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In such a professional education along with the theoretical knowledge, it’s very much important for us to know the application of this theory. I feel pleasure and honor that I got the opportunity to work in such a privileged and reputable bank of the country. During my internship program I tried my every best to equip myself with all important knowledge. In this report, I have tried to humble endeavor to cover various aspects of bank like, introduction, its history, main departments, culture, objectives, working financial analysis and also give me the opportunity to identify the its strengths, weaknesses, opportunities and also give my recommendations. Meezan Bank is a growing bank that has 24 branches in Pakistan including 4 in Lahore, but now it is panning to open 3 more branches in Lahore. Its main focus is on customer satisfaction, which they achieve in order to provide better services.
To be preferred provider of Islamic financial products in the market.
To create exceptional value for their clients, investors and staff; through market leadership in providing innovative Shariah complaint products and solutions, and by adopting and living their core values.
Their objective is to provide their customers knowledgeable, efficient and reliable financial services. They are committed to offering superior, differentiated financial solutions to help customers manage their money better.
Meezan Bank Limited is a publicly listed company first incorporated on January 27, 1997. It started operations as an investment banking license under SRO 585-(1)/87 in August of the same year. In January 2002 in an historic initiative, the State Bank of Pakistan granted Meezan Bank the nation’s first full-fledged commercial banking license dedicated to Islamic Banking. And it’s started working as commercial bank from 1st May 2002.
Meezan Bank stands today at a noteworthy point along the evolution of Islamic Banking in Pakistan. The banking sector is showing a significant paradigm shift away from traditional means of business and is catering to an increasingly astute and demanding financial consumer who is also becoming keenly aware of Islamic Banking. Meezan Bank bears the critical responsibility of leading the way forward in establishing a stable and dynamic Islamic Banking system replete with dynamic and cutting-edge products and services. The Bank has made fundamental and significant progress forward, and in doing so has established a strong and credible management team comprised of experienced professionals, which have achieved a strong balance sheet with excellent operating profitability, including a capital adequacy ratio that places the Bank at the top of the industry, a longterm entity rating of A+, and a short-term entity rating of A1+, the highest short-term rating. 3
The Bank’s main shareholders are leading local and international financial institutions, including Pak-Kuwait Investment Company, (The only AAA rated financial entity in the country,) The Islamic Development Bank of Jeddah, Shamil Bank of Bahrain, Islamic Development Bank, Jeddah Kuwait Awqaf Public Foundation Saudi Pak Industrial and Agricultural Investment Company (Private) Limited. Those in addition to their strength and stability add significant value to the Bank through Board representation and applied synergies. The Bank has an internationally renowned, very high caliber and proactive Shariah Supervisory Board presided over by Justice (Retd.) Maulana Muhammad Taqi Usmani, a renowned figure in the field of Shariah, particularly Islamic Finance. He holds the position of Deputy Chairman at the Islamic Fiqh Academy, Jeddah and in his long and illustrious career has also served as a Judge in the Shariat Appellate Bench, Supreme Court of Pakistan. The Bank also has a resident Shariah advisor, Dr. Imran Usmani, who strictly monitors the regular transactions of the Bank. The board also includes Sheikh Essam M. Ishaq (Bahrain), and Dr. Abdul Sattar Abu Ghuddah (Saudi Arabia). At Meezan Bank, we strive to find commonalties with the conventional banking system with absolutely no compromise on Shariah rulings. The bank has developed an extraordinary research and development capability by combining investment bankers, commercial bankers, Shariah scholars and legal experts to develop innovative, viable, and competitive value propositions that not only meet the requirements of today’s complex financial world, but do so with the world-class service excellence that our customers demand, all within the bounds of Shariah. Furthermore, the Bank has built a strong Information Technology and customer knowledge-based focus that continues to use state of the art technology and systems. The Bank’s Corporate and Investment Banking business unit is geared towards nurturing and developing a long-term relationship with clients by understanding their unique financing requirements and providing Shariah compliant financing solutions across the horizon of corporate banking and structured finance.
The Bank is also implementing robust and aggressive strategic and tactical initiatives on the consumer banking side. The Bank has a rapidly growing branch network across all major cities nation-wide. Providing our customers accessibility and convenience is a prime target, within an atmosphere and culture of dedicated service and recognition of their needs. We believe in adding value to our customers’ lives and businesses through dynamic and competitive products and services that fulfill their needs while conforming completely to the dictates of Shariah. At the same time, we endeavor to deliver competitive risk adjusted ret
FIELD OF ACTIVITIES
THERE ARE 6 MAIN DEPTT’S IN THE BANK OPERATIONS DEPARTMENT CUSTOMER SERVICES DEPARTMENT CREDIT DEPARTMENT TRADE FINANCE DEPARTMENT CORPORATE DEPARTMENT CASH DEPARTMENT
BRANCH MODEL FOR LAHORE BRANCH
Hybrid Structure Because of complex banking environment, Meezan Bank use hybrid type of structure that has the following characteristics:
Functional • Allows economies of scale that all employees are
located in the same place and share all facilities. • Enables in-depth knowledge and skill development. • Enables organization to accomplish functional goals. Divisional • Leads to client satisfaction because responsibilities and contact points are clear. • Best in large organization. • Horizontal • Promotes flexibility and rapid response to changes in customer needs. • Promotes a focus on team work and collaboration. • Direct the attention of everyone toward the delivery of values to the customer.
ORGANIZATIONAL POLICIES Policy Formulation in Pakistan
The system at Meezan Bank is totally centralized. All the policies are formulated at the top level and implemented at the middle and lower level. The policies are formulated at Karachi, which is the main Head Office of MBL. The most important thing about policy formulation at MBL is that the policies are “dynamic” in nature. These are to be framed according to the macro and micro environmental forces, so they keep on changing.
Main Categories of Policies:
Functional policies regarding • Main business areas • Consumer banking product • EBBS-the efficient IT system Managerial policies Accounting policies
Business Areas in Pakistan
First of all they have made a policy regarding ‘Business Areas in Pakistan’ which covers the areas of business offered by MBL in Pakistan. The detail of the policy is as under: Consumer Banking • Branch Banking • Assets Sales Corporate and Institutional Banking • Custody and Clearing Services • Cash management • Trade Finance Treasury Operations
Managerial policies include the following; Investment Policies • Lending Policies • Profit Rates • Repayment and Collateral Audit and Control Servicing Policies Personal Policies Research and Development Policies Marketing Policies Recruitment Policies Environmental Policy Creditor Payment Policy Promotional Policies
Accounting Convention Bad and Doubtful Debts Debt Securities, Equity shares and Treasury Bills Deferred Taxation Off-balance Sheet Financial Instruments
The strength of this organization lies in the people that work for it. At the heart of our success is their commitment to equal opportunity, to a performance culture where recognition, promotion and rewards are based upon merit and demonstrated performance, regardless of nationality, race, gender or age. Their culture demands that there are opportunities in their organization for anyone with a desire to succeed wherever in the world they come from. Their future is based on maintaining the confidence and trust of their customers, staff and the governments and communities in which they do business. They recognize that they have to demonstrate that they uphold the highest professional and ethical standards and those they understand and respect the cultures of the countries in which we operate.
At Meezan Bank understanding their customers’ business and responding to their financial needs is fundamental to the way they do their business. As social and environmental issues gain higher profile, they need to understand how their customers meet these challenges and the impact this has on the way they do business.
They have dedicated Customer Service Centers with solution-oriented cash product specialists to provide their customers with cost-effective solutions. Electronic delivery system has been put in place to give their customers maximum control of their transactions. Pakistan’s currency is the Rupee (SWIFT code: PKR). They have revised their lending policy to ensure that they identify their customers’ social issues and any impact they may have on the natural environment. They will: Take account of internationally acceptable environmental and social standards in all applicable lending proposals, and Include consideration of social and environmental issues resulting from the lending proposal in their decision making where appropriate. This means that they will be more conscious of the way all their customers operate, their attitude to social standards such as child labor and the impact their activities have on the environment. Specifically they will also look at the environmental impact where land and buildings are taken as collateral. Bankers have not traditionally been trained in social or environmental matters. However, they clearly have a responsibility to their employees to provide them with the basic tools and training necessary to enable them to recognize the risks associated with our lending proposals. Training for their lending officers will be amended to include guidelines and processes that set out: When certain actions are required (such as calling for an environmental impact assessment) How to evaluate the social and/or environmental risk associated with the lending proposal, and Where to get specialist help
They are a highly ethical company. They expect their suppliers to be ethical too. Their procurement processes aims to surface ethical issues. Where serious ethical issues are identified suppliers will be excluded from doing business with us.
They aim actively to ensure that due regard is given to each of these issues in every managed procurement by Meezan Bank. This will be achieved by: 1. Taking account of each issue throughout the sourcing process
2. Ensuring each issue is a factor in the supplier selection process This should lead (wherever possible) to Meezan Bank favoring the use of suppliers whose policies and actions demonstrate, at a minimum, compliance with Meezan Bank’s own social, ethical and environmental standards and policies. PRESS RELEASE JCR-VIS reaffirms A+/A-1+ratings of Meezan bank Limited. Outlook, Stable Karachi, May 2,2003:JCR-VIS Credit Rating Company Limited has reaffirmed the entity ratings of MBL at A+(Single A Plus) for the medium to long term and A-1 +(A one Plus) For the short term. Outlook on the medium to long-term rating is “Stable”. The reaffirmation is a reflection of the strong support enjoyed by the bank from its local and foreign sponsors, as well as its strong capital base and the outstanding quality of its assest portfolio. MBL’s position in the niche market for Islamic banking is good as it is widely recognized as one of the pioneers of this form of banking in Pakistan. However, JCR-VIS will continue to monitor the ability of the bank to meet its existing projections in view of the increasingly competitive environment in the financial sector in Pakistan and the effect on MBL’s niche market of the planned entry of various commercial banks into Islamic banking. Faheem Ahmad President & CEO Contact: Safdar Qazi/Saad Ahmad Madani/Faiza Zaidi JCR-VIS Credit Rating Company Limited Tel: 5680766,5680996,5671822,5671833 Fax: 5681105,5671600 E –Mail firstname.lastname@example.org
Meezan Bank has been in Pakistan since 1997. There are 24 branches that offer full banking services in corporate, institutional and consumer banking and custody services. Adopting a pro-active approach, they are able to offer a flexible and comprehensive range of financial services, in particular transactional banking products. They have also invested in their branches to ensure that their business is supported by high-tech operations using state-of-the-art technology. Its branch network is as follows:
Lahore Karachi Islamabad Rawalpindi Faisalabad Peshawar Sialkot Kasur Gujranwala Multan
No. of Branches
4 10 1 2 2 1 1 1 1 1
MBL operates as a progressive and adaptive organization maintaining dynamism and flexibility in all facets of its operations. From the very outset, MBL has concentrated on excellence and precision in banking practice and has consequently been redefining industry standards. The Bank’s core strengths stem from its corporate philosophy, which stresses the highest level of its security, reliability and value for its client’s money. The product portfolio concentrates on all facets of Islamic banking as well as financial needs of corporate sector. The bank is currently adopting a Growth strategy in order to make their position in the local market. And they are making great progress in pursuit of this strategy facilitating access to high quality banking service to all. Currently they are conducting aggressive marketing for the publicity of their products through billboards, banners etc. The bank is committed to combine all its energies and resources to bring higher value, security and satisfaction to its customers, employees and shareholders.
HUMAN RESOURCE MANAGEMENT
HR department in MBL basically deals with the process of acquiring, training, appraising, compensating employees and attending to their labor relations etc. HR officials at MBL (Karachi) perform value chain analysis.
EQUAL EMPLOYMENT OPPORTUNITIES (EEO)
Equal employment opportunities are given to all applicants who come for interviews or tests. No discrimination on the basis of sex is seen at MBL, there are good percentage of women employees at MBL in various departments. In case of conflict at any level between any two employees or departments voluntary mediation is done.
In this report, my endeavor has been to stipulate my experiences and observations, during my internship at MEEZAN BANK LIMITED Gulberg Branch Lahore, Which would always be memorable for me.
Account opening and closing is the function of customer services department. The bank’s customers includes individuals (single or joint), firm (partnership/proprietorship), Autonomous corporations, Limited companies, Charitable Institutions, associations, Educational Institutions or local bodies. MBL accounts Current account Saving Account Foreign Currency Account Brief Explanation of these accounts is as follows CURRENT ACCOUNT Current account is basically used to meet the daily transactions. The money kept in current account is in the form of CARZE HASNA gives the advantage for paying debts by the convenient and safe means of sending cheques through the post thus avoiding the trouble and loss. SAVING ACCOUNT Mini deposit:::::::::::::::::::::::::::::::::::::Rs.10,000/- only The deposits of the customers together with the bank’s contribution are invested in a pool that consists of Ijarah and Murabaha financing. The profit earn on this pool is calculated every month, and if you maintain a minimum average monthly balance of Rs.10, 000/- you shall be eligible to receive profits that will be disbursed to you every month. But if u’r balance is less then 10000 then u get no profit or no penalty is charges to u. there is no fixed profit b/c every month new rate declared. Profit Calculation Rs. Rs. Rs. Rs. 10,000 up to Rs. 9,999,999 10,000,000 up to Rs. 49,999,999 50,000,000 up to Rs. 99,999,999 100,000,000 and above
FOREIGN CURRENCY ACCOUNT
Mini deposit:::::::::::::::::::::$100 under Modaraba arrangement. The return earn on the Modaraba pool is calculated every month and profit ratio is declared for all investors is declared at the beginning of the month. If you maintain a minimum average monthly balance of $500, you shall be eligible to receive profits that will be disbursed to you every month.
BASIC OF ACCOUNT OPENING
The next week of my internship was to open new accounts. The opening of an account is the establishment of banker customer relationship. Following are the steps involved in the opening of new account. INTRODUCTION AND PRELIMINARY INVESTIGATION GENERAL INFORMATION ABOUT ACCOUNT OPENING Account opening is the basic and first relationship, which is established between Bank and the customer. In account opening extreme care has to be exercised in case of completion of account opening documentation. Whenever a client comes in the bank in order to open an account the first information that is given to him/her about the types of accounts, which can be opened, so far this purpose the client is given detailed information about the accounts and their respective profit rates.
TYPE OF ACCOUNTS OPENED INDIVIDUAL ACCOUNTS
These accounts can be opened in any one of the schemes • • • • CURRENT PLS/SAVING TERM DEPOSIT RIBA FREE
At the death of an individual account holder the account is flagged as “deceased account”. The credit balance is not paid to anyone unless the bank receives the court order. IMPORTANT DOCUMENTS REQUIRED • MINOR ACCOUNT Bay form and copy of passport minor
• • •
National Identity card of Guardian Signature requirement of guardian Title as follows “ABC (M) DEF (G)
JOINT ACCOUNTS As evident from the name these accounts can be jointly opened by any number of persons. The minimum number of persons required to open a joint account is two but there is no maximum limit. National Identity card of all Applicants. Signature of all Applicants. Zakat Affidavit of all Applicants (In case of zakat Exemption). Operation of account clearly mentioned. The options available to operate the account are: o Jointly Either or Survivor Other(s)(Please specify)
Copy of national identity card Complete account opening form Letter of introduction if required Visiting Card (if the person is employed)
Certified copy of resolution Certified copy of rules Copies of National Identity cards of all directors/passports Completed account opening form Specimen Signature Card Completed account opening form Specimen Signature Card Certified copy of trust deed Copy of rules/by laws Copies of National Identity cards of all trustees
1. ACCOUNTS OF SOLE PROPRIETOR These accounts can also be opened in any one of the schemes mentioned before.
IMPORTANT DOCUMENTS REQUIRED
Declaration Letter Copy of NIC/Passport of the proprietor National Tax Certificate Declaration of Sole Proprietor on company letterhead Business registration Certificate Specimen Signature Cards and completed account op
2. ACCOUNT OF PARTNARSHIP These accounts can also be opened in any one of the schemes.
IMPORTANT DOCUMENTS REQUIRED
Partnership Deed, certified copy. Photocopies of NIC of all partners. Partnership Mandate (Prescribed Format). 3. ACCOUNT OF LIMITED COMPANIES A lot of documentation is required in case of these accounts. IMPORTANT DOCUMENTS REQUIRED List of Directors of company. NIC of all Directors. Copy of certificate of Incorporation. Memorandum of Association. Article of Association. Copy of Board Resolution. Latest Copy of Form-29 Stamp of Company, which is to be affixed on opening form. Certificate of Commencement of Business
ACCOUNTS OF LITERATE Features These accounts can be opened individually or jointly. For men, the right hand thumb impression and for women, the left hand thumb impression is taken on account opening form. The customer is given advice to come to bank himself in order to withdraw any cash or deposit the cheque.
IMPORTANT DOCUMENTS REQUIRED
Photocopy of NIC of Account Holder. Two-three passport size photographs. ACCOUNTS OF MINORS Features The name of guardian is written in Title of Account. The account can be in any one of the schemes. Signatures of the guardian are always used to perform any transaction. Birth Certificate of minor. Photocopy of NIC of guardian. THINGS TO BE CONSIDERED BEFORE OPENING AN ACCOUNT o o o Verification of the customers’ credentials. The suitability of the prospective customer. The proposed relationship should be violate: Any of the local laws. State Bank’s rules and regulations. The Bank’s own policy. The prospective profitability of the relationship.
IMPORTANT POLICIES REGARDING ACCOUNT OPENING Some of the important policies of bank that has to be considered before opening an account are as follows: Identification and screening of customer. Completion of all relevant columns of account opening form. Ascertaining the genuineness of credentials furnished by customer. Proper completion of documentation. Verify the genuineness of introduction. Account should be opened after seeing the originals documents like o o o NIC Passport Partnership Deed, etc.
FUNCTIONS PERFORMED IN CUSTOMER SERVICES
ACCOUNT OPENING DEPARTMENT Account Opening Account Closing General Client Dealing Locker Opening
INFORMATION TO BE FILLED IN ACCOUNT OPENING FORM Type of account Title of account Personal Information of Applicant I. Name II. Father’ Name III. Mother’s Maiden Nam IV. Occupation V. Employer VI. Job Title VII. Address of employer VIII. Nationality IX. Country of Residence X. NIC XI. N.T.N. number XII. Passport number XIII. Date & Place of Issue XIV. Residential Address XV. Correspondence Add. XVI. Hold Mail Instruction (Either Yes or No) XVII. E-Mail Address XVIII. Fax No. XIX. Telephone No. a. Next of Kin b. Corporate Account c. Type of Entity/Organization d. Nature of Account e. Currency of Account f. Zakat Deduction g. Signature Requirement h. Details of other Bank Account i. Introduced By (most important part in account opening process without which no account can be opened.) INTRODUCER CAN BE
Anyone from the staff members. A well reputed customer of the Bank. Another well reputed Bank. Customer employer, if he/she is of good repute.
PROCEDURES FOR ACCOUNT OPENING First of all, after inquiring from the customer what type of account he/she wants to open, the account opening form is got filled from the customer and signed it. Along with the account opening form, the customer is also signed two Specimen Signatures Cards. After fulfilling all the formalities of account opening, the computer generated account number is given to the customer that is of special series depending on the type of account.
DIFFERENT SERIES OF ACCOUNT NUMBERS Sr. No. 1 2 3 REQUISITION SLIP A requisition slip is given to the customer to sign it so that the customer can get chequebook. Chequebook is issued after one-two days of receiving the requisition slip. LETTER OF THANKS After opening the account “A Letter Of Thanks” is send to the customer in order to thank the customer for opening an account in the Bank. This letter tells all the information regarding his/her accounts, which are kept very confidential. ACCOUNT OPENING REGISTER After an account is opened, an entry is made in the account opening register, which has the following columns: Date Account Number Name & Address Telephone Number Initial Deposit Account Type Saving/Pls Current Mark Up SERIES 0085 0081 0666
Customer Services /Relation Officer enter the new account opened in computer and the Specimen signature Cards are also scanned so that whenever a cheque of the respective account comes for encashment, the signatures can be verified.
I moved to the Trade Finance Department under the supervision of Mr. Rizwan Qureshi, in charge Trade Finance. DEFINITION “Trade finance means that trade which returns we get finance”. TWO MAIN POINTS Imports Exports IMPORTS Letter of credit Registered contract Advance Payments EXPORTS Export Negotiation Collection Advance Payments LETTER OF CREDIT Letter of credit is very useful instrument in facilitating commercial relations b/w businessman at various places. A letter of credit is a financial instrument issued by a bank on behalf of one of its customers, which authorizes an individual or a business firm to which it is addressed to draw draft on the bank for its account under certain conditions as set forth in the document.
DEFINITION “The letter of credit is a written instrument issued by the buyer’s bank authorizing the seller to draw in accordance with certain terms & conditions”. Or “The letter of credit is commitment on the part of the buyer’s bank to pay or accept drafts drawn upon it provided such drafts do not exceed a specified amount”. Or “The essence of this letter is that the person taking bills on the faith of it is to have the absolute benefit of the undertaking in the letter and to have it in order to obtain the acceptance of the bills, which r negotiable instruments payable according to their tenor, without reference to any collateral or cross claims”. Letter of credit state the limit of the credit and the time during which it is held at the disposal of the grantee, but they are Neither negotiable nor transferable. Letter of credit also known as DOCUMENTRY CREDIT. PROCESS BEFORE OPENING OF LC LC AGAINST SECURITY LAND & BUILDING Equitable mortgage Registered Mortgage
PLANT & MACHINERY Hypothecation & current assets of the co., 1st charge 2nd charge So on
LAND & BUILDING It’s the security of LC against land & building.
EQUITABLE MORTGAGE It’s the agreement b/w bank & party that in case of default the letter party have the right to sell the property & recover his money. REGISTERED MORTGAGE If equitable mortgage is registered by the registrar of the companies its registered mortgage. PLANT & MACHINARY It’s the security of LC against plant & machinery HYPOTHECATION & CURRENT ASSETS OF THE CO., Firstly one customer comes to bank and ask for opening of LC. Then bank evaluate its assets land & building plant & machinery plant & machinery or Balance sheet analysis for security purpose. The corporate deptt of bank do this work. After evaluation all documents are prepared. Then all documents send to the customer for signatures. Then further procedure of LC is done. 1ST PARI PASSU CHARGE Means if customer comes to bank & request to open LC against securities or same as go to another bank to open an LC. Then 1 st bank allows to another bank then its 1st pari passu charge or in case of default all the assets, stocks or receivables are divided equally b/w two banks 2nd CHARGE In 2nd charge more then two banks are involve. In case of default 1 st bank firstly recover all his money then 2nd & 3rd bank divided banks assets equally. Same as 3rd 4th or so on pari passu charges. NOTE But mostly all blue chip banks do only 1st pari passu charge.
LIMIT When customer says that open an LC of 50 thousand. The bank says no we only open an LC of 25000.then customer or bank agrees in one rate its called limit. TYPES OF LETTER OF CREDIT REVOCABLE LC IRREVOCABLE LC REVOCABLE LC The issuing bank reserves the right to cancel the LC at any time and the bank will be under no obligation to give a notice of cancellation to the beneficiary. IRREVOCABLE LC The bank alone cannot cancel credit, and it will have to run its full course; but it can be cancelled if the beneficiary agrees to such cancellation. PARTIES OF LC A customer, buyer, importer Importer issuing applicant bank Seller exporter beneficiary Exporter bank
TYPES OF SHIPMENT Part shipment Transshipment MODE OF PAYMENT OF LC Sight LC Usance LC
EXPORT EXPORT NEGOTIATION It’s simply the purchase of documents. Negotiation means the giving of value for draft or documents by the bank authorized to negotiate. Mere examination of the documents without giving of value does not constitute a negotiation. COLLECTION Collection means the handling of documents by the bank in accordance with instructions given by the exporter .the exporter after having shipped the goods to the required port (normally the buyer country) furnishes the export documents to his bank. These documents are broadly categorized into 2 types. Financial documents Commercial documents FINANCIAL DOCUMENTS Bill of exchange, promissory note, in international trade use of promissory note is restricted. COMMERCIAL DOCUMENTS Means invoices, transport documents, documents of title of goods or any document that whatsoever not being financial documents. Some of such documents are : Commercial invoice, Performa invoice Packing list Bill of lading, airway Bill Sea way bill (transport documents) Certificate of origin Documents of title of goods
ADVANCE PAYMENT In this method of settlement of payment, the buyer pays 4 the goods to be purchased in advance. This method facilitates the exporter to go ahead with out any difficulty where there is a Paucity of funds. This method is best-suited 4 the exporter but highly risky 4 the importer b/c
the exporter may default in delivery .the buyer agrees 4 it in cases where he has utmost faith in the exporter.
Corporate Banking Corporate Banking & Corporate Finance
The Corporate Banking Department is geared towards providing comprehensive and innovative financial solutions to the bank’s client base through a diverse product offering. The focus is on nurturing and developing a long-term relationship with clients by understanding their unique financing requirements and providing Shariah compliant financing solutions. The Bank offers following products and services to its customers: The unit tailors solutions for a broad array of financing needs, both short and long term, and has experience of working closely with customers who are seeking innovative Shariah compliant solutions for such needs. Working Capital Requirements The Bank offers a wide range of products to meet the customers’ working capital requirements through various Shariah compliant modes of financing such as Murabaha, Musharakah, Modaraba, Istisna and Salam Here is brief description of the Islamic modes which are frequently in use in MEEZAN BANK LIMITED. Project Financing/Expansion/BMR Requirements Meezan Bank specializes in offering unique project financing solutions, which have been developed using a wide array of product offerings, which include Diminishing Musharakah, Ijarah, Modaraba, Istijrar, Murabaha and Istisna forms of financing and derivatives thereof. Export Refinance: Meezan Bank enjoys a distinction vis-à-vis its competitors, as it is the only Bank in Pakistan to offer a Shariah compliant “Islamic Export Refinance Scheme (IERS)” approved by the State Bank of Pakistan (SBP). The scheme has been developed by the product development team of Meezan Bank in close coordination with SBP keeping in view the unique needs and requirements of exporters. The scheme is available in both Part-I and Part-II as per the original Export Refinance Scheme (ERF) of SBP. Trade Related Services:
The Bank offers a complete range of trade products to its customers including Sight/Usance Letters of Credit, Letters of Guarantee, Export bill collection, Export bill purchase etc. These products are based on various modes of Islamic Finance and have been designed to suit the needs of the customers. Corporate Finance & Advisory The unit also provides a range of Advisory services integrating industry, product and regional specialization to help businesses address their strategic issues and formulate and execute dynamic business strategies. In a short span of time the unit has been able to develop core specialization in Privatization Mandates, Mergers and Acquisition, buy-side/sell-side advisory, financial restructuring and related fields. The unit counsels its clients on the most advantageous a transaction structures and tactics available and creates new structures to get difficult or complicated M&A deals done. Whether advising on a multi-billion rupee M&A transaction or origination and marketing & distribution of primary market transactions, the Corporate Finance Department brings superior innovation, experience and capabilities to each of its clients.
PRINCIPLES OF FINANCING Five basic financing principles are followed by MEEZAN BANK LIMITED Safety: Banker’s funds are comprised of money, which is mainly borrowed from numerous customers on various accounts. This shows that whatever money the banker holds belongs to his customers, who trust the banker with it only because they have full confidence in the expert handling of their money by the bankers. Character of person: a. It is the most important factor in determining the safety of advance, for there is no substitute for character. Borrowers character can indicate his intension to repay the advance, since his honesty and integrity is of primary importance. 32
b. If the past record of the borrower shows that his integrity has been questionable the banker should avoid him, especially when he offers security is inadequately covering the full amount of advance. c. Good habits, personality, the ability and willingness to carry out a project through from beginning to end, and the reputation of the people with whom he deals, will go to make the character of the customer. d. I t is obligatory on the banker to ensure that his borrower is a person of character, and has enough capacity to repay the money, including the interest. e. This can be judged from the following: 1) Past record 2) Experience in that particular industry 3) Amount of capital invested by the customer Capacity for repayment of loan: This is the management ability factor, which tells us how successful a business has been in the past, and what are the future possibilities. He may not have vast financial resources but with some management abilities including the inside into a specific business, he may make his business very profitable. On the other hand if a person who has no insight into the particular business for which he wants to borrow funds from the banker, there are more chances of loss to the banker. Capital: The role of the bank is to provide short-term capital for commerce and industry, yet some borrowers would insist that their bankers provide most of the capital required by them. This makes the banker a partner. But the banker must consider the fact that whether the amount requested is reasonable against borrowers own investment or resources. Liquidity of securities against loan & financing: Liquidity means the possibility of recovering the advances in emergency, because all the money borrowed by the customer is repayable in lump sum on demand. Generally the borrowers repay their advances steadily and the funds therefore released can be used to allow fresh loans to the other customers. Nevertheless the banker must ensure that the money he is lending is not blocked for a longer period of time and also the fact that a 33
borrower should be able to repay the amount outstanding against them on short notice. In such a situation, it is very important for a banker to study his borrowers’ assets to liquidity, because he would prefer to lend only for a short period in order to meet the short falls in the working capital. MBL CREDIT POLICY: Safety = nature and extent of risk Liquidity= maturities Profitability= spreads and profit margins. BASIC REQUIREMENTS OF CREDIT ADVANCES: Belief on the person. Good repute of client. Trust in a person’s ability and intention to pay back at a later time for goods and services supplied.
Credit process of MEEZAN BANK is as follows:
1. 2. 3. 4. 5. Credit Credit Credit Credit Credit Marketing Analysis Proposal Processing Proposal Evaluation and Decision Administration i. Completion of documents ii. Credit monitoring iii. Dealing with non performing accounts
Credit line proposal processing documentation
STEP 1 REQUEST LETTER The Manager MEEZAN BANK Ltd XXXXXXXXXX Branch City XXXXXX Date: XXXXX Dear Sir, REQUEST FOR CREDIT LIMIT OF RS = XXXXX FOR XYZ REASON: This is to request you to -------------------------
Thanks & Regards
Mr. XXXXXXX Address House no XXXX X-Block, X housing authority, Lahore
STEP II LIMIT TYPE: NEW/RENEWAL CREDIT APPROVAL FOR FUNDED/UNFUNDED FACILITIES TO Company name Date: [ ] EXPIRY:[date]
INTRODUCTION Introduction to Company, group overview, nature of business, commencement of operations, location of facility(ies), legal status, stock exchanges etc. EXISTING RELATIONSHIP & ACCOUNT PERFORMANCE Discuss the existing relationship and performance of account with MBL in terms of: Levels of Limits, Utilization of Limit, Account Performance, Account Profitability, Funded/Non-funded Business etc. PROPOSED LIMITS The current proposal is being put forward to the management to seek a RENEWAL/NEW LIMIT for ABC. Funded Existing New Istijrar UnFunded L/C’s (Usance and or Sight) Guarantees Forward Cover Existing New
The funded Facility is Valid for upto [Insert date] or for [Insert time Period] years from the date of first drawdown. The non-funded facilities are valid till [ insert date ] Note: MBL’s per party exposure (30% of its unimpaired capital and reserves) as at xx-xx-20xx is Rs mm and that the proposed limits are within the exposure. Furthermore, MBL’s per group exposure as at xxx is Rs xxmm and that the overall exposure to the group is within the allowable limit. Give reasons/justification for enhancement / reduction in limits TERMS
Funded Facility type Facility amount
Purpose Profit Rate Facility Tenor Sub Murabaha Tenor Payment of Murabaha Cost component Payment of Murabaha Profit component Security Non-Funded Facility Type Purpose Facility Amount Security [Preferably for both sight and usance. However, usance line must be secured as a policy and exception could only be allowed after COO/CEO approval.] [PKR Equivalent]
Letters of Credit Facility (Usance and or Sight)
Facility Service Charges Facility Expiry Facility Type Purpose Facility Amount Facility Service Charges Facility Expiry Security
SPONSORS/GROUP PROFILE Sponsors/group background, overview, brief financials, associated companies etc. It is highly recommended that two worksheets providing consolidated key group financials (B/S as well as I/S items) and summarizing MBL’s exposure (funded & nonfunded) to the entire group are attached as annexure to the memo. COMPANY PROFILE The section must cover business/operations in detail: :
Raw material & supplier info (reliance on suppliers, alternative sources of raw material, terms of credit offered etc) Technical information on Plant and equipment, Capacity utilization, recent BMR, new technology, ISO certification etc Products and Product break up (market share w.r.t competitive products) Pricing and credit terms of Product Distribution, Selling/ Marketing strategy Financial Strategy Buyers Info. (names of major buyers with their share of total sales) Ownership & Board of Directors: Board of Directors and ownership structure Percentage shares held Total 100.00 Must clearly mention the shareholding owned directly by the sponsors and/or through other group companies. Management Overview and Strategy: Discuss the Key Management along with experience and competence of key managers. Brief overview of the management business strategy etc. Recent Operational Performance Overview: Discuss the recent operational performance of the company – in terms of production and sales, marketing, etc Shareholders
FINANCIAL REVIEW (AUDITED 200X)
JUNE 30, SEPT 30, DEC 31,
The following table illustrates selective financial highlights of the company over the past three years (atleast) Insert Table (last 3 years key financials(audited) as well as latest available un-audited numbers) Financial review of the company is discussed in terms of profitability, leverage, efficiency, liquidity and activity as follows: Profitability (Discuss Income Statement, Net Sales, Gross Margins, Operating Margins etc) Leverage (Discuss Leveraging, debt financing, short term and long term finances, purpose of such financing – inventory financing/BMR etc.) Operating Efficiency Ratios (Discuss Inventory Turnover, Days receivable, Days Payable, Operating Cycle Days, asset turnover etc) Liquidity and Cashflow (Current Ratio, Net Operating Cash Flow, EBIDA, Net working Capital) Projections and Debt Capacity Calculations (Mandatory for Long Term Financing requests of tenors over 3 years) The section should also discuss the most recent financials available – (management accounts, un-audited accounts, projections etc). Note: The commentary on the financial performance must explain the underlying reasons for any changes in margins, ratios, increase/decrease etc. For example, a statement only stating that the gross margin improved from x% to y% is not acceptable. The fact must be supported by reasons for such change.
FINANCIAL ARRANGEMENTS Short Term Finances: Short-term finance and security (facility Type, rate, security) Redeemable Capital and Long Term Finance Facilities: Long-term finance and security (facility Type, rate, security) INDUSTRY & MARKET In case if the industry section is lengthy (say over 2 pages), the same may be attached as annexure and an industry report synopsis may be provided (here) in the credit memo. Global Industry overview Key Industry dynamics Demand-Supply Stats Key Players Growth estimates and future outlook Industry Overview in Pakistan Demand Supply Stats Growth estimates Structure of Industry: Raw Material, Suppliers Key Players and market share Domestic Market Dynamics (Bargaining Power of Buyers, Bargaining Power of Suppliers, Threat of Competition, Threat of Potential Entrants, Product Substitutes) Critical Success Factors – Regulatory Framework, Taxation, Laws etc Future outlook
Assessment of Business Risks and their Mitigates: :
Raw material & supplier (reliance on suppliers, alternative sources of raw material, terms of credit offered etc) Technology, Capacity utilization, certification etc Market share w.r.t competitive products, Demand / Supply dynamics Pricing. Reliance on few large buyers Distribution, Selling/ Marketing strategy Duty/tax structure Succession risk CREDIT CHECK/MARKET CHECK (FROM OTHER FINANCIAL INSTITUTIONS, CUSTOMERS, INDUSTRY SOURCES/EXPERTS ETC.) [At least two references must be obtained and filed in the credit file. Any credit reference being reported must include the name & contact no. of the person. For any new relationship with a private limited, partnership or proprietorship, a credit report from D&B is recommended.] Any facility (ies) rescheduling done with any FI over the last 5 years must be mentioned in this section along with relevant details. COMPLIANCE WITH PRUDENTIAL REGULATIONS [NEW PR] As per the audited Required Accounts dated xxxx
CIB REPORT [Must be requested at the time of initiating the credit proposal and should be part of the package to be submitted for management’s approval] If credit is being recommended despite overdue reported in the CIB, the same must be justified. SEARCH REPORT Discuss findings of Search Report [Disbursement will be subject to clear CIB and satisfactory search report.]
RECOMMENDATION It is recommended that Meezanbank may renew the facilities at current/enhanced levels as below on the basis of following strengths: Strength 1 Strength 2 Strength 3 Funded stijrar UnFunded L/C’s (Usance and or Sight) Guarantees New Rs 100 Mn New Rs 100 Mn Rs 40 Mn
Reviewed By ___________________
APPROVAL SHEET–GRADING OF RISK To: Office: From Date: Our Ref: Your Ref:
CLIENT: GROUP: Total Limits (Rs. Fund Based (Rs. in Non-Fund Based (Rs. in in ‘000) ‘000) ‘000) Financial Statements obtained for the period ending xxxxx 2004 Audited / Unaudited Qualified / Unqualified Branch observations: Symptoms/Weaknesses identified`: Branch Recommendations: New Grade: Risk Index Level (RIL): Condition: Trend (Financials): Lowest Grading Assigned to any Group Account: Judgmental Risk Assessment: Justification for Judgmental Risk Assessment: BCC Chairman BCC Member BCC Member Area Office Recommendations: For Head Office Use: Final Assessment: BCC Member Previous (if applicable)
Justification for Judgmental Risk Assessment (if different from the Branch & Area Office Recommendations: Further Action Required: Recommendations: Signature: COMPOSITE CREDIT APPRAISAL Branch Ref no. Client Group Sector Business Segment 3 Section–A (Weight age 40%) Business Information: Date CLP Review Date Customer Identification Code Group Code
Tick appropriate box Strong Fair Good
Govern m en t en tit y
MNC/ Public Ltd. (Listed)
Scores: 8 Sector/exposu Prime re preference for MBL (Target Market) Branch to decide on the basis of economic (operating) environment, industry situation and outlook, market conditions recent business failures. Scores: 3
5 Preferr ed
Partnershi L p t Sole d Proprietor . ship ( U n li s t e d ) P v t . L t d . 1 R Undesired i s k
Position in the industry Scores: Market reputation (Bank’s, competitors, buyers, & suppliers. Scores: No. of years in business
Insignifica 10 Top 7 nt/ % 50% 5 Unknown % 3 2 1 0 Good Accept Poor/ Satisfac a Unknown tory b l e 4 5 Years 3 3-4 Years 2 1-2 0 Y Less than e 1 Year a r s 0
Management Have Quality/Profes go sional od Qualifications tr : ai (Technical & ni Commercial) ng & m an y ye ar s ex pe rie nc e/ ex pe rt in hi s lin e of bu si ne ss .
Has Has averag e training & few years experie nce in his line of busines s.
a v e r a g e t r a i n i n g & o n l y t h e o r e t i c a l e x p e r i e n c e .
No profession al training and experienc e.
Scores: 7 8 Existing bankers Scores: Availability of financing (Excluding MBL)
3 2 Over 15 7 to 15 3
1 0 3 to 6 Up to 2 3 3
1 2 0 Over Rs. Rs. 100 Rs. 10 Less than 20 M to M Rs. 10 M 0 Rs.199 M M t o R s . 9 9 M
Scores: 9 Instant Repayment Ability Scores: Willingness to provide information
3 2 Strong Good 5 3 Offer all inf On or request m ati on
1 0 Fair Limited 1 0 Partiall y Resist a informatio v n a il a b l e 2 0 5 3
1 0 -
Section– B (Weight age 30%) Financial Information: 1 Availability - of financials
Fair Poor Sco re Out of
2 3 -
Scores: Evaluation: Debt to Net Worth Scores: Working Capital
3 Years B/ S & P & L 3 50:50 5 Positive & im pr ov in g 5 Steady & ab ov e In d. av er ag e.
2 Years B/ S & P & L 2 60:40 3 Positive
1Year B/ S & P & L 1 70:30
No Financi als
2 1 Positive Negativ & e de cli ni ng 0
Scores: Sales & Profitability trend (Sales, Margins & Operating Cash Flows)
3 1 Fluctuati on s, bu t at go od le ve l in lin e 1 4
Payment information on Long-term Debts /. Short term finances
Prompt Occasio nal delay
Scores: Total Section– C (Weight age 15%) Other Information: 1- Compliance of lending stipulations and covenants
Resched uli Default ng /R es tr uc tu rin g 3 0
10 30 Scor e Out of
Scores 2- SBP CIB Scores
Deviati Co de de ons will m vi vi not be pli ati ati complie ed on on d s s bu bu t t wi wi ll ll be be co co m m pli pli ed ed 2 1 0 0 Clean Clean Overdue Default CI CI B B 1 1 0 0
3- Dispute/Court Action/Litigatio n
Scores 4- Rescheduling / Restructuring of Loans
Scores: 5- Group Account / Associates
Scores 6- Account Conduct (import settlements, export realizations, mark-up payments, loan repayments, submission of stock reports, renewal of insurance policies etc.) Scores Total
Under liti ga tio n wi th ba nk s 2 1 0 None Once Twice Bu bu t t no no w w re re gu gu lar lar 1 1 0 Regular Substan CIB dard O ve rd ue 1 0 0 Excellen Good Fair t (very (s (n little o o followm fol up e lo required fol w- ) lo up wre up qu re ire qu d) ire d) 8 5 2
Dispute Ex ist s
Suit Filed by Banks/ Decree d
0 More than two times
0 Needs improv ement (extens ive follow up require d)
Section– D (Weight age 15%) Collateral: 1- Security support (must be assessed according to the stringent criteria that take into account our past experiences with the realization of such collateral
Poor Rankin g Reg. Charge on FA/CA, Un-reg. Hypo. Charge on Stocks & Receiva bles, PG, Clean Facility
Cash/ne +Easily +Pledge ar re of ca ali st sh za oc co bl ks lla e /1s t te se ral cu Re , rit g. LG y, Hy & DF po LC I . s Gt St of ee oc fo s, ks rei M /R gn ar ec ba ke ei nk ta va s bl bl ac e es ce sh , pt ar Fi ab es xe le (C d to D As M C) se BL ts, , Re Ba g. nk /E Gt M ee ov s er pr op er tie s 15 12 5
FACTOTS LEADING TO COMPOSITE CREDIT APPRAISAL: 1. 2. 3. 4. Grading of Account: Risk Index Level: Condition: Trend (Financials):
Current Grading: Regular Company’s Net Accounts Worth (in Rs. M) Grade-1 1A Over Rs. 500 M 1B 250 499 1C 100 249 1D 10 99 1E Up to Rs. 9 M Note: Even if the facilities are fully cash collateralized the account grade should be based purely on the above criteria. Once an account becomes irregular or doubtful, its initial rating should not be considered. At the time of upgrade, equity criteria should be applied again to ascertain its new placement (in other words an account will lose its initial grading alphabet due to successive losses). Grade 2 Accoun ts WATCHLIST Grade – 2A Where current audited financial statement are not available, or are more than 21 months old (if applicable 24 months) non-adherence of lending covenants, charge / security documentation formalities are incomplete. Grade – 2B Weak borrowers who indicate signs of deterioration such as worsening of financials positions, e.g., operating losses, slide in ratios and liquidity etc., hardcore cash flow, frequent requests for TOD/Excess over limit, delay in servicing of mark-up/principal, forced loans under litigation with any bank. Grade – Accounts experiencing prolonged irregularity under Grade 3Accounts 2 (Watch list) to be included in Grade 3 (Substandard) SUBSTAND accounts. ARD Grade – 4 Accounts in which there is highly probability of some loss Accounts on the basis of information available e.g. customer attains
DOUBTFUL Grade – 5 Accounts LOSS
a negative net worth and the weakening of security. Accounts for which no further recoveries can reasonably be expected i.e. debts for which full provision has been made.
Account Upgrade: To formalize upgrading of an account reason for change of grade should be explained. Where downgrading was initiated and effected by Head Office prior approval of H.O to upgrade the account must be obtained. Accounts graded 3, 4 and 5 should be upgraded only with prior approval of Head Office. However, the concerned Branch Credit Committee must support with valid evidence, the proposed upgrading, before it is presented to the Head Office. While watch listing the account, the credit officer / Branch Credit Committee should determine the period for monitoring the account under watch list. The reason for watch listing should be documented and specific remedial actions should be recommended by Branch Credit Committee for approval to Credit Division on the attached format (Annexure-A). Progress relating to remedial strategy should be reviewed on quarterly basis by Area Office and Credit Division/ Credit Monitoring Division. When classification of a borrower is warranted under grade 3,4 & 5 accounts, categories “substandard/doubtful/loss” will be assigned depending upon severity of the weakness, determined on the basis of “time” and / or “event” related criteria. To assign the proper classification, Credit officer / Branch Credit Committee must: - Differentiate between symptoms and their causes. - Assess the borrower’s ability to rectify the problems within a reasonable time frame. - Consider the options available to improve its position as creditor.
Risk Index Level (RIL): MBL Risk Index is based on a scale of 1 to 10, where 1 represents a lower and 10 a higher percentage of observed Business Failures: Total Score 100 90 80 70 60 50 40 30 20 10 Risk Index Level 1 2 3 4 5 6 7 8 9 10
Condition: The condition of account will be categorized on aggregate score of the borrower under following serial number of sections A, B & C. Serial Max Actual Section A Numb Score Score er 4 Market Reputation (Banks, Competitors, 4 Buyers & Suppliers) 9 Instant Repayment Ability 5 10 Willingness to provide information 5 TOTAL 14
1 3 4 5 Total Availability of Financials Working Capital Sales & Profitability Trends Payment information on long term debt / short term facilities 3 5 7 10 25
1 2 5 6 Total Compliance of lending stipulations & covenants SBP CIB Report Group Accounts / Associates Account conduct (Import settlement, export realizations, markup payments etc) 2 1 1 8 12 57
Based on above criteria conditions should be determined on following parameters: Aggregate score under above serial no’s in Condition Section A, B, & C (12+20+8)=40 41 and i.e. 60% to 79% Strong above 31 to 41 i.e. 60% to 79% Good 21 to 30 i.e. 41% to 59% Fair 20 and i.e. 40% & less Poor below To qualify for categories Strong and Good, mentioned above customers borrowing relationship during the last one year should have been satisfactory and all the lending stipulations and covenants have been complied with. In addition to that, there must not be any default / hardcore over dues in the customer accounts. Moreover, in case of new relationship, such accounts should not be placed in the category of “Strong” while recommending credit facilities for the first time.
Trend (Earnings Performance / Profitability Situation):
Balanced or negative income situation and satisfactory equity; Cash flow covers obligations, it is not sufficient, however to allow equity to earn a return and create a financial cushion for the future
Information either not available or more than 18 months old. Negative income situation and shortage of equity / assets. Cash flow does not cover current obligations
Sustainable Fluctuations, but income at good level but situation in line with positive and industry above the average: industry average: Cash flow Cash flow comfortably comfortably covers covers obligations and obligations and generates an generates an average return above average on equity and return on equity financial cushion and a financial for the future cushion for the future.
Special Events: (Critical legal information, change of management, mergers, legal notices, winding-up orders, fire, large debts, changes within the subject’s business etc.) NA Adverse Listings: (Slow observation etc.) payments, NA bad debts, auditor’s
ELIGIBILITY SCORE SHEET
Applicant’s Name: xxxxxxxxxxxx Branch: xxxxxxxxxxxxxxxxxxxxxxxxx Date: xxxxxxx Ref: No.xxxxxxxxxxxxxx More than 50% 40% or more Equity 30% or more 20% or more Monthly payment less than 20% of gross monthly income Monthly payment more than 20% but < 30% Monthly payment more than Repayment Ability 40% or less Monthly payment more than 45% or less Monthly payment more than 50% or less Holds credit card for the last 2 years and or is or has been a Credit History borrower of bank loan during the last one year with no delayed payment history Completely verifiable Income on our own Income Verification Verifiable through authorized agency Permanent employee of a corporate organization for the last 2 years Other salaried job Profession Status Self employed with audited Balance Sheet Self employed without audited Balance Sheet Is member of employer’s Investments pension scheme or has life insurance Tax payer Tax payer 25 20 15 10 points points points points
15 point 10 points (-5) points (-10) points (-20) points
10 points 5 points 10 points 5 points 10 points 5 points 5 points 5 points
Non tax payer Statement of Bank account for the last 6 months with satisfactory conduct Statement of Bank account under 6 months with satisfactory conduct No Bank account On – profession list In – listed area
0 points 10 points 0 points (-10) points (-25) points (-15) points (-15) points
Property Location CIB
Unclear CIB or on the – list of Data Check Minimum qualifying points needed = 50 SCORE=_____________________ _
Offer letter Address Kind Attn: Mr. ABC Dear Sirs: Assalaam-o-Alaikum, Subject: Grant of Credit Facility to M/s. XYZ With reference to your recent discussion with us, we are pleased to offer through this letter the following facilities to you on the terms and conditions stated hereunder: Funded Facility # 1 Facility amount Facility Structure Istijrar (Master Murabaha) Facility / Import Murabaha Facility for both Sight & Usance LCs / Export Murabaha Facility PKR 300 MM (Rupees Three Hundred Million Only) or Equivalent US$ Amount (subject to availability of US Dollars at MBL’s end). MBL and XYZ will enter into a Master Murabaha Facility agreement amounting to PKR 300 Million (or Equivalent US $ amount). XYZ will be allowed to draw down the facility under a series of SubMurabaha tranches for local purchase or import of following items. Maturity of each Sub Murabaha shall be agreed at the time of disbursement of each tranche. Each SubMurabaha shall mature by the Facility expiry date (365 days from date of first draw down). For local purchase / import of raw material, stocks, stores, tools, spare parts, plant & machinery etc. To be negotiated at the time of each SubMurabaha transactions (KIBOR & LIBOR shall serve as the respective bench mark for PKR Denominated & USD Denominated transactions) Sub-Murabaha’s upto 365 days for PKR Denominated Sub-Murabahas & upto 180 days
Purpose Profit Rate
Repayment of Principle Profit Payment
incase of USD Denominated Sub-Murabahas. Bullet repayment of principle at the maturity of each Sub Murabaha. Profit for each Sub Murabaha will be as per the following schedule: Maturity of Sub Murabaha Profit Payments facility Maturity upto 90 days At Maturity Maturity greater than 90 Quarterly in arrears days First Joint Pari-Passu charge over all present and future current assets of XYZ with 20% margin (With regard to enhancement of XYZ’s funded limit from PKR 200 Million to PKR 300 Million & non-funded LCU & LG Limits of PKR 100 Million, FPPC of PKR 455 Million is already in place as against required PKR 500 Million. The client shall initially arrange for creation of Ranking Charge for balance amount of PKR 45 Million with an undertaking in favor of MBL to upgrade it to first parri passu status at the time of next supplemental agreement).
Funded (Sub-Limit of Facility # 1) Facility # 2 CAD Negotiation Facility Facility amount PKR 200 MM (Rupees Two Hundred Million Only). Purpose Negotiation of Export CAD documents Security Same as Facility # 1. Non-Funded Facility # 3 Purpose Facility Amount Security Service Charges
Foreign Letters of Credit Facility (Sight L/Cs) For the purchase of imported raw material, spare parts, tools, stores equipment, plant & machinery etc. PKR 500 Million (Rupees Five Hundred Million Only). Lien on import documents. 0.03% per quarter (L/C Opening Charges) 0.03% (L/C Retirement Charges)
Non-Funded (Sub-Limit of Facility # 3) Facility # 4 Inland & Foreign Letters of Credit Facility (Usance L/Cs) Purpose For the purchase of local / imported raw material, spare parts, tools, stores equipment, plant & machinery etc. Facility Amount PKR 100 Million (Rupees One Hundred Million Only). Security Accepted Drafts Same as Facility # 1. L/C charges 0.03% per quarter (L/C opening charges) 0.03% (L/C retirement charges)
Non-Funded (Sub-Limit of Facility # 3) Facility # 5 Letter of Guarantee Facility (L/G) Purpose To issue Advance Payment, Bid Bond & Performance Bond L/Gs favoring Government, Semi-Government & other institutions. Facility Amount PKR 100 Million (Rupees One Hundred Million Only). Security Same as Facility # 1. Service Charges 0.10% per quarter Facility # 6 Purpose Facility Amount Security Bank Risk Line To facilitate exports of the company (Negotiation of Export Sight & / or Usance Letters of Credit). PKR 200 Million (Rupees Two Hundred Million Only). Lien on Export Bills drawn against L/Cs opened by Banks approved by MBL’s Treasury Deptt.
Other Terms and Conditions: The Facility shall be governed by the all the rules and regulations of the Government of Pakistan and the State Bank of Pakistan (IXYZUDING SBP PRUDENTIAL REGULATIONS) now in force and as amended from time to time and credit restrictions imposed by the SBP from time to time. The Customer will not create any charge on the pledged, hypothecated and/or Leased Assets by way of pledge, hypothecation, mortgage, or in any other way with any banks, financial institutions or any other person in any manner whatsoever without written permission of Meezan Bank Limited.
The pledged, hypothecated and/or leased assets shall be duly insured in favor of MBL with MBL as the loss payee. The insurance company in such a case shall be approved by MBL. The hypothecated/pledged and/or Leased Assets may be inspected by MBL as and when required by it and the Customer shall allow access to and cooperate with the authorized representatives of MBL in carrying out such inspections. Any security created in favor of MBL for the facility by way of mortgage, hypothecation, pledge or otherwise shall be maintained throughout the tenor of the facility. MBL will require evidence by way of invoices or otherwise from the Customer, that the Murabaha/Import Murabaha/Export Murabaha/Lease Finances have been utilized for the purpose of acquiring the assets in terms of the Master Murabaha /Import Master Murabaha / Export Master Murabaha/ Lease Finance Agreement. The Customer shall not change its scope of activities as specified in its Articles and Memorandum of Association without obtaining prior permission in writing from MBL. Any material change in the shareholding structure, ownership or management of the Customer during the tenor of the Murabaha/Lease facility shall constitute an event of default under the Murabaha/Import Murabaha / Export Murabaha/ Lease agreement and the Bank shall be entitled at its sole discretion to amend, cancel or terminate the Murabaha/Import Murabaha/Export Murabaha/Lease agreement. All expenses incurred on account of documentation, valuations, charge registration or any other costs in relation to the Facility mentioned in this letter including bank charges, legal/documentation expenses, excise duties, Government of Pakistan’s and State Bank of Pakistan’s levies, duties, stamp duties, fees, etc. (or other similar taxes or charges) now or hereafter levied on the Bank in respect of or in connection with the Facility and security thereof shall be payable by the Customer immediately on the Bank’s demand. The Bank reserves the rights to amend, cancel or terminate the Funded / Non-Funded Credit facilities without assigning any reason thereof. Draw down of above mentioned facilities will be made available to the Customer after execution and satisfactory review of all documentation, successful financial close along with perfection of securities as per terms & conditions of this offer letter and other facility and security related documents to be executed between MBL & XYZ. 65
Kindly return to us this letter IN ORIGINAL signed by XYZ’s authorized signatories latest by April 31, 2005 as a token of acceptance of the above-mentioned terms & conditions. Assuring you of our best co-operation & assistance. Yours truly,
RM Corporate Banking Branch Manager
Manager Corporate Banking
We accept the above terms and conditions for and on behalf of XYZ.
Authorized Signatory Signatory Please affix Corporate Seal/Company Stamp here
FINANCIAL STATEMENT ANALYSIS
In this chapter of the report the financial statements of MBL relating to year ending as at 31st December 04 are analyzed, for the purpose of comparing the banks performances of the year with the previous year. The financial statements used for this purpose are Balance Sheet and profit and loss A/C both. In this chapter I have analyzed B/S and P& L account vertically. With the help of the analysis we can check the performance of the bank easily comparing with the previous year. 1. Vertical analysis of balance sheet 2. Vertical analysis of Profit and Loss Account 3. Ratio analysis
VERTICAL ANALYSIS OF BALANCE SHEET
AS ON DECEMBER 31ST 2004 Assets 2004 %age 2003 Rs. In 000 9.458 7998 15.177 172664 %age .3895 18.409 28.625 42.119 20.093 .3645 100
MEEZAN BANK LTD.
Cash & balance with 659349 treasury bank ` Balance with other banks 1058074 Due from financial institutions Investments 855766 Financings 3532188 Other assets 818081 Operating fixed assets 35942 Deferred tax 12048 Total marks 6971448 CAPITAL & LIABILITIES LIABILITIES Bills Payable Due to financial institutions Deposits and other A/C Other liabilities Share Capital Capital Reserve Deferred taxation Surplus on reevaluation of investments Total 2004 46842 11831 5079478 247389 1001454 264867 209630 109957 6971448
12.275 587720 50.666 864783 11.732 412539 .5156 7484 .1728 100 2053188
%age .6719 .1697 72.86 3.549 14.365 3.799 3.007 1.577
2003 637444 212869 901000 151313 150562 -
%age 31.047 10.367 43.883 7.369 7.333 100.00
MEEZAN BANK LTD Vertical Analysis of Profit & Loss Account For The Year Ended December 31, 2004 PARTICULARS INCOME Return on financing & placement earned Reversal of provision Fee commissioning & brokerage income Capital gain Dividend income Income from dealing in foreign currency Other income Total EXPENSES Other charges Taxation Total 2004 311183 67184 71968 52809 111302 5799 46129 666374 195045 2619 47381 245045 %Age 2003 Rs. In 000 46.698 81292 10.082 10.799 7.925 16.703 .870 6.922 100 79.596 1.068 19.336 100 41484 8581 29011 (132941) 27427 35560 18722 54282 %Age 296.39 151.25 31.28 105.78 (484.708 ) 100 65.51 34.49 100
Ration analysis is very important measure to judge the performance of an organization and to compare that performance ratio with previous year ratios and future of the position of the organization. RATIOS 1. PROFITABILITY RATIOS Net profit ratio Return on assets Return on shareholder fund Return on equity capital Earning per share LIQUIDITY RATIOS Current ratio Loan to deposit ratio Loan to asset ratio LONG TERM SOLVENCY AND CAPITAL RATIOS Equity capital to asset ratio Proprietary ratio Debt equity ratio PROFITABILITY RATIO
NET PROFIT RATIO
Net profit after tax ×100 Net spread earned
Net profit/(loss)after tax Net spread earned Net profit ratio
2003 (53865) 52198 (103.195) %
2004 223149 119510 186.72%
NET PROFIT RATIO
300 Percentage 200 100 0 -100 -200 Years Net profit as %age of net spread earned increased a title in 2004 (from 103.194% to 186.72%). Net profit is not sufficient; the firm shall not able to achieve a satisfactory return on its investment. When higher the ratio in 2004 means better is the profitability. 2004 2003
RETURN ON ASSETS
Net profit after tax ×100 Total assets
Net profit after tax Total assets Return on assets 4 3 Percentage 2 1 0 -1 -2 -3 2004
2003 (53865) 2053188 (2.6235)%
2004 223149 6971448 3.2008%
Years This ratio shows that the return is in negative as compare to return on asset in the year 2004. 71
Another reason of decrease in return is the reduction in lending rate and increase in financial cost. Total assets in 2003 have also decreased substantially than 2004 so that’s why return on assets is negative in 2003.
RETURN ON SHARE HOLDER FUNDS
Net profit after tax ×100 Shareholde r fund
Net profit after tax Shareholder fund Return on share holder funds 16 12 Percentage 8 4 0 -4 -8 2004
2003 (53865) 1202875 (4.478)%
2004 223149 1585908 14.070%
Years This ratio is one of the most important ratios used for measuring the overall efficiency of a firm. This ratio reveals how were the resources of a firm are being used, higher the ratio, better are the result.
RETURN ON EQUITY CAPITAL
Net profit after tax ×100 Equity capital
Net profit after tax Equity capital R.O.E. Share Capital
2003 (53865) 901000 (5.978)%
2004 223149 1001454 22.28%
16 12 Percentage 8 4 0 -4 -8 Years Calculation made on the base of data available shows that profit earning after tax in 2004 has increased due to decreased financial cost of funds for which expected investment avenues aid open up the situation rather worsened with increased return on lending. 2003 2004
EARNING PER SHARE
= No. of equity share ×100 2003 2004 Net profit after tax (53865) 223149 No. of equity share 100145425 100145425 Earning per share 0.53 .2228 The EPS is a good measure of profitability. It gives a view of the comparative earnings or earning power of firm. The shareholder wants higher return on their investment.
Net profit after tax
CURRENT RATIO =
Current assets Current liabilitie s
Current assets Current liabilities Current ratio
2003 2045704 850313 2.40:1
2004 6925058 5385540 1.286:1
A higher C.R is an indication that the firm is liquid and has the ability to pay its current obligations in time as and when they become due. On other hand, a relatively low current ratio represents that the liquidity position of the firm is not good and the firm shall not be able to pay its C.L. in time without facing difficulties. An increase in the current ratio represents improvement in the liquidity position of firm while a decrease in the current ratio indicates that there has been deterioration in the liquidity position of the firm.
LOAN TO DEPOSITS RATIO
= Total deposits ×100 2003 45386 637444 7.119%
Total loans Total debts Loan to deposits ratio
2004 45386 5079478 .8935%
10 Percentage 8 6 4 2 0 2003 Years This ratio shows a relationship between loans and advances and reveals how much productivity the deposits are used. Analysis shows on decrease in loan to deposit ratio. 2004
LOAN TO ASSET RATIO
Total Loans × 100 Total Assets
Total Loans Total assets Loan to asset ratio 5 Percentage 4 3 2 1 0 2003
2003 45386 2053188 2.2105
2004 45386 6971448 .6510
Total assets of the bank increased from Rs. 2 million to 5 million and advances net of provision have same in the both years. 75
That’s why decreases loan to asset ratio
LONG TERM SOLVENCY & CAPITAL RATIO EQUITY CAPITAL TO ASSET RATIO
Equity capital × 100 Total Assets
2003 Equity capital Total assets Equity capital to asset ratio 50 Percentage 40 30 20 10 0 2003 Years 901000 2053188 43.88%
2004 1001454 6971448 14.365%
In current year banks assets have been increased from 2053188 to 6971448. On the other hand banks equity also increased so this is the reason that ratio equity to asset has decreased.
= Shareholder fund Total assets Proprietary ratio
Shareholde r fund × 100 Total assets
2003 1202878 2053188 58.586%
2004 1585908 6971448 22.748%
70 60 50 40 30 20 10 0 2003 Years 2004
This ratio explains that participation in the assets by the shareholder fund is limited by outsider’s fund. We see that ratio has decrease in 2004 as compare to the year 2003. Reason behind this is that increase in assets in financed by outsiders fund rather than the fund provided by the shareholders b/c. There is lesser increase in shareholders fund as compared to increase in total assets.
DEBT EQUITY RATIO
= Shareholde r equity ×100 2003 2004 850313 5385540 1202875 1585908 70.69% 339.58%
Long term debt
Long term debt Shareholder equity Debt equity ratio
350 300 Percentage 250 200 150 100 50 0 2003 Years 2004
This ratio depicts the relation between equity and debt financing. The current year ratio shows an increase in ratio from 70.69% to 339.58% time. The ultimate increase in this ratio has decrease the long term solvency of the bank. Because lesser will be soundness of the bank. The reason behind this increase is an increase in internal debt but rate of increase in external borrowing.
Meezan Bank being a quality organization strives to provide quality to all its stakeholders, customers, employees and environment. In Pakistan, it is operating in a very volatile economic and political environment. I have summarized its major strengths, weaknesses, opportunities and threats in the following paragraphs.
STRENGTHS First Islamic Bank
MBL has this privilege to be the first in the Islamic Banking sector which gives MBL a competitive edge over all other banks and being the pioneer of this industry MBL is enjoying major share of it.
Being an Islamic bank, MBL has a wide national network. As an emerging markets bank, it has branches in all the major cities of Pakistan with the facility of online banking, it is very easy for its customers to transact all over the country.
Online Banking Service
Online banking service means that a customer can withdraw and deposit his money at any branch in the country. Where this service is not present, cheque has to be presented only in that branch on which they are drawn. But with this facility, a person has access to its funds at any branch of the bank. That would mean that any person who has an account with the bank, has an account in 24 branches of it. It provides a lot of comfort and convenience to the customers.
There are many value added features in the products offered by the bank. ATM cards are provided with every account. Other features are present in the various products. The priority customers enjoy a muchpampered status at the bank.
The employees at the bank provide impeccable customer service to their customers. For them “the customer is the king’. Customers are treated with great respect and honored to the utmost degree.
The working environment of the bank is very friendly and cooperative. There is no bossiness in the higher management. The upper management consults its staff in making decisions and provides them independence in their job areas. For the objective is performance and not conformance with the boss.
WEAKNESSES Awareness in the People
Till the last year, MBL had a totally different perspective. The management was of the view that the customer should come to them and they don’t need to go to the customer. But in this era of mass marketing and advertising, it is not possible to stay in competition without these took. The bank has now changed its perception arid has started an effective marketing and advertising strategy. But the previous gaps are still there and there is lack of awareness in the people about the bank and its products. The bank needs to improve on its marketing and advertising areas.
Satisfaction of Staff
It was observed in the bank that the degree of satisfaction of the employees was quite low. First of all, the pays are lower those offered in other banks. Secondly, the employees are given targets that are too difficult to achieve. For example, the targets given to the personnel in sales and services department are higher than any other bank in the country, be it a local bank or a foreign bank. This makes the job too stressful and tensed It is good to keep the people under a continuous move, but to overstress them can be harmful to them and as well as to the organization.
Due to the dissatisfaction of staff, there is high turnover among them. People who find other alternatives do not stay with the bank. Therefore, the bank incurs loss on their training and development. The bank should provide incentives to its employees so that they show more loyalty. For example, there is no commission provided to the sales personnel which otherwise is a general rule all over the world.
Training Programmes For Employees
There are no sorts of training programmes for the employees. The employees who are newly appointed are straight away placed at their positions with no prior orientation. This creates problem for new
personnel because they find difficult to understand the environment and culture of the organization.
Centralized System Of Management
The decision-making is carried out the upper management level and the subordinates are not included in this process. This creates a sense of insecurity in the lower managers and that is why there is a lack of loyalty among the personnel. Although the upper management is very friendly with the lower managers but that is only to the extent of cordial relationships.
OPPORTUNITIES Better Economic Conditions
The economic conditions are improving in the country. The foreign exchange reserve has crossed the level the $ 14 Billions, which is something that was never achieved in the past. The stock exchange index has also crossed fifty years high recently touching 10,000 this year. This provides a better environment for investment and growth. This would give a push to incomes of the population, which would increase the level of savings.
Increase in Foreign Investment
There is an inflow of foreign investment in the country. This would increase the industrial growth Pakistan. The Islamic banks are important part of money markets and this improvement will definitely effect their positions as well. Due to the growth in the industrial sector, there will be an increase in the production of this sector. The levels of deposits of industrial accounts would rise due to this factor.
THREATS Unstable Political Conditions
Pakistan is very unstable as far as its political conditions are concerned. There is always a risk of war at the borders. This makes the conditions much volatile. There cannot be any long term planning due to the ever-changing political conditions. This problem is a threat to all sectors of economy including the banking industry. When there is higher risk of war, people start withdrawing their money from banks and start keeping liquid cash with them. This creates a grave for all banks.
Due to the increase in banks, there is an increase in competition. Also there is a lot of aggressive marketing by the competitor banks. This is also a grave threat for MBL.
Meezan Bank is renowned for being first in Islamic banking. With such competitive edge in the banking industry, it holds a very strong position among its competitors. Its continuous innovation and adaptation to its changing environment has allowed it to stand amongst the best of the lot. But I would like to give certain recommendations in this perspective: First of all, I would I like to suggest that the bank must pursue a very aggressive marketing and advertising strategy so that it can create awareness in the general public about its islamic products and services Secondly, there is a need for creating satisfaction among employees. They do not feel any attachment to the organization. There is a requirement for building up their loyalties so that the bank can curtail the dissatisfaction and turnover among employees. The personnel in the bank should not be overstressed with workload. The workload is of a destructive level. At that level of load the employees loose all the comfort in their work and remain tense and frustrated. There is need of a new branch in the Lahore Main area. In our marketing research, many traders told us that they really wanted such a good bank to open a branch in that area. These traders have transactions of millions in a day that is why it is not easy for them to carry that amount of cash. If MBL opens a branch in that area, it can take hold of all those big accounts with a lot of daily transactions. Job training is a very important aspect that MBL is lacking in. New employees are recruited directly without any prior training or orientation. The result is that they do not understand the organizational structure and culture and become frustrated in their start. This reduces their productivity and efficiency. If such a training programmed is started, then the new employees would feel more comfortable and adapt easily to the environment.