SWOT ANALYSIS

The SWOT analysis is done by the organization for the environmental scanning. The strength and weaknesses and opportunities and threats are analyzed by organization from the external environment. NBP SWOT analysis is given below:

STRENGTH

A National Bank brand image is its major strength. It has always been considered as the pillar of the country's economic scenario asset wise or balance sheet wise. Its image, work force, network and reputation have created a sentimental and emotional attachment of the people with the bank.

Complete computerized networking in another strength of the bank. Now the bank has the ability to compete with any multinational bank as to keep pace with the changing and fast growing world of today computer have become necessities. The reserve funds indicate positive sign as they have increased as compared to the previous years.

Another competitive edge that the bank has on the rest of the competitors is its expanding business worldwide catering for a large and vast group of customer and maintaining standards of excellence globally and other strength of NBP.

ORGANIZATION CULTURE

NBP's organization culture was very friendly and interesting. Employees has created a very cooperative environment among each other. They have created loyalty toward the organization by deviating their future efforts and energies. The employees take the organizational problem personals and try their best for the prosperity of the organization.

STRATEGIC TOP MANAGEMENT

Fortunately NBP has got from time to time best top management. Currently the NBP Chairman and as well as President S. Ali Raza Sahid he is the person who has saved the life of the organization and contributed a lot.

INDUSTRIAL POLICIES

NBP helps the government on the implementation of its industrial policies with respect to economic growth of the country.

BEST RESEARCH APPRAISAL TEAM

Before the project financing NBP has the research appraisal team that justifies the economic and financial feasibility of not project in the future. That is the strength is the scare that it helps the organization from any loss that is to over in the future in case of failure of the project.

LENIENT POLICY WITH THE CLIENTS

This is one of the best policies of NBP that it does not kept rude behavior with this client if they make late in their repayment of loan. But it has adopts lenient way in dealing with them, it helps its customers in the repayment making rescheduling and restructuring of their loans.

YOUNG BLOOD

NBP has young generation aged 27 to 30 graduates that would be helpful to maintain the quality of their service by hiring new graduates but also would be helpful changing the overall culture of the organization.

WEAKNESSES

National Bank created its own weakness by downsizing. Due to downsizing various experienced and devoted employees were either forced or given the option to leave. Only those people were left who had no organization better to join.

Due to right sizing a lot of confusions have taken place as well. For example higher-level management have come from institution or others organizations where everything is computerized. Whereas have by ten staff members (over staffing) hence, the higher management finds it difficult to get work done. From 1995 onward bank exhibits a downward trend indicating its low performance-showing decline in total assets. Total deposits, saving deposits advances investment and total income. This downward trend can caused a great threat to the bank as its competitors are talking its market share, which can cause ruining the image and reputation of the bank thus posing danger in the long run. The graph depicts a decline in the performance of the bank. NBP's major weaknesses are given below:

LESS ATTENTION TO THE RURAL DEVELOPMENT

NBP's portfolio shows that it has made project financing only in the major cities of Pakistan. But a reasonable attention is needed in the project financing of the rural based industrial project of the country.

POOR ADVERTISEMENT

I keenly observe this that as compared to other banks. NBP is very poor in advertising itself and institution, which works a lot in the development of the country, but unfortunately in the business community most of the people are in award of it.

POOR NETWORK

NBP has only 1500 branches all over the Pakistan and in major cities of Pakistan in which other competitors has their branches NBP don't have:

- The formalities involved in getting loans are time concerning and complicated enough.

- It is observed that most of the loans, which have been granted on political basis, are either default or their loans are forcefully written off.

- It is seemed that the recovery system of NBP is not effective that's why number of defaulters are increasing at the growing age.

- Political interference in the recruitment system.

- Uncertainly among the employees due to threat of downsizing.

OPPORTUNITIES

National Bank has very bright prospects for the future. They plan to region their lost glory not only in terms of profitability but also include latest technology and competent work force. Furthermore, NBP is the only bank which is providing facility of bills collecting from 9 AM. to 5 PM. NBP is considering setting up an exclusive utility bank in collaboration with a private firm, which would provide this service for 12 hours.

SPONSOR THE IT BASED PROJECTS

This is the best opportunity available to all banks and NBP as well, to sponsor the IT and computer based projects because the coming century is the century of information technology as new a days all the business community is diverting its attention towards this field.

GOODWILL AND BETTER IMAGE

NBP has advantage of generating more deposits and attracting valuable customers due to its better image in the business community. NBP has also advantage of increasing credit lines. This is only due to good dealing and better image that NBP has directly acquired those lines of credit from abroad that are only acquired by it, this better image can help further NBP in explanation of its activities.

GROWTH IN THE INDUSTRIAL SECTOR

NBP's major function is the project financing and it is doing it with full efforts. Fortunately industrial sector is now-a-days is Pakistan is again growing thus increasing the business opportunities of NBP. Especially the textile sector is one again improving even the sick projects has resumed their operations.

THREATS

If there is a threat to the whole economy, it will pose a threat for National Bank. National bank does not consider small bank a threat to its existence because the way national bank can accommodation large customer, these small banks cannot. sanctions imposed against Pakistan will affect exchange. Business whereas the freezing of accounts by State Bank of Pakistan have also caused problems for National Bank. But the recent facts and figures indicate that the banks major rivals lime MCB and HBL are causing threats to the bank in the long run thus snatching away the market share by attracting a large number of customer due to the their rising standards giving quality service and value added products and other major threats are as under:

POLITICAL INFLUENCE AND INSTABILITY

This is the major threat for any business organization in Pakistan because the political officials influence NBP in financing those projects which are not viable or write off those loans which are still able to pay, this political influence cause many problems in daily business thus profitability of NBP. Political industrial is even a threat for NBP in the sense that once the policies and procedures are approved by government.

SICK PROJECTS

NBP's sick projects are increasing day by day due to economic downfall. As our economy is weakening day by day the no of side projects are becoming sick increasingly thus influencing the profitability even survival of NBP.

LACK OF MODERN BANKING TECHNIQUES

NBP is following fifty years old style of banking, in the computers of NBP symphony word processor is still used. Which is the oldest word processor due to this the deposits are looking to be corded, because of the provision of credit cards and other such services by its competitors both local and foreign banks is proving to be limiting factor in the deposit mobilization efforts of the corporation.

During my internship period at National Bank of Pakistan .I found out certain problems, which are written below along with their solutions, which need proper attention of the top management:

These are given below:

Information technology.

Evening Banking Services

Staff Shortage

Dealing With Women

Frequent Transfers

Promotion

Locker Services

Standard Of Education

1. INFORMATION TECHNOLOGY

This age is the age of information technology. Today the world has become a global village and the fastest mediums of communication are adopted all over the world. And it is a fact that more the latest technology and methods of work are adopted more will be the productivity.

In the National Bank of Pakistan (circular road branch) there is only one computer available for carrying on the business of the bank.

I suggest that the computer should be on every counter of the bank and they should be interlinked together (NETWORKING) so that various services provided by the bank can be provided in a more efficient and fast way.

2. EVENING BANKING

I observed that the bank is closed for public dealing in after 12:30PM and then the staff do their own banking jobs.

I suggest that at least one counter should be specified for the customer services till evening. In this way, the people having jobs in other offices can get benefit from this counter.

3. STAFF SHORTAGE:

I discussed with bank personnel and they gave their views about staff shortage. They told me that staff is very short and all the staff is overloaded with work. Thats why the staff posted in the branch has to face many problems to finish its daily work. I suggest that number of staff in the branch should be increased so that they can meet their customers requirements quickly and efficiently.

4. COUNTER FOR FEMALES The women in D.I.KHAN are very reserve in nature and are also pardah observing thats why they hesitate to come in the bank and those who come hesitate to talk with male staff.

I suggest that in order to deal with women there should be a Lady Officer or Lady Clerk in the bank and there should be a separate cabin for them.

5. TRANSFERS:

I observed that staff members of the Bank are frequently transferred not only from one branch to another but from one city to another and sometimes from one province to another.

I suggest that no one is to be transferred to another city or province without the consent and will of the employee and if transferred, the facilities like residence etc should be provided to them.

6. PROMOTION:

I observed those employees; particularly officers are not satisfied with promotion policies. There is no clear-cut promotion policy of National Bank.

I suggest that there should be a clear-cut policy about the promotion of employees, particularly for the officers and they must aware of it that is polices must be communicated. When policies are communicated to the employees then they can perform their task more efficiently and will utilize their full efforts.

7. LOCKER SERVICES:

The area of circular road branch is full of business activities. The businessmen also have some important documents, papers and valuable things to deposit for safe custody.

In order to provide these facilities, locker services must be provided in this Branch.

8. STANDARD OF EDUCATION:

The standard of education for recruitment of clerical staff should at least be graduation. Because in this way efficiency of work will increase and their dealing with public will be better.

Na tional bank of P akistan

NBP cash provision as percentage of non performing loans equal to 60% this coverage factor for the non performing loans is the highest amongst the nationalized commercial bank. NBP is working as right arm government of Pakistan as it is responsible for all claims of government for recovery as well as payment. All depositor of NBP are in relief that their money security is guaranteed by government of Pakistan. It acts as an agent of the Central Bank wherever the State Bank does not have its own Branch.

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

innovation in banking like introducing retail banking or consumer banking and using any type of scheme to generate more deposits and producing more advances. Further, more dont even continue its credit card due mismanagement and lack of control. NBP is far behind in offering modern banking facility like automated teller machines then other commercial bank in Pakistan as only eighteen branches in all over country have this facility. NBP has only forty-four on line branches. While from remaining branches data gathering is time consuming, and not fool proof. Quantum of settlement within
81

Na tional bank of P akistan

different branches is pending because of this updating daily record is becoming very difficult. Customers have to fallow long lengthy procedure for opening of account as well applying for debt. Which discourage most of the people to invest in NBP. In NBP, most of the time merit not has importance in hiring of employees. Such practices are black spot on the face of bank and resulted big losses and fraudulent acts by NBP own employees.

OPPORTUNITIES
Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. NBP current management has boarder vision. They have taken steps to improve customer services, streamline internal procedure and creating a delectating climate for technology initiative. To achieve above mention objective they have created operation group

Starting of the retail banking initial working. Setting of target for of making at least 300 branches country wide on line. Closing of all those branches, which are burden on NBP. Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager. Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring. To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal

system.
82

Na tional bank of P akistan

These actions taken by current management provide a great opportunity for NBP for making it future prosper and can make NBP not less than any modern commercialize bank in Pakistan.

THREATS
Following are the major threats which national bank of Pakistan is facing: Major threats NBP facing is from its competitor especially from denationalized

commercial bank. In which MCB is on the top of the list, The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 15 cities with over 100 ATM locations. Retail banking and consumer banking resulting in the products such as credit cards,

housing finance and automobile finance lending to small individual consumers, and purchases of automobiles, housing, and consumer goods are generally made on a cash basis. These are causing another threat, if not counter will result in significance loss of customers Recently banks and other financial institutions have introduced innovative schemes to attract deposits, like gift checque scheme by MCB. These schemes offer prizes on short and long term fixed deposits, through lucky draws. Now banks are using technology which covers the distance no matter how far away any one, through a satellite based, on-line real-time banking system and by offering telephone banking, electronic funds transfer, E-Banking and other modern facilities.
83

6.5 COMPETITIVE ANALYSIS Porters five forces model:3 This approach is widely used for competitive analysis. It is because of the high intensity of competition among companies there five main competitive forces. 6.5.1 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. 6.5.2 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. 6.5.3 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. 6.5.4Bargaining 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 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 competitions other banks. 6.5.5Bargaining 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. References 1. Daft l Richerd Management 4th Edition Pages 254, 256, 269. 2. Kottler Philip Marketing Management Millennium Edition Page 76. 3. Fred R. David Strategic Management Concepts Cases 7th edition.

Bank: NATIONAL BANK OF PAKISTAN - Analysis of Financial Statements Financial Year 2004 - Financial Year 2009
Thursday, 08 April 2010 10:46 Highlights - Corporate News
OVERVIEW : National Bank of Pakistan is the largest commercial bank of Pakistan. The bank handles treasury transactions for the government of Pakistan as an agent to the State Bank of Pakistan. The bank has a network of 1,232 branches in Pakistan and 18 overseas branches including the Export Processing Zone Branch. It also provides services as trustee to National Investment Trust, including the safe custody of securities on behalf of the NIT. National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions, which were developed after the trade deadlock with India and devaluation of Indian rupee in 1949. Initially, the bank was established with the objective to extend credit to the agriculture sector.The bank commenced its operations from November 20, 1949. Its Karachi and Lahore offices were subsequently opened in December 1949. The nature of responsibilities of the bank is different and unique from other banks/financial institutions. The bank acts as an agent to the State Bank of Pakistan for handling provincial/federal government receipts and payments on their behalf. The bank has also played an important role in financing the country s growing trade, which has expanded through the years as diversification took place. NBP enjoys the highest rating of AAA in the industry assigned by M/s JCR-VIS Credit Rating Company Limited on a standalone basis ie without the benefit of the 75% government ownership. OVERVIEW OF BANKING INDUSTRY In the year 2009, the economy showed signs of stabilisation. Inflation still remained top concern, although it eased to 10.7% by August as a result of monetary tightening. The current account deficit improved and the foreign exchange reserves stabilised. Problems in the energy sector played a key factor in burdening public finances. Further, terrorist attacks remained the biggest challenge in 2009 and the negative effects of international economic meltdown also became evident in the shape of sharp rise in non-performing loans and operating costs. These factors hampered the business confidence as well as the performance of the banking sector.

Growth Rates

2004

2005

2006

NBP Industry avg

NBP Industry avg

NBP Industry avg

Profits After Tax Advances Deposits Investments Net Interest Income

47.58% 36.91% 17.72% -10.14% 13.14%

44.01% 43.44% 21.07% -6.45% 9.73%

105.14% 21.76% -0.46% 5.11% 62.43%

144.27% 45.53% 14.15% 0.40%

33.93% 17.58% 8.30%

42.79% 19.45%

16.01% -2.06% 38.05%

-10.85% 29.02%

83.08%

Non Interest Income Return on Assets

-39.19% 30.11%

-20.11% 20.93%

215.77% 85.42%

68.66% 35.72%

-29.62% 24.89%

5.49% 18.39%

2007

2008

2009

NBP Industry avg

NBP Industry avg

NBP Industry avg

Profits After Tax Advances Deposits Investments Net Interest Income Non Interest Income Return on Assets

11.82% 7.77% 17.94% 50.62% 11.53% -42.50% -2.95%

4.82% 14.05% 19.80% 69.85% 9.86% 16.85% -10.44%

-18.78% 21.23% 5.58% -18.96% 10.20% 264.70% -28.17%

-4.37% 22.89% 12.98% -8.69% 15.98%

17.81% 15.07% 16.25% 27.41% 3.78%

26.07% 4.75% 10.03% 33.53% 19.69% 21.12% 4.02%

75.05% -13.72%

45.44% 5.64%

Looking at the banking industry growth rates for the year 2009, we see that the growth rate of NBP s profit after tax is much lower than the industry average. On the other hand, the growth rate of the bank s advances is more than 200% higher than industry average, indicating that NBP possesses a large asset base. Similarly, the growth rate of NBP s deposit base is 62% higher than the industry average, which shows that the bank has very effective policies for deposit mobilisation. NBP s investments, however, have an 18.3% lower growth rate than the industry average, while its net interest income growth rate is 81% lower than the industry average. Alternatively, NBP s non-interest income has a growth rate 115% greater than industry average, mainly due to a significant increase in fee, commission and capital gains during 2009. The growth rate of the bank s return on assets is 40.3% greater than the industry average. FINANCIAL PERFORMANCE FINANCIAL YEAR 2004 - FINANCIAL YEAR 2009 The Asset Quality ratios of NBP show a mixed trend from 2007 onwards. Although, the growth rate of NPLs has reduced in 2009 as compared to its 2008 levels, the overall ratio of NPLs to advances has shown a steady rising trend from 2007 onwards. This growth in NPLs is an industry-wide phenomenon, owing mainly to the impact of the global financial crisis, compounded by a dampening of the repayment capacity of borrowers due to high domestic interest and inflation rates, power shortages, pressure on trade volumes and deteriorating law and order condition. Overall value of provisions has increased in 2009 as compared to 2008 levels. However, the ratio of total provisions to NPLs has reduced by 5.95% from 2008 to 2009. The increase in absolute value of provisions is due to both fresh accretions as well as further downgrading of the portfolio. The profitability or earnings ratios declined in 2007 and 2008, before rising again in 2009. ROA increased by 5.64% over the last year. ROE and ROD rose by 16.14% and 6.30%, respectively. This increase in earning ratios is attributed to a 17.8% in profit after tax during 2009. However, this growth in profits is not reflected well in earnings ratios, because assets and equity also showed an upward trend during 2008-09.

The liquidity ratios of NBP showed an improvement in 2009. The ratio of Earning Assets to Assets depicts a stable trend on average from 2004 to 2009. In 2009, the ratio of Earning Assets to Assets increased by 1.35% over last year. The 11.89% increase in average earning assets was greatly offset by a corresponding 11.52% increase in average assets. NBP s Advance to Deposits ratio increased by 6.45%, over the same period last year. In general, advance to deposits ratio of NBP shows a rising trend from 2004 to 2009, this signifies that most of funds were utilized for advances rather than any other earning asset. In FY09 we see that investments, as a share of total earning assets, fell due to changes in market conditions. This signifies that the bank drew money from investments to advances - a trend depicted at the overall banking industry level. One reason for this trend is a change in bank s approach to NPLs treatment. Banks are now rescheduling the advances given to major customers in order to avoid NPLs. This shows optimism of banks about the future state of economy. The cost of funding earning assets shows a rising trend from 2004 to 2009. In 2009 the cost of funding earning assets rose by 47.7% over last year. This can be mainly attributed to the record level interest rates at the beginning of the year, which increased the interest expense. The yield on earning assets also showed an increase by 14.35% over the last year. As the cost of earning asset increased by a greater percentage than the yield on earning assets, the overall performance of NBP s earning assets decreased in 2009. The solvency situation of the bank showed marked improvement from 2004 to 2008. However, in 2009 the solvency ratios of NBP showed a mixed trend. The equity to assets and equity to deposits ratios declined by 9.03% and 8.62% in 2009, respectively. This shows that the NBP s average increase in assets and deposits during 2009 more than offset its average increase in equity during the same period. A decline in equity to deposits ratio indicates that the liabilities of the company are increasing at a greater rate than its stock of capital - such a trend if allowed to continue can have an adverse impact on the long-term solvency of NBP. On the other hand the earning assets to deposits ratio of NBP increased by 1.04% in 2009. Overall, the solvency of the bank deteriorated in 2009. NBP has shown strong market performance over the years. However, in 2009 this market performance declined significantly. In particular, the Bank s price to earnings ratio fell by 64.75% and the market value to book value ratio fell by 59.3%. Moreover, the bank s average share price per year also fell by 58.5%. This shows a decline in overall market value of NBP during 2009. A decline in P/E ratios and other market value ratios suggests decline in investor confidence and hence, growth prospects for NBP. This decline can mainly be attributed to a tight monetary policy and adverse economic and social environment of the country, rather than to any inherent factor of the Bank itself. In 2009, NBP s after-tax profit increased by 18%, from Rs 15.5 billion to Rs 18.2 billion. The said increase is owing to higher fee and commission income, tax credit and capital gains. The bank s net interest income increased by 3.8% from the corresponding period last year, mainly due to volume growth. NBP s deposits grew by 16.25% over last year, despite the rise in cost of deposits. The bank increased its deposits to strengthen liquidity position. In this regard, NBP launched the CASA Deposit Mobilization Scheme in late 2009, aimed at mobilizing Current/Savings Accounts through incentivizing employees. The overall impact of the rise in deposits on the system s stability and liquidity outweighed the associated rise in cost.

Advances of the bank showed a 15% growth, mainly in commodity and corporate sector on account of higher borrowings by government from the commercial banks. Loans under commodity operations witnessed robust growth due to increase in commodity support prices by the government. Nevertheless, the growth in advances in 2009 is less than that of last year; this is mainly due to unfavourable business environment in the country, which reduced the demand for loans. In particular, SME loans registered a decline due to reduction in the repayment capacity of borrowers and in their willingness to go for fresh financing. FUTURE OUTLOOK Since most of the NPLs were the result of business cycle/circumstantial defaults, with the economy picking up and reduction in interest rates, the quantum of non-performing loans is expected to decline. For the next year, NBP plans to continue with its strong focus on recovery and reduction in non-performing loans, deposit mobilization, expense

management, consolidation of loans and tapping into untapped markets. Further, NBP is embarking on industry leading IT initiatives to upgrade and implement new application solutions to meet the challenges of the growing competition and enhanced business requirements. This will greatly improve operational efficiency and control, customer service and facilitate launch of new products. NBP remains committed to the interest of all stakeholders including its employees, owners, regulators and the Pakistani nation. To that effect, the bank has implemented the new Core Banking Package in order to enhance work efficiency by completely automating its functions. The bank has also initiated five new capacity building projects.

RATIOS

Asset Quality Ratios

2004

2005

2006

2007

2008

2009

Growth of NPLs NPL to Advances Provisions to NPL

-9.24% -6.54% 7.48% 5.68% 47.35% 25.61% 19.86% 14.26% 11.97% 11.35% 12.58% 14.34% 0.75 0.85 0.90 0.89 0.84 0.79

Earning Ratios

2004

2005

2006

2007

2008

2009

ROA ROE ROD

1.21% 2.25% 2.81% 2.72% 1.96% 2.07% 16.78% 20.82% 21.58% 19.20% 14.13% 16.41% 1.44% 2.74% 3.53% 3.48% 2.54% 2.70%

Market Value Ratios

2004

2005

2006

2007

2008

2009

Price to Earnings

6.48

7.04 12.05 10.77 12.17

4.29

Market Value to Book Value Average Share Price for the Year

1.09

1.47

2.26

2.07

1.72

0.70

67.91 126.18 251.63 251.46 174.76 72.60

Solvency

2004

2005

2006

2007

2008

2009

Equity to Assets Equity to Deposits Earning Assets to Deposits

7.22% 10.79% 13.01% 14.19% 13.85% 12.60% 8.57% 13.14% 16.34% 18.13% 17.98% 16.43% 0.86 0.89 0.95 0.96 0.96 0.97

Debt Management

2004

2005

2006

2007

2008

2009

Debt to Equity Debt to Assets Deposit times Capital

12.85 0.93

8.27 0.89

6.69 0.87

6.05 0.86

6.22 0.86

6.94 0.87 6.09

11.66

7.61

6.12

5.52

5.56

Liquidity

2004

2005

2006

2007

2008

2009

Earning Assets to Assets Advance to Deposit Composition of Earning Assets

0.72 0.44

0.73 0.53

0.76 0.61

0.75 0.60

0.74 0.62

0.75 0.66

2004

2005

2006

2007

2008

2009

Lending to Financial Institutions Investments Advances

5.48% 3.26% 4.27% 4.23% 3.29% 2.80%

42.75% 37.23% 32.23% 33.34% 32.51% 29.58% 51.77% 59.51% 63.50% 62.43% 64.20% 67.63%

Performance of Earning Assets

2004

2005

2006

2007

2008

2009

Yield on Earning Assets Cost of Funding Earning Assets

5.68% 8.19% 9.51% 9.61% 10.38% 11.87% 1.78% 2.51% 2.96% 3.22% 4.07% 6.01%

Growth Rates

2004

2005

2006

2007

2008

2009

Profits After Tax Return on Assets

47.58% 105.14% 33.93% 11.82% -18.78% 17.81% 30.11% 85.42% 24.89% -2.95% -28.17% 5.64%

Net Interest Income (before provisions) 13.14% 62.43% 29.02% 11.53% 10.20% 3.78%

2004

2005

2006

2007

2008

2009

Deposits Investments Advances

17.72% -0.46% 8.30% 17.94% 5.58% 16.25% -10.14% 5.11% -10.85% 50.62% -18.96% 27.41%

36.91% 21.76% 17.58% 7.77% 21.23% 15.07% 25.17% 67.31% 31.38% 4.05% -9.75% 2.69%

Net Interest Income (after provisions)

DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any

specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].

Bank: National Bank of Pakistan - Analysis of Financial Statements Financial Year 2004 - 2001 H 2010

Thursday, 16 September 2010 11:53 Highlights - Corporate News

OVERVIEW : National Bank of Pakistan is the largest commercial bank of Pakistan. The bank handles treasury transactions on behalf of the government of Pakistan as an agent to the State Bank of Pakistan. The bank has a network of 1,232 branches in Pakistan and 18 overseas branches including the Export Processing Zone Branch. It also provides services as trustee to National Investment Trust including the safe custody of securities on behalf of NIT. National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions, which were developed after trade deadlock with India and devaluation of Indian rupee in 1949. Initially the bank was established with the objective to extend credit to the agriculture sector. The bank commenced its operations from November 20, 1949. The bank s Karachi and Lahore offices were subsequently opened in December 1949. The nature of responsibilities of the bank is different and unique from other banks/financial institutions. The bank acts as the agent to the State Bank of Pakistan for handling provincial/federal government receipts and payments on their behalf. The bank has also played an important role in financing the country s growing trade, which has expanded through the years as diversification took place. NBP enjoys the highest rating of AAA in the industry assigned by M/s JCR-VIS Credit Rating Company Limited on a standalone basis ie without the benefit of the 75% government ownership. BANKING INDUSTRY IN FY09 In the year 2009 the economy showed signs of stabilization. Inflation still remained a top concern although it eased to 10.7% by August as a result of monetary tightening. The current account deficit improved and the foreign exchange reserves stabilized. Problems in the energy sector played a key factor in burdening public finances. Further, terrorism remained the biggest challenge in 2009 and the negative effects of international economic meltdown also became evident in the shape of sharp rise in non-performing loans and operating costs. These factors hampered the business confidence as well as the performance of the banking sector. In the first half of 2010 the economic indicators started showing improvement with reduction in the budgetary deficit owing to decreasing imports and increased worker s remittances. The forex reserves increased to record high levels. Despite these improvements, the inflation and shortage of infrastructure and energy remain big concerns for the economy, specially in light of the havoc caused by the floods in the past two months, which have ravaged the agricultural produce of the country and bulldozed the economy.
================================================================================ Growth Rates 2004 2005 2006

================================================================================= NBP Industry NBP Industry NBP Industry avg avg avg

================================================================================= Profits After Tax 47.58% 44.01% 105.14% 144.27% 33.93% 42.79% Advances Deposits Investments 36.91% 43.44% 21.76% 45.53% 17.58% 19.45% 17.72% 21.07% -0.46% 14.15% 8.30% 16.01% -10.14% -6.45% 5.11% 0.40% -10.85% -2.06%

Net Interest Income 13.14% 9.73% 62.43% 83.08% 29.02% 38.05% Non Interest Income -39.19% -20.11% 215.77% 68.66% -29.62% 5.49% Return on Assets 30.11% 20.93% 85.42% 35.72% 24.89% 18.39% ================================================================================= 2007 2008 2009

================================================================================= NBP Industry NBP Industry NBP Industry avg avg avg

================================================================================= Profits After Tax 11.82% 4.82% -18.78% -4.37% 17.81% 26.07% Advances Deposits Investments 7.77% 14.05% 21.23% 22.89% 15.07% 4.75% 17.94% 19.80% 5.58% 12.98% 16.25% 10.03% 50.62% 69.85% -18.96% -8.69% 27.41% 33.53%

Net Interest Income 11.53% 9.86% 10.20% 15.98% 3.78% 19.69% Non Interest Income -42.50% 16.85% 264.70% 75.05% 45.44% 21.12% Return on Assets -2.95% -10.44% -28.17% -13.72% 5.64% 4.02%

Looking at the banking industry growth rates for the year 2009, we see that the growth rate of NBP s profit after tax is much lower than the industry average. On the other hand, the growth rate of the bank s advances is more than 200% higher than industry average, indicating that NBP possesses a large asset base. Similarly, the growth rate of NBP s

deposit base is 62% higher than the industry average which shows that the Bank has very effective policies for deposit mobilization. NBP s investments, however, have an 18.3% lower growth rate than the industry average; whereas, its net interest income has a growth rate which is 81% lower than the industry average. Alternatively, NBP s non-interest income has a growth rate 115% greater than industry average, mainly due to a significant increase in fee, commission and capital gains during 2009. The growth rate of the Bank s Return on Assets is 40.3% greater than the industry average. FINANCIAL PERFORMANCE (FY04-1H10) The Asset Quality ratios of the NBP show a mixed trend from 2007 onwards. Although, the growth rate of NPLs has reduced in 2009 as compared to its 2008 levels, the overall ratio of NPLs to advances has shown a steady rising trend from 2007 onwards. This growth in NPLs is an industry-wide phenomenon, owing mainly to the impact of the global financial crisis, compounded by a dampening of the repayment capacity of borrowers due to high domestic interest and inflation rates, power shortages, pressure on trade volumes and deteriorating law and order condition. NPLs stood at Rs 69.704 billion in 1H10, 7.65% higher than Rs 64.748 billion in the corresponding period last year and are expected to continue to rise in light of the recent destruction caused by the floods all over Pakistan and the resultant worsening economic conditions. NPLs to advances is on the rise at 15.03% in 1H10 from 14.01% in 1H09. Comparing with the other big banks of Pakistan, NBP s NPLs stand much higher than those of Allied Bank (Rs 17.269 billion; 11% higher than the corresponding period last year) and those of MCB (Rs 24.133 billion, rising 16% YoY). NPLs of HBL and UBL are also less, standing at Rs 44.407 billion and Rs 41.719 billion respectively. This is by no means a reflection of poor performance of NBP since NBP has a considerably higher deposits base and equity as compared to the other big banks. Also, being a national bank, it is responsible for extending credit towards the sectors that are ignored by the commercial banking sector due to low profitability such as the agricultural and small business arenas. Overall value of provisions has increased in 2009 as compared to 2008 levels. However, the ratio of total provisions to NPLs has reduced by 5.95% from 2008 to 2009. The increase in absolute value of provisions is due to both fresh accretions as well as further downgrading of the portfolio. Provisions in 1H10 amounted to Rs 56.351 billion, standing 18% higher than the provisions in the corresponding period last year hence, provisions to NPLs is higher at 0.8 as compared to 0.76 in 1H10. The big banks have similar Provisions to NPLs ratios: Allied Bank at 0.81, HBL at 0.77 and MCB at 0.76, which are in accordance with State Bank s regulations and the cautious practices of the banks in the current economic instability. The profitability or earnings ratios of NBP declined in 2007 and 2008, before rising again in 2009. ROA increased by 5.64% over last year. ROE and ROD rose by 16.14% and 6.30%, respectively. This increase in earning ratios in attributed to a 17.8% in profit after taxation during 2009. However, this growth in profits is not reflected that well in earnings ratios because assets and equity also showed an upward trend during 2008-09. At the end of 1H10, the bank recorded profit before tax of Rs 11.650 billion, 20% higher than the comparative period last year (Rs 9.689 billion). PAT stood at Rs 7.820 billion, 24.5% higher than in 1H09, as a result of higher NIM, lower absolute provisions and a higher non-interest income. Comparatively, the remaining big banks of Pakistan had lower PATs, standing at Rs 3.62 billion for ABL, Rs 7.423 billion for HBL and Rs 5.2 billion for UBL with the exception of MCB, which reported profit after tax of Rs 7.942 billion, consistently higher than that of all other banks. Earnings per share of the bank stood at Rs 5.81, lower than Rs 5.84 of the comparative period last year, with Return on Equity and Assets at 6.64% and 0.8% respectively, both higher than in 1H09. EPS of remaining big banks stand as follows: Allied - Rs 4.63, HBL - Rs 7.41, MCB - Rs 10.45 and UBL - Rs 4.25. The liquidity ratios of NBP showed an improvement in 2009. The ratio of Earning Assets to Assets depicts a stable trend on average from 2004 to 2009. In 2009, the ratio of Earning Assets to Assets increased by 1.35% over last year. The 11.89% increase in average earning assets was greatly offset by a corresponding 11.52% increase in

average assets. NBP s advance to deposits ratio increased by 6.45%, over the same period last year. In general, advance to deposits ratio of NBP shows a rising trend from 2004 to 2009, this signifies that most of funds were utilized for advances rather than any other earning asset. During 1H10 the Earning Assets to Assets ratio of the Bank decreased from 0.75 to 0.74 as a result of decline in investments and advances. Furthermore, the advances to deposits ratio decreased to 0.61 from 0.66 during the period. The reason for the decline in this ratio is that Advances decreased while Deposits increased. Allied Bank and UBL demonstrated similar ADRs at 0.66 and 0.68 respectively. On the other hand, HBL s ADR stood at 0.62, after declining sharply since the corresponding period last year. Furthermore, MCB s ADR showed a similar position having declined from 0.71 in 1H09 to 0.58 in 1H10. This shows the continued cautious behaviour of the banks in terms of risk aversion. In FY09 we see that Investments as a share of total earning assets fell due to changes in market conditions. This signifies that the Bank drew money from investments to Advances - a trend depicted at the overall banking industry level. One reason for this trend is a change in banks approach to NPLs treatment. Banks are now rescheduling the advances given to major customers in order to avoid NPLs. This shows optimism of banks about the future state of economy. During 1H10 the composition of Earning Assets shifted from Advances to Investments. Advances reduced Rs 475 billion to Rs 460 billion by end of the previous fiscal year. Meanwhile, Investments rose from Rs 217 billion to Rs 243 billion in the same period. Advances reduced from 67.91% in 1H09 to 64.80% in 1H10 whereas Investments increased from 29.79% to 31.95% YoY. The cost of funding earning assets shows a rising trend from 2004 to 2009. In 2009 the cost of funding earning assets rose by 47.7% over last year. This can be mainly attributed to the record level interest rates at the beginning of the year, which increased the interest expense. The yield on earning assets also showed an increase by 14.35% over last year. As the cost of earning asset increased by a greater percentage than the yield on earning assets, the overall performance of NBP s earning assets decreased in 2009. During 1H10, the Yield on Earning Assets rose from 5.85% to 6.02% (YoY), which had a greater impact on NII than did the increase in Cost of Funding Earning Assets, which rose from 2.87% to 3.15% YoY, resulting in a 21.45% increase in Net Interest Income YoY. Net Interest Income of the big 4 banks stands as follows: Allied Bank at Rs 10.579 billion, HBL at Rs 22.018 billion, MCB at Rs 17.696 billion and UBL at Rs 16.515 billion. Compared to NBP s NII of 20.738 billion, only HBL stands ahead. The debt management figures show that the assets of NBP have been less leveraged over time. There has been a steady decrease in the debt to equity, which declined from 16.5 in CY03 to 6.7 in CY06 and later to 6.22 in FY08. Similarly, debt to assets declined from 0.94 to 0.86 over the same period. However, there was a slight reversal of this trend during 2009, when both Debt to Equity and Debt to Assets increased by 11.6% and 1.16%, respectively. Increase in debt to assets and debt to equity ratios signify that NBP s debt management efficiency has declined over last year. The first six months of 2010 witnessed a similar trend of Debt Management Ratios. The solvency situation of the Bank showed marked improvement from 2004 to 2008. However, in 2009 the solvency ratios of NBP showed a mixed trend. The Equity to Assets and Equity to Deposits ratios declined by 9.03% and 8.62% in 2009, respectively. This shows that the NBP s average increase in assets and deposits during 2009 more than offset its average increase in equity during the same period. A decline in equity to deposits ratio indicates that the liabilities of the company are increasing at a greater rate than its stock of capital - such a trend if allowed to continue can have an adverse impact on the long-term solvency of NBP. On the other hand the Earning Assets to Deposits ratio of NBP increased by 1.04% in 2009. Overall, the solvency of the Bank deteriorated in 2009.

In the first half of 2010, the solvency of NBP worsened as Equity to Assets dropped to 12.07%. The reason for this was the growing base of Deposits of the bank, due to which Equity to Deposits also dropped down to 15.27%. Deposits of the big 4 banks also rose steadily (Allied at 13% YoY, HBL at 10% YoY and MCB at 16% YoY), with the exception of UBL, which witnessed a decline in its deposits over the year (1.732%). NBP has shown strong market performance over the years. However, in 2009 this market performance declined significantly. In particular, the Bank s price to earnings ratio fell by 64.75% and the market value to book value ratio fell by 59.3%. Moreover, the Bank s average share price per year also fell by 58.5%. This shows a decline in overall market value of NBP during 2009. A decline in P/E ratios and other market value ratios suggests decline in investor confidence and hence, growth prospects for NBP. This decline can mainly be attributed to a tight monetary policy and adverse economic and social environment of the country; rather than to any inherent factor of the Bank itself. PE stands higher at 13.11% in 1H10 as compared to 11.99% in 1H09. Market Value to Book Value is also higher YoY at 0.88. Furthermore, share price on average is rising steadily indicating strong investor confidence in the market owing to NBP s highly profitable operations. However, it can be expected that with the upcoming slowdown in the economy as a result of the floods, performance of the stock market is likely to decline, resulting in falling share prices and crowding out of investors. In 2009, NBP s after-tax profit increased by 18%, from Rs 15.5 billion to Rs 18.2 billion. The said increase is owing to higher fee and commission income, tax credit and capital gains. The Bank s net interest income increased by 3.8% from the corresponding period last year, mainly due to volume growth. During 1Q10, the core interest revenue of the Bank increased by Rs 2.2 billion or 11.9% with increase in net interest income by Rs 585 million. Non interest markup income increased by Rs 342 million or 9.3% compared to corresponding period last year despite decline of Rs 500 million in exchange income on account of better arbitrage opportunities available last year. Further, during 1Q10 NBP s commission income increased by Rs 491 million. Capital gains of the bank were higher by Rs 530 million due to combination of settlement of 2.5% bank s holding in NIT Units and renewed focus on equity investments. However, administrative expenses of the Bank are also higher in line with inflation. NBP s deposits grew by 16.25% over the last year, despite the rise in cost of deposits. The Bank increased its deposits to strengthen liquidity position. In this regard, NBP launched the CASA Deposit Mobilization Scheme in late 2009, aimed at mobilizing Current/Savings Accounts through incentivizing employees. The overall impact of the rise in deposits on the system s stability and liquidity outweighed the associated rise in cost. Advances of the Bank showed a 15% growth, mainly in commodity and corporate sector on account of higher borrowings by Government from the commercial banks. Loans under commodity operations witnessed robust growth due to increase in commodity support prices by the Government. Nevertheless, the growth in advances in 2009 is less than that of last year; this is mainly due to unfavorable business environment in the country which reduced the demand for loans. In particular, SME loans registered a decline due to reduction in the repayment capacity of borrowers and in their willingness to go for fresh financing. However, by end of 1Q10, the rising trend of deposits reversed and NBP s deposits registered a decline of Rs 12.6 billion or 1.74% from year end December 2009 mainly due to reduction in overseas deposits. On the other hand, compared to March 2009, 1Q10 showed an increase in deposits by Rs 73 billion. FUTURE OUTLOOK Since most of the NPLs were the result of business cycle/circumstantial defaults, with the economy picking up and reduction in interest rates, the quantum of non-performing loans is expected to decline. For the next year, NBP plans to continue with its strong focus on recovery and reduction in non-performing loans, deposit mobilization, expense management, consolidation of loans and tapping into untapped markets. Further, NBP is embarking on industry

leading IT initiatives to upgrade and implement new application solutions to meet the challenges of the growing competition and enhanced business requirements. This will greatly improve operational efficiency and control, customer service and facilitate launch of new products. With Flood Relief work taking place all over the country, the banks of Pakistan are expected to contribute immensely in rehabilitation of the displaced and distressed Pakistanis, along with reconstruction of the basic infrastructure destroyed in the floods. Furthermore, with acres of crop yields completely annihilated, IMF loans and budget deficits, inflationary pressures and a despondent people, the economy is about to take a huge hit and banks will have to bear the brunt of it as well.
====================================================================================== RATIOS ======================================================================================= Asset Quality Ratios 2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------Growth of NPLs NPL to Advances Provisions to NPL 7.48% 5.68% 47.35% 25.61% - 11.97% 11.35% 12.58% 14.34% 15.03% 14.01% 0.90 0.89 0.84 0.79 0.8 0.76

--------------------------------------------------------------------------------------Earning Ratios 2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------ROA ROE ROD 2.81% 2.72% 1.96% 2.07% 0.80% 0.73% 21.58% 19.20% 14.13% 16.41% 6.64% 5.95% 3.53% 3.48% 2.54% 2.70% 1.01% 0.95%

--------------------------------------------------------------------------------------Market Value Ratios 2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------Price to Earnings 12.05 10.77 12.17 4.29 13.11 11.99 2.26 2.07 1.72 0.88 0.88 0.71

Market Value to Book Value

Average Share Price for the Year 251.63 251.46 174.76 72.60 76.16544 70 ---------------------------------------------------------------------------------------

Solvency

2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------Equity to Assets Equity to Deposits 13.01% 14.19% 13.85% 12.60% 12.07% 12.29% 16.34% 18.13% 17.98% 16.43% 15.27% 16.03% 0.95 0.96 0.96 0.97 0.94 0.97

Earning Assets to Deposits

--------------------------------------------------------------------------------------Debt Management 2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------Debt to Equity Debt to Assets 6.69 6.05 6.22 6.94 7.28 7.14 0.87 0.86 0.86 0.87 0.88 0.88 6.12 5.52 5.56 6.09 6.55 6.24

Deposit times Capital

--------------------------------------------------------------------------------------Liquidity 2006 2007 2008 2009 1H 10 1H 09

--------------------------------------------------------------------------------------Earning Assets to Assets Advance to Deposit 0.76 0.75 0.74 0.75 0.74 0.74 0.61 0.60 0.62 0.66 0.61 0.66

COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder. DISCLAIMER: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision. The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].

Currency in Millions of Pakistan RupeesAs of:Dec 31 2007 Restated PKRDec 31 2008 Restated PKRDec 31

2009 Restated PKRDec 31 2010 PKR4-Year TrendTOTAL REVENUES42,792.141,957.145,002.049,849.7 Cost of Goods Sold239.2261.8326.0496.1 GROSS PROFIT42,552.941,695.344,676.049,353.6 Selling General & Admin Expenses, Total14,149.418,101.522,490.726,235.9 EBT, EXCLUDING UNUSUAL ITEMS28,451.822,261.321,198.822,868.9 Impairment of Goodwill-------92.6 Other Unusual Items, Total-988.0--1,846.0 Other Unusual Items--988.0--1,846.0 EBT, INCLUDING UNUSUAL ITEMS28,451.823,249.321,198.824,622.3 Income Tax Expense9,046.67,565.23,749.86,883.9 Minority Interest in Earnings-11.9-3.01.870.9 Earnings from Continuing Operations19,405.215,684.117,449.017,738.4 NET INCOME19,393.315,681.117,450.817,809.3 NET INCOME TO COMMON INCLUDING EXTRA ITEMS19,393.315,681.117,450.817,809.3 NET INCOME TO COMMON EXCLUDING EXTRA ITEMS19,393.315,681.117,450.817,809.3

Bank: National Bank of Pakistan - Analysis of Financial Statements Financial Year 2004 - 2001 H 2010

Thursday, 16 September 2010 11:53 Highlights - Corporate News

OVERVIEW : National Bank of Pakistan is the largest commercial bank of Pakistan. The bank handles treasury transactions on behalf of the government of Pakistan as an agent to the State Bank of Pakistan. The bank has a network of 1,232 branches in Pakistan and 18 overseas branches including the Export Processing Zone Branch. It also provides services as trustee to National Investment Trust including the safe custody of securities on behalf of NIT. National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions, which were developed after trade deadlock with India and devaluation of Indian rupee in 1949. Initially the bank was established with the objective to extend credit to the agriculture sector. The bank commenced its operations from November 20, 1949. The bank s Karachi and Lahore offices were subsequently opened in December 1949. The nature of responsibilities of the bank is different and unique from other banks/financial institutions. The bank acts as the agent to the State Bank of Pakistan for handling provincial/federal government receipts and payments on their behalf. The bank has also played an important role in financing the country s growing trade, which has expanded through the years as diversification took place. NBP enjoys the highest rating of AAA in the industry assigned by M/s JCR-VIS Credit Rating Company Limited on a standalone basis ie without the benefit of the 75% government ownership. BANKING INDUSTRY IN FY09

In the year 2009 the economy showed signs of stabilization. Inflation still remained a top concern although it eased to 10.7% by August as a result of monetary tightening. The current account deficit improved and the foreign exchange reserves stabilized. Problems in the energy sector played a key factor in burdening public finances. Further, terrorism remained the biggest challenge in 2009 and the negative effects of international economic meltdown also became evident in the shape of sharp rise in non-performing loans and operating costs. These factors hampered the business confidence as well as the performance of the banking sector. In the first half of 2010 the economic indicators started showing improvement with reduction in the budgetary deficit owing to decreasing imports and increased worker s remittances. The forex reserves increased to record high levels. Despite these improvements, the inflation and shortage of infrastructure and energy remain big concerns for the economy, specially in light of the havoc caused by the floods in the past two months, which have ravaged the agricultural produce of the country and bulldozed the economy.
================================================================================ Growth Rates 2004 2005 2006

================================================================================= NBP Industry NBP Industry NBP Industry avg avg avg

================================================================================= Profits After Tax 47.58% 44.01% 105.14% 144.27% 33.93% 42.79% Advances Deposits Investments 36.91% 43.44% 21.76% 45.53% 17.58% 19.45% 17.72% 21.07% -0.46% 14.15% 8.30% 16.01% -10.14% -6.45% 5.11% 0.40% -10.85% -2.06%

Net Interest Income 13.14% 9.73% 62.43% 83.08% 29.02% 38.05% Non Interest Income -39.19% -20.11% 215.77% 68.66% -29.62% 5.49% Return on Assets 30.11% 20.93% 85.42% 35.72% 24.89% 18.39% ================================================================================= 2007 2008 2009

================================================================================= NBP Industry NBP Industry NBP Industry avg avg avg

=================================================================================

Profits After Tax 11.82% 4.82% -18.78% -4.37% 17.81% 26.07% Advances Deposits Investments 7.77% 14.05% 21.23% 22.89% 15.07% 4.75% 17.94% 19.80% 5.58% 12.98% 16.25% 10.03% 50.62% 69.85% -18.96% -8.69% 27.41% 33.53%

Net Interest Income 11.53% 9.86% 10.20% 15.98% 3.78% 19.69% Non Interest Income -42.50% 16.85% 264.70% 75.05% 45.44% 21.12% Return on Assets -2.95% -10.44% -28.17% -13.72% 5.64% 4.02%

Looking at the banking industry growth rates for the year 2009, we see that the growth rate of NBP s profit after tax is much lower than the industry average. On the other hand, the growth rate of the bank s advances is more than 200% higher than industry average, indicating that NBP possesses a large asset base. Similarly, the growth rate of NBP s deposit base is 62% higher than the industry average which shows that the Bank has very effective policies for deposit mobilization. NBP s investments, however, have an 18.3% lower growth rate than the industry average; whereas, its net interest income has a growth rate which is 81% lower than the industry average. Alternatively, NBP s non-interest income has a growth rate 115% greater than industry average, mainly due to a significant increase in fee, commission and capital gains during 2009. The growth rate of the Bank s Return on Assets is 40.3% greater than the industry average. FINANCIAL PERFORMANCE (FY04-1H10) The Asset Quality ratios of the NBP show a mixed trend from 2007 onwards. Although, the growth rate of NPLs has reduced in 2009 as compared to its 2008 levels, the overall ratio of NPLs to advances has shown a steady rising trend from 2007 onwards. This growth in NPLs is an industry-wide phenomenon, owing mainly to the impact of the global financial crisis, compounded by a dampening of the repayment capacity of borrowers due to high domestic interest and inflation rates, power shortages, pressure on trade volumes and deteriorating law and order condition. NPLs stood at Rs 69.704 billion in 1H10, 7.65% higher than Rs 64.748 billion in the corresponding period last year and are expected to continue to rise in light of the recent destruction caused by the floods all over Pakistan and the resultant worsening economic conditions. NPLs to advances is on the rise at 15.03% in 1H10 from 14.01% in 1H09. Comparing with the other big banks of Pakistan, NBP s NPLs stand much higher than those of Allied Bank (Rs 17.269 billion; 11% higher than the corresponding period last year) and those of MCB (Rs 24.133 billion, rising 16% YoY). NPLs of HBL and UBL are also less, standing at Rs 44.407 billion and Rs 41.719 billion respectively. This is by no means a reflection of poor performance of NBP since NBP has a considerably higher deposits base and equity as compared to the other big banks. Also, being a national bank, it is responsible for extending credit towards the sectors that are ignored by the commercial banking sector due to low profitability such as the agricultural and small business arenas. Overall value of provisions has increased in 2009 as compared to 2008 levels. However, the ratio of total provisions to NPLs has reduced by 5.95% from 2008 to 2009. The increase in absolute value of provisions is due to both fresh accretions as well as further downgrading of the portfolio. Provisions in 1H10 amounted to Rs 56.351 billion, standing 18% higher than the provisions in the corresponding period last year hence, provisions to NPLs is higher at 0.8 as compared to 0.76 in 1H10. The big banks have similar Provisions to NPLs ratios: Allied Bank at 0.81, HBL at 0.77 and MCB at 0.76, which are in accordance with State Bank s regulations and the cautious practices of the banks in the current economic instability.

The profitability or earnings ratios of NBP declined in 2007 and 2008, before rising again in 2009. ROA increased by 5.64% over last year. ROE and ROD rose by 16.14% and 6.30%, respectively. This increase in earning ratios in attributed to a 17.8% in profit after taxation during 2009. However, this growth in profits is not reflected that well in earnings ratios because assets and equity also showed an upward trend during 2008-09. At the end of 1H10, the bank recorded profit before tax of Rs 11.650 billion, 20% higher than the comparative period last year (Rs 9.689 billion). PAT stood at Rs 7.820 billion, 24.5% higher than in 1H09, as a result of higher NIM, lower absolute provisions and a higher non-interest income. Comparatively, the remaining big banks of Pakistan had lower PATs, standing at Rs 3.62 billion for ABL, Rs 7.423 billion for HBL and Rs 5.2 billion for UBL with the exception of MCB, which reported profit after tax of Rs 7.942 billion, consistently higher than that of all other banks. Earnings per share of the bank stood at Rs 5.81, lower than Rs 5.84 of the comparative period last year, with Return on Equity and Assets at 6.64% and 0.8% respectively, both higher than in 1H09. EPS of remaining big banks stand as follows: Allied - Rs 4.63, HBL - Rs 7.41, MCB - Rs 10.45 and UBL - Rs 4.25. The liquidity ratios of NBP showed an improvement in 2009. The ratio of Earning Assets to Assets depicts a stable trend on average from 2004 to 2009. In 2009, the ratio of Earning Assets to Assets increased by 1.35% over last year. The 11.89% increase in average earning assets was greatly offset by a corresponding 11.52% increase in average assets. NBP s advance to deposits ratio increased by 6.45%, over the same period last year. In general, advance to deposits ratio of NBP shows a rising trend from 2004 to 2009, this signifies that most of funds were utilized for advances rather than any other earning asset. During 1H10 the Earning Assets to Assets ratio of the Bank decreased from 0.75 to 0.74 as a result of decline in investments and advances. Furthermore, the advances to deposits ratio decreased to 0.61 from 0.66 during the period. The reason for the decline in this ratio is that Advances decreased while Deposits increased. Allied Bank and UBL demonstrated similar ADRs at 0.66 and 0.68 respectively. On the other hand, HBL s ADR stood at 0.62, after declining sharply since the corresponding period last year. Furthermore, MCB s ADR showed a similar position having declined from 0.71 in 1H09 to 0.58 in 1H10. This shows the continued cautious behaviour of the banks in terms of risk aversion. In FY09 we see that Investments as a share of total earning assets fell due to changes in market conditions. This signifies that the Bank drew money from investments to Advances - a trend depicted at the overall banking industry level. One reason for this trend is a change in banks approach to NPLs treatment. Banks are now rescheduling the advances given to major customers in order to avoid NPLs. This shows optimism of banks about the future state of economy. During 1H10 the composition of Earning Assets shifted from Advances to Investments. Advances reduced Rs 475 billion to Rs 460 billion by end of the previous fiscal year. Meanwhile, Investments rose from Rs 217 billion to Rs 243 billion in the same period. Advances reduced from 67.91% in 1H09 to 64.80% in 1H10 whereas Investments increased from 29.79% to 31.95% YoY. The cost of funding earning assets shows a rising trend from 2004 to 2009. In 2009 the cost of funding earning assets rose by 47.7% over last year. This can be mainly attributed to the record level interest rates at the beginning of the year, which increased the interest expense. The yield on earning assets also showed an increase by 14.35% over last year. As the cost of earning asset increased by a greater percentage than the yield on earning assets, the overall performance of NBP s earning assets decreased in 2009. During 1H10, the Yield on Earning Assets rose from 5.85% to 6.02% (YoY), which had a greater impact on NII than did the increase in Cost of Funding Earning Assets, which rose from 2.87% to 3.15% YoY, resulting in a 21.45% increase in Net Interest Income YoY. Net Interest Income of the big 4 banks stands as follows: Allied Bank at Rs 10.579 billion, HBL at Rs 22.018 billion, MCB at Rs 17.696 billion and UBL at Rs 16.515 billion. Compared to NBP s NII of 20.738 billion, only HBL stands ahead.

The debt management figures show that the assets of NBP have been less leveraged over time. There has been a steady decrease in the debt to equity, which declined from 16.5 in CY03 to 6.7 in CY06 and later to 6.22 in FY08. Similarly, debt to assets declined from 0.94 to 0.86 over the same period. However, there was a slight reversal of this trend during 2009, when both Debt to Equity and Debt to Assets increased by 11.6% and 1.16%, respectively. Increase in debt to assets and debt to equity ratios signify that NBP s debt management efficiency has declined over last year. The first six months of 2010 witnessed a similar trend of Debt Management Ratios. The solvency situation of the Bank showed marked improvement from 2004 to 2008. However, in 2009 the solvency ratios of NBP showed a mixed trend. The Equity to Assets and Equity to Deposits ratios declined by 9.03% and 8.62% in 2009, respectively. This shows that the NBP s average increase in assets and deposits during 2009 more than offset its average increase in equity during the same period. A decline in equity to deposits ratio indicates that the liabilities of the company are increasing at a greater rate than its stock of capital - such a trend if allowed to continue can have an adverse impact on the long-term solvency of NBP. On the other hand the Earning Assets to Deposits ratio of NBP increased by 1.04% in 2009. Overall, the solvency of the Bank deteriorated in 2009. In the first half of 2010, the solvency of NBP worsened as Equity to Assets dropped to 12.07%. The reason for this was the growing base of Deposits of the bank, due to which Equity to Deposits also dropped down to 15.27%. Deposits of the big 4 banks also rose steadily (Allied at 13% YoY, HBL at 10% YoY and MCB at 16% YoY), with the exception of UBL, which witnessed a decline in its deposits over the year (1.732%). NBP has shown strong market performance over the years. However, in 2009 this market performance declined significantly. In particular, the Bank s price to earnings ratio fell by 64.75% and the market value to book value ratio fell by 59.3%. Moreover, the Bank s average share price per year also fell by 58.5%. This shows a decline in overall market value of NBP during 2009. A decline in P/E ratios and other market value ratios suggests decline in investor confidence and hence, growth prospects for NBP. This decline can mainly be attributed to a tight monetary policy and adverse economic and social environment of the country; rather than to any inherent factor of the Bank itself. PE stands higher at 13.11% in 1H10 as compared to 11.99% in 1H09. Market Value to Book Value is also higher YoY at 0.88. Furthermore, share price on average is rising steadily indicating strong investor confidence in the market owing to NBP s highly profitable operations. However, it can be expected that with the upcoming slowdown in the economy as a result of the floods, performance of the stock market is likely to decline, resulting in falling share prices and crowding out of investors. In 2009, NBP s after-tax profit increased by 18%, from Rs 15.5 billion to Rs 18.2 billion. The said increase is owing to higher fee and commission income, tax credit and capital gains. The Bank s net interest income increased by 3.8% from the corresponding period last year, mainly due to volume growth. During 1Q10, the core interest revenue of the Bank increased by Rs 2.2 billion or 11.9% with increase in net interest income by Rs 585 million. Non interest markup income increased by Rs 342 million or 9.3% compared to corresponding period last year despite decline of Rs 500 million in exchange income on account of better arbitrage opportunities available last year. Further, during 1Q10 NBP s commission income increased by Rs 491 million. Capital gains of the bank were higher by Rs 530 million due to combination of settlement of 2.5% bank s holding in NIT Units and renewed focus on equity investments. However, administrative expenses of the Bank are also higher in line with inflation. NBP s deposits grew by 16.25% over the last year, despite the rise in cost of deposits. The Bank increased its deposits to strengthen liquidity position. In this regard, NBP launched the CASA Deposit Mobilization Scheme in late 2009, aimed at mobilizing Current/Savings Accounts through incentivizing employees. The overall impact of the rise in deposits on the system s stability and liquidity outweighed the associated rise in cost.

Advances of the Bank showed a 15% growth, mainly in commodity and corporate sector on account of higher borrowings by Government from the commercial banks. Loans under commodity operations witnessed robust growth due to increase in commodity support prices by the Government. Nevertheless, the growth in advances in 2009 is less than that of last year; this is mainly due to unfavorable business environment in the country which reduced the demand for loans. In particular, SME loans registered a decline due to reduction in the repayment capacity of borrowers and in their willingness to go for fresh financing. However, by end of 1Q10, the rising trend of deposits reversed and NBP s deposits registered a decline of Rs 12.6 billion or 1.74% from year end December 2009 mainly due to reduction in overseas deposits. On the other hand, compared to March 2009, 1Q10 showed an increase in deposits by Rs 73 billion. FUTURE OUTLOOK Since most of the NPLs were the result of business cycle/circumstantial defaults, with the economy picking up and reduction in interest rates, the quantum of non-performing loans is expected to decline. For the next year, NBP plans to continue with its strong focus on recovery and reduction in non-performing loans, deposit mobilization, expense management, consolidation of loans and tapping into untapped markets. Further, NBP is embarking on industry leading IT initiatives to upgrade and implement new application solutions to meet the challenges of the growing competition and enhanced business requirements. This will greatly improve operational efficiency and control, customer service and facilitate launch of new products. With Flood Relief work taking place all over the country, the banks of Pakistan are expected to contribute immensely in rehabilitation of the displaced and distressed Pakistanis, along with reconstruction of the basic infrastructure destroyed in the floods. Furthermore, with acres of crop yields completely annihilated, IMF loans and budget deficits, inflationary pressures and a despondent people, the economy is about to take a huge hit and banks will have to bear the brunt of it as well.

Future Outlook Going forward the bank shall continue to focus on increasing its deposits with emphasis on increasing Current & Saving (CASA) deposit ratio. Efforts will be diverted towards recoveries and negotiated settlements will be speeded up to avoid lengthy litigations thereby achieving visible reduction in the overall NPLs and resultant provision charge. Increase in non- mark up income with particular focus on to fee income shall be a high priority. Improvement in customer services and strengthening of internal systems & controls shall remain a key area of work. Capacity building in terms of human resources shall continue. Technology up gradation in the form of ongoing implementation of core banking, online connectivity and allied projects will be performed with commitment to complete the jobs on time. Despite the challenges of the future in the form of increasing competition, difficult socio economic situation of the country, we remain committed to our vision, mission & core values. Bank is geared up to meet the challenges of tomorrow and leveraging on strengths will continue to capitalize on new opportunities. The Board members express deep appreciation for the invaluable services rendered by the former President/Chairman Mr. S. Ali Raza for NBP during the past 10 years of his tenure. He was a capable and dynamic person who worked for the progress of the bank with dedication. He introduced several innovative schemes/products and completely turned around the bank and increased its profitability to a very significant level. The Board acknowledges that during the tenure of Mr. S. Ali Raza, NBP received recognitions/awards from reputed international magazines several times and NBP became a Triple-A rated bank on the standalone basis (rated by JCR-VIS) which is the highest rating for any bank in Pakistan. The Board also places on

record its appreciation for the services of the outgoing Directors Mr. Ibrar A. Mumtaz and Mian Kausar Hameed. The Board remains indebted to the guidance and the insight provided by these gentlemen while they were on the Board. The Board welcomes Mr. Qamar Hussain as the new President. Mr. Hussain has been associated with National Bank of Pakistan since 2009 as Chief Operating Officer. He brings with himself a vast experience of international financial institutions. We are confident that his experience, professionalism and charismatic leadership will further add value and esteem for our stakeholders.