment 1.1 2.1 2.6 2.4 1.8
Return on Deposits 2.5 4.1 5.2 4.7 3.6
Advances to Deposit 47.42 58.01 63 58 66

Liquidity Ratios (times) (times) (times) (times) (times)

Current Ratio C.A/C.L 0.83 0.96 1.02 1 1.5
Cash Ratio 4.09 2.85 2.96 3.07 2.67

Debt Ratio % % % % %
Debt/Equity Ratio 112.35 97.77 89.57 93.47 92.17
Interest Coverage (times) 1.83 1.85 1.89 1.66 0.97
Loan Loss Coverage 0.13 0.13 0.15 0.18 0.5

Capital Adequacy % % % % %
Capital Fund to Total
Assets 0.89 1.02 1.1 1.07 1.09
of debt held by a company the greater the financial risk of bankruptcy

3
Retrieved from www.nbp.com.pk/quarterly report/index “NBP Quarterly Report
June 2010"
Comments

The Year 2006 has been an outstanding year with the bank recording the highest
profit in its history i.e.., 59.65 %.The National Bank of Pakistan’s wide range of
product offering, large branch network and committed workforce are some of
fundamental strengths that enabled NBP to achieve exceptional in a very competitive
market. The gross profit is 37.74% in 2009. The lowest percentage among all years.

Net profit margin shows positive trend till 2006 and was the highest in the same year
as it was 38.59%, the percentage is decreased in 2007 as it was 37.63%. The net profit
margin is on its lowest level at the end of 2009 as it indicates a percentage of 25.63%.
The primary reason of this decline is current global economic conditions and current
political crisis in Pakistan

The above given ratios suggest that the profitability of the bank has a mixed trend
during five years. The first three years 2005 (2.92), 2005 (3.95), 2006 (4.95) shows an
increasing trend, indicating more profitable operations of the bank. It was decreased
in the year 2007 (4.12) and has increased in 2009 as the ratio was 4.13.

There was an increase in the utilization of the resources till 2006 i.e.., 0.011(2005),
0.021 (2005) and 0.026 (2007). The ratio was decreased to 0.024 (2007) and 0.018
(2009).

During all five years the return on deposits ratio of National Bank of Pakistan shows a
mix trend. The year 2006 (0.052) was the best year for bank in terms of its funds
mobilization. Although the ratio was decreasing in 2009 (0.036), indicating Bank is
more keen to kept deposits and a change in policy of the Bank regarding its funds
mobilization.

The year 2005 (0.83) and 2005 (0.96) were not satisfied for bank as current assets are
less than current liabilities. However, in 2006 (1.02) the management of National
Bank of Pakistan is able to overcome this problem. The year 2007 (1.00) is also good
for bank as per standards of this ratio. Again in the year 2009 (1.12) the management
of bank is able to increase its current ratio.

The cash ratio of National Bank of Pakistan shows a mixed trend during five years of
operations. During all years, the ratio is satisfactory as per standards of this ratio. The

3
year 2005 (4.09), representing highest and 2005 (2.85) & 2009 (2.69), representing
lowest ratio in all five years.

This ratio, a comparison of funds generation and its funds mobilization, indicates the
total loans sanctioned by the bank in relation to total amount of money deposited with
the bank, stands highest in 2009 ( 66.08%) as compared with the previous year
figures. This shows that the bank has greater potential to advance additional loans.
During all other years the ratio is quiet satisfactory representing National Bank of
Pakistan’s credit management decisions.

The ratio indicates an increasing trend till 2007 that is 94.83 (2005), 185.95 (2005),
196.62 (2006) and 197.18 in 2007. The year 2009 represents the lowest percentage of
42.33 on account of due from banks to due to banks.

The debt to equity ratio of National Bank of Pakistan shows a ratio of 112.35 % in
2005. The ratio is decreased to 97.77% in the year 2005. The ratio is further decreased
in 2006 as it shows a percentage of 89.57%. There was an increase in the ratio as it
shows a percentage of 93.47%. The year 2009 represents the ratio of 91.17% .

The amount of interest a Bank pays in relation to its revenue and earnings is
tremendously important. The National Bank of Pakistan’s interest coverage ratio is
1.83 times in the year 2005. The ratio was increased in the years 2005 and 2006 as it
was 1.85 times & 1.89 times respectively. There sudden decrease of 1.66 times is
observed in 2007. The ratio is further decrease to 0.97 times in 2009, representing the
lowest ratio among all years.

The loan loss coverage ratio of National Bank of Pakistan is almost same in the years
2005 and 2005 as it was 0.13 in both years. There was a slight decrease in this ratio as
it was 0.12 in 2006. The year 2006 shows an increase in loan loss coverage ratio as it
was 0.17. The year 2009 represents highest ratio of 0.47 on account of loan loss
coverage, as compare to all years.

The fixed assets turnover ratio of National Bank of Pakistan has an increasing trend
till 2006. The ratio increases 2.28 (2005) to 3.23 (2005). The year 2006 represents
highest fixed assets turnover ratio for National Bank of Pakistan i.e.., 4.13. The
bank’s efficiency to utilize these assets has been decreased to 1.64 in the year 2007
however it was increased in 2009 as the ratio is 1.76.

2
The National Bank of Pakistan’s Capital funds to Total Assets ratio is increased
during all years. The ratio is 0.89 in 2005, representing lowest ratio in all years. The
ratio is increased in 2005, 2006 and 2007 as the graph shows ratios of 1.02, 1.10 &
1.07 respectively. The ratio is keeping its trend and also increases in the year 2009 as
it was 1.09.

4.3.2 HORIZONTAL ANALYSIS

This technique is also known as comparative analysis. It is conducted by setting
consecutive balance sheet, income statement or statement of cash flow side-by-side
and reviewing changes in individual categories on a year-to-year or multiyear basis.
The most important item revealed by comparative financial statement analysis is
trend. A comparison of statements over several years reveals direction, speed and
extent of a trend(s). The horizontal financial statements analysis is done by restating
amount of each item or group of items as a percentage. Such percentages are
calculated by selecting a base year and assign a weight of 100 to the amount of each
item in the base year statement. Thereafter, the amounts of similar items or groups of
items in prior or subsequent financial statements are expressed as a percentage of the
base year amount. The resulting figures are called index numbers or trend ratios.

Formula = Current Year amount / Base Year amount * 100

Horizontal analysis, whilst simple to execute and useful to a certain extent, has its
limitations. These limitations include:

• Being highly dependent on the selection of base year and the period under
examination in the financial model.
• Horizontal analysis provides little insight into why the trend occurred in a
financial model.
• Horizontal analysis does not provide insight into whether the trend in the
financial model results was superior/inferior to some benchmark.

1
 4.3.3 HORIZONTAL ANALYSIS OF BALANCE SHEET

Horizontal Analysis (%)

ASSETS 2005 2006 2007 2008 2009
Cash 100 75 83 100 113
Balances with other banks 100 62 82 75 77
Lending’s to fin. institutions 100 155 219 204 163
Investments 100 105 94 141 114
Advances 100 122 143 154 187
Operating fixed assets 100 103 105 282 263
Other assets 100 125 194 162 233
Total
Assets 100 104 117 138 148
LIABILITIES 2005 2006 2007 2008 2009
Share Capital 100 120 144 166 182
Reserves 100 125 128 146 184
Unappropriated profit 100 182 350 495 573
Surplus On Reval. of assets 100 179 135 221 99
Bills payable 100 24 147 98 142
Borrowings 100 79 106 98 365
Deposits and other accounts 100 100 108 127 134
Liabilities against assets 100 97 78 197 148
subject to finance lease
Deferred tax liabilities net 100 15291 8179 17467 Nil
Other liabilities 100 108 115 134 172
Total Liabilities 100 104 117 138 133
“Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”

4.3.4 HORIZONTAL ANALYSIS OF INCOME STATEMENT

Rupees in Millions

2005 2006 2007 2008 2009

Markup/return/interest earned 100 161 211 241 291
Markup/return/interest expensed 100 157 213 258 364
Net markup/interest 100 162 210 234 258

1
income
Provisions against non-performing advances 100 161 203 312 699
provision for/(reversal of) diminution in the
value
of investments 100 -132 -382 -22 201
provision against off balance sheet obligations 100 Nil Nil Nil 28
bad debts written off directly 100 70 16 122 Nil
100 127 136 270 628
Net markup/interest income after provisions 100 167 220 229 206
NON MARKUP/ INTEREST
INCOME
Fee, Commission & brokerage income 100 97 121 133 155
Dividend income 100 135 227 256 226
Income form dealing in foreign currencies 100 119 132 103 393
Gain on sale & redemption of securities-net 100 2,872 2,459 4,924 831
Investments classified as held for trading Nil Nil Nil Nil Nil
Other income 100 20 72 17 142
Total non-markup/ Interest income 100 113 146 163 198
Total income ( Interest + non-
Interest) 100 146 191 203 203
NON MARKUP/ INTERSET
EXPENSES
Administration expenses 100 126 151 160 205
Other provisions written off 100 615 -54 521 2,318
Other charges 100 763 2,515 207 7,042
Total non markup/ Interest expenses 100 129 153 161 219
PROFIT BEFORE
TAXATION 100 159 220 234 192
Taxatio
n Current 100 145 176 168 238
Prior years 100 -130 63 46 Nil
Deferre
d 100 -1,852 -394 -2,058 26,831
100 110 161 156 130
PROFIT AFTER
TAXATION 100 205 275 307 250
Unappropriated Profit brought forward 100 155 329 544 769
Transfer from surplus on revaluation of fixed
assets on account of incremental depreciation 100 95 90 86 287
Profit available for appropriation 100 181 300 422 502
“Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”

2
 4.3.5 VERTICAL ANALYSIS
When using vertical analysis, the analyst calculates each item on a single financial
statement as a percentage of a total. The term vertical analysis applies because each
year's figures are listed vertically on a financial statement. The total used by the
analyst on the income statement is net sales revenue, while on the balance sheet it is
total assets. This approach to financial statement analysis, also known as component
percentages, produces common-size financial statements. Common-size balance
sheets and income statements can be more easily compared, whether across the years
for a single company or across different companies.

Vertical analysis is a technique for identifying relationship between items in the same
financial statement by expressing all amounts as the percentage of the total amount
taken as 100. In a balance sheet, for example, cash and other assets are shown as a
percentage of the total assets and, in an income statement, each expense is shown as a
percentage of the sales revenue.

In Vertical analysis, various components of the financial statements are standardized

by expressing them as a percentage of some bases.

Examples of common-sized statements include:

• Components of the balance sheet expressed as a percentage of total assets

• Components of the income statement expressed as a percentage of sales or
revenue
4.3.6 VERTICAL ANALYSIS OF BALANCE SHEET

Vertical Analysis (%)

ASSET
S 2004 2005 2006 2007 2008
Cash 17.07 12.32 12.19 12.45 13.02
Balances with other banks 9.00 5.37 6.30 4.92 4.69
Lending’s to fin. institutions 1.90 2.82 3.57 2.82 2.09
Investments 27.00 27.17 21.69 27.66 20.88
Advances 39.91 46.53 49.00 44.70 50.50
Operating fixed assets 1.66 1.64 1.50 3.40 2.96
Other assets 3.46 4.14 5.75 4.07 5.45
Total 100 100 100 100 100
LIABILITIES 2004 2005 2006 2007 2008
Share Capital 0.89 1.02 1.10 1.07 1.09

1
Reserves 1.95 2.34 2.15 2.07 2.43
Unappropriated profit 1.66 2.89 4.97 5.95 6.41
Surplus On Reval. of assets 3.86 6.61 4.48 6.18 2.57
Bills payable 1.30 0.30 1.64 0.93 1.25
Borrowings 2.00 1.52 1.81 1.43 4.94
Deposits and other accounts 84.15 80.22 77.79 77.66 76.42
Liabilities against assets 0.0031 0.0029 0.0021 0.0044 0.0030
subject to finance lease
Deferred tax liabilities net 0.01 0.77 0.37 0.67 Nil
Other liabilities 4.17 4.32 4.12 4.05 4.85
Total 100 100 100 100 100
“Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”

4.3.7 VERTICAL ANALYSIS OF INCOME STATEMENT

2
 2005 2006 2007 2008 2009
Markup/return/interest earned 100 110 110 119 143
Markup/return/interest expensed 31 34 35 40 56
Net markup/interest
income 69 77 75 79 87
Provisions against non-performing advances 7 8 8 11 25
provision for/(reversal of) diminution in the
value
of investments 1 -1 -2 0 1
provision against off balance sheet obligations 0 Nil Nil Nil 0
bad debts written off directly 0 0 0 0 Nil
8 7 6 11 26
Net markup/interest income after provisions 60 69 70 68 61
NON MARKUP/ INTEREST
INCOME
Fee, Commission & brokerage income 24 16 15 16 19
Dividend income 6 6 7 8 7
Income form dealing in foreign currencies 5 4 3 2 9
Gain on sale & redemption of securities-net 0 4 3 6 1
Investments classified as held for trading Nil 0 0 0 0
Other income 4 1 2 0 3
Total non-markup/ Interest income 40 31 30 32 39
Total income ( Interest + non-
Interest) 100 100 100 100 100
NON MARKUP/ INTERSET
EXPENSES
Administration expenses 42 37 34 33 43
Other provisions written off 0 2 0 1 5
Other charges 0 0 1 0 1
Total non markup/ Interest expenses 43 38 34 34 46
PROFIT BEFORE
TAXATION 57 62 66 66 54
Taxatio
n Current 24 23 22 20 28
Prior years 4 -4 1 1 Nil
Deferre
d 0 1 0 1 -10
28 21 23 21 18
PROFIT AFTER
TAXATION 30 42 43 45 36
Unappropriated Profit brought forward 28 30 48 76 107
Transfer from surplus on revaluation of fixed
assets on account of incremental depreciation 0 0 0 0 0
Profit available for appropriation 58 72 91 120 143

2
 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”

4.3.8 BANK ANALYSIS WITH REFERNCE TO COMMERCIAL BANKS LISTED ON STOCK EXCHANGE

Financial Position of Commercial Banks

Registered in Pakistan
Name
of As of June 2009
Paid Reserve Asset Deposit Advance Earning
Commercial up s s s s Profit s Branch Credit
Capita (Rs. (Rs. (Rs. After Per Networ
Bank l Bn) Bn) Bn) (Rs. Bn) Tax share k Rating
(Rs. (Rs.
Bn) Bn) (Rs) (Nos)
735.7
Habib Bank 7.59 23.6 1 584.85 411.36 7.5 9.75 1400 AA+
788.1
NBP 8.97 18.54 2 621.53 173.42 8.1 9.03 1249 AAA
Allied Bank 6.46 5.48 344.7 293.97 168.45 2.51 3.88 757 AA
450.3
MCB 6.28 35.88 4 350.72 228.98 7.68 12.22 1038 AA+
576.0
United Bank 10.12 12.82 2 465.54 328.55 5.59 5.53 1100 AA+
First Women 0.28 0.22 8.04 6.4 3.09 0.05 1.67 38 BBB+
217.8
Bank of Punjab 5.29 7.43 5 180.82 142.85 -2.63 -4.97 272 AA-
Soneri Bank 4.11 1.88 81.61 64.73 45.83 0.47 1.13 90 AA-
194.2
Askari Bank 4.06 7.59 1 153.32 114.04 0.05 1.01 155 AA
167.3
Bank Al- Habib 4.79 2.8 6 136.75 93.25 1.25 2.61 203 AA
Bank of Khyber 4 1.34 34.43 24.4 11.14 0.11 0.27 34 BBB+
333.0
Bank Al- Falah 8 2.95 2 287.77 180.02 1.69 2.12 231 AA
Saudi Pak 5 0.22 50.83 42.35 27.62 -0.81 -1.54 55 A-
137.3
Faysal Bank 5.3 3.57 1 99.61 87.61 0.75 1.41 111 AA
KASB Bank 4.02 0.17 53.66 44.33 32.65 0.08 0.39 41 A
Meezan Bank 4.54 0.81 71.74 57.84 38.3 0.44 0.98 111 A+

1
 177.9
NIB Bank 28.44 8.46 8 112.12 85.43 -0.73 0.23 240 AA-
Myban
k 4.24 0.41 45.47 31.96 23.03 0.43 1.02 69 A
Atlas Bank 5.01 0.52 30.7 22.18 17.5 -0.2 -0.39 31 A-
Standard 276.3
Chartered 38.72 1.95 8 173.81 126.27 1.31 0.34 176 AA+
JS
Bank 5.11 0.01 24.16 14.08 9.57 0.16 -0.31 11 A-
Habib 192.4
Metropolitan 6.02 6.7 5 128.97 101.22 1.57 2.6 100 AA+
Retrieved from “http://www.lahorestock.com/ListedCompanies”

A stock exchange is a corporation or mutual organization which provides "trading"

facilities for stock brokers and traders, to trade stocks and other securities. The
securities traded on a stock exchange include: shares issued by companies, unit trusts
and other pooled investment products and bonds. To be able to trade a security on a
certain stock exchange, it has to be listed there. The initial offering of stocks and
bonds to investors is by definition done in the primary market and subsequent trading
is done in the secondary market. In Pakistan securities are traded on three stock
exchanges which are Karachi stock exchange, Lahore stock exchange and Islamabad
stock exchange.

The financial position of commercial banks registered on stock exchanges in Pakistan,

are shown in preceding page in terms of their:

• Paid-up Capital
• Reserves
• Assets
• Deposits
• Advances
• Profit after tax
• Earnings per share
• Credit rating

The best way to analyze these commercial banks is to analyze their credit ratings. The
National Bank of Pakistan enjoys the highest credit rating amongst Pakistani banks;
JCR- VIS Credit rating Co. Limited awarded highest standalone credit rating of AAA

2
to NBP. The JCRVIS Credit rating Co. comments about NBP say a lot about the
bank:24
“The organization has been able to strategically manage and build on its competitive
advantages which has translated into the strong and well managed improvement in
profitability trend observed over the last few years, a substantial balance sheet of
sound asset quality, and strong liquidity and capitalization levels”
NBP’s key strength remains its extensive outreach and a low cost, stable deposit base.
Deposits are also guaranteed by the Government of Pakistan under the Banking
Nationalization Act, 1974. There have also been significant improvements in the
management practices of the bank and a focus on enhancement of systems and
controls. In this regard the management has entered into an agreement for the
acquisition of a core banking software which is likely to be implemented over the next
few years.
JCR-VIS believes that the current economic situation puts certain leading industrial
sectors and the general consumer under financial stress. Therefore, the second half of
2008 and 2009 are likely to be challenging for the banking sector as a whole, in terms
of maintaining growth, asset quality and profitability.25
The JCR-VIS Rating Process include following steps:26

1. Signs agreement for an initial rating

2. Submits preliminary information materials
3. Conducts a preliminary study
4. Submits a detailed questionnaire to the issuer/client
5. Provides detailed information in response to detailed questionnaire
6. Conducts pre due diligence meeting analysis
7. Conducts due diligence meetings
8. Conducts post due diligence analysis
9. Brief for internal rating committee meetings is prepared
10. Sub Committee recommends preliminary/initial rating
11. Rating Committee decides the preliminary/initial rating
12. Discusses the rating rationales and rating issues with client
13. Notifies issuer of the preliminary/initial rating, deliberates on appeals by
client, if any
14. Consents to release of preliminary/initial rating to the public in case of non-
mandatory ratings

2
 15. Releases the preliminary/initial rating to the press

CHAPTER NO 5

5.1 FUTURE PROSPECTS OF NATIONAL BANK OF PAKISTAN

National Bank of Pakistan is gearing up to the challenges faced by the domestic
banking industry due to innovations and advances in the international banking world,
which is the consequence of globalization. The bank wishes to effectively utilize the
financial assistance being extended by the Government of Pakistan for banking sector
reforms aimed at reducing operating costs and improving profitability. These services
do not contribute towards the earnings of the bank; rather they put pressure on bank’s
resources. Nevertheless, the bank is committed to serving small savers and the general
public of the country. National Bank of Pakistan is everyone’s bank and does not only

1
serve corporate customers. To extending and targeting research to improve bank
earnings, through customer focus of bank’s commercial and corporate branches, and
by enhanced efforts towards the development of human capital, the bank shall very
soon transform from a bureaucratic organization to a fast paced, modern, and
competitive bank. In conclusion, the National Bank of Pakistan have the vision, which
will enable it to achieve even better results, safeguard the interest of their customers
and to assist them in their march towards progress and prosperity in future.

The National Bank of Pakistan is confidence that tomorrow we will be…

• Leaders in our industry

• An organization maintaining the trust of stakeholders.
• An innovative, creative and dynamic institution responding to the
changing needs of the internal and external environment
Reorganizing efforts going on in the NBP has open many opportunities for NBP to
grow. For instance to achieve objectives NBP have taken following measures.

• Setting of target for of making at least 300 branches country wide on line.
• Closing of all those branches, which are burden on NBP.
• Management to offer specialized services to major corporate including advisory
and debt syndication introduces the concept of relationship manager.
• Comprehensive training programs has been develop to up grade the core banking
skills of the existing staff as well as integrate high quality hiring.
• To improve the motivation of staff a merit-based culture is being promoted.
Through overhauling the manpower recruitment preservation and performance
appraisal system.

5.2 SHORT FALLS / WEAKNESSES OF NATIONAL BANK OF PAKISTAN

• The National Bank of Pakistan’s Advance salary, which has long been the
flag-ship product for NBP, is replete with charges of corruption, default and
inefficiency.
• The National Bank of Pakistan’s huge number of borrowers is untraceable or
correct whereabouts are not known.
• The housing finance product of NBP lacks proper infrastructure including
database support even after five years of post launch history. The similar
products launched by other commercial banks are much smaller in size are

2
 running on well-articulated systems and are backed by proper policies and
guidelines. The NBP product, despite boasting a sizeable portfolio built
around some reckless selling, is mostly infected.
• The NBP Karobar scheme is designed around President’s Rozgar scheme. The
scheme which had all the potential to become a landmark was so badly
mishandled by National Bank of Pakistan.
• The Quality of infrastructure added by National Bank of Pakistan during the
last few years is quite substandard as compared to that of peer banks.
• In NBP’s five year strategic plan 2007-2011 approved by board of directors
does not address any serious thinking on
• As for as public interest is concerned there were no service standards
benchmarks and guidelines available in NBP. There were only old documents
that were crafted at least a decade or more back.
• Due to poor planning the bank had book losses of over 1.2 billion rupees in the
Karobar Scheme.
• The National Bank of Pakistan’s outsourced employees (2350) was obtained
from a single source. Most of these are performing the core function of the
bank outside their assigned duties without any training and supervision.
• The National Bank of Pakistan is incurred large expenses in running those
branches, which are not producing any income.
• The up gradation of human resource is very slow in NBP. The branches of
NBP have less number of employees as their requirements. The concept of
“One Man Show” is adopted in many branches to save salary expenditure;
even most of the branches use their security guards for various tasks. The one
reason for this is that the senior management is able to decrease salary
expenditure of the bank, which result an increase in the net profit. For their
performance they received handsome amounts of bonus. But in long run it has
a negative effect on bank’s productivity.
• The pension’s distribution service or payments to EOBI beneficiaries, utility
payments; workers remittances are occupied lowest priority level.
• In NBP Karobar scheme the product selected by the NBP is of inferior quality
and develops faults in the first few months of delivery.

5.3 CONCLUSIONS

2
 • The National Bank of Pakistan plays a key role in the strategic national
development. The bank has historically been the financial arm of the
government and has enjoyed the blessings of state support in the form of huge
public sector funds and deposits.
• In contract to other banks populating the FSI sector, NBP is mandated to
uphold public interest. It is critical too as all other banks and NBFIs in public
sector have been closed down or merged with NBP.
• In contract to other banks populating the FSI sector, NBP is mandated to
uphold public interest. It is critical too as all other banks and NBFIs in public
sector have been closed down or merged with NBP.
• The current management of National Bank of Pakistan was hired purely for
their international experience, business orientation to turn around a purely
public institution into a sustainable and commercially viable bank serving
public interest along the lines of a large modern commercial bank.
• The National Bank of Pakistan has effective budgeting system in place.
Annual budget of the bank is approved by the Board and monthly comparisons
of actual results with the budget are prepared and reviewed by the senior
management.
• The National Bank of Pakistan has a comprehensive framework of written
policies and procedures on all major areas of operations such as Credit,
Treasury Operations, Finance, Internal audit and Compliance approved by the
Board.
• The National Bank of Pakistan provides sustainable financing for growth of
industries of critical national importance such as energy, education, healthcare,
transport, shipping, Research & development.

5.4 RECOMMENDATIONS
• The National bank of Pakistan should be fully prepared in its management
of financial crises and its business continuity planning, within the standing
committee framework, and should work with others to strengthen national
crises management preparations.
• The bank should improve the quality of training of its employees and the
integrity, controls and efficiency of its systems, processes and financial
reporting.

1
• The bank should improve its recruitment, retention and development and
to reform the Bank’s pension scheme.
• The bank should renegotiate the Bank’s long term financial framework and
to overhaul the Bank’s financial system.
• The Bank should improve IT capability in the analytical areas and to
develop a medium term strategy for banking and market operations.
• The National bank of Pakistan should monitor the impact of its operations
on the environment, which is mainly through the use of power and the
generation of waste.
• NBP, being the only lending arm to the government for public sector
development should design, develop and deliver product and services for
economic growth.
• The bank should provide support to the Micro, Small and Medium
enterprises thereby reducing unemployment and helping to create a more
equitable distribution of wealth.
• The NBP should adopt modern banking tools and techniques. Quality
leadership, clear vision, investment in IT infrastructure and human
resource development.
• The bank should develop software for pension disbursement.
• As for as Islamic Banking environment is concerned the management and
employees of NBP should work together for basic research for discovering
their own laws, developing theories or concepts for the better direction of
their own business environment according to Quran & Sunnah.
• The branches should reduce its large expenses in order to increase the
value of the bank.
• The NBP should strengthen incentives and accelerate a results-oriented
training and communications programs for management and staff.
• The National Bank of Pakistan should implement a financial inclusion
program to meet the needs of underserved economic subsectors, including
outreach programs to meet the requirements of the agriculture, housing,
SME and microfinance sectors.
• The National Bank of Pakistan should introduce a framework for
consolidated supervision and reorganize the regulatory architecture to
allow better regulation and supervision of financial control division of
bank.

1
REFERENCES

3
1 http://www.nbp.com.pk/EcomomicBulletin/FS-Complete-31-12-2007.pdf
2 NBP Quarterly Report September 2008
http://www.lahorestock.com/ListedCompanies/
3 http://www.nbp.com.pk/nbp/About_Us/About_US.jsp
4 Black's Law Dictionary page 471 (5th ed)
5 Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed.
6 Principles of marketing 8 ED by Kotler & Armstrong G7
7 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 87
8 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 91
9 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 88
10 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed
11 http://www.nbp.com.pk/Aamdani/index.htm
12 http://www.nbp.com.pk/advancesalary/index.htm

13 http://www.nbp.com.pk/CashnGold/index.htm
14 http://www.nbp.com.pk/StudentLoan/index.htm

15 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 221
16 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228
17 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228
18 SBP Prudential Regulations
19 http://www.nbp.com.pk/nbp/NBP_Treasury.jsp
20 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp

21 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp
22 NBP Annual Report 2007
23 Human error by James Reason
24 NBP Annual Report 2007
25 http://www.jcrvis.com.pk
26 http://www.jcrvis.com.pk/ratingscale/rating_process.htm

ANNEXTURES

T ERMS & C ONDITIONS OF ADVANCE SALARY

Eligibility
Permanent Employees of Govt., Semi-Govt., Autonomous, Semi Autonomous, Local & other
bodies who are maintaining their Salary A/Cs at NBP.
Repayment
Direct deduction from Salary A/C
Maximum Loan Amount
Rs. 490,000/-
Security
Employer will provide undertaking that borrower’s Salary and end of service benefits will route
through his/her Salary A/C maintained at NBP during the tenure of the loan and his/her end
of service benefits are at least equal to the amount of Advance Salary required.
Hypothecation of Consumer durables owned by the borrower.
Three (3) Undated Cheques
Max. Repayment Period
5 years (60 months)
Advance in terms of # of net take home salaries
Up to 20 net take home salaries
Markup Rate
15 %
(Based on diminishing balance method)
Processing Fee
1% of Loan Amount
Verification Charges
Rs 500/-
Life Insurance
No Insurance of any kind.
Documentation Charges
at actual
Contact
Your Salary disbursing NBP Branch.
Remaining Service Age
At the time of approval and disbursement the applicant’s remaining service age should be 6
months after maturity of the loan
Debt Burden
50%
Minimum net take home salary
no minimum take home requirement

BOARD MEMBERS
Name

Designation

Syed Ali Raza

Chairman & President

Mr. Sikandar Hayat Jamali

Director

Mian Kausar Hameed

Director

Mr. Ibrar A. Mumtaz

Director
Mr. Tariq Kirmani

Director

Mr. Muhammad Arshad Chaudhry

Director

Mr. Mohammad Ayub Khan Tarin

Director

Mr. Ekhlaq Ahmed

Secretary Board of Directors

ACCOUNT OPENINING FORM