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CHAPTER # 1
BANKING INDUSTRY OVERVIEW
1.1 Introduction
The definition of a bank varies from country to country. "banking business" means the
business of receiving money on current or deposit account, paying and collecting cheques
drawn by or paid in by customers, the making of advances to customers, and includes
such other business as the Authority may prescribe for the purposes of this Act.
"Banking business" means the business of either or both of the following:
1. receiving from the general public money on current, deposit, savings or other
similar account repayable on demand or within less than [3 months] ... or with a
period of call or notice of less than that period;
2. paying or collecting cheques drawn by or paid in by customers[8]
A bank is a financial institution that serves as a financial intermediary. The word bank
was borrowed in Middle English from Middle French banque, from Old Italian banca,
from Old High German banc. Commercial banks are in the business of providing banking
services to individuals, small businesses and large organizations. While the banking
sector has been consolidating, it is worth noting that far more people are employed in the
commercial banking sector than any other part of the financial services industry.
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1.2 Industry Background
Banks act as payment agents by conducting checking or current accounts for customers,
paying cheques drawn by customers on the bank, and collecting cheques deposited to
customers' current accounts. Banks also enable customer payments via other payment
methods such as telegraphic transfer, and automated teller machine (ATM).
Banks borrow money by accepting funds deposited on current accounts, by accepting
term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend
money by making advances to customers on current accounts, by making installment
loans, and by investing in marketable debt securities and other forms of money lending.
Banks provide almost all payment services, and a bank account is considered
indispensable by most businesses, individuals and governments. Non-banks that provide
payment services such as remittance companies are not normally considered an adequate
substitute for having a bank account.
Banks borrow most funds from households and non-financial businesses, and lend most
funds to households and non-financial businesses, but non-bank lenders provide a
significant and in many cases adequate substitute for bank loans, and money market
funds, cash management trusts and other non-bank financial institutions in many cases
provide an adequate substitute to banks for lending savings too. Banking is one of the
most sensitive businesses all over the world. Banks play very important role in the
economy of a country and Pakistan is no exemption. Banks are custodian to the assets of
the general masses. The banking sector plays a significant role in a contemporary world
of money and economy. It influences and facilitates many different but integrated
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economic activities like resources mobilization, poverty elimination, production and
distribution of public finance.
Pakistan has a well-developed banking system, which consists of a wide variety of
institutions ranging from a central bank to commercial banks and to specialized agencies
to cater for special requirements of specific sectors. The country started without any
worthwhile banking network in 1947 but witnessed phenomenal growth in the first two
decades. By 1970, it had acquired a flourishing banking sector.
SBP acts as a nucleolus in the financial system of the country. To day, a central bank is
the central arch of the monetary and fiscal framework in many countries of the world and
its activities are essential for the proper functioning of the economy and critical for the
fiscal operations of the government and Pakistan’s banking system is no exemption. State
Bank of Pakistan was established on the first of July 1948 under the SBP order 1948 as
the central bank of the country. State Bank of Pakistan reins the monetary and credit
system in Pakistan. The SBP is performing many useful functions like custodian of cash
reserve of commercial banks, custodian of foreign currency reserves, bank of rediscount,
central clearance, settlement and transfer, and conducting monetary policy for the
stability of the entire banking industry of Pakistan.
The Banking Industry was once a simple and reliable business that took deposits from
investors at a lower interest rate and loaned it out to borrowers at a higher rate. The
Banking Industry at its core provides access to credit. In the lenders case, this includes
access to their own savings and investments, and interest payments on those amounts. In
the case of borrowers, it includes access to loans for the creditworthy, at a competitive
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interest rate. The collapse of the Banking Industry in the Financial Crisis, however,
means that some of the more extreme risk-taking and complex securitization activities
that banks increasingly engaged in since 2000 will be limited and carefully watched, to
ensure that there is not another banking system meltdown in the future.
Mortgage banking has been encompassing for the publicity or promotion of the various
mortgage loans to investors as well as individuals in the mortgage business. Banking in
the small business sector plays an important role. Find various banking services available
for small businesses.
1.3 International Banking Industry
A banker or bank is a financial institution that acts as payment agent for customers, and
borrows and lends money. Banks act as payment agents by conducting accounts for
customers, paying cheques drawn by customers on the bank, and collecting cheques
deposited to the customer’s current accounts. Banks also enable customer payments via
other payment methods such as telegraphic transfer. Banks borrow money by accepting
funds deposited on current account, accepting term deposits and by issuing debt securities
such as bank notes and bonds. Banks lend money by making advances to customers on
current account, by making installment loans and by investing in marketable debt
securities and other forms of lending and other forms of lending.
Banks provide almost all payment services and a bank account is considered
indispensable by most businesses, individuals and businesses. Non-banks that payment
services such as remittance companies are not normally considered an adequate substitute
for having a bank account.
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The history of banking is closely related to the history of money. As monetary payments
became important, people looked for ways to safely store their money. As trade grew,
merchant looked for ways of borrowing money to fund expeditions.
In Egypt and Mesopotamia gold is deposited in temples for safe-keeping. The concept of
banking arrived.
The first banks were probably the religious temples of the ancient world, and were
probably established sometime during the 3rd millennium B.C. Banks probably predated
the invention of money. Deposits initially consisted of grain and later other goods
including cattle, agricultural implements, and eventually precious metals such as gold, in
the form of easy-to-carry compressed plates. Temples and palaces were the safest places
to store gold as they were constantly attended and well built. As sacred places, temples
presented an extra deterrent to would-be thieves. There are extant records of loans from
the 18th century BC in Babylon that were made by temple priests to merchants. By the
time of Hammurabi's Code, banking was well enough developed to justify the
promulgation of laws governing banking operations.
Ancient Greece holds further evidence of banking. Greek temples, as well as private and
civic entities, conducted financial transactions such as loans, deposits, currency
exchange, and validation of coinage. There is evidence too of credit, whereby in return
for a payment from a client, a moneylender in one Greek port would write a credit note
for the client who could "cash" the note in another city, saving the client the danger of
carting coinage with him on his journey. Pythius, who operated as a merchant banker
throughout Asia Minor at the beginning of the 5th century B.C., is the first individual
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banker of whom we have records. Many of the early bankers in Greek city-states were
“metics” or foreign residents. Around 371 B.C., Pasion, a slave, became the wealthiest
and most famous Greek banker, gaining his freedom and Athenian citizenship in the
process.
The fourth century B.C. saw increased use of credit-based banking in the Mediterranean
world. In Egypt, from early times, grain had been used as a form of money in addition to
precious metals, and state granaries functioned as banks. When Egypt fell under the rule
of a Greek dynasty, the Ptolemies (330-323 B.C.), the numerous scattered government
granaries were transformed into a network of grain banks, centralized in Alexandria
where the main accounts from all the state granary banks were recorded. This banking
network functioned as a trade credit system in which payments were effected by transfer
from one account to another without money passing.
In the late third century B.C., the barren Aegean island of Delos, known for its
magnificent harbor and famous temple of Apollo, became a prominent banking center. As
in Egypt, cash transactions were replaced by real credit receipts and payments were made
based on simple instructions with accounts kept for each client. With the defeat of its
main rivals, Carthage and Corinth, by the Romans, the importance of Delos increased.
Consequently it was natural that the bank of Delos should become the model most closely
imitated by the banks of Rome.
Ancient Rome perfected the administrative aspect of banking and saw greater regulation
of financial institutions and financial practices. Charging interest on loans and paying
interest on deposits became more highly developed and competitive. The development of
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Roman banks was limited, however, by the Roman preference for cash transactions.
During the reign of the Roman emperor Gallienus (260-268 CE), there was a temporary
breakdown of the Roman banking system after the banks rejected the flakes of copper
produced by his mints. With the ascent of Christianity, banking became subject to
additional restrictions, as the charging of interest was seen as immoral. After the fall of
Rome, banking was abandoned in Western Europe and did not revive until the time of the
crusades
Now a day’s banking is becoming the most significant businesses all over the world.
Banks play very important role in the economy of all countries around the world. Banks
are custodian to the assets of the general masses. The banking sector plays a significant
role in a contemporary world of money and economy. It influences and facilitates many
different but integrated economic activities like resources mobilization, poverty
elimination, production and distribution of public finance.
Some of the core functions performed by international banks are as follows
o Issuing letters of credit, traveler’s cheques, circular notes etc.
o Undertaking safe custody of valuables, important documents, and securities by
providing safe deposit vaults or lockers;
o Providing customers with facilities of foreign exchange.
o Transferring money from one place to another; and from onebranch to another
branch of the bank.
o Standing guarantee on behalf of its customers, for makingpayments for purchase
of goods, machinery, vehicles etc.
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o Collecting and supplying business information;
o Issuing demand drafts and pay orders
o Providing reports on the credit worthiness of customers.
1.4 The Banking Industry in Pakistan
Banking is one of the most sensitive businesses all over the world. Banks play very
important role in the economy of a country and Pakistan is no exemption. Banks are
custodian to the assets of the general masses. The banking sector plays a significant role
in a contemporary world of money and economy. Pakistan has a well-developed banking
system, which consists of a wide variety of institutions ranging from a central bank to
commercial banks and to specialized agencies to cater for special requirements of specific
sectors. Pakistan’s banking sector reforms which were initiated in the early 1990s have
transformed the sector into an efficient, sound and strong banking system.
1.5 The major changes that have occurred in the banking sector
The major changes that have occurred in the banking sector during the last decade or so
can be summarized as follows:
(a) 80 percent of the banking assets are held by the private sector banks and the
privatization of nationalized commercial banks has brought about a culture of
professionalism and service orientation in place of bureaucracy and apathy.
(b) The banks that were losing money due to inefficiencies, waste and limited
product range have become highly profitable business. These profits are,
however, being used to strengthen the capital base of the banks rather than
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paying out to the shareholders. The minimum capital requirements have been
raised from Rs. 500 million to Rs. 6 billion over an extended period in a
phased manner. The consolidation of the banking sector into fewer but
stronger banks will lead to better management of risk.
(c) The banks that were burdened with the non-performing and defaulted loans
have cleared up their balance sheets in an open transparent, across-the-board
manner. Contrary to the popular myth the main beneficiaries of the wirite-offs
of the old outstanding and unrecoverable loans have been from almost 25
percent to 6.7 percent by Dec. 2005. Small individual borrowers the ratio of
non-performing loans of the Commercial Banks to total advances has
declined.
(d) The quality of new assets has improved as stringent measures are taken to
appraise new loans, and assure the underlying securities. Online Credit
Information Bureau reports provide updated information to the banks about
the credit history and track record of the borrowers. Loan approvals on
political considerations have become passé. Non-performing loans account for
less than 3 percent of all new loans disbursed since 1997.
(e) The human resources base of the banks has been substantially upgraded by the
adoption of the principles of merit and performance throughout the industry.
Recruitment is done through a highly competitive process and promotions and
compensation are linked to training, skills and high performance. The banks
now routinely employ MBAs, M.Coms, Chartered Accountants, IT graduates,
economists and other highly educated persons rather than Clerical and Non
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Clerical Workers. The banking industry has become the preferred choice of
profession among the young graduates.
(f) Banking Technology that was almost non-existent in Pakistan until a few
years ago is revolutionizing the customer services and access on-line banking,
Internet banking, ATMs, mobile phone banking and other modes of delivery
have made it possible to provide convenience to the customers while reducing
the transaction costs to the banks. Credit Cards, Debit Cards, Smart Cards etc.
are a thriving and expanding business in Pakistan. Once the RTGS is put in
place the payment system in Pakistan. Would enter a new phase of
modernization.
(g) Competition among the banks has forced them to move away from the
traditional limited product range of credit to the government and the public
sector enterprises, trade financing, big name corporate loans, and credit to
multinationals to an ever-expanding menu of products and services. The
borrower base of the banks has expanded four fold in the last six years as the
banks have diversified into agriculture, SMEs, Consumers financing,
mortgages, etc. The middle class that could not afford to buy cars or
apartments as they did not have the financial strength for cash purchases are
the biggest beneficiaries of these new products and services.
(h) Along with strong regulation, supervision and enforcement capacity of the
State Bank of Pakistan a number of measures have been taken to put best
corporate governance practices in the banking system. ‘Fit and proper’ criteria
have been prescribed for the Chief Executives, members of the Boards of
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Directors, and top management positions. Accounting and audit standards
have been brought to the International Accounting Standards (IAS) and the
International Audit Codes. External audit firms are rated according to their
performance and track record and those falling short of the acceptable
standards are debarred from auditing the banks.
(i) The foreign exchange market that was highly regulated through a system of
direct exchange controls over suppliers and users of foreign exchange has
been liberalized and all purchases and sales take place through an active and
vibrant inter-bank exchange market. All restrictions have been removed with
full current account convertibility and partial capital account convertibility.
Foreign investors can now bring in and take back their capital, remit profits,
dividends and fees without any prior removal and directly through their banks.
Similarly, foreign portfolio investors can also enter and exit the market at their
own discretion.
The main lesson learnt from the last decade suggests that financial sector functions
effectively and efficiently only if the macroeconomics situation is favorable and
stable. The need to maintain macroeconomic stability will thus remain paramount in
the years to come. The most serious complaint against the banking system in Pakistan
today is that the depositors are not getting adequate return on their bank deposits. The
difference between the monthly weighted average rates of lending and deposits is
taken as an indicator of the spreads earned by the banks. It is true that these spreads
have widened in the recent months land this phenomenon has caused resentment
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among those whose only source of income is their returns from bank deposits. But it
is important to examine the facts and their form judgments.
The monthly comparisons are meaningless because PLS deposit rates are changed
every six months, while the lending rates are continuously adjusting because they are
automatically linked to T-bills or KIBOR rates
1.6 Technological Improvements in Banking Industry
Apart from traditional business, banks now a day provide a wide range of services to
satisfy the financial and non financial needs of all types of customers from the smallest
account holder to the largest company and in some cases of non customers. The range of
services offered differs from bank to bank depending mainly on the type and size of the
bank.
However deregulation and technology led to a revolution in the Banking Industry that
saw it transformed. Banks have become global industrial powerhouses that have created
ever more complex products that use risk and securitization in models that only PhD
students can understand. Through technology development, banking services have
become available 24 hours a day, 365 days a week, through ATMs, at online banking,
and in electronically enabled exchanges where everything from stocks to currency futures
contracts can be traded.
Less than two decades ago, banking services were offered through manual passbooks at
branches that were generally only open Monday to Friday. Today, banks are far more
responsive to their customers, compared with twenty years ago. More than 90 percent of
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transactions are now conducted outside bank branches The vast majority of commercial
banks all around the world live within 20 kilometers of an over the counter banking
service where a retail customer can withdraw or deposit cash. There are almost 1.5
million ATMs all over the globe. Customers have access to millions of points of
presences, which offer a branch level of service. Banks are now open 24 hours a day,
seven days a week, rather than 10am to 3pm. Customers now pay for services they use,
rather than subsidizing services other customers use.
Electronic banking is avid users of existing electronic services and willing adopters of
new services as they become available. ATMs are now an established part of our daily
routines and our take up of Internet services is booming. More than six billion people
have registered for Internet banking, and take advantage of the convenience, low cost and
time-saving benefits of banking online. The Internet is transforming the way we manage
our financial affairs and fundamentally changing how we conduct our banking
transactions. Mobile banking (also known as M-Banking, m-banking, SMS Banking) is a
term used for performing balance checks, account transactions, payments, credit
applications and other banking transactions through a mobile device such as a mobile
phone or Personal Digital Assistant (PDA). The earliest mobile banking services were
offered over SMS.
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CHAPTER # 2
INTRODUCTION TO MCB BANK
2.1 About MCB
MCB Formerly Muslim Commercial Bank Ltd. is the largest private sector bank in
Pakistan. The Adamjee group incorporated in 1948. It proposed during the 1950’s and
60’s. In 1975 it was nationalized with all other private sector bank. Then 1991 it was
privatized. Since the bank has been headway in improving of technology. In the year
2006 bank name was changed to MCB Limited. The bank is now included as one of the
top most bank of the nation. Muslim Commercial Bank is one of the leading banks of
Pakistan with a deposit base of about Rs. 462 billion and total assets of around Rs.605
billion
2.2 Company History
Muslim Commercial Bank Limited. (MCB), the largest private sector bank in Pakistan.
Incorporated in 1948 by the Adamjee group, MCB soon earned a reputation of solid and
conservative financial institution. During the 1960s the bank grew rapidly with a
concentration on trade finance products. In 1947, MCB was nationalizes along all other
private sector banks. MCB was the first bank to be privatized in 1991 during the Nawaz
Sharif’s government financial sector deregulation policies. During the first five years, the
private management concentrated on growth utilizing its extensive network of branches
and developed a large and stable deposit base. Since privatization, the bank has made
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tremendous headway in improving the operational efficiency through human resource
development and employment of technology. The bank today boasts the target online
brand and ATM network in the country. The current shareholding structure is 50%
National Group, 25% government and 25% floated on bourses.
2.3 MCB Vision and mission
“To become the preferred provider of quality financial services in the country with
profitability and responsibility and to be the best place to work”
2.3.1 Vision Statement
“To be the leading financial services provider, partnering with our customers for a more
prosperous and secure future.”
The MCB Vision covers following long-term goals to be achieved in next 10 years:
To have highly motivated team.
Provide quality customer service.
Expand and penetrate the customer base.
Pay regular dividend and increase our share value
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2.3.2 Mission Statement
“We are a team of committed professionals, providing innovative and efficient financial
solutions to create and nurture long-term relationships with our customers. In doing so,
we ensure that our shareholders can invest with confidence in us.”
MCB is one of the leading banks of Pakistan with a market share of 12.5%. It is also the
pioneer in innovative consumer banking in Pakistan. It is the largest private sector bank
in Pakistan. It is the most preferred provider of quality financial services and is usually
considered the best place to work. It has developed a large stable deposit base. The bank
today boasts of largest online branch and ATM network in the country
2.4 Achievements
MCB is the only bank in Pakistan that has achieved 7 Euro Money Awards and 5 Asia
Money Awards for being “The Best Domestic Commercial Bank in Pakistan”, along with
several other Awards including the Best Trade Finance of Pakistan for two consecutive
years. These accolades are the proof of our consistent effort in providing the customers
with utmost care and quality. Muslim Commercial Bank Limited is awarded with “Euro
money Awards of excellence - 2000" where MCB is pronounced as "THE BEST
DOMESTIC BANK IN THE COUNTRY".
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2.5 MCB Portfolios
Corporate Banking Group of MCB is focusing on top tier local corporate groups and
multinationals in a structured and focused manner building relationships leading to
increased market share.
Branches having Advances of Rs.100, 000,000 per party relationship and monitoring such
advances are called as Corporate Branches. These branches include corporate clients and
their requirements are looked after. There are about 20 corporate branches of MCB in
Pakistan.
2.5.1 Commercial Banking
The Commercial Banking Group of MCB continues to service the trading community and
middle market, with sustained focus on developing new customer relationships and
increasing the asset portfolio.
2.5.2 Consumer Banking
The Consumer Banking Group focuses on the lower end of the market and micro credit.
Individual customer needs are being serviced through the introduction of diverse lifestyle
consumer loans and introduction of new products and partnerships with service providers.
Customers will continue to use the extensive branch network, which in turn will generate
deposits to feed the asset development and liquidity requirements of the Bank through its
diversified and stable deposit base.
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2.5.3 ATM Technology
At MCB, technology has a direct relationship with the needs of the customers, it is a
mean of creating value and convenience for the customer. Over the last few years MCB
has invested heavily into strengthening its technology backbone. Today it is leading the
way in banking technology and setting new standards for the banking industry, penetrating
into the local market, listening to the needs of the people. MCB’s strength lies in
providing technological base at a grass root levels of the society with a challenge to
educate and assimilate such systems across vast cultures.
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CHAPTER # 3
PRODUCT AND SERVICES
A large verity of products and services are offer by the MCB Bank. MCB has the products
for all kind of customers according to their needs and wants rather then what the business
thinks. With the re-launch of auto finance and house finance products, the Bank pushed
the products with full thrust. The Bank has also launched a running finance facility
against mortgage of property. Technology continued to play an important role in
improving and expanding product offerings. MCB brings a lot of innovations in their
product line like mobile banking. MCB products are for individuals, groups,
organizations and they are also offering Islamic products for the peoples who avoid riba
in their transactions. These products and services will be explained in detail as
functioning of commercial bank.
MCB provides following product & services to its account holders
3.1 Personal Banking
3.1.1 Deposit Accounts
Bank deals in money and they are merely mobilizing funds within the economy. They
borrow from one person and lend to another, the difference between the rate of borrowing
lending forms their spread or gross profit. Therefore we can rightly state that deposits are
the blood of the bank which causes the body of an institution to get to work. These
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deposits are liability of the bank so from point of view of bank we can refer to them as
liabilities.
The total deposits of MCB are growing since its inauguration but after privatization there
is a sharp incline in over all deposits of the bank. The increase in deposits is also a cause
of increase on total number of accounts; bank has progressed in both aspects.
3.1.2 Khushali Bachat Account
Khushali Bachat Account, a Rupee savings account is one of MCB Bank’s most popular
products. Due to the low initial deposit, the account can be opened by people from all
walks of life and still avail the facility of daily product profit calculation.
3.1.3 Mahana Khushali Bachat
MCB Monthly Khushali Scheme provides you with a steady income every month. Just
purchase a Monthly Khushali Certificate and you will enjoy a steady income of your total
deposit every month.
3.1.4 Pak Rupee Savings Account
MCB’s Pak Rupee Savings Account offers you attractive returns on your Pak Rupee
investment.
In addition, you have access to a countrywide ATM network convenient cash
accessibility 24 hours a day. The facility also provides you with unlimited daily
transactions with a limit on maximum withdrawal amount through the ATM machines.
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3.1.5 Pak Rupee Current Account
MCB’s Pak Rupee Current Account offers you the convenience of unlimited withdrawals
i.e. access to your funds whenever you want without any notice. There is no limit on the
number of transactions you make in a day plus you can avail finance facility up to 75% of
the total deposit.
In addition, you have access to a countrywide ATM network convenient cash
accessibility 24 hours a day. The facility also provides you with unlimited daily
transactions with a limit on maximum withdrawal amount through the ATM machines.
3.1.6 Pak Rupee Term Deposit
MCB Pak Rupee Term Deposit gives a higher rate of return. It gives you choice of 1
month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits.
3.1.7 Saving 365
The MCB Saving 365 calculates profits on a daily product basis and gives you the facility
of unlimited withdrawals.
3.2 Foreign Currency Savings Account
MCB’s Foreign Currency Savings Account offers you attractive returns on your Foreign
Currency investment.
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You can invest in any of the four currencies i.e. US Dollar, UK Pound Sterling, Japanese
Yen or Euro
Your foreign currency account is exempted from Zakat and withholding tax
3.2.1 Foreign Currency Current Account
MCB’s Foreign Currency Current Account offers you the convenience of unlimited
withdrawals i.e. access to your funds whenever you want without any notice. There is no
limit on the number of transactions you make in a day.
3.2.2 MCB Foreign Currency Term Deposit
MCB Foreign Currency Term Deposit gives a higher rate of return. It gives the choice of
1 month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits.
3.2.3 Dollar Khushali Account
The Dollar Khushali Account, a Dollar based account was introduced in 1993 at selected
MCB Bank branches. Today, you can open a Dollar Khushali Account at over 200
branches in Pakistan.
3.3 Loan Products
MCB offers different loan products to its customers which are follows
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3.3.1MCB Business Sarmaya
MCB Business Sarmaya” is the best Running Finance facility against your residential
property which empowers you to manage your business dealings better. So act today and
get MCB Business Sarmaya and thus improve your business, avail lucrative opportunities
and expand your business, with absolute satisfaction of cash flows.
3.3.2 MCB Car4u
Life is like a chess board. You plan your career options. You analyze your business
moves. But when you really want to improve your life, you make a power move. MCB
CAR4U Auto Finance is the power move that assists you in more ways than you ever
imagined. It is affordable, with lowest mark up, flexible conditions, easy processing and
above all, no hidden costs.
3.3.3 MCB Pyara Ghar
Some destinations require a long wait. Like waiting for a home of your own. But with
MCB Pyara Ghar it is now easy to step into your home and start living a real life.
MCB Pyara Ghar is an ideal Home Finance from your own bank that lets you Purchase,
Renovate or Construct your home the way you have always wanted. Having your own
home was never so easy
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3.3.4 Easy Personal Loan
MCB Easy Personal Loan provides you with the financial advantage to do things you've
always wanted to but never had the sufficient funds for. Take that much-needed holiday.
Buy a car. Refurnish your house. Purchase a new TV. Finance a better education for your
children.
3.3.5 MCB Master Card
Since the beginning of time, people have tried to find more convenient ways to pay, from
gold to paper money and cheques. Today, money is moving away from distinct hard
currencies and towards universal payment products that transcend national borders, time
zones, and, with the Internet, even physical space. Plastic or "virtual" money, credit,
debit, and electronic cash products, inevitably will replace cash and cheques as the
money of the future.
3.3.6 MCB Rupee Traveler's Cheques
MCB Rupee Traveler's Cheques were first introduced in 1993 as safe cash for traveling
and travel related purposes. The product has been extremely popular and is preferred over
cash by customers while traveling and in all walks of life.MCB Rupee Traveler's
Cheques- The safest way to Carry Cash
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3.4 Corporate Banking
3.4.1 Cash Management Services
MCB’s network of over 900 branches in Pakistan enables it to collect and disburse
payments efficiently with its cash management services. This also enables it to offer you
a choice of paper based or electronic fund transfer solutions including collection
amounts, cross branch on- line transactions etc.
3.4.2 Working Capital Loans
Based on the 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.
3.4.3 Term Loans
MCB offers Short to Medium Term Finance to meet capital expenditure and short term
working capital requirements of our customers. The loans are structured on the basis of
underlying project characteristics and cash flows of the business.
3.4.4 Trade Finance Services
Under Corporate Banking MCB offers trade finance services that include an entire range
of import and export activities including issuing Letters of Credit (L/Cs), purchasing
export documents, providing guarantees and other support services.
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3.5 Online Services
MCB provides following services
3.5.1 MCB ATM Services
With a solid foundation of over 50 years in Pakistan, with more than 750 automated
branches, 269 online branches, over 222 MCB ATMs in 41 cities nationwide and a
network of over 12 banks on the MNET ATM switch, MCB is positioned at the forefront
of the banking industry in Pakistan. This success has been possible because of a never-
ending drive to achieve higher levels of excellence, constantly striving to raise the level
of performance.
3.5.2 MCB Mobile Banking
At the forefront of technological excellence, MCB proudly introduces MCB MOBILE
BANKING. The convenience of accessing your account balance information and mini
statements whenever you want or wherever you may need them, with comfort and peace
of mind.
3.5.3 MCB Call Center
Keeping up with banking services can be tedious but not with MCB Bank, where phone
service is at your fingertips. Just dial our Call Centre from the comfort of your home or
office or wherever you happen to be. It offers basic banking services for your
convenience, eliminating the need for you to make unwanted trips to your branch.
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3.5.4 MCB Smart Card
MCB now brings you MCB SmartCard -a secure and convenient instrument of payment
with unmatched functionalities. It provides 24-hour direct access to your bank account.
The convenience and flexibility of MCB SmartCard will help you live a smarter life. It
not only helps you manage your expenses, but also eliminates undue interest on your day
to day credit card transactions. Your balance is always within your reach and you spend
accordingly.
3.5.5 MCB Debit Card
Now MCB brings a secure, convenient and quick payment facility that enables you to do
purchasing by using your existing MCB ATM / MCB Smart Card as a DEBIT CARD.
3.6 Virtual Banking
MCB Virtual Internet Banking offers you the convenience to manage and control your
banking and finances – when you want to, where you want to. MCB’s Virtual Internet
Banking facility is simple and secure. And its free of cost. With MCB Virtual Internet
Banking you can access any of the banking services, 24 hours a day, 7 days a week and
throughout the year.
MCB Virtual Internet Banking offers a wide range of online services which makes your
banking accessible anytime and from anywhere.
o Detailed Account Summary of all listed accounts.
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o Mini-statements of each of the listed accounts showing recent transaction history
for that account(s).
o Statement-by-Period of each of the listed accounts, based on the period specified.
o Immediate or Scheduled Transfer of Funds between your own accounts, as well as
to third-party accounts setup as beneficiaries, maintaining accounts with MCB.
o Scheduling of ‘One-Time’ as well as ‘Recurring’ Funds Transfers.
o Payment of utility bills for registered Utility Companies.
o Immediate or Scheduled Bills Payment. Scheduling of ‘One-Time’ as well as
‘Recurring’ bill payments. Option for ‘Full’ or ‘Partial’ payment based on the
payment conditions specified by a particular Utility Company.
o Bulk Salary Transfer for Corporate Customers, to facilitate them in paying salary
to the corporate employees, who maintain accounts with MCB.
o Bulk Funds Transfer for Corporate Customers.
o Cheque Book Request for any of your listed accounts.
o Payment/Transfer Alerts for reminding, in advance, prior to the processing of
specified payments and transfers.
o Personal Alerts for reminding of pre-specified events and occasions.
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3.7 Islamic Banking
Islamic Banking was launched under the brand 'MCB Islamic Banking', by opening 6
dedicated Islamic Banking branches in major cities of the country. Further expansion is
planned with improved capabilities for offering products conforming to the Shariah
principles.
MCB Islamic Banking opens the doors for Halal banking solutions. Our objective is to
put in place an efficient banking system supportive to economic justice and welfare of
society in line with Shariah standards.
A comprehensive range of Islamic Banking products and services is being offered, in
order to meet customer's demand of Shariah Compliant Banking, in the following areas:
Islamic Corporate Banking
Islamic Investment Banking
Islamic Trade Finance
Islamic General Banking
Islamic Consumer Banking
Islamic Banking products have been approved by the Bank's Shariah Advisor. As per
Shariah requirements, funds and products of Islamic Banking are managed separately
from the Conventional Banking side. All funds obtained, invested and shared in Halal
modes & investments, under supervision of the Shariah Advisor.
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CHAPTER # 4
DEPARTMENTS AND THEIR WORK
4.1 Introduction
The purpose of banks is to provide some services to the general public. And for this
purpose different banks provide different services to the people in different forms. The
MCB bank is a commercial bank, in modern time commercial banks play a very
important role and their functions are manifold. The main functions and services which
MCB Bank Limited provides to different peoples are as follows.
There are three main departments in any branch of MCB
o General Banking
o Foreign exchange
o Advance/Credit
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o Technology department (new addition in order to cop with the growing needs of
day to day technology requirements)
4.2 General Banking
General banking deals with following services:
4.3 Remittance Department
Remittance is transfer of funds. Funds can be transferred in shape of pay orders, demand
draft, mail telegram and telegraph transfer. Payments of fees of different organizations,
fulfillment of tenders, and collection of funds are the main functions of remittance.
Maximum part of general banking depends on this department.
Issuance of different kinds of remittance:
4.3.1 Pay Order
Pay order is the property of person/company that has to take the benefit of the amount being pay
ordered by the concerned person. Pay orders are made for the payment of fees, tender or issued
for the payments of dealings. These are required for the proof of payments made between the
bank and the customer in the favor of beneficiary. These are noted in printed block letters and
yearly serial numbers are issued from computerized system.
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The following are the parties
a) purchaser
b) Issuing branch
c) Payee
Charges must be recovered at prescribed rate.
Pay order should be prepared like demand draft.
A record of all issued and paid should be maintained.
Credit voucher should be prepared
4.3.2 Demand Drafts
Demand drafts are made for the beneficiary for payments, funds etc, these are made for
outstation branches of the concerned banks. An advice is also made for the confirmation
of the draft send. These are also approved and safe way of sending amount to the
beneficiary. These are also noted by computerized system and a serial number is issued
from the computer system.
Demand draft is a negotiable instrument.
Legal provisions are same as that of cheque.
It is to be ensured that purchaser can at least sign.
Thumb expression is not accepted on DD
The following are the parties.
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a) purchaser
b) issuing branch
c) drawee branch
d) payee
A demand draft may be issued against the written request of the customer before issuing
it must be seen that the demand draft is in order.
4.3.3 Mail Transfer
Mail Transfer is made with in the city for transfer of amount. An advice is also made for
the confirmation of the draft send. These are also approved and safe way of sending
amount to the beneficiary. These are also noted by computerized system and a serial
number is issued from the computer system.
Mail transfer is not negotiable.
The procedure is same as for DD.
All precautions must be observed
4.3.4 Telegraph Transfer
Telegraph Transfer is telegram message for transferring the amount from one branch to
other branch. A message advice and a confirmation advice both are made with TT
numbers that are issued for TEST. TEST depends on two steps:
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1. First TEST is on Day, Date and Code Number of branch.
2. Second TEST is on Currency, whether Pak rupees or foreign currency, amount and TT
number issued from manual registers and confirmed from computerized system.
Telegraphic transfer is not negotiable
The funds are not payable to bearer
Minor cannot avail this facility
Parties
Following are the parties involved
Applicant
Drawing branch
Drawee branch
Beneficiary
Full name of the beneficiary or account number should be mentioned in the
application form.
Instruction regarding mode of payment should be obtained.
A record in the remittance outward register should be maintained.
All the remittance must be controlled through number
4.3.5 Pay-Order and Demand Draft
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Pay-Order and Demand Draft both could be paid in shape of physical payment of cash
and in case transfer of amounts; the amount could be transferred in the beneficiary
account. In case of physical payment authorized signature of beneficiary are taken for the
proof of amount being paid to him and in case of transferring of amount authorized
signature of the beneficiary are checked and verified for reducing risks.
4.3.6 Cancellation of Pay-Order / Demand Draft
Any type of Pay-Order / Demand Draft is cancelled by the permission and instructions
made by the beneficiary. The customer could only cancel the pay-order/demand draft as
the verified signatures of beneficiary are present on the advice.
4.3.7 Vouchers
Vouchers are made for records and they should be completed in all respects, the amount,
date, its head, particulars, amount in words, authorized signatures and contra advice or
voucher should be present. Vouchers are advice either debit or credit slips. They are
contra of each other. If any voucher of debit is passed its contra credit voucher should
also be passed for the balancing of accounts, their respective sheets.
4.3.8 Token
Token is the process of different steps of checking of the cheque:
1. Physical Checking
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First of all the cheque is physically checked.
2. Date
It should not be advanced of the latest date; date should be limited to only past
Six months.
3. Amount
Amount in words and figures should be written in clear writing. Any kind of over
writing and cutting should be prevented. Otherwise it would not be passed
and returned to the customer.
4. Payees/Bearer Cheques
If the cheques are payee’s accounts head or they have marked bearer then these cheques
are not labeled token.
5. Verification of Signature
Signatures are checked as well as verified. In case of other representative of the account
holder brings the cheque then two signatures of that person are taken.
6. Stamps
After physical checking of the cheques they are stamped.
4.3.9 Issuance of cheque Books
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Any account holder that has opened the account he/she could credit his/her account and
for this purpose there should be a cheque book, so he/she could be able to credit the
needed amount whatever he/she wishes. For the issuance of the cheque book a person is
advised to fill a requisite slip with his/her full names and the account number with two
verified signatures. These signatures are checked and then another requisite slip prepared
by the bank staff send to the NIFT, and it issues the printed cheque books after
completion of the procedure in two or three days.
Account holder can take it by singing on the issuance register or if the absence of the
account holder another person could also take the cheque book only if he/she has
authorized signature of the account holder. When the cheque books are issued they are
feed in the computer system from the requisite slip so when the cheques are given for the
credit/transfer of amount they could checked. In this way neither the cheques could be
repeated nor could the invalid cheques be claimed.
4.3.10 Issuance of ATM Cards
Head office issues ATM (Auto Teller Machine) cards with their PIN (Personal
Identification Number) codes and when the customer claims for their ATM card they are
checked from the list that is also issued from the head office, and the claim is checked
from the list and if the name is found than the cards are issued by taking a signature and
their PIN codes are given to them by taking signatures on their ATM card forms. The
ATM card has been activated by the number provided at or with the specific card.
4.3.11Cancellation of ATM Cards
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The Cancellation of ATM Cards becomes necessary in the following conditions:
o If folded or damaged
o Stolen
o PIN code missed or forgotten
o Card captured by the machine and expired
o If requested by the customer
The cancellation or inactivity of the card is being processed by the request or instructions
provided from the customer.
4.3.12 Sale of Rupee Traveler cheques
The selling of the RTC has been described in step wise as follow:
In this step the bank initially seeks the information whether the person is going to
purchase the RTCs on cash or on account basis. If the transaction is based on account
then initially the cheque has been cleared than if the amount is sufficient than RTC has
been issued after deducting after the amount from the account.
If the amount of RTC is more than Rs. 25000 than tax has levied by 0.3% in case of
absence of the tax deduction form. After this the bank handed over a form for RTC sale
dully filled by the concerned person and after this RTC number has been noted on the
form as well as their amount and quantity. After this we note down the sold RTC in the
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concerned register. MCB Pak rupee travelers cheques the fastest way to carry cash for
high value cash transactions. MCB rupee travelers, the market leader in the rupee
travelers cheque market in Pakistan is celebrating nine years of leadership in July 2002.
Launched in July 1993, MCB RTCs have been preferred choice of the rupee travelers
cheques target market. With over 1.5 million satisfied customers in five years, MCB has
been striving hard to package their product better and better each year.
We now have RTCs with maximum security features, we have incorporated tele
verification with the product where customers can call and check whether the RTC is
valid. At the same time, our RTC team anywhere in Pakistan ensures superior quality
service.
4.4 Clearing Department
Every banker acts both as a paying as well as a collecting banker, It is however an
important function of crossed cheques. A large part of this work is carried out through the
bankers clearing house.
A clearing house is a place where representative of all banks of the city get together and
settle the receipts and payment of cheques drawn on each other. As the collecting banker
runs certain risks in receipt of their ownership the law has provided certain protections to
the banks.
The Negotiable Instrument Act, 1881, lays down hat drawer or holder of a cheque or
draft may cross the instrument generally or specially. It further lies down that a crossed
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cheque can only be paid to a banker, who collects it for a customer in good faith and
without negligence.
4.4.1 Inward clearing
It depends on those checks that are cleared inter branch and with in the city. As the
concerned branch receive any type of clearing check first of all physical checking is taken
place. For clearing procedure there should be two days margin. These cheques have their
vouchers and the amount of the cheque and voucher should be identical. Than these
cheques are stamped and noted on receiving sheet as well as feed in to the computerized
system.
4.4.2 Outward clearing
It depends on those cheques that are cleared out side the city. For outward clearing
cheques are send because the home branch has there accounts but checks are of other
banks. Contras of these cheques are vouchers that are recorded in the home branch.
4.4.3 Types of Cheque Collected
Transfer cheques
Are those cheques, which are collected and paid by the same branch of bank.
Transfer delivery cheques
Are those cheques, which are collected and paid by two different branches of the same
bank situated in the same city.
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Clearing cheques
Are those cheques, which are drawn on the branches of some other bank of the same city
or of the same area, which is covered by a particular clearing house.
Collection cheques
Are those cheques, which are drawn on the branches of either the same bank or of
another bank, but those branches, are not in the same city or they are not the members of
clearing house.
4.4.4 Common Procedure for All Cheques
Receiving and scrutinizing the cheques and other deposit instruments, and the
pay-in-slip at the counter.
Fixing the stamps.
Scrutiny and receipt by the authorized officer.
Returning the counter file to the depositor.
Certificate and confirmation by the officer in charge of the department. ,
Separating the cheque into transfer, transfer delivery, and clearing cheques
4.5 Foreign Exchange
Foreign exchange is the conversion of one country's currency into that of another. In a
free economy, a country's currency is valued according to factors of supply and
demand. In other words, a currency's value can be pegged to another country's currency,
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such as the U.S. dollar, or even to a basket of currencies. A country's currency value also
may be fixed by the country's government.
However, most countries float their currencies freely against those of other countries,
which keep them in constant fluctuation. The value of any particular currency is
determined by market forces based on trade, investment, tourism, and geo-political risk.
Every time a tourist visits a country, for example, he or she must pay for goods and
services using the currency of the host country. Therefore, a tourist must exchange the
currency of his or her home country for the local currency. Currency exchange of this
kind is one of the demand factors for a particular currency. Another important factor of
demand occurs when a foreign company seeks to do business with a company in a
specific country.
4.5.1 LC establishment
Any company can provide its documents containing e-form, bill of lading, short shipment
notice in case of short shipment, packaging list etc. the information provided from the
documents is recorded in the LC establishment portion or section in the computer.
4.5.2 Payment or Remittance
When the transactions have been completed then approved documents from the
concerned bank are sent to the home bank for the payment or retirement of the LC. These
transactions have recorded in the payment or retirement section of the computer.
4.5.3 Foreign Currency Deposit
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The Foreign Currency Deposit relates with the foreign currency accounts, cash deposit or
credit and foreign remittances.
4.5.4 Foreign Remittances
In this we received the messages through SWIFT for foreign remittances, which we
record in their respective accounts, if these are relates with Pak rupees than it was
transferred in Pak rupees with the latest rate and if this relates to the foreign currency
than it is dealt with accordingly. The amount has been credited to the respective account
and the head office has been debited against it. After crediting the amount to the
respective account. All the subsequent entries have been made in the registers and also in
the computer record as the system now have been upgraded on computers. As we are
reporting daily to the head office, so an annexure has been maintained and faxed to the
head office
4.6 Advance / Credit
This department deals with the approval of different kinds of loans to different business
entities. The loans, which are being approved by the department, are kept with some
securities such as bonds, properties and any other type of asset, which is equally valuable
or more than this as a guarantee. Every branch has its own limit, if the amount of loans is
with in the limit of the branch then it is being approved by the branch but if the amount of
loan is exceeding the limit then it has to make it approved by the head office. In this case
the branch stored all the required papers and sent them to the head office for necessary
action. If the head office approved the loan then mostly the period contains a year. And if
the party requires more loan than after a year the loan has been re-approved required that
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they should have the limit. In case if the head office do not approve the loans then the
return letter came back with the reasons of not approval of loan and if the reasons have
been made approved by the concerned party then it could be sent again for approval. This
whole process is recorded in the back remain with the bank until the party has not
refunded all the amount of loan and bank has the authority to liquidate those assets for
preventing it from loss.
CHAPTER # 5
INTERNSHIP EXPERIENCE
Theory and practice completes the cycle of human instinct quest for knowledge and its
need to solve day-to-day problems systematically. I have worked as an Internee in Bank
MCB branch for Eight Weeks as per required by degree. I have learned a lot from my
manager and head that how to be at work place, how to deal with human psyche and
behaviors. And I am positive that my learning during the internship is going to help me in
my professional career.
I developed the practical attitude gradually and realized the importance of the job
assigned to me. The most important benefit of this internship is that I got practical
exposure of work place. I got practical experience of working practices related with my
field I learned that how to manage things and how to create balance among work life and
personal life. These learned management practices are going to be very helpful for me
while on job. I enjoyed my working experience because things were not imposed on me.
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There was no over loaded task to be performed. Rather they facilitated me a lot so that I
could manage my studies as well. The environment of the branch was very friendly. My
branch manager has helped me a lot in learning different things and gave me the in-depth
knowledge of their practices and procedures.
Major activities performed during my internship program are as follows:
5.1 Cash Management
Cash Management is important department of the bank. I worked in this during my
internship by dealing with customers, paying those cash on their issued token. I also
deposited the cash of customers in their accounts. By working in this department I have
come to know how bank balance, its working by keeping records of outgoing and
incoming cash transactions is too difficult.
The main function of this department is Payment and receipts of cash. It collects and pays
money to the customers, on behalf of their account, through cheques or any other
negotiable instruments.
Cash department mainly perform the following functions.
o Payments
o Receipts
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A brief description of each of these is as follow
Payment
The payment in the cash department deals with that customer who withdraws money
through cheques or any other negotiable instruments. The cashier keeps the record of all
payments in the register book. At the end the payment and receive cashier check the
balance and count the cash. They verify that both register cash and the cash in hand are
balance.
Receipts
In the receive section the cashier receive (or you may say collect) money from the
customers on behalf of any account or the company. Most of the received are go through
the accounts of the MCB.
Every account holder deposit money in his account, they deposit the money through the
bank receive voucher, which is of specific nature i.e. it may be PLS, current etc. so the
cashier deposit the money through that receive. He keeps in record the voucher no,
amounts, a/c no etc and then presents to the computer department for posting.
5.2 Remittance (Inward / Outward)
Transfer of money or equivalent to money from one branch to another branch of the same
bank is called remittance.
o Originating Branch
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It is the branch from which money is send to another branch or the point of origin of
remittance.
o Responding Branch
The branch which receives the instrument or money for remittance is known as
Responding Branch.
5.2.1 Types of Remittance
Inward Remittance
The branch which receives the instrument (T.T, D.D, MT, PO) directly from the customer
or from the originating branch and is responsible to pay to party is called inward
remittance.
Outward Remittance
The branch which issues or sold the instrument to the responding branch is called
outward remittance. In this case we are sending remittance to another branch of
the same bank in any location.
Inland Remittance
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Transfer of money from one branch to another branch of the same bank within the same
country is called inland remittance. In this case both originating branch and responding
branch will be situated in the same country.
Foreign Remittance
Transfer of money from one country to another country is called foreign remittance.
5.3 Demand Draft
Demand Draft can be explained as the instrument which is payable on demand as its
name implies the same, the value of which has already been received. This instrument is
issued by one branch and payable at other branch of same bank or other bank’s branch
e.g. DD issued by MCB payable by ABL.
5.4 Pay order
Pay order is a kind of instrument issued and paid in the same branch. It is normally issued
for payment in the same city.
Procedure of issuance of Pay order
The customer fills the remittances application form and mark check on pay order. On
receiving application he is issued with a pay order after receiving charges. All pay orders
are crossed i.e. “Payees a/c only”
5.5 Customer Services Department
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In Customer Services Department my duties are:
5.5.1 Slip Fulfillment
Customer when come I introduce them about the slips and ask him that if u deposit or
withdraw the amount or submit the payment of credit card then to fill it and then guide if
he is unable to fill it.
5.5.2 Types of Slips
Receipt for Cash Deposit
When cash is deposited in the bank then cash deposit takes place. It must mention that the
account is either current or pls. there are other requirements to meet for cash Deposit.
Receipt for Cheque Deposit
When check of another bank transfer to our bank that receipt is known as check deposits
receipts. In this slip we mentioned code of the other branch that has sent the check, its
check # and mentioned the account is current account or PLS.Bank and branch, check
number, amount in words.
Online Receipt for Cash Deposit
When check of another bank transfer to our bank that receipt is known as check deposits
receipts. In this slip we mentioned code of the other branch that has sent the check, its
check # and mentioned the account is current account or pls. Bank and branch, check
number, amount in words
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5.2.3 Account Inquiry
In Account Inquiry I told the customers about their balance in the accounts. I also told the
customers who are willing to know about their transactions and transaction amount.
5.2.4 Account Opening
In order to open an account, first of all the customers have to fill a form prescribed by the
bank. The person is required to bring some reference or introduction for opening the
account. But it is not essential to having an introducer.
There are different requirements for different types of accounts and accountholders.
In this department, I gain the practical knowledge about opening account. This
department deals with opening current and saving account for its customers and all
matters regarding thereof. The customers opening current and saving accounts can be
categorized as following.
o Individual
o Joint
o Others
After the fulfillment of form I put this data on the MCB’s online Symbol System. In this
system first of all I define the client then it gives the client number. After the client
number opened the account of a person.
5.2.5. Deposits
The procedure undertaken upon receiving deposits from the customers is as follows:
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o Examining the deposit slip to ensure that the name and the account numbers are
clearly indicated.
o Counting the cash and cheques and agree the total with the amount on the deposit
slip.
o After that the pay in slip is validated for cash transaction and transfer and clearing
transfer as appropriate before the counterfoil is handed over to the customer.
o Cheques signed by directors, partners or employees of a company, drawn in favor
of them and credited in their account in the bank.
5.2.6 Withdrawals
The withdrawals can be made only at the branch where the account is maintained. The
officer under his full signature authorizes all cash withdrawals. No third party
withdrawal is permitted. In current account, the bank does not offer any interest. We can
deposit or withdraw any amount during banking hours.
5.3 Skills I Have Learned
o I have gained persistence to complete tasks. In professional environment I needed
to complete the task on time as well as with accuracy. These practices helped me
to gain consistency in my routine tasks.
o I learned that how to deal with customers. Usually in university environment we
deal with same kind of people who come to university with the same intension but
in bank every kind of person & everyone with different set of needs. I had to cope
with all the customer according to their needs.
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o I have gained ability to plan with and work cooperatively with others. I found
working in professional environment is entirely different from working in the
groups of university. There is much more responsibility and pressure on everyone
to act accordingly.
o I have learnt how to deal in stressful or hectic situations. In banks the schedule is
very tight and one has to be on toe every time. Bank gets stressful at the end of
the day when everyone has to maintain the record of daily transaction.
CHAPTER # 6
SWOT ANALYSISSWOT ANALYSIS
6.1 Introduction
The SWOT analysis is done by the organization for the environmental scanning. It is a
strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and
Threats involved in a project or in a business venture. It involves specifying the objective
of the business venture or project and identifying the internal and external factors that are
favorable and unfavorable to achieve that objective. A SWOT analysis must first start
with defining a desired end state or objective. A SWOT analysis may be incorporated
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into the strategic planning model. Strategic Planning has been the subject of much
research.
Strengths: characteristics of the business or team that give it an advantage over
others in the industry.
Weaknesses: are characteristics that place the firm at a disadvantage relative to
others.
Opportunities: external chances to make greater sales or profits in the
environment.
Threats: external elements in the environment that could cause trouble for the
business.
6.2 Strengths
o One of the main strength of MCB that I think is the faster banking services and
more prominent in banking industry especially in operations and Foreign
Exchange. Speedy services and reasonable services charges are attracting the
people to do their business with MCB.
o MCB has fully computerized control on its banking system due to this facility the
MCB is in the list of highly automated bank.
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o Internal control and monitoring of the MCB Bank is very effective Quality
Control Expert visits twice a week at bank branches which helps the employees to
improve their work.
o Due to fast banking services, prominent banking services and fully computerized
computer system resulted in joining of experienced people, advanced
management, advance setup and facilities gave MCB an edge over its
competitors.
o Most private banks have still not online all of their branches in Pakistan but the
MCB has all its branches online. They have wide area network in all over the
Pakistan, so that they cover a lot of portion of cash transactions and make
customer satisfied
o The Bank has very strict rules and regulations about the customer's complaints.
The customers are treated as very special persons in the Bank.
o MCB has got the Strongest Bank in Pakistan Award 2010.
o MCB also got the Leadership Achievement Award 2010.
o MCB has been awarded as Euro money Award 2008 for the “Best Bank in
Asia.
o Best Bank In Pakistan Award: MCB has been awarded the best bank in
Pakistan since 2000, 2001, 2003, 2004, and 2006.
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o The bank enjoys competitive profitability in the industry. MCB is Pakistan’s
largest bank by market share 18% its assets are of PKR 605 billion in 2011, and
the largest by market capitalization having a market capitalization of US$ 1.8
billion.
o MCB has captured majority of potential customers in Pakistan. Customer default
rate is lower as compared to other banks. The Bank has a customer base of
approximately 4.5 million in a market with a population of over 160 million.
o MCB has the ability to bring innovative products and services like personalized
service, electronic funds transfer, and sophisticated financial products such as
electronic banking, auto-teller machines and evening banking.
o MCB is largest private bank and overall the fourth largest bank of Pakistan. Its
wide network includes fully facilitated branches all over Pakistan. It covers 125
cities, comprising of 1,130 branches, including 8 Islamic banking branches out of
which 600 have the ATM machines.
6.3 Weaknesses
o MCB offers different types of products to the customers therefore majority of
people are not well aware about the products of MCB. For examples if a person
wants to open an account with MCB say it is current but he does not know what
55
type of Current Account he should open does not know this the major weakness
for the MCB.
o No entertainment facilities are available in the bank when customer visits Bank
and wait for at longer time. These facilities can be the Newspaper. Magazines,
etc.
o Out look of the MCB branches is not attractive to the people.
o In this era of competition most of the banks advertising their different products
and services but no commercial I have seen on any channel regarding their
products and services.
o Equality should be observed throughout banking system. There should no
discrimination among the customers. As I observed at the branch where I worked
wealthy customers were given the more entertaining services while the customers
who have low investment with the bank waited for long for their turn.
o At private local banks there is normally transfer of employees after a normal
period of one and a half years or two years while at MCB branch where I did my
internship most of the employees are working more than three years. Job
Rotation help the employees to learn about different segments of the business
which I think is missing at MCB.
o The overseas branch network of MCB is limited. It has only four overseas
branches whereas HBL has twenty overseas branches, three subsidiaries, two
56
affiliates, and one representative office. Similarly NBP has fifteen overseas
branches.
o Employees at branch level are not properly motivated to work by heart. They take
the all routine activities as a boring job. Challenge for MCB is to provide an
environment in which employees can better realize their potential.
o Employees are dissatisfied due to ill treatment and improper reward system. MCB
are not addresses these four areas: compensation, benefits, recognition and
appreciation.
6.4 Opportunities
o MCB has got the Strongest Bank in Pakistan Award 2010. MCB also got the
Leadership Achievement Award 2010. MCB has been awarded as Euro money
Award 2008 for the “Best Bank in Asia.
o Best Bank in Pakistan Award: MCB has been awarded the best bank in Pakistan
since 2000, 2001, 2003, 2004, and 2006.
o These awards create an edge in the mind of people to invest and borrow from this
bank.
o Before privatization people were not satisfied with the services of the bank. After
the privatization people have different alternatives to invest and borrow from.
The MCB due to its over 10 years performance it has the opportunities to attract
the customers
57
o They have a wide area network in all over pakistan. If MCB can make it possible
the fast Delivery of funds from abroad through online banking, it can cover the
major market share of pakistan which still exist in the form of Bills Of Exchange.
o Technology continued to play an important role in improving and expanding
product offerings. The bank needs to introduced more IT based products to cater
to the changing lifestyles and needs of the customers.
o The bank can earn more profit by advancing to farmers and industrialists at lower
rates. There is very tough competition in the market, to capture the market MCB
offers lower rates to them.
6.5 Threats
o The decreased purchasing power of consumer in the current economic situation of
the country affecting the business activity speed too much and the result is the low
investment from the investors in new projects can create problem for the hank
because it is working a lot in trade.
o The Competition has become severe by the entrants of so many banks. So to exist
one will have to prove himself in its services through excellent management and
will have to satisfy its shareholders. Otherwise it will he out the market
o New Privates Bank coped with emerging new Technology of IT. This ease of
entry in the market is the threat to the MCB bank.
58
o Change in government policies has affected the banking business. Still banks have
to wait to get permission from the State Bank of Pakistan. The freezing of foreign
currency accounts is a vital example of letting people not to trust on banks.
o The decreasing purchasing power of consumer in the current economic situation
of the country affecting the business activity speed too much and the result is the
low investment from the investors in new projects can create problem for the bank
because it is working a lot in trade. This caused a very high rate of inflation,
which, in 2008, had increased to a whopping 25% as compared to a 7.9% of 2006.
CHAPTER # 7
59
FINANCIAL STATEMENTS ANALYSIS
Financial analysis refers to an assessment of the viability, stability and profitability of a
business, sub-business or project. It refers to the assessment of a business to deal with the
planning, budgeting, monitoring, forecasting, and improving of all financial details within
an organization. There are various methods or techniques that are used in analyzing
financial statements, such as comparative statements, schedule of changes in working
capital, common size percentages, funds analysis, trend analysis, and ratios analysis. The
process of evaluating businesses, projects, budgets and other finance-related entities to
determine their suitability for investment. Typically, financial analysis is used to analyze
whether an entity is stable, solvent, liquid, or profitable enough to be invested in. When
looking at a specific company, the financial analyst will often focus on the income
statement, balance sheet, and cash flow statement. In addition, one key area of financial
analysis involves extrapolating the company's past performance into an estimate of the
company's future performance.
Financial statements assist users in evaluating the financial position, profitability and
future prospects of a business. Managers use financial information to identify trends in
the company performance and financial position. And for this purpose they use
following techniques.
7.1 Horizontal Analysis of Balance Sheet
60
Comparison of two or more year's financial data is known as horizontal analysis, or trend
analysis. It is the division of every expense item in a specific year by an identical expense
item derived from the base year. Calculation enables measurement of changes in the
comparative importance of expense items over the years. Also evaluates how expense
items influences changes in sales.
Horizontal Analysis = (Current Year Value X100) / Base Year Value
Table 7.1: Horizontal Analysis of MCB Balance Sheet for the Year 2006-2010
61
Horizontal Analysis of MCB Balance SheetAssets Figures in %Items/Years 2006 2007 2008 2009 2010
Cash & Balances with Treasury Banks 100.00 115.54 119.45 167.31 200.76
Balances with other Banks 100.00 118.18 114.73 115.85 96.29
Lending to Financial institutions 100.00 16.62 54.31 28.99 7.21
Investments 100.00 82.03 64.82 72.90 108.22
Advances 100.00 136.46 167.49 182.94 197.25
Operating Fixed Assets 100.00 153.97 200.60 165.97 191.00
Deferred Tax Assets 100.00 56.61 342.62 85.73 189.80
Other Assets 100.00 101.70 13.69 184.13 220.39
TOTAL ASSETS 100.00 106.94 116.36 129.66 150.82
LIABILITIES 2006 2007 2008 2009 2010
Bills payable 100.00 117.59 90.99 149.36 270.52
Borrowings From Banks 100.00 84.23 95.41 158.11 165.20
Deposits and Other Accounts 100.00 104.95 115.52 121.93 141.60
Liabilities Against Assets Subject to Finance Lease
Deferred Tax Liabilities
Other Liabilities 100.00 105.14 109.31 114.37 143.42
Share Capital 100.00 56.66 56.66 56.66 56.66
Reserves 100.00 1065.20 941.90 1028.56 1139.33
Un-Appropriated Profit 100.00 233.08 332.61 652.93 853.78
Minority Interest 100.00
Surplus on Revolution of Assets 100.00 120.56 113.25 109.38 107.24
TOTAL LIABILITIES 100.00 106.94 116.36 129.66 150.82
62
Source: Annual Reports of MCB from 2006-2010
Cash & Balances position of MCB reflects that during year 2006 to 2008 remained low
as compared with the year 2003. However it substantially increased in year 2009 &
2010.Position of MCB reflects that during year 2010 it remained highest as compared
with the previous years. However, it’s a better position of a bank Advances are increased
after decline because of quality lending of MCB by introducing attractive products.
Advances are increase till 2008 and after 2008 advances portfolio decrease in 2009 &
2010 due to non performing loans. The figures of MCB are showing mixture trends in
year 2007 it was highest while in layer years it remained consistent. At last, in year 2010
it became low as compared to initial year. Increase in investment shows the liquidity
position of the MCB is strong and MCB have more ability to pay its short terms
liabilities. MCB deposits are increasing every year and bank prefers to borrow from the
depositors which are less costly than borrowing from banks. MCB deposit stable form
2006- 2008 but after 2009 deposits are going to decrease in 2009 & 2010 as a percentage.
MCB deposits are increasing every year and bank prefers to borrow from the depositors
which are less costly than borrowing from banks. MCB deposit stable form 2006- 2008
but after 2009 deposits are going to decrease in 2009 & 2010 as a percentage. Borrowing
and other liabilities are increasing after 2008, while in year 2010 it became less as
compared to year 2008 which means reduction in taking Debts by the bank. There is
increase in Pre-tax & after tax profit which shows good management resulted as of good
policies. Deferred taxes of the MCB are also going on decreases due to increase in fixed
operating assets of the MCB which also affects on the advances portfolio of the MCB.
63
During this period MCB need to increase its fixed operating assets due to IT &
renovation revolution in the banking industry. MCB have increases its deferred taxes in
the year 2010 due to decline in profitability.
Operating fixed assets of the MCB shows in increasing trend since the year 2008 and
after the year 2008 the operating fixed assets of the MCB shows slight declining trends
due to more investments in securities in order to make the MCB more liquid to meet the
short terms liabilities. Lending to financial shows a decreasing trend as it going to
decreasing continuously since 2006 and decreases heavily in 2010. This decrease in
lending to financial institutions is due to decreasing trends in deposit and increasing
trends of the investment in the securities by the MCB.
The figures of MCB are showing declining trend which is a good sign from the stability
of the organization. Share capital of the MCB shows a declining trends and continuously
decrease from 2006-2010 where as capital reserve increase in 2010 as compare to the
base year 2005. Increase in capital reserve by the MCB shows healthy financial position
and liquidity position of the MCB.
7.2 Horizontal Analysis of Income Statement
64
Table 7.2: Horizontal Analysis of MCB Income Statement for the Year 2006-2010
Figures in %
Description: 2006 2007 2008 2009 2010
Markup/Return/Interest Earned 100 89.73 161.07 218.72 250.84
Markup/Return/Interest Expensed 100 - 118.92 220.59 317.57
Provision Against Non Performing Loans &
Advances 100 38.88 61 58.63 167.22
Provision Against Off Balance Sheet Obligations &
Others 100 126.34 28.49 (10.05) (12.08)
Provision Against Diminution In Value Of
Investments 100 (98.87) (53.98) (8.96) (55.12)
Bad Debts Return Off Directly 100 - - - -
Net Markup/Interest Income After Provisions 100 133.30 262.08 330.67 274.91
Non-Markup/Interest Income
Fee, Commission & Brokerage Income 100 117.42 137.69 182.53 160.91
Income/Gain On Investments 100 139.19 39.53 22.49 25.87
Income From Dealing In Foreign Currencies 100 94.12 123.74 102.68 132.80
Other Income 100 160.90 144.97 181.15 205.14
Total Non Markup/ Interest Income 100 130.79 92.45 98.85 102.73
Non-Markup/Interest Expense
Description: 2006 2207 2008 2009 2010
65
Administrative Expenses 100 133.26 136.67 166.76 177.42
Other Provisions/ Write Offs-Net 100 76.71 77.99 38.37 (86.47)
Other Charges 100 36.37 3301.07 2605.40 411.66
Staff Welfare Fund - - - - -
Total Non-Markup/Interest Expense 100 131.28 135.21 162.91 169.58
Profit Before Taxation 100 140.51 240.67 329.61 240.02
Taxation
Current Year 100 77.91 825.60 1435.14 1373.55
Prior Year 100 (2438.95) (8034.98) 9815.26 (265148.97)
Deferred Year 100 147.21 27.21 (101.30) (342.07)
Profit After Taxation 100 146.11 221.92 299.93 200.15
Source: Annual Reports of MCB from 2006-2010
While analyzing net Mark up income/Interest income in comparison with profit before
taxation, it has been noted that income under this head is showing inclining tend which
Provision is made in accordance with the requirement of prudential regulations issued by
State Bank of Pakistan and charged to the profit & loss Account. After the year 2006
provision for Bad Debts are going increase to increase in nonperforming loans after 2008
MCB management controls over the bad debts due to strict credit policy as a result
provision for bad debts going to decrease in years 2010 as compared to year 2009.
expenses under this head, it has been noted that expenses are showing decreasing trend.
During 2008 more expenses were incurred under this head. Profit of MCB is constantly
increasing till 2007 and amount of tax is also increasing simultaneously, which is
66
beneficial for the Federal Government and after 2009, the profit of MCB declines in 2010
and as a result tax amount also decrease. MCB administrative expenses are also
increasing constantly till 2007 and after 2007 administrative expenses in 2008 decrease
till 2010. This increasing and decreasing trend of administrative expenses vary with the
increasing and decreasing trends of the MCB profitability.
7.3 Vertical Analysis of Balance Sheet
A method of financial statement analysis in which each entry for each of the three major
categories of accounts (assets, liabilities and equities) in a balance sheet is represented as
a proportion of the total account. The main advantages of vertical analysis is that the
balance sheets of businesses of all sizes can easily be compared. It also makes it easy.
Vertical analysis also called component percentages indicate the relative size of each item
included in a total. For example each item on a balance sheet could be expressed as a
percentage of total assets. This shows quickly the relative importance of each type of
assets as well as the relative amount of financing obtained from current creditors, long
term creditors and stockholders. Another application of vertical analysis is to express all
items in an income statement as a percentage of net sales. Such a statement is called a
common size income statement.
Formula for vertical analysis
% change = Particular Item value *100
Base Value
7.3Vertical Analysis of MCB Balance Sheet for the Year 2006-2010
67
Vertical Analysis of Balance SheetAssets Figures in %
Items/Years 2006 2007 2008 2009 2010
Cash & Balances with Treasury Banks
6.35 6.87 6.52 8.20 8.46
Balances with other Banks 4.67 5.16 4.60 4.17 2.98
Lending to Financial institutions 5.20 0.81 2.42 1.16 0.25
Investments 36.53 28.02 20.35 20.54 26.21
Advances 42.23 53.88 60.78 59.58 55.23
Operating Fixed Assets 1.63 2.35 2.82 2.09 2.07
Deferred Tax Assets 0.74 0.39 2.18 0.49 0.93
Other Assets 2.65 2.52 0.31 3.76 3.87
TOTAL ASSETS 100.00 100.00 100.00 100.00 100.00
LIABILITIES 2006 2007 2008 2009 2010
Bills payable 1.44 1.58 1.13 1.66 2.58
Borrowings From Banks 7.27 5.72 5.96 8.86 7.96
Deposits and Other Accounts 82.92 81.38 82.32 77.98 77.85
Liabilities Against Assets Subject to Finance Lease
Deferred Tax Liabilities
Other Liabilities 2.92 2.87 2.74 2.58 2.78
Share Capital 2.80 1.48 1.36 1.22 1.05
Reserves 0.38 3.74 3.04 2.98 2.84
Un-Appropriated Profit 0.68 1.48 1.94 3.42 3.84
Minority Interest 0.05
68
Surplus on Revolution of Assets 1.54 1.74 1.50 1.30 1.10
TOTAL LIABILITIES 100.00 100.00 100.00 100.00 100.00
Source: Annual Reports of MCB from 2006-2010
Cash & Balances position of MCB reflects that during year 2006 to 2008 remained low
as compared with the year 2003. However it substantially increased in year 2009 &
2010.Position of MCB reflects that during year 2010 it remained highest as compared
with the previous years. However, it’s a better position of a bank. Advances are increased
after decline because of quality lending of MCB by introducing attractive products.
Advances are increase till 2008 and after 2008 advances portfolio decrease in 2009 &
2010 due to non performing loans.
MCB deposits are increasing every year and bank prefers to borrow from the depositors
which are less costly than borrowing from banks. MCB deposit stable form 2006- 2008
but after 2008 deposits are going to decrease in 2009 & 2010 as a percentage. Borrowing
and other liabilities are increasing after 2008, while in year 2010 it became less as
compared to year 2008 which means reduction in taking Debts by the bank. There is
increase in Pre-tax & after tax profit which shows good management resulted as of good
policies. The figures of MCB are showing mixture trends in year 2007 it was highest
while in layer years it remained consistent. At last, in year 2010 it became low as
compared to initial year. Increase in investment shows the liquidity position of the MCB
is strong and MCB have more ability to pay its short terms liabilities. Deferred taxes of
the MCB are also going on decreases due to increase in fixed operating assets of the
MCB which also affects on the advances portfolio of the MCB. During this period MCB
need to increase its fixed operating assets due to IT & renovation revolution in the
69
banking industry. MCB have increases its deferred taxes in the year 2008 due to decline
in profitability. Operating fixed assets of the MCB shows in increasing trend since the
year 2008 and after the year 2008 the operating fixed assets of the MCB shows slight
declining trends due to more investments in securities in order to make the MCB more
liquid to meet the short terms liabilities.
Lending to financial shows a decreasing trend as it going to decreasing continuously
since 2006 and decreases heavily in 2010. This decrease in lending to financial
institutions is due to decreasing trends in deposit and increasing trends of the investment
in the securities by the MCB. Share capital of the MCB shows a declining trends and
continuously decrease from 2004-2008 where as capital reserve increase in 2010 as
compare to the base year 2006. Increase in capital reserve by the MCB shows healthy
financial position and liquidity position of the MCB.
7.4 Vertical Analysis of Income Statement
70
Table: 7.4 Vertical Analysis of Income Statement of MCB for the Year 2006-2010
Description Figures in %
Items/Years 2006 2007 2008 2009 2010
Markup/Return/Interest Earned 100 100 100 100 100
Markup/Return/Interest Expense 28.59 24.57 22.66 29.66 37.24
Net Markup/Interest Income 73.56 75.98 78.28 70.34 62.76
Provision Against Non Performing Loans & Advances 25.61 10.37 9.2 6.78 16.88
Provision Against Off Balance Sheet Obligations 2.37 3.14 0.4 -0.108 0.11
Provision Against Diminution In Value Of Investments 0.8 -0.83 -0.26 -0.0325 0.17
Net Markup/Interest Income After Provisions 42.62 62.75 68 63.69 46.17
Fee, Commission & Brokerage Income 10.73 13.79 9.08 8.56 6.58
Income/Gain On Investments 18.45 23.27 5.34 1.87 1.88
Income From Dealing In Foreign Currencies 5.61 6.02 4.34 2.6 2.94
Other Income 5.94 11.1 5.53 5.16 5.09
Net Non-Markup/Interest Income 40.32 58.69 23.11 18.2 16.49
Expenses
Administrative Expenses 51.35 75.73 43.58 38.7 35.9
Other Provisions/ Write Offs 1.68 1.35 0.77 0.29 -0.57
Other Charges 0.11 0.04 0.21 0.13 0.17
Net Non-Markup/Interest Expense 60.35 76.84 44.09 39.12 35.51
Staff Welfare Fund -1.51 -- 5.16 4.08 -
71
Profit Before Taxation 28.71 39.82 42.4 42.77 27.15
Tax 7.62 8.15 12.95 14.18 10.52
Profit After Taxation 21.09 31.67 29.83 28.59 16.63
Minority Interest 0.03 0.49 0.26 - -
Earnings Per Share 5.82 8.35 13.98 18.41 14.61
Source: Annual Reports of MCB from 2006-2010
While analyzing net Mark up income/Interest income in comparison with profit before
taxation, it has been noted that income under this head is showing inclining tend which
reflects that MCB earned profit less from other business. Provision is made in accordance
with the requirement of prudential regulations issued by State Bank of Pakistan and
charged to the profit & loss Account. After the year 2006 provision for Bad Debts are
going increase to increase in non performing loans after 2008 MCB management controls
over the bad debts due to strict credit policy as a result provision for bad debts going to
decrease in years 2010 as compared to year 2009. analyzing the expenses under this head,
it has been noted that expenses are showing decreasing trend. During 2006 more
expenses were incurred under this head. Profit of MCB is constantly increasing till 2006
and amount of tax is also increasing simultaneously, which is beneficial for the Federal
Government and after 2009, the profit of MCB declines in 2010 and as a result tax
amount also decrease.
MCB administrative expenses are also increasing constantly till 2007 and after 2007
administrative expenses in 2008 decrease till 2010. This increasing and decreasing trend
72
of administrative expenses vary with the increasing and decreasing trends of the MCB’s
profitability.
7.5 Ratio Analysis
Ratio Analysis is an excellent method for determining the overall financial condition of
company. It puts the information from a financial statement into perspective, helping to
spot financial patterns that may threaten the health of the company. Ratios are also very
useful for making comparisons between companies relevant to the same industry. The
analysis of financial statements can provide reasonable insight into a firm's state of
affairs. But the statements have inherent limitations, which require care and prudence in
their uses.
7.6.1 Liquidity Ratios
Current Ratio
73
Current ratio measures the extent of which a firm can meet its short-term obligations.
Table 7.5
Source: Annual Reports of MCB from 2006-2010
The current ratio is a measure of liquidity. It helps us to answer the question: If a business
had to pay off all its current liabilities tomorrow, would it have enough current assets to
make the payments and avoid insolvency?’ if the current ratio is less than 1, it is in
danger of failure. If the ratio is high, perhaps above 2, the business has more than enough
current assets. And these surplus funds can be used to improve efficiency. Ideal current
ratio for any business entity is 2:1 just enough to be getting on with.
Year
Current Assets Current Ratio
Current Liabilities(Rupees in '000)
200744,602,846 0.894
49,885,889
200847,837,824
1.44033,215,308
200947,852,225
0.90552,863,178
201051,360,563
1.42835,950,130
74
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
1.20%
1.40%
1.60%
2007 2008 2009 2010Figure 7.1- Current ratio
Net Working Capital
Table 7.6
Source:
Annual
Reports
of
MCB
from
2006-
2010
Company faced difficult times in 2007 and 2009 in terms of working capital availability.
Year 2008 and 2010 working capital gives the company a good signal towards having
good times in future.
Year Current Assets – Current Liabilities Working Capital
(Rupees in '000)
2007 44,602,846- 49,885,889 (5,283,043)
2008 47,837,824 - 33,215,308 14,622,516
2009 47,852,225 - 52,863,178 (5,010,953)
2010 51,360,563 - 35,950,130 15,410,433
75
7.6.2 Leverage Ratios
Debt to Equity Ratio
It shows the ratio of funds provided by creditors versus by owners. A high debt to equity
ratio could indicate that the company may be over-leveraged, and should look for ways to
reduce its debt.
Table 7.7
Years Total Debts / Total Equity (Rupees in '000)
2007 355,353,519 / 57,547,322 = 6.17
76
2008 385,153,625 / 60,132,133 = 6.40
2009 439,483,714 / 69,740,013 = 6.30
2010 488,348,404 / 79,204,209 = 6.16
Source: Annual Reports of MCB from 2006-2010
Company is facing heavy net losses every year due to financial expenses, low sales and
high input costs. In order to give cover to these losses sponsors have to extend the credit
facility to keep the Bank operational and to avoid insolvency. For that reason debt to
equity ratio is rising year by year.
6
6.05
6.1
6.15
6.2
6.25
6.3
6.35
6.4
2007 2008 2009 2010Figure 7.3 - Debt to Equity Ratio
Total Assets Ratio
It shows the ratio of total funds that are provided by creditors.
Table 7.8
77
Years Total Debts / Total Assets (Rupees in '000)
2007355,353,519 / 412,900,841 = 0.860
2008385,153,625 / 445,285,758 = 0.864
2009439,483,714 / 509,223,727 = 0.863
2010488,348,404 / 567,552,613 = 0.860
Source: Annual Reports of MCB from 2006-2010
Debt to Equity ratio shows the leverage position of the company and defines that how
much company should have the optimum leverage to avoid insolvency problems and
issues. It measures how much the capability the company has to pay off its debt. Debt to
asset ratio is almost constant for these four years.
0.857
0.858
0.859
0.86
0.861
0.862
0.863
0.864
0.865
2007 2008 2009 2010Figure 7.4 -Total Assets Ratio
Times Interest Earned (Interest Coverage) Ratio
78
This ratio reflects the no. of times before tax earnings cover interest expense. It is safety
margin indicator in the sense that it shows how much of a decline in earnings the
company can absorb.
Times Interest Earned Ratio = Earnings before interest & taxes
Interest Expense
Table 7.9
YearEBIT Times Interest Earned Ratio
Interest Expense (Rupees in '000)
2007 22,526,311
3.70 6,079,342
2008 21,886,740
2.578,511,413
2009 23,154,945
2.1110,944,304
2010 26,253,075
1.9813,248,643
Source: Annual Reports of MCB from 2006-2010
It is usually quoted as a ratio and indicates how many times a company can cover its
interest charges on a pretax basis. MCB bank constantly decreasing this ratio.
79
7.6.3 Activity Ratio
Total Assets Turnover Ratio
This ratio tells us whether a firm is generating a sufficient volume of business for the size
of its asset investment. The higher the ratio, the more efficiently the company is utilizing
its assets to generate sales.
Table 7.10
YearSales Total Assets Turnover
RatioTotal Assets
200731,791,754
0.076412,900,841
200840,049,505
0.089445,285,758
200951,616,007
0.101509,223,727
201054,821,296
0.096567,552,613
Source: Annual Reports of MCB from 2006-2010
Company’s asset turnover ratio is showing not enough increasing year by year due to the
depreciation charge on various assets reducing assets book value. Sales are almost
stagnant because of stagnant demand in the market.
80
7.6.4 Profitability Ratios
Net Profit Margin
The profit margin tells you how much profit a company makes for every $1 it generates
in revenue or sales. Profit margins vary by industry, but all else being equal, the higher a
company's profit margin compared to its competitors, the better. It measures After–tax
profits per Rupee of sales
Table 7.11
Years Earning After Interest & Taxes / Net Sale (Rupees in '000)
81
2007 16,441,670 / 412,900,841 = 0.039
2008 15,323,227 / 445,285,758 = 0.034
2009 15,665,403 / 509,223,727 = 0.030
2010 16,872,126 / 567,552,613 = 0.029
Source: Annual Reports of MCB from 2006-2010
Net profit margin remains constant for first three years and in 2010 decreased for the
reason of low sales volume, high input costs and huge financial expenses on account of
heavy borrowings.
Gross Profit Margin Ratio
It measures profitability without concern for taxes and interest. The gross profit margin
measures the total margin available to cover operating expenses and yield a profit.
82
Table 7.12
Years Earnings before Interest & Taxes / Net Sale (Rupees in '000)
2007 22,526,311 / 412,900,841 = 0.0545
2008 21,886,740 / 445,285,758 = 0.049
2009 23,349,146 / 509,223,727 = 0.045
2010 26,509,636 / 567,552,613 = 0.046
Source: Annual Reports of MCB from 2006-2010
Best ratio of 0.545 in year 2010 indicates that management is doing efforts to improve the
financial status. Since all revenue from operations is generated from the company's
assets, thus this ratio to be considered very important. The company performed well in
200 and 2008 than current year comparatively.
Advance to Deposit Ratio
The amount of a bank's loan divided by the amount of its deposits at any given time. The
higher the ratio, the more the bank is relying on borrowed funds, which are generally
more costly than most types of deposits.
83
Advances to Deposit Ratio= Total advances/ Total deposits
Table 7.13
Years Total advances/ Total deposits (Rupees in '000)
2007 258,306,053 / 404,629,059 = 0.6384
2008 316,881,635 / 432,545,165 = 0 .7326
2009 349,432,685 / 459,140,198 = 0 .7611
2010 382,172,734 / 531,298,127 = 0 .7193
Source: Annual Reports of MCB from 2006-2010
As shown in the fig below the Advances to Deposit ratio is showing healthy growth, it
was 63.8% in 2007 and it becomes 71% in 2010. This increase reflects that bank is
playing its role in the economic growth of the country by providing main factor of
production “Capital”. Due to increase in the advances the bank’s profitability also
increased. Decrease in deposit to advances ration in 2010 as compared to 2009 is due to
more non performing loans which are 10 % of the advances portfolio.
Cash to Deposit Ratio
Cash deposit ratio is with reference to a bank's the ratio of average cash balance held
against total deposits of a particular branch.
Cash to Deposit Ratio= Cash / Deposit
84
Table 7.14
Years Cash / Deposit (Rupees in '000)
2007 31,970,290/ 404,629,059 = 0.0790
2008 33,051,049/ 432,545,165 = 0.0764
2009 46,310,478/ 459,140,198 = 0.1009
2010 55,487,664/ 531,298,127 = 0.1044
Source: Annual Reports of MCB from 2006-2010
In 2006 cash to deposit ratio was 7.66%, whereas in 2009 it increases to 10.44% of the
deposit. It shows the bank is utilizing its assets more productively in investment. The
cash in hand is the only asset on which there is no earning, by reducing this figure and
utilizing it for investment is good approach of the management. Increase in cash to
deposit ration is also due to increasing of the Bank Deposit 591 billion and increase in
cash to deposit ration also shows that liquidity position of the MCB is healthy & sound.
85
0
0.02
0.04
0.06
0.08
0.1
0.12
2007 2008 2009 2010Figure 7.10 - Cash to Deposit Ratio
Earnings per Share
The portion of a company's profit allocated to each outstanding share of common
stock. Earnings per share serve as an indicator of a company's profitability. When
calculating, it is more accurate to use a weighted average number of shares outstanding
over the reporting term, because the number of shares outstanding can change over time.
However, data sources sometimes simplify the calculation by using the number of shares
outstanding at the end of the period.
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Earnings per Share= Net Income / No of Ordinary Shares
Table 7.15
Years Net Income / No of Ordinary Shares EPS
2007 5,763,404 / 690,000 8.35
2008 9,646,549 / 690,000 13.98
2009 12,700,315 / 690,000 18.41
2010 10,084,037 / 690,000 14.61
Source: Annual Reports of MCB from 2006-2010
Earnings per share are perhaps the most widely used of all accounting ratios. The trend is
earning per share and the expected earnings in future periods are major factors affecting
the market value of a company’s share. The EPS share is encouraging for the investor. In
2007 EPS was 8.35 and in 2010 it becomes 14.61. Decline in EPS for the year 2008 as
compared to the year 2009 is due to the increase in nonperforming loans and decrease in
profitability of the MCB as compared to 2009. This consistent growth shows better
policies and utilization of available.
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CHAPTER # 8
CONCLUSION AND RECOMMENDATIONS
8.1 CONCLUSION
During the study of internship, I drew the following conclusions.
MCB limited has implemented a SYMBOL system which promises the efficiency growth
of the bank. MIS and computerization of branches has enhanced the efficiency of the
bank. Delegation of authority, wide branch network with ATM installation and wide
participation of employees in the decision making provides the bank a competitive edge.
The bank provides a conducive environment for career growth. The bank pays a too low
rate of interest on deposits which in unattractive for its customers. There are too lengthy
formalities and procedures involved in mortgage of properties offered as collateral to the
bank.
The MCB bank made substation progress, recording strong growth in revenues and
earnings. The main derives were increase in outreach, strengthened human resources.
Including changes at the senior management level, enhanced product portfolios,
improved control and vigilant credit risk management. Our primary focus was our
customers and we worked diligently through the year to increase satisfaction and loyalty
as the needs and expectation of our diversified base of customers continued to expand. A
key initiative aimed at including a segment based approach to the overall business was
the segregation of the retail banking group into commercial and consumer banking
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groups. This expected to help the MCB bank in providing customer centric solution in a
more group generated healthy deposit and strengthened its SME lending.
o The profits of MCB have grown considerable during the last few years and this
trend is expected to continue into the future.
o Continuously change in the economic conditions of the country has affected the
business of the MCB. No doubt the profit of the business is increasing but it is
not increasing as such rate as the inflation rate is increasing.
o Acceptability of credit card transactions in Pakistan is limited from the users' end
because cash is still the most comfortable mode of transaction, because of cultural
dislike for borrowing from the formal sector (issues of riba {interest] and easier
access to informal channels,) and also because of the presence high denomination
currency, which could be carried easily, and fear of transaction information being
made available to the authorities giving rise to questions on sources of income.
o The other major drawback at MCB bank is the dissatisfaction of the employees
o Currently the MCB is the leading bank in ASIA but the advertisement campaign
of the bank is not so much satisfactory if they do their advertisement campaign as
other banks are conducting they can be in the better position in the world.
o Therefore, we conclude the MCB has a very prosperous present and future, which
assures the shareholders of wealth maximization.
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8.2 RECOMMENDATIONS
o MCB Bank can improve its Marketing strategies to acquire more promotion and
mass media publicity by the use of effective channels of promotions like TV,
Newspaper Advertisements. It can also improve its magazine publication that it
releases each month.
o There is a criticism on the banking management that the salaries of the employees
are decreasing in every succeeding year. And I think this will shake the
confidence and working of the employees.
o Bank must let potential customers know that all attractions for banking exist. This
is done by advertising on television and obtaining press coverage, in conjunction
with direct mail, window displays, leaflet in branches and in appropriate other
locations (such as hotels, shops, etc.) and including leaflets in statement of
accounts sent to existing customers in the hope that they will tell potential
customers about the services provided by our bank.
o Staff turnover particularly of trained staff result in financial and other losses. The
amount spent by the bank on employment, induction and training of outgoing
officers constitutes to beat till another officer should ready prove this work. The
exodus of bank officer in the past has worsened the situation.
o The bank should try to give more loans to the small borrows as the past history
shows that most of the loans given to the corporate borrowers have converted into
bad debts.
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o Sitting arrangement, air conditioning and new furniture should be facilitated.
o People can be motivated to save money by offering the deposit through various
investment schemes. The rate of profit should increase 1% or 2 % it would be
profitable step for bank.
o The period of internship should be divided in to the number of department of the
Muslim Commercial Bank Ltd. The internee should be given timetable
mentioning the number of days he has to work at different places in the bank. On
the first 4 days in each department internee should be given a lecture the officer of
the department concerned about working of the department.
o MCB is making good profits but giving less pay to their employees as compared
to their competitors. So their salaries should be increased.
o Currently the MCB has launched the Mobile banking which provides the loyalty
to the customers, where you can check your statements, check the balances and
you can pay your bills and many more but there is no effective advertisement in
this regard the bank must provide the all the information in this area to all the
customers.
o Where I did my internship there were no parking facilities. Any one has to park
his/her vehicle on the road. Parking area for the bank must be specified or it must
be hired from some property owner.
o All Branches of the Bank must be online for improvement of internal control the
system of compliance wing and surprise inspection system should work more
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effectively. I done internship, I recommend that security level in the bank should
be enhanced especially where I got internship and operation of Mobile phones
must not be allowed inside the Bank.
Working environment, equipment, furniture, and staff dressing should be
according to the modern banking style.
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REFERENCES
o www.MCB.com.pk
o http://en.wikipedia.org/wiki/History_of_banking
o http://en.wikipedia.org/wiki/Bank
o http://www.historyworld.net/wrldhis/PlainTextHistories.asp?historyid=ac19
o http://accounting-financial-tax.com/2009/10/horizontal-vs-vertical-analysis-of-
financial-statements/
o http://www.quickmba.com/strategy/swot/
o MCB Annual Reports from 2006 to 2010
o Magazines of MCB
o News Letters
o MCB Brochures and Manuals
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Appendix
MCB
BALANCE SHEET (FIVE YEARS)
AMOUNT: RS. (IN MILLIONS)
Assets 2006 2007 2008 2009 2010
Cash & Balances with Treasury Banks
27639 31934 33014 46244 55487
Balances with other Banks 20312 24005 23304 23532 19558
Lending to Financial institutions 22595 3755 12272 6550 1628
Investments 158870 130327 102984 115822 171932
Advances 183654 250612 307602 335985 362260
Operating Fixed Assets 7111 10949 14265 11802 13582
Deferred Tax Assets 3224 1825 11046 2764 6119
Other Assets 11523 11719 1577 21217 25396
TOTAL ASSETS 434928 465126 506064 563916 655962
LIABILITIES 2006 2007 2008 2009 2010
Bills payable 6258 7359 5694 9347 16929
Borrowings From Banks 31610 26624 30160 49980 52219
Deposits and Other Accounts 360648 378497 416603 439724 510662
Liabilities Against Assets Subject to Finance Lease
- - - - -
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Deferred Tax Liabilities - - - - -
Other Liabilities 12697 13350 13879 14521 18210
Share Capital 12178 6900 6900 6900 6900
Reserves 1635 17416 15400 16817 18628
Un-Appropriated Profit 2953 6883 9822 19281 25212
Minority Interest 233 - - - -
Surplus on Revolution of Assets 6716 8097 7606 7346 7202
TOTAL LIABILITIES 434928 465126 506064 563916 655962
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MCB
INCOME STATEMENT
FOR THE FIVE YEARS
AMOUNT RS: (IN MILLIONS)
Particulars 2006 2007 2008 2009 2010
Net Markup/ Interest Income 19272 17292 31041 43685 50481
Net-provision Against Assets & Bad
Debts Written Off
452 1571 128 (45) (54)
Net Mark Up Income After provision 7760 10149 7173 2235 2643
Total Non Mark Up Interest income 10122 13288 1368`6 17326 18106
Total Non Mark Up Interest Expenses (287) - 1602 - -
Staff Welfare Fund & Extra Ordinary
Items
- - - - -
Amortization Of Deferred Costs 5469 7684 13162 18840 15144
Profit Before Taxation 1451 1814 4246 6140 5060
Taxation 4018 5763 9647 12700 10084
Profit After Taxation 12316 2986 9822 - 17313
Un-Appropriate profit B/F 1201 - 7346 5741 -
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Transfer From Surplus On Re-
Valuation of Fixed Assets
4254 7452 10152 12081 34193
Appropriations (1135) (1514) (2711) (2723) (4612)
Un-Appropriated Profit C/F 3201 5617 9001 17271 3043
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