Internship report on nbp 3(1)

Chapter – 10 Implementation Plan

CHAPTER 1

INTRODUCTION OF STUDY

1.1 Background of Studies

As part of the academic requirement for completing MBA (Banking and Finance) Master

Business Administration of the students are required to under go six months of internship

with an organization. The internship is to serve the purpose of acquainting the students

with the practice of knowledge of the discipline of banking administration.

This report is about National Bank Pakistan. NBP was established in 1949 and since

then, it has expended its network, becoming the largest commercial Bank of the country.

It offers different products of services to its customers.

1.2 Purpose of the Studies

The main of the study in hand is together relevant information to compile internship

report on National Bank of Pakistan.

To observe, analyze and interpret the relevant data competently and in a useful manner.

To work practically in an organization.

To develop interpersonal communication.

1.3 Scope of Studies

As an internee in National Bank of Pakistan the main focus of my study research was on

general banking procedures in one of the branches of NBP. These operations include

remittances, deposits, advances and foreign exchange.

Similarly different aspects of overall of NBP are also covered in this report.

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1.4 Research Methodology

The report is based on my two months internship program in National Bank of Pakistan.

The methodology reported for collection of data is primary as well as secondary data.

The biggest source of information is my personal observation while working with staff

and having discussion with them. Formally arranged interviews and discussions also

helped me in this regards.

Primary data:

Personal observation

Interviews of staff

Secondary data:

Manuals

Journals

Magazine

Annual reports

Internet

1.5 Scheme of Study

SECTION 1

Chapter 1:

An introductory chapter that discuss the introduction of study of report, its Background,

Purpose, Scope, Methodology, limitations and Scheme of the report.

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SECTION 2

Chapter2

This chapter concludes brief history of banking in general, evolution of banking, banking

in Pakistan..

Chapter3:

This chapter consist Nationalization of banking in Pakistan, History of NBP, mission

statement, its objectives and functions of National Bank of Pakistan.

Chapter4: In this chapter the services of NBP were discussed.

SECTION III

Chapoter5: In this chapter the in this section the departmentation of NBP is explained,

and also NBP Hayatabad township branch.

SECTION IV

Chapter6:

It tells about Strengths, Weaknesses, Opportunities and Threats of i.e. SWOT analysis of

NBP.

Chapter 7:

It consists of comprehensive performance of NBP through past several years. Ratio

analysis and those parties, which are interested in financial performance of Bank.

Chapter 8:

It covers the critical analysis of the bank. This chapter has been divided into four parts

i.e. Problems at the Branch, Functional analysis, Administrative analysis, and Personal

Management Analysis.

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SECTION V

Chapter 9:

In this chapter recommendation for improvement on all aspects of the Bank are given.

Chapter 10:

Two implementation plans are given in this chapter. “Mare Gare Car Financing Scheme”

and Need for Telephone Operator.

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CHAPTER # 2

EVOLUTION OF BANKS IN PAKISTAN

There are different opinions that how the word ‘Bank’ originated. Some of the author’s

opinion that this word is derived from the word ‘Bancus’ or Banque’, which means a

bench. The explanation of this origin is attributed to the fact that the Jews in Lombard

transacted the business of money exchange on benches in the market place; and when the

business failed, the people destroyed the ‘bench’. Incidentally the word ‘Bankrupt’s said

to have evolved from this practice.

Some of the authors are of opinion that the word ‘Bank’ is derived from the German

word back, which means ‘joint stock fund’. Later on when the German occupied major

part of the Italy the word ‘Back’ was italicized into ‘Back’.

In fact human left the need of bank when it begins to realize the importance of money as

a medium of exchange. Perhaps it where the Babylonian who developed banking system

as early as 2000 BC. At that time temples were used as banks because of their prevalent

respect. During the rule of king Hamurabi (1788 – 1686 BC) the founder of Babylonians

Empire, loans were started being granted for interest. The borrower has to provide

guarantee or he had to pledge his goods or valuables. King Hamurabi drew up a code

wherein he laid down standards rules for procedures for banking operations by temples

and great landowners. Also in Greece, the temples were used as banks, where the people

deposited their money and other valuables for safe custody and security. In Europe with

the ‘revival of civilization’ (Renaissance) in the middle of twelve century, trade and

commerce started expanding and this development compelled the business community to

borrow the money from the Hebrew money lenders on high rates of interest and usury.

Seeing the great demand, these moneylenders started organizing themselves and bank

started up at the principle seaports of southern Europe. Soon Venice and Geneva became

the most important money markets of the time and banking though different from its

present form, flourished. What we know as ‘modern banking’ originated in the 14 th

century in Barcelona.1

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2.1 Definitions of Bank

“Bank”

"A financial institution, which deals with money and credit. It accepts

Deposits from individuals, firms and companies at a lower rate of

Interest and gives at higher rate of interest to those who need them.”2

A financial establishment which uses money deposited by customers for investment, pays

it out when required, makes loan at interest, exchanges currency, etc.

J.W Gilbert in his principles and practice banking defines a banker in these words:

“A banker is dealer in capital or more properly, a dealer in money. He is intermediate

party between the borrower and the lender. He borrows of one and lends to another”.3

Sir John Paget defines banker in these terms:

“That no person or body, corporate or otherwise, can be a banker who does not

Take deposits accounts.

Take current accounts,

Issue and pay Cheques and

Collect Cheques crossed and uncrossed for his customers”4 (The law of

Banking by Sir John Paged, page 51).

The American defined the term banker in a very broad sense as under:

“By banking, we mean the business of dealing in credits and by a ‘Bank’ we

include every person, firm or company having a place of business where credits are

opened by deposits of collection of money or currency. Subjects to be paid or remitted on

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Cheques or order, money is advanced or loaned on stocks, bonds, bullion, bill of

exchange, promissory notes are received for discount or sale”.5

2.2 Evolution of Banking in Pakistan

The first phase in evolution of banking in Pakistan sees very hard days for the whole

banking sector. Starting virtually from scratch in 1947, the country today possesses a full

range of banking and financial institutions to cope with various needs of the economy.

The area now constituting Pakistan was, relatively speaking, fairly well provided with

banking facilities in undivided India, in March 1947 there were 3496 offices of Indian

scheduled banks out of which as many as 487 were situated in territories now constituting

Pakistan.

The Reserve bank of India was the central banking authority in India. At the time of

partition it was decided that in the interest of smooth transition it should continue to

function in newly emerging state of Pakistan, until 30th Sep.1948.

In 1947 due to uncertainty and unsuitability the banking sector suffer heavy losses.

This resulted in a negative effect on baking service in Pakistan. The banks, which had

their registered offices in Pakistan, transferred them to India. In an effort to bring about

the collapse of the new state by pushing a deliberate policy of withdrawals the Indian

bank offices closed quickly. Those banks, which stayed, operated only in name pending

the winding up of their business. The number of scheduled banks thus declined form 487

branches before independence to only 195 branches by 30th June1948.5

2.3 Banking Growth during (1948-1970)

In this tense situation, a committee was immediately setup to formulate a scheme of

central banking legislation for Pakistan. Many specialists were of the opinion that in view

of the acute shortage of trained staff, any idea of establishing a central bank was I

impractical and the best that could be attempted was the setting up of a currency board

until such times as sufficient staff could be organize to operate a central bank.

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The questions as to whether the institution should be only a currency board or a full-

fledged central bank had exercised the mind of the Pakistan government since

independence. Through, it was realized that the shortage of trained personal to run the

central bank would present serious difficulty in view of the tangible advantages that a

central bank enjoyed over currency board, the government ultimately decided to take the

bold step of setting up a full fledged central banking authority. Among other factors,

which led to this decision, there was the fact the banking facilities in the country had

been totally disrupted and there was an urgent need for their rehabilitation, which a

central ban alone could meet. As there was hardly any time to pass as Act, an order was

drafted, known as the state bank of Pakistan order, which was promulgated by the

government of Pakistan on 12th may 1948. The state bank declared open on July 1 , 1948

by the father of the nation.

One of the first tasks of the state bank was to arrange for the replacement of the Reserve

bank of India notes, which had continued to circulate in Pakistan during the transitional

period, by Pakistan currency.

The first Pakistan notes were issued in October 1948 in the denominations of Rs. 5, 10 &

100.

An equally urgent task, which the new central bank had to address itself, was the creation

of a national banking system. To this end, while extending every help and encouragement

to Habib Bank to expand its organization, the state bank recommended the setting up of a

new banking institution to serve both as an agent to the state bank recommended the

setting up of a new banking institution to serve both as an agent of the state bank as well

as the spearhead of its credit polices.

Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in

November 1949. It started with six offices in the former East Pakistan. In view of the

special role assigned to the new institution, contrary to traditional practices the Governor

of the state bank was appointed to head its board of Director in 1950. Under the fostering

care of the state bank and the support of the government, the new institution developed

rapidly. By using its special powers, the state bank made liberal advances to the new

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bank to help it expand credit facilities in the country. By 1952, the National bank of

India. Shortly, afterwards, in November 1952, the governor of the state bank ceased to

function as the president of National bank of Pakistan.

With a view to broadening the institutional framework of the financial system, the state

bank also sponsored the establishment of specialized credit institutions in the filed of

agriculture and industry. Banking companies (control) act was passed in December 1948

specifically empowering the state bank to control the operations of banking companies in

Pakistan.

Moreover realizing that the most serious limitation on the expansion of banking services

in Pakistan was the lack of trained personal, the state bank sponsored a banking training

scheme, which was repeated after year and turned out a large number of bankers.

As the Commercial Banking facilities continued to expand, a new Pakistani bank, the

National Commercial Bank was established and registered as a scheduled bank. In the

filed of industrial finance a new institution known as the industrial credit and investment

cooperation was set up.

The year 1958 marked the completion of the first decade of the working of the State Bank

of Pakistan. When it was established there were only 195 bank offices in existence. At

the end of June 1958 their number had increased to 307, of which Pakistani banks

accounted for 232 against 25 in mid 1948. Moreover at the end of June 1958. Pakistani

banks held 60% of the total banks deposits, and were responsible for 65 of total bank

credit.

When the Ayub Government took over in 1958, the banking and monetary scene was

significantly affected by Developments such as the liberalization of imports, transfer of

business in food grains to the private sector, and the firming up of commodity markets.

The demand of funds picked up and there was a substantial expansion of bank credit to

the private sector. The pace of expansion in the institutional frame work of the country’s

banking system quickened and a new Pakistani, bank, namely the United Bank Limited

was established.

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Owning the five years 1960-65, the credit structure in Pakistan made rapid progress. The

bank extended its network by opening six new offices located at Chitagong, Peshawar,

Quetta, Khulna, Layallpur and Rawalpindi. The number of scheduled bank offices rose

from 430 at the end of June 1960 to 1591 in June 1965. Several new banks were added to

the list of scheduled banks.

Two principal additions were the commerce bank, and the standard bank. The number of

scheduled banks, which stood at 29 in June 1960 rose to 36 by June 1965.

Under the impact of economic growth and dear scope of private enterprises, bank credit

to the private sector rose from Rs. 1,458 millions to Rs. 5759 million. Thus the total

expansion in bank credit to the private sector during this period amounted to Rs. 4300

million, which gave a annual expansion of Rs. 860 million compared to the annual

average increase of Rs. 144 million over the preceding five years. Banks deposits

increased from Rs. 2,493 million to Rs. 6883 million during the five years period ended

June 1965 compared to Rs. 231 million in the proceeding five years. Time deposits

during this period increased from Rs. 946 million to Rs. 3228 million, where demand

deposits rose from Rs. 1997 million to Rs 3655 million. The increase in time deposits

was particularly rapid. The ratio of time deposits to total deposits in June 1965 stood at

49.6 percent age as against 32.01 percent age five years earlier. Another salient feature of

banking development during this period was that since the rate of increase in bank

deposits lagged behind the rate of expansion in bank credit, the banked has to depend

increasingly on central bank finance. They borrowing from the state bank rose from Rs.

11 million in June 1960 to Rs. 1688 million in June 1965. Owing keen demand for bank

credit, bank’s investments could not increase as rapidly as their advances. Their

investments totaled to Rs. 1,874 million at the end of June 1965 compared to Rs. 1,231

million in June 1960. Investments which were almost equal to their advances in June

1960 were only about one third of the advances in June 1965.

The third plane period witnessed a further expansion of banking facilities in the country

the total number of scheduled banked offices increased from 1,591 at the end of June

1965 to 3133 at the close of June 1970. During the same bank credit to the private sector

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rose from Rs. 5,789 million to Rs. 9492 million. There was also a substantial growth in

the bank deposits, which increased from Rs. 6883 million June 1965 to Rs. 13147 million

at the end of June 1970. A remarkable change occurred during this period related to the

composition of deposits. Time deposit becomes greater than demand deposits forming

about 54 percent age of the total deposits. As oppose to what happened in the previous

period, banks were able to finance a mush higher level of credit expansion without

having to increase their borrowings from the central bank.7

2.4 Banking Reforms 1972

After the assumption of office by a new government in 1971, may 1972 different reforms

were introduced to make the banks more responsive to the requirements of economics

growth with social justice. The reforms aimed at bringing about a more purposeful and

equitable distribution of bank credit, improving the soundness and efficiency of the

banks, and securing greater social accountability of the banking system as a whole.

The role of the banking system had been truly spectacular in mobilizing savings of the

community and meeting the credit needs of the economy. But at the same time, the banks

had generally neglected their role in promoting social justice and had failed to play an

effective role in ensuring a wider and more equitable dispersal of the benefits of

economic growth. In particular the inter locking of ownership with commercial and

industrial interests had led to the misuse of bank resources. There was a heavy

concentration of credit in big accounts and in urban area. Credit facilities for agriculture,

small business, newly emerging exports and housing had remained obviously inadequate

while the banks indulged in capital financing in few selected business sectors and issued

guarantees on behalf of favored clients, term clients, term financing facilities for industry

were wholly absent.

Under the banking reforms introduced in May 1972 the state bank of Pakistan was

accorded wider powers. It was authorized to remove directors or managerial personnel, if

necessary and supersede the board of directors of a banking company and appoint

administrators during the period of such super session. It was also empowered to

nominate directors on the board of every bank. As regard bank directors, it was provided

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that anyone defaulting in meeting his obligations to bank would forfeit his directorship.

Moreover, it was laid down that no person could serve as director of a bank for more than

six years continuously. Each bank was required to have a paid up capital of not less than

5 percent age of its deposits to be progressively build up to 10 percent age over a period

of time. The banks were also required to transfer 10 percentage of their profit their

reserves every years after the reserve became equal to the paid up capital. With a view to

diversity the ownership of the banks, the banks were required to raise new capital from

the market. Unsecured loans to directors, their families or firms and companies, were

totally prohibited.

The bank reforms also brought about the establishment of new institutions to achieve new

objectives.

A national credit consultative was setup under the supervise of the state bank with

representation form the government and the private sector. It was assigned the task of

determining of economy’s annual credit needs within the safe limits of monetary and

credit expansion with reference to the annual development plan. Such a credit plan was to

cover the public and private sectors. Alongside the National credit council and

Agricultural Advisory Committee was formed to allocate agriculture credit for various

purposes, to coordinate the operation or the agriculture credit agencies and to oversee the

flow of credit to the designated targets. A standing committee on exports in general and

the new emerging exports in particular, was also established. With a view to encourage

the banks to extend credit to small borrowers, a credit guarantee scheme was introduced

under which the state bank under took to share any bonfire losses incurred by the

commercial banks in case of small loans of advances to agriculture.

At the same time two financing institutions were established. The people’s Finance

Corporation was designed to provide finance to people of small means while the National

Development Finance Corporation was setup of finance public sector owned and

managed industries and enterprises.8

REFRENCES

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1 Siddiqi H Israr Law and practice banking in Pakistan.

2 Gilbert J.W principles and practice.

3 Sir Paged John The law of Banking, page 51.

4 Sir Paged John The law of Banking, page 51.

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CAHAPTER # 3

NATIONALIZATION OF BANKS (1974)

The banking reforms turned to be transitional and interim step and when they were hardly

eighteen months old the government nationalized the banking systems, with the following

main objectives.

To enable the government to use the capital concentrated in the hands of a few rich

bankers for the rapid economic development of the country and the more urgent social

welfare objectives.

To distribute equitably credit too different classes sectors and regions.

To coordinate the banking policies in various area of feasible joint activity without

eliminating healthy competition among banks.

The act passed for the nationalization of banks is known as the banks Nationalization Act

1974.

Thus under this act the state bank of Pakistan and all the commercial banks incorporated

in Pakistan and carrying business in or outside the country were brought under

government ownership with effect from Jan 1, 1974. The ownership, management and

control of all Pakistani banks stood transferred to and vested in the Federal government.

The shareholders were provided compensation in the form of federal government bonds

redeemable at par anytime within the period of fifteen years. Under the Nationalization

act, the Chairman, Directors and Executives of various banks, other than those appointed

by federal government were removed from their offices and the central boards of the

banks and all local bodies were dissolved. Pakistan banking council was established to

coordinate the activities of the Nationalized Commercial banks. At the time of

Nationalization on December31, 1973 there were following 14 Pakistani commercial

banks with 3323 offices allover Pakistan and 74 offices in foreign countries:

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National banks of Pakistan

Habib bank limited

Habib bank (overseas) limited

United bank limited

Muslim commercial bank limited

Commerce bank limited

Standard bank limited

Australia bank limited

Bank of Bahawalpur limited

Premium bank limited

Pak Bank limited

Sarhad bank limited

Lahore commercial limited

Punjab provincial co-operative bank limited

The Pakistan banking council prepared a scheme for the recognition of banks. The bank

(amalgamation) scheme 1974 was notified in April, providing for the amalgamation of

the smaller banks with bigger ones and following the five units in there phases:

National bank limited

Habib bank limited

United bank limited

Muslim commercial bank limited

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Allied bank of Pakistan limited

The first phase was completed on 30th June. 1974. When the bank Bahawalpur was

merged with the National Bank of Pakistan. The premier Bank Limited with Muslim

Commercial Bank limited and Sarhad Bank Limited and Pak bank limited and renamed

as Allied Bank of Pakistan limited.

The second phase was completed on 31st Dec.1974, when the commerce bank limited

merged with the United Bank limited.

The third and the final phase were completed on 30 th June, 1975 when the standard bank

limited was merged with Habib Bank limited.

The nationalization was very smooth and gave very positive results.

The number of branches, which stood at 3397 on Dec31, 1973, reached on 7661 by end

June 1992. The bank deposits which stood at Rs. 1925 corers at the end 1973 reached the

highest mark about 323 corers.1

3.1 Islamization of Banking

Another major development in the history of Pakistan Banking System was the

introduced of interest free banking in selected Commercial Banks with effect form Jan1,

1981. This followed the effort to eliminated interest from the operation of Nation

investment trust, the House Building Finance Corporation of Pakistan. Certain

amendments were made in banking and other laws with the object of ushering in a new

system of banking, which would confirm of Sharia. A new law Modaraba Companies

Ordinance 1980 was promulgated. Separate interest free counters began to operate in all

the nationalized commercial banks free counters began to operate in all the nationalized

commercial banks. The state bank provides finance against participation term certificate

and also against promissory notes supported by Modaraba certificate.

In order to cover interest free transactions certain banking definitions such as creditors,

debtor, and advances credits and deposits were revised. Stipulations concerning form of

16


business in which banking companies may engage may also have been modified schemes

were introduced to provide interest free loans to formers and deserving students.

A private Limited Company named as Bankers Equity limited was incorporated in 1979

to provide financial assistance to the industrial sector primarily on interest free basis.

A scheme to extend interest free productive loans to farmers and fisherman has also been

introduced. Instead of interest, a system based on mark-up in price, exchange rate

differential, and profit and loss sharing accounts were introduced.

Different financial schemes introduced in the Islamization process are: 2

Musharika Financing.

Hire Purchase Financing.

Modaraba Financing.

Specific Purpose Modaraba.

3.2 Dis-Investment and Deregulation of Banking – 1991

When it was realized that the role of public sector in the economy is over extended and

the banking sector has more earning potential in the private sector the process of

privatization banking sector restarted in 1991 by the Muslim League Government.

Muslim Commercial Bank was Dis-invested in to two phases while ABL was sold to its

employees. Since then allot of investment is being made in the banking sector and several

new banks were established and still the process is going on. Now only NBP is

government bank other than SBP. The performance of this bank will be analyzed and

judged in the following chapters.

3.3 INTEREST FREE BANKING

A new concept of interest free banking was introduced in 1981 and by now it has been

established on sound footing and new trends and techniques are being implemented to

make this system result oriented. New products and their systematic consumption are

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making Pakistani banking comparable to their several modern counterparts anywhere in

the developed world.

3.4 HISTORY OF NBP:

The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.

British Govt. devalued its currency in September 1949, India devalued its rupees but

Pakistan did not. It led to a crisis in trading between the two countries and India refused

to lift the Pakistan Jute. To solve this problem i.e. to export jute NBP was established

through an Ordinance of GOP. National Bank of Pakistan maintains its position as

Pakistan's premier bank determined to set higher standards of achievements. It is the

major business partner for the Government of Pakistan with special emphasis on fostering

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

technologically oriented products and services offered through its large network of

branches locally, internationally and representative offices.

The Bank in 1950 had one subsidiary ‘The Bank of Bahawalpur’ on December4, 1947 by

the former Bahawalpur State.

NBP was undertaking Treasury Operations and Managing Currency Chests or Sub Chests

at 57 of its offices where the turnover of the business under the head amounted to

Rs.2460 million.

i) Deposits held by NBP constituted about 3.1% of total deposits of all

Pakistani Banks in 1949, which rose to 38% in 1952.

ii) Growth in Deposits was accompanied by increase in Bank portfolio in advances.

NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in support of

agriculture and commerce.

iii) NBP advances reached Rs.554.4 million by December 1959, which was one third

of the total schedule bank credit.3

18

http://www.nbp.com.pk/Branch_Nwt.htm

http://www.nbp.com.pk/Branch_Nwt.htm

http://www.nbp.com.pk/Services.htm


3.4.1 MISSION STATEMENT “To

make the Bank complete and competitive with all international

Standard in performing, quality of, operations, staff, financial strength. And

products and services To develop a culture of excellence in every spare of activity of the

bank4”.

3.4.2 GOALS AND OBJICTIVES

“An organizational objective is the intended goal that prescribes definite scope and

suggests direction to the panning efforts of a organization.”6

3.4.3 GOALS AND OBJICTIVES NBP

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

both in the quality and delivery of service as well as the range of product offerings.”7

3.4.4 BOARD OF DIRECTORS

Table 1

NAME DISIGNATION

Ali Raza Chairman & President

Dr Waqar Masood Director

Ifthikhar Ali Malik Director

Syed Shafqat Ali Shah Jamoti Director

M Zubair Motiwala Director

Sikandar Hayat Jamali Director

M. Khalid Malik Director

S.M. Rafique SEVP & Sectorary to BD

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(Source Annual report 2003)

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3.5 MANAGEMENT

Management is a distinct process consisting of activities of planning, organizing,

actuating and controlling performed to determine and accomplish stated objectives with

the use of human being and other resources.8

The management has two types.

1 Centralized.

2 Decentralized.

Centralized Management tends to concentrate decision making at the top of the

Organization .

Decentralized disperses decision making and authority throughout and further down the

organizational hierarchy.9

NBP have a centralized type of management because all the decisions are taken by the

top management.

3.5.1 SENIOR MANAGEMENT OF NBP.

Table 2

Masood Karim Sheikh

SEVP & Group Chief, Corporate &

Investment Banking Group and Chief

Financial Officer

S. M. Rafique SEVP & Secretary Board of Directors

Derick CyprianSEVP & Group Chief, Special Assets

& Remedial Management Group

Imam Bakhsh Baloch SEVP & Group Chief, Compliance

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Group

Shahid Anwar KhanEVP & Group Chief, Commercial &

Retail Banking Group

Nadeem A. DogarEVP & Group Chief, Information

Technology Group

Muhammad Sardar KhawajaEVP & Group Chief, Audit &

Inspection Group

Dr. Asif A. Brohi EVP & Group Chief, Operations Group

Javed MehmoodEVP & Group Chief, Risk Management

Group

Muhammad Nusrat VohraEVP & Group Chief, Treasury

Management Group

Amim Akhtar EVP & PSO to the President

Dr. Mirza Abrar BaigGroup Chief, Human Resources

Management & Administration Group

Uzma BashirGroup Chief, Organization D&T

Group

(Source www.nbp.com.pk)

3.6 Net Work of Branches:

NBP have wide range of branches inside the country and outside the country.

In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.

In overseas it has 16 overseas branches, 6 other branches.10

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.3.7 Objectives of NBP

National bank of Pakistan is also a commercial organization and its main objective is

profit maximization. This is achieved in two ways:

1. By increasing deposits.

2. By charging interest on loans provided to the private sector and business

community.

These are explained as:

3.7.1 Increase in deposits:

Competition in banking is intense and every bank whether it is Pakistani, foreign, private

or nationalized tries to increase its deposits by providing better facilities to its customers.

By increasing its deposits a bank can extend greater amount of loan and hence achieves

higher profit. NBP is also improving its facilities and services to attract customers with

higher volume of deposits. There are two main factors involved in increasing the

deposits. These factors are improving the services and courtesy. NBP is continuously

working on these two factors to increase its deposits.

3.7.2 Extension of loans:

The profitability of a bank largely depends on the amount given to people as loan and the

type of people to whom credit is given i.e. the credit worthiness of the borrowers. This

strategy has worked quite well for NBP. Deposits are collected from the people and

invested in different projects. NBP prefers to give loans to financially sound and reliable

parties, after securing the collators. NBP has an extremely well organized section. The

staff is adequately trained, and educated and competent. They carry out extensive

financial analysis before deciding on the loan. Interest charged on the loans potentially

contributes to higher profits.

Some of the other objectives of NBP are:

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i. Improve customer services.

ii. Quick disposal of credit cases.

iii. Efficient operation of the branches.

iv. Better Public Relations.

v. Operational and advisory services for foreign exchange accounts activities

3.8 Functions of NBP

Since NBP is a commercial bank, it performs a variety of functions.

Like other commercial banks, NBP is engaged in financing international trade. Its other

major functions include receiving deposits, advancing loans and discounting of exchange.

The functions performed by NBP are:

3.8.1 Accepting Deposits

This function is important because banks largely depend on the funds deposited with

them by its customers. Deposits are of many types:

i. Current deposits

Current deposits are also called demand liability on current deposits. NBP pays

practically no interest on current deposits. Businessmen usually open current accounts. In

NBP current account can be opened with a minimum amount of Rs.500/-.

ii. PLS saving deposit

Profit and loss sharing deposits (PLS) are also called checking accounts. One can deposit

and draw money easily. Profit on PLS is calculated every month but paid after six

months. PLS account can be opened with a minimum amount of Rs.500/-

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iii PLS term deposits

Fixed term deposits are deposits with the bank for certain fixed period before the expiry

of which they cannot be withdrawn unless giving due notice. In this case the rates of

profit will be different depending upon the time period.

3.8.2. Discounting bills of exchange

Discounting of bill is practically speaking lending for exchange at their market rate i.e. it

pays to holder of the bill an amount equal to the face value after deducting interest at the

current market rate for the period. This bill has to be mature. This is the common way

used for keeping a part of assets of the bank in a liquid form.

3.8.3. Agency service

NBP also provides best and unique service to its valued customers. NBP provide the

following agency services to the customers:

i. Collection of dividends

As NBP deals with the purchase and sale of various types of securities, therefore NBP

also provide dividend or interest earned on share or bonds or invested money.

ii. Collection of Cheques

In the collection and payment of Cheques, bills and promissory notes etc. National bank

of Pakistan acts as an agent for its customers.

iii. Acting as an agent

NBP also acts as an agent correspondent or representative for its customer at home or

abroad.

iv. General utility services:

Utilities provided by NBP are as follows:

25


a. Clearance of utility bills

NBP provides the service of clearing the utility bills i.e. electricity, gas and telephone

bills of its customers. For this purpose it also provides evening banking services.

b. Lockers facility

National bank of Pakistan also provides locker facilities to its customers to keep their

valuable assets in it. The charges of different size of lockers are different.

c. Acts as a referee

NBP provides useful services to its customers by acting as a referee to their credit

worthiness.

d. Supply of information

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

3.9 Unmatched Banking Facilities

Deposit security, Guaranteed by Government of Pakistan.

Highest rates of return to attract the savings.

Lowest rates on exports and other borrowings.

Largest contribution towards Government and Semi-Government

requirements.

Agents of the SBP handling Treasury Functions, receipts of Taxes & other

Revenues.

Handling of salaries & pensions of federal/provincial/defense personnel.

Utility Bills collections.

Hajj arrangements.

26


Sale and encashment of prize Bonds.

Sale and encashment of Defense Savings and Special Savings Certificates.

Safe Deposit Lockers for customers.

Rational Human Resource Management.

The prestigious periodical “The Banker” UK recognized NBP as the best bank for 2001-

2002 and NBP is the bank of the year for 2003-2004 of Pakistan.

i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating

Agency for 2001.

ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit

Rating Agency for 2002

3.10 NBP at the forefront of Pak-Afghan trade

i. Booth at dry port Peshawar

ii. Booth at Pak Afghan border (Torkham) NWFP

iii. Booth at Pak Afghan border (Chamman).Baluchistan.

iv. Establishing branch at Kabul in near Future.11

27


REFRENCES

1 Bank Nationalization act 1974.

2 Islamic Banking.

3 www.nbp.com.pk

4 Annual report 1998.

5 www.nbp.com.pk

6 Terry and Franklin Principles of Management.

7 www.nbp.com.pk



10 Annual report 2003.

11 www.nbp.com.pk

28

http://www.nbp.com.pk/





CHAPTER # 4

SERVICES OF NBP

SERVICES

Services are he outputs of the firm which are in intangible form.

NBP offers the following services to the people.

4.1 DEMAND DRAFTS

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

purchase NBP’s Demand Drafts at very reasonable rates. Any person whether an account

holder of the bank or not, can purchase a Demand Draft from a bank branch.

4.2 SWIFT SYSTEM

The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication)

has been introduced for speedy services in the area of home remittances. The system has

built-in features of computerized test keys, which eliminates the manual application of

tests that often cause delay in the payment of home remittances. The SWIFT Center is

operational at National Bank of Pakistan with a universal access number NBP-APKKA.

All NBP overseas branches and overseas correspondents (over 450) are drawing

remittances through SWIFT.

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

business and personal needs.

4.3 LETTERS OF CREDIT *

NBP is committed to offering its business customers the widest range of options in the

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

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

transaction, NBP Letters of Credit are the best way to do your business transactions.

29


4.4 TRAVELER'S CHEQUES

Traveler’s cheques are negotiable instruments, and there is no restriction on the period of

validity of the cheques. Rupee traveler’s cheque is available at all 700 branches of NBP.

This can be encashed in all 400 branches of NBP. There is no limit on purchase of this

cheque. It is one of the safest ways for carrying money.

4.5 PAY ORDER

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

are a secure and easy way to move your money from one place to another. And, as usual,

NBP charges for this service are extremely competitive. The charges of NBP are very

low all over the Pakistan. It charges Rs 50/- for NBP account holders on issuing one

payment order. And charges Rs 100/- for NBP non-account holders on issuing one

payment order. It charges Rs 25/- for students on payment of fees of educational

institutions. If some one want a duplicate of payment order they charges Rs 100/- for

NBP account holders and Rs 150/- for non account holders.

4.6 MAIL TRANSFERS

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

offer the most competitive rates in the market. They charges Rs 50/- exchange rate and

RS 75/- postage charges on issuing mail transfer.

4.7 FOREIGN REMITTANCES:

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

has taken a number of measures to:

Increase home remittances through the banking system

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

remittances to the beneficiaries

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4.7.1 New Features:

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

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

remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides

Pakistan International Bank (UK) Ltd., 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.

4.8 SHORT TERM INVESTMENTS

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

Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are

extremely attractive, along with the security and service only NBP can provide.

4.9 National Income Daily Account (NIDA)

The scheme was launched in December 1995 to attract corporate customers. It is a

current account scheme and is part of the profit and loss system of accounts in operation

throughout the country.

4.9.1 Salient Features:

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.

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4.9.2 Rates on NIDA

From Rs 2/- million to Rs 50/- the rate 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%.

4.10 QUITY INVESTMENTS

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

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

player in the development of the stock market.

4.10.1 NBP is involved in the following:

Investment into the capital market

Introduction of capital market accounts (under process)

NBP’s involvement in capital markets is expected to increase its earnings, which would

result in better returns offered to account holders

4.11 COMMERCIAL FINANCE

NBP dedicated team of professionals truly understands the needs of professionals,

agriculturists, large and small business and other segments of the economy. They are the

customer’s best resource in making NBP’s products and services work for them.

4.12 RADE FINANCE OTHER BUSINESS LOANS

There are two types of trade finance.

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4.12.1 AGRICULTURAL FINANCE

NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers

who produce some of the best agricultural products in the World.

4.12.1.1 Agricultural Finance Services:

“I Feed the World” program, a new product, is introduced by NBP with the aim to help

farmers maximize the per acre production with minimum of required input. Select farms

will be made role models for other farms and farmers to follow, thus helping farmers

across Pakistan to increase production.

4.12.1.2 Agricultural Credit:

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

Providing reliable infrastructure for agricultural customers

Help farmers utilize funds efficiently to further develop and achieve better

production

Provide farmers an integrated package of credit with supplies of essential inputs,

technical knowledge, and supervision of farming.

4.12.1.3 Agricultural Credit (Medium Term):

Production and development

Watercourse improvement

Wells

Farm power

Development loans for tea plantation

Fencing

Solar energy

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Equipment for sprinklers

4.12.1.4 Farm Credit:

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

renewal basis.

Operating loans

Land improvement loans

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

equipment

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

4.12.1.5 Production Loans:

Production loans are meant for basic inputs of the farm and are short term in nature.

Seeds, fertilizers, sprayers, etc are all covered under this scheme.

If you require any further information, please do not hesitate to e-mail us.

4.12.2 CORPORATE FINANCE

4.12.2.1 Working Capital and Short Term Loans:

NBP specializes in providing Project Finance – Export Refinance to exporters – Pre-

shipment and Post-shipment financing to exporters – Running finance – Cash Finance –

Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Pre-

shipment / Post Shipment Agricultural Production Loans

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4.12.2.2 Medium term loans and Capital Expenditure Financing:

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

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

expedites clients’ attempt to upgrade and expand their operation thereby making possible

the fulfillment of our clients’ vision. This type of long term financing proves the bank’s

belief in its client's capabilities, and its commitment to the country.

4.12.2.3 Loan Structuring and Syndication:

National Bank’s leadership in loan syndicating stems from ability to forge strong

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

understand our syndicate partners’ asset criteria, we help borrowers meet substantial

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

particular industry, geographic location and structure through syndicated debt offerings.

Our syndication capabilities are complemented by our own capital strength and by

industry teams, who bring specialized knowledge to the structure of a transaction.

4.12.3.4 Cash Management Services:

With National Bank’s Cash Management Services (in process of being set up), the

customer’s sales collection will be channeled through vast network of NBP branched

spread across the country. This will enable the customer to manage their company’s total

financial position right from your desktop computer. They will also be able to take

advantage of our outstanding range of payment, ejection, liquidity and investment

services. In fact, with NBP, you’ll be provided everything, which takes to manage your

cash flow more accurately

4.13 INTERNATIONAL BANKING

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

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

world. Additionally, we have recently set up the Financial Institution Wing, which is

placed under the Risk Management Group. The role of the Financial Institution Wing is:-

To effectively manage NBP’s exposure to foreign and domestic correspondence

Manage the monetary aspect of NBP’s relationship with the correspondents to

support trade, treasury and other key business areas, thereby contributing to the

bank’s profitability

Generation of incremental trade-finance business and revenues

4.13.1 NBP offers:

The lowest rates on exports and other international banking products

Access to different local commercial banks in international banking

4.14 Cash and Gold Finance.

Cash and Gold finance means that loan is given against the gold. The gold is

mortgaged with the bank and loan is taken. It is the area of consumer finance. And

borrower can take loan for common use.

4.15 Advance salary loan:

This loan is given to those people who are govt servants. They can get a loan up to the

salary of fifteen months.

36


REFRENCES

1. http/www.nbp.com.pk .services

2. Annual reports 2001, 2002, 2003.

37



CHAPTER # 5

DEPARTMENTALIZATION

Dividing an organization into different parts according to the functions is called

departmentation. So NBP Hayatabad township branch is divided into two main parts.

A) DEPARTMENTATION

5.1 CASH DEPARTMENT

Cash department performs the following functions

5.1.1) Receipt

The money, which either comes or goes out from the bank, its record should be kept.

Cash department performs this function. The deposits of all customers of the bank are

controlled by means of ledger accounts. Every customer has its own ledger account and

has separate ledger cards.

5.1.2) Payments

It is a banker’s primary contract to repay money received for this customer’s account

usually by honoring his cheques.

5.1.3) Cheques and their Payment

The Negotiable Instruments. Act, 1881,

“Cheque is a bill of exchange drawn on a specified banker and not expressed to be

payable otherwise than on demand”2.

Since a Cheque has been declared to be a bill of exchange, it must have all its

characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881.

Therefore, one can say that a Cheque can be defined as an:

38


“An unconditional order in writing drawn on a specified banker, signed by the drawer,

requiring the banker to pay on demand a sum certain in money to, or to the order of, a

specified person or to the bearer, and which does not order any act to be done in addition

to the payment of money”3. (Law of Banking by Dr. Hart, p.327).

5.1.4) the Requisites of Cheque

There is no prescribed form of words or design of a Cheque, but in order to fulfill the

requirements mentioned in Section 6 above the Cheque must have the following.

a) It should be in writing

b) The unconditional order

c) Drawn on specific banker only

d) Payment on Demand

e) Sum Certain in money

f) Payable to a specific person

g) Signed by the drawer

5.1.5) Parties to Cheque

The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or no

payee but bearer.

a) The Drawer

b) The Drawee

c) The Payee

5.1.6) Types of Cheques

Bankers in Pakistan deal with three types of cheques

39


a) Bearer Cheques

Bearer cheques are cashable at the counter of the bank. These can also be collected

through clearing.4

b) Order cheque

These types of cheques are also cashable on the counter but its holder must satisfy the

banker that he is the proper man to collect the payment of the cheque and he has to show

his identification. It can also be collected through clearing.

c) Crossed Cheque

These cheques are not payable in cash at the counters of a banker. It can only be credited

to the payee’s account. If there are two persons having accounts at the same bank, one of

the account holder issues a cross-cheque in favour of the other account holder. Then the

cheque will be credited to the account of the person to whom the cheque was issued and

debited from the account of the person who has actually issued the cheque.

5.1.7) Payment of Cheques

It is a banker’s primary contract to repay money received for his customer’s account

usually by honouring his cheques. Payment of money deposited by the customer is one of

the root functions of banking. The acid test of banking is the receipt of money etc. from

the depositors, and repayment to them. This paying function is one, which is the

distinguishing mark of a banker and differentiates him from other institutions, which

receive money from the public. However the bankers’ legal protection is only when

payment is in ‘Due Course’. The payment in due course means payment in accordance

with the apparent tenor of the instrument, in good faith and without negligence to any

person in possession thereof under circumstances, which do not afford a reasonable

ground of believing that he is not entitled to receive payment of the amount therein

mentioned. It is a contractual obligation of a banker to honor his customer’s cheques if

the following essentials are fulfilled.

a) Cheques should be in a proper form:

40


b) Cheque should not be crossed:

c) Cheque should be drawn on the particular bank:

d) Cheque should not mutilated:

e) Funds must be sufficient and available:

f) The Cheque should not be post dated or stale:

g) Cheque should be presented during banking hours:

5.2 CLEARANCE DEPARTMENT

A clearinghouse is an association of commercial banks set up in given locality for the

purpose of interchange and settlement of credit claims. The function of clearinghouse is

performed by the central bank of a country by tradition or by law. In Pakistan, the

clearing system is operated by the SBP. If SBP has no office at a place, then NBP, as a

representative of SBP act as a clearinghouse.

After the World War II, a rapid growth in banking institutions has taken place. The use of

cheques in making payments has also widely increased. The collection as settlement of

mutual obligations in the form of cheques is now a big task for all the commercial bank.

When Cheque is drawn on one bank and the holder (payee) deposits the same in his

account at the bank of the drawer, the mutual obligation are settled by the internal bank

administration and there arises no inter bank debits from the use of cheques. The total

assets and total liabilities of the bank remain unchanged.

In practice, the person receiving a Cheque as rarely a depositor of the cheque at the same

bank as the drawer. He deposits the cheque with his bank other than of payer for the

collection of the amount. Now the bank in which the cheque has been deposited becomes

a creditor of the drawer’s bank. The depositor bank will pay his amount of the cheque by

transferring it from cash reserves if there are no offsetting transactions. The banks on

which the cheques are drawn become in debt to the bank in which the cheques are

41


deposited. At the same time, the creditors’ banks receive large amounts of cheques drawn

on other banks giving claims of payment by them.

The easy, safe and most efficient way is to offset the reciprocal claims against the other

and receive only the net amount owned by them. This facility of net inter bank payment

is provided by the clearinghouse.

The representatives of the local commercial banks meet at a fixed time on all the business

days of the week. The meeting is held in the office of the bank that officially performs the

duties of clearinghouse. The representatives of the commercial banks deliver the cheques

payable at other local banks and receive the cheques drawn on their bank. The cheques

are then sorted according to the bank on which they are drawn. A summary sheet is

prepared which shows the names of the banks, the total number of cheques delivered and

received by them. Totals are also made of all the cheques presented by or to each bank.

The difference between the total represents the amount to be paid by a particular bank

and the amount to be received by it. Each bank then receives the net amount due to it or

pays the net amount owed by it.

5.2.1) In-Word Clearing Books

The bank uses this book for the purpose of recording all the cheques that are being

received by the bank in the first clearing. All details of the cheques are recorded in this

book.

5.2.2) Out-Word Clearing Book:

The bank uses outward clearing register for the purpose of recording all the details of the

cheques that the bank has delivered to other banks.

5.3 ADVANCES DEPARTMENT

Advances department is one of the most sensitive and important departments of the bank.

The major portion of the profit is earned through this department. The job of this

department is to make proposals about the loans. The Credit Management Division of

Head Office directly controls all the advances. As we known bank is a profit seeking

42


institution. It attracts surplus balances from the customers at low rate of interest and

makes advances at a higher rate of interest to the individuals and business firms. Credit

extensions are the most important activity of all financial institutions, because it is the

main source of earning. However, at the same time, it is a very risky task and the risk

cannot be completely eliminated but could be minimized largely with certain techniques.

Any individual or company, who wants loan from NBP, first of all has to undergo the

filling of a prescribed form, which provides the following information to the banker.

5.3.1) Name and address of the borrower.

a) Existing financial position of a borrower at a particular branch.

b) Accounts details of other banks (if any).

c) Security against loan.

d) Exiting financial position of the company. (Balance Sheet & Income Statement).

e) Signing a promissory note is also a requirement of lending, through this note

borrower promise that he will be responsible to pay the certain amount of money

with interest.

5.3.2) Principles of Advances

There are five principles, which must be duly observed while advancing money to the

borrowers.

Safety

Liquidity

Dispersal

Remuneration

Suitability

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a. Safety

Banker’s funds comprise mainly of money borrowed from numerous customers on

various accounts such as Current Account, Savings Bank Account, Call Deposit Account,

Special Notice Account and Fixed Deposit Account. It indicates that whatever money the

banker holds is that of his customers who have entrusted the banker with it only because

they have full confidence in the expert handling of money by their banker. Therefore, the

banker must be very careful and ensure that his depositor’s money is advanced to safe

hands where the risk of loss does not exist. The elements of character, capacity and

capital can help a banker in arriving at a conclusion regarding the safety of advances

allowed by him.

b. Character

It is the most important factor in determining the safety of advance, for there is no

substitute for character. A borrower’s character can indicate his intention to repay the

advance since his honesty and integrity is of primary importance. If the past record of the

borrower shows that his integrity has been questionable, the banker should avoid him,

especially when the securities offered by him are inadequate in covering the full amount

of advance.

It is obligation on the banker to ensure that his borrower is a person of character and has

capacity enough to repay the money borrowed including the interest thereon.

c. Capacity

This is the management ability factor, which tells how successful a business has been in

the past and what the future possibilities are. A businessman may not have vast financial

resources, but with sound management abilities, including the insight into a specific

business, he may make his business very profitable. On the other hand if a person has no

insight into the particular business for which he wants to borrow funds from the banker,

there are more chances of loss to the banker.

44


d. Capital

This is the monetary base because the money invested by the proprietors represents their

faith in the business and its future. The role of commercial banks is to provide short-term

capital for commerce and industry, yet some borrowers would insist that their bankers

provide most of the capital required. This makes the banker a partner. As such the banker

must consider whether the amount requested for is reasonable to the borrowers own

resources or investment.

e. Liquidity

Liquidity means the possibilities of recovering the advances in emergency, because all

the money borrowed by the customer is repayable in lump sum on demand. Generally the

borrowers repay their loans steadily, and the funds thus released can be used to allow

fresh loans to other borrowers. Nevertheless, the banker must ensure that the money he is

lending is not blocked for an undue long time, and that the borrowers are in such a

financial position as to pay back the entire amount outstanding against them on a short

notice. In such a situation, it is very important for a banker to study his borrower’s assets

to liquidity, because he would prefer to lend only for a short period in order to meet the

shortfalls in the wording capital. If the borrower asks for an advance for the purchase of

fixed assets the banker should refuse because it shall not be possible for him to repay

when the banker wants his customer to repay the amount. Hence, the baker must adhere

to the consideration of the principles of liquidity very careful.

f. Dispersal

The dispersal of the amount of advance should be broadly based so that large number of

borrowing customer may benefit from the banker’s funds. The banker must ensure that

his funds are not invested in specific sectors like textile industry, heavy engineering or

agriculture. He must see that from his available funds he advances them to a wide range

of sector like commerce, industry, farming, agriculture, small business, housing projects

and various other financial concerns in order of priorities.

45


Dispersal of advances is very necessary from the point of security as well, because it

reduces the risk of recovery when something goes wrong in one particular sector or in

one field.

g. Remuneration

A major portion of the banker’s earnings comes form the interest charged on the money

borrowed by the customers. The banker needs sufficient earnings to meet the following:

a) Interest payable to the money deposited with him.

b) Salaries and fringe benefits payable to the staff members.

c) Overhead expense and depreciation and maintenance of the fixed assets of the

bank.

d) An adequate sum to meet possible losses.

e) Provisions for a reserve fund to meet unforeseen contingencies.

f) Payment of dividends to the shareholders.

h. Suitability

The word “suitability’ is not to be taken in its usual literary sense but in the broader sense

of purport. It means that advance should be allowed not only to the carefully selected and

suitable borrowers but also in keeping with the overall national development plans

chalked out by the authorities concerned. Before accommodating a borrower the banker

should ensure that the lending is for a purpose in conformity with the current national

credit policy laid down by the central bank of the country.

5.3.3 Forms of Loans

In addition to purchase and discounting of bills, bankers in Pakistan generally lend in the

form of cash finance, overdrafts and loans. NBP provides advances to different people in

different ways as the case demand.

46


a) Cash Finance

This is a very common form of borrowing by commercial and industrial concerns and is

made available either against pledge or hypothecation of goods, produce or merchandise.

In cash finance a borrower is allowed to borrow money from the banker up to a certain

limit, either at once or as and when required. The borrower prefers this form of lending

due to the facility of paying markup/services charges only on the amount he actually

utilizes.

If the borrower does not utilize the full limit, the banker has to lose return on the un-

utilized amount. In order to offset this loss, the banker may provide for a suitable clause

in the cash finance agreement, according to which the borrower has to pay

markup/service charges on at least on self or one quarter of the amount of cash finance

limit allowed to him even when he does not utilize that amount.

b) Overdraft/Running Finance

This is the most common form of bank lending. When a borrower requires temporary

accommodation his banker allows withdrawals on his account in excess of the balance

which the borrowing customer has in credit, and an overdraft thus occurs. This

accommodation is generally allowed against collateral securities. When it is against

collateral securities it is called “Secured Overdraft” and when the borrowing customer

cannot offer any collateral security except his personal security, the accommodation is

called a “Clean Overdraft”. The borrowing customer is in an advantageous position in an

overdraft, because he has to pay service charges only on the balance outstanding against

him. The main difference between a cash finance and overdraft lies in the fact that cash

finance is a bank finance used for long term by commercial and industrial concern on

regular basis, while an overdraft is a temporary accommodation occasionally resorted to.

c) Demand Financing/Loans

When a customer borrows from a banker a fixed amount repayable either in periodic

installments or in lump sum at a fixed future time, it is called a “loan”. When bankers

47


allow loans to their customers against collateral securities they are called “secured loans”

and when no collateral security 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 a fixed amount of money for his use, while the banker feels satisfied in

lending money in fixed amounts for definite short periods against a satisfactory security

5.4 REMITTANCE DEPARTMENT

Remittance means a sum of money sent in payment for something. This department deals

with either the transfer of money from one bank to other bank or from one branch to

another branch for their customers. NBP offers the following forms of remittances.

a) Demand Draft

b) Telegraphic Transfer

c) Pay Order

d) Mail Transfer

5.4.1) Demand Draft

Demand draft is a popular mode of transfer. The customer fills the application form.

Application form includes the beneficiary name, account number and a sender’s name.

The customer deposits the amount of DD in the branch. After the payment the DD is

prepared and given to the customer. NBP officials note the transaction in issuance

register on the page of that branch of NBP on which DD is drawn and will prepare the

advice to send to that branch. The account of the customer is credited when the DD

advice from originating branch comes to the responding branch and the account is

debited when DD comes for clearance. DD are of two types.

a) Open DD: Where direct payment is made.

b) Cross DD: Where payment is made though account.

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NBP CHARGES FOR DD5

I. Up to Rs. 50,000/- is Rs 50/- only

II. Over Rs. 50,000/- is 0.1%

5.4.2) Pay Order

Pay order is made for local transfer of money. Pay order is the most convenient, simple

and secure way of transfer of money. NBP takes fixed commission of Rs. 25 per pay

order from the account holder and Rs. 100 from a non-account holder.

5.4.3) Telegraphic Transfer

Telegraphic transfer or cable transfer is the quickest method of making remittances.

Telegraphic transfer is an order by telegram to a bank to pay a specified sum of money to

the specified person. The customer for requesting TT fills an application form. Vouchers

are prepared and sent by ordinary mail to keep the record. TT charges are taken from the

customer. No excise duty is charged on TT. The TT charges are:

Telegram/ Fax Charges on TT = Actual-minimum Rs.125.

Cable telegram transfer costs more as compared to other title of money. In cable transfer

the bank uses a secret system of private code, which is known to the person concerned

with this department and branch manager.

5.4.4) Mail Transfer

When the money is not required immediately, the remittances can also be made by mail

transfer (MT). Here the selling office of the bank sends instructions in writing by mail to

the paying bank for the payment of a specified amount of money. Debiting to the buyer’s

account at the selling office and crediting to the recipient’s account at the paying bank

make the payment under this transfer. NBP taxes mail charges from the applicant where

no excise duty is charged. Postage charges on mail transfer are actual minimum Rs. 40/-

49


if sent by registered post locally Rs.40/- if sent by registered post inland on party’s

request.

5.5 HUMAN RESOURCE MANAGEMENT

Human Resource plays a vital role in the success of every service organization. They

interact between man and machine. Their attitude can win or loose the customer. The

positive attitude could only be created in a conducive environment, which can make the

staff dedicated towards the organization and its objectives. In reality the man is more

important than machine as it is the human which could get maximum out of machine to

keep a happy customer. However, most organizations give little importance to this very

important asset.

Various aspects related to human resource of National Bank of Pakistan are critically

examined in the following text:

5.5.1) Selection & Recruitment

Although the Bank believes in merit but in practice the selection of employees is not

done on merit. Most of the employees are low educated. This shows that candidates with

some strong family background or political pressure are given preference in recruitment

and qualified candidates are sometimes left behind.

5.5.2) Job for Life

Like the employee of public sector organizations in Pakistan, the employees of NBP also

enjoy their job for life. Since there is no risk of early retirement or redundancy in rank,

they do not perform with their full potentials. This is one redundancy in rank, they do not

perform with their full potentials, and this is one of the reasons responsible for the low

productivity of the employees of the Bank.

50


5.5.3) Performance Appraisal

The performance of employees of the Bank are appraised though their annual confidential

reports at the end of each year. This has become an outdated method of performance

appraisal and no longer used due to the following reasons:

1. The performance of employees is evaluated after quite a long time.

2. Element of subjectivity is involved in this method.

3. Employee’s participation is not ensured in the process of evaluation.

4. Objectives of employee’s are not quantified.

5.5.4) Inter Personal Relationship

Modern management acknowledges human resources as one ‘of the most important

assets of an organization. But by their very nature, human beings are also the most

unpredictable. Where a number of persons work together, interactions among them, of

necessity, will lead to conflicts and NBP is no exception. Most interpersonal conflicts in

NBP can be traced back to the following major heads.

Lack of Communication

Lack of communication is for the biggest reason for conflicts. Not only it is due to the

failure to send a massage but to an interpretation given to the massage by the receiver is

different from that intended.

5.5.5) Diversity in Values

Diversity in values, perceptions, cultural background and life-style is another reason

responsible for inter personal conflicts in NBP. Different values and perceptions about

the same issue, event or personality hinder understanding. When things come to such a

pavement, therefore, interpersonal conflicts are generated.

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The dominant trend in all modern industrial societies of the world is merit and expertise,

which helps promote cohesion and reduce conflicts. But the feudalistic mindset is still

very strong in our set up and there is no tradition of tolerance for differing viewpoints.

Hence, interpersonal conflicts are generated.

5.5.6) Corruption

Our social acceptance of corruption gives rise to corruption at every level of social and

organizational set up. Corruption involves financial embezzlement, favoritism, nepotism,

cronyism and other number of such practices. All these cause resentment that keep

building up and lead to conflict sooner or later.

In the past few years, some cases of frauds have happened in different branches. The

reasons can be linked with the employee dissatisfaction of NBP.

5.5.7) Discipline & Authority

Maintaining discipline and implementation of authority (tables) in letter and spirit is the

key to success of any organization. In NBP, The authority tables are not strictly

maintained. Line managers are not fully equipped with the authority with no vertical or

horizontal interference.

5.6) DEPOSIT DEPARTMENT: -

It controls the following activities:

a) A/C opening.

b) Issuance of cheque book.

c) Current a/c

d) Saving a/c

e) Cheque cancellation

f) Cash

52


5.6.1 Account opening

The opening of an account is the establishment of banker customer relationship. Before a

banker opens a new account, the banker should determine the prospective customer’s

integrity, respectability, occupation and the nature of business by the introductory

references given at the time of account opening. Preliminary investigation is necessary

because of the following reasons.

i. Avoiding frauds

ii. Safe guard against unintended over draft.

iii. Negligence.

iv. Inquiries about clients.

There are certain formalities, which are to be observed for opening an account with a

bank.

Formal Application

Introduction

Specimen Signature

Minimum Initial Deposit

Operating the Account

1. Pay-In-Slip Book

2. Pass Book

3. Issuing Cheque Book

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a) Qualification of Customer

The relation of the banker and the customer is purely a contractual one, however, he must

have the following basic qualifications.

He must be of the age of majority.

He must be of sound mind.

Law must not disqualify him.

The agreement should be made for lawful object, which create legal relationship

Not expressly declared void.

b) Types of Accounts

Following are the main types of accounts

1) Individual Account

2) Joint Account

3) Accounts of Special Types

Partnership account

Joint stock company account

Accounts of clubs, societies and associations

Agents account

Trust account

Executors and administrators accounts

Pak rupee non-resident accounts

Foreign currency accounts1

54


5.6.2 Issuing of cheque book:

This deptt issue cheque books to account holders.

Requirements for issuing cheque book

a) The account holder must sign the requisition slip

b) Entry should be made in the cheque book issuing book

c) three rupees per cheque should be recovered from a/c holder if not then debit his/her

account.

5.6.3 Current account

These are payable to the customer whenever they are demanded. When a banker accepts

a demand deposit, he incurs the obligation of paying all cheques etc. drawn against him

to the extent of the balance in the account. Because of their nature, these deposits are

treated as current liabilities by the banks. Bankers in Pakistan do not allow any profit on

these deposits, and customers are required to maintain a minimum balance, failing which

incidental charges are deducted from such accounts. This is because the depositors may

withdraw Current Account at any time, and as such the bank is not entirely free to

employ such deposits.

Until a few decades back, the proportion of Current Deposits in relation to Fixed

Deposits was very small. In recent years, however, the position has changed remarkably.

Now, the Current Deposits have become more important; but still the proportion of

Current Deposits and Fixed Deposits varies from bank to bank, branch to branch, and

from time to time.

5.6.4 Saving account

Savings Deposits account can be opened with very small amount of money, and the

depositor is issued a cheque book for withdrawals. Profit is paid at a flexible rate

calculated on six-month basis under the Interest-Free Banking System. There is no

55


restriction on the withdrawals from the deposit accounts but the amount of money

withdrawn is deleted from the amount to be taken for calculation of products for

assessment of profit to be paid to the account holder. It discourages unnecessary

withdrawals from the deposits.

In order to popularize this scheme the State Bank of Pakistan has allowed the Savings

Scheme for school and college students and industrial labor also. The purpose of these

accounts is to inculcate the habit of savings in the constituents. As such, the initial

deposit required for opening these accounts is very nominal.

5.6.5 Cheque cancellation:

This deptt can cancel a cheque on the basis of;

a) Post dated cheque

b) Stale cheque

c) Warn out cheque

d) Wrong sign etc

5.6.6 Cash

This deptt also deals with cash. Payment of cheques, deposits of cheques etc.

5.7 FOREIGN EXCHANGE/DEPARTMENT:

This deptt mainly deals with the foreign business. The main functions of this deptt are:

a) L/C dealing.

b) Foreign currency accounts dealing.

c) Foreign Remittance dealing.

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5.7.1 L/C dealing

NBP is committed to offering its business customers the widest range of options in the

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

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

transaction, NBP Letters of Credit are the best way to do your business transactions.

5.7.2 Foreign currency account dealing:

This deptt deals with the foreign currency accounts which mainly include dollar account,

euro account etc.

5.7.3 Foreign Remittance dealing.

This is very important function of this deptt.

B) DEPARTMENTATION OF HAYAT ABAD TOWNSHIP BRANCH NBP.

Dividing an organization into different parts according to the functions is called

departmentation. So NBP Hayatabad township branch is divided into two main parts.

1. Cash Department

2. General Banking Department.

5.1 Cash Department:

Cash department mainly deals in cash. The Head of department is Mr. Imdad

Khan and two cashier Mehraban Shah and Faiq Shah the objective of cash department.

“To facilitate people in the payments of their bills and taxes and repayments of cash”

There are two main functions of cash department.

i. Payment ii. Receipts

i. Payments are the function that they pay their cheques and pay cash.

57


ii. Receipts mean collection of utilities bills, taxes etc.

5.2 General Banking

In this section of the bank the general banking function is performed. It is divided

into five departments.

i. Remittances Department.

ii. Computer Department.

iii. Advances Department.

iv. Clearing Department.

v. Establishment Department.

5.2.1 Remittances Department:

This department is header by Zahoor Ahmad a very competent person. The objective of this department is:-

“To transfer the money of people from one place to another place in safe and

comparable way”

The main functions of this department are:

i. Issuing of demand draft.

ii. Issuing of Mail transfer.

iii. Issuing of Telegraphic transfer.

iv. Issuing of payment order.

v. Issuing of call deposit.

vi. Pension payments etc.

vii. Closing and scrolling of government collections.

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5.2.2 Advances department:

Every bank has a department which advances money to borrowers. In NBP

Hayatabad township branch the advances department is head by the Business Manager

Sir Asim and Operation Manager Sir Pervez. Both are very competent persons. The

objective of Advances Department is

“To facilitate people by giving short term and long term loans on easy terms and

conditions”.

The main function of this Department is to take surplus money from the people at

low rates and lend this money to borrowers at high rates to earn profit.

5.2.3 Clearing Department:

A clearing house is an association of commercial banks set in State Bank of

Pakistan for the purpose of interchange and settlement of credit claims.

In NBP Hayatabad Branch this department is headed by Ameer Shehzad having

experience of about thirty years. The objective of this department is to

“To facilitate customers for payment their Cheques of other banks”.

Two type of clearing books are maintained.

i. In word clearing books:

The bank uses this book for the purpose of recording all the cheques that are

being received by the bank in the first clearing. All detail of the cheques are recorded in

this book.

ii. Out word clearing book:

The bank uses outward clearing register for the purpose of recording all the details of

the cheques that the banks have delivered to other banks.

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5.2.4 Computer Department:

This department headed by the accountant Tariq Afridi and two other persons Mr. Junaid

and Mr. Shahid are performing the real function.

The objective of this Department is to facilitate customers in payment of their cheques”.

The main functions performed by this department are:

a) Checking balance.

b) Deduction from balance on clearing cheques.

c) Issuing bank statements.

d) Dealing Western Union.

5.2.5 Establishment Department:

NBP Hayatabad Branch having an Establishment Department. This Department

consists of only one person Haji Misri Kha very competent and experienced person. This

department mainly deals with the branch employees. The main objective of this

department is to

“To regulate bank business”.

Main functions of this department are:

a) Keeps the record of attendance of employees.

b) Employee’s salaries distribution.

c) Employee’s bonuses etc.

60


REFRENCES

1 Sir Paged John The law of Banking 4th edition page 431.

2 The Negotiable Instruments. Act, 1881.

3 Dr Hart Law of Banking, p.327

4 Dr Hart Law of Banking, p.327

5 Circular bank charges June 2003.page 15.

61


CHAPTER #6

SWOT ANALYSIS

SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and

threats SWOT analysis is careful evaluation of an organization’s internal strengths and

weakness as well as its environment opportunities and threats.

“SWOT analysis is a situational which includes strengths, weaknesses, opportunities and

threats that affect organizational performance.”1

“The overall evaluation of a company strengths, weaknesses, opportunities and threats is

called SWOT analysis.”2

In SWOT analysis the best strategies accomplish an organization’s mission by:

1. Exploiting an organizations opportunities and strength.

2. Neutralizing it threats.

3. Avoiding or correcting its weakness.

SWOT analysis is one of the most important steps in formulating strategy using the

organization mission as a context, managers assess internal strengths distinctive

competencies and weakness and external opportunities and threats. The goal is to then

develop good strategies and exploit opportunities and strengths neutralize threats and

avoid weaknesses.

6.1 STRENGTHS:

6.1.1 OLDEST INSTITUTION:

NBP in one of the oldest bank of Pakistan and first nationalized bank Hence its customer

base is strength from this plus point as customers have more confidence in the bank. The

additional value services as the privilege for the bank.

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6.1.2 ALTERNATE DUTIES IN SBP ABSENCE

The NBP performs additional services for its customers as well as the other bank

customer in the absence of SBP.

6.1.3 MORE DEPOSITS THAN OTHER BANK

NBP has the relative competence in having more deposits than the other bank. This is

because of the confidence the customer have in the bank. The bank being the privileged

and oldest bank in banking sector of Pakistan enjoys this edge over all others, lacking it.

6.1.4 EMPLOYEE BENEFITS

The employers at NBP are offered reasonable monetary benefit. Normally two bonuses

are given Eid-Ul-Fitar & Eid-Ul-Azha. This serves as an additional benefit and

competency for the bank and a source of motivation for the employees.

6.1.5 BROAD NETWORK

The bank has another competency i.e. it has broad-basses network of branches throughout

the country also more than one branch in high productive cities. The customers are

provided services at their nearest possible place to confirm customer satisfied.

6.1.6 STRICTLY FOLLOWED RULES &REGULATION:

The employees at NBP are strict followers of rule & regulation imposed by bank. The

disciplined environment at NBP bolsters its image and also enhances the over all out put

of the organization.

6.1.7 PROFESSIONAL COMPETENCE

The employees at NBP here have a good hold on their descriptions, as they are highly

skilled Professionals with back ground in business administration, banking, economics

etc. These professional competencies enable the employees to understand and perform

the function and operation in better way.

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6.1.8 HEALTHY ENVIROMNMENT

The working condition in the NBP branch here is very conductive and favorable for

better output. The informal environment affects the performance of the employees in a

positive way.

6.1.9 RELATION BETWEEN STAFF AND OTHER EMPLOYESS

The bank enjoys a good plus point when it comes to the employee manager relationship

the hearing as removing of discrepancies if any, between the employees, and between the

manager and employees.

6.2 WEAKNESSES

6.2.1 LACK OF MARKETING EFFORT:

The bank does not promote its corporate image, services, etc on a competitive way.

Hence lacks far behind in marketing effort .A need for aggressive marketing in there in

the era marketing in now becoming a part of every organization.

6.2.2 NBP UNDER POLITICAL PRESSURE

The strong political hold of some parties and government and their dominance is

affecting the bank in a negative way. They sometime have to provide loan under the

pressure, which leads to uneven and adjusted feeling in the bank employees.

6.2.3 FAVORITISM AND NEPOTISM

The promotions and bonuses etc in the bank are often powered by senior’s favoritism or

depends upon their wills and decision. This adds to the negative factors, which

denominate the employees thus resulting in affecting their performance negatively.

6.2.4 LACK OF FINACIAL PRODUCT

The bank falls far behind when the innovative and new schemes are considered. It has not

been involved in the tug of war between the competitors to the accounts and strengthens

64


the existing customer base. This stands out to be the major incompetence and weakness

of the banks.

6.2.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS

During the rush hours, the bank is founded out to be a total flop to handle the mob of

people peaking from windows and doors. The bank has deficiency to operate in the stages

of rush hours where the people find them services entangled in a situation of nowhere

because they are not well served.

6.2.6 LACK OF COMPUTERIZED NETWORK

The bank lack the strength of being powered by the network of computers, which have

saved time, energy and would have lessened the mental stress, the employees have

currently. This would add to the strength if it were powered by network of computers.

6.2.7 LACK OF MODERN EQUIPMENT

The bank lacks the modern Equipment that is note counting machine computers. Even if

there is any equipment they lack to fall in the criteria of being rearmed as update and

upgraded

6.2.8 UNEVEN WORK DISTIBUTION.

The workload in NBP is not evenly distributed and the workload tends to be more on

some employees while others abscond away from their responsibilities, which server as a

demotivation factor for employees performing above average work.

6.3 OPPORTUNITIES

6.3.1 ELECTRONIC BANKING

The world today has become a global village because of advancement in the

technologies, especially in communication sector. More emphasis is now given to avail

the modern technologies to better the performances. NBP can utilize the electronic

65


banking opportunity to ensure on line banking 24 hours a day. This would give a

competitive edge over others.

6.3.2 MICRO FINANCING

Because of the need for micro financing in the market, there are lot of opportunities in

this regard. Other banks have already initiated, now the time has arrived when the NBP

must realize it and take on step to cater an ongoing demand.

6.4 THREATS

6.4.1 EMERGENCE OF NEW COMPETITORS

The bank is facing threats with the emergence of new competitors especially in terms of

foreign banks. These foreign banks are equipped with heavy financial power with

excellent and innovative ways of promoting and performing their services. The bank

has to take initiative in this regard or will find itself far back in competition.

6.4.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT

The ongoing shift in power in political arena in the country effects the performance of the

bank has to forward loans to politically powerful persons which create a sense of

insecurity and demoralization in the customer as well as employees.

6.4.3 DOWNSIZING

The bank is currently acting upon the policy of downsizing which threaten the

environment of the bank Employees feel insecurity in doing their jobs and work, hence

affecting the over all performance of employees negatively.

6.4.4 CUSTOMERS COMPLAINTS

There exists no regular and specific system of the removal of customer complaints. Now

a day a need for total customer satisfaction is emerging and in their demanding

consequences customer's complaints are ignored

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6.5 COMPETITIVE ANALYSIS

Porter’s five forces model: 3

This approach is widely used for competitive analysis. It is because of the high intensity

of competition among companies there five main competitive forces.

6.5.1 Rivalry among competitive firms:

It is a very powerful force among the competitive forces the strategies pursued by

one firm can be successful only to extent that they provide competitive advantages

over the competitor. These competitive strategies may be lowering prices, best quality

series. The NBP offering very low charges an demand draft, telegraphy transfer, mail

transfer and give other additional services to the customers and to the Nation.

Because NBP is a “Nation’s Bank”.

6.5.2 Potential entry of new competitors:

Whenever new firms ca easily enters a particular industry, the competition increases.

The gout restriction, tariffs, patents etc can stop new firm to enter into the business as

per Banking industry is concerned this market is already very situated in Pakistan and

there are banks with quality services and low charges. So there is no threat to NBP

from potential entry and NBP is also a public sector bank because of that no other

new bank not takes over it.

6.5.3 Potential Development of substitute products:

This is the third factor affecting the competitions. There may be some other product

can be substitute the product of that industry. For example banks offering sawing

schemes in Pakistan and these schemes are also offered by GPOs in Pakistan so they

must compete them in this field. If they offer low rates than GPOs so people will go

to deposit in GPOs. People concentration high rates so that’s why sawing PLS

accounts are more then current accounts. The next examples will ATM which

67


substitute presenting cheques at counter and encash it. The NBP is lacking in this

field. It must improve in this field to compete the competitors.

6.5.4 Bargaining Power of Suppliers:

The bargaining power of supplier affects the intensity of competition, especially when

there are a large number of suppliers. In case of banks the suppliers are customers

they supply the money to banks. Now they must offer good services, quality, and

safety. Low charges etc to customers. In this field NBP is very good. B/C at offers

good quality services to customers. They charge low charges on remittances. So that’s

it is competitions other banks.

6.5.5 Bargaining Power of Consumers:

When customers are concentrated or large, or buy in volume, their bargaining power

represents a major force affecting intensity of competition. Now the number

customers in Pakistan for banks are very high. Banks offering variety of products and

services to their customers. NBP have a large number of customs. Now it must offer

good services and products to their customers to attract them to come to NBP.

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References

1. Daft l Richerd “Management” 4th Edition Pages 254, 256, 269.

2. Kottler Philip “Marketing Management” Millennium Edition Page 76.

3. Fred R. David “Strategic Management Concepts Cases” 7th edition.

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CHAPTER# 7

FINANCIAL ANALYSIS

Financial analysis, though varying according to the particular interests of the analyst,

always involves the use of various financial statement primarily the balance sheet and

income statement. The balance sheet summarizes the assets, liabilities, and owner’s

equity of a business at a point in time, and thee income statement summarizes revenues

and expenses of the over a particular period f time. A conceptual framework for financial

analysis provides the analyst with an interlocking means for structuring the financing.

7.1 National Bank of Pakistan Ten Years Performance at glance

Years 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994ItemsTotal assets

471860 432803 415089 371636 350406 417680 400890 369236 320180 271779

Deposits 395568 362866 349617 316493 294754 273391 254863 235032 208283 170476Advances 160990 140547 170319 140318 122559 109356 105598 85854 81528 62548Investment 166196 143525 71759 72609 91486 102356 109485 108206 95649 85094S,s holder equity 18134 14279 11959 11378 10358 9987 9203

7046 7842 7233

pre tax profit 9009 6045 3016 1023 520 2135 996

(1260) 3081 2799

After tax profit 4198 2253 1149 461 31 0 0

-------- ------ -------

Earning per share 10.23 5.49 3.08 1.24 0.21 0 0

------- ----- -------

Return on assets 2% 1.40% 0.80% 0.30% 0.20% 0 0.00%

---------- ------ -----

No of Branches 1189 1204 1245 1428 1431 1434 1468

1555 1537 1463

No of Employees 13272 12195 15163 15351 15541 15785 18096

23730 21549 20667

(Source Annual reports 1998, 2000, 2002, 2003)

From the above table it is very much clear that the NBP performance is going higher and

higher total assets are at the crest in 2003. If we draw a graph this will shows that the

graph is upward trend. Profit is increasing from year to year. NBP decrease the number of

its branches and employees because of automation and large networks of other banks. But

this bank can compete and now NBP is the best bank of year.

70


7.2 RATIO ANALYSIS

Financial analysis is the process of identifying the financial strengths and weakness of the

firm by properly establishing relation ship between the items of balance sheet and profit

and loss account, in order to make rational decision in keeping with the objective of the

organization, for that purpose the management use analytical tools. To evaluate the

financial condition and performance of the business entity, the financial analyst needs to

perform "checkups" on various aspects of the business financial health.

A tools frequently used during these checkups is a financial ratio analysis, which relates

two piece of financial data by dividing one quantity by the other we calculate ratios

because in this way we get a comparison that may prove more useful than the raw

number by themselves. The business itself and outside providers of capital (creditors and

investors) all undertake financial statement analysis. The type of analysis varies

according to the specific interest party involved. The nature of analysis is depending at

the purpose of analyst.

7.3 Parties interested in ratio analysis

7.3.1 Trade creditors

Trade creditors are interested in firm's ability to meet their claims over a very short

period of time. Their analysis will, there fore confine to the evaluation of the firm's

liquidity positions.

.7.3.2 Suppliers of long-term debt

Suppliers of long-term debt on the other hand are concerned with firm's long-term

solvency and survival. They analysis the firms profitability over time, its ability to

generate cash to be able to pay interest and repay interest and repay principal and the

relationship between various source of funds. (Capital structure relationship).

71


Long-term creditors do analyses the historical financial statements but they place more

emphasis on the firm's projected financial statement to make analysis about its future

solvency and profitability.

7.3.3 Investors

Investors who have invested their money in the firms share are most concerned about the

firm steady growth in earning. As such, they concentrate on the analysis of the firm's

present and future profitability. They are also interested in the firms financial structure of

the extent it influence the firms earning ability and risk.

7.3.4 Management.

An organization would be interested in every aspect of the financial analysis. It is their

overall responsibility to see that the resources of the firm are used most effectively and

efficiently and that the firm's financial condition is sound.

So thus management employee financial analysis for the purpose of internal control and

to better provide what capital supplier seeks in financial condition and performance from

the business and from an internal control standpoint, management needs to take financial

analysis in order to plan and control effectively.

7.4 Ratio analysis

Ratio is the comparison between two figures of balance sheet and income statement.

7.4.1 Cash Ratio:

“This ration is obtained by dividing cash by current liabilities / liabilities”.

This ratio shows that the cash is enough for payment of current liabilities or not.

It is calculated as cash Ratio=Cash/current liabilities

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Table 3

Year 1997 1998 1999 2000 2001 2002 2003

Cash Ratio 0.118 0.169 0.19 0.21 0.22 0.15 0.134

Graph 1

00.050.1

0.150.2

0.25

ratio

1997 1999 2001 2003

years

Cash Ratio

Cash Ratio

It means that how much cash is available for payment its current liabilities. This ratio of

NBP shows a downward trend. Because of high advances cash is less to cover its current

liabilities.

7.4.2 Gross Profit Margin Ratio:

“This ratio shows the profit margin in sales/ revenue”.

This is calculated as.

Gross profit/ interest earned

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Table 4

Year 1997 1998 1999 2000 2001 2002 2003

Gross profit margin

% 24.8 27.7 28.9 29.59 39.67 46.6 51.9

Graph2

Gross profit margin%

0 20 40 60

1997

1999

2001

2003

ye

ar

ratio

Gross profitmargin%

G. profit margin relates profit of the organization to its sales (interest earned in case of

Bank).

From calculation it is very much clear that the gross profit margin ration have upward

trend which shows that how much they using their deposits to earn interest. This show the

profit of the firm relative to its revenue. It is a measure of the efficiency of the firm’s

operations too. As it is clear that the ratio gong high this is the indication of good

performance.

7.4.3 Net Profit Margin:

This ratio measure the firm’s profitability of sales/ interest earned after taking account of

all expenses and income taxes.

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This ratio can be calculated as:

Net profit margin ration = Net Profit after taxes / interest earned

Table5

Year 1997 1998 1999 2000 2001 2002 2003

Net profit Margin

% 0.2 1.6 1.7 1.55 3.67 3.18 21.6

Graph3

Net profit Margin %

010

2030

year

rati

o Net profitMargin %

Explanation: from the calculation and graph it is very much clear that the performance of

NBP is very good. And the trend is upward. It tells us a firm’s net income per rupee of

revenue. As the trend is upward it shows the high profits in revenue per rupee in case of

NBP. It is because of high advances the NBP has given to the people.

7.4.4 Return on Equity:

Dividing profit after taxation by share holder’s equity. ROE compares net profit after

taxes to the Share holder’s Equity.

This ratio is calculated as:

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ROE=Profit after taxes/Share holder’s Equity

Table6

Year 1997 1998 1999 2000 2001 2002 2003

Return on Equity 0.67 5.3 0.2 2.7 6.55 9.4 23.1

Graph4

Return on Equity

0102030

year

ratio Return on Equity

Explanation: from the calculation it is clear that the ROE Ratio have an upward trend of

NBP. It is because of high net profit they have earned. It tells us the earning power on the

shareholder’s investments. It is because of high investments by NBP and effective

expense management.

7.4.5 Return On Assets:

This ratio shows the efficiency of organization that how efficiently utilizes their assets.

This ratio relates profits to assets.

It is calculated as:

Profit after Tax/Total Assets

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Table7

Year 1997 1998 1999 2000 2001 2002 2003

Return on assets 0.01 0.16 0.008 0.124 0.225 0.52 0.9

Return on assets

0 0.5 1

1997

1999

2001

2003

ye

ar

ratio

Return onassets

Graph5

From calculation it is clear that this ration of NBP is going high and high. It shows that

NBP using it’s assets very efficiently. That is why they are earning very high profits. This

shows that how efficiently they investing the assets that’s why they are earning high

profits.

7.4.6 Investment deposit Ratio:

This ratio shows the comparison of investments and deposits. This is calculated as.

Investment deposit Ratio=Investment/deposits

Table8

Year 1997 1998 1999 2000 2001 2002 2003

Investment Deposit

ratio 42.9 37.7 31.03 22.94 20.54 39.66 42.01

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Graph6

01020304050

ratio

1997 2000 2003

year

Investment Deposit ratio

InvestmentDeposit ratio

Explanation: From above table and graph it is very much clear that NBP are using their

deposit very efficiently. And earning high profits. The ratio has an upward trend, which

shows the performance of NBP is very good. Now it is the retraction from top

management to invest 30% of its deposits. This may reduce its profits. But can be fruitful

in long term.

7.4.7 Debit to Equity Ratio:

This ration shows the amount contributed by creditors and shareholders. It shows to what

extent the firm is using borrowed money. It is computed simply dividing the total debt of

the fire by its shareholders equity.

This calculated as.

Total debt/shareholder’s equity

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Table9

Year 1997 1998 1999 2000 2001 2002 2003

Debt to equity

ratio 32.42 31.4 30.4 20.9 22.7 28.6 24.5

Graph7

Debt to equity ratio

0 20 40

1997

1999

2001

2003

yea

r

ratio

Debt to equityratio

From the table and graph it is clear that this ratio is decreasing which show the high

efficiency of NBP. In 2002 it was high but in 2003 it decreases to 24.5 from 28.6 which

is a good sign. Here the creditors are interested in low ratio. The lower the ratio the high

the level of the fire’s financing that is being provided by the shareholders.

7.4.8 Debt to assets ratio:

This ratio shows that to which extent the organization assets are financed by debit. It is

calculated as.

Total debt/total asset

Table1

79


Year 1997 1998 1999 2000 2001 2002 2003

Debt to asset

ratio 0.94 0.944 0.957 0.954 0.92 0.954 0.961

Graph8

0.880.9

0.920.940.960.98

ratio

1997 1999 2001 2003

year

Debt ratio

Debt ratio

This ration is directly related to risk high ratio means high risk and low ratio means low

risk. From calculation it is clear that the ratio is decreasing which show low risk. This

ratio serves the similar purpose to the debt to equity ratio. This ratio is high because of

more deposits in the bank, and deposits are the liability of customer on bank

7.4.9 Advances deposit Ratio:

This ratio show that how much efficiently the bank advances the deposits of their

customer to borrower.

It is calculated as.

Advances deposit ratio = Advances/ deposit

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Table11

Year 1997 1998 1999 2000 2001 2002 2003

Advances deposits ratio 0.414 0.399 0.416 0.443 0.487 0.387 0.406

Graph9

00.10.20.30.40.5

ratio

1997 2000 2003

year

Advances Deposits ratio

AdvancesDeposits ratio

From above table and graph it is clear that the ratio is going high. Which means the

efficiency on NBP is good and they use their deposits efficiently in advancing to

borrowers. Here high ratio is required. The next side of the picture is that the people will

think that is risky to deposit the money in the bank.

7.4.10 Assets Turnover Ratio:

The relationship of net sales /revenue to total assets is known as the total asset turnover

ratio. It is calculated as.

Total revenue / total assets

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Table12

Year 1997 1998 1999 2000 2001 2002 2003

Assets turnover ratio 0.099 0.097 0.093 0.079 0.075 0.079 1.07

Graph10

0 0.5 1 1.5

ratio

1997

1999

2001

2003

ye

ar

Assets turnover ratio

Assets turnoverratio

Explanation: This ratio shows us the relative efficiency with which a firm utilizes its total

assets to generate revenue. We can see that the ratio is going high and which is a good

sign and shows that NBP is utilizing its assets efficiently.

7.4.11 Price to earning Ratio:

This ratio show the relation ship b/w face price per share and earning per share. This ratio

is calculated as:

Price to earning ratio= face price of share/earning per share

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Table13

Year 1997 1998 1999 2000 2001 2002 2003

Price to earning

Ratio 2.4 2.7 47.62 3.17 3.25 1.6 0.97

Graph11

0 20 40 60

year

1997

1999

2001

2003

rati

o

Price to earning Ratio

Price to earningRatio

As from the above calculations it is clear that the ratio decreased tremendously in 2003, it

is because of the reason that earning per share increased resulting in decreasing price to

earning ratio.

From calculation it is clear that it have a downward slope. It is b/c of increase in earning

per share.

7.4.12 Dividend yield:

Anticipated annual dividend divided by the market price of the stock.

It is calculated as.

Dividend yield =Total dividend/ market price

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Table14

Year 1997 1998 1999 2000 2001 2002 2003

Dividend

Yield 0.2 0.1 2.3 3.32 1.63 2.45 0.23

Graph12

01234

ratio

1997 2000 2003

year

Dividend Yield

Dividend Yield

Year 2000 was best as far as dividend yield is concerned; it was mainly due to the

decreased amount of number of shares outstanding. In year 2001 increase in outstanding

shares decreased dividend yield, but due to increase in total dividend in 2002 it has

recovered to 2.45.

From the above table it is clear that the dividend is increasing but in 2003 it is low. It is

because of high market price and low dividend.

7.4.13 Deposit growth Ratio:

This ratio shows the growth rate of deposits.

This is calculated as

Current year deposits- previous year deposits /previous year deposit

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Table15

Year 1997 1998 1999 2000 2001 2002 2003

Deposit

growth ratio 0.08 0.07 0.08 0.07 0.1 0.037 0.09

Graph13

00.020.040.060.080.1

ratio

1997 2000 2003

year

Deposit growth ratio

Deposit growthratio

Explanation: This ratio shows an excellent move from 1997 to 2003. It upward slope

which shows that the people trust NBP and its management that our money is in safe

hands. The reason for this good move is only govt support to this bank.

7.4.14 Advances Growth Ratio:

This ratio shows the growth rate of advances. This is calculated as

Current year advances- previous year advances / previous year advances.

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Table16

Year 1997 1998 1999 2000 2001 2002 2003

Advances

Growth ratio 0.23 0.04 0.12 0.14 0.21 -0.17 0.15

Graph14

Advances Growth ratio

-0.2

0

0.2

0.4

year

rati

o AdvancesGrowth ratio

Explanation: from calculation and graph it is clear that NBP show a good growth rate in

respect of advances. Only in 2002 it is negative b/c of high advances in 2001 and low

advances in 2002. This shows that NBP is utilizing the deposits efficiently.

The over all performance of NBP is very good. That’s why it is declare the best bank of

the year 2003.

7.5 Predicting failure:

Where one wants to lend money to a company that is about to fail. The ability to predict

corporate failure before the event has been the holy grail of financial analysis for move

than 50 years. The collapse comes much unsaddled. One a company will be successful

and next year it will be fail. For this a tool is used which is

Z=0.012A+ 0.014B + 0.033C + 0.006D = 0.010E

86


Where

A = net current assets total assets.

B = Retained earnings total assets.

C = Profit before interest and tax total assets

D = capitulation total debt

E = Sales total assets

Now Z score blow 1.8 was an indicator of probable failure, and a score of over 3 was

seen as a clean bill of health the advantage of this approach is that using a combination of

several financial ratios makes it less likely that the result will be affected by manipulation

of financial statements.

If the portion of current asset is greater compared with total assets the healthier is short

term position.

If the retained earning is greater the greater is the extent of the company’s self financing.

The profit before tax and interest in the third ratio indicates the contribution of a

company’s profitability toward the end index score. In fourth ratio the investor’s view of

the further potential of the company is set against total debt. The last ratio shows the

ability of the company to use its assets to generate revere.

Predicting failure of NBP - 1998.

Z = 0.012(.86) + 0.014(0.026) + 0.033(0.014) + 0.006(0.13) +0.010 (0.11)

= 0.010 + 0.0004 + 0.0005 + 0.0008 + 0.001 = 0.0129

This shows that the calculation is below 1.8 and it is an indicator of failure

87


REFERENCES

1 National Bank of Pakistan (2000, 2003) Annual Report.

2 Block, Stanley B and Hirt Geoffrey A (1994). “Foundations Of Financial

Management” 7th edition USA: Michael W Junior, p121-148

3. Van Horne James C and JR Wachowicz M. Jhon” Financial management” 11

editions

4. Meigs “Financial Accounting” 11th edition.

5. R.B Hisrich and Peter P Michael “Entrepreneurship” 5th edition.

6. Simons Harry and Smith J.M “Intermediate Accounting” 5th edition.

7. Watson James “Fundamentals of Accounting” 7th edition.

8. Sober P Parey “Advance accounting” 2nd edition .

9. Tarry Franklin “Principles of Management” 8th edition

11. Vause Bob “The Economist “Guide to analyzing companies”. 3rd edition.

WEBSITE:

www.onlinewbc.gov/docs/finance/fs.ratio/. Html

88


CHAPTER # 8

GENERAL OBSERVATION

I have divided general observation in four parts. Which are as under. This analysis is

mainly based on my general observation.

Problems at the branch.

Function analysis.

Administrative analysis.

Personal management’s analysis.

8.1 PROBLEMS AT THE BRANCH

8.1.1 Customer Satisfaction

In NBP customer dealing is will, but during rush hour the customer has to wait for a long

time for their turn. It’s quite hard for a new customer or potential customer to get the

required information.

8.1.2 Poor record management and filing system

During my internship I observed that filing system of branch is not good. When certain

record is needed the staff has to struggle to find it out and a lot of time is wasted.

8.1.3 Unequal distribution of work

Work is not equally distributed. On one hand some employee have to work all day

without relaxing while some others have nothing to do at all. This not only creates

confusion among employees but also hurting and disturbing for overall setup of the bank.

And above all it results in dissatisfaction among customers as well.

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8.1.4 Marketing visits

A useful mode of contact is through personal marketing visits. Such visits are important

in informing and perusing the existing and potential customers about the products and

creating a sense of belongingness with them.

8.2 FUNCTIONAL ANALYSIS

8.2.1 Formal Organization

Formal organization includes the activities of two or more person, which are cautiously

determined groups and coordinated towards a given objective. It provides base when

people are able to communicate with other, when they have common purpose and they

are willing to work.

In NBP, we find a formal organization. Bernard referred to an organization as a formal

when the activities of two or more persons are coordinated towards a given objective.

The formal organization comes into being when people are able to communicate with one

another or willing to act and share a purpose.

In this formal organization of NBP the activities are carried out in a more formal way. In

theoretical terms it provides basis for communication with one another but in practice it is

not exercised because an employee at high level cannot get straight away to manager or

SVP and ask him about of his problem faced by him, because first he has to talk to his

immediate superior and follow a proper channel of communication.

8.2.2 Difference between theory and practice

A vast difference exists between theory and practice and NBP has written procedure but

practical work done by employees is a bit different from written procedures.

8.2.3 Bank duty to maintain secrecy.

They don’t care about maintaining secrecy, especially during the rush hours. They speak

loudly about the account position and while getting clearance of cheque the person can

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easily get the whole information from the ledge. The deposit clerk must be careful while

passing any cheque. In this regard another shortfall is in giving the information about the

balance on telephone.

8.2.4 Excessive paper work

It is notified that due to the lengthy procedure of paper work the bank employee are over

burdened. They are unable to give proper attention to the clients and face difficulties in

getting their job done. One reason for lengthy procedure and excessive paper work in the

bank is the lack of computerized technology.

8.2.5 More accounts fewer deposits.

Efficient banking is one which does not emphasize on number of accounts but on greater

amount of deposits. NBP is more interested in increasing its number of account

irrespective to its deposit. The main reason behind it is that bank does not provide

personalize service to all the account holders and does not improve its quality and

services

8.2.6 Delegation of authority

Manager has very limited authority; he has to take the approval from his management

authority i-e. In case of advance he has to take the approval of general and regional

manager. The other problem is created, when the manager is not present in his office, the

customer have to wait for hours. This discourages both customer and officers because

they have to suffer a lot

8.3 ADMINISTRATIVE ANALYSIS

8.3.1 Job analysis is not effective

Only on the basis of job analysis it can be decided how a right person can be hired,

trained, compensated or promoted. It is very important for an organization that nature of

the job is described and job specifications are mentioned. Most of the employees are

simple graduate and do not have proper background about their job. This creates

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problems both for organization and for the employees. In NBP salaries are given

according to the seniority and grades. People with simple or complex responsibility are

getting the same salary and facilities. This creates dissatisfaction among employees.

8.3.2 Carelessness in opening of account

When customer comes to open an account, the staff does not bother to check his/her place

phone number and permanent address. It is important because in case of overdraft by

mistake or anything which places his account in debit it will be difficult to trace him. On

the other hand he may be involved in any fraudulent activities against the bank. In this

case the bank will be in awkward position.

8.3.3 Lack of specialized training

NBP does not provide adequate facility of specialized training to their staff. Training is

generalized rather than specialized. As the worker finishes his training, he is inducted

into a specific field without having great deal of knowledge about the field.

In the Hayatabad branch the newly recruited employee training was not imparted, they all

learned things on the job.

8.3.4 Low Profit Rates

Most of the customers shifted their account to the National Saving Center because of the

low rates of saving deposit discourages the customers. Bank should increase their profit

rates to attract customers.

8.3.5 Poor job rotation.

There is absence of job rotation in NBP Hayatabad branch. A person placed in one

department remains their forever. It reduces career opportunities as well boredom and in

the end results in career platueing. Job rotation is very important for employee especially

for those who are newly recruited. The newly recruit should be rated in all department of

the banking in order to get familiar with working of different departments so that when

they get a responsible position they have know how of the whole system.

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8.3.6 Delays in Loan Advancement

It has been observed that there are delays in sanctioning of cases form the head office,

which results in customer dissatisfaction.

8.3.7 Lack of appreciation

Another very important thing which is ignored in the bank is appreciation if the employee

on their good performance. If hard work and performance of employees is not recognized

and appreciated they become dishearten which results in decline in performance.

8.4 PERSONAL MANAGEMENT ANALYSIS

8.4.1 Need for better training program

Need of training is greatly emphasized all around the world. Training of the personnel is

part of human resource management. It has been noticed that the training program of

NBP is not adequate.

Once the candidate is selected and placed on the respective job. It becomes essential to

train him adequately for the task. They should learn new methods for motivating

customers. The training programmed of the bank should include scientific techniques to

improve the decision making and interpersonal as will individual needs of the employee

both specialized to fresh as well as on job to maintain the high standards of service.

8.4.2 Developing Managerial Leadership

Leadership is a practical term of visible, clear on objective and communicating better

control on financial and administrative matters. Manager is not only responsible for their

own units in business, but also in people terms i.e. training, recruiting, grievance handling

and taking immediate initiative in crisis situation to take major decision affection the

future of the bank and banking community.

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8.4.3 Recruitment policy

Human resources are the lifeblood of the organization. If the personnel are recruited

carefully they can become asset to the organization in the case of carelessness a liability

on the organization. Bank is not following its recruitment policy properly due to

favoritism, nepotism and political pressure. Both the top authority and staff union tries

their best recruit their favorites, indulgence of political pressure add salt to the wounds.

The persons selected through these channels are infantile and do not work for the

betterment for the bank.

8.4.4 Promotions

Promotion in NBP is purely on the basis of seniority, so the new young person having

high qualification remains behind for quite a lot of time. Top management and staff union

put pressure for the promotion of their favorites, which gives a sense of deprivation to the

deserving employee and their efficiency is affected. As the concept of promotion is

attached with better in terms of greater responsibility, more prestige, greater skills and

increased rate of salary. Thus a better and impartial policy of promotion needs to be

followed.

8.4.5 Transfer

Transfer means when a person is shifted from one place to another place. It is done either

that person is needed more on the other branch or for improving his skill variety. It is the

policy of the Bank to transfer each employee 3 to 4 years.

8.4.6 Marketing at desk

Bank employee come in daily contact with many people who happen to deal with the

casual remittance, travelers cheques, safe custody, pensioners, depositing license fee and

variety of other functions and variety of other people with whom the Bank has no account

or regular business relationship. The Bank employees are doing very little on their own to

explore the possibilities of selling banking services to them as a marketing contributor.

The entire Bank community should make a conscious effort in addition to their normal

94


work to explore the possibilities of selling banking services to them. The market

opportunities are hidden in every dealing a banker handles; the question is that if he has

the art and urge to seize such opportunities.

8.4.7 Lack of business communication

There is no proper way to give information to their customer. To avoid this minor

dissatisfaction and tension in the mind of customer, and deficiency of the service, it is

recommended that the bank should provide brochures etc containing information in

details.

Some general information should be placed in information notice board on the entrance

where customer can see it easily or it should be self-attractive.

95


Chapter # 9

GENERAL SUGGETIONS

NBP is an effectively operating and profit making organization and carrying out its

activities under a specified system of procedure. The main regulatory body is State Bank

of Pakistan, which provides policy guidelines and ensures that the money market operates

on sound professional basis. While the head office specifies the whole procedure of

function and operations. This procedure has been modernized with the passage of time

with a view to streamline the approach and underlying procedure for effective

overhauling of its own capabilities so as to bring them at par with international practices.

Here I am giving some suggestions, which in my view can add some input for efficiency

and better performance of NBP as an organization in genera and City branch in

particular.

The recommendations are as follows:

9.1 Professional training

NBP staff lacks professionalism. They lack the necessary training to do the job efficiently

and properly. Although staff colleges in all major cities but they are not performing well.

For this purpose these staff colleges should be reorganized and their syllabus should be

made in such a way to help the employee understand the ever changing global economic

scenario.

Banking council of Pakistan should also initiate some programs to equip the staff with

much needed professional training.

9.2 Delegation of authority

Employees of the bank should be given a task and authority and they should be asked for

their responsibility.

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9.3 Performance Appraisal

The manager should strictly monitor the performance of every staff member. All of them

should be awarded according to their performance and result in the shape of bonuses to

motivated and incite them to work more efficiently.

9.4 To Over Come Problem of Space and Furniture

In the critical analysis this, problem is discussed. To overcome this problem it is

suggested that a special section should be made inside the branch. Which should only

handle the treasury function, salaries and pensions of federal personnel or the bank

should do these functions in the evening time. Also management should purchase more

furniture and arrange them in such a way which provides maximum space and convenient

specially in deposit department and there should also be convenient sitting place for

customers.

9.5 Transfer

Transfer is not properly carried out. Some of the employees are continually serving at the

same post. They are simply rotated at the same branch. Therefore it is recommended that

evenly rotation of every employee should take place after every three years in different

braches of the bank.

9.6 Changes in Policies

There should not be any abrupt policies change by the upper management, as this practice

hurts the customer confidences in the bank. Government should make long term policies

9.7 Need of Qualified Staff

Required, qualified staff should be provided to branch in order to improve the functioning

of the branch. Especially a telephone operator should be appointed.

9.8 Utility Bill Charges

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Bank gets Rs. 2 to 3 to processes a utility bill, and it is very tire, tough and hard job

despite this working resulting in a loss to then Rs 3 to5 per transaction. These charges

should be increased to RS 10 per bill to enable the branch to cover their handling costs

and make some profit.

9.9 Link with the Head Quarter

100 major branches of NBP should established a direct link with the, head quarter

In Karachi, through Internet or Intranet. This will make the functions and decision

making of the management easier and convenient.

9.10 Credit Card

National bank of Pakistan should start its operation in credit card. These cards are very

helpful for the ordinary customer in general and the business people in particular. To

make it mores secure and to eliminate the misuse of it, the management is required to

keep proper security against the card.

9.11 Installing Validator and ATM

Validator machine is used to count the currency notes and its installation will help to

eliminate to counting errors and will save time.

This branch is situated in the City, which is supported to be the hub of business activates.

In this area an auto teller machine (ATM) is the need of the hour businessmen can easily

check their balance in the bank and also with draw their money conveniently.

9.12 Interest on Overdraft:

Overdraft is a short-term credit facility provided by the bank to its trustworthy customers

free of interest. Only bank commission is charge small amount of mark-up on the

overdraft, which will help the bank to improve its revenue position.

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9.13 Clean Loans

Clean loan or clean overdraft is the credit facility extended to the customers to the

customers without any security. These types of small term loans should not be extended

to anybody, because sometime these loans are provided to blue-eyed people of the

management and they become a part of bad debts.

9.14 Cash Financing

In this mode of financing the amount of credit not utilized by the borrower is remained

tax-free. It is recommended that a small amount of interest should be charge on this

amount as well because the bank gas kept-aside the amount for that borrower and can not

advance it anywhere.

9.15 Decreasing Administrative Expenses

Bank should their administrative expenses. This was Rs 8 billion in the year 2000. That

can be done by lying off the surplus pool of employee with golden handshakes scheme.

The branches that are not much used could also be closed. Employee can also be how to

control the bank expenses. That will give positive results in the future.

9.16 Needs to be Flexible in credit Policy

As mentioned earlier, NBP is very conservative in advances and loans policy. It reduces

the investment opportunities. Also loans should be given to the small businessmen and

the agriculture sector at the low markup rate. It should adopt flexible credit policy while

giving credit to the agriculture sector.

9.17 Technological Advancement

I would like to suggest that at least all the main branches of NBP should be fully

computerized in order to expedite the dealing process among bankers and their

customers. Every department should be provided a computer with adequate training

(especially Advances, Deposits and Foreign Exchange departments).

99


Daily records should be entered directly into these computers, (instead entering the

overall daily transactions after the banking hours). It will not only reduce transaction

time, will increase accuracy but will also be efficient as well.

Not only it will be economical but will also reduce the extra burden of work of the bank.

It will also help in reducing the use of excessive paper work.

9.18 Staff Relationship

Good relationship among staff member leads to the peak performances in any

organization. I observed that the staff relationship was normal other wise but some time I

noticed that there existed a little conformity among the staff members. Another syndrome

from which the staff suffered was that all of them considered themselves more important

than others. Some of the officers used to say that if I am absent for a day the bank would

stop working. So this sort of attitude is not good because it mars bank image and juniors’

willingness learn and work hard and in the end will hurt the whole team.

9.19 Improper Distribution of Work

Proper distribution work leads to success in every organization. Proper distribution of

work prevents the employee from over and under work situation. So for a smooth running

of an organization proper distribution of work is the hint to be followed.

During my internship I observed that there was no proper distribution of work in the

bank. I saw that some of the employee worked like ants other sat idle starting here and

there. So this created a lot of over work situation for while relaxation for other.

9.20 Favoritism and nepotism

In the City branch during my internship I saw that when some of the employees are

transfer to other places, due to their relation with influential people and with top

management they can cancel their transfer in few weeks, when they are unsatisfied at that

place.

100


So I suggest that in the organization there should be no favoritism, nepotism and politics

and their transfer and promotion should be made on merit and according to the rules and

regulations of the bank and provided favorable environment to the employee to show

their performances.

9.21 Inter Departmental Transfer

I watched during my internship that, there is number of employee who have worked on

one seat for many a year. It can have negative effects motivation of employee who is hard

working and intelligent. Take the example of advances section. In advance section if the

employee is transfer after sixth month or seven month, how can he be able to show his

performances and how can he be able to know the bank customer in a short period of

time.

9.22 Foreign currency Account

For the internship the place I have selected was City branch, which is my forefather land

and I know that from area many people have traveled to other country for different kind

of jobs, and I have heard personal complaint about the unavailability of foreign currency

account in banks. So I thick it is wonderful opportunity for the bank to open foreign

currency account.

9.23 Marketing Policy

The branch should adopt various marketing strategy and promotion strategy to promote

the bank and its product.

The most important in my opinion is personal marketing; it is the most effective of all

when you think in term of branch level. But on the whole organization level, they should

arrange the seminar with in the bank and outside the bank. They should introduce various

prizing schemes just like Allied Bank. Karamad Scheme, Bank Al-Falah (monthly

income earning scheme) and various others.

They should do more advertising through newspaper and media and through channel of

personal contacts.

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9.24 Complaints of Customer

There should be an information desk to provide the information and to receive the

complaints of the customer in the bank.

There is no complaint box available in the branch and not any person appointed to hear

the complaints.

Every person cannot go to the manager for the complaint because most of the people are

hesitant. So I suggest management to install a compliant box in the branch, and recruit a

special person for that guidance of the customer when they are unable to manage some

difficulties in banking matters.

9.25 Analysis of the Business:

Proper analysis of the business reports should be conducted before extending any type of

loan. For this purpose professional training of the stuff member is required.

9.26 Organizational Commitment

It is suggested that employees working on daily wages basis should be given some

benefits, which the other employees are getting. Their salaries must increase according to

efficiency, performance and service.

9.27 Managerial Leadership

In the analysis, we have discussed the difficulties of the assistant in taking any initiative;

therefore it is recommended that the assistants should he given special training to make

them ready for the leadership.

9.28 Credit Monitoring

The credit department of the bank should carries out vigilant credit monitoring. They

should ensure the proper payment of installments and the mark-up by the borrower.

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The staff members who have done all the paper work of the loan extension should

perform the monitoring, as he/she will be having more information about the borrower.

9.29 Extended Banking Hours

The banking hours may be extended up to six, as being practiced by HBL opposite to it.

Some of the business community due to law and order situation are now reluctant to keep

the fund in their premises and would want to depart with it. Therefore, City Branch may

extend the night banking to cater to demand of this business community. The branch

could also be opened to cater the requirements of this business community

Limited staff:

9.30 Housing and House Hold Goods loans

Bank should initiate these loans because most of bank’s customers are middle class and

they cannot afford to buy house or house hold goods at once by their own

9.31 Avoiding Bad Debts

Great care should be taking while extending the loan. Loans should be awarded against

reasonable securities, where market value should be equal to the loan granted.

Policies should be crafted in a way to ensure that no loan is extended on political

pressure. SBP regulation for loan approval should be strictly followed. According to

which the current ration of borrower’s business must be 1:1 and the debt to equity ratio

should be 60:40, means the liquidity position of business should be healthy.

9.32 Car Financing Scheme

Another financing scheme with the name of “MARE GARE CAR FINANCING

SCHEME” should be initiated This finance scheme will help the general public to buy

the car of their choice in easy quarterly installments The bank monitors will do strict

monitoring and the car will be hypothecated with the bank against the car loan.

Scheme’s implementation plan is give in the next chapter.

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CHAPTER # 10

IMPLMENTATION PLAN

From the above recommendation, two recommendations are selected for implantation

plan.

10.1 IMPLEMENTATION PLAN FOR “MARE GARE CAR FINANCING

SCHEME”

Implementation of this financing scheme is initiated to provide long term loans to the

general public for buying their own car in easy installments. This financing scheme will

help bank to increase its revenue immensely

10.1.1 Rules and regulations

Name of finance Mare Gare Car Financing

Minimum amount of finance Rs. 300000

Maximum amount of finance Rs. 1500000

Rate of Mark up (on daily product basis) Rs. 0.43 per Rs. 1000

Period of finance 3 or 5 years

Repayment to Bank Quarterly (12 or 20 equal installments)

10.1.2 Documents required for extension for loan

Documents of title to car.

Bank monitoring team approval certificate.

Car dealer certificate of authentication.

Insurance.

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10.1.3 Securities Required for Extension of Loan

To ensure the safe recovery of loan the car will be hypothecated.

Guarantee of two 17th grade government or semi government officer.

Personal liability of the borrower.

10.1.4 Finding out Quarterly Installments

Mark up will be calculated for the whole time period and will be added to the principle

amount. The total of that will be divided by number of installments to get the amount for

each installment

The formula for extracting mark up is

Mark up =F*R(1+N)

2M

Where

F = Total amount of financing

R = Rate of mark up for one year

N = Total number of installments

M = Number of installments in one year

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Case study

Amount of finance Rs. 200000

Rate of mark up Rs. 0.43 per 1000

Total number of installments 20 (5 years)

Number of installments in one year 4

Rate of mark up for one year ® = .43 * 365/1000

=.157

Mark up for the whole financing will be

Mark up = 200000 * 0.157*(1+20)

2 * 4

= Rs. 82425

Now the quarterly installments will be

Quarterly installment = principal amount + total markup

Total installments

=200000 + 82425 / 20 = Rs. 14121/-

The borrower will pay Quarterly installment of Rs. 14121/-

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10.2 Implementation plan for NBP Hayatabad branch “Telephone

Operator”

The ingredients of the implementation plan are.

Need/problem at the branch.

Qualities of a telephone operator

Benefits of a telephone operator.

How the need created and bank’s staff decision.

The implementation plan cost.

10.2.1 Need problem at the branch.

Every organization has some problems. NBP Hayatabad branch has the problem of

telephone operator. It can save the precious time of not only manager but other staff as

well. On the other hand bank’s communication system was not doing well overall.

Therefore as an internee I felt that there should be a telephone operator who can easily

handle this situation.

10.2.2 Benefits of the telephone operator

It saves precious time of the manager and staff members.

It saves the time of the customers.

Creates good impression on the customer.

Communication within the bank improves.

Communication of Bank with outside enhances.

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10.2.3 How the need was created

The need for telephone operator was created because the staff members would have to

leave their work and attend the telephone but some times it would be a wrong call,

other’s call or the calls which they wanted to avoid this would not only waste their time

but also affect their performance a great deal. Therefore they think it’s useful to have a

spare person for this facility.

10.2.4 ACTION/IMPLEMENTATION PLAN COST

1- Cost of HRM department

Advertisement in newspaper cost 4000

Selection cost 10000

Training cost 12000

Total HRM cost 26000

2- Telephone networking

Additional telephone sets 2500

Cable (Rs. 5/ foot, 5*800) 4000

Telephone mechanic 2000

Labor 2000

Separate cell cost 5000

Other expenses 2000

Total networking 17500

Total action plan cost 435000

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Economy & Finance

Internship report on nbp 3(1)