Internship Report National Bank of Pakistan

Financial Ratio Analysis of National Bank of Pakistan: A Critical

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Waris Ali Khan

Virtual University of Pakistan,
Davis Road, Lahore 54000, Pakistan

ABSTRACT:

National bank is one of the Government owned banks working on behalf of State bank of Pakistan under agency
arrangements where SBP has no operational offices. In addition NBP is working as commercial bank too since
1949 and has play a vital role in the economy of Pakistan since its inception. National bank has a vide outreach
throughout the country including the far flung areas of all the provinces, and AJK, Gilgit and Bultistan also.
NBP is chaired by the president having his office at head office I.I. Chundrigar raod Karachi with 29
controlling offices named as regional offices situated in different main cities. These regional offices are
supposed to supervise the whole operational control of 1345 online branches. National bank has its overseas
network also consisting of 23 branches with 10 regional representative offices working in various Islamic and
non-Islamic countries.

Key Words: NBP, AJK,

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1. Introduction
Bank serves as an intermediary between depositors and borrowers. Bank receives funds from surplus side
(depositors) and lends it to the needy side (Borrowers). Decision of lending depends upon different factors i.e
banks policy, available products, purpose of loaning, type of population, type of requirements of the borrowers,
repayment capacity and credit worthiness of the intending clients.
At the time of freedom, business banking offices were given decently well here. There were 487 work
places of planned banks in the domains now constituting Pakistan. An Expert council was selected. The board
prescribed that the store bank of India ought to keep on functioning in Pakistan until 30th September 1948, and
Pakistan would assume control over the administration of open obligation and trade control from Reserve Bank
of India on first April 1948 and that India Notes would keep on being legitimate delicate in Pakistan till 30th
September 1948. Also the banks including those having their enlisted work places in Pakistan exchanged them
to India with a specific end goal to bring a breakdown of another state. By 30th June1948 the number work
places of planned banks in Pakistan declined from 487 to just 195.
Keeping in mind the end goal to make essential courses of action for the supposition of control an
Expert council was designated to suggest fundamental steps, including the obliged enactment to build a Central
Bank for Pakistan. The Governor General of Pakistan QUAID-E-AZAM MUHAMMAD ALI JINNAH initiated
the State Bank of Pakistan on July 1, 1948, after the state Bank of Pakistan Order was proclaimed on May 12,
1948. The main Pakistan notes were issued in October 1948 in the group of Rs. 5, 10, 100; and by August 1949
the State Bank of Pakistan withdrew the Reserve Bank of India notes of the estimation of Rs. 125.02 Corer with
the assistance of Pakistan notes. In spite of the exertion "Administration of Pakistan" engraved notes of the
estimation of Rs. 51.57 corers were still in flowed along these lines the aggregate Pakistan case of advantages of
the issue Department of Reserve Bank of India added up to Rs.176.59crores. However the Reserve Bank of
India exchanged stakes of the estimation of Rs.127.67 corers just to the State Bank of Pakistan and halted such
further exchanges on March 23, 1949 on extremely shaky grounds. The issue has so far stayed uncertain
regardless of secured arrangement between the two nations.
As the Centered Bank of the nation, the State Bank tended to itself with the similarly pressing
undertaking of making a national banking framework. Keeping in mind the end goal to achieve this objective it
give d each assistance and support to Habib Bank to extend its system of extensions furthermore propose to
Government the foundation of another bank which could serve as an executor or the State Bank. As the result

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the National Bank of Pakistan came into over the organization capacity from the Imperial Bank of India. More
Pakistan planned banks kept on being built which incorporated the Commerce Bank Limited and the Standard
Bank Limited. By June 1965, the amount of booked banks remained at 36; the stores expanded to Rs.688.28
corers while credit development by the banks to the private division rose to Rs.575.87 corers because of sharp
request under the effect of economy development and better extension private endeavors. The systems
administration of banks limbs now blankets an expansive fragment of national economy.
NBP was made under the National Bank of Pakistan Ordinance 1949 in Pakistan. NBP involves an one
of a kind position in the monetary division of Pakistan. It goes about as an executor of the Central Bank
wherever the State Bank does not have it Branch. It additionally attempts Government Treasury operations. The
National Bank of Pakistan is a Commercial Bank and transacts numerous sorts of Banking Business. The
National Bank of Pakistan was made on November 29, 1949 as a semi open business bank. The Bank has the
qualification of acting operator of the State Bank of Pakistan and works treasuries where the State Bank of
Pakistan does not have any office. The Head Office of the Bank is at Karachi. After its stronghold in 1949 it has
been heading Commercial Bank of the country, sole operator of the Government of Pakistan's hitter exchange
with nations and of State Bank of Pakistan for the Government Treasury. In Pakistan, the bank gives complete
bank offices to the individuals. NBP is 100% claimed by the Government of Pakistan.

2. Nature of the NBP

National Bank of Pakistan is the biggest business bank working in Pakistan. Its monetary record size surpasses
that of any of alternate banks working provincially. It has re-imagined its part and has moved from an open
segment association into an advanced business bank. The Bank's administrations are accessible to people,
corporate substances and government. While it keeps on going about as trustee of open trusts and as the
executor to the State Bank of Pakistan (in spots where SBP does not have a vicinity) it has enhanced its business
portfolio and is today a significant lead player in the obligation value market, corporate financing banking, retail
and shopper banking, rural financing, treasury administrations and is indicating developing enthusiasm toward
pushing and creating the nation's little and medium ventures and in the meantime satisfying its social
obligations, NBP base camp in Karachi, Pakistan with in excess of 1,345 extensions nation wide and 23 limbs
abroad. The bank gives both business and open area banking administrations. In today's focused nature, NBP
required to rethink its part and shed general society area bank picture, for a current business bank. It has
offloaded 23.2 percent experience stocks, keeping in mind it has not been totally privatized like the other three

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open segment banks, fractional privatization has occurred. It is presently recorded on the Karachi Stock
Exchange. National Bank of Pakistan is today a dynamic, productive, and client centered establishment. It has
created an extensive variety of purchaser items, to upgrade business and coddle the diverse portions of society.
A few plans have been particularly intended for the low to center pay sections of the populace. These
incorporate NBP Karobar, NBP Advance Salary, NBP Saiban, NBP Kisan Dost, NBP Cash n Gold.

2.1 Vision
To be recognized as a leader and a brand synonymous with trust, highest standards of service quality,
international best practices and social responsibility.

2.2 Mission

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

 Institutionalizing a merit and performance culture

 Creating a distinctive brand identity by providing the highest standards of services
 Adopting the best international management practices
 Maximizing stakeholders value
 Discharging our responsibility as a good corporate citizen of Pakistan and in countries where we operate

2.3 Core Values:

 Highest standards of Integrity

 Institutionalizing team work and performance culture
 Excellence in service
 Advancement of skills for tomorrow’s challenges
 Awareness of social and community responsibility
 Value creation for all stakeholders

2.4 Goals

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Internship Report National Bank of Pakistan

 To enhance profitability and maximization of NBP share through increasing leverage of existing
customer base and diversified range of products.

Business Volume Rs.

Total Assets 1,364,341,256
Deposits 1,101,845,283
Advances 615,419,874
Investments 397,958,681
Profit 5,306,783
No. of Branches 1345
No. of Employees 15000+

Figure 1. Business volume 2014 after 64th years of Operation

3. Introduction of all Departments

3.1. Operations Department:

It is concerned with the operational functions in general banking, which are concerned with the routine working
of the bank. Any problem or ambiguity arise in any branch working is rectified and corrections are suggested
by this division. Operations department is involved with each customer entering in the branch till the disposal of
his transaction either in one way or the other.

3.2. Deposit Department:

This department promotes over all business of bank. Deposits are the lifeblood of any bank. Without deposits
bank cannot perform any function of banking. This department fixes the deposit target of every branch by

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keeping an eye over the potential customers in that area. It gives motivation to branches to achieve targets
through different campaign and schemes like cash prizes and special increments. Terms and condition for
deposits is also fixed by this department. Almost all the transactions involving receipts of funds from general
public, associations, organizations and other clients and payments thereto are dealt by this department at branch
level.

3.3. Human Resource Department:

This department deals mainly with the work force. Jobs and task specification, employees’ incentives,
employees’ career development etc. Human resource department works for the development and benefit of the
employees. Hiring , recruiting, and periodical training is also done by this department. All the awards, rewards
and punishments to the employees who are found delinquent in their duties are decided by this section.

3.4. Credit Department:

This division controls over all credit policies of the NBP like sanction of loans and also keeps check over
securities, mortgage, hypothecation or pledge. It also fix the rate of markup and other decisions concerning with
credit. Product development, risk rating , categorization of borrowers and risk management decisions are
finalized by this department.

3.5. Finance Department:

It controls the routine financial matters, the permission of special expenditures incurred in the branches and
other such cases, The Daily position and HO extracts and daily send to this division by all the branches. This
division not only estimates the profit and loss of every branch but also prepares over all income statement and
balance sheet of the complete bank. It also keeps record of total deposits of the bank and then their classification
in the form of loans into different sectors of economy. It keeps eye on total worth of the bank.

4. Structure of Finance Department

4.1 Finance and Accounting Operations
Main function of finance department is to maintain the overall financial position of the organization. It is a very
critical job. Technical work is required. Finance officer must have the knowledge about the financial
management. Organization’s business depends on the borrowing and lending. Finance officers take decision
about the sources of funds and their utilization. They take complete view of profitability before any decisions.

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Finance department reviews organizations expenses and cost and also estimate profit. Before investing they
analyze the business properly its financial condition and risk involved. Banks always invest where risk is low ad
return is high. And borrow from that source where cost is less.
There is a division which deals with accounts. Accountants are hired for accounting purposes. They prepare
financial statements. Financial statements present picture of the business. It is also very technical work.
Gathering of data, compiling, arranging, recording, analyzing and preparing financial statements from them is
the job of accounts departments. They prepare conditions for analyst to conduct financial analysis of the
business. Finance officer evaluate and make decisions according to that.

4.2 Accounting System of the organization:

Accounting system of the organization is mostly based on manual work. Accounting is a very important part of
any organization. For evaluating the net worth of the business powerful accounting system is important. NBP is
following given accounting policies:
 Presentation of the financial statements is according to the IAS.
 Investments are recognized at fair value which involves transaction cost.
 Securities sold with the promise to repurchase at some future date are also measured according to the
accounting rule of the investment securities.
 Derivative instruments are value at their fair value.
 Assets are recorded on their written down value.
Accounting policies are helpful in making decisions. All accounts are maintained and recorded according to
these policies. Accounting system needs efficient and sharp minds to prepare financials of the company. Most
of the work done is manual. It is very lengthy and time consuming. But now computerized record keeping is
initiated by the NBP. This change will help the NBP to maintain its record easily and more efficiently.

4.3 Finance System of the organization:

Finance department deals with the finance. Finance system is critical for every entity because it estimates the
net worth of the organization. Finance system is head by CFO who supervises overall activities. Finance system
consists on division related to:
1. Cash & Investment: This deals with the cash requirements. It estimates in what quantity cash is needed.
Holding cash is very important so that whenever customer demands for his money back bank has enough cash

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to give him. After evaluating the need for cash bank takes decision of investment. It always invests in higher
return area.
2. Capital budgeting: Capital budgeting is decisions about the investment in fixed assets. These decisions effect
overall position. Complete analysis is important before investing in fixed assets. Investment in fixed assets is
irreversible decision; it means decisions can not be taken back. Bank has to be very careful before taking
decision.
3. Capital structure: Capital structure means ratio of debt and equity in the business. Mostly business prefer to
take debt in small quantity and equity in large. Equity is cushion for the investors. They prefer high rate of
investment. If there are high rate of debts it indicates high risk associated with it. Finance officer tries to
maintain the balance between equity and debt.
4. Inventory: Inventory is also a critical decision. Decision relating to inventory effects financial condition of
the business. There is no such inventory in banking business. But in some cases stock of some companies is in
ban’s custody. Its maintenance is a big deal for the banks.

5. Critical Analysis of Financial Statement

Financial statement analysis is a process of analyzing the relationship among the financial statements and their
items. It is a valuable tool used by the investors and creditors, financial analyst and other in their decision
making processes related to stocks, bonds and other financial institutions. The goal is to assess past performance
and current financial position and to make predictions about the future performance of the company.

5.1 Ratio Analysis:

Ratio is the relationship between two items of same statement or relationship between items of different
statements. Ratio analysis tells us about the health of the business. Financial ratios are usually expressed in
percentage or in times. All the figures used in analysis are in Rupees. There are many types of ratios:

1. Liquidity Ratios
2. Leverage Ratios
3. Profitability Ratios
4. Activity Ratios
5. Market ratios

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5.2 Current Ratio:

Current ratio shows firm’s ability to cover its short term liabilities. It is the ratio of current assets to current
liabilities. Higher the ratio greater will be the ability of organization to pay current liabilities.

Formula:
Current Ratio= Current Assets / Current Liabilities

Table 1.Current Assets:

Description 2013 2012 2011

Cash and balance 158230033 158256638 131843291
Balance with other banks 18388738 30895173 28069897
Lending to financial institution 51941866 8280997 44360727
Investments 396411825 342964635 319527254
Advances 620216609 661344807 257109209
Deferred tax liability 10698824 3466503 7973084
Other assets 8991187 80737483 66469884
Total Current assets 1337149082 1286446236 1125353346

Table 2.Current Liabilities:

Description 2013 2012 2011

Bills payable 13894667 14367639 9104710
Borrowings 23014353 51112248 26371675
Deposits and other accounts 1101845283 1038094985 927415132
Deferred tax liability _ _ _
Other liabilities 72242898 56369170 54701435
Total Current liabilities 1210997201 1159944042 1017592952

Current ratio:

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Formula:
Current Ratio= Current Assets / Current Liabilities

2013 2012 2011

= 1337149082 / 1210997201 = 1286446236 / 1159944042 = 1125353346 / 1017592952

= 1.11 = 1.11 = 1.10

Interpretation:

Current ratio measures the business ability to pay its short term liabilities. Short term creditors have interest in
current ratio. Standard for current ratio is 2:1. NBPs Current for 2013 is 1.11.It means current assets are slightly
more than current liabilities. It is not a good ratio. Last year current ratio was also 1.11. In 2011 it was 1.10.
There is a very small change in the ratios. Reason is that if the assets increased in 2012 and 2013, liabilities also
increased. Due to this the ratio remains same in 2012 and 2013 but it is more than the 2011.

5.3 Debt Ratio:

Debt ratio is the ratio of the total debt to total assets. It tells what the ratio of debt in total assets is.
Formula:
Debt ratio= (Total debt / Total assets)*100
Table 3. Total debt:

Description 2013 2012 2011

Bills payable 13,894,667 14,367,639 9,104,710
Borrowings 21,994,839 51,112,248 26,371,675
Deposits and other accounts 1,101,138,574 1,038,094,985 927,415,132
Liabilities against assets subject to
finance 23,034 38,353 92,739
Deferred tax liability - - -

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Other liabilities 71,002,438 56,369,170 54,701,435

Total Debt 1,208,053,552 1,159,982,395 1,017,685,691

Debt ratio:
Formula:
Debt ratio= (Total debt / Total assets)*100

2013 2012 2011

= (1208053552 / = (1,159,982,395 / = (1,017,685,691 /

1,364,341,256)*100 1,316,160,457)*100 1,153,480,100)*100
=88% =88% =88%

Interpretation:
Debt ratio shows leverage in the company. High percentage means company has high leverage. Low means low
leverage. NBP has very high leverage. NBP has high debt ratio that shows that high rate of funds are obtained
from the creditors. It means it has high risk of default. Invertors do not like to invest in high risk companies.
NBP should try to lessen his amount of debt.

5.4 Equity Ratio:

Equity ratio is the ratio of the total equity to the total debt.
Formula:
Equity ratio= (Total equity / total assets)*100

Table 4. Equity

Description 2013 2012 2011

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Share capital 21,275,131 18,500,114 8154319

Reserves 31,538,695 30,305,210 15772124
Unappropriated profit 48,045,930 70,629,475 45344188
Surplus on revaluation of assets 55,426,948 35,952,385 22,562,015
Total Equity 156,286,704 155,387,184 91832646

Equity ratio:
Formula:
Equity ratio= (Total equity / total assets)*100

2013 2012 2011

Total equity= Rs. 156,286,704 Total equity= Rs. 155,387,184 Total equity= Rs. 91832646
Total assets= Rs. 1,364,341,256 Total assets= Rs. 1,316,160,457 Total assets= Rs. 1,153,480,100
= (156,286,704/ = =
1,364,341,256)*100 (155,387,184/1,316,160,457)*100 (91832646/1,153,480,100)*100
=11% =12% =8%

Interpretation:
It means how much portion is financed by the equity. It is cushioning for investor’s against their investment.
They prefer high ratio. NBP has very low ratio. It will lessen the interest of the investors. NBP should try to
increase its equity. Equity position in 2012 is slightly better than the equity position in 2011. Low equity ratio
indicates high use of debt.

5.5 Debt to equity:

Ratio of borrowed capital to shareholders’ funds is called debt to equity ratio.

Formula: = Debt / equity

2013 2012 2011
Total equity= Rs156,286,704 Total equity= Rs. 155,387,184 Total equity= Rs. 91832646
Total Debt= Rs. 1,208,053,552 Total debt= Rs. 1,159,982,395 Total debt= Rs. 1,017,685,691

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= 1,208,053,552 / 156,286,704 = 1,159,982,395 / 155,387,184 = 1,017,685,691 / 91832646

= 7.7 = 7.4 = 11

Interpretation:
This ratio measures ratio of debt to equity. It is also called external internal funds ratio. It helps in assessing the
soundness of long term policies of the company. Investors like this ratio low. But NBP has very high ratio.
Debts are 7 times more than equity. Now NBP debt to equity is better because in 2011 it was 11 times more
than equity.

5.6 Net profit margin:

Formula:
Net profit margin= (Net profit / Revenue) *100

2013 2012 2011

Net profit= Rs. 5,500,024 Net profit= Rs. 16,887,057 Net profit= Rs. 17,709,165
Revenue/sales= Rs. 99,027,563 Revenue/sales= Rs. 101,125,889 Revenue/sales= Rs. 95,689,741
= (5,500,024 / 99,027,563) *100 = (16,887,057 / 101,125,889)*100 = (17,709,165 / 95,689,741)*100
= 5.5% = 16.7% = 18.5%

Interpretation:
This is the ratio of net profit after taxes to net sales. This is used to measure the overall profitability of the
company and is very useful to proprietors. The profit margin tells you how much profit a company makes for
every Rupee 1 it generates in revenue. The ratio is very useful as if the net profit is not sufficient, the firm shall
not be able to achieve a satisfactory return on its investment. This ratio also indicates the firm’s capacity to face
adverse economic conditions such as price competition, low demanding. Higher the ratio the better is the
profitability. This ratio is very important. NBP has 18.5%, 16.7% net profit margin ratio in 2011 and 2012
which is good. In 2013, it decreased to 5.5%. which is not good. Reason of decrease in ratio is increase in the
operating expenses.

5.7 Return on Assets:

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Formula: = (Net profit / Total assets) *100

2013 2012 2011

Net profit= Rs. 5,500,024
Total Assets= Rs. 1,364,341,256
= (5,500,024/ 1,364,341,256)
*100
= 0.40%
Net profit= Rs. 16,887,057
Total Assets= Rs. 1,316,160,457
= (16,887,057/ 1,316,160,457)
*100
= 1.3%
Net profit= Rs. 17,709,165
Total Assets= Rs. 1,153,480,100
= (17,709,165/1,153,480,100)
*100
= 1.5%

Interpretation:
ROA tells about the utilization of the assets. It tells about efficiency of the assets whether assets are utilizing in
efficient way or not. NBP has very low ROA in both years. It means assets are not being utilized in the proper
way. It needs to change strategy so that ROA can be increased. Decrease in ratio is due to increase in assets but
the profit is decreasing due to increase in expenses.

5.8 Operating income:

Formula: = (Operating income / Sales) *100

2013 2012 2011

OP = Rs. 7,078,367
Revenue/sales= Rs. 99,027,563
= (7,078,367 / 99,027,563) *100
= 7.14%
OP = Rs. 24,063,424
Revenue/sales= Rs. 101,125,889
= (24,063,424 / 101,125,889) *100
= 23.8%
OP = Rs. 26,116,002
Revenue/sales= Rs. 95,689,741
= (26,116,002 / 95,689,741) *100
= 27.3%

Interpretation:
The ratio is the relationship of operating income of the company divided by total revenue of the company. It is a
ratio used to measure a company's pricing strategy and operating efficiency. Operating margin is a measurement
of what proportion of a company's revenue is left over after paying for variable costs of production such as

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wages, raw materials, etc. A healthy operating margin is required for a company to be able to pay for its fixed
costs, such as interest on debt. NBP has 7.14% OPM in 2013 which is not good, as compared to last two years
because in 2011 and 2012 this ratio was 27.3% and 23.8% respectively,

5.9 Return on Equity:

Formula: = (net profit / equity) *100

2013 2012 2011

Net profit= Rs. 5,500,024 Net profit= Rs. 16,887,057 Net profit= Rs. 17,709,165
Equity= Rs. 156,286,704 Equity = Rs. 155,387,184 Equity = Rs. 91832646
= (5,500,024 / 156,286,704) *100 = (16,887,057 / 155,387,184)*100 = (17,709,165 / 91832646) *100
= 3.5% = 11% = 19%

Interpretation:
This is the measurement of the return which shareholders are obtaining on their investments. The ratio is the
relationship of net income and total equity of the shareholders. Every business has the basic principal to serve
the investor at most the higher the profit the higher the return and more will get by the shareholders of the
company. This is a primary tool to measure the soundness of the business. But NBP’s current position is very
poor as compared to last two year because its decreasing yearly.

5.10. DuPont returns on assets:

The ratio is the relationship of the net income, sales and total assets of the company and measures the return on
equity (ROE). DuPont Return on Assets is an approach that determines the impact of asset turnover and profit
margin on the profitability of the company. Both the company's profitability (as measured in terms of profit
margin) and efficiency (as measured in terms of asset turnover) determine its ROA. Du Pont method breaks out
these two components from the return on assets ratio in order to determine the impact of each on the
profitability. This ratio helps in identifying the impact of changes in the asset turnover and the profit margin.

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Formula:
DuPont returns on assets= ((net income / revenues)*(revenues / assets))*100

2013 2012 2011

Net income= Rs. 5,500,024 Net income= Rs. 16,887,057 Net income= Rs. 17,709,165
Revenues= Rs. 99,027,563 Revenues= Rs. 101,125,889 Revenues= Rs. 95,689,741
Assets= Rs. 1,364,341,256 Assets= Rs. 1,316,160,457 Assets= Rs. 1,153,480,100

=((5,500,024 / 99,027,563)*( =((16,887,057 / 101,125,889)*( =(( 17,709,165 / 95,689,741)*(

99,027,563 / 1,364,341,256))*100 101,125,889 / 1,316,160,457))*100 95,689,741 / 1,153,480,100))*100
= 0.40% = 1.28% = 1.53%

Interpretation:
The ratio is the relationship of the net income, sales and total assets of the company and measures the return on
equity (ROE). A for-profit business exists to create wealth for its owner(s). ROE is, therefore, perhaps the most
important of the key ratios; since it indicates the rate at which owner wealth is increasing the ratio provides
measures in three of the key areas of analysis, in first portion the ratio calculate the income earned by the
company against sale and in second portion the calculation of sales to total assets is measured. The
multiplication of both the answers provides us the how much the company is earning in relation to total assets.
Ratio is very low that indicates the utilization of the assets is very poor.

5.11. Earning per share:

Earning per share means how much one share will get from the income of the company. Share holders have
prime interest in earning per share.
Formula:
= Net income / outstanding number of shares

2013 2012 2011

Net income= Rs. 5,500,024 Net income= Rs. 16,887,057 Net income= Rs. 17,709,165
Number of shares= 21,275,131 Number of shares= 18,500,114 Number of shares= 16,818,286

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= 5,500,024 / 21,275,131 = 16,887,057 / 18,500,114 = 17,709,165 / 16,818,286

= 0.25 per share = 0.9 per share = 1.05per share

Interpretation:

Earning per share is calculated by net income divided by outstanding number of shares. It determines how much
a shareholder will get. Shareholders view earning per share before investing in a company. Earning per share of
the NBP is very low that is not good for NBP.

5.12. Dividends per Share:

Formula:
= Dividends / Number of Share

2013 2012 2011

Dividend= 2,661,077 Dividend= 2,079,795 Dividend= 1,595,192
Number of share= 21,275,131 Number of share= 18,500,114 Number of share= 16,818,286

= 2,661,077 / 21,275,131 = 2,079,795 / 18,500,114 = 1,595,192 / 16,818,286

= 0.125 = 0.11 = 0.094

5.13.Price / Earning Ratio:

Formula:
= Price per share / Earning per share
2013 2012 2011

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Price per share= Price per share= Price per share=

Earning per share= Earning per share= Earning per share=

= 10 / 0.25 = 10 / 0.9 = 10 / 1.05

= 40 = 11.11 = 9.52

5.14.Cash Flow Ratios:

Formula:

i. Operating Cash flow / Total debt

2013 2012 2011
OCF = Rs. 34,633,472 OCF= Rs. 60,861,739 OCF= Rs. 41,185,585
Total Debt = Rs. 1,208,053,552 Total debt= Rs. 1,159,982,395 Total debt= Rs. 1,017,685,691

= 34,633,472 / 1,208,053,552 = 60,861,739 / 1,159,982,395 =41,185,585 / 1,017,685,691

= 0.02 = 0.05 = 0.04

Interpretation:
This ratio show the actual cash position of the company. Cash flow items deals with actual cash receipts and
payments. This ratio gives real picture of the business. This ratio is in poor condition in both years.

5.15. Operating Cash flow per share:

2013 2012 2011

OCF = Rs. 34,633,472 OCF= Rs. 60,861,739 OCF= Rs. 41,185,585
Number of shares= 2127513 Number of shares= 1850011 Number of shares= 1681828

= 34,633,472 / 2127513 = 60,861,739 / 1850011 = 41,185,585 / 1681828

= 16.27 per share = 32.9 per share = 24.5per share

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Interpretation:
It shows how much a share gets from operating cash flow of the company. This ratio is 16.27 in 2013 which is
very low from previous years.

5.16. Advances to Deposit Ratio:

This ratio is often used by policy makers to determine the lending practices of financial institutions.
Formula:
= Net loans / total Deposits
2013 2012 2011
Loans= 620,216,609 Loans= 661,344,807 Loans= 527,109,209
Deposits= 1,101,845,283 Deposits= 1,038,094,985 Deposits= 927,415,132

= 620,216,609 / 1,101,845,283 = 661,344,807 / 1,038,094,985 = 527,109,209 / 927,415,132

= 0.56 = 0.63 = 0.56

Interpretation:
This ratio tells that how much loan was issued against deposits. In 2011 loan was 0.56 of deposits that increased
in 2012 to 0.63. In 2013 bank stables its percentage and again it came on the level of 2011.

5.17. Spread Ratio:

Farmula:
= interest Earned / interest expense

2013 2012 2011

interest Earned= 100,192,320 interest Earned= 101,125,889 interest Earned= 95,689,741
interest expense= 60,894,358 interest expense= 56,552,485 interest expense= 48,516,517

= 100,192,320 / 60,894,358 = 101,125,889 / 56,552,485 = 95,689,741 / 48,516,517

= 1.64 = 1.78 = 1.97
Interpretation:

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This ratio tells that how much bank earns and how much pays against interest. According to this ratio bank
earns more and pay less interest. This ratio is decreasing year by year but still a good ratio.

5.18. Gross Spread Ratio:

Formula:
= Net markup income / gross income

2013 2012 2011

Net markup income= 19,730,260 Net markup income= 36,554,308 Net markup income= 37,815,059
Gross income= 38,204,682 Gross income=44,573,404 Gross income= 47,173,224

= 19,730,260 / 38,204,682 = 36,554,308 / 44,573,404 = 37,815,059 / 47,173,224

= 0.51 = 0.82 = 0.80

Interpretation:
In this ratio a comparison of mark up income and gross income is evaluated. Banking sector relies on the mark
up income. This ratio shows that net mark up profit earned more in 2012 and decreases in 2013 which is not a
good sign.

5.19. Times Interest Earned Ratio

Formula:
= Earning before interest and tax / interest expense

2013 2012 2011

Earning before I&T= 7,028,543 Earning before I&T= 24,063,424 Earning before I&T= 26,116,002
interest expense= 60,894,358 interest expense= 56,552,485 interest expense= 48,516,517

= 7,028,543 / 60,894,358 = 24,063,424 / 56,552,485 = 26,116,002 / 48,516,517

=0.11 times = 0.42 times = 0.53 times

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Interpretation:
This ratio tells that what is the earning of bank and what are the expenses of bank. This is very important from
the creditor’s point of view. A high ratio ensures a periodical interest income for lenders. This ratio is
decreasing since 2011 that is less than 1. It means the bank is likely to have problems in paying interest on its
borrowings.

6. Current Condition:
According to the ratio analysis I concluded:
 Company’s overall condition is satisfactory.
 Decrease in profitability but still enough profit no other company can meet this.
 Earning per share is not good in 2013 and needs to improves in coming years.
 ROE has been decreased and also needs to improve.
 Debt ratio is very high, high leverage, high risk.
 NBP is a very strong company financially.
 This is a only bank that have deposits in trillion.

7. Future prospect of NBP:

NBP is the biggest bank of Asia with more than 1345 branches. It is the only bank owned by the government of
Pakistan and it also acts as an agent of the state bank of Pakistan. Future of the NBP is very glowing. NBP has
no competitors because of its strong financials. It has huge amount of profits. No other bank can even think to
compete. NBP has poor infrastructure but now it is changing the way. It can touch the heights by adopting the
computerized system. Management of the NBP is also very efficient to meet the requirements. Customers have
trust on it. NBP also deals with government employees and provides benefits to them. Financial position of
NBP is based on sound footings. Assets and profits of NBP are in a position that no other bank will even think
to earn. Financial position in 2013 is remarkable and it is expected to be better in future. NBP plans to continue
its strong focus on recovery and reduction in non performing loans, deposit mobilization, expense management
and consolidation of loans. NBP is taking IT initiatives to upgrade and implement new application solutions to
meet the challenges of the growing competition. It will improve the operational efficiency and control, customer
services. It is expected that NBP will lead the banking sector of Asia in future.

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8. Conclusion:
According to the calculated ratios analysis over all position is decreasing in 2013 than 2011, 2012. But to me its
still a very sound bank. NBP has the biggest system in Pakistan and in Asian mainlands. It remains on the
number 8 in the world. It is the main bank possessed by the Government of Pakistan. Clients trust NBP in light
of the fact that it is more secure. It has biggest structure in Asia. No other foundation can even think to take its
place. It has solid budgetary position. NBP earned enormous benefit in previous years. Total assets is high. It
gives banking that is competitive to each kind of clients. It offers items which are gainful for each one.
Anyway there are a few weaknesses which can influence its reputation. Like its methodology of
authorizing credit is excessively protracted. Cost rate is additionally high. Absence of automated framework is
the greatest impediment. Absence of proper staff training. Over loaded staff. Asset utilization is improper. In
any case despite all these elements NBP is in solid position. In the event that it tries to tackle these issues,
nobody can touch its statures.

9. Recommendations:
There are some recommendations for improvement:
To me, what I have observed in the branch where I did my internship that this branch is newly opened but there
is no proper facilities are provided by the bank, like no ATM at all, very bad internal environment, no help desk,
lack of equipments, because it’s a semi government bank that’s why if the manager wants to provide a facility
to the customer he has to ask for approvals from regional office that takes too long , regional office should
facilitate the branch with full equipments so that customers can feel comfortable. Here are some more
recommendations generally:
 Staff Training and development is important.
 Retail and consumer banking must be improved.
 Internal structure of branches needs to improve.
 ATM facilities should be provided nationwide.
 Staff lacks the accounting knowledge. Only persons with sufficient knowledge of finance and
accounting should be hired.
 All records must be held electronically nationwide in all branches.
 Profit rate is good try to retain them.
 Adopt modern accounting systems.

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10. References & Sources

I took help from following sources:
 Website of NBP: www.nbp.com.pk
 Branch officers
i. Branch manager
ii. Operations manager
iii. Other staff

11. Annexes

All the material used in the report is obtained from website of NBP. All financial statements are downloaded
from annual report of NBP www.nbp.com.pk. Financial reports has been presented in Annual reports. I took
financial statements of 2011, 2012 and 2013 from their respective annual reports.

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