Before discussing the analysis of NBP, lets have a brief overview of banking industry in 2013.

The profitability of the Pakistani banking sector remained muted as the banks absorbed the
impact of reduction in the net interest margins. So, in order to off-set the impact of reduction in
yield the banks used the volume growth approach. During this period, however, the balance
sheet size of the banking industry grew, but the sector remained exposed to credit risk.
Basel
As we know that all the banks have to comply with the rules and regulations of the SBP, these
rules and regulations are mentioned in the Basel framework.
Basel framework is based on three pillars
1. Minimum Capital Requirement (MCR): is the nominal amount of capital banks/ DFIs are
required to hold. Currently the MCR for banks and DFIs is PRs. 10 billion as prescribed by
SBP.
ii. Capital Adequacy Ratio:
The Capital Adequacy Ratio (CAR) assesses the capital requirement based on the risks faced by
the banks/ DFIs. Currently the required CAR for banks is 10%.
2. Risk Management
This pillar is to ensure that risks are taken into account by the banks. These include
Credit Risk
Operational Risk
Market and Liquidity risk (etc)
All of these will be discussed later in the presentation in relation to NBP
3. Market exposure
Profitability
The major contributor in the NBPs profitability is the Commercial & Retail Banking Group which
handles both liabilities and assets products. On liability side, the group manages procurement
of deposits under different schemes/products. The group offers various financing products
which include commercial, SME, agriculture, consumer & commodity financing. Under
consumer financing the bank offers NBP Advance Salary, NBP Saibaan and Cash & Gold
products.
The profitability of NBP has declined over the years. This decline in profitability is mainly
because of a decline in NIM. The NIM has declined because the SBP has reduced the discount
rate which impacted the yield on assets. In addition to this, the deposit rate was increased
(profit and loss sharing accounts) from 6% to 7% increasing the expenses of the bank.
Also there was a change in calculation of profit from minimum balance to average balance
which further contributed to lower NIM.
Likewise the ROE i.e., the rate of return to the shareholders also declined due to reduced Net
income and increase in equity. The bank has continued to make impressive capital gains in both
money and capital markets which has led to an increase in equity.
Similarly, Non NIM is negative because the non-interest expenses are more than the non-
interest revenues. Although both revenues and expenses are increasing but the increase in
expenses are more than the revenues resulting in the negative non NIM.
Earning spread of NBP is also declining over the years which is also due to lower return on loans
and increased deposit rate.