NBP BY A SABOOR
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Transcript of NBP BY A SABOOR
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CHAPTER NO 1
1.0 INTRODUCTION
My report is on NBP. After doing two months (8 weeks)
internship in National Bank of Pakistan (main branch Mardan 0365). I
gave preference to NBP because it serves as leading bank in Pakistan.
1.1 Background of StudyThe economic and social growth of every developing country
based mainly on its financial institution like bank. In the development
of economy the bank sector plays an important role.
Banks are adopting major changes with the increase completion
and the development of modern technology. Besides the role of banks
in KPK is very important and contributing to the province as well as to
national economy. NBP was establishing in November 9 1949.
NBP is a major business colleague for Pakistan emphasizing on
increasing economic growth by fair lending policies and offering
modern products and services to the costumer. The characteristics of
NBP involves its serves as a commercial bank for our country also act
as an agent for central bank act as a trusty NIT (national investment
trust) and consider a premium bank of country.
1.2 Purpose of Study
According to HEC rule for the completion of BBA (HONS.)
finance degree two months internship in a financial institution is
requirement.
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In order to fulfill this requirement the students were as an internee in a
bank or other organization. So I preferred NBP because it is an
established bank in public sector.
The purpose of my study is to obtain relevant information tocomplete my internship report on NBP.
To acquire practical knowledge in a bank To suggest some solution to their problem through SWOT
analysis of NBP.
To obtain experience for my future job.1.3SCOPE OF STUDY:
My scope of study involves an enough detail about NBP. As a
student of finance specialization my main focus was to study the
Financial Position of NBP currently and with previous years.
Working as an internee in different departments I observe different
problems in option and suggested some solution.
1.4Limitations of the study: Two months (8 weeks) of duration was very short for a
complete stage so the study had to be restricted to certain
specific areas only. Hence we can term the time factor a big
limitation of the study.
Due to large volume of work handled by NBP the mainbranch, the workload on the employees was too much due
to which they could not properly share their views about the
organization.
Most of the data was confidential. Rigid work schedule of the Bank.
Above all limitations create different in collecting complete
information.
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1.5METHODOLOGY OF STUDY:The key job in my internship was to collect quality information
about NBP. For this I collected primary as well as secondary data.
Primary data include personal judgment, interviews, physical
observation and literature review.
Secondary data include internet reports relevant books and
newspaper.
CHAPTER 2
BANKING AND NATIONAL BANK OF PAKISTAN:
1) BANKING:
The origin of the word bank has not been decided so far. Some people
say that it is derived from word banquet or banks, which means a
bench.
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Some people say that that it is derived from German word back which
means joint stock fund.
BANK:
A financial institution which collects/accepts money from individuals,
firms, and companies at a lower rate of interest and give to those who
need it, at high rate of interest.
Bank is an financial intermediary that accepts money from those who
surplus and lend to needed ones.
Banks are playing an important role in countrys development. When
banking sector of a country is un organized, it creates problems in
countrys development.
2) EVALUATION OF BANKING IN PAKISTAN:
An efficient banking will be needed for a country like Pakistan.
The first phase of evaluation of banking in Pakistan was very hard, as
it was a new country without any proper resources.
When people came to realize the importance of money as a medium of
exchange, the people felt maturely a need of financial institution to
cope with various economic needs.
At partition time, only two banks were Pakistani, twenty nine banks
were Indian and seven were exchange banks.
The reserve bank of India was suggested to continue banking function
in Pakistan, which resulted in negative effect, I-e scheduled banks
decreased from 487 to 195 branches in 1948.
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NATIONAL BANK OF PAKISTAN:
3) HISTORY OF NATIONAL BANK OF PKISTAN:
The establishment of NBP was laid vide NBP ordnance XIX 1949.
It was suggested to establish NBP in 1950, but it was arranged earlier
in 9 November 1949 following the devaluation of Indian rupee.
NBP start operations in November 1949. The bank of Bahawalpur
was only one subsidiary of NBP in 1950.
In January 1974, NBP and 13 other banks of Pakistan were
nationalized by nationalization ordinance 1974.
4) NBPS MISSION STATEMENT:
The mission statement of NBP is,
To make the bank absolute and competitive with
performing, quality stuff and operations and products and services, to
develop Excellency almost in every activity of the bank.
5) GOALS AND OBJECTIVES OF NBP:
The goals and objective of any organization may be desirable results,
which they may want from their operation that may be short term or
long term.
The goals and objective of NBP are,
increase in deposits
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Increase in advancing of loans.
INCREASING DEPOSITS:The main objective of NBP is to increase their deposits. By increasing
its deposits, NBP can advances more loan which enhance high profit.
NBP is trying their best to improve its services and increase its
deposits, by the following two factors.
Courtesy of customers and Facilitating their services.
ADVANCING OF LOANS:The rate of profit for a bank defends on the rate of advancing loans to
the customers.
Greater the rate of loon advancing, greater will be the rate of profit or
vice versa.
Bank collects surplus money from the people and invests it in different
projects or extended to the people who are in need of it. NBP trying to
give loans to potential and stable customers.
Besides these objectives, NBP also trying to create better environment
for customer services and efficient and quick operations in theirrespective branches.
6) FUNCTIONS OF NBP:
NBP like other commercial bank is busy in receiving deposits,
advancing loans, financing international business and discounting bills.
The main functions of NBP are;
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a) ACCEPTING DEPOSITS:
All banks depends upon the money deposited by the customers in
bank. Deposits may be:
CURRENT DEPOSITS:There is no interest on these deposits. Current account can be opened
with an amount Rs. 500/. It is suitable fpr businessmen.
PLS TERM DEPOSITS:These are deposits for fixed time period. In such deposits profit varies
upon time period.
PLS SAVING DEPOSIT:It allows customers to deposit and withdraw money easily. Interest is
paid on these deposits, and can be opened with Rs. 500/.
b) DISCOUNTING BILLS:
NBP also involve in discounting bills of exchange (mature bills).
c) AGENCY SERVICES:
NBP also provides agency services to its customers, like..
DIVIDEND COLLECTION:NBP offers dividend or interest earned on different securities.
CHEQUES COLLECTION:NBP collects and pays cheques, promissory notes and bills.
GENERAL UTILITY SERVICES:
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NBP provides clearing services of electricity, gas and telephonebills for its customers.
Locker services are also available for customers. It provides different information to the forex department.
7) MANAGEMENT OF NBP:
The overall management of NBP involves, board of directors,
executive committee , chief executive and group chiefs.
a) BOARD OF DIRECTORS:
BOD serves as top controlling bodies in NBP.
BOD consist of a chairman (president), three seniors executives vice
president(SEVPs), a representative of council, representative of
government and a secretary finance. These BODs are nominated by
government.
b) EXECUTIVE COMMITTEE:
The BODs elect members for executive committee. It is consist of one
president, a secretary and eleven other members. This committee is
responsible for day-to-day affairs of the bank.
c) CHIEF EXECUTIVE:
The president serves as chief executive of the bank and controls all
affairs of the NBP.
d) GROUP CHIEFS:
The management of the bank has been split up in to divisions. Each
division is supervised by the regional chief (SEVP).
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It is a process through which people learn different skills and
knowledge. It bring changes in the current behavior of the
trainee.
d) TRANSFER POLICY:Transfers mean change in the position of an employee.
Transfers may be within the departments or outside the
organization.
Transfer of employees from one post to another post is called
inter transfer policy. Employees are usually transfers to
enhance their skills and performance.
Transfer of employees from department to another iscalled inter departmental transfer. it is useful for
employee to make the all rounder.
e) PROMOTION POLICY:Promotion means high responsibility higher pay and status.
Seniority is not the base offer promotion but performance of an
employee also causes promoting. The criteria for promotion in
NBP are,
Seniority list Annual appraisal.
f) SALARY ADMINISTRATION:Salary is the fee to employees given by organization in return
of their duty performance.
NBP have a good name in their responsibility interms ofemployees salary, benefits, pension etc. the salaries of
employee are sufficient to their responsibilities.
g) BENIFIT PACKAGES FOR THE EMPLOYEES:The benefit packages given by NBP to its employees are;
LEAVES;Different types of leaves are set for employees, like,
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Privilege leaves (30 days every year) Casual leaves (11 days in a year) Medical leaves (30 days in a year with full pay) Pilgrimage leaves (40 days once in entire
services with full pay).
COMPENSATIONS: Bonus:
These are paid regularly on the basis of profit earned by
NBP.
Provident fund:These are pensionable and required seven percent of
employees salaries.
ALLOWANCES:NBP provides different allowances to its employees.
Medical allowance:NBP pay back the medicines and other medical costs
incurred to its employees. The actual bills must be
provided to the bank.
.house rent allowances:
NBP also providing house facility to it employees.
STAFF LOAN:NBP also offer loan facility to its employees.
HOUSE BUILDING LOAN:It is loan provides for the construction of home.
Installment are deducted from their salary.
CONVEYANCE LAON :It is a loan granted for the purchase of vehicles. The
repayment of the loan is very easy and on convenient
terms and conditions.
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CHAPTER 3
ACTIVITIES OF INTERNEE
An internship in an organization is necessary part of BBA (Hons)
degree. In order to achieve this task I decided to undergo an internship.
Being the student of finance specialization, my major area for
consideration was banks.
I suggested National bank of Pakistan for my internship as it was a
public sector bank and becoming a leading one.
With the care of G.M(HR wing), NBP regional office Mardan,
MR.kifayt ullak khan, I was sent to the NBP main branch Mardan
(0365) for internship program.
MR fahad (officer HRM) at August 8,2012 send me written
endorsement to start my internship in NBP main branch mardan
(0365).
My branch was located in District Mardan at the busy site of Mardan
BANK ROAD. The staff details are,
MANAGER: Mr. SAID QAMASH KHAN
OPERATIONAL MANAGER: MR JAMAL NASIR
COMPLAINCE OFFICER: RAHEEM KH
ALONG WITH THIS THERE ARE 33 PERMENENT AND 10
CONTRACT EMPLYEES.
I started my work at August 8, 2012 from ACCOUNT OPENING
SECTION.
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Mr.zafar ullah khan was the in charge of this section, and was total two
members in this section.
In this section I learned about account opening, account closing and
issuance of check book.
I observed that bank was using KYC (known your customer) policy for
account opening. I spent one week in this section.
After this I was sent to REMITTANCES SECTION. Mr.Rasheed
was the in charge of this section. Total members in this section were
five(5).
In this section I studied about the transfer of money from one branch to
another branch.
I also studied about the demand draft (DD), cheque collection and WU
(Western Union).
Now I was shifted to ADVANCES/CREDIT SECTION. Mr.Amankhan was the section in charge . Here I was greatly helped by Sir
Dawood khan (assistant to incharge) and told me about this section .
here we are concerned with the advancing of loans.
From this section I was sent to the GOVERNMENT SECTION.
Mr.Malik jhanzeeb was the section incharge along with other seven
members. Here my performance was related to the tax collection ,
paying pension and renewal of weapons and passport fee collection. I
learned the scrolling method and the purpose of scrolling. Sir Ibadullah
jaan greatly healped me to know about the govrnement section
activities.
I also studied the CLEARIGN SECTION. Mr. Jameel Akhter was
the officer of this section.
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Here I studied the banks functions of paying and collecting cheques.
I also spent few days in ESTABLISHMENT SECTION. Here wewere concern with different establishment of the branch, which were
related with branch operations.
Briefly in my two months internship I stayed at the following
deparments of NBP main Branch Mardan.
Deposit Section.
Cash Section. Government section. Clearing Section. Advances Section. Forex Section. Remittances Section.
Note:
The in depth detail of these sections/departments will be discussed in
separate chapters.
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CHAPTER 4
DEPOSIT DEPARTNENT
The basic function of deposit department is to receive deposits.
Deposits are called as the life blood of any bank. These serves as raw
materials for banks, these are the debts of the bank.
The deposit department of NBP main branch mardan is concerned
with, account opening and closing, issuance of cheque books and
providing the locker facility to its customers.
1) TYPES OF ACCOUNTS OFFERED BY THE NBP:
Customer can open different accounts (local and foreign currency) at
NBP main branch Mardan.
CURRENT ACCOUNTS:Current account offers,
No profit (no interest) Demand payable
No zakat deduction and Minimum balance must be maintain in these accounts.
Current account holders can easily deposit and with draw cash. This
account holder must maintain Rs.5000 as a balance in their account.
These accounts can be opened by all types of people, and is very
suitable for the businessmen.
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PROFIT AND LOSS SHARING ACCOUNTS: Profit is paid. (in case of profit earned) Loss must be bear. (in case bank suffer losses) Rs. 100 must be maintaining in this account, even then
account holder will be eligible for profit and loss of the
bank.
Zakat will be deducted from these accounts. The account can be open with very small amount.
The profit and loss will be calculated after each six months.
TERM DEPOSIT:It is an account that offers,
Deposit facility for fixed duration. (Cant be withdrawbefore the expiry date).
Highest interest rate. Duration 3 months to 5 years. It is suitable for short term investment. The account can be open by minimum Rs. 10,000.
2) CLASSIFICATION OF ACCOUNTS:
Account may be classified into following categories.
INDIVIDUALL ACCOUNTS:That type of accounts that can be opened or operated by only
one/single person is known as individual or single accounts.
JOINT ACCOUNTS:These are the accounts opened/operated by jointly 2 or more
persons.
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PARTNERSHIP ACCOUNT:accounts that are opened by a partnership of two or more
persons are called partnership accounts.
It must be opened by in the name of business. Minimum 2 and maximum 20 persons are allowed. Partnership Deed is necessary for these accounts.
MINOR ACCOUNTS:An account opened by a customer under the 17 years of age is
called minor account.
Guardian to a minor can operated this account on behalf of him.
STAFF ACCOUNTS:It is operated only for employees.
3) ACCOUNTING OPENING PROCEDURE:
the bank open accounts on the request of customer. Every bank wants
to increase their deposit which determines its financial strength as well.
My branch was using KYC (known your customer) policy before
opening of accounts.
However, the procedure for opening the account in NBP main branch
Mardan was following;
Accounts may be opened on customers request only. The presence of
the customer itself is necessary for opening of an account. My branch
was using an account opening form for this purpose. The customer
has to fill the form containing all information about opening of an
account.
The customer must give information like his full name, fathers name,
information about the job, marriage, next of kin along with address.
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Then the responsible account opening officer has to take signatures
from the account opener. For this purpose branch was using specific
signature card. The customers must gave copy of the national ID card.
In last when all the formalities are completed, then the cheque book
was issued to the account holder after one week. The signature of
issuing officer was necessary. The branch was using cheque book
requisition memo for this purpose.
4) ACCOUNT CLOSING IN NBP:
in branch the accounts will be closed on the request of customers. Then
the cheques that were not used must be return to the bank and the
confirms by destroying un used cheques.
The bank may close an account itself without notifying to the
customers.
5) ISSUANCE OF CHEQUE BOOK:
Before going to discuss the issuance of cheque book, I will prefer to
define a cheque and further discuss its types.
CHEQUE:
It is an order of a customer on a bank to pay a sum of money to him or
third body on his demand. it can easily transferable. It is the safe mode
of money. There are two parties in a cheque. The drawer and the
payee.
There are 3 kinds of cheques;
BEARER CHEQUE:It is that kind of cheque, which can be cashed by any person
who presents it at the counter. It needs no endorsement i-e the
bearer of the cheque may not be known to the bank.
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ORDER CHEQUE:that type of cheque which is cashed only when the right person
is known to the bank. here the bearer of the bank is known to
the bank. It is the safe mode for payment.
CROSS CHEQUE:it is that kind of cheque, if it have two parallel lines on its face
and words and Co Is written between them. It cant be cashed
at the counter of the bank, while it may be deposited to the
payees account.
NOW, coming towards my main topic, i-e Issuance of cheque book by
NBP main branch Mardan.
The branch was receiving requisition slip from the customer for the
issuance of new cheque book. The requisition slip must contain
customers signature. The branch was then charging cost of new
cheque book, signature will be verified, and account number will be
written on it and was recorded.
6) LOCKER FACILITY BY NBP:
NBP main branch Mardan is providing locker facility to its customers.
This facility enables customers to keep their valuable things in a safe
custody.
My branch was offering three sizes of locker facility to its customers.
That are small size lockers, medium size locker and large size lockers.
The rents of these lockers are different according to their sizes. Current
rate for these lockers at NBP main branch Mardan are,
Locker
Rent
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Large size lockers
Rs. 4000
Medium
Rs. 3000
Small
Rs. 1000
In order to acquire a locker the following approaches are uses in NBP.
The copy of national ID card must be attached by the customerwith the form for locker rental.
The customers must have account in the branch. In case of losing the key, the customer will be responsible for
that.
A sole person can rent only one locker.7) TERMS AND CONDITIONS FOR LOCKER RENTAL:
The terms and conditions for the customers, who are renting a locker,
are following.
The customer can rent a locker for only one year on his firstrequest and will be in voluntarily renewed for next year.
The locker can be rented by two persons but they must givewritten evidence to the bank for their mode of operation.
Third body cannot be authorized to access a locker. The customer may not allow using a locker for any risky things. If a customer fails to pay rent, he may loss all the rights to use a
locker.
In case if the customer losses the key, he will pay for a newlock as well as pay any expenses of breaking the existing lock.
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8) TERMINATION OF RENTAL:
If a customer want to terminate a locker facility, he have to give anotice to the bank, one month before the expiry date of rental, and in
case bank wants to terminate the facility for a specific customer, bank
is responsible to notify customer before expiry date. The locker and
key must be return to the bank.
CHAPTER 5
CASH DEPARTMENT
The main aim of every organization, Eighter it is business organization
or any financial institution, is to earn profit.
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Cash department of NBP main branch Mardan branch is playing an
important role in this perspective.
The bank plays a role of intermediary, by collecting money from those
who have surplus with them and invest or give as a loan to those who
need it.
Main branch Mardan using different procedures and Instruments for
this purpose, that are following.
INSTRUMENTS AND PROCEDURES:
1) TOKENS:Banks issue Tokens to their customers and made
payment against Tokens only.
In NBP main branch Mardan when a customer brings a cheque,
the responsible person receives it and gives Token to the
customer. Cheque must contain a token number.
An officer, then check, post, and sign that cheque, which then
reach to the cashier. The cheque is now ready for its customer
to receive money on the counter.
2) STAMP:In main branch Mardan, an officer kept a CASH
RECEIVED STAMP with his custody and is not allowed forany other person even a cashier.
The officer was allowed to stamp only those vouchers and slips
that were properly signed by the cashier.
3) RECEIPTS AND PAYMENTS:
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When a customer wants to
deposit money in his account, he has to fill a deposit slip, which
includes account holders name, amount of money to be
deposited and his account number.
Then the cash along with deposit slip is submitted to the
cashier. the cashier collects, counts, verify and stamp it, and
then one part is given to the customer and other part is remain
by the bank.
Before the payment of a cheque, extreme care should be taken,
it must be check that the cheque has been posted, supervised
and cancelled by the officer.
The officer must check all the receipts and payments of the
cashiers book, in order to verify the totals of the receipts and
payments.
4) COLLECTION OF BILLS:NBP main branch Mardan was also
providing the services of collection of bills.
The cash department was responsible for that. they collect
different utility bills like gas, electricity, PTCL etc.
5) CASH SAVING:In afternoon, one of the officers of main
branch was responsible to check the cash and keep into safe
custody.
The loose, unstitched and stitched notes were also be checked.
6) CUT AND DEFECTIVE NOTES:
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My branch was really
concerned with, that cut and defective notes does not issue to
the customers.
For this purpose they maintain and collect fresh notes to satisfy
their customers.
7) CHEQUE PAYMENT POSTING AND CANCELLATION:
In NBP main branch Mardan, a member of cash section (not a cashier)
was responsible to post all cheques in a ledger book, and the cashier
was allowed to make payments to any person against cheque, which is
not posted in ledger book and is not cancelled by the officer.
8) GOVERNMENT COLLECTION SECTION:Mr. Malik
jhanzeeb was the in charge of this section.
The responsibility of the government collection section of NBP
main branch Mardan was to perform different services for
government like,
My branch was responsible for the collection of Taxes,
challans, renewal of weapons and paying pension.
As my branch was main branch, so we are mainly concern
paying pension to the retire employees.
For that purpose my branch was consisting properly a pension
department.
This section was responsible to pay pensions to the pensioners.
For this purpose the branch was issuing a pension book to the
pensioners that consisting amount due to him.
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The branch was using B143 register to maintain records of the
pensioners.
It was necessary for the pension payment that the pensioner has
to come personally.
Without getting pension book, pension may be refused by the
branch. The picture of the pensioner was necessary on the
pension book.
CHAPTER 6
REMITTANCES DEPARTMENT
Remittances department was the important section of NBP main
branch Mardan.
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This department is concerned with the transformation of funds from
one place to another or from one branch to another branch.
MEANS OF REMITTANCES:
The NBP main branch Mardan was using the following means for
remittances purpose.
1) DD (demand draft)2) Pay order3) MT (mail transfer)4) TT (telegraphic transfer)5) SC (short credit)
1) PAY ORDER:
Pay order is a mean for transformation of money, not only for local
transfer of money.
The branch was charging Rs. 20 on pay order.
2) DD (DEMAND DRAFT):
It is another way of transferring money from branch to branch.
Where Draft is an order by one branch to another of same bank to pay
a sum of money on demand to the person named there in.
A draft is to be filled with necessary requirements beneficiary (the
person who will receive money) name, account number and senders
(the person who is sending a draft) name.
The sender deposits the amount of DD in responding branch and the
branch make DD and give it to the sender.
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Then the concern branch sent an advice to the branch to which the DD
is sent. When the responsible branch receives DD, they credit it and
after clearing amount is debited.
There are two types of DD,
Open DD (Direct payment made) .Cross DD (Indirect payment is made
3) TT (TELEGRAPHIC TRANSFER):
It is the fastest mean of for remittances purpose.
Telegraphic transfer is performed for urgently remittance. The
customer may use TT on his written request. For this purpose they
must fill the form for TT and must deposit money.
The responsible officer for remittances send a telegraph in code words
and confidential number (Test number) to the responding branch and
the receiving branch make payment to the customers. They can use a
Telephone call for this purpose also.
The customers are responsible for telephone charges as well. The
customer has to deposit Rs. 90 as a fax charges and 0.4 percent as tax
charges.
4) MT (MAIL TRANSFER):
Mail transfer is that mean of remittances, which is concerned with the
transformation of money from one branch to another, or within the
country or outside the country.
If a customer wants to transfer money with the use of mail transfer, he
must fill an application form, stating that he wants to transfer the
money one bank to another bank through Mail.
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The customer must pay Rs. 20 as mail charges and 0.4 percent as tax
charges.
5) SHORT CREDIT (SC):
it is also a mean for remittances purpose. Short credit consists of
cheques. These cheques are outside the city cheques.
These cheques are sent through short credit for clearance purpose.NBP
main branch Mardan was charging Rs. 20 as postage charges and 0.03
percent as commission charges.
The customer was responsible for all the charges spent for this
purpose.
The short credit is also consisting of local short credit which are
specified for the clearance of inside the city or district cheques.
Bank has separate records of these short credits. There are no charges
on local short credits.
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CHAPTER 7
CLEARING DEPARTMENT
Every bank, whether it is public owned or private banks, performs
the function of clearing.
Clearing is basically related with the payment and collection of money.
The banks perform the clearing function through Clearing House.
1) CLEARING HOUSE:
A clearing house is a place where representatives of all commercial
banks are get together for the purpose of settlement of payments and
receipts of cheques drawn on each other.
State bank of Pakistan (SBP) is responsible for the operating of
clearing system in Pakistan.
In case if there is no office or branch of state bank of Pakistan (SBP) in
specific area, the National Bank of Pakistan acts as a representative of
state bank of Pakistan and performs the function of clearing house.
Each bank has their own desk in the clearing house. The
representatives of all local commercial banks meet in the office of
clearing house at a fixed time on all working days of the week.
Where they receive their own cheques and deliver the cheques and
deliver the cheques payable at other banks.
Then a schedule is prepared that contains the name of the bank and the
number of cheques received and delivered by them.
2) TYPES OF CLEARING:
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The clearing function performed by NBP main branch Mardan is
divided into two types.
outward clearing inward clearing
OUTWARD CLEARING:Outward clearing deals with those cheques which bank sent for
payments to the other banks. These cheques are exchanged through
local main branches. Bank demands payment for its customers.
PROCEDURE:
The procedure followed by NBP main branch Mardan for outward
clearing is as under;
The cheque which is sent to the bank has written the payees account
number on its back side.
The cheques are separated in different forms like investment and
paying. Then these are separated as according to different branches and
banks. Proper time table is programmed.
If payment is made then the amount is written in the PAY column
and for delivery it is written in delivered column.
Then the necessary balancing is done and then is forwarded to the
clearing department and a transfer debt voucher is generated. Then the
main branch instructions are followed for further action.
INWARD CLEARING:
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Those cheques which other banks present to the bank for payment are
dealed under inward clearing.
PROCEDURE:
The inward clearing is done through the following procedure.
All the instruments are noticed and verified as mentioned in the time
table on receipt just on time.
Then the amount of these instruments is balanced and the totaling of
accounts is done. Then amount is matched to the amount of IBDA. The
IBDA sent by branch is credited in favor of the bank. Then finally the
amounts of these instruments are released to the related departments.
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CHAPTER 8
ADVANCES DEPARTMENT
This section is very essential for any bank because it generate profit for
the bank.
Advances are considered as assets of the bank. NBP main branch
Mardan offers loans for creative actions to businesses and individuals.
The NBP collects money from those who have surplus money with
him and advances to those who needed ones.
In order to take full advantage from advancing loans, these
considerations should be followed, like financial background of
creditor, his country economic conditions and collateral offered by
him.
Mr. Aman khan was the in charge officer of advance section of NBP
main branch Mardan.
The advances section of NBP Main branch Mardan offering two types
of loans.
short term loans long term loans
Short term loans are those, which duration is less than one year.
Long term loans are those, which duration is more than 2 years.
The advance section of my branch deals with all types of long term and
short term loans, dealing with borrowers and payment of loans.
CLASSIFICATION OF LOANS:
Loans are primarily classified into following two types;
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Unsecured loan Secured loan
UNSECURED LOAN:It is that type of loan which is not supported by any guarantee or
security.
The limit for unsecured loans is rupees one lack.
It should be clear that unsecured loans are advances to only thosecustomers who have perfect financial background. Their sources for
repayment should be known and should be identified the use of loan.
SECURED LOAN:
A type of loan that is backed/supported by any type security or
guarantee.
The advances section of NBP is responsible to advance loan according
to indicated limit, to check the security, to identify the sources of
repayment and to make sure that loan is properly utilizing for the
purpose for which it was advanced.
TYPES OF CREDIT FACILITY OFFERED BY NBP MAIN
BRANCH PESHAWAR CANTT:
NBP main branch mardan is offering two types of credit facility to its
potential customers.
A) FUND BASED CREDIT FACILITY
B) NON FUNED BASED CREDIT FACILITY.
A) FUNED BASED CREDIT FACILITTY:
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1) CASH FINANCE (CASH CREDIT):
The most common type of advancing is cash finance, that is concerned
with cash credit facility (loan in cash form) to its customers.
Cash credit enables customers to fulfill his short term needs.
Cash credit is considered the most popular source of short term
financing. The bank provides cash credit facility to its customers
against security i-e security of goods or raw materials etc.
The customers are allowed to withdraw cash from their cash credit
accounts only after, all the formalities are fulfilled by the bank.
The customer must remember following dates for the maintenance of
cash credit facility.
Initial payment date, December 31st (expiry date) The last date of adjustment.
This loan is interest payable.
2) RUNNIN FINANCE:
Running finance also known as Over Draft facility. NBP main branch
mardan was permitting their reliable customers for over draft facility.
According to this facility, the current account holders can draw extra or
additional money (in form of cash) from their actual amount they hold
in their account.
The customer must pay interest for borrowing extra money from bank.
Running finance generally needs no security or guarantee but bank
may ask about security in some cases.
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The limit for running finance is identified on the basis of customers
requirement.
3) DEMAND FINANCE:
Demand finance also known as demand loan and is extended on the
basis of customers demand.
Demand finance may be short term, medium term or long term.
Currently NBP main branch Mardan is offering the following types of
demand finance;
GOLD FINANCING:the type of loan extend to the customers against Gold as
security.
NBP is the only authorized bank for gold financing. The bank for this
purpose authorized some jewelers to evaluate the gold and the
customer gets loan after fulfilling all the paper works. The customer
must pay the loan in two years.
ADVANCE SALARIES:NBP offers this credit for government employees. Through this facility
an employee can gets his twenty months salaries in advance under
specific terms and conditions. These are interest payable up to 19
percent and can be repaid through installments.
HOUSING FINANCE:
NBP offers housing finance (loan) for building/construction of
houses. The loan is secured by the house as a mortgage.
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45 percent of interest is paid on this loan. The is loan extended for the
duration of up to 15 years.
STAFF LOAN:NBP main branch Mardan is providing loan for employees. The loan
is given for the purpose of building a house, purchasing a car or
motorcycle.
The interest rate is different for clerical staff and for officers, i-e in
case of loan for building a house, the clerical staff has to pay no
interest and officers must pay 4 percent as ai interest charges. In this
case the house will be mortgage to the bank. The loan will be paid in
twenty years.
Motor cycle loan is advance for both clerical staff and officers, that is
payable in 10 years.
While car loan is extended for officers only, with 4 percent of interest
rate.
B) NON FUND BASED CREDIT FACILITY:
1) LETTER OF CREDIT:
NBP main branch mardan assists its customers in import-export related
business as well.
NBP facilitate import-export trade through a Letter of Credit. The
letter of credit is made by the bank on its own behalf.
This facility is granted to only those customers whose reputation and
financial soundness in import-export trade is well known and is in no
doubt.
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Note: the enough detail should be provided about letter of credit in
next chapter.
CHAPTER 9
FOREIGN EXCHANGE
1) FOREIGN EXCHANGE
According to the foreign exchange regulation act;
Foreign exchange refers to the foreign currency and it consist all
balances, credits and deposits payable in that currency. The deposits
payable in foreign currency are also included in this.
Currency relates to all the exchange mediums like loins, bant notes,
postal notes, cheques, money orders, letter of credits, bill of exchange
transfers cheques and promisolly notes.
a) AUTHERIZED DEALEROnly the regulated bodies are authorized to deal in foreign exchange.
b) FORES TRANSALATION REGULATIONThe translation occur under foreign exchange should be dealed under
foreign exchange put 1947.
2) NBP FOREX DEPARTMENT
The forex department of NBP deals the following transaction:
Foreign accounts Services of collection Remittances
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Translation the support travelers Letters of credits Accounts of guarantees Accounts of indemnities
AUTHORIZED RATE OF FOREX
The rate for doing transaction under forex is assigned by the state bank
of Pakistan. A margin to select their and own rates is given to the
authorized dealers.
3) FOREX ACCOUNT
The NBP offers foreign currency account to the all residents of
Pakistan. Along with residents foreigners, firms and banks can also use
this facility. Account can be opened both single and joint. The account
holder will maintain the account in that currency in which account has
been opened.
4) COLLECTION SERVICES
The customers are facilitated through the collection services on the
foreign bills. If foreign currency cheques, travelers cheques, foreign
direct payment are entitled for the purpose of collection.
5) FOREIGN REMITTANCES
Remittances refer to the money transfer from one to another place.
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This transfer of money or funds may be from one to another country or
within the country. the foreign remittances are grouped in inward and
outward remittances,
INWARD FOREIGN REMITTANCESThe inward remittances refer to the purchase of foreign
currency in any form either in currency notes are in any other
form
The inward remittances can be only done byauthorized dealers
The inward remittances may be due to the result of theforeign currency payment from the overseas branches
against the bills.
OUTWARD FOREIGN REMITTANCESWhen the foreign currency is sold in any form it refers to the
outward remittances.
The outward foreign remittances can be done through using
different forms like,
I form use to cover remittances against imports. T-I form issued to show the sales of travel
exchange.
T-2 form for business travels. M form to show the other remittances
6) HOME REMITTANCES
When the abroad nationals send foreign exchanges to the country for
their domestic use it is called home remittances.
PURPOSES OF HOME REMITTANCESThe home remittances are used for different purposes like,
Maintenance of house
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Family support Transfer of insurance payments Pension funds transfer Saving purpose Investment purpose. (small enterprise investment )
7) TRAVEL TRANSACTION SERVICES
When people go abroad , that is they purchase local products can make
payment through using travel transaction services.
NBP provides this service by introducing the following instruments;
TRAVELERS CHEQUE.As NBP acting as agent of SBP so the travelers cheque
includes by NBP is acceptable almost all over the world.
Travelers cheque when presented will be payable by the
bank. People usually use travelers cheques for business and
travel purpose.
CREDIT CARDS:Credits cards the foreign currency accounts holder can enjoy
the NBP credit card offer. NBP is currently offering the credit
card of with $ 5000 to trust worthy accounts holders.
8) LETTER OF CRIDIT:
Letter of credit is very useful service of NBP which support the tradeof imports and exports.
The holder of this instrument is entitled to get money right on time or
according to the terms and conditions of the letter of the credit. The
bank facilitate the account holders by this instruments in these ways;
Payment of order of a party or accept ion of bills of exchange.
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Delegate authorities to another bank to effect such paymentsor to pay the bills.
The parties included in letter of credit usually carry out the
documentation of letter of credit.
ADVANTAGES OF LETTER OF CREDIT:both export and import business are benefited.
Reduces the risk of dealing with unknown dealers andbuyers. (for the exporter)
The receiver of the products is ensure about theimported products, because he is owing the
documented guarantee.
9) FORMS OF LETTER OF CREDIT:
letter of credits are in form of revocable and irrevocable credits.
REVOCABLE L/C:bank has the authority to cancel the revocable credit without
any proper notice to the beneficiary.
IRREVOCABLE L/C:The irrevocable credit can only be cancelled with the advice
of the parties of agreement.
The issuing bank of the irrevocable credit provide under
taking about the fulfilling of the terms and conditions of the
credit.
10) PARTIES INVOLVES IN A L/C:
The following 5 parties participate in the letter of credit.
The importer or buyer
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Issuing bank The advisors (bank) The bank on which L/C is drawn The beneficiary
11) FOREIGN CURRENCY ACCOUNTS:
The bank opens the foreign currency accounts to facilitate the
payments of international business. these accounts are Nostro accounts
and vostro accounts.
NOSTRO ACCOUNTS:NOSTRO is a Latin word meaning our.
The NBP has developed this account with their overseas
respective and all transactions are managed through this
account.
VOSTRO ACCOUNTS:VOSTRO is a Latin word means your.The bank usually keeps account of overseas bank to maintain
the convertible pak rupee account. This account is known as
VOSTRO account.
12) DOCUMENTS REQUIRED FOR L/C:
The trade through letter of credit is secured by some documentation
settlement. These documents are used by the bank upon which the L/C
is drawn.
The documents for a L/C are,
Commercial documents Financial documents Transformation documents
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Official documents Insurance documents
13) PROCEDURE FOR OPENING L/C in NBP:
When the customers, that NBP can trust, ask the bank to issue the
credit in favor of someone, the bank issue letter of credit followed by
a specific procedure is as following;
The first requirement is that the person must have a sanctionlimit.
The customer must have a tax registration NO. And should be amember of the trade body.
First the customer should fill an application form requesting toopen a letter of credit. The letters of credit is opened at the time
when the customer submits and fulfill the early necessary
requirements. The application form is a written contract
between the bank and the customers.
The application form contains all the relevant information about the
letter of credit and the necessary guidelines. The form identifies all the
terms and conditions for availing the services of letter of credit. the
customer also should fill the appendix B which shows that the
imported items are legally eligible to import.
CHAPTER 10
SWOT ANALYSIS AND FINANCIAL RATIO ANALYSIS FOR
NBP:
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SWOT ANALYSIS FOR NBP:
The word SWOT is a marketing term stands for strengths, weakness,
opportunities and threats.
SWOT analysis is an instrument on the basis of which the performance and
current position of an organization can be measured.
SWOT analysis of NBP will focus NBPs business to get better strengths and get
rid of weakness, to avail opportunities and reduce their threats.
EXPLANATION:
STRENGHTS:
NBP is the oldest banks of Pakistan, that is why people have confidence on the
bank.NBP act as a agent for SBP where there is no branch of SBP. It is the sole
provider of loan against Gold. They have more deposits because of their high
confidence level.NBP also collects gas, electricity, PTCL bills.
WEAKNESSES:
NBP is not dealing properly its customers complaints. There marketing efforts
are negligible. NBP is under the political pressure that affects their efficiency.
Due to not enough staff, there is a poor quality counter services. NBP have no
proper computer network. Counting machines are not available in NBP.
Imbalanced allocation of duties and no operation of IT tools are also its
weaknesses.
OPPERTUNITIES:
A scheme for overseas Pakistanis will be profitable segment for NBP.
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NBP must focus on micro financing as well as international trade. They should
finance new projects. NBP should introduce new technology and electronic
banking. ATM facility should be motivated. Proper training and seminar for their
employees will be profitable.
THREATS:
Arrival of new banks (Allied Bank, HBL, Meezan Bank) is becoming a threat
for NBP. NBP have non qualified staff. The political and economic condition of
the country are also becoming as a threat for NBP.
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INTERPRETATIONS OF RATIOS:
1. NET PROFIT MARGIN RATIO:The ratio has been decreased in 2010, that is from 39.28% to 34.55%,whichindicates that the performance of NBP is not good. It shows the low profits
revenue per rupee in case of NBP.Because of high advances, NBP given to his
customers and bad financial position of the country.
2. RETURN ON EQUITY:The ROE ratio has been in decreasing trend. It is because of low net profit
earned by NBP. It indicates that earning power on the shareholders investment is
decreased in 2010.it is because of high investment and ineffective managementtheir expenses.
3. RETURN ON ASSETS RATIO:ROA ratio for NBP is in decreasing trend, which show that NBP is not efficiently
using their assets, that is why NBP are earning very low prophets.
4. INVESTMENT DEPOSIT RATIO:The investment deposit ratio for NBP has been in increasing trend. Which
indicates that people have a great surety about NBP,That is why they are
depositing their investment in NBP.
5. DEBT TO EQUITY RATIO:As the ratio in increasing trend its a good for NBP and show its satisfactory
efficiency. Here the creditors are interested in high ratio.
6. DEBT TO ASSETS RATIO:
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The ratio is decreasing which show high risk, because of more deposits in the
bank which are liability of customers on bank.
7.
ADVANCES DEPOSIT RATIO:The ratio has been decreased in 2010,which is not a good sign for NBP.Because
their advances are low as compare to their deposits.
8. ASSET TURNOVER RATIO:The ratio has been slightly in decreasing trend, which indicates that NBP is
slightly inefficient in utilizing its assets to generate revenue, which is not a good
sign for NBP. Still the difference is very low, so showing satisfactory efficiency
will be beneficial in future.
CHAPTER 11
FINDINGS AND RECOMMENDATIONS:
The main purpose of my study was to analyze my branch and find solutions for
their problems.
during my internship of two months in NBP main branch Peshawar cantt, I
noticed many things and recommended some recommendations for my branch.
1) ACCESSABILITY TO REQUIRED STAFF:
In order to improve the work standards, the branch must access to required staff.
I observed that branch there were employees deficiency in main branch,
particularly a telephone operator and a customer service officer.
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I suggested the branch to establish a customer information centre. Still it will
cost the branch at was the time, but will be beneficial in future.
2) JOB REPLACEMENT:
The branch must concentrate on job replacement, i-e to change the current duty of
an employee.
Through this employees can know about all the sections.
In my branch I noticed that some seats were over loaded and some were out of
work. So the branch must focus on job replacement to ensure that no body is over
burdened.
3) FRIENDLY ENVIROMENT FOR EMPLOYEES:
employees or human resources are considered the most important source of any
organization.
The internal environment of NBP main branch mardan was really disturbed; the
employees were not satisfied from their duties. I suggested my branch to keep
friendly environments for their employees in order to achieve their mission.
4) PROFFESIONAL APPROACH TOWARDS EXPENCES:
The branch must be concerned with professional approach towards all the
expenses of the branch, in respect of fuel, electricity, telephone expenses.
The operation manager of the branch will be concerned with all these activities
and must keep check up of their all expenses to avoid un necessary utilization of
electricity, fuel etc.
All approaches must be base on the cost and befit analysis.
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5) PERSONAL MARKETING:
Personal marketing is very important for attracting customers. Through which
different type of information can be collected, like financial and businessinformation etc.
I recommended my branchs staff to attract customers on his personal contact.
6) EQUAL DISTRIBUTION OF DUTIES:
The human resource (employees) must be treated equally. They should give equal
workload.
I observed that some workload was not properly adjust, which creates tussles
among employees.
So, I recommended that the operation manager must equally distribute the work
load to over come this situation.
7) INTRODUCTION OF ATM FACILITY:
The competitors of NBP like Allied Bank, Habib Bank, United Bank limited have
already adopted ATM facility al most in every area that becoming a threat for
NBP.
So, I recommended the branch to introduce ATM facility at least in main branch
Peshawar cantt, to improve its services.
8) DECENTRALIZATION (WIDE SPAN OF COMMANDS):
In NBP all major decisions are centralized, i-e are taken by only top level
management. The branch manager has very limited delegation of authorities and
must take permission for almost every action.
So, I recommended the top level management of NBP to wider the span of
authorities for branch managers.
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9) APPEARANCE:
my recommendation for the branch is to improve its internal and external outlook.
Specially the staff of the branch must be dressed properly and behave nicely. This
will help to attract the customers.
10) CUSTOMER SATISFACTION:
customers are considers a key concept in the market and his satisfaction is a
competitive advantage.
I recommended the branch to improve their customer related activities.
CHAPTER 12
IMPLEMENTATION PLAN
After finishing internship in NBP main branch Mardan I recommended an
implementation plan for my branch. My implementation plan includes two steps.
These are:
1) Computerization of the branch
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2) Setting up Customer information section
12.1 COMPUTERIZATION OF THE BRANCH
Now a days about all banks have a well organized computerization in their
branches, that is why I also suggested a plan for the computerization in NBP main
branch Mardan, that will involve the following steps:
12.1.1 TENDER NOTICE
In order to purchase tools for the computerization of the branch, a Tender notice
must be given in a news paper. The successful party will perform further
responsibility of computer networking in the branch.
12.1.2 SELECTION OF THE BEST PARTY
The best party will further precede the project. The best party will be that having
good reputation and have minimum estimations for the completion of plan. It will
also be necessary to complete the projects within given duration.
12.1.3 ESTIMATED COST OF COMPUTERIZATION AT MARDAN MAIN
BRANCH:
S.NO EQUIPMENT TO BE PURCHASED ESTIMATED COST
1. Server with
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. Dual processor with main board support
. Processor (Intel)
. CD Rom 52 x
. Fdd 1.45, M+keyboard
. Monitor 21
. LAN card
. External Robotics RS. 80000
2. Dell computers
Total 15 systems with p4, 17
Monitor, 21 GB HDD,
250 Mb Ram, 1 GHZ Processor
(20 thousand * 15) Rs. 300000
3. Intel switch for 100 Mobs hub cable STP
Connectors
HP Inkjet printer Rs .40000
4. Network cost RS. 8000
5. AD expenses RS. 2000
6. Salary of Additional Officer (12 * 15 thousand)
(Per year) RS. 180000
7. Fitting Cost Rs. 30000
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Total Estimated Cost. Rs. 640000
12.1.4 TRAINING OF THE STAFF:
The staff of the branch will be given training about computers at least 1 month
that will enable him to use computers for branch operations.
12.2 SETTING UP CUSTOMER INFORMATION SECTION
Another plan for my branch is the introduction of customer information section.
The main functions of this section will be to create coordination among
employees, to attend all the inquiries of customers and also act as a telephone
operator.
The section will be operated by one person and will be selected through following
procedure.
12.2.1 NEWSPAPER AD
The ad for the post will be given in a newspaper and Job specification, job
description will be mentioned. The interested candidates must submit their
applications and relevant documents before a particular date. The job will be on
contract basis. The selected candidate will be given fixed salary of Rs. 10,000/-.
12.2.2 JOB DESCRIPTION AND SPECIFICATION
1. JOB DESCRIPTION
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The job description is as follows:
i) Graduate with minimum First division.ii)
2 year working experience in relevant field.
iii) Computer expert.iv) Good communication skills.
2. JOB SPECIFICATIONThe job specifications are:
i) Telephone operator.ii) To answer all queries of the customers.
iii) To coordinate among the staff.
12.2.3 SELECTION OF SUITABLE CANDIDATES
The suitable candidate will be selected after considering his qualification,
experience and communication skills. The selection of the person will be strictly
on merit. The manager of the branch will conduct interviews. The selectedcandidate will be asked to sign the secrecy bond.
12.2.4 TRAINING OF THE SELECTED PERSON
The selected person will be given four weeks training in computer and other
banking services. The training will be set in the Regional office Peshawar. After
the successful completion of the training he will join the branch.
12.2.5 ESTIMATED COST FOR SETTING UP A CUSTOMER
INFORMATION SECTION IN CANTT BRANCH:
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The cost to be incurred is as follows:
S. No Type of Cost Estimated Cost
1. Cost of AD Rs. 2000
2. Salary (cost) Rs. 69000
TOTAL COST RS.71000
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CHAPTER#13
13.0 FINANCIAL ANALYSIS:
Years 2011 2010 2009 2008 2007 2006 2005 2004 2003
Items
Total assets 1149578 1037750 944563 817758 762194 635133 577719
533231 468972
Deposits 927421 832152 727465 624939 591907 501872 463427 465572 395492
Advances 525046 477507 475243 412987 340319 316110 268839 220794 161266
Investment 319531 301324 217643 170822 211246 139947 156985 149350 166196
S,s holder equity 110520 103762 94142 81367 69271 5345 37636 24900
18134
pre tax profit 26011 24415 21300 23001 28061 26311 19056 11978 9009
After tax profit 17605 17563 17562 15459 19034 17012 12709 6195 4198
Earning per share 10.47 10.44 10.44 9.19 11.32 10.12 7.56 3.68
2.50
Return on assets 2% 1.40% 0.80% 0.30% 0.20% 0.10% ---------- ------
-----
No of Branches 1300 1289 1287 1276 1261 1250 1242 1226 1199
No of Employees 16924 16457 16248 15441 14079 14019 13824 13745
13272
13.1 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,
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liabilities, and owners equity of a business at a point in time, and This ratio
shows that the cash is enough for payment of current liabilities or not.
It is calculated as cash Ratio=Cash/current liabilities
This ration is obtained by dividing cash by current liabilities / liabilities.
Ratio is the comparison between two figures of balance sheet and income
statement.
An organization would be interested in every aspect of the financial analysis. It is
their overall responsibility to see that the resources of the firm are used most
effectively and efficiently and that the firm's financial condition is sound.
So thus management employee financial analysis for the purpose of internal
control and to better provide what capital supplier seeks in financial condition and
performance from the business and from an internal control standpoint,
management needs to take financial analysis in order to plan and control
effectively.
Investors who have invested their money in the firms share are most concerned
about the firm steady growth in earning. As such, they concentrate on the analysis
of the firm's present and future profitability. They are also interested in the firms
financial structure of the extent it influence the firms earning ability and risk.
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.
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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.
Financial analysis is the process of identifying the financial strengths and
weakness of the firm by properly establishing relation ship between the items of
balance sheet and profit and loss account, in order to make rational decision in
keeping with the objective of the organization, for that purpose the management
use analytical tools. To evaluate the financial condition and performance of the
business entity, the financial analyst needs to perform "checkups" on various
aspects of the business financial health.A tools frequently used during these
checkups is a financial ratio analysis, which relates two piece of financial data by
dividing one quantity by the other we calculate ratios because in this way we get a
comparison that may prove more useful than the raw number by themselves. The
business itself and outside providers of capital (creditors and investors) all
undertake financial statement analysis. The type of analysis varies according to
the specific interest party involved. The nature of analysis is depending at the
purpose of analyst.
NBP is one of the leading banks in Pakistan. The fact that it is the best bank of
Pakistan is obvious from the performance shows in the table below.
(Source Annual reports 2011)
From the above table it is very much clear that the NBP performance is going
higher and higher total assets are at the peak in 2003. If we draw a graph this will
shows that the graph is upward trend. Profit is increasing from year to year. NBP
decrease the number of its branches and employees because of automation and
large networks of other banks. But this bank can compete and now NBP is the
best bank of year.
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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.
thee incomestatement 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.
13.2 National Bank of Pakistan Ten Years Performance at one
glance
NBP is one of the leading banks in Pakistan. The fact that it is the best bank of
Pakistan is obvious from the performance shows in the table below.
(Source Annual reports 2011)
From the above table it is very much clear that the NBP performance is going
higher and higher total assets are at the peak in 2003. If we draw a graph this will
shows that the graph is upward trend. Profit is increasing from year to year. NBP
decrease the number of its branches and employees because of automation and
large networks of other banks. But this bank can compete and now NBP is the
best bank of year.
13.3 RATIOS ANALYSIS
Financial analysis is the process of identifying the financial strengths and
weakness of the firm by properly establishing relation ship between the items of
balance sheet and profit and loss account, in order to make rational decision in
keeping with the objective of the organization, for that purpose the management
use analytical tools. To evaluate the financial condition and performance of the
business entity, the financial analyst needs to perform "checkups" on various
aspects of the business financial health.A tools frequently used during these
checkups is a financial ratio analysis, which relates two piece of financial data by
dividing one quantity by the other we calculate ratios because in this way we get a
comparison that may prove more useful than the raw number by themselves. The
business itself and outside providers of capital (creditors and investors) all
undertake financial statement analysis. The type of analysis varies according to
the specific interest party involved. The nature of analysis is depending at the
purpose of analyst.
13.3.1 Parties interested in ratio analysis
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13.3.1.1 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.
13.3.1.2 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 aboutits future solvency and profitability.
13.3.1.3 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 the firm's present and future profitability. They are also interested in the firms
financial structure of the extent it influence the firms earning ability and risk.
13.3.1.4 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.
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.
13.4 Ratios analysis
Ratio is the comparison between two figures of balance sheet and income
statement.
13.4.1 Cash Ratio:
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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
Table 3
Year 2003 2004 2005 2006 2007 2008 2009
Cash Ratio 0.118 0.169 0.19 0.21 0.22 0.15 0.134
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.
13.4.2 Gross Profit Margin Ratio:
This ratio shows the profit margin in sales/ revenue.
This is calculated as.
Gross profit/ interest earned
Table 4
Year 2003 2004 2005 2006 2007 2008 2009
Gross profit margin% 24.8 27.7 28.9 29.59 39.67 46.6 51.9
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
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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.
13.4.3 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
Table5
Year 2003 2004 2005 2006 2007 2008 2009
Net profit Margin % 0.2 1.6 1.7 1.55 3.67 3.18 21.6
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.
13.4.4 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
Table6
Year 2003 2004 2005 2006 2007 2008 2009
Return on Equity 0.67 5.3 0.2 2.7 6.55 9.4 23.1
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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.
13.4.5 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
Table7
Year 2003 2004 2005 2006 2007 2008 2009
Return on assets 0.01 0.16 0.008 0.124 0.225 0.52 0.9
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 highprofits. This shows that how efficiently they investing the assets thats
why they are earning high profits.
13.4.6 Investment deposit Ratio:
This ratio shows the comparison of investments and deposits. This is calculated
as.
Investment deposit Ratio=Investment/deposits
Table8
Year 2003 2004 2005 2006 2007 2008 2009
Investment Deposit ratio 42.9 37.7 31.03 22.94 20.54 39.66 42.01
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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 upwardtrend, which shows the performance of NBP is very good. Now it is the retraction
from top management to invest 30% of its deposits. This may reduce its profits.
But can be fruitful in long term.
13.4.7 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
Table9
Year 2003 2004 2005 2006 2007 2008 2009
Debt to equity ratio 32.42 31.4 30.4 20.9 22.7 28.6 24.5
From the table and graph it is clear that this ratio is decreasing which show the
high efficiency of NBP. In 2008 it was high but in 2009 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
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Table1
Year 2003 2004 2005 2006 2007 2008 2009
Debt to asset ratio 0.94 0.944 0.957 0.954 0.92 0.954 0.961
This ration is directly related to risk high ratio means high risk and low ratio
means low risk. From calculation it is clear that the ratio is decreasing which
show low risk. This ratio serves the similar purpose to the debt to equity ratio.
This ratio is high because of more deposits in the bank, and deposits are the
liability of customer on bank
13.4.9 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
Table11
Year 2003 2004 2005 2006 2007 2008 2009
Advances deposits ratio 0.414 0.399 0.416 0.443 0.487 0.387 0.406
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.
13.4.10 Assets Turnover Ratio:
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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
Table12
Year 2003 2004 2005 2006 2007 2008 2009
Assets turnover ratio 0.099 0.097 0.093 0.079 0.075 0.079 1.07
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.
13.4.11 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
Table13
Year 2003 2004 2005 2006 2007 2008 2009
Price to earning Ratio 2.4 2.7 47.62 3.17 3.25 1.6 0.97
As from the above calculations it is clear that the ratio decreased tremendously in
2009, it is because of the reason that earning per share increased resulting in
decreasing price to earning ratio. From calculation it is clear that it have a
downward slope. It is b/c of increase in earning per share.
13.4.12 Dividend yield:
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Anticipated annual dividend divided by the market price of the stock.
It is calculated as.
Dividend yield =Total dividend/ market price
Table14
Year 2003 2004 2005 2006 2007 2008 2009
Dividend Yield 0.2 0.1 2.3 3.32 1.63 2.45 0.23
Year 2006 was best as far as dividend yield is concerned; it was
mainly due to the decreased amount of number of shares outstanding. In year
2007 increase in outstanding shares decreased dividend yield, but due to increase
in total dividend in 2008 it has recovered to 2.45.
From the above table it is clear that the dividend is increasing but in 2009 it is
low. It is because of high market price and low dividend.
13.5 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
D = capi
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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 earnings 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 - 2004.
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
13.6 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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