ACKNOWLEDGEMENT All praises to Almighty ALLAH who gave me the courage and patience for completion of this final report. I wish to acknowledge my gratitude to my inspiring teachers for their endless persistence, support and encouragement, and for providing me a lifetime opportunity to work with Muslim Commercial Bank I am also thankful to my parents, family and friends who continually offered encouraging support.
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Transcript
ACKNOWLEDGEMENT
All praises to Almighty ALLAH who gave me the courage and patience for completion of this
final report.
I wish to acknowledge my gratitude to my inspiring teachers for their endless persistence,
support and encouragement, and for providing me a lifetime opportunity to work with Muslim
Commercial Bank
I am also thankful to my parents, family and friends who continually offered encouraging
support.
Table of ContentsEXECUTIVE SUMMARY 4
OBJECTIVE OF STUDYING THE ORGANIZATION 5
OVERVIEW OF THE ORGANIZATION 6
HISTORY OF THE ORGANIZATION 6
NATURE OF THE ORGANIZATION………………………………………………………………………………………………………7
BUSINESS VOLUME…………………………………………………………………………………………………………………………..7
NO .OF EMPLOYEES…………………………………………………………………………………………………………………………7
By the Grace of ALLAH I have completed my internship in Muslim Commercial Bank
Limited….
This report is an off shoot of my experience in the bank. I have tried my best to sum up all the
information, experiences and learning which I have gained there. First of all I have provided the
brief overview of the organization. Organization’s history, number of employees, product line,
business of volume has been discussed briefly.
Organization structure has been elaborated by description of head office and branch’s hierarchy.
It was important to mention that who reports to whom.
MCB has various departments e.g. credit, finance, accounts, cash, remittance and clearing.
Report contains the detailed information about all the departments.
Structure of accounts and finance department has been discussed in detail. Operations of the
finance department and the role of the finance managers have been elaborated on the basis of my
experience in the bank. The types of software and technology used by the department are
included in this section. Various sources of fund generation and the ways to allocated them have
been mentioned.
Financial analysis is the key to determine an organization’s performance. Financial analysis of
the organization has been done in the report on the basis of last five year financial statements of
the bank. Techniques used for the financial analysis are ratio analysis vertical analysis and
horizontal analysis.
Future prospects and weaknesses which can hinder the organizational performance have been
discussed in detail.
In the end report contains recommendation which is essential to improve the productivity of the
organization.
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OBJECTIVE OF STUDYING ABOUT MUSLIM COMMERCIAL BANK
I was assigned internship in Muslim Commercial Bank; the objective of my study in the bank
was to know about banking industry’s operation in Pakistan. My internship was a gateway to
practical world. It was my earnest desire to have practical knowledge of the banking industry.
Theory and books guide you to prepare yourself for outside world and while practical exposure
like an internship give you opportunity to apply the theory and knowledge in the working field.
My purpose was to know about how the machinery works in a bank. How does finance manager
handles finance department, how are financial statements being prepared in going concern. How
does a bank collect and manages its funds. What are the sources of funds and how do they
allocated by the management.
Financial Analysis of an organization gives you clues about its market position. For that purpose
it was necessary to study the financial statements of the bank and to apply some sort of
techniques.
My analysis of financial and other operation of the organization helped me to point out the
weaknesses in management affairs.
I thoroughly studied the future prospects of the organization. Which paved the way for me to
make strategies and to give useful recommendations about organizational development?
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THE MUSLIM COMMERCIAL
BANK LIMITED
History
MCB was founded by ISFHANI and ADAMJEE families in Calcutta on July 9, 1947. MCB is
not an overnight success story rather good track of services are responsible for the leaps and
bounds progress. After the partition of the Indo-Pak Subcontinent, the bank moved to Dhaka
from where it commenced business in August 1948. In 1956, the Bank transferred its registered
office to Karachi, where the Head Office is presently located. Thus, the bank inherits a 52-year
legacy of trust in its customers and the citizens of Pakistan
The performance of MCB was badly affected by bureaucrat government. In January 1974, MCB
was nationalized by Bhutto Government following the bank act 1974 subsequently in June 1974
Premier Bank Limited merged with MCB.
When privatization policy was announced in 1990, MCB was the first to be privatized upon
recommendations of World Bank and IMF. The reason for this choice was the better profitability
condition of the organization and less risky credit portfolio which made'' it a good choice for
investors. On April 8th, 1991, the management control was handed over to “National Group”
(the highest bidders). Initially only 26% of shares were sold to private sector at Rs. 56 per share.
MCB besides being money financial organization have rendered invaluable services in the
economics and social developments of our country. MCB today, represents a bank that has
grown with time, experience and Pakistan. A major financial institution, in scope and size, it
symbolizes a fully-grown tree. Evergreen, Strong, and firmly rooted.
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Nature of Organization
Muslim Commercial Bank is a formal organization where rules and responsibilities are clearly defined.
Business Volume
Profit before tax 26,253.075Profit after tax 16,873,175Total assets 567,552,613Total liabilities 488,348,404Deposits 431,371,937Investment 213,060,882No of branches 1061No of accounts 439264
No. of Employees
There are 11,614 employees of Muslim Commercial Bank in Pakistan.
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Product Line
Loans and advances: bank grant loan to the customers MCB also grant different kinds of loan to different customers.MCB grant consumer loan commercial and corporate loan like (pledge, mortgage and hypothecation)
Bank accepts deposits which are sustained by the bank in different kind of accounts.MCB bank offer these accounts for depositing the funds.
Current account Term Deposit Saving accounts Other services MCB visa credit card MCB smart card MCB rupee traveler cheque MCB ATM’S MCB mobile ATM’s MCB SMS banking MCB mobile MCB call center MCB lockers MCB investment service MCB advisory service MCB bank insurance MCB local rupee drawing arrangements MCB home remittance MCB equity capital raising MCB Islamic banking
ORGANIZATION STRUCTURE
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ChairmanMian Mansha
PresidentMuhammad Aftab Manzoor
Corporate Banking Group
Muhammad Shoaib Qureshi
Commercial Banking
Group_North Imdad Ali
Butt
Commercial Banking Group
_South Shahid Sattar
Head Office Structure
Branch’s Structure
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Chief Manager
Operational Manager
Supervisor
ClearingOperatio
n OfficerCash DepttChief Cash
Teller
Teller
Credit Manager
DEPARTMENTS IN MCB
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There are various departments in MCB which are:
Operations Department
Clearing Department
Remittance Department
Cash Department
Advances Department
OPERATIONS DEPARTMENT
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Types of Accounts
Single
Joint
Partnership
Private Limited
Public Limited
SINGLE:
Only one person can operate this a/c. An individual who can fulfill the requirement of bank can
open this a/c. We can call it a personnel or individual a/c. The requirements for this type are
National Identity Card Photocopy, Minimum Deposited Balance, Account Opening Form, Letter
of Kinship etc.
JOINT:
In case of joint a/c applicant mentions that how much person will operate the/c. Instruction are
given for joint a/c such that the account shall be operated by anyone or more. The requirements
for this type are National Identity Card Photocopy, Minimum Deposited Balance, Account
Opening Form, Letter Kinship, Additional Signature Form (For Joint Account), Declaration
regarding the operator of account.
PARTNERSHIP:
For partnership a/c, along with the application form other requirements needs satisfied. The
requirements for this type are National Identity Card Photocopy, Minimum Deposited Balance,
Account Opening Form, Registration certificate, agreement among partners and Commencement
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of business and private registration, resolution of board of directors, commencement of business,
memorandum and articles of association and balance sheet etc.
PRIVATE LIMITED:
Such type of account is opened in the name of the businesses having private limited concern and
mostly medium business enterprises open such kind of accounts. All the board of directors have
to submit the declaration regarding the account operator on the company pad and with the rubber
stamp with the signature of the all the members of the board of directors. In case of any change
in director’s bank must be informed regarding that. In case funds are borrowed by the company
all the directors approval is necessary rather not only the authorized partner who can be the
operator of the account.
PUBLIC LIMITED:
Public Limited A/C type of account is opened in the name of the businesses having Public
limited concern and mostly medium business enterprises open such kind of accounts. And terms
regarding board of directors are the same as of private limited.
NATURE OF ACCOUNTS:
Current Account
PLS Saving bank A/C
Khushali Bachat Account (KBA)13
Saving 365 A/C
Basic banking A/C (BBA)
CURRENT ACCOUNT:
In this type of accounts the client is allowed to deposit or withdraw money as and when he likes.
He may, thus, deposits or withdraws money several times in a day if he likes. There is also no
restriction of amount to be deposited or withdrawn. However, there is requirement of minimum
balance maintenance of Rs. 1000/-. Usually this type of account is opened by the businessmen.
No profit is paid by the bank and no service charges are deducted by the bank on current deposits
account. These types of deposits are also exempt from compulsory deduction of Zakat.
PLS SAVING BANK A/C:
This account was started in 1980s after the issuing of banking ordinance in 1980 by Zia
Government to develop Islamic banking in Pakistan. In this case customer would be responsible
for bearing profit as well as loss. The bank would be within its rights to make investment of
credit balances in the PLS saving accounts in any manner at its sole discretion and to make use
Of the fund to the best of its judgment in the banking business under the PLS system. For
withdrawal of larger amount, 7 days notice in writing is required to be given.
Minimum balance is Rs.500/=
Not more than eight withdrawals in a year allowed
More than Rs.15000/= are not allowed to draw
Seven day notice is required for big withdrawal
Zakat deducted on @ 2.5%
Profit calculated on monthly basis
Profit paid on annually basis
SAVING 365 ACCOUNTS:
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This account is newly developed of MCB and it provides flexibility of saving account to
business people. Profit on deposits will be payable on daily product basis on balance of RS.
500,000/- and above. However, if balance in the account falls below RS. 500,000/- on any day,
the product will be ignored. There will be no restriction on withdrawal from the account. Zakat
and withholding Tax is also applicable on the account opened under this scheme.
Minimum balance is Rs.500,000/=
Below minimum balance, profit calculation ignored
Profit calculated on daily basis
Profit paid on annually basis
10% Withholding Tax on minimum balance
Zakat deducted on @ 2.5%
KHUSHALI BACHAT ACCOUNT:
Saving type account
Rate of return is 8% per annum
Profit calculated on daily basis
Profit paid on half yearly basis
Utility bills can be debited through this a/c
No charges will be debited for utility payments
BASIC BANKING A/C (BBA):
Introduced specially for salaried persons.
Minimum balance is Rs.1000/=
No service charges.
Only two transactions allowed, in one month.
For more than two transactions Rs.35/- per transaction.
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Single natured A/C.
ACCOUNT OPENING PROCEDURE:
Following steps are involved in A/C opening,
ACCOUNT OPENING FORM:
Firstly the customer fills the account opening form and provides all the information as provided
above. I experienced to fill this form
INTRODUCTION:
An account is needed to be introduced. The introduction of a current account holder is accepted
for the opening of an account.
The introducer should be a branch customer or may be account holder of any branch of MCB;
however signatures should be verified by the banker. In certain cases, introduction from bank
other than bank MCB may be allowed.
Personally known accounts may be introduced by the bank staff.
Introduction from an account holder not personally coming to the bank should be verified by the
bank.
STAMPING:
Then it is stamped. Stamps like. BAL sign verified, Sign Admitted Stamp, Sign Verified stamps
etc are affixed.
ACCOUNT NUMBER:
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After completion of all the procedures the final approval is taken from the branch manager.
After obtaining approval, an account number is allotted to the customer and all the information is
entered in to the computer and KYC is filled up. Then that account number is writing on the
Cheque Book, Specimen Signature cards and account opening form.
KNOWING YOUR CUSTOMER:
After entering information KYC is filled up. It should be ensured that at the time of filling
information in KYC, a customer should be physically present. After this all information is saved
in system. I filled KYC form also.
APPROVAL:
This account is further approved by Manager Operations.
SEND FORM TO HEAD OFFICE:
After fulfilling all the requirements and verifying the forms from operation manager the account
opening form is sent to Head Office Karachi and make request to issue the printed cheque book.
LETTER OF THANKS:
Subsequent to the opening of an account, letter of thanks should be sent under registered post or
courier service to the customer and the introducer.
ISSUANCE OF A CHEQUE BOOK:
After opening an a/c with the bank, the a/c holder can not immediately start operating his/ her
account. The cheque book is issued, when a customer will submit a copy of letter of
acknowledgement duly signed by him, in case of new account. And for subsequent issuance of
cheque book He/she has to make a request once again in the name of bank for the issuance of
cheque book and he should mention title of A/C, A/C number, sign it properly and mention the
number of leaves requires. Normally a cheque book having at least 25 leaves is issued but it can
also be of 50 leaves.
CLOSING OF AN ACCOUNT:
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There is no. of reasons of closing an account. Some are listed below:
If customer desires to close his account
In case of death of one account holder.
Bankruptcy of the account holder.
If an account contain nil balance or not up to the requirement of rules.
Before closing any account, bank send letter to the account hold for informing him that his
account is going to be closed. There is need an approval from higher authority to close any
account.
CLEARING DEPARTMENT
In clearing department I worked under supervision of Miss Shumaila Malik. In clearing
department and learned about inward and outward clearing and I also learnt about,
MEANING OF CLEARING:
The word clearing has been derived from the word “clear” and is defined as,
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“A system by which banks exchange cheques and other negotiable instruments drawn on each
other within a specific area and thereby secure payment for their clients through the Clearing
House at specified time in an efficient way.”
CLEARING HOUSE
It is a place where cheques are presented, collected from bank branch. It is one of the services
provided by NIFT to other commercial banks. NIFT acts as a clearinghouse.
NIFT:
NIFT stands for National Institutional Facilitation Technologies. Clearing House of SBP has
shifted a tiresome part of its work to a private institution named NIFT. NIFT collects cheques,
demand drafts, Pay orders, Travelers Cheques, etc. from all the branches of different banks
within city through its carriers and send them to the branches on which these are drawn for
clearing. After the branches approve the instruments drawn on them, NIFT prepares a sheet for
each branch showing the number for instruments and amount
In its favor and drawn on it and sends it to each branch. A similar sheet for each bank is also sent
to clearing house of SBP where accounts of banks are settled in the same manner.
LEARNING IN CLEARING DEPARTMENT
My learning in clearing department was of following things:
Procedure of clearing a cheque.
Checking of cheques.
Inward and outward clearing.
Different reasons of returning a cheque.
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Types of clearing stamps.
CLEARING PROCEDURE:
Instruments collected are treated as Transfer, Transfer Delivery, Clearing, and Cheque
collection.
CHECKING OF CHEQUES:
When the instruments are collected from the client. Following things are checked
Cheque date, instrument should be neither stale/ nor post-dated.
Title
Amount in figures and words should be the same
There should be no cutting and overwriting on the cheque
Instrument should not bear any unauthorized alternation.
Cheque is crossed.
TRANSFER:
When the instruments are collected and paid by the same branch, it is called transfer.
TRANSFER DELIVERY:
When instruments are collected and paid by two different branches of the same bank situated in
the same city, it is called transfer delivery
A cheque is processed under transfer delivery when it has crossing stamp and is from local
branch of MCB
CLEARING:
Instruments 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, are processed for clearing.
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In outward clearing when cheque is received two copies of voucher SF-37 are prepared, one
copy and instruments along with clearing stamp, realization stamp, add list and two vouchers of
clearing summary are sent to NIFT in a sealed bag. And clearing records are recorded in clearing
register.
In Inward clearing instruments received from NIFT are posted in Computers after checking.
CHEQUE COLLECTION (C.C):
When cheque is from another city then it is grouped as C.C.Such instruments are processed as
cheque for collection. In this procedure SF-37 form is used in Cheque collection. Original
voucher with cheque, stamped as C.C along with C.C number is sent to main branch of the
responding city which is further sent to NIFT. Whereas Carbon copy with Pay-In-Slip is taken by
bank for record purposes.
PAY-IN-SLIP:
It is used for two purposes
Whenever we want to deposit cash in our account then pay-in-slip is used by writing amount on
it and depositing it to cashier along with money.
Whenever we have cheque from any party to be collected in our account we fill pay-in-slip. One
part is attached with cheque and another is given to cheque holder as a receipt.
NOTE:
In inward clearing sometimes cheques are not passed due to some reasons then cheques are sent
back to NIFT along with cheque return memo. Some of these reasons are,
Cheque incomplete
Clearing stamp required.
Drawer’s sign incomplete
Drawer’s sign different from specimen
Post Dated
Payment stopped by drawer.
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Amount in words and figures differ.
Insufficient funds etc.
REMITTANCE DEPARTMENT
REMITTANCE:
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Remittance is transfer of funds from one place to another or from one person to another. It is an
important service provided by banks to customers as well as non-customers. Since it is not a free
service it is a source of income for the bank.
PARTIES INVOLVED IN REMITTANCE
Four parties involved in remittance: -
Remitter, Remittee, Issuing Bank, Paying Bank
REMITTER:
One who initiates, or requests for a remittance. The bank charges him a commission for this
service. He may or may not be the branch’s customer.
REMITTEE:
A Remittee is also called the beneficiary, or the payee. The person in whose name the remittance
is made. A Remittee is also the one who receive the payment.
ISSUING BANK:
The bank that sends or affects the remittance, through demand drafts, telegraphic transfers, or
Mail Transfers.
PAYING BANK:
Paying Bank also knows as the drawee branch. The branch from where the instrument is drawn.
TYPES OF REMITTANCE:
Remittance is classified into following four types
Inward remittance, instruments received for payment
Outward remittance, issuing instrument to the responding branch.
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Inland remittance, within same country.
Foreign remittance, from one country to another country.
INSTRUMENTS USED IN REMITTANCE:
Demand Draft (DD)
Telegraphic Transfer (TT)
Pay Order (PO)
Call Deposit Receipt (CDR)
Rupees Traveler Cheque (RTC)
DEMAND DRAFT:
DD is a written order given by the branch of the bank on behalf of the customer to other branch
of the same bank to pay the certain amount to the customer.DD are issued for the particular place
other than place of issuance. DD applicant or recipient, who might not be an A/C holder present
it to another bank at a different place requesting it to pay on demand a specified amount of
money which is already received to the person named on it.
DOCUMENTATION:
A printed application form is provided for filling in completely and signing by the applicant.
After depositing an amount of draft and commission of the bank, duly completed and signed by
two authorized officers, then it is handed over the applicant and credit order is dispatched to
drawee branch.
TELEGRAPHIC TRANSFER (TT):
TT is fund that is transferred electronically which is remitted on the order of a certain person. In
this case the authority is given from one bank to other on the behalf of the customer through
telecommunication to debit their inter office account through them and credit their parties
account mentioned in TT. But it is not practiced these days frequently.
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PAY ORDER:
For this kind of remittance the payer must have the account in the issuing bank. Pay order are
more liquid as compared to cheques because cheques may be dishonored while PO can’t be. It is
written order issued by the bank drawn and payable on itself. It is used for local transfer of
money from one person to another person.
DOCUMENTATION:
The party who requires a pay order will get a printed application from the bank. He will fill it
and deposits the amount and commission.
CALL DEPOSIT RECEIPT (CDR):
It is an instrument like Cheque issued by the bank on account of a customer & in favor of a
person, to pay the specified amount. CDR’s are issued to make payments, especially when a
company goes for some tenders or for purchase of government securities or any contracts with
others.
DOCUMENTATION:
The party who requires a CDR will get a printed application from the bank. He will fill it and
deposits the amount and commission. The bank enjoys the benefit of keeping funds deposited
until the payment is not made.
RUPEES TRAVELER CHEQUE (RTC):
RTC is the traveler cheque are acceptable at all branches of MCB, and they carry dozens o f
benefits. Security is always being an important issue of concern. TCs provide maximum security
while carrying big amounts.
DOCUMENTATION:25
First of all RTC-10 is given to customer. It is filled and then cash is deposited to cash
department. One copy is for office and one copy is given to the customer and RTC are issued at
that time.
NOTE:
At time of my stay in remittance department, there was no issue of CDR, TT, RTC, and PO so I
was unable to understand its practical aspects, except clearing.
CASH DEPARTMENT
The cash department is the most important department of the bank. In cash department both
deposits and withdrawals go side by side. This department deals with cash deposits and
payments.
The following books are maintained in the Cash Department:
Cash Receipt Book
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Cash Payment Book
Cash Balance Book
The officers in this department are called teller and there were 2 tellers Mr. Nazir and Mr.
Abrash at the counter. This department is involved in two activities: Cash Deposits, Cash
Payments.
CASH RECEIPT BOOK:
The cashier is responsible to receive both the paying-in-slip and cash from the depositor. For
depositing the cash into customer’s accounts, there is need to fill in the paying-in-slip giving the
related details of the transaction. The cashier check the necessary details provided in the paying-
in-slip and accounts the cash and tallies with the amount declared in the slip then cashier fills in
the “Cash voucher received Record Sheet” and assigns a voucher no. to both the transaction
being made in the sheet and the slip. The 2nd cashier posts the transaction entries in computer
ledger. After posting these entries, computer display before posting balance and after posting.
Cashier assigns the stamp “POSTED” on the voucher to show voucher transaction entries are
posted.
CASH PAYMENT BOOK:
The only instrument that can be used to withdraw an amount from an account is the Cheque
book. No payments are made by another instrument. When cheque is valid in all respects, the
cashier enters the necessary inputs in the computer and posts the entry so that account balance is
updated. When cashier posts these entries, computer automatically display the balance before
posting the transaction amount, balance after posting.
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The cashier at the same time maintains the “Cash Voucher Received Record Sheet”. Then
inspects the signature of the customer, cancellation mark of checking officer and stamp of
“POSTED” is placed on cheque before he hands over the cash to customer.
CASH BALANCE BOOK:
At the end of the working day cashier is responsible to maintain the cash balance book. The cash
book contains the date, opening balance, detail of cash payment and received in figures,
The consolidated figure of receipt and payment of cash is entered in the cash book and the
It has been launched recently during my internship. It helps in getting accounts details and
making transactions using mobiles.
PHONE BANKING:
"MCB Phone Banking” is available to all customers on a countrywide basis. Customers can dial
111-000-622(without any city code/prefix) from their respective cities
Customers enjoy 24x7 Round the Clock Phone Banking Services. MCB is the first bank in
Pakistan to offer Centralized connectivity.
MCB now offers the facility of on-line banking to its customers through its country wide
network of branches. Customers can use the ATMs or the banking counters of any branch for
day-to-day banking needs, irrespective of branch where they maintain their accounts.
There are now more than 250 branches linked through this system and they can transact with
each other directly using computer systems and the software named “SYMBOLS” at their own
branches.
ATM (Automatic Teller Machine):
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ATM stands for Automatic Teller Machine. This machine is used to transact in one's account
without intervention of humans. These machines are basically used for taking cash, confirming
balances and requesting statements / cheque books. MCB has the largest ATM network in the
country at the moment with almost one ATM at each online branch and also ATM terminals at
International Airports covering 27 cities of Pakistan
ATMs are operated through a card issued to the valued customers and by application of Personal
Identification Number (PIN number). Now MCB has also entered into a contract with Cirrus
which is a subsidiary of MasterCard. This contract will enable an ATM card holder to use his
account even when he is out of country at all the ATMs where Cirrus logo is displayed.
Green Cards are ordinary cards with a maximum withdrawal facility of Rs. 10,000/- in a day.
The annual fee for this card is Rs. 300/- only.
Gold Cards are special cars with maximum withdrawal limit of Rs. 25000/- in a day. These cards
are issued to the persons having more than Rs. 500000/- as their average balance.
International Cards are issued in collaboration with Cirrus and are useable all over the world
with maximum withdrawal facility according to the standards of Cirrus.
ADVANCES DEPARTMENT
Different banks provide loan facility to general public, companies etc. but MCB provides two
types of loans that are as under:
Fund Base Loans
Non Fund Base Loans
FUND BASE LOANS:
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In this type of loans cash is directly involved. Bank provides loans in shape of cash. Bank gives
credit or limit facility to customers that needed it. In fund based loans there are two further
classifications:
Long Term Loans:
Lease facility for car
For Machinery
For Fixed Assets
Short Term Loans:
Running Finance (R/F)
Cash Finance (C/F)
RUNNING FINANCE:
The MCB provides overdraft facility to the customers for the working capital
requirement. These are the loans which are given to those customers whose business runs
throughout the year or continuously. Its duration is one year and it is for running business.
In advances there are two securities one is known primary security and other is secondary or
collateral security.
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Hypothecation of stock is the primary security and mortgage is the secondary or collateral
security.
SECURITIES FOR FUND BASE LOANS:
Hypothecation of Stock
Mortgage
Pledge
HYPOTHECATION OF STOCK:
In hypothecation of stock the possession of goods and the title remains in the favor of customer.
Without the permission of the bank the customer can't sell the stock. It is the restriction of the
bank that in god own there should be stock according to the instructions of bank every time. The
drawback of this is that there is no check and balance of stock from the bank. The customer can
easily sell his stock.
MORTGAGE:
The bank can mortgage the immovable property like land, building etc as a security. In mortgage
the possession remains to customer and title of goods remains to bank.
PLEDGE:
In this, bank requires the moveable property of the customer as a security like stock, vehicle etc.
possession of goods remains to customer and title in the favor of bank. The bank hires a
muqaddam [Guard] and the key of store where the stock is pledged is in the security of bank.
When customer wants to sell the stock then he pays the amount equivalent to stock which he
wants to sell. After receiving amount bank releases his stock for the same amount.
NON FUND BASE LOANS:
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In non fund based loans cash is not directly involved but bank gives guarantee on the
behalf of customer. Bank works as a third party and known as Guarantor. Bank provides a
security to customer when he needs and someone requires from the customer.
DOCUMENTS REQUIRED BY BANK FOR ADVANCES:
Request of customer
Credit application from bank
Basic borrower sheet
Net worth certificate
CIB report
Financials
Account statement
Property evaluation report
For sale value certificate
Property documents
Title deed [fard]
Property map
CNIC
Account opening form
Undertaking
Following steps are there:
Information required by the bank
Preparation of credit proposals
Sanction advice
INITIAL INFORMATION :
Following information is required to be submitted to bank.
Nature & structure of borrower business
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Names of proprietors, partners or directors
Detail of all firms or companies associated with borrower.
Financial condition of borrower business
An assessment of his business abilities
Accurate and up to date financial statements of last two years for comparison purposes
Market report on the borrower where borrower has maintained an account with another
bank, a report from his bank should also be obtained.
A report from credit standing bureau of State Bank of Pakistan
PREPARATION OF CREDIT PROPOSAL :
At first a formal application for credit approval is obtained from the party along with complete
group position. The party’s credibility report is obtained from the bank with which the bank is
doing its business. The party’s credibility report is also taken from the Head office of Trade
Information Division.
For obtaining credit, party has to submit the last two years Balance Sheet and Profit & Loss
statement duly attested by authorized auditors. If the party is also involved in export or import
business then the bank also considers the data of three years about import & export. Current debt
and equity ratio is also calculated by the bank. The type of data required to prepare the credit
proposal is to be gathered from the different departments. Some data is obtained from the foreign
Exchange department. Some data is available in Advance Department. The purpose of obtaining
Credit should be explained clearly.
The securities offered by the party to the bank are also evaluated. In case of pledging of property
in shape of land or building the complete evaluation of the property should also be attached.
After all the necessary documents for applying for advance is fulfilled by the party then the case
is sent to Manager for approval. If the credit limit is in his range then he can decide over it
otherwise the case is forwarded to seniors. If there is any discrepancy then the party is informed
of it.
Sanction Advice:
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When the documents required are complete and there is no ambiguity then the party is advised
that their credit or loan is approved and will be available to you soon.
The form contains following information:
Nature and amount of limit
Purpose
Security/ Collateral
Margin (%).
Mark up/ Charges
Valid
DESCRIPTION OF FINANCE AND ACCOUNTS DEPARTMENT
This department controls all the finance functions of the bank in accordance with the generally
accepted rules.
The Finance Department is comprised of three main areas:
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General Accounting
Accounts Payable
Payroll
Duties of Finance Department:
Duties of the Finance Department include:
controlling expenditures and obligations (including operating expenses, debt, payroll)
receipting and depositing all revenues
managing the investment of all monies
accounting for all assets and capital project expenditures
internal and external reporting
ROLE OF FINANCE MANAGER
Finance manager plays a significant role by collaborating across business functions in order to
determine how to best allocate and manage assets. The financial activities are supervised by the
Finance Officer to ascertain solid internal control is in place. An audit of financial practices and
principles is conducted annually by an outside audit firm. The finance staff assists in providing
the information for audit.
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Following are the responsibilities of the Finance Manager:
Providing and interpreting financial information
Monitoring and interpreting cash flows and predicting future trends
Analyzing change and advising accordingly
Formulating strategic and long-term business plans
Researching and reporting on factors influencing business performance
Analyzing competitors and market trends
Arranging new sources of finance for bank’s debt facilities
Supervising staff
Managing bank’s financial accounting, monitoring and reporting systems
Liaising with auditor to ensure that annual monitoring is carried out
Managing budgets
USE OF ELECTRONIC DATA IN DECISION MAKING
MCB is using different kinds of software for decision making purposes. e. g.
Oracle GL
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Finance department uses Oracle GL as its information system. Oracle is the product of
Oracle E-Business Suit which the organization has acquire as its platform for managing
its business transactions and maintaining its records. Oracle ledger works seamlessly with
Oracle E-Business Suite products to drive better decision making, sustainable financial
discipline, and regulatory compliance and optimized business processes.
SOURCES OF FUNDS
Main source of funds in MCB is deposits.
Deposits
Total amount of deposits of MCB in 2013 is $431,371,937. There are different types of deposits which are:
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Type Value in 2012Fixed Deposits $ 7,896,275,92
Current Deposits $ 1,842,436,4
Saving Deposits $ 2,680,834,418
ALLOCATION OF FUNDS
Loans
MCB bank allocates the fund for profit generation .It is also proved to be the best in terms of fund allocations. MCB allocates its fund by granting loans.
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Advances
Short-term loans are valuable source of income so bank prefers to allocate funds here. These may include:
Cash Credit Overdraft Discounting of Bills
Securities
MCB also makes investment in securities.
Others
Other ways of allocating the funds used by MCB are:
Acid test ratio shows the extent of cash and other current assets that are readily convertible into
cash in comparison to other short term obligations of an organization. A quick ratio of 0.5 would
suggest that a company is able to settle half of its current liabilities instantaneously. Above
mentioned acid-test ratios of MCB show that the bank is at an excellent position to convert its
assets into cash.
Cash Ratio
= Cash + Cash Equivalents+ Invested Funds
Current Liabilities
2010 2009 2008 2007 2006=259,946,634/35,950,130
=211,919,329/52863178
=139,931,146/33,215,308
=156,580,663/49,885,889
=102,529,309/31,033,155
7.2% 4% 4.2% 3.1% 3.3%
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Interpretation
Industry average for cash ratio is 1. From the above mentioned figures we can analyze that MCB’s financial performance is quite well from 2006-2010 and in 2010 it is excellent .i.e. a ratio of 7.2%
DEBT RATIO
The debt position of a firm indicates the amount of other people’s money being used to generate
profits. In general, the financial analyst is most concerned with long term debts, because these
commit the firm to a stream of payment s over the long run.
Debt Ratio
Debt Equity Ratio
Interest Coverage Ratio
Capitalization Ratio
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Debt Ratio
The debt ratio measures the proportion of total assets financed by the firm’s creditors. The higher
this ratio the greater the amount of other people money being used to generate profit. The ratio is
calculated by following formula
Debt Ratio= Total Liabilities
Total Assets
2010 2009 2008 2007 2006
=567,552,613/488,
348,404
=509,223,727
/439,483,714
=443,615,904/38
5,179,850
=410,485,517/
355,365,842
=342,108,243/301,2
63,929
1.2% 1.2% 0.14% 1.2% 1.13%
Interpretation:
Debt ratio determines how much a company depends on debt to finance its assets. A higher ratio
indicates that the firm too much depends on debts to finance the assets which are risky to its
operations. MCB debt ratios from 2006-2010 indicate that the bank relays less on debt and more
on equity.
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Debt Equity Ratio
=Total Liabilities
Shareholder’s Equity
2010 2009 2008 2007 2006
=488,348,404/7,
602,150
=439,483,714/6,91
1,045
=385,179,850/6,282
,768
=355,365,842/6,2
82,768
=301,263,929/
5,463,276
64.2 63.6 61.3 56.6 55.1
Interpretation
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Debt-to-equity ratio is the key financial ratio and is used as a standard for judging a company's
financial standing. It is also a measure of a company's ability to repay its obligations. When
examining the health of a company, it is critical to pay attention to the debt/equity ratio. If the
ratio is increasing, the company is being financed by creditors rather than from its own financial
sources which may be a dangerous trend.
Interest Coverage Ratio
Interest Coverage Ratio= Earnings before interest and taxes
Interest Expense
2010 2009 2008 2007 2006
=39,501,718/13,248,6
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=34,099,249/10,994,3
04
=30,255,403/8,
387,837
=27,304,238
/5,996,203
=25,061,381
/6,560,711
2.98 3.1 3.6 4.6 3.8
Interpretation:
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Interest coverage ratio provides a quick picture of a company’s ability to pay the interest charges
over its debt. An interest-coverage ratio below 1 is an immediate indication that the company,
regardless of its industry, is not generating sufficient cash to cover its interest payments. That
said, an interest-coverage ratio of 1.5 is generally considered the bare minimum level of comfort
for any company in any industry. MCB’s interest coverage ratio indicates that the company is at
a good position to pay off the interest due on its borrowings. All the figures form 2006-2010 are
above than the industry average so it is a clear proof of MCB’s credit standing.
PROFITABILITY RATIOS
Return on total assets Return on equity Gross Margin Pretax Profit Margin Net Profit Margin
Return on Total Assets
It measures the overall effectiveness of management in generating profits with its available
assets. The higher the Return on total assets better will be the performance.
Earnings before Interest and Tax
Return on total assets =
Total assets
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2010 2009 2008 2007 2006
=39,501,718/567,552,613
=34,099,249/509,223,727
=30,255,403/443,615,904
=27,304,238/410,485,517
=25,061,381/342,108,243
6.9% 6.6% 6.8% 6.6% 7.3%
Interpretation:
Return on total assets ratio measures a company's earnings before interest and taxes (EBIT)
against its total net assets. The ratio is considered an indicator of how effectively a company is
using its assets to generate earnings before contractual obligations must be paid. MCB’s ROTA
was good in 2006 i.e. 7.3%. While in the next year (2007) it declined i.e. 6.6%. Then we can see
that it increased again in 2010 by 6.9%. This indicates that bank is in a position to generate
sufficient earnings by utilizing its total assets.
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Return on Equity
Net Income
Return on total assets =
Shareholders’ Equity
2010 2009 2008 2007 2006
=6,873,175/7,602,150
=15,495,297/6,911,045
=15,374,600/6,282,768
=15,265,562/6,282,768
=12,142,398/5,463,276
0.91 2.2 2.4% 2.4% 2.2%
Interpretation:
This ratio indicates how profitable a company is relative to its total assets. Banks strive to record
an ROA of 1.5% or above. MCB’s ROA from 2006 to 2009 is quite well. But it is showing a
down figure in 2010. I.e. an ROA of 0.91%
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Gross Margin
Gross Margin= Gross Profit
Revenue
2010 2009 2008 2007 2006
=36,833,529/54,821,296
=35,778,685/51,616,007
=28,483,084/40,043,824
=23,921,062/31,786,595
=21,252,702/25,778,061
67% 69% 70% 75% 82%
Interpretation:
The gross profit margin tells us the profit a company makes on its cost of sales. In other words, it
indicates how efficiently management uses labor and supplies in the production process. High
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margin indicates that company has effective control over its costs. MCB’s gross margin from
2006 to 2010 shows that bank’s earnings are increasing faster than its operating costs. In 2007 it
has highest margin 0f 75%. While in 2010 it is low due to economic crisis in the country.
Pretax Profit Margin
=Pretax Profit
Revenue
2010 2009 2008 2007 2006=26,253,075/54,821,296
=23,154,945/51,616,007 =21,867,566/40,043,824
=21,308,035/31,786,595
=12,142,398/25,778,061
48% 45% 55% 67% 47%
Interpretation:
Pretax profit margin indicates how much profit a firm can generate through sales before paying
tax on it. The higher the pre-tax profit margin, the more profitable the company. We can observe
from the above mentioned figures that MCB’s pretax profit margin is more than 50% in 2007
and 2008 (67% and 55% respectively). While it declined in 2009 and 2006 (45% and 47%
respectively). In 2010 bank seems to strive for another high figure by reaching at 48%.
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Net Profit Margin
=Net Profit
Revenue
2010 2009 2008 2007 2006=16,873,175/54,821,296
=15,495,297/51,616,007
=15,374,600/40,043,824
=15,265,562/31,786,595
=12,142,398/25,778,061
31% 30% 30% 48% 47%
Interpretation:
Net profit margin indicates how much profit a firm can earn through sales after paying off all the
taxes. A higher net profit margin tells that company’s business is very profitable.Net profit
industry average for banks is 8.51%. By the figures mentioned above, we can assess that MCB’s
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net profit margin is very high. Bank is enjoying strong financial position. However, the figure
has been declining from 2006 to 2010 which is the result of recent halted economy.
OPERATING PERFORMANCE RATIO
Fixed Assets Turnover Ratio
Fixed Assets Turnover Ratio
This ratio is a rough measure of the productivity of a company’s fixed assets with respect to
generating revenue. Higher the productivity of the company, higher is the turnover ratio.
Formula for this ratio is:
=Revenue
Fixed Assets
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2010 2009 2008 2007 2006=54,821,296/20,947,540
=51,616,007/18,014,896
=40,043,824/17,263,733
=31,786,595/16,024,123
=25,778,061/9,054,156
26% 29% 23% 19% 28%
Interpretation:
If a company can generate more sales with fewer assets it has a higher turnover ratio which tells
it is a good company because it is using its assets efficiently. A lower turnover ratio tells that the
company is not using its assets optimally. From the above table we can analyze that MCB’s
turnover on fixed assets is good. In 2009 turnover was highest. In 2006 turnover was good then it
declined in 2007 i.e. 19%. It increased again in 2008 i.e. 23%. IN 2010 the figure declined again