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MCB BANK LTD.

FORMERLY (MUSLIM COMMERCIAL BANK LIMITED) INTRODUCTION


History of bank is as old as human society. Forever since man came to realize the importance of money as medium of exchange, the necessity of a controlling or regulating agency or institution was naturally felt. The work BANK is derived from the word BANCUS or

BANQUE which means a bench. Other authorities hold the opinion the work BANK is derived from the German word BACK which means joint stock fund. Later on, when the Germans occupied major part od Italy, the work BACK was Italianized into BANK It is, therefore, not possible to decide as to which of he opinions is correct, for no record is available to ascertain the validity of any of the opinions. DEFINITION OF BANK A bank is a financial institution which accepts deposits from the public and, in turn, advance loans by creating credit. SERVICES OFFERED BY BANKS. 1. Liabilities Based Services 2. Assets Based Services 3. Technology Based Services

4. Misc. Services

LIABILITITES BASED SERVICES: Current Deposits (Local/ Foreign Currency) Saving Deposits (Local/ Foreign Currency) Special Saving Deposits Accounts Notice Deposits (Local/ Foreign Currency) Term Deposits (Local/ Foreign Currency)

ASSETS BASED SERVICES: FUND BASED FINANCING: Running Finance. Cash Finance. Demand/ Project Finance. Agricultural Finance. Finance on Commodity Operations. Consortium Finance. Infrastructural Development Finance (NBP & HBL consortium for construction of roads). Import Finance: FIM (Finance Against Imported

Merchandise) FATR (Finance Against Trust Receipt) OAP (On Acceptance Purchase) PAD (Payment Against Documents)

Export Finance: FAPC- I (Finance Against Packing Credit) FAPC- II

FAPC- Outside Re-Finance

NON FUND BASED FINANCING: Issuance of letter of Credit Issuance Of Guarantees Bid Bond Shipping Guarantees Indemnities Bonds

CONSUMER PRODUCTS: Issuance of Credit Card. Car Finance. Salary Loan. Running Finance. Mortgage Finance.

TECHNOLOGY BASED SERVICES: MISC. SERVICES: Remittance Services Travellers Cheques Collection of Utility Bills Lockers etc. On-Line fund Transfers ATMs. Credit Cards Debit Cards Call Centre/ Telephone Banking Internet Banking

STRUCTURE OF BANKING SECTOR IN PAKISTAN.

Pakistan banking sector consists of A. State Bank of Pakistan. B. Public Sector Comm. Banks C. Local Privatized Banks. D. Local Private Banks. E. Foreign Banks. F. Specialized Banks. A. Public Sector Comm. Banks National Bank of Pakistan. First Women Bank Ltd. The Bank of Khyber. The Bank of Punjab.

B. Local Privated Banks Habib Bank Limited Muslim Commercial Bank Ltd. United Bank Ltd. Allied Bank of Pakistan.

C. Local Private Banks Askari Commercial Bank Ltd. Bank Al-Falah Ltd. Bank Al Habib Ltd. Bolan Bank Ltd. Faysal Bank Ltd. Metropolitan Bank Ltd. KASB Bank Ltd. Prime Commercial Bank Ltd. Saudi Pak Commercial Bank Ltd. PICIC Commercial Bank Ltd. Soneri Bank Ltd. Union Bank Ltd. Meezan Bank. Cresent Standered Bank.

SME Bank.

D. Foreign Banks ABN Amro Bank. Al Baraka Islamic Bank. American Express Bank Ltd. Bank of Ceylon. The Bank of Tokyo Mitsubishi. Citibank, N.A. Deutsche Bank A.G. Doha Bank. Habib Bank A. G. Zurich. NIB/ IFIC Bank Ltd. Oman International Bank S.A.O.G. Rupali Bank Ltd. Standard Chartered Bank. The Hongkong and Shanghai Banking Corporation Limited

E. Specialized Banks Zari Taraqiati Bank Ltd. Industrial Development Bank of Pakistan. Punjab Provincial Co-operative Bank Ltd. Federal Bank of Co-operatives

F. Micro Finance Banks The First Micro Finance Bank Limited Khushali Bank

G. Investment Banks First Standard Investment Bank Limited Asset Investment Bank Limited Atlas Investment Bank Limited Escorts Investment Bank Limited First International Investment Bank Limited Islamic Investment Bank Limited

Jehangir Siddiqui Investment Bank Limited Orix Investment Bank (Pak) Limited Security Investment Bank Limited Inter Bank.

THE COMMERCIAL BANK The official definition of a commercial bank is an institution that accepts demand deposits and makes commercial loans. Demand deposits are money people leave in an institution with the understanding that they can get it back at any time. Commercial loans are simply loans to businesses. This action of taking there. Most people and businesses pay their bills with bank checking accounts, placing banks at the center of payments systems. Banks are the major source of consumer loans -- loans for cars, houses, education -as well as main lenders to businesses, especially small businesses. Banks are often described as the engines of an economy, in part because of these functions, but also because of the major role banks play as instruments of the government's monetary policy. MUSLIM COMMERCIAL BANK LIMITED Before separation of indo-Pak, the need for more Muslim banks was felt and Muslims having strong financial capacity were thinking to invest in this sector as well. This was the idea which paved the way for setting up Muslim Commercial Bank Limited known as MCB. This was third Muslim bank in the subcontinent. deposits A and making loans is called does financial not end intermediation. bank's business, however,

HISTORY
Muslim Commercial Bank Ltd. Unfolds 57 years growth. MCB is not an overnight success story. The bank started corporate life in Calcutta on July 9, 1947. Subcontinent, commenced appointed authorized its the first bank in business capital of After the partition of the Indo-Pak to was Dhaka Mr In from M. where with the it an 1948, Adamjee was Bank moved August It 15

chairman. Rs.

incorporated 1956,

million.

transferred it Registered office to Karachi, where the Principal Office is presently located. Thus, the bank inherits a 57-years legacy of trust in its customers and the citizens of Pakistan . NATIONALIZATION This institute was nationalized with other banks on 1 s t January, 1974 following the banks (nationalization) Act, 1074. (At that time it has 506 branches and deposits amounting to Rs. 1640 million).

PRIVATIZATION A wave of economic reforms swept Pakistan in the late 1990, introducing the need for privatization of state owned banks companies. In April 1991, MCB became Pakistans first privatized bank. The government of Pakistan transferred the

management of the Bank to National Group, a group of leading industrialists of the country by selling 26% shares of the bank. In term of agreement between the government of Pakistan and the National group, the Group, making their holding 50% has purchased additional 24% shares.

MCB TODAY After privatization, MCB is now in a consolidation stage

designed to lock in the gains made in recent years and prepare the groundwork for future growth. The bank has restructured its asset portfolio and rationalized the cost structure in order to remain a low cost producer. Today MCB has a network of over 900 branches all over the country with business establishments in Sri Lanka and Bahrain. The branch break-up province wise is Punjab (57%), Sindh (21%), NWFP (19%) and Baluchistan (3%) respectively. MCB now focuses on three core businesses namely Corporate, Commercial and Consumer Banking. Corporate clientele includes public sector companies as well as large local and multi national concerns. MCB is also catering to the growing middle class by providing new asset and liability products. The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 30 cities with over 197 ATM locations. market The Banks for Rupee past Traveller six years Cheques and have been leaders the have recently

launched their Gift Cheque Scheme.

MISSION STATEMENT To become the preferred provider of quality financial services in the country with profitability and responsibility and to be the best place to work.

PRINCIPLES OF PERFORMANCE.
1. Customer Focus: Over the years MCB has developed strong relationships with its customers by understanding their needs and treating them with respect, dignity and importance. The driving force behind its commitment and services is its focus on customers, ensuring that it not only meets, but exceeds their expectations. 2. Quest For Quality: MCB strive to achieve excellence by ensuring that every

moment of our time is spent in adding value, making sure that we do things right, first time, every time. With this quest for quality, MCB has always taken initiatives in bringing banking into a new arena; from cash to the convenience of plastic; from branch banking to internet banking and from face-to-face customer interaction to online accessibility. 3. Employees Request: MCB encourage diversity and treat each of our employees with fairness. We give constructive feedback for their continuous development and seek suggestions from all employees for further improvement. We ensure that quality performance is acknowledged and rewarded and exercise utmost responsibility in decision-making with regards to our employees. Integrity of our employees is the strength of our performance. 4. Team Based Approach:

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MCB believe in achieving our Mission and Vision by working together as a combined group. We treat our colleagues as our internal customers and ensure that the requirements of internal customer focus are always met. Equipped with indepth product knowledge, and recognizing the strengths in each individual, we strive for optimum-results from our coworkers towards and bringing goals out and peak performances in by working dynamic common objectives today's

banking environment.

5. Good Corporate Citizenship: MCB seek to continuously improve the quality of life in our communities, where we live and work. We realize that we have a responsibility to the society in which we operate and we seek ways of playing a positive role for the betterment of the community at large for a progressive environment, better living and a brighter future.

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CORPORATE INFORMATION
Board of Directors
Mian Mohammad Mansha S.M.Muneer Tariq Rafi Atif Yaseen Mohammad Arshad Shahzad Saleem Sarmad Amin Mian Umer Mansha Aftab Ahmad Khan Mohammad Aftab Manzoor Advisor: Raza Mansha Audit Committee Mian Mohammad Mansha Mian Umer Mansha Aftaab Ahmad Khan Chairman Member Member Chairman Vice Chairman Director Director Director Director Director Director Director President & CEO

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Chief Financial Officer Ali Munir Company Secretary Tahir Hassan Qureshi Auditors A.F.Ferguson & Co. Riaz Ahmad & Co. Legal Advisors Mandiwalla & Zafar Consultants Registered Office MCB Building, F-6 / G-6, Jinnah Avenue, Islamabad Principal Office Adamjee House, 2nd Floor, I.I. Chundrigar Road, Karachi Registrar's and Share Registration Office THK Associated (Pvt.) Ltd. Shares Department, Ground Floor, Sheikh Sultan Trust Building No.2 Beaumont Road, Karachi. Advocates & Legal Chartered Accountants Chartered Accountants

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MANAGEMENT HIERARCHY
Chairman Board of directors President SEVP EVP SVP VP AVP Grade I Grade II Grade III Assistant

Clerical staff

non clerical staff

Cashier

Messenger

Technical staff

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STRUCTURE OF BRANCH MANAGEMENT

Chief Manager

Manager operation

Manager credit

Manager foreign exchange

Incharge / officer credit marketing

Incharge/officer credit operation

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Manager foreign exchange

Incharge/ officer F.C & remittances

Incharge/ officer export

Incharge/ officer import

Manager operation

Incharge/ officer clearing Dept.

Incharge/ officer A/C Dept.

Incharge/ officer remittance Dept.

Officer CD Dept.
Cash officer1 Cash officer2 Cash officer3

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BUSINESS FOCUS:
MCB now focuses on three core businesses namely Corporate Commercial Consumer Banking. Corporate clientele includes public sector companies as well as large local and multi national concerns. MCB is also catering to the growing middle class by providing new asset and liability products. The Bank provides 24 hour banking convenience with the largest ATM network in Pakistan covering 41 cities with over 225 ATM locations. The Banks Rupee Traveller Cheques have been market leaders for the past six years and have recently launched their Gift Cheque Scheme. MANAGERIAL POLICIES OF MCB Managerial policies are the basis of the success or failure of the organization. upon the These setup are of steps both management the takes for and efficient operation of the organization. Managerial policies also depend organization environment. Policy may be or established by the by the board and of director, in the any

committees

officers

employees

department of the bank. Units bank can formulate policy easily then the branch banks because of the proximity of personal

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and a smaller trade territory. Branch banking organization may have different operational areas. Policies of MCB are formulated at three levels.

AT HEAD OFFICE LEVEL 1) At the head office policies are formulated. 2) A meeting is called upon the regional head office. 3) They formulate policies in the light of the main objective of the social economic considerations. AT THE REGIONAL HEAD OFFICE LEVEL 1) At the regional head office in Karachi, all the SVPs are called upon. 2) All the policies agreed upon by religious board and they together formulate the policies to be implemented within Pakistan. AT THE BRANCH LEVEL 1) At the branch level, GM/ RM call upon the meetings of all their managers in the branch and communicate to them the policies agreed upon regional office. 2) Along with the implementation of the policies, the GM/RM and the managers formulate policies at branch level. IMPLEMENTATION OF POLICIES 1) Managers, officers and workers at each level, try to fully follow the policies set up at various levels.

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2) Any failure in the following up the policies is immediately brought to the notice of the corresponding management along with the reason, if any. 3) In the light of this, the management either proposes solution for the implementation of policies or make amendments in the policies.

MANAGEMENT STYLE (PARTICIPATIVE) The style of the management is quite good in the sense that management provides its employees quite reasonable working conditions, take care of the well grooming and satisfaction of employees by assigning them the predefined and clear objectives and targets and by resolving their work related problems and difficulties. When management wants to specify any special objectives, call meetings. employees In these meetings style to is participative their and all for are provided chance give opinion

improvement of any area of the banking activities. DELEGATION OF AUTHORITY There is delegation of authority. All managers are independent in their areas of activities and can handle sorts of dealing. However, all departments work in co-ordination with one and other. MARKETING POLICIES The bank follows individual marketing i.e. the personal

marketing technique. Even at corporate level specific targets

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are set and with in a limited time period these targets are to be achieved.

HUMAN RESOURCE POLICIES:These policies include: 1) Recruitment 2) Selection of employees 3) Benefits to employees 4) Integration BENEFITS TO THE EMPLOYEES: Management provides various benefits to employees so that they can perform their duties with more concentration. STAFF LOAN FACILITY The employees are given loan facility for following purposes; 1) House building Finance 2) Transport Finance 3) Staff Personal Finance 4) Computer Finance GROUP INSURANCE

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Group insurance is also provided to the employees for safety of employees. GRATUITY FUND Bank maintains gratuity fund for the benefit of employees. The amount in this fund accumulates from year to year and is normally paid to employees at the time of retirement. In case of death of an employee during service amount is paid to his family.

INCREMENT IN PAY The management also pay increments to its employees. It is decided on the basis of annual performance of the employees, usually its limit is from 5% to 25% of gross salary. PROMOTION The decision for promotion of any person is based on his/ her overall performance. Head office decides about promotion of an employee after taking into consideration its assessment sent. MEDICAL ALLOWANCE Medical allowance is a part of gross salary. However, actual expense of hospitalization made is paid to the employee. FIELD OF ACTIVITIES MCB has a solid foundation of over 50 years in Pakistan, with a network of 947 branches , over 750 of which are Automated Branches, over 225 MCB ATMs in 41 cities nationwide and a network of over 12 banks on the MNET ATM Switch

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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 2004 award for being "The Best Domestic Commercial Bank in Pakistan". MCB offers a wide range of financial products and advice for Personal and Corporate Customers. You can also apply on-line for many of Online Services. Customers can access their accounts using simple and convenient MCB Virtual Internet Banking services.

PRODUCT CATALOGUE:-

T he L ar ge st ne tw or k of o ver 26 9 o n- line and gr o w ing. Pr o viding custo me r s w ith 24 x7 r e al time o n-line tr ansactio n facili tie s.

C all no w fo r answ er to T he natio n' s lar ge st yo ur que r ie s, banking se r vice s, mo bile bankin g se r vice s,RT C se r vice s,te le banking se r vice s and MC B pr o duct info r matio n. ne tw or k of ove r 22 5 AT Ms and gr o w ing. G e t 24 ho ur co nve nie nce o f cash w ithdr aw al , mini state me nt, bil l payme nt and funds tr ansfe r ser vice s.

br anche s in the co untr y se r vice s, AT M

Cash management customers. Helps customers substantially reduce

A deposit account for C ash w ithdr aw al


facility at o ve r 6 30 ,00 0 AT Ms w or ldw ide . Co nve nie nce of

services for corporate customers with substantial balance offering profit on a daily product basis

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their receivable

with the facility of

sho pping at o ver 5 millio n PO S lo catio ns glo bally .

collection time frame, unlimited improve cash flow and withdrawals. business management.

A secure instrument of pyment, offering CASH FREE most powerful Debit and ATM Card providing 24 hour direct access to your bank account.

Islamic banking services through exclusive units / range of liability and asset based Sharia compliant products like Musharika, Murabaha, Ijara and Istasana.

Banking at yo ur finge r tips. Dial in anytime to ge t info r matio n r e gar ding balance and mini state me nts.

convienence. It is the branches offering a

MCB Network for Electronic Transactions is an electronis hub for ATM sharing plus other touch points.The nation's largest operating switch with the highest transaction volume.

Flexible and competitive home financing facility with options of home purchase, construction and renovation.

O ne of the mo st po pular de po sit acco unts o ffe r e d by MCB .

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Get a loan in an instant at any MCB day financing facility against liquid collateral at competitive pricing.

Fastest to Pakistan, anywhere in International remitances with a two-way messaging facility delivered at your doorstep within 24 to 72 hours.

A lo cal Po int o f Sale acquir ing ne tw or k facilita tin g acce ptance o f all majo r car d br ands.

branch. Offering same Pakistan.

Car financing and rates with flexible options. Car4u finances both semicommercial and noncommercial vehicles for personal and business use.

The most widely cash for travel related purposes. A safe and secure way to make payments nationwide.

Per so nal lo ans for re pute d lo cal and for e ign co mpanie s at r ate s tailo r e d to custo me r ' s re payme nt capacity.

leasing at competitive accepted way to pay salar ie d individ uals o f

Providing access to diversified financing options including term loans, trade finance services and

MCB, the leader in now provides the banking on the internet. You can

T he be st pr o te ctio n fo r o f diffe r e nt capacitie s are availab le natio nw ide .

banking technology, yo ur valuable s. Lo cke r s

working capital loans, convenience of

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investment banking.

now access your account anytime and anywhere.

PERSONAL BANKING LOCAL CURRENCY ACCOUNTS o o o o PAK RUPEE SAVING ACCOUNT KHUSHALI BACHAT ACCOUNT PAK RUPEE CURRENT ACCOUNT PAK RUPEE TERM DEPOSIT ACCOUNT o MAHNAMA KHUSHALI SCHEME

CAPITAL GROWTH CERTIFICATE

o SAVING 365
o o o Saving Account with Current Account Facilities . FOREIGN CURRENCY ACCOUNTS FOREIGN CURRENCY SAVING ACCOUNT FOREIGN CURRENCY CURRENT ACCOUNT FOREIGN CURRENCY TERM DEPOSIT CORPORATE BANKING WORKING CAPITAL LOANS Based on the customers specific needs, the Corporate Bank offers a number of different working capital financing facilities including: Running Finance Cash Finance Export Refinance Pre-shipment and Post- shipment etc.

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Tailor-made solutions are developed keeping in view the unique requirements of business

TRADE FINANCE SERVICES Under Corporate Banking MCB offers trade finance services that include an entire range of import and export activities including Issuing Letters of Credit(L/Cs) Purchasing export documents Providing guarantees Other support services.

INVESTMENT BANKING Investment Banking Team 0f MCB has emerged as a leading player in Pakistan's Within Investment these areas, Banking the arena. has The Team handles advisory, corporate finance and capital markets related transactions. expertise in: Private Placements Debt/Equity Underwriting Term Finance Certificates Loan Syndication Arrangement of Non-Fund Facilities Corporate Advisory team developed

TERM LOAN It offers Short to Medium Term Finance to meet capital

expenditure and short term working capital requirements of

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customers. The loans are structured on the basis of underlying project characteristics and cash flows of the business. CASH MANAGEMENT SERVICES Network of over 900 branches in Pakistan enables MCB to collect and disburse payments efficiently with its cash management services. This also enables it to offer a choice of paper based or electronic fund transfer solutions including collection amounts, cross branch on-line transactions etc. MISC. PRODUCTS MCB PYARA GHAR EASY PERSONAL LOAN MCB RUPEE TRAVELLERS CHEQUE REMIT EXPRESS o FEATURES Easiest and safest way to remit funds Remittance within 24 to 72 hours Personal delivery to the beneficiary Delivery confirmation to the remitter Message facilities for both parties Beneficiary will receive the amount even if he/she does not have an MCB account TECHNOLOGY BASED SERVICES MCB ATM SERVICES MCB ATM BILL PAY MCB ATM FUNDS TRANSFER MCB CASH CARD

MCB CASH CARD is useful means of cash for MCB customers and non customers alike: 1) Travelers

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2) Businessmen 3) General Public MCB MOBILE BANKING MCB CALL CENTRE MCB SMART CARD MCB DEBIT CARD o FEATURES No need to carry cash, when MCB Card is your companion. Acceptability Locations, Stores, Jewelers, of debit card at Merchant Grocery Stores, including Bakeries, Travel Petrol Pumps,

Departmental Agents,

Restaurants,

Chemists, Hospitals and many more locations displaying this sign. When MCB Card is used, payment is made by directly debiting Bank account. No need for signature, Number) is as PIN (Personal used for Identification security. Balance Enquiry of Card Account can be done at selected Merchant outlets MCB MASTER CARD MCB VIRTUAL/INTERNET BANKING being

MCB ISLAMIC BANKING

Vision:
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1) To excel in the field we are into, and continue to strive to make Islamic Banking a better alternative choice and make MCB a preferred provider of quality Islamic Banking Products and Services, besides Conventional Banking. 2) To assist investors in earning profit comfortably with a sound and solid Islamic Financial portfolio in MCB. MCB now provides its customers with the reliable Islamic

Financial Services and support they require to successfully achieve their business objectives. Keeping in view the said purpose bank has recently formed Islamic Banking Division and Islamic Banking Management Committee. ISLAMIC BANKING DIVISION Islamic Banking Division has been formed with effect from 1st January 2003, which in a short span of time, has developed Islamic Banking Products, prepared Operational Manual, arranged local & international training for its own executives as well as at all management levels. ISLAMIC BANKING MANAGEMENT COMMITTEE: Recently the bank has established an Islamic Banking

Management Committee comprising of the senior executives representing various important functions of the bank, such as, Credit & Risk Management, Finance, Treasury, Operations, Islamic Banking Division and Sharia Advisor. The objective of this committee was to review the products offered by Islamic Banking Branches, and to improve them not only to make them competitive and practicable but also make them truly Sharia Compliant SHARIA ADVISOR:

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Dr. Muhammad Zubair Usmani, working as Sharia Advisor in MCB since July 2000 is a prominent scholar having Ph.D. degree in Islamic Finance as well as Fazil Takhassus from Jamia Darul Uloom Karachi, (i.e. specialist of Islamic Fiqah and Fatawa) LEGAL ADVISOR: M/s Mohsin Tayebaly & Co., Advocates & Legal Consultants, has vetted all documentation. M/s Mohsin Tayebaly & Co. not only has expertise in legal affairs but also has competent lawyers possessing knowledge of Sharia.

ISLAMIC DEPOSIT SCHEMES: For customer who are looking for a deposit opportunity where they can purse their funds and reap halal returns on it, bank offer the following products:

Al Makhraj Saving Account The minimum deposit requirement for Al-Makhraj

Saving Account is only Rs. 10,000 and profits can be earned 6-monthly

IANAT Account For customers who are looking for a chequing account that gives them the ease of doing unrestricted number of transactions, we offer Al-Makhraj Ianat Account. With a minimum of only Rs. 10,000, Ianat Account may be opened. With all the features and facilities that this product offers, it is highly recommended for management of business funds

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Al Makhraj TDR A minimum of only Rs. 25,000 is needed to invest money in Al- Makhraj Term Deposit. Choice of tenors can be made from a list of options namely 1, 3 & 6 months, 1, 2, 3 or 5 years. Profit payment options available to customers are monthly, quarterly and/ or at maturity. However, monthly profit payment and deposit product of 1 month are not available currently

FUND BASED FACILITIES: IJARAH MCBs Islamic Ijarah, analogous to the English term 'leasing, is based on the Ijarah wa Iqtina concept which means the sale of the asset to the lessee after the Ijarah has matured. Under this scheme, MCB will be the owner of the asset, and the customer (lessee) will be given the asset to use for a certain period of time in return for monthly rental payments. MCB will give a separate unilateral undertaking that it will offer to sell the asset to the customer (lessee) at the maturity of the Ijarah agreement at a price that may be equal to the security deposit amount, hence the term Wa Iqtina o PARTIES IN IJARAH o Lessee - Banks Customer Lessor Bank

TYPES OF IJARAH

Car Ijarah Equipment Ijarah

MURABAHAH

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A contract between a buyer and a seller under which the later first purchases the goods at the request of the former i.e., customer and then sells it to same customer after adding profit o PARTIES IN MURABAHAH Buyer Banks Customer Seller Bank Agent o o Customer for foreign transaction Banks approved Broker for local

transaction. o Customer for local transaction also (Unmanageable situations) o TYPES OF MURABAHAH Domestic (Local Purchases) International (emerging from SLC)

UPCOMING PRODUCTS

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Deposit Side One Month TDR Mahana Munafa Savings Accounts Financing Side Musharaka Term Finance Diminishing Musharaka for Housing Finance Murabahah cum Istisna for Export of Goods Issuance of LC ADVANCES 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 growing portfolio of advances. PRINCIPLES OF ADVANCES: The basic principles of advances are described as follows: Profitability Source of Repayment Character & Ability of Borrower Purpose & Amount of Facility Period Security

MODES OF CREDIT FACILITIES There are two types of facilities FUND BASED FACILITIES 1) Running finance 2) Cash finance 3) Demand finance

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4) Payment against documents 5) Finance against imported merchandise 6) Finance against trust receipt 7) Export finance 8) Foreign bill purchased 9) Others NON FUNDED FACILITY 1) Letter of credit 2) Letter of guarantee 3) Bid bonds 4) Performance bonds 5) Other facilities REMITTANCES DEMAND DRAFT 1) Demand draft is a written order drawn by a branch of a bank upon the branch of same or any other bank to pay certain sum of money to or to the order of specified person. 2) Demand draft is a negotiable instrument. 3) Legal provisions are same as that of cheque. 4) It is to be ensured that purchaser can at least sign. 5) Thumb expression is not accepted on DD. 6) The following are the parties i. ii. iii. iv. Purchaser Issuing branch Drawee branch Payee

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TELEGRAPH TRANSFER 1) Transfer of funds from one branch to another branch of the same bank or upon other bank under special arrangements. 2) Telegraphic transfer is not negotiable. 3) The funds are not payable to bearer. 4) Minor can not avail this facility. PARTIES 1) Applicant 2) Drawing branch 3) Drawee branch 4) beneficiary MAIL TRANSFER Transfer of funds from one branch to another branch of the same bank with in or outside the city is called mail transfer. Mail transfer is not negotiable. The procedure is same as for DD. All precautions must be observed. PAY ORDERS Pay order is meant for bank own payment but in practice they are also issued to customers. A pay order is written authorization for payment made in a receipt form issued and payable by the bank To the person named and addressed. The following are the parties o o Purchaser Issuing branch

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Payee

Charges must be recovered at prescribed rate. Pay order should be prepared like demand draft. A record of all issued and paid should be maintained. Credit voucher should be prepared. LOCKER FACILITY CONDITIONS The annual rent of the locker is payable in advance. In the event of the rental charges following in arrears, the bank reserved the right To refuse the excess to the locker. To exercise a general lien over the property deposited or about to be deposited in the locker until such time as the dues are paid by license. To sell the property described in deal. To break upon the locker and forward, by post or any other means consider fit. The relation between license and banker will be licenser and licensee not the banker and customer. The ownership in the locker will be in the bank and license will have only the right of use subject to terms and conditions.

COM PA RA TI VE RA TI O A NA L Y SI S OF FI N AN CI A L HI GH LI GH TS

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DESCRIPATIO N
1.Return on equity N.P.A.T x100 Share holders equity 2.Return on assets N.P.A.T x 100 Total assets

2000 (Rs000) 734729 4483670 16.38% 734729 1636805 86 0.45%

2001 (Rs000) 1108176 4986060 22.22% 1108176 1870535 15 0.59% 1108176 242300 4.57

2002 (Rs000) 1738594 6313957 27.53% 1738594 2351385 67 0.74% 1738594 266545 6.52

2003 (Rs000) 2230145 7726164 28.86% 2230145 27232361 9 0.82% 2230145 306527 7. 28

2004 (Rs000) 2539994 9392693 27.04% 2539994 25928483 5 0.98% 2539994 337180 7. 53 2539994 21996605 7 1.15% 29541576 21996605 7 13.43% 21996605 7 9392693 23. 42 Times 2,057,6 40 9,655,2 75 21.31% 9,347,2 47 20,354,7 83 45.92% 2,539,9 94 20,354,7 83 12.48%

3.Earning per share 734729 N.P.A.T 220300 No of outstanding 3.33 shares 4.Return on deposit N.P.A.T x 100 Total deposit 5.Cash / deposit ratio Cash x 100 Deposit 734729 1359901 47 0.54% 1732883 7 1359901 47 12.74%

1108176 1545444 51 0.72% 2428558 9 1545444 51 15.71% 1545444 51 4986060 30.99 times 7544897 1713267 4 44.00% 1703322 5 1923385 0 88.55% 1108176 1923385 0 5.76%

1738594 1827057 16 0.95% 2005546 0 1827057 16 10.97% 1827057 76 6313957 28.93 times 6074682 1487500 7 40.83% 1538586 9 1797602 7 85.59% 1738594 1797602 7 9.67%

2230145 21151139 3 1.05% 25356261 21151139 3 11.98% 21151139 3 7726164 27.37 times 2932693 11288881 25.97% 10369994 14901805 69.58% 2230145 14901805 14.96%

6.Total deposit / net 1359901 worth ratio 47 Total deposit 4483670 Net worth 30.33 times 7.Interestexpense/tot al expense ratio Interest expense x100 Total expense 7223950 1556585 3 46.40%

8.Interest 1412633 income/total income 2 ratio Interest income x 100 1688764 8 Total income 83.64% 9.Net profit margin N.P.A.T x 100 Total income 734729 1688764 8 4.35%

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10-Cost ratio of lending 1412633 2 1703322 5 1538586 9 10369994 47 9,347,2

1-RETURN ON EQUITY This ratio is is more meaningful available for shareholders Higher who are

interested to know the profit earned by a bank because the dividend paid from profit. ratio means factor of production is fully utilized and shows good position. However in 2004 the ratio is nominal decrease as compare to last year.

30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% 2000 2001 16.38% 22.22%

27.53%

28.86%

27.04%

N.P.A.T x100 Share holders equity

2002

2003

2004

2-RETURN ON ASSETS This ratio shows that the return is greater in 2004 as compared to return on assets in the year 2003, 2002, 2001 and 2000 (gradual increase). It means the assets of business are fully utilized in more and efficient way and also shows the favorable trend of business.
1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% 0.98% 0.74% 0.59% 0.45% 0.82%

N.P.A.T x100 TOTAL ASSESTS


39

2000

2001

2002

2003

2004

3-EARNING PER SHARE This ratio really improves as it has gone with the increase in profit. Earning per share is a good measure of profitability when compared with similar other business. Here increasing EPS, which will surely increase share price. This ratio has same trend as the return on the assets. It is improving in every succeeding year. 8 7 6 5 4.57 4 3.33 3 2 1 0 2000 2001
7.28 5.62 7.53

N.P.A.T No of outstanding shares

2002

2003

2004

4-RETURN ON DEPOSIT Return on deposit has increasing trend which is favorable. This ratio shows that with increase of deposit , profit margin also increases. Increase in return on deposit is positive sign.

1.20% 1.00% 0.80% 0.60% 0.40% 0.20% 0.00% 2000 2001 2002
0.54% 0.72% 0.95%

1.05%

1.15%

N.P.A.Tx100 Total Deposits

2003

2004

5-CASH TO DEPOSIT RATIO This ratio shows that how much cash is available to meet the demand liabilities of the depositors. The bank should have

40

reasonable cash balance to meet the customer requirements against their deposits in the bank. In this case bank ratio has increased in 2004 as compared to 2003 & 2002 which is a good sign from the bank point of view.

16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000
12.74%

15.71% 10.97% 11.98%

13.43%

Cash x100 Deposits

2001

2002

2003

2004

6-TOTAL DEPOSIT / NET WORTH This ratio has decreasing trend but this decrease is due to increase in net worth. It will provide benefit to the bank in long run and in coming years.
35 30 25 20 15 10 5 0 2000 2001 2002 2003 2004
30.33 30.99 28.93 27.37 23.42

7-INTEREST EXPENSE TO TOTAL EXPENSE RATIO

This ratio shows a decreasing trend. This decrease in the

interest expense is due to the decrease in borrowings of the bank, or it might be due to decrease in the payable interest 50.00% 46.40%
45.00% rate to the lenders. 40.00% 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% 0.00%
44% 40.83%

T.De Net
Interest exp. Total exp.

25.97%

23.31%

41
2000 2001 2002 2003 2004

8-INTEREST INCOME TO TOTAL INCOME RATIO A decreasing figure shows that rate of mark up has come down and it is bad for earnings of bank. It shows that interest income as compared to the total income of the bank is decreasing and it might be due to increase in other income of the bank.
100.00% 80.00% 60.00% 40.00% 20.00% 0.00%
83.64% 88.55% 85.59% 69.58% 45.92%

Int. Income x 100 Total Income

2000

2001

2002

2003

2004

9-NET PROFIT MARGIN This ratio has increasing trend up to 2003 and in 2004 NPM fall . The major reason is that the rate of mark up fall and due to resulting 2.48% NPM come this the interest income decrease down as compare to last year
16.00% 14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00% 2000 2001 2002 2003 2004
4.35% 5.76% 9.67% 14.96% 12.48%

10-COST OF LENDING RATIO


25.00%
22.24%

1 9.49% Here we can analyze very interesting situation, as there is 20.00% 1 6.36%

decrease in interest income in 2004 and the ratio has also 15.00%
1 0.66%

10.00% 5.00% 0.00% 2000 2001 2002 2003

6.81 %

N.P To

42
2004

decreased, reason is that interest income has decreased but amount of advances has increased resulting in decrease in cost of lending that shows the cost bear by the bank while lending the money. Higher the ratio is not good for institution. So, situation is good in 2004 as compared to 2003, 2002, 2001 and 2000.
25.00% 20.00% 15.00%
10.66% 16.36% 22.24% 19.49%

10.00% 5.00% 0.00% 2000 2001 2002 2003

6.81%

Int. Income x 100 Total Advances

2004

11-LOAN TO ADVANCE RATIO Analysis shows an increase in loan and also an increase in the advances. As rate of increase of loans is greater than that of advances, therefore, it has resulted in an overall increase in the ratio. Before giving loans to bank institutions have an eye on such ratio. But in 2004 the ratio decrease to 7.50% . advance which is of view.
40.00% 30.00% 20.00%
11.68% 29.88% 35.21%

It

shows that bank loans are decrease as compared to their beneficial both from lender and banker point

Total Loan x 100 Total Advances


7.50%

10.00% 0.00%

6.78%

2000

2001

2002

2003

2004

12-TOTAL DEBT RATIO Total assets to the bank increased in 2003 as compared to last three years which has resulted in an increase in loan.

43

Therefore, the net result is increase in the loan to assets ratio. However, in 2004 as lower this ratio is beneficial to the bank so performance is of the bank is good in 2004 because bank has purchased most of its assets not on loan.
14.00% 12.00% 10.00% 8.00% 6.00% 4.00% 2.00% 0.00%
3.57% 4.78% 3.97% 10.03% 12.56%

Total Debt x100 Total Assests

13-DEBT EQUITY RATIO This the ratio year depicts 2004, the

2000

2001

2002

2003

2004

relation shows an

between decrease

equity as

and

debt to

financing. Lower the ratio creditors feel more comfortable. In ratio compare 2001,2002,2003 which is good sing for banks creditability in financial market.
5 4 3 2 1 0 2000 2001 2002 2003 2004 1.79 1.3 1.10 4.43 3.73

Total External Debts Total Internal Debts

14 - PROPRIATORY RATIO Higher the ratio is more beneficial for the business so good performance is in view currently. This ratio explains that participation in the assets by the shareholders fund is limited by outsiders fund but when we take year under review (2004) we see that the ratio has increased in 2004 as compared to the year 2003. Reason behind this is that the increase in assets is financed by outsiders fund rather than the fund provided by the shareholders.

44

4.00% 3.50% 3.00% 2.73% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2000 2001 2002 2003 2.83% 2.66% 2.68%

3.62%

Share holder Funds Total Assests

15-Current ratio

2004

Should not be less than 2. This indicates that the current assets are twice than current liabilities. Care should be taken that current assets are not unduly inflated by over valuation. Here in this case the current ratio of MCB is greater than standard of 2:1 which is a good sign and shows good liquidity position of the bank.
20
17.5 18.29

Current Assets Current Liabilities

15
9.84

12.78

10 5 0

6.89

2000

2001

2002

2003

2004

16-AVERAGE PROFIT PER BRANCH The average profit per branch is increasing rapidly every year. It is healthy, good and encouraging for bank.

3000 2500 2000 1500 1000 500 0 2000 2001 2002 2003
607.21 1663.7 1044.46 2261.08

2679.3

Net Profit No. Of Branches

2004

45

17-COST OF BORROWING Calculation made on the base of data available shows that cost of borrowing has decreased in 2004, which is a healthy sign for the bank. Overall ratio is also decreased over 5 years. This is mainly due to decrease in advances.

6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%

5.31% 4.88% 3.32%

Mark up x100 Deposits


1.38% 0.94%

2000

2001

2002

2003

2004

18-LONG TERM DEBT TO FIXED ASSETS RATIO This ratio explains that participation in the fixed assets by the debts of long term nature. It was established that fixed assets should be purchased out long term debts. The standard ratio is 1:1.But when we take year under review (2004) we see that the ratio has decrease comparing in 2003, 2002, 2001, and 2000 which means that bank is acquiring its fixed assets by not utilizing long term debts efficiently.

8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00%


1.68% 2.44% 6.17%

7.47%

Long term debt x 100 Fixed Assets


1.29%

46
2000 2001 20002 2003 2004

DOCUMENTATION ACCOUNTS
1- CURRENT ACCOUNTS Individual

FOR

VARIOUS

TYPES

OF

1- application for opening account 2- specimen signature card

Partnership Firm 1. application for opening account 2. specimen signature card 3. deed of partnership if available along with registration certificate in case of registered firm.

Joint Stock Companies 1- Application for opening account 2- Specimen signature card 3- Board of directors resolution authorizing directors to open and operate account. 4- Certified true copy of the certificate of incorporation or registration. 5- Certified true copy of the certificate of commencement of business 6- Certified true copy as amended up to date of memorandum and article of association. 7- List of present directors duly certified by the registrar joint stock companies.

47

8-

Certified true copy of the board of directors regarding conduct of the account together with the specimens of signatures of the authorized signatories.

9- Balance sheet if the company is already functioning. GOVERNMENT DEPARTMENTS 1- Application for opening account 2- Specimen signature card 3- A special resolution / authority of the concerned administrative department duly endorsed by the finance division / department of the government. 2- SAVING ACCOUNT 1- Application for opening account 2- Specimen signature card VERIFICATION OF DOCUMENTS OF PUBLIC/PRIVATE

LIMITED COMPANY In case of account of a legal entity i.e. public/ private limited company, no introduction is needed. However, the following documents are needed: 1- resolution to open an account 2- photocopy of certificate of incorporation 3- memorandum and articles of association 4- list of latest directors 5- certificate of commencement of business for public limited company 6- photo copies of the directors.

48

CROSS EXAMINATION OF DOCUMENTS All the documents obtained in respect of opening an account are primarily checked from appraisal of original documents/ papers with special scrutiny that no sign of alterations appear thereupon. ALLOTMENT OF ACCOUNT NUMBER TO NEW ACCOUNT The account number allocated to new account shall be given on application for opening account, specimen signature card and cheque book requirement slip. The account number will be allocated in fifteen (15) digits in the following manner 0 1 8 6 0 2 0 1 1 0 0 8 0 0

The fifteen digit account number when decoded will read as under:1- The first four digits from the left hand side denote branch code. 2- The next two digits after branch code will denote nature of account. 3- The next two digits after nature of account code will denote currency. 4- The next seven digits after currency code will denote account number inclusive of check digit i.e. first one digit from right hand side. NATURE OFACCOUNT- CHEQUING Current PLS- Saving PLS Savings 365 CODE 01 02 03

49

Khushali - Bachat (KBA) MCB Rupee Maximizer MCB Savings 365 New foreign currency current account New foreign currency PLS account CURRENCY Pakistan Rupee PKR US Dollar USD Pound Sterling GBP Deutsche Mark DEM Japanese Yen JPY ISSUANCE OF CHEQUE BOOK

04 06 07 11 12 CODE 01 02 03 04 05

Cheque book shall be issued only after the account opening form has been completed in all respects i.e. properly introduced, satisfactory reference obtained and the required minimum deposit has been received. LETTER OF THANKS Letter of thanks should be sent under certificate of posting to the introducer and the opener. This precaution would accomplish the purpose of notifying the introducer and the customer that an account has been opened on the basis of his introduction thereby inviting a disclaimer, if untrue.

50

OPERATION IN NEW ACCOUNT After an account is opened, any unusual credits / debits not compatible with the status of the customer, the balance or operations in the account, must be inquired into and satisfactory response obtained before authenticating the same. Such enquiries must be conducted with utmost good care to ensure that customers of good standing are not offended. ISSUE OF CHEQUE BOOKS 1- FOR NEW ACCOUNTS 1- When a new account is opened, the manager must ensure that all formalities with regard to opening of account, proper introduction / reference etc., have been obtained including the depositing of the minimum initial cash deposit before a cheque book is issued to the account holder personally or to his known attorney against proper acknowledgement. 2- The signature of the customer should not be obtained on the acknowledgement of account opening form if cheque book is not issued to the account holder at the time of opening of account. is However obtained, if signature be on the / acknowledgement must deleted

crossed / cancelled so as to avoid misuse of cheque book. 3- Fresh application in the above case should be obtained for issuance of cheque book to avoid all possible risks. 2- FOR EXISTING ACCOUNTS Apart from new accounts, all subsequent cheque books shall be issued against the cheque book requisition slip extracted from previous cheque book issued to the account holder. The procedure is as follows:

51

1- The requisition slip shall be sent to the ledger keeper to ascertain. a) The account number b) The average balance maintained by the customer c) The manner in which the account is operated on. d) Whether cheque books issued previously have been properly consumed. e) Cheques are not frequently returned for want of funds. f) Payment of cheque is not frequently stopped. g) It is not a dormant account. 2- If any discrepancy as stated above is found by the ledger keeper, will be brought to the notice of concerned officer. 3- In other cases where the account is in order and the bearer of the requisition slip is also familiar to the bank, the concerned officer shall verify the signature of account holder with the specimen signature card. 4- In case of slightest difference in the signature any suspicion aroused about the bonafides of the person

representing the requisition slip, proper inquiries will be made by contacting the drawer, if necessary, manager alone will authorize the issue of cheque book, in such cases after due satisfaction. SCRUTINY OF CHEQUES BEFORE PAYMENTS Before passing, counter signing cheques the manager /

accountant / authorized checking officer must satisfy himself with regard to the following points: 1- the signature card must be referred to in every case. 2- The date must be checked. 3- The cheque series must be checked. 4- The agreement of amount in words and figures must be checked.

52

5- If the cheque has been altered from order to bearer the alteration must bear the drawers full signature. 6- Endorsement must examined. 7- Crossing cheques crossing. 8- Stopped cheques notes must be carefully referred to. 9- The accountant must be referred to make sure that funds are available and that the balance does not include uncleared effects. 10When an account is transferred to a new folio, all overs must be checked into the new folio, carry must must be be examined specially and clearing for house special examined

including summations and profit products and when they are complete, the checking officer will sign in full above the instructions column. 11Any finance limit that is allowed in an account must be carried forward in words and figures to the next folio / sheet which should be fully authenticated by the manager.

Foreign Exchange Documents and Procedures


INTRODUCTION

53

Pakistan is a developing country and like other contemporary countries, its import bill exceeds exports. Therefore it faces scarcity of foreign exchange to meet its import requirements. In import letter of credit operations play an active role for settlement of payments in International Trade Services offered by the bank to its customers. The gap between import and export bills is partially covered by regulations, controls and measures exercised by SBP. CATEGORIES OF IMPORTS Commercial sector import Industrial sector import Public sector import 1- Commercial sector import a firm, institution, organization, person or group of persons registered as an importer under the registration order, 1993, is called commercial importer. 2- Industrial sector import an industrial unit is registered as an importer in order to meet its own import requirements under the Registration Order, 1993.

3- Public Sector Import

54

organization owned by the government also require importing certain capital / consumer commodities as per their requirement.

REGISTRATION OF IMPORTERS, PROCEDURE & DOCUMENTATION


A buyer of foreign goods has to registered himself with the EPB under Registration Order 1993 as per procedure outlined by them. EXEMPTION FROM REGISTRATION Certain items are importable without registration as an

importer according to policy order of Ministry of Commerce.

55

INTRODUCTION It is a written undertaking by a bank given to the seller at the

request and on the instructions of the buyer to pay at sight or at a determinable future date a stated sum of money against the required documents. The documents include Commercial invoice Certificate of origin Transport document relating to mode of payment Other documents required

TYPES OF DOCUMENTARY CREDIT


1) Revocable letter of credit 2) Irrevocable letter of credit 3) Irrevocable confirmed letter of credit 4) Revolving credit 5) Transferable credit 6) Back to back credit or counter credit 7) Red clause credit or packing credit 8) Stand by credit

1- Revocable letter of credit


it is a conditional undertaking to the exporter for payment. It can be cancelled or amended at any time without prior notice to the beneficiary. 2- Irrevocable letter of credit it is once communicated to and acted upon by the beneficiary, can not be amended unless consent of all the parties is obtained. 3- Irrevocable confirmed letter of credit

56

when an issuing bank authorizes other bank (usually in the country of exporter) to confirm its irrevocable credit and the later adds its confirmation, such confirmation constitutes a definite undertaking of such bank . 4- Revolving credit in revolving credit, under the terms and conditions thereof, the amount and or time is automatically renewed or reinstated without specific amendment to the credit. It or irrevocable. can be revocable

5- Transferable credit a credit can be transferable only if the issuing bank expressly designates it as transferable. Transferable credit is a credit under which the beneficiary may request the bank authorized 1) to pay 2) incur a deferred payment undertaking 3) accept or negotiate 4) to make credit available in whole or in part to one or more other beneficiary. 6- Back to back credit or counter credit the seller as beneficiary of the first credit manages to open another credit for the supplier or manufacturer of the goods on the strength of the first credit. 7- Red clause credit or packing credit this credit contains a red clause which is usually printed in red to make it prominent, authorizing the intermediary banker

57

to

make

advance

to

the

seller

before

shipment,

making

provision for subsequent negotiation of draft under the credit to be applied for the repayment of such advance. 8- Stand by credit it is often used in lieu of performance guarantee, e.g. in respect of major construction contracts. The stand by credit ensures payment if and when the subsidiary fails to repay the loan on due date.

PARTIES TO LETTER OF CREDIT


1) The applicant (opener of L/C) 2) Issuing bank (opening bank) 3) Advising bank advise through bank if different from the receiver through which the L/c is to be advised/ confirmed to the beneficiary. 4) Beneficiary (exporter) 5) Confirming bank at the request of the issuing bank adds its confirmation to a credit 6) Negotiating bank receives the documents against letter of credit as authorized bankon the bank. Which of gives value for drafts/or documents 7) Reimbursing honours the behalf the opening by bank the reimbursement claim lodged

negotiating bank

MODES OF PAYMENTS
1) Available by negotiation 2) Available by acceptance 3) Available by sight payment 4) Available by deferred payment L/C AVAILABLE BY NEGOTIATION

58

If the credit privides for negotiation to pay without recourse to drawers and/or bonafide holders in terms of credit. L/C AVAILABLE BY ACCEPTANCE The seller credit calls all for the a usance draft and is available bill by of

acceptance on the issuing/ advising/ paying bank, and the submits documents including usance exchange to a nominated or another bank complying all the terms and conditions of the credit. L/C AVAILABLE BY SIGHT PAYMENT If the beneficiary of the credit is to obtain payment it is

immediately on presentation of stipulated documents, sight credit, L/C AVAILABLE BY DEFERRED PAYMENT

In this case the L/C opening bank has to effect payment after a period specified in the L/C calculated as to the number of days after the date of presentation of documents or after the date of shipment. Procedure for establishment of letter of credit The importer requests the opening bank for establishment of letter of credit on L/C application form along with the following documents. 1) Letter of credit application form 2) Indent / proforma invoice / purchase order duly confirmed by the counter party. 3) Insurance cover note/marine insurance policy 4) Appendix 5) Form I B & in case of importer of machinery also appendix C.

59

L/C application form & agreement Form It contains the following information Name and address of importer Name and address of exporter Amount in foreign currency Terms of credit sight / usance Description of goods Origin of goods Port of loading and discharging Last date of shipment and negotiation Foreign banks charges Terms of shipment (part shipment & transshipment) Insurance cover note / policy number and name of insurance company Forward booking request Mode of transmission Import registration number Any other conditions agreed Details/ documents required by importer INDENT PROFORMA INVOICE / PURCHASE ORDER An indent or proforma invoice is a quotation of the seller containing the description and specification of goods, price and terms of sale. INSURANCE COVER NOTE / marine insurance policy All the goods imported under the documentary credit must always be insured, Insurance cover is based on the following points. It is issued in the name of issuing bank

60

It should cover against war, strikes, riots and civil commotion The port of shipment and port of destination Amount of premium prepaid or premium under bank guarantee or against agent deposit. Shipment period should be within the validity of insurance Amount of insurance policy The description of goods Sometimes an open insurance policy is obtained from the importer wherein various types of goods are specified. Revolving insurance cover is received from the importer dealing in frequent import transactions of goods.

APPENDIX B
This proforma replace import license and is submitted along with L/C application form duly filled in triplicate. It contains the following information 1) Serial number 2) H.S.Code 3) Class of importer 4) Type of industry 5) Source of import 6) Country of import 7) Indent / proforma invoice No., name and address 8) Registration number of importer and indenter FORM I

61

This

is

an

application

for

permission

under

the

foreign

exchange regulation Act 1947 to purchase foreign exchange for payment of imports. SCRUTINY OF L/C APPLICATION It should cover the following points Is the customer a client of bank and maintains current account Is the address authorized L/C of importer complete sign and the and L/C confirmed Does Is the signatory application application complete properly filled Is the tenure of L/C clearly mentioned Does the customer has a valid Import Registration Certificate. Is H.S. code correct Has the amount of L/C been converted into the required currency and selling rate as per rate sheet Is the L/C amount, unit price and description of goods as pr Performa invoice In Pakistan he country of destination of goods Origin of goods is not a country PROHIBITED by the government of Pakistan Is proper date of shipment & negotiation mentioned in L/C application Has the competent authority granted approval for establishment of L/C. APPROVAL FOR ESTABLISHMENT OF LETTER OF CREDIT

62

After scrutiny, the application along with other documents is put before the manager for approval. Which gives approval if amount does not exceeds his discretionary powers. The authorized foreign exchange dealing branch applies the current rate for conversion in arriving at the correct liability.

FIXATION OF MARGIN
The competent authority fixes margin considering customers crenit worthiness as well as SBP / Principal Office conditions of margin requirement. CREDIT REPORT OF EXPORTER Before establishing L/C the branch should obtain credit report of beneficiary directly from foreign Correspondent or through Trade Information Department, Principal Office Present credit report requirement for letter of credit is for L/C of Rs.1,500,000/= and above.

FORWARD EXCHANGE BOOKING At the request of importer, forward exchange is booked for specific office. currency, amount and validity through the rates published and advised by Treasury and FX Group, Principal

FOREIGN CORESPONDENT L/C is advised beneficiary in the country of export through foreign correspondent. Selection is made as follows

63

1) Through MCB branch operating in that country 2) Through any branch of a nationalized bank 3) Through the foreign correspondent Processing of letters of credit The processing officer shall allot running serial number to each L/C opened and recorded in L/C opening register. The the amount of L/C if stated in Foreign currency is then converted into equivalent Pak Rupee by applying currency conversion rate from the daily Rate Sheet issued by treasury and FX Group. Then, the L/C liability and amount of margin. If any, are calculated. In addition to L/C opening register, a party- wise L/c liability register is also maintained, where in amount of L/c liability and margin are posted. The amount of margin and other charges are recovered to the debit of customers A/c. the following accounting entries are passed. Debit Credit Credit Credit customer/ importer a/c margin account L/C PLS Income Account Commission on L/C Telex/ Postage Charges Recovered Account

There after , contingent liability vouchers are passed as under. Debit L/C) Credit Banks liability Credit customers liability credit (with the amount of

The balancing is done on weekly basis for margin on L/C as well as L/C liability.

64

Transmission Of letter of credit Branches prepare L/C on Swift Format depending on the details and after final checking and signing L/C by two authorized signatories and forward the same to Swift Operating Centre at Principal Office for transmission of the message. Daily L/C OPENING STATEMENT Daily statement of L/C opened is submitted to Principal Office, Karachi. FORWARD EXCHANGE BOOKING AGAINST L/Cs At the request of importer, forward booking is made from Principal Office, Treasury and the same is recorded on the contract register. The contract slip is obtained from Principal Office Treasury. The acceptance of party is obtained on the customers copy of the contract slip for the amount, rate and period of forward sale contract. INLAND LETTER OF CREDIT Inland letter of credit is a sale transaction of goods by the bank to the party at a price mutually agreed upon between buyer and seller. The sale price consist of cost of goods plus margin of profit. The following documents duly signed by authorized officers are obtained while receiving L/C application from the customer. 1) L/C application form 2) Proforma invoice / indent / other form 3) Insurance cover note 4) Demand promissory note

65

Procedure that,

for

opening

and

transmission

of

inland

L/C

is

consistent with that of International l/c with the exception

The L/c is established in Pak Rupees Advised Pakistan. The documents received from the negotiating bank are through MCB branch or some other bank in

scrutinized strictly in accordance with the terms and conditions of L/C to ensure that they are free from discrepancies. At the time of establishment of L/C the following entries are passed.

Debit Credit Credit Credit A/c. Debit Credit

party account margin A/c L/C income A/c. Comm. On L/C Postage, courier, Telex Charges Recovered

Customers liability on inland L/c Banks Liability on Inland L/C

IMPORT BILLS PAYMENT AGAINST DOCUMENTS (PAD) When the documents are received from foreign bank, the L/C opening branch affixes the dak received stamp and enters the same be in dak received from register. original The duplicate set of the documents is kept with original set of documents and duplicate should separate while scrutinizing

66

documents, it is also ensured that all documents have been received as per the terms of L/C. Shipment information The branch is required to keep all the record of arrivals of ships . complete particulars of import bill are recorded in PAD Lodgment Register. The importer is contacted for acceptance of such documents but the acceptance does not tantamount to remit the proceeds before the retirement. In case of major discrepancies, the documents are lodged on collection and refund is claimed immediately along with up to date interest if the negotiating bank has already claimed the reimbursement. LODGEMENT OF IMPORT DOCUMENTS On the receipt mail of import documents by the branch, to it is

mandatory to affix date stamp and then the documents in the inward register before delivering them Imports department.

SCRUTINY OF IMPORT DOCUMENTS All the financial and commercial documents are scrutinized with the terms of credit. All the shipping documents should be consistent with each other in their data content. Any deviation is treated to be as discrepancy. RECEIPT OF IMPORT DOCUMENTS FROM FOREIGN BANKS The main documents received are, 1) Covering schedule of negotiating bank 2) Bill of exchange

67

3) Commercial invoices 4) Full set of bill of lading 5) Certificate of origin 6) Packing list 7) Shipment advice to Insurance company and importer 8) Other documents required as per terms of L/C. SCRUTINY OF DOCUMENTS Scrutiny of following documents is done Scrutiny of negotiated bank schedule Scrutiny of draft / bill of exchange Scrutiny of commercial invoice Scrutiny of bill of lading Scrutiny of airway bill Scrutiny of certificate of origin SIGHT BILL At the time of lodgment , the following general entries are passed

Debit Debit Credit Debit Credit After

PLS PAD A/c Margin Account L/C F.C Transactions in Transit Account Banks liability on L/C for Sight L/C Customers liability on L/C for Sight L/C lodgment of documents, the branch calculates sale price

and intimates the importer to purchase the documents at sale

68

price of the Bank. At the time of retirement, the following general entries are passed. Debit Credit Credit Credit partys account PLS PAD A/c (purchase price) PLS income A/c over duecommission income A/c over due commission

RETIREMENT OF DOCUMENTS The retirement of documents can be made by the following means. Through debit to the customers A/C Through Trust Receipt facility (FTR) offered by Bank Through Finance against Imported Merchandise (FIM) COST MEMO Cost memo is a prescribed printed form prepared in

quadruplicate and the amount in foreign currency is converted into Pak Rupee at Selling TT & OD rate of exchange. Any foreign correspondent charges and service charges are added to it.

Customer issues cheque/ authority letter to debit his account for bill amount plus mark up and charges calculated as per cost memo. After receiving the amount, two authorized signatories endorse the title documents and the same are delivered to the customer against proper acknowledgemen

69

SWOT ANALYSIS

Strength
Knowledge Relationship Customer Focus Quest for Quality Team based approach Employees respect & Dignity

Good Corporate Citizenship

Weakness
Foreign Branches Cost Structure
Lack of Training of Latest Banking Techniques

Opportunities
Foreign Bank Energy & Power Sector Investment Govt. Project

70

THREATS for MCB


FOLLWING ARE THE MAIN THREATS: Increasing number of foreign banks in country Privatization of domestic banks. Specialized services provided by the other banks. Inconsistency in Government policies in business and economic sector. Growing technology. Strict regulations of government over credit facility.

71

RECOMMENDATIONS
From the previous analysis it can be observed that MCB is performing well. Its deposits are growing day by day and so its profitability. 1) STAFF STRENGTH First thing I observed is the staff strength, which is very low as, compared to load of work. More employees should be hired to decrease the load of work and to give some relief to old workers. 2) WORKING EXTRA HOURS Working hours per day during office timing are from 9 Oclock to 5 Oclock, but I observed that bank staff has to work till 7 Oclock or 8 Oclock. According to my point of view there are two solutions for this problem. Either new staff should be hired to reduce the work load or employees should be given benefits for the extra hours they work.

3) TRAINING OF STAFF Training of staff should be according to modern technique on regular basis to equip them with the new and advance technology. 4) REVIVISIOB OF PAY STRUCTURE Pay structure of lower & and middle management should be revised in order to give them more benefits to increase their work efficiency.

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5) REVISION OF PAY STRUCTURE Pension at MCB has been abolished and employees feel

unsecure and uncertainity, pension system should be revived. 6) GRIP ON ALL BANKING TRANSACTIONS Most of the bank employees, are sticking to one seat only with the result that they become master of one particular job and loose their grip on other banking operation. In my opinion all the employees should have regular job experience all out-look towards banking. The promotion policy should be adjusted. 7) EASY COMMUNICATION TO HIGHER MANAGEMENT As such system should be designed that every employee who has some problems with his officers can communicate it to the higher management and some steps must be taken to improve that. 8) RECRUITMENT ON MERIT Recruitments should be strictly on merit basis and induction should be after proper and extensive training.

9) RECRUITMENT OF YOUNG & ENERGETIC STAFF Old and lazy staff should be replaced with young, qualified and energetic staff. 10) INCREASE IN FOREIGN BRANCHES

More foreign branches should be opened in order to capture the international market. 11) UPGRADING CUSTOMER SERVICES

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Proper attention should be given to upgrade customer services. 12) ADOPTION OF GLOBAL BANKING STRUCTURE

Bank should adopt the global organizational banking structure to meet the international standards of banking sector.

13)

ATTENTION TO SOCIAL ISSUES

Bank need to organize seminars on social issues and informal social activities to create an image of socially responsible institution. 14) Promotion PROMOTION POLICY should be on the basis of past performance,

experience and qualification of employees. No undue priorities should be given to some specific employees in this regard. 15) employees FOREIGN TRAINING OF EMPLOYEES should be sent abroad for training in advance

technology and acquiring more knowledge to meet international standards of Banking. 16) REFRESHER COURSES

Refresher courses for the staff are most important in any international organization. All the employees should have these courses according to their requirement on regularly basis in order to know the future trend & development. Foreign experts can also be called for this purpose. 17) Bank PROPER GUIDENCE should adopt his such an Induction with the plan that he when a be

customer

opens

account

bank,

should

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supplied

with

booklet,

which

enables

him

to

know

the

procedure of filling the cheque, pay-in-slip etc. It will save a lot of time of the bank staff afterward during the conduct of the account of that customer. A further step can also be taken to educate the people & customers by arranging seminars on specific areas, which are helpful in promoting healthy banking habits

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CONCLUSION It is evident from this report and the financial statements of MCB that it is making progress by leaps and bounds. The profits of MCB have grown considerably during the last few years and this trend is expected to continue into the future. Therefore, it can be said that MCB has a very prosperous present and future, which assures the shareholders of wealth maximization. I think if bank would be able to cover and control the above mentioned recommendations then it would be in such a situation that will really lead it towards the road of prosperity, development and integrity.

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REFERENCES
MCB, Shadman Branch Lahore Rao Zahid Khalil (Manager Operations) M. Waqas Qureshi (Manager Credit & Forex) Ms. Iffat (Customer Service officer) Annual report 2004 Annual report 2003 Annual report 2002 Annual report 2001 Advance accounting by M.A.Ghani Money banking & Finance by Riaz Ahmad Mian Banking currency & finance by M. Saeed Nasir www.mcb.com.pk MCB Brochures

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PRESENTED TO

GROUP EFFORT BY
NOOR HASSAN M. RAMZAN HAFEEZ SALEEM UD DIN MATEE-UR-REHMAN SHAHID ASLAM E04MBA097 E04MBA031 EO4MBA017 E04MBA011 E04MBA123

SECTION B 3 RD -SEMESTER

MCB BANK LTD.


FORMERLY (MUSLIM COMMERCIAL BANK LIMITED)

HAILEY COLLEGE OF BANKING & FINANCE


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