CHAPTER # 1

INTRODUCTION OF STUDY
Introduction

1.1

As part of the academic requirement for completing BBA Hons (Finance) Bachelors of
Business Administration. The students are required to under go for two eight weeks of
internship with an organization. The internship is to serve the purpose of acquainting the
students with the practice of knowledge of the discipline of banking administration.
This report is about National Bank of Pakistan. NBP was established in 1949 and since then,
it has expended its network, becoming the largest commercial Bank of the country. It offers
different products of services to its customers.

Purpose of the Study

1.2

The main purpose of the study in hand is together relevant information to compile internship
report on National Bank of Pakistan.
To observe, analyze and interpret the relevant data competently and in a useful manner.

To work practically in an organization.

To develop interpersonal communication.

Scope of Study

1.3

As an internee in National Bank of Pakistan the main focus of my study research was on
general

banking procedures in one of the branches of NBP. These operations include

remittances, deposits, advances and foreign exchange.

Similarly different aspects of overall of NBP are also covered in this report.

1.4 Objectives of the Study

Discuss thorough study of National Bank of Pakistan.

To understand the various operations and to equip with practical knowledge of the
National bank of Pakistan.

1.5

Limitation of the Study

Some thing is better than nothing. No matter how efficiently a study is conducted, it cannot
be perfect in all respects. This study was conducted in accordance with the objectives of the
study. The study may not include broad explanations of facts and figures due to the nature of
the study. Secondly, the limitation, which affects the study, is the restriction on mentioning
every fact of the bank due to the problem of secrecy of the bank. In addition, the availability
of required data was a problem as all the documents and files are kept strictly under lock and
key due to their strictly confidential nature. Thirdly, the problem of short time period also
makes the analysis restricted as one cannot properly understand and thus analyze all the
operations of a bank just a very short time of eight weeks.

1.6 Benefit of the Study

The study done will benefit the finance students in particular and banking students in general
because the financial analysis section of this report comprehensively encompasses all
respects of financial analysis. Furthermore, NBP Khola Kehal Branch, Khola Kehal may
also benefit from the recommendations made at the end of the report.

1.7 Research Methodology

The report is based on my two months internship program in National Bank of Pakistan. The
methodology reported for collection of data is primary as well as secondary data. The biggest
source of information is my personal observation while working with staff and having
discussion with them. Formally arranged interviews and discussions also helped me in this
regards.

Primary data:

Primary data include, Personal observation and Interviews of The Staff Members

Secondary data:

Secondary data consist of Manuals, Journals, magazines, Annual Reports and Internet

1.8 Scheme of Study

Chapter 1:
An introductory chapter that discuss the introduction of study of report, its Background,
Purpose, Scope, Methodology, limitations and Scheme of the report.
Chapter2:
This chapter concludes brief history of banking in general, evolution of banking,
Nationalization of banking in Pakistan, History of NBP, mission statement, and its objectives,
functions of National Bank of Pakistan.
Chapter3: In this chapter the services of NBP were discussed and the departmentation of
NBP is explained as well as NBP Khola Kehal Branch
Chapoter4:
It tells about Strengths, Weaknesses, Opportunities and Threats of i.e. SWOT analysis of
NBP
Chapter 5:
It covers the critical analysis of the bank. This chapter has been divided into four parts i.e.
Problems at the Branch, Functional analysis, Administrative analysis, and Personal
Management Analysis.
Chapter 6:
In this chapter recommendation for improvement on all aspects of the Bank are given.

CHAPTER # 2
EVOLUTION OF BANKS IN PAKISTAN
2.1

Introduction

There are different opinions that how the word Bank originated. Some of the authors
opinion that this word is derived from the word Bancus or Banque, which means a bench.
The explanation of this origin is attributed to the fact that the Jews in Lombard transacted the
business of money exchange on benches in the market place; and when the business failed,
the people destroyed the bench. Incidentally the word Bankrupts said to have evolved
from this practice.
Some of the authors are of opinion that the word Bank is derived from the German word
back, which means joint stock fund. Later on when the German occupied major part of the
Italy the word Back was italicized into Back.
In fact human left the need of bank when it begins to realize the importance of money as a
medium of exchange. Perhaps it where the Babylonian who developed banking system as
early as 2000 B.C. At that time temples were used as banks because of their prevalent respect.
During the rule of king Hamurabi (1788 1686 BC) the founder of Babylonians Empire,
loans were started being granted for interest. The borrower has to provide guarantee or he had
to pledge his goods or valuables. King Hamurabi drew up a code wherein he laid down
standards rules for procedures for banking operations by temples and great landowners. Also
in Greece, the temples were used as banks, where the people deposited their money and other
valuables for safe custody and security. In Europe with the revival of civilization
(Renaissance) in the middle of twelve century, trade and commerce started expanding and
this development compelled the business community to borrow the money from the Hebrew
moneylenders on high rates of interest and usury. Seeing the great demand, these
moneylenders started organizing themselves and bank started up at the principle seaports of
southern Europe. Soon Venice and Geneva became the most important money markets of the
time and banking though different from its present form, flourished. What we know as
modern banking originated in the 14th century in Barcelona.

2.2

Definitions of Bank

"A financial institution, which deals with money and credit. It accepts Deposits from
individuals, firms and companies at a lower rate of Interest and gives at higher rate of interest
to those who need them.
A financial establishment which uses money deposited by customers for investment, pays it
out when required, makes loan at interest, exchanges currency, etc. J.W Gilbert in his
principles and practice banking defines a banker in these words:
A banker is dealer in capital or more properly, a dealer in money. He is intermediate party
between the borrower and the lender. He borrows of one and lends to another.
Sir John Paged defines banker in these terms:
That no person or body, corporate or otherwise, can be a banker who does not
Take deposits accounts.
Take current accounts,
Issue and pay Cheques and
Collect Cheques crossed and uncrossed for his customers The American defined
the term banker in a very broad sense as under:
By banking, we mean the business of dealing in credits and by a Bank we include every
person, firm or company having a place of business where credits are opened by deposits of
collection of money or currency. Subjects to be paid or remitted on Cheques or order, money
is advanced or loaned on stocks, bonds, bullion, bill of exchange, promissory notes are
received for discount or sale.

2.3

Evolution of Banking in Pakistan

The first phase in evolution of banking in Pakistan sees very hard days for the whole banking
sector. Starting virtually from scratch in 1947, the country today possesses a full range of
banking and financial institutions to cope with various needs of the economy.
The area now constituting Pakistan was, relatively speaking, fairly well provided with
banking facilities in undivided India, in March 1947 there were 3496 offices of Indian

scheduled banks out of which as many as 487 were situated in territories now constituting
Pakistan.
The Reserve bank of India was the central banking authority in India. At the time of partition
it was decided that in the interest of smooth transition it should continue to function in newly
emerging state of Pakistan, until 30th Sep.1948.
In 1947 due to uncertainty and unsuitability the banking sector suffer heavy losses.
This resulted in a negative effect on baking service in Pakistan. The banks, which had their
registered offices in Pakistan, transferred them to India. In an effort to bring about the
collapse of the new state by pushing a deliberate policy of withdrawals the Indian bank
offices closed quickly. Those banks, which stayed, operated only in name pending the
winding up of their business. The number of scheduled banks thus declined form 487
branches before independence to only 195 branches by 30th June1948.

2.4

Banking Growth during (1948-1970)

In this tense situation, a committee was immediately setup to formulate a scheme of central
banking legislation for Pakistan. Many specialists were of the opinion that in view of the
acute shortage of trained staff, any idea of establishing a central bank was I impractical and
the best that could be attempted was the setting up of a currency board until such times as
sufficient staff could be organize to operate a central bank.
The questions as to whether the institution should be only a currency board or a full-fledged
central bank had exercised the mind of the Pakistan government since independence.
Through, it was realized that the shortage of trained personal to run the central bank would
present serious difficulty in view of the tangible advantages that a central bank enjoyed over
currency board, the government ultimately decided to take the bold step of setting up a full
fledged central banking authority. Among other factors, which led to this decision, there was
the fact the banking facilities in the country had been totally disrupted and there was an
urgent need for their rehabilitation, which a central bank alone could meet. As there was
hardly any time to pass as Act, an order was drafted, known as the state bank of Pakistan
order, which was promulgated by the government of Pakistan on 12 th may 1948. The state
bank declared open on July 1, 1948 by the father of the nation.

One of the first tasks of the state bank was to arrange for the replacement of the Reserve bank
of India notes, which had continued to circulate in Pakistan during the transitional period, by
Pakistan currency.
The first Pakistan notes were issued in October 1948 in the denominations of Rs. 5, 10 &
100.
Time deposits during this period increased from Rs. 946 million to Rs. 3228 million, where
demand deposits rose from Rs. 1997 million to Rs 3655 million. The increase in time
deposits was particularly rapid. The ratio of time deposits to total deposits in June 1965 stood
at 49.6 percentage as against 32.01 percentage five years earlier. Another salient feature of
banking development during this period was that since the rate of increase in bank deposits
lagged behind the rate of expansion in bank credit, the banked has to depend increasingly on
central bank finance. They borrowing from the state bank rose from Rs. 11 million in June
1960 to Rs. 1688 million in June 1965. Owing keen demand for bank credit, banks
investments could not increase as rapidly as their advances. Their investments totaled to Rs.
1,874 million at the end of June 1965 compared to Rs. 1,231 million in June 1960.
Investments, which were almost equal to their advances in June 1960, were only about one
third of the advances in June 1965.The third plane period witnessed a further expansion of
banking facilities in the country the total number of scheduled banked offices increased from
1,591 at the end of June 1965 to 3133 at the close of June 1970. During the same bank credit
to the private sector rose from Rs. 5,789 million to Rs. 9492 million. There was also a
substantial growth in the bank deposits, which increased from Rs. 6883 million June 1965 to
Rs. 13147 million at the end of June 1970. A remarkable change occurred during this period
related to the composition of deposits. Time deposit becomes greater than demand deposits
forming about 54 percent age of the total deposits. As oppose to what happened in the
previous period, banks were able to finance a mush higher level of credit expansion without
having to increase their borrowings from the central bank.

2.5

Banking Reforms 1972

After the assumption of office by a new government in 1971, may 1972 different reforms
were introduced to make the banks more responsive to the requirements of economics growth
with social justice. The reforms aimed at bringing about a more purposeful and equitable

distribution of bank credit, improving the soundness and efficiency of the banks, and securing
greater social accountability of the banking system as a whole.
The role of the banking system had been truly spectacular in mobilizing savings of the
community and meeting the credit needs of the economy. But at the same time, the banks had
generally neglected their role in promoting social justice and had failed to play an effective
role in ensuring a wider and more equitable dispersal of the benefits of economic growth. In
particular
the inter locking of ownership with commercial and industrial interests had led to the misuse
of bank resources. There was a heavy concentration of credit in big accounts and in urban
area. Credit facilities for agriculture, small business, newly emerging exports and housing had
remained obviously inadequate while the banks indulged in capital financing in few selected
business sectors and issued guarantees on behalf of favored clients, term clients, term
financing facilities for industry were wholly absent.
Under the banking reforms introduced in May 1972 the state bank of Pakistan was accorded
wider powers. It was authorized to remove directors or managerial personnel, if necessary
and supersede the board of directors of a banking company and appoint administrators during
the period of such super session. It was also empowered to nominate directors on the board of
every bank. As regard bank directors, it was provided that anyone defaulting in meeting his
obligations to bank would forfeit his directorship. Moreover, it was laid down that no person
could serve as director of a bank for more than six years continuously. Each bank was
required to have a paid up capital of not less than 5 percent age of its deposits to be
progressively build up to 10 percent age over a period of time. The banks were also required
to transfer 10 percentage of their profit their reserves every years after the reserve became
equal to the paid up capital. With a view to diversity the ownership of the banks, the banks
were required to raise new capital from the market. Unsecured loans to directors, their
families or firms and companies, were totally prohibited.
The bank reforms also brought about the establishment of new institutions to achieve new
objectives. A national credit consultative was setup under the supervision of the state bank
with representation form the government and the private sector. It was assigned the task of
determining of economys annual credit needs within the safe limits of monetary and credit
expansion with reference to the annual development plan. Such a credit plan was to cover the

public and private sectors. Alongside the National credit council and Agricultural Advisory
Committee was formed to allocate agriculture credit for various purposes, to coordinate the
operation or the agriculture credit agencies and to oversee the flow of credit to the designated
targets. A standing committee on exports in general and the new emerging exports in
particular, was also established. With a view to encourage the banks to extend credit to small
borrowers, a credit guarantee scheme was introduced under which the state bank under took
to share any bonfire losses incurred by the commercial banks in case of small loans of
advances to agriculture.
At the same time two financing institutions were established. The peoples Finance
Corporation was designed to provide finance to people of small means while the National
Development Finance Corporation was set up of finance public sector owned and managed
industries and enterprises.

2.6

Nationalization of Banks (1974) In Pakistan

The banking reforms turned to be transitional and interim step and when they were hardly
eighteen months old the government nationalized the banking systems, with the following
main objectives.
To enable the government to use the capital concentrated in the hands of a few rich bankers
for the rapid economic development of the country and the more urgent social welfare
objectives.
To distribute equitably credit too different classes sectors and regions.
To coordinate the banking policies in various area of feasible joint activity without
eliminating healthy competition among banks.
The act passed for the nationalization of banks is known as the banks Nationalization Act
1974.
Thus under this act the state bank of Pakistan and all the commercial banks incorporated in
Pakistan and carrying business in or outside the country were brought under government
ownership with effect from Jan 1, 1974. The ownership, management and control of all
Pakistani banks stood transferred to and vested in the Federal government. The shareholders
were provided compensation in the form of federal government bonds redeemable at par

anytime within the period of fifteen years. Under the Nationalization act, the Chairman,
Directors and Executives of various banks, other than those appointed by federal government
were removed from their offices and the central boards of the banks and all local bodies were
dissolved. Pakistan banking council was established to coordinate the activities of the
Nationalized Commercial banks. At the time of Nationalization on December31, 1973 there
were following 14 Pakistani commercial banks with 3323 offices allover Pakistan and 74
offices in foreign countries:
National banks of Pakistan
Habib bank limited
Habib bank (overseas) limited
United bank limited
Muslim commercial bank limited
Commerce bank limited
Standard bank limited
Australia bank limited
Bank of Bahawalpur limited
Premium bank limited
Pak Bank limited
Sarhad bank limited
Lahore commercial limited
Punjab provincial co-operative bank limited
The Pakistan banking council prepared a scheme for the recognition of banks. The bank
(amalgamation) scheme 1974 was notified in April, providing for the amalgamation of the
smaller banks with bigger ones and following the five units in there phases:

10

National bank limited

Habib bank limited
United bank limite
Muslim commercial bank limited
Allied bank of Pakistan limited
The first phase was completed on 30th June. 1974. When the bank Bahawalpur was merged
with the National Bank of Pakistan. The premier Bank Limited with Muslim Commercial
Bank limited and Sarhad Bank Limited and Pak bank limited and renamed as Allied Bank of
Pakistan limited.
The second phase was completed on 31st Dec.1974, when the commerce bank limited merged
with the United Bank limited.
The third and the final phase were completed on 30 th June 1975 when the standard bank
limited was merged with Habib Bank limited.
The nationalization was very smooth and gave very positive results.
The number of branches, which stood at 3397 on Dec31, 1973, reached on 7661 by end June
1992. The bank deposits, which stood at Rs. 1925 corers at the end 1973 reached the highest,
mark about 323 corers.
2.6.1

Islamization of Banking

Another major development in the history of Pakistan Banking System was the introduced of
interest free banking in selected Commercial Banks with effect form Jan1, 1981. This
followed the effort to eliminated interest from the operation of Nation investment trust, the
House Building Finance Corporation of Pakistan. Certain amendments were made in banking
and other laws with the object of ushering in a new system of banking, which would confirm
of Sharia. A new law Modaraba Companies Ordinance 1980 was promulgated. Separate
interest free counters began to operate in all the nationalized commercial banks free counters
began to operate in all the nationalized commercial banks. The state bank provides finance

11

against participation term certificate and also against promissory notes supported by
Modaraba certificate.
In order to cover interest free transactions certain banking definitions such as creditors,
debtor, and advances credits and deposits were revised. Stipulations concerning form of
business in which banking companies may engage may also have been modified schemes
were introduced to provide interest free loans to formers and deserving students.
A private Limited Company named as Bankers Equity limited was incorporated in 1979 to
provide financial assistance to the industrial sector primarily on interest free basis.
A scheme to extend interest free productive loans to farmers and fisherman has also been
introduced. Instead of interest, a system based on mark-up in price, exchange rate differential,
and profit and loss sharing accounts were introduced.
Different financial schemes introduced in the Islamization process are:
Musharika Financing.
Hire Purchase Financing.
Modaraba Financing.
Specific Purpose Modaraba.
2.6.2

Dis-investments and Deregulation of Banking 1991

When it was realized that the role of public sector in the economy is over extended and the
banking sector has more earning potential in the private sector the process of privatization
banking sector restarted in 1991 by the Muslim League Government. Muslim Commercial
Bank was Dis-invested in to two phases while ABL was sold to its employees. Since then
allot of investment is being made in the banking sector and several new banks were
established and still the process is going on. Now only NBP is government bank other than
SBP. The performance of this bank will be analyzed and judged in the following chapters.

12

2.6.3

Interest Free Banking

A new concept of interest free banking was introduced in 1981 and by now it has been
established on sound footing and new trends and techniques are being implemented to make
this system result oriented. New products and their systematic consumption are making
Pakistani banking comparable to their several modern counterparts anywhere in the
developed world.
2.6.4 HISTORY OF NBP :
The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.
British Govt. devalued its currency in September 1949, India devalued its rupees but
Pakistan did not. It led to a crisis in trading between the two countries and India refused to lift
the Pakistan Jute. To solve this problem i.e. to export jute NBP was established through an
Ordinance of GOP. 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.
NBP was undertaking Treasury Operations and Managing Currency Chests or Sub Chests at
57 of its offices where the turnover of the business under the head amounted to Rs.2460
million.
i)

Deposits held by NBP constituted about 3.1% of total deposits of all

Pakistani Banks in 1949, which rose to 38% in 1952.

ii)

Growth in Deposits was accompanied by increase in Bank portfolio in

advances.

NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in support of
agriculture and commerce.
iii) NBP advances reached Rs.554.4 million by December 1959, which was one third of
the total schedule bank credit.

13

2.6.4.1 MISSION STATEMEN

To

make

the

Bank

complete

and

competitive

with

all

international

Standard in performing, quality of, operations, staff, financial strength. And products and
services To develop a culture of excellence in every spare of activity of the bank.
2.6.4.2 GOALS AND OBJICTIVES
An organizational objective is the intended goal that prescribes definite scope and suggests
direction to the panning efforts of a organization.
2.6.4.3 GOALS AND OBJICTIVES NBP
To be the pre-eminent financial institution in Pakistan and achieve market recognition both
in the quality and delivery of service as well as the range of product offerings.
2.6.4.4

BOARD OF DIRECTORS

NBP, Board of Directors list consist the following members and their designation.
Table 1
NAME

DISIGNATION

Ali Raza

Chairman & President

Dr Waqar Masood

Director

Ifthikhar Ali Malik

Director

Syed Shafqat Ali Shah Jamoti

Director

M Zubair Motiwala

Director

Sikandar Hayat Jamali

Director

M. Khalid Malik

Director

S.M. Rafique

SEVP & Sectorary to BD

(Source Annual report 2004)

14

2.6.5 MANAGEMENT
Management is a distinct process consisting of activities of planning, organizing, actuating
and controlling performed to determine and accomplish stated objectives with the use of
human being and other resources.The management has two types.
1. Centralized.
2. Decentralized.
Centralized Management tends to concentrate decision making at the top of the
Organization.
Decentralized disperses decision-making and authority throughout and further down the
organizational hierarchy.
NBP have a centralized type of management because the top management takes all the
decisions.
2.6.5.1

SENIOR MANAGEMENT OF NBP .

Senior Management of NBP consists of following member and their respective designation.
Table 2
SEVP & Group Chief, Corporate &
Masood Karim Sheikh

Investment Banking Group and Chief

Financial Officer

S. M. Rafique
Derick Cyprian

Imam Bakhsh Baloch

Shahid Anwar Khan

Nadeem A. Dogar

SEVP & Secretary Board of Directors

SEVP & Group Chief, Special Assets &
Remedial Management Group
SEVP & Group Chief, Compliance
Group
EVP & Group Chief, Commercial &
Retail Banking Group
EVP & Group Chief, Information

15

Technology Group
Muhammad Sardar Khawaja
Dr. Asif A. Brohi
Javed Mehmood

Muhammad Nusrat Vohra

Amim Akhtar
Dr. Mirza Abrar Baig
Uzma Bashir

EVP

&

Group

Chief,

Audit

&

Inspection Group
EVP & Group Chief, Operations Group
EVP & Group Chief, Risk Management
Group
EVP

&

Group

Chief,

Treasury

Management Group
EVP & PSO to the President
Group

Chief,

Human

Resources

Management & Administration Group

Group Chief, Organization D&T Group

(Source www.nbp.com.pk)
2.6.6 Net Work of Branches:
NBP have wide range of branches inside the country and outside the country.
In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.
In overseas it has 16 overseas branches, 6 other branches.
.2.6.7 Objectives of NBP
National bank of Pakistan is also a commercial organization and its main objective is profit
maximization. This is achieved in two ways:
1. By increasing deposits.
2. By charging interest on loans provided to the private sector and business community.
These are explained as:
2.6.7.1 Increase in deposits:
Competition in banking is intense and every bank whether it is Pakistani, foreign, private or
nationalized tries to increase its deposits by providing better facilities to its customers. By
increasing its deposits a bank can extend greater amount of loan and hence achieves higher

16

profit. NBP is also improving its facilities and services to attract customers with higher
volume of deposits. There are two main factors involved in increasing the deposits. These
factors are improving the services and courtesy. NBP is continuously working on these two
factors to increase its deposits.
2.6.7.2 Extension of loans:
The profitability of a bank largely depends on the amount given to people as loan and the
type of people to whom credit is given i.e. the credit worthiness of the borrowers. This
strategy has worked quite well for NBP. Deposits are collected from the people and invested
in different projects. NBP prefers to give loans to financially sound and reliable parties, after
securing the collators. NBP has an extremely well organized section. The staff is adequately
trained, and educated and competent. They carry out extensive financial analysis before
deciding on the loan. Interest charged on the loans potentially contributes to higher profits.
Some of the other objectives of NBP are:
i. Improve customer services.
ii. Quick disposal of credit cases.
iii. Efficient operation of the branches.
iv. Better Public Relations.
v. Operational and advisory services for foreign exchange accounts activities
2.6.8 Functions of NBP
Since NBP is a commercial bank, it performs a variety of functions.
Like other commercial banks, NBP is engaged in financing international trade.

Its other

major functions include receiving deposits, advancing loans and discounting of exchange.
The functions performed by NBP are:
2.6.8.1 Accepting Deposits
This function is important because banks largely depend on the funds deposited with them by
its customers. Deposits are of many types:
i.

Current deposits

17

Current deposits are also called demand liability on current deposits. NBP pays practically no
interest on current deposits. Businessmen usually open current accounts. In NBP current
account can be opened with a minimum amount of Rs.500/-.
PLS saving deposit
Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit and
draw money easily. Profit on PLS is calculated every month but paid after six months. PLS
account can be opened with a minimum amount of Rs.500/iii.

PLS term deposits

Fixed term deposits are deposits with the bank for certain fixed period before the expiry of
which they cannot be withdrawn unless giving due notice. In this case the rates of profit will
be different depending upon the time period.
2.6.9 Discounting bills of exchange
Discounting of bill is practically speaking lending for exchange at their market rate i.e. it
pays to holder of the bill an amount equal to the face value after deducting interest at the
current market rate for the period. This bill has to be mature. This is the common way used
for keeping a part of assets of the bank in a liquid form.
2.6.10 Agency service
NBP also provides best and unique service to its valued customers. NBP provide the
following agency services to the customers:
i.

Collection of dividends

As NBP deals with the purchase and sale of various types of securities, therefore NBP also
provide dividend or interest earned on share or bonds or invested money.
ii.

Collection of Cheques

In the collection and payment of Cheques, bills and promissory notes etc. National bank of
Pakistan acts as an agent for its customers.
iii. Acting as an agent
NBP also acts as an agent correspondent or representative for its customer at home or abroad.

18

iv.

General utility services:

Utilities provided by NBP are as follows:

a.

Clearance of utility bills

NBP provides the service of clearing the utility bills i.e. electricity, gas and telephone bills of
its customers. For this purpose it also provides evening banking services
b.

Lockers facility

National bank of Pakistan also provides locker facilities to its customers to keep their
valuable assets in it. The charges of different size of lockers are different.
c.

Acts as a referee

NBP provides useful services to its customers by acting as a referee to their credit worthiness.
d.

Supply of information

NBP provides operational and advisory service for foreign exchange accounts/activities.
2.6.11 Unmatched Banking Facilities
Deposit security, Guaranteed by Government of Pakistan.
Highest rates of return to attract the savings.
Lowest rates on exports and other borrowings.
Largest contribution towards Government and Semi-Government requirements.
Agents of the SBP handling Treasury Functions, receipts of Taxes & other
Revenues.
Handling of salaries & pensions of federal/provincial/defense personnel.
Utility Bills collections.
Hajj arrangements.

19

 Sale and encashment of prize Bonds.

Sale and encashment of Defense Savings and Special Savings Certificates.
Safe Deposit Lockers for customers.
Rational Human Resource Management.
The prestigious periodical The Banker UK recognized NBP as the best bank for 2001-2002
and NBP is the bank of the year for 2004-2004 of Pakistan.
i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating
Agency for 2001.
ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit Rating
Agency for 2002
2.6.12 NBP at the forefront of Pak-Afghan trade
i. Booth at dry port Peshawar
ii. Booth at Pak Afghan border (Torkham) NWFP
iii. Booth at Pak Afghan border (Chamman). Baluchistan.
iv. Establishing branch at Kabul.
2.6.13 Summation
We discussed in this chapter the evaluation of banking in Pakistan, banking reforms 1972,
Nationalization of banks, History of NBP, Mission Statement of NBP. The next and onward
chapter we will discuss the general banking information and departmentalization of NBP.

20

21

CHAPTER # 3
INFORMATION & DEPARTMENTALIZATION OF NBP

3.1 INTRODUCTION
This chapter presents the services and departmentalization of NBP.
Services are outputs of the firm, which are in intangible form. Which are the backbones of
any organization to earn profit. NBP offers the following services to the people.

3.2

DEMAND DRAFTS

If you are looking for a safe, speedy and reliable way to transfer money, you can now
purchase NBPs Demand Drafts at very reasonable rates. Any person whether an account
holder of the bank or not, can purchase a Demand Draft from a bank branch.

3.3

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. 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.
Using the NBP network of branches, you can safely and speedily transfer money for our
business and personal needs.
3.4

LETTERS 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.

22

3.5

TRAVELER'S CHEQUES

Travelers cheques are negotiable instruments, and there is no restriction on the period of
validity of the cheques. Rupee travelers cheque is available at all 700 branches of NBP. This
can be encashed in all 400 branches of NBP. There is no limit on purchase of this cheque. It is
one of the safest ways for carrying money.

3.6

PAY ORDER

NBP provides another reason to transfer your money using our facilities. NBP pay orders are
a secure and easy way to move your money from one place to another. And, as usual, NBP
charges for this service are extremely competitive. The charges of NBP are very low all over
the Pakistan. It charges Rs 50/- for NBP account holders on issuing one payment order. And
charges Rs 100/- for NBP non-account holders on issuing one payment order. It charges Rs
25/- for students on payment of fees of educational institutions. If some one want a duplicate
of payment order they charges Rs 100/- for NBP account holders and Rs 150/- for non
account holders.

3.7

AIL TRANSFERS

Move your money safely and quickly using NBP Mail Transfer service. And NBP also offers
the most competitive rates in the market. They charges Rs 50/- exchange rate and RS 75/postage charges on issuing mail transfer.

3.8 FOREIGN REMITTANCES:

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

Increase home remittances through the banking system

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

23

3.8.1New Features:
The existing system of home remittances has been revised/significantly improved and welltrained field functionaries are posted to provide efficient and reliable home remittance
services to nonresident Pakistanis at 15 overseas branches of the Bank besides Pakistan
International Bank (UK) Ltd., 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.

3.9

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, NBPs rates of profit are extremely
attractive, along with the security and service only NBP can provide.

3.10 National Income Daily Account (NIDA)

The scheme was launched in December 1995 to attract corporate customers. It is a current
account scheme and is part of the profit and loss system of accounts in operation throughout
the country.
3.10.1 Salient Features:

Rs 2-million are required to open an account and there is no maximum limit.

Profit is paid on half yearly basis on monthly balances.

The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million
to 2,000 million, the rate fluctuates from 1.4 to 1.75

It is a checking account and there is no limit of withdrawals.

3.10.2 Rates on NIDA

From Rs 2/- million to Rs 50/- the rate is 1.4%.

24

From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.

From Rs 500/- million but below Rs 1000/- the rate is 1.6%.

From Rs 1000/- and above the rate is 1.75%.

3.11

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.

3.11.1

NBP is involved in the following:

Investment into the capital market

Introduction of capital market accounts (under process)

NBPs involvement in capital markets is expected to increase its earnings, which would result
in better returns offered to account holders

3.12

COMMERCIAL FINANCE

NBP dedicated team of professionals truly understands the needs of professionals,

agriculturists, large and small business and other segments of the economy. They are the
customers best resource in making NBPs products and services work for them.

3.13

TRADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.

3.13.1 AGRICULTURAL FINANCE
NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who
produce some of the best agricultural products in the World.
3.13.1.1

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

25

be made role models for other farms and farmers to follow, thus helping farmers across
Pakistan to increase production.
3.13.1.2

Agricultural Credit:

The agricultural financing strategy of NBP is aimed at three main objectives:

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better production

Provide farmers an integrated package of credit with supplies of essential inputs,

technical knowledge, and supervision of farming.

3.13.1.3

Agricultural Credit (Medium Term):

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Solar energy

Equipment for sprinklers

3.13.1.4

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.

26

3.13.1.5

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.
3.13.2 CORPORATE FINANCE
3.13.1.1 Working Capital and Short Term Loans:
NBP specializes in providing Project Finance Export Refinance to exporters Pre-shipment
and Post-shipment financing to exporters Running finance Cash Finance Small Finance
Discounting & Bills Purchased Export Bills Purchased / Pre-shipment / Post Shipment
Agricultural Production Loans
3.13.2.2

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 banks belief in its client's
capabilities, and its commitment to the country.
3.13.2.3

Loan Structuring and Syndication:

National Banks 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.
3.13.2.4

Cash Management Services:

With National Banks Cash Management Services (in process of being set up), the customers
sales collection will be channeled through vast network of NBP branched spread across the

27

country. This will enable the customer to manage their companys 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,
youll be provided everything, which takes to manage your cash flow more accurately

3.14

INTERNATIONAL BANKING

National Bank of Pakistan is at the forefront of international banking in Pakistan, which is

proven by the fact that NBP has its branches in all of the major financial capitals of the
world. Additionally, NBP 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 NBPs exposure to foreign and domestic correspondence

Manage the monetary aspect of NBPs relationship with the correspondents to support
trade, treasury and other key business areas, thereby contributing to the banks
profitability

3.14.1

Generation of incremental trade-finance business and revenues

NBP offers:

The lowest rates on exports and other international banking products

Access to different local commercial banks in international banking

3.15

Cash and Gold Finance.

Cash and Gold finance means that loan is given against the gold. The gold is mortgaged with
the bank and loan is taken. It is the area of consumer finance. And borrower can take loan for
common use.

3.16

Advance salary loan:

This loan is given to those people who are govt servants. They can get a loan up to the salary
of fifteen months.

28

3.17 DEPARTMENTALIZATION 2
Dividing an organization into different parts according to the functions is called
departmentation. So NBP can be divided into the following main departments.
A) DEPARTMENTATION OF NBP
Cash department performs the following functions
3.17.1.2

Receipt

The money, which either comes or goes out from the bank, its record should be kept. Cash
department performs this function. The deposits of all customers of the bank are controlled
by means of ledger accounts. Every customer has its own ledger account and has separate
ledger cards.
3.17.1.3

Payments

It is a bankers primary contract to repay money received for this customers account usually
by honoring his cheques.
3.17.1.4

Cheques and their Payment

The Negotiable Instruments. Act, 1881 3

Cheque is a bill of exchange drawn on a specified banker and not expressed to be payable
otherwise than on demand.
Since a Cheque has been declared to be a bill of exchange, it must have all its characteristics
as mentioned in Section 5 of the Negotiable Instruments Act, 1881. Therefore, one can say
that a Cheque can be defined as an:
An unconditional order in writing drawn on a specified banker, signed by the drawer,
requiring the banker to pay on demand a sum certain in money to, or to the order of, a
specified person or to the bearer, and which does not order any act to be done in addition to
the payment of money.
3.17.1.5)

The Requisites of Cheque

29

There is no prescribed form of words or design of a Cheque, but in order to fulfill the
requirements mentioned in Section 6 above the Cheque must have the following.
a)

It should be in writing

b)

The unconditional order

c)

Drawn on specific banker only

d)

Payment on Demand

e)

Sum Certain in money

f)

Payable to a specific person

g)

Signed by the drawer

3.17.1.6)

Parties to Cheque

The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no
payee but bearer.
a)

The Drawer

b)

The Drawee

c)

The Payee

3.17.1.7)

Types of Cheques

Bankers in Pakistan deal with three types of cheques

a) Bearer Cheques
Bearer cheques are cashable at the counter of the bank. These can also be collected through
clearing.
b) Order cheque
c) Crossed Cheque

30

These cheques are not payable in cash at the counters of a banker. It can only be credited to
the payees account. If there are two persons having accounts at the same bank, one of the
account holder issues a cross-cheque in favour of the other account holder. Then the cheque
will be credited to the account of the person to whom the cheque was issued and debited from
the account of the person who has actually issued the cheque.
3.17.1.8)

Payment of Cheques

It is a bankers primary contract to repay money received for his customers account usually
by honouring his cheques. Payment of money deposited by the customer is one of the root
functions of banking. The acid test of banking is the receipt of money etc. from the
depositors, and repayment to them. This paying function is one, which is the distinguishing
mark of a banker and differentiates him from other institutions, which receive money from
the public. However the bankers legal protection is only when payment is in Due Course.
The payment in due course means payment in accordance with the apparent tenor of the
instrument, in good faith and without negligence to any person in possession thereof under
circumstances, which do not afford a reasonable ground of believing that he is not entitled to
receive payment of the amount therein mentioned. It is a contractual obligation of a banker to
honor his customers cheques if the following essentials are fulfilled.
a)

Cheques should be in a proper form:

b)

Cheque should not be crossed:

c)

Cheque should be drawn on the particular bank:

d)

Cheque should not mutilated:

e)

Funds must be sufficient and available:

f)

The Cheque should not be post dated or stale:

g)

Cheque should be presented during banking hours:

3.17.2 CLEARANCE DEPARTMENT

A clearinghouse is an association of commercial banks set up in given locality for the purpose
of interchange and settlement of credit claims. The function of clearinghouse is performed by

31

the central bank of a country by tradition or by law. In Pakistan, the clearing system is
operated by the SBP. If SBP has no office at a place, then NBP, as a representative of SBP act
as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken place. The use of
cheques in making payments has also widely increased. The collection as settlement of
mutual obligations in the form of cheques is now a big task for all the commercial bank.
When Cheque is drawn on one bank and the holder (payee) deposits the same in his account
at the bank of the drawer, the mutual obligation are settled by the internal bank administration
and there arises no inter bank debits from the use of cheques. The total assets and total
liabilities of the bank remain unchanged.
The representatives of the local commercial banks meet at a fixed time on all the business
days of the week. The meeting is held in the office of the bank that officially performs the
duties of clearinghouse. The representatives of the commercial banks deliver the cheques
payable at other local banks and receive the cheques drawn on their bank. The cheques are
then sorted according to the bank on which they are drawn. A summary sheet is prepared
which shows the names of the banks, the total number of cheques delivered and received by
them. Totals are also made of all the cheques presented by or to each bank. The difference
between the total represents the amount to be paid by a particular bank and the amount to be
received by it. Each bank then receives the net amount due to it or pays the net amount owed
by it.
3.17.2.1) In-Word Clearing Books
The bank uses this book for the purpose of recording all the cheques that are being received
by the bank in the first clearing. All details of the cheques are recorded in this book.
3.17.2.2) Out-Word Clearing Book:
The bank uses outward clearing register for the purpose of recording all the details of the
cheques that the bank has delivered to other banks.

3.18

ADVANCES DEPARTMENT

32

Advances department is one of the most sensitive and important departments of the bank. The
major portion of the profit is earned through this department. The job of this department is to
make proposals about the loans. The Credit Management Division of Head Office directly
controls all the advances. As we known bank is a profit seeking institution. It attracts surplus
balances from the customers at low rate of interest and makes advances at a higher rate of
interest to the individuals and business firms. Credit extensions are the most important
activity of all financial institutions, because it is the main source of earning. However, at the
same time, it is a very risky task and the risk cannot be completely eliminated but could be
minimized largely with certain techniques.
Any individual or company, who wants loan from NBP, first of all has to undergo the filling
of a prescribed form, which provides the following information to the banker.
3.18.1) Name and address of the borrower.
a)

Existing financial position of a borrower at a particular branch.

b)

Accounts details of other banks (if any).

c)

Security against loan.

d)

Exiting financial position of the company. (Balance Sheet & Income Statement).

e)

Signing a promissory note is also a requirement of lending, through this note borrower
promise that he will be responsible to pay the certain amount of money with interest.

3.18.2) Principles of Advances

There are five principles, which must be duly observed while advancing money to the
borrowers.
a.

Safety

b.

Liquidity

c.

Dispersal

33

d.

Remuneration

e.

Suitability

a. Safety
Bankers funds comprise mainly of money borrowed from numerous customers on various
accounts such as Current Account, Savings Bank Account, Call Deposit Account, Special
Notice Account and Fixed Deposit Account. It indicates that whatever money the banker
holds is that of his customers who have entrusted the banker with it only because they have
full confidence in the expert handling of money by their banker. Therefore, the banker must
be very careful and ensure that his depositors money is advanced to safe hands where the
risk of loss does not exist. The elements of character, capacity and capital can help a banker
in arriving at a conclusion regarding the safety of advances allowed by him.
b.

Character

It is the most important factor in determining the safety of advance, for there is no substitute
for character. A borrowers character can indicate his intention to repay the advance since his
honesty and integrity is of primary importance. If the past record of the borrower shows that
his integrity has been questionable, the banker should avoid him, especially when the
securities offered by him are inadequate in covering the full amount of advance.
It is obligation on the banker to ensure that his borrower is a person of character and has
capacity enough to repay the money borrowed including the interest thereon.

c.

Capacity

This is the management ability factor, which tells how successful a business has been in the
past and what the future possibilities are. A businessman may not have vast financial
resources, but with sound management abilities, including the insight into a specific business,
he may make his business very profitable. On the other hand if a person has no insight into
the particular business for which he wants to borrow funds from the banker, there are more
chances of loss to the banker.

34

d.

Capital

This is the monetary base because the money invested by the proprietors represents their faith
in the business and its future. The role of commercial banks is to provide short-term capital
for commerce and industry, yet some borrowers would insist that their bankers provide most
of the capital required. This makes the banker a partner. As such the banker must consider
whether the amount requested for is reasonable to the borrowers own resources or
investment.
e.

Liquidity

Liquidity means the possibilities of recovering the advances in emergency, because all the
money borrowed by the customer is repayable in lump sum on demand. Generally the
borrowers repay their loans steadily, and the funds thus released can be used to allow fresh
loans to other borrowers. Nevertheless, the banker must ensure that the money he is lending
is not blocked for an undue long time, and that the borrowers are in such a financial position
as to pay back the entire amount outstanding against them on a short notice. In such a
situation, it is very important for a banker to study his borrowers assets to liquidity, because
he would prefer to lend only for a short period in order to meet the shortfalls in the wording
capital. If the borrower asks for an advance for the purchase of fixed assets the banker should
refuse because it shall not be possible for him to repay when the banker wants his customer to
repay the amount. Hence, the baker must adhere to the consideration of the principles of
liquidity very careful.
f.

Dispersal

The dispersal of the amount of advance should be broadly based so that large number of
borrowing customer may benefit from the bankers funds. The banker must ensure that his
funds are not invested in specific sectors like textile industry, heavy engineering or
agriculture. He must see that from his available funds he advances them to a wide range of
sector like commerce, industry, farming, agriculture, small business, housing projects and
various other financial concerns in order of priorities.
Dispersal of advances is very necessary from the point of security as well, because it reduces
the risk of recovery when something goes wrong in one particular sector or in one field.

35

g.

Remuneration

A major portion of the bankers earnings comes form the interest charged on the money
borrowed by the customers. The banker needs sufficient earnings to meet the following:
a)

Interest payable to the money deposited with him.

b)

Salaries and fringe benefits payable to the staff members.

c)

Overhead expense and depreciation and maintenance of the fixed assets of the bank.

d)

An adequate sum to meet possible losses.

e)

Provisions for a reserve fund to meet unforeseen contingencies.

f)

Payment of dividends to the shareholders.

h.

Suitability

The word suitability is not to be taken in its usual literary sense but in the broader sense of
purport. It means that advance should be allowed not only to the carefully selected and
suitable borrowers but also in keeping with the overall national development plans chalked
out by the authorities concerned. Before accommodating a borrower the banker should ensure
that the lending is for a purpose in conformity with the current national credit policy laid
down by the central bank of the country.
3.18.3 Forms of Loans
In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the
form of cash finance, overdrafts and loans. NBP provides advances to different people in
different ways as the case demand.
a) Cash Finance
This is a very common form of borrowing by commercial and industrial concerns and is
made available either against pledge or hypothecation of goods, produce or merchandise. In
cash finance a borrower is allowed to borrow money from the banker up to a certain limit,
either at once or as and when required. The borrower prefers this form of lending due to the
facility of paying markup/services charges only on the amount he actually utilizes.

36

If the borrower does not utilize the full limit, the banker has to lose return on the un-utilized
amount. In order to offset this loss, the banker may provide for a suitable clause in the cash
finance agreement, according to which the borrower has to pay markup/service charges on at
least on self or one quarter of the amount of cash finance limit allowed to him even when he
does not utilize that amount.
b) Overdraft/Running Finance
This is the most common form of bank lending. When a borrower requires temporary
accommodation his banker allows withdrawals on his account in excess of the balance, which
the borrowing customer has in credit, and an overdraft thus occurs. This accommodation is
generally allowed against collateral securities. When it is against collateral securities it is
called Secured Overdraft and when the borrowing customer cannot offer any collateral
security except his personal security, the accommodation is called a Clean Overdraft. The
borrowing customer is in an advantageous position in an overdraft, because he has to pay
service charges only on the balance outstanding against him. The main difference between a
cash finance and overdraft lies in the fact that cash finance is a bank finance used for long
term by commercial and industrial concern on regular basis, while an overdraft is a temporary
accommodation occasionally resorted to.
c) Demand Financing/Loans
When a customer borrows from a banker a fixed amount repayable either in periodic
installments or in lump sum at a fixed future time, it is called a loan. When bankers allow
loans to their customers against collateral securities they are called secured loans and when
no collateral security is taken they are called clean loans.
The amount of loan is placed at the borrowers disposal in lump sum for the period agreed
upon, and the borrowing customer has to pay interest on the entire amount. Thus the
borrower gets a fixed amount of money for his use, while the banker feels satisfied in lending
money in fixed amounts for definite short periods against a satisfactory security

37

3.19 REMITTANCE DEPARTMENT

Remittance means a sum of money sent in payment for something. This department deals
with either the transfer of money from one bank to other bank or from one branch to another
branch for their customers. NBP offers the following forms of remittances.
a)

Demand Draft

b)

Telegraphic Transfer

c)

Pay Order

d)

Mail Transfer

3.19.1) Demand Draft

Demand draft is a popular mode of transfer. The customer fills the application form.
Application form includes the beneficiary name, account number and a senders name. The
customer deposits the amount of DD in the branch. After the payment the DD is prepared and
given to the customer. NBP officials note the transaction in issuance register on the page of
that branch of NBP on which DD is drawn and will prepare the advice to send to that branch.
The account of the customer is credited when the DD advice from originating branch comes
to the responding branch and the account is debited when DD comes for clearance. DD are of
two types.

a)

Open DD:

Where direct payment is made.

b)

Cross DD:

Where payment is made though account.

NBP CHARGES FOR DD

I.

Up to Rs. 50,000/- is Rs 50/- only

II.

Over Rs. 50,000/- is 0.1%

38

3.19.2) Pay Order

Pay order is made for local transfer of money. Pay order is the most convenient, simple and
secure way of transfer of money. NBP takes fixed commission of Rs. 25 per pay order from
the account holder and Rs. 100 from a non-account holder.
3.19.3) Telegraphic Transfer
Telegraphic transfer or cable transfer is the quickest method of making remittances.
Telegraphic transfer is an order by telegram to a bank to pay a specified sum of money to the
specified person. The customer for requesting TT fills an application form. Vouchers are
prepared and sent by ordinary mail to keep the record. TT charges are taken from the
customer. No excise duty is charged on TT. The TT charges are:
Telegram/ Fax Charges on TT = Actual-minimum Rs.125.
Cable telegram transfer costs more as compared to other title of money. In cable transfer the
bank uses a secret system of private code, which is known to the person concerned with this
department and branch manager.
3.19.4) Mail Transfer
When the money is not required immediately, the remittances can also be made by mail
transfer (MT). Here the selling office of the bank sends instructions in writing by mail to the
paying bank for the payment of a specified amount of money. Debiting to the buyers account
at the selling office and crediting to the recipients account at the paying bank make the
payment under this transfer. NBP taxes mail charges from the applicant where no excise duty
is charged. Postage
charges on mail transfer are actual minimum Rs. 40/- if sent by registered post locally Rs.40/if sent by registered post inland on partys request.
3.20

HUMAN RESOURCE MANAGEMENT

Human Resource plays a vital role in the success of every service organization. They interact
between man and machine. Their attitude can win or loose the customer. The positive attitude
could only be created in a conducive environment, which can make the staff dedicated
towards the organization and its objectives. In reality the man is more important than machine

39

as it is the human which could get maximum out of machine to keep a happy customer.
However, most organizations give little importance to this very important asset.
Various aspects related to human resource of National Bank of Pakistan are critically
examined in the following text:
3.20.1) Selection & Recruitment
Although the Bank believes in merit but in practice the selection of employees is not done on
merit. Most of the employees are low educated. This shows that candidates with some strong
family background or political pressure are given preference in recruitment and qualified
candidates are sometimes left behind.
3.20.2) Job for Life
Like the employee of public sector organizations in Pakistan, the employees of NBP also
enjoy their job for life. Since there is no risk of early retirement or redundancy in rank, they
do not perform with their full potentials. This is one redundancy in rank, they do not perform
with their full potentials, and this is one of the reasons responsible for the low productivity of
the employees of the Bank.

3.20.3) Performance Appraisal

The performance of employees of the Bank are appraised though their annual confidential
reports at the end of each year. This has become an outdated method of performance appraisal
and no longer used due to the following reasons:
1.

The performance of employees is evaluated after quite a long time.

2.

Element of subjectivity is involved in this method.

3.

Employees participation is not ensured in the process of evaluation.

4.

Objectives of employees are not quantified.

40

3.20.4) Inter Personal Relationship

Modern management acknowledges human resources as one of the most important assets of
an organization. But by their very nature, human beings are also the most unpredictable.
Where a number of persons work together, interactions among them, of necessity, will lead to
conflicts and NBP is no exception. Most interpersonal conflicts in NBP can be traced back to
the following major heads.
Lack of Communication
Lack of communication is for the biggest reason for conflicts. Not only it is due to the failure
to send a massage but to an interpretation given to the massage by the receiver is different
from that intended.
3.20.5) Diversity in Values
Diversity in values, perceptions, cultural background and life-style is another reason
responsible for inter personal conflicts in NBP. Different values and perceptions about the
same issue, event or personality hinder understanding. When things come to such a
pavement, therefore, interpersonal conflicts are generated.
3.20.6) Corruption
Our social acceptance of corruption gives rise to corruption at every level of social and
organizational set up. Corruption involves financial embezzlement, favoritism, nepotism,
3.20.7) Discipline & Authority
Maintaining discipline and implementation of authority (tables) in letter and spirit is the key
to success of any organization. In NBP, The authority tables are not strictly maintained. Line
managers are not fully equipped with the authority with no vertical or horizontal interference.
3.21) DEPOSIT DEPARTMENT: It controls the following activities:
a)

A/C opening.

b)

Issuance of chequebook.

41

c)

Current a/c

d)

Saving a/c

e)

Cheque cancellation

f)

Cash

3.21.1 Account opening

The opening of an account is the establishment of banker customer relationship. Before a
banker opens a new account, the banker should determine the prospective customers
integrity, respectability, occupation and the nature of business by the introductory references
given at the time of account opening. Preliminary investigation is necessary because of the
following reasons.
i.

Avoiding frauds

ii.

Safe guard against unintended over draft.

iii.

Negligence.

iv.

Inquiries about clients.

There are certain formalities, which are to be observed for opening an account with a bank.

Formal Application

Introduction

Specimen Signature

Minimum Initial Deposit

Operating the Account

1.

Pay-In-Slip Book

2.

Pass Book

42

3.

Issuing Cheque Book

a) Qualification of Customer
The relation of the banker and the customer is purely a contractual one, however, he must
have the following basic qualifications.

He must be of the age of majority.

He must be of sound mind.

Law must not disqualify him.

The agreement should be made for lawful object, which create legal relationship

Not expressly declared void.

b) Types of Accounts
Following are the main types of accounts

1)

Individual Account

2)

Joint Account

3)

Accounts of Special Types

Partnership account
Joint stock company account
Accounts of clubs, societies and associations
Agents account
Trust account
Executors and administrators accounts

43

 Pak rupee non-resident accounts

Foreign currency accounts
3.21.2 Issuing of chequebook:
This deptt issue cheque books to account holders.
Requirements for issuing chequebook
a) The account holder must sign the requisition slip
b) Entry should be made in the chequebook-issuing book
d)

Three rupees per cheque should be recovered from a/c holder if not then debit his/her
account.

3.21.3 Current account

These are payable to the customer whenever they are demanded. When a banker accepts a
demand deposit, he incurs the obligation of paying all cheques etc. drawn against him to the
extent of the balance in the account. Because of their nature, these deposits are treated as
current liabilities by the banks. Bankers in Pakistan do not allow any profit on these deposits,
and customers are required to maintain a minimum balance, failing which incidental charges
are deducted from such accounts. This is because the depositors may withdraw Current
Account at any time, and as such the bank is not entirely free to employ such deposits.
Until a few decades back, the proportion of Current Deposits in relation to Fixed Deposits
was very small. In recent years, however, the position has changed remarkably. Now, the
Current Deposits have become more important; but still the proportion of Current Deposits
and Fixed Deposits varies from bank to bank, branch to branch, and from time to time.
3.21.4 Saving account
Savings Deposits account can be opened with very small amount of money, and the depositor
is issued a chequebook for withdrawals. Profit is paid at a flexible rate calculated on sixmonth basis under the Interest-Free Banking System. There is no restriction on the
withdrawals from the deposit accounts but the amount of money withdrawn is deleted from

44

the amount to be taken for calculation of products for assessment of profit to be paid to the
account holder. It discourages unnecessary withdrawals from the deposits.
In order to popularize this scheme the State Bank of Pakistan has allowed the Savings
Scheme for school and college students and industrial labor also. The purpose of these
accounts is to inculcate the habit of savings in the constituents. As such, the initial deposit
required for opening these accounts is very nominal.
3.21.5 Cheque cancellation:
This deptt can cancel a cheque on the basis of;
a) Post dated cheque
b) Stale cheque
c) Warn out cheque
d) Wrong sign etc
3.21.6 Cash
This deptt also deals with cash. Payment of cheques, deposits of cheques etc.

3.22 FOREIGN EXCHANGE/DEPARTMENT:

This deptt mainly deals with the foreign business. The main functions of this deptt are:
a) L/C dealing.
b) Foreign currency accounts dealing.
c) Foreign Remittance dealing.
3.22.1 L/C dealing
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.

45

3.22.2 Foreign currency account dealing:

This deptt deals with the foreign currency accounts which mainly include dollar account, euro
account etc.
3.22.3 Foreign Remittance dealing.
This is very important function of this deptt.
B) DEPARTMENTATION OF KHOLA KEHAL BRANCH, AbbottabadNBP.
Dividing an organization into different parts according to the functions is called
departmentation. So NBP Khola Kehal Branch,Abbottabad is divided into two main parts.
1.

Cash Department

2.

General Banking Department.

46

CHAPTER # 4
SWOT ANALYSIS
4.1 Introduction
To carryout the SWOT and Financial Analysis of NBP through the help of calculating
necessary ratios in this section.
SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and threats
SWOT analysis is careful evaluation of an organizations 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.
The overall evaluation of a company strengths, weaknesses, opportunities and threats is
called SWOT analysis.
In SWOT analysis the best strategies accomplish an organizations 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.

47

4.2 STRENGTH
4.2.1 OLDEST INSTITUTION:
NBP is one of the oldest bank of Pakistan and first nationalized bank Hence its customer base
is strength from this plus point as customers have more confidence in the bank. The
additional value services as the privilege for the bank.
4.2.2 ALTERNATE DUTIES IN SBP ABSENCE
The NBP performs additional services for its customers as well as the other bank customer in
the absence of SBP.
4.2.3 MORE DEPOSITS THAN OTHER BANKS
NBP has the relative competence in having more deposits than the other bank. This is because
of the confidence the customer have in the bank. The bank being the privileged and oldest
bank in banking sector of Pakistan enjoys this edge over all others, lacking it.
4.2.4 EMPLOYEE BENEFITS
The employers at NBP are offered reasonable monetary benefit. Normally two bonuses are
given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and competency for
the bank and a source of motivation for the employees.
4.2.5 BROAD NETWORK
The bank has another competency i.e. it has broad-basses network of branches throughout the
country also more than one branch in high productive cities. The customers are provided
services at their nearest possible place to confirm customer satisfied.
4.2.6 STRICTLY FOLLOWED RULES & REGULATION:
The employees at NBP are strict followers of rule & regulation imposed by bank. The
disciplined environment at NBP bolsters its image and also enhances the over all out put of
the organization.

48

4.2.7 PROFESSIONAL COMPETENCE

The employees at NBP here have a good hold on their descriptions, as they are highly skilled
Professionals with background in business administration, banking, economics etc. These
professional competencies enable the employees to understand and perform the function and
operation in better way.
4.2.8 HEALTHY ENVIROMNMENT
The working condition in the NBP branch here is very conductive and favorable for better
output. The informal environment affects the performance of the employees in a positive way.
4.2.9 RELATION BETWEEN STAFF AND OTHER EMPLOYESS
The bank enjoys a good plus point when it comes to the employee manager relationship the
hearing as removing of discrepancies if any, between the employees, and between the
manager and employees.

4.3 WEAKNESSES
4.3.1 LACK OF MARKETING EFFORT:
The bank does not promote its corporate image, services, etc on a competitive way. Hence
lacks far behind in marketing effort .A need for aggressive marketing in there in the era
marketing in now becoming a part of every organization.
4.3.2 NBP UNDER POLITICAL PRESSURE
The strong political hold of some parties and government and their dominance is affecting the
bank in a negative way. They sometime have to provide loan under the pressure, which leads
to uneven and adjusted feeling in the bank employees.4.3.3
FAVORITISM AND NEPOTIS
The promotions and bonuses etc in the bank are often powered by seniors favoritism or
depend upon their wills and decision. This adds to the negative factors, which denominate the
employees thus resulting in affecting their performance negatively.

49

4.3.4 LACK OF FINACIAL PRODUCT

The bank falls far behind when the innovative and new schemes are considered. It has not
been involved in the tug of war between the competitors to the accounts and strengthens the
existing customer base. This stands out to be the major incompetence and weakness of the
banks.
4.3.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS
During the rush hours, the bank is founded out to be a total flop to handle the mob of people
peaking from windows and doors. The bank has deficiency to operate in the stages of rush
hours where the people find them services entangled in a situation of nowhere because they
are not well served.
4.3.6 LACK OF COMPUTERIZED NETWORK
The bank lack the strength of being powered by the network of computers, which have saved
time, energy and would have lessened the mental stress, the employees have currently. This
would add to the strength if it were powered by network of computers.
4.3.7 LACK OF MODERN EQUIPMENT
The bank lacks the modern Equipment that is note counting machine computers. Even if there
is any equipment they lack to fall in the criteria of being rearmed as update and upgraded

4.3.8 UNEVEN WORK DISTIBUTION.

The workload in NBP is not evenly distributed and the workload tends to be more on some
employees while others abscond away from their responsibilities, which server as a
demotivation factor for employees performing above average work.

4.4 OPPORTUNITIES
4.4.1 ELECTRONIC BANKING
The world today has become a global village because of advancement in the technologies,
especially in communication sector. More emphasis is now given to avail the modern

50

technologies to better the performances. NBP can utilize the electronic banking opportunity
to ensure on line banking 24 hours a day. This would give a competitive edge over others.
4.4.2 MICRO FINANCING
Because of the need for micro financing in the market, there are lot of opportunities in this
regard. Other banks have already initiated, now the time has arrived when the NBP must
realize it and take on step to cater an ongoing demand.

4.5 THREATS
4.5.1 EMERGENCE OF NEW COMPETITORS
The bank is facing threats with the emergence of new competitors especially in terms of
foreign banks. These foreign banks are equipped with heavy financial power with excellent
and

innovative ways of promoting and performing their services. The bank has to take

initiative in this regard or will find itself far back in competition.

4.5.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT
The ongoing shift in power in political arena in the country effects the performance of the
bank has to forward loans to politically powerful persons which create a sense of insecurity
and demoralization in the customer as well as employees.
4.5.3 DOWNSIZING
The bank is currently acting upon the policy of downsizing which threaten the environment
of the bank Employees feel insecurity in doing their jobs and work, hence affecting the over
all performance of employees negatively.
4.5.4 CUSTOMERS COMPLAINTS
There exists no regular and specific system of the removal of customer complaints. Now a
day a need for total customer satisfaction is emerging and in their demanding consequences
customer's complaints are ignored.

4.6 COMPETITIVE ANALYSIS

Porters five forces model:

51

This approach is widely used for competitive analysis. It is because of the high intensity of
competition among companies there five main competitive forces.
4.6.1 Rivalry among competitive firms:
It is a very powerful force among the competitive forces the strategies pursued by one
firm can be successful only to extent that they provide competitive advantages over the
competitor. These competitive strategies may be lowering prices, best quality series. The
NBP offering very low charges an demand draft, telegraphy transfer, mail transfer and
give other additional services to the customers and to the Nation. Because NBP is a
Nations Bank.
4.6.2 Potential entry of new competitors:
Whenever new firms ca easily enters a particular industry, the competition increases. The
gout restriction, tariffs, patents etc can stop new firm to enter into the business as per
Banking industry is concerned this market is already very situated in Pakistan and there
are banks with quality services and low charges. So there is no threat to NBP from
potential entry and NBP is also a public sector bank because of that no other new bank
not takes over it.
4.6.3

Potential Development of substitute products:

This is the third factor affecting the competitions. There may be some other product can
be substitute the product of that industry. For example banks offering sawing schemes in
Pakistan and these schemes are also offered by GPOs in Pakistan so they must compete
them in this field. If they offer low rates than GPOs so people will go to deposit in GPOs.
People concentration high rates so thats why sawing PLS accounts are more then current
accounts. The next examples will ATM which substitute presenting cheques at counter
and encash it. The NBP is lacking in this field. It must improve in this field to compete
the competitors.
4.6.4 Bargaining Power of Suppliers:
The bargaining power of supplier affects the intensity of competition, especially when
there are a large number of suppliers. In case of banks the suppliers are customers they
supply the money to banks. Now they must offer good services, quality, and safety. Low

52

charges etc to customers. In this field NBP is very good. B/C at offers good quality
services to customers. They charge low charges on remittances. So thats it is a
competition to other banks.
4.6.5 Bargaining Power of Consumers:
When customers are concentrated or large, or buy in volume, their bargaining power
represents a major force affecting intensity of competition. Now the number customers in
Pakistan for banks are very high. Banks offering variety of products and services to their
customers. NBP have a large number of customs. Now it must offer good services and
products to their customers to attract them to come to NBP.

53

CHAPTER# 5
FINANCIAL ANALYSIS
FINANCIAL ANALYSIS
Financial analysis, though varying according to the particular interests of the analyst, always
involves the use of various financial statements primarily the balance sheet and income
statement. The balance sheet summarizes the assets, liabilities, and owners equity of a
business at a point in time, and thee income statement summarizes revenues and expenses of
the over a particular period of time. A conceptual framework for financial analysis provides
the analyst with an interlocking means for structuring the financing. Analysis of financial
statements is called financial analysis of the organization
These are four types of analysis the financial statements of National Bank Of Pakistan present
the summarized data of its assets, liabilities, and equities in the balance sheet and its revenue
and expenses in the income statement. If not analyzed, such data may lead one to draw
erroneous conclusions about the firms financial condition.
5.1 RATIOS ANALYSIS
A tools frequently used during these checkups is a financial ratio analysis, which relates two
piece of financial data by dividing one quantity by the other we calculate ratios because in
this way we get a comparison that may prove more useful than the raw number by themselves
5.1.1 Current Ratio
This ratio shows the liquidity position of the firm that how much current assets firm have to
pay their current liabilities the current ratio of the company is increased from 2010 to 2013
which means that the assets of the company are sufficient to meet its liability. The ratio is
used to measure the ability of the company to meet its current liabilities out of current assets.

54

High ratio is needed when the firm has difficulty in borrowing on short notice. The current
ratio of National Bank of Pakistan in 2009-10 is1.09, 1.11, 1.17and 1.18 respectively shows a
stable position normally 2:1 is considered to be a sound ratio for company. A detailed study is
required to examine current assets either cash or account receivable or inventory is one of the
reason may be that the cash and inventory was not managed. Similarly bank or cash balance
may not be kept in bank more then its normal usage exact forecasting of cash budget is
required. Another factor causing decrease over current assets in credit sales or weaker
collection from account receivables both of these factors are not appreciable for the bank
point of view. A normal increase in the current assets over its current liabilities shows that he
bank is not using efficient it current assets over its current liabilities.
The ratio can be calculated:
Current Ratio = current assets/current liabilities

Table: 5.1.1: Current Ratio

Year
Current Ratio

2010

1.09 times

2011

1.11 times

2012

1.17 times

2013

1.18 times

Figure: 5.1.1: Current Ratio

55

The current ratio of the company is increased. Which means that the assets of the company
are sufficient to meet its liability, as well as the company purchased some assets and
increased their investment. That's why current ratio of the company increased.
5.1.2 Net working capital
Net working capital is a safety caution to creditors. Creditors are interested to know or to
have sound networking capital ratio which shows the company ability to pay the creditors on
short notice. After having an over view of National Bank of Pakistan its net working capital
has been increasing from 2012 to 2013 with the amounts 49208848, 53858630 showing the
improvement in net working capital structure of the bank.
Formula:

NWC=Current Assets-Current Liabilities

Table:5.1.2 NET WORKING CAPITAL

YEARS
NET
CAPITAL

2011

2012

2013

22315370

49208848

53858630

WORKING

Figure: 5.1.2 NET WORKING CAPITAL

56

Net working capital is commonly used to measure a bank overall liquidity. NBP has more
current Liabilities (current deposits) then current assets (short term advances & investments).
Bank is using very aggressive approach by investing current liabilities in fixed assets. Bank
earning profit but at the same time taking risk as well. In 2012 the Net Working Capital of
Bank had improved a bit by investing more in current assets rather then in fixed assets. Bank
has improved its liquid position by investing more in current assets.
5.1.3 Cash to current liability ratio
This ratio will compare the most liquid asset cash with the most short term liability (current
deposits). NBP has less cash then the current Liability (current deposits) so its means that
bank has invest the depositors money in different ventures.
Cash to Current Liability ratio =Total Cash/Current Liability
Table: 5.1.3 Cash to Current Liability Ratio

YEARS

2011

2012

2013

0.8146

0.60948

0.608075

CASH TO CURRENT
LIABILITY

Figure: 5.1.3 Cash to Current Liability Ratio

This ratio will shows that how much the cash has maintained by the bank out of its total
assets. NBP has its assets in the form of investment, advances so bank is availing its

57

opportunity cost and still has sufficient cash reserves only to fulfill the demands of Account
holders & other financial institution
5.1.4 Debt to Asset Ratio
Debt ratios compare total liabilities to total assets. It shows the percentage of total funds
obtain from the creditors would prefer low debt ratio because there is greater caution of the
creditors losses if the firms go bankrupt. In 2012there is a slide improvement in ratio then to
2012. Thus the ratio of appealing creditors in 2009 falls to 0.87 which indicates greater
degree of liabilities/debts to total assets.
Formula:

Debt to Assets Ratio=TL/TA*100

Table: 5.1.4 Debt to Asset Ratio

YEARS
DEBT

TO

RATIO

2011

2012

2013

92.21%

87.13%

87.09%

ASSET

Fi
gure: 5.1.4 Debt to Asset Ratio
The debt ratio measures the proportion of total assets financed by the bank creditors
(depositors). To higher this ratio the greater the amount of other people money being used in
an attempt to generate profits. In 2010 bank leverage ratio had decreased because the total
assets (advances & investments) of the bank has been increased more than total liabilities
(current deposits).

58

5.1.5 Return on Equity

Dividing profit after taxation by shareholders equity ROE compares net profit after taxes to
the Shareholders Equity. From the calculated fingers in the table from the year 2010 to 2013
it is clear that this ratio of NBP is going high and high. It shows that NBP using its assets
very efficiently.
This ratio is calculated as:
ROE=Profit after taxes/Share holders Equity
Table5.1.5: Return on Equity
2010

Year
Return

on 9.4%

2011

23.4%

2012

17.09%

2013

20.7%

Equity

Figure 5.1.5: Return on Equity

In the above mentioned chart of ROE clearly shows that this ratio of NBP is going high and
high. It shows that NBP using its assets very efficiently. That is why they are earning very
high profits. This shows that how efficiently they investing the assets thats why they are
earning high profits. It measure rate of return on the common stock holder's investment.
Return on equity 0.94 in 2009, 0.23 in 2010and 0.17 in 2012 and 0.22 in 2013 is the

59

significant drop in the return earned by owners of the business in 2008. This can be due to
decrease in net income as compare to past year. Return on equity and return on assets are
closely related is known as equity multiplier (leverage /debt ratio)
ROE=ROA*equity multiplier
5.1.6 Gross Profit Margin Ratio
This ratio shows the profit margin in sales/ revenue. From calculation it is very much clear
that in 2010 the gross profit margin is 46.6% which is very low where as in 2013 the gross
profit margin ratio have upward trend with the value of 68.8% which shows that how much
they using their deposits to earn interest The higher the gross profit earned the better. Gross
profit margin ratio of National Bank of Pakistan for past four years shows a slide change of
over the year
This is calculated as.
Gross profit/ interest earned
Table6.1.6: Gross Profit Margin Ratio
2010

Year
Gross

profit 46.6%

2011

51.9%

2012

69.3%

2013

68.8%

margin

Figure: 5.1.6: Gross Profit Margin Ratio

60

From calculation it is very much clear that the gross profit margin ratio have upward trend
which shows that how much they using their deposits to earn interest. This shows the profit
of the firm relative to its revenue. It is a measure of the efficiency of the firms operations
too. As it is clear that the ratio is going high this is the indication of good performance.
5.1.7 Net Profit Margin
This ratio measures the firms profitability of sales/ interest earned after taking account of all
expenses and income taxes from the calculation it is very much clear that from the year 2009
to 2010 the performance of NBP is very good with the figures of 3.18% to 38.8% and the
higher performance shows that the trend is upward.
This ratio can be calculated as:
Net profit margin ration = Net Profit after taxes / interest earned
Table: 5.1.7: Net profit margin ratio
2010

Net

profit 3.18%

2011

2012

21.6%

2013

37.7%

2010

38.8%

Margin
Explanation: from the calculation it is very much clear that the performance of NBP is very
good. And the trend is upward. It tells us a firms net income per rupee of revenue. As the
trend is upward it shows the high profits in revenue per rupee in case of NBP. It is because of
high advances the NBP has given to the people.
5.1.8 Earning per share (Rs.)
Earning per share show how much earn by investor on his single share From calculation it is
very much clear that earning per share ratio have upward trend from 2005 to 2008 with the
value of 17.1 to 24.1 which shows that how much they using their deposits to earn interest
The ratio can be calculated:
Earning per share= Net Profit after taxes/ Outstanding Shares

61

Table: 5.1.8: Earning per share

2010

Year
Earning

per Rs 17.1

2011

Rs 18.3

2012

Rs 21.5

2013

Rs 24.1

share (Rs.)

Which shows that how much they using their deposits to earn interest. This shows the
calculation it is very much clear that earning per share ratio have upward trend profit of the
firm relative to its revenue. It is a measure of the efficiency of the firms operations too. As it
is clear that the ratio is going high this is the indication of good performance.
5.1.9 Assets Turnover Ratio
The Explanation: This ratio shows us the relative efficiency with which a firm utilizes its total
assets to generate revenue. Relationship of net sales /revenue to total assets is known as the
total asset turnover
It is calculated as. Total revenue / total assets
Table:5.1.9: Assets Turnover Ratio
Year
Assets turnover ratio

2010

0.079 times

2011

0.063 times

2012

0.058 times

2013

0.068 times

62

Explanation: This ratio shows us the relative efficiency with which a firm utilizes its total
assets to generate revenue. We can see that the ratio is going high and which is a good sign
and shows that NBP is utilizing its assets efficiently.

5.1.10 Return on Assets

This ratio is used in evaluating whether management has earned a reasonable return with the
assets under it control. In this computation, return usually is defined as operating income,
since interest expense and income taxes are determined by factors other then the manner in
which assets are used. The return on assets is computed as follows,
Formula:

ROA=NPAT/TA*100

Table: 5.1.10 Return on Assets

YEARS

RETURN ON ASSETS

2011

2012

2013

1.14%

2.19%

2.68%

Figure: 5.1.10 Return on Assets

1.14% indicates that bank earned 1.14% paisa on each rupee of asset invested in 2011 which
was quiet low then 2013 return. NPAT of bank has increased in 2011, because no extra

63

payment has been made to depositors, more commission has been received in 2012on wider
& better services& more compensation has been collected by bank on delays of payments
from customers & tax concession.
5.1.11 Debt to Equity Ratio
This ration shows the amount contributed by creditors and shareholders. It shows to what
extent the firm is using borrowed money. It is computed simply dividing the total debt of the
fire by its shareholders equity. Total debt/shareholders equity
Table: 6.1.11: Debt to Equity Ratio
Year
Debt

2010

to 28.6 times

2011

24.5 times

2012

24.2 times

2013

22.1 times

equity ratio

Figure: 5.1.11: Debt to Equity Ratio

From the chart it is clear that this ratio is decreasing which show the high efficiency of NBP.
In 2010 it was high but in 2013it decreases to 22.1 from 28.6, which is a good sign decrease
in debt equity ratio in 2009 is suppose to be a favorable position from business as well as
creditors point of view. A desirable debt equity ratio depends on many factors e.g. rates of
other company's in the industry and stability of earning.. A drop in the ratio is a favorable
sign for the company in discharges interest liabilities and principle payment at the time of

64

maturity.. Here the creditors are interested in low ratio. The lower the ratio the high the level
of the fires financing that is being provided by the shareholders.
5.1.12 Interest Cover
This ration is directly related to risk high ratio means high risk and low ratio means low risk.
From calculation it is clear that the ratio is decreasing which show low risk. This ratio serves
the similar purpose to the debt to equity ratio.
It is calculated as.
Interest Cover = EBIT/ Interest Expense
Table: 5.1.12: Interest Cover
Year

2010

Interest Cover

3.34 times

2011

3.30 times

2012

3.25 times

2013

3.21 times

Figure: 5.1.12: Interest Cover

In the above listed chart we take interest cover ratio on Y axis and number of years on X axis.
This ratio shows higher performance because of more deposits in the bank, and deposits are
the liability of customer on bank.

65

5.2 COMMON SIZE ANALYSIS

In common size or vertical analysis we take total assets as a base year and compare it to all
other factors.
Table: 5.2.1; Common Size Analysis of Balance sheet 2011-012
%age

%age

Particulars
2013
Cash and Balance with

2012

2013

2012

treasury banks
78625227
Balances with other banks 40641679
Lending to financial

71196956
31019330

12.3793
6.39892

12.3238
5.36927

institutions
Current Asset

23012732
142279638

16282942
118499228

3.62329
22.4015

2.81848
20.5115

Investments

139946995

156985686

22.0342

27.1733

Advances
Other Asset
Operating Fixed Asset
Defer tax Asset
Total Asset
Liabilities
Bills payable
Borrowings
from

316110406
27113698
9681974
635132711

268838779
23941056
9454365
577719114

49.7707
4.26898
1.52440
-

46.5345
4.14406
1.63649
-

10605663

1741156

1.91722

0.34589

Financial
Deposits

11704079

8756847

2.11578

1.73961

accounts
501872243
Subordinates loan
Liabilities against leased

463426602
-

90.7251
-

92.0632
-

Asset
Other Liabilities
Defer Tax Liabilities
Total Liabilities
Net Asset
Represented By
Share Capital
Reserves
Inappropriate profit
Total
Surplus revaluation

13235
2659300
2387073
553178593
81954118

16629
24974450
4462718
503378402
74340712

0.00239
0.48073
0.43151

0.00330
4.96136
0.88655

7090712
13879260
32074677
53044649

5908927
13536041
16713506
36158474

1.11641
2.15525
5.05007

1.02280
2.34301
2.89301

28909469

38182238

4.55172

6.60913

asset

and

other

of

66

Total Representation

81954118

74340712

Bank may purchase some fixed assets and giving loans to their customers. Same like this
investment also increases which means that the company advances the loans and their In
common size or vertical analysis we take total assets as a base year ability of work increased
due to this. In it cash in hand is higher from 2012 to 2013, which Shows that the company is
in better position. In 2011 the percentage of Deferred assets and investment is low where as
rest of the other percentages of seems higher in 2010. In liabilities side I took total liabilities
and shareholders equity as base figure that shows the higher percentage in 2013 as compare
to the percentage of the year 2012. It shows as the assets of the bank increases, its liabilities
also increases..
5.3 Horizontal analysis
In this analysis one particular can compare with the same category of item of other year.
More than one year data is required for this analysis. Horizontal analysis of National Bank of
Pakistan is used to evaluate the trend in the accounts over the past three years. In 2012 profit
looks very good but in 2013 it declines. Cash and bank balance of the bank increases on the
other hand its differed tax liability has decreases. Although its current liabilities has also
increases but the profit, capital and reserves also increases which shows good performance

Table: 5.3 Horizontal Analysis of Balance Sheet 2012-2013

Percentage
Particulars
Cash and Balance

2013

2012

Change

RS. Change

treasury banks
78625227
Balances with other banks
40641679
Lending
to
financial

71196956
31019330

90.5523
76.3239

7428271
9622349

institutions

16282942

70.7562

6729790

with

23012732

67

Current Asset
Investments

142279638
139946995

118499228
156985686

83.2886
112.175

23780410
(17039591)

Advances

316110406

268838779

85.0458

47271627

Other Asset

27113698

23941056

88.2987

3172642

Operating Fixed Asset

9681974

9454365

97.6491

227609

Defer tax Asset

Total Asset

635132711

577719114

90.9603

57413597

Bills payable

10605663

1741156

16.4172

8864507

Borrowings from Financial

11704079

8756847

74.8187

2947232

Deposits and other accounts

501872243

463426602
-

92.3395

38445641

Subordinates loan
Liabilities against

Liabilities

leased

Asset

13235

16629

125.644

(3394)

Other Liabilities

2659300

24974450

939.136

(22315150)

Defer Tax Liabilities

2387073

4462718

186.953

(2075645)

Total Liabilities

553178593

503378402

90.9974

49800191

Net Asset

81954118

74340712

90.7101

7613406

Represented By
Share Capital

7090712

5908927

83.3333

1181785

Reserves

13879260

13536041

97.5271

343219

Unappropriated profit

32074677

16713506

52.1081

15361171

Total

53044649

36158474

68.1661

16886175

Surplus revaluation of asset

28909469

38182238

132.075

(9272769)

Total Representation

81954118

74340712

90.7101

7613406

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5.4 INDEX ANALYSIS

The changes in financial statement items from a base year to following year are often
expressed as index percentages to show the direction of changes. The term "trend analysis"
refers to the concept of collecting information and attempting to spot a pattern, or trend, in
the information. In some fields of study, the term "trend analysis" has more formally-defined
meanings. In project management trend analysis is a mathematical technique that uses
historical results to predict future outcome
In some fields of study, the term "trend analysis" has more formally-defined meanings. In
project management trend analysis is a mathematical technique that uses historical results to
predict future outcome. This is achieved by tracking variances in cost and schedule
performance. In this context, it is a project management quality control tool. Although trend
analysis is often used to predict future events, it could be used to estimate uncertain events in
the past, such as how many ancient kings probably ruled between two dates, based on data
such as the average years which other known kings reigned. In trend analysis of National
Bank of Pakistan present ratio is compare with its past and expected future ratios to
determine whether the company's financial condition is improving all deteriorating overtime.
With the help of trend analysis it is found that the company's financial condition is improving
overtime. In index analysis we take 2013 as a base year and compare it with other factors.
Net cash decreased which shows that the firms financial position is not much better to meet
its liabilities. On the other hand firms current liabilities also increases which shows poor

69

company performance. The percentage of current assets and liabilities indicates unfavorable
current ratio of the bank.

70

CHAPTER # 6
RECOMMENDATIONS & CONCLUSIONS
6.1

CONCLUSION

NBP is an effectively operating and profit making organization and carrying out its activities
under a specified system of procedure. The main regulatory body is State Bank of Pakistan,
which provides policy guidelines and ensures that the money market operates on sound
professional basis. While the head office specifies the whole procedure of function and
operations. This procedure has been modernized with the passage of time with a view to
streamline the approach and underlying procedure for effective overhauling of its own
capabilities so as to bring them at par with international practices.
6.2 RECCOMENDATIONS
Here I am giving some suggestions, which in my view can add some input for efficiency and
better performance of NBP as an organization in general and City branch in particular.
The recommendations are as follows:
Professional training
NBP staff lacks professionalism. They lack the necessary training to do the job efficiently and
properly. Although staff colleges in all major cities but they are not performing well. For this
purpose these staff colleges should be reorganized and their syllabus should be made in such
a way to help the employee understand the ever-changing global economic scenario.
Banking council of Pakistan should also initiate some programs to equip the staff with much
needed professional training.
Delegation of authority
Employees of the bank should be given a task and authority and they should be asked for
their responsibility.
Performance Appraisal
The manager should strictly monitor the performance of every staff member. All of them
should be awarded according to their performance and result in the shape of bonuses to
motivated and incite them to work more efficiently.

71

To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is suggested
that a special section should be made inside the branch. Which should only handle the
treasury function, salaries and pensions of federal personnel or the bank should do these
functions in the evening time. Also management should purchase more furniture and arrange
them in such a way which provides maximum space and convenient especially in deposit
department and there should also be convenient sitting place for customers.
Transfer
Transfer is not properly carried out. Some of the employees are continually serving at the
same post. They are simply rotated at the same branch. Therefore it is recommended that
evenly rotation of every employee should take place after every three years in different
braches of the bank.
Changes in Policies
There should not be any abrupt policies change by the upper management, as this practice
hurts the customer confidences in the bank. Government should make long-term policies
Need of Qualified Staff
Required, qualified staff should be provided to branch in order to improve the functioning of
the branch. Especially a telephone operator should be appointed.
Utility Bill Charges
Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job despite
this working resulting in a loss to then Rs 3 to5 per transaction. These charges should be
increased to RS 10 per bill to enable the branch to cover their handling costs and make some
profit.
Link with the Head Quarter
100 major branches of NBP should established a direct link with the, head quarter
In Karachi, through Internet or Intranet. This will make the functions and decision making of
the management easier and convenient.
Credit Card
National bank of Pakistan should start its operation in credit card. These cards are very
helpful for the ordinary customer in general and the business people in particular. To make it
mores secure and to eliminate the misuse of it, the management is required to keep proper
security against the card.

72

REFERENCES
BOOKS & ARTICLES

Van Horne James C and JR Wachowicz John M. (1998). Financial management.

Prentice Hall Publication. Page 126-150

Israr, Siddiqi H. (1998). Practice and Law of banking in Pakistan. Karachi: Decent
Print Enterprises. Page 15-17

Meenai. S. A. (2000). Money and Banking in Pakistan (6th Edition). Karachi: The
Allies Book Corporation.

Siddiqui, A. H. (1998) Practice and Law of Banking in Pakistan (2nd Edition),

Karachi: Decent Print Enterprises P.

ONLINE SOURCES

URL:http://www.kpmg.com.pk/download/Banking/0.3.pdf

URL:http://www.dawn.com.pk/2008/01/14/ebr.htm

URL:http://www.sbp.org.pk

URL:http://www.nbp.com.pk

URL:http://www.ibp.org.pk

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74