Chapter 1 Brief History

Chapter 1 BRIEF HISTORY A banker is described as a person transacting the business of accepting for the purpose Of lending or investment of deposits of money from the public, repayable on demand or Otherwise and withdraw-able by cheque, draft order. On 14th August 1947, 487 branches of different banks were operating in Pakistan. By 30th June, 1948, 282 branches winded up their business in Pakistan and the remaining 205 branches restricted their banking operations to a minimum level. The only bank, Which shifted its head office from Bombay to Karachi, was the Habib Bank Limited. Muslim Commercial Bank with the assistance of Quaid-e-Azam Mohammad Ali Jinnah, Started operating in July 9, 1947 with an Authorized capital of Rs. 3 crores. Indo-Pak Subcontinent, the Bank moved to Dhaka from where it commenced its business in August 1948. And in 1956 the bank shifted its head office to Karachi, where it is still working. In 1948 Ms. Ispahanani and Mr. Abdul Hameed Adamjee purchased the bank. At that Time the bank showed a historical performance and profit.

PURPOSE OF THE STUDY: The main reason for conducting this study is that it is a mandatory requirement for the award of bachelor’s degree in Business Administration at agricultural University Peshawar. Its purpose includes: 1.

To gather relevant information about MCB Bank Ltd.

2.

To observe, analyze and interpret the relevant data.

3.

To work in an organization for gaining practical experience.

4.

To develop interpersonal communication skill.

PRIMARY DATA: The sources used for the primary data collection are as follows: 1.

Personal observations

2.

Formal interviews with bank officers

3.

Informal discussions with the concerned officers of the functional departments.

SECONDARY DATA: The sources for secondary data used are as follows: 1.

Annual reports of the bank

2.

Manuals prepared by the banks for different purposes

2.

Magazines and Journals.

NATIONALIZATION: In 1974 the government felt a harsh need of nationalization of banks and financial Institution and the nationalization act was introduced. Under this act, Muslim Commercial Bank was the first bank, which was nationalized. In the same year Premier Bank was merged with MCB and it started work as a government bank. PRIVATIZATION: All the financial institutions and banks did not show good performance after Nationalization, and again the government felt a big need to privatize these banks. In 1991 the bank was privatized again.

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. OBJECTIVES OF MCB: Every organization is established to accomplish certain objectives. The main objectives of the MCB include: Improved Customer Service. Quick Disposal of Credit Claims. Efficient operation of the officers in co-operative environment. Communication with other branches. Controlling officers. COMMUNAL SERVICES: For the purpose of building high image in the community, the subject bank has contributed two crore rupees during 1997 for plantation in the country. It is providing free services to the charitable organization such as Edhi Trust, Shaukat Khanum Memorial Trust. Similarly it also sponsors recreational activities such as sports and refreshment. Programs have been sponsored during the recent past. PROVIDING EMPLOYMENT: Unemployment is our national problem. The bank is playing a very useful role to tackle it. MCB have a vast network of 1300 branches, with a staff of round about 16,000 people working in it.

MODERNIZATION OF BRANCHES: In order to attract the customer, huge expenditures were incurred on computerization of branches. In addition to telex and fax, the SWIFT system has been installed at particular branches for the sake of fast and less expensive communication throughout the SWIFT member countries. This is the sole privilege of MCB in our country. Further to it Auto teller Machines (ATM) has been installed at specific branches to ease the payment

procedure for the customers. LAUNCHING OF NEW PRODUCTS: MCB research development has also excelled the other competitors by offering some very special products, exactly in line with the needs of different classes of customers. Example is Rupee Traveler’s Cheque (RTC), Capital growth Certificate, PLS 365 Accounts, Mahana Khushali Scheme etc.

DECENTRALIZATION OF AUTHORITY: In order to avoid the unnecessary delay in decision making, MCB has adopted the policy of decentralization, where the General Manager, the Regional Manager and the Branch Manager have been empowered by the Head Office to make some important decision within the limit of their respective powers. This way a lot of problems faced by MCB customers are solved at the grass root level without referring it to the Head Office Karachi. Ultimately customer’s problems are solved well in time, which has resulted in tremendous growth of the bank in all aspects. EFFECTIVE USE OF ELECTRONIC MEDIA: For the first time in the banking history of Pakistan a very effective campaign was launched on TV, Radio, reputed newspapers, journals, bills etc. MCB changed its monogram, after a long trial of selection. Impressive slogans were developed, very modern and attractive ads were presented to the general public. Above all, the services of electronic media were hired in the prime time and the messages were repeated over and over again. As that was a take off point for MCB, therefore, very heavy expenditures were incurred, on development and repetition of some very useful and attractive advertisements. COMPATIBLE PACKAGE: After privatization the staff salaries have been revised three times. The first time was 35% , the second was 32%, and the last one was 20%. Now on the aggregate the

MCB worker is getting the most competitive salary and benefit package.

Chapter 2 BRANCH NETWORK

MCB is a huge organization, having branch network throughout the country. From management point of view the branches are grouped under regions, and regions under circles. 22 circles are working under which there were 50 regions and 1326 branches through out the country and five branches are working abroad. Province wise:

Province

No. Of Branches

Punjab

584

Sindh

211

N.W.F.P

105

Balochistan

34

Azad Jammu Kashmir

8

Domestic Total

942

Overseas

5

Total

947

DIVISIONS OF MCB Agriculture Division General Services Division Special Assets Management Group Business Development and Marketing Division HRD Division RTC and Master Card Division Central Accounts Division Industrial Credit Division O & M Division

Corporate Affairs Division Information Management Legal Affairs Division Credit Management Division Inspection and Audit Division Islamization Division Finance and Treasury Division Investment Banking Group International Division Training Division Foreign Trade and Exchange Operation Division.

ORGANIZATIONAL STRUCTURE

MCB is a very large and complicated organization having many divisions, branches, and administrative offices all over the country and outside the country. So it has no specific organizational structure, we can make so many structures on different basis which are given below; On the basis of Geographical Locations. On the basis of Executives. Span of Control

MCB is a very large organization with many branches in different areas of the country and different divisions under the Head Office. So it is managed through broad span of control with decentralization of authority. All the Executives, including Senior Executive Vice Presidents (SEVP`s), General Managers (GM`s), Regional Managers

(RM`s), Vice Presidents (VP`s), and Branch Managers are delegated with a certain amounts of authority. But still many decisions of small importance, are made by Top Management for control purposes. So there is a mix of centralized and decentralized authority in this respect.

GENERAL BANKING ACCEPTANCE OF DEPOSITS There are two basic principles of banking, first deposits and secondly advances. Deposits play a pivotal role in commercial banking. In deposits it could be initiated by the cash pay in slip when a customer enter into the bank he will fill up the pay in slip for which he must have an account to enter into a valid contract, which is called customer banker relationship. This contract could be launched of on opening job account. OPENING OF AN ACCOUNT:The banking history is reputed with various instances of fraud due to incorrect opening of account. Therefore, the branch manager and other officer had to taken care and exercised required precautions at the time of opening of account. At the time of opening of account, officers and manager should tactfully obtain as much information as possible about the character and integrity of the person. His / her correct name, address and occupation. This infect will be the only opportunity when they will be able to talk to prospective customer in the friendly and frank atmosphere. The customer can be classified as follows:I.

Individuals.

II.

Partnership firms.

III.

Joint stock companies.

IV.

Agents.

IV.

Societies and associations.

For opening of account, the person should meet the following requirements. He / She should be a major one. He / She should have attained the age of 18 and having allotted NIC No. He / She should be a sane person i.e. He / She should understand the terms and conditions of the contract. He / She must not be a bankrupt and his / her liabilities should not exceed than that of the assets declared by him / her. CLASSIFICATION OF DEPOSITS:Deposits can be classified in the following way:1.

Current Deposits.

2.

PLS Deposits.

1.

CURRENT DEPOSITS:These are those kinds of deposits which are not remunerative in nature i.e. no

profit is given on these deposits. There is no limit on withdrawal within the banking hours customer can present number of cheque. Every type of customer meeting the conditions of account opening can open these accounts. 2.

PLS DEPOSITS:- (profit and loss sharing) These are called remunerative deposits i.e. profit paying; to these account holder

profit is paid.

SCHEMES OFFERED BY MCB To inculcate the habit of saving among the people and public, MCB has introduced remunerative schemes, which include;

1.

Khushali Bachat Account:As the name indicates, this scheme has been started to encourage savings. The main features of this account are; Introduced for the first time in Pakistan. 8 % rate of return is given per annum. Return are calculated on daily product basis and paid half yearly. It provides the facility of helping the account holders to pay utility bills (electricity,

telephone and gas) through their accounts, without making any queues and delay.

2.

Mahana Khushali Scheme:-

MCB has introduced this scheme to encourage investment by paying profit month after month. The salient features of this scheme are:Khushali certificate can be purchased by individuals (singly or jointly), by the proprietorship / partnership concerns or companies etc. in their name. Minimum amount of investment shall be 10,000 and maximum amount can be 1,000,000. The Khushali certificate will be of five years maturity. 14. 70 % per annum profit is paid monthly. It is reviewed in 6 months.

DEDUCTION OF TAXES AN ZAKAT FROM PROFITS: At the time of payment of deposits amount including profits, either on maturity or before Maturity, the amount of withholding Tax and Zakat wherever applicable, will be

deducted in the prescribed manner.

Chapter 3 Cash Department Cash department performs the following functions. a.

receipts

b.

payments

a.

RECEIPTS The money will either come in or go out of the bank. Its record should be kept.

Cash department performs all these functions. The deposits of all customers of the bank are controlled by means of ledger account. Every customer has his own ledger account and separate ledger cards. b.

PAYMENTS Payments made by cash department can be easily explained under the following

headings.

CHEQUES Check is defined as a written order of a depositor upon a bank to pay to order of a designated party of to the bearer, a specified sum of money on demand. KINDS OF CHECKS 1.

BEARER CHEQUES It is cashable at counter of the bank, this check can also be collected through clearing.

2.

ORDER CHEQUES It is also cashable at the counter but its holder must satisfy the banker that he is the proper man to collect the payment of the check and he has to show his identity through an account holder of the bank. It can also be collected through clearing.

3.

CROSS CHEQUES It is not cashable at the counter; it can only be credit to the payees account. If there are persons having accounts at the same bank, one of the accountholders issues a cross check in favor of the other, this check will be credited to the account of the person to whom check was issued and debited from the account of

the person who issues the check.

ISSUING A CHEQUEKBOOK One of the functions of account opening department is to issue the check books. When any customer applies for a new checkbook he has to present the checkbook issue requisition slip with his two signatures to the officer concerned, the officer will verify the signature and on the verification of signature, the checkbook is issued. The saving account (PLS) checkbook consists of 10 pages while the current account consists if 20, 50, of 100 pages. An excise duty of Rs. 2 per leaf is charged. MCB RUPEES TRAVELERS CHECK (RTC) RTCs are used only in Pakistan. These are as good as cash because with RTC one has the power to purchase and a feeling of security as well. RTCs are acceptable at major shops, travel agents, hotels, business establishments and all MCB branches. One does not have to be a MCB account holder for purchasing RTCs. RTCs are a safe and convenient way to conduct every day business. The person goes to MCB branch and asks for the issuance of RTC. Then he deposits the money on cash counter and provides the receipt to RTC officer. He issues RTC in his name stamp. The buyer must sign the checks because if blank checks are lost, he will lose protection. RTCs are in two different denominations i.e. Rs. 10,000 and Rs. 50,000 per leaf. One can purchase RTC of Rs.50, 000 at maximum at one time from one branch. RTC should be counter signed on the space provided in check only at the time of encashment and in the presence of the officer of ecashing branch.

MAIL TRANSFER When a customer requests the bank to transfer his money from this bank to any other bank or the branch of some other bank in the city, outside the city or outside the country, the first thing he had to do is to fill an application form. In which he states that I want to transfer the money from this bank to that bank by mail. If the customer is the account holder of the bank, it will debit his account and the concerned officer will fill the six different forms to make the transfer complete. The five forms used for this purpose are listed below: 1

Branch mail transfer form.

2

Issuing branch register copy.

3

Debit voucher.

4

Beneficiary’s advice

5

Advice to customer. If the customer is not the account holder of this bank, then firstly, he has to deposit the money and then above procedure will adopted to transfer his money.

DEMAND DRAFT Demand draft is another way of transfer of money from one bank to another bank. Unlike pay order, a form is required to be filled for the issuance of the demand draft in which necessary particulars about the beneficiary and the sender are given. The sender deposits the amount of DD plus commission and other charges on the bank counter, from where he is given a receipt and in accordance with this receipt he is issues a demand draft. After issuing the DD, the remittance department sends credit advice to the branch to which the DD is sent, when the responsible branch receives the DD from the originating branch, they credit it, and when the DD comes for clearing they debit the account. MCB deals with two types of DDs.

1.

OPEN DD: Open DD is one which is payable directly at the counter and there is no need of crediting it to the account.

2.

CROSS DD: Cross DD is one which is paid through account. The amount of the DD is credited to the favoring account and then he can transact in ordinary way through check. DD charges in MCB vary proportionately with the amount of DD. In MCB different charges of DD in Pak Rupees are as follows: Up to 10,000 is 15% From 10,000 to 100,000 is 11% From 100,000 to 500,000 is 0.5% In addition to above charges a fixed excise duty of Rs. 2 per draft is charged.

TELEGRAPHIC TRANSFER (TT). With the changing requirements of customers, MCB has introduced a faster mode of transfer of money. Like DD the sender is required to apply through a form in which he will give all the necessary details about the sender and the beneficiary. The sender deposits the amount of DD plus commission and other charges on the bank counter, from where he is given a receipt, the remittance officials send a telegram to the concerned branch and they make payment to the customer. Vouchers are sent by ordinary mail to keep the record. On TT, no excise duty is charged only commission and telegram charges are charged

Chapter 4

INTRODUCTION TO ADVANCES

Credit extension is the most important activity for all financial institutions, because it is The main source of earning. However, at the same time, it is a very dangerous task Because of the risks. Now it is quite clear that risks cannot be eliminated but certainly be minimized largely with certain techniques. In order to reap the full advantages of credit and to make good decisions, the following aspects must be given due consideration.

A.

QUALITIES OF GOOD BORROWERS:A good borrower is also a good depositor, therefore, in order to conduct our test

we must analyze the 7 Cs qualities before extending credit, which are as follows. 1.

Character of the borrower:An individual has two types of character. A.

Moral character:-

We must certify whether the borrower is morally sound or not. For example, we must know whether he is a drinker, or is he a liar etc. A good borrower must have sound moral character. B.

Commercial Character:-

Here we look upon his dealings with the financial institutions of a business community. We guess the character of individual from his family background, his social community and from open market. In case of old customers, the record of accomplishment will guide us in the matter. Thus we may add that the sobriety, the promptness of payment, good habits and personality. The ability and willingness to carry a project from beginning to the end and reputation of the people, with whom he deals, will go to make the character of a customer. 2.

Capacity:It is the ability to meet obligations when due, secondly we must see whether, the

individual or business entity is having the borrowing capacity i.e. the individual is not a minor and in case of Limited Companies, the memorandum and articles of association allows the directors to borrows. Further to it, technical capacity should also be assessed.

3.

Capital:-

Capital is necessary because it is the main shock-absorbing portion of a business; secondly it compels the businessman to make all out efforts for success of the business. The capital should be adequate i.e. neither it should be more than his requirement to avoid the wastage of it, nor it should be less, otherwise he will not be able to run the business on full scale. In case of under utilized capacity, there will be less profit and consequently low repayment ability.

4.

Condition:Both economic and political conditions of the country must be heeded upon. In

case of bad economic condition of the industry, such as textile industry, financing will be very risky and similar is the case of political conditions. In case of adverse economic and political condition, the chances of recovery will be remote.

5.

Collateral:Collateral security is essential because in the case of failure of our above-cited

techniques, due to uncertain conditions, the bank will resort to the collateral securities, held against for realization of their outstanding.

6.

Country Risk:If there is political uncertainty, a war has broken in the country then realization of

loans will be difficult.

7.

Currency Risk:It should be wise to consider fluctuation of currency i.e. whether the subject

currency will appreciate or depreciate.

B.

QUALITIES OF GOOD LENDING An advance may be good or bad. However, a good lending must have the

following qualities.

i.

Safety:Safe lending is most essential. In case we make the decision purely on merit basis, then our lending will possess high degree of safety and the risks will be minimized to the least possible level.

ii.

Liquidity:Shorter the period of advance more liquid it will be consequently the risk of default will be minimum. Thus, working capital finances are more liquid then term loans.

iii.

Dispersal:It will be highly advisable to diversify your risk by making different types of industries and clients instead of one kind of customer. In such case, your risk will be spread over several sectors and in case of failure of one sector; the bank will not be faced with disaster.

PROCEDURE OF APPLYING FOR LOAN In MCB procedure for obtaining loan is: Any customer who applies for loan he/she should have an account (usually current account) with the MCB branch concerned. That account should be in running position because when applying for a loan, the branch prepares a proposal of his account. That proposal is sent to General Manager Office for necessary action. If limit comes under discretionary power of General Manager then he / she may approve. If it is above the limit of GM Office it is sent to Credit Management Division of Head Office. If the amount is above the power of Credit Manager Division then president of MCB, decides the case.

When the approval comes, bank gives terms and conditions to the party. The customer completes his documents and papers, required in approval letter. The bank does not advance 100 % loan against a security. Rather a 30 % margin is deducted from all the loans. The borrower has to provide some important documents i.e. a)

Two personal guarantees.

b)

Charge forms.

c)

Confidential Report.

d)

NIB non-interest Banking.

Charge forms are taken from party, if it turns bankrupt; the bank goes to court of law where this agreement helps. It is a printed and prescribed agreement. There are several types of charge forms in MCB i.e. IB6

A for term loan.

IB6 A

When loans are given to employee of some organization.

IB12

Promissory Notes.

IB25

This is letter of hypothecatio

Staff Loans The staff of MCB is provided different types of loans to maintain high levels of living standards. Following types of loans are provided to the staff members:1.

House building.

2.

Car loan.

3.

Motor cycle loan.

4.

Advance against provident fund balance.

5.

Advance against four basic salaries.

6.

Flood loans.

1.

House Building loan. It is for all employees against mortgage of property after completion of three

years of service. For clerical and non-clerical, it is free of interest. Where as for the officers it is free of interest up to four hundred thousand where as for the rest of a mark up at the rate 10 % is charged.

2.

Car loan. It is only allowed for the officers of the band. For a total amount of 180,000, at

the mark up of 10 %. 3.

Motorcycle loan. It is provided to all employees of the bank. The maximum amount of this loan is

55,000 and is free of interest. 4.

Advance against provident fund. It is provided to all employees against there 80 % of provident fund balance. It is

deducted every month. It is repayable within five years. The rate of interest is 10 %. 5.

Advance against four basic salaries. It is provided to the clerical and non-clerical staff and is repayable in one year.

The interest rate is 6% per annum. 6.

Flood loans. This facility is provided to the employees from scale 1 to scale 7 and to officer of

Grade 1 to Grade 3 whose house or property is damaged by rain. The amount of during 1996 was up to 20,000 rupees. It is interest free. It is deducted directly from the salary from the equal monthly installment.

GUARANTEE A guarantee is an under taking by a person to discharge the liability of another if and only if the letters fails to meet it in himself. It is a personal liability arising upon

promissory note. Guarantee means when third party assumes the liability for repayment of loan. . This facility is provided by the bank, that some times any government or party working in private sector needs a bank guarantee for the purpose that if the party defaults the bank will pay. In guarantee there are three main characters, these are 1.

Principal: the person who is taking loan.

2.

Financial Institution: it gives loan can also be called tender or creditor.

3.

Guarantor: it gives surety about repayment of loan for the principal.

There are two types of contract in guarantee. One is between principal

and

financial

institution which is a legal agreement binding by law. Second, one is between the financial institution and the guarantor. Guarantor responsibility is primary when the principal debtor commits default.

INDEMNITY It is a contract when a person by himself makes a commitment to save the other party from any sort of loss caused to him by his acts or acts of other people. In this case, two parties are involved that is financial institution and indemnifier. When a bank is providing the guarantee facilities, they require a counter guarantee from the applicant and this guarantee for safeguarding the interest of the bank. The counter guarantee provided to the bank from the applicant is in the form of undertaking. If the applicant defaults, the bank starts legal procedures. However, if the applicant is applying for a guarantee of one hundred thousand. Rupees and deposits a margin of the same amount. Then there is no need of the legal procedures. All the long funds based facilities in the end are considered as the fund based facilities. 0.4% per quarter commission for all type of guarantee issued in favor of different departments except collection of customers where the rate of commission is 0.6% per quarter. All the guarantees are issued for one year but where guarantee issued in favor of

SNGPL (Sui Northern Gas Pak Ltd) is for two years.

Chapter 5 FOREIGN EXCHANGE There is not a single country in the world, which is self-sufficient. There is constant inflow and outflow of goods and services from one country to another. When goods and services are exported to another country, the money is to be received from foreigners, and when they are imported, money is to be paid to them. The receiving or making payments to person, firm or government in foreign countries involves many problems. First, the transfer of the means of payments across national boundaries. Second the conversion of one country into that of another country. The problems of international payments would not have so diversified if there has been only one common currency acceptable in all countries of the world. As every country has its own measure of value; U.K., its pound, Germany its Mark, Japan its Yen, America its Dollar, Pakistan its Rupee, etc., so currency of one country is not legal tender in other countries. Thus the problem of the conversion of the currency of one country into that of other has arisen.

IMPORTANCE OF FOREIGN EXCHANGE Foreign exchange reserves show the financial strength and the stage of development of the economy. The acceptance of currency at a predetermined rate makes the international trade easy. The foreign exchange balances of a country directly affect the rates of exchange. A hard currency nation has stability in foreign exchange rate.

FOREIGN EXCHANGE MARKET A foreign exchange market is a place where foreign exchange transactions take place. In words of Kindle Berger, “foreign exchange market is a place where foreign moneys are bought and sold.” It is a part of money market in financial centers. In Pakistan there is no foreign exchange market as defined above. Here the most important component of foreign exchange market is Central Bank of the country or its authorized dealers. All exporters are required to surrender the foreign exchange earnings to the Central Bank of its authorized dealers within the specified period and then receive local currency in exchange of that. Similarly the importers have to pay for the imported goods. They can get the foreign exchange from the Central Bank or its authorized dealers for making payments to the exporter. SECURED ADVANCES: TYPES OF SECURITIES

STOCK EXCHANGE SECURITIES: Stock exchange securities include all securities issued by public and private enterprises, public authorities and Governments. Banker generally considers stock exchange securities as acceptable securities for advancing money. In case of necessity, such securities can be realized without much difficulty, and it is

comparatively easy to ascertain the value of most stock exchange securities. Similarly, it is easy to determine their title. Above all, some of these securities are fully negotiable. NEGOTIABLE SECURITIES: There are certain stock exchange securities which are considered fully negotiable. According to the Negotiable Instruments Act, a negotiable instrument mean a promissory note, bill of exchange or Cheques payable, either to order or bearer. In addition, certain other instruments are considered negotiable instruments by mercantile custom judicially recognized. Securities like bonds payable to bearer, share warrants, debentures payable to bearer, etc are treated a negotiable securities.

Financial statements Balance Sheet Assets Cash and balances with treasury banks

2008 39,631,219

2007 39,683,883

Balances with other banks

4,106,526

3,867,591

Lending to financial institutions

4,100,079

1,051,372

Investments – net

97,790,391

115,358,590

Advances – net

262,508,830

218,959,786

Operating fixed assets

17,320,485

16,082,781

Other assets – net

19,828,228

17,896,838

Total assets:

445,285,758

412,900,841

Liabilities Bills payable

10,551,468

10,479,058

Borrowings

22,663,840

39,406,831

Deposits and other accounts

330,245,080

292,088,347

Sub-ordinate loan Deferred tax liabilities – net

-

479,232

440,295

1,183,586

Other liabilities

21,252,942

11,716,465

Total liabilities

385,153,625

355,353,519

Share capital

6,282,768

6,282,768

Reserves

36,772,321

34,000,927

Inappropriate profit

11,065,723

7,054,472

Represented by:

Minority interest

69

63

Surplus on revaluation of assets

6,011,252

10,209,092

Total owner’s equity

601, 32133

57,547,322

445,285,758

412,900,841

2008

2007

Profit and Loss Account: Mark-up / return / interest earned

40,049,505

31,791,754

Mark-up / return / interest expensed

11,592,922

7,858,819

Net mark-up / interest income

28,456,583

23,932,935

Non-mark-up / interest income Fee, commission and brokerage income

2,878,663

Income earned as trustee to various funds

21,867

5,859

Dividend income

451,312

535,813

Income from dealing in foreign currencies 727,564

693,408

Gain on sale of securities – net

748,139

2,772,615

1,507,610

Unrealized loss on revaluation of investments Classified as held for trading (99,531)

(3,329)

Other income – net

1,201,834

1,002,160

Total non-mark-up / interest income

59, 298,48

6,514,136

34,386,431

30,447,071

Non-mark-up / interest expenses Administrative expenses

7,580,302

5,440,305

Other provisions

10,120

(3,743)

Other charges

920,991

642,780

Total non-mark-up / interest expenses

8,511,413

6,079,342

Profit before taxation

25,875,018

24,367,729

Taxation - Current year

7,387,345

6,463,560

Profit after taxation

18,487,673

17,904,169

Chapter 6 COMPARISON IN AUTO FINANCE BANK AL FALAH VS MCB Bank al falah has emerged as one of the leading commercial banks in the financial sectors of Pakistan. Charged with the strength of Abu Dhabi consortium the bank has already made signifying contribution in building and strengthening both the corporate and retail banking sector in Pakistan Designing our product portfolio in response to our customer’s preferences, our products like Royal Profit, Royal Patriot, Royal custodial, al Falah car financing Royal personal finance, AL Falah Rupee Travelers Cheques and AL Falah Home Loan are prime examples of quality innovation, providing timely banking opportunities to our customers. Product: Al Falah Car Financing Scheme. Eligibility:

1

Pakistani national identity card holder.

2

Over 20 years of age (max 60years in case of salaried and 62 in case of a

business person at the time of maturity of loan). 3

Salaried, businessman or self-Employed.

Available cars: A brand new Pakistani assembled/manufactured car (unregistered). Required documents with application form: 1

Our representative will discuss the documents you are required to submit in

detail. An indicative list is given below 2

Two passport size photographs.

3

Copy of N-I-C.

4

Bank statement for the last six months,

5

Salary certificate (in English) specifying the name, date of joining,

designation and salary details (for salaried individual). 6

Business proof (for the business person).

7

Current utility bill of your residence in Pakistan.

8

Copy of NIC card of the co-borrower (if the car is to be in the name of the

co-borrower). Limit of financing Amount: Minimum amount is Rs. 200,000/- and maximum amount is Rs.2, 000,000/-.

Tenure of loan: The loan can be availed from 1 year to 5 year with yearly adjustment facility at any time before the maturity. First down payment: 10% to 15% of the value of car

Markup policy: Our standard offer at variable rate is 8.5% mark-up at 10% equity. Similarly if you increase your equity the markup rate would drop. For example markup rate at 15% equity would be 8% only.

Markup

Markup

8.5%

10%

8.0%

15%

Other Charged: Rs 3000/- being amount of processing and documentation charges and first year insurance premium. Insurance Policy: Insurance rate is 4.25% (for petrol) Insurance rate is 4% (for diesel with tracker system) BENEFITS OF BANK AL FALAH CAR FINANCING

1

Easily affordable & flexible installments.

2

Flexibility of adjustment at any time during the tenure.

2

Quick processing

2

Minimum down payment

2

Minimum insurance

2

No hidden charges

2

Complete repayment at any point of time

2

Balance transfer facility (BTF) for existing as well as new clients from other

banks 2

Financing of all brand new locally assembled vehicles and used cars.

2

Tenure period ranging from 1 to 7 years.

2

Easily affordable installment on monthly basis in the from of postdated Cheques

will set you free of depositing your rental Cheques every month.

2

Acting as a co borrower, will enables your family members,( spouse, children-

18 years and above) to avail the financing facility and can get the car registered in their names as well.

MCB CAR FINANCE SCHEME Role of MCB in Financing: MCB’s role in financing is limited to the purchase of the vehicle only. MCB will finance a portion of vehicle cost (registration fee and other related expenses will not be part of financing Eligibility: 1

Pakistani national.

2

Not less than 21 years for businessmen, or 22 years of salaried personnel,

and would not be more than 70 years on the maturity of the facility of Auto Finance. 3

Salary/income is at least Rs.12, 000/- per month with monthly installment

not exceeding 50% of the take-home salary/income. 4

Businessman/self-employed person with a minimum experience of 1 year in

the same business/profession. 5

Permanent employee. For contract employees, 2 years on the job with the

current employer or 3 years of overall experience.

Start of loan processing: 1

TCO Cheques is dishonored.

2

The processing of loan application loan will start when all the relevant

documents are provided and terms and conditions are fulfilled. 3

Also along with the Cheques for total cash outlay (TCO) to MCB.

4

MCB reserves the right to reject any Auto Finance application without

assigning any reason.

Required Documents with Application Form: 1

Photocopy of your NIC.

2

2 recent passport size photographs.

3

Bank statement (at least 6 months).

4

Salary certificate with name, designation, and joining date and break

down of salary. 5

Tax assessment orders.

Selection of Vehicle/Dealer: MCB gives its customer the flexibility to select vehicle and MCB authorized dealer of their choice. Please ensure that the vehicle you have selected is in perfect condition at the time of delivery. The bank will not be responsible for any defects detected after you have not signed the delivery acceptance from. Please remember that delivery time cannot be controlled by the bank. Hence the bank will not be responsible for any delay in delivery that might surface. Processing Charges: 1

Application processing charges Rs.3500-

2

First total monthly payment (tmp)

3

Equity as applicable.

4

First year insurance premium.

Note: The deduction of the TMP will start soon after the insurance of pay order of vehicle cost. MCB is not liable to pay any profit on your down payment. You will also pay all external agency charges in case some external agency service is rendered to you. (note that charges are not refundable in case the services have already been rendered, even if the loan application is rejected. Please do not pay to any sales representative for any charges or services. All payment must via crossed Cheques to MCB. Markup Policy: Our standard offer at variable rate is 8.5% mark-up at 15% equity. However you can also pay the equity as low as 10% but the markup in that case would be 9%. Similarly if you increase your equity the markup rate would drop. For example markup rate at 40%+equity would be 7.55 only. If you opt for fixed markup, the rate charged would be 10.5%.

Markup

Down payment

8.5%

15%

8.25%

20%

8.00%

30%

7.75%

35%

7.5%

40%

MCB reserves that right to increase the mark up rate at any time during the tenure of financing. However you have the option to select either the fixed rate or the variable rate. Your pricing will be as per the option selected by you. Tenure of loan:

2

1-7 years (Semi-commercial vehicles).

3

1-5years (commercial/personal cars).

Note: You have the option to repay (fully or partially) the loan at any time during the tenure of the loan. You will, however, pay a charge if you make the repayment before the applied tenure. Also in order to make partial prepayment, you will have to pay a minimum of Rs. 25000-or 5% of total amount.

Insurance policy Insurance rate is 3.5

BENEFITS OF MCB CAR 4U 1

Option of financing or leasing

2

Competitive financing rates.

3

Flexible equity/rate options.

4

Financing tenure1-7 years.

5

Financing up to Rs.20 Lacs (depending upon income, vehicle

cost and down payment). 6

Low processing fee of Rs. 3500/-.

7

Valid or salaried personnel on contract.

8

Power to make early payments, twice a year.

9

Convenient access through more than 90 MCB branches.

10

Quick processing.

11

Independent service quality representatives to assist customers.

COMPARISON IN AUTO FINANCE MCB VS BANK AL FALAH

S .

Muslim Features

# 1

Product

Commerci al Bank Ltd Car Finance

Bank Al Falah Ltd

Remarks

Car Finance

Identical

Pakistani Nationals over 21 years at the maturity of car finance Minimum 2

Eligibility

Rs 12000/= per month

Pakistani NIC # Over age of 20 years & max 62 salaried, businessman

Age limit in MCB is 70 while in AL Falah its 62

salary & inst must more than 50% of salary Free choice is 3

Selection/Availabilit y cars

available to the customer to select dealer/car.

All brand new Pakistani assemble/manufactur e cars.

Both banks provide equal opportunity/choic e in the selection of car.

Photocopy of N.I.C, 2passport size photograph , bank 4

Required

statement

Documents

(at least of 6 months, salary certificate tax

Copy of N.I.C, two passport size photographs, bank statement for 6 months, salary certificate, business proof (business

Al Falah documentation list is lengthier than MCB

person), current utility bills,

assessment orders.

5

Limit of Finance

Max up to 20,000,00

The range of Max up to 20,000,00

financing is same

From 1to

The tenure of loan

7years for

offer by MCB is

passenger 6

Tenure

vehicles.

From 1 to 5years for

From 1 to

both vehicles.

5years or

Paper 7

charges

car financing . Rs 3500/=

beneficial for customer because in their financing

l vehicle. work for

more relax and

it provide variety

commercia

Documentation

amount of

The Paper work for car financing Rs3000/=

documentation on charges are also low of MCB from Bank Al Falah

8

Markup Policy

Markup

The markup

rate range

policy of MCB is

from 7.5%

Mark up rate range

providing more

to 8.5%

from 8.00% to 8.5%

choices to

depending

depending on the

customer in their

on the

amount of down

down payments

amount of

payment.

as compared to

down

bank Al Falah

payment

Ltd.

Insurance 9

Insurance

rate car loan 3.75%

MCB insurance Insurance rate on car

rate is low as

loan 4.25%

compared to bank AL Falah Ltd.

Chapter 7 SWOT ANALYSIS – MCB CREDITS MCB is one of the big give banks of Pakistan, which was privatized back in 1992. It has a strong advances / credits portfolio; Rs. 180,232 M as reflected in its latest balance sheet of Annual Report 2005. It has shown handsome rise in its advances over the years, despite the increasing competition and introduction of new banks and branches in the country. A brief SWOT analysis of MCB in terms of credits follows: STRENGTHS

MCB has a rich and old history of 58 years corresponding with the age of our country. This in itself is the fundamental reason why it is such a strong and sound financial institution. A sound image of MCB is there in the minds of the public and the customers think of it as stable organization to bank with. Building the tallest building in Pakistan by the name of MCB Tower is a clear indication that MCB is a market leader in the banking industry. It has incorporated state of the art technology and the latest equipment; symbolizing and maintaining the fact that it has always been the pioneer of the banking sector in terms of Information Technology. MCB with its vast network of above 1200 branches is another big competitive advantage that it has; very few do possess such a big set up. In terms of credits, all these are the starting strengths why MCB is able to advance out loans in the first place; customers are maintaining their long time relationships with the bank and new clientage is regularly brought in.

MCB has been different or special in its credit policies; the fact being the conservative policies it has adopted. It has been different than the other banks that have either been progressive or aggressive in their tactics and policies. The result has been the minimum or smaller bad debt portfolio that MCB claims to have as against the larger bad debt of its competitors. Moreover, its credits have been healthy and sound. MCB deposit base has always been strong to support its revenue (mark-up or commission) generating advances / finances. Its latest loan / deposit ratio has been 78.63 %, which in itself is a healthy percentage.

MCB employees are invaluable to the bank. A mix of experienced / seasoned bankers and younger well qualified individuals has been maintained. They are regularly briefed with any changes in bank’s policies owing to amendments in SBP regulations, turnaround in government policies, launching of new credits products and many other probable changes that they need to be updated with.

WEAKNESSES

MCB has been stable and constant in its policies; credits have been no exception. But in this fact has been reflected at times the rigidity and inflexibility of MCB’s credit policies. Changing market situation and growth of competition in the banking industry has not made the bank’s management to gear up or evolve to the changing times and growing needs of the hour. Much to say it has remained seemingly conventional in the fast times of today.

Accompanied with this fact has been the relatively slower processing of credit cases

much to customers’ dislike, and in comparison with the other banks’ speedy and quick process. The fact is due to the centralized setup that MCB maintains in terms of its decision making. Hardly decisions are made at the branch level, where the customer comes into interaction; hence the slowness and time consuming nature of the credits process at MCB.

Turnover of employees has also been a constant problem for MCB in the recent times. This has been especially the case with the younger lot of the bank, who have been able to capitalize on the trainings and growth that it had been able to gain at MCB, and eventually switching over. This is common in banking sector, but has been especially rooted in MCB owing to the defective HRM policies and lack of retention of young employees who could become key future managers and loyalist decision makers. All this has affected the bank in the broader sense; eventually how credits end up being done.

OPPORTUNITIES

Products have been offered by MCB only at the three big cities viz. Karachi, Lahore and Islamabad. A strong opportunity lies in the idea that these can be introduced in all the main cities of the country, if not into every city. Business Sarmaya and Pyara Ghar are typical examples of this opportunity.

Islamic Banking has been started by many Pakistani banks; in fact MCB’s Islamic Banking is limited only to a couple of cities. The growing trend of customers seeking out to such institutions breeds an opportunity for this bank to establish a strong foothold in this segment too. With this would initiate an R & D at MCB to design and tailor credits and deposits products for customers; paving way for a

door of opportunities for MCB to handsomely earn from.

THREATS

With the entrance and establishment of so many banks including foreign bank branches in the country, MCB will have to maintain its position in the industry and hopefully not succumb to this stiff competition. Some of the world’s top banks are planning to set-up branches in the country. MCB would be competing with top class financial institutions in the near times; by no means an easy task.

So many banks with so many products are they of credits or deposits, and so much to offer would be a definite threat to MCB and its top brains. It has to keep on evolving and marketing new products to survive and in fact keep on profiting highly and rising as it has been doing over the years.

Banks have been into so much specialization of job assignments in their banks. Employees are expected to do very specialized types of tasks; leading to increased efficiency and greater productivity. Credits have been broken into specialized parts in these banks; depending on the segment: SME, Corporate, Consumer, etc. Moreover division of labor has been done and this has made them seem very professional and efficient in the client’s perspective.

RECOMMENDATIONS

Banking sector in Pakistan has grown very fast in the past few years. The industry has shown immense growth, activity and progress. Banks have profited highly, consumers have been entertained and activity and growth has taken place in some other industries as well. Credits being important for every bank; an all important asset in its balance sheet and one earning the highest revenue in the form of markup and commissions on the income statement. For that matter MCB’s credit policies are important and key for how the bank would progress in the coming times. MCB is a conservative lender and credit policies are likewise. In this it claims that it has been able to maintain a healthy and sound portfolio of credits; prudent lending has resulted in regular finances, and a minimum of bad debts portion. In fact, MCB is earning much more than many of the other banks who have been on the aggressive side; those with a higher loan portfolio but a likewise sizeable bad debt portion. These competitors have higher loans / deposits ratios, making them face liquidity problems much sooner than they could anticipate. As a conclusion, MCB has been fairly good in its credit lines and policies. It has stood different than the others by staying conservative against being progressive or aggressive. It has focused on long term stability and growth, but with a simultaneous good short term progress.

Bibliography 1.

MCB Bank Ltd Annual report for the year 2005.

2.

Meiges, Robert F. (1999).Accounting: The Basis for Business Decisions.

Boston: Irwin Inc 3.

www.Lendingtree.com

4.

www.Bankrate.com

5.

Interest rate data are from the Federal Reserve Bank of St. Louis, U.S. Financial

Data. For the latest data, see www.Stlouisfed.org 6.

Loan Portfolio Management: Comptroller’s Handbook, Washington, D.C.,

Office of the comptroller of the Currency (April 1998) 7.

Dominick Salvatore (1996), Managerial Economics in a global economy,

International edition: North America. McGraw- Hill, Inc 8.

MCB Bank Ltd (2005).Manuals and Brochures.

9.

Koontz Harold. And Heinz Weihrich. (1993) Management. 10th Edition.

Singapore McGraw Hill. 10.

Interview with branch manager.

11.

Interview with cash department, credits and foreign exchange departments.

12.

H.E. Evit, Kindle Berger, Heartly Whither definitions about foreign exchange.

13.

www.Google.com.pk search for other data.

14.

MCB Bank Ltd. Bank Operation.

15.

MCB Bank Ltd. Department Manuals.

16.

Personal Observation during internship at MCB