INTERNSHIP REPORT ON

NATIONAL BANK OF PAKISTAN.

Under the kind of supervision of Respected Instructors (fini619) of The Virtual University of Pakistan.
Master of Business Administration (Finance) Session 2008-2010 Submitted By: Muhammad Azeem Rafi mc080400676 Submission on: July 5, 2011.

DEDICATION

I dedicate this project to my Parents

Who Sacrificed them on my wills and Encouraged me during the preparation of this project And whose prayers are always with me wherever I am.

ACKNOWLEDGEMENT

Thanks to Almighty ALLAH, the most merciful, beneficent, and the source of all knowledge and wisdom. All reverence to the HOLY PROPHET MUHAMMAD (PBUM), who is forever guidance and knowledge for all human beings on this earth. No sequence of works can express my sincere gratitude to our respected Instructor without whose valuable guidance, rich experiences, helpful advice, useful suggestions and constrictive criticism and comments. I could not have been able to complete this Internship Report. In preparation of this Internship report I am Special thankful Mr. Fawad Ahmad Butt for providing information, support and guidance at every level of my studies. Without his co-operation it would not be possible for me to complete my MBA degree. I am really very grateful to Sarfraz Ali Namet Operations Manager, & Arif Sohail Qazi Branch Manager, National Bank of Pakistan, Urdu Bazar Branch Gujranwala for their accommodating attitude during the completion of my Internship. They helped and supported me during gathering and analyzing information. And at the end, I am really very thankful to Farooq Ahmad, a friend of mine, for his help in every step during the completion of my Internship Report.

EXECTUIVE SUMMARY
In this report, I have discussed about every major aspect of the bank, which I observed during my internship. Along with it, the processes, policies and procedures of the bank have also been discussed in detail. The main purpose of Internship is to learn, by working in practical environment and to apply the knowledge acquired, during the studies, in a real world scenario in order to tackle the problems. My intentions were to know how to work in financial institutions, to know about the office environment and to know how to deal with different kind of people. In this report the analysis of the organization has been done and the financial aspects have been evaluated to analyze the current position of the organization. Along with it, the background analysis, the business process analysis, and the internal environment and external environment of the organization have been discussed and the recommendations for the improvement have been made. During my internship program, I mainly worked with the departments GENERAL BANKING & ADVANCES. These departments have been discussed in along with the policies and procedures therein. I have concluded my report with my experience at the National Bank of the Pakistan along with my overall insight of the organization. The recommendation section contains my perception of the ways of improving this organization. In the end I have listed the references used during the preparation of my Internship report.

Muhammad Azeem Rafi.

Table of Contents
Sr.No. 1 2 3 4 5 6 7 8 8.1 8.2 8.3 8.4 8.5 9 10 11 12 Description Introduction of the Organizations Business Sector Overview of the Organization Organization Structure Plane of Internship Program Training Program Structure of the Finance Department Function of the Finance Department Critical Analysis Horizontal Analysis Vertical Analysis Ratios Analysis Trend Analysis Industry Analysis SWOT Analysis Conclusion Recommendation for improvement References & Sources page 9 11 22 26 27 37 38 39 39 43 51 91 94 96 98 100 104

Introduction of the organizations business sector

National Bank of Pakistan is providing banking/financial service in Pakistan. The Banking/Financial service sector is often described as a nations economic engine. The reason is that they provide the functions of financial intermediation between sever/investors that are expecting for safety and growth and consumers/businesses that are looking for access to credit and capital. Banks also play a major and dynamic role as instruments of the governments monetary policy intended for regulating interest rates and money supply in the economy. The recent economic crisis in the United States and Europe is because of the ongoing weakness of major banks which resulted credit and capital crisis. It is obvious from history that the banking sector has critical importance in national and global economies. In Pakistan, the total banking sector is serving about 6 million borrowers and 25 million depositors, implying a penetration rate of 3.6 percent and 15 percent respectively. In terms of access to microfinance, which means the availability of small loans, micro deposits and micro-insurance services to decrease income households, the current penetration rate is only 10 percent. In other words, 85 percent of Pakistans population does not have access to any financial services at all, which inherently creates an uneven and an inequitable economic world, where the majority of people are financially marginalized. Between 2002 and 2007, Pakistans accelerated economic growth was underpinned by a strong banking sector. Classified as Pakistans and regions best performing sector, the banking industrys assets rose to over $60 billion, its profitability remains high, non-performing loans (NPLs) are low, credit is clearly diversified and bank-wide system risks are well contained. Nearly 81% of banking assets are in private hands. Similarly, the present foreign stake comes to 47% of total paid-up capital of all the financial institutions regulated by Pakistans central bank, the State Bank of Pakistan. Today there are 6 Development finance Institutes, 41 scheduled banks, and 2 Micro Finance Banks operating in Pakistan whose operations are governed and watched by State Bank of Pakistan. The commercial banks consist of 3 privatized banks, 3 nationalized banks, 14 foreign banks,15 private sector banks, 2 provincial scheduled banks, and 4 specialized banks. According to the Banking Companies Ordinance, 1962 the State Bank of Pakistan has completed authorization to regulate and supervise banks and development finance institutions. State Bank of Pakistan can prohibit the bank from giving loans, advance & credits. It can prohibit the bank from accepting deposits, can cancel license of a bank, Can give directions to the bank as it deem fit, Can remove chairman directors, chief executive or other managerial persons from the office and appoint a person as chairman, director or chief executive. In general, there are primarily two types of banks in Pakistan. Commercial Banks and Investment Banks. Both types of banks provide the financial services essential for Pakistans economy to function and grow.

Commercial Banks are private institutions that, usually, receive deposits and make loans. Deposits are money people hand over to an institution with the comprehension that they can get it back at any time or at settled future date. A loan is money let out to a borrower to be usually paid back with interest. This action of getting deposits and making loans is called financial intermediation. A banks business, however, does not end here. Most of the people and businesses pay their bill through bank checking accounts, placing banks at the center of our payments system. Banks are the major source of consumer loans, loans for cars, education, houses as well as main lenders to businesses, particularly small enterprises. When banks are strong and the credit flows in the whole system, it helps the overall economic growth. At the time of crisis, the impact on businesses and consumers increases the weakness in the economy. Investment banks provide four elementary types of services: raising capital (private equity or public shares offerings), advising in mergers and acquisitions, executing securities sales and trading, and providing common advisory services. Most of the major Wall Street companies are active in each of these categories. Small investment banks usually specialize in two or three of these categories. Despite of the global economic turmoil, continuing political crisis and ongoing militancy in Pakistan, the financial services sector has held up fairly well in the previous year. However its future is tied to a continuous political stability in the country that allows economic activity to go on without hurdles. Lets hope the nations political and ruling elites can find way to find a peaceful way forward.

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Overview of the organization

Vision To be recognized as a leader and a brand synonymous with trust, highest standards of service quality, international best practices and social responsibilities. Mission NBP will aspire to the values that make NBP truly the Nations Bank, by: Institutionalizing a merit and performance culture Developing a unique brand identity by rendering the highest standards of services Adopting the best international management practices Maximizing stake-holders value and wealth Discharging our responsibility as a good corporate citizen of Pakistan and in countries where we operate Providing a critical role in Pakistans economy to make it strong and powerful like China and Japan. Making our country Asian Tiger is our old dream a Brief history

National Bank of Pakistan was established vide NBP Ordinance No. XIX of November 9. 1949. Initially the Banks objective was to extend credit to the agriculture sector. The Bank commenced its operations from November 20, 1949 at six important jute centers in the East Pakistan and directed its resources in financing of jute crop. The Banks Karachi and Lahore offices were subsequently opened in December 1949. The Bank in 1950 had one subsidiary The Bank of Bahawalpur established on December 4, 1949 by the former Bahawalpur state. 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. Deposited held by NBP constituted almost 31% of total deposits of all Pakistani Banks in 1949, which rose to 38% in 1952. NBP advance reached Rs. 554.4 million by December 1959, which was one third of the total schedule bank credit. In 2002, the Bank signed an accord with Western Union for stretching out the base for documented remittances. In November 2002 NBP launched its advance salary scheme. Worlds leading financial journal, Global Finance after a worldwide survey declared NBP in its issue of May 2003 as one of the Best in the Emerging Markets. The Bankers Magazine in July 2003 recognized NBP as the bank with the highest return on capital in Asia and No.8 in the world.

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NBP is the only Pakistani bank which has been ranked among the Top 100 banks of Asia for its performance in the fiscal year 2003 and then among the Top 1000 banks of the world by the prestigious Banker magazine in its issue of July 2005. In January 2004 NBP launched its NBP Saibaan scheme. In May 2004, NBPs standard long-term rating was upgraded by M/S JCR-VIS Credit Rating Agency to AA(double A) from AA- (double A minus) with stable outlook while standalone short-term rating was maintained at A1 + (A one plus). This is now the best rating for a local commercial bank in Pakistan. WEBCOP-AASHA, an alliance against gender discrimination at workplace, presented a recognition Award to NBP on December 18, 2004 for having a Gender Sensitive Management. Worlds prominent financial journal, Global Finance in an exclusive survey has named NBP as the Best Emerging Market Bank from Pakistan for the year 2005. On an all Pakistan basis NBP was awarded the Kisan Times Award for the year 2005 by the Prime Minister of Pakistan Mr. Shoukat Aziz, for its services in the Agriculture sector. The Banker Magazine in July 2005 declared NBP as the 10th Best Bank in terms of Profit on Capital in the world. Best Bank-Pakistan award for the year 2005 by worlds leading financial magazine Global Finance. NBP launched its ATM + Debit Card in 2005. Worlds famous leading financial journal, Global Finance has named NBP as the Best Emerging Market Bank from Pakistan for the year 2006. NBP launched the schemes of NBP help lines, NBP Islamic banking and NBP protection shield. Best return on Capital for 2006 amongst all banks in Asia Banker magazine in July 2007. NBP enjoys the highest rating of AAA in the industry assigned by M/s JCR-VIS Credit Rating Company (July 2007) limited on a standalone basis. NBP launched premium Aamdani and Premium saver schemes in 2007. National Bank of Pakistan was awarded The Bank of the Year for the year 2001, 2002, 2004, 2005, and 2008 by The Banker magazine owned by the Financial Times Group, London. National Bank of Pakistan was awarded The Best Foreign Exchange Bank in Pakistan for the year 2004, 2005, 2006, and 2008 by the worlds leading financial journal Global Finance. Year 2008 has been a historic year for NBPs I.T infrastructure point as the bank started its implementation program of Core Banking Application (CBA) Software. At the end of 2009 the Bank has a branch network of 1,276 branches with 1,254 domestic and 22 overseas branches.

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Nature of the organization

National Bank of Pakistan is naturally a Financial Organization, which operates through lending, and borrowing and investing activities. The nature of responsibilities of the Bank has great distinction from other Banks/financial Institutions. It is the largest commercial bank operating in Pakistan. Its balance sheet size exceeds that of any of the other banks operating locally. It has redefined its role and has transformed from public sector organization into a modern commercial bank. The Banks services are available to individuals, business firms and government. While it goes on performing as trustee of public funds and as the agent to the State Bank of Pakistan( in places where SBP does not exist) it has diversified its business portfolio to a great deal and is today a major leading player in the debt equity market, corporate investment banking, retail and consumer banking, agricultural financing, treasury services and is showing growing interest in promoting and developing the countrys small and medium businesses and as well as fulfilling its social responsibilities, as a corporate citizen. National Bank of Pakistan is a Government Organization. As an agent of State Bank of Pakistan, it implements the policies of SBP. Its basic objective was to extend credit to the agriculture sector. The Bank has increased its range of products and services to include Shariah Compliant Islamic Banking products. It deals all Government Revenue collection and payments of salaries, pensions and Govt. Treasury. It is complete commercial, retail and corporate bank too. The National Bank of Pakistan as a commercial bank commonly makes advance for a period not surpasses one year, expect in case of small and medium industries for which advance may be made for a maximum period of five years. The bank makes not only against the security of stocks and goods hypothecated or pledge to the bank, but also against documents of goods and property, shares are various joint stock companies, Government securities, Insurance policies deposits receipts, etc. The margin and rate of interest are settled by many factors including the type of security, the size of loan the integrity of the party.

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Business volume

The business volume of National Bank of Pakistan is increasing day by day. The main particulars of financial statements of the National Bank of Pakistan for the last three years and half year ending June 2010 have been discussed in the table given below. Features Capital Share Reserve Deposit Investment Interest-Earned Advance Assets-Total Pre tax profit After tax profit Lending to Financial Institution Balance with Other Banks (Receivable) Year ending June 2010 (Rs. In million) 13.45 24.45 816.532 301.32 88.47 477.5 1035 24.41 17.56 23.02 30.38 Year ending June 2009 (Rs. In million) 10.76 22.68 726.464 217.64 77.94 475.243 944.232 23 18.21 19.58 28.40 Year ending June 2008 (Rs. In million) 8.96 19.94 624.939 170.82 60.94 412.986 817.758 23 15.45 17.13 38.34 Year ending June 2007 (Rs. In million) 8.15 15.77 591.9074 211.146 50.56 340.318 762.193 28.06 19.03 21.46 37.47

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Product lines

National Bank of Pakistan serving following product lines: National Bank of Pakistan Saiban Scheme Product items under Saiban scheme: 1. Home Purchase: Financing Amount Financing Period Debt to Equity 2. Home Construction: Financing Amount Financing Period Debt to Equity 3. Home Renovation: Financing Amount Financing Period Debt to Equity 4. Purchase of Land + Construction: Financing Amount Financing Period Debt to Equity 5. Balance Transfer Facility (BTF):

Up to 35 Million 3 to 20 Years 85:15 (Maximum) Up to 35 Million 3 to 20 Years 85:15 (Maximum) Up to 35 Million 3 to 20 Years 85:15 (Maximum) Up to 35 Million 3 to 20 Years 85:15 (Maximum)

In case of having a Home Finance Facility outstanding with another bank you can transfer it to NBP through Hassle free procedure. NBP Advance Salary Scheme NBP Advance Salary, the leading and distinctive personal loan product of the country, is maintaining its inimitability ever since it was launched. This was only possible due to its swift growth and remarkable loan disbursement of over 138 billion. You can obtain up to 20 net take home salaries with easy repayment installments. Hassle free acquisition without any prior formalities along with easy availability in a short duration is characterized as the unique of the product. The product is presented nationwide.

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National Bank Cash Gold Scheme Through NBPs Cash Gold, you can fulfill your requirements for ready cash in place of your idle gold jewelry. Rate of markup 13% p.a. Facility of Rs. 10,000 against each 10 grams of net contents of gold No maximum boundary of cash Repayment after one year Roll over facility Only gold ornaments acceptable Weight and quality of gold to determined by NBPs appointed specialists No penalty for early repayment National Bank Kisan Dost Scheme Competitive mark-up rate around 14.5% per annum Quick & easy processing Delivery at the farmers doorstep Technical guidance to farmers Wide range of financing schemes for farmers Finance facility up to Rs. 500,000/- for landless farmers against personal guarantee Finance available against pass book, residential/ commercial property, gold ornaments and paper security Loan facility on revolving basis for three years (renewable on yearly basis without documentation and approval) National Bank Premium Admdani Certificate Scheme Monthly Income Scheme introduced for investors as well as for general public. Amount of investment required from Rs. 20,000/- to Rs.50, 000,000. Investment period is 5 years. Free Demand Draft; pay Order and NBP online Aasan Banking Free Cheque Book/ NBP Cash Card (ATM + Debit) Financing facility available up to 90% of the deposit value. Premature encashment will attract penalties Zakat and withholding tax will be deducted as per rules Profit paid every month as following: Period Profit Rates

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1st year 2nd year 3rd year 4th year 5th year

7.5% 8.5% 9.5% 10.5% 11%

NBP Karobar Scheme Mera Apna Karobar Minimum down payment, 10% of asset price (5% for PCO & Telecaster) Tenure 1 to 5 years (for PCO 2 years) Grace period 3 months Maximum loan amount Rs. 200,000/ Age 18-45 years Mark-up (variable) 1 year KIBOR + 2.00% p.a. The customer will pay markup @ 6% p.a. rest will be borne by GOP Life & disability insurance paid by GOP (subject to availability of subsidy from GOP) International Banking Global strategy of National Bank of Pakistan is concentrated on capturing trade business and increasing bi-lateral investment flows. NBP has 22overseas branches in all the major financial capitals of the world and is planning to open more branches in near future. NBP offers the lowest rates on exports and other international banking products. The Bank also provides access to different local commercial banks in international banking. NBP has a Financial Institution Wing to effectively manage NBPs exposure to foreign and domestic correspondence. DEMAND DRAFTS: If you are searching 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. MAIL TRANSFERS: Transfer your money safely and in short time using NBP Mail Transfer services. And we also offer the most competitive rates in the market. PAY ORDER: NBP presents another reason to transfer your money using our facilities. Our pay orders are a safe and easy way to move your money from on place to another. And, as usual, our charges for this service are extremely competitive. TRAVELLERS CHEQUES: Negotiability: Pak Rupees Travelers Cheques are a negotiable instrument 17

Validity: Availability: Encashment: Safety.

There is no restriction on the period of validity. At 700 branches of NBP all over the country. At 400 branches of NBP. NBP Travelers Cheques are the safest way to carry our money.

LETTER OF CREDIT: NBP is determined to offer its businesses customers the wide variety of options in the money transfer. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. COMMERCIAL FINANCE: The Banks dedicated from of professional truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. FOREIGN REMITTANCES: In order to facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of actions to increase home remittances through the banking system and to meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries. The present system of home remittances has been revised/significantly improved and well- trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 25 overseas branches of the Bank. NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. SWIFT SYSTEM: The system (Society for Worldwide inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittance. The system has built-in features of computerized test keys, which finishes 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 universal access number NBP-PKKA.All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, you can safely and speedily transfer money for our business and personal needs. TRADE FINANCES OTHER BUSINESS LOANS: AGRICULTURAL FINANCE: NBP provides Agricultural Finance to solidify faith, commitment and pride of framers who produce some of the best agricultural products in the World. Agricultural Finance Services:

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I Feed the World program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production.

Agricultural Credit: The agricultural financing strategy of NBP consists of three main objectives:1. Presenting reliable infrastructure for agricultural customers 2. Help farmers utilize funds efficiently to further develop and achieve better production Provide farmers an integrated of credit with supplies of essential input, technical knowledge, and supervision of farming. 3. Agricultural Credit (Medium Term) Production and development: Watercourse improvement Wells Farm power Development loans for tea plantation Fencing Solar energy Equipment for sprinklers Farm Credit: NBP also gives the following subsidized with ranges of 3 month to 1 year on a renewal basis. Operating loans Land improvement loans Equipment loans for purchase of tractors, farm implements or any other equipment Livestock loans for the purchase, care, and feeding of livestock Production Loans: Production loans are aimed at basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. CORPORATE FINANCE: Working Capital and Short Term Loans: NBP has specialization in providing Project Finance, Export Refinance to exports, Preshipment and Post-shipment financing to exporters, Running finance, Cash Finance, Small Finance, Discounting & Bills Purchased, Export Bills Purchased/Pre-shipment/ Post-shipment, Medium term loans and Capital Expenditure Finance. NBP provides

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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 increase their operation thereby making possible the fulfillment of our clients vision. This type of long term financing proves the banks belief in its clients capabilities, and its commitment to the country.

Loan Structuring and Syndication: National Banks leadership in debt syndicating stems from ability to forge strong relationship not only with borrowers but also with bank investors. Because we realize our syndicate partners asset criteria, we provide help to borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our syndication capabilities are complemented by our own capital strength and by industry teams, who bring specialized knowledge to the structure of a transaction. Cash Management Services: Through 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 all over the 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 and easily. SHORT TERM INVESTMENTS: NBP now presents magnificent 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. EQUITY INVESTMENTS: NBP has accelerated and stimulated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: The investment into the capital market Introduction of capital market accounts (under process) NBPs involvement in capital market is going to grow its earnings, which would result in better returns offered to account holders.

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Competitors Competitors of National Bank of Pakistan are all scheduled banks, which are Listed/ trading under Banking Companies Ordinance 1962. Competitive Banks are as under: Habib Bank Limited United Bank Limited Muslim Commercial Bank Limited Allied Bank Limited Askari Commercial Bank Limited Soneri Bank Limited Bank Al-Habib Limited Bank Al-Falah Limited Standard Chartered Bank Limited The Bank of Punjab

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Organization structure
a Organizational Hierarchy chart PRESIDENT DIRECTORS/ Senior Executive Vice President Provisional Chiefs/ Executive Vice President
Regional Chiefs / Executive Vice President

Zonal Chiefs / Sinor Vice President Voice President Assistant Voice President Officer Grade I Officer Grade II Officer Grade III Clerical/ Non-Clerical Staff

Syed Ali Raza is currently the President & Chairman of National Bank of Pakistan. But now Qmar Hussain (on acting charge basis) President & Chairman of NBP. Board of Directors consists of following:

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Muhammad Ayub Khan Train Sikandar Hayat Jamali Mian Kausar Hameed Ibrar A Mumtaz Tariq Kirmani Muhammad Arshad Chaudhry Mrs. Haniya Shahid Naseem Ms. Nazrat Bashir Number of employees 2004 13,745 2005 13,824 2006 14,019 2007 14,079 2008 15,204 2009 15,332

Year No of employ ees c

Main offices

Registered & Head Office NBP Building I I Chundrigar Road, Karachi, Pakistan. Registrars & Share Registration Office THK Associates (Pvt.) Limited Shares Department, Ground Floor, State Life Building # 3 Dr. Ziauddin Ahmed Road, Karachi, Pakistan. Website www.nbp.com.pk Audit Committee Chairman Auditor Auditor Auditor Ibrar A. Mumtaz Tariq Kirmani Mian Kausar Hameed Muhammad Ashad Chaudhry Ford Rhodes Sidat Hyder & Co. M. Yousaf Adil Saleem & Co.

Auditors Chartered Accountants Chartered Accountants Legal Advisors Advocates & Legal Consultants

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Mandviwala & Zafar Branch Network National Level Year No of branches 2004 1,226 2005 1,242 2006 1,250 2007 1,261 2008 1,276 2009 1,276

International Level 22 Braches. d Introduction of all the departments

There are many different departments in National Bank of Pakistan. Deposit Department There are two major types of accounts i.e. Saving Account and Current Account. Customers keep their savings in PLS Saving Accounts and businessman save their money in bank Current Accounts. NBP gives profit on saving accounts and special saving accounts i.e. Premium Saving Accounts and NBP Premium Amadni Certificates for one to five years period. Advances Department NBP provides loans to different types of borrowers for different purposes. These loans are given for various sectors for different periods. Small Finance, Cash Finance, Agriculture Finance, Cash & Gold Loan, Personal Loans, Demand Finance, Running Finance, Corporate Finance, Export Import Financing, House Building Finance(Saiban) and NBP Karobar Scheme etc. Government Receipts and Payments Department National Bank of Pakistan is functioning as an agent of SBP for many types of government payments and receipts. Payments like pension, Salaries, Grants, Zakat, Benevolent Funds, Treasury Refund and taxes Refund proceed through the National Bank of Pakistan. Almost all kind of government receipts i.e. Traffic Challans, Revenue receipt, Taxes, Abyana, Agriculture Tax, Public Service, Commission Fee. EOBI Funds and Utility Bills are deposited. FBR Collection Department NBP is playing great role for collection of FBR (CBR) taxes/ revenue. A separate counter is established at branch level to facilitate the taxpayers. Bills Department

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Customers collect their money/amount through bills. They present their Cheques, drafts and other bills for collection within the city and out of the city through mail. Now a days online Banking is becoming more popular for this purpose but the branch where I got training is still not having this facility. Cash Department National bank deals Government treasury on behalf of Stare Bank of Pakistan. There are Chest, Sub-chest and Non-chest branches in the bank. SBP supplies currency notes to bank and monitors its cash flow. Cash in charge and other cashiers deal with cash receipt and payment in the bank.

Compliance Department Role of branch compliance department is to reconcile the prescribed frequencies, investigate long pending reconciliation item, and ensure correct treatment every half-year and clearing system services branch-in major cities. Internal control is the integration of the activities, plans, attitudes, policies and efforts of the people of the bank working together to provide reasonable assurance that the organization will achieve its objectives and mission. Remittances Department Another important department in the bank is remittances. People send and receive their money to the other persons and organizations through various ways. I.e. Bank draft, Telegraphic Transfer, Coupons, Govt. Draft and Western Union Money Transfer etc. The money is transferred t both inland and abroad. Agriculture Department Agriculture Credit Department is playing a vital role in development the economy of Pakistan. Commercial banks being the greatest mobilize of savings in the country with their large network of branches play important role in financing agriculture. The National Bank of Pakistan has also been trying to ensure that loans are disbursed to genuine agriculturists within a reasonable time and that the bank turns down no variable loan request Human Resources Management Department Human Resources Management Department works for the betterment of the employees. Enhances skills, training management, services benefits, wages, medical facilities, staff loans are basic functions of this department. Information Technology Department Year 2008 has been a historic year for NBPs I.T infrastructure point as the bank started its implementation program of Core Banking Application (CBA) Software. This is state of the art software providing a complete banking solution covering all areas. This will be

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a transformation which will greatly improve operational efficiency and controls, customer services and facilitate launching new banking products. e Comments on the organizational structure

The National Bank of Pakistan is one of the oldest banks of Pakistan. The bank has been a lot of changed during last 60 years. However the organizational structure is not so professionally developed and implemented. Organizational structure has not been changed so much since years. Although the departmentalization exists but in branches there is not rigid concept of departmentalization present. Sometimes the chain of command is surpassed and no care is taken on authority and responsibility fixation. However, currently situation is not so disappointing. System needs improvements but currently serving its purpose in a very suitable way.

Plan of internship program

a Brief introduction of the branch

Name of Branch Nation Bank of Pakistan, Urdu Bazar Branch Gujranwala. Branch Code 0831 Region Gujranwala. Addres Nain Chowk Gujranwala Name of Branch Manager Arif Sohail Qazi Name of Operation Manager (Supervisor) Sarfraz Ali Namet Number of employees The branch is not the On-line. So, it is not using EBS (Electronic Banking System), banking software for its banking function. This bank has following four departments in it. 1. 2. 3. 4. Foreign Exchange Department General Banking Department Compliance Department Advance Department

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First three department work under the supervision of Operation Manager and Advance department works under direct supervision of branch Manger. There were total 2 staff members working in advance Department, 1 in Foreign Exchange Department, 1 in Compliance Department and 10 in the General Banking Department. b Starting and ending dates of internship

The starting date of my intenship program was 10-11-2010 and my intership continued for almost 8 weeks and the ending date of my intenship program was 10-01-2011.

Training program
During the internship period of 8 weeks that I spent at the National Bank of Pakistan, Urdu Bazar Gujranwala. I worked in two Departments National Bank of Pakistan. I got practical exposure to the following departments. The General Banking Department I worked for 6 weeks i.e from 10-11-2010 to 26-12-2010. Advance Department I worked for 2 weeks i.e from 27-12-2010 to 10-01-2011. General Banking General Banking is the core of all departments; Deposits from customers are accepted and Cheques are chased for customers. This department works under direct supervision of Operation Manager. Two basic kinds of accounts are dealt here. I.e. Current Account and Saving Account. Current Accounts are payable to the customer whenever they are demanded. When a banker accepts a demand deposit the incurs the obligation of paying all cheques etc. Drawn against him to extent of the balance in the account. Because of their nature, these deposits are treated as current liabilities by banks. Bankers in Pakistan do not allow nay profit on these deposits and customers are required to maintain 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 employee such deposits. Savings Deposits account can be opened with very small amount of money, and the depositor is issued cheque book for withdrawals. Profit is paid at a flexible rate calculated on six-month basis under the interest- free banking system. There is no restriction on the 27

withdrawals from the deposit accounts but the amount of money withdrawn is deleted from the amount to be taken for calculation of products for assessment of profit to be paid to the account the account holder. It discourages unnecessary withdrawals from the deposits. The Account opening is the first step in making a customer with bank. In account opening the formalities are fulfilled in vary easy steps and it takes no time for a person to have an account at the Bank. Another important function here is remittances and Bills for Collection. People send their money to the other persons and organizations through various way i.e. Bank draft, Telegraphic Transfer, Mail Transfer, Coupons. Govt. Draft and Western Union Money Transfer etc. It works both inward and outward. Customers collect their money/amount through bills. They present their cheques, drafts and other bills for collection within the city and out of the city through mail. NFT organization responsible for collecting and delivering instruments for clearance from the State Bank of Pakistan.

National Bank of Pakistan is functioning as an agent of SBP. Much government payments like Pension, Salaries, Grants, Zakat, Benevolent Fund, Treasury Refund and Taxes Refunds are carried out by the bank. Pension payment is only done through the NBP. Pension payment and salary payments are the most frequent activities in this department during the first four weeks of the months. Similarly most of the government receipts i.e. Taxes, Revenues receipts, Taxes, Traffic Challans, Abyana, Agriculture Tax, Public service commission Fees and Utility Bills are deposited. The NBP is doing a great job in revenue collection of both Government of Pakistan and Government of Punjab. Utility Bills collection is one of the heaviest workload around the due dates of these bills. National Bank deals Government treasury on behalf of State Bank of Pakistan. There are Chest, Sub-chest and Non-chest branches in the bank. SBP supplies currency notes to the bank and monitor its cash flow. Cash in charge and other cashiers with cash receipt and payment in the bank. Advances (Credit Department) To give loan to Businessmen and individuals is the medium to convert customer deposits into own money. As bank receives deposits at lower rates and lend them at higher rate. Basically, this department deals with the activities of various types of credits, nature of advance creation of charge, monitoring of classified advances etc. Advances consist of retail and commercial advances. Cash & Gold Loan, Personal Loans, Demand Finance, Running Finance, Corporate Finance, Export Import Financing, House Building Finance (Saiban) and NBP Karobar Scheme etc. b Detailed description of tasks assigned to me

Account Opening: Account opening is very vital now a day in banking system due to KYC

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(Know your customer), AML (Anti Money Laundering) & ATF (Anti Terrorist Financing). I got training in this department for two weeks and after understanding the basic concepts. Detail description of how opened the account was required. The opening of an account is the establishment of banker customer relationship. Before opening a new account, the banker should determine the prospective customers integrity, credibility, 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. To avoid frauds To save guard against unintended over draft To avoid Negligence To make Inquiries about clients There are certain formalities, which are to be observed for opening an account with a bank. The accounting application should be received on the prescribed account opening form. Copy of CNIC along with the original CNIC is collected and checked at the time of account opening. The necessary details in the form should be filled in and all detail should be in legible and clear writing. Specimen signatures of applicant must be carefully tested and collected. The minimum initial deposit is ensured before over the checque book to the customer. Qualification of Customer The relation of the banker and the customer is purely a contractual person; However, he must have the following basic qualifications. He must be of the age of majority. He must be of sound of mind. Law must not disqualify him. The agreement should be made for lawful object, which create legal relationship Not expressly declared void. Types of Accounts Following are the main types of account according to nature of customer. Individual account Joint account Accounts of Special Types Partnership account Joint stock company account Accounts of clubs, societies and associations Agents account

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Trust account After the application processing and the initial minimum deposit were made, I told customer to approach the account opening officer, who after checking the form and deposit slip issued cheque book to account holders. I practically issued some cheque books also under the supervision of my officer. Requirements for issuing cheque book The accountholder must sign the requisition slip Entry should be made in the cheque book issuing book. Three rupees per cheque should be recovered from a/c holder if not then debit his/her account. He must have submitted a copy of CNIC and have shown his original CNIC for verification.

Accepting deposits The money, which comes in 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. I worked and observed the procedure for accepting deposits. I practically accepted the deposits of some customers also. The process is as follows Deposits are accepted along with the deposit slips. Different colored deposit slips are used for general deposit and clearing. Deposit slips are filled and are handed over to cashier along with cash. I after checking the particulars of the deposit slip verified that the amount is in accordance with the written amount. Then I made a credit entry in the ledger account of customer. I stamped the deposit slip, Keeps one portion with me and other was given to the customer for future ready reference. The deposit slip for clearance is used for the purpose of the cheque that not going to paid on counter but the amount is to be transferred to the ledger account of the customer. The cheque pertains to other banks or other branches of NBP. Or it might even be from another customer of the same bank (this kind of cheque is not sent for clearance at SBP). All other cheques are sent to SBP for clearance at their clearance house. Although the amount is credited to the customer account as soon as the cheque is presented but this amount contains a control in system that restrict withdrawal of this amount. When cheque is cleared from SBP and advice of SBP is received in the branch about payment, the control is uplifted and the amount can be withdraw now. This process usually takes place about two to three working days. Making payment Current account

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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 employee such deposits. Saving account Savings Deposits account can be opened with very small amount of money, and the depositor is issued a cheque book for withdrawals. Profit is paid at flexible rate calculated on six-month 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 the amounted 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. Cheque Payments The customer gives check at the counter and check it carefully examined. I was told by the junior officer there that the first thing to observe name of the bank and the branch name of the bank. Only cheques which are of NBP of Urdu Bazar branch are considered for payment at counter. If cheque is drawn on another bank. It can be deposited along with deposit slip only if customer has an account with NBP Urdu Bazar, this cheque is sent to SBP through NIFT for clearance. After verifying the bank and branch Name, Date is observed. The cheque should not be post dated cheque neither it should be more than six-month old. Then I was told to check the amount written in words and in figures. Both should be in accordance with each other. Any cutting or overwriting must be signed in full by the customer. Then through computer information system the account number is checked and balance is observed. Then I was told to check the payees account stamp (if stamped) bearer and non-bearer crossings etc. After that balance of amount is checked if amount is present then check will be sent to CD in charge who is on the duty of verifying the checks signatures with given cards signatures and then pass it to the cash section where I was told to watch the verification sign of in charge and then I was to pay the amount written in the cheques. Then I have to write the denomination of currency notes paid along with their respective quantity at the back of cheque. In this way Cheque clears and payment is made to customer. Cheque Cancellation The cheque can be cancelled for any of the following reasons; Post dated cheque

31

Stale cheque (validity of cheque is for six months form the date written on cheque) Warn out cheque Wrong signatures etc.

Government receipt and payment Almost all types of Government receipts i.e. Taxes, Traffic Challans, Revenue receipts, Abyana, Agriculture Tax, public service commission fees, EOBI funds and utility bills are deposited. The amounts received along with the name of depositor are written on a scroll. In utility bills the customer number is written. Every scroll is carbon copied. I worked there for about a week. Different scrolls are maintained for different categories of receipts. Some of these categories are central government receipts. Provincial government receipts, Traffic challans, property tax, electricity bill, gas bills, phone bills, etc. Every scroll paged is totaled at the end and this total is carried forward to the next page. Then at the end of the day all the scrolls are totaled and tallied with the cash. The challans and slips along with the original scroll are sent to the NBP main branch Gujranwala. NBP is earning 0.015% of the amount received as commission from the government so it is not only helping in revenue earning of government but also earning a handsome amount of commission on amounts deposited. Similarly many kinds of government payments are also made through NBP. Most significant payment is pension payment. Other payments includes salary payments to government servants, Zakat payment, grants, Treasury pay orders in favor of banks account holder, treasury refunds and tax refunds etc. Pension payment is made at appearance of original pensioner. In order to get payment the pensioner has to fill pension payment form. His/her Original pension book and original CNIC should be presented before the officer who will check the pension record registered. He will verify that the pensioner is original and will tally his/her signs with record after verification the officer will sign on the filled form that will act as cheque and cash payment is made to the pensioner. I assisted verification process of pensioner for a few days. Advances Department 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 customer at low rate of interest and makes advances at a higher rate of interest to the individuals and business firms. Credit extensions are higher rate of interest to the individuals and firms. Credit extensions are 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.

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I worked there as assistant for three weeks. It is a very vast field and a lot is there to learn. As it is a very sensitive issue so I was mostly assisting others in the work. Most of the work done was under strict observation of my superiors. I was assigned different tasks like checking form and documents for their accuracy and completion, verifying the CNIC of the borrower, maintaining records are corresponding with the borrowers. My observation of this department at this department is given in the following paragraphs. The advances department at NBP Urdu Bazar branch consists of two main Sub-deparments i.e. Retail and Commercial. Any individual or company, who wants loan from NBP, first of all has to undergo the filling of a prescribed from, which provides the following information to the banker.

Name and address of the borrower Existing financial position of a borrower at a particular branch Accounts details of other banks (if any) Security against loan Exiting financial position of the company (Balance Sheet & Income Statement) 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.

Principles of Advances There are few principles, which must be duly observed while advancing money to the money to the borrowers. Safety Character Capacity Capital Liquidity Dispersal Remuneration Suitability Safety Bankers funds comprise mainly of money borrowed form numerous customers on various accounts such as Current Account, Savings Bank Account, Call Deposit Account, Special Notice and Account and Fixed Deposit Account. It indicates that whatever money the banker holds is that of his customers who have entrusted the banker

33

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 the 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 advance allowed by him. Character It is 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.

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. 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. 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 be 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 the 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

34

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 banker must adhere to the consideration of the principles of liquidity very careful. 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 project and various other financial concerns in order of priorities. Dispersal of advance 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.

Remuneration A major portion of the bankers earning come form the interest charged on the money borrowed by the customers. The banker needs sufficient earnings to meet the following: Interest payable to the money deposited with him. Salaries and fringe benefits payable to the staff members. Overhead expense and depreciation and maintenace of the fixed assets of the bank. An adequate sum to meet possible losses Provisions for a reserve fund to meet unforeseen contingencies Payment of dividends to the shareholders Suitability The word suitability is not to be taken in its usual literary sense but in the broader sense of purpose. 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 pains 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. Forms of Loans In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the form of cash finance, overdrafts and loan. NBP provided advances to different people in different ways as the case demand. Cash Finance 35

This is 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. 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.

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. 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.

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Structure of Finance Department

a Departmental hierarchy

Branch Manager

Retail Officer b

Credit Officer

Numbers of employees Total No. of employee is 3 in Finance Department. There is one Retail Officer at Branch and there are two Credit Officers. c Finance and Accounting Operations Finance and Accounting operation are operated with the help of subordinate staff Bank is financing in multiple sectors.

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Functions of the Finance Department

Finance Department performs following functions. Borrowing from State Bank of Pakistan. Lending to Commercial Banks. Lending to Investors. Lending to General Public for multi-business. a Accounting system of the organization Accounting system of the bank through specialized banking software was well equipped with Information Technology. The staff was sufficiently trained to perform functions on their own using computers. The staff was very happy to have this system as they told that it has made the things lot easier then the before manual accounting system. Thus through this integrate software the finance department was able to carry out their operations in a very smooth way. b Finance system of the organization Finance system of the bank where I done my I internship is mixed and complicated because being government bank, bank deals with all kind of lending and investing activities and also hold down the cash position of others financial institutions i.e. Banks like MCB, UBL, and ABL etc. c Use of electronic data in decision making The branch where I have got training was not using very good Information Technology environment. With all data integration the management was in position to sit and generate reports of various kinds. The decisions were made based on these reports and the electronic data was analytically used to see the progress of the employee and also the overall branch. Use of IT along with proper training can help the management a great deal in their decision making process. In this branch although the management was not trained enough to use the computers and the software but they were getting benefits from electronic data and was using them in decision making process. d Sources of funds

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Fund generation of the branch is depositing, receiving interest on lending money to various sectors, advances from other financial institutions. e Allocation of funds Bank allocates funds according to the instructions of the senior management or main branch.

Critical Analysis
To evaluate a firms financial condition and performance, the financial analyst needs to perform checkups on various aspects of a firms financial health. For this purpose they analyze the financial statements of the firm. Financial statement analysis can be further categorized. HORIZONTAL ANALYSIS VERTICAL ANALYSIS RATIO ANALYSIS Horizontal Analysis Horizontal analysis is done subtracting the current year amount form previous year amount and then. The result amounts are then divided by pervious year amount and multiply the result with 100. This is used to compare whether a particular item has increased or decreased. I have used two years financial statements data year ending 2008 and 2009 compared each

39

HORIZONTAL ANALYSIS of Balance Sheet National Bank of Pakistan 2010-2009 2010 (Rs. In million) Assets Cash and balance with treasury banks Balance with banks Lending to the financial institution Investment Advancement Operating fixed assets Deferred assets Other assets Total Liabilities Bills payable Borrowings Deposits Liabilities against assets Other liabilities Net assets Presented by Share capital 115.44 30.38 23.02 301.323 477.506 26.88 6.95 53.49 1035 8 20.1 832.151 0.1 46.16 906.528 128.495 13.45 2009 (Rs. In million) 115.82 28.40 19.58 217.643 475.243 25.15 3.06 59.31 944.233 10.62 45.27 726.465 0.042 42.26 824.676 119.556 10.76 Change= Change/previous Current year- year*100 previous year (0.38) 1.98 3.44 83.68 2.263 1.73 3.89 (5.82) 90.76 (2.62) (25.17) 105.486 0.058 3.9 81.85 8.9 2.69 (0.33%) 6.97% 17.56% 38.44% 0.47% 6.87% 1.27% (0.09%) 0.1% (0.24%) (0.55%) 0.15% 1.38% 0.07% 0.1% 0.07% 0.25% 40

Reserves Inappropriate profit Surplus of revaluation of assets Total

24.45 65.85 103.762 24.73 128.495 1035

22.68 61.35 94.79 24.76 119.556 944.233

1.77 4.5 8.97 (0.03) 8.9 90.76

0.08% 0.07% 0.094 (0.001%) 0.07% 0.1%

HORIZONTAL ANALYSIS of Income Statement National Bank of Pakistan 2010-2009 2010(Rs. In Million) Interest earned Interest expense Interest income Provision against nonperforming Value of investment Provision against balance sheet obligation Operating expense Interest income after provision Fee, commission Dividend income Income from foreign currency Gain on sale Investment 88.47 (45.25) 43.22 (7.01) (2.95) (0.003) (11.04) (0.6) (0.02) 2009 (Rs. In million) 77.94 (39.48) 38.46 %Change 0.14% 0.15% 0.12%

(9.96) 33.25 9.63 1.09 2.21 2.51 0.006 8.93 1.92 3.02 4.59 0.002

(11.66) 26.8

(0.15%) 0.24%

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classified Other income Interest income Administrative Write off Other charges Interest expense Profit before tax Tax-current Per year Deferred Profit after tax Inappropriate profit Revaluation of fixed assets Profit

2.17 17.63 50.88 (26.2) (0.14) (0.11) (26.46) 24.41 9.8 (0.9) (2.04) (6.85) 17.56 60.69 0.11 78.37

0.55 19.01 45.81 (22.57) (0.62) (0.32) (23.51) 22.3 (9.22) 4.13 0.99 (4.08) 18.22 52.45 0.12 70.79 0.1% 0.7% (0.03%) 0.12% 0.09% (0.07%) 0.11%

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Vertical Analysis
It is a technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100. The total used by the analyst on the balance sheet it is total assets assigned 100%. While on the Income Statement is sale assigned 100%. VERTICAL ANALYSIS BALANCE SHEET of NBP as at December 31, 2010. Amount (Rs.000) Percentage Assets Cash and Balance with 115,442,360 11.15% other treasury banks Borrowing with other banks 30,389,664 2.94% Lending to the financial 23,025,156 2.23% institution Investments 301,323,804 29.11% Advances 477,506,564 46.13% Operating fixed assets 26,888,226 2.6% Deferred tax assets 6,952,666 0.67% Other assets 53,496,240 5.17% Total 1,035,024,680 100% Liabilities Bills payable 8,006,631 0.77% Borrowings 20,103,591 1.94% Deposit and other accounts 832,151,888 80.4% Liabilities against assets 106,704 0.01% Other liabilities 46,160,038 4.46% 906,528,852 87.6% Net assets 128,495,828 12.41% Presented By Share Capital 13,454,628 1.3% Reserves 24,450,244 2.36%

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Inappropriate profit Surplus on revaluation assets Total

65,857,438 103,762,310 24,733,518 128,495,828 1,035,024,680

6.36% 10.02% 2.4% 12.41% 100%

VERTICAL ANALYSIS BALANCE SHEET of NBP as at December 31, 2009. Amount (Rs.000) Percentage Assets Cash and balance with other treasury banks Balance with other banks Lending to the financial institution Investments Advances Operating fixed assets Deferred tax assets Other assets Total Liabilities Bills payable Borrowings Deposits and other accounts Liabilities against assets Other liabilities Net assets Presented By Share Capital Reserves Inappropriate profits Surplus on revaluation of assets

115,827,868 28,405,564 19,587,176 217,642,822 475,243,431 25,147,192 3,062,271 59,316,438 944,232,762 10,621,169 45,278,138 726,464,825 42,629 42,269,623 824,676,384 119,556,378 10,763,702 22,681,707 61,346,510 94,791,919 24,764,459 119,556,378

12.26% 3% 2.07% 23.04% 50.33% 2.66% 0.32% 6.28% 100% 1.12% 4.8% 77% 0.004% 4.47% 14.49% 12.66% 1.13% 2.4% 6.49% 2.62% 12.66%

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Total

944,232,762

100%

VERTICAL ANALYSIS BALANCE SHEET of NBP as at December 31, 2008. Amount (Rs. 000) Percentage Assets Cash and balance with treasury banks Balance with other banks Lending to the financial institution Investment Advances Operating fixed assets Deferred tax assets Other assets Total Liabilities Bills payable Borrowings Deposit and other accounts Liabilities against assets Other liabilities Net Assets Presented by Share Capital Reserves Inappropriate profit Surplus on revaluation of assets

106,503,756 38,344,608 17,128,032 170,822,491 412,986,865 24,217,655 3,204,572 44,550,347 817,758,326 10,219,061 40,458,926 624,939,016 25,274 39,656,831 715,299,108 102,459,218 8,969,751 19,941,047 52,456,204 81,367,002 21,092,216

13.02% 4.69% 2.09% 20.9% 50.5% 2.96% 0.39% 5.45% 100% 1.25% 4.95% 76.42% 0.003% 4.85% 87.47% 12.53% 1.09% 2.44% 6.41% 9.95% 2.58%

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Total

102,459,218 817,758,326

12.53% 100%

Vertical Analysis Balance Sheet of NBP as at December 31, 2007. Amount (Rs.000) Percentage Assets Cash and balance with other treasury banks Balance with others banks Lending to the financial institutions Investment Advances Operating fixed assets Deferred tax assets Other assets Total Liabilities Bills payable Borrowings Deposit and others accounts Liabilities against assets Deferred tax liabilities Other liabilities Net assets Share Capital Reserve Inappropriate profit Surplus on revaluation of assets

94,873,249 37,472,832 21,464,600 211,146,038 340,318,930 25,922,979 30,994,965 762,193,593 7,061,902 10,815,176 591,907,435 33,554 5,097,831 30,940,041 645,855,939 116,337,654 8,154,319 15,772,124 45,344,188 69,270,631 47,067,023

12.44% 4.91% 2.81% 27.7% 44.64% 3.4% 4.06% 100% 0.92% 1.41% 77.65% 0.004% 0.66% 4.05% 84.73% 15.26% 1.06% 2.06% 5.94% 9.08% 6.17%

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Total

116,337,654 762,193,593

84.73% 100%

VERTICAL ANALYSIS INCOME STATEMENT of NBP as at December 31, 2010. Amount (Rs.000) Interest earned Interest expense Interest income Provision against non- performing advance Value of investment Provision against balance sheet obligation Operating expenses Interest income after provision Fee commission Divided income Income from foreign currency Gain of sale Investment classified Other income Interest income Administrative expense Write off Other charges Interest expense Profit before tax Tax-current 88,472,134 (45,250,476) 43,221,658 (7,011,046) (2,954,678) (3,965) (9,969,689) 33,251,969 9,631,579 1,099,493 2,211,139 2,512,363 6,730 2,171,336 17,632,640 50,884,609 (26,202,577) (148,026) (118,887) (26,469,490) 24,415,119 9,835,048 28% 58% 11% 38% 100% 51% 49%

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Prior year Deferred Profit after tax Inappropriate profit Revaluation of fixed assets Profit available for appropriation

(939,256) (2,043,887) (6,851,905) 17,563,214 60,696,510 117,738 78,377,462 20%

89%

VERTICAL ANALYSIS INCOME STATEMENT of NBP as at December 31, 2009. Amount(Rs.000) Interest earned Interest expense Interest income Provision against non-performing advances Value of investment Provision against balance sheet obligation Operating expense Interest income after provision Fee commission Dividend income Income from foreign currency Gain on sale Investment classified Other income Interest income Administrative expense Write off Other charges Interest expense Profit before tax Tax-current 77,947,697 (39,689,649) 38,458,048 (11,043,469) (605,629) (20,237) (11,669,335) 26,778,713 8,930,939 1,920,336 3,028,165 4,591,894 2,355 552,216 19,025,357 45,814,070 (22,571,470) (620,780) (321,647) (23,513,897) 22,300,173 9,221,513 30.16% 28.6% 24.4% 58.77% 14.97% 34.36% 100% 50.91% 49.33%

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Prior year Deferred Profit after tax Inappropriate profit Revaluation of fixed assets Profit available for appropriation

(4,133,282) (999,904) (4,088,327) 18,211,846 52,456,204 123,934 70,791,984 23.36%

90.81%

VERTICAL ANALYSIS INCOME STATEMENT of NBP as at December 31, 2008. Amount (Rs. 000) Interest earned Interest expense Interest income Provision against non-perfuming advance Value of investment Provision against balance sheet obligation Operating expense Interest income after provision Fee commission Dividend income Income from foreign currency Gain on sale Investment classified Other income Interest income Administrative expense Write offs Other charges Interest expense Profit before tax 60,942,798 (23,884,768) 37,058,030 (10,593,565) (373,249) (4,000) (10,970,814) 26,087,216 7,925,370 2,878,932 3,969,057 395,427 1,707 1,245,369 16,415,862 42,503,078 (18,171,198) (747,521) (583,361) (19,502,080) 23,000,998 32% 37.7% 27% 70% 18% 42.8% 100% 39.19% 60.81%

49

Tax-current Deferred Profit after tax Inappropriate profit Revaluation of fixed assets Profit available for appropriation

(11,762,650) 4,220,242 (7,542,408) 15,458,590 45,344,188 130,456 60,933,234 99.98% 25.36%

Vertical Analysis
Income statement of NBP as at 31 December, 2007. Amount (Rs000) Interest earned Interest expense Interest income Provision against non-performing advances Value of investment Bad debts Operating expense Interest income after provision Fee commission Dividend income Income from foreign currency Gain on sale Investment classified Other income Interest income Administrative expense Write offs Other charges Interest expense Profit before tax Current 50,569,481 (16,940,011) 33,629,470 4,723,084 (40,248) 39,899 (4,722,735) 28,906,735 6,781,683 3,263,246 1,042,827 2,341,690 (31,964) 147,363 13,544,845 42,451,580 (14,205,911) (168,027) (17,141) (14,391,079) 28,060,501 831,1500 28.45% 55.48% 26.78% 83.95% 9.33% 57.16% 100% 33.5% 66.5%

50

Prior Deferred Profit after tax Inappropriate profit Revaluation of fixed assets Profit available for appropriation

391,497 323,731 (9,026,728) 19,033,773 3,074,677 39,007 51,147,457 37.63%

101.14%

Ratio Analysis Ratio analysis is the measurement of company financial health by using its current financial statements. Ratio analysis is vary help full for investors how want to invest in a particular firm especially when compare year by year. Liquidity Ratio Liquidity ratios measure a firms ability to meet its current obligation. These include: Current Ratio Quick Ratio Working Capital Sales to Working Capital Current Ratio Current ratio shows the company strength to pay back its short term obligation by using its short term assets. We can say that current ratio shows the liquidity of firm. Ratio less then 1 is normally unfavorable. But does not mean that company is going to bankrupt. Company shows that its current ratio is becoming efficient year by year which mean that company is improving in current assets management. Current Ratio = Current Assets/ Current Liabilities Current assets Cash and balance with treasury bank Balance with other banks Lending to the financial assets Total Year 2010 115,442,360 30,389,664 23,025,156 168,857,180 Year 2009 115,827,868 28,405,564 19,587,176 163,820,608 Year 2008 106,503,756 38,344,608 17,128,032 161,976,396

51

Current liabilities Bills payable Borrowings Total Current Ratio Year 2010 2009 2008

Year 2010 8,006,631 20,103,591 28,110,222

Year 2009 10,621,169 45,278,138 55,899,307

Year 2008 10,219,061 40,458,926 50,677,987

Current Assets 168,857,180 163,820,608 161,976,396

Current Liabilities 28,110,222 55,899,307 50,677,987

Calculation Year 2010 2009 2008 Current ratio 2010 6 2009 2.93 2008 3.19

Working 168,857,180/28,110,222 163,820,608/55,899,307 161,976,396/50,677,987

Answer 6 2.93 3.19

2008

3.19

2009

2.93

1 2000

2010 2005 2010

6 2015 2020

Interpretation The graph shows that the number of years and the current ratio moves in opposite direction. The higher the ratio the higher the confidence to investors and financial institutions which give the lone to NBP. Quick Ratio This ratio serves as a supplement to the current ratio in analyzing liquidity. This ratio is the same the current ratio except that it excludes inventories.

52

The normal ratio is 1:1 i.e. quick assets should be equal to current liabilities. It should be noted that quick ratio measures immediate liquidity. Quick Ratio = Current assets Inventories prepaid expenses/ Current Liabilities Quick Ratio Year 2010 2009 2008 Current Assets 168,857,180 163,820,608 161,976,396 Inventories 23,025,156 19,587,176 17,128,032 Current Liabilities 28,110,222 55,899,307 50,677,987

Calculation Year 2010 2009 2008

Working 168,857,18023,025,156/28,110,222 163,820,60819,587,176/55,899,307 161,976,39617,128,032/50,677,987

Answer 5.2 2.58 2.85

So, Inventories in this case mean the lending to the financial institutions. Quick Ratio 2010 5.2 2009 2.58 2008 2.85

2008

2.85

2009

2.58

1 2004

2010 2006 2008 2010

5.2 2012 2014 2016

Interpretation

53

The high liquidity ratio indicates that the company has invested more in liquid assets and shows the strength of company to pay its current obligations in time as and when they due. A low liquidity ratio represents that the firms liquidity position is not good or the firm has not so much liquid assets to pay its current liabilities as and when they due. This graph shows that the NBP is very good liquidity position, its shows NBP is paying its current obligations in time. Working Capital Working Capital shows the liquidation of a firm or we can say that how much amount remaining in the hand of a organization after paying all its short term loans. Working capital is the relationship of current assets minus current liabilities. This measures the short term solvency position of the company. Working Capital = Current Assets Current Liabilities Working Capital Year 2010 2009 2008 Calculation Year 2010 2009 2008 Working Capital 2010 2009 2008

Current Assets 168,857,180 163,820,608 161,976,396 Working 168,857,180-28,110,222 163,820,608-55,899,307 161,976,396-50,677,987 140,746,958 107,921,301 111,289,409

Current Liabilities 28,110,222 55,899,307 50,677,987 Answer 140,746,958 107,921,301 111,289,409

54

3 2008

111,289,40 9 107,921,30 1 140,746,95 8 50000000 100000000 150000000

2 2009

1 2010 0

Interpretation The Positive Working Capital gives detail that the firm has more assets against Liabilities while Negative Working Capital shows that company is not in a position to pay its Current Liabilities as and when they occur. This graph shows that the huge amount pledges in current assets in past but with passing year it become excellent. So all year of the NBP is still quite liquid. Sales to Working Capital This ratio shows how much amount an organization needs to finance at certain level of sale because there are two items in working capital that effect the sale. A sale to Working Capital ratio is the relationship of net Sales and Working Capital of the company. The ratio interprets how company is generating revenue/ sale to the extent it injected the positive figure of working capital. So, that it can meet the payoff requirement of the current liabilities. Sales to Working Capital = Sales/ Working Capital Sales to Working Capital Year 2010 2009 2008 Calculation Year 2010 2009 2008 Sales 88,472,134 77,947,697 60,942,798 Working 88,472,134/140,746,958 77,947,647/107,921,301 60,942,798/111,298,409 Working Capital 140,746,958 107,921,301 111,298,409 Answer 0.63 0.72 0.55

Interest earned is represented by the sales. Sales to Working Capital 2010 0.63 2009 0.72

55

2008

0.55

2008

0.55

2009

0.72

1 2006 2007

2010 2008 2009

0.63 2010 2011

Interpretation This ratio also helps the management to meet the sales target & to mange the debtors and inventories of the business. The graph shows that the number of year and the Sale to Working Capital moves in the same direction. If NBP want to increase its sale in future it should increase it inventory and Receivable as well which affect the working capital.NBP is good in this field.

Leverage Ratios Leverage ratios measure the degree of protection of suppliers of long term funds. These include: Time Interest Earned Debt Ratio Equity Ratio Debt to Equity Ratio Debt to Tangible net worth Current worth to tangible net worth Total Capitalization ratio Fixed to Total shareholders equity Long term assets versus long term debts Time Interest Earned Times Interest Earned ratio indicates the ability of firm to meet the interest payments on outstanding debt. 56

Time interest earned indicates that whether the business the earned sufficient profits to pay its periodical interest liabilities. This ratio has much importance for financial institutions and loan providers. This indicates the number of times interest is covered by the profits available to pay interest charges. Time Interest Earned = EBIT/ Interest Expense Debt Ratio Debt ratio shows the amount of total assets which are financed from debt. Debt Ratio = Total debt/ Total assets So, Total Liabilities are Total Debt. Total Debt Bills payable Borrowings Deposits and other accounts Liabilities against assets Other liabilities Total Year 2010 8,006,631 20,103,591 832,151,888 106,704 46,160,038 906,528,852 Year 2009 10,621,169 45,278,138 726,464,825 42,629 42,269,623 824,676,384 Year 2008 10,219,169 40,458,926 624,939,016 25,274 39,656,831 715,299,108

Debt Ratio Year 2010 2009 2008 Calculation Year 2010 2009 2008 Debt Ratio 2010 2009 2008 Total debt 906,528,852 824,676,384 715,299,108 Working 906,528,852/1,035,024,680 824,676,384/944,232,762 715,299,108/817,758,326 Total assets 1,035,024,680 944,232,762 817,758,326 Answer 87.6% 87.33% 87.47%

87.6% 87.33% 87.47%

57

2008

87.47%

2009

87.33%

1 2006 2007

2010 2008 2009

87.60% 2010 2011 2012

Interpretation The graph shows that the High ratio high the leverage of the organization. In our case the NBP increasing its debt obligation with time and all the years very high leverage. Equity Ratio Equity ratio is a financial ratio representing the relative proportion of equity to all used to finance a companys assets. Equity Ratio = Equity / Total Assets*100 Total shareholders equity Share capital Reserves Inappropriate profit Surplus on revaluation of assets Total Year 2010 13,454,628 24,450,244 65,857,438 24,733,518 128,495,828 Year 2009 10,763,702 22,681,707 61,346,510 24,764,459 119,556,378 Year 2008 8,969,751 19,941,047 52,456,204 21,092,216 102,459,218

Equity Ratio Year 2010 2009 2008 Calculation Year 2010 2009 2008 Equity Ratio 2010 12.41% 2009 12.67% 2008 12.53%

Total Equity 128,495,828 119,556,378 102,459,218 Working 128,495,828/1,035,024,680*10 0 119,556,378/944,232,762*100 102,459,218/817,758,326*100

Total Assets 1,035,024,680 944,232,762 817,758,326 Answer 12.41% 12.67% 12.53%

58

2008

12.53%

2009

12.67%

1 2006 2007

2010 2008 2009

12.41% 2010 2011

Interpretation Its shows the portion of assets which are financed by equity. In our case of NBP increasing its assets by financing them form lone and decreasing equity portion to finance its assets. Debt to Equity Ratio Debt to equity ratio indicates that the relationship between the external equities or outsider funds and the internal equities or shareholders funds. It is also known as External Internal equity ratio. It is determined to ascertain soundness of the long term financial policies of the company. Simply, dividing by total liabilities by equity we get debt to equity ratio.

Debt: Equity Debt to equity ratio Year 2010 2009 2008 Calculation Year 2010 2009 2008 Debt to Equity ratio 2010 87.6:12.41 Debt ratio 87.6% 87.33% 87.47% Working 87.6:12.41 87.3312.67 87.47:12.53 Equity ratio 12.41% 12.67% 12.53% Answer

59

2009 87.33:12.67 2008 87.47:12.53 Interpretation If the ratio decreases over the year it sounds good, its happening might be due to the continues payment of long term debt of the company or increase in equity of the shareholders. The debt to equity ratio is used to measuring solvency and researching the Capital Structure of a company. The table shows that the high debt to equity ratio that NBP is more aggressive to finance its assets from lone and in our calculation it is clear that out target organization debt to equity ratio is increasing with time and is more aggressive toward debt. Debt to Tangible Net worth Tangible net worth is equal to total assets minus total liabilities. In this ratio total debt is divided by the tangible net worth we get debt to tangible net worth. Tangible net worth = Total assets Total liabilities Debt to tangible net worth = Total debt/tangible net worth Tangible net worth Year 2010 2009 2008 Calculation Year 2010 2009 2008 Total Assets 1,035,024,680 944,232,762 817,758,326 Working 1,035,024,680-906,528,852 944,232,762-824,676,384 817,758,326-715,299,108 Total Liabilities 906,528,852 824,676,384 715,299,108 Answer 128,495,828 119,556,378 102,459,218

So, the total debt is equal to the total liabilities. Debt to tangible net worth Year 2010 2009 2008 Calculation Year 2010 2009 2008 Debt to tangible net worth Total debt 906,528,852 824,676,384 715,299,108 Working 906,528,852/128,495,828 824,676,384/119,556,378 715,299,108/102,459,218 Tangible net worth 128,495,828 119,556,378 102,459,218 Answer 7.05 6.89 6.98

60

2010 2009 2008

7.05 6.89 6.98

2008

6.98

2009

6.89

1 2000

2010 2005 2010

7.05 2015 2020

Interpretation Its indicating that the company may be overleveraged, and should look for ways to reduce its debt. These ratios are very closely watched by creditors and investors, because it reveals the extent to which company management is willing to fund its operations with debt. Since, an excessively high ratio of debt to tangible net worth will put their loans at risk of not being repaid. This graph is like that the previous graph, which shows that the high debt to equity ratio. Current worth to tangible net worth Ratio The current worth is equal to the current assets minus current liabilities. In this ratio current worth divided by the tangible net worth. We get the current worth to tangible net worth ratio. Current worth = Current Assets Current liabilities Current worth to tangible net worth = Current worth/tangible net worth Current worth Year 2010 2009 2008 Calculation Year 2010 2009 2008 Current Assets 168,857,180 163,820,608 161,976,396 Working 168,857,180-28,110,222 163,820,608-55,899,307 161,976,396-50,677,987 Current Liabilities 28,110,222 55,899,307 50,677,987 Answer 140,746,958 107,921,301 111,289,409

61

Current worth to tangible net worth Year Current worth 2010 140,746,958 2009 107,921,301 2008 111,289,409 Calculation Year Working 2010 140,746,958/128,495,828 2009 107,921,301/119,556,378 2008 111,289,409/102,459,218 Current worth to tangible net worth 2010 2009 2008

Tangible net worth 128,495,828 119,556,378 102,459,218 Answer 1.1 0.9 1.08

1.1 0.9 1.08

2008

1.08

2009

0.9

1 2006 2007

2010 2008 2009 2010

1.1 2011 2012

Total Capitalization Ratio Capitalization ratio shows that the capital structure, that indicate the how much debt and how much the equity of the organizations investment. In the simple words the mixture of debt and equity. Total capitalization Ratio = Long term debt/ (long term debt + total shareholders equity) Long term debt Deposits and other accounts Liabilities against assets Other liabilities Total Total capitalization ratio Year 2010 832,151,888 106,704 46,160,038 878,418,630 Year 2009 726,464,825 42,629 42,269,623 768,777,077 Year 2008 624,939,016 25,274 39,656,831 664,621,121

62

Year 2010 2009 2008 Calculation Year 2010 2009 2008 Total capitalization ratio 2010 0.87 2009 0.86 2008 0.91

Long term debt 878,418,630 768,777,077 664,621,121 Working 878,418,630/1,006,914,458 768,777,077/888,333,455 664,621,121/727,080,939

Long term debt + Total shareholders equity 878,418,630 + 128,495,828 = 1,006,914,458 768,777,077 + 119,556,378 = 888,333,455 664,621,121 + 102,459,218 = 727,080,339 Answer 0.87 0.86 0.91

2008

0.91

2009

0.86

1 2006 2007

2010 2008 2009

0.87 2010 2011 2012

Interpretation The graph shows that the NBP increasing its debt and now the mixture is really doubt full because at the end of 2009 & 2010 more than companys total investment. Fixed Asset to shareholders equity In this ratio fixed assets is divided by the total shareholders equity. We get the fixed asset to shareholders equity ratio. Fixed Asset to shareholders equity = Fixed Assets/ Total shareholders equity Fixed Assets Investment Advances Operating fixed assets Deferred assets Year 2010 301,323,804 477,506,564 26,888,26 6,952,666 Year 2009 217,642,822 475,243,431 25,147,192 3,062,271 Year 2008 170,822,491 412,986,865 24,217,655 3,204,572

63

Other assets Total

53,496,240 866,167,600

56,316,438 740,412,154

44,550,347 655,781,930

Fixed Assets to shareholders equity Year Fixed Assets 2010 866,167,600 2009 740,412,154 2008 655,781,930 Calculation Year Working 2010 866,167,600/128,495,828 2009 740,412,154/119,556,378 2008 655,781,930/102,459,218 Fixed assets to shareholders equity 2010 6.7 2009 6.19 2008 6.4

Total shareholders equity 128,495,828 119,556,378 102,459,218 Answer 6.7 6.19 6.4

2008

6.4

2009

6.19

1 2000

2010 2005 2010

6.7 2015 2020

Interpretation This graph shows that the amount of assets financed by debt in NBP case more assets are financed by debt in 2010 as compared to 2009 & 2008. Long term Assets versus Long term Debt So, the long term assets are the fixed assets. This ratio shows the relationship between long term debts to long term assets. Long term assets versus long term debt = Fixed assets/ long term debt Long term assets are the fixed assets. Long term asset versus long term debt Year Fixed assets Long term debt

64

2010 2009 2008 Calculation Year 2010 2009 2008

866,167,600 740,412,154 655,781,930 Working 866,167,600/878,418,630 740,412,154/768,777,077 655,781,930/664,621,121

878,418,630 768,777,077 664,621,121 Answer 1 0.96 0.98

Long term asset versus long term debt 2010 0.99 2009 0.96 2008 0.98

2008

0.98

2009

0.96

1 2006 2007

2010 2008 2009 2010

0.99 2011 2012

Interpretation The graph shows that the numbers of years are moving smoothly and the values are up and down. Its also state the how much the long term assets are pledge aging long term debt. Profitability Ratios Profitability ratios measure the earning ability of the organization. These include: Net Profit Margin Return on Assets DuPont Return on Assets Operating income margin Operating assets turnover Return on operating assets Sales to Fixed assets Return on Investments Return on Equity Gross profit margin Net Profit Margin 65

This is the ratio of net profit after taxes to net sales. This is used to measure the overall profitability of the company and is very useful to proprietors. The profit margin tells us how much profit a company makes for every Rupee it generates in revenue. The ratio is very useful as it the net profit is not sufficient, an organization shall not be able to achieve a satisfactory return on its investment. This ratio also indicates the organizations capacity to face adverse economic conditions such as price competition, low demanding. Net profit margin = Net profit/sales*100 Net profit margin Year 2010 2009 2008 Calculation Year 2010 2009 2008 Net profit 78,377,462 70,791,984 60,933,234 Sales 88,472,134 77,947,697 60,942,798

Working 78,377,462/88,472,134*100 70,791,984/77,947,697*100 60,933,234/60,942,798*100

Answer 88.6% 90.81% 99.98%

Where Net profit or net income is the profit available for appropriation. Sales are the interest earned. Net profit margin 2010 88.6% 2009 90.81% 2008 99.98%

2008

99.98%

2009

90.81%

1 2006 2007

2010 2008 2009

88.60% 2010 2011 2012

Interpretation The graph shows that higher the ratio is better profitability.

66

In case of NBP the ratio indicates the 88.6%, 90.81%, & 99.98% respectively years. Net profit of the organization as compared to its sales. The organization is having available profit on sales of every unit. Now company is able to determine the amount of dividends, reserves to be set. Return on Assets The sales to fixed asset ratio is the measurement of the assets utilization to produce the revenue of the business. The ratio could be calculated by dividing the revenue of the company with fixed assets. The ratio depicts that is the company utilizing its assets efficiently or not higher the ratio means that the firm is obtaining the optimum level of production the lower the ratio means that firm is not managing the assets in an efficient manner. Return on Assets = Net income / total assets*100 So, the net profit is the net income. Return on Assets Year 2010 2009 2008 Calculation Year 2010 2009 2008

Net Income or net profit 78,377,462 70,791,984 60,933,234 Working 78,377,462/1,035,024,680*100 70,791,984/944,232,762*100 60,633,234/817,758,326*100

Total assets 1,035,024,680 944,232,762 817,758,326 Answer 7.6% 7.5% 7.4%

Return on Assets 2010 7.6% 2009 7.5% 2008 7.4%

67

2008

7.40%

2009

7.50%

1 2006 2007

2010 2008 2009

7.60% 2010 2011

Interpretation The graph shows the investors and the lenders use this ratio to measure the production capacity and the effective management of the assets of the company. This ratio is often used as a measure, where the major purchases are made for fixed assets to help increase output. When the companies make these large purchases, prudent investors watch this ratio in following years to see how effective the investment in the fixed assets was. In case of NBP, it is earning 7.6%, 7.5% & 7.4% respectively the year by year that return after utilizing its resources or assets efficiently. DuPont Return on Assets We can calculate DuPont analysis just because of the sales comparison with net income and assets. It gives us different interpretations form sales spectrum. DuPont Return on Assets = (Net income / Sales) * (Sales/ Total Assets) = net profit margin * total assets turnover Total assets turnover = Sale/ total assets Total assets turnover Year 2010 2009 2008 Calculation Year 2010 2009 2008 DuPont Return on Assets Year 2010 2009 2008 Sales 88,472,134 77,947,697 60,942,798 Working 88,472,134/1,035,024,680 77,947,697/944,232,762 60,942,798/817,758,326 Net profit margin 0.89 0.9 0.99 Total assets 1,035,024,680 944,232,762 817,758,326 Answer 0.085 0.082 0.075 Total assets turnover 0.085 0.082 0.075

68

Calculation Year 2010 2009 2008 DuPont Return on Assets 2010 7.6% 2009 7.5% 2008 7.4%

Working 0.89*0.085*100 0.9*0.082*100 0.99*0.075*100

Answer 7.6% 7.5% 7.4%

2008

7.40%

2009

7.50%

1 2006 2007

2010 2008 2009

7.60% 2010 2011

Interpretation It indicates the rate which owner wealth is increasing the ratio provides measure in there of the key areas of analysis, in first portion the ratio calculate the income earned by the company against sale and in second portion the calculation of sales to total assets is measured. The multiplication of both the answers provides us the how much the company is earning in relation to total assets. Operating Income Margin The ratio is the relationship of operating income of the company divided by total revenue of the company. It is a ratio used measure a companys pricing strategy and operating efficiency. Operating margin is a measurement of what proportion of a companys revenue is left over after paying for variable costs of production such as wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed costs, such as interest on debt. Operating Income Margin = Operating Income / Sales*100 Operating Income Margin Year Operating income 2010 24,415,119 2009 22,300,173 2008 23,000,998

Sales 88,472,134 77,947,697 60,942,768

69

Calculation Year 2010 2009 2008

Working 24,415,119/88,472,134*100 22,300,173/77,947,697*100 23,000,998/60,942,768*100

Answer 27.6% 28.6% 37.74%

Where, In the Income statement the Operating Income is the profit before tax. Operating Income Margin 2010 27.6% 2009 28.6% 2008 37.74%

2008

37.74%

2009

28.60%

1 2006 2007

2010 2008 2009

27.60% 2010 2011

Interpretation The graph gives an idea of how much NBP earns (before tax) on each Rupee on sales. It provides the looking at operating margin to determine the quality of a company. The higher the margin, the better it would be. The huge decline in operating profit is due to the increase in business costs and its expenses. The NBP should manage its expense to reduce this decline. In this case, it earning 27.6%, 28.6%, & 37.74% respectively years per Rupee of sales. Operating Assets Turnover This ratio is those assets which are used in production at somehow. We see how much operating assets are used in generation of revenue. Operating Assets Turnover = Sales/operating assets*100 Operating Assets Operating fixed assets Deferred tax assets Other assets Total Year 2010 26,888,226 6,952,666 53,496,240 87,337,132 Year 2009 25,147,192 3,062,271 59,316,438 87,525,901 Year 2008 24,217,655 3,204,572 44,550,347 71,972,574

70

Operating assets turnover Year 2010 2009 2008 Calculation Year 2010 2009 2008

Sales 88,472,134 77,947,697 60,942,798

Operating Assets 87,337,132 87,525,901 71,972,574

Working 88,472,134/87,337,132*100 77,947,697/87,525,901*100 60,942,798/71,972,574*100

Answer 101% 89% 85%

Operating assets turnover 2010 101% 2009 89% 2008 85%

2008

85.00%

2009

89.00%

1 2006 2007

2010 2008 2009

101.00% 2010 2011 2012

Interpretation It shows that the excellent record in the years. We comparing total assets it is less which means that NBP is investing much amount in non productive assets. Return on Operating Assets It is simple that the Profit (after the tax) is divided by the operating assets we get the return on Operating assets. Return on Operating Assets = Profit after tax/Operating assets*100 Return on Operating Assets Year 2010 2009 2008 Calculation Profit after tax 17,563,214 18,211,846 15,458,590 Operating assets 87,337,132 87,525,901 71,972,574

71

Year 2010 2009 2008

Working 17,563,214/87,337,132*100 18,211,846/87,525,901*100 15,458,590/71,972,574*100

Answer 20.2% 20.8% 21.47%

Return on operating assets 2010 20.2% 2009 20.8% 2008 21.47%

2008

21.47%

2009

20.80%

1 2006 2007

2010 2008 2009

20.20% 2010 2011

Sales to Fixed Assets Sales to fixed assets show how much fixed assets are used to generate sale including good will and non productive assets. Sales to Fixed assets = Sales/ Fixed assets*100 Fixed assets Investments Advances Operating fixed assets Deferred assets Other assets Total Year 2010 301,323,804 477,506,564 26,888,226 6,952,666 53,496,240 866,167,500 Year 2009 217,642,822 475,243,431 25,147,192 3,062,271 59,316,438 780,412,154 Year 2008 170,822,891 412,986,865 24,217,655 3,204,572 44,550,347 655,781,930

Sales to fixed assets Year 2010 2009 2008

Sales 88,472,134 77,947,697 60,942,798

Fixed assets 866,167,500 780,412,157 655,781,930

72

Calculation Year 2010 2009 2008 Sales to fixed assets 2010 10.21% 2009 9.98% 2008 9.3%

Working 88,472,134/866,167,500*100 77,947,697/780,412,154*100 60,942,798/655,781,930*100

Answer 10.21% 9.98% 9.3%

2008

9.30%

2009

9.98%

1 2006 2007

2010 2008 2009

10.21% 2010 2011

Return on Investment Return on investment means how effectively companies using its capital for that purpose we divide net income by the total assets. Return on Investment = Net Income/Total Assets*100 Return on Investment Year 2010 2009 2008 Net income 17,563,214 18,211,846 15,458,590 Total assets 1,035,024,680 944,232,762 817,758,326

Calculation Year 2010 2009 2008

Working 17,563,214/1,035,024,680*100 18,211,846/944,232,762*100 15,458,590/817,758,326*100

Answer 1.7% 1.92% 1.89%

73

Return on investment 2010 1.7% 2009 1.92% 2008 1.89%

2008

1.89%

2009

1.92%

1 2006 2007

2010 2008 2009

1.70% 2010 2011

Return on Total Equity This is the measure of the return which shareholders are obtaining on their investments. The ratio is the relationship of net income and total equity of the shareholders. Return on Equity = Net income/ total equity*100 Return on Equity Year 2010 2009 2008 Calculation Year 2010 2009 2008 Return on Equity 2010 2009 2008 Net Income 17,563,214 18,211,846 15,458,590 Working 17,563,214/103,762,310*100 18,211,846/94,791,919*100 15,458,590/81,367,002*100 17% 19.21% 18.99% Total Equity 103,762,310 94,791,919 81,367,002 Answer 17% 19.21% 18.99%

74

2008

18.99%

2009

19.21%

1 2006 2007

2010 2008 2009

17.00% 2010 2011

Interpretation The graph shows that every business has the basic principal to serve the investor at most the higher the profit the higher the return and more will get by the shareholders of the company. This is a primary tool to measure the soundness of the business. Investors and lenders measure the strength of the business from this ratio and made their decision. The management also workout decision of the business by relying on the result of this ratio. In this case, the NBP is earning 17%, 19.21%, & 18.99% respectively the years. Gross profit margin The basic components for the computation of this ratio are gross profit and net sales. Gross profit ratio may indicate to what extent the selling prices of goods per unit may be reduced without increase losses on operations. Gross profit margin = Gross profit/Sales*100 Gross profit Interest Income Interest Income Total Gross profit margin Year 2010 2009 2008 Calculation Year 2010 2009 2008 Where Gross profit = interest income. Year 2010 43,221,658 17,632,640 60,854,298 Year 2009 38,458,048 19,025,357 57,438,405 Year 2008 37,058,030 16,415,862 53,473,892 Sales 88,472,134 77,947,967 60,942,798 Answer 68.78% 73.74% 87.74%

Gross profit 60,854,298 57,483,405 53,473,892 Working 60,854,298/88,472,134*100 57,483,405/77,947,967*100 53,473,892/60,942,798*100

75

Gross profit margin 2010 68.78% 2009 73.74% 2008 87.74%

2008

87.74%

2009

73.74%

1 2006 2007

2010 2008 2009

68.78% 2010 2011

Interpretation Higher the gross profit ratio better it is. The gross profit earned should be sufficient to recover all operating expenses and to build up reserves after paying all fixed interest charges and dividends. In case of NBP, the gross profit margin shows that NBPs earned gross profit in 2008, 2009 & 2010 respectively 87.74%, 73.74% & 68.78% of the net sales of the NBP earned.

76

Activity Ratios Activity ratios measure a firm ability to convert different accounts within their balance sheets into cash or sales. These include: Accounts Receivables Turnover Average Collection Period Accounts Payables Turnover Average Collection Period Operating Cycle Total Assets Turnover Inventory turnover Fixed Assets Turnover Accounts Receivable Turnover It shows have quickly Accounts Receivables are collected i.e. converted into cash. It is determined by Receivable Turnover Ratio (RTO). It is number of times Receivables are converted into cash during the year. Accounts Receivable Turnover = Sales / Average Accounts Receivables Average Accounts Receivable Balance Year 2010 Year 2009 with Opening + Closing/2 Opening + Closing/2 other 30,389,664+28,405,564/2 28,405,564 + 38,344,608/2 bank 58,795,228/2 66,750,172/2 29,397,614 37,908,720 Accounts Receivable Turnover Year Sales 2010 88,472,134 2009 77,947,697 2008 60,692,798 Calculation Year Working 2010 88,472,134/29,397,614 2009 77,947,697/33,375,086 2008 60,692,798/37,908,720 Accounts Receivable Turnover 2010 2009 2008 3 2.33 1.61 Year 2008 Opening + Closing/2 38,344,608 + 37,472,832/2 75,817,440/2 37,908,720

Average Accounts Receivables 29,397,614 33,375,086 37,908,720 Answer 3 2.33 1.61

77

2008

1.61

2009

2.33

1 2004 2006

2010 2008 2010

3 2012 2014

Interpretation The graph shows that the receivables are increasing with the passage of time. Its state the the how quickly NBP recover its amount form debtors. Average Collection Period The collection of accounts receivables in days is known as average collection period ratio or debtors collection period ratio. The average collection period ratio represents the average number of days in which the debtors of a firm are converted into cash. Average Collection Period = Number of days/ Accounts Receivables So, the numbers of days are 365. Average Collection Period Year 2010 2009 2008 Calculation Year 2010 2009 2008 Average Collection Period 2010 122 days 2009 157 days 2008 227 days

Number of days 365 365 365 Working 365/3 365/2.33 365/1.61

Account Receivable 3 2.33 1.61 Answer 122 days 157 days 227 days

78

227

2008

157 2009 122

1 0

2010 500 1000 1500 2000 2500

Interpretation The graph shows that the minimum the days the better it is because it reduces the chances of bad debts. It is also known as the aging of the accounts receivables. In that case is taking 157 days to collect cash from its debtors. It is point of consideration for management to quickly manage the accounts receivables and control the situation. Accounts Payable Turnover It is the ratio that indicates that how many times in a year the creditors are paid. This indicates the turnover of creditors of a company for the year. The lower the times of this ratio, it is better because the lower the times. Accounts Payable Turnover = Cost of goods sold/Average Accounts payable

Average Accounts Payables Bills Year 2010 payable Opening + Closing /2 8,006,631+10,621,169/2 18,627,800/2 9,313,900 Account Payable Turnover Year 2010 2009 2008 Calculation Year 2010 2009 2008

Year 2009 Opening + Closing /2 10,621,169+10,219,061/2 20,840,230/2 10,420,115

Year 2008 Opening+ Closing /2 10,219,061+7,061,902/2 17,280,963/2 8,640,481

Cost of goods sold 45,250,476 39,489,649 23,884,768 Working 45,250,476/9,313,900 39,489,649/10,420,115 24,884,768/8,640,481

Average accounts payables 9,313,900 10,420,115 8,640,481 Answer 4.85 3.87 2.78

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Here the interest expense is the Cost of goods sold. Accounts payables turnover 2010 4.85 2009 3.84 2008 2.78

2008

2.78

2009

3.84

1 2000

2010 2005 2010

4.85 2015 2020

Interpretation The graph shows that the NBP utilize the funds generated from business for more time in business but this reduce the worthiness of the company. While the higher the turnover in times indicates that the company is paying its credit before time which means that the NBP is not obtaining the proper benefit of the credit facilities. Average Payment Period This ratio indicates the average days in which the company payout its creditors. A high creditors turnover ratio could reduce the average payment period while the short average payment period reflects that company is paying its creditors in prompt period. In both cases the company is enhancing its worthiness but on the other sides it is not utilizing the advantage of credit facilities allowed by the creditors. Average Payment Period = Number of days/ Average accounts payables So, number of days are 365. Average Payment Period Year Number of days 2010 365 2009 365 2008 365

Average accounts payables 4.85 3.87 2.87

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Calculation Year Working 2010 365/4.85 2009 365/3.87 2008 365/2.78 Average payment period 2010 75 days 2009 95 days 2008 132 days
132

Answer 75 days 95 days 132 days

2008

95 2009 75

1 0

2010 500 1000 1500 2000 2500

Interpretation The graph shows that the days to pay cash to settle its creditors. It is the point of consideration for management to quickly manage the accounts receivables and control the situation. Hence, NBP should look at the decreasing trend of the ratio and keep it at average level to be more secure in utilization of funds. But on the other end the company should delay payment period so much but the credibility of the company should not be affected. Operating Cycle It state that how many days a company take to sell inventory and then collection of money from trade debts. Operating Cycle = Average collection period + Average payment period Operating Cycle Year 2010 2009 2008 Average collection period 122 days 157 days 227 days Average payment period 75 days 95 days 132 days

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Calculation Year 2010 2009 2008 Operating Cycle 2010 2009 2008
359

Working 122 + 75 157 + 95 227 + 132 197 days 252 days 359 days

Answer 197 days 252 days 359 days

2008

252 2009 197

1 0

2010 500 1000 1500 2000 2500

Total Assets Turnover In this ratio we measure the usage of total assets in sale generation procedure. We divide sale by the total assets and get the total assets turnover. Total Assets Turnover = Sales/ Total Assets Total Assets Turnover Year 2010 2009 2008 Calculation Year 2010 2009 2008 Total Assets Turnover 2010 8.54% 2009 8.25% 2008 7.45% 82 Sales 88,472,134 77,947,697 60,942,798 Working 88,472,134/1,035,024,680*100 77,947,697/944,232,762*100 60,942,798/817,758,326*100 Total assets 1,035,024,680 944,232762 817,758,326 Answer 8.54% 8.25% 7.45%

2008

7.45%

2009

8.25%

1 2006 2007

2010 2008 2009

8.54% 2010 2011

Interpretation The graph represents that the ratio is increasing year by year. Inventory Turnover Ratio Its help to determined how effectively the company is managing inventory. This ratio is like the other ratios, must judge in relation to ratios of similar company. Inventory turnover ratio = Cost of Goods sold/ Average Inventory Average Inventory Lending to the financial institutions Total Year 2010 Year 2009 Year 2008 Opening+ Closing/2 Opeinig+Closing/2 Opening+Closing/2 23,025,156+19,587,176/2 19,587,176/17,118,032/2 17,118,032+21,464,600/2 42,612,332/2 36,715,208/2 38,592,632/2 21,306,166 18,357,604 Cost of Goods sold 45,250,476 39,489,649 23,884,768 Working 45,250,476/21,306,166 39,489,649/18,357,604 23,884,768/19,296,316 19,296,316 Average Inventory 21,306,166 18,357,604 19,296,316 Answer 2.12 2.15 1.23

Inventory turnover ratio Year 2010 2009 2008 Calculation Year 2010 2009 2008

83

Inventory turnover 2010 2009 2008

2.12 2.15 1.23

2008

1.23

2009

2.15

1 2004 2006

2010 2008 2010

2.12 2012 2014

Interpretation The graph shows that the value is decreasing with the passage of time. It is also indicates the higher rate the more quickly NBP sells its inventory. However the NBP selling high markup items.

Fixed Assets Turnover Fixed Assets Turnover is the sales to fixed assets which is mention in the profitability ratios.

84

Market Ratios Market ratios are commonly used by the investors to assess the business as an investment and also the cost of issuing stock. These include: Dividend per share Earning per share Price Earning Ratio Dividend Payout Ratio Dividend yield Dividend per share The ratio shows how much amount is paid against every subscribed share. Dividend per share = Total dividend/ No. of Share outstanding Note: Due to non availability of dividend in 2009 we are conducting analysis of 2006, 2007, and 2008. Dividend per share Year 2008 2007 2006 Calculation Year 2008 2007 2006 Dividend per share 2008 7.5 2007 4 2006 2.5 Total Dividend 6,104,894 2,831,895 1,474,605 Working 6,104,894/814,000 2,831,895/708,970 1,474,605/590,000 No of share outstanding 814,000 708,970 590,000 Answer 7.5 4 2.5

85

2006

2.5

2007

1 2000

2008 2005 2010

7.5 2015 2020

Earning per share Under this ratio we measure what is an ordinary share get against net income. Earning per share = Net Income/ Avg. no of share issued Earning per share Year 2008 2007 2006 Calculation Year 2008 2007 2006 Earning per share 2008 17.33 2007 21.22 2006 24.01 Net Income 15,458,590 19,033,733 17,022,349 Working 15,458,590/896,975 19,.033,733/896,975 17,022,349/708,970 Avg. no of share issued 896,975 896,975 708,970 Answer 17.23 21.22 24.01

2006

24.01

2007

21.22

1 1990

2008 2000 2010

17.33 2020 2030 2040

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 Price/ Earning Ratio By dividing market price to EPS we get this ratio which show the high earning in future if this ratio is high the target target firm is highest. Price/ Earning Ratio = Market price per share/ earning per share Price/ Earning Ratio Year 2008 2007 2006 Calculation Year 2008 2007 2006 Avg. market price per share 162.54 259.9 249.05 Working 162.54/17..33 259.9/21.22 249.05/24.01 Earning per share 17.33 21.22 24.01 Answer Rs. 9.43/Rs. 11.13/Rs. 10.37/-

Price/ Earning Ratio 2008 Rs.9.43/2007 Rs.11.13/2006 Rs.10.37/-

2006

10.37

2007

11.13

1 1995

2008 2000 2005 2010

9.43 2015 2020

Dividend Payout This ratio shows that percentage form its net income a company pay dividend. The organization is paying nominal amounts as dividend but real focus on increasing market value of shares. Dividend payout = Dividend per share/Earning per share*100 Dividend payout Year 2008 2007 Dividend per share 7.5 4 Earning per share 17.33 21.22

87

2006 Calculation Year 2008 2007 2009 Dividend payout 2008 43.53% 2007 18.85% 2006 10.41%

2.5 Working 7.5/17.33*100 4/21.22*100 2.5/24.04*100

24.01 Answer 43.53% 18.85% 10.41%

2006

10.41%

2007

18.85%

1 2004 2005

2008 2006 2007

43.53% 2008 2009

Divided yield The ratio on a company stock is the companys annual dividend payments divided by its market cap, or the divided per share divided by the price per share. Divided yield = Dividend per share/ Avg. market price per share*100 Dividend yield Year 2008 2007 2006 Calculation Year 2008 2007 2006 Divided yield 2008 2007 2006 Dividend per share 7.5 4 2.5 Working 7.5/162.54*100 4/259.9*100 2.5/249.05*100 4.61% 1.54% 1.01% Avg. market price per share 162.54 259.9 249.05 Answer 4.61% 1.54% 1.01%

88

2006

1.01%

2007

1.54%

1 2004 2005

2008 2006 2007

4.61% 2008 2009

Statements of cash flow Cash flow ratios indicate liquidity, borrowing capacity and profitability. These include: Operating cash flow to current maturities of long term debt and current noted payables Operating cash flow to Total debt Operating cash flow per share Operating cash flow to Cash dividend Operating cash flow/ Current maturities of long term debt and current noted payables Operating cash flow/ Current maturities of long term debt and current noted payables Year Operating cash flow Current maturities of long term debt and current noted payables 2010 93,163,784 42,312,252 2009 41,576,364 39,682,105 2008 2,532,681 36,071,426 Calculation Year Working Answer 2010 93,163,784/42,312,252 2.2 2009 41,576,364/39,682,105 1.04 2008 2,532,681/39,071,426 0.06 Operating cash flow 2010 2.2 2009 1.04 2008 0.06

89

2008

0.06

2009

1.04

1 2004 2006

2010 2008 2010

2.2 2012 2014

Interpretation The graph shows that the value is increasing rapidly in year by year. Operating cash flow to Total debt This ratio shows that how much company generated operating cash flow from the money of debt. This ratio expressed in percentage. Operating cash flow to Total debt = Operating cash flow/ Total debt*100 Operating cash flow to total debt Year Operating cash flow 2010 93,163,784 2009 41,576,364 2008 2,532,681 Calculation Year Working 2010 93,163,784/906,528,852*10 0 2009 41,576,364/824,676,384*10 0 2008 2,532,681/715,299,108*100 Operating cash flow to total debt 2010 2009 2008 10.27% 5.04% 0.35% Total debt 906,528,852 824,676,384 715,299,108 Answer 10.27% 5.04% 0.35%

90

2008

0.35%

2009

5.04%

1 2006 2007

2010 2008 2009

10.27% 2010 2011

Operating cash flow to Cash dividend The operating cash flow divided by the cash divided we can get the ratio. It is expressed in percentage. Operating cash flow to cash dividend = Operating cash flow/cash dividend*100 Operating cash flow to cash dividend Year Operating cash flow 2010 93,163,784 2009 41,576,364 2008 2,532,681 Calculation Year Working 2010 93,163,784/33,032,714*100 2009 41,576,364/28,789,320*100 2008 2,532,681/3,263,249*100 Operating cash flow to cash dividend 2010 2009 2008 282% 144% 77%

Cash divided 33,032,714 28,789,320 3,263,249 Answer 13.75% 8.8% 24.14%

91

2008

77.00%

2009

144.00%

1 2004 2006

2010 2008 2010

282.00% 2012 2014

Trend Analysis Trend analysis studies the financial history of a firm for comparison. It is the comparative analysis of a company financial ratios over time. This helps to detect problems or observe good management. Ratios are plotted on graph to see whether the ratios are falling, rising, or remaining relatively constant. Net Sales Net sales are increasing slowly, but positive trend.

92

Net Sales
100000000 80000000 60000000 40000000 20000000 0 2010 1 2009 2 2008 3 88,472,134 77,947,697 60,942,798

Fixed Assets Fixed assets are increasing rapidly with positive trend.
Fixed Assets
1000000000 800000000 600000000 400000000 200000000 0 2010 1 2009 2 2008 3 866,167,50 0 780,412,15 7 655,781,93 0

Gross Profit Gross profit is also increasing slowly but positive trend.

93

Gross Profit
80000000 60000000 40000000 20000000 0 2010 1 2009 2 2008 3 60,854,298 57,483,405

53,473,890

Net Income Decreasing in 2010 & 2008 and increasing in 2009.

Net Income
20000000 15000000 10000000 5000000 0 2010 1 2009 2 2008 3 17,563,214 18,211,846 15,458,590

Current Assets Current assets are increasing with the passage of time.
Current Assets
200000000 150000000 100000000 50000000 0 2010 1 2009 2 2008 3 168,857,18 0 163,820,60 8 161,976,39 6

Current Liabilities Current liabilities are increasing very rapidly but fixed liabilities are increasing slowly. 94

Current Liablities
60000000 50000000 40000000 30000000 20000000 10000000 0 55,899,307 50,677,987

28,110,222

2010 1

2009 2

2008 3

Total Assets Total assets are increasing very slowly.

Total Assets
1200000000 1000000000 800000000 600000000 400000000 200000000 0 1,035,024,6 80 944,232,76 2 817,758,32 6

2010 1

2009 2

2008 3

Total Liabilities

95

Total liabilities are increasing, which clearly shows that fixed liabilities are high as compare to current liabilities.
Total Liabilities
1000000000 800000000 600000000 400000000 200000000 0 2010 1 2009 2 2008 3 906,528,85 2 824,676,38 4 715,299,10 8

Industry Analysis Comparison between National Bank of Pakistan, Bank Al-Falah, Allied Bank Limited and United Bank Limited for the year ended 2010. Ratio Net profit margin ratio Gross profit margin ratio Return on total equity Return on total assets Total assets for shareholder fund EPS(pre-tax) EPS(after-tax) Pay out ratio Book value Net invest income growth NBP 88.6% 68.78% 17% 7.6% 7.98 24.15 17.56 49.33 90.71 9.75% BAFL 22% 57% 7% 0.37% 20.47 2.24 1.63 76.69 18.27 5.68% ABL 27% 72% 18% 1.1% 16.4 9.47 6.43 54.43 32.19 1.98% UBL 27% 65% 18% 1.37% 13.79 10.8 8.24 57 35 0.83%

Future prospects of the organization

96

NBP remains committed to the interest of all stake holders including its employees, owners, regulators and Pakistani nation. We have well defined strategy on where and how we want to proceed in the years to come. With the implantation of the new Core Banking Package. NBP will completely automate its function which in will appreciably enhance work efficiency. The Bank will continue to diversify its customer segments thereby increasing our product offering. Its commitment towards the employees empowerment development will continue. The Bank believes that a motivated and well trained work force is necessary to ensure sustenance and growth. On the business side at main focus would be reduce nonperforming loans and increase deposits. The Bank remain committed to our Vision, Mission & Core values and our strategy for future includes recovery efforts and revival of non-performing loans, deposit mobilization, consolidation of loans, expense management and tapping untapped markets by increasing our network both domestically and internationally. Customer service will remain its main focus of Operations management.

SWOT Analysis
97

SWOT stands for Strengths, Weakness, Opportunities, and Threats. SWOT analysis is careful evaluation of an organizations internal strengths and weakness as well as its environments opportunities and threats. SWOT analysis is a situational which includes Strength, Weaknesses, Opportunities and Threats that affect organizational performance The overall evaluation of a company strengths, weakness, opportunities and threats is called SWOT Analysis. Strengths NBP in one of the oldest bank of Pakistan and first nationalized bank Declared Worlds best Foreign Exchange bank in 2008. Stable AAA/A-1 + (Tipple A/a-one Plus) related bank Best return of Capital Bank for 2006 amongst all the banks in Asia Highest Profit making bank of Pakistan. Having Highest Assets and Capital compared to any bank in Pakistan. Functioning as an agent of SBP. Dealing Government Treasury where SBP has not its own branch. Having unshakable trust of the public and its stakeholders Giving Loans alone in the market against Gold Ornaments Performing social responsibilities and claiming The Nations Bank. Disabusing Salaries and Pensions to the Government employees and earning high profit on NBP- Advance Salary Loan Scheme Earning commission from SBP on Government transaction Facing no problem of cash/currency being its chest and Sub-chest Branches all over the country NBP have presence in the countries having sizeable trade volumes with Pakistan by its overseas operations. Hold largest deposit base in the market share in terms of number of accounts. Leading bank in agriculture financing amongst commercial banks with the market share of 15%. Helping in earning of foreign exchange, remittances and leading agent of Western Union Money Transfer

Weakness The banks falls for behind as far as the innovative schemes as concerned

98

The strong political hold of some parties and government and their dominance is affecting the bank in negative way. Lowest internal Control and Compliance System, SBP rated Marginal which is alarming for the Bank. Unsatisfactory corporate culture of the Bank. Physical environment and atmosphere compare to other banks does not meet the standard Less number of Onlines Branches Ineffective use of technologies Shortage of staff (employee per customer is very low as compared to its competitors) Inefficient training the technical education of staff.

Opportunities Being a Government Bank NBP having wide scope in economic market Trust and reliability that NBP enjoy, creates chance to enhance deposit and profitability Its vast network of domestic and overseas branches can help to expand business more and more. Banks deposit is increasing rapidly so there is a great opportunity to enhance its investment and financing. Being an agent of SBP it can play vital role in economy. Earning commission/exchange on Government transactions. NBP can utilize the electronic banking opportunity to ensure on line banking 24 hours a day seven days week. Threats SBP penalties due to low internal control and compliance Government, SBP and Prudential Rules and Regulations The emergence of new competitors especially in term of foreign banks. Its staff switching over to other private banks due to more facilities Other banks charming atmosphere and relaxation in documentation SBP rated just Marginal in respect of System & Control which is alarming for the Bank to survive its license. NBP staff code of ethics and practices. Higher number of complaints regarding staff behavior Government Schemes, Government Revenue Collection, Government Payment and FBR Collections create heavy workload.

Conclusion
99

Being a student of MBA Finance it became compulsory for me to do an internship for which I got an opportunity at NBP Urdu Bazar Branch Gujranwala. I worked therefore almost 8 weeks. I have concluded my report with findings as given below Customer satisfaction In NBP customer dealing is well, but during rush hour the customer has to wait for a long time for their turn, its quite hard for a new customer or potential customer to get the required information. Poor record management and filing system During my internship I observed that filing system of branch is not good. When certain record is needed the staff has to struggle to find it out and a lot of time is wasted. Unequal distribution of work Work is not equally distributed. On one hand some employee have to work all day without relaxing while some others have nothing to do at all. This is not only creates confusion among employees but also hurting and disturbing for overall setup of the bank. And above all it results is dissatisfaction among customers as well. Marketing visits A useful mode of contact is through personal marketing visits, such visits are important in information and perusing the existing and potential customers about the products and creating a sense of belongingness with them. Formal Organization Formal organization included the activities of two or more person, which are cautiously determined groups and coordinated towards a given objective. It provides base when people are able to communicate with other, when they have common purpose and they are wiling to work. In NBP, we find a formal organization. Bernard referred to an organization as a formal when the activities of two or more persons are coordinated towards a given objective. The formal objective comes into being when people are able to communicate with one another or willing to act and share a purpose. In this formal organization of NBP the activities are carried out in a more formal way. In theoretical terms it provides basis for communication with one other but in practice. It is not exercised because an employee at high level cannot get straight away to manager or SVP and ask him about of his problem faced by him, because first he has to talk to his immediate superior and follow a proper channel of communication.

More accounts fewer deposits.

100

Efficient banking is one, which does not emphasize on number of accounts but on greater amount of deposits. NBP is more interested in increasing its number of account irrespective to its deposit. The main reason behind it is that bank does not provide personalize service to all the account holders and does not improve its quality and services. Delegation of authority Manager has very limited authority; he has to take the approval from his management authority, In case of advance he has to take the approval of general and regional manager. The other problem is created, when the manager is not present in his office, the customer having to wait for hours. This discourages both and customer and officers because they have to suffer a lot. Lack of specialized training NBP does not provide adequate facility of specialized training to their staff. Training is generalized rather than specialized. As the worker finishes his training, he is inducted into a specific field without having great deal of knowledge about the field. Difference between theory and practice A vast difference exists between theory and practice and NBP has written procedure but practical work done by employees is a bit different from written procedures. Promotions Promotions in NBP are purely on the basis of seniority, so the new young person having high qualification remains behind for quite a lot of time. Top management and staff union put pressure for the promotion of their favorites, which gives a sense of deprivation to the deserving employee and their efficiency is affected. Marketing at desk Bank employee come in daily contact with many people who happen to deal with the casual remittance, travelers cheques, safe custody, pensioners, depositing license fee and variety of other functions and variety of other people with whom the Bank has no account or regular business relationship. The Bank employees are doing very little on their own to explore the possibilities of selling banking services to them as a marketing contributor. The entire Bank community should make a conscious effort in addition to their normal work to explore the possibilities of selling banking services to them. The market opportunities are hidden in every dealing a banker handles; the question is that if he has the art and urge size such opportunities. Lack of business communication There is no proper way to give information to their customer, to avoid this minor dissatisfaction and tension in the mind of customer, and deficiency of the service, it is recommended that the bank should provide brochures etc containing information in details.

101

Recommendations for improvement

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 everchanging 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 or they should be awarded according to their performance and result in the shape of bonuses to motivated and incite them to work more efficiently. 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. Job Rotation Job rotation 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 of every employee should take place after every three years in different branches 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. Link with the Head Quarter Most of the branches of NBP should established a direct link with the, headquarter in Karachi, through intranet. This will make the functions and decision making of the management easier and convenient.

102

Credit Card NBP 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. Installing Validate Validate machine is used to count the currency notes and its installation will help to eliminate to counting errors and will save time. Interest on Overdraft Overdraft is a short-term credit facility provided by the bank to its trustworthy customers free of interest. Only bank commission is charge small amount of mark-up on the overdraft which will help the bank to improve its revenue position. Cash Financing In this mode of financing the amount of credit not utilized by the borrower is remained tax-free. It is recommended that small amount of interest should be charge on this amount as well because the bank gas kept-aside the amount for that borrower and can not advance it anywhere. Decreasing Administrative Expenses Bank should their administrative expenses. That can be done by downsizing the surplus pool of employees. The branches that are not much used could also be closed. Management should be equipped with new ways to control the bank expenses. That will give positive results in the future. Needs to be Flexible in credit Policy As mentioned earlier, NBP is very conservative in advance and loans policy. It reduces the investment opportunities. Also loans should be given to the small businessmen and the agriculture sector at the low markup rate. It should adopt flexible credit policy while giving credit the agriculture sector. Technological Advancement I would like to suggest that at least all the main branches of NBP should be fully computerized in order to expedite the dealing process among bankers and their customers. Every department should be provided a computer with adequate training (Especially Advances, Deposits and Foreign Exchange departments). Daily records should be entered directly into these computers, (Instead entering the overall daily transactions after the banking hours). It will not only reduce transaction time, will increase accuracy but will also be efficient as well.

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Staff Relationship Good relationship among staff member leads to the peak performances in any organization. I observed that the staff relationship was normal other wise but some time I noticed that there exists a little conformity among the staff members. Another syndrome from which the staff suffered was that all of them considered themselves more important than others. Some of the officers used to say that if I am absent for a day the bank would stop working. So this sort of attitude is not good because it mars bank image and juniors willingness learn and work hard and in the end will hurt the whole team. Improper Distribution of Work Proper distribution work leads to success in every organization. Proper distribution of work prevents the employee from over and under work situation. So for a smooth running of an organization proper distribution of work is the hint to be followed. During my internship I observed that there was no proper distribution of work in the bank. I saw that some of the employee worked like ants other sat idle starting here and there. So this created a lot of over work situation for while relaxation for other. Favoritism and nepotism In the branch during my internship I saw that when some of the employees are transfer to the other places, due to their relation with influential people and with top management they can cancel their transfer in few weeks, when they are unsatisfied at that place. So I suggest that in the organization should be no favoritism, nepotism and politics and their transfers and promotion should be made on merit and according to the rules and regulations of the bank and provided favorable environment to the employee to show their performance. Marketing Policy The branch should adopt various marketing strategy and promotion strategy to promote the bank and its product. The most important in my opinion is personal marketing. It is the most effective of all when you think in term of branch level. But on the whole organization level, they should arrange the seminar with in the bank out side the bank. They should introduce various prizing schemes. They should do more advertising through newspaper and media and through channel of personal contacts. Complaint of Customer There should be an information desk to provide the information and to receive the complaints of the customer in the bank. There is no complaint box available in the branch and not any person appointed to hear the complaints. Ever person cannot go to the manager for the complaint because most of the people are hesitant. So I suggest management to install a complaint box in the branch, and recruit a Special person for that guidance of the customer when they are unable to manage some difficulties in banking matters.

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Organizational Commitment It is suggested that employees working on daily wages basis should be given some benefits, which the other employees are getting. Their salaries must increase according to efficiency, performance and service which would enhance organizational commitment of the employees working in the organization. Credit Monitoring The credit department of the bank should carries out vigilant credit monitoring. They should ensure the proper payment of the installments and the mark-up by the borrower. The staff members who have done all the paper work of the loan extension should perform the monitoring, as he/she will having more information about the borrower. Avoiding the Bad Debts Policies should be crafted in way to ensure that no loan is extended on political pressure. SBP regulation for loan approval should be strictly followed. According to which the current ratio of the borrowers business must be 1:1 and the debt equity ratio should be 60:40 means the liquidity position of business should be healthy.

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Reference & Sources

Website of the National Bank of Pakistan http://www.nbp.com.pk http://www.nbp.com.pk/publication/AnReport2009.aspx http://www.nbp.com.pk/publication/AnReport2008.aspx www.abl.com/thebank/pdf/annual-report09/abl-annual-raport-2009.pdf www.ubl.compk/aboutus/financial-report-2009/annual-doc09/ http://bankalfalah.com/about/download/Annualreport2009.pdf Economic bulletin 2009 Operation Manager/Internship Supervisor Staff members at NBP Urdu Bazar Gujranwala. Annual Report 2008, published by NBP, Head Office Karachi. Annual Report 2009, published by NBP, Head Office Karachi. Annual Report 2010, published by NBP, Head Office Karachi.

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