CHAPTER 1
OVERVIEW OF THE ORGANIZATION
C H A P T E R 1
1.1 INTRODUCTION:
Money runs like blood in the veins of an economy and the hearts which pump the blood are the banks. Banks play significant roles in mobilizing savings thus taking great part in capital formation process. Their role in development of a country has increased with the advent of modern technology. The intense competition among the banks, privatization of the financial institutions and financial liberalization in general are gradually and continuously making the banking sector more efficient and effective.
1.2 BRIEF
INTRODUCTION
OF
NATIONAL
BANK OF PAKISTAN:
National Bank of Pakistan (the bank) was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. It’s registered and head office is situated at I.I. Chundrigar Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,261 (2007: 1,250) branches in Pakistan and 22 (2007: 18) overseas branches (including the Export Processing Zone branch, Karachi). 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. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices.
1.3
VALUES
OF
NATIONAL
BANK
OF
PAKISTAN:
• • • • • • • • • • • • Growth through creation of sustainable relationships with our customers. Prudence to guide our business conduct. A national presence with a history of contribution to our communities. Meet expectations through Market-based solutions and products. Reward entrepreneurial efforts. Create value for all stakeholders Care about relationships. Lead through the strength of our commitment and willingness to excel. Practice integrity, honesty and hard work. We believe that these are measures of true success. 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 environment2
1.4
ROLE
OF
NBP
IN
INTERNATIONAL
BANKING SECTOR:
National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group.
The role of the Financial Institution Wing is:
• To effectively manage NBP’s exposure to foreign and domestic
correspondence.
•
Manage the monetary aspect of NBP’s relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank’s profitability.
•
Generation of incremental trade-finance business and revenues.5
NBP Offers
• • The lowest rates on exports and other international banking products. Access to different local commercial banks in international banking.
The NBP provide many facilities to their customers nationally and internationally like Demand drafts, mail transfers, pay order, traveler’s cheques, letter of credit, commercial finance, foreign remittances, swift system, short term investments, and equity investments etc. NBP also put in place the rationalization program by staff reduction and Branch closures to ensure optimum efficiency in staff levels whiles balancing the benefits of technology with the branch restructured network. Head Office structure comprises of following groups and department. 1. Operation Group 2. Corporate and investment Banking Group 3. Special Assets Management Group 4. Commercial and Retail Banking Group 5. Audit and Inspection Group 6. Overseas Coordination and Management Group 7. Risk Management Group 8. Treasury Management Group 9. I.T. Planning and Implementation Group 10. Human Resources and Administration Group 11. Compliance Group 12. Organization Development and Training Group
National Bank of Pakistan is the premier commercial institution of Pakistan cater the large diversified customer base of 9.009 million the biggest figure in the country and conduct the agency function of State Bank of Pakistan in addition to provision of other financial and allied services, these includes; • • • • • • • • • • • • • • Deposit Banking Financing and credit Remittance facilities Collection Government Receipts and Payment Sale and Purchase of Government Securities, Bonds and Other certificates Foreign Exchange business Safe Custody, Safe Deposits Services and Safe Deposit Lockers Hajji facilities Utility bills Investment advice and other services Special deposits products/ schemes Pak rupee Travelers chouse New Product.
1.5 NATURE OF THE ORGANIZATION:
National Bank of Pakistan is a service oriented financial institution and is working for its customers besides making profit for the organization. It is dealing with financial requirements of the clients both retail and corporate banking facilities. It is rendering services to its customers and not goods. It also undertakes the government transactions, like government accounts, government drafts and payments and pensions etc. The bank serves the government as well as general public. The above mentioned services of the bank thus can be categorized as under:-
• • • • • • • • •
Borrowing and Lending of money. Discounting Bills of Exchange and other Negotiable instruments. Collecting Negotiable instruments on behalf of the customers. Buying and Selling bullion and Foreign Exchange. Carrying on Guarantees and Indemnities. Granting of L/C to the customers. Receiving valuables for Safe Custody. Underwriting and Dealing in Stocks, Shares, Debentures and other Securities on behalf of the customers. Acting as agent to his customers; undertaking and executing.
1.6 BUSINESS VOLUME:
1.6.1 FIVE-YEAR PERFORMANCE OF NBP:
Rs. In Million
SHARE TOTAL YEAR ASSETS EQUITY 2003 2004 2005 2006 2007 2008
(As on 30-6-08)
DEPOSITS ADVANCES INVESTMENTS HOLDERS
468,972 553,231 577,719 635,133 762,193 795,853
395,492 465,572 463,427 501,872 591,907 621,342
161,266 220,794 268,839 316,110 340,322 372,766
166,196 149,350 156,985 139,947 211,142 172,655
18,134 24,900 37,636 53,045 69,271 72,204
TOTAL ASSETS
762,193 577,719 635,133 795,853
800000 700000
(Rs. in Million)
600000 500000 400000 300000 200000 100000 0
553,231 468,972
2003
2004
2005
2006
2007
2008
DEPOSITS
700000 600000
(Rs. in Million) 501,872 465,572 395,492 463,427 621,342
591,907
500000 400000 300000 200000 100000 0
2003
2004
2005
2006
2007
2008
ADVANCES
400000 350000 300000 (Rs. in Million) 250000 200000 150000 100000 50000 0 2003 2004 2005 2006 2007 2008 161,266 220,794 268,839 316,110 340,322 372,766
SHAREHOLDER'S EQUITY
(Rs. in Million)
80000 70000 60000 50000 40000 30000 20000 10000 0
2003 2004 2005
37,636 18,134 24,900
69,271 53,045
72,204
2006
2007
2008
PRETAX PROFIT
AFTERTAX PROFIT
RETURN ON EARNING PER SHARE (RS.) ASSETS (PRE-TAX PROFIT) NO. OF BRANCHES NO. OF EMPLOYEES
9,009 11,978 19,056 26,311 28,060
4,198 6,195 12,709 17,022 19,034
8.53 10.48 17.92 20.88 23.34
2.0% 2.4% 3.4% 4.1% 4.1%
1,199 1,226 1,242 1,250 1,261
13,272 13,745 13,824 14,019 14,079
PRE-TAX PROFIT
28,060 26,311 19,056
30000 25000
(Rs. in Million)
20000 15000 10000 5000 0
2003 2004 2005 2006 2007 11,978 9,009
AFTER-TAX PROFIT
20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
19,034 17,022
(Rs. in Million)
12,709
6,195 4,198
2003
2004
2005
2006
2007
EARNING PER SHARE 25 20 17.92 RUPEES 15 10 5 0 2002 10.48 8.53 20.88
23.34
2003
2004
2005
2006
2007
2008
RETURN ON ASSETS (PRE-TAX PROFIT) 4.50% 4.00% PERCENTAGE 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2002 2003 2004 2005 2006 2007 2008 2.00% 2.40% 3.40% 4.10% 4.10%
1.7 PRODUCT LINES:
1.7.1 INTERNATIONAL BANKING:
National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. The role of the Financial Institution Wing is:• • To effectively manage NBP’s exposure to foreign and domestic
correspondence Manage the monetary aspect of NBP’s relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank’s profitability • Generation of incremental trade-finance business and revenues
NBP offers: • • The lowest rates on exports and other international banking products Access to different local commercial banks in international banking
DEMAND DRAFTS: If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase NBP’s Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch MAIL TRANSFERS: Move your money safely and quickly using NBP Mail Transfer service. And we also offer the most competitive rates in the market.
PAY ORDER: NBP provides another reason to transfer your money using our facilities. Our pay orders are a secure and easy way to move your money from one place to another. And, as usual, our charges for this service are extremely competitive.
TRAVELER'S CHEQUES:
Negotiability: Validity: Availability: Encashment: Limitation: Safety: money LETTER OF CREDIT: NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. COMMERCIAL FINANCE: Let us help make your dreams become a reality Our dedicated team of professionals truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer’s best resource in making NBP’s products and services work for them. 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
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 New Features: The existing system of home remittances has been revised/significantly improved and well-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides United National Bank (the joint venture between NBP and UBL in UK)., and Bank Al-Jazira, Saudi Arabia. • • • Zero Tariff: NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries.
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, you can safely and speedily transfer money for our business and personal needs. SHORT TERM INVESTMENTS: NBP now offers excellent rates of profit on all its short term investment accounts. Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are extremely attractive, along with the security and service only NBP can provide. EQUITY INVESTMENTS: NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: • • Investment into the capital market Introduction of capital market accounts (under process)
NBP’s involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders NATIONAL INCOME DAILY ACCOUNT (NIDA): The scheme was launched in December 1995 to attract corporate customers. It is a current account scheme and is part of the profit and loss system of accounts in operation throughout the country.
1.7.2 TRADES FINANCE OTHER BUSINESS LOANS:
AGRICULTURAL FINANCE: NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. AGRICULTURAL FINANCE SERVICES:
“I Feed the World” program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. AGRICULTURAL CREDIT: The agricultural financing strategy of NBP is aimed at three main objectives:• • • Providing reliable infrastructure for agricultural customers Help farmers utilize funds efficiently to further develop and achieve better production Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming. Agricultural Credit (Medium Term): • • • • • • • • Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing Solar energy Equipment for sprinklers
Farm Credit: NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis: • • Operating loans Land improvement loans
• •
Equipment loans for purchase of tractors, farm implements or any other equipment Livestock loans for the purchase, care, and feeding of livestock
PRODUCTION LOANS: Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. CORPORATE FINANCE: Working Capital and Short Term Loans: NBP specializes in providing Project Finance – Export Refinance to exporters – Preshipment and Post-shipment financing to exporters – Running finance – Cash Finance – Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Preshipment / Post Shipment Agricultural Production Loans MEDIUM TERM LOANS AND CAPITAL EXPENDITURE FINANCING: NBP provides financing for its clients’ capital expenditure and other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients’ attempt to upgrade and expand their operation thereby making possible the fulfillment of our clients’ vision. This type of long term financing proves the bank’s belief in its client's capabilities, and its commitment to the country. Loan Structuring and Syndication: National Bank’s leadership in loan syndicating stems from ability to forge strong relationships not only with borrowers but also with bank investors. Because we understand our syndicate partners’ asset criteria, we help borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our syndication capabilities are complemented by our own capital strength
and by industry teams, who bring specialized knowledge to the structure of a transaction. CASH MANAGEMENT SERVICES: With National Bank’s Cash Management Services (in process of being set up), the customer’s sales collection will be channeled through vast network of NBP branched spread across the country. This will enable the customer to manage their company’s total financial position right from your desktop computer. They will also be able to take advantage of our outstanding range of payment, ejection, liquidity and investment services. In fact, with NBP, you’ll be provided everything, which takes to manage your cash flow more accurately.
1.7.3 NBP Islamic Banking - DEPOSIT SCHEMES:
Deposit Schemes being offered by NBP’s Islamic Banking Branches would include the following: • • Current Deposit Scheme Profit & Loss Sharing (PLS) Deposit Scheme
CURRENT DEPOSIT SCHEME:
• • • • Ideal for customers looking for security of their funds along with absolute convenience in its use, in the form of Current accounts. Funds deposited with the bank will be utilized by the bank at its sole discretion in Shariah acceptable avenues. The Customer will have the flexibility to withdraw a part or the whole of their balances at any time as per their requirement. This is a non remunerative deposit scheme and thus the customer will not be sharing the profits nor will be sharing losses (if any). However, the Bank may at its absolute discretion give rewards to these Depositors depending upon the
operational results of the Bank. Losses will not be passed on to these Depositors. • Other terms, conditions and rules for Current Deposit Accounts to be advised by the Bank at the time of opening of Account.
PROFIT & LOSS SHARING DEPOSIT (PLS) SCHEME:
• PLS Saving Deposits Scheme (to be accepted in future) will accept deposits on Mudaraba basis, where the depositor will be Rabb-ul-Mal and Bank will be Mudarib. The Bank will invest the deposited funds at its (Bank’s) sole discretion in Shariah acceptable avenues. • • The Depositor will have the flexibility to withdraw a part or the whole of their balances at any time as per their requirement. The Bank will give profit to the Depositors twice in a year in January and July, on the basis of agreed ratio of actual profits to be announced by the Bank from time to time. • • • • In the event of financial loss, the PLS depositors will bear the loss in proportion of their investment. The Depositors will not participate in the management of the business of the Bank Other terms and conditions as well as rules for PLS Deposit Account to be advised by the Bank at the time of opening of Account. NBP will shortly launch Shariah Complaint PLS Deposit Schemes. For information about their salient features, weightages and expected rates please continue to visit our website.
1.7.4
NBP
Islamic
Banking
-
FINANCING
FACILITIES:
Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements:
MURABAHA:
Murabaha may be defined as a contract between a Buyer and Seller under which the Seller discloses to the Buyer the cost of goods being sold and adds an agreed profit. Price is payable on spot or at a certain future date, in lump sum or in installments (deferred payments).
MURABAHA FACILITY:
1. Under the MURABAHA FACILITY, the Bank will first purchase the required goods directly or through an Agent. All costs incurred on such purchases will be borne by the Bank. 2. Subsequently the Bank will sell the goods to the customer on deferred payment basis (30 days to one year) at an agreed price comprising cost of goods purchased and Bank’s profit. 3. On due date the customer will pay to the Bank the agreed price, in lump sum or as per the agreed installment schedule.
IJARAH (LEASING):
Ijarah means “to give something on rent”. The term “IJARAH’ is analogous to the English term “leasing “. Firstly the Bank will purchase the Assets as required by the Customer and subsequently the assets will be leased to the Customer on the terms and conditions as agreed with him. Ijarah Facility will be offered for the following assets: • • • Vehicles (both Commercial and Private) Office Equipment Plant and Machinery
PREMIUM AAMDANI:
• • • Amount of investment required from Rs. 50,000/- to Rs. 5,000,000 Investment period is 5 years Free Demand Draft, Pay Order and NBP Online Aasan Banking Free Cheque Book / NBP Cash Card (ATM + Debit) Profit paid every month as follows: Period 1 year 2 years 3 years 4 years 5 years • • • Profit Rates** 7.50% 8.50% 9.50% 10.50% 11%
Financing facility available upto 90% of the deposit value Premature encashment will attract penalties Zakat and withholding tax is deductable as per rules.
PREMIUM SAVER:
• • • Minimum saving balance of Rs. 20,001 and a maximum balance of Rs. 300,000* Free NBP Cash Card (ATM + Debit) Two debit withdrawals allowed in a month and no limit on number of deposit transactions
• •
Profit calculated monthly and paid on half yearly basis. Earning upto 7.25% p.a.
PRESIDENT ROZGAR SCHEME:
A person aged between 18 and 40 years, is eligible for easy
financing for self employment in the categories below: • • • • • NBP Karobar Utility Store NBP Karobar Mobile Utility Store NBP Karobar Mobile General Store NBP Karobar Transport NBP Karobar PCO/ Tele-Centre
HOME PURCHASE / HOME CONSTRUCTION:
Financing Amount Financing Period
Up to 35 Million 3 to 20 Years
Debt to Equity
85:15 (Maximum)
Home Renovation:
Financing Amount Financing Period Debt to Equity
up to 15 Million 3 to 15 Years 70:30 (Maximum)
Purchase Of Land And For Construction Thereon:
Financing Amount Financing Period Debt to Equity up to 35 Million 3 to 20 Years 70:30(Maximum)
Re-Financing (Balance Transfer Facility (BTF) :
If you have a Home Finance Facility outstanding with another bank you can have it transferred to NBP through a hassle-free process. All home financing facilities below Rs. 15 M Debt to Equity Ratio will be 85:15 & for Rs. 15 M and above Debt to Equity Ratio will be 80:20.*50% of the loan will be disbursed at the time of land purchase and rest of the 50% for its construction will be disbursed in 4 trenches.
NBP-ADVANCE SALARY:
In January-2003, National Bank of Pakistan has launched a unique product, ‘NBPAdvance Salary’. Currently this product is for fixed-income permanent employees of Federal & Provincial Government, Semi-Government, Autonomous, Semiautonomous, local bodies and other Government organizations. The product is purely cash flow based and offers its holder to avail 20 (twenty) net salaries in one go to be repaid in up to 60 (sixty) months. With no collateral, insurance or requirements, Advance Salary provides rapid disbursement in a short turnaround time. • Rate of mark-up 13% p.a.
• • • • • • •
Facility of Rs. 7,000 against each 10 gms of net contents of gold. No maximum limits of cash Repayment after one year Roll over facility Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed scruffs. No penalty for early repayment
CHAPTER 2
C H A P T E R 2
ORGANIZATIONAL STRUCTURE
2.1 ORGANIZATIONAL STRUCTURE:
Organizational structure is the framework which defines the boundaries of the formal organization and with which the organization operates. A suitable organization structure for the nature of the organization leads to better performance. The organizational structure of the bank constitutes of a Board of Directors and an executive committee as the governing bodies. The National Bank of Pakistan (NBP) has 1261 branches all over the country and 22 overseas branches. The Head Office is operationally in charge of central affaires including the delegation of powers and authority to the Regional Headquarters all over the country. These Regional Headquarters direct the function of the 12 corporate branches. The NBP has 29 regions (circles) in four provinces as given below: Provincial Headquarters Sindh Baluchistan Punjab NWFP Azad Kashmir Total No Of Regions 6 2 14 5 2 29
2.2 NBP’S ORGANIZATIONAL HIERARCHY
Chairman
Board of Directors
President
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Assistant Vice President
Officer Group I
Officer Group II
Officer Group II
2.2.1 HEAD OFFICE:
Head Office of NBP is situated at Karachi. All Branches, Regional Offices and Corporate Branches are under the distractive control of Head Office. The Head Office of National Bank of Pakistan is responsible for making / execution of polices. The policy / decision making bodies are: • • • Board of Directors Executive Committee Divisional Head Offices and Provincial Headquarters
The head office has nine divisions which are divided in to different wings. The Head Office is responsible for central affaires and delegation of powers / authority to the Regional Headquarters.
2.2.2 BOARD OF DIRECTORS:
The Board of Directors (BoD) of NBP is comprises of President and 6 members as under: President of the Bank SEVPs of the Bank Representative of the PBC Representative of GOP Private Sector Total 1 3 1 1 1 7
The BoD nominates the executive committee which further nominates Divisional Heads.
2.2.3 EXECUTIVE COMMITTEE:
The executive committee consists of President and nine members and one of the members also perform the functions of Secretary of the committee. The executive committee nominates the divisional Heads. This body monitors day to day affaires of the Bank and is sanctioning authority of financial and business proposal.
2.2.4 DIVISIONAL CHIEFS:
Each division of the Bank is working under the control of Divisional Chiefs / Senior Executive Vice President (SEVP) / Executive Vice President (EVP). divisions of NBP are as under: • • • • • • • • Management Support Audit and inspection Treasury Management Marketing and Development Credit Policy Management Overseas Banking Special Assets Management Bank Secretariat The nine
2.2.5 PROVINCIAL CHIEFS:
In order to improve the performance of the Banking system, the bank has Provincial Chiefs with the powers of sanctioning finance and other credit facilities. The Headquarters of the Provincial chiefs are in Lahore, Karachi, Quetta and Peshawar. The NBP has 29 regions in four provinces and Azad Kashmir.
2.2.6 REGIONAL MANAGEMENT COMMITTEE:
A Regional Management Committee consists of the following, looks after the affaires of the regions. • • • • Business Chief Operational Chief Risk Management Chief Compliance Chief
2.3
VISION STATEMENT:
2.4
MISSION STATEMENT:
2.5 CORE VALUES:
2.6 GOALS:
2.7 AWARDS & RECOGNITIONS:
2.7.1
ACHIEVEMENTS
AND
RECOGNITION
WON BY NBP IN
• • • • • •
PAKISTAN
Bank of the year 2004 for Pakistan Best foreign exchange bank in Pakistan 2004 Bank of the year 2005 for Pakistan Best foreign exchange bank in Pakistan 2005 Bank of the year 2006 for Pakistan Best foreign exchange bank in Pakistan 2006
2.7.2
ACHIEVEMENTS
AND
RECOGNITION
WON BY NBP IN
• • •
FOREIGN COUNTRIES
NBP is one of the “top 100 banks of Asia” “Euro money” UK, March 2005 Asia’s number one and world’s 8th bank in terms of return on capital “the banker”, UK, July 2003 Among the top banks in Emerging Markets.” Global Finance’s, May 20032
2.8 DOMESTIC BRANCHES
NBP has a vast network of 1261 branches within Pakistan.
2.9 OVERSEAS BRANCHES:
NBP has 22 overseas branches all over the world.
2.10 CORPORATE BRANCHES:
Corporate branches play an important role in the setup of NBP of Pakistan, to serve the business and the corporate sector of Pakistan. There are twelve corporate branches in the following cities. City Karachi Lahore Islamabad Rawalpindi Quetta Peshawar Mirpur(AJK) Faisalabad Total No of Corporate Branches 3 3 1 1 1 1 1 1 12
2.11 NBP MAIN BRANCH RAWALPINDI:
NBP Main branch Rawalpindi is situated at the “Bank Road, Saddar Rawalpindi”. It is the most important organization for the whole surrounding areas of Saddar Rawalpindi. Large no's of business center are very close to the National Bank. Mr. Zubair is Branch Manager and Mr. Riaz is Operational Manager of branch. Branch code is (0394), Phone no: 051-9270586-87. Fax: 051-9270588. Rawalpindi has 62 staff persons as employee. Main Branch
Designation No. of Employees Vice President 1 Assistant Vice president 3
OG-I OG-II OG-III Other / Clerical Staff
6 15 17 20
All of them are most experienced in their respective fields. They are very cooperative with each other as well as customers. Through them we can have a complete picture of this branch of NBP. This type of bank or organization is most important for the study purpose to get more practical approach this branch shows the real image of NBP as well as banking field.
Setup:
Keeping in view the size of the branch the operation manger is directed responsible for some of the operational functions depending on the nature of activities in the branch. The Operations are comprises of Cash Counter Services and Customer Services. The Branch Manager with the assistance of relationship officer(s), (if required) will concentrate and fully devote to credit marketing and business / deposit development. Operations manager will report directly to the Regional Chief Operations with dotted line reporting to the Branch Manager. A Compliance Officer is also present in this branch. He is responsible of the checking of the all the work done in the bank. Whenever an Inspector came to the bank, he provides him all documents which he required for inspection.
2.11.1 BRANCH MANAGER RESPONSIBILITIES:
• • • Overall affaires of the branch Checking and ensure effectiveness of control system and working procedures. Meeting existing and New Customers.
• • • • • • • • • • • • •
Marketing business / deposit development and public relations. Assignments of accounts to relationship manager / officer. Income and business budget. Performance evaluation of reporting staff. Develop objectives for reporting staff. Review of Reports. Conduct periodical meeting of the staff. Liaison with controlling offices. Approval of credit proposal with – in delegated authority. Approval of expenses with in delegated authority. Follow – up for recovery of none performing finances. Restructuring and rescheduling of classified accounts. Special project / assignment by controlling officers.
2.11.2
OPERATIONS
MANAGER
RESPONSIBILITIES:
• • • • • • • • • • • • • Supervision of all assigned operation department Ensure check and control systems are in place. Create cordial and customer friendly atmosphere in branch. Ensure continuous satisfactory service to the customers. Review of daily activity reports. Ensure compliance of bank / SBP and local regulations. Approval of opening of new accounts. Approval of expenses budget. Develop objective for operation staff. Performance evaluation of reporting staff. Cross-training to the staff Management of staff attendance and vacation. Provide leadership and guidance to operations departments.
• • • • • • •
Reporting of all exceptions to controlling office. Conduct periodical meetings of operation staff. Rectification and upkeep of the branch. Maintenance and upkeep of the branch. Act as compliances officer. Special project / Assignment by Manager / Controlling offices. All the accounts & transaction of WESTERN UNION are conducted by the operation manager.
2.12 ORGANIZATIONAL DEPARTMENTS:
NBP Main branch Rawalpindi has following departments: • • • • • • • • • • • • • • • • Deposits Department Account Opening Department Foreign Exchange Department Pension Department FBR Department Dispatch Department Clearing Department Advances Department Compliance Department Accounts Department Swift Department Reconciliation Department Cash Department Utility Department Credit Department Remittance Department
2.12.1 DEPOSITS DEPARTMENT:
There are few organizations to which funds are provided by their owners, but most of the organizations depend on external sources for their funds need. Borrowing funds from different sources has become an essential feature of today’s business enterprises. But in the case of a bank borrowing funds from outside parties is all the most vital because the entire banking system is based on it. The main function of a bank is to receive deposits and lend them to earn interest. Therefore, deposits are considered to be the “life-blood” of a bank. The Deposit Department of NBP, Main Branch Rawalpindi mainly performs the function of:
Withdrawals:
Withdrawals from the account can be made only by mean of Cheque supplied by the bank. Cheque should be signed according to the specimen signature.
Statement of Account:
Account statement is provided to the customer by the bank. In these statements the bank assures that all debit entries are correct. In case of error, the bank passes an adjusting entry to rectify the error.
2.12.2 ACCOUNT OPENING DEPARTMENT:
The Account Opening Department of NBP, Main Branch Rawalpindi mainly performs the function of: • • • • Opening of Accounts Closing of Accounts Issuance of Cheque book issuance of Statement of Account
There are two major types of accounts opened in NBP:
Current Account:
These are payable to customers upon the demand and the bank is bound to honors the Cheque to the extent of the balance in the account. These deposits are treated as current liabilities by the bank. No profit is given on these deposits and no service charges are deducted by the bank. A higher percentage of cash reserves are kept against these deposits by the bank. The initial amount required for opening of such an account is Rs. 10, 000.
PLS Saving Account:
The main objective of the savings deposits is to encourage thrift among people of small means such as children, married and household women etc. initial deposit must be in cash. Cheque may only be accepted as part of initial deposit in case of undoubted parties & on the personal responsibilities of Managers. The depositor is issued with a Cheque book for withdrawal. Profit is paid at a flexible rate calculated monthly or semi-annually. Usually, there is no restriction on the withdrawals and the amount of money withdrawn is deleted for assessment of profit which discourages unnecessary withdrawals from the deposits. PLS saving account can be opened with an initial deposit of not less then Rs.500. Withdrawals are allowed twice a week. PLS saving account may be opened in the name of an individual or jointly in the name of two or more persons.
Term Deposit Account:
There are the deposits that can be withdrawn after a certain specified period of time. The period of time varies from three months to five years. On these deposits return / interest varies with the duration for which the amount is kept with the bank. The rate of interest / return on term deposit is higher than that of a saving deposit. Its interest / return are unaffected for the duration of the deposit irrespective of market fluctuations. Term deposit is best suited for short-term investment. Individuals as well as joint account an be opened by, sole proprietorships, partnership, joint stock companies, limited companies, clubs / trusts, administration, executors, etc. profit is paid at the
maturity of deposit. On these deposits premature withdrawal is permitted but against a reduced rate of interest as agreed at the time of deposit.
Finance Facility:
Bank also extends finance facility to clients against saving and fixed term deposits on comparatively low markup rate. The deposit is kept under lien; however the customer may withdraw the profit amount credited to his account.
OPENING OF AN ACCOUNT WITH THE BANK:
Account opening has the following requirements: • • • • Formal Request Specimen Signature Minimum Initial Deposit Operating the Account
Accounts Term and Condition:
Against the submission of the bank's prescribed application form, duly introduced in the manner provided and on supply of documents required, the account is made fully functional under certain conditions. In case of account on PLS basis, bank invest the amount in any manner it considers under PLS system.
Deposits:
All money to be deposited to the credit of an account is accompanied by pay-in-slip showing the name and number of account to be credited. Putting Bank's stamp under the signatures of two bank officers on the pay-in-slip then authenticates the entry.
Closure of Account:
While closing the account, the account holder returns the unused cheques and passbook to the bank. The customer also withdraws the credit balance of the account (if any).
Issuance of Cheque book:
Before issuing anew chequebook the bank is required to give requisition slip to the customer. The customer put his signature on the requisition slip. After verifying the signature the cost of chequebook is charged.
2.12.3 REMITTANCES DEPARTMENT:
The word "Remittance" means to send money by mail or any other method. Funds transfer is one of the basic functions of the Banking sector. These transfers may be in the form of domestic remittance or to/from foreign location. Banking channels are most frequently used for remittances due to its large network, reliability, safety, legitimacy and timely delivery to the right beneficiary. Banks use their large communication and branch network for ensuring efficient delivery of funds in the shortest possible time.
Outward / Inward Remittances:
When the bank sends a telegram etc, to another bank (concerned branch) for payment to the customers, it is called outward remittance. The sender is required to apply through a firm in which he will give all the necessary about the sender and the beneficiary. The signature of the customers is verified. The details regarding documents attached and exchange control regulations are scrutinized. Telexes option and transaction number is recorded on the source document. This source document is then forward for verification. No instrument is given to the customers. Customer can receive the TT receipt at the end of the day and document is credited to the beneficiary account. When TT through telexes etc is drawn on NBP Branch, it is called inward remittance. Message is received from the Telex Department. The concerned office duly checks authentication and purpose of remittance it is received from abroad. In NBP remittance takes places in the following ways. • • Telegraphic / Mail Transfers (TTs) Demand Draft(D.D) / Pay Orders (POs)
Telegraphic / Mail Transfer:
In a number of cases, funds are needed to be urgently remitted to the beneficiaries by the remitters. This service is readily provided by the bank both to customers and noncustomers and funds are transferred to the destination through telegram / tele fax to ensure payment to the beneficiaries at the earliest. The message communicating the transfer of funds is sent to the drawer branch in coded language which is supported by a confidential number known as “TEST NUMBER” to establish its genuineness and authenticity. The salient features and procedure of TT is similar to “DD”. In case of MT, there is no need to dispatch anything to the payee. The bank makes special arrangement for the payment to the beneficiary through mail/courier service, which is “Mail Transfer”. The salient features and procedure are similar as that of “DD” and “TT”.
Demand Draft:
The Demand Draft is a written order (Bill of Exchange) drawn by one branch at a bank upon another branch of the same bank in another city to pay a certain sum of money to or to the order of a specified person. Procedure for Issuance of DD: The purchaser of a DD is required to fill in the “application form for remittance” providing the following information: • • • • • • • Name of the branch and city where payment of the draft is desired. Name of the payee to whom the proceeds of the DD is to be paid. The amount, in figures and words, for which the draft is to be made. Name, address, telephone number, A/C No. etc. of the purchaser of the draft. After completing the application form, the purchaser signs in the designated space. It may also be signed by the agent of the purchaser, if any. Before processing the DD Application, Form should be scrutinized by the counter clerk/officer. He/she then deposits the amount in cash department. Withholding tax and commission are also to be charged from the customer at the applicable rates.
•
Then attaches the receipts with application form and submits it to the Remittances in-charge, who then calculates the “Test No.” fills in the DD Block and signs it.
• •
Then after, enters the transaction into DD Register. The DD is sent to the senior officer desk for counter signature.
Open / Crossed DD:
Open DD is one, which is payable directly at the counter and there is no need of crediting it to the account. In case of crossed DD, the amount is payable through bank account of the payee.
Pay Order (PO):
A pay order is a written order issued by a branch of a bank, drawn upon and payable by itself to pay a specified sum of money to or to the order of a specified person. Purpose: • • • • The purpose of a pay order is to effect transfer of funds from one bank to another within the same city. It is purchased for the payment of taxes, various dues and duties. In many educational institutions, examination and other charges are accepted through pay order. It is issued for settlement of claims between banks.
Parties to a Pay Order The parties to a pay order are similar to those of Draft excepting that the issuing branch and the drawer branch is the same. The salient features and procedure are the same as that of Draft.
2.12.4 CLEARING DEPARTMENT:
A clearing is the process whereby the amount of a cheque or draft is transferred from the drawer’s bank to the payee’s bank. It may be defined as, “A process by which
bank exchange and settle for cheques, bills of exchange, drafts and other banking instruments drawn against each other received by them for collection and clearance from their customers.
Collection / Clearance Cheques:
"A cheque may be defined as a written order of a depositor upon a bank to pay to or to the order of a designated party or to a beater, a specified sum of money on demand" Clearing of cheques is made through SC (short credit), LSC (local short credit) in clearing house.
SC (Short Credit):
SC is the short credit which consists of the cheque outside the district. These cheques are sent in SC outside the district for clearance. Once they are cleared our bank charge a certain amount of money spent on the process from the customer.
LSC (local short credit):
LSC is the short credit consists of the Cheque inside the district. Separate register is maintained for it. Local branches for clearances send these cheques for clearances. Bank has no charges on the process from the customer.
2.12.5 FOREIGN EXCHANGE DEPARTMENT
In the modern banking system Foreign Exchange department plays very important role from every aspect. Keeping in view the importance of foreign exchange reserves all banks have a foreign exchange department. Foreign exchange department dealing is authorized only to some branches of the National Bank of Pakistan. This department performs the following important functions: • • • • Supervising and Controlling Foreign Currency Accounts. Making Foreign Remittance Import advances to importer Export Advance to Exporters
Foreign Currency Accounts (FCA’s):
Foreign Currency Account in NBP can be opened in four major currencies of the world, i.e. U.S. Dollars, Japanese Yen, German Mark and UK Pound Sterling. In the main branch of NBP FC account can be opened in two major currencies of the world, i.e. U.S. Dollars and UK Pound Sterling. The accounts can be opened both by Pakistan citizens and foreigners by introduction and following other procedures required for general accounts with one exception for foreigners that they will have to submit a copy of their passport. The account may be personal or joint. Amount deposited in the foreign currency account must be in four currencies which have been mentioned earlier. When the customer will withdraw the money he/she will receive the amount in the same foreign currency/profit will also be in the same foreign currency. There are two types of foreign currency accounts: • • Current Account Saving Account
These accounts are treated in the same manner as Pak Rupee Accounts Head Office of NBP determines the maximum foreign Currency balance that can be kept in every branch authorized to deal in foreign Currencies. Those branches of NBP which are authorized to deal in foreign currencies must submit the following reports about foreign exchange, • • • Report to General Manger Office Business Report to SBP(Monthly Basis) Monthly Report to Head Office
Foreign Remittances:
Foreign Remittances are those remittances which are affected to and from any foreign location. Since one of the basic functions of the banking sector is to transfer funds either in the form of Domestic Remittances or Foreign Remittances. Keeping in view the importance of transfer of funds, the bank has setup Foreign Exchange Department
to exclusively handle the incoming and outgoing foreign currencies. Remittance can be inward and outward
Inward / outward Foreign Remittances:
The term “Inward Remittances” means purchase of foreign currencies through DDs, TTs & MTs etc including purchase of traveler’s cheques drafts and bills of exchange currency notes and coins etc. Remittance against Debit to non-resident rupee accounts maintained by Foreign Banks also constitutes an inward remittance. The sale of foreign currency against imports, miscellaneous purposes, Foreign Currency Traveler’s Cheques etc., are considered as outward foreign remittances. Outward foreign remittance can be made either by sale of foreign exchange or by Credit to non-resident rupee account of banks overseas branches or correspondents. Foreign remittance can be done in following ways. • • • Telegraphic Transfer(T.T) Mail Transfer (M.T) Foreign Demand Draft (F.D.D)
Western Union:
NBP Main Branch Rawalpindi also provides the facility of transfer and receiving of money through out the world. Through this facility the people of Rawalpindi get a lot of benefit. They can get their money from all over the world within few minutes.
2.12.6 CREDIT DEPARTMENT:
Imports / Exports and L/C:
Now-a-day export and import business is very risky. The importer wants surety of the goods to be delivered to his prescribed destination; while exporters want surety of the money to be sent to his prescribed bank. So with a view to overcome such difficulties
a system of L/C is designed. Various banking companies are involved in the business through L/C. NBP has a very extensive system of business through L/C. • • • Issuing Bank Advising Bank Negotiation Bank
Types of L/C:
Following are the important types of Letter of Credit. Confirmed Letter of Credit: It is a written agreement in which the bank give the guarantee that if the goods will be of the standard and fulfilling the conditions of L/C, and then the exporter (after presenting the L/C to the bank) will get the payment from the bank. The characteristic of this kind of L/C is that it can't be canceled after issuance and the payment is must. Un-Confirmed Letter of credit: In this kind of written document the bank takes the responsibilities of receiving the bills of exporter. But it doesn't give the guarantee of paying these bills. Unconfirmed L/C can be canceled. The importer can cancel it and after cancellation the bank don't give the guarantee of payment of L/C. Revocable Letter of Credit: This kind of L/C can be cancelled by the bank or by the request of the importer. In this kind of L/C the chances of cancellation are at every moment. So it is not dealt widely and the importance of this L/C is very little. Irrevocable Letter of Credit: This kind of L/C is issued for foreign payments. They can not be canceled until the given conditions are not broken. So with this kind of L/C the exporter has the guarantee of payment.
Fixed Letter of Credit: Those drafts or L/C the amount of which is when paid once then it comes to an end, are called fixed letter of credit. Circular Letter of Credit: This kind of L/C can be used for more then one time, e.g. if one L/C is of rupees 20 lakes and the exporter provides the goods in installments it has exported the goods worth rupees 10 lack. The remaining goods worth rupees 10 lacks have to be exported. And if he (exporter) pays rupees 10 Lacks the issuer (bank) so the L/C of rupees 20 Lack can be renewed. Documentary Letter of Credit: When we enclose important documents with the L/C then it becomes a documentary L/C i.e insurance invoice post or draft clearing certificates, etc.
The Mechanism of Opening an L/C:
For buying any commodity from foreign country the buyer will reach the seller (exporter) for the purchase of particular commodity of goods. After the preliminary setting of agreement between the two parties, the importer to fill the L/C application from. Usually the following documents are attached with L/C • • • • Application for L/C Membership Certificate of Chamber of Commerce or Association Insurance Certificate IBC charge form
Negotiation of L/C Documents: The process of negotiation starts when the exporter reaches the bank for honoring the draft drawn on it by the importer. The exporter sends the documents evidencing the shipment of goods to the bank where the credit is available and is accompanied by a draft drawn on the issuing bank by the importer.
2.12.7 ADVANCES DEPARTMENT:
Bank is a profit seeking institution. It attracts surplus balances from the customers at a low rate of profit and makes advances / finances to individuals and business firms at higher rate of mark – up. Financing is a principal function of a bank through which pace of activity is accelerated in the various sectors of economy. Through this medium, the wheels of trade, commerce and industry are set in motion and an effective financial contact is maintained with people in every walk of life. Also, the indicators which reflect the high quality of a Bank’s management are its prudent financing decisions, proper coated of finance and prompt recovery of bank’s dues are per borrower’s commitment/repayment schedule.
Running Finance:
Among the various modes of Bank financing, credit lines offered to customers under the above head (R/F) are the most commonly used. Withdrawals on the current account are allowed in excess of the credit balance which the customer has maintained therefore, creating a R/F (Overdraft). Under this type of financial accommodation, the borrower is required to adjust the finance provided by the bank within the stipulated expiry time. Mostly this facility is provided to businessmen who need cash to run their business daily. At the time of entering into an agreement with the customer the bank is required to obtain all relevant security documents completed in all respect particularly the following: • • • An application for loan is given. Promissory Note duly stamped is submitted. Mark-up agreement for the total amount involved i.e., purchases price, markup for the agreed period and mark-up for the cushion period of 210 days.
•
Sufficient tangible prime/collateral securities of stable value and of an easily realizable nature the relevant documents are submitted (lien and related documents).
• •
Two personal guarantees are presented. Adequate insurance as appropriate covering charged in bank’s favor. The cost of insurance to be borne by the borrower.
Demand Finance:
A fixed amount of financing accommodation is allowed to the borrower for a fixed period repayable either in periodic installments or in lump sum at a fixed future date. This accommodation is extended in lump sum for the mutually agreed period and the borrower has to repay the entire amount of finance together with mark-up at the agreed rate. The procedure for D/F is the same as that of R/F. In case a party does not adjust the outstanding amount on due date, falling on last day of the month the Mark-up would be adjusted / worked out from the first to last day of expiry.
Personal Loans:
Customers whose salary account is maintained by bank are eligible for this type of loan. It is up to three basic salaries of employees of government organization. The objective of this type of loan is to improve the life style of customers.
Staff Loans:
These types of loans include house loans, car loan etc. they are long term loans. Amount is deducted every month from the salary of employee.
Loan Sanctioning Powers:
For Firms • • Head office can sanction 40 million rupees or above firms Regional headquarter can sanction maximum 20 million rupees for firms
• • •
Zonal Chief can sanction maximum one million. Head office can sanction 10 million rupees or above for individuals. Regional headquarter can sanction maximum 10 million rupees Zonal Chief can sanction 0.5 million rupees for individuals.
For Individuals
2.12.8 CASH DEPARTMENT:
Cash department deals with the cash. It includes the handling of cash and the ratio available for the daily use
2.12.9 ACCOUNTS DEPARTMENT:
Accounts department maintains all related matters of accounting, salary, and wages, proper making of accounting etc. Accounting department implements the policies of finance department.
2.12.10 COMPLIANCE DEPARTMEENT:
Compliance department have been made to avoid illegal activities. Audit is a statutory requirement for every department and so far a bank. Audit personnel perform their duties so that fraud and error can be avoided. Many lawyers have been appointed by bank who deals with court cases. Sometimes, when any employee is dismissing from service he attends the court for restoration of service whereas the bank lawyers defend the case.
2.12.11 UTILITY DEPARTMENT:
Bank receives utility bills i.e. (Electricity Bills, Sui-Gas bills, Telephone Bills) through this department. The bank also offers evening banking services for receiving of utility bills after regular working hours.
CHAPTER 3
FUNCTIONS OF ACCOUNTS / FINANCE / AUDIT DEPARTMENTS
C H A P T E R 3
3.1 ACCOUNTS DEPARTMENT:
Account Department of any branch of bank is a major department. It performs all the activities of accounting in bank. This department is responsible to maintain the proper record of account holders and other account of the branch.
3.2 FUNCTION OF ACCOUNT DEPARTMENT:
The main function of this department is to handle the cash, record the cash transaction, summarizes all the bank transaction daily and sends the report to head office. This department is headed by a CD in charge (cash department in charge) the department involves in the process of receipt / check of cash and payments. This department comprises of two sections. • • ACCOUNTS CASH.
Cash section involves only in the payment and receipt of cash from and to the customers. While the activities of Deposit section is to check the balance of the client posting of the Cheque and deposit slip in ledger register or computer and the verification of signature on the Cheque. The cheque is then passed on to the cashier for payment. The cash section and the Deposit sections separately maintain their balances in system at the closing of day for verification. The Deposit department prepares the list of all bank transaction daily enter the cash transactions and transfer transactions in cash and transfer registers respectively and send the daily report to the head office. The activities of Account department can be summarized as fallows: • • To check and maintain daily activities of branch. To maintain daily deposit in branch.
• •
To records transactions with SBP. To check debt & credit vouchers of branch and verify these transaction, these are correctly records or not and if mistakes is found it would be sent for correction in respective department.
• • • • • • • •
To calculate the depreciation of various assets. To check any variation in sundry credits and debtors. Financial and cost accounting of branch. Workout a planning and budget document. To prepay weekly, monthly internal and external reports. To maintain daily income and expenditures of the branch. To prepare the balance sheet and profit and loss account and tax report of branch. To prepare daily position of branch and statement should be provided to the following o Branch Manager o Manager Credit o Manager Operation
• • •
Payments and receipt of the cash and checks Prepare the account holders statement periodically Verification of the cash balance
3.3 AUDIT DEPARTMENT:
Every organization has certain rules and regulation and its functions are to keep in mind those rules. NBP follows the prudential regulations given by the State Bank of Pakistan. Therefore, in order to check whether the organization is going on right track, there is an Internal Audit and Inspection Department.
3.4 FUNCTIONS OF AUDIT:
The main function of audit is to monitor the implementation of policies, rules, regulations, and prescribed procedures with a view to ensure improved operations. It maintains check and balance on behalf of management. This in turns calls for a high standard of professional skills and judgments on part of Auditors. There are different types of audit that are done like internal audit, external audit, financial audit, pre-penalty audit, special assignments audit (staff problems, disputes, expenditure exceeds etc). It is basically the audit department who performs all these functions.
3.4.1 Core objectives of Audit:
1. Existence of audit ensures moral pressure on staff of the organization. If audit
is conducted regularly and effort is well timed, the working staff is always on alert and keeps doing the job properly. 2. Detection and prevention of errors and mistakes such as omission commission
compensatory, incorrect valuation of assets. 3. See that the financial control on paper is practically applied.
3.4.2 Audit techniques adopted by NBP:
Audit techniques may differ from organization to organization depending upon the size, complexity and volume of transactions. Followings are the broad - based audit procedures which NBP Auditors use while conducting inspection of branch. The techniques and procedures are: • • • • • Audit should be surprise Physical verification Confirmations Advances Deposits
• • •
Income and expenditures Audit of day to day affairs Reconciliation of head office and clearing audit
3.4.3 EXTERNAL AUDIT:
It is the requirement of State Bank of Pakistan that every public or private limited company should have an audit once in a year by professional auditors. This is done to verify the accounts, so that the true picture of the company is revealed to government, loan lending institutions, shareholders and general public.
3.4.4 INTERNAL AUDIT:
Internal audit is an independent appraisal activity within an organization for the review operations as a tool to management. NBP internal audit department fulfills its responsibilities by doing audit in two stages: • • Pre-audit Post audit
Pre-Audit:
Pre-audit is done on daily basis. It is a sort of clearance or approval. Every thing is checked by the internal auditor such as: dues amounts, cheques, legal cases, vouchers, salaries and allowances, repairs and maintenance expenses, inventory checking, repayment schedules. Apart from it, auditor also goes for a weekend or surprise visit to any department and can ask for any document. Audit a voucher: The record in banks is maintained through vouchers. Every voucher is first pre-audit. Things like date, issuing person, amount, and sign, supporting bills or documents are checked. If the voucher is cleared then cheque is made. In case, the auditor has doubt then he will ask for clarification from the concern department.
Audit a cheque: There are certain things that are checked while auditing a cheque such as: branch name, amount in figures and words should be same, no over writing, signing authority. No cheque is withdrawn without audit. Auditor also checks that whether the amount is entered correctly in the books of accounts or not. Auditor signs daily opening and closing balance of accounts.
Post Audit:
Post audit is a final confirmation test, which checks the occurrence of transactions. It is done twice in a year by the audit team. Post audit is done of the branches and the head office.
3.4.5 BRANCH AUDIT:
In NBP branches there are three facilities available deposit, lockers and advances. There are different things, which are checked during inspection. Some mistakes are on the spot rectified, others are noted so that the top management knows about the affairs of the branch. The things, which are checked, are: • • • • • • • • • Deposits & profit targets Cash department Key movement register Account reconciliation statement Banker's account Customer services Expenditure control Very serious irregularities Routine lapses
There are different registers maintained in branch for the purpose of recording transactions, which are checked: • • • • • • • • • Cash receipt & payment register Cash transfer register Key movement register Deposit & advances register Rent payment register Income & expenditure register Lockers attendance register Daily statement of affairs Every type of vouchers
The audit team notes the objections and prepares a report which is given to branch manager so that he will reply about the objections. This compliance is to be submitted by the Branch Manager within 15 days. Confidential report having important observations is sent to higher authorities of the bank. A letter related to the inspection report is sent by Banking Department to Branch Manager asking to take prompt actions against some serious irregularities. Then branch sends its compliance to the head office. In the end, if all the compliances are done and the management is satisfied then letter of assurance from manager comes to the Head Office ensuring that mentioned objections will not be practiced in future.
3.5 FINANCE AND ACCOUNTING OPERATIONS:
It is very clear that finance and accounting are two different fields, but a deep sight reveals that these two have something to do with each other. Finance means the management of money or funds. The management means art of using the funds and generating the funds. Whereas, accounting means entries of the transactions, calculations, preparations of statement and dealing with numerical figures. When
decisions are made in finance for using funds or getting funds by some means, this needs some accounting like debit-credit entries, calculations etc. Finance department is more sensitive and has more responsibilities on its shoulders. It is performing duties of allocation of funds in the most appropriate and safe way. That is why, in advances department two Officers are doing the job of lending and one is responsible for securities held as collateral. Finance operations include getting more and more deposits, giving loans and making investments to generate more funds, this is what the objective of the Finance department is. Now coming towards the accounting operations, in the bank entire accounting system is based on debit-credit mechanism. Whichever statement the accountant is preparing whether cash report, daily scroll, general ledger or statement of accounts, it has three columns Dr. Cr. And Balance. For debit or credit transactions, bank uses debit vouchers or credit vouchers, for acceptance of money credit vouchers is used and for payment of money debit vouchers are used. Accounting operations originate from an entry, which is recorded on the books of account through a voucher. From voucher it is recorded on “Receipts Register” or “Payments Register” then goes into “Scroll”, from where “Cash report” is prepared. In the end it is the “General Ledger” that is prepared which should always be balanced. Accounting operations also includes preparations of statement of monthly expenditures, monthly statement of Profit/Loss, monthly statement of Liabilities, weekly accounts schedule and statement of SBP Accounts etc.
3.6 THE ROLE OF FINANCIAL MANAGER:
The financial manager plays a dynamic role in a modern company’s development. This has not always been the case. Until around the first half of this century, financial managers primarily raised funds and managed their firms and improved cash financial positions. In the 1950s, the increasing acceptance of present value concepts encouraged financial managers to expand their responsibilities and to become concerned with the selection of capital investment projects. Today, external factors have an increasing impact on the decision financial manager. Heightened corporate competition, technological change, volatility in inflation and interest rates, worldwide
economic uncertainty, fluctuating exchange rates, tax law changes, and ethical concerns over certain financial dealings are dealt with almost daily. Thus, today’s financial manager must have the flexibility to adapt to the changing external environment if his or her firm is to survive. The role of financial managers in establishing/maintaining good working relationships with other financial institutions in terms of financial management is very important. Therefore, in the first instance he should have co-ordination and extensive terms with other financial institutions for smooth financial management. Most of the time, payments are made through cheques/certificates or any other non-cash item. Then, it is the prime responsibility of finance manager to encash those payments from other banks/institutions through correct accounting procedures. Cash management is one of the greatest responsibilities of finance manager. When customers draw amounts from any other bank including ATM’s, there is excessive requirement of cash management so that correct accounts are debited and credited. Likewise, it is the responsibility of finance manager to provide and arrange cash as and when needed. It is only possible if he/she has good coordinating terms with other financial institutions. Thirdly, in term of credit management, relationship of financial managers with other financial institutions should also be very reliable. Various organizations, business and other financial institutions seek credit supports. This is the time when the finance manager uses his skills to check credibility of the customer and then to decide whether credit should be extended or not. Likewise, it is the duty of finance manager when situation is opposite i.e. when his/her own bank/branch is in need of credit support. Then he/she may use good terms established during credit provision and make use of them.
3.7 USE OF ELECTRONIC DATA IN DECISION MAKING:
The essence of management is making decisions. Managers are constantly required to evaluate alternatives and make decisions regarding a wide range of matters. Just as there are different managerial styles, there are different decision-making styles. Decision making involves uncertainty and risk, and decision makers have varying degrees of risk aversion. Decision making also involves qualitative and quantitative
analyses and some decision makers prefer one form of analysis over the other. Decision making can be affected not only by rational judgment, but also by nonrational factors such as the personality of the decision maker, peer pressure, the organizational situation, and others. Electronic data is very helpful in decision making. It helps in quick decision making. Due to the increase in business volume and the world is becoming a global village, the need of electronic data in decision making is very much important. There are number of branches of bank working inside and outside the country. These electronic data is very helpful for decision making.
3.8 SOURCES & USES OF FUNDS:
3.8.1 Sources of fund of NBP:
NBP is a business Organization and its main objective is to earn profit. It provides a number of services to its customers in order to achieve its objective. It offers a variety of interests bearing obligations to the public. These obligations are the sources of funds for the bank and are shown on the liability side of the balance sheet of the bank. The main sources of funds of NBP are: • • • Fixed Deposits Saving Deposits Current Deposits
These deposits are the major sources of funds of NBP.
Fixed Deposits:
Time deposits are lodged with the bank for a fixed period of time. The bank pays interest to the depositors.
Saving Deposits:
Saving deposits is an important source of NBP funds. The bank pays interest on the minimum monthly balance to the depositors at the end of the June and December every year. The depositors are normally allowed to withdraw a limited amount of money only twice a week.
Current Deposits:
A current account is a running account which is continuously in operation. The bank does not pay any interest on these deposits.
Capital Accounts:
Capital accounts are an important source of bank funds. There are four common form of capital account.
Capital Stock:
It consist of total common stock outstanding valued at par.
Surplus:
This is a portion of undivided profit set a side.
Undivided Profit:
Undivided Profit consists upon net difference between the total assets of the bank & the sum of liabilities capital stock surplus & other contingencies undivided profit is the balancing item on the balance sheet.
Reserve for contingency:
Reserve for contingency is an account held by the bank for the purpose of accommodating losses realizes insecurities and certain other considerations.
Other Borrowing:
Borrowing is another item on the liability side of the balance sheet of a bank. The NBP can also raise fund for short period of time by borrowing from the central bank. The NBP also borrows funds by the sale of promissory notes, loams & securities.
3.8.2 USES OF FUNDS:
The use of funds is an important side of the bank operation. NBP uses of funds mainly consist upon:-
Primary Reserve:
The primary reserve is the each asset held by the bank The cash assets include: • • • • Required reserve with central bank Cash in currency coins Demand balance with other banks Cash items in the process of collection.
Bank Loans:
The bank loans considered are an important component of uses of funds. NBP advance loan to individuals, financial institutions, traders, farmers, industrialists, security broker dealers etc, for different periods of time. Most of the bank loans are advances against security. Through which the bank covers the risk of loss in case the borrower is unwilling to pay the loan at maturity.
Investment in Securities:
The NBP uses a large amount of funds on the purchase of earning assets. The investment in securities is one of the assets, which is most profitable to the bank. Bank hold securities, treasury bills of the federal & provincial government shares, debenture, bonds, units of National Investment Trust, gold etc.
3.8.3 SOURCES OF INCOME OF NBP:
Interest Income: The major portion of its income is the interest, which is charged on different types of loans granted.
Profit: NBP has started different projects on the partnership basis and the profit from that project is distributed between bank and partners according to the agreed ratio. Profit on Securities: NBP has invested major portion of its sources in different marketable and non marketable securities and profit received on securities investment. Locker Rent: NBP has locker which are available to public for saving different precious things and documents. The bank received the rent for the use of that locker. Collection charges on Utilities Bills: NBP also received the utility bills from public. Service Charges: NBP charged service charges from account holders and on banking instruments. Commission: NBP is performed different services for its customers and commission is charged for the award of these services. Collection Charges: NBP collect the amount of customer from other banks and institutions on that collection, collection fee is charged at the rate of 2% of total amount. Discounting on the Bills of Exchange: NBP is discounting on the bill and
discount received on that bill discounted at the rate of 9% of total amount.
3.8.4 EXPENSES OF NBP:
Interest on Deposits: NBP uses the money deposited by the public and interest is paid on that deposit to the depositors at different rates of interest, fixed for different schemes offered by NBP. Salary Expenses: Salary and pension is paid to NBP serving and retired employees.
Marketing Expense: All the expenses of management of research, salaries and advertising are considered as a marketing expense. Bad debts or Loan written off: A huge portion of income is become expenses in the shape of bad debts. After the nationalization of the bank loans have been written off due to the economic and political basis. But after 1997 Govt. has tried to adopt the strict policy and asked the bank not to write off the loans on political basis.
CHAPTER 4
C H A P T E R 4
FINANCIAL ANALYSIS
4.1 FINANCIAL ANALYSIS:
Financial statement analysis is the principal mean of reporting the financial condition and the result of operations of an organization, or in other words we can say that financial analysis are carried out for the purpose of identifying the financial strengths and weaknesses of an organization by properly establishing the relationship between the balance sheet and income statement items. This analysis helps many parties in making decision who are interested in business activities. To improve the quality of decision making, proper analysis of these statements helps a lot. The firm itself and outsider providers of capital, creditors and investors all undertake financial statement analysis. The type of analysis varies according to the specific interests of the party involved. For example, suppliers are interested in liquidity of the firm. There claims are short term, and the ability of the firm to pay these quickly is best judged by an analysis of the firm’s liquidity. The claims of the bondholders, on other hand, are long term. So bond holders are more interested in cash-flow ability of the firm. Investors are commonly concerned with present and future earnings. As a result, investors usually focus on analyzing profitability. They would also be concerned with the firm’s financial conditions insofar as it affects the ability of the firm to pay dividend and avoid bankruptcy. Management also analyzes financial analysis for the purpose of internal control and to check the performance of the firm. Similarly government agencies analyze financial data for the tax purpose.
4.2 TOOLS OF ANALYSIS:
1) Ratio Analysis 2) Vertical Analysis 3) Horizontal Analysis
4.3 RATIO ANALYSIS:
An index that relates two accounting numbers and is obtained by dividing one number by other. We calculate ratios because in this way we get a comparison that may prove more useful than the raw numbers by themselves.
4.4 LIQUIDITY RATIOS:
Liquidity Ratios are used to judge a firm's ability to meet short term obligations. It shows the each solvency of a firm and its ability to remain solvent in the event or adversities.
4.4.1 CURRENT RATIO:
Current ratios measure the number of times a company’s current assets cover its current liabilities. The higher the ratio, the greater is the company’s ability to meet its short term obligations as they come due. Current ratio is calculated by dividing current assets by current liabilities. Current Ratio = Current Assets Current Liabilities (Rs. In Million) Current Assets 2003 440,97 2004 524,88 7 483,88 8 1.08 2005 544,32 3 473,94 1 1.15 2006 598,33 7 524,19 5 1.14 2007 705,276 609,889 1.16
4 Current Liabilities 417,60 Current Ratio 0 1.06
CURRENT RATIO
2007 1.16
2003 1.06
2006 1.14 2005 1.15
2004 1.08
4.5 LEVERAGE RATIO:
Financial leverage is the extent to which a company is financed with debt. The amount of debt a company uses has both positive and negative effects. The more the debt, the more the company will have trouble in meeting in its obligations. Thus the more debt, the higher is the profitability of financial distress and bankruptcy. On the other hand debt is the major source of financing and banking industry typically uses the higher percentage of debt. Debt financing provides significant tax advantage and its transaction costs are low than that of equity. Leverage ratios measure the amount of financial leverage. Commonly used leverage ratios are debt ratio, and debt to equity ratio.
4.5.1 DEBT-TO-TOTAL ASSETS RATIO:
Debt ratio shows the fraction of the company’s assets that is financed by debts. Creditor of a company would generally like this ratio to be low. The ratio is derived by dividing a firm’s total debt to its total assets. Debt-To-Total Assts Ratio = Total Debts Total Assets
(Rs. in Million) Total Debts Total Assets 2003 441,38 8 468,97 2004 506,98 5 553,23 1 0.92 2005 501,90 1 577,71 9 0.87 2006 553,17 8 635,13 2 0.87 2007 645,856 762,194 0.85
2 Debt-To-Total Assets Ratio 0.94
Debt-To-Total Asse ts Ratio
2007 0.85
2003 0.94
2006 0.87 2005 0.87
2004 0.92
4.5.2 DEBT-TO-EQUITY RATIO:
This ratio indicates the extent to which debt financing is used relative to equity financing. Debt-To-Equity Ratio = Total Debts Shareholder’s Equity
(Rs. in Million) 2003 Total Debts Shareholder’s Equity Debt-To-Equity Ratio 441,38 8 27,584 16.00 2004 506,98 5 46,246 10.96 2005 501,90 1 75,818 6.62 2006 553,17 8 81,954 6.75 2007 645,856 116,338 5.55
De bt-To-Equity Ratio
2007 5.55 2006 6.75 2005 6.62
2003 16
2004 10.96
Here the trend of this ratio is decreasing which is 16 in 2003 and decreased to 10.96 in 2004 and further decreased to 5.55 in 2007. This shows that debt financing was more used in previous years but now it’s decreasing and equity financing is used also so it’s also increasing.
4.6 COVERAGE RATIO:
Coverage ratio shows the number of times a company can cover or meet a particular financial charge or obligation. One of the most commonly used coverage ratios is the interest coverage ratio.
4.6.1 INTEREST COVERAGE RATIO:
It measures the number of times the income is available to pay interest charges and covers the company’s interest and thus avoids bankruptcy. The ratio is calculated by dividing the income before interest expense and tax of a period by interest expense of the same period. The higher the ratio, the greater is the likelihood that the company could cover the interest expenses. Interest Coverage = Earning Before Interest And Taxes Interest Expense
(Rs. in Million) 2003 EBIT Interest Expense 9,00 9 6,73 2004 11,97 7 6,559 1.83 2005 19,05 6 10,32 2 1.85 2006 26,31 0 13,94 7 1.89 2007 28,060 16,940 1.66
5 Interest Coverage 1.34
Interes t Coverage
2007 1.66
2003 1.34
2006 1.89 2005 1.85
2004 1.83
This ratio serves as one measure of the firm’s ability to meet interest payments and thus avoid bankruptcy. The higher the ratio, the greater the ability that the company can cover its interest payments without difficulty. It also sheds some light on the firm’s capacity to take on new debt. The interest coverage ratio of NBP has shown an improvement over the period of five years. In the year 2006, the ratio is 1.89, which shows that the income in 2005 covers 1.85 times the interest expense. As the core business of a bank is borrowing and lending, interest expense constitute the main expense of the business that’s why the interest expense is so higher and ratio is so lower.
4.7 ACTIVITY RATIO:
4.7.1 TOTAL ASSET TURNOVER (TAT) RATIO:
This ratio measures relative efficiency of total assets to generate sales. TAT = Net Sales Total Assets (Rs. in Million) 2003 Net sales 19,452 2004 20,947 553,23 1 0.03 2005 33,693 577,71 9 0.06 2006 44,102 635,13 2 0.07 2007 50,569 762,194 0.07
Total Assets 468,97 TAT 2 0.04
Total Asset Turnover
2007 0.07
2003 0.04 2004 0.03
2006 0.07
2005 0.06
This ratio remained same for two years that is in year 2006 and in year 2007 because both total assets and net sales are increasing in a same manner in these two years but in 2007 total assets increased in same ratio but net sales have increased rapidly. It’s mainly because of increase in advances.
4.8 PROFITABILITY RATIO:
4.8.1 NET PROFIT MARGIN:
It measures the profit that is available from each rupee of sales after all expenses have been paid, including cost of sales, selling, general, and administrative expenses, depreciation, interest, and taxes. The ratio is calculated as follows: Net Profit Margin = Net Profit After Taxes Net Sales * 100
(Rs. in Millions) 2003 Net profit after taxes 4,198 Net sales 19,45 2 2004 6,195 20,94 7 2005 12,70 9 33,69 3 2006 17,02 2 44,10 2 2007 19,034 50,569
Net profit margin
21.58
29.57
37.72
38.60
37.64
Net profit margin
2007 37.64
2003 21.58 2004 29.57
2006 38.6
2005 37.72
Net profit margin of NBP has improved over time and its showing an increasing trend. The cost of goods sold decreased in year 2005 but again increased in year 2006. The administrative expense is increasing but other charges have decreased first in year 2005 and then increased vastly in year 2006. One other explanation might be that the tax rate on income has increased.
4.8.2 RETURN ON INVESTMENT (ROI):
Return on investment (ROI) or return on assets, measures profitability per rupee of investment in assets. The ratio is calculated as under: ROI = Net Profit After Taxes Total Assets Net Sales Total Assets
ROI = NET PROFIT MARGIN × TOTAL ASSETS TURNOVER (Rs. in Million) 2003 Net Profit Margin 21.58 2004 29.57 0.03 2005 37.72 0.06 2006 38.6 0 0.07 2007 37.64 0.07
Total Assets Turnover 0.04
ROI
0.863 2
Return On Investm ent
0.887 1
2.263 2
2.70 2
2.6348
2007 2.6348
2003 0.8632 2004 0.8871
2005 2.2632 2006 2.702
The ROI figures of NBP shows a consistent increase over the last three years. The reason for this increase is due to increase in the net profit of the bank. Although total assets are also increasing but the increase in the net profits are more than the total assets. The positive change in ROI figures shows the outstanding performance of the bank.
4.8.3 GROSS PROFIT MARGIN:
Gross profit is the difference between revenues and cost of goods or services sold. Gross profit is critical because it represents the amount of money remaining to pay operating expenses, financing costs, and taxes, and to pay for profit. Gross profit margin is the amount of each sale rupee left over after paying the cost of goods or services sold. It is calculated as follows:
Gross Profit Margin = Gross Profit Net Sales
Gross profit margin
( Rs in Million)
2003 Gross profit Net sales 12,71 6 19,45
2004 14,38 8 20,94 7 0.69
2005 23,37 1 33,69 3 0.69
2006 30,15 4 44,10 1 0.68
2007 33,629 50,569 0.66
2 Gross profit margin 0.65
Gross profit m argin
2007 0.66
2003 0.65
2006 0.68 2005 0.69
2004 0.69
It showed increasing trend 2004 to 2005. In 2004 to 2005 the gross profit increased but mark up expenses decreased but in 2005 to 2006 gross profit increased and mark up expenses decreased.
4.8.4 RETURN ON EQUITY (ROE):
It is another measure of overall performance of a company. The ratio is calculated as under:
ROE =
Net Profit After Taxes Net Sales
Net Sales Total Assets
Total Assets Shareholder’s Equity
ROE = NET PROFIT MARGIN × TOTAL ASST TURNOVER × EQUITY MULTIPLIER
200 5 Return on Equity 40.6
200 6 37.5
2007 31.1
Return on Equity
2007 31.1
2005 40.6
2006 37.5
Return on equity of NBP is showing fluctuating trend in last three years. It is because the shareholders equity is increasing with a constant change but net profit increased slowly in 2005 as compare to increase in 2006, which is double than 2005.
4.9 COMMON SIZE ANALYSIS:
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues is called common size analysis. Common size analysis can give analyst valuable insight into changes that have occurred in a firm’s financial condition and performance. As common size analysis gives us relative percentage of an item with
respect to total, so the growth or decline in various items of balance sheet and income statement can not be detected from common size percentages.
HORIZONTAL ANALYSIS:
The development of data measuring changes taking place over a number of periods is known as horizontal analysis.
VERTICAL ANALYSIS:
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.
4.10 BALANCE SHEETS
Rupees In ‘000 2003 ASSETS Cash and balances 59,420,502 with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax assets TOTAL ASSETS 468,972,32 2 553,231,56 7 577,718,80 6 635,132,71 1 762,193,593 166,195,61 9 161,265,76 0 19,059,031 8,939,483 149,350,09 6 220,794,07 5 19,141,569 9,202,969 156,985,37 8 268,838,77 9 23,941,256 9,454,365 139,946,99 5 316,110,40 6 27,113,698 9,681,974 210,787,868 340,677,100 30,994,965 25,922,979 24,154,070 29,937,857 49,784,884 10,511,322 31,019,330 16,282,942 40,641,679 23,012,732 37,472,832 21,464,400 94,446,552 71,196,956 78,625,227 94,873,249 2004 2005 2006 2007
LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities
5,496,738 16,569,673
7,214,671 11,084,790
1,741,156 8,756,847
10,605,663 11,704,079
7,061,902 10,886,063
395,492,33 1
465,571,71 7
463,426,60 2
501,872,24 3
591,907,435
41,117 23,192,585 595,864 441,388,30
17,058 23,068,314 29,185 506,985,73 5 4,924,106 10,813,914 9,161,747 24,899,767 21,345,965
16,629 23,496,910 4,462,718 501,900,86 2 4,924,106 10,813,914 9,161,747 24,899,767 21,345,965
13,235 26,596,300 2,387,073 553,178,59 3 7,090,712 13,879,260 32,074,677 53,044,649 28,909,469
33,554 30,869,154 5,097,831 645,855,939
8 SHAREHOLDER’S EQUITY Share capital 4,103,122 Reserves 8,133,312 Unappropriated 5,897,163 profit Surplus on revaluation of assets TOTAL LIABILITIES & EQUITY 69,548,177 18,134,897 9,450,117
8,154,319 15,772,124 45,344,188 69,270,631 47,067,023
578,131,23 4
573,046,36 1
688,177,36 0
831,464,224
4.10.1 COMMON ANALYSIS
%)
2003 2004 2005 2006 2007
ASSETS
Cash and balances with treasury banks Balances with other banks 12.6703 6 5.15042 5 17.0718 8.99892 5 12.3238 5.36927 6 12.3793 4 6.39892 7 12.4474 4.91644 7
Lendings institutions Investments Advances Other assets
to
financial
6.38371 5 35.4382 6 34.3870 5 4.06399 9 1.90618 6 0 100 7.90349 7
1.89998 6 26.9959 5 39.9098 9 3.45995 7 1.66349 3 0 100
2.81848 8 27.1733 1 46.5345 2 4.1441 1.63649 9 0 100 0.30384
3.62329 5 22.0342 9 49.7707 6 4.26898 2 1.52440 2 0 100 1.54112 3 1.70073 6 72.9277 5
2.81613 6 27.6554 3 44.6969 4 4.06654 9 3.40110 3 0 100 0.84933 3 1.30926 4 71.1885 6
Operating fixed assets Deferred tax assets
LIABILITIES
Bills payable Borrowings from financial institutions Deposits and 1.24793 1.91734 8 80.5304 6 2 1.52812 2 80.8707
23.8247
4 other 568.659 5
accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities
0.00295 0.05912 33.3475 1 0.85676 4 34.2633 9 1 3.99015 2 0.00504 8 87.6938 8 0.85172 8 1.87049 5 1.58471 8 4.30694
0.00290 2 4.10035 1 0.77877 1 87.5846 9 0.85928 6 1.88709 2 1.59877 9 4.34515
0.00192 3 3.86474 5 0.34686 9 80.3831 4 1.03036 1 2.01681 4 4.66081 5 7.70799
0.00403 6 3.71262 6 0.61311 5 77.6769 4 0.98071 8 1.89691 5.45353 4 8.33116
SHAREHOLDERS EQUITY
Share capital Reserves Unappropriated profit 11.6945 8.47924 9 26.0753 5.89968 3
Surplus on revaluation of 13.5878 assets 7 100
3.69223 5 100
8 3.72499 8 100
1 4.20087 5 100
2 5.66073 9 100
4.10.2 COMMON SIZE ANALYSIS OF BALANCE SHEET:
The common size analysis of NBP’s balance sheet shows that on the assets side Advances are showing increasing trend. It shows that the efficiency of NBP is increasing. Its products and different schemes of advances are favored by people and they are taking interest in having loans from NBP. On the other way investment side is showing decreasing trend. As advances are increasing with a very good growth rate so now there is no need for NBP to invest money in many different businesses. Advances are usually main source of income for banks and rate of interest is also high. On the liability side, the common size analysis of total liabilities is showing decreasing trend which is mainly due to bills payable, borrowings, and liabilities against assets. Bills payable have decreased too much in just one year and borrowings from financial institutions have also decreased and all this shows that in future the liabilities side will be continuously decreasing. On the owners equity side the share capital and reserves are increasing which may be the cause in increasing change in inappropriate profit.
4.11 INCOME STATEMENT:
2003 Mark-up revenue Mark-up expense Gross profit margin 19,452,31 7 6,735,579 12,716,73 8 2004 20,947,33 3 6,559,398 14,387,93 5 2005 33,692,66 5 10,321,76 8 23,370,89 7 2006 44,100,93 4 13,947,21 8 30,153,71 6 2007 50,569,48 1 16,940,01 1 33,629,47 0
Provision for advances Provision for investment Provision against balance sheet Bad debts written off Net mark-up income Fee & commission Dividend income Exchange income Other income Total non markup Total income Administrative expense Other provisions Other charges Non markup expense Profit before tax Taxation Profit after tax
1,684,777 459,523 474,743
1,515,354 185,707 14,297
2,446,739 (245,881) -
3,075,723 (709,461) -
4,723,084 (40,248) -
10,097,69 5 3,260,863 1,126,742 710,726 2,149,800 7,248,239 17,345,93 4 8,280,878 33,454 22,894 8,337,226 9,008,708 4,810,605 4,198,103
32,807 12,639,77 0 5,099,195 1,273,863 1,008,988 875,113 8,257,159 20,896,92 9 8,878,801 32,243 8,284 8,919,328 11,977,60 1 5,782,229 6,195,372
23,069 21,146,97 0 4,926,604 1,718,478 1,205,638 177,839 9,392,351 30,539,32 1 11,221,78 9 198,298 63,206 11,483,29 3 19,056,02 8 6,346,584 12,709,44 4
5,284 27,782,17 0 6,144,628 2,891,755 1,333,840 627,618 12,162,89 2 39,945,06 2 13,443,44 1 (17,283) 208,327 13,634,48 5 26,310,57 7 9,288,231 17,022,34 6
39,899 28,906,73 5 6,781,683 3,263,246 1,042,827 147,363 13,544,84 5 42,451,58 0 14,205,91 1 168,027 17,141 14,391,07 9 28,060,50 1 9,026,728 19,033,77 3
4.11.1 COMMON ANALYSIS%)
2003 Mark-up revenue
100 100 31.31376 68.68624 7.234114 0.886542 0.068252 0.156617 60.34071 24.34293 6.081266 4.816785 4.177682 39.41866 99.75938 42.38631 0.153924 0.039547 42.57978 57.1796 27.60365 29.57595 100 30.63506 69.36494 7.261934 -0.72978 0 0.068469 62.76431 14.62219 5.100451 3.57834 0.527827 27.87655 90.64086 33.30633 0.588549 0.187596 34.08247 56.55839 18.83669 37.72169 100 31.62567 68.37433 6.974281 -1.60872 0 0.011982 62.99678 13.9331 6.557129 3.024516 1.42314 27.57967 90.57645 30.48335 -0.03919 0.472387 30.91654 59.65991 21.0613 38.59861 100 33.49849 66.50151 9.339791 -0.07959 0 0.078899 57.16241 13.41062 6.452995 2.062167 0.291407 26.78462 83.94704 28.09187 0.33227 0.033896 28.45803 55.489 17.85015 37.63885
2004
2005
2006
2007
Mark-up expense
34.6261
Gross profit margin
65.3739
Provision for advances Provision for investment Provision against balance sheet Bad debts written off Net mark-up income Fee & commission Dividend income Exchange income Other income Total non mark-up Total income Administrative expense Other provisions Other charges Non markup expense Profit before tax Taxation Profit after tax
8.661061 2.362305 2.440547 0 51.90999 16.76337 5.792328 3.653683 11.05164 37.26157 89.17156 42.57014 0.17198 0.117693 42.85981 46.31175 24.73024 21.58151
4.11.2 COMMON SIZE ANALYSIS OF INCOME STATEMENT:
The common size analysis of Income statement of NBP as given in the above table is showing a consistent increasing trend in the bank’s gross profit margin. The main reason behind this increase is that the bank has controlled its mark up expenses in relation to total mark up revenue, which were constantly reduced in year 2005 to year 2006. In simple words we can say that this decreasing trend in the mark up expenses resulting in the increased gross profit. Mark up expenses is actually cost of sale in case of a bank. Furthermore this increasing in gross profit margin shows the efficiency of the bank’s management in controlling mark up expenses. So this
increasing trend of a gross profit margin is a positive and healthy sign and the bank’s management should continue such type of efforts in order to achieve such type of results in future. Now if we look at the figures of analysis of total income then we will see the decreasing trend in 2006 with respect to 2005. It is because of major decrease in fees and commission, which shows that the services of NBP other than advances and investments provided for daily use purpose of the customer are not regularly used by customers. If we look at the figures of non mark up expense there is decreasing trend, which is because of decrease in administrative expense. The increasing rate of gross profit is less with respect to net profit because non mark up expense and taxes both are showing reducing trend which is the main purpose in more increase in net profit with respect to gross profit.
CHAPTER 5 SWOT ANALYSIS
C H A P T E R 5
5.1 SWOT ANALYSES:
The strength and weaknesses are analyzed inside the organization, while opportunities and threats are analyzed from the general environment (which is outside the organization). NBP SWOT analysis is given below:
5.2 STRENGTHS:
Strength is first part of the SWOT analysis and we can say it that it is the positive or plus points of that organization which is being analyzed, so here first of all the strength of national bank of Pakistan is presented, so following are the strengths of the NBP:
Brand image of the National Bank:
National Bank brand images are its major strength. It has always been considered as the pillar of the country's economic scenario asset wise or balance sheet wise. Its image, work force, network and reputation have created a sentimental and emotional attachment of the people with the bank.
Computerized networking:
Complete computerized networking is strength of the bank. Now the bank has the ability to compete with any multinational bank as to keep pace with the changing and fast growing world of today, computers have become necessities.
Focus on expending business worldwide:
Another competitive edge that the bank has on the rest of the competitors is its expanding business worldwide, creating for a large and vast group of customer and maintaining standards of excellence globally. Recently NBP opened its branch at Kabul in Afghanistan and Government is trying to open the branch of NBP at India, and for that purpose finance secretaries of both countries dialogues on that issue.
Organizational culture:
As we know that it’s a pure government bank but the culture of management of NBP is very strong like a private sector bank. NBP's organizational culture is very friendly and interesting. Employees have created a very cooperative environment among each other. They have created loyalty toward the organization by differing their future efforts and struggles. The employees take the organizational troubles personally and try their best for the prosperity of the organization.
Strategic top management:
Fortunately NBP has got from time to time best top management. Currently the NBP Chairman and as well as President S. Ali Raza Shah, he is the person who has saved the life of the organization and contributed a lot.
Best research team:
Before the project financing NBP has the research team that justifies the economic and financial feasibility of project in the future. That is the strength that helps the organization from any loss that is to occur in the future in case of failure of the project.
Lenient policy with the clients:
This is one of the best policies of NBP that it does not keep rude behavior with its client if they are in their repayment of loan. It helps its customers in the rescheduling and restructuring of their loans for easy repayment.
Schemes:
NBP’s Schemes are also strength of the NBP because it is only bank which facilitates the each class of the society. For example, for businessmen it provides easy loans for expansion as well as starting new business, for farmers, for students, for government employees etc. The names of the schemes are as under: • • Educational loans (interest free) Saiban scheme
• • • •
Kisan dost Advance salary Cash n gold Karobaar
5.3 WEAKNESSES:
Monitoring and control of branches:
Branches are most important side for management of banks. National Bank of Pakistan’s management is facing troubles related to the task monitoring and control of branches. It is not easy when we look at the number of branches (which are approx. more than 1261 in the country at main cities as well as backward regions of the country) so in the result the problem of delay is faced by the management.
Exposure and experience of the staff:
The ways of the grooming of NBP employees are limited, and situational factors and professional hazards affect their efficiency and effectiveness. That is why they can not get appropriate experience so their exposure is affected.
Less attention to the rural development:
NBP's previous record shows that it has made project financing only in the major cities of Pakistan. But a reasonable attention is needed in the project financing of the rural based industrial project of the country.
Poor advertisement:
This is keenly observed that as compare to other banks, NBP is very poor in advertising itself and institution. NBP does not use proper publicity and other marketing tools for its schemes and for other products which affects its sales.
Loan formalities:
The formalities involved in getting loans are time concerning and complicated enough.
Favoritism in loans:
It is observed that most of the loans, which have been granted on political basis, are either default or their loans are forcefully written off.
Poor recovery system:
It is seemed that the recovery system of NBP is not effective that's why number of defaulters is increasing at the growing age.
Employee’s dissatisfaction:
Uncertainty among the employees is present due to threat of downsizing.
5.4 OPPORTUNITIES:
National Bank has very clear scenario for the future. They plan to gain their glory not only in terms of profitability but also include latest technology and competent work force.
Sponsor the IT based projects:
This is the best opportunity available to all banks and NBP as well, to sponsor the IT and computer based projects because the coming century is the century of information technology as now a day all the business community is diverting its attention towards this field.
Goodwill and better image:
NBP has advantage of generating more deposits and attracting valuable customers due to its better image in the business community. NBP has also advantage of increasing credit lines. This is only due to good dealing and better image that NBP has directly acquired. This better image can help further NBP in explanation of its activities.
Growth in the industrial sector:
NBP's major function is the project financing and it is doing with full its efforts. Fortunately industrial sector now-a-days in Pakistan is again growing thus increasing the business opportunities of NBP. As now a day WTO’s rules have implemented on the industries and NBP is going to fully participate to accommodate the issues related to the trade and development.
5.5 THREATS:
Economical instability:
If there is a threat to the entire economy, it will also create a threat for National Bank. As we know that this is the era of globalization and market competition, in the result our economy is facing the high level competition so NBP is also very much confused in long term financing in major projects.
Standards of competitors:
Recent facts and figures indicate that the bank’s major competitors MCB, HBL, Bank Alfallah, Askari commercial bank, Soneri bank etc are causing threats to the bank in the long run thus snatching away the market share by attracting a large number of customer due to their rising standards and they are giving quality services and value added products.
Political influence and instability:
This is the major threat for any business organization in Pakistan because the political officials influence NBP in financing those projects which are not valuable or write off those loans which are still able to pay, this political influence cause many problems in daily business thus profitability of NBP.
Lack of modern banking techniques:
NBP is following fifty years old style of banking. Still no computerized ledgers are used. No latest technologies are adopted. NBP is just depending on the same old style of banking.
5.6 RECOMMENDATIONS:
These are some recommendations, which I consider that will be helpful in increasing the picture and performance of NBP. • As NPB has its separate department of R&D but it is based at the head office, so it is immense important to enhance and run it at the grass root level which may help the branches which are located in the backward areas of the country. • The Islamic banking system should be adopted, because it is a pure public sector bank. • Every branch should be considered as a separate unit and should be evaluated individually, through this way NBP can easily know all the complex activities of the branch of that areas or localities, and then they can easily solve those problems. • There is an immediate need to make a new recruitment policy so that the bank can get properly trained employees who are best suited for the vacant positions. Political interference especially in recruiting should not be tolerated, and for existing employees the job description must be clearly defined by this way that the efficiency of employees should be increased which is in the favor of the bank. • Performance appraisal should be done on a semi-annual basis rather than an annual basis. In this way the employees will realize his or her short timings and will work more efficiently. • Promotions should not only do on the basis of seniority but performance should be considered, it is more helpful for the motivation of their employees.
•
If we see the annual report of NBP, their fixed assets are very small in number. Most of their offices in different cities are on rent. So they have to pay heavy rent, which decreases their profit. NBP should try to construct its own buildings.
5.7 CONCLUSION:
The importance of banks in the economy of any country is like a backbone, so the state government decided to start the banking system in their country, and by their own interference they control them, secure them according to the situation, and main purpose behind that is to facilitate their nation or their public. So the government of Pakistan has also a banking system. It is a head bank in Pakistan known as STATE BANK OF PAKISTAN which is largest bank of Pakistan. This bank works as the governmental department and its main function is to monitor all type of banks working inside specially as well as outside the country. National Bank of Pakistan is the second largest bank of Pakistan by all means; National Bank of Pakistan is widely used as an agent for State Bank of Pakistan and is also involved in commercial banking. National bank of Pakistan has a vital role in Pakistan’s banking history as well as in the economy of Pakistan, so it has a great significance. At present the national bank of Pakistan has improving its internal and external conditions, but due to the largest operations in Pakistan (because this is only bank which must cover the backward regions of the country where no any other commercial bank wants to go). It still faces many problems. These problems are new marketing strategies, organizational and management problems at the branches of backward regions, and motivation. Another main problem is faced by the NBP is labor unions because labor is most powerful because of CBA union which protect the labor's all actions. All above factors are causing problems of banking functional and growth of banking is being resisted. Mostly recruitment and promotions are under influence of political system of Pakistan. So it should be eliminated or should be reduced as much as possible and make it on merit and transparent.
NBP should fully concentrate to improve its performance and standards to meet the challenges by the economy as well as by the competitors and for this purpose it needs to overcome the problems and improve the quality of services specially in advance section, that will prevent it from huge losses.
REFERENCES
NBP Annual Report 2003 NBP Annual Report 2004 NBP Annual Report 2005 NBP Annual Report 2006 NBP Annual Report 2007 Economic Bulletin Jul-Aug 2008
doc_378913164.pdf
OVERVIEW OF THE ORGANIZATION
C H A P T E R 1
1.1 INTRODUCTION:
Money runs like blood in the veins of an economy and the hearts which pump the blood are the banks. Banks play significant roles in mobilizing savings thus taking great part in capital formation process. Their role in development of a country has increased with the advent of modern technology. The intense competition among the banks, privatization of the financial institutions and financial liberalization in general are gradually and continuously making the banking sector more efficient and effective.
1.2 BRIEF
INTRODUCTION
OF
NATIONAL
BANK OF PAKISTAN:
National Bank of Pakistan (the bank) was incorporated in Pakistan under the National Bank of Pakistan Ordinance, 1949 and is listed on all the stock exchanges in Pakistan. It’s registered and head office is situated at I.I. Chundrigar Road, Karachi. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. The bank also handles treasury transactions for the Government of Pakistan (GoP) as an agent to the State Bank of Pakistan (SBP). The bank operates 1,261 (2007: 1,250) branches in Pakistan and 22 (2007: 18) overseas branches (including the Export Processing Zone branch, Karachi). 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. National Bank of Pakistan maintains its position as Pakistan's premier bank determined to set higher standards of achievements. It is the major business partner for the Government of Pakistan with special emphasis on fostering Pakistan's economic growth through aggressive and balanced lending policies, technologically oriented products and services offered through its large network of branches locally, internationally and representative offices.
1.3
VALUES
OF
NATIONAL
BANK
OF
PAKISTAN:
• • • • • • • • • • • • Growth through creation of sustainable relationships with our customers. Prudence to guide our business conduct. A national presence with a history of contribution to our communities. Meet expectations through Market-based solutions and products. Reward entrepreneurial efforts. Create value for all stakeholders Care about relationships. Lead through the strength of our commitment and willingness to excel. Practice integrity, honesty and hard work. We believe that these are measures of true success. 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 environment2
1.4
ROLE
OF
NBP
IN
INTERNATIONAL
BANKING SECTOR:
National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group.
The role of the Financial Institution Wing is:
• To effectively manage NBP’s exposure to foreign and domestic
correspondence.
•
Manage the monetary aspect of NBP’s relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank’s profitability.
•
Generation of incremental trade-finance business and revenues.5
NBP Offers
• • The lowest rates on exports and other international banking products. Access to different local commercial banks in international banking.
The NBP provide many facilities to their customers nationally and internationally like Demand drafts, mail transfers, pay order, traveler’s cheques, letter of credit, commercial finance, foreign remittances, swift system, short term investments, and equity investments etc. NBP also put in place the rationalization program by staff reduction and Branch closures to ensure optimum efficiency in staff levels whiles balancing the benefits of technology with the branch restructured network. Head Office structure comprises of following groups and department. 1. Operation Group 2. Corporate and investment Banking Group 3. Special Assets Management Group 4. Commercial and Retail Banking Group 5. Audit and Inspection Group 6. Overseas Coordination and Management Group 7. Risk Management Group 8. Treasury Management Group 9. I.T. Planning and Implementation Group 10. Human Resources and Administration Group 11. Compliance Group 12. Organization Development and Training Group
National Bank of Pakistan is the premier commercial institution of Pakistan cater the large diversified customer base of 9.009 million the biggest figure in the country and conduct the agency function of State Bank of Pakistan in addition to provision of other financial and allied services, these includes; • • • • • • • • • • • • • • Deposit Banking Financing and credit Remittance facilities Collection Government Receipts and Payment Sale and Purchase of Government Securities, Bonds and Other certificates Foreign Exchange business Safe Custody, Safe Deposits Services and Safe Deposit Lockers Hajji facilities Utility bills Investment advice and other services Special deposits products/ schemes Pak rupee Travelers chouse New Product.
1.5 NATURE OF THE ORGANIZATION:
National Bank of Pakistan is a service oriented financial institution and is working for its customers besides making profit for the organization. It is dealing with financial requirements of the clients both retail and corporate banking facilities. It is rendering services to its customers and not goods. It also undertakes the government transactions, like government accounts, government drafts and payments and pensions etc. The bank serves the government as well as general public. The above mentioned services of the bank thus can be categorized as under:-
• • • • • • • • •
Borrowing and Lending of money. Discounting Bills of Exchange and other Negotiable instruments. Collecting Negotiable instruments on behalf of the customers. Buying and Selling bullion and Foreign Exchange. Carrying on Guarantees and Indemnities. Granting of L/C to the customers. Receiving valuables for Safe Custody. Underwriting and Dealing in Stocks, Shares, Debentures and other Securities on behalf of the customers. Acting as agent to his customers; undertaking and executing.
1.6 BUSINESS VOLUME:
1.6.1 FIVE-YEAR PERFORMANCE OF NBP:
Rs. In Million
SHARE TOTAL YEAR ASSETS EQUITY 2003 2004 2005 2006 2007 2008
(As on 30-6-08)
DEPOSITS ADVANCES INVESTMENTS HOLDERS
468,972 553,231 577,719 635,133 762,193 795,853
395,492 465,572 463,427 501,872 591,907 621,342
161,266 220,794 268,839 316,110 340,322 372,766
166,196 149,350 156,985 139,947 211,142 172,655
18,134 24,900 37,636 53,045 69,271 72,204
TOTAL ASSETS
762,193 577,719 635,133 795,853
800000 700000
(Rs. in Million)
600000 500000 400000 300000 200000 100000 0
553,231 468,972
2003
2004
2005
2006
2007
2008
DEPOSITS
700000 600000
(Rs. in Million) 501,872 465,572 395,492 463,427 621,342
591,907
500000 400000 300000 200000 100000 0
2003
2004
2005
2006
2007
2008
ADVANCES
400000 350000 300000 (Rs. in Million) 250000 200000 150000 100000 50000 0 2003 2004 2005 2006 2007 2008 161,266 220,794 268,839 316,110 340,322 372,766
SHAREHOLDER'S EQUITY
(Rs. in Million)
80000 70000 60000 50000 40000 30000 20000 10000 0
2003 2004 2005
37,636 18,134 24,900
69,271 53,045
72,204
2006
2007
2008
PRETAX PROFIT
AFTERTAX PROFIT
RETURN ON EARNING PER SHARE (RS.) ASSETS (PRE-TAX PROFIT) NO. OF BRANCHES NO. OF EMPLOYEES
9,009 11,978 19,056 26,311 28,060
4,198 6,195 12,709 17,022 19,034
8.53 10.48 17.92 20.88 23.34
2.0% 2.4% 3.4% 4.1% 4.1%
1,199 1,226 1,242 1,250 1,261
13,272 13,745 13,824 14,019 14,079
PRE-TAX PROFIT
28,060 26,311 19,056
30000 25000
(Rs. in Million)
20000 15000 10000 5000 0
2003 2004 2005 2006 2007 11,978 9,009
AFTER-TAX PROFIT
20000 18000 16000 14000 12000 10000 8000 6000 4000 2000 0
19,034 17,022
(Rs. in Million)
12,709
6,195 4,198
2003
2004
2005
2006
2007
EARNING PER SHARE 25 20 17.92 RUPEES 15 10 5 0 2002 10.48 8.53 20.88
23.34
2003
2004
2005
2006
2007
2008
RETURN ON ASSETS (PRE-TAX PROFIT) 4.50% 4.00% PERCENTAGE 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2002 2003 2004 2005 2006 2007 2008 2.00% 2.40% 3.40% 4.10% 4.10%
1.7 PRODUCT LINES:
1.7.1 INTERNATIONAL BANKING:
National Bank of Pakistan is at the forefront of international banking in Pakistan which is proven by the fact that NBP has its branches in all of the major financial capitals of the world. Additionally, we have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. The role of the Financial Institution Wing is:• • To effectively manage NBP’s exposure to foreign and domestic
correspondence Manage the monetary aspect of NBP’s relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank’s profitability • Generation of incremental trade-finance business and revenues
NBP offers: • • The lowest rates on exports and other international banking products Access to different local commercial banks in international banking
DEMAND DRAFTS: If you are looking for a safe, speedy and reliable way to transfer money, you can now purchase NBP’s Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch MAIL TRANSFERS: Move your money safely and quickly using NBP Mail Transfer service. And we also offer the most competitive rates in the market.
PAY ORDER: NBP provides another reason to transfer your money using our facilities. Our pay orders are a secure and easy way to move your money from one place to another. And, as usual, our charges for this service are extremely competitive.
TRAVELER'S CHEQUES:
Negotiability: Validity: Availability: Encashment: Limitation: Safety: money LETTER OF CREDIT: NBP is committed to offering its business customers the widest range of options in the area of money transfer. If you are a commercial enterprise then our Letter of Credit service is just what you are looking for. With competitive rates, security, and ease of transaction, NBP Letters of Credit are the best way to do your business transactions. COMMERCIAL FINANCE: Let us help make your dreams become a reality Our dedicated team of professionals truly understands the needs of professionals, agriculturists, large and small business and other segments of the economy. They are the customer’s best resource in making NBP’s products and services work for them. 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
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 New Features: The existing system of home remittances has been revised/significantly improved and well-trained field functionaries are posted to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank besides United National Bank (the joint venture between NBP and UBL in UK)., and Bank Al-Jazira, Saudi Arabia. • • • Zero Tariff: NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries.
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, you can safely and speedily transfer money for our business and personal needs. SHORT TERM INVESTMENTS: NBP now offers excellent rates of profit on all its short term investment accounts. Whether you are looking to invest for 3 months or 1 year, NBP’s rates of profit are extremely attractive, along with the security and service only NBP can provide. EQUITY INVESTMENTS: NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: • • Investment into the capital market Introduction of capital market accounts (under process)
NBP’s involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders NATIONAL INCOME DAILY ACCOUNT (NIDA): The scheme was launched in December 1995 to attract corporate customers. It is a current account scheme and is part of the profit and loss system of accounts in operation throughout the country.
1.7.2 TRADES FINANCE OTHER BUSINESS LOANS:
AGRICULTURAL FINANCE: NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the World. AGRICULTURAL FINANCE SERVICES:
“I Feed the World” program, a new product, is introduced by NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, thus helping farmers across Pakistan to increase production. AGRICULTURAL CREDIT: The agricultural financing strategy of NBP is aimed at three main objectives:• • • Providing reliable infrastructure for agricultural customers Help farmers utilize funds efficiently to further develop and achieve better production Provide farmers an integrated package of credit with supplies of essential inputs, technical knowledge, and supervision of farming. Agricultural Credit (Medium Term): • • • • • • • • Production and development Watercourse improvement Wells Farm power Development loans for tea plantation Fencing Solar energy Equipment for sprinklers
Farm Credit: NBP also provides the following subsidized with ranges of 3 months to 1 year on a renewal basis: • • Operating loans Land improvement loans
• •
Equipment loans for purchase of tractors, farm implements or any other equipment Livestock loans for the purchase, care, and feeding of livestock
PRODUCTION LOANS: Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. CORPORATE FINANCE: Working Capital and Short Term Loans: NBP specializes in providing Project Finance – Export Refinance to exporters – Preshipment and Post-shipment financing to exporters – Running finance – Cash Finance – Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Preshipment / Post Shipment Agricultural Production Loans MEDIUM TERM LOANS AND CAPITAL EXPENDITURE FINANCING: NBP provides financing for its clients’ capital expenditure and other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients’ attempt to upgrade and expand their operation thereby making possible the fulfillment of our clients’ vision. This type of long term financing proves the bank’s belief in its client's capabilities, and its commitment to the country. Loan Structuring and Syndication: National Bank’s leadership in loan syndicating stems from ability to forge strong relationships not only with borrowers but also with bank investors. Because we understand our syndicate partners’ asset criteria, we help borrowers meet substantial financing needs by enabling them to reach the banks most interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our syndication capabilities are complemented by our own capital strength
and by industry teams, who bring specialized knowledge to the structure of a transaction. CASH MANAGEMENT SERVICES: With National Bank’s Cash Management Services (in process of being set up), the customer’s sales collection will be channeled through vast network of NBP branched spread across the country. This will enable the customer to manage their company’s total financial position right from your desktop computer. They will also be able to take advantage of our outstanding range of payment, ejection, liquidity and investment services. In fact, with NBP, you’ll be provided everything, which takes to manage your cash flow more accurately.
1.7.3 NBP Islamic Banking - DEPOSIT SCHEMES:
Deposit Schemes being offered by NBP’s Islamic Banking Branches would include the following: • • Current Deposit Scheme Profit & Loss Sharing (PLS) Deposit Scheme
CURRENT DEPOSIT SCHEME:
• • • • Ideal for customers looking for security of their funds along with absolute convenience in its use, in the form of Current accounts. Funds deposited with the bank will be utilized by the bank at its sole discretion in Shariah acceptable avenues. The Customer will have the flexibility to withdraw a part or the whole of their balances at any time as per their requirement. This is a non remunerative deposit scheme and thus the customer will not be sharing the profits nor will be sharing losses (if any). However, the Bank may at its absolute discretion give rewards to these Depositors depending upon the
operational results of the Bank. Losses will not be passed on to these Depositors. • Other terms, conditions and rules for Current Deposit Accounts to be advised by the Bank at the time of opening of Account.
PROFIT & LOSS SHARING DEPOSIT (PLS) SCHEME:
• PLS Saving Deposits Scheme (to be accepted in future) will accept deposits on Mudaraba basis, where the depositor will be Rabb-ul-Mal and Bank will be Mudarib. The Bank will invest the deposited funds at its (Bank’s) sole discretion in Shariah acceptable avenues. • • The Depositor will have the flexibility to withdraw a part or the whole of their balances at any time as per their requirement. The Bank will give profit to the Depositors twice in a year in January and July, on the basis of agreed ratio of actual profits to be announced by the Bank from time to time. • • • • In the event of financial loss, the PLS depositors will bear the loss in proportion of their investment. The Depositors will not participate in the management of the business of the Bank Other terms and conditions as well as rules for PLS Deposit Account to be advised by the Bank at the time of opening of Account. NBP will shortly launch Shariah Complaint PLS Deposit Schemes. For information about their salient features, weightages and expected rates please continue to visit our website.
1.7.4
NBP
Islamic
Banking
-
FINANCING
FACILITIES:
Commercial and Corporate customers requiring financing will have the following financing facilities available to them to meet their requirements:
MURABAHA:
Murabaha may be defined as a contract between a Buyer and Seller under which the Seller discloses to the Buyer the cost of goods being sold and adds an agreed profit. Price is payable on spot or at a certain future date, in lump sum or in installments (deferred payments).
MURABAHA FACILITY:
1. Under the MURABAHA FACILITY, the Bank will first purchase the required goods directly or through an Agent. All costs incurred on such purchases will be borne by the Bank. 2. Subsequently the Bank will sell the goods to the customer on deferred payment basis (30 days to one year) at an agreed price comprising cost of goods purchased and Bank’s profit. 3. On due date the customer will pay to the Bank the agreed price, in lump sum or as per the agreed installment schedule.
IJARAH (LEASING):
Ijarah means “to give something on rent”. The term “IJARAH’ is analogous to the English term “leasing “. Firstly the Bank will purchase the Assets as required by the Customer and subsequently the assets will be leased to the Customer on the terms and conditions as agreed with him. Ijarah Facility will be offered for the following assets: • • • Vehicles (both Commercial and Private) Office Equipment Plant and Machinery
PREMIUM AAMDANI:
• • • Amount of investment required from Rs. 50,000/- to Rs. 5,000,000 Investment period is 5 years Free Demand Draft, Pay Order and NBP Online Aasan Banking Free Cheque Book / NBP Cash Card (ATM + Debit) Profit paid every month as follows: Period 1 year 2 years 3 years 4 years 5 years • • • Profit Rates** 7.50% 8.50% 9.50% 10.50% 11%
Financing facility available upto 90% of the deposit value Premature encashment will attract penalties Zakat and withholding tax is deductable as per rules.
PREMIUM SAVER:
• • • Minimum saving balance of Rs. 20,001 and a maximum balance of Rs. 300,000* Free NBP Cash Card (ATM + Debit) Two debit withdrawals allowed in a month and no limit on number of deposit transactions
• •
Profit calculated monthly and paid on half yearly basis. Earning upto 7.25% p.a.
PRESIDENT ROZGAR SCHEME:
A person aged between 18 and 40 years, is eligible for easy
financing for self employment in the categories below: • • • • • NBP Karobar Utility Store NBP Karobar Mobile Utility Store NBP Karobar Mobile General Store NBP Karobar Transport NBP Karobar PCO/ Tele-Centre
HOME PURCHASE / HOME CONSTRUCTION:
Financing Amount Financing Period
Up to 35 Million 3 to 20 Years
Debt to Equity
85:15 (Maximum)
Home Renovation:
Financing Amount Financing Period Debt to Equity
up to 15 Million 3 to 15 Years 70:30 (Maximum)
Purchase Of Land And For Construction Thereon:
Financing Amount Financing Period Debt to Equity up to 35 Million 3 to 20 Years 70:30(Maximum)
Re-Financing (Balance Transfer Facility (BTF) :
If you have a Home Finance Facility outstanding with another bank you can have it transferred to NBP through a hassle-free process. All home financing facilities below Rs. 15 M Debt to Equity Ratio will be 85:15 & for Rs. 15 M and above Debt to Equity Ratio will be 80:20.*50% of the loan will be disbursed at the time of land purchase and rest of the 50% for its construction will be disbursed in 4 trenches.
NBP-ADVANCE SALARY:
In January-2003, National Bank of Pakistan has launched a unique product, ‘NBPAdvance Salary’. Currently this product is for fixed-income permanent employees of Federal & Provincial Government, Semi-Government, Autonomous, Semiautonomous, local bodies and other Government organizations. The product is purely cash flow based and offers its holder to avail 20 (twenty) net salaries in one go to be repaid in up to 60 (sixty) months. With no collateral, insurance or requirements, Advance Salary provides rapid disbursement in a short turnaround time. • Rate of mark-up 13% p.a.
• • • • • • •
Facility of Rs. 7,000 against each 10 gms of net contents of gold. No maximum limits of cash Repayment after one year Roll over facility Only gold ornaments acceptable Weight and quality of gold to be determined by NBP's appointed scruffs. No penalty for early repayment
CHAPTER 2
C H A P T E R 2
ORGANIZATIONAL STRUCTURE
2.1 ORGANIZATIONAL STRUCTURE:
Organizational structure is the framework which defines the boundaries of the formal organization and with which the organization operates. A suitable organization structure for the nature of the organization leads to better performance. The organizational structure of the bank constitutes of a Board of Directors and an executive committee as the governing bodies. The National Bank of Pakistan (NBP) has 1261 branches all over the country and 22 overseas branches. The Head Office is operationally in charge of central affaires including the delegation of powers and authority to the Regional Headquarters all over the country. These Regional Headquarters direct the function of the 12 corporate branches. The NBP has 29 regions (circles) in four provinces as given below: Provincial Headquarters Sindh Baluchistan Punjab NWFP Azad Kashmir Total No Of Regions 6 2 14 5 2 29
2.2 NBP’S ORGANIZATIONAL HIERARCHY
Chairman
Board of Directors
President
Senior Executive Vice President
Executive Vice President
Senior Vice President
Vice President
Assistant Vice President
Officer Group I
Officer Group II
Officer Group II
2.2.1 HEAD OFFICE:
Head Office of NBP is situated at Karachi. All Branches, Regional Offices and Corporate Branches are under the distractive control of Head Office. The Head Office of National Bank of Pakistan is responsible for making / execution of polices. The policy / decision making bodies are: • • • Board of Directors Executive Committee Divisional Head Offices and Provincial Headquarters
The head office has nine divisions which are divided in to different wings. The Head Office is responsible for central affaires and delegation of powers / authority to the Regional Headquarters.
2.2.2 BOARD OF DIRECTORS:
The Board of Directors (BoD) of NBP is comprises of President and 6 members as under: President of the Bank SEVPs of the Bank Representative of the PBC Representative of GOP Private Sector Total 1 3 1 1 1 7
The BoD nominates the executive committee which further nominates Divisional Heads.
2.2.3 EXECUTIVE COMMITTEE:
The executive committee consists of President and nine members and one of the members also perform the functions of Secretary of the committee. The executive committee nominates the divisional Heads. This body monitors day to day affaires of the Bank and is sanctioning authority of financial and business proposal.
2.2.4 DIVISIONAL CHIEFS:
Each division of the Bank is working under the control of Divisional Chiefs / Senior Executive Vice President (SEVP) / Executive Vice President (EVP). divisions of NBP are as under: • • • • • • • • Management Support Audit and inspection Treasury Management Marketing and Development Credit Policy Management Overseas Banking Special Assets Management Bank Secretariat The nine
2.2.5 PROVINCIAL CHIEFS:
In order to improve the performance of the Banking system, the bank has Provincial Chiefs with the powers of sanctioning finance and other credit facilities. The Headquarters of the Provincial chiefs are in Lahore, Karachi, Quetta and Peshawar. The NBP has 29 regions in four provinces and Azad Kashmir.
2.2.6 REGIONAL MANAGEMENT COMMITTEE:
A Regional Management Committee consists of the following, looks after the affaires of the regions. • • • • Business Chief Operational Chief Risk Management Chief Compliance Chief
2.3
VISION STATEMENT:
2.4
MISSION STATEMENT:
2.5 CORE VALUES:
2.6 GOALS:
2.7 AWARDS & RECOGNITIONS:
2.7.1
ACHIEVEMENTS
AND
RECOGNITION
WON BY NBP IN
• • • • • •
PAKISTAN
Bank of the year 2004 for Pakistan Best foreign exchange bank in Pakistan 2004 Bank of the year 2005 for Pakistan Best foreign exchange bank in Pakistan 2005 Bank of the year 2006 for Pakistan Best foreign exchange bank in Pakistan 2006
2.7.2
ACHIEVEMENTS
AND
RECOGNITION
WON BY NBP IN
• • •
FOREIGN COUNTRIES
NBP is one of the “top 100 banks of Asia” “Euro money” UK, March 2005 Asia’s number one and world’s 8th bank in terms of return on capital “the banker”, UK, July 2003 Among the top banks in Emerging Markets.” Global Finance’s, May 20032
2.8 DOMESTIC BRANCHES
NBP has a vast network of 1261 branches within Pakistan.
2.9 OVERSEAS BRANCHES:
NBP has 22 overseas branches all over the world.
2.10 CORPORATE BRANCHES:
Corporate branches play an important role in the setup of NBP of Pakistan, to serve the business and the corporate sector of Pakistan. There are twelve corporate branches in the following cities. City Karachi Lahore Islamabad Rawalpindi Quetta Peshawar Mirpur(AJK) Faisalabad Total No of Corporate Branches 3 3 1 1 1 1 1 1 12
2.11 NBP MAIN BRANCH RAWALPINDI:
NBP Main branch Rawalpindi is situated at the “Bank Road, Saddar Rawalpindi”. It is the most important organization for the whole surrounding areas of Saddar Rawalpindi. Large no's of business center are very close to the National Bank. Mr. Zubair is Branch Manager and Mr. Riaz is Operational Manager of branch. Branch code is (0394), Phone no: 051-9270586-87. Fax: 051-9270588. Rawalpindi has 62 staff persons as employee. Main Branch
Designation No. of Employees Vice President 1 Assistant Vice president 3
OG-I OG-II OG-III Other / Clerical Staff
6 15 17 20
All of them are most experienced in their respective fields. They are very cooperative with each other as well as customers. Through them we can have a complete picture of this branch of NBP. This type of bank or organization is most important for the study purpose to get more practical approach this branch shows the real image of NBP as well as banking field.
Setup:
Keeping in view the size of the branch the operation manger is directed responsible for some of the operational functions depending on the nature of activities in the branch. The Operations are comprises of Cash Counter Services and Customer Services. The Branch Manager with the assistance of relationship officer(s), (if required) will concentrate and fully devote to credit marketing and business / deposit development. Operations manager will report directly to the Regional Chief Operations with dotted line reporting to the Branch Manager. A Compliance Officer is also present in this branch. He is responsible of the checking of the all the work done in the bank. Whenever an Inspector came to the bank, he provides him all documents which he required for inspection.
2.11.1 BRANCH MANAGER RESPONSIBILITIES:
• • • Overall affaires of the branch Checking and ensure effectiveness of control system and working procedures. Meeting existing and New Customers.
• • • • • • • • • • • • •
Marketing business / deposit development and public relations. Assignments of accounts to relationship manager / officer. Income and business budget. Performance evaluation of reporting staff. Develop objectives for reporting staff. Review of Reports. Conduct periodical meeting of the staff. Liaison with controlling offices. Approval of credit proposal with – in delegated authority. Approval of expenses with in delegated authority. Follow – up for recovery of none performing finances. Restructuring and rescheduling of classified accounts. Special project / assignment by controlling officers.
2.11.2
OPERATIONS
MANAGER
RESPONSIBILITIES:
• • • • • • • • • • • • • Supervision of all assigned operation department Ensure check and control systems are in place. Create cordial and customer friendly atmosphere in branch. Ensure continuous satisfactory service to the customers. Review of daily activity reports. Ensure compliance of bank / SBP and local regulations. Approval of opening of new accounts. Approval of expenses budget. Develop objective for operation staff. Performance evaluation of reporting staff. Cross-training to the staff Management of staff attendance and vacation. Provide leadership and guidance to operations departments.
• • • • • • •
Reporting of all exceptions to controlling office. Conduct periodical meetings of operation staff. Rectification and upkeep of the branch. Maintenance and upkeep of the branch. Act as compliances officer. Special project / Assignment by Manager / Controlling offices. All the accounts & transaction of WESTERN UNION are conducted by the operation manager.
2.12 ORGANIZATIONAL DEPARTMENTS:
NBP Main branch Rawalpindi has following departments: • • • • • • • • • • • • • • • • Deposits Department Account Opening Department Foreign Exchange Department Pension Department FBR Department Dispatch Department Clearing Department Advances Department Compliance Department Accounts Department Swift Department Reconciliation Department Cash Department Utility Department Credit Department Remittance Department
2.12.1 DEPOSITS DEPARTMENT:
There are few organizations to which funds are provided by their owners, but most of the organizations depend on external sources for their funds need. Borrowing funds from different sources has become an essential feature of today’s business enterprises. But in the case of a bank borrowing funds from outside parties is all the most vital because the entire banking system is based on it. The main function of a bank is to receive deposits and lend them to earn interest. Therefore, deposits are considered to be the “life-blood” of a bank. The Deposit Department of NBP, Main Branch Rawalpindi mainly performs the function of:
Withdrawals:
Withdrawals from the account can be made only by mean of Cheque supplied by the bank. Cheque should be signed according to the specimen signature.
Statement of Account:
Account statement is provided to the customer by the bank. In these statements the bank assures that all debit entries are correct. In case of error, the bank passes an adjusting entry to rectify the error.
2.12.2 ACCOUNT OPENING DEPARTMENT:
The Account Opening Department of NBP, Main Branch Rawalpindi mainly performs the function of: • • • • Opening of Accounts Closing of Accounts Issuance of Cheque book issuance of Statement of Account
There are two major types of accounts opened in NBP:
Current Account:
These are payable to customers upon the demand and the bank is bound to honors the Cheque to the extent of the balance in the account. These deposits are treated as current liabilities by the bank. No profit is given on these deposits and no service charges are deducted by the bank. A higher percentage of cash reserves are kept against these deposits by the bank. The initial amount required for opening of such an account is Rs. 10, 000.
PLS Saving Account:
The main objective of the savings deposits is to encourage thrift among people of small means such as children, married and household women etc. initial deposit must be in cash. Cheque may only be accepted as part of initial deposit in case of undoubted parties & on the personal responsibilities of Managers. The depositor is issued with a Cheque book for withdrawal. Profit is paid at a flexible rate calculated monthly or semi-annually. Usually, there is no restriction on the withdrawals and the amount of money withdrawn is deleted for assessment of profit which discourages unnecessary withdrawals from the deposits. PLS saving account can be opened with an initial deposit of not less then Rs.500. Withdrawals are allowed twice a week. PLS saving account may be opened in the name of an individual or jointly in the name of two or more persons.
Term Deposit Account:
There are the deposits that can be withdrawn after a certain specified period of time. The period of time varies from three months to five years. On these deposits return / interest varies with the duration for which the amount is kept with the bank. The rate of interest / return on term deposit is higher than that of a saving deposit. Its interest / return are unaffected for the duration of the deposit irrespective of market fluctuations. Term deposit is best suited for short-term investment. Individuals as well as joint account an be opened by, sole proprietorships, partnership, joint stock companies, limited companies, clubs / trusts, administration, executors, etc. profit is paid at the
maturity of deposit. On these deposits premature withdrawal is permitted but against a reduced rate of interest as agreed at the time of deposit.
Finance Facility:
Bank also extends finance facility to clients against saving and fixed term deposits on comparatively low markup rate. The deposit is kept under lien; however the customer may withdraw the profit amount credited to his account.
OPENING OF AN ACCOUNT WITH THE BANK:
Account opening has the following requirements: • • • • Formal Request Specimen Signature Minimum Initial Deposit Operating the Account
Accounts Term and Condition:
Against the submission of the bank's prescribed application form, duly introduced in the manner provided and on supply of documents required, the account is made fully functional under certain conditions. In case of account on PLS basis, bank invest the amount in any manner it considers under PLS system.
Deposits:
All money to be deposited to the credit of an account is accompanied by pay-in-slip showing the name and number of account to be credited. Putting Bank's stamp under the signatures of two bank officers on the pay-in-slip then authenticates the entry.
Closure of Account:
While closing the account, the account holder returns the unused cheques and passbook to the bank. The customer also withdraws the credit balance of the account (if any).
Issuance of Cheque book:
Before issuing anew chequebook the bank is required to give requisition slip to the customer. The customer put his signature on the requisition slip. After verifying the signature the cost of chequebook is charged.
2.12.3 REMITTANCES DEPARTMENT:
The word "Remittance" means to send money by mail or any other method. Funds transfer is one of the basic functions of the Banking sector. These transfers may be in the form of domestic remittance or to/from foreign location. Banking channels are most frequently used for remittances due to its large network, reliability, safety, legitimacy and timely delivery to the right beneficiary. Banks use their large communication and branch network for ensuring efficient delivery of funds in the shortest possible time.
Outward / Inward Remittances:
When the bank sends a telegram etc, to another bank (concerned branch) for payment to the customers, it is called outward remittance. The sender is required to apply through a firm in which he will give all the necessary about the sender and the beneficiary. The signature of the customers is verified. The details regarding documents attached and exchange control regulations are scrutinized. Telexes option and transaction number is recorded on the source document. This source document is then forward for verification. No instrument is given to the customers. Customer can receive the TT receipt at the end of the day and document is credited to the beneficiary account. When TT through telexes etc is drawn on NBP Branch, it is called inward remittance. Message is received from the Telex Department. The concerned office duly checks authentication and purpose of remittance it is received from abroad. In NBP remittance takes places in the following ways. • • Telegraphic / Mail Transfers (TTs) Demand Draft(D.D) / Pay Orders (POs)
Telegraphic / Mail Transfer:
In a number of cases, funds are needed to be urgently remitted to the beneficiaries by the remitters. This service is readily provided by the bank both to customers and noncustomers and funds are transferred to the destination through telegram / tele fax to ensure payment to the beneficiaries at the earliest. The message communicating the transfer of funds is sent to the drawer branch in coded language which is supported by a confidential number known as “TEST NUMBER” to establish its genuineness and authenticity. The salient features and procedure of TT is similar to “DD”. In case of MT, there is no need to dispatch anything to the payee. The bank makes special arrangement for the payment to the beneficiary through mail/courier service, which is “Mail Transfer”. The salient features and procedure are similar as that of “DD” and “TT”.
Demand Draft:
The Demand Draft is a written order (Bill of Exchange) drawn by one branch at a bank upon another branch of the same bank in another city to pay a certain sum of money to or to the order of a specified person. Procedure for Issuance of DD: The purchaser of a DD is required to fill in the “application form for remittance” providing the following information: • • • • • • • Name of the branch and city where payment of the draft is desired. Name of the payee to whom the proceeds of the DD is to be paid. The amount, in figures and words, for which the draft is to be made. Name, address, telephone number, A/C No. etc. of the purchaser of the draft. After completing the application form, the purchaser signs in the designated space. It may also be signed by the agent of the purchaser, if any. Before processing the DD Application, Form should be scrutinized by the counter clerk/officer. He/she then deposits the amount in cash department. Withholding tax and commission are also to be charged from the customer at the applicable rates.
•
Then attaches the receipts with application form and submits it to the Remittances in-charge, who then calculates the “Test No.” fills in the DD Block and signs it.
• •
Then after, enters the transaction into DD Register. The DD is sent to the senior officer desk for counter signature.
Open / Crossed DD:
Open DD is one, which is payable directly at the counter and there is no need of crediting it to the account. In case of crossed DD, the amount is payable through bank account of the payee.
Pay Order (PO):
A pay order is a written order issued by a branch of a bank, drawn upon and payable by itself to pay a specified sum of money to or to the order of a specified person. Purpose: • • • • The purpose of a pay order is to effect transfer of funds from one bank to another within the same city. It is purchased for the payment of taxes, various dues and duties. In many educational institutions, examination and other charges are accepted through pay order. It is issued for settlement of claims between banks.
Parties to a Pay Order The parties to a pay order are similar to those of Draft excepting that the issuing branch and the drawer branch is the same. The salient features and procedure are the same as that of Draft.
2.12.4 CLEARING DEPARTMENT:
A clearing is the process whereby the amount of a cheque or draft is transferred from the drawer’s bank to the payee’s bank. It may be defined as, “A process by which
bank exchange and settle for cheques, bills of exchange, drafts and other banking instruments drawn against each other received by them for collection and clearance from their customers.
Collection / Clearance Cheques:
"A cheque may be defined as a written order of a depositor upon a bank to pay to or to the order of a designated party or to a beater, a specified sum of money on demand" Clearing of cheques is made through SC (short credit), LSC (local short credit) in clearing house.
SC (Short Credit):
SC is the short credit which consists of the cheque outside the district. These cheques are sent in SC outside the district for clearance. Once they are cleared our bank charge a certain amount of money spent on the process from the customer.
LSC (local short credit):
LSC is the short credit consists of the Cheque inside the district. Separate register is maintained for it. Local branches for clearances send these cheques for clearances. Bank has no charges on the process from the customer.
2.12.5 FOREIGN EXCHANGE DEPARTMENT
In the modern banking system Foreign Exchange department plays very important role from every aspect. Keeping in view the importance of foreign exchange reserves all banks have a foreign exchange department. Foreign exchange department dealing is authorized only to some branches of the National Bank of Pakistan. This department performs the following important functions: • • • • Supervising and Controlling Foreign Currency Accounts. Making Foreign Remittance Import advances to importer Export Advance to Exporters
Foreign Currency Accounts (FCA’s):
Foreign Currency Account in NBP can be opened in four major currencies of the world, i.e. U.S. Dollars, Japanese Yen, German Mark and UK Pound Sterling. In the main branch of NBP FC account can be opened in two major currencies of the world, i.e. U.S. Dollars and UK Pound Sterling. The accounts can be opened both by Pakistan citizens and foreigners by introduction and following other procedures required for general accounts with one exception for foreigners that they will have to submit a copy of their passport. The account may be personal or joint. Amount deposited in the foreign currency account must be in four currencies which have been mentioned earlier. When the customer will withdraw the money he/she will receive the amount in the same foreign currency/profit will also be in the same foreign currency. There are two types of foreign currency accounts: • • Current Account Saving Account
These accounts are treated in the same manner as Pak Rupee Accounts Head Office of NBP determines the maximum foreign Currency balance that can be kept in every branch authorized to deal in foreign Currencies. Those branches of NBP which are authorized to deal in foreign currencies must submit the following reports about foreign exchange, • • • Report to General Manger Office Business Report to SBP(Monthly Basis) Monthly Report to Head Office
Foreign Remittances:
Foreign Remittances are those remittances which are affected to and from any foreign location. Since one of the basic functions of the banking sector is to transfer funds either in the form of Domestic Remittances or Foreign Remittances. Keeping in view the importance of transfer of funds, the bank has setup Foreign Exchange Department
to exclusively handle the incoming and outgoing foreign currencies. Remittance can be inward and outward
Inward / outward Foreign Remittances:
The term “Inward Remittances” means purchase of foreign currencies through DDs, TTs & MTs etc including purchase of traveler’s cheques drafts and bills of exchange currency notes and coins etc. Remittance against Debit to non-resident rupee accounts maintained by Foreign Banks also constitutes an inward remittance. The sale of foreign currency against imports, miscellaneous purposes, Foreign Currency Traveler’s Cheques etc., are considered as outward foreign remittances. Outward foreign remittance can be made either by sale of foreign exchange or by Credit to non-resident rupee account of banks overseas branches or correspondents. Foreign remittance can be done in following ways. • • • Telegraphic Transfer(T.T) Mail Transfer (M.T) Foreign Demand Draft (F.D.D)
Western Union:
NBP Main Branch Rawalpindi also provides the facility of transfer and receiving of money through out the world. Through this facility the people of Rawalpindi get a lot of benefit. They can get their money from all over the world within few minutes.
2.12.6 CREDIT DEPARTMENT:
Imports / Exports and L/C:
Now-a-day export and import business is very risky. The importer wants surety of the goods to be delivered to his prescribed destination; while exporters want surety of the money to be sent to his prescribed bank. So with a view to overcome such difficulties
a system of L/C is designed. Various banking companies are involved in the business through L/C. NBP has a very extensive system of business through L/C. • • • Issuing Bank Advising Bank Negotiation Bank
Types of L/C:
Following are the important types of Letter of Credit. Confirmed Letter of Credit: It is a written agreement in which the bank give the guarantee that if the goods will be of the standard and fulfilling the conditions of L/C, and then the exporter (after presenting the L/C to the bank) will get the payment from the bank. The characteristic of this kind of L/C is that it can't be canceled after issuance and the payment is must. Un-Confirmed Letter of credit: In this kind of written document the bank takes the responsibilities of receiving the bills of exporter. But it doesn't give the guarantee of paying these bills. Unconfirmed L/C can be canceled. The importer can cancel it and after cancellation the bank don't give the guarantee of payment of L/C. Revocable Letter of Credit: This kind of L/C can be cancelled by the bank or by the request of the importer. In this kind of L/C the chances of cancellation are at every moment. So it is not dealt widely and the importance of this L/C is very little. Irrevocable Letter of Credit: This kind of L/C is issued for foreign payments. They can not be canceled until the given conditions are not broken. So with this kind of L/C the exporter has the guarantee of payment.
Fixed Letter of Credit: Those drafts or L/C the amount of which is when paid once then it comes to an end, are called fixed letter of credit. Circular Letter of Credit: This kind of L/C can be used for more then one time, e.g. if one L/C is of rupees 20 lakes and the exporter provides the goods in installments it has exported the goods worth rupees 10 lack. The remaining goods worth rupees 10 lacks have to be exported. And if he (exporter) pays rupees 10 Lacks the issuer (bank) so the L/C of rupees 20 Lack can be renewed. Documentary Letter of Credit: When we enclose important documents with the L/C then it becomes a documentary L/C i.e insurance invoice post or draft clearing certificates, etc.
The Mechanism of Opening an L/C:
For buying any commodity from foreign country the buyer will reach the seller (exporter) for the purchase of particular commodity of goods. After the preliminary setting of agreement between the two parties, the importer to fill the L/C application from. Usually the following documents are attached with L/C • • • • Application for L/C Membership Certificate of Chamber of Commerce or Association Insurance Certificate IBC charge form
Negotiation of L/C Documents: The process of negotiation starts when the exporter reaches the bank for honoring the draft drawn on it by the importer. The exporter sends the documents evidencing the shipment of goods to the bank where the credit is available and is accompanied by a draft drawn on the issuing bank by the importer.
2.12.7 ADVANCES DEPARTMENT:
Bank is a profit seeking institution. It attracts surplus balances from the customers at a low rate of profit and makes advances / finances to individuals and business firms at higher rate of mark – up. Financing is a principal function of a bank through which pace of activity is accelerated in the various sectors of economy. Through this medium, the wheels of trade, commerce and industry are set in motion and an effective financial contact is maintained with people in every walk of life. Also, the indicators which reflect the high quality of a Bank’s management are its prudent financing decisions, proper coated of finance and prompt recovery of bank’s dues are per borrower’s commitment/repayment schedule.
Running Finance:
Among the various modes of Bank financing, credit lines offered to customers under the above head (R/F) are the most commonly used. Withdrawals on the current account are allowed in excess of the credit balance which the customer has maintained therefore, creating a R/F (Overdraft). Under this type of financial accommodation, the borrower is required to adjust the finance provided by the bank within the stipulated expiry time. Mostly this facility is provided to businessmen who need cash to run their business daily. At the time of entering into an agreement with the customer the bank is required to obtain all relevant security documents completed in all respect particularly the following: • • • An application for loan is given. Promissory Note duly stamped is submitted. Mark-up agreement for the total amount involved i.e., purchases price, markup for the agreed period and mark-up for the cushion period of 210 days.
•
Sufficient tangible prime/collateral securities of stable value and of an easily realizable nature the relevant documents are submitted (lien and related documents).
• •
Two personal guarantees are presented. Adequate insurance as appropriate covering charged in bank’s favor. The cost of insurance to be borne by the borrower.
Demand Finance:
A fixed amount of financing accommodation is allowed to the borrower for a fixed period repayable either in periodic installments or in lump sum at a fixed future date. This accommodation is extended in lump sum for the mutually agreed period and the borrower has to repay the entire amount of finance together with mark-up at the agreed rate. The procedure for D/F is the same as that of R/F. In case a party does not adjust the outstanding amount on due date, falling on last day of the month the Mark-up would be adjusted / worked out from the first to last day of expiry.
Personal Loans:
Customers whose salary account is maintained by bank are eligible for this type of loan. It is up to three basic salaries of employees of government organization. The objective of this type of loan is to improve the life style of customers.
Staff Loans:
These types of loans include house loans, car loan etc. they are long term loans. Amount is deducted every month from the salary of employee.
Loan Sanctioning Powers:
For Firms • • Head office can sanction 40 million rupees or above firms Regional headquarter can sanction maximum 20 million rupees for firms
• • •
Zonal Chief can sanction maximum one million. Head office can sanction 10 million rupees or above for individuals. Regional headquarter can sanction maximum 10 million rupees Zonal Chief can sanction 0.5 million rupees for individuals.
For Individuals
2.12.8 CASH DEPARTMENT:
Cash department deals with the cash. It includes the handling of cash and the ratio available for the daily use
2.12.9 ACCOUNTS DEPARTMENT:
Accounts department maintains all related matters of accounting, salary, and wages, proper making of accounting etc. Accounting department implements the policies of finance department.
2.12.10 COMPLIANCE DEPARTMEENT:
Compliance department have been made to avoid illegal activities. Audit is a statutory requirement for every department and so far a bank. Audit personnel perform their duties so that fraud and error can be avoided. Many lawyers have been appointed by bank who deals with court cases. Sometimes, when any employee is dismissing from service he attends the court for restoration of service whereas the bank lawyers defend the case.
2.12.11 UTILITY DEPARTMENT:
Bank receives utility bills i.e. (Electricity Bills, Sui-Gas bills, Telephone Bills) through this department. The bank also offers evening banking services for receiving of utility bills after regular working hours.
CHAPTER 3
FUNCTIONS OF ACCOUNTS / FINANCE / AUDIT DEPARTMENTS
C H A P T E R 3
3.1 ACCOUNTS DEPARTMENT:
Account Department of any branch of bank is a major department. It performs all the activities of accounting in bank. This department is responsible to maintain the proper record of account holders and other account of the branch.
3.2 FUNCTION OF ACCOUNT DEPARTMENT:
The main function of this department is to handle the cash, record the cash transaction, summarizes all the bank transaction daily and sends the report to head office. This department is headed by a CD in charge (cash department in charge) the department involves in the process of receipt / check of cash and payments. This department comprises of two sections. • • ACCOUNTS CASH.
Cash section involves only in the payment and receipt of cash from and to the customers. While the activities of Deposit section is to check the balance of the client posting of the Cheque and deposit slip in ledger register or computer and the verification of signature on the Cheque. The cheque is then passed on to the cashier for payment. The cash section and the Deposit sections separately maintain their balances in system at the closing of day for verification. The Deposit department prepares the list of all bank transaction daily enter the cash transactions and transfer transactions in cash and transfer registers respectively and send the daily report to the head office. The activities of Account department can be summarized as fallows: • • To check and maintain daily activities of branch. To maintain daily deposit in branch.
• •
To records transactions with SBP. To check debt & credit vouchers of branch and verify these transaction, these are correctly records or not and if mistakes is found it would be sent for correction in respective department.
• • • • • • • •
To calculate the depreciation of various assets. To check any variation in sundry credits and debtors. Financial and cost accounting of branch. Workout a planning and budget document. To prepay weekly, monthly internal and external reports. To maintain daily income and expenditures of the branch. To prepare the balance sheet and profit and loss account and tax report of branch. To prepare daily position of branch and statement should be provided to the following o Branch Manager o Manager Credit o Manager Operation
• • •
Payments and receipt of the cash and checks Prepare the account holders statement periodically Verification of the cash balance
3.3 AUDIT DEPARTMENT:
Every organization has certain rules and regulation and its functions are to keep in mind those rules. NBP follows the prudential regulations given by the State Bank of Pakistan. Therefore, in order to check whether the organization is going on right track, there is an Internal Audit and Inspection Department.
3.4 FUNCTIONS OF AUDIT:
The main function of audit is to monitor the implementation of policies, rules, regulations, and prescribed procedures with a view to ensure improved operations. It maintains check and balance on behalf of management. This in turns calls for a high standard of professional skills and judgments on part of Auditors. There are different types of audit that are done like internal audit, external audit, financial audit, pre-penalty audit, special assignments audit (staff problems, disputes, expenditure exceeds etc). It is basically the audit department who performs all these functions.
3.4.1 Core objectives of Audit:
1. Existence of audit ensures moral pressure on staff of the organization. If audit
is conducted regularly and effort is well timed, the working staff is always on alert and keeps doing the job properly. 2. Detection and prevention of errors and mistakes such as omission commission
compensatory, incorrect valuation of assets. 3. See that the financial control on paper is practically applied.
3.4.2 Audit techniques adopted by NBP:
Audit techniques may differ from organization to organization depending upon the size, complexity and volume of transactions. Followings are the broad - based audit procedures which NBP Auditors use while conducting inspection of branch. The techniques and procedures are: • • • • • Audit should be surprise Physical verification Confirmations Advances Deposits
• • •
Income and expenditures Audit of day to day affairs Reconciliation of head office and clearing audit
3.4.3 EXTERNAL AUDIT:
It is the requirement of State Bank of Pakistan that every public or private limited company should have an audit once in a year by professional auditors. This is done to verify the accounts, so that the true picture of the company is revealed to government, loan lending institutions, shareholders and general public.
3.4.4 INTERNAL AUDIT:
Internal audit is an independent appraisal activity within an organization for the review operations as a tool to management. NBP internal audit department fulfills its responsibilities by doing audit in two stages: • • Pre-audit Post audit
Pre-Audit:
Pre-audit is done on daily basis. It is a sort of clearance or approval. Every thing is checked by the internal auditor such as: dues amounts, cheques, legal cases, vouchers, salaries and allowances, repairs and maintenance expenses, inventory checking, repayment schedules. Apart from it, auditor also goes for a weekend or surprise visit to any department and can ask for any document. Audit a voucher: The record in banks is maintained through vouchers. Every voucher is first pre-audit. Things like date, issuing person, amount, and sign, supporting bills or documents are checked. If the voucher is cleared then cheque is made. In case, the auditor has doubt then he will ask for clarification from the concern department.
Audit a cheque: There are certain things that are checked while auditing a cheque such as: branch name, amount in figures and words should be same, no over writing, signing authority. No cheque is withdrawn without audit. Auditor also checks that whether the amount is entered correctly in the books of accounts or not. Auditor signs daily opening and closing balance of accounts.
Post Audit:
Post audit is a final confirmation test, which checks the occurrence of transactions. It is done twice in a year by the audit team. Post audit is done of the branches and the head office.
3.4.5 BRANCH AUDIT:
In NBP branches there are three facilities available deposit, lockers and advances. There are different things, which are checked during inspection. Some mistakes are on the spot rectified, others are noted so that the top management knows about the affairs of the branch. The things, which are checked, are: • • • • • • • • • Deposits & profit targets Cash department Key movement register Account reconciliation statement Banker's account Customer services Expenditure control Very serious irregularities Routine lapses
There are different registers maintained in branch for the purpose of recording transactions, which are checked: • • • • • • • • • Cash receipt & payment register Cash transfer register Key movement register Deposit & advances register Rent payment register Income & expenditure register Lockers attendance register Daily statement of affairs Every type of vouchers
The audit team notes the objections and prepares a report which is given to branch manager so that he will reply about the objections. This compliance is to be submitted by the Branch Manager within 15 days. Confidential report having important observations is sent to higher authorities of the bank. A letter related to the inspection report is sent by Banking Department to Branch Manager asking to take prompt actions against some serious irregularities. Then branch sends its compliance to the head office. In the end, if all the compliances are done and the management is satisfied then letter of assurance from manager comes to the Head Office ensuring that mentioned objections will not be practiced in future.
3.5 FINANCE AND ACCOUNTING OPERATIONS:
It is very clear that finance and accounting are two different fields, but a deep sight reveals that these two have something to do with each other. Finance means the management of money or funds. The management means art of using the funds and generating the funds. Whereas, accounting means entries of the transactions, calculations, preparations of statement and dealing with numerical figures. When
decisions are made in finance for using funds or getting funds by some means, this needs some accounting like debit-credit entries, calculations etc. Finance department is more sensitive and has more responsibilities on its shoulders. It is performing duties of allocation of funds in the most appropriate and safe way. That is why, in advances department two Officers are doing the job of lending and one is responsible for securities held as collateral. Finance operations include getting more and more deposits, giving loans and making investments to generate more funds, this is what the objective of the Finance department is. Now coming towards the accounting operations, in the bank entire accounting system is based on debit-credit mechanism. Whichever statement the accountant is preparing whether cash report, daily scroll, general ledger or statement of accounts, it has three columns Dr. Cr. And Balance. For debit or credit transactions, bank uses debit vouchers or credit vouchers, for acceptance of money credit vouchers is used and for payment of money debit vouchers are used. Accounting operations originate from an entry, which is recorded on the books of account through a voucher. From voucher it is recorded on “Receipts Register” or “Payments Register” then goes into “Scroll”, from where “Cash report” is prepared. In the end it is the “General Ledger” that is prepared which should always be balanced. Accounting operations also includes preparations of statement of monthly expenditures, monthly statement of Profit/Loss, monthly statement of Liabilities, weekly accounts schedule and statement of SBP Accounts etc.
3.6 THE ROLE OF FINANCIAL MANAGER:
The financial manager plays a dynamic role in a modern company’s development. This has not always been the case. Until around the first half of this century, financial managers primarily raised funds and managed their firms and improved cash financial positions. In the 1950s, the increasing acceptance of present value concepts encouraged financial managers to expand their responsibilities and to become concerned with the selection of capital investment projects. Today, external factors have an increasing impact on the decision financial manager. Heightened corporate competition, technological change, volatility in inflation and interest rates, worldwide
economic uncertainty, fluctuating exchange rates, tax law changes, and ethical concerns over certain financial dealings are dealt with almost daily. Thus, today’s financial manager must have the flexibility to adapt to the changing external environment if his or her firm is to survive. The role of financial managers in establishing/maintaining good working relationships with other financial institutions in terms of financial management is very important. Therefore, in the first instance he should have co-ordination and extensive terms with other financial institutions for smooth financial management. Most of the time, payments are made through cheques/certificates or any other non-cash item. Then, it is the prime responsibility of finance manager to encash those payments from other banks/institutions through correct accounting procedures. Cash management is one of the greatest responsibilities of finance manager. When customers draw amounts from any other bank including ATM’s, there is excessive requirement of cash management so that correct accounts are debited and credited. Likewise, it is the responsibility of finance manager to provide and arrange cash as and when needed. It is only possible if he/she has good coordinating terms with other financial institutions. Thirdly, in term of credit management, relationship of financial managers with other financial institutions should also be very reliable. Various organizations, business and other financial institutions seek credit supports. This is the time when the finance manager uses his skills to check credibility of the customer and then to decide whether credit should be extended or not. Likewise, it is the duty of finance manager when situation is opposite i.e. when his/her own bank/branch is in need of credit support. Then he/she may use good terms established during credit provision and make use of them.
3.7 USE OF ELECTRONIC DATA IN DECISION MAKING:
The essence of management is making decisions. Managers are constantly required to evaluate alternatives and make decisions regarding a wide range of matters. Just as there are different managerial styles, there are different decision-making styles. Decision making involves uncertainty and risk, and decision makers have varying degrees of risk aversion. Decision making also involves qualitative and quantitative
analyses and some decision makers prefer one form of analysis over the other. Decision making can be affected not only by rational judgment, but also by nonrational factors such as the personality of the decision maker, peer pressure, the organizational situation, and others. Electronic data is very helpful in decision making. It helps in quick decision making. Due to the increase in business volume and the world is becoming a global village, the need of electronic data in decision making is very much important. There are number of branches of bank working inside and outside the country. These electronic data is very helpful for decision making.
3.8 SOURCES & USES OF FUNDS:
3.8.1 Sources of fund of NBP:
NBP is a business Organization and its main objective is to earn profit. It provides a number of services to its customers in order to achieve its objective. It offers a variety of interests bearing obligations to the public. These obligations are the sources of funds for the bank and are shown on the liability side of the balance sheet of the bank. The main sources of funds of NBP are: • • • Fixed Deposits Saving Deposits Current Deposits
These deposits are the major sources of funds of NBP.
Fixed Deposits:
Time deposits are lodged with the bank for a fixed period of time. The bank pays interest to the depositors.
Saving Deposits:
Saving deposits is an important source of NBP funds. The bank pays interest on the minimum monthly balance to the depositors at the end of the June and December every year. The depositors are normally allowed to withdraw a limited amount of money only twice a week.
Current Deposits:
A current account is a running account which is continuously in operation. The bank does not pay any interest on these deposits.
Capital Accounts:
Capital accounts are an important source of bank funds. There are four common form of capital account.
Capital Stock:
It consist of total common stock outstanding valued at par.
Surplus:
This is a portion of undivided profit set a side.
Undivided Profit:
Undivided Profit consists upon net difference between the total assets of the bank & the sum of liabilities capital stock surplus & other contingencies undivided profit is the balancing item on the balance sheet.
Reserve for contingency:
Reserve for contingency is an account held by the bank for the purpose of accommodating losses realizes insecurities and certain other considerations.
Other Borrowing:
Borrowing is another item on the liability side of the balance sheet of a bank. The NBP can also raise fund for short period of time by borrowing from the central bank. The NBP also borrows funds by the sale of promissory notes, loams & securities.
3.8.2 USES OF FUNDS:
The use of funds is an important side of the bank operation. NBP uses of funds mainly consist upon:-
Primary Reserve:
The primary reserve is the each asset held by the bank The cash assets include: • • • • Required reserve with central bank Cash in currency coins Demand balance with other banks Cash items in the process of collection.
Bank Loans:
The bank loans considered are an important component of uses of funds. NBP advance loan to individuals, financial institutions, traders, farmers, industrialists, security broker dealers etc, for different periods of time. Most of the bank loans are advances against security. Through which the bank covers the risk of loss in case the borrower is unwilling to pay the loan at maturity.
Investment in Securities:
The NBP uses a large amount of funds on the purchase of earning assets. The investment in securities is one of the assets, which is most profitable to the bank. Bank hold securities, treasury bills of the federal & provincial government shares, debenture, bonds, units of National Investment Trust, gold etc.
3.8.3 SOURCES OF INCOME OF NBP:
Interest Income: The major portion of its income is the interest, which is charged on different types of loans granted.
Profit: NBP has started different projects on the partnership basis and the profit from that project is distributed between bank and partners according to the agreed ratio. Profit on Securities: NBP has invested major portion of its sources in different marketable and non marketable securities and profit received on securities investment. Locker Rent: NBP has locker which are available to public for saving different precious things and documents. The bank received the rent for the use of that locker. Collection charges on Utilities Bills: NBP also received the utility bills from public. Service Charges: NBP charged service charges from account holders and on banking instruments. Commission: NBP is performed different services for its customers and commission is charged for the award of these services. Collection Charges: NBP collect the amount of customer from other banks and institutions on that collection, collection fee is charged at the rate of 2% of total amount. Discounting on the Bills of Exchange: NBP is discounting on the bill and
discount received on that bill discounted at the rate of 9% of total amount.
3.8.4 EXPENSES OF NBP:
Interest on Deposits: NBP uses the money deposited by the public and interest is paid on that deposit to the depositors at different rates of interest, fixed for different schemes offered by NBP. Salary Expenses: Salary and pension is paid to NBP serving and retired employees.
Marketing Expense: All the expenses of management of research, salaries and advertising are considered as a marketing expense. Bad debts or Loan written off: A huge portion of income is become expenses in the shape of bad debts. After the nationalization of the bank loans have been written off due to the economic and political basis. But after 1997 Govt. has tried to adopt the strict policy and asked the bank not to write off the loans on political basis.
CHAPTER 4
C H A P T E R 4
FINANCIAL ANALYSIS
4.1 FINANCIAL ANALYSIS:
Financial statement analysis is the principal mean of reporting the financial condition and the result of operations of an organization, or in other words we can say that financial analysis are carried out for the purpose of identifying the financial strengths and weaknesses of an organization by properly establishing the relationship between the balance sheet and income statement items. This analysis helps many parties in making decision who are interested in business activities. To improve the quality of decision making, proper analysis of these statements helps a lot. The firm itself and outsider providers of capital, creditors and investors all undertake financial statement analysis. The type of analysis varies according to the specific interests of the party involved. For example, suppliers are interested in liquidity of the firm. There claims are short term, and the ability of the firm to pay these quickly is best judged by an analysis of the firm’s liquidity. The claims of the bondholders, on other hand, are long term. So bond holders are more interested in cash-flow ability of the firm. Investors are commonly concerned with present and future earnings. As a result, investors usually focus on analyzing profitability. They would also be concerned with the firm’s financial conditions insofar as it affects the ability of the firm to pay dividend and avoid bankruptcy. Management also analyzes financial analysis for the purpose of internal control and to check the performance of the firm. Similarly government agencies analyze financial data for the tax purpose.
4.2 TOOLS OF ANALYSIS:
1) Ratio Analysis 2) Vertical Analysis 3) Horizontal Analysis
4.3 RATIO ANALYSIS:
An index that relates two accounting numbers and is obtained by dividing one number by other. We calculate ratios because in this way we get a comparison that may prove more useful than the raw numbers by themselves.
4.4 LIQUIDITY RATIOS:
Liquidity Ratios are used to judge a firm's ability to meet short term obligations. It shows the each solvency of a firm and its ability to remain solvent in the event or adversities.
4.4.1 CURRENT RATIO:
Current ratios measure the number of times a company’s current assets cover its current liabilities. The higher the ratio, the greater is the company’s ability to meet its short term obligations as they come due. Current ratio is calculated by dividing current assets by current liabilities. Current Ratio = Current Assets Current Liabilities (Rs. In Million) Current Assets 2003 440,97 2004 524,88 7 483,88 8 1.08 2005 544,32 3 473,94 1 1.15 2006 598,33 7 524,19 5 1.14 2007 705,276 609,889 1.16
4 Current Liabilities 417,60 Current Ratio 0 1.06
CURRENT RATIO
2007 1.16
2003 1.06
2006 1.14 2005 1.15
2004 1.08
4.5 LEVERAGE RATIO:
Financial leverage is the extent to which a company is financed with debt. The amount of debt a company uses has both positive and negative effects. The more the debt, the more the company will have trouble in meeting in its obligations. Thus the more debt, the higher is the profitability of financial distress and bankruptcy. On the other hand debt is the major source of financing and banking industry typically uses the higher percentage of debt. Debt financing provides significant tax advantage and its transaction costs are low than that of equity. Leverage ratios measure the amount of financial leverage. Commonly used leverage ratios are debt ratio, and debt to equity ratio.
4.5.1 DEBT-TO-TOTAL ASSETS RATIO:
Debt ratio shows the fraction of the company’s assets that is financed by debts. Creditor of a company would generally like this ratio to be low. The ratio is derived by dividing a firm’s total debt to its total assets. Debt-To-Total Assts Ratio = Total Debts Total Assets
(Rs. in Million) Total Debts Total Assets 2003 441,38 8 468,97 2004 506,98 5 553,23 1 0.92 2005 501,90 1 577,71 9 0.87 2006 553,17 8 635,13 2 0.87 2007 645,856 762,194 0.85
2 Debt-To-Total Assets Ratio 0.94
Debt-To-Total Asse ts Ratio
2007 0.85
2003 0.94
2006 0.87 2005 0.87
2004 0.92
4.5.2 DEBT-TO-EQUITY RATIO:
This ratio indicates the extent to which debt financing is used relative to equity financing. Debt-To-Equity Ratio = Total Debts Shareholder’s Equity
(Rs. in Million) 2003 Total Debts Shareholder’s Equity Debt-To-Equity Ratio 441,38 8 27,584 16.00 2004 506,98 5 46,246 10.96 2005 501,90 1 75,818 6.62 2006 553,17 8 81,954 6.75 2007 645,856 116,338 5.55
De bt-To-Equity Ratio
2007 5.55 2006 6.75 2005 6.62
2003 16
2004 10.96
Here the trend of this ratio is decreasing which is 16 in 2003 and decreased to 10.96 in 2004 and further decreased to 5.55 in 2007. This shows that debt financing was more used in previous years but now it’s decreasing and equity financing is used also so it’s also increasing.
4.6 COVERAGE RATIO:
Coverage ratio shows the number of times a company can cover or meet a particular financial charge or obligation. One of the most commonly used coverage ratios is the interest coverage ratio.
4.6.1 INTEREST COVERAGE RATIO:
It measures the number of times the income is available to pay interest charges and covers the company’s interest and thus avoids bankruptcy. The ratio is calculated by dividing the income before interest expense and tax of a period by interest expense of the same period. The higher the ratio, the greater is the likelihood that the company could cover the interest expenses. Interest Coverage = Earning Before Interest And Taxes Interest Expense
(Rs. in Million) 2003 EBIT Interest Expense 9,00 9 6,73 2004 11,97 7 6,559 1.83 2005 19,05 6 10,32 2 1.85 2006 26,31 0 13,94 7 1.89 2007 28,060 16,940 1.66
5 Interest Coverage 1.34
Interes t Coverage
2007 1.66
2003 1.34
2006 1.89 2005 1.85
2004 1.83
This ratio serves as one measure of the firm’s ability to meet interest payments and thus avoid bankruptcy. The higher the ratio, the greater the ability that the company can cover its interest payments without difficulty. It also sheds some light on the firm’s capacity to take on new debt. The interest coverage ratio of NBP has shown an improvement over the period of five years. In the year 2006, the ratio is 1.89, which shows that the income in 2005 covers 1.85 times the interest expense. As the core business of a bank is borrowing and lending, interest expense constitute the main expense of the business that’s why the interest expense is so higher and ratio is so lower.
4.7 ACTIVITY RATIO:
4.7.1 TOTAL ASSET TURNOVER (TAT) RATIO:
This ratio measures relative efficiency of total assets to generate sales. TAT = Net Sales Total Assets (Rs. in Million) 2003 Net sales 19,452 2004 20,947 553,23 1 0.03 2005 33,693 577,71 9 0.06 2006 44,102 635,13 2 0.07 2007 50,569 762,194 0.07
Total Assets 468,97 TAT 2 0.04
Total Asset Turnover
2007 0.07
2003 0.04 2004 0.03
2006 0.07
2005 0.06
This ratio remained same for two years that is in year 2006 and in year 2007 because both total assets and net sales are increasing in a same manner in these two years but in 2007 total assets increased in same ratio but net sales have increased rapidly. It’s mainly because of increase in advances.
4.8 PROFITABILITY RATIO:
4.8.1 NET PROFIT MARGIN:
It measures the profit that is available from each rupee of sales after all expenses have been paid, including cost of sales, selling, general, and administrative expenses, depreciation, interest, and taxes. The ratio is calculated as follows: Net Profit Margin = Net Profit After Taxes Net Sales * 100
(Rs. in Millions) 2003 Net profit after taxes 4,198 Net sales 19,45 2 2004 6,195 20,94 7 2005 12,70 9 33,69 3 2006 17,02 2 44,10 2 2007 19,034 50,569
Net profit margin
21.58
29.57
37.72
38.60
37.64
Net profit margin
2007 37.64
2003 21.58 2004 29.57
2006 38.6
2005 37.72
Net profit margin of NBP has improved over time and its showing an increasing trend. The cost of goods sold decreased in year 2005 but again increased in year 2006. The administrative expense is increasing but other charges have decreased first in year 2005 and then increased vastly in year 2006. One other explanation might be that the tax rate on income has increased.
4.8.2 RETURN ON INVESTMENT (ROI):
Return on investment (ROI) or return on assets, measures profitability per rupee of investment in assets. The ratio is calculated as under: ROI = Net Profit After Taxes Total Assets Net Sales Total Assets
ROI = NET PROFIT MARGIN × TOTAL ASSETS TURNOVER (Rs. in Million) 2003 Net Profit Margin 21.58 2004 29.57 0.03 2005 37.72 0.06 2006 38.6 0 0.07 2007 37.64 0.07
Total Assets Turnover 0.04
ROI
0.863 2
Return On Investm ent
0.887 1
2.263 2
2.70 2
2.6348
2007 2.6348
2003 0.8632 2004 0.8871
2005 2.2632 2006 2.702
The ROI figures of NBP shows a consistent increase over the last three years. The reason for this increase is due to increase in the net profit of the bank. Although total assets are also increasing but the increase in the net profits are more than the total assets. The positive change in ROI figures shows the outstanding performance of the bank.
4.8.3 GROSS PROFIT MARGIN:
Gross profit is the difference between revenues and cost of goods or services sold. Gross profit is critical because it represents the amount of money remaining to pay operating expenses, financing costs, and taxes, and to pay for profit. Gross profit margin is the amount of each sale rupee left over after paying the cost of goods or services sold. It is calculated as follows:
Gross Profit Margin = Gross Profit Net Sales
Gross profit margin
( Rs in Million)
2003 Gross profit Net sales 12,71 6 19,45
2004 14,38 8 20,94 7 0.69
2005 23,37 1 33,69 3 0.69
2006 30,15 4 44,10 1 0.68
2007 33,629 50,569 0.66
2 Gross profit margin 0.65
Gross profit m argin
2007 0.66
2003 0.65
2006 0.68 2005 0.69
2004 0.69
It showed increasing trend 2004 to 2005. In 2004 to 2005 the gross profit increased but mark up expenses decreased but in 2005 to 2006 gross profit increased and mark up expenses decreased.
4.8.4 RETURN ON EQUITY (ROE):
It is another measure of overall performance of a company. The ratio is calculated as under:
ROE =
Net Profit After Taxes Net Sales
Net Sales Total Assets
Total Assets Shareholder’s Equity
ROE = NET PROFIT MARGIN × TOTAL ASST TURNOVER × EQUITY MULTIPLIER
200 5 Return on Equity 40.6
200 6 37.5
2007 31.1
Return on Equity
2007 31.1
2005 40.6
2006 37.5
Return on equity of NBP is showing fluctuating trend in last three years. It is because the shareholders equity is increasing with a constant change but net profit increased slowly in 2005 as compare to increase in 2006, which is double than 2005.
4.9 COMMON SIZE ANALYSIS:
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues is called common size analysis. Common size analysis can give analyst valuable insight into changes that have occurred in a firm’s financial condition and performance. As common size analysis gives us relative percentage of an item with
respect to total, so the growth or decline in various items of balance sheet and income statement can not be detected from common size percentages.
HORIZONTAL ANALYSIS:
The development of data measuring changes taking place over a number of periods is known as horizontal analysis.
VERTICAL ANALYSIS:
An analysis of percentage financial statements where all balance sheet items are divided by total assets and all income statement items are divided by net sales or revenues.
4.10 BALANCE SHEETS
Rupees In ‘000 2003 ASSETS Cash and balances 59,420,502 with treasury banks Balances with other banks Lendings to financial institutions Investments Advances Other assets Operating fixed assets Deferred tax assets TOTAL ASSETS 468,972,32 2 553,231,56 7 577,718,80 6 635,132,71 1 762,193,593 166,195,61 9 161,265,76 0 19,059,031 8,939,483 149,350,09 6 220,794,07 5 19,141,569 9,202,969 156,985,37 8 268,838,77 9 23,941,256 9,454,365 139,946,99 5 316,110,40 6 27,113,698 9,681,974 210,787,868 340,677,100 30,994,965 25,922,979 24,154,070 29,937,857 49,784,884 10,511,322 31,019,330 16,282,942 40,641,679 23,012,732 37,472,832 21,464,400 94,446,552 71,196,956 78,625,227 94,873,249 2004 2005 2006 2007
LIABILITIES Bills payable Borrowings from financial institutions Deposits and other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities
5,496,738 16,569,673
7,214,671 11,084,790
1,741,156 8,756,847
10,605,663 11,704,079
7,061,902 10,886,063
395,492,33 1
465,571,71 7
463,426,60 2
501,872,24 3
591,907,435
41,117 23,192,585 595,864 441,388,30
17,058 23,068,314 29,185 506,985,73 5 4,924,106 10,813,914 9,161,747 24,899,767 21,345,965
16,629 23,496,910 4,462,718 501,900,86 2 4,924,106 10,813,914 9,161,747 24,899,767 21,345,965
13,235 26,596,300 2,387,073 553,178,59 3 7,090,712 13,879,260 32,074,677 53,044,649 28,909,469
33,554 30,869,154 5,097,831 645,855,939
8 SHAREHOLDER’S EQUITY Share capital 4,103,122 Reserves 8,133,312 Unappropriated 5,897,163 profit Surplus on revaluation of assets TOTAL LIABILITIES & EQUITY 69,548,177 18,134,897 9,450,117
8,154,319 15,772,124 45,344,188 69,270,631 47,067,023
578,131,23 4
573,046,36 1
688,177,36 0
831,464,224
4.10.1 COMMON ANALYSIS
%)2003 2004 2005 2006 2007
ASSETS
Cash and balances with treasury banks Balances with other banks 12.6703 6 5.15042 5 17.0718 8.99892 5 12.3238 5.36927 6 12.3793 4 6.39892 7 12.4474 4.91644 7
Lendings institutions Investments Advances Other assets
to
financial
6.38371 5 35.4382 6 34.3870 5 4.06399 9 1.90618 6 0 100 7.90349 7
1.89998 6 26.9959 5 39.9098 9 3.45995 7 1.66349 3 0 100
2.81848 8 27.1733 1 46.5345 2 4.1441 1.63649 9 0 100 0.30384
3.62329 5 22.0342 9 49.7707 6 4.26898 2 1.52440 2 0 100 1.54112 3 1.70073 6 72.9277 5
2.81613 6 27.6554 3 44.6969 4 4.06654 9 3.40110 3 0 100 0.84933 3 1.30926 4 71.1885 6
Operating fixed assets Deferred tax assets
LIABILITIES
Bills payable Borrowings from financial institutions Deposits and 1.24793 1.91734 8 80.5304 6 2 1.52812 2 80.8707
23.8247
4 other 568.659 5
accounts Sub-ordinated loans Liabilities against assets subject to finance lease Other liabilities Deferred tax liabilities
0.00295 0.05912 33.3475 1 0.85676 4 34.2633 9 1 3.99015 2 0.00504 8 87.6938 8 0.85172 8 1.87049 5 1.58471 8 4.30694
0.00290 2 4.10035 1 0.77877 1 87.5846 9 0.85928 6 1.88709 2 1.59877 9 4.34515
0.00192 3 3.86474 5 0.34686 9 80.3831 4 1.03036 1 2.01681 4 4.66081 5 7.70799
0.00403 6 3.71262 6 0.61311 5 77.6769 4 0.98071 8 1.89691 5.45353 4 8.33116
SHAREHOLDERS EQUITY
Share capital Reserves Unappropriated profit 11.6945 8.47924 9 26.0753 5.89968 3
Surplus on revaluation of 13.5878 assets 7 100
3.69223 5 100
8 3.72499 8 100
1 4.20087 5 100
2 5.66073 9 100
4.10.2 COMMON SIZE ANALYSIS OF BALANCE SHEET:
The common size analysis of NBP’s balance sheet shows that on the assets side Advances are showing increasing trend. It shows that the efficiency of NBP is increasing. Its products and different schemes of advances are favored by people and they are taking interest in having loans from NBP. On the other way investment side is showing decreasing trend. As advances are increasing with a very good growth rate so now there is no need for NBP to invest money in many different businesses. Advances are usually main source of income for banks and rate of interest is also high. On the liability side, the common size analysis of total liabilities is showing decreasing trend which is mainly due to bills payable, borrowings, and liabilities against assets. Bills payable have decreased too much in just one year and borrowings from financial institutions have also decreased and all this shows that in future the liabilities side will be continuously decreasing. On the owners equity side the share capital and reserves are increasing which may be the cause in increasing change in inappropriate profit.
4.11 INCOME STATEMENT:
2003 Mark-up revenue Mark-up expense Gross profit margin 19,452,31 7 6,735,579 12,716,73 8 2004 20,947,33 3 6,559,398 14,387,93 5 2005 33,692,66 5 10,321,76 8 23,370,89 7 2006 44,100,93 4 13,947,21 8 30,153,71 6 2007 50,569,48 1 16,940,01 1 33,629,47 0
Provision for advances Provision for investment Provision against balance sheet Bad debts written off Net mark-up income Fee & commission Dividend income Exchange income Other income Total non markup Total income Administrative expense Other provisions Other charges Non markup expense Profit before tax Taxation Profit after tax
1,684,777 459,523 474,743
1,515,354 185,707 14,297
2,446,739 (245,881) -
3,075,723 (709,461) -
4,723,084 (40,248) -
10,097,69 5 3,260,863 1,126,742 710,726 2,149,800 7,248,239 17,345,93 4 8,280,878 33,454 22,894 8,337,226 9,008,708 4,810,605 4,198,103
32,807 12,639,77 0 5,099,195 1,273,863 1,008,988 875,113 8,257,159 20,896,92 9 8,878,801 32,243 8,284 8,919,328 11,977,60 1 5,782,229 6,195,372
23,069 21,146,97 0 4,926,604 1,718,478 1,205,638 177,839 9,392,351 30,539,32 1 11,221,78 9 198,298 63,206 11,483,29 3 19,056,02 8 6,346,584 12,709,44 4
5,284 27,782,17 0 6,144,628 2,891,755 1,333,840 627,618 12,162,89 2 39,945,06 2 13,443,44 1 (17,283) 208,327 13,634,48 5 26,310,57 7 9,288,231 17,022,34 6
39,899 28,906,73 5 6,781,683 3,263,246 1,042,827 147,363 13,544,84 5 42,451,58 0 14,205,91 1 168,027 17,141 14,391,07 9 28,060,50 1 9,026,728 19,033,77 3
4.11.1 COMMON ANALYSIS
%)2003 Mark-up revenue
100 100 31.31376 68.68624 7.234114 0.886542 0.068252 0.156617 60.34071 24.34293 6.081266 4.816785 4.177682 39.41866 99.75938 42.38631 0.153924 0.039547 42.57978 57.1796 27.60365 29.57595 100 30.63506 69.36494 7.261934 -0.72978 0 0.068469 62.76431 14.62219 5.100451 3.57834 0.527827 27.87655 90.64086 33.30633 0.588549 0.187596 34.08247 56.55839 18.83669 37.72169 100 31.62567 68.37433 6.974281 -1.60872 0 0.011982 62.99678 13.9331 6.557129 3.024516 1.42314 27.57967 90.57645 30.48335 -0.03919 0.472387 30.91654 59.65991 21.0613 38.59861 100 33.49849 66.50151 9.339791 -0.07959 0 0.078899 57.16241 13.41062 6.452995 2.062167 0.291407 26.78462 83.94704 28.09187 0.33227 0.033896 28.45803 55.489 17.85015 37.63885
2004
2005
2006
2007
Mark-up expense
34.6261
Gross profit margin
65.3739
Provision for advances Provision for investment Provision against balance sheet Bad debts written off Net mark-up income Fee & commission Dividend income Exchange income Other income Total non mark-up Total income Administrative expense Other provisions Other charges Non markup expense Profit before tax Taxation Profit after tax
8.661061 2.362305 2.440547 0 51.90999 16.76337 5.792328 3.653683 11.05164 37.26157 89.17156 42.57014 0.17198 0.117693 42.85981 46.31175 24.73024 21.58151
4.11.2 COMMON SIZE ANALYSIS OF INCOME STATEMENT:
The common size analysis of Income statement of NBP as given in the above table is showing a consistent increasing trend in the bank’s gross profit margin. The main reason behind this increase is that the bank has controlled its mark up expenses in relation to total mark up revenue, which were constantly reduced in year 2005 to year 2006. In simple words we can say that this decreasing trend in the mark up expenses resulting in the increased gross profit. Mark up expenses is actually cost of sale in case of a bank. Furthermore this increasing in gross profit margin shows the efficiency of the bank’s management in controlling mark up expenses. So this
increasing trend of a gross profit margin is a positive and healthy sign and the bank’s management should continue such type of efforts in order to achieve such type of results in future. Now if we look at the figures of analysis of total income then we will see the decreasing trend in 2006 with respect to 2005. It is because of major decrease in fees and commission, which shows that the services of NBP other than advances and investments provided for daily use purpose of the customer are not regularly used by customers. If we look at the figures of non mark up expense there is decreasing trend, which is because of decrease in administrative expense. The increasing rate of gross profit is less with respect to net profit because non mark up expense and taxes both are showing reducing trend which is the main purpose in more increase in net profit with respect to gross profit.
CHAPTER 5 SWOT ANALYSIS
C H A P T E R 5
5.1 SWOT ANALYSES:
The strength and weaknesses are analyzed inside the organization, while opportunities and threats are analyzed from the general environment (which is outside the organization). NBP SWOT analysis is given below:
5.2 STRENGTHS:
Strength is first part of the SWOT analysis and we can say it that it is the positive or plus points of that organization which is being analyzed, so here first of all the strength of national bank of Pakistan is presented, so following are the strengths of the NBP:
Brand image of the National Bank:
National Bank brand images are its major strength. It has always been considered as the pillar of the country's economic scenario asset wise or balance sheet wise. Its image, work force, network and reputation have created a sentimental and emotional attachment of the people with the bank.
Computerized networking:
Complete computerized networking is strength of the bank. Now the bank has the ability to compete with any multinational bank as to keep pace with the changing and fast growing world of today, computers have become necessities.
Focus on expending business worldwide:
Another competitive edge that the bank has on the rest of the competitors is its expanding business worldwide, creating for a large and vast group of customer and maintaining standards of excellence globally. Recently NBP opened its branch at Kabul in Afghanistan and Government is trying to open the branch of NBP at India, and for that purpose finance secretaries of both countries dialogues on that issue.
Organizational culture:
As we know that it’s a pure government bank but the culture of management of NBP is very strong like a private sector bank. NBP's organizational culture is very friendly and interesting. Employees have created a very cooperative environment among each other. They have created loyalty toward the organization by differing their future efforts and struggles. The employees take the organizational troubles personally and try their best for the prosperity of the organization.
Strategic top management:
Fortunately NBP has got from time to time best top management. Currently the NBP Chairman and as well as President S. Ali Raza Shah, he is the person who has saved the life of the organization and contributed a lot.
Best research team:
Before the project financing NBP has the research team that justifies the economic and financial feasibility of project in the future. That is the strength that helps the organization from any loss that is to occur in the future in case of failure of the project.
Lenient policy with the clients:
This is one of the best policies of NBP that it does not keep rude behavior with its client if they are in their repayment of loan. It helps its customers in the rescheduling and restructuring of their loans for easy repayment.
Schemes:
NBP’s Schemes are also strength of the NBP because it is only bank which facilitates the each class of the society. For example, for businessmen it provides easy loans for expansion as well as starting new business, for farmers, for students, for government employees etc. The names of the schemes are as under: • • Educational loans (interest free) Saiban scheme
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Kisan dost Advance salary Cash n gold Karobaar
5.3 WEAKNESSES:
Monitoring and control of branches:
Branches are most important side for management of banks. National Bank of Pakistan’s management is facing troubles related to the task monitoring and control of branches. It is not easy when we look at the number of branches (which are approx. more than 1261 in the country at main cities as well as backward regions of the country) so in the result the problem of delay is faced by the management.
Exposure and experience of the staff:
The ways of the grooming of NBP employees are limited, and situational factors and professional hazards affect their efficiency and effectiveness. That is why they can not get appropriate experience so their exposure is affected.
Less attention to the rural development:
NBP's previous record shows that it has made project financing only in the major cities of Pakistan. But a reasonable attention is needed in the project financing of the rural based industrial project of the country.
Poor advertisement:
This is keenly observed that as compare to other banks, NBP is very poor in advertising itself and institution. NBP does not use proper publicity and other marketing tools for its schemes and for other products which affects its sales.
Loan formalities:
The formalities involved in getting loans are time concerning and complicated enough.
Favoritism in loans:
It is observed that most of the loans, which have been granted on political basis, are either default or their loans are forcefully written off.
Poor recovery system:
It is seemed that the recovery system of NBP is not effective that's why number of defaulters is increasing at the growing age.
Employee’s dissatisfaction:
Uncertainty among the employees is present due to threat of downsizing.
5.4 OPPORTUNITIES:
National Bank has very clear scenario for the future. They plan to gain their glory not only in terms of profitability but also include latest technology and competent work force.
Sponsor the IT based projects:
This is the best opportunity available to all banks and NBP as well, to sponsor the IT and computer based projects because the coming century is the century of information technology as now a day all the business community is diverting its attention towards this field.
Goodwill and better image:
NBP has advantage of generating more deposits and attracting valuable customers due to its better image in the business community. NBP has also advantage of increasing credit lines. This is only due to good dealing and better image that NBP has directly acquired. This better image can help further NBP in explanation of its activities.
Growth in the industrial sector:
NBP's major function is the project financing and it is doing with full its efforts. Fortunately industrial sector now-a-days in Pakistan is again growing thus increasing the business opportunities of NBP. As now a day WTO’s rules have implemented on the industries and NBP is going to fully participate to accommodate the issues related to the trade and development.
5.5 THREATS:
Economical instability:
If there is a threat to the entire economy, it will also create a threat for National Bank. As we know that this is the era of globalization and market competition, in the result our economy is facing the high level competition so NBP is also very much confused in long term financing in major projects.
Standards of competitors:
Recent facts and figures indicate that the bank’s major competitors MCB, HBL, Bank Alfallah, Askari commercial bank, Soneri bank etc are causing threats to the bank in the long run thus snatching away the market share by attracting a large number of customer due to their rising standards and they are giving quality services and value added products.
Political influence and instability:
This is the major threat for any business organization in Pakistan because the political officials influence NBP in financing those projects which are not valuable or write off those loans which are still able to pay, this political influence cause many problems in daily business thus profitability of NBP.
Lack of modern banking techniques:
NBP is following fifty years old style of banking. Still no computerized ledgers are used. No latest technologies are adopted. NBP is just depending on the same old style of banking.
5.6 RECOMMENDATIONS:
These are some recommendations, which I consider that will be helpful in increasing the picture and performance of NBP. • As NPB has its separate department of R&D but it is based at the head office, so it is immense important to enhance and run it at the grass root level which may help the branches which are located in the backward areas of the country. • The Islamic banking system should be adopted, because it is a pure public sector bank. • Every branch should be considered as a separate unit and should be evaluated individually, through this way NBP can easily know all the complex activities of the branch of that areas or localities, and then they can easily solve those problems. • There is an immediate need to make a new recruitment policy so that the bank can get properly trained employees who are best suited for the vacant positions. Political interference especially in recruiting should not be tolerated, and for existing employees the job description must be clearly defined by this way that the efficiency of employees should be increased which is in the favor of the bank. • Performance appraisal should be done on a semi-annual basis rather than an annual basis. In this way the employees will realize his or her short timings and will work more efficiently. • Promotions should not only do on the basis of seniority but performance should be considered, it is more helpful for the motivation of their employees.
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If we see the annual report of NBP, their fixed assets are very small in number. Most of their offices in different cities are on rent. So they have to pay heavy rent, which decreases their profit. NBP should try to construct its own buildings.
5.7 CONCLUSION:
The importance of banks in the economy of any country is like a backbone, so the state government decided to start the banking system in their country, and by their own interference they control them, secure them according to the situation, and main purpose behind that is to facilitate their nation or their public. So the government of Pakistan has also a banking system. It is a head bank in Pakistan known as STATE BANK OF PAKISTAN which is largest bank of Pakistan. This bank works as the governmental department and its main function is to monitor all type of banks working inside specially as well as outside the country. National Bank of Pakistan is the second largest bank of Pakistan by all means; National Bank of Pakistan is widely used as an agent for State Bank of Pakistan and is also involved in commercial banking. National bank of Pakistan has a vital role in Pakistan’s banking history as well as in the economy of Pakistan, so it has a great significance. At present the national bank of Pakistan has improving its internal and external conditions, but due to the largest operations in Pakistan (because this is only bank which must cover the backward regions of the country where no any other commercial bank wants to go). It still faces many problems. These problems are new marketing strategies, organizational and management problems at the branches of backward regions, and motivation. Another main problem is faced by the NBP is labor unions because labor is most powerful because of CBA union which protect the labor's all actions. All above factors are causing problems of banking functional and growth of banking is being resisted. Mostly recruitment and promotions are under influence of political system of Pakistan. So it should be eliminated or should be reduced as much as possible and make it on merit and transparent.
NBP should fully concentrate to improve its performance and standards to meet the challenges by the economy as well as by the competitors and for this purpose it needs to overcome the problems and improve the quality of services specially in advance section, that will prevent it from huge losses.
REFERENCES
NBP Annual Report 2003 NBP Annual Report 2004 NBP Annual Report 2005 NBP Annual Report 2006 NBP Annual Report 2007 Economic Bulletin Jul-Aug 2008
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