45977958 NBP and Its Profitability Crisis (2)

Ms.Uzma Bashir GhausTuesday, December 28, 2010

Adeel Rehman Abbasi (8045)

Ahsan Bham (8106)

Sobia Khan (6316)

Mohammad Arsalan (7989)

Sakina Nazir (10622)

Letter of AuthorizationTuesday, December 28, 2010

Dear Reader:

As authorized by our teacher Ms. Uzma Bashir Ghaus, we decided to produce

business plan for National Bank of Pakistan.

This report contains complete information about the company’s strategy to

achieve success. Also included in this report is a detailed analysis of the

company’s position in the market and the operations it is carrying out. All

information is presented in a very simple manner, for the interest of a common

reader.

This report consists of genuine and complete source of information on the

organization. You may contact us for further queries or comment us on our

work.

Sincerely,


Ahsan Bham (8106)

Sobia Khan (6316)



Letter Of TransmittalTuesday, December 28, 2010

Ms. Uzma Bashir Ghaus

Faculty Member, Strategic Management

Iqra University, Defence View

Karachi

Dear Ms. Bashir:

We are submitting here our term report on the Business Plan of National of

Pakistan. Initial pages of this report also contain the brief information about

company’s background and the activities they are doing.

All the information provided in the report is comprehensively discussed with a

satisfactory background of valid facts and figures.

If there are any questions or queries you have about the material presented in

this report, we will be extremely glad to appear before you.

Sincerely,


Ahsan Bham (8106)

Sobia Khan (6316)



AcknowledgementDear Reader:

With the blessings of ALLAH the almighty, the report enclosed has reached its

stage of final completion. This report is a result of exhaustive and much

enthusiastic work. We extend our heartiest thanks to Ms. Uzma Bashir Ghaus,

for conducting this course and making it interesting and knowledgeable, without

her efforts and co-operation the report would not have been possible. We also

thankful for her confidence and trust she had in us, importance of which can in

no way can be under estimated.

We are equally grateful to Iqra University for providing us the opportunities to

pursue our endeavor. We also appreciate the employees of National Bank of

Pakistan, who assisted us in providing us all the necessary information and

feedback that we required for completing this task.

We hope readers of this report can complement the depth of the study and

efforts put into it .

Thanking You

Sincerely,


Ahsan Bham (8106)

Sobia Khan (6316)



Table of ContentsINTRODUCTION:.........................................................................................................................1

Branch Network..........................................................................................................................3Present Status of the Bank:........................................................................................................4Prospects:....................................................................................................................................5Corporate & Investment Banking:............................................................................................5Treasury / International Banking:.............................................................................................6

Overview of the organization:.......................................................................................................6Vision:.........................................................................................................................................6Mission:.......................................................................................................................................6Core Values:...............................................................................................................................6Corporate Philosophy At National Bank..................................................................................7Objectives of National Bank.....................................................................................................8

ORGANIZATIONAL STRUCTURE.........................................................................................10GEOGRAPHIC DEPARTMENT............................................................................................11PROCESS DEPARTMENT....................................................................................................12CUSTOMER DEPARTMENT................................................................................................12Accounts/Finance Department................................................................................................14

Competitors:.................................................................................................................................18Financial Analysis:.......................................................................................................................18Marketing Analysis:.....................................................................................................................22

Market Recognition:................................................................................................................22Customer Satisfaction..............................................................................................................22Poor record management and filing system...........................................................................22Unequal distribution of work..................................................................................................22Marketing visits........................................................................................................................23

FUNCTIONAL ANALYSIS.......................................................................................................23Formal Organization................................................................................................................23Difference between theory and practice.................................................................................24Bank duty to maintain secrecy................................................................................................24Excessive paper work..............................................................................................................24More accounts fewer deposits.................................................................................................24Delegation of authority............................................................................................................25

ADMINISTRATIVE ANALYSIS..............................................................................................25Job analysis is not effective.....................................................................................................25Carelessness in opening of account........................................................................................25Lack of specialized training....................................................................................................26Low Profit Rates.......................................................................................................................26Poor job rotation.......................................................................................................................26Delays in Loan Advancement.................................................................................................26Lack of appreciation................................................................................................................27

PERSONAL MANAGEMENT ANALYSIS.............................................................................27Need for better training program............................................................................................27Developing Managerial Leadership........................................................................................27Recruitment policy...................................................................................................................28Promotions................................................................................................................................28Transfer.....................................................................................................................................28Marketing at desk.....................................................................................................................28Lack of business communication............................................................................................29

Industry Analysis:........................................................................................................................30IFE Matrix (Internal Factor Evaluation)................................................................................31EFE Matrix (External Factor Evaluation)..............................................................................32SWOT Analysis of the organization:......................................................................................33PEST ANALYSIS:...................................................................................................................38Comparative Study of Domestic Banking Industry:..............................................................39Comparative Analysis:.............................................................................................................44

Competitive Profile Matrix.........................................................................................................47TECHNOLOGY.......................................................................................................................48BEST RATES...........................................................................................................................48PRODUCT INNOVATION.....................................................................................................49QUALITY.................................................................................................................................49BRAND IMAGE (RECOGNITION)......................................................................................49SIZE OF THE COMPANY.....................................................................................................49LOCATION AND CONVENIENCE......................................................................................50

SPACE Matrix Analysis..............................................................................................................50SPACE Matrix Table:..............................................................................................................51SPACE Matrix Graph:.............................................................................................................52

Conclusions..................................................................................................................................54

Executive summaryTo interrupt my skills and educational knowledge of Finance I done my internship in

National Bank of Pakistan Mailsi Branch District Vehari and to know how I will work in

financial institutions and among various types of people have different attitude.

The objective of this Internship was to explore the issues relating to Finance and to find out

problems regarding the theoretical concepts with practical experience working in an

organization during the internship and study the system of National Bank of Pakistan. There

are many possible improvements, which we can make positive changes in the system.

There is shortage of employees in the organization. With development of online banking

system the load of work can be decreased. All the staffs do not know about computer. There

is almost one or two employees are trained to operate the system in every branch.

Especially, the cash department is not familiar with computer and information system.

It is not easy for it to implement a new system immediately it takes a lot of time to replace

systems. Once implemented its testing takes more time. So it is important for the Bank to

develop a research department for redesigning the operations of the Bank.

The Finance of the bank is experienced but not adequate with the changing environment of

financial institutions. I observed that seniors are illiterate of computer and not technical

hands. New comers have more knowledge about business administration and skilled in

information technology. To update the skills, it is suggested to develop human resources

training programs and refresher courses.

INTRODUCTION: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. Its

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 1,189 branches in Pakistan and 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.

The Bank is providing all banking services of mercantile and commercial banking

permissible in the country, which includes:

Handling of treasury transactions for the Government of Pakistan as agent to the

State Bank of Pakistan.

Providing services under a Trust Deed as Trustee to the National Investment Trust

(NIT) including safe custody of securities on behalf of NIT.

Page 1

Accepting of deposits of money on current, fixed, saving, term deposit and profit and

loss sharing accounts.

Borrowing money and arranging finance from other banks.

Advancing and lending money to its clients.

Financing of projects, including technical assistance, project appraisal through long

term short-term loans, term finance and musharika certificates, etc.

Buying, selling, dealing, including entering into forward contracts of foreign

exchange.

Financing of seasonal crops like cotton, wheat, rice, sugar cane, tobacco, etc.

Receiving of bonds, scrip’s, valuables, etc. for safe custody.

Carrying on agency business of any description other than managing agent, on behalf

of clients including Government and local authorities.

Generating, undertaking, promoting, etc. of issue of shares and, bonds, etc.

Transacting guarantee and indemnity business.

Undertaking and executing trusts.

Joint venturing with foreign dealers, agents and companies for its representation

abroad.

Participating in "World Bank" and "Asian Development Bank's" lines of credit.

Providing personalized Hajj services to intending Hajjis.

Page 2

Branch Network

Presently the Bank is divided into 10 Groups headed by SEVPs/EVPs. 9 Regions reporting

to as many Regional Chiefs and 15 Single Branch Zones headed by Zonal Chiefs; 12

Corporate branches and 1,189 domestic branches headed by Branch Managers control its

field operations.

With the geographical development of its branches, the Bank has been able to extend its

services to a much larger number of Pakistanis all over the country. Today it has more than

8.5 million accounts. Bank maintains its presence in all the major financial centers of the

world through its 21overseas branches and 4 representative offices. Ofthese, three

representative offices have recently been set up at Tashkent (Uzbekistan), Baku

(Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging opportunities in

CIS countries. Bank’s role globally is well assisted by its network of correspondent banks

located strategically in Asia, America, Europe and Africa.

Apart from having a vast branch network, Bank is at the forefront in the acquisition and

application of new technologies in every aspect of its banking facilities. It has acquired

leased telephone lines for on-line banking. The Bank has 12 Regional Computer Centers to

cover various on-line and batch system requirements of branches and controlling offices.

Bank has also a presence on the Internet. It has modernized its services by installing

Automated Teller Machines (ATMs) called "CASH LINK" at selected branches and

presently 17 ATMs are operational in major cities.

Branch Network:

Page 3

(As of September, 2003) 1236 Domestic Branches, 18 Overseas Branches, 4 Representative

Offices, 5 Subsidiaries and a Joint Venture

Overseas Branch Network: Paris, Frankfurt, New York, Washington D.C., Tokyo, Osaka, Hong Kong, Kowloon,

Seoul, Bahrain, Dhaka, Chittagong, Ashgabat, Bishkek, Baku, Kabul, Jalalabad and KEPZ

Offshore Banking Unit

Representative Offices: Beijing, Tashkent, Chicago, and Toronto.

Subsidiaries: » CJSC Almaty, Kazakhstan

» NBP Capital Ltd.

» National Bank Modaraba Management Co.

» Taurus Securities Ltd.

» NBP Exchange Company Ltd.

Joint Venture:United National Bank Ltd., UK

(Economic Indicators Pakistan, Published by Economic research Wing NBP, Head Office

Karachi.

Present Status of the Bank:

The new management team having extensive experience of management of large financial

institutions both within and outside the country is expected to further enhance the

profitability and operational efficiency of the Bank.

Page 4

Prospects:

The Bank's principal strategic going forward objective is to make the transition from a

public service institution to a modern commercial bank. Being the country's largest financial

institution, the Bank is uniquely positioned to leverage its large branch network and its 8.5

million-customer base to consolidate its core businesses as well as develop new revenue

generating opportunities.

The new management team is in place combining the Bank's existing personnel with

professionals recruited from outside. Operating procedures are being re-defined and internal

controls strengthened utilizing a revamped IT architecture. A brief on the progress on some

critical areas is as follows:

Corporate & Investment Banking:

A new approach to corporate banking is underway. The Bank has initiated a structured

approach to corporate banking by introducing a single point of contact through Relationship

Managers (RMs). For this purpose, new RMs as well as team leaders have been inducted to

expedite this process. Area Managers will be appointed to manage relationships and to

better service the needs of multinationals and large local corporates.

In investment banking team has also been formed to offer specialized services to major

relationships including advisory and debt syndications (TFCs). Furthermore, to stem the

growth in non-performing loans, the existing risk / credit management practices at the Bank

are being revamped.

Page 5

Treasury / International Banking:

The deregulation of foreign exchange treasury business has ensured that a growing Volume

of business now flows through the inter-bank market where rates are determined by the

market forces. This can prove to be an immense profitable proposition for the Bank.

Towards this objective, the Bank is shifting focusing on expanding its market share in trade

finance, home remittance and foreign investment related forex-denominated flow.

Overview of the organization:

Vision:

To be recognized as a leader and a brand synonymous with trust, highest standards of

service quality, international best practices and social responsibility.

Mission:

NBP will aspire to the values that make NBP truly the Nation’s Bank, by :

» Institutionalizing a merit and performance culture.

» Creating a distinctive brand identity by providing the highest standards of services.

» Adopting the best international management practices.

» Maximizing stakeholder’s value.

» Discharging our responsibility as a good corporate citizen of Pakistan and in

countries where we operate.

Core Values:

» Highest standards of Integrity.

» Institutionalizing teamwork and performance culture.

» Excellence in service.

» Advancement of skills for tomorrow’s challenges.

» Awareness of social and community responsibility.

Page 6

» Value creation for all stakeholders.

Corporate Philosophy At National Bank

We at NBP believe that our customers are our most important and 1st responsibility,

we must, therefore, serve our present customers and promise to serve our potential

customers to the best possible on-counter and behind-counter services. We should

try to provide a total and integrate package of services to create satisfied clientele.

Our braches, regional offices and head office should regard the customer as their

most priority, serving them with maximum possible helpfulness and courtesy.

Our second most important responsibility is the employees who work for our great

institution. They must have their security , stability and fair treatment in their jobs in

recruitments and assignment, in training and development, in promotion and

placement . till separation. They should be treated with dignity and should be made

to rise to their highest potential working condition should be attended. Supervisor

should be tough minded but fair in the pursuit of bank objectives.

Our third most important responsibility is our executives and officers. They should

have talent, education, experience and ability with a premium, place on commitment,

knowledge, leadership and orientation towards action, implementation, improvement

and achievement of goals.

Our fourth responsibility is to the communities that r served by our great institution.

Our 1st community is the Pakistani nation whose service is the reason for our

existence.

Our 5th responsibly is to our owners and stockholders. We must make a sound profit

and protect our business by creating financial services.

Page 7

Objectives of National Bank

Objectives are ends towards which an enterprise activity is aimed. The purpose of business

is production and marketing of economic goods and services but to accomplish these

objectives to a number of enterprise objectives may be necessary.

National bank of Pakistan has certain objectives. These objectives are

R Advancing loans

One of the main objective of NBP is advancing loans to industrialists and traders against

security of stock, debentures or other securities

R Accept deposits

Bank provides deposit facility to its customers. The types of deposits are

o Profit and loss saving accounts

o Fixed account

o Current account

R Remitting of funds

The bank provides the facility to its customers remitting large amounts of money in the

form of bank Drafts, Telegraphic Transfer, Mail Transfer to where ever the customers

want.

R Sale of promissory notes

To sell and realize the proceeds of sale of any promissory notes, debentures, stock

receipts, bounds, shares etc.

R Selling and realizing property of bank claims

To manage sell and realize all property whether moveable or immoveable which may

come in any way of the bank in satisfaction of its claim.

R Investment or underwriting of stocks

To invest the funds of the bank in or the underwriting of any of stocks, funds, shares

securities, debentures, bonds or scripts or other securities for money issued by any

public limited companies and to convert them into money when required.

Page 8

National Bank of Pakistan is a Governmental Organization. It is functioning as an agent of

State Bank of Pakistan. It implements the policies of SBP. Its basic objective was to extend

credit to the agriculture sector. It is the major business partner for the Government of



through its large network of branches. It deals all Govt. Revenue, collection and payments

of salaries, pensions and Govt. Treasury. It is a complete commercial, retail and corporate

bank as well. National Bank of Pakistan is naturally a Financial Organization, which deals

with lending, and borrowing and investing activities.

The National Bank of Pakistan a commercial bank generally makes advances for a period

not exceeding one year, except in case of small and medium industries for which advance

may be made for a maximum period of five years. The bank makes not only against the

security of stocks and goods hypothecated or pledged to the bank, but also against

documents of goods and properly, shares are various joint stock companies, Government

securities, Insurance policies deposits receipts, etc. The margin and rate of interest are

determined by several factors including the type of security the size of loan and the integrity

of the party.

The nature of responsibilities of the Bank is different and unique from other Banks/financial

institutions. The Bank acts as the agent to the State Bank of Pakistan for handling

Provincial/Federal Government Receipts and Payments on their behalf. The Bank has also

played an important role in financing the country’s growing trade, which has expanded

through the years as diversification took place.

Page 9

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



through its large network of branches locally and internationally and representative offices.

ORGANIZATIONAL STRUCTUREIn National Bank of Pakistan, the head is called “Chairman” or “President” of the Bank.

And after President there is Five Broad of Directors. National Bank of Pakistan has eleven

Groups which control the working of the Divisions, Wing, Department, Section and

Regional of the national bank of Pakistan. In NBP, “Department” is called “Wings”.

Page 10

National Bank of Pakistan is structurally divided into Groups and groups are also

subdivided into Departments, Wings, and Divisions. National Bank of Pakistan has different

Department in the Group and each department performing work, as their task assign.

Department also subdivided into working bases.

FUNCTIONAL DEPARTMENT

GEOGRAPHIC DEPARTMENT

Page 11

PROCESS DEPARTMENT

CUSTOMER DEPARTMENT

National Bank of Pakistan (NBP) provides Services through more than 1200 branches in

Pakistan and 22 branches in overseas. And there are 29 Regions. All Branches of National

Bank of Pakistan report to five Head of RMT Members. And these five members reported to

regional Offices. Regional Offices report to the Group Chief of the Groups. All the process

is working very quickly and it not consume more time. And the Group Chief of each Group

Page 12

Report to the President of the National Bank of Pakistan. All the data were proceed to the

President of the bank.

National Bank of Pakistan is relatively Wide span of control and Flat Structure. National

Bank of Pakistan are less layers of management to pass a message through, so the message

reaches more employees faster. More skillful Group Chief Managers can control a greater

number of employees. National Bank of Pakistan assess that the internal Control

environment is showing signs of improvement as compared to previous year in all areas of

the Bank.

National Bank of Pakistan is having Decentralization in the Bank. And give the authority of

Decision Making to their Group Chief of every Group, to take decision, which is benefit for

the Organization. National Bank of Pakistan provides facility of making decision to their

Senior Vice President as well as Vice President of the every Group.

Page 13

Accounts/Finance Department

The department of finance and accounting is a large department and the head of this

department is chief executive Finance and second major controlling authority is the assistant

executive finance and all the reporting comes to the executive finance in the end. In this

major department there are two major operation authorities, one is the head of finance

department and the second is the head of accounts department and both the heads have

separate duties and responsibilities and they report to the executive finance in the end.

Head of finance department works with the sub-ordinates like manager business operations

and finance manager business and senior business analyst etc. and they perform their duties

like budgeting controlling and analyzing the different activities of finance department. And

the other officer is the accounts manager, who performs managing the accounts operations

and reports upon them to the executive finance.

Accounts Department Accounts Department plays a vital role in the development of banking functions. It’s

considering a backbone of the bank. The accounts department in NBP is functioning

computerized as well as manual. It handles each and every transaction is being made into

the bank, and control expenses and allocation of funds through appropriation of accounts.

The work in accounts department is depending on vouchers and contra entries are passed

through different heads.

This officer is working under the director finance, or in other words director finance is the

higher authority for this department and its functions are as under.

Page 14

The functions cover the working in accounts department is as follows.

» Budgeting

» Controlling

» Analyzing

» Directing

» Coordinating business activities

» Reporting to director finance

» Admin activities

Finance Department It is the person, which is also bond to the executive, finance and accounts because executive

finance is the higher authority to this person but the functions of this department are not

same in the nature to the above first department.

The primary responsibility of finance department is making planning, analyzing, and

valuation of financial resources and to provide consistent, reliable, and timely information

to management, stakeholders, regulators, and internal business groups to help management

in appropriate decisions making for improved performance of the bank.

The main functions of the finance department are as follows.

» Analysis of accounts

» To maintain inventory records

» Finance activities

» Audit preparation

» To keep record of loans, accounts, cash, and all banking transactions according to

accounting principles

» Funds management

» Preparation of cash flow, income statement, and balance sheet

» The use of effective budgetary techniques for budgets

Page 15

» Preparation of reports/ cash forecast

NBP is a most growing organization and performing a role as a treasury on behalf of SBP,

the whole functions of the bank is totally depend upon the finance department. It has a core

value in the promotion of banking sector. Budgets and forecasting is further assist for future

planning. Different books of accounts are prepared into the bank through computerized

system and manual. The accountants prepare daily, weekly, monthly, quarterly, and yearly

reports.

Preparation of repots

The basic purpose of accounts and finance department is to prepare financial reports for

decision-making and future planning. Different reports are prepared in NBP due to getting

information and time period requirements. Reports are prepared by using general ledger.

The following reports in accounts and finance department are prepared.

Daily reports: It summarizes the daily position of all the main heads of the bank i.e. cash,

loans, deposits, accounts and ATM’s. Other daily reports are

Balance Sheet

Reconciliation reports

Trial balance

Financial statement

Daily expense vouchers

Monthly Statement: These reports are monthly basis in order to know the position of the

bank and pay rewards on monthly basis, etc.

Balance sheet

Profit and loss statement

Monthly analysis of expenses

Actual budget analysis

Cost of funds statement

Variance analysis

Trial balance

Page 16

Quarterly Statement: It includes tax statement, reconciliation’s, others reports and interest

statements etc.

National Bank of Pakistan has low Formalization in the bank. And Employees are free to

take action or decision in their work specialization. Employees are follow the rules and

regulation in the bank is very little formalized. Employees’ behavior is little bit guided by

rules and regulation.

National Bank of Pakistan follow the Organic Model Organization. In NBP, there are Cross-

Functional teams, as well as Cross-hierarchical teams. There are free flow of Information

and Wide span of Control. NBP is Decentralization in nature and very low formalization in

the bank. Basically National Bank of Pakistan is high Diagonal Differentiation and every

employee of any department can easily communicate to other department of the Bank.

Page 17

Competitors:Competitors of National Bank of Pakistan are all scheduled banks, which are listed/trading

under Banking Companies Ordinance 1962.

Competitive Banks are as under:

Habib Bank Limited.

United Bank Limited.

Muslim Commercial Bank Limited.

Allied Bank Limited.

Askari Commercial Bank Limited.

Soneri Bank Limited.

Bank Al-Habib Limited.

Bank Al-Falah Limited.

Standard Chartered Bank Limited & The Bank of Punjab.

Financial Analysis:Pre-tax profit stood at Rs. 12,674 million from Rs. 14,002 million of corresponding period

of last year, a reduction of 9.5%. Bank’s operating performance have been quite impressive,

operating revenue increased by 30% from Rs. 20,376 million to Rs.26,497 million, while

pre provision profit increased by Rs. 4,293 million an increase of 31.4%. Diluted earnings

per share declined to Rs. 8.79 from Rs. 10.05 during the same period of last year. Pre tax

return on equity stands at 35.8% whereas Pre tax return on assets is at 3.3%. Cost to income

ratio of the bank remained in the top tier at 0.32 Net interest margin registered an

impressive growth of Rs. 2,670 million or 16.4% mainly due to growth in volumes.

Page 18

Net advances increased by Rs. 41 billion and Rs. 32 billion as compared to corresponding

period of last year and year end 2007. The growth in advances mainly emanated from

corporate and commodity financing.

Income Statement at Year 2003-07Descriptions 2003 2004 2005 2006 2007

Mark-up/Return/Interest earn 19,452,317 20,947,333 33,633,735 43,788,628 50,569,481Mark-up/Return/Interest expense 6,735,579 6,559,398 10,321,768 13,634,912 16,940,011Net Mark-up/Interest Income 12,716,738 14,387,936 23,311,967 30,153,716 33,629,470Provision non-performing advance

1,684,777 1,515,354 2,446,739 3,075,723 4,723,084

Provision diminution investments 459,523 185,707 -245,881 -709,461 -40,248provision off balance sheet obligations

474,743 14,297 ----- --- ------

Bad debts off directly ------ 32,807 23,069 5,284 39,899Net Mark-up/Int.Inc. After provision 10,097,695 12,639,770 21,088,040 27,782,170 28,906,735NON-MARK-UP/INTEREST INCOMEFee, Commssion and Brokerage Income

3,260,863 5,099,195 4,926,604 6,144,628 6,781,683

Dividend Income 1,126,742 1,273,863 1,718,478 2,891,755 3,263,246Gain on sale of securities ----- ----- ----- ----- 2,341,690Income dealing in f.c.’s 710,726 1,008,988 1,205,638 1,333,840 1,042,827Share of profit of joint venture 108 47,557 ------- -31,964Other income 2,149,800 875,113 1,573,905 627,618 147,363Total non mark-up/int.incom 17,345,934 20,944,486 30,512,665 12,162,892 13,544,845NON-MARK-UP/INTEREST EXPNESESAdministrative expenses Salaries and allowances 4,761,408 8,878,801 11,195,133 13,443,441 14,457,580Charge to defined benefit plans 280,632 ----- ----- ----- -----Provision handshake scheme 293,612 ------ ----- ----- -----Other administrative expenses 2,471,083 ------ ----- ----- -----Other provision/write offs 33,454 32,243 198,298 -17,283 168,027Other charges 22,894 8,284 63,206 208,327 17,141Total non mark-up/interest expenses

7,863,083 8,919,328 11,456,637 13,634,485 14,391,079

Staff Welfare Fund 474,143 ------- ------ ------ -----profit before tax 9,008,708 12,025,158 19,056,028 26,310,577 28,060,501Taxation -Current 4,650,000 4,950,000 7,154,002 8,695,598 8,311,500Prior years(s) 1,439,444 847,958 -1,098,709 530,652 391,497Deferred 1,278,839 -15,729 291,291 61,981 323,731Profit after tax 4,198,103 6,242,929 12,709,444 17,022,346 19,033,773

Page 19

Deposits show impressive growth of Rs. 68 billion or 12.3% over corresponding period last

year. Compared to year end December 2003 the deposits have increased by Rs. 29 billion or

5% mainly due to our marketing efforts and the trust that customers have in NBP.

Non interest base income has shown an impressive increase of Rs. 3.4 billion or 84% over

corresponding period due to higher commission, exchange income and a one off receipt of

Rs. 977.8 million as compensation for delayed tax refunds. The compensation on delayed

refunds pertains to various assessment years from 1991-92 to 2001-02.

Administrative expenses show a rise of Rs. 1,828 million or 27% compare to corresponding

period mainly due to inflation and salary increases. Going forward we expect that with the

technological / human resource up gradation program our costs will rise in short term

however we need to invest today for better returns in the future.

Provision charge against advances for the corresponding period last year includes one off

items of Rs. 1.4billion on account of one large cash recovery and reversal in general

provision of Rs. 825 million due to reduction in provision requirement on advance salary

from 5% to 3%. If we exclude these one offs the provision charge last year comes to Rs. 1.8

billion. Further b) last year the SBP changed its prudential regulations and withdrew the

benefit of Forced Sales Value in the third quarter of last year, therefore this year the banks

can no longer take the benefit of forced sales value of the collateral securities.

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Balance Sheet as at December 31, 2003-07Descriptions 2003 2004 2005 2006 2007

Assets Cash and balance banks 59,420,502 94,446,552 71,196,956 78,625,227 94,873,249Balance other banks 24,154,070 49,784,884 31,019,330 40,641,679 37,472,832Lending fin. inst. 30,213,352 10,511,322 16,282,942 23,012,732 21,464,600Investments 166,195,619 144,735,672 156,985,686 139,946,995 210,787,868Advances 160,990,265 221,443,963 268,838,779 316,110,406 340,677,100Other assets 21,946,846 18,339,514 23,941,056 9,681,974 30,994,965Operating fixed assets 8,939,483 9,202,969 9,454,365 ----- 25,922,979Deferred tax assets --- 1,275,949 ------ 27,113,698 ------ Total Assets 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593Liabilities & CapitalBills payable 5,496,738 7,214,671 1,741,156 10,605,663 7,061,902Bor. from financial inst. 16,493,514 11,084,790 8,756,847 11,704,079 10,886,063Deposits & accounts 395,568,490 465,571,717 463,426,602 501,872,243 591,907,435Sub-ordinated loans --- ---- ---- ---- ----Lia. financial lease 41,117 17,058 16,629 13,235 33,554Other liabilities 26,080,400 22,916,147 24,974,450 26,596,300 30,869,154Deferred tax liabilities 595,864 ------ 4,462,718 2,387,073 5,097,831Total Liabilities 444,276,123 506,804,383 503,378,402 553,178,593 645,855,939Capital Share capital 4,103,422 4,924,106 5,908,927 7,090,712 8,154,319Reserves 8,133,312 11,119,613 13,536,041 13,879,260 15,772,124Unappropriated profit 5,897,163 9,213,565 16,713,506 32,074,677 45,344,188Surplus on re. of assets 9,450,117 17,679,158 38,182,238 28,909,469 47,067,023Total Capital 27,584,014 42,936,442 74,340,712 81,954,118 116,337,654T.Liabilities & Capital 471,860,137 549,740,825 577,719,114 635,132,711 762,193,593

The additional provision charge on account of withdrawal of FSV impact last year was Rs.

3.1 billion, which was made in the 3rd and 4 th quarter of last year. This benefit of Rs 3.1

billion was being carried in the first half of 2003. Therefore the comparison between the

provisions for the two periods should take into account both these factors. Additionally the

bank is making all out efforts for recovery of non-performing loans and aggressive targets

have been assigned to the units.

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Marketing Analysis:

Market Recognition:

For the second consecutive year, NBP was recognized as the best bank in Pakistan by the

prestigious periodical, “The Banker" UK (a subsidiary of Financial Times Group).

Furthermore M/s JCR-VIS Credit Rating Company Limited maintained its rating of AAA,

while the standalone rating was raised by one notch to AA-, which is one of the highest in

the banking sector.

Customer Satisfaction

In NBP customer dealing is will, but during rush hour the customer has to wait for a long

time for their turn. It’s quite hard for a new customer or potential customer to get the

required information.

Poor record management and filing system

During my internship I observed that filing system of branch is not good. When certain

record is needed the staff has to struggle to find it out and a lot of time is wasted.

Unequal distribution of work

Work is not equally distributed. On one hand some employee have to work all day without

relaxing while some others have nothing to do at all. This not only creates confusion among

employees but also hurting and disturbing for overall setup of the bank. And above all it

results in dissatisfaction among customers as well.

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Marketing visits

A useful mode of contact is through personal marketing visits. Such visits are important in

informing and perusing the existing and potential customers about the products and creating

a sense of belongingness with them.

FUNCTIONAL ANALYSIS

Formal Organization

Formal organization includes the activities of two or more person, which are cautiously

determined groups and coordinated towards a given objective. It provides base when people

are able to communicate with other, when they have common purpose and they are willing

to work.

In NBP, we find a formal organization. Bernard referred to an organization as a formal

when the activities of two or more persons are coordinated towards a given objective. The

formal organization comes into being when people are able to communicate with one

another or willing to act and share a purpose.

In this formal organization of NBP the activities are carried out in a more formal way. In

theoretical terms it provides basis for communication with one another but in practice it is

not exercised because an employee at high level cannot get straight away to manager or SVP

and ask him about of his problem faced by him, because first he has to talk to his immediate

superior and follow a proper channel of communication.

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Difference between theory and practice

A vast difference exists between theory and practice and NBP has written procedure but

practical work done by employees is a bit different from written procedures.

Bank duty to maintain secrecy

They don’t care about maintaining secrecy, especially during the rush hours. They speak

loudly about the account position and while getting clearance of cheque the person can

easily get the whole information from the ledge. The deposit clerk must be careful while

passing any cheque. In this regard another shortfall is in giving the information about the

balance on telephone.

Excessive paper work

It is notified that due to the lengthy procedure of paper work the bank employee are over

burdened. They are unable to give proper attention to the clients and face difficulties in

getting their job done. One reason for lengthy procedure and excessive paper work in the

bank is the lack of computerized technology.

More accounts fewer deposits.

Efficient banking is one which does not emphasize on number of accounts but on greater

amount of deposits. NBP is more interested in increasing its number of account irrespective

to its deposit. The main reason behind it is that bank does not provide personalize service to

all the account holders and does not improve its quality and services

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Delegation of authority

Manager has very limited authority; he has to take the approval from his management

authority i-e. In case of advance he has to take the approval of general and regional

manager. The other problem is created, when the manager is not present in his office, the

customer have to wait for hours. This discourages both customer and officers because they

have to suffer a lot.

ADMINISTRATIVE ANALYSIS

Job analysis is not effective

Only on the basis of job analysis it can be decided how a right person can be hired, trained,

compensated or promoted. It is very important for an organization that nature of the job is

described and job specifications are mentioned. Most of the employees are simple graduate

and do not have proper background about their job. This creates problems both for

organization and for the employees. In NBP salaries are given according to the seniority and

grades. People with simple or complex responsibility are getting the same salary and

facilities. This creates dissatisfaction among employees.

Carelessness in opening of account

When customer comes to open an account, the staff does not bother to check his/her place

phone number and permanent address. It is important because in case of overdraft by

mistake or anything which places his account in debit it will be difficult to trace him. On the

other hand he may be involved in any fraudulent activities against the bank. In this case the

bank will be in awkward position.

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Lack of specialized training

NBP does not provide adequate facility of specialized training to their staff. Training is

generalized rather than specialized. As the worker finishes his training, he is inducted into a

specific field without having great deal of knowledge about the field.

In the Hayatabad branch the newly recruited employee training was not imparted, they all

learned things on the job.

Low Profit Rates

Most of the customers shifted their account to the National Saving Center because of the

low rates of saving deposit discourages the customers. Bank should increase their profit

rates to attract customers.

Poor job rotation

There is absence of job rotation in main NBP Bahawalnagar branch. A person placed in one

department remains their forever. It reduces career opportunities as well boredom and in the

end results in career platueing. Job rotation is very important for employee especially for

those who are newly recruited. The newly recruit should be rated in all department of the

banking in order to get familiar with working of different departments so that when they get

a responsible position they have know how of the whole system.

Delays in Loan Advancement

It has been observed that there are delays in sanctioning of cases form the head office,

which results in customer dissatisfaction.

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Lack of appreciation

Another very important thing which is ignored in the bank is appreciation if the employee

on their good performance. If hard work and performance of employees is not recognized

and appreciated they become dishearten which results in decline in performance.

PERSONAL MANAGEMENT ANALYSIS

Need for better training program

Need of training is greatly emphasized all around the world. Training of the personnel is

part of human resource management. It has been noticed that the training program of NBP is

not adequate.

Once the candidate is selected and placed on the respective job. It becomes essential to train

him adequately for the task. They should learn new methods for motivating customers. The

training programmed of the bank should include scientific techniques to improve the

decision making and interpersonal as will individual needs of the employee both specialized

to fresh as well as on job to maintain the high standards of service.

Developing Managerial Leadership

Leadership is a practical term of visible, clear on objective and communicating better

control on financial and administrative matters. Manager is not only responsible for their

own units in business, but also in people terms i.e. training, recruiting, grievance handling

and taking immediate initiative in crisis situation to take major decision affection the future

of the bank and banking community.

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Recruitment policy

Human resources are the lifeblood of the organization. If the personnel are recruited

carefully they can become asset to the organization in the case of carelessness a liability on

the organization. Bank is not following its recruitment policy properly due to favoritism,

nepotism and political pressure. Both the top authority and staff union tries their best recruit

their favorites, indulgence of political pressure add salt to the wounds. The persons selected

through these channels are infantile and do not work for the betterment for the bank.

Promotions

Promotion in NBP is purely on the basis of seniority, so the new young person having high

qualification remains behind for quite a lot of time. Top management and staff union put

pressure for the promotion of their favorites, which gives a sense of deprivation to the

deserving employee and their efficiency is affected. As the concept of promotion is attached

with better in terms of greater responsibility, more prestige, greater skills and increased rate

of salary is necessary. Thus a better and impartial policy of promotion needs to be followed.

Transfer

Transfer means when a person is shifted from one place to another place. It is done either

that person is needed more on the other branch or for improving his skill variety. It is the

policy of the Bank to transfer each employee 3 to 4 years.

Marketing at desk

Bank employee come in daily contact with many people who happen to deal with the casual

remittance, travelers cheques, safe custody, pensioners, depositing license fee and variety of

other functions and variety of other people with whom the Bank has no account or regular

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business relationship. The Bank employees are doing very little on their own to explore the

possibilities of selling banking services to them as a marketing contributor. The entire Bank

community should make a conscious effort in addition to their normal work to explore the

possibilities of selling banking services to them. The market opportunities are hidden in

every dealing a banker handles; the question is that if he has the art and urge to seize such

opportunities.

Lack of business communication

There is no proper way to give information to their customer. To avoid this minor

dissatisfaction and tension in the mind of customer, and deficiency of the service, it is

recommended that the bank should provide brochures etc containing information in details.

Some general information should be placed in information notice board on the entrance

where customer can see it easily or it should be self-attractive.

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Industry Analysis:Banking is one of the most sensitive businesses all over the world. Banks play very

important role in the economy of a country and Pakistan is no exemption. Banks are

custodian to the assets of the general masses. The banking sector plays a significant role in a

contemporary world of money and economy. It influences and facilitates many different but

integrated economic activities like resources mobilization, poverty elimination, production

and distribution of public finance. It is purchase of car or building of a home banks are

always there to serve you better. It is play ground or any educational or healthy societal

activities the money of banks nurtures them. It is an industrial project or agricultural

development of the country the sponsor-ship of banks is very much involved. Banks play

very positive and important role in the overall economic development of the country.

Pakistan has a well-developed banking system, which consists of a wide variety of

institutions ranging from a central bank to commercial banks and to specialized agencies to

cater for special requirements of specific sectors. The country started without any

worthwhile banking network in 1947 but witnessed phenomenal growth in the first two

decades. By 1970, it had acquired a flourishing banking sector.

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IFE Matrix (Internal Factor Evaluation)

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing or

evaluating major strengths and weaknesses in functional areas of a business.

IFE matrix also provides a basis for identifying and evaluating relationships among those

areas. The Internal Factor Evaluation matrix or short IFE matrix is used in strategy

formulation.

The IFE Matrix together with the EFE matrix is a strategy-formulation tool that can be

utilized to evaluate how a company is performing in regards to identified internal strengths

and weaknesses of a company.

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Internal Strengths Weight Rating Weighted ScoreWestern Union Faciltiy 0.05 4 0.2ATM Finder 0.1 4 0.4Government's Bank 0.15 3 0.45Customer Satisfaction 0.05 4 0.2Online Banking 0.1 2 0.2Wide area of Services 0.25 3 0.75

Lack of Communication between employees

0.1 1 0.1

Punishment is not very strong for employees

0.05 2 0.1

Public dealing is not very effective

0.1 1 0.1

Lack of respect for seniors

0.05 1 0.05

TOTAL WEIGHTED SCORE 1 2.55

Internal Weaknesses

The weighted score is 2.55, which shows that NBP is internally strong with respect to the

factors which determine its potential of excelling in its operation. It has the capability to

overcome various obstacles which might hinder the success in its future.

EFE Matrix (External Factor Evaluation)

External Factor Evaluation (EFE) matrix method is a strategic-management tool often used

for assessment of current business conditions. The EFE matrix is a good tool to visualize

and prioritize the opportunities and threats that a business is facing.

The EFE matrix is very similar to the IFE matrix. The major difference between the EFE

matrix and the IFE matrix is the type of factors that are included in the model. While the IFE

matrix deals with internal factors, the EFE matrix is concerned solely with external factors.

External factors assessed in the EFE matrix are the ones that are subjected to the will of

social, economic, political, legal, and other external forces.

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External Opputunities Weight Rating Weighted ScoreGrowing banking system 0.1 3 0.3Future role of Government back

0.05 4 0.2

Increase in economc activities

0.2 2 0.4

Expansion of Internatinoal Coverage

0.1 3 0.3

Internet and communication technologies (e-commerce)

0.25 3 0.75

Trends in housing, shopping, careers, business

0.1 4 0.4

Increase in no. of banks 0.05 1 0.05Modern type of banking 0.02 1 0.02Highly skilled people and management required

0.05 2 0.1

The whole structure change to online

0.08 1 0.08

TOTAL WEIGHTED SCORE 1 2.6

External Threats

Total weighted score of 2.6 indicates that NBP has slightly more than average ability to

respond to external factors.

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SWOT Analysis of the organization:

StrengthsWestern union facility: National Bank of Pakistan is only one bank which has the facility

of Western union. In this particular scheme money is transfer in Pakistan from abroad. This

is the fastest way to money transfer. You can receive the money from bank to see the name

and password of particular client.

ATM finder: There is also strength of NBP that they are found the ATM. They now provide

this facility to the customers.

Government’s bank: In commercial banking system NBP is only the government bank.

They make their policies according to the government’s rules and regulations. It enjoys its

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position in the market of banking system in Pakistan. Government of Pakistan is also

facilitating the National Bank of Pakistan.

Customer satisfaction: Because of government’s bank, it is enjoying the customer’s

satisfaction. Customers feels secure their money in NBP.

Online banking: There is also strength of NBP that 130 branches are online. It helps the

speedy services giving to the customers. There is also help in checking the balances and

daily transactions just at one key press.

Employee’s loyalty: Employees are very much loyal to NBP. Employee’s turnover is very

low in NBP. Very few employees are leaving the jobs in NBP. So it is very big strength that

your employees are loyal to your organization.

Wide area of services: They provide the wide area of services. They offer no. Of services

relating to the banking system like, pension to retired government employees, traffic

challans, fees received of AIOU, farms of AIOU, utilities bills, deposits, sales tax ,

withholding tax, property tax, and various loan schemes.

Stable AAA/A-1+ (Tipple A/a-One Plus) rated bank.

Best Return on Capital Bank for 2006 amongst all the banks in Asia.

Highest Profitability bank of Pakistan.

The Best Bank in terms of ‘ Profit on Capital’ in the world.

Having Highest Assets and Capital in Pakistan.

Functioning as an agent of State Bank of Pakistan.

Dealing Government Treasury where SBP has not its own branch.

Having unshakable trust of the public and its stakeholders.

Giving Loans alone in the market against Gold Ornaments.

Performing social responsibilities and claiming “The Nation’s Bank”.

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Disbursing Salaries and Pensions to the Government employees and earning high

profit on NBP-Advance Salary Loan Scheme.

Earning commission from SBP on Government transaction.

Facing never problem of cash/currency being its Chest and Sub-chest

Branches all over the country.

NBP have presence in the countries having sizeable trade volumes with Pakistan by

its overseas operations

Holds largest deposit base in the market share in terms of number of accounts.

Leading bank in agriculture financing amongst commercial banks with the market

share of 15%

Helping in earning of foreign exchange, remittances and leading agent of Western

Union Money Transfer.

SBP rated “Fair” for capital & human resources, “Strong” for assets, “Fair” for

management and “Satisfactory” for both earning (Rs.24.1 for per share) and

liquidity.

Weakness:Lack of communication between employees: During the internship in NBP I found the

problem of lack of communication between the employees and management. They have not

very much understanding with each other and not share the work of each other.

Punishment is not very strong for employees: Punishment threat is not very strong for

employees. Some employees are not very professional in their field but top management not

takes the action against such employees.

Public dealing is not very effective: Public respect is not very effective in NBP.

Employees are not taking care of the customers, especially in pension and bills department.

Staff shortage: There is also weak point for NBP that staff is very short and more staff is

required to meet the needs of the branch work. They help from internees.

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Lack of respect of seniors: They are not a healthy sign for NBP that respect of seniors is

not up to the manners. Juniors try to avoid the seniors and no take the help from them.

Lowest Internal Control and Compliance System, SBP rated “Marginal” which is

alarming for the Bank.

Unsatisfactory corporate culture of the Bank.

Physical environment and atmosphere compare to other banks is not meeting the

Standard.

Less number of Online Branches.

Ineffectively use of technologies i.e. Information technology.

Shortage of staff- per employee customer is very high side.

Technical education and training of staff is insufficient.

Opportunities:Growing banking system: Nowadays banking system is growing quickly so NBP have

opportunities to improve the standard and get the more share in the market.

Future role of government back: In growing era there is a chance for NBP to improve

itself and increase the shares in the market because it is most trustable due to government’s

bank.

Increase in economic activities: The economic activities are increase nowadays, so

banks are contributes more in economic activities. Banks are played role in trade and

commerce. So the business of commercial banks is increase.

Being a Government Bank NBP having wide scope in economic market.

Trust and reliability creates chances to enhance deposit and profitability.

Its vast network of domestic and overseas branches can help to expand business.

Bank’s deposit is increasing rapidly so there is a great opportunity to enhance its

investment and financing.

Being an agent of State Bank of Pakistan it can play vital role in local economy.

Earning commission/exchange on Government transactions.

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Threats:Increase in no. of banks: Increase in no. of banks is a threat for National Bank of

Pakistan. No. of private banks (commercial and private) are operating their business and

provide the same facilities. So increase in no. of banks is a threat for NBP.

Modern type of banking: Modern and computerized banking is required to fulfill the

customer’s need, so maximum branches of NBP are worked in old traditional ways.

Highly skilled people and management required: To meet the new standard of

banking, an efficient work force is necessary. In NBP some employees are totally

irresponsible and lack of complete knowledge of banking system. So these employees are

creating continuous problems in the system of NBP.

The whole structure change to online: NBP have wide network of branches. Only 130

branches are online, so it is very difficult and time consumed to convert all branches to

online system. So there is also risk involves that if one commuter of one branch suffers in

problem, all system and all commuters of all branches must be turnoff.

o SBP penalties due to low internal control and compliance.

o Government, SBP and Prudential Rules and Regulations.

o Schedule banks and Multinational/International bank’s profit rates.

o Its staff switching over to other private banks due to more facilities.

o Other bank’s charming atmosphere and relaxation in documentation.

o SBP rated just “Marginal” in respect of System & Control which is alarming for the

Bank to survive its license.

o NBP staff code of ethics and practices.

o High number of complaints regarding staff behavior.

o Government Schemes, Government Revenue Collection, Government.

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o Payments and FBR Collections create heavy workload.

PEST ANALYSIS:

Political Factors: Political Instability

The government and NBP hold too much power.

Lack of consistency in financial policy is a problem as a serious as lack of

transparency.

High Tax Rates Policies

Trading Policies

Economical Factors: Economic Instability

Currency Devaluation

Government spending can increase the money supply and make capital markets more stable

Inflation detriments the interest spread the bank earns.

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Economic factors affect the purchasing power of the potential customers and the

firm’s cost of capital.

Socio-cultural Factors: Consumer attitudes and opinions

The social cultural environment encapsulates demand and tastes, which vary with

fashion and disposable income, and general changes, can provide both opportunities

and threats for NBP

Ethnic/Religious factors

Living Standards

Technological Factors: The rapid growth in the technology of personal computers and internet presented

both opportunity and challenge to the banking industry

Online Banking

ATM Network

Better Communication Networks

Comparative Study of Domestic Banking Industry:

Nationalization of banks in the seventies was a major upset to domestic banking industry of

the country, which changed the whole complexion of the banking industry. With irrational

decision at the top all the commercial banks were made subservient to the political

leadership and the bureaucracy. Specialized banking institutions were already working in

the public sector. The new accountability paradigm changed the business ethics in the

banking industry, and with this change started the disaster. Nationalization of banking

industry was accompanied by violent changes in the external value of rupee. The

commercial banks thus lost their assets management equilibrium, initiative and growth

momentum. They ceased to be a business concern and became big bureaucracies. This was

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accompanied by indiscreet loaning under political pressure. They suffered from three

terminal diseases: non-performing loans; higher intermediation cost; and loss of initiative

and entrepreneurship. The rise to Labor Unions and Officers Associations made life tough

and working conditions ugly to honest, dedicated and industrious workers in the realms of

domestic banking industry.

The era of nineties was the climax of privatization, deregulation and restructuring in the

domestic banking industry and financial institutions. The Muslim Commercial Bank was the

first bank to privatize. Followed by Allied Bank limited, United Bank Limited and now the

Habib Bank Limited have been privatized. One thing good for that particular period was the

recruitment of fresh officers in the domestic banking industry through well-organized

policies of Banking Council. With the decay of Banking Council there was flood of

insincere, nonprofessional, incompetent candidates directly appointed/ recruited in all the

domestic banks of the country.

Public Sector Commercial Banks:National Bank of Pakistan NBP

First Women Bank Limited FWB

The Bank of Khyber KB

The Bank of Punjab BOP

The government of Pakistan permitted small private sector banks to operate, which

indulged in doubtful policies to promote business. The public sector banking, which

constituted the backbone, thus continued to suffer because of their approach, size and

carried over liabilities. Mehran Bank is the prime example of that kind of lax banking in the

country, which ultimately merged into National bank of Pakistan i.e. last resort of domestic

banking industry.

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Local Private Banks: Askari Commercial Bank Limited Saudi Pak Commercial Bank Ltd

Bank Al-Falah Limited PICIC Commercial Bank Limited

Bank Al Habib Limited Soneri Bank Limited

Bolan Bank Limited Union Bank Limited

Faysal Bank Limited Muslim Commercial Bank Limited

Metropolitan Bank Limited Allied Bank of Pakistan

Platinum Commercial Bank Ltd Union Bank Limited

Prime Commercial Bank Limited Mashreq Bank

In the meanwhile, western banks started entering into the business. They, with the support

of ruling elite, concentrated on the big business, leaving the routine business to the local

banks. This reduced the profitability of the local banks.

Foreign Banks:ABN Amro Bank Emirates Bank

Al Baraka Islamic Bank Habib Bank A. G. Zurich

American Express Hong Kong Shangai Banking Corporation

The Bank of Tokyo Mitsubishi IFIC

CITI Bank Mashreq Bank PJSC

Credit Agricole Indo Suez Oman Bank

Deutsche Bank Rupali Bank

Doha Bank Standard Chartered Bank

Specialized Banks: Zari Tarqiati Bank Ltd.

Industrial Development Bank of Pakistan

Punjab Provincial Cooperative Bank Limited

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There are 17 listed banks in Pakistan 2004. Four banks are still not listed, which are Habib

Bank, United Bank, Allied Bank of Pakistan, Dawood Bank. Standard Chartered Bank,

Citibank, Deutsche Bank and ABN AMRO Bank are main foreign banks in the country.

These four banks continue to enjoy a significant share in the market, both in terms of

deposits and advances. All the foreign banks of the country are busy to invest heavily in the

field technology and e-commerce in order to overcome branch limitation. All the foreign

banks have been busy to introduce new products and idea to grab larger proportion of the

local markets. Foreign banks are carrying major proportion of local business in credit cards,

consumer finances and housing finance.

Many domestic banks have increased their general standards. Ours is the age of plastic

money. Internet-based services are constantly increasing the number of ATM machines,

either by installing their own machines or making arrangements with other networks. The

number of Debit Cards has also been increasing at an unprecedented rate.

All the domestic and foreign banks vigorously institutionalized consumer financing in the

country and earned handsome profits. The borrowing to private sector has also increased

which ultimately boasted the profitability of all the domestic banks of the country. In the

last 3 to 4 years many domestic banks have been suffering from surplus liquidity crisis

mainly due to low demand for credit and slowdown of manufacturing sector in the country.

Almost all the banks are now buy to invest in capital markets to increase their exposure in

equities. To stop that risky trend the State Bank of Pakistan issued the instructions to follow

the Prudential Regulations in letter and spirit and not invest in the capital markets beyond

the limits. The domestic bank’s lending under consumer finance and housing finance has

also been growing. The analysis of Annual Reports of banks shows that their income from

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core banking activities has been growing. The other positive point is that there are growing

expectations for increase in interest rates.

The growth in advances has started matching growth in deposits. The quality of asset as well

liability products have been improving. The ratios of non-performing loans have decreased.

The SBP29 Scheme has benefited the banks as well as the borrowers to pay-off their long-

standing dues. Bank Alfalah is the first to opt for the listing policy of the government and

also offered its share to general public. Two of the state-owned banks, Habib Bank and

United Bank, have been privatized.

Allied Bank of Pakistan was privatized in early nineties. But due to many internal and

external reasons it continues to suffer. Some meaningful senior managerial changes would

be better at the earliest. Dawood Bank has recently emerged on the banking scenario of

Pakistan and it is good addition. The bank has come into existence as a result of acquisition

of Pakistan operations of a Sri Lankan bank by a local business group. It is also not listed at

the local stock exchanges. Meezan Bank is the first bank of the country, which is carrying

complete Islamic banking.

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Comparative Analysis:

Comparative Analysis of Domestic Banking Industry of Pakistan

The growth in the banking industry of Pakistan has led to an increase in the number of

banks both domestic and international to be established and create a competitive industry.

NBP competitors come in the form of both domestic and international banks working in

Pakistan because of its products and services offered. NBP is in position to increase its

market share and shareholder’s wealth by enhancing products and services and become a

largest bank in the history of Pakistan in financial year 2003.

Banks/Descriptions

Total Assets Deposits Advances CapitalProfit after

TaxNBP 762,194 591,907 340,677 69,271 19,034MCB 374,07 281,34 243,39 43,259 12,444UBL 2 383,472 9 335,077 2 254,272 16,807 12,056Bank Alfalah 317,711 279,917 197,277 14,499 10,555ACB 307,034 251,711 114,971 13,053 9,097

Source: SBP

Total AssetsNBP is a most growing organization in banking sector. Total assets of NBP are persistently

going to increase and show an upward trend throughout the financial year. Table show that

total assets of the bank for year 2003 are Rs.762,194/= in million while increase by 16.6%

then last year. We can see that total assets of the bank are still at top position that shows its

growth due to its competitors. The latest figures show that MCB at 50.9% less, Bank

Alfalah at 58.32% less, UBL at 49.6% less and ACB at 59.72% less, comparison in financial

year 2003. So we can say that NBP is in strong position in banking sector.

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DepositsDeposits are treated as backbone of the banking sector. Banks offered different schemes to

allocate deposits form general public and lend them to public and corporate sectors. NBP is

also one of them. Deposits of NBP in Rs.591,907/= in million. NBP now enhance its

position by 15.21% then last year 2002. It shows NBP’s economic stability.

AdvancesLoans and advances are the major sources of revenue in banking business. Advances of NBP

in financial year 2003 is Rs.340,677/=, MCB is at Rs.243,392/=, UBL at Rs.254, 272/=,

Bank Alfalah at Rs.197,277/=, and ACB at Rs.114,971/= in million mentioned above on the

table. It express that NBP got 7% increase in advances in year 2003.

CapitalThe capital is the amount invested by the owners into business. All shareholders are the

owners of the organization. NBP’s balance of at January 1, 2003 was Rs.7,090,712/= and

issued bonus shares at 15% by Rs.1,063,607/=. The table shows persistent growth as its

competitors.

Profit after TaxThe profit of NBP is Rs.19,034/= in million which is the highest rate of profit in banking

sector. So the highest profit shows that NBP received best return on capital for 2002

amongst all banks in Asia.

Sources of fundsSources of funds reveal the organizations needs for funds, the timing of these funds when

required, and for what purpose these funds are needed. These are the main elements to

carrying out the operations of business. It involves the analysis of capital uses by the Bank

i.e. Debt and Equity financing.

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Debt financingNBP’s in financial year 2003 get debt in Rs.10,886/=, and Rs.11,704/= in million in year

2002, which is 7.5% low. Bills payable of the bank are also decreasing by 50% in 2003.

Equity financingThe basic purpose of financing is to get funds from different ways depending upon capital

structure mentioned by the top management during a period of time. But to finance with

lower interest rate and invest higher return is the business of banks. NBP’s share capital

with increase in 13.05% year 2003 is Rs.8, 154/=.

Generation of funds

NBP offers different products and services to generate funds. Deposits are the main heads of

generation of funds. The banks receive from public and invest it for the sake of return.

Banks receive fees, commission on services offering; get interest of investments, and

dividend etc. Through a careful estimation, these figures can be ascertained:

Years/Descriptions Interest income Total income Net profit2003 12,716 17,345 4,198

2004 14,387 20,944 6,242

2005 23,312 30,512 12,709

2006 30,153 39,945 17,023

2007 33,629 42,451 19,033

Allocation of funds

The most important functions of banks are to allocate funds and make a portfolio of funds to

profitability. NBP allocate resources from different ways i.e. reserves, and fixed asset sales.

ReservesIt is the amount set aside to meet statutory requirements of SBP and maintain liquidity

position. The reserves of NBP are Rs.8,133/- in million in financial year 2000 and then

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constant increase with 26.8% in 2000, 17.86% in 2001, 2.54% in 2002 and 12.01% in year

2003. It also determines the position of the bank during a period of time.

Fixed assets

Fixed assets are immoveable assets of the organization. Financial year ended December 31,

2003 shows property and equipment of NBP are Rs.29,792/= in million before depreciation

and after depreciation amount is Rs.25,454/= in million, it is also a comparative figure to

show a bright future of the bank.

Competitive Profile MatrixA competitive profile matrix (CPM) classifies a firm’s major competitors and its meticulous

strengths and weaknesses in relation to an illustration firm’s strategic point. In CPM we

evaluate company as well its competitors by giving weights and rating to their critical success

factors than identify their strategic competitive position with its competitors. Company which

gets higher weighted score would have the strong competitive position than its competitors.

Key success factors refer to those factors which are important to future competitive success

of industry members. These factors include product attributes, competitive capabilities,

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Key Success Factors Weight Rating Score Rating Score Rating ScoreTechnology 0.1 3 0.3 3 0.3 4 0.4Best Rates 0.3 4 1.2 2 0.6 3 0.9Product Innovation 0.2 3 0.6 2 0.4 2 0.4Quality 0.2 3 0.6 2 0.4 4 0.8Brand Image (Recognition) 0.1 2 0.2 2 0.2 1 0.1Size of the company 0.1 3 0.3 2 0.2 2 0.2TOTAL 1 3.2 2.1 2.8

NBP MCB UBL

resources, competencies, market achievements etc. It is very important for the strategists to

understand the landscape of industry in order to identify the most important competitive

success factors. Due to changes in driving forces and competitive conditions, the key

success factors of one industry differ from other. Banking industry is broadly divided into

two types of banks i.e. virtual banks and brick and mortar banks. The key success factor of

banking industry is discussed below.

TECHNOLOGY

Latest technology plays a very important role in the banking industry. It helps in introducing

innovative products according to the demand of consumers. Technology can be used to

lower down the cost of transaction and improve the quality of products. For example when

the banks realized that they can lower down their transaction cost by installing ATMs and

debit cards they did so. It saved the overhead cost and improved convenience for customer

by providing 24/7 service. Online banking is increasing tremendously due to rapid

technological change.

BEST RATES

Industry of virtual banking is attracted by low cost. Competition is such high that to survive

in industry low cost is very important. As virtual banks have no physical existence of

branches and ATM network so they have great advantage to offer their products at lower

rates than brick and mortar banks. Due to low overhead cost, virtual banks are charging

lower transaction cost which gives them a plus point.

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PRODUCT INNOVATION

Product Innovation is one of the major success factors in the banking industry, Since all the

banks are offering similar products therefore differentiation is very important for the future

survival. Banks are trying to come with different innovative products in order to

differentiate themselves from other banks.

QUALITY

Service Quality includes all the dimensions of quality which the consumers want. Brick and

mortar banks have the advantage to directly contact with the customers due to which

customers feel satisfaction. On the other hand, in virtual banks there is lack of person-to-

person contact which forced consumers to resolve their problems over the phone or via E-

Mail. In many cases such contacts frustrate some customers.

BRAND IMAGE (RECOGNITION)

Brand image plays an important role in selecting the product or bank. For example CitiBank

group and ABN AMRO Group are two major players in the industry with huge resources

and they have major market share as well. That’s why most of the people wish to be their

customers. On the other hand, virtual banks are not so much popular and have a low market

share. In this way, market share and brand awareness within banking industry is a major

concern for them.

SIZE OF THE COMPANY

Size of the company is an important key success factor. In banking industry size of bank

refers to the total market share, total assets, total number of branches and ATM’s, total

number of customers etc. Brick and mortar banks have a good market share due to which

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they can compete effectively. Contrary, virtual banks have relatively lower market share in

Pakistan banking industry which is a major problem for them.

LOCATION AND CONVENIENCE

It is important to note that convenience attracts consumers. For example if a bank has wider

network then it will be convenient for the customers to make transactions easily. In this case

virtual banks have advantage over brick and mortar banks. Internet only banks can be

accessed anywhere in the world through internet. Virtual banks have no ATM network and

no branches, requiring customers to use other banks’ ATMs, or by using cash-back services

with debit cards. The growth of the internet in the last few years, has forced many brick-

and-mortar banks to consider and develop online banking.

SPACE Matrix AnalysisStrategic Position & Action Evaluation (SPACE) Matrix is another management tool used to

help analyze a company. It can also used to determine what sort of strategy the company

should undertake. The SPACE Matrix is broken down into four quadrants as being

aggressive, conservative, defensive, and competitive. Additionally, the SPACE Matrix

analysis functions upon two internal strategic dimensions which are financial strength (FS)

and competitive advantage (CA). Besides, the SPACE Matrix methodology also studies two

business’ external strategic dimensions such as environmental stability (ES) and industry

strength (IS). The CA (values from -1 to -6) and IS (values from +1 to +6) are representing

by the X-axis of the Cartesian graph whereas the FS (values from +1 to +6) and ES (values

from -1 to -6) are representing by Y-axis. After drawing these SPACE matrix graph, the

overall strategic positioning of a company can be determined.

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SPACE Matrix Table:

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SPACE Matrix Graph:

According to the graph above, we noticed that NBP’s falls into the aggressive quadrant of

the SPACE Matrix. It is located at the coordinates of 3.55 for x-component and a y –

component of 3.00. It shows that NBP has a strong competitive position in the market with

rapid growth. It is also indicates that NBP should adopt an aggressive strategy. It needs to

use its internal strengths to develop a market penetration and market development strategy.

Other possible strategies include product development, integration with other banks and also

concentric diversification.

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Aggressive PositionThere are numerous tactics that may fall into the aggressive strategy category. One of the

strategies is market development. As stated above, we can note that NBP is biggest bank in

Pakistan and has 1189 local branches and 18 branches in overseas. However, NBP is not

located in every area of Pakistan. Therefore, it should try to expand their branches into new

geographical areas or markets. Besides, NBP should also aggressively find ways to grow its

business overseas such as South-Asia and Middle-East. This objective can be attained

through mergers and acquisitions (M&A). Besides, NBP should carry out the market

penetration strategy. The management of NBP can think out the best way to sustain and

compete in exist market as well as new market. This method would be hire high level

employees from the competitors strong in those areas.

Moreover, NBP should focus on doing more market research. Many clients are attracted to

the company who is doing strong research. Therefore, NBP should do research to investigate

customers’ discontent. Then, the company can improve their service and product quality

through customers’ suggestion. In addition to that, market research can show the demand in

different areas. Thus, the company will be success in every area by determining the demand

boundaries.

Other than that, NBP need to implement a strategy on product development. The

management should aim on offering new services such as helping their customers or

corporations manage interest rate and currency risks. By doing this, the NBP can move

forward to obtain bigger slice of investment banking.

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Conclusions» NBP’s high reputation helps in attracting customers’ loyalty

» Compete in an unstable environment

» NBP should develop new market to various area of Pakistan as well as overseas

» They should expand its services and products such as helping corporations manage

interest rate and currency risks

» Eliminate inefficiencies and improves services quality. It can be done by doing

market research to investigate unfavorable performance. Then, make full use of the

resources to improve it.

» Seek Integration Opportunities such as merger and acquiring other existing banks in

different areas

» Hire potential employee either from competitors or from other sources to get bigger

improvement

» Seek new and good management staffs to get a better company direction

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45977958 NBP and Its Profitability Crisis (2)

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