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Assets Cash and balances with treasury banks Balances with other banks Lending to Financial Institutions Investments -Net Advances _Net Operating Fixed Assets Deferred Tax Assets Net Other Assets Net Liabilities Bills Payable Borrowing Deposit& Other A/C Sub Ordinated Loans Liabilities against assets subject to financial Deferred Tax Liabilities _ Net Other Liabities Net Assets Represented Share Capital Reserves Unappropriated Profit Surplus on revaluation of Assets -Net of Tax 7,602,150 40,162,906 21,414,955 69,180,011 10,024,198 79,204,209 6,911,045 38,385,760 15,779,127 61,075,932 8,664,081 69,740,013 6,282,768 36,768,765 9,193,332 52,244,865 6,191,189 58,436,054 6,282,768 34,000,638 5,130,750 45,414,156 9,705,519 55,119,675 5,463,276 24,662,426 5,530,973 35,656,675 5,187,639 40,844,314 10,265,537 26,684,593 431,371,937 4,934,018 16,092,319 489,348,404 78,204,209 3,196,743 15,819,082 439,483,714 69,740,013 437,137 21,345,781 385,179,850 58,436,054 1,180,162 11,722,493 355,365,842 55,119,675 11,171,496 301,263,929 40,844,314 8,201,090 44,662,088 367,604,711 10,551,468 22,663,840 330,181,624 10,479,058 39,406,831 479,232 7,089,679 23,943,476 1,597,440 2010 2009 2008 Rupees in '000 45,407,183 1,478,569 4,401,781 213,060,882 254,551,589 20,947,540 27,705,069 567,552,613 38,774,871 6,009,993 3,000,000 167,134,465 253,249,407 18,014,896 23,040,095 19,810,476 17,868,761 410,485,517 509,223,727 443,615,904 39,631,172 4,043,100 4,100,079 96,631,874 262,135,470 17,263,733 39,683,883 3,807,519 1,051,372 113,089,261 16,024,123 32,465,976 6,577,017 21,081,800 63,486,316 9,054,156 172,373 11,031,450 342,108,243 2007 2006
218,960,598 198,239,155
292,098,066 257,461,838
33,236,412
28,456,364 24,463,963
20,856,011
20,069,965
Total non-mark-up/interest income Total Mark up and Non Mark up income NON MARK-UP/INTEREST EXPENSES
Administrative expenses (Reversal) / Other provisions other charges
34,099,249 30,255,403
Total non-mark-up/interest expenses Compensation on delayed tax refund PROFIT BEFORE TAXATION
26,253,075
23,154,945 21,867,566
21,308,035
18,500,670
Depreciation
Amortization intangible assets Provision against non-performing advances Provision for diminution in the value of investment Provision for diminution in the value of other assets
Gain on dispossal of fix assets Deficit of revaluation of held for trading securities
4,841,838 30,551,007
8,514,876 31,210,080
(Increase)/Decrease in operatingassets
1,401,781 1,100,079 94,176 4,454,823 2,246,347 8,102,951 3,047,960 -3,416,086 826,129 3,048,707 20,273 44,884,999 1,898,841 49,812,274 20030428 -230752 -23681225 -6847748 10,729,297 -11082972 66056 -18977942 -5522561 35,517,419
Advances
Others assets
Bills Payable
CASH FLOW FROM INVESTING ACTIVITIES -47,515,913 1,445,720 -84,139 570,788 -2,572,251 33,241 -48,122,554 72,317,445 3,303,107 394 446,181 1,893,986 93,092 70,369,445 621,763 2,153,151 258,177 8,234,072 15,058,126 5,550,843 52,951,926 3,564,123 646,480 2,947,438 20,000 92,919 51,615,842 13,324,991 19,336,261 792,100 1,830,790 299,980 82,597 4,755,197
Net investments in available-for-sale securities Net investments in held-to-maturity securities Investment in subsidiary and associated companies
Dividend received
Investment in operating fixed Assets Sale proceeds of fixed assets disposed of Net Cash flow from investing activities
Dividend Paid
Exchange Difference
FINANCIAL ANALYSIS
"Financial statement analysis is the process of identifying of financial strengths and weaknesses of the firm by properly establishing relationship between the items of the balance sheet and the profit &loss account," and it is done through ratio analysis.
RATIO ANALYSIS:
Ratio means one number expressed in term of another a ratio is statistical yardstick by mean of which relationship between two or various figures can be compared or measured. Here we are going to explain the ratio analysis of MCB.
Financial ratios can be divided into the following six parts. A. B. C. D. E. F. Liquidity ratios Activity ratios Leverage ratios Profitability ratios Investor ratios Bank special ratios
A. Liquidity ratios Current ratios Quick ratios Absolute Liquid ratio B. Activity ratios Inventory turnover ratio Average collection period Average payment period Total assets turnover ratio
C. Leverage ratios
Proprietary ratio Debt ratio Debt to Equity ratio Debt to Tangible net worth ratio Debt to Funds ratio External-Internal Equity ratio
D. Profitability ratio Return on total assets Return on-equity Return on investment Return on fixed assets Average profit per branch Net profit Margin Interest income to total income Interest expense to total expense Return on advances E. Investor Ratios Earning per share P/E ratio Dividend per share Dividend yield ratio Dividend payout ratio Break up value/Book value per share M/B ratio F. Bank special Ratios Earning assets to total assets Return on earning assets Net margin to earning assets Loan loss coverage ratio Equity to total assets Deposit time equity Loan to deposit ratio
1. PROPRIETARY RATIO = Total equity Total Assets Years Total Equity Total Assets Ratio 2010 (000) 2009 (000) 2008 (000) 2007 (000) 79,204,209 69,740,013 58,436,054 55,119,675 567,552,613 509,223,727 443,615,904 410,485,517 0.14 0.14 0.13 0.13 2006 (000) 40,844,314 342,108,243 0.12
2. DEBT RATIO/ SOLVENCY RATIO Total Liabilities Total Assets Years 2010 (000) Total Debt 489,348,404 Total Assets 567,552,613 Ratio 0.86 =
4. Working Capital Current assets current liabilities Years Current Assets Current Liabilities Working Capital 2010 (000) 301,437,341 473,256,085 -171,818,744 2009 (000) 298,034,271 423,664,632 -125,630,361 2008 (000) 305,809,742 363,834,069 -58,024,327 2007 (000) 2006 (000) 262,452,000 237,282,148 343,164,117 288,494,993 -80,712,117 -51,212,845
5. Current Ratio Current assets Current liabilities Years Current Assets Current Liabilities Current Ratio 2010 (000) 301,437,341 510,374,741 0.59 2009 (000) 298,034,271 458,499,539 0.65 2008 (000) 305,809,742 406,962,768 0.75 2007 (000) 2006 (000) 262,452,000 237,282,148 368,268,497 312,435,425 0.71 0.76
Interpretation
The overall leverage and liquidity position is showing better trend as compare to previous year. The contribution of equity in total assets is increasing, while the debt contribution is decreasing which is better for business. Equity ratio is increased which shows the better condition of the bank. Solvency Ratio is in good condition. So we can say that overall Solvency condition of the MCB is better with the comparison to the previous year.
PROFITABILITY ANALYSIS
Profitability analysis of a firm indicates the overall efficiently of the management. Without profit a company can not attract the outside capital. Profitability analysis includes: Return on total assets Return on-equity Return on investment Return on fixed assets Average profit per branch Net profit Margin Interest income to total income Interest expense to total expense Return on advances
1. RETURN ON ASSETS = Years Net Profit after Tax Tatal Assets Ratio
Net Profit after Tax Total Assets
100 2009 (000) 24710953 509,223,727 0.05 2008 (000) 2007 (000) 20526669 20808390 443,615,904 410,485,517 0.05 0.05 2006 (000) 17164824 342,108,243 0.05
Interpretation
Profitability analysis shows the entire performance of a business and if we study the profitability trend of bank then it will clear to us that it showing a positive trend. Net profit after tax is increased as compare to previous year, due to it return on assets, equity and investment is increasing. Not only overall profit is increasing but also average profit of all the branches is increasing. Bank interest income is also increasing due to more advances in this year. This year bank total deposits are also increased and thats why interest expenses are showing up ward trend.
INVESTOR ANALYSIS
Investor analysis or market analysis are related to firm market valve, as measure by its current share price to certain accounting values. Investor analysis includes: Earning per share P/E ratio Dividend per share Dividend yield ratio Dividend payout ratio Break up value/Book value per share M/B ratio
2. P/E RATIO =
MP Per Share EPS
Market price per share is Rs.247.75in Sept 2011 Years MP Per Share EPS ratio 2010 247.75 22.20 11.17 2009 247.75 22.42 11.05 2008 247.75 24.47 10.12 2007 247.75 24.30 10.20 2006 247.75 22.23 11.14
100
Interpretation
MCB has also has good investment opportunities for the investors. This bank has more attraction for investors as compare to previous year. Earning per share is increased due to increase in profit. Book value and market valve of one share in also increased as compare to 2006. Dividend yield and payout ratio is also increased because bank declared more dividends as compare to last year. it will increase wealth of shareholders and ultimate benefit to investors.
INTERPRETATION The efficiency of the banking firm is measured by its ability to utilize its assets in a manner that they could be profitable for the firm. Bank earning assets are increasing as compare to last year but it is just a little bit increase. Advances of bank are increasing but investment as compare to 2006 is decreased. Lending to financial institutions is also not very well. Balance with other banks is also not desirable but overall earning assets showing satisfactory position in 2011.
100
2008 2007 2006 384,174,256 352,932,873 298,438,444 21,867,566 21,308,035 18,500,670 5.69% 6.04% 6.20%
INTERPRETATION Return on earning assets is increased as compare to previous year because there is increased in net profit in 2011 as compare to previous years. The increasing trend in this ratio is beneficial for business and investors because this ratio shows real profitability position of business.
2008 2007 2006 384,174,256 352,932,873 298,438,444 15,374,600 15,265,562 12,142,398 4.00% 4.33% 4.07%
INTERPRETATION Spread is difference between interest income and interest expense. This ratio shows the spread position of a bank. In this year bank net margin is increased due to increase in advances and interest income as compare to previous years. Interest expense is also increased but their increasing trend is lesser as compare to interest income so thats why spread position of bank is increased in this year.
2010 (000) 2009 (000) 2008 (000) 2007 (000) 79,204,209 69,740,013 58,436,054 55,119,675 567,552,613 509,223,727 443,615,904 410,485,517 0.14 0.14 0.13 0.13
INTERPRETATION This ratio shows the position of equity in total assets of business. In both years this ratio is almost same. But the bank should increase its equity by increasing the wealth of shareholders.
INTERPRETATION This ratio is also known as debt to equity ratio. This shows how much outsiders share in business total equity. Lesser ratio is better for a business and this year bank ratio is decreasing which showing better trend as compare to previous years.
6. LOAN TO DEPOSIT =
Loan Deposit
100
2010
254,551,589 431,371,937 59.01%
2009
253,249,407 367,604,711 68.89%
2008
262,135,470 330,181,624 79.39%
2007
218,960,598 292,098,066 74.96%
2006
198,239,155 257,461,838 77.00%
INTERPRETATION Loans or advances are the major assets of a bank while deposits are major liabilities of a bank. Higher ratio shows the better solvency of bank. This ratio is decreased instead of previous years because deposit of the bank are increased as previous years although loans are also increased this years but its ratio is less.
In trend analysis we done two types of analysis, these are 1. Horizontal Analysis Comparison of two or more year's financial data is known as horizontal analysis, or trend analysis. Horizontal analysis is facilitated by showing changes between years. The goal of horizontal analysis is to compare the figures of the current period with that of the past period. This helps the company and its shareholders analyze their performance and find out areas of improvement. The formula for calculating the horizontal analysis is as follow Current year amount x 100 Base year amount 2. Vertical Analysis Vertical analysis helps us to show the actual increase or decrease in various items of Profit and Loss account and for balance sheet of the same year and one item is taken as base. This analysis is also called Common- size Analysis
Assets Cash and balances with treasury banks Balances with other banks Lending to Financial Istitutions Investments -Net Advances _Net Operting Fixed Assets Deffered Tax Assets Net Other Assets Net Liabilities Bills Payable Borrowing Depoist& Other A/C Sub Ordinated Loans Liabilites against assets subject to financial Deffered Tax Liabilities _ Net Other Liabities Net Assets Represented Share Capital Reserves Unappropriated Profit Surplus on revaluation of Assets -Net of Tax 100% 100% 100% 100% 100% 115 138 93 127 187 115 149 166 147 119 127 156 285 171 167 139 163 387 194 193 100% 100% 100% 100% 100% 100% 100% 100% 100% 148 165 113 30 105 118 135 149 95 128 0 191 128 143 116 187 143 142 146 171 145 111 168 144 162 191 2006 100% 100% 100% 100% 100% 100% 100% 100% 100% 2007 122 58 5 178 110 177 0 162 120 2008 122 61 19 152 132 191 0 180 130 2009 119 91 14 263 128 199 209 149 2010 140 22 21 336 128 231 251 166
The horizontal analysis of the balance sheet of the bank over all give the 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 extraordinary high trend in 2010 in all factors of balance sheet as compare to 2006. The trend of cash is increasing to upward with 32%. The trend of Total asset is also increasing to upward with 27%, and the trend of total liabilities is also increasing with 23% to upward. Equity is increased by 99%.
2006 Mark-up/return/interest earned Mark-up/return/interest expensed 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
150 57 49 128
179 67 91 68
Total non-mark-up/interest income Total Mark up and Non Mark up income NON MARK-UP/INTEREST EXPENSES
Administrative expenses (Reversal) / Other provisions other charges
Total non-mark-up/interest expenses Compensation on delayed tax refund PROFIT BEFORE TAXATION Taxation current year Prior years Deferred Total Tax
According to horizontal analysis of profit and loss account there is increasing trend. In 2011 there is increase in all factors such as interest income interest income interest income after provision and profit before and after tax because the trust of people on banks is increasing day by day. The increase in profit in 2011 is almost 2 times as compare to 2006.
Assets Assets Cash and balances with treasury banks Balances with other banks Lending to Financial Istitutions Investments -Net Advances _Net Operting Fixed Assets Deffered Tax Assets Net Other Assets Net Liabilities Bills Payable Borrowing Depoist& Other A/C Sub Ordinated Loans Liabilites against assets subject to financial Deffered Tax Liabilities _ Net Other Liabities Net Assets Represented Share Capital Reserves Unappropriated Profit Surplus on revaluation of Assets -Net of Tax Net Assets Liabilities
2010 2009 2008 2007 2006 100% 100% 100% 100% 100% 8.00 7.61 8.93 9.67 9.49 0.26 1.18 0.91 0.93 1.92 0.78 0.59 0.92 0.26 6.16 37.54 32.82 21.78 27.55 18.56 44.85 49.73 59.09 53.34 57.95 3.69 3.54 3.89 3.90 2.65 0.05 4.88 4.52 4.47 4.35 3.22 100 100 100 100 100 100% 100% 100% 100% 100% 2.10 1.87 2.74 2.95 2.35 5.45 10.16 5.88 11.09 7.95 88.15 83.64 85.72 82.20 85.46 0.13 0.53 1.01 3.29 100 0.73 3.60 100 0.11 5.54 100 0.33 3.30 100 0.00 3.71 100
100%
100%
100%
100%
100%
9.72 9.91 10.75 11.40 13.38 51.36 55.04 62.92 61.69 60.38 27.38 22.63 15.73 9.31 13.54 88.46 87.58 89.41 82.39 87.30 12.82 12.42 10.59 17.61 12.70 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
INTERPRETATION
In balance sheet of bank the most important item is earning assets. There are four earning assets. Bank has strong earning assets like advances investments and lending to financial institutions has major percentage in of assets of bank. In liability and equity analysis the Borrowings from financial institutions and deposits have major portion and reserve and share capital has major portion in equity
31
29
25
18
Total non-mark-up/interest income Total Mark up and Non Mark up income NON MARK-UP/INTEREST EXPENSES
11.43 72.06
14.46 75.56
18.91 84.52
19.36 97.22
Total non-mark-up/interest expenses Compensation on delayed tax refund PROFIT BEFORE TAXATION Taxation current year Prior years Deferred Total Tax
Profit After Tax Unappropriated profit brought forward
Transferred from surplus on revaluation of fixed Assets
21.20
20.95 54.61
59.60
51.26
65.46
66.59
INTERPRETATION
In vertical analysis of profit and loss account the interest expense and interest income both haveincreasing trend from 2006 to 2011 but interest expense are increasing more rapidly but almost have same trend. According to this analysis fee, commission and brokerage income has some worth in our income statement its almost one fourth or one fifth of our interest income and it has increasing trend. The administrative expenses are also increasing from 2006 to 2011 but overall management is able to reduce expenses, so due to which there is continuous increase in profit before and after tax.
Profit
Total remittance of this branch is 2157.319 million in 2005.there is also incrasing trend in profit from 2003 to 2005 because of higher mark up rate charged on the finances. No. of vouchers The vouchers which are transacted in this branch in 2005 are as follows: Financing & Advances Mainly, the short term financing such as cash finance, running finance, Demand finance, ERF II, FAFB, FBP are being dealt here.
Number Of Accounts
Accounts in this branch of MCB are as follows: Current account Total numbers of current accounts are 1236. PLS account Total numbers of profit and loss accounts are 3950. Khushalibachat account: These are about to 301 accounts Basic Banking Account (Newly Introduced by SBP for salaried person) There are about to 19 accounts. Foreign Currency Accounts There are about to 10 accounts. MCB 365 Gold Account There are about to 25 accounts.
ADVANCES DEPARTMENT
Advances are the most important source of earning for the banks. MCB is also giving full attention towards this aspect and it is also obvious from the growing portfolio of advances and from very low delinquency rate. The credit portfolio of this institution is in a very much better shape than other financial institutions of Pakistan and the credit goes to the management and the staff who are concerned about the quantity and quality as well.
Loans Cash Credits
Overdraft
LOANS
Loans are monetary assistance by a financial institution to a business, individual etc. The loans are granted by the bank in lump sum, so these types called fixed or demand loans. Interest is charged on the whole amount of a fixed loan.The borrower withdraws whole the amount of loan. This type of loan is normally granted against security of gold documents. In case of demand loans against gold or documents, a demand promissory note for the amount of loan is taken from the borrower loans are granted under; LOAN AGAINST GOLD Under this type of loan, which is granted to the borrower the Head Cashier estimates the value of Gold or Gold ornaments through an agent (Gold smith) and keeps a margin of 40 to 50 percent. After the opening the gold loan account a token is given to the borrower, which is a bank receipt. On repayment of loan, the gold or ornaments held as security for it, together with the demand promissory note duly discharged is returned to the borrower and his receipt for the gold ornament taken in the demand loan ledger. This receipts states that he ornaments returned are complete and in order. Part delivery of ornaments is given against part payment of a loan but care is taken that the ornaments still in banks possession fully covers the balance of the loan outstanding. The interest gold loan is to be applied with quarterly.
LOAN AGAINST PLEDGE OF STOCKS In case of advancing such types of loans, the following precautions are kept in the mind: Stock pledged must be readily saleable Products should be readily saleable Advance should be within the borrows means REQUIREMENTS OF LOAN For granting loan to any party or individual, the bank checks following particulars of the client:
Credibility
Feasibility Report
By Credibility, bank Judges the credibility of the client by his past bank record, CBI report etc. it is very important in making decision about giving him loan. Feasibility report is on the running or proposed business of the client. The report enables the bank to judge the likely return of the business.
CASH CREDIT
Such cash account is opened in the name of the customer who borrows from the bank. Customer is granted a loan up to a certain limit, sanctioned by the head office, from which he can draw when he requires and interest is charged on the amount actually utilized by the customer. In order to avoid the danger of idle fund, the bank charges a certain rate of interest, even if the customer does not withdraw any amount. The rate charged by the bank on cash credit in 46 paisa per thousand on daily basis. The credit is usually given against the securities of goods or merchandize as follows: ADVANCE AGAINST PLEDGE OF STOCKS When cash is granted against the pledge of stock or product, cash credit form is taken, from the certain products or stock,but the actual pledge is created when the stock or finished products are placed under the bank's lock or the document of title is duly endorsed to the bank by the borrower.
HYPOTHECATION OF STOCKS The difference between pledge and hypothecation is that under a pledge the borrower's goods are placed in the bank's possession under own lock, whereas, under a hypothecation, they remain in the possession of the borrower or guarantor and are merely charged to the bank under documents signed by them. Even though the documents empower the bank to take possession of the goods hypothecated, but it is possible that the borrower may actually resist any attempt. MORTGAGE OF PROPERTY Title deeds of immovable property are accepted by the bank only as collateral security or alternatively as unauthorized security.
REMITTANCE DEPARTMENT
Remittance department performs following functions: Mail Transfer (MT) Telegraphic Transfer (TT) Demand Drafts (DD) MAIL TRANSFER (MT) When a customer requests the bank to transfer his money from one branch of bank to another branch of the same bank or from one city to another city to the same bank or any other bank. Customer fills the form given by bank. If the customer has an account with that amount as mentioned in the application form then concerned officer will undertake the following procedure to make the mail transfer complete. 1. Branch Mail transfer form 2. Receiving Branch Register copy 3. Issuing branch register Copy 4. beneficiary advice 5. advice to customer In case where the customer is not account holder of the bank then the customer will have to deposit the amount which he wants to transfer under Mail. Then the above said procedure will be done.
TELEGRAPHIC TRANSFER (TT) This type of transfer is simple. After filling the application form the concerning officer shall fill the telegraphic transfer form. Then it is sent to the required bank which on receiving it immediately makes the payment to the customer and afterwards the voucher are sent to that bank by ordinary mail.
DEMAND DRAFT (DD) Demand draft is just like cheques and issued when the customer wants to take cash with him personally. The idea behind is to avoid the risk and burden of currency notes in huge quantity. Demand draft can easily be handled whatever amount it has and the money can easily be taken from the bank when it is presented. In fact, the bank persuades the customer to transfer money by drafts and avoid the risk of frauds involves in MT and T.T. Draft is only issued when the bank knows customer and bank
has the confidence in him In case of transfer of money by drafts, the customer has to fill an application form. Then the concerned officer fills the following forms: 1. 2. 3. 4. Customers advice Customers debit form Register copy Cover Advice
FOREIGN DEMAND DRAFT Foreign Demand Draft is just like demand draft. The only difference is that a bank issues FDD to the bank of another country. It requires foreign exchange and it involves seven forms, which are to be filled.
TECHNOLOGY DEPARTMENT
Technological advancements are also affecting the banking industry. The foreign banks have a competitive edge over all local banks in their technologies' advancements and automated systems. There are more than 1045 branches of MCB all over Pakistan and out of these more than 300 branches are fully computerized Almost all .the branches of big cities are computerized; therefore, the need for a technology department at each branch is growing.MCB has also introduced the now concept ofonline banking. They linked through this system and they can transact with each other directly using computer systems at their own branches. Now customers do not have to wait long for their transactions and can operate their account through all the online branches. ATM NETWORK
ATM stands for Automatic Teller Machine. This machine is used to transact in one's account without intervention of humans. These machines are basically used for taking cash, confirming balances and requesting statements / cheque books. MCB has the largest ATM network in the country at the moment with almost one ATM at each online branch and also ATM terminals at International Airports. This network covers more than the 27 cities of Pakistan including the provincial capitals and large commercial cities of the country.ATMs are operated through a card issued to the valued customers and by application of Personal Identification Number (PIN number). This was only possible with the help of online system. In this system all the machines are linked to central banking host at IRM division Karachi through either satellite or telephone controller. This system identifies the card holder and his PIN Number. Now MCB has also entered into a contract with Cirrus which is a subsidiary of MasterCard. This contract will enable an ATM card holder to use his account even when he is out of country at all the ATMs where Cirrus logo is displayed. Green Cards are ordinary cards with a maximum withdrawal facility of Rs. 10,000/- in a day. The annual fee for this card is Rs. 300/- only. Gold Cards are special cars with maximum withdrawal limit of Rs. 25000/- in a day. These cards are issued to the persons having more than Rs. 500000/as their average balance. International Cards are issued in collaboration with Cirrus and are useable all over the world with maximum withdrawal facility according to the standards of Cirrus.
F I R S T T W O
INTRODUCTION AND PRELIMINARY INVESTIGATION Before opening an account MCB as like the other banks in Pakistan ascertain whether or not the person who is going to open the account is a desirable customer or not. Then MCB determine the prospective customers integrity, respectability, occupation and the nature of business by the introductory references given at the time of account opening. Negligence in this informal preliminary investigation may result in serious consequences not only for the banker concerned directly but also for other bankers and the general public who may be affected indirectly. In order to further strengthen and streamline this process, the Federal Ombudsman of Pakistan, vide his ruling on complaint No. II/31/5186, has directed the banks to retain with the account opening form a Photostat copy each of the National Identity Cards of the person desiring to open an account as well as that of the introducer. As per these directions, the concerned Branch Managers are required to obtain the original National Identity Cards along with their Photostat copies and then return the original after attesting the authenticity of the retained copy.
Preliminary investigation is necessary because of the following reasons: Avoid Frauds: In this regard I learned that if a banker does not make the necessary inquiries mentioned above he may enable dishonest persons to possess cheque books for fraudulent purposes. If any such person happens to be an undercharged bankrupt, the banker might be placed in an awkward position for having allowed such a person to open and open a bank account.
Safeguard against unintended overdrafts: Sometimes due to a mistake an account may be given an overdraft, For instance, the ledger keeper, misreading the balance of an account honors a cheque for an amount larger than the balance. Similarly a credit entry belonging to a customer may be made by mistake in another customers account. In such situations the excess amount withdrawn by the customer can only be realized if the customer is a respectable person. Inquiries about clients: Being a banker I think MCB has a business obligation to respond to inquiries from other banks etc. about his customers financial position.
F I R S T T W O
Though the banker gives only a general ideal about the financial standing of his customer, it should nevertheless have the necessary information available with him.
SPECIMEN SIGNATURE
When an account is opened with MCB customer provides to the bank a specimen of the form of signature which would appear on all his cheques to express his authority for the payment of cheques drawn on his banker. This specimen is taken generally on a card specially designed for this purpose, and rule for the customers, full name, and account number are entered on it. If the bank has reasons to doubt the genuineness of a signature, he should either get it confirmed for his satisfaction or return the cheque with the remark Signature differs. If the signature of the customer is forged the banker cannot escape his liability because he has actually acted on his customers mandate.
HOW TO OPEN AN ACCOUNT (GENERAL) Before opening an account in MCB I observed that the following points must be considered in this regard. Another account holder of the bank should properly introduce the new customer. The account holder should sign the account opening form in the presence of bank officer and the signature is duly verified. A copy of identity Card is required by Bank. Against submission of the Banks prescribed application form, duly introduced in the manner provided and on supplying such document, as may be required and account may be opened. The Bank reserves to itself the right to refuse to open and account without assigning any reason. Each account shall be allotted a distinct number that is to be quoted in all correspondence with the bank relation to the account. Minimum amount for opening and continued maintenance of various types of accounts is as follows: PKR. Saving Current 500 500
F I R S T T W O W
Term Deposit
1000
The bank reserves the right to change the above mentioned minimum balance requirement at any time without any notice.
DOCUMENTS TO BE ATTACHED Further I learned that if you wanted to open an account with MCB then you should attach the following documents with your application form which are different for different categories. SOLE PROPRIETORS ACCOUNT In order to open an account with MCB Sole Proprietors have to submit their business registration certificate number. PRIVATE / JOINT ACCOUTS For individual or private or joint accounts National Identity Card is required. JOINT STOCK COMPANY
F I R S T T W O W
Before an account of a Public Limited Company is opened MCB must ask the person authorized to do so to submit the certified copies or the following documents Certified true copy of the Memorandum and Articles of Association of the company. Certified true copy of the resolution of the board of directors / managing committee / governing body regarding conduct of the account. Certified list containing names and signatures of the directors / office bearers. Certified true copy of the certificate of incorporation or registration. Balance Sheet I.D. Card copy of each director Original is also enclosed for inspection and return List of persons authorized to operate the account. Power of Attorney in favor of the person opening account.
PARTNERSHIP FIRM ACCOUNT Information which is required to be submitted to MCB by a partnership firm in this case is as follows: Full Names Address Specimen of signatures of the partners Certified true copy of partnership deed Registration No. if the Partnership is registered SOCIETIES / CLUBS AND ASSOCIATIONS ACCOUNT MCB is authorized to open the accounts of the societies/clubs and associations, These are non-trading organizations, formed for the promotion of culture, science, education, recreational activities and charitable purposes etc. some of these institution are registered under the Societies Registration Act, 1866, and are issued a certificate of registration after they have been found fit for registration.
F I R S T T W O W E E
of the new cheque book. This slip is duly filled and singed by the customer. The signature of the customer is verified by the bank and new cheque book is issued to the customer and serial numbers of the cheque are duly entered in the book of the bank. Along with the signature, person should also write his full name & address. Usually only one cheque book is issued at a time, however big concerns who need a number of cheque books at a time, may ask the bank to stock as number of cheque books in their name and to point their name on these cheque books. Bank debits the clients account for excise duty of Rs.2.50/- per cheque and keeps the cheque book ready for the customer, as on his advice. The officer keeps and maintains the cheque book register Cheque book inventory and cheque books issued are recorded in this register. The account number for which the cheque book is issued and the number of leaves are also recorded in this register when the cheque book issued an entry is passed in the cheque book issue register.
T H I R D W E E K
CASH MANAGEMENT
The most important department of MCB which deals in money (receiving deposits at lower rates and lend them out at higher rates of interest). This department also called as Chest Department and manager of it is called Cash Manager or Chest Manager. In those branches where this department is not separately existed, the branch manager performs the duties of the Chest Manager.
The excess cash (More than its insured limit by the insurance company) of the branches of the region is collected by the main branch. The main branch is also bound to send its excess cash (more than its insured limit) to the State Bank of Pakistan. No branch can have cash its safe more than its insurance at any time at the time of closing cash, if it is so the manager will be responsible (not the insurance company) whether or not he informed to the regional office (exception to the limit which is insured for the day). New Notes and Prize Bonds are also part and parcel of the Cash Management. Keys of the Safe lockers are with the three authorized persons each one of them is responsible for cash as at the time of closing the cash the officers including Cash officer presented and lock the safe after counting and scrutinize the cash. The cash officer maintain its daily cash book with specification of notes (Bonds are also recorded in the books in relation with cash) and other vouchers, after being satisfied the manager authenticates the books and vouchers regarding cash with stamp and signature. at the end I would like to conclude that the cash management is being done in the MCB very effectively.
F O R T H W E E K
CLEARING DEPARTMENT
I have learnt about that all the external functions of clearing are carried by NIFT (National Institute of Facilitation Technology) while the internal operations are performed by clearing department which would be discuss later. NIFT is providing tremendous facilitation having error rate of 0.3%. It is just like any courier service which takes the cheques of other banks and delivers the cheques of that branch to it. Clearing is a system by which banks exchange cheques and other negotiable instruments drawn on each other within a specified area and thereby securing the payment for its clients through the clearing house. A clearing house is a general organization of the banks at a given place, its main purpose is offsetting the cross obligation in the form of cheques. When there are many banks in the country each will receive a number of cheques drawn on other banks, deposited within for collection. A clearing house is an organization where these cheques are brought and the mutual claims of each bank on the other are offset and a settlement is made by the payment of differences. Therepresentatives off all the banks in Pakistan attend office of the bankwhich is performing these duties of clearing house, on each businessday at a fixed time. They deliver cheques that their bank may havenegotiated and receive in exchange cheques drawn on their banknegotiated by other bank. The responsibility of smooth cooperation ofthe clearing function lies with the State Bank of Pakistan. The operation of clearing refers to the collection of cheques drawn on other banks. These cheques may be drawn on UBL, HBL, NBP, or another bank of Pakistan. The respective clerk collects all cheques and entersthem in clearing Register. Then he affixes a stamp on thesecheques and sorts out cheques of different banks and prepares schedule for them. These cheques are sent to clearing house. StateBank of Pakistan has extended the service of Clearing House. MCBwillreceive all the cheques drawn by other banks. Finally they exchangetheir cheques mutuality. MCB representative will give cheques of UBL, HBL, ABL, NBP, and SBP to their representatives, and get the chequesdrawn on MCB from these representatives. Further they settle their account. State Bank of Pakistan representativewill work out the balances and will settle their account from theirbalances with State Bank of Pakistan.
F I F T H W E E K
The amounts of the cheques arecredited in the account of depositor on the 2nd or 3rd day. If thecheques are not returned it is under stood that all the cheques arehonored.
REMITTANCE DEPARTMENT
The need of remittance is commonly felt in commercial life particularly and in everyday life general. A major function of any banking system is the transfer of funds from one client or one place to another. By providing this service to the customer the bank earns a lot of income in the form of service charges. This department deals with local currency remittance i.e. remittance from one city to another without actually carrying the currency. MCB uses following instrument for transferring of money:
S I X T H W E E K
In case of cash:
Commission Rs.200 Withholding tax Rs.32 Postages 0.2% on whole amount if amount is higher than Rs.100000
In case of cheque/A/c:
Rs.120 Rs.20
S I X T H W E E K
PAY ORDER:
For this kind of remittance the payer must have the account in the issuing bank. Pay order are more liquid as compared to cheques because cheques may be dishonored while PO cant be. It is written order issued by the bank drawn and payable on itself. It is used for local transfer of money from one person to another person. It is also used by the public for depositing money with Government or Semi Government department. Documentation The party who requires a pay order will get a printed application from the bank. He will fill it and deposits the amount and commission. The bank charges are same as on demand draft. Charges: Charges of pay order are same as D.D
S I X T H W E E K
TELEGRAPHIC/MAIL TRANSFER:
In this case the authority is given from one bank to other on the behalf of the customer through telecommunication to debit their inter office account through them and credit their parties account mentioned in TT.It is an inter bank transaction. Telegraphic transfer is an instant transfer of funds. Through this method applicant can transfer money from one place to another place. There are two types of TT.Both types of TT are maintained in separate registers, test is applied by the manager of every amount of TT. Incoming TT Outgoing TT Applicant has to fill a form along with depositing amount to be transferred and bank commission. MCB charges the commission at the same rate as in the case of demand drafts. Documentation Issuing Branch Name & Code Amounts in figures and in words.
Beneficiary Details Beneficiary name Beneficiary Branch Name & Code Account No. Applicant details Name/Title of account Charges:
In case of cash:
Account No.
Commission Rs.150 Withholding tax Rs. 24 Postages 0.2% on whole amount if amount is higher than Rs.25000
In case of cheque:
S I X T H W E E K
REMITTANCE DEPARTMENT
Remittance department performs following functions: Mail Transfer (MT) Telegraphic Transfer (TT) Demand Drafts (DD) MAIL TRANSFER (MT) When a customer requests the bank to transfer his money from one branch of bank to another branch of the same bank or from one city to another city to the same bank or any other bank. Customer fills the form given by bank. If the customer has an account with that amount as mentioned in the application form then concerned officer will undertake the following procedure to make the mail transfer complete. 6. Branch Mail transfer form 7. Receiving Branch Register copy 8. Issuing branch register Copy 9. beneficiary advice 10. advice to customer In case where the customer is not account holder of the bank then the customer will have to deposit the amount which he wants to transfer under Mail. Then the above said procedure will be done.
TELEGRAPHIC TRANSFER (TT) This type of transfer is simple. After filling the application form the concerning officer shall fill the telegraphic transfer form. Then it is sent to the required bank which on receiving it immediately makes the payment to the customer and afterwards the voucher are sent to that bank by ordinary mail.
DEMAND DRAFT (DD) Demand draft is just like cheques and issued when the customer wants to take cash with him personally. The idea behind is to avoid the risk and burden of currency notes in huge quantity. Demand draft can easily be handled whatever amount it has and the money can easily be taken from the bank when it is presented. In fact, the bank persuades the customer to transfer money by drafts and avoid the risk of frauds involves in MT and T.T. Draft is only issued when the bank knows customer and bank
has the confidence in him In case of transfer of money by drafts, the customer has to fill an application form. Then the concerned officer fills the following forms: 5. 6. 7. 8. Customers advice Customers debit form Register copy Cover Advice
FOREIGN DEMAND DRAFT Foreign Demand Draft is just like demand draft. The only difference is that a bank issues FDD to the bank of another country. It requires foreign exchange and it involves seven forms, which are to be filled.
Account Opening
Account opening is an agreement in which customer offers his funds and bank accepts these funds, therefore the nature of relation between a banker and customer is of a contractual one and all the conditions applicable to this contract act are also applicable.
Accounting Entries
Accounting entries are also made in the respective books of account by this department. However, in small and medium size branches, the accountant performs the book keeping duties for all kinds of ledgers.
CLEARING DEPARTMENT
Every banker acts both as a paying as well as a collecting banker, It is however an important function of crossed cheques. A large part of this work is carried out through the bankers clearing house.A clearing house is a place where representative of all banks of the city get together and settle the receipts and payment of cheques drawn on each other. As the collecting banker runs certain risks in receipt of their ownership the law has provided certain protections to the banks. The Negotiable Instrument Act, 1881, lays down hat drawer or holder of a cheque or draft may cross the instrument generally or specially. It further lies down that a crossed cheque can only be paid to a banker, who collects it for a customer in good faith and without negligence.
Types of Cheques
Transfer cheques: are those cheques, which are collected and paid by the same branch of bank. Transfer delivery cheques: are those cheques, which are collected and paid by two different branches of the same bank situated in the same city. Clearing cheques: are those cheques, which are drawn on the branches of some other bank of the same city or of the same area, which is covered by a particular clearing house. Collection cheques: are those cheques, which are drawn on the branches of either the same bank or of another bank, but those branches, are not in the same city or they are not the members of clearing house.
Returning the counter file to the depositor. Certificate and confirmation by the officer in charge of the department. ,
Separating the cheque into transfer, transfer delivery, and clearing cheques.