CHAPTER # 3

ANALYSIS OF ORGANIZATION

FINANCIAL ANALYSIS FOR MCB PAKISTAN

Financial analysis is the process of identifying the financial strengths
and weakness of the firm by properly establishing relation ship between the items
of balance sheet and profit and loss account.
The management and interested parties use analytical tools to
evaluate the business financial health in order to make rational decisions. Here the
financial analysis is carried out to know the financial position of MCB Pakistan
with the help of the following tools:
Horizontal Analysis
Ratio Analysis
SWOT Analysis

MCB Bank Limited

Balance Sheet
2007
ASSETS
Cash & balances with treasury
Balances with other banks
Lending to financial institutions
Investments-net
Advances-net
Operating fixed assets
Deferred tax assets
Other assets-net
Total Assets:
Bills payable
Borrowings
Deposits & other accounts
Sub-ordinated loan
Liabilities against assets subject to finance
lease
Deferred tax liabilities-net
Other liabilities
Total Liabilities:
NET ASSETS
Share capital
Reserves
Un-appropriate profit
Surplus on revaluation of assets-net of tax

2008

2009

(Rupees in 000)
39,683,883
3,807,519
1,051,372
113,089,261
218,960,598
16,024,123
17,868,761
410,485,517
10,479,058
39,406,831
292,098,066
479,232
-

39,631,172
4,043,100
4,100,079
96,256,874
262,510,470
17263,733
19,810,476
443,615,904
10,551,468
22,663,840
330,274,155
-

38,774,871
6,009,993
3,000,000
167,134,465
253,249,407
18,014,896
23,040,095
509,223,727
8,201,090
44,662,088
367,604,711
-

1,180,162
11,722,493
355,365,842
55,119,675
--------------6,282,768
34,000,638
5,130,750
45,414,156
9,705,519
55,119,675
--------------

437,137
21,253,250
385,179,850
58,436,054
------------6,282,768
36,768,765
9,193,332
52,244,865
6,191,189
58,436,054
-------------

3,196,743
15,819,082
439,483,714
69,740,013
-------------6,911,045
38,385,760
15,779,127
61,075,932
8,664,081
69,740,013
-----------

MCB Bank Limited

Profit and Loss Account
2007

2008

2009

Markup/ return/ interest earned

Mark up/ return/ interest expense
Net mark up/ interest income
Provision for dimininution in the
value of investment
Provision against loans & advances
Bad debts written off directly

31,786,595
7,865,533
23,921,062
105,269

40043824
11560740
28483084
2683994

51,616,007
15,841,463
35,774,544
1,484,218

2,959,583
199
3,065,051

1335127
4019121

5,796,527
41,576
7,322,321

Net mark up/interest income after

provisions
Nonmarkup / interest income:
Fee, commission and brokerage
income
Dividend income
Income from dealing in foreign
currencies
Gain on sale of securities-net
Unrealized gain/ loss on revaluation
of investments
Other income
Total non mark up interest
income

20,856,011

24463963

28,452,223

2,634,610

2,953,394

3,331,856

632,300
693,408

617554
727564

459,741
341,402

1,500,865
(13,105)

740429
(103198)

773,768
-

1000149
6448227

855,697
5791440

736,118
5,642,885

27304238

30255403

34,095,108

5426116
(3,743)
573830
5996203
21,308,035
6,442,356
(1,294,473)
894,590
15,265,562
5,530,973
11,855

7546878
10120
830839
8387837
21867566
7341257
(864824)
16533
15374600
5130750
21319

10,107,189
142,824
690,150
10,940,163
23,154,945
7,703,305
(2,232,226)
2,188,569
15,495,297
9,193,332
22,324

5,542,828

5152069

9,215,656

20,808,390
24.30

20526669
24.47

24,710,953
22.42

Particulars:

Nonmarkup / interest income:

Administrative expenses
Other provision net
Other charges
Total non-mark up/interest income
Profit before taxation
Taxation-Current year
Prior years
Deferred
Profit after taxation
Unappropriated profit
Transfer from surplus on revaluation
of fixed assets-net of tax
Profit available appropriation
Basic and diluted EPS after tax

HORIZONTAL ANALYSIS FOR MCB PAKISTAN:

Horizontal analysis is conducted by setting consecutive balance sheet,
income statement or statement of cash flow side-by-side and reviewing changes in
individual categories on a year-to-year or multiyear basis.

1) Horizontal analysis for balance sheet of MCB Pakistan:

The horizontal analysis for three years balance sheet of MCB Pakistan is given
below:
Particulars
ASSETS:
Balances with other banks
Lending to financial

2007

2008

2009

100%
100%

106%
390%

157%
285%

institutions
Investments-net
Advances-net
Operating fixed assets
Deferred tax assets
Other assets-net
Total Assets:
Bills payable
Borrowings
Deposits & other accounts
Sub-ordinated loan
Liabilities against assets

100%
100%
100%
100%
100%
100%
100%
100%
100%
100%
-

85%
120%
107%
111%
108%
100%
57%
113%
-

147%
115%
112%
129%
124%
78%
113%
125%
-

100%
100%
100%
100%
100%
100%
100%
100%
100%

37%
181%
108%
106%
100%
108%
179%
115%
63%

270%
134%
124%
127%
110%
113%
307%
13%
89%

subject to finance lease

Deferred tax liabilities-net
Other liabilities
Total Liabilities:
NET ASSETS
Share capital
Reserves
Inappropriate profit
Surplus

or

revaluation

of

assets-net of tax
100%

Fig: 3.1

106%

127%

Fig: 3.2

INTERPRETATION:
The horizontal analysis of the balance sheet of the MCB bank has given a
positive trend .The result of the balance sheet depict that there is a constant increasing
trend in cash, total assets, total liability and equity. There is high trend in 2009 in most of
factors of balance sheet as compared to 2007. The trend of cash is upward and has
increased by 97% in comparison to 2007. The total assets have also increased by 24%,
total liabilities have increased by 8% and Equity is increased by 223%.
The trend of advances-net and deposits are increased positively with 115%
and 125% respectively in 2009. According to a survey, large size banks of Pakistan
registered a deposit growth of 11.23% (Rs. 2,985.1 billion) in 2009 as compared to 16.9%
in 2008 (Rs. 2,683.9 billion). Advances of large size banks increased by 23.5% in 2009 as
compared to 19.8% in 2008. As these large banks include MCB as well, this means that
MCB is in line with industry growth in deposits and advances. This increasing trend in
deposits and advances is a positive sign for the success of the bank.

2) Horizontal analysis for Profit & loss account of MCB Pakistan:

The horizontal analysis for three years Profit & Loss Account of MCB Pakistan is
given below:
Particulars:
Markup/ return/ interest earned
Mark up/ return/ interest expense
Net mark up/ interest income
Provision for dimininution in the value of investment
Provision against loans and advances
Provision for potential lease losses
Bad debts written off directly
Net mark up/interest income after provisions
Non mark up/interest income:
Fee, commission and brokerage income
Dividend income
Income from dealing in foreign currencies
Gain on sale of securities-net
Other income
Total non mark up interest income
Administrative expenses
Other provisions/ (reversal)- net
Other charges
Total non-mark up/interest income
Extra ordinary/unusual items
Profit before taxation
Taxation-Current year
-Prior years
-Deferred
Profit after taxation
Unappropriate profit brought forward
Transfer from surplus on revaluation of fixed assets-net tax
Profit available appropriation

2007

2008

2008

100%

125%

162%

100%

147%

201%

100%

119%

150%

100%

2150%

1410%

100%

45%

196%

100%

100%

20892%

100%
100%

131%
117%

239%
136%

100%

112%

126%

100%

98%

72%

100%

105%

49%

100%

49%

51%

100%

86%

74%

100%

90%

88%

100%
100%

110%
139%

125%
186%

100%

(270)%

(3815)%

100%

145%

120%

100%

140%

182%

100%

100%

103%

109%

100%

114%

120%

100%

(66)%

(172)%

100%

1.8%

245%

100%

101%

102%

100%

93%

166%

100%

179%

188%

100%
100%

93%
99%

166%
119%

Fig: 3.3

INTERPRETATION:
According to horizontal analysis of profit and loss account increasing
trend is observed. In 2009 there is an increase in all factors such as interest income,
interest income after provision and profit before and after tax showing the trust of people
on banks is increasing day by day.
The banking sector spreads continued to incline during the last three years,
from an average of 6.14% in 2007 to 8.17% in 2008. (Source: SBP Statistical Bulletin).
MCB net mark up is also showing this inclining trend with the 100% in 2007, 119% in
2008 and 150% in 2009. This shows MCB is competing very well in the market.

RATIO ANALYSIS:
Financial ratio analysis is the calculation and comparison of ratios which are derived
from the information in a company's financial statements which relates two pieces of
financial data by dividing one quantity by the other to calculate ratios because in this way
one gets a comparison that may prove more useful than the raw number by itself.
The business itself and outside providers of capital (creditors and
investors) are interested in these ratios. The level and historical trends of these ratios can
be used to make inferences about a company's financial condition, its operations and
attractiveness as an investment. Ratio analysis for MCB Pakistan is given as follows:

1) Profitability Ratio:
Profitability ratios measure how much company revenue is eaten up by
expenses, how much company earns relative to the sales generated and the amount earned
relative to the value of the firms assets and equity.
Management and shareholders of the company are interested in
profitability ratios. Higher profit ratio is desirable. These different kinds of the
profitability ratios for MCB bank Pakistan are given below:
1.

Interest Profit Margin:

Interest Profit Margin shows the profit margin in revenue of mark up and

indicate the banks overall effectiveness of operation.

This can be calculated as:
Interest Profit Margin =

Net Mark up/ interest income

-------------------------------------- x 100
Mark up/ interest earned

Table: 3.1

Years

Interest Profit Margin

2007

2008

2009

Rupees in 000
Net Mark up/ interest income

23,921,062

28,483,084

35,774,544

Mark up/ return/ interest earned

31,786,595

40,043,824

51,616,007

75.25%

71.13%

69.31%

Interest profit margin

Graph: 3.4

The interest profit ratio is showing the net interest income relative to
interest earned after deduction of cost of creating it i.e. interest expense. Interest profit
ratio of MCB bank is highest in 2007 with the 75.25% as compared to the other years
because of low expenses during the year. The interest profit margin is dropped to 69.31%
in 2009.
2.

Net Profit Margin:

The net profit margin measures the profit that is available from each rupee

of M.UP/ return/ interest earned after all expenses have been paid.
Net Profit Margin

Table: 3.2

Profit after Taxes

= ----------------------------------- 100
Mark up/interest earned

Net Profit Margin of MCB

Years

2007

2008

2009

Rupees in 000
Profit after taxes

15,265,562

15,374,600

15,495,297

Mark up/ return/ interest earned

31,786,595

40,043,824

51,616,007

Net profit margin

48.0%

38.4%

30.02%

Graph: 3.5

The net profit margin has being slightly declined in the year 2009 as
compared to 2007, showing a downward trend in 2009 by 17.98% from 2007.
3.

Return on Assets:
This ratio indicates how much income each rupee of assets produce. It

shows whether the business is investing in its assets effectively or not.

Return of assets =
Table: 3.3

Profit after taxes

------------------------------ 100
Total assets

Return on Assets Ratios

Years

2007

2008

2009

Rupees in 000
Profit after taxes

15,265,562

15,374,600

15,495,297

Total assets

411,093,521

444,812,578

509,223,727

3.7%

3.45%

3.04%

Return on assets ratio

Graph: 3.6

Return on assets ratio shows the return on total assets .The ratio has
deteriorated to 3.04% in the year 2009.
4.

Return of Equity:
The return on equity is a measure of how well management has used the

capital invested by shareholders. Return on equity tells us the percentage return of each
rupee invested by share holders.
Net Profit after Taxes
Return on equity = --------------------------------------- 100
Share holders equity

Table: 3.4

Return on Equity

Years

2007

2008

2009

Rupees in 000
Profit after taxes

15,265,562

153,74,600

154,95,297

Share holders equity

55,119,675

58,436,054

69,740,013

27.6%

26.3%

22.22%

Return on Equity

Graph: 3.7

There is a decreasing trend in the return on equity. ROE is 27.6% in

2007 and dropped down to 22.22% in 2009.
5.

Average profit per branch:

Average profit per branch is a roughly estimate of how each branch of

MCB contributing to the profit of the whole bank.

Average profit per branch =

Table: 3.5

Net Profit after Tax

-------------------------------- 100
No. of branches

Average Profit per Branch

Years

2007

2008

2009

Rupees in 000
Profit after taxes

15,265,562

15,374,600

154,95,297

No. of branches

1,020

1,040

1,081

14966.2

14783.3

14334.2

Average profit per branch

Graph: 3.8

The average profit per branch is decreasing where the numbers of

branches of MCB are increasing every year. Management need to focus over this
change that whether the branches are not profitable or these are in the early stages
of development.
6.

Return on Advances:
Return on advances helps to get an insight into the effectiveness of the

advance policies of management. It shows how much interest income is generated from
advances.
Interest income
Return on advances = ------------------------Total loans

Table: 3.6

Years

100

Return on Advances

2007

2008

2009

Rupees in 000
Net Mark up/ interest income

23,921,062

28,483,084

35,774,544

Total loans/ Advances-net

218,960,598

262,510,470

253,249,407

10.9%

10.85%

14.12%

Return on advances

Graph: 3.9

Return on advances has increased in year 2009 as compared to 2007 and 2008.
This shows an increase of 3.27% in 2009 from the year 2008.
Profitability Analysis:
Profitability analysis for three years 2007, 2008 and 2009 for MCB
Pakistan has shown the decline from the previous years. It is quite noticeable that
although it was expected that the upward trend will tend to continue in future but all the
profitability ratios in the year 2009 has shown decline to its values in 2007. This fall in
profitability ratios can not be totally assigned to inefficient assets utilization and lower
operating efficiency of the MCB bank because 2009 was an era of global financial crises.
The word economy has faced worst recession since great depression which has suffered
developing countries as well. The countrys economic performance deteriorated during
the year especially during the last months of the year the deterioration was extremely
severe. The profit before tax of the banking sector decreased by 26% to Rs. 78 billion in

2008 compared to Rs. 105.5 billion in 2007 (Source: KPMG Taseer Hadi & Co,
(2008).Banking Survey 2008. Pakistan.).
The main reasons for reduction in the profitability were impairment of
equity investments and higher level impairment of loans and advances. Its effect can be
clearly seen in profitability of MCB but this decline in profitability ratios of MCB in
2009 is not so sharp indicating the good performance of the bank in 2009 in the sense that
bank has survived and prevented its profitability from dropping drastically in the severe
financial crisis.

2) Liquidity Ratio:
Liquidity ratios measure the ability of a company to meet current
obligations. Management and short-term creditors are interested in these ratios. Higher
liquidity ratios are favorable. The most commonly used types of liquidity ratios are the
following.
1.

Current Ratio:
Current ratio measure the ability of the firm to meet current obligations

with liquid assets. The higher the ratio the grater is the companys ability to meets its
short term obligations. The current ratios are calculated by dividing total current assets by
total current liabilities.
Current assets
Current ratio = ----------------------Current liabilities

Table: 3.7
Years
Current assets
Current liabilities
Current ratios
Graph: 3.10

Current Ratio
2007

2008
Rupees in 000

2009

292,530,289
282,479,436

330,589,631
312,234,068

367,604,711
339,606,255

1.04

1.06

1.07

In the year 2007, the current ratio is 1.04 where it increased to 1.07 in 2009.
2.

Net working capital:

Net working capital is commonly used to measure a bank overall liquidity.
Net Working Capital = Current Assets - Current Liabilities

Table: 3.8

Net Working Capital

Years
Current assets
Current liabilities
Net Working Capital

2007

2008
Rupees in 000

2009

292,530,289

330,589,631

367,604,711

282,479,436

312,234,068

339,606,255

10,050,853

18,355,563

27,990,456

Graph: 3.11

MCB has more current assets then current liabilities showing bank has
improved its liquidity .Net working Capital is increasing since 2007.
4.

Advances to Deposits Ratio:

It demonstrate the degree to which bank has already used up its available

resources to accommodate the credit needs of its customers.

Loans/ Advances
Loan to deposit ratio = ------------------------Deposits

Table: 3.9

100

Advances to Deposits Ratio

Years

2007

2008

2009

Rupees in 000
Loans/ Advances

218,960,598

262,510,470

253,249,407

Deposits

292,098,066

330,274,155

367,604,711

74.96%

79.48%

68.89%

Advances to deposit ratio

Graph: 3.12

Loan to deposit ratios for MCB are rising since 2008. It is 74.46% in 2007
and 79.48% in 2008 (highest). These ratios are showing that the bank still have the
potential to make additional loans without recourse to more or less continuous borrowing
but it would decrease the liquidity of bank. But 2009 ratio shows that now bank has less
potential for additional loans.

Liquidity Analysis:
Liquidity analysis of MCB shows an overall positive trend of its liquidity
ratios. It is evident from the stable current and cash ratios that MCB can meet its short
term obligations conveniently. The satisfactory liquidity ratios in 2009 have even proved
more the good liquidity position of the bank because the world economy faced many

stresses in 2008. In Pakistan its effect also appeared in the form of severe liquidity crunch
which was exacerbated by heavy withdrawals of deposits following rumor-fed concerns
over the stability of local banks.
MCB is a bank that always maintain high reserves so in the era of crisis in
2009, MCB not only survived itself but also helped other banks like UBL and small
banks to solve liquidity problems. The liquidity strains were temporary and the inter-bank
markets continued its functioning normally.

3) Leverage Ratio:
Leverage means the use 0 debt in order to increase profitability. They
measure the extent to which a firm is financed through debt. These ratios show the
relative size of debt load. Management and long term creditors are interested in these
ratios. Lower leverage ratios are desirable from the point of view of creditors. The
different types of leverage ratios are given below.
1.

Debt to equity ratio:

This ratio compares the funds provided by creditors to the funds provided

by the share holders. This ratio can be computed by the following formula:
Total Debt
Debt to equity ratio = ----------------------------Shareholders equity

Table: 3.10

Debt to Equity Ratio:

Years

2007

2008

2009

Rupees in 000
Debt

355,365,842

385,179,850

439,483,714

Equity

55,119,675

58,436,054

69,740,013

6.4

6.6

6.3

Debt to equity ratio

Graph: 3.13

From the table and graph it is clear that Debt to equity ratio is decreasing
which show the high efficiency of MCB. In 2009 it was 6.3 and it showed slight increase
occurred in 2008 from 2007 but as whole it a good sign for the bank.
2.

Debt to Asset Ratio:

This ratio shows that how much the company finances its assets through

debts. Creditors prefer this ratio when it is low. This ratio can be calculated by dividing
the total debts by the total assets.
Total Debts
Debts to assets ratio = -----------------------Total Assets

Table: 3.11

Debt to Assets Ratio

Years

2007

2008

2009

Rupees in 000
Total Debt

355,365,842

385,179,850

439,483,714

Total Assets

410,485,517

443,615,904

509,223,727

0.87

0.87

0.86

Debt to Assets ratio

Graph: 3.14

The Debt to asset ratio is showing that MCB has financed its assets in a
way that in each rupee of assets there is 0.87, 0.87, and 0.86 portion of the debt in year
2007, 2008 and 2009 respectively.

Leverage Analysis:
Debt equity ratio shows how the firms stockholder bears the risk of the
firm. In 2007 and 2008 the share holders of MCB are bearing more risk as compared to
the 2009 but debt to equity ratio has increased in 2008 from 2007. Debt to asset ratio in
2007 & 2008 is the highest showing assets were heavily financed with debts in that year
and decrease is observed in the next year 2009.
The average return on equity (profit before tax as a percentage of average
equity) of large size banks of Pakistan decreased by 5.6% from 28.9% in 2007 to 23.3%

in 2008. Among large size banks, MCB despite a decline of 8% in return on average
equity as compared to last year was the top by registering the highest return on equity i.e.
37.2% followed by HBLs 31.8% (source: KPMG Taseer Hadi & Co, (2008).Banking

Survey 2008. Pakistan).As in 2009 the world recession has inevitably affected the
economy of Pakistan and people were reluctant to retain their deposits. As a result public
were taking back their deposits and liquidity crisis arises for some banks. Some of
deposits were transferred to MCB because of its position of high reserves and also helped
many banks including UBL for dealing the liquidity problem in those hours of crisis

Market / Investor Ratios:

Investor analysis or market analysis are related to firm market value, as
measure by its current share price to certain accounting values. There are several ratios
commonly used by investors to assess the performance of a business as an investment:
1.

Dividend per Share DPS:

The DPS ratio is very similar to the EPS. EPS shows what shareholders

earned by way of profit for a period whereas DPS shows how much the shareholders
were actually paid by way of dividends.
It is calculated as:
Dividend per Share =
Table: 3.12

Total amount of Dividend

----------------------------------Number of outstanding shares
Dividend per Share DPS:

Years

2007

2008

2009

Dividend per Share

12.50

11.50

11.00

Source: MCB, (2009). Annual report

Graph: 3.15

Remarkable increase in Dividend per share is seen in 2007. DPS in 2008 is

11.50 facing a slight decrease but still declined in year 2009 to 11.00.
2.

Earning Per Share- EPS

EPS shows portion of a company's profit allocated to each outstanding

share of common stock. Earnings per share serve as an indicator of a company's

profitability. Earnings per share are generally considered to be the single most important
variable in determining a share's price. It is highly important ratio for investors and high
ratio of EPS is desirable. The formula for calculation is:
Profit after Taxation
-------------------------Number of Shares

Earning Per Share

Table: 3.13

Earning Per Share- EPS

Years

2007

2008

2009

Earning per Share

24.30

24.47

22.42

Source: MCB, (2009). Annual report

Graph: 3.16

There is an increasing trend in the earning per share. It is increased from

24.30 to 24.47 in the year 20078 and finally it became 22.42 in the year 2009.
4.

Dividend Payout Ratio

It is the percentage of earnings paid to shareholders in dividends. The

payout ratio provides an idea of how well earnings support the dividend payments. More
mature companies tend to have a higher payout ratio. It can be calculated by the formula:
Dividend per Share
Dividend Payout Ratio =
Table: 3.14

----------------------------Earning per Share

Dividend Payout Ratio

Years
Dividend Payout Ratio
Source: MCB, (2009). Annual report

2007

2008

2009

51.45%

51.08%

49.06%

Graph: 3.17

Dividend pay out ratio has shown downward movement in the year 2009
from 2007 with the values of 51.45% to 49.06%. The ratio remained almost same in the
year 2008 as it is in 2007. The ratio shows the dividend distributed among the
shareholders. It is low in 2009 as compared to year 2008. It may be due to high
percentage of retained earning.

Investor Analysis:
This type of analysis is also called market analysis. It gives the birds eye
view of overall performance of the organization. Price earning ratio, dividend pay out
ratio and earning per share etc. are the gauge of the investors. Investor analysis of MCB
has shown good investment opportunities for the investors. EPS and dividend yield has
decreased. The consolidated statements of the bank have shown that EPS of majority of
banks faced sharp decline in the end of 2009 from 2007 but this decline was not bearing
high value for MCB. MCB somewhat maintained it good position in the market.
The P/E ratio shown by the year 2009 is the lowest value ever shown by
MCB in last six years. It was due to the collapse of the stock market; MCB share price
registered a blow and closed significantly lower than the same period in year 2008.
However, despite these circumstances, the performance of MCB shares were still
significantly better than other players in the market, reaffirming the trust of investor
base in the bank.

SWOT Analysis:
SWOT is a method of analysis which examines a company's Strengths,
Weaknesses, Opportunities and Threats.
The SWOT analysis for MCB Pakistan is briefly given as:

Strength:
1) MCB has a brand name and recognition with the rich and old history of more than 50
years having a customer base of approximately 4 million.
2) It is the most resourceful bank with high liquidity. MCB keeps reserves in advance
for 2 years unlike other bank that keep reserves for the prevailing year of operations
only. This was the reason that MCB was not shake by the global crisis of 2008 &
solved the problem of liquidity for UBL and other small banks with its high reserves.
3) MCB has an efficient recovery system due to sanctioning of loans on merit basis thus
got smaller bad debt portfolio.
4) MCB has AA+ rating for long term and A1+ for short term by PACRA showing high
credit quality and low credit risk.
5) It is an innovative bank in the industry (pioneer in introduction of MCB master card
with photograph and rupee travelers cheque)
6) Pioneer in IT department.
7) MCB has reasonable service charges.
8) MCB got an extensive network of branches (1081) providing customers with an ease
of access to the bank.
9) MCB got 7 times Euromoney Award for the Best Bank in Asia" and 2 times Asia
Money awards as "The Best Domestic Commercial Bank in Pakistan" making it a
highly trust worthy bank in the industry.

Weaknesses:
1) MCB lacks strong marketing effort and promotional campaigns in the industry.
2) MCB offers low rate of interest which is unattractive for new customers especially.
3) Low job satisfaction and lack of motivation of employees.

4) Lack of quick and prompt services compared to some of the banks due to wide spread
network of branches.
5) Customers are not treated to their expectations.(uncooperative behavior of
employees)
6) Branches encounter IT services problems and all the branches are not online affecting
services of the bank.
7) Staff is not sufficient thus they are overburdened
8) Lack of specialization resulted in jack of all and master in none of the employees.
MCB keeps non-professional staff even on higher posts who are promoted from the
typist and clerical area after a long time.
9) Limited training opportunities for the staff.

Opportunities:
1) Processing and development in IT section can lead the bank to higher and stable
position in the coming years.
2) Due to largest ATM network, MCB can expand its 24 hours cash facilities to the far
off cities to meet its growing market demand.
3) Products that are only available in Karachi, Lahore and Islamabad can be extended in
the market of other cities.
4) MCB online banking system can be expanded to make available the banking facilities
throughout the country and increase the market share.
5) MCB can expand its foreign operations and services by extending its agency relations
with the foreign banks. At present there are few agency relations in foreign.
6) MCB is trying to make acceptable its ATM card internationally and release funds
internationally. International shopping and other facilities associated with the card can
bring more opportunities for the bank profitability.
7) Online accounts opening is another segment for the bank to step into.

Threats:
1) Severe Competition with the entrance and establishment of many banks including
foreign bank branches.

2) Highly specialized and attractive services provided by foreign banks to their

customers.
3) Day to day changing global technology.
4) Huge deposits and support of government always made NBP a threatening
competitor. HBL, UBL and Alfalah bank are the other strong competitors.
5) Unstable economy of the country and un-consistency in government policies
regarding to business and economic sector.
6) MCB faces a great threat from Govt policies like as finance the non-productive units,
housing etc. so the bank does not feel freedom in operating on its own view points,
that is a threat for the bank
7) Turn over due to other banks offering good salary packages to staff.
8) Security threat due current situation in the country.

CHAPTER # 4 FINDINGS & RECOMMENDATIONS

PROBLEMS OF MCB PAKISTAN:

Some of the major problems observed in MCB Pakistan are as follows:
1.

Limited Delegation of Authority:

In case of advances, manager has to take the approval of general and

regional manager. In newly established banks there is comparatively more delegation of

authority as compared to MCB that is why their deposits and business is improving day
by day.
Top level management is having a lot of influence in all decision making,
and they always do not consult the lower level management and thus do not get adequate
data about the problems at the branch level.
2.

Lengthy Procedures:
The main objective of MCB is to provide improved services to customers,

but now the bank seem to fail to achieve its objective, its lengthy procedures as compared
to newly established private banks causes problems for customers. During rush hours the
customer has to wait for a long time for their turn. In advances department the process of
loan sanctioning is very lengthy, which affect the customer. Time is the most important
factor these days which seems to be ignored by MCB bank.
3.

Excessive paper work:

Though MCB is computerized yet the system has not totally shifted to

computers. Manual procedure is still there hence computer facility is not fully availed. It
is notified that due to excess of paper work the bank employee are over burdened. They
are unable to give proper attention to the clients and face difficulties in getting their job
done.
4.

Less attractive rate of return:

The rate of return offered by MCB is comparatively less than its

competitors. It may prove threatening in the future.

5.

Lack of Marketing Efforts:

The marketing activities in MCB are weak in very aspect. There are no

special promotional campaigns observed for the awareness of people about MCB
products. Many people dont have any idea about the product features and consider all the
products same. Moreover, the attitude of employees with the customers is not
satisfactory. The Bank employees are doing very little on their own to explore the
possibilities of selling banking services to them as a marketing contributor. Overall, MCB
lacks the spirit of true marketing even in todays time where foreign banks are fully
concentrating on it.
6.

Lack of Investment on R & D:

They do not invest on R&D to know what a type of benefits the customer

wants from the bank. MCB has quite ignored the importance of R&D.
7.

Lack of Professional training:

MCB staff lacks professionalism. They lack the necessary training to do

the job efficiently and properly. There is also lack of specialization. Although there are
staff colleges in all major cities but they need to bring better results. Training programs
offered by MCB are not adequate to achieve the purpose of productive employees.
8.

Unfair Hiring:
If the personnel are recruited carefully they can become asset to the

organization in the case of carelessness a liability on the organization. Bank is not

following its recruitment policy properly due to favoritism, nepotism and political
pressure. Both the top authority and staff union tries to recruit their favorites, indulgence
of political pressure add salt to the wounds. The persons selected through these channels
are infantile and do not work for the betterment of the bank.
9.

No periodic increase in salaries:

Another very important thing which is ignored in the bank is the periodic

increase in salaries. The salaries were increased in 1998 and after that the salary has not
changed till now which resulted in low motivational level of employees and decline in
performance.

RECOMMENDATIONS:
From the quantum of the profit and financial data it can easily judged that
after privatization MCB is performing well. Its deposits are growing day-by-day and so is
profitability. But there are certain problems that are affecting the organization. The
comprehensive analysis of MCB as whole leads me to the following recommendations
for the improvement of the bank.
1. Availability of Staff:
Staff in the branch must be in proportion to the customers in order to
expedite the workflow, avoid overloading of staff and remove the customers grievances
arising mainly due to delay in workflow.
The additional staff should be hired in MCB Gulbahar Colony Branch (1275), in the
following categories:

Telephone operator to answer all incoming calls.

2 General banking officers to work on all seats in the bank that will reduce the burden
of work on existing employees.

2.

MCB technician to work on ATM problems.

Commitment of Employees:
The decreasing commitment of employees of MCB and their low job

satisfaction can be increased by introducing an effective performance appraisal system,

which can reward and recognize the achievements and services of employees at the
branch level.
3.

Delegation of authority:
Centralized Structure that enables employee involvement needs to be

formed. Branch manager should be given authority to the extent that they can hire
employee for their branch at least in emergency situation. Together with a need of a
telephone operator it is severely affecting the branch.
4.

Physical facilities of the branch (1275):

To overcome physical problems of the branch the management should

purchase more furniture and arrange them in such a way which provides maximum space
and convenient sitting place for the customers. Magazines, Newspaper etc should be kept
for customers. Air conditioner should be repaired to provide services in summers.

5.

Training Activities:
Training should not be limited to some employees. In fact all employees

need to be trained for the proper functioning of organization. MCB has three staff
colleges in Lahore, Karachi and Islamabad. The bank should include the following
ingredients in training process to strengthen the operational capabilities of the employees:

The bank should organize a number of in-house training courses and seminars on
different topics related to advances and other departments.

The bank should send the employees for specialized courses.

Bank should train the employee before assigning the job. There should be proper
training (Up to date) for newly selected employees.

6.

There should be refresher courses for officers.

Increase in salaries:
They salaries of employees are not considered after 1998. Low salaries are

creating dissatisfaction in employees. It should be adjusted according to new market

conditions and rise in inflation
7.

Customer Satisfaction:
This image that banks are in financial sector not in service has changed.

Banks are striving to provide good services more than ever. Customer satisfaction is
highly important in this era of cutthroat competition for MCB. Customer values time so
MCB should improve the service by following ways:

People have to wait for re-cashing their cheques for about 10 to 12 minutes Manual
work is also responsible for this delay. Therefore electronic means should be installed
so that time can be saved.

Loan procedure should not be cumbersome and should be made easy, so as to ease the
customers.

All the branches should be made online to create ease and prompt services for the
customers.

8.

Fair Hiring Policy:

Recruitment in the bank should be made purely on merit basis. HRD

should be fully free from any influence of higher authority and staff union in conduction

of tests and in the selection of candidates.

9.

Marketing Efforts:
MCB should flourish certain marketing plans to attract the customers by

giving them certain incentives and beneficial schemes to the customers as other
competitor banks are doing so. The following measures are suggested in this regard:

MCB should invest on R&D; if they invest on R&D it will help the bank to know
what type of benefits the customer wants from the bank.

A promotional campaign should be carried out through employers who are customers
of the bank and their employees are paid in cash. It might be worth offering least
charges for a specific period to the new ones.

Website of MCB is not updated till 2008, bank should also emphasize on enhancing
its information on website.

Bank must let potential customers know about all the attractions MCB holds. This is
done by advertising on television and obtaining press coverage in conjunction with
direct mail, window displays, leaflet in branches and in appropriate other locations.

A short term promotional technique is to offer price incentives, for example, low
interest rates on advances or limited issue of high profit bearing term deposits. The
reduced short term profits can be augmented by profits made in long run.

It is also possible to attract/retain personal customers by investment in new

technology like ATMs and Telephone Banking facilities etc which made the services
quicker, easier, cheaper and more flexible.

10.

Healthy activities:
On weekends, parties and other celebrations should be arranged on official

basis for employees. Such activities should be encouraged at once in a month to

strengthen the commitment of employee with the bank.
11.

Internship Programme:
One of the best and cost effective methods to select the right kind of

people is to hire graduates from business and management schools as internees like the
organizations of foreign countries do. MCB branches in all cities should participate in it
and develop links with universities to offer internship program to students on merit basis.
The internship program should be paid attractively and proper training should be a major

part of it to encourage the students.

ACTION / IMPLEMENTATION PLAN:
In the light of recommendations few action plans are given below. In
limited span of time it was not possible to convert all recommendations in action plan but
it is tried to provide action plans for the elimination of prominent problems of the MCB
Gulbahar Colony Branch (1275).
Action Plan for TELEPHONE OPERATOR:
There is an urgent need of telephone operator in MCB Gulbahar Colony
Branch (1275) because the staff members have to leave their work and attend the
telephone calls, this not only waste their time but also affect their performance to a
greater extend.
The plan is suggesting hiring of Telephone operator on branch level to
immediately benefit the branch instead of waiting for recruitment by the top management
that would be a lengthy and more costly process. The following steps should be taken for
hiring the telephone operator of MCB Gulbahar Colony Branch (1275):

BM should advertise the need of telephone operator with the salary package of Rs.
7000/- month in the AJJ and Jang newspapers.

Interview of the candidates should be taken by the BM on the mention date in

advertisement to know their communication capabilities. Selection of candidate
should be based on interview because of the nature of job.

The selected Candidates should be provided with clear job description. It includes
attending all incoming calls as well as courtesy calls to the customers within the
timing from 9am to 5 pm.

The telephone operator should be trained within the branch at the workplace for few
days after the selection.

Finally when the operator is aware of all head office calls and some important
terminology, he/she should be allowed to start the work.

Time Frame:
This simple procedure will be completed in the following time frame:
7 days
1 day

Time b/w advertisement and interview date

Interview process

1 day
7 days

Making call to the selected candidate

For the beginning training of the telephone operator in Branch

Action / Implementation Plan Cost:

1-

Cost of Hiring:

Advertisement in newspaper

AJJ (Rs 550 per cm)

Rs. 11000

JANG

Rs. 15,000 approx

2-

Telephone networking:

Additional telephone set

Rs. 1000

PTCL charges

Rs.

3.

750

Other costs:

Separate table and chair

5000
Rs. 32,750

Total action plan

cost
Action Plan for Branch Performance Appraisal:
The decreasing commitment of employees and low job satisfaction in
MCB Gulbahar Colony Branch (1275) can be increased by introducing an effective
performance appraisal system, which can reward and recognize the achievements and
services of employees at the branch level. The BM can better judge the performance of
his employees and enhance the moral of employees for better performance.
The following steps should be followed to accomplish this plan:

The performance audit of the branch must be carried out on both regular and surprise
basis.

Periodically feedback should be provided to employees and recognizing their efforts

through reward (bonuses) and publicly appreciation. Presenting a shield would also
be effective at branch level to motivate a competent employee.

The appraisal system must be uniform in evaluating all the employees without any
discrimination.

The appraisal system must be based on facts and figures and objective evaluation of
the facts on grounds.

This performance appraisal system will play a significant role in the motivation and job
satisfaction of employees. It will also benefit organization as a whole in the long run.
Action Plan for Increasing Bank Efficiency:
The increasing competition in banking sector is alarm for greater
challenges in future. The giant challenge that can be seen in future would be the
improvement in technology of banks to increase efficiency more. MCB also need to focus
over these challenges like it has done in the past. MCB is one of the resourceful banks in
Pakistan so being pioneer in technology and other techniques can help the bank to have a
strong grip over the future. MCB should follow these steps in long run:
1. Up gradating ATM for Cash Deposits
Now-a-days in foreign countries ATM machines are also used for deposits
of money and utility bills can be paid through ATM. But in Pakistan these services have
not been utilized yet. So if MCB upgrades its ATM technology in long run it will save the
time of employees and get the competitive advantage over other banks.
Some more ATM machines will be required to purchase for MCB. ATM
machines can cost anywhere from several thousand dollars up to $6500 dollars each
(excluding shipping charges).
2. Installation of Automatic Vouchers System:
As all the ledger system and vouchers are still handled manually which is
a much time consuming and more efforts requiring job with the chance of human errors.
To overcome this problem MCB should implement SAP FINANCE MODULE (Ecommerce software) in their banks that will help them in creating automatic vouchers and
ledger for transactions made by customers because SAP has the capability to keep all the
records of an individual at just one place and it has the capacity to store much data.
3. Installation of Validator Machine:
Validator machine is used to count the currency notes and its installation
will help to eliminate the counting errors and will save time of workforce. This should be
installed in long run to increase the efficiency of bank and allowing employees to work
on other things by cutting down the time spend on counting of cash.
4. Expanding networking among banks:
In MCB the networking is only done within their own banks, means the

branch cant transfer customer funds to other banks through online network. Efforts
should be made by MCB for a common networking facility among different banks so that
they can transfer funds via online. This will increase the efficiency of banks.
5. Development of E-Banking:
MCB should develop the e-banking as well. It will broaden the scope and
the market for the organization. There is also a need to improve the website and to
improve the facilities on it. For example, there should be a facility to open online account
and other such dealings should be made on-line like the banks in UK and USA.