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The internship report on NBP 1

CHAPTER 1

INTRODUCTION OF THE REPORT


The internship report is an essential and necessary for the B.B.A(HON) degree requirement that is offered by the University of Malakand. First preference was given to the bank side because all financial dealings are done in this side.

1.1

BACK GROUND OF THE STUDY

The socio-economic growth of any developing country depends mainly on the health of its monetary based institutions. The banking sector is one of the institutions, which play a vital role in the development of the economy. Its involvement in the industrial sector, trade and commerce of the country makes it an integral organ of the over all development of the country. With the advent of the modern technology and increased competition, banks are undergoing major changes, thus making this field a challenging one. Banking sector, no doubt, has a vital role in the development of our national economy. Moreover, the role of banks in the NWFP is of significant importance, due to the huge amount of home remittances from aboard, contributing not only to this province, but also to the national economy. National bank of Pakistan is one of the leading and first government recognized Bank of Pakistan. NBP was established on Nov 9, 1949, it started functioning from November 20, 1949. There are certain characteristics, which sets NBP apart from other nationalized commercial banks. These characteristics are the reasons of the development of NBP. The most important characteristic of NBP is that, it 1

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works as an agent to the State Bank where State Bank does not have a branch of its own. The NBP also act as a trustee to the National Investment Trust (NIT), which is one of the premier financial institutions of the country. It is charged the responsibility of mobilizing small savings. The establishment of NBP thus signaled the achievement of another milestone in the development of the banking industry in Pakistan.

1.2

PURPOSE OF THE REPORT

This report relates to the analysis of Financial Statements of NBP for the last three years i.e. 2005-2008. The main purpose of this report is to do the financial analysis of National Bank of Pakistan and SWOT analysis of National Bank of Pakistan. Besides, the report also aims to inculcate amongst the students the method of collecting relevant material and shaping it in the form of formal report writing. The report would be useful, as it would analyze the financial statements of NBP with the aim to find its current standing in the modern banking world.

1.3

SCOPE OF THE REPORT

Banking is a much diversified field and has various dimensions and treatments. The scope of my work is based on an in-depth study of the NBP. The study focuses to NBP, Air Head Quarter. Branch Mardan all departments of NBP are considered in this study.

1.4

LIMITATION OF THE STUDY

First of all time is very limited for a complete research of a Specialized and sensitive institution. Since most of data was of confidential nature and was 2

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not available for reviews. Also due to the banks tight work schedule, and non-availability of the required staff, complete information couldnt be collected easily.

1.5

METHODOLOGY OF RESEARCH

The most important task was to collect as much quality information about the organization as possible. For this, I used a number of techniques to collect the required data and conducted the study. The methodology, which I adopted for this research, is based on both the primary data as well as secondary data. The Sources of Primary Data 1. 2. Interviews with bank employees. Briefings with management

The Sources of Secondary Data 1. 2. 3. 4. 5. 6. 7. Annual reports Manuals Relevant books Brochures of the Bank. Circulars Economic Newsletters of NBP Internet

1.6

SCHEME OF THE REPORT

In order to provide reader easy, comprehension and thorough insight, the report is divided into four sections. Section 1: INTRODUCTION Chapter 1

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This chapter encompasses the background of the study. It also looks into the purpose, scope, limitation, methodology and scheme of the report. Section 2: REVIEW Chapter 2 This chapter encompasses brief introduction of banking and its importance in a countrys economy.

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Chapter 3 This chapter includes the evolution of banking, banking in Pakistan, history of NBP, objectives of NBP, functions of NBP, unmatched banking facilities, management and organization of NBP and human resource management. Chapter 4 This chapter includes the overview of Air Headquarter Branch Peshawar and departments of the branch. Section 3: ANALYSIS Chapter 5 This chapter includes the analysis of financial statements of National Bank of Pakistan based on figures available in annual reports. Analytical techniques used for making financial analysis are Common Size Analysis, Index Analysis and Ratio Analysis. Chapter 6 This chapter includes Ratio Analysis of National Bank of Pakistan. Chapter 7 This chapter includes SWOT analysis of National Bank of Pakistan. Section 4: RECOMMENDATIONS Chapter 8 This chapter includes some recommendations to National Bank of Pakistan.

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CHAPTER 2

IMPORTANCE OF BANKING
2.1 WHAT IS A BANK?

A "Bank" can be simply defined as; "A financial institution that accepts deposits and channels the money into lending activities" According to the Banking Companies Ordinance Act 1960 (Section 5b) "Banking means the accepting for the purpose of lending or investment of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque or draft or otherwise". According to the Banking Companies Ordinance Act 1960 (Section 5c) "Banking company means any company, which transacts the business of banking in Pakistan". So, according to this section it is clear that every bank in Pakistan has to be a company (public or private). In short we can define bank as "A financial institution, which deals with money and credit. It accepts deposits from individuals, firms and companies at a lower rate of interest and gives at higher rate of interest to those who need them. Banks can play an important role in the economic development of a country. If the banking system is unorganized and inefficient; it creates maladjustments and impediments in the process of development.

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2.2

MAJOR FUNCTIONS OF COMMERCIAL BANKS

2.2.1 Creating Money Commercial banks have the ability to create and to utilize the money. This is accomplished by lending and investing activities of commercial banks in cooperation with central bank. The increase in supply of money causes inflation and decrease in supply than the rate of production of goods causes deflation and both have bad effects on the economy. 2.2.2 Payment Mechanism Providing for payment mechanism or the transfer of funds is one of the important functions performed by commercial banks and it is increasingly important as greater reliance is placed on the use of checks and credit cards. 2.2.3 Pooling of Savings Commercial banks perform a very important service to all sectors of economy by providing facilities for pooling of savings and making them available for economically and socially desirable purposes. 2.2.4 Extension of Credit

The primary function of commercial banks is the extension of credits to worthy borrowers. From the beginning, organizers of banks have been motivated by the opportunities presented by lending function and charters have been granted by the governments primarily because there was a need for credit in a particular community. In making credit available, commercial banks are rendering a great social service through their actions, production is increased, capital investments are expanded and higher standard of living is realized. 2.2.5 Utilization of Resources 7

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In the new era, it is difficult to imagine that in the absence of banks people can make possible their savings and then their investments in different businesses. It is through the agency of banks that people can make savings and then these savings automatically flow into the channels, which are productive, both for saver and investor. 2.2.6 Capital Formation Capital formation is one of the major factors in economic development. It is the increase in the stock of both material and human capital. Capital formation results when some proportion of societys present income is saved and invested in order to increase materials as well as humane capital. 2.2.7 Safe Keeping Valuables The safe keeping of valuables is one of the oldest services provided by commercial banks. They have vaults that are difficult to enter even by the best of burglars and have established record of proper custody.

2.3

ROLE OF COMMERCIAL BANKS IN THE ECONOMIC DEVELOPMENT OF PAKISTAN

Banks play an important role in the economic development of a country. If the banking system is unorganized and inefficient, it creates maladjustments and impediments in the process of development. In Pakistan, the banking system is very well organized. The State Bank of Pakistan established on July 1, 1948 stands at the apex and is responsible for the operation of the banking system in Pakistan. The other banks, which form the banking structure in Pakistan, are playing an active role in the economic development of the country. The role of commercial banks in the growth and development of sound and healthy economy of the country is briefly discussed as under; 8

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2.3.1 Saving Mobilization The commercial banks like National Bank of Pakistan, Habib Bank, Allied Bank, United Bank and Muslim Commercial Banks have opened up branches in urban and rural areas to mobilize savings of people. 2.3.2 Financing Development Projects The banks and other development finance institutions advance short and medium term loans for financing of the development projects both in the private and public sector and thus help in accelerating the rate of economic development in the country. 2.3.3 Facilitating Trade Activities The credit institutions collect the savings of the people and make them available for facilitating trade activities, both inside and outside the country. 2.3.4 Helping SBP in Achieving Monetary Policies The Commercial Banks under the supervision and guidance of the State Bank of Pakistan help in implementing and achieving the objectives of the monetary policy, which vary from time to time. 2.3.5 Assisting in Development The commercial banks are profit-seeking enterprises. In order to maximize the profits, they have to maximize the loans. An organized banking system keeps a balance between liquidity and profitability and thus assists in the planned development of the economy. 2.3.6 Provision of Agency Services The commercial banks provide agency services to the clients. They collect dividends and pay interest and premium on behalf of the clients. They keep

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their customers valuables in safe custody. They help in the mobility of capital and thus stimulate capital formation in the country. 2.3.7 Making Capital Available for Investment The organized banking system helps in directing physical resources into productive channels. It also keeps a balance between the availability and requirements of the capital in the country. 2.3.8 Profit Sharing Scheme The commercial banks receive surplus balances of households in business and pay interest on the deposits of the clients. The banks have now introduced interest free banking in Pakistan. The depositors, instead of having a fixed rate on the deposits, will share the profit and loss of the banks. The profit and loss sharing (PLS) arrangement, which is an alternative to interest under Islamic Economic System, is now operating in Pakistan. 2.3.9 Provision of Qarz-e-Hasna Qarz-e-Hasna Scheme has been prepared and launched by Pakistan Banking Council through nationalized commercial banks. Under the Qarz-e-Hasna Scheme, financial assistance is provided to the outstanding students, who are unable to pursue their studies due to financial difficulties. Loans are provided for pursuing studies both in and outside Pakistan.

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CHAPTER 3

ORGANIZATIONAL REVIEW
3.1 EVOLUTION OF BANKING

It has not so far been decided as to how the word bank originated. Some authors opine that this word is derived from the words Bancus or Banque which means a bench. The explanation of this origin is attributed to the feet that the Jews in Lombardy transacted to the business of money exchange on benches in the market place; and when the business failed, the people destroyed the brancus. Incidentally the word bankrupt is said to have been evolved from the practice. Other authors hold the opinion that the word bank is derived from the German word back, which means joint stock bank. Later on, when the Germans occupied major part of Italy, the word back was Italianized into bank.

3.2

BANKING IN PAKISTAN

Banking existed in one form or the other ever since the importance of money was as a medium of exchange, was felt giving rise to the necessity of a controlling or regulating agency or institution. In a country like Pakistan, which is still in the initial stage of economic development, a well organized banking system is the need of the day. The Banks can play a vital role in capital formation, in controlling speculation, in maintaining a balance between requirements, availabilities and in directing physical resources in to desired channels.

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At the time of partition, the total number of commercial banks was 38. Out of these, there were 2 Pakistani banks, and 29 Indian banks and exchange banks were only 7. In order to run the economy of the country, the number of Schedule banks branches was reduced from 619 to 213 in both wings of the country. As a new country without resources, it was very difficult for Pakistan to run its own banking system. Therefore, it was recommended that the reserve bank of India should continue to function in Pakistan Until 30th September, 1948.The Imperial bank of India, which had been acting as the agent of the Reserve Bank of India closed down most of its offices in Pakistan. Therefore, it was agreed between the Governments of India and Pakistan to advance the date from, 30th September .1947 to 30th June, 1948 up to which date the Reserve Bank of India should act as the monetary authority in Pakistan. The first Pakistani currency notes were issued in October 1948 in denomination of Rs.5, 10 and 100.By August 1949, the State Bank of Pakistan (SBP) withdrew the Reserve Bank of India notes of the value of Rs.125.02 crores with the help of Pakistani notes. The growth of banking in Pakistan since 1948 has indeed been phenomenal. The network of not only Pakistan but also foreign banks covers a very large segment of population in every corner of the country. More than 7,000 branches of these banks have mobilized more than Rs.887 billion in deposits and provided finance to various sectors amounting to more than Rs.548 billion till June 1997. INTEREST FREE BANKING A new concept of interest free banking was introduced in 1981 and by now it has been established on sound footing and new trends and techniques are 12

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being implemented to make this system result oriented. New products and their systematic consumption are making Pakistani banking comparable to their several modern counterparts anywhere in the developed world.

3.3

HISTORY OF NBP

National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions which were developed after trade deadlock with India and devaluation of Indian Rupee in 1949. Initially the Bank was established with the objective to extend credit to the agriculture sector. The normal procedure of establishing a banking company under the Companies Law was set aside and the Bank was established through the promulgation of an Ordinance due to the crisis situation that had developed with regard to financing of jute trade. The Bank commenced its operations from November 20, 1949 at six important jute centers in the then East Pakistan and directed its resources in financing of jute crop. The Bank's Karachi and Lahore offices were subsequently opened in December 1949. The nature of responsibilities of the Bank is different and unique from other banks/financial institutions. The Bank acts as the agent to the State Bank of Pakistan for handling Provincial/Federal Government Receipts and Payments on their behalf. The Bank has also played an important role in financing the country's growing trade, which has expanded through the years as diversification took place. The various phases through which the bank went have been discussed in a sequence below: 3.3.1 Formative Phase 1950s

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When NBP was first formed it had authorized capital equivalent to the amount of Rs. 60 million. In 1950 shares of the bank were also floated and taken up and by 1951 NBP had started foreign exchange business. The ordinance that was passed at the time of inception of NBP was amended to include ordinary commercial banking business as well as by 1952 it was felt that the development of NBP was so immense that it should be considered as the agent of State Bank of Pakistan. Thus by May of 1952 NBP had taken over the Government treasury work from the former agent, Imperial Bank. The expansion of NBP was quite apparent by 1959 when it had 129 fully functioning branches as compared to the meager 17 in 1950.

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3.3.2 Period of Expansion 1960s After the quick growth of the 50s NBP worked to establish itself as a sound and stable bank in the 60s. The expansion efforts were put into force during these years and marketing efforts were made to target specific market segments. workers, and ladies. For example NBP directed its attention towards Under the School and College Banking scheme, popularizing schemes among school and college students, industrial introduced in 1962 all branches of NBP performed School Banking in the premises of selected schools. By December 1969 NBP had 720 branches, 713 at home and 7 in foreign countries. 3.3.3 Period of Organizational Development: 1970s The 1970s witnessed the nationalization of Pakistani commercial banks operating in the country. On January 1, 1974 National Bank of Pakistan along with 13 other scheduled Pakistani banks was nationalized by the promulgation of the Banks Nationalization Ordinance 1974. Shares not formerly held by the Government were acquired from the private holders after compensating them. The decade of the 70s saw major changes at NBP. In 1972 there was reorganization in the top management structure of the bank. This structure had remained unchanged since the inception of the bank and had originally been inherited from the old Imperial Bank of India. 3.3.4 Period of Consolidation: 1980s On February 10, 1980 the Government of Pakistan announced a three year plan for the implementation of an Islamic Economic System. The institutionalization of Zakat and introduction of interest free banking were 15

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the two most important measures directed to Islamize the economy. The system was introduced by the nationalized commercial banks with effect from January 1, 1981. National Bank of Pakistan evolved and introduced a wholly separate and comprehensive procedure for banking under this system from branch level to Head office. Along with development activities of the bank, consolidation of branch network was pursued. NBP decided to delegate administrative and financial powers to Principal Offices and Zonal Offices. 3.3.5 Challenges and New Initiatives: 1990s-2006 With the geographical development of its branches, NBP has been able to take services to a much larger number of Pakistanis all over the country. Today it has more than million accounts. It maintains a presence in all the major financial centers of the world through its 18 overseas branches and 5 representative offices. In 1995 NBP became the first bank in Pakistan with a deposit base which crossed the Rs. 200 billion mark to become the largest financial institute in the country. Total deposits of the bank have since risen to Rs. 501,872 million by end December 2006. NBP continues to render active help in provision of services like Hajj services, collection of utility bills, paying of pension to central/provincial government pensioners, as well as to civilian military pensioners and retired army personnel.

3.4

MISSION OF NBP

To be recognized in the market place by institutionalizing a merit and performance culture, by creating a powerful and distinctive brand identify, 16

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achieving a top-tier financial performance and adopting and living out our core values.

3.5

VISION OF NBP

To be the pre-eminent financial institution in Pakistan and achieve market recognition both in the quality and delivery of services as well as the range of product offering.

3.6

OBJECTIVES OF NBP

The primary objectives of National bank of Pakistan being a commercial organization is to earn maximum profit .It is in the following ways: 1. 2. By increasing deposits. By charging interest on loans provided to the private sector and business community. These are explained as: 3.6.1 Producing Low Cost DepOsits Competition in banking is intense and every bank whether it is Pakistani, foreign, private or nationalized tries to increase its deposits by providing better facilities to its customers. By increasing its deposits a bank can extend greater amount of loan and hence achieves higher profit. NBP is also improving its facilities and services to attract customers with higher volume of deposits. There are two main factors involved in increasing the deposits. These factors are improving the services and courtesy. NBP is continuously working on these two factors to increase its deposits. NBP being largest bank held biggest deposit base as compared to competitors. 3.6.2 Extension of loans 17

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The profitability of a bank largely depends on the amount extended as loan after assessing credit is given i.e. the credit worthiness of the borrowers. This strategy has worked quite well for NBP. The Deposits so procured are invested in different projects. NBP prefers to give loans to genuine, sound and reliable parties, after securing the collaterals. NBP has an extremely well organized section. The staff is adequately trained, and educated and competent. They carry out extensive financial analysis before deciding on the loan. Interest charged on the loans substantially contributes to higher profits.

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The NBP give specific emphasis on the following: i. ii. iii. iv. Improved customer services. Quick disposal of credit cases. Efficient operation of the branches. Better Public Relations.

3.7

FUNCTIONS OF NBP

Since NBP is a commercial bank, it performs a variety of functions. Like other commercial banks, NBP is engaged in financing international trade. Its other major functions include receiving deposits, advancing loans and discounting of exchange. The functions performed by NBP are: 3.7.1 Accepting Deposits This function is important because banks largely depend on the funds deposited with them by its customers. Deposits are of many types: i. Current Deposits

Current deposits are also called demand liability. NBP pays practically no interest on current deposits. Businessmen usually open current accounts since there is no restriction on its operations. In NBP current account can be opened with a minimum amount of Rs.1000 /ii. PLS saving Deposit

Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit and draw money easily. Profit on PLS is calculated every month but paid after six months. PLS account can be opened with a minimum amount of Rs.500 /iii. PLS Term Deposits 19

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Fixed term deposits are deposits with the bank for certain fixed period. It cannot be withdrawn before maturity unless prior notice is given. In case enhancement before maturity the rates of profit are applied on lower rates depending upon the time period. 3.7.2 Discounting Bills of Exchange Discounting of bill practically speaking is lending against future payments. It is payment of amount to holder of the bill equal to the face value after deducting interest at the current market rate for the remaining period. Such bills have short time future maturity. This is the common way used for keeping a part of assets of the bank in a liquid form. 3.7.3 Agency Services NBP also provides best and unique service to its valued customers. NBP provide the following agency services to the customers: i. Collection of Dividends

As NBP deals in purchase and sale of various types of securities, therefore NBP also provide dividend or interest earned on share or bonds or invested money. ii. Collection of Cheques

In the collection and payment of Cheques, bills and promissory notes etc. National bank of Pakistan acts as an agent for its customers. iii. Acting as An Agent

NBP also acts as an agent correspondent or representative for its customers at home or abroad. iv. General Utility Services

Utilities provided by NBP are as follows:

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a.

Clearance of Utility Bills

NBP provides the service of depositing the utility bills i.e. electricity, gas and telephone bills of its customers and general public as well. For this purpose it also provides evening banking services.

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b.

Lockers Facility

National bank of Pakistan also provides locker facilities to its customers to keep their valuable assets in it. The charges of different size of lockers are different. c. Supply of Information

NBP provides operational and advisory service for foreign exchange accounts/activities.

3.8

UNMATCHED BANKING FACILITIES

Deposit security, Guaranteed by Government of Pakistan. Highest rates of return to attract the savings. Lowest rates on exports and other borrowings. Largest contribution towards Government and Semi-Government requirements. Agents of the SBP handling Treasury Functions, receipts of Taxes & other Revenues. Handling of salaries & pensions of federal/provincial/defense personnel. Utility Bills collections. Hajj arrangements. Sale and encashment of prize Bonds. Sale and encashment of Defense Savings and Special Savings Certificates. Safe Deposit Lockers for customers. Rational Human Resource Management. 22

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3.9

MANAGEMENT AND ORGANIZATION OF NBP

The management of NBP can be described as: 3.9.1 Board of Directors In the management of banks, the board of directors is at the top of the controlling bodies. Since there are no private shareholders now, so there is no general meeting of the shareholders and there are no elected directors. The board now consists of a nominated president, a secretary and other members. The secretary of the board presents the annual report of the bank. The board has limited administrative powers. Board members of NBP is led by the chairman who is the president and is the Chief executive officer (CEO) of the bank, together with a selected group of six directors, who bring with them vast experience and qualities. The government appoints these directors. The Board of Directors of National
Bank of Pakistan has one President and six members as given below:

President of the bank S.E.V.Ps of the bank Representative of the Pakistan Banking Council Representative of government Outsiders Total 3.9.2 Executive Committee

1 3 1 1 1 7

The general direction and supervision of the affairs of commercial banks lies in their respective executive boards. The federal government appoints the president, secretary and other members of the board. The president 23

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being the chief executive of the board directs, controls, and manages the affairs of the bank. NBP has an executive committee with the President as its Chairman, 5 senior executive vice presidents (SEVPs) as its members and Presidents advisor as an observer. This body sees to the day-to-day affairs of the bank, having sanctioning authority for financial and business proposals. 3.9.3 Chief Executive The President is the administrative head of a bank. He presides over the meetings of the Executive Board, manages and controls the affairs of the bank. The president holds office at the pleasure of federal government. 3.9.4 Group Chiefs In order to improve the management and operation of the bank, it has been split-up into a number of divisions. Each Region of the board is placed under the supervision and control of Regional chief or senior executive vice president (SEVP) or executive vice president (EVP).

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FLOW CHART 1

ORGANIZATIONAL STRUCTURE OF NBP

BOARD OF DIRECTORS

PRESIDENT/CHAIRMAN

EXECUTIVE COMMITTEE

REGIONAL CHIEF EXECUTIVE

CORPORATE BRANCH MANAGER

ZONAL CHIEF

BRANCH MANAGER

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3.9.5 Head Office Management The head office of NBP is at Karachi and the head office management controls all the divisions. There are twelve Groups in NBP, which are as follows: i. ii. iii. iv. v. vi. vii. viii. ix. x. xi. xii. Operation Group Audit & Inspection Group Treasury Management Group Commercial & Retail Banking Group Risk Management Group Corporate & Investment Banking Group IT Planning, Development & Implementation Group Finance Group Special Asset Management Group Strategic Planning &Economic Research Group HR Management Department Organization Development &Training Department

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FLOW CHART 02

OVERVIEW OF HEAD OFFICE SET UP

P O G p e r a t i o r o u p n

r e

s i d

t C o m m e r c i a e &n t R e t a i l B a n k i n g G r o u p l

sA u d i t & T r e a s u r y I n s p e c t i oM n a n a g e m G r o u p G r o u p

M G

R a

i s k n a g e r o u p

C o r p o r a t e I T & P l a n n i n gF i n a n c e eI n n v t e s t m e D n et v e l o p m e Gn t r o u p B a n k i n & g I m p l e m e n t a t i o n G r o u p G r o u p O r g a n i z a t i o n g e m D e ne vt e l o p m e n t r t m e n& t T r a i n i n g p D e p a r t m e n t

S M

p a G

c i a l A s sS e t tr sa t e g i c H R n a g e m eP n l a t n n i n g M & a n a r o u p E c o n o m i Dc e p a R e s e a r c h G r o u

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3.10 HUMAN RESOURCE MANAGEMENT


Human resource management is the set of activities directed at attracting, developing and maintaining an effective workforce. Human resources are vital for effective organizational functioning. Personnel department of National bank of Pakistan is established in the head office Karachi. This department controls all the staff of National bank of Pakistan. The Human resource management office of NBP performs the following functions: 3.10.1 Recruitment Recruiting is the process of attracting qualified persons to apply for the jobs that are open. The requirements for selection depend upon the post to be filled. The qualification required and the age is specified in advertisements. Experience is considered necessary for the post like computer programmer and typist etc. a. Selection process

Selection process is divided into following steps: 1. Short Listing of the Applicants

The management of the bank scrutinizes application of the candidates and candidates who fulfill the requirements are sent the test calls. In the first step thousands of candidates apply for the limited posts available. The calls are sent by head office to only those candidates who fulfill the requirements of the job advertised. 2. Test

Test is conducted by Pakistan banking council under the supervision of Institute of Bankers Pakistan (IBP). The test is conducted by IBP and then in the test further applicants are short listed. Pass percentage is 70%. 28

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3.

Interviews

For the interviews only those candidates are called who qualify the written test. Different types of questions are asked from the candidate by the interviewing board such as: a. Questions about the personal background, extra ordinary activities during education and about the personal contacts. b. c. Questions about the subjects or courses studied by the candidate. Question about current events of national and international importance. d. e. Role of banking in the current situation of economy. Role of foreign enterprise in public economy.

Apart from these questions the candidates personal interests are also discussed and an effort is made to have understanding of the individuals. 4. Merit list

After the final result, the successful candidates are sent the appointment letters and they are asked to sign the agreements with the bank. 3.10.2 Developing the Skills of Employees Once the employees are recruited, it is very important to develop their skills. There are two ways to develop their skills. Initial Training/Pre Service Training On job Training

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1.

Initial Training/Pre Service Training

All the newly recruited personnel are provided with training facilities. During this training, an employee is rotated through different sections of the branch so that he may learn by practically doing the work. The minimum probation period is six months.

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2.

On Job Training

On the job training programs can be arranged at any time when the need arises for training. These training courses are of short duration, mostly for two to four weeks. These training courses are arranged at the home station or at any other station. In case of outstation, the transportation and boarding charges are paid by NBP. NBP has its own training institution. This training institute arranges seminars/courses for the NBP employees. 3.10.3 Transfer policy Transfer is a change in the job of an employee from one job to another or from one branch to another. It may involve a promotion, demotion, or no change in job status other then moving from one job to another. It may also be possible at the request of the employees. In NBP there are two types of transfer. 1. Inter Transfer Policy

The management of the National bank of Pakistan frequently transfers its workers from one station to another one. Usually managers are transferred to enhance their managerial skills. Sometimes the efficient workers are sent to that station where the performance of the staff is not satisfactory. 2. Inter Departmental Transfer

Inter departmental transfer is related to the transfer from one department to another department or one section to other section in a branch. The purpose of this is to generalize the staff and to make them all rounders. 3.10.4 Promotion Policy Promotion cannot be claimed as a matter of right on the basis of seniority but on the basis of performance. Main criteria for promotion are the 32

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performance and skills of the individuals, Seniority, are also taken into consideration but it is of secondary importance. A persons career is a highly personal and extremely important element of life. Both productivity and morale are facilitated if these personal decisions are based on objective assessment of present and potential capability. Promotion is a term, which covers a change, calls for greater responsibilities and usually involves higher pay and better terms and conditions of service and therefore a higher status. The purpose of promotion is: a. b. c. d. To provide satisfaction to the employees who deserve promotion. To enhance, experience and ability. To provide an organization with a competent worker. To find out the most competent and suitable candidates.

3.10.5 Salary Administration Compensation is the financial remuneration given by the organization to its employees in exchange for their work. Compensation is an important and complex part of the organization employee relationship. Basic compensation is necessary to provide employees with the means to maintain a reasonable standard of living. The NBP understands clearly its responsibilities and wants to earn a good name in term of employer by pay scale, staff benefits, pensions and other fringe benefits. The bank also provides its employees the most needed job security, for the security of the future the bank also offers a conducive and congenial career to its employees. The salaries of the employees are quite adequate and they are adjusted periodically to the inflationary pressure. 33

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3.10.6 Benefit packages for the employees The bank provides many facilities to the employees but use some of the benefits are explained as under.

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a.

Leaves

At NBP the following types of leaves are granted to employees. 1. Privilege Leaves

Privilege leave of 30 days is granted per calendar year. Privilege leave will not be granted for a period in excess of the no of days to the credit of an employee. Privilege may not be taken more than three times a year. 2. Casual Leaves

Maximum 11 days per calendar year and must be granted more than three days at a time and may be granted in combination with other leaves. 3. Medical Leaves

The annual entitlement is 30 per calendar year on full pay. The bank may grant additional on half pay up to one month the same year in which five sick leaves on full pay is allowed. 4. Pilgrimage Leave

Special leave with full pay for 40 days will be granted to visit holy places. For performing Hajj 7 days before departure and 7 days after arrival shall be allowed to the staff member once during the entire service. b. 1. Compensations Bonus

It is determined on the basis of profit earned by the bank every year and disbursed in the manner as approved by the board. The bonuses paid to the staff are regular feature of the bank policy. The bonuses do help a lot to motivate the staff members.

2.

Provident Fund 35

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All the staff members are required to contribute 7.5% of their salaries to their provident fund. These contributions are pension able.

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c.

Allowances

The grant of special payer allowance to the holder of a post or to any other employee shall require the sanction the competent authority. Allowances for employees are 1. Medical Allowance

The bank will reimburse the cost of medical attendants and medicines, claimed by the employees incurred on him and his dependents. Subject to providing of actual bills on reimbursement basis. 2. House Rent Allowance

The bank has constructed many colonies at different places to provide housing facility for the employees. The rents are paid to the staff members who could not be accommodated in the residential areas constructed by the bank. The rent of the house is at very reasonable terms. d. Staff Loan

The bank according to the length of service and eligibility of employees provides staff loans. NBP offers two types of loans: 1. House Building Loans

It is provided to the employees basically for the construction of houses. Only a part of their salary is deducted. When they complete the installments then they become the owners of the houses. The loan could easily be acquired for the construction of the houses. 3. 4. Conveyance Loans The bank provides loans to its staff member on very easy and convenient terms and conditions. The staff members are granted loans to buy vehicles. The repayment procedure of these loans is very simple.

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FLOW CHART # 03

REGION OF NBP

H e a d O f f i c e

y d e r a b a d 5 2 B r a n c h e s

K 5 0

a r a c h i W e s t B r a n c h

K S e s 3 5

a r a c h i o u t h B r a n c h

L e s B

a r k a n a 3 9 r a n c h e s

S B

u k k u r 2 6 r a n c h e s

a h w a l p u 6 5 B r a n c h e s

D B

K h a n 2 6 r a n c h e s

M B

u l t a n 5 6 r a n c h e s

S B

a h i w a l 5 1 r a n c h e s

J h a n g 3 5 B r a n c h e s

F a i s a l a b a d 4 3 B r a n c h e s

S B

a r g o d a 5 0 r a n c h e s

G B

j r a n w a l a 4 6 r a n c h e s

L a h o r e l a h o r e S h e i k h u p u r a K a s u r 3 1 B r a n c h e s 3 7 B r a n c h

S e s B

i a l k o t 4 4 r a n c h e s

G B

u j r a t 3 7 r a n c h e s

J e h l u m 3 1 B r a n c h e s

a w a l p i n d 6 2 B r a n c h e s

F e d e r a l C a p i t a l B r a n c h e s

B B

a n n u 5 0 r a n c h e s

e s h a w a r 4 7 B r a n c h e s

A B

b o t t a b a d 4 5 r a n c h e s

M B

a r d a n 5 6 r a n c h e s

M B

i r p u r A K 4 7 r a n c h e s

B G i l g i t S u b R e g i o n 1 3 B r a n c h e s

z A 4 r a

a f a r a b a d K 3 n c h e s

Q B

u e t t a 2 9 r a n c h e s

G B

w a d a r 2 4 r a n c h e s

Source: Presidents Office Circular No 7.

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CHAPTER 4

DEPARTMENTATION
4.1 DEPARTMENTS OF THE BRANCH

National bank of Pakistan, Air Headquarters Branch has following departments: 1. 2. 3. 4. 5. 6. Deposits Department Cash Department Govt. Collection Department Remittances Department Clearing Department Advances Department

4.1.1 Deposits Department Deposit department is one of the main departments of the bank as it deals with the supply of money to the bank. Deposits are the inputs (raw material) for the bank. Each and every bank tries to increase its deposits. Air Headquarters Branch Peshawar of NBP is trying its best to increase its deposits as well. This department is responsible for the account opening, account closing, and answering customer queries regarding their accounts chequebook issuance. 4.1.1 Cash Department The head of this department is an accountant. All the cash is given with fixed amount in the morning, from which they can make payments. 40

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Cheques are received and presented for transfer or collection. All the money is kept in the strong room. Cash handling is very risky job, therefore, only authorized person is allowed to enter cash department. 4.1.2 Government Collection Department Air Headquarters branch carries the responsibility of Govt. Collection and perform different services for Govt. NBP collects taxes, duties, challans, renewal of weapons and paying pension to the pensioners. For this purpose pension books are issued to the pensioners. 4.1.3 Remittances Department Remittances department deals with transfer of money for customers from one bank to another bank or from one branch to another branch. Incharge officer is responsible for the inward and outward remittance. Remittance is done usually through demand draft (DD), telegraphic transfer (TT), mail transfer (MT) and western union (WU). It also deals in account statement to the customers and answering their queries regarding this department. 4.1.4 Clearing Department Every bank performs the function of paying and collecting. The cheque drawn on other bank by the customers of the bank is collected by the bank with or without charging fee is called clearing. The bank through the clearinghouse performs the function of clearing. A clearinghouse is a place where the representatives of all the banks get together to settle the payment and receipt of cheques drawn on each other. 4.1.4 Advances Department 41

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Advances department is one of the most important and sensitive departments in any bank. The bank makes profit by advancing loan. Its main function is advancing consumer loan. It checks the credibility of the consumer and maintain the loan towards maturity.

4.2

INSTRUMENTS USED BY THE BANK

The National Bank of Pakistan is making the use of certain instruments, which are explained below: 4.2.1 Signature Card This instrument is used to keep a record of customers. The customer fills this card at the time of account opening. It consists of the customers name, account number, amount and specimen signature. All the signature cards are kept in the stationary in the order of account numbers, so whenever the card is needed for any purpose, it can easily be found. 4.2.2 Vouchers Vouchers are used in every bank. Every bank has its own printed vouchers. Vouchers show the details about the amount received and paid by the bank. As banks use a double entry system i.e. debt and credit system, therefore vouchers are of two types.

i.

Debit Voucher

To differentiate these types, for the convenience of the officers, debit vouchers are printed in pink color. Whenever bank incurs some expense; entries are made in debit vouchers. 42

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ii.

Credit Voucher

These vouchers are printed in green color. They are used to enter the credit transactions. Any income or amounts received by the bank are entered in a credit voucher. All the sections of the bank use vouchers because they are documentary proofs that the transaction has taken place. Each section of bank collects its vouchers and tallies with deposit department at the end of the day, for removing any discrepancy.

4.3

MACHINES USED BY THE BANK

In todays modern world, an organization must adopt the modern technology to be efficient and consequently profitable. The use of modern technology can save a good deal of wastage of time and resources. 4.3.1 Fax Machines In the bank fax machine is used to communicate the massage from one bank to another and for sending important letters or any other documents for urgent consideration. 4.3.2 Computers and Printers There are three computers in the bank, which are used to save accounts information and to keep the record of other departments. Daily balance sheet and other important documents are printed-out through the printer. There is one printer in Branch.

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CHAPTER 5

FINANCIAL ANALYSIS
Financial analysis is the process of identifying the financial strengths and weaknesses of the firm/organization by properly establishing relationships between the items of balance sheet and profit &loss account. Financial analysis can be undertaken by management of the firm, or by parties outsides the organization viz, owners, creditors, investor and others, the nature of analysis depends on the purpose of the analyst. Trade creditors are interested in firms ability to meet their claims over a short period of time. Their analysis will therefore, confine to the evaluation of the firms liquidity position. Suppliers of Long-term debt on the other hand are concerned with the firms long-term solvency and survival. They analyze the firms profitability over time, its ability to generate cash to be able to pay interest and repay principal and the relationship between various sources of funds (capital structure relationship). Long-term creditors do analyze the historical financial statements but they place more emphasis on the firms projected financial statements to make analysis about its future solvency and profitability. Investors, who have invested their money in the firms shares, are most concerned about the firms steady growth in earnings. As such, they concentrate on the analysis of the firms present and future probability. They are also interested in the firms financial structure to the extend it influences the firms earning ability and risk.

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Management of the firm would be interested in every aspect of the financial analysis. Their overall responsibility is to see that the resources of the firm are used most effectively, efficiently and that the firms financial condition is sound.

Table 5.1: Financial Highlights 2008 (Rs. In Millions)


Authorized Capital Paid-up Capital Shareholders Equity and Reserves Deposits Advances -Net Investments -Net Total Assets Pre- tax Profit After-tax Profit No. of Employees No. of Branches Source: NBP Annual Report 2008 10,000 8,154 116,338 591,907 340,677 210,788 762,194 28,061 19,034 14,079 1,261

5.1

GOALS

By doing financial analysis, we can assess the firm's: 5.1.1 Profitability Firms ability to earn income and sustain growth in both short-term and long-term. A company's degree of profitability is usually based on the income statement, which reports on the company's results of operations. 5.1.2 Solvency Firms ability to pay its obligation to debtors and other third parties in the long-term. 5.1.3 Liquidity 45

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Firms ability to maintain positive cash flow, while satisfying immediate obligations. 5.1.4 Stability The firm's ability to remain in business in the long run, without having to sustain significant losses in the conduct of its business. Assessing a company's stability requires the use of the income statement and the balance sheet, as well as other financial and non-financial indicators.

5.2
are:

METHADOLOGY

Analytical methods and techniques used in analyzing financial statements

Common size analysis Index analysis Ratio analysis

The objective of any analytical method is to reduce and to simplify the data under review to more understandable terms. The analysts first compute and organize the data and then analyze and interpret it to make them more meaningful.

5.3

COMMON SIZE ANALYSIS

They are often called component percentage or 100% statements because each statement is reduced to the total of 100 and each individual item is stated as a percentage of total of 100. Each percentage shows the relation of the individual item to its respective total. Thus in addition to financial ratio and other statements, over time its often useful to express balance sheet and income statement items as percentage. 46

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The percentage can be related to total assets or total revenue. The expression of individual financial statement items as percentage of total helps the analyst to spot trends with respect to the relative important of these items over time.

5.4

INDEX ANALYSIS

Trend analysis, which may be thought as index number, showing relative charges in financial data resulting with the passage of time. To make analysis, a base year is selected, in the statement that is to be used as the base year, state the amount of each item as 100%. If an amount of an item is less then the base year statement, the trend percentage will be below 100%, and if its more then that so the trend percentage will be above 100%. The advantage of trends percentage is that it focuses on year-to-year, or date-to-date changes.

5.5

RATIO ANALYSIS

The term ratio refers to the numerical relation ship between 2 items that helps in analyzing, evaluating and interpreting the financial performance of a firm. There are however, number of different ratios that aid in performing this function such as liquidity ratio, leverage ratio, profitability ratio etc.

Table 5.2: Balance Sheet


F.Y 2006 Rs. in 000 F.Y 2007 Rs. in 000 F.Y 2008 Rs. in 000

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ASSETS Current Assets: Cash Balances with other banks Lending to financial institutions Total Current Assets Fixed Assets: Operating fixed assets Long term Assets: Investments Advances Deferred tax assets Other assets Total Assets LIABILITIES AND SHARE HOLDERS EQUITY Liabilities: Current Liabilities Long term liabilities Total liabilities Share holders equity: Share capital Reserves Unappropriated Profit Total Shareholders equity Surplus on revaluation of assets 5908927 13536041 16713506 36158474 38182238 7090712 13879260 32074677 53044649 28909469 635132711 8154319 15772124 45344188 69270631 47067023 762193593 10498003 492880399 503378402 22309742 530868851 553178593 17947965 627907974 645855939 156985686 268838779 23941056 577719114 139946995 316110406 27113698 635132711 210787868 340677100 30994965 762193593 9454365 9681974 25922979 71196956 31019330 16282942 118499228 78625227 40641679 23012732 142279638 94873249 37472832 21464600 153810681

Total Liabilities and 577719114 Shareholders Equity Source: NBP Annual Report 2006 and 2008

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Table 5.3: Balance Sheet, Common Size Analysis


F.Y 2006 (%) ASSETS Current Assets: Cash Balances with other banks Lending to financial institutions Total Current Assets Fixed Assets: Operating fixed assets Long term Assets: Investments Advances Other assets Total Assets LIABILITIES AND SHARE HOLDERS EQUITY Liabilities: Current Liabilities Long term liabilities Total liabilities Share holders equity: Share capital Reserves Un-appropriated Profit Total Shareholders equity Surplus on revaluation of assets Total Liabilities and Shareholders Equity 1.02 2.34 2.89 6.25 6.61 100 1.12 2.19 5.05 8.36 4.55 100 1.07 2.07 5.95 9.09 6.17 100 1.82 85.31 87.13 3.51 83.58 87.09 2.36 82.38 84.74 27.17 46.53 4.14 100 22.03 49.77 4.27 100 27.66 44.69 4.06 100 1.64 1.52 3.40 12.32 5.37 2.82 20.51 12.38 6.40 3.62 22.40 12.45 4.92 2.82 20.19 F.Y 2006 (%) F.Y 2008(%)

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Table 5.4 Balance Sheet, Index Analysis


F.Y 2006 (%) ASSETS Current Assets: Cash Balances with other banks Lending to financial institutions Total Current Assets Fixed Assets: Operating fixed assets Long term Assets: Investments Advances Other assets Total Assets LIABILITIES AND SHARE HOLDERS EQUITY Liabilities: Current Liabilities Long term liabilities Total liabilities Share holders equity: Share capital Reserves Un-appropriated Profit Total Shareholders equity Surplus on revaluation of assets Total Liabilities and Shareholders Equity 100 100 100 100 100 100 119.99 102.54 191.91 146.70 75.71 109.94 137.99 116.52 271.30 191.57 123.27 131.93 100 100 100 212.51 107.71 109.89 170.97 127.39 128.30 100 100 100 100 89.15 117.58 113.25 109.94 134.27 126.72 129.46 131.93 100 102.41 274.19 100 100 100 100 110.43 131.02 141.33 120.07 133.25 120.80 131.82 129.80 F.Y 2007 (%) F.Y 2008 (%)

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5.6

BALANCE SHEET ANALYSIS

A banks balance sheet presents financial information comparing what a bank owns with what it owes and the ownership interest of stock holders. Assets indicate what the bank owns, liabilities represent what the bank owes; and equity refers to the owners interest such that; Assets = Liabilities + Equity The analysis of the balance sheet of NBP was done keeping in view the figures available from the annual reports of NBP for the years 2006, 2007and 2008. Common Size Analysis and Index Analysis of balance sheet have been done in order to study financial position of the respective Bank. 5.6.1 ASSETS SIDE Looking at the current side of assets, we can see a major decrease in cash in 2006, and then again slight increase in 2008. Reason is that bank increased its advances, and deposits were slight decreased in 2006, so cash were used for advances. Again in 2008 deposits were increased, so bank used deposit amount for advancing and less amount was used from cash. Overall current assets were increased due to increase in advances. Fixed assets also shown some growth and investments are also increases in 2007.Lending to financial institutions are decreases in 2007 because banks make more investments in 2007.Overall asset side showed a good improvement, which is a good sign for banks health.

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5.6.2 Liabilities Side We can see a negative change in total liabilities in 2006 because, deposits were decreased, and deposits are major part of banks liability. So slight change in deposits affects total liabilities In 2007 we can again see an increase in total liabilities, because deposits were again increased so its affect can be seen in the shape of increase in total liabilities. 5.6.3 Shareholders Equity We can see an increase in the equity side, mainly because NBP issued 20 % bonus shares in 2006 and 20 % again in 2008, which increased its share capital Table 5.5: Income Statement
F.Y 2005 Rs. in 000 Service Revenue Less: Cost Gross Profit Less: Operating Expenses Operating Income (EBT) Less: Taxes 43085016 12545695 30539321 11483293 19056028 6346584 F.Y 2006 Rs. in 000 56263826 16318764 39945062 13634485 26310577 9288231 17022346 F.Y 2007 Rs. in 000 64114326 21662746 42451580 14391079 28060501 9026728 19033773

Net Income (EAT) 12709444 Source: NBP Annual Report 2007 and 2008

Table 5.6: Income Statement, Common Size Analysis


F.Y 2006 (%) Service Revenue Less: Cost Gross Profit Less: Operating Expenses Operating Income (EBT) 100 29.12 70.88 26.65 44.23 F.Y 2007 (%) 100 29 71 24.23 46.77 F.Y 2008 (%) 100 33.79 66.21 22.45 43.76

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Less: Taxes Net Income (EAT)

14.73 29.50

16.51 30.26

14.08 29.68

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Table 5.7: Income Statement, Index Analysis


F.Y 2006 (%) Service Revenue Less: Cost Gross Profit Less: Operating Expenses Operating Income (EBT) Less: Taxes Net Income (EAT) 100 100 100 100 100 100 100 F.Y 2007(%) 130.59 130.07 130.80 118.73 138.07 146.35 133.93 F.Y 2008(%) 148.81 172.67 139.00 125.32 147.25 142.23 149.76

5.7

INCOME STATEMENT ANALYSIS

The income statement analysis of NBP is done, keeping in view the figures available from the annual reports of NBP for the year 2005, 2006 and 2007. Common Size Analysis and Index Analysis of income statement is being done in order to study the financial position of the respective Bank. 5.7.1 Gross Profit Side Gross profit comes after deducting the cost from the service revenue. We saw a major increase in gross profit in 2007 and gross profit is further increased in 2008. Majority, because advancing were increased, this earned them revenue. On the other hand cost was also increased, which was due to increase in deposits. But this cost was far lesser than increase in gross profit. 5.7.2 Net Profit Side We can see a consistent increase in net profits. Major increase in profits was due to increase in advancing and deposits, which earned them revenue in return.

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