Internship Report Of Nbp

INTERNSHIP REPORT NATIONAL BANK OF PAKISTAN

PREPARED BY Student Name ID

Mc0604

Semester/ Session

Fall 2008

Final Report Date University

Virtual University of Pakistan

Phone # Mailing Address

Jhelum

Dedication

I dedicated my Report To my respected instructor

Acknowledgement ii

FIRST OF ALL I AM THANKFUL TO ALLAH & I BOW MY HEAD BEFORE ALMIGHTY ALLAH WHO ENABLE ME TO WRITE ON THIS REPORT. I am also thankful to my respected instructor HRMI619 whose proper guidance & suggestions encouraged me in writing this report. I am also grateful to the persons who provided me information & give me time for working on this report. I am also thankful to my parents & friends who provided me the help & suggestions when & where needed.

Executive summary iii

National Bank of Pakistan is a Govt. bank. It has its head office in Karachi. It has over 1,232 branches in Pakistan & 18 abroad. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. The National Bank of Pakistan offers a wide range of services to its customers & recognizes the importance of efficient business delivery & providing timely solutions. Their competitors are untied bank, Allied bank, Habib bank, First women bank, Bank of Punjab etc. The essence of business philosophy is to cater to the banking requirements of small & medium sized entrepreneurs, providing them qualitative & competitive services with emphasis on encouraging exports. Nearly forty percent of our credit portfolio is related to export financing and credit decisions are taken within 48 hours that is why we say: “We have more time for you” Its products are Pay Order, Mail Transfer, Foreign Remittance, Foreign Currency Account, Short Term Investment, NIDA * ( National Income Daily Accounts) Equity Investment, Commercial Finance etc. In Jhelum, Civil Lines Branch is a main branch of National Bank of Pakistan. Branch code is 0344 & phone number is 0544-9270185, fax: 0544-9270188.

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CERTIFICATE

v

EVALUATION FORM

vi

Table of Contents Introduction of the organization..................................................................1 President's Message ................................................................................1 Overview of the organization.......................................................................3 Senior Management ................................................................................4 Brief history................................................................................. ................7 Nature of the organization......................................................................10 Business volume:...................................................................................13 FINANCIAL ANALYSIS FOR BANK..........................................................15 Directors’ Report.....................................................................................19 Auditors’ Review Report to the Members...................................................21 Introduction............................................................................................21 Scope of Review.....................................................................................22 Conclusion................................................................................. .............22 National Bank of Pakistan......................23 Interim Condensed Balance Sheet......................................................23 Product lines:................................................................................... .......30 Student Loan Scheme............................................................................36 Competitors..................................................................................... .......38 ORGANIZATION STRUCTURE......................................................................39 Organizational hierarchy chart:..............................................................39 Number of employees:...........................................................................40 Main offices:...........................................................................................40 Comments on the organization structure:..............................................40 PLAN OF INTERNSHIP REPORT...................................................................41 INTRODUCTION OF THE BRANCH:...........................................................41 STARTING & ENDING DATES OF INTERNSHIP..........................................41 TRAINING DEPARTMENTS........................................................................42 TRAINING PROGRAM..................................................................................43 vii

INTRODUCTION OF ALL THE DEPARTMENTS...........................................43 Bills DEPARTMENT / BILLS DEPARTMENT:.............................................43 CLEARING DEPARTMENT:.....................................................................45 Clearing on futures exchanges...............................................................47 Clearing of securities..............................................................................47 FOREIGN EXCHANGE:..........................................................................51 FUNCTIONS...................................................................................... .......53 Market participants................................................................................61 Factors affecting currency trading.........................................................61 CREDIT SECTION/ ADVANCES DEPARTMENT:.......................................62 DEPOSIT SECTION: .............................................................................73 ACCOUNTS DEPARTMENT....................................................................77 REMITTANCE DEPARTMENT..................................................................79 DETAILED DESCRIPTION OF THE DEPARTMENT I WORKED IN RELATED TO MY AREA OF SPECIALIZATION....................................................................82 Structure of the HRM Department.............................................................83 Department hierarchy:...........................................................................84 Human resource management process in the organization:.................84 CRITICAL ANALYSIS..................................................................................102 SWOT ANALYSIS.......................................................................................103 STRENGTHS..........................................................................................103 WEAKNESSES.......................................................................................104 OPPORTUNITIES....................................................................................105 THREATS....................................................................................... ........106 CONCLUSIONS & RECOMMENDAIONS......................................................106 SUGGESTIONS......................................................................................107 REFERENCES...........................................................................................108 Annexes........................................................................................ ...........109

viii

ix

Introduction of the organization

National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. National Bank of Pakistan intends to carry out a market study for consumer and small business sectors including for: (1) Auto Vendor Financing (2) Fisheries Sector Financing (3) Marble Industry Financing (4) Cutlery Sector Financing (5) Dairy Sector Financing (6) Business Finance (7) Auto Financing and other products.

President's Message 1 of 122

It gives me great pleasure to announce that National Bank of Pakistan is gearing up to the challenges faced by the domestic banking industry due to innovations and advances in the international banking world, which is the consequence of globalization. The bank wishes to effectively utilize the financial assistance being extended by the Government of Pakistan for banking sector reforms aimed at reducing operating costs and improving profitability. National Bank of Pakistan is distinct from other banks in that it has a nonprofit and service oriented motive, which has manifested itself in the area of salary deposits of government employees and payment of utility bills. The bank renders both of these services across the country reaching as far as the remotest regions; from our northern borders to the Arabian Sea. These services do not contribute towards the earnings of the bank; rather they put pressure on our resources. Nevertheless, we are committed to serving small savers and the general public of the country. National Bank is everyone’s and does not only serve corporate customers. By extending and targeting our research to improve bank earnings, through customer focus of our commercial and corporate branches, and by enhanced efforts towards the development of human capital, we shall very soon transform the bank from a bureaucratic organization to a fast paced, modern, and competitive bank. In conclusion, I firmly believe that we have the vision, which will enable us to achieve even better results, safeguard the interest of our customers and to assist us in our march towards progress and prosperity in future. S.Ali Raza

Chairman & President

2

Overview of the organization National Bank of Pakistan is a Govt. bank. It has its head office in Karachi. It has over 1,232 branches in Pakistan & 18 abroad. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. We aim to be an organization that is founded on… •

Growth through creation of sustainable relationships with our customers.

•

Prudence to guide our business conduct.

•

A national presence with a history of contribution to our communities.

We shall work to… •

Meet expectations through Market-based solutions and products.

•

Reward entrepreneurial efforts.

•

Create value for all stakeholders. We aim to be peopling who…

•

Care about relationships.

•

Lead through the strength of our commitment and willingness to excel.

•

Practice integrity, honesty and hard work. We believe that these are measures

of true success. We have confidence that tomorrow we will be… •

Leaders in our industry.

•

An organization maintaining the trust of stakeholders. 3

•

An innovative, creative and dynamic institution responding to the changing

need Senior Management

Masood Karim Shaikh SEVP & Group Chief, Corporate & Investment Banking Group Shahid Anwar Khan SEVP & Group Chief, Credit Management Group Dr. Asif A. Brohi

SEVP & Group Chief, Operations Group

Imam Bakhsh Baloch SEVP & Group Chief, Audit & Inspection Group Ziaullah Khan SEVP & Group Chief, Compliance Group Dr. Mirza Abrar Baig SEVP & Group Chief, Human Resources Management & Administration Group Amer Siddiqui

SEVP & Group Chief, Commercial & Retail Banking Group

Muhammad Nusrat Vohra

SEVP & Group Chief, Treasury Management Group

Amim Akhtar EVP & PSO to the President Ekhlaq AhmedEVP & Secretary Board of Directors Tajammal Hussain Bokharee EVP/Divisional Head, Special Assets Management Group Mrs. Khurshid Maqsood Ali EVP

&

Divisional

Head

Employee

Benefits,

Disbursements & Trustee Division Tahir Yaqoob EVP & Group Chief, Overseas Coordination & Management Group Anwar Ahmed Meenai

EVP & Divisional Head, Islamic Banking

Naeem Syed EVP & Head, Core Banking Application, PMO Aamir Sattar Financial Controller & Divisional Head, Financial Control Division

4

Atif Hassan Khan

Group Chief (A), Information Technology Group ds of the

internal and external environment. ATM Finder: Burewala, Faisalabad, Gujar Khan, Gujranwala, Gujrat, Hyderabad, Islamabad, Karachi, Lahore, Mirpur, Multan, Muzaffarabad, Peshawar, Quetta, Rawalpindi, Sheikhupura, Sialkot, Taxila, Wah Cantt. Branch Network With the geographical development of its branches, the Bank has been able to extend its services to a much larger number of Pakistanis all over the country. Today it has more than 8.5 million accounts. Bank maintains its presence in all the major financial centers of the world through its 15 overseas branches and 5 representative offices. Of these, three representative offices have recently been set up at Tashkent (Uzbekistan), Baku (Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in CIS countries. Bank’s role globally is well assisted by its network of correspondent banks located strategically in Asia, America, Europe and Africa. Apart from having a vast branch network, Bank is at the forefront in the acquisition and application of new technologies in every aspect of its banking facilities. It has acquired leased telephone lines for on-line banking. The Bank has 12 Regional Computer Centers to cover various on-line and batch system requirements of branches and controlling Oversea Branches Domestic Branches

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Branch Network: NBP has an extensive domestic branch network of over 1500 branches located all over Pakistan. The Bank also has a presence in 24 international locations including the USA, United Kingdom, Europe and the Far East. BRANCHES ALL OVER THE COUNTRY

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Brief history

The National Bank of Pakistan has its headquarters in Karachi, Pakistan. It has over 1,232 branches throughout Pakistan. The bank provides both commercial and public sector banking services. It has assets worth USD 12.293 billion in 2007. Its subsidiaries include NBP Capital, NBP Modaraba Management Company, NBP Exchange Company, Taurus Securities, and NBP Almaty et al. It also supports a first-class cricket side that competes for the ABN-AMRO Patron's Trophy in Pakistan. 1949 National Bank of Pakistan (NBP) was established under the National Bank of Pakistan Ordinance 1949 and was 100% govt.-owned. NBP acted as an agent of the Central Bank wherever the State Bank did not have its own Branch. It also undertook

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Government Treasury operations. Its first branches were in jute growing areas in East Pakistan. Offices in Karachi and Lahore followed.

•

1950 NBP established a branch in Jeddah, Saudi Arabia.

•

1955 by this time NBP had branches in London and Calcutta.

•

1957 NBP established a branch in Baghdad, Iraq.

•

1962 NBP established a branch in Dar-es-Salaam, Tanganyika.

•

1964 The Iraqi government nationalized NBP's Baghdad branch.

•

1965 The Indian government seized the Calcutta branch on the outbreak of

hostilities between India and Pakistan. •

1967 The Tanzanian government nationalized the Dar-Es-Salaam branch.

•

1971 NBP acquired Bank of China's two branches, one in Karachi and one at

Chittagong. At separation of East Pakistan NBP lost its branches there. NBP merged with Eastern Mercantile Bank and with Eastern Bank Corporation. •

1974 The government of Pakistan nationalized NBP. As part of the

concomitant consolidation of the banking sector, NBP acquired Bank of Bahawalpur (est. 1947). •

1977 NBP opened an offshore brain Cairo.

•

1994 NBP amalgamated Mehran Bank (est. 1991).

•

1997 NBP's branch in Ashgabat, Turkmenistan commenced operations.

•

2000 NBP opened a representative office in Almaty, Kazakhstan.

•

2001 State Bank of Pakistan and Bank of England agree to allow only 2

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Pakistani banks to operate in the UK. NBP and United Bank agreed to merge their operations to form Pakistan International Bank, of which NBP would own 45% and United Bank 55%. •

2002 Pakistan International Bank renamed itself United National Bank

Limited (UNB). The ownership structure of the UNB remained as before. The only change to the shareholding structure is that UBL had recently been privatized in Pakistan and was now owned 49% by the Government of Pakistan and 51% by a joint foreign consortium of Abu Dhabi. •

2003 NBP received permission to open a branch in Afghanistan.

•

2005 NBP closed its offshore branch in Cairo.

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Nature of the organization

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. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. 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 •

Generation of incremental trade-finance business and revenues.

National Bank of Pakistan (the bank) was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. It’s registered and head office is situated at I.I. Chandigarh Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,232 (2006: 1,232) branches in Pakistan and 18 (2006: 18) overseas branches (including the Export Processing Zone branch, Karachi). Under a Trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. 1.2 During the period, the bank has increased its authorized share capital from Rs.7, 500 million (750,000,000 ordinary shares of Rs.10/- each) to Rs.10, 000 million (1,000,000,000 ordinary shares of Rs.10/- each) as approved by shareholders in their general meeting held on April 02, 2007.

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Corporate Philosophy at National Bank 

We at NBP believe that our customers are our most important and 1st responsibility, we must, therefore, serve our present customers and promise to serve our potential customers to the best possible on-counter and behindcounter services. We should try to provide a total and integrate package of services to create satisfied clientele. Our braches, regional offices and head office should regard the customer as their most priority, serving them with maximum possible helpfulness and courtesy.



Our second most important responsibility is the employees who work for our great institution. They must have their security, stability and fair treatment in their jobs in recruitments and assignment, in training and development, in promotion and placement. Till separation. They should be treated with dignity and should be made to rise to their highest potential working condition should be attended. Supervisor should be tough minded but fair in the pursuit of bank objectives.



Our third most important responsibility is our executives and officers. They should have talent, education, experience and ability with a premium, place on commitment, knowledge, leadership and orientation towards action, implementation, improvement and achievement of goals.



Our fourth responsibility is to the communities that r served by our great institution. Our 1st community is the Pakistani nation whose service is the reason for our existence.



Our 5th responsibly is to our owners and stockholders. We must make a sound profit and protect our business by creating financial services.

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Objectives of National Bank: Objectives are ends towards which an enterprise activity is aimed. The purpose of business is production and marketing of economic goods and services but to accomplish these objectives to a number of enterprise objectives may be necessary.

National bank of Pakistan has certain objectives. These objectives are (1)

Advancing loans

(2)

Accept deposits

(3)

Remitting of funds

(4)

Sale of promissory notes

(5)

Selling and realizing property of bank claims

(6)

Investment or underwriting of stocks

a. Advancing loans: one of the main objective of NBP is advancing loans to

industrialists and traders against security of stock, debentures or other securities b.

Accept deposits: Bank provides deposit facility to its customers. The types of deposits are profit and loss saving accounts, Fixed account, Current account.

c.

Remitting of funds: The bank provides the facility to its customers remitting large amounts of money in the form of bank Drafts, Telegraphic Transfer, Mail Transfer to where ever the customers want.

d.

Sale of promissory notes: To sell and realize the proceeds of sale of

any promissory notes, debentures, stock receipts, bounds, shares etc.

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e. Selling and realizing property of bank claims: To manage sell and

realize all property whether moveable or immoveable which may come in any way of the bank in satisfaction of its claim. f.

Investment or underwriting of stocks: To invest the funds of the bank in or the underwriting of any of stocks, funds, shares securities, debentures, bonds or scripts or other securities for money issued by any public limited companies and to convert them into money when required.

Business volume:

The National Bank of Pakistan is the foremost bank determined to set higher standards of achievements. It is the key business partner for the Govt. of Pakistan with special emphasis on nurturing Pakistan’s economic growth through aggressive & impartial lending polices. The main functions of National bank of Pakistan are to provide commercial banking & related services in Pakistan & abroad. It also handles treasury transactions for the Govt. of Pakistan as an agent to State Bank of Pakistan. Under a trust deed, the Bank also provides services as trustee to NIT, including supervision of securities on behalf of NIT. It also provides internet banking & moreover, they have recently set up the financial institution wing. The role of this wing is to effectively manage NBP’s association with the correspondents to support trade, treasury & other key business areas; thereby contributing to the bank’s productivity. Ownership: NBP is 100% owned by the Government of Pakistan (GoP). Deposits: NBP holds 24.6% share of time and demand deposits in the country. Local currency deposits comprise 67% of bank's total deposits while foreign currency deposits account for the rest.

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Assets: NBP's total assets stood at PKR350 billion on December 2001. This included total earning assets of about PKR268 billion with gross loan portfolio of PKR140 billion. The bank also has an investment portfolio of PKR91 billion, which comprises treasury securities, corporate bonds, shares and other securities. Deposits: As of December 2001 NBP had a paid-up capital of PKR1.46 billion divided into 146 million shares of 10 rupees each. Total shareholders' equity was PKR10 billion, however, revaluation reserve has increased shareholders' funds to PKR16 billion. NBP has, however, increased its paid up capital from PKR Rs. 1.46 billion to Rs. 3.73 billion through issuance of bonus shares (subject to corporate and shareholder approvals). Financial Highlights: Amounts in Million Year to December

1998

1999

2000

2001

Total Deposits

235,932

254,863

273,391

294,754

Total Assets

274,117

310,599

325,320

349,932

Total Equity

9,035

12,232

15,411

15,962

Total Loans

85,854

105,597

109,524

122,294

Total Investments

108,207

106,449

102,969

91,277

(795)

62

529

(178)

Net Profit

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FINANCIAL ANALYSIS FOR BANK

Financial year: The financial year of the Bank commences from the 1st day of January and ends on the 31st day of December every year.

Non-performing loans: As on 31 December 2002, the Bank's non-performing loans (NPLs) amounted to Rs. 30,323 million, which was 19.11% of total advances as against 21.48% as on 31 December 1999, showing an improvement of 2.37%. Provision against non-performing advances was Rs 18,296 million as on 31 December 2000, which is 60.34% of NPLs. This high ratio reflects prudence of the Bank's management while determining provisions. Remaining NPLs are covered by forced sales value of mortgaged property, Federal Government Guarantee or are in category other than loss. The Special Assets Group at Head Office with full co-ordination between field functionaries and Head Office is monitoring NPLs and deals with the classified portfolio of the Bank along with Remedial Management, Legal framework, Statistical Analysis of classified accounts, Revival of Sick Industrial Units, Consortium Financing and Ex-Mehran Bank Limited affairs etc. Calculation Of Different Ratios

Earning assets to total assets Earning assets to total assets = Earning assets / total assets

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Year 2001 Earning assets to total assets = 286230528 / 17510437 =16.34 Year 2002 Earning assets to total assets =319676497/23936263 =13.35 Return on earning assets Return on earning assets = profit after taxation / earning assets Year 2001 Return on earning assets =1148529/286230528 =0.004 Year 2002 Return on earning assets =2253385/319676497 =0.007 Loan loss coverage ratio Loan loss coverage ratio = provision against non-performance loans &advances/ profit or loss before taxation Year 2001 Loan loss coverage ratio =2926554/3015629 =0.97 Year 2002 Loan loss coverage ratio =1822154/6044811 =0.30

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Equity to total assets Equity to total assets = total equity / total assets Year 2001 Equity to total assets =11958673/17510437 =0.68 Year 2002 Equity to total assets =14279303/23936263 =0.60 Deposits time capital Deposits time capital = deposits/ capital Year 2001 Deposits time capital =33123726/3730384 =8.88 Year 2002 Deposits time capital =13248569/3730384 =3.55

Loans to deposits Loans to deposits= loans/ deposits Year 2001 Loans to deposits =170319096/33123726 =5.14 Year 2002

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Loans to deposits =140547374/13248569 =10.61 Current ratio Current ratio=current assets / current liabilities Year 2001 Current ratio =79155081/2245349 =35.25 Year 2002 Current ratio =55531453/3365744 =16.50

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According to national bank of Pakistan report:

Directors’ Report It gives me great pleasure to present on behalf of the Board of Directors the quarterly accounts for the six months period ended June 30, 2007. The Profit for the six months period ended June 30,2007 after carry over of accumulated profit of 2006 is proposed to be appropriated as follows: Rs. in million Net Profit before taxation for the six months period ended June 30, 2007 14,001.591 Taxation - Current year

4,650.891

- Prior year(s)

+ 124.734

- Deferred

213.409 4,989.035

After tax profit Un-appropriated profit brought forward

9,012.556 32,074.677

Transfer from surplus on revaluation of fixed assets – incremental depreciation- net of deferred tax

19.504

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Profit available for appropriation

41,106.737

Appropriations Transfer to Statutory Reserve (10% of after tax profit)

901.256

Pre tax profit increased to Rs. 14,002 million from Rs. 12,196 million in the corresponding period of last year, an increase of 14.8%. Basic and diluted earning per share jumped to Rs. 11.05 from Rs. 9.83 during the same period of last year. Pre tax return on equity stood at 50%. Return on assets improved to 4.2% up from 3.9% of comparative period last year. Cost to income ratio of the bank remained in the top tier at 0.33 Net interest margin registered impressive growth of Rs. 1,893 million or 13.2%. Net advances increased by Rs. 37 billion and Rs. 16 billion as compared to corresponding period of last year and year end 2006. Deposits show impressive growth of Rs. 51 billion or 10% from the year end. During the year the bank launched “Premium Saver Account” (PLS Saving Account) and Premium Amdani Certificate (Monthly Income Scheme Account) offering attractive rates to small depositors. We are pleased to inform the shareholders that in June 2007 JCR-VIS Credit Rating Co. Limited upgraded standalone medium to long-term rating of National Bank of Pakistan to AAA from AA+, the highest in the banking sector. JCR-VIS had earlier assigned two ratings to NBP. The stand-alone rating of “AA+/A1+” (Double A Plus / A One Plus) reflected the intrinsic strength of the bank while the credit ratings of “AAA/A1+” (Triple A / A-ONE Plus) were based on the sovereign guarantee on the bank’s deposits extended under the Bank Nationalization Act, 1974. During the current rating review, JCR-VIS Credit Rating Co Limited (JCR-VIS) has given due consideration to the sustainability observed in various indicators over the past few years which reflect the significance of National Bank of Pakistan (NBP) to the local economy. It is the only public sector bank in the country and has been able to leverage the advantage to profitably tap certain avenues in both local and foreign markets inclusive of running the largest treasury operations locally. The organization has been able to strategically manage and build on its competitive advantages which have translated into a strong and well - managed improvement in profitability trends observed over the last few years, a substantial balance sheet footing of sound asset quality, and strong liquidity and capitalization levels. Globally also, the bank is 20

strengthening its reach and has been actively constructing a branch network in recent years with focus on South Asia, Central Asia and the Middle East, as well as China. In consideration of the factors mentioned above, JCR-VIS has upgraded medium to long-term rating of AAA on a stand-alone basis as well, negating the need for dual ratings. We extend our appreciation to the bank’s staff for their commitment, dedication and hard work in achieving these excellent results. We would like to express our appreciation to our stakeholders, regulators and our valued customers for their support and continued confidence in NBP. On behalf of Board of Directors S. Ali Raza Chairman & President Date: August 25, 2007

Auditors’ Review Report to the Members Introduction We have reviewed the accompanying interim condensed balance sheet of National Bank of Pakistan as at June 30,2007 and the related interim condensed profit and loss account and interim condensed statements of cash flows and changes in equity together with the notes forming part thereof (here-in-after referred to as “interim financial information”) for the half year then ended. Management is responsible for the preparation and presentation of this interim financial information in accordance with approved accounting standards as applicable in Pakistan. Our responsibility is to express a conclusion on this interim financial information based on our review. The figures of the interim condensed profit and loss account for the quarters ended June 30, 2007 and 2006 have not been reviewed, as we are required to review only the cumulative figures for the half year ended June 30, 2007.

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Scope of Review We conducted our review in accordance with International Standard on Review Engagements 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity”. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim financial information is not prepared, in all material respects, in accordance with approved accounting standards as applicable in Pakistan.

FORD RHODES SIDAT HYDER & CO. M. YOUSUF ADIL SALEEM & CO. Chartered Accountants Karachi

Chartered Accountants Karachi

Date: August 25, 2007

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National Bank of Pakistan Interim Condensed Balance Sheet As at June 30, 2007

(Un-audited)

(Audited)

June 30, 2007 December31, 2007

NOTE

---------- (Rupees in ‘000) ----------

ASSETS Cash and balances with treasury banks

102,862,412

78,625,227

Balances with other banks

41,229,750

40,641,679

Lending’s to financial institutions

32,753,638

23,012,732

Investments

4

163,434,648

Advances

5

331,795,453

316,110,406

9,669,057

9,681,974

-

-

Operating fixed assets Deferred tax assets Other assets

139,946,761

27,809,559

27,113,932

709,554,517

635,132,711

Bills payable

13,552,759

10,605,663

Borrowings

22,558,696

11,704,079

553,289,982

501,872,243

Liabilities against assets subject to finance lease 20,137

13,235

LIABILITIES

Deposits and other accounts

6

Sub-ordinate loans - Deferred tax liabilities Other liabilities NET ASSETS

1,687,882

2,387,073

25,743,415

26,596,300

616,852,871

553,178,593

92,701,646

81,954,118

REPRESENTED BY 23

Share capital

8,154,319

7,090,712

Reserves

14,788,500

13,879,260

Unappropriated profit

36,305,589

32,074,677

59,248,408

53,044,649

33,453,238

28,909,469

92,701,646

81,954,118

Surplus on revaluation of assets CONTINGENCIES & COMMITMENTS

7 8

The annexed notes 1 to 14 form an integral part of these interim condensed financial statements.

National Bank of Pakistan Notes to the Interim Condensed Financial Statement - (Unaudited) For The Half Year Ended June 30, 2007 1. STATUS AND NATURE OF BUSINESS 1.1 National Bank of Pakistan (the bank) was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. It’s registered and head office is situated at I.I. Chandigarh Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (Gop) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,232 (2006: 1,232) branches in Pakistan and 18 (2006: 18) overseas branches (including the Export Processing Zone branch, Karachi). Under a Trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. 1.2 During the period, the bank has increased its authorized share capital from Rs.7, 500 million (750,000,000 ordinary shares of Rs.10/- each) to Rs.10, 000 million (1,000,000,000 ordinary shares of Rs.10/- each) as approved by shareholders in their general meeting held on April 02, 2007.

24

2. STATEMENT OF COMPLIANCE 2.1 These interim condensed financial statements have been prepared in accordance with approved accounting standards (please also see 2.2 and 2.3 below) as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962 and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the SBP. Approved accounting standards comprise of such International Financial Reporting Standards as notified under the provisions of the Companies Ordinance, 1984. Wherever the requirements of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 or directives issued by the SECP and the SBP differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 or the requirements of the said directives take precedence. 2.2The SBP has deferred the applicability of International Accounting Standard

(IAS) 39, 'Financial Instruments: Recognition and Measurement' and International Accounting Standard (IAS) 40, 'Investment Property' for Banking Companies through BSD Circular No. 10 dated August 26, 2002. Accordingly, the requirements of these standards have not been considered in the preparation of these interim condensed financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars. 2.3 The disclosures made in these interim condensed financial statements have been limited based on the format prescribed by the SBP vide BSD Circular No. 2, dated May 12, 2004 and International Accounting Standard (IAS) 34, 'Interim Financial Reporting' and do not include all the information required in the annual financial statements. Accordingly, these interim condensed financial statements should be read in conjunction with the annual financial statements of the bank for the year ended December 31, 2006. 3. ACCOUNTING POLICIES

25

The accounting policies adopted in preparation of these interim condensed financial statements are consistent with those followed in the preparation of the annual financial statements of the bank for the year ended December 31, 2006.

National Bank of Pakistan and its Subsidiary Companies Notes to the Interim Condensed Consolidated Financial Statement - (Unaudited) For The Half Year Ended June 30, 2007 1. THE GROUP AND ITS OPERATIONS 1.1 The "Group" Consist of: Holding Company - National Bank of Pakistan (the bank) Subsidiary Companies - NBP Capital Limited - CJSC Subsidiary Bank of NBP in Kazakhstan - NBP Exchange Company Limited - NBP Modaraba Management Company Limited - Taurus Securities Limited - National Agriculture & Storage Company Limited - Cast-N- Link Products Limited The Group is engaged in commercial banking, modaraba management, brokerage, leasing and discounting services. The bank was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. Its registered and head office is situated at I.I. Chundrigar Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,232 (2006: 1,232) branches in Pakistan and 18 (2006: 18) overseas branches (including the Export Processing Zone branch, Karachi).

26

Under a Trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. NBP Capital Limited, CJSC Subsidiary Bank of NBP in Kazakhistan, NBP Exchange Company Limited, NBP Modaraba Management Company Limited and National Agricultural & Storage Company Limited are wholly owned subsidiaries of the bank while the controlling interest in Taurus Securities Limited is 58.32% and castN-Link Products Limited is 76.51%. 1.2 Basis of Consolidation - The interim condensed consolidated financial statements include the interim condensed financial statements of the bank (holding company) and its subsidiary companies - "the Group". - The assets and liabilities of subsidiary companies have been consolidated on a line by line basis and the carrying value of investments held by the bank is eliminated against the subsidiaries' shareholders' equity in the interim condensed consolidated financial statements. - Minority interest is that part of the net results of operations and of net assets of subsidiary companies attributable to interests which are not owned by the bank. - Material intra-group balances and transactions have been eliminated. - National Agriculture & Storage Company Limited and Cast-N-Link Product Limited have not been consolidated, as these investments are fully provided and financial statements of these subsidiaries are not available. 1.3 During the period, the holding company has increased its authorized share capital from Rs.7, 500 million (750,000,000 ordinary shares of Rs.10/- each) to Rs.10, 000 million (1,000,000,000 ordinary shares of Rs.10/- each) as approved by shareholders of the bank in their general meeting held on April 02, 2007.

27

2. STATEMENT OF COMPLIANCE 2.1 These interim condensed financial statements have been prepared in accordance with approved accounting standards (please also see 2.2 and 2.3 below) as applicable in Pakistan and the requirements of the Companies Ordinance, 1984 and the Banking Companies Ordinance, 1962 and the directives issued by the Securities and Exchange Commission of Pakistan (SECP) and the SBP. Approved accounting standards comprise of such International Financial Reporting Standards as notified under the provisions of the Companies Ordinance, 1984. Wherever the requirements of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 or directives issued by the SECP and the SBP differ with the requirements of these standards, the requirements of the Companies Ordinance, 1984, Banking Companies Ordinance, 1962 or the requirements of the said directives take precedence. 2.2 The SBP has deferred the applicability of International Accounting Standard (IAS) 39, 'Financial Instruments: Recognition and Measurement' and International Accounting Standard (IAS) 40, 'Investment Property' for Banking Companies through BSD Circular No. 10 dated August 26, 2002. Accordingly, the requirements of these standards have not been considered in the preparation of these interim condensed consolidated financial statements. However, investments have been classified and valued in accordance with the requirements prescribed by the SBP through various circulars. 2.3 The disclosures made in these interim condensed consolidated financial statements have been limited based on the format prescribed by the SBP vide BSD Circular No. 2, dated May 12, 2004 and International Accounting Standard (IAS) 34, 'Interim Financial Reporting' and do not include all the information required in the annual consolidated financial statements. Accordingly, these interim condensed consolidated financial statements should be read in conjunction with the annual consolidated financial statements of the bank for the year ended December 28

31, 2006 2.4 These interim condensed consolidated financial statements are not subjected to limited scope review by the auditors 3. ACCOUNTING POLICIES The accounting policies adopted in preparation of these interim condensed consolidated financial statements are consistent with as those followed in the preparation of the annual consolidated financial statements of the bank for the year ended December 31, 2006.

29

Product lines: The National Bank of Pakistan offers a wide range of services to its customers & recognizes the importance of efficient business delivery & providing timely solutions. These are a list of services that NBP offers. 1.

Demand Drafts

2.

Swift

System

(

Society

for

worldwide

Inter

bank

Financial

Telecommunication) 3.

Letter of Credit

4.

Pay Order

5.

Mail Transfer

6.

Foreign Remittance

7.

Foreign Currency Account

8.

Short Term Investment

9.

NIDA * ( National Income Daily Accounts) Equity Investment

10.

Commercial Finance

11.

Trade Finance

12.

International finance

13.

Home Finance

14.

Traveler’s Cheques

15.

Personal Loans

16.

Retail products

17.

NBP Cash Card

DEMAND DRAFTS If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase NBP’s 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. MAIL TRANSFERS Move your money safely and quickly using NBP Mail Transfer service. And we also offer the most competitive rates in the market.

30

PAY ORDER NBP provides another reason to transfer your money using our facilities. Our pay orders are a secure and easy way to move your money from one place to another. And, as usual, our charges for this service are extremely competitive.

TRAVELER'S 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

LETTER OF CREDIT NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. COMMERCIAL FINANCE Let us help make your dreams become a reality Our dedicated team of professionals 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.

FOREIGN REMITTANCES To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to: 31

•

Increase home remittances through the banking system

•

Meet the SBP directives/instructions for timely and prompt delivery of

remittances to the beneficiaries

PakRemit™

Remit funds from USA to Pakistan

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 Al-Jazira, Saudi Arabia. •

Zero Tariffs: NBP is providing home remittance services without any charges.

•

Strict monitoring of the system is done to ensure the highest possible security.

•

Special courier services are hired for expeditious delivery of home remittances

to the beneficiaries. SWIFT SYSTEM The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. NBP SWIFT Network The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-PKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs.

32

SHORT TERM INVESTMENTS NBP now offers excellent rates of profit on all its short term investment accounts. Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are extremely attractive, along with the security and service only NBP can provide. N.I.D.A National Income Daily Account 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. 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 (under process)

NBP’s involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders. TRADE FINANCE OTHER BUSINESS LOANS 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. Select 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

33

•

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. If you require any further information, please do not hesitate to e-mail us. CORPORATE FINANCE 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 34

– Small Finance – Discounting & Bills Purchased – 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 our 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 forge strong relationships not only with borrowers but also with bank investors. Because we understand our syndicate partners’ asset criteria, we 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. Our syndication capabilities are complemented by our own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction. Cash Management Services: With National Bank’s Cash Management Services (in process of being set up), the customer’s sales collection will be channeled through vast network of NBP branched spread across the country. This will enable the customer to manage their company’s total financial position right from your desktop computer. They will also be able to take advantage of our outstanding range of payment, ejection, liquidity and investment services. In fact, with NBP, you’ll be provided everything, which takes to manage your cash flow more accurately.

35

Student Loan Scheme

Pursuant to the announcement made by the Federal Finance Minister in his 2001-2002 budget speech, a STUDENTS LOAN SCHEME (SLS) for Education was launched by the Government of Pakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB and ABL). Under the Scheme, financial assistance is provided by way of Interest Free Loans to the meritorious students who have financial constraints for pursuing their studies in Scientific, Technical and Professional education within Pakistan. The Scheme is being administered by a high powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents of the commercial banks and representative of Ministry of Finance, Government of Pakistan. ADMINISTRATOR OF THE SCHEME: National Bank of Pakistan ELIGIBILITY Under the scheme the students are eligible to apply for loans provided: He/She has obtained admission on merit through normal course/procedure in the approved Universities/Colleges of the public sector mentioned hereunder. He/She falls at the time of admission within the age bracket of:For Graduation

Not exceeding 21 Years

For Post-Graduation Not exceeding 31 Years For Ph.D

Not exceeding 36 Years

He/She has secured 70% marks in the last public examination. He/She has undertaken the study of the subjects given below. He/She is unable to pursue studies due to financial constraints. TYPES OF LOAN The loan facility will be available for entire duration of the study for:Schedule Fee Paid directly to the University/College Boarding expenses excluding meal charges Procurement of textbooks --- Disbursed directly to the student

36

REPAYMENT The maximum period of repayment of loan is 10-Years from the date of disbursement of first installment. The borrower shall repay the loan in monthly installment after six months from the date of completion of studies. APPROVED UNIVERSITIES/COLLEGES APPROVED SUBJECTS i) Engineering ii) Electronics iii) Oil Gas & Petro-Chemical Technology v) Medicine

iv) Agriculture

vi) Physics

vii) Chemistry viii) Biology, Molecular Biology & Genetics ix) Mathematics

x) Other Natural Sciences

xi) DAWA and Islamic Jurisprudence (LL.B/LL.M Sharia) xii)Computer Science/Information System and Technology including hardware. xiii) Economics, Statistics and Econometricsxiv) Business Management Sciences xv) Commerce

37

Competitors These are competitors of National bank of Pakistan. 1. United Bank Limited

2. FAYSAL BANK 3. ASKARI BANK 4. BANK OF PUNJAB 5. BANK AL-FALAH 6. STANDARD CHARTERED 7. Habib Bank Limited 8. Muslim Commercial Bank 9. Allied Bank Limited

10. FIRST WOMEN BANK 11. NATIONAL SAVINGS 12. PRIME BANK 13. PICIC COMMERCIAL BANK

38

ORGANIZATION STRUCTURE

Organizational hierarchy chart: PRESIDENT

BOARD OF DIRECTOR

MEMBER EXECUTIVE BOARD

REGIONAL CHIEF

ZONAL CHIEF

BRANCH MANAGER

39

Number of employees: In national bank of Pakistan Jhelum branch 23 employees are working in different departments.

Main offices: National Bank Building I.I. Chundrigar Road Karachi. Address: NBP Building, I.I. Chundrigar Road, Karachi.

Comments on the organization structure: The National Bank has great contribution towards building wide Banking structure in Pakistan and serving all aspects of the National life and all classes of society. NBP is fully aware of the developments taking place in the world as well as the changes occur in the economic and social condition with in the country. The bank is determined to meet new challenges by redefining its goals and strategy.

40

PLAN OF INTERNSHIP REPORT

INTRODUCTION OF THE BRANCH:

National Bank of Pakistan is a Govt. bank. It has its head office in Karachi. It has over 1,232 branches in Pakistan & 18 abroad. In Jhelum, Civil Lines Branch is a main branch of National Bank of Pakistan. Branch code is 0344 & phone number is 0544-9270185, fax: 0544-9270188. Branch manager of civil lines Jhelum branch is Mr. Anwaar. Operational Manager is Mr. Khushhal Anjum. It has so many departments, Bills Department, Deposit section, Credit section, Foreign exchange, clearing section etc. 23 employees are working in this branch. They are all hard working. There is also a regional office of NBP in Jhelum.

STARTING & ENDING DATES OF INTERNSHIP I start internship at this branch. The duration of my internship program was 6 weeks.

41

TRAINING DEPARTMENTS There are so many departments of national bank of Pakistan in which I got training. 1. Bills DEPARTMENT

In Bills department I worked for two weeks. 2. CLEARING SECTION In clearing department I worked for one week. 3. FOREIGN EXCHANGE In foreign exchange I worked for one week. 4. CREDIT SECTION In credit section I worked for one week. 5. DEPOSIT SECTION In deposit section I worked for one week.

42

TRAINING PROGRAM

In order to be able to cope with the changing environment it is necessary to have some practical experience. As the students of Business Administration we have to pass through a series of various managerial techniques. During this practical course we are provided with an opportunity to learn that how the theoretical knowledge can be implemented in practical grounds. I was selected to do my internship in National Bank of Pakistan chest Branch Jhelum. I worked there for six months & it gave me a greater practical knowledge about the operations of a bank. In this section I have narrated my experience, observations & all the working activities which I observed during my six week internship at National Bank of Pakistan chest Branch Jhelum.

INTRODUCTION OF ALL THE DEPARTMENTS

Bills DEPARTMENT / BILLS DEPARTMENT:

Bills department is one main department in which I work for longtime. Sir Aziz is head of the Bills department. Bills department is responsible for the passing of Govt. bills, pensions, preparing their records, making fan forts, recording the transactions of transfer also, balancing the cash record & transfer record with the cash section. This section is responsible for making the records of P-Pensions, c-pensions, railways pensions, EOBI, Distt. Bills, central bills, Punjab bills separately. After balancing cash, recording amount in vouchers (debit & credit vouchers). It performs following functions: a. Inward bills for collection or IBC

43

b. Outwards bill for collection or OBC

Inward bills for collection: These are bills or cheques etc which are collected locally. They are received from outstation branches banks and parties. Demand draft: it refers to the payments of money on demand of the holder of draft. Demand draft includes DD issues and DD payable.

Outwards bill for collection (OBC): Clean bills: these are negotiable instruments, drawn on outstation branches; bills sent for collection on behalf of the customers for example cheques, drafts or treasury bills etc. Documentary bills: these are bills accompanied by documents such as R.R.T.R bills of landing etc. having title to goods, collected by the bankers on behalf of their customers. Pay slip: pay slip is an instrument in receipt issued by the bank in the following cases. 1. On account of expenditure incurred by the bank. 2. On account of refund of a payment to a person under certain circumstances. Pay order: pay order is issued to other banks for collection of make the payment as said. Or This department is performing following functions a.

Collection of utility bills

b.

Collection of dues of education institution

44

c.

Payment of salaries

d.

Payment of zakat

e.

Payment of pension

CLEARING DEPARTMENT:

In clearing department I worked for one week. a. Introduction b. Clearing house c. Advantage of clearing house d. Function of clearing department e.

Procedure of depositing cheque

f. Types of cheques collected by clearing department g. Scrutiny of pay in slip h. Procedure after scrutinizing i. Procedure of clearing in clearing house

Introduction: Every bank acts in two ways. a. Paying Bank b. Collecting Bank Here in theory no legal obligation on a banker to collect cheques, drawn up to other bank for a customer. It is however an important function of crossed cheques. A large part of this work is carried out through the bankers clearing house whenever it is established.

45

Clearing House: A clearing house is the place where representatives of all the banks get together for the purpose of off setting the interbank indebtedness arising from the transfer of deposits by a customer of a particular bank to another bank. Advantage of clearing house: The advantages of clearing house are manifold. It prevents the cost and waste involved in collection each and every cheque and claim. Which a banker holds against another across the counter with all the danger of loss in the transit incumbent upon it. Great economy is also achieved in the employment of liquid cash by setting the differences by simpler transfer of credit from one account to another, there by minimizing the necessity of holding large cash balances, clearing house works under the control of State Bank of Pakistan. A banker has no legal obligation to collect cheques drawn upon other banks for the customers, through modern banks have assumed this important function of their own choice. Therefore it is very important that since they have assumed this function, the banker should be very careful in their performance. Otherwise they will face more difficulties. So if they will provide this facility when the cheque is crossed. Function of Clearing Department: The following are main functions of clearing department. 1. To accept transfer deliveries and clearing cheques from the customer of the branch and to arrange for their collection. 2. To arrange the payment of cheque drawn on the branch and given for collection to any other branch of national bank of Pakistan or any other members or sub members of the local clearing house. 3. To collect amounts of cheques drawn on members, sub members of the local clearing house, sent by those branches which are not represented as the local clearing house. 46

Clearing on options exchanges The Options Clearing Corporation is an example of a clearing house that functions for the purpose of clearing equity options and bond derivatives, in order to ensure the proper implementation of these instruments.

Clearing on futures exchanges

The NBP Clearing House also acts as the clearing house. It gives clearing on future exchanges. Clearing of payments NBP use the ACH to transfer funds either as debits or credits between participating institutions. Typical uses of ACH transactions are for automatic payroll programs, monthly mortgage or membership payments, or among nonprofit organizations, as a monthly donor/contribution program. Clearing of securities Clearing of securities is also the function of clearing house. Procedures of Depositing Cheques in Clearing Department: Whenever customers want to deposit cheques etc, he fills a pay in slip and it’s over the counter along with the instruments he wants to deposit with bank. As far as possible, the customer desire that on of the staff member fill in a slip from him, he should be obliged promptly. The smaller portion of the perforated pay in slip is handed over to the depositor and the portion becomes the regular portion of a credit voucher. Type of Cheques Collected by Clearing Department: 1. Cheques drawn on collecting bank branch. It is sorted A/C wise, particulars, dates, and amount. Balance, check signatures, verified & passed on counter for posting in relevant A/C. 2. Cheques drawn on collecting bank branches in the towns. As soon as cheque received, these are crossed with bank crossing stamp, sorted out branch wise & sent to concerned branch. 47

3. Cheques drawn on other banks. Crossed check by banks crossing stamps & are sorted & dealt with through useful crossing process. Clearing services offered: a. Overnight clearing b. Same day / high return clearing c. Country wide local vs. Dollar clearing Clearing Divided: 1. Outward clearing/ within city 2. Inward clearing/ within bank 3. Same day clearing Mr. Javed is in charge of clearing section. They enter in register A/c number, amount, and cheque number in the column of particular bank separately & in one column number wise, after that write total amount in the end. After doing this they attach qamma with the cheques of different bank & return them to the banks. For clearing purpose following points must be verified. a. The instruments should be neither stale nor post dated. b. If the instrument is crossed not negotiable it can be for the third party. c. The instrument should not bear any unauthorized alteration. d. The amount in words and figures should be the same. e. The instruments should be drawn on a member or any of local branches. f.

If the cheque is crossed “Account payee’s” “Account payee only” or “payee’s Account”, it should only be accepted for collection for the payee’s account.

g. The cheques or drafts should not be crossed specially to any other bank. h. A cheque payable to a firm should not be accepted for credit to a partner’s account. i. A cheque payable to one of the joint account holder should not be collected for the joint account without the payee’s endorsement or consent. 48

A cheque drawn by a customer in the capacity of an agent, attorney or manager of his company or firm, should not be collected for credit to his personal account. j. Pay orders although negotiable should not be collected for third parties. k. Do not collect an instrument in the accounts of an agent or of the servant of the payee’s of endorsee of the instruments. l. Mail transfer receipts pay ships and treasury receipt should not be collected for persons other than the payee. m. If an account is new or the balance or operation of the account is not satisfactory, satisfy yourself about the titles of the customer to the instruments before the title of the customer to the instrument before accepting the deposit. n. Branch agent’s permission should be obtained before accepting a third party cheque or draft for credit of the account of the staff member. o. If the payee is a govt. department, govt. official, or a trust account, the instrument cannot be collected but for the payee’s account. p. Cheque pay able to a trust, account should not be collected for credit to a trustee account. q. If the payee of an instrument is National Bank of Pakistan, it can be collected for credit of the drawer’s account or the amount of the instrument may be utilized as desired by the drawer in writing. r. All the endorsement should be regular and on endorsement should be missing. After the cashier scrutinizes the cheques he must also scrutinize the pay in slip. Scrutiny of pay-in-slip: These are the steps of the scrutiny of pay in slip. o

On both the counterfoil and the pay in slip following should be checked.  Date of deposits 49

 Account number  Title of account  The cheque/number and the drawer bank/name  Total amount in words and figure o Customer should be used separate pay in slip for transfer, transfer delivery and clearing cheques. o The amount noted should be the same as the amount of the instruments and the amount in words and figures should be same. Procedures after scrutinizing: After scrutinizing the cheques and other deposit instruments and paying slip at the counter the following procedure is under taken by cashier if he is satisfied. 

Fixing the stamp



Scrutiny and receipt by the authorized officer



Returning the counter foil to the depositor



Certificates and confirmation by the officer in charge of the department



Separating the cheque into transfer delivery and clearing cheque.

Procedures of clearing at clearing house: The mechanism of setting inter bank indebtedness operates as follows. Clerks representing various banks meet at a common place, the clearing house everyday. Every clerk then delivers to the others the cheques and the other claims which their respective banks hold against his banks hold against his bank cheques and other documents dishonored will be returned to the representative of the respective bank. The various amounts of receipts and 50

deliveries are now added up and a balance is struck there in and the final settlement is effected by the supervisor of the clearing house by transferring balance kept and the central bank by these various clearing banks.

FOREIGN EXCHANGE:

In foreign exchange I worked for one week. Sir Ansar majeed is in charge of foreign exchange department. Foreign Exchange, currency and money claims, such as bank balances and bank drafts, expressed in the equivalent value in foreign money. In the broader sense, the word foreign exchange is related to the exchange of methods through which o The currency of the one country is exchanged for that of another; o The forms in which exchanges are conducted and o The ratio at which they are affected. . National central banks play an important role in the foreign exchange markets. They try to control the money supply, inflation, and/or interest rates and often have official or unofficial target rates for their currencies. They can use their often substantial foreign exchange reserves to stabilize the market. The use of foreign exchange arises because different nations have different monetary units, and the currency of one country cannot be used for making payments in another country. Because of trade, travel, and other transactions between individuals and business enterprises of different countries, it becomes necessary to convert money into the currency of other countries in order to pay for goods or services in those 51

countries. The transfer of money values from one country to another and the determination of the price at which the currency of one country will be surrendered for that of another constitute the main problems of foreign exchange. Foreign exchange plays an important role in the payments of international trade. The foreign exchange market is unique because of 1. Its trading volumes, 2. The extreme liquidity of the market, 3. The large number of, and variety of, traders in the market, 4. Its geographical dispersion, 5. Its long trading hours: 24 hours a day except on weekends (from 5pm EST

on Sunday until 4pm EST Friday), 6. The variety of factors that affect exchange rates. 7. The low margins of profit compared with other markets of fixed income

(but profits can be high due to very large trading volumes) 8. The use of leverage

Foreign exchange transactions:  Merchandise transaction: These consist of visible imports and exports. Purchase of goods for abroad and sale of goods to abroad.  Service transaction: These represent inward and outward payments in respect of shipping, insurance, banking and travel services. It includes payments in respect of interest, dividends, rents and profits etc.  Unrequited transactions: In indicates the payments and receipts from of reign countries in shape of such items as home remittances by workers abroad, gifts, aids etc.  Capital account transactions: These are further divided into two classes. a. Long term capital transfers:

52

Those transfers whereby residents of one country acquire securities (stocks and bonds) and tangible assets (land) in foreign countries with the purpose of earning profits in future. b. Short term capital transfers: Those transfers which move relatively quick from country to country. 

Fore speculative purposes



To take advantages of differences in interest rates



As balancing items where a country has a debit or credit balance on current accounts

For example: •

Money gold and

•

Holdings of commercial credit, bills, cheques etc

•

Transactions with I.M.F

In National Bank of Pakistan, four currency accounts are available: 1. US Dollar 2. Pound Sterling 3. Japanese Yen 4. Euro FUNCTIONS The department performs the following functions: 1. Account opening 2. Account closing 3. Inward/outward remittance 4. Issuance of traveler cheques ACCOUNT OPENING Terms and conditions: Account opening requires two things 1) National ID card of the customer and introducer 2) Introducer

53

CUSTOMER: Customer is the person who comes with the purpose of opening the account INTRODUCER: Introducer is a person having the account in same branch and gives guarantee about the customer. If the introducer is not proper than state bank charges RS 5000/- per head from that employee of the bank who has opened the account of the customer on the request of the introducer. Procedure of Account Opening and Depositing Foreign Exchange: First of all, the customer is required to fill an application form. Then he attaches the photocopy of his identity card and fills the signatory cards. Then he is allotted an account number by entering in the account opening register. Now he fills the pay-in slip and deposits money on the counter. Following things are needed for opening of account: 1. Account opening form 2.

Signature card

3.

Letter of kinship

4.

Letter of thanks

5.

Issuances of cheque book

Account opening form: Account opening form consist of a.

Category of account

b.

Currency

c.

Title of account

d.

Account number

e.

Customer information

f.

Initial deposit

g.

Authorized person in case of customer death

Signature card: The signature card included the name and specimen signature of the customer Letter of kinship: In the letter of kinship the customer authorized the bank to pay the proceedings of his/her PLS/Current foreign currency account to the related person by describing the relationship of the person with the customer after the death of the customer. 54

Letter of thanks: Letter of thanks is the latter issued by the bank to the customer for two purposes 1)

1st purpose is to say thanks to the customer for opening the account in

their bank 2)

2nd purpose is to confirm the address provided by the customer while

opening the account. Issuance of cheque book: Cheque book is issued to the customer after sending the letter of thanks when the customer comes with the letter of thanks and requests for the issuance of the cheque book. A cheque book (usually having 25 leaves) is issued to the customer. Closing of Account: The customer can close the account. The customer is required to submit an application for closing the account. The account is closed out and his balance is paid to him after deducting the closing charges, i.e. $ 20 and the application is filed in account closing file. There are many reasons for closing of account 1.

Account holder Owen request

2.

Death of account holder

3.

Closing of account due to the bad manners of account holder

Inward/Outward Remittances: The remittances are of following types: a.

Foreign Telegraphic Transfer (FTT)

b.

Foreign Demand Draft (FDD)

c.

Foreign mail transfer(FMT)

d.

SWIFT

e.

Western union money transfer(WUMT)

f.

Foreign Exchange Bearer Certificates (FEBC)

g.

Special US Dollar Bond Foreign Telegraphic Transfer: This is telegraphic transfer just like ordinary local currency TT, but this is foreign currency. Its charges are fixed, i.e., if payment is in cash, charges are Rs. 1500. If payment is through account, Rs. 1200; if deposit is above Rs. 50,000 charges are Rs. 600. NBP has its correspondent bank in New York. NBP gives credit to main office Karachi, which gives credit to NPB New York, which gives credit to NPB, which ultimately gives credit to required destined bank and account number. 55

Mode of payment can be cash or by debiting the account. When FTT is received from abroad, NBP debits Main Office Karachi account and gives credit to the account of beneficiary. Foreign Demand Draft: Foreign Demand draft is also known as FDD. A person who wishes to remit money to someone in another place may if he does not send his own cheque, obtain from his bank a draft on demand payable to the person who is to be paid the money. It may be drawn upon one of the banker’s own branches, or upon some other bank where exists for draft to be drawn. Whenever a draft is drawn own advice is dispatches the same day. Advising the bank or branch as the case may be, of the particular of the draft of that banker on whom it is drawn may recognize the draft was it is presented. When a person requires a draft, he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee and the place of payment. The bank charges commission Rs. 500 flat, excise duty Rs. 4 for charges. After receipt of money, the entry is passed in FDD register and a number is allotted to FDD. Then FDD is prepared and given to the customer. After this, they give credit to Main Office Karachi, and advice is also sent to Karachi. Foreign Mail Transfer: These are also known as FMT. Transfer by mail of an account of currency to another country. The Remitter sign auroras requesting the banker to transfer the amount by mail, giving the name and address of the payee. Foreign Bills for Collection: Under this head, all foreign cheques are included whose payments are to be received from abroad. When a customer asks the bank for collection, the cheque is sent to the bank on which is drawn. Then on the receipt of advice from abroad, the customer’s account is credited in the bank and debit the Main Office Karachi account. The bank charges $10 or the equivalent amount in rupees. Foreign Exchange Bearer Certificates (FEBC): Foreign Exchange Bearer Certificates can only be issued from Foreign Currency Account and not from deposit of local currency. The maturity period of these certificates are 5 years, 7 years and 9 years. It can be issued and enchased only in rupees. The customer account is debited and state bank of Pakistan (SBP) is credited.

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Special US Dollar Bond: The bonds have the maturity period of 3 years, 5 years and 7 years. The bank gives the interest at the rate of 5% + LIBOR, i.e. 2%, 3% and 4% respectively. Traveler Cheques Issuance of Traveler Cheques: NBP issues the traveler cheques to those people who want to travel abroad. These are not drawn on any specified bank or banks, but payable at practically all banks throughout the world and guaranteed by some well-known institution. National bank purchases the traveler cheques from American Express Bank and makes the payment after selling it to the client. Procedure: A customer is required to submit the following things: Valid passport with visa Return ticket Currency to be deposited in Pak Rupees. Ticket is endorsed. It is converted on the selling rate of that day. Traveler cheques are issued. Their limit is $50 per day for private visit and maximum limit for the year is $2100. Limit for businessman is $200 per day and maximum limit is $6000. But approval from Chamber of Commerce & Industry is required and certificate of ticket issue for which the payment must be made through cheque. Pak rupee currency account is necessary, and he has to present cheque for the amount to the bank. Endorsement of the ticket is very essential. Issuing ticket authority should endorse its stamp on the passport. SWIFT: The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-APKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. In case of transfer of funds the introduction of S.W.I.F.T., an acronym for Society for Worldwide Inter-bank Financial Transactions, has made remittances faster and secure. The system works like 57

Internet communication processes. All the banks in the world are registered for the service, which have the facility of online computers. Headquarter of S.W.I.F.T. is in Belgium. The message sent through this way does not require any code tests to confirm its authenticity. The sending process is more secure where two officers make the transmission of the message, one types the content with his code word and the other executes it with his password. There are different types of codes that are used for the messages interchanged on the basis of the type of the transaction. Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs. Swift is a soft wear .it is use for following purposes Financial transactions Non-financial transactions Linking Import export Different codes are used in swift for different purposes Latter of credit code is 700 Remittance code is 100 Bank to bank transaction code is 202.etc. Procedure: When any massage comes through swift 1st

its received by head

office then head office authority send that massages to different banks via mail to main branches of relative banks. Western Union Money Transfer: Western union money transfer is a fastest way to receive money worldwide. It is working in almost 200 countries. Different Govt. and private organization are dealing with WUMT Govt. organization e.g. banks Private organizations e.g.

Zarco, Money changer, Dollar East, Master

Currency Main office of WUMT is situated in Dubai, it is a procedure of counter payment Time required in only one hour and deduction on it is $50. Procedure of payment WUMT just needed identification, no need of a/c, its an counter payment Procedure of payment is that the customer came to specific person who is dealing with WUMT tell him the 58

1) MTC NO 2)

Receiver name

a.

First name

b.

Middle name

c.

Last name

3) Sender name a.

First name

b.

Middle name

c.

Last name

4) Telephone no 5) Photo copy of ID card 6) Expected amount (10% margin is acceptable) 7) Test question After if the that related officer feed MTC # (mail transfer control) , it is unique number not less then 10 digits, receiver name , his/her 1st name and last name, and sender name to check whether amount is come or not . When all these things are correct then give a form to the receiver, he/she filled the specific form, after that office done his signature and give one copy to customer, other copy send to the cash counter for payment and the last copy for put in file for the purpose of record. Payment is made only in Pak rupees. WUMT form: It form is divided into three sections a.

1st for receiver information, his name, address and telephone number

b.

2nd section for sender, his name, address telephone number

c.

3rd section is for expected amount, MTC number, test question,

signature There are three copies of form 1st for counter payment, 2nd for customer and 3rd for branch record.

Spot A spot transaction is a two-day delivery transaction (except in the case of the Canadian dollar, which settles the next day), as opposed to the futures contracts, which are usually three months. This trade represents a “direct 59

exchange” between two currencies, has the shortest time frame, involves cash rather than a contract; and interest is not included in the agreed-upon transaction. The data for this study come from the spot market. Spot has the largest share by volume in FX transactions among all instruments. Forward One way to deal with the Forex risk is to engage in a forward transaction. In this transaction, money does not actually change hands until some agreed upon future date. A buyer and seller agree on an exchange rate for any date in the future, and the transaction occurs on that date, regardless of what the market rates are then. The duration of the trade can be a few days, months or years. Future Foreign currency futures are forward transactions with standard contract sizes and maturity dates. Swap The most common type of forward transaction is the currency swap. In a swap, two parties exchange currencies for a certain length of time and agree to reverse the transaction at a later date. These are not standardized contracts and are not traded through an exchange.

Option A foreign exchange option (commonly shortened to just FX option) is a derivative where the owner has the right but not the obligation to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date. The FX options market is the deepest, largest and most liquid market for options of any kind in the world. Exchange Traded Fund Exchange-traded funds (or ETFs) are Open Ended investment companies that can be traded at any time throughout the course of the day. Speculation Controversy about currency speculators and their effect on currency devaluations and national economies recurs regularly.

60

Market participants Financial markets, Bond market, Fixed income, Corporate bond, Government bond, Municipal bond, Bond valuation, High-yield debt, Stock market, Stock, Preferred stock, Common stock, Registered share, Voting share, Stock exchange, Foreign exchange market , Derivatives market, Credit derivative, Hybrid security, Options, Futures, Forwards, Swaps, Other Markets, Commodity market, Money market, OTC market, Real estate market, Spot market, Finance series, Financial market, Financial market participants, Corporate finance, Personal finance, Public finance, Banks and Banking, Financial regulation. Factors affecting currency trading Although exchange rates are affected by many factors, in the end, currency prices are a result of supply and demand forces. The world's currency markets can be viewed as a huge melting pot: in a large and ever-changing mix of current events, supply and demand factors are constantly shifting, and the price of one currency in relation to another shifts accordingly. No other market encompasses (and distills) as much of what is going on in the world at any given time as foreign exchange. Supply and demand for any given currency, and thus its value, are not influenced by any single element, but rather by several. These elements generally fall into three categories: economic factors, political conditions and market psychology. Economic factors These include economic policy, disseminated by government agencies and central banks, economic conditions, generally revealed through economic reports, and other economic indicators. Economic policy comprises government fiscal policy (budget/spending practices) and monetary policy (the means by which a government's central bank influences the supply and "cost" of money, which is reflected by the level of interest rates). Economic conditions include:

61

Government budget deficits or surpluses: The market usually reacts negatively to widening government budget deficits, and positively to narrowing budget deficits. The impact is reflected in the value of a country's currency. Balance of trade levels and trends: The trade flow between countries illustrates the demand for goods and services, which in turn indicates demand for a country's currency to conduct trade. Surpluses and deficits in trade of goods and services reflect the competitiveness of a nation's economy. For example, trade deficits may have a negative impact on a nation's currency. Inflation levels and trends: Typically, a currency will lose value if there is a high level of inflation in the country or if inflation levels are perceived to be rising. This is because inflation erodes purchasing power, thus demand, for that particular currency. However, a currency may sometimes strengthen when inflation rises because of expectations that the central bank will raise shortterm interest rates to combat rising inflation. Economic growth and health: Reports such as gross domestic product (GDP), employment levels, retail sales, capacity utilization and others, detail the levels of a country's economic growth and health. Generally, the more healthy and robust a country's economy, the better its currency will perform, and the more demand for it there will be. Political conditions Internal, regional, and international political conditions and events can have a profound effect on currency markets. For instance, political upheaval and instability can have a negative impact on a nation's economy. The rise of a political faction that is perceived to be fiscally responsible can have the opposite effect. Also, events in one country in a region may spur positive or negative interest in a neighboring country and, in the process, affect its currency.

CREDIT SECTION/ ADVANCES DEPARTMENT: Credit has been defined as "A question of ability to pay coupled with an intention to pay."

62

If it can be said that one department is more important in a commercial bank than another, surely the credit department is that one. A great deal has been written of late in regard to the systematic gathering of credit information. Sir Shabbir Dar is incharge of credit department. It may be defined as “The sale of goods and services and money claims in the present in exchange for a promise to pay in future. “ The most important activity of the bank is the granting of credit to the customers. NBP provides short term long terms financing for domestic and international trade. The policies made by central office of the cash can be amended on the basis of the rules and regulation, economic risk of each country board of directors and committee of the NBP made this type of decisions and informed about these decisions to the branch managers. Manager can grant the credit limit to each customer with in the declared limits approved by the controlling offices i.e., co, GHQ, circle and zonal. Banks grant credit to the customer for a certain period of time. The banks provided credit to the customers so that they can purchase ahead of their liability. By giving these facility to the customer’s large scale production of commodity can be achieved and economic growth rate can be increased. The power to sanctioned loans had been delegated for controlling different offices, according to amount of loan.

This department is also called as risk

management group. The following elements are used for credit selection. Character: It is based on the borrower willingness to repay the obligation. The loan officer sees the family background mode of living, business nature, habits, moral reputation and etc. before giving the loan. Capacity: The ability of borrower to repay the loan when due. The borrower ability to repay the loan is assessed by the office so that he will be able to repay the loan in future. Capital: The officer assesses the capital of the borrower. If assets held by the borrower are liquid, they can be easily convertible in cash; but if non liquid is used then it is risky to given loan. Collateral: It is collateral security. It may consists of stocks bonds , bill of exchange, bills of lading, etc. the bank has protect him self from any 63

discrepancy in the future. They increase the ability of the borrower to obtain the funds from the bank. Condition: The economic condition of the borrower is determined. The economic conditions of the borrower in and out side the country effects the repayment of loan. If condition is favorable then loan is given otherwise vice versa. Functions Credit department has performed following functions. Advances: Advances provided by the bank are of the following two types. Funded Non-funded Funded: In fund based bank contributes a large amount of the fund based on clarified as follows TYPES OF ADVANCES Demand Finance: One time disbursement of the whole amount sanctioned, as the limit for the credit allows. Any person, individual, group, company, firm and all others can achieve this mode of financing. The mark-up or interest is calculated on the total amount disbursed and requires to be paid before the date of final adjustment. Regarding the amount, limit and period, it depends on the nature of the case in review. Cash Finance: In this mode of financing the borrower is allowed to make withdrawals of funds as he requires, but the total amount outstanding cannot exceed the limit sanctioned. The mark-up/interest is calculated on the amount outstanding on his account. The calculation of mark-up/interest is based on the number of days a specific amount is withdrawn. This finance if normally borrowed by small traders or individuals for their petty matters involving cash transactions up to rupees three hundred thousand maximum. Running Finance: To assist a large-scale business operator to carry on his day to day requirements of liquid funds, this account is opened is made operation in his favor. Running finance is provided where the amount goes beyond rupees three hundred thousand. The mark-up/interest is calculated the same way as in case of cash finance.

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Security against running finance is that which is easily convertible in to cash and bank kept 25% margins with it. Non-Fund: Bank provide non fund advance in the following form: a. Guarantee b. Imports Guarantee: A guarantee is a promise between one person to another person or party to answerable for the debt of a third party. Bank issues guarantee after 100%cash collaterals are provided by the person i.e.50% in the form of the property. Imports: Bank provides non-funded credit facility to the following basis. •

Sight LC

•

Usance or DA LC.

Sight LC: In this type of L.C when payment is made documents are released. A cash margin of 30% is relational by the bank. Usance or DA L.C: The bank retains the payment after a period of days, which is given in the L.C a margin of 30%. TYPES OF LOANS The credit department of NBP has providing the following types of loans 1.

Short term loans

2.

Long term loans

3.

Working capital loan

4.

Syndicate (project) loan

5.

Monitoring

Documentation in short term financing Demand promissory note Mark up agreement Letter of guarantee in personal capacity Letter of authority Letter of pledge Memorandum of deposit of title deal Status reports: A credit report is an assessment of borrower’s character and capacity from a banker’s point of view. Credit reports on borrowers called Status Reports, financial reports, banker’s opinion or confidential reports. All these terms carry more or less the same meanings. The study of a borrower is a 65

study of his character, capacity and capital, and collateral often known as the 4Cs to consider his credit worthiness and eligibility for the bank advance. The purpose of compilation of credit report of the borrower is to assess their net worth. It must contain information about borrower’s means, character, integrity, assets, liabilities, business and experience. Besides, borrowers own investment, details of properties, must be obtained. The borrower may be asked to give written clarification of their existing liabilities. In the case of Limited Companies, their borrowing powers to be verified from their Memorandum & Articles of Association. Their certification of incorporation to be examined, exiting borrowings, prior charge on their fixed assets, paid-up capital, reserves, profit and loss position, detailed particulars of their directors and complete analysis of balance sheet must be incorporated in the credit report. Independent inquiries about the borrowers and opinions form their previous bankers must be made. As such a comprehensive credit report is compiled which serves as a constant guide to the banker about his borrower. This report is prepared by the bank of the intending borrower with a view to considering his Credit Worthiness and Eligibility for the Bank Finance. Besides other things it contains the net worth of the borrower.

Net worth of borrower Individuals: Net of the individual’s worth is the total investment or equity of the sponsors/borrowers in the company through which they are asking for credit and in the other sister concerns. Firms: Total investment in Business + Properties – liabilities Paid-up-capital + Reserves + Profits (Losses) The Investigation process 1.

Knowing the market place

2.

Risks inherent in lending

3.

Management risk

4.

Market risk

5.

Earnings fluctuations risk

6.

Default risk 66

7.

Marketability risk

Criteria checked for loans Major areas requiring focused attention of the analyst are: 1. Financial Condition Which is reflected in the trends of: Net sales Gross sales Operating profits Net profits (at least for the last 3 years) 2. Structural Liquidity: It refers to the extent of liquidity usually available

in the business, or which is the routine requirement of the borrower based on the nature of his periodically maturing liabilities. 3. Industry/Business Of Operation: The banker has to check that in which

industry or segment of market the loan is being given this is important because if there were a recession in that industry for decades then it would not be feasible to invest in such a business. Certain traditionally stable industries are in Pakistan in which NBP feels satisfied while investing. For example in they feel satisfied by investing in ICI. 4. Debt Equity Management: Excessive reliance on debt, rather than plough

back of profits or injection of fresh equity, to maintain a healthy combination of debt and equity is thought with danger because ultimately the debt servicing requirements place a heavy burden on its liquidity thereby its survival. 5. Assets Management: Asset management involves the analysis of how

productively the assets of the company are being used. Sales and profitability can be measured with this. 6. Borrower’s Credit Worthiness: In order to get a complete picture of the

borrower’s credit worthiness, inquiries will have to be made about: a.

His business.

b.

Trade experience.

c.

Assets and liabilities.

d.

His account with bank or with other banks.

e.

His financial statements and income tax returns.

67

f.

An interview with him will be necessary to elucidate or supplement the

information that may have been collected. 7. Management: Before giving loan NBP also checks whether the management have the depth, skill and experience. If the management is aggressive and adoptive to the new changes then it is most likely that the banker may receive the loan back on due date 8. Securities: In case the borrower is not in a position to meet his obligations, there must be something else to call back upon. So bankers take securities to have a resource to them to guard liquidity, that is, security is an insurance against calamities. In case of cash finance the customer have to give the same amount of money to the NBP as a security for which it takes loan. Condition for security: The security must be liquid or radically convertible to cash with more then adequate margin of safety fully under the banks control, having high value, which can with stand volatile market condition. Secured by acceptable immovable tangible collateral with necessary margin and fair degree of marketability under the forced sale situation (should have buyer). The types of securities may vary from a piece of land or building to commercial papers or ornaments. Further, security has its own importance, not only as constituting the ultimate source of recovery in the event of failure of the borrower or his enterprise, but as providing a measure to the borrowers own stake in the enterprise and also placing the limitation on his future borrowings. However, though security serves as a cushion to fall bank upon in case of need, but its adequacy alone should not form the sole consideration for judging the suitability of the loan. So the choice of security is not made in isolation, but keeping into consideration the customer and security offered together. Guarantees: A grantee is defined as “An undertaking by a person to responsible for the debt of another person.” National bank of Pakistan issues guarantees to government agencies like atomic energy, high way department, and customs arthritis. Sui northern gas and others. It also issues guarantee to multinational organization like Siba gigay, Sandoz, PBS, and etc. for the purchase of pesticide or insecticide from any fertilizer company. Bank accepts only long other bank guarantee but in 68

some cases personnel guarantee is also accepted. The guarantee issued is treated as contingent liability. According to local rules and regulation the policy for issuance of guarantee can be changed. The expiry of the guarantee can be set by both bank and guarantor. The minimum period is one year and the guarantee can be reissue for extra period with paying charges. The two officers whose signatures appears in the specimen signature book of bank and also counter sign by the zonal chief must sign each guarantee. Both officers must also sign any amendment. Am amendment in the guarantee can be made after giving written application to issuing branch. If the value of the guarantee is reduced by the amendment the liability amount will be reduced and if will value is increased additional liability entries will be passed. The bank provides following types of guarantees to the customers. a.

Bid bond

b.

Mobilization bond

c.

Performance bond

Bid bond: The facility provided at the time of bed opening is called bid bond. Mobilization bond: When the bid is accepted, the bank provides this type of facility to the customer. Performance bond: When the project is completed, the contractor about the performance of the project provides a performance certificate for one year. During one year, if there is any mishap in the project the repair otherwise authorities claim the performance charges from the bank. Bank charges commission on issuance of guarantee as per their schedule of charges. If the party did not pay the amount in the stipulated time period, bank puts this case for recovery. If some amount is recovering then it is good otherwise bank deduct the amount from its profit and starts the legal procedure against the property pledged by the customer to bank. Bank assesses the demand of the customer and then writes letters to other banks to provide them confidential report of credibility about the customer this is one provided in the shape of CIB (credit information bureau) report provided by the SBP. In this report the credits of the customers with the bank operating in Pakistan are given. After checking this report the bank issues the guarantee to the customer. In case of death of his heir as given in the will be responsible for that guarantee.

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Security: It is an interest or right in the property gives to the creditor to convert it in cash in case of debtor fails to meet the principal and interest. The bank provides the following securities to the customers. Mortgage: Transfer of interest in movable property for securing the payment of money lend on existing or future liability. The bank provides the following two types of mortgage. a.

Registered mortgage

b.

Equitable mortgage

Registered mortgage: Registered mortgage is provided on the residential property, commercial industrial property, raw plot, etc. A party can get registered mortgage if they provide the following documents to the bank. a.

Title deed

b.

Non encumbrance (NEC)

c.

pit form (in case a constructed hose)

d.

Valuation certificate

e.

Affidavit

f.

Mortgage deed

g.

Personnel guarantee of mortgagor

h.

Power of attorney

i.

Legal opinion. Banks examine all these reports, and if they are correct then issue the

mortgage to the party. The bank examines these reports to see that the property they want to mortgage is registered and is not already pledged. The bank also calculates the value of the property and the legal opinion of the customer in case of non-payment. Equitable mortgage: Equitable mortgage is provided on the residential property, commercial industrial property, raw plot, etc. a.

Title deed

b.

Non encumbrance certificate (nec)

c.

Pti form (in case a constructed house)

d.

Valuation certificate

e.

Affidavit

f.

Memorandum of deposit of title deed

g.

Personal guarantee of mortgagor 70

h.

Power of attorney

i.

Legal opinion

In this mortgage a charge form bound the customer for any legal action in case of non-payment. In this type of mortgage hypothecation of stocks involves. Pledge: A pledge is an “a class security given to customers for stocks ware house, customs, and etc. it is defined as actual delivery of movable property to lender as security for a loan. When the customer makes the payment of the loan in full he can back his mortgage property from the bank i.e. when full payment is made the stock is released. Procedure of sanction of loan: In Credit department 1st step is to preparation of credit line proposal for the preparation of credit report. For this following information required by the bank from the party. a.

Purpose of loan

b.

Details of all firms or companies associated with business

c.

Name of proprietor/ partner/directors

d.

Accurate and up-to-date balance sheet and profit and loss statement of

le.st two years of business f.

Market report of the borrower repute

g.

Report from the bank if borrower has maintain his account with the

bank h.

CIB report

i.

Full details of existing limit and actual liability against the business

j.

Particular about the foreign exchange deposits and bills given by the

borrower to the bank k.

Memorandum and article of association in case of limited company

l.

Audited report of balance sheet and income statement of last two years

After checking all the securities, customer verification the manager done the following tasks 1.

Preparation of credit proposal

2.

Prepare the about the customer

3.

Sanction of loan Preparation of credit proposal: After formal application for the

credit the party submits approval. For this purpose borrower can use coarse 71

paper or the form provided by the bank. Along with the application borrower also submits the documents required by the bank. The bank manager evaluates the documents provided by the borrower. He gets the party’s credibility report confidentially from the other commercial banks. He checks the balance sheet and income against the assets in the company. He also measures the percentage of owner’s equity. Then he doses the ratios analysis of the company. If the party is involved in the export and import business then the data of the last three years of this business is considered. The manager of the bank also examine the project violability, the securities provided by the debtor to the bank are evaluated by measuring their worth. In the case of pledge is assessed by the manager while in case of new party manger checks from where the party is financing for their business Prepare the Proposal about the customer: After preparing the proposal manger prepare the report about the customer. Report contains the following information 1.

Name of the company

2.

Date of establishment

3.

Address

4.

Nature of business

5.

Branch office

6.

Worth of business

7.

Date

8.

Banker’s opinion

9.

Head cashier opinion

10.

Branch manger opinion

In case of partnership business following information is included in the report a.

Partner, their share in capital, profit and loss

b.

Deed of partnership

c.

Partnership letter

d.

Turn over

e.

Net profit

f.

Personal property of partners

g.

Bank balance of partners

h.

Advance payment of suppliers 72

i.

Particular of machinery installed in the factory through financing

Incase of corporation/limited companies the following information are included 1.

Incorporation and commencement of company

2.

Sales offices

3.

Capital information

4.

Directors and their contribution to capital

5.

Balance sheet with explanation and evaluation

6.

Net worth of the company

Sanction of loan: If the limit of the loan lies with in the power of manger then he sanction the loan otherwise manger with the covering letter along with all necessary documents sends it to the concerned sanctioning authority. DEPOSIT SECTION:

The Government Deposit Department handles the applications of the banks for government deposits, the receipt and delivery of securities for collateral, the calculation and receipt of interest on the deposits, the records of redeposit’s and withdrawals, and the records of collateral and of coupons from the collateral. Sir Tariq Mehmood is in charge of deposit section. It accepts deposit from customers. Following types of deposits are offered by National Bank: 1. Current Deposit 2. Saving Bank Deposit 3. Profit And Loss Saving Account 4. Fixed Deposit 5. Call Deposit 6. Short notice term deposit 7. Foreign Currency Deposit 8. Cumulative deposit certificate (other) a. Current Deposit or Current A/C: in this type of account the client is

allowed to deposit or withdraw money as and when he likes. He may thus 73

deposit or withdraw several times in the day if he likes. Usually the bank allows this and services charges are deducted by the bank and current deposit account. It is for business men or person who needs deposit & withdrawal. b. Saving bank deposits or saving A/C: This type of account is for those

persons who want to make small savings. This type of account is opened with Rs. 100. In this case deposits can be made only up to a costing amount and with drawls are allowed twice a week. If the depositors want to withdraw more than Rs. 15000 a seven days notice is required before the withdrawal. Bank pay facility without restrictions. Deposit treated as liabilities. No profit or mark up. c. Profit and loss saving accounts: These types of accounts are one step

towards the islamisation of banking system in the Pakistan. Under such types of accounts the bank allows no interest to the customers. The executive board of the bank declares the profit or loss every year. PLS saving account having a running minimum credit balance of Rs. 100 would be eligible for sharing profit/loss of the bank. The rate of profit or loss on PLS saving accounts shall be determined by the bank at the close of each half year, in its sole discretion and the banks decisions shall be final and binding on the PLS account holder. d. Fixed deposits: in this type of account a certain amount is deposit for

certain, period such as six months, two years or longer. A fixed deposit receipts is issued in the same of the depositor to withdraw his money or to renew this deposit. The interest allowed on fixed varies with the period for which the deposits are made. e. Call Deposits: Call deposits are the sorts of deposits, which are deposited

with the bankers against any tender. This is without interest provided the depositor has agreed to keep its amount with the banker for some fixed period. f.

Short Notice Term Deposit or S.N.T.D: This kind of deposit is for a short period. The depositors may withdraw his deposit at any time by giving seven days notice to the banker. In this type of deposit facility the trader is allowed to withdraw his amount with interest of the deposited period. 74

g. Foreign Currency Accounts: Foreign currency account is opened by

depositing foreign currency. You can open foreign currency account in:  US DOLLAR  POUND STERLING  JAPANESE YEN  DEUTSCHE MARK BOOKS RELATING TO CUSTOMERS: 1. Pay-in-slip: When money is to be deposited in the bank the pay in slip is to be filled. The object of this book is to provide the customer with the bank’s acknowledgement for receipt of money to be credited his account. 2. Cheque Book: A cheque book contains a number of cheques, which is given to a customer upon written request and after marking the payment for the cheque book. It enables a customer to make withdrawal from his account for make payment to various parties by issue of cheques. 3. Pass Book: Pass book is a copy of the customer account as it appears in the books of the bank. The clerk in this book records balance. But now a day due to computerization the concept of pass book is not in practice.

GROUNDS FOR CLOSING THE CUSTOMER’S ACCOUNT

The banker may close the account of the customer due to following reasons: a. Notice by a customer b. Death of a customer c. Customer’s insolvency d. Customer’s insanity e. By order of court

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f. Unsatisfactory operations 1. Notice by customer: The banker closes the account of the customer on the application of the customer for closing his account. 2. Death of a customer: On death of his customer, the bank must stop payment on cheques drawn on him by the deceased customer because the death revokes his authority to pay such cheque. The heirs or executors of the deceased customer or not authorized to operate on the account. It can act only in accordance with provisions mentioned in the letter of probate issued by competent courts.

3. Customer’s insolvency: Insolvency in civil death therefore, the insolvent adjusting loses his rights receiver or liquidator as the bankers receives the notice of insolvency of the adjusting or petition filed for adjusting a filled customer insolvency.

4. Customer’s insanity: If the customers become insane or mental it

terminates the banker’s authority to act as his customer’s agent. Since the

banker customer’s relationship comes to end, in such as situation, it is usually

considered that the banker’s authority to pay his customers cheques is revoked

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by notice of insanity. However the bankers treat their customers as it unless a

fairly inclusive evidence of the customer’s insanity is available to them.

5. By order of court: A court of law may serve a banker with an order in garnish proceeding in execution of a decree prohibiting him from honoring a customer’s cheque.

ACCOUNTS DEPARTMENT

Usually accounts are maintained in two ways. a. Journal system Journal system is adopted by some commercial industrial institutions. In journal system entries are reported in journal Books and then posted to ledger.

b. Vouchers system Voucher system is too used for every transaction. Voucher has to be prepared either in cash or in transfer or in clearing, the Sheet upon which these vouchers are summarized transactions wise and consolidated into a figure is called supplementary.

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Types of supplementary: 1. Debit supplementary 2. Credit supplementary Debit supplementary is used for debit voucher and credit supplementary is used for credit voucher books and registered maintained by bank are as follows. o

General ledger:

o Statement of daily affairs o Cash book or cash cum day book o Transfer book o Income and expenditure ledger etc. Income includes: •

Discount

•

Service charges

•

Rent (on building)

•

Commission (from utility services)

•

Brokerage (A bank sells and buys share, stock, debentures, other securities and receives payment for these services.)

Expenditure includes: 

Salaries, allowances and provident fund



Rent, taxes, insurance, lighting etc



Profit paid on deposits and borrowing



Stationary, printing and advertisement charges etc



Auditor’s fee and legal charges. 78

REMITTANCE DEPARTMENT

Remittances can be made through: Instrumental transfer Electronic transfer

a.

Instrumental Transfer

Instrumental transfers are following Demand Draft: It is an instrument, which is payable on demand and it is only presentable in the city/country. When any draft, i.e., an order to pay money, drawn by an office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by the payment in due course. When a person requires a draft, he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. The person to those persons, who have been duly authorized to act on his behalf, should sign this application form. An advice is prepared and two copies of this advice are sent to the Head Office. The bank charges 3% withholding tax and commission according to the rate list (minimum is Rs. 200). Pay Order: It is an instrument, which is payable in demand and only presentable in city. Pay order is also called the banker’s cheque drawn upon the issuing bank itself. It is not negotiable and therefore, bankers tend to cross the instrument “Payee’s account only” to avoid the possibility of dealing with instruments with forged endorsement. The pay order is issued favoring individuals, commercial concerns, and government departments. On the presentation of pay order, the bank is liable to pay

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the amount to the customer. Bank charges excise duty of Rs. 4 and service charges of Rs. 100. Pay Slip: It is an instrument, which is issued by bank and used for expenditure purposes, i.e., electricity bills, maintenance bills, security bills, fixture and fitting, etc. Call Deposit: Call deposit is not actual deposits of bank. It is in fact the liability of the bank. Call deposit are openly prepaid by the bank for contractors PROCEDRE: Following steps are involved 1) Depositor fills the credit vouchers for call deposit. He writes the following information Name of company Amount Date 2) He deposits the cash along with filled voucher in the cash department Encashment of CD For the encashment of call deposit needed 1. 5 rupee stamp 2. two signature of customer on the back side of CD 3. token issued 4. accountant make entry in the CD register show that it has returned

b.

Electronic Transfer

Electronic transfer is of following types

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Telegraphic Transfer / (T.T): It is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of telex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawer office upon identification or through credit into beneficiary’s bank account. As such remitting office is not required to issue any instrument payment to the remitter for delivery to the beneficiary. Issuance and Payment of Telegraphic Transfer Outgoing Application form is filled by the client in whom the name and account number of the beneficiary, which is to be credited and name of customer, is required. For telegraphic transfer, the payment can be made in case or by cheque or by debiting the customer’s account if he is the account holder. The amount of Telegraphic Transfer should be written on the form. The amount is transferred to beneficiary’s account in the other bank. An advice is given to the customer but application is filled in the record of the bank. If the beneficiary is not the account holder of DBL, bank credits a Telegraphic Transfer payable account and when payment is made to the beneficiary, TT payable account is debited. Issuance and Payment of Telegraphic Transfer Incoming When a TT is received then an entry is passed in TT incoming register after verifying the test. When a person comes and wants to encash his TT, bank checks the statements of that person. If the bank finds any account credited to the person’s account against TT, bank prepares a voucher for this payment against that TT. The customer then presents that certificate to the cash counter and collects money. Mail Transfer / (M.T): It is the same like TT, but in this type, the message is sent through mail rather than telex. The procedure is same as TT, but the advice is sent through mail rather than wired. Traveler’s cheques (TC): These are also called TC. Traveler’s cheques first came into use century ago. Form of travel currency giving to the holder .the security of a letter of credit and convenience of a local currency. In practice, they are acceptable in payments of accounts on board ship, at hotels and in stories. They are in form of a

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draft. They should be so signed immediately on issue and place is provided on the cheque for the signature of the beneficiary on its Lockers service National bank of Pakistan also provides lockers facility in the country. The lockers issued only to the depositors. No lockers are issued to any unknown person. The dual control system is used for lockers. The officer has master key to apply on the locker but he cannot open the locker of any person. The locker holder provides the bank has specimen signature. Whenever the locker holders come to open the locker, his signatures are verified by the officer and then will be able to open his locker. If the key of the locker is lost company providing these lockers breaks the locker and new lock is fitted in its locker and lock is destroyed in the presence of the locker holder and bank charges RS 1200 for that. In case the locker holder dies, the court opens his locker in the presence of his heir as mentioned in his will or and his belongings are given to them and the locker is closed.

DETAILED DESCRIPTION OF THE DEPARTMENT I WORKED IN RELATED TO MY AREA OF SPECIALIZATION

During the period of my internship I learn how to deal with different people’s in different situations, how to do work well etc. In HRM I study that without proper planning we cannot do anything right. Bills department is one of the most important departments of NBP. It is responsible for the Govt. related matters. Sir Aziz is the head of Govt. section. Govt. department deal with the Govt. bills, Pensions etc. Making F-110 & F-15 is the responsibility of this department. Sir Aziz passes every bill for payments. Because Govt. department is responsible for the dealing with people therefore, I spend 2 weeks there. In the days of pensions, there was too much rush of pensioners. It was difficult to handle them because they are all older & want that they get pension as 82

soon as possible. And also the dates of salaries in those days, so it was too hard to deal with pensioners & govt. bills at a time. As I had done MBA in HRM, & in this subject I study how to deal with people’s, what type of planning needs to handle this type of situations, what type of behavior need at this situations & how to remove conflict in this situation, so it is easy to me to handle them effectively without any problem. I made proper planning with cash department for doing work effectively before the dates of pensions & because of proper planning I was able to complete this task. I also work in deposit, credit, clearing section, foreign exchange there I also deal with people effectively. According to the bank staff, there is too much difficult in work govt. department because there we meet all types of people & difficult to handle them in rush but because of doing specialization in HRM, I run this department effectively. And in this way my internship is related to the knowledge of my area of specialization.

Structure of the HRM Department

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Department hierarchy:

Vice president Human Resources

Manager

Manager Total compensation

people & Organizational development

Manager Labor relations

Human resource management process in the organization:

A. Human resource planning and forecasting

HRP is a process in which HR department systematically reviewing human resource requirements to ensure that the required number of employees with the required skilled is available when they are needed. In forecasting HR department forecast the demand and supply of workforce in the NBP. 1. HRP process:

a. Determine the organizational mission:

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It states NBP’s overall purpose and basic business scope and operations it provides information. b. Scan the organization environment: This is known as SWOT analysis through this process NBP’s HR department identify opportunity, threat, strength and weakness that can be faced by the NBP. c. Set strategic goals: Set specific long term and short term goals and objectives. These goals are specific, challenging and measureable. d. Formulate a strategic plan: Course of action is designed to meet strategic goals and departmental goals are selected at this step.

These are steps of HRP process.  Determining the objectives.  Defining skills required to meet objectives  Determine additional human resources requirements in light of current HR.  Develop action to meet the anticipated HR needs.

2.

Forecasting HR requirements:

A requirements forecast is an estimate of the numbers and kinds of employees the national bank of Pakistan will need at future dates in order to realize its goals.

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3.

Methods to forecast HR needs:

Several methods are using to forecast HR needs. •

Zero- base forecasting:

This method uses the NBP’s current level of employment as the starting point for determining future staff needs in NBP. •

Bottom- up approach:

It is a forecast method in which each successive level of the NBP, starting with the lowest and forecast its employee requirements in order to ultimately provide an aggregate forecast of employment needs. •

Use of mathematical models:

Mathematical model also use for forecasting HR requirements. It defines relationship between demand and the number of employees needed. •

Simulation:

It is a technique for experimenting with a real world situation through a mathematical model representing that situation.

B. Employees recruitment & selection

Recruitment: Recruitment can be defined as the process of discovering potential candidates for actual or anticipated organizational vacancies. Every organization has its own recruitment policy. According to the recruitment policy of NBP, the requirements are: 86

Candidate must be a citizen of Pakistan. She/he must be a business graduate, and She/he should have attained the age of 18 years but not exceeded the age of 35 years.

1.

Sources of candidates:

Basically two type of source of candidates, internal and external. Internal are within the national bank and external that are out side the national bank. a. Internal sources:

In this type of source vacancies in upper level management can be filled either by hiring people from out side the national bank or by promoting lower level managers. These are major forms of the internal recruiting in NBP. o Promotion from within. o Job posting. o

Contacts and referrals.

b. External sources:

There are some employee’s needs that a firm must fill through external recruitment. Among them are, filling entry-level jobs, acquiring skills not possessed by current employees and obtaining employees with different backgrounds to provide new ideas. These are external source.



High schools and vocational schools



Community colleges



Colleges and universities



Competitors and other firms



Unemployed



Older individuals

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2.



Military personnel



Self-employed workers

Employment selection process:

Employment selection process or Procedure: There are certain steps involved in the procedure in recruiting to NBP. They are: Applications are invited from candidates on prescribed forms against the vacant posts advertised in the newspapers. Application forms received are scrutinized and eligible candidates are called for written test. Test is conducted in four subjects, i.e. English, Computer, General Knowledge and Mathematics. Written test carries 250 marks. Candidates who qualify the written test are called for interview. Interviews are held at GM office. After that the candidates have to undergo a medical check up by the prescribed doctor. Appointment letters are sent to the selected candidates, who have to present themselves before the Head Office for signing the following documents. 1. Bank Secrecy Bond 2. Security Bond 3. Service Agreement Bond Appointed candidates are kept on probation for 9 months. They are sent for a 9months pre-service training to the Staff College. NBP look these things when recruiting personnel: • Team players with excellent interpersonal skills • Knowledge and use of information technology • Strong analytical and problem solving skills • Excellent written and verbal communication skills in English.

C. Training & development

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Training and development are the core issues of HR, which will ultimately improve our customer service and help us, attain the standard of a progressive bank

1. Training need assessment:

Following sources help HR department in training need assessment.  Self assessments  Company records  Customer complains  New technology  Employee grievances  Interview with managers  Customer satisfaction survey  Observation etc. In 1949, the first year of operations the NBP has one hundred employees one its payroll but with in two years this number had grown to 1505 by 1960 the figure has risen to 5023 and now in 1996 it is the order or 20694. During the first ten years the NBP trained its own staff through a series of training programmed both for junior officers and clerical staff. By 1958 how ever it was obvious that one thins more comprehensive was needed and the bank established a staff college Karachi. Three mote colleges at Islamabad, Lahore and Peshawar, setup later. These colleges provide course of instructions, supervisor personnel and clerks to meet the Bank’s ever growing trained personnel. This needs springs not only from the steady grown for the bank’s business but also to replace wastage due to retirement resignation, ill health or death. The staff college receives junior bank officers for further training in banking the course lasting from six to nine weeks with about twenty five students in each course.

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The staff college course are designed not only to impart technical instruction, but also develop qualities of judgments decisions, leadership and management, since these student are likely to be those men who may expect to the seniors most executive positions the bank has to offer. The bank also deputes officers to attend banking seminar both in Pakistan and abroad and it attaches great importance to the exchange of ideas information and knowledge which can most use fully accrue from these gatherings. In its position the National Bank has considerable responsibility in ensuring that the country is well represented at meetings of bankers at domestic and international level.

2.

Employee development:

National Bank of Pakistan has an existing Human Resource development department, which operates to increase the existing skills of the people existing or coming in the organization, in order to achieve its objectives in a more efficient and effective manner. NBP has devoid two basic training techniques. First is related to the training and development of mid term plan, regarding new clients & middle level employees. Secondly, the training & development for long term plan, regarding the career development of higher level employees. NBP applies on-job and off-job strategies to train its employees (middle & higher level). NBP training & development academy advises Job rotation to ensure & facilitate the producing of all rounder.

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The source of this assignment confirms the availability of the training plan at least 2 months before the commencement of New Year, in order to make it easy for the socializing and orientation of the new employees. NBP believes in pre-post training test for existing employees & post training test for new employees. The trainees will be required to submit back-home action plan, which will be followed up by the JNMDC/Staff colleges. These plans will help in evaluation and end use of training

D. Performance management

1.

Setting performance standards & expectations:

Standards of performance provide the basis against which the individual can be effectively appraised. There are eight conditions to consider when setting standards of performance: 1. Standards of performance are based on the job and not on the person doing the job. 2. Standards of performance are achievable. 3. Standards of performance are understood by the employee performing the job. 4. Standards of performance are agreed upon by both the employee and supervisor. 5. Standards of performance are as specific and measurable as possible. 6. Standards of performance should be time-oriented. 7. Standards of performance are always in writing. 8. Standards of performance allow for revision and change. The system by which organizations evaluate individual job performance. More over it is about the employee performance and the accountability. As the world is now global village and your competitor is watching you, so the organizations need high performance. So the output of the organization depends upon the feedback provided to the employee timely. Especially the newcomer to the organization needs to understand their jobs and their work setting. The longer-service employees also want positive 91

feedback on the good things they do. So the NBP is an organization where the management feels about the employees. The employees feel sense of belongingness in return. HRD section always takes this opportunity to evaluate the performance of the employees. The appraisal system also helps the management of the NBP to help the managers with placement, pay, and other HR decisions. The HRD section of the NBP carries out the appraisal for the following uses; It allows the employee, the Manager to take necessary about the improvement of the performance. The system also helps in promotion and pays increase of the deserving employees after their evaluation and also prepares the next person for the succession plan.

2.

How performance reports are written

PERFORMANCE REPORT—WRITTEN Employee: _______________ Date Hired: _______________ Job Title: _________________ Salary: __________ Date of Review: ___________ 1. PERFORMANCE EVALUATION—INTERACTION WITH CO-WORKERS __________________________________ _________________________________ __________________________________ _________________________________ 2. PERFORMANCE EVALUATION—PROFESSIONAL ATTRIBUTES __________________________________ _________________________________

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__________________________________ _________________________________ 3. PERFORMANCE EVALUATION—QUALITY OF WORK __________________________________ _________________________________ __________________________________ _________________________________ 4. PERFORMANCE EVALUATION—EMPLOYEE OBLIGATIONS __________________________________ _________________________________ __________________________________ _________________________________ 5. PERFORMANCE EVALUATION—ADDITIONAL COMMENTS __________________________________ _________________________________ __________________________________ _________________________________ Date of Next Evaluation: _____________________________________________ Employee Interviewer

E. Employee compensation & benefits

1.

Type of compensation & benefits:

Compensation means all rewards that individual receives as a result of their employment. Employees of national bank of Pakistan received compensation & benefits in the following way. Pay: money that an employee receives for performing a job. 93

Benefit: additional financial rewards rather then basic pay include paid vacations, sick leaves, holidays, medical insurance. Non financial rewards: non monitory rewards such as enjoyment of work performed or a pleasant working environment. Different types of compensation include: Base Pay



 Commissions 

Overtime Pay



Bonuses, Profit Sharing, Merit Pay



Stock Options



Travel/Meal/Housing Allowance



Benefits including: dental, insurance, medical, vacation, leaves, retirement, taxes

Besides a competitive financial package, they offer excellent working conditions, job satisfaction, superior leadership, and a conducive environment for growth. F.

Organizational career management

1.

Employee job changes

Job changes in the classified service must be made in accordance with the civil service rules and regulations. Any person appointed or promoted must be certified as qualified in accordance with and subject to the civil service rules and regulations. The state personnel director shall. The state personnel director shall administer the certification of all appointments and promotions. 2. Job changes with the organization Job also change with the organization because when employee achieved a chance of promotion in any other organization he will leave the current organization but there are some rule that he can follow.

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Change Management Program: NBP has started an ambitious Change Management Program to further train its employees to meet the challenges of present day requirements Promotion The promotion policy introduced in 1979 was based on three parameters i.e. (i)

Qualification,

(ii)

length of service and

(iii)

Standard of service.

Separate marks were prescribed for each of the three parameters and, after obtaining the minimum qualifying marks varying from cadre to cadre; one could be promoted to the next higher position. While formulating the merit based promotion policy introduced in 1999, the considered opinion was that separate points should not be prescribed for qualification and length of service. The simple reason for this thinking was that the minimum qualification stood, as prescribed at induction for different levels of hierarchy. The other consideration for such views was that in case the employee had increased his qualification for his better performance as compared to other colleagues, then the said qualification would be reflected on his performance and this would obviously have him rated better than others. Views regarding the seniority of an employee were similar. Thus under the merit based policy of 1999 the overall assessment of an employee was based on the combination of (a) average of points earned by the employee in his PERs during previous three years and (b) the points that he would earn in an evaluation by the Promotion Committee. The awarding of points by the Promotion committees, however, again reduced the exercise to a mechanical process as 60% points were fixed for qualification, length of service & standard of service and only 40% points could be awarded on objective criteria. Further improvements in the policy are being planned. Transfer Transfers on request, however used to take place only on compassionate and medical grounds while another reason was that these were initiated by the Bank for meeting its business or administrative requirements i.e. filling up the vacant positions. 95

Maintenance of office-wise seniority lists up to OG-1 (on the General Side) and up to OG-2 (T.O) (on the Cash side) had also contributed to the lack of movement of employees from one office to another. Resultantly all the employees become permanently positioned in their place of work, whether the head office or the field offices of the Bank. At the same time, there was much movement within the unit/division of posting. Although instructions provided that an employee can remain posted in one unit for up to 3 years and in a division for up to 6 years, yet some offices used to frequently transfer their employees from one unit/division to another. On the other hand, transfers from one department to another at the Head Office were rare. This had further deteriorated the level of efficiency both at the head office and the field offices. With the objective of preparing staff to accept new challenges, acquire new skills and diversified experience, the following transfer policy has been framed for all categories/sides of employees (other than clerical & non-clerical staff of the Bank): 1. The seniority list of all OG-1 and above will be maintained on an all-Pakistan basis. However, all employees including those of Cash department shall remain transferable from one office to another. 2. All transfers involving change in office up to OG-3 shall be made by the

Director Administration, OG-4 & above with the approval of the Managing Director. 3. Employees on promotion as OG-4 and above shall invariably be transferred

from the office/department where they were working before their promotion. 4. An employee transferred from one office to another shall be allowed to seek

his posting back to his parent office or to the office of his choice subject to administrative convenience immediately after completion of 3 years. 5. The Chief Manager shall not remain posted at one office for a period of more

than 3 years. 6. The shortage of employees at an office because of review of staff position will

be made good after calling options from the interested employees of the Bank. If no such employees are available, the vacant positions will be filled through transfers of employees from the offices where sufficient/surplus staff is available. Duration of such transfers would be for a period of two years to avoid inconvenience. 96

Procedures 1. Employees are considered as candidates for transfer in the following order or priority: a. Eligible employees in same department as the job opening b. Eligible employees in other departments who have requested a transfer c. Eligible employees being considered for lay-off due to a reduction in force 2. Employees desiring a transfer will submit a written request for transfer to his/her department head. The employee should identify the specific vacancy in which they are interested. The department head will forward the request to the Department of Human Resources for recommended action. 3. The Department of Human Resources will determine whether the desired job or a suitable job opening exists. If a suitable job is available, the Department of Human Resources will arrange for the employee's application to be reviewed by the department in which the opening exists. 4. Employees will be allowed time off with pay for job interviews related to transfers. 5. The decision to affect the transfer will be made by the head of the department in which the job opening occurs. 7. An employee who is transferred to a comparable job (lateral transfer) will continue to receive his/her existing rate of pay. Demotion An employee of NBP may be demoted for violating the rules of the bank by a behavior such as excessive lateness, misconduct, or negligence. In some cases, though, an employee may be demoted as an alternative to being laid off, if the NBP is facing a financial crisis.

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Notice: If an appointing authority intends to involuntarily demote an employee, the appointing authority shall give prior written notice of the specific reasons for the demotion to the employee. Conditions: An appointing authority may demote an employee under any of the following circumstances: (1)

The employee is not performing satisfactorily.

(2)

The employee's position is reclassified downward.

(3)

The demotion is requested by the employee and approved by the appointing

authority. (4)

The position occupied by the employee is abolished.

(5)

The employee is displaced by the return to duty of another employee entitled

to the position. (6)

The employee is displaced by another employee with more seniority during a

reduction in force. (7)

The employee does not receive a satisfactory probationary service rating 3.

Separations

An employee’s separation occurs when an employee ceases to be a member of National bank of Pakistan. The rate of employee separation in NBP is a measure of the rate at which employee leave the bank. a. Layoff:

When there is surplus of employees in bank then layoff occurs. Layoff is the temporary suspension or permanent termination of employment of an employee or a group of employees for business reasons, such as the decision that certain positions are no longer necessary or a business slow-down or interruption in work. In NBP, all system are computerized therefore there are no need of staff in some departments that’s why layoff occur there. b. Termination

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Reasons for Termination: Employment with the Association may be terminated for a variety of reasons: •Resignation by the employee •Employee illness and inability to work •The conclusion of the contract for which the employee was employed •Dismissal of the employee •Other reasons Procedure 1. Termination by the Employer The Supervisor must: a) Give the employee the required notice in writing. b) Notify the General Manager of the termination of the employee and reason for termination. c) Ensure the termination shall not be harsh, unjust or unreasonable, and shall proceed only after clause 2.8 Settlement of Disputes, Grievances, Employee counseling and Disciplinary Action of the Certified Agreement has been affected. d) Complete the Termination Form and sign. The employee signature is not required. e) Forward the completed form to the Assistant Finance Officer for processing. f) Place of copy of the completed form on the employee’s personnel file.

2. Termination by the Employee The Employee must: a) Give the supervisor the required notice in writing.

The Supervisor must: a) Accept and acknowledge the resignation.

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b) Notify the General Manager of the impending termination of the employee and reason for termination. c) Complete the Termination Form and sign. The employee signature is required to sign the form also. d) Forward the completed form to the Assistant Finance Officer for processing. e) Place a copy of the completed form on the employee’s personnel file.

c. Resignation Immediately on receipt of resignation from the staff, the concerned Branch Manager should fill up all columns up to 13 in the prescribed format and forward the same to the Zonal Manager through his Controller, along with the Resignation letter. However, since the Competent Authority to accept resignation of the award staff working in branches is the Respective Zonal Manager, concerned Assistant General Manager should submit the format duly completed to the Zonal Manager The following actions must be undertaken when a member of staff resigns from their post in order to ensure that final salary payments are correct. The Member of Staff • must inform their line manager of their intent to resign in writing giving the appropriate contractual notice period. • The Line Manager • agrees notice arrangements, leaving date and confirms annual leave that is owing/owed with the member of staff. Where possible, any outstanding annual leave owing should be taken prior to leaving. • receives and forwards written resignation to HR along with confirmation of: a. The agreed leaving date b. The annual leave position

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c. Notification of whether the member of staff is leaving the bank or transferring to another department • ensures that the member of staff returns their particulars on their last day. HR Office • checks that the agreed leaving date and outstanding holiday entitlement is correct • acknowledges resignation letter in writing to the member of staff., cc to Head of Unit; Line Manager; Payroll; Pensions; Management Accts; File within 3 working days. The payroll monthly deadline must be met. • inputs leaving date and reason for leaving on Resource Link and ends the record Payroll Office • Must receive notification from HR by the monthly payroll deadline. • processes the final salary payment and issues P45.

d. Retirement Procedure: 1. HR Department writes to employee CC line manager advising retirement date 2. Line manager arranges informal meeting with employee to discuss plans and

confirm right to request continued working. 3. Line manager writes to employee confirming meeting CC HR. 4. Employee chooses to retire at 65. 5. Normal retirement procedures apply.

G. Labor management relations 101

In NBP there is very good relation between labor and management. They cooperate with each other. HR department take care of their unions opinion.

CRITICAL ANALYSIS It is true that bank is trying to adopting computerized system but their most of staff is unable to use computerized system or not familiar with computer. There are no proper facilities in bank for customer. No proper facilities for old age people, they face so many problems in bank. There is no any shop for bank staff so that they can bring something for themselves or their guests in break time. Their all system is manual so much time waste in different process. There is also an electricity problem in this bank. There is reduction of staff in some departments, so they complete almost their work from internees. There is reduction of law & order, so sometimes branch faces so many problems especially in the dates of pensions. All types of pensioners are treated same day that’s why this creates problems. The balance sheet shows the good position of the bank and income statement provides us a brief look over it success during the year. Although income statement showing profit during the year but still there are few thing that should be improved

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SWOT ANALYSIS SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats SWOT analysis is careful evaluation of an organization’s internal strengths and weakness as well as its environment opportunities and threats. “SWOT analysis is a situational which includes strengths, weaknesses, opportunities and threats that affect organizational performance.”1 “The overall evaluation of a company strengths, weaknesses, opportunities and threats is called SWOT analysis.”2 In SWOT analysis the best strategies accomplish an organization’s mission by: 1.

Exploiting an organizations opportunities and strength.

2.

Neutralizing it threats.

3.

Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the organization mission as a context, managers assess internal strengths distinctive competencies and weakness and external opportunities and threats. The goal is to then develop good strategies and exploit opportunities and strengths neutralize threats and avoid weaknesses.

STRENGTHS These are strengths of national bank of Pakistan. 1. NBP one of the largest financial institutions of Pakistan with eight million of customer base NBP holds 24.6% share of time and demand deposits in

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the country. Local currency deposits comprise 67% of bank's total deposits while foreign currency deposits account for the rest. 2. NBP has an extensive domestic branch network of 1232 (according to the

latest data) branches located all over Pakistan. The Bank also has a presence in 18 international locations including the USA, United Kingdom, Europe and the Far East. 3. NBP's total assets stood at Pak Rs.370 billion on December 2000. This included total earning assets of about Pak Rs.268 billion with gross loan portfolio of Pak Rs.140 billion. The bank also has an investment portfolio of Pak Rs.91 billion, which comprises treasury securities, corporate bonds, shares and other securities. 4. NBP cash provision as percentage of non performing loans equal to 60% this coverage factor for the non performing loans is the highest amongst the nationalized commercial bank. 5. NBP is working as right arm government of Pakistan as it is responsible for all claims of government for recovery as well as payment. All depositor of NBP are in relief that their money security is guaranteed by government of Pakistan.

WEAKNESSES

1. NBP staff especially at lower considers their work as burden. They usually waste time in other task a part in performing their duty. Using government property for there own need. They are reluctant to accept change brought by latest restructuring efforts. 2. The general out look and interior layout of branches are not as required according to modern banking 3. NBP bearing up large burden in running those branches, which are not producing any income but keep on adding expenditure.

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4. NBP is relying on its traditional sources of income it has not taken benefit from innovation in banking like introducing retail banking or consumer banking and using any type of scheme to generate more deposits and producing more advances. Further, more don’t even continue its credit card due mismanagement and lack of control. 5. NBP is far behind in offering modern banking facility like automated teller machines then other commercial bank in Pakistan as only eighteen branches in all over country have this facility. 6. NBP has only forty-four on line branches. While from remaining branches data gathering is time consuming, and not fool proof. Quantum of settlement within different branches is pending because of this updating daily record is becoming very difficult. 7. Customers have to fallow long lengthy procedure for opening of account as

well applying for debt. Which discourage most of the people to invest in NBP. 8. In NBP, most of the time merit not has importance in hiring of employees. Such practices are black spot on the face of bank and resulted big losses and fraudulent acts by NBP own employees.

OPPORTUNITIES 1. The world today has become a global village because of advancement in

technologies, especially in communication sector. More emphasis is now given to avail the modern technologies to better the performances. NBP can utilize the electronic banking opportunity to ensure online banking 24 hours a day. This would give the competitive edge over others. 2. Because of the need of micro financing in the market, there are lot of opportunities in this regard. Others banks have already initiated, now the time has arrived when the NBP must realize it and take on step to cater an ongoing demand.

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THREATS Following are the major threats which national bank of Pakistan is facing:

1. Major threats NBP facing is from its competitor especially from denationalized commercial bank. In which MCB is on the top of the list, The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 15 cities with over 100 ATM locations. 2. Retail banking and consumer banking resulting in the products such as credit cards, housing finance and automobile finance lending to small individual consumers, and purchases of automobiles, housing, and consumer goods are generally made on a cash basis. These are causing another threat, if not counter will result in significance loss of customers 3. Recently banks and other financial institutions have introduced innovative

schemes to attract deposits, like gift cheque scheme by MCB. These schemes offer prizes on short and long term fixed deposits, through lucky draws. 4. Now banks are using technology which covers the distance no matter how far

away any one, through a satellite based, on-line real-time banking system and by offering telephone banking, electronic funds transfer, E-Banking and other modern facilities.

CONCLUSIONS & RECOMMENDAIONS

National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices. After the completion of my internship report I draw the following. 106

1.

It appears a lengthy process of sanctioning advance.

2.

It looks the staff member are not properly trained

3.

It seems the promotion is not given in the due time.

4.

It appears that large amounts paid on administration cost.

5.

It shows that there is lack of recovery system

6.

It seems that there is no net working.

7.

It seems that there shall be a great the rush days for the customers as well as

for the staff members If the No of counter are limited or very few 8.

It might not be possible for every borrower to repay the money in due time.

SUGGESTIONS

1. NBP major fault is that wasn’t keeping its pace with on going changing in banking industry unlike other bank. Now this bank combining all it power and trying to approach other banks. 2. Latest reorganizing efforts are necessary to make it cost effective also making its facility accordingly to modern banking. These must continue. 3. Bank management has to put its all effort to change the prevailing culture of

the bank and to put the foundation stone of business oriented culture. In which employees give important to the bank and its customer.

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4. To attract the customer in the future NBP have to make extensive effort to give

facilities of retail and consumer banking. Plus the technology in the banking which will be necessary for future banking is another week area need to be stressed. 5. The outlook and interior lay out of the branches is another thing which needs to be improved. 6. The procedure of taking services from the bank must be made easier and

straight forward not involving long difficult procedure for simple task. To remain in the market bank need to be vigilant in the eyes of customer. One way is through promotion efforts, so that people aware about he services of the banking and any addition which the bank as made in the portfolio of its services.

REFERENCES

I collect this information from, 1. National Bank, Annual Reports 2. State Bank of Pakistan Prudential Regulation for Corporate and Commercial Banking 3. State Bank of Pakistan BPRD Circulars 4. Dawn Newspapers for updated information 5. Instruction Circulars of National Bank Limited

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6. Economic Reviews for Banks and their activities. 7. State Bank of Pakistan, Website, http://www.sbp.gov.pk 8. National Bank website, http://www.nbp.com I also visit & complete 6 weeks internship in national bank of Pakistan civil line Jhelum branch for collecting data.

Annexes

List of Annexes Annex 1 Overview of the organization 1.1

Brief history

1.2

Nature of the organization

1.3 Business volume 1.4 Product lines 1.5 Competitors Annex 2

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Organizational structure 1.1 Organizational Hierarchy chart 1.2 Number of employees 1.3 Main offices 1.4 Comments on the organizational structure

Annex 3 Plan of your internship program 1.1 A brief introduction of the branch where you did your internship 1.2 Starting and ending dates of your internship 1.3The departments in which you got training and the duration of your training Annex 4 Training program 1.1 Introduction of all the departments 1.2 Detailed description of the department you worked in OR Detailed description of the project assigned. Annex 5 Structure of the HRM Department 1.1Department hierarchy Annex 6 Human resource management process in the organization: 1A. Human resource planning and forecasting 1.1HRP process 1.2 Forecasting HR requirements 1.3 Methods to forecast HR needs 2B. Employees recruitment & selection 110

2.1 Sources of candidates 2.1 Internal sources 2.2 External sources 2.3 Employment selection process 3C. Training & development 1.1Training need assessment 1.2Employee development 4D. Performance management 1.1 Setting performance standards & expectations 1.2 How performance reports are written 5E. Employee compensation & benefits 1.1 Type of compensation & benefits

6 F. Organizational career management 1.1Employee job changes 1.2 Job changes with the organization a. Promotion b.Transfer c. Demotion Separations a. Layoff b. Termination c. Resignation d. Retirement 7G. labor management relations Annex 7 1. Critical analysis Annex 8 1. SWOT analysis of organization in the business sector Annex 9

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1. Conclusion & recommendations for improvement Annex 10 1. References & sources used

I also visit these links for getting information of NBP,s annual reports. 1. http://www.nbp.com.pk/An_Report.htm 2. http://www.nbp.com.pk/AnReport2004.htm

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