Project Nbp

Objectives to study the organization My basic purpose to study the organization is to get practical knowledge where my education and skills utilize in a most appropriate manner. The objectives to study the organization are. •

The basic to study NBP is to understand banking system.

• To observe how to deal with the customers and how motivate them. • To analyze how banks provide services to the public & private sector. • To study financial transactions performed in a banking sector. • In order to know, how to handle banking documents. • It is second source of getting confident about practical work. • As a student, by doing lot of errors and mistake in practice at last we able to get experience about a work. • It increases level of communication among employees and outsiders.

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• To get knowledge how to create relationship and friendly environment among people of different cultures. • To analyze Strength, Weaknesses, Opportunity, Threats (SWOT) of the organization. • Provide efficient and effective recommendations on solutions of the problems that face by the organization.

Brief History and overview of the organization National Bank of Pakistan (NBP) was established in 1949 under the National Bank of Pakistan Ordinance 1949 and was 100% government owned. NBP acted as an agent of the Central Bank wherever the State Bank did not have its own Branch. It also undertook Government Treasury operations. By 1952 it’s became strong enough to take over the agency function from the “Impirical Bank” of India. The NBP also forward its operation and in 1964 established a people’s credit department to allow credit facilities to small borrowers. It expanded a nation-wide presence of supported by a network of online ATMs and expanded its network of 1,200 branches throughout Pakistan. The bank is listed on the Karachi, Lahore, and Islamabad stock exchange. It has more than 20 branches in foreign countries and still continues to open. The bank provides both commercial and public sector banking services. NBP is a schedule commercial bank and is engaged in business of banking as well as a government bank services. NBP Advance Salary is a

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big example of Individual middle class services. It is working under Banking Companies Ordinance, 1962. While continuing its journey of success, NBP gets highest profit in 2007 in banking history. As December 31, 2007 the bank has total assets worth of USD 12.293 billion. NBP is a commercial organization. It provides both commercial and public sector banking services. The main focus of NBP is to raise assets by marketing individual, wholesalers, manufactures, and government sector in cities as well in urban areas development. This segment contributes significant revenues to the bank. The liability side remains focused on the middle and upper class, retired and serving government servants. It is also a big contributor of foreign trade and serving as a treasury bank. In 1971, NBP acquired Bank of China’s two branches, one in Karachi and one at Chittagong. At separation of East Pakistan NBP lost its branches there. NBP merged with Eastern Mercantile Bank and with Eastern Bank Corporation. In June 30, 1974 the government of Pakistan nationalized NBP when the part of bigger bank amalgamated and NBP acquired Bank of Bahawalpur. In 1994 NBP remains continue to increase its strength and merged Mehran Bank. In 2001, with the cooperative agreement of Pakistani Central Bank SBP and Bank of England allow only 2 Pakistani banks to operate in the UK. NBP and United Bank agreed to merge their operations to form Pakistan International Bank (PIB), of which NBP would own 45% and United Bank 55%. In 2002, Pakistan International Bank renamed itself United

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National Bank Limited (UNB). The ownership structure of the UNB remained as before. The only change to the shareholding structure is that UBL had recently been privatized in Pakistan and was now owned 49% by the Government of Pakistan and 51% by a joint foreign consortium of Abu Dhabi. In 2003, NBP received permission to open new branches in Afghanistan and Bangladesh,

the inaugurated ceremonies of these

branches held in 2007.

Head Office Head office of NBP in NBP Building, I.I. Chundrigar Road, Karachi, Pakistan which is “the city of lighting” in Urdu “Uroos-ul-Bilad” which was also the first capital and ancient place of Pakistan. It carried out its successful journey to make it an “Asian Tiger”.

Corporate Information Board of Directors Syed Ali Raza

Chairman & President

Mian Kausar Hameed

Director

Muhammad Ayub Khan

Director

Mr.Tariq Kirmani

Director

Sikandar Hayat Jamali

Director

Azam Faruque

Director

Muhammad Arshad Chaudhry

Director

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Auditors The auditors, M/S Ford Rhodes Sidat Hyder & Co. and M. Yousaf Adil Saleem & Co., Chattered Accountants have completed their assignment for the year ended Dec.31, 2007. These are the independent external auditors involved in providing financial services, with the approval of State Bank of Pakistan.

Customer Services NBP offers a number of valued products and services to the diverse market segments. These include.

LIABILITY PRODUCTS

ASSETS PRODUCTS

Saving/Time Deposits

Personal Finance

NBP Debit Card

Home Finance

Utility Bills Payment

Business Finance

Travelers Cheques

Mortgage/Agricultural Running Finance Demand Finance

Awards and Recognition Over the years, NBP has received several awards for its better quality of providing banking services to the individual and businesses.

Credit Rating

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According to annual report the year ended December 31, 2007, the “JCRVIS Credit Rating Company Limited”. NBP enjoys the highest credit rating amongst Pakistani banks. The rating company awarded highest standalone credit rating of ‘AAA’. The JCR-VIS credit rating Co. signifies that the organization has been able to strategically manage and build on its competitive advantages, which has translated into the strong and well managed in profitability.

Functions of the organization The financial Intermediaries or banks mean a business that interacts two types of individuals and institutions for economic development. • Deficit-spending individuals and institutions • Surplus- spending individuals and institutions Deficit-spending individuals and institutions are those whose expenditures exceed their income, they need extra money to further carry on their movements required through capital i.e. through borrowing of money or issuance of stock. Surplus-spending individuals and institutions are those whose income exceed their level of expenditures, they have extra money in his pocket; they invest surplus money or deposit it for savings. In small words, a bank is a financial intermediary accepting deposits from general public and granting loans: offers the widest menu of services of any financial institutions. In ancient days, banks were providing separate services as compare to financial institutions. They were providing specific functions. Now days

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banks are configured and performing all those activities of products and service due to the requirement of the customers. NBP is a commercial bank. NBP is a most powerful organization in Pakistan due to deposits. The success of NBP hinges on their ability to identify the financial services the public demand producing those services efficiently and sells them at a competitive price, the basic purpose to increase shareholder’s wealth. The main functions and objective of NBP are. • Mobilizing of money for economic development of Pakistan • Acting as a government or local or any other person or persons, and on behalf of agency of customers. • General utility services • Accepting deposits and providence of loans etc.

Business volume Rs.in million

Particulars/years Total Assets Deposits Advances Investments Shareholder's Equity Pre-Tax Profit After-Tax Profit Earnings Per Share (Rs) No of Employees

2003

2004

2005

2006

2007

468,972 395,492 161,266 166,196

553,231 465,572 220,794 149,350

577,719 635,133 463,427 501,872 268,839 316,110 156,985 139,947

762,194 591,907 340,677 210,788

18,134 9,009 4,198

24,900 11,978 6,195

37,636 19,056 12,709

53,045 26,311 17,022

69,271 28,061 19,034

8.53 13,272

10.48 13,745

17.92 13,824

20.88 14,019

23.34 14,079

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Trend Analysis Rs. in million

Discriptions 2007 (X) Revenue 42,451 Deposits 591,907 Advances 340,677 Investments 210,788 1,185,82 Total 3

Y -3 -1 1 3 0

By Equation, Y=a+bX By simplifying, ∑Y=na+b∑X ∑XY=a∑X+b∑X2 Hence by putting values, we get a=0.465 b=.00000157 So equation is Y=0.465+.00000157X

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DIFFERENT DEPARTMENTS AND THEIR WORKING Different Departments Branch Banking

General Banking

Deposits • Cash • Account opening • TDRs/NonChecking Accounts

Credits/Loans

• • •

Credit Facilities Loans Documentation

Remittances • DD, TT, PO • Online funds Transfer/MT • Traveler Cheques Collection of Cheques • Clearing • Bills (OBC, IBC, LBC)

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Accounts Department • Daily Activities • Record Keeping

WORKING OF DEPOSITS DEPARTMENT Deposits are the lifeblood of commercial banks. The main function of a commercial bank is to mobilize deposits of money from the savers and lend into for most profitable purposes. The process of collection deposits is “Deposits Mobilization”. Deposits can be divided into two categories.

Deposits

Checking Accounts

Non-Checking Accounts

PLS Saving Account

PLS TDR’s

Current Deposit Accounts

Special Notice Deposit Accounts

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Foreign Currency Accounts

NIDA

Categories of Deposits There are two broad categories of deposits. These are • Time deposits • Demand deposits Time Deposits • These are payable on maturity • Receive profit with respect to time period

• All TDRs, saving accounts

Demand Deposits • These are not payable of maturity but on demand • No profit is given on demand deposits • They include current

and other profit bearing

accounts and call deposits

accounts are included.

etc.

Current Account Current accounts are opened on proper introduction and submission of required documents. No profit is paid on the current account holders.

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No limitation to the number of withdrawal. Statement of Account is issued free of charge to the current account holders on semi-annual basis. No zakat is deducted on current account. No withholding tax.

Basic Banking Accounts BBA’s are opened on proper introduction and submission of required documents. BBA’s are opened for individuals single or joint only. No profit is paid on Basic Banking Accounts. In BBA’s maximum two deposits transactions and two chequing withdrawals are allowed free of charge through cash/clearing in a month. Charges only made on issuances of ATM, no charges are made on further transactions from the banks own ATM.

PLS Saving Account Saving deposits were introduced to encourage the habit of saving among people. In order to encourage the Islamilisation of the banking system in the country, the bank is authorized to accept deposits on profit & loss sharing basis. The bank is authorized to deduct service charges on half yearly basis. Profit on PLS Saving Account is calculated on minimum monthly basis and is paid half yearly basis announced by the Head Office after June 30 and December 31.Zakat at the rate 2.50% is deducted from the PLS Saving Accounts. A withholding tax at the rate of 10% on profit is recovered from the account holder.

National Income Daily Account (NIDA)

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The scheme of NIDA was launched in December 1995 at attract at corporate customers. NIDA are opened for individuals single or joint, Charitable institutions, Provident

funds,

autonomous

bodies,

companies,

associations,

educational institutions, firms etc. NIDA is accepted only on the condition that the depositor shall always maintain a minimum balance in his account. These are special accounts of savings. Profit is paid to the account holder on daily basis.

Premium Amdani Account Premium Amdani Account is opened by all who are allowed to open current, PLS, NIDA accounts. It is necessary to maintain minimum balance if not no profit for the month will be paid to the account holder. A higher rate of profit as per bank discretion paid to depositors maintaining balance Rs.300, 000/= Maximum two debit transactions in a month are allowed free of charge. On 3rd transaction profit will forward. Additional amount only accepted in lot Rs.25, 000/= if any customer wants to deposit money. Premium Amdani Certificates are issued for the period of five years. PA deposits are drawn only at maturity if in the event any depositors wishes to draw before maturity, he will liable to the right to contribute in loss only.

PLS Term Deposits

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The bank accepts these deposits with minimum sums as prescribed by the bank for a fixed period of time. Terms deposits are accepted for a period of one month to five years. Minimum deposit is accepted is Rs.25, 000/= with no upper limit. Available to all types of investors i.e. individuals, partnership firms, public and private limited companies, corporation, trusts, and government bodies. Profit is paid on maturity. Profit may be paid in cash, pay order, demand draft or any other form.

Call Deposits Call deposits are the sorts of deposits, which are deposited in the bank against any tender. This is without interest deposit and may be with interest provided. The depositor has agreed to keep this amount with the bank for some fixed period.

Foreign Currency Accounts These are the accounts in US $, Pound, Euro, yen etc. of different account holders and either saving or current accounts. Profit is fluctuating as determined by the State Bank of Pakistan on six monthly basis whereas return on Term deposits/SNTD will paid on maturity. The transactions in these accounts are translated into Pak. Rupees at the exchange rate prevailing on the date of transaction.

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WORKING OF DEPOSIT DEPARTMENT Account opening NBP has the following classification of accounts. 1. Accounts of general customers (Individual accounts) • Minor account • Illiterate person account • Joint account 2. Accounts of special customers • Proprietorship account • Partnership account • Limited company’s account • Accounts of clubs, societies and associations • Agent account • Trust account • Executor’s and administrator’s account The procedure of opening a new account is as follows: The Account is opened after obtaining proper information. All the necessary documents required opening an account according to the account opening type obtained from the customers. A distinctive Account number is allotted to each account holder.

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The signature of the new account holder is taken on the account opening from and SS (Sample Signature) Card from individual and in case of the company. The signature of the introducer is also verified on the account opening form with CNIC copy. For illiterate person a picture of the newly account holder is taken and attached with SS Card. In case of signature other than English by the account holder vernacular form is obtained. First chequebook is issued after all formalities are completed.

Cheque Book Issuance Before issuance of chequebook all the account opening formalities should be completed. First chequebook issued against account opening form with letter of thanks by the account holder. The signature of account holder is duly verified with SS Card. All subsequent cheque books to be issued against the requisition slip extracted from the previous cheque book. Name and account number should be written on cheque book and requisition slip. Stamp or write down account number on each leaf of the cheque book. Cheque books issued in the running serial order. Enter particulars in the cheque book issue register. Enter detail in the system. These records should be daily checked by the Daily Cheque Book Report, which should be signed by the authorized

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officer after checking cheque book series input number. At the end of the day all the cheque books should be checked and balanced with the help of requisition slips. In case of cheque book is issued without the requisition slip of previous cheque book care must be taken to establish the genuineness of the customers and Form should be obtained. In some cases when cheque book is issued by the person duly authorized by the account holder for obtaining cheque book, a letter of issuance of cheque book is sent to the account holder for his acknowledgement. In rare cases when customer demand printed cheque book, requisition slip with demand letter is sent to the NIFT (National Institutional of Facilitation Technology) (PVT) Ltd.

WORKING OF REMITTANCE DEPARTMENT Four main modes of remittance are: • Demand Draft • Pay Order • Mail Transfer/Online Funds Transfer • Telegraphic Transfer

Demand Draft It is a legal banking document payable on demand for which value has been received, issued by one branch of the bank drawn by the same

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branch of the bank from one city to outside the city. In case of agreement the other branches of other banks. e.g. can also draw it. DD issued by NBP payable by HBL.

Issuance of Demand Draft The customer on standard DD application form makes request. All information such as name of beneficiary, place where the DD is drawn, amount mode of payment, cash/cheque/debit authority, signature with name and address is filled. The issuer checks the information. Commission as per schedule of charges is charged. Withholding tax as per applicable rates is recovered. After the customer has made payment by cash/cheque, get the voucher from cash department. The DD of required amount is prepared. The DD in NBP is manually prepared. Junior DD can also be used in place of Senior DD if not required by writing down with SNR DD equal to Rupees --. Entry is made in DD issued register as well as on the system on which following entry is passed. Dr: Cash/Customer’s A/C Cr: DD issued Cr: DD issuance charges

Cancellation of DD If any customer wants to cancel DD, obtain application in writing along with original DD.

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Verify the signature of applicant. This signature should tally with the signature of DD application form. Check the DD account into system of payment made or not. Mark cancellation in DD issued register. Recover cancellation charges. Payment is made from Suspense Account DD cancelled after recovery of cancellation cheque is per schedule charges. Inform the drawee branch regarding cancellation and ask for Inter-Branch Credit Advice (IBCA). On the receipt of IBCA adjustment is made.

Lost/Stop payment/Issuance of Duplicate DD Application form received from purchaser and verifies the signature. Inform the drawee branch of the loss of DD and advise them to mark caution against payment if presented. After necessary checking, the drawee branch will inform the branch about the status of DD whether it has been paid or still outstanding. Write on the face of duplicate DD in red ink”Duplicate in lien of original DD No--- dated ---reported lost”. The duplicate DD will have the same control number. The DD serial control is mentioned on application form. The signing officer must check all the particulars before signing.

Pay order Pay order issued from one branch is only payable from the same branch. It is normally issued for payment in the same city and is referred to as Banker’s Cheque.

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Issuance of pay order Get application form from the customer. Issue pay order after vouchering all necessary formalities. Get recovering charges and withholding tax in case of cheque deposit for PO. Make entry in PO issue register. All pay order must be crossed “payee’s account only”. It must be noted that Inter-Branch Clearing Advice is not involved because it is payable at the same branch and same city only.

Cancellation Get application for cancellation with original pay order. Recover cancellation charges. Signature verified by the officer.

Duplicate PO Check the record that payment has never been made. Get application for issuing of duplicate PO. Recover charges as per schedule. Issues duplicate PO by writing “ink red” pen “Duplicate PO”.

Mail Transfer/ Online funds Transfer It is the quickest and safest modes of transfer of funds. Application form submission is same as DD.

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In MT funds are transfer through system within seconds if 2nd branch is online. Funds transfer only same branch of the banks. It is necessary that the customer must have the Branch Code of the host branch, account number of a drawer, name of place, etc. Necessary requirements of funds transfer. • Account enquiry • Cash transactions • Transfer of funds • Printing statement Inter-Branch Clearing Advice is involved. The access can only be made through key password. If OK message is received by the issuer branch system from host branch then the source branch to proceed further otherwise not.

Telegraphic Transfer It is also a quick way of transfer funds from one branch to another of the same bank through telephone, fax/telex. Procedure of application and vouchering is same as a DD. Apply test on the TT message and appropriate codes and instructions such as advice & credit or advice & debit. It is mostly cleared through main branch of the same area. Recover commission, telephonic charges and withholding tax as per applicable rate.

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Schedule of Remittance charges DD/MT/TT issue a) upto Rs.100,000/b) upto Rs.1,000,000/c) over Rs. 1,000,000/-

0.10% min Rs.50/0.05% min Rs.100/0.04% min Rs.400/-

Pay order d) for A/C Holder e) for Non-A/C Holder f) Issuance of Duplicate DD for A/C Holder g) Issuance of Duplicate DD for NonA/C Holder h) Issuance of Duplicate Pay order for Non-A/C Holder i) Postage charges on TT only j) TT phone charges

Rs. 55/Rs. 110/Rs. 200/Rs. 250/Rs. 150/Rs. 75/Rs. 100/-

WORKING OF PENSION/LOCKER DEPARTMENT Pension is defined as the payment of retired govt. servants, who die during service but fulfill the age of pensioner, Employees Old Age Benefits (EOBI), etc. Types of pension • Govt. servant retired benefits

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• Benevolent funds • Employees Old Age Benefits Required documents in case of a new pensioner holder check by the head of department. Entries of new pensioner holder are made into the “Pension Register”. If the customers receive Benevolent Funds opportunity entries are also made into “Benevolent Fund Register”. Recommend monthly pension according to the permissible amount duly approved by the competent authority. In case of a customer wants to transfer pension indirectly in his account deposit slip is attached with pension form. The necessities before filling an application of pension form are P.P.No, Army No, and Railway Station No. etc due to the post and department of pension where employee. Entries are made at last into the system.

Locker It means a box operate by a customer of holder on permanent basis. There are three types of locker operate in banks. • Small • Medium • Large An application form is necessary for customer with desire documents and approval made by the head of department.

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Locker operation account is allowed for a account holder, Non-account holder not able to operate it. Lien is placed on the account of a locker holder on drawing of amount. Entries are made on “Locker Register” as well as on the system. Locker No and Key No is allotted to the locker holder for further operation.

Charges of Locker Small Medium Large

Rs.8, 000/= Rs.12, 000/= Rs.16, 000/=

WORKING OF CLEARING AND CHEQUES COLLECTION DEPARTMENT Clearing Clearing is a system by which banks exchange cheques and other negotiable instruments drawn on each other within a specified area and thereby secure payment for their clients through the clearinghouse at a specified time in an efficient way.

Clearing House National Institutional Facilitation Technology (NIFT) Pvt. Limited is performing the function of clearing and charges commission against it.

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The commission of per collection charges is Rs.2/- per cheque. Before the NIFT, the State Bank of Pakistan (SBP) with efficient controlling staff performed the process of clearing. The process of clearing is carried in two categories. • Inward clearing • Outward clearing

Inward Clearing Cheque received of other parties after clearing are lodged in the system by vouching date, signature, documents numbers is noted. The cheque without sufficient balance, changing in amount, signature and verifying other formalities returned to the customer by attaching return memo explaining the cause of cheque return. Return cheques also enter into the return register by writing dates, causes of return, and amount. After posting summary of cheques is prepared and cheques return to third parties through NIFT.

Outward Clearing These are the cross cheques deposited by the customers for credit the same amount to its account. Before posting following is being performed. Crossing cheque stamp if not place it. Title of account and account number from deposit slip is checked. The deposits slip is handed over to the customers by branch stamping. Entry is done in daily register. Add list is being prepared.

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Special crossing clearing stamp of next day is affixed. The payee’s amount will credit stamp is affixed on back of the cheque. In case of outside city clearing Inter-Branch Clearing Stamp is affixed. Place all the cheque in a back with special closing and sent to NIFT.

WORKING OF ACCOUNTS DEPARTMENT Daily Activities The main function of this department is to check daily transactions whether cash, transfer of payments, billing, and clearing of all the departments. Following procedure is followed in checking daily activities carried out in different departments of the branch. • All the vouchers, advices both manual as well as computerized obtained for posting in the system of each department. • All the vouchers and advices are further sorted in ascending and descending order for the sake of convenience in checking and tally information. • It is checked whether or not the account number, instrument number, document number and amount appearing in words and figures are agreed with the information appearing in the computerized record. • In case of changing or discrepancy informed to the concerned department. • All the credit, debit and billing voucher bunched separately.

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• The name of the branch, date of vouchering, title and number of vouchers is written on voucher must be cover authorized signature. • All the above vouchers assist in case of any enquiry and audit.

Handling of Stationery All the branches of the companies required having a complete record the stationery to be used. Accounts department also maintain and handle the record of stationery used during the month. G-9 NBP branch request to main branch for stationery requirements and record maintain for this purpose. On receipt of stationery following entry is passed. Dr. Stock of Stationery Cr. Main Branch Stationery issued into the branch for daily uses and entry is passed. Dr. Expenditure A/C Stationery Cr. Stock of Stationery A/C

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LEARNING AND PERSONAL INTERNSHIP EXPERIENCE In Allama Iqbal Open University, Islamabad, the students of Department of Business Administration are required to undergo for eight weeks of internship to complete the Master degree. For this reason, I carried out my internship in National Bank of Pakistan, G-9 Markaz, Branch, and Islamabad and try to prepare my report. During the session of three month I work in different departments on weekly basis. The employees of the bank help me and provide me all required information. I studied major functions, objectives and future planning. I worked in different departments during working as a internee which is very beneficial and I am able to get basic concepts of banking operations.

Deposits Department The basic purpose of the deposits I stated earlier in previous discussion. Ms. Seemi Qazi is the head of this department. The main function of this department are maintaining records of saving, current, call deposit, and NIDA account holders, their signatures, their balances, issuance of cheque book, scrutiny of cheques issued. I worked in Opening accounts, made entries on accounts opening register and post them into the system. It was crucial to entry made on computer

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but after three days it was permission to me to make entries on the system. I prepared several cheque books and enter the detail into the system as well as in the cheque books issuance register. I also learnt to cheque posting on system. In the cheque book posting something which are necessary, account number, cheque number and amount to be debit or credit should be matched. Cash session in the bank is one the sensitive place we as a internee also work there in cash deposit, withdrawal, etc. There is a complete process in case of cash withdrawal. A person who fills a cheque take the token, posting is done into the system and then signature is verified. In case of discrepancies in signatures, date, cutting, and the amounts written on the cheque in words and figures, the cheque returned to the customers without any excuse. SS cards verification is one of the most difficult works of this department; I also go through only specific activities in which the heads of verified informed me.

Pension/locker department Mr. Atif Hussain is the head of pension/locker department. During my internship, I learnt how to handle with new pensioner’s cases, entries made into the “pension register”, recommend payments of pension on monthly basis, transfer of payments into the accounts of the customers, entries made into the system. The most obligatory thing for payment of pension is to check pension slip in form of cash payment P.P.No., name of the pensioner, signature, and payment period. In case of pension holder does not come to receive, it is legally recommended that the pensioner

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holder issue authority letter to the desire person otherwise pension will never be paid in cash. I carried out my further effort to learn in locker department. In locker operation, I help in fulfillment locker application form, entries made on the “locker register” then key no and locker no allotted to the locker customer.

Remittance Department It is a transfer of money payable at a certain place within or outside the country. It was my third department. Ms.Seemi Qazi is the head of department. In this department I learnt about issuance of PO, DD, MT, and T.T. I made all the four categories of funds transfer. Head of department help me a lot to achieve this target. I only make entries of PO, and DD, on the system. MT is an online system it was not permissible to internee to do it. The Manger only does TT; it is so secret way of transfer funds.

Accounts Department In accounts department, Mr. Ahmad Assistant is performed all activities. I sorted vouchers, check daily activities, and check advices by tallying the account number, instrument number, document, and amount appearing on the instrument in words and figures with the information register and on the system.

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Structure and Functions of the Accounts/Finance Department

CFO Asst Finance Officer

Accounts Department

Finance Department

Finance Manager Operations & Business Senior Business Analyst Business Analysts

Accounts Manager

Payroll Manager

Senior Accounts Payable

Senior Accounts Receivable

Accounts Asst Payable

Accounts Asst Receivable

The department of finance and accounting is a large department and the head of this department is chief executive Finance and second major controlling authority is the assistant executive finance and all the

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

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

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• Admin activities

Finance Department It is the person, which is also bond to the executive, finance and accounts because executive finance is the higher authority to this person but the functions of this department are not same in the nature to the above first department.

The primary responsibility of finance department is making planning, analyzing, and valuation of financial resources and to provide consistent, reliable, and timely information to management, stakeholders, regulators, and internal business groups to help management in appropriate decisions making for improved performance of the bank. The main functions of the finance department are as follows. • Analysis of accounts • To maintain inventory records • Finance activities • Audit preparation • To keep record of loans, accounts, cash, and all banking transactions according to accounting principles • Funds management • Preparation of cash flow, income statement, and balance sheet • The use of effective budgetary techniques for budgets

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• Preparation of reports/ cash forecast NBP is a most growing organization and performing a role as a treasury on behalf of SBP, the whole functions of the bank is totally depend upon the finance department. It has a core value in the promotion of banking sector. Budgets and forecasting is further assist for future planning. Different books of accounts are prepared into the bank through computerized system and manual. The accountants prepare daily, weekly, monthly, quarterly, and yearly reports.

Preparation of repots The basic purpose of accounts and finance department is to prepare financial reports for decision-making and future planning. Different reports are prepared in NBP due to getting information and time period requirements. Reports are prepared by using general ledger. The following reports in accounts and finance department are prepared. Daily reports: It summarizes the daily position of all the main heads of the bank i.e. cash, loans, deposits, accounts and ATM’s. Other daily reports are • Balance Sheet • Reconciliation reports • Trial balance • Financial statement • Daily expense vouchers

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Monthly Statement: These reports are monthly basis in order to know the position of the bank and pay rewards on monthly basis, etc. • Balance sheet • Profit and loss statement • Monthly analysis of expenses • Actual budget analysis • Cost of funds statement • Variance analysis • Trial balance Quarterly Statement: It includes tax statement, reconciliation’s, others reports and interest statements etc.

Role of Financial Managers Cash management Cash includes physical cash comprising of currency notes and coins held in the office, at the factory, branch or company. There are three major reasons for holding cash: • Transactional motive • Precautionary (Emergency) motives • Speculative (Investment) motive As a financial manager, it is the responsibility of a manager to hold cash up to the point where current ratio should never be decrease in by one. The focus of manager to holds the optimum, amount of cash in hand at the right time. Cash management shows that how an organization needs, how

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much it as, and where to be collected. The objectives of financial manager to invest excessive amount for a return while retaining sufficient liquidity to satisfy future needs and plan where money to be collected or borrowed. The amount of cash to be held depends upon the following factors. 1. The Manager develops a complete cash management policy. 2. Idle cash should be minimized. 3. The bank should be able to payment obligations on due dates so as not to lose any goodwill. 4. The bank completely maintains a current liquidity position. 5. Forecast short and long-term cash flow. 6. The maintenance of cash flow due to deterioration in economy. 7. The Manager follows a speed up cash receipts methods. • Concentration Banking • Offer cash Discount to the customers • Selling of Account Receivables • Prompt follow up debtors/Reminder •

2nd Reminder

• Contact to court or recovery department

Credit Management

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

company sells goods or services.” Advances and Deposits are the major sources of the bank. The volume of banking sector is depending upon these factors. Financial experts are desired to extend credit due to the limitations of the customers and capability to pay back. In NBP, G-9, branch advance salary and subordinated loans are basic and big credits issued to customers. NBP extend credit in order to. • To attract new customers • By encouraging existing customers to get more deposits and credit • By producing loyalty among customers, leading to client retention 1. The role of Manager to draw up a complete credit policy to ensure 2. The manager analyzes “Credit Information Bureau Report” (CIBR) before issuance of credit to any customers. The basic needs to be discussed and study by the Manager are to see. •

Overall parameters for credit volume

• Vetting process of new clients • Classifying clients • Procedure for processing orders from clients • Credit records • Follow up procedure • Incentives for prompt settlement • Recovery process • Provision for Bad and Doubtful debts

38

• Periodic review of credit situation

Use of Information Technology in Decision making Today banking is becoming more and more complex with the introduction of new products, services and enhancing regulatory compliance requirements. It is the use of information technology that can improve the customer’s services and reduce the cost at the same time. NBP adopted “IBM Software” for service providing motives, the “IBM Software” categories into two sections. • BBO (Branch Banking Office) • EBS (Electronic Banking System) EBS is used for any kind of transaction within the bank .i.e. Receipts and payments, Bills Collection, Tax receipts, etc. BBO is use for remittances. The use of IBM Software is one of the main purposes of collection electronic data for the bank that further helpful in future in decision making. Now a day, the bank plans for transformation of the entire I.T. architecture by implementing a core Banking Solutions. The bank prepares financial statements, agricultural reports, customer’s management, risk management and other reports for decision-making purposes. The I.T. system of the bank not only increases distribution capabilities but also simplify internal procedures thereby reducing the cost and lead-time for services. NBP has started a number of projects in relation to I.T. infrastructure up gradation. The bank is expanding its ATM

39

(Automatic Teller Machine) network and connectivity to reach to the customers in every corner. In future, NBP is looking I.T. products for salary and pension disbursements and E-banking for better services.

Competitor’s analysis The growth in the banking industry of Pakistan has led to an increase in the number of banks both domestic and international to be established and create a competitive industry. NBP competitors come in the form of both domestic and international banks working in Pakistan because of its products and services offered. NBP is in position to increase its market share and shareholder’s wealth by enhancing products and services and become a largest bank in the history of Pakistan in financial year 2007.

Descriptions/Bank s

NBP

Total Assets

762,194

Deposits

591,907

Advances Capital Profit after Tax

340,677 69,271 19,034

MCB UBL Bank Alfalah ACB 374,07 2 383,472 317,711 307,034 281,34 9 335,077 279,917 251,711 243,39 2 254,272 197,277 114,971 43,259 16,807 14,499 13,053 12,444 12,056 10,555 9,097

Source: SBP

Total Assets

40

NBP is a most growing organization in banking sector. Total assets of NBP are persistently going to increase and show an upward trend throughout the financial year. Table show that total assets of the bank for year 2007 are Rs.762, 194/= in million while increase by 16.6% then last year. We can see that total assets of the bank are still at top position that shows its growth due to its competitors. The latest figures show that MCB at 50.9% less, Bank Alfalah at 58.32% less, UBL at 49.6% less and ACB at 59.72% less, comparison in financial year 2007. So we can say that NBP is in strong position in banking sector.

Deposits Deposits are treated as backbone of the banking sector. Banks offered different schemes to allocate deposits form general public and lend them to public and corporate sectors. NBP is also one of them. Deposits of NBP in Rs.591, 907/= in million. NBP now enhance its position by 15.21% then last year 2006. It shows NBP’s economic stability. Advances Loans and advances are the major sources of revenue in banking business. Advances of NBP in financial year 2007 is Rs.340, 677/=, MCB is at Rs.243, 392/=, UBL at Rs.254, 272/=, Bank Alfalah at Rs.197, 277/=, and ACB at Rs.114, 971/= in million mentioned above on the table. It express that NBP got 7% increase in advances in year 2007.

Capital

41

The capital is the amount invested by the owners into business. All shareholders are the owners of the organization. NBP’s balance of at January 1, 2007 was Rs.7, 090,712/= and issued bonus shares at 15% by Rs.1, 063,607/=. The table shows persistent growth as its competitors.

Profit after Tax The profit of NBP is Rs.19, 034/= in million which is the highest rate of profit in banking sector. So the highest profit shows that NBP received best return on capital for 2006 amongst all banks in Asia.

Sources of funds Sources of funds reveal the organizations needs for funds, the timing of these funds when required, and for what purpose these funds are needed. These are the main elements to carrying out the operations of business. It involves the analysis of capital uses by the Bank i.e. Debt and Equity financing. Debt financing NBP’s in financial year 2007 get debt in Rs.10, 886/=, and Rs.11, 704/= in million in year 2006, which is 7.5% low. Bills payable of the bank are also decreasing by 50% in 2007.

Equity financing

42

The basic purpose of financing is to get funds from different ways depending upon capital structure mentioned by the top management during a period of time. But to finance with lower interest rate and invest higher return is the business of banks. NBP’s share capital with increase in 13.05% year 2007 is Rs.8, 154/=.

Generation of funds NBP offers different products and services to generate funds. Deposits are the main heads of generation of funds. The banks receive from public and invest it for the sake of return. Banks receive fees, commission on services offering; get interest of investments, and dividend etc.

Descriptions/Years Interest income Total income Net profit

2003 2004 2005 12,716 14,387 23,312 17,345 20,944 30,512 4,198 6,242 12,709

2006 30,153 39,945 17,023

2007 33,629 42,451 19,033

Source: annual report

Allocation of funds The most important functions of banks are to allocate funds and make a portfolio of funds to profitability. NBP allocate resources from different ways i.e. reserves, and fixed asset sales.

43

Reserves It is the amount set aside to meet statutory requirements of SBP and maintain liquidity position. The reserves of NBP are Rs.8, 133/- in million in financial year 2003 and then constant increase with 26.8% in 2004, 17.86% in 2005, 2.54% in 2006 and 12.01% in year 2007. It also determines the position of the bank during a period of time. Fixed assets Fixed assets are immoveable assets of the organization. Financial year ended December 31, 2007 shows property and equipment of NBP are Rs.29, 792/= in million before depreciation and after depreciation amount is Rs.25, 454/= in million, it is also a comparative figure to show a bright future of the bank.

Financial analysis Financial analysis refers to an assessment of the viability, stability, and profitability of a business, or projects. It is performed by professionals who prepare reports using ratios and other analysis that make use of information taken from financial statement and other reports. These reports are usually presented to top management as one of their bass in making business decisions. Or it is a process, which involves reclassification

and

summarization

of

information

through

the

establishment of ratios and rends.

44

Balance Sheet as at December 31, 2003-07

Descriptions

2003

2004

2005

2006

2007

Assets Cash and balance banks Balance other banks Lending fin. inst. Investments Advances Other assets Operating fixed assets Deferred tax assets

59,420,502 24,154,070 30,213,352 166,195,619 160,990,265 21,946,846 8,939,483 ---

94,446,552 49,784,884 10,511,322 144,735,672 221,443,963 18,339,514 9,202,969 1,275,949

71,196,956 31,019,330 16,282,942 156,985,686 268,838,779 23,941,056 9,454,365 ------

78,625,227 40,641,679 23,012,732 139,946,995 316,110,406 9,681,974 ----27,113,698

94,873,249 37,472,832 21,464,600 210,787,868 340,677,100 30,994,965 25,922,979 ------

Total Assets 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593 Liabilities & Capital Bills payable 5,496,738 7,214,671 Bor. from financial inst. 16,493,514 11,084,790 Deposits & accounts 395,568,490 465,571,717 Sub-ordinated loans -----Lia. financial lease 41,117 17,058 Other liabilities 26,080,400 22,916,147 Deferred tax liabilities 595,864 -----Total Liabilities 444,276,123 506,804,383 Capital Share capital 4,103,422 4,924,106 Reserves 8,133,312 11,119,613 Unappropriated profit 5,897,163 9,213,565 Surplus on re. of assets 9,450,117 17,679,158 Total Capital 27,584,014 42,936,442 T.Liabilities & Capital 471,860,137 549,740,825

1,741,156 8,756,847

10,605,663 11,704,079

7,061,902 10,886,063

463,426,602 ---16,629 24,974,450 4,462,718 503,378,402

501,872,243 ---13,235 26,596,300 2,387,073 553,178,593

591,907,435 ---33,554 30,869,154 5,097,831 645,855,939

5,908,927 13,536,041 16,713,506 38,182,238 74,340,712

7,090,712 13,879,260 32,074,677 28,909,469 81,954,118

8,154,319 15,772,124 45,344,188 47,067,023

577,719,114

635,132,711

116,337,654 762,193,593

45

Income Statement at Year 2003-07

Descriptions Mark-up/Return/Interest earn Mark-up/Return/Interest expense Net Mark-up/Interest Income Provision non-performing advance Provision diminution investments provision off balance sheet obligations Bad debts off directly Net Mark-up/Int.Inc. After provision

2003 19,452,317

2004 20,947,333

2005 33,633,735

2006 43,788,628

2007 50,569,481

6,735,579

6,559,398

10,321,768

13,634,912

16,940,011

12,716,738 1,684,777 459,523 474,743 -----10,097,695

14,387,936 1,515,354 185,707 14,297 32,807 12,639,770

23,311,967 2,446,739 -245,881 ----23,069 21,088,040

30,153,716 3,075,723 -709,461 --5,284 27,782,170

33,629,470 4,723,084 -40,248 -----39,899 28,906,735

5,099,195 1,273,863

4,926,604 1,718,478

6,144,628 2,891,755

6,781,683 3,263,246 2,341,690 1,042,827 -31,964 147,363 13,544,845

NON-MARK-UP/INTEREST INCOME Fee, Commssion and Brokerage Income 3,260,863 Dividend Income 1,126,742 Gain on sale of securities --------Income dealing in f.c.’s 710,726 Share of profit of joint venture 108 Other income 2,149,800 Total non mark-up/int.incom 17,345,934 NON-MARK-UP/INTEREST EXPNESES Administrative expenses Salaries and allowances 4,761,408 Charge to defined benefit plans 280,632 Provision handshake scheme 293,612 Other administrative expenses 2,471,083 Other provision/write offs 33,454 Other charges 22,894 Total non mark-up/interest expenses 7,863,083 Staff Welfare Fund 474,143 profit before tax 9,008,708 Taxation -Current 4,650,000 Prior years(s) 1,439,444 Deferred 1,278,839 Profit after tax 4,198,103

----1,008,988 47,557 875,113 20,944,486

1,205,638 ------1,573,905 30,512,665

----1,333,840 627,618 12,162,892

8,878,801 11,195,133 13,443,441 --------------------------------------------------32,243 198,298 -17,283 8,284 63,206 208,327 8,919,328 11,456,637 13,634,485 --------------------12,025,158 19,056,028 26,310,577 4,950,000 7,154,002 8,695,598 847,958 -1,098,709 530,652 -15,729 291,291 61,981 6,242,929 12,709,444 17,022,346

14,457,580

168,027 17,141 14,391,079 28,060,501 8,311,500 391,497 323,731 19,033,773

46

How to drive ratios 1) Working Capital= Current Assets-Current Liabilities 2) Current Ratio= Current Assets/Current Liabilities 3) Acid-test Ratio= (C. Assets-C. Liabilities)/C. Liabilities 4) Debt Ratio= Total Debt/Total Assets 5) Long-term Debt Ratio= Long-term debt/Total Assets 6) ROA= N.I (Before-tax)/Total Assets 7) ROE= N.I (Before-tax)/Total Equity 8) NP Margin= N.I/Revenue or Sales * 100 9) Total Assets Turnover = Sales/Revenue /Total Assets 10) Time Interest earned = EBIT/Interest Expense 11)

EPS = N.I./No of share outstanding

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

47

14)

Fixed Assets Turnover = Sales/Fixed Assets

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

Ratio Analysis

48

Ratios

2003

Working Capital in 9,099,364 (000) 1.03 Current Ratio 1.03 Acid test Ration 94.15% Debt Ratio Long term Debt 3.50% Ratio Return on 2.0% Assets(ROA) Return on 38.66% Equity(ROE) 24.20% NP Margin Ratio 5.85% Equity Ratio Total Assets 0.037 Turnover Operating Expense 45.33% Ratio Time Interest earned 1.34 Earnings per share 8.53 Book value per share 56.05 Cost to Income 0.17 Ratio Fixed Assets 0.44 Turnover

2004

2005

2006

2007

38,900,632 58,410,275 60,459,328 79,743,881 1.08 1.08 92.19%

1.13 1.13 87.13%

1.12 1.12 87.09%

1.13 1.13 84.74%

2.02%

1.52%

1.85%

1.43%

2.4%

3.4%

4.3%

4.10%

36.01%

29.64%

49.6%

45.90%

29.81% 7.81%

41.65% 12.87%

42.62% 12.91%

44.84% 16.36%

0.038

0.053

0.063

0.056

42.58%

37.55%

34.14%

33.01%

1.84 10.48 72.08

1.85 17.92 104.82

1.93 20.88 100.53

1.95 23.34 142.66

0.23

0.24

0.28

0.3

1.06

1.185

1.22

0.89

Current ratio

49

Current ratio explains the ability of a firm to pay short-term obligations. It is usually said in business that its current ratio must never decrease by 1:1 because it determine the liquidity position. The table exposes an upward trend in first three years and in 2007 but year 2006 ratio deduce by 0.88%. We can analyze that NBP is in a strong position and need to improve further in next economic years. Return on Assets The ratio expresses how effectively the management is using the assets of the business. There is deterioration in return on assets in year 2007. Financial year 2007 shows a 4.88% decrease in return on assets then last year. Whole analysis explains that ROA is growing with from year ended 2003-06 but then decreases. It is need to use assets of the bank to bring bright future. Return on Equity There is variation in ROE throughout five years. Financial year 2007 explains “Golden year in respect of return on capital in 2006” because it was 49.6% prominent return in the history of banking business in Asia in 2006. NBP does not stable its capacity in current financial year 2007 and looses at point 7.5% then last year. Now, It is need of time to repeat year 2006 to show its temperament. Debt ratio The analysis shows persistently going downward debt ratio, we can say that bank able to protect itself. Capital structure of NBP expressing decreases in borrowings and enhance capital by issuing of shares during five years. Debt in 2003 was at point 94.15% and reduces in financial year 2003 at point 84.74%, shows its strength. NP margin ratio

50

It shows profitability of the organization against it sales. The table explains a regular increase in net profit ratio. At the year ended 2003, net profit against sales was 24.20% and reaches at 44.84% that is double figure. It says in short that NBP earn Rs.44.84 by investing Rs.100 in year 2007. It is up to the mark but need to improve sale and control cost to earn better margin. Total assets turnover The ratio explains how much in a prominent way the bank using total assets to increase sales. The first four years shows a regular increase in turnover but year ended 2007 explains decreases by 11.12% then last year. So we can say that position to use assets in not satisfactory level. NBP management can increase its output by using total assets to increase sale and revenue. Cost to income ratio The above table exposes an upward trend in cost against income. But we know as income increase and inflation come into the economy its effect on cost. Financial year 2007 defines that NBP’s income in Rs.10 against investing Rs.3. We can see all four years trend with minimum changing in figures. Time interest earned ratio It is use to find out the ability of a business to cover interest charges. The ratio occurs that NBP has ability to pay its charges. The bank tries to increases its EBIT to enhance its position. Fixed assets turnover Analysis on table shows upward trend during three consecutive years from 2004-06. Especially financial year ended 2006 was a golden year in

51

this turnover. The bank does not maintain its position in further and lose its position in next year with point 27.05% that is very hard figure to recover but possible in next coming years. EPS (Earning per share) Earnings per share show a regular increase in earnings throughout last five years from 2003-07. It show an upward trend, I observed that NBP is improve its market condition in a constant year with confident on its vision-You can trust.

Horizontal Analysis: It is a procedure to compares a company’s financial statements over a certain period of time. The analysis stated information about changing items of financial statements in percentage. Mathematically, we can calculate it as H.A. = (current year-old year)/old year * 100

52

Balance Sheet as at December 31, 2003-07 In percentage

Descriptions

2003-04

2004-05 2005-06 2006-07

Assets Cash and balance wit tr. banks Balance with other banks Lending to financial inst. Investments Advances Other assets Operating fixed assets Deferred tax assets

Total Assets

58.94 106.12 -65.21 -12.92 37.55 -16.44 2.95 ----

-24.62 -38 54.9 8.46 21.4 31 3 -100

10.43 31.02 41.33 -10.85 17.58 -59.56 -100 ---

20.66 -7.8 -6.7 50.62 7.78 14.32 167.74 ---

16.5

5.00

9.94

20.00

31.25 -32.79

-75.86 -21

509.12 33.66

-33.42 -6.989

17.69

-0.46

8.29

17.94

----58.5 -12.13 -100

---2.52 8.98 ----

---20.41 6.49 -46.51

----153.53 16.06 113.56

14.07

-0.675

9.89

16.75

19.99 36.72 56.24 87.08

19.99 21.73 81.4 115.97

19.99 2.54 91.9 -24.28

15.00 13.63 41.37 62.8

55.66

73.14

10.24

41.95

Liabilities & Capital Bills payable Borrowings from financial inst. Deposits and other accounts Sub-ordinated loans Liabilities against. lease Other liabilities Deferred tax liabilities

Total Liabilities Capital Share capital Reserves Unappropriated profit Surplus on revaluation of assets Total Capital

53

Now here number of factors can affect this percentage. Here in the table we can see that the figure of balances with other banks is 1.6 in years 03/04 and it decreases to –38 percent in the next coming years. So here we can see that why the total result of the total assets varies of much difference from each other. Similarly the figure of investment also varies greatly when we move from the year 2003 to the year 2007. In case of total liabilities it is 14 percent in the year 2003/04 and goes to – 0.675 in the year 2004/05. It has decreasing trend up to the year 2006 and then it again increases in the year 2006/07. The major factor, which I think giving the great difference is due to the variation in amounts of, bills payable. Here we can see that it is about 31 percent in the year 2003/04 and then it decreases to about –75 percent. Here it increases in the next two years analysis and then it decreases. When we look at the total capital there is the same pattern. Total capital in the year 2003/04 is about 55 percent, which increases, in the next year’s analysis and then it decreases and increases in the year 2006/07. The amounts of reserves and the surplus on revaluation of assets are putting affect on the total value.

Index Analysis

54

Balance Sheet as at December 31, 2003-07 In percentage

Descriptions Assets Cash and balance wit tr. banks Balance with other banks Lending to financial inst. Investments Advances Other assets Operating fixed assets Deferred tax assets

Total Assets

2003

2004

2005

2006

2007

100

158.94

119.82

132.32

159.66

100

206.12

128.2

168.26

155.14

100

34.79

53.89

76.17

71.04

100

87.08

94.45

84.21

126.83

100

137.55

166.99

196.35

211.62

100

83.56

109.08

123.54

141.23

100

102.95

105.75

108.31

289.98

------

100

----

--------

------

100

116.51

122.43 134.61 161.53

100

131.25

31.67

192.94

128.47

100

67.21

53.09

70.96

66.00

100

117.69

117.15

126.87

149.64

100

41.48

40.44

32.18

81.61

100

87.86

95.76

101.98

118.36

100

----

74.89

400.6

137.63

100

114.07

100

119.99

143.99

172.79

198.72

100

136.72

166.43

170.65

193.92

100

156.24

283.42

391.28

768.92

100

187.08

404.04

305.92

498.06

100 Index analysis of Balance Sheet

155.65

269.51

Liabilities & Capital

Liabilities Bills payable Borrowings from financial inst. Deposits and other accounts Liabilities against ass. lease Other liabilities Deferred tax liabilities

Total Liabilities Capital Share capital Reserves Unappropriated profit Surplus on re. assets Total Capital

113.31 124.52 140.37

297.11 421.76

Index analysis show percentages which compare changes in the current period with that of base period, measures overall changes phenomenon. It can be mathematically expressed as I.A. =Current year/Base year *100 Total assets

55

Financial year 2003 is a base year. It is equal to 100% value. Total assets due to analysis show an upward trend by 116.51%, 122.43%, 134.61, and 161.21% respectively as compare to base year 2003. The increase in total assets in 2004 only 4.8%, which is very low figure then form years 200307. The whole analysis suggests that lending to financial institutions, investments, and other assets are decreased in 2004 and vary during a period of time. The deterioration in figures especially investments and lending can effect economic stability at the long run, so need to work on these figures. Total liabilities and capital Liability side, financial year 2005 shows downward trend in bills payable, deposits, and borrowing form financial institutions but increase in share capital and reserves. NBP focus to increase capital through equity in the long run as we see from year 2003-07. Annual year 2007 analyze the upward trend in lending to financial institutions but advances are not up to mark, which are going to decrease yearly. So NBP need to focus especially on advances and loan to carry its financial strength.

Vertical Analysis Balance Sheet at 2003-07 In percentage

Descriptions Assets Cash and b.wit tr. banks Balance with other banks Lending to financial inst.

2003

2004

2005

2006

2007

12.59 0.118 6.41

17.2 9.06 1.91

12.33 5.37 2.82

12.38 6.39 3.63

12.45 4.92 2.82

56

Investments 35.22 Advances 34.12 Other assets 4.65 Operating fixed assets 1.89 Deferred tax assets -----Total Assets 100 Liabilities & Capital Bills payable 1.164 Borr. from fin. inst. 3.49 Deposits and other accts. 83.83 Sub-ordinated loans ------Liab. against assets 0.009 Other liabilities 5.52 Deferred tax liabilities 0.126 Total Liabilities 94.14 Capital Share capital 0.869 Reserves 1.723 Unappropriated profit 1.249 Surplus on re. assets 2.002 Total Capital 5.843 Total Liab.& Capital 100

26.3 40.3 3.34 1.67 0.23---100

27.17 46.54 4.14 1.64------100

1.31 2.02 84.7 -----0 4.17 -----92.2

0.302 1.52 80.22 ---0.003 4.322 0.772 87.14

0.9 2.02 1.67 3.22 7.81 100

1.023 2.34 2.89 6.609 12.86 100

22.04 49.77 1.53

27.65 44.69 4.066 3.4

4.268---100

100

1.669 1.84 79.02 ----------0.0021 4.137 0.375 87.09

0.926 1.428 77.66

1.1164 2.185 5.05 4.551 12.902 100

1.069 2.069 5.949 6.175 15.26 100

0.004 4.05 0.669 84.74

Vertical analysis Vertical analysis refers to the view of the financial information for only one accounting period. Mathematically, it can be expressed by dividing current amount to the total amount. Analysis of balance sheet 2003 shows 100% on both sides and further as well. The cash and balances with treasury banks is 12.59% and cash with other banks is 5.12%, which are impressive figures to meet the liquidity position. Lending to financial institutions is 6.41%. Investments and advances are major components in balance sheet 35.22% and 34.12%

57

respectively. These two elements are lifeblood of any banking business. Operating fixed assets and other assets are not up to the mark showing 4.65% and 1.89% only. A deferred tax asset is zero. Deposits are the one of the main sources of the bank and shows 83.83%, which fulfill the vision of “NBP-you can trust”, are impressive figure. Total equity is 5.843% in which the higher figure is surplus on revaluation of assets. It gives view that the bank is strong and need to further expansion because bills payable and borrowings are 1.64% and 3.49% respectively. Analysis of year 2004, it exposes regular increase in cash and balance with treasury banks, balance with other banks, advances, and deferred tax assets but investments decrease 25.2% and lending to financial institutions decreases at 70.1%. Deposits and other accounts of the bank jumps at 84.68% that grows 1.02% then last year 2003, decreasing in total liability by 1.67% in 2004 (94.138% to 92.18). T. Equity grows at 1.96% in 2004. With the analysis of 2005, it arises that only 4.9% growths occur, that is extremely down as compare to financial year 2003-04. In this year, NBP follows a downward trend in its position but it got overall profitability. Here only advances jump at a reasonable high other elements of balance sheet deteriorate. Deposits are the main sources of banks but it got deficit by 5.2%, which shows that customers are unsatisfactory. With the analysis of 2006, there is overall increase in total assets of NBP by 9.02%. Advances in year 2006 are 49.77% that grows 6.5% then last year. Deferred tax assets go upward at 4.3% in 2006; deposits are still at

58

downward at 79.02%. Share capital of the bank reaches 1.12% instead of 1.02% in previous year. The overall figure exposes that NBP is growing in double figure then last year. Analysis of December 31, 2007, appears both increase and decrease in balance sheet throughout the year. Cash and balance with treasury banks, other assets, and operating fixed assets show upward trend, on the other side deposits are regularly decrease and reaches at point 77.66%. Total assets of the bank grow by 16.67% then last year that shows quite a growing volume in competitive market.

Index Analysis Income Statement at Year 2003-07 In percentage

Discriptions 2003 Mark-up/Return/Interest earn 100 Mark-up/Return/Interest expense 100 Net Mark-up/Interest Income 100 Provision agaisnt non-performing advance 100 Provision dim.value of inv. 100 provision against off balance sheet obligations 100 Bad debts off directly -------100 Net Mark-up/Interest Income after provision 100 NON-MARK-UP/INTEREST INCOME Fee, Commssion and Brokerage Income 100 Dividend Income 100 Income from dealing in foregin currencies 100 Share of profit of joint venture 100 Other income 100 Total non mark-up/interest income 100 100

2004 2005 2006 2007 107.68 172.9 225.11 259.96 97.38 153.24 202.43 251.5 113.14 183.32 237.12 264.45 89.94 145.23 182.56 280.34 40.42 -53.5 -154.4 -8.758 3.012----100 8.0841 100 100----180.32 66.75 84.92 90.55---125.17 208.84 275.14 286.67 156.37 151.08 188.44 207.97 113.05 152.49 256.65 289.62 141.96 169.64 187.67 146.73 44034------------40.7 73.21 29.19 6.854 114.57 130.02 167.81 186.87 120.75 175.91 230.28 244.7

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NON-MARK-UP/INTEREST EXPNESES Administrative expenses Total Administration expenses Other provision/write offs Other charges Total non mark-up/interest expenses profit before tax Taxation -Current Prior years(s) Deferred Profit after tax

100 113.73 143.4 172.21 100 96.38 592.75 -51.66 100 36.18 276.08 909.96 100 113.43 145.71 173.39 100 133.48 211.53 292.06 100 106.45 153.85 190.69 100 58.9 -76.33 36.86 100 -1.229 22.77 4.45 100 148.7 302.7 405.48

181.97 502.27 74.87 183.02 311.48 178.74 27.19 125.32 453.39

Index analysis Profit and loss statement or income and expenditure determine the summary of an organizations revenues and expenses over a specified period ending with net income or loss. Mark-up/interest Income Taking financial year 2003 is a base year. Analysis expresses that markup/return/interest earned shows upward trend in throughout year 2003-07. These are income generating resources, the net mark-up is 89.9% in year ended 2004 that decreases by 10.06% then last year 2003. NBP got extraordinary mark-up in the financial year ended 2007 and grows more than 30%. Table shows that provisions against NPL’s are gradually increases. The bank’s overall coverage ratio in year ended 2007 is at improving at the rate of 84%. Non Mark-up/Interest Income It is the income of the bank generated by providing products and services to the customers. The bank receives fee/commission and brokerage income156.37%, 151.08%, 188.4%, 207.97% respectively yearly. Dividend income shows an upward trend during five year 2003-07. NBP is also dealing in foreign currencies, the income receives from resources

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are not up to the mark and decreases in point 27.9% then at last year. Other income of the bank also exposes a down ward in the year 2007. If we analyze whole, we can say that total income of the bank before expenses is up scale from years 2003-07. It is already known when profit increases; expenses of the organization also rise. We can see table that total expenses of the bank are also increases. Profit-before Tax The pre-tax profit increases in Rs.28.06 billions an increase of 6.6% in 2007 over last year. The pre-tax profit in year 2006 was 292.06% which was extremely high than year 2005. The bank got overall profit but this pre-tax profit is not sufficient if we compare it to the year 2005-06. The bank management further need to work for maintains its capability and customers trust.

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Horizontal Analysis Income Statement at Year 2003-07 In percentage

Discriptions 2003-04 Mark-up/Return/Interest earn 7.68 Mark-up/Return/Interest expense -2.616 Net Mark-up/Interest Income 13.14 Provision against non-performing advance -10.056 Provision dim. of inv. -59.58 provision against off balance sheet obligations-96.98 Bad debts off directly -------33.25 Net Mark-up/Interest Income after provision 25.17 NON-MARK-UP/INTEREST INCOME Fee, Commssion and Brokerage Income 56.37 Dividend Income 13.06 Income from dealing in foregin currencies 41.96 Share of profit of joint venture 439.34 Other income -59.29 Total non mark-up/interest income 14.57 20.74 NON-MARK-UP/INTEREST EXPNESES Administrative expenses Total Administration expenses 13.73 Other provision/write offs -3.619 Other charges -63.82 Total non mark-up/interest expenses 13.43 26.81 profit before tax 33.48 Taxation -Current 6.45 Prior years(s) -41.09 Deferred -98.77

2004-05 60.56 57.36 62.03 61.46 -32.4 -100 -29.68 27.22 66.84

2005-06 30.19 32.09 29.35 25.71 -188.54 -----77.09 6.64 31.74

2006-07 17.56 23.12 11.53 12.65 -221.5 --------2.07 29.12

-3.38 34.9 19.49 -100 79.85 13.48 45.68

24.73 68.27 10.64 -----60.13 29.05 30.92

19.56 57.22 9.37 42.79 6.65 21.59 24.72

26.08 515.01 662.98 28.45 58.47 58.47 44.52 -29.57 1951.9

20.08 -108.72 229.6 19 38.07 38.07 21.55 148.29 -78.7

29.12 35.8 333.5 27.89 34.17 6.65 22.46 42.3 66.3

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Profit after tax

48.708

103.58

33.94

31.97

Horizontal analysis Horizontal analysis explains the changes in profit and expenses of two consecutive years. It also suggests that overall variation in the statement as compare to its current with old year. The above table shows that interest earned vary during the five years in analysis, the interest expenses also vary with the same point. Both figures effects on net-mark-up, so we can see that net-mark-up in 2003-04 were 13.14%, 62.03% in 2004-05, 29.35% in 2005-06, and 11.53 in 2006-07. NBP’s performance during in 2004-05 was up to the mark but not to maintain this figure and deduce regularly. Total mark-up interest income shows little changes in two consecutive years but got a great position in 2005-06, in 2006-07 it’s again come at equal to last year progress. As all elements exposing decreases, expenses of the bank also decreasing in the table above with different but regular points, pre-tax arises strong in first four years but at a point 6.65% only in financial year 2006-07. The whole analysis explains that if we compare current and old year, the overall position of the bank decreases in financial year 2007, it is not stable. Every element in income statement showing a downward trend, now, it is the requirement to develop new policies to stabilize its position and compete into the market.

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Future prospects of the organization NBP’s is planning to expand its network of branches especially in Islamic Banking. The bank’s international operation is focused towards increasing trade business and expands where the bank has competitive advantage. The bank is continued to develop liability side products by enhancing leadership position. The bank is continued to recognize as a largest treasury in terms of its size. Its target on untapped sectors and provide them professional quality services, through on window operation and relationship managers stationed. It’s planning to transformation of the entire I.T. architecture of the bank by implementing a core banking solution. The bank in future follows up trust with a message “Excellence Customer Service” by invention of I.T. products and services. The bank will focus to promote healthy sports activities in the country.

Performance Analysis Strength

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• Over the year, NBP has proved its strength as a leading banking sector entity and treasury agent on behalf of a SBP by achieving the following first in Pakistani banking sector. I.

NBP in year 2007 received the award for the best return on capital for 2006 amongst all banks in Asia.

II.

First bank enjoys the highest credit rating amongst Pakistani banks.

III.

First bank with nation-wide branches of over 1200 and over 20 outside Pakistan.

IV.

It’s working as a government agent since birth.

V.

ROE of the bank stood at 45.9%, which is the highest in the Asian Banking history.

VI.

The first bank in Pakistan with large coverage of Central Asia, Far East and South Asia.

• NB has a wide range of products and services and improves quality of life of diverse market segments. • The bank continues to monitor the credit and risk exposure by establishing an Operational Risk Management Unit. • The management of the bank encourages attaining professionals (MTO’s) and establishing efficient working environment within the bank. • The bank offer financing facility i.e. agricultural financing, home financing international trade business loans, govt. loans syndicated

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loans, and karobar schemes for the individual serves, student loans and portfolio investments for the individual savers. • NBP is committed to develop and enhance each employee’s skills and capabilities through training and job rotations. • It provides timely information to all stakeholders about the performance of NBP amongst competitors. • The bank uses automated transaction – process system, for back up support. Well-designed software “IBM Software” which transform a register (paper) into electronic system. • NBP purpose to become a “Bank of Choice” for the customers, the effort is continuing to attain this target. • As an autonomous body, the strong employee bank relationship and job security. • To promote healthy sports activates in the country NBP has built a state-of-the art sports complex at Karachi to full fill social responsibility.

Weaknesses • The bank I.T system sometime hang or link down can causes a delay in provision of timely and efficient services to the customers • There is no proper information desk, which guide the customers on different banking activities.

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• Return on equity decrease in 2007 at an unacceptable rate that impact on overall condition of the bank. • Horizontal analysis shows the downward trend in the income statement can create problem in future. • Deposits of NBP are regularly decreasing in every financial year, which can lose the trust of employees. • The use of token system by the bank for cash payments produces and awkwardness among customers. • Turnover fixed assets and total assets both decreasing in financial year 2007, which can weaken the overall position of the bank. • Mostly, ATM network shows “sorry for inconvenience” picture especially in first salary days that is hard for customers trust. • The lead-time for cheque clearing is three to four days for “Inter City Clearing” and more days for other cheques. • The bank management feels job security so they misbehave with customers. • NBP does not have a comprehensive marketing strategy; it permanently uses print media and billboards for marketing of its products and services. So there is lack of broad casting media services. • Sometime, sufficient number of employees are needed is a certain department but there is mismanagement deployment of employees that can cause burdened in some departments. Opportunities

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• NBP is not only expanding “Kisan Dost” its banking services to remote and ruler areas but also start “Karobar Schemes”. • As the bank continues its expansion on international coverage the bank also take opportunity to start Islamic banking is 2007. • NBP plans to set up research centers, which help the bank to enhance quality of services. • NBP is looking E-banking for better services. • With a provision coverage 84% in fiscal year 2007 and continues is following years will lead towards banks profitability through recoveries and reversals. • Amongst highest bank is Asia, NBP further expand its services proudest and earn more profit. • The bank is reshaping its portfolios by investing into higher area of growth developing core competing as a result to get maximum return. • I.T and HR are important factors for development in any organization, NBP continue struggle to achieve this target. Threats • With the globalization of the world many international banks are opening this branch into other countries posing a threat for banks, as the competition would become more acute. • The expansion of banking sector is forcing to offer improved and innovative products and services in order to stay into competition.

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• The operating environment for banks in becoming more challenging in the wake of intense competition is the pricing of assets and liabilities products and services. • With expansion of branches, help banks to give less attention to down ward slump, increasing competition between banks and nonbanks can create problems. • The bank face higher operating cost, the advancement in I.T turned to grip on cost, the use of I.T by foreign banks on providing extensive product and service can become a problem is future.

Conclusion The bank has been able to strategically manage and build on its competitive advantage, by knowing customer’s requirements, understanding employee’s need, modern technology, to making social responsibility and looking towards stakeholder’s values. The bank is able to bear new challenges more efficiently. The bank continued its journey to success on strategy of serving clients- by getting advantage of its unique domestic and international footprints. Leadership of Board of Directors makes the bank’s ability to continue as a going concern. A large number of products, branch network, I.T and

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committed workforce are fundamental strength of the bank that enables to achieve exceptional results in a very competitive market.

Recommendation As analysis shows that NBP is a most growing organization with highest return on capital, largest market share amongst all Pakistani banks and cost to income ratio is the highest in banking sector. But there is further need for improvement. To overcome weaknesses and to maintain its position as an “Asian Tiger” in banking field, following recommendations are made:

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• The bank should focus on enhancing and improving the quality and effectiveness of banking software, to provide timely technology based value added services. • There should be a proper desk for customer’s information in every branch. • The bank should use broad casting media for promotion of its products and services and to further expand its area through more aggressive marketing. • Financial analysis shows that NBP gradually loses its deposits and other accounts that can create problem for the bank to maintain its stability. The bank should focus to revaluate existing customers and attract new to enhance it position. •

Financial year 2006 exposes that ROE/Capital is in point 49.6% but in 2007 it loses at point 45.1%, it guides that there is deterioration in uses total equity, the bank must try to repeat “2006 as a Golden Year”.

• Advances and loans of the NBP in year 2007 are brutally down by 10.21% then last year, these are basic tools to earn interest as well as non-interest income, the bank provides quick and better services to its customer to continue upward trend. • By analysis we see that assets turnover of the bank decrease in 2007 than last year, so the management try to grip on sales as well as use assets to create maximum margin. • Horizontal analysis of income statement showing downward trend in every elements in whole year 2006-07, the management must control to get overall market share.

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References Books: James C.Van Horne “Financial Management” Afza Beig B.Sc Part 1 “Introduction to Statistics”

NBP Annual Reports Internet: www.nbp.com.pk www.sbp.com.pk www.google.com.pk

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Organization Structure

Executive Committee

President & Chief

Corp. Bankng

Intern ationa

Op. and credit Credit

Regions

Rwp/Isb

Credit Cards

Retail Banking

Planning & Corp.

Assets Product

MIS Treasur y

Inv. products

System & OP.

Corp. &

HR

North

Financ e

Lahor East

West

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Data Repor

Legal Affair

South-I South-

Organization Chart President

SEVP

EVP

SVP

VP

AVP

Managers Asst. Assistants OG-III OG-II OG-I Mngrs

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75

76

Chief Executive Audit

Executive Assistant

Group Head Auditor

Branch Manager Audit Area Manager Audit

Assistant Manager Branch Auditor

Assistant Manager Area Auditor Audit Internees

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Competitors Analysis

Total Assets

AC B

la h

Al fa

U BL

k Ba n

C B

Total Assets

M

N BP

900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 100,000 0

78

Series1

AC B

h fa la

Al

UB L Ba nk

M

CB

Series2

NB P

De sc rip tio ns /B an ks

700000 600000 500000 400000 300000 200000 100000 0

79

400000 350000 300000 250000 200000 150000 100000 50000 0

Descriptions/Bank s Advances

1

2

3

4

5

6

80

Capital 80,000 60,000 40,000 20,000 0 AC B

Ba nk

Al

fa lah

UB L

CB M

NB P

Capital

Profit after Tax

AC B

fa la h

Al

UB L Ba nk

CB

Profit after Tax

M

NB P

20,000 15,000 10,000 5,000 0

81