"NBP internship report"
Virtual University of Pakistan National Bank of Pakistan Internship Report Umeed MC08040000 (2008 – 2010) Submitted On: September 27, 2010 VIRTUAL UNIVERSITY OF PAKISTAN Scanned Copy of Letter of Undertaking Scanned Copy of the Internship Certificate Pending Dedication I am proudly dedicating my Internship report to my Beloved Parents for all their love & guidance, which grow me in a shape that I make it up to this point. Moreover, I am dedicating my work to my teachers as well as the Internship Advisors, who filled me with courage, commitment and the awareness to follow the best possible route, by his unmatchable style and by best possible training. 2 Pending Acknowledgement All the praises are for the ALMIGHTY ALLAH, the CREATOR of universe, the most gracious & merciful, and the source of all knowledge, wisdom within and beyond my comprehension. ALLAH is the only, WHO can help us in every field of life. I bow my head before HIM who enabled me to work on this report and helped me to complete this report successfully. All praises after ALMIGHTY ALLAH are due to HOLY PROPHET HAZARAT MUHAMMAD (Peace be upon him), the most perfect exalted among, WHO & us is forever a torch of guidance and knowledge for humanity as a whole. 3 Afterward, I am greatly indebted to my Parents and FIN619 instructor for providing me excellent guidance to successfully complete my Internship report of National Bank of Pakistan. I here by provided a golden opportunity to perform working activities at NBP for a period of 10 weeks. The aforesaid occupancy bestow me precious moments to make learning and get experience of the practice life with a successful approach. Soon after, I am heartily grateful to Mr. Abid Ali, Operations Manager of the National Bank of Pakistan, who confer me possibility to enhance my understanding and knowledge about the working systems of NBP, which would ultimately useful for my future career and whose cooperation enables me to compile this comprehensive report. Executive Summary In order to interpret my knowledge and working skills, I have performed 10 months internship at National Bank of Pakistan, Hide Market Branch, Gujranwala. The objective of the internship was to explore the issues related to finance and the implementation of financial terms, which I learnt from my course books. In this report, I have given a very brief review of what I have seen and felt during my internship in customer service, cash clearing account and Loan department. I have mentioned all of my active and passive learning in my Internship report. 4 During my internship, I conclude the strengths of the organization as good dynamic environment, large deposit, automatic operation, online banking and Islamic banking. Moreover, I have also performed the Financial Analysis of 3 preceding years and commented on the entire picture of the organization. Furthermore, I have discussed about my learning skills and capabilities in the whole tenure that is all about the Banking Terminologies, Operation activities and working activities of Finance Department. I have made it possible to write each and every thing that I have learnt over there. I have all my practical efforts in the form of this manuscript that’s the asset for my future career. Table of Contents Index Description Page 1 Letter of Undertaking 2 2 Scanned copy of internship certificate 3 3 Dedication 4 4 Acknowledgment 5 5 Executive Summary 6 6 Table of Content 7-8 7 Brief introduction of the business sector of organization 9 8 Overview of the organization 10 5 History 10 Nature of organization 11 Business volume 11 Services and Offerings 12 Competitors List 15 9 Organization structure 17 Organizational Hierarchy Chart 17 Number of employees 17 Main offices 18 Introduction of all the departments 18 Comments on the organizational structure 21 10 Plan of your internship program 22 A brief introduction of the branch/head office where 22 you did your internship Starting and ending dates of your internship 22 The departments in which you got training and 22 duration of your training 11 Training program 23 Detailed description of the department you 23 worked in. Detailed description of the tasks assigned to me 31 12 Structure of finance department 33 Department hierarchy 33 Number of employees working in the finance 33 department Finance & Accounts Operations 33 13 Functions of the Finance Department 34 Accounting system of the organization 34 Finance system of the organization 34 Use of electronic data in decision making 34 Sources of funds 35 Allocation of funds 36 14 Critical analysis 37 6 Financial Ratios 37 Liquidity Ratios 37 Leverage Ratios 39 Profitability Ratios 42 Activity Ratios 46 Cash Flow Ratios 47 Bank’s Special Ratios 48 Horizontal Analysis 50-52 Vertical Analysis 52-54 Industry Analysis 54 Trend Analysis 55 Future Prospectus of NBP 56 15 SWOT Analysis of organization 57 16 Conclusion 61 17 Recommendations for improvement 62 18 References and Resources Used 63 19 Annexure 64 Brief Introduction of NBP’s Business Sector The business sector of National Bank of Pakistan (NBP) is “Banking Sector”. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks in Pakistan account for 95% of the financial sector. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a flourishing banking sector. 7 The era of 90s was the climax of privatization, deregulation and restructuring in the domestic banking industry and financial institutions. The Government only owns the National Bank but 80% of bank assets are in private sector. Banking assets rose three- folds over the last five years and the industry size are reaching Rs. 4 trillion. The contribution of banking sector to GDP ratio is 55.6%. Pakistan has been ranked 2nd in performance and efficiency indicators among the South Asian countries by the World Bank. There are 68 scheduled banks of which the top five have 50% of the market share. Banking industry, in Pakistan, is currently under a wave of Mergers and Acquisitions (M & As). The Governor State Bank of Pakistan, Syed Salim Raza has recently said that “Pakistan’s banking industry has tremendous potential for further investment in the financial sector of the country.” Overview of National Bank of Pakistan 1. Brief History of NBP The National Bank of Pakistan is one of the largest commercial bank of Pakistan .It was incorporated in 1949 under the National Bank of Pakistan Ordinance 1949. Initially, it was owned by Govt. of Pakistan and later on moved to modern commercial banking. NBP works as an agent to ‘State Bank of Pakistan’ and has its Head Office at Karachi, along with more than 1250 branches in all over the Pakistan. NBP advances have reached to rupees 554.40 million in 1950, which was one third of the total scheduled bank’s credit. NBP has been declared as the best bank for 2001- 2002 by United Kingdom and is the bank of the year for 2003-2004 of Pakistan. 8 Moreover, NBP has been awarded with AAA and AAA+1 rating by JCR-VIS Credit co. Ltd and affiliated of Japan Credit Rating Agency for 2001 and 2002 respectively. Vision Statement The vision statement of NBP is; “To be recognized as a leader and a brand synonymous with trust, highest standards of service quality, international best practices and social responsibility.” Mission Statement The mission statement of NBP is that “NBP will aspire to the values that make NBP truly the Nation’s Bank”, through: Institutionalizing a merit and performance culture; Creating a distinctive brand identity by providing the highest standards of services; Adopting the best international management practices; Maximizing Stake holder’s value; Discharging their responsibility as a good corporate citizen of Pakistan and other countries. 2. Nature of the Organization National Bank of Pakistan provides both commercial as well as pubic sector services. NBP is serving as a lead player in the debt equity market. NBP has extended its area of services beyond the country. The branches of NBP is spread all over the world, which includes USA, Canada, Germany, France, Bahrain, Egypt, Bangladesh, Hong Kong, Japan, South Korea, China, Afghanistan, Turkmenistan, Kyrgyz Republic, Kazakhstan, Uzbekistan and Azerbaijan. The bank is engaged in providing commercial banking and related services in Pakistan and overseas. NBP is the main business partner for the Government of Pakistan, with special emphasis on fostering Pakistan's economic growth, through aggressive and balanced lending policies and technologically oriented products & services. NBP further 9 consolidated its position as one of the top players in corporate and investment banking of the country in 2007 and has built a strong customer relationship with the premier corporate clients. Additionally, NBP have recently set up the Financial Institution Wing, which is placed under the Risk Management Group. The role of the Financial Institution Wing is; To effectively manage NBP's exposure to foreign and domestic correspondence Manage the monetary aspect of NBP's relationship with the correspondents to support trade, treasury and other key business areas, thereby contributing to the bank's profitability Generation of incremental trade-finance business and revenues. 3. Business Volume The Issued, subscribed & paid up capital of National Bank of Pakistan is as follows; No. of Categories Of Shareholders Shares Held %age Shareholders Government Of Pakistan 3 4,338,409 0.4031 State bank Of Pakistan 1 809,408,116 75.1979 Directors CEO & Children 1 22,347 0.0021 Associated Companies 2 5,808 0.0005 Executives 22 69,838 0.0065 NIT & ICP 3 10,089,752 0.9374 Bank DF And NBPF 40 14,818,881 1.3767 Insurance Companies 24 10,639,396 0.9885 Modaraba & Mutual Funds 41 54,300,194 5.0448 General Public Local 16,237 60,604,356 5.6304 General public Foreign 17 204,856 0.0190 Others 335 38,012,089 3.5315 Foreign Companies 34 50,069,644 4.6517 NIT & ICP 3 10,089,752 0.9374 10 Moreover, NBP has a highly skilled team with years of banking services experience. Its goal is to “To enhance profitability and maximization of NBP share through increasing leverage of existing customer base and diversified range of products.” 4. NBP’s Services and Offerings National Bank of Pakistan mainly offers; The lowest rates on exports and other international banking products Access to different local commercial banks in international banking An overview of services provided by NBP is as follows; A. Demand Drafts NBP provides a safe, speedy and reliable way to transfer money through NBP's Demand Drafts at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from any of the branch of NBP. B. Letter of Credit NBP is committed to offering its business customers the widest range of options in the area of money transfer. NBP provides the service of Letter of Credit with competitive rates, security, and ease of transaction to commercial enterprises. C. Mail Transfers NBP mail Transfer service helps to move money safely and quickly with competitive rates in the market. D. Pay Order NBP provides another reason to transfer the money using Pay Orders, a secure and easy way to move your money from one place to another. E. Traveler’s Cheques Negotiability: Pak Rupees Traveler's Cheques are a negotiable instrument 11 Validity: There is no restriction on the period of validity Availability: At 700 branches of NBP all over the country Encashment: At all 400 branches of NBP Limitation: No limit on purchase Safety: NBP Traveler's Cheques are the safest way to carry our money F. Commercial Finance NBP’s dedicated team of professionals truly understands the needs of professionals, agriculturists, large & small business and other segments of the economy. They are the customer's best resource in making NBP's products and services work for them. G. Foreign Remittance To facilitate its customers in the area of Home Remittances, National Bank of Pakistan has taken a number of measures to: Increase home remittances through the banking system Meet the SBP directives/instructions for timely and prompt delivery of remittances to the beneficiaries In order to include new features, the existing system of home remittances has been revised significantly to provide efficient and reliable home remittance services to nonresident Pakistanis at 15 overseas branches of the Bank, besides United National Bank (the joint venture between NBP and UBL in UK)., Bank Al-Jazira and Saudi Arabia. Zero Tariffs: NBP is providing home remittance services without any charges. Strict monitoring of the system is done to ensure the highest possible security. Special courier services are hired for expeditious delivery of home remittances to the beneficiaries. H. SWIFT System 12 The SWIFT system (Society for Worldwide Inter bank Financial Telecommunication) has been introduced for speedy services in the area of home remittances. The system has built-in features of computerized test keys, which eliminates the manual application of tests that often cause delay in the payment of home remittances. The SWIFT Center is operational at National Bank of Pakistan with a universal access number NBP-PKKA. All NBP overseas branches and overseas correspondents (over 450) are drawing remittances through SWIFT. Using the NBP network of branches, customers can safely and speedily transfer money for our business and personal needs. I. Equity Investments NBP has accelerated its activities in the stock market to improve its economic base and restore investor confidence. The bank is now regarded as the most active and dominant player in the development of the stock market. NBP is involved in the following: Investment into the capital market Introduction of capital market accounts (under process) NBP's involvement in capital markets is expected to increase its earnings, which would result in better returns offered to account holders. J. Short Term Investments NBP now offers excellent rates of profit on all its short term investment accounts. Whether customers invest for 3 months or 1 year, NBP's rates of profit are extremely attractive, along with the security and services, only NBP can provide. K. National Income Daily Account (N.I.D.A) The scheme of National Income Daily Account was launched in December 1995 to attract corporate customers. It is a current account scheme and is part of the profit and loss system of accounts in operation throughout the country. L. Trade Finance & Other Business Loans 13 Agriculture Finance NBP provides Agricultural Finance to solidify faith, commitment and pride of farmers who produce some of the best agricultural products in the world. Following are the types of Agriculture finance; Agricultural Finance Services Agricultural Credit Farm Credit Production Loans Corporate Finance Following are the types of Corporate Financing by NBP; Working Capital and Short Term Loans Medium term loans and Capital Expenditure Financing Loan Structuring and Syndication Cash Management Services 5. Competitors of National Bank of Pakistan Allied Bank Limited Bank Al-Falah Limited. Bank of Punjab Limited Habib Bank Limited United Bank Limited Muslim Commercial Bank Limited Standard Chartered Bank Limited Askari Commercial Bank Limited Bank Al-Habib Limited 14 Organizational Structure a) Organizational Hierarchy Chart 15 b) Number of Employees In 2009, there are 16,248 numbers of employees working in National Bank of Pakistan, all over Pakistan. The Board of Directors of NBP is as follows; Syed Ali Raza (Chairman & President) Mr. Tariq Kirmani (Director) 16 Mrs. Haniya Shahid Naseem (Director) Ms. Nazrat Bashir (Director) Mr. Ekhlaq Ahmed (Secretary Board of Directors) c) Main office National Bank of Pakistan NBP Building, I.I. Chundrigar Road, Karachi, Pakistan. Phone: +92 (21) 9921 2100 (50 lines) Website: www.nbp.com.pk d) Introduction of all the departments The Directors and Management of National Bank of Pakistan recognized the worth of specialization and division of work, therefore, a number of departments have been established to cope with changing and competitive environment. These departments are discussed here under one by one; 1. Deposit Accounts Deposits are those accounts in which customers keep their savings, and there are numbers of those accounts, like PLS Saving Accounts, Current Accounts, Special saving accounts i.e. Premium Saving Accounts and NBP Premium Amdani Certificates. Usually bank gives semi-annually profits on PLS Saving Accounts as well provides there customer with certain more facilities. Whereas in Current A/c Profit is not given semi-annually, this A/c is specially for businessmen, so that’s why special waivers are given to them according to nature of the account, Like providing certain free of cost services etc. Where else in Special A/c’s profit is given on certain rules, like monthly basis profit system on fixed percentage of ratio of amount. 17 2. Loan Facility (Advances): Advances are one of the types of loans. It may be long term as well short term. NBP gives loan to borrowers for their personal or business usage. Advances for personal usage are low as compared to business use. At the same time bank is giving advances for various sectors for various tenure. Some of the forms of advances, which are given for various sectors for various tenures, are here as under… Small Finance, Cash Finance, Agriculture Finance, Cash & Gold Loan, Personal Loans, Demand Finance, Running Finance, Corporate Finance, Export Import Financing, House Building Finance (Saiban) and NBP Karobar Scheme etc. In advances, loans are given to the party under some guarantee, like pledging of land, mortgage loans etc. 3. Government Payer: As National Bank of Pakistan is the main Government bank, so because of this reason it is functioning as an agent of SBP. All types of Government Payments like pension, salaries of almost every Govt. dept, Zakat, Benevolent Fund, Treasury Refund and Taxes Refund proceed through the bank. . 4. Receipts for Government: National Bank of Pakistan is also acting as an agent of Government in the act of receiving of government receipts. In this department all types of Government receipts i.e. Revenues, Taxes, Abyana, Agriculture Tax, Government Fees, EOBI Funds and Utility Bills are deposited. This way NBP is serving great job of revenue collection from public. 5. Remittance Facilities: This department deals in transfer of money from one place to another or country by: Demand drafts Mail transfer Telegraphic transfer 18 People send their money to the other persons and organizations through various way i.e. Bank draft, Telegraphic Transfer, Mail Transfer, Coupons, Govt. Draft and Western Union Money Transfer etc. It works both inward and outward. It is centrally controlled by the main head office, means all the transactions are further treated by the head office. 6. Bills / Traveler Cheques Customers collect their money/amount through bills. They present their cheque, drafts and other bills for collection within the city and out of the city through mail. Now a day’s Online Banking is becoming more popular for this purpose but the branch where I got training is still not have this facility. 7. Cash Department: National bank deals Government treasury on behalf of State Bank of Pakistan. There are Chest, Sub-chest and Non-chest branches in the bank. SBP supplies currency notes to the bank and monitors its cash flow, as well the main function of this department is to controlling of the spoiled currency noted in the market and it possible that everybody should get good quality of currency notes (sorted notes). 8. FBR Collection Department Federal board of revenue’s collection is one of the very important sources of government’s income, for this purpose NBP is playing great role for collection of FBR (CBR) taxes/revenue. A separate counter is established at branch level to facilitate the taxpayers. 9. Islamic Banking Islamic banking operation came into existence from year 2007. During the year under review, in addition to active participation in various Sukuk transactions, two more Islamic banking branches at Lahore and Peshawar started operations. NBP’s plans for the year 2010 include opening of Faisalabad and Rawalpindi branches with the focus on growing organically by opening more standalone Islamic banking branches, utilizing NBP’s existing branch network of 1,200 plus conventional branches and looking into strategic acquisitions for expansion in this field. 19 10. Online Banking The functioning of this department is the online linkage of other branches with each others; this department facilitates its customers to feel at home, because with the help of online. e) Comments on the Structure of National Bank of Pakistan The structure of National Bank of Pakistan is tremendously competitive. It is purely because of the interrelated working efficiency among its departments. In order to achieve the goals of NBP, each of its department deals with its own responsibilities and contributes in the strategic, tactical, and operational planning of the business. Now days, the rapid appearance of technology played a vital role in the efficiency and effectiveness of the business. The ‘Technology’ replaced the manual power and probably plays a major role to enhance and expand the business. Moreover, in this era of technology, the “Information” is the key to success in the business. This means that the successful businessman will be who will have the right information at the right time. In order to achieve the levels of technology and keep itself in the race of progress, National Bank of Pakistan uses the most reliable versions of financial software, including Oracle E Business Suite Financials. In tenure of my 10 weeks, I came to know that the company’s progress has mainly attained through dedication of employees. The effectiveness of its management, their willingness to take advantage of opportunities and face challenges of changing economic picture is really appreciable, for the devotion and hard work of all the employees of the company. Plan of my Internship Program a. A brief introduction of the branch where I did my internship I have performed my internship in National Bank of Pakistan at: 20 Name of Branch National Bank of Pakistan, Gujranwala Branch Code 0850 Region Gujranwala Region Code 13 Address Hide Market, Feroz Wala Road, Gujranwala Phone # 0554-9230038-9230028 Name of Manager Miss Afaira Amir Name of My Supervisor Nisar Ahmed Name of Operation Manager Abid Ali b. Starting and Ending dates of my Internship Time duration of my internship at National Bank of Pakistan is 10 weeks. Starting date is May 01, 2010, and Ending date is July 15, 2010. c. Names of the departments in which I got training and the duration of training During my internship period at NBP, I got training in various departments of the branch. A brief introduction of these departments is as under; 1. Deposit of Current and PLS Saving Accounts (2 Week) 2. Account Opening (2 Weeks) 3. Remittances and Bills (2 Weeks) 4. Utility Bills Collection (2 Weeks) 5. Govt. Payments and Receipts (2 Weeks) Training Program a. Detailed description of the operations / activities performed by the department(s) I worked in. 21 National Bank of Pakistan uses dissimilar departments to execute its tasks and functions with the harmonization of work force with the help of available resources and technology. All theses interrelated departments performing their particular responsibilities and make their required contribution in achievement of its goals. Here; detail description of the operations and activities of the departments where I have conduct my internship report. 1. Account Opening Department: In this department, I have acquired the knowledge regarding the dealings of this department with opening current and saving account for its corporate customers and deals with all other matters. National Bank of Pakistan has subsequent kinds of customers under this department. Trust Staff Firm Company Individual In order to opening of an account following general practice have been followed by the NBP; A. Confirmation from NADRA At first, the person gets himself verified through NADRA in order to opening of an account. Moreover, the customers have to bring some reference of those, who already have an account in NBP. Some important information regarding customer e.g. the name and account number is written on the space provided on the sample signature card. B. Form of Opening an Account On confirmation, such person has been provided with an application form, to fill, known as Account Opening Form. NBP has PLS Term account, Premium Saver account, 22 Premium Adman account, Call Deposit account, Current Account, PLS SNTDR account, PLS Saving and NIDA account. The account opening form has following particulars; Title of Account Address CNIC Number NTN Number (if available) Profession Telephone number may be of office, mobile or residential National Bank if Pakistan has accessible services to following types of individuals; Accounts of special customers – it includes Proprietorship Account, Govt. Institutions, Account of clubs, Societies and Associations, Corporate Bodies, Trust Accounts, Partnership Account and Limited Company Accounts. Accounts of general customers – it includes Joint Account, Minor account and Illiterate Person’s Account. C. Zakat Deduction Accept current account, the aforesaid department deducts the Zakat on each type of account, on 1st day of the Ramzan at the rate of 2.5%. In order to avoid Zakat deduction the customers have to submit affidavit/declaration as per zakat rules. D. Signatures of the applicant Signature of the applicant has been saved for future verification. E. Deduction of Bank Service Charges 23 This department of NBP also makes deductions of bank service charges as per bank's tariff. Following are the persons, who are relaxed from the deduction of bank service charges; Employees of the Government Pensioner Student Widows State Bank of Pakistan now authorize all the banks to deduct service charges on all types of accounts when the balance of the customer become less from 5000/-. Rs. 55/- per month is deducted from the customer's account. 5000/- is the minimum amount which should be kept by the customer in his account. F. Specimen Signature Card (SS card) After getting relevant thing there comes the turn of SS card, this is a card on which specimen of signature will be obtained from depositor at the time of opening of account (once). A specially designed card is used for this purpose, this card is always counter signed by an official of bank having IBS number, officials below rank or not having IBS number are not eligible to counter sign it. For illiterate person a recent picture of the newly account holder is taken and attached with SS Card, as they cannot sign so for that purpose except sign there thumb impression is taken along with picture. To reduce the risk of frauds and misuse of the cheques of an illiterate person the specimen signature card and account opening form both are stamped by the Personal Visit stamp. Persons who are using thumb impression, it is very important for them to visit personally for every transaction done from their account. G. Account Opening Register 24 After taking signature / thumb impression, it is necessary to write the name, NIC number in account opening register. H. Issuance of Letter of thanks Once, the account has been opened, a ‘Letter of Thanks’ has been generated by the system and delivered to such customer. Following are the key reasons for the issuance of ‘letter of thanks’; To say thanks, to the customer for opening the account in their bank. To confirm the address, provided by the customer while opening the account. I. Issuance of Cheque Book The cheque book is issued to all customers having account in bank or to those who want to avail the facility of cheque book. First cheque book is issued to customers who get the letter of thanks and requests for the issuance of cheque book, and first cheque book after opening of new account is issued free of cost. A Cheque book consists of: PLS 25 leaves or pages per order CD 50 leaves or pages per order A special cheque book register is maintained by the bank to enter the name of person having cheque book. It is also signed by the customer when cheque book is handed over to the customer. J. Pass Book Pass book is be known as the record book which is handed over to the customer at the time of opening of account by bank. In this book all types of transaction are recorded like withdrawal and deposit in a proper date wise manner. K. Documents Enclosed by Customer at opening of account 25 All the customers on opening of account will have to submit the required documents as per the status of Individual Account, Companies Account, Partnership Account, Trust Account, Agent Account and account for Club, Society or Association. Following is the detail of documents generally required to be attached by the customers; Application form Copy of CNIC/NICOP/POC Copy of driving license in case CNIC is without photograph Applicant photograph and VNIC copy Copy of service card/ evidence of employment in case of salaried person Photographs in case of illiterate person Zakat exemption declaration Evidence for exemption of account from levy of service charges Proof of age in case opening of account with minor Copy of any utility bill. Copy of company’s memorandum and articles of association List of directors Copy of board resolution Certificate of incorporation Their signature cards Certificate to commence business Power of Attorney, etc. L. Stamping and Scrutinizing 26 After the fulfillment of all the necessary terms and conditions and checking of the form the relevant officer of Account Opening affixes the required stamps on the Account Opening Form and comply all the formal rules and regulations. M. Closing of Accounts In order to closing of account, the customer is required to submit an application for closing of account. On satisfaction of application, the account is closed and his balance is paid to him after deduction of account closing charges i.e., Rs. 200 and the application is filed in Account Closing File. Moreover, the remaining leaves of cheques will also be collected from the customer. 2. Deposit of Current and PLS Saving Accounts A. Deposits The procedure undertaken upon receiving deposits from the customers is as follows: Examining the deposit slip to ensure that the name and the account numbers are clearly indicated. Reconciles the amount on cheques or in cash with the amounts on deposit slips. Where the deposit slip is proves validate, the cash transaction, balance transferring or clearing transfer has been made and appropriate counterfoil is handed over to the customer. B. Withdrawals The withdrawals can be made only at the branch, where the account is maintained. The officer under his full signature authorizes all cash withdrawals. No third party withdrawal is permitted. In current account, the bank does not offer any interest. C. Issuance of Cheque Book The accountholders request for the new cheque books by presenting the requisition slips along with the authority letter to the concerned office. His signatures are verified before giving him a new cheque book. The presence of the accountholders is compulsory to get 27 a new cheque book. But if he sends a third person to get his cheque book then the procedure is as follows; An authority letter is given to the third party by the accountholder. The accountholders verify the signature of the third person on that authority letter. The bank officer gets the signature of that third person to confirm whether he is the same to whom the accountholder has sent. The bank issues the new cheques book and authority letter is kept buy the bank. D. Clearing Department: I also have performed working for two weeks in this department. The main branch receives the cheques from all of its branches and makes the lots of these cheques again. Main branch sends these cheques to the state bank of Pakistan, where a clearinghouse exits. In this clearinghouse, the representatives receive their cheques and go back to their bank's main branch. Later on, the main branch sends these cheques to their relevant branches where the validity of these cheques is verified and the accounts of the relevant clients are affected. The statement of clearing is submitted before 1.00 P.M. daily. The whole procedure of clearing takes about 2 days to be completed. 3. Remittances Department This department deals in transfer of money from one place to another or country by: Demand drafts Mail transfer Telegraphic transfer In this department internees are advised to observe the working of transfer of money from one place to another place of the country by the above modes of transferring money. 28 During my stay in this department, I observed that how demands draft be issued. The procedure is as follows. First the bank receives a written request from the customer to issue a bank draft. The written request is either in banks standard form or separate paper signed by the applicant enclosed with cash or cheques covering the amount of the draft and other charges of the bank. While issuing a bank draft, it is compulsory that the draft should be free from alternations. All the details must be written clearly in ink. After issuance of demand draft, it is handed over to the applicant. The bank advice containing the particulars of the draft is sent to drawer branch with its necessary information and on its presentation the payment of the draft is made. 4. Govt. Payments and Receipts Department National Bank of Pakistan is functioning as an agent of SBP. All types of Government Payment i.e. Pension, Salaries, Grants, Zakat, Benevolent Fund, Treasury Refund and Taxes Refund proceed through National Bank of Pakistan. Moreover, in this department all types of Government receipts i.e. Revenues, Taxes, Abyana, Agriculture Tax, Government Fees, EOBI Funds and Utility Bills are deposited. In this way, the NBP is serving great job of revenue collection. 5. Bills Collection Department During my training program I spent two weeks in bills collection department. Here I collected utility bills like gas, electricity, water and telephone etc. 6. Credit Department NBP give loans to the borrowers for different purposes. These loans are given for various sectors for different periods. Small Finance, Cash Finance, Agriculture Finance, Cash & Gold Loan, Personal Loans, Demand Finance, Running Finance, Corporate Finance, Export Import Financing, House Building Finance (Saiban) and NBP Karobar Scheme. 29 b. Detailed description of the tasks assigned to me.(Details added) I have performed following tasks in various Departments of National Bank of Pakistan during my Internship; i. Deposit of Current and PLS Saving Account In this department, I just observed how they work. Some tasks assigned to me were as under: I was assigned responsibility to cross check amount in figures and words written on cheques. I used to confirm the signature of account holder. I used to make scroll also for matching the amounts given in BBO and cheques collected in hand. Scroll number provides great relief in case of mistakes committed in recording amounts. For example, if I edited the amount of Rs 1000 instead of 10000 then cash scroll of the branch back office will not match with cash receipt register of cashier at the end of the day. In order to rectify the amount, we will enter the scroll number in REVERSAL column, computer screen will display full record of all cheques and we will find our mistake. 1- Account Opening Department Opening of an account after verification of customer from NADRA database. Recording of account number and name of applicant in account opening register. Issuance of letter of thanks Issuance of cheque book and pass book Recording of first deposit with the bank by customer in general ledger Closing of account after receiving application from customer. After getting trained, I was often called for opening account in case of work overloaded in this department. 30 Detailed procedure: In this department, I have acquired the knowledge regarding the dealings of this department with opening current and saving account for its corporate customers and deals with all other matters. National Bank of Pakistan has subsequent kinds of customers under this department. Trust Staff Firm Company Individual A. Confirmation from NADRA I did confirmation of verification of person by NADRA before opening an account. The person gets himself verified through NADRA in order to opening of an account. Moreover, the customers have to bring some reference of those, who already have an account in NBP. Some important information regarding customer e.g. the name and account number is written on the space provided on the sample signature card. B. Form of Opening an Account On confirmation, such person has been provided with an application form, to fill, known as Account Opening Form. NBP has PLS Term account, Premium Saver account, Premium Adman account, Call Deposit account, Current Account, PLS SNTDR account, PLS Saving and NIDA account. I used to fill account opening form for illiterate and old age person, who could not fill their form himself properly. The account opening form has following particulars; Title of Account Address CNIC Number 31 NTN Number (if available) Profession Telephone number may be of office, mobile or residential C. Account Opening Register After taking signature / thumb impression, I used to write the name, NIC number in account opening register. D. Issuance of Cheque Book I have done work in this department. And I used to issue cheque book to customer after taking the signature of operation manager. I also record it in cheque book register and took the signature from customer against his/her name. The cheque book is issued to all customers having account in bank or to those who want to avail the facility of cheque book. First cheque book is issued to customers who get the letter of thanks and requests for the issuance of cheque book, and first cheque book after opening of new account is issued free of cost. A Cheque book consists of: PLS 25 leaves or pages per order CD 50 leaves or pages per order A special cheque book register is maintained by the bank to enter the name of person having cheque book. It is also signed by the customer when cheque book is handed over to the customer. E. Documents Enclosed by Customer at opening of account All the customers on opening of account will have to submit the required documents as per the status of Individual Account, Companies Account, Partnership Account, Trust Account, Agent Account and account for Club, Society or Association. I used to confirm, either all required documents have been provided and enclosed by customer with form or not. 32 Following is the detail of documents generally required to be attached by the customers; Application form Copy of CNIC/NICOP/POC Copy of driving license in case CNIC is without photograph Applicant photograph and VNIC copy Copy of service card/ evidence of employment in case of salaried person Photographs in case of illiterate person Zakat exemption declaration Evidence for exemption of account from levy of service charges 2-Remittance department Issuance and Transferring of Demand draft Mail Transfer Telegraphic Transfer Pay Orders During my stay in this department, I often made drafts on behalf of customers under instructions of my training officer. The procedure is as follows. First the bank receives a written request from the customer to issue a bank draft. The written request is either in banks standard form or separate paper signed by the applicant enclosed with cash or cheques covering the amount of the draft and other charges of the bank. While issuing a bank draft, it is compulsory that the draft should be free from alternations. All the details must be written clearly in ink. After issuance of demand draft, it is handed over to the applicant. The bank advice containing the particulars of the draft is sent to drawer branch with its necessary information and on its presentation the payment of the draft is made. Documents required: 33 1- CNIC 2- In case of MT, account number where to transfer the money is required by bank. Exchange Rates (Commission) Pak-Rupees Exchange Rate (Min) FED 1-100,000 50 - 0.10% 16% of Exchange 100,000-1000,000 100- 0.5% 16% of Exchange Above 1000,000 400- 0.4% 16% of Exchange 3-Bills Collection Department: During my training program I spent two weeks in bills collection department. Here I collected utility bills like gas, electricity, water and telephone etc. Collection of gas, electricity and telephone bills. Making scrolls having the customer number and the amount paid Marking totals Sending in mail 4-Credit or Finance Department In credit department, I was assigned many duties, for example. I used to fulfill forms prescribed for gold loans. I used to take signatures of applicant and branch manager on loan form. I used to calculate amount after including interest charged by bank on that loan. I used to calculate interest amount charged by bank. I used to post in ledger, all the details of applicant, amount of loan, amount of interest, amount, weight and number of tools in gold pledged against loan etc. I used to record all details of applicant and amount of loan in computer. Preparing different kinds of documents required for the completion of procedure. e.g credit voucher, debit voucher and insurance voucher etc. 34 5-Govt. Payments and Receipts I worked much in Pension payment dept. I used to record the amount given on the receipt provided by the customer into pension register. Then after taking signatures of branch manager, affixing the stamp on receipt and signature or thumb impression of receipt holder on pension register, customer is asked to receive the amount from cashier. At the end of the day, I used to make scroll of pension payments also. In advance salary payment, I worked little but I learnt a lot while working in this department. Some features and detail of advance salary is as under: Salary Account must be maintained in the branch at least six months ago by govt. and semi govt. employee only. Following documents are required for getting advance salary: Three Salary Slips Undertaking of Rs.100/- Stamp paper Two reference from work colleagues ( Copy of CNIC) DDO ( Drawing and Disbursing Officer) will sign on: a) Form b) Undertaking c) Three undated cheques, blank from borrower Rate of interest is 17.50% per annum Advance salary is calculated in following way: 20 x 6000 = 120,000 will be financed @ 17.5% p/annum 35 Structure of Finance Department a. Finance Department Hierarchy Branch Manager Operation Manager Credit Officer b. Number of Employees working in Finance Department Total numbers of employees working in Finance Department of NBP at my branch is 2 persons c. Finance & Accounts Operations National Bank Finance & Accounts department consists of small but professionals’ team, which regularly review the company's requirements and converts their personal skills into efforts to continually improve the financial position & performance. The team of Financial & Accounts department endeavors to build a working environment through effective management practices and creative ideas. It enables the management to make successful use of financial resources and human capabilities to serve customers better. 36 Functions of Finance Department a. Accounting System of the National Bank of Pakistan The accounting system of national bank of Pakistan is double entry which is highly recognized in banking sectors of globalization, the main GAP ( generally accepted principles) are like increase in assets is debit, decrease in assets is credit, increase in liability is credit, decrease in liability is debit, increase is expense is debit, decrease in expense is credit, increase in capital is credit, decrease in capital is debit, these are the principles of accounting which is also using current National bank of Pakistan by posting cheques, crediting amounts in accounts, because these are useful for working. All activities of accounting department are based on authenticity and deficiency. Every transaction all monetary action is verified very strictly before taking them into account. b. Finance System of the National Bank of Pakistan Tracking of your company's financial information is the key to success. The fast pace of today's business environment makes it absolutely essential to get your finance and accounting department automated quickly and easily. Being able to produce comprehensive and tailored financial reports and balance sheets will allow you to track your revenue and expenses and see at a glance where you need to trim costs and increase revenue in order to improve profitability and meet your financial objectives. The finance system of National Bank of Pakistan shows, how the bank is collecting funds, what are the sources of collecting funds and how the allocation of funds, bank is collecting money through shares, bonds, deposits and different other income schemes. Currently, NBP finance system is very strong as the NBP net profit rate is very high which shows enough customers are making investment in company business. c. Use of electronic data in decision making Information system is the fundamental system of any organization which consists of connective data of all the departments. These days we are living in technology age despite of Stone Age although the technology affects the internal work of organization as 37 well as external work. Rapidly emergence of technology increased the reliability of business world on effective Information systems. Information system is used by top management; inform them about strength to weakness and opportunity to threat of the organization. The Information system of National Bank provides the answers of following management questions; What is the overall position of National Bank of Pakistan? What is the financial performance for a period of time? What is the recruiting and staffing rate in organization? What is technical competency of staff? At what place we stand in the market? How do we consider our technicality and competency among our competitors? What can be our future planning? What strategies our company will adopt in future? Information system totally facilitates the top level management as well as middle level management. It provides capital working structure, revenue and financial capability of previous and current years, worth, good will and operating activities of the organization. Each and every recorded is on information system and provide help the management to take quick but effective decision making. d. Sources of funds Finance is the backbone of any organization, used in different means for the allocation of funds to run the business as well as to avoid deficit. There are conservative method which are used for the generation of financial resource are given below; NBP is collecting money through shares which is giving dividend money to share holds. Moreover, the NBP is collecting money through bonds which is giving fixed payment and also the principle payment back as compare to shares. 38 NBP is collecting money through different income schemes to investment in business. NBP is collecting money for financing through deposits like profit and loss account, current account and premium saver account. e. Allocation of funds Offers and Products of NBP are best example of its allocation of funds. NBP is earning reasonable profit, as the NBP obtains 17.5% interest per annum on advance salaries. NBP cash against loan through bank is taking 15.5% interest per annum. NBP Home Saiban loan is also giving reasonable installment markup to NBP. Moreover, NBP uses different methods of investments and allocating its funds, like purchasing shares and bonds of different companies which has good market value and profit. 39 Critical Analysis 1. Financial Analysis (All the amounts are in thousands) i. Ratio Analysis Ratio analysis is the calculation and comparison of ratios which are derived from the information in a company's financial statements. Financial ratios are usually expressed as a percent or as times per period. A. Liquidity Ratios It shows the ability of NBP to cover its current liabilities with its current assets. a) Current Ratio Particulars 2007 2008 2009 Total Assets 762,193,593 817,758,326 944,232,762 Less Operating Fixed Assets (25,922,979) (24,217,655) (25,147,192) Less Deferred tax assets - (3.204.572) (3,062,271) Less other Assets (30,994,965) (44,550,347) (59,316,438) Current Assets 705,275,649 745,785,752 856,706,861 Total liability 645,855,939 715,299,108 824,676,384 Less liabilities against asset (33,554) (25,274) (42,629) Less deferred tax liabilities net (5,097,831) Less other liabilities (30,940,041) (39,656,831) (42,269,623) Current Liability 609,784,513 675,617,003 782,364,132 C.R = Current Assets 1.16 1.10385 1.9502 Current Liabilities Interpretation Current ratio determines the short term liquidity position of an entity. The ratio 1.16 in 2007 indicates that in 2007 the bank had a high ability to meet its current liabilities out of its assets as compare to other under consideration years. The current ratio is decreasing 40 with the every year 1.10385 and 1.09502 respectively which means NBP is decreasing its ability to meet its current obligations b) Sales to Working Capital Ratio Particulars 2007 2008 2009 REVENUE / SALES (NET) 50,569,481 60,942,798 77,947,697 Working Capital 95,491,136 70,168,749 74,342,729 Sales to Working Capital 0.53 0.87 1.05 Interpretation This ratio shows the amount of cash required to maintain a certain level of sales. This high ratio indicates inadequate working capital, which reflects negativity on liquidity. This ratio is increasing with the passage of time. It means that NBP is able to generate enough sales to meet its obligations. This on one end is a positive sign also that assets are properly utilized. But at the same time it shows that working capital is not invested in assets till this period. c) Working Capital Particulars 2007 2008 2009 Current Assets 705,275,649 745,785,752 856,706,861 Current Liabilities 609,784,513 675,617,003 782,364,132 W.C= Current Assets – 95,491,136 70,168,749 74,342,729 Current Liabilities Interpretation Working capital is the difference of current assets minus current liabilities. This measures the short term solvency position of the company. The Positive Working Capital means firm has more Assets against Liabilities while the Negative Working Capital shows that company is not in a position to pay its current liabilities when they occur. NBP have continuous positive working capital since last 3 years revealing that it has strong ability to meet its short term current liabilities. In 2008 company working capital has decreased than 2007 to finance its operations but increased in 2009 as compare to 2008. 41 B. Leverage Ratios A ratio used to measure a company's mix of operating costs, giving an idea of how changes in output will affect operating income. Fixed and variable costs are the two types of operating costs; depending on the company and the industry, the mix will differ. a) Time Interest Earned Ratio Particulars 2007 2008 2009 Earning Before Interest & 28,060,501+14,391,079 23,000,998+19,502,080 22,300,173+23,513,897 Taxes = 42,451,580 = 42,503,078 = 45,814,070 Interest expense 14,391,079 19,502,080 23,513,897 Earning before tax, /interest 42,451,580 / 42,503,078 / 45,814,070 / 23,513,897 exp. 14,391,079 19,502,080 2.95 2.18 1.95 Note: Interest expenses of 2009 are correct. Interpretation Time interest earned indicates whether the business has earned sufficient profits to pay its periodical interest liabilities or not. This indicates the number of times interest is covered by the profits available to pay interest charges. Here the Time interest earned ratio of NBP indicates that the company earned profit 2.95, 2.18 and 1.95 times more than its interest expenses dur2ing last 3 years. This shows that the Company has average strong ability to meet its financial cost. b) Debt Ratio Particulars 2007 2008 2009 Total Debt 645,855,939 715,299,108 824,676,384 Total Assets 762,193,593 817,758,326 944,232,762 42 Total Debt / Total Assets 85 % 87 % 87 % Interpretation A metric used to measure a company's financial risk by determining how much of the company's assets have been financed by debt. It indicates that 85% of the company’s total assets are financed through the debts of the company in 2007. This ratio has been increased in 2008 and 2009, as compared to 2007, which is not good. c) Debt to Equity ratio Particulars 2007 2008 2009 Total Debt 645,855,939 715,299,108 824,676,384 Total Equity 69,270,631 81,367,002 94,791,919 Total Debt / Total Equity 9.324 8.80 8.70 Interpretation Debt to Equity ratio indicates the relationship between the external equities or outsider’s funds and the internal equities or shareholders funds. This ratio measures solvency and determine the capital structure of a company. It indicates how much the company is leveraged. It shows that company debts are 9.324, 8.80 and 8.70 times of company’s own equity respectively. NBP have high debt to equity ratio indicating that NBP is highly financed with internal funds. It means it have low financial risk. d) Total Capitalization Ratio Particulars 2007 2008 2009 Long term Debts 36,071,426 39,682,105 42,312,252 Owner Equity 69,270,631 81,367,002 94,791,919 Long Term Debts / (Long term debts + Owner Equity) 0.34 0.33 0.31 Interpretation 43 Total Capitalization ratio shows the financial leverage of the bank. This ratio computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by NBP and compare it to others, to analyze the risk exposure. It is concluded that long term debts of NBP are slightly decreasing year by year as compared to its total available capital. Long term debt VS long term asset Particulars 2007 2008 2009 33,554+ 25,274+ 42,629+ 30,940,041 39,656,831 42,269,623 Long term Debts =30,973,595 =39,682,105 =42,312,252 25,922,979 + 25,922,979 + 25,147,192+ 30,994,965 30,994,965 59,316,438 Long term Assets =56,917,944 =56,917,944 =84,463,630 Long term debt/total asset 1.84 1.73 2.00 e) Current Worth / Net worth Ratio corrected Particulars 2007 2008 2009 Current worth (CA-CL) 95,491,136 70,168,749 74,342,729 Share holder fund 102,459,218 116,337,654 119,556,378 Current worth (C.A – C.L) / 93.19 % 60.31 % 62.18 % Owner’s equity Interpretation This Ratio determines how much company is earning against its investment. Share holders consider this ratio while in a company. 44 NBP is earning against its Investments are greater in 2007 but rapidly fall in 2008. Where as, in 2009 the earning against investment have been slightly increased as compared to 2008. f) Fixed Asset ratio / Equity ratio (corrected) Particulars 2007 2008 2009 Net Fixed Assets 25905823 24205805 25112132 Long term Funds(long term 255914060 332388997 381705171 liabilities and net worth) Owners Equity 69270631 81367002 94791919 Total assets 762193593 817758326 944232762 (Net Fixed Assets/Long term Funds/Owners 1.114 Equity/Total assets) Working of Fixed Assets: Particulars 2007 2008 2009 Capital work in progress 459487 1016513 1472451 Property & equipment 25454914 23195217 23657211 Intangible assets 8578 5925 17530 Operating Assets/ total 25905823 24205805 25112132 fixed assets/net fixed assets Interpretation Fixed Assets ratio to equity ratio is better in 2007 than coming year’s equity investment. It is decreasing with every passing year from 1.114 to 0732 in 2008 and 0.655 in 2009. 45 C. Profitability Ratios Profitability ratios measure the earning ability of a firm. Profitability ratios are of two types- those showing profitability in relation to sales and those showing profitability in relation to investment. Together, these ratios indicate the firm’s overall effectiveness of operation. a) Gross Profit Margin Particulars 2007 2008 2009 Gross profit 33,629,470 37,058,030 38,458,048 Sales Revenue 50,569,481 60,942,798 77,947,697 Gross profit / Sales Revenue *100 66 % 61 % 49.33 % Interpretation Gross profit ratio may indicate to what extent the selling prices of goods per unit is reduced without increasing losses on operations. It reflects the efficiency with which a firm produces its products. Gross profit margin indicates how well the company can generate a return at the gross profit level. Gross profit ratio of NBP in 2007 is good but decreasing with every next year which a bad signal from NBP. b) Net Profit Margin Particulars 2007 2008 2009 Net Profit 19,033,773 15,458,590 18,211,846 Sales Revenue 50,569,481 60,942,798 77,947,697 Net profit / Net Sales * 100 37.64 % 25.36 % 23.36 % Interpretation This is the ratio of net profit after taxes to net sales. This ratio measures the overall profitability of the company. The profit margin indicates how much profit a company produces against every one Rupee. NBP have sufficient profitability ratio (37.64%, 46 25.36%, 23.36% respectively) but decreasing with every passing year. The net profit ratio has fallen than previous years due to heavy cost of sales. c) Assets Turnover: Particulars 2007 2008 2009 Sales Revenue 50,569,481 60,942,798 77,947,697 Total Assets 762,193,593 817,758,326 944,232,762 Sales Revenue / Total Asset 0.07 0.07 0.08 Interpretation This ratio indicates that how well the NBP has used its total assets in generating sales. This ratio measures the activity of assets and the ability of the firm to generate sales through the use of assets. If both of these have been well managed then the sales would go up or vice versa. Higher ratio is better for business. But due to increased amount of assets and less increase in sales as compared to increase in assets the NBP total asset turnover ratio has decreased in 2009. d) Pretax Margin Particulars 2007 2008 2009 Pretax Profit 28,060,501 23,000,998 22,300,173 Net Sales 50,569,481 60,942,798 77,947,697 Pretax Profit / Net Sales * 100 55.48% 38% 29% Interpretation Pretax margin means how much the NBP is earning after the operating, and before tax other financial costs. It is a taxable income. NBP is earning 3.11% than its sales of amount Rs.76, 642,399. Now company will determine its tax rates and procedure to be followed. 47 e) Return on Operating Assets Particulars 2007 2008 2009 Net Income 19,033,773 15,458,590 18,211,846 Operating Assets 25,922,979 24,217,655 25,147,192 Net income / Operating 73.4 % 63.8 % 72.4 % assets Interpretation This ratio helps in determining the ability of the management in the running business. It measures efficiency and evaluates that how effectively company utilizes its assets to generate return on them. Higher ratio is better for bank. National Bank was doing stable and generating handsome operating margin. The efficiency of utilization of NBP’s assets has been fallen in 2008 than 2007 but it is again raised in 2009 than 2008. f) Sales to Fixed Assets Particulars 2007 2008 2009 Sales Revenue 50,569,481 60,942,798 77,947,697 Fixed Assets 25,922,979 24,217,655 25,147,192 Sales / Fixed assets 1.95 2.52 3.10 Interpretation This shows how efficiently the company has utilized its fixed assets to generate sales. NBP has more efficiently utilized its fixed assets to generate sales year by year (from 2007 to 2009). g) Return on Assets Particulars 2007 2008 2009 Net Profit 19,033,773 15,458,590 18,211,846 Total Assets 762,193,593 817,758,326 944,232,762 Net Profit / Total Assets 2.50 % 1.89 % 1.93 % 48 Interpretation This ratio indicates the proper and effective utilization of NBP’s resources. It is observed that return on total assets has been fall in 2008 with respect to 2007. Where as, in 2009 it is slightly increased than 2008. h) Dupont Return on Assets Particulars 2007 2008 2009 (Net Profit / Sales Revenue) 0.376 0.253 0.233 (Sales / Total Assets) 0.07 0.07 0.08 (Net Profit / Sales Revenue) / (Sales / Total Assets 5.37 3.61 2.91 Interpretation This ratio measures how many dollars were generated in sales for each single dollar invested in assets. It is observed that the Dupont ratio ha been decreasing year by year (from 2007 to 2009). i) Return on Total Equity Particulars 2007 2008 2009 Net Profit 19,033,773 15,458,590 18,211,846 Owner’s Equity 69,270,631 81,367,002 94,791,919 Net Profit / Total equity 27.47 % 18.99 % 19.21 % Interpretation It determines the rate of return on the invested capital. It is used to compare investment in the company against other investment opportunities. It is observed that the ROE has decreased in year 2008 with respect to 2007, whereas it is slightly increase in 2009 with compare to 2008. 49 D. Activity Ratios Activity ratios measure a firm's ability to convert different accounts within their Balance sheets into cash or sales. a) Total Assets Turnover (corrected) Net Sales / Average Total Assets Particulars 2007 2008 2009 Net Sales 50,569,481 60,942,798 77,947,697 Total Assets 762,193,593 817,758,326 944,232,762 Net Sales / Total Assets 6.63 % 7.45 % 8.25 % Note: My ratio figures, formula and working are absolutely correct. But I wrote the name of ratio incorrect by mistake. In fact, return on operating asset ratio I already have done under profitability ratios head. This ratio was “Total asset turnover”, which I named as “Operating asset turnover” by mistake. I have rectified it now. Interpretation The ratio depicts whether the company is utilizing its assets efficiently or not. Higher ratio indicates that firm is obtaining the optimum level of production and the lower ratio shows that firm is not managing the assets in an efficient manner. NBP has increasing figures in this ratio with every passing year, which shows efficient utilization of assets by NBP. j) Fixed Assets Turnover Particulars 2007 2008 2009 Sales Revenue 50,569,481 60,942,798 77,947,697 Fixed Assets 25,922,979 24,217,655 25,147,192 Sales / Fixed assets 1.95 2.52 3.10 Interpretation 50 This shows how efficiently the company has utilized its fixed assets to generate sales. NBP has more efficiently utilized its fixed assets to generate sales year by year (from 2007 to 2009). E. Cash Flow Ratios a) Operating Cash Flow / Total Debt Particulars 2007 2008 2009 Operating cash flow 78,804,419 2,532,681 45,451,673 Total Debts 645,855,939 715,299,108 824,676,384 Operating Cash Flow/Total 0.12 0.004 0.06 Debt Interpretation This ratio provides an indication of a company's ability to cover total debt with its yearly cash flow from operations. It is observed that the ratio has decreased in year 2008 with respect to 2007, whereas it is slightly increase in 2009 with compare to 2008. b) Operating Cash Flow per Share Particulars 2007 2008 2009 Operating cash flow 78,804,419,000 2,532,681,000 45,451,673,000 Total Shares 815,431,989 896,975,100 1,076,370,200 Operating Cash Flow/Total 96.64 2.82 42.22 Shares Interpretation This ratio is a useful measure for the strength of NBP and the sustainability of its business model. Operating Cash flows has been severely decreased in 2008 with respect to 2007, where as, these are significantly increases in 2009. 51 c) Operating Cash Flow / Cash Dividends Particulars 2007 2008 2009 Operating cash flow 78,804,419 2,532,681 45,451,673 Cash Dividends Paid 2,831,895 6,104,898 5,820,338 Operating Cash Flow / Cash 27.82 0.415 7.80 Dividends Interpretation This ratio identifies the percentage of earnings (net income) per common share allocated to paying cash dividends to shareholders. Operating Cash flows has been severely decreased in 2008 with respect to 2007, where as, these are significantly increases in 2009. F. Bank’s Special Ratios a) Total Advances / Total Deposits Particulars 2007 2008 2009 Total Advances 340,318,930 412,986,865 475,243,431 Total Deposits 591,907,435 624,939,016 726,464,825 Total Advances / Total 0.57495 0.66084 0.65418 Deposits Interpretation Business of NBP mostly runs due to deposit of customers in different accounts. It is the ratio which indicates what the total deposit of customers and what the advances amount means issued loan By NBP. NBP is advancing more than from their deposits, which is showing as a good financial position in market. And it is earning sufficient return to meet its need. b) Cash to Deposit Ratio Particulars 2007 2008 2009 52 Cash 94,873,249 106,503,756 105,827,868 Deposits 591,907,435 624,939,016 726,464,825 Cash / Deposit 0.16028 0.170422 0.15944 Interpretation With the help of cash to deposit ratio analyst determine the liability of business like deposits and also determine the cash available o meet the customer’s demands. NBP still has good and stable cash /deposit ratio it can easily complete the customers deposit demand. c) Equity to Deposits: Particulars 2007 2008 2009 Equity 69,270,631 81,367,002 94,791,919 Deposits 591,907,435 624,939,016 726,464,825 Equity / Deposits 0.10 0.13 0.16 Interpretation Equity to deposit ratio determines the liability of an organization against its stock of capital. NBP has increased equity to deposit ratio with every passing year. This upward trend shows that bank’s stock of capital is increasing at greater rate than its liabilities, which is a good sign for the solvency of NBP. ii. Horizontal Analysis Horizontal analysis is also known as comparative analysis. With the help of horizontal analysis, we judge whether the financial position of an entity is improving or worsening. It is conducted by dividing base year values on base year values. Previous year is taken base year. Formula for horizontal analysis is as under: Formula = Current year value / Base year value *100 53 Balance Sheet as on December 31, 2007, 2008 & 2009 (corrected) Particulars 2009 2008 2007 [2008-2007] [2009-2007] ASSETS (Base Year) Difference %age Difference %age Cash and balances with treasury 115,827,868 106,503,756 94,873,249 11,630,507 12.26 20,954,619 22.08 banks Balances with 28,405,564 38,344,608 37,472,832 871,776 2.33 (9,067,268) (24.19) other banks Investments – net 217,642,822 170,822,491 211,146,038 (40,323,547) (19.10) 6496784 3.07 Lending to financial 19,587,176 17,128,032 21,464,600 (4,336,568) (20.20) (1877424) (8.75) institutions Advances - net 475,243,431 412,986,865 340,318,930 72,667,935 21.35 134924501 39.65 Operating fixed 25,147,192 24,217,655 25,922,979 (1,705,324) (6.58) (775787) (2.99) assets Deferred tax assets 3,062,271 3,204,572 - - - - - - net Other assets – net 59,316,438 44,550,347 30,994,965 13,555,382 43.73 28321473 91.37 Total Assets 944,232,762 817,758,326 762,193,593 55,564,733 7.29 182039169 23.88 LIABILITIES Bills payable 10,621,169 10,219,061 7,061,902 3,157,159 44.71 3559267 50.40 Borrowings 45,278,138 40,458,926 10,815,176 29,643,750 274.09 34462962 318.65 Deposits and other 726,464,825 624,939,016 591,907,435 33,031,581 5.58 134557390 22.73 accounts Liabilities against assets subject to 42,629 25,274 33,554 (8,280) (24.68) 9075 27.04 finance lease Deferred tax - - 5,097,831 - - - - liabilities - net Other liabilities 42,269,623 39,656,831 30,940,041 8,716,790 28.17 11329582 36.62 Total Liabilities 824,676,368 715,299,108 645,855,939 69,443,169 10.75 178820429 27.68 Share capital 10,763,702 8,969,751 8,154,319 815,432 10.00 2609383 32.00 Reserves 22,681,707 19,941,047 15,772,124 4,168,923 26.43 6909583 43.81 Un-appropriated 61,346,510 52,456,204 45,344,188 7,112,016 15.68 16002322 35.29 profit Surplus on revaluation of 24,764,549 21,092,216 47,067,023 (25,974,807) (55.19) (22302474) (47.38) assets - net of tax 54 Interpretation Cash and balances with treasury banks by NBP is moving upward from 12.26 to 22.08. This increasing trend is good sign from NBP. Balances with other banks are moved downward from positive 2.33 to minus 24.19. Investment –net have upward trend. It is risen from minus 19.10 to positive 3.07. It means bank have sufficient funds for investment in 2009 as compare to 2008. Lending to financial institutions ratio is falling from minus 20.20 to minus 8.75. Which means entity is lending more to other financial institutions in 2009 as compare to 2008. Advances-net ratio is improved in 2009 as compare to 2008, which means NBP has extended its advances in 2009. NBP is breaking negative trend in operating fixed asset ratio by reducing from minus 6.58 to minus 2.99. It is moving towards positive edge, which is an appreciable sign. Bills payable ratios is increased from 44.5 to 50.40 which shows a worst condition, it means bank has not paid its bills in 2009 which caused increased liability. Borrowing rate is decreased amazingly which means bank has repaid huge amount of loans in current year. Share capital of bank is improved amazingly up to 32% in current year as compare to 2008 when it was 10%%. Un-appropriated profits have terrifically improved in current year as compare to 2008. (15.68 - 35.29). Reserves also showing upward trend in current year which is good sign from NBP. It is increased from 13.74 to 43.81 in current. Other liabilities are moving in upward fashion in 2009 as compare to 2008. (28.17 – 36.62) which shows poor condition of NBP on part of liabilities. 55 Overall position of balance sheet in current year is positive. Most of the items have improved in percentage. iii. Vertical Analysis In vertical analysis, each item of balance sheet is compared vertically by dividing it on total assets o respective year. It judges the annual change in the business of the organization. Balance Sheet as on December 31, 2007, 2008 & 2009 Particulars 2009 2008 2007 2009 2008 2007 (Base ASSETS % % % Year) Cash and balances with 115,827,868 106,503,756 94,873,249 12.27 13.02 12.45 treasury banks Balances with other 28,405,564 38,344,608 37,472,832 3.01 4.69 4.92 banks Investments – net 217,642,822 170,822,491 211,146,038 23.05 20.89 27.70 Lending to financial 19,587,176 17,128,032 21,464,600 2.07 2.09 2.82 institutions Advances – net 475,243,431 412,986,865 340,318,930 50.33 50.50 44.65 Operating fixed assets 25,147,192 24,217,655 25,922,979 2.66 2.96 3.40 Deferred tax assets - net 3,062,271 3,204,572 - 0.32 0.39 - Other assets – net 59,316,438 44,550,347 30,994,965 6.28 5.45 4.07 Total Assets 944,232,762 817,758,326 762,193,593 100.00 100.00 100.00 LIABILITIES Bills payable 10,621,169 10,219,061 7,061,902 1.12 1.25 0.93 Borrowings 45,278,138 40,458,926 10,815,176 4.80 4.95 1.42 Deposits and other 726,464,825 624,939,016 591,907,435 76.94 76.42 77.66 accounts Liabilities against assets 42,629 25,274 33,554 0.005 0.003 0.004 subject to finance lease Deferred tax liabilities - - - 5,097,831 - - 0.67 net 56 Other liabilities 42,269,623 39,656,831 30,940,041 4.48 4.85 4.06 Share capital 10,763,702 8,969,751 8,154,319 1.14 1.10 1.07 Reserves 22,681,707 19,941,047 15,772,124 2.40 2.44 2.07 Un-appropriated profit 61,346,510 52,456,204 45,344,188 6.50 6.41 5.95 Surplus on revaluation of 24,764,549 21,092,216 47,067,023 2.62 2.58 6.18 assets - net of tax Total Equity + Liabilities 944,232,762 817,758,326 762,193,593 100.00 100.00 100.00 Interpretation: 1- Cash and balances with treasury banks have stable ratio in 2007, 2008 and 2009. 2- Balances with other banks ratio is improving with every passing year in NBP. 3- Net investment by NBP is slight down in 2008 as compare to 2007 when it was 23.08 and in 2008 its 20.89 but it again improved this ratio in 200 by 27.70, which is good sign from NBP. 4- Operating fixed assets have upward trend during all years. 5- Borrowing rate is decreased in 2009 after consistent values in 2007 and 2008. 6- Bills payable ratios have mixed trend during all the years. Upward trend in 2008 and downward trend in 2009. 7- Deposits and other accounts have consistent trend during all the years which is 76.94, 7.42 and 77.66 respectively in 2007, 2008 and 2009. 8- Share capital is showing fluctuating trend during all the years by NBP. 9- Reserves also showing mix trend during 2007, 2008 and 2009. 10- Surplus, un-appropriated profits and other liabilities. 11- Overall NBP has shown positive and upward trend in balance sheet against total assets during 2007, 2008 and 2009, which is a good sign. iv. Industrial Analysis (Competitors): Gross Name of Debt to Years Profit Current Working Debt Ratio Companies Equity Ratio Ratio Ratio Capital NBP 2009 49.33% 1.95 74,342,729 8.70 0.87 57 2008 61% 1.10 70,168,749 8.80 0.87 2007 66% 1.16 95,491,136 9.32 0.85 2009 57% 1.09 47,639,330 10.68 0.90 UBL 2008 54% 1.07 34,890,046 13.30 0.93 2007 58% 1.08 35,282,454 14.34 0.92 2009 33.80% 1.11 47,700,847 7.19 0.86 MCB 2008 35% 1.12 43,144,763 7.37 0.87 2007 40% 1.10 34,608,678 7.82 0.87 2009 56.75% 1.04 11,431,457 18.21 0.94 Askari Commercial 2008 53.50% 1.04 7,713,992 16.05 0.94 Bank 2007 55% 1.06 10,606,378 16.27 0.93 58 v. Trend Analysis Liquidity Ratios 2 Current ratio Sales to Working Capital 1.5 1 0.5 0 2007 2008 2009 Leverage Ratios Debt/Equity ratio 10 Total Capitalization ratio 9 Time Interest Earned ratio 8 Fixed Asset ratio / Equity ratio 7 6 5 4 3 2 1 0 2007 2008 2009 Profitability Ratios 59 Net Profit Margin 80 Return on assets 70 Pretax Margin 60 Return on Operating Assets Sales to Fixed Assets 50 Return on Total Equity 40 Gross Profit Margin 30 20 10 0 2007 2008 2009 Activity Ratio 9 Total Asset Turnover 8 Fixed assets Turnover 7 6 5 4 3 2 1 0 2007 2008 2009 2. Future Prospectus of NBP The future prospectus of the NBP is so much successful and bright. If we see the growth rate of the entity is increasing day by day. The turnover of the entity as compared to the base year is high and its orders are more than their capacity. There three types of ratios to check the future prospectus of the entity current asset ratio, Gross Profit Ratio, Working capital. All these represent an increasing trend. The ability of the company to pay off its debts is also good. All calculated ratios are favorable which shows the strength of the entity and confirms its going concern. 60 SWOT Analysis of Organization SWOT analysis is strategic planning method which identifies the strength, weaknesses, opportunities and threats of an organization. SWOT analysis is conducted by analysts in order to determine internal and external situations of the organization. It identifies the internal and external factors which help in achieving objectives of an organization. NBP also conducts this comprehensive analysis annually for the betterment of organizational growth and market share. According to my point of view, the SWOT analysis of NBP is as follows; Strengths a) NBP is founder of ATM National Bank of Pakistan is founder of ATM facility in Pakistan. In this particular facility, money can be withdrawal from account at any time. b) Government’s bank National bank of Pakistan is Government’s bank. NBP makes its policies according to the government’s rules and regulations. c) Area of services National bank of Pakistan has wide area of services as compare to other commercial banks in Pakistan. NBP is offering services including pension to retired government 61 employees, traffic challans, withholding tax, property tax, fees receiving of AIOU, farms of AIOU, utilities bills, deposits, sales tax , and various loan schemes. d) Western union founder National Bank of Pakistan is first bank who started the facility of Western Union in Pakistan. In this particular scheme money is transferred in Pakistan from abroad in a fastest way. You can receive the money from bank by providing the name, CNIC number and password of recipient client. e) Online banking NBP has 130 online branches. Online banking reduces time and faster the services and helps in checking the balances and daily transactions by just one key press. f) Broad Network National bank of Pakistan has broad-basses network of branches throughout the country. The customers are provided services at their nearest possible place to confirm customer satisfied. g) Lack of employee’s loyalty Employee’s turnover is very low in NBP as compare to other commercial banks. Weakness a) Lack of Quality Public Dealing Public dealing is not very effective in NBP. Employees are not taking care of the customers, especially in pension and bills department. b) Communication Gap During the internship in NBP, I found the problem of lack of communication between the employees and management. They have not very much understanding with each other which adversely affects the performance of employees. c) Poor marketing efforts 62 National bank of Pakistan is not promoting its corporate image and services to the customers in a competitive and effective way. d) Few number of Employees There is shortage of staff in NBP. Staff is not as per requirement. Due to which , NBP is not efficient in its performance and services. e) Favoritism and Nepotism There is favoritism and nepotism of senior employees in regard of promotions and bonuses. Promotions and bonuses etc depend on senior’s will and decisions. f) Lack Of Modern Equipment NBP is lacking upgraded and modern equipment. Most of the machines and computers are back dated. Opportunities a) Micro Financing Today, there is need of micro financing in banking sector , other commercial banks have already initiated this regard. NBP should also avail this opportunity and take initiative in micro financing. b) Globally Progress of Banking system Now-a-days banking system is growing quickly so NBP have opportunities to improve the standard and get the more share in the market. c) Electronic Banking Due to fast development of technology, world has become global village especially communication sector. NBP can avail the opportunity of developed technology and online banking system in order to provide 24 hours services to customers. Threats a) Advanced Online Banking 63 Advanced computerized banking is a threat for NBP, which has traditional banking system with back dated equipments and incompetent employees. b) Emergence Of New Competitors NBP is facing the threat of emergence of new competitors in from of foreign banks. These foreign banks are equipped with modern and computerized system and heavy financial power and innovative way of promotions. c) Political instability The frequent and ongoing shifting in political arena affects the performance of NBP adversely. d) Customer Complaints NBP has no specific and regular system in order to remove customer complaints. Today, customer satisfaction is highly demanded. e) Increased number of banks Increase in no. of banks is a threat for National Bank of Pakistan. Numbers of private banks (commercial and private) are operating their business more efficiently and provide the same facilities with more speed and quality. 64 Conclusion During my stay of 10 weeks at National bank of Pakistan, I came across the number of tasks and felt a credible and professional change in my attitude. I conclude that NBP is one of the leading banks in Pakistan. As analysis shows that NBP is a most growing organization with highest return on capital, largest market share amongst all Pakistani banks. NBP carries highest cost to income ratio as compare to all other commercial banks. But still there is need for improvement to overcome weaknesses in order to maintain its position as an “Asian Tiger” in banking field. Acting as Agent of Government or State Bank of Pakistan, providing Agency Arrangements for different government organizations including WAPDA and PIA, are the main strengths of NBP. Plus NBP is offering wide and comprehensive range of products in market. It also has been included that Employees’ Unions in National Bank of Pakistan are spending their much time in organizational politics instead of doing productive work that leads to wastage of time. As far as my training and experience is concerned, I have learnt a lot during my internship because I got practical knowledge before entering in the practical life after completion of my MBA degree. 65 I learn a lot about banking practice in Pakistan, rules and regulations and different procedures followed by banks, the organizational culture and structure of the bank, National Bank of Pakistan. Recommendations for Improvements According my evaluation and observation during my internship at NBP, bank can make more progress by implementing following points: Number of professional and well qualified employees should be enhanced. Staff should be trained properly and should be familiar with modern technology in order to enhance the over all performance of NBP. In order to achieve job satisfaction from employees, their promotion should be on merit and on time according to their respective performance instead of senior’s own will. There is need of more investment in area of innovation and organizational cultural improvements in order to improve the environment and corporate culture of bank. It is recommended that there should be specific desk for customer’s complaints and for their information. Bank needs to improve its sitting arrangement, air conditioning in order to attract new clients and to make their customers feel happy and comfortable. Heavy work load can be coping nicely with the help of modern computers software and better control can be achieved. Online facilities should be enhanced up to 24 hours. 66 Separate departments should be established for all services in every branch. New markets needed to be located for enhancing the area of services and wide range of networking. Interest rate on deposits should be set according to the competitors and should always be as per customer’s satisfaction and demand. Promotional efforts need to expand by aggressive marketing. NBP should launch effective marketing plan in order to attract new customers and creating awareness among customers about NBP products. References And Sources Used Mr. Nisar Ahmed (My Internship Supervisor) Mr. Abid Ali (Operations manager) Managers, Asst. Managers and Officers of other relevant Departments. Operating Procedures and System Files of each department. Auditor’s Reports and Financial Statements of National Bank of Pakistan. Website of NBP: www.nbp.com.pk 67 Annexure Scanned Copies of “Financial Statements for the Year ended 2009-2008” 68 69 70 71 72 73 Scanned Copies of “Financial Statements for the Year ended 2008-2007” 74 75 76 77 TRADE FINANCE OTHER BUSINESS LOANS AGRICULTURAL FINANCE CORPORATE FINANCE NBP provides Agricultural Finance to solidify faith, Working Capital and Short Term Loans: commitment and pride of farmers who produce some of the best agricultural products in the World. NBP specializes in providing Project Finance – Export Refinance to exporters – Pre-shipment and Post-shipment Agricultural Finance Services: financing to exporters – Running finance – Cash Finance – Small Finance – Discounting & Bills Purchased – Export Bills Purchased / Pre-shipment / Post Shipment Agricultural “I Feed the World” program, a new product, is introduced by Production Loans NBP with the aim to help farmers maximize the per acre production with minimum of required input. Select farms will be made role models for other farms and farmers to follow, Medium term loans and Capital Expenditure Financing: thus helping farmers across Pakistan to increase production. NBP provides financing for its clients' capital expenditure and Agricultural Credit: other long-term investment needs. By sharing the risk associated with such long-term investments, NBP expedites clients' attempt to upgrade and expand their operation thereby The agricultural financing strategy of NBP is aimed at three making possible the fulfillment of our clients' vision. This type main objectives:- of long term financing proves the bank's belief in its client's capabilities, and its commitment to the country. Providing reliable infrastructure for agricultural customers Loan Structuring and Syndication: Help farmers utilize funds efficiently to further develop and achieve better production National Bank's leadership in loan syndicating stems from Provide farmers an integrated package of credit with supplies of essential inputs, technical ability to forge strong relationships not only with borrowers but knowledge, and supervision of farming. also with bank investors. Because we understand our syndicate partners' asset criteria, we help borrowers meet substantial financing needs by enabling them to reach the banks most Agricultural Credit (Medium Term): interested in lending to their particular industry, geographic location and structure through syndicated debt offerings. Our Production and development syndication capabilities are complemented by our own capital Watercourse improvement strength and by industry teams, who bring specialized knowledge to the structure of a transaction. Wells Farm power Development loans for tea plantation Cash Management Services: Fencing With National Bank's Cash Management Services (in process Solar energy of being set up), the customer's sales collection will be Equipment for sprinklers channeled through vast network of NBP branched spread across the country. This will enable the customer to manage Farm Credit: their company's total financial position right from your desktop computer. They will also be able to take advantage of our NBP also provides the following subsidized with ranges of 3 outstanding range of payment, ejection, liquidity and months to 1 year on a renewal basis. investment services. In fact, with NBP, you'll be provided everything, which takes to manage your cash flow more accurately. Operating loans Land improvement loans Equipment loans for purchase of tractors, farm implements or any other equipment Livestock loans for the purchase, care, and feeding of livestock 78 Production Loans: Production loans are meant for basic inputs of the farm and are short term in nature. Seeds, fertilizers, sprayers, etc are all covered under this scheme. If you require any further information, please do not hesitate to e-mail us. 79