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    Chapter No: 01

    Introduction to Banking

    1.1 What is Bank

    1.2 Banking

    1.2.1 Origin of Banking

    1.2.2 Banking in Ancient World

    1.2.3 Early Banking1.3 Functions of Commercial Banks

    1.4 Role of Banks in the Economic Development of a Country

    1.5 Banking in Pakistan

    Chapter No: 01

    Introduction to Banking

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    1.1 What is aBank?

    There are various views about the origin of the word, bank. The word is derived

    from an Italian word, banque which means a, bench. The other point of view

    is that it has originated from the German word bank, which means a joint stock

    firm. The World Bank is used in the sense of a commercial bank. It is of

    Germanic origin though some persons trace its origin to the French word,

    Banqui. Chambers Twentieth Century Dictionary defines a bank as an

    institution for the keeping lending and exchanging of money.

    According to Crowther,

    A bank is a firm which collects the money from those who have spare. It lends

    money to those who require it.

    Or

    The Bankers business is to take the debts of other people to offer his own in

    exchange, and thereby create money.

    According to Kent,

    The bank is an organization whose principal operations are concerned with the

    accumulation of the temporarily idle money of the general public for the purpose

    of advancing to others for expenditure.

    According to Mr. Parking,

    A bank is a firm that takes deposits from households and firms and makes loans to

    other households and firms.

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    According to Sayers,

    Ordinary banking business consists of changing cash for bank deposits and bank

    deposits for cash; transferring bank deposits from one person or corporation to

    another; giving the secured or unsecured promises of businessmen to repay, etc.

    Thus bank is a financial institution, which uses funds deposited with it to

    extend loans to companies or individuals, and also provides financial services to

    its customers. In other words it is an intermediate party between the borrower and

    the lender. The difference between the terms on which it borrows and those on

    which it lends forms the source of its profit.

    1.2 BANKING

    Banking is the acceptance, transfer, and, most important, creation of deposits.

    Banking consists of safeguarding and transfer of funds, lending or facilitating

    loans, guaranteeing creditworthiness, and exchange of money. Such institutions as

    commercial banks, saving banks, trust companies, finance companies, provide

    these services and merchant banks or other institutions engaged in investment

    banking. All countries subject banking to government regulation and supervision

    normally implemented by central banking authorities.

    1.2.1 Origin of Banking

    Banking was invented before coins and reached a high level of sophistication in

    the Egypt. Military conquests, such as those of Alexander the Great, spread the

    use of coins, which became the most convenient means of payment.

    Banking is the business providing financial services to consumers and businesses.

    The basic services a bank provides are checking accounts, which can b used like

    money to make payments and goods and services; saving accounts and time

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    deposits that can b used to save money for future use; loans that consumers and

    businesses can use to purchase goods and services; and basic cash management

    services such as check cashing and foreign currency exchange. Four types of

    banks specialize in offering these basic banking services: commercial banks,

    savings and loan associations, savings banks, and credit unions.

    1.2.2 Banking in the Ancient World

    Many functions of modern banking were participated by ancient civilizations.

    Usually temples served as banks and priest as bankers. The temples were logical

    places for enterprise. In a polytheistic era where superstition was rife, few couldconsider angering the goods by stealing the money from temple. Babylonian

    cruciform records revel the wide spread use of credit, mortgage, written promises

    to repay loans and interest charges up to legal maximum rates. History of

    banking is traced back as 2000 BC Babylonians.

    Up a code wherein he laid down standard rules, procedure for banking

    operations by temples and great landowners. He got his code inscribed on a

    block of 8 feet tall, containing about 150 paragraphs, which deal with nearly allaspects of loans, interest pledges, guarantees, natural accidents, loss theft etc.

    later on, the Sumerians, Babylonians, hit ties and Assyrians standardized the

    values of the goods in silver, copper, bronze or electrum. It is not certain as to

    who invented money; but history records that Gyges, king of Lydia, caste

    electrum (natural alloy of gold and silver) ingots of identical shape and of

    uniform weight with a album engraved on it as an official guarantee of value in

    687 BC.

    1.2.3 Early Banking

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    Many banking functions such as safeguarding funds, lending, guaranteeing

    loans, and exchanging money can be traced to the early days of recorded

    history. In medieval times the Knights Templar, an international military and

    religious order, not only stored valuables and granted loans but also arranged for

    the transfer of funds from one country to another. The great banking families of

    the Renaissance, such as the Medici in Florence, were involved in lending

    money and financing international trade. The first modern banks were

    established in the 17th century, notably the Riks bank in Sweden (1656) and the

    Bank of England (1694).

    In the 17th century, English goldsmiths provided the model for

    contemporary banking. Gold was stored with these artisans for safekeeping, and

    was expected to be returned to the owners on demand. The goldsmiths soon

    discovered that the amount of gold actually removed by owners was only a

    fraction of the total stored. Thus, they could temporarily lend out some of this

    gold to others, obtaining a promissory note for principal and interest. In time,

    paper certificates redeemable in gold coin were circulated instead of gold.

    Consequently, the total value of these banknotes in circulation exceeded the

    value of the gold that was exchangeable for the notes.

    Two characteristics of this fractional-reserve banking remain the basis for present-

    day operations. First, the banking systems monetary liabilities exceed its

    reserves. This feature was responsible in part for Western industrialization, and it

    still remains important for economic expansion, though a risk of creating too

    much money is a rise in inflation. Second, liabilities of the banks (deposits and

    borrowed money) are more liquidthat is, more readily convertible to cash

    than are the assets (loans and investments) included on the banks balance sheets.

    This characteristic enables consumers, businesses, and governments to finance

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    activities that otherwise would be deferred or cancelled; at the same time, it opens

    banks to the risk of a liquidity crisis. When depositors en masse request payment,

    the inability of a bank to respond because it lacks sufficient liquidity means that it

    must either renege on its promises to pay or pay until it fails. A key role of the

    central bank in most countries is to regulate the commercial banking sector to

    minimize the likelihood of a run on a bank, which could undermine the entire

    banking system. The central bank will often stand prepared to act as lender of last

    resort to the banking system to provide the necessary liquidity in the event of a

    widespread withdrawal of funds. This does not equal a permanent safety net to

    save any bank from collapse, as was demonstrated by the Bank of Englands

    refusal to rescue the failed investment bank Baring in 1995.

    1.3 Functions of Commercial Banks

    Commercial banks perform a variety of functions, which can be divided as;

    (1) Accepting deposits;

    (2) Advancing loans;

    (3) Credit creations;

    (4) Financing foreign trade;

    (5) Agency services; and

    (6) Miscellaneous services to customers.

    1. ACCEPTING DEPOSITS

    This is the oldest function of a bank and the banker used to charge a

    commission for keeping the money in its custody when banking was

    developing as an institution. Now a days bank accepts three kinds of

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    deposits. The first is saving deposits, on which the bank pays small

    interest. The depositors are allowed to draw their money by cheques up to a

    limited amount during a week or year. Businessmen keep their deposits in

    current accounts. They can withdraw any amount standing to their credit in

    account deposits by cheques without notice. The bank does not pay interest

    on such accounts. Current accounts are also known as demand deposits.

    Deposits are also accepted by a bank in fixed or time deposits. The rate of

    interest increases with the length of the time period of the fixed deposit. But

    there is always the maximum limit of the interest rate, which can be paid.

    For instance, the interest rate on fixed deposits over five years is 8 percent

    in Pakistan.

    2. ADVANCING LOANS

    One of the primary functions of a commercial bank is to advance loans to

    its customers. A bank lends a certain percentage of the cash lying in

    deposits on a higher interest rate than it pays on such deposits. This is how

    it earns profits and carries on its business. The bank advances loans in the

    following ways.

    a) Cash Credit:

    The bank advances loans to businessmen against certain specified

    securities. The amount of the loan is credited to the current account of the

    borrower. In case of a new customer a loan account for the sum is opened.

    The borrower can withdraw money through cheques according to his

    requirements but pays interest on the full amount.

    b) Call Loans:These are very short-term loans advanced to the bill brokers for not more

    than fifteen days. They are advances against first class bills or securities.

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    Such loans can be recalled at a very short notice. In normal times they can

    also be renewed.

    c) Overdraft:

    A bank often permits a businessman to draw cheques for a sum greater than

    the balance lying in his current account. Providing the overdraft facility up

    to a specific amount to the businessman. But he is charged interest only on

    the amount by which his current account is actually overdrawn and not by

    the full amount of the overdraft sanctioned to him by the bank.

    d) Discounting Bills of Exchange:

    If a creditor holding a Bill of Exchange wants money immediately, the bank

    provides him the money by discounting the bill of exchange. It deposits the

    amount of the bill in the current account of the bill-holder after deducting

    its rate of interest for the period of the loan, which is not more than 90

    days. When the Bill of Exchange matures, the bank gets its payment from

    the banker of the debtor who accepted the bill.

    3. CREDIT CREATION

    Credit creation is one of the most important functions of the commercial

    banks. Like other financial institut ions, they aim at earning profits. For this

    purpose, they accept deposits and advance loans by keeping small cash in

    reserve for day transactions. When a bank advances a loan, it opens an

    account in the name of the customer and does not pay him in cash but

    allows him to draw the money by cheque according to his needs. By

    granting a loan, the bank creates credit or deposit.

    4. FINANCIAL FOREIGN TRADE

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    A commercial bank finances foreign trade of its customers by accepting

    foreign bills of exchange and collecting them from foreign banks. It also

    transacts other foreign exchange business and busy and sells foreign

    currency.

    5. AGENCY SERVICES

    A bank acts as an agent of its customers in collecting and paying

    cheques, bills of exchange, drafts, dividends, etc. it also busy and sells shares,

    securities, debentures, etc. for its customers. Further, it pays subscriptions,

    insurance Premia, rent, electric and water bills and other similar charges on behalf

    of its clients. It also acts as a trustee and executor of the property and will its

    customers. Moreover, the bank acts as an income tax consultant to its clients, for

    some of these services, the bank charges a nominal fee while it renders others free

    of charge.

    6. MISCELLANCEOUS SERVICES

    Besides the above services. The commercial bank performs a number of other

    services. It acts the custodian of the valuables of its customers by providing them

    lockers where they can keep their jewelry and valuable documents. It issues various

    from of credit instruments, such as cheques, drafts, travelers cheques, etc., which

    facilitate transactions. The bank also issues letters of credit and acts as a referee to

    its clients. It underwrites shares and debentures of companies and helps in the

    collection of funds from the public. Some commercial banks also publish journals,

    which provide statistical information about the money market and business trends

    of the economy.

    1.4 ROLE OF BANKS IN ECONOMIC DEVELOPMENT OF A

    COUNTRY

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    In modern age, monetary by banking system plays a vital role in economic

    development of a country. To provide financing for the accomplishment of certain

    economic plans depends upon an organized by sound banking system by a country

    financial institutions plays an important role in credit provision. So, if the

    monetary markets by banking system of a country are well organized by sound, it

    will help in accelerating the process of economic development. To encourage

    people to save more by then investment of these savings into suitable areas depends

    upon the policy by strength of banking system.

    Besides be strong banking system, monetary policy of a county also plays a vital

    role in development. Although monetary policy of a country is made by the central

    bank, yet it depends upon the co-operation of commercial banks.

    As for as a developing country like Pakistan is concerned, it always suffer capital

    deficiency. Only banks can solve problem by providing credit in required amount.

    The reasons is, to motivate the people towards savings, collection of the saved

    amount by then investment of this amount, all this is the duty of banks. By doing

    so, banks become an example of model investment for people.

    Hence, the banking system of a country can help i.

    i) Development of a country.

    ii) To make the monetary policy successful.

    Main features of monetary policy are as following.

    i) To achieve high level of employment.

    ii) To stable in prices.

    iii) To save economy from recession by inflation.

    iv) To avoid fluctuation of interest rates

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    v) To improve in standard of living of people.

    So the banking system of 3rd world countries is not so stable, so it very difficult to

    implement monetary policy properly. As far as Pakistan is concerned, when all the

    scheduled banks were nationalized in 1974, State Bank of Pakistan got a complete

    grip upon banking network. Owing to this, the role of banks in economic

    development became more prominent. It can be understand through following facts.

    i) PICIC by Industrial development bank has played an important role for

    the development of industrial sector and have issued long by short-term debts

    for necessary machinery, raw material equipment.

    ii) For the development of agriculture red sector, NBP was the first one to

    be established in this regard. Then ADBP by now other commercial banks are

    also providing credit for agricultural sector.

    iii) These banks provide financing for domestic as well as international

    trade.

    iv) Have provided credit facility to small business people to promote

    cottage industry.

    v) Have provided financing for house building to overcome the scarcity of

    houses. HBFC has played a vital role in this regard.

    vi) Have played an important role in providing finance to Govt. especially

    in agricultural sector.

    1.5 Banking in Pakistan

    Banking is one of the most sensitive businesses all over the world. Efficient

    banking is the basis of a viable economic structure and growth. Pakistan is no

    exception.

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    The country started without any worthwhile banking network in 1947 but

    witnessed phenomenal growth in first two decades. By 1970, it had acquired a

    flourishing banking sector.

    The characteristics that distinguished it were that it was indigenous, growth

    oriented, and well integrated with the local business. Its intermediation cost was

    reasonable. Its assets were well secured and liabilities well protected. It enjoyed

    an image of reliability integrity and support to the business community.

    The first exception to the otherwise good reputation of the banking business was

    noticed when one of the small banks. Namely the standard bank ltd started

    securing patronage of army generals for procuring business by using inappropriate

    methods. This was the beginning of institutional corruption at the highest

    bureaucratic levels.

    The state bank of Pakistan was established with a banking control and inspection

    department but it had a limited role to play in regulating the banking business.

    The banking business, however, suffered no loss of image or substance because of

    its limited role. The reason being that the bank management was more proactive

    to observe as self-imposed business ethics.

    Nationalization of banks in the seventies changed the whole complexion of the

    banking industry in the country. With one stroke of pen, the commercial banks

    were made subservient to the political leadership and the bureaucracy. Specialized

    banking institutions were already working in the public sector. The new

    accountability paradigm changed the business ethics in the banking industry, and

    with this change started the disaster.

    Nationalization of banking industry was accompanied by violent changes in the

    external value of rupee. The commercial banks thus lost their equilibrium,

    initiative and growth momentum. They ceased to be a business concern and

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    became big bureaucracies. This was accompanied by indiscreet loaning under

    political pressure. They suffered from three terminal diseases none performing

    loans, higher intermediation cost and loss of initiative and entrepreneurship.

    In the meanwhile, western banks started entering into the business. They with the

    support of ruling elite, concentrated on the big business, leaving the routine

    business to the local banks. This reduced the profitability of the local banks.

    The government permitted small private sector banks to operate, which indulged

    in questionable policies to promote business. The public sector banking which

    constituted the backbone. Thus continued to suffer because of their approach, size

    and carried over liabilities.

    The biggest problem for the economic managers of the country was that they had

    no vision to resolve the structural incompetence of the public sector banking

    industry. Privatization was considered to be a solution but neither the objectives

    nor the mechanism of privatization process were clearly spelled out. As a result

    privatization process could not gain momentums even after unloading of two of

    the commercial banks. I.e. the Muslim commercial bank and the Allied Bank.

    The problems accentuated gradually as the issue of non performing loans was

    politicized by one of the interim governments and soon thereafter some of the

    newly established private banks and privatized started crumbling and the state

    bank had to directly intervene to protect the depositors.

    At this stage the World Bank entered into the game by providing a credit for

    improving the financial sector the prescription of the World Bank for improving

    the health of the financial sector was quite simple the bank believed that

    privatization and globalization of the economic activity was the only solution tothe problems of developing countries. It thus prescribed induction of imported

    leadership, transfer of non-performing loans to a specialized agency, effective

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    regulation, and introduction of banking rationalization of branches and the staff

    and finally the privatization by allowing international bidders.

    The World Bank prescription is thus working to the desired ends. The public

    sector banks have a new leadership that has a background of working with

    multinationals. They have transferred a part of the non performing loans to the

    news entity created for the purpose. The SBP is now regulating the commercial

    banks through what it calls the prudent regulations.

    The bank branches in major urban business areas are switching over a banking

    thus minimizing the cultural difference between the domestic and foreign banks.

    A large number of unprofitable branches have been closed and the staff at the tail

    has been reduced. All of this has apparently given a new, attractive state of the art

    look to the public sector banks. World banks funding through the state bank has

    helped improve their balance sheets and as a result united bank has already been

    privatized and Habib bank is not for behind the ultimate.

    Chapter No: 02

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    INTRODUCTION TO NATIONAL BANK OF PAKISTAN

    2.1 Introduction

    2.2 History of National Bank of Pakistan

    2.3 Functions of National Bank of Pakistan

    2.4 Functions of NBP as a Representative of State Bank of Pakistan

    2.5 Development of National Bank of Pakistan

    2.6 Phases of Banking in Pakistan

    2.7 Management System

    2.7.1 Structure of the organization

    2.7.2 Management of NBP

    2.7.3 Board of Directors

    2.8 Branch Network of NBP

    2.9 Objectives of Internship

    Chapter No: 02

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    INTRODUCTION TO NATIONAL BANK OF PAKISTAN

    2.1 INTRODUCTION

    National Bank of Pakistan maintains its position as Pakistan's premier bank,

    determined to set higher standards of achievements. It is the major business

    partner for the Government of Pakistan with special emphasis on fostering

    Pakistan's economic growth through aggressive and balanced lending policies,

    technologically oriented products and services offered through its nation wide

    branches.

    National Bank of Pakistan, established in 1949 maintains its position as Pakistan's

    premier bank determined to set higher standards of achievements. It is the major

    business partner for the Government of Pakistan with special emphasis on

    fostering Pakistan's economic growth through aggressive and balanced lending

    policies, technologically oriented products and services offered through its large

    network of branches locally, internationally and representative offices.

    National Bank of Pakistan is distinct from other banks in that it has a non-profit

    and service oriented motive, which has manifested itself in the area of salary

    deposits of Government employees and payment of utilities bills. These services

    do not contribute towards the earnings of the bank; rather they put pressure on our

    resources. Nevertheless, National Bank of Pakistan committed to serving small

    savers and the general public of the country. National Bank of Pakistan is

    everyones and does not only serve corporate customers.

    It would be very complex task to discuss entire functioning of the bank. However,

    in order to have an in depth analysis, a sound grasps and to produce an effective

    report on how the bank has been performing in the previous year vis--vis the

    present day developments.

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    The purpose of writing this report is to express my understanding, knowledge &

    learning that I got during my internship period in National Bank of Pakistan.

    Mission Statement

    To be recognized in the market place by Institutionalizing a merit & performance

    culture, Creating a powerful & distinctive brand identity, Achieving top-tier

    financial performance, and Adopting & living out ourcore values.

    Core Values

    We aim to be an organization that is founded on

    Growth through creation of sustainable relationships with our customers.

    Prudence to guide our business conduct.

    A national presence with a history of contribution to our communities.

    We shall work to

    Meet expectations through Market-based solutions and products.

    Reward entrepreneurial efforts.

    Create value for all stakeholders.

    We aim to be peopling who

    Care about relationships.

    Lead through the strength of our commitment and willingness to excel.

    Practice integrity, honesty and hard work. We believe that these are

    measures of true success.

    We have confidence that tomorrow we will be

    Leaders in our industry

    An organization maintaining the trust of stakeholders.

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    An innovative, creative and dynamic institution responding to the

    changing needs of the internal and external environment.

    Mission

    To provide reliable banking services to Government, financial institutions, public

    and to act as an operation alarm of State Bank of Pakistan.

    Vision

    To be the pre-eminent financial institution in Pakistan and achieve market

    recognition both in the quality and delivery of service as well as the range of

    product offering.

    2.2 History of National Bank of Pakistan

    The story of National Bank of Pakistan is part of our struggle for economic

    independence. When we won political independence, mostly Hindus controlled

    our economy. East Pakistan was spared from massive migration but its economy

    was also, being dependent on Calcutta badly hurt. Most bankers and business

    experts left Pakistan and the economic life was brought to a standstill. The mostly

    branches of Imperial Bank of India were only in partial operation with skeleton

    staff.

    It was very difficult for Pakistan to build up its own Banking system immediately

    after independence without sufficient resources as at that time most of the

    commercial banks in Pakistan were the branches of foreign banks, Indian and

    others was staffed mainly by non-Muslims. Those banks, which stayed, were

    considering the winding up of their business. By 30th June 1948, the number ofscheduled banks in Pakistan declined from 487 to only 195.

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    There was a controversy on establishment of our Central Bank because we had no

    experience but it was resolved and SBP was established, 3 month a head of

    schedule, on July 01, 1948. On October 03, 1949, 2 central banks were to

    announce the new par value of both currencies but India denied a day earlier.

    India also froze out trade balance surplus that is still an unsettled dispute. India

    had also withdrawn the merchants who were employed annually for movement of

    jute crop by financing it. There being no jute industry, prices fell sharply, foreign

    banks and foreign merchants stood aside and an agrarian unrest was threatening.

    Two Ordinances were therefore issued.

    Jute Board Establishment Ordinance

    NBP Ordinance dated 08.11.1949

    2.3 Functions of National Bank of Pakistan

    The NBP performs two types of functions. It acts as an ordinary commercial bank

    and places where there is no branch of State Bank of Pakistan it represents it. As a

    commercial bank it performs the following:

    Accepting of deposits of money on current a/c, saving a/c, term deposit

    and other profit and loss sharing accounts.

    Borrowing money and arranging finance from other banks.

    Advancing and lending money to its clients.

    Financing of projects including technical assistance, project appraisal

    through long term & short term loans

    Buying, selling, dealing & discounting of bills of exchange, promissory

    notes, drafts, bill of lading, and other instruments of securities.

    Foreign exchange business.

    Financing of seasonal crops like cotton, wheat & rice.

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    Receiving of bonds, valuables etc for save custody.

    Carrying on agency business of any description other then managing agent

    on behalf of client, including govt. and local authorities.

    Generating, undertaking and promoting etc of issue of shares, bonds.

    Transacting guarantees and indemnity business.

    Undertaking and executing trusts.

    Making investments in other banking companies.

    Joint ventures with foreign dealers, agents and companies for its

    representation abroad.

    Participating World Bank and Asian development banks lines of credit.

    Utility services

    Providing Hajj services to intending Hajjis

    Agent to State Bank of Pakistan for collecting.

    Gold finances.

    2.4 Functions of NBP as a Representative of State Bank of Pakistan:

    Collection of cheques and bill of exchange for its customers.

    Paying insurance premium, rent or other obligations of the customers.

    Transferring of money from one place to another.

    Collecting interest dues, dividend, pensions and other sums due to

    customers.

    Acting an executor, trustees for the customers.

    Providing safe custody and jewelry documents and securities.

    Issuing of travelers cheques and letter of credit to give credit facilities.

    Purchasing shares for the customers.

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    Accepting bills of exchange on behalf of customers.

    Undertaking foreign exchange business.

    Furnishing trade information and tendering advice to the customers.

    Formulating operation policy guidelines for the banks.

    Laying down performance criteria for banks and taking steps for ensuring

    their observance.

    Evaluating the performance of the banks in the context of operational

    guidelines issued to the banks.

    Determining the areas of coordination of the banks.

    Making recommendations to the federal govt. for the appointment of

    auditors of the bank.

    Conducting such surveys, inquiries and appraisals may be necessary for

    the purpose of this act.

    Exercising and performing such powers and functions of the federal govt.

    under the act and such other functions as the federal govt. may assign to it.

    2.5 Development of National Bank of Pakistan

    NBP was established on 20.11.1949 to provide finance to suitable parties under

    the National Bank of Pakistan Ordinance No. 21of 1949. It is a semipublic bank

    and functions like other commercial banks. NBP stood behind jute trade, SBP

    stood behind

    NBP and the Government stood behind SBP. Speedy it was such that 6 branches

    came in to being at once and the doubts on our ability to handle the situation was

    dispelled forever. Now the Jute Board and NBP were in this field, the foreign

    merchants and bankers also rushed into get their share in the business and

    consequently NBP had to lay out much les finance that it could. Until June 1950,

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    NBP remained exclusively in Jute operation; therefore other commodities were

    also taken up.

    In 1952, NBP replaced Imperial Bank of India. In 1962, the number of branches

    increased from 6 to 239 and deposits from Rs. 5 crore to Rs. 106 crore, profit

    from 3 million to 21 million, and the staff increased from 380 to 7091, as

    compared to 1949-50. in December 1966, its 600th branch was opened raising the

    deposit to 2.31 billion and staff to 14963. Up to 1965, the shareholders had

    received 225% of their original investment. Now it has 13272 employees, 1199

    branches and Rs. 395.6 billion deposits.

    2.6 PHASESOFBANKINGINPAKISTAN

    The development of commercial banking is divided into 4 phases.

    Establishment of Commercial Banking System (1947-74)

    Nationalization of Banks (1974-79)

    Deregulation Process (1991-98)

    NATIONALIZATION ERA

    On 1st January, 1974 all Pakistani banks were nationalized through

    nationalization Act 1974. Under this law all Pakistani banks became a public

    property. All small banks were merged in bigger banks to create 5 major

    Pakistani banks. These banks were to control by Pakistani banking council. The

    major changes after nationalization were as follows:

    Working of banks were extended to underdeveloped areas

    Market expansion for credit and deposits

    POST NATIONALIZATIONERA

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    In 1990 the government of Pakistan decided to denationalize all the

    nationalization institutes. For this purpose amendments were made to

    nationalization act 1974 and 2 nationalized banks were privatized along with this

    a permission to open banks in private sector was also granted. After these changes

    a large no. of private and foreign banks started their operations in Pakistan and the

    present status can be seen by the following figures.

    2.7 Management

    An Executive Board composed of six Senior Executives of the Bank and the

    President who is also the Chief Executive supervises the affairs and business of

    the Bank.

    2.7.1 Structure of the organization

    Head office Karachi

    PRESIDENT

    DIRECTORS

    GROUP CHIEFS

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    Business

    chief group

    Operational

    group chief

    Risk

    managementgroup chief

    Compliance

    group chief

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    Branch Level

    2.7.2 Management of NBP

    Head Office of the Bank

    The head office of the National Bank of Pakistan is in Karachi.

    Central Board

    The general superintendent and direction of the affairs and business of the bank

    shall be encrusted to the Central board which may exercise all powers and things as

    may be exercised or done by the bank and or not by this ordinance expressly

    directed or required to be done by the bank in general meeting.

    The central Board shall consist of the following directors namely.

    The Managing Directors appointed by the central Government under section

    16.Nine Directors are elected in local or special meetings by the shareholders

    in the following manners. The share holders registered in a branch, register

    maintained for an area mentioned in sub-section (5) of section 8, shall elect

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    MANAGER

    OPERATION

    MANAGER

    COMPLIANC

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    from amongst themselves, such number of directors for that area as may be

    decided before election by the Central Government having regard to the

    proportion which that share capital subscribed by the shareholders of that

    area bears to the whole. Provided that the shareholders registered in branch

    register maintained at Dacca shall elect from amongst themselves at least two

    Directors. Three directors appointed by the Central Government, provided

    that the total number of the elected and appointed Directors representing the

    area for which the Decca register is maintained shall be not be less than

    three.

    The President of the Central Board shall be appointed by the Government

    from amongst the Directors.

    2.7.3 Board of Directors

    Syed Ali Raza

    Chairman Board, National Bank of Pakistan

    Mr. S. Ali Raza is the Chairman, NBP Board of Directors. Mr. Raza is a graduate

    of the London School of Economics and M.Sc. in Admn. Science from the London

    Graduate Business Centre, City University, London. Before joining the National

    Bank of Pakistan in July 2000 as the Banks President, he held a key management

    position as Managing Director and Regional Head, Pakistan, Middle East and

    North Africa at the Bank of America (BOA).

    Qamar Hussain

    President , NBP

    Mr. Qamar Hussain is the President of National Bank of Pakistan (NBP), thelargest Commercial Bank of the country. He holds an MBA degree in International

    Business & Finance from Mcgill University, Montreal, Canada and has undergone

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    extensive training in business leadership abroad.

    Mr. Hussain started his banking career from Bank of America N.T. & S.A.,

    Pakistan in the year 1981. Prior to joining NBP in 2009, he has worked with

    American Express Bank Limited as Senior Director Global Credit, New York and

    earlier as Senior Director Country Manager, Bangladesh. He had also been

    associated with the CHASE MANHATTAN BANK in Pakistan and USA.

    Mr. Tariq Kirmani

    Director

    Soon after completing his Masters in Business Administration (MBA) Mr.

    Kirmani embarked upon a rewarding career, starting with a multi-national OilCompany (Caltex later Chevron Pakistan) in 1969 and worked for seven years in

    the United States of America, United Arab Emirates and Australia in different

    senior management positions in Marketing Operations and Finance.

    Mrs. Haniya Shahid Naseem

    Director

    Mrs. Haniya Shahid Naseem is an MBA with more than fifteen years experience

    of working in the education, social, industrial textile and agriculture sectors of

    Pakistan. She has served for 5 years on the Board of a textile company, having a

    turnover of more than one Billion Rupees. Presently she is actively involved in

    the administration of Pakistan Public School Multan.

    Ms. Nazrat Bashir

    Director

    Ms. Nazrat Bashir belongs to District Management Group of Civil Services of

    Pakistan. She is Masters in Economics from New York University, New York,

    USA and Master in Psychology from Peshawar University; Peshawar.She has

    extensively traveled abroad and has attended various international Seminars and

    Conferences such as on Micro Finance.

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    Mr. Ekhlaq Ahmed

    Secretary Board of Directors

    Mr. Ekhlaq Ahmed, EVP is the Company Secretary of the Bank and also the

    Secretary of Credit & Operations Committees. He is M.A. (Economics) from

    Rajshahi University, Bangladesh (former East Pakistan). He is a Diplomaed

    Associate Institute of Bankers, Pakistan (DAIBP) and secured overall 1st

    position in order of merit and won Muslim Commercial Bank Prize in the

    subject of Foreign Trade & Foreign Exchange.

    Senior management

    Qamar Hussain

    President

    Dr. Asif A. Brohi

    SEVP & Group Chief, Commercial & Retail Banking Group

    Shahid Anwar Khan

    SEVP & Group Chief, Credit Management Group

    Ziaullah Khan

    SEVP & Group Chief Assets Recovery Group and Divisional Head, IslamicBanking Division

    Dr. Mirza Abrar Baig

    SEVP & Group Chief, Human Resources Management & Administration Group

    Nausherwan Adil

    SEVP & Group Chief, Operations Group

    Tariq Jamali

    SEVP & Group Chief, Compliance Group

    Nadeem A. Ilyas

    SEVP & Group Chief, Corporate & Investment Banking Group & PSO to President

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    Syed Iqbal Ashraf

    SEVP Group Chief, Overseas Banking Group

    Muhammad Nusrat Vohra

    SEVP & Group Chief, Treasury Management Group

    Khalid Bin Shaheen

    SEVP & Group Chief, Global Home Remittance Management Group

    Imam Bakhsh Baloch

    SEVP & Group Chief, Audit & Inspection Group

    Asif Hassan

    SEVP & Group Chief, Small and Medium Assets Recovery Group

    Tahira Raza

    EVP & Head Risk Management Division, Credit Management Group

    Sheharyar Qaisrani

    EVP/Divisional Head Agriculture Business Division, C&RB Group

    Muhammad Hassan Khaskheli

    EVP & Divisional Head, Personnel & Industrial Relations Division, HRM&AGroup

    Qamar Hussain

    EVP & Divisional Head, Human Resources Division, HRM&A Group

    Moizuddin Khan

    EVP & Divisional Head, Training & Organizational Development Division,HRM&A Group

    Ekhlaq Ahmed

    EVP & Secretary Board of Directors

    Aamir SattarEVP & Financial Controller, Financial Control Division

    Raza Mohsin Qizilbash

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    EVP & Head, Legal Division

    Mahmood Siddique

    EVP & CIO, IT Division

    Javaid Haider

    SVP & Divisional Head, Logistic Support & Engineering Division, CM Group

    Aamir Abbasi

    SVP & Divisional Head, Corporate Communication Division

    Muhammad Rafique

    SVP, Head PMO

    S.M. Ali Zamin

    SVP & Secretary Operations Committee

    Local Board

    The local board shall be established for the areas mentioned in sub section (5) of

    section B, one each at Karachi and the Lahore, and shall without prejudice to the

    powers conferred by the section 12, have power, within the prescribe limits

    generally totransact all usual business of the bank. A local Board shall consist of

    the following members namely.

    The Managing Director

    One member appointed by the central board from amongst the Directors

    elected by the shareholders registers in the branch register of the area.

    Two members appointed by the Central Government from the area in which

    the Local Board is established.

    Three members elected in a local or special local meeting from the amongst

    themselves by the shareholders register in the branch register of the area.

    Managing Director

    The Managing director shall be appointed by the Central Government for o period

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    not exceeding five years and on such salary and terms and conditions of the service

    as the central Government may determine.

    New Management Structure

    The previous management was removed by the bank nationalized ordinance 1974.

    The general direction and the superintendent of the affairs and the business of the

    banks vests in the Executive Board consisting of the President (Chief Executive)

    and five senior executive of the bank. The Federal Government in 1980 constituted

    a Board of the bank and two additional members one representing the ministry of

    Finance and the other, Pakistan Banking Council.

    3.6 Branch Network

    Domestic Branch Networks

    National Bank of Pakistan is the only Pakistani bank to have representative

    offices in all over the Pakistan as well as in Azad Jammu & Kashmir.

    3.2 Cash Department

    Cash department of NBP is given the complete responsibility of handling all

    receipts disbursement of cash, as a result of transaction in both local & foreign

    currencies & near cash items such as traveler cheques etc (when they are issued

    against cash).As a consequence it is also responsible for the bookkeeping of these

    transactions & the safe custody of cash & near cash securities. Following are the

    major functions dealing department of NBP

    Cash receipts (or receive deposits)

    Encashment of cheque

    Cash receipts

    The depositor uses cheque deposit slip (or cash deposit slip) fordepositing the

    amount. There are two types of cash deposit slip:

    One for current account-holders

    Other for saving account holders. Both are in different colors

    for clear identification.

    Encashment of cheque

    Encashment of cheque cash department of NBP is a separate close part

    covered with glasses. No one other than cash departments employee

    is allowed to enter into that area.

    3.3 Clearing Department

    This department deals with the transactions related to the other bank. The State

    Bank of Pakistan acts as a clearing agent for the commercial banks. It deals with

    the cheques of any other branch of other bank. If more than one Cheque is

    attached with slip then the entry is to be done one by one. The Cheque number,

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    date on the Cheque and the name of the branch of the bank on which the Cheque

    is drawn is entered. When the clearing has been prepared then the next step is to

    stamp the cheques and slips with clearing stamp on front of the Cheque and

    slip and NBP General Account on the back. After this clearing is to be passed

    to the in charge officer who signs on it. Amount is transferred to the customer

    account after 3-4 days. Cheques and slips are to be stamped carefully because

    sometimes clearing has been returned due to the reason of not properly stamped

    or any other.

    3.4Remittance Department

    Remittance is the monitory transfer from one place to another place or from one

    country to another country to fulfill the requirements of the customers by the

    order of the customer. Remittance Department at NBP Main Branch, Kotli can be

    divided into two sections due to its activities.

    Domestic Remittance

    Foreign Remittance

    3.4.1Domestic Remittance

    Domestic remittance section deals with remittance incoming and outgoing but

    only in domestic i.e. Pakistan rupee and within Pakistan. Domestic remittance

    includes the following eight functions in NBP:

    a) Transfer through Pay Order

    Pay order is also called as cashier order, managers cheque, bankers cheque,

    and cheque on services. Pay order is an instrument through which payment can

    be made from one bank to another bank within city. In case of NBP, pay orders

    are also used, instead of demand drafts; outside the city where NBP does not

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    have its branch. So, we can say except Karachi for all other cities pay orders are

    issued by NBP.

    b) Transfer through Demand Draft

    It has been defined as an unconditional order in writing addressed by one person

    to another, signed by the person giving it (the drawer), and requiring the person to

    whom it is addressed (the drawee) to pay on demand or at a fixed or determinable

    future time a certain sum of money to or to the order of, a specified person (the

    payee) or to the bearer. Demand draft is an instrument which is payable on

    demand, and through which funds are transferred outside the city or country,

    where NBP has its branch. The main and important purpose of issuing the

    demand draft from the bank is that environment of our country is not too good to

    carry cash from one place to another. So, demand draft helps us to overcome this

    situation to some extent because it avoids carrying cash amount with us.

    c) Telegraphic Transfer (TT)

    Generally a mail transfer takes 3-4 days to reach its destination. T.T. is the fastest

    mode of transferring funds from one bank to another bank not in days but in hour

    or minutes. In such cases transfer of funds message is passed on through a

    telegram, to the drawee branch of the same bank. When the urgency of situation

    demands that the payment is to be made immediately then the message is

    conveyed to the drawee branch by telephone. Payment to the beneficiary is

    effected directly by the drawee office upon identification or through credit into

    beneficiarys bank account.

    d) Mail Transfer (MT)

    This is an order to pay money, drawn by one branch of a bank upon anotherbranch of the same bank or Mail Transfer is the transfer of funds from one branch

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    to another branch of the same bank within Pakistan. If such balance is transferred

    by means of mail, it is described as mail transfer remittance.

    e) Local / Internal Transfer (LT)

    Local / Internal transfer is the transfer of funds from one account to another

    account within the same branch i.e. Main Branch, Lahore.

    3.4.2 Foreign Remittance

    Foreign Remittance section deals with remittance (incoming and outgoing) but in

    foreign currency and outside Pakistan. Funds are transferred into four types of

    currencies by Remittance department.

    USD

    GBP

    JPY

    DEM

    To facilitate its customers in the area of Home Remittances, National Bank of

    Pakistan has taken a number of measures to:

    Increase home remittances through the banking system

    Meet the SBP directives/instructions for timely and prompt delivery of

    remittances to the beneficiaries

    New Features

    The existing system of home remittances has been revised/significantly improved

    and well-trained field functionaries are posted to provide efficient and reliable

    home remittance services to nonresident Pakistanis at 15 overseas branches of the

    Bank besides Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi

    Arabia.

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    Zero Tariffs: NBP is providing home remittance services without any

    charges.

    Strict monitoring of the system is done to ensure the highest possible

    security.

    Special courier services are hired for expeditious delivery of home

    remittances to the beneficiaries.

    3.5 Credit Department

    In NBP the credit activities are played under a separate department. So the main

    activities of this department are:

    To give credit to customers.

    Closely monitor the development in different accounts.

    Reporting to SBP and head office.

    3.6 Advances Department

    Advances are the major source of earning income for commercial banks, it is

    interest charged on the money lend to the customer. Bank advances to customers

    are made either by way of loan or by overdraft on current account. At present

    NBP provides both long term as well as short-term loans.

    Loans

    Cash credit

    Overdraft

    3.6.1 LoansLoan against Gold

    facility of Rs.5000 against 10 grams of gold

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    Mark-up 9% per annum

    Repayable after 1 year

    Under this type of loan, which is granted to the borrower, the head cashier

    estimates the value of gold or gold ornaments through an agent {gold smith} and

    keeps a margin of 40 to 50%. After the opening of the gold loan a/c a token is

    given to the borrower, which is a bank receipt.

    On repayment of loan, the gold or ornaments held as security for it, together with

    the demand promissory note duly discharged is return to the borrower and his

    receipt for the gold ornament taken in the demand loan ledger. This receipts

    states that the ornaments returned are complete and are in order. Part delivery of

    ornaments is given against part payment of a loan but care is taken that the

    ornaments still in the banks possession fully covers the balance for the loan

    outstanding. The interest on gold loan is to be applied with quarterly rest.

    3.6.2 Cash credit

    Here, cash credit a/c is opened in the name of customer to borrow from the bank.

    Customer is granted a loan up to a certain limit which is sanctioned by the head

    office, which he draw when he requires interest is charged on the amount actually

    utilized by the customer. In order to avoid the danger of idle funds, the bank

    charges a certain rate if interest, even if the customer does not withdraw any

    amount.

    The credit is usually given against the securities of goods or merchandise as

    follows:

    Advances against pledge stock in trade or products

    When a cash is granted against the pledge of stick or product, cash credit form is

    taken, from the certain products or stock, but the actual pledge is created when the

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    stock or finish product are placed under the banks lock and key or the document

    of title are duly endorsed to the bank by the borrower.

    Hypothecation of stock on finish products

    The difference between pledge and hypothecation is that under the pledge the

    borrowers goods are placed in the banks possession under own lock whereas,

    under hypothecation, they remain in the possession of the borrower or guarantor

    and are merely charged to the bank under documents signed by them. Even

    though the documents empower the bank to take the possession of the goods

    hypothecated, but it is possible that the borrower may actually resist any attempt.

    Mortgage of property

    Title deeds immovable property is accepted by the bank only as collateral security

    or alternatively as unauthorized security.

    3.6.3Overdrafts

    When the bankers permit his customer to overdraft upon his current a/c up to a

    certain limit, it is called overdraft facility provided by the bank. The customer is

    charged with the interest for the amount he has actually overdrawn from the bank.

    The customer is free to take the overdraft facility up to the limit whenever he

    needs and he can at any time return back the advance to the bank by deposited the

    amount with the bank.

    There are two types of drafts:

    Unsecured overdraft

    Under such type of overdraft the bank rely upon the personal security of the

    customer or customers mentioned on the customers a/c.

    Secured overdraftUnder this type of overdraft the bank allows his customer to withdraw more than

    his deposits after giving security against the amount overdrawn.

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    3.7 Accounts Department

    The main function of the accounts department of National Bank of Pakistan is to

    maintain general ledger accounts and after the business hours the function of the

    accounts officer is to close books.

    General ledger

    It is the prime record of the branch reflecting its assets and liabilities and serves as

    the master control of accounting system of the branch. It consists of only those

    accounts, which are authorized by the head office.

    Voucher System

    Voucher is a written authorization used in approving a transaction for recording

    and payment. It is a system, which is generally designed to provide strong internal

    control over the transaction, which takes place in any department of the bank. One

    debit and one credit voucher is prepared. At the end of the day, these vouchers are

    collected and recorded.

    Debit voucher is used in two cases

    Whenever any expense is incurred

    When a depositor withdraws some amount form his/her account

    Debit voucher contains

    Name of Branch

    Date

    Branch Code

    Account No

    Transaction Code

    Amount and other details (Narration)

    Credit voucher is used in two cases

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    When a depositor deposit any amount in his account

    Any income received by the bank e.g. bank draft

    Expense voucher

    It includes:

    Salaries given to all employees of the bank

    Wages

    Rent

    Lease Installments

    Insurance -Vehicle

    Insurance - Cash

    Utility Bills

    Medical Allowances

    Salary Structure

    Bonuses are credited after every 6 months i.e. June and December.

    These are 1st and 2nd profit bonuses and are equal to one months

    basic salary.

    Allowances includes house allowance, transport allowance and utility

    allowance

    Provident Fund is provided to each employee on his/her retirement.

    Contribution by employer and employee is 8.3%.

    Preparation of Statements

    Weekly Statements are sent at first to National Bank of Pakistan headoffice Karachi

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    Monthly Statements are sent at first to National Bank of Pakistan head

    office Karachi and then these are sent to head office affairs in

    consolidation form. All vouchers and statements are signed and

    approved by manager accounts or who has authority to sign on behalf

    of the bank and whose signatures appears in one of the banks book of

    specimen signature or a person who has authority to sign internal

    vouchers and records extent of its authority will be made by the

    country manager.

    Daily Activity Report includes the details of the following:

    Loan Transactions

    General Ledger Transactions

    Fixed Deposits Transactions

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    Chapter No: 04

    Services and Products of NBP

    4.1 International Banking

    4.2 NBP Offers

    4.2.1 Demand drafts

    4.2.2 Mail transfers

    4.2.3 Pay order

    4.2.4 Traveler's cheques

    4.2.5 Letter of credit

    4.3 International Banking

    4.3.1 New features

    4.3.2 Swift system

    4.4 Short Term Investments

    4.4.1 NIDA

    4.4.2 Equity investments

    4.5 Trade Finance Other Business Loans

    4.5.1 Corporate finance

    4.5.2 Agricultural finance services

    4.6 NBP Retail Products

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    Chapter No: 04

    Services and Products of NBP

    4.1 International Banking

    National Bank of Pakistan is at the forefront of international banking in Pakistan

    which is proven by the fact that NBP has its branches in all of the major financial

    capitals of the world. Additionally, we have recently set up the Financial

    Institution Wing, which is placed under the Risk Management Group. The role of

    the Financial Institution Wing is:

    To effectively manage NBPs exposure to foreign and domestic

    correspondence Manage the monetary aspect of NBPs relationship with the

    correspondents to support trade, treasury and other key business areas,

    thereby contributing to the banks profitability

    Generation of incremental trade-finance business and revenues

    4.2 NBP Offers:

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    The lowest rates on exports and other international banking products

    Access to different local commercial banks in international banking.

    4.2.1 Demand drafts

    If you are looking for a safe, speedy and reliable way to transfer money, you can

    now purchase NBPs Demand Drafts at very reasonable rates. Any person

    whether an account holder of the bank or not, can purchase a Demand Draft from

    a bank branch

    4.2.2 Mail transfers

    Move your money safely and quickly using NBP Mail Transfer service. And we

    also offer the most competitive rates in the market.

    4.2.3 Pay order *

    NBP provides another reason to transfer your money using our facilities. Our pay

    orders are a secure and easy way to move your money from one place to another.

    And, as usual, our charges for this service are extremely competitive.

    4.2.4 Traveler's cheques

    Negotiability: Pak Rupees Travelers Cheques are a negotiable instrument

    Validity: There is no restriction on the period of validity

    Availability: At 700 branches of NBP all over the country

    Encashment: At all 400 branches of NBP

    Limitation: No limit on purchase

    Safety:NBP Travelers Cheques are the safest way to carry our

    money

    4.2.5 Letter of creditNBP is committed to offering its business customers the widest range of options

    in the area of money transfer. If you are a commercial enterprise then our Letter

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    of Credit service is just what you are looking for. With competitive rates, security,

    and ease of transaction, NBP Letters of Credit are the best way to do your

    business transactions.

    4.3 International Banking

    To facilitate its customers in the area of Home Remittances, National Bank of

    Pakistan has taken a number of measures to:

    Increase home remittances through the banking system

    Meet the SBP directives/instructions for timely and prompt delivery ofremittances to the beneficiaries

    4.3.1 New features:

    The existing system of home remittances has been revised/significantly improved

    and well-trained field functionaries are posted to provide efficient and reliable

    home remittance services to nonresident Pakistanis at 15 overseas branches of the

    Bank besides United National Bank (the joint venture between NBP and UBL in

    UK)., and Bank Al-Jazira, Saudi Arabia.

    Zero Tariff: NBP is providing home remittance services without any

    charges.

    Strict monitoring of the system is done to ensure the highest possible

    security.

    Special courier services are hired for expeditious delivery of home remittances to

    the beneficiaries.

    4.3.2 Swift system

    The SWIFT system (Society for Worldwide Inter bank Financial

    Telecommunication) has been introduced for speedy services in the area of home

    remittances. The system has built-in features of computerized test keys, which

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    eliminates the manual application of tests that often cause delay in the payment of

    home remittances.

    The SWIFT Center is operational at National Bank of Pakistan with a universal

    access number NBP-PKKA. All NBP overseas branches and overseas

    correspondents (over 450) are drawing remittances through SWIFT. Using the

    NBP network of branches, you can safely and speedily transfer money for our

    business and personal needs.

    4.4 Short Term Investments

    NBP now offers excellent rates of profit on all its short term investment

    accounts. Whether you are looking to invest for 3 months or 1 year, NBPs rates

    of profit are extremely attractive, along with the security and service only NBP

    can provide.

    4.4.1 NIDA

    National Income Daily Account The scheme was launched in December 1995 to

    attract corporate customers. It is a current account scheme and is part of the profit

    and loss system of accounts in operation throughout the country.

    4.4.2 Equity investments

    NBP has accelerated its activities in the stock market to improve its economic

    base and restore investor confidence. The bank is now regarded as the most

    active and dominant player in the development of the stock market.

    NBP is involved in the following:

    Investment into the capital market

    Introduction of capital market accounts (under process)

    NBPs involvement in capital markets is expected to increase its earnings, which

    would result in better returns offered to account holders

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    4.5 Trade Finance Other Business Loans

    4.5.1 Corporate finance

    Working Capital and Short Term Loans:

    NBP specializes in providing Project Finance Export Refinance to exporters

    Pre-shipment and Post-shipment financing to exporters Running finance Cash

    Finance Small Finance Discounting & Bills Purchased Export Bills

    Purchased / Pre-shipment / Post Shipment Agricultural Production Loans

    Medium term loans and Capital Expenditure Financing:

    NBP provides financing for its clients capital expenditure and other long-term

    investment needs. By sharing the risk associated with such long-term

    investments, NBP expedites clients attempt to upgrade and expand their

    operation thereby making possible the fulfillment of our clients vision. This type

    of long term financing proves the banks belief in its client's capabilities, and its

    commitment to the country.

    Loan Structuring and Syndication:

    National Banks leadership in loan syndicating stems from ability to forge strong

    relationships not only with borrowers but also with bank investors. Because we

    understand our syndicate partners asset criteria, we help borrowers meet

    substantial financing needs by enabling them to reach the banks most interested in

    lending to their particular industry, geographic location and structure through

    syndicated debt offerings. Our syndication capabilities are complemented by our

    own capital strength and by industry teams, who bring specialized knowledge to

    the structure of a transaction.

    Cash Management Services:

    With National Banks Cash Management Services (in process of being set up), the

    customers sales collection will be channeled through vast network of NBP

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    branched spread across the country. This will enable the customer to manage

    their companys total financial position right from your desktop computer. They

    will also be able to take advantage of our outstanding range of payment, ejection,

    liquidity and investment services. In fact, with NBP, youll be provided

    everything, which takes to manage your cash flow more accurately.

    4.5.2 Agricultural finance services:

    I Feed the World program, a new product, is introduced by NBP with the aim

    to help farmers maximize the per acre production with minimum of required

    input. Select farms will be made role models for other farms and farmers to

    follow, thus helping farmers across Pakistan to increase production.

    Agricultural Credit:

    The agricultural financing strategy of NBP is aimed at three main objectives:-

    Providing reliable infrastructure for agricultural customers

    Help farmers utilize funds efficiently to further develop and achieve better

    production

    Provide farmers an integrated package of credit with supplies of essential

    inputs, technical knowledge, and supervision of farming.

    Agricultural Credit (Medium Term):

    Production and development

    Watercourse improvement

    Wells

    Farm power

    Development loans for tea plantation

    Fencing

    Solar energy

    46

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    Equipment for sprinklers

    Farm Credit:

    NBP also provides the following subsidized with ranges of 3 months to 1 year on

    a renewal basis.

    Operating loans

    Land improvement loans

    Equipment loans for purchase of tractors, farm implements or any other

    equipment

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

    4.6 NBP Retail Products

    Unprecedented Safety - Unprecedented

    Return

    Premium Aamdani Home Page

    Unprecedented Safety - Unprecedented

    Return

    Premium Saver Home Page

    President's Rozgar Scheme - Easy financing

    for self employment

    Karobar Home Page

    47

    http://www.nbp.com.pk/Aamdani/index.htmhttp://www.nbp.com.pk/Premium/index.htmhttp://www.nbp.com.pk/Karobar/index.htmhttp://www.nbp.com.pk/Karobar/index.htmhttp://www.nbp.com.pk/Aamdani/index.htmhttp://www.nbp.com.pk/Premium/index.htmhttp://www.nbp.com.pk/Karobar/index.htm
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    Affordable, Flexible & Convenient home

    financing for allSaibaan Home Page

    Take upto 20 Advance Salaries - Affordable

    Installations from 1 - 60 months

    Advance Salary Home Page

    One Card does it all - ATM plus Debit Card

    in one

    Cash Card Home Page

    Invest with Confidence - Marginal Finance

    Facility

    Investor Advantage Home Page

    Meet your need for ready cash against your

    idle gold jewelry with no minimum limits

    Cash n Gold Home Page

    NBP KISAN Taqat

    Kisan Taqat Home Page

    NBP's affordable agricultural program

    offers you a wide range of financingKisan Dost Home Page

    48

    http://www.nbp.com.pk/Saibaan/index.htmhttp://www.nbp.com.pk/Saibaan/index.htmhttp://www.nbp.com.pk/advancesalary/index.htmhttp://www.nbp.com.pk/cashcard/index.htmhttp://www.nbp.com.pk/Margin/Index.htmhttp://www.nbp.com.pk/CashnGold/index.htmhttp://www.nbp.com.pk/KissanTaqat/Index.htmhttp://www.nbp.com.pk/KisanDost/Index.htmhttp://www.nbp.com.pk/KisanDost/Index.htmhttp://www.nbp.com.pk/KissanTaqat/Index.htmhttp://www.nbp.com.pk/CashnGold/index.htmhttp://www.nbp.com.pk/Margin/Index.htmhttp://www.nbp.com.pk/cashcard/index.htmhttp://www.nbp.com.pk/advancesalary/index.htmhttp://www.nbp.com.pk/Saibaan/index.htmhttp://www.nbp.com.pk/advancesalary/index.htmhttp://www.nbp.com.pk/cashcard/index.htmhttp://www.nbp.com.pk/Margin/Index.htmhttp://www.nbp.com.pk/CashnGold/index.htmhttp://www.nbp.com.pk/KissanTaqat/Index.htmhttp://www.nbp.com.pk/KisanDost/Index.htm
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    Knitting Links - AASAN Banking

    Online Home Page

    NBP Helpline

    0800-80080

    from 8:30 am to 10:00 pm

    NBP's Internet Based Home Remittence

    Service

    Pak Remit Home Page

    Personal Accident Insurance

    Protection Shield Home Page

    CHAPTER NO: 05

    FINANCIAL STATEMENTS OF NATIONAL BANK OF PAKISTAN

    5.1 Balance Sheet

    49

    http://www.nbp.com.pk/HelpLine/index.htmhttp://www.nbp.com.pk/Pakremit/index.htmhttp://www.nbp.com.pk/ProtectionShield/index.htmhttp://www.nbp.com.pk/Pakremit/index.htmhttp://www.nbp.com.pk/Online/index.htmhttp://www.nbp.com.pk/HelpLine/index.htmhttp://www.nbp.com.pk/Pakremit/index.htmhttp://www.nbp.com.pk/ProtectionShield/index.htm
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    5.2 Profit and Loss Statement

    5.3 Cash Flow Statement5.4 Statement of comprehensive Income

    5.5 Statement of Changes in Equity

    5.6Ratio Analysis

    5.6.1 Return on Total Assets

    5.6.2 Return on Equity Ratio

    5.6.3 Earnings Per share

    5.6.4 Current Ratio

    5.6.5 Networking Capital

    5.6.6 Equity Ratio

    5.6.7 Net Profit Ratio

    5.6.8 Gross Profit Ratio

    5.6.9 Cost Ratio

    5.6.10 Operating Profit Ratio

    5.6.11 Operating Ratio

    CHAPTER NO: 05

    FINANCIAL STATEMENTS OF NATIONAL BANK OF PAKISTAN

    5.1 Balance Sheet

    As at December 31, 2010

    2008 2009 2010 2010 2009 2008

    .US Dollars in '000. ...Rupees in '000...ASSETS

    1,240,081

    1,348,647

    1,344,158

    Cash and balances withtreasury banks

    115,442,360

    115,827,868

    106,503,5

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    446,467 330,741 353,843

    Balances with otherbanks

    330,389,664

    28,405,564

    38,344,0

    199,431 228,064 268,094 Lending for financialinstitutions-net 23,025,156 19,587,176 17,128,31,988,9

    792,534,13

    43,508,47

    7 Investments-net301,323,80

    4217,642,8

    22170,822,4

    94,808,6

    315,533,51

    85,559,86

    9 Advances-net477,506,56

    4475,243,4

    31412,986,

    6281,97

    9 292,802 313,074 Operating fixed assets 26,888,22625,147,19

    224,217,

    5

    37,313 35,656 80,954 Deferred tax assets-net 6,952,666 3,062,2713,204,5

    5,187,724 694,729 622,887 Other assets-net 53,496,240

    59,666,438

    44,550,4

    9,521,605

    10,998,291

    12,051,356

    1,035,024,680

    944,582,762

    817,758,2

    LIABILITIES

    118,986 123,668 93,226 Bills Payable 8,006,631

    10,621,169

    10,219,6

    471,085 527,198 234,077 Borrowings 20,103,591

    45,278,138

    40,458,2

    7,276,505

    8,470,269

    9,689,198

    Deposits and otheraccounts

    832,151,888

    727,464,825

    624,939,1

    Sub-ordinated loansLiabilities against assetssubject

    294 496 1,242 to finance lease 106,704 42,629 25,27

    Deferred tax liabilities461,74

    7 492,168 537,466 Other liabilities 4,616,03842,269,62

    339,656,

    38,328,6

    179,613,79

    910,555,20

    9906,528,85

    2825,676,3

    84715,299,

    01,192,9

    881,384,49

    21,496,14

    7 NET ASSETS128,495,82

    8118,906,3

    78102,459,

    1

    REPRESENTED BY

    104,440 125,328 156,660 Share Capital 13,454,628

    10,763,702

    8,969,7

    232,184 264,095 284,688 Reserves 24,450,244

    22,681,707

    19,941,4

    610,776 706,723 766,813 Unappropriated profit 65,857,438

    60,696,510

    52,456,0

    947,400

    1,096,146

    1,208,161

    103,762,310

    94,141,919

    81,367,0

    245,588 288,346 287,986

    Surplus on revaluation ofassets-net 24,733,518

    24,764,459

    21,092,1

    1,192,9 1,384,49 1,496,14 128,495,82 118,906,3 102,459,

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    88 2 7 8 78 1

    5.2 PROFIT AND LOSS ACCOUNT

    For the year ended December 31, 2010

    2009 2010 2010 2009

    US Dollars in '000 Rupees in '000

    907,587

    1,030,129 Mark-up/ return/interest earned

    88472134

    77947697

    471,443 526,876 Mark-up/ return/interest expensed

    45250476

    40489649

    436,114 503,253 Net mark-up/ interest income

    43221658

    37458048

    128,585 81,633

    Provision against non-performingadvances-net

    7011046

    11043469

    Provision for diminution

    7,052 34,403 in the value of investment295467

    8 605629

    236 46Provision against off balance sheetobligation 3965 20237

    Bad debts written off directly135,87

    3 116,082996968

    91166933

    5300,27

    1 387,171Net markup/ interest income afterprovisions

    33251969

    25788713

    NON MARK-UP/ INTEREST INCOME103,981 112,146

    Fee, Commission and Brokerageincome

    9631579 8930391

    22,360 12,802 Dividend income109949

    3 1820336

    35,259 25,745Income from dealing in foreigncurrencies

    2211139 3028165

    53,446 29,253Gain on sale and redemption ofsecurities-net

    2512363 4591894

    Unrealized gain on revaluation ofinvestments

    27 79 classified as held-for-trading 6730 2355

    6,430 25,282 Other income217133

    6 552216221,52

    3 205,307 Total non-markup/ interest expenses176326

    401902535

    7521,79

    4 592,478508846

    094481407

    0NON MARK-UP INTERESTEXPENSES

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    262,81

    2 305,091 Administrative expenses

    262025

    77

    2257147

    07,228 1,724 Other provisions/ write offs 148026 620780

    3,745 1,384 Other charges 118887 321647273,78

    5 308,199 Total non markup /interest expenses264694

    902351389

    7248,00

    9 284,279 PROFIT BEFORE TAXATION244151

    192130017

    3

    103,296 114,515 Taxation - current

    9835048 8871513

    -48,126 -10,936 Taxation - Prior year -939256

    -4133282

    -

    11,643 -23,798 Taxation - Deferred

    -204388

    7 -999904

    43,527 79,781685190

    5 3738327204,48

    2 204,498 PROFIT AFTER TAXATION175632

    141756184

    6610,77

    6 706,723 Inappropriate profit brought forward606965

    105245620

    4

    Transfer from surplus on revaluation of

    fixed assets on account of incremental

    1,443 1,371 Depreciation 117738 123934816,70

    1 912,592 Profit available for appropriation783774

    627014198

    4

    In Dollars In Rupees

    0.15 0.15 Basic earnings per share 13.05 13.050.15 0.15 Diluted earnings per share 13.05 13.05

    5.3 CASH FLOW STATEMENT

    For the year ended December 31, 2010

    2009 2010 2010 2009

    US Dollars in '000 ..Rupees..CASH FLOWS FROMOPERATING ACTIVITIES

    248,010 284,279 Profit before taxation

    24,415,1

    19

    21,300,17

    3

    -22,360 -12,802 less: dividend income

    -1,099,49

    3-

    1,920,336

    225,650 271,47723,315,6

    2619,379,83

    7

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    Adjustments:

    10,097 12,500 Depreciation 1,073,545 86,214

    54 108 Amortization 9,300 4,600

    128,585 81,633Provision against non-performingadvances-net

    7,011,046

    11,043,469

    7,052 34,403Provision for diminution in the value ofinvestments-net

    2,954,678 605,629

    236 46Provision against off balance sheetobligation 3,965 20,237

    Unrealized gain on revaluation ofinvestment

    -27 -78 classified as held-for-trading -6,730 -2,355

    -45,122 -3,428Capital gain on redemption of NI(U)T LoCUnits -294,424

    -3,875,309

    -88 -385 Gain on sale of fixed assets -33,081 -7,587

    117 230Financial charges on leasedassets 19,829 10,072

    Bad debts written off directly

    7,227 1,724 Other provisions /write offs 148,026 620,780

    108,131 126,75310,886,1

    54 9,286,750

    333,781 398,23034,201,7

    8028,666,58

    7(increase)/Decrease of operatingassets

    -29,192 -40,467Lending to financialinstitutions-gross

    -3,475,48

    0-

    2,507,144

    -15,941 -48,476 Held-for-trading securities

    -4,163,33

    8-

    1,369,079

    -853,472

    -107,984 Advances-net

    -9,274,17

    9

    -73,300,03

    5-

    121,613 56,068Other assets (excludingadvance tax)

    4,815,377

    10,444,603

    -1,020,2

    18-

    140,859

    -12,097,6

    20

    -87,620,86

    1

    Increase in operating liabilities

    4,682 -30,442 bills payable

    -2,614,53

    8 402,108

    57,367-

    298,626Borrowings

    -25,647,3

    84 4,926,9511,193,7

    641,218,9

    28 Deposits and other accounts104,687,

    063102,525,8

    09

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    30,306 45,109Other liabilities (excluding currenttaxation)

    3,874,183 2,602,792

    1,286,119 934,969 80,299,324 110,457,660

    -115,469

    -107,352

    Income taxpaid

    -9,219,87

    1-

    9,916,950

    -117 -231 Financial charges paid -19,829 -10,072

    -115,586 107,583

    -9,239,70

    0-

    9,927,022

    484,0961,084,7

    57 Net cash generated from operating activities93,163,7

    8441,576,36

    4CASH FLOWS FROMINVESTING ACTIVITIES

    -555,916

    -1,061,6

    14Net investments in available-for-salesecurities

    91,176,168

    -47,744,53

    3

    128,522 106,345 Net proceeds from Held-to-maturity securities9,133,42

    911,038,01

    4

    22,360 12,802Dividend incomereceived

    1,099,493 1,920,336

    -20,628 -31,782Investment in operating fixedassets

    -2,729,58

    6-

    1,771,649

    -7,190 -3,806Investment in subsidiary andassociates -326,853 -617,495

    158 685Sale proceeds of property and equipmentdisposed off 58,852 13,657

    -

    432,694

    -

    977,370

    Net cash (used) in investing

    activities

    -83,940,8

    33

    -37,161,67

    0CASH FLOWS FROMFINANCING ACTIVITIES

    -245 -569 Payments of lease obligations -48,902 -21,024

    -67,769 -93,853Dividendpaid

    8,060,510

    -5,820,338

    -68,014 -94,422Net cash (used) in financingactivities

    -8,109,41

    2-

    5,841,362Effects of exchange differences on translationof

    10,706 142the net assets of foreignbranches 12,216 919,475

    -5,906 13,107

    Increase /Decrease in cash and cash

    equivalents

    1,125,75

    5 -507,1931,684,546

    1,678,640

    Cash and cash equivalents at beginning ofthe year

    144,169,195

    144,676,388

    1,678,640

    1,691,747 Cash and cash equivalents at end of the year

    145,294,950

    144,169,195

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    5.4 STATEMENT OF COMPREHENSIVE INCOME

    For the year ended December 31, 2010

    2009 2010 2010 2009

    US Dollars in '000 ..Rupees in '000..

    204,482 204,498Profit after taxation forthe year

    17,563,214

    17,561,846

    Other comprehensiveincome:

    Exchange adjustments ontranslation

    10,706 142of net assets of foreignbranches 12,216 919,475

    215,188 204,640Total comprehensiveincome for the year

    17,575,430

    18,481,321

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    Surplus arising on revaluation of assets has been reported in accordance with the

    requirement of the companies ordinance, 1984 and the directives of the Stat Bank

    of Pakistan in a separate account below equity.

    5.5 STATEMENT OF CHANGES IN EQUITY

    For the year ended December 31, 2010

    Share

    Capital

    Reserves

    Unappropri

    ated profitTotal

    CapitalRevenu

    eGenera

    l

    Exchang

    eTranslati

    on

    Statutory

    ...Rupees...

    Balance as at January 1, 20098,969,75

    1 5,987,37613,432,3

    33 521,338 52,456,20481,367,00

    2

    Comprehensive IncomeProfit after tax for the yearended

    December 31, 2009 17,561,84617,561,84

    6

    Other comprehensive income-net of tax 919,475 919,475

    919,475 17,561,84618,481,32

    1

    Transferred from surplus on

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    revaluation of fixed assets tounappropriate profit-net of

    tax 123,934 123,934

    Transfer to statutory reserve1,821,18

    5 -1,821,185

    Transactions with owners

    Issue of bonus shares (20%)1,793,95

    1 -1,793,951Cash dividend (Rs.6.5 pershare) -5,830,338 -5,830,338

    Balance as at December 31,2009

    10,763,702 6,906,851

    15,253,518 521,338 60,696,510

    94,141,919

    Balance as at January 1, 2010

    10,763,7

    02 6,906,851

    15,253,5

    18 521,338 60,696,510

    94,141,91

    9

    Comprehensive IncomeProfit after tax for the yearended

    December 31, 2010 17,563,21417,563,21

    4Other comprehensive income-net of tax 12,216 12,216

    12,216 17,563,21417,575,43

    0

    Transferred from surplus on

    revaluation of fixed assets tounappropriate profit-net of

    tax 117,738 117,738

    Transfer to statutory reserve1,756,32

    1 -1,756,321

    Transactions with owners

    Issue of bonus shares (20%)2,690,92

    6 -2,690,926

    Cash dividend (Rs.6.5 pershare) -8,072,777 -8,072,777

    Balance as at December 31,2010

    13,454,628 6,919,067

    17,009,839 521,338 65,857,438

    103,762,310

    5.6Ratio Analysis

    5.6.1 Return on Total Assets

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    This ratio shows the yield earned by the use of assets in financial year. Return on

    asset measures the overall effectiveness of management in generating profits with

    its available assets.

    Formula

    Return on Total Assets = Net Profit after tax /total assets * 100

    For 2009

    =17561846 / 944232762 * 100

    =1.86%

    For 2010

    =17563214 / 1035024680 * 100

    =1.70%

    Comments

    This ratio shows the high profitability in 2009 where it was 1.86% but in 2010 it

    is 1.70%, the rate of profitability decreases to 0.16% in 2010.

    5.6.2 Return on Equity Ratio

    Dividing the earning after tax by shareholders funds carries out this ratio thepurpose of calculating the ratio to find out the yield after utilizing the shareholder

    fund for one year. The way of calculating this ratio is given below:

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    Formula

    Return on Equity=Net profit after tax / shareholders equity * 100

    For 2009

    = 17561846 / 118906378 * 100

    =14.77%

    For 2010

    = 17563214 / 128495828 * 100

    =13.67%

    Comments

    In 2010 it decrease to 13.67% as compared to 2009 in which it was 14.77% it

    means the return on each share decrease with the rate of 1.1% in 2010

    5.6.3 Earnings Per share

    This is very important ratio for the shareholders and investors. The shareholders

    and investors give the main emphasis to the earning per share while making the

    decision to invest or to become a member of the company. This ratio is calculated

    as follows:

    Formula

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    Earning Per Share=Earning available to common stock / No. of shares

    outstanding

    For 2009

    =17561846 / 1345463

    =13.05

    For 2010

    =17563214 / 1345463

    =13.05

    Comments

    The bank earning per share remain unchanged it means that the rupee amount

    earned on behalf of each outstanding share of common stock has not changed in

    2010.5.6.4 Current Ratio

    The current ratio measures the firms ability to meet its short term obligations

    Formula

    Current Ratio = Current assets / Current liabilities

    For 2009

    =856706861 / 588632541

    61

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    =1.45

    For 2010

    =1247687548 / 641703009

    =1.94

    Comments

    Here the current ratio increased from 1.45 to 1.94 which is a good sign for firm as

    its ability to repay its debt is increased.

    5.6.5 Networking Capital

    Formula

    Networking capital = Current assets Current liabilities

    For 2009

    =856706861-588632541

    =268074320

    For 2010

    =1247687548-641703009

    =605984539

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    5.6.6 Equity Ratio

    Formula

    Equity ratio = Shareholders funds / Total assets * 100

    For 2009

    =118906378 / 944582762 * 100

    =12.59%

    For 2010

    =128495828 / 1035024680 * 100

    =12.41%

    5.6.7 Net Profit Ratio

    This ratio measures the firms success with respect to earning on sales. The net

    profit ratio measures the percentage of each sale remaining after all costs &

    expenses, including interest, taxes, & preferred stock dividends, have been

    decided.

    Formula

    Net Profit Ratio = Net profit / Sales * 100

    For 2009

    63

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    =17561846 / 77947697 * 100

    =22.53%

    For 2010

    =17563214 / 88472134 * 100

    =19.85%

    Comments

    The net profit ratio decreased from 22.53% to 19.85% it means net profit ratio

    decreased in 2010 with the rate of 2.68%

    5.6.8 Gross Profit Ratio

    The gross profit ratio measures the percentage of each sales rupees remaining

    after the firm has paid for its goods.

    Formula

    Gross Profit Ratio = Gross profit / Sales * 100

    For 2009

    =37458048 / 77947697 * 100

    =4