Compare 3 year’s income statement of any banking

organization and highlight the variation in its mark-

up income section. Discuss the reasons for variation as
as well.

Income Statement

Definition: A document generated monthly and/or annually that reports

the earnings of a company by stating all relevant income and all expenses
that have been incurred to generate that income. Also referred to as a
profit and loss statement.
The income statement is a simple and straightforward report on a
business' cash-generating ability. It's a scorecard on the financial
performance of your business that reflects when sales are made and
expenses are incurred. It draws information from the various financial
models such as revenue, expenses, capital (in the form of depreciation)
and cost of goods.

By combining these elements, the income statement illustrates just how

much your company makes or loses during the year by subtracting cost of
goods and expenses from revenue to arrive at a net result, which is either
a profit or a loss. It differs from a cash flow statement because the income
statement doesn't show when revenue is collected or when expenses are
paid. It does, however, show the projected profitability of the business

1
over the time frame covered by the plan. For a business plan, the income
statement should be generated on a monthly basis during the first year,
quarterly for the second and annually for the third.

Your income statement lists your financial projections in the following

manner:

• Income includes all the income generated by the business.

• Cost of goods includes all the costs related to the sale of products
in inventory.

• Gross profit margin is the difference between revenue and cost of

goods. Gross profit margin can be expressed in dollars, as a percentage,
or both. As a percentage, the GP margin is always stated as a
percentage of revenue.

• Operating expenses include all overhead and labor expenses

associated with the operations of the business.

• Total expenses are the sum of cost of goods and operating

expenses.

• Net profit is the difference between gross profit margin and total
expenses. The net income depicts the business' debt and capital
capabilities.

• Depreciation reflects the decrease in value of capital assets used to

generate income. It's also used as the basis for a tax deduction and an
indicator of the flow of money into new capital.

2
 • Earnings before interest and taxes shows the capacity of a
business to repay its obligations.

• Interest includes all interest payable for debts, both short-term and
long-term.

• Taxes includes all taxes on the business.

• Net profit after taxes shows the company's real bottom line.

Objectives to study the organization

My basic purpose to study the organization is to get practical knowledge

where my education and skills utilize in a most appropriate manner. The
objectives to study the organization are.

• The basic to study NBP is to understand banking system.

• To observe how to deal with the customers and how motivate them.
• To analyze how banks provide services to the public & private
sector.
• To study financial transactions performed in a banking sector.
• In order to know, how to handle banking documents.
• It is second source of getting confident about practical work.
• As a student, by doing lot of errors and mistake in practice at last
we able to get experience about a work.
• It increases level of communication among employees and
outsiders.

3
 • To get knowledge how to create relationship and friendly
environment among people of different cultures.
• To analyze Strength, Weaknesses, Opportunity, Threats (SWOT) of
the organization.
• Provide efficient and effective recommendations on solutions of the
problems that face by the organization.

Brief History and overview of the organization

National Bank of Pakistan (NBP) was established in 1949 under the

National Bank of Pakistan Ordinance 1949 and was 100% government
owned. NBP acted as an agent of the Central Bank wherever the State
Bank did not have its own Branch. It also undertook Government
Treasury operations. By 1952 it’s became strong enough to take over the
agency function from the “Impirical Bank” of India. The NBP also
forward its operation and in 1964 established a people’s credit department
to allow credit facilities to small borrowers. It expanded a nation-wide
presence of supported by a network of online ATMs and expanded its
network of 1,200 branches throughout Pakistan. The bank is listed on the
Karachi, Lahore, and Islamabad stock exchange. It has more than 20
branches in foreign countries and still continues to open. The bank
provides both commercial and public sector banking services.

NBP is a schedule commercial bank and is engaged in business of

banking as well as a government bank services. NBP Advance Salary is a

4
big example of Individual middle class services. It is working under
Banking Companies Ordinance, 1962.

While continuing its journey of success, NBP gets highest profit in 2007
in banking history. As December 31, 2007 the bank has total assets worth
of USD 12.293 billion.

NBP is a commercial organization. It provides both commercial and

public sector banking services. The main focus of NBP is to raise assets
by marketing individual, wholesalers, manufactures, and government
sector in cities as well in urban areas development. This segment
contributes significant revenues to the bank. The liability side remains
focused on the middle and upper class, retired and serving government
servants. It is also a big contributor of foreign trade and serving as a
treasury bank.

In 1971, NBP acquired Bank of China’s two branches, one in Karachi and
one at Chittagong. At separation of East Pakistan NBP lost its branches
there. NBP merged with Eastern Mercantile Bank and with Eastern Bank
Corporation. In June 30, 1974 the government of Pakistan nationalized
NBP when the part of bigger bank amalgamated and NBP acquired Bank
of Bahawalpur. In 1994 NBP remains continue to increase its strength and
merged Mehran Bank.

In 2001, with the cooperative agreement of Pakistani Central Bank SBP

and Bank of England allow only 2 Pakistani banks to operate in the UK.
NBP and United Bank agreed to merge their operations to form Pakistan
International Bank (PIB), of which NBP would own 45% and United
Bank 55%. In 2002, Pakistan International Bank renamed itself United

5
National Bank Limited (UNB). The ownership structure of the UNB
remained as before. The only change to the shareholding structure is that
UBL had recently been privatized in Pakistan and was now owned 49%
by the Government of Pakistan and 51% by a joint foreign consortium of
Abu Dhabi. In 2003, NBP received permission to open new branches in
Afghanistan and Bangladesh, nthe inaugurated ceremonies of these
branches held in 2007.

Head Office

Head office of NBP in NBP Building, I.I. Chundrigar Road, Karachi,

Pakistan which is “the city of lighting” in Urdu “Uroos-ul-Bilad” which
was also the first capital and ancient place of Pakistan. It carried out its
successful journey to make it an “Asian Tiger”.

Customer Services

NBP offers a number of valued products and services to the diverse

market segments. These include.

LIABILITY PRODUCTS ASSETS PRODUCTS

Saving/Time Deposits Personal Finance

NBP Debit Card Home Finance
Utility Bills Payment Business Finance
Travelers Cheques Mortgage/Agricultural
Running Finance
Demand Finance

6
Awards and Recognition

Over the years, NBP has received several awards for its better quality of
providing banking services to the individual and businesses.

Credit Rating
According to annual report the year ended December 31, 2007, the “JCR-
VIS Credit Rating Company Limited”. NBP enjoys the highest credit
rating amongst Pakistani banks. The rating company awarded highest
standalone credit rating of ‘AAA’. The JCR-VIS credit rating Co.
signifies that the organization has been able to strategically manage and
build on its competitive advantages, which has translated into the strong
and well managed in profitability.

Functions of the organization

The financial Intermediaries or banks mean a business that interacts two

types of individuals and institutions for economic development.
• Deficit-spending individuals and institutions
• Surplus- spending individuals and institutions
Deficit-spending individuals and institutions are those whose expenditures
exceed their income, they need extra money to further carry on their
movements required through capital i.e. through borrowing of money or
issuance of stock.
Surplus-spending individuals and institutions are those whose income
exceed their level of expenditures, they have extra money in his pocket;
they invest surplus money or deposit it for savings.

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In small words, a bank is a financial intermediary accepting deposits from
general public and granting loans: offers the widest menu of services of
any financial institutions.

In ancient days, banks were providing separate services as compare to

financial institutions. They were providing specific functions. Now days
banks are configured and performing all those activities of products and
service due to the requirement of the customers. NBP is a commercial
bank. NBP is a most powerful organization in Pakistan due to deposits.
The success of NBP hinges on their ability to identify the financial
services the public demand producing those services efficiently and sells
them at a competitive price, the basic purpose to increase shareholder’s
wealth. The main functions and objective of NBP are.

• Mobilizing of money for economic development of Pakistan

• Acting as a government or local or any other person or persons,
and on behalf of agency of customers.
• General utility services
• Accepting deposits and providence of loans etc.

8
 Business volume
Rs.in million

Particulars/years 2003 2004 2005 2006 2007

Total Assets 468,972 553,231 577,719 635,133 762,194
Deposits 395,492 465,572 463,427 501,872 591,907
Advances 161,266 220,794 268,839 316,110 340,677
Investments 166,196 149,350 156,985 139,947 210,788
Shareholder's
Equity 18,134 24,900 37,636 53,045 69,271
Pre-Tax Profit 9,009 11,978 19,056 26,311 28,061
After-Tax Profit 4,198 6,195 12,709 17,022 19,034
Earnings Per
Share (Rs) 8.53 10.48 17.92 20.88 23.34
No of Employees 13,272 13,745 13,824 14,019 14,079

By Equation,

Y=a+bX

By simplifying,

∑Y=na+b∑X
∑XY=a∑X+b∑X2

Hence by putting values, we get

a=0.465
b=.00000157
So equation is
Y=0.465+.00000157X

9
 DIFFERENT DEPARTMENTS AND THEIR
WORKING

Different Departments

Branch Banking

General Banking Credits/Loans

Deposits • Credit Facilities

• Cash • Loans
• Account opening • Documentation
• TDRs/Non-
Checking Accounts

Remittances
• DD, TT, PO
• Online funds
Transfer/MT
• Traveler Cheques

Collection of
Cheques
• Clearing
• Bills
(OBC, IBC, LBC)
WORKING OF DEPOSITS DEPARTMENT
Accounts
Department
• Daily Activities
• Record Keeping

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Deposits are the lifeblood of commercial banks. The main function of a
commercial bank is to mobilize deposits of money from the savers and
lend into for most profitable purposes. The process of collection deposits
is “Deposits Mobilization”.

Deposits can be divided into two categories.

Deposits

Checking Non-Checking
Accounts Accounts

PLS Saving PLS TDR’s

Account

Current Deposit Special Notice

Accounts Deposit Accounts

Foreign Currency NIDA

Accounts

Current Account

11
Current accounts are opened on proper introduction and submission of
required documents.
No profit is paid on the current account holders.
No limitation to the number of withdrawal.
Statement of Account is issued free of charge to the current account
holders on semi-annual basis.
No zakat is deducted on current account.
No withholding tax.

Basic Banking Accounts

BBA’s are opened on proper introduction and submission of required

documents.
BBA’s are opened for individuals single or joint only.
No profit is paid on Basic Banking Accounts.
In BBA’s maximum two deposits transactions and two chequing
withdrawals are allowed free of charge through cash/clearing in a month.
Charges only made on issuances of ATM, no charges are made on further
transactions from the banks own ATM.
PLS Saving Account

Saving deposits were introduced to encourage the habit of saving among

people. In order to encourage the Islamilisation of the banking system in
the country, the bank is authorized to accept deposits on profit & loss
sharing basis. The bank is authorized to deduct service charges on half
yearly basis. Profit on PLS Saving Account is calculated on minimum
monthly basis and is paid half yearly basis announced by the Head Office

12
after June 30 and December 31.Zakat at the rate 2.50% is deducted from
the PLS Saving Accounts. A withholding tax at the rate of 10% on profit
is recovered from the account holder.

National Income Daily Account (NIDA)

The scheme of NIDA was launched in December 1995 at attract at

corporate customers.
NIDA are opened for individuals single or joint, Charitable institutions,
Provident funds, autonomous bodies, companies, associations,
educational institutions, firms etc.
NIDA is accepted only on the condition that the depositor shall always
maintain a minimum balance in his account.
These are special accounts of savings. Profit is paid to the account holder
on daily basis.

Call Deposits
Call deposits are the sorts of deposits, which are deposited in the bank
against any tender. This is without interest deposit and may be with
interest provided. The depositor has agreed to keep this amount with the
bank for some fixed period.

Foreign Currency Accounts

These are the accounts in US $, Pound, Euro, yen etc. of different account
holders and either saving or current accounts.

13
Profit is fluctuating as determined by the State Bank of Pakistan on six
monthly basis whereas return on Term deposits/SNTD will paid on
maturity.
The transactions in these accounts are translated into Pak. Rupees at the
exchange rate prevailing on the date of transaction.

WORKING OF ACCOUNTS DEPARTMENT

Daily Activities
The main function of this department is to check daily transactions
whether cash, transfer of payments, billing, and clearing of all the
departments.
Following procedure is followed in checking daily activities carried out in
different departments of the branch.

• All the vouchers, advices both manual as well as computerized

obtained for posting in the system of each department.
• All the vouchers and advices are further sorted in ascending and
descending order for the sake of convenience in checking and tally
information.
• It is checked whether or not the account number, instrument
number, document number and amount appearing in words and
figures are agreed with the information appearing in the
computerized record.
• In case of changing or discrepancy informed to the concerned
department.

14
 • All the credit, debit and billing voucher bunched separately.
• The name of the branch, date of vouchering, title and number of
vouchers is written on voucher must be cover authorized signature.
• All the above vouchers assist in case of any enquiry and audit.

Handling of Stationery

All the branches of the companies required having a complete record the
stationery to be used. Accounts department also maintain and handle the
record of stationery used during the month.
G-9 NBP branch request to main branch for stationery requirements and
record maintain for this purpose. On receipt of stationery following entry
is passed.
Dr. Stock of Stationery
Cr. Main Branch
Stationery issued into the branch for daily uses and entry is passed.
Dr. Expenditure A/C Stationery
Cr. Stock of Stationery A/C

15
 Structure and Functions of the Accounts/Finance
Department

CFO

Asst Finance
Officer

Accounts
Finance Department
Department

Finance Manager
Operations & Accounts Payroll
Business Manager Manager

Senior Business
Analyst
Senior Senior
Accounts Accounts
Payable Receivable
Business Analysts

Accounts Asst Accounts Asst

Payable Receivable

The department of finance and accounting is a large department and the

head of this department is chief executive Finance and second major
controlling authority is the assistant executive finance and all the

16
reporting comes to the executive finance in the end. In this major
department there are two major operation authorities, one is the head of
finance department and the second is the head of accounts department and
both the heads have separate duties and responsibilities and they report to
the executive finance in the end.

Head of finance department works with the sub-ordinates like manager

business operations and finance manager business and senior business
analyst etc. and they perform their duties like budgeting controlling and
analyzing the different activities of finance department. And the other
officer is the accounts manager, who performs managing the accounts
operations and reports upon them to the executive finance.

Financial analysis

Financial analysis refers to an assessment of the viability, stability, and

profitability of a business, or projects. It is performed by professionals
who prepare reports using ratios and other analysis that make use of
information taken from financial statement and other reports. These
reports are usually presented to top management as one of their bass in
making business decisions. Or it is a process, which involves
reclassification and summarization of information through the
establishment of ratios and rends.

Income Statement at Year 2003-07

17
 2003 2004 2005 2006 2007
Mark-up/Return/Interest earn 19,452,317 20,947,333 33,633,735 43,788,628 50,569,481
Mark-up/Return/Interest expense 6,735,579 6,559,398 10,321,768 13,634,912 16,940,011
Net Mark-up/Interest Income 12,716,738 14,387,936 23,311,967 30,153,716 33,629,470
Provision non-performing advance 1,684,777 1,515,354 2,446,739 3,075,723 4,723,084
Provision diminution investments 459,523 185,707 -245,881 -709,461 -40,248
provision off balance sheet obligations 474,743 14,297 ----- --- ------
Bad debts off directly ------ 32,807 23,069 5,284 39,899
Net Mark-up/Int.Inc. After provision 10,097,695 12,639,770 21,088,040 27,782,170 28,906,735
NON-MARK-UP/INTEREST INCOME
Fee, Commssion and Brokerage Income 3,260,863 5,099,195 4,926,604 6,144,628 6,781,683
Dividend Income 1,126,742 1,273,863 1,718,478 2,891,755 3,263,246
Gain on sale of securities ----- ----- ----- ----- 2,341,690
Income dealing in f.c.’s 710,726 1,008,988 1,205,638 1,333,840 1,042,827
Share of profit of joint venture 108 47,557 ------- -31,964
Other income 2,149,800 875,113 1,573,905 627,618 147,363
Total non mark-up/int.incom 17,345,934 20,944,486 30,512,665 12,162,892 13,544,845
NON-MARK-UP/INTEREST EXPNESES
Administrative expenses
Salaries and allowances 4,761,408 8,878,801 11,195,133 13,443,441 14,457,580
Charge to defined benefit plans 280,632 ----- ----- ----- -----
Provision handshake scheme 293,612 ------ ----- ----- -----
Other administrative expenses 2,471,083 ------ ----- ----- -----
Other provision/write offs 33,454 32,243 198,298 -17,283 168,027
Other charges 22,894 8,284 63,206 208,327 17,141
Total non mark-up/interest expenses 7,863,083 8,919,328 11,456,637 13,634,485 14,391,079
Staff Welfare Fund 474,143 ------- ------ ------ -----
profit before tax 9,008,708 12,025,158 19,056,028 26,310,577 28,060,501
Taxation -Current 4,650,000 4,950,000 7,154,002 8,695,598 8,311,500
Prior years(s) 1,439,444 847,958 -1,098,709 530,652 391,497
Deferred 1,278,839 -15,729 291,291 61,981 323,731
Profit after tax 4,198,103 6,242,929 12,709,444 17,022,346 19,033,773

How to drive ratios

18
1)
Working Capital= Current Assets-Current Liabilities
2)
Current Ratio= Current Assets/Current Liabilities
3)
Acid-test Ratio= (C. Assets-C. Liabilities)/C. Liabilities
4)
Debt Ratio= Total Debt/Total Assets
5)
Long-term Debt Ratio= Long-term debt/Total Assets
6)
ROA= N.I (Before-tax)/Total Assets
7)
ROE= N.I (Before-tax)/Total Equity
8)
NP Margin= N.I/Revenue or Sales * 100
9)
Total Assets Turnover = Sales/Revenue /Total Assets
10)
Time Interest earned = EBIT/Interest Expense

11) EPS = N.I./No of share outstanding

12)
Book value PS = (T. Assets-T. Liab.)/No of share out.
13)
Cost to Income Ratio = Cost/Income

14) Fixed Assets Turnover = Sales/Fixed Assets

15)
OP. Expense Ratio = EBIT/ Op. Expense

19
Ratio Analysis

Current ratio

Ratios 2003 2004 2005 2006 2007

Working Capital in
9,099,364 38,900,632 58,410,275 60,459,328 79,743,881
(000)
Current Ratio 1.03 1.08 1.13 1.12 1.13
Acid test Ration 1.03 1.08 1.13 1.12 1.13
Debt Ratio 94.15% 92.19% 87.13% 87.09% 84.74%
Long term Debt
3.50% 2.02% 1.52% 1.85% 1.43%
Ratio
Return on
2.0% 2.4% 3.4% 4.3% 4.10%
Assets(ROA)
Return on
38.66% 36.01% 29.64% 49.6% 45.90%
Equity(ROE)
NP Margin Ratio 24.20% 29.81% 41.65% 42.62% 44.84%
Equity Ratio 5.85% 7.81% 12.87% 12.91% 16.36%
Total Assets
0.037 0.038 0.053 0.063 0.056
Turnover
Operating Expense
45.33% 42.58% 37.55% 34.14% 33.01%
Ratio
Time Interest earned1.34 1.84 1.85 1.93 1.95
Earnings per share 8.53 10.48 17.92 20.88 23.34
Book value per
56.05 72.08 104.82 100.53 142.66
share
Cost to Income
0.17 0.23 0.24 0.28 0.3
Ratio
Fixed Assets
0.44 1.06 1.185 1.22 0.89
Turnover

20
Current ratio explains the ability of a firm to pay short-term obligations. It
is usually said in business that its current ratio must never decrease by 1:1
because it determine the liquidity position. The table exposes an upward
trend in first three years and in 2007 but year 2006 ratio deduce by 0.88%.
We can analyze that NBP is in a strong position and need to improve
further in next economic years.
Return on Assets
The ratio expresses how effectively the management is using the assets of
the business. There is deterioration in return on assets in year 2007.
Financial year 2007 shows a 4.88% decrease in return on assets then last
year. Whole analysis explains that ROA is growing with from year ended
2003-06 but then decreases. It is need to use assets of the bank to bring
bright future.
Return on Equity
There is variation in ROE throughout five years. Financial year 2007
explains “Golden year in respect of return on capital in 2006” because it
was 49.6% prominent return in the history of banking business in Asia in
2006. NBP does not stable its capacity in current financial year 2007 and
looses at point 7.5% then last year. Now, It is need of time to repeat year
2006 to show its temperament.
Debt ratio
The analysis shows persistently going downward debt ratio, we can say
that bank able to protect itself. Capital structure of NBP expressing
decreases in borrowings and enhance capital by issuing of shares during
five years. Debt in 2003 was at point 94.15% and reduces in financial year
2003 at point 84.74%, shows its strength.
NP margin ratio

21
It shows profitability of the organization against it sales. The table
explains a regular increase in net profit ratio. At the year ended 2003, net
profit against sales was 24.20% and reaches at 44.84% that is double
figure. It says in short that NBP earn Rs.44.84 by investing Rs.100 in year
2007. It is up to the mark but need to improve sale and control cost to earn
better margin.
Total assets turnover
The ratio explains how much in a prominent way the bank using total
assets to increase sales. The first four years shows a regular increase in
turnover but year ended 2007 explains decreases by 11.12% then last
year. So we can say that position to use assets in not satisfactory level.
NBP management can increase its output by using total assets to increase
sale and revenue.
Cost to income ratio
The above table exposes an upward trend in cost against income. But we
know as income increase and inflation come into the economy its effect
on cost. Financial year 2007 defines that NBP’s income in Rs.10 against
investing Rs.3. We can see all four years trend with minimum changing in
figures.

Time interest earned ratio

It is use to find out the ability of a business to cover interest charges. The
ratio occurs that NBP has ability to pay its charges. The bank tries to
increases its EBIT to enhance its position.
Fixed assets turnover
Analysis on table shows upward trend during three consecutive years
from 2004-06. Especially financial year ended 2006 was a golden year in

22
this turnover. The bank does not maintain its position in further and lose
its position in next year with point 27.05% that is very hard figure to
recover but possible in next coming years.
EPS (Earning per share)
Earnings per share show a regular increase in earnings throughout last
five years from 2003-07. It show an upward trend, I observed that NBP is
improve its market condition in a constant year with confident on its
vision-You can trust.

Horizontal Analysis:

23
It is a procedure to compares a company’s financial statements over a
certain period of time. The analysis stated information about changing
items of financial statements in percentage. Mathematically, we can
calculate it as
H.A. = (current year-old year)/old year * 100

Horizontal Analysis

24
 Income Statement at Year 2003-07
In percentage

Discriptions 2003-04 2004-05 2005-06 2006-07

Mark-up/Return/Interest earn 7.68 60.56 30.19 17.56
Mark-up/Return/Interest expense -2.616 57.36 32.09 23.12
Net Mark-up/Interest Income 13.14 62.03 29.35 11.53
Provision against non-performing advance -10.056 61.46 25.71 12.65
Provision dim. of inv. -59.58 -32.4 -188.54 -221.5
provision against off balance sheet obligations-96.98 -100 ----- -----
Bad debts off directly ------- -29.68 -77.09 -----
-33.25 27.22 6.64 2.07
Net Mark-up/Interest Income after provision 25.17 66.84 31.74 29.12
NON-MARK-UP/INTEREST INCOME
Fee, Commssion and Brokerage Income 56.37 -3.38 24.73 19.56
Dividend Income 13.06 34.9 68.27 57.22
Income from dealing in foregin currencies 41.96 19.49 10.64 9.37
Share of profit of joint venture 439.34 -100 ----- 42.79
Other income -59.29 79.85 -60.13 6.65
Total non mark-up/interest income 14.57 13.48 29.05 21.59
20.74 45.68 30.92 24.72
NON-MARK-UP/INTEREST EXPNESES
Administrative expenses
Total Administration expenses 13.73 26.08 20.08 29.12
Other provision/write offs -3.619 515.01 -108.72 35.8
Other charges -63.82 662.98 229.6 333.5
Total non mark-up/interest expenses 13.43 28.45 19 27.89
26.81 58.47 38.07 34.17
profit before tax 33.48 58.47 38.07 6.65
Taxation -Current 6.45 44.52 21.55 22.46
Prior years(s) -41.09 -29.57 148.29 42.3
Deferred -98.77 1951.9 -78.7 66.3
Profit after tax 48.708 103.58 33.94 31.97

Horizontal analysis

25
Horizontal analysis explains the changes in profit and expenses of two
consecutive years. It also suggests that overall variation in the statement
as compare to its current with old year.

The above table shows that interest earned vary during the five years in
analysis, the interest expenses also vary with the same point. Both figures
effects on net-mark-up, so we can see that net-mark-up in 2003-04 were
13.14%, 62.03% in 2004-05, 29.35% in 2005-06, and 11.53 in 2006-07.
NBP’s performance during in 2004-05 was up to the mark but not to
maintain this figure and deduce regularly.

Total mark-up interest income shows little changes in two consecutive

years but got a great position in 2005-06, in 2006-07 it’s again come at
equal to last year progress.

As all elements exposing decreases, expenses of the bank also decreasing

in the table above with different but regular points, pre-tax arises strong in
first four years but at a point 6.65% only in financial year 2006-07.

The whole analysis explains that if we compare current and old year, the
overall position of the bank decreases in financial year 2007, it is not
stable. Every element in income statement showing a downward trend,
now, it is the requirement to develop new policies to stabilize its position
and compete into the market.

Future prospects of the organization

26
NBP’s is planning to expand its network of branches especially in Islamic
Banking. The bank’s international operation is focused towards increasing
trade business and expands where the bank has competitive advantage.
The bank is continued to develop liability side products by enhancing
leadership position. The bank is continued to recognize as a largest
treasury in terms of its size. Its target on untapped sectors and provide
them professional quality services, through on window operation and
relationship managers stationed.

It’s planning to transformation of the entire I.T. architecture of the bank

by implementing a core banking solution. The bank in future follows up
trust with a message “Excellence Customer Service” by invention of I.T.
products and services. The bank will focus to promote healthy sports
activities in the country.

Swot Analysis

27
Strength

• Over the year, NBP has proved its strength as a leading banking
sector entity and treasury agent on behalf of a SBP by achieving the
following first in Pakistani banking sector.

I. NBP in year 2007 received the award for the best

return on capital for 2006 amongst all banks in
Asia.
II. First bank enjoys the highest credit rating
amongst Pakistani banks.
III. First bank with nation-wide branches of over
1200 and over 20 outside Pakistan.
IV. It’s working as a government agent since birth.
V. ROE of the bank stood at 45.9%, which is the
highest in the Asian Banking history.
VI. The first bank in Pakistan with large coverage of
Central Asia, Far East and South Asia.

Weaknesses

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 • The bank I.T system sometime hang or link down can causes a
delay in provision of timely and efficient services to the customers
• There is no proper information desk, which guide the customers on
different banking activities.
• Return on equity decrease in 2007 at an unacceptable rate that
impact on overall condition of the bank.
• Horizontal analysis shows the downward trend in the income
statement can create problem in future.
• Deposits of NBP are regularly decreasing in every financial year,
which can lose the trust of employees.
• The use of token system by the bank for cash payments produces

Opportunities

• NBP is not only expanding “Kisan Dost” its banking services to

remote and ruler areas but also start “Karobar Schemes”.
• As the bank continues its expansion on international coverage the
bank also take opportunity to start Islamic banking is 2007.
• NBP plans to set up research centers, which help the bank to
enhance quality of services.
• NBP is looking E-banking for better services.
• With a provision coverage 84% in fiscal year 2007 and continues is
following years will lead towards banks profitability through
recoveries and reversals.

Threats

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• With the globalization of the world many international banks are
opening this branch into other countries posing a threat for banks,
as the competition would become more acute.
• The expansion of banking sector is forcing to offer improved and
innovative products and services in order to stay into competition.
• The operating environment for banks in becoming more
challenging in the wake of intense competition is the pricing of
assets and liabilities products and services.
• With expansion of branches, help banks to give less attention to
down ward slump, increasing competition between banks and non-
banks can create problems.
• The bank face higher operating cost, the advancement in I.T turned
to grip on cost, the use of I.T by foreign banks on providing
extensive product and service can become a problem is future.

Conclusion

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The bank has been able to strategically manage and build on its
competitive advantage, by knowing customer’s requirements,
understanding employee’s need, modern technology, to making social
responsibility and looking towards stakeholder’s values. The bank is able
to bear new challenges more efficiently. The bank continued its journey to
success on strategy of serving clients- by getting advantage of its unique
domestic and international footprints.
Leadership of Board of Directors makes the bank’s ability to continue as a
going concern. A large number of products, branch network, I.T and
committed workforce are fundamental strength of the bank that enables to
achieve exceptional results in a very competitive market.

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 Recommendation

As analysis shows that NBP is a most growing organization with highest

return on capital, largest market share amongst all Pakistani banks and
cost to income ratio is the highest in banking sector. But there is further
need for improvement. To overcome weaknesses and to maintain its
position as an “Asian Tiger” in banking field, following recommendations
are made:

• The bank should focus on enhancing and improving the quality and
effectiveness of banking software, to provide timely technology
based value added services.
• There should be a proper desk for customer’s information in every
branch.
• The bank should use broad casting media for promotion of its
products and services and to further expand its area through more
aggressive marketing.
• Financial analysis shows that NBP gradually loses its deposits and
other accounts that can create problem for the bank to maintain its
stability. The bank should focus to revaluate existing customers and
attract new to enhance it position.
• Financial year 2006 exposes that ROE/Capital is in point 49.6% but
in 2007 it loses at point 45.1%, it guides that there is deterioration
in uses total equity, the bank must try to repeat “2006 as a Golden
Year”.

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• Advances and loans of the NBP in year 2007 are brutally down by
10.21% then last year, these are basic tools to earn interest as well
as non-interest income, the bank provides quick and better services
to its customer to continue upward trend.
• By analysis we see that assets turnover of the bank decrease in
2007 than last year, so the management try to grip on sales as well
as use assets to create maximum margin.
• Horizontal analysis of income statement showing downward trend
in every elements in whole year 2006-07, the management must
control to get overall market share.

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 References
Books:
James C.Van Horne “Financial Management”
Afza Beig B.Sc Part 1 “Introduction to Statistics”
NBP Annual Reports

Internet:
www.nbp.com.pk
www.sbp.com.pk
www.google.com.pk

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