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Objectives to study the organization
My basic purpose to study the organization is to get practical knowledge
where my education and skills utilize in a most appropriate manner. The
objectives to study the organization are.
The basic to study NBP is to understand banking system.
To observe how to deal with the customers and how motivate them.
To analyze how banks provide services to the public & private
sector.
To study financial transactions performed in a banking sector.
In order to know, how to handle banking documents.
It is second source of getting confident about practical work.
As a student, by doing lot of errors and mistake in practice at last
we able to get experience about a work.
It increases level of communication among employees and
outsiders.
1
To get knowledge how to create relationship and friendly
environment among people of different cultures.
To analyze Strength, Weaknesses, Opportunity, Threats (SWOT) of
the organization.
Provide efficient and effective recommendations on solutions of the
problems that face by the organization.
Brief History and overview of the organization
National Bank of Pakistan (NBP) was established in 1949 under the
National Bank of Pakistan Ordinance 1949 and was 100% government
owned. NBP acted as an agent of the Central Bank wherever the State
Bank did not have its own Branch. It also undertook Government
Treasury operations. By 1952 it’s became strong enough to take over the
agency function from the “Impirical Bank” of India. The NBP also
forward its operation and in 1964 established a people’s credit department
to allow credit facilities to small borrowers. It expanded a nation-wide
presence of supported by a network of online ATMs and expanded its
network of 1,200 branches throughout Pakistan. The bank is listed on the
Karachi, Lahore, and Islamabad stock exchange. It has more than 20
branches in foreign countries and still continues to open. The bank
provides both commercial and public sector banking services.
NBP is a schedule commercial bank and is engaged in business of
banking as well as a government bank services. NBP Advance Salary is a
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big example of Individual middle class services. It is working under
Banking Companies Ordinance, 1962.
While continuing its journey of success, NBP gets highest profit in 2007
in banking history. As December 31, 2007 the bank has total assets worth
of USD 12.293 billion.
NBP is a commercial organization. It provides both commercial and
public sector banking services. The main focus of NBP is to raise assets
by marketing individual, wholesalers, manufactures, and government
sector in cities as well in urban areas development. This segment
contributes significant revenues to the bank. The liability side remains
focused on the middle and upper class, retired and serving government
servants. It is also a big contributor of foreign trade and serving as a
treasury bank.
In 1971, NBP acquired Bank of China’s two branches, one in Karachi and
one at Chittagong. At separation of East Pakistan NBP lost its branches
there. NBP merged with Eastern Mercantile Bank and with Eastern Bank
Corporation. In June 30, 1974 the government of Pakistan nationalized
NBP when the part of bigger bank amalgamated and NBP acquired Bank
of Bahawalpur. In 1994 NBP remains continue to increase its strength and
merged Mehran Bank.
In 2001, with the cooperative agreement of Pakistani Central Bank SBP
and Bank of England allow only 2 Pakistani banks to operate in the UK.
NBP and United Bank agreed to merge their operations to form Pakistan
International Bank (PIB), of which NBP would own 45% and United
Bank 55%. In 2002, Pakistan International Bank renamed itself United
3
National Bank Limited (UNB). The ownership structure of the UNB
remained as before. The only change to the shareholding structure is that
UBL had recently been privatized in Pakistan and was now owned 49%
by the Government of Pakistan and 51% by a joint foreign consortium of
Abu Dhabi. In 2003, NBP received permission to open new branches in
Afghanistan and Bangladesh, the inaugurated ceremonies of these
branches held in 2007.
Head Office
Head office of NBP in NBP Building, I.I. Chundrigar Road, Karachi,
Pakistan which is “the city of lighting” in Urdu “Uroos-ul-Bilad” which
was also the first capital and ancient place of Pakistan. It carried out its
successful journey to make it an “Asian Tiger”.
Corporate Information
Board of Directors
Syed Ali Raza Chairman & President
Mian Kausar Hameed Director
Muhammad Ayub Khan Director
Mr.Tariq Kirmani Director
Sikandar Hayat Jamali Director
Azam Faruque Director
Muhammad Arshad Chaudhry Director
4
Auditors
The auditors, M/S Ford Rhodes Sidat Hyder & Co. and M. Yousaf Adil
Saleem & Co., Chattered Accountants have completed their assignment
for the year ended Dec.31, 2007. These are the independent external
auditors involved in providing financial services, with the approval of
State Bank of Pakistan.
Customer Services
NBP offers a number of valued products and services to the diverse
market segments. These include.
LIABILITY PRODUCTS ASSETS PRODUCTS
Saving/Time Deposits Personal Finance
NBP Debit Card Home Finance
Utility Bills Payment Business Finance
Travelers Cheques Mortgage/Agricultural
Running Finance
Demand Finance
Awards and Recognition
Over the years, NBP has received several awards for its better quality of
providing banking services to the individual and businesses.
Credit Rating
5
According to annual report the year ended December 31, 2007, the “JCR-
VIS Credit Rating Company Limited”. NBP enjoys the highest credit
rating amongst Pakistani banks. The rating company awarded highest
standalone credit rating of ‘AAA’. The JCR-VIS credit rating Co.
signifies that the organization has been able to strategically manage and
build on its competitive advantages, which has translated into the strong
and well managed in profitability.
Functions of the organization
The financial Intermediaries or banks mean a business that interacts two
types of individuals and institutions for economic development.
Deficit-spending individuals and institutions
Surplus- spending individuals and institutions
Deficit-spending individuals and institutions are those whose expenditures
exceed their income, they need extra money to further carry on their
movements required through capital i.e. through borrowing of money or
issuance of stock.
Surplus-spending individuals and institutions are those whose income
exceed their level of expenditures, they have extra money in his pocket;
they invest surplus money or deposit it for savings.
In small words, a bank is a financial intermediary accepting deposits from
general public and granting loans: offers the widest menu of services of
any financial institutions.
In ancient days, banks were providing separate services as compare to
financial institutions. They were providing specific functions. Now days
6
banks are configured and performing all those activities of products and
service due to the requirement of the customers. NBP is a commercial
bank. NBP is a most powerful organization in Pakistan due to deposits.
The success of NBP hinges on their ability to identify the financial
services the public demand producing those services efficiently and sells
them at a competitive price, the basic purpose to increase shareholder’s
wealth. The main functions and objective of NBP are.
Mobilizing of money for economic development of Pakistan
Acting as a government or local or any other person or persons,
and on behalf of agency of customers.
General utility services
Accepting deposits and providence of loans etc.
Business volume
Rs.in million
Particulars/years 2003 2004 2005 2006 2007Total Assets 468,972 553,231 577,719 635,133 762,194Deposits 395,492 465,572 463,427 501,872 591,907Advances 161,266 220,794 268,839 316,110 340,677Investments 166,196 149,350 156,985 139,947 210,788Shareholder's Equity 18,134 24,900 37,636 53,045 69,271Pre-Tax Profit 9,009 11,978 19,056 26,311 28,061After-Tax Profit 4,198 6,195 12,709 17,022 19,034Earnings Per Share (Rs) 8.53 10.48 17.92 20.88 23.34No of Employees 13,272 13,745 13,824 14,019 14,079
7
Trend Analysis
Rs. in million
Discriptions 2007 (X) YRevenue 42,451 -3Deposits 591,907 -1Advances 340,677 1
Investments 210,788 3Total 1,185,823 0
By Equation,
Y=a+bX
By simplifying,
∑Y=na+b∑X∑XY=a∑X+b∑X2
Hence by putting values, we get
a=0.465b=.00000157
So equation isY=0.465+.00000157X
8
DIFFERENT DEPARTMENTS AND THEIR WORKING
Different Departments
9
Branch Banking
General Banking Credits/Loans
Credit Facilities Loans Documentation
Deposits Cash Account opening TDRs/Non-
Checking Accounts
Remittances DD, TT, PO Online funds
Transfer/MT Traveler Cheques
Collection of Cheques
Clearing Bills
(OBC, IBC, LBC)
AccountsDepartment
Daily Activities Record Keeping
WORKING OF DEPOSITS DEPARTMENT
Deposits are the lifeblood of commercial banks. The main function of a
commercial bank is to mobilize deposits of money from the savers and
lend into for most profitable purposes. The process of collection deposits
is “Deposits Mobilization”.
Deposits can be divided into two categories.
10
Deposits
Checking Accounts
Non-Checking Accounts
NIDA
PLS Saving Account
Special Notice Deposit Accounts
PLS TDR’s
Current Deposit Accounts
Foreign Currency Accounts
Categories of Deposits
There are two broad categories of deposits. These are
Time deposits
Demand deposits
Time Deposits Demand Deposits
These are payable on
maturity
Receive profit with respect to
time period
All TDRs, saving accounts
and other profit bearing
accounts are included.
These are not payable of
maturity but on demand
No profit is given on demand
deposits
They include current
accounts and call deposits
etc.
Current Account
Current accounts are opened on proper introduction and submission of
required documents.
No profit is paid on the current account holders.
No limitation to the number of withdrawal.
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Statement of Account is issued free of charge to the current account
holders on semi-annual basis.
No zakat is deducted on current account.
No withholding tax.
Basic Banking Accounts
BBA’s are opened on proper introduction and submission of required
documents.
BBA’s are opened for individuals single or joint only.
No profit is paid on Basic Banking Accounts.
In BBA’s maximum two deposits transactions and two chequing
withdrawals are allowed free of charge through cash/clearing in a month.
Charges only made on issuances of ATM, no charges are made on further
transactions from the banks own ATM.
PLS Saving Account
Saving deposits were introduced to encourage the habit of saving among
people. In order to encourage the Islamilisation of the banking system in
the country, the bank is authorized to accept deposits on profit & loss
sharing basis. The bank is authorized to deduct service charges on half
yearly basis. Profit on PLS Saving Account is calculated on minimum
monthly basis and is paid half yearly basis announced by the Head Office
after June 30 and December 31.Zakat at the rate 2.50% is deducted from
the PLS Saving Accounts. A withholding tax at the rate of 10% on profit
is recovered from the account holder.
National Income Daily Account (NIDA)
12
The scheme of NIDA was launched in December 1995 at attract at
corporate customers.
NIDA are opened for individuals single or joint, Charitable institutions,
Provident funds, autonomous bodies, companies, associations,
educational institutions, firms etc.
NIDA is accepted only on the condition that the depositor shall always
maintain a minimum balance in his account.
These are special accounts of savings. Profit is paid to the account holder
on daily basis.
Premium Amdani Account
Premium Amdani Account is opened by all who are allowed to open
current, PLS, NIDA accounts.
It is necessary to maintain minimum balance if not no profit for the month
will be paid to the account holder.
A higher rate of profit as per bank discretion paid to depositors
maintaining balance Rs.300, 000/=
Maximum two debit transactions in a month are allowed free of charge.
On 3rd transaction profit will forward.
Additional amount only accepted in lot Rs.25, 000/= if any customer
wants to deposit money.
Premium Amdani Certificates are issued for the period of five years.
PA deposits are drawn only at maturity if in the event any depositors
wishes to draw before maturity, he will liable to the right to contribute in
loss only.
PLS Term Deposits
13
The bank accepts these deposits with minimum sums as prescribed by the
bank for a fixed period of time.
Terms deposits are accepted for a period of one month to five years.
Minimum deposit is accepted is Rs.25, 000/= with no upper limit.
Available to all types of investors i.e. individuals, partnership firms,
public and private limited companies, corporation, trusts, and government
bodies. Profit is paid on maturity. Profit may be paid in cash, pay order,
demand draft or any other form.
Call Deposits
Call deposits are the sorts of deposits, which are deposited in the bank
against any tender. This is without interest deposit and may be with
interest provided. The depositor has agreed to keep this amount with the
bank for some fixed period.
Foreign Currency Accounts
These are the accounts in US $, Pound, Euro, yen etc. of different account
holders and either saving or current accounts.
Profit is fluctuating as determined by the State Bank of Pakistan on six
monthly basis whereas return on Term deposits/SNTD will paid on
maturity.
The transactions in these accounts are translated into Pak. Rupees at the
exchange rate prevailing on the date of transaction.
WORKING OF DEPOSIT DEPARTMENT
14
Account opening
NBP has the following classification of accounts.
1. Accounts of general customers (Individual accounts)
Minor account
Illiterate person account
Joint account
2. Accounts of special customers
Proprietorship account
Partnership account
Limited company’s account
Accounts of clubs, societies and associations
Agent account
Trust account
Executor’s and administrator’s account
The procedure of opening a new account is as follows: The Account is
opened after obtaining proper information. All the necessary documents
required opening an account according to the account opening type
obtained from the customers.
A distinctive Account number is allotted to each account holder.
The signature of the new account holder is taken on the account opening
from and SS (Sample Signature) Card from individual and in case of the
company.
15
The signature of the introducer is also verified on the account opening
form with CNIC copy.
For illiterate person a picture of the newly account holder is taken and
attached with SS Card.
In case of signature other than English by the account holder vernacular
form is obtained.
First chequebook is issued after all formalities are completed.
Cheque Book Issuance
Before issuance of chequebook all the account opening formalities should
be completed.
First chequebook issued against account opening form with letter of
thanks by the account holder.
The signature of account holder is duly verified with SS Card.
All subsequent cheque books to be issued against the requisition slip
extracted from the previous cheque book.
Name and account number should be written on cheque book and
requisition slip.
Stamp or write down account number on each leaf of the cheque book.
Cheque books issued in the running serial order.
Enter particulars in the cheque book issue register.
Enter detail in the system. These records should be daily checked by the
Daily Cheque Book Report, which should be signed by the authorized
officer after checking cheque book series input number. At the end of the
day all the cheque books should be checked and balanced with the help of
requisition slips.
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In case of cheque book is issued without the requisition slip of previous
cheque book care must be taken to establish the genuineness of the
customers and Form should be obtained.
In some cases when cheque book is issued by the person duly authorized
by the account holder for obtaining cheque book, a letter of issuance of
cheque book is sent to the account holder for his acknowledgement.
In rare cases when customer demand printed cheque book, requisition slip
with demand letter is sent to the NIFT (National Institutional of
Facilitation Technology) (PVT) Ltd.
WORKING OF REMITTANCE DEPARTMENT
Four main modes of remittance are:
Demand Draft
Pay Order
Mail Transfer/Online Funds Transfer
Telegraphic Transfer
Demand Draft
It is a legal banking document payable on demand for which value has
been received, issued by one branch of the bank drawn by the same
branch of the bank from one city to outside the city. In case of agreement
the other branches of other banks. e.g. can also draw it. DD issued by
NBP payable by HBL.
17
Issuance of Demand Draft
The customer on standard DD application form makes request.
All information such as name of beneficiary, place where the DD is
drawn, amount mode of payment, cash/cheque/debit authority, signature
with name and address is filled.
The issuer checks the information.
Commission as per schedule of charges is charged.
Withholding tax as per applicable rates is recovered.
After the customer has made payment by cash/cheque, get the voucher
from cash department.
The DD of required amount is prepared.
The DD in NBP is manually prepared.
Junior DD can also be used in place of Senior DD if not required by
writing down with SNR DD equal to Rupees --.
Entry is made in DD issued register as well as on the system on which
following entry is passed.
Dr: Cash/Customer’s A/C
Cr: DD issued
Cr: DD issuance charges
Cancellation of DD
If any customer wants to cancel DD, obtain application in writing along
with original DD.
Verify the signature of applicant. This signature should tally with the
signature of DD application form.
Check the DD account into system of payment made or not.
Mark cancellation in DD issued register.
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Recover cancellation charges.
Payment is made from Suspense Account DD cancelled after recovery of
cancellation cheque is per schedule charges.
Inform the drawee branch regarding cancellation and ask for Inter-Branch
Credit Advice (IBCA).
On the receipt of IBCA adjustment is made.
Lost/Stop payment/Issuance of Duplicate DD
Application form received from purchaser and verifies the signature.
Inform the drawee branch of the loss of DD and advise them to mark
caution against payment if presented.
After necessary checking, the drawee branch will inform the branch about
the status of DD whether it has been paid or still outstanding.
Write on the face of duplicate DD in red ink”Duplicate in lien of original
DD No--- dated ---reported lost”.
The duplicate DD will have the same control number.
The DD serial control is mentioned on application form.
The signing officer must check all the particulars before signing.
Pay order
Pay order issued from one branch is only payable from the same branch. It
is normally issued for payment in the same city and is referred to as
Banker’s Cheque.
Issuance of pay order
Get application form from the customer.
Issue pay order after vouchering all necessary formalities.
19
Get recovering charges and withholding tax in case of cheque deposit for
PO.
Make entry in PO issue register.
All pay order must be crossed “payee’s account only”.
It must be noted that Inter-Branch Clearing Advice is not involved
because it is payable at the same branch and same city only.
Cancellation
Get application for cancellation with original pay order.
Recover cancellation charges.
Signature verified by the officer.
Duplicate PO
Check the record that payment has never been made.
Get application for issuing of duplicate PO.
Recover charges as per schedule.
Issues duplicate PO by writing “ink red” pen “Duplicate PO”.
Mail Transfer/ Online funds Transfer
It is the quickest and safest modes of transfer of funds.
Application form submission is same as DD.
In MT funds are transfer through system within seconds if 2nd branch is
online.
Funds transfer only same branch of the banks.
It is necessary that the customer must have the Branch Code of the host
branch, account number of a drawer, name of place, etc.
Necessary requirements of funds transfer.
20
Account enquiry
Cash transactions
Transfer of funds
Printing statement
Inter-Branch Clearing Advice is involved.
The access can only be made through key password.
If OK message is received by the issuer branch system from host branch
then the source branch to proceed further otherwise not.
Telegraphic Transfer
It is also a quick way of transfer funds from one branch to another of the
same bank through telephone, fax/telex.
Procedure of application and vouchering is same as a DD.
Apply test on the TT message and appropriate codes and instructions such
as advice & credit or advice & debit.
It is mostly cleared through main branch of the same area.
Recover commission, telephonic charges and withholding tax as per
applicable rate.
Schedule of Remittance charges
DD/MT/TT issue a) upto Rs.100,000/- 0.10% min Rs.50/-b) upto Rs.1,000,000/- 0.05% min Rs.100/-c) over Rs. 1,000,000/- 0.04% min Rs.400/-
21
Pay order d) for A/C Holder Rs. 55/-e) for Non-A/C Holder Rs. 110/-f) Issuance of Duplicate DD for A/C Holder
Rs. 200/-
g) Issuance of Duplicate DD for Non-A/C Holder
Rs. 250/-
h) Issuance of Duplicate Pay order for Non-A/C Holder
Rs. 150/-
i) Postage charges on TT only Rs. 75/-j) TT phone charges Rs. 100/-
WORKING OF PENSION/LOCKER DEPARTMENT
Pension is defined as the payment of retired govt. servants, who die
during service but fulfill the age of pensioner, Employees Old Age
Benefits (EOBI), etc.
Types of pension
Govt. servant retired benefits
Benevolent funds
Employees Old Age Benefits
Required documents in case of a new pensioner holder check by the head
of department.
Entries of new pensioner holder are made into the “Pension Register”.
22
If the customers receive Benevolent Funds opportunity entries are also
made into “Benevolent Fund Register”.
Recommend monthly pension according to the permissible amount duly
approved by the competent authority.
In case of a customer wants to transfer pension indirectly in his account
deposit slip is attached with pension form.
The necessities before filling an application of pension form are P.P.No,
Army No, and Railway Station No. etc due to the post and department of
pension where employee.
Entries are made at last into the system.
Locker
It means a box operate by a customer of holder on permanent basis.
There are three types of locker operate in banks.
Small
Medium
Large
An application form is necessary for customer with desire documents and
approval made by the head of department.
Locker operation account is allowed for a account holder, Non-account
holder not able to operate it.
Lien is placed on the account of a locker holder on drawing of amount.
Entries are made on “Locker Register” as well as on the system.
Locker No and Key No is allotted to the locker holder for further
operation.
23
Charges of Locker
Small Rs.8, 000/=Medium Rs.12, 000/=Large Rs.16, 000/=
WORKING OF CLEARING AND CHEQUES COLLECTION DEPARTMENT
Clearing
Clearing is a system by which banks exchange cheques and other
negotiable instruments drawn on each other within a specified area and
thereby secure payment for their clients through the clearinghouse at a
specified time in an efficient way.
Clearing House
National Institutional Facilitation Technology (NIFT) Pvt. Limited is
performing the function of clearing and charges commission against it.
The commission of per collection charges is Rs.2/- per cheque. Before the
NIFT, the State Bank of Pakistan (SBP) with efficient controlling staff
performed the process of clearing.
The process of clearing is carried in two categories.
Inward clearing
Outward clearing
24
Inward Clearing
Cheque received of other parties after clearing are lodged in the system by
vouching date, signature, documents numbers is noted. The cheque
without sufficient balance, changing in amount, signature and verifying
other formalities returned to the customer by attaching return memo
explaining the cause of cheque return. Return cheques also enter into the
return register by writing dates, causes of return, and amount. After
posting summary of cheques is prepared and cheques return to third
parties through NIFT.
Outward Clearing
These are the cross cheques deposited by the customers for credit the
same amount to its account. Before posting following is being performed.
Crossing cheque stamp if not place it.
Title of account and account number from deposit slip is checked.
The deposits slip is handed over to the customers by branch stamping.
Entry is done in daily register.
Add list is being prepared.
Special crossing clearing stamp of next day is affixed.
The payee’s amount will credit stamp is affixed on back of the cheque.
In case of outside city clearing Inter-Branch Clearing Stamp is affixed.
Place all the cheque in a back with special closing and sent to NIFT.
WORKING OF ACCOUNTS DEPARTMENT
25
Daily Activities
The main function of this department is to check daily transactions
whether cash, transfer of payments, billing, and clearing of all the
departments.
Following procedure is followed in checking daily activities carried out in
different departments of the branch.
All the vouchers, advices both manual as well as computerized
obtained for posting in the system of each department.
All the vouchers and advices are further sorted in ascending and
descending order for the sake of convenience in checking and tally
information.
It is checked whether or not the account number, instrument
number, document number and amount appearing in words and
figures are agreed with the information appearing in the
computerized record.
In case of changing or discrepancy informed to the concerned
department.
All the credit, debit and billing voucher bunched separately.
The name of the branch, date of vouchering, title and number of
vouchers is written on voucher must be cover authorized signature.
All the above vouchers assist in case of any enquiry and audit.
Handling of Stationery
26
All the branches of the companies required having a complete record the
stationery to be used. Accounts department also maintain and handle the
record of stationery used during the month.
G-9 NBP branch request to main branch for stationery requirements and
record maintain for this purpose. On receipt of stationery following entry
is passed.
Dr. Stock of Stationery
Cr. Main Branch
Stationery issued into the branch for daily uses and entry is passed.
Dr. Expenditure A/C Stationery
Cr. Stock of Stationery A/C
LEARNING AND PERSONAL INTERNSHIP EXPERIENCE
27
In Allama Iqbal Open University, Islamabad, the students of Department
of Business Administration are required to undergo for eight weeks of
internship to complete the Master degree. For this reason, I carried out my
internship in National Bank of Pakistan, G-9 Markaz, Branch, and
Islamabad and try to prepare my report.
During the session of three month I work in different departments on
weekly basis. The employees of the bank help me and provide me all
required information. I studied major functions, objectives and future
planning. I worked in different departments during working as a internee
which is very beneficial and I am able to get basic concepts of banking
operations.
Deposits Department
The basic purpose of the deposits I stated earlier in previous discussion.
Ms. Seemi Qazi is the head of this department. The main function of this
department are maintaining records of saving, current, call deposit, and
NIDA account holders, their signatures, their balances, issuance of cheque
book, scrutiny of cheques issued.
I worked in Opening accounts, made entries on accounts opening register
and post them into the system. It was crucial to entry made on computer
but after three days it was permission to me to make entries on the system.
I prepared several cheque books and enter the detail into the system as
well as in the cheque books issuance register. I also learnt to cheque
posting on system. In the cheque book posting something which are
necessary, account number, cheque number and amount to be debit or
credit should be matched.
28
Cash session in the bank is one the sensitive place we as a internee also
work there in cash deposit, withdrawal, etc. There is a complete process in
case of cash withdrawal. A person who fills a cheque take the token,
posting is done into the system and then signature is verified. In case of
discrepancies in signatures, date, cutting, and the amounts written on the
cheque in words and figures, the cheque returned to the customers without
any excuse. SS cards verification is one of the most difficult works of this
department; I also go through only specific activities in which the heads
of verified informed me.
Pension/locker department
Mr. Atif Hussain is the head of pension/locker department. During my
internship, I learnt how to handle with new pensioner’s cases, entries
made into the “pension register”, recommend payments of pension on
monthly basis, transfer of payments into the accounts of the customers,
entries made into the system. The most obligatory thing for payment of
pension is to check pension slip in form of cash payment P.P.No., name of
the pensioner, signature, and payment period. In case of pension holder
does not come to receive, it is legally recommended that the pensioner
holder issue authority letter to the desire person otherwise pension will
never be paid in cash.
I carried out my further effort to learn in locker department. In locker
operation, I help in fulfillment locker application form, entries made on
the “locker register” then key no and locker no allotted to the locker
customer.
Remittance Department
29
It is a transfer of money payable at a certain place within or outside the
country. It was my third department. Ms.Seemi Qazi is the head of
department. In this department I learnt about issuance of PO, DD, MT,
and T.T. I made all the four categories of funds transfer. Head of
department help me a lot to achieve this target. I only make entries of PO,
and DD, on the system. MT is an online system it was not permissible to
internee to do it. The Manger only does TT; it is so secret way of transfer
funds.
Accounts Department
In accounts department, Mr. Ahmad Assistant is performed all activities. I
sorted vouchers, check daily activities, and check advices by tallying the
account number, instrument number, document, and amount appearing on
the instrument in words and figures with the information register and on
the system.
Structure and Functions of the Accounts/Finance
Department
30
The department of finance and accounting is a large department and the
head of this department is chief executive Finance and second major
controlling authority is the assistant executive finance and all the
reporting comes to the executive finance in the end. In this major
department there are two major operation authorities, one is the head of
finance department and the second is the head of accounts department and
both the heads have separate duties and responsibilities and they report to
the executive finance in the end.
CFO
Finance Department
Finance Manager Operations &
Business
Senior Business Analyst
Business Analysts
Accounts Department
Accounts Manager
Payroll Manager
Senior Accounts Payable
Accounts Asst Payable
Senior Accounts
Receivable
Accounts Asst Receivable
Asst Finance Officer
31
Head of finance department works with the sub-ordinates like manager
business operations and finance manager business and senior business
analyst etc. and they perform their duties like budgeting controlling and
analyzing the different activities of finance department. And the other
officer is the accounts manager, who performs managing the accounts
operations and reports upon them to the executive finance.
Accounts Department
32
Accounts Department plays a vital role in the development of banking
functions. It’s considering a backbone of the bank. The accounts
department in NBP is functioning computerized as well as manual. It
handles each and every transaction is being made into the bank, and
control expenses and allocation of funds through appropriation of
accounts. The work in accounts department is depending on vouchers and
contra entries are passed through different heads.
This officer is working under the director finance, or in other words
director finance is the higher authority for this department and its
functions are as under.
The functions cover the working in accounts department is as follows.
Budgeting
Controlling
Analyzing
Directing
Coordinating business activities
Reporting to director finance
Admin activities
Finance Department
It is the person, which is also bond to the executive, finance and accounts
because executive finance is the higher authority to this person but the
33
functions of this department are not same in the nature to the above first
department.
The primary responsibility of finance department is making planning,
analyzing, and valuation of financial resources and to provide consistent,
reliable, and timely information to management, stakeholders, regulators,
and internal business groups to help management in appropriate decisions
making for improved performance of the bank.
The main functions of the finance department are as follows.
Analysis of accounts
To maintain inventory records
Finance activities
Audit preparation
To keep record of loans, accounts, cash, and all banking
transactions according to accounting principles
Funds management
Preparation of cash flow, income statement, and balance sheet
The use of effective budgetary techniques for budgets
Preparation of reports/ cash forecast
NBP is a most growing organization and performing a role as a treasury
on behalf of SBP, the whole functions of the bank is totally depend upon
the finance department. It has a core value in the promotion of banking
sector. Budgets and forecasting is further assist for future planning.
Different books of accounts are prepared into the bank through
34
computerized system and manual. The accountants prepare daily, weekly,
monthly, quarterly, and yearly reports.
Preparation of repots
The basic purpose of accounts and finance department is to prepare
financial reports for decision-making and future planning. Different
reports are prepared in NBP due to getting information and time period
requirements. Reports are prepared by using general ledger. The
following reports in accounts and finance department are prepared.
Daily reports: It summarizes the daily position of all the main heads of
the bank i.e. cash, loans, deposits, accounts and ATM’s. Other daily
reports are
Balance Sheet
Reconciliation reports
Trial balance
Financial statement
Daily expense vouchers
Monthly Statement: These reports are monthly basis in order to know
the position of the bank and pay rewards on monthly basis, etc.
Balance sheet
Profit and loss statement
Monthly analysis of expenses
Actual budget analysis
Cost of funds statement
Variance analysis
35
Trial balance
Quarterly Statement: It includes tax statement, reconciliation’s, others
reports and interest statements etc.
Role of Financial Managers
Cash management
Cash includes physical cash comprising of currency notes and coins held
in the office, at the factory, branch or company. There are three major
reasons for holding cash:
Transactional motive
Precautionary (Emergency) motives
Speculative (Investment) motive
As a financial manager, it is the responsibility of a manager to hold cash
up to the point where current ratio should never be decrease in by one.
The focus of manager to holds the optimum, amount of cash in hand at the
right time. Cash management shows that how an organization needs, how
much it as, and where to be collected. The objectives of financial manager
to invest excessive amount for a return while retaining sufficient liquidity
to satisfy future needs and plan where money to be collected or borrowed.
The amount of cash to be held depends upon the following factors.
1. The Manager develops a complete cash management policy.
2. Idle cash should be minimized.
3. The bank should be able to payment obligations on due dates so as
not to lose any goodwill.
4. The bank completely maintains a current liquidity position.
36
5. Forecast short and long-term cash flow.
6. The maintenance of cash flow due to deterioration in economy.
7. The Manager follows a speed up cash receipts methods.
Concentration Banking
Offer cash Discount to the customers
Selling of Account Receivables
Prompt follow up debtors/Reminder
2nd Reminder
Contact to court or recovery department
Credit Management
“It is management of account receivables or the people to whom a
company sells goods or services.” Advances and Deposits are the major
sources of the bank. The volume of banking sector is depending upon
these factors. Financial experts are desired to extend credit due to the
limitations of the customers and capability to pay back. In NBP, G-9,
branch advance salary and subordinated loans are basic and big credits
issued to customers. NBP extend credit in order to.
To attract new customers
By encouraging existing customers to get more deposits and
credit
37
By producing loyalty among customers, leading to client
retention
1. The role of Manager to draw up a complete credit policy to ensure
2. The manager analyzes “Credit Information Bureau Report” (CIBR)
before issuance of credit to any customers. The basic needs to be
discussed and study by the Manager are to see.
Overall parameters for credit volume
Vetting process of new clients
Classifying clients
Procedure for processing orders from clients
Credit records
Follow up procedure
Incentives for prompt settlement
Recovery process
Provision for Bad and Doubtful debts
Periodic review of credit situation
Use of Information Technology in Decision making
Today banking is becoming more and more complex with the introduction
of new products, services and enhancing regulatory compliance
requirements. It is the use of information technology that can improve the
customer’s services and reduce the cost at the same time. NBP adopted
“IBM Software” for service providing motives, the “IBM Software”
categories into two sections.
BBO (Branch Banking Office)
38
EBS (Electronic Banking System)
EBS is used for any kind of transaction within the bank .i.e. Receipts and
payments, Bills Collection, Tax receipts, etc. BBO is use for remittances.
The use of IBM Software is one of the main purposes of collection
electronic data for the bank that further helpful in future in decision
making. Now a day, the bank plans for transformation of the entire I.T.
architecture by implementing a core Banking Solutions.
The bank prepares financial statements, agricultural reports, customer’s
management, risk management and other reports for decision-making
purposes. The I.T. system of the bank not only increases distribution
capabilities but also simplify internal procedures thereby reducing the cost
and lead-time for services. NBP has started a number of projects in
relation to I.T. infrastructure up gradation. The bank is expanding its
ATM (Automatic Teller Machine) network and connectivity to reach to
the customers in every corner. In future, NBP is looking I.T. products for
salary and pension disbursements and E-banking for better services.
Competitor’s analysis
The growth in the banking industry of Pakistan has led to an increase in
the number of banks both domestic and international to be established and
create a competitive industry. NBP competitors come in the form of both
domestic and international banks working in Pakistan because of its
products and services offered. NBP is in position to increase its market
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share and shareholder’s wealth by enhancing products and services and
become a largest bank in the history of Pakistan in financial year 2007.
Descriptions/Banks NBP MCB UBL Bank Alfalah ACB
Total Assets 762,194374,07
2 383,472 317,711307,03
4
Deposits 591,907281,34
9 335,077 279,917251,71
1
Advances 340,677243,39
2 254,272 197,277114,97
1Capital 69,271 43,259 16,807 14,499 13,053Profit after Tax 19,034 12,444 12,056 10,555 9,097
Source: SBP
Total Assets
NBP is a most growing organization in banking sector. Total assets of
NBP are persistently going to increase and show an upward trend
throughout the financial year. Table show that total assets of the bank for
year 2007 are Rs.762, 194/= in million while increase by 16.6% then last
year. We can see that total assets of the bank are still at top position that
shows its growth due to its competitors. The latest figures show that MCB
at 50.9% less, Bank Alfalah at 58.32% less, UBL at 49.6% less and ACB
at 59.72% less, comparison in financial year 2007. So we can say that
NBP is in strong position in banking sector.
Deposits
Deposits are treated as backbone of the banking sector. Banks offered
different schemes to allocate deposits form general public and lend them
40
to public and corporate sectors. NBP is also one of them. Deposits of NBP
in Rs.591, 907/= in million. NBP now enhance its position by 15.21%
then last year 2006. It shows NBP’s economic stability.
Advances
Loans and advances are the major sources of revenue in banking business.
Advances of NBP in financial year 2007 is Rs.340, 677/=, MCB is at
Rs.243, 392/=, UBL at Rs.254, 272/=, Bank Alfalah at Rs.197, 277/=, and
ACB at Rs.114, 971/= in million mentioned above on the table. It express
that NBP got 7% increase in advances in year 2007.
Capital
The capital is the amount invested by the owners into business. All
shareholders are the owners of the organization. NBP’s balance of at
January 1, 2007 was Rs.7, 090,712/= and issued bonus shares at 15% by
Rs.1, 063,607/=. The table shows persistent growth as its competitors.
Profit after Tax
The profit of NBP is Rs.19, 034/= in million which is the highest rate of
profit in banking sector. So the highest profit shows that NBP received
best return on capital for 2006 amongst all banks in Asia.
Sources of funds
41
Sources of funds reveal the organizations needs for funds, the timing of
these funds when required, and for what purpose these funds are needed.
These are the main elements to carrying out the operations of business. It
involves the analysis of capital uses by the Bank i.e. Debt and Equity
financing.
Debt financing
NBP’s in financial year 2007 get debt in Rs.10, 886/=, and Rs.11, 704/=
in million in year 2006, which is 7.5% low. Bills payable of the bank are
also decreasing by 50% in 2007.
Equity financing
The basic purpose of financing is to get funds from different ways
depending upon capital structure mentioned by the top management
during a period of time. But to finance with lower interest rate and invest
higher return is the business of banks. NBP’s share capital with increase
in 13.05% year 2007 is
Rs.8, 154/=.
Generation of funds
NBP offers different products and services to generate funds. Deposits are
the main heads of generation of funds. The banks receive from public and
invest it for the sake of return. Banks receive fees, commission on
services offering; get interest of investments, and dividend etc.
42
Descriptions/Years 2003 2004 2005 2006 2007Interest income 12,716 14,387 23,312 30,153 33,629Total income 17,345 20,944 30,512 39,945 42,451Net profit 4,198 6,242 12,709 17,023 19,033
Source: annual report
Allocation of funds
The most important functions of banks are to allocate funds and make a
portfolio of funds to profitability. NBP allocate resources from different
ways i.e. reserves, and fixed asset sales.
Reserves
It is the amount set aside to meet statutory requirements of SBP and
maintain liquidity position. The reserves of NBP are Rs.8, 133/- in million
in financial year 2003 and then constant increase with 26.8% in 2004,
17.86% in 2005, 2.54% in 2006 and 12.01% in year 2007. It also
determines the position of the bank during a period of time.
Fixed assets
Fixed assets are immoveable assets of the organization. Financial year
ended December 31, 2007 shows property and equipment of NBP are
Rs.29, 792/= in million before depreciation and after depreciation amount
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is Rs.25, 454/= in million, it is also a comparative figure to show a bright
future of the bank.
Financial analysis
Financial analysis refers to an assessment of the viability, stability, and
profitability of a business, or projects. It is performed by professionals
who prepare reports using ratios and other analysis that make use of
information taken from financial statement and other reports. These
reports are usually presented to top management as one of their bass in
making business decisions. Or it is a process, which involves
reclassification and summarization of information through the
establishment of ratios and rends.
Balance Sheet as at December 31, 2003-07
Descriptions 2003 2004 2005 2006 2007Assets Cash and balance banks 59,420,502 94,446,552 71,196,956 78,625,227 94,873,249Balance other banks 24,154,070 49,784,884 31,019,330 40,641,679 37,472,832Lending fin. inst. 30,213,352 10,511,322 16,282,942 23,012,732 21,464,600Investments 166,195,619 144,735,672 156,985,686 139,946,995 210,787,868Advances 160,990,265 221,443,963 268,838,779 316,110,406 340,677,100Other assets 21,946,846 18,339,514 23,941,056 9,681,974 30,994,965
44
Operating fixed assets 8,939,483 9,202,969 9,454,365 ----- 25,922,979Deferred tax assets --- 1,275,949 ------ 27,113,698 ------ Total Assets 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593Liabilities & Capital
Bills payable 5,496,738 7,214,671 1,741,156 10,605,663 7,061,902Bor. from financial inst. 16,493,514 11,084,790 8,756,847 11,704,079 10,886,063Deposits & accounts 395,568,490 465,571,717 463,426,602 501,872,243 591,907,435Sub-ordinated loans --- ---- ---- ---- ----Lia. financial lease 41,117 17,058 16,629 13,235 33,554Other liabilities 26,080,400 22,916,147 24,974,450 26,596,300 30,869,154Deferred tax liabilities 595,864 ------ 4,462,718 2,387,073 5,097,831Total Liabilities 444,276,123 506,804,383 503,378,402 553,178,593 645,855,939Capital Share capital 4,103,422 4,924,106 5,908,927 7,090,712 8,154,319Reserves 8,133,312 11,119,613 13,536,041 13,879,260 15,772,124Unappropriated profit 5,897,163 9,213,565 16,713,506 32,074,677 45,344,188Surplus on re. of assets 9,450,117 17,679,158 38,182,238 28,909,469 47,067,023
Total Capital 27,584,014 42,936,442 74,340,712 81,954,118 116,337,654T.Liabilities & Capital 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593
Income Statement at Year 2003-07
Descriptions 2003 2004 2005 2006 2007Mark-up/Return/Interest earn 19,452,317 20,947,333 33,633,735 43,788,628 50,569,481
Mark-up/Return/Interest expense 6,735,579 6,559,398 10,321,768 13,634,912 16,940,011
Net Mark-up/Interest Income 12,716,738 14,387,936 23,311,967 30,153,716 33,629,470
Provision non-performing advance 1,684,777 1,515,354 2,446,739 3,075,723 4,723,084Provision diminution investments 459,523 185,707 -245,881 -709,461 -40,248provision off balance sheet obligations 474,743 14,297 ----- --- ------Bad debts off directly ------ 32,807 23,069 5,284 39,899Net Mark-up/Int.Inc. After provision 10,097,695 12,639,770 21,088,040 27,782,170 28,906,735
NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 3,260,863 5,099,195 4,926,604 6,144,628 6,781,683Dividend Income 1,126,742 1,273,863 1,718,478 2,891,755 3,263,246
45
Gain on sale of securities ----- ----- ----- ----- 2,341,690Income dealing in f.c.’s 710,726 1,008,988 1,205,638 1,333,840 1,042,827
Share of profit of joint venture 108 47,557 ------- -31,964Other income 2,149,800 875,113 1,573,905 627,618 147,363
Total non mark-up/int.incom 17,345,934 20,944,486 30,512,665 12,162,892 13,544,845
NON-MARK-UP/INTEREST EXPNESESAdministrative expenses
Salaries and allowances 4,761,408 8,878,801 11,195,133 13,443,441 14,457,580Charge to defined benefit plans 280,632 ----- ----- ----- -----
Provision handshake scheme 293,612 ------ ----- ----- -----
Other administrative expenses 2,471,083 ------ ----- ----- -----
Other provision/write offs 33,454 32,243 198,298 -17,283 168,027
Other charges 22,894 8,284 63,206 208,327 17,141
Total non mark-up/interest expenses 7,863,083 8,919,328 11,456,637 13,634,485 14,391,079Staff Welfare Fund 474,143 ------- ------ ------ -----profit before tax 9,008,708 12,025,158 19,056,028 26,310,577 28,060,501Taxation -Current 4,650,000 4,950,000 7,154,002 8,695,598 8,311,500
Prior years(s) 1,439,444 847,958 -1,098,709 530,652 391,497Deferred 1,278,839 -15,729 291,291 61,981 323,731Profit after tax 4,198,103 6,242,929 12,709,444 17,022,346 19,033,773
How to drive ratios
1) Working Capital= Current Assets-Current Liabilities
2)Current Ratio= Current Assets/Current Liabilities
3) Acid-test Ratio= (C. Assets-C. Liabilities)/C. Liabilities
46
4)Debt Ratio= Total Debt/Total Assets
5)Long-term Debt Ratio= Long-term debt/Total Assets
6)ROA= N.I (Before-tax)/Total Assets
7)ROE= N.I (Before-tax)/Total Equity
8)NP Margin= N.I/Revenue or Sales * 100
9)Total Assets Turnover = Sales/Revenue /Total Assets
10)Time Interest earned = EBIT/Interest Expense
11) EPS = N.I./No of share outstanding
12) Book value PS = (T. Assets-T. Liab.)/No of share out.13)
Cost to Income Ratio = Cost/Income
14) Fixed Assets Turnover = Sales/Fixed Assets
15)OP. Expense Ratio = EBIT/ Op. Expense
Ratio Analysis
47
Ratios 2003 2004 2005 2006 2007Working Capital in (000)
9,099,364 38,900,632 58,410,275 60,459,328 79,743,881
Current Ratio 1.03 1.08 1.13 1.12 1.13Acid test Ration 1.03 1.08 1.13 1.12 1.13Debt Ratio 94.15% 92.19% 87.13% 87.09% 84.74%Long term Debt Ratio
3.50% 2.02% 1.52% 1.85% 1.43%
Return on Assets(ROA)
2.0% 2.4% 3.4% 4.3% 4.10%
Return on Equity(ROE)
38.66% 36.01% 29.64% 49.6% 45.90%
NP Margin Ratio 24.20% 29.81% 41.65% 42.62% 44.84%Equity Ratio 5.85% 7.81% 12.87% 12.91% 16.36%Total Assets Turnover
0.037 0.038 0.053 0.063 0.056
Operating Expense Ratio
45.33% 42.58% 37.55% 34.14% 33.01%
Time Interest earned 1.34 1.84 1.85 1.93 1.95Earnings per share 8.53 10.48 17.92 20.88 23.34Book value per share
56.05 72.08 104.82 100.53 142.66
Cost to Income Ratio
0.17 0.23 0.24 0.28 0.3
Fixed Assets Turnover
0.44 1.06 1.185 1.22 0.89
Current ratio
48
Current ratio explains the ability of a firm to pay short-term obligations. It
is usually said in business that its current ratio must never decrease by 1:1
because it determine the liquidity position. The table exposes an upward
trend in first three years and in 2007 but year 2006 ratio deduce by 0.88%.
We can analyze that NBP is in a strong position and need to improve
further in next economic years.
Return on Assets
The ratio expresses how effectively the management is using the assets of
the business. There is deterioration in return on assets in year 2007.
Financial year 2007 shows a 4.88% decrease in return on assets then last
year. Whole analysis explains that ROA is growing with from year ended
2003-06 but then decreases. It is need to use assets of the bank to bring
bright future.
Return on Equity
There is variation in ROE throughout five years. Financial year 2007
explains “Golden year in respect of return on capital in 2006” because it
was 49.6% prominent return in the history of banking business in Asia in
2006. NBP does not stable its capacity in current financial year 2007 and
looses at point 7.5% then last year. Now, It is need of time to repeat year
2006 to show its temperament.
Debt ratio
The analysis shows persistently going downward debt ratio, we can say
that bank able to protect itself. Capital structure of NBP expressing
decreases in borrowings and enhance capital by issuing of shares during
five years. Debt in 2003 was at point 94.15% and reduces in financial year
2003 at point 84.74%, shows its strength.
NP margin ratio
49
It shows profitability of the organization against it sales. The table
explains a regular increase in net profit ratio. At the year ended 2003, net
profit against sales was 24.20% and reaches at 44.84% that is double
figure. It says in short that NBP earn Rs.44.84 by investing Rs.100 in year
2007. It is up to the mark but need to improve sale and control cost to earn
better margin.
Total assets turnover
The ratio explains how much in a prominent way the bank using total
assets to increase sales. The first four years shows a regular increase in
turnover but year ended 2007 explains decreases by 11.12% then last
year. So we can say that position to use assets in not satisfactory level.
NBP management can increase its output by using total assets to increase
sale and revenue.
Cost to income ratio
The above table exposes an upward trend in cost against income. But we
know as income increase and inflation come into the economy its effect
on cost. Financial year 2007 defines that NBP’s income in Rs.10 against
investing Rs.3. We can see all four years trend with minimum changing in
figures.
Time interest earned ratio
It is use to find out the ability of a business to cover interest charges. The
ratio occurs that NBP has ability to pay its charges. The bank tries to
increases its EBIT to enhance its position.
Fixed assets turnover
Analysis on table shows upward trend during three consecutive years
from 2004-06. Especially financial year ended 2006 was a golden year in
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this turnover. The bank does not maintain its position in further and lose
its position in next year with point 27.05% that is very hard figure to
recover but possible in next coming years.
EPS (Earning per share)
Earnings per share show a regular increase in earnings throughout last
five years from 2003-07. It show an upward trend, I observed that NBP is
improve its market condition in a constant year with confident on its
vision-You can trust.
Horizontal Analysis:
It is a procedure to compares a company’s financial statements over a
certain period of time. The analysis stated information about changing
items of financial statements in percentage. Mathematically, we can
calculate it as
H.A. = (current year-old year)/old year * 100
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Balance Sheet as at December 31, 2003-07
In
percentage
Descriptions 2003-04 2004-05 2005-06 2006-07Assets
Cash and balance wit tr. banks 58.94 -24.62 10.43 20.66Balance with other banks 106.12 -38 31.02 -7.8Lending to financial inst. -65.21 54.9 41.33 -6.7Investments -12.92 8.46 -10.85 50.62Advances 37.55 21.4 17.58 7.78Other assets -16.44 31 -59.56 14.32Operating fixed assets 2.95 3 -100 167.74Deferred tax assets ---- -100 --- ---
Total Assets 16.5 5.00 9.94 20.00
Liabilities & Capital Bills payable 31.25 -75.86 509.12 -33.42Borrowings from financial inst. -32.79 -21 33.66 -6.989Deposits and other accounts 17.69 -0.46 8.29 17.94Sub-ordinated loans ---- --- --- -----Liabilities against. lease -58.5 -2.52 -20.41 153.53Other liabilities -12.13 8.98 6.49 16.06
52
Deferred tax liabilities -100 ---- -46.51 113.56
Total Liabilities 14.07 -0.675 9.89 16.75Capital Share capital 19.99 19.99 19.99 15.00Reserves 36.72 21.73 2.54 13.63Unappropriated profit 56.24 81.4 91.9 41.37Surplus on revaluation of assets 87.08 115.97 -24.28 62.8Total Capital 55.66 73.14 10.24 41.95In the above horizontal analysis we can see that the total assets in the year
2003/04 are 17.5 percent and when we move forward towards the next
years then the percentage goes to 5 percent in the year 2004 and 2005.
Similarly when we can see that the percentage is 9.94 in the year 2005/06
and it is 20 in the year 2006/07.
Now here number of factors can affect this percentage. Here in the table
we can see that the figure of balances with other banks is 1.6 in years
03/04 and it decreases to –38 percent in the next coming years. So here
we can see that why the total result of the total assets varies of much
difference from each other. Similarly the figure of investment also varies
greatly when we move from the year 2003 to the year 2007.
In case of total liabilities it is 14 percent in the year 2003/04 and goes to –
0.675 in the year 2004/05. It has decreasing trend up to the year 2006 and
then it again increases in the year 2006/07. The major factor, which I
think giving the great difference is due to the variation in amounts of, bills
payable. Here we can see that it is about 31 percent in the year 2003/04
and then it decreases to about –75 percent. Here it increases in the next
two years analysis and then it decreases.
When we look at the total capital there is the same pattern. Total capital in
the year 2003/04 is about 55 percent, which increases, in the next year’s
53
analysis and then it decreases and increases in the year 2006/07. The
amounts of reserves and the surplus on revaluation of assets are putting
affect on the total value.
Index Analysis
Balance Sheet as at December 31, 2003-07
In percentage
Descriptions 2003 2004 2005 2006 2007Assets Cash and balance wit tr. banks 100 158.94 119.82 132.32 159.66Balance with other banks 100 206.12 128.2 168.26 155.14Lending to financial inst. 100 34.79 53.89 76.17 71.04Investments 100 87.08 94.45 84.21 126.83Advances 100 137.55 166.99 196.35 211.62Other assets 100 83.56 109.08 123.54 141.23Operating fixed assets 100 102.95 105.75 108.31 289.98Deferred tax assets ------ 100 ---- -------- ------
Total Assets 100 116.51 122.43 134.61 161.53Liabilities & Capital Liabilities Bills payable 100 131.25 31.67 192.94 128.47Borrowings from financial inst. 100 67.21 53.09 70.96 66.00Deposits and other accounts 100 117.69 117.15 126.87 149.64Liabilities against ass. lease 100 41.48 40.44 32.18 81.61
54
Other liabilities 100 87.86 95.76 101.98 118.36Deferred tax liabilities 100 ---- 74.89 400.6 137.63
Total Liabilities 100 114.07 113.31 124.52 140.37Capital Share capital 100 119.99 143.99 172.79 198.72Reserves 100 136.72 166.43 170.65 193.92Unappropriated profit 100 156.24 283.42 391.28 768.92Surplus on re. assets 100 187.08 404.04 305.92 498.06Total Capital 100 155.65 269.51 297.11 421.76Index analysis of Balance Sheet
Index analysis show percentages which compare changes in the current period with that of base period, measures overall changes phenomenon. It can be mathematically expressed as
I.A. =Current year/Base year *100Total assets
Financial year 2003 is a base year. It is equal to 100% value. Total assets due to analysis show an upward trend by 116.51%, 122.43%, 134.61, and 161.21% respectively as compare to base year 2003. The increase in total assets in 2004 only 4.8%, which is very low figure then form years 2003-07. The whole analysis suggests that lending to financial institutions, investments, and other assets are decreased in 2004 and vary during a period of time. The deterioration in figures especially investments and lending can effect economic stability at the long run, so need to work on these figures.
Total liabilities and capital
Liability side, financial year 2005 shows downward trend in bills payable, deposits, and borrowing form financial institutions but increase in share capital and reserves. NBP focus to increase capital through equity in the long run as we see from year 2003-07. Annual year 2007 analyze the upward trend in lending to financial institutions but advances are not up to mark, which are going to decrease yearly. So NBP need to focus especially on advances and loan to carry its financial strength.
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Vertical Analysis
Balance Sheet at 2003-07
In
percentage
Descriptions 2003 2004 2005 2006 2007Assets Cash and b.wit tr. banks 12.59 17.2 12.33 12.38 12.45Balance with other banks 0.118 9.06 5.37 6.39 4.92Lending to financial inst. 6.41 1.91 2.82 3.63 2.82Investments 35.22 26.3 27.17 22.04 27.65Advances 34.12 40.3 46.54 49.77 44.69Other assets 4.65 3.34 4.14 1.53 4.066Operating fixed assets 1.89 1.67 1.64------- 3.4Deferred tax assets ------ 0.23---- 4.268---- Total Assets 100 100 100 100 100Liabilities & Capital Bills payable 1.164 1.31 0.302 1.669 0.926Borr. from fin. inst. 3.49 2.02 1.52 1.84 1.428Deposits and other accts. 83.83 84.7 80.22 79.02 77.66Sub-ordinated loans ------- ------ ---- ------- -----Liab. against assets 0.009 0 0.003 0.0021 0.004Other liabilities 5.52 4.17 4.322 4.137 4.05Deferred tax liabilities 0.126 ------ 0.772 0.375 0.669Total Liabilities 94.14 92.2 87.14 87.09 84.74Capital Share capital 0.869 0.9 1.023 1.1164 1.069Reserves 1.723 2.02 2.34 2.185 2.069Unappropriated profit 1.249 1.67 2.89 5.05 5.949Surplus on re. assets 2.002 3.22 6.609 4.551 6.175Total Capital 5.843 7.81 12.86 12.902 15.26
56
Total Liab.& Capital 100 100 100 100 100
Vertical analysis
Vertical analysis refers to the view of the financial information for only
one accounting period. Mathematically, it can be expressed by dividing
current amount to the total amount.
Analysis of balance sheet 2003 shows 100% on both sides and further as
well. The cash and balances with treasury banks is 12.59% and cash with
other banks is 5.12%, which are impressive figures to meet the liquidity
position. Lending to financial institutions is 6.41%. Investments and
advances are major components in balance sheet 35.22% and 34.12%
respectively. These two elements are lifeblood of any banking business.
Operating fixed assets and other assets are not up to the mark showing
4.65% and 1.89% only. A deferred tax asset is zero. Deposits are the one
of the main sources of the bank and shows 83.83%, which fulfill the
vision of “NBP-you can trust”, are impressive figure. Total equity is
5.843% in which the higher figure is surplus on revaluation of assets. It
gives view that the bank is strong and need to further expansion because
bills payable and borrowings are 1.64% and 3.49% respectively.
Analysis of year 2004, it exposes regular increase in cash and balance
with treasury banks, balance with other banks, advances, and deferred tax
assets but investments decrease 25.2% and lending to financial
institutions decreases at 70.1%. Deposits and other accounts of the bank
57
jumps at 84.68% that grows 1.02% then last year 2003, decreasing in total
liability by 1.67% in 2004 (94.138% to 92.18). T. Equity grows at 1.96%
in 2004.
With the analysis of 2005, it arises that only 4.9% growths occur, that is
extremely down as compare to financial year 2003-04. In this year, NBP
follows a downward trend in its position but it got overall profitability.
Here only advances jump at a reasonable high other elements of balance
sheet deteriorate. Deposits are the main sources of banks but it got deficit
by 5.2%, which shows that customers are unsatisfactory.
With the analysis of 2006, there is overall increase in total assets of NBP
by 9.02%. Advances in year 2006 are 49.77% that grows 6.5% then last
year. Deferred tax assets go upward at 4.3% in 2006; deposits are still at
downward at 79.02%. Share capital of the bank reaches 1.12% instead of
1.02% in previous year. The overall figure exposes that NBP is growing
in double figure then last year.
Analysis of December 31, 2007, appears both increase and decrease in
balance sheet throughout the year. Cash and balance with treasury banks,
other assets, and operating fixed assets show upward trend, on the other
side deposits are regularly decrease and reaches at point 77.66%. Total
assets of the bank grow by 16.67% then last year that shows quite a
growing volume in competitive market.
Index Analysis
58
Income Statement at Year 2003-07
In percentage
Discriptions 2003 2004 2005 2006 2007Mark-up/Return/Interest earn 100 107.68 172.9 225.11 259.96Mark-up/Return/Interest expense 100 97.38 153.24 202.43 251.5Net Mark-up/Interest Income 100 113.14 183.32 237.12 264.45Provision agaisnt non-performing advance 100 89.94 145.23 182.56 280.34Provision dim.value of inv. 100 40.42 -53.5 -154.4 -8.758provision against off balance sheet obligations 100 3.012----- 100 8.0841Bad debts off directly -------- 100 100----- 180.32
100 66.75 84.92 90.55----Net Mark-up/Interest Income after provision 100 125.17 208.84 275.14 286.67NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 100 156.37 151.08 188.44 207.97Dividend Income 100 113.05 152.49 256.65 289.62Income from dealing in foregin currencies 100 141.96 169.64 187.67 146.73Share of profit of joint venture 100 44034------ ---- -----Other income 100 40.7 73.21 29.19 6.854Total non mark-up/interest income 100 114.57 130.02 167.81 186.87
100 120.75 175.91 230.28 244.7NON-MARK-UP/INTEREST EXPNESESAdministrative expenses Total Administration expenses 100 113.73 143.4 172.21 181.97Other provision/write offs 100 96.38 592.75 -51.66 502.27Other charges 100 36.18 276.08 909.96 74.87Total non mark-up/interest expenses 100 113.43 145.71 173.39 183.02profit before tax 100 133.48 211.53 292.06 311.48Taxation -Current 100 106.45 153.85 190.69 178.74Prior years(s) 100 58.9 -76.33 36.86 27.19Deferred 100 -1.229 22.77 4.45 125.32Profit after tax 100 148.7 302.7 405.48 453.39
Index analysis
59
Profit and loss statement or income and expenditure determine the summary of an organizations revenues and expenses over a specified period ending with net income or loss.
Mark-up/interest Income
Taking financial year 2003 is a base year. Analysis expresses that mark-up/return/interest earned shows upward trend in throughout year 2003-07. These are income generating resources, the net mark-up is 89.9% in year ended 2004 that decreases by 10.06% then last year 2003. NBP got extraordinary mark-up in the financial year ended 2007 and grows more than 30%. Table shows that provisions against NPL’s are gradually increases. The bank’s overall coverage ratio in year ended 2007 is at improving at the rate of 84%.
Non Mark-up/Interest Income
It is the income of the bank generated by providing products and services to the customers. The bank receives fee/commission and brokerage income156.37%, 151.08%, 188.4%, 207.97% respectively yearly. Dividend income shows an upward trend during five year 2003-07. NBP is also dealing in foreign currencies, the income receives from resources are not up to the mark and decreases in point 27.9% then at last year. Other income of the bank also exposes a down ward in the year 2007. If we analyze whole, we can say that total income of the bank before expenses is up scale from years 2003-07. It is already known when profit increases; expenses of the organization also rise. We can see table that total expenses of the bank are also increases.
Profit-before Tax
The pre-tax profit increases in Rs.28.06 billions an increase of 6.6% in 2007 over last year. The pre-tax profit in year 2006 was 292.06% which was extremely high than year 2005. The bank got overall profit but this pre-tax profit is not sufficient if we compare it to the year 2005-06. The bank management further need to work for maintains its capability and customers trust.
60
Horizontal Analysis
Income Statement at Year 2003-07
In
percentage
Discriptions 2003-04 2004-05 2005-06 2006-07Mark-up/Return/Interest earn 7.68 60.56 30.19 17.56Mark-up/Return/Interest expense -2.616 57.36 32.09 23.12
61
Net Mark-up/Interest Income 13.14 62.03 29.35 11.53Provision against non-performing advance -10.056 61.46 25.71 12.65Provision dim. of inv. -59.58 -32.4 -188.54 -221.5provision against off balance sheet obligations-96.98 -100 ----- -----Bad debts off directly ------- -29.68 -77.09 -----
-33.25 27.22 6.64 2.07Net Mark-up/Interest Income after provision 25.17 66.84 31.74 29.12NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income 56.37 -3.38 24.73 19.56Dividend Income 13.06 34.9 68.27 57.22Income from dealing in foregin currencies 41.96 19.49 10.64 9.37Share of profit of joint venture 439.34 -100 ----- 42.79Other income -59.29 79.85 -60.13 6.65Total non mark-up/interest income 14.57 13.48 29.05 21.59
20.74 45.68 30.92 24.72NON-MARK-UP/INTEREST EXPNESESAdministrative expenses Total Administration expenses 13.73 26.08 20.08 29.12Other provision/write offs -3.619 515.01 -108.72 35.8Other charges -63.82 662.98 229.6 333.5Total non mark-up/interest expenses 13.43 28.45 19 27.89
26.81 58.47 38.07 34.17profit before tax 33.48 58.47 38.07 6.65Taxation -Current 6.45 44.52 21.55 22.46Prior years(s) -41.09 -29.57 148.29 42.3Deferred -98.77 1951.9 -78.7 66.3Profit after tax 48.708 103.58 33.94 31.97
Horizontal analysis
Horizontal analysis explains the changes in profit and expenses of two consecutive years. It also suggests that overall variation in the statement as compare to its current with old year.
The above table shows that interest earned vary during the five years in analysis, the interest expenses also vary with the same point. Both figures effects on net-mark-up, so we can see that net-mark-up in 2003-04 were 13.14%, 62.03% in 2004-05, 29.35% in 2005-06, and 11.53 in 2006-07.
62
NBP’s performance during in 2004-05 was up to the mark but not to maintain this figure and deduce regularly.
Total mark-up interest income shows little changes in two consecutive years but got a great position in 2005-06, in 2006-07 it’s again come at equal to last year progress.
As all elements exposing decreases, expenses of the bank also decreasing in the table above with different but regular points, pre-tax arises strong in first four years but at a point 6.65% only in financial year 2006-07.
The whole analysis explains that if we compare current and old year, the overall position of the bank decreases in financial year 2007, it is not stable. Every element in income statement showing a downward trend, now, it is the requirement to develop new policies to stabilize its position and compete into the market.
Future prospects of the organization
NBP’s is planning to expand its network of branches especially in Islamic
Banking. The bank’s international operation is focused towards increasing
trade business and expands where the bank has competitive advantage.
The bank is continued to develop liability side products by enhancing
leadership position. The bank is continued to recognize as a largest
treasury in terms of its size. Its target on untapped sectors and provide
63
them professional quality services, through on window operation and
relationship managers stationed.
It’s planning to transformation of the entire I.T. architecture of the bank
by implementing a core banking solution. The bank in future follows up
trust with a message “Excellence Customer Service” by invention of I.T.
products and services. The bank will focus to promote healthy sports
activities in the country.
Performance Analysis
Strength
Over the year, NBP has proved its strength as a leading banking
sector entity and treasury agent on behalf of a SBP by achieving the
following first in Pakistani banking sector.
I. NBP in year 2007 received the award for the best
return on capital for 2006 amongst all banks in
Asia.
II. First bank enjoys the highest credit rating
amongst Pakistani banks.
64
III. First bank with nation-wide branches of over
1200 and over 20 outside Pakistan.
IV. It’s working as a government agent since birth.
V. ROE of the bank stood at 45.9%, which is the
highest in the Asian Banking history.
VI. The first bank in Pakistan with large coverage of
Central Asia, Far East and South Asia.
NB has a wide range of products and services and improves quality
of life of diverse market segments.
The bank continues to monitor the credit and risk exposure by
establishing an Operational Risk Management Unit.
The management of the bank encourages attaining professionals
(MTO’s) and establishing efficient working environment within the
bank.
The bank offer financing facility i.e. agricultural financing, home
financing international trade business loans, govt. loans syndicated
loans, and karobar schemes for the individual serves, student loans
and portfolio investments for the individual savers.
NBP is committed to develop and enhance each employee’s skills
and capabilities through training and job rotations.
It provides timely information to all stakeholders about the
performance of NBP amongst competitors.
The bank uses automated transaction – process system, for back up
support. Well-designed software “IBM Software” which transform
a register (paper) into electronic system.
NBP purpose to become a “Bank of Choice” for the customers, the
effort is continuing to attain this target.
65
As an autonomous body, the strong employee bank relationship and
job security.
To promote healthy sports activates in the country NBP has built a
state-of-the art sports complex at Karachi to full fill social
responsibility.
Weaknesses
The bank I.T system sometime hang or link down can causes a
delay in provision of timely and efficient services to the customers
There is no proper information desk, which guide the customers on
different banking activities.
Return on equity decrease in 2007 at an unacceptable rate that
impact on overall condition of the bank.
Horizontal analysis shows the downward trend in the income
statement can create problem in future.
Deposits of NBP are regularly decreasing in every financial year,
which can lose the trust of employees.
The use of token system by the bank for cash payments produces
and awkwardness among customers.
Turnover fixed assets and total assets both decreasing in financial
year 2007, which can weaken the overall position of the bank.
Mostly, ATM network shows “sorry for inconvenience” picture
especially in first salary days that is hard for customers trust.
66
The lead-time for cheque clearing is three to four days for “Inter
City Clearing” and more days for other cheques.
The bank management feels job security so they misbehave with
customers.
NBP does not have a comprehensive marketing strategy; it
permanently uses print media and billboards for marketing of its
products and services. So there is lack of broad casting media
services.
Sometime, sufficient number of employees are needed is a certain
department but there is mismanagement deployment of employees
that can cause burdened in some departments.
Opportunities
NBP is not only expanding “Kisan Dost” its banking services to
remote and ruler areas but also start “Karobar Schemes”.
As the bank continues its expansion on international coverage the
bank also take opportunity to start Islamic banking is 2007.
NBP plans to set up research centers, which help the bank to
enhance quality of services.
NBP is looking E-banking for better services.
With a provision coverage 84% in fiscal year 2007 and continues is
following years will lead towards banks profitability through
recoveries and reversals.
Amongst highest bank is Asia, NBP further expand its services
proudest and earn more profit.
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The bank is reshaping its portfolios by investing into higher area of
growth developing core competing as a result to get maximum
return.
I.T and HR are important factors for development in any
organization, NBP continue struggle to achieve this target.
Threats
With the globalization of the world many international banks are
opening this branch into other countries posing a threat for banks,
as the competition would become more acute.
The expansion of banking sector is forcing to offer improved and
innovative products and services in order to stay into competition.
The operating environment for banks in becoming more
challenging in the wake of intense competition is the pricing of
assets and liabilities products and services.
With expansion of branches, help banks to give less attention to
down ward slump, increasing competition between banks and non-
banks can create problems.
The bank face higher operating cost, the advancement in I.T turned
to grip on cost, the use of I.T by foreign banks on providing
extensive product and service can become a problem is future.
68
Conclusion
The bank has been able to strategically manage and build on its
competitive advantage, by knowing customer’s requirements,
understanding employee’s need, modern technology, to making social
responsibility and looking towards stakeholder’s values. The bank is able
to bear new challenges more efficiently. The bank continued its journey to
success on strategy of serving clients- by getting advantage of its unique
domestic and international footprints.
Leadership of Board of Directors makes the bank’s ability to continue as a
going concern. A large number of products, branch network, I.T and
committed workforce are fundamental strength of the bank that enables to
achieve exceptional results in a very competitive market.
69
Recommendation
As analysis shows that NBP is a most growing organization with highest
return on capital, largest market share amongst all Pakistani banks and
cost to income ratio is the highest in banking sector. But there is further
need for improvement. To overcome weaknesses and to maintain its
position as an “Asian Tiger” in banking field, following recommendations
are made:
The bank should focus on enhancing and improving the quality and
effectiveness of banking software, to provide timely technology
based value added services.
There should be a proper desk for customer’s information in every
branch.
The bank should use broad casting media for promotion of its
products and services and to further expand its area through more
aggressive marketing.
Financial analysis shows that NBP gradually loses its deposits and
other accounts that can create problem for the bank to maintain its
stability. The bank should focus to revaluate existing customers and
attract new to enhance it position.
Financial year 2006 exposes that ROE/Capital is in point 49.6% but
in 2007 it loses at point 45.1%, it guides that there is deterioration
in uses total equity, the bank must try to repeat “2006 as a Golden
Year”.
70
Advances and loans of the NBP in year 2007 are brutally down by
10.21% then last year, these are basic tools to earn interest as well
as non-interest income, the bank provides quick and better services
to its customer to continue upward trend.
By analysis we see that assets turnover of the bank decrease in
2007 than last year, so the management try to grip on sales as well
as use assets to create maximum margin.
Horizontal analysis of income statement showing downward trend
in every elements in whole year 2006-07, the management must
control to get overall market share.
References
Books:
James C.Van Horne “Financial Management”
Afza Beig B.Sc Part 1 “Introduction to Statistics”
NBP Annual Reports
71
Internet:
www.nbp.com.pk
www.sbp.com.pk
www.google.com.pk
Organization Structure
72
Executive Committee
President & Chief Exevutivwe
Organization Chart
73
Planning & Corp.
Regions Retail BankingOp. and
credit
Corp. Bankng
Finance
Credit Cards
HR
South-II
Rwp/Isb
Corp. & Merchant
Treasury
International
Inv. products
Assets Product
North
Credit
West
South-I
EastLahore
Legal Affairs
System & OP.
Data Reporting
MIS
EVP OG-IIIAssistantsOG-I
President
SVPOG-IIAsst. MngrsAVP
SEVP
VPManagers
74
75
Chief Executive Audit
Executive Assistant
Group Head Auditor
Area Manager Audit
Branch Manager Audit
Assistant Manager Area Auditor
Assistant ManagerBranch Auditor
Audit Internees
76
Competitors Analysis
Total Assets
0100,000200,000300,000400,000500,000600,000700,000800,000900,000
NBPM
CBUBL
Bank A
lfalah ACB
Total Assets
77
0100000200000300000400000500000600000700000
Descrip
tions
/Ban
ksNBP
MCB
UBL
Bank A
lfalah ACB
Series1
Series2
78
050000
100000150000200000250000300000350000400000
1 2 3 4 5 6
Descriptions/Banks
Advances
79
Capital
020,00040,00060,00080,000
Capital
Profit after Tax
05,000
10,00015,00020,000
NBPM
CBUBL
Bank A
lfalah ACB
Profit after Tax
80