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 Study
The 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.

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 to complete 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.

1.3 SCOPE 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. 1.4 Limitations 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 main branch, 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.

1.5 METHODOLOGY 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.

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.

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

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 their respective 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;

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:

 NBP provides clearing services of electricity, gas and telephone bills 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).

NBP consist of 12 group chiefs that are responsible for the improvement of management and operations of NBP.

8) HUMAN RESOURCE MANAGEMENT OF NBP: The human resource of any organization is very important. If human resource of an organization is managed, it is the surety of success in future. Human resource department of NBP is in Karachi. . Human resource department of NBP performs the following functions. a) RECRUITING: It is the process of attracting persons to apply for jobs that are open. NBP advertises their vacancies through press and mention age limit, experience, qualification etc in Ads. b) SELECTION: selection deals with to select whom is the best for suitable job. Selection process involves these steps. First step involves the collection of candidates applications, and who fulfill the requirements are called for test. Second step involves conducting of test. Third step involves interviews from those candidates who qualify the test. In this step a final merit list is made of only successful candidates. c) TRAINING:

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 is called 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 of employees 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.Aman khan 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 we were 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. Note: The in depth detail of these sections/departments will be discussed in separate chapters. Deposit Section. Cash Section. Government section. Clearing Section. Advances Section. Forex Section. Remittances Section.

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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 withdraw before 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 Rs. 4000 Medium Rs. 3000 Small Rs. 1000

size

lockers

In order to acquire a locker the following approaches are uses in NBP. The copy of national ID card must be attached by the customer with 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 first request and will be in voluntarily renewed for next year. The locker can be rented by two persons but they must give written 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 new lock 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 a notice 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 for any 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 order 3) 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 those customers 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 DEALER Only the regulated bodies are authorized to deal in foreign exchange. b) FORES TRANSALATION REGULATION The 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 REMITTANCES The 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 by authorized dealers The inward remittances may be due to the result of the foreign currency payment from the overseas branches against the bills. OUTWARD FOREIGN REMITTANCES When 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 REMITTANCES The home remittances are used for different purposes like, Maintenance of house

39

 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 trade of 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.

40

 Delegate authorities to another bank to effect such payments or 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 and buyers. (for the exporter) The receiver of the products is ensure about the imported 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

41

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 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 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 ACCOUNTS: ACCOUNTS:

42

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 sanction limit. The customer must have a tax registration NO. And should be a member of the trade body. First the customer should fill an application form requesting to open 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.

44

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%,which indicates 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 management their 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:

46

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.

47

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.

48

5) PERSONAL MARKETING: Personal marketing is very important for attracting customers. Through which different type of information can be collected, like financial and business information 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.

49

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 2. Dell computers Total 15 systems with p4, 17 Monitor, 21 GB HDD, 250 Mb Ram, 1 GHZ Processor (20 thousand * 15) 3. Intel switch for 100 Mobs hub cable STP Connectors HP Inkjet printer 4. 5. 6. Network cost AD expenses Salary of Additional Officer (12 * 15 thousand) (Per year) RS. 180000 Rs .40000 RS. 8000 RS. 2000 Rs. 300000 RS. 80000

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) ii) iii) iv) Graduate with minimum First division. 2 year working experience in relevant field. Computer expert. Good communication skills.

2.

JOB SPECIFICATION

The job specifications are: i) ii) iii) Telephone operator. To answer all queries of the customers. 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 selected candidate 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

CUSTOMER

INFORMATION SECTION IN CANTT BRANCH:

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The cost to be incurred is as follows:

S. No 1. 2.

Type of Cost Cost of AD Salary (cost) TOTAL COST

Estimated Cost Rs. 2000 Rs. 69000 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 533231 468972 Deposits Advances Investment 1037750 944563 817758 762194 635133 577719

927421 832152 727465 624939 591907 501872 463427 465572 395492 525046 477507 475243 412987 340319 316110 268839 220794 161266 319531 301324 217643 170822 211246 139947 156985 149350 166196 110520 103762 94142 81367 69271 5345 37636 24900

S,s holder equity 18134 pre tax profit

26011 24415 21300 23001 28061 26311 19056 11978 9009 4198 3.68

After tax profit 17605 17563 17562 15459 19034 17012 12709 6195 Earning per share 2.50 Return on assets ----No of Branches 1300 No of Employees 13272 10.47 10.44 10.44 9.19 11.32 10.12 7.56

2%

1.40% 0.80% 0.30% 0.20% 0.10% ---------- ------

1289

1287

1276

1261

1250

1242

1226

1199

16924 16457 16248 15441 14079 14019 13824 13745

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,

56

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.

57

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 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.

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 about its 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.

13.4.1Cash 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 0.21 2008 0.22 2009 0.15 0.134

Cash Ratio

0.118 0.169 0.19

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.

13.4.2Gross 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 24.8 2006 27.7 2007 28.9 2008 2009 51.9

Gross profit margin%

29.59 39.67 46.6

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.

13.4.3Net 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 0.2 2006 1.6 2007 1.7 2008 1.55 2009 3.67 3.18 21.6

Net profit Margin %

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.

13.4.4Return 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 0.67 2006 5.3 2007 0.2 2008 2.7 2009 6.55 9.4 23.1

Return on Equity

62

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 0.01 2006 0.16 2007 2008 2009 0.9

Return on assets

0.008 0.124 0.225 0.52

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 profits. This shows that how efficiently they investing the assets thats why they are earning high profits.

13.4.6Investment 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 42.9 2007 37.7 2008 2009

Investment Deposit ratio

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 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 be fruitful in long term.

13.4.7Debit 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 30.4 2008 20.9 2009 22.7 28.6 24.5

Debt to equity ratio

32.42 31.4

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

64

Table1 Year 2003 2004 2005 0.94 2006 2007 2008 2009 0.954 0.961

Debt to asset ratio

0.944 0.957 0.954 0.92

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

13.4.9Advances 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 2.4 2006 2.7 2007 2008 2009 3.25 1.6 0.97

Price to earning Ratio

47.62 3.17

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 0.1 2006 2.3 2007 3.32 2008 1.63 2009 2.45 0.23

Dividend Yield 0.2

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 selffinancing. 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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