CHAPTER 1

INTRODUCTION TO REPORT
The internship reports compiled and submitted in the partial fulfillment of an academic
obligation for the degree of Master of Business Administration awarded by Hazara
University Dodhial Mansehra. The underlying purpose of this report is to studying and
analyzing the internship being carried out at National Bank of Pakistan city branch
Abbottabad.

1.1

Background of study

National bank of Pakistan was established under the National bank of Pakistan Ordinance
1949. This bank provides all types of banking services of the Government and general
public. The bank acts as an agent of central Bank wherever the state Bank does not have
its own branches. The bank is a scheduled commercial bank and is principally engaged in
the business of banking companies Ordinance 1962.
National bank of Pakistan is an equal opportunity employer. It offers great incentives and
benefits of their employees throughout the country and out of country. It provides full
opportunities for improving their careers and skills; it also gives more incentives to their
employees and increasing the rank of the smart and hard workers. In this report the
methodology is use as primary data and secondary data. Primary data is collected through
observation and interviews and secondary data is collected through annual report,
circulars, brushers, newspaper, manuals, internet and relevant books.

1.2

Objective of study

As part of the academic requirement for completing MBA (Finance) of the students are
required to undergo internship with an organization. The internship is to serve the

purpose of acquainting the students with the practice of knowledge of the discipline of
banking administration.
The primary objective of the internship is to fulfill the academic requirements of my
study as it is compulsory to do practical work in an organization and to gather. The
purpose of internship is to evaluate and analyze the practices of the bank in different
sectors of the economy and compares these parties with contemporary banking practices.
The purpose of the study also is, to do practical work, in the field and apply the
knowledge of classroom lectures to the real life situation.

To understand the various operations of the bank and work in different

departments.

1.3

To develop interpersonal communication.

To analyses the financial and operational performance of NBP.

To study the organizational management structure.

To make possible recommendation in the light of analyses.

To study the working environment of the organization.

To observe how to employees do their work.

To give a comprehensive review of NBP.

To present some feasible solutions for the problems pertaining of NBP.

To apply the knowledge gained in practical field.

Scope of the study

The scope of banking is so huge and bright that a person cannot understood through
internship of limited time of 6 weeks , and cannot work and understand every aspect of
the bank. The report does not include detail description, of all the NBP operations

however, the financial and SWOT analyses have been carried out for NBP as a whole.
The study of NBP will help the management to identify their weaknesses and threats and
overcome them by using their strengths and capitalizing on the opportunities. This
internship report will be source of financial data for all those who are interested in
financial statement analysis of NBP. Being a student with majors of Finance, the policies
and issues of the organization.

1.4

Limitation of the study

Anything of the universe is not perfect in all aspect the study may not include board
explanation of facts and figures due to the nature of study at limited time as mentioned
earlier. secondly, the limitation which effects the study is the restriction on mentioning
every fact of the bank due to the problem of secrecy of the bank also the availability of
the require data was a problem as all the documents and file are kept strictly under lock
and key due to their confidential nature. Thirdly some of the data was confidential and
was not made available to me. The fourth one is due to the busy schedule of the bank
complete information regarding different activities was not provided in time latest annual
report for fiscal year 2009 was not available for analyses

1.5

Merits of the study

The students of fianc will get the information particularly from the study of NBP, the
student of banking also can get benefit from the study; because the fourth chapter of the
report is encompass most of the aspects of banking, followed by SWOT analysis,
conclusion and recommendation.

1.6

Research methodology

The report is based on my 6 weeks internship program in National Bank of Pakistan. The
methodology reported for collection of data is primary as well as secondary data. The
biggest source of information is my personal observation while working with staff and
having discussion with them. Formally arranged interviews and discussions also helped
me in this regards.

1.6.1

Primary data:

Personal observation

Interviews of management

Customer response.

Discussion with staff members

1.6.2

Secondary data:

Manuals

Journals

Magazine

Annual reports

Internet.

CHAPTER # 2
INTRODUCTION TO ORGANIZATION (NBP)
2.1

Evaluation of banking / industry in world

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

started up at the principle seaports of southern Europe. Soon Venice and Geneva became
the most important money markets of the time and banking though different from its
present form, flourished. What we know as modern banking originated in the 14 th
century in Barcelona

2.2

Evaluation of banking / industry in pakistan

At the time of independence in 1947, Pakistans commercial banking facilities were

almost jammed according to a plan in the whole sub continent especially in the Muslim
majority areas. Pakistans banking and Industrial sectors were in very poor conditions.
Banks largely depend for their growth and development on industrial sector but at the
time of independence, Pakistan had patriotically on industry except a few textile mills
and only product food grains and agricultural raw materials, most of the industries were
situate in Hindu majority area now called India.
A number of banks closed their branches with the result that only 81 branches remained
open on 30th June 1948 out of 487. The head offices were in India and most of their
employees were Hindu, and they fled to India. Imperial Bank of India, Which was
conducting government receipts and payments, closed down most of its branches thus
blocking the funds needed by the government?
The country was in trouble and needed most of the general commercial banking and
credit facilities. This need was a little bit satisfied with the transferring of the head offer
of the HBL. To Karachi on 7 th August 1947. This bank playing a great role in the next
year in the economic development of Pakistan as the Hibib Bank was also new in the new
country it was asked to open more branches at new place this was a difficult time foe
H.B.L to open their branches in different places.
In view of the above mentioned circumstances and in order to rehabilitee the banking in
Pakistan without further delay, on the recommendations of an committee it was decided
to establish as early as possible a central bank to control the banning and currency in
Pakistan. Accordingly state bank of Pakistan was Pakistan was inaugurated by Quaid-e-

Azam Muhammad Ali Jinnah on 1st July 1948. This bank lost on time in meeting the
national requirements of banking, currency and took following remedial measures.

Requested Government of state a new bank of nation wide services

Accordingly National Bank of Pakistan was formed in 1949 which opened
many branches and in 1952 took over the emperor Bank of India.

It will draw Indian Currency notes of Rs: 125 crore from General Circulation
and send these for recovery to reserve Bank of India.

In order to health the growth of foreign trade foreign exchange department was setup in
state Bank of Pakistan. Banking companies (control) act 1949 empowering state bank of
Pakistan was passed.

2.3

The following banks were also opened

1. Agricultural development bank was setup to finance agriculture production in Order

to overcome food shortage.
2. Pakistan industrial credit and investment corporation ( PICIC ), was acted to Finance
Industrial projects
3. United bank limited was established to meet the increasing demand for funds,
Consequent Upon the commodity market become firm. The following banks and
other financial institutions were also formed with the passage of time.

2.4

Commerce Bank limited

Standard Bank Limited

Muslim Commercial Bank limited

Australasia Bank Limited

Historical introduction to the organization (NBP)

7

National Bank of Pakistan maintains its position as Pakistan's premier bank, determined
to set higher standards of achievements. It is the major business partner for the
Government of Pakistan with special emphasis on fostering Pakistan's economic growth
through aggressive and balanced lending policies, technologically oriented products and
services offered through its nationwide branches.

2.4.1 History of NBP

National bank was establish in November 09, 1949 under NBP ,ordinance 1949, in order
to handle the crises condition which was develop after Deadlock with India and the
devaluation of Indian Rupee in 1949. The bank proved all type of banking services to the
government in general public. It works as agent of sent real bank because the SBP dose
not has its own branches.
The bank schedule commercial bank and its principally engaged in the business of
banking as defined in the banking company's ordinance 1962. National Bank of Pakistan
was basically established for reducing the difficulties of east Pakistan farmers engaged in
jute and patens after mass migration of community from east and west Pakistan in
India. The bank commenced its operation in November 20.1949 at six centers of jute in
the then East Pakistan. Lahore and Karachi officers were opened subsequently in
December 1949. Before restructuring in 2002, national Bank of Pakistan with its head
office at Karachi operates through 9 regional headquarters at Lahore, Karachi Hyderabad,
Quetta, Peshawar, Multan, Muzaferabad, Fasilabad and Islamabad.
The bank was incorporated with authorized capital of 60 millions .in 960 this amount
was redacted to the 30 millions banks issued 15 millions of which 25% was subscribed
by the government and the balance was offered to the general public .shears to the public
where issued in 1950 and where quickly taken up. In 190 banks ordinance was amended
so that it take ordinarily commercial banking business. On janvery-01-1974 national bank
along with thirteen others commotional banks where nationalized under the promulgation
of nationalization act 1974 and the shears not held by the government where required
after compensation them.

The period 1990s witnessed financial referees and the national bank also in cooperated
the change in its working and offered new services and products to its clients .at present
the bank is playing very important role in financing the trade .commerce ,agricultural and
important concerns and contributing the best to word making the country prosperous. The
improve its costumer focus redacted decision making layers restructured its entire
command and control system in business and operational spheres zones and audit offices
in the year 2002 and eliminated the total numbers of regions in hands from 9 to 29 across
the country .anew matrix structure has been introduced with the objective to separate the
office and the bank offices .to improve the good governance and enhance the internal
control.
1. Operation group
2. corporate and investment banking group
3. special assets management group
4. commercial and retail banking group
5. audit and inspection group
6. overseas Coordination and Management Group
7. Risk Management Group
8. Treasury Management Group
9. I.T. Planning and implementation Group
10. Human Resources and Administration Group
11. Compliance Group
12. Organization development and Training Group
National Bank of Pakistan is known as the premier commercial institution of Pakistan
provide the large diversified customer base of 9.009 millions, which is the biggest figure,
in the country and conduct the business function of state bank of Pakistan in addition to

provision of other financial and allied services such as deposit banking financing and
credit remittance facilities collection government receipts and payments. sale and
purchase of government securities, Bands and other certificates, Foreign exchange
business, Safe custody, Safe deposited services and safe deposit, Lockers, Hajji facilities
Utility bills, Investment advice and other services, Special deposits products / Schemes,
Pak rupee travelers choose, New product

2.4.2 Present status

National Bank of Pakistan has a network of 1,272 domestic branch and 15,204 employees
for subsidiaries, 18. Oversea branches, 4 reparative offices, 1 joint venture and subsidiary
(overseas) all the world the local branches are controlled through 29 regional offices and
overseas are managed through 4 overseas regional offices. It is the largest contributory
agent of government requirement. NBP provide wide range of services and including
collection of taxes and deliveries of salaries, person to public sector employees. It has
lowest rate on exports and other borrowings.
NBP not only enjoy a unique position in the banking sector in Pakistan but also in the
global banking and the financial sector. National Bank of Pakistan has been included in
the top ten huge banks of the world, it is only domestic bank of the country of which has
been awarded The Best Domestic bank NBP, in its domestic operations has a total
network of 1189 domestic branches, 29 regional offices, along with 9 regional Audit
offices and 4 local subsidiaries including, National Bank of Pakistan mudaraba
management company national capital limited NBP exchange company Taurus securities
limited.
National bank of Pakistan, overseas operation comprises 18 overseas branches, 5
representative offices, one international subsidiary bank of NBP in Amatory and one joint
venture with the United Kingdom. NBP with its commitment to invest in development of
the banks I.T infrastructure have now developed on line branches with modern by highly
professional bankers.
National Bank of Pakistan is also the first bank which started Foreign Exchange
Company in order to facilitate the general masses, regularize the inflow of the foreign
10

money and control, the undesirable blackmailing of the private exchange companies in
the country. The JCR_VIS credit rating agency, as affiliate of Japan's credit agency has
awarded credit rating AAA rating on September 20,2002 which is more than stable in
whole banking industry of Pakistan. The NBP has in millions the 7,500 authorized
capital, paid up capital 7,091,shareholders equity and reserves 81,954, deposits 501,872,
advances net 316,110, investment net 316,110,total assets 635,133, pretax profit
26,311,after tax 17,022.

2.5

Credit ratings

NBP enjoys the highest of credit ratings of AAA in the industry assigned by JCR-VIS
Credit Rating Company Limited on a standalone basis

which are used in the national

bank of Pakistan are given as following.

Credit rating for entity value

AAA/A-1+

Credit rating for standalone

AA+/A-1+

JCR-VIScredit rating company

2.6

Auditors

Auditors are the persons who check the accountings standards in an organizations
financial statements and check either these are true or there is fraud in the financial
statements. The auditors of the national bank of Pakistan are,
i) Ford Rhodes Sidat Hyder & co.
ii) Tareer Hadi Khalid & CO Chartered accounts.

2.7

Board of directors

The members of the Board of Directors of National Bank of Pakistan are as follows:
i)

Syed Ali Raza (Chairman & President)

ii)

Mian Kausar Hameed (Direstor)

11

2.8

iii)

Ibrar A.Mumtaz (Director)

iv)

Tariq Kirmani (Director)

v)

Muhammad Ayub Khan Tareen (Director)

vi)

Haniya Shahid Naseem (Director)

vii)

Nazrat Bashir (Direstor)

Organizational structure

BOARD OF
DIRECTORS

PRESIDENT/CHAIRMAN

EXECUTIVE
COMMITTEE

REGIONAL CHIEF
EXECUTIVE

CORPORATE

2.9

BRANCH MANAGER

ZONAL CHIEF

Head office

Head Office of the National Bank of Pakistan is situated at Karachi, the industrial capital
BRANCH MANAGER

of Pakistan, from where it controls all the affairs of the bank. The President of the bank
chairs Head Office. A secretariat is also working at the Head Office level for the
assistance of the president. The secretariat includes one Senior Executive Vice President
as Advisor to the president.
Head Office is rather a big body with a huge task. For smooth functioning of these
matters, the whole head office is divided into twelve Departments & Groups. Each

12

Department or group is under the control of a Senior Executive Vice President and Group
Chief.

2.10 Domestic network

The domestic network of NBP consists of 9 Regional Offices, 40 Zonal Offices, 1,255
branches and 6 subsidiaries.

2.10.1 Subsidiaries
The five subsidiaries of NBP are as under:
i)

NBP Exchange Company Ltd..

ii)

NBP Capital Limited.

iii)

NBP Modarba ManagementCompany Limited

iv)

Taurus Securities Limited.

v)

National Agricultural Limited

vi)

Cast N- Link Products Ltd.

2.11 Overseas network

The Overseas network of National Bank of Pakistan consists of 22 overseas branches, 3
Representative Offices and 1 Subsidiary in Kazakhstan.

2.11.1 Overseas branches

The Overseas branches are in the following countries:
i)

USA

ii)

France

13

iii)

Germany

iv)

Bahrain

v)

Pakistan KEPZ

vi)

Bangladesh

vii)

Hong Kong

viii)

Republic of Korea

ix)

Japan

x)

Afghanistan

xi)

Turkmenistan

xii)

Kyrgyzstan

xiii)

Azerbaijan

2.11.2 Representative offices

The four Representative offices are situated in USA, Republic of China, and Uzbekistan.

2.12 Corporate branches

Despite being the premier commercial bank of the country the impact of NBP on the
corporate banking sector has been marginal. The concept of corporate branches has now
been made an integral part of the banks operational thrust. It aims at providing optimum
performance and one-stop shop service to the banks corporate and high network clients.
The concept of corporate branch is based on a package of services aimed at full customer
satisfaction across the entire spectrum of banking and financial service needs. The client
is enabled to accomplish all his banking and financial requirements under one roof and
with one contact. In this regard the functions of the corporate branch will revolve around
an account/relationship officer. Each individual account will be opened with a minimum
deposit of Rs. 5,000,000.

2.13 Mission statement

To be recognized in the market place by institutionalizing a merit

& Performance

Culture, creating a Powerful & distinctive brand identity, Achieving Top-truer financial
14

performance, and adopting & living out our core values, NBP will aspire the value that
make NBP Truly the Nation bank by.

Institutionalizing a merit & Performance culture.

Creating a distinctive brand identity by providing the highest standard of services.

Adopting the best international management practices.

Maximizing stake holders value.

Discharging our responsibilities as corporate citizen of Pakistan and in courtiers

where we operate.

2.14 Vision statement

To be recognized as a leader and blank equal with trust highest standard of service
quality, international best practices and social responsibilities to be the most excellent
financial institution in Pakistan and active market recognition both in the quality and
delivery of services as well as the range of product offering.

Growth through creation of sustainable relationship with our customer.

An international presence with the history of contribution to our communities.

Care about relationship.

Leader in our industry.

An organization mentioning the trust of stakeholder.

An innovative creative and dynamic institution responding to the changing need

of the Internal and external environment.

2.15 Objectives

15

To enhance profitability and maximization of NBP share through increasing leverage of

existing customer base and diversified rage of product .the objective are National Bank of
Pakistan are as under.

To earn the profit

To develop the economy

To provide the latest banking facilities to its customers

To improve customers services

To offer specialized services to major corporate

2.16 Core values

Highest standards of integrity.

Institutionalizing team work and performance culture.

Excellence in services

Awareness of social and community responsibility.

Value creation for all stakeholders

CHAPTER # 3
DEPOSITS & REMMITTANCES
3.1

Introduction

Deposits are the foundation out of which the bank grows and thrives. They are unique
items on a banks balance sheet that certainly distinguishes a bank from other types of

16

business firms. Deposits provide most of the raw material for bank loans and thus,
represent the ultimate source of bank profits and growth. Bankers who fail to stay abreast
of changes in their competitors deposit pricing and marketing programs stand to lose
both customers and profits.

3.2

Types of deposits/products offered by NBP

National Bank of Pakistan maintains its position as Pakistans premier Bank determined
to set higher standards of achievements. It is the major business partner for the
Government of Pakistan with special emphasis on fostering Pakistans economic growth
through aggressive and balanced lending policies, technologically oriented products and
services offered through its large network of branches.
National Bank classifies deposits on the basis of duration and purpose for which these are
kept with the bank. They are as follows:

3.2.1 Pls (saving deposits)

PLS means Profit and Loss sharing Account. Here the bank shares with the customer the
profit or loss resulting from investment of customers funds along with the banks pool of
funds.

Salient features
i)

This account is opened with Rs.100/- at the end of each half accounting period.

ii)

Profit is declared by the head office of NBP and the profit distributed amongst
all the branches.

iii)

Profit is calculated @ 4.10% p.a.

iv)

For profit the minimum balance is Rs. 5,000.

v)

Profit or return is paid bi-annually on minimum monthly balance (Jan-June &

July-Dec.) which is announced in July and January respectively.

17

vi)

Generally withdrawals from PLS saving accounts are allowed on demand, i.e.
without any prior notice of withdrawal.

vii)

All cheques and other instruments should be crossed, before they are deposited
for credit into account.

viii)

Zakat @2.5% is deducted from the balance outstanding on the first day of every
valuation date i.e. 1st Ramadan.

ix)

Overdraft/CF is not allowed in PLS saving accounts.

x)

Withholding tax @ 10% on the profit amount is to be recovered whenever profit

is paid on deposit account.

3.2.2 National income daily account (NIDA)

The scheme was launched in December 1995 to attract corporate customers. It is a
current account scheme and is part of the profit and loss system of accounts in operation
throughout the country. Rs. 2 Million is needed to open the account with no maximum
limit. Profit is paid on a half-yearly basis on a monthly average balance. The rates of
profit vary according to the slabs of deposit. On Deposits of Rs.2 million Rs.2,000
million, the rate fluctuates from 7.50% to 8.75%. It is a checking account and there is no
limit of withdrawals.

3.2.3 Pls (term deposits)

The PLS Term Deposit is non-interest bearing techniques. It is also called time liability
because it is kept for a certain period of time by the bank. Initially this type of deposit
was called as fixed deposits but after the islamization of banking system in 1985, its
name has been changed from fixed to PLS Terms Deposit.
Salient features
a. The minimum deposits is accepted by the bank with the sum of Rs.1000/b. The maximum deposit has got no limit.

18

c. The deposits are accepted for the period from three months maximum to above.
d. The maturity dates are 5 years, 4 years, 3, 2, 1 year, 6 months and 3 months.
e. Every six months the profit rates are changed.
f. The PLS term depositors would be eligible for sharing profit/loses with the bank
at true rate determined by the bank.
g. Where profits and losses would be distributed on half yearly basis.
h. On the maturity, the depositors shall have an option either to draw the deposit and
the amount of his profit share if any or renew the deposit.

3.2.4 Pls special notice deposits

NBP opens profit and loss special Notice Deposits of 30 days and 7 days maturity. This is
a special type of Term deposit being offered by NBP. Profit @ 4.0% on 7 days deposit
and @ 5.0% on 30 days deposit is given to the deposit holders.

3.2.5 Current deposits

A current account is that account which is payable on demand. A holder can withdraw the
money on any date during working hours without giving any prior notice to the bank.
That is why the bank has to keep sufficient funds to meet uncertain funds of the current
account holder.
Salient features
i)

The account holder is expected to maintain a minimum balance of Rs.500/- in

his account or whatever the minimum amount is prescribed for the purpose.

ii)

No profit or return is paid on current accounts.

iii)

The deposits and withdrawals can be made through cheques, demand drafts,
pay orders etc. drawn on the branch.

19

iv)

These accounts are completely exempted from withholding tax and Zakat
deduction.

3.2.6 Call deposit account

It means the deposit from which the money deposited can be withdrawn at any time by
presenting receipt of call deposit issued from the bank. The purpose of these deposits is to
serve as a guarantee provided by bank to any department either public or private in taking
or giving tenders. This type of account is for the purpose of to participate in tender bid;
contractors are required to deposit a certain amount or percentage of the tender amount
along with the tender documents for which Call Deposit Receipt are issued by Banks.
Call deposit are return free.
When a contractor requires such a receipt, He approaches his bank for the issuance of
Call Deposit Receipt.

3.2.7 Foreign currency term deposits

All individuals including resident citizens and corporate bodies are entitled to get term
deposits. Foreign currency accounts are opened on proper introduction and submission of
required documents along with an initial deposit prescribed from time to time. Banks are
allowed by SBP to fix their own rates of interest for term deposits of 3 months, 6 months,
12 months, 2 years and 3 years provided they do not exceed the Euro-Dollar Bid rates of
Barclays Bank, London, plus the margins prescribed by SBP from time to time. The
Barclays Bank Bid rates and the maximum rates for payment of interest including
margins allowed by State Bank are published daily by Foreign Exchange Rates
Committee.
Salient features
i)

Interest on term deposits of 2 years and 3 years will be paid on yearly basis.

20

ii)

The return on foreign currency account will be paid on six monthly basis
during June & December.

iii)

The return on term deposits will be paid on maturity or as prescribed by the

state bank of Pakistan.

iv)

Term deposits will be automatically renewed for a like period and amount
including or excluding return as per instruction by the depositor.

3.3

Account opening procedure for opening of an account

The opening of an account is the establishment of banker customer relationship. Before a

banker open a new account, the banker should determine the prospective customers
integrity, respectability, occupation and the nature of business by the introductory
references given at the time of account opening. Preliminary investigation is necessary
because of the following reasons.

Avoiding frauds

Safeguard against unintended overdraft.

Negligence.

Inquiries about clients.

3.3.1 Formal application:

The customers are to fill in an account opening form. It is a formal request by a customer
to the bank to allow him to have and operate the account.

3.3.2 Obtaining introduction:

The bank before opening an account obtains introduction of the customer from an old
customer.

3.3.3 Specimen signature:

21

The customer gives the banker a specimen signature generally taken on a card specially
designed for the purpose, and rules for the customer, full name and account number are
entered on it. It expresses customers authority for the payment of cheques drawn on his
banker.

3.3.4 Minimum initial deposit:

The customer must have to maintain the minimum amount with the bank according to the
requirements.

3.3.5 Operating the account:

After opening an account the banker gives to the customer

Pay-in-slip book

Pass book

Cheque book

3.3.6 Qualification of a customer:

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

3.4

He must be of the age of majority.

He must be of sound mind.

He must not be disqualified by law.

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

Not expressly declared void.

Nature of accounts

The different types of accounts being generally opened by a bank are as follows:

22

3.4.1 Individual accounts

The accounts opened in the name of one person are called individual or personal account.
While opening the individual account, the details about following columns should be
taken carefully:

Occupation

Address

Special instructions

Next of kin

Copy of N.I.C.

3.4.2 Partnership firms account

As per section 4 of the Partnership Act, 1932:
Partnership is the relation between persons who have agreed to share the profits of
the business, carried on by all or any of them acting for all.
A partner is the agent of the firm having powers to execute transactions for the purpose of
the business of the firm. A retiring partner has no liability so far as the transactions after
retirement are concerned, if a notice of such retirement has been given to the bank.
Otherwise, the retiring partner continues to be liable, even for finances made after his/her
retirement.
In case of the death of a partner, the firm will be dissolved. The account should therefore,
be closed and a new account will be opened with the remaining partners.
The following procedure and documents should be taken:

The names of all partners should be written in AOF.

Specimen signatures of all partners.

23

On SS card & on form A only authorized person(s) will sign.

Letter of partnership should be obtained.

If the firm wants to authorize manager to operate the account then they will
sign the Form CD 55 and the bank will send Form 62 to all partners for
confirmation.

Partnership deed should be obtained (not necessary).

3.4.3 Joint accounts

The account in the name of more than one person is called joint account.
The account shall be operated on by:

Any one singly or survivor or either or survivor(s).

Any two or jointly or survivor(s).

All jointly or survivor(s).

The survivorship mandate should be taken.

Signature of all partners at the specified places.

3.4.4 Joint stock companies account

All companies having been formed by incorporation under Companies Ordinance, 1984.
It is an artificial person created by law and the assent of this artificial person is signified
by means of a common seal and perpetual succession. Just like an individual, it can hold
property and incur debits. It can sue and can be sued in the same way as that of an
individual. Bank is a joint stock company registered under companys act 1984.
While opening the account of the company the following documents should be taken:

Attested copy of the N.I.C of each Director.

24

Copy of the Certificate of Incorporation.

Copy of Memorandum and Articles of Association.

Copy of the Resolution of the Board of Directors.

List containing the names and signatures of the Directors.

Copy of the Commencement of Business (in case of public limited company).

Audited Balance Sheet.

3.4.5 Associations, societies & clubs accounts

Accounts are often opened in the names of non-trading institutions such as Clubs,
association, schools, committee, funds and Unions.
The following documents should be taken:

Attested copies of N.I.C of all the office bearers.

Certified Copy of the bye-laws or rules & regulations.

Copy of the Resolution of the Governing Body/Managing Committee.

Account opening form duly signed by the authorized persons.

List containing the names, addresses and signatures of the Directors.

3.4.6 Proprietary fitrms account

A firm owned by one person is called proprietary firm or solo proprietor.
Only Current A/C is opened for the proprietary firms.
The following procedure should be followed:

Take the solo proprietorship form from the customer.

25

The signature of the sole proprietor is obtained in his/ her personal capacity under
the declaration.

If He wants to give authority to some other person to operate the account He will
sign the Form CD 55.

In case of death of the proprietor, any authority given to any one will be ceased.

3.4.7 Trust account

A Trust has been defined in section 3 of Trust Act, 1882, in the following terms:
A Trust is an obligation annexed to the ownership of property and arising out of a
confidence proposed in and accepted by him for the benefit of another, or of another and
the owner.
Any person who is competent to contract may create a Trust which must be for a property
transferable to the beneficiary. The account should be opened in the name of Trust and all
the trustees should sign the account-opening form. The banker should examine the
Instrument of Trust very carefully, and a copy of it should be kept on record.

3.5

Remittances/clearing

3.5.1 Introduction
Along with other services, NBP is also providing the facility of transfer of funds from
one bank to another bank and from one place to another place. The transfer of funds is the
main responsibility of the remittances department.

3.5.2 Mail transfer

It is a mode of transferring money from one branch to another branch within the city or
outside the city or outside the country. It is an order by a bank to its branch, agent or
correspondent in a foreign center. It is an order to pay a specified sum of money to the
person named in the mode of transfer. It is sent by sea or airmail.

26

If the customer is an account holder of the bank, then the bank will debit his account. The
concerned officer will fill three forms to make the mail transfer complete. The forms used
for this purpose are listed below
1. Debit Voucher
2. Credit Voucher
3. Mail Transfer Register Entry
If the customer is not an account holder of the bank, firstly, he/she has to deposit money
and then the above said procedure will be adopted to transfer his/her money.

3.5.3 Telegraphic transfer

With the changing requirements of today, NBP has introduced the fastest transfer of
money possible, i.e. telegraphic transfer. This service may be provided to the public on
their written request and against the value received.
In case of telegraphic transfer, instructions regarding payment are sent to the drawee
branch telegraphically i.e. the order to pay is sent by cable. These telegrams, which
authorize payment to the payee, should be sent to the drawee branch in a coded language
and under a confidential number known as a test number The rate of TT is always
higher than the rate of MT.

3.5.4 Demand draft

Demand draft (DD) is another way of transfer of money from one bank to another bank.
It is a written order, drawn by one branch of a bank upon another branch of the same
bank, to pay a certain sum of money to or to the order of a specific person. Drafts are not
issued, or drawn on branches situated within the same city.
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.

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Types of demand drafts

NBP deals in two types of DDs.
a. Open DD
It is one which is payable directly at the counter and there is no need of crediting it to the
account.
b. Cross DD
It is one whose payment is done through account. The amount of DD is credited to the
favoring account and then the amount can be withdrawn through cheque.
c. Payment order (po)
Payment order (PO) is the most convenient, simple and secure way of transfer of money.
It is used for local transfer only. A pay order is a written order issued by a bank or its
branch, drawn upon and payable by itself. It is an order to pay a specified sum of money
to or to the order of a specific person. For the issuance of Pay Order NBP charges Rs.50
(flat) and for the Cancellation/Issuance of Duplicate NBP charges again Rs.50 (flat).
d. Travelers cheque
Travelers cheque is an order drawn by a bank upon itself to pay a specified sum of
money on demand to the purchaser of the cheques. The paying bank after comparing the
signature of purchaser which he has signed at the time of the purchase of cheques, makes
the payment.
Salient features
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

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Denomination:

Rs.5000, 10000, 50000 and of Rs.100,000.

Limitation:
Safety:

No limit on purchase
NBP Travelers Cheques are the safest way to carry our money

3.5.5 Collection cell/clearing department

The main function of the clearing department is the interchange and settlement of credit
claims. This is usually done through a clearing house.
A clearinghouse is an association of commercial banks setup in a given locality, for the
purpose of interchange and settlement of credit claims. The function of a clearinghouse is
performed by the central bank of a country by tradition or by law. In Pakistan, the
clearing system is operated by the State Bank of Pakistan. If SBP has no office at a place,
then the NBP, as a representative of SBP, acts as a clearinghouse.
The mechanism whereby cheques are exchanged in bulk and the cross obligations of
banks are offset is explained in brief as follows.
In practice the person receiving a cheque as payment deposits the cheque at the bank
where he/she has an account. The cheque is deposited for collection purposes. The bank
stamps the cheque which states that the payees account will be credited on realization
from the other bank i.e. the bank on which the cheque is drawn.
Now the bank in which the cheque has been deposited becomes creditor of the drawer
(other) bank. The debtor bank will pay the amount of cheque by transferring it from cash
reserve, if there are no offsetting transactions. At the same time, the creditor bank
receives large amounts of cheques drawn on it by other banks giving claims of payments
by them. It will be most uneconomical and confusing if the bank had to transfer cash for
meeting each liability. The easiest and safest way is to offset the reciprocal claims against
one another and receive only the net amount owned. This facility is provided by the
clearing house i.e. SBP.
In Abbottabad, the cheques of the clearing department are sent to the NBP City (Main
Branch) for clearing at clearinghouse. The official of the clearing department make entry
29

of Cheque coming from each branch in a register, which is called Transfer Delivery
Register. Then they arrange the entire cheques bank wise. The representative of all
commercial banks meets at a fixed time on all the business days of the week in the
morning is SBP. The representative of NBP hands over the cheques drawn on other banks
to the representative of the bank and collects the cheques drawn on NBP. A summary
sheet is prepared which shows the amount and name of the Branch and bank on which the
cheque was drawn; the total number of cheques delivered and received by them and the
total amount is calculated.
After this process the officials of clearing department separates cheques of each branch of
NBP. Which are then send to the respective branches via peon for clearing. Then three
copies of Inter Office Advice Clearing are prepared. This show the net amount credited or
debited. One copy is sent to HOK, one to the concerned branch and the other for office
record.
The branches of NBP receive the cheques, DDs RTC for clearing. They check all these
and if some condition is unfulfilled, they are returned to Main Branch with the reason
showing the causes of dishonor. The branches keep the honored cheques. The peon
collects the remaining cheques form branches and submits these to the City Branch. The
officials at the clearing department makes required changes in Transfer Delivery Register,
if cheques are returned from branches.
In the second session of the clearinghouse, representatives of the banks meet again. There
the dishonored cheques are returned to the representatives of the banks. The net amounts
owed or payable are settled by debiting/crediting the bank by the SBP official.
The functions of the clearing department are very technical and require accuracy and
quick response. Delay or negligence in the clearing department is very costly to the bank.

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CHAPTER # 4

FINANCES
ADVANCES/FINANCES

4.1

Introduction

The principal reason banks are chartered by state and federal authorities is to make loans
to their customers. Banks are expected to support community with an adequate supply of
credit for all legitimate business and consumer activities. Indeed, making loans is the
principal economic function of banks-to fund consumption and investment spending by
businesses, individuals, and units of government. How well a bank performs its lending
function has a great deal to do with the economic health of its region because banks
support the growth of new businesses and jobs within the banks trade territory and
promote its economic vitality.

4.2

Principles of financing

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Basically there are six principles, which must be duly observed while advancing money
to borrowers.

4.2.1 Safety:
Covering the elements of character, capacity, capital, security and condition.

4.2.2 Liquidity:
Covering the element of capability to liquidate or repay on maturity and also prior to the
maturity, in case of need.

4.2.3 Term or period of the time:

The facilities granted should be for a predetermined period of the time, which would
depend on whether the bank is offering short, medium, or long term facility and as the
purpose of financing.

4.2.4 Dispersal:
The lending portfolio should be as wide-based and diversified as possible in order to
spread the risk.

4.2.5 Remuneration:
Pricing the loan according to the risk undertaken and the ancillary business income
committed is very important in order to ensure that optimum revenue is generated from
the advance portfolios.

4.2.6 Suitability:
Purpose of the facility should be acceptable under law and conform to the policies and
imperatives of the bank, as outlined in its credit policy guidelines.

4.3

Types of credit

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On the basis of funds involved can be categorized as fund and non-fund based. Fund
based financing involves immediate disbursement and flow of funds. Here the funds are
provided to the customers upon sanction of the respective credit lines. While the nonfund based facilities are contingent facilities such as letter of credits and L/Gs. Credits on
the basis of period involved are classified as:

Short term Up to 1 year

Medium Term Up to 3 years

Long Term Above 3 years

LOANS, ADVANCES
& FINANCES
NON FUND BASED
FUND BASED

FINANCES

FINANCES
Short Term

Letter of Credit

Medium Term

Letter of Guarantees

Long Term

4.4

Types of advances offered by NBP

NBP Credit department deals with all the advances, which are made to the customers.
Advances are important for the banking business because it gives the bank interest on the
amount loaned. NBP is also very active in advancing loans to customers, thus helping the
economy of the country in its development. It provides the following finances:

4.4.1 Running finance

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This is a type of Finance which meets the day to day finance requirements of the
business. The amount is transferred to the debtors current account and can be withdrawn
through cheques. The limit of this type of finance is 35000 and the maximum period for
this type of finance is one year and can be renewed by a new application. Repayment is
on discretion of the customer to pay back lump sum amount or otherwise.

4.4.2 Secured running finance

It is also called overdraft. In such type of finance a customer is authorized to borrow up
to an agreed amount in excess of his bank balance. The NBP provides this facility to its
customer usually; such loans are extended for small amount at lower rate for shorter
period. The time period for this type of finance is less than one year. The mark up is paid
at monthly basis and the principal amount is repaid at a specific date.

4.4.3 Cash finance

Cash finance is also called working capital. It is a short-term loan. Probably the most
popular form of providing funds to the clients in the banking sector is the Cash Finance
system or traditionally known as Cash Credit. In this, the bank lends money to
borrowers against tangible security. The total amount of loan, which is granted, is not
paid in one installment. The borrowers have to pay markup on the amount borrowed.
Cash finance is obtained either by
a. Hypothecation (When goods are not physically handed over to the bank as
security for loan advanced, but the bank has a lien over the goods)
b. Pledge (When goods are physically handed over to the bank as security for loan
advanced)
Borrowers prefer this type of lending because he has only to pay the makeup if the
amount is actually utilized. The time period for this type of finance is normally for one
year but also depends on the manufacturing cycle of the business.

Documents required under cash finance

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Against pledge

Application/agreement with the customer for opening cash finance account.

IB 6 (revised) (Mark-up Agreement)

IB 26 (Letter of Pledge)

IB 12 (Demand Promissory Note)

Letter from customer authorizing the bank to debit salaries of go down staff,
insurance premium and other incidental charges to his account.

Insurance cover together with premium paid receipt.

Against hypothecation and third party guarantee

Application/agreement with the customer for opening cash finance account.

IB 6 (revised) (Mark-up Agreement)

IB 12 (Demand Promissory Note)

IB 29 (Letter of Hypothecation)

Letter from customer authorizing the bank to debit salaries of go down staff,
insurance premium and other incidental charges to his account.

Insurance cover together with premium paid receipt.

The controlling officer may require other documents.

4.4.4 Demand finance

Demand finance is one of the long-term loans and is allowed against fixed assets.
It can also be short term. Usually businessmen avail this facility for the purchase
of machinery and other installations.

35

Demand Finance in NBP can be classified into two classes:

Those granted on the personal liability of the borrowers alone. In this category
appear:

Finance against Government and authorized securities and the Banks Term
deposit receipts,

Finance against joint stock company shares and debentures approved by Head
Office,

Finance against pledge of bullion and gold ornaments, and

Finance against pledge of other goods and produce or documents of title thereto.

Those granted on the personal liability of the borrowers jointly with co-obligants.
In this category appear:

Clean finance under Section 25(1)(g) of the Bank Ordinance, and

Finance which are collaterally secured by joint stock company shares or

debentures or by title deeds of immovable property under Section 25(1)(h) of the
Bank Ordinance.

Demand financing against gold ornaments

Gold finance/loan is a type of demand finance being offered by NBP to a large number of
customers. Demand financing against the security of gold ornaments under State Bank of
Pakistan scheme for Financing Small Business/Industry or otherwise may be made to
borrowers known or introduced to the Bank by constituents, in multiples of Rs. 100/with a minimum of Rs. 1000/-. The rate of valuation of gold and the gold ornaments will
be advised to the branches by Head Office from time to time keeping in view the rise or
fall in the market price of gold after providing for the necessary margin. The valuation of
the gold ornaments must be based on the weight and fineness of the gold contents only.
The rate per 10 grams will be regulated by the fineness of the gold and will be expressed

36

to the nearest rupee. It must not exceed the maximum rates laid down from time to time
by Head Office.
Documentation for Financing against Gold Ornaments:
a) IB 6A (Mark-up Agreement)
b) IB 26 (Letter of Pledge)
c) IB 12 (Demand Promissory Note)

4.4.5 Industrial small finance

This Type of Finance is for industrial owners only. This type of finance is usually for
expansion purpose. The limit of this type of finance is up to 3,000,000/- Securities
demanded against this type of finance are immovable properties or against stock of raw
material and finished goods. The time period for this type of finance is for five years.
This amount is repaid in installments determined by the bank. High rate of mark up is
charged against this type of finance.
Agricultural credit:
The agricultural financing strategy of NBP is aimed at three main objectives:

Providing reliable infrastructure for agricultural customers

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

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

technical knowledge, and supervision of farming.

Agricultural credit (medium term):

Production and development

Watercourse improvement

Wells
37

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

Livestock loans for the purchase, care, and feeding of livestock

In case of Farm Credit NBP charges 14% to 16% Markup on both Short Term and
Medium/Long Term credit. While for Non-Farm Credit the rate of Markup is 16%.
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.

4.4.6 Staff finance

NBP is also serving its employees along with its customers. It gives loans to its
employees for the purchase of a car, house, and motorcycle and for the marriage
ceremonies of their sons/daughters. NBP provides the following loans to its staff:

4.4.7 House building finance

38

The employee having served for 5 years in the bank, either clerk or an officer will be
granted 80 basic pays as a loan for building house. If the granted loan exceeds Rs.
160,000 the 10% interest rate will be charged.

4.4.8 Motor cycle, car, and personal vehicle finance

The car loan may be granted to those employees whose minimum basic pay is at least Rs.
10,000 and have served for at least 3 years. The employee will be granted 18 basic pays
as loan. If the amount is exceeding Rs. 160,000 the 10% interest rate will be charged. The
maximum Motor Cycle Loan is 56,000. In this case the officers of above Grade will pay
5% interest.

4.4.9 Consumer finance

NBP has launched a scheme with collaboration with LG. The Scheme is known as Gar
Ka TV it is specifically for Televisions. Customer will get a TV set and will have to pay
monthly installments to the bank.

4.4.10 Export finance scheme

This facility is provided under the rules, regulations issued by SBP. The bank may
provide facility against pre/post-shipment exports at agreed rate of return. SBP then
grants that loan to commercial banks given to Exporters under this scheme.
a. Foreign bills purchased (fbp)
This is a post shipment finance facility provided within the sanction limit and is provided
against export documents under collection. Banks normally prefer holding collateral
security in such cases.
b. Foreign bills purchased against l/c (fbp)

39

Under this arrangement foreign documentary bills are negotiated / discounted at

prevailing exchange rate. The Bank ensures that documents are compliant with the L/C
terms and reimbursement instructions are carefully studied.
c. Payment against documents under sight l/c
Import documents if compliant are lodged in PAD and released upon payment from the
party. The amount of bill, plus charges, if any, claimed by the negotiating bank would be
converted into Pak Rupees at the exchange rate prevailing on the date of lodgment or at
the booked rate where forward booking was done at the time of opening of L/C.
d. Inward foreign documentary bills for collection under usance lc
Such documents are lodged in IFDBC and are released against acceptance or trust
Receipt or pledge of imported goods. In the later case goods are cleared through banks
approved clearing and forwarding agents and delivery orders issued against cash receipts.

4.4.11 Finance against trust receipt (FATR)

This facility is extended to valuable customers to enable them to obtain delivery of the
goods received under L/C or against bills under collection and shall retire the documents
out of the sale proceeds of goods or from other sources. The borrower will sign a standard
Trust Receipt form and related security documents covering hypothecation of goods.

4.4.12 Finance against imported merchandise (FIM)

Under the import L/C either at partys request or importers inability to discharge liability
immediately FIM facility for a period not more than 90 days against pledge of the
imported goods on mark- up basis is extended.

4.4.13 Inland bills purchased (documentary / clean)

This facility is allowed to customers against documentary bills and other negotiable
instruments. In case of dishonor the related pastys a/c is debited and the drawer is asked
to arrange for sufficient funds in his a/c for adjustment therefore. Besides the above
mentioned products NBP is providing various fund / nonfund based facilities such as,

40

overdrafts, loan against salary, LMM etc. amongst these, facilities which are governed
under the rules/.regulations of SBP, are allowed by NBP if clients fulfill the criteria
provided by SBP.

4.4.14 Term finance or nidf

This facility is extended for a period of more than one year, with a fixed repayment
schedule. Tenor of Term Finance including grace period is not more than 7 years
otherwise competent authoritys approval will be required. It has clear purpose, strong
financial, resourceful management, viable cash flows, properly perfected tangible
security etc. All term loans are annually reviewed and are evaluated. Demand finance is
extended in lump sum for specified period and the borrower repay the entire finance
amount and markup at the agreed rate.

4.5

Procedure for applying for finance

Any customer who applies for finance should have an account (usually current account)
with the concerned NBP branch, which should be in a running position.
First of all the customer or company has to submit a feasibility report which is sent to the
higher authority for recommendation. Following this, the authority prepares its own
feasibility report of the customer/company and then hands over these to the sanctioning
authority which finally approves whether finances should be released or not.
After approval is granted, then the bank gives terms and conditions to the party
concerned. The bank does not advance 100% finance rather a 30% margin is deducted
from all finances.
A charge form is taken from the party if it becomes bankrupt. The bank can go to a court
of law and it is then that this agreement or documentation helps.

4.5.1 Loan process

41

Each and every bank has the similar loan process with slight differences. Every bank
performs few basic actions while granting advances. Loan process is described in detail:

4.5.2 Establishment of relationship:

Opening of a current or saving account by the customer with the bank results in the
establishment of banker-customer relationship between the two. This relationship enables
the banker to develop understanding of the customers corporate status, nature and place
of his business, age, major stakeholders, and ultimately the genuineness of the customer.

4.5.3 Credit investigation:

It involves the following steps:
a. Preliminary enquiries:
The banker approaches other banks functioning in the same area and gathers information
about the track record and creditworthiness of his customer. Bank can also take
information from the SBP central information bureau (CIB).
b. Credit Analysis: what makes a good loan?
Credit analysis refers to the process through which qualitative and quantitative factors
having direct bearing on the business of the customer are analyzed. This effort can help in
making a lending decision, positive or negative. The analysis must be based on facts and
should encompass all the relevant aspects of the credit deal. Findings of the analysis must
be logically drawn and supported by relevant documents and reports. The division of the
bank responsible for analyzing and making recommendations on the fate of most loan
applications is the Credit Department. Experience has shown that this department must
ask and satisfactorily answer the following question regarding each loan application:
c. Is the Borrower Creditworthy?

42

The question that must be dealt with before any other is whether or not the customer can
service the loan-that is, pay out the credit when due, with a comfortable margin for error.
This usually involves a detailed study of five aspects of the loan application known as 5
Cs-Character, Capacity, Capital, Collateral, and Conditions. All must be satisfactory for
the loan to be good one from the lenders point of view.

4.5.4 Evaluation of feasibility reports:

The projections and forecasting contained in the feasibility reports need to be checked
and adjusted by using varied standards. As a result of this exercise, the banker is in a
position to determine the break-even quantities, revenues and profit and loss of the firm
at different operating capacities.

4.5.4.1Credit reports:
Credit reports obtained from other banks and the CIB report provide a base for the
lending decision of a banker.

4.5.4.2Problem identification:
The main objective of credit analysis is to avoid problems that may crop up due to lack of
good judgment with regard to the following:
I. Negative Macro Indicators Including:
a) Unfavorable change in the government policies.
b) Excessive and negative competition.
c) Change in consumers taste, fashion, income and spending.
d) Labor unrest or deteriorating law and order situation.
II. Negative Business Factors Including:
a) Inconsistent business structure and Ineffective business plan.
b) Inadequate market share and unplanned expansion.

43

c) Plant and machinery obsolescence and loss of stakeholders confidence.

III. Negative Management Factors Including:
a) Change in ownership and unnecessary centralization.
b) Evasive style and lavish spending behavior.
c) Unsatisfactory past performance.
IV. Negative Financial Indicators Including:
a) Change in auditors and accounting policy.
b) Late submission of statements.
c) Climbing up debt-equity ratio and abnormal reduction in fixed assets.

4.5.5 Processing of credit proposal:

Normally standard formats designed by the banks are used for this purpose where in all
relevant information for grant of credit are recorded. Necessary documents are attached
with proposal like request letter, financial statements, resolution of the BOD, etc.

4.5.6 Sanction of credit:

Credits are sanctioned either at the branch level or by the competent authority at the
controlling offices. At the controlling office the credit proposal are assessed and approved
on the basis of accuracy of credit analysis and other considerations as recommended by
the branch management. Sanction advice is issued which is important and essential to
ensure proper record of the terms and conditions of a credit, for legal purpose, execution
of the required security documents, timely renewal and audit purpose.

4.5.7 Security documentation:

After sanction but before disbursement of a loan, the credit administration department
must ensure that charge documents are obtained from the borrower in accordance with
the nature of credit facility, terms of credit and nature of approved security. The charge

44

documents must be properly filled in, signed by the customer and designated officer and
two witnesses where required. In case of mortgage then registration of it is with the
Registrar of Assurances before disbursement is essentially required. In case of limited
company, charge is to be created on the assets of limited company with the Security
Exchange Commission within 21 days. In case of partnership firm, authorize officials of
the borrowing firm must sign the documents in their official capacity and affix their
stamp thereon. In the meanwhile facility letter is issued wherein the terms and conditions
of the loan are intimated to seek his acceptance thereto.

4.5.8 Disbursement:
Disbursement of the credit facility is made through either of the following method i.e.
Running finance/Cash finance/Term finance.

4.5.9 Monitoring and periodic evaluation:

The credit administration department is responsible to ensure that the credit customers:
a) Maintain their accounts regularly and pay profit.
b) Pay the markup accrued on their accounts within a reasonable period.
c) Pay installments on due date.

4.5.10 Recovery and follow up:

This is the most critical activity of the credit administration department. Default puts the
bank in an embarrassing situation as not only its funds are tied up for indefinite period
but in most of the cases is involved in circuitous litigation entailing high cost. The
following steps are involved in the recovery process:
a) Verbal and written reminders to the credit customer for payment.
b) Service of legal notice, in case of default.
c) Making preparation for legal action.
d) Filing of recovery suit and follow up of legal process.
45

e) Tracing out assets of the defaulting and putting the same to auction through the
court & Collection of proceeds.

CHAPTER 5
FINANCIAL ANALYSIS
5.1

Financial statement analysis

Financial Statement Analysis is the scales due to which we can measure the financial
position of a firm. It also helps us for measuring the end result from the operation of that
firm. This analysis also helps us in determining the strengths and weakness of a firm. Or
in other words we can say that financial analyses are done for the purpose of identifying
the financial strength and weaknesses of an organization. This analysis provides
information to different parties in marketing the decision of the organization. For
achieving the goals and objectives of an organization and strategy making analysis helps
a lot. The creditors, investors and other providers of capital also take on the financial
statement analysis.
The creditors are interested in the liquidity of the firm, to meet their short term
obligations and also having the ability for payment of these obligations. The bondholders
are interested more in the cash flow of the firm and bond holder's claims are long-term.
The investors in a companys common stock are interested with present and expected
future earning of the firm and the stability of these earnings. Usually investors analyze
the profitability of the firm if the profitability of a firm is high and stabile the investor
confidence increases and they invest more in that firm. Management uses the financial
statement for managing the internal activities of the firm. The suppliers seek the financial
statement for providing more and government use if for the purpose of tax collection.

46

5.2

The financial data of NBP is analyzed in the following two ways

The given below types of analyses are used to measure firms performance over time. In
the common size analysis we use the balance sheet and income statement and measure
their performance as compared to other years and in the same year, by generating a
percentage increase or decline. The following types are as follows:

Common size analysis

Financial ratio analysis

5.3

Common size analysis

Common size analysis expresses comparison in percentage. For example, if cash is Rs

30,000 and the total asset is Rs 1, 00,000 then cash represents 30% of total assets. The
use of common size analysis makes comparisons of firms for different sizes mush more
meaningful. A small change in amount can results in a very substantial percentage
change. This is the analysis where total assets are divided by all balance sheet items, and
all income statement items are divided by net sales or revenue is called common size
analysis. Common size analysis can give analyst valuable approaching into changes that
have occurred in a firms financial condition and performance. As common size analysis
gives us relative percentage of an item with respect to total, so the growth or decline in
various items of balance sheet and income statement cannot be detected from common
size percentages. It has the following types:

Horizontal analysis

Vertical analysis

5.3.1 Horizontal analysis

Horizontal analysis compares each amount for a selected base year or we take each item
of base year as 100% and compare with other items.

47

5.3.1.1 Horizontal analysis of balance sheet

Table 5.1: Horizontal analysis of balance sheet

2007

2008

2009

ASSETS
Cash and balance with treasury

2008

2009

% change
100%

112.25%

122.08%

12.25%

22.08%

Balance with other banks

100%

102.32%

75.80%

12.32%

-24.2%

Lending to Financial Inst

100%

79.79%

91.25%

-20.21%

-8.75%

Investments

100%

80.90%

103.07%

-19.1%

3.07%

Advances

100%

121.35%

139.64%

21.35%

39.64%

Operating fixed assets

100%

93.42%

97%

-6.58%

-3

----

----

----

----

----

Other assets

100%

143.73%

191.37%

43.73%

91.37%

Total Assets

100%

107.29%

123.88%

7.29%

23.88%

Bills payable

100%

144.70%

150.40%

44.70%

50.40%

Borrowings

100%

374.09%

418.65%

274.09%

318.65%

Deposits and other accounts

100%

105.5%

122.73%

5.5%

22.73%

Finance lease

100%

75.32%

127.04%

-24.68%

27.04%

Other liabilities

100%

128.17%

136.61%

28.17%

36.61%

Total liabilities

100%

110.75%

127.68%

10.75%

27.68%

Net Assets

100%

88.07%

102.76%

-11.93%

2.76%

100%

110%

132%

10%

32%

bank

Deferred tax assets

LIABILITIES

SHAREHOLDERS EQUITY
Share capital

48

Reserves

100%

126.43%

143.80%

26.43%

43.80%

Unappropriated profit

100%

115.68%

135.3%

15.68%

35.3%

Total equity

100%

117.46%

136.84%

17.46%

36.84%

Total liabilities and Total

100%

111.40%

128.57%

11.40%

28.57%

100%

44.81%

52.61%

-55.19%

-47.39

equity
Surplus

Since we are measuring the change between 2007, 2008 and 2009, the rupee amounts for
207 become the base figure for expressing these changes in percentage form. For
example, Cash and balance with treasury bank increased by figures Rs. 11630507
between 2007 and 2008. This increase expressed in percentage form is computed as
follows

Other percentage figures are computed by the same formula.

Conclusion:
Total assets of NBP are increased 7.29% in 2008 and 23.88% in 2009 from 2007(base
year). These are increased by 21.35% and 39.64% respectively. This increase is due to the
major increase in Advances. Total assets increases more in 2009 as compared to 2008
from the base year. Lending to Financial Inst decreased by 8.75% in 2008 and decreased
by 20.21% in 2009.
Balance with other banks, deferred tax assets only decreased in 2009 than previous year.

49

Total liabilities and Total equity increased by 11.40% in 2008 and 28.57% in 2009, and
share capital of NBP increase to 10% in 2008 and 32% in 2009. Share capital increases
more in 2009 as compared to balance sheet.
5.3.1.2 Horizontal analysis of income statement
Table 5.2: Horizontal analysis of income statement
2007

2008

2009

2008

2009

% change
Markup Revenue

100%

120.51%

154.13%

20.51%

54.13%

Markup Expense

100%

150%

233.11%

50%

133.11%

Gross Profit Margin

100%

110.19%

114.35%

10.19%

14.35%

Provision for Advances

100%

224.29%

233.81%

124.29%

133.81%

Total Provision

100%

232.29%

247.08%

132.29%

147.08%

Net Markup after provision

100%

90.24%

92.67%

-9.76%

-7.33%

NON-MARKUP/ INTREST INCOME

Fee and Commission

100%

116.86%

131.68%

16.86%

31.68%

Dividend Income

100%

88.22%

58.84%

-11.78

-41.16

Exchange income

100%

380.60%

290.38%

280.60%

190.38%

Gain on sale

100%

16.88%

196.09%

-83.12%

96.09%

Other Income

100%

845.10%

----

745.10%

Total non mark-up income

100%

121.19%

140.46%

21.19%

40.46%

Admin Expenses

100%

127.91%

158.88%

27.91%

58.88%

Other provisions

100%

444.88%

369.45%

344.88%

269.45%

Total non-markup expense

100%

135.51%

163.39%

35.51%

63.39%

Profit Before Tax

100%

81.96%

79.47%

-18.04%

-20.53%

NON-MARKUP EXPENSE

50

Taxation

100%

83.55%

45.29%

-16.45%

-54.71%

Profit After Tax

100%

81.21%

95.68%

18.79%

-4.32

Conclusion
The Trend analysis that we conclude from the above table gives us a clear view of the
banks income statement. Here we find an absolute increase in the gross profit. Gross
profit increases by 10.19% in 2008 and 14.35% in 2009. There is more increase in 2009.
This is mainly due to the fact that NBP has a good control over its markup expenses, in
relation to its total markup revenue. As we can see that markup expenses are gradually
being increased, that ultimately gives boost to the gross profit of the bank from the base
year. The markup expense stands as the cost of sales. The increase in the gross profit
shows that the management has been able to gain control over the markup expenses then
previous year this shows that the bank is moving in a trend where it would lead into the
achievement of the goals it has set.
The total income of the bank has increased from the base year mainly due to the fee and
commission reduction, as they kept on an increase from the past few years. The bank
tackled the situation, by reducing the markup expense, that balanced the effect and
ultimately the profit after tax has increased. The ultimate increase in the profit after tax
also comes due to the fact that NBP has relieved itself from the provisions against the
balance sheet liabilities, which have reduced the expenditure

5.3.2 Vertical analysis

Vertical analysis compares each amount with a base amount selected from the same year.
Simply, we compare the items of balance sheet or income statement vertically by taking
one item as 100%.
5.3.2.1 Vertical analysis of balance sheet
Table 5.3 Vertical analysis of balance sheet

51

2007

2008

2009

12.5%

13%

12.3%

Balance with other banks

5%

4.6%

3%

Lending to Financial Inst

2.8%

2.1%

2.1%

27.70%

21%

23%

44.7%

50.5%

50.3%

3.2%

3%

2.7%

----

0.4%

0.3%

Other assets

4.1%

5.4%

6.3%

Total Assets

100%

100%

100%

Bills payable

0.92%

1.25%

1.12%

Borrowings

1.42%

4.95%

4.8%

77.65%

76.42%

76.93%

0.00%

0.00%

ASSETS
Cash and balance with treasury bank

Investments
Advances
Operating fixed assets
Deferred tax assets

LIABILITIES

Deposits and other accounts

Finance lease
Deferred tax liabilities

0.69%

----

----

Other liabilities

4.06%

4.85%

4.5%

Total liabilities

84.74%

87.47%

87.34%

Share capital

1.07%

1.1%

1.17%

Reserves

2.07%

2.44%

2.46%

Unappropriated profit

5.95%

6.41%

6.67%

Total equity

9.09%

9.95%

10.04%

surplus

6.17%

2.58%

2.62%

Total liabilities and Total equity

100%

100%

100%

SHAREHOLDERS EQUITY

52

Each asset in balance sheet is expressed in terms of total assets, and each liability and
equity account is expressed in terms of Total liabilities and Total equity.
For example, the percentage figure above for Cash and balance with treasury bank in
2009 is computed as follows:

Other percentage figures are computed by the same formula.

It also shows that the significant changes have taken place in the composition of the
current assets over the last year.
Conclusion
Vertical analysis shows the proportionate percentage of different items of the balance
sheet with respect to Total Assets. The vertical analysis of NBP shows that there are
different assets and liabilities over the time period. This is due to many reasons. First of
all the assets have changed and increased over the time period. The change in assets
affects the overall vertical analysis as the change is analyzed with respect to assets. The
major components in the balance sheet of banks are deposits, advances and investments,
as the major expense and income occurred due to these respectively.
So looking closely to these items investment increased from 2008 to 2009. On other hand
the advances decreases in 2009. This is due to high interest rates in 2008 and lower
interest rates in 2009. Investments, as being a non-interest source of income are more
promising than advances that are becoming more profitable due to inclining interest rates.
Bankers prefer to give advances when the interest rate was high but then prefer to invest
in noninterest income in 2009 when the income from investment was higher than the
interest rate.
The deposits are approximately same in both years. Only slightly increase in 2009.
The cash in hand is decreasing from 2008 to 2009. Thus showing that now the bank is
more liquid, and liquidity is inversely proportion to profit. The cash in hand should be
53

invested in short term investments, so that the organization can earn profit on idle money.
Now coming to the share holders equity, the equity has been increased from 9.95% to
10.04% in 2009 of total asset over the time period. This shows that more people are
interested to invest in the NBP in 2009. In NBP share holder equity the major cause of
increase is the revaluation of assets and increase in inappropriate profits. Reserves have
decreased over the time period and share holder equity increased a little with respect to
assets.
5.3.2.2 Vertical analysis of income statement
Table 5.4 Vertical analysis of income statement
2007

2008

2009

Markup Revenue

100%

100%

100%

Markup Expense

33.50%

39.20%

50.66%

Gross Profit

66.50%

60.80%

49.34%

Provision for Advances

9.34%

17.38%

14.16%

Provision for Investments

(0.08%)

0.61%

0.78%

Bad debts written off

0.08%

0.00%

0.00%

Net Markup Income

57.16%

42.81%

34.4%

Fee and Commission

13.41%

13%

11.45%

Dividend income

6.45%

4.72%

2.46%

Exchange income

2.06%

6.52%

3.9%

Gain on sale

4.63%

0.65%

5.89%

Unrealized gain

(0.06%)

----

----

Other Income

0.29%

2.04%

0.70%

Total non-markup income

26.78%

26.93%

24.40%

Total income

83.94%

69.74%

58.8%

NON-MARKUP INCOME

NON-MARKUP EXPENSES
54

Admin Expenses

28.09%

29.81%

28.95%

Other provisions

0.33%

1.23%

0.8%

Other charges

0.03%

0.96%

0.41%

Total non-markup expense

28.45%

32%

30.16%

Profit Before Tax

55.49%

37.74%

28.60%

Provision for Taxes

17.85%

12.37%

5.24%

Profit After Tax

37.64%

25.37%

23.36%

The percentage figures for each year are expressed in terms of Markup Revenue.
For example, the percentage figure for Markup Expense in 2009 is computed as follows:

Other percentage figures are computed by the same formula.

Conclusion
The Vertical Analyses of Income Statement of NBP as given in the above table is
showing a percentage change with respect of the sales or markup income. There is a
consistent decreasing trend in 2009 in the banks gross profit. The main reason behind this
is that the bank has not controlled its markup expenses in relation to total markup
revenue. In simple words we can say that increase in the markup expenses resulting in the
decrease gross profit. This can be because of decreasing interest rate on advances or
decreasing interest rate on deposits to encourage savings. Markup expenses are actually
cost of sale in case of a bank. Furthermore this decreasing trend in gross profit shows the
banks management is not efficient in controlling markup expenses. So this decreasing

55

trend of gross profit is a negative sign and the banks management should consider it and
take some more actions to improve its position.
Now if we take a look at the figure of total income of the bank, there is consisting
decrease in it as well. As total income is the summation of both markup income and the
non markup income. This decrease in total income is due to the decrease in the markup
income. Many organizations total non markup income consists of fees and commissions,
dividend income, exchange income and other income. If the look at the figure of non
markup expense there is a decreasing trend and this increasing trend in these expense is
due to the decrease in administrative expenses.
Furthermore, the taxation percentage was high for 2008 but for 2009 the taxation
percentage decreases due to decrease in profit before tax. The combine effect of all of
these has resulted in lower percentage increase in the net profit as compare to decrease of
gross profit

5.4

Financial ratio analysis

A financial ratio is an index that relates two accounting numbers and is obtain by dividing
one number by other. One may consider that why there is a need to mingle with these
ratios and not take the actual figures straightforwardly. Among various reasons one strong
reason can be put forward that ratios help in comparison. When analysis is two compare
the internal performance of the organization in relation to time, only ratios analysis is the
viable option for them. Along with it, comparison with the other competitors in the same
industry can only be carried out with the help of financial ratios. The number of financial
ratios might be created in virtually unlimited, but there are certain basic ratios that are
frequently used specially for measuring the banks performance. There are some ratios
that are used for the analysis of the banks these are:
1. Earning assets to total assets
2. Return on earning assets
3. Interest margin to average earning assets

56

4. Equity capital to total assets

5. Deposit times capital
6. Loan to deposits
7. Operating cost to income ratio
8. Interest income per employee
9. Profit per employee
10. Business per employee
11. Business per branch
12. Employees per branch

5.4.1 Earning assets to total assets

Earning assets includes loans, leases, investment securities, and money market assets. It
excludes cash and non earning deposits plus fixed assets. This ratio shows how well bank
management puts banks assets to work. High performance banks have a high ratio.

The NBP earning assets to total assets is slightly increased as compare to previous year.
After comparison with last year we can easily find out that total assets and earning assets
are increasing because NBP is going to expand its network.

57

Graph 5.1: Earning assets to total assets

This represents the earning assets to total assets ratio which decreases from 0.75 to 0.73
in 2008 and again increases to 0.75 in 2009, which is the slight increase.

5.4.2 Return on earning assets

Return on earning assets, computed by dividing net income by average earning assets, is
a profitability measure to be viewed in union with return on assets and return on equity.

58

Graph 5.2: Return on earning assets

This ratio is decreased moderately in 2008 and 2009.

5.4.3 Interest margin to average earning assets

This is the key determinant of bank profitability for it provides an indication of
management's ability to control the spread between interest income and interest expense.

59

Graph 5.3: Interest margin to average earning assets

This ratio shows the increase in profitability in 2008 and decline in 2009.

5.4.4 Equity capital to total assets

This ratio, also called funds to total assets measures the extent of equity ownership in the
bank. This ownership provides the cushion against the risk of using debt and leverage.

60

Graph 5.4: Equity capital to total assets

This ratio is increased in 2008 by 0.090 from 0.099 in 2007 and increases 0.1 in 2009.

5.4.5 Deposit times capital

This ratio concerns both the depositor and the stockholders. To some extent, it is a type of
debt, equity ratio, indicating a banks debt position. More capital implies a greater margin
of safety, while larger deposit base gives a prospect of higher return to stock holders since
more money available for investment purposes.

61

Graph 4.5: Deposit times capital

This ratio shows decrease in 2008 and 2009 respectively.

5.4.6 Loan to deposit

Average total loans to average deposits are a type of assets to liability ratio. Loans make
up a large proportion of the banks assets. And its principle obligations are the deposits
that can be withdrawn on request with in time limitations. This is the type of debt
coverage ratio and it measures the position of the bank with regard to taking risk.

62

Graph 4.6: Loan to deposit

This ratio shows that loan to deposit increased with greater ratio in 2008 as compared to
2007and slightly decreased in 2009 as compared to 2008.

5.4.7 Operating cost to income ratio

The cost/income ratio is an efficiency measure similar to operating margin. Unlike the
operating margin, lower is better. The cost income ratio is most commonly used in the
financial sector.
It is useful to measure how costs are changing compared to income

63

Graph 4.7: Operating cost to income ratio

This ratio shows slightly increase in 2008 and 2009

5.4.8 Interest income per employee

64

Graph 4.8: Interest income per employee

Interest income per employee increases in 2008 and 2009 as compared to 2007.

5.4.9 Profit per employee

Ratio that looks at a company's profit in relation to the number of employees they have

65

Graph 4.9: Profit per employee

The ratio of profit per employee decreases to 1001.13 and 1120.86 in 2008 and 2009
respectively as compared to 2007. But there is slight increase in 2009 compared to 2008.

5.4.10 Business per employee

a. Advance per employee

b. Deposits per employee

66

Graph 4.10: Business per employee

The ratio of deposit per employee increases in 2009, but little decrease in 2008. And
advances per employee gradually increases in 2008 and 2009.

5.4.11 Business per branch

a. Deposits per branch

67

b. Advances per branch

Graph 4.11: Business per branch

Deposits per branch and advances per branch are slightly increased in 2008 and 2009 as
compared to 2007.

5.4.12 Employees per branch

This is the ratio of total no of employees in a year to total no of branches in a year.

68

The ratio of no of employees to the no of branches increases from 12.10 to 12.62. There
is slightly increase in no of branches, but no of employees increase in large no.

Graph 4.12: Employees per branch

Employees per branch increases in 2008 and 2009.

69

CHAPTER # 6
SWOT ANALYSIS
SWOT analysis is an acronym of strengths, weakness, opportunities, and threats SWOT
analysis is careful evaluation of an organizations internal strengths and weakness as well
as its environment opportunities and threats. SWOT analysis is a situational which
includes strengths, weaknesses, opportunities and threats that affect organizational
performance."." The overall evaluation of a company strengths, weaknesses,
opportunities and threats is called SWOT analysis.
In SWOT analysis the best strategies accomplish an organizations mission by

Exploiting an organizations opportunities and strength.

Neutralizing it threats.

Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the
organization mission as a context, managers assess internal strengths distinctive
competencies and weakness and external opportunities and threats. The goal is to develop
good strategies and exploit opportunities and strengths neutralize threats and avoid
weaknesses.

6.1

STRENGTHS

These are the distinctive competencies of the NBP:

6.1.1 Oldest institution

70

NBP in one of the oldest bank of Pakistan and first nationalized bank Hence its customer
base is strength from this plus point as customers have more confidence in the bank. The
additional value services as the privilege for the bank.

6.1.2 Alternate duties in SBP absence

The NBP performs additional services for its customers as well as the other bank
customer in the absence of SBP.

6.1.3 More deposits than other bank

NBP has the relative competence in having more deposits than the other bank. This is
because of the confidence the customer have in the bank. The bank being the privileged
and oldest bank in banking sector of Pakistan enjoys this edge over all others, lacking it.

6.1.4 Employee benefits

The employers at NBP are offered reasonable monetary benefit. Normally two bonuses
are given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and
competency for the bank and a source of motivation for the employees.

6.1.5 Broad network

The bank has another competency i.e. it has broad-basses network of branches throughout
the country also more than one branch in high productive cities. The customers are
provided services at their nearest possible place to confirm customer satisfied.

6.1.6 Strictly followed rules & regulation

The employees at NBP are strict followers of rule & regulation imposed by bank. The
disciplined environment at NBP bolsters its image and also enhances the over all out put
of the organization.

6.1.7 Professional competence

71

The employees at NBP here have a good hold on their descriptions, as they are highly
skilled Professionals with back ground in business administration, banking, economics
etc. These professional competencies enable the employees to understand and perform
the function and operation in better way.

6.1.8 Healthy environment

The working condition in the NBP branch here is very conductive and favorable for
better output. The informal environment affects the performance of the employees in a
positive way.

6.1.9 Relation between staff and other employees

The bank enjoys a good plus point when it comes to the employee manager relationship
the hearing as removing of discrepancies if any, between the employees, and between the
manager and employees.

6.2

WEAKNESSES

These are the internal weaknesses:

6.2.1 Lack of marketing effort

The bank does not promote its corporate image, services, etc on a competitive way.
Hence lacks far behind in marketing effort .A need for aggressive marketing in there in
the era marketing in now becoming a part of every organization.

6.2.2 NBP under political pressure

The strong political hold of some parties and government and their dominance is
affecting the bank in a negative way. They sometime have to provide loan under the
pressure, which leads to uneven and adjusted feeling in the bank employees.

6.2.3 Favoritism and nepotism

72

The promotions and bonuses etc in the bank are often powered by seniors favoritism or
depends upon their wills and decision. This adds to the negative factors, which
denominate the employees thus resulting in affecting their performance negatively.

6.2.4 Lack of financial product

The bank falls far behind when the innovative and new schemes are considered. It has not
been involved in the tug of war between the competitors to the accounts and strengthens
the existing customer base. This stands out to be the major incompetence and weakness
of the banks.

6.2.5 Inefficient counter services in the rush hours

During the rush hours, the bank is founded out to be a total flop to handle the mob of
people peaking from windows and doors. The bank has deficiency to operate in the stages
of rush hours where the people find them services entangled in a situation of nowhere
because they are not well served.

6.2.6 Lack of computerized network

The bank lack the strength of being powered by the network of computers, which have
saved time, energy and would have lessened the mental stress, the employees have
currently. This would add to the strength if it were powered by network of computers.

6.2.7 Lack of modern equipment

The bank lacks the modern Equipment that is not counting machine computers. Even if
there is any equipment they lack to fall in the criteria of being rearmed as update and
upgraded

6.2.8 Uneven work distribution

73

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

6.3

OPPORTUNITIES

These are the competitors weaknesses and the NBPs opportunities:

6.3.1 Electronic banking

The world today has become a global village because of advancement in the
technologies, especially in communication sector. More emphasis is now given to avail
the modern technologies to better the performances. NBP can utilize the electronic
banking opportunity to ensure on line banking 24 hours a day. This would give a
competitive edge over others.

6.3.2 Micro financing

Because of the need for micro financing in the market, there are lot of opportunities in
this regard. Other banks have already initiated, now the time has arrived when the NBP
must realize it and take on step to cater an ongoing demand.

6.4

THREATS

Threats are the major external forces effecting on the NBP:

6.4.1 Emergence of new competitors

The bank is facing threats with the emergence of new competitors especially in terms of
foreign banks. These foreign banks are equipped with heavy financial power with
excellent and innovative ways of promoting and performing their services. The bank has
to take initiative in this regard or will find itself far back in competition.

6.4.2 Political pressure by elected government

74

The ongoing shift in power in political arena in the country effects the performance of the
bank has to forward loans to politically powerful persons which create a sense of
insecurity and demoralization in the customer as well as employees.

6.4.3 Downsizing
The bank is currently acting upon the policy of downsizing which threaten the
environment of the bank Employees feel insecurity in doing their jobs and work, hence
affecting the overall performance of employees negatively.

6.4.4 Customers complaints

There exists no regular and specific system of the removal of customer complaints. Now
a day a need for total customer satisfaction is emerging and in their demanding
consequences customer's complaints are ignored.

6.4.5 Competitive analysis

There is NBPs competitive analysis which is as follows:

6.4.6 Porters five forces model

This approach is widely used for competitive analysis. It is because of the high intensity
of competition among companies there five main competitive forces.
a. Rivalry among competitive firms
It is a very powerful force among the competitive forces the strategies pursued by one
firm can be successful only to extent that they provide competitive advantages over the
competitor. These competitive strategies may be lowering prices, best quality series. The
NBP offering very low charges an demand draft, telegraphy transfer, mail transfer and
give other additional services to the customers and to the Nation. Because NBP is a
Nations Bank.
b. Potential entry of new competitors

75

Whenever new firms ca easily enters a particular industry, the competition increases. The
gout restriction, tariffs, patents etc can stop new firm to enter into the business as per
Banking industry is concerned this market is already very situated in Pakistan and there
are banks with quality services and low charges. So there is no threat to NBP from
potential entry and NBP is also a public sector bank because of that no new bank can take
over it.
c. Potential Development of substitute products
This is the third factor affecting the competitions. There may be some other product can
be substitute the product of that industry. For example banks offering sawing schemes in
Pakistan and these schemes are also offered by GPOs in Pakistan so they must compete
them in this field. If they offer low rates than GPOs so people will go to deposit in GPOs.
People concentration high rates so thats why sawing PLS accounts are more then current
accounts.
d. Bargaining Power of Suppliers
The bargaining power of supplier affects the intensity of competition, especially when
there are a large number of suppliers. In case of banks the suppliers are customers they
supply the money to banks. Now they must offer good services, quality, and safety with
Low charges etc to customers. In this field NBP is very good. B/C at offers good quality
services to customers. They charge low charges on remittances. So thats gives
competitions to other banks.
e. Bargaining Power of Consumers
When customers are concentrated or large, or buy in volume, their bargaining power
represents a major force affecting intensity of competition. Now the number customers in
Pakistan for banks are very high. Banks are offering variety of products and services to
their customers. NBP have a large number of customs. Now it must offer good services
and products to their customers to attract them to come in the NBP.

CHAPTER # 7
76

CONCLUSION AND RECOMENDATIONS

7.1

Conclusion

If I have to express my experience of internship in National Bank City Branch

Abbottabad, I would briefly say that National Bank is a good Organization in the way
that anybody can join it for his/ her long-term career. Overall working environment is
comfortable. Management of branch cares a lot of its employees and considers them as
the Asset of bank. Behavior of senior executive of bank is very polite and they are caring
about the individuals career and their growth.
However management is very demanding about the targets but good reward at the
achievement of assigned targets is awarded. Employees at Bank are quite efficient. As the
branch is renovated and new employees are hired, its employees have to bring their bank
among the list of good banks. Therefore, they work more than their working hours and it
is all according to their will. It also shows their loyalty, commitment to organization.
Employees are given the benefits like bonus, gratuity funds, loans, increments, and
medical. All the customers are entertained individually. Same kind of behavior and
attention is given to all the customers. Getting ideas for improvement from customer side
is a new idea and that is working very well in National Bank. All the customers are asked
to fill a suggestion form and the standards of the bank are improved through them.
Prioritizing its product portfolio in line with its corporate and consumer needs and wants
the bank is committed to develop products that give more value to its customers in both
the sectors. In bank, the work is done on computers as well as manually. All the entries
are made in computer. Balance is fed into the computer. This increases efficiency of the
bank. During my internship training I gathered information regarding how a successful
bank operational aspect decorticated with the practical.

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I found my internship training at National Bank City Branch Mansehra, to be a very

rewarding experience. The training was beneficial because it helpful me to aware a real
life working environment.
So far my learning is concerned; all the employees at branch were quite cooperative.
They helped me to understand the activities of a bank to possible extent. Their good
attitude gave me more confidence to learn more and to ask if I have any query in my
mind. Besides their ever going activities they never get irritant by my questioning. I had
made an honest efferent to present the working & operation at Branch in simplest way. I
feel pleasure that I have really gained a lot during 6 weeks & enjoyed working with
experienced cooperative & intelligent staff.

7.2

Problems and recommendations

These recommendations and suggestion are as below:

7.2.1 Performance of general banking departments

General banking department, particularly the account opening section is not performing
well. The people who are working in the account opening sections are not properly
trained in public dealings. Their behaviors with the clients were not appreciable.
Suggestion
All departments should be careful about their performance. Branch should be inspected
by inspecting parties. They should especially examine the public dealings of the
employees.

7.2.2 Lack of proper training

There is not proper training system among the staff. Training is necessary to show good
performance and efficiency.
Suggestion

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I suggest that an arrangement of refresher courses and in service training must be made to
increase the knowledge and skills of the employees. This will help enabling them to meet
modern banking requirement and to fill the efficient staff qualities.

7.2.3 Interference of union

The elected unions are headache for management now days, they interfere in
administrative matters. So there is heavy pressure of union on management, due to which
they remain under stress and pressure. If management wants to take disciplinary action
against an employee, it cannot be taken due to the pressure of union.
Suggestion
Bank should not influence by union. Rules and regulations should be followed strictly.
Management would be diplomatic towards the union.

7.2.4 Delegation of authority

There is no proper delegation of authority
Suggestion
Executive at all level should be given sufficient power and authority to make quick
decisions. This will increase the effectiveness and efficiency of the organization.

7.2.5 Distribution of work

There is no proper distribution of work.
Suggestion
All work must be distributed properly among the employees.

7.2.6 In adequacy of staff

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In my observation, I felt that the strength of the present staff is insufficient. The staff is
affecting badly due to burden of over work.
Suggestion
The shortage of staff must be fulfilled immediately, in this way, the staff will be able to
perform its duties appropriately.

7.2.7 Inadequate building

The building hired by the bank is not only a good one 'jut also is insufficient for proper
functioning of the staff.
Suggestion
I suggest that it should be either changed or widened.

7.2.8 Non-installation of computer

This is an era of science and computer. Most of the banks functioning in Pakistan have
adopted computer system. This branch is deprived of this facility yet.
Suggestion
I suggest that bank must be computerized. In this way, it will be easy to keep up to date
records, of all accounts. So the bank must gain benefit from this modern electronics.

7.2.9 Lack of library

The library is an essential requirement for the bank. But this bank has no library yet.
Suggestion
The bank must establish a library having all kinds of books, particularly about the
banking, economic and accounts.

BIBLIOGRAPHY:

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Siddiqi,Asrar H(2008);Practices and law Banking in Pakistan,(8th Ed),Royal Book

Company, Karachi.
Charles H.gibson (2008): Financial Reporting & Analysis, (9th Ed)
Annual Reports NBP; 2009, Retrieved on November 20, 2010 from
http://www.nbp.com.pk
Annual Reports NBP; 2008, Retrieved on November 20, 2010 from
http://www.nbp.com.pk
Gerald I. White, Ashwinpaul C. Sondhi & Dov Fried, (2000), The Analysis and Use of
Financial statement, (3rd Edition) published by Mc Graw Hill New York.
Van Horne, J.C, & J. M. Wachowiez (1998),.Fundamentals of Financial Management.
(10th Edition) New York: Prentice Hall International, Inc.
Charles H. Gibson (2000), Financial statement analysis., Fourth Edition,USA,McGraw
Hill, p.65
Hussain, S; Rana, K & Shabbir, (1991); Banking Currency and Finance. , Lahore: Ilmi
Kutab Khana.
Warren Fees (1984) accounting principles (14edition) Cincinnati 80th western publishing
company.
Siddiqui, A.H; Practice and Law of Banking in Pakistan: 6th edition.
Werther Jr. William B and Davis, Keith, (1996). Human Resources and Personnel
Management.
Fifth Edition. USA: Mc Graw-Hill, Inc. p. 127

Annexure

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