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Nbp internship-report-on-national-bank-of-pakistan-2012Document Transcript 1. NATIONAL BANK OF PAKISTAN INTERNSHIP REPORT Muhammad Farhan Javed Federal Urdu University Art Science & Technology [email protected] Javed: This Is The Approved Internship Report Of National Bank Of Pakistan. 2. P a g e |2TABLE OF CONTENTSFederal Urdu University Art Science & Technology Islamabad................................................... ...................................1Table of Contents.................................................... ............................................................ ............................................2Objectives of Studying the Organization................................................ ............................................................ ............6Brief History of National Bank of Pakistan.................................................... ............................................................ ......7Nature of National Bank of Pakistan.................................................... ............................................................ .............10Business volume of National Bank of Pakistan.................................................... .........................................................12B ranch Network of National Bank of Pakistan.................................................... ..........................................................16 Number of Employees of National Bank of Pakistan.................................................... ................................................18Product Lines....................................................... ............................................................

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Nbp internship-report-on-national-bank-of-pakistan-2012Document Transcript

1. NATIONAL BANK OF PAKISTAN INTERNSHIP REPORT Muhammad Farhan Javed Federal Urdu University Art Science & Technology [email protected] Javed: This Is The Approved Internship Report Of National Bank Of Pakistan.

2. P a g e |2TABLE OF CONTENTSFederal Urdu University Art Science & Technology Islamabad......................................................................................1Table of Contents............................................................................................................................................................2Objectives of Studying the Organization........................................................................................................................6Brief History of National Bank of Pakistan......................................................................................................................7Nature of National Bank of Pakistan.............................................................................................................................10Business volume of National Bank of Pakistan.............................................................................................................12Branch Network of National Bank of Pakistan..............................................................................................................16Number of Employees of National Bank of Pakistan....................................................................................................18Product Lines.................................................................................................................................................................19 1.Deposits..................................................................................................................................................................20 a)Current Deposits................................................................................................................................................20 b)PLS Saving Deposits...........................................................................................................................................21 c)Fixed Deposit Account (Time Deposits).............................................................................................................22 d)Foreign Currency Account.................................................................................................................................22 e)NBP Premium Aamdani.....................................................................................................................................23 g)National Income Daily Account (NIDA)..............................................................................................................23 2.Advances................................................................................................................................................................25 a)NBP Saibaan.......................................................................................................................................................25 b)NBP Advance Salary.....................................................................................................................................

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......26 c)NBP Cash & Gold................................................................................................................................................28 d)Students Loan Scheme.......................................................................................................................................28 e)NBP Karobar- President’s Rozgar Scheme.........................................................................................................28 3.Corporate Advances...............................................................................................................................................32 a)Cash Finance......................................................................................................................................................32 b)Running Finance/ Overdraft..............................................................................................................................32 c)Demand Finance.................................................................................................................................................32 4.Remittances...........................................................................................................................................................33 a)Demand Drafts...................................................................................................................................................33 b)Travelers Cheques..............................................................................................................................................34 c)Letter Of Credit ..................................................................................................................................................34 d)Foreign Remittances .........................................................................................................................................35 e)Swift System.......................................................................................................................................................35

3. P a g e |3 f)Mail Transfer.......................................................................................................................................................36 g)Telegraphic Transfer..........................................................................................................................................36 h)Pay Order...........................................................................................................................................................36 5.Miscellaneous........................................................................................................................................................37 a)Lockers...............................................................................................................................................................37 b)NBP Cash Card...................................................................................................................................................37 c)International Banking..................................................................................................................................

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.......38Organizational Structure of National Bank of Pakistan................................................................................................39 Board of Directors.....................................................................................................................................................40 Senior Management..................................................................................................................................................42 1.Corporate & Investment Banking Group...........................................................................................................44 2.Compliance Group.............................................................................................................................................46 3.Islamic Banking Group.......................................................................................................................................47 4.Treasury Management Group............................................................................................................................48 5.Credit Management Group................................................................................................................................50 6.Audit & Inspection Group..................................................................................................................................51 7.Human Resource Management & Administration Group.................................................................................53 8.Information technology group...........................................................................................................................54 9.Financial control Division...................................................................................................................................55 10.Overseas Coordination & Management Group...............................................................................................56 11.Commercial & Retail Banking Group ..............................................................................................................58 12.Special Assets Management Group.................................................................................................................59 13.Employee Benefits, Disbursements & Trustee Division...................................................................................59 14.Core Banking Application.................................................................................................................................61 15.Operations Group............................................................................................................................................63 Provincial & Regional Management..........................................................................................................................63 Branch Management.................................................................................................................................................64Organizational (Management) levels at NBP................................................................................................................64 Top Managers...........................................................................................................................................................65 Middle

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Managers......................................................................................................................................................65 First Line Managers or Lower Level Management....................................................................................................66 Non Managerial Employees......................................................................................................................................66Hierarchy of National Bank of Pakistan........................................................................................................................66Organization Structure of the Branch...........................................................................................................................67

4. P a g e |4 a)Centralized Decision Making..................................................................................................................................68 b)Downward Communication...................................................................................................................................69 c)Chain of Command.................................................................................................................................................69 d)Authority and Responsibility.................................................................................................................................70 e)Delegation..............................................................................................................................................................70 ...................................................................................................................................................................................70Departments of the Branch..........................................................................................................................................71 1.Clearing House Department..................................................................................................................................71 2.Remittance Department........................................................................................................................................75 3.Account Opening Department...............................................................................................................................78 4.Cash Department...................................................................................................................................................79 5.Deposits Department.............................................................................................................................................81 6.Advances Department...........................................................................................................................................81 7.Computer Department...........................................................................................................................................83 a)Online branches.................................................................................................................................................83 b)Batch Branches.................................................................................................................................

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.................83 c)Manual Branches................................................................................................................................................84 8.Pension Disbursement Department......................................................................................................................85 9.Accounts Department............................................................................................................................................86Structure of Branch’s Accounts Department................................................................................................................88Bank Accounting Operations.........................................................................................................................................92Role Of CFO (Chief Financial Officer)............................................................................................................................94Use of Electronic Data in Decision Making...................................................................................................................98 Information System Resources of NBP.....................................................................................................................99 a)People Resources...............................................................................................................................................99 b)Hardware Resources..........................................................................................................................................99 c)Software Resources..........................................................................................................................................100 d)Data Resources................................................................................................................................................100 e)Network Resources..........................................................................................................................................100Sources of Funds.........................................................................................................................................................101Generation of funds....................................................................................................................................................104Allocation of Funds.....................................................................................................................................................108Critical Analysis (Theory vs Practical) .........................................................................................................................112Balance Sheet..............................................................................................................................................................114

5. P a g e |5Income Statement.......................................................................................................................................................115Financial Statements Analysis..................................................................................................................................

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...116 Ratio Analysis..........................................................................................................................................................117 a)Profitability Ratios............................................................................................................................................117 b)Liquidity Ratios.................................................................................................................................................123 c)Debt Ratios.......................................................................................................................................................128 d)Capital Adequacy Ratios..................................................................................................................................131 e)Operating Performance Ratios........................................................................................................................132 Horizontal Analysis..................................................................................................................................................134 Horizontal Analysis of Balance Sheet......................................................................................................................136 Horizontal Analysis of Income Statement...............................................................................................................145 .................................................................................................................................................................................146 .................................................................................................................................................................................147 Vertical Analysis......................................................................................................................................................154 Vertical Analysis of Balance Sheet..........................................................................................................................155 Vertical Analysis of Income Statement...................................................................................................................164.....................................................................................................................................................................................165Bank Analysis with refernce to commercial Banks listed on stock exchange............................................................172Future prospects of National Bank of Pakistan..........................................................................................................175Short falls/ Weaknesses of National Bank of Pakistan...............................................................................................177Conclusions.................................................................................................................................................................180Recommendations......................................................................................................................................................181References...................................................................................................................................................................183

6. P a g e |6OBJECTIVES OF STUDYING THE ORGANIZATIONThe primary purpose of this study is to fulfillment of the requirements for the degree of MBA(Finance).For this connection each student of this particular course is required to undertaketraining in a relevant organization selected by them, for a period of 6-8 weeks.The secondary purpose

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of this internship is to understand how the theoretical knowledge can beapplied to the practical situations and examine an organization’s financial issues and identify itsopportunities/ problems and also suggest corrective measures. This internship is also verynecessary to gain confidence and become aware of the mechanism of an organization. As aninternee I want to achieve following objectives during my internship and organization study: 1. To familiarize with a business organization. 2. To familiarize with the different departments in the organization and their functioning. 3. To enable myself to understand how the key business process are carried out in organization. 4. To understand how information is used in an organization for decision making at various levels. 5. To relate theory with practice. 6. I was also keen to gain professional experience in an actual testing environment. 7. I want to develop my skills in the application of theory to practical work situations. 8. To develop my attitude conducive to effective interpersonal relationships. 9. To acquire good work habits and sense of responsibility. 10. To enhance my learning experience by application of fundamental concepts previously learned. 11. To observe, analyze and interpret the relevant data competently and in a useful manner.

7. P a g e |7 12. To develop my interpersonal communication. 13. I want to enhance my knowledge of the discipline of banking administration.BRIEF HISTORY OF NATIONAL BANK OF PAKISTANThe history of National Bank of Pakistan is part of Pakistan’s struggle for economicindependence. National Bank of Pakistan was established on November 9, 1949 under theNational Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions whichwere developed after trade deadlock with India and devaluation of Indian Rupee in 1949.Initially the Bank was established with the objective to extend credit to the agriculture sector.The normal procedure of establishing a banking company under the Companies Law was setaside and the Bank was established through the promulgation of an Ordinance, due to the crisissituation that had developed with regard to financing of jute trade. The Bank commenced itsoperations from November 20, 1949 at six important jute centers in the then, East Pakistan anddirected its resources in financing of jute crop. The Bank’s Karachi and Lahore offices weresubsequently opened in December 1949. The National Bank of Pakistan came forward toestablish its offices in the Cotton growing areas and extended credit facilities liberally in order torestore stability to the market. In 1951, the country was once again faced with a crisis in thecotton trade when prices was crashed and touched the lowest level since independence followingthe cessation of hostilities in Korea. The bank in collaboration with the cotton board provided thenecessary Credit facilities to the trade and the crisis was tided over. The nature ofresponsibilities of the Bank is different and unique from other banks/financial institutions. TheBank acts as the agent to the State Bank of Pakistan for handling Provincial/Federal GovernmentReceipts and Payments on their behalf. The Bank has also played an important role in financingthe country’s growing trade, which has expanded through the years as diversification took place.1The

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National Bank of Pakistan has its headquarters in Karachi, Pakistan. The bank operates1249(2008) branches in Pakistan and 22(2008) overseas branches. Under a trust Deed, the bankalso provides services as trustee to National Investment Trust (NIT) including safe custody of

8. P a g e |8securities on behalf of NIT. The National Bank of Pakistan has assets worth Rupees 737976.44million on September 30, 2008.2National Bank of Pakistan is today a progressive, efficient, and customer focused institution. Ithas developed a wide range of consumer products, to enhance business and cater to the differentsegments of society. Some schemes have been specifically designed for the low to middleincome segments of the population. These include NBP Karobar, NBP Advance Salary, NBPSaibaan, NBP Kisan Dost, and NBP Cash n Gold.The National Bank of Pakistan has implemented special credit schemes like small finance foragriculture, business and industries, administrator to Qarz-e-Hasna loans to students, selfemployment scheme for unemployed persons, public transport scheme. The Bank has expandedits range of products and services to include Shariah Compliant Islamic Banking products. Forthe promotion of literature, NBP recently initiated the Annual Awards for Excellence inLiterature. NBP will confer annual awards to the best books in Urdu and in all prominentregional languages published during the defined period. Patronage from NBP would helpcreative work in the field of literature. The Bank is also the largest sponsor of sports in Pakistan.It has provided generously to philanthropic causes whenever the need arose.It has taken various measures to facilitate overseas Pakistanis to send their remittances in aconvenient and efficient manner. In 2002 the Bank signed an agreement with Western Union forexpanding the base for documented remittances. More recently it has started Electronic HomeRemittances Project. This project introduces technology based system to handle inwardremittances efficiently, by ensuring that the Banks branches keep a track of the remittancereceived from abroad till its final receipt.A number of initiatives have been taken, in terms of institutional restructuring, changes in thefield structure, in policies and procedures, in internal control systems with special emphasis oncorporate governance, adoption of Capital Adequacy Standards under Basel II framework, in theup gradation of the IT infrastructure and developing the human resources.National Bank has earned recognition and numerous awards internationally. It has been therecipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The Banker Magazine,the Best Foreign Exchange Bank –– Pakistan for 2004, 2005, 2006 and 2007, Global Finance,

9. P a g e |9Best Emerging Market Bank from Pakistan for the year 2005, Global Finance, Kisan TimeAwards – 2005 for NBPs services in the agriculture field. It is listed amongst the Regionslargest banks and also amongst the largest banks in South Asia 2005, The Asian Banker. It hasalso been presented a Recognition Award –– 2004 for having a Gender Sensitive Managementby WEBCOP AASHA besides other awards.3 The precise summary of National Bank of Pakistan regarding its countrywide and overseasoperations

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is as fallows: • 1949 National Bank of Pakistan (NBP) was established under the National Bank of Pakistan Ordinance 1949 and was 100% govt.-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. Its first branches were in jute growing areas in East Pakistan. Offices in Karachi and Lahore followed. • 1950 NBP established a branch in Jeddah, Saudi Arabia. • The Bank in 1950 had one subsidiary ‘The Bank of Bahawalpur’ on December4, 1947 by the former Bahawalpur State • 1955 By this time NBP had branches in London and Calcutta. • 1957 NBP established a branch in Baghdad, Iraq. • 1962 NBP established a branch in Dar-es-Salaam, Tanganyika. • 1964 The Iraqi government nationalized NBPs Baghdad branch. • 1965 The Indian government seized the Calcutta branch on the outbreak of hostilities between India and Pakistan. • 1967 The Tanzanian government nationalized the Dar-Es-Salaam branch. • 1971 NBP acquired Bank of Chinas 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.

10. P a g e | 10 • 1974 The government of Pakistan nationalized NBP. As part of the concomitant consolidation of the banking sector, NBP acquired Bank of Bahawalpur (est. 1947). • 1977 NBP opened an offshore brain Cairo. • 1994 NBP amalgamated Mehran Bank (est. 1991). • 1997 NBPs branch in Ashgabat, Turkmenistan commenced operations. • 2000 NBP opened a representative office in Almaty, Kazakhstan. • 2001 State Bank of Pakistan and Bank of England agree to allow only 2 Pakistani banks to operate in the UK. NBP and United Bank agreed to merge their operations to form Pakistan International Bank, of which NBP would own 45% and United Bank 55%. • 2003 NBP received permission to open a branch in Afghanistan. • 2005 NBP closed its offshore branch in Cairo.NATURE OF NATIONAL BANK OF PAKISTANNational Bank of Pakistan was incorporated in Pakistan under the National Bank of PakistanOrdinance, 1949 and is listed on all the stock exchanges in Pakistan. The bank is engaged inproviding commercial banking and related services in Pakistan and overseas. The bank operates1,249 (2007:1,232) branches in Pakistan and 22 (2007:18) overseas branches (including theExport Processing Zone branch, Karachi). Under a Trust Deed, the bank also provides servicesas trustee to National investment Trust (NIT) including safe custody of securities on behalf ofNIT.4The nature of responsibilities of the Bank is different and unique from other banks/financialinstitutions. The bank also handles treasury transactions for the Government of Pakistan as anagent to the State Bank of Pakistan for handling provincial/Federal Government receipts andpayments on their behalf. The National Bank of Pakistan has also played an important role infinancing the country’s growing trade, which has expanded through the years as diversification

11. P a g e | 11took place. The bank is providing all banking services of mercantile and commercial bankingpermissible in the country, which include: • Accepting of deposits of

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money on current, fixed, saving, term deposit and 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, term finance and musharika certificates, etc. • Buying, selling, dealing, including entering into forward contracts of foreign exchange. • Financing of seasonal crops like cotton, wheat, rice, sugar cane, tobacco, etc. • Receiving of bonds, valuables, etc. for safe custody. • Carrying on agency business for any description other than managing agent, on behalf of clients including Government and local authorities. • Generating, undertaking, promoting, etc. of issue of shares and, bonds etc. • Transacting guarantee and indemnity business. • Undertaking and executing trusts. • Joint venturing with foreign dealers, agents and companies for its representation abroad. • Participating in “World Bank” and “Asian Development Bank’s” lines of credit. • Providing personalized Hajj services to intending Hajjis.

12. P a g e | 12BUSINESS VOLUME OF NATIONAL BANK OF PAKISTANRupees inMillionsYear 2004 2005 2006 2007 2008Total Assets 553,231,467 577,719,114 645,132,711 762,193,593 817,758,326Deposits 465,571,717 463,426,602 501,872,243 591,907,435 624,939,016Advances 220,794,075 268,838,779 316,110,406 340,677,100 412,986,865Reserves 10,813,914 13,536,041 13,879,260 15,772,124 19,941,047Investments 149,350,096 156,985,686 139,946,995 210,787,868 170,822,491 Horizontal Analysis (%)Total Assets 100 104 117 138 148Deposits 100 100 108 127 134Advances 100 122 143 154 187Reserves 100 125 128 146 184Investments 100 105 94 141 114The business volume of National Bank of Pakistan is stated in terms of total assets, deposits,advances, reserves and investments. To analyze the trend in these items the Horizontal analysisof each item is calculated.

13. P a g e | 13A NALYSISThe Total Assets of National Bank of Pakistan fluctuates during all years as they show anincreasing trend. The total assets are increased 4 % in 2005 and 17 % in 2006. The year 2007represents second highest percentage on account of total assets as it was increased to 38%. Therewas an increase of 48 % in 2008 as compare to base year and 10% as compare to 2007.A NALYSISThe deposits and other accounts of National Bank of Pakistan show a mixed trend during allyears. In the year 2005, the deposits were increased very marginally, with the year 2006represents an increase of 8%. The deposits are increased 27% & 34% in the years 2007 and 2008respectively.

14. P a g e | 14A NALYSISThe advances made by National Bank of Pakistan shows an increasing trend in all years ascompare to base year. This implies that National Bank of Pakistan is keener to advance money tolenders. The advances were increased 22 % in the year 2005 and 43 % in 2006 as compare tobase year. The year 2007 represents an increase of 54 % and 2008 represents highest percentageamong all years that is 87 % as compare to base year.A NALYSISThe Banks’ reserves are banks holdings of deposits in accounts with their central bank pluscurrency that is physically held in bank vaults (vault

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cash). The reserves of National Bank ofPakistan fluctuate during all years as they show an increasing trend. The reserves are increased25 %, 28 % & 46 % in the years 2005, 2006 & 2007 respectively. The year 2008 representshighest increasing percentage of 84% as compare to base and previous years.

15. P a g e | 15A NALYSISThe investments made by National Bank of Pakistan fluctuate during all years. There was anincrease of 5 % in 2005. The year 2006 indicates a decrease of 6% in investments. The year 2007represents an increase of 41 %, highest among all years. The investments are increased 14 % in2008 as compare to base year; however investments are decreased 27 % as compare to the year2007.

16. P a g e | 16BRANCH NETWORK OF NATIONAL BANK OF PAKISTANWith the geographical development of its branches, the National Bank of Pakistan has been ableto extend its services to a much larger number of Pakistanis all over the country. Today the Bankhas more than 8.8 million accounts & Bank maintains its presence in all the major financialcenters of the world through its 22 (2008) overseas branches and 5 representative offices. Ofthese, three representative offices have recently been set up at Tashkent (Uzbekistan), Baku(Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in CIScountries. Bank’s role Apart from having a vast branch network, Bank is at the forefront in theacquisition and application of new technologies in every aspect of its banking facilities. It hasacquired leased telephone lines for on-line banking. The Bank has 12 Regional ComputerCenters to cover various on-line and batch system requirements of branches and controllingoffices.Presently the National Bank of Pakistan is divided into various Groups headed by SEVPs/EVPs.Its field operations are controlled by 29 regions ( Annexed II) reporting to as many Regionalchiefs, who control 40 zones and 15 single Branch zones headed by Zonal Chiefs; 12 corporatebranches and 1249 domestic branches headed by Branch Managers. The bank has 12 SWIFTlocal centers.Apart from having a vast branch network, Bank is at the forefront in the acquisition andapplication of new technologies in every aspect of its banking facilities. It has acquired leasedtelephone lines for on-line banking. Bank has also a presence on the internet. The National Bank

17. P a g e | 17of Pakistan has 156 online branches throughout the country. It has modernized its services byinstalling Automated Teller Machines (ATMs) called “CASH LINK” at selected branches.The Banks organizational structure reflects the three levels at which it operates: international,national and local. The Head Office formulates and implements the strategic, management andoperational policies.The Banks geographical organization consists of branches located in the regional capitals and insome provincial capitals. The branches activities relate to the State treasury service, paymentsystem services, currency circulation, banking and financial supervision, and the analysis ofeconomic and financial developments at the local level.The Bank has representative offices abroad, in London, New York and Tokyo; a number ofofficers are seconded as financial experts to Italian

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embassies and consulates. The Bank hasrepresentative offices in Beijing, Tashkent, Chicago and Toronto. It has agency arrangementswith more than 3000 correspondent banks worldwide. Its subsidiaries are Taurus Securities Ltd,NBP Exchange Company Ltd, NBP Capital Ltd, NBP Modaraba Management Company Ltd,and CJSC Bank, Almaty, Kazakhstan. The Banks joint ventures are, United National Bank(UK), First Investment Bank and NAFA, an Asset Management Company (a joint venture withNIB Bank & Fullerton Fund Management of Singapore).5The Branch network of National Bank of Pakistan is divided into following categories • ATM network ( Total ATMs 101 & Total ATMs machines 104) • Domestic network ( 1249 Branches) • Islamic network ( 5 Branches) • Online network ( 156 Branches) • Overseas network ( 29 Branches) • Swift network ( 12 Branches) • Customer Facilitation Centers (6 Customer Facilitation Centers)

18. P a g e | 18 • Agriculture branches ( 825 Branches)NUMBER OF EMPLOYEES OF NATIONAL BANK OF PAKISTANPermanent 13237Temporary/ On Contractual basis 842Banks own staff strength at the end of the year 14079Outsourced 2350Total Staff Strength 16429An employee may be defined as: "A person in the service of another under any contract of hire,express or implied, oral or written, where the employer has the power or right to control anddirect the employee in the material details of how the work is to be performed." 6An employeecontributes labor and expertise to an endeavor. Employees perform the discrete activity ofeconomic production. Of the three factors of production, employees usually provide the labour.Specifically, an employee is any person hired by an employer to do a specific "job". In mostmodern economies, the term employee refers to a specific defined relationship between an

19. P a g e | 19individual and a corporation, which differs from those of customer, or client. The relationshipbetween National Bank of Pakistan and its employees is usually handled through the HumanResource Management & Administration Group & Employees benefit disbursement & trusteedivision. These groups handle the incorporation of new hires, and the disbursement of anybenefits which the employee may be entitled, or any grievances that employee may have.There are differing classifications of workers within National Bank of Pakistan, these are: • Permanent • Temporary / On Contractual • OutsourcedThe Employees of National Bank of Pakistan are organizing into trade unions, which representmost of the available work force in National Bank of Pakistan. These trade Unions utilize theirrepresentative power to collectively bargain with the management of bank in order to advanceconcerns and demands of their membership.PRODUCT LINESThe most precise definition of product is anything capable of satisfying needs, including tangibleitems, services and ideas. In marketing, a product is anything that can be offered to a market thatmight satisfy a want or need.7 Since 1575, the word "product" has referred to anything produced.Since 1695, the word has referred to "thing or things produced”. The economic or commercialmeaning of product was first used by political

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economist Adam Smith. In general usage, productmay refer to a single item or unit, a group of equivalent products, a grouping of goods orservices, or an industrial classification for the goods or services. The consumer banking productsinclude personal accounts, credit cards, loans, investment products, treasury products and manymore. The National Bank of Pakistan offering for sale several related products individually,which is commonly known as product lining. A product line is defined as “A group of productsthat are closely related because they function in a similar manner, are sold to the same customer

20. P a g e | 20groups, are marketed through same types of outlets, or fall within the given price ranges”. 8 Thefollowings are the main consumer banking products of NBP. 1. DEPOSITSThe National Bank of Pakistan offers to their clients a variety of Deposit Schemes withpersonalized services at competitive rates of interest. Any Pakistani citizen can open his/heraccount for any deposit scheme at any of its Branches strategically located throughout Pakistan.The Bank with its huge network of 1243 branches garners savings from both the rich and thepoor in urban as well as rural areas. Even a poor farmer in a remote village, with his meagerannual income, feels secure to safe keep his minuscule savings in National Bank of Pakistan,Because National Bank of Pakistan has a long heritage of trust and professional commitment. A) CURRENT DEPOSITSThese are payable to the customer when ever they are demanded. When a banker accepts ademand deposit, he incurs the obligation of paying all cheques etc, drawn against him to theextent of the balance in the account. Because of their nature, these deposits are treated as currentliabilities by the banks. Bankers in Pakistan do not allow nay profit on these deposits, andcustomers are required to maintain a minimum balance, failing which incidental charges arededucted from such accounts. This is because Current Deposits may be withdrawn by thedepositors at any time, and as such the bank is not entirely free to employ such deposits. 9 CurrentAccounts/ Basic Banking accounts are opened, on proper introduction and submission ofrequired documents along with initial deposit prescribed from time to time. Basic bankingaccounts are opened for an individuals (single or joint) only whereas current accounts are openedfor individuals (single or joint) Charitable institution, provident and other funds of benevolentnature of local bodies, autonomous corporations, companies, associations, educationalinstitutions, firms etc. and in all other cases where the accounts are to opened under the order ofa competent court of law. No profit is paid on the balances of current/basic banking accounts.The bank is authorized to deduct service charges (incidental charges) on current accounts leviedthrough its half yearly schedule of charges, in case the average balance falls below the minimumbalance as prescribed by the bank. No balance maintenance condition is applied on basic bankingaccount.

21. P a g e | 21 B) PLS SAVING DEPOSITSIn Pakistan a Savings Deposits Account can be opened with a very small amount of money, andthe depositor is issued a cheque book for

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withdrawals. Profit is paid at a flexible rate calculatedon six monthly basis under the Interest Free Banking System. There is no restriction on thewithdrawals from the deposit accounts but the amount of money withdraw is deleted from theamount to be taken for calculation of products for assessment of profit to be paid to the accountholder. It discourages unnecessary withdrawals from the deposits. In order to popularize thescheme the SBP has allowed the Savings Scheme for school and college students and industriallabour also. The purpose of these accounts is to inculcate the habit of savings in the constituents.As such, the initial deposits required for opening these accounts are very nominal. 10NBP chargeRs.500 for opening of PLS Savings deposits.The silent features of profit and loss sharing and saving accounts of NBP are as fallows 1. These accounts can be opened by individuals in their own single or joint name. The PLS savings account can also be opened for provident fund or other benevolent funds of companies, firms, organizations, NGO’s and educational institutions. 2. PLS saving account can be opened with a minimum amount of Rs.500/- only 3. To share in the profit a minimum balance of Rs.500/- must be maintained in the account. The minimum balance on sixth and last of month will qualify for the profits. The profits will be calculated on the basis of monthly minimum balance for the periods of six months i.e. from January to June and July to December 4. The head office of NBP determines the profit or loss on PLS saving deposits and advice its branches the rate and time of distribution of these profits. 5. There shall be no restrictions on maintaining the maximum balance in PLS saving account. 6. On the first day of Ramzan each year the Zakat at the rate of 2.5% will be deducted from these deposits on the balance of that day. But if depositors affix an affidavit of Zakat

22. P a g e | 22 deduction along with account opening form or he is a non-Muslim, no Zakat will be deducted from his account. C) FIXED DEPOSIT ACCOUNT (TIME DEPOSITS)The deposits that can be withdrawn after a specified period of time are referred to as Fixed orTerm Deposits. The period for which these deposits are kept by the bank ordinarily varies fromthree months to five years in accordance with the agreement made between the customer and thebanker. Profit/Return is paid to the depositors on all fixed or Time deposits, and the rate ofprofit/Return varies with the duration for which the amount is kept with the banker. By lendingout or investing these funds, the bank earns more than the Profit/Return that it has to pay on themto the depositors.11 By giving an advance notice to the bank the deposit can be withdraw fromthe bank before the expiry of the period. Fixed deposit accounts have higher rate of interest ascompare to other accounts. The rate of interest rises with the length of period and the amount ofdeposit. The bank grants to the depositor a fix deposit (FDR) which is not transferable to anyother person. The silent features of fixed deposit account of NBP are as fallows 1. The PLS term deposit are opened for individuals in their own single or joint names, companies firms and other organizations. 2. The PLS term deposit receipt are issued for any amount. There is minimum or maximum limit or deposits in a single term deposit account. 3. PLS term depositors may be allowed some facilities against the security of these receipt

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credits, after making “Lien” on the relevant receipt and subject to recovery of service charges. 4. Under term deposit scheme the depositors not cease to earn the profit immediately, after the respective maturity date. D) FOREIGN CURRENCY ACCOUNTGovernment of Pakistan has introduced many important reforms in Foreign Exchange Control inthe country since February, 1990, for the purpose of strengthening the Foreign ExchangeReserves. One of these reforms relates to foreign currency accounts, which can be opened inUnited States Dollars, Pound Sterling, Euro and Japanese Yen in any of the authorized branches

23. P a g e | 23of commercial banks throughout the country. 12 Foreign currency accounts are opened, on properintroduction and submission of required documents along with an initial deposit prescribed fromtime to time. Rates of return on foreign currency deposits are subject to fluctuation as determinedin accordance with State Bank of Pakistan directives and will be paid on six monthly basiswhereas the return on term deposit/SNTD will be paid on maturity or as prescribed by SBP. Thebank shall have no responsibility for or liability to the account holders for any diminution due totaxes imposed or depreciation in the value of funds credited to the account whether due todevaluation or fluctuation in the exchange rate or other wise. E) NBP PREMIUM AAMDANINBP Premium aamdani is a retail product of the bank. The amount of investment required forthis account is Rs. 20,000/-to Rs. 5,000,000.The investment period is 5 years. Zakat andwithholding tax will be deducted as per rules. In NBP premium aamdani, the account holdershave benefit of free demand draft, pay order; free cheque book and NBP cash card(ATM+Debit). The Financing facility is available up to 90% of the deposit value. 13 Profit paidevery period as follows: Period Profit Rates 1st year 7.50% 2nd years 8.50% 3rd years 9.50% 4th years 10.50% 5th years 11% f) NBP Premium SaverNBP Premium saver is a retail product of the bank. The minimum saving balance of Rs. 20,001and a maximum balance of Rs. 300,000 are required for opening a premium saver account. Twodebit withdrawals allowed in a month and no limit on number of deposit transactions. The profitis calculated monthly and Paid on half yearly basis. Free NBP Cash Card (ATM + Debit) facilityis available to account holder.14 G) NATIONAL INCOME DAILY ACCOUNT (NIDA)The scheme of National income daily account was launched in December 1995 to attractcorporate customers. It is a current account scheme and is part of the profit and loss system of

24. P a g e | 24accounts in operation throughout the country. Deposits in the NIDA accepted on the conditionthat the depositor shall always maintain a minimum balance as prescribed by the bank in hisaccount. In the event however, that any depositor wishes to withdraw the amount and the balancein his account is less than the required amount, the account will be converted to the ordinary PLSSB account for the purpose of calculating profit. An example of how the NIDA accounts aremaintained is shown on the next page.R ATES ON N ATIONAL INCOME DAILY ACCOUNT • From Rs 2/- million to Rs 50/- the rate

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is 1.4%. • From Rs50/- million but less than Rs 500/-million, the rate is 1.5%. • From Rs 500/- million but below Rs 1000/- the rate is 1.6%. • From Rs 1000/- and above the rate is 1.75%.S ALIENT F EATURES • Rs 2-million is required to open an account and there is no maximum limit. • Profit is paid on half yearly basis on monthly balances. • The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million to 2,000 million, the rate fluctuates from 1.4 to 1.75 • It is a checking account and there is no limit of withdrawals.NIDA 1 Date Description of Transaction C Debit (-) Credit (+) Balance Days Products 01/05/2008 Balance 10,000,000 10,000,000 05/05/2008 Cash 500,000 9,500,000 4 38000000

25. P a g e | 25 08/05/2008 Cash 100,000 9,600,000 3 28800000 11/05/2008 Transfer 75,000,000 84,600,000 3 253800000 15/05/2008 Cash 3,000,000 81,600,000 4 326400000 18/05/2008 Cash 78,600,000 160,200,000 3 480600000 20/05/2008 Cash 1,000,000 159,200,000 2 318400000 22/05/2008 Cash 5,000,000 164,200,000 2 328400000 23/05/2008 Cash 700,000 163,500,000 1 163500000 25/05/2008 Cash 10,000 163,510,000 2 327020000 27/05/2008 Cash 300 163,509,700 2 327019400 31/05/2008 Transfer 500,000 164,009,700 4 656038800 01/06/2008 Cash 2,100,000 161,909,700 1 161909700 06/06/2008 Transfer 36,000,000 197,909,700 5 989548500 10/06/2008 Cash 9,870,000 188,039,700 4 752158800 2. ADVANCESNational Bank of Pakistan plays a pivotal role in translating the governments development plansin terms of growth in industrial, commercial and agricultural sectors in Pakistan. Accordingly theBank has formulated its Credit Policy under the guidelines of SBP-the Central Bank of Pakistan. A) NBP SAIBAANThe NBP Saibaan is retail product of the bank. It has different product items which are homepurchase, home construction, home renovation and purchase of land plus construction. If anyonehas a Home Finance Facility outstanding with another bank he can have it transferred to NBPthrough a hassle-free process. 15 A brief description of these products is as fallows

26. P a g e | 26TYPE OF ADVANCE Financing Amount Financing Period Debt to equity RatioHome Purchase (House or Apartment) Rs. 35 Million 3 to 20 years 85:15 (maximum)Home Rs. 35 Million 3 to 20 years 85:15 (maximum)ConstructionHome Renovation Rs. 15 Million 3 to 15 years 80:20 (maximum)Purchase of land Plus Construction Rs.35 Million 3 to 20 years 80:20 (maximum) B) NBP ADVANCE SALARYThe NBP Advance salary has been the flag-ship product for NBP. NBP Advance Salary, theleading personal loan product of the country, is maintaining its inimitability ever since it waslaunched. This was only possible due to its swift growth and remarkable loan disbursement ofover 118 billion.16 You can avail up to 20 net take home salaries with easy repaymentinstallments. Its hassle free acquisition with no prior formalities and easy availability in a shortturn around time is attributed as the most distinguishing features of the product. The product isoffered countrywide. The terms and conditions of NBP Advance salary is shown on next page:T ERMS & C ONDITIONS

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Eligibility Permanent Employees of Govt., Semi-Govt., Autonomous, Semi Autonomous, Local & other bodies who are maintaining their Salary A/Cs at NBP. Repayment Direct deduction from Salary A/C Maximum Loan Rs. 490,000/- Amount Security Employer will provide undertaking that borrower’s Salary and end of service benefits will route through his/her Salary A/C maintained at NBP during the tenure of the loan and his/her end of service benefits are at least equal to the amount of Advance Salary required. Hypothecation of Consumer durables owned by the

27. P a g e | 27 borrower. Three (3) Undated ChequesMax. Repayment 5 years (60 months)PeriodAdvance in terms of # Up to 20 net take home salariesof net take homesalariesMarkup Rate 15 % (Based on diminishing balance method)Processing Fee 1% of Loan AmountVerification Charges Rs 500/-Life Insurance No Insurance of any kind.Documentation at actualChargesContact Your Salary disbursing NBP Branch.Remaining Service At the time of approval and disbursement the applicant’sAge remaining service age should be 6 months after maturity of the loanDebt Burden 50%Minimum net take no minimum take home requirementhome salary

28. P a g e | 28 C) NBP CASH & GOLDWith NBP’s Cash & Gold, the customers meet their need for ready cash against their idle goldjewelry. The rate of mark up is 13% p.a. This product has following features17 • Facility of Rs. 7,000 against each 10 grams of net contents of gold • No maximum limits of cash • Repayment after one year • Only gold ornaments acceptable • Weight and quality of gold to be determined by NBPs appointed schroffs • No penalty for early repayment D) STUDENTS LOAN SCHEMEPursuant to the announcement made by the Federal Finance Minister in his 2001-2002 budgetspeech, a Student Loan Scheme (SLS) for Education was launched by the Government ofPakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB andABL). Under the Scheme, financial assistance is provided by way of Interest Free Loans to themeritorious students who have financial constraints for pursuing their studies in Scientific,Technical and Professional education within Pakistan. The Scheme is being administered by ahigh powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents of thecommercial banks and representative of Ministry of Finance, Government of Pakistan. 18 E) NBP KAROBAR- PRESIDENT’S ROZGAR SCHEMEThe solution of Pakistan’s major socio-economic problems primarily lies in the development andgrowth of small & micro businesses. These will not only provide employment opportunities toever-growing population demand but will also become the catalyst for breaking the vicious circleof poverty. In this regard, NBP has developed a full range of Products under the President’sRozgar Scheme with a brand name of “NBP KAROBAR”. The scheme will be offered to eligible

29. P a g e | 29young and literate citizens of Pakistan, falling within an age group of 18-40 years having aminimum qualification of Matriculation (except for females in the PCO/Tele-center product).The eligible borrowers will be required to make a down

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payment of 15%. Asset and Life &Disability insurances will be mandatory under this scheme. The 15% down payment will include1st year’s asset insurance premium. However, the cost of life and disability insurance will beborne by GOP. The mark-up rate for the 1st year will be 12% and for the subsequent years it willbe 1 year KIBOR + 2%. Fifty percent (50%) of this rate will be paid by the customer i.e. 6% andthe balance of 6% will be borne by GOP. Additionally, first 10% of the losses under the schemewill be taken-up by GOP. Initially, under the President’s Rozgar scheme, NBP will offerfollowing products: a) NBP Karobar Utility Store (under a Franchise with Utility Stores Corporation) b) NBP Karobar Mobile General Store (without USC Franchise) c) NBP Karobar Transport d) NBP Karobar PCO e) NBP Karobar Tele-center A) NBP K AROBAR U TILITY S TOREThe product has been designed in collaboration with “UTILITY STORES CORPORATION OFPAKISTAN (USC)” to provide financing facility of an average amount of Rs.100, 000/- for amaximum period of five years with grace period of three months. This is available to all eligiblecitizens of Pakistan for setting-up small-scale Retail Outlet or Mobile Utility Store. The USCwill give its franchise to qualifying Pakistani citizens. Following two financing options areavailable under this product: 1. NBP KAROBAR Utility Store (Shop)The Financing facility is available to set-up a small scale Retail Outlet (Utility Store in a shop)for purchase of furniture & fixtures. This is also applicable on payment of security deposit /advance rent under franchise from the USC. However, stocks will be purchased by the customer.

30. P a g e | 30 2. NBP KAROBAR Mobile Utility StoreFinancing facility available to purchase a 2/3 wheeler, 4 stroke Petrol/CNG/LPG Vehicle (AutoScooter / Motorcycle Rickshaw) with attached Loader body (Thehla type) under franchise fromthe USC to carry utility goods for retail sale ideally in areas where accessibility to conventionalutility stores is difficult. B) NBP K AROBAR M OBILE G ENERAL S TORE ( WITHOUT USC F RANCHISE )This financing program has been designed on the similar pattern of Mobile Utility Store. Theonly difference is that the borrower will have the liberty of procuring stock/supplies/groceryitems from open market. Under this product the average loan size of Rs.100, 000/- will be givenfor a maximum period of five years with a grace period of three months. C) NBP K AROBAR T RANSPORTThe NBP Karobar Transport is designed to finance 2/3 wheeler, 4 stroke Petrol/CNG/LPGVehicle (Auto Scooter / Motorcycle Rickshaw) to the eligible citizens of Pakistan for providingless expensive environment friendly transport facility. Under this product average loan size ofRs.100, 000/- will be provided for a maximum period of five years with a grace period of threemonths. D) NBP K AROBAR PCOThis product is designed to finance setting-up a PCO. NBP will be providing financing for thepurchase of Mobile/Wireless Telephone Set with connection, Credit Balance. The averageamount of financing under this product will be Rs.5, 000/- for a maximum period of two yearswith a grace period of three months. E) NBP K AROBAR T ELE - CENTERThis product is specially designed to finance setting-up a Tele-center. NBP will be providingfinancing for the purchase of

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Mobile/Wireless Telephone Set with connection, Computer, Printerand Fax machine cum Photocopier etc. to establish tele-center on a rented shop or ownedpremises. The average amount of financing under this product will be Rs.50, 000/- for amaximum period of two years with a grace period of three months.

31. P a g e | 31

32. P a g e | 32 3. CORPORATE ADVANCES A) CASH FINANCEThis is a very common form of borrowing by commercial and industrial concerns and is madeavailable either against pledge or hypothecation of goods, produce or merchandise. In cashfinance, a borrower is allowed to borrow money from the banker up to a certain limit, either atonce or as and when required. The borrower prefers this form of lending due to the facility ofpaying markup/services charges only on the amount he actually utilizes. If the borrower does notutilize the full limit, the banker has to lose return on the un-utilized amount. In order to offsetthis loss, the banker may provide for a suitable clause in the cash finance agreement, accordingto which the borrower has to pay markup/service charges on at least on self or one quarter of theamount of cash finance limit allowed to him even when he does not utilize that amount. B) RUNNING FINANCE/ OVERDRAFTThis is the most common form of bank lending. When a borrower requires temporaryaccommodation his banker allows withdrawals on his account in excess of the balance which theborrowing customer has in credit, and an overdraft thus occurs. This accommodation is generallyallowed against collateral securities. When it is against collateral securities it is called “SecuredOverdraft” and when the borrowing customer cannot offer any collateral security except hispersonal security, the accommodation is called a “Clean Overdraft”. The borrowing customer isin an advantageous position in an overdraft, because he has to pay service charges only on thebalance outstanding against him. The main difference between a cash finance and overdraft liesin the fact that cash finance is a bank finance used for long term by commercial and industrialconcern on regular basis, while an overdraft is a temporary accommodation occasionally resortedto. C) DEMAND FINANCEWhen a customer borrows from a banker a fixed amount repayable either in periodic installmentsor in lump sum at a fixed future time, it is called a “loan”. When bankers allow loans to their

33. P a g e | 33customers against collateral securities they are called “secured loans” and when no collateralsecurity is taken they are called “clean loans”.The amount of loan is placed at the borrower’s disposal in lump sum for the period agreed upon,and the borrowing customer has to pay interest on the entire amount. Thus the borrower gets afixed amount of money for his use, while the banker feels satisfied in lending money in fixedamounts for definite short periods against a satisfactory security. 4. REMITTANCES A) DEMAND DRAFTSDrafts drawn by one branch on another branch or on the Head Office of same bank or vice versa,are not cheques or bills, as these have no distinct drawer and drawee. Section 85-A reads:“ Where any draft, that is, an order to

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pay money, drawn by one office of bank upon anotheroffice of the same bank for a sum of money payable to order on demand, purports to be issued byor on behalf of the payee, the bank is discharged by payment in due course”.Banker’s drafts payable to order on demand are within the protection of Sections 10 and 131-Aof the Negotiable Instruments Act. However, if a demand draft drawn on a bank by its ownbranch bears a forged endorsement, the person in possession of it cannot compel that bank to payit. As far as possible the banker’s draft should be crossed and it should never be drawn payableto bearer.When a person requires a draft he should be asked to complete the prescribed application form inwhich he should state the amount of the draft, the name of the payee, and the place of payment.This application form should be signed by the purchaser or by those persons who have been dulyauthorized to act on his behalf. When a customer requests his banker to provide him with abanker’s draft, the amount of which is to be debited to his account, he should enclose with hiswritten request a cheque covering the amount of the required draft and other charges etc. payableto banker.19

34. P a g e | 34The National Bank of Pakistan provides demand drafts at very reasonable rates with safety,speedy and reliable way to transfer money. Any person whether an account holder of the bank ornot, can purchase a Demand Draft form a bank. B) TRAVELERS CHEQUESThey are generally issued for the convenience of person travelling abroad, but some Pakistanibanks issue them in Pakistan currency also for use within the country as well. Before issuing, thebankers receive an amount equal to the face value of the cheques, and also charge a smallcommission. The travelers’ cheques are for fixed amount and are treated as Order chequespayable only to the purchaser whose specimen signature appears on each traveler’s cheque itself.Foreign currency travelers cheques are issued and encashed in accordance with the provisions ofthe Exchange Control Regulation Act, 1947. While making payment, the paying banker mustinsist that the holder signs in his presence.20The National Bank of Pakistan provides their services for traveler’s cheque at very reasonableand competitive rates. It has following features Negotiability Pak Rupees Traveler’s 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 Traveler’s Cheques are the safest way to carry our money C) LETTER OF CREDITLetters of credit are very useful instruments in facilitating commercial relations betweenbusinessmen at various places. Letter of credit state the limit of the credit and the time duringwhich it is held at the disposal of the grantee, but they are neither negotiable nor transferable.Letter of credit may be revocable. There are many kinds of letter of credit such as Revolvingcredit, Back to Back credit, Claused credit etc. 21 NBP is committed to offering its businesscustomers the widest range of options in the area of money transfer. If you are a commercial

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35. P a g e | 35enterprise then our Letter of Credit service is just what you are looking for. With competitiverates, security, and ease of transaction, NBP Letters of Credit are the best way to do yourbusiness transactions. D) FOREIGN REMITTANCESTo facilitate its customers in the area of Home Remittances, National Bank of Pakistan has takena 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.The new features of NBP foreign remittances include: • 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 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. E) SWIFT SYSTEMThe SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has beenintroduced for speedy services in the area of home remittances. The system has built-in featuresof computerized test keys, which eliminates the manual application of tests that often cause delayin the payment of home remittances. The SWIFT Center is operational at National Bank of

36. P a g e | 36Pakistan with a universal access number NBP-PKKA. All NBP overseas branches and overseascorrespondents (over 450) are drawing remittances through SWIFT. Using the NBP network ofbranches, we can safely and speedily transfer money for our business and personal needs. F) MAIL TRANSFERA Mail Transfer is a form of remittance in which the amount remitted by a customer or a non-customer is directly credited to the account of the beneficiary with another branch. Move yourmoney safely and quickly using NBP Mail Transfer service. And NBP also offer the mostcompetitive rates in the market. They charges Rs 50/- exchange rate and RS 75/- postage chargeson issuing mail transfer. When the money is not required immediately, the remittances can alsobe made by mail transfer (MT). Here the selling office of the bank sends instructions in writingby mail to the paying bank for the payment of a specified amount of money. Debiting to thebuyer’s account at the selling office and crediting to the recipient’s account at the paying bankmake the payment under this transfer. NBP taxes mail charges from the applicant where noexcise duty is charged. Postage charges on mail transfer are actual minimum Rs. 40/- if sent byregistered post locally Rs.40/- if sent by registered post inland on party’s request. G) TELEGRAPHIC TRANSFERTelegraphic Transfer is a form of remittance, which is advised by telegram, telex or faxmachines. The fundamental principles of such transfer are otherwise identical with the MailTransfer. It is the message, which is sent from one branch to another on the order of payer topayee through wire. It is one of the quickest means to transfer fund through the use oftelex/fax/internet or cable. Payment to the beneficiary is affected directly by the drawee officeupon

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identification or through credit into beneficiary’s bank account. As such remitting office isnot required to issue any instrument payment to the remitter for delivery to the beneficiary. H) PAY ORDERNBP provides another reason to transfer your money using our facilities. NBP pay orders are asecure and easy way to move your money from one place to another. And, as usual, NBPcharges for this service are extremely competitive. The charges of NBP are very low all over thePakistan. It charges Rs 50/- for NBP account holders on issuing one payment order, and chargesRs 100/- for NBP non-account holders on issuing one payment order. It charges Rs 25/- for

37. P a g e | 37students on payment of fees of educational institutions. If some one want a duplicate of paymentorder they charges Rs 100/- for NBP account holders and Rs 150/- for non account holders. 5. MISCELLANEOUS A) LOCKERSNational of Pakistan also provides lockers facility in the country. The lockers issued only to thedepositors. No lockers are issued to any unknown person. The dual control system is used forlockers. The officer has master key to apply on the locker but he cannot open the locker of anyperson. The locker holder provides the bank has specimen signature. Whenever the lockerholders come to open the locker, his signatures are verified by the officer and then will be able toopen his locker. If the key of the locker is lost company providing these lockers breaks the lockerand new lock is fitted in its locker and lock is destroyed in the presence of the locker holder andbank charges RS 1200 for that. In case the locker holder dies, the court opens his locker in thepresence of his heir as mentioned in his will or and his belongings are given to them and thelocker is closed. B) NBP CASH CARDNBP Cash Card is a 24-hour direct access ATM/Debit card to your bank account, which lets youpay directly from your account as an alternative payment method to cash. The transaction isauthorized and processed by entering PIN. The NBP Cash Card holders are able to transact atany of the 4000 + Merchants where Orix logo is displayed and can withdraw cash from NBP, 1-Link & M-NET ATM’s across the country. The followings are the main features of this product: • You wont need to carry a lot of cash with you every time you go out. • Secure and Safe transaction.

38. P a g e | 38 • Account Information on tips (like: Mini Statement, Balance Inquiry, Utility Bill Payment etc.) • Enable To Withdraw Cash From 1-Link ATMs / MNET ATMs. • Enable to Make Purchases from Around 4000 POS (Merchants) Countrywide including 2500+ POS in Karachi. • No Card Issuance Fee for first 12 Months C ) INTERNATIONAL BANKINGNational Bank of Pakistan is at the forefront of international banking in Pakistan which is provenby the fact that NBP has its branches in all of the major financial capitals of the world.Additionally, the Bank has recently set up the Financial Institution Wing, which is placed underthe 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

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contributing to the banks profitability • Generation of incremental trade-finance business and revenues

39. P a g e | 39ORGANIZATIONAL STRUCTURE OF NATIONAL BANK OF PAKISTANA well-developed and properly coordinate structure is an important requirement for the successof any organization. It provides the basic framework within which functions and procedures areperformed. Any organization needs a structure, which provides a framework for successfuloperations. The operation of an organization involves a number of activities, which are related todecision making, and communication of these decisions. These activities must be wellcoordinated so that the goals of the organization are achieved successfully.The Organization Structure (Annexed I) shows the internal operations and reporting lines of theNational Bank of Pakistan. The bank has clearly defined organizational structure, which supportsclear lines of communications and reporting relationships. There exists a properly definedfinancial and administrative power of various committees and key management personnel, whichsupports delegations of authority and accountability. The internal operations of the Bank are organized into 15 main departments and divisionsheaded by senior management of the bank and are report directly to the Board of Directors. Theorganizational structure of National Bank of Pakistan is centralized because all the decisions ofthe bank are taken by the top Management. The National Bank of Pakistan’s Departmental keyroles and functions are as follows:

40. P a g e | 40BOARD OF DIRECTORSPursuant to Section 11 of The Banks’ (Nationalization) Act, 1974, the number of Directors ofthe Bank shall not be less than 5 and not more than 7, excluding the President. The FederalGovernment may, if deems necessary, appoint a Chairman of the Board in respect of the Bank.At present National Bank of Pakistan’s Board of Directors consist of 6 Directors and a Presidentwho is the Chief Executive of the Bank and presides over the meetings of the Board. Theresponsibilities of Directors include the followings:22 1. The Board of Directors shall assume its role independent of the influence of the Management and should know its responsibilities and powers in clear terms. it should be ensured that the Board of Directors focus on policy making and general direction, oversight and supervision of the affairs and business of the Bank and does not play any role in the day-to-day operations, as that is the role of the Management. 2. The Board shall approve and monitor the objectives, strategies and overall business plans of the institution and shall oversee that the affairs of the institution are carried out prudently within the framework of existing laws & regulations and high business ethics. 3. All the members of the Board should undertake and fulfill their duties & responsibilities keeping in view their legal obligations under all the applicable laws and regulations. 4. The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policy-making powers to the Management and shall ensure that the

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Management is in the hands of qualified personnel. 5. The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury & Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting & Disclosure, and any other operational area which the Board may deem appropriate from time to time. The Board shall also be responsible to review and update policies periodically and whenever circumstances justify. 6. As regards Internal Audit or Internal Control, a separate department shall be created which shall be manned preferably by professionals responsible to conduct audit of the Bank, Various Divisions, Offices, and Units Branches etc. The Head of this department will report directly to the BOD or Board Committee on Internal Audit.

41. P a g e | 417. The business conditions and markets are ever changing and so are their requirements. The Board, therefore, is required to ensure existence of an effective ‘Management Information system’ to remain fully informed of the activities, operating performance and financial condition of the institution, the environment in which it operates, the various risks it is exposed to and to evaluate performance of the Management at regular intervals.8. The Board should meet frequently (preferably on monthly basis, but in any event, not less than once every quarter) and the individual directors of an institution should attend at least half of the meetings held in a financial year. The Board should ensure that it receives sufficient information from Management on the agenda items well in advance of each meeting to enable it to effectively participate in and contribute to each meeting.9. The Board should carry out its responsibilities in such a way that the external auditors and supervisors can see and form judgment on the quality of Board’s work and its contributions through proper and detailed minutes of the deliberations held and decisions taken during the Board meetings.10. To share the load of activities, the Board may form specialized committees with well- defined objectives, authorities and tenure. These committees, preferably comprising of ‘Non- Executive’ Board members, shall oversee areas like audit, risk management, credit, recruitment, compensation etc. these committees of the Board should neither indulge in day-to-day affairs/operations of the bank and enjoy any credit approval authority for transaction/limits. These committees should apprise the Board of their activities and achievements on regular basis.11. The Board should ensure that it receives management letter from the external auditors without delay. It should also be ensured that appropriate action is taken in consultation with the Audit Committee of the Board to deal with control or other weaknesses identified in the management letter. A copy of that letter should be submitted to the State Bank of Pakistan so that it can monitor follow-up actions. The Following table mentioned the names & designation of Board of Directors of National Bank of Pakistan:

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42. P a g e | 42 Name Designation Syed Ali Raza Chairman & President Mr. Sikandar Hayat Jamali Director Mian Kausar Hameed Director Mr. Ibrar A. Mumtaz Director Mr. Tariq Kirmani Director Mr. Muhammad Arshad Chaudhry Director Mr. Mohammad Ayub Khan Tarin Director Mr. Ekhlaq Secretary Board of Ahmed DirectorsSENIOR MANAGEMENTThe senior management of National Bank of Pakistan is consists of Group chiefs, who reportdirectly to the Directors of Bank. The whole functions of National Bank of Pakistan areperformed under these Groups. The National Bank of Pakistan has following groups anddivisions: • Corporate and investment Banking Group • Operations Group • Credit Management Group • Audit & Inspection Group • Compliance Group • HRM & Administration Group • Commercial & Retail Banking Group • Treasury Management Group

43. P a g e | 43• Special Assets Management Group• Employees benefit & Disbursements Group• Overseas & Coordination Group• Islamic Banking• Core Banking Application, PMO• Financial Control Division• Information Technology Group

44. P a g e | 44Name Group Name & DesignationMasood Karim Shaikh SEVP & Group Chief, Corporate & Investment Banking GroupShahid Anwar Khan SEVP & Group Chief, Credit Management GroupDr. Asif A. Brohi SEVP & Group Chief, Operations GroupImam Bakhsh Baloch SEVP & Group Chief, Audit & Inspection GroupZiaullah Khan SEVP & Group Chief, Compliance GroupDr. Mirza Abrar Baig SEVP & Group Chief, Human Resources Management & Administration GroupAmer Siddiqui SEVP & Group Chief, Commercial & Retail Banking GroupMuhammad NusratVohra SEVP & Group Chief, Treasury Management GroupAmim Akhtar EVP & PSO to the PresidentEkhlaq Ahmed EVP & Secretary Board of DirectorsTajammal Hussain Bokharee EVP/Divisional Head, Special Assets Management GroupMrs. Khurshid Maqsood Ali EVP & Divisional Head Employee Benefits, Disbursements & Trustee DivisionTahir Yaqoob EVP & Group Chief, Overseas Coordination & Management GroupAnwar Ahmed Meenai EVP & Divisional Head, Islamic BankingNaeemSyed EVP & Head, Core Banking Application, PMOAamir Financial Controller & Divisional Head, Financial ControlSattar DivisionAtif Hassan Khan Group Chief (A), Information Technology Group 1. CORPORATE & INVESTMENT BANKING GROUP The corporate & investment banking group is headed by Mr. Masood Karim Shaikh. This group performs its function through its following two units: • Corporate Banking • Investment Banking The corporate and investment banking will continue to play a major role in loan syndications, structured financing and debt / capital raising transactions with the objective of providing entire range of corporate and investment banking solutions to its valued clients under one umbrella. The Corporate Banking Group achieved excellent results in 2007 with a number of landmark transactions in cement, energy, communication and fertilizer sectors. In addition to the funded income, our corporate and

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investment banking has substantially increased its fee base income this year by being the lead advisor in a number of transactions in the corporate world of Pakistan

45. P a g e | 45The challenges to corporate business in year 2007 were manifold including reduction in PrivateCredit Investment as a result of slowing down of economy as well as rising interest rates. Theincreasing pressure on the textile industry reduced the lending to this sector. In addition thebanks corporate loans yields also faced pressure as substitute form of funding sources areavailable in the market in form of Islamic financing, mutual funds, issuance of debt instrumentslike TFCs and Bonds and the Capital markets.Despite these threats and challenges at NBP, our corporate team not only increased the volumeas well as the yield of the loans they also maintained a strong franchise with the leadingPakistani corporate so as to ensure that NBP not only maintains its market share but is in aposition to meet any challenges in future. NBP during the year also participated in a number ofTFC issues and mutual funds subscriptions thereby increasing the overall yield on investmentportfolio.NBP has the largest equity portfolio in the banking sector primarily due to 27% holding in NITunits, the largest mutual fund in Pakistan. During the year 2008 the bank redeemed 10% of itsNIT holding covered under LoC, which resulted in capital gain of Rs. 1.8 billion in 2008. The National Bank of Pakistan has initiated a structured approach to corporate banking byintroducing a single point of contact through Relationship Managers. For this purpose, newRelationship Managers as well as team leaders has been inducted to expedite this process. TheArea Managers of National Bank of Pakistan are appointed to manage relationships and to betterservice the needs of multinationals and large local corporate. An investment banking team hasalso been formed by National Bank of Pakistan to offer specialized services to majorrelationships including advisory and debt syndications. The National Bank o Pakistan havespecial focus on Corporate Banking with a presence in all major locations through out thecountry, offering full range of Banking products / services and one window interface throughdesignated Relationship Managers. Corporate Banking offers tailor made products / solutions asrequired by corporate customers which includes:The key features of corporate Banking includes: • Funded facilities, ranging from short to medium and long term lending

46. P a g e | 46 • Trade related financing. • Foreign currency financing. • All sorts of non-funded facilities / services which include Cash receipts / payments, Remittances, Collections, guarantees, letter of credit etc. • Customized products / solutions 2. COMPLIANCE GROUPThe Compliance Group of National Bank of Pakistan is headed by Mr. Ziaullah Khan and isreport directly to the President/ Chief executive of NBP. In order to keep the working of AuditDepartment aligned with the best international practices Compliance Group’ has been created.This group is responsible for monitoring compliance of various administrative / operativeinstructions, rules, and regulations by constantly reviewing and reporting status of complianceand non-compliance. The

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Compliance Group of NBP is set to ensure that all relevant laws arecomplied with, in letter and spirit, and, thus, minimize legal and regulatory risks. TheCompliance officers will primarily be responsible for Bank’s effective compliance relating to: • Relevant provisions of existing laws and regulations. • Guidelines for KYC. • Anti money laundering laws and regulations. • Timely submission of accurate data / returns to regulator and other agencies. • Monitor and report suspicious transactions to President / Chief Executive Officer of the bank and other related agencies. • The Compliance Officers will serve as a contact point between President /Chief executive officers and senior management, with regard to functioning of compliance program provide assistance in this area to branches and other departments of the bank, and act as liaison with State Bank of Pakistan concerning the issues related to compliance.The functions of compliance group of National Bank of Pakistan are as fallows: • Study and emphasize compliance of best international practices in audit of various functions of NBP. • Monitor compliance of Administrative/Operational Instructions, Rules, Regulations issued from time to time by the Management.

47. P a g e | 47 • Review over the compliance carried out by the audit departments. • Prepare and put up a consolidated Report to the Directors of National Bank of Pakistan regarding the status of compliance and non-compliance of the recommendations agreed by the Departmental Management. 3. ISLAMIC BANKING GROUPThe divisional head of Islamic Banking group is Mr. Anwar Ahmed Meenai. Islamic Banking isone of the emerging field in global financial market, having tremendous potential and growing ata very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking inPakistan has also been commendable during the last Five years. The year 2007 marked the firstyear of Islamic Banking operations. During the year under review, in addition to activeparticipation in various Sukuk transactions, two more Islamic Banking branches at Lahore andPeshawar started operations. NBPs plans for the year 2008 include opening of Faisalabad andRawalpindi branches with the focus on growing organically by opening more standalone IslamicBanking branches, utilizing NBPs existing branch network of 1,200 plus conventional branchesand looking into strategic acquisitions for expansion in this field. The products & services beingoffered by National Bank of Pakistan’s Islamic Banking are fully Shariah Compliant and havebeen certified by NBP’s Shariah Advisor. Deposit Schemes being offered by NBP’s IslamicBanking Branches include the following: a) Current Deposit Scheme b) Profit & Loss Sharing (PLS) Deposit SchemeCommercial and Corporate customers requiring financing will have the following financingfacilities available to them to meet their requirements: a) Murabaha b) Murabaha Facility c) Ijarah (Leasing)In addition to Shariah acceptable standard general banking services, following services are alsobeing offered at the Islamic Banking Branches: • Letter of Credit Facility • Handling of Remittances • Issuance of Bank Drafts and Pay Orders.

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48. P a g e | 48 • Collection of Export Bills. • Collection of Local Bills. • Government Collections • Utility Bills Collection 4. TREASURY MANAGEMENT GROUPThe group chief of Treasury management group of National Bank of Pakistan is Mr. MuhammadNusrat Vohra. The NBP treasury and capital market group has developed a reputation of beingthe market leader in coming up with customized solutions for a large and varied client base thatis spread virtually all across the country. The client base does not consist of only blue chips onesbut encompasses public sector clients, retail sector, multinationals, local conglomerates as wellas individuals.National bank treasury is currently regarded as a market leader in both foreign exchange andrupee denominated products because of its emphasis on service quality. The Treasurymanagement group of National Bank of Pakistan’s offer:23 • Narrowest bid / offer spread and quickest on line quotes • Customized solutions to minimize risk and optimize returns as per the needs and circumstances of the clients • Focus on building sustained and long term relationship with institutional, corporate and retail clients. • Local presence across the nation as well as internationally.Currently the National Bank of Pakistan offer following Treasury Products:24 A) P LAIN V ANILLA FX P RODUCTSNBP Treasury Management Group is a market price maker and trend setter in the plain vanillaForeign Exchange products. Its ability to offer tight prices, coupled with timely and accurateresearch making it a bank of choice for clients seeking to favorably position their currency riskAs a result, National bank has one of the largest FX book in the country. B) P AKISTAN I NVESTMENT B ONDS

49. P a g e | 49Pakistan Investment Bonds issued by Government of Pakistan are a preferred means for amajority of institutional investors to invest their surplus funds for a longer time horizon. Thisway they are able to lock a higher yield for a relatively long term rather than take the risk of re-pricing after relatively shorter time periods. Furthermore, PIBs are highly secured and risk freeas they are guaranteed by the government of Pakistan.NBP is the leading Primary Dealer for PIBs primarily because of its inventory size and theappetite for such a long-term instrument given its deposit base. While most foreign / privatebanks would have to go to the secondary market in order to satisfy a large order from aninstitutional investor, NBP can execute such large orders through its own book. This means thatit can offer tight prices for large amounts even under volatile market conditions. C) D ERIVATIVES P RODUCTSNBP treasury Management group has been at the forefront in developing the derivatives marketin Pakistan and has contributed both individually and from the FMA (Financial MarketAssociation) front as well. The first ever Derivative transaction of the Pakistani banking sectorwas done by NBP. Some of the more common derivative structures being offered include: 1) C URRENCY O PTIONSAn option gives the buyer the right but not the obligation to buy or sell an asset at a pre-specifieddate and price. So the upside profit potential is unlimited whereas the downside loss is protectedat a pre determined level. Various structures of currency options are available including • Knock-ins / Knock outs • Participating Forwards 2) I

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NTEREST R ATE S WAPS AND FRA SA client can convert a fix rate loan into floating rate one or vice versa by using these derivativeinstruments. This allows the clients to develop and implement their views about the evolvinginterest rate scenario. For example, if the borrower feels that the interest rate might go up in the

50. P a g e | 50future, than he may choose to enter into a Pay Fixed – Received Floating swap with its bank toeffectively hedge its floating rate loans. 3) C ROSS C URRENCY S WAPSThis product allows a client to convert its rupee based loans into a dollar based loan. The client’sexposure is shifted from PKR KIBOR to USD LIBOR.The functions of Treasury management group include: • The Management of National Bank of Pakistan’s holdings in and trading in government and corporate bonds, currencies, financial futures, options and derivatives, payment systems and the associated financial risk management. • The management of cash flows, banking, money-market and capital-market transactions; the effective control of the risks associated with those activities; and the pursuit of optimum performance consistent with those risks. • Presentations of information on which treasury-management decisions are to be taken reflect the principles of trustworthiness, honesty, truthfulness and objectivity. • Employing National Bank of Pakistan’s treasury-management policies and practices accurately reflect the legal and regulatory regimes under which the Bank operates. • Review of National Bank of Pakistan’s treasury-management policies and practices on a regular basis with a view to identifying ways of minimizing the risks of losses through improved checks and safeguards and through clarity and segregation of responsibilities and dealing procedure. 5. CREDIT MANAGEMENT GROUPThe group chief of Credit Management Group is Mr. Shahid Anwar Khan. This group usuallydeals with Bank’s allocations of payments or cash application, internal fund movements,reconciliations and also maintaining positive working relationships with customer during thedebt collection or credit review and approval process, screening of customers and only those whois credit worthy are allowed to do business. The divisions of this group are distributed accordingto different areas which are: 1) NWFP Azad Kashmir Sind & Balochistan area wing 2) Karachi area wing 3) Special Credit Cell & Punjab area Wing

51. P a g e | 51The functions of this department include: • Enforcing the State Policies, financial regulations, and credit rules of the bank • Framing credit policies and regulations; supervising the staff to execute orders • Putting forward the proposal of credit management and development; guiding and supervising the branch-banks to deal with credit business • Managing the authorized business; dealing with the legal affairs consulted and coordinated • Establishing development rules on credit; dealing with the acceptance draft; estimating the loaning accounts • Responsible for reporting the credit statistic statement • Responsible for training client managers • Responsible for dealing with other work according to the directors of the bank • Responsible for the credit-registered consulting system; regulating the five-graded loans 6. AUDIT &

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INSPECTION GROUPThe group chief of National Bank of Pakistan’s Audit & inspection group is Mr. Imam BakhshBaloch. It is one of the core departments at NBP. Its mission is to strive for soundness & stabilityof the financial system and safeguard interest of stakeholders through proactive inspection,compatible with best international practices. This group plays a vital role in meeting NBP’s mainresponsibility of supervising the bank’s soundness of the system and protection of the interest ofdepositors, thereby ensuring public confidence in the system. In order to assess the branches,Audit & inspection group conducts regular audit & inspection of branches. Banks managementhas established and is managing an adequate and effective system of internal control whichencompasses the policies, procedures, processes and tasks as approved by the Board of Directorsthat facilitate effective and efficient operations. The management and the employees at all levelswithin the Bank are required to perform as per these approved Internal Control Systemcomponents. The Internal Control System ensures quality of external and internal reporting,maintenance of proper records and processes, compliance with applicable laws and regulationsand internal policies with respect to conduct of business. The management ensures that anefficient and effective Internal Control System is in place by identifying control objectives,reviewing existing procedures and policies and ensuing that control procedure and policies are

52. P a g e | 52amended for time to time wherever required. However, Internal Control System is designed tomanage rather than eliminate the risk of failure to achieve objectives and provide reasonable butnot absolute assurance against material misstatement or loss.25 The audit system of NationalBank of Pakistan consists of following: a) Internal Audit b) External Audit c) Statutory Audit A ) I NTERNAL A UDITThe Bank has an independent Internal Audit Group that conducts audit of all Branches, Regionsand Groups at Head Office on an on-going basis to evaluate the efficiency and effectiveness ofInternal Control System. In addition to that, Compliance Group is also in place with independentCompliance Officer in 119 Branches and 29 Regional Compliance Chiefs with supporting staffto take care of compliance related issues to strengthen the control environment.26For the purpose of inspection the National Bank of Pakistan inspects its branches throughinspectors. Inspections are conducted on regular basis in the branches. The current chairmen ofaudit committee of NBP are Azam Faruque, Ibrar. A. Mumtaz & Mian Kausar Hameed. TheState Bank of Pakistan conducts the regular full scope examination of banks pursuant to aninspection schedule; however, flexibility exists in policy for frequency of inspections dependingupon the need to maintain safety & soundness. The CAMELS (Capital, Asset Quality,Management, Earnings, Liquidity, Sensitivity and System & Controls) rating is a criteria todetermine the frequency of inspection of banks as weak institutions are given greater attention.Special investigations (targeted inspections) are also conducted as and when circumstances sowarrant on the basis of complaints or market reports about specific institution. B) E XTERNAL A UDITThe Board of Directors on the recommendations of

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Audit Committee has also recommendedname of Messer’s Ford Rhodes Sidat Hyder, Chartered Accountants and Yousaf Adil Saleem &Co. as auditors of National Bank of Pakistan. C) S TATUTORY A UDIT

53. P a g e | 53The statutory audit of National Bank of Pakistan is conducted to meet the particular requirementsof State Bank of Pakistan. The scope and audit programs are set by the State Bank of Pakistan.The National Bank of Pakistan has to pay a penalty of Rs.20000 for each mistake in the Booksand procedures as prescribed by the law plus surcharge of per day from the date of mistake to thedate of statutory audit.The functions of Audit & inspection group of National Bank of Pakistan are as fallows: • Examine and evaluate adequacy and effectiveness of the internal control systems in the Bank. • Review the applications and effectiveness of risk management procedures and risk assessment methodologies in financial, operational and Corporate Governance aspects of the Bank’s activities. • Review financial, automation technology and MIS. • Review and ensure accuracy and reliability of accounting records and financial reports. • Perform testing of both transactions and functioning of specific internal control procedures. • Evaluate and ensure that approved policies and procedures meet legal and regulatory requirements. • Examine and evaluate effectiveness of existing policies, procedures and give recommendations for improvements. • Identify opportunities for cost savings in Bank operations and make recommendations. • Examining those resources are acquired economically, used efficiently and safeguarded adequately. • Review various reports of Bank’s subsidiaries, recommend improvements and provide policy guideline 7. HUMAN RESOURCE MANAGEMENT & ADMINISTRATION GROUPThe group chief of Human resource management & administration group is Mr. Dr. Mirza AbrarBaig. This Division is responsible for fresh induction of employees and other professionalsthrough a rigorous induction process in order to ensure presence of quality professionals.Following units and areas of work are the part of this division. This group is responsible to

54. P a g e | 54develop annual manpower plan for National Bank of Pakistan, conduct job analysis, prepare jobdescriptions, and conduct job evaluation process. The other functions of this group includeattracting, selecting and recruiting the right people from the market. The group firmly works onadopting latest organizational theories & change management processes to bring in efficiency.This group also performs following functions: • Deals from placing job advertisements to timely recruitment of competent personnel by using modern selection techniques. • Systematically observes & measures employee’s/candidate’s performance for the purpose of recruitment, selection and promotions. • Facilitates in establishing successful productive working relationships through effectively orienting new employees to their respective departments/divisions and to their positions. • Encourages employees to seek promotion/transfers to fill internal openings and meet employees’ personal objectives. • Foster a culture of acknowledgement and appreciation amongst employees for introducing innovative

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business practices, showing extra ordinary efforts for achievement of goals and enhancing Bank’s corporate image uses various methods of recognition ranging from simple “Thank you” letters to elaborate celebrations and monetary rewards. • Conducting motivation surveys and developing market based employee satisfaction & retention strategies. • Conduction of evaluation of positions and grades to ascertain employees’ position in the grade structure. • This Group supervises all the staff colleges, at Karachi, Islamabad, Lahore and Peshawar. 8. INFORMATION TECHNOLOGY GROUPThe group chief of Information technology group is Mr. Atif Hassan Khan. This group is formedto implement latest technology to keep National Bank of Pakistan online with the domestic andinternational financial industry, and other stakeholders in order to promote efficiency andstability in the financial market. The group’s objective is to provide appropriate technicalsolutions to business requirements and develop state of the art integrated system that willfacilitate internal and external stakeholders to acquire accurate information in the most effectivemanner. The National Bank of Pakistan with its capabilities, methodologies and experience aims

55. P a g e | 55at technological advancement in bank, focusing on solutions that intend to reduce operatingcosts, improves end user performance, and meet overall business goal.The group provides services and solutions to improve and strengthen NBP’s technology portfolioand identify future requirements. Besides providing these useful resources, IT group focuses onsafeguarding the information assets and relevant systems, critical to NBP, through its Securityplans and policies. The information technology group has following divisions: • In-house Development • Software development • Web development • Central Server • System Admin – UNIX • System Admin – Windows • Customer Support • Database Management • Network Management • Production Support • Administration • Director Section 9. FINANCIAL CONTROL DIVISIONThis division is headed by Mr. Atif Hassan Khan, who is also financial controller of NationalBank of Pakistan. The financial control division is responsible to perform and manage followingfunctions: • Maintenance of books of accounts and preparation of financial statements of the Bank in accordance with the IAS, as adopted by the Bank. • Coordination and facilitation for Business planning and budgeting function in the Bank and periodic reporting to the management and to the Board. • Preparation of Annual Financial Statements Accounting Policies for the bank. • Quarterly profit updates to the Board of Directors. • Consolidation of Departmental Budgets.

56. P a g e | 56 • Maintenance of Federal & Provincial Government Account on the basis of receipt and payments. • Monthly Abstract, Daily Reserves and Weekly review reporting. • Short/Medium term investment and Swap deposits and maintenance of Foreign Currency accounts and revaluation of Foreign Currency Assets & Liabilities. • Making of payments to external suppliers and employees of the Bank after independent verification of transaction documents on the basis of bills/ invoices/claims approved by the

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processing units. • Checking and verifying the selected financial transactions to ensure accuracy and compliance to respective rules and regulations. • Assets capitalization, assets transfers and overall responsibility to manage and maintain assets physical inventory, keeping track of physical location of assets. • To ensure the smooth and unhampered running of the Fixed Assets Management function. • To record all the expenses regarding repair/ maintenance and rent taxes for NBP buildings and equipments. • To deal with various administrative matters arising in the Finance Department. • To respond to various queries rose from various internal and external sources. 10. OVERSEAS COORDINATION & MANAGEMENT GROUPThe group chief of NBP’s overseas coordination & management group is Mr. Tahir Yaqoob.This department is in charge of the management and operation of foreign exchange businessincluding marketing and operating of the financial products and trade financing of foreignexchange in the light of National foreign exchange management policy, and is the governingdepartment of foreign exchange. The functions of this group are as follows: • Establishing marketing strategy, policy and management system of foreign exchange. • Making annual operating and working plan. • Selecting and opening overseas account under supervision, and establishing and harmonizing the business among agent banks. • Corresponding and dealing with foreign exchange business among branches.

57. P a g e | 57• Showing business requirement of costumers and development of new products; publicizing foreign exchange business; training managers of customer-service for foreign exchange business.• Managing and operating foreign fund of the whole bank.• Making deposit and loan rate of each wholesale foreign exchange according to management and market situation of deposit and loan rate of foreign exchange• Focusing on direct marketing of VIP customers and overall plans to put all resources together so as to provide one-stop service.• Examining and approving international business financing(import & export bill purchase, foreign exchange bill discount, acceptance, documentary credit, stand-by L/C, international non-financing guarantee and so on) .• Auditing foreign exchange business.• Management and operation of researching credit, and consult and testimony business.• Managing turnover position of exchange settlement and sales.• Declaring international balance, register foreign loans and manage foreign exchange account.• Supervising wholesale foreign exchange deposit and payment to defend money laundering and bank swindle.• Managing and operating SWIFT system and foreign exchange system.• Organizing international business research and statistic; establishing and improving foreign exchange files; making accounting report forms and business report forms.• Regularly examining the executive results of all system of foreign exchange and renovate all the problems.• Contacting and corresponding with National foreign trade department, customs, industry governing department and foreign exchange department.• Examining and approving the branches launching foreign exchange business, applying for new foreign business category to the People’s Bank of China according to current foreign exchange policy.

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58. P a g e | 58 The National Bank of Pakistan is shifting focusing on expanding its market share in tradefinance, home remittance and foreign investments. The Bank is setting high-speed satellite linkalong with the extension of S.W.IF.T service to large domestic and international branches. 11. COMMERCIAL & RETAIL BANKING GROUPThe group chief of National Bank of Pakistan’s commercial & retail Banking group is Mr. AmerSiddiqui. Retail banking includes retail lending and deposits, banking services, trust and estates,private lending and deposits, banking service, trust and estates investment advice, merchant /commercial / corporate cards and private labels and retail. 27 Commercial banking includesproject finance, real estate, export finance, trade finance, factoring, lending, guarantees, bills ofexchange and deposits.This group is responsible for serving the needs of the retail and commercial market, focusing onindividual consumers and small and medium size enterprises. This group is responsible fordeveloping and managing brands which serve the investment needs of the consumer market, andfocuses on deposit mobilization, provision of value added services based on modern technologyand undertaking the centralized marketing and advertising for the Bank. This group is engaged inthe development and management of retail credit schemes. The consumer market in Pakistan hasnot only grows exponentially over the last decade or so, but the needs of this segment havebecome extremely diverse. In order to sustain competition, it is but imperative to continueoffering innovative consumer credit schemes.The National Bank of Pakistan plan to establish commercial centers across the country looking atthe business potential in the area, size of the branch and its capabilities to deliver the desiredservice in order to attract quality customers. The objective is to target the untapped sectors andprovide them professional quality service, through one window operations and RelationshipManagers stationed at those centers. We expect and hope to reduce the turn around time andbecome more competitive and market oriented. Further this customer friendly and dedicated setup at convenient locations would help in improving the image of the Bank as well. These Centerswould work in conjunction with the existing set–up of Commercial Lending done throughout theNBP branch network. The main purpose of these centers is to generate ancillary business inaddition to funded and non-funded facilities, with quick turn around time in decisions forcustomer satisfaction.

59. P a g e | 59 12. SPECIAL ASSETS MANAGEMENT GROUPThe group chief of Special assets management group is Mr. Tajammal Hussain Bokharee. TheSpecial Asset Management Group (SAMG) is a group of people with specialized skills inmanaging the "stressed" assets of National Bank of Pakistan. The group was created with a viewto enable restructuring and recoveries through various initiatives like innovative work-outs,merger & acquisition strategies, asset stripping, security enhancements and structured sell-downs. The group has also been working with / advising various governmental and regulatorybodies in evolving a framework for implementing international best practices like assetreconstruction companies in the country.With

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provision coverage of 84% we believe that going forward our Special Assets ManagementGroup will make major contribution towards the Banks profitability through recoveries andreversal of provision charge as a result of declassification / rescheduling. We have revamped ourspecial assets management business and have coordinated our efforts to expedite recoveries andsettlements. 13. EMPLOYEE BENEFITS , DISBURSEMENTS & TRUSTEE DIVISIONThe divisional head of this division is Mr. Mrs. Khurshid Maqsood Ali. The function of theNational Bank of Pakistan’s Employee benefits, disbursement & trustee division is to handle theadministration of trust funds, provide estate planning support, and in some cases see to thedisposition of the estate of a deceased customer. One of the factors that make the use of thisdepartment so attractive is that it tends to be somewhat conservative with their managementapproach. This means that this department is likely to take time to evaluate all options wheninvolved in settling estates, establishing guardianships, or administering trusts that have been setup for the survivors of a major depositor. This methodical approach is often in line with themotivation for establishing the asset in the first place, which was to provide a source of financialsupport for loved ones, even after a parent or significant other has died.Along with estate settlement, this department also provides a number of other agency services,such as functioning as the trustee of record for corporate bonds or administering a pension orprofit sharing plan. As a means of ensuring that the resources of the bank safely protect theinvestments involved, the department makes it relatively easy for the client to deal with othermatters. Thus, the investor can focus more on family or other business matters, and be less

60. P a g e | 60involved in the task of protecting assets that are already established and set on a path ofconsistent growth.E MPLOYEE BENEFITS OF NATIONAL B ANK OF P AKISTAND EFINED B ENEFIT P LANS 1. P ENSION S CHEMEThe bank operates defined benefit approved funded pension scheme for its eligible employees.The bank’s costs are determined based on actuarial valuation carried out using Projected UnitCredit Method. Net cumulative un-recognized actuarial gains/losses relating to previousreporting period in excess of the highest of 10% of present value of defined benefit obligation or10% of the fair value of plan assets are recognized as income or expense over the estimatedworking lives of the employees. Where the fair value of plan assets exceeds the present value ofdefined benefit obligation together with unrecognized actuarial gains or losses and unrecognizedpast service cost, the bank reduces the resulting asset to an amount equal to the total of presentvalue of any economic benefit in the form of reduction in future contributions to the plan andunrecognized actuarial losses and past service costs. 2. P OST RETIREMENT MEDICAL BENEFITSThe bank operates an un-funded defined post retirement medical benefits scheme for all of itsemployees. Provision is made in the financial statements for the benefit based on actuarialvaluation carried out using the Projected Unit Credit Method. Actuarial gains/losses areaccounted for in a manner similar to the pension scheme. 3. B ENEVOLENT SCHEMEThe bank also

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operates an un-funded defined benefit benevolent scheme for its eligibleemployees. Provision is made in the financial statements based on the actuarial valuation usingthe Projected Unit Credit Method. Actuarial gains/losses are recognized in the period in whichthey arise. 4. G RATUITY SCHEMEThe bank also operates an un-funded defined benefit gratuity scheme for its eligible contractualemployees. Provision is made in the financial statements based on the actuarial valuation using

61. P a g e | 61the Projected Unit Credit Method. Actuarial gains/losses are accounted for in a manner similar topension scheme.O THER EMPLOYEE BENEFITS 1. E MPLOYEES COMPENSATED ABSENCESThe bank accounts for all accumulating compensated absences when employees render servicethat increases their entitlement to future compensated absences. The liability is determined basedon actuarial valuation carried out using the Projected Unit Credit Method.T RUST ACTIVITIES OF N ATIONAL B ANK OF P AKISTAN A) N ATIONAL I NVESTMENT T RUST (NIT)Under a trust deed, the bank provides services, as a trustee to NIT and is performing functions ofsale/purchase of NIT units, safe custody and maintaining unit holder’s accounts. B) L ONG - TERM C REDIT F UND (LTCF)Consequent upon the NDFC amalgamation, the bank manages on behalf of the Government ofPakistan, LTCF established from the proceeds of loans disbursed by various internationalfunding agencies for financing private sector energy development projects. The National Bank ofPakistan is in process of negotiating the charge of fee in consideration of administrative servicesto the LTCF. C) Q ARZ - E -H ASNA F UNDThe work relating to Qarz-e-Hasna Scheme was attended by Pakistan Banking Council (PBC)since inception. PBC was dissolved in January 1997. In order to fill the void created by thedissolution of PBC and in order to continue the scheme, SBP decided to entrust all funds andtransfer all record relating to Qarz-e-Hasna scheme for education to the bank with theinstructions to perform all work relating to the Fund. 14. CORE BANKING APPLICATION

62. P a g e | 62The head of core banking application is Mr. Naeem Syed. The core banking application is anintegrated application that supports real time, multi banking and multi channel strategies. Thesingle biggest achievement of implementing the Core Banking Solution is that each customer istruly the customer of the Bank and not just the customer of the Branch, where his/her account ismaintained. The customer can go to a branch anywhere in the country and perform a transaction.This is possible as the entire Customer Database is centrally located at the central Data Centreand can be accessed throughout the network of branches. Business processes in all the branchesof National Bank of Pakistan update a common database in a central server located at datacentre, which gives a consolidated view of bank’s operations.Key features of the Core banking application of NBP • 24X7 BankingAs a result of implementing Core Banking, most of the facilities being offered by bank areavailable to Customers 24 hours a day, 7 days a week. The transactions are performed usingmultiple channels such as ATMs, Internet Banking,

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Phone Banking and Mobile Banking. • Anywhere BankingCustomers can avail of banking services across the branch and Channel network irrespective oflocation where their account is maintained. • Integration with strategic sectorsCore Banking integrates all strategic sectors of Banking such as Trade Finance, Treasury, Asset-Liability Management and Corporate Balance Sheet. As a result, the information related to theseareas is centrally available for use or reference. • Strengthening MIS, DSS and EISCore banking application is more than just a transaction processing system. It provides updateddata for generating various reports for Management information system (MIS), and will facilitateDecision Support System (DSS) and Executive Information System (EIS). As data is located onCDC, branches and administrative offices can concurrently avail updated data when required. • Business Process Re-engineeringCore Banking would enable implementation of BPR initiatives of a Bank and facilitatecentralized handling of various processes. Branches would do less and less back office work andwould be able to focus on marketing, customer relationship management and cross selling.

63. P a g e | 63 15. OPERATIONS GROUPThe group chief of National Bank of Pakistan’s Operation group is Mr. Dr. Asif A. Brohi. Thisgroup is being created to efficiently collect and utilize the feedback from the branches to supportproduct development and enhance the quality of service. The National Bank of Pakistan iscurrently improving the service orientation at its branches, as these constitute the “front line” ofthe Bank in terms of contact with its customers. The operations group is in the process ofintroducing E-Commerce initiatives based on customer friendly technologies. The group createsproducts to utilize the benefits of E-Commerce for its customers.We are committed and focused towards good quality customer service and in 2007 with themotto of “Putting a smile on our Customers face.” We made concerted efforts and took anumber of initiatives. Workshops and seminars were conducted to disseminate the veryimportant message of “Excellent Customer Service”. We are transforming our branches to give amodern look and convenience. A number of branches have been shifted to prominent andspacious locations. We also have established specialized customer facilitation centers toexclusively cater to pension payments, utility and government collections. These are expected toreduce counter traffic at our branches and will increase our distribution channels for better andconvenient services. Business hours have been extended with establishment of customerfacilitation offices at the regional levels to help on the spot resolution of customer complaints.PROVINCIAL & REGIONAL MANAGEMENTThere are four executives of National Bank of Pakistan to supervise the Bank’s maters of everyprovince, as they are called Provincial Chiefs. These provincial chiefs are responsible for theentire banking operations in their respective provinces. The provincial management includes: • The Provincial Chief Punjab

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64. P a g e | 64 • The Provincial Chief Sind • The Provincial Chief Baluchistan • The Provincial Chief N.W.FP & KashmirThese provinces are sub-divided into regions, the regions are controlled and manage by Regionalheads, which are responsible for the supervision in their circles and deal with the problems oftheir respective Regions. The regional management of National Bank of Pakistan is divided intotwo areas which are: • Overseas • CountrywideThe overseas regions include Middle East, Far East, Europe & USA, and Central Asia. Thecountry has been divided into 29 regions by National Bank of Pakistan to facilitate its functions.The detail about National Bank of Pakistan’s regions is shown as Annexed-II at the end of thereport. These regions are sub divided into Zones, the in charge of a Zone is called Zonal Chief.BRANCH MANAGEMENTThe National Bank of Pakistan, in order to facilitate its functions on branch level appointsBranch Managers & other staff according to branch’s activities and volume of business. Thebranch managers are responsible for all functions and staff within the branch office. The job ofbranch managers is to take charge of the entire operation of his branch, making sure thateverything runs smoothly. The other functions involves scheduling of employee work hours,overseeing training, hiring and firing, assuring that proper procedures are followed, and reportingto upper management any problems or providing reports and updates as required by bank’sprotocol.ORGANIZATIONAL (MANAGEMENT) LEVELS AT NBPSuccessful and profitable banking management deepens upon two principal factors:

65. P a g e | 65 a) The manner in which the function of banking, that is, the acquiring of deposits, the investing or converting such deposits into earning assets, and the servicing of each deposits, are performed. b) The degree to which officers and employees contribute their talents to the progress and welfare of the bank in discharging duties and responsibilities.Management is a distinct process consisting of activities of planning, organizing, actuating andcontrolling performed to determine and accomplish stated objectives with the use of humanbeing and other resources.28 The management has two types i.e.., a) Centralized (Centralized Management tends to concentrate decision making at the top of the organization) b) Decentralized (Decentralized disperses decision making and authority throughout and further down the organizational hierarchy)National Bank of Pakistan has a centralized type of management because all the decisions aretaken by the top management. The National Bank of Pakistan has four types of managementlevels which are as fallows:TOP MANAGERSTop managers are responsible for making organization-wide decisions and establishing the plansand goals that affect the entire organization. These individuals typically have titles such asexecutive vice president, president, managing director, chief operating officer, chief executiveofficer or chairman of the board. The NBP have its top management in their head office atKarachi. They are responsible for making the plans and establishing goals the run their businesssmoothly all over Pakistan & around the globe. Among seven member of group Chief Executiveis called the president. The bank has directors for superintendence and direction of its

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business.The Government appoints six directors as members and one president. These members are alsoresponsible for making the policy of the bank.MIDDLE MANAGERS

66. P a g e | 66Middle managers include all levels of management between the first line level and the top levelof the organization. These managers manage the work of first line managers and may have titlessuch as department head, project leader, plant manager or division manager.29 NBP divided hismanagement into various regions such as Rawalpindi region, Gujranwala region etc. In NBP,regional management falls under this category. They are responsible for the planning,organizing, leading and controlling of the resources and staff of the whole region.FIRST LINE MANAGERS OR LOWER LEVEL MANAGEMENTFirst level managers are the lowest level of management and manage the work of non-managerialindividuals who are involved with the production or creation of the organizations products. Thebranch managers of NBP fall under this category. These managers are responsible for planning,organizing, leading and controlling the staff and all affairs of the branch.NON MANAGERIAL EMPLOYEESNon managerial employees are not concerned with any decision making. They are normallyspecialized in their work. The nature of their job is repetitive & clerical as they do same workagain & again. The non managerial employees of NBP consist of OG-II, OG III and clericalstaff.HIERARCHY OF NATIONAL BANK OF PAKISTANThe Hierarchy (An arrangement of objects, people, elements, values, grades, orders, classes etc.,any system of persons or things ranked one above another) of National Bank of Pakistan isshown as Annexed III at the end of this report. The hierarchy may include:

67. P a g e | 67 • Categorization of a group of people according to ability or status. • A body of clergy organized into successive ranks or grades with each level subordinate to the one above. • A series in which each element is graded or ranked • A body of officials disposed organically in ranks and orders each subordinate to the one above it; a body of ecclesiastical rulers. • An organization with few things, or one thing, at the top and with several things below each other thing. The President of National Bank of Pakistan is ranked Top at the hierarchy. The other sixdirectors of National Bank of Pakistan are ranked second in the hierarchy. The Provisional,Regional & Zonal chiefs are ranked 3rd, 4th & 5th respectively. The vice President & assistant vicePresidents of National Bank of Pakistan are ranked 6 th & 7th respectively. The Officers Grade I, II& III are ranked 8th at the hierarchy of National Bank of Pakistan. The lower level of NationalBank of Pakistan is consist of Clerical & non- clerical staff.ORGANIZATION STRUCTURE OF THE BRANCH

68. P a g e | 68A well-developed and properly coordinate structure is an important requirement for the successof any organization. It provides the basic framework within which functions and procedures areperformed. Any organization needs a structure, which provides a framework for successfuloperations. The operation of an organization involves a number of activities, which are related todecision making, and communication of these

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decisions. These activities must be wellcoordinated so that the goals of the organization are achieved successfully.The organization chart & Organogram of National Bank of Pakistan Rawat Branch is shown onAnnexed IV & Annexed V at the end of this report. This chart defines the line of authority in thebranch and its departments. It is a sort of visual presentation of the organizational structure. Itspecifies the duties and responsibilities of the personnel or staff of the branch. The purpose of anorganizational structure is to help in creating an environment for human performance. Althoughthe structure must define the task to be done, the rules so established must also be designed in thelight of abilities and motivation of the human recourse available. By analyzing the organizationstructure of the branch following elements can be found in the structure. A) CENTRALIZED DECISION MAKINGThe Branch Manager of National Bank of Pakistan is responsible for all the affairs of the Bank.All the decisions relating to Branch are made by him and the subordinates have to obey thesedecisions. All the employees of the Bank are report directly to the Branch Manager. The branchhas two operation Managers. Operation Manager I controls Clearing house & RemittanceDepartment and Operation Manager II controls Deposits, Advance & Branch accountsdepartment. Both of them are report directly to the Manager regarding affairs of theirdepartments. The Chief Accountant controls Accounts department & is report directly to branchManager. The branch also has two cashiers responsible for cash & Pension disbursementdepartment reports directly to branch Manger. The BBO (Branch Back Office System) Operatorcontrols computer department of the branch and is report directly to Operation Manager I andBranch Manager.

69. P a g e | 69 B) DOWNWARD COMMUNICATIONCommunication is the process by which information is exchanged and understood by two ormore people, usually with the interest to motivate or influence the behavior of others in theorganization. Downward communication is the message and information sent from topmanagement to subordinates in a downward direction. The same pattern is followed at NationalBank of Pakistan Rawat branch, the Manager of the branch sent orders, information & messagesto following subordinates • Operation Manager I • Operation Manager II • BBO ( Branch Back Office System) Operator • Chief Accountant • Cashier I • Cashier II • Clerk I • Clerk II • Non Clerical Staff C) CHAIN OF COMMANDThe chain of command is an unbroken line of authority that links all persons in an organizationand shows who reports to whom. By analyzing the organizational structure of the National Bankof Pakistan Rawat branch it can be found that there is a scalar principle followed with in thebranch because each and every employee of the branch knows to whom they can report. Theauthority and responsibility for different tasks and duties are different, as well as every oneknows the successive levels of management all the way to the top.

70. P a g e | 70 D) AUTHORITY AND RESPONSIBILITYThe chain of command illustrates the authority structure of National Bank of Pakistan RawatBranch. Authority is the

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formal and legitimate right of the manger to make decisions, issuesorders and allocates resources to achieve organizational desired outcomes. By analyzing thechain of command of NBP, one can come to the conclusion that, as there is scalar patternfollowed at the organizational setup of NBP, therefore it is implied that everyone in his positionknows that what is one’s authority and what is the responsibility and the authority it allocated. E) DELEGATIONDelegation is the process, which managers use to transfer the authority and responsibility toposition below in the hierarchy. Most organizations today encourage managers to delegateauthority to the lowest possible level to provide maximum flexibility to meet customer needs andadapts to the environment. At National Bank of Pakistan Rawat branch Operation Managers havesome authority & responsibility relating to affairs of the Branch.

71. P a g e | 71DEPARTMENTS OF THE BRANCHBanking procedures are divided between various departments. Different departments do theirjobs in occurrence with the bank policies. In National Bank of Pakistan each branch is dividedinto various departments depending on their size and volume of business. Head of departmentmanages each department & officials of the branch follow procedures. The departments workingwithin National Bank of Pakistan Rawat branch are as under: 1. Clearing House Department 2. Remittance Department 3. Computer Department 4. Deposits Department 5. Advances Department 6. Account Opening Department 7. Accounts Department 8. Cash Department 9. Pension Disbursement Department 1. CLEARING HOUSE DEPARTMENTAs part of their daily business activity, banks receive cheques and other financial instrumentsfrom their customers drawn on other banks, to be collected and credited to their accounts.Similarly, banks receive cheques/instruments from other banks, deposited by customers of thebanks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Bankswhen they send cheques/instruments for collection and as paying Banks, when they receivecheques/instruments for collection from other banks. Since each bank receive and sendscheques/instruments for collection to and from an number of banks, the process of settlementwould clearly be very cumbersome and time consuming if every cheques/instrument had to besent by the collection bank to each of the drawee banks or branch upon which different collection

72. P a g e | 72items are drawn and to individually pay the proceeds to each of the bank sendingcheques/instrument in for collection. Therefore, the banks have evolved what is called theBankers Clearing arrangement.The Clearing System enables cheques to be paid or cleared centrally and settlement made forreceivables and payables between the banks. The SBP co-ordinates clearing activity through itsoffices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintainits own office, some other bank, usually National Bank of Pakistan (NBP) performs thisfunction. But the clearing house facility is available only for cheques/instruments drawn onbanks situated within the same

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city/clearing house area.W ORKING OF THE C LEARING P ROCESSUnder the clearing arrangements, the State Bank of Pakistan (SBP) offers a Clearing House or acentralized exchange facility, which works on the following general lines:All the banks operating in a city who are members of the Clearing House maintain an accountwith the SBP’s Clearing House.Every day representatives of all the banks in every city meet the Clearing House, first meeting inthe morning, at an appointed time, for the purpose of depositing their own customers ,cheques/instruments to be collected from other banks and receiving cheques/instrument drawnon their account holders from the others banks.At the Clearing House accounts of all the banks are debited by the total amount ofcheques/instruments drawn on their customer’s accounts and credited with the amount of theircustomer’s cheques/instruments drawn on other banks, as per the list of cheques submitted byeach bank.The cheques/instruments received, also called Inward Clearing, and are taking back by each bankto its bank/branch. The amounts of each cheques/instrument is debited or recovered from eachdrawee customers’ account and credited to the Clearing House account. Similarly, against theamount credited by the Clearing House as Outward Clearing, the appropriate customers’accounts are credited and clearing House account is debited.

73. P a g e | 73Any cheques/instruments received by a bank that cannot be paid, due to insufficient balance inits customer’s account or for any other reason, are returned back to the Clearing House and acredit is claimed and obtained there against.R ULES & R EGULATIONS OF C LEARING H OUSE • Timing:(Monday to Saturday) i. 1st Clearing at 10:00 a.m. ii. 2nd Clearing at 2.30 p.m. • Each bank will send competent representative to exchange the cheques. • Each bank is required to insure that all cheques and other negotiable instruments are properly stamped and suitably discharged • An objection memo must accompany each and every cheque when return unpaid duly initialed. • Each bank is required to maintain sufficient funds in the principal account with SBP to meet the payment obligations. • The State Bank of Pakistan debit the account of each member of the clearinghouse with the proportionate working expenses incurred on the operation of clearing house. These expenses are very nominal.O UTWARD C LEARING AT THE B RANCHThe following points are to be taken into consideration while an instrument is accepted at thecounter to be presented in outward clearing: • The name of the branch appears on its face where it is drawn o. • It should not stale or post dated or without date. • Amount in words and figures does not differ. • Signature of the drawer appears on the face of the instrument. • Instrument is not mutilated.

74. P a g e | 74 • There should be no material alteration, if so, it should be properly authenticated. • If order instrument suitably indorsed and the last endorsee’s account being credited. • Endorsement is in accordance with the crossing if any. • The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil. • The title of the account on the paying-in-slip is that of payee or endorsee (with the exception of

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bearer cheque). • If an instrument received other than National Bank of Pakistan then special crossing stamp is affixed across the face of the instrument. Clearing stamp is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on counterfoil and paying-in-slip). The instrument is suitably discharged, where a bearer cheque does not require any discharge and also an instrument in favor a bank not need be discharged.The instrument along with pay-in-slip is retained while the counterfoil is given to the customerduly signed. Then the following steps are to be taken: 1. The particulars of the instrument and the pay-in-slip or credit voucher are entered in the outward clearing register. 2. Serial no is given to each voucher. 3. The register is balanced; the credit vouchers are balanced from the instruments and are released to the respective departments against acknowledgement in the register. 4. The instruments are arranged bank wise. 5. The schedules are prepared in triplicate, two copies which are attached with the relevant instrument and the third is kept as office copy. 6. The house page is prepared from schedules in triplicate. 7. The schedules and house pages are signed by the house in charge with branch stamp.

75. P a g e | 75 8. The grand total of the house page is taken and agreed with that of the outward clearing register. 9. The instrument along with duplicate schedule and house page are sent to the main office. 10. The entry of the instrument returned unpaid is made in Cheques returned Register. If the instrument is not to be presented again in clearing then a covering memo is prepared. The covering memo along with returned instrument and objection memo is sent to the customer who sent the same to his account.I NWARD C LEARING OF THE B RANCH 1. The particulars of the instruments are compared with the list. 2. The instruments are detached and sort out department wise. 3. The entry is made in the inward clearing register (serial no. Instrument no. Account No) 4. The instruments are sent top the respective departments 5. The instruments are scrutinized in each respect before honoring the same.S PECIAL C LEARINGIn addition to the normal clearing function at Clearing house it is mutually agreed to hold anextra clearing at the clearing house on the particular day and time which is known as “specialclearing” it is arranged due to the rush of work arising out of say, more Holidays declared by theCentral Govt. at a time, but normally special clearing is held on last working day of half yearlyand yearly closing i.e. 30th June and 31st Dec. every year. 2. REMITTANCE DEPARTMENTThe Remittance department deals with the transfer of money from one place to another. Fundstransfer facility or remittance of funds is on of the key functions of the banks all over the world.Remittances through banking channels save time, costs less and eliminate the risks involved inphysical transportation of money from one place to another. National Bank of Pakistan transfersmoney in the following ways.

76. P a g e | 76 • Pay Order • Demand Draft • Mail Transfer • Telegraphic Transfer • Pay Slip • Call Deposit Receipt • Letter of Credit • Traveler’s ChequeThe Job responsibilities & requirements of remittance department include: • Responsible for money transfers,

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issuance of pay-orders & drafts, collection items, maintenance of cheque books & ATM cards and all other counter specific products and services • Ensure highest level of customer service in a professional and competent manner • Must ensure that the activities are carried out strictly in accordance with the laid down procedures/processes, and SBP/Compliance guidelines • Responsible for Cash, Clearing, Inland remittances including Demand Drafts and Pay Orders • Ensure high standards of customer services within the assigned turn around time • Ensure compliance with SBPs regulations and internal controls • handling cash, clearing, local remittances, and other related activities at branch levelP ARTIES INVOLVED IN R EMITTANCES

77. P a g e | 77There are four parties involved in Remittance, which are • Remitter • Remittee • Issuing Bank • paying BankR EMITTEROne who initiates, or requests for a remittance. The remitter comes to the issuing or originatingbranch, asks for a remittance to be made, and deposits the money to be remitted. The bankcharges him a commission for this service. He may or may not be the branch’s customer.R EMITTEEA Remittee is also called the beneficiary, or the payee. The person in whose name the remittanceis made. A Remittee is also the one who receive the payment.I SSUING B ANKThe bank that sends or affects the remittance through demand drafts, telegraphic transfers, MailTransfers, Pay order etcP AYING B ANKPaying Bank also knows as the drawee branch, the branch on which the instrument is drawn. Ithas to make the payment (usually located in a different city or country).K INDS OF R EMITTANCES• Transfer within the branch• Transfer from one branch to another• Transfer from one bank to another bank in the same city

78. P a g e | 78• Transfers from one bank to another bank in two cities. 3. ACCOUNT OPENING DEPARTMENTThe opening of an account is the establishment of banker-customer relationship. This departmentperforms the duty of opening accounts for customers. It also issues checkbooks to customers. Aperson who wishes to open an account with the bank has to fill an account opening formobtained from any branch of National Bank of Pakistan. The bank officer tactfully obtainsinformation about character, integrity, responsibility, occupation and the nature of business ofthe perspective customer. Any individual, who has attained the age of majority and is of soundmind can open and maintain his/her account. Two or more individuals may open an accountjointly. Similarly, business organizations such as sole proprietary concerns, partnership firms,and limited liability companies as well as non-profit organizations like clubs, trusts, societies,associations and NGO’s etc, may open their accounts. The documents required for NationalBank of Pakistan’s Account opening are showed as Annexed VII at the end of this report.The following requirements are necessary for opening an account.Identification of the new customer.Ascertaining the genuineness of the stated occupation business of the customer.Determining the correct residential and permanent address.Completion of all relevant columns of the Account opening form.Proper completion of documentation.F UNCTIONS OF A CCOUNT O PENING D

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EPARTMENT • Providing account opening form according to the customers requirements, • Guide the customer about the requirements of the account opening and form filling, • Check the forms whether they are correctly completed or not, • Preparing checklist, • Stamping on the form, • Maintaining account opening register, • Pasting of forms in register after release from general banking in charge,

79. P a g e | 79 • Issuance of cheque books, • Issuance of accounts maintenance certificate, • Closure of account • Verification of signature in case of cheque presented before releasing of account opening from SS card is not yet scanned 4. CASH DEPARTMENTAll physical movement of cash in the bank is made through the cash department. As bank isborrowing and lending institution, therefore cash is the top most priority of Bank. Another aspectis that cash department is for the security purpose, security in a sense that there should be noembezzlement of funds or in money leaded to bank by any party or person. The efficiency ofbank is also related to this department the more efficient the bank is the stronger and busy is thecash department. Cash department perform following functionsCash department owes its important to the fact that it is a major point of contract between thebank and the customer, the bank’s most valued relationships. This department is the showcase ofthe bank and conveys the first impressions about the bank’s commitment to professionalism in itssystems and procedures and to courteous and efficient customer service.Normally cash department performs following functions • Collection of funds • Acceptance of deposits • Collection of utility bills • Payment of checks • Remittances • Act according to any standing instructions • Transfer of funds from one account to another

80. P a g e | 80 • Verification of signatures • Posting • Handling of Prize bondThe two main activities of cash department are as fallows:D EPOSIT C ASH I N C USTOMER ’ S A CCOUNTWhen the customer want to deposit amount in his account at opening of account or after that thenhe has to fill a deposit slip that shows the amount and the account in which the cash will bedeposited. Then teller will receive amount and credit the customer’s account that shows increasein customer’s bank account.M AKE P AYMENTS F ROM C USTOMER ’ S A CCOUNTWhen the customer draws a cheque on the bank to pay a certain amount then BBO Operator willdebit the customer’s account that shows reduction in his account balance.C HEQUE ENCASHMENT PROCEDURER ECEIVING O F C HEQUESThe cash is paid against the cheques of the client. The following points are important.Cheque is drawn on same branchCheque is not post dated.Amount in words and figure are same.It should be bearer cheques so the word bearer should not cross.V ERIFICATION OF S IGNATUREAfter receiving the cheques the cheques the operation manager verify the signature of theaccount holder and the signature on the cheques. If the signature is not same it is returned backotherwise forward to BBO Operator for posting.

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81. P a g e | 81C OMPUTER T ERMINAL P ROCESSThe cheque is received in computer terminal, where BBO operator checks the balance of theaccount holder. The BBO operator also sees the stop payment instructions, whether receivedfrom account holder or not. After considering these points BBO Operator post the cheque inBBO (Branch back office system) and forward to operation manager.P AYMENT O F C ASHAfter posting the cheque the operation manager cancelled the cheque and returned back tocashier. The cashier enters the cheque in cash paid registered and pays against the secondsignature of receiver on the back of the cheque. 5. DEPOSITS DEPARTMENTThe primary function of National Bank of Pakistan is to accept and receive surplus money fromthe people, which they willingly deposit with the Bank. Like all other Banks, National Bank ofPakistan also take incitation to attract as much depositor’s as it can. The deposit departmentaccepts/collects deposit from accountholders.The National Bank of Pakistan offer different deposit schemes to its customers, which includesthe following: • Current Deposits • PLS Saving Deposits • Fixed Deposit Account ( Time Deposits) • Foreign Currency Account • NBP Premium Aamdani • Foreign Currency Account • National Income Daily Account (NIDA) 6. ADVANCES DEPARTMENT

82. P a g e | 82The bank is profit seeking institution. It attracts surplus balance from the customer at low rate ofinterest and makes advances at a higher rate of interest to the individuals and business firms.Credit extensions are the most important activity of all the financial institutions, because it is themain source of earnings. Advances department is one of the most sensitive and importantdepartment of the bank. The major portion of the profit is usually earned through thisdepartment. The job of this department is to make proposals about the loans; the creditmanagement division of head office directly controls all the advances.The advances Department receive application from intending borrowers. After receivingapplication the advance department processes it further. After analyzing and detailedinvestigation, they decide whether to approve the loan or not. Some loan approvals are made bythe Manager of the branch within his powers as prescribed by the bank’s higher authorities,while some loan applications are submit to higher authorities for their approval. Some advancesare of the following nature • Loan against Gold • Agriculture advance to farmers • Medium term advance for working capital • Long term advance for setting industry • Short term advance to businessmanThe National Bank of Pakistan offer following products (Advances) to its customers • NBP Saibaan • NBP Advance Salary • NBP Cash & Gold • Students Loan Scheme • NBP Karobar

83. P a g e | 83 The Advances department deals in following transactions: 1. Preparation and submission of proposals of Running finance, Cash finance, Demand finance, Export finance, Staff finance, Finance against imported merchandise etc for sanction of finance limit from the hire authority. 2. Preparation and posting of vouchering of all type of finance. 3. Accruals & recovering of Markup on finances on periodical basis. 4. Approval of transfer of funds through DD-TT, PO, MT, IBCO etc to various branches by debiting

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the limits. 5. Preparation of weekly, monthly, quarterly, and annually statement to the hire authority. 6. Transfer of funds from one account to another account of the party taking the authority letter. 7. Preparation of advances record. 8. Timely submission of returns/reports, daily, weekly, monthly & quarterly. 9. Checking of computer outputs of the department on daily basis. 10. Balancing of all financing heads. 7. COMPUTER DEPARTMENTThis department is playing a very important role in making the banking procedures faster andhelping the bank for providing better services to its customers. The National Bank of Pakistanhas three types of branches in all over Pakistan, these included A) Online branchesThe branches, which are directly, link with central computer AS-400, through wide areanetworking through fiber optics. These branches have dumb terminal directly linked with centralcomputer. B) BATCH BRANCHES

84. P a g e | 84The branches where all transactions are carried out with the computer base system but thesebranches are not connected to the central computer with wide area net working. Batch branchesare using three type of system, Branch Back Office (BBO) based on FoxPro, Branch AutomatedSystem based (BAS) on UNIX, Branch Integrated System (BIS) based on FoxPro in Karachimostly branches are facing this problem. BAS was establish in the beginning while BBO iscurrently implemented now efforts are under way to convert all branches into Electronic BankingSystem (EBS) which is used by online branches as this system does not require a person toremain sitting till the branch closed its daily operation but the system automatically close it selfwhen the branch timing is over. The database in head office is also based on this system. C) MANUAL BRANCHESThe branches where all transactions are carried out manually and records are maintained onregisters usually stored in big wardrobes. Manual branches reports Regional head officeregarding their daily transactions. In Regional head office through On Line, terminal data goes tohead office central computer; Except for branches those are On Line as they transfer there dailydata directly through there own terminal. As day-to-day, activities of all branches are recorded ina central computer.E VENING DATA RECEIVING CENTERData form batch branches reach the main branch in floppy diskettes while form manual branchesit is in form of hard copy. Data comprises of transactions in profit loss account, current account,advances etc termed as “Daily Transaction Report”. Clerk in charge register all diskettes andmanual in registers called “job booking register” one for each of two type of data. These floppiesand manual are bring in by riders. There are fourteen riders in total who bring information formall branches located in Karachi region.D ATA ENTRY D EPARTMENTThe next task after receiving the data is to enter that data in to a computer. The floppy disk isdirectly inserted in the computer. The program in used is based on “COBOL” language. Thisprogram is designed in away that it demand “Hash Value” value before opening the floppy forfurther action this value serve the purpose of password or pin code send by the branch onentering that value the data enter in to the computer. This computer is attached with the terminal

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85. P a g e | 85of central computer. The operator of that terminal takes the data from the computer andconverted it in to a text file through that terminal the data finally goes to the central computer.D EFECTS AND E RROR H ANDLINGErrors of different origin occur when the data goes to central computer. Sometime retrieving datafrom the system (BAS, BBO, and BIS), other than used in HO (EBS) also caused errors. Othererrors include Unmatched (This error occurs when document no matched with the previous oneexists), no master (when opening of new account is not mentioned), Date in Valid, duplicatecheques (this error occur when the last objection is not removed). These and other such errors areseen by the person in charge. In the end of day print out of the data enter in central computer istaken. Any Incomplete information for any branch and any information require by that particularbranch is sent to that branch. More over material is used to make a WST which is sent to StateBank of Pakistan. 8. PENSION DISBURSEMENT DEPARTMENTThe National Bank of Pakistan was Pakistan’s leading institution which performs the function ofpension payments or disbursements to pensioners. The pension disbursement department isresponsible for making pension payments to Government Pensioners. The person who wants toreceive his/her pension from National Bank of Pakistan can open an account with any branch ofNational Bank of Pakistan. The bank performs this function through Demand Draft Purchase orsimply called DD Purchase. This department performs following functions: • Making Pension Payments • Opening of Account of Pensioner • Entry of amount paid to pensioner in Government Pensioners Register • Verifications of Signatures of Pensioners • Making Demand Draft Purchase Register

86. P a g e | 86 9. ACCOUNTS DEPARTMENTAccounts Department of the bank can be considered the most important department. Thisdepartment is basically concerned with processes and activities of recovering, sorting,summarizing and reporting data resulting from the whole day transactions of all the departments.Actually the process of this activity starts from the preparation of all the required vouchers bydifferent related departments. When these vouchers are prepared, these are posted into respectivecomputer terminals by the relevant departments. Before merging, a batch list is printed out byComputer Department and duly checked by the respective departments. After this, merging stagecomes, after which a proof list is printed out. This is the stage, where Accounts Departmentstarts performing its function. Proof list is checked by the Accounts Department. The accountdepartment prepare following vouchers and reports • Monthly Profit & Loss account- F48 • General Ledger • General Ledger- Abstract • Check Book Issue Register • Western Union payments Register • Demand Notices • Miscellaneous Book • Bank Transfer scroll • Posting NBP Advance Salary • Daily Statement- F21 • General Ledger- Head wise • Hash Value Register • End of Day register • Posting National Income Daily Account (NIDA) • Monthly return register • Charges A/c register • P-L-S Profit list

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87. P a g e | 87• Weekly Telegram• Mail Transfer Register• Government Scroll• Provident file• Government Scroll Debit & Credit• Transfer Responding Advice Dispatched Register-F15• Cash Remittance IN• Cash Remittance OUT• NBP General Account• Utilities register• Statement of affairs• Closing entries• Daily activity checking• Minor expense recording

88. P a g e | 88STRUCTURE OF BRANCH’S ACCOUNTS DEPARTMENTThe structure of National Bank of Pakistan’s Accounts department is shown as Annexed VI atthe end of this report. The Accounts department of the branch is controlled by the ChiefAccountant under direct supervision of Branch Manager. The Branch has one cashier & twoclerks for assistance and help of Chief Accountant. The BBO (Branch Back Office system)Operator has also assist Chief Accountant in various tasks. The head of branch’s Accounts department is called Chief Accountant, who performs hisfunctions under direct supervision of Branch Manager. The Chief Accountant is responsible forthe central accounting records and controls over all financial transactions of the Branch. He alsodirects a wide variety of accounting activities and meets important deadlines & analyzes andinterprets accounting data of the branch. The other responsibilities of Chief Accountant include: • Plans and directs the activities of Cashier, BBO Operator and clerical employees of the branch engaged in the maintenance of a variety of accounting records. • Directs and participates in the development and revision of procedures in order to meet requirements of law, provide services to Branch Manager, improve efficiency in branch activities, and coordinate branch activities with those of other departments.

89. P a g e | 89• Directs and reviews the preparation of periodic and special financial statements, reports, projections, and recommendations, on which important administrative decisions are based.• Directs and reviews the study of new and revised laws, rules, and programs affecting the central accounting system and records and installs or recommends changes as appropriate.• Designing and operating a system to capture, record, process, and store all relevant documents and information about the financial activities of the branch.• Ensuring the integrity and reliability of the information system, and preventing fraud from inside and outside the branch.• Preparing financial statements that are reported to Regional Management of National Bank of Pakistan.• Preparing financial statements and accounting reports for distribution to the branch Manager for their planning, control, and decision-making needs.• The Chief Accountant with the help of branch’s clerical staff is preparing following reports: o Monthly Profit & Loss account- F48 o Daily Statement- F21 o General Ledger o General Ledger Abstract o General Ledger head wise o Bank transfer Scroll o Posting NBP Advance Salary

90. P a g e | 90 o Misc Book o Posting National Income Daily Account (NIDA) o Monthly return file o Charger List o PLS Profit list o Weekly Telegram o Government Scroll o Government Scroll Dr & Cr o Transfer Responding Advice Dispatched Register- F15 o Cash Remittance In o Cash Remittance Out o NBP General Account o Clearing register o

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Debit & Credit supplementaryDebit supplementary is used for debit voucher and credit supplementary is used for creditvoucher books and register maintained by bank are as fallowsGeneral ledger included: • Statement of daily affairs • Cash book or cash cum day book • Transfer book

91. P a g e | 91 • Income & expenditure ledgerIncome & expenditure includes: 1. Discount 2. Service charges 3. Commission from utility services 4. Salaries allowances & provident fund 5. Rent taxes insurance lighting 6. Profit paid on deposits and borrowings 7. Auditor’s fee & legal charges

92. P a g e | 92BANK ACCOUNTING OPERATIONSThe National Bank of Pakistan’s accounting consists in making computerized, written andpermanent records of every transaction. For Computerized recording of transactions the bankused software called BBO (Branch Back Office). BBO enable Bank to record a variety oftransactions. The most common part of BBO which is operating by the BBO Operator isIndividual Ledgers. Individual Ledgers are the accounts in which accounts with depositors arekept. They are kept so that the balance of each depositors account may at any time be readilyseen, and they should be frequently balanced to verify their correctness. The three column formof individual ledger is used because it has a column for checks paid or other debit entries, one fordeposits or other items credited, and a third for showing the balance after each entry or the daysentries are made in the account. The BBO enlist Chart of Accounts of the Bank shown inAnnexed VIII. All the accounts shown in Annexed are opened and managed through BBO. Allthe Remittances of the bank are recorded managed and control through BBO. The “End of theDay” report is also generated through BBO.The most important record keeping and report generated by Bank’s Accounts Department isStatement of the Bank. The statement of the bank shows the general, or control, accounts of thebank, and the various books of the bank show the detail of these items. It would not beimpossible, but it would be entirely impractical, to enter every figure directly on the statement ofcondition. Instead of total deposits, the balance of each depositor would appear opposite hisname. On the other side, instead of loans and discounts, there would be an itemized list of theloans with the names of the borrowers. The first principle in bank accounting, as in all otherbookkeeping, is that for every debit there must be a credit, and vice-versa. In accordance withthis fundamental theory the books are maintained. With respect to the statement, every Rupee ofliabilities is accounted for by another Rupee of resources. Similarly each accounts at the end ofthe day for each item of cash is balanced. Each bank employee has had the experience ofremaining at his desk until a late hour at night checking up his days work searching for adifference of a few cents. Often they become embittered at what seems to them a tyranny whenthe small sum of money involved is considered. The reason they must settle, however, is not on

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93. P a g e | 93account of the possible loss of ten cents, but because the most important principle in bankaccounting is involved. "Accuracy first" is a motto that should be framed, figuratively at least,upon the wall of every banking room.The books used by National Bank of Pakistan are of various kinds and their purpose is indicatedby name. A ledger is a book used to keep a record of balances. To "post" means to enter in theproper columns either the debits or credits on the ledger, and the difference between themrepresents the balance either due by or to the bank. Another important book which is used by theNational Bank of Pakistan is journal, a book in which daily transactions are listed in regularorder as to accounts, and the total debit or credit is then posted on the ledgers. All other books,cards and sheets used by bank of whatever nature is a part or subdivisions of these books. Oftenthey become known among the clerks by some other name descriptive of their generalappearance. For instance, the general ledger scratcher in one bank is known as the "red book,"while the collection scratcher is the "black book."The records made by one clerk upon one set of books go to check the records of another clerkupon a different set of books. For instance, the paying teller and the receiving teller will eachkeep a record of checks cashed or deposited payable within the bank. The debit postings of theindividual bookkeeper would agree with the tellers figures. Skillful accounting lies in makingthe fullest possible use of original entries, at the same time having a check on all figures to guardagainst either error or fraud.Every transaction ultimately affects the banks statement of condition by debit or credit. Forexample, a deposit of Rs.1000 is made, consisting of Rs.200 cash and checks as follows: Rs.200on the bank itself and Rs. 600 payable in another city. At the end of the day (assuming this to bethe only deposit), on the liabilities side there is an increase of Rs 800 all of which appears in theitem "deposits" being the total Rs.1000, less the check for Rs 200 which is charged to theaccount of the drawer. On the resource side, then, a corresponding increase of Rs.800 and this ismade up by an increase in the cash of Rs 200 and an increase of Rs.600 in the item "due frombanks." Or a transaction may appear on one side of the statement only. The bank has sold Rs.5,000.00 of the bonds it owns.

94. P a g e | 94ROLE OF CFO (CHIEF FINANCIAL OFFICER)The performance of any organization is reflected by the financial statements, any ambiguity ifremains there, makes the reflection of the performance doubtful. Therefore, the role of CFObecomes very important as he controls the reflection of performance, which is reported todifferent authorities and the organization is assessed by them, and they must perform their jobwith professional competency and integrity, so that the financial statements give credibleinformation to its users. The code of corporate governance provides the guidelines andopportunity to do this.The Chief Financial Officers of National Bank of Pakistan used to perform several tasks whichwere preparing accounts, preparing budgets, operational reporting and interpreting, evaluatingoperating results, preparing income tax returns, establishing internal control procedures to safe-guard the companies assets.Due to increased governance requirement there arises a need to empower the chief

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accountantand to make him responsible by requiring him to sign the accounts. There comes the code ofcorporate governance, which makes the chief accountant powerful and more responsible. Withthe new role, Chief Accountant becomes Chief Financial Officer (CFO). The appointment,removal and remuneration terms and conditions of employment of the chief financial officer of alisted company shell are determined by the Chief Executive Officer with the approval of theBoard of Directors.Q UALIFICATION R EQUIREMENTThe qualification requirement is defined under the code of corporate governance that is theperson appointed as the Chief Financial Officer must be • Member of recognized body of professional accountants or • A graduate from a recognized university or equivalent, having at least 5 years experience in handling financial and corporate affairs of a listed company.

95. P a g e | 95R ESPONSIBILITIES OF CFOThe new responsibilities apply to all Chief Financial Officers of Listed Companies, InsuranceCompanies, Banks and DFIs. Mostly the CFO presents the financial position relating to theperiod which has been over, and the period which has to come that is the financial positionattained and the financial projection i.e. where the organization will be.R ESPONSIBILITIES TOWARDS B OARD OF D IRECTORSThe Chief Financial Officer is required to furnish necessary and classified information to theboard of directors along with his analysis and suggestions as the Chief Financial Officer attendsthe board meetings, any issue with financial implications is being discussed, the person likely tobe most in command of these implication is on the spot and immediately available for questions.In order to strengthen and formalize corporate decision-making process, significant issues arerequired to be placed for the information, consideration and decision of the boards of directors bythe CFO. These are: • Annual business planes, cash flow projection, forecasts and long term planes. • Budgets include capital, manpower and overhead budgets along with variance analyses. • Quarterly operating results of the company as a whole and in terms of its operating divisions or business segments. • Details of joint ventures or collaboration agreements or agreements with distributors, agents, etc. • Default in payment of principal and/or interest, including penalties on late payments and other dues, to a creditor, bank or financial institution, or default in payment of public deposit. • Failure to recover material amounts of loans, advances, and deposits made by the company, including trade debts and inter-corporate finances. • Significant public or product liability claims likely to be made against the company, including any adverse judgment or order made on the conduct of the company.

96. P a g e | 96R ESPONSIBILITIES TOWARDS S HAREHOLDERSThe Chief Financial Officer is required to provide all the necessary data to be presented in the“Director’s Report”. For this purpose Chief Financial Officer must ensure the following. • The financial statement, prepared by the management of company, present fairly its states of affairs, the results of its operation, cash flows and changes in equities. • Proper books of

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accounts of the company have been maintained • Appropriate accounting policies have been consistently applied in preparation in financial statements and accounting estimates are based on reasonable and prudent judgment. • International accounting standards, as applicable in Pakistan, have been followed in preparation of financial statements and any departure there from has been adequately disclosed. • The system of internal control is sound in design and has been effectively implemented and monitored. • There are no significant doubts upon the companies’ ability to continue as going concern. • There has been no material departure from the best practice of corporate governance as detailed in the listing regulations.I NTERNAL AND E XTERNAL R EPORTINGChief Financial Officer now has extensive responsibilities for internal and external reporting. Allthe information required for decision-making by the Board of Directors and Chief Executive isprocessed and furnished by the Chief Financial Officer. Apart from this, external reportingrequirement is fulfilled by Chief Financial Officer, the accounts and financial statements aresigned by the Chief Financial Officer before they are sent to concerned authorities.CCG requiresthat the listed companies submit their quarterly accounts to the shareholders within one month ofthe close of the first and third quarter of year of account. The CCG does not prescribe the timefor submitting half yearly accounts to the shareholders. Here we can refer to section 245 ofcompanies’ ordinance 1984 for this purpose, which requires half yearly accounts to be submittedwithin two months of the close of first half. The CCG requires a limited review of half yearly

97. P a g e | 97accounts by external auditor. Annual audited accounts are now required to be submitted withinfour months of the close of financial year.The Securities and Exchange Commission of Pakistan is exercising strict vigilance to ensurecompliance of 4th and 5th schedule of the Companies Ordinance, 1984 and timely submission ofaccounts by companies. It has recently imposed penalties on Directors of nine listed companieswho failed to prepare and circulate the quarterly accounts. Furthermore, fines have been imposedon chief executives.

98. P a g e | 98USE OF ELECTRONIC DATA IN DECISION MAKINGThe technological development in the field of information systems make it possible formanagement to use electronic data in decision making. An understanding of the effective andresponsible use and management of information systems and technologies is important formanagers, business professionals, and other knowledge workers in today’s internetworkedenterprises. Information systems play a vital role in the e-business and e-commerce operations,enterprise collaboration and management, and strategic success of businesses that must operatein an internetworked global environment. Thus, the field of information systems has become amajor functional area of business administration. The management of a business can useinformation systems in their decision making process. Before proceeds it’s important to discussprecisely about decision making.Decision making can be regarded as an outcome of mental processes leading to the selection of

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acourse of action among several alternatives. Every decision making process produces a finalchoice.30 The output can be an action or an opinion of choice. A significant part of decisionmaking skills is in knowing and practicing good decision making techniques. One of the mostpractical decision making techniques can be summarized in following simple decision makingsteps: 1. Identify the purpose of your decision. What is exactly the problem to be solved? Why it should be solved? 2. Gather information. What factors does the problem involve? 3. Identify the principles to judge the alternatives. What standards and judgment criteria should the solution meet? 4. Brainstorm and list different possible choices. Generate ideas for possible solutions. See more on extending your options for your decisions on my brainstorming tips page.

99. P a g e | 99 5. Evaluate each choice in terms of its consequences. Use your standards and judgment criteria to determine the cons and pros of each alternative. 6. Determine the best alternative. This is much easier after you go through the above preparation steps. 7. Put the decision into action. Transform your decision into specific plan of action steps. Execute your plan. 8. Evaluate the outcome of your decision and action steps. What lessons can be learnt? This is an important step for further development of your decision making skills and judgment.The decision making of Management of National Bank of Pakistan rely on information systemresources which includes people and a variety of hardware, software, data, and communicationsnetwork technologies as resources to collect, transform, and disseminate information in Bank.INFORMATION SYSTEM RESOURCES OF NBP A) PEOPLE RESOURCESPeople are required for the operation of all information systems. These people resources includeend users and Information system Specialists. The Management and employees of National Bankof Pakistan are end users and Knowledge workers of information system. These are theemployees of the Bank who spend most of their time communicating and collaborating in teamsand workgroups and creating, using and distributing information.The Information systems Specialist are people who develop and operate information systems.They include System analysts, software developers, system operators, and other managerial,technical, and clerical IS personnel of National Bank of Pakistan. The system analysts ofNational Bank of Pakistan design information systems of the Bank based on the informationrequirements of the end users. The software developers create computer programs based on thespecification of system analysts of National Bank of Pakistan. B) HARDWARE RESOURCES

100. P a g e | 100The Hardware resources of National Bank of Pakistan include all physical devices and materialsused in information processing. Specifically, it includes not only machines, such as computersand other equipments, but also all data media, that is, tangible objects on which data arerecorded, from sheets of paper to magnetic or optical disks. C) SOFTWARE RESOURCESThe software resources of National Bank of Pakistan include all sets of information processinginstructions. It also includes sets of

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operating instructions called programs, which direct andcontrol computer hardware. The followings are the examples of National Bank of Pakistan’ssoftware resources: • System Software: The National Bank of Pakistan uses Windows Operating Systems for controls and supports the operations of a computer system. • Application Software: These are the programs that direct processing for a particular use of computers by employees of the Bank. Bank uses BBO system, Microsoft Office suit as application software. D) DATA RESOURCESThe data resources of National Bank of Pakistan are typically organized, stored, and accessed bya variety of data resource management technologies. The data about Branch transactions isaccumulated, processed, and stored in a BBO system that can be accessed by Manager for ananalysis and decision making. E) NETWORK RESOURCESThe network resources of National Bank of Pakistan include: • Communication Media: The Bank’s communication media include cellular and landline. • Network Support: The Bank uses hardware, software, and data technologies which are needed to support the operation and use of a communication network. The Bank uses

101. P a g e | 101 communication processers such as Modems and internetwork processors, and communication control software such as network operating systems and Internet Browser packages (Opera).SOURCES OF FUNDSRupees in MillionsYear 2004 2005 2006 2007 2008Share Capital 4,924,106 5,908,927 7,090,712 8,154,319 8,969,751Reserves 10,813,914 13,536,041 13,879,260 15,772,124 19,941,047Borrowings 11,084,790 8,756,847 11,704,079 10,886,063 40,458,926Deposits 465,571,717 463,426,602 501,872,243 591,907,435 624,939,016Other Liabilities 23,068,314 24,974,450 26,596,300 30,869,154 39,656,831 Horizontal Analysis (%)Share Capital 100 120 144 166 182Reserves 100 125 128 146 184Borrowings 100 79 106 98 365Deposits 100 100 108 127 134Other Liabilities 100 108 115 134 172The National Bank of Pakistan’s sources of funds includes share capital, reserves, borrowings,deposits and other liabilities etc. To analyze trend, Horizontal analysis of each item is calculated.

102. P a g e | 102A NALYSISThe Share capital refers to the portion of a Banks equity that has been obtained by trading stockto a shareholder for cash or an equivalent item of capital value. The share capital of NationalBank of Pakistan shows an increasing trend in all years as compare to base year. The increase inshare capital during all years indicates share holder’s concern toward National Bank of Pakistanand efficient bank’s Management policies.A NALYSISThe Banks’ reserves are banks holdings of deposits in accounts with their central bank pluscurrency that is physically held in bank vaults (vault cash). The reserves of National Bank ofPakistan fluctuate during all years as they show an increasing trend. The reserves are increased25 %, 28 % & 46 % in the years 2005, 2006 & 2007 respectively. The year 2008 representshighest increasing percentage of 84% as compare to base and previous years.

103. P a g e | 103A NALYSISThe National Bank of Pakistan’s borrowings fluctuates during all years and shows a mixed trend.The borrowings were decreased 21 % in 2005;

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however same are increased 6 % in 2006 ascompare to base year. There was a marginal decrease of 2% in bank’s borrowings in the year2007. The year 2008 represents highest percentage of borrowings as these were increased to 265% comparing with base year and are increased 267 % as compare to 2007.A NALYSISThe deposits and other accounts of National Bank of Pakistan show a mixed trend during allyears. In the year 2005 the deposits were increased very marginally, with the year 2006represents an increase of 8% as compare to base year. The year 2007 represents second highestpercentage as deposits are increased to 27%. The year 2008 indicates an increase of 34%, highestamong all years.

104. P a g e | 104 A NALYSIS The other liabilities of National Bank of Pakistan are fluctuating during all years and show an increasing trend. The year 2005 indicates an increase of 8 % and 2006 indicates an increase of 15%. The other liabilities in the year 2007 represent an increase of 34%. The other liabilities were on their peak percentage in 2008 as the shows an increase of 72%. GENERATION OF FUNDSRupees inMillionsYear 2004 2005 2006 2007 2008Markup/return/interest earned 20,947,333 33,692,665 44,100,934 50,569,481 60,942,798Net markup/interest income 14,387,935 23,370,897 30,153,716 33,629,470 37,058,030Net markup/interest income after provisions 12,639,770 21,146,970 27,782,170 28,906,735 26,087,216Total non-markup/ Interest income 8,304,716 9,392,351 12,162,892 13,544,845 16,415,862Total income ( Interest + non-Interest) 20,944,486 30,539,321 39,945,062 42,451,580 42,503,078PROFIT BEFORE TAXATION 11,977,601 19,056,028 26,310,577 28,060,501 23,000,998 Horizontal Analysis (%)Markup/return/interest earned 100 161 211 241 291Net markup/interest income 100 162 210 234 258Net markup/interest income after provisions 100 167 220 229 206Total non-markup/ Interest income 100 113 146 163 198Total income ( Interest + non-Interest) 100 146 191 203 203PROFIT BEFORE TAXATION 100 159 220 234 192 The National Bank of Pakistan’s generation of funds include • Interest earned • Net interest income • Net interest income after provisions • Total non markup interest income • Total income ( Interest plus non- Interest)

105. P a g e | 105 • Profit before TaxationA NALYSISThe interest earned by National Bank of Pakistan fluctuates during all years, as it was increasedduring all years as compare to base year. The interest earned is increased 61% in 2005 and 111%in 2006. The year 2007 represents second highest percentage on account of interest earned as itwas increase 141 %. The year 2008 represents peak percentage of 191 % as compare to all years.A NALYSISThe net markup/ Interest income of National Bank of Pakistan fluctuates during all years as itshows an increasing trend. It was increased 62 % in 2005 and 110% in 2006 as compare to baseyear. The year 2007 represents second highest percentage on account of Net markup/ Interestincome as it was increased to 134%,

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comparing with base year. The percentage is increased 158% in 2008, highest among all years.

106. P a g e | 106A NALYSISThe net markup/ interest income after provisions fluctuates and shows a mixed trend during allyears. It was increased 67% (2005), 120% (2006) and 129% in 2007. The income is increased106 % as compare to base year but the same was decreased by 23% as compare to 2007.A NALYSISThe Total non- markup/ Interest income of National Bank of Pakistan shows an increasing trendduring all years. It was increased 13% in 2005 and 46% in 2006. The income is increased 63 %in 2007, second highest among all years. There was an increase of 98% in 2008, highest amongall years.

107. P a g e | 107A NALYSISThe total income of National Bank of Pakistan shows an increasing trend. It was increased 46%in 2005 and 91% in 2006. The total income is increased 103% in 2007 and also increase verymarginally in 2008.A NALYSISThe profit before taxation of National Bank of Pakistan fluctuates and shows a mixed trendduring all years. It was increased 59% in 2005 and 120% in 2006. The year 2007 representshighest percentage on account of profit before taxation as it was increased to 134%. The year

108. P a g e | 108 2008 indicates an increase of 92% as compare with base year but it was decreased in 2008 by 42% as compare to 2007. ALLOCATION OF FUNDSRupees inMillionsYear 2004 2005 2006 2007 2008Lending’s to Financial Institutions 10,511,322 16,282,942 23,012,732 21,464,600 17,128,032Investments 149,350,096 156,985,686 139,946,995 210,787,868 170,822,491Advances 220,794,075 268,838,779 316,110,406 340,677,100 412,986,865Operating Fixed Assets 9,202,969 9,454,365 9,681,974 25,922,979 24,217,655Other Assets 19,141,569 23,941,056 37,113,698 30,994,965 44,550,347 Horizontal Analysis (%)Lending’s to Financial Institutions 100 155 219 204 163Investments 100 105 94 141 114Advances 100 122 143 154 187Operating Fixed Assets 100 103 105 282 263Other Assets 100 125 194 162 233 After the acquisition of the funds their allocation becomes necessary. The Bank seeks the best way for making investment to get more profit with the maximum security. The Bank has an investment portfolio in which it allocate its funds for crediting to borrowers, investment in the stock market etc. The National Bank of Pakistan allocate its funds in Lending’s to financial

109. P a g e | 109institutions, investments, advances, operating fixed assets and other assets etc. To analyze trendin these items, Horizontal analysis of each item is calculated.A NALYSISThe lending’s to financial institutions by National Bank of Pakistan fluctuates during all years.The lending’s increased by 55 % in 2005. The year 2006 represents highest percentage of 119 %among all years on account of lending’s to financial institutions. The year 2007 also shows anincrease of 104 % as compare to base

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year. The year 2008 indicates an increase of 63% ascompare to base year but lending’s decreased by 41% in 2008 as compare to the year 2007.A NALYSIS

110. P a g e | 110The investments made by National Bank of Pakistan fluctuate during all years. There was anincrease of 5 % in 2005. The year 2006 indicates a decrease of 6% in investments. The year 2007represents an increase of 41 %, highest among all years. The investments are increased 14 % in2008 as compare to base year; however investments are decreased 27 % as compare to the year2007.A NALYSISThe advances made by National Bank of Pakistan shows an increasing trend in all years ascompare to base year. This implies that National Bank of Pakistan is keener to advance money tolenders. The advances were increased 22 % in the year 2005 and 43 % in 2006 as compare tobase year. The year 2007 represents an increase of 54 % and 2008 represents highest percentageamong all years that is 87 % as compare to base year.A NALYSIS

111. P a g e | 111The operating fixed assets of National Bank of Pakistan shows a mixed trend during all years.There was an increase of 3 % in 2005 & 5 % in 2006. There was a very sharp increase inoperating fixed assets in the year 2007 of 182 % as compare to base year. There was an increaseof 163% in 2008 as compare to base year but the same was decreased by 19% as compare to2007.A NALYSISThe other assets of National Bank of Pakistan are fluctuating during all years. The other assetsare increased 25 % in 2005 and 94 % in 2006. The year 2007 indicates an increase of 62% ascompare to base year. The other assets of National Bank of Pakistan are on their peak percentageof 133 % in 2008 as compare with base year.

112. P a g e | 112CRITICAL ANALYSIS (THEORY VS PRACTICAL)During Internship it was my prime objective to furnish my knowledge (Theory) to variouspractical situations. The practical work presents an analytical problem while relating theory withpractice. As a result, analysis of practical versus theory requires a distinct approach. This part ofreport is the essence of the internship, as this will help to better understand the workingenvironment of the bank by finding the relationship between what is written in the books andwhat is actually going on in fields. The theory written in the books in cases is not implementedas it is. In some cases theory is implemented with a little modification but in other cases theoryhas nothing to do with practice. In accounting, banks don’t prepare worksheet, but part of worksheet is prepared like trialbalance. The securities for the loans are handled in the same way as theory says like mortgage,pledge, hypothecation, advances against insurance policies or liquidation procedure is the same.There is some difference lies in types of loans in bank that is theory talks about four or five typesof loans that is cash finance, overdraft, loans etc., but in practice there are some more types usedby bank like running finance, demand finance etc. All other concepts of remittances, bills,

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113. P a g e | 113foreign exchange deposits, letters of credit are in accordance with theory almost. A banksbalance sheet is different from that of a typical company. You wont find inventory, accountsreceivable, or accounts payable. Instead, under assets, youll see mostly loans and investments,and on the liabilities side, youll see deposits and borrowings.C ONCLUSION To me, Theory gives the direction to understand the processes and the terminologies goingacross the World using best business practices in a broader view covering each and every aspectof possible business scenarios. On the contrary practical life is specific, enclosed in a jar.

114. P a g e | 114 BALANCE SHEET Rupees in MillionsASSETS 2004 2005 2006 2007 2008Cash and balances with treasurybanks 94,446,552 71,196,956 78,625,227 94,873,249 106,503,756Balances with other banks 49,784,884 31,019,330 40,641,679 37,472,832 38,344,608Lending’s to financial institutions 10,511,322 16,282,942 23,012,732 21,464,600 17,128,032 149,350,09 156,985,68 139,946,99 210,787,86Investments 6 6 5 8 170,822,491 220,794,07 268,838,77 316,110,40 340,677,10Advances 5 9 6 0 412,986,865Other assets 19,141,569 23,941,056 27,113,698 30,994,965 44,550,347Operating fixed assets 9,202,969 9,454,365 9,681,974 25,922,979 24,217,655Deferred tax assets _ _ _ _ 3,204,572 553,231,4 577,719,11 635,132,71 762,193,59 67 4 1 3 817,758,326LIABILITIESBills payable 7,214,671 1,741,156 10,605,663 7,061,902 10,219,061Borrowings from financial institutions 11,084,790 8,756,847 11,704,079 10,886,063 40,458,926 465,571,71 463,426,60 501,872,24 591,907,43Deposits and other accounts 7 2 3 5 624,939,016Sub-ordinated loans _ _ _ _ _Liabilities against assets subject tofinance lease 17,058 16,629 13,235 33,554 25,274Other liabilities 23,068,314 24,974,450 26,596,300 30,869,154 39,656,831Deferred tax liabilities net 29,185 4,462,718 2,387,073 5,097,831 _ 506,985,7 503,378,4 553,178,5 645,855,9 715,299,10 35 02 93 39 8 46,245,7 74,340,7 81,954,1 116,337,6 102,459,21NET ASSETS 32 12 18 54 8REPRESENTED BYShare capital 4,924,106 5,908,927 7,090,712 8,154,319 8,969,751Reserves 10,813,914 13,536,041 13,879,260 15,772,124 19,941,047Unappropriated Profit 9,161,747 16,713,506 32,074,677 45,344,188 52,456,204 24,899,7 67 36,158,474 53,044,649 69,270,631 81,367,002Surplus 21,345,965 38,182,238 28,909,469 47,067,023 21,092,216

115. P a g e | 115 46,245,7 74,340,7 81,954,1 116,337,6 102,459,21 32 12 18 54 8 INCOME STATEMENT Rupees in Millions 2004 2005 2006 2007 2008Markup/return/interest earned 20,947,333 33,692,665 44,100,934 50,569,481 60,942,798Markup/return/interest expensed 6,559,398 10,321,768 13,947,218 16,940,011 23,884,768Net markup/interest income 14,387,935 23,370,897 30,153,716 33,629,470 37,058,030Provisions against non-performing advances 1,515,354 2,446,739 3,075,723 4,723,084 10,593,565provision for/(reversal of) diminution in the valueof investments 185,707 -245,881 -709,461 -40,248 373,249provision against off balance sheet obligations 14,297 Nil Nil Nil 4,000bad debts written off directly 32,807 23,069

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5,284 39,899 Nil 1,748,165 2,223,927 2,371,546 4,722,735 10,970,814Net markup/interest income after provisions 12,639,770 21,146,970 27,782,170 28,906,735 26,087,216NON MARKUP/ INTEREST INCOMEFee, Commission & brokerage income 5,099,195 4,926,604 6,144,628 6,781,683 7,925,370Dividend income 1,273,863 1,718,478 2,891,755 3,263,246 2,878,932Income form dealing in foreign currencies 1,008,988 1,205,638 1,333,840 1,042,827 3,969,057Gain on sale & redemption of securities-net 47,557 1,365,771 1,169,515 2,341,690 395,427Investments classified as held for trading Nil -1,979 -4,464 -31,964 1,707Other income 875,113 177,839 627,618 147,363 1,245,369Total non-markup/ Interest income 8,304,716 9,392,351 12,162,892 13,544,845 16,415,862Total income ( Interest + non-Interest) 20,944,486 30,539,321 39,945,062 42,451,580 42,503,078NON MARKUP/ INTERSET EXPENSESAdministration expenses 8,878,801 11,221,789 13,443,441 14,205,911 18,171,198Other provisions written off 32,243 198,298 -17,283 168,027 747,521Other charges 8,284 63,206 208,327 17,141 583,361Total non markup/ Interest expenses 8,919,328 11,483,293 13,634,485 14,391,079 19,502,080PROFIT BEFORE TAXATION 11,977,601 19,056,028 26,310,577 28,060,501 23,000,998Taxation Current 4,950,000 7,154,002 8,695,598 8,311,500 11,762,650 Prior years 847,958 -1,098,709 530,652 391,497 Nil Deferre d -15,729 291,291 61,981 323,731 -4,220,242 5,782,229 6,346,584 9,288,231 9,026,728 7,542,408PROFIT AFTER TAXATION 6,195,372 12,709,444 17,022,346 19,033,773 15,458,590Unappropriated Profit brought forward 5,892,902 9,161,747 19,372,523 32,074,677 45,344,188Transfer from surplus on revaluation of fixedassets on account of incremental depreciation 45,496 43,221 41,060 39,007 130,456

116. P a g e | 116Profit available for appropriation 12,133,770 21,914,412 36,435,929 51,147,457 60,933,234 FINANCIAL STATEMENTS ANALYSIS Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. The goal in analyzing financial statements is to assess past performance and current financial position and to make predictions about the future performance of a company. Investors who buy stock are primarily interested in a companys profitability and their prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Creditors and investors who buy debt securities, such as bonds, are more interested in liquidity and solvency: the companys short-and long-run ability to pay its debts. Financial analysts, who frequently specialize in following certain industries, routinely assess the profitability, liquidity, and solvency of companies in order to make recommendations about the purchase or sale of securities, such as stocks and bonds. The analysis of financial statement refers to the examination of the statements for the purpose of

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acquiring additional information regarding the activities of the business. The users of the financial information often find analysis desirable for the interpretation of the firm’s activities. The overall objective of financial statement analysis is the examination of a firm’s financial position and returns in relation to risk. This must be done with a view to forecasting the firm’s future prospective. Analysts can obtain useful information by comparing a companys most recent financial statements with its results in previous years and with the results of other companies in the same industry. Three primary types of financial statement analysis are commonly known as horizontal analysis, vertical analysis, and ratio analysis.

117. P a g e | 117RATIO ANALYSISRatio analysis enables the analyst to compare items on a single financial statement or to examinethe relationships between items on two financial statements. After calculating ratios for eachyears financial data, the analyst can then examine trends for the company across years. Sinceratios adjust for size, using this analytical tool facilitates intercompany as well as intercompanycomparisons. Ratios are often classified using the following terms: profitability ratios (alsoknown as operating ratios), liquidity ratios, and solvency ratios. Profitability ratios are gauges ofthe companys operating success for a given period of time. Liquidity ratios are measures of theshort-term ability of the company to pay its debts when they come due and to meet unexpectedneeds for cash. Solvency ratios indicate the ability of the company to meet its long-termobligations on a continuing basis and thus to survive over a long period of time. Financial ratiosallow for comparison: • Between companies • Between industries • Between different time periods for one company • Between a single company and its industry average A) PROFITABILITY RATIOSThe continued viability of any bank depends on its ability to earn an appropriate return on itsassets and capital. Good earning performance enables a bank to fund its operations, remaincompetitive in the market and increase or decrease in market funds. Profitability ratios relateprofit to sales and investments. These ratios indicate the firm’s overall effectiveness ofoperations and give us idea how well firm utilized its resources in generating profit andshareholder value.

118. P a g e | 118G ROSS P ROFIT M ARGIN R ATIOGross profit margin ratio is used to assess the profitability of a Banks core activities. Gross profitmargin indicates the relationship between gross profit and interest earned. A high gross profitmargin indicates that a Bank can make a reasonable profit.Formula = Gross Profit / Interest earned (Revenue) Year 2004 2005 2006 2007 2008 Ratio 57.17 56.55 59.65 55.48 37.74 %A NALYSISThe Year 2006 has been an outstanding year with the bank recording the highest profit in itshistory i.e.., 59.65 %.The National Bank of Pakistan’s wide range of product offering, largebranch network and committed workforce are some of fundamental strengths that enabled NBPto achieve exceptional in a very competitive market. The gross profit is 37.74% in 2008. Thelowest percentage among all years.N ET P ROFIT M ARGIN R ATIONet profit margin measures the percentage of revenue

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remaining after all cost and expenses,including interest and taxes have been deducted.Formula = Net Profit after Taxes / Interest earned Year 2004 2005 2006 2007 2008 Ratio 29.57 37.72 38.59 37.63 25.36 %

119. P a g e | 119A NALYSISNet profit margin shows positive trend till 2006 and was the highest in the same year as it was38.59%, the percentage is decreased in 2007 as it was 37.63%. The net profit margin is on itslowest level at the end of 2008 as it indicates a percentage of 25.63%. The primary reason of thisdecline is current global economic conditions and current political crisis in Pakistan.A SSETS T URNOVERThis ratio is useful to determine the amount of revenue that is generated from each Rupee ofassets. The Banks with low profit margins tend to have high asset turnover, those with high profitmargins have low asset turnover.Formula = Revenue/ Total Assets Year 2004 2005 2006 2007 2008 Rati 0.03 0.05 0.06 0.05 0.05 o

120. P a g e | 120A NALYSISThe year 2004 represents a ratio of 0.03, lowest among all years. The years 2005, 2007 and 2008indicates almost same percentage of 0.05% on account of bank’s assets turnover. The NationalBank of Pakistan’s assets turnover in 2006 is 0.06, peak ratio among all years.R ETURN ON C APITAL F UNDThis ratio relates the net profits to the amount of capital funds that have been employed inmaking that profit.Formula = Net markup received / Capital Funds Year 2004 2005 2006 2007 2008 Ratio 2.92 3.95 4.25 4.12 4.13A NALYSIS

121. P a g e | 121The above given ratios suggest that the profitability of the bank has a mixed trend during fiveyears. The first three years 2004 (2.92), 2005 (3.95), 2006 (4.95) shows an increasing trend,indicating more profitable operations of the bank. It was decreased in the year 2007 (4.12) andhas increased in 2008 as the ratio was 4.13.R ETURN ON I NVESTMENTThis ratio indicates the profit earned by the bank on the resources employed.Formula = Net income after taxes / Total Assets Year 2004 2005 2006 2007 2008 Rati 0.011 0.021 0.026 0.024 0.018 oA NALYSISThere was an increase in the utilization of the resources till 2006 i.e.., 0.011(2004), 0.021 (2005)and 0.026 (2007). The ratio was decreased to 0.024 (2007) and 0.018 (2008).R ETURN ON D EPOSITSThis ratio indicates to what extent deposits which represent funds mobilization on the part of thebank contribute towards income generation.Formula = Net income before taxes / Total Deposits Year 2004 2005 2006 2007 2008 Rati 0.025 0.041 0.052 0.047 0.036 o

122. P a g e | 122A NALYSISDuring all five years the return on deposits ratio of National Bank of Pakistan shows a mix trend.The year 2006 (0.052) was the best year for bank in terms of its funds mobilization. Although theratio was decreasing in 2008 (0.036), indicating Bank is more keen to kept deposits and a changein policy of the Bank regarding its funds mobilization.E FFECTIVE T AX R ATEThis ratio is a measurement of a companys tax rate, which is calculated by comparing its incometax expense to its

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pretax income. This amount will often differ from the companys statedjurisdictional rate due to many accounting factors, including foreign exchange provisions. Thiseffective tax rate gives a good understanding of the tax rate the company faces.Formula = Income Tax expense/ Pretax Income Year 2004 2005 2006 2007 2008 Ratio 0.48 0.33 0.35 0.32 0.32 %

123. P a g e | 123A NALYSISThe effective tax rate of National Bank of Pakistan was highest in the year 2004 (0.48%).However bank is able to reduce its tax burden because the Bank is able to adopt Taxmanagement techniques to lessen the tax burden. A relatively stable effective tax rate percentage,and resulting net profit margin, would seem to indicate that the Banks operational managers aremore responsible for a companys profitability than the companys tax accountants. B) LIQUIDITY RATIOSThe liquidity position of a bank is like a reservoir. It may be adequate, although nearly depleted,just before the start of the rainy season. Or it may be inadequate, although three quarters full justbefore the summer drought.Liquidity can be defined as:“The bank’s ability not only to meet possible deposit withdrawals but also to provide for thelegitimate needs of the economy as well”C URRENT R ATIOCurrent ratio is a measure of the current adequacy of companys current assets to meet its currentobligations. It must be greater than 1. If it is less than 1, liabilities exceed current assets. Forevery Rs.1 of liabilities, the company has a ratio amount of current assets available. The conceptbehind this ratio is to ascertain whether a companys short-term assets (cash, cash equivalents,marketable securities, receivables and inventory) are readily available to pay off its short-term

124. P a g e | 124liabilities (notes payable, current portion of term debt, payables, accrued expenses and taxes). Intheory, the higher the current ratio, the better.Formula = Current Assets / Current Liabilities Yea 2004 2005 2006 2007 2008 r Ratio 0.83 0.96 1.02 1.00 1.12A NALYSISThe year 2004 (0.83) and 2005 (0.96) were not satisfied for bank as current assets are less thancurrent liabilities. However, in 2006 (1.02) the management of National Bank of Pakistan is ableto overcome this problem. The year 2007 (1.00) is also good for bank as per standards of thisratio. Again in the year 2008 (1.12) the management of bank is able to increase its current ratio.C ASH R ATIOThis ratio shows that the cash is enough for payment of current liabilities or not. This ratio isobtained by dividing cash by current liabilities. For a bank this is the cash held by the bank as aproportion of deposits in the bank.Formula = Cash / Current Liabilities Year 2004 2005 2006 2007 2008 Ratio 4.09 2.85 2.96 3.07 2.69

125. P a g e | 125A NALYSISThe cash ratio of National Bank of Pakistan shows a mixed trend during five years of operations.During all years, the ratio is satisfactory as per standards of this ratio. The year 2004 (4.09),representing highest and 2005 (2.85) & 2008 (2.69), representing lowest ratio in all five years.A DVANCES TO D EPOSIT R ATIOIt demonstrate the degree to which bank has already used up its available resources toaccommodate the credit needs of its customers.Formula = Advances / Total Deposits

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Year 2004 2005 2006 2007 2008 Ratio% 47.42 58.01 62.99 57.56 66.08A NALYSISThis ratio, a comparison of funds generation and its funds mobilization, indicates the total loanssanctioned by the bank in relation to total amount of money deposited with the bank, stands

126. P a g e | 126highest in 2008 ( 66.08%) as compared with the previous year figures. This shows that the bankhas greater potential to advance additional loans. During all other years the ratio is quietsatisfactory representing National Bank of Pakistan’s credit management decisions.D UE FROM B ANKS TO T OTAL A SSETSIt is an indication of Bank’s funds management policies.Formula = Due from banks / Total Assets Year 2004 2005 2006 2007 2008 Ratio 0.019 0.028 0.036 0.028 0.021A NALYSISThe National Bank of Pakistan’s due from banks to total assets ratio is fluctuating and indicates amixed trend during all years. The ratio is 0.019 in 2004 and 0.028 in the year 2005. The year2006 represents highest ratio of 0.036 among all years. There was a decrease in ratio at the endof financial year 2007 that is 0.028. The year 2008 represents a decrease in ratio (0.021) onaccount of due from banks to total assets.D UE FROM B ANKS TO D UE TO B ANKSIt shows the relationship between what the bank owes from other banks and what is due to it.Formula = Due from banks / Due to banks Year 2004 2005 2006 2007 2008 Ratio 94.83 185.95 196.62 197.18 42.33

127. P a g e | 127 %A NALYSISThe ratio indicates an increasing trend till 2007 that is 94.83 (2004), 185.95 (2005), 196.62(2006) and 197.18 in 2007. The year 2008 represents the lowest percentage of 42.33 on accountof due from banks to due to banks.D UE TO B ANKS TO T OTAL D EPOSITSThis ratio is an indicative of the proportion of the lending from the financial institutions inrelation to the total funds raised by the bank in the form of deposits.Formula = Due to banks / Total Deposits Year 2004 2005 2006 2007 2008 Rati 0.024 0.019 0.023 0.018 0.065 o

128. P a g e | 128A NALYSISThe due to banks to total deposits ratio of National Bank of Pakistan is fluctuating and indicatesa mixed trend during all years. The ratio is 0.024 in 2004 and decreased to 0.019 in 2005. Theratio is increased in 2006 as the ratio is 0.023. The year 2007 represents the lowest percentage of0.018 and the year 2008 represents the peak percentage of 0.065. C) DEBT RATIOSThese ratios give users a general idea of the companys overall debt load as well as its mix ofequity and debt. Debt ratios can be used to determine the overall level of financial risk acompany and its shareholders face. In general, the greater the amount of debt held by a companythe greater the financial risk of bankruptcy.T HE D EBT TO E QUITY R ATIOThe debt-equity ratio compares a companys total liabilities to its total shareholders equity. Thisis a measurement of how much suppliers, lenders, creditors and obligors have committed to thecompany versus what the shareholders have committed.To a large degree, the debt-equity ratio provides another vantage point on a companys leverageposition, in this case, comparing total liabilities to shareholders equity, as opposed to total assetsin the debt

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ratio. Similar to the debt ratio, a lower the percentage means that a company is usingless leverage and has a stronger equity position.Formula = Total Liabilities/ Total Shareholder’s equity

129. P a g e | 129 Year 2004 2005 2006 2007 2008 Rati 112.35 97.77 89.57 93.47 91.17 oA NALYSISThe debt to equity ratio of National Bank of Pakistan shows a ratio of 112.35 % in 2004. Theratio is decreased to 97.77% in the year 2005. The ratio is further decreased in 2006 as it shows apercentage of 89.57%. There was an increase in the ratio as it shows a percentage of 93.47%.The year 2008 represents the ratio of 91.17% .I NTEREST C OVERAGE R ATIOIt shows whether the bank is earning enough profit before mark up charges to be paid to thefinanciers and the taxation obligations due to the government in order to remain solvent. Theinterest coverage ratio is used to determine how easily a company can pay interest expenses onoutstanding debt. The ratio is calculated by dividing a companys earnings before interest andtaxes (EBIT) by the companys interest expenses for the same period. The lower the ratio, themore the company is burdened by debt expense. When a companys interest coverage ratio isonly 1.5 or lower, its ability to meet interest expenses may be questionable.Formula = Earnings before interest & Taxes / Interest expense Year 2004 2005 2006 2007 2008 Ratio 1.83 1.85 1.89 1.66 0.97 times times times times times

130. P a g e | 130A NALYSISThe amount of interest a Bank pays in relation to its revenue and earnings is tremendouslyimportant. The National Bank of Pakistan’s interest coverage ratio is 1.83 times in the year 2005.The ratio was increased in the years 2005 and 2006 as it was 1.85 times & 1.89 timesrespectively. There sudden decrease of 1.66 times is observed in 2007. The ratio is furtherdecrease to 0.97 times in 2008, representing the lowest ratio among all years.L OAN L OSS C OVERAGE R ATIOBanks use the loan-loss coverage ratio to define the quality of its assets and how well it protectsitself from losses caused by problematic loans. The higher this ratio is, the better the bank ishandling itself in regards to loans.Formula = Provision against non-performance loans & advances/ Profit or loss before taxation Year 2004 2005 2006 2007 2008 Rati 0.13 0.13 0.12 0.17 0.47 o

131. P a g e | 131A NALYSISThe loan loss coverage ratio of National Bank of Pakistan is almost same in the years 2004 and2005 as it was 0.13 in both years. There was a slight decrease in this ratio as it was 0.12 in 2006.The year 2006 shows an increase in loan loss coverage ratio as it was 0.17. The year 2008represents highest ratio of 0.47 on account of loan loss coverage, as compare to all years. D) CAPITAL ADEQUACY RATIOSC APITAL F UNDS TO T OTAL A SSETSThis ratio indicates the extent of the funds employed by the bank in the total resources as shownin the balance sheet.Formula = Capital Funds / Total Assets Year 2004 2005 2006 2007 2008 Ratio 0.89 1.02 1.10 1.07 1.09 %

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