CASE STUDY

NATIONAL BANK OF PAKISTAN

About National Bank of Pakistan:

National Bank of Pakistan maintains its position as Pakistan's premier bank determined
to set higher standards of achievements. It is the major business partner for the
Government of Pakistan with special emphasis on fostering Pakistan's economic growth
through aggressive and balanced lending policies, technologically oriented products and
services offered through its large networks of branches locally, internationally and
representative offices.

We aim to be an organization that is founded on…

 Growth through creation of sustainable relationships with our customers.
 Prudence to guide our business conduct.
 A national presence with a history of contribution to our communities.

We shall work to…

 Meet expectations through Market-based solutions and products.
 Reward entrepreneurial efforts.
 Create value for all stakeholders.

We aim to be people who…

 Care about relationships.
 Lead through the strength of our commitment and willingness to excel.
 Practice integrity, honesty and hard work. We believe that these are measures of
true success.

We have confidence that tomorrow we will be…

 Leaders in our industry.
 An organization maintaining the trust of stakeholders.
 An innovative, creative and dynamic institution responding to the changing needs
of the internal and external environment
Mission Statement:

To be recognized in the market place by Institutionalizing

a merit & performance culture, Creating a powerful &
distinctive brand identity, Achieving top-tier financial
performance, and Adopting & living out our core values.

Vision Statement:

To be the pre-eminent financial institution in

Pakistan and achieve market recognition both in the
quality and delivery of service as well as the range of
product offering

Core Values:
NBP aims to be an organization that is founded on:

 Growth through creation of sustainable relationship with its customers.

 Meet expectations through market-based solutions and products.
 Reward entrepreneurial efforts
 Create values for all stakeholders.

NBP aim to be people who:

 Care about relationships

 Lead through the strength of its commitment and willingness to excel.
Practice integrity, honesty and hard work. We believe that these are measures of true success.

NBP have confidence that tomorrow NBP will be:

 Leaders in its industry.

 An organization maintaining the trust of its stakeholders.
 An innovative, creative and dynamic institution, responding to the needs of the internal
and external environment.

Objectives:
Strong emphasis has been laid upon training of branch officers to better equip them for
marketing of retail banking products. In future NBP is going to introduce modern banking
services to keep pace with the competition and more important our customer needs. These
are as follows:

 Debit cards
 Internet banking
 Call centers
 Mobile banking
Milestones:

 “Best Emerging Market Bank from Pakistan” for the year 2005 ‘Global Finance’ USA,
May 2005
 NBP is one of the “Top 100 Banks of Asia” ‘Euro money’ UK, March 2005
 Bank of the year 2001, 2003&2004 for Pakistan ‘The Banker’ financial times Group
UK.
 Best Foreign Exchange Bank in Pakistan ‘global Finance’ USA, March 2004
 Amongst Top 1000 Banks in the world and Number 1 in Pakistan ‘the Banker’
Financial Times Group UK, July 2005

Organizational Setup at Head Office:

President of National Bank of Pakistan is the head /Chief Executive of the institution and is
supported by the following group heads/departmental heads:-

 Operations Group Head

 Finance Group Head
 Corporate and Investment Banking Group Head
 Risk Management Head
 Commercial & Retail Banking Head
 Audit & Inspection Head
 Head IT Planning, Development and Implementation
 Head Strategic Planning & Economic Research Wing
 Head Special Assets and Remedial Management
 Head of HR Management Department
 Head of Organization Development & Training Department
 Overseas Regional Chiefs Head
Organizational Chart:

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Spontaneous Financing in National Bank of Pakistan:
Accounts Payable:
Deposits:
NBP do spontaneous finance to regulate credit. They do spontaneous financing by offering
high interest rates in order to attract their customers. NBP provide trade credit facility to
its customer. It attracts surplus balances from the customers at low rate of interest and
makes advances at a higher rate of interest to the individuals and business firms. They do
not keep these deposits in their safe custody but instead they invest these resources in
profitable ways and earn revenues on it from which they meet cost of these resources and
excess is their profit. . But they accept deposits as debts. When a bank receives a deposit
from a customer becomes the creditor and the bank a debtor. When the bank receives the
amount of deposit as a debtor, it becomes the owner of it. It may, therefore, use it as it
deems appropriate. But there is an implicit agreement that the amount owned would be
paid back by the bank to depositor on demand or often after a specified time.

The following types of ledgers are concerned with deposit department:

 Saving Ledgers
 Current Ledgers
 Profit and Loss Sharing Ledgers
 Fixed Deposit Register
 Cash Book
 Daily Profit and Loss Summary Book
 Voucher Register
Credit:
It may be defined as “The sale of goods and services and money claims in the present in
exchange for a promise to pay in future. “
The most important activity of the bank is the granting of credit to the customers. NBP
provides short term and long terms financing for domestic and international trade. The
policies made by central office of the cash, can be amended on the basis of the rules and
regulation, economic risk of each country, board of directors and committee of the NBP
made this type of decisions and informed about these decisions to the branch managers.
Manager can grant the credit limit to each customer with in the declared limits approved
by the controlling offices i.e., co, GHQ, circle and zonal. In the collection and payment of
cheques, bills and promissory notes etc. National bank of Pakistan acts as an agent for its
customers.

Discounting bills of exchange:

Discounting of bill is practically speaking lending for exchange at their market rate i.e. it
pays to holder of the bill an amount equal to the face value after deducting interest at the
current market rate for the period. This bill has to be mature. This is the common way used
for keeping a part of assets of the bank in a liquid form.

Accrued Expenses:
The bank uses the accrued basis of accounting for certain expenses. These items are
recorded in accrued expense payable accounts as liabilities on a pro-rata basis, with offsets
going to the applicable expense accounts. As NBP deals with the purchase and sale of
various types of securities, therefore NBP also provide dividend or interest earned on share
or bonds or invested money. Those are the liability of the bank to pay them to the holder of
the instrument.
Negotiated Financing in National Bank of Pakistan:
Financing which has to be negotiated with lenders, say commercial banks, financial
institutions, general public are called as “negotiated financing.” Negotiable instruments are
normally used for this purpose. Commercial paper, Treasury bill, letter of credit, secured
and unsecured loans are used for negotiated financing.

Foreign Services provided by NBP:

Following is the list of major foreign services provided by NBP to its customers

 Documentary Letter of Credit

 Bills of Negotiation
 Foreign Services
 Bills for collection
A brief description on of above stated services is given under;

Documentary Letter of Credit:

A documentary letter of credit may be defined as an authority issued by the opening bank
on behalf of the importer in favor of the exporter with the stipulation that the drafts drawn
there under will be duly honored provided that the terms and conditions as mentioned
there in are duly compiled with. With respect to the documentary credit the following types
of documentary letter of credit are offered by NBP;

 Revocable LC
 Irrevocable LC
 Confirmed LC
 Transferable LC
 Back to back LC
 Stand by LC
 Sight LC
 Usance LC
Bills for Negotiation:
In some cases the exporter is not willing to wait for the proceeds of collection to be
remitted. In such cases exporter requests the Bank to negotiate the bills i.e. he sends the
documents to Bank. In this case Bank examines the documents and arranges them with the
requirements mentioned in the Letter of Credit. When bank satisfied it pays to the
exporter. Now Bank has the right to collect the proceeds on his own behalf from the
importer’s Bank. NBP performs the functions of both the exporter’s and the importer’s
Bank as per its customer’s status.

Bills for Collection:

The exporters and bank receives the documents from the exporter, examines and
dispatches them to the importer’s bank. The importer, s bank confirms these, as per the
requirements stated in the letter of credit. If founds correct gets the amount from the
customer, advice the exporter ,s bank about the receipt of payment and in the end makes
the payment to the exporters bank.

Pay Order:
NBP provides another reason to transfer your money using our facilities.  NBP pay orders
are a secure and easy way to move your money from one place to another.  And, as usual,
NBP charges for this service are extremely competitive. The charges of NBP are very low all
over the Pakistan. It charges Rs 50/- for NBP account holders on issuing one payment
order. And charges Rs 100/- for NBP non-account holders on issuing one payment order. It
charges Rs 25/- for students on payment of fees of educational institutions.

Traveler’s Cheque:

Traveler’s cheques are negotiable instruments, and there is no restriction on the period of
validity of the cheques. Rupee traveler’s cheque is available at all 700 branches of NBP. This
can be encashed in all 400 branches of NBP. There is no limit on purchase of this cheque. It
is one of the safest ways for carrying money.

Secured and Unsecured Advances/Loans:

These are the various advance or finance facilities issued to the borrowers to carry on or to
meet their business requirements. These are extended in three modes as explained above
which are

 SHORT TERM
 MEDIUM TERM
 LONG TERM
This caters to the needs of clients according to their requirements.

The loan is provided to the customer according to the value of property pledged. The bank
provides 4 million against property of 1 billion. And in case of hypothecation the bank
provides 1.7 million against 10 million.

Short Term Finances:-

Short term finances are sanctioned for increasing working capital and production. These
are given for the period of 1 year to 3 year maximum. Short term finances include:

 Cash finance:

The bank gives the loan to the customer and business against certain specified immoveable
property. It is issued for establishment and extension of industry. Cash finance provides
working capital to facilitate the firms.

Types of cash finance limits:

 Against the pledge of stock:

In this type all the stock remains in the control of the bank.

 Against the hypothecation:

In this type the bank only monitor the stock but stock remains in the custody
of borrower.

 Issuance of bank Guarantee:

In cash finance portfolio bank also issues in bank guarantee. It is non funded advance in which the
bank only gives the guarantee on the behalf of the borrower to purchase stock from the
distributor/producer. Stock can be of any type

 Demand Finance:

This finance is providing against movable property (called secure finance) or may be given against
personal guarantee (called clean finance). Demand finance is further divided into three types.

 Staff Finance:

This finance is given to the employees of the NBP for improving their living standard e.g.
purchasing a motor cycle, car, house building, computer etc. There is no mark up on this loan except
on car and computer buying at 4%.

 Gold Finance:

It is sanctioned for the period of 11 months by the pledging of gold ornaments.

 Agricultural Finance:

It is given for supporting seasonal crops like Rabi and Kharif. It is sanctioned for six months only at
the rate of 13%.

 Running Finance:

This finance is only a secure finance which is sanctioned against movable security that is easily
convertible into cash e.g. security bonds, Govt certificate, bonds and income certificate etc.

Small Finance:

It facilitates small business man to run their business. Limit of these small finance is up to .300
million. This loan is guaranteed by mortgage of property and hypothecation.

All the loans may be fund base or non-funded base.

Fund Base: - Loans are those which are given in the form of cash to the borrower.
Non Funded: - Loans are those which are given other then cash e.g. Guarantee, L.C, promissory
notes etc.

Banks run their business with the money of depositor, which is repayable to them on demand.
Bankers are very conscious while using these funds. They think thousands times before lending
money to the borrower. They must consider following factor before advancing the loans.

 Capacity to pay
 Credit Worthiness
 Capital
 Collateral
Securities:

Before sanctioning a loan to borrower the bank required a valuable security in three ways.

 Hypothecation
 Pledge
 Mortgage

Hypothecation:
In this type of security immoveable property is pledged by the bank and the bank is required a real
value for that property for sanctioning a loan. Margin for this security is 50%. In this hypothecation
bank does not interfere in the business of borrower.

Pledge:

In pledge the bank has 90% shares in business of the borrower. The bank has a right to sold the
production and interfere in the business transaction, in this type of security bank pledge the stock
and raw material. The stock must be insured. Stock is controlled and managed by the bank;
borrower cannot use raw material and cannot sell its production without the presence and
permission of the agent of the bank.

Mortgage:
All the documents of the ownership and registration of moveable property is submitted to the bank
with an authority letter which has an agreement to give authority of selling property in case when
borrower will not repay the loan after a fixed period.

Detail of Documents required for sanctioning a loan:

 CNIC copy of borrower.

 Approved site plan.

 Registry of property.

 Balance sheet.

 Promissory Note.

 Letter of Pledge, Letter of hypothecation.

 Letter of continuity of Liability.

 Valuation from the Bank’s Engineer.

 Borrower Basic Fact Sheet.

 Personal Guarantee.

 An acceptance letter that the bank reserves the right to increase the
rate of Mark Up and modify all the terms and condition of the Finance
during its currency at its discretion without assigning any reasons
what so ever therefore.
SWOT Analysis:

Strengths:

 NBP has the relative competence in having more deposits than the other bank. This
is because of the confidence the customer have in the bank. The bank being the
privileged and oldest bank in banking sector of Pakistan enjoys this edge over all
others, lacking it.
 The employees at NBP here have a good hold on their descriptions, as they are
highly skilled Professionals with background in business administration, banking,
economics etc. These professional competencies enable the employees to
understand and perform the function and operation in better way.
 Gold loan facility.
 Leading bank in agriculture financing amongst commercial banks with the market
share of 15%

Weaknesses:

 Less number of Online Branches

 The strong political hold of some parties and government and their dominance is
affecting the bank in a negative way. They sometime have to provide loan under the
pressure, which leads to uneven and adjusted feeling in the bank employees.
 The terms and conditions about the financing are not properly communicated
 The staff of the NBP is unskilled and not professionals. The employees have to
complete their work manually, which is very time consuming.
 ATM facility is not provided in all branches
Opportunities:

 Due to increase in the overall activity of Business in all over the country. In housing
and textile industry there are various types of Mega Projects so, the bank has a great
opportunity to finance these projects at very profitable term.
 The basic income for a bank is the difference of rate of interest by which it deposit
and by which it lends to others. And Pakistani nation gives first preference to fulfill
their funds requirements by getting loans from banks. Thus there is a very good
scope for the bank to run successful business in such circumstances.
 Proper advertising of NBP products and services.
 Trust and reliability creates chances to enhance deposit and profitability.
 Bank’s deposit is increasing rapidly so there is a great opportunity to enhance its
investment and financing.
 Being an agent of State Bank of Pakistan it can play vital role in local economy.

Threats:

 There are many factors of uncertain position of the economy. Such as political
uncertainty, WTO, increase in poverty etc. As a result there are permanent threats of
future risks and losses for the bank. And we all know that due to these factors many
investors hesitate to invest in the Pakistani business.
 High number of complaints regarding staff behavior.
 Payments and FBR Collections create heavy workload.
 The no of banks are increasing and they providing good customer services as compare
to NBP.
 NBP is lacking behind in IT and computer professionals. Other banks introducing new
technology and computer networks day by day so it can reduce the NBP market share.
 Conclusion

After studying the theoretical background of Spontaneous Financing and negotiated

Financing, it is concluded that there are so many financial institutions which are providing
financing services not at customer level but also at business or corporate level. They
provide the facility of deposits to customers; act as the agent on behalf of the customer and
Government. NBP provide loan facilities like, cash finance, demand finance, running finance
and small finance against securities, collaterals, pledge and mortgage. Letter of credit
facility to customers for foreign payments. It is also noted that the institution is providing
al these facilities according to the given instructions of the “State Bank of Pakistan” which is
the Regulatory body for the whole financial institutions.

Recommendation:

 Account opening, loan issuing and some other procedures should be more
convenient and flexible.
 All branches of NBP should be online for customer convenience and for best link
among all its branches.
 If the bank wants to improve his market position in banking sector then it will have
to focus on the recovery side of the loan which has been sanctioned to the customers
and business.
 In credit processing department I come to know that in pledge, the goods are under the
custodian of the an external party known as Muqqadam , by which NBP has made contract
but it is not the safe mode of custody of the pledge goods. There is the chance of fraud. So
they have to maintain their own gowdowns.
 There should be a customer relationship desk in every branch of the bank in order
to facilitate the customer as well as to smooth down the working environment of the
organization. It will result into a great increase the efficiency and productivity of the
employees and the satisfactions of the customers as well.
 References

Websites:
www.google.com
www.wikipedia.com
www.nbp.com.pk
www.nbp/annualreport.com
www.answers.com
www.scribd.com
www.ehow.com
www.authorsden.com/categories/article_top.asp?catid=5&id=41891
www.n etmba.com

Book:

Fundamentals of financial management 13th edition by James C. Van Horne and John
M. Wachowicz, Jr.