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Chapter No.

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Introduction
Banks and Scope of Banking:
What Is Bank?
A bank is an institution for the custody, loan or exchange of money for sanctioning credit,
for transferring funds by domestic foreign bills of exchange. It is a pipeline through which
currency moves into and out of circulation.
As it is clear from the definition of banking, the main activity or function of banking
is borrowing and lending of money with a margin of gain. However, as far as the present day
banking is concerned, there are a number of different banks, set up under specific different
objectives, performing various functions.
Banking in Developing Societies:
In the developed societies, the banks do not have to make many efforts in mobilizing
savings, as it has become a second habit with the people. The commercial banks are financing
the short and long-term capital needs of the business. The loans and discounts of commercial
banks include real estate mortgages and long term loans, which extend to as long a period as ten
years. These banks also administer estates, acts as insurance agents and underwriters, provide
brokerage services and implement domestic as well as foreign economic policies of the
government.
Commercial banks in developing countries have to make vigorous efforts of resource
mobilization at all levels. However, with the passage of time the commercial banking operations
are undergoing remarkable qualitative change. In Pakistan for instance, banking facilities are
being extended to the un-banked places. Planned efforts are being made to enhance the supply of
bank advances to the new priority sectors in consonance with the present day socio-economic
needs.
A special scheme to induct commercial banks in the field of agricultural credit was
introduced in December 1972. The scheme provides for short and medium term loans to farmers
under a much-simplified procedure. State Banks measures aimed at increasing the flow of credit
to the small man in business and industry as well as to housing and non-traditional exports have
also yielded positive results. The Credit Guarantee Scheme is covering the large risk to the
commercial banks in the sphere of agricultural finance and small loans to a reasonable extent.

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Mandatory targets for small loan credit to the agriculture sector and for housing have been
prescribed and are being enforced. Corporate banking is also being reorganized and reactivated
on more viable fines.
New Challenges of Contemporary Age:
Banks play a vital role in the economic development of country. They accumulate the idle
savings of the people and make them available for investment. They also create new demand
deposits in the process of granting loans and purchasing investment securities. They facilitate
trade both inside and outside the country by accepting and discounting of bills of exchange.
Banks also increase the mobility of capital. They provide a variety of facilities for remitting a
large amount of money from one place to another by the transfer of a small slip of paper.
In a country like Pakistan, which is still in the initial stages of economic development,
and well organized banking system is the need of the day. There is acute shortage of capital in
Pakistan. The banks have to play an important role in promoting capital formation, in controlling
speculation in maintaining a balance between requirements and availability and in direction
physical resources in to desired channels.
In advanced countries of the world like America, Japan, Germany, the rate of capital
formation ranges from 17% to 30% of their Gross National Product. Whereas in Pakistan the rate
of saving has varied from 13% to 20% only. In order to accelerate the rate of economic
development the Government has been acquiring foreign capital. The banks by launching a
vigorous campaign both in the villages and cities can mobilize the idle savings and can increase
the rate of investment. The country thus becomes independent of foreign capital, which in fact
has let us down on almost all the crucial happenings in the country.

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What Is A Commercial Bank?
A bank is a financial institution, which deals with money and credit. It accepts deposits
from individuals, firms, and companies at a lower rate of interest and gives at a higher rate of
interest to those who apply for loan. The difference between the terms at which it borrows and
those at which it lends from the source of its profit. A bank, thus, is a profit-earning institute.
Any bank that performs this functioning is called the commercial bank.
According to Crowther:
A bank is a firm which collects money from those who have it spare. It lends money to
those who require it.
According to Banking Ordinance 1962:
According to Section 5(b) of Banking Ordinance 1962, meaning of banking is as under:
Banking company is a company which transacts the business of banking in Pakistan,
mainly of accepting, for the purpose of lending and and investments of deposits of money from
the public, repayable on demand or otherwise and withdraw able by cheques, draft, order, or
otherwise

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Management and Organization of a Commercial Bank:
The ownership, management, and control of all the commercial banks were taken over by
the Government of Pakistan on January 1st, 1974.
A banking council was formed under the Nationalization Act 1974. The banking council
was set up for making policy recommendations to the Federal Government, formulating policy
guidelines for the banks and their reorganization.
The management and organizational structure of the nationalized banks have uniformity.
This management and organizational structure is briefly described as under:
Board of Directors
Executive Board
Chief Executive
Divisional Chiefs
Provisional Chiefs
Circle Executive
Zonal Heads
Branch Managers

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Banker and Customer Relationship:
The relationship between the banker and the customer are of utmost importance. Both
serve the society and the economy to expand. Before we discuss the relationships between the
banker and the customer, it seems necessary that the two terms banker and customer are made
clear.
Banker:
A banker is a dealer in capital or more properly a dealer in money. He is an intermediate
party between the lender and the borrower and charges a definite amount of money, which is the
profit of his.
Customer:
A customer is a person who maintains a regular account with the bank, without taking
into consideration the duration and frequency of operation of his account.
The relations between the banker and the customer are generally studied as under:
Debtor and Creditor:
The general relationship between banker and customer is primarily that of a debtor and
creditor. When customer deposits money with a bank, the bank then is the debtor and the
customer is the creditor. The customer expects from the bank that (I) his money will be kept safe
by the bank, (II) it will be returned on demand within business hours. The position is reverse if
the customer is advanced loan i.e. the banker becomes the creditor and the customer is the
debtor.
Principal and Agent:
The special relationship between the customer and the banker is that of principal and
agent. The customer (principal) deposits cheques, drafts, dividends etc. are for collection with the
bank. He also gives written instruments to the bank to purchase securities, pay insurance
premium, installments of loans etc on his behalf. When the bank performs such agency services,
he becomes an agent of his customer.
Bailer and Bailment Relationship:
A bailment is the delivery of goods in trust. A banker may accept the valuables of his
customers such as jewellery, documents, securities etc. for safe custody. In such a case the

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customer is the bailer and the bank is the bailee. It charges a very small amount of money as
service charges for safe custody of valuables.
Pledger and Pledgee:
When a customer pledges goods and documents with the bank as security for an advance,
he then becomes the pledger and the bank becomes the pledgee. The pledged goods are to be
returned intact to the pledger after he repays the debt.
Mortgager and Mortgagee:
Mortgage is the transfer of an interest in specific immoveable property for the purpose of
securing the payment of money advanced or to be advanced by way of loan. When a customer
pledges specific immoveable property with the bank as security for an advance, the customer
becomes the mortgager and the bank becomes the mortgagee.
Bank as a Trustee:
The bank acts as a trustee for his customers in those cases where he accepts other
valuables for safe custody. In such case, the customer continues to be the owner of the valuables
deposited with the bank.
Executor, Attorney, Guarantor:
The bank also acts as executor, attorney, and generator for his customers.

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Historical Background of NBP:
The story of NBP is part of our struggle for economic independence. When we won
political independence, Nona Pakistanis, mostly Hindus controlled our economy. East Pakistan
was spared from massive migration but its economy was also, being dependent on Calcutta,
badly hurt. Most bankers and business experts left Pakistan and the economic life was brought to
a standstill, these mostly branches of Imperial Bank of India were only in partial operation with
skeleton staff.
Banking & Finance History:
It was decided that Reserve Bank of India would act as the common monetary authority
of both countries up to September 1948. But this arrangement did not prove well. In August
1947, we were given a first installment of Rs.200 million (20 crore) as our share, leaving a
balance of Rs.550 million (55 crore) but it was not paid when asked for.
In October 1947 there was fighting in Kashmir, when India refused to give us the amount
of Rs. 55 crore if we did not give up all interest in Kashmir, which we refused. In response,
Reserve Bank of India refused to make even an advance for ways and means. Despite that India
had to pay our 50 crore, (the remaining 5 crore still remains unpaid). There was a controversy on
establishment of our central bank because we had no experience or expertise but it was resolved
and SBP was created, 3 months ahead of schedule, on July 1, 1948, which was the last public
appearance of the Quaid-e-Azam. SBP claimed its share of Assets of Reserve bank of India
against the Indian currency retired from Pakistan, but this 50 crore India disputed and virtually
refused to settle this dispute up till now.
In 1949 (September) U.K. devalued its currency, India followed suit but we did not. India
said we had contravened the agreement of keeping both currencies at par. We said we had not
done that; India had done it arbitrarily without consulting us. On October 3, 1949, the two central
banks were to announce the new par value of both currencies but India denied a day earlier. India
also froze our trade - balance surplus that is still an unsettled dispute. India also withdraws the
Marwari merchants who were employed annually for movement of jute crop by financing it.
Theyre being no jute industry, prices fell sharply, foreign banks and foreign merchants stood
aside and an agrarian unrest was threatening.

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Two Ordinances were, therefore, issued.

1. Jute Board Establishment Ordinance &


2 NBP Ordinance dated 08.11.1949

NBP was established on 20.11.1949 to provide finance to suitable parties. NBP stood
behind jute trade, SBP stood behind NBP and the government stood behind SPB. Speedy it was
such that 6 branches came into being at once and the doubts on our ability to handle this situation
were dispelled forever Now, as the Jute Board and NBP were in the field, the foreign merchants
and bankers also rushed in to get their share in the business and consequently NBP had to lay out
much less finance than it could. Mr.GhulamFarooq was chairman Jute Board & Mr. Mumtaz
Hassan was chairman NBP. Until June 1950, NBP remained exclusively in jute operations,
thereafter-other commodities were also taken-up. After that Mr. ZahidHussain, Governor SBP
assumed additional charge also as chairman NBP's Board of Directors, & Mr. Muhajir became its
first M.D.
In 1952 NBP replaced Imperial Bank of India. This arrangement was negotiated by Mr.
Mumtaz Hassan as Acting Governor of SBP.
In 1962 when Mr. Mumtaz Hassan became MD (He had already served NBP for 10 years
as its Chairman of government Director), the number of branches had increased from 6 to 239
and deposits from Rs.5 crore (50 million) to 106 crore (one billion & 60 million), profit, from 3
million (3 Lac) to 21 million (2.1. crore) and the staff increased from 380 to 7091, as compared
to 1949-50. In Dec. 1966 its 600th branch was opened raising the deposits to 2.31 billion. and
staff to 14, 963. Up to 1965, the shareholders had received 225% of their original investment.
Now it has more than 13745 employees 1226 branches and Rs.465, 572million deposit.

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Chapter No. 2

Organization Structure / Hierarchy of National Bank of Pakistan

DESIGNATIONS OF HIGHER LEVEL OFFICERS

PRESIDENT

SENIOR EXECUTIVE VICE PRESIDENT


GRADE 22

EXECUTIVE VICE PRESIDENT


GRADE 21

VICE PRESIDENT
GRADE 20

ASSISTANT VICE PRESIDENT


GRADE 19

GRADE I OFFICER
GRADE 18

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GRADE II OFFICER
GRADE 17

GRADE III OFFICER


(GRADE 16)
Branch Network:

With the geographical development of its branches, the Bank has been able to extend its
services to a much larger number of Pakistanis all over the country. Today it has more than 8.5
million accounts. Bank maintains its presence in all the major financial centers of the world
through its 15 overseas branches and 5 representative offices. Of these, three representative
offices have recently been set up at Tashkent (Uzbekistan), Baku (Azerbaijan) and Almaty
(Kazakhstan) to take advantage of the emerging opportunities in CIS countries. Banks role
globally is well assisted by its network of correspondent banks located strategically in Asia,
America, Europe and Africa.
Oversea Branches Domestic Branches

15 Overseas Branches 29 Regional Offices


4 Represative Offices 1,189 Branches
1 Subsidiary 4 Subsidairies

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1 Joint Venture

NBP has an extensive domestic branch network of over 1500 branches located all over
Pakistan. The Bank also has a presence in 24 international locations including the USA, United
Kingdom, Europe and the Far East.

Branches All Over the Country:

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Mission Statement

To be recognized in the market place by Institutionalizing a


merit & performance culture, Creating a powerful &
distinctive brand identity, Achieving top-tier financial
performance, and Adopting & living out our core values.

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Vision Statement

To be the pre-eminent financial institution in Pakistan and


achieve market recognition both in the quality and delivery
of service as well as the range of product offering.

Chapter No. 3

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Product Introduction

The lowest rates on exports and other international banking products.Access to different
local commercial banks in international banking.
Demand Drafts:
If you are looking for a safe, speedy and reliable way to transfer money, you can now
purchase NBPs Demand Drafts at very reasonable rates. Any person whether an account holder
of the bank or not, can purchase a Demand Draft from a bank branch.
Mail Transfers:
Move your money safely and quickly using NBP Mail Transfer service. And we also offer
the most competitive rates in the market.
Pay Order:
NBP provides another reason to transfer your money using our facilities. Our pay orders
are a secure and easy way to move your money from one place to another. And, as usual, our
charges for this service are extremely competitive.
Traveler's Cheques:
Negotiability: Pak Rupees Travelers Cheques are a negotiable instrument.
Validity: There is no restriction on the period of validity.
Availability: At 700 branches of NBP all over the country.
Encashment: At all 400 branches of NBP.
Limitation: No limit on purchase.
Safety: NBP Travelers Cheques are the safest way to carry our money.
Letter of Credit:
NBP is committed to offering its business customers the widest range of options in the
area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just
what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters
of Credit are the best way to do your business transactions.
Commercial Finance:
Let us help make your dreams become a reality. Our dedicated team of professionals truly
understands the needs of professionals, agriculturists, large and small business and other

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segments of the economy. They are the customers best resource in making NBPs products and
services work for them.
Foreign Remittances:
To facilitate its customers in the area of Home Remittances, National Bank of Pakistan
has taken a number of measures to:
Increase home remittances through the banking system. Meet the SBP
directives/instructions for timely and prompt delivery of remittances to the beneficiaries.

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Trade Finances Other Business Loans:
Agricultural Finance:
NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers
who produce some of the best agricultural products in the World.
Agricultural Finance Services:
I Feed the World program, a new product, is introduced by NBP with the aim to help
farmers maximize the per acre production with minimum of required input. Select farms will 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 is aimed at three main objectives:-
Providing reliable infrastructure to agricultural customers.
Help farmers utilize funds efficiently to further develop and achieve better production.
Provide farmers an integrated package of credit with supplies of essential inputs,
technical knowledge, and supervision of farming.
Production and development:
Watercourse improvement
Wells
Farm power
Development loans for tea plantation
Fencing
Solar energy
Equipment for sprinklers
Farm Credit:
NBP also provides the following subsidized with ranges of 3 months to 1 year on a
Renewal basis.
Operating loans
Land improvement loans
Equipment loans for purchase of tractors, farm implements or any other equipment

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Livestock loans for the purchase, care, and feeding of livestock
Production Loans:
Production loans are meant for basic inputs of the farm and are short term in nature.
Seeds, fertilizers, sprayers, etc are all covered under this scheme. If you require any further
information, please do not hesitate to e-mail us.

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Corporate Finance:
Working Capital and Short Term Loans:
NBP specializes in providing Project Finance Export Refinance to exporters Preshipment and
Post-shipment financing to exporters Running finance Cash Finance Small Finance
Discounting & Bills Purchased Export Bills Purchased / Preshipment / Post Shipment
Agricultural Production Loans Medium term loans and Capital Expenditure Financing:
NBP provides financing for its clients capital expenditure and other long-term
investment needs. By sharing the risk associated with such long-term investments, NBP
expedites clients attempt to upgrade and expand their operation thereby making possible the
fulfillment of our clients vision. This type of long term financing proves the banks belief in its
client's capabilities, and its commitment to the country.
Loan Structuring and Syndication:
National Banks leadership in loan syndicating stems from ability to forge strong
relationships not only with borrowers but also with bank investors. Because we understand our
syndicate partners asset criteria, we help borrowers meet substantial financing needs by enabling
them to reach the banks most interested in lending to their particular industry, geographic
location and structure through syndicated debt offerings. Our syndication capabilities are
complemented by our own capital strength and by industry teams, who bring specialized
knowledge to the structure of a transaction.
Cash Management Services:
With National Banks Cash Management Services (in process of being set up), the
customers sales collection will be channeled through vast network of NBP branched spread
across the 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.
Short Term Investments:
NBP now offers excellent rates of profit on all its short term investment accounts.
Whether you are looking to invest for 3 months or 1 year, NBPs rates of profit are extremely
attractive, along with the security and service only NBP can provide.

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Equity Investments:
NBP has accelerated its activities in the stock market to improve its economic base and
restore investor confidence. The bank is now regarded as the most active and dominant player in
the development of the stock market. NBP is involved in the following:
Investment into the capital market
Introduction of capital market accounts (under process)
NBPs involvement in capital markets is expected to increase its earnings, which would result
in better returns offered to account holders.

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Chapter No. 4
Training Program (Own Work)

Introduction of Branch:

Name of Branch: National Bank of Pakistan Tehsil Complex Branch MianChannu


City: MianChannu
Branch Code: (1839)
Branch manager: Waseem Rashid
Operation manager: Sajid Ali

I did my internship or training from National Bank of Pakistan Tehsil Complex Branch
MianChannu under the branch manager WASEEM RASHID. When I start my internship I face
many difficulties because its my 1st experience to do training or internship in anywhere so I
dont have experience practical work before but here cooperative management specially
WASEEM RASHID Branch manager help me for my this 1st to complete my tasks efficiently
and I observed the other management members or staff is also very cooperative who also help
me in a friendly manners. In start I am little bit confuse but after the observed the cooperation of
staff I enjoy my internship I also appreciate and thanks all management who help me to complete
my tasks in good manners.

Duration of My Training or Internship Program

The starting date of my Internship Program is July 1, 2012.


The ending date of my Internship Program is August 29, 2012.

Name of the Department Duration


Account Opening Department 2 Weeks
Government Receipts Department 2 Weeks
Credit Department 2 Weeks
Remittance Department. 2 Weeks

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Introduction of all the departments:
There are many different departments in National Bank of Pakistan:
Deposit:
Customers keep their savings in PLS Saving Accounts and businessmen 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 (Credit department):
NBP give loans to the 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 Payments:
National Bank of Pakistan is functioning as an agent of SBP. All types of Government
Payment i.e. Pension, Salaries, Grants, Zakat, Benevolent Fund, Treasury Refund and Taxes
Refund proceed through the bank.
Government Receipts:
In this department all types of Government receipts i.e. Revenues, Taxes, Abyana,
Agriculture Tax, Government Fees, EOBI Funds and Utility Bills are deposited. This way NBP is
serving great job of revenue collection.
Remittances:
Another important department in the bank is remittances. 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.
Bills:
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 days Online
Banking is becoming more popular for this purpose but the branch where I got training is still not
have this facility.

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Cash Department:
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 monitors its cash flow. Cash In charge and other cashiers deal with cash receipt and payment
in the bank.
Compliance:
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 service 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.
Agriculture Department:
Agriculture Credit Department is playing a vital role in development the economy of
Pakistan. Commercial banks being the greatest mobilizer 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 viable loan request.
Human Resources Management:
Human Resources Management Department works for the betterment of the employees.
Enhances skills, training management, service benefits, wages, medical facilities, staff loans are
basic functions of this department.
Information Technology Department:
Banks data collection and information system run by Regional Data Collection Center.
This department manages staff training programs regarding computer.
Online Banking:
This department is functioning only in online branches in the bank. This is a fast track
banking system in modern banking. NBP is also trying to enhance this facility for their
customers.

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Retail & Commercial:
This is the department that boosts the profitability of the bank. National Bank becomes
the largest profit-earning bank of the country by introducing personal loans i.e. NBP Advance
Salary Scheme and Saiban Scheme.
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.
Islamic Banking:
The year 2007 marked the first year of Islamic banking operations. During the year under
review, in addition to active participation in various Sukuk transactions, two more Islamic
banking branches at Lahore and Peshawar started operations. NBPs plans for the year 2008
include opening of Faisalabad and Rawalpindi branches with the focus on growing organically
by opening more standalone Islamic banking branches, utilizing NBPs existing branch network
of 1,200 plus conventional branches and looking into strategic acquisitions for expansion in this
field.

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Detail of the Departments I Worked In:

Deposit of Current and PLS Saving Accounts & Account Opening:


All banks depend on deposits. It is a very important department where customers deposit
and withdrawal their money. Banks use this money for loaning on higher rate to earn profit.
Account opening is also very vital now a days in banking system due to KYC (Know your
customer) , AML (Anti Money Laundering) and ATF (Anti terrorist financing) because ANL has
become a global problem and all the countries of the world are vulnerable to it.
I got training in this department for two weeks and after understand the basic concept.
I practically opened account of walk-in-customers.
Remittances and Bills:
Another important department in the bank 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. Now a days Online Banking is becoming more popular for this purpose but the
branch where I got training is still not have this facility.
Government receipt and Payment:
In this department all types of Government receipts i.e. Revenues, Taxes, Abyana,
Agriculture Tax, Government Fees, EOBI Funds and Utility Bills are deposited. This way NBP is
serving great job of revenue collection. Another important department in the bank is remittances.
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.
Credit Department:
NBP give loans to the 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. The National Bank

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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 viable loan request.
Retail and Commercial wing enhanced the profitability of the bank. National Bank became the
largest profit-earning bank of the country by introducing personal loans i.e. NBP Advance Salary
Scheme and Saiban Scheme.

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Chapter No. 5
SWOT Analysis of the organization

Strengths
Declared Worlds best Foreign Exchange bank in 2008
Stable AAA/A-1+ (Tipple A/a-One Plus) rated bank
Best Return on Capital Bank for 2006 amongst all the banks in Asia
Highest Profitability bank of Pakistan
10th Best Bank in terms of Profit on Capital in the world
Having Highest Assets and Capital in Pakistan
Functioning as an agent of State Bank of Pakistan
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
Disbursing 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 never 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
Holds 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
SBP rated Fair for capital & human resources, Strong for assets, Fair for
management and Satisfactory for both earning (Rs.24.1 for per share) and liquidity

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Weaknesses
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 is not meet the standard
Less number of Online Branches
Ineffectively use of technologies i.e. Information technology
Shortage of staff- per employee customer is very high side
Technical education and training of staff is insufficient

Opportunities
Being a Government Bank NBP having wide scope in economic market.
Trust and reliability creates chances to enhance deposit and profitability.
Its vast network of domestic and overseas branches can help to expand business.
Banks deposit is increasing rapidly so there is a great opportunity to enhance its
investment and financing.
Being an agent of State Bank of Pakistan it can play vital role in local economy.
Earning commission/exchange on Government transactions.
Threats
SBP penalties due to low internal control and compliance.
Government, SBP and Prudential Rules and Regulations.
Schedule banks and Multinational/International banks profit rates.
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.
High number of complaints regarding staff behavior.

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Government Schemes, Government Revenue Collection, Government.
Payments and FBR Collections create heavy workload.

Chapter No. 6
Statement of Financial Position
2010 2011 2012
(Rs.000) (Rs. 000) (Rs.000)
ASSETS:
Cash & balances with treasury banks 115,442,360 131,843,344 158,756,638
Balances with other bank... 30,389,664 28,070,350 30,895,173
Lending to financial institutions.... 23,025,156 43,973,531 8,280,997
Investments -net.... 301,323,804 319,353,392 342,964,635
Advances net... 477,506,564 528,121,596 661,344,807
Operating fixed assets.,......... 26,888,226 29,064,564 29,714,221
Deferred tax assets.... 6,952,666 7,972,636 3,466,503
Other assets net .. 53,496,240 66,567,009 80,737,483

Total Assets .. 1,035,024,680 1,154,966,422 1,316,160,457

LIABILITIES:
Bills payable .. 8,006,631 9,104,710 14,367,639
Borrowings .............. 20,103,591 27,671,746 51,112,248
Deposits & other accounts . 832,151,888 927,410,553 1,038,094,985
Subordinated loan ... - - -
Liability against assets subject to finance 106,704 92,739 38,353
lease.
Deferred tax liabilities -net,. - - -
Other liabilities ... 46,160,038 54,732,458 56,369,170

Total Liabilities 906,528,852 1,019,012,206 1,159,982,395

29
Net assets 128,495,828 135,954,216 156,178,062

OWNERS EQUITY
REPRESENTED BY:

Share Capital 13,454,628 16,818,285 18,500,114


Reserves.. 24,450,244 26,212,505 30,305,210
Discount on issue of shares.. - - -
Unappropriated profit 65,857,438 69,640,893 70,629,475

103,762,310 112,671,683 119,434,799


Non-controlling interest.. - 720,518 790,878
103,762,310 113,392,201 120,225,677
Surplus(or deficit) on revaluation of assets 22,562,015
24,733,518 35,952,385
net of tax ______________
____________ ____________
128,495,828 135,954,216 156,178,062

30
Profit & Loss Account

2010 2011 2012


(Rs. 000) (Rs. 000) (Rs. 000)

Mark-up / return / interest earned.. 88,472,134 95,956,361 101,125,889


Mark-up / return / interest expensed 45,250,476 48,566,973 56,552,485
Net mark-up / interest income 43,221,658 47,389,388 44,573,404

(Provision) / Reversal against non-performing (7,011,046) (6,219,671) (7,154,800)


loans and advances.
(Provision) / reversal of diminution in value of (2,954,678) (3,138,494) (864,296)
investments
Provision against off balance sheet 3,965
obligations. __________ ___________ ____________
Total provisions. (9,969,689) (9,358,165) (8,019,096)

Net markup / interest income after provision 33,251,969 38,031,223 36,554,308

Non markup / interest income

Fee, commission & brokerage income 9,631,579 9,948,547 11,145,569


Dividend income.... 1,099,493 1,587,692 2,079,795
Income from dealing in foreign currencies 2,211,139 3,196,630 3,795,448
Gain on sale of securities.. 2,512,363 2,390,211 3,220,442

Unrealized loss on revaluation of investments


classified as held for trading. 6,730 (35,039) 976

31
Share of gain from joint 2,171,336 32,181 94,771
ventures _ 74,210 1,855,623
Share of profit from associate . _ 2,543,893 2,611,937
Other incomes
Total non-markup / interest income 17,632,640 19,738,325 24,804,561
__________ __________ ___________
Non- markup / interest expense 50,884,609 57,769,548 61,358,869

Administrative expense 26,202,577 30,945,203 36,733,708


Other provisions / write offs. 148,026 554,810 401,413
Fixed assets written off - - -
Other charges.... 118,887 137,852 160,324
___________ ____________
Total non-markup / interest expense 26,469,490 31,637,865 37,295,445
Extra ordinary / unusual items - - -
___________ ___________ ___________
Profit before taxation .. 24,415,119 26,131,683 24,063,424

Taxation - Current year.. 9,835,048 (9,229,434) (7,556,102)


- Prior years.. (939,256) 260,000 -
- Deferred .... (2,043,887) (1,082,597) (379,735)
Total Tax ... (6,851,905) (8,406,837) (7,176,367)
_________ _________
__________
Profit after taxation. 17,724,846 16,887,057
17,563,214

Earnings per share - basic and diluted (Rupee) 9.58 9.13


13.05

Financial Performance:

32
National Bank of Pakistan maintained its position as a Pakistans largest bank in 2011. A
31% increase in total revenue was achieved in the year, while operating profit (before provision
and amortization) increased by 69% to Rs.8.1 billion from Rs. 4.8 billion and pretax profit went
up 193% to Rs.3.02 billion from Rs.1.03 billion. Total assets increased to Rs.415 billion from
Rs.372 billion, while deposit grew by over 10% to Rs.349 billion from Rs.316 billion. As a
consequence all financial and operating ratios improved. Cost to income ratio was 0.52, the pre
tax return on equity was 25% and capital adequacy ratio was around 11%.
The non-performing loan (NPL) portfolio of the bank is adequately covered through a
combination of cash provision (60%) and forced sale value (FSV) of securities. The cash
provisioning is the highest in our peer group. The focus on managing the NPL is on restructuring
as opposed to litigation.

Ratio Analysis

33
Ratio analyses are the most popular form of analyses all over the world and the trusted
one also. In ratio analyses as the name suggests ratios are used in analyzing the financial
standings of the organization. Ratio analysis is a powerful tool of financial analysis. A ratio is
defined as: The quotient of two mathematical expressions
The purpose of this analysis is to check the profitability and efficiency of the business
includes following ratios:
Profitability Ratios

Profitability ratios are used to assess a business's ability to generate earnings as compared
to its expenses and other relevant costs incurred during a specific period of time.
Return on Investment:
A performance measure used to evaluate the efficiency of an investment or to compare
the efficiency of a number of different investments
Formula:Return on investment= Net Profit after Tax/ Investment *100
Calculation:
2010 2011 2012
17,563,214/ 301,323,804 17,724,846/319,353,392 16,887,057/342,964,635
5.83% 5.55% 4.92%

Interpretation:
The return on investment shows that, in 2010 the ROI is 5.83; it also increases from 2011
to 2012. This means that have not enough cash than their liability, and NBP not easily cover their
liabilities with cash in hard times.
Interest Coverage Ratio (Times Interest Earned):
Indicates a company's capacity to meet interest payments.Uses EBIT (Earnings before
Interest and Taxes).
Formula: EBIT/interest expense

Calculation:

34
2010 2011 2012
43,221,658/26,202,577 47,389,388/30,945,203 44,573,404/36,733,708
1.64 1.53 1.21

Interpretation:
Interest coverage ratio shows that, in 2010 the ICR is 1.64, in 2011 the ICR is
1.53, but in 2010 it increase as compare to 2011. There we use the Uses EBIT (Earnings before
Interest and Taxes). There is the ratio in 2012 is 1.21 which is less than last year of 2011.
Equity Multiplier:
Equity multiplier shows the ratio between total assets to total shareholders equity.
Formula: Total assets/ shareholders equity
Calculation:
2010 2011 2012
1,035,024,680/103,762,310 1,154,966,422/112,671,683 1,316,160,457/119,434,799
9.97 10.25 11.01

Interpretation:
The equity multiplier shows that, in 2010 the EM is 9.97, and then increases from 10.25
to 11.01 in years from 2011 to 2012. There is an increasing ratio of assets as compare to the
shareholders equity. The ratio is increases from year 2010 to 2012 respectively.
Net Profit Margin:
Profit margin is very useful when comparing companies in similar industries. A higher
profit margin indicates a more profitable company that has better control over its costs compared
to its competitors.

Formula:Net profit Margin = Net Profit / Net sales*100

Calculation:
2010 2011 2012

35
17,563,214/88,472,134 17,724,846/95,956,361 16,887,057/101,125,889
19.85% 18.47% 16.70%

Interpretation:
Net profit margin measures how much of each dollar earned by the company is translated
into profits. A low profit margin indicates a low margin of safety: higher risk that a decline in
sales will erase profits and result in a net loss.
Net profit margin provides clues to the company's pricing policies, cost structure and
production efficiency. Different strategies and product mix cause the net profit margin to vary
among different companies. Net profit margin is better in year 2010 as compare to other two
years.
Return on Assets:
Return on assets is a measure of how effectively the firms assets are being used to
generate profits ROA gives an idea as to how efficient management is at using its assets to
generate earnings. Calculated by dividing a company's annual earnings by its total assets, ROA is
displayed as a percentage. Sometimes this is referred to as Return on investment

Formula: Return on Assets = Net profit / Total Assets * 100

Calculation:
2010 2011 2012
17,563,214/1,035,024,680 17,724,846/1,154,966,422 16,887,057/1,316,160,457
1.70% 1.53% 1.28%

Interpretation:

36
The purpose of this ratio is to calculate the return that the business is providing on total
assets. This is important from owners point of view that what the business is earning on its
assets, how their funds are being utilized. This ratio also provides an indicator of overall
effectiveness of management in generating profit with the available assets the higher the
percentage the better for the organization. If we analyze the above situation we can find that in
2010 the ratio is pretty good.
Return on Equity:
Return on equity measures a corporation's profitability by revealing how much profit a
company generates with the money shareholders have invested.

Formula:Net Profit after Tax/ Total Equity * 100


Calculation:
2010 2011 2012
17,563,214/103,762,310 17,724,846/112,671,683 16,887,057/119,434,799
16.92% 15.73% 14.14%

Interpretation:
Return on Equity (ROE) is an indicator of company's profitability by measuring how
much profit the company generates with the money invested by common stock owners. The ratio
in 2010 is 16.92, which increases in 2011 with 15.73, but in the 2012 the ratio is decrease with
14.14%.
Gross Profit Margin:
Gross profit margin is a measure of the gross profit earned on sales. The gross profit
margin considers the firms cost of goods sold, but does not include other costs. It also used to
assess a firm's financial health by revealing the proportion of money left over from revenues
after accounting for the cost of goods sold. Gross profit margin serves as the source for paying
additional expenses and future savings.
Formula: Gross Profit Margin = Gross Profit / Net Sales*100

Calculation:
2010 2011 2012

37
17,632,640/88,472,134 19,738,325/95,956,361 24,804,561/101,125,889
19.93% 20.57% 24.52%

Interpretation:
Gross profit margin is an indicator of how efficient a company is and how well it controls its
costs. The higher the margin is, the more effective the company is in converting revenue into
actual profit.
Efficiency Ratios
Asset Turnover:
The asset turnover shows the ratio from net sales to total assets. It is a sub type of the
efficiency ratio.
Formula: Net Sales/ Total Assets
Computation:
2010 2011 2012
88,472,134/1,035,024,680 95,956,361/1,154,966,422 101,125,889/1,316,160,457
0.08 0.08 0.07
Interpretation:
The asset turnover ratio show that, in 2010 and 2011 the A.T is 0.08, but it decline in
2012 with 0.07. As we know that this a sub type of efficiency ratio. It shows the comparison
between net sales to total assets.
Cash Turnover:
Measures how effective a company is utilizing its cash.
Formula: Net sales/cash
2010 2011 2012
88,472,134/115,442,360 95,956,361/131,843,344 101,125,889/158,756,638
0.76 0.72 0.63

Interpretation:
The cash turnover shows that, in 2010 the C.T is 0.76, but it decreases in 2011 and 2012
with0.721 and 0.63 gradually. As we know that it show the utilization of cash, there is decline
trend of the effective utilization of cast as compare to net sales.

38
Current-Liability Ratios:
Current-liability ratios indicate the degree to which current debt payments will be
required within the year. Understanding a company's liability is critical, since if it is unable to
meet current debt, a liquidity crisis looms.
Formula: Current liabilities/ total liabilities
Computation:
2010 2011 2012
860,262,110/906,528,852 964,186,989/1,019,012,206 1,103,574,872/1,159,982,395
0.94 0.94 0.95

Interpretation:
The current liability ratio shows that there, in 2010 the ratio is 0.94, in 2011 the ratio is
0.96, and in 2012 the ratio 0.95. So that the NBP have large amount of current liabilities as
compare to the total liabilities. In 2010 and 2011 the ratio between these two years is same with
0.94 and is less than the current year 2012 with 0.95.
Total Asset Turnover:
The total asset turnover represents the amount of revenue generated by a company as a
result of its assets on hand. This equation is a basic formula for measuring how efficiently a
company is operating. The sales represent all the revenue generated by the company and is
disclosed on a company's income statement.
Formula:Total Assets Turnover = Total Net Sales / Total Assets

Calculation:
2010 2011 2012
88,472,134/1,035,024,680 95,956,361/1,154,966,422 101,125,889/1,316,160,457
0.08 0.08 0.07

Interpretation:
Total asset turnover measures the activity of the assets and the ability of the firm to
generate sales through the use of sales there is a , in 2010 total asset turnover is higher than
2012,2011.So that, The total assets represent the assets listed on the company's balance sheet.
Fixed Assets Turnover:

39
Fixed assets turnover ratio is also known as sales to fixed assets ratio. This ratio measures
the efficiency and profit earning capacity of the concern. Higher the ratio, greater is the intensive
utilization of fixed assets. Lower ratio means under-utilization of fixed assets.
Formula:Fixed Assets Turnover = Net Sales / Total Fixed Asset
Calculation:
2010 2011 2012
88,472,134/26,888,226 95,956,361/29,064,564 101,125,889/29,714,221
3.29 3.30 3.40

Interpretation:
The formula is useful in analyzing growth companies to see if they are growing sales in
proportion to their asset bases. The fixed asset turnover, in the year 2012 is higher as compare to
other two years of the financial statement. In 2010 the ratio is 3.29 which increase in 2011 with
3.30, but the ratio also increases in 2012 with 3.40.
Liquidity Ratios
Current Ratio:
It shows the relationship between current assets and current liabilities. And also it
indicates the short term financial position or liquidity of a firm.
Formula: Current ratio = current assets / current liabilities
Calculations:
2010 2011 2012
947,687,548/860,262,110 1,051,362,213/964,186,989 1,202,242,250/1,103,574,872
1.10 1.09 1.08

Interpretation:
The current ratio is decreasing in 2012 and in 2011because of increase in current
liabilities. The ratio is 1.10 in 2010 and 1.09 in 2011 and in 2012 it is 1.08. It shows the poor
short term financial position of NBP. So that the bank should manage this, in order to gain the
advantages of the market etc.
Cash ratio:

40
The cash ratio is an indication of the firm's ability to pay off its current liabilities if for
some reason immediate payment were demanded.
Formula: Cash Ratio = Cash / Current liabilities
Computation:
2010 2011 2012
115,442,360/860,262,110 131,843,344/964,186,989 158,756,638/1,103,574,872
0.13 0.13 0.14

Interpretation:
The cash ratio shows that, in 2010 and 2011 the ratio is 0.13, but it increase in 2012 with
0.14. This means that NBP have more cash than their liability, and NBP easily cover their
liabilities with cash in hard times.
Acid Test Ratio:
Formula: Acid test ratio OR Quick ratio = Current assets Advances / Current Liability
2010
947,687,548 - 477,506,564/860,262,110
0.55

2011
1,051,362,213 - 528,121,596/964,186,989
0.54

2012
1,202,242,250- 661,344,807/1,103,574,872
0.49

Interpretation:
The acid test ratio shows that, in 2010 the ratio is 0.55 which decreasing in 2011 and
2012 with these ratios 0.54 and 0.49. The liquidity ratio measure a firm's ability to meet its

41
current obligations. We see that there is decrease in the ratios if we compare these with one and
other.
Working Capital:
Working capital compares current assets to current liabilities, and serves as the liquid
reserve available to satisfy contingencies and uncertainties. A high working capital balance is
mandated if the entity is unable to borrow on short notice.
Formula: Current asset current liabilities
Computation:
2010 2011 2012
947,687,548 - 860,262,110 1,051,362,213 - 964,186,989 1,202,242,250 - 1,103,574,872
87,425,438 87,175,224 98,667,378

Interpretation:
The working capital shows that, it increases from 2010 to 2012 with its amounts given
above in table. The ratio indicates the short-term solvency of a business and in determining if a
firm can pay its current liabilities when due. There the working capital is increases from 2010 to
2012 respectively.

Net Working Capital to Sales Ratio:


Formula: Current asset current liabilities/sales

Computation:
2010 2011 2012
87,425,438/88,472,134 87,175,224/95,956,361 98,667,378/101,125,889
0.99 0.98
0.91

Interpretation:
The net working capital to sales ratio shows that, in 2010 the ratio is 0.99, in 2011 the
ratio is 0.91, in 2012 the ratio is 0.98. So that, the ratio indicates the short-term solvency of a
business and in determining if a firm can pay its current liabilities when due

42
Total Debts to Assets:
Provides information about the company's ability to absorb asset reductions arising from
losses without jeopardizing the interest of creditors
Formula: Total liabilities/ total Assets
2010 2011 2012
906,528,852 / 1,035,024,680 1,019,012,206/ 1,154,966,422 1,159,982,395/ 1,316,160,457
0.88 0.88 0.88

Interpretation:
The total debt to total asset shows that, in gradually there is equal ratio from 2010 to 2012
with its values given in above table. There is comparison between total debts of the company to
the total assets of the company.
Advances to Deposits Ratio:
The loan to deposit ratio is used to calculate a lending institution's ability to cover
withdrawals made by its customers.
Formula:Advances to Deposits Ratio = Advances / Total Deposits

Computation:
2010 2011 2012
477,506,564/832,151,888 528,121,596/927,410,553 661,344,807/1,038,094,985
0.57 0.57 0.63

Interpretation:
This ratio shows that, from year 2010 to 2012 with its values given above the table. It
means the efficiency on NBP is good and they use their deposits efficiently in advancing to
borrowers. Here high ratio is required. The next side of the picture is that the people will think
that is risky to deposit the money in the bank

Solvency Ratio Analysis


Solvency analysis of a firm indicates the amount of the other people money being used to
generate profit. In general, these analyses are more concerned with long term debts, because
these commit the firm to a stream of payments over the long run. Solvency analysis includes

43
Proprietary Ratio:
Proprietary ratio refers to a ratio which helps the creditors of the company in seeing that
their capital or loans which the creditors have given to the company are safe. Proprietary ratio
can be calculated as follows
Formula:Proprietary Ratio = Total Asset / Total Equity
2010 2011 2012
1,035,024,680/103,762,310 1,154,966,422/112,671,683 1,316,160,457/119,434,799
9.97 10.25 11.02

Interpretation:
This ratio shows that, there the ratio is increases from 2010 to 2012. This ratio shows the
solvency position of the bank. In other words, in there is an increase trend. It shows that very
small amounts of shareholders in asset contribution.

Horizontal Analysis:
This technique is also known as comparative analysis. It is conducted by setting
consecutive balance sheet, income statement or statement of cash flow side-by-side and
reviewing changes in individual categories on a year-to-year or multiyear basis. The most
important item revealed by comparative financial statement analysis is trend. A comparison of
statements over several years reveals direction, speed and extent of a trend (s). The horizontal
financial statements analysis is done by restating amount of each item or group of items as a
percentage. Such percentages are calculated by selecting a base year and assign a weight of 100
to the amount of each item in the base year statement. Thereafter, the amounts of similar items or
groups of items in prior or subsequent financial statements are expressed as a percentage of the
base year amount. The resulting figures are called index numbers or trend ratios.

44
Formula = Current Year amount / Base Year amount * 100.

Horizontal analysis of Statement of Financial Position


Particulars 2010 2011 2012
ASSETS
Cash & balances with treasury banks 100% 114.20% 137.52%
Balance with other banks 100% 92.36% 101.66%
Lending to financial institutions 100% 190.98% 35.96%
Investments_ net 100% 105.98% 113.81%
Advances net 100% 110.60% 138.49%
Operating fixed assets 100% 108.09% 110.51%
Deferred tax assets net 100% 114.67% 51.33%
Other assets net 100% 124.43% 152.92%
100% 111.58% 127.16%

45
LIABILITIES
Bills payable 100% 113.71% 179.44%
Borrowings from financial inst. 100% 137.65% 254.24%
Deposits and other accounts 100% 111.44% 124.75%
Sub ordinate loans - - -
Liability against assets subject to 100% 35.94% 86.91%
Finance lease.
Deferred tax liabilities - - -
Other liabilities 100% 118.57% 122.12%

100% 112.41% 127.96%


NET ASSETS 100% 105.80% 121.54%
REPRESENTED BY
Share capital 100% 125% 137.50%
Reserve 100% 107.20% 123.95%
Discount on issue of shares - - -
Unappropriated profit 100% 105.74% 107.24%

100% 108.62% 115.14%


Surplus on revaluation of assets 100% 91.22% 145.35%
100% 105.80% 121.54%

46
Profit & Loss A/c
Particulars 2010 2011 2012
Mark-up/return/interest earned 100% 108.46% 114.30%
Mark-up/return/interest expensed 100% 107.33% 124.98%
Net mark-up/interest income 100% 109.64% 103.13%
(Provision) / Reversal against non-performing loans and 100% (88.71%) (102.05%)
advances
(Provision) / reversal of diminution in the value of 100% (106.2%) (29.25%)
investments
100%
Provision against off balance sheet obligations
Bad debts written off directly - -
100% (93.8%) (80.43%)
Net mark-up/interest income after provisions 100% 114.37% 109.93%
NON MARK-UP/INTEREST INCOME
Fee commission and brokerage income 100% 103.29% 115.72%
Dividend income 100% 144.40% 189.15%
Income from dealing in foreign currencies 100% 144.57% 171.65%
Gain on sale of securities 100% 95.13% 128.18%
Unrealized loss on revaluation of investments classified 100% (520.6%) 14.50%
as held for trading.
Share of gain from joint ventures 100% 4.36% 1.48%
100% - -

47
Share of profit from associate
Other income 100% - -
Total non-mark-up/interest income 100% 111.94% 140.67%

100% 113.53% 120.58%


NON MARK-UP/INTEREST EXPENSES
Administrative expenses 100% 118.09% 140.19%
Other provisions / write offs 100% 374.80% 271.17%
Fixed assets written off 100% - -
Other charges 100% 115.95% 134.85%
Total non-mark-up/interest expenses 100% 119.53% 140.90%
Extra ordinary / unusual items 100% - -
PROFIT BEFORE TAXATION 100% 107.03% 98.60%
Taxation current year 100% (93.84%) (76.83%)
-Prior years 100% (27.68%) -
-Deferred 100% (52.97%) (18.58%)
PROFIT AFTER TAXATION 100% 122.69% 104.74%

Interpretation
The horizontal analysis of the balance sheet of the bank over all gives the positive trend.
The result of the balance sheet depict that there is a constant increasing trend in cash, total assets,
total liability and equity.
This technique is also known as comparative analysis. It is conducted by setting
consecutive balance sheet, income statement or statement of cash flow side-by-side and
reviewing changes in individual categories on a year-to-year or multiyear basis. The most
important item revealed by comparative financial statement analysis is trend. A comparison of
statements over several years reveals direction, speed and extent of a trend (s). The horizontal
financial statements analysis is done by restating amount of each item or group of items as a
percentage. Such percentages are calculated by selecting a base year and assign a weight of 100
to the amount of each item in the base year statement. Thereafter, the amounts of similar items or

48
groups of items in prior or subsequent financial statements are expressed as a percentage of the
base year amount. The resulting figures are called index numbers or trend ratios.

49
Vertical Analysis

Vertical analysis 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.
In a balance sheet, for example, cash and other assets are shown as a percentage of the total
assets and, in an income statement, each expense is shown as a percentage of the sales revenue.
In Vertical analysis, various components of the financial statements are standardized by
expressing them as a percentage of some bases.
Examples of common-sized statements include:
Components of the balance sheet expressed as a percentage of total assets
Components of the income statement expressed as a percentage of sales or
Interest earned

Formula:
The formula for Vertical Analysis is:
Individual item of financial statement/total of items head *100

Balance Sheet

50
Particulars 2012 2011 2010

ASSETS 100% 100% 100%

Cash & balances with treasury banks 12.06% 11.41% 11.15%

Balance with other banks 2.34% 2.43% 2.94%

Lending to financial institutions 0.63% 3.80% 2.22%

Investments_ net 26.05% 33.88% 29.11%

Advances net 50.24% 45.73% 46.18%

Operating fixed assets 2.26% 2.51% 2.60%

Deferred tax assets net 0.26% 0.69% 0.65%

Other assets net 6.13% 5.76% 5.17%

100% 100% 100%


LIABILITIES 100% 100% 100%

Bills payable 8.98% 0.89% 0.88%

Borrowings 4.41% 2.71% 2.21%

Deposits and other accounts 89.49% 91.01% 91.80%

Sub ordinate loans - - -

Liability against assets subject to finance lease. 0.003% 0.009% 0.011

Deferred tax liabilities net - - -


Other liabilities 4.85% 5.37% 5.09%

100% 100% 100%

NET ASSETS 100% 100% 100%

REPRESENTED BY

51
Share capital 11.85% 12.37% 10.47%

Reserve 19.40% 19.28% 19.03%

Discount on issue of shares - - -


Unappropriated profit 45.22% 51.22% 51.25

76.47% 82.87% 80.75%

Surplus on revaluation of assets 23.02% 16.60% 19.24%

100% 100% 100%

Interpretation:
In balance sheet of bank the most important item is earning assets. There are four earning
assets. Bank has strong earning assets like advances investments and lending to financial
institutions has major percentage in of assets of bank. In liability and equity analysis the
Borrowings from financial institutions and deposits have major portion and reserve and share
capital has major portion in equity.

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. In a balance sheet, for
example, cash and other assets are shown as a percentage of the total assets and, in an income
statement, each expense is shown as a percentage of the sales revenue. In Vertical analysis,
various components of the financial statements are standardized by expressing them as a
percentage of some bases.

52
Profit And Loss Account
Particulars 2010 2011 2012
Mark-up/return/interest earned 100% 100% 100%
Mark-up/return/interest 51.14% 50.61% 55.92%
Net mark-up/interest income 48.85% 49.38% 44.07%
(Provision) / Reversal against non-performing loans and (7.92%) (6.48%) (7.07%)
advances
(Provision) / reversal of diminution in the value of (3.33%) (3.27%) (0.85%)
investments
Bad debts written off directly - - -
11.27% (9.75%) (7.93%)
Net mark-up/interest income after provisions 37.58% 39.63% 36.14%
NON MARK-UP/INTEREST INCOME
Fee commission and brokerage income 10.88% 10.37% 11.02%
Dividend income 1.24% 1.65% 2.06%
Income from dealing in foreign currencies 2.50% 3.33% 3.75%
Gain on sale of securities 2.83% 2.49% 3.18%
Unrealized loss on revaluation of investments classified 0.007% (0.036%) 0.0009%
as held for trading.
Share of gain from joint ventures 2.45% 0.033% 0.09%
Share of profit from associate - 0.077% 1.83%
Other income - 2.65% 2.58%
Total non-mark-up/interest income 19.93% 20.57% 24.53%
Non-markup/interest expenses 57.51% 60.20% 60.67%

NON MARK-UP/INTEREST EXPENSES


Administrative expenses 29.62% 32.25% 36.32%
Other provisions / write offs 0.17% 0.58% 0.40%

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Fixed assets written off - - -
Other charges 0.13% 0.14% 0.16%
Total non-mark-up/interest expenses 29.92% 32.97% 36.88%
Extra ordinary / unusual items - - -
PROFIT BEFORE TAXATION 27.60% 27.23% 23.80%
Taxation current year (11.11%) (9.61%) (7.47%)
-Prior years (1.06%) 0.27% -
-Deferred (2.31%) (1.13%) (o.38%)
PROFIT AFTER TAXATION 19.85% 18.47% 16.70%

Chapter No. 7:
Conclusion

During my internship in the NBP it mass very good experience for me. It was really
amazing to work in the banking sector because working in such an organization is really
honorable for me. The bank staff was really co-operative for me and it its their greatness that I
am able today to write this report.

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An organization where employees work like a family is really a great professional field
in which everybody can make progress because there is no concept of leg pulling which I heard
about the organizations but after spending time in NBP my concepts has changed. During my
here I did all operations of banking.
Some qualities which I find are given below:
Very attractive place
A good environment
Extraordinary salaries
Friendly attitude

Some lacks:
No job timing
Customer Relationship department requires some changes
There should be Bankers but not the beggars

Chapter No. 8
Findings & Recommendations

In my opinion the process of a transaction should be short in order in save time for both
customers and the bank.
Staff strength should be enhanced and professional qualified persons should be recruited.
It is recommended that proper training be provided to the staff members that will
ultimately increase the performance of Bank over all.
It is suggested that promotion be given to the staff in due time and on the basis of
performance to provide job satisfaction.
The bank should spend more on renovation of the branches to improve environment and
atmosphere to attract the customers.
Sitting arrangement, air conditioning and new furniture should be facilitated

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The Bank should introduce the computers software to cope the heavy load of work and
better control.
Extra counters should be established in order to facilitate during the rush days the
difficulties faced by the bank staff as well as the customers.
All Branches of the Bank must be online.
All the departments should be established separately.
Bank can increase its profit ratio by reducing extra expenditures and to enhance the
volume of advanced especially retail loans.
I done internship, I recommend that security level in the bank should be enhanced
especially where I got internship and operation of Mobile phones must not be allowed
inside the Bank.
Bank should take step to establish separate counters for the old age employees and
pensioners.
The Bank should locate new market for its operational activities in the country as well as
abroad.
The Bank should increase profit rate on deposits and saving schemes especially for
pensioners and old age citizens.
For improvement of internal control and system the compliance wing and surprise
inspection system should work more effectively.
To avoid complaints and leaving the bank job number of staff should be enhanced and
their salaries should be leveled to the private/multinational banks.
Double shift system should be introduced to improve attitude and behavior of the
employees.
Payment of salaries and pensions should be made separately to accommodate the valued
customers and depositors.
For collection of utility bills i.e. Electricity bills, Telephone bills, Water and Gas bills
separate cash receipt counter must be established.
Procedure of receiving loans should be easy and short time to facilitate the borrowers and
enhance the profitability of the Bank.

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ANNAXTURE

N.B.P NATIONAL BANK OF PAKISTAN


S.B.P STATE BANK OF PAKISTAN
PKR PAKISTAN RUPEE
A.T.M AUTOMATIC TELLER MACHINE
P.I.N PERSONAL INDENTIFICATION NUMBER
P.O PAY ORDER
D.D DEMAND DRAFT
M.T MAIL TRANSFER
T.T TELIGRAPHIC TRANSFER
L/C LETTER OF CREDIT
57
SWIFT Society for Worldwide Interbank Financial
Telecommunication

References:
Money Banking and finance books
BOOK: Financial Statement analysis by Charles H Gibson 7th Edition
www.nbp.com
http://www.pakistanbanks.org/members/networks/nbp_bank.html
http://en.wikipedia.org/wiki/nbp_Bank
Website of State Bank of Pakistan
Financial statements of NBP

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