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Submitted by: KHURAM SHAHZAD Roll # F09-MBA-010 Supervised by: DR.AMJAD RAFIQ



(Session 2010to 2013)


Submitted by: KHURAM SHAHZAD Roll # F09-MBA-010 Supervised by: DR.AMJAD RAFIQ

This internship report is submitted in partial fulfillment of the requirements for the degree of Master of Business Administration awarded by Hazara University, Mansehra




1. External Examiner

Mr. /Miss. ________________________________ Signature_______________

2. Supervisor
DR.AMJAD RAFIQ_______________________ _Signature_______________ Designation: ( Professor)



I am dedicating this project to the dearest figures in my life: ***Most of all, My ALLAH Almighty! Ancient of Days! The Great I AM! Oh! ALLAH I can do nothing or be nothing without your Grace. YOU have always been by my side guiding me all the way to this destiny. You gave me to my earthly parents, brought me into this world, moulded me as a child. You continue to guide me everyday. OH FATHER, You know my heart ALLAH, continue to use me for Your Service. In everything I do, let the Glory be yours and yours ONLY. AMEN! By KHURAM SHAHZAD

To every country and the people living there, a need of such an institution is always needed that can circulate and deal in money. Such institutions are also required to fulfill other financial needs such as provision of place to deposit money, serving for the utilities and also advancing money in order to facilitate the needs of people and the businesses. These organizations in any form can collectively be called as Banks. Banking services are extremely important for both economies developed and developing economy such as Pakistan. Banking services serve two primary purposes. First, by supplying customers with the basic mediums-of-exchange (cash, current accounts, and credit cards), banks play a key role in the way goods and services are purchased. Without these familiar methods of payment, goods could only be exchanged by barter (trading one good for another), which is extremely time-consuming and inefficient. Second, by accepting money deposits from savers and then lending the money to borrowers, banks encourage the flow of money to productive use and investments. This in turn allows the economy to grow. Without this flow, savings would sit idle in someones safe or pocket, money would not be available to borrow, people would not be able to purchase cars or houses, and businesses would not be able to build the new factories the economy needs to produce more goods and grow. Enabling the flow of money from savers to investors is called financial intermediation, and it is extremely important for the growth of economy This report covers all the areas of the NBP bank that clearly show that how the bank is being excelling in many areas. The report also covers the analysis portion with the help of which we come to know that where it is strong and where it needs to be strong.



ABSTRACT_____________________________________________________________vi LIST OF TABLE________________________________________________________xii Table 2.1: Board of directors_________________________________________ 14___xii Table 2.2: Senior managers of NBP ___________________________________ 15_ _xii _ Table 2.3: NBP Overseas Branches____________________________________ 16__xii Table 4.1: NBP Performance in 2008-2010______________________________ 34__xii Table 4.2: Vertical Analysis of Balance Sheet___________________________ 37___xii Table 4.3: Vertical Analysis of Income Statement_______________________ 38____xii Table 4.4: Horizontal Analysis of Balance Sheet_________________________ 41___xii Table 4.5: Horizontal Analysis of Income Statement_____________________ 42____xii Table 4.6: Ratio Analysis ___________________________________________ 46___xii Table 4.7: Ratio Analysis ___________________________________________ 46___xii Table 4.8: Return on Earning Assets__________________________________ 47___xii Table 4.9: Operating Cost to Income Ratio_____________________________ 48____xii Table 4.10: Equity to Total Assets_____________________________________ 49___xii Table 4.11: Credit Ratio_____________________________________________ 50___xii Table 4.12: Long loss coverage ratio___________________________________ 50_ _xii _ Table 4.13: Interest Income per employee______________________________ 51___xii Table4.16 Business per branch______________________________________ 53____xii Table 4.17: Employee per branch____________________________________ 53____xii Table 4.18: Return on equity________________________________________ 54____xii Table 4.19: Return on Assets________________________________________ 55____xii Table 4.20: Deposit Ratio___________________________________________ 56____xii Table 4.21: Assets Ratio____________________________________________ 56____xii LIST OF FIGURE/DIAGRAMS___________________________________________xiii Figure 2.1: NBP Organization Chart________________________ 11____________xiii Figure 2.2: NBP Main Branch Organization Chart_________ 17_______________xiii Figure 4.1: Equity and liability_____________________________ 41____________xiii Figure 4.2: Ratio Analysis_________________________________ 46___________xiii Figure 4.3: Return on earning assets________________________ 47____________xiii


Figure 4.4: Operating Cost to income ratio___________________ 48____________xiii Figure 4.5: Operating Cost________________________________ 48____________xiii Figure 4.6: Equity to total assets____________________________ 49____________xiii Figure 4.7: Credit ratio____________________________________ 50___________xiii Figure 4.8: Interest Income per employee____________________ 51____________xiii Figure 4.9: Profit per employee_____________________________ 51____________xiii Figure 4.10: Business per employee__________________________ 52___________xiii Figure 4.11 Business per branch____________________________ 53___________xiii Figure 4.12 Employee per branch___________________________ 54___________xiii Figure 4.13 Return on equity_______________________________ 54___________xiii Figure 4.14 Return on Assets_______________________________ 55___________xiii Figure 4.15 Deposit ratio___________________________________ 56__________xiii ACKNOWLEDGEMENT_________________________________________________xiv __________________________xiv EXECUTIVE SUMMARY_______________________________________________xvii CHAPTER 1____________________________________________________________1 INTRODUCTION TO THE REPORT________________________________________1 1.1 Objective of the study___________________________________________________1 1.2 Limitations of the study_________________________________________________1 1.3 Merits of the study_____________________________________________________2 1.4 Methodology of the Study_______________________________________________2 1.4.1 The primary data was collected through__________________________________3 1.4.2 Secondary data______________________________________________________3 1.5 Scheme of the report ___________________________________________________3 1.6 Organizational structure of Mandian Branch Abbottabad_____________________3 CHAPTER 2____________________________________________________________4 HISTORY AND INTRODUCTION TO NBP__________________________________4 2.1 Evolution of Banking__________________________________________________4 2.1.1 Meaning of Bank:____________________________________________________4 2.1.3 Banking in South Asia:_______________________________________________5 2.1.4 History of Banking in Pakistan:________________________________________6 2. 2 Historical background of National Bank of Pakistan________________________7 2.2. 1 Present Status of the Bank____________________________________________8 viii

2.2.2 Existing NBP Branches in Pakistan_____________________________________9 2.2.3 Credit Rating________________________________________________________9 2.2.4 Auditors __________________________________________________________10 2.3 Organizational structure_______________________________________________10 2.4 The Vision statement of NBP___________________________________________12 2.5 The Mission statement of NBP__________________________________________12 2.6 Objective of NBP_____________________________________________________12 2.6.1 Maximum profit____________________________________________________12 2.6.2 Maximize deposits___________________________________________________12 2.6.3 Economic Growth___________________________________________________13 2.6.4 Customer service____________________________________________________13 2.6.5 Expenditure discipline_______________________________________________13 2.6.6 Facilities to staff & utilization of staff___________________________________13 2.7 Goals______________________________________________________________13 2.8 Core values of NBP___________________________________________________13 2.9 Corporate profile_____________________________________________________14 2.10 Executive Committee _____14 2.10.1. Board of Directors:________________________________________________14 2.10.2 Regional Manager_________________________________________________14 2.10.3 Number of Directors________________________________________________15 2.11 Introduction to NBP Mandian Branch__________________________________17 2.11.1 Location_________________________________________________________17 2.11.3 Credit Committee__________________________________________________19 CHAPTER 3___________________________________________________________20 PRODUCTS AND SERVICES PROVIDED AT NBP__________________________20 3.1 Functions of NBP____________________________________________________20 3.1.1 Receiving deposits___________________________________________________20 Current / demand deposits_________________________________________________20 3.1.2 Advances on open account or overdraft_________________________________20 3.1.3 Discounting on open account or overdraft_______________________________21 3.1.4 Cash credit system or ordinary loans____________________________________21 3.1.5 Remitting funds ____________________________________________________21 3.1.6 Safe custody_______________________________________________________21 ix

3.1.7 Agency functions___________________________________________________21 3.1.8 Reference_________________________________________________________21 3.2 Departments of NBP Mandian Branch ___________________________________22 3.2.1 Deposit Department_________________________________________________22 3.2.2 Functions of Deposit Department______________________________________22 3.2.3 Classification of Deposits_____________________________________________23 3.3 Products____________________________________________________________25 3.3.1 NBP Premium Aamdani (Monthly Income Scheme) _______________________25 3.3.2 NBP Premium Saver (PLS Saving Account)_____________________________25 3.3.3 NBP Karobar (Mera Apna Karobar under President's Rozgar Scheme)_______26 KIBOR + 2.00%p.a.______________________________________________________26 3.3.4 NBP Saiban (House Finance)_________________________________________26 3.3.5 Advance Salary (Personal Loan)_______________________________________26 3.3.6 NBP Cash Card (ATM + Debit Card)___________________________________27 3.3.7 Investor Advantage (Margin Finance Facility)___________________________27 Financing Facility for Stock Investors_______________________________________27 3.3.8 NBP Cash and Gold (Ready cash against Gold)___________________________27 3.3.10 NBP Pak Remit____________________________________________________28 3.3.11 Termination of Coverage___________________________________________29 3.4 Services____________________________________________________________29 3.4.1 International Banking_______________________________________________29 3.4.2 Demand Drafts_____________________________________________________30 3.4.3 Mail Transfers_____________________________________________________30 3.4.4 Pay Order_________________________________________________________30 3.4.5 Travellers Cheques_________________________________________________30 3.4.6 Letter of Credit_____________________________________________________30 3.4.10 Short Term Investments_____________________________________________32 3.4.11 National income daily account (NIDA)_________________________________32 3.4.12 Equity Investments_________________________________________________32 3.5 Trade finance and other business loans (other services)______________________32 Agricultural Credit______________________________________________________32 3.5.2 Corporate Finance__________________________________________________33 x

3.5.3 Islamic Banking____________________________________________________34 CHAPTER 4___________________________________________________________36 FINANCIAL ANALYSIS_________________________________________________36 4.2 Financial Analysis____________________________________________________36 4.3 Parties interested in financial analysis____________________________________37 4.3.1 Trade creditors_____________________________________________________37 4.3.2 Suppliers of long-term debt___________________________________________37 4.3.3 Investors__________________________________________________________37 4.3.4 Management_______________________________________________________37 4.4 Vertical Analysis of Balance Sheet_______________________________________38
Horizontal Analysis of Balance Sheet....................................................................................43 Table 4.4..................................................................................................................................43

Profit after tax reduces in all year in vertical analysis. In 2008 it is 37% then in 2009 it reduces to 25% and it is just 20% of total revenue of year 2011___________________46 4.6 Ratio Analysis_______________________________________________________46 4.6.1 Profitability Ratios__________________________________________________46 Net Interest Margin______________________________________________________46 4.6.2 Efficiency ratio_____________________________________________________52
4.7.1 Return on Equity..........................................................................................................................55

4.7.2 Return on Assets____________________________________________________56 Table 4.19: Return on Assets______________________________________________56 Figure No 4.15: Return on Assets__________________________________________57
4.7.3 Investment deposit Ratio..............................................................................................................57

4.7.4 Debt to Assets Ratio_________________________________________________58 CHAPTER 5___________________________________________________________59 References_____________________________________________________________61 ANNEXURE ___________________________________________________________62


Table 2.1: Board of directors_________________________________________ 14 Table 2.2: Senior managers of NBP ___________________________________ 15 Table 2.3: NBP Overseas Branches____________________________________16 Table 4.1: NBP Performance in 2008-2010______________________________34 Table 4.2: Vertical Analysis of Balance Sheet___________________________ 37 Table 4.3: Vertical Analysis of Income Statement_______________________ 38 Table 4.4: Horizontal Analysis of Balance Sheet_________________________ 41 Table 4.5: Horizontal Analysis of Income Statement_____________________ 42 Table 4.6: Ratio Analysis ___________________________________________ 46 Table 4.7: Ratio Analysis ___________________________________________ 46 Table 4.8: Return on Earning Assets__________________________________ 47 Table 4.9: Operating Cost to Income Ratio_____________________________ 48 Table 4.10: Equity to Total Assets_____________________________________49 Table 4.11: Credit Ratio_____________________________________________ 50 Table 4.12: Long loss coverage ratio___________________________________ 50 Table 4.13: Interest Income per employee______________________________ 51 Table 4.14: Profit per employee:______________________________________ 51 Table 4.15: Business per employee____________________________________ 52 Table4.16 Business per branch______________________________________ 53 Table 4.17: Employee per branch____________________________________ 53 Table 4.18: Return on equity________________________________________ 54 Table 4.19: Return on Assets________________________________________ 55 Table 4.20: Deposit Ratio___________________________________________ 56 Table 4.21: Assets Ratio____________________________________________ 56



Figure 2.1: Figure 2.2: Figure 4.1: Figure 4.2: Figure 4.3: Figure 4.4: Figure 4.5: Figure 4.6: Figure 4.7: Figure 4.8: Figure 4.9: Figure 4.10: Figure 4.11 Figure 4.12 Figure 4.13 Figure 4.14 Figure 4.15

NBP Organization Chart________________________ NBP Main Branch Organization Chart_________ Equity and liability_____________________________ Ratio Analysis_________________________________ Return on earning assets________________________ Operating Cost to income ratio___________________ Operating Cost________________________________ Equity to total assets____________________________ Interest Income per employee____________________ Profit per employee_____________________________ Business per employee__________________________ Business per branch____________________________ Employee per branch___________________________ Return on equity_______________________________ Return on Assets_______________________________

11 17 41 46 47 48 48 49 51 51 52 53 54 54 55

Credit ratio____________________________________ 50

Deposit ratio___________________________________ 56


First of all thanks to ALMIGHTY ALLAH, who gave me the capacity to complete this internship report. I offer my humblest respects to the HOLY PROPHET HAZRAT MUHAMMAD (Peace Be upon Him) who is, forever a torch of guidance and knowledge for humankind as a whole. Firstly this report is aimed to studying and analyzing National Bank of Pakistan in general and NBP Mandian Branch, Abbottabad in particular. A report encompasses the experience of the internee, his/her learning, and analysis in light of which recommendations are made. The report is then properly analyzed and evaluated on its description and analytical capabilities of its writer by Department of management sciences. This internship report has been written on National Bank (NBP) Mandian Branch Abbottabad. Secondly, the most respectable to me are all of my teachers who guided me, who taught all the way from the stage when I was just a kid and up till today where I am at the doorstep of my practical life. I cannot repay those favors back to them all in my life. In addition I am really thankful to Mr. DAWOOD (Manager NBP, Mandian Branch Abbottabad) and Mam.TAHIRA (Operations Manager NBP Mandian Branch) who granted me internship in this branch and provided me an excellent opportunity to go through the practical experience in banking. I have no words for all of these people.



ATMs: AVP: ABL: B.A: B.C: BOD: EBIT: EPS: EVP: GDP: HR: IT: J/V: Ltd: MBA: MTO: MCB: NBP: NIT: NIDA: NPA: PLS: Rs: ROCE: ROI: SBP: SEVP: SVP: SWOT: Automatic Teller Machine Assistant Vice Presidents Allied Bank Limited Bachelors of Arts Before Christ Board of Directors Earning before Income Tax Earning per Share Executive Vice President Gross Domestic Product Human Resource Information Technology Joint Venture Limited Master of Business Administration Management Trainee Officer Muslim Commercial Bank National Bank of Pakistan National Investment Trust National income daily account Net Performing Asset. Profit and Loss sharing Accounts Rupees Return on Capital Employed Return on Investment State Bank of Pakistan Senior Executive Vice President Senior Vice President Strength Weakness Opportunity Threats



Specimen Signature United Kingdom United State of America Vice Presidents



This report is about National Bank of Pakistan Mandian Branch. NBP is one of the largest bank in the country. NBP is a gainful organization, having a large network within and out of the Pakistan. To know about the National Bank of Pakistan and its functions it was important to work there. Being a student of MBA FINANCE the purpose of this report is to critically define and describe different functions and services offered by the bank to its valued customers and other visitors. To analyze the performance of the bank employee and measure that how much effectively they are working and make a financial analysis of it and suggest recommendations I was there and I gather all of these information regarding banking. The concentrated competition among banks, the privatization of the financial institution and financial liberalization in general are gradually and continuously making the banking sectors efficient and effective. Because of the reasons mentioned above banking has always been the main field of interest for most of the students of business administration especially in Finance Management. It is also an academic requirement to undergo internship therefore the main purpose behind this report is partial fulfillment of requirements, for the degree of MBA in Finance. The report is categorized into the following chapters. In the first chapter introduction to the report, background of study, scope of the study, merits, limitations and scheme of the study are given. The second chapter is about history of banks in Pakistan, introduction to the organization, its historical background, role and functions of organization, its core values, and miscellanies topics related to banking. The third chapter is the major portion of the report. It covers the organizational structure of NBP, the different departments working at NBP and the different financial products of NBP. The fourth chapter of the report covers the analysis of report and the findings, which have been observed. It includes the financial analysis. The end of the report is xvii

about recommendations based on the analysis in chapter four. It mainly focuses on the recommendations pertaining to management/administration, to let NBP capitalize on the opportunities and overcome the weaknesses by using its strengths.



This research report is about the internship in National Bank of Pakistan Mandian Branch Abbottabad. Every student is required to do internship and spend, a specific time period in an organization in order to get first hand knowledge of real life situations and gain practical experience. National Bank of Pakistan, which is one of the leading, banks in the country. 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. NBP is a highly profitable organization, having a huge network within and out of the country. 1.1 Objective of the study The objective of undertaking this internship is basically to aid the student in their MBA (Master in business administration) program and to furnish them with some experience of practical work. The main objective of the Internship is to gain work experience and then able to get opportunities of work. The internship helps the students to polish their academic achievements with practice and day-to-day problems, which they have been faced in their professional lives. It is the internship, which serves as a railway track that takes the train of academic knowledge of a student to its destination. The duration of these Internships is 8/eight weeks. During this period the students are supposed to collect information about their respective fields/course of an organization and prepare a comprehensive report on it. 1.2 Limitations of the study The time period of internship was very limited for a complete understanding of operations and was the major factor which hinders the dynamics of bank processings.

Lack of documented material proved to be another constraint in this regard as most of the material is confidential; therefore, internees are not allowed to get handouts.

No one is permitted to recover the official data of the branch for any purpose except authorized bank personnel for official purpose. Research students face a great difficulty as most of the time employees are busy to answer he queries and hence incomplete information is provided. There was no proper document or latest annual report available for analysis. Research students are not allowed to retrieve and use any confidential material for any purpose, as it is against the bank policy.

1.3 Merits of the study While doing internship and participating in the banking operations of National Bank, I came to know about the financial practices and their implications practically. Learned how to gather and analyze financial data to interpret the financial position of any company. I gain experience in the banking sector. This research is very beneficial for the finance students and is the best way to learn about banking practices. The recommendations in this report would help the bank to get improved.

1.4 Methodology of the Study The whole internship is base on 8/eight weeks and the facilitation organization was NBP Mandian Branch. Firstly it was try to gather the primarily data and then I concentrate toward the secondary data. The main source of information was personal observation while working with other staff member and having discussion with them also helps me a lot. During this period of time formally arranged interviews and discussions in all aspect helped me in this regards I was trying to collect the valuable data and information. Primary data Secondary data

1.4.1 The primary data was collected through Personal observation. Sitting with staff member.

1.4.2 Secondary data Annual Reports. Manuals. Brochures. Newspapers. Websites. Reference Books. Internship Reports. Financial journals.

1.5 Scheme of the report The detail of five chapter of this report is as follow. Chapter 1 includes background, purpose, Scope, limitations, merits and scheme of report. Chapter 2 includes background and history of banking in Pakistan as well as Introduction to National bank of Pakistan, Mandian Branch ABBOTTABAD Chapter 3 includes the financial statement, Products and services offered by NBP. Chapter 4 includes the analysis of financial statements and their interpretation. Chapter 5 includes the conclusion and recommendations are given. 1.6 Organizational structure of Mandian Branch Abbottabad Organizational Structure is the framework that defines the boundaries of the formal organization and within which the organization operates. The Organizational Structure of NBP Mandian Branch is also aimed at achieving specific corporate objectives of the branch.


The history and introduction of NBP is explained below: 2.1 Evolution of Banking 2.1.1 Meaning of Bank: It is generally said that the word "BANK" has been originated in Italy. In the middle of 12th century there was a great financial crisis in Italy due to war. To meet the war expenses, the government of that period imposed a forced subscribed loan on citizens of the country at the interest of 5% per annum. Such loans were known as "Compara", "Mintuo" etc. The most common name was "Monte", In Germany the word "Monte" was named as "Bank" or "Banke". According to some writers, the word "Bank" has been derived from the word Banke. It is also said that the word "Bank" has been derived from the word "Banco" which means a bench. The Jews money lenders in Italy used to transact their business sitting on benches at different market places. When any of them used to fail to meet his obligations, his "banco" or bench would be broken by the angry creditors. The word "Bankrupt" seems to be originated from broken banco. Since, the banking system has been originated from money lending business; it is rightly argued that the word "Bank" has been originated from the word "banco". Today the word "Bank" is used as a comprehensive term for a number of institutions carrying on certain kinds of financial business. In practice, the word "Bank" means an organization which borrows money from one class of people and again lends money to another class of people for earning interest or profit. 2.1.2 Historical Background of Bank: It is very difficult to state the complete historical background of banks or banking .it is not possible to learn when and how the banking system came into existence. Of course, it is sure that the banking system did not come all of a sudden by means of any revolution.

Rather, it came into existence naturally and gradually. In its crude form, the banking business was confined in the hands of moneylenders in the pre-historic days. It may be said that banking in its most simple form had been as old as authentic history. As early as 2000 B.C. Babylonians had developed a system of banks. In ancient Greece and Rome the practice of granting credit was widely prevalent. In Rome some of the banks carried business on their own account and others were appointed by the government to collect the taxes. With the gradual development, different types of documents, hand notes, slips etc., used by the early money lenders in transacting their business have been developed into different documents and instruments of modern banking. During the early periods, although banking business was mostly done by private individuals, many countries established public banks either for the purpose of facilitating commerce or to serve their governments. The bank of Venice, established in 1157, is supposed to be the most ancient bank. in some other countries of Europe Deposit and Exchange Banks were established in 14th century.1st Bank of Sweden was established in 1556. The beginning of English banking may correctly be attributed to the London Gold Smiths. They used to receive their customer's funds and valuables for safe custody and issue receipts acknowledging the same. These receipts, in course of time, became payable to then bearers on demand and hence enjoyed wide circulation like bank notes. The Bank of England was established on 15th April, was a turning point in the history of English banking which led to the growth of modern banking. Ref: Professor Khurshid.H.Siddiqui (2003); Banking 2.1.3 Banking in South Asia: In the Sub-continent, it is rightly assumed that banking system came into existence from the activities of the indigenous money lenders like, Goldsmiths, Mahajans, Sahukars etc. even in Vedic period between 2000 and 1400 B.C., these banks were in action in this region. In Muslim period, particularly in the period of Mughals indigenous private

banking was common and popular. Banks were enjoying many facilities and concessions from Government. They ere also authorized to mint coins of gold and silver which were used in financial and business transactions throughout the sub continent. Like Jewish merchants in England these big merchants of sub-continent used to finance the Government and many sections of people. Even in British Regime, these indigenous banks financed the ruling East India Company. In the year 1700 The "Hindustan Bank", the first Joint Stock Bank in India was established in Calcutta. In 1785, the Central Bank of India and the Bank of Bengal (1809) were established. After these banks the Bank of Calcutta, The Bank of Bombay and the Bank of Madras were established in the years 1806, 1840 & 1843 respectively. In the year 1920-1921, these three banks were amalgamated with the name of The Imperial Bank of India. This bank acted as the Central Bank of India since its inception to 1935, the Reserve Bank of India was established as the Central Bank of the country. In the meantime many commercial banks were established in this region. 2.1.4 History of Banking in Pakistan: In Pakistan, banking sector was created with the setting up of the Habib Bank in 1947, which was shifted to Karachi from Bombay, & Muslim Commercial Bank in 1948 from Calcutta. After partition of the sub-continent Reserve Bank of India assumed the responsibility of performing central banking functions in Pakistan, Subsequently the functions were taken over by the State Bank of Pakistan which was organized in July, 1948.its one of the main feats was the rescue of the Bank of Bhawalpur which had gone on the brink of bankruptcy. The salvage by the State Bank wrote a glittering history of banking stability in Pakistan. In July 1948 all commercial banks were nationalized, and in August 1991 their privatization started. In the late 80's private sector banking was allowed.

2.1.5 Definition of Banking: According to Banking Companies Ordinance 1962 (Pakistan)"Accepting for the purpose of lending or investment of deposits of money from public, repayable on demand or otherwise and withdrawal by cheques, draft, order or otherwise. 2. 2 Historical background of National Bank of Pakistan Historical background of NBP is as follows: The National bank of Pakistan was established on 9 November 1949 under the National bank of Pakistan (NBP) Ordinance, 1949 in order to cope with the crises, 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 agriculture sector. The normal procedure of establishing a bank company under the Companies Law was set aside and the bank was established through the promulgation of an Ordinance due to situation that had developed with regard to financing of jute trade. The bank commenced its operations from 20th November 1949 at six important jute centers in the East Pakistan (now Bangladesh) and directed its resources in financing of jute crop. The banks, Karachi and Lahore offices were subsequently opened in December 1949. 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 its 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. Today the Bank finances import/export business has reached to the tune of Rs. 62.17 billion, whereas in 1960 financing under this head was only Rs. 1.54 billion. The management is being decentralized to improve customer services and enable faster decision-making. As a result of this de-layering, zones have been eliminated and the number of regions has been increased. Organizational hierarchy at the regional level has been restructured and operational and business activities have been completely separated.

This separation will improve communication, decision-making and promote teamwork. For the second consecutive year, the bank was recognized as the best bank in Pakistan for the year 2004 by the prestigious periodical, The Banker UK (a subsidiary of the Financial Times Group). 2.2. 1 Present Status of the Bank NBP continued its journey of success based on their strategy of serving clients better A Company agile enough to take advantage of its unique domestic and international footprint, capitalizing on the largest balance sheet and customer base in Pakistan with high cross sell potential. Their standalone AAA rating (the highest in the industry), Their ROE, which is amongst the highest in the Asian Banking industry, and their comfortable capital adequacy ratios, position the bank well in front of its competitors for future growth. Year 2007 has been yet an outstanding year with the bank recording the highest profit in its history. NBP's wide range of product offering, large branch network and committed workforce are some of their fundamental strengths that enabled them to achieve exceptional results in a very competitive market. The pre-tax profit increased to Rs. 28.06 billion, an increase of 6.6% over last year. Earning per share jumped by over 11.6% from Rs. 20.88 in 2006 to Rs. 23.34 in 2007. Pre- tax return on equity stood at 45.9%, whereas pre-tax return on assets stands at 4.1% and cost to income ratio of 0.30 remained one of the highest in the sector. These results were possible despite the fact that NBP had to make additional provision of over Rs.3 billion as a result of withdrawal of Forced Sales Value (FSV).This year NBP also availed the offer by Government of Pakistan to redeem up to 10% of its holding in NIT units held by the bank under Letter of Comfort (LoC) arrangement, this sell off resulted in a Capital gain of Rs. 1.8 billion (1) Increase in pre-tax profit was achieved through strong growth in core banking income. Net Interest income increased by Rs. 3.5 billion (11.5%) due to better yields and volume driven growth spurred by increase in consumer loan portfolio. Dividend income and Capital Gains also made a healthy contribution as it increased by Rs. 371 million and Rs. 1,145 million over 2006 respectively mainly owing to higher dividends from NIT Units as well as Capital gains recorded on sell of 10% NIT Units. Advances increased by Rs. 25 billion due to impressive contribution by all business units. Deposits increased by a

healthy Rs. 90 billion or 18% over last year. The bank's NPL provision coverage ratio also stands as impressive 80%. 2.2.2 Existing NBP Branches in Pakistan SINDH Dadu, Sanghar, Hyderabad, Jacobabad, Shikarpur, Karachi, Larkana, Mirpurkhas, Badin, Nawabshah, Sukkur, Khairpur, Tharparkar Punjab Bahawalpur, D.G. Khan, RYKhan, Faisalabad, Gujranwala, Sialkot, Narowal, Jhang, Jhelum, Gujrat, Chakwal, Darya Khan , Bhakkar, Lahore, Multan, Murree, Attock, Gilgit, Rawalpindi, Sahiwal, Sargodha, Sheikhupura. KPK Abbottabad, Mansehra, Bannu, D.I. Khan, Kohat, Mingora, Mardan, Peshawar and Haripur, Balochistan Quetta Azad Kashmir Muzaffarabad, Mirpur International NBP working at 24 different locations in the world 2.2.3 Credit Rating NBP is the highest of credit ratings of AAA in the industry assigned by JCR-VIS Credit Rating Company Limited on a standalone basis which are used in the national bank of Pakistan are given as following. Credit rating for entity value Credit rating for stands alone

2.2.4 Auditors Auditors are the persons who check the accountings standards in an organizations financial statements and check either these are true or there is fraud in the financial statements. The auditors of the national bank of Pakistan are, ford Rhodes Sidat Hyder & co and M. yaqoob Adel Saleem & CO these both companies are chartered accounts. 2.3 Organizational structure Organizational Structure is the framework that defines the boundaries of the formal organization and within which the organization operates. The Organizational Structure of NBP is also aimed at achieving specific corporate objectives. The board of directors controls all the activities and the function of NBP.


Figure 2.1 NBP Organization Chart President Senior Executive Vice

Executive Vice President (EVP) Senior Vice President (SVP) Additional / Assistant Vice President Additional / Assistant Vice President (AVP) Grade-I

Grade- II

Grade- III

Clerk, Cashier etc

Non-Clerical staff


2.4 The Vision statement of NBP To be recognized as a leader and a brand synonymous with, highest standards of service quality, international best practices and social responsibility. 2.5 The Mission statement of NBP 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. 2.6 Objective of NBP National bank of Pakistan is also a commercial organization and its main objective is profit maximization. This is achieved in two ways 1. By increasing deposits. 2. By charging heavy interest on loans provided to the private sector and business community. 2.6.1 Maximum profit The name of the Bank indicates that it is established to finance the nation. As a business organization its main objective is to earn more and more profit by least expenditure. 2.6.2 Maximize deposits Banks income is difference between the interests it receives on loans and the interest it pays on the deposits. Greater the deposits, greater the ability of the bank to grant loans and greater will be the revenue.


2.6.3 Economic Growth An important objective of National bank of Pakistan is to promote industrial and economic growth in Pakistan by providing financial assistance for the establishment of the new projects. 2.6.4 Customer service The ultimate objective of the National bank of Pakistan is to serve its customers. It collects money from individuals, firms and limited companies and gives loans to people. 2.6.5 Expenditure discipline Banks always try to minimize its expenditure. So it keeps strict control over wastage of money at every stage. The branch expenditure must not increase more than 15%of last years budget for correspondence. 2.6.6 Facilities to staff & utilization of staff The Bank gives best possible facilities to the working staff and at the same time the bank utilizes the staff most efficiently. 2.7 Goals To enhance profitability and maximization of NBP share through increasing leverage of existing customer base and diversified range of products. 2.8 Core values of NBP Highest standards of Integrity. Institutionalizing team work and performance culture Excellence in service Advancement of skills for tomorrows challenges Awareness of social and community responsibility Value creation for all stakeholders


2.9 Corporate profile The NBP's principal activities are to provide commercial banking and related services in Pakistan and overseas. The Bank, together with its subsidiaries, is engaged in commercial banking, mudarabah management, brokerage, leasing and discounting services. The bank handles treasury transactions for the government of Pakistan as the sister organization to the State Bank of Pakistan. The Bank was also operating eight Islamic banking branches as at June 30, 2009. 2.10 Executive Committee It is also called the management committee. The general direction and supervision of the affairs of the bank lies in their respective executive boards. The federal government appoints the president, secretary and 6 other members of the board. The president being the chief executive controls the affairs of the bank. 2.10.1. Board of Directors: In the management of the bank the board of directors is at the top of the controlling bodies. The board consists of a nominated president, a secretary and 6 other members. BOARD OF DIRECTORS Table # 2.1 NAME Syed Ali Raza Qamar Hussain Mr. Tariq Kirmani Ms. Nazrat Bashir Asif A. Brohi Mrs. Haniya Shahid Naseem Syed Muhammad Ali Zamin 2.10.2 Regional Manager In order to improve the performance of the banking system, the bank has appointed regional managers also. The regional chief has the powers of sanctioning finance and other credit facilities. DISIGNATION Chairman BoG, NBP President , NBP Director Director Director Director SEVP & Secretary to BD


2.10.3 Number of Directors In Pursuant to the section 11 of the bank (Nationalization) act 1974 number of directors of bank shall not be less than 5 and will not be more than 7, excluding the president. The Federal Government may, if it deems necessary, appoint the chairman of the board in respect of the bank... Voting Right upon the show of hand every member present in person or by proxy shall have one vote for every 10 shares held by him subjects to the maximum of the 10 votes. The Federal Government being a shareholder may also appoint a person to vote on his behalf. Senior Management of NBP Table # 2.2 Dr. Asif A. Brohi Shahid Anwar Khan SEVP & Group Chief, Commercial & Retail Banking Group SEVP & Group Chief, Credit Management Group SEVP & Group Chief Assets Recovery Group and Divisional Head, Islamic Banking Division SEVP & Group Chief, Human Dr. Mirza Abrar Baig Resources Management & Administration Group SEVP & Group Chief, Operations Group SEVP & Group Chief Assets Recovery Group & PSO to President SEVP & Group Chief, Compliance Group SEVP Group Chief, Overseas Banking Group SEVP & Group Chief, Small and Medium Assets Recovery Group EVP/Divisional Head Agriculture Business Division, C&RB Group

Ziaullah Khan

Nausherwan Adil Nadeem Anwer Ilyass Tariq Jamali Syed Iqbal Ashraf Asif Hassan Sheharyar Qaisrani


Muhammad Hassan Khaskheli

EVP & Divisional Head, Personnel & Industrial Relations Division, HRM&A Group EVP & Group Chief, Risk Management Group EVP & Divisional Head, Training & Organizational Development Division, HRM&A Group EVP & Financial Controller, Financial Control Division EVP & Head, Legal Division SEVP & Secretary Board of Directors

Tahira Raza Moizuddin Khan

Aamir Sattar Raza Mohsin Qizilbash Syed Muhammad Ali Zamin


NBP Overseas Branches Table 2.3 Countries Branches USA 02 Branches France 01 Branch Egypt 01 Branch Germany 01 Branch Bahrain 01 Branch Turkmenistan 01 Branch Source: Internship Report on NBP Countries Afghanistan Bangladesh Korea Kyrgyzstan Japan Hong Kong Branches 02 Branches 02 Branches 01 Branch 01 Branch 02 Branches 02 Branches

2.11 Introduction to NBP Mandian Branch National Bank of Pakistan Mandian branch is situated in Mandian Abbottabad that covers different remote villages as well as the posh colonies of Abbottabad. Its also facilitating the government departments which include colleges and universities. 2.11.1 Location National Bank Mandian Branch is situated in Mandian mansehra road, Abbottabad.


Figure 2.2 NBP Mandian branch Organization Chart


Credit & Administration Department

Operations Manager

Account Opening

Cash Department

Remittances Department

Government Section

Clearing & Collection Department


2.11.2 Assets and Liabilities Management Committee (ALCO) Asset and Liabilities Committee (ALCO) manage the banks liquidity position through Treasury management Group. The ALCO/Management Group monitors the maintenance of Balance Sheet Liquidity Ratios, depositors concentration both in terms of overall funding mix and avoidance of undue reliance on large individual deposits and liquidity contingencies plan. 2.11.3 Credit Committee The Credit Committee determines the Credit Policy of the Bank. The Credit Committee identifies possible risks assumed by the Bank for different types of transactions, which are not within the competence of the Assets and Liabilities Directorate. It is also responsible for making final decisions on raising and use of funds within its authority as determined by the Executive Board of the Bank. The Credit Committee has the authority to make a final decision on approval or rejection of proposed transactions as well as to establish personal limits and client limits in accordance with its powers. Only the Executive Board of the Bank may overrule resolutions of the Credit Committee.



3.1 Functions of NBP NBP act as an intermediary between those who have surplus money and those, who need it. To receive deposits and extend loans are two main functions of NBP. The functions of this Bank can be summed up in one sentence. NBP borrows to lend further. It borrows in form of deposit and lends it in form of loans or advances. Besides these, many other functions are also performed by NBP. The detail of these functions is as follows: 3.1.1 Receiving deposits NBP attract the idle savings and surplus money of the people in form of deposits through various deposits schemes. This function is important, because banks mainly depend on the funds deposited by the public; deposits are usually of three kinds: Current / demand deposits These deposits are repayable on demand without any notice. As the banks utilize longterm deposits but demand deposits are short-term, therefore, no interest is paid on such deposits. The commission is charge for the services rendered by the bank. Fixed / time deposits These deposits are left with the bank for a certain fixed period before the expiry of which no one can withdraw except prior notice. On such deposits the bank pays higher interest. Saving deposits The main objective of the saving deposits is to encourage the people for saving. This account can be opened with initial amount of Rs 100/-. 3.1.2 Advances on open account or overdraft Customers are given the right to over draw their accounts. In other wards, they can withdraw more than the actual deposits, with a nominal charge of interest payable within a short period. The amount of permissible overdraft varies with the financial position of the borrower. 20

3.1.3 Discounting on open account or overdraft Discounting of bills is another way of lending money. If any bill of exchange is presented before a bank, the bank makes cash payment after deducting its commission according to the date of maturity of that bill of exchange. 3.1.4 Cash credit system or ordinary loans The bank not only advances loans in the form of discounting bills of exchange or overdraft but also establish credit line. In this case, if person wants financial assistance from bank, is required to submit a request in writing. After making thread base scrutiny about the reputation and financial position of the applicant, the request is honored. The applicant simply open an account and the loan will be transferred into it instead of cash payments He will also allotted a cheques book for bank transition, which is an official authorization to draw the money as and when required. 3.1.5 Remitting funds NBP remit funds for its customers through bank to any place where it has branches or agencies. This is quite safe and cheapest way of sending money from one place to another. Funds can also be remitted to foreign countries. 3.1.6 Safe custody NBP also provide locker services for keeping ornaments and other valuable things and documents safely. Bank charges a small amount per year for providing this service. 3.1.7 Agency functions Among all other vital functions, NBP also act as an agent of its customers, receive payments on their behalf, collect rents, dividends on shares etc. bank pays insurance premium and makes all other payments as instructed by its accounts holders. 3.1.8 Reference NBP like other commercial banks give references about the dealings and financial position of its customer when required. NBP supply this information confidently. This is done when customers want to establish business connections with some new firms,


banks, development finance institutions etc within or outside the country. Bank also gives guarantees letter to its customers. 3.2 Departments of NBP Mandian Branch NBP Mandian Branch Abbottabad has the following departments Deposits department Government Section Cash department Remittances department Clearing and collection department Foreign Exchange Western Union Money Transfer System. NBP Advance Salary

3.2.1 Deposit Department In this department NBP accepts money deposits from customers, which provide basic core of all resources available to a bank. NBP accepts surplus money deposits from individuals, firms and corporations. In order to attract these funds it has introduced a number of savings accounts and investment schemes. These schemes may suit to the needs and taste of large number of depositors. 3.2.2 Functions of Deposit Department Provide guidance to the persons wishing to open an account by assistance of account opening form and specimen signature (SS) card. Major functions of deposit department in NBP include: To maintain existing accounts. To dispatch letters to customers if needed e.g. letter of thanks to introducer and new account holder. Posting of vouchers and cheques in computer and maintain records in form of printouts. Cancellation of cheques.


Issuance of cheques book. Sorting is also done of accounts to check dormant and inoperative accounts and also for recovery of incidental charges. It also deals in deduction and refund cases of Zakat. Maintenance and handling of various deposit schemes e.g. PLS, saving and current accounts. Making stop payments of cheques and noting cautions regarding death, insolvency, and insanity of account holder. Transfer and closing of accounts. Keeping the records of death/credit balance confirmations and statement of account. Provide confidential inquiries to other banks, government departments and other agencies.

3.2.3 Classification of Deposits Deposits are the lifeblood of a bank. They constitute the main source of banks funds. Generally bank deposits are classified as follows: PLS saving account PLS means Profit and Loss sharing Account. Here the bank shares with the customer the profit or loss resulting from investment of customers funds along with the banks pool of funds. These accounts can be opened with Rs100/-. For profit the minimum balance is Rs.5, 000.profit is calculated @ 4.10% p.a. Zakat @2.5% is deducted from the balance outstanding on the first day of every valuation date i.e. 1st Ramadan. Generally withdrawals from PLS saving accounts are allowed on demand, i.e. without any prior notice of withdrawal. PLS term deposit The PLS Term Deposit is non-interest bearing techniques. The bank also calls it time liability because it is kept for a certain period of time. Initially this type of deposit was called as fixed deposits but after the islamization of banking system in 1985, its name has


been changed from fixed to PLS Terms Deposit. The bank with the sum of Rs.1000/accepts the minimum deposits the maximum deposit have got no limit. The PLS term depositors would be eligible for sharing profit/loses with the bank at true rate determined by the bank. The deposits are accepted for the period from three months maximum to above. Current accounts A current account is that account which is payable on demand. A holder can withdraw the money on any date during working hours without giving any prior notice to the bank. That is why the bank has to keep sufficient funds to meet uncertain funds of the current account holder. The account holder is expected to maintain a minimum balance of Rs.500/- in his account or whatever the minimum amount is prescribed for the purpose. No profit or return is paid on current accounts. Fixed deposit account Fixed deposit accounts are also called time liabilities of a bank, because money is payable on expiry of a fixed period of time only. The minimum period for fixed deposit is six months and withdrawal is not permissible before the maturity of fixed period. The account holder earns greater amount of profit by depositing in fixed deposit account for longer period. The fixed deposit account is opened with minimum of Rs.5000/- Bank gives a receipt for withdrawal of the money at the date of maturity. The fixed period can be extended. Call deposit account It means the deposit from which the money deposited can be withdrawn at any time by presenting receipt of call deposit issued from the bank. The purpose of these deposits is to serve as a guarantee provided by bank to any department either public or private in taking or giving tenders. This type of account is for the purpose of to participate in tender bid; contractors are required to deposit a certain amount or percentage of the tender amount along with the tender documents for which Call Deposit Receipt are issued by Banks. Call deposit are return free.


Minor account According to Pakistan, a person is regarded as a minor until he has attained the age of eighteen years. There are two different ways in which the minor can open account in NBP. The account is opened in the name of minor along with the name of guardian. The total of account is given as the name of Accountholder along with guardian who operates the account. Accounts are opened directly under the name of minor and they are allowed to operate their accounts with their own signature. In this type of account he/she must be about ten years of age. No overdraft is allowed and no advances are extended. 3.3 Products Product detail is given below: 3.3.1 NBP Premium Aamdani (Monthly Income Scheme) Earn up to 11% p.a. Amount of investment required from Rs.20,000/- to Rs.5,000,000 Investment period is 5 years Free Demand Draft, Pay Order and NBP Online Aasan Banking Free Cheques Book / NBP Cash Card (ATM + Debit) Financing facility available up to 90% of the deposit value Premature encashment will attract penalties Zakat and withholding tax will be deducted as per rules

3.3.2 NBP Premium Saver (PLS Saving Account) Minimum saving balance of Rs. 20,001 and a maximum balance of Rs. 300,000 Free NBP Cash Card (ATM + Debit) Two debit withdrawals allowed in a month and no limit on number of deposit transactions.


Profit is calculated monthly and paid on half yearly basis. Earn up to 7.25 p.a. +

3.3.3 NBP Karobar (Mera Apna Karobar under President's Rozgar Scheme) People who are between 18 and 45 could be eligible for easy financing for selfemployment in the categories below. NBP Karobar Utility Store NBP Karobar Mobile Utility store NBP Karobar Mobile General Store NBP Karobar Transport NBP Karobar PCO NBP Karobar Tele-Centre

In this facility NBP give loan of Rs.200, 000 only for one to five years and only 2 years for PCO Minimum down payment, 10 % of asset price. Mark-up (variable) 1 year KIBOR + 2.00%p.a. 3.3.4 NBP Saiban (House Finance) Home Purchase Home Construction Home Renovation Purchase of Land + Construction Balance Transfer Facility (BTF)

For home purchase, and home construction criteria is that the finance amount is 35million, financing period is 3 to 20 years while debt to equity ratio must be 85:15 maximum. While for home renovation finance amount is to 15 million, financing period 3 to 15 years and debt to equity ratio 80:20 maximum. For purchase of land + construction finance amount is up to 35 million, financing period is 3 to 20 years and debt to equity ratio is 80:20 maximum 3.3.5 Advance Salary (Personal Loan) Easy installments of 1 to 60 months at customer's choice. No minimum income collateral & insurance charges required 26

Quick processing and fastest disbursement The product is for permanent employees of Government, Semi Government and Autonomous bodies receiving salaries through NBP accounts

3.3.6 NBP Cash Card (ATM + Debit Card) NBP Cash Card is a 24-hour direct access ATM/Debit card to your bank account, which lets you pay directly from your account as an alternative payment method to cash. The transaction is authorized and processed by entering PIN. The NBP Cash Card holders are able to transact at any of the 4000 + Merchants where Orix logo is displayed and can withdraw cash from NBP, 1-Link & M-NET ATMs across the country. 3.3.7 Investor Advantage (Margin Finance Facility) The detail about investor advantage is as follows: (1) Financing Facility for Stock Investors Comfortable environment for trading No security requirement, except for the customers equity Customers equity freely available for investment Equity acceptable in cash or approved shares

Financing Facility for Retail Investors Features of the financing facility for retail investors are as follows. Comfortable and secure environment for trading. NBP financing at very easy terms requiring minimum documentation. Minimum turn around time. No security requirement from the customer except for the customer's equity. Customer's equity freely available for investment. Equity acceptable in cash or approved share.

3.3.8 NBP Cash and Gold (Ready cash against Gold) In this is a roll over ability of lending is offered by NBP against gold. NBP give Rs.


10, 000/= facility against 10 gm of net weight of gold ornaments on 11% mark up per annum. The maximum period is one year & there is no limit of credit 3.3.9 NBP Kissan Dost (Agriculture Farming Program) In this facility, Loans are available to the farmers for production, development purposes, for purchase of tractors, for installation of tube wells, for purchase agricultural implement, macro loans, for go down construction, for construction of fish pond, for livestock farming, for milk processing, for cold storage & for bio-gas plants etc. This loan is offered by NBP at the farmers doorstep on competitive mark up rate. NBP Kissan Dost is available against agricultural passbook, gold ornament & 0paper security. They also provide technical guidance to farmers and also provide financing facility up to Rs. 500,000/- for landless farmers against personal guarantee 3.3.10 NBP Pak Remit Pak Remit is an Internet based Home Remittance Service. This service is available to U.S. residents for sending money to their family and friends in Pakistan. One must have a valid US Dollar account with a U.S. bank or a US Dollar credit or debit card in order to remit funds through this channel Remitters in USA can log on to our user friendly website, and easily remit funds to Pakistan from the comfort of their homes, in a matter of minutes. The service is fully secure with advance encryption application and is available for use 24 hours a day, 7 days a week. Fees and exchange rate have been set at competitive levels and the remitters have the ability to track delivery of funds as well (1) USPs Unique Selling Propositions is convenient and fast, reliable and secure and available at twenty four hours. NBP Protection Shield (Personal Accident Insurance) No documentation No medical required Premium Auto Debit facility & choice of deactivation Coverage includes death due to: 28

Natural Calamities e.g. Earthquake, Flood, Cyclone etc. Accident Riots Civil Commotion Strikes Acts of Terrorism

Eligibility NBP PLS account holders 18 years and above

3.3.11 Termination of Coverage The date the policy executed by NBP with ALICO is terminated. The date the Insured Person is no longer eligible within the Classification of Insured Person(s). If the required premium is not paid/deducted for the particular month. The date the benefits are paid to the extent of the Principal Sum in respect of any Insured Person. The date the Insured Person cancels coverage under this policy.

3.4 Services The services provided by NBP are: 3.4.1 International Banking National Bank of Pakistan is at the forefront of international banking in Pakistan, which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. The role of the Financial Institution Wing is: To effectively manage NBP's exposure to foreign and domestic correspondence Manage the monetary aspect of NBP's relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank's profitability and generate trade finance business and revenues.


3.4.2 Demand Drafts The safe, speedy and reliable way to transfer money is provided by NBP by purchasing Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. 3.4.3 Mail Transfers Money can be moved safely and quickly using NBP Mail Transfer service .NBP also offer the most competitive rates in the market. 3.4.4 Pay Order NBP provides another way to transfer money using their facilities. NBP's pay orders are a secure and easy way to move money from one place to another. And, as usual, charges for this service are extremely competitive. 3.4.5 Travellers Cheques To safe cash for traveling and travel related purposes. This product has been extremely popular and is preferred over cash by customers while traveling and in all walks of life. Characteristics of Pak rupees travelers cheques 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 Table 3.1 Characteristics of Pak rupees travelers cheques 3.4.6 Letter of Credit NBP is committed to offering its business customers the widest range of options in the area of money transfer. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do business transactions by the commercial enterprise. Commercial Finance


The dedicated team of professionals of NBP truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer's best resource in making NBP's products and services work for them. (1 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 New Features 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 AlJazira, 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. SWIFT (Society for Worldwide Inter bank Financial Telecommunication) The SWIFT system 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 are drawing remittances through SWIFT. Using the NBP network of branches, one can safely and speedily transfer money for business and personal needs.


3.4.10 Short Term Investments NBP offers excellent rates of profit on all its short-term investment accounts. People looking to invest for 3 months or 1 year, NBP's rates of profit are extremely attractive, along with the security and service only NBP can provide. 3.4.11 National income daily account (NIDA) The scheme 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. Mode of Calculation: Average balance during a calendar month. 3.4.12 Equity Investments NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: Investment into the capital market Introduction of capital market accounts

NBP's involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders 3.5 Trade finance and other business loans (other services) They are explained below: 3.5.1 Agricultural finance NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. Agricultural Finance Services I Feed the World program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Selected farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. Agricultural Credit The agricultural financing strategy of NBP is aimed at three main objectives:-


Providing reliable infrastructure for agricultural customers Help farmers utilize funds efficiently to further develop and achieve better production Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming.

Agricultural Credit (Medium Term) Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing Solar energy Equipment for sprinklers

Farm Credit NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis. Operating loans Land improvement loans Equipment loans for purchase of tractors, farm implements or any other equipment. Livestock loans for the purchase, care, and feeding of livestock

Production Loans Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. 3.5.2 Corporate Finance The offerings of NBP in category of Corporate Finance are:


Working Capital and Short Term Loans NBP specializes in providing Project Finance, Export Refinance to exporters, Preshipment and Post-shipment financing to exporters, Running finance, Cash Finance, Small Finance, Discounting & Bills Purchased, and Export Bills Purchased / Preshipment / Post Shipment Agricultural Production Loans Medium term loans and Capital Expenditure Financing NBP provides financing for its clients' capital expenditure and other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients' attempt to upgrade and expand their operation thereby making possible the fulfillment of their clients' vision. This type of long term financing proves the bank's belief in its client's capabilities, and its commitment to the country. Loan Structuring and Syndication National Bank's leadership in loan syndicating stems from ability to force strong relationships not only with borrowers but also with bank investors. Because NBP understand their syndicate partners' asset criteria, they help borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. NBP's syndication capabilities are complemented by their own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction. Cash management services: With National Banks Cash Management Services (in process of being set up), the customers sales collection will be channeled through vast network of NBP branches spread across the country. This will enable the customer to manage their companys total financial position. They will also be able to take advantage of NBP's outstanding range of payment, ejection, liquidity and investment services. 3.5.3 Islamic Banking NBP is proud to expand its range of products and services to include Shariah Compliant Islamic Banking products, now available at our dedicated Islamic Banking Branches at


Karachi, Lahore and Peshawar. Commercial and Corporate customers requiring financing will have the following financing facilities available to them by NBP to meet their requirements: Murabahah Murabahah may be defined as a contract between a Buyer and Seller under which the Seller discloses to the Buyer the cost of goods being sold and adds an agreed profit. Price is payable on spot or at a certain future date, in lump sum or in installments (deferred payments). Murabahah Facility Under the Murabahah facility, the Bank will first purchase the required goods directly or through an Agent. All costs incurred on such purchases will be borne by the Bank. Subsequently the Bank will sell the goods to the customer on deferred payment basis (30 days to one year) at an agreed price comprising cost of goods purchased and Banks profit. On due date the customer will pay to the Bank the agreed price, in lump sum or as per the agreed installment schedule. Ijarah (Leasing) Ijarah means to give something on rent. The term Ijarah is analogous to the English term leasing .Firstly the Bank will purchase the Assets as required by the Customer and subsequently the assets will be leased to the Customer on the terms and conditions as agreed with him. Ijarah Facility will be offered for the following assets: Vehicles (both Commercial and Private), Office Equipment, Plant and Machinery



4.2 Financial Analysis Financial analysis is the process of identifying the financial strengths and weakness of the organization by properly establishing relation ship between the items of balance sheet and profit and loss accounts, in order to make rational decision in keeping with the objectives of the organization, for that purpose the management use analytical tools. To evaluate the financial condition and performance of the business entity, the financial analyst needs to perform "checkups" on various aspects of the business financial health. A tools frequently used during these checkups is a financial ratio analysis, which relates two piece of financial data by dividing one quantity by the other we calculate ratios because in this way we get a comparison that may prove more useful than the raw number by themselves. The business itself and outside providers of capital (creditors and investors) all undertake financial statement analysis. The type of analysis varies according to the specific interest party involved... Financial analysis, though varying according to the particular interests of the analyst, always involves the use of various financial statements. NBP performance shows in the table below. Table 4.1 Years Total assets Deposits Advances Investment Share holder equity After tax profit Earning per share Return on assets No of Branches No of Employees 2009 in Rupees 817,758,326 624,939,016 412,986,865 170,822,491 8,969,751 15,458,590 14.36 3% 1,248 1,5015 2010 in rupees 944,232,762 727,464,825 475,243,431 217,642,822 10,763,702 18,211,845 16.92 5.2 % 1,250 16,072 2011 in rupees 1,035,024,680 832,151,888 477,506,564 301,323,804 13,454,628 17,863,214 13.42 6.7% 1,256 16,457


From the above table it is very much clear that the NBP performance is going higher and higher. Total assets are at the crest in 2011. If we draw a graph this will shows that the graph is upward trend. Profit is increasing from year to year. NBP decrease the number of its branches and employees because of automation and large networks of other banks 4.3 Parties interested in financial analysis Following are the parties that are interested in the financial analysis of a bank: 4.3.1 Trade creditors Trade creditors are interested in firm's ability to meet their claims over a very short period of time. Their analysis will, there fore confine to the evaluation of the Firms liquidity positions. 4.3.2 Suppliers of long-term debt Suppliers of long-term debt on the other hand are concerned with firm's long-term solvency and survival. They analysis the firms profitability over time, its ability to generate cash to be able to pay interest and repay interest and repay principal and the relationship between various source of funds. (Capital structure relationship). Long-term creditors do analyses the historical financial statements but they place more emphasis on the firm's projected financial statement to make analysis about its future solvency and profitability. 4.3.3 Investors Investors who have invested their money in the firms share are most concerned about the firm steady growth in earning. As such, they concentrate on the analysis of the firm's present and future profitability. They are also interested in the firms financial structure of the extent it influence the firms earning ability and risk. 4.3.4 Management An organization would be interested in every aspect of the financial analysis. It is their overall responsibility to see that the resources of the firm are used most effectively and efficiently and that the firm's financial condition is sound. So thus management employee financial analysis for the purpose of internal control and to better provide what capital 37

supplier seeks in financial condition and performance from the business and from an internal control standpoint, management needs to take financial analysis in order to plan and control effectively. There are three broad categories of the statement analysis. Vertical analysis Horizontal analysis Ratio analysis

4.4 Vertical Analysis of Balance Sheet In balance sheet we compare each amount by taking Total Assets as 100%. Asset Vertical Analysis of Balance Sheet Table 4.2 ASSETS and LIABILITIES Cash and balances with treasury banks Balances with other banks Lending to financial institutions- net Investments- net Advances- net Operating fixed assets Deferred tax assets Other Assets Total Assets Bills payable Borrowing 2009 13.02 % 4.68% 2.09% 20.88 % 50.5% 2.96% 0.39% 5.44% 100% 1.24% 4.95% 2010 12.26% 3.08% 2.07% 23.04% 50.31% 2.66% 0.32% 6.31% 100% 1.12% 4.79% 2011 11.15 % 2.93% 2.51% 29.11 % 46.13 % 2.59% 0.67% 5.16% 100% 0.77% 1.94%


Deposits and others accounts Liabilities against assets subject to finance lease Deferred tax liabilities- net Other liabilities Total Liabilities Net Assets Share Capital Reserves Inappropriate profit Surplus on revaluation of assets- net Share holder Equity

76.42 % 0.003 % -----4.84% 87.45 % 12.55 % 1.09% 2.24% 6.41% 2.57% 12.31 %

77.01% 0.004% ----4.47% 87.39% 12.61% 1.13% 2.40% 6.24% 2.62% 12.39%

80.39 % 0.010 % -----4.45% 87.56 % 12.44 % 1.29% 2.36% 6.36% 2.38% 12.39 %

Total share holder




Vertical Analysis of Income statements Table 4.3 PROFIT AND LOSS ACCOUNT Markup Revenue Markup Expense Gross Profit Provision for Advances Provision for Investments Bad debts written off Net Markup Income NON-MARKUP INCOME 2009 100% 39.19 60.80% 17.38% 0.61% -----42.08% 2010 100% 51.94% 48.05% 14.16% 0.77% -----33.07% 2011 100% 51.14% 48.85% 7.92% 3.33% -----37.58%


Fee and Commission Dividend Income Exchange income Other income Total non-markup income Total Income NON-MARKUP EXPENSE Admin Expenses Other provisions/write offs Other charges Total non-markup expense Profit Before Tax Provision for Taxes Profit After Tax 1. Markup Revenue:

13.00% 4.72% 6.57% 2.04% 26.93% 53.26% 29.81% 1.22% 0.95% 32.00% 37.47% 12.37% 25.36%

11.45% 2.46% 3.88% 0.70% 24.40% 57.49% 28.95% 0.79% 0.41% 30.16% 27.32% 4.79% 22.53%

10.88% 1.24% 2.49% 2.45% 19.93% 57.51% 29.61% 0.61% 0.13% 29.91% 27.59% 7.74% 19.85%

The markup revenue of NBP show increasing trend in the table. This mean that the revenue of the company was increases from the previous years. This show the NBP earns more and more every year that is good sign of the company progress. 2. Markup Expense: The markup expense was increased by huge amount in 2010. In all 3 year this show increasing trend, this mean NBP has to pay more interest to peoples and companies. This show the banks have gains the trust of people and they make their deposit with NBP. 3. Gross Profit: The gross profit show increasing trend but it is not it was so much increased due to downfall in world economy and the payment of huge amount of interest to people as some revenue generating investment was become less profitable in 2010 but NBP soon increase their profit. 4. Provision:


National bank of Pakistan creates different types of provision for different heads of accounts. The provision for advances increases in 2009 as NBP expands its operation and more and more people takes advances. In 2010 this was increase little bit. But in 2011 there was huge decrease in this provision due to economic slump in the world market in previous year most of the business reduces their investments. Provision for investment shows huge increase in all three year because the NBP have more fund and its makes more investment. As it is govt. bank so more provision was create for investment. Bank also creates provision against of balance sheet from 2009 as the value of some items is increases and decrease from time to time. So provision is created to make proper adjustment of balance sheet item this provision is created. This was increase in 2010 but reduces in 2011. 5. Net Markup Income: Net Markup income decrease in 2009 due to more expenses and creation of provision so net markup income is 90% of the base year. But then it start increasing as the provision was created was enough so no need was arise to create more provision. As economic slump was also start in 2009 so thats why this was reduced in 2009 and 2010. But NBP show great improvement 2011 in net markup income as the market was somehow stabilized. 6. Total Non-markup Income: This includes income from Fee and commission, Dividend income, exchange income; gain on the sale of redemption of securities, profit from associates and other income. In total non-markup income some item shows increasing and some show decrease in the above mentioned items. But overall this show increase in this income in 2009 and 2010. The company gets more fee and commission or profit from their investments. In 2011 it reduces little bit from the 2010 because due to economic slump reduces the profit in previous so less amount was invested for 2011. 7. Total Income Total income is the sum of Net markup income and Total non markup income.


Total Income = Net Markup Income + Total Non-markup Income. Total net income was reducing little bit in 2009 from the base year due to some creation of new provision and increase in mark up expenses. In 2010 & 2011 total net income was increase by huge amount because non mark up income was increase in these two years. 8. Total Non-Mark Up Expenses: Total non markup expenses include admin expense, other provision, and other charges. Total non markup expenses increases in all three years by huge amount. NBP made huge expenses on setup of new offices and adding new facilities like ATM and online services. The banks also increase the office staff and spend huge amount on training the employees. 9. Profit Before Tax: Profit before tax was reduced in 2009 & 2010 due to huge expenses on admin and increased in 2011 due to return of expenses incurred earlier years. 10. Provision of Taxes: Tax rate almost remain same in all years so it depend upon on profit of bank, how much tax is. Tax was reduce in 2009 and 2010 as profit was reduce in both years in 2011 as the revenue of the bank increase so tax also increased. 11. Profit After Tax: Profit after tax decrease in 2009 as compare to base year because revenue of the bank decreases and in 2010 the bank revenue increases, so the profit also increases as compare to 2009.In 2011 a slight decrease in the profit as compare to 2010.

Fig 4.1 Equity and Liabilities

V ri a Aay i o Bl n e etc l n l ss f aa c Set he
Tta L b s o l ia ilitie

Vertical Analysis of Income statement

Net Markup Income Total Income

1% 0 2 % 5 % 2 % 1 % 1% 0 7% 0

Nt A s ts e se

S aeCp l h r a ita



Rs r e e ev s

Profit Before Tax Profit After Tax

I a po r te n p r pia poit rf S r lu o up s n r v lu tio o ea a n f a s ts n t se - e S aeh ld r hr o e Eu q ity



Total nonmarkup expense


Horizontal Analysis of Balance Sheet Table 4.4 Assets Cash and balances with treasury banks Balances with other banks Lending to financial institutions Investments Other assets Advances Operating fixed assets Total Assets Liabilities Bills payable Borrowings from financial institutions Deposits and other accounts Liabilities against assets subject to finance lease Other liabilities Total liabilities Net assets Share capital Reserves Unappropriated profit Surplus on revaluation of assets Share Holders Equity 2009 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 2010 108.75% 74.07% 114.35% 127.40% 133.93% 115.07% 103.83% 115.50% 103.39% 111.91% 116.40% 168.66% 106.98% 115.43% 116.05% 120% 113.74% 115.70% 117.40% 116.05% 2011 108.34% 79.25% 134.42% 176.39% 120.04% 115.62% 111.02% 126.56% 78.34% 49.88% 133.15% 422.18% 116.39% 125.41% 125.41% 150% 122.61% 125.52% 117.26% 125.41%

Horizontal Analysis of Income Statement Table 4.5 2009 Markup/return/interest earned 100% 2010 127.90% 2011 113.50%


Markup/return/interest expensed Net mark-up/interest income Provisions Net mark-up/interest income after Provision Total mark-up/ interest income Total non mark-up/interest expenses Profit after tax 1. Markup Revenue:

100% 100% 100% 100% 100% 100% 100%

165.33% 103.77% 104.24% 102.68% 115.89% 120.57% 96.95%

111.75% 115.38% 63.48% 128.94% 92.67% 112.56% 100.02%

The markup revenue in the vertical analysis is considered as base so it is 100% in all the years. I had made analysis of rest of the profit and loss items on the basis of Markup revenue. 2. Markup Expense: The markup expense is 33% in 2009 of total revenue; it increased in the year 2010 and 2011. As they got more deposit in 2010-11. This show the banks have gains the trust of people and they make their deposit with NBP. 3. Gross Profit: The gross profit show increasing trend but it is not it was so much increased due to downfall in world economy and the payment of huge amount of interest to people as some revenue generating investment was become less profitable in 2010 but NBP soon increase their profit. 4. Provision: National bank of Pakistan creates different types of provision for different heads of accounts. The provision for advances was 9% then increases in 2009 as NBP expands its operation and more and more people takes advances. In 2010 this was decrease little bit of total revenue as compared with previous year. But in 2011 there was huge decrease in this provision due to economic slump in the world market in previous year most of the business reduces their investments. Provision for investment shows huge increase in all year because the NBP have more fund and its makes more investment. As it is govt. bank so more provision was create for investment. These items are insignificant portion of total revenue. Bank also creates provision against of balance sheet from 2008 as the value of some items is increases and decrease from time to time. So provision is created to 44

make proper adjustment of balance sheet item this provision is created. This was increase in 2009 but reduces in 2011. 5. Net Markup Income: Net Markup income was 57% in 2007 then decrease in 2009 and 2010 due to more expenses and creation of provision. In 2011 net markup income rise slightly from 2010 income. 6. Total Non-markup Income: This includes income from Fee and commission, Dividend income, exchange income; gain on the sale of redemption of securities, profit from associates and other income. In total non-markup income some item shows increasing and some show decrease in the above mentioned items. This was 26% of total revenue in 2008. In 2009 its starts remained constant and increase slightly in 2010 but decrease in 2011 to 20% of total revenue. 7. Total Income Total income is the sum of Net markup income and Total non markup income. Total Income = Net Markup Income + Total Non-markup Income. Total net income was 83% of the revenue of 2008. in 2009 it reduces to69% due to some creation of new provision and increase in mark up expenses. In 2010 & 2011 total net income was decrease in percentage of revenue as that of the earlier year. 8. Total Non-Mark Up Expenses: Total non markup expenses include admin expense, other provision, and other charges. Total non markup expenses are 28% of TR in 2008 then its increases to 32% in 2009. in 2010 it again decrease to 27% and 34% in 2011. as the banks shuffles the expenses so it show mix trend in admin expenses. 9. Profit Before Tax: Profit before tax was 56% of total revenue in 2008. it reduces in 2009 & 2010 due to huge expenses on admin and other matters. 10. Provision of Taxes: Tax rate almost remain same in all years so it depends upon on profit of bank, how much tax is. Tax was 18% of the total revenue in 2008, and then reduces in 2009 due


to decrease in revenue of 2009 and in 2010 as profit starts increases so the tax was also increased. In 2011 as the revenue of the bank decrease so tax also decreased. 11. Profit After Tax: Profit after tax reduces in all year in vertical analysis. In 2008 it is 37% then in 2009 it reduces to 25% and it is just 20% of total revenue of year 2011 4.6 Ratio Analysis Ratio analysis is the most commonly used analysis to judge the financial strength of a company. It is a quantitative relation between two magnitudes of the same kind. In ratio analysis, the financial ratios of the firm are compared to that of its competitors. This comparison allows the firm to detect major operating differences. A lot of entities like research houses; investment bankers, financial institutions and investor make use of this analysis to judge the financial strength of any company. With the help of these we can also judge the management and its capabilities, the decisions and more things that are important for the firms growth. This analysis makes use of certain ratios to achieve the above-mentioned purpose. If we go through the books and the whole financial management, we find a lot of ratios that cover each and every aspects of the company, the main categories are. Profitability ratios Efficiency ratios

4.6.1 Profitability Ratios The profitability ratios are the basic bank financial ratios. Profitability ratios are the financial statement ratios, which focus on how well a business is performing in terms of profit. These Ratios show how successful a company is in terms of generating returns or profits on the Investment that it has made in the business. If a business is liquid and efficient it should also be Profitable. Net Interest Margin Net interest margin (NIM) is a measure of the difference between the interest income generated by banks or other financial institutions and the amount of interest paid out to their lenders, relative to the amount of their assets. It is similar to the gross margin of non-financial companies 46

Table 4.6 Ratio Analysis Years 2011 2010 Interpretation This ratio examines how successful a firm's investment decisions are compared to its debt situations. The interest margin ratio in 2010 is increases, which is not favourable for the bank, because investment decision is not well planned Figure No. 4.2: Ration Interest expenses / Interest income 45,250,476/43,221,658 40,489,649/37,458,048 1.040 1.080

Earning Asset to Total Assets An asset that produces money for a company without any work have always very important for the firm. Earning assets include such things as loan, Lease, stocks, bonds, certificates of deposit, and generally anything that earns interest or dividends. Earning assets include loan, Lease, investment securities and money market assets. This ratio show that the contribution of these assets to total assets. Table 4.7 Ratio analysis Years 2010 2011 Interpretation Earning Assets/Total Assets 750,893,001/944,232,762 861,137,372/103,50,246,80 0.797 0.832


The ratio of earning to total assets in 2010 is 0.797 and in 2011 is 0.832. As return on total is decrease in 2010, which is unfavorable for bank because in 2009 assets earn low return. Figure No. 4.3: Ratio analysis Earning Assets

Return on Earning Assets An indicator of how profitable a company is relative to its earning assets. ROEA gives an idea as to how efficient management is at using its assets to generate earnings. Table 4.8 Earning Assets Years 2011 2010 Net Income/Average Earning Assets 50,884,609/806,015,186.5 44,814,070/854,589,587 0.063 0.0524

Interpretation Return on earning assets is increases in 2010 as compared to previous year, due to efficient management of NBP, showing favorable trend. Figure No. 4.4: Operating Cost to income ratio


Operating Cost to income ratio The cost/income ratio is an efficiency measure similar to operating margin. Unlike the operating margin, lower is better. The cost income ratio is most commonly used in the financial sector. Table 4.9: Operating cost Years 2011 2010 Interpretation This ratio shows how cost is changing compared to income. In 2010 both operating cost and income are increased, but operating cost rise at higher rate, showing the unfavorable trend for the bank. Non interest Cost/Income 23,513,897/4,088,327 19,502,080/7,542,408

5.75 2.58

Figure No. 4.5: Operating cost


Equity to Total Assets The equity to debt ratio shows how much NBP have equity out of total assets. Table 4.10: Equity to total Assets Years 2011 2010 Interpretation This ratio shows the ownership of the bank. In 2011 it is 0.1 while in 2010 it is 0.10. The equity increases in 2011 as compared to 2010, which is showing positive sign and favorable for the bank. Figure No. 4.6: Equity to total Assets Equity/Total Assets 103,762,310/103,502,468,0 94,791,919/944,582,762 0.10 0.10

Non Performing Loan to Total Loan NPL are loans that are no longer producing income for the bank that owns them. Loans become nonperforming when borrowers stop making payments and the loans enter


default. The exact classification can vary from institution to institution, but a loan is usually considered to be nonperforming after it has been in default for three consecutive months. Credit to Deposit ratio (CD ratio) Table 4.11 CD Ratio Years 2010 2009 Interpretation This ratio shows the comparison of credits to debts of NPB. In 2011 both credit and debt are increased, but advances rise at higher rate, which is favorable and shows a good sign for the bank Figure No. 4.7: CD Ratio Advances/ Deposits 477,506,564/832,151,888 475,243,431/726,464,825 0.57 0.65

Loan Loss Coverage Ratio Banks use the loan-loss coverage ratio to define the quality of its assets and how well it protects itself from losses caused by problematic loans. The higher this ratio is, the better the bank is handling itself in regards to loans.

Table 4.12: Loan Loss Coverage Ratio

Years 2011 2010 Pre-tax income+ provision for loan losses/Debt written off 49,825,278/0 47,909,381/0 -----------


4.6.2 Efficiency ratio Efficiency ratios measure the quality of a NBP's receivables and how efficiently it uses and controls its assets, how effectively the firm is paying suppliers, and whether the business is overtrading or under trading on its equity (using borrowed funds). Efficiency ratios measure how effectively the company utilizes these assets, as well as how well it manages its liabilities. Interest income per employee Interest income per employee measures management's ability to use their employee resources effectively to create profits for the NBP.

Table 4.13: Interest income per employee

Years 2011 2010 Interpretation Interest income per employee in 2010 is RS 2626, while in 2009, RS 2330. The ratio decreases in 2010, showing favorable trend. Interest income/total number of Employee 43.221,658/16457 37,458,048/16072 2626 2330

Figure No. 4.14: Interest income per employee


Profit per Employee This ratio indicates the average profit generated per person employed.

Table 4.14: Profit per Employee

Years 2011 2010 Interpretation Interest income per employee in 2011 is RS 1067.21, while in 2010, RS 1092.72. The ratio increases in 2011, showing the more efficient the NBP uses its employees. Profit / Total number of employees 17,563,214 /16457 17,561,846/16072 1067.21 1092.72

Figure No. 4.10: Profit per Employee

Business per employee This ratio shows the management ability that how they use their employee to eared interest.


Table 4.15: Business per employee

Years 2011 2010 Interpretation This ratio indicates the average interest earned generated per employee, which is increases in 2011, showing the good management ability to use their employee. Interest Earned / Total number of employees 88,472,134 / 16457 77,947,697 / 16072 5375.9 4849.9

Figure No. 4.11 Business per employee Business per Branch This ratio shows that how much each branch of NBP earned interest. Table 4.16: Business per Branch Years 2011 2010 Interpretation The business per branch ratio high in 2011 as compared to in 2010, mean the average branches of NBP performing efficiently in 2011, showing a positive sign. Figure No. 4.12: Business per Branch Interest Earned / Total number branches 88,472,134 / 1256 77,947,697 / 1250 70439.59 62358.15

54 Employee per Branch This ratio indicates the average number of employee in each branch.

Table 4.17: Employee per Branch

Years 2011 2010 Interpretation Employee per branch in 2011 is 13.10 and in 2010, 12.85. Number of employee in 2011 is increase in as compared to 2010, which is favorable for NBP. Figure No. 4.13: Employee per Branch Total number of employee/ Total number branches 16457/1256 16072/1250 13.10 12.85

4.7.1 Return on Equity Dividing profit after taxation by shareholders equity. ROE compares net profit after taxes to the Shareholders Equity. This ratio is calculated as: ROE=Profit after taxes*100/Share holders Equity


Table 4.17: Return on Equity Year Profit after taxes Share holder equity Return on equity 2010 18,211,945 10,763,702 14.76 2011 863,214 13,4545,628 13.66

Figure No 4.14: Return on Equity

Explanation From the calculation it is clear that the ROE Ratio have an upward trend of NBP. It is because of high net profit they have earned. It tells us the earning power on the shareholders investments. It is because of high investments by NBP and effective expense management. 4.7.2 Return on Assets This ratio shows the efficiency of organization that how efficiently utilizes their assets. It is calculated as. ROA = Profit after Tax/Total Assets Table 4.19: Return on Assets Year Profit of the taxes Total Assets Return on assets 2010 17,561,846 944,582,762 1.85% 2011 17,563,214 1,035,024,680 1.69%


Figure No 4.15: Return on Assets

Explanation From calculation it is clear that this ratio of NBP is going high and high. It shows that NBP using its assets very efficiently. That is why they are earning very high profits. This shows that how efficiently they investing the assets thats why they are earning high profits. 4.7.3 Investment deposit Ratio This ratio shows the comparison of investments and deposits. It is calculated as: Investment deposit Ratio=Investment/deposits Table 4.20: deposit Ratio Year Investment Deposits Investment Deposit Ratio 2010 217,642,822 726,464,825 29.95% 2011 301,323,804 832,151,888 36.21%

Figure No 4.15: deposit Ratio


Explanation From above table and graph it is very much clear that NBP are using their deposit very efficiently and earning high profits. The ratio has an upward trend, which shows the performance of NBP is very good. Now it is the retraction from top management to invest 30% of its deposits. This may reduce its profits. But can be fruitful in long term. 4.7.4 Debt to Assets Ratio This ratio shows that to which extent the organization assets are financed by debit. It is calculated as: Total debt/total asset. Table 4.21: Assets Ratio Year Total Debt Total Assets Debt to Assets Ratio 2010 715,299,108 944,582,762 0.75 2011 824,676,384 103,502,468,0 0.79

In both is consistent. Here total non-markup income consists of fees and commissions, dividend income, exchange income, share of profit of J/V and other income. The taxation percentage for 2008 decreases due to decrease in profit before tax.


The National Bank of Pakistan plays a key role in the strategic national development. The b a n k h a s h i s t o r i c a l l y b e e n t h e f i n a n c i a l a r m o f t h e g o v e r n m e n t a n d h a s e n j o ye d t h e 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 publicinterest. It is critical too as all other banks and NBFIs in public sector have been closeddown or merged with NBP. In contract to other banks populating the FSI sector, NBP is mandated to uphold publicinterest. It is critical too as all other banks and NBFIs in public sector have been closeddown or merged with NBP. T h e c u r r e n t ma n a g e m e n t o f N a t i o n a l B a n k o f P a k i s t a n w a s h i r e d p u r e l y f o r t h e i r international experience, business orientation to turn around a purely public institutioninto 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


.RECOMMENDATIONS The National bank of Pakistan should be fully prepared in its management of financialcrises and its business continuity planning, within the standing committee framework,and should work with others to strengthen national crises management preparations. T h e b a n k s h o u l d i mp r o v e t h e q u a l i t y o f t r a i n i n g o f i t s e m p l o ye e s a n d t h e i n t e g r i t y, controls and efficiency of its systems, processes and financial reporting. The bank should improve its recruitment, retention and development and to reform theBanks pension scheme. The bank should renegotiate the Banks long term financial framework and to overhaulthe Banks financial system. The Bank should improve IT capability in the analytical areas and to develop a mediumterm strategy for banking and market operations. T h e N a t i o n a l b a n k o f P a k i s t a n s h o u l d m o n i t o r t h e i mp a c t o f i t s o p e r a t i o n s o n t h e 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 shoulddesign, develop and deliver product and services for economic growth. The bank should provide support to the Micro, Small and Medium enterprises therebyreducing unemployment and helping to create a more equitable distribution of wealth


Annual Report (2009, 2010, 2011); National Bank of Pakistan Interview with SIR DAWOOD, Manager, National Bank, the Mandian Branch, Abbottabad, October 05, 2012. Gibson, Charles H. (1998); Financial Statement Analysis. 7th edition, USA: International Thomson Publishing Co. Horne, Van J. C & J.M Wachowicz (1998); Fundamentals of Financial Management (10th Edition): Prentice Hall International Corporation: New York[accessed on April 2012] [Accessed on April 2012] [Accessed on April 2012] Source: Asrar H saddiqi 1993. Practice and law of banking in Pakistan 5th edidition. Karachi, royal bank company.






ANNEXURE Organizational Chart

Commercia l & Retail Banking Group Chief Corporate & Investment Banking Group Chief Branch Manager

Regional Business Chief

Regional Marketing Manages

Operations Group Chief Regional Complianc e Chief Risk Management Group Chief

Regional Operation s Chief

Operations Departments of The Region

Corporate Head North & Corporate Head South

Branch Operations Manager Corporate Branches

Regional Risk Management Chief Credit Department of the Region

Branch Credit Officers