Evaluation Of Mcb Bank Limited Finance Essay - Free Essay Example

ISFHANI and ADAMJEE families in Kolkata founded Muslim Commercial Bank on July 9, 1947. Muslim Commercial Bank 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 54-year legacy of trust in its customers and the citizens of Pakistan. THE BUSINESS: MCB is in its over 50 years of operation. It has a network of above than 1200 branches all over the Pakistan with business establishments in Bangladesh, Sri Lanka and Bahrain. The branch break-up province wise is Punjab (57%), Sindh (21%), NWFP (19%) and Baluchistan (3%) respectively. Muslim Commercial Bank has an edge over other local banks, as it was the First Privatized Bank. The State Bank of Pakistan has restricted the number of branches (minimum of 200 branches and specific Capital must to run further) that can be opened by foreign banks; an advantage of Muslim Commercial Bank capitalizes due to its extensive branch network in all over Pakistan. Fourteen years after privatization, Muslim Commercial Bank is now in a consolidation stage designed to lock in the gains made in recent years and prepare the groundwork for future growth. The bank has restructured its asset portfolio and rationalized the cost structure in order to remain a low cost producer. MCB BANK has become the only bank to receive the Euro money award for the fourth time in the last five years. MCB won the Best Bank in Pakistan in 2005, 2004, 2003, 2001, and in 2000 the Best Domestic Bank in Pakistan award. During the last fifteen years, the Bank has concentrated on growth through improving service quality, investment in technology and people, utilizing its extensive branch network, developing a large and stable deposit base and managing its non-performing loans via improved risk management processes. Muslim Commercial Bank now focuses on following core businesses named as Wholesale Banking Group Commercial Business Banking Group Islamic Banking Group Consumer Banking Group. Corporate client includes Public Sector Companies, as well as large local and Multi-National concerns. Muslim Commercial Bank is also catering to the growing middle class by providing new asset and liability products. The bank provides 24 hours banking convenience with the largest ATM network in Pakistan. CHANGE OF OWNERSHIP: The performance of Muslim Commercial Bank was badly affected by bureaucrat Government. In January 1974, Bhutto Government following the Bank Act 1974 subsequently in June 1974 nationalized Muslim Commercial Bank, Premier Bank Limited merged with Muslim Commercial Bank. PRIVATIZATION: In late 1990s after a long period of time newly established democratic Government of Pakistan has decided to sell nationalized assets of country for better utilization. In April 1991, Muslim Commercial Bank became Pakistans First Privatized Bank. The Government of Pakistan transferred the management of the Bank to Nishat Group, a group of leading industrialists of the country by selling 26% shares of the bank. In terms of agreement between the Government of Pakistan and the Nishat Group, the group making their holding 50% has purchased additional 24% shares. Now, 25% is purchased by the Government, which was being sold in 2004. NEW MILLENIUM Muslim Commercial Bank besides being money financial organization has rendered invaluable services in the economics and social developments of our country. Muslim Commercial Bank today, represents a bank that has grown with time, experience and Pakistan. MCB is a major financial institution in Pakistan in its scope and in its size. It symbolizes a fully-grown tree. Evergreen, strong, and firmly rooted. After that Muslim Commercial Bank name changes to MCB BANK LIMITED. VISION STATEMENT To be the leading financial services provider, partnering with our customers for a more prosperous and secure future. MISSION STATEMENT We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us. CORE VALUES CUSTOMER FOCUS Over the year MCB has developed strong relationships with its customers by understanding their needs and treating them with respect, dignity and importance. The driving force behind its commitment and services is its focus on customers, ensuring that it not only meets, but exceeds their expectations. QUEST FOR QUALITY MCB strives to achieve excellence by ensuring that every moment of time is spent in adding value, making sure that we do things right, every time. With this quest for quality, MCB has always taken initiatives in bringing banking into a new arena; from cash to the convenience of plastic; from branch banking to internet banking and from face-to-face customer interaction to online accessibility. EMPLOYEES RESPECT AND DIGNITY MCB encourages diversity and treats each of its employees with fairness. It gives constructive feedback for their continuous development and seeks suggestions from all employees for further improvement. MCB ensures that quality performance is acknowledged and rewarded and exercises utmost responsibility in decision-making with regards to its employees. Integrity of its employees is the strength of its performance. TEAM BASED APPROACH MCB believes in achieving its Mission and Vision by working together as a combined group. MCB treats its colleagues as its internal customers and ensure that the requirements of internal customers focus are always met. Equipped with in-depth product knowledge, and recognizing the strengths .in each individual, it strives for optimum results from its co-workers and bringing out peak performances by working towards common goals and objectives in todays dynamic banking environment. GOOD CORPORATE CITIZENSHIP MCB seeks to continuously improve the quality of life in its communities, where people live and work. It realizes that it has a responsibility to the society in which it operates and it seeks ways of playing positive role for the betterment of the community at large for a progressive environment, better living and a brighter future. ORGANIZATIONAL STRUCTURE As MCB is a banking company listed in stock exchange therefore it follows all the legalities which are imposed by concerned statutes Mr. Muhammad Mansha is chairman of the company with a team of 10 directors and 1 vice chairman to help in the business control and strategy making for the company. A team of professional is handling operational Management of the bank. The different operational departments are CBBG (Commercial Branch Banking Division) RMG (Risk Management Group) WBG (Wholesale Banking Group) HRM (Human Resource Management) IT (Information Technology) SPIT (Strategic Planning and Investment Group) IBG (Islamic Banking Group) TSC (Trade Services) Financial and Inter Branch Division Financial control and Audit Division For effective handling of branches, it has been categorized into two segments with different people handling each category. These categories are: wholesale banking group retail banking group WHOLESALE BANKING GROUP The Corporate-Banking Group has been consolidated with the Financial Institutions Group and the Islamic Banking Division under the banner of the Wholesale Banking Group. RETAIL BANKING GROUP the Consumer Banking Group has been consolidated with the Commercial Banking Group under the banner of Retail Banking Group. Together these two groups have registered an impressive performance in terms of credit expansion. TRADE FINANCE Under Corporate Banking MCB offers trade finance services that include an entire range of import and export activities including issuing Letters of Credit (L/Cs), purchasing export documents, providing guarantees and other support services. CASH MANAGEMENT Our network of over 1000 branches in Pakistan enables us to collect and disburse payments efficiently with our cash management services. This also enables us to offer you a choice of paper based or electronic fund transfer solutions including collection amounts, cross branch on- line transactions etc. INVESTMENT BANKING Our Investment Banking Team has emerged as a leading player in Pakistans Investment Banking arena. The Team handles advisory, corporate finance and capital markets related transactions. Within these areas, the team has developed expertise in: Private Placements Debt/Equity Underwriting Term Finance Certificates Loan Syndication Arrangement of Non- Fund Facilities Mergers and Acquisitions Privatization ORGANIZATIONAL STRUCTURE Human Resource Management Strategic Planning Investment Compliance Control Commercial Banking Wholesale Banking Treasury Forex Operations Special Asset Management Risk Management CRS Security Information Technology Financial Control Islamic Banking Consumer Banking Corporate Affairs Board of Directors President Chairman Audit RAR Group PRODUCTS AND SERVICES ONLINE SERVICES: MCB provides following online services. ATMs Mobile Banking Call Center Bill Payments Virtual Banking ACCOUNTS: Basic Account Current Account Saving Account Foreign Currency Account Smart Dollar Account Saving 365 Gold Special Rupee Term Business Account Saving Extra Account Current Life Account LOANS: Following are the types of loans, provided by MCB. Business Sarmaya Personal Loan Pyara Ghar Car 4 u CARDS: Smart Card Debit Card MCB Visa TYPES OF ACCOUNTS IN MCB DEPOSIT ACCOUNTS KHUSHALI BACHAT ACCOUNT Khushali Bachat Account, a Rupee savings account is one of MCB Banks most popular products. Due to the low initial deposit, the account can be opened by people from all walks of life and still avail the facility of daily product profit calculation. MAHANA KHUSHALI BACHAT MCB Monthly Khushali Scheme provides you with a steady income every month. Just purchase a Monthly Khushali Certificate and you will enjoy a steady income of your total deposit every month. PAK RUPEE SAVINGS ACCOUNT MCBs Pak Rupee Savings Account offers you attractive returns on your Pak Rupee investment. In addition, you have access to a countrywide ATM network convenient cash accessibility 24 hours a day. The facility also provides you with unlimited daily transactions with a limit on maximum withdrawal amount through the ATM machines. PAK RUPEE CURRENT ACCOUNT MCBs Pak Rupee Current Account offers you the convenience of unlimited withdrawals i.e. access to your funds whenever you want without any notice. There is no limit on the number of transactions you make in a day plus you can avail finance facility up to 75% of the total deposit. In addition, you have access to a countrywide ATM network convenient cash accessibility 24 hours a day. The facility also provides you with unlimited daily transactions with a limit on maximum withdrawal amount through the ATM machines. PAK RUPEE TERM DEPOSIT MCB Pak Rupee Term Deposit gives a higher rate of return. It gives you choice of 1 month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits. SAVING 365 The MCB Saving 365 calculates profits on a daily product basis and gives you the facility of unlimited withdrawals. FOREIGN CURRENCY SAVINGS ACCOUNT MCBs Foreign Currency Savings Account offers you attractive returns on your Foreign Currency investment. You can invest in any of the four currencies i.e. US Dollar, UK Pound Sterling, Japanese Yen or Euro Your foreign currency account is exempted from Zakat and withholding tax FOREIGN CURRENCY CURRENT ACCOUNT MCBs Foreign Currency Current Account offers you the convenience of unlimited withdrawals i.e. access to your funds whenever you want without any notice. There is no limit on the number of transactions you make in a day. MCB FOREIGN CURRENCY TERM DEPOSIT MCB Foreign Currency Term Deposit gives a higher rate of return. It gives the choice of 1 month, 3 months, 6 months, 1 year, 2 years, 3 years, 4 years and 5 year term deposits. DOLLAR KHUSHALI ACCOUNT The Dollar Khushali Account, a Dollar based account was introduced in 1993 at selected MCB Bank branches. Today, you can open a Dollar Khushali Account at over 200 branches in Pakistan. LOAN PRODUCTS MCB BUSINESS SARMAYA MCB Business Sarmaya is the best Running Finance facility against your residential property which empowers you to manage your business dealings better. So act today and get MCB Business Sarmaya and thus improve your business, avail lucrative opportunities and expand your business, with absolute satisfaction of cash flows. MCB CAR 4U Life is like a chess board. You plan your career options. You analyze your business moves. But when you really want to improve your life, you make a power move. MCB CAR4U Auto Finance is the power move that assists you in more ways than you ever imagined. It is affordable, with lowest mark up, flexible conditions, easy processing and above all, no hidden costs. MCB PYARA GHAR Some destinations require a long wait, like waiting for a home of your own. But with MCB Pyara Ghar it is now easy to step into your home and start living a real life. MCB Pyara Ghar is an ideal Home Finance from your own bank that lets you Purchase, Renovate or Construct your home the way you have always wanted. Having your own home was never so easy. EASY PERSONAL LOAN MCB Easy Personal Loan provides you with the financial advantage to do things youve always wanted to but never had the sufficient funds for. Take that much-needed holiday. Buy a car. Refurnish your house. Purchase a new TV. Finance a better education for your children. MCB MASTER CARD Since the beginning of time, people have tried to find more convenient ways to pay, from gold to paper money and cheques. Today, money is moving away from distinct hard currencies and towards universal payment products that transcend national borders, time zones, and, with the Internet, even physical space. Plastic or virtual money, credit, debit, and electronic cash products, inevitably will replace cash and cheques as the money of the future. MCB RUPEE TRAVELERS CHEQUES MCB Rupee Travelers Cheques were first introduced in 1993 as safe cash for traveling and travel related purposes. The product has been extremely popular and is preferred over cash by customers while traveling and in all walks of life. MCB Rupee Travelers Cheques (The safest way to Carry Cash) CORPORATE BANKING CASH MANAGEMENT SERVICES MCBs network of over 900 branches in Pakistan enables it to collect and disburse payments efficiently with its cash management services. This also enables it to offer you a choice of paper based or electronic fund transfer solutions including collection amounts, cross branch on- line transactions etc. WORKING CAPITAL LOANS Based on the customers specific needs, the Corporate Bank offers a number of different working capital financing facilities including Running Finance, Cash Finance, Export Refinance, Pre-shipment and Post- shipment etc. TERM LOANS MCB offers Short to Medium Term Finance to meet capital expenditure and short term working capital requirements of our customers. The loans are structured on the basis of underlying project characteristics and cash flows of the business. TRADE FINANCE SERVICES Under Corporate Banking MCB offers trade finance services that include an entire range of import and export activities including issuing Letters of Credit (L/Cs), purchasing export documents, providing guarantees and other support services. ONLINE SERVICES MCB ATM SERVICES With a solid foundation of over 50 years in Pakistan, with more than 750 automated branches, 269 online branches, over 222 MCB ATMs in 41 cities nationwide and a network of over 12 banks on the MNET ATM switch, MCB is positioned at the forefront of the banking industry in Pakistan. This success has been possible because of a never-ending drive to achieve higher levels of excellence, constantly striving to raise the level of performance. MCB MOBILE BANKING At the forefront of technological excellence, MCB proudly introduces MCB MOBILE BANKING. The convenience of accessing your account balance information and mini statements whenever you want or wherever you may need them, with comfort and peace of mind. MCB CALL CENTER keeping up with banking services can be tedious but not with MCB Bank, where phone service is at your fingertips. Just dial our Call Centre from the comfort of your home or office or wherever you happen to be. It offers basic banking services for your convenience, eliminating the need for you to make unwanted trips to your branch. MCB SMART CARD MCB now brings you MCB Smartcard -a secure and convenient instrument of payment with unmatched functionalities. It provides 24-hour direct access to your bank account. The convenience and flexibility of MCB Smartcard will help you live a smarter life. It not only helps you manage your expenses, but also eliminates undue interest on your day to day credit card transactions. Your balance is always within your reach and you spend. MCB DEBIT CARD Now MCB brings a secure, convenient and quick payment facility that enables you to do purchasing by using your existing MCB ATM / MCB Smart Card as a DEBIT CARD. VIRTUAL BANKING MCB Virtual Internet Banking offers you the convenience to manage and control your banking and finances when you want to, where you want to. MCBs Virtual Internet Banking facility is simple and secure. And its free of cost. With MCB Virtual Internet Banking you can access any of the banking services, 24 hours a day, 7 days a week and throughout the year. MCB Virtual Internet Banking offers a wide range of online services which makes your banking accessible anytime and from anywhere. Detailed Account Summary of all listed accounts. Mini-statements of each of the listed accounts showing recent transaction history for that account(s). Statement-by-Period of each of the listed accounts, based on the period specified. Immediate or Scheduled Transfer of Funds between your own accounts, as well as to third-party accounts   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  setup as beneficiaries, maintaining accounts with MCB. Scheduling of One-Time as well as Recurring Funds Transfers. Payment of utility bills for registered Utility Companies. Immediate or Scheduled Bills Payment. Scheduling of One-Time as well as Recurring bill payments. Option   Ãƒâ€šÃ‚  for Full or Partial payment based on the payment conditions specified by a particular Utility Company. Bulk Salary Transfer for Corporate Customers, to facilitate them in paying salary to the corporate employees,   Ãƒâ€šÃ‚  who maintain accounts with MCB. Bulk Funds Transfer for Corporate Customers. Cheque Book Request for any of your listed accounts. Payment/Transfer Alerts for reminding, in advance, prior to the processing of specified payments and   Ãƒâ€šÃ‚  Ãƒâ€šÃ‚  transfers. Personal Alerts for reminding of pre-specified events and occasions. ISLAMIC BANKING DEPOSIT SCHEMES For customers who are looking for a deposit opportunity where they can pursue their funds and reap halal returns on it, we offer the following products: Al-Makhraj Saving Account Al-Makhraj Ianat Account Al-Makhraj Term Deposit FUND BASED FACILITIES IJARAH PRODUCTS MCBs Islamic Ijarah, analogous to the English term leasing, is based on the Ijarah wa Iqtina concept which means the sale of the asset to the lessee after the Ijarah has matured. Under this scheme, MCB will be the owner of the asset, and the customer (lessee) will be given the asset to use for a certain period of time in return for monthly rental payments. MCB will give a separate unilateral undertaking that it will offer to sell the asset to the customer (lessee) at the maturity of the Ijarah agreement at a price that may be equal to the security deposit amount, hence the term Wa Iqtina. TYPES OF IJARAH Car Ijarah Equipment Ijarah CHAPTER: 2 STRUCTURE DESIGN ISSUES HIRARCHY OF THE MANAGEMENT BOARD OF DIRECTORS CHAIRMAN PRESIDENT SENIOR EXECUTIVE VICE PRESIDENT EXECUTIVE VICE PRESIDENT I EXECUTIVE VICE PRESIDENT II SENIOR VICE PRESIDENT VICE PRESIDENT ASSISTANT VICE PRESIDENT OFFICER GRADE I OFFICER GRADE II OFFICER GRADE III OUTSOURCE STAFF CLERICAL STAFF NON CLERICAL STAFF CIRCLE OFFICE: The working of circle office is to control and regulate the functions of branches that are under its control. The function of circle office is to mobilize the deposits and receive reports from branches. Circle office is like a mini Head Office. Agents and correspondents of MCB Bank Limited are in all commercial cities of the world. Circle office is divided in the following division: PROVINCE CIRCLES REGION BRANCHES PUNJAB 9 27 663 SINDH 5 12 329 BALOUCHISTAN 1 2 64 KHAYBERPAKHTUNKHA AJK 2 7 148 DIVISIONS, DEPARTMENTS IN MCB HOUSE CBBG (Commercial Branch Banking Division) RMG (Risk Management Group) WBG (Wholesale Banking Group) HRM (Human Resource Management) IT (Information Technology) SPIT (Strategic Planning and Investment Group) IBG (Islamic Banking Group) TSC (Trade Services) Financial and Inter Branch Division Financial control and Audit Division There are various departments at MCB Bank LTD, each having a different working process. Given below is the overview of the department I had been given exposure to, its processing and what information I got from these during my internship at MCB Bank. RISK MANAGEMENT GROUP (RMG) The main purpose of RMG is to actually manage all kind of organizational risk. Risk management is a structured approach to managing uncertainty through, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. High risk gives high return. The RMG GROUP consists of four divisions that work under it. These are as follows: Credit Review Division (CRD) Credit Risk Management Division (CRMD) Credit Management Division (CMD) Credit Risk Control Division (CRCD) I would be briefly discussing each of them one by one. However my part of internship will be all about the Credit Risk Control Division which I would be discussing in details. CREDIT REVIEW DIVISION (CRD) The purpose of this department is to review the credit proposals accompanied with audited financials of both corporate and commercial clients evaluated by the business units. The major tasks of the CRD include: Financial Statement Analysis including (profit and loss analysis, Balance sheet analysis, Notes of Account, Statement of changes in Equity. Credit risk rating of the client. (Credit worthiness) Drafting of various convenient ( conditions of loans) within approval of finance considering the macroeconomic situations and risk level of client Finally issuing the approval of finance (AOF). CREDIT RISK MANAGEMENT DIVISION (CRMD) The basic purpose of CRMD is to ensure policy making regarding credit risk within the risk management, issuance of circulars on time to time as well on need basis. They are responsible to draft policies, manuals, salvage lists various risk frameworks required for the implementation of Basel II parameters. CREDIT MANAGEMENT DIVISION (CMD) It is basically responsible to report data to State Bank of Pakistan. They are responsible to run various data modules for checking and implementing functions of unique obligor. They are responsible for the integration of various MIS management function systems working simultaneously within the various divisions and groups of the bank. They had also developed credit risk management information system in order to enhance the regulatory requirements of central banks as well as developing the reports required for the analysis by the Senior Management and BODs. CREDIT RISK CONTROL DIVISION (CRCD) A Sub-division of Credit Risk Management Group with a function of mitigating risks associated with credit facilities granted to customers Vision of Credit Risk Control is High Quality Support. Exercise independent control of Post Approval Activities. Maximize automation minimize Human errors. Centralized approach. CRCD Hierarchy of CRCD Takeover Symbols Unit Documentation Unit Customer Service Unit Stock Exchanges Unit Monitoring Unit Vendor Management Unit Custodial Unit The CRC has 5 major internal units which are the following: Take over unit (TU) Customer service unit (CSU) Documentation unit (DU) Monitoring unit (MU) Custodial unit (CU) These are briefly discussed below with main concentration on CRCD as my department of internship: TAKE OVER UNIT (TO) ACTIVITIES: Visit to different branches according to the size of credit portfolio as per MIS reports. Scrutinizing of both limit and collateral files. Collection of original property and security documents Scan all property security documents and hand over soft copy to respective business units. Deliver original documents to Custody Unit. CUSTOMER SERVICE UNIT (CSU) ACTIVITIES: Collection of documents from external agencies. Record keeping of each document in the system. Scanning of all documents. Forward documents to related CRC units. Keep track of all documents within CRCD Final delivery of documents to Custody Unit. Correspondence with branches internal units. Also delivery of soft copies to respective branches. DOCUMENTATION UNIT (DU) ACTIVITIES: Preparation of documents for the branches already taken over Review of property as well as security documents of all branches at their initial take-over. Initial check of Customers Application of Finance then checks BBFS, Search Reports CIB (Credit Information Bureau) before approval or disbursement. Correspondence with Legal Affairs Division for their opinion and comments on all security documents Completion of all mortgage formalities before disbursement with the help of Banks approved lawyers. Review preparation of all documents at subsequent enhancement / renewal. Review of Account Issuance of Disbursement Authorization Certificate in collaboration with Monitoring Unit. MONITORING UNIT (MU) ACTIVITIES: Prepare FAL after getting approval of finance. FAL includes limit amount, pricing, securities being offered and other covenants. Review of Stock Reports Insurances Issuance of DAC in collaboration with DU. Database Management of different Branches. Monitoring of Insurance and Stock reports. Pledge being monitored by Business Units. Block limit immediately if insurance policy is expired or missing or limit is expired. Correspondence with business units via Unit Exception Report (UER) Tickler Report (TR) for removal of discrepancies and renewals of stock reports and insurances. Block limits after 60 days if the discrepancies are not removed or renewals are not obtained. CUSTODIAL UNIT (CU) ACTIVITIES: Placement of documents in folders Record maintenance in Safe Custody Register (SCR) Stamping of blank IB forms Payment record keeping of IB forms Maintain Keep files of insurance policies and stock reports Record and place securities marked with lien Record and place valuation search credit reports Release of securities after fulfilling all formalities Handling vault keys Maintenance of records regarding stocks of computers, printers scanners Folder purchase / Issuance record VALUATION REPORT: Valuation of Fixed Assets offered as security against Banks financing should be undertaken by Banks approved evaluator as notified by CMD/ CRMD from time to time. It would be the added responsibility of BU to assess himself the property so offered for security as well on the basis of prevailing cost / rate in the area conservatively. For the purpose of evaluation by the Field Offices of the Bank, Branch Manager or an officer of Advances Department either from Branch / Region or Circle Office would visit the property personally. A certificate by the Manager would be kept attached with the property documents certifying that the property offered for security was personally inspected by him / Bank officer and professional evaluation report by Banks Architects / Evaluators appears to be correct in his opinion. In case he differs from the valuation done by Banks Architects, he would give his own downgraded assessment in the Certificate. UNIT EXCEPTION REPORT (UER) ACTIVITY DESCRIPTION It is a consolidated report of a branch, containing client wise exception usually called UER. Any exception pertaining to the following areas must be reported in the Unit Exception Report. Expired Credits. Outstanding monitoring (including excesses over drawing power) Stock/Receivable Reports. Stock Inspections. Insurance. Facility Advising Letters. Search Reports Valuation Report Compliance with approval covenants/other terms and conditions, Credit Policies, annual term loan reviews. Collateral Control. Registration of Charge. Documentation (includes Name of person signing the document (including witnesses) clearly identified by writing their names in led pencil below the signature on the documents. Line utilization/disbursement authority. Legal review of documentation. Running Finance rollover. All past due loans/mark-up to be reported on a monthly basis. CRC RESPONSIBILITY While preparing Detailed Review Report (DRR) if any exception is pointed out by CRC reviewing officer that will be reported in UER. Monitoring Unit has been assigned the responsibility of preparing and updating the UER. UER is prepared on monthly basis showing following columns: Customers Name Branch name Group name Relationship Manager/In-charge Advances name Approval reference Date of Approval Facility Expiry Date Review Period Brief particular of Discrepancies/ irregularities, Nature of discrepancies (in UER nature of exception is reported in abbreviation i.e., Discrepancy relating to: Documentation is reported with the word (D) Personal Guarantee (PG) Security Shortfall (S) Credit Requirement (CR) Legal Flaws (L) Insurance related matters are shown as (I) Status of discrepancy (Rectified (R) or New (N) NOTE: In case of WBG; UER will be sent to Unit Head/RM on 25th of each month via E-Mail for arranging rectification/waiver/deferral up till month end, otherwise lines of clients where exception remain outstanding shall stand blocked. FRESH TAKE OVER BRANCHES In case of RBG; 60 days will be given to the branch for arranging rectification / waiver / deferral, otherwise lines of clients where exceptions remain outstanding shall stand blocked. INSURANCE ACTIVITY DESCRIPTION Insurance Policy is a particular kind of indemnity contract which provides indemnification against loss or liability from specified events and circumstances that may occur or be discovered during a specified period. Assets under Banks lien are to be insured by Insurance Companies approved by the bank. The maximum per risk limit for each insurance company is to be adhered. Where the amount of risk to be covered exceeds the per risk limit of an enlisted insurance company, joint insurance or re-insurance may be obtained or FID, P.O.K. approval is obtained. CRC RESPONSIBILITY CRC to ensure that advances do not remain uninsured and a proper insurance coverage is obtained. Insurance must always provide cover to the required stocks/assets declared from time to time for coverage/value not less than outstanding loan or exposure / operative limit whichever is higher plus 10% markup amount. PROCESS FLOW (within Units / Officials who will perform the activity) Activities to be performed An updated list of Insurance Companies on MCBs approved panel to be held for ready reference. Review of Insurance Policy / Cover Note and ensure that Premium Payment Receipt is received. Diarize the validity date of Insurance Policy /Cover Note in order to generate Tickler. CHAPTER: 3 REVIEW OF THE PAST PERFORMANCE THROUGH FINANCIAL ANALYSIS RATIO ANALYSIS Ratio analysis in contrast to financial analysis involves methods of calculating and interpreting financial ratios to analyze and monitor the banks performance. Ratio analysis of a firms financial statements is of interest to shareholders, creditors and the firms own management. Both present and prospective shareholders are interested in the firms current and future level of risk and return, which directly affect share price. The firms creditors are interested primarily in the short term liquidity of company and its ability to make interest and principal payments. A secondary concern of creditors is the firms profitability; they want assurance that the business is healthy. Management is concerned with all aspects of the firms financial situation and its attempts to produce financial ratios that will be considered favorable by both owners and creditors. A ratio analysis of around 12 ratios using the data available in the financial statements of MCB for the last five years has been performed. Net Profit Ratio It is the net profit as a percentage of total revenue. Net profit ratio is the best measure to have an idea about the overall profitability of any organization as it tells us about how the companys profits relate to its sales.  The more of this ratio the better it is. The formula for the net profit ratio is as follows: Net Profit Ratio before tax = Profit before tax / Markup earned Net Profit Ratio after tax = Profit after tax / Markup earned Using the above two formulas the Net profit ratio of MCB for the last five years have been calculated using the information and the data given in the annual reports of MCB. 2007 2008 2009 2010 2011 (Rupees in Millions) Net Profit Ratio Before Tax = 21308 31787 = 67.03% = 21868 40044 = 54.61% = 23155 51616 = 44.86% = 26253 54821 = 47.88% = 31483 68147 =46.19% Net Profit Ratio After Tax = 15266 31778 = 48.03% = 15375 40044 = 38.39% = 15495 51616 = 30.02% = 16873 54821 = 30.77% = 19425 68147 = 28.50% From the above table the values of the net profit ratio of MCB have expresses a declining trend over the last five years. The value of net profit ratio before tax has decreased from 67% in 2007 to 46.2% in the year 2011. This decrease is not due to a decrease performance of the bank in terms of negligence or anything of the sort rather this decrease is a result of the overall declining performance of the banking sector not just in Pakistan but throughout the world. Similarly the net profit ratio after its subjection to tax deduction fell from 48% in 2007 to 28.5% in the last year. Operating Ratio (OR) The operating ratio measures the cost of operations per rupee of sales. It shows the operational efficiency of the business. The higher the operating ratio, the lesser the profit available to the shareholder. The formula for calculating operating ratio is: Operating Ratio = Operating Cost / Mark-up Earned Where Operating cost = Mark-up Expense + Administrative Expenses The operating ratio of MCB for the last five years is calculated as: Years Operating Cost (Rupees in Millions) 2007 = 5426+7866 = 12888 2008 = 7546+11561 = 19107 2009 = 10111+15837 =25948 2010 = 12173+17988 =30162 2011 = 15585+23620 =39205 2007 2008 2009 2010 2011 (Rupee in millions ) Operating Ratio = 12888 31787 = 40.55% = 19107 40044 = 47.71% = 25948 51616 = 50.27% = 30162 54821 = 55.02% = 39205 68147 = 57.53% From the table we can see that over the past five years an increasing trend in MCBs operating ratio has been observed. The value has increased from 40.55% in 2007 to 57.53% in the last year 2011. This means that over the years MCB has been giving its shareholders less than usual profits. Operating Expense Ratio (OER) Operating expense ratio is a way of quantifying the cost of operating a piece of property compared to the income brought in by that property. Thus the operating expense ratio can be used as a tool of measurement of management efficiency, as it tells us if a company can expand operations without a rapid increase in expenses or not. The formula for calculating operating ratio is: Operating Expense Ratio = Administrative Expenses / Mark-up Earned The operating ratio of MCB for the last five years is: 2007 2008 2009 2010 2011 (Rupees in Millions) Operating Expense Ratio = 15266 31787 = 48.03% = 7546 40044 = 18.84% = 10111 51616 = 19.58% = 12174 54821 = 22.20% = 15585 68147 = 22.86% The lower the ratio, the better it is as it means that expenses are low and earnings are high, hence greater profitability for the organization. The value of this ratio for MCB for the last couple of years has remained considerably low. However out of the last five years, 2008 proved to be profitable for MCB as this ratio declined by a great margin showing high profit earnings of the bank. From the table we can see that the revenues of MCB are expanding year-over-year and its OER is going down; this shows that the managements revenues are expanding more quickly than its expenses. This is a very positive outcome from a profitability standpoint. Capital Adequacy Ratio (CAR) It is the relationship between capital and risk weighted assets as defined in the framework developed by the State Bank of Pakistan. It depicts the risk absorption capacity of the institution. The calculation of capital adequacy enables the Bank to assess the long-term soundness. As the bank carry on the business on a wide area network basis, it is critical that it is able to continuously monitor the exposure across entire organization and aggregate the risks so as to take an integrated approach. Formula for calculating CAR is: Capital Adequacy Ratio = (Total Tier One Capital + Total Tier Two Capital) Risk Weighted Assets The CAR for the last five years is calculated as: Years Capital Adequacy Ratio (Rupees in Million) 2007 = 44720233+8749994 299119171 = 17.88% 2008 = 51187423 + 3047689 333197549 = 16.28% 2009 = 59896283 + 4460274 337417070 = 19.07% 2010 = 67701274 + 5155086 330135367 = 22.07% 2011 = 77029927 + 4983794 376442033 = 21.79% MCB maintains the highest Capital Adequacy Ratio among peer banks. According to the SBP requirement for the said year (2011), the banks are required to maintain a minimum capital adequacy ratio (CAR) of 10% of the risk weighted exposure. MCBs CAR as at December 31, 2011 stood at 21.79% of its risk weighted exposure against 10% required by the SBP. This required capital adequacy ratio (10% of the risk-weighted assets) was achieved by the Bank through improvements in the asset quality at the existing volume level, ensuring better recovery management and striking compromise proposal and settlement and composition of asset mix with low risk. Return on Total Assets (ROTA) This ratio is considered an indicator of how effectively a company is using its assets to generate earnings before contractual obligations such as taxes or interests must be paid. Higher values of this ratio indicate the efficiency of the company in terms of using its assets. This ratio measures a companys earnings before interest and taxes against its total net assets. Formula for calculating this ratio is: Return on total Assets = Profit after Tax / Total Assets 2007 2008 2009 2010 2011 (Rupee in Millions ) Return on Total Assets = 15266 410486 = 3.73% = 15375 443616 = 3.46% = 15495 509224 = 3.04% = 16873 567553 = 2.97% = 19425 653233 = 2.97% The above table summarizes the values of this ratio calculated for the last five years for MCB. From the table we can see that a slight decrease in the value of the ratio has been observed as its value fell from 3.73% in 2007 to 2.97% in 2011. However this value still shows that MCB is effectively using its assets to generate earnings and the investments made by the bank are not only wise but profitable as well. Return on Equity (ROE) Return on Equity Ratio is a type of profitability ratio that is used to indicate a companys profitability by measuring how much profit it generates using the money invested by its stockholders. It is also known as Return on Net Worth Ratio. The formula for calculating this ratio is: Return on Equity = Profit after Tax / Shareholders Equity A business that has a high return on equity is more likely to be one that is capable of generating cash internally. For the most part we can say that the higher a companys return on equity compared to its industry, the better. This ratio is important for shareholders who want to know what profits earned will be made available. 2007 2008 2009 2010 2011 (Rupee in Millions ) Return on Equity = 15266 45414 = 33.61% = 15375 52245 = 29.4% = 15495 61076 = 24.37% = 16873 69180 = 24.38% = 19425 78915 = 24.60% From the table it is quite evident that the this ratio for MCB has decreased over the years which is not a good sign for the bank as these values show that the return that the bank is earning on shareholders equity has declined from 33.61% to 24.60% in five years. Return on Share Capital Ratio: This ratio is more meaningful from the point of view of shareholders, as they are more interested in knowing the amount of profits earned by the company and those profits which can be made available to pay dividends to them. This ratio is used to check the profitability of a company. The higher the ratio, the better off the owners as they are more interested in the profitability of a company. The higher the profits earned by a company, the better the performance of the company. Formula for calculating this ratio is: Return on Share Capital = Profit after Tax / share capital This ratio is calculated for the last five years using the information given in the annual reports, the results of this ratio are: 2007 2008 2009 2010 2011 Return on Share Capital = 15266 6283 = 2.43 = 243% = 15375 6282 = 2.44 = 244% = 15495 6911 = 2.24 = 224% = 16873 7602 = 2.22 = 222% = 19425 8362 = 2.32 = 232% From the above table we can see that this ratio has increased by a very great margin over the years. The value has even crossed the normal threshold of 100%. This ratio reveals that the management of the MCB is effectively utilizing its resources and that the investments in the bank are attractive. Propriety Ratio Propriety ratio shows the claims of owners and outsiders on the assets of the firm. Higher the ratio better for all concerned. This ratio for has remained more or less constant with a minor increase over the last five years. However in the year 2011, when the value of the ratio reached 12%, an increase of 1% in a period of five years was complete. 2007 2008 2009 2010 2011 (Rupee in millions ) Propriety Ratio = 45414 410486 = 11.06% = 52245 443616 = 11.77% = 61076 509224 = 11.99% = 69180 567553 = 11.57% = 78915 653233 = 12.08% Net Profit per Branch: This ratio is used to measure the profitability of a branch. Formula for calculating net profit per branch is: Net Profit per Branch = Profit after Tax / Number of Branches 2007 2008 2009 2010 2011 (Rupee in millions ) No. of Branches 1026 1060 1081 1132 1173 Net profit per Branch = 15266 1026 = 14.88% = 15375 1060 = 14.50% = 15495 1081 = 14.34% = 16873 1132 = 14.91% = 19425 1173 = 16.56% From the above table we can see that the net profit per branch of MCB remained more or less constant at 14% from the year 2007 to 2011. However in the year 2011, net profit per branch increased up to 17% approximately, which is the sign of its progress. Debt to Asset Ratio Debt to asset ratio is a measure of a companys risk. It indicates the percentage of firms assets that are supported by debt financing i-e the proportion of a companys assets which are financed through its debt. It is obtained by dividing total liabilities of a company by its total assets. Debt to Asset Ratio = Total Liabilities / Total Assets A less than one debt to asset ratio indicates that most of the companys assets are financed through equity. Similarly, if the ratio is greater than one, then it means that most of the companys assets are financed through debt. 2007 2008 2009 2010 2011 (Rupee in millions ) Debt to Asset Ratio = 355366 410486 = 86.57% = 385180 443616 = 86.83% = 439484 509224 = 86.30% = 488349 567553 = 86.04% = 564431 653233 = 86.41% In case of MCB Bank, this ratio is revealing a very large amount of debt duly accompanied by large expenses of debt servicing. Further, this ratio has remained more and less stable in all the five years at 86%. Debt to Equity Ratio Debt to equity ratio is a measure of a companys financial leverage. It indicates what proportion of equity and debt the company is using to finance its assets. It is calculated by dividing  the total liabilities  by  stockholders equity. Debt to Equity Ratio = Total Liabilities / Stockholders Equity A high debt to equity ratio generally means that a company has been aggressive in financing its growth with debt. This shows that a lot of debt is used to finance increased operations. Thus investing in a company with a higher debt to equity ratio may be riskier, especially in times of rising interest rates, due to the additional interest that has to be paid out for the debt. Debt to Equity Ratio of MCB for the last five years is: 2007 2008 2009 2010 2011 (Rupee in millions ) Debt to Equity Ratio = 355366 45414 = 7.82*100 = 782% = 385180 52245 = 7.37*100 = 737% = 439484 61076 = 7.19*100 = 719% = 488349 69180 = 7.06*100 = 706% = 564431 78915 = 7.15*100 = 715% From the table we see that even though the debt to equity ratio for MCB has undergone a slight decrease over the last five years, yet the ratio remains very, very high and it will take a lot a lot for the value to fall down. The exceptionally high value of this ratio indicates that the major source of funding that MCB uses to finance its ongoing operation is debt. Solvency Ratio Solvency ratio determines the firms ability to pay off its liabilities. Liabilities include both long term debts and interest on these debts.   This ratio is of great interest to long-term creditors and shareholders, because these groups are interested in the long-term health and survival of the company. Formula for calculating solvency ratio is: Solvency Ratio = .Total Assets / (Total Liabilities Share Capital) The calculations for the solvency ratio for MCB for the last five years is given as: Years Solvency Ratio 2007 = 410486___ 355366 6283 = 1.17 = 117% 2008 = 443616__ 358180 6282 = 1.26 = 126% 2009 = 509224___ 439484 6911 = 1.18% = 118% 2010 = 567553___ 488349 7602 = 1.18 = 118% 2011 = 653233___ 564431 8362 = 1.18 = 118% From the table we can see that the solvency ratio for MCB is very high and it has remained almost constant at 118% for the last four to five years with a very few minor fluctuations. The high value of this ratio shows that not only the bank has high chances of the long-term survival, but it also has the ability to pay off its debts. CHAPTER: 4 CORE INTERNSHIP EXPERIENCE INTERNSHIP LEARNING I did my internship in MCB House located at MCB House 15-D Main Gulberg, Jail Road, Lahore. I work in Credit Risk Control Division (CRCD) and rotated to different units of the credit risk control division so that I would have a better understanding of the whole working of the department. MCB offers two types of facilities: Fund based facilities Non- fund based facilities FUND BASED FACILITIES Fund based facilities includes Running Finance, Cash Finance, Demand Finance, Payment against Document, Inland Bill Purchased, Finance against Imported Merchandise, Finance against Foreign Bills, Finance against Packing Credit, Lease Finance facility and Export Finance Pre shipment or post shipment. NON FUND BASED FACILITIES Non fund based facilities includes Letter of Credit (Sight, DA, Inland, and DA Inland), and Bank Guarantee. CREDIT RISK CONTROL DEPARTMENT (CRCD) A Sub-division of Credit Risk Management Group with a function of mitigating risks associated with credit facilities granted to customers. CRC Division Consists of 4 Major Units. Customer Services Unit (CSU) Documentation Unit (DU) Monitoring Unit (MU) Custody Unit (CU) CUSTOMER SERVICE UNIT (CSU) ACTIVITIES: I work in CSU more than 1 week. The main responsibility of the CSU unit is to receive all types of DAK in 2 times in a day, open it and check it then entry in their systems like (CRC Focus). Focus generates an identical number against each entry, they write that number on the document against which the number was generated after that receiving stamp paste and distribute it to the relevant units and receiving of that document in CRC. Unit person open entry by using this number and check entry and click Receive button. If any error in entry then they receive with comments and ad comments in box. Then CSU has another function of dispatching the Mails. Mails which are sent by CRCD to the branches are dispatched by the CSU. Dispatching time starts 3pm after lunch. They receive the document from different units, again entry those documents in the CRC focus software, and match number of documents with cover note and receive that document. Then dispatch it to the relevant branch. Third function of the CSU is Scanning. Documents which are first distributed by the CSU are again come back to the CSU for scanning. More than five employees are scanning documents only. Scanning team scans the documents place them in the relevant folder and after that deliver the original documents to the CU (Custody Unit) for the placement of documents. RETURN DOCUMENTS: If any Document receives without the Cover note, then simply return it to the branch. No entries of these documents in Focus. CUSTOMER SERVICE UNITFLOW OF DOCUMENTS IN CSU: BRANCHES MONITORING UNIT AND DOCUMENTATION UNIT CUSTODY UNIT CUSTOMER SERVICE UNIT SCANNING MONITORING UNIT (MU) STOCK INSPECTION AND REPORT: Stock Inspection and Report is a part of Monitoring Unit (MU). The responsibility of this group is to check the Stock inspections and Stock Reports. Main Difference between Stock Reports and Stock Inspection: In every last date of month, Stock Report conducts from client side on standard format of MCB. And, Stock Inspection takes form Branch Manager, Regional Manager or GM after every three months. Purpose: State Bank of Pakistan Requirement. Mentioned in Approval of Finance. In case, if customer defaults then this is the evidence to case in court. Stock Reports: Stock report is submitted by the customer last date of every month. Stock report is actually the latest situation of the customers stock which is hypothecated with the bank. In fact, it is an undertaking by the customer about the latest situation of his stock that this much amount of stock is available. Steps to make an effective Stock Reports: First of all stock report should be on the approved format of MCB Stock report should be as on the last day of month. Name of Bank is right, MCB BANK LIMITED instead of Muslim Commercial Bank. Borrowers name must be mentioned and it matches with Application of Finance. Borrowers must be signed and stamps on it. Bank verifies it and signatures with IBs number stamp on it. If cutting or overwriting then also verify it. Detail of items mentioned and address where stock is lying must be match with AOF or Insurance Policy address. Branch mentions fill every column and also mention buyer purchase price market price on it. And calculate the drawing power by selecting the lower value of these two. Also fill all Insurance column and mention drawing power on it. Then Bank verifies it with stamp (DP Checked). If outstanding more than drawing power, than drawing power shortfall. Stock Inspection: Stock inspection is done by Banks representative according to schedule by Branch Manager, by Regional Manager and other higher authority. When we receive stock inspection we check the Name of the customer and the details of the facilities from FAL and we also match the address of the stock from insurance. After checking all that if outstanding is not more than DP we remove the discrepancies if any in the UER. If the customer is in need of a quick transaction and his stock inspection report is pending we can give him an option to fax the inspection report. Address of the report faxed should match with the insurance and after that we remove the discrepancy from UER and give the customer a time of a day or twice to send us the original stock inspection report. PLEDGED SITE INSPECTION BEFORE DISBURSEMENT: Site Inspection must be undertaken before disbursement. Stock Inspection report should be filed in relevant section of credit file. Any discrepancy like mandatory risks discussed before. It will be checked and rectify the discrepancies and reported to BM, RM or GM. CRCD advise to Branch Manager or Regional Manager, at least one month in advance of the inspection report. Because if any discrepancy in it, then rectify it within the time period. They also monitor on a regular basis the followings: Stock Break-up. Quality of collateral. Evidence of Ownership. Quality of ware housing. Adequacy of fire protection devices and from theft. Condition at the premises. FACILITY ADVISORY LETTER (FAL): FAL comes under Monitoring Unit. Facility advising letter contains the details of the loan along with the terms and conditions attached to it. Approval of Finance is a document which is issued by the approving authority (RMG) this document contains the details of Facility approved, terms and condition attached to it which should be fulfilled by the Customer. After receiving the Approval of Finance, Monitoring Unit starts their work to draft FAL. First of all an entry is made in the excel sheet and an FAL number is issued which is written on the FAL at the bottom of page. Different types of Formats already defined by MCB Bank Limited. FAL is drafted according to Revised Terms and Conditions. We check the different facilities and write it on the FAL. If approval has a special clause which over rules any clause written in the Revised Terms and Conditions of FAL then that clause must be shown in the Special Clause. Edit these formats like (its status, nature of business, purpose, Margin, type of loan, Securities, additional special conditions, Markup rate). After drafting the FAL a rough copy is generated and verified with the AOF. And Team Leader check it, If drafting has no mistake then three copies of FAL are printed for following persons. Original (placed in CU) Branch Copy (remains with the branch) Customer Copy (evidence with the customer) After that stamp on it, all these copies are sent to the branch for execution and after the execution of FAL goes to Review for further process. INSURANCE: In insurance, documents are checked certain rules regulation set by insurance section. Insurance is the contract of Indemnity in which insurance company undertakes to indemnify the insurer against a specific loss. Assets which are under banks lien should be insured by the approved insurance company. While checking the insurance company following few things must be observed. It should be on the approved panel of MCB Bank Limited. Maximum Risk Limit for Insurance Company. If risk limit is more than the risk limit of the insurance company assigned, then Joint Insurance, Co-Insurance or Re-insurance is obtained. This is the responsibility of the CRC to make sure that the advances do not remain uninsured and a proper insurance coverage should be obtained. Insurance must provide cover to the declared stock and assets under banks lien. The value of the insurance should cover the total exposure of the loan plus 10 % markup amount. Activities which are performed by MU regarding insurance Updated list of insurance companies which are on MCBs approved panned is held by the MU for the reference and to check whether the insurance company whos insurance is provided against the stocks or assets under banks lien lies in the approved panel of MCB or not. Insurance Policy is reviewed and it should comply with the requirements of the bank. Moreover cover note and Premium Payment Receipt should also be attached and Bank verifies this receipt to the insurance company. Validity date of the insurance should be recorded and a tickler should be generated so that we are notified before the expiry of the insurance. Moreover, if new insurance doesnt come after the expiry of the old insurance itll be turned into discrepancy and MU will block the line of that customer. In case of discrepant document MU can take action and can block or reduce the clients line. Following three insurances are the most important which are not waived. In Primary Securities, Mandatory Risks Are: Fire Insurance Burglary Insurance Riots and Strikes Insurance (RD) Other insurance types: Malicious Damage (MD) Atmosphere Disturbance (AD) Air Craft Damage (ARD) Earthquake and Fire shocks (EQFS) Explosion (Terrorism) Electrical Clauses A B. LINE MONITORING: Line monitoring comes under Monitoring Unit. Line monitor