Description
NBP INTERNSHIP REPORT
INTERNSHIP REPORT NATIONAL BANK OF PAKISTAN
SPECIALIZATION IN (BANKING&FINANCE) SUBMITTED TO: CHAIRMAIN, DEPARTMENT OF BUSINESS ADMINISTRATION SUBMITTED BY: Name Rehman Mujeeb Ur
DEPARTMENT OF BUSINESS ADMINISTRATION ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
ACKNOWLEDGEMENT
I am highly grateful to almighty Allah who gave me the power to complete this report. I am also highly thankful to my honorable teachers for theirs guidance. I am indebted to all the employees of National Bank of Pakistan MAIN Branch Taunsa Sharif Special thanks to “Mr. Saif Ullah Khan” OG#1 of National Bank of Pakistan main Branch) And all other employees of the branch for their cooperation
TABLE OF CONTENTS
EXECUTIVE SUMMARY..................................................................................................................viii CHAPTER NO 1......................................................................................................................................1 1 INTRODUCTION.................................................................................................................................1 1.1 Brief History of National Bank of Pakistan.................................................................................1
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1.2 Business volume of National Bank of Pakistan...........................................................................3 1.3 Product Lines..................................................................................................................................8 1.3.1 Deposits.....................................................................................................................................8 1.3.2 Current Deposits.......................................................................................................................8 1.3.3 PLS Saving Deposits................................................................................................................9 1.3.4 Fixed Deposit Account (Time Deposits)................................................................................10 1.3.5 Foreign Currency Account....................................................................................................11 1.3.6 NBP Premium Aamdani........................................................................................................11 1.3.7 National Income Daily Account (NIDA)..............................................................................12 1.4 Advances................................................................................................................................13
1.5 NBP Advance Salary....................................................................................................................14 1.6 NBP Cash & Gold........................................................................................................................14 1.7 Students Loan Scheme.................................................................................................................15 1.8 NBP Karobar- President’s Rozgar Scheme...............................................................................15 1.9 Corporate Advances....................................................................................................................16 1.9.1 Cash Finance..........................................................................................................................16 1.9.2 Running Finance/ Overdraft...................................................................................................16 1.9.3 Demand Finance.....................................................................................................................16 1.10 Remittances.................................................................................................................................17 1.10.1 Demand Drafts.....................................................................................................................17 1.10.2 Travelers Cheques................................................................................................................17 1.11 Letter Of Credit.........................................................................................................................18 1.12 Foreign Remittances..................................................................................................................18 1.13 Swift System................................................................................................................................19 1.14 Mail Transfer..............................................................................................................................19 1.15 Telegraphic Transfer.................................................................................................................20 1.16 Pay Order....................................................................................................................................20 CHAPTER NO 2....................................................................................................................................21 2 Organizational Structures..................................................................................................................21 2.1 Organizational Structure of National Bank of Pakistan..........................................................21 2.2 Board of Directors........................................................................................................................21 2.3 Senior Management.....................................................................................................................24 2.4 Corporate & Investment Banking Group..................................................................................25 2.5 Compliance Group.......................................................................................................................27 2.6 Islamic Banking Group...............................................................................................................28 2.7 Treasury Management Group....................................................................................................29 2.8 credit management group...........................................................................................................30 3
2.9 Audit & Inspection Group..........................................................................................................30 2.9.1 Internal Audit..............................................................................................................................31 2.9.2 External Audit.............................................................................................................................32 2.9.3 Statutory Audit............................................................................................................................32 2.10 Human Resource Management & Administration Group.....................................................33 2.11 Overseas Coordination & Management Group......................................................................34 2.12 Commercial & Retail Banking Group.....................................................................................34 2.13 Special Assets Management Group..........................................................................................35 2.14 Employee Benefits, Disbursements & Trustee Division.........................................................36 2.15 Defined Benefit Plans.................................................................................................................36 2.15.1 Pension Scheme.........................................................................................................................36 2.15.2 Post retirement medical benefits...............................................................................................37 2.15.3 Benevolent scheme....................................................................................................................37 2.15.4 Gratuity scheme........................................................................................................................37 2.16 Provincial & Regional Management.......................................................................................37 2.17 Branch Management.................................................................................................................38 2.18 Hierarchy of National Bank of Pakistan.................................................................................38 2.19 Centralized Decision Making...................................................................................................39 2.19.1 Downward Communication......................................................................................................39 2.19.2 Chain of Command...................................................................................................................40 2.20 Departments of the Branch......................................................................................................40 2.20.1 Clearing House Department....................................................................................................41 2.20.1.2 Remittance Department..........................................................................................................43 2.20.2 Account Opening Department...............................................................................................44 2.20.3 Cash Department....................................................................................................................45 2.20.4 Deposits Department.................................................................................................................47 2.20.5 Accounts Department.............................................................................................................48 2.20.6 Bank Accounting Operations...................................................................................................49 2.20.7 Internal and External Reporting..............................................................................................52 Use of Electronic Data in Decision Making.........................................................................................52 CHAPTER NO 3....................................................................................................................................54 3 Information System Resources of NBP.............................................................................................54 3.1 People Resources..............................................................................................................................54 3.2 Hardware Resources........................................................................................................................54 3.3 Software Resources..........................................................................................................................54 3.4 Data Resources.................................................................................................................................55 3.5 Network Resources..........................................................................................................................55 4
3.6 Sources of Funds..............................................................................................................................55 3.7 Critical Analysis (Theory vs Practical)..........................................................................................62 3.8 Conclusion.........................................................................................................................................62 CHAPTER NO 4....................................................................................................................................63 4 FINANCIAL REPORTS....................................................................................................................63 4.1 Balance Sheet................................................................................................................................63 4.2 Income Statement.........................................................................................................................64 4.3 Financial Statements Analysis....................................................................................................65 4.3.1 Ratio Analysis............................................................................................................................66 4.3.1.1 Profitability Ratios.............................................................................................................67 4.3.1.2 Liquidity Ratios..................................................................................................................67 4.3.1.3 Debt Ratios.........................................................................................................................67 4.3.2 Horizontal Analysis...................................................................................................................71 4.3.3 Horizontal Analysis of Balance Sheet...................................................................................72 4.3.4 Horizontal Analysis of Income Statement.............................................................................73 4.3.5 Vertical Analysis.....................................................................................................................74 4.3.6 Vertical Analysis of Balance Sheet........................................................................................75 4.3.7 Vertical Analysis of Income Statement.................................................................................76 4.3.8 Bank Analysis with refernce to commercial Banks listed on stock exchange.............................77 CHAPTER NO 5....................................................................................................................................81 5.1 Future prospects of National Bank of Pakistan............................................................................81 5.2 Short falls/ Weaknesses of National Bank of Pakistan.................................................................82 5.3 Conclusions.......................................................................................................................................83 5.4 Recommendations............................................................................................................................84 References...............................................................................................................................................86
References
FIGURE TABLE
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Table 1.1.....................................................................................................................................................3 Table 1.2.....................................................................................................................................................4 Table 1.3.....................................................................................................................................................4 Table 1.4.....................................................................................................................................................5 Table 1.5.....................................................................................................................................................6 Table 1.6.....................................................................................................................................................6 Table 1.7.....................................................................................................................................................7 Table 1.8...................................................................................................................................................13 Table 3.1..................................................................................................................................................56 Table 3.2..................................................................................................................................................56 Table 3.3..................................................................................................................................................57 Table 3.4..................................................................................................................................................58 Table 3.5..................................................................................................................................................59 Table 3.6..................................................................................................................................................59 Table 3.7..................................................................................................................................................60 Table 3.8..................................................................................................................................................61
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EXECUTIVE SUMMARY In this internship report there are five major parts first part consist of introduction and product lines of the organization and also discuss the business volume of the organization. The second part of this report is organizational structures and discusses the whole groups that are working in the organization and also describe decision making power in this organization. Third part of the report is the resources of the organization if the resources of the organization are fully utilized than no organization go to failure and also describe the resources of funds. The fourth part of the report is very important part that is analysis of financial reports and balance sheet and ratio analysis of the organization. The last part consists of future prospect, strength, weakness, conclusion and recommendation for the organization. In last all annexure are attached with the report
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CHAPTER NO 1 1 INTRODUCTION 1.1 BRIEF HISTORY OF NATIONAL BANK OF PAKISTAN The history of National Bank of Pakistan is part of Pakistan’s struggle for economic independence. National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions which were developed after trade deadlock with India and devaluation of Indian Rupee in 1949. Initially the Bank was established with the objective to extend credit to the agriculture sector. The normal procedure of establishing a banking company under the Companies Law was set aside and the Bank was established through the promulgation of an Ordinance, due to the crisis situation that had developed with regard to financing of jute trade. The Bank commenced its operations from November 20, 1949 at six important jute centers in the then, East Pakistan and directed its resources in financing of jute crop. The Bank’s Karachi and Lahore offices were subsequently opened in December 1949. The National Bank of Pakistan came forward to establish its offices in the Cotton growing areas and extended credit facilities liberally in order to restore stability to the market. In 1951, the country was once again faced with a crisis in the cotton trade when prices was crashed and touched the lowest level since independence following the cessation of hostilities in Korea. The bank in collaboration with the cotton board provided the necessary Credit facilities to the trade and the crisis was tided over. The nature of responsibilities of the Bank is different and unique from other banks/financial institutions. The Bank acts as the agent to the State Bank of Pakistan for handling Provincial/Federal Government Receipts and Payments on their behalf. The Bank has also played an important role in financing the country’s growing trade, which has expanded through the years as diversification took place.1 The National Bank of Pakistan has its headquarters in Karachi, Pakistan. The bank operates 1249(2008) branches in Pakistan and 22(2008) overseas branches. Under a trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. The National Bank of Pakistan has assets worth Rupees 737976.44 million on September 30, 2008.2
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National Bank of Pakistan is today a progressive, efficient, and customer focused institution. It has developed a wide range of consumer products, to enhance business and cater to the different segments of society. Some schemes have been specifically designed for the low to middle income segments of the population. These include NBP Karobar, NBP Advance Salary, NBP Saibaan, NBP Kisan Dost, and NBP Cash n Gold. The National Bank of Pakistan has implemented special credit schemes like small finance for agriculture, business and industries, administrator to Qarz-e-Hasna loans to students, self employment scheme for unemployed persons, public transport scheme. The Bank has expanded its range of products and services to include Shariah Compliant Islamic Banking products. For the promotion of literature, NBP recently initiated the Annual Awards for Excellence in Literature. NBP will confer annual awards to the best books in Urdu and in all prominent regional languages published during the defined period. Patronage from NBP would help creative work in the field of literature. The Bank is also the largest sponsor of sports in Pakistan. It has provided generously to philanthropic causes whenever the need arose. It has taken various measures to facilitate overseas Pakistanis to send their remittances in a convenient and efficient manner. In 2002 the Bank signed an agreement with Western Union for expanding the base for documented remittances. More recently it has started Electronic Home Remittances Project. This project introduces technology based system to handle inward remittances efficiently, by ensuring that the Bank's branches keep a track of the remittance received from abroad till its final receipt. A number of initiatives have been taken, in terms of institutional restructuring, changes in the field structure, in policies and procedures, in internal control systems with special emphasis on corporate governance, adoption of Capital Adequacy Standards under Basel II framework, in the up gradation of the IT infrastructure and developing the human resources. National Bank has earned recognition and numerous awards internationally. It has been the recipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The Banker Magazine, the Best Foreign Exchange Bank –– Pakistan for 2004, 2005, 2006 and 2007, Global Finance, Best Emerging Market Bank from Pakistan for the year 2005, Global Finance, Kisan Time Awards – 2005 for NBP's services in the agriculture field. It is listed amongst the Region's largest banks and also amongst the
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largest banks in South Asia 2005, The Asian Banker. It has also been presented a Recognition Award –– 2004 for having a Gender Sensitive Management by WEBCOP AASHA besides other awards.3 1.2 BUSINESS VOLUME OF NATIONAL BANK OF PAKISTAN TABLE 1.1 Rupees Millions Year Total Assets Deposits Advances Reserves Investments in 2005 553,231,467 465,571,71 7 220,794,075 10,813,914 149,350,096 2006 577,719,114 463,426,602 268,838,779 13,536,041 2007 645,132,71 1 501,872,24 3 316,110,40 6 13,879,260 139,946,99 2008 762,193,593 591,907,435 340,677,100 19,941,047 210,787,868 2009 862,556,378 726,464,825 475,243,431 22,681,707 217,642,822
156,985,686 5 Horizontal Analysis (%) 104 100 122 125 105 117 108 143 128 94
Total Assets Deposits Advances Reserves Investments
100 100 100 100 100
138 127 154 146 141
155.912386 156.037147 215.242837 209.745583 145.726603
(National Bank of Pakistan, 2010) (Retrieved July 12, 2010, from nbp.com/http://www.nbp.com/annualreports/)
The business volume of National Bank of Pakistan is stated in terms of total assets, deposits, advances, reserves and investments. To analyze the trend in these items the Horizontal analysis of each item is calculated.
TABLE 1.2
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(Total Assets)
Analysis The Total Assets of National Bank of Pakistan fluctuates during all years as they show an increasing trend. The total assets are increased 4 % in 2005 and 17 % in 2006. The year 2007 represents second highest percentage on account of total assets as it was increased to 38%. There was an increase of 48 % in 2008 as compare to base year and 10% as compare to 2007. TABLE 1.3 (Deposits and other Accounts)
A NALYSIS The deposits and other accounts of National Bank of Pakistan show a mixed trend during all years. In the year 2005, the deposits were increased very marginally, with the year 2006 represents an increase of 8%. The deposits are increased 27% & 34% in the years 2007 and 2008 respectively. TABLE 1.4 (Advances)
A NALYSIS The advances made by National Bank of Pakistan shows an increasing trend in all years as compare to base year. This implies that National Bank of Pakistan is keener to advance money to lenders. The advances were increased 22 % in the year 2005 and 43 % in 2006 as compare to base year. The year 2007 represents an increase of 54 %
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and 2008 represents highest percentage among all years that is 87 % as compare to base year.
TABLE 1.5 (Reserves)
A NALYSIS The Banks’ reserves are banks' holdings of deposits in accounts with their central bank plus currency that is physically held in bank vaults (vault cash). The reserves of National Bank of Pakistan fluctuate during all years as they show an increasing trend. The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007 respectively. The year 2008 represents highest increasing percentage of 84% as compare to base and previous years. TABLE 1.6 (Investments)
A NALYSIS The investments made by National Bank of Pakistan fluctuate during all years. There was an increase of 5 % in 2005. The year 2006 indicates a decrease of 6% in investments. The year 2007 represents an increase of 41 %, highest among all years. The investments are increased 14 % in 2008 as compare to base year; however investments are decreased 27 % as compare to the year 2007.
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TABLE 1.7 Number of Employees of National Bank of Pakistan Permanent Temporary/ On Contractual basis Bank's own staff strength at the end of the year Outsourced Total Staff Strength http://www.nbp.com.pk/nbp/About_Us/About_US.jsp 13237 842 14079 2350 16429
An employee may be defined as: "A person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed." 4An employee contributes labor and expertise to an endeavor. Employees perform the discrete activity of economic production. Of the three factors of production, employees usually provide the labour. Specifically, an employee is any person hired by an employer to do a specific "job". In most modern economies, the term employee refers to a specific defined relationship between an individual and a corporation, which differs from those of customer, or client. The relationship between National Bank of Pakistan and its employees is usually handled through the Human Resource Management & Administration Group & Employees benefit disbursement & trustee division. These groups handle the incorporation of new hires, and the disbursement of any benefits which the employee may be entitled, or any grievances that employee may have. There are differing classifications of workers within National Bank of Pakistan, these are: • • • Permanent Temporary / On Contractual Outsourced
The Employees of National Bank of Pakistan are organizing into trade unions, which represent most of the available work force in National Bank of Pakistan. These trade Unions utilize their representative power to collectively bargain with the management of bank in order to advance concerns and demands of their membership. 1.3 PRODUCT LINES
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The most precise definition of product is anything capable of satisfying needs, including tangible items, services and ideas. In marketing, a product is anything that can be offered to a market that might satisfy a want or need. 5 Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things produced”. The economic or commercial meaning of product was first used by political economist Adam Smith. In general usage, product may refer to a single item or unit, a group of equivalent products, a grouping of goods or services, or an industrial classification for the goods or services. The consumer banking products include personal accounts, credit cards, loans, investment products, treasury products and many more. The National Bank of Pakistan offering for sale several related products individually, which is commonly known as product lining. A product line is defined as “A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through same types of outlets, or fall within the given price ranges”.6 The followings are the main consumer banking products of NBP. 1.3.1 DEPOSITS The National Bank of Pakistan offers to their clients a variety of Deposit Schemes with personalized services at competitive rates of interest. Any Pakistani citizen can open his/her account for any deposit scheme at any of its Branches strategically located throughout Pakistan. The Bank with its huge network of 1243 branches garners savings from both the rich and the poor in urban as well as rural areas. Even a poor farmer in a remote village, with his meager annual income, feels secure to safe keep his minuscule savings in National Bank of Pakistan, Because National Bank of Pakistan has a long heritage of trust and professional commitment. 1.3.2 CURRENT DEPOSITS 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 nay 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 Current Deposits may be withdrawn by the depositors at any time, and as such the bank is not entirely free to employ such deposits.7 Current Accounts/ Basic Banking accounts are opened, on proper introduction and submission of required
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documents along with initial deposit prescribed from time to time. Basic banking accounts are opened for an individuals (single or joint) only whereas current accounts are opened for individuals (single or joint) Charitable institution, provident and other funds of benevolent nature of local bodies, autonomous corporations, companies, associations, educational institutions, firms etc. and in all other cases where the accounts are to opened under the order of a competent court of law. No profit is paid on the balances of current/basic banking accounts. The bank is authorized to deduct service charges (incidental charges) on current accounts levied through its half yearly schedule of charges, in case the average balance falls below the minimum balance as prescribed by the bank. No balance maintenance condition is applied on basic banking account. 1.3.3 PLS SAVING DEPOSITS In Pakistan a Savings Deposits Account can be opened with a 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 monthly basis under the Interest Free Banking System. There is no restriction on the withdrawals from the deposit accounts but the amount of money withdraw 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 the scheme the SBP has allowed the Savings Scheme for school and college students and industrial labour also. The purpose of these accounts is to inculcate the habit of savings in the constituents. As such, the initial deposits required for opening these accounts are very nominal.8NBP charge Rs.500 for opening of PLS Savings deposits. The silent features of profit and loss sharing and saving accounts of NBP are as fallows • These accounts can be opened by individuals in their own single or joint name. The PLS savings account can also be opened for provident fund or other benevolent funds of companies, firms, organizations, NGO’s and educational institutions. • • PLS saving account can be opened with a minimum amount of Rs.500/- only To share in the profit a minimum balance of Rs.500/- must be maintained in the account. The minimum balance on sixth and last of month will qualify for the profits. The profits will be calculated on the basis of monthly minimum
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balance for the periods of six months i.e. from January to June and July to December • • • The head office of NBP determines the profit or loss on PLS saving deposits and advice its branches the rate and time of distribution of these profits. There shall be no restrictions on maintaining the maximum balance in PLS saving account. On the first day of Ramzan each year the Zakat at the rate of 2.5% will be deducted from these deposits on the balance of that day. But if depositors affix an affidavit of Zakat deduction along with account opening form or he is a non-Muslim, no Zakat will be deducted from his account. 1.3.4 FIXED DEPOSIT ACCOUNT (TIME DEPOSITS) The deposits that can be withdrawn after a specified period of time are referred to as Fixed or Term Deposits. The period for which these deposits are kept by the bank ordinarily varies from three months to five years in accordance with the agreement made between the customer and the banker. Profit/Return is paid to the depositors on all fixed or Time deposits, and the rate of profit/Return varies with the duration for which the amount is kept with the banker. By lending out or investing these funds, the bank earns more than the Profit/Return that it has to pay on them to the depositors. 9 By giving an advance notice to the bank the deposit can be withdraw from the bank before the expiry of the period. Fixed deposit accounts have higher rate of interest as compare to other accounts. The rate of interest rises with the length of period and the amount of deposit. The bank grants to the depositor a fix deposit (FDR) which is not transferable to any other person. The silent features of fixed deposit account of NBP are as fallows • • • The PLS term deposit are opened for individuals in their own single or joint names, companies firms and other organizations. The PLS term deposit receipt are issued for any amount. There is minimum or maximum limit or deposits in a single term deposit account. PLS term depositors may be allowed some facilities against the security of these receipt credits, after making “Lien” on the relevant receipt and subject to recovery of service charges. • Under term deposit scheme the depositors not cease to earn the profit immediately, after the respective maturity date.
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1.3.5 FOREIGN CURRENCY ACCOUNT Government of Pakistan has introduced many important reforms in Foreign Exchange Control in the country since February, 1990, for the purpose of strengthening the Foreign Exchange Reserves. One of these reforms relates to foreign currency accounts, which can be opened in United States Dollars, Pound Sterling, Euro and Japanese Yen in any of the authorized branches of commercial banks throughout the country.10 Foreign currency accounts are opened, on proper introduction and submission of required documents along with an initial deposit prescribed from time to time. Rates of return on foreign currency deposits are subject to fluctuation as determined in accordance with State Bank of Pakistan directives and will be paid on six monthly basis whereas the return on term deposit/SNTD will be paid on maturity or as prescribed by SBP. The bank shall have no responsibility for or liability to the account holders for any diminution due to taxes imposed or depreciation in the value of funds credited to the account whether due to devaluation or fluctuation in the exchange rate or other wise. 1.3.6 NBP PREMIUM AAMDANI NBP Premium aamdani is a retail product of the bank. The amount of investment required for this account is Rs. 20,000/-to Rs. 5,000,000.The investment period is 5 years. Zakat and withholding tax will be deducted as per rules. In NBP premium aamdani, the account holders have benefit of free demand draft, pay order; free cheque book and NBP cash card (ATM+Debit). The Financing facility is available up to 90% of the deposit value.11 Profit paid every period as follows: Period Profit
Rates 1st year 7.50% 2nd years 8.50% 3rd years 9.50% 4th years 10.50% 5th years 11% 1.3.7 NATIONAL INCOME DAILY ACCOUNT (NIDA) The scheme of National income daily account 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. Deposits in the NIDA accepted on the condition that the depositor shall always maintain a minimum balance as prescribed by the bank in his account. In the event however, that any depositor wishes to withdraw the amount and the balance in his account is less than
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the required amount, the account will be converted to the ordinary PLS SB account for the purpose of calculating profit. An example of how the NIDA accounts are maintained is shown on the next page. R ATES • • • •
ON
N ATIONAL
INCOME DAILY ACCOUNT
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%.
S ALIENT F EATURES • • • Rs 2-million is required to open an account and there is no maximum limit. Profit is paid on half yearly basis on monthly balances. The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million to 2,000 million, the rate fluctuates from 1.4 to 1.75 • It is a checking account and there is no limit of withdrawals
(NIDA 1) Description Transaction Balance Cash Cash Transfer Cash Cash Cash Cash Cash Cash 0 0 700,000 10,000 of C Debit (-) Day s 4 3 3 4
Date 01/05/2008 05/05/2008 08/05/2008 11/05/2008 15/05/2008 18/05/2008 20/05/2008 22/05/2008 23/05/2008 25/05/2008
Credit (+) Balance 10,000,00 10,000,000
Products
500,000 0
9,500,000
38000000 28800000 25380000 32640000 0 48060000 0 31840000 0 32840000 0 16350000 0 32702000 0 0
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100,000 9,600,000 75,000,00 84,600,000 3,000,00 0 1,000,00 0 81,600,000
78,600,00 160,200,000 3 159,200,000 2 163,500,000 1 163,510,000 2 5,000,000 164,200,000 2
27/05/2008 31/05/2008 01/06/2008 06/06/2008 10/06/2008
Cash Transfer Cash Transfer Cash
300 500,000 2,100,00 0 9,870,00 0
163,509,700 2 164,009,700 4 161,909,700 1 36,000,00 197,909,700 5 188,039,700 4
32701940 65603880 0 16190970 0 98954850 0 75215880 0 0
0 (Retrieved July 12, 2010, from nbp.com/http://www.nbp.comproducts/nida.index/) 1.4 ADVANCES National Bank of Pakistan plays a pivotal role in translating the government's development plans in terms of growth in industrial, commercial and agricultural sectors in Pakistan. Accordingly the Bank has formulated its Credit Policy under the guidelines of SBP-the Central Bank of Pakistan.
Table 1.9 TYPE OF (House Financing Amount or Rs. 35 Million Rs. 35 Million Rs. 15 Million of land Plus Rs.35 Million Financing Period 3 to 20 years 3 to 20 years 3 to 15 years 3 to 20 years Debt to equity Ratio 85:15 (maximum) 85:15 (maximum) 80:20 (maximum) 80:20 (maximum)
ADVANCE Home Purchase Apartment) Home Construction Home Renovation Purchase Construction
1.5 NBP ADVANCE SALARY The NBP Advance salary has been the flag-ship product for NBP. NBP Advance Salary, the leading personal loan product of the country, is maintaining its inimitability ever since it was launched. This was only possible due to its swift growth and remarkable loan disbursement of over 118 billion.12 You can avail up to 20 net take home salaries with easy repayment installments. Its hassle free acquisition with no prior formalities and easy availability in a short turn around time is attributed as the most distinguishing features of the product. The product is offered countrywide. The terms and conditions of NBP Advance salary is shown on next page:
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1.6 NBP CASH & GOLD With NBP’s Cash & Gold, the customers meet their need for ready cash against their idle gold jewelry. The rate of mark up is 13% p.a. This product has following features13 • • • • • • Facility of Rs. 7,000 against each 10 grams of net contents of gold No maximum limits of cash Repayment after one year Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed schroffs No penalty for early repayment
1.7 STUDENTS LOAN SCHEME Pursuant to the announcement made by the Federal Finance Minister in his 20012002 budget speech, a Student Loan Scheme (SLS) for Education was launched by the Government of Pakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB and ABL). Under the Scheme, financial assistance is provided by way of Interest Free Loans to the meritorious students who have financial constraints for pursuing their studies in Scientific, Technical and Professional education within Pakistan. The Scheme is being administered by a high powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents of the commercial banks and representative of Ministry of Finance, Government of Pakistan. 14 1.8 NBP KAROBAR- PRESIDENT’S ROZGAR SCHEME The solution of Pakistan’s major socio-economic problems primarily lies in the development and growth of small & micro businesses. These will not only provide employment opportunities to ever-growing population demand but will also become the catalyst for breaking the vicious circle of poverty. In this regard, NBP has developed a full range of Products under the President’s Rozgar Scheme with a brand name of “NBP KAROBAR”. The scheme will be offered to eligible young and literate citizens of Pakistan, falling within an age group of 18-40 years having a minimum qualification of Matriculation (except for females in the PCO/Tele-center product). The eligible borrowers will be required to make a down payment of 15%. Asset and Life & Disability insurances will be mandatory under this scheme. The
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15% down payment will include 1st year’s asset insurance premium. However, the cost of life and disability insurance will be borne by GOP. The mark-up rate for the 1st year will be 12% and for the subsequent years it will be 1 year KIBOR + 2%. Fifty percent (50%) of this rate will be paid by the customer i.e. 6% and the balance of 6% will be borne by GOP. Additionally, first 10% of the losses under the scheme will be taken-up by GOP. Initially, under the President’s Rozgar scheme, NBP will offer following products: • • • • NBP Karobar Utility Store (under a Franchise with Utility Stores Corporation) NBP Karobar Mobile General Store (without USC Franchise) NBP Karobar Transport NBP Karobar PCO
1.9 CORPORATE ADVANCES 1.9.1 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. 1.9.2 RUNNING FINANCE/ OVERDRAFT 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
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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 1.9.3 DEMAND FINANCE 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 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. 1.10 REMITTANCES 1.10.1 DEMAND DRAFTS Drafts drawn by one branch on another branch or on the Head Office of same bank or vice versa, are not cheques or bills, as these have no distinct drawer and drawee. Section 85-A reads: “ Where any draft, that is, an order to pay money, drawn by one office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by payment in due course”. Banker’s drafts payable to order on demand are within the protection of Sections 10 and 131-A of the Negotiable Instruments Act. However, if a demand draft drawn on a bank by its own branch bears a forged endorsement, the person in possession of it cannot compel that bank to pay it. As far as possible the banker’s draft should be crossed and it should never be drawn payable to bearer. When a person requires a draft he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. This application form should be signed by the
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purchaser or by those persons who have been duly authorized to act on his behalf. When a customer requests his banker to provide him with a banker’s draft, the amount of which is to be debited to his account, he should enclose with his written request a cheque covering the amount of the required draft and other charges etc. payable to banker.15 The National Bank of Pakistan provides demand drafts at very reasonable rates with safety, speedy and reliable way to transfer money. Any person whether an account holder of the bank or not, can purchase a Demand Draft form a bank. 1.10.2 TRAVELERS CHEQUES They are generally issued for the convenience of person travelling abroad, but some Pakistani banks issue them in Pakistan currency also for use within the country as well. Before issuing, the bankers receive an amount equal to the face value of the cheques, and also charge a small commission. The travelers’ cheques are for fixed amount and are treated as Order cheques payable only to the purchaser whose specimen signature appears on each traveler’s cheque itself. Foreign currency travelers cheques are issued and encashed in accordance with the provisions of the Exchange Control Regulation Act, 1947. While making payment, the paying banker must insist that the holder signs in his presence.16 The National Bank of Pakistan provides their services for traveler’s cheque at very reasonable and competitive rates. It has following features Negotiability Validity Availability Encashment Limitation Safety Pak Rupees Traveler’s Cheques are a negotiable instrument There is no restriction on the period of validity At 700 branches of NBP all over the country At all 400 branches of NBP No limit on purchase NBP Traveler’s Cheques are the safest way to carry our money
1.11 LETTER OF CREDIT Letters of credit are very useful instruments in facilitating commercial relations between businessmen at various places. Letter of credit state the limit of the credit and the time during which it is held at the disposal of the grantee, but they are neither negotiable nor transferable. Letter of credit may be revocable. There are many kinds
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of letter of credit such as Revolving credit, Back to Back credit, Claused credit etc.17 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. 1.12 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. The new features of NBP foreign remittances include: The existing system of home remittances has been revised/significantly improved and well-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides United National Bank (the joint venture between NBP and UBL in UK)., and Bank Al-Jazira, Saudi Arabia. • • • Zero Tariffs: NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. 1.13 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-PKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, we can safely and speedily transfer money for our business and personal needs.
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1.14 MAIL TRANSFER A Mail Transfer is a form of remittance in which the amount remitted by a customer or a non-customer is directly credited to the account of the beneficiary with another branch. Move 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. 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/if sent by registered post locally Rs.40/- if sent by registered post inland on party’s request. 1.15 TELEGRAPHIC TRANSFER Telegraphic Transfer is a form of remittance, which is advised by telegram, telex or fax machines. The fundamental principles of such transfer are otherwise identical with the Mail Transfer. It is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of telex/fax/internet or cable 1.16 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.
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CHAPTER NO 2 2 ORGANIZATIONAL STRUCTURES 2.1 ORGANIZATIONAL STRUCTURE OF NATIONAL BANK OF PAKISTAN A well-developed and properly coordinate structure is an important requirement for the success of any organization. It provides the basic framework within which functions and procedures are performed. Any organization needs a structure, which provides a framework for successful operations. The operation of an organization involves a number of activities, which are related to decision making, and communication of these decisions. These activities must be well coordinated so that the goals of the organization are achieved successfully. The Organization Structure (Annexed I) shows the internal operations and reporting lines of the National Bank of Pakistan. The bank has clearly defined organizational structure, which supports clear lines of communications and reporting relationships. There exists a properly defined financial and administrative power of various committees and key management personnel, which supports delegations of authority and accountability. The internal operations of the Bank are organized into 15 main departments and divisions headed by senior management of the bank and are report directly to the Board of Directors. The organizational structure of National Bank of Pakistan is centralized because all the decisions of the bank are taken by the top Management. The National Bank of Pakistan’s Departmental key roles and functions are as follows: 2.2 BOARD
OF
DIRECTORS
Pursuant to Section 11 of The Banks’ (Nationalization) Act, 1974, the number of Directors of the Bank shall not be less than 5 and not more than 7, excluding the President. The Federal Government may, if deems necessary, appoint a Chairman of the Board in respect of the Bank. At present National Bank of Pakistan’s Board of Directors consist of 6 Directors and a President who is the Chief Executive of the Bank and presides over the meetings of the Board. The responsibilities of Directors include the followings:18
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1.
The Board of Directors shall assume its role independent of the influence of the Management and should know its responsibilities and powers in clear terms. it should be ensured that the Board of Directors focus on policy making and general direction, oversight and supervision of the affairs and business of the Bank and does not play any role in the day-to-day operations, as that is the role of the Management.
2. The Board shall approve and monitor the objectives, strategies and overall business plans of the institution and shall oversee that the affairs of the institution are carried out prudently within the framework of existing laws & regulations and high business ethics. 3. All the members of the Board should undertake and fulfill their duties & responsibilities keeping in view their legal obligations under all the applicable laws and regulations. 4. The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policymaking powers to the Management and shall ensure that the Management is in the hands of qualified personnel. 5. The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury & Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting & Disclosure, and any other operational area which the Board may deem appropriate from time to time. The Board shall also be responsible to review and update policies periodically and whenever circumstances justify. 6. As regards Internal Audit or Internal Control, a separate department shall be created which shall be manned preferably by professionals responsible to conduct audit of the Bank, Various Divisions, Offices, and Units Branches etc. The Head of this department will report directly to the BOD or Board Committee on Internal Audit. 7. The business conditions and markets are ever changing and so are their requirements. The Board, therefore, is required to ensure existence of an effective ‘Management Information system’ to remain fully informed of the activities, operating performance and financial condition of the institution, the environment in which it operates, the various risks it is exposed to and to evaluate performance of the Management at regular intervals.
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8. The Board should meet frequently (preferably on monthly basis, but in any event, not less than once every quarter) and the individual directors of an institution should attend at least half of the meetings held in a financial year. The Board should ensure that it receives sufficient information from Management on the agenda items well in advance of each meeting to enable it to effectively participate in and contribute to each meeting. 9. The Board should carry out its responsibilities in such a way that the external auditors and supervisors can see and form judgment on the quality of Board’s work and its contributions through proper and detailed minutes of the deliberations held and decisions taken during the Board meetings. 10. To share the load of activities, the Board may form specialized committees with well-defined objectives, authorities and tenure. These committees, preferably comprising of ‘Non- Executive’ Board members, shall oversee areas like audit, risk management, credit, recruitment, compensation etc. these committees of the Board should neither indulge in day-to-day affairs/operations of the bank and enjoy any credit approval authority for transaction/limits. These committees should apprise the Board of their activities and achievements on regular basis. 11. The Board should ensure that it receives management letter from the external auditors without delay. It should also be ensured that appropriate action is taken in consultation with the Audit Committee of the Board to deal with control or other weaknesses identified in the management letter. A copy of that letter should be submitted to the State Bank of Pakistan so that it can monitor follow-up actions. The Following table mentioned the names & designation of Board of Directors of National Bank of Pakistan: Name Syed Ali Raza Mr. Sikandar Hayat Jamali Mian Kausar Hameed Mr. Ibrar A. Mumtaz Mr. Tariq Kirmani Mr. Muhammad Arshad Chaudhry Mr. Mohammad Ayub Khan Tarin Designation Chairman & President Director Director Director Director Director Director
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Mr. Ahmed
Ekhlaq
Secretary Directors
Board
of
2.3 SENIOR MANAGEMENT The senior management of National Bank of Pakistan is consists of Group chiefs, who report directly to the Directors of Bank. The whole functions of National Bank of Pakistan are performed under these Groups. The National Bank of Pakistan has following groups and divisions: • • • • • • • • • • • • • Corporate and investment Banking Group Operations Group Credit Management Group Audit & Inspection Group Compliance Group HRM & Administration Group Commercial & Retail Banking Group Treasury Management Group Special Assets Management Group Employees benefit & Disbursements Group Core Banking Application, PMO Financial Control Division Information Technology Group
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Name Masood Karim Shaikh Shahid Anwar Khan Dr. Asif A. Brohi Imam Bakhsh Baloch Ziaullah Khan Dr. Mirza Abrar Baig Amer Siddiqui Muhammad Nusrat Vohra Amim Akhtar Ekhlaq Ahmed Tajammal Hussain Bokharee Mrs. Khurshid Maqsood Ali Tahir Yaqoob Anwar Ahmed Meenai Naeem Syed Aamir Sattar Atif Hassan Khan
Group Name & Designation SEVP & Group Chief, Corporate & Investment Banking Group SEVP & Group Chief, Credit Management Group SEVP & Group Chief, Operations Group SEVP & Group Chief, Audit & Inspection Group SEVP & Group Chief, Compliance Group SEVP & Group Chief, Human Resources Management & Administration Group SEVP & Group Chief, Commercial & Retail Banking
Group SEVP & Group Chief, Treasury Management Group EVP & PSO to the President EVP & Secretary Board
of
Directors EVP/Divisional Head, Special Assets Management Group EVP & Divisional Head Employee Benefits, Disbursements & Trustee Division EVP & Group Chief, Overseas Coordination & Management Group EVP & Divisional Head, Islamic Banking EVP & Head, Core Banking Application, PMO Financial Controller & Divisional Head, Financial Control Division Group Chief (A), Information Technology Group
2.4 CORPORATE & INVESTMENT BANKING GROUP The corporate & investment banking group is headed by Mr. Masood Karim Shaikh. This group performs its function through its following two units: • • Corporate Banking Investment Banking
The corporate and investment banking will continue to play a major role in loan syndications, structured financing and debt / capital raising transactions with the
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objective of providing entire range of corporate and investment banking solutions to its valued clients under one umbrella. The Corporate Banking Group achieved excellent results in 2007 with a number of landmark transactions in cement, energy, communication and fertilizer sectors. In addition to the funded income, our corporate and investment banking has substantially increased its fee base income this year by being the lead advisor in a number of transactions in the corporate world of Pakistan The challenges to corporate business in year 2007 were manifold including reduction in Private Credit Investment as a result of slowing down of economy as well as rising interest rates. The increasing pressure on the textile industry reduced the lending to this sector. In addition the bank's corporate loans yields also faced pressure as substitute form of funding sources are available in the market in form of Islamic financing, mutual funds, issuance of debt instruments like TFCs and Bonds and the Capital markets. Despite these threats and challenges at NBP, our corporate team not only increased the volume as well as the yield of the loans they also maintained a strong franchise with the leading Pakistani corporate so as to ensure that NBP not only maintains its market share but is in a position to meet any challenges in future. NBP during the year also participated in a number of TFC issues and mutual funds subscriptions thereby increasing the overall yield on investment portfolio. NBP has the largest equity portfolio in the banking sector primarily due to 27% holding in NIT units, the largest mutual fund in Pakistan. During the year 2008 the bank redeemed 10% of its NIT holding covered under LoC, which resulted in capital gain of Rs. 1.8 billion in 2008. The National Bank of Pakistan has initiated a structured approach to corporate banking by introducing a single point of contact through Relationship Managers. For this purpose, new Relationship Managers as well as team leaders has been inducted to expedite this process. The Area Managers of National Bank of Pakistan are appointed to manage relationships and to better service the needs of multinationals and large local corporate. An investment banking team has also been formed by National Bank of Pakistan to offer specialized services to major relationships including advisory and debt syndications. The National Bank o Pakistan have special focus on Corporate
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Banking with a presence in all major locations through out the country, offering full range of Banking products / services and one window interface through designated Relationship Managers. Corporate Banking offers tailor made products / solutions as required by corporate customers which includes: The key features of corporate Banking includes:
• • • • •
Funded facilities, ranging from short to medium and long term lending Trade related financing. Foreign currency financing. All sorts of non-funded facilities / services which include Cash receipts / payments, Remittances, Collections, guarantees, letter of credit etc. Customized products / solutions
2.5 COMPLIANCE GROUP The Compliance Group of National Bank of Pakistan is headed by Mr. Ziaullah Khan and is report directly to the President/ Chief executive of NBP. In order to keep the working of Audit Department aligned with the best international practices 'Compliance Group’ has been created. This group is responsible for monitoring compliance of various administrative / operative instructions, rules, and regulations by constantly reviewing and reporting status of compliance and non-compliance. The Compliance Group of NBP is set to ensure that all relevant laws are complied with, in letter and spirit, and, thus, minimize legal and regulatory risks. The Compliance officers will primarily be responsible for Bank’s effective compliance relating to: • • • • • • Relevant provisions of existing laws and regulations. Guidelines for KYC. Anti money laundering laws and regulations. Timely submission of accurate data / returns to regulator and other agencies. Monitor and report suspicious transactions to President / Chief Executive Officer of the bank and other related agencies. The Compliance Officers will serve as a contact point between President /Chief executive officers and senior management, with regard to functioning of compliance program provide assistance in this area to branches and other departments of the bank, and act as liaison with State Bank of Pakistan concerning the issues related to compliance.
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The functions of compliance group of National Bank of Pakistan are as fallows: • • • • Study and emphasize compliance of best international practices in audit of various functions of NBP. Monitor compliance of Administrative/Operational Instructions, Rules, Regulations issued from time to time by the Management. Review over the compliance carried out by the audit departments. Prepare and put up a consolidated Report to the Directors of National Bank of Pakistan regarding the status of compliance and non-compliance of the recommendations agreed by the Departmental Management. 2.6 ISLAMIC BANKING GROUP The divisional head of Islamic Banking group is Mr. Anwar Ahmed Meenai. Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable during the last Five years. The year 2007 marked the first year of Islamic Banking operations. During the year under review, in addition to active participation in various Sukuk transactions, two more Islamic Banking branches at Lahore and Peshawar started operations. NBP's plans for the year 2008 include opening of Faisalabad and Rawalpindi branches with the focus on growing organically by opening more standalone Islamic Banking branches, utilizing NBP's existing branch network of 1,200 plus conventional branches and looking into strategic acquisitions for expansion in this field. The products & services being offered by National Bank of Pakistan’s Islamic Banking are fully Shariah Compliant and have been certified by NBP’s Shariah Advisor. Deposit Schemes being offered by NBP’s Islamic Banking Branches include the following: a) Current Deposit Scheme b) Profit & Loss Sharing (PLS) Deposit Scheme Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements: a) Murabaha b) Murabaha Facility c) Ijarah (Leasing) In addition to Shariah acceptable standard general banking services, following services are also being offered at the Islamic Banking Branches:
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• • • • • • •
Letter of Credit Facility Handling of Remittances Issuance of Bank Drafts and Pay Orders. Collection of Export Bills. Collection of Local Bills. Government Collections Utility Bills Collection
2.7 TREASURY MANAGEMENT GROUP The group chief of Treasury management group of National Bank of Pakistan is Mr. Muhammad Nusrat Vohra. The NBP treasury and capital market group has developed a reputation of being the market leader in coming up with customized solutions for a large and varied client base that is spread virtually all across the country. The client base does not consist of only blue chips ones but encompasses public sector clients, retail sector, multinationals, local conglomerates as well as individuals. National bank treasury is currently regarded as a market leader in both foreign exchange and rupee denominated products because of its emphasis on service quality. The Treasury management group of National Bank of Pakistan’s offer:19 • • • • Narrowest bid / offer spread and quickest on line quotes Customized solutions to minimize risk and optimize returns as per the needs and circumstances of the clients Focus on building sustained and long term relationship with institutional, corporate and retail clients. Local presence across the nation as well as internationally.
2.8 CREDIT MANAGEMENT GROUP The group chief of Credit Management Group is Mr. Shahid Anwar Khan. This group usually deals with Bank’s allocations of payments or cash application, internal fund movements, reconciliations and also maintaining positive working relationships with customer during the debt collection or credit review and approval process, screening of customers and only those who is credit worthy are allowed to do business. The divisions of this group are distributed according to different areas which are:
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1)
NWFP Azad Kashmir Sind & Baluchistan area wing
2) Karachi area wing 3) Special Credit Cell & Punjab area Wing The functions of this department include: • • • • • • • • • Enforcing the State Policies, financial regulations, and credit rules of the bank Framing credit policies and regulations; supervising the staff to execute orders Putting forward the proposal of credit management and development; guiding and supervising the branch-banks to deal with credit business Managing the authorized business; dealing with the legal affairs consulted and coordinated Establishing development rules on credit; dealing with the acceptance draft; estimating the loaning accounts Responsible for reporting the credit statistic statement Responsible for training client managers Responsible for dealing with other work according to the directors of the bank Responsible for the credit-registered consulting system; regulating the fivegraded loans 2.9 AUDIT & INSPECTION GROUP The group chief of National Bank of Pakistan’s Audit & inspection group is Mr. Imam Bakhsh Bloch. It is one of the core departments at NBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders through proactive inspection, compatible with best international practices. This group plays a vital role in meeting NBP’s main responsibility of supervising the bank’s soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess the branches, Audit & inspection group conducts regular audit & inspection of branches. Bank's management has established and is managing an adequate and effective system of internal control which encompasses the policies, procedures, processes and tasks as approved by the Board of Directors that facilitate effective and efficient operations. The management and the employees at all levels within the Bank are required to perform as per these approved Internal Control System components. The Internal Control System ensures quality of external and internal reporting, maintenance of proper records and processes, compliance with applicable laws and regulations and internal policies with respect to conduct of business. The management ensures that an
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efficient and effective Internal Control System is in place by identifying control objectives, reviewing existing procedures and policies and ensuing that control procedure and policies are amended for time to time wherever required. However, Internal Control System is designed to manage rather than eliminate the risk of failure to achieve objectives and provide reasonable but not absolute assurance against material misstatement or loss.20 The audit system of National Bank of Pakistan consists of following: a) Internal Audit b) External Audit c) Statutory Audit 2.9.1 INTERNAL AUDIT The Bank has an independent Internal Audit Group that conducts audit of all Branches, Regions and Groups at Head Office on an on-going basis to evaluate the efficiency and effectiveness of Internal Control System. In addition to that, Compliance Group is also in place with independent Compliance Officer in 119 Branches and 29 Regional Compliance Chiefs with supporting staff to take care of compliance related issues to strengthen the control environment.21 For the purpose of inspection the National Bank of Pakistan inspects its branches through inspectors. Inspections are conducted on regular basis in the branches. The current chairmen of audit committee of NBP are Azam Faruque, Ibrar. A. Mumtaz & Mian Kausar Hameed. The State Bank of Pakistan conducts the regular full scope examination of banks pursuant to an inspection schedule; however, flexibility exists in policy for frequency of inspections depending upon the need to maintain safety & soundness. The CAMELS (Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System & Controls) rating is a criteria to determine the frequency of inspection of banks as weak institutions are given greater attention. Special investigations (targeted inspections) are also conducted as and when circumstances so warrant on the basis of complaints or market reports about specific institution. 2.9.2 EXTERNAL AUDIT The Board of Directors on the recommendations of Audit Committee has also recommended name of Messer’s Ford Rhodes Sidat Hyder, Chartered Accountants and Yousaf Adil Saleem & Co. as auditors of National Bank of Pakistan.
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2.9.3 STATUTORY AUDIT The statutory audit of National Bank of Pakistan is conducted to meet the particular requirements of State Bank of Pakistan. The scope and audit programs are set by the State Bank of Pakistan. The National Bank of Pakistan has to pay a penalty of Rs.20000 for each mistake in the Books and procedures as prescribed by the law plus surcharge of per day from the date of mistake to the date of statutory audit. The functions of Audit & inspection group of National Bank of Pakistan are as fallows: • • Examine and evaluate adequacy and effectiveness of the internal control systems in the Bank. Review the applications and effectiveness of risk management procedures and risk assessment methodologies in financial, operational and Corporate Governance aspects of the Bank’s activities. • • • • • • • • Review financial, automation technology and MIS. Review and ensure accuracy and reliability of accounting records and financial reports. Perform testing of both transactions and functioning of specific internal control procedures. Evaluate and ensure that approved policies and procedures meet legal and regulatory requirements. Examine and evaluate effectiveness of existing policies, procedures and give recommendations for improvements. Identify opportunities for cost savings in Bank operations and make recommendations. Examining those resources are acquired economically, used efficiently and safeguarded adequately. Review various reports of Bank’s subsidiaries, recommend improvements and provide policy guideline 2.10 HUMAN RESOURCE MANAGEMENT & ADMINISTRATION GROUP The group chief of Human resource management & administration group is Mr. Dr. Mirza Abrar Baig. This Division is responsible for fresh induction of employees and other professionals through a rigorous induction process in order to ensure presence of quality professionals. Following units and areas of work are the part of this division.
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This group is responsible to develop annual manpower plan for National Bank of Pakistan, conduct job analysis, prepare job descriptions, and conduct job evaluation process. The other functions of this group include attracting, selecting and recruiting the right people from the market. The group firmly works on adopting latest organizational theories & change management processes to bring in efficiency. This group also performs following functions: • • • Deals from placing job advertisements to timely recruitment of competent personnel by using modern selection techniques. Systematically observes & measures employee’s/candidate’s performance for the purpose of recruitment, selection and promotions. Facilitates in establishing successful productive working relationships through effectively orienting new employees to their respective departments/divisions and to their positions. • • Encourages employees to seek promotion/transfers to fill internal openings and meet employees’ personal objectives. Foster a culture of acknowledgement and appreciation amongst employees for introducing innovative business practices, showing extra ordinary efforts for achievement of goals and enhancing Bank’s corporate image uses various methods of recognition ranging from simple “Thank you” letters to elaborate celebrations and monetary rewards. • • • Conducting motivation surveys and developing market based employee satisfaction & retention strategies. Conduction of evaluation of positions and grades to ascertain employees’ position in the grade structure. This Group supervises all the staff colleges, at Karachi, Islamabad, Lahore and Peshawar. 2.11 OVERSEAS COORDINATION & MANAGEMENT GROUP The group chief of NBP’s overseas coordination & management group is Mr. Tahir Yaqoob. This department is in charge of the management and operation of foreign exchange business including marketing and operating of the financial products and trade financing of foreign exchange in the light of National foreign exchange management policy, and is the governing department of foreign exchange. The functions of this group are as follows:
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Establishing marketing strategy, policy and management system of foreign exchange. Making annual operating and working plan. Selecting and opening overseas account under supervision, and establishing and harmonizing the business among agent banks. Corresponding and dealing with foreign exchange business among branches. Showing business requirement of costumers and development of new products; publicizing foreign exchange business; training managers of customer-service for foreign exchange business.
2.12 COMMERCIAL & RETAIL BANKING GROUP The group chief of National Bank of Pakistan’s commercial & retail Banking group is Mr. Amer Siddiqui. Retail banking includes retail lending and deposits, banking services, trust and estates, private lending and deposits, banking service, trust and estates investment advice, merchant / commercial / corporate cards and private labels and retail.22 Commercial banking includes project finance, real estate, export finance, trade finance, factoring, lending, guarantees, bills of exchange and deposits. This group is responsible for serving the needs of the retail and commercial market, focusing on individual consumers and small and medium size enterprises. This group is responsible for developing and managing brands which serve the investment needs of the consumer market, and focuses on deposit mobilization, provision of value added services based on modern technology and undertaking the centralized marketing and advertising for the Bank. This group is engaged in the development and management of retail credit schemes. The consumer market in Pakistan has not only grows exponentially over the last decade or so, but the needs of this segment have become extremely diverse. In order to sustain competition, it is but imperative to continue offering innovative consumer credit schemes. The National Bank of Pakistan plan to establish commercial centers across the country looking at the business potential in the area, size of the branch and its capabilities to deliver the desired service in order to attract quality customers. The objective is to target the untapped sectors and provide them professional quality service, through one window operations and Relationship Managers stationed at those centers. We expect and hope to reduce the turn around time and become more competitive and market oriented. Further this customer friendly and dedicated set up at convenient locations would help in improving the image of the Bank as well. These
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Centers would work in conjunction with the existing set–up of Commercial Lending done throughout the NBP branch network. The main purpose of these centers is to generate ancillary business in addition to funded and non-funded facilities, with quick turn around time in decisions for customer satisfaction. 2.13 SPECIAL ASSETS MANAGEMENT GROUP The group chief of Special assets management group is Mr. Tajammal Hussain Bokharee. The Special Asset Management Group (SAMG) is a group of people with specialized skills in managing the "stressed" assets of National Bank of Pakistan. The group was created with a view to enable restructuring and recoveries through various initiatives like innovative work-outs, merger & acquisition strategies, asset stripping, security enhancements and structured sell-downs. The group has also been working with / advising various governmental and regulatory bodies in evolving a framework for implementing international best practices like asset reconstruction companies in the country. With provision coverage of 84% we believe that going forward our Special Assets Management Group will make major contribution towards the Bank's profitability through recoveries and reversal of provision charge as a result of declassification / rescheduling. We have revamped our special assets management business and have coordinated our efforts to expedite recoveries and settlements.
2.14 EMPLOYEE BENEFITS, DISBURSEMENTS & TRUSTEE DIVISION The divisional head of this division is Mr. Mrs. Khurshid Maqsood Ali. The function of the National Bank of Pakistan’s Employee benefits, disbursement & trustee division is to handle the administration of trust funds, provide estate planning support, and in some cases see to the disposition of the estate of a deceased customer. One of the factors that make the use of this department so attractive is that it tends to be somewhat conservative with their management approach. This means that this department is likely to take time to evaluate all options when involved in settling estates, establishing guardianships, or administering trusts that have been set up for the survivors of a major depositor. This methodical approach is often in line with the motivation for establishing the asset in the first place, which was to provide a source of financial support for loved ones, even after a parent or significant other has died.
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Along with estate settlement, this department also provides a number of other agency services, such as functioning as the trustee of record for corporate bonds or administering a pension or profit sharing plan. As a means of ensuring that the resources of the bank safely protect the investments involved, the department makes it relatively easy for the client to deal with other matters. Thus, the investor can focus more on family or other business matters, and be less involved in the task of protecting assets that are already established and set on a path of consistent growth. 2.15 DEFINED BENEFIT PLANS 2.15.1 PENSION SCHEME The bank operates defined benefit approved funded pension scheme for its eligible employees. The bank’s costs are determined based on actuarial valuation carried out using Projected Unit Credit Method. Net cumulative un-recognized actuarial gains/losses relating to previous reporting period in excess of the highest of 10% of present value of defined benefit obligation or 10% of the fair value of plan assets are recognized as income or expense over the estimated working lives of the employees. Where the fair value of plan assets exceeds the present value of defined benefit obligation together with unrecognized actuarial gains or losses and unrecognized past service cost, the bank reduces the resulting asset to an amount equal to the total of present value of any economic benefit in the form of reduction in future contributions to the plan and unrecognized actuarial losses and past service costs. 2.15.2 POST RETIREMENT
MEDICAL BENEFITS
The bank operates an un-funded defined post retirement medical benefits scheme for all of its employees. Provision is made in the financial statements for the benefit based on actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains/losses are accounted for in a manner similar to the pension scheme. 2.15.3 BENEVOLENT SCHEME The bank also operates an un-funded defined benefit benevolent scheme for its eligible employees. Provision is made in the financial statements based on the actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are recognized in the period in which they arise. 2.15.4 GRATUITY SCHEME
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The bank also operates an un-funded defined benefit gratuity scheme for its eligible contractual employees. Provision is made in the financial statements based on the actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are accounted for in a manner similar to pension scheme. 2.16 PROVINCIAL & REGIONAL MANAGEMENT There are four executives of National Bank of Pakistan to supervise the Bank’s maters of every province, as they are called Provincial Chiefs. These provincial chiefs are responsible for the entire banking operations in their respective provinces. The provincial management includes: • • • • The Provincial Chief Punjab The Provincial Chief Sind The Provincial Chief Baluchistan The Provincial Chief N.W.FP & Kashmir
These provinces are sub-divided into regions, the regions are controlled and manage by Regional heads, which are responsible for the supervision in their circles and deal with the problems of their respective Regions. The regional management of National Bank of Pakistan is divided into two areas which are: • • Overseas Countrywide
The overseas regions include Middle East, Far East, Europe & USA, and Central Asia. The country has been divided into 29 regions by National Bank of Pakistan to facilitate its functions. The detail about National Bank of Pakistan’s regions is shown as Annexed-II at the end of the report. These regions are sub divided into Zones, the in charge of a Zone is called Zonal Chief. 2.17 BRANCH MANAGEMENT The National Bank of Pakistan, in order to facilitate its functions on branch level appoints Branch Managers & other staff according to branch’s activities and volume of business. The branch managers are responsible for all functions and staff within the branch office. The job of branch managers is to take charge of the entire operation of his branch, making sure that everything runs smoothly. The other functions involves scheduling of employee work hours, overseeing training, hiring and firing, assuring that proper procedures are followed, and reporting to upper management any problems or providing reports and updates as required by bank’s protocol.
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2.18 HIERARCHY
OF
NATIONAL BANK OF PAKISTAN
The Hierarchy (An arrangement of objects, people, elements, values, grades, orders, classes etc., any system of persons or things ranked one above another) of National Bank of Pakistan is shown as Annexed III at the end of this report. The hierarchy may include: • • • • • Categorization of a group of people according to ability or status. A body of clergy organized into successive ranks or grades with each level subordinate to the one above. A series in which each element is graded or ranked A body of officials disposed organically in ranks and orders each subordinate to the one above it; a body of ecclesiastical rulers. An organization with few things, or one thing, at the top and with several things below each other thing. The President of National Bank of Pakistan is ranked Top at the hierarchy. The other six directors of National Bank of Pakistan are ranked second in the hierarchy. The Provisional, Regional & Zonal chiefs are ranked 3rd, 4th & 5th respectively. The vice President & assistant vice Presidents of National Bank of Pakistan are ranked 6 th & 7th respectively. The Officers Grade I, II & III are ranked 8th at the hierarchy of National Bank of Pakistan. The lower level of National Bank of Pakistan is consist of Clerical & non- clerical staff. 2.19 CENTRALIZED DECISION MAKING The Branch Manager of National Bank of Pakistan is responsible for all the affairs of the Bank. All the decisions relating to Branch are made by him and the subordinates have to obey these decisions. All the employees of the Bank are report directly to the Branch Manager. The branch has two operation Managers. Operation Manager I controls Clearing house & Remittance Department and Operation Manager II controls Deposits, Advance & Branch accounts department. Both of them are report directly to the Manager regarding affairs of their departments. The Chief Accountant controls Accounts department & is report directly to branch Manager. The branch also has two cashiers responsible for cash & Pension disbursement department reports directly to branch Manger. The BBO (Branch Back Office System) Operator controls computer department of the branch and is report directly to Operation Manager I and Branch Manager.
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2.19.1 DOWNWARD COMMUNICATION Communication is the process by which information is exchanged and understood by two or more people, usually with the interest to motivate or influence the behavior of others in the organization. Downward communication is the message and information sent from top management to subordinates in a downward direction. The same pattern is followed at National Bank of Pakistan Rawat branch, the Manager of the branch sent orders, information & messages to following subordinates • • • • • • • • • Operation Manager I Operation Manager II BBO ( Branch Back Office System) Operator Chief Accountant Cashier I Cashier II Clerk I Clerk II Non Clerical Staff
2.19.2 CHAIN OF COMMAND The chain of command is an unbroken line of authority that links all persons in an organization and shows who reports to whom. By analyzing the organizational structure of the National Bank of Pakistan Rawat branch it can be found that there is a scalar principle followed with in the branch because each and every employee of the branch knows to whom they can report. The authority and responsibility for different tasks and duties are different, as well as every one knows the successive levels of management all the way to the top 2.20 DEPARTMENTS OF THE BRANCH Banking procedures are divided between various departments. Different departments do their jobs in occurrence with the bank policies. In National Bank of Pakistan each branch is divided into various departments depending on their size and volume of business. Head of department manages each department & officials of the branch follow procedures. The departments working within National Bank of Pakistan Main branch are as under: 1. Clearing House Department
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2. Remittance Department 3. Computer Department 4. Deposits Department 5. Advances Department 6. Account Opening Department 7. Accounts Department 8. Cash Department 9. Pension Disbursement Department
2.20.1 CLEARING HOUSE DEPARTMENT As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques/instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from an number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent by the collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement. The Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area.
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2.20.1.1 W ORKING
OF THE
C LEARING P ROCESS
Under the clearing arrangements, the State Bank of Pakistan (SBP) offers a Clearing House or a centralized exchange facility, which works on the following general lines: • • All the banks operating in a city who are members of the Clearing House maintain an account with the SBP’s Clearing House. Every day representatives of all the banks in every city meet the Clearing House, first meeting in the morning, at an appointed time, for the purpose of depositing their own customers , cheques/instruments to be collected from other banks and receiving cheques/instrument drawn on their account holders from the others banks. • At the Clearing House accounts of all the banks are debited by the total amount of cheques/instruments drawn on their customer’s accounts and credited with the amount of their customer’s cheques/instruments drawn on other banks, as per the list of cheques submitted by each bank. • The cheques/instruments received, also called Inward Clearing, and are taking back by each bank to its bank/branch. The amounts of each cheques/instrument is debited or recovered from each drawee customers’ account and credited to the Clearing House account. Similarly, against the amount credited by the Clearing House as Outward Clearing, the appropriate customers’ accounts are credited and clearing House account is debited. • Any cheques/instruments received by a bank that cannot be paid, due to insufficient balance in its customer’s account or for any other reason, are returned back to the Clearing House and a credit is claimed and obtained there against. R ULES & R EGULATIONS •
OF
C LEARING H OUSE
Timing
Monday to Saturday) ? 1st Clearing at 10:00 a.m. ? 2nd Clearing at 2.30 p.m.
• • •
Each bank will send competent representative to exchange the cheques. Each bank is required to insure that all cheques and other negotiable instruments are properly stamped and suitably discharged An objection memo must accompany each and every cheque when return unpaid duly initialed.
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• •
Each bank is required to maintain sufficient funds in the principal account with SBP to meet the payment obligations. The State Bank of Pakistan debit the account of each member of the clearinghouse with the proportionate working expenses incurred on the operation of clearing house. These expenses are very nominal.
O UTWARD C LEARING
AT THE
B RANCH
The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing: • • • • • • • • • • • The name of the branch appears on its face where it is drawn. It should not stale or post dated or without date. Amount in words and figures does not differ. Signature of the drawer appears on the face of the instrument. Instrument is not mutilated. There should be no material alteration, if so, it should be properly authenticated. If order instrument suitably indorsed and the last endorsee’s account being credited. Endorsement is in accordance with the crossing if any. The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil. The title of the account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque). If an instrument received other than National Bank of Pakistan then special crossing stamp is affixed across the face of the instrument. Clearing stamp is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on counterfoil and paying-in-slip). The instrument is suitably discharged, where a bearer cheque does not require any discharge and also an instrument in favor a bank not need be discharged. 2.20.1.2 REMITTANCE DEPARTMENT
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The Remittance department deals with the transfer of money from one place to another. Funds transfer facility or remittance of funds is on of the key functions of the banks all over the world. Remittances through banking channels save time, costs less and eliminate the risks involved in physical transportation of money from one place to another. National Bank of Pakistan transfers money in the following ways. • • • • • • • • Pay Order Demand Draft Mail Transfer Telegraphic Transfer Pay Slip Call Deposit Receipt Letter of Credit Traveler’s Cheque
The Job responsibilities & requirements of remittance department include: • Responsible for money transfers, issuance of pay-orders & drafts, collection items, maintenance of cheque books & ATM cards and all other counter specific products and services • • • • • • Ensure highest level of customer service in a professional and competent manner Must ensure that the activities are carried out strictly in accordance with the laid down procedures/processes, and SBP/Compliance guidelines Responsible for Cash, Clearing, Inland remittances including Demand Drafts and Pay Orders Ensure high standards of customer services within the assigned turn around time Ensure compliance with SBP's regulations and internal controls handling cash, clearing, local remittances, and other related activities at branch level 2.20.2 ACCOUNT OPENING DEPARTMENT The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers. It also issues checkbooks to customers. A person who wishes to open an account with the bank has to fill an account opening form obtained from any branch of National Bank of
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Pakistan. The bank officer tactfully obtains information about character, integrity, responsibility, occupation and the nature of business of the perspective customer. Any individual, who has attained the age of majority and is of sound mind can open and maintain his/her account. Two or more individuals may open an account jointly. Similarly, business organizations such as sole proprietary concerns, partnership firms, and limited liability companies as well as non-profit organizations like clubs, trusts, societies, associations and NGO’s etc, may open their accounts. The documents required for National Bank of Pakistan’s Account opening are showed as Annexed VII at the end of this report. The following requirements are necessary for opening an account. • • • • • Identification of the new customer. Ascertaining the genuineness of the stated occupation business of the customer. Determining the correct residential and permanent address. Completion of all relevant columns of the Account opening form. Proper completion of documentation.
2.20.2.1 F UNCTIONS O F A CCOUNT O PENING D EPARTMENT • • • • • • • • • • • Providing account opening form according to the customer's requirements, Guide the customer about the requirements of the account opening and form filling, Check the forms whether they are correctly completed or not, Preparing checklist, Stamping on the form, Maintaining account opening register, Pasting of forms in register after release from general banking in charge, Issuance of cheque books, Issuance of accounts maintenance certificate, Closure of account Verification of signature in case of cheque presented before releasing of account opening from SS card is not yet scanned 2.20.3 CASH DEPARTMENT
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All physical movement of cash in the bank is made through the cash department. As bank is borrowing and lending institution, therefore cash is the top most priority of Bank. Another aspect is that cash department is for the security purpose, security in a sense that there should be no embezzlement of funds or in money leaded to bank by any party or person. The efficiency of bank is also related to this department the more efficient the bank is the stronger and busy is the cash department. Cash department perform following functions Cash department owes its important to the fact that it is a major point of contract between the bank and the customer, the bank’s most valued relationships. This department is the showcase of the bank and conveys the first impressions about the bank’s commitment to professionalism in its systems and procedures and to courteous and efficient customer service. Normally cash department performs following functions • • • • • • • • • • Collection of funds Acceptance of deposits Collection of utility bills Payment of checks Remittances Act according to any standing instructions Transfer of funds from one account to another Verification of signatures Posting Handling of Prize bond
The two main activities of cash department are as fallows: D EPOSIT C ASH I N C USTOMER ’ S A CCOUNT When the customer want to deposit amount in his account at opening of account or after that then he has to fill a deposit slip that shows the amount and the account in which the cash will be deposited. Then teller will receive amount and credit the customer’s account that shows increase in customer’s bank account. M AKE P AYMENTS F ROM C USTOMER ’ S A CCOUNT
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When the customer draws a cheque on the bank to pay a certain amount then BBO Operator will debit the customer’s account that shows reduction in his account balance. C HEQUE
ENCASHMENT PROCEDURE
R ECEIVING O F C HEQUES The cash is paid against the cheques of the client. The following points are important. • • • • Cheque is drawn on same branch Cheque is not post dated. Amount in words and figure are same. It should be bearer cheques so the word bearer should not cross.
OF
V ERIFICATION
S IGNATURE
After receiving the cheques the cheques the operation manager verify the signature of the account holder and the signature on the cheques. If the signature is not same it is returned back otherwise forward to BBO Operator for posting.
C OMPUTER T ERMINAL P ROCESS The cheque is received in computer terminal, where BBO operator checks the balance of the account holder. The BBO operator also sees the stop payment instructions, whether received from account holder or not. After considering these points BBO Operator post the cheque in BBO (Branch back office system) and forward to operation manager. P AYMENT O F C ASH After posting the cheque the operation manager cancelled the cheque and returned back to cashier. The cashier enters the cheque in cash paid registered and pays against the second signature of receiver on the back of the cheque. 2.20.4 DEPOSITS DEPARTMENT The primary function of National Bank of Pakistan is to accept and receive surplus money from the people, which they willingly deposit with the Bank. Like all other Banks, National Bank of Pakistan also take incitation to attract as much depositor’s as it can. The deposit department accepts/collects deposit from accountholders.
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The National Bank of Pakistan offer different deposit schemes to its customers, which includes the following: • • • • • • • Current Deposits PLS Saving Deposits Fixed Deposit Account ( Time Deposits) Foreign Currency Account NBP Premium Aamdani Foreign Currency Account National Income Daily Account (NIDA)
2.20.5 ACCOUNTS DEPARTMENT Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Actually the process of this activity starts from the preparation of all the required vouchers by different related departments. When these vouchers are prepared, these are posted into respective computer terminals by the relevant departments. Before merging, a batch list is printed out by Computer Department and duly checked by the respective departments. After this, merging stage comes, after which a proof list is printed out. This is the stage, where Accounts Department starts performing its function. Proof list is checked by the Accounts Department. The account department prepare following vouchers and reports • • • • • • • • • • • • Monthly Profit & Loss account- F48 General Ledger General Ledger- Abstract Check Book Issue Register Western Union payments Register Demand Notices Miscellaneous Book Bank Transfer scroll Posting NBP Advance Salary Daily Statement- F21 General Ledger- Head wise Hash Value Register
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• • • • • • • • • • • • • • • • • •
End of Day register Posting National Income Daily Account (NIDA) Monthly return register Charges A/c register P-L-S Profit list Weekly Telegram Mail Transfer Register Government Scroll Provident file Government Scroll Debit & Credit Transfer Responding Advice Dispatched Register-F15 Cash Remittance IN Cash Remittance OUT NBP General Account Utilities register Statement of affairs Closing entries Daily activity checking
2.20.6 BANK ACCOUNTING OPERATIONS The National Bank of Pakistan’s accounting consists in making computerized, written and permanent records of every transaction. For Computerized recording of transactions the bank used software called BBO (Branch Back Office). BBO enable Bank to record a variety of transactions. The most common part of BBO which is operating by the BBO Operator is Individual Ledgers. Individual Ledgers are the accounts in which accounts with depositors are kept. They are kept so that the balance of each depositor's account may at any time be readily seen, and they should be frequently balanced to verify their correctness. The three column form of individual ledger is used because it has a column for checks paid or other debit entries, one for deposits or other items credited, and a third for showing the balance after each entry or the day's entries are made in the account. The BBO enlist Chart of Accounts of the Bank shown in Annexed VIII. All the accounts shown in Annexed are opened and managed through BBO. All the Remittances of the bank are recorded managed and control through BBO. The “End of the Day” report is also generated through BBO.
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The most important record keeping and report generated by Bank’s Accounts Department is Statement of the Bank. The statement of the bank shows the general, or control, accounts of the bank, and the various books of the bank show the detail of these items. It would not be impossible, but it would be entirely impractical, to enter every figure directly on the statement of condition. Instead of total deposits, the balance of each depositor would appear opposite his name. On the other side, instead of loans and discounts, there would be an itemized list of the loans with the names of the borrowers. The first principle in bank accounting, as in all other bookkeeping, is that for every debit there must be a credit, and vice-versa. In accordance with this fundamental theory the books are maintained. With respect to the statement, every Rupee of liabilities is accounted for by another Rupee of resources. Similarly each accounts at the end of the day for each item of cash is balanced. Each bank employee has had the experience of remaining at his desk until a late hour at night checking up his day's work searching for a difference of a few cents. Often they become embittered at what seems to them a tyranny when the small sum of money involved is considered. The reason they must settle, however, is not on account of the possible loss of ten cents, but because the most important principle in bank accounting is involved. "Accuracy first" is a motto that should be framed, figuratively at least, upon the wall of every banking room. The books used by National Bank of Pakistan are of various kinds and their purpose is indicated by name. A ledger is a book used to keep a record of balances. To "post" means to enter in the proper columns either the debits or credits on the ledger, and the difference between them represents the balance either due by or to the bank. Another important book which is used by the National Bank of Pakistan is journal, a book in which daily transactions are listed in regular order as to accounts, and the total debit or credit is then posted on the ledgers. All other books, cards and sheets used by bank of whatever nature is a part or subdivisions of these books. Often they become known among the clerks by some other name descriptive of their general appearance. For instance, the general ledger scratcher in one bank is known as the "red book," while the collection scratcher is the "black book." The records made by one clerk upon one set of books go to check the records of another clerk upon a different set of books. For instance, the paying teller and the receiving teller will each keep a record of checks cashed or deposited payable within the bank. The debit postings of the individual bookkeeper would agree with the
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teller's figures. Skillful accounting lies in making the fullest possible use of original entries, at the same time having a check on all figures to guard against either error or fraud. Every transaction ultimately affects the bank's statement of condition by debit or credit. For example, a deposit of Rs.1000 is made, consisting of Rs.200 cash and checks as follows: Rs.200 on the bank itself and Rs. 600 payable in another city. At the end of the day (assuming this to be the only deposit), on the liabilities side there is an increase of Rs 800 all of which appears in the item "deposits" being the total Rs.1000, less the check for Rs 200 which is charged to the account of the drawer. On the resource side, then, a corresponding increase of Rs.800 and this is made up by an increase in the cash of Rs 200 and an increase of Rs.600 in the item "due from banks." Or a transaction may appear on one side of the statement only. The bank has sold Rs.5, 000.00 of the bonds it owns. R ESPONSIBILITIES
TOWARDS
B OARD
OF
D IRECTORS
The Chief Financial Officer is required to furnish necessary and classified information to the board of directors along with his analysis and suggestions as the Chief Financial Officer attends the board meetings, any issue with financial implications is being discussed, the person likely to be most in command of these implication is on the spot and immediately available for questions. In order to strengthen and formalize corporate decision-making process, significant issues are required to be placed for the information, consideration and decision of the boards of directors by the CFO. These are: • • • • • Annual business planes, cash flow projection, forecasts and long term planes. Budgets include capital, manpower and overhead budgets along with variance analyses. Quarterly operating results of the company as a whole and in terms of its operating divisions or business segments. Details of joint ventures or collaboration agreements or agreements with distributors, agents, etc. Default in payment of principal and/or interest, including penalties on late payments and other dues, to a creditor, bank or financial institution, or default in payment of public deposit.
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•
Failure to recover material amounts of loans, advances, and deposits made by the company, including trade debts and inter-corporate finances.
•
Significant public or product liability claims likely to be made against the company, including any adverse judgment or order made on the conduct of the company.
2.20.7 INTERNAL
AND
EXTERNAL REPORTING
Chief Financial Officer now has extensive responsibilities for internal and external reporting. All the information required for decision-making by the Board of Directors and Chief Executive is processed and furnished by the Chief Financial Officer. Apart from this, external reporting requirement is fulfilled by Chief Financial Officer, the accounts and financial statements are signed by the Chief Financial Officer before they are sent to concerned authorities.CCG requires that the listed companies submit their quarterly accounts to the shareholders within one month of the close of the first and third quarter of year of account. The CCG does not prescribe the time for submitting half yearly accounts to the shareholders. Here we can refer to section 245 of companies’ ordinance 1984 for this purpose, which requires half yearly accounts to be submitted within two months of the close of first half. The CCG requires a limited review of half yearly accounts by external auditor. Annual audited accounts are now required to be submitted within four months of the close of financial year. The Securities and Exchange Commission of Pakistan is exercising strict vigilance to ensure compliance of 4th and 5th schedule of the Companies Ordinance, 1984 and timely submission of accounts by companies. It has recently imposed penalties on Directors of nine listed companies who failed to prepare and circulate the quarterly accounts. Furthermore, fines have been imposed on chief executives. USE OF ELECTRONIC DATA IN DECISION MAKING The technological development in the field of information systems make it possible for management to use electronic data in decision making. An understanding of the effective and responsible use and management of information systems and technologies is important for managers, business professionals, and other knowledge workers in today’s internetworked enterprises. Information systems play a vital role in the e-business and e-commerce operations, enterprise collaboration and management, and strategic success of businesses that must operate in an internetworked global
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environment. Thus, the field of information systems has become a major functional area of business administration. The management of a business can use information systems in their decision making process. Before proceeds it’s important to discuss precisely about decision making. Decision making can be regarded as an outcome of mental processes leading to the selection of a course of action among several alternatives. Every decision making process produces a final choice.23 The output can be an action or an opinion of choice. A significant part of decision making skills is in knowing and practicing good decision making techniques. One of the most practical decision making techniques can be summarized in following simple decision making steps:
1.
Identify the purpose of your decision. What is exactly the problem to be solved? Why it should be solved? Gather information. What factors does the problem involve? Identify the principles to judge the alternatives. What standards and judgment criteria should the solution meet? Brainstorm and list different possible choices. Generate ideas for possible solutions. See more on extending your options for your decisions on my brainstorming tips page.
2. 3.
4.
5.
Evaluate each choice in terms of its consequences. Use your standards and judgment criteria to determine the cons and pros of each alternative. Determine the best alternative. This is much easier after you go through the above preparation steps. Put the decision into action. Transform your decision into specific plan of action steps. Execute your plan. Evaluate the outcome of your decision and action steps. What lessons can be learnt? This is an important step for further development of your decision making skills and judgment. CHAPTER NO 3 3 INFORMATION SYSTEM RESOURCES OF NBP
6.
7.
8.
3.1 PEOPLE RESOURCES
2
People are required for the operation of all information systems. These people resources include end users and Information system Specialists. The Management and employees of National Bank of Pakistan are end users and Knowledge workers of information system. These are the employees of the Bank who spend most of their time communicating and collaborating in teams and workgroups and creating, using and distributing information. The Information systems Specialist are people who develop and operate information systems. They include System analysts, software developers, system operators, and other managerial, technical, and clerical IS personnel of National Bank of Pakistan. The system analysts of National Bank of Pakistan design information systems of the Bank based on the information requirements of the end users. The software developers create computer programs based on the specification of system analysts of National Bank of Pakistan. 3.2 HARDWARE RESOURCES The Hardware resources of National Bank of Pakistan include all physical devices and materials used in information processing. Specifically, it includes not only machines, such as computers and other equipments, but also all data media, that is, tangible objects on which data are recorded, from sheets of paper to magnetic or optical disks. 3.3 SOFTWARE RESOURCES The software resources of National Bank of Pakistan include all sets of information processing instructions. It also includes sets of operating instructions called programs, which direct and control computer hardware. The followings are the examples of National Bank of Pakistan’s software resources:
•
System Software: The National Bank of Pakistan uses Windows Operating Systems for controls and supports the operations of a computer system. Application Software: These are the programs that direct processing for a particular use of computers by employees of the Bank. Bank uses BBO system, Microsoft Office suit as application software.
•
3.4 DATA RESOURCES • The data resources of National Bank of Pakistan are typically organized, stored, and accessed by a variety of data resource management technologies.
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The data about Branch transactions is accumulated, processed, and stored in a BBO system that can be accessed by Manager for an analysis and decision making. 3.5 NETWORK RESOURCES •
•
The network resources of National Bank of Pakistan include: Communication Media: The Bank’s communication media include cellular and landline. Network Support: The Bank uses hardware, software, and data technologies which are needed to support the operation and use of a communication network. The Bank uses communication processers such as Modems and internetwork processors, and communication control software such as network operating systems and Internet Browser packages (Opera).
•
3.6 SOURCES TABLE 3.1
OF
FUNDS
Rupees in Millions Year Share Capital Reserves Borrowings Deposits
2005 4,924,106 10,813,914 11,084,790 465,571,717
2006 5,908,927 13,536,041 8,756,847 463,426,602
2007 7,090,712 13,879,260 11,704,079 501,872,243
2008 8,154,319 15,772,124 10,886,063 591,907,435
2009 9,969,751 20,941,047 40,458,926 624,939,016
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Other Liabilities
23,068,314
24,974,450
26,596,300
30,869,154
39,656,831
Horizontal Analysis (%) Share Capital 100 120 144 166 182 Reserves 100 125 128 146 184 Borrowings 100 79 106 98 365 Deposits 100 100 108 127 134 Other Liabilities 100 108 115 134 172 www.nbp.com.pk/quarterly report/index “NBP Quarterly Report June 2010"
The National Bank of Pakistan’s sources of funds includes share capital, reserves, borrowings, deposits and other liabilities etc. To analyze trend, Horizontal analysis of each item is calculated. TABLE 3.2 (Share Capital)
A NALYSIS The Share capital refers to the portion of a Bank's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value. The share capital of National Bank of Pakistan shows an increasing trend in all years as compare to base year. The increase in share capital during all years indicates share holder’s concern toward National Bank of Pakistan and efficient bank’s Management policies. TABLE 3.3 (Reserves)
A NALYSIS The Banks’ reserves are banks' holdings of deposits in accounts with their central bank plus currency that is physically held in bank vaults (vault cash). The reserves of National Bank of Pakistan fluctuate during all years as they show an increasing trend. The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007
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respectively. The year 2008 represents highest increasing percentage of 84% as compare to base and previous years.
TABLE 3.4 (Borrowings)
A NALYSIS The National Bank of Pakistan’s borrowings fluctuates during all years and shows a mixed trend. The borrowings were decreased 21 % in 2005; however same are increased 6 % in 2006 as compare to base year. There was a marginal decrease of 2% in bank’s borrowings in the year 2007. The year 2008 represents highest percentage of borrowings as these were increased to 265 % comparing with base year and are increased 267 % as compare to 2007. TABLE 3.5 (Deposits & other Accounts)
A NALYSIS The deposits and other accounts of National Bank of Pakistan show a mixed trend during all years. In the year 2005 the deposits were increased very marginally, with the year 2006 represents an increase of 8% as compare to base year. The year 2007 represents second highest percentage as deposits are increased to 27%. The year 2008 indicates an increase of 34%, highest among all years. TABLE 3.6 (Other Liabilities)
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A NALYSIS The other liabilities of National Bank of Pakistan are fluctuating during all years and show an increasing trend. The year 2005 indicates an increase of 8 % and 2006 indicates an increase of 15%. The other liabilities in the year 2007 represent an increase of 34%. The other liabilities were on their peak percentage in 2008 as the shows an increase of 72%.
TABLE 3.7 (Generation of funds) Rupees in 2005 20,947,33 3 14,387,93 5 after 12,639,77 0 8,304,716 20,944,48 6 11,977,60 1 100 2006 33,692,66 5 23,370,89 7 21,146,97 0 9,392,351 30,539,32 1 19,056,02 8 2007 44,100,93 4 30,153,71 6 27,782,17 0 12,162,89 2 39,945,06 2 26,310,57 7 2008 50,569,48 1 33,629,47 0 28,906,73 5 13,544,84 5 42,451,58 0 28,060,50 1 2009 60,942,79 8 37,058,03 0 26,087,21 6 16,415,86 2 42,503,07 8 23,000,99 8 291
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Millions Year Markup/return/interest earned Net markup/interest income Net markup/interest income provisions Total non-markup/ Interest income Total income ( Interest + non-Interest) PROFIT BEFORE TAXATION Markup/return/interest
Horizontal Analysis (%) 161 211 241
earned Net markup/interest income Net markup/interest income
100 after 100 100 100
162 167 113 146
210 220 146 191
234 229 163 203
258 206 198 203 192
provisions Total non-markup/ Interest income Total income ( Interest + non-Interest) PROFIT BEFORE
TAXATION 100 159 220 234 “NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009
The National Bank of Pakistan’s generation of funds include • • • • • • Interest earned Net interest income Net interest income after provisions Total non markup interest income Total income ( Interest plus non- Interest) Profit before Taxation
TABLE 3.8 (ALLOCATION Rupees in 2005 10,511,322 149,350,096 220,794,075 9,202,969 19,141,569 2006 16,282,942 156,985,686 268,838,779 9,454,365 23,941,056 2007 23,012,732 139,946,995 316,110,406 9,681,974 37,113,698 2008 21,464,600 210,787,868 340,677,100 25,922,979 30,994,965 2009 17,128,032 170,822,491 412,986,865 24,217,655 44,550,347 163 114 187 263 233
OF
FUNDS)
Millions Year Lending’s to Financial Institutions Investments Advances Operating Fixed Assets Other Assets
Horizontal Analysis (%) Lending’s to Financial Institutions 100 155 219 204 Investments 100 105 94 141 Advances 100 122 143 154 Operating Fixed Assets 100 103 105 282 Other Assets 100 125 194 162 “NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009
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After the acquisition of the funds their allocation becomes necessary. The Bank seeks the best way for making investment to get more profit with the maximum security. The Bank has an investment portfolio in which it allocate its funds for crediting to borrowers, investment in the stock market etc. The National Bank of Pakistan allocate its funds in Lending’s to financial institutions, investments, advances, operating fixed assets and other assets etc. 3.7 CRITICAL ANALYSIS (THEORY VS PRACTICAL) During Internship it was my prime objective to furnish my knowledge (Theory) to various practical situations. The practical work presents an analytical problem while relating theory with practice. As a result, analysis of practical versus theory requires a distinct approach. This part of report is the essence of the internship, as this will help to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks don’t prepare worksheet, but part of worksheet is prepared like trial balance. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. There is some difference lies in types of loans in bank that is theory talks about four or five types of loans that is cash finance, overdraft, loans etc., but in practice there are some more types used by bank like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. A bank's balance sheet is different from that of a typical company. You won't find inventory, accounts receivable, or accounts payable. Instead, under assets, you'll see mostly loans and investments, and on the liabilities side, you'll see deposits and borrowings. 3.8 CONCLUSION To me, Theory gives the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar.
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CHAPTER NO 4 4 FINANCIAL REPORTS 4.1 BALANCE SHEET Rupees in Millions
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ASSETS 2006 Cash and balances with treasury banks 78,625,227 Balances with other banks 40,641,679
2007 94,873,249 37,472,832 21,464,600 210,787,86 8 340,677,10 0 30,994,965 25,922,979 _ 762,193,59 3
2008 106,503,75 6 38,344,608 17,128,032 170,822,49 1 412,986,86 5 44,550,347 24,217,655 3,204,572 817,758,32 6
2009
2010
115,827,868 7 2,390,482 28,405,564 2 5,161,056 19,587,176 3 2,799,388 217,642,822 2 58,269,514 475,243,431 4 47,997,394 25,147,192 2 6,059,519 3,062,271 5,126,048 59,666,438 6 1,056,095 944,582,762 9 28,859,496
Lending’s to financial institutions 23,012,732 Investments Advances Other assets Operating fixed assets Deferred tax assets 139,946,99 5 316,110,40 6 27,113,698 9,681,974 _ 635,132,71 1
LIABILITIES Bills payable Borrowings institutions 10,605,663 from financial 11,704,079 501,872,24 3 _ 10,886,063 591,907,43 5 _ 33,554 30,869,154 5,097,831 645,855,93 9 116,337,65 4 40,458,926 624,939,01 6 _ 25,274 39,656,831 _ 715,299,10 8 102,459,21 8
45,278,138 2 0,222,427 727,464,825 7 44,095,539
7,061,902
10,219,061
10,621,169
7,203,785
Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease 13,235 Other liabilities 26,596,300 Deferred tax liabilities net 2,387,073 553,178,59 3 NET ASSETS REPRESENTED BY Share capital Reserves Unappropriated Profit Surplus 81,954,118
4 2,629 102,539 42,269,623 3 8,574,956
825,676,384 8 10,199,246 118,906,378 1 18,660,250
7,090,712 13,879,260 32,074,677 53,044,649 28,909,469 81,954,118
8,154,319 15,772,124 45,344,188 69,270,631 47,067,023 116,337,65 4
8,969,751 19,941,047 52,456,204 81,367,002 21,092,216 102,459,21 8
10,763,702 22,681,707 60,696,510 94,141,919 24,764,459
13,454,628 2 3,995,080 6 0,248,197 9 7,697,905 2 0,962,345
118,906,378 1 18,660,250
www.nbp.com.pk/quarterly report/index 4.2 INCOME STATEMENT
“NBP Quarterly Report June 2010"
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Rupees in Millions 2005 20,947,33 Markup/return/interest earned Markup/return/interest expensed Net markup/interest 3 6,559,398 14,387,93 2006 2007 2008 50,569,48 1 16,940,01 1 33,629,47 0 4,723,084 2009 60,942,798 23,884,768 37,058,030 10,593,565
33,692,665 44,100,934 10,321,768 13,947,218 23,370,897 30,153,716 2,446,739 3,075,723
income 5 Provisions against non-performing advances 1,515,354 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly 185,707 14,297 32,807 1,748,165 12,639,77 0
-245,881 Nil 23,069 2,223,927
-709,461 Nil 5,284 2,371,546
-40,248 Nil 39,899 4,722,735 28,906,73 5
373,249 4,000 Nil 10,970,814 26,087,216
Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ EXPENSES INTERSET
21,146,970 27,782,170
5,099,195 1,273,863 1,008,988 47,557 Nil 875,113 8,304,716 20,944,48 6
4,926,604 1,718,478 1,205,638 1,365,771 -1,979 177,839 9,392,351
6,144,628 2,891,755 1,333,840 1,169,515 -4,464 627,618 12,162,892
6,781,683 3,263,246 1,042,827 2,341,690 -31,964 147,363 13,544,84 5 42,451,58 0
7,925,370 2,878,932 3,969,057 395,427 1,707 1,245,369 16,415,862 42,503,078
30,539,321 39,945,062
14,205,91 Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years 8,878,801 32,243 8,284 8,919,328 11,977,60 1 4,950,000 847,958 11,221,789 13,443,441 198,298 -17,283 63,206 208,327 11,483,293 13,634,485 19,056,028 26,310,577 7,154,002 -1,098,709 8,695,598 530,652 1 168,027 17,141 14,391,07 9 28,060,50 1 8,311,500 391,497
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18,171,198 747,521 583,361 19,502,080 23,000,998 11,762,650 Nil
Deferre d PROFIT TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation AFTER 6,195,372 5,892,902 45,496 12,133,77 12,709,444 17,022,346 9,161,747 43,221 19,372,523 41,060 -15,729 5,782,229 291,291 6,346,584 61,981 9,288,231 323,731 9,026,728 19,033,77 3 32,074,67 7 39,007 51,147,45 -4,220,242 7,542,408 15,458,590 45,344,188 130,456 60,933,234
Profit available for appropriation 0 www.nbp.com.pk/quarterly report/index 4.3 FINANCIAL STATEMENTS ANALYSIS
21,914,412 36,435,929 7 “NBP Quarterly Report June 2010"
Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. The goal in analyzing financial statements is to assess past performance and current financial position and to make predictions about the future performance of a company. Investors who buy stock are primarily interested in a company's profitability and their prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Creditors and investors who buy debt securities, such as bonds, are more interested in liquidity and solvency: the company's short-and long-run ability to pay its debts. Financial analysts, who frequently specialize in following certain industries, routinely assess the profitability, liquidity, and solvency of companies in order to make recommendations about the purchase or sale of securities, such as stocks and bonds. The analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business. The users of the financial information often find analysis desirable for the interpretation of the firm’s activities.
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The overall objective of financial statement analysis is the examination of a firm’s financial position and returns in relation to risk. This must be done with a view to forecasting the firm’s future prospective. Analysts can obtain useful information by comparing a company's most recent financial statements with its results in previous years and with the results of other companies in the same industry. Three primary types of financial statement analysis are commonly known as horizontal analysis, vertical analysis, and ratio analysis. 4.3.1 RATIO ANALYSIS Ratio analysis enables the analyst to compare items on a single financial statement or to examine the relationships between items on two financial statements. After calculating ratios for each year's financial data, the analyst can then examine trends for the company across years. Since ratios adjust for size, using this analytical tool facilitates intercompany as well as intercompany comparisons. Ratios are often classified using the following terms: profitability ratios (also known as operating ratios), liquidity ratios, and solvency ratios. Profitability ratios are gauges of the company's operating success for a given period of time. Liquidity ratios are measures of the short-term ability of the company to pay its debts when they come due and to meet unexpected needs for cash. Solvency ratios indicate the ability of the company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time. Financial ratios allow for comparison: • • • • Between companies Between industries Between different time periods for one company Between a single company and its industry average
4.3.1.1 PROFITABILITY RATIOS The continued viability of any bank depends on its ability to earn an appropriate return on its assets and capital. Good earning performance enables a bank to fund its operations, remain competitive in the market and increase or decrease in market funds. Profitability ratios relate profit to sales and investments. These ratios indicate the firm’s overall effectiveness of operations and give us idea how well firm utilized its resources in generating profit and shareholder value. 4.3.1.2 LIQUIDITY RATIOS
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The liquidity position of a bank is like a reservoir. It may be adequate, although nearly depleted, just before the start of the rainy season. Or it may be inadequate, although three quarters full just before the summer drought. Liquidity can be defined as: “The bank’s ability not only to meet possible deposit withdrawals but also to provide for the legitimate needs of the economy as well” 4.3.1.3 DEBT RATIOS These ratios give users a general idea of the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount Ratio Analysis of National Bank of Pakistan 2005 % 57.17 29.57 3 2.92 1.1 2.5 47.42 (times) 0.83 4.09 2006 % 56.55 37.78 5 3.95 2.1 4.1 58.01 (times) 0.96 2.85 2007 % 59.65 38.59 6 4.25 2.6 5.2 63 (times) 1.02 2.96 2008 % 55.48 37.63 5 4.12 2.4 4.7 58 (times) 1 3.07 2009 % 40.45 25.36 4 4.15 1.8 3.6 66 (times) 1.5 2.67
Profitability Ratios Gross Profit Margin Net Profit Margin Total Asset Turn over Return on Capital Fund Return on Investment Return on Deposits Advances to Deposit Liquidity Ratios Current Ratio Cash Ratio
C.A/C.L
Debt Ratio Debt/Equity Ratio Interest Coverage Loan Loss Coverage Capital Adequacy Capital Fund to Total Assets
(times)
% 112.35 1.83 0.13 % 0.89
% 97.77 1.85 0.13 % 1.02
% 89.57 1.89 0.15 % 1.1
% 93.47 1.66 0.18 % 1.07
% 92.17 0.97 0.5 % 1.09
of debt held by a company the greater the financial risk of bankruptcy
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Retrieved from www.nbp.com.pk/quarterly report/index June 2010" Comments
“NBP Quarterly Report
The Year 2006 has been an outstanding year with the bank recording the highest profit in its history i.e.., 59.65 %.The National Bank of Pakistan’s wide range of product offering, large branch network and committed workforce are some of fundamental strengths that enabled NBP to achieve exceptional in a very competitive market. The gross profit is 37.74% in 2009. The lowest percentage among all years. Net profit margin shows positive trend till 2006 and was the highest in the same year as it was 38.59%, the percentage is decreased in 2007 as it was 37.63%. The net profit margin is on its lowest level at the end of 2009 as it indicates a percentage of 25.63%. The primary reason of this decline is current global economic conditions and current political crisis in Pakistan The above given ratios suggest that the profitability of the bank has a mixed trend during five years. The first three years 2005 (2.92), 2005 (3.95), 2006 (4.95) shows an increasing trend, indicating more profitable operations of the bank. It was decreased in the year 2007 (4.12) and has increased in 2009 as the ratio was 4.13. There was an increase in the utilization of the resources till 2006 i.e.., 0.011(2005), 0.021 (2005) and 0.026 (2007). The ratio was decreased to 0.024 (2007) and 0.018 (2009). During all five years the return on deposits ratio of National Bank of Pakistan shows a mix trend. The year 2006 (0.052) was the best year for bank in terms of its funds mobilization. Although the ratio was decreasing in 2009 (0.036), indicating Bank is more keen to kept deposits and a change in policy of the Bank regarding its funds mobilization. The year 2005 (0.83) and 2005 (0.96) were not satisfied for bank as current assets are less than current liabilities. However, in 2006 (1.02) the management of National Bank of Pakistan is able to overcome this problem. The year 2007 (1.00) is also good for bank as per standards of this ratio. Again in the year 2009 (1.12) the management of bank is able to increase its current ratio. The cash ratio of National Bank of Pakistan shows a mixed trend during five years of operations. During all years, the ratio is satisfactory as per standards of this ratio. The
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year 2005 (4.09), representing highest and 2005 (2.85) & 2009 (2.69), representing lowest ratio in all five years. This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans sanctioned by the bank in relation to total amount of money deposited with the bank, stands highest in 2009 ( 66.08%) as compared with the previous year figures. This shows that the bank has greater potential to advance additional loans. During all other years the ratio is quiet satisfactory representing National Bank of Pakistan’s credit management decisions. The ratio indicates an increasing trend till 2007 that is 94.83 (2005), 185.95 (2005), 196.62 (2006) and 197.18 in 2007. The year 2009 represents the lowest percentage of 42.33 on account of due from banks to due to banks. The debt to equity ratio of National Bank of Pakistan shows a ratio of 112.35 % in 2005. The ratio is decreased to 97.77% in the year 2005. The ratio is further decreased in 2006 as it shows a percentage of 89.57%. There was an increase in the ratio as it shows a percentage of 93.47%. The year 2009 represents the ratio of 91.17% . The amount of interest a Bank pays in relation to its revenue and earnings is tremendously important. The National Bank of Pakistan’s interest coverage ratio is 1.83 times in the year 2005. The ratio was increased in the years 2005 and 2006 as it was 1.85 times & 1.89 times respectively. There sudden decrease of 1.66 times is observed in 2007. The ratio is further decrease to 0.97 times in 2009, representing the lowest ratio among all years. The loan loss coverage ratio of National Bank of Pakistan is almost same in the years 2005 and 2005 as it was 0.13 in both years. There was a slight decrease in this ratio as it was 0.12 in 2006. The year 2006 shows an increase in loan loss coverage ratio as it was 0.17. The year 2009 represents highest ratio of 0.47 on account of loan loss coverage, as compare to all years. The fixed assets turnover ratio of National Bank of Pakistan has an increasing trend till 2006. The ratio increases 2.28 (2005) to 3.23 (2005). The year 2006 represents highest fixed assets turnover ratio for National Bank of Pakistan i.e.., 4.13. The bank’s efficiency to utilize these assets has been decreased to 1.64 in the year 2007 however it was increased in 2009 as the ratio is 1.76.
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The National Bank of Pakistan’s Capital funds to Total Assets ratio is increased during all years. The ratio is 0.89 in 2005, representing lowest ratio in all years. The ratio is increased in 2005, 2006 and 2007 as the graph shows ratios of 1.02, 1.10 & 1.07 respectively. The ratio is keeping its trend and also increases in the year 2009 as it was 1.09. 4.3.2 HORIZONTAL ANALYSIS This technique is also known as comparative analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios. Formula = Current Year amount / Base Year amount * 100 Horizontal analysis, whilst simple to execute and useful to a certain extent, has its limitations. These limitations include: • • • Being highly dependent on the selection of base year and the period under examination in the financial model. Horizontal analysis provides little insight into why the trend occurred in a financial model. Horizontal analysis does not provide insight into whether the trend in the financial model results was superior/inferior to some benchmark.
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4.3.3 HORIZONTAL ANALYSIS OF BALANCE SHEET
ASSETS Cash Balances with other banks Lending’s to fin. institutions Investments Advances Operating fixed assets Other assets Total
2005 100 100 100 100 100 100 100
2006 75 62 155 105 122 103 125
Horizontal Analysis (%) 2007 2008 83 100 82 75 219 204 94 141 143 154 105 282 194 162
2009 113 77 163 114 187 263 233
Assets 100 104 117 138 148 LIABILITIES 2005 2006 2007 2008 2009 Share Capital 100 120 144 166 182 Reserves 100 125 128 146 184 Unappropriated profit 100 182 350 495 573 Surplus On Reval. of assets 100 179 135 221 99 Bills payable 100 24 147 98 142 Borrowings 100 79 106 98 365 Deposits and other accounts 100 100 108 127 134 Liabilities against assets 100 97 78 197 148 subject to finance lease Deferred tax liabilities net 100 15291 8179 17467 Nil Other liabilities 100 108 115 134 172 Total Liabilities 100 104 117 138 133 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
4.3.4 HORIZONTAL ANALYSIS OF INCOME STATEMENT Rupees in Millions 2005 100 100 100 2006 161 157 162 2007 211 213 210 2008 241 258 234 2009 291 364 258
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Markup/return/interest earned Markup/return/interest expensed Net markup/interest
income Provisions against non-performing advances 100 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ INTERSET 100 100 100 100 100 100 100 100 100 AFTER 100 100 100 100 100
161
203
312
699
-132 Nil 70 127 167
-382 Nil 16 136 220
-22 Nil 122 270 229
201 28 Nil 628 206
100 100 100 100 Nil 100 100 100
97 135 119 2,872 Nil 20 113 146
121 227 132 2,459 Nil 72 146 191
133 256 103 4,924 Nil 17 163 203
155 226 393 831 Nil 142 198 203
EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years Deferre d PROFIT
126 615 763 129 159 145 -130 -1,852 110
151 -54 2,515 153 220 176 63 -394 161
160 521 207 161 234 168 46 -2,058 156
205 2,318 7,042 219 192 238 Nil 26,831 130 250 769 287 502
TAXATION 100 205 275 307 Unappropriated Profit brought forward 100 155 329 544 Transfer from surplus on revaluation of fixed assets on account of incremental depreciation 100 95 90 86 Profit available for appropriation 100 181 300 422 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
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4.3.5 VERTICAL ANALYSIS When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies. Vertical analysis is a technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100. In a balance sheet, for example, cash and other assets are shown as a percentage of the total assets and, in an income statement, each expense is shown as a percentage of the sales revenue. In Vertical analysis, various components of the financial statements are standardized by expressing them as a percentage of some bases. Examples of common-sized statements include: • • Components of the balance sheet expressed as a percentage of total assets Components of the income statement expressed as a percentage of sales or revenue 4.3.6 VERTICAL ANALYSIS OF BALANCE SHEET
Vertical Analysis (%) ASSET S Cash Balances with other banks Lending’s to fin. institutions Investments Advances Operating fixed assets Other assets Total LIABILITIES Share Capital 2004 17.07 9.00 1.90 27.00 39.91 1.66 3.46 100 2004 0.89 2005 12.32 5.37 2.82 27.17 46.53 1.64 4.14 100 2005 1.02 2006 12.19 6.30 3.57 21.69 49.00 1.50 5.75 100 2006 1.10 2007 12.45 4.92 2.82 27.66 44.70 3.40 4.07 100 2007 1.07 2008 13.02 4.69 2.09 20.88 50.50 2.96 5.45 100 2008 1.09
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Reserves 1.95 2.34 2.15 2.07 Unappropriated profit 1.66 2.89 4.97 5.95 Surplus On Reval. of assets 3.86 6.61 4.48 6.18 Bills payable 1.30 0.30 1.64 0.93 Borrowings 2.00 1.52 1.81 1.43 Deposits and other accounts 84.15 80.22 77.79 77.66 Liabilities against assets 0.0031 0.0029 0.0021 0.0044 subject to finance lease Deferred tax liabilities net 0.01 0.77 0.37 0.67 Other liabilities 4.17 4.32 4.12 4.05 Total 100 100 100 100 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
2.43 6.41 2.57 1.25 4.94 76.42 0.0030 Nil 4.85 100
4.3.7 VERTICAL ANALYSIS OF INCOME STATEMENT
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Markup/return/interest earned Markup/return/interest expensed Net markup/interest
2005 100 31
2006 110 34 77 8
2007 110 35 75 8
2008 119 40 79 11
2009 143 56 87 25
income 69 Provisions against non-performing advances 7 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ INTERSET 42 0 0 43 57 24 4 0 28 AFTER 30 28 0 58 1 0 0 8 60
-1 Nil 0 7 69
-2 Nil 0 6 70
0 Nil 0 11 68
1 0 Nil 26 61
24 6 5 0 Nil 4 40 100
16 6 4 4 0 1 31 100
15 7 3 3 0 2 30 100
16 8 2 6 0 0 32 100
19 7 9 1 0 3 39 100
EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years Deferre d PROFIT
37 2 0 38 62 23 -4 1 21 42 30 0 72
34 0 1 34 66 22 1 0 23 43 48 0 91
33 1 0 34 66 20 1 1 21 45 76 0 120
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43 5 1 46 54 28 Nil -10 18 36 107 0 143
TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation Profit available for appropriation
“Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
4.3.8 BANK ANALYSIS WITH REFERNCE TO COMMERCIAL BANKS LISTED ON STOCK EXCHANGE Financial Position of Commercial Banks Registered in Pakistan Name of Paid Commercial Bank up Capita l (Rs. Bn) 735.7 Habib Bank NBP Allied Bank MCB United Bank First Women Bank of Punjab Soneri Bank Askari Bank Bank Al- Habib Bank of Khyber Bank Al- Falah Saudi Pak Faysal Bank KASB Bank Meezan Bank 7.59 8.97 6.46 6.28 10.12 0.28 5.29 4.11 4.06 4.79 4 8 5 5.3 4.02 4.54 23.6 18.54 5.48 35.88 12.82 0.22 7.43 1.88 7.59 2.8 1.34 2.95 0.22 3.57 0.17 0.81 1 788.1 2 344.7 450.3 4 576.0 2 8.04 217.8 5 81.61 194.2 1 167.3 6 34.43 333.0 2 50.83 137.3 1 53.66 71.74 584.85 621.53 293.97 350.72 465.54 6.4 180.82 64.73 153.32 136.75 24.4 287.77 42.35 99.61 44.33 57.84 411.36 173.42 168.45 228.98 328.55 3.09 142.85 45.83 114.04 93.25 11.14 180.02 27.62 87.61 32.65 38.3 7.5 8.1 2.51 7.68 5.59 0.05 -2.63 0.47 0.05 1.25 0.11 1.69 -0.81 0.75 0.08 0.44 9.75 9.03 3.88 12.22 5.53 1.67 -4.97 1.13 1.01 2.61 0.27 2.12 -1.54 1.41 0.39 0.98 1400 1249 757 1038 1100 38 272 90 155 203 34 231 55 111 41 111
1
Reserve s (Rs. Bn)
Asset s (Rs. Bn)
As of June 2009 Deposit Advance s (Rs. Bn) s (Rs. Bn) Profit After Tax (Rs. Bn)
Earning s Per share (Rs) Branch Networ k (Nos) AA+ AAA AA AA+ AA+ BBB+ AAAAAA AA BBB+ AA AAA A A+ Credit Rating
177.9 NIB Bank Myban k Atlas Bank Standard Chartered JS Bank Habib 28.44 4.24 5.01 38.72 5.11 8.46 0.41 0.52 1.95 0.01 8 45.47 30.7 276.3 8 24.16 192.4 112.12 31.96 22.18 173.81 14.08 85.43 23.03 17.5 126.27 9.57 -0.73 0.43 -0.2 1.31 0.16 0.23 1.02 -0.39 0.34 -0.31 2.6 240 69 31 176 11 100 AAA AAA+ AAA+
Metropolitan 6.02 6.7 5 128.97 101.22 1.57 Retrieved from “http://www.lahorestock.com/ListedCompanies”
A stock exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. In Pakistan securities are traded on three stock exchanges which are Karachi stock exchange, Lahore stock exchange and Islamabad stock exchange. The financial position of commercial banks registered on stock exchanges in Pakistan, are shown in preceding page in terms of their: • • • • • • • • Paid-up Capital Reserves Assets Deposits Advances Profit after tax Earnings per share Credit rating
The best way to analyze these commercial banks is to analyze their credit ratings. The National Bank of Pakistan enjoys the highest credit rating amongst Pakistani banks; JCR- VIS Credit rating Co. Limited awarded highest standalone credit rating of AAA
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to NBP. The JCRVIS Credit rating Co. comments about NBP say a lot about the bank:24 “The organization has been able to strategically manage and build on its competitive advantages which has translated into the strong and well managed improvement in profitability trend observed over the last few years, a substantial balance sheet of sound asset quality, and strong liquidity and capitalization levels” NBP’s key strength remains its extensive outreach and a low cost, stable deposit base. Deposits are also guaranteed by the Government of Pakistan under the Banking Nationalization Act, 1974. There have also been significant improvements in the management practices of the bank and a focus on enhancement of systems and controls. In this regard the management has entered into an agreement for the acquisition of a core banking software which is likely to be implemented over the next few years. JCR-VIS believes that the current economic situation puts certain leading industrial sectors and the general consumer under financial stress. Therefore, the second half of 2008 and 2009 are likely to be challenging for the banking sector as a whole, in terms of maintaining growth, asset quality and profitability.25 The JCR-VIS Rating Process include following steps:26 1. Signs agreement for an initial rating 2. Submits preliminary information materials 3. Conducts a preliminary study 4. Submits a detailed questionnaire to the issuer/client 5. Provides detailed information in response to detailed questionnaire 6. Conducts pre due diligence meeting analysis 7. Conducts due diligence meetings 8. Conducts post due diligence analysis 9. Brief for internal rating committee meetings is prepared 10. Sub Committee recommends preliminary/initial rating 11. Rating Committee decides the preliminary/initial rating 12. Discusses the rating rationales and rating issues with client 13. Notifies issuer of the preliminary/initial rating, deliberates on appeals by client, if any 14. Consents to release of preliminary/initial rating to the public in case of nonmandatory ratings
2
15. Releases the preliminary/initial rating to the press
CHAPTER NO 5 5.1 FUTURE PROSPECTS OF NATIONAL BANK OF PAKISTAN National Bank of Pakistan is gearing up to the challenges faced by the domestic banking industry due to innovations and advances in the international banking world, which is the consequence of globalization. The bank wishes to effectively utilize the financial assistance being extended by the Government of Pakistan for banking sector reforms aimed at reducing operating costs and improving profitability. These services do not contribute towards the earnings of the bank; rather they put pressure on bank’s resources. Nevertheless, the bank is committed to serving small savers and the general public of the country. National Bank of Pakistan is everyone’s bank and does not only
1
serve corporate customers. To extending and targeting research to improve bank earnings, through customer focus of bank’s commercial and corporate branches, and by enhanced efforts towards the development of human capital, the bank shall very soon transform from a bureaucratic organization to a fast paced, modern, and competitive bank. In conclusion, the National Bank of Pakistan have the vision, which will enable it to achieve even better results, safeguard the interest of their customers and to assist them in their march towards progress and prosperity in future. The National Bank of Pakistan is confidence that tomorrow we will be… • • • Leaders in our industry An organization maintaining the trust of stakeholders. An innovative, creative and dynamic institution responding to the changing needs of the internal and external environment Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. For instance to achieve objectives NBP have taken following measures. • • • • • Setting of target for of making at least 300 branches country wide on line. Closing of all those branches, which are burden on NBP. Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager. Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring. To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal system. 5.2 SHORT •
FALLS /
WEAKNESSES OF NATIONAL BANK OF PAKISTAN
The National Bank of Pakistan’s Advance salary, which has long been the flag-ship product for NBP, is replete with charges of corruption, default and inefficiency.
• •
The National Bank of Pakistan’s huge number of borrowers is untraceable or correct whereabouts are not known. The housing finance product of NBP lacks proper infrastructure including database support even after five years of post launch history. The similar products launched by other commercial banks are much smaller in size are
2
running on well-articulated systems and are backed by proper policies and guidelines. The NBP product, despite boasting a sizeable portfolio built around some reckless selling, is mostly infected. • The NBP Karobar scheme is designed around President’s Rozgar scheme. The scheme which had all the potential to become a landmark was so badly mishandled by National Bank of Pakistan. • • • The Quality of infrastructure added by National Bank of Pakistan during the last few years is quite substandard as compared to that of peer banks. In NBP’s five year strategic plan 2007-2011 approved by board of directors does not address any serious thinking on As for as public interest is concerned there were no service standards benchmarks and guidelines available in NBP. There were only old documents that were crafted at least a decade or more back. • • Due to poor planning the bank had book losses of over 1.2 billion rupees in the Karobar Scheme. The National Bank of Pakistan’s outsourced employees (2350) was obtained from a single source. Most of these are performing the core function of the bank outside their assigned duties without any training and supervision. • • The National Bank of Pakistan is incurred large expenses in running those branches, which are not producing any income. The up gradation of human resource is very slow in NBP. The branches of NBP have less number of employees as their requirements. The concept of “One Man Show” is adopted in many branches to save salary expenditure; even most of the branches use their security guards for various tasks. The one reason for this is that the senior management is able to decrease salary expenditure of the bank, which result an increase in the net profit. For their performance they received handsome amounts of bonus. But in long run it has a negative effect on bank’s productivity. • • The pension’s distribution service or payments to EOBI beneficiaries, utility payments; workers remittances are occupied lowest priority level. In NBP Karobar scheme the product selected by the NBP is of inferior quality and develops faults in the first few months of delivery. 5.3 CONCLUSIONS
2
•
The National Bank of Pakistan plays a key role in the strategic national development. The bank has historically been the financial arm of the government and has enjoyed the blessings of state support in the form of huge public sector funds and deposits.
•
In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP.
•
In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP.
•
The current management of National Bank of Pakistan was hired purely for their international experience, business orientation to turn around a purely public institution into a sustainable and commercially viable bank serving public interest along the lines of a large modern commercial bank.
•
The National Bank of Pakistan has effective budgeting system in place. Annual budget of the bank is approved by the Board and monthly comparisons of actual results with the budget are prepared and reviewed by the senior management.
•
The National Bank of Pakistan has a comprehensive framework of written policies and procedures on all major areas of operations such as Credit, Treasury Operations, Finance, Internal audit and Compliance approved by the Board.
•
The National Bank of Pakistan provides sustainable financing for growth of industries of critical national importance such as energy, education, healthcare, transport, shipping, Research & development.
5.4 RECOMMENDATIONS • The National bank of Pakistan should be fully prepared in its management of financial crises and its business continuity planning, within the standing committee framework, and should work with others to strengthen national crises management preparations. • The bank should improve the quality of training of its employees and the integrity, controls and efficiency of its systems, processes and financial reporting.
1
• • • •
The bank should improve its recruitment, retention and development and to reform the Bank’s pension scheme. The bank should renegotiate the Bank’s long term financial framework and to overhaul the Bank’s financial system. The Bank should improve IT capability in the analytical areas and to develop a medium term strategy for banking and market operations. The National bank of Pakistan should monitor the impact of its operations on the environment, which is mainly through the use of power and the generation of waste.
•
NBP, being the only lending arm to the government for public sector development should design, develop and deliver product and services for economic growth.
•
The bank should provide support to the Micro, Small and Medium enterprises thereby reducing unemployment and helping to create a more equitable distribution of wealth.
•
The NBP should adopt modern banking tools and techniques. Quality leadership, clear vision, investment in IT infrastructure and human resource development.
• •
The bank should develop software for pension disbursement. As for as Islamic Banking environment is concerned the management and employees of NBP should work together for basic research for discovering their own laws, developing theories or concepts for the better direction of their own business environment according to Quran & Sunnah.
• •
•
The branches should reduce its large expenses in order to increase the value of the bank. The NBP should strengthen incentives and accelerate a results-oriented training and communications programs for management and staff. The National Bank of Pakistan should implement a financial inclusion program to meet the needs of underserved economic subsectors, including outreach programs to meet the requirements of the agriculture, housing, SME and microfinance sectors.
•
The National Bank of Pakistan should introduce a framework for consolidated supervision and reorganize the regulatory architecture to allow better regulation and supervision of financial control division of bank.
1
REFERENCES
3
1 2
http://www.nbp.com.pk/EcomomicBulletin/FS-Complete-31-12-2007.pdf NBP Quarterly Report September 2008 http://www.nbp.com.pk/nbp/About_Us/About_US.jsp Black's Law Dictionary page 471 (5th ed) Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed. Principles of marketing 8 ED by Kotler & Armstrong G7 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 87 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 91 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 88 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed
http://www.lahorestock.com/ListedCompanies/
3 4 5 6 7 8 9
10 Practice
11 http://www.nbp.com.pk/Aamdani/index.htm 12 http://www.nbp.com.pk/advancesalary/index.htm 13 http://www.nbp.com.pk/CashnGold/index.htm 14 http://www.nbp.com.pk/StudentLoan/index.htm 15 Practice 16 Practice 17 Practice 18 SBP
& Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 221 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228
Prudential Regulations
19 http://www.nbp.com.pk/nbp/NBP_Treasury.jsp 20 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp 21 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp 22 NBP
Annual Report 2007 error by James Reason Annual Report 2007
23 Human 24 NBP
25 http://www.jcrvis.com.pk 26 http://www.jcrvis.com.pk/ratingscale/rating_process.htm
ANNEXTURES T ERMS & C ONDITIONS
OF ADVANCE SALARY
Eligibility
Permanent Employees of Govt., Semi-Govt., Autonomous, Semi Autonomous, Local & other bodies who are maintaining their Salary A/Cs at NBP. Repayment Direct deduction from Salary A/C Maximum Loan Amount Rs. 490,000/Security Employer will provide undertaking that borrower’s Salary and end of service benefits will route through his/her Salary A/C maintained at NBP during the tenure of the loan and his/her end of service benefits are at least equal to the amount of Advance Salary required. Hypothecation of Consumer durables owned by the borrower. Three (3) Undated Cheques Max. Repayment Period 5 years (60 months) Advance in terms of # of net take home salaries Up to 20 net take home salaries Markup Rate 15 % (Based on diminishing balance method) Processing Fee 1% of Loan Amount Verification Charges Rs 500/Life Insurance No Insurance of any kind. Documentation Charges at actual Contact Your Salary disbursing NBP Branch. Remaining Service Age At the time of approval and disbursement the applicant’s remaining service age should be 6 months after maturity of the loan Debt Burden 50% Minimum net take home salary no minimum take home requirement
BOARD MEMBERS
Name
Designation Syed Ali Raza Chairman & President Mr. Sikandar Hayat Jamali Director Mian Kausar Hameed Director Mr. Ibrar A. Mumtaz Director
Mr. Tariq Kirmani Director Mr. Muhammad Arshad Chaudhry Director Mr. Mohammad Ayub Khan Tarin Director Mr. Ekhlaq Ahmed Secretary Board of Directors
ACCOUNT OPENINING FORM
doc_190460645.pdf
NBP INTERNSHIP REPORT
INTERNSHIP REPORT NATIONAL BANK OF PAKISTAN
SPECIALIZATION IN (BANKING&FINANCE) SUBMITTED TO: CHAIRMAIN, DEPARTMENT OF BUSINESS ADMINISTRATION SUBMITTED BY: Name Rehman Mujeeb Ur
DEPARTMENT OF BUSINESS ADMINISTRATION ALLAMA IQBAL OPEN UNIVERSITY, ISLAMABAD
ACKNOWLEDGEMENT
I am highly grateful to almighty Allah who gave me the power to complete this report. I am also highly thankful to my honorable teachers for theirs guidance. I am indebted to all the employees of National Bank of Pakistan MAIN Branch Taunsa Sharif Special thanks to “Mr. Saif Ullah Khan” OG#1 of National Bank of Pakistan main Branch) And all other employees of the branch for their cooperation
TABLE OF CONTENTS
EXECUTIVE SUMMARY..................................................................................................................viii CHAPTER NO 1......................................................................................................................................1 1 INTRODUCTION.................................................................................................................................1 1.1 Brief History of National Bank of Pakistan.................................................................................1
2
1.2 Business volume of National Bank of Pakistan...........................................................................3 1.3 Product Lines..................................................................................................................................8 1.3.1 Deposits.....................................................................................................................................8 1.3.2 Current Deposits.......................................................................................................................8 1.3.3 PLS Saving Deposits................................................................................................................9 1.3.4 Fixed Deposit Account (Time Deposits)................................................................................10 1.3.5 Foreign Currency Account....................................................................................................11 1.3.6 NBP Premium Aamdani........................................................................................................11 1.3.7 National Income Daily Account (NIDA)..............................................................................12 1.4 Advances................................................................................................................................13
1.5 NBP Advance Salary....................................................................................................................14 1.6 NBP Cash & Gold........................................................................................................................14 1.7 Students Loan Scheme.................................................................................................................15 1.8 NBP Karobar- President’s Rozgar Scheme...............................................................................15 1.9 Corporate Advances....................................................................................................................16 1.9.1 Cash Finance..........................................................................................................................16 1.9.2 Running Finance/ Overdraft...................................................................................................16 1.9.3 Demand Finance.....................................................................................................................16 1.10 Remittances.................................................................................................................................17 1.10.1 Demand Drafts.....................................................................................................................17 1.10.2 Travelers Cheques................................................................................................................17 1.11 Letter Of Credit.........................................................................................................................18 1.12 Foreign Remittances..................................................................................................................18 1.13 Swift System................................................................................................................................19 1.14 Mail Transfer..............................................................................................................................19 1.15 Telegraphic Transfer.................................................................................................................20 1.16 Pay Order....................................................................................................................................20 CHAPTER NO 2....................................................................................................................................21 2 Organizational Structures..................................................................................................................21 2.1 Organizational Structure of National Bank of Pakistan..........................................................21 2.2 Board of Directors........................................................................................................................21 2.3 Senior Management.....................................................................................................................24 2.4 Corporate & Investment Banking Group..................................................................................25 2.5 Compliance Group.......................................................................................................................27 2.6 Islamic Banking Group...............................................................................................................28 2.7 Treasury Management Group....................................................................................................29 2.8 credit management group...........................................................................................................30 3
2.9 Audit & Inspection Group..........................................................................................................30 2.9.1 Internal Audit..............................................................................................................................31 2.9.2 External Audit.............................................................................................................................32 2.9.3 Statutory Audit............................................................................................................................32 2.10 Human Resource Management & Administration Group.....................................................33 2.11 Overseas Coordination & Management Group......................................................................34 2.12 Commercial & Retail Banking Group.....................................................................................34 2.13 Special Assets Management Group..........................................................................................35 2.14 Employee Benefits, Disbursements & Trustee Division.........................................................36 2.15 Defined Benefit Plans.................................................................................................................36 2.15.1 Pension Scheme.........................................................................................................................36 2.15.2 Post retirement medical benefits...............................................................................................37 2.15.3 Benevolent scheme....................................................................................................................37 2.15.4 Gratuity scheme........................................................................................................................37 2.16 Provincial & Regional Management.......................................................................................37 2.17 Branch Management.................................................................................................................38 2.18 Hierarchy of National Bank of Pakistan.................................................................................38 2.19 Centralized Decision Making...................................................................................................39 2.19.1 Downward Communication......................................................................................................39 2.19.2 Chain of Command...................................................................................................................40 2.20 Departments of the Branch......................................................................................................40 2.20.1 Clearing House Department....................................................................................................41 2.20.1.2 Remittance Department..........................................................................................................43 2.20.2 Account Opening Department...............................................................................................44 2.20.3 Cash Department....................................................................................................................45 2.20.4 Deposits Department.................................................................................................................47 2.20.5 Accounts Department.............................................................................................................48 2.20.6 Bank Accounting Operations...................................................................................................49 2.20.7 Internal and External Reporting..............................................................................................52 Use of Electronic Data in Decision Making.........................................................................................52 CHAPTER NO 3....................................................................................................................................54 3 Information System Resources of NBP.............................................................................................54 3.1 People Resources..............................................................................................................................54 3.2 Hardware Resources........................................................................................................................54 3.3 Software Resources..........................................................................................................................54 3.4 Data Resources.................................................................................................................................55 3.5 Network Resources..........................................................................................................................55 4
3.6 Sources of Funds..............................................................................................................................55 3.7 Critical Analysis (Theory vs Practical)..........................................................................................62 3.8 Conclusion.........................................................................................................................................62 CHAPTER NO 4....................................................................................................................................63 4 FINANCIAL REPORTS....................................................................................................................63 4.1 Balance Sheet................................................................................................................................63 4.2 Income Statement.........................................................................................................................64 4.3 Financial Statements Analysis....................................................................................................65 4.3.1 Ratio Analysis............................................................................................................................66 4.3.1.1 Profitability Ratios.............................................................................................................67 4.3.1.2 Liquidity Ratios..................................................................................................................67 4.3.1.3 Debt Ratios.........................................................................................................................67 4.3.2 Horizontal Analysis...................................................................................................................71 4.3.3 Horizontal Analysis of Balance Sheet...................................................................................72 4.3.4 Horizontal Analysis of Income Statement.............................................................................73 4.3.5 Vertical Analysis.....................................................................................................................74 4.3.6 Vertical Analysis of Balance Sheet........................................................................................75 4.3.7 Vertical Analysis of Income Statement.................................................................................76 4.3.8 Bank Analysis with refernce to commercial Banks listed on stock exchange.............................77 CHAPTER NO 5....................................................................................................................................81 5.1 Future prospects of National Bank of Pakistan............................................................................81 5.2 Short falls/ Weaknesses of National Bank of Pakistan.................................................................82 5.3 Conclusions.......................................................................................................................................83 5.4 Recommendations............................................................................................................................84 References...............................................................................................................................................86
References
FIGURE TABLE
5
Table 1.1.....................................................................................................................................................3 Table 1.2.....................................................................................................................................................4 Table 1.3.....................................................................................................................................................4 Table 1.4.....................................................................................................................................................5 Table 1.5.....................................................................................................................................................6 Table 1.6.....................................................................................................................................................6 Table 1.7.....................................................................................................................................................7 Table 1.8...................................................................................................................................................13 Table 3.1..................................................................................................................................................56 Table 3.2..................................................................................................................................................56 Table 3.3..................................................................................................................................................57 Table 3.4..................................................................................................................................................58 Table 3.5..................................................................................................................................................59 Table 3.6..................................................................................................................................................59 Table 3.7..................................................................................................................................................60 Table 3.8..................................................................................................................................................61
6
EXECUTIVE SUMMARY In this internship report there are five major parts first part consist of introduction and product lines of the organization and also discuss the business volume of the organization. The second part of this report is organizational structures and discusses the whole groups that are working in the organization and also describe decision making power in this organization. Third part of the report is the resources of the organization if the resources of the organization are fully utilized than no organization go to failure and also describe the resources of funds. The fourth part of the report is very important part that is analysis of financial reports and balance sheet and ratio analysis of the organization. The last part consists of future prospect, strength, weakness, conclusion and recommendation for the organization. In last all annexure are attached with the report
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CHAPTER NO 1 1 INTRODUCTION 1.1 BRIEF HISTORY OF NATIONAL BANK OF PAKISTAN The history of National Bank of Pakistan is part of Pakistan’s struggle for economic independence. National Bank of Pakistan was established on November 9, 1949 under the National Bank of Pakistan Ordinance, 1949 in order to cope with the crisis conditions which were developed after trade deadlock with India and devaluation of Indian Rupee in 1949. Initially the Bank was established with the objective to extend credit to the agriculture sector. The normal procedure of establishing a banking company under the Companies Law was set aside and the Bank was established through the promulgation of an Ordinance, due to the crisis situation that had developed with regard to financing of jute trade. The Bank commenced its operations from November 20, 1949 at six important jute centers in the then, East Pakistan and directed its resources in financing of jute crop. The Bank’s Karachi and Lahore offices were subsequently opened in December 1949. The National Bank of Pakistan came forward to establish its offices in the Cotton growing areas and extended credit facilities liberally in order to restore stability to the market. In 1951, the country was once again faced with a crisis in the cotton trade when prices was crashed and touched the lowest level since independence following the cessation of hostilities in Korea. The bank in collaboration with the cotton board provided the necessary Credit facilities to the trade and the crisis was tided over. The nature of responsibilities of the Bank is different and unique from other banks/financial institutions. The Bank acts as the agent to the State Bank of Pakistan for handling Provincial/Federal Government Receipts and Payments on their behalf. The Bank has also played an important role in financing the country’s growing trade, which has expanded through the years as diversification took place.1 The National Bank of Pakistan has its headquarters in Karachi, Pakistan. The bank operates 1249(2008) branches in Pakistan and 22(2008) overseas branches. Under a trust Deed, the bank also provides services as trustee to National Investment Trust (NIT) including safe custody of securities on behalf of NIT. The National Bank of Pakistan has assets worth Rupees 737976.44 million on September 30, 2008.2
1
National Bank of Pakistan is today a progressive, efficient, and customer focused institution. It has developed a wide range of consumer products, to enhance business and cater to the different segments of society. Some schemes have been specifically designed for the low to middle income segments of the population. These include NBP Karobar, NBP Advance Salary, NBP Saibaan, NBP Kisan Dost, and NBP Cash n Gold. The National Bank of Pakistan has implemented special credit schemes like small finance for agriculture, business and industries, administrator to Qarz-e-Hasna loans to students, self employment scheme for unemployed persons, public transport scheme. The Bank has expanded its range of products and services to include Shariah Compliant Islamic Banking products. For the promotion of literature, NBP recently initiated the Annual Awards for Excellence in Literature. NBP will confer annual awards to the best books in Urdu and in all prominent regional languages published during the defined period. Patronage from NBP would help creative work in the field of literature. The Bank is also the largest sponsor of sports in Pakistan. It has provided generously to philanthropic causes whenever the need arose. It has taken various measures to facilitate overseas Pakistanis to send their remittances in a convenient and efficient manner. In 2002 the Bank signed an agreement with Western Union for expanding the base for documented remittances. More recently it has started Electronic Home Remittances Project. This project introduces technology based system to handle inward remittances efficiently, by ensuring that the Bank's branches keep a track of the remittance received from abroad till its final receipt. A number of initiatives have been taken, in terms of institutional restructuring, changes in the field structure, in policies and procedures, in internal control systems with special emphasis on corporate governance, adoption of Capital Adequacy Standards under Basel II framework, in the up gradation of the IT infrastructure and developing the human resources. National Bank has earned recognition and numerous awards internationally. It has been the recipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The Banker Magazine, the Best Foreign Exchange Bank –– Pakistan for 2004, 2005, 2006 and 2007, Global Finance, Best Emerging Market Bank from Pakistan for the year 2005, Global Finance, Kisan Time Awards – 2005 for NBP's services in the agriculture field. It is listed amongst the Region's largest banks and also amongst the
1
largest banks in South Asia 2005, The Asian Banker. It has also been presented a Recognition Award –– 2004 for having a Gender Sensitive Management by WEBCOP AASHA besides other awards.3 1.2 BUSINESS VOLUME OF NATIONAL BANK OF PAKISTAN TABLE 1.1 Rupees Millions Year Total Assets Deposits Advances Reserves Investments in 2005 553,231,467 465,571,71 7 220,794,075 10,813,914 149,350,096 2006 577,719,114 463,426,602 268,838,779 13,536,041 2007 645,132,71 1 501,872,24 3 316,110,40 6 13,879,260 139,946,99 2008 762,193,593 591,907,435 340,677,100 19,941,047 210,787,868 2009 862,556,378 726,464,825 475,243,431 22,681,707 217,642,822
156,985,686 5 Horizontal Analysis (%) 104 100 122 125 105 117 108 143 128 94
Total Assets Deposits Advances Reserves Investments
100 100 100 100 100
138 127 154 146 141
155.912386 156.037147 215.242837 209.745583 145.726603
(National Bank of Pakistan, 2010) (Retrieved July 12, 2010, from nbp.com/http://www.nbp.com/annualreports/)
The business volume of National Bank of Pakistan is stated in terms of total assets, deposits, advances, reserves and investments. To analyze the trend in these items the Horizontal analysis of each item is calculated.
TABLE 1.2
2
(Total Assets)
Analysis The Total Assets of National Bank of Pakistan fluctuates during all years as they show an increasing trend. The total assets are increased 4 % in 2005 and 17 % in 2006. The year 2007 represents second highest percentage on account of total assets as it was increased to 38%. There was an increase of 48 % in 2008 as compare to base year and 10% as compare to 2007. TABLE 1.3 (Deposits and other Accounts)
A NALYSIS The deposits and other accounts of National Bank of Pakistan show a mixed trend during all years. In the year 2005, the deposits were increased very marginally, with the year 2006 represents an increase of 8%. The deposits are increased 27% & 34% in the years 2007 and 2008 respectively. TABLE 1.4 (Advances)
A NALYSIS The advances made by National Bank of Pakistan shows an increasing trend in all years as compare to base year. This implies that National Bank of Pakistan is keener to advance money to lenders. The advances were increased 22 % in the year 2005 and 43 % in 2006 as compare to base year. The year 2007 represents an increase of 54 %
1
and 2008 represents highest percentage among all years that is 87 % as compare to base year.
TABLE 1.5 (Reserves)
A NALYSIS The Banks’ reserves are banks' holdings of deposits in accounts with their central bank plus currency that is physically held in bank vaults (vault cash). The reserves of National Bank of Pakistan fluctuate during all years as they show an increasing trend. The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007 respectively. The year 2008 represents highest increasing percentage of 84% as compare to base and previous years. TABLE 1.6 (Investments)
A NALYSIS The investments made by National Bank of Pakistan fluctuate during all years. There was an increase of 5 % in 2005. The year 2006 indicates a decrease of 6% in investments. The year 2007 represents an increase of 41 %, highest among all years. The investments are increased 14 % in 2008 as compare to base year; however investments are decreased 27 % as compare to the year 2007.
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TABLE 1.7 Number of Employees of National Bank of Pakistan Permanent Temporary/ On Contractual basis Bank's own staff strength at the end of the year Outsourced Total Staff Strength http://www.nbp.com.pk/nbp/About_Us/About_US.jsp 13237 842 14079 2350 16429
An employee may be defined as: "A person in the service of another under any contract of hire, express or implied, oral or written, where the employer has the power or right to control and direct the employee in the material details of how the work is to be performed." 4An employee contributes labor and expertise to an endeavor. Employees perform the discrete activity of economic production. Of the three factors of production, employees usually provide the labour. Specifically, an employee is any person hired by an employer to do a specific "job". In most modern economies, the term employee refers to a specific defined relationship between an individual and a corporation, which differs from those of customer, or client. The relationship between National Bank of Pakistan and its employees is usually handled through the Human Resource Management & Administration Group & Employees benefit disbursement & trustee division. These groups handle the incorporation of new hires, and the disbursement of any benefits which the employee may be entitled, or any grievances that employee may have. There are differing classifications of workers within National Bank of Pakistan, these are: • • • Permanent Temporary / On Contractual Outsourced
The Employees of National Bank of Pakistan are organizing into trade unions, which represent most of the available work force in National Bank of Pakistan. These trade Unions utilize their representative power to collectively bargain with the management of bank in order to advance concerns and demands of their membership. 1.3 PRODUCT LINES
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The most precise definition of product is anything capable of satisfying needs, including tangible items, services and ideas. In marketing, a product is anything that can be offered to a market that might satisfy a want or need. 5 Since 1575, the word "product" has referred to anything produced. Since 1695, the word has referred to "thing or things produced”. The economic or commercial meaning of product was first used by political economist Adam Smith. In general usage, product may refer to a single item or unit, a group of equivalent products, a grouping of goods or services, or an industrial classification for the goods or services. The consumer banking products include personal accounts, credit cards, loans, investment products, treasury products and many more. The National Bank of Pakistan offering for sale several related products individually, which is commonly known as product lining. A product line is defined as “A group of products that are closely related because they function in a similar manner, are sold to the same customer groups, are marketed through same types of outlets, or fall within the given price ranges”.6 The followings are the main consumer banking products of NBP. 1.3.1 DEPOSITS The National Bank of Pakistan offers to their clients a variety of Deposit Schemes with personalized services at competitive rates of interest. Any Pakistani citizen can open his/her account for any deposit scheme at any of its Branches strategically located throughout Pakistan. The Bank with its huge network of 1243 branches garners savings from both the rich and the poor in urban as well as rural areas. Even a poor farmer in a remote village, with his meager annual income, feels secure to safe keep his minuscule savings in National Bank of Pakistan, Because National Bank of Pakistan has a long heritage of trust and professional commitment. 1.3.2 CURRENT DEPOSITS 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 nay 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 Current Deposits may be withdrawn by the depositors at any time, and as such the bank is not entirely free to employ such deposits.7 Current Accounts/ Basic Banking accounts are opened, on proper introduction and submission of required
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documents along with initial deposit prescribed from time to time. Basic banking accounts are opened for an individuals (single or joint) only whereas current accounts are opened for individuals (single or joint) Charitable institution, provident and other funds of benevolent nature of local bodies, autonomous corporations, companies, associations, educational institutions, firms etc. and in all other cases where the accounts are to opened under the order of a competent court of law. No profit is paid on the balances of current/basic banking accounts. The bank is authorized to deduct service charges (incidental charges) on current accounts levied through its half yearly schedule of charges, in case the average balance falls below the minimum balance as prescribed by the bank. No balance maintenance condition is applied on basic banking account. 1.3.3 PLS SAVING DEPOSITS In Pakistan a Savings Deposits Account can be opened with a 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 monthly basis under the Interest Free Banking System. There is no restriction on the withdrawals from the deposit accounts but the amount of money withdraw 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 the scheme the SBP has allowed the Savings Scheme for school and college students and industrial labour also. The purpose of these accounts is to inculcate the habit of savings in the constituents. As such, the initial deposits required for opening these accounts are very nominal.8NBP charge Rs.500 for opening of PLS Savings deposits. The silent features of profit and loss sharing and saving accounts of NBP are as fallows • These accounts can be opened by individuals in their own single or joint name. The PLS savings account can also be opened for provident fund or other benevolent funds of companies, firms, organizations, NGO’s and educational institutions. • • PLS saving account can be opened with a minimum amount of Rs.500/- only To share in the profit a minimum balance of Rs.500/- must be maintained in the account. The minimum balance on sixth and last of month will qualify for the profits. The profits will be calculated on the basis of monthly minimum
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balance for the periods of six months i.e. from January to June and July to December • • • The head office of NBP determines the profit or loss on PLS saving deposits and advice its branches the rate and time of distribution of these profits. There shall be no restrictions on maintaining the maximum balance in PLS saving account. On the first day of Ramzan each year the Zakat at the rate of 2.5% will be deducted from these deposits on the balance of that day. But if depositors affix an affidavit of Zakat deduction along with account opening form or he is a non-Muslim, no Zakat will be deducted from his account. 1.3.4 FIXED DEPOSIT ACCOUNT (TIME DEPOSITS) The deposits that can be withdrawn after a specified period of time are referred to as Fixed or Term Deposits. The period for which these deposits are kept by the bank ordinarily varies from three months to five years in accordance with the agreement made between the customer and the banker. Profit/Return is paid to the depositors on all fixed or Time deposits, and the rate of profit/Return varies with the duration for which the amount is kept with the banker. By lending out or investing these funds, the bank earns more than the Profit/Return that it has to pay on them to the depositors. 9 By giving an advance notice to the bank the deposit can be withdraw from the bank before the expiry of the period. Fixed deposit accounts have higher rate of interest as compare to other accounts. The rate of interest rises with the length of period and the amount of deposit. The bank grants to the depositor a fix deposit (FDR) which is not transferable to any other person. The silent features of fixed deposit account of NBP are as fallows • • • The PLS term deposit are opened for individuals in their own single or joint names, companies firms and other organizations. The PLS term deposit receipt are issued for any amount. There is minimum or maximum limit or deposits in a single term deposit account. PLS term depositors may be allowed some facilities against the security of these receipt credits, after making “Lien” on the relevant receipt and subject to recovery of service charges. • Under term deposit scheme the depositors not cease to earn the profit immediately, after the respective maturity date.
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1.3.5 FOREIGN CURRENCY ACCOUNT Government of Pakistan has introduced many important reforms in Foreign Exchange Control in the country since February, 1990, for the purpose of strengthening the Foreign Exchange Reserves. One of these reforms relates to foreign currency accounts, which can be opened in United States Dollars, Pound Sterling, Euro and Japanese Yen in any of the authorized branches of commercial banks throughout the country.10 Foreign currency accounts are opened, on proper introduction and submission of required documents along with an initial deposit prescribed from time to time. Rates of return on foreign currency deposits are subject to fluctuation as determined in accordance with State Bank of Pakistan directives and will be paid on six monthly basis whereas the return on term deposit/SNTD will be paid on maturity or as prescribed by SBP. The bank shall have no responsibility for or liability to the account holders for any diminution due to taxes imposed or depreciation in the value of funds credited to the account whether due to devaluation or fluctuation in the exchange rate or other wise. 1.3.6 NBP PREMIUM AAMDANI NBP Premium aamdani is a retail product of the bank. The amount of investment required for this account is Rs. 20,000/-to Rs. 5,000,000.The investment period is 5 years. Zakat and withholding tax will be deducted as per rules. In NBP premium aamdani, the account holders have benefit of free demand draft, pay order; free cheque book and NBP cash card (ATM+Debit). The Financing facility is available up to 90% of the deposit value.11 Profit paid every period as follows: Period Profit
Rates 1st year 7.50% 2nd years 8.50% 3rd years 9.50% 4th years 10.50% 5th years 11% 1.3.7 NATIONAL INCOME DAILY ACCOUNT (NIDA) The scheme of National income daily account 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. Deposits in the NIDA accepted on the condition that the depositor shall always maintain a minimum balance as prescribed by the bank in his account. In the event however, that any depositor wishes to withdraw the amount and the balance in his account is less than
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the required amount, the account will be converted to the ordinary PLS SB account for the purpose of calculating profit. An example of how the NIDA accounts are maintained is shown on the next page. R ATES • • • •
ON
N ATIONAL
INCOME DAILY ACCOUNT
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%.
S ALIENT F EATURES • • • Rs 2-million is required to open an account and there is no maximum limit. Profit is paid on half yearly basis on monthly balances. The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2 million to 2,000 million, the rate fluctuates from 1.4 to 1.75 • It is a checking account and there is no limit of withdrawals
(NIDA 1) Description Transaction Balance Cash Cash Transfer Cash Cash Cash Cash Cash Cash 0 0 700,000 10,000 of C Debit (-) Day s 4 3 3 4
Date 01/05/2008 05/05/2008 08/05/2008 11/05/2008 15/05/2008 18/05/2008 20/05/2008 22/05/2008 23/05/2008 25/05/2008
Credit (+) Balance 10,000,00 10,000,000
Products
500,000 0
9,500,000
38000000 28800000 25380000 32640000 0 48060000 0 31840000 0 32840000 0 16350000 0 32702000 0 0
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100,000 9,600,000 75,000,00 84,600,000 3,000,00 0 1,000,00 0 81,600,000
78,600,00 160,200,000 3 159,200,000 2 163,500,000 1 163,510,000 2 5,000,000 164,200,000 2
27/05/2008 31/05/2008 01/06/2008 06/06/2008 10/06/2008
Cash Transfer Cash Transfer Cash
300 500,000 2,100,00 0 9,870,00 0
163,509,700 2 164,009,700 4 161,909,700 1 36,000,00 197,909,700 5 188,039,700 4
32701940 65603880 0 16190970 0 98954850 0 75215880 0 0
0 (Retrieved July 12, 2010, from nbp.com/http://www.nbp.comproducts/nida.index/) 1.4 ADVANCES National Bank of Pakistan plays a pivotal role in translating the government's development plans in terms of growth in industrial, commercial and agricultural sectors in Pakistan. Accordingly the Bank has formulated its Credit Policy under the guidelines of SBP-the Central Bank of Pakistan.
Table 1.9 TYPE OF (House Financing Amount or Rs. 35 Million Rs. 35 Million Rs. 15 Million of land Plus Rs.35 Million Financing Period 3 to 20 years 3 to 20 years 3 to 15 years 3 to 20 years Debt to equity Ratio 85:15 (maximum) 85:15 (maximum) 80:20 (maximum) 80:20 (maximum)
ADVANCE Home Purchase Apartment) Home Construction Home Renovation Purchase Construction
1.5 NBP ADVANCE SALARY The NBP Advance salary has been the flag-ship product for NBP. NBP Advance Salary, the leading personal loan product of the country, is maintaining its inimitability ever since it was launched. This was only possible due to its swift growth and remarkable loan disbursement of over 118 billion.12 You can avail up to 20 net take home salaries with easy repayment installments. Its hassle free acquisition with no prior formalities and easy availability in a short turn around time is attributed as the most distinguishing features of the product. The product is offered countrywide. The terms and conditions of NBP Advance salary is shown on next page:
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1.6 NBP CASH & GOLD With NBP’s Cash & Gold, the customers meet their need for ready cash against their idle gold jewelry. The rate of mark up is 13% p.a. This product has following features13 • • • • • • Facility of Rs. 7,000 against each 10 grams of net contents of gold No maximum limits of cash Repayment after one year Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed schroffs No penalty for early repayment
1.7 STUDENTS LOAN SCHEME Pursuant to the announcement made by the Federal Finance Minister in his 20012002 budget speech, a Student Loan Scheme (SLS) for Education was launched by the Government of Pakistan in collaboration with major commercial banks of Pakistan (NBP, HBL, UBL, MCB and ABL). Under the Scheme, financial assistance is provided by way of Interest Free Loans to the meritorious students who have financial constraints for pursuing their studies in Scientific, Technical and Professional education within Pakistan. The Scheme is being administered by a high powered committee comprising Deputy Governor, State Bank of Pakistan, Presidents of the commercial banks and representative of Ministry of Finance, Government of Pakistan. 14 1.8 NBP KAROBAR- PRESIDENT’S ROZGAR SCHEME The solution of Pakistan’s major socio-economic problems primarily lies in the development and growth of small & micro businesses. These will not only provide employment opportunities to ever-growing population demand but will also become the catalyst for breaking the vicious circle of poverty. In this regard, NBP has developed a full range of Products under the President’s Rozgar Scheme with a brand name of “NBP KAROBAR”. The scheme will be offered to eligible young and literate citizens of Pakistan, falling within an age group of 18-40 years having a minimum qualification of Matriculation (except for females in the PCO/Tele-center product). The eligible borrowers will be required to make a down payment of 15%. Asset and Life & Disability insurances will be mandatory under this scheme. The
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15% down payment will include 1st year’s asset insurance premium. However, the cost of life and disability insurance will be borne by GOP. The mark-up rate for the 1st year will be 12% and for the subsequent years it will be 1 year KIBOR + 2%. Fifty percent (50%) of this rate will be paid by the customer i.e. 6% and the balance of 6% will be borne by GOP. Additionally, first 10% of the losses under the scheme will be taken-up by GOP. Initially, under the President’s Rozgar scheme, NBP will offer following products: • • • • NBP Karobar Utility Store (under a Franchise with Utility Stores Corporation) NBP Karobar Mobile General Store (without USC Franchise) NBP Karobar Transport NBP Karobar PCO
1.9 CORPORATE ADVANCES 1.9.1 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. 1.9.2 RUNNING FINANCE/ OVERDRAFT 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
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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 1.9.3 DEMAND FINANCE 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 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. 1.10 REMITTANCES 1.10.1 DEMAND DRAFTS Drafts drawn by one branch on another branch or on the Head Office of same bank or vice versa, are not cheques or bills, as these have no distinct drawer and drawee. Section 85-A reads: “ Where any draft, that is, an order to pay money, drawn by one office of bank upon another office of the same bank for a sum of money payable to order on demand, purports to be issued by or on behalf of the payee, the bank is discharged by payment in due course”. Banker’s drafts payable to order on demand are within the protection of Sections 10 and 131-A of the Negotiable Instruments Act. However, if a demand draft drawn on a bank by its own branch bears a forged endorsement, the person in possession of it cannot compel that bank to pay it. As far as possible the banker’s draft should be crossed and it should never be drawn payable to bearer. When a person requires a draft he should be asked to complete the prescribed application form in which he should state the amount of the draft, the name of the payee, and the place of payment. This application form should be signed by the
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purchaser or by those persons who have been duly authorized to act on his behalf. When a customer requests his banker to provide him with a banker’s draft, the amount of which is to be debited to his account, he should enclose with his written request a cheque covering the amount of the required draft and other charges etc. payable to banker.15 The National Bank of Pakistan provides demand drafts at very reasonable rates with safety, speedy and reliable way to transfer money. Any person whether an account holder of the bank or not, can purchase a Demand Draft form a bank. 1.10.2 TRAVELERS CHEQUES They are generally issued for the convenience of person travelling abroad, but some Pakistani banks issue them in Pakistan currency also for use within the country as well. Before issuing, the bankers receive an amount equal to the face value of the cheques, and also charge a small commission. The travelers’ cheques are for fixed amount and are treated as Order cheques payable only to the purchaser whose specimen signature appears on each traveler’s cheque itself. Foreign currency travelers cheques are issued and encashed in accordance with the provisions of the Exchange Control Regulation Act, 1947. While making payment, the paying banker must insist that the holder signs in his presence.16 The National Bank of Pakistan provides their services for traveler’s cheque at very reasonable and competitive rates. It has following features Negotiability Validity Availability Encashment Limitation Safety Pak Rupees Traveler’s Cheques are a negotiable instrument There is no restriction on the period of validity At 700 branches of NBP all over the country At all 400 branches of NBP No limit on purchase NBP Traveler’s Cheques are the safest way to carry our money
1.11 LETTER OF CREDIT Letters of credit are very useful instruments in facilitating commercial relations between businessmen at various places. Letter of credit state the limit of the credit and the time during which it is held at the disposal of the grantee, but they are neither negotiable nor transferable. Letter of credit may be revocable. There are many kinds
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of letter of credit such as Revolving credit, Back to Back credit, Claused credit etc.17 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. 1.12 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. The new features of NBP foreign remittances include: The existing system of home remittances has been revised/significantly improved and well-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides United National Bank (the joint venture between NBP and UBL in UK)., and Bank Al-Jazira, Saudi Arabia. • • • Zero Tariffs: NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. 1.13 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-PKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, we can safely and speedily transfer money for our business and personal needs.
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1.14 MAIL TRANSFER A Mail Transfer is a form of remittance in which the amount remitted by a customer or a non-customer is directly credited to the account of the beneficiary with another branch. Move 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. 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/if sent by registered post locally Rs.40/- if sent by registered post inland on party’s request. 1.15 TELEGRAPHIC TRANSFER Telegraphic Transfer is a form of remittance, which is advised by telegram, telex or fax machines. The fundamental principles of such transfer are otherwise identical with the Mail Transfer. It is the message, which is sent from one branch to another on the order of payer to payee through wire. It is one of the quickest means to transfer fund through the use of telex/fax/internet or cable 1.16 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.
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CHAPTER NO 2 2 ORGANIZATIONAL STRUCTURES 2.1 ORGANIZATIONAL STRUCTURE OF NATIONAL BANK OF PAKISTAN A well-developed and properly coordinate structure is an important requirement for the success of any organization. It provides the basic framework within which functions and procedures are performed. Any organization needs a structure, which provides a framework for successful operations. The operation of an organization involves a number of activities, which are related to decision making, and communication of these decisions. These activities must be well coordinated so that the goals of the organization are achieved successfully. The Organization Structure (Annexed I) shows the internal operations and reporting lines of the National Bank of Pakistan. The bank has clearly defined organizational structure, which supports clear lines of communications and reporting relationships. There exists a properly defined financial and administrative power of various committees and key management personnel, which supports delegations of authority and accountability. The internal operations of the Bank are organized into 15 main departments and divisions headed by senior management of the bank and are report directly to the Board of Directors. The organizational structure of National Bank of Pakistan is centralized because all the decisions of the bank are taken by the top Management. The National Bank of Pakistan’s Departmental key roles and functions are as follows: 2.2 BOARD
OF
DIRECTORS
Pursuant to Section 11 of The Banks’ (Nationalization) Act, 1974, the number of Directors of the Bank shall not be less than 5 and not more than 7, excluding the President. The Federal Government may, if deems necessary, appoint a Chairman of the Board in respect of the Bank. At present National Bank of Pakistan’s Board of Directors consist of 6 Directors and a President who is the Chief Executive of the Bank and presides over the meetings of the Board. The responsibilities of Directors include the followings:18
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1.
The Board of Directors shall assume its role independent of the influence of the Management and should know its responsibilities and powers in clear terms. it should be ensured that the Board of Directors focus on policy making and general direction, oversight and supervision of the affairs and business of the Bank and does not play any role in the day-to-day operations, as that is the role of the Management.
2. The Board shall approve and monitor the objectives, strategies and overall business plans of the institution and shall oversee that the affairs of the institution are carried out prudently within the framework of existing laws & regulations and high business ethics. 3. All the members of the Board should undertake and fulfill their duties & responsibilities keeping in view their legal obligations under all the applicable laws and regulations. 4. The Board shall clearly define the authorities and key responsibilities of both the Directors and the Senior Management without delegating its policymaking powers to the Management and shall ensure that the Management is in the hands of qualified personnel. 5. The Board shall approve and ensure implementation of policies, including but not limited to, in areas of Risk Management, Credit, Treasury & Investment, Internal Control System and Audit, IT Security, Human Resource, Expenditure, Accounting & Disclosure, and any other operational area which the Board may deem appropriate from time to time. The Board shall also be responsible to review and update policies periodically and whenever circumstances justify. 6. As regards Internal Audit or Internal Control, a separate department shall be created which shall be manned preferably by professionals responsible to conduct audit of the Bank, Various Divisions, Offices, and Units Branches etc. The Head of this department will report directly to the BOD or Board Committee on Internal Audit. 7. The business conditions and markets are ever changing and so are their requirements. The Board, therefore, is required to ensure existence of an effective ‘Management Information system’ to remain fully informed of the activities, operating performance and financial condition of the institution, the environment in which it operates, the various risks it is exposed to and to evaluate performance of the Management at regular intervals.
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8. The Board should meet frequently (preferably on monthly basis, but in any event, not less than once every quarter) and the individual directors of an institution should attend at least half of the meetings held in a financial year. The Board should ensure that it receives sufficient information from Management on the agenda items well in advance of each meeting to enable it to effectively participate in and contribute to each meeting. 9. The Board should carry out its responsibilities in such a way that the external auditors and supervisors can see and form judgment on the quality of Board’s work and its contributions through proper and detailed minutes of the deliberations held and decisions taken during the Board meetings. 10. To share the load of activities, the Board may form specialized committees with well-defined objectives, authorities and tenure. These committees, preferably comprising of ‘Non- Executive’ Board members, shall oversee areas like audit, risk management, credit, recruitment, compensation etc. these committees of the Board should neither indulge in day-to-day affairs/operations of the bank and enjoy any credit approval authority for transaction/limits. These committees should apprise the Board of their activities and achievements on regular basis. 11. The Board should ensure that it receives management letter from the external auditors without delay. It should also be ensured that appropriate action is taken in consultation with the Audit Committee of the Board to deal with control or other weaknesses identified in the management letter. A copy of that letter should be submitted to the State Bank of Pakistan so that it can monitor follow-up actions. The Following table mentioned the names & designation of Board of Directors of National Bank of Pakistan: Name Syed Ali Raza Mr. Sikandar Hayat Jamali Mian Kausar Hameed Mr. Ibrar A. Mumtaz Mr. Tariq Kirmani Mr. Muhammad Arshad Chaudhry Mr. Mohammad Ayub Khan Tarin Designation Chairman & President Director Director Director Director Director Director
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Mr. Ahmed
Ekhlaq
Secretary Directors
Board
of
2.3 SENIOR MANAGEMENT The senior management of National Bank of Pakistan is consists of Group chiefs, who report directly to the Directors of Bank. The whole functions of National Bank of Pakistan are performed under these Groups. The National Bank of Pakistan has following groups and divisions: • • • • • • • • • • • • • Corporate and investment Banking Group Operations Group Credit Management Group Audit & Inspection Group Compliance Group HRM & Administration Group Commercial & Retail Banking Group Treasury Management Group Special Assets Management Group Employees benefit & Disbursements Group Core Banking Application, PMO Financial Control Division Information Technology Group
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Name Masood Karim Shaikh Shahid Anwar Khan Dr. Asif A. Brohi Imam Bakhsh Baloch Ziaullah Khan Dr. Mirza Abrar Baig Amer Siddiqui Muhammad Nusrat Vohra Amim Akhtar Ekhlaq Ahmed Tajammal Hussain Bokharee Mrs. Khurshid Maqsood Ali Tahir Yaqoob Anwar Ahmed Meenai Naeem Syed Aamir Sattar Atif Hassan Khan
Group Name & Designation SEVP & Group Chief, Corporate & Investment Banking Group SEVP & Group Chief, Credit Management Group SEVP & Group Chief, Operations Group SEVP & Group Chief, Audit & Inspection Group SEVP & Group Chief, Compliance Group SEVP & Group Chief, Human Resources Management & Administration Group SEVP & Group Chief, Commercial & Retail Banking
Group SEVP & Group Chief, Treasury Management Group EVP & PSO to the President EVP & Secretary Board
of
Directors EVP/Divisional Head, Special Assets Management Group EVP & Divisional Head Employee Benefits, Disbursements & Trustee Division EVP & Group Chief, Overseas Coordination & Management Group EVP & Divisional Head, Islamic Banking EVP & Head, Core Banking Application, PMO Financial Controller & Divisional Head, Financial Control Division Group Chief (A), Information Technology Group
2.4 CORPORATE & INVESTMENT BANKING GROUP The corporate & investment banking group is headed by Mr. Masood Karim Shaikh. This group performs its function through its following two units: • • Corporate Banking Investment Banking
The corporate and investment banking will continue to play a major role in loan syndications, structured financing and debt / capital raising transactions with the
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objective of providing entire range of corporate and investment banking solutions to its valued clients under one umbrella. The Corporate Banking Group achieved excellent results in 2007 with a number of landmark transactions in cement, energy, communication and fertilizer sectors. In addition to the funded income, our corporate and investment banking has substantially increased its fee base income this year by being the lead advisor in a number of transactions in the corporate world of Pakistan The challenges to corporate business in year 2007 were manifold including reduction in Private Credit Investment as a result of slowing down of economy as well as rising interest rates. The increasing pressure on the textile industry reduced the lending to this sector. In addition the bank's corporate loans yields also faced pressure as substitute form of funding sources are available in the market in form of Islamic financing, mutual funds, issuance of debt instruments like TFCs and Bonds and the Capital markets. Despite these threats and challenges at NBP, our corporate team not only increased the volume as well as the yield of the loans they also maintained a strong franchise with the leading Pakistani corporate so as to ensure that NBP not only maintains its market share but is in a position to meet any challenges in future. NBP during the year also participated in a number of TFC issues and mutual funds subscriptions thereby increasing the overall yield on investment portfolio. NBP has the largest equity portfolio in the banking sector primarily due to 27% holding in NIT units, the largest mutual fund in Pakistan. During the year 2008 the bank redeemed 10% of its NIT holding covered under LoC, which resulted in capital gain of Rs. 1.8 billion in 2008. The National Bank of Pakistan has initiated a structured approach to corporate banking by introducing a single point of contact through Relationship Managers. For this purpose, new Relationship Managers as well as team leaders has been inducted to expedite this process. The Area Managers of National Bank of Pakistan are appointed to manage relationships and to better service the needs of multinationals and large local corporate. An investment banking team has also been formed by National Bank of Pakistan to offer specialized services to major relationships including advisory and debt syndications. The National Bank o Pakistan have special focus on Corporate
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Banking with a presence in all major locations through out the country, offering full range of Banking products / services and one window interface through designated Relationship Managers. Corporate Banking offers tailor made products / solutions as required by corporate customers which includes: The key features of corporate Banking includes:
• • • • •
Funded facilities, ranging from short to medium and long term lending Trade related financing. Foreign currency financing. All sorts of non-funded facilities / services which include Cash receipts / payments, Remittances, Collections, guarantees, letter of credit etc. Customized products / solutions
2.5 COMPLIANCE GROUP The Compliance Group of National Bank of Pakistan is headed by Mr. Ziaullah Khan and is report directly to the President/ Chief executive of NBP. In order to keep the working of Audit Department aligned with the best international practices 'Compliance Group’ has been created. This group is responsible for monitoring compliance of various administrative / operative instructions, rules, and regulations by constantly reviewing and reporting status of compliance and non-compliance. The Compliance Group of NBP is set to ensure that all relevant laws are complied with, in letter and spirit, and, thus, minimize legal and regulatory risks. The Compliance officers will primarily be responsible for Bank’s effective compliance relating to: • • • • • • Relevant provisions of existing laws and regulations. Guidelines for KYC. Anti money laundering laws and regulations. Timely submission of accurate data / returns to regulator and other agencies. Monitor and report suspicious transactions to President / Chief Executive Officer of the bank and other related agencies. The Compliance Officers will serve as a contact point between President /Chief executive officers and senior management, with regard to functioning of compliance program provide assistance in this area to branches and other departments of the bank, and act as liaison with State Bank of Pakistan concerning the issues related to compliance.
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The functions of compliance group of National Bank of Pakistan are as fallows: • • • • Study and emphasize compliance of best international practices in audit of various functions of NBP. Monitor compliance of Administrative/Operational Instructions, Rules, Regulations issued from time to time by the Management. Review over the compliance carried out by the audit departments. Prepare and put up a consolidated Report to the Directors of National Bank of Pakistan regarding the status of compliance and non-compliance of the recommendations agreed by the Departmental Management. 2.6 ISLAMIC BANKING GROUP The divisional head of Islamic Banking group is Mr. Anwar Ahmed Meenai. Islamic Banking is one of the emerging field in global financial market, having tremendous potential and growing at a very fast pace all around the world. Al-Hamdulillah, the progress of Islamic Banking in Pakistan has also been commendable during the last Five years. The year 2007 marked the first year of Islamic Banking operations. During the year under review, in addition to active participation in various Sukuk transactions, two more Islamic Banking branches at Lahore and Peshawar started operations. NBP's plans for the year 2008 include opening of Faisalabad and Rawalpindi branches with the focus on growing organically by opening more standalone Islamic Banking branches, utilizing NBP's existing branch network of 1,200 plus conventional branches and looking into strategic acquisitions for expansion in this field. The products & services being offered by National Bank of Pakistan’s Islamic Banking are fully Shariah Compliant and have been certified by NBP’s Shariah Advisor. Deposit Schemes being offered by NBP’s Islamic Banking Branches include the following: a) Current Deposit Scheme b) Profit & Loss Sharing (PLS) Deposit Scheme Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements: a) Murabaha b) Murabaha Facility c) Ijarah (Leasing) In addition to Shariah acceptable standard general banking services, following services are also being offered at the Islamic Banking Branches:
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• • • • • • •
Letter of Credit Facility Handling of Remittances Issuance of Bank Drafts and Pay Orders. Collection of Export Bills. Collection of Local Bills. Government Collections Utility Bills Collection
2.7 TREASURY MANAGEMENT GROUP The group chief of Treasury management group of National Bank of Pakistan is Mr. Muhammad Nusrat Vohra. The NBP treasury and capital market group has developed a reputation of being the market leader in coming up with customized solutions for a large and varied client base that is spread virtually all across the country. The client base does not consist of only blue chips ones but encompasses public sector clients, retail sector, multinationals, local conglomerates as well as individuals. National bank treasury is currently regarded as a market leader in both foreign exchange and rupee denominated products because of its emphasis on service quality. The Treasury management group of National Bank of Pakistan’s offer:19 • • • • Narrowest bid / offer spread and quickest on line quotes Customized solutions to minimize risk and optimize returns as per the needs and circumstances of the clients Focus on building sustained and long term relationship with institutional, corporate and retail clients. Local presence across the nation as well as internationally.
2.8 CREDIT MANAGEMENT GROUP The group chief of Credit Management Group is Mr. Shahid Anwar Khan. This group usually deals with Bank’s allocations of payments or cash application, internal fund movements, reconciliations and also maintaining positive working relationships with customer during the debt collection or credit review and approval process, screening of customers and only those who is credit worthy are allowed to do business. The divisions of this group are distributed according to different areas which are:
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1)
NWFP Azad Kashmir Sind & Baluchistan area wing
2) Karachi area wing 3) Special Credit Cell & Punjab area Wing The functions of this department include: • • • • • • • • • Enforcing the State Policies, financial regulations, and credit rules of the bank Framing credit policies and regulations; supervising the staff to execute orders Putting forward the proposal of credit management and development; guiding and supervising the branch-banks to deal with credit business Managing the authorized business; dealing with the legal affairs consulted and coordinated Establishing development rules on credit; dealing with the acceptance draft; estimating the loaning accounts Responsible for reporting the credit statistic statement Responsible for training client managers Responsible for dealing with other work according to the directors of the bank Responsible for the credit-registered consulting system; regulating the fivegraded loans 2.9 AUDIT & INSPECTION GROUP The group chief of National Bank of Pakistan’s Audit & inspection group is Mr. Imam Bakhsh Bloch. It is one of the core departments at NBP. Its mission is to strive for soundness & stability of the financial system and safeguard interest of stakeholders through proactive inspection, compatible with best international practices. This group plays a vital role in meeting NBP’s main responsibility of supervising the bank’s soundness of the system and protection of the interest of depositors, thereby ensuring public confidence in the system. In order to assess the branches, Audit & inspection group conducts regular audit & inspection of branches. Bank's management has established and is managing an adequate and effective system of internal control which encompasses the policies, procedures, processes and tasks as approved by the Board of Directors that facilitate effective and efficient operations. The management and the employees at all levels within the Bank are required to perform as per these approved Internal Control System components. The Internal Control System ensures quality of external and internal reporting, maintenance of proper records and processes, compliance with applicable laws and regulations and internal policies with respect to conduct of business. The management ensures that an
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efficient and effective Internal Control System is in place by identifying control objectives, reviewing existing procedures and policies and ensuing that control procedure and policies are amended for time to time wherever required. However, Internal Control System is designed to manage rather than eliminate the risk of failure to achieve objectives and provide reasonable but not absolute assurance against material misstatement or loss.20 The audit system of National Bank of Pakistan consists of following: a) Internal Audit b) External Audit c) Statutory Audit 2.9.1 INTERNAL AUDIT The Bank has an independent Internal Audit Group that conducts audit of all Branches, Regions and Groups at Head Office on an on-going basis to evaluate the efficiency and effectiveness of Internal Control System. In addition to that, Compliance Group is also in place with independent Compliance Officer in 119 Branches and 29 Regional Compliance Chiefs with supporting staff to take care of compliance related issues to strengthen the control environment.21 For the purpose of inspection the National Bank of Pakistan inspects its branches through inspectors. Inspections are conducted on regular basis in the branches. The current chairmen of audit committee of NBP are Azam Faruque, Ibrar. A. Mumtaz & Mian Kausar Hameed. The State Bank of Pakistan conducts the regular full scope examination of banks pursuant to an inspection schedule; however, flexibility exists in policy for frequency of inspections depending upon the need to maintain safety & soundness. The CAMELS (Capital, Asset Quality, Management, Earnings, Liquidity, Sensitivity and System & Controls) rating is a criteria to determine the frequency of inspection of banks as weak institutions are given greater attention. Special investigations (targeted inspections) are also conducted as and when circumstances so warrant on the basis of complaints or market reports about specific institution. 2.9.2 EXTERNAL AUDIT The Board of Directors on the recommendations of Audit Committee has also recommended name of Messer’s Ford Rhodes Sidat Hyder, Chartered Accountants and Yousaf Adil Saleem & Co. as auditors of National Bank of Pakistan.
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2.9.3 STATUTORY AUDIT The statutory audit of National Bank of Pakistan is conducted to meet the particular requirements of State Bank of Pakistan. The scope and audit programs are set by the State Bank of Pakistan. The National Bank of Pakistan has to pay a penalty of Rs.20000 for each mistake in the Books and procedures as prescribed by the law plus surcharge of per day from the date of mistake to the date of statutory audit. The functions of Audit & inspection group of National Bank of Pakistan are as fallows: • • Examine and evaluate adequacy and effectiveness of the internal control systems in the Bank. Review the applications and effectiveness of risk management procedures and risk assessment methodologies in financial, operational and Corporate Governance aspects of the Bank’s activities. • • • • • • • • Review financial, automation technology and MIS. Review and ensure accuracy and reliability of accounting records and financial reports. Perform testing of both transactions and functioning of specific internal control procedures. Evaluate and ensure that approved policies and procedures meet legal and regulatory requirements. Examine and evaluate effectiveness of existing policies, procedures and give recommendations for improvements. Identify opportunities for cost savings in Bank operations and make recommendations. Examining those resources are acquired economically, used efficiently and safeguarded adequately. Review various reports of Bank’s subsidiaries, recommend improvements and provide policy guideline 2.10 HUMAN RESOURCE MANAGEMENT & ADMINISTRATION GROUP The group chief of Human resource management & administration group is Mr. Dr. Mirza Abrar Baig. This Division is responsible for fresh induction of employees and other professionals through a rigorous induction process in order to ensure presence of quality professionals. Following units and areas of work are the part of this division.
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This group is responsible to develop annual manpower plan for National Bank of Pakistan, conduct job analysis, prepare job descriptions, and conduct job evaluation process. The other functions of this group include attracting, selecting and recruiting the right people from the market. The group firmly works on adopting latest organizational theories & change management processes to bring in efficiency. This group also performs following functions: • • • Deals from placing job advertisements to timely recruitment of competent personnel by using modern selection techniques. Systematically observes & measures employee’s/candidate’s performance for the purpose of recruitment, selection and promotions. Facilitates in establishing successful productive working relationships through effectively orienting new employees to their respective departments/divisions and to their positions. • • Encourages employees to seek promotion/transfers to fill internal openings and meet employees’ personal objectives. Foster a culture of acknowledgement and appreciation amongst employees for introducing innovative business practices, showing extra ordinary efforts for achievement of goals and enhancing Bank’s corporate image uses various methods of recognition ranging from simple “Thank you” letters to elaborate celebrations and monetary rewards. • • • Conducting motivation surveys and developing market based employee satisfaction & retention strategies. Conduction of evaluation of positions and grades to ascertain employees’ position in the grade structure. This Group supervises all the staff colleges, at Karachi, Islamabad, Lahore and Peshawar. 2.11 OVERSEAS COORDINATION & MANAGEMENT GROUP The group chief of NBP’s overseas coordination & management group is Mr. Tahir Yaqoob. This department is in charge of the management and operation of foreign exchange business including marketing and operating of the financial products and trade financing of foreign exchange in the light of National foreign exchange management policy, and is the governing department of foreign exchange. The functions of this group are as follows:
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• • • • •
Establishing marketing strategy, policy and management system of foreign exchange. Making annual operating and working plan. Selecting and opening overseas account under supervision, and establishing and harmonizing the business among agent banks. Corresponding and dealing with foreign exchange business among branches. Showing business requirement of costumers and development of new products; publicizing foreign exchange business; training managers of customer-service for foreign exchange business.
2.12 COMMERCIAL & RETAIL BANKING GROUP The group chief of National Bank of Pakistan’s commercial & retail Banking group is Mr. Amer Siddiqui. Retail banking includes retail lending and deposits, banking services, trust and estates, private lending and deposits, banking service, trust and estates investment advice, merchant / commercial / corporate cards and private labels and retail.22 Commercial banking includes project finance, real estate, export finance, trade finance, factoring, lending, guarantees, bills of exchange and deposits. This group is responsible for serving the needs of the retail and commercial market, focusing on individual consumers and small and medium size enterprises. This group is responsible for developing and managing brands which serve the investment needs of the consumer market, and focuses on deposit mobilization, provision of value added services based on modern technology and undertaking the centralized marketing and advertising for the Bank. This group is engaged in the development and management of retail credit schemes. The consumer market in Pakistan has not only grows exponentially over the last decade or so, but the needs of this segment have become extremely diverse. In order to sustain competition, it is but imperative to continue offering innovative consumer credit schemes. The National Bank of Pakistan plan to establish commercial centers across the country looking at the business potential in the area, size of the branch and its capabilities to deliver the desired service in order to attract quality customers. The objective is to target the untapped sectors and provide them professional quality service, through one window operations and Relationship Managers stationed at those centers. We expect and hope to reduce the turn around time and become more competitive and market oriented. Further this customer friendly and dedicated set up at convenient locations would help in improving the image of the Bank as well. These
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Centers would work in conjunction with the existing set–up of Commercial Lending done throughout the NBP branch network. The main purpose of these centers is to generate ancillary business in addition to funded and non-funded facilities, with quick turn around time in decisions for customer satisfaction. 2.13 SPECIAL ASSETS MANAGEMENT GROUP The group chief of Special assets management group is Mr. Tajammal Hussain Bokharee. The Special Asset Management Group (SAMG) is a group of people with specialized skills in managing the "stressed" assets of National Bank of Pakistan. The group was created with a view to enable restructuring and recoveries through various initiatives like innovative work-outs, merger & acquisition strategies, asset stripping, security enhancements and structured sell-downs. The group has also been working with / advising various governmental and regulatory bodies in evolving a framework for implementing international best practices like asset reconstruction companies in the country. With provision coverage of 84% we believe that going forward our Special Assets Management Group will make major contribution towards the Bank's profitability through recoveries and reversal of provision charge as a result of declassification / rescheduling. We have revamped our special assets management business and have coordinated our efforts to expedite recoveries and settlements.
2.14 EMPLOYEE BENEFITS, DISBURSEMENTS & TRUSTEE DIVISION The divisional head of this division is Mr. Mrs. Khurshid Maqsood Ali. The function of the National Bank of Pakistan’s Employee benefits, disbursement & trustee division is to handle the administration of trust funds, provide estate planning support, and in some cases see to the disposition of the estate of a deceased customer. One of the factors that make the use of this department so attractive is that it tends to be somewhat conservative with their management approach. This means that this department is likely to take time to evaluate all options when involved in settling estates, establishing guardianships, or administering trusts that have been set up for the survivors of a major depositor. This methodical approach is often in line with the motivation for establishing the asset in the first place, which was to provide a source of financial support for loved ones, even after a parent or significant other has died.
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Along with estate settlement, this department also provides a number of other agency services, such as functioning as the trustee of record for corporate bonds or administering a pension or profit sharing plan. As a means of ensuring that the resources of the bank safely protect the investments involved, the department makes it relatively easy for the client to deal with other matters. Thus, the investor can focus more on family or other business matters, and be less involved in the task of protecting assets that are already established and set on a path of consistent growth. 2.15 DEFINED BENEFIT PLANS 2.15.1 PENSION SCHEME The bank operates defined benefit approved funded pension scheme for its eligible employees. The bank’s costs are determined based on actuarial valuation carried out using Projected Unit Credit Method. Net cumulative un-recognized actuarial gains/losses relating to previous reporting period in excess of the highest of 10% of present value of defined benefit obligation or 10% of the fair value of plan assets are recognized as income or expense over the estimated working lives of the employees. Where the fair value of plan assets exceeds the present value of defined benefit obligation together with unrecognized actuarial gains or losses and unrecognized past service cost, the bank reduces the resulting asset to an amount equal to the total of present value of any economic benefit in the form of reduction in future contributions to the plan and unrecognized actuarial losses and past service costs. 2.15.2 POST RETIREMENT
MEDICAL BENEFITS
The bank operates an un-funded defined post retirement medical benefits scheme for all of its employees. Provision is made in the financial statements for the benefit based on actuarial valuation carried out using the Projected Unit Credit Method. Actuarial gains/losses are accounted for in a manner similar to the pension scheme. 2.15.3 BENEVOLENT SCHEME The bank also operates an un-funded defined benefit benevolent scheme for its eligible employees. Provision is made in the financial statements based on the actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are recognized in the period in which they arise. 2.15.4 GRATUITY SCHEME
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The bank also operates an un-funded defined benefit gratuity scheme for its eligible contractual employees. Provision is made in the financial statements based on the actuarial valuation using the Projected Unit Credit Method. Actuarial gains/losses are accounted for in a manner similar to pension scheme. 2.16 PROVINCIAL & REGIONAL MANAGEMENT There are four executives of National Bank of Pakistan to supervise the Bank’s maters of every province, as they are called Provincial Chiefs. These provincial chiefs are responsible for the entire banking operations in their respective provinces. The provincial management includes: • • • • The Provincial Chief Punjab The Provincial Chief Sind The Provincial Chief Baluchistan The Provincial Chief N.W.FP & Kashmir
These provinces are sub-divided into regions, the regions are controlled and manage by Regional heads, which are responsible for the supervision in their circles and deal with the problems of their respective Regions. The regional management of National Bank of Pakistan is divided into two areas which are: • • Overseas Countrywide
The overseas regions include Middle East, Far East, Europe & USA, and Central Asia. The country has been divided into 29 regions by National Bank of Pakistan to facilitate its functions. The detail about National Bank of Pakistan’s regions is shown as Annexed-II at the end of the report. These regions are sub divided into Zones, the in charge of a Zone is called Zonal Chief. 2.17 BRANCH MANAGEMENT The National Bank of Pakistan, in order to facilitate its functions on branch level appoints Branch Managers & other staff according to branch’s activities and volume of business. The branch managers are responsible for all functions and staff within the branch office. The job of branch managers is to take charge of the entire operation of his branch, making sure that everything runs smoothly. The other functions involves scheduling of employee work hours, overseeing training, hiring and firing, assuring that proper procedures are followed, and reporting to upper management any problems or providing reports and updates as required by bank’s protocol.
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2.18 HIERARCHY
OF
NATIONAL BANK OF PAKISTAN
The Hierarchy (An arrangement of objects, people, elements, values, grades, orders, classes etc., any system of persons or things ranked one above another) of National Bank of Pakistan is shown as Annexed III at the end of this report. The hierarchy may include: • • • • • Categorization of a group of people according to ability or status. A body of clergy organized into successive ranks or grades with each level subordinate to the one above. A series in which each element is graded or ranked A body of officials disposed organically in ranks and orders each subordinate to the one above it; a body of ecclesiastical rulers. An organization with few things, or one thing, at the top and with several things below each other thing. The President of National Bank of Pakistan is ranked Top at the hierarchy. The other six directors of National Bank of Pakistan are ranked second in the hierarchy. The Provisional, Regional & Zonal chiefs are ranked 3rd, 4th & 5th respectively. The vice President & assistant vice Presidents of National Bank of Pakistan are ranked 6 th & 7th respectively. The Officers Grade I, II & III are ranked 8th at the hierarchy of National Bank of Pakistan. The lower level of National Bank of Pakistan is consist of Clerical & non- clerical staff. 2.19 CENTRALIZED DECISION MAKING The Branch Manager of National Bank of Pakistan is responsible for all the affairs of the Bank. All the decisions relating to Branch are made by him and the subordinates have to obey these decisions. All the employees of the Bank are report directly to the Branch Manager. The branch has two operation Managers. Operation Manager I controls Clearing house & Remittance Department and Operation Manager II controls Deposits, Advance & Branch accounts department. Both of them are report directly to the Manager regarding affairs of their departments. The Chief Accountant controls Accounts department & is report directly to branch Manager. The branch also has two cashiers responsible for cash & Pension disbursement department reports directly to branch Manger. The BBO (Branch Back Office System) Operator controls computer department of the branch and is report directly to Operation Manager I and Branch Manager.
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2.19.1 DOWNWARD COMMUNICATION Communication is the process by which information is exchanged and understood by two or more people, usually with the interest to motivate or influence the behavior of others in the organization. Downward communication is the message and information sent from top management to subordinates in a downward direction. The same pattern is followed at National Bank of Pakistan Rawat branch, the Manager of the branch sent orders, information & messages to following subordinates • • • • • • • • • Operation Manager I Operation Manager II BBO ( Branch Back Office System) Operator Chief Accountant Cashier I Cashier II Clerk I Clerk II Non Clerical Staff
2.19.2 CHAIN OF COMMAND The chain of command is an unbroken line of authority that links all persons in an organization and shows who reports to whom. By analyzing the organizational structure of the National Bank of Pakistan Rawat branch it can be found that there is a scalar principle followed with in the branch because each and every employee of the branch knows to whom they can report. The authority and responsibility for different tasks and duties are different, as well as every one knows the successive levels of management all the way to the top 2.20 DEPARTMENTS OF THE BRANCH Banking procedures are divided between various departments. Different departments do their jobs in occurrence with the bank policies. In National Bank of Pakistan each branch is divided into various departments depending on their size and volume of business. Head of department manages each department & officials of the branch follow procedures. The departments working within National Bank of Pakistan Main branch are as under: 1. Clearing House Department
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2. Remittance Department 3. Computer Department 4. Deposits Department 5. Advances Department 6. Account Opening Department 7. Accounts Department 8. Cash Department 9. Pension Disbursement Department
2.20.1 CLEARING HOUSE DEPARTMENT As part of their daily business activity, banks receive cheques and other financial instruments from their customers drawn on other banks, to be collected and credited to their accounts. Similarly, banks receive cheques/instruments from other banks, deposited by customers of the banks drawn on the customers of the drawee banks. Therefore, the banks act as Collecting Banks when they send cheques/instruments for collection and as paying Banks, when they receive cheques/instruments for collection from other banks. Since each bank receive and sends cheques/instruments for collection to and from an number of banks, the process of settlement would clearly be very cumbersome and time consuming if every cheques/instrument had to be sent by the collection bank to each of the drawee banks or branch upon which different collection items are drawn and to individually pay the proceeds to each of the bank sending cheques/instrument in for collection. Therefore, the banks have evolved what is called the Bankers Clearing arrangement. The Clearing System enables cheques to be paid or cleared centrally and settlement made for receivables and payables between the banks. The SBP co-ordinates clearing activity through its offices, called the Clearing Houses, set up in big cities and towns. Where SBP does not maintain its own office, some other bank, usually National Bank of Pakistan (NBP) performs this function. But the clearing house facility is available only for cheques/instruments drawn on banks situated within the same city/clearing house area.
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2.20.1.1 W ORKING
OF THE
C LEARING P ROCESS
Under the clearing arrangements, the State Bank of Pakistan (SBP) offers a Clearing House or a centralized exchange facility, which works on the following general lines: • • All the banks operating in a city who are members of the Clearing House maintain an account with the SBP’s Clearing House. Every day representatives of all the banks in every city meet the Clearing House, first meeting in the morning, at an appointed time, for the purpose of depositing their own customers , cheques/instruments to be collected from other banks and receiving cheques/instrument drawn on their account holders from the others banks. • At the Clearing House accounts of all the banks are debited by the total amount of cheques/instruments drawn on their customer’s accounts and credited with the amount of their customer’s cheques/instruments drawn on other banks, as per the list of cheques submitted by each bank. • The cheques/instruments received, also called Inward Clearing, and are taking back by each bank to its bank/branch. The amounts of each cheques/instrument is debited or recovered from each drawee customers’ account and credited to the Clearing House account. Similarly, against the amount credited by the Clearing House as Outward Clearing, the appropriate customers’ accounts are credited and clearing House account is debited. • Any cheques/instruments received by a bank that cannot be paid, due to insufficient balance in its customer’s account or for any other reason, are returned back to the Clearing House and a credit is claimed and obtained there against. R ULES & R EGULATIONS •
OF
C LEARING H OUSE
Timing
Monday to Saturday) ? 1st Clearing at 10:00 a.m. ? 2nd Clearing at 2.30 p.m.• • •
Each bank will send competent representative to exchange the cheques. Each bank is required to insure that all cheques and other negotiable instruments are properly stamped and suitably discharged An objection memo must accompany each and every cheque when return unpaid duly initialed.
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• •
Each bank is required to maintain sufficient funds in the principal account with SBP to meet the payment obligations. The State Bank of Pakistan debit the account of each member of the clearinghouse with the proportionate working expenses incurred on the operation of clearing house. These expenses are very nominal.
O UTWARD C LEARING
AT THE
B RANCH
The following points are to be taken into consideration while an instrument is accepted at the counter to be presented in outward clearing: • • • • • • • • • • • The name of the branch appears on its face where it is drawn. It should not stale or post dated or without date. Amount in words and figures does not differ. Signature of the drawer appears on the face of the instrument. Instrument is not mutilated. There should be no material alteration, if so, it should be properly authenticated. If order instrument suitably indorsed and the last endorsee’s account being credited. Endorsement is in accordance with the crossing if any. The amount of the instrument is same as mentioned on the paying-in-slip and counterfoil. The title of the account on the paying-in-slip is that of payee or endorsee (with the exception of bearer cheque). If an instrument received other than National Bank of Pakistan then special crossing stamp is affixed across the face of the instrument. Clearing stamp is affixed on the face of the instruments, paying-in-slip and counterfoil (The stamp is affixed in such a manner that half appears on counterfoil and paying-in-slip). The instrument is suitably discharged, where a bearer cheque does not require any discharge and also an instrument in favor a bank not need be discharged. 2.20.1.2 REMITTANCE DEPARTMENT
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The Remittance department deals with the transfer of money from one place to another. Funds transfer facility or remittance of funds is on of the key functions of the banks all over the world. Remittances through banking channels save time, costs less and eliminate the risks involved in physical transportation of money from one place to another. National Bank of Pakistan transfers money in the following ways. • • • • • • • • Pay Order Demand Draft Mail Transfer Telegraphic Transfer Pay Slip Call Deposit Receipt Letter of Credit Traveler’s Cheque
The Job responsibilities & requirements of remittance department include: • Responsible for money transfers, issuance of pay-orders & drafts, collection items, maintenance of cheque books & ATM cards and all other counter specific products and services • • • • • • Ensure highest level of customer service in a professional and competent manner Must ensure that the activities are carried out strictly in accordance with the laid down procedures/processes, and SBP/Compliance guidelines Responsible for Cash, Clearing, Inland remittances including Demand Drafts and Pay Orders Ensure high standards of customer services within the assigned turn around time Ensure compliance with SBP's regulations and internal controls handling cash, clearing, local remittances, and other related activities at branch level 2.20.2 ACCOUNT OPENING DEPARTMENT The opening of an account is the establishment of banker-customer relationship. This department performs the duty of opening accounts for customers. It also issues checkbooks to customers. A person who wishes to open an account with the bank has to fill an account opening form obtained from any branch of National Bank of
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Pakistan. The bank officer tactfully obtains information about character, integrity, responsibility, occupation and the nature of business of the perspective customer. Any individual, who has attained the age of majority and is of sound mind can open and maintain his/her account. Two or more individuals may open an account jointly. Similarly, business organizations such as sole proprietary concerns, partnership firms, and limited liability companies as well as non-profit organizations like clubs, trusts, societies, associations and NGO’s etc, may open their accounts. The documents required for National Bank of Pakistan’s Account opening are showed as Annexed VII at the end of this report. The following requirements are necessary for opening an account. • • • • • Identification of the new customer. Ascertaining the genuineness of the stated occupation business of the customer. Determining the correct residential and permanent address. Completion of all relevant columns of the Account opening form. Proper completion of documentation.
2.20.2.1 F UNCTIONS O F A CCOUNT O PENING D EPARTMENT • • • • • • • • • • • Providing account opening form according to the customer's requirements, Guide the customer about the requirements of the account opening and form filling, Check the forms whether they are correctly completed or not, Preparing checklist, Stamping on the form, Maintaining account opening register, Pasting of forms in register after release from general banking in charge, Issuance of cheque books, Issuance of accounts maintenance certificate, Closure of account Verification of signature in case of cheque presented before releasing of account opening from SS card is not yet scanned 2.20.3 CASH DEPARTMENT
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All physical movement of cash in the bank is made through the cash department. As bank is borrowing and lending institution, therefore cash is the top most priority of Bank. Another aspect is that cash department is for the security purpose, security in a sense that there should be no embezzlement of funds or in money leaded to bank by any party or person. The efficiency of bank is also related to this department the more efficient the bank is the stronger and busy is the cash department. Cash department perform following functions Cash department owes its important to the fact that it is a major point of contract between the bank and the customer, the bank’s most valued relationships. This department is the showcase of the bank and conveys the first impressions about the bank’s commitment to professionalism in its systems and procedures and to courteous and efficient customer service. Normally cash department performs following functions • • • • • • • • • • Collection of funds Acceptance of deposits Collection of utility bills Payment of checks Remittances Act according to any standing instructions Transfer of funds from one account to another Verification of signatures Posting Handling of Prize bond
The two main activities of cash department are as fallows: D EPOSIT C ASH I N C USTOMER ’ S A CCOUNT When the customer want to deposit amount in his account at opening of account or after that then he has to fill a deposit slip that shows the amount and the account in which the cash will be deposited. Then teller will receive amount and credit the customer’s account that shows increase in customer’s bank account. M AKE P AYMENTS F ROM C USTOMER ’ S A CCOUNT
2
When the customer draws a cheque on the bank to pay a certain amount then BBO Operator will debit the customer’s account that shows reduction in his account balance. C HEQUE
ENCASHMENT PROCEDURE
R ECEIVING O F C HEQUES The cash is paid against the cheques of the client. The following points are important. • • • • Cheque is drawn on same branch Cheque is not post dated. Amount in words and figure are same. It should be bearer cheques so the word bearer should not cross.
OF
V ERIFICATION
S IGNATURE
After receiving the cheques the cheques the operation manager verify the signature of the account holder and the signature on the cheques. If the signature is not same it is returned back otherwise forward to BBO Operator for posting.
C OMPUTER T ERMINAL P ROCESS The cheque is received in computer terminal, where BBO operator checks the balance of the account holder. The BBO operator also sees the stop payment instructions, whether received from account holder or not. After considering these points BBO Operator post the cheque in BBO (Branch back office system) and forward to operation manager. P AYMENT O F C ASH After posting the cheque the operation manager cancelled the cheque and returned back to cashier. The cashier enters the cheque in cash paid registered and pays against the second signature of receiver on the back of the cheque. 2.20.4 DEPOSITS DEPARTMENT The primary function of National Bank of Pakistan is to accept and receive surplus money from the people, which they willingly deposit with the Bank. Like all other Banks, National Bank of Pakistan also take incitation to attract as much depositor’s as it can. The deposit department accepts/collects deposit from accountholders.
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The National Bank of Pakistan offer different deposit schemes to its customers, which includes the following: • • • • • • • Current Deposits PLS Saving Deposits Fixed Deposit Account ( Time Deposits) Foreign Currency Account NBP Premium Aamdani Foreign Currency Account National Income Daily Account (NIDA)
2.20.5 ACCOUNTS DEPARTMENT Accounts Department of the bank can be considered the most important department. This department is basically concerned with processes and activities of recovering, sorting, summarizing and reporting data resulting from the whole day transactions of all the departments. Actually the process of this activity starts from the preparation of all the required vouchers by different related departments. When these vouchers are prepared, these are posted into respective computer terminals by the relevant departments. Before merging, a batch list is printed out by Computer Department and duly checked by the respective departments. After this, merging stage comes, after which a proof list is printed out. This is the stage, where Accounts Department starts performing its function. Proof list is checked by the Accounts Department. The account department prepare following vouchers and reports • • • • • • • • • • • • Monthly Profit & Loss account- F48 General Ledger General Ledger- Abstract Check Book Issue Register Western Union payments Register Demand Notices Miscellaneous Book Bank Transfer scroll Posting NBP Advance Salary Daily Statement- F21 General Ledger- Head wise Hash Value Register
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• • • • • • • • • • • • • • • • • •
End of Day register Posting National Income Daily Account (NIDA) Monthly return register Charges A/c register P-L-S Profit list Weekly Telegram Mail Transfer Register Government Scroll Provident file Government Scroll Debit & Credit Transfer Responding Advice Dispatched Register-F15 Cash Remittance IN Cash Remittance OUT NBP General Account Utilities register Statement of affairs Closing entries Daily activity checking
2.20.6 BANK ACCOUNTING OPERATIONS The National Bank of Pakistan’s accounting consists in making computerized, written and permanent records of every transaction. For Computerized recording of transactions the bank used software called BBO (Branch Back Office). BBO enable Bank to record a variety of transactions. The most common part of BBO which is operating by the BBO Operator is Individual Ledgers. Individual Ledgers are the accounts in which accounts with depositors are kept. They are kept so that the balance of each depositor's account may at any time be readily seen, and they should be frequently balanced to verify their correctness. The three column form of individual ledger is used because it has a column for checks paid or other debit entries, one for deposits or other items credited, and a third for showing the balance after each entry or the day's entries are made in the account. The BBO enlist Chart of Accounts of the Bank shown in Annexed VIII. All the accounts shown in Annexed are opened and managed through BBO. All the Remittances of the bank are recorded managed and control through BBO. The “End of the Day” report is also generated through BBO.
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The most important record keeping and report generated by Bank’s Accounts Department is Statement of the Bank. The statement of the bank shows the general, or control, accounts of the bank, and the various books of the bank show the detail of these items. It would not be impossible, but it would be entirely impractical, to enter every figure directly on the statement of condition. Instead of total deposits, the balance of each depositor would appear opposite his name. On the other side, instead of loans and discounts, there would be an itemized list of the loans with the names of the borrowers. The first principle in bank accounting, as in all other bookkeeping, is that for every debit there must be a credit, and vice-versa. In accordance with this fundamental theory the books are maintained. With respect to the statement, every Rupee of liabilities is accounted for by another Rupee of resources. Similarly each accounts at the end of the day for each item of cash is balanced. Each bank employee has had the experience of remaining at his desk until a late hour at night checking up his day's work searching for a difference of a few cents. Often they become embittered at what seems to them a tyranny when the small sum of money involved is considered. The reason they must settle, however, is not on account of the possible loss of ten cents, but because the most important principle in bank accounting is involved. "Accuracy first" is a motto that should be framed, figuratively at least, upon the wall of every banking room. The books used by National Bank of Pakistan are of various kinds and their purpose is indicated by name. A ledger is a book used to keep a record of balances. To "post" means to enter in the proper columns either the debits or credits on the ledger, and the difference between them represents the balance either due by or to the bank. Another important book which is used by the National Bank of Pakistan is journal, a book in which daily transactions are listed in regular order as to accounts, and the total debit or credit is then posted on the ledgers. All other books, cards and sheets used by bank of whatever nature is a part or subdivisions of these books. Often they become known among the clerks by some other name descriptive of their general appearance. For instance, the general ledger scratcher in one bank is known as the "red book," while the collection scratcher is the "black book." The records made by one clerk upon one set of books go to check the records of another clerk upon a different set of books. For instance, the paying teller and the receiving teller will each keep a record of checks cashed or deposited payable within the bank. The debit postings of the individual bookkeeper would agree with the
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teller's figures. Skillful accounting lies in making the fullest possible use of original entries, at the same time having a check on all figures to guard against either error or fraud. Every transaction ultimately affects the bank's statement of condition by debit or credit. For example, a deposit of Rs.1000 is made, consisting of Rs.200 cash and checks as follows: Rs.200 on the bank itself and Rs. 600 payable in another city. At the end of the day (assuming this to be the only deposit), on the liabilities side there is an increase of Rs 800 all of which appears in the item "deposits" being the total Rs.1000, less the check for Rs 200 which is charged to the account of the drawer. On the resource side, then, a corresponding increase of Rs.800 and this is made up by an increase in the cash of Rs 200 and an increase of Rs.600 in the item "due from banks." Or a transaction may appear on one side of the statement only. The bank has sold Rs.5, 000.00 of the bonds it owns. R ESPONSIBILITIES
TOWARDS
B OARD
OF
D IRECTORS
The Chief Financial Officer is required to furnish necessary and classified information to the board of directors along with his analysis and suggestions as the Chief Financial Officer attends the board meetings, any issue with financial implications is being discussed, the person likely to be most in command of these implication is on the spot and immediately available for questions. In order to strengthen and formalize corporate decision-making process, significant issues are required to be placed for the information, consideration and decision of the boards of directors by the CFO. These are: • • • • • Annual business planes, cash flow projection, forecasts and long term planes. Budgets include capital, manpower and overhead budgets along with variance analyses. Quarterly operating results of the company as a whole and in terms of its operating divisions or business segments. Details of joint ventures or collaboration agreements or agreements with distributors, agents, etc. Default in payment of principal and/or interest, including penalties on late payments and other dues, to a creditor, bank or financial institution, or default in payment of public deposit.
2
•
Failure to recover material amounts of loans, advances, and deposits made by the company, including trade debts and inter-corporate finances.
•
Significant public or product liability claims likely to be made against the company, including any adverse judgment or order made on the conduct of the company.
2.20.7 INTERNAL
AND
EXTERNAL REPORTING
Chief Financial Officer now has extensive responsibilities for internal and external reporting. All the information required for decision-making by the Board of Directors and Chief Executive is processed and furnished by the Chief Financial Officer. Apart from this, external reporting requirement is fulfilled by Chief Financial Officer, the accounts and financial statements are signed by the Chief Financial Officer before they are sent to concerned authorities.CCG requires that the listed companies submit their quarterly accounts to the shareholders within one month of the close of the first and third quarter of year of account. The CCG does not prescribe the time for submitting half yearly accounts to the shareholders. Here we can refer to section 245 of companies’ ordinance 1984 for this purpose, which requires half yearly accounts to be submitted within two months of the close of first half. The CCG requires a limited review of half yearly accounts by external auditor. Annual audited accounts are now required to be submitted within four months of the close of financial year. The Securities and Exchange Commission of Pakistan is exercising strict vigilance to ensure compliance of 4th and 5th schedule of the Companies Ordinance, 1984 and timely submission of accounts by companies. It has recently imposed penalties on Directors of nine listed companies who failed to prepare and circulate the quarterly accounts. Furthermore, fines have been imposed on chief executives. USE OF ELECTRONIC DATA IN DECISION MAKING The technological development in the field of information systems make it possible for management to use electronic data in decision making. An understanding of the effective and responsible use and management of information systems and technologies is important for managers, business professionals, and other knowledge workers in today’s internetworked enterprises. Information systems play a vital role in the e-business and e-commerce operations, enterprise collaboration and management, and strategic success of businesses that must operate in an internetworked global
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environment. Thus, the field of information systems has become a major functional area of business administration. The management of a business can use information systems in their decision making process. Before proceeds it’s important to discuss precisely about decision making. Decision making can be regarded as an outcome of mental processes leading to the selection of a course of action among several alternatives. Every decision making process produces a final choice.23 The output can be an action or an opinion of choice. A significant part of decision making skills is in knowing and practicing good decision making techniques. One of the most practical decision making techniques can be summarized in following simple decision making steps:
1.
Identify the purpose of your decision. What is exactly the problem to be solved? Why it should be solved? Gather information. What factors does the problem involve? Identify the principles to judge the alternatives. What standards and judgment criteria should the solution meet? Brainstorm and list different possible choices. Generate ideas for possible solutions. See more on extending your options for your decisions on my brainstorming tips page.
2. 3.
4.
5.
Evaluate each choice in terms of its consequences. Use your standards and judgment criteria to determine the cons and pros of each alternative. Determine the best alternative. This is much easier after you go through the above preparation steps. Put the decision into action. Transform your decision into specific plan of action steps. Execute your plan. Evaluate the outcome of your decision and action steps. What lessons can be learnt? This is an important step for further development of your decision making skills and judgment. CHAPTER NO 3 3 INFORMATION SYSTEM RESOURCES OF NBP
6.
7.
8.
3.1 PEOPLE RESOURCES
2
People are required for the operation of all information systems. These people resources include end users and Information system Specialists. The Management and employees of National Bank of Pakistan are end users and Knowledge workers of information system. These are the employees of the Bank who spend most of their time communicating and collaborating in teams and workgroups and creating, using and distributing information. The Information systems Specialist are people who develop and operate information systems. They include System analysts, software developers, system operators, and other managerial, technical, and clerical IS personnel of National Bank of Pakistan. The system analysts of National Bank of Pakistan design information systems of the Bank based on the information requirements of the end users. The software developers create computer programs based on the specification of system analysts of National Bank of Pakistan. 3.2 HARDWARE RESOURCES The Hardware resources of National Bank of Pakistan include all physical devices and materials used in information processing. Specifically, it includes not only machines, such as computers and other equipments, but also all data media, that is, tangible objects on which data are recorded, from sheets of paper to magnetic or optical disks. 3.3 SOFTWARE RESOURCES The software resources of National Bank of Pakistan include all sets of information processing instructions. It also includes sets of operating instructions called programs, which direct and control computer hardware. The followings are the examples of National Bank of Pakistan’s software resources:
•
System Software: The National Bank of Pakistan uses Windows Operating Systems for controls and supports the operations of a computer system. Application Software: These are the programs that direct processing for a particular use of computers by employees of the Bank. Bank uses BBO system, Microsoft Office suit as application software.
•
3.4 DATA RESOURCES • The data resources of National Bank of Pakistan are typically organized, stored, and accessed by a variety of data resource management technologies.
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The data about Branch transactions is accumulated, processed, and stored in a BBO system that can be accessed by Manager for an analysis and decision making. 3.5 NETWORK RESOURCES •
•
The network resources of National Bank of Pakistan include: Communication Media: The Bank’s communication media include cellular and landline. Network Support: The Bank uses hardware, software, and data technologies which are needed to support the operation and use of a communication network. The Bank uses communication processers such as Modems and internetwork processors, and communication control software such as network operating systems and Internet Browser packages (Opera).
•
3.6 SOURCES TABLE 3.1
OF
FUNDS
Rupees in Millions Year Share Capital Reserves Borrowings Deposits
2005 4,924,106 10,813,914 11,084,790 465,571,717
2006 5,908,927 13,536,041 8,756,847 463,426,602
2007 7,090,712 13,879,260 11,704,079 501,872,243
2008 8,154,319 15,772,124 10,886,063 591,907,435
2009 9,969,751 20,941,047 40,458,926 624,939,016
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Other Liabilities
23,068,314
24,974,450
26,596,300
30,869,154
39,656,831
Horizontal Analysis (%) Share Capital 100 120 144 166 182 Reserves 100 125 128 146 184 Borrowings 100 79 106 98 365 Deposits 100 100 108 127 134 Other Liabilities 100 108 115 134 172 www.nbp.com.pk/quarterly report/index “NBP Quarterly Report June 2010"
The National Bank of Pakistan’s sources of funds includes share capital, reserves, borrowings, deposits and other liabilities etc. To analyze trend, Horizontal analysis of each item is calculated. TABLE 3.2 (Share Capital)
A NALYSIS The Share capital refers to the portion of a Bank's equity that has been obtained by trading stock to a shareholder for cash or an equivalent item of capital value. The share capital of National Bank of Pakistan shows an increasing trend in all years as compare to base year. The increase in share capital during all years indicates share holder’s concern toward National Bank of Pakistan and efficient bank’s Management policies. TABLE 3.3 (Reserves)
A NALYSIS The Banks’ reserves are banks' holdings of deposits in accounts with their central bank plus currency that is physically held in bank vaults (vault cash). The reserves of National Bank of Pakistan fluctuate during all years as they show an increasing trend. The reserves are increased 25 %, 28 % & 46 % in the years 2005, 2006 & 2007
2
respectively. The year 2008 represents highest increasing percentage of 84% as compare to base and previous years.
TABLE 3.4 (Borrowings)
A NALYSIS The National Bank of Pakistan’s borrowings fluctuates during all years and shows a mixed trend. The borrowings were decreased 21 % in 2005; however same are increased 6 % in 2006 as compare to base year. There was a marginal decrease of 2% in bank’s borrowings in the year 2007. The year 2008 represents highest percentage of borrowings as these were increased to 265 % comparing with base year and are increased 267 % as compare to 2007. TABLE 3.5 (Deposits & other Accounts)
A NALYSIS The deposits and other accounts of National Bank of Pakistan show a mixed trend during all years. In the year 2005 the deposits were increased very marginally, with the year 2006 represents an increase of 8% as compare to base year. The year 2007 represents second highest percentage as deposits are increased to 27%. The year 2008 indicates an increase of 34%, highest among all years. TABLE 3.6 (Other Liabilities)
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A NALYSIS The other liabilities of National Bank of Pakistan are fluctuating during all years and show an increasing trend. The year 2005 indicates an increase of 8 % and 2006 indicates an increase of 15%. The other liabilities in the year 2007 represent an increase of 34%. The other liabilities were on their peak percentage in 2008 as the shows an increase of 72%.
TABLE 3.7 (Generation of funds) Rupees in 2005 20,947,33 3 14,387,93 5 after 12,639,77 0 8,304,716 20,944,48 6 11,977,60 1 100 2006 33,692,66 5 23,370,89 7 21,146,97 0 9,392,351 30,539,32 1 19,056,02 8 2007 44,100,93 4 30,153,71 6 27,782,17 0 12,162,89 2 39,945,06 2 26,310,57 7 2008 50,569,48 1 33,629,47 0 28,906,73 5 13,544,84 5 42,451,58 0 28,060,50 1 2009 60,942,79 8 37,058,03 0 26,087,21 6 16,415,86 2 42,503,07 8 23,000,99 8 291
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Millions Year Markup/return/interest earned Net markup/interest income Net markup/interest income provisions Total non-markup/ Interest income Total income ( Interest + non-Interest) PROFIT BEFORE TAXATION Markup/return/interest
Horizontal Analysis (%) 161 211 241
earned Net markup/interest income Net markup/interest income
100 after 100 100 100
162 167 113 146
210 220 146 191
234 229 163 203
258 206 198 203 192
provisions Total non-markup/ Interest income Total income ( Interest + non-Interest) PROFIT BEFORE
TAXATION 100 159 220 234 “NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009
The National Bank of Pakistan’s generation of funds include • • • • • • Interest earned Net interest income Net interest income after provisions Total non markup interest income Total income ( Interest plus non- Interest) Profit before Taxation
TABLE 3.8 (ALLOCATION Rupees in 2005 10,511,322 149,350,096 220,794,075 9,202,969 19,141,569 2006 16,282,942 156,985,686 268,838,779 9,454,365 23,941,056 2007 23,012,732 139,946,995 316,110,406 9,681,974 37,113,698 2008 21,464,600 210,787,868 340,677,100 25,922,979 30,994,965 2009 17,128,032 170,822,491 412,986,865 24,217,655 44,550,347 163 114 187 263 233
OF
FUNDS)
Millions Year Lending’s to Financial Institutions Investments Advances Operating Fixed Assets Other Assets
Horizontal Analysis (%) Lending’s to Financial Institutions 100 155 219 204 Investments 100 105 94 141 Advances 100 122 143 154 Operating Fixed Assets 100 103 105 282 Other Assets 100 125 194 162 “NBP Annual Report 2009” www.nbp.com.pk/invester relation/index 2009
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After the acquisition of the funds their allocation becomes necessary. The Bank seeks the best way for making investment to get more profit with the maximum security. The Bank has an investment portfolio in which it allocate its funds for crediting to borrowers, investment in the stock market etc. The National Bank of Pakistan allocate its funds in Lending’s to financial institutions, investments, advances, operating fixed assets and other assets etc. 3.7 CRITICAL ANALYSIS (THEORY VS PRACTICAL) During Internship it was my prime objective to furnish my knowledge (Theory) to various practical situations. The practical work presents an analytical problem while relating theory with practice. As a result, analysis of practical versus theory requires a distinct approach. This part of report is the essence of the internship, as this will help to better understand the working environment of the bank by finding the relationship between what is written in the books and what is actually going on in fields. The theory written in the books in cases is not implemented as it is. In some cases theory is implemented with a little modification but in other cases theory has nothing to do with practice. In accounting, banks don’t prepare worksheet, but part of worksheet is prepared like trial balance. The securities for the loans are handled in the same way as theory says like mortgage, pledge, hypothecation, advances against insurance policies or liquidation procedure is the same. There is some difference lies in types of loans in bank that is theory talks about four or five types of loans that is cash finance, overdraft, loans etc., but in practice there are some more types used by bank like running finance, demand finance etc. All other concepts of remittances, bills, foreign exchange deposits, letters of credit are in accordance with theory almost. A bank's balance sheet is different from that of a typical company. You won't find inventory, accounts receivable, or accounts payable. Instead, under assets, you'll see mostly loans and investments, and on the liabilities side, you'll see deposits and borrowings. 3.8 CONCLUSION To me, Theory gives the direction to understand the processes and the terminologies going across the World using best business practices in a broader view covering each and every aspect of possible business scenarios. On the contrary practical life is specific, enclosed in a jar.
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CHAPTER NO 4 4 FINANCIAL REPORTS 4.1 BALANCE SHEET Rupees in Millions
3
ASSETS 2006 Cash and balances with treasury banks 78,625,227 Balances with other banks 40,641,679
2007 94,873,249 37,472,832 21,464,600 210,787,86 8 340,677,10 0 30,994,965 25,922,979 _ 762,193,59 3
2008 106,503,75 6 38,344,608 17,128,032 170,822,49 1 412,986,86 5 44,550,347 24,217,655 3,204,572 817,758,32 6
2009
2010
115,827,868 7 2,390,482 28,405,564 2 5,161,056 19,587,176 3 2,799,388 217,642,822 2 58,269,514 475,243,431 4 47,997,394 25,147,192 2 6,059,519 3,062,271 5,126,048 59,666,438 6 1,056,095 944,582,762 9 28,859,496
Lending’s to financial institutions 23,012,732 Investments Advances Other assets Operating fixed assets Deferred tax assets 139,946,99 5 316,110,40 6 27,113,698 9,681,974 _ 635,132,71 1
LIABILITIES Bills payable Borrowings institutions 10,605,663 from financial 11,704,079 501,872,24 3 _ 10,886,063 591,907,43 5 _ 33,554 30,869,154 5,097,831 645,855,93 9 116,337,65 4 40,458,926 624,939,01 6 _ 25,274 39,656,831 _ 715,299,10 8 102,459,21 8
45,278,138 2 0,222,427 727,464,825 7 44,095,539
7,061,902
10,219,061
10,621,169
7,203,785
Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease 13,235 Other liabilities 26,596,300 Deferred tax liabilities net 2,387,073 553,178,59 3 NET ASSETS REPRESENTED BY Share capital Reserves Unappropriated Profit Surplus 81,954,118
4 2,629 102,539 42,269,623 3 8,574,956
825,676,384 8 10,199,246 118,906,378 1 18,660,250
7,090,712 13,879,260 32,074,677 53,044,649 28,909,469 81,954,118
8,154,319 15,772,124 45,344,188 69,270,631 47,067,023 116,337,65 4
8,969,751 19,941,047 52,456,204 81,367,002 21,092,216 102,459,21 8
10,763,702 22,681,707 60,696,510 94,141,919 24,764,459
13,454,628 2 3,995,080 6 0,248,197 9 7,697,905 2 0,962,345
118,906,378 1 18,660,250
www.nbp.com.pk/quarterly report/index 4.2 INCOME STATEMENT
“NBP Quarterly Report June 2010"
3
Rupees in Millions 2005 20,947,33 Markup/return/interest earned Markup/return/interest expensed Net markup/interest 3 6,559,398 14,387,93 2006 2007 2008 50,569,48 1 16,940,01 1 33,629,47 0 4,723,084 2009 60,942,798 23,884,768 37,058,030 10,593,565
33,692,665 44,100,934 10,321,768 13,947,218 23,370,897 30,153,716 2,446,739 3,075,723
income 5 Provisions against non-performing advances 1,515,354 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly 185,707 14,297 32,807 1,748,165 12,639,77 0
-245,881 Nil 23,069 2,223,927
-709,461 Nil 5,284 2,371,546
-40,248 Nil 39,899 4,722,735 28,906,73 5
373,249 4,000 Nil 10,970,814 26,087,216
Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ EXPENSES INTERSET
21,146,970 27,782,170
5,099,195 1,273,863 1,008,988 47,557 Nil 875,113 8,304,716 20,944,48 6
4,926,604 1,718,478 1,205,638 1,365,771 -1,979 177,839 9,392,351
6,144,628 2,891,755 1,333,840 1,169,515 -4,464 627,618 12,162,892
6,781,683 3,263,246 1,042,827 2,341,690 -31,964 147,363 13,544,84 5 42,451,58 0
7,925,370 2,878,932 3,969,057 395,427 1,707 1,245,369 16,415,862 42,503,078
30,539,321 39,945,062
14,205,91 Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years 8,878,801 32,243 8,284 8,919,328 11,977,60 1 4,950,000 847,958 11,221,789 13,443,441 198,298 -17,283 63,206 208,327 11,483,293 13,634,485 19,056,028 26,310,577 7,154,002 -1,098,709 8,695,598 530,652 1 168,027 17,141 14,391,07 9 28,060,50 1 8,311,500 391,497
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18,171,198 747,521 583,361 19,502,080 23,000,998 11,762,650 Nil
Deferre d PROFIT TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation AFTER 6,195,372 5,892,902 45,496 12,133,77 12,709,444 17,022,346 9,161,747 43,221 19,372,523 41,060 -15,729 5,782,229 291,291 6,346,584 61,981 9,288,231 323,731 9,026,728 19,033,77 3 32,074,67 7 39,007 51,147,45 -4,220,242 7,542,408 15,458,590 45,344,188 130,456 60,933,234
Profit available for appropriation 0 www.nbp.com.pk/quarterly report/index 4.3 FINANCIAL STATEMENTS ANALYSIS
21,914,412 36,435,929 7 “NBP Quarterly Report June 2010"
Financial analysis is a process which involves reclassification and summarization of information through the establishment of ratios and trends. Financial statement analysis is the process of examining relationships among financial statement elements and making comparisons with relevant information. It is a valuable tool used by investors and creditors, financial analysts, and others in their decision-making processes related to stocks, bonds, and other financial instruments. The goal in analyzing financial statements is to assess past performance and current financial position and to make predictions about the future performance of a company. Investors who buy stock are primarily interested in a company's profitability and their prospects for earning a return on their investment by receiving dividends and/or increasing the market value of their stock holdings. Creditors and investors who buy debt securities, such as bonds, are more interested in liquidity and solvency: the company's short-and long-run ability to pay its debts. Financial analysts, who frequently specialize in following certain industries, routinely assess the profitability, liquidity, and solvency of companies in order to make recommendations about the purchase or sale of securities, such as stocks and bonds. The analysis of financial statement refers to the examination of the statements for the purpose of acquiring additional information regarding the activities of the business. The users of the financial information often find analysis desirable for the interpretation of the firm’s activities.
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The overall objective of financial statement analysis is the examination of a firm’s financial position and returns in relation to risk. This must be done with a view to forecasting the firm’s future prospective. Analysts can obtain useful information by comparing a company's most recent financial statements with its results in previous years and with the results of other companies in the same industry. Three primary types of financial statement analysis are commonly known as horizontal analysis, vertical analysis, and ratio analysis. 4.3.1 RATIO ANALYSIS Ratio analysis enables the analyst to compare items on a single financial statement or to examine the relationships between items on two financial statements. After calculating ratios for each year's financial data, the analyst can then examine trends for the company across years. Since ratios adjust for size, using this analytical tool facilitates intercompany as well as intercompany comparisons. Ratios are often classified using the following terms: profitability ratios (also known as operating ratios), liquidity ratios, and solvency ratios. Profitability ratios are gauges of the company's operating success for a given period of time. Liquidity ratios are measures of the short-term ability of the company to pay its debts when they come due and to meet unexpected needs for cash. Solvency ratios indicate the ability of the company to meet its long-term obligations on a continuing basis and thus to survive over a long period of time. Financial ratios allow for comparison: • • • • Between companies Between industries Between different time periods for one company Between a single company and its industry average
4.3.1.1 PROFITABILITY RATIOS The continued viability of any bank depends on its ability to earn an appropriate return on its assets and capital. Good earning performance enables a bank to fund its operations, remain competitive in the market and increase or decrease in market funds. Profitability ratios relate profit to sales and investments. These ratios indicate the firm’s overall effectiveness of operations and give us idea how well firm utilized its resources in generating profit and shareholder value. 4.3.1.2 LIQUIDITY RATIOS
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The liquidity position of a bank is like a reservoir. It may be adequate, although nearly depleted, just before the start of the rainy season. Or it may be inadequate, although three quarters full just before the summer drought. Liquidity can be defined as: “The bank’s ability not only to meet possible deposit withdrawals but also to provide for the legitimate needs of the economy as well” 4.3.1.3 DEBT RATIOS These ratios give users a general idea of the company's overall debt load as well as its mix of equity and debt. Debt ratios can be used to determine the overall level of financial risk a company and its shareholders face. In general, the greater the amount Ratio Analysis of National Bank of Pakistan 2005 % 57.17 29.57 3 2.92 1.1 2.5 47.42 (times) 0.83 4.09 2006 % 56.55 37.78 5 3.95 2.1 4.1 58.01 (times) 0.96 2.85 2007 % 59.65 38.59 6 4.25 2.6 5.2 63 (times) 1.02 2.96 2008 % 55.48 37.63 5 4.12 2.4 4.7 58 (times) 1 3.07 2009 % 40.45 25.36 4 4.15 1.8 3.6 66 (times) 1.5 2.67
Profitability Ratios Gross Profit Margin Net Profit Margin Total Asset Turn over Return on Capital Fund Return on Investment Return on Deposits Advances to Deposit Liquidity Ratios Current Ratio Cash Ratio
C.A/C.L
Debt Ratio Debt/Equity Ratio Interest Coverage Loan Loss Coverage Capital Adequacy Capital Fund to Total Assets
(times)
% 112.35 1.83 0.13 % 0.89
% 97.77 1.85 0.13 % 1.02
% 89.57 1.89 0.15 % 1.1
% 93.47 1.66 0.18 % 1.07
% 92.17 0.97 0.5 % 1.09
of debt held by a company the greater the financial risk of bankruptcy
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Retrieved from www.nbp.com.pk/quarterly report/index June 2010" Comments
“NBP Quarterly Report
The Year 2006 has been an outstanding year with the bank recording the highest profit in its history i.e.., 59.65 %.The National Bank of Pakistan’s wide range of product offering, large branch network and committed workforce are some of fundamental strengths that enabled NBP to achieve exceptional in a very competitive market. The gross profit is 37.74% in 2009. The lowest percentage among all years. Net profit margin shows positive trend till 2006 and was the highest in the same year as it was 38.59%, the percentage is decreased in 2007 as it was 37.63%. The net profit margin is on its lowest level at the end of 2009 as it indicates a percentage of 25.63%. The primary reason of this decline is current global economic conditions and current political crisis in Pakistan The above given ratios suggest that the profitability of the bank has a mixed trend during five years. The first three years 2005 (2.92), 2005 (3.95), 2006 (4.95) shows an increasing trend, indicating more profitable operations of the bank. It was decreased in the year 2007 (4.12) and has increased in 2009 as the ratio was 4.13. There was an increase in the utilization of the resources till 2006 i.e.., 0.011(2005), 0.021 (2005) and 0.026 (2007). The ratio was decreased to 0.024 (2007) and 0.018 (2009). During all five years the return on deposits ratio of National Bank of Pakistan shows a mix trend. The year 2006 (0.052) was the best year for bank in terms of its funds mobilization. Although the ratio was decreasing in 2009 (0.036), indicating Bank is more keen to kept deposits and a change in policy of the Bank regarding its funds mobilization. The year 2005 (0.83) and 2005 (0.96) were not satisfied for bank as current assets are less than current liabilities. However, in 2006 (1.02) the management of National Bank of Pakistan is able to overcome this problem. The year 2007 (1.00) is also good for bank as per standards of this ratio. Again in the year 2009 (1.12) the management of bank is able to increase its current ratio. The cash ratio of National Bank of Pakistan shows a mixed trend during five years of operations. During all years, the ratio is satisfactory as per standards of this ratio. The
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year 2005 (4.09), representing highest and 2005 (2.85) & 2009 (2.69), representing lowest ratio in all five years. This ratio, a comparison of funds generation and its funds mobilization, indicates the total loans sanctioned by the bank in relation to total amount of money deposited with the bank, stands highest in 2009 ( 66.08%) as compared with the previous year figures. This shows that the bank has greater potential to advance additional loans. During all other years the ratio is quiet satisfactory representing National Bank of Pakistan’s credit management decisions. The ratio indicates an increasing trend till 2007 that is 94.83 (2005), 185.95 (2005), 196.62 (2006) and 197.18 in 2007. The year 2009 represents the lowest percentage of 42.33 on account of due from banks to due to banks. The debt to equity ratio of National Bank of Pakistan shows a ratio of 112.35 % in 2005. The ratio is decreased to 97.77% in the year 2005. The ratio is further decreased in 2006 as it shows a percentage of 89.57%. There was an increase in the ratio as it shows a percentage of 93.47%. The year 2009 represents the ratio of 91.17% . The amount of interest a Bank pays in relation to its revenue and earnings is tremendously important. The National Bank of Pakistan’s interest coverage ratio is 1.83 times in the year 2005. The ratio was increased in the years 2005 and 2006 as it was 1.85 times & 1.89 times respectively. There sudden decrease of 1.66 times is observed in 2007. The ratio is further decrease to 0.97 times in 2009, representing the lowest ratio among all years. The loan loss coverage ratio of National Bank of Pakistan is almost same in the years 2005 and 2005 as it was 0.13 in both years. There was a slight decrease in this ratio as it was 0.12 in 2006. The year 2006 shows an increase in loan loss coverage ratio as it was 0.17. The year 2009 represents highest ratio of 0.47 on account of loan loss coverage, as compare to all years. The fixed assets turnover ratio of National Bank of Pakistan has an increasing trend till 2006. The ratio increases 2.28 (2005) to 3.23 (2005). The year 2006 represents highest fixed assets turnover ratio for National Bank of Pakistan i.e.., 4.13. The bank’s efficiency to utilize these assets has been decreased to 1.64 in the year 2007 however it was increased in 2009 as the ratio is 1.76.
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The National Bank of Pakistan’s Capital funds to Total Assets ratio is increased during all years. The ratio is 0.89 in 2005, representing lowest ratio in all years. The ratio is increased in 2005, 2006 and 2007 as the graph shows ratios of 1.02, 1.10 & 1.07 respectively. The ratio is keeping its trend and also increases in the year 2009 as it was 1.09. 4.3.2 HORIZONTAL ANALYSIS This technique is also known as comparative analysis. It is conducted by setting consecutive balance sheet, income statement or statement of cash flow side-by-side and reviewing changes in individual categories on a year-to-year or multiyear basis. The most important item revealed by comparative financial statement analysis is trend. A comparison of statements over several years reveals direction, speed and extent of a trend(s). The horizontal financial statements analysis is done by restating amount of each item or group of items as a percentage. Such percentages are calculated by selecting a base year and assign a weight of 100 to the amount of each item in the base year statement. Thereafter, the amounts of similar items or groups of items in prior or subsequent financial statements are expressed as a percentage of the base year amount. The resulting figures are called index numbers or trend ratios. Formula = Current Year amount / Base Year amount * 100 Horizontal analysis, whilst simple to execute and useful to a certain extent, has its limitations. These limitations include: • • • Being highly dependent on the selection of base year and the period under examination in the financial model. Horizontal analysis provides little insight into why the trend occurred in a financial model. Horizontal analysis does not provide insight into whether the trend in the financial model results was superior/inferior to some benchmark.
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4.3.3 HORIZONTAL ANALYSIS OF BALANCE SHEET
ASSETS Cash Balances with other banks Lending’s to fin. institutions Investments Advances Operating fixed assets Other assets Total
2005 100 100 100 100 100 100 100
2006 75 62 155 105 122 103 125
Horizontal Analysis (%) 2007 2008 83 100 82 75 219 204 94 141 143 154 105 282 194 162
2009 113 77 163 114 187 263 233
Assets 100 104 117 138 148 LIABILITIES 2005 2006 2007 2008 2009 Share Capital 100 120 144 166 182 Reserves 100 125 128 146 184 Unappropriated profit 100 182 350 495 573 Surplus On Reval. of assets 100 179 135 221 99 Bills payable 100 24 147 98 142 Borrowings 100 79 106 98 365 Deposits and other accounts 100 100 108 127 134 Liabilities against assets 100 97 78 197 148 subject to finance lease Deferred tax liabilities net 100 15291 8179 17467 Nil Other liabilities 100 108 115 134 172 Total Liabilities 100 104 117 138 133 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
4.3.4 HORIZONTAL ANALYSIS OF INCOME STATEMENT Rupees in Millions 2005 100 100 100 2006 161 157 162 2007 211 213 210 2008 241 258 234 2009 291 364 258
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Markup/return/interest earned Markup/return/interest expensed Net markup/interest
income Provisions against non-performing advances 100 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ INTERSET 100 100 100 100 100 100 100 100 100 AFTER 100 100 100 100 100
161
203
312
699
-132 Nil 70 127 167
-382 Nil 16 136 220
-22 Nil 122 270 229
201 28 Nil 628 206
100 100 100 100 Nil 100 100 100
97 135 119 2,872 Nil 20 113 146
121 227 132 2,459 Nil 72 146 191
133 256 103 4,924 Nil 17 163 203
155 226 393 831 Nil 142 198 203
EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years Deferre d PROFIT
126 615 763 129 159 145 -130 -1,852 110
151 -54 2,515 153 220 176 63 -394 161
160 521 207 161 234 168 46 -2,058 156
205 2,318 7,042 219 192 238 Nil 26,831 130 250 769 287 502
TAXATION 100 205 275 307 Unappropriated Profit brought forward 100 155 329 544 Transfer from surplus on revaluation of fixed assets on account of incremental depreciation 100 95 90 86 Profit available for appropriation 100 181 300 422 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
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4.3.5 VERTICAL ANALYSIS When using vertical analysis, the analyst calculates each item on a single financial statement as a percentage of a total. The term vertical analysis applies because each year's figures are listed vertically on a financial statement. The total used by the analyst on the income statement is net sales revenue, while on the balance sheet it is total assets. This approach to financial statement analysis, also known as component percentages, produces common-size financial statements. Common-size balance sheets and income statements can be more easily compared, whether across the years for a single company or across different companies. Vertical analysis is a technique for identifying relationship between items in the same financial statement by expressing all amounts as the percentage of the total amount taken as 100. In a balance sheet, for example, cash and other assets are shown as a percentage of the total assets and, in an income statement, each expense is shown as a percentage of the sales revenue. In Vertical analysis, various components of the financial statements are standardized by expressing them as a percentage of some bases. Examples of common-sized statements include: • • Components of the balance sheet expressed as a percentage of total assets Components of the income statement expressed as a percentage of sales or revenue 4.3.6 VERTICAL ANALYSIS OF BALANCE SHEET
Vertical Analysis (%) ASSET S Cash Balances with other banks Lending’s to fin. institutions Investments Advances Operating fixed assets Other assets Total LIABILITIES Share Capital 2004 17.07 9.00 1.90 27.00 39.91 1.66 3.46 100 2004 0.89 2005 12.32 5.37 2.82 27.17 46.53 1.64 4.14 100 2005 1.02 2006 12.19 6.30 3.57 21.69 49.00 1.50 5.75 100 2006 1.10 2007 12.45 4.92 2.82 27.66 44.70 3.40 4.07 100 2007 1.07 2008 13.02 4.69 2.09 20.88 50.50 2.96 5.45 100 2008 1.09
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Reserves 1.95 2.34 2.15 2.07 Unappropriated profit 1.66 2.89 4.97 5.95 Surplus On Reval. of assets 3.86 6.61 4.48 6.18 Bills payable 1.30 0.30 1.64 0.93 Borrowings 2.00 1.52 1.81 1.43 Deposits and other accounts 84.15 80.22 77.79 77.66 Liabilities against assets 0.0031 0.0029 0.0021 0.0044 subject to finance lease Deferred tax liabilities net 0.01 0.77 0.37 0.67 Other liabilities 4.17 4.32 4.12 4.05 Total 100 100 100 100 “Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
2.43 6.41 2.57 1.25 4.94 76.42 0.0030 Nil 4.85 100
4.3.7 VERTICAL ANALYSIS OF INCOME STATEMENT
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Markup/return/interest earned Markup/return/interest expensed Net markup/interest
2005 100 31
2006 110 34 77 8
2007 110 35 75 8
2008 119 40 79 11
2009 143 56 87 25
income 69 Provisions against non-performing advances 7 provision for/(reversal of) diminution in the value of investments provision against off balance sheet obligations bad debts written off directly Net markup/interest income after provisions NON MARKUP/ INTEREST INCOME Fee, Commission & brokerage income Dividend income Income form dealing in foreign currencies Gain on sale & redemption of securities-net Investments classified as held for trading Other income Total non-markup/ Interest income Total income ( Interest + nonInterest) NON MARKUP/ INTERSET 42 0 0 43 57 24 4 0 28 AFTER 30 28 0 58 1 0 0 8 60
-1 Nil 0 7 69
-2 Nil 0 6 70
0 Nil 0 11 68
1 0 Nil 26 61
24 6 5 0 Nil 4 40 100
16 6 4 4 0 1 31 100
15 7 3 3 0 2 30 100
16 8 2 6 0 0 32 100
19 7 9 1 0 3 39 100
EXPENSES Administration expenses Other provisions written off Other charges Total non markup/ Interest expenses PROFIT BEFORE TAXATION Taxatio n Current Prior years Deferre d PROFIT
37 2 0 38 62 23 -4 1 21 42 30 0 72
34 0 1 34 66 22 1 0 23 43 48 0 91
33 1 0 34 66 20 1 1 21 45 76 0 120
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43 5 1 46 54 28 Nil -10 18 36 107 0 143
TAXATION Unappropriated Profit brought forward Transfer from surplus on revaluation of fixed assets on account of incremental depreciation Profit available for appropriation
“Retrieved from http://www.nbp.com.pk/Publications/AnReport2009.aspx”
4.3.8 BANK ANALYSIS WITH REFERNCE TO COMMERCIAL BANKS LISTED ON STOCK EXCHANGE Financial Position of Commercial Banks Registered in Pakistan Name of Paid Commercial Bank up Capita l (Rs. Bn) 735.7 Habib Bank NBP Allied Bank MCB United Bank First Women Bank of Punjab Soneri Bank Askari Bank Bank Al- Habib Bank of Khyber Bank Al- Falah Saudi Pak Faysal Bank KASB Bank Meezan Bank 7.59 8.97 6.46 6.28 10.12 0.28 5.29 4.11 4.06 4.79 4 8 5 5.3 4.02 4.54 23.6 18.54 5.48 35.88 12.82 0.22 7.43 1.88 7.59 2.8 1.34 2.95 0.22 3.57 0.17 0.81 1 788.1 2 344.7 450.3 4 576.0 2 8.04 217.8 5 81.61 194.2 1 167.3 6 34.43 333.0 2 50.83 137.3 1 53.66 71.74 584.85 621.53 293.97 350.72 465.54 6.4 180.82 64.73 153.32 136.75 24.4 287.77 42.35 99.61 44.33 57.84 411.36 173.42 168.45 228.98 328.55 3.09 142.85 45.83 114.04 93.25 11.14 180.02 27.62 87.61 32.65 38.3 7.5 8.1 2.51 7.68 5.59 0.05 -2.63 0.47 0.05 1.25 0.11 1.69 -0.81 0.75 0.08 0.44 9.75 9.03 3.88 12.22 5.53 1.67 -4.97 1.13 1.01 2.61 0.27 2.12 -1.54 1.41 0.39 0.98 1400 1249 757 1038 1100 38 272 90 155 203 34 231 55 111 41 111
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Reserve s (Rs. Bn)
Asset s (Rs. Bn)
As of June 2009 Deposit Advance s (Rs. Bn) s (Rs. Bn) Profit After Tax (Rs. Bn)
Earning s Per share (Rs) Branch Networ k (Nos) AA+ AAA AA AA+ AA+ BBB+ AAAAAA AA BBB+ AA AAA A A+ Credit Rating
177.9 NIB Bank Myban k Atlas Bank Standard Chartered JS Bank Habib 28.44 4.24 5.01 38.72 5.11 8.46 0.41 0.52 1.95 0.01 8 45.47 30.7 276.3 8 24.16 192.4 112.12 31.96 22.18 173.81 14.08 85.43 23.03 17.5 126.27 9.57 -0.73 0.43 -0.2 1.31 0.16 0.23 1.02 -0.39 0.34 -0.31 2.6 240 69 31 176 11 100 AAA AAA+ AAA+
Metropolitan 6.02 6.7 5 128.97 101.22 1.57 Retrieved from “http://www.lahorestock.com/ListedCompanies”
A stock exchange is a corporation or mutual organization which provides "trading" facilities for stock brokers and traders, to trade stocks and other securities. The securities traded on a stock exchange include: shares issued by companies, unit trusts and other pooled investment products and bonds. To be able to trade a security on a certain stock exchange, it has to be listed there. The initial offering of stocks and bonds to investors is by definition done in the primary market and subsequent trading is done in the secondary market. In Pakistan securities are traded on three stock exchanges which are Karachi stock exchange, Lahore stock exchange and Islamabad stock exchange. The financial position of commercial banks registered on stock exchanges in Pakistan, are shown in preceding page in terms of their: • • • • • • • • Paid-up Capital Reserves Assets Deposits Advances Profit after tax Earnings per share Credit rating
The best way to analyze these commercial banks is to analyze their credit ratings. The National Bank of Pakistan enjoys the highest credit rating amongst Pakistani banks; JCR- VIS Credit rating Co. Limited awarded highest standalone credit rating of AAA
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to NBP. The JCRVIS Credit rating Co. comments about NBP say a lot about the bank:24 “The organization has been able to strategically manage and build on its competitive advantages which has translated into the strong and well managed improvement in profitability trend observed over the last few years, a substantial balance sheet of sound asset quality, and strong liquidity and capitalization levels” NBP’s key strength remains its extensive outreach and a low cost, stable deposit base. Deposits are also guaranteed by the Government of Pakistan under the Banking Nationalization Act, 1974. There have also been significant improvements in the management practices of the bank and a focus on enhancement of systems and controls. In this regard the management has entered into an agreement for the acquisition of a core banking software which is likely to be implemented over the next few years. JCR-VIS believes that the current economic situation puts certain leading industrial sectors and the general consumer under financial stress. Therefore, the second half of 2008 and 2009 are likely to be challenging for the banking sector as a whole, in terms of maintaining growth, asset quality and profitability.25 The JCR-VIS Rating Process include following steps:26 1. Signs agreement for an initial rating 2. Submits preliminary information materials 3. Conducts a preliminary study 4. Submits a detailed questionnaire to the issuer/client 5. Provides detailed information in response to detailed questionnaire 6. Conducts pre due diligence meeting analysis 7. Conducts due diligence meetings 8. Conducts post due diligence analysis 9. Brief for internal rating committee meetings is prepared 10. Sub Committee recommends preliminary/initial rating 11. Rating Committee decides the preliminary/initial rating 12. Discusses the rating rationales and rating issues with client 13. Notifies issuer of the preliminary/initial rating, deliberates on appeals by client, if any 14. Consents to release of preliminary/initial rating to the public in case of nonmandatory ratings
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15. Releases the preliminary/initial rating to the press
CHAPTER NO 5 5.1 FUTURE PROSPECTS OF NATIONAL BANK OF PAKISTAN National Bank of Pakistan is gearing up to the challenges faced by the domestic banking industry due to innovations and advances in the international banking world, which is the consequence of globalization. The bank wishes to effectively utilize the financial assistance being extended by the Government of Pakistan for banking sector reforms aimed at reducing operating costs and improving profitability. These services do not contribute towards the earnings of the bank; rather they put pressure on bank’s resources. Nevertheless, the bank is committed to serving small savers and the general public of the country. National Bank of Pakistan is everyone’s bank and does not only
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serve corporate customers. To extending and targeting research to improve bank earnings, through customer focus of bank’s commercial and corporate branches, and by enhanced efforts towards the development of human capital, the bank shall very soon transform from a bureaucratic organization to a fast paced, modern, and competitive bank. In conclusion, the National Bank of Pakistan have the vision, which will enable it to achieve even better results, safeguard the interest of their customers and to assist them in their march towards progress and prosperity in future. The National Bank of Pakistan is confidence that tomorrow we will be… • • • Leaders in our industry An organization maintaining the trust of stakeholders. An innovative, creative and dynamic institution responding to the changing needs of the internal and external environment Reorganizing efforts going on in the NBP has open many opportunities for NBP to grow. For instance to achieve objectives NBP have taken following measures. • • • • • Setting of target for of making at least 300 branches country wide on line. Closing of all those branches, which are burden on NBP. Management to offer specialized services to major corporate including advisory and debt syndication introduces the concept of relationship manager. Comprehensive training programs has been develop to up grade the core banking skills of the existing staff as well as integrate high quality hiring. To improve the motivation of staff a merit-based culture is being promoted. Through overhauling the manpower recruitment preservation and performance appraisal system. 5.2 SHORT •
FALLS /
WEAKNESSES OF NATIONAL BANK OF PAKISTAN
The National Bank of Pakistan’s Advance salary, which has long been the flag-ship product for NBP, is replete with charges of corruption, default and inefficiency.
• •
The National Bank of Pakistan’s huge number of borrowers is untraceable or correct whereabouts are not known. The housing finance product of NBP lacks proper infrastructure including database support even after five years of post launch history. The similar products launched by other commercial banks are much smaller in size are
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running on well-articulated systems and are backed by proper policies and guidelines. The NBP product, despite boasting a sizeable portfolio built around some reckless selling, is mostly infected. • The NBP Karobar scheme is designed around President’s Rozgar scheme. The scheme which had all the potential to become a landmark was so badly mishandled by National Bank of Pakistan. • • • The Quality of infrastructure added by National Bank of Pakistan during the last few years is quite substandard as compared to that of peer banks. In NBP’s five year strategic plan 2007-2011 approved by board of directors does not address any serious thinking on As for as public interest is concerned there were no service standards benchmarks and guidelines available in NBP. There were only old documents that were crafted at least a decade or more back. • • Due to poor planning the bank had book losses of over 1.2 billion rupees in the Karobar Scheme. The National Bank of Pakistan’s outsourced employees (2350) was obtained from a single source. Most of these are performing the core function of the bank outside their assigned duties without any training and supervision. • • The National Bank of Pakistan is incurred large expenses in running those branches, which are not producing any income. The up gradation of human resource is very slow in NBP. The branches of NBP have less number of employees as their requirements. The concept of “One Man Show” is adopted in many branches to save salary expenditure; even most of the branches use their security guards for various tasks. The one reason for this is that the senior management is able to decrease salary expenditure of the bank, which result an increase in the net profit. For their performance they received handsome amounts of bonus. But in long run it has a negative effect on bank’s productivity. • • The pension’s distribution service or payments to EOBI beneficiaries, utility payments; workers remittances are occupied lowest priority level. In NBP Karobar scheme the product selected by the NBP is of inferior quality and develops faults in the first few months of delivery. 5.3 CONCLUSIONS
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•
The National Bank of Pakistan plays a key role in the strategic national development. The bank has historically been the financial arm of the government and has enjoyed the blessings of state support in the form of huge public sector funds and deposits.
•
In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP.
•
In contract to other banks populating the FSI sector, NBP is mandated to uphold public interest. It is critical too as all other banks and NBFIs in public sector have been closed down or merged with NBP.
•
The current management of National Bank of Pakistan was hired purely for their international experience, business orientation to turn around a purely public institution into a sustainable and commercially viable bank serving public interest along the lines of a large modern commercial bank.
•
The National Bank of Pakistan has effective budgeting system in place. Annual budget of the bank is approved by the Board and monthly comparisons of actual results with the budget are prepared and reviewed by the senior management.
•
The National Bank of Pakistan has a comprehensive framework of written policies and procedures on all major areas of operations such as Credit, Treasury Operations, Finance, Internal audit and Compliance approved by the Board.
•
The National Bank of Pakistan provides sustainable financing for growth of industries of critical national importance such as energy, education, healthcare, transport, shipping, Research & development.
5.4 RECOMMENDATIONS • The National bank of Pakistan should be fully prepared in its management of financial crises and its business continuity planning, within the standing committee framework, and should work with others to strengthen national crises management preparations. • The bank should improve the quality of training of its employees and the integrity, controls and efficiency of its systems, processes and financial reporting.
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• • • •
The bank should improve its recruitment, retention and development and to reform the Bank’s pension scheme. The bank should renegotiate the Bank’s long term financial framework and to overhaul the Bank’s financial system. The Bank should improve IT capability in the analytical areas and to develop a medium term strategy for banking and market operations. The National bank of Pakistan should monitor the impact of its operations on the environment, which is mainly through the use of power and the generation of waste.
•
NBP, being the only lending arm to the government for public sector development should design, develop and deliver product and services for economic growth.
•
The bank should provide support to the Micro, Small and Medium enterprises thereby reducing unemployment and helping to create a more equitable distribution of wealth.
•
The NBP should adopt modern banking tools and techniques. Quality leadership, clear vision, investment in IT infrastructure and human resource development.
• •
The bank should develop software for pension disbursement. As for as Islamic Banking environment is concerned the management and employees of NBP should work together for basic research for discovering their own laws, developing theories or concepts for the better direction of their own business environment according to Quran & Sunnah.
• •
•
The branches should reduce its large expenses in order to increase the value of the bank. The NBP should strengthen incentives and accelerate a results-oriented training and communications programs for management and staff. The National Bank of Pakistan should implement a financial inclusion program to meet the needs of underserved economic subsectors, including outreach programs to meet the requirements of the agriculture, housing, SME and microfinance sectors.
•
The National Bank of Pakistan should introduce a framework for consolidated supervision and reorganize the regulatory architecture to allow better regulation and supervision of financial control division of bank.
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REFERENCES
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1 2
http://www.nbp.com.pk/EcomomicBulletin/FS-Complete-31-12-2007.pdf NBP Quarterly Report September 2008 http://www.nbp.com.pk/nbp/About_Us/About_US.jsp Black's Law Dictionary page 471 (5th ed) Kotler, P., Armstrong, G., Brown, L., and Adam, S. (2006) Marketing, 7th Ed. Principles of marketing 8 ED by Kotler & Armstrong G7 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 87 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 91 Practice & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 88 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed
http://www.lahorestock.com/ListedCompanies/
3 4 5 6 7 8 9
10 Practice
11 http://www.nbp.com.pk/Aamdani/index.htm 12 http://www.nbp.com.pk/advancesalary/index.htm 13 http://www.nbp.com.pk/CashnGold/index.htm 14 http://www.nbp.com.pk/StudentLoan/index.htm 15 Practice 16 Practice 17 Practice 18 SBP
& Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 221 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228 & Law of Banking in Pakistan by Dr. Asrar H. Siddiqui 7th ed page no 228
Prudential Regulations
19 http://www.nbp.com.pk/nbp/NBP_Treasury.jsp 20 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp 21 http://www.nbp.com.pk/nbp/About_Us/DReport3.jsp 22 NBP
Annual Report 2007 error by James Reason Annual Report 2007
23 Human 24 NBP
25 http://www.jcrvis.com.pk 26 http://www.jcrvis.com.pk/ratingscale/rating_process.htm
ANNEXTURES T ERMS & C ONDITIONS
OF ADVANCE SALARY
Eligibility
Permanent Employees of Govt., Semi-Govt., Autonomous, Semi Autonomous, Local & other bodies who are maintaining their Salary A/Cs at NBP. Repayment Direct deduction from Salary A/C Maximum Loan Amount Rs. 490,000/Security Employer will provide undertaking that borrower’s Salary and end of service benefits will route through his/her Salary A/C maintained at NBP during the tenure of the loan and his/her end of service benefits are at least equal to the amount of Advance Salary required. Hypothecation of Consumer durables owned by the borrower. Three (3) Undated Cheques Max. Repayment Period 5 years (60 months) Advance in terms of # of net take home salaries Up to 20 net take home salaries Markup Rate 15 % (Based on diminishing balance method) Processing Fee 1% of Loan Amount Verification Charges Rs 500/Life Insurance No Insurance of any kind. Documentation Charges at actual Contact Your Salary disbursing NBP Branch. Remaining Service Age At the time of approval and disbursement the applicant’s remaining service age should be 6 months after maturity of the loan Debt Burden 50% Minimum net take home salary no minimum take home requirement
BOARD MEMBERS
Name
Designation Syed Ali Raza Chairman & President Mr. Sikandar Hayat Jamali Director Mian Kausar Hameed Director Mr. Ibrar A. Mumtaz Director
Mr. Tariq Kirmani Director Mr. Muhammad Arshad Chaudhry Director Mr. Mohammad Ayub Khan Tarin Director Mr. Ekhlaq Ahmed Secretary Board of Directors
ACCOUNT OPENINING FORM
doc_190460645.pdf