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Transcript of Internship Final Report Sarwar Ali
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Internship Report
Master of Business Administration Program (B&F)
Internee name: Shafaq Shaker
Supervisor Name: Mr. Arbab Nasibullah
Specialization: Banking and finance
E-mail address: [email protected]
BUITEMS City Campus
Company Name: NATIONAL BANK OF PAKISTAN
Postal address: NBP (SECTRATE BRANCH)
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Shafaq Shaker
MBA (Banking & Finance)
NATIONAL BANK OF PAKISTAN
Masters in Business Administration
All right reserved
. No part of this work covered by the copyright hereon may be reproduced or
used in any form or by any means graphic, electronic, or mechanical, including
photocopying, recording, taping, web distribution or information storage and
retrieval systems without the written permission of the internee.
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ACKNOWLEDGMENT
I am highly grateful to almighty Allah who gave me the power to complete this report.
I am also highly thankful to my honorable teachers for theirs guidance.
I am indebted to all the employees of National Bank of Pakistan sectrate Branch
Quetta and Special thanks to Mr.Abdul Sami Lehri and all other employees of the
branch for their
Cooperation
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LETTER OF TRANSMITAL:
To,
The internship Coordinator
BUITEMS,
Quetta.
Sir,
I am submitting you the internship report the report is entitled
Internship in NBP Sectrate Branch Quetta.I have completed thisreport in due course of time and hope that it would help in
enhancing the knowledge about Internship in NBP.
Sincerely yours,
Shafaq shaker
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Table of Contents
Contents chapters Page #
Executive Summery 7
Introduction of Study Ch #1 8
Evolution of Banks in Pakistan Ch #2 11
Information and Departmentalization
of NBP
Ch #3 21
SWOT Analysis Ch #4 45Financial Analysis Ch #5 50
Finding and offer Conclusion Ch #6 61
Case study of NBP 66
Short briefing of Activities..(what I
did)
70
Recommendation and Suggestion Ch #7 71
References 78
Appendix 79
1. Executive Summary
This report is based on internship in National Bank of Pakistan sectrate branch Quetta.
This report includes the information about the banking sector of Pakistan. NBP is a
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famous and reputed bank of Pakistan. National Bank of Pakistan maintains first
position in banking sector in Pakistan. This report is based on the activities which are
performed in this bank. This report contains financial analysis, pest analysis, SWOT
analysis, bank tariffs and exchange rates of National Bank of Pakistan. There are also
stated the activities which I performed during my internship in the branch. In this
report also discuss the industry analysis of banking system in Pakistan. There are also
mentioned the way of investment, rates of investment, all types of financing and loans
facilities the National Bank of Pakistan provides. The problems in this branch are also
discussed. Some useful suggestions are also provided in the report for the bank. This
report also intimates about the daily reserves which are required by the branch to meet
the need of its daily transactions
CHAPTER # 1 INTRODUCTION OF STUDY
1.1 Introduction
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As part of the academic requirement for completing MBA (BnF) Master of Business
Administration. The students are required to under go for two (1-1/2) months of
internship with an organization. The internship is to serve the purpose of acquainting
the students with the practice of knowledge of the discipline of banking
administration.
This report is about National Bank of Pakistan. NBP was established in 1949 and
since then, it has expended its network, becoming the largest commercial Bank of the
country. It offers different products of services to its customers.
Purpose of the Study
The main purpose of the study in hand is together relevant information to compile
internship report on National Bank of Pakistan.
To observe, analyze and interpret the relevant data competently and in a useful
manner.
To work practically in an organization.
To develop interpersonal communication.
Scope of Study
As an internee in National Bank of Pakistan the main focus of my study research was
on general banking procedures in one of the branches of NBP. These operations
include remittances, deposits, advances and foreign exchange.
Similarly different aspects of overall of NBP are also covered in this report
1.4 Objectivesof the Study
Discuss thorough study of National Bank of Pakistan.
To understand the various operations and to equip with practical knowledge of
the National bank of Pakistan.
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1.5 Limitation of the Study
Some thing is better than nothing. No matter how efficiently a study is conducted, it
cannot be perfect in all respects. This study was conducted in accordance with the
objectives of the study. The study may not include broad explanations of facts and
figures due to the nature of the study. Secondly, the limitation, which affects the
study, is the restriction on mentioning every fact of the bank due to the problem of
secrecy of the bank. In addition, the availability of required data was a problem as all
the documents and files are kept strictly under lock and key due to their strictly
confidential nature. Thirdly, the problem of short time period also makes the analysis
restricted as one cannot properly understand and thus analyze all the operations of a
bank just a very short time of eight weeks.
1.6 Benefit of The Study
The study done will benefit the finance students in particular and banking students in
general because the financial analysis section of this report comprehensively
encompasses all respects of financial analysis. Furthermore, NBP Balakot Branch,
Balakot may also benefit from the recommendations made at the end of the report.
1.7 Research Methodology
The report is based on my two months internship program in National Bank of
Pakistan. The methodology reported for collection of data is primary as well as
secondary data. The biggest source of information is my personal observation while
working with staff and having discussion with them. Formally arranged interviews
and discussions also helped me in this regards.
Primary data: Primary data include, Personal observation andInterviews of The Staff Members
Secondary data: Secondary data consist of Manuals, Journals,
magazines, Annual Reports and Internet
1.8 Scheme of Study
SECTION 1
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Chapter 1: An introductory chapter that discuss the introduction of study of report, its
Background, Purpose, Scope, Methodology, limitations and Scheme of the report.
SECTION 11
Chapter2:This chapter concludes brief history of banking in general, evolution of
banking, , History of NBP, mission statement, and its objectives, functions of
National Bank of Pakistan.
Chapter3:In this chapter the services of NBP were discussed and the departmentation
of NBP is explained as well as NBP BMC Branch.
SECTION III
Chapoter4: It tells about Strengths, Weaknesses, Opportunities and Threats of i.e.
SWOT analysis of NBP
Chapter5: It consists of comprehensive performance of NBP through past several
years. Ratio analysis and those parties that are interested in financial performance of
Bank.
SECTION IV
Chapter 6: It covers the critical analysis of the bank. This chapter has been divided
into four parts i.e. Problems at the Branch, Functional analysis, Administrative
analysis, and Personal Management Analysis.
CHAPTER # 2
EVOLUTION OF BANKS IN PAKISTAN
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2.1 INTRODUCTION
There are different opinions that how the word Bank originated. Some of the
authors opinion that this word is derived from the word Bancus or Banque, which
means a bench. The explanation of this origin is attributed to the fact that the Jews in
Lombard transacted the business of money exchange on benches in the market place;
and when the business failed, the people destroyed the bench. Incidentally the word
Bankrupts said to have evolved from this practice.
Some of the authors are of opinion that the word Bank is derived from the German
word back, which means joint stock fund. Later on when the German occupied
major part of the Italy the word Back was italicized into Back.
present form, flourished. What we know as modern banking originated in the 14 th
century in Barcelona.
2.2 Definitions of Bank
"A financial institution, which deals with money and credit. It accepts
Deposits from individuals, firms and companies at a lower rate of Interest and givesat higher rate of interest to those who need them.
By banking, we mean the business of dealing in credits and by a Bank we
include every person, firm or company having a place of business where credits are
opened by deposits of collection of money or currency. Subjects to be paid or remitted
on Cheques or order, money is advanced or loaned on stocks, bonds, bullion, bill of
exchange, promissory notes are received for discount or sale.
Accordingly the NATIONAL BANK OF PAKITSN was setup under an ordinance in
November 1949. It started with six offices in the former East Pakistan. In view of the
special role assigned to the new institution, contrary to traditional practices the
Governor of the state bank was appointed to head its Board of Director in 1950.
Under the fostering care of the state bank and the support of the government, the new
institution developed rapidly. By using its special powers, the state bank made liberal
advances to the new bank to help it expand credit facilities in the country. By 1952,
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the National bank of India shortly, afterwards, in November 1952, the governor of the
state bank ceased to function as the president of National bank of Pakistan.
2.6.4 HISTORY OF NBP :
The NBP was established vide NBP Ordinance No. XIX of November 9. 1949.
British Govt. devalued its currency in September 1949, India devalued its rupees but
Pakistan did not. It led to a crisis in trading between the two countries and India
refused to lift the Pakistan Jute. To solve this problem i.e. to export jute NBP was
established through an Ordinance of GOP.National Bank of Pakistan maintains its
position as Pakistan's premier bank determined to set higher standards of
achievements. It is the major business partner for the Government of Pakistan with
special emphasis on fostering Pakistan's economic growth through aggressive and
balanced lending policies, technologically oriented products and services offered
through its large network of branches locally, internationally and representative
offices.
The Bank in 1950 had one subsidiary The Bank of Bahawalpur on December4, 1947
by the former Bahawalpur State.
NBP was undertaking Treasury Operations and Managing Currency Chests or Sub
Chests at 57 of its offices where the turnover of the business under the head amounted
to Rs.2460 million.
i) Deposits held by NBP constituted about 3.1% of total deposits of all
Pakistani Banks in 1949, which rose to 38% in 1952.
ii) Growth in Deposits was accompanied by increase in Bank portfolio in
advances. NBP lent out to Textile, Yarn, Iron and Steel and played a pioneer role in
support of agriculture and commerce.
iii) NBP advances reached Rs.554.4 million by December 1959, which was one
third of the total schedule bank credit.
MISSION STATEMEN
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To make the Bank complete and competitive with all international
Standard in performing, quality of, operations, staff, financial strength. And
products and services To develop a culture of excellence in every spare of activity
of the bank.
2.6.4.2 GOALS AND OBJICTIVES
An organizational objective is the intended goal that prescribes definite scope and
suggests direction to the panning efforts of a organization.
2.6.4.3 GOALS AND OBJICTIVES NBP
To be the pre-eminent financial institution in Pakistan and achieve marketrecognition both in the quality and delivery of service as well as the range of product
offerings.
2.6.4.4 BOARD OF DIRECTORS
NBP, Board of Directors list consist the following members and their designation.
2.6.5 MANAGEMENT
Management is a distinct process consisting of activities of planning, organizing,
actuating and controlling performed to determine and accomplish stated objectives
with the use of human being and other resources.The management has two types.
1. Centralized. 2. Decentralized.
Centralized Management tends to concentrate decision making at the top of the
Organization.Decentralized disperses decision-making and authority throughout and
further down the organizational hierarchy.
NBP have a centralized type of management because the top management takes all
the decisions.
2.6.5.1 SENIOR MANAGEMENT OF NBP .
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Senior Management of NBP consists of following member and their respective
designation.
)
2.6.6 Net Work of Branches:
NBP have wide range of branches inside the country and outside the country.
In Pakistan it has 29 regional offices, 1189 Branches and 4 Subsidiaries.
In overseas it has 16 overseas branches, 6 other branches.
.2.6.7 Objectives of NBP
National bank of Pakistan is also a commercial organization and its main objective is
profit maximization. This is achieved in two ways:
1. By increasing deposits.
2. By charging interest on loans provided to the private sector and business
community. These are explained as:
2.6.7.1 Increase in deposits:
Competition in banking is intense and every bank whether it is Pakistani, foreign,
private or nationalized tries to increase its deposits by providing better facilities to its
customers. By increasing its deposits a bank can extend greater amount of loan and
hence achieves higher profit. NBP is also improving its facilities and services to
attract customers with higher volume of deposits. There are two main factors involved
in increasing the deposits. These factors are improving the services and courtesy. NBP
is continuously working on these two factors to increase its deposits.
2.6.7.2 Extension of loans:
The profitability of a bank largely depends on the amount given to people as loan and
the type of people to whom credit is given i.e. the credit worthiness of the borrowers.
This strategy has worked quite well for NBP. Deposits are collected from the people
and invested in different projects. NBP prefers to give loans to financially sound and
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reliable parties, after securing the collators. NBP has an extremely well organized
section. The staff is adequately trained, and educated and competent. They carry out
extensive financial analysis before deciding on the loan. Interest charged on the loans
potentially contributes to higher profits.
Some of the other objectives of NBP are:
i. Improve customer services. ii. Quick disposal of credit cases
iii. Efficient operation of the branches. iv. Better Public Relations.
v. Operational and advisory services for foreign exchange accounts activities
2.6.8 Functions of NBP
Since NBP is a commercial bank, it performs a variety of functions.Like other
commercial banks, NBP is engaged in financing international trade. Its other major
functions include receiving deposits, advancing loans and discounting of exchange.
The functions performed by NBP are:
2.6.8.1 Accepting Deposits
This function is important because banks largely depend on the funds deposited with
them by its customers. Deposits are of many types:
I. Current deposits
Current deposits are also called demand liability on current deposits. NBP pays
practically no interest on current deposits. Businessmen usually open current
accounts. In NBP current account can be opened with a minimum amount of
Rs.500/-.
II. PLS saving deposit
III. Profit and loss sharing deposits (PLS) are also called checking accounts. One
can deposit and draw money easily. Profit on PLS is calculated every month
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but paid after six months. PLS account can be opened with a minimum amount
of Rs.500/-
IV. PLS term deposits
Fixed term deposits are deposits with the bank for certain fixed period before the
expiry of which they cannot be withdrawn unless giving due notice. In this case the
rates of profit will be different depending upon the time period.
2.6.9 Discounting bills of exchange
Discounting of bill is practically speaking lending for exchange at their market rate
i.e. it pays to holder of the bill an amount equal to the face value after deductinginterest at the current market rate for the period. This bill has to be mature. This is the
common way used for keeping a part of assets of the bank in a liquid form.
2.6.10 Agency service
NBP also provides best and unique service to its valued customers. NBP provide the
following agency services to the customers:
i. Collection of dividends
ii. As NBP deals with the purchase and sale of various types of securities,
therefore NBP also provide dividend or interest earned on share or bonds or
invested money.
ii. Collection of Cheques In the collection and payment of Cheques, bills and
promissory notes etc. National bank of Pakistan acts as an agent for its customers.
iii. Acting as an agent also acts as an agent correspondent or representative for
its customer at home or abroad.
iv. General utility services: Utilities provided by NBP are as follows:
a. Clearance of utility bills provides the service of clearing the utility bills i.e.
electricity, gas and telephone bills of its customers. For this purpose it also provides
evening banking services
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b. Lockers facility National bank of Pakistan also provides locker facilities to its
customers to keep their valuable assets in it. The charges of different size of lockers
are different.
c. Acts as a referee provides useful services to its customers by acting as a
referee to their credit worthiness.
d. Supply of information NBP provides operational and advisory service for
foreign exchange accounts/activities.
2.6.11 Unmatched Banking Facilities
Deposit security, Guaranteed by Government of Pakistan.
Highest rates of return to attract the savings.
Lowest rates on exports and other borrowings
Largest contribution towards Government and Semi-Government
requirements.
Agents of the SBP handling Treasury Functions, receipts of Taxes & other
Revenues.
Handling of salaries & pensions of federal/provincial/defense personnel.
Utility Bills collections. Hajj arrangements Sale and encashment of prize
Bonds..
Sale and encashment of Defense Savings and Special Savings Certificates
.Safe Deposit Lockers for customers. Rational Human Resource
Management.
The prestigious periodical The Banker UK recognized NBP as the best bank for
2001-2002 and NBP is the bank of the year for 2004-2004 of Pakistan.
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i. AAA rating awarded JCR-VIS Credit co. Ltd and affiliated of Japan Credit
Rating Agency for 2001.
ii. AAA+1 rating awarded JCR-VIS Credit Co.Ltd and affiliated of Japan Credit
Rating Agency for 2002
2.6.12 NBP at the forefront of Pak-Afghan trade
i. Booth at dry port Peshawar ii. Booth at Pak Afghan border (Torkham)
NWFP
iii. Booth at Pak Afghan border (Chamman). Baluchistan.
iv. Establishing branch at Kabul.
2.6.13 Summation
We discussed in this chapter the evaluation of banking in Pakistan, banking reforms
1972, Nationalization of banks, History of NBP, Mission Statement of NBP. The next
and onward chapter we will discuss the general banking information and
departmentalization of NBP.
CHAPTER # 3
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INFORMATION & DEPARTMENTALIZATION OF NBP
3.1 INTRODUCTION
This chapter presents the services and departmentalization of NBP.
Services are outputs of the firm, which are in intangible form. Which are the
backbones of any organization to earn profit. NBP offers the following services to the
people.
3.2 DEMAND DRAFTS
If you are looking for a safe, speedy and reliable way to transfer money, you can now
purchase NBPs 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.
3.3 SWIFT SYSTEM
The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication)
has been introduced for speedy services in the area of home remittances. The system
has built-in features of computerized test keys, which eliminates the manual
application of tests that often cause delay in the payment of home remittances. The
SWIFT Center is operational at National Bank of Pakistan with a universal access
number NBP-APKKA. All NBP overseas branches and overseas correspondents
(over 450) are drawing remittances through SWIFT.
Using the NBP network of branches, you can safely and speedily transfer money for
our business and personal needs.
3.4 LETTERS OF CREDIT *
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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.
3.5 TRAVELER'S CHEQUES
Travelers cheques are negotiable instruments, and there is no restriction on the
period of validity of the cheques. Rupee travelers cheque is available at all 700
branches of NBP. This can be encashed in all 400 branches of NBP. There is no limit
on purchase of this cheque. It is one of the safest ways for carrying money.
3.6 PAY ORDER
NBP provides another reason to transfer your money using our facilities. NBP pay
orders are a secure and easy way to move your money from one place to another.
And, as usual, NBP charges for this service are extremely competitive. The charges of
NBP are very low all over the Pakistan. It charges Rs 50/- for NBP account holders on
issuing one payment order. And charges Rs 100/- for NBP non-account holders on
issuing one payment order. It charges Rs 25/- for students on payment of fees of
educational institutions. If some one want a duplicate of payment order they charges
Rs 100/- for NBP account holders and Rs 150/- for non account holders.
3.7 AIL TRANSFERS
Move your money safely and quickly using NBP Mail Transfer service. And NBP
also offers the most competitive rates in the market. They charges Rs 50/- exchange
rate and RS 75/- postage charges on issuing mail transfer.
3.8 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
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Meet the SBP directives/instructions for timely and prompt delivery of
remittances to the beneficiaries
3.8.1 New Features:
The existing system of home remittances has been revised/significantly improved and
well-trained field functionaries are posted to provide efficient and reliable home
remittance services to nonresident Pakistanis at 15 overseas branches of the Bank
besides Pakistan International Bank (UK) Ltd., and Bank Al-Jazira, Saudi Arabia.
Zero Tariffs: NBP is providing home remittance services without any charges.
Strict monitoring of the system is done to ensure the highest possible security.
Special courier services are hired for expeditious delivery of home remittances
to the beneficiaries.
3.9 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, NBPs rates of profit areextremely attractive, along with the security and service only NBP can provide.
3.10 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.
3.10.1 Salient Features:
Rs 2-million are required to open an account and there is no maximum limit.
Profit is paid on half yearly basis on monthly balances.
The rates of profit vary according to the slabs of deposit. On Deposits of Rs.2
million to 2,000 million, the rate fluctuates from 1.4 to 1.75
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It is a checking account and there is no limit of withdrawals.
3.10.2 Rates on NIDA
From Rs 2/- million to Rs 50/- the rate is 1.4%.
From Rs50/- million but less than Rs 500/-million, the rate is 1.5%.
From Rs 500/- million but below Rs 1000/- the rate is 1.6%.
From Rs 1000/- and above the rate is 1.75%.
3.11 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.
3.11.1 NBP is involved in the following:
Investment into the capital market
Introduction of capital market accounts (under process)
NBPs involvement in capital markets is expected to increase its earnings, which
would result in better returns offered to account holders
3.12 COMMERCIAL FINANCE
NBP dedicated team of professionals truly understands the needs of professionals,
agriculturists, large and small business and other segments of the economy. They are
the customers best resource in making NBPs products and services work for them.
3.13 TRADE FINANCE OTHER BUSINESS LOANS
There are two types of trade finance.
3.13.1 AGRICULTURAL FINANCE
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NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers
who produce some of the best agricultural products in the World.
3.13.1.1 Agricultural Finance Services:
I Feed the World program, a new product, is introduced by NBP with the aim to
help farmers maximize the per acre production with minimum of required input.
Select farms will be made role models for other farms and farmers to follow, thus
helping farmers across Pakistan to increase production.
3.13.1.2 Agricultural Credit:
The agricultural financing strategy of NBP is aimed at three main objectives:-
Providing reliable infrastructure for agricultural customers
Help farmers utilize funds efficiently to further develop and achieve better
production
Provide farmers an integrated package of credit with supplies of essential
inputs, technical knowledge, and supervision of farming.
3.13.1.3 Agricultural Credit (Medium Term):
Production and development Watercourse improvement
Wells Farm power Development loans for tea plantation
Fencing Solar energy Equipment for sprinklers
3.13.1.4 Farm Credit:
NBP also provides the following subsidized with ranges of 3 months to 1 year on a
renewal basis.
Operating loans Land improvement loans
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Equipment loans for purchase of tractors, farm implements or any other
Equipment Livestock loans for the purchase, care, and feeding of livestock.
3.13.1.5 Production Loans:
Production loans are meant for basic inputs of the farm and are short term in nature.
Seeds, fertilizers, sprayers, etc are all covered under this scheme.
If you require any further information, please do not hesitate to e-mail us.
3.13.2 CORPORATE FINANCE
3.13.2.1 Working Capital and Short Term Loans:
NBP specializes in providing Project Finance Export Refinance to exporters Pre-
shipment and Post-shipment financing to exporters Running finance Cash Finance
Small Finance Discounting & Bills Purchased Export Bills Purchased / Pre-
shipment / Post Shipment Agricultural Production Loans
3.13.2.2 Medium term loans and Capital Expenditure Financing:
NBP provides financing for its clients capital expenditure and other long-term
investment needs. By sharing the risk associated with such long-term investments,
NBP expedites clients attempt to upgrade and expand their operation thereby making
possible the fulfillment of our clients vision. This type of long term financing proves
the banks belief in its client's capabilities, and its commitment to the country.
3.13.2.3 Loan Structuring and Syndication: National Banks 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.
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Our syndication capabilities are complemented by our own capital strength and by
industry teams, who bring specialized knowledge to the structure of a transaction.
3.13.2.4 Cash Management Services:
With National Banks Cash Management Services (in process of being set up), the
customers sales collection will be channeled through vast network of NBP branched
spread across the country. This will enable the customer to manage their companys
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, youll be provided everything, which takes to
manage your cash flow more accurately
3.14 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, NBP 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 NBPs exposure to foreign and domestic
correspondence
Manage the monetary aspect of NBPs relationship with the correspondents to
support trade, treasury and other key business areas, thereby contributing to
the banks profitability
Generation of incremental trade-finance business and revenues
3.14.1 NBP offers:
The lowest rates on exports and other international banking products
Access to different local commercial banks in international banking
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3.15 Cash and Gold Finance. Cash and Gold finance means that loan is given
against the gold. The gold is mortgaged with the bank and loan is taken. It is the area
of consumer finance. And borrower can take loan for common use.
3.16 Advance salary loan:
This loan is given to those people who are govt servants. They can get a loan up to the
salary of fifteen months.
3.17 DEPARTMENTALIZATION 2
Dividing an organization into different parts according to the functions is called
departmentation. So NBP can be divided into the following main departments.
A) DEPARTMENTATION OF NBP
3.17.1 CASH DEPARTMENT
Cash department performs the following functions
3.17.1.2) Receipt
The money, which either comes or goes out from the bank, its record should be kept.
Cash department performs this function. The deposits of all customers of the bank are
controlled by means of ledger accounts. Every customer has its own ledger account
and has separate ledger cards.
3.17.1.3) Payments
It is a bankers primary contract to repay money received for this customers account
usually by honoring his cheques.
3.17.1.4) Cheques and their Payment
The Negotiable Instruments. Act, 1881 3
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Cheque is a bill of exchange drawn on a specified banker and not expressed to be
payable otherwise than on demand.
Since a Cheque has been declared to be a bill of exchange, it must have all its
characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881.
Therefore, one can say that a Cheque can be defined as an:
An unconditional order in writing drawn on a specified banker, signed by the
drawer, requiring the banker to pay on demand a sum certain in money to, or to the
order of, a specified person or to the bearer, and which does not order any act to be
done in addition to the payment of money.
3.17.1.5) The Requisites of Cheque
There is no prescribed form of words or design of a Cheque, but in order to fulfill the
requirements mentioned in Section 6 above the Cheque must have the following.
a) It should be in writing The unconditional order
b) Drawn on specific banker only Payment on Demand
c) Sum Certain in money Payable to a specific person Signed by the drawer
3.17.1.6) Parties to Cheque
The normal Cheque is one in which there is a drawer, a drawee banker and a payee, or
no payee but bearer.
a) The Drawer The Drawee The Payee
3.17.1.7) Types of Cheques Bankers in Pakistan deal with three types of
cheques
a) Bearer Cheques Bearer cheques are cashable at the counter of the bank. These can
also be collected through clearing.b) Order cheque These types of cheques are also
cashable on the counter but its holder must satisfy the banker that he is the proper man
to collect the payment of the cheque and he has to show his identification. It can also
be collected through clearing.
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c) Crossed Cheque These cheques are not payable in cash at the counters of a banker.
It can only be credited to the payees account. If there are two persons having
accounts at the same bank, one of the account holder issues a cross-cheque in favour
of the other account holder. Then the cheque will be credited to the account of the
person to whom the cheque was issued and debited from the account of the person
who has actually issued the cheque.
3.17.1.8) Payment of Cheques
It is a bankers primary contract to repay money received for his customers account
usually by honouring his cheques. Payment of money deposited by the customer is
one of the root functions of banking. The acid test of banking is the receipt of money
etc. from the depositors, and repayment to them. This paying function is one, which is
the distinguishing mark of a banker and differentiates him from other institutions,
which receive money from the public. However the bankers legal protection is only
when payment is in Due Course. The payment in due course means payment in
accordance with the apparent tenor of the instrument, in good faith and without
negligence to any person in possession thereof under circumstances, which do not
afford a reasonable ground of believing that he is not entitled to receive payment of
the amount therein mentioned. It is a contractual obligation of a banker to honor his
customers cheques if the following essentials are fulfilled.
a) Cheques should be in a proper form:
b) Cheque should not be crossed:
c) Cheque should be drawn on the particular bank:
d) Cheque should not mutilated:
e) Funds must be sufficient and available:
f) The Cheque should not be post dated or stale:
g) Cheque should be presented during banking hours:
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h) 3.17.2 CLEARANCE DEPARTMENT
A clearinghouse is an association of commercial banks set up in given locality for the
purpose of interchange and settlement of credit claims. The function of clearinghouse
is performed by the central bank of a country by tradition or by law. In Pakistan, the
clearing system is operated by the SBP. If SBP has no office at a place, then NBP, as
a representative of SBP act as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken place. The
use of cheques in making payments has also widely increased. The collection as
settlement of mutual obligations in the form of cheques is now a big task for all the
commercial bank. When Cheque is drawn on one bank and the holder (payee)
deposits the same in his account at the bank of the drawer, the mutual obligation are
settled by the internal bank administration and there arises no inter bank debits from
the use of cheques. The total assets and total liabilities of the bank remain unchanged.
In practice, the person receiving a Cheque as rarely a depositor of the cheque at the
same bank as the drawer. He deposits the cheque with his bank other than of payer for
the collection of the amount. Now the bank in which the cheque has been deposited
becomes a creditor of the drawers bank. The depositor bank will pay his amount of
the cheque by transferring it from cash reserves if there are no offsetting transactions.
The banks on which the cheques are drawn become in debt to the bank in which the
cheques are deposited. At the same time, the creditors banks receive large amounts of
cheques drawn on other banks giving claims of payment by them.
The easy, safe and most efficient way is to offset the reciprocal claims against the
other and receive only the net amount owned by them. This facility of net inter bank
payment is provided by the clearinghouse.
The representatives of the local commercial banks meet at a fixed time on all the
business days of the week. The meeting is held in the office of the bank that officially
performs the duties of clearinghouse. The representatives of the commercial banks
deliver the cheques payable at other local banks and receive the cheques drawn on
their bank. The cheques are then sorted according to the bank on which they are
drawn. A summary sheet is prepared which shows the names of the banks, the total
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number of cheques delivered and received by them. Totals are also made of all the
cheques presented by or to each bank. The difference between the total represents the
amount to be paid by a particular bank and the amount to be received by it. Each bank
then receives the net amount due to it or pays the net amount owed by it.
3.17.2.1) In-Word Clearing Books
The bank uses this book for the purpose of recording all the cheques that are being
received by the bank in the first clearing. All details of the cheques are recorded in
this book.
3.17.2.2) Out-Word Clearing Book:
The bank uses outward clearing register for the purpose of recording all the details of
the cheques that the bank has delivered to other banks.
3.18 ADVANCES DEPARTMENT
Advances department is one of the most sensitive and important departments of the
bank. The major portion of the profit is earned through this department. The job of
this department is to make proposals about the loans. The Credit ManagementDivision of Head Office directly controls all the advances. As we known bank is a
profit seeking institution. It attracts surplus balances from the customers at low rate of
interest and makes advances at a higher rate of interest to the individuals and business
firms. Credit extensions are the most important activity of all financial institutions,
because it is the main source of earning. However, at the same time, it is a very risky
task and the risk cannot be completely eliminated but could be minimized largely with
certain techniques.
Any individual or company, who wants loan from NBP, first of all has to undergo the
filling of a prescribed form, which provides the following information to the banker.
3.18.1) Name and address of the borrower.
a) Existing financial position of a borrower at a particular branch.
b) Accounts details of other banks (if any).
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c) Security against loan.
d) Exiting financial position of the company. (Balance Sheet & Income
Statement).
e) Signing a promissory note is also a requirement of lending, through this note
borrower promise that he will be responsible to pay the certain amount of
money with interest.
3.18.2) Principles of Advances
There are five principles, which must be duly observed while advancing money to the
borrowers.
a. Safety Liquidity Dispersal Remuneration Suitability
a. Safety
Bankers funds comprise mainly of money borrowed from numerous customers on
various accounts such as Current Account, Savings Bank Account, Call Deposit
Account, Special Notice Account and Fixed Deposit Account. It indicates that
whatever money the banker holds is that of his customers who have entrusted the
banker with it only because they have full confidence in the expert handling of money
by their banker. Therefore, the banker must be very careful and ensure that his
depositors money is advanced to safe hands where the risk of loss does not exist. The
elements of character, capacity and capital can help a banker in arriving at a
conclusion regarding the safety of advances allowed by him.
b. Character
It is the most important factor in determining the safety of advance, for there is no
substitute for character. A borrowers character can indicate his intention to repay the
advance since his honesty and integrity is of primary importance. If the past record of
the borrower shows that his integrity has been questionable, the banker should avoid
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him, especially when the securities offered by him are inadequate in covering the full
amount of advance.
It is obligation on the banker to ensure that his borrower is a person of character and
has capacity enough to repay the money borrowed including the interest thereon.
c. Capacity
This is the management ability factor, which tells how successful a business has been
in the past and what the future possibilities are. A businessman may not have vast
financial resources, but with sound management abilities, including the insight into a
specific business, he may make his business very profitable. On the other hand if a
person has no insight into the particular business for which he wants to borrow funds
from the banker, there are more chances of loss to the banker.
d. Capital
This is the monetary base because the money invested by the proprietors represents
their faith in the business and its future. The role of commercial banks is to provide
short-term capital for commerce and industry, yet some borrowers would insist that
their bankers provide most of the capital required. This makes the banker a partner.
As such the banker must consider whether the amount requested for is reasonable to
the borrowers own resources or investment.
e. Liquidity
Liquidity means the possibilities of recovering the advances in emergency, because all
the money borrowed by the customer is repayable in lump sum on demand. Generally
the borrowers repay their loans steadily, and the funds thus released can be used to
allow fresh loans to other borrowers. Nevertheless, the banker must ensure that the
money he is lending is not blocked for an undue long time, and that the borrowers are
in such a financial position as to pay back the entire amount outstanding against them
on a short notice. In such a situation, it is very important for a banker to study his
borrowers assets to liquidity, because he would prefer to lend only for a short period
in order to meet the shortfalls in the wording capital. If the borrower asks for an
advance for the purchase of fixed assets the banker should refuse because it shall not
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be possible for him to repay when the banker wants his customer to repay the amount.
Hence, the baker must adhere to the consideration of the principles of liquidity very
careful.
f. Dispersal
The dispersal of the amount of advance should be broadly based so that large number
of borrowing customer may benefit from the bankers funds. The banker must ensure
that his funds are not invested in specific sectors like textile industry, heavy
engineering or agriculture. He must see that from his available funds he advances
them to a wide range of sector like commerce, industry, farming, agriculture, small
business, housing projects and various other financial concerns in order of priorities.
Dispersal of advances is very necessary from the point of security as well, because it
reduces the risk of recovery when something goes wrong in one particular sector or in
one field.
g. Remuneration
A major portion of the bankers earnings comes form the interest charged on the
money borrowed by the customers. The banker needs sufficient earnings to meet the
following:
a) Interest payable to the money deposited with him.
b) Salaries and fringe benefits payable to the staff members.
c) Overhead expense and depreciation and maintenance of the fixed assets of the
bank.
d) An adequate sum to meet possible losses.
e) Provisions for a reserve fund to meet unforeseen contingencies.
f) Payment of dividends to the shareholders.
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DD is prepared and given to the customer. NBP officials note the transaction in
issuance register on the page of that branch of NBP on which DD is drawn and will
prepare the advice to send to that branch. The account of the customer is credited
when the DD advice from originating branch comes to the responding branch and the
account is debited when DD comes for clearance. DD are of two types.
a) Open DD: Where direct payment is made.
b) Cross DD: Where payment is made though account.
NBP CHARGES FOR DD
I. Up to Rs. 50,000/- is Rs 50/- only
II. Over Rs. 50,000/- is 0.1%
3.19.2) Pay Order
Pay order is made for local transfer of money. Pay order is the most convenient,
simple and secure way of transfer of money. NBP takes fixed commission of Rs. 25
per pay order from the account holder and Rs. 100 from a non-account holder.
3.19.3) Telegraphic Transfer
Telegraphic transfer or cable transfer is the quickest method of making remittances.
Telegraphic transfer is an order by telegram to a bank to pay a specified sum of
money to the specified person. The customer for requesting TT fills an application
form. Vouchers are prepared and sent by ordinary mail to keep the record. TT charges
are taken from the customer. No excise duty is charged on TT. The TT charges are:
Telegram/ Fax Charges on TT = Actual-minimum Rs.125.
Cable telegram transfer costs more as compared to other title of money. In cable
transfer the bank uses a secret system of private code, which is known to the person
concerned with this department and branch manager.
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3.19.4) Mail Transfer
When the money is not required immediately, the remittances can also be made by
mail transfer (MT). Here the selling office of the bank sends instructions in writing by
mail to the paying bank for the payment of a specified amount of money. Debiting to
the buyers account at the selling office and crediting to the recipients account at the
paying bank make the payment under this transfer. NBP taxes mail charges from the
applicant where no excise duty is charged. Postage
charges on mail transfer are actual minimum Rs. 40/- if sent by registered post locally
Rs.40/- if sent by registered post inland on partys request.
3.21) DEPOSIT DEPARTMENT: -
It controls the following activities:
c) a) A/C opening. b) Issuance of chequebook. Current a/c Saving a/c
Cheque cancellation Cash
3.21.1 Account opening
The opening of an account is the establishment of banker customer relationship.
Before a banker opens a new account, the banker should determine the prospective
customers integrity, respectability, occupation and the nature of business by the
introductory references given at the time of account opening. Preliminary
investigation is necessary because of the following reasons.
i. Avoiding frauds Safe guard against unintended over draft. Negligence.
ii. Inquiries about clients.
There are certain formalities, which are to be observed for opening an account with a
bank.
Formal Application Introduction Specimen Signature Minimum Initial Deposit
Operating the Account
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1. Pay-In-Slip Book
2. Pass Book
3. Issuing Cheque Book
a) Qualification of Customer
The relation of the banker and the customer is purely a contractual one, however, he
must have the following basic qualifications.
He must be of the age of majority. He must be of sound mind.
Law must not disqualify him the agreement should be made for lawful object,
which create legal relationship not expressly declared void.
b) Types of Accounts
Following are the main types of accounts
1) Individual Account Joint Account
2) Accounts of Special Types
Partnership account Accounts of clubs, societies and associations
Joint stock company account Agents account Trust account
Executors and administrators accounts Pak rupee non-resident accounts
Foreign currency accounts
3.21.2 Issuing of chequebook:
This deptt issue cheque books to account holders.
Requirements for issuing chequebook
a) The account holder must sign the requisition slip
b) Entry should be made in the chequebook-issuing book
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b) Three rupees per cheque should be recovered from a/c holder if not then debit
his/her account.
c) 3.21.3 Current account
These are payable to the customer whenever they are demanded. When a banker
accepts a demand deposit, he incurs the obligation of paying all cheques etc. drawn
against him to the extent of the balance in the account. Because of their nature, these
deposits are treated as current liabilities by the banks. Bankers in Pakistan do not
allow any profit on these deposits, and customers are required to maintain a minimum
balance, failing which incidental charges are deducted from such accounts. This is
because the depositors may withdraw Current Account at any time, and as such the
bank is not entirely free to employ such deposits.
Until a few decades back, the proportion of Current Deposits in relation to Fixed
Deposits was very small. In recent years, however, the position has changed
remarkably. Now, the Current Deposits have become more important; but still the
proportion of Current Deposits and Fixed Deposits varies from bank to bank, branch
to branch, and from time to time.
3.21.4 Saving account
Savings Deposits account can be opened with very small amount of money, and the
depositor is issued a chequebook for withdrawals. Profit is paid at a flexible rate
calculated on six-month basis under the Interest-Free Banking System. There is no
restriction on the withdrawals from the deposit accounts but the amount of money
withdrawn is deleted from the amount to be taken for calculation of products for
assessment of profit to be paid to the account holder. It discourages unnecessary
withdrawals from the deposits.
In order to popularize this scheme the State Bank of Pakistan has allowed the Savings
Scheme for school and college students and industrial labor also. The purpose of these
accounts is to inculcate the habit of savings in the constituents. As such, the initial
deposit required for opening these accounts is very nominal.
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3.21.5 Cheque cancellation:
This deptt can cancel a cheque on the basis of;
a) Post dated chequeStale cheque
b) Warn out cheque
c) Wrong sign etc
3.21.6 Cash
This deptt also deals with cash. Payment of cheques, deposits of cheques etc.
3.22 FOREIGN EXCHANGE/DEPARTMENT:
This deptt mainly deals with the foreign business. The main functions of this deptt
are:
a) L/C dealing. Foreign currency accounts dealing. Foreign Remittance dealing.
3.22.1 L/C dealing
NBP is committed to offering its business customers the widest range of options in
the area of money transfer. If you are a commercial enterprise then our Letter of
Credit service is just what you are looking for. With competitive rates, security, and
ease of transaction, NBP Letters of Credit are the best way to do your business
transactions.
3.22.2 Foreign currency account dealing:
This deptt deals with the foreign currency accounts which mainly include dollar
account, euro account etc.
3.22.3Foreign Remittance dealing.
This is very important function of this deptt.
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B) DEPARTMENTATION OF BMC BRANCH .
Dividing an organization into different parts according to the functions iscalled departmentation. So NBP BMC has just one part that is cash department.
1. Cash Department
3.17 Cash Department:
To facilitate people in the payments of their bills and taxes and repayments of cash
There are two main functions of cash department.
i. Payment ii. Receipts
i. Payments are the function that they pay their cheques and pay cash.
ii. Receipts mean collection of utilities bills, taxes etc.
3.18.1 Remittances Department:
The objective of this department is:-
To transfer the money of people from one place to another place in safe and
comparable way
The main functions of this department are:
i. Issuing of demand draft. Issuing of Mail transfer.
ii. Issuing of Telegraphic transfer. Issuing of payment
order.
iii. Issuing of call deposit. Pension payments etc.
iv. Closing and scrolling of government collections.
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3
i. In word clearing books:
The bank uses this book for the purpose of recording all the cheques that are
being received by the bank in the first clearing. All detail of the cheques are recorded
in this book.
ii. Out word clearing book:
The bank uses outward clearing register for the purpose of recording all the details
of the cheques that the banks have delivered to other banks.
3.18.4 Computer Department:
The objective of this Department is to facilitate customers in payment of their
cheques.
The main functions performed by this department are:
a) Checking balance. Deduction from balance on clearing cheques.
b) Issuing bank statements. Dealing Western Union.
c) Employees salaries distribution. Employees bonuses etc.
3.19 Summation
We discussed in this chapter, the General Banking information about NBP i.e the
services, the departmentalization of NBP as well as the departmentalization of NBP
Balakot Branch. The next chapter is about the SWOT Analysis and Financial Analysis
of NBP.
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CHAPTER # 4
SWOT ANALYSIS
4.1 INTRODUCTION
To carryout the SWOT and Financial Analysis of NBP through the help of calculating
necessary ratios in this section.
SWOT analysis is an acronym that stands for strengths, weakness, opportunities, and
threats SWOT analysis is careful evaluation of an organizations internal strengths
and weakness as well as its environment opportunities and threats.
In SWOT analysis the best strategies accomplish an organizations mission by:
1. Exploiting an organizations opportunities and strength.
2. Neutralizing it threats.3. Avoiding or correcting its weakness.
4.2 STRENGTH
4.2.1 OLDEST INSTITUTION:
NBP is one of the oldest bank of Pakistan and first nationalized bank Hence its
customer base is strength from this plus point as customers have more confidence in
the bank. The additional value services as the privilege for the bank.
4.2.2 ALTERNATE DUTIES IN SBP ABSENCE
The NBP performs additional services for its customers as well as the other bank
customer in the absence of SBP.
4.2.3 MORE DEPOSITS THAN OTHER BANKS
NBP has the relative competence in having more deposits than the other bank. This is
because of the confidence the customer have in the bank. The bank being the
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The bank enjoys a good plus point when it comes to the employee manager
relationship the hearing as removing of discrepancies if any, between the employees,
and between the manager and employees.
4.3 WEAKNESSES
4.3.1 LACK OF MARKETING EFFORT:
The bank does not promote its corporate image, services, etc on a competitive way.
Hence lacks far behind in marketing effort .A need for aggressive marketing in there
in the era marketing in now becoming a part of every organization.
4.3.2 NBP UNDER POLITICAL PRESSURE
The strong political hold of some parties and government and their dominance is
affecting the bank in a negative way. They sometime have to provide loan under the
pressure, which leads to uneven and adjusted feeling in the bank employees.4.3.3
FAVORITISM AND NEPOTIS
The promotions and bonuses etc in the bank are often
powered by seniors favoritism or dependupon their wills and decision. This adds to
the negative factors, which denominate the employees thus resulting in affecting their
performance negatively.
4.3.4 LACK OF FINACIAL PRODUCT
The bank falls far behind when the innovative and new schemes are considered. It has
not been involved in the tug of war between the competitors to the accounts and
strengthens the existing customer base. This stands out to be the major incompetence
and weakness of the banks.
4.3.5 INEFFICIENT COUNTER SERVICES IN THE RUSH HOURS
During the rush hours, the bank is founded out to be a total flop to handle the mob of
people peaking from windows and doors. The bank has deficiency to operate in the
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stages of rush hours where the people find them services entangled in a situation of
nowhere because they are not well served.
4.3.6 LACK OF COMPUTERIZED NETWORK
The bank lack the strength of being powered by the network of computers, which
have saved time, energy and would have lessened the mental stress, the employees
have currently. This would add to the strength if it were powered by network of
computers.
4.3.7 LACK OF MODERN EQUIPMENT
The bank lacks the modern Equipment that is note counting machine computers. Evenif there is any equipment they lack to fall in the criteria of being rearmed as update
and upgraded
4.3.8 UNEVEN WORK DISTIBUTION.
The workload in NBP is not evenly distributed and the workload tends to be more on
some employees while others abscond away from their responsibilities, which server
as a demotivation factor for employees performing above average work.
4.4 OPPORTUNITIES
4.4.1 ELECTRONIC BANKING
The world today has become a global village because of advancement in the
technologies, especially in communication sector. More emphasis is now given to
avail the modern technologies to better the performances. NBP can utilize the
electronic banking opportunity to ensure on line banking 24 hours a day. This would
give a competitive edge over others.
4.4.2 MICRO FINANCING
Because of the need for micro financing in the market, there are lot of opportunities in
this regard. Other banks have already initiated, now the time has arrived when the
NBP must realize it and take on step to cater an ongoing demand.
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4.5 THREATS
4.5.1 EMERGENCE OF NEW COMPETITORS
The bank is facing threats with the emergence of new competitors especially in terms
of foreign banks. These foreign banks are equipped with heavy financial power with
excellent and innovative ways of promoting and performing their services. The bank
has to take initiative in this regard or will find itself far back in competition.
4.5.2 POLITICAL PRESSURE BY ELECTED GOVERNMENT
The ongoing shift in power in political arena in the country effects the performance of
the bank has to forward loans to politically powerful persons which create a sense of
insecurity and demoralization in the customer as well as employees
4.5.3 DOWNSIZING
The bank is currently acting upon the policy of downsizing which threaten the
environment of the bank Employees feel insecurity in doing their jobs and work,
hence affecting the over all performance of employees negatively.
4.5.4 CUSTOMERS COMPLAINTS
There exists no regular and specific system of the removal of customer complaints.
Now a day a need for total customer satisfaction is emerging and in their demanding
consequences customer's complaints are ignored.
4.6 COMPETITIVE ANALYSIS
Porters five forces model:
This approach is widely used for competitive analysis. It is because of the high
intensity of competition among companies there five main competitive forces.
4.6.1 Rivalry among competitive firms:
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It is a very powerful force among the competitive forces the strategies pursued by
one firm can be successful only to extent that they provide competitive advantages
over the competitor. These competitive strategies may be lowering prices, best
quality series. The NBP offering very low charges an demand draft, telegraphy
transfer, mail transfer and give other additional services to the customers and to
the Nation. Because NBP is a Nations Bank.
4.6.2 Potential entry of new competitors:
Whenever new firms ca easily enters a particular industry, the competition
increases. The gout restriction, tariffs, patents etc can stop new firm to enter into
the business as per Banking industry is concerned this market is already very
situated in Pakistan and there are banks with quality services and low charges. So
there is no threat to NBP from potential entry and NBP is also a public sector bank
because of that no other new bank not takes over it.
4.6.3 Potential Development of substitute products:
This is the third factor affecting the competitions. There may be some other
product can be substitute the product of that industry. For example banks offering
sawing schemes in Pakistan and these schemes are also offered by GPOs in
Pakistan so they must compete them in this field. If they offer low rates than
GPOs so people will go to deposit in GPOs. People concentration high rates so
thats why sawing PLS accounts are more then current accounts. The next
examples will ATM which substitute presenting cheques at counter and encash it.
The NBP is lacking in this field. It must improve in this field to compete the
competitors.
4.6.4 Bargaining Power of Suppliers:
The bargaining power of supplier affects the intensity of competition, especially
when there are a large number of suppliers. In case of banks the suppliers are
customers they supply the money to banks. Now they must offer good services,
quality, and safety. Low charges etc to customers. In this field NBP is very good.
B/C at offers good quality services to customers. They charge low charges on
remittances. So thats it is a competition to other banks.
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4.6.5 Bargaining Power of Consumers:
When customers are concentrated or large, or buy in volume, their bargaining
power represents a major force affecting intensity of competition. Now the
number customers in Pakistan for banks are very high. Banks offering variety of
products and services to their customers. NBP have a large number of customs.
Now it must offer good services and products to their customers to attract them to
come to NBP.
4.7 Summation
The summary of is SWOT Analysis of NBP. To know how NBP can compete well
and how to maintain its position in the market as a best services organization.
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CHAPTER# 5
FINANCIAL ANALYSIS
5.1 INTRODUCTION
Financial analysis, though varying according to the particular interests of the analyst,
always involves the use of various financial statements primarily the balance sheet
and income statement. The balance sheet summarizes the assets, liabilities, and
owners equity of a business at a point in time, and thee income statement summarizes
revenues and expenses of the over a particular period of time. A conceptual
framework for financial analysis provides the analyst with an interlocking means for
structuring the financing.
5.2 National Bank of Pakistan Ten Years Performance at glance 1
NBP is one of the leading bank in Pakistan. The fact that it is the best bank of
Pakistan is obvious from the performance shows in the table below.
From the above table it is very much clear that the NBP performance is going higher
and higher total assets are at the crest in 2004. If we draw a graph this will shows thatthe graph is upward trend. Profit is increasing from year to year. NBP decrease the
number of its branches and employees because of automation and large networks of
other banks. But this bank can compete and now NBP is the best bank of year.
5.3 RATIOS ANALYSIS 2
Financial analysis is the process of identifying the financial strengths and weakness of
the firm by properly establishing relation ship between the items of balance sheet and profit and loss account, in order to make rational decision in keeping with the
objective of the organization, for that purpose the management use analytical tools.
To evaluate the financial condition and performance of the business entity, the
financial analyst needs to perform "checkups" on various aspects of the business
financial health.
A tools frequently used during these checkups is a financial ratio analysis, which
relates two piece of financial data by dividing one quantity by the other we calculate
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ratios because in this way we get a comparison that may prove more useful than the
raw number by themselves. The business itself and outside providers of capital
(creditors and investors) all undertake financial statement analysis. The type of
analysis varies according to the specific interest party involved. The nature of analysis
is depending at the purpose of analyst.
5.3.1 Parties interested in ratio analysis
5.3.1.1 Trade creditors
Trade creditors are interested in firm's ability to meet their claims over a very short
period of time. Their analysis will, there fore confine to the evaluation of the firm's
liquidity positions.
5.3.1.2 Suppliers of long-term debt
Suppliers of long-term debt on the other hand are concerned with firm's long-term
solvency and survival. They analysis the firms profitability over time, its ability to
generate cash to be able to pay interest and repay interest and repay principal and the
relationship between various source of funds. (Capital structure relationship).
Long-term creditors do analyses the historical financial statements but they place
more emphasis on the firm's projected financial statement to make analysis about its
future solvency and profitability.
5.3.1.3 Investors
Investors who have invested their money in the firms share are most concerned about
the firm steady growth in earning. As such, they concentrate on the analysis of thefirm's present and future profitability. They are also interested in the firms financial
structure of the extent it influence the firms earning ability and risk.
5.3.1.4 Management.
An organization would be interested in every aspect of the financial analysis. It is
their overall responsibility to see that the resources of the firm are used most
effectively and efficiently and that the firm's financial condition is sound.
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So thus management employee financial analysis for the purpose of internal control
and to better provide what capital supplier seeks in financial condition and
performance from the business and from an internal control standpoint, management
needs to take financial analysis in order to plan and control effectively.
5.4 Ratios analysis
Ratio is the comparison between two figures of balance sheet and income statement.
5.4.1 Cash Ratio:
This ration is obtained by dividing cash by current liabilities / liabilities.
This ratio shows that the cash is enough for payment of current liabilities or not. It is
calculated as cash Ratio=Cash/current liabilities
It means that how much cash is available for payment its current liabilities. This ratio
of NBP shows a downward trend. Because of high advances cash is less to cover its
current liabilities.
5.4.2 Gross Profit Margin Ratio:
This ratio shows the profit margin in sales/ revenue.
This is calculated as.
Gross profit/ interest earned
G. Profit margin relates profit of the organization to its sales (interest earned in case
of Bank).
From calculation it is very much clear that the gross profit margin ration have upward
trend which shows that how much they using their deposits to earn interest. This
shows the profit of the firm relative to its revenue. It is a measure of the efficiency of
the firms operations too. As it is clear that the ratio gong high this is the indication of
good performance.
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5.4.3 Net Profit Margin:
This ratio measures the firms profitability of sales/ interest earned after taking
account of all expenses and income taxes.
This ratio can be calculated as:
Net profit margin ration = Net Profit after taxes / interest earned
Explanation: from the calculation and graph it is very much clear that the performance
of NBP is very good. And the trend is upward. It tells us a firms net income per rupee
of revenue. As the trend is upward it shows the high profits in revenue per rupee in
case of NBP. It is because of high advances the NBP has given to the people.
5.4.4 Return on Equity:
Dividing profit after taxation by shareholders equity. ROE compares net profit after
taxes to the Shareholders Equity.
This ratio is calculated as:
ROE=Profit after taxes/Share holders Equity
Explanation: from the calculation it is clear that the ROE Ratio have an upward trend
of NBP. It is because of high net profit they have earned. It tells us the earning power
on the shareholders investments. It is because of high investments by NBP and
effective expense management.
5.4.5 Return On Assets:
This ratio shows the efficiency of organization that how efficiently utilizes their
assets. This ratio relates profits to assets.
It is calculated as:
Profit after Tax/Total Assets
From calculation it is clear that this ration of NBP is going high and high. It shows
that NBP using its assets very efficiently. That is why they are earning very high
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profits. This shows that how efficiently they investing the assets thats why they are
earning high profits.
5.4.6 Investment deposit Ratio:
This ratio shows the comparison of investments and deposits. This is calculated as.
Investment deposit Ratio=Investment/deposits
Explanation: From above table and graph it is very much clear that NBP are using
their deposit very efficiently. And earning high profits. The ratio has an upward trend,
which shows the performance of NBP is very good. Now it is the retraction from top
management to invest 30% of its deposits. This may reduce its profits. But can befruitful in long term.
5.4.7 Debit to Equity Ratio:
This ration shows the amount contributed by creditors and shareholders. It shows to
what extent the firm is using borrowed money. It is computed simply dividing the
total debt of the fire by its shareholders equity.
This calculated as.
Total debt/shareholders equity
From the table and graph it is clear that this ratio is decreasing which show the high
efficiency of NBP. In 2002 it was high but in 2004 it decreases to 24.5 from 28.6
which is a good sign. Here the creditors are interested in low ratio. The lower the ratio
the high the level of the fires financing that is being provided by the shareholders.
5.4.8 Debt to assets ratio:
This ratio shows that to which extent the organization assets are financed by debit. It
is calculated as.
Total debt/total asset
This ration is directly related to risk high ratio means high risk and low ratio means
low risk. From calculation it is clear that the ratio is decreasing which show low risk.
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This ratio serves the similar purpose to the debt to equity ratio. This ratio is high
because of more deposits in the bank, and deposits are the liability of customer on
bank
5.4.9 Advances deposit Ratio:
This ratio show that how much efficiently the bank advances the deposits of their
customer to borrower.
It is calculated as.
Advances deposit ratio = Advances/ deposit
From above table and graph it is clear that the ratio is going high. Which means the
efficiency on NBP is good and they use their deposits efficiently in advancing to
borrowers. Here high ratio is required. The next side of the picture is that the people
will think that is risky to deposit the money in the bank.
5.4.10 Assets Turnover Ratio:
The relationship of net sales /revenue to total assets is known as the total asset
turnover ratio. It is calculated as.
Total revenue / total assets
Explanation: This ratio shows us the relative efficiency with which a firm utilizes its
total assets to generate revenue. We can see that the ratio is going high and which is a
good sign and shows that NBP is utilizing its assets efficiently.
5.4.11 Price to earning Ratio:
This ratio show the relation ship b/w face price per share and earning per share. This
ratio is calculated as:
Price to earning ratio= face price of share/earning per share
As from the above calculations it is clear that the ratio decreased tremendously in
2004, it is because of the reason that earning per share increased resulting in
decreasing price to earning ratio.
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From calculation it is clear that it have a downward slope. It is b/c of increase in
earning per share.
5.4.12 Dividend yield: Anticipated annual dividend divided by the market price of
the stock. It is calculated as.Dividend yield =Total dividend/ market price
Year 2000 was best as far as dividend yield is concerned; it was mainly due to the
decreased amount of number of shares outstanding. In year 2001 increase in
outstanding shares decreased dividend yield, but due to increase in total dividend in
2002 it has recovered to 2.45.
From the above table it is clear that the dividend is increasing but in 2004 it is low. It
is because of high market price and low dividend.
5.4.13 Deposit growth Ratio:
This ratio shows the growth rate of deposits.
This is calculated as
Current year deposits- previous year deposits /previous year deposit
Explanation: This ratio shows an excellent move from 1997 to 2004. It upward slope
which shows that the people trust NBP and its management that our money is in safe
hands. The reason for this good move is only govt support to this bank.
5.4.14 Advances Growth Ratio:
This ratio shows the growth rate of advances. This is calculated as
Current year advances- previous year advances / previous year advances.
Explanation: from calculation and graph it is clear that NBP show a good growth rate
in respect of advances. Only in 2002 it is negative b/c of high advances in 2001 and
low advances in 2002. This shows that NBP is utilizing the deposits efficiently.
The over all performance of NBP is very good. Thats why it is declare the best bank
of the year 2004.
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5.5 Predicting failure:
Where one wants to lend money to a company that is about to fail. The ability to
predict corporate failure before the event has been the holy grail of financial analysis
for move than 50 years. The collapse comes much unsaddled. One a company will be
successful and next year it will be fail. For this a tool is used which is
Z=0.012A+ 0.014B + 0.033C + 0.006D = 0.010E
Where
A = net current assets total assets.B = Retained earnings total assets.
C = Profit before interest and tax total assetsD = capitulation total debt
E = Sales total assets
Now Z score blow 1.8 was an indicator of probable failure, and a score of over 3 was
seen as a clean bill of health the advantage of this approach is that using a
combination of several financial ratios makes it less likely that the result will be
affected by manipulation of financial statements.
If the portion of current asset is greater compared with total assets the healthier is
short-term position.
If the retained earning is greater the greater is the extent of the companys self-
financing. The profit before tax and interest in the third ratio indicates the contribution
of a companys profitability toward the end index score. In fourth ratio the investors
view of the further potential of the company is set against total debt. The last ratio
shows the ability of the company to use its assets to generate revere.
Predicting failure of NBP - 1998.
Z = 0.012(.86) + 0.014(0.026) + 0.033(0.014) + 0.006(0.13) +0.010 (0.11)
= 0.010 + 0.0004 + 0.0005 + 0.0008 + 0.001 = 0.0129
This shows that the calculation is below 1.8 and it is an indicator of failure
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5.6 Summation We discussed in brief the financial analysis of NBP. Calculating
various ratios, interpretation of these ratios, and different tools and techniques is used
in order to arrive the conclusion.
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Chapter # 6
FINDING AND OFFER CONCLUSION
6.1 INTRODUCTION
I have divided this section in four parts. Which are as under. These analysis are
mainly based on my practical experience at the NBP.
Problems at the branch.
Function analysis.
Administrative analysis.
Personal managements analysis.
6.2 PROBLEMS AT THE BRANCH
6.2.1 Customer Satisfaction
In NBP customer dealing is will, but during rush hour the customer has to wait for a
long time for their turn. Its quite hard for a new customer or potential customer to get
the required information.
6.2.2 Poor record management and filing system
During my internship I observed that filing system of branch is not good. When
certain record is needed the staff has to struggle to find it out and a lot of time is
wasted.
6.2.3 Unequal distribution of work
Work is not equally distributed. On one hand some employee have to work all day
without relaxing while some others have nothing to do at all. This not only creates
confusion among employees but also hurting and disturbing for overall setup of the
bank. And above all it results in dissatisfaction among customers as well.
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6.2.4 Marketing visits
A useful mode of contact is through personal marketing visits. Such visits are
important in informing and perusing the existing and potential customers about the
products and creating a sense of belongingness with them.
6.3 FUNCTIONAL ANALYSIS
6.3.1 Formal Organization
Formal organization includes the activities of two or more person, which are
cautiously determined groups and coordinated towards a given objective. It provides
base when people are able to communicate with other, when they have commonpurpose 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.
6.3.2 Difference between theory and practice
A vast difference exists between theory and practice and NBP has written procedurebut practical work done by employees is a bit different from written procedures.
6.3.3 Bank duty to maintain secrecy.
They dont 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
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careful while passing any cheque. In this regard another shortfall is in giving the
information about the balance on telephone.
6.3.4 Excessive paper work
It is notified that due to the lengthy procedure of paper work the bank employee are
over burdened. They are unable to give proper attention to the clients and face
difficulties in getting their job done. One reason for lengthy procedure and excessive
paper work in the bank is the lack of computerized technology.
6.3.5 More accounts fewer deposits.
Efficient banking is one, which does not emphasize on number of accounts but ongreater amount of deposits. NBP is more interested in increasing its number of