INTERNSHIP REPORT

NATIONAL BANK OF PAKISTAN

PREPARED BY

Muhammad Saif Ullh

STUDENT OF: M.B.A (Banking &Finance)

ROLL NO: R-516248

Mailing Address: P/O Muhammad Pu,rTeh-Jampur,Distt-Rajanpur,C/O Adul Hayee

PRESENTED TO

CHAIRMAN
DEPARTMENT OF BUSINESS ADMINISTRATION

ALLAMA IQBAL OPEN UNIVERSITY

ISLAMABAD
 ACKNOWLEDGEMENT

First of all, I bow my head to ALLAH, Who bestowed upon me with the ability to apply my
strengths in the right direction. I have benefited from the help of many people including parents
and friends during the evolution of this report. All concerned have generously supplied an
untold number of insightful comments and helpful suggestions.

Without a continuing stream of prayers and support, I would have quickly fallen into despair,
losing my energy and excitement. There is no question, therefore, that this report constitutes
valuable contribution of all concerned.

Muhammad Saif Ullah

LIST OF CONTENTS
1. Introduction to National Bank of Pakistan…………………….
2. Brief Detail – National Bank of Pakistan…………………….
3. Nature of the Organization…………………………………….
4. Business Volume & Profile of the Employees…………………
5. Product Lines……………………………………………………
6. Organizational Structure………………………………………..
7. Structure of Branch…………………………………………….
8. Functions of the Divisions……………………………………..
9. Organization Setup of the Branches……………………………
10. Structure of the Finance Departments………………………….
11. Accounting Policies of NBP…………………………………..
12. Functions of the Finance Departments………………………..
13. Use of Electronic Data in Decision Making……………..........
14. Sources of Funds………………………………………………
15. Uses of Funds…………………………………………………
16. Financial Analysis…………………………………………….
17. Organizational Analysis as Compared to Competitors……….
18. Performance of the Studied Organization in Current………..
Economic Scenario…………………………………………..
19. Future prospect of the bank…..………………………………
20. Strategies and Policies………..……………………………….
21. Shortfalls………………………………………………………
22. Conclusion…………………………………………………….
23. Recommendations……………………………………….........
24. References & Sources Used…………………………………..
25. Annexure ……………………………………………...……….
 INTRODUCTION TO NATIONAL BANK OF PAKISTAN
National Bank of Pakistan (NBP) was established under the National Bank of Pakistan
Ordinance 1949 in Pakistan. NBP occupies a unique position in the financial sector of Pakistan. It acts
as an agent of the Central Bank wherever the State Bank does not have its own Branch. It also
undertakes Government Treasury operations. NBP is 100% owned by the Government of Pakistan
(GoP).

NBP has been at the forefront of national economic development. Its contribution in the
development of small and medium size entrepreneurs is significant. NBP has a team of competent
professionals having varied experiences in local and international financial institutions for managing it.

NBP has correspondent relationships and agency arrangements with leading international banks
of repute. The bank has a dwell laid-down automation policy, to sustain high standards of services. The
management of the bank lays strong emphasis on enhancing its ability offer latest services to its
customers. It has recently installed four ATM (Automated teller machines) in most cities of the country,
which arc totally operational.

The bank has also entered into communication networking arrangement were all the branches
will be on line through satellite on real time basis. Through its quality of service, effective utilization of
funds and distinct excellence in retail and corporate banking has been implemented.

OVERVIEW OF THE ORGANIZATION

National Bank of Pakistan was established in 1949 through presidential ordinance. It acquired
its initial financial assistance and captive from Government of Pakistan. NBP is functioning as a
representative of State Bank of Pakistan as it has been transacting all over the country due to its wide
network. Initially it started with a limited number of branches. But now the bank has expanded the
branch-network and is operating with 1261 branches, whereof maximum are fully automated and are
providing wide range of banking services and innovative financial products.
With the passage of time, bank has responded very well to the technological advancement by
adopting different technologies. The bank has introduced a network of ATM's at major cities like
Lahore, Karachi and Rawalpindi. Recently NBP has introduced computerized NBP LINK Services.

The bank has further improved its on-line communication system by installing the fault tolerant
life keeper to ensure real time communication link. The bank has also formally introduced inter-branch
on-line banking system for the benefit and greater convenience of its customers. National Bank of
Pakistan has the largest satellite based communication network in the banking industry in Pakistan.
Although the bank started on a limited scale, but in response to the customers the bank has progressed a
lot and still finding new ways towards success.

NATURE OF THE ORGANIZATION

National Bank of Pakistan was established in 1949 as a Public Limited Company and is listed on the
Karachi, Lahore and Islamabad Stock Exchanges. The banks started its operations forthwith after its
incorporation.

The bank is scheduled commercial bank and is engaged in the business of banking defined in the
banking companies ordinance 1962. The bank maintained its accounts and financial statements
according to the companies’ ordinance 1984.

NBP further consolidated its position as one of the top and investment banking of the country and has
built a strong customer relationship with the premier clients.

Awards & Recognition:

 Bank of the Year 2001, 2002, 2004 & 2005 by The Banker magazine, London

 One of the Best Banks in the Emerging Markets, Global Finance

 The Bank with the highest return on capital in Asia and No. 8 in the world, The Banker,
July 2003

 NBP- the only Pakistani bank ranked among the Top 100 banks of Asia for performance
in 2003, Euromoney

 Best Foreign Exchange Bank – Pakistan for the Year 2004 & 2005

BUSINESS VOLUME & PROFILE OF THE EMPLOYEES

The distinctive corporate strategy, credible and professional management, latest information technology and product
lending policies are salient features of banks success story. The performance of NBP at glance is as under:

Items 2003 2004 2005 2006 2007 % Growth 2007

 over 2003
Total Assets 468.9 553.2 577.7 635.1 762.2 62.6

Deposits 395.5 465.6 463.4 501.9 591.9 49.7

Advances 161.3 220.8 268.8 316.1 340.7 111.2

Investments 166.2 149.3 157.0 139.9 210.8 26.8

Equity 18.1 24.9 37.6 53.0 69.3 282.9

Pre-Tax Profit 9.01 12.0 19.06 26.31 28.06 211.4

Profit-After-Tax 4.2 6.2 12.71 17.02 19.03 353.1

Earning Per Share (Rs) 8.53 10.48 17.92 20.88 23.34 173.6

Retrun on Assets (%) 0.93 1.21 2.25 2.81 2.72 192.5

Return on Equity (%) 25.91 28.84 40.61 37.57 31.12 20.1

Number of Branches 1199 1226 1242 1250 1261 5.2

Number of Employees 13272 13745 13824 14019 14079 6.1

PRODUCT LINES

 NBP Premium Aamdani (Monthly Income Scheme)

This scheme facilitates the customers to finance upto 90% of the deposit value with investment
period for 5 years subject to certain applicable conditions. The expected monthly profit (Expected rates
are for the given year) payable in each year is about 7.5%, 8.5%, 9.5%, 10.5% and 11%. However,
premature encashment may attract the penalties. The Zakat and withholding tax may be deducted as per
rules.

 NBP Premium Saver (PLS Saving Account)

PLS Saving Account have prerequisite to keep minimum saving balance of Rs. 20001 and a
maximum balance of Rs. 300000/- to earn profit 7.25% p.a subject to certain applicable conditions. It
facilitates free NBP Cash Card (ATM + Debit) with two debit with-drawls are allowed in a month and
no limit on number of deposit transactions. Profit is being calculated monthly and paid on half yearly
basis.

 NBP Karobar (President Rozgar Scheme)

In this President’s Rozgar Scheme, citizen between age 18 and 45 years are eligible for easy
financing for self employment in the following categories:

NBP Karobar Utility Store

NBP Karobar Mobile Utility Store

NBP Karobar Mobile General Store

NBP Karobar Transport

NBP Karobar PCO

NBP Karobar Tele-Centre

 NBP Saibaan

This product facilitates the citizen to Purchase, Construct, Renovate the home and also to acquire
land, if needed. There are different limits for purchasing and acquisition of home /land for various
periods as applicable from time to time subject to certain conditions.

Finance available for home purchase, home construction, home improvement and Balance Transfer
Facility (BTF)

Period of repayment ranges between 3-20 years

Loans available upto a maximum of Rs. 15-35 million

Mark-up choices available: variable – SBP discount rate, Fixed Rate – 10 year PIB + 3.5 percent

Minimum approval and disbursement timing

Limited to areas where there are no documentation, fee, resale and foreclosure related issues, so
to protect the bank’s interest
  NBP Advance Salary

This scheme facilitates followings:

20 months salaries in advance (certain conditions apply)

Repayable in 5 years

1 percent processing charges; no collaterals, no guarantees, no insurance

Markup charge at 20 percent per annum on reducing balance method.

 NBP Cash n Gold

Facility of Rs. 10,000/- against 10 gms of gold

No maximum limit of cash

Roll over facility

Markup 13 percent per annum

Repayable after one year

No penalty for early repayment

 NBP Kisan Dost

Loans available for the farmers production, development purposes, for purchases of tractors, for
installation of tube wells, for purchase of agricultural implements, micro loans, for go down
construction, for construction of fish pond, for livestock farming, for milk processing, for cold storage,
bio-gas plants etc
 Mark up 13 percent per annum

Loan at farmer’s doorstep

Agricultural experts to guide farmers

Loans available against agricultural pass books, gold ornaments and paper security

 NBP Premium Aamdani Certificate

- A monthly income scheme, minimum amount of investment required is
Rs. 50,000/- and maximum allowed is Rs. 5,000,000/-
- A 5 year scheme, with year-wise increasing profit rates
- Added incentives for investors
- Financing facility available against these Certificates
- Customers allowed to convert existing deposits into NBP- Premium Aamdani Certificates

 NBP Cash Card

NBP Cash Card is an 24-hour direct access ATM/Debit card to customer’s bank account,
which lets you pay directly from your account as an alternative payment method to cash. The
transaction is authorized and processed by entering PIN. Its advantages are below:
 No need to carry a lot of cash with you every time you go out.
 Account Information on tips (like: Mini Statement, Balance Inquiry, Utility Bill Payment etc.)
 Enable To Withdraw Cash From 1-Link ATMs / MNET ATMs.
 Enable To Make Purchases From Around 4000 POS (Merchants) Countrywide including 2500+
POS in Karachi.
 No Card Issuance Fee for first 12 Months

ORGANIZATIONAL STRUCTURE
The National Bank of Pakistan has a vide network all over the country. For effective control the bank
has been working in all provinces and AJK as:
ONLY MAJOR CITY NAME ARE DETAILED BELOW

BALUCHISTA
PUNJAB SINDH NWFP
N
Bahawalpur Quetta Dadu / Sanghar Abbottabad/Manshera
D.G.Khan,Rajanpur/ Sibbi Hyderabad Bannu/D.I.Khan
R.Y.Khan, Jampur Kachi Jacobabad/Shikarpur Kohat/Mingora
Faisalabad Zhob Karachi Mardan
Gujranwala Loralai Larkana Peshawar
Sialkot/Narowal Lasbella Mirpurkhas/Badin
Islamabad Gawadar Nawabshah/N Feroz
Jhelum/Gujrat Kalat Sukkur/Khairpur
Lahore Chamman Tharparkar Azad Kashmir
Multan/Bhawalngar Dera AllahYar
Murree/Abotbad/Gilgit Dera Murad Jamali Muzzafarabad
Rawalpindi Noushki Mirpur
Sahiwal Dalbadin
Sargodha/Sheikupura Naujundi
Pishin
Ziarat
Kharan

FUNCTIONS OF THE DIVISIONS

Head Office:
National Bank of Pakistan was established in 1949 through Presidential Ordinance and it is working
as agent of State Bank of Pakistan. President controls the organization. Chief Executive/ President who
is answerable to the Board of Directors heads organization. There is SEVP (Senior Executive Vice
President) who dies not have any authorities as such but he can operate as President in his absence.

There are 5 divisions in the head office. These divisions are made on the basis of functional
specialization. Group Chief (Business), Group Chief (Operational), Group Chief (Risk and
Management), Group Chief (Compliance) and Group Chief (Human Resource Management). The
selection of Group Chief is a difficult task and preference is hereby given to high profile bankers for
these posts. The 5 divisions are:

1. Business
 2. Operation
3. Risk & Management
4. Compliance
5. Human Resource Management

Business Division:
In Head Office, this division headed by Group Chief (Business), who is responsible for
adopting different business Strategies. Recently it has introduced many consumer services in
response to tough Competition with competitors such as credit card, visa card, NBP master card,
NBP Link etc. International correspondence – the most important aspect, is also an important
function of this division correspondence Banking. This division also helps in holding seminars and
conferences abroad.

At regional level, this division headed by Regional Chief (Business), who is responsible for
business strategies. Branch Managers directly works under the control of Regional Chief (Business).
They not only implement the Business Development Strategies conveyed by Head Office but also
responsible to propose new and innovative strategies for betterment / enhancement of their branch
business. All branch categories either falls under Category I, Category II or Category III must have a
Branch Manager. Branch Manager working under Category I solely responsible for Business,
Operation and Compliance. However, an Operation Manager exists in each Category II branch while
there is no Compliance Officer. In Branch Category III, thrice exists separately Branch Manager for
Business, Operational Manager for Operations, and Compliance Officer for Compliance.

Operational Division:
Operational division being headed by Group Chief (Operations) deals with opening of new branches. It
analyzes the feasibility reports about the proposed branches. It also deals with aspects such as choosing
the buildings and fixing the rent for it. This division also helps in making a layout of the whole branch
and routine branch transactions. Regional Chief (Operations) is the head of this division at regional
level, who manages and controls all operational manager(s) performing their duties in branches.
Risk & Management

At Head Office, this department is headed by Group Chief (Risk & Management), however, the
same department exists in each regional office where it is headed by a Regional Chief (Risk &
Management). Risk & Management Division may also be called as Credit division, which is mainly
responsible for provision of credit, all proposals of credit from branches come to credit division at the
Head Office / Regional Office where it is decided that credit is to be given or not. This division has
done important work on Communication networking.

Compliance Division
Group Chief (Compliance) heads this division at head office level. This division is responsible for
compliance i.e. monitoring daily transactions, internal audit of the organization etc. Regional Chief
(Compliance) is the head of this division at regional level. Each Branch falls under Category III has a
Compliance Officer who checks all routine transactions on daily basis to avoid audit objections and
indicate discrepancies, if found during scrutiny. The record of all the branches are consolidated and
then they are audited. This division is also responsible for keeping the records of all the transaction of
different branches. Budget and Finance is also the responsibility of this division.

Human Resource Division:

HRD basically deals with the human aspects of the organization. This division is headed by the
Group Chief (HRM), and is further divided into three sub-divisions i.e. Administration, Training cell
and Legal cell. At regional level, this division is headed by Regional Chief (HRM) and normally
works under Regional Chief (Operations).

Administration sub-division deals with recruitment, promotion, transfer / posting and layoffs.
It also keeps records of all the employees including preparation of ACR's.

Training cell is established in order to provide on job the training for specific period (6
months /1 year to fresh inductees) as approved by the competent forum

Legal cell is responsible for dealing with all the legal aspects of NBP.

STRUCTURE OF BRANCH
 NBPJmpur Branch is introduced in the heart of Jampur City in front of Tehsil Muncipal
Adminstratin Office,Jampur on Dera Ghazi Khan Road. This branch started its operations in Jampur
in 1964. Mr Tanveer Abbas Abbasi is the manager of branch. Branch code is (0439).The landline
Phone number of branch is 0604567607.Permanent employees are managing this branch in Jampur.
All of them are well experienced in their respective fields. The overall environment of the branch is
very co-operative and customer friendly.

ORGANIZATIONAL SETUP OF THE BRANCHES

There are 1261 branches of NBP operating all over the country from Azad Kashmir to Karachi
Branch Manager heads each branch. The Group Chief (Business) is responsible to heads of all divisions
at the office in the concerning matters. There is a Regional Chief (Business) is working under Group
Chief (Business). Branches without online facilities are termed as Branch Back Up Offices. There are
three categories of Branches as Category I, Category II and Category III.

Category I Branch Manager is responsible for Business, Operations and Compliance

Category II Branch Manager is responsible for Business, Operations Manager for Operations
and there is no Compliance Officer

Category III Branch Manager is responsible for Business, Operations Manager for Operations
and Compliance Officer for Compliance

In each branch, normally following sections functions:

 Deposits (Receipts and Payments)

 Advances / Credit

 Remittances (Inter Bank Transfers)

 Utility Collection
  Pension

 Foreign Exchange

 Information Technology

Deposit (Receipts / Payments) Section:

In the Deposit (Receipts / Payments) Section, bank's most of the general banking client dealing
takes place. The local currency department carries out several functions:

• Cash deposit/withdrawals.
•Accounts opening /closing. Client
dealing /Information. Cheque book
issuance.
• Deposit schemes. ATM Card
Issuance.

Foreign Exchange Section:

Foreign Exchange Section of NBP deals with the foreign currency accounts and transactions. Most of
the functions like account dealing, cash deposits /withdrawals, etc, are the same as Deposit (Receipts /
Payments) Section. The additional functions that are carried out in this section are:

 Traveler Cheques.

 Old Scheme Foreign Currency Deposits

 New Foreign Accounts

 Special Foreign Currency Accounts

 Special US Dollar Bonds

This is very vital section as it contributes a major portion in the overall asset base of the bank. It is a
sort of a mini bank itself within the branch.
 The foreign trade matters deals with the imports and exports. These imports and exports is the
major economic activity in the overall economic setup of the country. This section ensures effective
development of Foreign Trade - transfer of goods and transactions of foreign currency. NBP has some
major banking trade links and collaboration with more than 150 banks around the globe, and the
foreign trade department through its immaculate trade setup, prompt trade services and banking
activities has ensured a good rating around the world. The trade is mostly carried out through Letter of
Credit and Letter of Guarantee. The bank opens both types of LC i.e Usans and Sight LC.

Advances / Credit Section:

The Advance / Credit Section is considered to be the lifeblood in any bank. It provides loans,
credit to various clients and has a major contribution in the bank's profits and assets. Different types
of loans are provided to the clients depending on their respective needs and demands. Services like
loans against property, assets, income base etc, are provided. Similarly, both short term and long
term loans at commercial client level are provided. Different markup rates are set or calculated
against these loans. Also, the department gives loans to bank's employees such as house loans, car
loans etc. The common types of credit facilities provided by the bank are Running Finance, Term
Finance, Cash Finance, and Staff Finance etc.

Accounts Department:
The function of the accounts department in the bank is to examine and cross check the various
transactions that take place daily in the various departments of the bank. It is the place where overall
ledger and accounts of the bank are maintained. These accounts range from that of individuals to
various group accounts of the companies and corporations.
Further more, the department also prepares the salary sheets and total budget of the branch,
which is later on, has to approve by the Head Office.

Utility Section:

The section is responsible for collection utility bills say electricity, gas, telephone, water, etc.

Pension Section:

The section is responsible for Government retired employees (civil and military) pension matters both
receipts from concerned Govt. departments and disbursement the same among pensioners.
Remittances Section:
The section is responsible for inter bank transfer of fund transactions.

Information Technology Section:

The section is responsible for upgrading the banking setup from manual into computerized and linkage
with all concerned.

STRUCTURE OF THE FINANCE DEPARTMENT

No. Of Employees Working In The Finance Department:
There is a finance division in the head office. The strength of this department is more then ?. These
constitute accounting professionals, tax experts and decision makers taking decisions regarding
investment, financing and dividend decisions etc.
At the branch level there is only an account department, which comprises from ? to ? employees.

Finance & Accounting Operations

A. Budget Sub-Division

This division is responsible for allocating targets to each branch and making the budgets of
these branches.

B Finance Sub-Division
This division is responsible for keeping the records of transactions of all the branches and
preparing consolidated Balance Sheets and other financial report.

ACCOUNTING POLICIES OF NATIONAL BANK OF

PAKISTAN
Statement Of Compliance:
The accounts of National Bank of Pakistan have been prepared in accordance with the
accounting standards issued by the international accounting standard committee and interpretations
issued by the standing interpretation committee as applicable in Pakistan and the requirements of the
BANKING COMPANIES ORDINANCE1962 and the COMPANIES ORDINANCE1984

Accounting Conventions:
The accounts of NBP are prepared using the historical cost convention inconformity with the
accepted practice of banking institutions in Pakistan. Accordingly, profit is stated after provision for
possible loan losses and other usual and necessary provisions.

FIXED ASSETS:

a) Owned
Fixed assets are stated at cost less accumulated depreciation. Depreciation is computed over the
estimated useful lives of the related assets at varying rates and methods depending on the nature of the
assets. The cost of the assets is depreciated on the diminishing balance method, except for vehicles,
carpets and renovation costs which are depreciated on a straight-line basis. Depreciation is charged for
the full month on purchase /acquisition of an asset while no depreciation is charged in the month of
disposal of asset. Maintenance and normal repairs are charged to income as and when incurred. Major
renewals and improvements are capitalized. Gains and losses on disposal of fixed assets are taken to
the profit and loss account...

b) Leased

Assets held under finance leases are accounted for by recording the assets and the
related liabilities at the amounts determined on the basis of lower of fair value of the assets and
the present value of minimum lease payments. Finance charge is allocated to accounting
periods in a manner so as to provide a constant periodic rate of charge on the outstanding
liabilities. Depreciation is charged on leased assets on the basis similar to that of owned assets.

Staff Retirement Benefits:

The Bank operates a funded gratuity scheme for its employees who have completed a qualifying
service period. Annual contribution gratuity fund is charged to income for the year. The actuarial
valuation of the scheme under the Projected Unit Credit method has been carried out at December 31,
1999. The valuation results show that the Bank transferred sufficient funds to the scheme for meeting
the actuarial liability of the scheme. The significant assumptions used in the actuarial valuation are as
follows:

 Expected salary increase -13%

 Expected rate of return's on funds invested - 14%

The fair value of the plan's assets and liabilities for past services of the employees at the valuation
date was Rs. 46.439 million respectively. Further contribution will be made on the basis of actuarial
recommendations.

The bank also operates a recognized provident fund scheme for all its permanent employees for
whom equal monthly contributions are made both by the company and by the fund at the approximate
rate of 8.33% of basic pay.

Investments:

Investments are stated at cost, net off provisions for diminution in value. Profit and losses on sale
of investments are dealt with through the profit and loss account in the year in which they arise.

The Bank enters into transactions of re-purchase and re-sale of registered Government securities at
contracted rates for specified periods of time with other financial institutions. These are recorded as
follows:

a) In case of sale under re-purchase obligations, the securities are deleted from the Books and
charges arising from the differential in sale and re-purchase values are Accrued on prorata
basis and recorded under cost /return on deposits borrowings', Upon re-purchase the
securities are re-instated at their respective original cost.
b) In case of purchase under re-sale obligations, the securities are booked at the contracted
purchase price and the differential of the contracted purchase price and re-sale is amortized
over the period of their contract and recorded under mark-up/ interest and discount and /or
return earned'.

Advances:
 Advances are stated net off provisions for non-performing advances. The management keeping in
view the requirements of the Prudential Regulations issued by the State Bank of Pakistan determines
the provision for non-performing advances. Advances are written off when there is no realistic prospect
of recovery.

Foreign Currencies:

Assets and liabilities in foreign currencies are translated into Pak Rupees at the rate of exchange
approximating those ruling at the Balance Sheet date except those covered by forward exchange
contracts, which are converted at contracted rates. Exchange gains and losses are taken to the profit and
loss account.

Taxation:

Current tax is the expected tax payable on the taxable income for the year using tax rates in
acted at the balance sheet date and any adjustment to tax payable for previous years.
Deferred tax is provided using the balance sheet liability method providing for temporary differences
between the carrying amounts of assets and liabilities for financial reporting purposes and the amount
used for taxation purposes. The amount of deferred tax provided is based on the expected manner of
realization or settlement of the carrying amount of assets and liabilities using tax rates enacted at the
extent that it is probable that future taxable profit will be available and credits can be utilized. Deferred
tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be
realized.

Revenue Recognition:
Income is recognized on accrual basis except for income, which is to be carried forward in compliance
with the Prudential Regulations issued by the State Bank of Pakistan.

FUNCTIONS OF THE FINANCE DEPARTMENT

 Major function of the finance department is to take certain important decisions regarding over
all business activity of the Bank. For this, it formulates policies, makes strategies and monitors impact
of these on the performance of the Bank. The finance department of NBP takes four major decisions
that are:

 Investment Decisions

 Finance Decisions

 Dividend Decisions

 Credit Policy

Investment Decisions:
These decisions are taken as where to use the funds and may further be categorized into two
broad categories i.e.

 Long-term Investment decisions

 Short-term Investment decisions

Long Term Investment Decisions

When a firm makes a capital investment or takes a long-term investment decision, it incurs a current
cash outlay for benefits to be realized in the future.

Short Term Investment Decisions:

These decision are concerned with the management of Current assets. Current assets, by
accounting definition, are normally converted into cash within one year. These help to interpret the
liquidity and profitability of the firm.

Financing Decisions:
Financing decisions are related with the decisions that the bank acquires its funds, or what would be the
capital structure of the bank. A Major source of funds is the issuance of shares to the public.

Dividend Decisions:
This third important decision of the bank is its dividend policy. The dividend decision includes the
percentage of earnings paid to stockholders in cash dividend, the stability of absolute dividends about a
trend, stock dividends and splits, and the repurchase of stock. NBP issues bonus shares, right shares
and also declares cash dividend to its shareholders.

Credit Policy:
NBP has followed a very active credit policy. The expansion of the credit portfolio was done on a
prudent basis, and all necessary measures were taken to ensure the quality of the new loans booked.
The evaluation system, comprising of well-designed credit appraisal procedures, and a committee-
based review mechanism, was further strengthened for the purpose of enduring safety in the lending
activities. The bank constantly monitors sector wise credit disbursements to ensure that the credit
exposure is well diversified. All necessary measures are being taken to effectively deal with the
problem loans portfolio, which is rooted in the past.

With the objective of further diversifying the credit portfolio and improve profitability, NBP is in
the process of entering into new sectors like consumer finance, mortgage loans, small business
financing etc. These are higher margin avenues and will contribute towards improving the profitability
of the bank.

USE OF ELECTRONIC DATA IN DECISION MAKING

The bank maintained its position as the market leader in the field of electronic banking in Pakistan.
It has started offering “Internet banking facilities”. Now customers can view their account balances
and obtain statements through the Internet. The Electronic Technology Division is working on a project
to further upgrade and strengthen the e-banking services.

The bank also uses online inter-branch banking facilities. All the accounts, ledgers, financial
statements and analysis have been done in special accounts software.
 SOURCES OF FUNDS
To carry out its business activity, the bank must have sufficient financial resources. For this
purpose the bank uses different ways to collect these required funds. Deposits are the lifeblood of any
bank. Than there are many other ways to raise funds like, issuance of shares, selling different types of
security etc. NBP’s major sources of funds are, Share Capital, Reserves, Borrowing from others and
Deposits.

USES OF FUNDS

After acquiring funds, the bank has to efficiently use them in order to achieve different
organizational goals. The banks main aim like any other business organization is to earn maximum
profit. The bank uses the raised funds in different ways. It keeps some cash with it, invests in different
projects, grants loans to customers or other organization which in turn again becomes a source of funds
for the bank because it earns interest on issued loans, maintains its accounts with other banks etc. Bank
has many ways to use its funds, however, some of which are as Cash, Balance with other banks, Money
call and short notice, Investments, Advances, Operating Fixed Assets, Capital Work in Progress and
OtherAssets.

FINANCIAL ANALYSIS

Ratio Analysis

Ratio analysis is a widely used tool of financial analysis. It is defined as the systematic use of
ratio to interpret the financial statements so that the strengths and weaknesses of a firm as well as
historical performance and current financial position may be determined. To evaluate the performance
of National Bank of Pakistan, following is the detail of accounting ratios:

2005 2006 2007

Cost of Fund 2.2 2.8 3.0
Intermediation Cost 2.4 2.7 2.5
Pre-Tax Margin 44.2 46.8 43.8
Non-Interest Income Ration (NIIR) 28.7 28.7 28.7
Cost / Income Ratio 34.3 31.8 30.1
Income Expense Ratio 1.8 1.9 1.6
Return on Equity 40.6 37.5 31.1
Return on Assets 2.2 2.8 2.7
Return on Debt 2.7 3.5 3.5
Earning Assets / Deposits 97.3 102.9 103.3
Capital Ratio 5.5 7.5 8.8
Deposit Time Capital 7.7 6.2 5.5
Equity Multiplier (Time) 18.1 13.4 11.4
Capital Risk Assets Ratio (CRA) 12.8 15.5 18.6
Advances + Inv./Assets 70.4 72.7 72.1
Earning Assets /Assets 79.9 81.9 80.9
Advances / Deposits (CDR) 52.7 60.6 60.0
Liabilities / Assets 89.3 87.1 85.8
Liabilities / Equity (Time) 16.2 11.7 9.8
Net Profit Margin 38.8 40.2 40.3
Net Interest Margin (NIM) 5.2 6.1 6.0
Cost of Fund Earning Assets 2.3 2.8 3.0
Yield on Earning Assets 7.5 8.9 8.9
Interest Spread 5.3 6.1 5.9
NPLs / Gross Advances 11.3 10.4 10.2
NPLs Provisions / Net Advances 11.4 10.2 10.1
Admn Exp/Employee (Rs. Million) 0.8 1.0 1.0
Staff / Branch 11 11 11
Profit (A.T)/Branch (Rs. Million) 10.2 13.6 15.1
 ORGANIZATIONAL ANALYSIS WITH REFERENCE TO THE
INDUSTRIES LISTED ON THE STOCK EXCHANGE

There are three types of competitors of National Bank of Pakistan. These include other nationalized
commercial banks, privatized banks and foreign banks.

NBP WITH OTHER NATIONALIZED BANKS:

There are four nationalized banks. These are National Bank of Pakistan, Habib Bank, UBL and First
Woman Bank Limited. NBP position between these banks is quite good due to innovative and efficient
services offered by the bank to its customers like ATM facility etc. As compared to these banks NBP is
an old bank and it has continuously maintained its growth and expansion. There are no overheads and
other extra expenses as compared to the above mentioned banks. Thus the banks enjoy a competitive
edge over these banks.

NBP & PRIVATE BANKS:

Many private banks are working in Pakistan. Some of these are Union Bank, Prime Bank, Bank of
Punjab, Faisal Bank, Bank of Khyber etc. NBP shows a complete competitive on these above banks.
They have less deposits, investments, advances, and branch network as compared to NBP.

NBP & FOREIGN BANKS:

There are different foreign banks, which are doing very well business in Pakistan. Some of these are
Citi Bank, ABN Amro Bank, Standard Chartered, Emirates Bank, Bank Al- Flah etc.

Foreign banks are in tight competition with National Bank of Pakistan. Therefore NBP is trying to
increase its standards to gain competitive edge on the foreign banks. So that international reputation of
the bank would be increased.
PERFORMANCE OF THE STUDIED ORGANIZATION
IN CURRENT ECONOMIC SCENARIO
Over the last few years the performance of the banking sector has been impressive. The banks (local
and foreign) operating in Pakistan have improved their operating performance, strengthened their
human resources, improved internal controls, diversified their lending portfolios, undertaken major IT
changes and other various initiatives to remain competitive.

The year 2007 and onwards has been rather difficult years for the banking industry. There has been a
decline in profitability, as a consequence of the change in SBP’s Prudential Regulations. The benefit of
forced sales value of collateral was withdrawn by the State Bank of Pakistan against all non-performing
loans. The banks are now required to make additional provisioning, which has eroded a portion of the
profitability of the banks.

Key performance indicators of all banks shows that besides profits being affected, deposits, equity
growth has slowed, while investments, non-interest income, have grown. A review of the key
performance indicators shows that profit (BT) of all banks declined in 2007 to Rs. 107 billion against
Rs. 122 billion a year earlier, while profit (AT) fell to Rs. 75 billion against Rs. 83 billion in the same
period.

In the major bank category, National Bank of Pakistan, registered the highest profit (BT) of Rs. 28.1
billion. MCB followed at Rs. 21.3 billion, overtaking Habib Bank Ltd (HBL) whose profit declined by
19.7 percent to Rs. 15.1 billion. HBL’s profitability has been affected by additional provisioning against
non-performing loans due to a change in SBP’s Prudential Regulations.

Corporate Banking:
Recently and in recent past, the bank took an important decision to establish a separate Corporate
Banking division, which played a significant role in expanding the bank's credit portfolio by booking
quality assets. It also generated substantial non-funded business, which made a useful contribution
towards the free-based income of the Bank. The Strategy is to become an active player in the field of
corporate banking in Pakistan.
Retail Banking:
As a part of its strategy of diversifying its business, and tapping new avenues for generating
profitable business, the bank has decided to set-up a Retail Banking Group. This Group will
concentrate on consumer banking and small business finance. During past few years, the bank has
successfully been launching innovative consumer banking develop to meet individuals’ consumer
needs. This business is expected to grow in the next year and will add new dimension to banks business
profile. Furthermore the banks reviewed car financing and also developed new deposits products.

Credit Risk:
The focus of the Bank's commercial lending continues to be short-terms trade related financing on
a secured and self-liquidating basis. The bank will also continue its emphasis on diversification of its
assets to avert large single industry of group exposure.

The Bank has built and maintains a sound loan portfolio in terms of well-defined credit policy
approved by the Boards of Directors. It's credit evaluation system comprises of well-designed credit
appraisal, sanctioning and review procedures for the purpose of emphasizing prudence in its lending
activities and ensuring quality of assets portfolio. Special attention is paid to the management of non-
performing loans. A separate Credit Monitoring Cell (CMC) is operational at the head office. A "watch
list" procedure is also functioning which identifies loans showing early warnings signals of becoming
non-performing.

The bank constantly monitors overall credit exposure and takes analytical and systematic approaches to
its credit structure categorized by group and industry. The credit portfolio is well-diversified sect orally
with manufacturing and export accounting for the bulk of the financing which is considered to be low
risk due to the nature of underlying security.

Credit Cards:

The bank had initially launched credit cards. The NATIONAL BANK OF PAKISTAN CARD used for
clearing, payments and settlement purposes and is now working successfully.

Credit Rating:
THE PAKISTAN CREDIT RATING AGENCY (PACRA) has upgraded the banks long-term entity
rating from A+ TO AA-, while maintaining the short term rating at A1+, which is the highest possibility
in this category.

Market Risk:

Market risk is the risk that interest and foreign exchange rates fluctuate resulting in profit or loss to the
Bank. The bank's interest rates exposure comprises those originating from investing and lending
activities. The Assets Liability Management Committee of the Bank monitors and manages the interest
rate risk with the objective of limiting the potential adverse effect on the profitability of the Bank.

The Bank's foreign exchange exposure comprises of forward contracts, purchases of foreign exchange
bills, foreign currency cash in hand, balances with banks abroad foreign currency placements with State
Bank of Pakistan and foreign currency deposits. The Bank manages its foreign exchange exposure by
matching foreign currency assets and liabilities. The net open position and the nostrum balance are
managed within the statutory limits, as fixed by the State bank of Pakistan. Counter parties limits are
also fixed to limit risk concentration.

Liquidity Risk:
Liquidity risk reflects an enterprises inability in rising funds to meet commitments. The Assets
and Liability Management Committee manage the Bank's liquidity position. The committee monitors
the maintenance of balance sheet liquidity ratios, depositors concentration both in terms of the over all
funding mix and avoidance of undue reliance on large individual deposits and liquidity contingency
plan. Moreover, core retail deposits (current accounts and saving accounts) from a considerable part of
the Bank's over all funding and significant importance id attached to the stability and growth of these
deposits.

Off Balance Sheet Financial Instruments:

Off balance sheet financial instruments referred to, as derivatives are contracts the characteristics of
which are derived from those of underlying assets. These include forwards and swaps in money and
foreign markets. The Bank's exposure in these instruments represent forward foreign exchange
contracts, on behalf of customers in import and export transactions, forward sales and purchases on
behalf of customers in the inter bank market and with the State Bank of Pakistan. The bank also enters
into repot transactions against Government Security carrying fixed interest rates and having fixed
contractual maturities. The risk associated with forward exchange contracts are managed by matching
the maturities and fixing counter parties intra-day and over night limits. In addition, these also come
under the State Bank of Pakistan net open position limits as explained earlier.

Behavior Of NBP In Allocation Of Various Funds To Different Assets:

The bank has efficiently allocated its funds to achieve different corporate goals. The main purpose of
the bank is to facilitate the public primarily, however, earning profit secondarily and for the
development of the society. The bank allocates its funds in both short and long term assets. Main
investments by the bank are in working capital loans for fulfilling the current needs of the
organizations. However bank also invest in long fix loans for different projects.

FUTURE PROSPECTS OF THE BANK

The bank is developing necessary strategies and new products to cope with this challenging
situation and, inter-alia, plans for further expand its credit portfolio with due care and prudence,
ensuring the quality of its assets portfolio. In these contexts, efforts will also be made to further
diversify the asset base with regard to product as well as customer structures. The bank also plans to
open some more branches to have an effective network covering various parts of the country, and
generate low cost deposits as well as other business. The bank is fully aware of market dynamics and is
implementing necessary changes in its strategies to maintain the growth momentum for meeting the
expectations of its stockholders.

STRATEGIES AND POLICIES

The strategies and policies NBP follows these days are totally unique and productively innovative in
nature with enormous potential to take the ship to the destiny & bestow a visionary aim to become the
world-class bank.
  In its man power manipulation plan notable policy of customer acquisition team is significant
for its strategy of segregation of staff facing customer into two focused areas i.e. customer
satisfaction & market value/ volume.
 Diversification in revenue base underlines the policy of consolidating on core business i.e.
corporate banking as competitive edge and go for diversification in areas like consumer
financing & retail banking.
 To meet the need of customer expectations NBP would function to go for cost effective
improvements and technology based convenience
 On the top of the priority list of NBP stands compliance with statutory requirements imposed by
SBP and improving customer financial position by verifying needs of segments with focus
technique.

The focused areas of operation include the emerging consumer banking and a special target area
in this regard is agricultural sector that includes number of activities.

SHORT FALLS

Delegation of Authority: There is not much decentralization and delegation of

authority. Although there is a complete hierarchy from top to bottom but officers have to consult even
for their petty matters with managers. So it can certainly help a great deal to improve the satisfaction of
the employees by delegating more authority.

Interest Rates: In current economic situations, NBP bank offer loans a little bit
high level with respect to paying capability of the masses. This discourages the borrowing capacity of
low-income consumers.

High Deposit Rates: As the main focus of the bank is to attract industrialist and millionaires so
that it keeps its minimum balance a little bit high which is not approachable to low income sector.

Pressure/Burden of Work: There is a lack of manpower so every employee has to produce

results even out of its limit. National Bank of Pakistan is a fast growing organization and it can sustain
the pressure of hiring few more employees so that the workload on the limited number of employees
can be reduced.

CONCLUSION

Finally, We conclude that National Bank of Pakistan is better positional than most of its peer banks to
deal with any adverse market trend. The main object of the bank is to further enhance the corporate
image of the bank, consolidate its lending position in the financial market, increase and diversity the
profit trend and structure, pursue the policy of prudence, selectively expand the advances portfolio on
secured basis, penetrate in the market by expanding the branches network and to further improve the
customer service through higher levels of technology.

The bank is developing necessary strategies and new products to cope with the current challenging
situation and plans to further expand its credit portfolio with due care and prudence, ensuring the
quality of its assets portfolio. The increase in forward cover fee and interest/markup rates of deposits is
a hurdle for banks in maintaining their margins. The bank is making all efforts to achieve
management’s objective, its employees with all of their professionalism, dedication and commitment
are supporting it on the way to progress.

There has been an encouraging growth in Islamic banking, as the numbers of full-fledged Islamic banks
have increased and also the number of conventional banks offering Islamic banking.

RECOMMENDATIONS

Broaden The Branch Network:

A financial institution has to give due emphasis to its network expansion because with passage of time
the graph of growth through existing network attains the point of saturation. So NBP should observe
continuous branch expansion.
Human Skill Development:

In order to strengthen the operational and technological capabilities of the employees, the bank should
organize in-house training courses and seminars on the topics like foreign trade, credit management,
information technology and treasury management etc to enhance the capacity of employees necessary
for better services.

Aggressive Advertising:

The bank should promote its business through adequate advertising. It should launch advertisement
campaign in which the bank's extensive technological capabilities and its modem services are
projected.

Customary Advisory Services:

The bank should compete the market by providing the modem and better services to its customers. It
should also try to win the trust of the customers by providing them favorable guidance and latest
facilities. For this customer advisory service may be introduced which may be easily accessible through
Internet and telephone.

Less Fee Charges:

The bank should reduce the service charges from business community. By doing this the bank will not
only be able to attract new customers from business community but also will participate in the overall
increase in business activity in the country.

The bank should try further to enhance its technology and provide latest banking services to its
customers. The liquid asset mix, sound capital adequacy, enhanced technological resources, image of
reliability and security and aggressive fund mobilization strategies should be pursued to enable the
bank to achieve the best possible results.
 REFERENCES AND SOURCES USED
 NBP Annual Report
 NBP Economic Bulletin printed by Economic Research Wing
 State Bank of Pakistan Reports
 National Bank of Pakistan Website