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

- - - - -

94

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 -

96

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

97