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CHAPTER # 1

BANKING INDUSTRY OVERVIEW


1.1 Introduction The definition of a bank varies from country to country. "banking business" means the business of receiving money on current or deposit account, paying and collecting cheques drawn by or paid in by customers, the making of advances to customers, and includes such other business as the Authority may prescribe for the purposes of this Act. "Banking business" means the business of either or both of the following: 1. receiving from the general public money on current, deposit, savings or other similar account repayable on demand or within less than [3 months] ... or with a period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers[8]

A bank is a financial institution that serves as a financial intermediary. The word bank was borrowed in Middle English from Middle French banque, from Old Italian banca, from Old High German banc. Commercial banks are in the business of providing banking services to individuals, small businesses and large organizations. While the banking sector has been consolidating, it is worth noting that far more people are employed in the commercial banking sector than any other part of the financial services industry.

1.2 Industry Background Banks act as payment agents by conducting checking or current accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to customers' current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer, and automated teller machine (ATM). Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending. Banks provide almost all payment services, and a bank account is considered indispensable by most businesses, individuals and governments. Non-banks that provide payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. Banks borrow most funds from households and non-financial businesses, and lend most funds to households and non-financial businesses, but non-bank lenders provide a significant and in many cases adequate substitute for bank loans, and money market funds, cash management trusts and other non-bank financial institutions in many cases provide an adequate substitute to banks for lending savings too. Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated

economic activities like resources mobilization, poverty elimination, production and distribution of public finance. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. The country started without any worthwhile banking network in 1947 but witnessed phenomenal growth in the first two decades. By 1970, it had acquired a flourishing banking sector. SBP acts as a nucleolus in the financial system of the country. To day, a central bank is the central arch of the monetary and fiscal framework in many countries of the world and its activities are essential for the proper functioning of the economy and critical for the fiscal operations of the government and Pakistans banking system is no exemption. State Bank of Pakistan was established on the first of July 1948 under the SBP order 1948 as the central bank of the country. State Bank of Pakistan reins the monetary and credit system in Pakistan. The SBP is performing many useful functions like custodian of cash reserve of commercial banks, custodian of foreign currency reserves, bank of rediscount, central clearance, settlement and transfer, and conducting monetary policy for the stability of the entire banking industry of Pakistan. The Banking Industry was once a simple and reliable business that took deposits from investors at a lower interest rate and loaned it out to borrowers at a higher rate. The Banking Industry at its core provides access to credit. In the lenders case, this includes access to their own savings and investments, and interest payments on those amounts. In the case of borrowers, it includes access to loans for the creditworthy, at a competitive

interest rate. The collapse of the Banking Industry in the Financial Crisis, however, means that some of the more extreme risk-taking and complex securitization activities that banks increasingly engaged in since 2000 will be limited and carefully watched, to ensure that there is not another banking system meltdown in the future. Mortgage banking has been encompassing for the publicity or promotion of the various mortgage loans to investors as well as individuals in the mortgage business. Banking in the small business sector plays an important role. Find various banking services available for small businesses. 1.3 International Banking Industry A banker or bank is a financial institution that acts as payment agent for customers, and borrows and lends money. Banks act as payment agents by conducting accounts for customers, paying cheques drawn by customers on the bank, and collecting cheques deposited to the customers current accounts. Banks also enable customer payments via other payment methods such as telegraphic transfer. Banks borrow money by accepting funds deposited on current account, accepting term deposits and by issuing debt securities such as bank notes and bonds. Banks lend money by making advances to customers on current account, by making installment loans and by investing in marketable debt securities and other forms of lending and other forms of lending. Banks provide almost all payment services and a bank account is considered indispensable by most businesses, individuals and businesses. Non-banks that payment services such as remittance companies are not normally considered an adequate substitute for having a bank account. 4

The history of banking is closely related to the history of money. As monetary payments became important, people looked for ways to safely store their money. As trade grew, merchant looked for ways of borrowing money to fund expeditions. In Egypt and Mesopotamia gold is deposited in temples for safe-keeping. The concept of banking arrived. The first banks were probably the religious temples of the ancient world, and were probably established sometime during the 3rd millennium B.C. Banks probably predated the invention of money. Deposits initially consisted of grain and later other goods including cattle, agricultural implements, and eventually precious metals such as gold, in the form of easy-to-carry compressed plates. Temples and palaces were the safest places to store gold as they were constantly attended and well built. As sacred places, temples presented an extra deterrent to would-be thieves. There are extant records of loans from the 18th century BC in Babylon that were made by temple priests to merchants. By the time of Hammurabi's Code, banking was well enough developed to justify the promulgation of laws governing banking operations. Ancient Greece holds further evidence of banking. Greek temples, as well as private and civic entities, conducted financial transactions such as loans, deposits, currency exchange, and validation of coinage. There is evidence too of credit, whereby in return for a payment from a client, a moneylender in one Greek port would write a credit note for the client who could "cash" the note in another city, saving the client the danger of carting coinage with him on his journey. Pythius, who operated as a merchant banker throughout Asia Minor at the beginning of the 5th century B.C., is the first individual

banker of whom we have records. Many of the early bankers in Greek city-states were metics or foreign residents. Around 371 B.C., Pasion, a slave, became the wealthiest and most famous Greek banker, gaining his freedom and Athenian citizenship in the process. The fourth century B.C. saw increased use of credit-based banking in the Mediterranean world. In Egypt, from early times, grain had been used as a form of money in addition to precious metals, and state granaries functioned as banks. When Egypt fell under the rule of a Greek dynasty, the Ptolemies (330-323 B.C.), the numerous scattered government granaries were transformed into a network of grain banks, centralized in Alexandria where the main accounts from all the state granary banks were recorded. This banking network functioned as a trade credit system in which payments were effected by transfer from one account to another without money passing. In the late third century B.C., the barren Aegean island of Delos, known for its magnificent harbor and famous temple of Apollo, became a prominent banking center. As in Egypt, cash transactions were replaced by real credit receipts and payments were made based on simple instructions with accounts kept for each client. With the defeat of its main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased. Consequently it was natural that the bank of Delos should become the model most closely imitated by the banks of Rome. Ancient Rome perfected the administrative aspect of banking and saw greater regulation of financial institutions and financial practices. Charging interest on loans and paying interest on deposits became more highly developed and competitive. The development of

Roman banks was limited, however, by the Roman preference for cash transactions. During the reign of the Roman emperor Gallienus (260-268 CE), there was a temporary breakdown of the Roman banking system after the banks rejected the flakes of copper produced by his mints. With the ascent of Christianity, banking became subject to additional restrictions, as the charging of interest was seen as immoral. After the fall of Rome, banking was abandoned in Western Europe and did not revive until the time of the crusades Now a days banking is becoming the most significant businesses all over the world. Banks play very important role in the economy of all countries around the world. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. It influences and facilitates many different but integrated economic activities like resources mobilization, poverty elimination, production and distribution of public finance. Some of the core functions performed by international banks are as follows o Issuing letters of credit, travelers cheques, circular notes etc. o Undertaking safe custody of valuables, important documents, and securities by providing safe deposit vaults or lockers; o Providing customers with facilities of foreign exchange.

o Transferring money from one place to another; and from onebranch to another branch of the bank. o Standing guarantee on behalf of its customers, for makingpayments for purchase of goods, machinery, vehicles etc.

o Collecting and supplying business information; o Issuing demand drafts and pay orders o Providing reports on the credit worthiness of customers.

1.4 The Banking Industry in Pakistan


Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country and Pakistan is no exemption. Banks are custodian to the assets of the general masses. The banking sector plays a significant role in a contemporary world of money and economy. Pakistan has a well-developed banking system, which consists of a wide variety of institutions ranging from a central bank to commercial banks and to specialized agencies to cater for special requirements of specific sectors. Pakistans banking sector reforms which were initiated in the early 1990s have transformed the sector into an efficient, sound and strong banking system.

1.5 The major changes that have occurred in the banking sector
The major changes that have occurred in the banking sector during the last decade or so can be summarized as follows: (a) 80 percent of the banking assets are held by the private sector banks and the privatization of nationalized commercial banks has brought about a culture of professionalism and service orientation in place of bureaucracy and apathy. (b) The banks that were losing money due to inefficiencies, waste and limited product range have become highly profitable business. These profits are, however, being used to strengthen the capital base of the banks rather than

paying out to the shareholders. The minimum capital requirements have been raised from Rs. 500 million to Rs. 6 billion over an extended period in a phased manner. The consolidation of the banking sector into fewer but stronger banks will lead to better management of risk. (c) The banks that were burdened with the non-performing and defaulted loans have cleared up their balance sheets in an open transparent, across-the-board manner. Contrary to the popular myth the main beneficiaries of the wirite-offs of the old outstanding and unrecoverable loans have been from almost 25 percent to 6.7 percent by Dec. 2005. Small individual borrowers the ratio of non-performing loans of the Commercial Banks to total advances has declined. (d) The quality of new assets has improved as stringent measures are taken to appraise new loans, and assure the underlying securities. Online Credit Information Bureau reports provide updated information to the banks about the credit history and track record of the borrowers. Loan approvals on political considerations have become pass. Non-performing loans account for less than 3 percent of all new loans disbursed since 1997. (e) The human resources base of the banks has been substantially upgraded by the adoption of the principles of merit and performance throughout the industry. Recruitment is done through a highly competitive process and promotions and compensation are linked to training, skills and high performance. The banks now routinely employ MBAs, M.Coms, Chartered Accountants, IT graduates, economists and other highly educated persons rather than Clerical and Non

Clerical Workers. The banking industry has become the preferred choice of profession among the young graduates. (f) Banking Technology that was almost non-existent in Pakistan until a few years ago is revolutionizing the customer services and access on-line banking, Internet banking, ATMs, mobile phone banking and other modes of delivery have made it possible to provide convenience to the customers while reducing the transaction costs to the banks. Credit Cards, Debit Cards, Smart Cards etc. are a thriving and expanding business in Pakistan. Once the RTGS is put in place the payment system in Pakistan. Would enter a new phase of modernization. (g) Competition among the banks has forced them to move away from the traditional limited product range of credit to the government and the public sector enterprises, trade financing, big name corporate loans, and credit to multinationals to an ever-expanding menu of products and services. The borrower base of the banks has expanded four fold in the last six years as the banks have diversified into agriculture, SMEs, Consumers financing, mortgages, etc. The middle class that could not afford to buy cars or apartments as they did not have the financial strength for cash purchases are the biggest beneficiaries of these new products and services. (h) Along with strong regulation, supervision and enforcement capacity of the State Bank of Pakistan a number of measures have been taken to put best corporate governance practices in the banking system. Fit and proper criteria have been prescribed for the Chief Executives, members of the Boards of

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Directors, and top management positions. Accounting and audit standards have been brought to the International Accounting Standards (IAS) and the International Audit Codes. External audit firms are rated according to their performance and track record and those falling short of the acceptable standards are debarred from auditing the banks. (i) The foreign exchange market that was highly regulated through a system of direct exchange controls over suppliers and users of foreign exchange has been liberalized and all purchases and sales take place through an active and vibrant inter-bank exchange market. All restrictions have been removed with full current account convertibility and partial capital account convertibility. Foreign investors can now bring in and take back their capital, remit profits, dividends and fees without any prior removal and directly through their banks. Similarly, foreign portfolio investors can also enter and exit the market at their own discretion. The main lesson learnt from the last decade suggests that financial sector functions effectively and efficiently only if the macroeconomics situation is favorable and stable. The need to maintain macroeconomic stability will thus remain paramount in the years to come. The most serious complaint against the banking system in Pakistan today is that the depositors are not getting adequate return on their bank deposits. The difference between the monthly weighted average rates of lending and deposits is taken as an indicator of the spreads earned by the banks. It is true that these spreads have widened in the recent months land this phenomenon has caused resentment

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among those whose only source of income is their returns from bank deposits. But it is important to examine the facts and their form judgments. The monthly comparisons are meaningless because PLS deposit rates are changed every six months, while the lending rates are continuously adjusting because they are automatically linked to T-bills or KIBOR rates

1.6 Technological Improvements in Banking Industry


Apart from traditional business, banks now a day provide a wide range of services to satisfy the financial and non financial needs of all types of customers from the smallest account holder to the largest company and in some cases of non customers. The range of services offered differs from bank to bank depending mainly on the type and size of the bank. However deregulation and technology led to a revolution in the Banking Industry that saw it transformed. Banks have become global industrial powerhouses that have created ever more complex products that use risk and securitization in models that only PhD students can understand. Through technology development, banking services have become available 24 hours a day, 365 days a week, through ATMs, at online banking, and in electronically enabled exchanges where everything from stocks to currency futures contracts can be traded. Less than two decades ago, banking services were offered through manual passbooks at branches that were generally only open Monday to Friday. Today, banks are far more responsive to their customers, compared with twenty years ago. More than 90 percent of

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transactions are now conducted outside bank branches The vast majority of commercial banks all around the world live within 20 kilometers of an over the counter banking service where a retail customer can withdraw or deposit cash. There are almost 1.5 million ATMs all over the globe. Customers have access to millions of points of presences, which offer a branch level of service. Banks are now open 24 hours a day, seven days a week, rather than 10am to 3pm. Customers now pay for services they use, rather than subsidizing services other customers use. Electronic banking is avid users of existing electronic services and willing adopters of new services as they become available. ATMs are now an established part of our daily routines and our take up of Internet services is booming. More than six billion people have registered for Internet banking, and take advantage of the convenience, low cost and time-saving benefits of banking online. The Internet is transforming the way we manage our financial affairs and fundamentally changing how we conduct our banking transactions. Mobile banking (also known as M-Banking, m-banking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS.

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CHAPTER # 2 INTRODUCTION TO MCB BANK 2.1 About MCB


MCB Formerly Muslim Commercial Bank Ltd. is the largest private sector bank in Pakistan. The Adamjee group incorporated in 1948. It proposed during the 1950s and 60s. In 1975 it was nationalized with all other private sector bank. Then 1991 it was privatized. Since the bank has been headway in improving of technology. In the year 2006 bank name was changed to MCB Limited. The bank is now included as one of the top most bank of the nation. Muslim Commercial Bank is one of the leading banks of Pakistan with a deposit base of about Rs. 462 billion and total assets of around Rs.605 billion

2.2 Company History


Muslim Commercial Bank Limited. (MCB), the largest private sector bank in Pakistan. Incorporated in 1948 by the Adamjee group, MCB soon earned a reputation of solid and conservative financial institution. During the 1960s the bank grew rapidly with a concentration on trade finance products. In 1947, MCB was nationalizes along all other private sector banks. MCB was the first bank to be privatized in 1991 during the Nawaz Sharifs government financial sector deregulation policies. During the first five years, the private management concentrated on growth utilizing its extensive network of branches and developed a large and stable deposit base. Since privatization, the bank has made

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tremendous headway in improving the operational efficiency through human resource development and employment of technology. The bank today boasts the target online brand and ATM network in the country. The current shareholding structure is 50% National Group, 25% government and 25% floated on bourses.

2.3 MCB Vision and mission


To become the preferred provider of quality financial services in the country with profitability and responsibility and to be the best place to work

2.3.1 Vision Statement


To be the leading financial services provider, partnering with our customers for a more prosperous and secure future. The MCB Vision covers following long-term goals to be achieved in next 10 years: To have highly motivated team. Provide quality customer service. Expand and penetrate the customer base. Pay regular dividend and increase our share value

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2.3.2 Mission Statement


We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us. MCB is one of the leading banks of Pakistan with a market share of 12.5%. It is also the pioneer in innovative consumer banking in Pakistan. It is the largest private sector bank in Pakistan. It is the most preferred provider of quality financial services and is usually considered the best place to work. It has developed a large stable deposit base. The bank today boasts of largest online branch and ATM network in the country

2.4 Achievements
MCB is the only bank in Pakistan that has achieved 7 Euro Money Awards and 5 Asia Money Awards for being The Best Domestic Commercial Bank in Pakistan, along with several other Awards including the Best Trade Finance of Pakistan for two consecutive years. These accolades are the proof of our consistent effort in providing the customers with utmost care and quality. Muslim Commercial Bank Limited is awarded with Euro money Awards of excellence - 2000" where MCB is pronounced as "THE BEST DOMESTIC BANK IN THE COUNTRY".

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2.5 MCB Portfolios


Corporate Banking Group of MCB is focusing on top tier local corporate groups and multinationals in a structured and focused manner building relationships leading to increased market share. Branches having Advances of Rs.100, 000,000 per party relationship and monitoring such advances are called as Corporate Branches. These branches include corporate clients and their requirements are looked after. There are about 20 corporate branches of MCB in Pakistan.

2.5.1 Commercial Banking


The Commercial Banking Group of MCB continues to service the trading community and middle market, with sustained focus on developing new customer relationships and increasing the asset portfolio.

2.5.2 Consumer Banking


The Consumer Banking Group focuses on the lower end of the market and micro credit. Individual customer needs are being serviced through the introduction of diverse lifestyle consumer loans and introduction of new products and partnerships with service providers. Customers will continue to use the extensive branch network, which in turn will generate deposits to feed the asset development and liquidity requirements of the Bank through its diversified and stable deposit base.

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2.5.3 ATM Technology


At MCB, technology has a direct relationship with the needs of the customers, it is a mean of creating value and convenience for the customer. Over the last few years MCB has invested heavily into strengthening its technology backbone. Today it is leading the way in banking technology and setting new standards for the banking industry, penetrating into the local market, listening to the needs of the people. MCBs strength lies in

providing technological base at a grass root levels of the society with a challenge to educate and assimilate such systems across vast cultures.

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CHAPTER # 3
PRODUCT AND SERVICES
A large verity of products and services are offer by the MCB Bank. MCB has the products for all kind of customers according to their needs and wants rather then what the business thinks. With the re-launch of auto finance and house finance products, the Bank pushed the products with full thrust. The Bank has also launched a running finance facility against mortgage of property. Technology continued to play an important role in improving and expanding product offerings. MCB brings a lot of innovations in their product line like mobile banking. MCB products are for individuals, groups, organizations and they are also offering Islamic products for the peoples who avoid riba in their transactions. These products and services will be explained in detail as functioning of commercial bank. MCB provides following product & services to its account holders

3.1 Personal Banking 3.1.1 Deposit Accounts


Bank deals in money and they are merely mobilizing funds within the economy. They borrow from one person and lend to another, the difference between the rate of borrowing lending forms their spread or gross profit. Therefore we can rightly state that deposits are the blood of the bank which causes the body of an institution to get to work. These

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deposits are liability of the bank so from point of view of bank we can refer to them as liabilities. The total deposits of MCB are growing since its inauguration but after privatization there is a sharp incline in over all deposits of the bank. The increase in deposits is also a cause of increase on total number of accounts; bank has progressed in both aspects.

3.1.2 Khushali Bachat Account


Khushali Bachat Account, a Rupee savings account is one of MCB Banks most popular products. Due to the low initial deposit, the account can be opened by people from all walks of life and still avail the facility of daily product profit calculation.

3.1.3 Mahana Khushali Bachat


MCB Monthly Khushali Scheme provides you with a steady income every month. Just purchase a Monthly Khushali Certificate and you will enjoy a steady income of your total deposit every month.

3.1.4 Pak Rupee Savings Account


MCBs Pak Rupee Savings Account offers you attractive returns on your Pak Rupee investment. In addition, you have access to a countrywide ATM network convenient cash accessibility 24 hours a day. The facility also provides you with unlimited daily transactions with a limit on maximum withdrawal amount through the ATM machines.

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3.1.5 Pak Rupee Current Account


MCBs Pak Rupee Current Account offers you the convenience of unlimited withdrawals i.e. access to your funds whenever you want without any notice. There is no limit on the number of transactions you make in a day plus you can avail finance facility up to 75% of the total deposit. In addition, you have access to a countrywide ATM network convenient cash accessibility 24 hours a day. The facility also provides you with unlimited daily transactions with a limit on maximum withdrawal amount through the ATM machines.

3.1.6 Pak Rupee Term Deposit


MCB Pak Rupee Term Deposit gives a higher rate of return. It gives you choice of 1 month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits.

3.1.7 Saving 365


The MCB Saving 365 calculates profits on a daily product basis and gives you the facility of unlimited withdrawals.

3.2 Foreign Currency Savings Account


MCBs Foreign Currency Savings Account offers you attractive returns on your Foreign Currency investment.

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You can invest in any of the four currencies i.e. US Dollar, UK Pound Sterling, Japanese Yen or Euro Your foreign currency account is exempted from Zakat and withholding tax

3.2.1 Foreign Currency Current Account


MCBs Foreign Currency Current Account offers you the convenience of unlimited withdrawals i.e. access to your funds whenever you want without any notice. There is no limit on the number of transactions you make in a day.

3.2.2 MCB Foreign Currency Term Deposit


MCB Foreign Currency Term Deposit gives a higher rate of return. It gives the choice of 1 month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits.

3.2.3 Dollar Khushali Account


The Dollar Khushali Account, a Dollar based account was introduced in 1993 at selected MCB Bank branches. Today, you can open a Dollar Khushali Account at over 200 branches in Pakistan.

3.3 Loan Products


MCB offers different loan products to its customers which are follows

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3.3.1MCB Business Sarmaya


MCB Business Sarmaya is the best Running Finance facility against your residential property which empowers you to manage your business dealings better. So act today and get MCB Business Sarmaya and thus improve your business, avail lucrative opportunities and expand your business, with absolute satisfaction of cash flows.

3.3.2 MCB Car4u


Life is like a chess board. You plan your career options. You analyze your business moves. But when you really want to improve your life, you make a power move. MCB CAR4U Auto Finance is the power move that assists you in more ways than you ever imagined. It is affordable, with lowest mark up, flexible conditions, easy processing and above all, no hidden costs.

3.3.3 MCB Pyara Ghar


Some destinations require a long wait. Like waiting for a home of your own. But with MCB Pyara Ghar it is now easy to step into your home and start living a real life. MCB Pyara Ghar is an ideal Home Finance from your own bank that lets you Purchase, Renovate or Construct your home the way you have always wanted. Having your own home was never so easy

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3.3.4 Easy Personal Loan


MCB Easy Personal Loan provides you with the financial advantage to do things you've always wanted to but never had the sufficient funds for. Take that much-needed holiday. Buy a car. Refurnish your house. Purchase a new TV. Finance a better education for your children.

3.3.5 MCB Master Card


Since the beginning of time, people have tried to find more convenient ways to pay, from gold to paper money and cheques. Today, money is moving away from distinct hard currencies and towards universal payment products that transcend national borders, time zones, and, with the Internet, even physical space. Plastic or "virtual" money, credit, debit, and electronic cash products, inevitably will replace cash and cheques as the money of the future. 3.3.6 MCB Rupee Traveler's Cheques

MCB Rupee Traveler's Cheques were first introduced in 1993 as safe cash for traveling and travel related purposes. The product has been extremely popular and is preferred over cash by customers while traveling and in all walks of life.MCB Rupee Traveler's Cheques- The safest way to Carry Cash

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3.4 Corporate Banking 3.4.1 Cash Management Services


MCBs network of over 900 branches in Pakistan enables it to collect and disburse payments efficiently with its cash management services. This also enables it to offer you a choice of paper based or electronic fund transfer solutions including collection amounts, cross branch on- line transactions etc. 3.4.2 Working Capital Loans

Based on the customers specific needs, the Corporate Bank offers a number of different working capital financing facilities including Running Finance, Cash Finance, Export Refinance, Pre-shipment and Post- shipment etc. Tailor- made solutions are developed keeping in view the unique requirements of your business. 3.4.3 Term Loans

MCB offers Short to Medium Term Finance to meet capital expenditure and short term working capital requirements of our customers. The loans are structured on the basis of underlying project characteristics and cash flows of the business.

3.4.4 Trade Finance Services


Under Corporate Banking MCB offers trade finance services that include an entire range of import and export activities including issuing Letters of Credit (L/Cs), purchasing export documents, providing guarantees and other support services. 25

3.5 Online Services


MCB provides following services 3.5.1 MCB ATM Services

With a solid foundation of over 50 years in Pakistan, with more than 750 automated branches, 269 online branches, over 222 MCB ATMs in 41 cities nationwide and a network of over 12 banks on the MNET ATM switch, MCB is positioned at the forefront of the banking industry in Pakistan. This success has been possible because of a neverending drive to achieve higher levels of excellence, constantly striving to raise the level of performance. 3.5.2 MCB Mobile Banking

At the forefront of technological excellence, MCB proudly introduces MCB MOBILE BANKING. The convenience of accessing your account balance information and mini statements whenever you want or wherever you may need them, with comfort and peace of mind.

3.5.3 MCB Call Center


Keeping up with banking services can be tedious but not with MCB Bank, where phone service is at your fingertips. Just dial our Call Centre from the comfort of your home or office or wherever you happen to be. It offers basic banking services for your convenience, eliminating the need for you to make unwanted trips to your branch.

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3.5.4 MCB Smart Card


MCB now brings you MCB SmartCard -a secure and convenient instrument of payment with unmatched functionalities. It provides 24-hour direct access to your bank account. The convenience and flexibility of MCB SmartCard will help you live a smarter life. It not only helps you manage your expenses, but also eliminates undue interest on your day to day credit card transactions. Your balance is always within your reach and you spend accordingly.

3.5.5 MCB Debit Card


Now MCB brings a secure, convenient and quick payment facility that enables you to do purchasing by using your existing MCB ATM / MCB Smart Card as a DEBIT CARD.

3.6 Virtual Banking


MCB Virtual Internet Banking offers you the convenience to manage and control your banking and finances when you want to, where you want to. MCBs Virtual Internet Banking facility is simple and secure. And its free of cost. With MCB Virtual Internet Banking you can access any of the banking services, 24 hours a day, 7 days a week and throughout the year. MCB Virtual Internet Banking offers a wide range of online services which makes your banking accessible anytime and from anywhere. o Detailed Account Summary of all listed accounts.

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o Mini-statements of each of the listed accounts showing recent transaction history for that account(s). o Statement-by-Period of each of the listed accounts, based on the period specified. o Immediate or Scheduled Transfer of Funds between your own accounts, as well as to third-party accounts setup as beneficiaries, maintaining accounts with MCB.

o Scheduling of One-Time as well as Recurring Funds Transfers. o Payment of utility bills for registered Utility Companies. o Immediate or Scheduled Bills Payment. Scheduling of One-Time as well as Recurring bill payments. Option for Full or Partial payment based on the payment conditions specified by a particular Utility Company. o Bulk Salary Transfer for Corporate Customers, to facilitate them in paying salary to the corporate employees, who maintain accounts with MCB. o Bulk Funds Transfer for Corporate Customers. o Cheque Book Request for any of your listed accounts. o Payment/Transfer Alerts for reminding, in advance, prior to the processing of specified payments and transfers. o Personal Alerts for reminding of pre-specified events and occasions.

3.7 Islamic Banking


Islamic Banking was launched under the brand 'MCB Islamic Banking', by opening 6 dedicated Islamic Banking branches in major cities of the country. Further expansion is planned with improved capabilities for offering products conforming to the Shariah principles. 28

MCB Islamic Banking opens the doors for Halal banking solutions. Our objective is to put in place an efficient banking system supportive to economic justice and welfare of society in line with Shariah standards. A comprehensive range of Islamic Banking products and services is being offered, in order to meet customer's demand of Shariah Compliant Banking, in the following areas:

Islamic Corporate Banking Islamic Investment Banking Islamic Trade Finance Islamic General Banking Islamic Consumer Banking

Islamic Banking products have been approved by the Bank's Shariah Advisor. As per Shariah requirements, funds and products of Islamic Banking are managed separately from the Conventional Banking side. All funds obtained, invested and shared in Halal modes & investments, under supervision of the Shariah Advisor.

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CHAPTER # 4
DEPARTMENTS AND THEIR WORK 4.1 Introduction
The purpose of banks is to provide some services to the general public. And for this purpose different banks provide different services to the people in different forms. The MCB bank is a commercial bank, in modern time commercial banks play a very important role and their functions are manifold. The main functions and services which MCB Bank Limited provides to different peoples are as follows. There are three main departments in any branch of MCB o General Banking o Foreign exchange o Advance/Credit o Technology department (new addition in order to cop with the growing needs of day to day technology requirements)

4.2 General Banking


General banking deals with following services:

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4.3 Remittance Department


Remittance is transfer of funds. Funds can be transferred in shape of pay orders, demand draft, mail telegram and telegraph transfer. Payments of fees of different organizations, fulfillment of tenders, and collection of funds are the main functions of remittance. Maximum part of general banking depends on this department. Issuance of different kinds of remittance:

4.3.1 Pay Order


Pay order is the property of person/company that has to take the benefit of the amount being pay ordered by the concerned person. Pay orders are made for the payment of fees, tender or issued for the payments of dealings. These are required for the proof of payments made between the bank and the customer in the favor of beneficiary. These are noted in printed block letters and yearly serial numbers are issued from computerized system.

The following are the parties a) purchaser b) Issuing branch c) Payee Charges must be recovered at prescribed rate. Pay order should be prepared like demand draft. A record of all issued and paid should be maintained.

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Credit voucher should be prepared

4.3.2 Demand Drafts


Demand drafts are made for the beneficiary for payments, funds etc, these are made for outstation branches of the concerned banks. An advice is also made for the confirmation of the draft send. These are also approved and safe way of sending amount to the beneficiary. These are also noted by computerized system and a serial number is issued from the computer system. Demand draft is a negotiable instrument. Legal provisions are same as that of cheque. It is to be ensured that purchaser can at least sign. Thumb expression is not accepted on DD

The following are the parties. a) purchaser b) issuing branch c) drawee branch d) payee A demand draft may be issued against the written request of the customer before issuing it must be seen that the demand draft is in order.

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4.3.3 Mail Transfer


Mail Transfer is made with in the city for transfer of amount. An advice is also made for the confirmation of the draft send. These are also approved and safe way of sending amount to the beneficiary. These are also noted by computerized system and a serial number is issued from the computer system.

Mail transfer is not negotiable. The procedure is same as for DD.


All precautions must be observed

4.3.4 Telegraph Transfer


Telegraph Transfer is telegram message for transferring the amount from one branch to other branch. A message advice and a confirmation advice both are made with TT numbers that are issued for TEST. TEST depends on two steps: 1. First TEST is on Day, Date and Code Number of branch. 2. Second TEST is on Currency, whether Pak rupees or foreign currency, amount and TT number issued from manual registers and confirmed from computerized system. Telegraphic transfer is not negotiable The funds are not payable to bearer Minor cannot avail this facility

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Parties
Following are the parties involved Applicant Drawing branch Drawee branch Beneficiary Full name of the beneficiary or account number should be mentioned in the application form. Instruction regarding mode of payment should be obtained. A record in the remittance outward register should be maintained. All the remittance must be controlled through number

4.3.5 Pay-Order and Demand Draft


Pay-Order and Demand Draft both could be paid in shape of physical payment of cash and in case transfer of amounts; the amount could be transferred in the beneficiary account. In case of physical payment authorized signature of beneficiary are taken for the proof of amount being paid to him and in case of transferring of amount authorized signature of the beneficiary are checked and verified for reducing risks.

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4.3.6 Cancellation of Pay-Order / Demand Draft


Any type of Pay-Order / Demand Draft is cancelled by the permission and instructions made by the beneficiary. The customer could only cancel the pay-order/demand draft as the verified signatures of beneficiary are present on the advice.

4.3.7 Vouchers
Vouchers are made for records and they should be completed in all respects, the amount, date, its head, particulars, amount in words, authorized signatures and contra advice or voucher should be present. Vouchers are advice either debit or credit slips. They are contra of each other. If any voucher of debit is passed its contra credit voucher should also be passed for the balancing of accounts, their respective sheets.

4.3.8 Token
Token is the process of different steps of checking of the cheque: 1. Physical Checking First of all the cheque is physically checked. 2. Date It should not be advanced of the latest date; date should be limited to only past Six months.

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3. Amount Amount in words and figures should be written in clear writing. Any kind of over writing and cutting should be prevented. Otherwise it would not be passed and returned to the customer. 4. Payees/Bearer Cheques If the cheques are payees accounts head or they have marked bearer then these cheques are not labeled token. 5. Verification of Signature Signatures are checked as well as verified. In case of other representative of the account holder brings the cheque then two signatures of that person are taken. 6. Stamps After physical checking of the cheques they are stamped.

4.3.9 Issuance of cheque Books


Any account holder that has opened the account he/she could credit his/her account and for this purpose there should be a cheque book, so he/she could be able to credit the needed amount whatever he/she wishes. For the issuance of the cheque book a person is advised to fill a requisite slip with his/her full names and the account number with two verified signatures. These signatures are checked and then another requisite slip prepared

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by the bank staff send to the NIFT, and it issues the printed cheque books after completion of the procedure in two or three days. Account holder can take it by singing on the issuance register or if the absence of the account holder another person could also take the cheque book only if he/she has authorized signature of the account holder. When the cheque books are issued they are feed in the computer system from the requisite slip so when the cheques are given for the credit/transfer of amount they could checked. In this way neither the cheques could be repeated nor could the invalid cheques be claimed.

4.3.10 Issuance of ATM Cards


Head office issues ATM (Auto Teller Machine) cards with their PIN (Personal Identification Number) codes and when the customer claims for their ATM card they are checked from the list that is also issued from the head office, and the claim is checked from the list and if the name is found than the cards are issued by taking a signature and their PIN codes are given to them by taking signatures on their ATM card forms. The ATM card has been activated by the number provided at or with the specific card.

4.3.11Cancellation of ATM Cards


The Cancellation of ATM Cards becomes necessary in the following conditions: o If folded or damaged o Stolen o PIN code missed or forgotten

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o Card captured by the machine and expired o If requested by the customer The cancellation or inactivity of the card is being processed by the request or instructions provided from the customer.

4.3.12 Sale of Rupee Traveler cheques


The selling of the RTC has been described in step wise as follow: In this step the bank initially seeks the information whether the person is going to purchase the RTCs on cash or on account basis. If the transaction is based on account then initially the cheque has been cleared than if the amount is sufficient than RTC has been issued after deducting after the amount from the account. If the amount of RTC is more than Rs. 25000 than tax has levied by 0.3% in case of absence of the tax deduction form. After this the bank handed over a form for RTC sale dully filled by the concerned person and after this RTC number has been noted on the form as well as their amount and quantity. After this we note down the sold RTC in the concerned register. MCB Pak rupee travelers cheques the fastest way to carry cash for high value cash transactions. MCB rupee travelers, the market leader in the rupee travelers cheque market in Pakistan is celebrating nine years of leadership in July 2002. Launched in July 1993, MCB RTCs have been preferred choice of the rupee travelers cheques target market. With over 1.5 million satisfied customers in five years, MCB has been striving hard to package their product better and better each year.

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We now have RTCs with maximum security features, we have incorporated tele verification with the product where customers can call and check whether the RTC is valid. At the same time, our RTC team anywhere in Pakistan ensures superior quality service.

4.4 Clearing Department


Every banker acts both as a paying as well as a collecting banker, It is however an important function of crossed cheques. A large part of this work is carried out through the bankers clearing house. A clearing house is a place where representative of all banks of the city get together and settle the receipts and payment of cheques drawn on each other. As the collecting banker runs certain risks in receipt of their ownership the law has provided certain protections to the banks. The Negotiable Instrument Act, 1881, lays down hat drawer or holder of a cheque or draft may cross the instrument generally or specially. It further lies down that a crossed cheque can only be paid to a banker, who collects it for a customer in good faith and without negligence.

4.4.1 Inward clearing


It depends on those checks that are cleared inter branch and with in the city. As the concerned branch receive any type of clearing check first of all physical checking is taken place. For clearing procedure there should be two days margin. These cheques have their vouchers and the amount of the cheque and voucher should be identical. Than these 39

cheques are stamped and noted on receiving sheet as well as feed in to the computerized system.

4.4.2 Outward clearing


It depends on those cheques that are cleared out side the city. For outward clearing cheques are send because the home branch has there accounts but checks are of other banks. Contras of these cheques are vouchers that are recorded in the home branch.

4.4.3 Types of Cheque Collected


Transfer cheques Are those cheques, which are collected and paid by the same branch of bank. Transfer delivery cheques Are those cheques, which are collected and paid by two different branches of the same bank situated in the same city. Clearing cheques Are those cheques, which are drawn on the branches of some other bank of the same city or of the same area, which is covered by a particular clearing house. Collection cheques Are those cheques, which are drawn on the branches of either the same bank or of another bank, but those branches, are not in the same city or they are not the members of clearing house. 40

4.4.4 Common Procedure for All Cheques


Receiving and scrutinizing the cheques and other deposit instruments, and the

pay-in-slip at the counter. Fixing the stamps. Scrutiny and receipt by the authorized officer. Returning the counter file to the depositor. Certificate and confirmation by the officer in charge of the department. ,

Separating the cheque into transfer, transfer delivery, and clearing cheques

4.5 Foreign Exchange


Foreign exchange is the conversion of one country's currency into that of another. In a free economy, a country's currency is valued according to factors of supply and demand. In other words, a currency's value can be pegged to another country's currency, such as the U.S. dollar, or even to a basket of currencies. A country's currency value also may be fixed by the country's government. However, most countries float their currencies freely against those of other countries, which keep them in constant fluctuation. The value of any particular currency is determined by market forces based on trade, investment, tourism, and geo-political risk. Every time a tourist visits a country, for example, he or she must pay for goods and services using the currency of the host country. Therefore, a tourist must exchange the currency of his or her home country for the local currency. Currency exchange of this 41

kind is one of the demand factors for a particular currency. Another important factor of demand occurs when a foreign company seeks to do business with a company in a specific country.

4.5.1 LC establishment
Any company can provide its documents containing e-form, bill of lading, short shipment notice in case of short shipment, packaging list etc. the information provided from the documents is recorded in the LC establishment portion or section in the computer.

4.5.2 Payment or Remittance


When the transactions have been completed then approved documents from the concerned bank are sent to the home bank for the payment or retirement of the LC. These transactions have recorded in the payment or retirement section of the computer.

4.5.3 Foreign Currency Deposit


The Foreign Currency Deposit relates with the foreign currency accounts, cash deposit or credit and foreign remittances.

4.5.4 Foreign Remittances


In this we received the messages through SWIFT for foreign remittances, which we record in their respective accounts, if these are relates with Pak rupees than it was transferred in Pak rupees with the latest rate and if this relates to the foreign currency than it is dealt with accordingly. The amount has been credited to the respective account 42

and the head office has been debited against it. After crediting the amount to the respective account. All the subsequent entries have been made in the registers and also in the computer record as the system now have been upgraded on computers. As we are reporting daily to the head office, so an annexure has been maintained and faxed to the head office

4.6 Advance / Credit


This department deals with the approval of different kinds of loans to different business entities. The loans, which are being approved by the department, are kept with some securities such as bonds, properties and any other type of asset, which is equally valuable or more than this as a guarantee. Every branch has its own limit, if the amount of loans is with in the limit of the branch then it is being approved by the branch but if the amount of loan is exceeding the limit then it has to make it approved by the head office. In this case the branch stored all the required papers and sent them to the head office for necessary action. If the head office approved the loan then mostly the period contains a year. And if the party requires more loan than after a year the loan has been re-approved required that they should have the limit. In case if the head office do not approve the loans then the return letter came back with the reasons of not approval of loan and if the reasons have been made approved by the concerned party then it could be sent again for approval. This whole process is recorded in the back remain with the bank until the party has not refunded all the amount of loan and bank has the authority to liquidate those assets for preventing it from loss.

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CHAPTER # 5
INTERNSHIP EXPERIENCE
Theory and practice completes the cycle of human instinct quest for knowledge and its need to solve day-to-day problems systematically. I have worked as an Internee in Bank MCB branch for Eight Weeks as per required by degree. I have learned a lot from my manager and head that how to be at work place, how to deal with human psyche and behaviors. And I am positive that my learning during the internship is going to help me in my professional career. I developed the practical attitude gradually and realized the importance of the job assigned to me. The most important benefit of this internship is that I got practical exposure of work place. I got practical experience of working practices related with my field I learned that how to manage things and how to create balance among work life and personal life. These learned management practices are going to be very helpful for me while on job. I enjoyed my working experience because things were not imposed on me. There was no over loaded task to be performed. Rather they facilitated me a lot so that I could manage my studies as well. The environment of the branch was very friendly. My branch manager has helped me a lot in learning different things and gave me the in-depth knowledge of their practices and procedures.

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Major activities performed during my internship program are as follows:

5.1 Cash Management


Cash Management is important department of the bank. I worked in this during my internship by dealing with customers, paying those cash on their issued token. I also deposited the cash of customers in their accounts. By working in this department I have come to know how bank balance, its working by keeping records of outgoing and incoming cash transactions is too difficult. The main function of this department is Payment and receipts of cash. It collects and pays money to the customers, on behalf of their account, through cheques or any other negotiable instruments. Cash department mainly perform the following functions. o Payments o Receipts A brief description of each of these is as follow Payment The payment in the cash department deals with that customer who withdraws money through cheques or any other negotiable instruments. The cashier keeps the record of all payments in the register book. At the end the payment and receive cashier check the balance and count the cash. They verify that both register cash and the cash in hand are balance.

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Receipts In the receive section the cashier receive (or you may say collect) money from the customers on behalf of any account or the company. Most of the received are go through the accounts of the MCB. Every account holder deposit money in his account, they deposit the money through the bank receive voucher, which is of specific nature i.e. it may be PLS, current etc. so the cashier deposit the money through that receive. He keeps in record the voucher no, amounts, a/c no etc and then presents to the computer department for posting.

5.2 Remittance (Inward / Outward)


Transfer of money or equivalent to money from one branch to another branch of the same bank is called remittance. o Originating Branch It is the branch from which money is send to another branch or the point of origin of remittance.
o

Responding Branch

The branch which receives the instrument or money for remittance is known as Responding Branch.

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5.2.1 Types of Remittance


Inward Remittance

The branch which receives the instrument (T.T, D.D, MT, PO) directly from the customer or from the originating branch and is responsible to pay to party is called inward remittance. Outward Remittance The branch which issues or sold the instrument to the responding branch is called outward remittance. In this case we are sending remittance to another branch of the same bank in any location.

Inland Remittance

Transfer of money from one branch to another branch of the same bank within the same country is called inland remittance. In this case both originating branch and responding branch will be situated in the same country.

Foreign Remittance

Transfer of money from one country to another country is called foreign remittance.

5.3 Demand Draft


Demand Draft can be explained as the instrument which is payable on demand as its name implies the same, the value of which has already been received. This instrument is issued by one branch and payable at other branch of same bank or other banks branch e.g. DD issued by MCB payable by ABL.

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5.4 Pay order


Pay order is a kind of instrument issued and paid in the same branch. It is normally issued for payment in the same city. Procedure of issuance of Pay order The customer fills the remittances application form and mark check on pay order. On receiving application he is issued with a pay order after receiving charges. All pay orders are crossed i.e. Payees a/c only

5.5 Customer Services Department


In Customer Services Department my duties are:

5.5.1 Slip Fulfillment


Customer when come I introduce them about the slips and ask him that if u deposit or withdraw the amount or submit the payment of credit card then to fill it and then guide if he is unable to fill it.

5.5.2 Types of Slips


Receipt for Cash Deposit When cash is deposited in the bank then cash deposit takes place. It must mention that the account is either current or pls. there are other requirements to meet for cash Deposit.

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Receipt for Cheque Deposit When check of another bank transfer to our bank that receipt is known as check deposits receipts. In this slip we mentioned code of the other branch that has sent the check, its check # and mentioned the account is current account or PLS.Bank and branch, check number, amount in words. Online Receipt for Cash Deposit When check of another bank transfer to our bank that receipt is known as check deposits receipts. In this slip we mentioned code of the other branch that has sent the check, its check # and mentioned the account is current account or pls. Bank and branch, check number, amount in words

5.2.3 Account Inquiry


In Account Inquiry I told the customers about their balance in the accounts. I also told the customers who are willing to know about their transactions and transaction amount.

5.2.4 Account Opening


In order to open an account, first of all the customers have to fill a form prescribed by the bank. The person is required to bring some reference or introduction for opening the account. But it is not essential to having an introducer. There are different requirements for different types of accounts and accountholders. In this department, I gain the practical knowledge about opening account. This

department deals with opening current and saving account for its customers and all

49

matters regarding thereof. The customers opening current and saving accounts can be categorized as following. o Individual o Joint o Others After the fulfillment of form I put this data on the MCBs online Symbol System. In this system first of all I define the client then it gives the client number. After the client number opened the account of a person.

5.2.5. Deposits
The procedure undertaken upon receiving deposits from the customers is as follows: o Examining the deposit slip to ensure that the name and the account numbers clearly indicated. o Counting the cash and cheques and agree the total with the amount on the deposit slip. o After that the pay in slip is validated for cash transaction and transfer and clearing transfer as appropriate before the counterfoil is handed over to the customer. o Cheques signed by directors, partners or employees of a company, drawn in favor of them and credited in their account in the bank. are

5.2.6 Withdrawals
The withdrawals can be made only at the branch where the account is maintained. The officer under his full signature authorizes all cash withdrawals. No third party

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withdrawal is permitted. In current account, the bank does not offer any interest. We can deposit or withdraw any amount during banking hours.

5.3 Skills I Have Learned


o I have gained persistence to complete tasks. In professional environment I needed to complete the task on time as well as with accuracy. These practices helped me to gain consistency in my routine tasks. o I learned that how to deal with customers. Usually in university environment we deal with same kind of people who come to university with the same intension but in bank every kind of person & everyone with different set of needs. I had to cope with all the customer according to their needs. o I have gained ability to plan with and work cooperatively with others. I found working in professional environment is entirely different from working in the groups of university. There is much more responsibility and pressure on everyone to act accordingly. o I have learnt how to deal in stressful or hectic situations. In banks the schedule is very tight and one has to be on toe every time. Bank gets stressful at the end of the day when everyone has to maintain the record of daily transaction.

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CHAPTER # 6
SWOT ANALYSIS 6.1 Introduction
The SWOT analysis is done by the organization for the environmental scanning. It is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieve that objective. A SWOT analysis must first start with defining a desired end state or objective. A SWOT analysis may be incorporated into the strategic planning model. Strategic Planning has been the subject of much research. Strengths: characteristics of the business or team that give it an advantage over others in the industry. Weaknesses: are characteristics that place the firm at a disadvantage relative to others. Opportunities: external chances to make greater sales or profits in the environment. Threats: external elements in the environment that could cause trouble for the business.

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6.2 Strengths
o One of the main strength of MCB that I think is the faster banking services and more prominent in banking industry especially in operations and Foreign Exchange. Speedy services and reasonable services charges are attracting the people to do their business with MCB.
o

MCB has fully computerized control on its banking system due to this facility the MCB is in the list of highly automated bank.

o Internal control and monitoring of the MCB Bank is very effective Quality Control Expert visits twice a week at bank branches which helps the employees to improve their work.
o

Due to fast banking services, prominent banking services and fully computerized computer system resulted in joining of experienced people, advanced

management, advance setup and facilities gave MCB an edge over its competitors. o Most private banks have still not online all of their branches in Pakistan but the MCB has all its branches online. They have wide area network in all over the Pakistan, so that they cover a lot of portion of cash transactions and make customer satisfied o The Bank has very strict rules and regulations about the customer's complaints. The customers are treated as very special persons in the Bank. o MCB has got the Strongest Bank in Pakistan Award 2010. 53

o MCB also got the Leadership Achievement Award 2010.


o

MCB has been awarded as Euro money Award 2008 for the Best Bank in Asia.

Best Bank In Pakistan Award: MCB has been awarded the best bank in Pakistan since 2000, 2001, 2003, 2004, and 2006.

The bank enjoys competitive profitability in the industry. MCB is Pakistans largest bank by market share 18% its assets are of PKR 605 billion in 2011, and the largest by market capitalization having a market capitalization of US$ 1.8 billion.

MCB has captured majority of potential customers in Pakistan. Customer default rate is lower as compared to other banks. The Bank has a customer base of approximately 4.5 million in a market with a population of over 160 million.

MCB has the ability to bring innovative products and services like personalized service, electronic funds transfer, and sophisticated financial products such as electronic banking, auto-teller machines and evening banking.

MCB is largest private bank and overall the fourth largest bank of Pakistan. Its wide network includes fully facilitated branches all over Pakistan. It covers 125 cities, comprising of 1,130 branches, including 8 Islamic banking branches out of which 600 have the ATM machines.

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6.3 Weaknesses
o MCB offers different types of products to the customers therefore majority of people are not well aware about the products of MCB. For examples if a person wants to open an account with MCB say it is current but he does not know what type of Current Account he should open does not know this the major weakness for the MCB. o No entertainment facilities are available in the bank when customer visits Bank and wait for at longer time. These facilities can be the Newspaper. Magazines, etc. o Out look of the MCB branches is not attractive to the people. o In this era of competition most of the banks advertising their different products and services but no commercial I have seen on any channel regarding their products and services. o Equality should be observed throughout banking system. There should no

discrimination among the customers. As I observed at the branch where I worked wealthy customers were given the more entertaining services while the customers who have low investment with the bank waited for long for their turn. o At private local banks there is normally transfer of employees after a normal period of one and a half years or two years while at MCB branch where I did my internship most of the employees are working more than three years. 55 Job

Rotation help the employees to learn about different segments of the business which I think is missing at MCB.
o

The overseas branch network of MCB is limited. It has only four overseas branches whereas HBL has twenty overseas branches, three subsidiaries, two affiliates, and one representative office. Similarly NBP has fifteen overseas branches.

Employees at branch level are not properly motivated to work by heart. They take the all routine activities as a boring job. Challenge for MCB is to provide an environment in which employees can better realize their potential.

Employees are dissatisfied due to ill treatment and improper reward system. MCB are not addresses these four areas: compensation, benefits, recognition and appreciation.

6.4 Opportunities
o

MCB has got the Strongest Bank in Pakistan Award 2010. MCB also got the Leadership Achievement Award 2010. MCB has been awarded as Euro money Award 2008 for the Best Bank in Asia.

o Best Bank in Pakistan Award: MCB has been awarded the best bank in Pakistan since 2000, 2001, 2003, 2004, and 2006. o These awards create an edge in the mind of people to invest and borrow from this bank.

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o Before privatization people were not satisfied with the services of the bank. After the privatization people have different alternatives to invest and borrow from. The MCB due to its over 10 years performance it has the opportunities to attract the customers
o

They have a wide area network in all over pakistan. If MCB can make it possible the fast Delivery of funds from abroad through online banking, it can cover the major market share of pakistan which still exist in the form of Bills Of Exchange.

Technology continued to play an important role in improving and expanding product offerings. The bank needs to introduced more IT based products to cater to the changing lifestyles and needs of the customers.

The bank can earn more profit by advancing to farmers and industrialists at lower rates. There is very tough competition in the market, to capture the market MCB offers lower rates to them.

6.5 Threats
o The decreased purchasing power of consumer in the current economic situation of the country affecting the business activity speed too much and the result is the low investment from the investors in new projects can create problem for the hank because it is working a lot in trade. o The Competition has become severe by the entrants of so many banks. So to exist one will have to prove himself in its services through excellent management and will have to satisfy its shareholders. Otherwise it will he out the market

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o New Privates Bank coped with emerging new Technology of IT. This ease of entry in the market is the threat to the MCB bank. o Change in government policies has affected the banking business. Still banks have to wait to get permission from the State Bank of Pakistan. The freezing of foreign currency accounts is a vital example of letting people not to trust on banks.
o

The decreasing purchasing power of consumer in the current economic situation of the country affecting the business activity speed too much and the result is the low investment from the investors in new projects can create problem for the bank because it is working a lot in trade. This caused a very high rate of inflation, which, in 2008, had increased to a whopping 25% as compared to a 7.9% of 2006.

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CHAPTER # 7
FINANCIAL STATEMENTS ANALYSIS
Financial analysis refers to an assessment of the viability, stability and profitability of a business, sub-business or project. It refers to the assessment of a business to deal with the planning, budgeting, monitoring, forecasting, and improving of all financial details within an organization. There are various methods or techniques that are used in analyzing financial statements, such as comparative statements, schedule of changes in working capital, common size percentages, funds analysis, trend analysis, and ratios analysis. The process of evaluating businesses, projects, budgets and other finance-related entities to determine their suitability for investment. Typically, financial analysis is used to analyze whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When looking at a specific company, the financial analyst will often focus on the income statement, balance sheet, and cash flow statement. In addition, one key area of financial analysis involves extrapolating the company's past performance into an estimate of the company's future performance. Financial statements assist users in evaluating the financial position, profitability and future prospects of a business. Managers use financial information to identify trends in the company performance and financial position. following techniques. And for this purpose they use

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7.1 Horizontal Analysis of Balance Sheet


Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. It is the division of every expense item in a specific year by an identical expense item derived from the base year. Calculation enables measurement of changes in the comparative importance of expense items over the years. Also evaluates how expense items influences changes in sales. Horizontal Analysis = (Current Year Value X100) / Base Year Value

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Table 7.1: Horizontal Analysis of MCB Balance Sheet for the Year 2006-2010

Horizontal Analysis of MCB Balance Sheet


Assets Items/Years Cash & Balances with Treasury Banks Balances with other Banks Lending to institutions Investments Advances Operating Fixed Assets
100.00 153.97 56.61 101.70 106.94 200.60 342.62 13.69 116.36 165.97 85.73 184.13 129.66 191.00 189.80 220.39 150.82

Figures in %
2006
100.00 100.00 100.00 100.00 100.00

2007
115.54 118.18 16.62 82.03 136.46

2008
119.45 114.73 54.31 64.82 167.49

2009
167.31 115.85 28.99 72.90 182.94

2010
200.76 96.29 7.21 108.22 197.25

Financial

Deferred Tax Assets Other Assets TOTAL ASSETS LIABILITIES Bills payable Borrowings From Banks Deposits and Other Accounts Liabilities Against Assets Subject to Finance Lease Deferred Tax Liabilities Other Liabilities Share Capital Reserves Un-Appropriated Profit Minority Interest

100.00 100.00 100.00

2006
100.00 100.00 100.00

2007
117.59 84.23 104.95

2008
90.99 95.41 115.52

2009
149.36 158.11 121.93

2010
270.52 165.20 141.60

100.00 100.00 100.00 100.00 100.00

105.14 56.66 1065.20 233.08

109.31 56.66 941.90 332.61

114.37 56.66 1028.56 652.93

143.42 56.66 1139.33 853.78

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Surplus on Revolution Assets TOTAL LIABILITIES

of

100.00 100.00

120.56 106.94

113.25 116.36

109.38 129.66

107.24 150.82

Source: Annual Reports of MCB from 2006-2010 Cash & Balances position of MCB reflects that during year 2006 to 2008 remained low as compared with the year 2003. However it substantially increased in year 2009 & 2010.Position of MCB reflects that during year 2010 it remained highest as compared with the previous years. However, its a better position of a bank Advances are increased after decline because of quality lending of MCB by introducing attractive products. Advances are increase till 2008 and after 2008 advances portfolio decrease in 2009 & 2010 due to non performing loans. The figures of MCB are showing mixture trends in year 2007 it was highest while in layer years it remained consistent. At last, in year 2010 it became low as compared to initial year. Increase in investment shows the liquidity position of the MCB is strong and MCB have more ability to pay its short terms liabilities. MCB deposits are increasing every year and bank prefers to borrow from the depositors which are less costly than borrowing from banks. MCB deposit stable form 2006- 2008 but after 2009 deposits are going to decrease in 2009 & 2010 as a percentage. MCB deposits are increasing every year and bank prefers to borrow from the depositors which are less costly than borrowing from banks. MCB deposit stable form 2006- 2008 but after 2009 deposits are going to decrease in 2009 & 2010 as a percentage. Borrowing and other liabilities are increasing after 2008, while in year 2010 it became less as compared to year 2008 which means reduction in taking Debts by the bank. There is increase in Pre-tax & after tax profit which shows good management resulted as of good policies. Deferred taxes of the MCB are also going on decreases due to increase in fixed

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operating assets of the MCB which also affects on the advances portfolio of the MCB. During this period MCB need to increase its fixed operating assets due to IT & renovation revolution in the banking industry. MCB have increases its deferred taxes in the year 2010 due to decline in profitability. Operating fixed assets of the MCB shows in increasing trend since the year 2008 and after the year 2008 the operating fixed assets of the MCB shows slight declining trends due to more investments in securities in order to make the MCB more liquid to meet the short terms liabilities. Lending to financial shows a decreasing trend as it going to decreasing continuously since 2006 and decreases heavily in 2010. This decrease in lending to financial institutions is due to decreasing trends in deposit and increasing trends of the investment in the securities by the MCB. The figures of MCB are showing declining trend which is a good sign from the stability of the organization. Share capital of the MCB shows a declining trends and continuously decrease from 2006-2010 where as capital reserve increase in 2010 as compare to the base year 2005. Increase in capital reserve by the MCB shows healthy financial position and liquidity position of the MCB.

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7.2 Horizontal Analysis of Income Statement


Table 7.2: Horizontal Analysis of MCB Income Statement for the Year 2006-2010 Figures in % 20 Description: 06 10 Markup/Return/Interest Earned 0 10 Markup/Return/Interest Expensed 0 118.92 220.59 317.57 89.73 161.07 218.72 250.84 2007 2008 2009 2010

Provision Against Non Performing Loans & 10 Advances 0 38.88 61 58.63 167.22

Provision Against Off Balance Sheet Obligations & 10 Others Provision Investments Against Diminution In Value 0 Of 10 0 10 Bad Debts Return Off Directly 0 10 Net Markup/Interest Income After Provisions Non-Markup/Interest Income 10 Fee, Commission & Brokerage Income 0 10 Income/Gain On Investments 0 10 Income From Dealing In Foreign Currencies Other Income 0 10 94.12 160.90 123.74 144.97 102.68 181.15 132.80 205.14 139.19 39.53 22.49 25.87 117.42 137.69 182.53 160.91 0 133.30 262.08 330.67 274.91 (98.87) (53.98) (8.96) (55.12) 126.34 28.49 (10.05) (12.08)

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0 10 Total Non Markup/ Interest Income Non-Markup/Interest Expense 20 Description: 06 10 Administrative Expenses 0 10 Other Provisions/ Write Offs-Net 0 10 Other Charges Staff Welfare Fund 0 10 Total Non-Markup/Interest Expense 0 10 Profit Before Taxation Taxation 10 Current Year 0 10 Prior Year 0 10 Deferred Year 0 10 Profit After Taxation 0 146.11 221.92 299.93 200.15 147.21 27.21 (101.30) (342.07) 77.91 (2438. 95) 825.60 (8034.98 ) 9815.26 1435.14 1373.55 (265148.9 7) 0 140.51 240.67 329.61 240.02 131.28 135.21 162.91 169.58 36.37 3301.07 2605.40 411.66 76.71 77.99 38.37 (86.47) 133.26 136.67 166.76 177.42 2207 2008 2009 2010 0 130.79 92.45 98.85 102.73

Source: Annual Reports of MCB from 2006-2010

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While analyzing net Mark up income/Interest income in comparison with profit before taxation, it has been noted that income under this head is showing inclining tend which Provision is made in accordance with the requirement of prudential regulations issued by State Bank of Pakistan and charged to the profit & loss Account. After the year 2006 provision for Bad Debts are going increase to increase in nonperforming loans after 2008 MCB management controls over the bad debts due to strict credit policy as a result provision for bad debts going to decrease in years 2010 as compared to year 2009. expenses under this head, it has been noted that expenses are showing decreasing trend. During 2008 more expenses were incurred under this head. Profit of MCB is constantly increasing till 2007 and amount of tax is also increasing simultaneously, which is beneficial for the Federal Government and after 2009, the profit of MCB declines in 2010 and as a result tax amount also decrease. MCB administrative expenses are also increasing constantly till 2007 and after 2007 administrative expenses in 2008 decrease till 2010. This increasing and decreasing trend of administrative expenses vary with the increasing and decreasing trends of the MCB profitability.

7.3 Vertical Analysis of Balance Sheet


A method of financial statement analysis in which each entry for each of the three major categories of accounts (assets, liabilities and equities) in a balance sheet is represented as a proportion of the total account. The main advantages of vertical analysis is that the balance sheets of businesses of all sizes can easily be compared. It also makes it easy. Vertical analysis also called component percentages indicate the relative size of each item included in a total. For example each item on a balance sheet could be expressed as a percentage of total assets. This shows quickly the relative importance of each type of 66

assets as well as the relative amount of financing obtained from current creditors, long term creditors and stockholders. Another application of vertical analysis is to express all items in an income statement as a percentage of net sales. Such a statement is called a common size income statement. Formula for vertical analysis % change = Particular Item value *100 Base Value

7.3Vertical Analysis of MCB Balance Sheet for the Year 2006-2010

Vertical Analysis of Balance Sheet


Assets Items/Years Cash & Balances with Treasury Banks Balances with other Banks Lending to institutions Investments Advances Operating Fixed Assets
1.63 2.35 0.39 2.52 100.00 2.82 2.18 0.31 100.00 2.09 0.49 3.76 100.00 2.07 0.93 3.87 100.00

Figures in %
2006
6.35 4.67 5.20 36.53 42.23

2007
6.87 5.16 0.81 28.02 53.88

2008
6.52 4.60 2.42 20.35 60.78

2009
8.20 4.17 1.16 20.54 59.58

2010
8.46 2.98 0.25 26.21 55.23

Financial

Deferred Tax Assets Other Assets TOTAL ASSETS LIABILITIES Bills payable

0.74 2.65 100.00

2006
1.44

2007
1.58

2008
1.13

2009
1.66

2010
2.58

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Borrowings From Banks Deposits and Other Accounts Liabilities Against Assets Subject to Finance Lease Deferred Tax Liabilities Other Liabilities Share Capital Reserves Un-Appropriated Profit Minority Interest Surplus on Revolution of Assets TOTAL LIABILITIES

7.27 82.92

5.72 81.38

5.96 82.32

8.86 77.98

7.96 77.85

2.92 2.80 0.38 0.68 0.05 1.54 100.00

2.87 1.48 3.74 1.48

2.74 1.36 3.04 1.94

2.58 1.22 2.98 3.42

2.78 1.05 2.84 3.84

1.74 100.00

1.50 100.00

1.30 100.00

1.10 100.00

Source: Annual Reports of MCB from 2006-2010 Cash & Balances position of MCB reflects that during year 2006 to 2008 remained low as compared with the year 2003. However it substantially increased in year 2009 & 2010.Position of MCB reflects that during year 2010 it remained highest as compared with the previous years. However, its a better position of a bank. Advances are increased after decline because of quality lending of MCB by introducing attractive products. Advances are increase till 2008 and after 2008 advances portfolio decrease in 2009 & 2010 due to non performing loans. MCB deposits are increasing every year and bank prefers to borrow from the depositors which are less costly than borrowing from banks. MCB deposit stable form 2006- 2008 but after 2008 deposits are going to decrease in 2009 & 2010 as a percentage. Borrowing and other liabilities are increasing after 2008, while in year 2010 it became less as

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compared to year 2008 which means reduction in taking Debts by the bank. There is increase in Pre-tax & after tax profit which shows good management resulted as of good policies. The figures of MCB are showing mixture trends in year 2007 it was highest while in layer years it remained consistent. At last, in year 2010 it became low as compared to initial year. Increase in investment shows the liquidity position of the MCB is strong and MCB have more ability to pay its short terms liabilities. Deferred taxes of the MCB are also going on decreases due to increase in fixed operating assets of the MCB which also affects on the advances portfolio of the MCB. During this period MCB need to increase its fixed operating assets due to IT & renovation revolution in the banking industry. MCB have increases its deferred taxes in the year 2008 due to decline in profitability. Operating fixed assets of the MCB shows in increasing trend since the year 2008 and after the year 2008 the operating fixed assets of the MCB shows slight declining trends due to more investments in securities in order to make the MCB more liquid to meet the short terms liabilities. Lending to financial shows a decreasing trend as it going to decreasing continuously since 2006 and decreases heavily in 2010. This decrease in lending to financial institutions is due to decreasing trends in deposit and increasing trends of the investment in the securities by the MCB. Share capital of the MCB shows a declining trends and continuously decrease from 2004-2008 where as capital reserve increase in 2010 as compare to the base year 2006. Increase in capital reserve by the MCB shows healthy financial position and liquidity position of the MCB.

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7.4 Vertical Analysis of Income Statement


Table: 7.4 Vertical Analysis of Income Statement of MCB for the Year 2006-2010 Description 200 Items/Years Markup/Return/Interest Earned 6 100 28. Markup/Return/Interest Expense 59 73. Net Markup/Interest Income 56 25. Provision Against Non Performing Loans & Advances 61 2.3 Provision Against Off Balance Sheet Obligations 7 Figures in % 200 7 100 24. 57 75. 98 10. 37 3.1 4 0.8 Provision Against Diminution In Value Of Investments 0.8 3 0.4 0.2 6 9.2 6.78 0.108 0.032 5 0.1 7 200 8 100 22. 66 78. 28 70.34 29.66 2009 100 201 0 100 37. 24 62. 76 16. 88 0.1 1

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42. Net Markup/Interest Income After Provisions 62 10. Fee, Commission & Brokerage Income 73 18. Income/Gain On Investments 45 5.6 Income From Dealing In Foreign Currencies 1 5.9 Other Income 4 40. Net Non-Markup/Interest Income Expenses 51. Administrative Expenses 35 32

62. 75 13. 79 23. 27 6.0 2 11. 1 58. 69 68 9.0 8 5.3 4 4.3 4 5.5 3 23. 11 18.2 5.16 2.6 1.87 8.56 63.69

46. 17 6.5 8 1.8 8 2.9 4 5.0 9 16. 49

75. 73

43. 58 38.7

35. 9 -

1.6 Other Provisions/ Write Offs 8 0.1 Other Charges 1 60. Net Non-Markup/Interest Expense 35 1.5 Staff Welfare Fund 1 28. Profit Before Taxation Tax 71 7.6

1.3 5 0.0 4 76. 84

0.7 7 0.2 1 44. 09 39.12 0.13 0.29

0.5 7 0.1 7 35. 51

5.1 -39. 82 8.1 6 42. 4 12. 42.77 14.18 4.08 27. 15 10.

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2 21. Profit After Taxation 09 0.0 Minority Interest 3 5.8 Earnings Per Share Source: Annual Reports of MCB from 2006-2010 2

5 31. 67 0.4 9 8.3 5

95 29. 83 0.2 6 13. 98 18.41 28.59

52 16. 63

14. 61

While analyzing net Mark up income/Interest income in comparison with profit before taxation, it has been noted that income under this head is showing inclining tend which reflects that MCB earned profit less from other business. Provision is made in accordance with the requirement of prudential regulations issued by State Bank of Pakistan and charged to the profit & loss Account. After the year 2006 provision for Bad Debts are going increase to increase in non performing loans after 2008 MCB management controls over the bad debts due to strict credit policy as a result provision for bad debts going to decrease in years 2010 as compared to year 2009. analyzing the expenses under this head, it has been noted that expenses are showing decreasing trend. During 2006 more expenses were incurred under this head. Profit of MCB is constantly increasing till 2006 and amount of tax is also increasing simultaneously, which is beneficial for the Federal Government and after 2009, the profit of MCB declines in 2010 and as a result tax amount also decrease. MCB administrative expenses are also increasing constantly till 2007 and after 2007 administrative expenses in 2008 decrease till 2010. This increasing and decreasing trend

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of administrative expenses vary with the increasing and decreasing trends of the MCBs profitability.

7.5 Ratio Analysis


Ratio Analysis is an excellent method for determining the overall financial condition of company. It puts the information from a financial statement into perspective, helping to spot financial patterns that may threaten the health of the company. Ratios are also very useful for making comparisons between companies relevant to the same industry. The analysis of financial statements can provide reasonable insight into a firm's state of affairs. But the statements have inherent limitations, which require care and prudence in their uses.

7.6.1 Liquidity Ratios


Current Ratio

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Current ratio measures the extent of which a firm can meet its short-term obligations.
Table 7.5

Current Assets Year Current Liabilities 44,602,846 49,885,889 47,837,824 33,215,308 47,852,225 52,863,178 51,360,563
35,950,130

Current Ratio

(Rupees in '000)

2007

0.894

2008

1.440

2009

0.905

2010

1.428

Source: Annual Reports of MCB from 2006-2010 The current ratio is a measure of liquidity. It helps us to answer the question: If a business had to pay off all its current liabilities tomorrow, would it have enough current assets to make the payments and avoid insolvency? if the current ratio is less than 1, it is in danger of failure. If the ratio is high, perhaps above 2, the business has more than enough current assets. And these surplus funds can be used to improve efficiency. Ideal current ratio for any business entity is 2:1 just enough to be getting on with.

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1.60% 1.40%
Net Working Capital
Table 7.6

1.20%
Current Assets Current Liabilities 44,602,846- 49,885,889 Working Capital (Rupees in '000) (5,283,043) 14,622,516 (5,010,953) 15,410,433

Year

1.00% 0.80% 0.60% 0.40% 0.20%


75 0.00%

2007 2008 2009 2010

47,837,824 - 33,215,308 47,852,225 - 52,863,178 51,360,563 - 35,950,130

Source: Annual Reports of MCB from 2006-2010 Company faced difficult times in 2007 and 2009 in terms of working capital availability. Year 2008 and 2010 working capital gives the company a good signal towards having good times in future.

2007

200

20,000,000 15,000,000
7.6.2 Leverage Ratios
Debt to Equity Ratio

10,000,000 5,000,000

It shows the ratio of funds provided by creditors versus by owners. A high debt to equity ratio could indicate that the company may be over-leveraged, and should look for ways to reduce its debt.

0 -5,000,000
Total Debts / Total Equity
(Rupees in '000)

Table 7.7

Years 2007

355,353,519 / 57,547,322 = 6.17

-10,000,000 2007
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F r 7 igu e

2008 2009 2010

385,153,625 / 60,132,133 = 6.40 439,483,714 / 69,740,013 = 6.30 488,348,404 / 79,204,209 = 6.16

Source: Annual Reports of MCB from 2006-2010 Company is facing heavy net losses every year due to financial expenses, low sales and high input costs. In order to give cover to these losses sponsors have to extend the credit facility to keep the Bank operational and to avoid insolvency. For that reason debt to equity ratio is rising year by year.

6 .4 6 5 .3 6 .3
Total Assets Ratio It shows the ratio of total funds that are provided by creditors.
Table 7.8

6 5 .2

Years

Total Debts / Total Assets

6 .2
77

(Rupees

6 5 .1

in '000)

2007 2008 2009 2010

355,353,519 / 412,900,841 = 0.860 385,153,625 / 445,285,758 = 0.864 439,483,714 / 509,223,727 = 0.863 488,348,404 / 567,552,613 = 0.860

Source: Annual Reports of MCB from 2006-2010 Debt to Equity ratio shows the leverage position of the company and defines that how much company should have the optimum leverage to avoid insolvency problems and issues. It measures how much the capability the company has to pay off its debt. Debt to

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asset

ratio

is

almost

constant

for

these

four

years.

0.865 0.864 0.863


Times Interest Earned (Interest Coverage) Ratio This ratio reflects the no. of times before tax earnings cover interest expense. It is safety margin indicator in the sense that it shows how much of a decline in earnings the company can absorb.

0.862 0.861

0.86 0.859
79

Times Interest Earned Ratio = Earnings before interest & taxes Interest Expense
Table 7.9 EBIT Year Interest Expense
22,526,311

Times Interest Earned Ratio (Rupees in '000) 3.70

2007

6,079,342 21,886,740 8,511,413

2008

2.57

2009

23,154,945 10,944,304 26,253,075 13,248,643

2.11

2010

1.98

Source: Annual Reports of MCB from 2006-2010 It is usually quoted as a ratio and indicates how many times a company can cover its interest charges on a pretax basis. MCB bank constantly decreasing this ratio.

4 3.5 3 2.5 2 1.5 1 0.5 0

2007 2008 2009 2010 Figure 7.5 - Times Interest Earned Ratio

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7.6.3 Activity Ratio


Total Assets Turnover Ratio This ratio tells us whether a firm is generating a sufficient volume of business for the size of its asset investment. The higher the ratio, the more efficiently the company is utilizing its assets to generate sales.
Table 7.10 Sales Year Total Assets 2007
31,791,754 412,900,841 40,049,505 445,285,758 51,616,007

Total Assets Turnover Ratio

0.076

2008

0.089

2009

509,223,727 54,821,296

0.101

2010

567,552,613

0.096

Source: Annual Reports of MCB from 2006-2010 Companys asset turnover ratio is showing not enough increasing year by year due to the depreciation charge on various assets reducing assets book value. Sales are almost stagnant because of stagnant demand in the market. 0.12

0.1 0.08 0.06 0.04 0.02 0 2010 Figure7.6 - Total Assets Turnover Ratio 81 2007 2008 2009

7.6.4 Profitability Ratios


Net Profit Margin The profit margin tells you how much profit a company makes for every $1 it generates in revenue or sales. Profit margins vary by industry, but all else being equal, the higher a company's profit margin compared to its competitors, the better. It measures Aftertax profits per Rupee of sales

Table 7.11

Years 2007 2008 2009

Earning After Interest & Taxes / Net Sale


16,441,670 / 412,900,841 = 0.039 15,323,227 / 445,285,758 = 0.034 15,665,403 / 509,223,727 = 0.030

(Rupees in '000)

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2010

16,872,126 / 567,552,613 = 0.029

Source: Annual Reports of MCB from 2006-2010 Net profit margin remains constant for first three years and in 2010 decreased for the reason of low sales volume, high input costs and huge financial expenses on account of heavy borrowings.

0.04 0.03 0.02 0.01 0 2007 2008 2009 2010

Figure 7.7 - Net Profit Margin ratio

Gross Profit Margin Ratio It measures profitability without concern for taxes and interest. The gross profit margin measures the total margin available to cover operating expenses and yield a profit.
Table 7.12

Years 2007

Earnings before Interest & Taxes / Net Sale (Rupees in '000)


22,526,311 / 412,900,841 = 0.0545

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2008 2009 2010

21,886,740 / 445,285,758 = 0.049 23,349,146 / 509,223,727 = 0.045 26,509,636 / 567,552,613 = 0.046

Source: Annual Reports of MCB from 2006-2010 Best ratio of 0.545 in year 2010 indicates that management is doing efforts to improve the financial status. Since all revenue from operations is generated from the company's assets, thus this ratio to be considered very important. The company performed well in 200 and 2008 than current year comparatively.

0.06 0.05 0.04 0.03 0.02 0.01 0 2007 2008 2009 2010

Figure 7.8 - Gross Profit Margin Ratio Advance to Deposit Ratio

The amount of a bank's loan divided by the amount of its deposits at any given time. The higher the ratio, the more the bank is relying on borrowed funds, which are generally more costly than most types of deposits. Advances to Deposit Ratio= Total advances/ Total deposits Table 7.13 Years 2007 Total advances/ Total deposits 258,306,053 / 404,629,059 = 0.6384 (Rupees in '000)

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2008 2009 2010

316,881,635 / 432,545,165 = 0 .7326 349,432,685 / 459,140,198 = 0 .7611 382,172,734 / 531,298,127 = 0 .7193

Source: Annual Reports of MCB from 2006-2010 As shown in the fig below the Advances to Deposit ratio is showing healthy growth, it was 63.8% in 2007 and it becomes 71% in 2010. This increase reflects that bank is playing its role in the economic growth of the country by providing main factor of production Capital. Due to increase in the advances the banks profitability also increased. Decrease in deposit to advances ration in 2010 as compared to 2009 is due to more non performing loans which are 10 % of the advances portfolio.

0.8 0.75 0.7 0.65 0.6 0.55 2007 2008 2009 2010

Figure 7.9 - Advances to Deposit Ratio

Cash to Deposit Ratio Cash deposit ratio is with reference to a bank's the ratio of average cash balance held against total deposits of a particular branch. Cash to Deposit Ratio= Cash / Deposit Table 7.14 Years 2007 2008 2009 Cash / Deposit
31,970,290/ 404,629,059 = 0.0790 33,051,049/ 432,545,165 = 0.0764 46,310,478/ 459,140,198 = 0.1009

(Rupees in '000)

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2010

55,487,664/ 531,298,127 = 0.1044

Source: Annual Reports of MCB from 2006-2010 In 2006 cash to deposit ratio was 7.66%, whereas in 2009 it increases to 10.44% of the deposit. It shows the bank is utilizing its assets more productively in investment. The cash in hand is the only asset on which there is no earning, by reducing this figure and utilizing it for investment is good approach of the management. Increase in cash to deposit ration is also due to increasing of the Bank Deposit 591 billion and increase in cash to deposit ration also shows that liquidity position of the MCB is healthy & sound.

0.12 0.1 0.08


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Earnings per Share

The portion of a company's profit allocated to each outstanding share of common stock. Earnings per share serve as an indicator of a company's profitability. When calculating, it is more accurate to use a weighted average number of shares outstanding

over the reporting term, because the number of shares outstanding can change over time. However, data sources sometimes simplify the calculation by using the number of shares outstanding at the end of the period.

Earnings per Share= Net Income / No of Ordinary Shares Table 7.15 Years 2007 2008 2009 2010 Net Income / No of Ordinary Shares
5,763,404 / 690,000 9,646,549 / 690,000 12,700,315 / 690,000 10,084,037 / 690,000

EPS
8.35 13.98 18.41 14.61

Source: Annual Reports of MCB from 2006-2010 Earnings per share are perhaps the most widely used of all accounting ratios. The trend is earning per share and the expected earnings in future periods are major factors affecting the market value of a companys share. The EPS share is encouraging for the investor. In 2007 EPS was 8.35 and in 2010 it becomes 14.61. Decline in EPS for the year 2008 as

20 compared to the year 2009 is due to the increase in nonperforming loans and decrease in 15 profitability of the MCB as compared to 2009. This consistent growth shows better 10 policies and utilization of available. 5 0 2007 2008 2009 2010 87

Figure 7.11 - Earnings per Share Ratio

CHAPTER # 8
CONCLUSION AND RECOMMENDATIONS 8.1 CONCLUSION
During the study of internship, I drew the following conclusions. MCB limited has implemented a SYMBOL system which promises the efficiency growth of the bank. MIS and computerization of branches has enhanced the efficiency of the bank. Delegation of authority, wide branch network with ATM installation and wide participation of employees in the decision making provides the bank a competitive edge. The bank provides a conducive environment for career growth. The bank pays a too low rate of interest on deposits which in unattractive for its customers. There are too lengthy formalities and procedures involved in mortgage of properties offered as collateral to the bank. The MCB bank made substation progress, recording strong growth in revenues and earnings. The main derives were increase in outreach, strengthened human resources.

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Including changes at the senior management level, enhanced product portfolios, improved control and vigilant credit risk management. Our primary focus was our customers and we worked diligently through the year to increase satisfaction and loyalty as the needs and expectation of our diversified base of customers continued to expand. A key initiative aimed at including a segment based approach to the overall business was the segregation of the retail banking group into commercial and consumer banking groups. This expected to help the MCB bank in providing customer centric solution in a more group generated healthy deposit and strengthened its SME lending. o The profits of MCB have grown considerable during the last few years and this trend is expected to continue into the future. o Continuously change in the economic conditions of the country has affected the business of the MCB. No doubt the profit of the business is increasing but it is not increasing as such rate as the inflation rate is increasing.
o

Acceptability of credit card transactions in Pakistan is limited from the users' end because cash is still the most comfortable mode of transaction, because of cultural dislike for borrowing from the formal sector (issues of riba {interest] and easier access to informal channels,) and also because of the presence high denomination currency, which could be carried easily, and fear of transaction information being made available to the authorities giving rise to questions on sources of income.

o The other major drawback at MCB bank is the dissatisfaction of the employees

89

o Currently the MCB is the leading bank in ASIA but the advertisement campaign of the bank is not so much satisfactory if they do their advertisement campaign as other banks are conducting they can be in the better position in the world. o Therefore, we conclude the MCB has a very prosperous present and future, which assures the shareholders of wealth maximization.

8.2 RECOMMENDATIONS
o MCB Bank can improve its Marketing strategies to acquire more promotion and mass media publicity by the use of effective channels of promotions like TV, Newspaper Advertisements. It can also improve its magazine publication that it releases each month. o There is a criticism on the banking management that the salaries of the employees are decreasing in every succeeding year. confidence and working of the employees. o Bank must let potential customers know that all attractions for banking exist. This is done by advertising on television and obtaining press coverage, in conjunction with direct mail, window displays, leaflet in branches and in appropriate other locations (such as hotels, shops, etc.) and including leaflets in statement of accounts sent to existing customers in the hope that they will tell potential customers about the services provided by our bank. And I think this will shake the

90

o Staff turnover particularly of trained staff result in financial and other losses. The amount spent by the bank on employment, induction and training of outgoing officers constitutes to beat till another officer should ready prove this work. The exodus of bank officer in the past has worsened the situation. o The bank should try to give more loans to the small borrows as the past history shows that most of the loans given to the corporate borrowers have converted into bad debts. o Sitting arrangement, air conditioning and new furniture should be facilitated. o People can be motivated to save money by offering the deposit through various investment schemes. The rate of profit should increase 1% or 2 % it would be profitable step for bank. o The period of internship should be divided in to the number of department of the Muslim Commercial Bank Ltd. The internee should be given timetable mentioning the number of days he has to work at different places in the bank. On the first 4 days in each department internee should be given a lecture the officer of the department concerned about working of the department. o MCB is making good profits but giving less pay to their employees as compared to their competitors. So their salaries should be increased. o Currently the MCB has launched the Mobile banking which provides the loyalty to the customers, where you can check your statements, check the balances and you can pay your bills and many more but there is no effective advertisement in

91

this regard the bank must provide the all the information in this area to all the customers. o Where I did my internship there were no parking facilities. Any one has to park his/her vehicle on the road. Parking area for the bank must be specified or it must be hired from some property owner.
o

All Branches of the Bank must be online for improvement of internal control the system of compliance wing and surprise inspection system should work more effectively. I done internship, I recommend that security level in the bank should be enhanced especially where I got internship and operation of Mobile phones must not be allowed inside the Bank.

Working environment, equipment, furniture, and staff dressing should be according to the modern banking style.

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REFERENCES

o o o o o

www.MCB.com.pk http://en.wikipedia.org/wiki/History_of_banking http://en.wikipedia.org/wiki/Bank


http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ac19 http://accounting-financial-tax.com/2009/10/horizontal-vs-vertical-analysis-offinancial-statements/

http://www.quickmba.com/strategy/swot/

o MCB Annual Reports from 2006 to 2010 o Magazines of MCB

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o News Letters o MCB Brochures and Manuals

Appendix
MCB BALANCE SHEET (FIVE YEARS)
AMOUNT: RS. (IN MILLIONS) Assets 2006 Cash & Balances with 27639 Treasury Banks Balances Banks with other 20312 2007 31934 24005 3755 2008 33014 23304 12272 102984 307602 2009 46244 23532 6550 2010 55487 19558 1628

Lending to institutions Investments Advances

Financial 22595

158870 13032 7 183654 25061

115822 171932 335985 362260

94

2 Operating Fixed Assets Deferred Tax Assets Other Assets TOTAL ASSETS LIABILITIES Bills payable Borrowings Banks Deposits Accounts and 7111 3224 11523 43492 8 2006 6258 From 31610 10949 1825 11719 46512 6 2007 7359 26624 14265 11046 1577 50606 4 2008 5694 30160 416603 11802 2764 21217 56391 6 2009 9347 49980 13582 6119 25396 65596 2 2010 16929 52219

Other 360648 37849 7 -

439724 510662 -

Liabilities Against Assets Subject to Finance Lease Deferred Tax Liabilities Other Liabilities Share Capital Reserves Un-Appropriated Profit Minority Interest 12697 12178 1635 2953 233

13350 6900 17416 6883 8097

13879 6900 15400 9822 7606

14521 6900 16817 19281 7346

18210 6900 18628 25212 7202

Surplus on Revolution 6716 of Assets TOTAL LIABILITIES 43492 8

46512 6

50606 4

56391 6

65596 2

95

MCB INCOME STATEMENT FOR THE FIVE YEARS AMOUNT RS: (IN MILLIONS)

Particulars Net Income Net-provision Assets & Bad Markup/

2006 Interest 19272

2007 17292

2008 31041

2009 43685

2010 50481

Against 452 Debts

1571

128

(45)

(54)

96

Written Off

Net Mark Up Income After 7760 provision Total Non Mark Up Interest 10122 income Total Non Mark Up Interest (287) Expenses Staff Welfare Fund & Extra Ordinary Items Amortization Costs Profit Before Taxation Taxation Profit After Taxation Un-Appropriate profit B/F 1451 4018 12316 1201 Of Deferred 5469

10149

7173

2235

2643

13288

1368`6

17326

18106

1602

7684

13162

18840

15144

1814 5763 2986 7452

4246 9647 9822 7346 10152

6140 12700 5741 12081

5060 10084 17313 34193

Transfer From Surplus On 4254 Re-Valuation Assets Appropriations Un-Appropriated Profit C/F (1135) 3201 of Fixed

(1514) 5617

(2711) 9001

(2723) 17271

(4612) 3043

97