IQRA UNIVERSITY IU

National Bank of Pakistan

Profitability and it is determinants

Adeel Rehman Abbasi Ahsan Bham Sobia Khan Mohammad Arsalan Sakina Nazir

(8045) (8106) (6316) (7989) (10622)

Ms.Uzma Bashir Ghaus

Tuesday, December 28, 2010

Letter of Authorization
Tuesday, December 28, 2010 Dear Reader: As authorized by our teacher Ms. Uzma Bashir Ghaus , we decided to produce business plan for Nat ional Bank of Pakistan . This report contains complete information about the companys strategy to achieve success . Also included in this report is a detailed analysis of the companys position in the market and the operations it is carrying out . All information is presented in a very simple manner , for the interest of a common reader. This report consists of genuine and complete source of information on the organization. You may contact us for further queries or comment us on our work. Sincerel y, Adeel Rehman Abbasi Ahsan Bham Sobia Khan Mohammad Arsalan Sakina Nazir (8045) (8106) (6316) (7989) (10622)

Letter Of Transmittal
Tuesday, December 28, 2010 Ms. Uzma Bashir Ghaus Facult y Member, Strategic Management Iqra Universit y, Defence View Karachi Dear Ms. Bashir: We are submitting here our term report on the Business Plan of National of Pakistan. Initial pages of this report also cont ain the brief information about companys background and the activities they are doing . All the information prov ided in the report is comprehensivel y discussed with a satisfactory background of valid facts and figures. If there are any questions or queries you have about the material presented in this report, we will be extremel y glad to appear before you. Sincerel y, Adeel Rehman Abbasi Ahsan Bham Sobia Khan Mohammad Arsalan Sakina Nazir (8045) (8106) (6316) (7989) (10622)

Acknowledgement
Dear Reader: With the blessings of ALLAH the almighty, the report enclosed has reached its stage of final completion. This report is a result of exhaustive and much enthusiastic work. We extend our heartiest thanks to Ms. Uzma Bashir Ghaus , for conducting this course a nd making it interesting and knowledgeable, without her efforts and co-operation the report would not have been possible. We also thankful for her confidence and trust she had in us, importance of which can in no way can be under estimated. We are equall y grateful to Iqra University for providing us the opportunities to pursue our endeavor. We also appreciate the employees of National Bank of Pakistan, who assisted us in providing us all the necessary information and feedback that we required for completin g this task. We hope readers of this report can complement the depth of the study and efforts put into it. Thanking You Sincerel y, Adeel Rehman Abbasi Ahsan Bham Sobia Khan Mohammad Arsalan Sakina Nazir (8045) (8106) (6316) (7989) (10622)

Table of Contents
INTRODUCTION: ............................................................................................................... 1 Branch Network ................................................................................................................ 3 Present Status of the Bank: ............................................................................................... 4 Prospects: .......................................................................................................................... 5 Corporate & Investment Banking: ..................................................................................... 5 Treasury / International Banking: ...................................................................................... 6 Overview of the organization:............................................................................................... 6 Vision: .............................................................................................................................. 6 Mission: ............................................................................................................................ 6 Core Values: ..................................................................................................................... 6 Corporate Philosophy At National Bank ........................................................................... 7 Objectives of National Bank ............................................................................................. 8 ORGANIZATIONAL STRUCTURE .................................................................................. 10 GEOGRAPHIC DEPARTMENT .................................................................................... 11 PROCESS DEPARTMENT ............................................................................................ 12 CUSTOMER DEPARTMENT ........................................................................................ 12 Accounts/Finance Department ........................................................................................ 14 Competitors: ....................................................................................................................... 18 Financial Analysis: ............................................................................................................. 18 Marketing Analysis: ........................................................................................................... 22 Market Recognition: ....................................................................................................... 22 Customer Satisfaction ..................................................................................................... 22 Poor record management and filing system ..................................................................... 22 Unequal distribution of work .......................................................................................... 22 Marketing visits .............................................................................................................. 23 FUNCTIONAL ANALYSIS ............................................................................................... 23 Formal Organization ....................................................................................................... 23 Difference between theory and practice .......................................................................... 24 Bank duty to maintain secrecy ........................................................................................ 24 Excessive paper work ...................................................................................................... 24 More accounts fewer deposits. ........................................................................................ 24 Delegation of authority ................................................................................................... 25

ADMINISTRATIVE ANALYSIS ....................................................................................... 25 Job analysis is not effective ............................................................................................ 25 Carelessness in opening of account ................................................................................. 25 Lack of specialized training ............................................................................................ 26 Low Profit Rates ............................................................................................................. 26 Poor job rotation ............................................................................................................. 26 Delays in Loan Advancement ......................................................................................... 26 Lack of appreciation ....................................................................................................... 27 PERSONAL MANAGEMENT ANALYSIS ....................................................................... 27 Need for better training program ..................................................................................... 27 Developing Managerial Leadership ................................................................................. 27 Recruitment policy .......................................................................................................... 28 Promotions ...................................................................................................................... 28 Transfer .......................................................................................................................... 28 Marketing at desk ............................................................................................................ 28 Lack of business communication .................................................................................... 29 Industry Analysis: ............................................................................................................... 30 IFE Matrix (Internal Factor Evaluation) .......................................................................... 31 EFE Matrix (External Factor Evaluation) ........................................................................ 32 SWOT Analysis of the organization: ............................................................................... 33 PEST ANALYSIS: .......................................................................................................... 38 Comparative Study of Domestic Banking Industry: ........................................................ 39 Comparative Analysis: .................................................................................................... 44 Competitive Profile Matrix ................................................................................................. 47 TECHNOLOGY.............................................................................................................. 48 BEST RATES ................................................................................................................. 48 PRODUCT INNOVATION............................................................................................. 49 QUALITY ....................................................................................................................... 49 BRAND IMAGE (RECOGNITION) ............................................................................... 49 SIZE OF THE COMPANY ............................................................................................. 49 LOCATION AND CONVENIENCE ............................................................................... 50 SPACE Matrix Analysis ..................................................................................................... 50 SPACE Matrix Table: ..................................................................................................... 51 SPACE Matrix Graph: .................................................................................................... 52 Conclusions ........................................................................................................................ 54

Executive summary
To interrupt my skills and educational knowledge of Finance I done my internship in National Bank of Pakistan Mailsi Branch District Vehari and to know how I will work in financial institutions and among various types of people have different attitude. The objective of this Internship was to explore the issues relating to Finance and to find out problems regarding the theoretical concepts with practical experience working in an organization during the internship and study the system of National Bank of Pakistan. There are many possible improvements, which we can make positive changes in the system. There is shortage of employees in the organization. With development of online banking system the load of work can be decreased. All the staffs do not know about computer. There is almost one or two employees are trained to operate the system in every branch. Especially, the cash department is not familiar with computer and information system. It is not easy for it to implement a new system immediately it takes a lot of time to replace systems. Once implemented its testing takes more time. So it is important for the Bank to develop a research department for redesigning the operations of the Bank. The Finance of the bank is experienced but not adequate with the changing environment of financial institutions. I observed that seniors are illiterate of computer and not technical hands. New comers have more knowledge about business administration and skilled in information technology. To update the skills, it is suggested to develop human resources training programs and refresher courses.

INTRODUCTION:
National Bank of Pakistan (the bank) was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. Its registered and head office is situated at I.I. Chundrigar Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,189 branches in Pakistan and 18 overseas branches (including the Export Processing Zone branch, Karachi). Under a Trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. The Bank is providing all banking services of mercantile and commercial banking permissible in the country, which includes: Handling of treasury transactions for the Government of Pakistan as agent to the State Bank of Pakistan. Providing services under a Trust Deed as Trustee to the National Investment Trust (NIT) including safe custody of securities on behalf of NIT.

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 Accepting of deposits of money on current, fixed, saving, term deposit and profit and loss sharing accounts. Borrowing money and arranging finance from other banks. Advancing and lending money to its clients. Financing of projects, including technical assistance, project appraisal through long term short-term loans, term finance and musharika certificates, etc. Buying, selling, dealing, including entering into forward contracts of foreign exchange. Financing of seasonal crops like cotton, wheat, rice, sugar cane, tobacco, etc. Receiving of bonds, scrips, valuables, etc. for safe custody. Carrying on agency business of any description other than managing agent, on behalf of clients including Government and local authorities. Generating, undertaking, promoting, etc. of issue of shares and, bonds, etc. Transacting guarantee and indemnity business. Undertaking and executing trusts. Joint venturing with foreign dealers, agents and companies for its representation abroad. Participating in "World Bank" and "Asian Development Bank's" lines of credit. Providing personalized Hajj services to intending Hajjis.

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Branch Network
Presently the Bank is divided into 10 Groups headed by SEVPs/EVPs. 9 Regions reporting to as many Regional Chiefs and 15 Single Branch Zones headed by Zonal Chiefs; 12 Corporate branches and 1,189 domestic branches headed by Branch Managers control its field operations. With the geographical development of its branches, the Bank has been able to extend its services to a much larger number of Pakistanis all over the country. Today it has more than 8.5 million accounts. Bank maintains its presence in all the major financial centers of the world through its 21overseas branches and 4 representative offices. Ofthese, three representative offices have recently been set up at Tashkent (Uzbekistan), Baku (Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in CIS countries. Banks role globally is well assisted by its network of correspondent banks located strategically in Asia, America, Europe and Africa. Apart from having a vast branch network, Bank is at the forefront in the acquisition and application of new technologies in every aspect of its banking facilities. It has acquired leased telephone lines for on-line banking. The Bank has 12 Regional Computer Centers to cover various on-line and batch system requirements of branches and controlling offices. Bank has also a presence on the Internet. It has modernized its services by installing Automated Teller Machines (ATMs) called "CASH LINK" at selected branches and presently 17 ATMs are operational in major cities.

Branch Network:
(As of September, 2003) 1236 Domestic Branches, 18 Overseas Branches, 4 Representative Offices, 5 Subsidiaries and a Joint Venture Page 3

Overseas Branch Network:

Paris, Frankfurt, New York, Washington D.C., Tokyo, Osaka, Hong Kong, Kowloon, Seoul, Bahrain, Dhaka, Chittagong, Ashgabat, Bishkek, Baku, Kabul, Jalalabad and KEPZ Offshore Banking Unit

Representative Offices:
Beijing, Tashkent, Chicago, and Toronto.

Subsidiaries:
CJSC Almaty, Kazakhstan NBP Capital Ltd. National Bank Modaraba Management Co. Taurus Securities Ltd. NBP Exchange Company Ltd.

Joint Venture:
United National Bank Ltd., UK (Economic Indicators Pakistan, Published by Economic research Wing NBP, Head Office Karachi.

Present Status of the Bank:

The new management team having extensive experience of management of large financial institutions both within and outside the country is expected to further enhance the profitability and operational efficiency of the Bank.

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Prospects:
The Bank's principal strategic going forward objective is to make the transition from a public service institution to a modern commercial bank. Being the country's largest financial institution, the Bank is uniquely positioned to leverage its large branch network and its 8.5 million-customer base to consolidate its core businesses as well as develop new revenue generating opportunities. The new management team is in place combining the Bank's existing personnel with professionals recruited from outside. Operating procedures are being re-defined and internal controls strengthened utilizing a revamped IT architecture. A brief on the progress on some critical areas is as follows:

Corporate & Investment Banking:

A new approach to corporate banking is underway. The Bank has initiated a str uctured approach to corporate banking by introducing a single point of contact through Relationship Managers (RMs). For this purpose, new RMs as well as team leaders have been inducted to expedite this process. Area Managers will be appointed to manage relationships and to better service the needs of multinationals and large local corporates. In investment banking team has also been formed to offer specialized services to major relationships including advisory and debt syndications (TFCs). Furthermore, to stem the growth in non-performing loans, the existing risk / credit management practices at the Bank are being revamped.

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Treasury / International Banking:

The deregulation of foreign exchange treasury business has ensured that a growing Volume of business now flows through the inter-bank market where rates are determined by the market forces. This can prove to be an immense profitable proposition for the Bank. Towards this objective, the Bank is shifting focusing on expanding its market share in trade finance, home remittance and foreign investment related forex-denominated flow.

Overview of the organization:

Vision:
To be recognized as a leader and a brand synonymous with trust, highest standards of service quality, international best practices and social responsibility.

Mission:
NBP will aspire to the values that make NBP truly the Nations Bank, by : Institutionalizing a merit and performance culture. Creating a distinctive brand identity by providing the highest standards of services. Adopting the best international management practices. Maximizing stakeholders value. Discharging our responsibility as a good corporate citizen of Pakistan and in countries where we operate.

Core Values:
Highest standards of Integrity. Institutionalizing teamwork and performance culture. Excellence in service. Advancement of skills for tomorrows challenges. Awareness of social and community responsibility. Value creation for all stakeholders. Page 6

Corporate Philosophy At National Bank

We at NBP believe that our customers are our most important and 1st responsibility, we must, therefore, serve our present customers and promise to serve our potential customers to the best possible on-counter and behind-counter services. We should try to provide a total and integrate package of services to create satisfied clientele. Our braches, regional offices and head office should regard the customer as their most priority, serving them with maximum possible helpfulness and courtesy. Our second most important responsibility is the employees who work for our great institution. They must have their security , stability and fair treatment in their jobs in recruitments and assignment, in training and development, in promotion and placement . till separation. They should be treated with dignity and should be made to rise to their highest potential working condition should be attended. Supervisor should be tough minded but fair in the pursuit of bank objectives. Our third most important responsibility is our executives and officers. They should have talent, education, experience and ability with a premium, place on commitment, knowledge, leadership and orientation towards action, implementation, improvement and achievement of goals. Our fourth responsibility is to the communities that r served by our great institution. Our 1st community is the Pakistani nation whose service is the reason for our existence. Our 5th responsibly is to our owners and stockholders. We must make a sound profit and protect our business by creating financial services.

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Objectives of National Bank

Objectives are ends towards which an enterprise activity is aimed. The purpose of business is production and marketing of economic goods and services but to accomplish these objectives to a number of enterprise objectives may be necessary. National bank of Pakistan has certain objectives. These objectives are Advancing loans One of the main objective of NBP is advancing loans to industrialists and traders against security of stock, debentures or other securities Accept deposits Bank provides deposit facility to its customers. The types of deposits are o Profit and loss saving accounts o Fixed account o Current account Remitting of funds The bank provides the facility to its customers remitting large amounts of money in the form of bank Drafts, Telegraphic Transfer, Mail Transfer to where ever the customers want. Sale of promissory notes To sell and realize the proceeds of sale of any promissory notes, debentures, stock receipts, bounds, shares etc. Selling and realizing property of bank claims To manage sell and realize all property whether moveable or immoveable which may come in any way of the bank in satisfaction of its claim. Investment or underwriting of stocks To invest the funds of the bank in or the underwriting of any of stocks, fund s, shares securities, debentures, bonds or scripts or other securities for money issued by any public limited companies and to convert them into money when required.

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National Bank of Pakistan is a Governmental Organization. It is functioning as an agent of State Bank of Pakistan. It implements the policies of SBP. Its basic objective was to extend credit to the agriculture sector. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches. It deals all Govt. Revenue, collection and payments of salaries, pensions and Govt. Treasury. It is a complete commercial, retail and corporate bank as well. National Bank of Pakistan is naturally a Financial Organization, which deals with lending, and borrowing and investing activities. The National Bank of Pakistan a commercial bank generally makes advances for a pe riod not exceeding one year, except in case of small and medium industries for which advance may be made for a maximum period of five years. The bank makes not only against the security of stocks and goods hypothecated or pledged to the bank, but also agai nst documents of goods and properly, shares are various joint stock companies, Government securities, Insurance policies deposits receipts, etc. The margin and rate of interest are determined by several factors including the type of security the size of loan and the integrity of the party. The nature of responsibilities of the Bank is different and unique from other Banks/financial institutions. The Bank acts as the agent to the State Bank of Pakistan for handling Provincial/Federal Government Receipts and Payments on their behalf. The Bank has also played an important role in financing the countrys growing trade, which has expanded through the years as diversification took place.

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National Bank of Pakistan maintains its position as Pakistan's premier bank d etermined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally and internationally and representative offices.

ORGANIZATIONAL STRUCTURE
In National Bank of Pakistan, the head is called Chairman or President of the Bank. And after President there is Five Broad of Directors. National Bank of Pakistan has eleven Groups which control the working of the Divisions, Wing, Department, Section and Regional of the national bank of Pakistan. In NBP, Department is called Wings.

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National Bank of Pakistan is structurally divided into Groups and groups are also subdivided into Departments, Wings, and Divisions. National Bank of Pakistan has different Department in the Group and each department performing work, as their task assign. Department also subdivided into working bases.

FUNCTIONAL DEPARTMENT

GEOGRAPHIC DEPARTMENT

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PROCESS DEPARTMENT

CUSTOMER DEPARTMENT

National Bank of Pakistan (NBP) provides Services through more than 1200 branches in Pakistan and 22 branches in overseas. And there are 29 Regions. All Branches of National Bank of Pakistan report to five Head of RMT Members. And these five members report ed to regional Offices. Regional Offices report to the Group Chief of the Groups. All the process is working very quickly and it not consume more time. And the Group Chief of each Group Page 12

Report to the President of the National Bank of Pakistan. All the data were proceed to the President of the bank. National Bank of Pakistan is relatively Wide span of control and Flat Structure. National Bank of Pakistan are less layers of management to pass a message through, so the message reaches more employees faster. More skillful Group Chief Managers can control a greater number of employees. National Bank of Pakistan assess that the internal Control environment is showing signs of improvement as compared to previous year in all areas of the Bank.

National Bank of Pakistan is having Decentralization in the Bank. And give the authority of Decision Making to their Group Chief of every Group, to take decision, which is benefit for the Organization. National Bank of Pakistan provides facility of making decision to their Senior Vice President as well as Vice President of the every Group.

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Accounts/Finance Department
The department of finance and accounting is a large department and the head of this department is chief executive Finance and second major controlling authority i s the assistant executive finance and all the reporting comes to the executive finance in the end. In this major department there are two major operation authorities, one is the head of finance department and the second is the head of accounts department and both the heads have separate duties and responsibilities and they report to the executive finance in the end. Head of finance department works with the sub-ordinates like manager business operations and finance manager business and senior business analyst etc. and they perform their duties like budgeting controlling and analyzing the different activities of finance department. And the other officer is the accounts manager, who performs managing the accounts operations and reports upon them to the executive finance.

Accounts Department
Accounts Department plays a vital role in the development of banking functions. Its considering a backbone of the bank. The accounts department in NBP is functioning computerized as well as manual. It handles each and every transaction is being made into the bank, and control expenses and allocation of funds through appropriation of accounts. The work in accounts department is depending on vouchers and contra entries are passed through different heads. This officer is working under the director finance, or in other words director finance is the higher authority for this department and its functions are as under.

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The functions cover the working in accounts department is as follows. Budgeting Controlling Analyzing Directing Coordinating business activities Reporting to director finance Admin activities

Finance Department
It is the person, which is also bond to the executive, finance and accounts because executive finance is the higher authority to this person but the functions of this department are not same in the nature to the above first department. The primary responsibility of finance department is making planning, analyzing, and valuation of financial resources and to provide consistent, reliable, and timel y information to management, stakeholders, regulators, and internal business groups to help management in appropriate decisions making for improved performance of the bank. The main functions of the finance department are as follows. Analysis of accounts To maintain inventory records Finance activities Audit preparation To keep record of loans, accounts, cash, and all banking transactions according to accounting principles Funds management Preparation of cash flow, income statement, and balance sheet The use of effective budgetary techniques for budgets Preparation of reports/ cash forecast Page 15

NBP is a most growing organization and performing a role as a treasury on behalf of SBP, the whole functions of the bank is totally depend upon the finance department. It has a core value in the promotion of banking sector. Budgets and forecasting is further assist for future planning. Different books of accounts are prepared into the bank through computerized system and manual. The accountants prepare daily, weekly, monthly, quarterly, and yearly reports. Preparation of repots The basic purpose of accounts and finance department is to prepare financial reports for decision-making and future planning. Different reports are prepared in NBP due to getting information and time period requirements. Reports are prepared by using general ledger. The following reports in accounts and finance department are prepared. Daily reports: It summarizes the daily position of all the main heads of the bank i.e. cash, loans, deposits, accounts and ATMs. Other daily reports are Balance Sheet Reconciliation reports Trial balance Financial statement Daily expense vouchers Monthly Statement: These reports are monthly basis in order to know the position of the bank and pay rewards on monthly basis, etc. Balance sheet Profit and loss statement Monthly analysis of expenses Actual budget analysis Cost of funds statement Variance analysis Trial balance Quarterly Statement: It includes tax statement, reconciliations, others reports and interest statements etc. Page 16

National Bank of Pakistan has low Formalization in the bank. And Employees are free to take action or decision in their work specialization. Employees are follow the rules and regulation in the bank is very little formalized. Employees behavior is little bit guided by rules and regulation. National Bank of Pakistan follow the Organic Model Organization. In NBP, there are CrossFunctional teams, as well as Cross-hierarchical teams. There are free flow of Information and Wide span of Control. NBP is Decentralization in nature and very low formalization in the bank. Basically National Bank of Pakistan is high Diagonal Differentiation and every employee of any department can easily communicate to other department of the Bank.

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Competitors:
Competitors of National Bank of Pakistan are all scheduled banks, which are listed/trading under Banking Companies Ordinance 1962. Competitive Banks are as under: Habib Bank Limited. United Bank Limited. Muslim Commercial Bank Limited. Allied Bank Limited. Askari Commercial Bank Limited. Soneri Bank Limited. Bank Al-Habib Limited. Bank Al-Falah Limited. Standard Chartered Bank Limited & The Bank of Punjab.

Financial Analysis:
Pre-tax profit stood at Rs. 12,674 million from Rs. 14,002 million of corresponding period of last year, a reduction of 9.5%. Banks operating performance have been quite impressive, operating revenue increased by 30% from Rs. 20,376 million to Rs.26,497 million, while pre provision profit increased by Rs. 4,293 million an increase of 31.4%. Diluted earnings per share declined to Rs. 8.79 from Rs. 10.05 during the same period of last year. Pre tax return on equity stands at 35.8% whereas Pre tax return on assets is at 3.3%. Cost to income ratio of the bank remained in the top tier at 0.32 Net interest margin registered an impressive growth of Rs. 2,670 million or 16.4% mainly due to growth in volumes.

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Net advances increased by Rs. 41 billion and Rs. 32 billion as compared to corresponding period of last year and year end 2007. The growth in advances mainly emanated from corporate and commodity financing.

Income Statement at Year 2003-07

Descriptions 2003 2004 2005 2006 2007 Mark-up/Return/Interest earn 19,452,317 20,947,333 33,633,735 43,788,628 50,569,481 Mark-up/Return/Interest expense 6,735,579 6,559,398 10,321,768 13,634,912 16,940,011 Net Mark-up/Interest Income 12,716,738 14,387,936 23,311,967 30,153,716 33,629,470 Provision non-performing 1,684,777 1,515,354 2,446,739 3,075,723 4,723,084 advance Provision diminution investments 459,523 185,707 -245,881 -709,461 -40,248 provision off balance sheet 474,743 14,297 -----------obligations Bad debts off directly -----32,807 23,069 5,284 39,899 Net Mark-up/Int.Inc. After provision 10,097,695 12,639,770 21,088,040 27,782,170 28,906,735 NON-MARK-UP/INTEREST INCOME Fee, Commssion and Brokerage 3,260,863 5,099,195 4,926,604 6,144,628 6,781,683 Income Dividend Income 1,126,742 1,273,863 1,718,478 2,891,755 3,263,246 Gain on sale of securities ----------------2,341,690 Income dealing in f.c.s 710,726 1,008,988 1,205,638 1,333,840 1,042,827 Share of profit of joint venture 108 47,557 -------31,964 Other income 2,149,800 875,113 1,573,905 627,618 147,363 Total non mark-up/int.incom 17,345,934 20,944,486 30,512,665 12,162,892 13,544,845 NON-MARK-UP/INTEREST EXPNESES Administrative expenses Salaries and allowances 4,761,408 8,878,801 11,195,133 13,443,441 14,457,580 Charge to defined benefit plans 280,632 ----------------Provision handshake scheme 293,612 -----------------Other administrative expenses 2,471,083 -----------------Other provision/write offs 33,454 32,243 198,298 -17,283 168,027 Other charges 22,894 8,284 63,206 208,327 17,141 Total non mark-up/interest 7,863,083 8,919,328 11,456,637 13,634,485 14,391,079 expenses Staff Welfare Fund 474,143 --------------------profit before tax 9,008,708 12,025,158 19,056,028 26,310,577 28,060,501 Taxation -Current 4,650,000 4,950,000 7,154,002 8,695,598 8,311,500 Prior years(s) 1,439,444 847,958 -1,098,709 530,652 391,497 Deferred 1,278,839 -15,729 291,291 61,981 323,731 Profit after tax 4,198,103 6,242,929 12,709,444 17,022,346 19,033,773

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Deposits show impressive growth of Rs. 68 billion or 12.3% over corresponding period last year. Compared to year end December 2003 the deposits have increased by Rs. 29 billion or 5% mainly due to our marketing efforts and the trust that customers have in NBP. Non interest base income has shown an impressive increase of Rs. 3.4 billion or 84% over corresponding period due to higher commission, exchange income and a one off receipt of Rs. 977.8 million as compensation for delayed tax refunds. The compensation on delayed refunds pertains to various assessment years from 1991-92 to 2001-02. Administrative expenses show a rise of Rs. 1,828 million or 27% compare to corresponding period mainly due to inflation and salary increases. Going forward we expect that with the technological / human resource up gradation program our costs will rise in short term however we need to invest today for better returns in the future. Provision charge against advances for the corresponding period last year includes one off items of Rs. 1.4billion on account of one large cash recovery and reversal in general provision of Rs. 825 million due to reduction in provision requirement on advance salary from 5% to 3%. If we exclude these one offs the provision charge last year comes to Rs. 1.8 billion. Further b) last year the SBP changed its prudential regulations and withdrew the benefit of Forced Sales Value in the third quarter of last year, therefore this year the banks can no longer take the benefit of forced sales value of the collateral securities.

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Balance Sheet as at December 31, 2003-07

Descriptions Assets Cash and balance banks Balance other banks Lending fin. inst. Investments Advances Other assets Operating fixed assets Deferred tax assets Total Assets Liabilities & Capital Bills payable Bor. from financial inst. Deposits & accounts Sub-ordinated loans Lia. financial lease Other liabilities Deferred tax liabilities Total Liabilities Capital Share capital Reserves Unappropriated profit Surplus on re. of assets Total Capital T.Liabilities & Capital 2003 2004 2005 2006 2007

59,420,502 94,446,552 71,196,956 78,625,227 94,873,249 24,154,070 49,784,884 31,019,330 40,641,679 37,472,832 30,213,352 10,511,322 16,282,942 23,012,732 21,464,600 166,195,619 144,735,672 156,985,686 139,946,995 210,787,868 160,990,265 221,443,963 268,838,779 316,110,406 340,677,100 21,946,846 18,339,514 23,941,056 9,681,974 30,994,965 8,939,483 9,202,969 9,454,365 ----- 25,922,979 --1,275,949 ------ 27,113,698 -----471,860,137 549,740,825 577,719,114 635,132,711 762,193,593 5,496,738 7,214,671 1,741,156 10,605,663 7,061,902 16,493,514 11,084,790 8,756,847 11,704,079 10,886,063 395,568,490 465,571,717 463,426,602 501,872,243 591,907,435 --------------41,117 17,058 16,629 13,235 33,554 26,080,400 22,916,147 24,974,450 26,596,300 30,869,154 595,864 -----4,462,718 2,387,073 5,097,831 444,276,123 506,804,383 503,378,402 553,178,593 645,855,939 4,103,422 4,924,106 5,908,927 7,090,712 8,154,319 8,133,312 11,119,613 13,536,041 13,879,260 15,772,124 5,897,163 9,213,565 16,713,506 32,074,677 45,344,188 9,450,117 17,679,158 38,182,238 28,909,469 47,067,023 27,584,014 42,936,442 74,340,712 81,954,118 116,337,654 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593

The additional provision charge on account of withdrawal of FSV impact last year was Rs. 3.1 billion, which was made in the 3rd and 4 th quarter of last year. This benefit of Rs 3.1 billion was being carried in the first half of 2003. Therefore the comparison between the provisions for the two periods should take into account both these factors. Additionally the bank is making all out efforts for recovery of non-performing loans and aggressive targets have been assigned to the units.

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Marketing Analysis:
Market Recognition:
For the second consecutive year, NBP was recognized as the best bank in Pakistan by the prestigious periodical, The Banker" UK (a subsidiary of Financial Times Group). Furthermore M/s JCR-VIS Credit Rating Company Limited maintained its rating of AAA, while the standalone rating was raised by one notch to AA-, which is one of the highest in the banking sector.

Customer Satisfaction
In NBP customer dealing is will, but during rush hour the customer has to wait for a long time for their turn. Its quite hard for a new customer or potential customer to get the required information.

Poor record management and filing system

During my internship I observed that filing system of branch is not good. When certain record is needed the staff has to struggle to find it out and a lot of time is wasted.

Unequal distribution of work

Work is not equally distributed. On one hand some employee have to work all day without relaxing while some others have nothing to do at all. This not only creates confusion among employees but also hurting and disturbing for overall setup of the bank. And above all it results in dissatisfaction among customers as well.

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Marketing visits
A useful mode of contact is through personal marketing visits. Such visits are important in informing and perusing the existing and potential customers about the products and creating a sense of belongingness with them.

FUNCTIONAL ANALYSIS
Formal Organization
Formal organization includes the activities of two or more person, which are cautiously determined groups and coordinated towards a given objective. It provides base when people are able to communicate with other, when they have common purpose and they are willing to work. In NBP, we find a formal organization. Bernard referred to an organization as a formal when the activities of two or more persons are coordinated towards a given objective. The formal organization comes into being when people are able to communicate with one another or willing to act and share a purpose. In this formal organization of NBP the activities are carried out in a more formal way. In theoretical terms it provides basis for communication with one another but in practice it is not exercised because an employee at high level cannot get straight away to manager or SVP and ask him about of his problem faced by him, because first he has to talk to his immediate superior and follow a proper channel of communication.

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Difference between theory and practice

A vast difference exists between theory and practice and NBP has written procedure but practical work done by employees is a bit different from written procedures.

Bank duty to maintain secrecy

They dont care about maintaining secrecy, especially during the rush hours. They speak loudly about the account position and while getting clearance of cheque the pe rson can easily get the whole information from the ledge. The deposit clerk must be careful while passing any cheque. In this regard another shortfall is in giving the information about the balance on telephone.

Excessive paper work

It is notified that due to the lengthy procedure of paper work the bank employee are over burdened. They are unable to give proper attention to the clients and face difficulties in getting their job done. One reason for lengthy procedure and excessive paper work in the bank is the lack of computerized technology.

More accounts fewer deposits.

Efficient banking is one which does not emphasize on number of accounts but on greater amount of deposits. NBP is more interested in increasing its number of account irrespective to its deposit. The main reason behind it is that bank does not provide personalize service to all the account holders and does not improve its quality and services

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Delegation of authority
Manager has very limited authority; he has to take the approval from his management authority i-e. In case of advance he has to take the approval of general and regional manager. The other problem is created, when the manager is not present in his office, the customer have to wait for hours. This discourages both customer and officers because they have to suffer a lot.

ADMINISTRATIVE ANALYSIS
Job analysis is not effective
Only on the basis of job analysis it can be decided how a right person can be hired, trained, compensated or promoted. It is very important for an organization that nature of the job is described and job specifications are mentioned. Most of the employees are simple graduate and do not have proper background about their job. This creates problems both for organization and for the employees. In NBP salaries are given according to the seniority and grades. People with simple or complex responsibility are getting the same salary and facilities. This creates dissatisfaction among employees.

Carelessness in opening of account

When customer comes to open an account, the staff does not bother to check his/her place phone number and permanent address. It is important because in case of overdraft by mistake or anything which places his account in debit it will be difficult to trace him. On the other hand he may be involved in any fraudulent activities against the bank. In this case the bank will be in awkward position.

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Lack of specialized training

NBP does not provide adequate facility of specialized training to their staff. Training is generalized rather than specialized. As the worker finishes his training, he is inducted into a specific field without having great deal of knowledge about the field. In the Hayatabad branch the newly recruited employee training was not imparted, they all learned things on the job.

Low Profit Rates

Most of the customers shifted their account to the National Saving Center because of the low rates of saving deposit discourages the customers. Bank should increase their profit rates to attract customers.

Poor job rotation

There is absence of job rotation in main NBP Bahawalnagar branch. A person placed in one department remains their forever. It reduces career opportunities as well boredom and in the end results in career platueing. Job rotation is very important for employee especially for those who are newly recruited. The newly recruit should be rated in all department of the banking in order to get familiar with working of different departments so that when they get a responsible position they have know how of the whole system.

Delays in Loan Advancement

It has been observed that there are delays in sanctioning of cases form the head office, which results in customer dissatisfaction.

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Lack of appreciation
Another very important thing which is ignored in the bank is appreciation if the employee on their good performance. If hard work and performance of employees is not recognized and appreciated they become dishearten which results in decline in performance.

PERSONAL MANAGEMENT ANALYSIS

Need for better training program
Need of training is greatly emphasized all around the world. Training of the personnel is part of human resource management. It has been noticed that the training program of NBP is not adequate. Once the candidate is selected and placed on the respective job. It becomes essential to train him adequately for the task. They should learn new methods for motivating customers. The training programmed of the bank should include scientific techniques to improve the decision making and interpersonal as will individual needs of the employee bo th specialized to fresh as well as on job to maintain the high standards of service.

Developing Managerial Leadership

Leadership is a practical term of visible, clear on objective and communicating better control on financial and administrative matters. Manager is not only responsible for their own units in business, but also in people terms i.e. training, recruiting, grievance handling and taking immediate initiative in crisis situation to take major decision affection the future of the bank and banking community.

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Recruitment policy
Human resources are the lifeblood of the organization. If the personnel are recruited carefully they can become asset to the organization in the case of carelessness a liability on the organization. Bank is not following its recruitment policy properly due to favoritism, nepotism and political pressure. Both the top authority and staff union tries their best recruit their favorites, indulgence of political pressure add salt to the wounds. The persons selected through these channels are infantile and do not work for the betterment for the bank.

Promotions
Promotion in NBP is purely on the basis of seniority, so the new young person having high qualification remains behind for quite a lot of time. Top management and staff union put pressure for the promotion of their favorites, which gives a sense of deprivation to the deserving employee and their efficiency is affected. As the concept of promotion is attached with better in terms of greater responsibility, more prestige, greater skills and increased rate of salary is necessary. Thus a better and impartial policy of promotion needs to be followed.

Transfer
Transfer means when a person is shifted from one place to another place. It is done either that person is needed more on the other branch or for improving his skill variety. It is the policy of the Bank to transfer each employee 3 to 4 years.

Marketing at desk
Bank employee come in daily contact with many people who happen to deal with the casual remittance, travelers cheques, safe custody, pensioners, depositing license fee and variety of other functions and variety of other people with whom the Bank has no account or regular Page 28

business relationship. The Bank employees are doing very little on their own to explore the possibilities of selling banking services to them as a marketing contributor. The entire Bank community should make a conscious effort in addition to their normal work to explore the possibilities of selling banking services to them. The market opportunities are hidden in every dealing a banker handles; the question is that if he has the art and urge to seize such opportunities.

Lack of business communication

There is no proper way to give information to their customer. To avoid this minor dissatisfaction and tension in the mind of customer, and deficiency of the service, it is recommended that the bank should provide brochures etc containing information in details. Some general information should be placed in information notice board on the entrance where customer can see it easily or it should be self-attractive.

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Industry Analysis:
Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant rol e in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. It is purchase of car or building of a home banks are always there to serve you better. It is play ground or any educational or healthy societal activities the money of banks nurtures them. It is an industrial project or agricultural development of the country the sponsor-ship of banks is very much involved. Banks play very positive and important role in the overall economic development of the country. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a flourishing banking sector.

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IFE Matrix (Internal Factor Evaluation)

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or evaluating major strengths and weaknesses in functional areas of a business. IFE matrix also provides a basis for identifying and evaluating relationships among those areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy formulation. The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be utilized to evaluate how a company is performing in regards to identified internal strengths and weaknesses of a company.
Internal Strengths Weight Rating Weighted Score Western Union Faciltiy 0.05 4 0.2 ATM Finder 0.1 4 0.4 Government's Bank 0.15 3 0.45 Customer Satisfaction 0.05 4 0.2 Online Banking 0.1 2 0.2 Wide area of Services 0.25 3 0.75 Internal Weaknesses Lack of Communication 0.1 1 0.1 between employees Punishment is not very 0.05 2 0.1 strong for employees Public dealing is not very 0.1 1 0.1 effective Lack of respect for 0.05 1 0.05 seniors TOTAL WEIGHTED SCORE 1 2.55

The weighted score is 2.55, which shows that NBP is internally strong with respect to the factors which determine its potential of excelling in its operation. It has the capability to overcome various obstacles which might hinder the success in its future.

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EFE Matrix (External Factor Evaluation)

External Factor Evaluation (EFE) matrix method is a strategic-management tool often used for assessment of current business conditions. The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing. The EFE matrix is very similar to the IFE matrix. The major difference between the EFE matrix and the IFE matrix is the type of factors that are included in the model. While the IFE matrix deals with internal factors, the EFE matrix is concerned solely with external factors. External factors assessed in the EFE matrix are the ones that are subjected to the will of social, economic, political, legal, and other external forces.
External Opputunities Weight Rating Weighted Score Growing banking system 0.1 3 0.3 Future role of Government 0.05 4 0.2 back Increase in economc 0.2 2 0.4 activities Expansion of Internatinoal 0.1 3 0.3 Coverage Internet and communication 0.25 3 0.75 technologies (e-commerce) Trends in housing, 0.1 4 0.4 shopping, careers, business External Threats Increase in no. of banks 0.05 1 0.05 Modern type of banking 0.02 1 0.02 Highly skilled people and 0.05 2 0.1 management required The whole structure change 0.08 1 0.08 to online TOTAL WEIGHTED SCORE 1 2.6

Total weighted score of 2.6 indicates that NBP has slightly more than average ability to respond to external factors.

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SWOT Analysis of the organization:

Strengths

Western union facility: National Bank of Pakistan is only one bank which has the facility of Western union. In this particular scheme money is transfer in Pakistan from abroad. This is the fastest way to money transfer. You can receive the money from bank to see the name and password of particular client. ATM finder: There is also strength of NBP that they are found the ATM. They now provide this facility to the customers. Governments bank: In commercial banking system NBP is only the government bank. They make their policies according to the governments rules and regulations. It enjoys its position in the market of banking system in Pakistan. Government of Pakistan is also facilitating the National Bank of Pakistan.

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Customer satisfaction: Because of governments bank, it is enjoying the customers satisfaction. Customers feels secure their money in NBP. Online banking: There is also strength of NBP that 130 branches are online. It helps the speedy services giving to the customers. There is also help in checking the balances an d daily transactions just at one key press. Employees loyalty: Employees are very much loyal to NBP. Employees turnover is very low in NBP. Very few employees are leaving the jobs in NBP. So it is very big strength that your employees are loyal to your organization. Wide area of services: They provide the wide area of services. They offer no. Of services relating to the banking system like, pension to retired government employees, traffic challans, fees received of AIOU, farms of AIOU, utilities bills, deposits, sales tax , withholding tax, property tax, and various loan schemes. Stable AAA/A-1+ (Tipple A/a-One Plus) rated bank. Best Return on Capital Bank for 2006 amongst all the banks in Asia. Highest Profitability bank of Pakistan. The Best Bank in terms of Profit on Capital in the world. Having Highest Assets and Capital in Pakistan. Functioning as an agent of State Bank of Pakistan. Dealing Government Treasury where SBP has not its own branch. Having unshakable trust of the public and its stakeholders. Giving Loans alone in the market against Gold Ornaments. Performing social responsibilities and claiming The Nations Bank. Disbursing Salaries and Pensions to the Government employees and earning high profit on NBP-Advance Salary Loan Scheme. Earning commission from SBP on Government transaction. Page 34

Facing never problem of cash/currency being its Chest and Sub-chest Branches all over the country. NBP have presence in the countries having sizeable trade volumes with Pakistan by its overseas operations Holds largest deposit base in the market share in terms of number of accounts. Leading bank in agriculture financing amongst commercial banks with the market share of 15% Helping in earning of foreign exchange, remittances and leading agent of Western Union Money Transfer. SBP rated Fair for capital & human resources, Strong for assets, Fair for management and Satisfactory for both earning (Rs.24.1 for per share) and liquidity.

Weakness:

Lack of communication between employees: During the internship in NBP I found the problem of lack of communication between the employees and management. They have not very much understanding with each other and not share the work of each other. Punishment is not very strong for employees: Punishment threat is not very strong for employees. Some employees are not very professional in their field but top management not takes the action against such employees. Public dealing is not very effective: Public respect is not very effective in NBP. Employees are not taking care of the customers, especially in pension and bills department. Staff shortage: There is also weak point for NBP that staff is very short and more staff is required to meet the needs of the branch work. They help from internees.

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Lack of respect of seniors: They are not a healthy sign for NBP that respect of seniors is not up to the manners. Juniors try to avoid the seniors and no take the help from them. Lowest Internal Control and Compliance System, SBP rated Marginal which is alarming for the Bank. Unsatisfactory corporate culture of the Bank. Physical environment and atmosphere compare to other banks is not meeting the Standard. Less number of Online Branches. Ineffectively use of technologies i.e. Information technology. Shortage of staff- per employee customer is very high side. Technical education and training of staff is insufficient.

Opportunities:

Growing banking system: Nowadays banking system is growing quickly so NBP have opportunities to improve the standard and get the more share in the market. Future role of government back: In growing era there is a chance for NBP to improve itself and increase the shares in the market because it is most trustable due to governments bank. Increase in economic activities: The economic activities are increase nowadays, so banks are contributes more in economic activities. Banks are played role in trade and commerce. So the business of commercial banks is increase. Being a Government Bank NBP having wide scope in economic market. Trust and reliability creates chances to enhance deposit and profitability. Its vast network of domestic and overseas branches can help to expand business. Banks deposit is increasing rapidly so there is a great opportunity to enhance its investment and financing. Being an agent of State Bank of Pakistan it can play vital role in local economy. Earning commission/exchange on Government transactions.

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Threats:

Increase in no. of banks: Increase in no. of banks is a threat for National Bank of Pakistan. No. of private banks (commercial and private) are operating their business and provide the same facilities. So increase in no. of banks is a threat for NBP. Modern type of banking: Modern and computerized banking is required to fulfill the customers need, so maximum branches of NBP are worked in old traditional ways. Highly skilled people and management required: To meet the new standard of banking, an efficient work force is necessary. In NBP some employees are totally irresponsible and lack of complete knowledge of banking system. So these employees are creating continuous problems in the system of NBP. The whole structure change to online: NBP have wide network of branches. Only 130 branches are online, so it is very difficult and time consumed to convert all branches to online system. So there is also risk involves that if one commuter of one branch suffers in problem, all system and all commuters of all branches must be turnoff. o SBP penalties due to low internal control and compliance. o Government, SBP and Prudential Rules and Regulations. o Schedule banks and Multinational/International banks profit rates. o Its staff switching over to other private banks due to more facilities. o Other banks charming atmosphere and relaxation in documentation. o SBP rated just Marginal in respect of System & Control which is alarming for the Bank to survive its license. o NBP staff code of ethics and practices. o High number of complaints regarding staff behavior. o Government Schemes, Government Revenue Collection, Government. o Payments and FBR Collections create heavy workload. Page 37

PEST ANALYSIS:

Political Factors:
Political Instability The government and NBP hold too much power. Lack of consistency in financial policy is a problem as a serious as lack of transparency. High Tax Rates Policies Trading Policies

Economical Factors:
Economic Instability Currency Devaluation Government spending can increase the money supply and make capital markets more stable Inflation detriments the interest spread the bank earns. Economic factors affect the purchasing power of the potential customers and the firms cost of capital.

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Socio-cultural Factors:
Consumer attitudes and opinions The social cultural environment encapsulates demand and tastes, which vary with fashion and disposable income, and general changes, can provide both opportunities and threats for NBP Ethnic/Religious factors Living Standards

Technological Factors:
The rapid growth in the technology of personal computers and internet presented both opportunity and challenge to the banking industry Online Banking ATM Network Better Communication Networks

Comparative Study of Domestic Banking Industry:

Nationalization of banks in the seventies was a major upset to domestic banking industry of the country, which changed the whole complexion of the banking industry. With irrational decision at the top all the commercial banks were made subservient to the political leadership and the bureaucracy. Specialized banking institutions were already working in the public sector. The new accountability paradigm changed the business ethics in the banking industry, and with this change started the disaster. Nationalization of bankin g industry was accompanied by violent changes in the external value of rupee. The commercial banks thus lost their assets management equilibrium, initiative and growth momentum. They ceased to be a business concern and became big bureaucracies. This was accompanied by indiscreet loaning under political pressure. They suffered from three terminal diseases: non-performing loans; higher intermediation cost; and loss of initiative Page 39

and entrepreneurship. The rise to Labor Unions and Officers Associations made lif e tough and working conditions ugly to honest, dedicated and industrious workers in the realms of domestic banking industry. The era of nineties was the climax of privatization, deregulation and restructuring in the domestic banking industry and financial institutions. The Muslim Commercial Bank was the first bank to privatize. Followed by Allied Bank limited, United Bank Limited and now the Habib Bank Limited have been privatized. One thing good for that particular period was the recruitment of fresh officers in the domestic banking industry through well-organized policies of Banking Council. With the decay of Banking Council there was flood of insincere, nonprofessional, incompetent candidates directly appointed/ recruited in all the domestic banks of the country.

Public Sector Commercial Banks:

National Bank of Pakistan First Women Bank Limited The Bank of Khyber The Bank of Punjab NBP FWB KB BOP

The government of Pakistan permitted small private sector banks to operate, which indulged in doubtful policies to promote business. The public sector banking, which constituted the backbone, thus continued to suffer because of their approach, size and carried over liabilities. Mehran Bank is the prime example of that kind of lax banking in the country, which ultimately merged into National bank of Pakistan i.e. last resort of domestic banking industry.

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Local Private Banks:

Askari Commercial Bank Limited Bank Al-Falah Limited Bank Al Habib Limited Bolan Bank Limited Faysal Bank Limited Metropolitan Bank Limited Platinum Commercial Bank Ltd Prime Commercial Bank Limited Saudi Pak Commercial Bank Ltd PICIC Commercial Bank Limited Soneri Bank Limited Union Bank Limited Muslim Commercial Bank Limited Allied Bank of Pakistan Union Bank Limited Mashreq Bank

In the meanwhile, western banks started entering into the business. They, with the support of ruling elite, concentrated on the big business, leaving the routine business to the local banks. This reduced the profitability of the local banks.

Foreign Banks:
ABN Amro Bank Al Baraka Islamic Bank American Express The Bank of Tokyo Mitsubishi CITI Bank Credit Agricole Indo Suez Deutsche Bank Doha Bank Emirates Bank Habib Bank A. G. Zurich Hong Kong Shangai Banking Corporation IFIC Mashreq Bank PJSC Oman Bank Rupali Bank Standard Chartered Bank

Specialized Banks:
Zari Tarqiati Bank Ltd. Industrial Development Bank of Pakistan Punjab Provincial Cooperative Bank Limited

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There are 17 listed banks in Pakistan 2004. Four banks are still not listed, which are Habib Bank, United Bank, Allied Bank of Pakistan, Dawood Bank. Standard Chartered Bank, Citibank, Deutsche Bank and ABN AMRO Bank are main foreign banks in the country. These four banks continue to enjoy a significant share in the market, both in terms of deposits and advances. All the foreign banks of the country are busy to invest heavily in the field technology and e-commerce in order to overcome branch limitation. All the foreign banks have been busy to introduce new products and idea to grab larger proportion of the local markets. Foreign banks are carrying major proportion of local business in credit cards, consumer finances and housing finance. Many domestic banks have increased their general standards. Ours is the age of plastic money. Internet-based services are constantly increasing the number of ATM machines, either by installing their own machines or making arrangements with other networks. The number of Debit Cards has also been increasing at an unprecedented rate. All the domestic and foreign banks vigorously institutionalized consumer financing in the country and earned handsome profits. The borrowing to private sector has also increased which ultimately boasted the profitability of all the domestic banks of the country. In the last 3 to 4 years many domestic banks have been suffering from surplus liquidity crisis mainly due to low demand for credit and slowdown of manufacturing sector in the country. Almost all the banks are now buy to invest in capital markets to increase their exposure in equities. To stop that risky trend the State Bank of Pakistan issued the instructions to follow the Prudential Regulations in letter and spirit and not invest in the capital markets beyond the limits. The domestic banks lending under consumer finance and housing finance has also been growing. The analysis of Annual Reports of banks shows that their income from Page 42

core banking activities has been growing. The other positive point is that there are growing expectations for increase in interest rates. The growth in advances has started matching growth in deposits. The quality of asset as well liability products have been improving. The ratios of non-performing loans have decreased. The SBP29 Scheme has benefited the banks as well as the borrowers to pay-off their long-standing dues. Bank Alfalah is the first to opt for the listing policy of the government and also offered its share to general public. Two of the state-owned banks, Habib Bank and United Bank, have been privatized. Allied Bank of Pakistan was privatized in early nineties. But due to many internal and external reasons it continues to suffer. Some meaningful senior managerial changes would be better at the earliest. Dawood Bank has recently emerged on the banking scenario of Pakistan and it is good addition. The bank has come into existence as a result of acquisition of Pakistan operations of a Sri Lankan bank by a local business group. It is also not listed at the local stock exchanges. Meezan Bank is the first bank of the country, which is carrying complete Islamic banking.

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Comparative Analysis:
Comparative Analysis of Domestic Banking Industry of Pakistan

The growth in the banking industry of Pakistan has led to an increase in the number of banks both domestic and international to be established and create a competitive industry. NBP competitors come in the form of both domestic and international banks working in Pakistan because of its products and services offered. NBP is in position to increase its market share and shareholders wealth by enhancing products and services and become a largest bank in the history of Pakistan in financial year 2003. Banks/ Descriptions NBP MCB UBL Bank Alfalah ACB Source: SBP Profit after Tax 19,034 12,444 12,056 10,555 9,097

Total Assets 762,194 374,07 2 383,472 317,711 307,034

Deposits 591,907 281,34 9 335,077 279,917 251,711

Advances 340,677 243,39 2 254,272 197,277 114,971

Capital 69,271 43,259 16,807 14,499 13,053

Total Assets
NBP is a most growing organization in banking sector. Total assets of NBP are persistently going to increase and show an upward trend throughout the financial year. Table show that total assets of the bank for year 2003 are Rs.762,194/= in million while increase by 16.6% then last year. We can see that total assets of the bank are still at top position that shows its growth due to its competitors. The latest figures show that MCB at 50.9% less, Bank Alfalah at 58.32% less, UBL at 49.6% less and ACB at 59.72% less, comparison in financial year 2003. So we can say that NBP is in strong position in banking sector.

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Deposits
Deposits are treated as backbone of the banking sector. Banks offered different schemes to allocate deposits form general public and lend them to public and corporate sectors. NBP is also one of them. Deposits of NBP in Rs.591,907/= in million. NBP now enhance its position by 15.21% then last year 2002. It shows NBPs economic stability.

Advances
Loans and advances are the major sources of revenue in banking business. Advances of NBP in financial year 2003 is Rs.340,677/=, MCB is at Rs.243,392/=, UBL at Rs.254, 272/=, Bank Alfalah at Rs.197,277/=, and ACB at Rs.114,971/= in million mentioned above on the table. It express that NBP got 7% increase in advances in year 2003.

Capital
The capital is the amount invested by the owners into business. All shareholders are the owners of the organization. NBPs balance of at January 1, 2003 was Rs.7,090,712/= and issued bonus shares at 15% by Rs.1,063,607/=. The table shows persistent growth as its competitors.

Profit after Tax

The profit of NBP is Rs.19,034/= in million which is the highest rate of profit in banking sector. So the highest profit shows that NBP received best return on capital for 20 02 amongst all banks in Asia.

Sources of funds
Sources of funds reveal the organizations needs for funds, the timing of these funds when required, and for what purpose these funds are needed. These are the main elements to carrying out the operations of business. It involves the analysis of capital uses by the Bank i.e. Debt and Equity financing. Page 45

Debt financing
NBPs in financial year 2003 get debt in Rs.10,886/=, and Rs.11,704/= in million in year 2002, which is 7.5% low. Bills payable of the bank are also decreasing by 50% in 2003.

Equity financing
The basic purpose of financing is to get funds from different ways depending upon capital structure mentioned by the top management during a period of time. But to finance with lower interest rate and invest higher return is the business of banks. NBPs share capital with increase in 13.05% year 2003 is Rs.8, 154/=. Generation of funds NBP offers different products and services to generate funds. Deposits are the main heads of generation of funds. The banks receive from public and invest it for the sake of return. Banks receive fees, commission on services offering; get interest of investments, and dividend etc. Through a careful estimation, these figures can be ascertained: Years/Descriptions 2003 2004 2005 2006 2007 Allocation of funds The most important functions of banks are to allocate funds and make a portfolio of funds to profitability. NBP allocate resources from different ways i.e. reserves, and fixed asset sales. Interest income 12,716 14,387 23,312 30,153 33,629 Total income 17,345 20,944 30,512 39,945 42,451 Net profit 4,198 6,242 12,709 17,023 19,033

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Reserves
It is the amount set aside to meet statutory requirements of SBP and maintain liquidity position. The reserves of NBP are Rs.8,133/- in million in financial year 2000 and then constant increase with 26.8% in 2000, 17.86% in 2001, 2.54% in 2002 and 12.01% in year 2003. It also determines the position of the bank during a period of time. Fixed assets Fixed assets are immoveable assets of the organization. Financial year ended December 31, 2003 shows property and equipment of NBP are Rs.29,792/= in million before depreciation and after depreciation amount is Rs.25,454/= in million, it is also a comparative figure to show a bright future of the bank.

Competitive Profile Matrix

A competitive profile matrix (CPM) classifies a firms major competitors and its meticulous strengths and weaknesses in relation to an illustration firms strategic point. In CPM we evaluate company as well its competitors by giving weights and rating to their critical success factors than identify their strategic competitive position with its competitors. Company which gets higher weighted score would have the strong competitive position than its competitors.
NBP MCB Key Success Factors Weight Rating Score Rating Score Rating Technology 0.1 3 0.3 3 0.3 Best Rates 0.3 4 1.2 2 0.6 Product Innovation 0.2 3 0.6 2 0.4 Quality 0.2 3 0.6 2 0.4 Brand Image (Recognition) 0.1 2 0.2 2 0.2 Size of the company 0.1 3 0.3 2 0.2 TOTAL 1 3.2 2.1 UBL Score 4 0.4 3 0.9 2 0.4 4 0.8 1 0.1 2 0.2 2.8

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Key success factors refer to those factors which are important to future competitive success of industry members. These factors include product attributes, competitive capabilities, resources, competencies, market achievements etc. It is very important for the strategists to understand the landscape of industry in order to identify the most important competitive success factors. Due to changes in driving forces and competitive conditions, the key success factors of one industry differ from other. Banking industry is broadly divided into two types of banks i.e. virtual banks and brick and mortar banks. The key success factor of banking industry is discussed below.

TECHNOLOGY
Latest technology plays a very important role in the banking industry. It helps in introd ucing innovative products according to the demand of consumers. Technology can be used to lower down the cost of transaction and improve the quality of products. For example when the banks realized that they can lower down their transaction cost by install ing ATMs and debit cards they did so. It saved the overhead cost and improved convenience for customer by providing 24/7 service. technological change. Online banking is increasing tremendously due to rapid

BEST RATES
Industry of virtual banking is attracted by low cost. Competition is such high that to survive in industry low cost is very important. As virtual banks have no physical existence of branches and ATM network so they have great advantage to offer their products at lower rates than brick and mortar banks. Due to low overhead cost, virtual banks are charging lower transaction cost which gives them a plus point.

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PRODUCT INNOVATION
Product Innovation is one of the major success factors in the banking industry, Since all the banks are offering similar products therefore differentiation is very important for the future survival. Banks are trying to come with different innovative products in order to differentiate themselves from other banks.

QUALITY
Service Quality includes all the dimensions of quality which the consumers want. Brick and mortar banks have the advantage to directly contact with the customers due to which customers feel satisfaction. On the other hand, in virtual banks there is lack of person -toperson contact which forced consumers to resolve their problems over the phone or via EMail. In many cases such contacts frustrate some customers.

BRAND IMAGE (RECOGNITION)

Brand image plays an important role in selecting the product or bank. For example Cit iBank group and ABN AMRO Group are two major players in the industry with huge resources and they have major market share as well. Thats why most of the people wish to be their customers. On the other hand, virtual banks are not so much popular and have a low market share. In this way, market share and brand awareness within banking industry is a major concern for them.

SIZE OF THE COMPANY

Size of the company is an important key success factor. In banking industry size of bank refers to the total market share, total assets, total number of branches and ATMs, total number of customers etc. Brick and mortar banks have a good market share due to which Page 49

they can compete effectively. Contrary, virtual banks have relatively lower market share in Pakistan banking industry which is a major problem for them.

LOCATION AND CONVENIENCE

It is important to note that convenience attracts consumers. For example if a bank has wider network then it will be convenient for the customers to make transactions easily. In this case virtual banks have advantage over brick and mortar banks. Internet only banks can be accessed anywhere in the world through internet. Virtual banks have no ATM network and no branches, requiring customers to use other banks ATMs, or by using cash-back services with debit cards. The growth of the internet in the last few years, has forced many brickand-mortar banks to consider and develop online banking.

SPACE Matrix Analysis

Strategic Position & Action Evaluation (SPACE) Matrix is another management tool used to help analyze a company. It can also used to determine what sort of strategy the company should undertake. The SPACE Matrix is broken down into four quadrants as being aggressive, conservative, defensive, and competitive. Additionally, the SPACE Matrix analysis functions upon two internal strategic dimensions which are financial strength (FS) and competitive advantage (CA). Besides, the SPACE Matrix methodology also studies two business external strategic dimensions such as environmental stability (ES) and industry strength (IS). The CA (values from -1 to -6) and IS (values from +1 to +6) are representing by the X-axis of the Cartesian graph whereas the FS (values from +1 to +6) and ES (values from -1 to -6) are representing by Y-axis. After drawing these SPACE matrix graph, the overall strategic positioning of a company can be determined. Page 50

SPACE Matrix Table:

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SPACE Matrix Graph:

According to the graph above, we noticed that NBPs falls into the aggressive quadrant of the SPACE Matrix. It is located at the coordinates of 3.55 for x-component and a y component of 3.00. It shows that NBP has a strong competitive position in the market with rapid growth. It is also indicates that NBP should adopt an aggressive strategy. It needs to use its internal strengths to develop a market penetration and market development strategy. Other possible strategies include product development, integration with other banks and also concentric diversification.

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Aggressive Position
There are numerous tactics that may fall into the aggressive strategy category. One of the strategies is market development. As stated above, we can note that NBP is biggest bank in Pakistan and has 1189 local branches and 18 branches in overseas. However, NBP is not located in every area of Pakistan. Therefore, it should try to expand their branches into new geographical areas or markets. Besides, NBP should also aggressively find ways to grow its business overseas such as South-Asia and Middle-East. This objective can be attained through mergers and acquisitions (M&A). Besides, NBP should carry out the market penetration strategy. The management of NBP can think out the best way to sustain and compete in exist market as well as new market. This method would be hire high level employees from the competitors strong in those areas. Moreover, NBP should focus on doing more market research. Many clients are attracted to the company who is doing strong research. Therefore, NBP should do research to investigate customers discontent. Then, the company can improve their service and pr oduct quality through customers suggestion. In addition to that, market research can show the demand in different areas. Thus, the company will be success in every area by determining the demand boundaries. Other than that, NBP need to implement a strategy on product development. The management should aim on offering new services such as helping their customers or corporations manage interest rate and currency risks. By doing this, the NBP can move forward to obtain bigger slice of investment banking.

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Conclusions
NBPs high reputation helps in attracting customers loyalty Compete in an unstable environment NBP should develop new market to various area of Pakistan as well as overseas They should expand its services and products such as helping corporations manage interest rate and currency risks Eliminate inefficiencies and improves services quality. It can be done by doing market research to investigate unfavorable performance. Then, make full use of the resources to improve it. Seek Integration Opportunities such as merger and acquiring other existing banks in different areas Hire potential employee either from competitors or from other sources to get bigger improvement Seek new and good management staffs to get a better company direction

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