Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
ON
NATIONAL BANK OF PAKISTAN
(MAIN BRANCH CHARSADDA)
SUBMITTED BY
SUBMITTED TO
CONTROLLER OF EXAMINATIONS
UNIVERSITY OF PESHAWAR
NATIONAL INSTITUTE OF MANAGEMENT SCIENCES
PESHAWAR, PAKISTAN
JANUARY 2011
1
APPROVAL SHEET
INTERNSHIP REPORT
ON
Submitted By
Of
____________________ _____________________
Mr. Muhammad Aftab Mr. Muhammad Idress
(Internal Supervisor) (Principal/Director)
2
Date: _________________ Date:
_________________
DEDICATION
3
TABLES OF CONTENTS
===========================================================
S.No Title Pages No
============================================================
Acknowledgement I
Preface II
Executive Summary
4
5.1 Five Years Performance At A Glance 25
5.2 Ratio Analysis 26
5.3 Calculation of different ratios 26
Chapter-6 FINDINGS AND RECOMMENDATIONS 35
6.1 Recommendations 35
6.2 Conclusion 37
BIBLIOGRAPHY 39
5
ACKNOWLEDGEMENTS
All praise is due to Almighty ALLAH, the most merciful and the most
beneficent, who’s invocation always makes us proud by succeeding in every field
through our performance and the ability, courage and patience to come up with the
best out put of our struggle.
Countless salutation is upon the holy prophet “Hazrat Muhammad” (SAWW), the
most perfect and a torch of guidance and knowledge for humanity as a whole.
I would like to thanks Hadayat Ali Chartered Accountant (Principal of Ali Associates
Chartered Accountants) and Tahir Muhammad (Office In charge) with the help of
whom this project gets the complete shape of success and its true color.
I would feel it in complete without saying thanks to my loving Parents and Brother
Muddassir Khan who supports and encourage me throughout my educational career.
MBA Finance
6
EXECUTIVE SUMMARY
This report highlights the main operation and functions, which are usually carried out
in a Chartered Accountant Firm. CA Firms mainly provides financial advisory and
consultancy services to its clients in the shape of Audit, Tax & Corporate Consultancy
Services.
All the CA firms acts under the umbrella of ICAP which is an autonomous body and
came into being through an Ordinance in 1961.
This report explains how different functions are carried out in a CA firm and what
consultancy services are being provided to the customers/ clients.
This report is based on the actual data which I collected during my stay in the Firm as
a management trainee.
The First Chapter is about the Introduction of the Report, the Second Chapter is about
the History of Chartered Accountants whereas the Third Chapter is about the History
of Auditing, Fourth about Procedure, Fifth about Taxation, Sixth about Financial
Analysis & Seventh about Findings, Conclusion and Recommendations.
During the critical review it was observed that Ali Associates Chartered Accountants
is one of the leading Firms with one of its branch in London (UK) as well.
During my stay in the Firm I have witnessed a few shortcomings the recommendation
for removing that shortcomings in my opinion are as follows.
• Apart from regular training schedule the firm should also arrange some
training workshops for their trainees in order to enhance their knowledge.
7
• The managers should apply the Job rotation concept inside and outside the
organization.
• Trainees should have an access to all the records which can enhance their
knowledge & skills proficiency.
• Managers should make it sure that senior trainees should transfer their
knowledge & expertise to the junior without any hesitation.
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CHAPTER - 1
INTRODUCTION TO THE REPORT
1.1 BACKGROUND OF STUDY
This report is about National Bank Pakistan. NBP was established in 1949 and since
then, it has expended its network, becoming the largest commercial Bank of the
country. It offers different products of services to its customers.
There are certain characteristics, which sets NBP apart from other nationalized
commercial banks. These characteristics are the reasons of the development of NBP.
The most important characteristic of NBP is that, it works, as an agent to the State
Bank, Where State Bank does not have a branch of its own. The NBP also act as a
trustee to the National Investment Trust (NIT), which is one of the premier financial
institutions of the country. It is charged the responsibility of mobilizing small
savings. The establishment of NBP thus signaled the achievement of another
milestone in the development of the banking industry in Pakistan.
The purpose or objective of this report is to define and describe different functions
and products offered by the bank to its valued customers, to identify some weaknesses
related to the management of the Bank, to analyze the performance of the Bank and
finally to give some necessary recommendation to the management of the bank. This
study can help the students of IBMS in making their reports about their organization.
My internship in NBP had certain objectives such as:
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• Deposit Department
• Remittances Department
• Establishment and Advances Department
• Clearance & A/C Opening department
While working in these departments I have identified problems and gave
recommendations to overcome these problems. I have done comparative analysis of
three years financial statements and SWOT analysis of NBP Main Branch Charsadda.
An overview of the five year performance of the overall NBP is also included.
The vast scope of the operations of a bank is difficult to be analyzed in a limited time
of two months. The lack of information is another limitation of the study.
During my internship in NBP Main Branch Charsadda the most important task was to
collect as much quality information about the organization as possible. Due to this
reason I used a number of techniques to collect the required material and compile the
report. The methodology, which I adopted for this research, is based on both the
primary data as well as secondary data.
• Annual Reports
• Manuals of departments about Report writing
• Relevant books
• Brochure and circulars of the bank
• Internet
10
CHAPTER - 2
NATIONAL BANK OF PAKISTAN
2.1 HISTORY OF NBP1
The Bank as originally conceived was allowed an authorized capital of Rs. 60 million.
In December 1960 capital was reduced to Rs. 30 million (NBP (Amdt) Ordinance
1960). The Bank was setup with an issued capital of Rs. 15 Million of which the
government paid 25 percent, the balance was offered to the public. The shares offered
to the public were floated in 1950 and were promptly taken up. In the same year NBP
Ordinance was amended so that it could take up ordinary commercial banking
business. In 1952 it was felt that the consolidation achieved by National Bank,
justified the transfer of the agency of the State Bank for government business from
Imperil Bank to this National Institution. As such the National Bank started taking
over the government treasury work from Imperil Bank of India in May 1952 and
success fully completed the process by end of September. In 1951 NBP started
foreign exchange business.
The Bank under took a program of expansion. Branch network was expanded and by
1959 it had 129 branches at carefully selected locations in both wings of county as
against only 17 in 1950. Its geographical development extended abroad beginning
with the establishment of its first overseas branch at Jeddah, Saudi Arabia in 1950 for
the specific purpose of providing sterling exchange facilities to bankers and
moneychangers having Pilgrim Notes. In view of the some of business available, the
Central Board decided to maintain it permanently. In 1955 Jeddah Branch started
1
http://www.nbp.com.pk
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general banking business. The Bank opened another foreign branch in London in
1953 and in Baghdad in 1957; the later was subsequently closed owing to
nationalization of Banks.
Even in its developmental stage the Banks profit record was extraordinary, it earned
profit in the very first five months of its commencing business and maintained a
continuous progress ever since. From a profit of Rs. 0.3 million in 1950 it rose to Rs.
5.4 million by 1952 and further to Rs. 10.2 million by 1959.
A noteworthy development during this period was the establishment and operation of
a project for Agricultural Credit by the Bank in the year 1972. It was felt that in the
process of modernization of the agricultural sector, the credit system plays a major
part and could contribute better in brought within an institutional framework. There
was a need to evolve a concept, which was not only operationally feasible but which
served the multitude of small farmers in the vast countryside. National Bank of
Pakistan evolved such a concept the Supervised Agricultural Credit Program. This
was highly appreciated by international experts and later adopted by other Pakistani
Banks.
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2.2 ACTIVITIES PERFORMED BY NBP
Since NBP is a commercial bank, it performs a variety of functions. Like other
commercial banks, NBP is engaged in financing international trade. Its other major
functions include receiving deposits, advancing loans and discounting of exchange.
This function is important because banks largely depend on the funds deposited with
them by its customers. Deposits are of many types:
i. Current deposits
Current deposits are also called demand liability on current deposits. NBP pays
practically no interest on current deposits. Businessmen usually open current
accounts. In NBP current account can be opened with a minimum amount of Rs.500/-.
Profit and loss sharing deposits (PLS) are also called checking accounts. One can
deposit and draw money easily. Profit on PLS is calculated every month but paid after
six months. PLS account can be opened with a minimum amount of Rs.500/-
Fixed term deposits are deposits with the bank for certain fixed period before the
expiry of which they cannot be withdrawn unless giving due notice. In this case the
rates of profit will be different depending upon the time period.
Discounting of bill is practically speaking lending for exchange at their market rate
i.e. it pays to holder of the bill an amount equal to the face value after deducting
interest at the current market rate for the period. This bill has to be mature. This is the
common way used for keeping a part of assets of the bank in a liquid form.
NBP also provides best and unique service to its valued customers. NBP provide the
following agency services to the customers:
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i. Collection of dividends
As NBP deals with the purchase and sale of various types of securities, therefore NBP
also provide dividend or interest earned on share or bonds or invested money.
In the collection and payment of Cheques, bills and promissory notes etc. National
bank of Pakistan acts as an agent for its customers.
NBP also acts as an agent correspondent for its customer at home or abroad
NBP provides the service of clearing the utility bills i.e. electricity, gas and
telephonebills of its customers. For this purpose it also provides evening banking
services.
b. Lockers facility
National bank of Pakistan also provides locker facilities to its customers to keep their
valuable assets in it. The charges of different size of lockers are different.
c. Acts as a referee
NBP provides useful services to its customers by acting as a referee to their credit
worthiness.
d. Supply of information
NBP provides operational and advisory service for foreign exchange accounts/
activities.
Objectives are ends towards which an enterprise activity is aimed. The purpose of
business is production and marketing of economic goods and services but to
14
accomplish these objectives to a number of enterprise objectives may be necessary.
National bank of Pakistan has certain objectives. These objectives are
• Advancing loans
• Accept deposits
• Remitting of funds
With the geographical development of its branches, the Bank has been able to extend
its services to a much larger number of Pakistanis all over the country. Today it has
more than 8.5 million accounts. Bank maintains its presence in all the major financial
centers of the world through its 15 overseas branches and 5 representative offices. Of
these, three representative offices have recently been set up at Tashkent (Uzbekistan),
Baku (Azerbaijan) and Almaty (Kazakhstan) to take advantage of the emerging
opportunities in CIS countries. Bank’s role globally is well assisted by its network of
correspondent banks located strategically in Asia, America, Europe and Africa.NBP
has an extensive domestic branch network of over 1200 branches located all over
Pakistan. The Bank also has a presence in 18 international locations including the
USA, United Kingdom, Europe and the Far East.
15
CHAPTER - 3
ORGANIZATIONAL STRUCTURE OF NBP
Organizational structure is the framework that defines the boundaries of the formal
organization and with which the organization operates. A suitable organizational
structure for the nature of the organization leads to better performance.
The new organizational structure of the bank constitutes a board of directors and an
executive committee as the governing bodies. The head office is operationally in
charge of central affairs including the delegation of power and authority to the
regional headquarters all over the country. Regional headquarters direct the function
of corporate branches.
The NBP has its own organizational structure and its Head Office is situated at
Karachi. All branches, regional offices and corporate branches work according to the
rules and regulations issued by the Head Office from time to time. The Head Office of
National Bank of Pakistan, which is primarily responsible for making policies and
execution of policy decision include,
• Board of Directors
• Executive Committee
The Head Office has nine divisions, which are further divided into different wings. It
is operationally in charge of central affairs including the delegation of powers and
authority to the 29 Regional Headquarters all over the country. These Regional
Headquarters direct the functions of the 12 corporate branches.
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ORGANIZATIONAL STRUCTURE OF NBP HEAD OFFICE
BOARD OF DIRECTORS
PRESIDENT
EXECUTIVE COMMITTEE
In the management of banks, the board of directors is at the top of the controlling
bodies. Since there are no private shareholders now, so there is no general meeting of
the shareholders and there are no elected directors. The board now consists of a
nominated president, a secretary and other members. The secretary of the board
presents the annual report of the bank. The board has limited administrative powers.
Board members of NBP is led by the chairman who is the president and is the Chief
executive officer (CEO) of the bank, together with a selected group of six directors,
who bring with them vast experience and qualities. The government appoints these
directors.
The Board of Directors of National Bank of Pakistan NBP has one President and six
members as given below:
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ORGANIZATIONAL STRUCTURE OF BODS
The board of directors of NBP and its organizational structure is given below:
S.M. Rafique
(Secretary)
Executive Committee consists of one President and nine members and among these
nine members, one member perform functions of both member and Secretary. Board
of Directors nominates executive committee and executive committee nominates the
divisional heads. NBP has an executive committee with President as its chairman; five
SEVPs are its members and president’s advisor as an observer. This body monitors
the day-to-day affairs of the entire bank and has sanctioning authority for financial
and business proposals.
On May 13, 2005 a circular was issued in which zones were abolished and the whole
country and Azad Kashmir was divided into 29 regions. The changeover process
started from 1st August 2004 and was completed by 31st August 2005. The new setup
was made fully functional by 15th September. The National Bank has 29 regions
(circles) in four provinces and Azad Kashmir.
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Regional Management Committee
7 Faisalabad 8 Gujranwala
11 Multan 12 Gujrat
13 Sialkot 14 Hyderabad
15 Abbotabad 16 Sargodha
17 Mardan 18 Jhelum
19 Quetta 20 Sahiwaal
27 Larkana 28 Gawadar
Corporate and
Commercial & Regional Investment
Regional
Rental Banking Marketing Banking
Business Chief
29 ChiefGilgit
Group ****
Manager **** Group Chief
Corporation
ORGANIZATIONAL
Operate Group Regional STRUCTURE OF
Branch Manager
North and
REGIONS OF
Corporation NBP
Chief Operations Chief Head South
Credit
Branch Credit
Department of
Officer
\Organizational Structure of NBP Main Branch, Charsadda
Branch Manger
Operations
Manager
Customer Compliance
Cash Service
Department
IT-System
Opening/Closing of Operation and
Cash Receipts Maintenance
Accounts
Maintenance of Accounts
Cash Payment
Term
deposits/MIS/NIDA
Utility Bills
Chequebook Issuance
Govt.
Payment Order/Drafts
Collections
TTs/MTs
Clearing
Pensions
Credit Disbursement
Collection
CHAPTER -4 Computer Input
DEPARTMENTATION
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Departmentation is arranging the activities into meaningful groups. It distributes the
workload and increases efficiency and effectiveness. Departmentation can be done on
various bases for example, departmentation for customers, by function or by location.
• Deposits Department.
• Remittances Department.
• Advance Department
• Cash Department.
• Clearance Department
The principle source of funds of any commercial bank is the deposit account i.e.
demand, saving and time deposits. From banking point of view, the term deposit
means “the currency, Cheques, or draft given to a financial institution for crediting to
a customer’s account”.
Like all commercial banks, the primary function of National Bank of Pakistan is to
accept and receive surplus money from the people. In order to attract money it offers
different types of facilities to its customers.
The deposit department of national bank of Pakistan Main Branch Charsadda mainly
performs the function of:
• Opening of Accounts
• Closing of Accounts
2
NBP Annual report, 2008
21
• Issuance of Cheque book
1) Current Account
Saving deposits or profit and loss sharing (PLS) are those accounts on which bank
offers a relatively lower rates of interest. PLS saving account can be opened with an
initial deposit of not less than Rs. 500. Profit is credited to the client’s account at the
end of June and December after H.O circular. Withholding tax is deducted on profits.
Zakat is also applicable on or certain balance. Prior notice required to cash larger
amounts. Simply on PLS Account NBP gives 1.50 % annual profit on the minimum
balance of the accounts at the end of each month.
PLS Saving Account may be opened in the name of an individual or jointly in the
name of two or more persons. Charitable institutions, companies, Associations,
Societies, Educational institutions, firms etc, may also open these accounts. Minors
and illiterates are also eligible for opening saving accounts. However illiterate
customer must present themselves in person for withdrawals. The bank determines the
rate of profit or loss on PLS saving account.
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These are the deposits than can be withdrawn after a certain specified period of time.
The period of time varies from three months to five years. On these deposits
return/interest varies with the duration for which the amount is kept with the bank.
The rate of interest/return on term deposit is higher than that of a saving deposit. Its
interest/return is unaffected for the duration of the deposit irrespective of market
fluctuations.
Term deposit is best suited for short-term investment. Individuals as well as joint
account an be opened by, sole proprietorships, partnerships, joint stock companies,
limited companies, clubs/associations/trusts, administration, executors etc. Profit is
paid at the maturity of deposit. On these deposits premature withdrawal is permitted
but against a reduced rate of interest as agreed at the time of deposit.
4) Finance Facility
Bank also extends finance facility to clients against saving and fixed term deposits on
comparatively low markup rate. The deposit is kept under lien, however the
customer may withdraw the profit amount credited to his account
This is a security deposit usually initialized by Govt./ Private contractors for auctions
etc. This CDR is submitted along with quotation to the concerned department or
organization etc. Banks do not pay interest on this deposit. This CDR is non-cashable
but only when the concerned person or department releases it, in whose favor it is
issued.
1) Individual Accounts
Individual accounts as the name implies can be opened and operated by a single
person. Single person operates such accounts. Copy of Identity card and proper
introduction is required for this account as well as for all of the following accounts.
2) Joint Accounts
Two to four persons can open this type of account. If more than 4 person want to open
joint account then they can open only current account. Joint account is opened by two
or more persons jointly. Special instructions are obtained to operate the account
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whether singly or jointly and Either or survivor. Then all the account holders must
verify it by countersigning the said instruction. These accounts should not be
confused with partnership accounts.
3) Partnership Accounts
4) Minor Accounts
According to Pakistani law, a person is regarded as a minor until he has attained the
age of 18 years. Under section 3 of majority Act 187, if a competent court of law
appoints a guardian of his person or property before his eighteen years, the majority
extends to the age of 21 years.
5) Staff Accounts
Staff account is maintained for the employees of the NBP. Salaries of the staff are
credited to their account.
The word “Remittance” means to send money by mail or any other method. It may
also be defined as “Payments send by mail to a center for processing”. National Bank
of Pakistan also provides the facility of transfer of funds from one bank to other and
from one place to another place. The transfer of funds is mainly the responsibility of
the remittances department.
5. Cheque collection
It is the fastest made of transfer of money. Sometimes when the remitter urgently
desires the remittance, he may request to issue a telegraphic transfer. TT may be
issued to general public on their written request and against the value received. The
customer fill the forms and deposits cash. The official of National bank of Pakistan
send instruction regarding payment to the drawee branch telegraphically in a coded
language and under confidential number known as TEST NUMBERS. Or telephone
call is made to the said branch, they make payment to customer. Vouchers are sent by
ordinary mail to keep the record. Telephone charges are also taken from customers.
2. MAIL TRANSFER
Mail Transfer (MT) is a mode of transferring money from one branch to another
branch either within the same city or in cities through out country. MT advises are
dispatched by mail. MTs may be issued for transferring funds in one account to
another branch or to another branch or to any person not requiring urgent remittance
or draft.
Customer fills same application and he deposit the cash in the same way. National
bank of Pakistan official record the transaction vouchers and advises are made and
sent to responding branch. National Bank of Pakistan takes Rs.10 as mail charges
from application.
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3. PAYMENT ORDER
Payment order is made for local transfer of money. Pay order is the most convenient,
simple and secure way of transfer of money. NBP takes fixed commission of Rs. 75
per payment order from the account holder and Rs. 100 from a non-account holder.
Demand draft is a popular mode of transfer. The customer fills the application form.
Application form includes the beneficiary name, account number and a sender’s
name. The customer deposits the amount of DD in the branch. After the payment the
DD is prepared and given to the customer. NBP officials note the transaction in
issuance register on the page of that branch of NBP on which DD is drawn and will
prepare the advice to send to that branch. The account of the customer is credited
when the DD advice from originating branch comes to the responding branch and the
account is debited when DD comes for clearance. DD are of two types.
5. CHEQUE COLLECTION
⇒ CLEARING OF CHEQUES
Clearing of cheques is made through SC (short credit), LSC (Local short credit) in
clearing house.
i. SC (Short Credit)
SC is the short credit, which consists of the cheque outside the district. These cheques
are sent in SC outside the district for clearance. Once they are cleared bank charge a
certain amount of money spent on the process form the customer.
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LSC is the short credit, which consists of the cheques inside the district. Separate
register is maintained for it. Local branches for clearance send these cheques for
clearance. Bank has no charges on the process form the customer.
Advances department is one of the most sensitive and important departments of the
bank. The major portion of the profit is earned through this department. The job of
this department is to make proposals about the loans. The Credit Management
Division of Head Office directly controls all the advances. As we known bank is a
profit seeking institution. It attracts surplus balances from the customers at low rate of
interest and makes advances at a higher rate of interest to the individuals and business
firms. Credit extensions are the most important activity of all financial institutions,
because it is the main source of earning. However, at the same time, it is a very risky
task and the risk cannot be completely eliminated but could be minimized largely with
certain techniques.
• Cash Finance
• Running Finance
• Demand Finance
a) Cash Finance
This is a very common form of borrowing by commercial and industrial concerns and
is made available either against pledge or hypothecation of goods, produce or
merchandise. In cash finance a borrower is allowed to borrow money from the banker
up to a certain limit, either at once or as and when required. The borrower prefers this
form of lending due to the facility of paying markup/services charges only on the
amount he actually utilizes.
If the borrower does not utilize the full limit, the banker has to lose return on the un-
utilized amount. In order to offset this loss, the banker may provide for a suitable
27
clause in the cash finance agreement, according to which the borrower has to pay
markup/service charges on at least on self or one quarter of the amount of cash
finance limit allowed to him even when he does not utilize that amount.
The bankers allow their customer to draw funds from their Cash Finance Accounts
after sanction of proper limit following complete credit investigation and
documentation formalities. The cash is with drawn from these accounts by Cheques
and the debit balance remains with in the sanctioned limit and the value of the stock is
maintained. The debits into the accounts consists of :
• Disbursement installments
• Markup
b) Overdraft/Running Finance
This is the also a common form of bank lending. When a borrower requires temporary
accommodation his banker allows withdrawals on his account in excess of the balance
which the borrowing customer has in credit, and an overdraft thus occurs. This
accommodation is generally allowed against collateral securities. When it is against
collateral securities it is called “Secured Overdraft” and when the borrowing customer
cannot offer any collateral security except his personal security, the accommodation is
called a “Clean Overdraft”. The borrowing customer is in an advantageous position in
an overdraft, because he has to pay service charges only on the balance outstanding
against him. The main difference between a cash finance and overdraft lies in the fact
that cash finance is a bank finance used for long term by commercial and industrial
concern on regular basis, while an overdraft is a temporary accommodation
occasionally resorted to.
The facility by way of Running Finance is extended to meet the working capital
requirements of the customer. It may be of temporary nature or may be available as
regular credit line.
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Regular Running Finance Limits should be backed by appropriate approval either
under discretionary power or limits sanctioned by the Credit department/Credit
Committee.
• The purpose and consideration for the facility should be clearly spelled out.
• It would be prudent to obtain credit reports on the customer from their other
bankers.
The facility may be secured by one or more type of securities. It is essential that the
security and charge documentation formalities should be completed prior to the
disbursement of the facility. It may almost become impossible to obtain perfect
securities once the borrower is allowed to make the drawings
c) Demand Financing/Loans
When a customer borrows from a banker a fixed amount repayable either in periodic
installments or in lump sum at a fixed future time, it is called a “loan”. When bankers
allow loans to their customers against collateral securities they are called “secured
loans” and when no collateral security is taken they are called “clean loans”.
The amount of loan is placed at the borrower’s disposal in lump sum for the period
agreed upon, and the borrowing customer has to pay interest on the entire amount.
Thus the borrower gets a fixed amount of money for his use, while the banker feels
satisfied in lending money in fixed amounts for definite short periods against a
satisfactory security.
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The basic goal or objective of the banks is to earn profit, and cash department plays
an important role in this matter. The bank receives cash from the clients and invests it
in business.
1. Receipt
The money, which either comes or goes out from the bank, its record should be kept.
Cash department performs this function. The deposits of all customers of the bank are
controlled by means of ledger accounts. Every customer has its own ledger account
and has separate ledger cards.
2. Payments
It is a banker’s primary contract to repay money received for this customer’s account
usually by honoring his cheques.
3. Collection of Bills
The cash department of branch also collects the bills of Sui gas, PTCL, NTC and
PESCO.
4. Saving Cash
The officer checking cash physically in the afternoon before the cash is put in the
safe. The loose and unstitched notes of all denominations as well as stitched notes of
Rs500, Rs1000 and Rs100 are physically counted. In addition the number of stitched
bundles and sealed bags containing coins are properly checked and tallied with the
cash position.
Branch makes sure that defective and cut notes are not issued to the customers. For
this purpose branch collects sufficient fresh and reissue able notes from the main
branch to meet the requirements of the customers.
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The Negotiable Instruments. Act, 1881, “Cheque is a bill of exchange drawn on a
specified banker and not expressed to be payable otherwise than on demand”2.
Since a Cheque has been declared to be a bill of exchange, it must have all its
characteristics as mentioned in Section 5 of the Negotiable Instruments Act, 1881.
Therefore, one can say that a Cheque can be defined as an: “An unconditional order
in writing drawn on a specified banker, signed by the drawer, requiring the banker to
pay on demand a sum certain in money to, or to the order of, a specified person or to
the bearer, and which does not order any act to be done in addition to the payment of
money”. (Law of Banking by Dr. Hart, p.327).
NBP Main Branch Charsadda carries the responsibility of Govt. collection and
perform different services for Govt. NBP collects taxes, duties, challans, renewal of
weapons and collection of utility bills which includes Sui Gas, PTCL and PESCO
bills. This department also collects the dues of the educational institutes.
A clearing house is an association of commercial banks set up in given locality for the
purpose of interchange and settlement of credit claims. The function of clearinghouse
is performed by the central bank of a country by tradition or by law. In Pakistan, the
clearing system is operated by the SBP. If SBP has no office at a place, then NBP, as
a representative of SBP act as a clearinghouse.
After the World War II, a rapid growth in banking institutions has taken place. The
use of cheques in making payments has also widely increased. The collection as
settlement of mutual obligations in the form of cheques is now a big task for all the
commercial bank. When Cheque is drawn on one bank and the holder (payee)
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deposits the same in his account at the bank of the drawer, the mutual obligation are
settled by the internal bank administration and there arises no inter bank debits from
the use of cheques. The total assets and total liabilities of the bank remain unchanged.
In practice, the person receiving a Cheque as rarely a depositor of the cheque at the
same bank as the drawer. He deposits the cheque with his bank other than of payer for
the collection of the amount. Now the bank in which the cheque has been deposited
becomes a creditor of the drawer’s bank. The depositor bank will pay his amount of
the cheque by transferring it from cash reserves if there are no offsetting transactions.
The banks on which the cheques are drawn become in debt to the bank in which the
cheques are deposited. At the same time, the creditors’ banks receive large amounts of
cheques drawn on other banks giving claims of payment by them.
The representatives of the local commercial banks meet at a fixed time on all the
business days of the week. The meeting is held in the office of the bank that officially
performs the duties of clearinghouse. The representatives of the commercial banks
deliver the cheques payable at other local banks and receive the cheques drawn on
their bank. The cheques are then sorted according to the bank on which they are
drawn. A summary sheet is prepared which shows the names of the banks, the total
number of cheques delivered and received by them.
• To arrange the payment of cheque drawn on the branch and give cheque for
collection to any other branch of National bank of Pakistan or any other member or
sub member of local clearinghouse.
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CHAPTER - 5
FINANCIAL ANALYSIS
Financial analysis, though varying according to the particular interests of the analyst,
always involves the use of various financial statement primarily the balance sheet and
income statement. The balance sheet summarizes the assets, liabilities, and owner’s
equity of a business at a point in time, and thee income statement summarizes
revenues and expenses of the over a particular period f time. A conceptual framework
for financial analysis provides the analyst with an interlocking means for structuring
the financing.
Trade creditors
Suppliers of Long-term
Investors
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From the above table it is very much clear that the NBP performance is going higher
and higher. Total assets are at the crest in 2009. The number of deposits and advances
are continuously increasing. Similarly the shareholder’s equity increased every year.
If we draw a graph this will shows that the graph is upward trend. Profit is increasing
from year 2007 to year 2008, but decreased in year 2008 and 2009. NBP increase the
number of its branches and employees over the years because large networks of
banks.
OR
In financial ratio analysis a ratio is used as benchmark for evaluating the financial
position and performance of a firm.
These ratios are calculated for the years 2007, 2008 and 2009 from the ‘balance
sheet’ and ‘profit and loss statement’ of NBP.
i) Current Ratio:
Current Assets
Current Ratio = ----------------------------
Current Liabilities
Short-term creditors prefer a high current ratio since it reduces their risk. Shareholders
may prefer a lower current ratio so that more of the firm's assets are working to grow
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the business. Typical values for the current ratio vary by firm and industry. For
example, firms in cyclical industries may maintain a higher current ratio in order to
remain solvent during downturns.
Current ratio of NBP for the years 2007, 2008 and 2009 are given below:
Interpretation:
The current ratio of NBP is quiet high because of huge current assets. The ratio is 9.6
in 2007 and 9.5 in 2008. While in 2009 it moves to 10.4. This means that for every 1
rupee liability of the bank it has 10.4 rupees, which is cover from current assets.
Finally, the cash ratio is the most conservative liquidity ratio. It excludes all current
assets except the most liquid: cash and cash equivalents.
Cash
Cash Ratio = -----------------------------
Current Liabilities
The cash ratio is an indication of the firm's ability to pay off its current liabilities if for
some reason immediate payment were demanded. NBP cash ratios are:
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Cash / 119,266,906 / 132,346,081 / 144,848,364 /
Current Liabilities 39,602,271 43,133,328 49,901,166
Interpretation:
The cash ratio of the bank is 3.02, 3.06 and 2.9 in 2007, 2008 and 2009 respectively.
This shows an increase in 2008 and a decrease in 2009. This means that for every
rupee of liability bank has 2.9 rupees to cover that liability from cash only.
Receivable turnover or Advances turnover provides insight into the quality of the
firm’s receivable or advances and how successful the firm is in its collection. It is
often reported in terms of the number of days that advance (or credit sales for
manufacturing firm) remain in accounts receivable before they are collected. This
number is known as the collection period.
It is calculated by:
Interpretation:
The advance turnover ratio of NBP for the years 2007 to 2009 is quite close to each
other. There is 0.01% improvement in 2008 as compare to 2007 but it remains
constant in 2009. This shows that the turnover of the advances is almost the same for
these years.
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Generally the total assets turnover measures the activity of the assets and the ability of
the firm to generate sales through the use of the asset. Asset turnover ratio is
calculated by:
Interpretation:
The asset efficiency of NBP has a mix trend in 3 years. Asset efficiency in 2008 is
less as compare to the asset efficiency in 2007 i.e. it is 0.54 in 2007 and 0.43 in 2008.
But again in 2009 it is jumped to 0.59. Which shows that NBP utilized fewer assets to
generate more interest in 2009 and 0.59 interest is earned per rupee of asset investment.
Interpretation:
37
The comparison of fixed asset turnover ratio of NBP for three years shows that in
2007, NBP generates more interest from fixed assets as compare to 2008. But in 2009,
the ratio is again increased to 2.5. A unit investment in fixed assets produced 4.47, 1.9
and 2.5 rupees for the years 2007 to 2009 respectively.
This is the conservative method of sales profitability. This ratio gives a measure of
Net Income in dollars generated by each dollar of sales, i.e. it measures the firm’s
profitability of sales/ interest earned after taking account of all expenses and income
taxes.
Net Income
Net Profit Margins = -------------------------------------
Markup or Interest Earned
NBP NET PROFIT MARGIN RATIO
2007 2008 2009
Net Income / Markup 17,022,346 / 19,033,773 / 15,458,590 /
or Interest Earned 50,569,481 60,942,798
44,100,934
Net Profit Margin 0.39 0.38 0.25
Interpretation:
The net profit margins of NBP for 3 years show that the net profit margin of the bank
is reduced. As it is was producing 0.39 cents from each rupee of markup earned in
2007 but it is decreased 0.01 cent in 2008. In 2009 it is considerably reduced to 0.25
cent of each rupee of markup earned. This may be due to the increase in the
administrative expenses and increase in taxations.
Return on equity is the bottom line measure for the shareholders, measuring the
profits earned for each dollar invested in the firm's stock. This ratio shows the
efficiency of organization that how efficiently utilizes their assets. This ratio relates
profits to assets.
It is calculated as:
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Profit after Tax
Return On Asset = --------------------------
Total Assets
Interpretation:
The return on asset of NBP is reduced in 2009 as compare to the year 2007 and 2008.
This shows that NBP is employing more assets in 2008 to generate one rupee of
profits after paying all the taxes.
viii) Debt to assets ratio:
This ratio shows that to which extent the organization assets are financed by debit.
This ration is directly related to risk high ratio means high risk and low ratio means
low risk. This ratio is high because of more deposits in the bank, and deposits are the
liability of customer on bank
It is calculated as.
Total debt
Debt to assets ratio = ------------------
Total asset
Debt to Asset ratio for NBP for the years 2007 to 2009 is given below:
NBP DEBT TO ASSETS RATIO
2007 2008 2009
Total debt / Total Assets 553,178,593 / 645,855,939/ 715,299,108/
635,132,711 762,193,593 817,758,326
Debit to Asset Ratio 0.87 or 87% 0.85 or 85% 0.87 or 87%
Interpretation:
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The debt to equity ratio for 2007 is 0.87, which is reduced to 0.85 in 2008. in year
2009 it is again increased to 0.87. Which means that 87% of the total assets is
financed by the debt or by the creditors. Or in other worlds we can say that in one
rupee total assets 87 paisa is financed by debt.
This ratio shows that how much efficiently the bank advances the deposits of their
customer to borrower.
It is calculated as.
Advances
Advances deposit ratio =
------------------
Deposits
NBP ADVANCES TO DEPOSITS RATIOS
2007 2008 2009
Advances / Deposits 316,110,406 / 340,677,100 / 412,986,865 /
501,872,243 591,907,435 624,939,016
Advances Deposit 0.63 or 63% 0.58 or 58% 0.66 or 66%
Ratio
Interpretation:
From above table and graph it is clear that the ratio is reduced in 2008 as compare to
year 2007 while it is going high in 2009, i.e. bank is advancing 66 paisa per each
rupee of deposit. Which means the efficiency on NBP is good and they use their
deposits efficiently in advancing to borrowers. Here high ratio is required. The other
side of the picture is that the people will think that is risky to deposit the money in the
bank.
40
Balance Sheet National Bank of Pakistan as at December 31st, 2007 to 2009.
41
NATIONAL BANK OF PAKISTAN, INCOME STATMENT
As At December 31st, 2007 to 2009
42
CHAPTER - 6
Here I am giving some recommendations, which in my view can add some input for
efficiency and better performance of NBP as an organization in general and NBP
Main Branch Charsadda in particular. The recommendations are as follows:
6.1 RECOMMENDATIONS:
NBP staff lacks professionalism. They lack the necessary training to do the job
efficiently and properly. Although staff colleges in all major cities but they are not
performing well. For this purpose these staff colleges should be reorganized and their
syllabus should be made in such a way to help the employee understand the ever-
changing global economic scenario.
Banking council of Pakistan should also initiate some programs to equip the staff
with much needed professional training.
6.1.2 Transfer
Transfer is not properly carried out. Some of the employees are continually serving at
the same post. They are simply rotated at the same branch. Therefore it is
recommended that evenly rotation of every employee should take place after every
three years in different braches of the bank.
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6.1.3 Promotion Criteria
The promotion criteria can be better implemented when the management can
understand even the small wattage of the person’s performance. The promotion
should include three things in my opinion and all of these should be given numbers.
The 1st thing is qualification the second thins is seniority and the third is performance
of the employee. All these should be given preference according to the order. The
career planning can be produced due to this idea.
This branch has fax, telephones and computers. It is suggested that ATM (Auto Teller
Machine) facility. In this area an auto teller machine (ATM) is the need of the hour
businessmen can easily check their balance in the bank and also with draw their
money conveniently.
Some times high rank officers come and want themselves to be given priority. In
these cases bank should strictly follow the rule of ‘first come first serve’. This will
maintain the trust of other customers that they are not neglected just because they
have no rank.
There should be Job rotation of employees, so that they should know about all
departments. This will enhance the capabilities of the employees, as due to change in
work they will escape monotony. This will refresh and motivate employees.
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In the branch there were few seats, which were over loaded with work as compared to
other seats. So Job rotation is must, so that no body should be overburdened and due
to this their motivation level was not at the highest level.
The employees of the branch should be given equal workload.. No body should be
given undue relaxation. The personal contacts of some of the employees should not
spoil the environment of the branch.
The National bank of Pakistan has to improve services provided to the pensioners and
also they have to adopt scientific methods of paying utility bills. If the consumers are
satisfied from the service they will expand his business with the bank. Otherwise bank
will loose its customers. All this can be achieved just by imparting proper training to
employees.
The record of the bank is not maintained according to the approved format of the head
office. So the department heads should make it sure that that filing of the record is
done in the proper and systematic way. For this purpose the bank should utilize its
computer technology, to maintain highly reliable and proper information about all
kinds of transactions.
6.2 CONCLUSION
The importance of banks in the economy of any country is like a backbone, so the
state government decided to start the banking system in their country, and by their
own interference control them, secure them, and subsidize them according the
situation, and main purpose behind that is to facilitate their nation. So the government
of Pakistan has also a banking system, as a head or largest bank in Pakistan known as
“STATE BANK OF PAKISTAN” which is largest bank of Pakistan, this bank works
as the governmental department and its main function is to monitor all type of banks
working inside specially as well as outside the country.
National Bank of Pakistan is the second largest bank of Pakistan by all means;
National Bank of Pakistan is widely used as an agent for State Bank of Pakistan and is
45
also involved in commercial banking. National bank of Pakistan has a vital role in
Pakistan’s banking history as well as in the economy of Pakistan, so it has a great
significance.
At present the national bank of Pakistan has improving its internal and external
conditions, but due to the largest operations in Pakistan (because this is only bank
which must cover the backward regions of the country where no any other
commercial bank want to go) it still faces many problems, These problems are new
marketing strategies, organizational and management problems at the branches of
backward regions, and motivation. Another main problem is faced by the NBP is
labor unions because labor is most powerful because of CBA union which protect the
labor's all action even are getting unjustified advantages all above factors are causing
problems of banking functional and growth of banking is being resisted. Mostly
recruitment and promotions are under influence of political system of Pakistan, so
eliminate it or reduce as much as possible and make it on merit and transparent.
During my two months internship, I observed many things at the NBP such as its
working procedures, policies, and many other aspects of practical nature of a big
organization. On the basis of all these observations, I have come to the conclusion.
That the banking field is more competitive and dynamic now-a-days. There is a lot
financial institution working side by side. In this competitive environment the bank
must have to use more innovative and creative ideas so that to attract customer.
Taking care of these things the NBP have started computerized system through which
one can send money from one place to another in no time. Which is a good step
towards its improvement?
Like its major competitor it has also started ATM facility in many big cities due to its
customer are loyal to it. Its equity position is very strong and it can compete its
competitor in every aspect of banking. NBP is one of the oldest and more settled bank
of Pakistan in fact it remained in business of financial services for many years.
Despite all these facts there are some areas, which needs to be improved, like it
should focus on its organization structure, Equal distribution of work should be done
and bring professional people to all of its branches in order to meet the requirements
of a new era and to fulfill the needs of 21st century.
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BIBLIOGRAPHY
i. http://www.nbp.com.pk
iii. Israr H. Sodium, “Practice and law of banking in Pakistan”, royal book
Company, Karachi, 1993,
iv. Israr, H. Siddiqi, “Practice & Law of Banking in Pakistan” 5th ed, Royal Book
Co., Karachi, 1993.
vii. James C. Van Horneand J.M. Wachowicz. J.R. 11th Edition, Fundamentals of
Financial Management. New Jersey: Prentice-Hall, Inc. p.150
ix. Block, Stanley B and Hirt, Geottrey A. (7th edition). Foundation of Financial
Management. Sydney: Ed Von Hoffmann Press.
47