virtual university of pakistan evaluation sheet for

INTERNSHIP REPORT 1

Prepared By: Aisha Malik

Virtual University of Pakistan

Evaluation Sheet for Internship Report

Fall 2010

FINI619: Internship Report (Finance) Credit Hours: 3

Name of Student: Ayesha Awan

Student’s ID:

Evaluation Criteria Result

Report writing Pass

Presentation & Viva voce

Final Result

Prepare By Ayesha Awan (vustudents.net)

INTERNSHIP REPORT

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INTERNSHIP REPORT

NATIONAL BANK OF PAKISTAN

Submitted To:

Virtual University

Submitted By:

Ayesha Awan

Program:

MBA Session (2009-2011)

Submission Date:


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Letter of Undertaking


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Internship Certificate


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Dedication

I dedicate this internship report to my parents. Because of their prayers and

encouragement I have been able to complete this report.

Praise is to Allah, the most Gracious and Merciful, who blessed me with the knowledge

and wisdom and enabled me to overcome this task. Heartiest gratitude to my parents

without their continuous encouragement and love I could not have accomplished this

task.

I am very grateful to NBP Branch staff members for their continuous help, support, and

time, guidance and encouragement during the entire course of my internship.


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ACKNOWLEDGEMENT

“This internship is dedicated to our parents, family members and our

friends; who always inspired us in every step to accomplish this study”.

It is a great honor for me to work on the assigned topic and I feel glad to

accomplish my task. Along with our sincerity and interest, there are few people, who

really helped us to make this endeavor to be a successful one. At first, we would like to

pass our appreciation, gratitude and thanks to our honorable NBP Branch Manager.. His

valuable suggestions and ideas in every step of our work helped us a lot to prepare this

report. I am very much grateful to NBP other staff members, who also contributed a lot in

accomplishing this piece of work to be a successful one. Lastly, I want to say that without

the commitment and support of those persons, this report would never be taken shape.

For these reasons, I am truly thankful to those people.


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Executive Summary

ational Bank of Pakistan has

a solid foundation of over 60 years in Pakistan,

with a network of over 900 branches, over 750

of which are Automated Branches, NBP's

operations continued to be streamlined with

focus on rationalization of expenses, re-

alignment of back-end processing to increase

productivity, enhancement of customer service

standards, process efficiency and controls. The

Bank has taken the lead in introducing the

innovative concept of centralizing trade Services in the country by providing centralized

foreign trade services to branches with a view to improve efficiency, expertise and reduce

delivery cost.

During my internship in NBP I worked in Remittances, Advances/Agriculture, Accounts,

Establishment and Government department and I successfully completed all the

task/duties that were assigned to me.

During the course of internship I learned about different functions performed by

Remittances, Advances/Agriculture, Accounts, Establishment and Government

department and bank as a whole. I also learned bank’s correspondence with their

customers and within branches. I learned about documentation requirements and record

keeping for different activities and processes, especially the documentation requirement

for different kinds of financing facilities.

N Prepare By Ayesha Awan (vustudents.net)

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Table of Contents

Title page 1

Letter of Undertaking 2

Internship certificate 3

Dedication 4

Acknowledgement 5

Executive summary 6

Table of Contents 7-9

1. Brief introduction of the organization’s business sector 10

2. Overview of the organization 11-23

a. Brief history

b. Organizational Hierarchy chart

c. Business volume

d. Product lines

e. Competitors

f. Brief Introduction of all the departments

g. Comments on the organizational structure

3. Plan of internship program 24-25

a. A brief introduction of the branch where you did your internship

b. Starting and ending dates of your internship

c. Names of the departments in which you got training and the duration of your

training

4. Training program 26-30

Detailed description of the tasks assigned to you during the internship program.

OR


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Detailed description of the project (s) assigned to you during the internship

program.

5. Ratio Analysis 31

a) Liquidity Ratios 31-34

• Current Ratio

• Acid Test Ratio

• Working capital

b) Leverage Ratios 35-40

• Times Interest Earned

• Debt Ratio

• Debt / Equity Ratio

• Debt to Tangible Net worth Ratio

• Total Capitalization Ratio

c) Profitability Ratios 41-49

• Net Profit Margin

• Return on Assets

• DuPont Return on Assets

• Operating Income Margin

• Return on Operating Assets

• Return on Total Equity

• Gross Profit Margin

d) Activity Ratios 50-52

• Total Assets Turnover

• Fixed Assets Turnover

e) Market Ratios 53-55

• Dividend per share

• Earning per Share

• Price/Earnings Ratio

6. Future Prospects of the Organization 56


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7. Conclusion 57

8. Recommendations for Improvement 58-59

9. List of References 60

10. Annexes 60


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8 - Brief introduction of the organization’s business sector

Banking & Finance – History

National Bank of Pakistan is the largest commercial bank operating in Pakistan. Its

balance sheet size surpasses that of any of the other banks functioning locally. It has

redefined its role and has moved from a public sector organization into a modern

commercial bank. The Bank's services are available to individuals, corporate entities and

government. While it continues to act as trustee of public funds and as the agent to the

State Bank of Pakistan (in places where SBP does not have a presence) it has diversified

its business portfolio and is today a major lead player in the debt equity market, corporate

investment banking, retail and consumer banking, agricultural financing, treasury

services and is showing growing interest in promoting and developing the country's small

and medium enterprises and at the same time fulfilling its social responsibilities, as a

corporate citizen.

National Bank of Pakistan is today a progressive, efficient, and customer focused

institution. It has developed a wide range of consumer products, to enhance business and

cater to the different segments of society. Some schemes have been specifically designed

for the low to middle income segments of the population. These include NBP Karobar,

NBP Advance Salary, NBP Saiban, NBP Kisan Dost, and NBP Cash n Gold

It has implemented special credit schemes like small finance for agriculture, business and

industries, administrator to Qarz-e-Hasna loans to students, self employment scheme for

unemployed persons, public transport scheme. The Bank has expanded its range of

products and services to include Shariah Compliant Islamic Banking products. For the

promotion of literature, NBP recently initiated the Annual Awards for Excellence in

Literature. NBP will confer annual awards to the best books in Urdu and in all prominent

regional languages published during the defined period. Patronage from NBP would help

creative work in the field of literature. The Bank is also the largest sponsor of sports in

Pakistan. It has provided generously to philanthropic causes whenever the need arose.


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9. Overview of the organization

a) Brief History:

National Bank of Pakistan maintains its position as Pakistan's premier bank determined to

set higher standards of achievements. It is the major business partner for the Government

of Pakistan with special emphasis on fostering Pakistan's economic growth through

aggressive and balanced lending policies, technologically oriented products and services

offered through its large network of branches locally,

internationally and representative offices.

We aim to be an organization that is founded on…

Growth through creation of sustainable relationships with

our customers.

Prudence to guide our business conduct.

A national presence with a history of contribution to our communities.

We shall work to…

Meet expectations through Market-based solutions and products.

Reward entrepreneurial efforts.

Create value for all stakeholders.

We aim to be people who…

Care about relationships.

Lead through the strength of our

commitment and willingness to

excel.


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Practice integrity, honesty and hard work. We believe that these are

measures of true success.

The story of National Bank of Pakistan is part of our struggle for economic

independence. When we won political independence, our economy was controlled by

Non-Pakistanis, mostly Hindus. After partition over 7 million people came to West

Pakistan and about 5 million went out. East Pakistan was spared from massive migration

but its economy was also, being dependent on Calcutta, badly hurt. Most bankers and

business experts left Pakistan and the economic life was brought to a standstill: these,

mostly branches of Imperial Bank of India were only in partial operation with skeleton

staff.

The mood and temper of movement being against the normal flow of trade across

the borders of India & Pakistan, for about one year we could not procure cloth or

consumer usable from India and we had little resources to resort to other countries for

purchase thereof; we did not have an organized business or industry structure. It was a

challenge and demanded a response, which developed soon & mercantile community

grew fast and established overseas contacts. After this commercial phase, in 1950 started

the industrial phase – jute and cotton industries were started during 1950-55.The number

of bank offices fell from 631 to 195 after partition.

Today’s NBP

In today's competitive business environment, NBP needed to redefine its role and shed

the public sector bank image, for a modern commercial bank. It has offloaded 23.2

percent share in the stock market, and while it has not been completely privatized like the

other three public sector banks, partial privatization has taken place. It is now listed on

the Karachi Stock Exchange.

National Bank of Pakistan has built an extensive branch network with 1250 branches in

Pakistan and operates in major business centre abroad. The Bank has representative

offices in Beijing, Tashkent, Chicago and Toronto.


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National Bank has earned recognition and numerous awards internationally. It has been

the recipient of The Bank of the Year 2001, 2002, 2004 and 2005 Award by The Banker

Magazine, the Best Foreign Exchange Bank –– Pakistan for 2004, 2005, 2006 and 2007, Global

Finance, Best Emerging Market Bank from Pakistan for the year 2005, Global Finance, Kissan

Time Awards – 2005 for NBP's services in the agriculture field. It is listed amongst the

Region's largest banks and also amongst the largest banks in South Asia 2005, The Asian

Banker. It has also been presented a Recognition Award –– 2004 for having a Gender

Sensitive Management by WEBCOP AASHA besides other awards.


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b) Organizational Hierarchy Chart

Management

Support

Division

Audit &

Inspection

Division

Treasury

Management

Division

Credit Policy

& Management

Division

Marketing

Development

Division

Overseas

Banking

Division

Special assets

Management

Division

Management

Information &

Tech. Div

85 Branches

8

Zones

Regional

Headquarters

Karachi

117 Branches

5

Zones

Regional

Headquarters

Hyderabad

198 Branches

6

Zones

Regional

Headquarters

Multan

128 Branches

4

Zones

Regional

Headquarters

Faisalabad

158 Branches

10

Zones

Regional

Headquarters

Lahore

166 Branches

8

Zones

Regional

Headquarters

Islamabad

198 Branches

8

Zones

Regional

Headquarters

Peshawar

53 Branches

3

Zones

Regional

Headquarters

Quetta

90 Branches

3

Zones

Regional

Headquarters

Muzafarabad

President


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Head Office Set Up

Four Overseas

Regional Chiefs

Assets & Liability

Committee

Credit

Committee

Operations

Committee

I.T. Steering CommitteeTraining & HR Steering Committee

PSO & Secretariat

Secretary BOD

HR

Management

Department

Organization

Development

& Training

Department

Strategic

Planning &

Economic

Research

Group

Chief Coordinator

Islamabad

BOD Audit

Committee

Board

of

Directors

Operations

Group

Finance

Group

Corporate &

Investment

Banking

Group

Risk

Management

Group

Commercial &

Retail

Banking

Group

Audit

&

Inspection

Group

Special Assets

& Remedial

Management

Group

IT Planning

Development

& Implementation

Group

President

&

Chairman

Board of Directors


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c) Business Volume

d) Products of NBP

1. Premium Aamdani

2. Premiun Saver

3. Karobar

4. Saibaan

5. Advance Salary

6. Cash Card

7. Kisan Taqat

8. PakRemit

9. Kisan Dost


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10. Protection Shield

11. NBP Islamic banking

SERVICES PROVIDED BY NBP

Demand Draft

Mail Transfer

Pay Order

Traveler Cheques

Letter Of Credit

Commercial Financ

Foreign Remittance

Equity Investment

Short Term Investment

National Income Daily Account:

Trade Finance other Businesses Loans


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e) Competitors

1. MCB Bank Limited,

2. United Bank Limited,

3. Faysal Bank,

4. Habib Bank Limited,

5. Citi Bank,

6. HSBC Bank,

7. Standard Chartered Bank,

8. Al-Barka Bank,

9. Alfalah Bank Limited


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f) Brief Introduction of All Departments

Cash Department

Cash department mainly deals in cash. The Head of department is Mr. Fazul-Ur-Rehman

and one cashier Muhammad Haneef are specialized in this section and have daily cash

reconciliation of cash balance with their ledger system. The objective of cash department

is to “To facilitate people in the payments of their bills and taxes and repayments of

cash.”

There are two main functions of cash department.

1st is Payment & 2

nd is Receipts.

Accounts Department

Following are different functions performed by this department:

Preparation of Financial Statements for different time span

Maintain all accounts of different departments

Calculation of profit on different schemes

Calculation of markup on different advances

Preparation Different types of reports for State Bank

Daily position of cash & every accounts

Matching daily summaries of all departments with ledger

Accounts Opening & Closing


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Remittance Department

This department is headed by Abdul Majeed a very competent person. The

objective of this department is:-

“To transfer the money from one place to another place in safe and comparable

way”

The main functions of this department are:

o Issuing of DD

o Issuing of MT

o Issuing of TT

o Issuing of PO

Advances department

Every bank has a department which advances money to borrowers. In NBP

branch the advances department is head by the Mr. Faqeer Hussain and Muhammad

Hussain, both are very competent person. The objective of Advances Department is “To

facilitate people by giving short term and long term loans on easy terms and conditions”.

The main function of this Department is to take surplus money from the people at low

rates and lend this money to borrowers at high rates to earn profit.

Advances Types

Agricultural Advances

Commercial Advances

Industrial Advances

NBP divided the advances in to two major types:

Fund Based

Non Fund Based


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Clearing Department

In NBP Branch this department is headed by Mr. Qurban Khan having experience

of about many years. The objective of this department is to “To facilitate customers for

payment their Cheque of other banks”.

1. To accept Transfer, Transfer delivery, clearing and collection cheque from the

customers of the branch and to arrange for their collection.

2. To arrange the payment of cheque drawn on the branch and given for collection to

any other branch on NBP or any other members or sub member of the local

clearing house.

3. To collect amount of cheque drawn on members, sub-member of local clearing

house, sent for collection by NBP Branches, not represented at the local clearing

house.

Establishment Department

This department mainly deals with the branch employees.

Main functions of this department are:

Keeps the record of attendance of employees.

Employee’s salaries distribution.

Environment of Bank

Employee’s bonuses benefit etc.


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Government Department

This department performs the following work for government is:

Received Tax (income tax, properties tax, penalties, fees etc.).

Receive Challan charges from customer

Pension payment

Utility Bill Payments

Government Employee Salaries


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G) COMMENTS ON THE ORGANIZATIONAL STRUCTURE

City of agriculture products and this is the reason that NBP has the esteem products &

services regarding agriculture lines and small loans facilities to customers.

In National Bank of Pakistan Branch have nineteen employees to deal with different

customer, and I am inspired of NBP staff and hierarchy because this is better in other

branches that are in city. National Bank is Government Bank; all the government

transactions like govt. taxes, govt. employee salaries, and etc are processed from NBP.

To some extent, I have the suggestion that the branch customers and banking transactions

are much high then others banks branches at city. So, the Bank has to increase the

employees at branch to provide better services in a valuable time to their customers to

present their self in a better way to gain and maintain the market share.


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10. PLAN OF INTERNSHIP PROGRAM

a) Brief Introduction of the Branch

In the beginning the Branch was not enough established and equipped with modern

amenities. Insufficient facilities were the hindrance to get customer’s contentment. To

overcome all problems, management of the bank decided to move to another location

with better building and technology. As the national bank of Pakistan gives the services

on the public sector level, it was vital to satisfy the customers according to their

perception and requirements. National Bank of Pakistan is not only limited to the public

sector but also accounted for Government’s financial matters as receipts and payment of

taxes, bills etc.

The management of the bank putted across this issue to the top management’s view and

finally with the staff’s endeavor it was shifted in new building in January 17, 2009 and

started services with new zeal and encouragement. This achievement was acknowledged

under the time period when the was the AVP Manager of National Bank of Pakistan ,

Main branch. Now the new building is running very smoothly with high technology and

well experienced staff.

Renovation of new Building commenced by (AVP) after the launching of New Building

of National Bank main Branch by SVP-Regional Business Chief National Bank of

Pakistan, Regional Office Multan.

Opening observance of National Bank main Branch for ATM was started by the group’s

Chief (Information Technology June, 2005).

b) Starting and Ending Dates

Starting Date 01 December, 2010

Ending Date 21 January, 2011


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c) Names of the departments & Duration

In NBP branch, I almost spend 7 weeks in different departments which are given as

under:

1. Accounts Opening Dept. 1 ½ Week

2. Clearing Dept. 1 Week

3. Advances/Agriculture Dept. 2 Week

4. Cash Dept. 2 Day

5. Govt. Dept. 1 Day

6. Establishment Dept. 3 Days

7. Remittance Dept. 1 ½ Week


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11. Training Program

I joined NBP Branch at start of December 2010. I learn different things from the

Banking/ Business environment. This is really a different environment from our study

life. I really enjoyed myself in this new organization. Theoretically, it’s impossible to

learn each and every thing from the subjects when we study we have no idea about the

business sector, after getting knowledge and experience of working at these sectors. We

will capable to implement that knowledge in our working environment and gain valuable

experience for our future career growth. NBP branch has so much co-operative staff, they

helped me a lot to learn different department’s work, I personally believe the time span

given to us is too short to see deeply in each and every department’s activities in a keen

manner but with the help of staff I feel much confident to give my best in this short span

of time. I thanked a lot to NBP Employees for helping to implement my books

knowledge in a working environment.

Description of Task Assigned to Me

I have learnt and work in following departments:

1. In Accounts Opening Dept.

On the very first day I was introduced with this department and learnt under the

guidance of Mr. Maqbool. On my first day he said to me just to observe the working

of the dept and customer’s dealing also. He guided me about documentations of the

account opening like account opening form, NIC verification procedure and about

necessary attachments of the customer’s identity. After the detailed guidance he


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inquired me to do the same as he did before me under his observation. So I used to fill

the account opening form of 2 or 3 customers then after taking the signatures or

thumb stamp (if customer is illiterate) entrance took place into the account opening

register for the record of the customer. I also used to issue the chuque books on the

basis of the PLS & Current account. I have also learnt that how to record the first

deposit after account opening.

In NBP Branch, Mr. Muhammad Saddique Khan is the head of Accounts opening

department, he is very vigilant, active and experience employee. He helped me to

look after these things. In accounts opening department, it takes to me a challenge to

learn in one and half week, this time span is not enough to keep an eye on every

activity.

2. In Clearing Dept.

In NBP Branch this department is headed by Mr. Qurban Khan having experience of

about many years. In this department I worked one week and learnt different techniques

of clearing department. Which I explained as under:

A clearing house is an society of commercial banks locate in State Bank of Pakistan for

interchange and settlement of credit claims.

Every banker acts both as a paying as well as a collecting banker; it is an important

purpose of crossed cheque. A bulky part of this work is carried out through the bankers

clearing house. This department is very technical and complicate in my point of view

because I found it very complex huge dealings with other banks.

My training officers had given me the two books and show the working of the clearing of

the cheques. I remember he told me about the names of those books;

Inward Clearing Book

Outward Clearing Book


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Inward clearing book keeps the record of cheques that are received from other banks for

the clearing whereas in outward Clearing Book keep the record of cheques that are

delivered by the bank for the clearing purpose and also record the amount, date and

account number.

All statements of clearing are submitted before the 1:00 pm.

3. In Advances/Agriculture Dept.

In NBP branch the advances department is head by the Mr. Faqeer Hussain and

Muhammad Hussain, both are very competent person. With both of them I spend a

really good time from learning aspects and this is the main area of any banking

industry and most technical site of any banking industry, in which I spent one and

half week, this department uses the surplus funds of customers and lend to borrowers

to gain profit. This portion of bank has many steps. They both helped me but I

personally believe that this is not as easier as this looks like. But still I learnt the main

things and describe the important aspects of this area.

Firstly I was said to be observed the work of department with full attention then

consigned some task also. I read the form of loans against gold and salary basis

advances. I was also assigned to solve some question by the training officer for the

better understanding of markup calculations. He briefed me about key questions

asked to customer and proper investigation criteria before issuing of the loans. I learnt

about how to disbursement take place. He emphasized specially on the importance of

the vital documentation and gave me brief detail about it then next day he asked about

what he told me last day in detail description.


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4. In Cash Dept.

In cash department of NBP, I spend almost two days where I learnt different things.

Cash department mainly deals in cash. The Head of department is Mr. Fazul-Ur-

Rehman and one cashier Muhammad Haneef are specialized in this section and have

daily cash reconciliation of cash balance with their ledger system.

They both guided me about the core practices of this dept. I have learnt that this dept.

is revolving within two functions that are payments & receipts. I learnt that how to

verify the cheque at the time of the payment. I used to verify the customer’s

signatures, amount written on the cheque, balance of the customer’s account to

confirm the demanding payment. After this the cashier pay the amount to customer

and entry of the cheque serial number, amount paid and account number take place in

the cash book for the record. In the same way I worked in the receipt section under

the observation of the training officer.

5. In Govt. Dept.

This department plays important role for their customer in National Bank of Pakistan

Branch on the behalf of government. The head of this department is Mr. Amjad

Hafeez. This department I worked only One day. I learnt that this dept. mainly work

on pensions, taxes, chalan received and govt. employees salaries. Mr.Amjad guided

me about the procedure of the pension and taxes. I assigned the task of record the

amounts in the pension register and also used to take the signatures or thumb stamp in

the pension register. I also used to make the day ended scroll of pension payments.

Besides I used to stamp out the chalans against different traffic ruination of the rules.


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6. In Establishment Dept.

NBP Branch having an Establishment Department. This Department consists of only one

person Madam Fatima very competent and experienced person with high confidence

level. She is so much nice and co-operative person, dealing with politely I spend three

days with her and see the main functions of the department.

In this department the main thing I learnt that is management related to the bank’s

employees. My training officer Madam Fatima told me about department main functions

performed by her. She guided about the importance of this department by show me the

records of the employees on the computer software. Their salaries, attendances, and

bonuses benefits and she more emphasized on the healthy and stable environment of the

bank. I learnt a lot under her guidance.

7. In Remittance Dept.

In this department I spent one and half week. Mr. Abdul Majeed the head of the dept.

helped me a lot. This is a very informative department and inspires me from the ways this

department work. We study in the courses that the online DD, PO, TT etc but never get

the chance to see the transactions, the online payments makes easier banking system to its

customers, facilitating online deposits, payments and cash transfer from one bank to

another or one city/country to another within some hours. I got the knowledge of the

remittance department and explain some things which are compulsory for these kinds of

remittance. I made the drafts for many customers and observed the procedures how to

transfer MT, DD and TT.


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12. RATIO ANALYSIS

a) LIQUIDITY RATIOS:

Liquidity ratios measure a firm’s ability to meet its current obligations.

These include:

Current Ratio:

Current Ratio = Current Assets / Current Liabilities

2009 856,706,861 / 782,364,132 1.0950

2008 745,785,752 /675,617,003 1.1038

2007 705,275,649 / 609,784,513 1.1565

Working:

CA = Cash and balances with treasury banks+ Balances with other banks+ lending to

financial institutions - net + investments – net + advances - net

CL = Bills payable + Borrowings from financial institutions + deposits & other accounts


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0

0.5

1

1.5

2

2009 2008 2007

Ratio

INTERPRETATION:

From the above-calculated figures, it has been deduced that the current ratio has

fluctuated over three years time span. As in the year 2007 NBP had the high ability to

meet it current liabilities from its current assets. Where as current ratios of 2008 and 2009

posses low ability to meet its current liabilities that indicate the less liquid position of the

bank.

Acid Test Ratio:

There is no inventory in the banking structure instead of inventory we’ll excluded

pre-payments from the current assets. Pre-payments are the expenditures that are paid

in advance and cannot be apprehend in cash.

Acid Test Ratio = Current Assets – Inventories – prepaid expenses / current

liabilities

2009 (856,706,861 – 59316438) / 782,364,132 1.019

2008 (745,785,752 – 44550347) / 675,617,003 1.037

2007 (705,275,649 – 30994965) / 609,784,513 1.105


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0.96

0.98

1

1.02

1.04

1.06

1.08

1.1

1.12

2009 2008 2007

Ratio

Working:


financial institutions - net +investments - net + advances - net

Prepaid Expenses = other assets


INTERPRETATION:

In 2007 NBP had enough liquid assets from which it can meet urgent liabilities easily but

this position can’t be maintain in 2008 and then more decreased in 2009 that point toward

the weak capability to meet up its immediate liabilities.


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Working Capital Ratio

Working Capital = Total Current Assets – Total Current Liabilities

2009 856,706,861 - 782,364,132 74342729

2008 745,785,752 - 675,617,003 70168749

2007 705,275,649 - 609,784,513 95491136

0

20000000

40000000

60000000

80000000

100000000

120000000

2009 2008 2007

Ratio

Working:


financial institutions - net + investments - net + advances - net


INTERPRETATION:


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From the above-calculated figures, in 2007 year working capital was enough

positive but decreased in 2008 then in 2009 its tend to be again little bit up after falling.

Working capital is more a measure of cash flow than a ratio. The result of this

calculation must b a positive number. Bankers look at net working capital over time to

determine a company’s ability to weather financial crises. Loans are tied to minimum

working capital requirements.

b) Leverage Ratios:

Leverage ratios measure the degree of protection of suppliers of long term funds.

These include:

Times Interest Earned = EBIT + interest expenses / interest

2009 22,300,173+23,513,897/23,513,897 =1.95

2008 23,000,998+19,502,080/19,502,080 =2.18

2007 28,060,501+14,391,079/14,391,079 =2.95

0

0.5

1

1.5

2

2009 2008 2007

Ratio


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37


Working:

year Earning before taxes: Non mark up/ interest

expenses

2009 22,300,173 23,513,897

2008 23,000,998 19,502,080

2007 28,060,501 14,391,079

INTERPRETATION:

This debt/worth or Leverage ratio indicates the extent to which business is reliant

on debt finance. The higher this ratio the more risky a creditor will perceive its exposure

in your business. From the calculated figures NBP decrease this ratio from last three

years which is a positive sign for banks financial standing.

Debt Ratio:

Debt Ratio = Total Debt /Total Assets

2009 (824676384 / 944232762) 0.87

2008 (715299108 / 817758326) 0.87

2007 (645855939 / 762193593) 0.84


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0.82

0.83

0.84

0.85

0.86

0.87

0.88

2009 2008 2007

Ratio

Working:

Total Debt = Bills payable + Borrowings + Deposits and other accounts +

Liabilities against assets subject to finance lease + other liabilities

Total Assets = Cash and balances with treasury banks + Balances with other

banks + Landings to financial institutions + Investments + Advances + Operating

fixed assets + Deferred tax assets + other assets

INTERPRETATION:

From the above figure, this ratio increases from the last two years, because from

the previous years the current liabilities increase much then current assets. The low the

ration the high bank position will be and more favorable for deposits and future lending.

Debt/Equity Ratio:

Debt/Equity Ratio=Total liabilities/Shareholder Equity

2009 824676384 / 94791919 =8.69

2008 715299108 / 81367002 =8.79


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2007 645855939 / 69270631 =9.32

8.2

8.4

8.6

8.8

9

9.2

9.4

2009 2008 2007

Ratio

Working:

Total liabilities: Bills payable + Borrowings + Deposits & other account + Liabilities

against subject to the finance lease + other assets

Shareholder Equity: share capital + un-appropriated profit & other reserves

INTERPRETATION:

Above calculations and trend analysis shows that NBP has very positive figures that

reflect the strong position of the capital formation of the bank. All years are presenting

the high debt to the equity ratios. So NBP has stumpy financial hazard as it is well

financed with internal funds.

Debt to Tangible Net worth Ratio:


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40


Debt to Tangible Net worth Ratio = Total Debt / Equity – intangible assets

2009 824676384 / 94791919 - 17530 8.701

2008 715299108 / 81367002 - 5925 8.791

2007 645855939 / 69270631 - 8578 9.324

8.2

8.4

8.6

8.8

9

9.2

9.4

2009 2008 2007

Ratio

Working:

Total Debt = Bills payable + Borrowings + Deposits and other accounts + Liabilities

against assets subject to finance lease + other liabilities

Shareholders Equity = Share Capital + Capital Reserves + Un-appropriated Profit and

other reserves

INTERPRETATION:

In 2007 ratio was very high that shows the riskier position of the bank but later on in last

two year bank’s leverage on long term debt is increased and ratios went down that is the

good sign for the financial health of the NBP.


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41


Total Capitalization Ratio:

Total capitalization ratio = long term debt /long term debt + owner’s equity

2009 2008 2007

42,312,252 / (42,312,252 +

94,791,919)

= 0.31

39,682,105 / (39,682,105

+81367002)

=0.33

30,973,595 / (30,973,595

+69270631)

=0.34

0.29

0.3

0.31

0.32

0.33

0.34

0.35

2009 2008 2007

Ratio

Working:

Long term debt = Liabilities against assets subject to finance lease + other liabilities

+long term deposits

Owner’s Equity = = Share Capital + Capital Reserves + Un-appropriated Profit and

other reserves

INTERPRETATION:

Total capitalization ratio for the respective year’s show that the long term debts of the

NBP are decreasing faintly year by year. So it’s mean that in the comparison with the

existing capital bank is in pretty good situation of capitalization but need more.


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42


c) Profitability Ratios:

Net Profit Margin:

Net Profit Margin = Net profit / Net sales * 100

2009 18211846/77947697*100 23.36%

2008 15458590/60942798*100 25.36%

2007 19033773/50569481*100 37.64%

0

5

10

15

20

25

30

35

40

2009 2008 2007

Ratio

Working:

Amounts are taken from profit & loss statement

Net profit = Profit after taxation


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Net sales = markup / return / interest earned

INTERPRETATION:

The ratio is used for the measurement of the profitability of the bank whether bank

generate favorable profit or not. Above figures & ratios show that with the every passing

year the ratio of net profit margin tended to be decreased because of high sales overheads.

Return on Assets Ratio:

Net profit after tax/ total assets

2009 18211846 / 944232762 1.93%

2008 15458590 / 817758326 1.89%

2007 19033773 / 762193593 2.50%

0

0.5

1

1.5

2

2.5

3

2009 2008 2007

Ratio


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Working:

Amount are taken from profit & loss statement

Net profit after tax = Net profit available for appropriation

Amounts are taken from balance sheets

Total assets = Cash and balances with treasury banks + Balances with other banks +

Landings to financial institutions + Investments + Advances + Operating fixed assets +

Deferred tax assets + other asset

INTERPRETATION:

The ROI shows how profitable a company's assets are in generating revenue i.e.

how many rupees of earnings they derive from each rupee of assets they control the

return on total assets often called the return on investment (ROI), measures the overall

effectiveness of management in generating profits with its available assets. The higher

the firm’s return on total asset the better the value shows that the company earned.

This ratio measures overall effectiveness in generating profits with available

assets; earning power of invested capital. The ratio has increased in 2007 but fallen down

in 2008. Above figures shows that in 2009 the ratio has little bit upward trend.

DuPont return on assets:

(Net profit / Net sales) / (sales / total assets)

2009 0.233 / 0.08 2.91


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2008 0.253 / 0.07 3.61

2007 0.376 / 0.07 5.37

0

1

2

3

4

5

6

2009 2008 2007

Ratio

Working:

Amounts are taken from profit & loss statements

Net profit = Profit after taxation

Net sales = markup / return / interest earned

Sales = markup / return / interest earned

Amounts are taken from balance sheets

Total assets = Cash and balances with treasury banks + Balances with other banks +



INTERPRETATION:


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46


ROA measures the rate of return on the ownership interest (shareholders' equity)

of the common stock owners. It measures a firm's efficiency at generating profits from

every rupee of net assets, and shows how well a company uses investment rupees to

generate earnings growth. A highly return on equity often reflects the firm’s acceptance

of strong investment opportunities and effective expense management. From year to year

it’s fluctuating in 2009 it is less than the previous and the current year also.

Operating Income Margin:

Operating Income Margin=EBIT or Operating Income / Sales * 100

2009 (22300173/ 77947697)*100 28.609%

2008 (23000998/ 60942798)*100 37.741%

2007 (28060501/ 50569481)*100 55.489%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

2009 2008 2007

Ratio

Working:

Amounts are taken from profit & loss statements

Operating Income and the EBIT are same.


http://en.wikipedia.org/wiki/Shareholders%27_equity

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47



INTERPRETATION:

In 2007 NBP had good cost control and sales were also higher than costs that shows bank

had low cost operating representation. But the year 2008 trend is showing the low

operating margin ratio because of high percentage of costs. 2009 is less than the previous

years that is not the good position for the bank.

Return on operating Assets:

Net Income / Operating Assets

2009 (18,211,846 / 25,147,192) 72.4%

2008 (15,458,590 / 24,217,655) 63.8%

2007 (19,033,773 / 25,922,979) 73.4%

58.00%

60.00%

62.00%

64.00%

66.00%

68.00%

70.00%

72.00%

74.00%

76.00%

2009 2008 2007

Ratio

Working:

Amount are taken from financial statements


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48


Net profit after tax = Profit after tax

Operating Assets = Capital work in progress + Property & Equipments + Intangible

Assets For banking organizations Cash in hand, balances with

treasury banks and operating fixed assets are operating assets.

INTERPRETATION:

This ratio helps the management in measurement of the assets that are actually required

for the running of the business and guide them which assets are unnecessary has to be

reduce. Above figures and trends indicate the position of the operating assets. In 2008 it

was very low level of ROOA. But in 2007 & 2009NBP had good and positive position of

ROOA.

Return on Total Equity Ratio:

Net profit / Total equity

2009 18,211,846 / 94,791,919 19.21 %

2008 15,458,590 / 81367002 18.99 %

2007 19,033,773 / 69270631 27.47 %


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0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

2009 2008 2007

Ratio

Working:

Amount are taken from financial statements

Net profit after tax = Profit after tax

Owner’s Equity = = Share Capital + Capital Reserves + Un-appropriated Profit and

other reserves

INTERPRETATION:

ROE measures the rate of return on the shareholders' equity of the common stock owners.

It measures a firm's efficiency at generating profits from every rupee, and shows how

well a company uses investment to generate earnings growth. A highly return on equity

often reflects the firm’s acceptance of strong investment opportunities and effective

expense and liabilities management.


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Gross Profit Margin:

Gross Profit / Sales

2009 38458048 / 77947697 * 100 49.3%

2008 37058030 / 60942798 * 100 61%

2007 33629470 / 50569481 * 100 66%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

2009 2008 2007

Ratio

Working:

Amount are taken from profit & loss account

Gross Profit = Net markup/interest income


INTERPRETATION:


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This particular ratio tells us that whether our markup on goods normally covers

our expenses and therefore results in profit or not. If our gross profit rate is continually

lower than our average margin than its means something is wrong!

This ratio tells us the profit of the firm relative to sale. The ratio is decreasing

from the last year compared to previous years .That should be resolved by appropriate

solutions in upcoming year.

d) Activity Ratios:

Total Assets Turnover Ratio:

Net sales / Total Assets

2009 77947697 / 944232762 8.25%

2008 60942798 / 817758326 7.45%

2007 50569481 / 762193593 6.63%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

9.00%

2009 2008 2007

Ratio


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52


Working:

Amount are taken from profit & loss statements

Net Sales = markup / return / interest earned

Amount are taken from balance sheets

Total Assets = Cash and balances with treasury banks + Balances with other banks +



Interpretation:

From the ratio, it’s showing that the total assets turnover is increasing from

previous year drastically and assets are utilizing resourcefully in NBP.

Fixed Assets Turnover:

Sales / Fixed Assets

2009 77947697 / 25147192 3.10

2008 60942798 / 24217655 2.52

2007 50569481 / 25922979 1.95


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0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

2009 2008 2007

Ratio

Working:

Amount are taken from profit & loss statements

Net Sales = markup / return / interest earned

Operating Assets = Capital work in progress + Property & Equipments + Intangible

Assets

INTERPRETATION:

NBP is utilizing its fixed assets in very effective way that lead to produce more sales as

above figures shown yearly increase in the fixed turnover ratio.


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e) Market Ratios:

Dividend per share:

Dividend paid / number of shares issued

2009 5820338/1076370 5.40

2008 6104894 / 1076370 5.67

2007 19393263 / 896975 21.62

0

5

10

15

20

25

2009 2008 2007

Ratio

Working:

Amounts are taken from financial statement.

Dividend Paid:

2009: 5820338

2008: 6104894

2007: 19393263

Number of shares issued: number of ordinary shares


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INTERPRETATION:

The dividend has been paid with respect to issuing of bonus shares and earning had

increased with respect to previous year 2007.but from last two years it is reduce with

a big difference.

Earning per Share

Earning per Share = (Net profit after tax / number of shares issued)

2009 (18211846/ 1076370) 16.92

2008 (15458590 / 1076370) 14.36

2007 (19033773/ 896975) 21.22

0

5

10

15

20

25

2009 2008 2007

Ratio

Working:

Amounts are taken from financial statements (30.note)

Net profit after tax = profit after tax for the year

Number of share issued = average number of ordinary shares

INTERPRETATION:

Earnings per share for the year 2008 have been restated for the effect of bonus

shares issued during the year.


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Price/Earning Ratio:

Market value per share / Earning per share

2009 68.11 / 16.92 4.03

2008 149.93 / 14.36 10.44

2007 146.03 / 21.22 6.88

0

2

4

6

8

10

12

2009 2008 2007

Ratio

Working:

Figures for this calculation are taken from financial statements given below.

year Market value per share Earning per share

2009 68.11 16.92

2008 149.93 14.36

2007 146.03 21.22


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INTERPRETATION:

As the ratio predicts that the market value of NBP shares is increasing and standing bank

position in market is good and making profit against the price of the ratio.

13. Future Prospects of the NBP

National Bank of Pakistan has the following future prospects

Innovative products lending based on cash flow lending for storage and

processing of agricultural produce.

Extensive training of field functionaries to facilitate the Agri. Customers

NBP will continue to diversify their customer segments thereby increasing their

product offering.

Provision of reliable infrastructure for expansion of existing agriculture financing

making it capable to respond to the customer needs

Adequate & timely provision of credit to meet short, medium & long term

requirements of farm and non farm sectors

NBP commitment towards the employee’s development will continue, as believe

that a motivated and well-trained work force is necessary to ensure sustenance

and growth.

Guidance in judicious use of credit by assisting the farmers in management of

credit

Financing products on the media to raise awareness level of farming community

Financing to Model Farms in Crops, Fruits, Vegetables and Livestock for

developing synergies and linkages with the farming community

Strengthening of HR base both at field and controlling offices

Adequate Credit for precision land leveling, drip irrigation, sprinkler irrigation

Establishment of data bank in NBP regarding latest technologies and recent

innovations developed in the country regarding agro-food sector. Close liaison

with leading Universities/Colleges involved in research in this sector


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14. Conclusion

The bank has now completed more than 60 years, since partition and it is indeed

gratifying to note that during this period, NBP has performed well and has sustained its

growth in all major sectors.

NBP has been a pioneer among the banks in Pakistan, particularly in introducing a

number of innovative banking products and services. For the first time in the history f

Pakistan, these multifarious products mostly in the shape of saving schemes and

Agriculture loans to small farmers have been introduced by NBP with brand names. This

has set the trend and many other banks, both local and foreign, have since followed in

NBP’s footsteps, by launching new products and services on similar lines. The well

deserved credit for this good performance and progress must surely go to the Bank’s

Management, its Directors and, in no small measure, to the entire NBP team for its

dedication, concerted efforts and excellent team spirit.

Today the biggest challenge for banking industry in Pakistan is to retain existing

customers and tap new avenues to capture potential customers. As the spreads are

increasing the emphasis has shifted to high volume of profitable transactions. The key to

achieve this objective lies in dealing with the customers effectively and meeting their

expectations on a continuous basis.

This is the transformation of banking from product orientation to customer orientation.

Initially it was believed that banks are in finance industry and not in service industry but

now image has changed. For survival quality is the challenge in this era of cutthroat

competition high deposits and high profits are not the only source of survival.

So, the paradigm shifts customers and services become the life blood of any business.

Change in banking trends demand new type of banking services delivered actually in new

ways and new resources.


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15. Recommendation for Improvements

(On the basis of Ratio Analysis)

NBP should increase its current assets to meet the current liabilities timely and

this will also help the bank in future challenges of day to day business. In

comparison of 2007, in 2009 the liquidity of the NBP has decreased so it should

boost the short term investments or resources.

The Debt to the Equity ratio of the NBP is very high that is not good sign for the

financial health of the bank. So in my point of view NBP should pay off some of

its debt so that bank will be able to borrow the more debt in crisis.

NBP should cut off its administrative expenses & selling expenses so that costs

can be control instead of out of control. So that NBP’s capability of acceptance of

investment opportunities can be boost.

NBP should reduce its high debt and sales overhead so that it could enlarge the

gross profit margin and also maintain it. Bank should also enhance its selling

prices compare to the previous year.

Current ability of the NBP to value its shareholders is very from last two years. It

is very crucial to pay noticeable attention towards the low dividend per share. It

doesn’t mean that NBP is going unprofitable but need to be attentive about

reinvestments in the bank assets and other vital steps.

(On the basis of Internship)


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The most important recommendation I want to suggest that is recruitment of

new staff as the management structure is very congesting employee’s are not

enough for the main branch of the bank as there is huge dealing of the

customers.

NBP should hire more efficient market analyst for the purpose of effective

market approach by enhancing the awareness among the customer and the

common citizen of the Pakistan. This plan can be take place through the

advertisement and the educated presenters before the public for guided them.

Training of the employees with new technologies should be organized

frequently for the better understanding of new tools of software’s and

technologies.


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16. Reference & Resources used

Handouts of CS 101, FINI 602, MGT 101 and FINI 621

Advanced Accounts (M. A Ghani)

Banking Law and Practice by Khawaja Amjad Saeed

Money, Banking and Finance by Mian Riaz Ahmed

Bank Nationalization act 1974

Islamic Banking

www.nbp.com.pk

Annual report 2009

Annual report 2008

Information from branch employees

17. Annexes

Financial reports from this link

http://www.nbp.com.pk/Publications/index.aspx


http://www.nbp.com.pk/

http://www.nbp.com.pk/Publications/index.aspx

virtual university of pakistan evaluation sheet for

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