Internship Report Mcb Bank Ltd

CHAPTER NO. 1 1.1

OBJECTIVE OF STUDYING THE ORGANIZATION

Following are the main objectives of selecting MCB Bank Limited for studying. 

To observe the finance system of the bank, to know how banks support the economy of the country.



To implement theoretical knowledge in practical field.



To understand the management system of the bank which consists of experienced professionals of the bank.



Want to scrutinize newly and highly integrated computerized system for doing banking transactions.



To know banks activities i.e. its services and products.



The bank is certainly one of the leading banks in Pakistan, the reason being I selected it for Internship and learning purpose.

1.2

ABOUT MCB

MCB is one of the leading banks of Pakistan with a deposit base of about Rs. 280 billion and total assets of around Rs.300 billion. Incorporated in 1947, MCB soon earned the reputation of a solid and conservative financial institution managed by expatriate executives. In 1974, MCB was nationalized along with all other private sector banks. This led to deterioration in the quality of the Bank’s loan portfolio and service quality. Eventually, MCB was privatized in 1991. During the last fifteen years, the Bank has concentrated on growth through improving service quality, investment in technology and people, utilizing its extensive branch network, developing a large and stable deposit base and managing its non-performing loans via improved risk management processes.

1.3

BRIEF HISTORY

At the time of independence in 1947 the banks services were very badly affected and by June 30, 1948, the number of offices of scheduled banks came down to only 81 in

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the territories comprising Pakistan; but by December 31, 1973 there were following 14 scheduled Pakistani commercial banks with 3323 offices all over the Pakistan and 74 offices in foreign countries. 1.

National Bank of Pakistan

2.

Habib Bank Limited.

3.

Habib bank (Overseas) Limited.

4.

United Bank Limited.

5.

Muslim Commercial Bank Limited.

6.

Commerce bank limited.

7.

Standard bank Limited.

8.

Australasia bank limited.

9.

Bank of Bahawalpur Limited.

10.

Premier bank limited

11.

Pak bank limited.

12.

Sarhad Bank limited

13.

Lahore commercial banks limited.

14.

Punjab Provincial Cooperative bank limited.

MCB was founded by ISFHANI and ADAMJEE families in Calcutta on July 9, 1947. MCB is not an overnight success story rather good track of services are responsible for the leaps and bounds progress. After the partition of the Indo-Pak Subcontinent, the bank moved to Dhaka from where it commenced business in August 1948.In 1956,the Bank transferred its registered office to Karachi, where the Head Office is presently located. Thus, the bank inherits a 52 year legacy of trust in its customers and the citizens of Pakistan.

MCB Bank Limited is one of the leading banks of Pakistan and continuously awarded “Best Domestic Bank in Pakistan” from 2002-2006 and also ranked in AA + Rating. The Management of the Bank maintained its strategy of concentrating on growth through improvement in quality services, investment in technology &

2

people, utilizing its extensive branches network, large & stable deposit base and managing its non-performing loans.

MCB Bank Limited is the only Bank in Pakistan who listed on London Stock Exchange and issued Global Depository Receipts (GDRs) worth 150 Million Dollars. MCB Bank is first ever in the history of the country to be listed on the London Stock Exchange for trading on the Professional Securities Market which is now being followed by NBP & Others. The Bank’s Registered Office is at MCB Building, F-6/G-6 Jinnah Avenue, Islamabad and Principal Office at MCB Tower, I. I. Chundrigar Road Karachi. Subsidiaries: The bank has two subsidiaries: 

Adamjee Insurance Company Ltd.



First Women Bank Ltd

In the late 1990 after long period of time newly established Democratic Government of Pakistan have decided to sell nationalized assets of country for better utilization. In April 1991, MCB became Pakistan’s first privatized bank. The government of Pakistan transferred the management of the Bank to National Group, a group of leading industrialists of the country by selling 26% shares of the bank.

In terms of agreement between the Government of Pakistan and the National Group, the group, making their holding 50% has purchased additional 24% shares. Now, 25% is purchased by the Government, which shall be sold in the near future.

The name of bank has been changed from MUSLIM COMMERCIAL BANK LTD to MCB BANK LTD. The name to change was felt due to the reasons that bank was mainly known and popular as a MCB BANK.

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1.4

NATURE OF THE ORGANIZATION

MCB is in it’s over 50 years of operation. It has a network of over 1026 branches all over the country with business establishments in Sri Lanka and Bahrain. The branch break-up province wise is



Punjab (57%)



Sindh (21%)



NWFP (19%)



Baluchistan (3%) respectively

Over 750 of which are automated branches, Over 197 MCB ATMs in 35 cities nationwide and a network of Over 12 banks on the MNET ATM switch. In 2005 the total No. of Employees are 9,377 and No. of Accounts are 4,248,399. In (2005, 2004, 2003, and 2001) MCB has received the Euro money award for the 4th time in the last 5 years. MCB won the "Best Bank in Pakistan". In 2000 and 2007 win the award of “Best Domestic Bank.” In 2004, 2005 also has win Asia Money awards for being "The Best Domestic Commercial Bank in Pakistan".

Vision Statement “Challenging and Changing the Way you Bank”. Mission Statement “MCB Bank’s team of committed professionals is dedicated to maintaining long term customer relationships through outstanding service and convenience”.

OUR VALUES

Trust “We are the trustees of public funds and serve with integrity & commitment. Ethical behavior is of critical importance to us. We adopt full compliance with internal and external policies and procedures, operating within the legal framework”.

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Customer Focus ‘We continuously seek to exceed our customer’s expectations, forging and maintaining long term relationships” Innovation “We strive to be the market leaders in innovative products and services offering customized financial solutions with flawless execution” Teamwork “The diversity of our people is our strength. We inspire and challenge each other – working together to achieve synergy” Achievement “Our people are our most valuable asset. We are committed to a result oriented culture. Our goals are clear and merit is the only criterion for reward” Social Responsibility “As responsible citizens we contribute to the social welfare of the community we live in.”

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1.5

Business volume of Muslim Commercial Bank:

Rupees in million

2003

2004

2005

2006

2007

Operating profit

6,656

6,746

13,830

20,069

20,856

Profit before taxation

3,612

4,057

13,018

18,500

21,308

Profit after taxation

2,230

2,431

8,922

12,142

15,266

Shareholders fund

11,108

14,552

23,307

40,844

55,120

Deposits from customers

211,511

221,069

229,345

257,461

292,098

Investments

128,276

67,194

69,481

63,486

113,089

Advances to customers

97,200

137,317

180,322

198,239

229,732

Total assets

272,323

259,173

298,776

342,108

410,485

Earnings (Rs)

7.28

7.21

21.36

23.40

24.30

Cash dividend (Rs)

1.25

1.50

1.50

2.00

2.50

Dividend payout ratio (%)

37.80

34.65

19.22

32.61

51.45

Net asset value at the year end(Rs)

36.24

43.16

55.64

74.76

87.73

Market value at the year end (Rs)

51.40

58.70

167.80

246.10

399.95

Capital adequacy ratio (%)

0.00

9.64

12.54

18.65

17.88

Profits

Balance sheet

Information per ordinary shares

Reference: The abovementioned data is taken from Annual reports of MCB and www.mcb.com.pk Analysis of Business volume of MCB: As we see last five years progress, the bank made substantial progress, recording strong growth in revenues and earnings. The profit is increased year by year due to vast business activities done by MCB i.e. deposits from customers, investments, as

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well as advances to customers and shareholders fund due to these funds the return is increased year by year. Due to increase in return share market value is also increased and earnings per share are also increased. This means people are more interested in investing in MCB due to high return. As we see year 2003, profit after tax was Rs. 2230/- but in 2007, this profit increases up to Rs. 15266/- only because of high investments and advances to customers. On other hand due to increase of business volume the dividend payout ratio as well as capital adequacy ratio also increases. So we can say the business volume of Muslim Commercial Bank increases year after year due to its good establishment and maintaining of adequate internal control and procedures for implementing strategies and policies by its management.

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1.6

NUMBER OF EMPLOYEES

MCB bank since its incorporation has the more potential bank not only for its customers but also for its employees. MCB

bank offering great working

opportunities for all the people who are interested to do job in MCB bank and with passage of time employees is increasing as its business volume is increasing because MCB bank provide enhanced career opportunities with dynamic work employees are motivated with higher salaries according to their education and experience level currently round about 9946 employees are working in MCB bank including contractual and permanent staff

Total numbers of employees

=

9946

STAFF OF THE BRANCH CONSISTS OF 13 MEMBERS DESIGNATION

NO OF EMPLOYEES

Branch Manager Operation Manager Customer Service Officer Credit Manager General Banking Officer Cashier Cash Officer System Administrator Gun Man Peons

01 Grade I 01 Grade I 01 01 Grade III 02 Grade III 01 Grade III 01 01 02 02

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1.7

PRODUCTS AND SERVICES

MCB ATM Services (a)

MCB ATM Card

MCB ATM Network is the largest and most advanced of its kind in the country, and is part of MCB's continuing efforts to provide customers with convenience that suits all requirements most. MCB ATM has operated globally. Card Categories MCB ATM Regular Card The MCB ATM Regular Card allows withdrawal of up to Rs. 10,000 per day and a maximum of 3 withdrawals per day per card. MCB ATM Gold Card The MCB ATM Gold Card allows withdrawal up to Rs. 25,000 per day and a maximum of 6 withdrawals per day per card. The cardholder has to make at least two transactions to withdraw the full amount of Rs. 25,000

BILL PAYMENTS: MCB easy bill pay offers unmatched convenience to pay utility and mobile phone bills or re-charge prepaid mobile phone accounts. MCB is the only bank that offers coustomers, 3 convenient options of making bill payments to PTCL, SSGC, KESC, Mobilink, and Ufone. MCB Smart Card or MCB ATM Card Holder can easily pay their bills or re-charge their prepaid mobile phone account.

ACCOUNTS Saving Account MCB’s Rupee Savings account is the most convenient way to manage savings. Its basic features are: 

Low average balance required 9



Profit is paid on customers account on a half yearly basis



Cash deposit and withdrawal facility at hundreds of MCB branches across Pakistan (conditions apply)



Withdraw cash through Pakistan’s largest ATM network.



Customer can use an account to pay bills 24 hours a day, 7 days a week through Virtual Banking

Current Account MCB’s Rupee Savings account is the most convenient way to manage savings. Its features are given as below: 

Low average balance is required. Unlimited free of cost transaction facility at concern branch. Profit is paid on account on a half yearly basis.

Term Deposit A MCB term deposit scheme is also valuable to suit customer’s requirement. Customer can avail on choice of 01 month, 3 months, 1 year, 2 years, 3 years, 4 years, and 05 years term deposit. Its benefit includes half yearly profit payment. Customer can avail credit facility up to 75% of total deposit.

Basic Banking Account In compliance with the directives of State Bank of Pakistan via BDP Circular No. 30, issued on November 29, 2005, the Basic Banking Account has been launched with effect from February 27, 2006. This product has been introduced to facilitate the low income group as well as the existing account holders who wish to convert their regular savings or current account into Basic Banking Account. The Basic Banking Account is a current account and can be opened with a minimum initial deposit of Rs. 1000/- only. Account holders will be allowed 2 deposit transactions (either cash or through clearing) and 2 withdrawals (cash or clearing) 10

each month. All customer-initiated transactions over and above this limit will be charged a transaction fee. Foreign Currency Accounts This account offers very attractive returns on Foreign Currency investment. Customer can open a foreign currency Savings account in any of the four currencies i.e. US Dollar, UK Pound Sterling, and Euro. Its features are as below: 

Unlimited transaction facility.



Low balance requirement .



Profit credited to account on a half yearly basis.



Account holder can avail a credit facility up to 75% of the total deposit value.

A foreign currency account can be opened at any of MCB foreign exchange dealing branches. SMART CARD / DEBIT CARDS By using of this product customer can manage expenses. MCB is the only bank to introduce a debit card that gives the option to choose from domestic and international cards for local and global usage respectively. MCB VISA: It provides the conventional credit card services in a manner that is superior in comparison. MCB Visa is the most secure, affordable and rewarding credit card. MCB Visa is accepted at all ATMs across Pakistan as well as at 27 million acceptance locations worldwide.

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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. LOANS Term Loans: An individual can gain and benefit the most through MCB Consumer Banking. MCB provide friendly, efficient and attentive personalized banking services - a unique banking relationship experienced by each MCB client. Working Capital Loans: Based on the customer’s 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. FINANCING Trade Finance MCB corporate banking provides a 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.

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INVESTMENT BANKING MCB’s Investment Banking Team has emerged as a leading player in Pakistan's Investment Banking arena. The Team handles advisory, corporate finance and capital markets related transactions. Within these areas, the team has developed expertise in: 

Private Placements



Debt/Equity Underwriting



Term Finance Certificates



Loan Syndication



Arrangement of Non- Fund Facilities



Mergers and Acquisitions



Corporate Advisory

MCB VIRTUAL BANKING MCB Virtual Internet is to manage and control customer’s banking and finances – when they want to, where they want to. MCB’s Virtual Internet Banking facility is 

Simple



Secure



Free of cost.

Individual Users/ Corporate Users MCB Virtual Banking - is a safe and convenient way to manage and control banking and finances. This service meets customer’s both (individual’s and corporate) essential banking needs. MCB Virtual Internet Banking is a fully Internet-based service, so customers are not required to download any additional software.

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CHAPETR No. 2 2.1

ORGANIZATIONAL STRUCTURE

MCB relies on strong, lasting relationship with its customers and on its reputation for stability and security for its continued process. MCB extends its philosophy to its technology strategy but not perusing technology for technology's sake. However, MCB learns from the mistakes of others especially in "consumer banking". We let others get in first, take the hit, and find out the flows. Said MCB officials - and has installed efficient and effective system for processing and delivering information. Some directors are the personnel of the MCB Bank and others are successful business person and executives of other major organization. Nineteen members are included in board of directors. 2.2

MAIN OFFICE DEPARTMENTS (HEAD OFFICE)

The head office is operationally in charge of central affairs including the delegation of powers and authority to the regional head quarters throughout the country. All the senior management team works in the Head office of MCB bank is situated in Karachi. And it’s all branches, regional offices, corporate branches and overseas branches and online branches and representative offices work according to rules and regulation set by the head office. Following are the departments that are working at head office: 

Administration



Credit Management



Investment Banking



Human Resource



Information Technology



Corporate Planning & Budgeting



Finance & Treasury



International Division



Inspection & Audit



Law Division

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

Marketing & Development



Trustee Division

Local Branch Network:

MCB Bank Limited has a vast network of 1026 branches within Pakistan. The network of 1026 branches enables the Bank to generate a substantial and stable deposit base, provide a wide range of banking products and other financial services and diversify lending risks geographically, as well as on the basis of credit and customer type. (Annexure-I attached) BOARD OF DIRECTORS OF MCB: An executive board comprises of 10 members in total Mr. Mian Muhammad Mansha is the Chairman of the board while Mr. Atif Bajwa has been designated as the President and the Chief Executive. The board supervises the affairs of the bank and also provides future guideline for progress and prosperity. Board of Directors

Mian Mohammad Mansha

Chairman

S.M.Muneer

Vice Chairman

Tariq Rafi

Member

Shahzad Saleem

Member

Sarmad Amin

Member

Dr. Muhammad Yaqub

Member

Mian Raza Mansha

Member

Dato' Mohammad Hussein

Member

Aftab Ahmad Khan

Member

Atif Bajwa

President / CEO

Audit Committee Tariq Rafi

Chairman

Dr. Muhammad Yaqub

Member

15

Mian Raza Mansha

Member

Dato' Mohammad Hussein

Member

Aftab Ahmad Khan

Member

Human resource Committee Mian Mohammad Mansha

Chairman

Dr. Muhammad Yaqub

Member

Mian Raza Mansha

Member

Shahzad Saleemn

Member

President

Member

Risk Management & Portfolio Review Committee Shahzad Saleem

Chairman

Tariq Rafi

Member

Sarmad Amin

Member

Mian Raza Mansha

Member

Aftab Ahmad Khan

Member

Committee on Physical Planning, IT System & Contingency Arrangements Sarmad Amin

Chairman

S. M. Muneer

Member

Mian Raza Mansha

Member

President

Member

Business Strategy & Development Committee Mian Mohammad Mansha

Chairman

S. M. Muneer

Member

Shahzad Saleem

Member

Mian Raza Mansha

Member

Dr. Muhammad Yaqub

Member

Dato' Mohammad Hussein

Member

President

Member

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Chief Financial Officer Ali Munir Auditor’s Riaz Ahmed & Co KPMG Taseer Hadi & Co Principle Office MCB 15 main Gulberg, Lahore Registrar's and Share Registration Office MCB 15 Main Gulberg, Lahore M/s. THK Associates (Pvt.) Limited State Life Building No.3, Dr. Ziauddin Ahmed Road, Karachi

2.3 ORGANIZATIONAL STRUCTURE OF MCB BRANCH AABPARA: Mr. Abdul Basit is acting as a branch Manager in Aabpara Branch Islamabad. Operational Manager Mr. Kaleem of the branch handled the 10 subordinates. This team is also headed by Mr. Abdul Basit.For effective handling of branch; it has been categorized into three segments with different people handling each category. These categories are: a) Foreign Trade Manager b) Operations Manager c) Credit Manager

A) FOREIGN TRADE MANAGER: Foreign trade manager is to responsible for exports and imports of funds. He is to responsible in front of branch Manager. 17

B) OPERATIONAL MANAGER; Operational Manager is to be responsible of : 

Accounts Department



System



Remittances



Clearing



General Services

C) CREDIT MANAGER: Credit Manager is to look after all credit facilities like , Term Loans, Running Finance facilities etc.

FIELDS OF ACTIVITIES OF MCB BRANCH AABPARA: The purpose of banks is to provide some services to the general public. The main functions and services which MCB Bank Limited Aabpara Branch provides to different peoples are as follows.

1) Open Different accounts for different peoples 2) Accepting various types of deposits 3) Accepting various types of deposits 4) Granting loans & advances 5) Undertaking of agency services and also general utility functions, few of those are as under: a) Collecting cheques and bill of exchange for the customers. b) Collecting interest due, dividend, pensions and other sum due to customers. c) Transfer of money from place to place. d) Acting an executor, trustee or attorney for the customers. ‘Providing safe custody and facilities to keep jewellery, documents or securities. e) Issuing of travelers cheques and letters of credit to give credit facilities to travel.

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f) Accepting bills of exchange on behalf of customers. g) Purchasing shares for the customers. h) Undertaking foreign exchange business. i) Furnishing trade information and tendering advice to customers.

* Annexure III attached

2.4

DEPARTMENTS OF MCB BANK

Organizations cannot function without proper arrangements for its specific takes and duties. “The process of grouping jobs according to some logical arrangements” is called departmentalization. MCB Bank Ltd is divided into five departments. Following are five types of the departments established in the said branch to facilitate the customers. 

Deposits Department



Remittances Department



Clearing Department



Advances Department



Foreign Exchange Department

Deposits Department: Deposit department is one of the most important and main department of the bank. It performs the vital function in the bank because it deals with the supply of money to the bank. Deposits are the inputs of a bank. Deposits department is just like a heat, as it function other department also run, otherwise the whole system paralysis. Each and every bank tries its best to increase their deposits. Deposits depict the financial strength of a bank. Muslim Commercial Bank Limited is a unique and crucial institution, which is able to increase credit in the country. 

Current account.

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

Saving account



Fixed account

Remittances Department: Remittance department performs the function of remitting funds i.e. to transfer funds for customers from one location to another. The transfer of funds may be from one branch to another or from one bank to another Remittances mean “the transfer of money or fund from one place to another place through bank”. It may be “inland remittance” or “Remittance” 

Within locality.



Out side locality.

Within Locality:When a branch situated in Islamabad is required to send the draft to any other branch situated in the same locality, the process will say to be within locality. I.e. MCB corporate branch Islamabad, send any draft to MCB Aabpara branch, this is known as within locality. Pay Order

Pay order is used for payment within the cities; the main purpose of pay order is to make payment in record this payment in the bank as evidence. Bank charge the commission for its services. The purchaser fill an application form, which includes the amount of payment or order, the name of the payee and complete address of purchaser and payee application form is also singed by the purchaser.

Outside locality:-

Outside locality is an important type of inland remittances. Outside locality means the transfer of money payable outside the city i.e. MCB corporate branch Islamabad,

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sent any draft to a branch situated in Peshawar city. It is commonly done through the following three means. (This report has been written on the experience and knowledge gained and applied for the analysis of MCB Bank Branch Islamabad.) 

Telegraphic transfer.



Demand draft



Mail transfer



Bank Draft

Telegraphic Transfer:

Telegraphic transfer is an important mode of remittance. It is the quickest mean of transferring the funds from one place to another place by the use of telephone or telegraphic. Now a day, new technology is used for this purpose i.e. fax, e-mail. The big traders and businessman use this method of remittance in this method of remittance the purchaser is not responsible for the dispatch. Demand Draft & Pay Order: For safe, speedy, and reliable way to transfer money, Muslim commercial bank Demand Drafts and pay orders are available for customers at very reasonable rates. Any person whether an account holder of the bank or not, can purchase a Demand Draft from a bank branch. A demand draft is an order drawn by a bank on its branch or on another bank in a different place requiring the later to pay on demand the sum of money specified in the draft. Pay order is just like demand draft except the pay order is made for local transfer of money whereas demand draft is meant for remittances of funds from one city y to another. Mail Transfer:

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Mail transfer draft is one of the bank modes of remittance. Mail transfer is issued by one branch of bank to another branch of the same bank by instructing to branch to pay the other branch by issuing mail transfer receipts. In M.T the purchaser is not responsible for dispatch, but the bank will be responsible for dispatch. Bank Draft: Bank draft is the most important type of remittance. Draft is an instrument issued by a bank. Draft is issued by one branch to another branch out of the city. The difference branches of same bank can issue the bank draft to each other and it is also called the banker cheques i.e. the main branch of MCB in Islamabad issued the draft to the MCB Peshawar. CLEARING DEPARTMENT: It is an association of banks; usually setup in a given locality for the purpose of inter-changing credit claims. Nearly, everywhere this function is performed the Central Bank of country. In Pakistan, the areas where there is no Central Bank branch the function of clearing house is performed by NBP. In undertaking the process of interchanging credit the following procedure is adopt in banking business, when a creditor ask for same payment, it is always the Cheque through which the payment is asked for, but there arise two situation when the payee asks for payment through Cheque. The payee may be account holder in the same bank. When the payee is an account holder in the same bank, then the Cheque is directly transferred from one A/c to other, and the total assets and liabilities of the bank remain the same. But in practice, it is often that the payee has A/c in some other bank. Then in such cases the payee deposits Cheque in his bank drawn on some other bank. The bank with which the Cheque is deposited becomes the creditor of the drawer’s bank. The debtor bank will pay this amount of the Cheque by transferring it from cash reserves if there is no offsetting transaction.

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The clearance house is the branch of Central Bank of Pakistan or NBP in case of area where no Central Bank Branch is available. The messengers of the various commercial banks gathered at the clearance house and transferring Cheque payable by other banks while collecting drawn on their banks. A summary sheet is prepared describing the number of Cheques received and delivered by a bank at the clearance house. Total of these in and out Cheques are collected. Then the difference with a given bank is paid or received from the account maintained at the Central Bank. Normally, the banks maintain two books for clearing house. 

Inward clearing book



Outward clearing book

FINANCES / ADVANCES DEPARTMENT: Besides deposits the other major function of the bank is to advance money to the client. This function of the bank contributes great deal to the revenues of the bank. Due to its importance for the banker’s success, this area is given special importance and attention. The primary purpose of this department is to encourage small business to take loans and help them in their business. The bank earns from the advancement of loan to the people or organization and charges a certain percentage of interest on it and bank earns profits. Besides deposits the other major function of the bank is to advance money to the client. This function of the bank contributes great deal to the revenues of the bank. Due to its importance for the banker’s success, this area is given special importance and attention. The bank also makes advances to small size businesses and construction companies etc. Many MCB branches are having department for granting advances to the borrowers.

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By Cash Credit: Through this credit facility, the bankers advances loan to the borrower after having tangible asset as a security. Main characteristics of this facility is that the total amount is not given to the borrower at one rather it is given in installments, or whenever required. The borrower has to pay the interest only on the amount outstanding against him. This credit facility is very liked by large commercial and industrial enterprises. The cash credit facility is given through hypothecation or pledging of goods. Some requirements in hypothecation: 

Custody of stock remains with the borrower.



Banks lien on the stock.



Stock hypothecated must be insured against ire etc.



Customer must submit the stock report on monthly basis.



Frequent stock verification to be done by MCB.



Bank may sent officers or staff in order to supervise verification.



Some characteristics of pledging assets against loan.



Stocks are pledged with the bank under banks lock and key.



Stock must be duly insured against fire and burglary.



On monthly basis stock report has to be prepared by the borrower duly incorporating delivery of goods, if any during the months.



Delivery of Goods / stock is made against cash payments.

By Discounting Bills Of Exchange: This credit is a very advanced form of advancing money / credit to the borrower. It is also termed as factoring. In this facility the bank purchases the bills of exchange from the borrower. The bank gives face value of the bill to the borrower after deducting interest on the remaining period required for the bill to mature.

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FOREIGN EXCHANGE DEPARTMENT: For international Business Transaction the banks utilize the services of its foreign exchange department. This plays very crucial and important role in International trade. The services which Foreign Exchange Department of the bank offer is the parallel banking with general banking, an additional function of important and export business controlled by State bank of Pakistan. After the closing down of the London operations prior to privatization, MCB was left with no foreign branches and operations. In 1994 as planned the bank opened up its international operations by inaugurating its branches in Dhakha and Colombo. More branches are operating in Pettah, Srilanka and Chittagang. Access to Middle East and Africa is in progress. In MCB its Foreign Exchange Department as per State Bank of Pakistan regulations carries out the Intentional Banking. The State Bank of Pakistan exercise full control over the Foreign Exchange Business. No transaction can be considered effective without permission from the State Bank of Pakistan under Foreign Control Act, 1947. Foreign Exchange Regulations are issued through the Exchange control Department of the State Bank of Pakistan. Any transaction in the International Banking shall be carried out at rates determined by the State Bank of Pakistan. For this purpose the State Bank of Pakistan fix the rate of US dollar. This is done by formula approved by State Bank of Pakistan and was published daily by Foreign Exchange Rate Committee in Karachi Head Offices. It also makes sure that the rates approved are conveyed to the branches on the same day.

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2.5

STRUCTURE

AND

FUNCTION

OF

THE

ACCOUNTS

DEPARTMENT: * Annexure IV attached “Hierarchy of Accounts Department” . Accounts department is responsible to keep the record of each and every transaction and prepare reports about the amount of deposits and advances and sent to Head office or State Bank of Pakistan on monthly, quarterly and yearly basis. Functions of Accounts Department of MCB Branch : The accounts department of MCB Branch Aabpara deals with various routine activities for the bank. The main activities performed by it are:a) Budgeting b) Reporting c) Maintenance & depreciation of fixed assets d) Miscellaneous functions Budgeting Accounts department of a MCB Branch Aabpara, for a year makes budget of branch. Fiscal year of bank starts from January 01 and ends on December 31. The accounts department starts preparing budget from October for the next year. Reporting: The accounts department, in the form of reports, clubs the details of various departments together. Each and every minute detail is provided in weekly, monthly and annual reports. The reports are submitted to head office, SBP and to the government. The accounts department prepares many reports, of which the most common are:-

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

Statement Of Affairs



Income & Expenditure



Business Report



SBP Report



Outstand Receipt Report



Currency Wise Deposits Report

Maintaining of Fixed Assets & their Depreciation: Accounts department maintains the record of all the assets and charges depreciation on them. The bank normally uses the straight-line method to compute the depreciation. It is calculated on monthly basis and charged yearly. Bank not only depreciates the existing assets but also the assets but also the assets transferred in and transferred out.

Miscellaneous Functions: The accounts department also performs some other miscellaneous functions like 

Closing Entries



Daily activity checking



Report Generation



Minor expense recording

Closing Entries:Accounts department also passes the closing entries on monthly, 6 monthly and yearly bases to calculate the profit and analyze the overall performance for a certain period.

27

ii.

Daily Activity Checking:-

All the operations performed in various departments of MCB Bank Aabpara Branch Islamabad are computerized. The functions are performed through the customized software. In order to facilitate double-checking of all the transactions done, every concerned official also passes vouchers and cheques manually. At the day end all the vouchers passed by various officers working in different departments are given to Accounts Department. Furthermore the I.T. department also prints a very bulky report of all the transactions / entries which have been fed into the computer system of the branch that day. When both of these things are at the desk of concerned officer, he performs the job of tallying the daily activity report with all the corresponding vouchers and cheques, in order to track down any discrepancy. iii.

Report Generation:-

The reports generated by the accounts department on a daily, weekly, monthly, biyearly and yearly are written in a proper format. It is neither necessary nor possible to get acquainted by all of these reports in a short period of time. Some of the common reports are:

Daily Advance and Deposit Position:-



Daily Exchange Position



Daily Fund Management



Closing Reports



Monthly Assets & Liabilities



Monthly Budget Review Report



Monthly Monitory Statement



Monthly Performance Review Report



Monthly fixed investment

28

From these statements, five reports carry extreme importance. The five reports are:

Daily position of advances and deposits



Statement of affairs



Daily exchange position report



Fixed assets statement



Monthly review of performance.

Minor Expense Recording:The account department of MCB Bank Aabpara Branch has to record even the minor expenses of the branch like tea for the staff, stationery for the branch.

29

C HA P T E R N O . 3

3.1

FINANCE AND ACCOUNTING OPERATIONS

General Banking:

It is backbone of banking. It is one of the major departments of MCB. It consists of following departments:



Accounts Department



Current Department



Remittance Department



Clearing Department



Cash Department

Accounts Department:

Every transaction which takes place recorded in the computer so all transactions in different departments are forwarded to account department. Since all vouchers from different departments are forwarded to current department. Following are different functions performed by this department:



Preparation of Financial Statements for different time span



Maintain all accounts of different departments



Calculation of profit on different schemes



Calculation of markup on different advances



Preparation Different types of reports for State Bank



Daily position of cash & every accounts



Matching daily summaries of all departments with ledger

30

Current Department:

This department maintains all formalities of the accounts and account holders like it account name, account holder’s name, code number and full address. Different cheques debit and credit voucher come form different departments like Token, Clearing, Remittances, Cash, Foreign Exchange, Advances and posted against different accounts. The fund deposited in the MCB bank can be classified under the main heads:



Current account



Saving account



Term /call deposits

Account Opening:

To open an account the customer have to meet the general banking manager with an introducer (the person who is going go introduce that person in the bank) and get an application form used for account opening. Different color-coded application forms are available for each type of account. Along with the form a card for specimen signature is also supplied to customer.

Accounts Types :

Though in theory there many types of accounts but commonly account operators can be classified in one of the following categories, each have different documentation requirements: 

Single



Joint



Partnership



Private Limited



Public Limited

31

Current Accounts:

Current deposits are those which are payable to bank whenever demanded by the customer. Bank does not pay any profit on current deposits. There are of different scheme of saving deposits, which are classified under different duration purpose and rate of interest. Fixed deposits are those deposits which are by the bank under the conditions that they will not be payable on demand but will be payable under fixed or determinable future time date.

Activities Of The Organization Remittances:

The need of remittance is commonly felt in commercial life particularly and in every day life general. By providing fund transfer service to the customer the bank earns a lot of income in the form of service charges. This department deals with local currency remittance i.e. remittance from one city to another without actually carrying the currency.

Inland Remittances:

The term inland remittance means transfer of funds from one branch to another within country through following instruments:



(TTs) or-Demand Draft (DDs) or



Telegraph/Telex Transfers



Mail Transfer (MTs).



Pay Order (PO)

Cash Department:

In cash department both deposits and withdrawals go side by side. This department works under the accounts department and deals with cash deposits and payments. This department maintains the following sheets, books, ledger of account:

32



Cash received voucher sheet.



Cash paid voucher sheet.



Paying-in-slip



Cheque Book



Cash balance book

Cash department is performing its job completely through computers. Only two peoples are working in cash department named Mr. Raheem OG-III and Basit Aftab. The only instrument that can be used to withdraw an amount from an account is the Cheque book. Cashier manually inspects the Cheque for following: 

Signature & date



Cross cutting



Drawee's a/c title



Amounts in words & figures



Two signatures at the back

The cheques should not be stated as post dated. If in the Cheque there May discrepancy regarding any of the aspects described above the Cheque is returned to the customer for rectification. On other hand if the Cheque is valid in all respects, the cashier enters the necessary inputs in the computer and posts the entry so that account balance is updated.

The cashier at the same time maintains the “Cash Voucher Received Record Sheet". Then inspect the signature of the customer cancellation mark of checking officer and stamp of “POSTED” is placed on Cheque before hand over the cash to customer.

Cash Received:

For depositing the cash into customer’s accounts, there is need to fill in the payingin-slip giving the related details of the transaction. This paying-in-slip contains the date, a/c/no, a/c title, particulars, amount being deposited and details of the cash. There are two portion of the paying-in-slip. The depositor signs the one part of the paying-in-slip one is retained by the bank to show an acceptance of the entries made

33

in the slip. The paying-in-slip serves as a voucher to update to computerized transaction ledger.

The cashier is responsible to receive both the paying-in-slip and cash from the depositor. The cashier checks the necessary details provided in the paying-in-slip and counts the cash before he/she tallies with the amount declared in the slip. If the amount does not tally with the cash given, the deposit is not entertained until the customer removes the discrepancy. On the other hand if the two amounts tally, the cashier fills in the “Cash voucher received Record Sheet” and assigns a voucher no. Accountant verifies all the entries in the two documents, if the entry in the two documents tally with one another, the accountant authenticates the two by singing on the two documents and posting stamps on the slip. One part of the slip is then returned to the customer and other is given to the computer operator. The 2 nd cashier posts the transaction entries in computer ledger. This ledger contains the a/c no, a/c title, voucher no, voucher date, transaction code, transaction amount. After posting these entries, computer display before posting balance and after posting. On every transaction computer generates an output of transaction ledger. He assigns the stamp “POSTED” on the voucher to show voucher transaction entries are posted.

Cash Book Balance:

At the end of the working day cashier is responsible to maintain the cash balance book. The cash book contain the date, opening balance, detail of cash payment and received in figures, closing balance, denomination of government notes (Currency). It s checked by manager. The consolidated figure of receipt and payment of cash is entered in the cash book and the closing balance of cash is drawn from that i.e. Opening Balance of Cash + Receipts - Payments = Balance The closing balance of today will be the opening balance of tomorrow.

34

Clearing Department:

All the external functions of clearing are carried by NIFT (National Institute of Facilitation Technology) while the internal operations are performed by clearing department which would be discuss later. NIFT is providing tremendous facilitation having error rate of 0.3%. It is just like any courier service which takes the cheques of other banks and delivers the cheques of that branch to it.

Each bank has collected cheques as behalf of their customer but these cheques are not drawn on their own bank so in the clearinghouse, they hand over these cheques to respective banks on which these cheques are drawn. Similarly each bank receives cheques from other banks if any.

The operation of clearing refers to the collection of cheques drawn on other banks. These cheques may be drawn on UBL, HBL, NBP, or any other bank of Pakistan. The respective clerk collects all cheques and enters them in clearing Register. Then he affixes stamps on these cheques and sorts out cheques of different banks and prepares schedule for them. These cheques are sent to clearing house. State Bank of Pakistan has extended the service of Clearing House. MCB will receive all the cheques drawn by other banks. Finally they exchange their cheques mutuality. MCB representative will give cheques of UBL, HBL, ABL, NBP, and SBP to their representatives, and get the cheques drawn on MCB from these representatives.

Outward Clearing: Clearing cheques received during the day are meant to be presented for clearance in the next days clearing. Clearing cheques must bear clearing stamp. Necessary endorsement must be completed such as payee’s account credited etc. All the cheques must be sorted out as of the same city and of the other cities.

Schedules showing the total number of instruments and amount must be mentioned. Voucher and voucher sheets and retained one copy of schedules will be kept by the accountant for overnight. The copy of the schedules retained must be preserved for a period of 3 moths and then destroyed.

35

3.2

ROLE OF THE FINANCIAL MANAGER

Financial manager is concerned with acquisition financing and management of assets

with

some

overall

goals

in

mind

The financial manager of MCB bank limited like all other financial manager has responsibility to make decision about three major areas. 

Investment decision



Financing decision



Asset management decision

Investment decision: The investment decision is the most important decision of the bank s three major decisions. Ali Munir Chief financial officer of Muslim commercial bank limited begins with determination of total amount of assets needed to be held by the bank. In 2007 total assets are 410,485,517,000 and the amount, which is invested in different areas, is 113,089,261,000.

Financing: The second major decision of any organization is financing decision. Financial manager of MCB view dividend policy as an integral part of bank s financing decision. Dividend payout ratio determines the amount of earning that can be retained in the firm. Retained a greater amount of the current earnings in the firm means that the fewer dollars will be available for current dividends payments. The value of dividends paid to the shareholder must therefore be balanced against the opportunity cost of retained earnings cost as means of equity financing. Financial manager know the mechanics of short-term loans, entering into the long-term arrangement or negotiating a sale of bond or stock.

36

Asset management decision: The third important decision of any organization is assets management decision. Once the assets have been acquired and appropriate financing provided these assets must still be managed efficiently. The financial manager is charged with varying degrees of operating responsibility requires that the financial manager be more concerned with management of current assets then with that of fixed assets. A large share of responsibilities for management of fixed assets would reside with operating manager who employs these assets.

37

3.3

USE OF ELECTRONIC DATA IN DECISION-MAKING

Making crucial, timely, strategic decisions is a must to stay a head in today’s competitive environment. Work continues on the banks date warehouse, which is being equipped for providing the management with accurate, up to date information enabling them to make timely and prudent decisions. The bank remains focused on using technology for improving customer services standard and expanding the range of products being offered and other technology based solutions. Banks strength in the area of information technology based services has always been an edge in the competition and has been a source of considerable strength in the expansion and the management of the customer base of the bank.tecnology support provides an alternate service delivery channels higher customer satisfaction levels. During 2004 various technology initiatives were successfully implemented. The 07 branches were open during the year. Most of branches were operational with on line banking from day one of their respective operations. After the soft opening during 2004, MCB customer care center – e dedicated customer call center, was formally inaugurated during 2004. Its primary objective is to provide one window service to our valued customer in terms of their telephonic enquiries.

During 2005 MCB achieved a successful launch of mobile ATM solutions for banks valued customers. Using wireless GPRS technology, these ATM on wheels can be placed at strategic locations at peak times to server the customer needs.

38

3.4

SOURCES OF FUNDS Deposits and Other Accounts 2003

2004

2005 (Rupees '000)

2006

2007

Customers 21,451,676 Fixed deposits 127,413,624 Saving deposits Current accounts_non 58,583,576 remunerative Marginal accounts 2,351,820 Others 75,439 209,876,135 Financial institutions Remunerative deposits Non-remunerative deposits Total Particulars of deposits In local currency In foreign currency Total

14,081,390 133,538,585 69,722,193

13,296,121 137,067,311 74,331,042

33,297,203 136,872,384 81,658,304

32,202,230 151,555,718 95,966,877

2,011,324 121,994 219,475,486

2,568,306 41,396 227,304,176

2,447,944 4,336 254,280,171

2,589,309 4,288 282,318,422

1,634,167

442,983

183,338

249,506

9,233,602

1,091

1,150,689

1,857,664

2,932,161

546,042

1,635,258 211,511,393

1,593,672 221,069,158

2,041,002 229,345,178

3,181,667 257,461,838

9,779,644 292,098,066

200,435,978 11,075,415 211,511,393

209,328,090 11,741,068 221,069,158

217,017,086 12,328,092 229,345,178

213,494,049 13,967,789 227,461,838

278,068,722 14,029,344 292,098,066

Bills Payable Bills payable In Pakistan Outside Pakistan

2003 2004 8,384,794 7,560,165 11,526 6,519 8,396,320 7,566,684 Borrowings from financial Institutions In Pakistan (local currency) 32,294,560 6,095,476 Outside Pakistan (foreign 333,391 1,495,388 currency) 32,627,951 7,590,864 Particulars of borrowings from financial institutions Secured Borrowing from State Bank of 3,639,631 4,493,473 Pakistan Others 1,782,900 3,639,631 6,276,373 Repurchase agreement 27,463,192 498,901 borrowings Unsecured Agent balances 327,690 685,202 Others 591,737 Call borrowings 605,701 130,388 1,525,128 815,590 32,627,951 7,590,864

2005 8,510,322 26,352 8,536,674

2006 7,075,421 14,258 7,089,679

2007 10,447,928 31,130 10,479,058

24,693,569

20,304,629

35,497,881

2,683,933

3,638,847

3,908,950

27,377,502

23,943,476

39,406,831

4,980,519

9,040,700

8,066,539

1,970,562 6,951,081

2,932,817 11,973,517

2,932,600 10,999,139

19,473,049

11,263,929

26,931,342

494,007

617,027 89,003 706,030 23,943,476

976,350 500,000 1,476,350 39,406,831

459,365 953,372 27,377,502

*Reference: Data obtained from Annual statements of MCB and www.mcb.com.pk.

39

3.5

GENERATION OF FUND 2003 2004 (Rupees '000)

2005

2006

2007

Markup/return/ interest earned On loan and advances to: - Customers 4,599,015

4,927,838

12,086,305

19,144,743

21,952,387

- Financial Institutions On Investments in: - Available for sale securities

268,566 4,867,581 4,420,162

185,386 5,113,224 3,162,828

284,972 12,371,277 4,337,124

86,455 19,231,198 3,911,514

141,613 22,094,000 7,519,820

714,494

543,167

643,328

1,025,963

856,023

5,134,656

3,705,995

4,980,452

4,937,477

8,375,843

-

-

-

82,445

133,972

298,502

190,172

261,478

689,962

548,202

69,255 10,369,994

74,472 9,083,863

143,025 17,756,232

589,536 247,443 25,778,061

291,940 342,638 31,786,595

-

-

686

686

1,228

-

-

54,670

6,089

2,709

-

-

811,539

2,350

-

2,041,260

804,419

866,895

560,381 36,009 350 605,865

1,496,928 1,500,865

41,751

42,886

53,435

51,999

39,324

-

24,903

13,032

-

24,664

65,341

55,477

60,732

64,161

-

-

60,053

54,906

51,872

28,135

-

495,234

44,802

-

369,538 576,007

411,409 1,084,576

334,761 570,505

405,886 563,213

- Held to maturity securities On deposits with financial institutions On securities purchased under resale agreement On money at call Others Gain on sale of seurities Federal Government Securities - Market treasury bills - Pakistan investment bonds Other Federal govt. securities Shares/ certificates/ units - Listed - Unlisted Term finance certificates

Other Income Rent on property/ lockers 40,511 Net profit on sale of property 41,914 and eqpt Gain on sale of non-banking assets Exchange income on import/ 52,879 export bills purchased Liability no longer required written back Bad debts recovered 667,454 Compensation for delayed income tax refunds Others 540,841 1,343,599

40

3.6

ALLOCATION Of FUNDS

Deposits and Other Accounts Customers Fixed deposits Saving deposits Current accounts_non remunerative Marginal accounts Others Financial institutions Remunerative deposits Non-remunerative deposits

Total

2003 (Rupees '000)

2004

2005

2006

2007

21,451,676 127,413,624 58,583,576

14,081,390 133,538,585 69,722,193

13,296,121 137,067,311 74,331,042

33,297,203 136,872,384 81,658,304

32,202,230 151,555,718 95,966,877

2,351,820

2,011,324

2,568,306

2,447,944

2,589,309

75,439 209,876,135

121,994 219,475,486

41,396 227,304,176

4,336 254,280,171

4,288 282,318,422

1,634,167

442,983

183,338

249,506

9,233,602

1,091

1,150,689

1,857,664

2,932,161

546,042

1,635,258

1,593,672

2,041,002

3,181,667

9,779,644

211,511,393

221,069,158

229,345,178

257,461,838

292,098,066

200,435,978 11,075,415 211,511,393

209,328,090 11,741,068 221,069,158

217,017,086 12,328,092 229,345,178

213,494,049 13,967,789 227,461,838

278,068,722 14,029,344 292,098,066

Particulars of deposits In local currency In foreign currency Total

Assets

Assets Cash and balances with treasury banks Balances with other banks Lending to financial instutions Investments Advances Operating fixed assets Deffered tax assets Other assets

2003 (Rupees '000)

2004

2005

2006

2007

24,053,669

23,833,253

23,665,549

32,465,976

39,683,883

1,302,592

5,708,323

1,469,333

6,577,017

3,807,519

10,430,450

10,965,297

9,998,828

21,081,800

1,051,372

128,276,842 97,200,179 4,582,823 6,477,064 272,323,619

67,194,971 137,317,773 7,999,821 6,154,370 259,173,808

69,481,487 180,322,753 8,182,454 191,967 5,464,426 298,776,797

63,486,316 198,239,155 9,054,156 172,373 11,031,450 342,108,243

113,089,261 218,960,598 16,024,123 17,868,761 410,485,517

*Reference: Data obtained from Annual statements of MCB and www.mcb.com.pk.

41

Investments

Held-for-trading securities Shares in listed companies Available-for-sale-securities Market treasury bills Federal Investment bonds Pakistan investment bonds Federal Government securities Shares in listed companies Units in open ended mutual funds Shares in unlisted companies NIT units Sukuk Bonds Listed term finance certificates Held-to-maturity securities Market treasury bills Federal Investment bonds Pakistan investment bonds Federal Government securities Provincial govt. securities Government compensation bonds Sukuk Bonds Euro bonds TFCs, debentures, bonds and PTCs Certificate of investment Subsidiaries MNET Services (Pvt) Ltd MCB Trade service Ltd MCB asset Management Co. Muslim commercial services (Pvt) Ltd

financial

Associates Adamjee Insurance Company Limited First Women bank limited Investment at cost Less: Provision for diminution in the value of investment Add: Surplus/ deficit on revaluation Investment at revalued amounts

2003 (Rupees '000)

2004

2005

2006

2007

-

-

66,056

-

230,752

87,819,612 1,251,444 24,155,518

3,186,553 4,721,435

24,429,260 2,039,818

36,872,804 1,352,350

85,264,988 2,726,418

3,415,532 491,124 453,938 748,455 118,335,623

3,833,352 461,100 9,557 608,862 12,820,859

5,034,777 443,369 83 1,173,320 33,120,627

5,810,827 118,595 537,012 5,253 1,450,659 46,147,500

7,388,550 1,662,063 515,333 5,253 400,000 1,136,821 99,099,426

-

39,388,049 480,500 2,532,406

22,570,514 2,467,983

2,439,089

216,881 2,377,654

1,429,852 15,118 870,771 605,606

1,097,199 118 870,771 3,286,190

992,861 118 870,771 759,767 2,971,758

825,719 118 870,771 1,573,478 3,019,135

704,928 118 870,771 1,785,475 3,299,630

3,314,467

3,580,526

1,876,119

2,387,836

1,346,566

6,235,814

1,100,000 52,335,759

1,500,000 34,009,891

3,550,000 14,666,146

500,000 11,102,023

49,975 -

49,975 -

49,975 77 -

49,975 77 299,980

49,975 77 299,980

7,500

7,500

7,500

7,500

27,500

57,475

57,475

57,552

357,532

377,532

943,600

943,600

943,600

943,600

943,600

63,300 1,006,900 125,635,812

63,300 1,006,900 66,220,993

63,300 1,006,900 68,194,970

63,300 1,006,900 62,178,078

63,300 1,006,900 111,816,633

(868,852)

(695,976)

(547,424)

(363,019)

(468,288)

3,509,882

1,669,954

1,767,885

1,671,257

1,740,916

128,276,842

67,194,971

69,481,487

63,486,316

113,089,261

*Reference: Data obtained from Annual statements of MCB and www.mcb.com.pk.

42

CHAPTER NO. 4

4.1 CRITICAL ANALYSIS OF MCB BANK IN

THE LIGHT OF

PRACTICAL EXPERIENCE

Internship gives me the exposure to the world by meeting and dealing with the different kind of people every day, which has given boost to my confidence and experience. So first of you enter in to any organization for Internship/or for job most important thing is your communication skill. So which thing helped me and boosts my confidence was communication skill. As we have studied in our course about the communication skills and presentations during MBA gave me the confidence to speak with the employees and customers and communicate effectively and efficiently with the customers.

Similarly as in marketing we told about the importance of the customer I observed it in my internship. In my observation I have seen how the Manager and other employees deal the customers. And as a student it was best opportunity for us to study the behavior of the employees inside the organization, their dealing with the customers and relationship between them and employees as all these things we only studied in the Organization Behavior and Human Resource Management. We can say that internship is basically the practical implementation of the entire theoretical course which we have studied during our course of MBA.

43

4.2

FINANCIAL ANALYSIS:

BALANCE SHEET Financial Statement

Muslim Commercial Bank Limited Balance Sheet As on 31st December 2003

2004

2005

2006

2007

24,053,669

23,833,253

23,665,549

32,465,976

39,683,883

1,302,592

5,708,323

1,469,333

6,577,017

3,807,519

10,430,450

10,965,297

9,998,828

21,081,800

1,051,372

128,276,842 97,200,179 4,582,823 6,477,064 272,323,619

67,194,971 137,317,773 7,999,821 6,154,370 259,173,808

69,481,487 180,322,753 8,182,454 191,967 5,464,426 298,776,797

63,486,316 198,239,155 9,054,156 172,373 11,031,450 342,108,243

113,089,261 218,960,598 16,024,123 17,868,761 410,485,517

8,396,320 32,627,951

7,566,684 7,590,864

8,536,674 27,377,502

7,089,679 23,943,476

10,479,058 39,406,831

211,511,393

221,069,158

229,345,178

257,461,838

292,098,066

1,599,360

1,598,720

1,598,080

1,597,440

479,232

-

-

-

-

-

707,306

269,499

-

-

1,180,162

6,372,596 261,214,926

6,525,999 244,620,924

8,611,600 275,469,034

11,171,496 301,263,929

11,722,493 355,365,842

11,108,693

14,552,884

23,307,763

40,844,314

55,119,675

3,065,273 4,379,255

3,371,800 5,661,553

4,265,327 13,408,005

5,463,276 24,662,426

6,282,768 34,000,638

281,636

165,208

210,662

5,530,973

5,130,750

7,726,164

9,198,561

17,883,994

35,656,675

45,414,156

3,382,529

5,354,323

5,423,769

5,187,639

9,705,519

11,108,693

14,552,884

23,307,763

40,844,314

55,119,675

(Rupees '000)

Assets

Cash and balances with treasury banks Balances with other banks Lending to financial intuitions Investments Advances Operating fixed assets Deferred tax assets Other assets Liabilities Bills payable Borrowings Deposits and Other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deffered tax liabilities Other liabilities

Net assets Represented by: Share capital Reserves Unappropriateed profit Surplus on revaluation of assets

*Reference: Data obtained from Annual statements of MCB on MCB website.

44

PROFIT AND LOSS Financial Statement Muslim Commercial Bank Limited Profit and Loss Account As on 31st December 2003 2004 (Rupees '000) Markup/ return/ interest earned Mark up/ return/ interest expense Net mark up/ interest income - Provision for dimininution in the value of investment - Provision against loans and advances - Provision for potential lease losses - Bad debts written off directly Net mark up/interest income after provisions Non mark up/interest income Fee, commission and brokerage income Dividend income Income from dealing in foreign currencies Gain on investment Unrealized gain/ loss on revaluation of investment Other income Total non mark up interest income Non mark up/interest expense - Administrative expenses - Restructuring expenses - Other proposition/write off -Other charges Total non mark up/ interest expense Extra ordinary/unusual items Profit before taxation Taxation-Current year -Prior years -Defferd Profit after taxation Unappropriate profit brought forward Transfer from surplus on revaluation of fixed assets Profit available for appropriation Basic/diluted earning per share

2005

2006

2007

10,369,994 2,932,693 7,437,301

9,083,863 2,057,640 7,026,223

17,756,232 2,781,468 14,974,764

25,778,061 4,525,359 21,252,702

31,786,595 7,865,533 23,921,062

(150,000)

(172,876)

(98,982)

121,197

105,269

705,787

442,595

1,242,153

1,014,540

2,959,583

862

1,200

-

-

-

224,432 781,081

8,771 279,690

1,184 1,144,355

47,000 1,182,737

199 3,065,051

6,656,220

6,746,533

13,830,409

20,069,965

20,856,011

1,042,437

1,992,356

2,448,950

2,311,235

2,634,610

372,821

378,908

480,344

811,801

632,300

331,694

492,738

531,455

692,010

693,408

2,041,260

804,419

866,895

605,865

1,500,865

-

(11,440)

851

-

(13,105)

743,599

576,007

1,084,576

570,505

563,213

4,531,811

4,232,988

5,413,071

4,991,416

6,011,291

11,188,031

10,979,521

19,243,480

25,061,381

26,867,302

6,587,369 878,704 50,000 59,034

7,244,200 149,593 41,864

6,459,490 (72,740) 178,841

6,482,592 11,411 66,708

5,022,416 (3,743) 540,594

7,575,107

7,435,657

6,565,591

6,560,711

5,559,267

3,612,924

513,852 4,057,716

340,598 13,018,487

18,500,670

21,308,035

1,212,579 170,200 1,382,779 2,230,145

1,555,764 70,420 1,626,184 2,431,532

4,611,359 (149,763) (365,524) 4,096,072 8,922,415

5,701,443 593,497 63,332 6,358,272 12,142,398

6,442,356 (1,294,473) 894,590 6,042,473 15,265,562

621,985

195,966

165,208

4,990,260

5,530,973

25,012

25,839

83,749

32,166

11,855

646,997

221,805

248,957

5,022,426

5,542,828

2,877,142

2,653,337

9,171,372

17,164,824

20,808,390

7.28

7.21

21.36

23.40

24.30

45

RATIOS ANALYSIS: Liquidity Ratios Liquidity ratios measure the short-term solvency of a firm. Liquidity ratios present the picture of the ability of the firm to pay its short-term obligations. The ratio holds different meaning for creditors and owners of the firm. For owner, high liquidity means inefficiency of the management and vice versa, while high liquidity of the firm is considered favorable by the creditors as they see it as that the firm can pay their obligations and vice versa. Following are most common type of liquidity ratios used by analysts to determine the liquidity of the firm. 1.

Current Ratio:

The current ratio measures the number of items of the firm s current assets cover its current liabilities. The current ratio should be part of your business' basic financial planning, meaning it should be tracked monthly or quarterly. By keeping a close eye on this figure, you will recognize if it begins to get out of line. This will allow you to take early action to prevent your business from ending up in a difficult position. Current assets divided by current liabilities

Current ratio=current asset/ current liabilities

2003 Current asset

261,263,732

Current liabilities

254,135,024

Current ratio

102.81%

2004 Current asset

245,019,617

Current liabilities

237,825,426

Current ratio

103.02%

46

2005 Current asset

284,937,950

Current liabilities

266,857,434

Current ratio

106.80%

2006 Current asset

321,850,264

Current liabilities

290,092,433

Current ratio

111.00%

2007 Current asset

376,592,633

Current liabilities

342,463,187

Current ratio

110.00%

Current Ratio Years

2003

2004

2005

2006

2007

Percentage

102.81%

103.02%

106.80%

111.00%

110.00%

Chart of current ratios:

115 110 105 100 95 2003

2004

2005

2006

2007

47

Analysis of current ratios of MCB: Current ratio shows a firm’s ability to cover its current liabilities with its current assets. It is obtained by dividing current assets of the firm by its current liabilities. Current ratio of 1 or higher means that the firm can pay all its current liabilities from its current assets, while a value less than 1 means that the firm will be unable to pay its current liabilities completely by its current assets. A lower value means aggressive approach of the management toward business, but has opposite meaning for creditors, who don’t like aggressive approaches of the management. In MCB bank limited 2006s current ratio is strong than other four years. It shows that this year’s liabilities could be recovered with its assets. After 2006, a bank has maintained good current ratio in 2007 but 2003 and 2004 has weak current ratio because the difference between assets and liabilities decreased in these years. Current ratio does not show the true picture of the organization. Sometimes it shows that organization has ability to pay its obligations but its profitability ratio tells that it has not ability to pay its obligation. But still it is very useful for the analysts especially for the creditors. 2.

Quick ratios:

Quick ratio shows a firm’s ability to meets it current liabilities with its current assets excluding inventories and prepaid expenses, which are least liquid portion of the current assets. Since banks don’t have any sorts of inventories, therefore only prepaid expenses are subtracted from the current assets of the bank. This is an important planning tool, especially for businesses that can tie up a lot of assets in inventory. By tracking it monthly, management can keep an eye out for negative trends that could hamper their business' ability to meet its obligations. Quick ration can also use to evaluate the financial health of potential customers, since it also indicates whether a business can pay off its debts quickly. A firm with a low quick ratio may be more likely to delay payments because its assets are tied up elsewhere. Current assets - inventories divided by current liabilities

48

Quick ratio= current assets-inventories/current liabilities

2003 Current assets

261,263732

Inventories

128,276,842

Current liabilities

254,135,024

Quick ratios

52.33

Current assets

245,019,617

2004

Inventories

67,194,971

Current liabilities

237,825426

Quick ratios

74.77

2005 Current assets

284,937,950

Inventories

69,481,487

Current liabilities

266,857,434

Quick ratios

80.74

2006 Current assets

321,850,264

Inventories

63,486,316

Current liabilities

290,092,433

Quick ratios

89.06

2007 Current assets

376,592,633

Inventories

113,089,261

Current liabilities

342,463,187

Quick ratios

76.94 Quick ratio

Years

2003

Percentage 52.33%

2004

2005

2006

2007

74.77%

80.74%

89.06%

76.94

49

100 90 80 70 60 50 40 30 20 10 0

Quick ratio

2003 2004 2005 2006 2007

Analysis of the quick ratio: Inventories are considered as current assets so they are included in current ratio calculation. Inventories are less liquid. Normally it is not easily converted into cash on short notice. In 2006 quick ratio is better than other years it show that bank can easily recover its liabilities on short notice. 3.

Working capital:

Working capital is the difference between current assets and current liabilities. Working capital is often considered a measure of liquidity by it self. This ratio shows the amount of liquidity.

Working capital is used to check liquidity of the organization.

Working capital=current asset-current liability 2003 Current asset

261,263,732

Current liabilities

254,135,024

Working capital

7,128,708

50

2004 Current asset

245,019,617

Current liabilities

237,825,426

Working capital

7,194,191

2005 Current asset

284,937,950

Current liabilities

266,857,434

Working capital

18,080,516

2006 Current asset

321,850,264

Current liabilities

290,092,433

Working capital

31,757,831

2007 Current asset

376,592,633

Current liabilities

342,463,187

Working capital

34,129,446

Working capital Years Percentage

2003

2004

2005

2006

2007

7,128,708

7,194,191

18,080,516

31,757,831

34,129,446

35,000,000 30,000,000 25,000,000 20,000,000 working capital

15,000,000 10,000,000 5,000,000 0 2003 2004 2005 2006 2007

51

Analysis of the working capital:

Working capital is better in 2007, which is 34,129,446 .it means that assets are utilized more economically in 2007 as compared to 2003, 2004, 2005 and 2006.

4.

Cash ratio:

Cash and cash equilent/total assets

Cash and equilent are the most liquid assets. The cash ratio shows the proportion of the assets held in the most liquid possible form. It is used to check the liquidity of the organization. 2003 Cash equivalent

25,356,261

Total assets

272,323,619

Cash Ratio

9.31

2004 Cash equivalent

29,541,576

Total assets

259,173,808

Cash Ratio

11.40

2005 Cash equivalent

25,134,882

Total assets

298,776,797

Cash Ratio

8.41

2006 Cash equivalent

39,042,993

Total assets

342,108,243

52

Cash Ratio

11.41

2007 Cash equivalent

43,491,402

Total assets

410,485,517

Cash Ratio

10.60

Cash ratio Years

2003

2004

2005

2006

2007

Percentage

9.31%

11.40%

8.41%

11.41%

10.60%

15 13 11 9 7

cash ratio

5 3 1 -1 2003

2004

2005

2006

2007

Analysis of cash ratios of MCB: Higher cash ratio also shows the higher rate of satisfaction like other liquidity ratios. Cash ratio is more important liquidity ratio. In 2003 cash ratio was 9.31%, it increased very quickly in 2004 by 11.40%, but in 2005 it declined by 2.99. 2006 was the best year as it shows 11.41% ratio, In 2007, it declined by 10.60%. In short working capital and cash ratio are more realistic and more important ratios, which describe the true picture of any organization. In MCB 2006 is the year in

53

which the liquidity ratios are shown better than other years. So 2006 is mentioned a good year of the Muslim Commercial Bank.

Leverage Ratios: Leverage ratios of a firm show the extent to which a firm finances its operation from the outside sources and money. The leverage can be determined from analysis of owner equity in business, total liabilities, current and long-term liabilities, long-term assets and total assets of the business. Following are the common leverage ratios to show the degree of leverage the bank is using to finance its activities and assets by liabilities.

5.

Debt-To-Total-Assets Ratio

It shows that how much assets have been financed by liabilities and it also shows the margin of protection available for the creditors.

Debt ratio Debt ratio=Total debt/ Total assets

54

2003 Total debt

261,214,926

Total assets

272,323,619

Debt Ratio

95.92

2004 Total debt

244,620,924

Total assets

259,173,808

Debt Ratio

94.38

2005 Total debt

275,469,034

Total assets

298,776,797

Debt Ratio

92.20

2006 Total debt

301,263,929

Total assets

342,108,243

Debt Ratio

88.06

2007 Total debt

355,365,842

Total assets

410,485,517

Debt Ratio

86.57

55

Debt ratio Years

2003

2004

2005

2006

2007

Percentage

95.92%

94.38%

92.20%

88.06%

86.57%

96 94 92 90 88

leverage ratio

86 84 82 80 2003 2004 2005 2006 2007

Analysis of leverage ratio: Financial leverage is the extent to which a firm is financed with debt. The amount of the debt a firm uses has both positive and negative effects. The more debt the more it is that the firm will have trouble meeting its obligations. Thus the more debts higher profitability of the financial distress and even bankruptcy. Further more the chance of the financial distress and debt obligation generally may create conflicts of interest among the stakeholders. In Muslim Commercial bank, year 2003 was heavily financed because debt was the major source of financing in 2003. Debt also had lower transaction cost. But better year was 2007 because Muslim Commercial Bank in this year was not heavily financed and had not trouble to pay its obligations.

56

6.

Debt-To-Equity Ratio:

Debt-to-Equity ratio shows the extent to which debt financing is used relative to equity financing. Debt equity is calculated by dividing total liabilities of the bank by the total owner equity. Total debt divided by shareholders equity Debt to equity ratio=Total debt / shareholders equity or Debt ratio/1-Debt ratio

2003 Total debt

261,214,926

Shares holder equity

3,065,273

Debt to equity Ratio

85.22

2004 Total debt

244,620,924

Shares holder equity

3,371,800

Debt to equity Ratio

72.55

2005 Total debt

275,469,034

Shares holder equity

4,265,327

Debt to equity Ratio

64.58

2006 Total debt

301,263,929

Shares holder equity

5,463,276

Debt to equity Ratio

55.14

2007 Total debt

355,365,842

57

Shares holder equity

6,282,768

Debt to equityRatio

56.56

Debt to equity ratio Years

2003

2004

2005

2006

2007

Percentage

85.22

72.55

64.58

55.14

56.56

90 80 70 60 50

Debt to equity ratio

40 30 20 10 0 2003 2004 2005 2006 2007

Analysis of the Debt to equity ratio: The debt equity ratio is a simple rearranged of the debt ratio. Debt equity ratio shows how the firm’s stockholder bears the risk of the firm. Greater the debt greater risk for the firm s shareholders .In 2006 risk for the share holders was very low as compared to the other years decrease debt to equity ratio was very small on the contrast risk was very high in 2003 because of heavy financing.

58

7.

Equity multiplier:

Owner equity to fixed assets ratio: “Owner equity to fixed assets ratio” shows that how much money does owner in relation to fixed assets invest. If the owner equity exceeds the fixed assets, it means that owner finances a part of current assets. When owner equity is less than fixed assets it means that creditor’s obligations have been used to finance a part of fixed assets. Total owner equity divided by fixed assets Equity multiplier=Total assets /shareholders equity

2003 Total Assets

272,323,619

Shares Holder equity

3,065,273

Equity Multiplier

88.84

2004 Total Assets

259,173,808

Shares Holder equity

3,371,800

Equity Multiplier

76.87

2005 Total Assets

298,776,797

Shares Holder equity

4,265,327

Equity Multiplier

70.05

2006 Total Assets

342,108,243

Shares Holder equity

5,463,276

Equity Multiplier

62.62

59

2007 Total Assets

410,485,517

Shares Holder equity

6,282,768

Equity Multiplier

65.34

Equity multiplier Years

2003

2004

2005

2006

2007

Percentage

88.84

76.87

70.05

62.62

65.34

90 80 70 60 50 Equity multiplier

40 30 20 10 0 2003 2004 2005 2006 2007

Analysis of the equity multiplier: Equity multiplier is yet another representation of the same information. It shows how much total assets the firm has for each dollar of equity. In MCB it is better in 2003 it means that bank has about 88.84 in total assets of 100 of equity. Coverage Analysis: Coverage ratios analyze the ability of a firm to cover or service its financial obligations. Most common coverage ratios are explained below.

60

8.

Interest Coverage Ratio

Interest coverage ratio shows the ability of a firm to cover up its interest charges on the income before interest and taxes. The ratio is obtained through dividing earning before interest and taxes (EBIT) of the bank by its interest expenses. EBIT divided by interest expense Interest coverage ratio=EBIT/Interest expense

2003 EBIT

3,162,924

Interest expense

2,932,693

Interest coverage ratio

107.85

2004 EBIT

4,057,716

Interest expense

2,057,640

Interest coverage ratio

197.20

2005 EBIT

13,018,487

Interest expense

2,781,468

Interest coverage ratio

468.04

2006 EBIT

18,500,670

Intrest expense

4,525,359

Intrest coverage ratio

408.82

2007 EBIT

21,308,035

Interest expense

7,865,533

Interest coverage ratio

270.90

61

Interest coverage ratio Years

2003

2004

2005

2006

2007

Percentage

107.85%

197.20%

468.04%

408.82%

270.90%

500 450 400 350 300 250 200 150 100 50 0

Interest coverage ratio

2003 2004 2005 2006 2007

Analysis of the interest coverage ratio: Coverage ratio shows the number of the times a firm can recover or meet particular financial obligations. The interest coverage ratio, which is also called the time interest earned ratio, measure the coverage of the firm s interest expense.2005 is the best comparative better coverage of its interest and fixed charged obligations. After 2005, 2006 is better than other three but 2003 is worst than all. Profitability Analysis: Profitability ratios are of two types those showing profitability in relation to sales and those showing profitability in relation to investment. Together, these ratios indicate the bank’s overall effectiveness of operation. It creates a relationship between income statement and balance sheet of the firm. Following are the some typical profitability ratios used to analyze the profits of firms.

62

9.

Cost To Sales Ratio:

Cost to sales ratio determines the cost incurred in generating the sales of the bank. The net sales of banks are its interest/mark up earned while costs of sales are its interest/mark up expense incurred. The ratio is obtained by dividing cost of sales by net sales. The following table shows the cost of sales of MCB over five years of operations. Interest or mark up expensed divided by interest or mark up earned 2003 Interest expense

2,932,693

Interest earned

10,369,994

Cost to sales ratio

28.28

2004 Interest expense

2,057,640

Interest earned

9,083,863

Cost to sales ratio

22.65

2005 Interest expense

2,781,468

Interest earned

17,756,232

Cost to sales ratio

15.66

2006 Interest expense

4,525,359

Interest earned

25,778,061

Cost to sales ratio

17.56

2007 Interest expense

7,865,533

Interest earned

31,786,595

Cost to sales ratio

24.74

63

Cost to sales ratio Years

2003

2004

2005

2006

2007

Percentage

28.28%

22.65%

15.66%

17.56%

24.74%

30 25 20 15

Cost to sales ratio

10 5 0 2003 2004 2005 2006 2007

Analysis of the cost to sales ratio: Cost to sales ratio shows the cost incurred in generating the sales of the bank. In 2003 the cost to generate the sales is higher with respect to other financial years. After 2003, 2007 had also higher cost. Year 2005 is best one for MCB but 2003 is worst than all.

10.

Return On Investment:

Return on investment measure the ratio of profit generated in relation to the total assets employed. Net profit after tax divided by total assets gives the return on investment. Return on investment is an indicator of how profitable a company is. By using this ratio annually, we compare business' performance to industry's norms. Net profit after tax divided by Total assets Return on investment= Net profit after tax/Total assets

64

2003 Profit after tax

2,230,145

Total assets

272,323,619

Return on Investment

0.82

2004 Profit after tax

2,431,532

Total assets

259,173,808

Return on Investment

0.94

2005 Profit after tax

8,922,415

Total assets

298,776,797

Return on Investment

2.99

2006 Profit after tax

12,142,398

Total assets

342,108,243

Return on Investment

3.55

2007 Profit after tax

15,265,562

Total assets

410,485,517

Return on Investment

3.72

Return on investment Years

2003

2004

2005

2006

2007

Percentage

0.82%

0.94%

2.99%

3.55%

3.72%

65

4 3.5 3 2.5 2

Return on Investment

1.5 1 0.5 0 2003 2004 2005 2006 2007

Analysis of the return on investment ratio Profitability ratios focus on the profit generating performance of the firm. These ratios measure how effectively the firm is generating its profit. They reflect its performance, its risk ness and the effect of leverage. Muslim commercial bank was heavily financed in 2007 that financing was used in investment that’s why return on investment is high in 2005 as compare to the other years. 11.

Return On Equity:

Return on equity is another summary measure of overall bank’s performance. It can be calculated by dividing the net profit by the owner equity. This ratio tells us the earning power on shareholder’s book value investment and is frequently used in comparing two or more firms in any industry. A high return one quite often reflects the firm’s acceptance of strong investment opportunities and effective expense management.

66

2003

Profit after tax

2,230,145

Sharesholders equity

3,065,273

Return on Equity

72.76

2004

Profit after tax

2,431,532

Sharesholders equity

3,371,800

Return on Equity

72.11

2005

Profit after tax

8,922,415

Sharesholders equity

4,265,327

Return on Equity

209.18

2006

Profit after tax

12,142,398

Sharesholders equity

5,463,276

Return on Equity

222.25

2007

Profit after tax

15,265,562

Sharesholders equity

6,282,768

Return on Equity

242.98

Return on Equity Years

2003

2004

2005

2006

2007

Percentage

72.76%

72.11%

209.18%

222.25%

242.98%

67

300 250 200 150

price earning ratio

100 50 0 2003

2004

2005

2006

2007

Return on equity is an indicator of how profitable a company is. Use this ratio annually to compare your business' performance to your industry's norms. In year 2007, MCB has a strong investment opportunities’ which reflects a high return, after this 2006 and 2005 also depicts a high return, whereas, 2003 and 2004 are not satisfied.

12.

Market value ratios:

1-P/E ratio Price earning ratio=Market price per share/ earning per share

68

2003 Market price per share Earning per share

51.40 7.28

P/E ratio

706.04

2004 Market price per share Earning per share

58.70 7.21

P/E ratio

814.15

2005 Market price per share Earning per share

167.80 21.36

P/E ratio

785.58

2006 Market price per share Earning per share

246.10 23.40

P/E ratio

1,051.71

2007 Market price per share Earning per share

399.95 24.30

P/E ratio

1,645.88

69

Price earning ratio Years

2003

2004

2005

2006

2007

Percentage

706.04%

814.15%

785.58%

1051.71%

1645.88%

1800 1600 1400 1200 1000 price earning ratio

800 600 400 200 0 2003

2004

2005

2006

2007

Analysis of the price-earning ratio: Price earning ratio of MCB bank is high in 2007 as compared to the other years. Because the market price per share is high in 2007. Because in this year MCB generate an excellent profit. 2006 is also good but 2003 is worst all of them.

13

Earning yield:

Earning yield=Earning per share/Market price per share 2003 Earning per share

7.28

Market price per share

51.40

Earning Yeild

14.16

70

2004 Earning per share

7.21

Market price per share

58.70

Earning Yeild

12.28

2005 Earning per share

21.36

Market price per share

167.80

Earning Yeild

12.73

2006 Earning per share

23.40

Market price per share

246.10

Earning Yeild

9.51

2007 Earning per share

24.30

Market price per share

399.95

Earning Yield

6.08

Earning yield Years

2003

2004

2005

2006

2007

Percentage

14.16%

12.28%

12.73%

9.51%

6.08%

71

16 14 12 10 8

Earning yeild

6 4 2 0 2003

2004

2005

2006

2007

Analysis of the earning yield: Earning yield of MCB bank is high in 2003 as compared to the other years. Because the market price per share and earning per share is low in 2003. Earning yield in 2004 and 2005 is also high. Earning yield is unsatisfied in 2007.

14

Earning Per Share:

This ratio determines the amount of income that has been earned on each share outstanding. Net profit after tax divided by total numbers of shares outstanding gives the amount earned on each share.

Net profit after tax divided by total number of shares outstanding Earning per share=Net profit after tax/ Total no of shares

72

2003

Profit after tax

2,230,145

Total number of shares

306,527

Earning per share

7.28

2004

Profit after tax

2,431,532

Total number of shares

337,180

Earning per share

7.21

2005

Profit after tax

8,922,415

Total number of shares

426,532

Earning per share

21.00

2006

Profit after tax

12,142,398

Total number of shares

546,327

Earning per share

22.23

2007

Profit after tax

15,265,562

Total number of shares

628,227

Earning per share

24.30

73

Earning per share Years

2003

2004

2005

2006

2007

Percentage

7.28

7.21

21.00

22.23

24.30

25 20 15 Earning per share

10 5 0 2003

2004

2005

2006

2007

Analysis of the earning per share: Earning per share mostly depends upon return on investment means ratio of profit generated. Earning per share is better in 2007 because in this year return on investment was also satisfied. 2003 and 2004 were unsatisfied as earning per share. 15

Gross spread ratio:

This ratio indicate the firms overall effectiveness of operation. Gross profit divided by net sales. 2003

Net markup/ interest income Interest earned

7,437,301 10,369,994

Gross spread ratio

71.72

2004

Net markup/ interest income

74

7,026,233

Interest earned

9,083,863

Gross spread ratio

77.35

2005

Net markup/ interest income

14,974,764

Interest earned

17,756,232

Gross spread ratio

84.34

2006

Net markup/ interest income

21,252,702

Interest earned

25,778,061

Gross spread ratio

82.44

2007

Net markup/ interest income

23,921,062

Interest earned

31,786,595

Gross spread ratio

75.26

Years

2003

2004

2005

2006

2007

Percentage

71.72%

77.35%

84.34%

82.44%

75.26%

75

86 84 82 80 78 76 74 72 70 68 66 64

Gross spread ratio

2003

2004

2005

2006

2007

Analysis of gross spread ratio: This ratio tells the profit of the firm relative to sales, after deduction of cost of production. It is a measure of the efficiency of the firm’s operation. Gross spread ratio of MCB bank is high in 2005 as compared to the other years. Only because of low expenses during the year. After this 2006 is good but not satisfied as of 2005.

16

Income/ expense ratio: 2003

Total Income

14,901,805

Total expenses

11,288,881

Income/ expense ratio

1.32

2004

Total Income

13,316,851

Total expenses

9,772,987

Income/ expense ratio

76

1.36

2005

Total Income

23,169,303

Total expenses

10,491,414

Income/ expense ratio

2.21

2006

Total Income

30,769,477

Total expenses

12,268,807

Income/ expense ratio

2.51

2007

Total Income

37,797,886

Total expenses

16,489,851

Income/ expense ratio

2.29

Income /expense ratio: Years

2003

2004

2005

2006

2007

Percentage

1.32 times

1.36

2.21

2.51

2.29

77

3 2.5 2 Income expense ratio

1.5 1 0.5 0 2003 2004 2005 2006 2007

Analysis of Income/ expense ratio: Income/ expense ratio of MCB bank is high in 2006 as compared to the other years. Because in this year the expenses as compared to earnings are very low. After this 2005 and 2006 also depicts an excellent income/ expense ratio. But 2003 was the worst one for Muslim Commercial Bank.

78

4.3

HORIZONTAL ANALYSIS:

Horizontal Analysis of Balance Sheet Horizontal/ Index Analysis Muslim Commercial Bank Limited Balance Sheet As on 31st December 2003 2004 2005 Assets Cash and balances with treasury banks Balances with other banks Lending to financial instutions Investments Advances Operating fixed assets Deffered tax assets Other assets Liabilities Bills payable Borrowings Deposits and Othe accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deffered tax liabilities Other liabilities

Net assets Represented by: Share capital Reserves Unappropriateed profit Surplus on revaluation of assets

2006

2007

100

99

98

135

167

100

438

113

505

292

100

105

96

202

10

100 100 100 100

52 141 174 95 95

54 186 178 84 110

49 204 198 171 126

88 225 350 276 151

100 100 100 100

90 23 105 100

102 84 108 100

84 73 122 100

125 121 138 30

-

-

-

-

-

100 100

38 102 94

135 105

175 115

167 184 136

100

131

210

368

496

100 100 100 100

110 129 59 298

139 306 75 520

178 563 1,964 462

205 776 1,822 588

100

158

160

153

287

100

131

210

368

496

Horizontal/Index size analysis: Cash and balances with treasury banks: Index size analysis is clearly showing that cash and balances with treasury banks are increasing 2006 and 2007. The biggest reason behind this inclusion is deposits are increasing in these years. Including foreign and local both types of deposits.

79

Balances with other banks:

There is gradual increase in balances with other banks. MCB bank limited has maintained two types of accounts, current and fixed within the Pakistan and outside the Pakistan. Lending to the financial institutions:

Lending to the financial institution decreased in 2005 because in this period MCB Bank it self need of financing. There were again decrease in 2007. Lending to the financial institution include call money landings, repurchase agreement lending and purchase under resale agreement of listed equity security, trade related deals. Advances:

Index size/horizontal analysis is showing that advances are increasing every year because of increase in deposits. Other assets:

Other assets are increasing in year 2006 and 2007. Other assets include income /mark up accrued in local currency, in foreign currency, advances, deposits, advance taxation, suspense accounts, stationery and stamps, dividend receivable, Operating fixed assets:

Operating fixed assets like others are also increasing because every year capital work in progress increased. Property and equipment of MCB Bank are also increasing every year.

Liabilities: Bills payable:

Bills payable is increasing in 2005 and 2006 with in the Pakistan. Deposits and other accounts:

Deposits include current deposits, fixed deposits, saving deposits, special exporter’s accounts remunerative accounts, deposit in local currency and deposit in foreign currency are increasing every year. Te reason behind this is MCB Bank is offering higher deposit s rates to its customer every year.

80

Liabilities against asset subject to finance lease:

There was no liability against assets subject to finance lease. Other liabilities:

Other liabilities consist of interest payable in local currency, interest payable in foreign currencies unearned income commission, accrued expenses advance payments, unclaimed dividend, proposed dividend, unrealized loss, branch adjustment account, payable to defined contribution plan, payable against purchase of listed shares, with holding taxes payable and other are increasing every year. Share capital:

Share capital of MCB bank limited is increasing every year because profit is increasing year by year. Reserves:

Reserves for the contingencies have been created for risk assets comprising advances and investment excluding government securities. The reserves have been created as matter prudence, exclusive to provide sufficient cushion for any future losses in the banks risk assets portfolio. Reserves of every five years are increasing.

81

Horizontal Analysis of Profit and Loss

Markup/ return/ interest earned Mark up/ return/ interest expense Net mark up/ interest income Provision for dimininution in the value of investment Provision against loans and advances Provision for potential lease losses Bad debts written off directly Net mark up/interest income after provisions Non mark up/interest income - Fee, commission and brokerage - Dividend income - Income from dealing in foreign currencies - Gain on investment - Unrealized gain/ loss on revaluation of investment - Other income Total non mark up interest income Non mark up/interest expense Administrative expenses Restructuring expenses Other proposition/write off Other charges Total non mark up/ interest expense Share of profit from associated undertaking Extra ordinary/unusual items Profit before taxation Taxation-Current year -Prior years -Defferd Share of tax of associated undertaking Profit after taxation Unappropriate profit brought forward Transfer from surplus on revaluation of fixed assets Profit available for appropriation Basic/diluted earnings per share-

Horizontal/ Index Analysis Muslim Commercial Bank Limited Profit and Loss Account As on 31st December 2003 2004 2005 100 88 171 100 70 95 94 201

2006 249 154 286

2007 307 268 322

100

115

66

(81)

(70)

100 100 100 100

63 139 4 36

176 1 147

144 21 151

419 392

100

101

208

302

313

100 100

191 102

235 129

222 218

253 170

100

149

160

209

209

100

39

42

30

74

-

-

-

-

-

100 100 100

77 93 98

146 119 172

77 110 224

76 133 240

100 100 100 100

110 299 71 98

98 (145) 303 87

98 23 113 87

76 (7) 916 73

-

-

-

-

-

100

112

360

512

590

100 100 100 -

128 41 118 109

380 (215) 296 400

470 37 460 544

531 526 437 685

100

32

27

802

889

100

103

335

129

47

100

34

38

776

857

100

92

319

597

723

6.61

99

293

321

334

-

82

Horizontal/index analysis: Mark up/return/Interest earned:

It remains the constant in 2003 and 2004 because MCB Bank earn same interest on loans and advances to customers. But it increased in 2005, 2006 and 2007. Mark up /return/Interest expense:

Mark up /return/Interest are low in 2004 because of the low rates of deposits. One of the biggest things, which made these figure of 2004 low, is a subordinated loan. Other income:

There is gradual increase in other income in year 2005. The reason is rent on property, gain on sale of non banking assets and bad debts are recovered. Administration expenses:

With the passage of time as the profit of the bank is increasing Administration expenses are also increasing. Which include salaries, allowances, rent, taxes, insurance, electricity, legal and professional charges, brokerage and commission, repair and maintenance, Advertising and publicity. Other charges:

In 2006 there heavy amount of other charges imposed. Other charges are penalties imposed by state bank of Pakistan. Taxation:

Taxation system is linked with the profit of the bank that s why taxes increase with the ratio of profit.

83

4.4

VERTICAL ANALYSIS

Vertical Analysis Balance Sheet Vertical/ common Size analysis Muslim Commercial Bank Limited Balance Sheet As on 31st December 2003 2004 2005 (Rupees '000) Assets Cash and balances with treasury banks Balances with other banks Lending to financial instutions Investments Advances Operating fixed assets Deffered tax assets Other assets Liabilities Bills payable Borrowings Deposits and Other accounts Sub-ordinated loans Liabilities against assets subject to finance lease Deffered tax liabilities Other liabilities Net assets Represented by: Share capital Reserves Unappropriateed profit Surplus on revaluation of assets

2006

2007

8.83

9.20

7.92

9.49

9.67

0.48 3.83 47.10 35.69 1.68 2.38 100

2.20 4.23 25.93 52.98 3.09 2.37 100

0.49 3.35 23.26 60.35 2.74 0.06 1.83 100

1.92 6.16 18.56 57.95 2.65 0.05 3.22 100

0.93 0.26 27.55 53.34 3.90 4.35 100

3.08 11.98 77.67 0.59

2.92 2.93 85.30 0.62

2.86 9.16 76.76 0.53

2.07 7.00 75.26 0.47

2.55 9.60 71.16 0.12

-

-

-

-

-

0.26 2.34 95.92 4.08

0.10 2.52 94.38 5.62

2.88 92.20 7.80

3.27 88.06 11.94

0.29 2.86 86.57 13.43

1.13 1.61 0.10 2.84 1.24 4.08

1.30 2.18 0.06 3.55 2.07 5.62

1.43 4.49 0.07 5.99 1.82 7.80

1.60 7.21 1.62 10.42 1.52 11.94

1.53 8.28 1.25 11.06 2.36 13.43

Vertical/common size analysis: Cash and cash balances: Cash and cash balances are increasing every year but in 2005 it decreases. Balances with other banks: Balances are increased in 2004 and 2006 and heavily decreases in 2005 and 2007. The reason behind the decrease of balances with other banks is advances and investment.

84

These two years MCB Bank used these funds in investment and advances rather then keeping balances with other banks. Lending to the financial institutions:

MCB Bank lending to the financial institutions was 3.83% after one year in 2004 increased by 1% and in 2005 decreased very quickly by 3.35% because repurchase agreement landings was low in this year. It increased in 2006 but decline in 2007 that is 0.23%. Lending to the financial institution was in 2006 (21,081,800) in 2007 figure was (1,051,372). Because in 2007 there were no repurchase agreement lending and call money lending is very low. Investment:

MCB Bank 2003 investment are satisfied rather than other 4 years that was 47% of total assets. It decreases in 2004, which was 26% of the total assets. The reason is less funds are used as investment in fully paid up ordinary shares of listed companies and unlisted term finance certificates in 2004. At that time period there were no investment in government of Pakistan sukuk bonds. Little bit increase in investment was in 2005. But in 2007 it will again increased up to 28%. Advances:

In MCB Bank there were increase in advances year by year. Operating fixed assets:

Operating fixed asset are increasing year by year but are same with total assets of 2% to 3% throughout the year. Other assets:

Ratio of the other assets remains the same in 2003 with 2004. Other assets increased in 2006 and 2007 because receivable from pension fund as well as income/ markup accrued on advances are increased in these years. Liabilities: Bills payable:

In MCB Bank five year comparison of the bills payable declare that all five years ratio are lies between 2.5%and 3.00% there are change or increase in bills payable every year but the ratio is the same because of the comparison with the total assets.

85

Deposits with other accounts:

Deposits with the other accounts decreased in 2004 but simultaneously it increased up to 2007 with the comparison of the total assets. Subordinated loans:

The subordinated loans are decreased year by year as I 2007 it remain up to 0.125 of total assets. Liabilities against assets subject to the finance lease:

There were no such liabilities. Other liabilities:

Other liabilities remains the same throughout the five years. It does not mean that other liabilities are not increasing year by year but are same with total assets of 3% throughout the year. Reserves:

Reserves of the MCB bank limited are increasing every year Share capital:

In MCB bank limited share capital was same in 2003 and 2004. It increases gradually in 2005, 2006, and 2007. Surplus on revolution of assets:

Increased year by year.

86

Vertical Analysis of Profit and Loss Vertical/ common Size analysis Muslim Commercial Bank Limited Profit and Loss Account As on 31st December 2003 2004 2005 (Rupees '000) Markup/ return/ interest earned 69.6 68.2 76.6 Mark up/ return/ interest expense 19.7 15.5 12.0 Net mark up/ interest income 49.9 52.8 64.6 Provision for dimininution in the (1.0) (1.3) (0.4) value of investment Provision against loans and 4.7 3.3 5.4 advances Provision for potential lease 0.0 0.0 losses Bad debts written off directly 1.5 0.1 0.0 5.2 2.1 4.9 Net mark up/interest income 44.7 50.7 59.7 after provisions Non mark up/interest income - Fee, commission and 7.0 15.0 10.6 brokerage income - Dividend income 2.5 2.8 2.1 - Income from dealing in 2.2 3.7 2.3 foreign currencies - Gain on investment 13.7 6.0 3.7 - Unrealized gain/ loss on (0.1) 0.0 revaluation of investment - Other income 5.0 4.3 4.7 Total non mark up interest 30.4 31.8 23.4 income 75.1 82.4 83.1 Non mark up/interest expense Administrative expenses 44.2 54.4 27.9 Restructuring expenses 5.9 Other proposition/write off 0.3 1.1 (0.3) Other charges 0.4 0.3 0.8 Total non mark up/ interest 50.8 55.8 28.3 expense Extra ordinary/unusual items 3.9 1.5 Profit before taxation 24.2 30.5 56.2 Taxation-Current year 8.1 11.7 19.9 -Prior years (0.6) -Defferd 1.1 0.5 (1.6) 9.3 12.2 17.7 Profit after taxation 15.0 18.3 38.5 Unappropriate profit brought 4.2 1.5 0.7 forward Transfer from surplus on 0.2 0.2 0.4 revaluation of fixed assets 4.3 1.7 1.1 Profit available for 19.3 19.9 39.6 appropriation

87

2006

2007

83.8 14.7 69.1

84.1 20.8 63.3

0.4

0.3

3.3

7.8

-

-

0.2 3.8

0.0 8.1

65.2

55.2

7.5

7.0

2.6

1.7

2.2

1.8

2.0

4.0

-

(0.0)

1.9

1.5

16.2

15.9

81.4

71.1

21.1 0.0 0.2

13.3 (0.0) 1.4

21.3

14.7

60.1 18.5 1.9 0.2 20.7 39.5

56.4 17.0 (3.4) 2.4 16.0 40.4

16.2

14.6

0.1

0.0

16.3

14.7

55.8

55.1

Vertical analysis of the profit and loss account: Mark up /return/interest expense:

There is decrease in 2004 2005 and 2006 in the mark up/return/interest expense because return on deposits is very low due to the low rates on deposits. Return on subordinated loans is satisfied that was the reason of the reason of decline in the return on expense. Again increase in 2007 because rate on deposits increased in 2007. Administration expense:

Administration expenses are decreasing every year as approved pension fund as well as post retirement benefits are low. Moreover, there were no self retrenchment costs. Other charges:

Other charges include penalties imposed by the state bank of Pakistan that increased every year. Its vertical ratio is 0 because amounts of the penalties imposed by the bank are very small as comparison to the Interest/ income earned but in 2007 it will reach up to 3.54%. Taxation:

Taxes are increasing every year except of 2007 taxes, their ratio are lowered than 2006 because of taxes for the prior year .

88

4.5

ORGANIZATIONAL ANALYSIS WITH REFERENCE TO THE INDUSTRIES LISTED ON THE STOCK EXCHANGE:

RANK 1 2

DEPOSITS COMPARSION OF FIFTEEN BANK'S IN PAKISTAN Rs. In Billion DEPOSITS GROWTH BANK NAME 31-12-2006 31-12-2007 VOLUME %AGE HABIB METROPOLITAN 56.71 102.49 45.78 80.73 BANK OF PUNJAB 88.47 137.73 49.26 55.68

3 4

MEEZAN BANK LIMITED BOLAN BANK (MY BANK)

22.77 12.86

34.45 19.17

11.68 6.31

51.3 49.07

5 6 7 8 9 10 11 12 13 14 15

AL-BARAKA BANK BANK AL-HABIB LIMITED UBL BANK LIMITED MCB BANK LIMITED SOONRI BANK LIMITED PICIC COMMERCIAL BANK ASKARI BANK LIMITED NATIONAL BANK LIMITED BANK AL-FALAH LIMITED HABIB BANK LIMITED FIRST WOMAN BANK LTD

10.31 75.8 283.02 221 47.61 53.47 118.79 463.43 222.35 432.55 8.72

13.82 91.42 321.73 211 53 59.47 131.84 501.87 239.51 459.14 9.02

3.51 15.62 38.71 28.12 5.39 6 13.05 38.44 17.16 26.59 0.3

34.04 20.61 13.68 12.26 11.32 11.22 10.99 8.29 7.72 6.15 3.44

*Reference: Data obtained from Annual statements of abovementioned Banks on net on their respective website. A d va n c e s C o m p a r i s o n

RANK 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

ADVANCES COMPARSION OF FIFTEEN BANK'S IN PAKISTAN Rs. In Billion ADVANCES GROWTH BANK NAME 31-12-2006 31-12-2007 VOLUME %AGE HABIB METROPOLITAN 43.52 83.32 39.8 91.45 BANK OF PUNJAB 63.62 101.32 37.7 59.26 BOLAN BANK (MY BANK) 9.29 13.49 4.2 45.21 BANK AL-HABIB LIMITED 55.3 77.8 22.5 40.69 MEEZAN BANK LIMITED 19.74 27.03 7.29 36.93 AL-BARAKA BANK LIMITED 7.42 9.69 2.27 30.59 BANK AL-FALAH LIMITED 118.16 150 31.84 26.95 FIRST WOMAN BANK 2.46 3.02 0.56 22.76 UBL BANK LIMITED 200.6 238.32 37.72 18.8 NATIONAL BANK LIMITED 268.84 316.11 47.27 17.58 ASKARI BANK LIMITED 85.98 99.18 13.2 15.35 HABIB BANK LIMITED 316.88 349.43 32.55 10.27 SOONRI BANK LIMITED 32.05 35.41 3.36 10.48 MCB BANK LIMITED 198 218 17.92 9.94 PICIC COMMERCIAL 33.16 34.89 1.73 5.21

*Reference: Data obtained from Annual statements of abovementioned Banks on net on their respective website.

89

NetProfit after tax NET PROFIT AFTER TAX COMPARSION OF FIFTEEN BANK'S IN PAKISTAN Rs. In Billion Net Profit GROWTH RANK BANK NAME 2006 2007 VOLUME %AGE 1 BOLAN BANK (MY BANK 0.27 0.49 0.22 2 BANK OF PUNJAB 2.35 3.8 1.45 61.7 3 UBL BANK LIMITED 5.89 9.05 3.16 53.65 4 MEEZAN BANK LIMITED 0.42 0.6 0.18 42.86 5 HABIB METROPOLITAn 1.51 2.1 0.59 39.07 6 MCB BANK LIMITED 12.14 15.26 3.22 36.1 7 NATIONAL BANK LIMITED 12.71 17.02 4.31 33.91 8 HABIB BANK LIMITED 9.65 12.7 3.05 31.61 9 BANK AL-HABIB LIMITED 1.46 1.76 0.3 20.55 10 ASKARI BANK LIMITED 2.02 2.25 0.23 11.39 11 FIRST WOMAN BANK 0.13 0.14 0.01 7.69 12 13 14 15

BANK AL-FALAH LIMITED SOONRI BANK LIMITED PICIC COMMERCIAL BANK AL-BARAKA BANK LIMITED

1.7 1.39 1.5 0.35

1.76 1.42 0.97 0.14

0.06 0.03 -0.53 -0.21

3.53 2.16 -35.33 -60

*Reference: Data obtained from Annual statements of abovementioned Banks on net on their respective website. Ea r n i n g p e r s h a r e EARNING PER SHARE COMPARSION OF FIFTEEN BANK'S IN PAKISTAN

RANKI NG 1

BANK NAME UBL BANK LIMITED

EPS 31-1231-122006 2007 6.84 13.68

GROWTH VOLUME 6.84

%AGE 100

2

BANK OF PUNJAB

8.13

13.14

5.01

61.62

3

HABIB BANK LIMITED

12.92

20.69

7.77

60.14

4

BOLAN BANK (MY BANK)

1.23

1.89

0.66

53.66

5 6

MCB BANK LIMITED NATIONAL BANK LIMITED

23.4 17.92

24.3 24.01

5.97 6.09

34.25 33.98

7

MEEZAN BANK LIMITED

1.46

1.88

0.42

28.77

8

HABIB METROPOLITAN

7.24

9.32

2.08

28.73

9

BANK AL-HABIB LIMITED

5.57

6.69

1.12

20.11

10

ASKARI BANK LIMITED

10.09

11.23

1.14

11.3

11

FIRST WOMAN BANK LTD

4.71

4.88

0.17

3.61

12

BANK AL-FALAH LIMITED

3.92

3.86

-0.06

-1.53

13

PICIC COMMERCIAL BANK

5.5

3.54

-1.96

-35.64

*Reference: Data obtained from Annual statements of abovementioned Banks on net on their respective website.

90

4.6

Future Prospects Of The Organization

Vision: Challenging and Changing the Way you Bank. Mission Statement

“MCB Bank’s team of committed professionals is dedicated to maintaining long term customer relationships through outstanding service and convenience”. Objectives: 

To achieve sustained growth and profitability in all areas of business.



To build and sustain a high performance culture, with a continuous improvement focus.



To develop a customer service oriented culture with special emphasis on customer care and convenience.



To effectively manage and mitigate all kinds of risks inherent in the banking business.



To maximize use of technology to ensure cost effective operations, efficient management information system, enhanced delivery capability and high service standards.



To manage the bank portfolio of the business to achieve strong and sustainable shareholders return and to continuously build shareholders value.



To explore new avenue for growth and profitability.

Strategic planning: 

To comprehensive plan for future to ensure sustained growth and profitability.



To facilitate alignment of the vision, mission, corporate objective and with the business goals.



To provide strategic initiatives and solutions for projects, products, policies and procedures.

91



To provide strategic solutions to mitigate weak areas and to counter threats to profits.



To identify strategic initiatives and opportunities for profits.



To create and leverage strategic assets and capabilities for competitive advantage.

For developing a forward-looking perspective, strategic planning driven by quality research is essential. Strategic planning helps to set short, medium and long term business plans in order to achieve the banks longer term goals, objectives and vision. Strategic planning division headed by an experienced economist has been established. It is mandated to conduct economic research and present detailed sect oral analysis of Pakistan economy. It will also make assessment of overall outlook for the banking sector that should assist senior management in decision-making process. Future prospects of the Muslim Commercial bank are to increase market shares, mobilize resources, developed retail, agriculture and Islamic banking, introduce fresh initiatives for corporate and investment banking, capitalize on the new business opportunities and implement various technology initiatives. Muslim Commercial bank limited is continuously focused on building long-term shareholders value, as primary objective. The strength of its brand name, supported by strategic expansion and the depth of its customer relationship, gives a strong foundation on which to build and continue growth in the times ahead. Future prospectus is to improve risk management, which considered being one of the essentials for sustainable success in the business. Based on the risk management guidelines issued by state bank of Pakistan; a risk management strategy has been developed for accessing and mitigating/controlling risk.

92

4.7

SHORTFALLS/ WEAKNESSES IN THE ORGANIZATION

Following are the shortfall/ weakness in the organization as per my opinion:

Manual Book-Keeping: Although the bank has computerized accounting system but, still the bankers use to make their entries in the accounting register.

Low Job Satisfaction: Understanding and the effective management of the human resources is the most difficult challenge faced not only by the bank but by all the organizations. Even though the people have been sacrificed in the new organizational developments, it is becoming clear that the true lasting competitive advantage comes through human resources and how they are managed. MCB seems to not focusing on this highly critical issue as the job satisfaction level of the employees working at MCB, was quite low.

Lack Of Specialization: This famous and useful concept given by Adam Smith in 1776 seems to be missing in the bank. The employees are constantly rotated from one job to another job of totally different characteristic in the view of giving them the know-how of the working in all the departments. But I think this is not a very good tactics used by the management. Otherwise the situation might be like this ‘Jack of all and master of none.’

Centralization: There is a high degree of centralization in the bank. Almost all the decision-making is in the hands of the upper management. But centralization is effective up to a certain level otherwise it becomes inefficient and at times costly too. I personally

93

observed that delay occurred in the operations of the employees only due to the fact that they had not got any instructions from the head office.

Lack Of Training Facilities: Presently there is no specific training program arranged for the new recruiters. They have to learn based on their observations and also their mistakes. It takes a bit time for the fresh one to learn the banking the result is huge amount of blunders, mistakes etc. resulting in monetary and non-monetary losses for the bank. There is pressure not only on the new learner but also on the person placed upon with this responsibility.

High charges: The schedules of charges indicate that the fees charged by the bank on the various services it provides are extremely high. It may result in decrease in the number of its exiting customers. Further more, this could be very alarming situation for the bank in case some of the competitors grasped the opportunity and lowered its rates. The result would be either the lost of market share or decrease in the charges resulting in lowering the bank’s income.

Less attractive rate of return: Commercial banks face considerable competition in attracting deposits from individuals or small investors. In contrast, the Govt. of Pakistan national saving scheme offers attractive rates of return (approx. 16 to 18 percent annually) on 10-15 year fixed accounts, which banks find difficult to match.

Stiff Competition: MCB is currently facing strict competition from the foreign banks especially the American who banks enjoy a good market position. Collectively U.S. banks hold approximately 9 percent of all commercial banks' assets. At present, three American banks are operating in Pakistan: American Express Bank; Bank of America and Citibank.

94

Less Experienced Staff:

Owing to huge turnover of the employees, the no. of experienced and well trained staff is very low. Majority of the staff working in the bank branches is quite young and inexperienced. If the bank failed to bring down its high employees turnover, then it would be lacking the most important resources of any organization i.e. the experienced staff.

95

CONCLUSION The emerging banks of the private sector of Pakistan like MCB have proven to be helpful in improving the overall economy of Pakistan. MCB has been declared 07 times “Euromony award” and “Asia Money Award” for the last five years, which is a very big achievement for Pakistan. Muslim Commercial Bank is heading towards the right direction and it possesses the necessary potential to improve in all of its sectors. Thus Muslim Commercial Bank Limited is one of the best banks of Pakistan.

96

RECOMMENDATIONS First of all, the management needs to overlook the major problems that the organization is currently facing and then develop strategies to eradicate them. Some of the suggestions that I would like to give at the end are: 

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.



In order to compete in the ever-expanding market both nationally and internationally, introducing new and efficient products is one of its major requirements.



Centralized Structure that enables employee involvement needs to be formed.



Better reward system is one of the most important requirements in order to reduce the problem of Employee retention and improve Employee motivation.



There is lack of proper and continuous training of employees that needs to be solved.



Creation of enhanced performance appraisal system.



Proper use of stationary.



Implementation of enhanced Marketing system.



Job rotation for employees.



There should be more parking place outside the branch for the convenience of clients.



There should be cold drinking water facility separately available at each section.



Common room for working ladies is very much essential in each floor so that they may offer prayers conveniently.



Canteen facility needs to be improved.

97

RE F FRE NC ES 

www.mcb.com.pk



Annual report of MCB bank



Staff of MCB Aabpara branch Islamabad



Business Record August 15,2008

98

ANNEXURE - I BRANCHES NETWORK

99

ANNEXURE - IIi

100