Chapter 1

BRIEF HISTORY

A banker is described as a person transacting the business of accepting for the purpose

Of lending or investment of deposits of money from the public, repayable on demand or

Otherwise and withdraw-able by cheque, draft order.

On 14th August 1947, 487 branches of different banks were operating in Pakistan. By

30th June, 1948, 282 branches winded up their business in Pakistan and the remaining

205 branches restricted their banking operations to a minimum level. The only bank,

Which shifted its head office from Bombay to Karachi, was the Habib Bank Limited.

Muslim Commercial Bank with the assistance of Quaid-e-Azam Mohammad Ali Jinnah,

Started operating in July 9, 1947 with an Authorized capital of Rs. 3 crores. Indo-Pak

Subcontinent, the Bank moved to Dhaka from where it commenced its business in August

1948. And in 1956 the bank shifted its head office to Karachi, where it is still working.

In 1948 Ms. Ispahanani and Mr. Abdul Hameed Adamjee purchased the bank. At that

Time the bank showed a historical performance and profit.

PURPOSE OF THE STUDY:
The main reason for conducting this study is that it is a mandatory requirement for the
award of bachelor’s degree in Business Administration at agricultural University
Peshawar. Its purpose includes:
1. To gather relevant information about MCB Bank Ltd.
2. To observe, analyze and interpret the relevant data.
3. To work in an organization for gaining practical experience.
4. To develop interpersonal communication skill.
PRIMARY DATA:
The sources used for the primary data collection are as follows:
1. Personal observations
2. Formal interviews with bank officers
3. Informal discussions with the concerned officers of the functional departments.
SECONDARY DATA:
The sources for secondary data used are as follows:
1. Annual reports of the bank
2. Manuals prepared by the banks for different purposes
2. Magazines and Journals.
NATIONALIZATION:
In 1974 the government felt a harsh need of nationalization of banks and financial
Institution and the nationalization act was introduced. Under this act, Muslim
Commercial Bank was the first bank, which was nationalized. In the same year
Premier Bank was merged with MCB and it started work as a government bank.
PRIVATIZATION:
All the financial institutions and banks did not show good performance after
Nationalization, and again the government felt a big need to privatize these banks. In
1991 the bank was privatized again.

MISSION:
 To become the preferred provider of quality financial services in the country with
profitability and responsibility and to be the best place to work.
OBJECTIVES OF MCB:
Every organization is established to accomplish certain objectives. The main
objectives of the MCB include:

Improved Customer Service.

Quick Disposal of Credit Claims.
Efficient operation of the officers in co-operative environment.
Communication with other branches.
Controlling officers.

COMMUNAL SERVICES:
For the purpose of building high image in the community, the subject bank has
contributed two crore rupees during 1997 for plantation in the country. It is providing free
services to the charitable organization such as Edhi Trust, Shaukat Khanum Memorial
Trust. Similarly it also sponsors recreational activities such as sports and refreshment.
Programs have been sponsored during the recent past.

PROVIDING EMPLOYMENT:
Unemployment is our national problem. The bank is playing a very useful role to
tackle it. MCB have a vast network of 1300 branches, with a staff of round about 16,000
people working in it.

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

LAUNCHING OF NEW PRODUCTS:

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

DECENTRALIZATION OF AUTHORITY:
In order to avoid the unnecessary delay in decision making, MCB has adopted the
policy of decentralization, where the General Manager, the Regional Manager and the
Branch Manager have been empowered by the Head Office to make some important
decision within the limit of their respective powers. This way a lot of problems faced by
MCB customers are solved at the grass root level without referring it to the Head Office
Karachi. Ultimately customer’s problems are solved well in time, which has resulted in
tremendous growth of the bank in all aspects.

EFFECTIVE USE OF ELECTRONIC MEDIA:

For the first time in the banking history of Pakistan a very effective campaign was
launched on TV, Radio, reputed newspapers, journals, bills etc. MCB changed its
monogram, after a long trial of selection. Impressive slogans were developed, very
modern and attractive ads were presented to the general public. Above all, the services of
electronic media were hired in the prime time and the messages were repeated over and
over again. As that was a take off point for MCB, therefore, very heavy expenditures
were incurred, on development and repetition of some very useful and attractive
advertisements.

COMPATIBLE PACKAGE:
After privatization the staff salaries have been revised three times. The first time
was 35% , the second was 32%, and the last one was 20%. Now on the aggregate the
MCB worker is getting the most competitive salary and benefit package.

Chapter 2
BRANCH NETWORK
 MCB is a huge organization, having branch network throughout the country. From
management point of view the branches are grouped under regions, and regions under
circles.
22 circles are working under which there were 50 regions and 1326 branches
through out the country and five branches are working abroad.

Province wise:

Province No. Of Branches

Punjab 584
Sindh 211
N.W.F.P 105
Balochistan 34
Azad Jammu Kashmir 8
Domestic Total 942
Overseas 5
Total 947

DIVISIONS OF MCB

Agriculture Division
General Services Division
Special Assets Management Group
Business Development and Marketing Division
HRD Division
RTC and Master Card Division
Central Accounts Division
Industrial Credit Division
O & M Division
 Corporate Affairs Division
Information Management
Legal Affairs Division
Credit Management Division
Inspection and Audit Division
Islamization Division
Finance and Treasury Division
Investment Banking Group
International Division
Training Division
Foreign Trade and Exchange Operation Division.

ORGANIZATIONAL STRUCTURE

MCB is a very large and complicated organization having many divisions,

branches, and administrative offices all over the country and outside the country. So it has
no specific organizational structure, we can make so many structures on different basis
which are given below;

On the basis of Geographical Locations.

On the basis of Executives.
Span of Control

MCB is a very large organization with many branches in different areas of the
country and different divisions under the Head Office. So it is managed through broad
span of control with decentralization of authority. All the Executives, including Senior
Executive Vice Presidents (SEVP`s), General Managers (GM`s), Regional Managers
(RM`s), Vice Presidents (VP`s), and Branch Managers are delegated with a certain
amounts of authority.
But still many decisions of small importance, are made by Top Management for
control purposes. So there is a mix of centralized and decentralized authority in this
respect.

GENERAL BANKING
ACCEPTANCE OF DEPOSITS

There are two basic principles of banking, first deposits and secondly advances.
Deposits play a pivotal role in commercial banking. In deposits it could be initiated by
the cash pay in slip when a customer enter into the bank he will fill up the pay in slip for
which he must have an account to enter into a valid contract, which is called customer
banker relationship. This contract could be launched of on opening job account.

OPENING OF AN ACCOUNT:-
The banking history is reputed with various instances of fraud due to incorrect
opening of account. Therefore, the branch manager and other officer had to taken care
and exercised required precautions at the time of opening of account. At the time of
opening of account, officers and manager should tactfully obtain as much information as
possible about the character and integrity of the person. His / her correct name, address
and occupation. This infect will be the only opportunity when they will be able to talk to
prospective customer in the friendly and frank atmosphere. The customer can be
classified as follows:-

I. Individuals.
II. Partnership firms.
III. Joint stock companies.
IV. Agents.
IV. Societies and associations.
For opening of account, the person should meet the following requirements.
He / She should be a major one.
He / She should have attained the age of 18 and having allotted NIC No.
He / She should be a sane person i.e. He / She should understand the terms and
conditions of the contract.
He / She must not be a bankrupt and his / her liabilities should not exceed than that of
the assets declared by him / her.

CLASSIFICATION OF DEPOSITS:-

Deposits can be classified in the following way:-

1. Current Deposits.
2. PLS Deposits.

1. CURRENT DEPOSITS:-
These are those kinds of deposits which are not remunerative in nature i.e. no
profit is given on these deposits.
There is no limit on withdrawal within the banking hours customer can present
number of cheque. Every type of customer meeting the conditions of account opening can
open these accounts.

2. PLS DEPOSITS:- (profit and loss sharing)

These are called remunerative deposits i.e. profit paying; to these account holder
profit is paid.

SCHEMES OFFERED BY MCB

To inculcate the habit of saving among the people and public, MCB has
introduced remunerative schemes, which include;
1. Khushali Bachat Account:-
As the name indicates, this scheme has been started to encourage savings.
The main features of this account are;

Introduced for the first time in Pakistan.

8 % rate of return is given per annum.
Return are calculated on daily product basis and paid half yearly.
It provides the facility of helping the account holders to pay utility bills (electricity,
telephone and gas) through their accounts, without making any queues and delay.

2. Mahana Khushali Scheme:-

MCB has introduced this scheme to encourage investment by paying profit month after
month.
The salient features of this scheme are:-

Khushali certificate can be purchased by individuals (singly or jointly), by the

proprietorship / partnership concerns or companies etc. in their name.
Minimum amount of investment shall be 10,000 and maximum amount can be
1,000,000.

The Khushali certificate will be of five years maturity.

14. 70 % per annum profit is paid monthly. It is reviewed in 6 months.

DEDUCTION OF TAXES AN ZAKAT FROM PROFITS:

At the time of payment of deposits amount including profits, either on maturity or before

Maturity, the amount of withholding Tax and Zakat wherever applicable, will be
deducted in the prescribed manner.

Chapter 3
Cash Department

Cash department performs the following functions.

a. receipts
b. payments
a. RECEIPTS

The money will either come in or go out of the bank. Its record should be kept.
Cash department performs all these functions. The deposits of all customers of the bank
are controlled by means of ledger account. Every customer has his own ledger account
and separate ledger cards.
b. PAYMENTS

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

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

KINDS OF CHECKS

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

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

ISSUING A CHEQUEKBOOK

One of the functions of account opening department is to issue the check books. When
any customer applies for a new checkbook he has to present the checkbook issue
requisition slip with his two signatures to the officer concerned, the officer will verify the
signature and on the verification of signature, the checkbook is issued.
The saving account (PLS) checkbook consists of 10 pages while the current
account consists if 20, 50, of 100 pages. An excise duty of Rs. 2 per leaf is charged.

MCB RUPEES TRAVELERS CHECK (RTC)

RTCs are used only in Pakistan. These are as good as cash because with RTC one
has the power to purchase and a feeling of security as well.
RTCs are acceptable at major shops, travel agents, hotels, business establishments
and all MCB branches. One does not have to be a MCB account holder for purchasing
RTCs.

RTCs are a safe and convenient way to conduct every day business. The person
goes to MCB branch and asks for the issuance of RTC. Then he deposits the money on
cash counter and provides the receipt to RTC officer. He issues RTC in his name stamp.
The buyer must sign the checks because if blank checks are lost, he will lose protection.

RTCs are in two different denominations i.e. Rs. 10,000 and Rs. 50,000 per leaf.
One can purchase RTC of Rs.50, 000 at maximum at one time from one branch. RTC
should be counter signed on the space provided in check only at the time of encashment
and in the presence of the officer of ecashing branch.
MAIL TRANSFER
When a customer requests the bank to transfer his money from this bank to any other
bank or the branch of some other bank in the city, outside the city or outside the country,
the first thing he had to do is to fill an application form. In which he states that I want to
transfer the money from this bank to that bank by mail. If the customer is the account
holder of the bank, it will debit his account and the concerned officer will fill the six
different forms to make the transfer complete. The five forms used for this purpose are
listed below:

1 Branch mail transfer form.

2 Issuing branch register copy.
3 Debit voucher.
4 Beneficiary’s advice
5 Advice to customer.
If the customer is not the account holder of this bank, then firstly, he has to deposit
the money and then above procedure will adopted to transfer his money.

DEMAND DRAFT

Demand draft is another way of transfer of money from one bank to another bank. Unlike
pay order, a form is required to be filled for the issuance of the demand draft in which
necessary particulars about the beneficiary and the sender are given. The sender deposits
the amount of DD plus commission and other charges on the bank counter, from where he
is given a receipt and in accordance with this receipt he is issues a demand draft.
After issuing the DD, the remittance department sends credit advice to the branch
to which the DD is sent, when the responsible branch receives the DD from the
originating branch, they credit it, and when the DD comes for clearing they debit the
account.
MCB deals with two types of DDs.
1. OPEN DD:
Open DD is one which is payable directly at the counter and there is no need of
crediting it to the account.

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

TELEGRAPHIC TRANSFER (TT).

With the changing requirements of customers, MCB has introduced a faster mode
of transfer of money. Like DD the sender is required to apply through a form in which he
will give all the necessary details about the sender and the beneficiary. The sender
deposits the amount of DD plus commission and other charges on the bank counter, from
where he is given a receipt, the remittance officials send a telegram to the concerned
branch and they make payment to the customer. Vouchers are sent by ordinary mail to
keep the record. On TT, no excise duty is charged only commission and telegram charges
are charged
Chapter 4
INTRODUCTION TO ADVANCES

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

A good borrower is also a good depositor, therefore, in order to conduct our test
we must analyze the 7 Cs qualities before extending credit, which are as follows.

1. Character of the borrower:-

An individual has two types of character.

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

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

2. Capacity:-
It is the ability to meet obligations when due, secondly we must see whether, the
individual or business entity is having the borrowing capacity i.e. the individual is not a
minor and in case of Limited Companies, the memorandum and articles of association
allows the directors to borrows.
Further to it, technical capacity should also be assessed.

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

4. Condition:-
Both economic and political conditions of the country must be heeded upon. In
case of bad economic condition of the industry, such as textile industry, financing will be
very risky and similar is the case of political conditions. In case of adverse economic and
political condition, the chances of recovery will be remote.

5. Collateral:-
Collateral security is essential because in the case of failure of our above-cited
techniques, due to uncertain conditions, the bank will resort to the collateral securities,
held against for realization of their outstanding.

6. Country Risk:-
If there is political uncertainty, a war has broken in the country then realization of
loans will be difficult.

7. Currency Risk:-
It should be wise to consider fluctuation of currency i.e. whether the subject
currency will appreciate or depreciate.
B. QUALITIES OF GOOD LENDING
An advance may be good or bad. However, a good lending must have the
following qualities.

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

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

iii. Dispersal:-
It will be highly advisable to diversify your risk by making different types of
industries and clients instead of one kind of customer. In such case, your risk will be
spread over several sectors and in case of failure of one sector; the bank will not be
faced with disaster.
PROCEDURE OF APPLYING FOR LOAN
In MCB procedure for obtaining loan is:
Any customer who applies for loan he/she should have an account (usually
current account) with the MCB branch concerned. That account should be in running
position because when applying for a loan, the branch prepares a proposal of his account.
That proposal is sent to General Manager Office for necessary action.
If limit comes under discretionary power of General Manager then he / she may
approve. If it is above the limit of GM Office it is sent to Credit Management Division of
Head Office. If the amount is above the power of Credit Manager Division then president
of MCB, decides the case.
 When the approval comes, bank gives terms and conditions to the party. The
customer completes his documents and papers, required in approval letter.
The bank does not advance 100 % loan against a security. Rather a 30 % margin is
deducted from all the loans.

The borrower has to provide some important documents i.e.

a) Two personal guarantees.
b) Charge forms.
c) Confidential Report.
d) NIB non-interest Banking.
Charge forms are taken from party, if it turns bankrupt; the bank goes to court of law
where this agreement helps. It is a printed and prescribed agreement. There are several
types of charge forms in MCB i.e.
IB6 A for term loan.
IB6 A When loans are given to employee of some organization.
IB12 Promissory Notes.
IB25 This is letter of hypothecatio
Staff Loans

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

1. House building.
2. Car loan.
3. Motor cycle loan.
4. Advance against provident fund balance.
5. Advance against four basic salaries.
6. Flood loans.

1. House Building loan.

It is for all employees against mortgage of property after completion of three
years of service. For clerical and non-clerical, it is free of interest. Where as for the
officers it is free of interest up to four hundred thousand where as for the rest of a mark
up at the rate 10 % is charged.

2. Car loan.
It is only allowed for the officers of the band. For a total amount of 180,000, at
the mark up of 10 %.

3. Motorcycle loan.
It is provided to all employees of the bank. The maximum amount of this loan is
55,000 and is free of interest.
4. Advance against provident fund.
It is provided to all employees against there 80 % of provident fund balance. It is
deducted every month. It is repayable within five years. The rate of interest is 10 %.

5. Advance against four basic salaries.

It is provided to the clerical and non-clerical staff and is repayable in one year.
The interest rate is 6% per annum.

6. Flood loans.
This facility is provided to the employees from scale 1 to scale 7 and to officer of
Grade 1 to Grade 3 whose house or property is damaged by rain. The amount of during
1996 was up to 20,000 rupees. It is interest free. It is deducted directly from the salary
from the equal monthly installment.

GUARANTEE
A guarantee is an under taking by a person to discharge the liability of another if
and only if the letters fails to meet it in himself. It is a personal liability arising upon
promissory note.
Guarantee means when third party assumes the liability for repayment of loan.
. This facility is provided by the bank, that some times any government or party working
in private sector needs a bank guarantee for the purpose that if the party defaults the bank
will pay.

In guarantee there are three main characters, these are

1. Principal: the person who is taking loan.
2. Financial Institution: it gives loan can also be called tender or creditor.
3. Guarantor: it gives surety about repayment of loan for the principal.

There are two types of contract in guarantee. One is between principal and financial
institution which is a legal agreement binding by law. Second, one is between the
financial institution and the guarantor. Guarantor responsibility is primary when the
principal debtor commits default.
INDEMNITY

It is a contract when a person by himself makes a commitment to save the other party
from any sort of loss caused to him by his acts or acts of other people. In this case, two
parties are involved that is financial institution and indemnifier. When a bank is providing
the guarantee facilities, they require a counter guarantee from the applicant and this
guarantee for safeguarding the interest of the bank. The counter guarantee provided to the
bank from the applicant is in the form of undertaking. If the applicant defaults, the bank
starts legal procedures. However, if the applicant is applying for a guarantee of one
hundred thousand. Rupees and deposits a margin of the same amount. Then there is no
need of the legal procedures.

All the long funds based facilities in the end are considered as the fund based facilities.
0.4% per quarter commission for all type of guarantee issued in favor of different
departments except collection of customers where the rate of commission is 0.6% per
quarter. All the guarantees are issued for one year but where guarantee issued in favor of
SNGPL (Sui Northern Gas Pak Ltd) is for two years.

Chapter 5
FOREIGN EXCHANGE

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

Foreign exchange reserves show the financial strength and the stage of development
of the economy.

The acceptance of currency at a predetermined rate makes the international trade easy.
The foreign exchange balances of a country directly affect the rates of exchange. A
hard currency nation has stability in foreign exchange rate.

FOREIGN EXCHANGE MARKET

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

SECURED ADVANCES: TYPES OF SECURITIES

STOCK EXCHANGE SECURITIES:

Stock exchange securities include all securities issued by public and private
enterprises, public authorities and Governments. Banker generally considers stock
exchange securities as acceptable securities for advancing money. In case of
necessity, such securities can be realized without much difficulty, and it is
 comparatively easy to ascertain the value of most stock exchange securities.
Similarly, it is easy to determine their title. Above all, some of these securities are
fully negotiable.
NEGOTIABLE SECURITIES:
There are certain stock exchange securities which are considered fully negotiable.
According to the Negotiable Instruments Act, a negotiable instrument mean a promissory
note, bill of exchange or Cheques payable, either to order or bearer. In addition, certain
other instruments are considered negotiable instruments by mercantile custom judicially
recognized. Securities like bonds payable to bearer, share warrants, debentures payable to
bearer, etc are treated a negotiable securities.

Financial statements
Balance Sheet
Assets 2008 2007
Cash and balances with treasury banks 39,631,219 39,683,883
Balances with other banks 4,106,526 3,867,591
Lending to financial institutions 4,100,079 1,051,372
Investments – net 97,790,391 115,358,590
Advances – net 262,508,830 218,959,786
Operating fixed assets 17,320,485 16,082,781
Other assets – net 19,828,228 17,896,838
Total assets: 445,285,758 412,900,841

Liabilities
Bills payable 10,551,468 10,479,058
Borrowings 22,663,840 39,406,831
Deposits and other accounts 330,245,080 292,088,347
Sub-ordinate loan - 479,232
Deferred tax liabilities – net 440,295 1,183,586
Other liabilities 21,252,942 11,716,465
Total liabilities 385,153,625 355,353,519
Represented by:
Share capital 6,282,768 6,282,768
Reserves 36,772,321 34,000,927
Inappropriate profit 11,065,723 7,054,472
Minority interest 69 63
Surplus on revaluation of assets 6,011,252 10,209,092
Total owner’s equity 601, 32133 57,547,322

445,285,758 412,900,841

Profit and Loss Account:

2008 2007
Mark-up / return / interest earned 40,049,505 31,791,754
Mark-up / return / interest expensed 11,592,922 7,858,819
Net mark-up / interest income 28,456,583 23,932,935

Non-mark-up / interest income

Fee, commission and brokerage income 2,878,663 2,772,615
Income earned as trustee to various funds 21,867 5,859
Dividend income 451,312 535,813
Income from dealing in foreign currencies 727,564 693,408
Gain on sale of securities – net 748,139 1,507,610
Unrealized loss on revaluation of investments
Classified as held for trading (99,531) (3,329)
Other income – net 1,201,834 1,002,160
Total non-mark-up / interest income 59, 298,48 6,514,136
34,386,431 30,447,071
Non-mark-up / interest expenses
Administrative expenses 7,580,302 5,440,305
Other provisions 10,120 (3,743)
Other charges 920,991 642,780
Total non-mark-up / interest expenses 8,511,413 6,079,342
Profit before taxation 25,875,018 24,367,729
Taxation - Current year 7,387,345 6,463,560
Profit after taxation 18,487,673 17,904,169

Chapter 6
COMPARISON IN AUTO FINANCE
BANK AL FALAH VS MCB

Bank al falah has emerged as one of the leading commercial banks in the financial sectors
of Pakistan. Charged with the strength of Abu Dhabi consortium the bank has already
made signifying contribution in building and strengthening both the corporate and retail
banking sector in Pakistan

Designing our product portfolio in response to our customer’s preferences, our products
like Royal Profit, Royal Patriot, Royal custodial, al Falah car financing Royal personal
finance, AL Falah Rupee Travelers Cheques and AL Falah Home Loan are prime
examples of quality innovation, providing timely banking opportunities to our customers.

Product:
Al Falah Car Financing Scheme.

Eligibility:
 1 Pakistani national identity card holder.
2 Over 20 years of age (max 60years in case of salaried and 62 in case of a
business person at the time of maturity of loan).
3 Salaried, businessman or self-Employed.

Available cars:
A brand new Pakistani assembled/manufactured car (unregistered).

Required documents with application form:

1 Our representative will discuss the documents you are required to submit in
detail. An indicative list is given below
2 Two passport size photographs.
3 Copy of N-I-C.
4 Bank statement for the last six months,
5 Salary certificate (in English) specifying the name, date of joining,
designation and salary details (for salaried individual).
6 Business proof (for the business person).
7 Current utility bill of your residence in Pakistan.
8 Copy of NIC card of the co-borrower (if the car is to be in the name of the
co-borrower).

Limit of financing Amount:

Minimum amount is Rs. 200,000/- and maximum amount is Rs.2, 000,000/-.

Tenure of loan:
The loan can be availed from 1 year to 5 year with yearly adjustment facility at
any time before the maturity.

First down payment:

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

Markup Markup
8.5% 10%
8.0% 15%

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

BENEFITS OF BANK AL FALAH CAR FINANCING

1 Easily affordable & flexible installments.

2 Flexibility of adjustment at any time during the tenure.
2 Quick processing
2 Minimum down payment
2 Minimum insurance
2 No hidden charges
2 Complete repayment at any point of time
2 Balance transfer facility (BTF) for existing as well as new clients from other
banks
2 Financing of all brand new locally assembled vehicles and used cars.
2 Tenure period ranging from 1 to 7 years.
2 Easily affordable installment on monthly basis in the from of postdated Cheques
will set you free of depositing your rental Cheques every month.
 2 Acting as a co borrower, will enables your family members,( spouse, children-
18 years and above) to avail the financing facility and can get the car registered in
their names as well.

MCB CAR FINANCE SCHEME

Role of MCB in Financing:

MCB’s role in financing is limited to the purchase of the vehicle only. MCB will
finance a portion of vehicle cost (registration fee and other related expenses will not
be part of financing

Eligibility:

1 Pakistani national.
2 Not less than 21 years for businessmen, or 22 years of salaried personnel,
and would not be more than 70 years on the maturity of the facility of Auto
Finance.
3 Salary/income is at least Rs.12, 000/- per month with monthly installment
not exceeding 50% of the take-home salary/income.
4 Businessman/self-employed person with a minimum experience of 1 year in
the same business/profession.
5 Permanent employee. For contract employees, 2 years on the job with the
current employer or 3 years of overall experience.

Start of loan processing:

1 TCO Cheques is dishonored.

2 The processing of loan application loan will start when all the relevant
 documents are provided and terms and conditions are fulfilled.
3 Also along with the Cheques for total cash outlay (TCO) to MCB.
4 MCB reserves the right to reject any Auto Finance application without
assigning any reason.

Required Documents with Application Form:

1 Photocopy of your NIC.
2 2 recent passport size photographs.
3 Bank statement (at least 6 months).
4 Salary certificate with name, designation, and joining date and break
down of salary.
5 Tax assessment orders.

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

Processing Charges:
1 Application processing charges Rs.3500-
2 First total monthly payment (tmp)
3 Equity as applicable.
4 First year insurance premium.
Note:
The deduction of the TMP will start soon after the insurance of pay order
of vehicle cost. MCB is not liable to pay any profit on your down
payment.
You will also pay all external agency charges in case some external
agency service is rendered to you. (note that charges are not refundable in
case the services have already been rendered, even if the loan application
is rejected.

Please do not pay to any sales representative for any charges or services.
All payment must via crossed Cheques to MCB.
Markup Policy:
Our standard offer at variable rate is 8.5% mark-up at 15% equity.
However you can also pay the equity as low as 10% but the markup in
that case would be 9%. Similarly if you increase your equity the markup
rate would drop. For example markup rate at 40%+equity would be 7.55
only. If you opt for fixed markup, the rate charged would be 10.5%.

Markup Down payment

8.5% 15%
8.25% 20%
8.00% 30%
7.75% 35%
7.5% 40%

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

Tenure of loan:
 2 1-7 years (Semi-commercial vehicles).
3 1-5years (commercial/personal cars).
Note:
You have the option to repay (fully or partially) the loan at any time
during the tenure of the loan. You will, however, pay a charge if you make
the repayment before the applied tenure.
Also in order to make partial prepayment, you will have to pay a
minimum of Rs. 25000-or 5% of total amount.

Insurance policy
Insurance rate is 3.5

BENEFITS OF MCB CAR 4U

1 Option of financing or leasing

2 Competitive financing rates.
3 Flexible equity/rate options.
4 Financing tenure1-7 years.
5 Financing up to Rs.20 Lacs (depending upon income, vehicle
cost and down payment).
6 Low processing fee of Rs. 3500/-.
7 Valid or salaried personnel on contract.
8 Power to make early payments, twice a year.
9 Convenient access through more than 90 MCB branches.
10 Quick processing.
11 Independent service quality representatives to assist customers.

COMPARISON IN AUTO FINANCE MCB VS BANK AL FALAH

S Muslim
. Commerci
Features Bank Al Falah Ltd Remarks
al Bank
# Ltd
Car
1 Product Car Finance Identical
Finance
Pakistani
Nationals
over 21
years at the
maturity of
car finance
Pakistani NIC # Over
Minimum Age limit in MCB
age of 20 years &
2 Eligibility Rs is 70 while in AL
max 62 salaried,
12000/= Falah its 62
businessman
per month
salary &
inst must
more than
50% of
salary

Free
choice is Both banks
All brand new
available provide equal
Selection/Availabilit Pakistani
3 to the opportunity/choic
y cars assemble/manufactur
customer e in the selection
e cars.
to select of car.
dealer/car.
 Photocopy
of N.I.C,
2passport
Copy of N.I.C, two
size
passport size
photograph
photographs, bank
, bank Al Falah
statement for 6
Required statement documentation
4 months, salary
Documents (at least of list is lengthier
certificate, business
6 months, than MCB
proof (business
salary
person), current
certificate
utility bills,
tax
assessment
orders.
The range of
Max up to
5 Limit of Finance Max up to 20,000,00 amount of
20,000,00
financing is same
From 1to
The tenure of loan
7years for
offer by MCB is
passenger
more relax and
vehicles. From 1 to 5years for
6 Tenure beneficial for
From 1 to both vehicles.
customer because
5years or
it provide variety
commercia
in their financing
l vehicle.
Paper The
work for documentation on
Documentation Paper work for car
7 car charges are also
charges financing Rs3000/=
financing . low of MCB from
Rs 3500/= Bank Al Falah
 Markup The markup
rate range policy of MCB is
from 7.5% Mark up rate range providing more
to 8.5% from 8.00% to 8.5% choices to
8 Markup Policy depending depending on the customer in their
on the amount of down down payments
amount of payment. as compared to
down bank Al Falah
payment Ltd.
MCB insurance
Insurance
Insurance rate on car rate is low as
9 Insurance rate car
loan 4.25% compared to bank
loan 3.75%
AL Falah Ltd.
Chapter 7

SWOT ANALYSIS – MCB CREDITS

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

STRENGTHS

MCB has a rich and old history of 58 years corresponding with the age of our
country. This in itself is the fundamental reason why it is such a strong and sound
financial institution. A sound image of MCB is there in the minds of the public
and the customers think of it as stable organization to bank with.

Building the tallest building in Pakistan by the name of MCB Tower is a clear
indication that MCB is a market leader in the banking industry. It has incorporated
state of the art technology and the latest equipment; symbolizing and maintaining
the fact that it has always been the pioneer of the banking sector in terms of
Information Technology.

MCB with its vast network of above 1200 branches is another big competitive
advantage that it has; very few do possess such a big set up. In terms of credits, all
these are the starting strengths why MCB is able to advance out loans in the first
place; customers are maintaining their long time relationships with the bank and
new clientage is regularly brought in.
MCB has been different or special in its credit policies; the fact being the
conservative policies it has adopted. It has been different than the other banks that
have either been progressive or aggressive in their tactics and policies. The result
has been the minimum or smaller bad debt portfolio that MCB claims to have as
against the larger bad debt of its competitors. Moreover, its credits have been
healthy and sound.

MCB deposit base has always been strong to support its revenue (mark-up or
commission) generating advances / finances. Its latest loan / deposit ratio has been
78.63 %, which in itself is a healthy percentage.

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

WEAKNESSES

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

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

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

OPPORTUNITIES

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

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

THREATS

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

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

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

Banking sector in Pakistan has grown very fast in the past few years. The industry has
shown immense growth, activity and progress. Banks have profited highly, consumers
have been entertained and activity and growth has taken place in some other industries as
well.

Credits being important for every bank; an all important asset in its balance sheet and one
earning the highest revenue in the form of markup and commissions on the income
statement. For that matter MCB’s credit policies are important and key for how the bank
would progress in the coming times.

MCB is a conservative lender and credit policies are likewise. In this it claims that it has
been able to maintain a healthy and sound portfolio of credits; prudent lending has
resulted in regular finances, and a minimum of bad debts portion.

In fact, MCB is earning much more than many of the other banks who have been on the
aggressive side; those with a higher loan portfolio but a likewise sizeable bad debt
portion. These competitors have higher loans / deposits ratios, making them face liquidity
problems much sooner than they could anticipate.

As a conclusion, MCB has been fairly good in its credit lines and policies. It has stood
different than the others by staying conservative against being progressive or aggressive.
It has focused on long term stability and growth, but with a simultaneous good short term
progress.
 Bibliography

1. MCB Bank Ltd Annual report for the year 2005.

2. Meiges, Robert F. (1999).Accounting: The Basis for Business Decisions.
Boston: Irwin Inc
3. www.Lendingtree.com
4. www.Bankrate.com
5. Interest rate data are from the Federal Reserve Bank of St. Louis, U.S. Financial
Data. For the latest data, see www.Stlouisfed.org
6. Loan Portfolio Management: Comptroller’s Handbook, Washington, D.C.,
Office of the comptroller of the Currency (April 1998)
7. Dominick Salvatore (1996), Managerial Economics in a global economy,
International edition: North America. McGraw- Hill, Inc
8. MCB Bank Ltd (2005).Manuals and Brochures.
9. Koontz Harold. And Heinz Weihrich. (1993) Management. 10th Edition.
Singapore McGraw Hill.
10. Interview with branch manager.
11. Interview with cash department, credits and foreign exchange departments.
12. H.E. Evit, Kindle Berger, Heartly Whither definitions about foreign exchange.
13. www.Google.com.pk search for other data.
14. MCB Bank Ltd. Bank Operation.
15. MCB Bank Ltd. Department Manuals.
16. Personal Observation during internship at MCB