Project of MCB (1)

8/12/2019 Project of MCB (1)

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Subject: International financial mangament

Presented to: Sir Taimoor

Presented by:

Group Members Roll Numbers

Muhammad Akram 12052054-032

Muhammad Zeeshan 12052054-033Sana Javaid 12052054-045

Sehrish Khalid 12052054-062

Semester 4nd (M.com)

Section ( T )


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MCB Bank previously known as Muslim Commercial Bank, today is one of the enormous banks of

Pakistan, was established in 1947.

As it was incorporated in 1947, MCB soon earned the reputation of a solid and conservative

financial institution managed by expatriate executives.

In 1974, MCB was nationalized along with all other private sector banks. This led to deterioration

in the quality of the Banks loan portfolio and service quality. Eventually, MCB was privatized in

1991.

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, developinga

large and stable deposit base and managing its non-performing loans via improved risk management

processes.

The strength and stability of MCB Bank Limited is evident through the credit rating assigned by

JCR-VIS Credit Rating Company Limited of AA (Double A) for long to medium term and A-1 (A

one) for short term.


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MCB Bank Limited is a full service institution offering consumer, corporate and investment banking

facilities to its customers. The banks widespread and growing network of branches in the four

provinces of the country and abroad, together with its corporate offices in major cities, provides

efficient services in an effective manner.

MCB Bank has attained its goodwill and fame rapidly in local financial market and around the

globe, the 9 to 5 full day banking and banks 24 hours online banking services gives it an edge over

other banks, while its fastest ATM network facility encompassing more than 34 cities around the

country provides customers such convenience that they expect from the bank. All branches of the

bank are located at vintage points covering a large segment of population and business houses MCB

is one of the leading banks of Pakistan with a deposit base of about Rs. 280 billion and Total assets

of around Rs.300 billion.

MCB Bank Limited(Formerly Muslim Commercial Bank Limited) has a solid foundation of over

50 years in Pakistan, with a network of over 900 branches, over 750 of which are Automated

Branches, over 222 MCB ATMs in 41 cities nationwide and a network of over 12 banks on the

MNET ATM Switch, which as a combination is considered to be the core competence of MCB.

MCB has become the only bank to receive the Euromoney 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"awards.In addition, MCB also has the distinction of winning the Asia

Money 2005 & 2004 awards for being "The Best Domestic Commercial Bank in Pakistan".

Challenging and Changing the Way you Bank
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To maintain long term customer relationships through outstanding service and convenience

Trust:MCB is the trustee of public funds and serve with integrity & commitment. Ethical behavior is

importance for them. They adopt full compliance with internal and external policies & procedures,

operating within the legal framework.

Customer Focus:MCB continuously seek to exceed their customers expectations, forging and maintaining long term

relationships.

Innovation:MCB strives to be the market leaders in innovative products and services offering customized

financial solutions with flawless execution.

Teamwork:The diversity of their people is their strength. They inspire and challenge each other working

together to achieve synergy.

Achievement:Their people are their most valuable asset. They are committed to a result oriented culture. MCB

goals are clear and merit is the only criterion for reward.

Social Responsibility:As responsible citizens MCB contributes to the social welfare of the community they live

in.

(5.3.1)ORGANIZATIONAL HIERARCHY Chart


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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 & chief executive 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.

Operational Management of the bank is being handled by a team of 10 professionals. This team is

also headed by Mr. Muhammad Mansha. The different operational departments are Consumer

Banking & IT div; Financial & Inter branch div; Banking operations div; HR & Legal div; financial

control & Audit div; Credit management div; Commercial Banking div; Corporate Banking div;

Treasury management & FX Group and lastly Special Assets Management (SAM) Group.

For effective handling of branches, it has been categorized into three segments with different people

handling each category. These categories are:

a) Corporate Banking

Manager

Cash Department

In charge (Qayyum)Lockers Department

(Naveed)

Cash Officer

(Wahab)Cash Officer

(Iftikhar)Cash Officer

(Ejaz)

Operational Department

Sa id

3 Guards 2 Office Bo s

KPO

General Ledger

(Suleman Butt)

KPO

Saving Account

(Yasin Butt)

Clearing

(Bukhari)Unskilled WorkersKPO Checking Officer

(Zulfiqar Butt)

Remittance(Amir)

CSO

Ayesha


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b) Commercial Banking

c) Consumer Bank ing

A) CORPORATE BANKING:

These are branches which have an exposure of over Rs. 100 million. Usually includes multinational& public sector companies.

B) COMMERCIAL BANKING;

The branches which has a credit exposure of less than Rs. 100 million but having a credit portfolio

of more than Rs. 20 million (excluding staff loans)

Usually branches in large markets and commercial areas come under this category.

C) CONSUMER BANKING

These are the branches which have exposure up to Rs. 20 million and these include all the branches

which are neither corporate nor commercial branches.

Recently the organizational structure was re-designed as follows:

1.Province wise branches

2.Corporate Consumer Commercial

3.20 branches 637 branches 383 branches

Offices or field offices

OR

Main Offices

Offices means the Head office which is situated in MCB House located at Fruit Mendi

Branch. Field offices mean the Branches. MCB has the forth largest domestic branch network in

Pakistan. The bank has a network of over 1000 branches in Pakistan and 6 branches worldwide in 6

countries.

FINANCIAL ANALYSIS:


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1. Liquidity Ratios:

2. Operating profit ratio

3. Return on investment

4. Assets utilization ratio

5. Market measure ratio

6.

Price to earning ratio

1.Liquidity Ratios:

A class of financial metrics that is used to determine a company's ability to pay off its short-terms

debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the

company possesses to cover short-term debts

Current ratio:

A liquidity ratio that measures a company's ability to pay short-term obligations.

Current Ratio = Current Assets CurrentLiabilities

year 2008 2009 2010

Current asset 284,937,950 321,850,264 376,592,633

Current liabilities 266,857,434 290,092,433 342,463,187

Currentratio 106.80% 111.00% 110.00%

Quick Ratio:

The quick ratio, also known as the acid-test ratio, is a liquidity ratio that is more refined and more

stringent than the current ratio. Instead of using current assets in the numerator, the quick ratio uses

a figure that focuses on the most liquid assets. The main asset left out is inventory, which can be

hard to liquidate at market value in a timely fashion. The quick ratio is more conservative than the


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current ratio and focuses on cash, short-term investments and accounts receivable. The formula is as

follows:

Quick Ratio = (Cash & Equivalents + Short-Term Investments + Accounts Receivable) Current

Liabilities

year 2008 2009 2010Currentassets

284,937,950 321,850,264 376,592,633

Inventories 69,481,487 63,486,316 113,089,261

Currentliabilities

266,857,434 290,092,433 342,463,187

Quickratios

80.743% 89.063% 76.943%

Quickratio


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Analysisofthequickratio:

Inventories are considered as current assets so they are included in current ratio

calculation. Inventories are less liquid. Normally it is not easily converted into cash

on short notice. In 2006 quick ratio is better than other years it show that bank can

easily recover its liabilities on short notice.

3. Workingcapital:

Working capital is the difference between current assets and current liabilities.

Working capital is often considered a measure of liquidity by it self. This ratio

shows the amount of liquidity.

Working capital is used to check liquidity of the organization.

Working capital=current asset-current liability

Workingcapitalyear 2008 2009 2010

Currentasset

284,937,950 321,850,264 376,592,633

Currentliabilities

266,857,434 290,092,433 342,463,187

Workingcapital

18,080,516 31,757,831 34,129,446

Analysisoftheworkingcapital:

Working capital is better in 2007, which is 34,129,446 .it means that assets are

utilized more economically in 2007 as compared to 2003, 2004, 2005 and 2006.


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Times interest earned:

Times in terest earned (TI E)or interest coverage ratiois a measure of a company's ability to honor

its debt payments. It may be calculated as either EBIT or EBITDA divided by the total interest

payable.

Time interest earned= EBIT / interest charges

Interest Coverage Ratio:

A ratio used to determine how easily a company can pay interest on outstanding debt. The interestcoverage ratio is calculated by dividing a company's earnings before interest and taxes (EBIT) of

one period by the company's interest expenses of the same period:

InterestCoverageRatio

Interest coverage ratio shows the ability of a firm to cover up its interest charges on

the income before interest and taxes. The ratio is obtained through dividing earning

before interest and taxes (EBIT) of the bank by its interest expenses.

EBIT divided by interest expense

Interestcoverageratio=EBIT/Interestexpense

Interestcoverageratio

year 2008 2009 2010EBIT 13,018,487 18,500,670 21,308,035Interestexpense

2,781,468 4,525,359 7,865,533

Interestcoverage

468.04% 408.82% 270.90%
http://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxeshttp://en.wikipedia.org/wiki/EBITDAhttp://en.wikipedia.org/wiki/EBITDAhttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/Interesthttp://en.wikipedia.org/wiki/EBITDAhttp://en.wikipedia.org/wiki/Earnings_before_interest_and_taxes


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ratioAnalysisoftheinterestcoverageratio:

Coverage ratio shows the number of the times a firm can recover or meet particular

financial obligations. The interest coverage ratio, which is also called the time

interest earned ratio, measure the coverage of the firm s interest expense.2005 is the

best comparative better coverage of its interest and fixed charged obligations. After

2005, 2006 is better than other three but 2003 is worst than all.

Operating profit:

Operating profit is a measure of income that tells investors how much of revenue will eventually

becomeprofit for a company.

Operating profit takes into account the costs of producing the product or services that are unrelated

to the direct production of the product or services, such as overhead and administrative expenses. It

is calculated by dividing your operating profit (OP) by your net sales (NS) and multiplying the

quotient by 100:

Operating profit = Operating Profit/Net Sales x 100

operating Profit Margin Ratio

operating Profit X 100

Net sale

It is measure of the firm profitability of sale after taking account of all expense and income taxes.

Table no. 4.5 (Rs in Millions)

2010 2011 2012

Operating profit 16873 19425 20941

Sales 467613 544231 641652

operating profit margin 3.60% 3.56% 3.26%
http://www.investinganswers.com/financial-dictionary/personal-finance/income-5798http://www.investinganswers.com/financial-dictionary/businesses-corporations/revenue-5108http://www.investinganswers.com/financial-dictionary/estate-planning/will-4974http://www.investinganswers.com/financial-dictionary/businesses-corporations/profit-2042http://www.investinganswers.com/financial-dictionary/businesses-corporations/profit-2042http://www.investinganswers.com/financial-dictionary/estate-planning/will-4974http://www.investinganswers.com/financial-dictionary/businesses-corporations/revenue-5108http://www.investinganswers.com/financial-dictionary/personal-finance/income-5798


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Net Profit Margin for .2010, 2011, 2012

Source: Internees Analysis

Interpretation

Net profit margin of MCB has shown a fluctuating trend in the year 2010 it was 3.60% but in the

year 2011 it was decreased to 3.56% and again slightly dropped to 3.26% in the year 2012. This

means that through the selling price has increased the other expenses of the bank like operating,

general administration or selling expenses has shown a slight decrease.

Gross profit Margin:

Gross margin tells you about the profitability of your goods and services. It tells you how much it

costs you to produce the product. It is calculated by dividing your gross profit (GP) by your net sales

(NS) and multiplying the quotient by 100:

Gross Margin = Gross Profit/Net Sales x 100

GROSS PROFIT MARGINThis ratio tells us the profit of the firm relative to sales after deducting the cost of producingthe goods or in other words an indication of the total margin available to cover operating expensesand yield a profit.

FORMULA

Gross ProfitGross Profit Margin = X 100

Net SalesFIVE YEARS INCOM TO ASSETS OF THE MCB BANK

Years Description Results

2008 21867566/30255403 72.3

2007 21308035/27304238 78.1

2006 18500670/25061381 73.8

2005 13018487/19243480 67.6

2004 4057716/10979521 36.9

Net profit margin


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year 2006 2007 2008 2009 2010

Net profit 8922415 12142398 15265562 15374600 15495297

totalrevenue/income

23509901 30769477 38234822 45835264 57258892

Net profitmargin

37.95% 39.49% 39.93% 33.54% 27.06%

NET PROFIT MARGINThe net profit margin is a measure through which the firms profitability is measured. It tells about

the firms net income per dollar of sales.

FORMULA

Net ProfitNet Profit Margin = X 100

Net Sales

Years Description Results

2008 15374600/30255403 50.8

2007 15265562/27304238 55.9

2006 12142398/25061381 48.4

2005 8922415/19243480 46.4

2004 2431531/10979521 22.2

INTERPRETATION

Net profit margin of MCB has shown a fluctuating trend in the year 2007 it was 3.57% but in the

year 2008 it was increased to 5.60% and again slightly dropped to 4.60 in the year 2009. This means

that through the selling price has increased the other expenses of the bank like operating, general

administration or selling expenses has shown a slight decrease.

100comeRevenue/InTotal

ProfitNetMarginProfitNet


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investment was also satisfied. 2003 and 2004 were unsatisfied as earning per share.

BOOK VALUE PER SHARE: A measure used by owners of common shares in a firm to

determine the level of safety associated with each individual share after all debts are paid

accordingly.

Formula:

Book Value per share = common equity

Shares outstanding

year 2007 2006 2005 2004 2003

Commonequity

78915003 69180011 61075932 52244865 47338167

Shareoutstanding

8362965 7602150 7602150 6911045 6282768

Book valueper share

9.44% 9.1% 8.30% 7.56% 7.53%

Return on investment ratio

3.Return on Investment:

A performance measure used to evaluate the efficiency of an investment or to compare theefficiency of a number of different investments. To calculate ROI, the benefit (return) of aninvestment is divided by the cost of the investment; the result is expressed as a percentage or aratio.ReturnOnInvestment:

Return on investment measure the ratio of profit generated in relation to the total

assets employed. Net profit after tax divided by total assets gives the return on

investment.


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Return on investment is an indicator of how profitable a company is. By using this

ratio annually, we compare business' performance to industry's norms.

Net profit after tax divided by Total assets

Return on investment= Net profit after tax/Total assets

Returnoninvestment

year 2006 2007 2008 2009 2010Profit aftertax

2,230,145 2,431,532 8,922,415 12,142,398 15,265,562

Total assets 272,323,619 259,173,808 298,776,797 342,108,243 410,485,517

Return onInvestment

0.82% 0.94% 2.99% 3.55% 3.72%

The return on investment formula:

Analysisofthereturnoninvestmentratio

Profitability ratios focus on the profit generating performance of the firm. These

ratios measure how effectively the firm is generating its profit. They reflect its

performance, its risk ness and the effect of leverage. Muslim commercial bank was

heavily financed in 2007 that financing was used in investment thats why return on

investment is high in 2005 as compare to the other years.


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Return on Equity:

Return on equity measures how much a company makes for each dollar that investors put into it.

You calculate it by taking the net income earned (NI) by the amount of money invested by

shareholders (SI) and multiplying the quotient by 100:

Return on Equity = Net Income/Shareholder Investment x 100

Return on equity is another summary measure of overall banks performance. It can

be calculated by dividing the net profit by the owner equity. This ratio tells us the

earning power on shareholders book value investment and is frequently used in

comparing two or more firms in any industry. A high return one quite often reflects

the firms acceptance of strong investment opportunities and effective expense

management.


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year 2006 2007 2008 2009 2010

Profit aftertax 2,230,145 2,431,532 8,922,415 12,142,398 15,265,562

Sharesholdersequity

3,065,273 3,371,800 4,265,327 5,463,276 6,282,768

Return onEquity

72.76% 72.11% 209.18% 222.25% 242.98%

Return on equity is an indicator of how profitable a company is. Use this ratio

annually to compare your business' performance to your industry's norms. In year

2007, MCB has a strong investment opportunitieswhich reflects a high return, after

this 2006 and 2005 also depicts a high return, whereas, 2003 and 2004 are not

satisfied.

Return on Assets:

This metric measures how effectively the company produces income from its assets. You calculate it

by dividing net income (NI) for the current year by the value of all the company's assets (A) and

multiplying the quotient by 100:

Return on Assets = Net Income/Assets x 100

Return on asstes

FIVE YEAR EWTURN ON ASSETS (ROA) OF THE MCB BANK

ROA tells customer what earning was generated from invested capital (assets). ROA for publiccompanies can vary substationaly and will be highly dependent on the industry. Some investors add

Years Description Result

2004 2431532 / 259173808 0.0094

2005 8922415 / 298780780 0.0298

2006 12142398 / 342108243 0.0355

2007 15265562 / 410485517 0.0372

2008 15374600 / 443615904 0.0346


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interest expense back into net income when performing this calculation because they like to useoperating returns before cost of borrowing. The ROA figure gives investors an idea of howeffectively the company is converting money it has to invest into net income. The higher the ROAnumber, the better, because the company is earning more money on less investment.

DuPont Analysis:

A method of performance measurement that was started by the DuPont Corporation in the 1920s.

With this method, assets are measured at their gross book value rather than at net book value in

order to produce a higher return on equity (ROE). It is also known as "DuPont identity".

DuPont analysis tells us that ROE is affected by three things:

- Operating efficiency, which is measured by profit margin

- Asset use efficiency, which is measured by total asset turnover

- Financial leverage, which is measured by the equity multiplier

ROE = Profit Margin (Profit/Sales) * Total Asset Turnover (Sales/Assets) * Equity Multiplier

(Assets/Equity)

Assets utilization ratio:

Sale to cash

Receivables Turnover Ratio:

An accounting measure used to quantify a firm's effectiveness in extending credit as well as

collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a firm

uses its assets.

Formula:

Sale to receivable ratio

An accounting measure used to quantify a firm's effectiveness in extending credit as well as

collecting debts. The receivables turnover ratio is an activity ratio, measuring how efficiently a

firm uses its assets.


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Formula:

Some companies' reports will only show sales - this can affect the ratio depending on the size

of cash sales.

year 2007 2008 2009

Net creditsale

18297143 18625332

Average

accountreceivables

10965297 10965297

Accountreceivableturnover

1.79 1.67

Fixed-Asset Turnover Ratio:

A financial ratio of net sales to fixed assets. The fixed-asset turnover ratio measures a company's

ability to generate net sales from fixed-asset investments - specifically property, plant and

equipment (PP&E) - net of depreciation. A higher fixed-asset turnover ratio shows that the company

has been more effective in using the investment in fixed assets to generate revenues.

The fixed-asset turnover ratio is calculated as:


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year 2008 2009 2010Profitafter tax

15374600 15495297 16873175

Fixedasstes

17263733 18014896 20947540

Fixedasstesturnover

0.86 0.86 0.81

6.Market Ratios:

When a stock analyst wants to understand how other investors value a company, they look at market

ratios. These measures all have one factor in common; they're evaluating the current market price of

a share of common stock versus an indicator of the company's ability to generate profits or assets

held by the company.
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Price to Earnings

Also known as the P/E ratio, this first metric tells the analyst the cost to acquire $1.00 of the

company's earnings. For example, if a company is reporting $1.00 in annual earnings and the

stock's current market price is $20.00, then the price to earnings ratio is 20.0.

Formula

Price to Earnings = Market Value per Share / Annual Earnings per Share

1-P/Eratio

Price earning ratio=Market price per share/ earning per shar

year 2006 2007 2008 2009 2010Marketprice pershare

51.40 58.70 167.80 246.10 399.95

Earningper share

7.28 7.21 21.36 23.40 24.30

P/E ratio 706.04% 814.15% 785.58% 1,051.71% 1,645.88%

Analysisoftheprice-earningratio:

Price earning ratio of MCB bank is high in 2007 as compared to the other years.

Because the market price per share is high in 2007. Because in this year MCBgenerate an excellent profit. 2006 is also good but 2003 is worst all of them.

Price to Book or Market to Book

This next metric can be calculated two ways, both with the same result. The measure is used to

understand the price, or market value, of a company relative to its worth (assets). For example, if a

company's market capitalization was $10B and its assets were equal to $10B, its market to book

would be 1.0.

Formula

Price to Book = Market Price per Share / Book Value per Share


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Where:

Book Value per Share = (Total Shareholder Equity - Preferred Equity) / Common Shares

Outstanding

Alternatively:

Market to Book = Total Market Capitalization / Total Book Value

Where:

Total Book Value = Total Shareholder Equity - Preferred Equity

Price to book value

Market value per share

Book value per share

year 2008 2009 2010

Market priceper share

125.81 219.68 228.54

Book value per

share

7.56 8.03 9.1

Market bookratio

16.64% 27.36% 22.51%

Dividend Yield

While dividend payments are extremely important to some shareholders, they are of secondary

consideration for others. Some investors seek a regular stream of income from a stock, while others

invest with the hope of securing capital gains. The dividend yield allows the analyst to quickly

compare the merits of these alternative investment opportunities.

Formula

Dividend Yield (%) = (Market Price per Share / Dividends per Share) x 100

Dividend payout ratio


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year 2007 2008 2009

Dividendper common

stock

13.67 13.20 11.36

Dulitedearning pershare

24.30 24.47 22.42

Dividendpayout ratio

52.26% 53.94% 50.67%

Earnings Yield:

The earnings yield is the ratio of a company's last twelve months (LTM) of earnings per share

(EPS) to itsstockprice. It is the inverse of the price-to-earnings (P/E)ratio.

Earnings Yield =LTMEPS /Stock Price

Earningyield:

Earning yield=Earning per share/Market price per share

year 2006 2007 2008 2009 2010

Earning pershare 7.28 7.21 21.36 23.40 24.30

Marketprice pershare

51.40 58.70 167.80 246.10 399.95

EarningYeild

14.16% 12.28% 12.73% 9.51% 6.08%
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Balanceswithotherbanks:

There is gradual increase in balances with other banks. MCB bank limited has

maintained two types of accounts, current and fixed within the Pakistan and

outside the Pakistan.

Lendingtothefinancialinstitutions:

Lending to the financial institution decreased in 2005 because in this period

MCB Bank it self need of financing. There were again decrease in 2007.

Lending to the financial institution include call money landings, repurchase

agreement lending and purchase under resale agreement of listed equity security,

trade related deals.

Advances:Index size/horizontal analysis is showing that advances are increasing every year

because of increase in deposits.

Otherassets:

Other assets are increasing in year 2006 and 2007. Other assets include income

/mark up accrued in local currency, in foreign currency, advances, deposits,

advance taxation, suspense accounts, stationery and stamps, dividend receivable,

Operatingfixedassets:Operating fixed assets like others are also increasing because every year capital

work in progress increased. Property and equipment of MCB Bank are also

increasing every year.

Liabilities:

Bil ls payable:

Bills payable is increasing in 2005 and 2006 with in the Pakistan.

Depositsandotheraccounts:

Deposits include current deposits, fixed deposits, saving deposits, special exporters

accounts remunerative accounts, deposit in local currency and deposit in foreign

currency are increasing every year. Te reason behind this is MCB Bank is offering

higher deposit s rates to its customer every year.


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Liabilitiesagainstassetsubjecttofinancelease:

There was no liability against assets subject to finance lease.

Otherliabilities:

Other liabilities consist of interest payable in local currency, interest payable inforeign currencies unearned income commission, accrued expenses advance

payments, unclaimed dividend, proposed dividend, unrealized loss, branch

adjustment account, payable to defined contribution plan, payable against purchase

of listed shares, with holding taxes payable and other are increasing every year.

Sharecapital:

Share capital of MCB bank limited is increasing every year because profit is

increasing year by year.

Reserves:

Reserves for the contingencies have been created for risk assets comprising

advances and investment excluding government securities. The reserves have been

created as matter prudence, exclusive to provide sufficient cushion for any future

losses in the banks risk assets portfolio. Reserves of every five years are increasing.


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HorizontalAnalysisofProfitandLoss

Horizontal/IndexAnalysis

MuslimCommercialBankLimited

ProfitandLossAccount

Ason 31stDecember2006 2007 2008 2009 2010

Markup/return/interestearnedMarkup/return/interestexpense

100 88 171 249 307100 70 95 154 268

Netmarkup/interestincome

Provisionfordimininution inthevalue

ofinvestmentProvisionagainstloansandadvances

Provisionforpotentialleaselosses

Baddebtswrittenoffdirectly100

94

115

63

139

436

201

66

176

-1

147

286

(81)

144

-21

151

322

(70)

419

-

-392

Netmarkup/interestincomeafter

provisionsNonmarkup/interestincome

-Fee,commissionandbrokerage-Dividendincome-Incomefromdealinginforeign

currencies-Gainoninvestment-Unrealizedgain/losson

revaluationofinvestment-Otherincome

Totalnonmarkupinterestincome

Nonmarkup/interestexpenseAdministrativeexpenses

Restructuringexpenses

Otherproposition/writeoff

OtherchargesTotalnonmarkup/interestexpense

Shareofprofitfromassociated

undertakingExtraordinary/unusual items

Profitbeforetaxation

100

100100

100

100

-

100100

100

100

100

100

100

-

-100

101

191102

149

39

-

7793

98

110

-

299

7198

-

-112

208

235129

160

42

-

146119

172

98

-(145)

30387

-

-360

302

222218

209

30

-

77110

224

98

-

2311387

-

-512

313

253170

209

74

-

76133

240

76

-

(7)916

73

-

-590

Taxation-Current year

-Prioryears-DefferdShareoftaxofassociatedundertaking -

100 118

380

-(215)

-296

470

-37

-460

531

-

526

-437

Profitaftertaxation

Unappropriateprofitbroughtforward

Transferfromsurplusonrevaluationoffixedassets

Profitavailableforappropriation

Basic/dilutedearningspershare-

-

100

100

100

100

6.61

109

32

103

34

92

99

400

27

335

38

319

293

544

802

129

776

597

321

685

889

47

857

723

334

100

100

100

100

100

-

100

-

128

-41

-


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Horizontal/indexanalysis:

Markup/return/I nterestearned:

It remains the constant in 2003 and 2004 because MCB Bank earn same interest on

loans and advances to customers. But it increased in 2005, 2006 and 2007.

Markup/r etur n/I nterestexpense:

Mark up /return/Interest are low in 2004 because of the low rates of deposits. One of

the biggest things, which made these figure of 2004 low, is a subordinated loan.

Otherincome:

There is gradual increase in other income in year 2005. The reason is rent on

property, gain on sale of non banking assets and bad debts are recovered.

Administrationexpenses:

With the passage of time as the profit of the bank is increasing Administration

expenses are also increasing. Which include salaries, allowances, rent, taxes,

insurance, electricity, legal and professional charges, brokerage and commission,

repair and maintenance, Advertising and publicity.

Othercharges:

In 2006 there heavy amount of other charges imposed. Other charges are penalties

imposed by state bank of Pakistan.

Taxation:

Taxation system is linked with the profit of the bank that s why taxes increase with

the ratio of profit.


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4.4 VERTICALANALYSIS

VerticalAnalysisBalanceSheet

Vertical/commonSizeanalysis


BalanceSheetAson 31stDecember

AssetsCash and balances with treasury

banksBalances with other banks

Lending to financial instutions

InvestmentsAdvancesOperating fixed assets

Deffered tax assetsOther assets

2006

8.83

0.48

3.8347.10

35.69

1.68

-2.38100

2007

9.20

2.20

4.2325.93

52.98

3.09

-2.37100

2008 2009

(Rupees'000)

7.92

0.49

3.3523.26

60.35

2.74

0.061.83100 100

2010

9.67

0.93

0.2627.55

53.34

3.90

-4.35100

LiabilitiesBills payable

BorrowingsDeposits and Other accounts

Sub-ordinated loansLiabilities against assets subject to

finance leaseDeffered tax liabilities

Other liabilities95.92

2.92

2.93

85.30

0.62

-

0.10

2.5294.38

2.86

9.16

76.76

0.53

-

-

2.8892.20

2.07

7.00

75.26

0.47

-

-

3.2788.06

2.55

9.60

71.16

0.12

-

0.29

2.8686.57

NetassetsRepresentedby:Share capital

ReservesUnappropriateed profit

Surplus on revaluation of assets

4.08

1.13

1.61

0.102.84

1.244.08

5.62

1.30

2.18

0.063.55

2.075.62

7.80

1.43

4.49

0.075.99

1.827.80

11.94

1.60

7.21

1.6210.42

1.5211.94

13.43

1.53

8.28

1.2511.06

2.3613.43

Vertical/commonsizeanalysis:

Cashandcashbalances:Cash and cash balances are increasing every year but in 2005 it decreases.

Balanceswithotherbanks:

Balances are increased in 2004 and 2006 and heavily decreases in 2005 and 2007. The

reason behind the decrease of balances with other banks is advances and investment.

9.49

1.92

6.1618.56

57.95

2.65

0.05

3.22

3.08

11.98

77.67

0.59

-

0.26

2.34


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These two years MCB Bank used these funds in investment and advances rather then

keeping balances with other banks.

Lendingtothefinancialinstitutions:

MCB Bank lending to the financial institutions was 3.83% after one year in 2004

increased by 1% and in 2005 decreased very quickly by 3.35% because repurchase

agreement landings was low in this year. It increased in 2006 but decline in 2007 that

is 0.23%. Lending to the financial institution was in 2006 (21,081,800) in 2007 figure

was (1,051,372). Because in 2007 there were no repurchase agreement lending and

call money lending is very low.

I nvestment:

MCB Bank 2003 investment are satisfied rather than other 4 years that was 47% of

total assets. It decreases in 2004, which was 26% of the total assets. The reason is less

funds are used as investment in fully paid up ordinary shares of listed companies and

unlisted term finance certificates in 2004. At that time period there were no investment

in government of Pakistan sukuk bonds. Little bit increase in investment was in 2005.

But in 2007 it will again increased up to 28%.

Advances:

In MCB Bank there were increase in advances year by year.

Operatingfixedassets:

Operating fixed asset are increasing year by year but are same with total assets of 2%

to 3% throughout the year.

Otherassets:

Ratio of the other assets remains the same in 2003 with 2004. Other assets increased in

2006 and 2007 because receivable from pension fund as well as income/ markup

accrued on advances are increased in these years.

Liabilities:

Bi l ls payable:

In MCB Bank five year comparison of the bills payable declare that all five years ratio

are lies between 2.5%and 3.00% there are change or increase in bills payable every

year but the ratio is the same because of the comparison with the total assets.


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Depositswithotheraccounts:

Deposits with the other accounts decreased in 2004 but simultaneously it increased up

to 2007 with the comparison of the total assets.

Subordinatedloans:The subordinated loans are decreased year by year as I 2007 it remain up to 0.125 of

total assets.

Liabilitiesagainstassetssubjecttothefinancelease:

There were no such liabilities.

Otherliabilities:

Other liabilities remains the same throughout the five years. It does not mean that

other liabilities are not increasing year by year but are same with total assets of 3%

throughout the year.

Reserves:

Reserves of the MCB bank limited are increasing every year

Sharecapital:

In MCB bank limited share capital was same in 2003 and 2004. It increases gradually

in 2005, 2006, and 2007.

Surplusonrevolutionofassets:

Increased year by year.


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VerticalAnalysisofProfitandLoss

Vertical/commonSizeanalysis


Markup/return/interestearnedMarkup/return/interestexpense

ProfitandLossAccount

Ason 31stDecembe2006 2007 2008 2009 2010

(Rupees'000)69.6 68.2 76.6 83.8 84.119.7 15.5 12.0 14.7 20.8


Provisionfordimininutioninthe

valueofinvestmentProvisionagainstloansand

advancesProvisionforpotentiallease

lossesBaddebtswrittenoffdirectly


afterprovisionsNonmarkup/interestincome

-Fee,commissionandbrokerageincome

-Dividendincome-Incomefromdealingin

foreigncurrencies-Gainoninvestment-Unrealizedgain/losson

revaluationofinvestment-Otherincome

Totalnonmarkupinterest

income

Nonmarkup/interestexpenseAdministrativeexpenses

RestructuringexpensesOtherproposition/writeoff

OtherchargesTotalnonmarkup/interest

expenseExtraordinary/unusual items

Profitbeforetaxation

Taxation-Current year-Prioryears

-Defferd

Profitaftertaxation

UnappropriateprofitbroughtforwardTransferfromsurpluson

revaluationoffixedassets

Profitavailableforappropriation

49.9

(1.0)

4.7

0.0

1.55.2

44.7

7.0

2.5

2.2

13.7

-

5.0

30.4

75.1

44.2

5.9

0.3

0.4

50.8

-

24.28.1

-

1.19.3

15.0

4.2

0.2

4.3

19.3

52.8

(1.3)

3.3

0.0

0.12.1

50.7

15.0

2.8

3.7

6.0

(0.1)

4.3

31.8

82.4

54.4

-1.1

0.3

55.8

3.9

30.511.7

-0.5

12.2

18.3

1.5

0.2

1.7

19.9

64.6

(0.4)

5.4

-

0.04.9

59.7

10.6

2.1

2.3

3.7

0.0

4.7

23.4

83.1

27.9

-

(0.3)

0.8

28.3

1.5

56.219.9

(0.6)

(1.6)17.7

38.5

0.7

0.4

1.1

39.6

69.1

0.4

3.3

-

0.23.8

65.2

7.5

2.6

2.2

2.0

-

1.9

16.2

81.4

21.1

-0.0

0.2

21.3

-

60.118.5

1.9

0.220.7

39.5

16.2

0.1

16.3

55.8

63.3

0.3

7.8

-

0.08.1

55.2

7.0

1.7

1.8

4.0

(0.0)

1.5

15.9

71.1

13.3

-

(0.0)

1.4

14.7

-

56.417.0

(3.4)

2.416.0

40.4

14.6

0.0

14.7

55.1


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Verticalanalysisoftheprofitandlossaccount:

Markup/r etur n/i nterestexpense:

There is decrease in 2004 2005 and 2006 in the mark up/return/interest expense

because return on deposits is very low due to the low rates on deposits. Return on

subordinated loans is satisfied that was the reason of the reason of decline in the return

on expense. Again increase in 2007 because rate on deposits increased in 2007.

Administrationexpense:

Administration expenses are decreasing every year as approved pension fund as well

as post retirement benefits are low. Moreover, there were no self retrenchment costs.

Othercharges:

Other charges include penalties imposed by the state bank of Pakistan that increased

every year. Its vertical ratio is 0 because amounts of the penalties imposed by the bank

are very small as comparison to the Interest/ income earned but in 2007 it will reach

up to 3.54%.

Taxation:

Taxes are increasing every year except of 2007 taxes, their ratio are lowered than 2006

because of taxes for the prior year .


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4.6 FutureProspectsOfTheOrganization

Vision:

Challenging and Changing the Way you Bank.

MissionStatement

MCB Banks team of committed professionals is dedicated to maintaining long

term customer relationships through outstanding service and convenience.

Objectives:

To achieve sustained growth and profitability in all areas of business.

To build and sustain a high performance culture, with a

continuous improvement focus.

To develop a customer service oriented culture with special

emphasis on customer care and convenience.

To effectively manage and mitigate all kinds of risks inherent in the

banking business.

To maximize use of technology to ensure cost effective operations,

efficient management information system, enhanced delivery

capability and high service standards.

To manage the bank portfolio of the business to achieve strong

and sustainable shareholders return and to continuously build

shareholders value.

To explore new avenue for growth and

profitability. Strategicplanning:

To comprehensive plan for future to ensure sustained growth

and profitability.

To facilitate alignment of the vision, mission, corporate objective and

with the business goals.

To provide strategic initiatives and solutions for projects, products,

policies and procedures.


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To provide strategic solutions to mitigate weak areas and to counter threats

to profits.

To identify strategic initiatives and opportunities for profits.

To create and leverage strategic assets and capabilities for

competitive advantage.

For developing a forward-looking perspective, strategic planning driven by

quality research is essential. Strategic planning helps to set short, medium

and long term business plans in order to achieve the banks longer term goals,

objectives and vision. Strategic planning division headed by an

experienced economist has been established. It is mandated to conduct

economic research and present detailed sect oral analysis of Pakistan

economy. It will also make assessment of overall outlook for the banking

sector that should assist senior management in decision-making process.

Future prospects of the Muslim Commercial bank are to increase market

shares, mobilize resources, developed retail, agriculture and Islamic

banking, introduce fresh initiatives for corporate and investment

banking, capitalize on the new business opportunities and implement

various technology initiatives.

Muslim Commercial bank limited is continuously focused on building

long-term shareholders value, as primary objective. The strength of its brand

name, supported by strategic expansion and the depth of its customer

relationship, gives a strong foundation on which to build and continue

growth in the times ahead.

Future prospectus is to improve risk management, which considered being one of the

essentials for sustainable success in the business. Based on the risk management

guidelines issued by state bank of Pakistan; a risk management strategy has been

developed for accessing and mitigating/controlling risk.


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4.7 SHORTFALLS/WEAKNESSESINTHEORGANIZATION

Following are the shortfall/ weakness in the organization as per my opinion:

ManualBook-Keeping:

Although the bank has computerized accounting system but, still the bankers use to

make their entries in the accounting register.

LowJobSatisfaction:

Understanding and the effective management of the human resources is the most

difficult challenge faced not only by the bank but by all the organizations. Even

though the people have been sacrificed in the new organizational developments, it is

becoming clear that the true lasting competitive advantage comes through human

resources and how they are managed. MCB seems to not focusing on this highly

critical issue as the job satisfaction level of the employees working at MCB, was

quite low.

LackOfSpecialization:

This famous and useful concept given by Adam Smith in 1776 seems to be missing

in the bank. The employees are constantly rotated from one job to another job of

totally different characteristic in the view of giving them the know-how of the

working in all the departments. But I think this is not a very good tactics used by the

management. Otherwise the situation might be like this Jack of all and master of

none.

Centralization:

There is a high degree of centralization in the bank. Almost all the decision-making

is in the hands of the upper management. But centralization is effective up to a


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observed that delay occurred in the operations of the employees only due to the fact

that they had not got any instructions from the head office.

LackOfTrainingFacilities:

Presently there is no specific training program arranged for the new recruiters. They

have to learn based on their observations and also their mistakes. It takes a bit time

for the fresh one to learn the banking the result is huge amount of blunders, mistakes

etc. resulting in monetary and non-monetary losses for the bank. There is pressure

not only on the new learner but also on the person placed upon with this

responsibility.

Highcharges:

The schedules of charges indicate that the fees charged by the bank on the various

services it provides are extremely high. It may result in decrease in the number of its

exiting customers. Further more, this could be very alarming situation for the bank

in case some of the competitors grasped the opportunity and lowered its rates. The

result would be either the lost of market share or decrease in the charges resulting in

lowering the banks income.

Lessattractiverateofreturn:

Commercial banks face considerable competition in attracting deposits from

individuals or small investors. In contrast, the Govt. of Pakistan national saving

scheme offers attractive rates of return (approx. 16 to 18 percent annually) on 10-15

year fixed accounts, which banks find difficult to match.

StiffCompetition:

MCB is currently facing strict competition from the foreign banks especially the

American who banks enjoy a good market position. Collectively U.S. banks hold

approximately 9 percent of all commercial banks' assets. At present, three American

banks are operating in Pakistan: American Express Bank; Bank of America and

Citibank.


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94


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LessExperiencedStaff:

Owing to huge turnover of the employees, the no. of experienced and well trained

staff is very low. Majority of the staff working in the bank branches is quite young

and inexperienced. If the bank failed to bring down its high employees turnover,

then it would be lacking the most important resources of any organization i.e. the

experienced staff.


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95


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CONCLUSION

The emerging banks of the private sector of Pakistan like MCB have proven to be

helpful in improving the overall economy of Pakistan. MCB has been declared 07

times Euromony awardand Asia Money Awardfor the last five years, which is

a very big achievement for Pakistan. Muslim Commercial Bank is heading towards

the right direction and it possesses the necessary potential to improve in all of its

sectors. Thus Muslim Commercial Bank Limited is one of the best banks of

Pakistan.


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96


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RECOMMENDATIONS

First of all, the management needs to overlook the major problems that the

organization is currently facing and then develop strategies to eradicate them.

Some of the suggestions that I would like to give at the end are:

MCB Bank can improve its Marketing strategies to acquire more promotion

and mass media publicity by the use of effective channels of promotions like

TV, Newspaper Advertisements. It can also improve its magazine

publication that it releases each month.

In order to compete in the ever-expanding market both

nationally and internationally, introducing new and efficient

products is one of its major requirements.

Centralized Structure that enables employee involvement needs

to be formed.

Better reward system is one of the most important requirements in

order to reduce the problem of Employee retention and

improve Employee motivation.

There is lack of proper and continuous training of employees that needs

to be solved.

Creation of enhanced performance appraisal

system. Proper use of stationary.

Implementation of enhanced Marketing

system. Job rotation for employees.

There should be more parking place outside the branch for the

convenience of clients.

There should be cold drinking water facility separately available at

each section.

Common room for working ladies is very much essential in each floor

so that they may offer prayers conveniently.

Canteen facility needs to be improved.


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FUTURE PROSPECTS OF THE ORGANIZATION

The overall analysis shows that company is in good condition throughout the analysis year 2004

2008. The 2008 is the golden year for the company because in this year the company earnsmaximum profit.

Earning per share is also increasing during these years for the stock holders and the personsinterested in MCB BANK investment. Future prospects of the organization are to get more and moreprofit for its share holder by increasing revenue and operating profit by reducing its operating cost.

There are now a lot of new international banks in Pakistan. And there is a perfect completion amongall these banks which are operate in Pakistan.

It is more obvious worth-mentioning that MCB BANK is undergoing the strategic structuralchanging in the sector of management, IT, Marketing and updating the R & D section which plays akey role for taking long term value projects that are 5 to 15 years. This is the sole objective of theMCB BANK.

5.2) WEAKNESSES OF THE ORGANIZATION

1. In finance department a few number of employees have not sufficient knowledge ofcomputer. So their performance can be increase by this training.

2. Data is not updated well in time, which creates problems for staff.

3. The lower scale employees of the Financial Department are not giving any training of themodern tolls used in finance technology.


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4. Finance related units/offices are not interconnected.

5. The different offices do not use the same format in financial transaction.

6. Persons working in finance department have not enough knowledge of computer.

7. There does not exist a planned program for their trading.

8. Lack of coordination between in different department.

9. There doesnt exist planned program for the loaning policies of employees.10.Data is not fully updated.

5.3) SUGGESTIONS

My internship in MCB BANK Limited, I-8 Markaz Branch, Islamabad and quite a good experiencethere for me because I gained a valuable knowledge and practical experience for my internshiptraining.

The management and employees are skillful and of high caliber. However, during my internship inMCB Bank, I observed that the MCB Bank should the following measures with a view to improvethe efficiency and working quality.

SR.# Description

1 Strong and proper media campaign should be started in order to maximize thebusiness level. For this especially the electronic media used.

2 The duties hours must be properly followed. The working hours are from 9:00 am


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to 5:00 pm. But the staff remains in the office till 7: pm.

3 All the departments should have appropriate staff members, so that the work burdenshould be minimized.

4 Providing proper training to the employees that make possible to error free work

and tasks.

5 Employees should provide more and more facilities, such as handsome salaries,advances, free education.

6 Different schemes and packages being offered especially on the special occasions.

7 Proper duties are assigned to the most suitable employees.

8 There must be job flexibility and job rotation.

9 There current performance of the bank is so good therefore the bank should declarethe bonus for the employees.

10 Just like other modern banks customer services department should be wellestablished and well arranged and there should be complaint cell in each branch ofthe organization. It will help the management to improve the quality of services notonly at branch level but also at the upper level.

5.4) CONCLUSION

MCB is one of the most important names in the banking sector of the Pakistan. It is playing a vitalrole in the economic growth of the country. It is important to note that business conducted,investment made and the expenditure incurred in accordance with the objectives of the bank.Overall performance of the bank is satisfactory but it still need and improvement because there is noneed of success. So its responsibility to regulate such activities, which can help the country tofurther, move on the road of development.

On the basis of its large number of product and services offered and large branch network it hasunique presence even through competition is growing day by day. Management of MCB mustrecognize these things and take the steps to improve its quality.

MCB has been growing through a comprehensive but complex and painful process of restructuring.It is aimed at making this institution financially sound and forgoing it links firmly with the realsector for promotion of savings, investment and growth. Although a complete turnaround is notexpected till the completion of reforms, sign of improvement are visible.

At the end, I can only pray that it gets more prosperity and help the government to boost thedevelopment and the standard of living.


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REFFRENCES

www.mcb.com.pk

Annual report of MCB bank

Staff of MCB Aabpara branch

Islamabad Business Record August

15,2008

Project of MCB (1)

Documents

Transcript of Project of MCB (1)