Introduction of Banking Industry

What is Bank?
By G.W. Gilbert,

  • "A banker is a dealer in capital or more properly a dealer in money. He is an intermediate party between the borrower and the lender. He borrows from one party and lends to another."

Under Banking Companies Ordinance 1962, {S: 3(B)}

  • "Banker means person transacting the business of accepting for the purpose of lending or investment, of deposits of money from the public, repayable on demand or otherwise and withdraw able by cheque, draft, order or otherwise and includes any Post Office Savings Bank."

Banking is one of the most sensitive businesses all over the world. Banks play very important role in the economy of a country. Banks are guardian to the assets of the general stacks. The banking sector plays a noteworthy role in a modern world of money and economy.

Evolution of Commercial Banks in Pakistan

  • The country started without any worthwhile banking network in 1947 but witnessed exceptional growth in the first two decades. At the time of independence, there were only two banks, which were incorporated in undivided India and whose owners were Muslims; they opt to shift their Head Offices in Pakistan and with the founding of SBP, the other banks also came into existence and by 1973 number of banks increased to fourteen in Pakistan.

Commercial Banking in Pakistan:

  • Commercial banking in Pakistan can be divided in three phases and Commercial banks operating in Pakistan can be divided into four categories:
  • Nationalized Commercial Banks (NCBs),
  • Privatized Banks,
  • Private Banks
  • Foreign Banks.

Pre-Nationalization Phase

  • There were only two Muslim banks in Indo Pak before partition one of them was Habib Bank Ltd. (establish in1941 at Bombay) and second was Australia Bank Ltd. (establish in 1944 at Lahore). Firstly at time of independent Reserve Bank of India was acting as central bank for both countries and same currency notes were used in both countries. But Reserve Bank of India was unfair. After that some steps taken which built a strong banking industry in Pakistan these are here under:
  • Establishment of State Bank of Pakistan (SBP) on 1st July, 1948.
  • Establishment of National Bank of Pakistan in November, 1949
  • SBP Act (1956)
  • Banking Companies Ordinance 1962

Nationalization Phase

  • In 1974 all Pakistani banks were nationalized through Nationalization Act 1974. Under this law all Pakistani banks became a public property. All small banks were merged in bigger banks to create 5 major Pakistani banks Pakistani banks. These banks were to control by Pakistan Banking Council. There are still controversies about this act of government as whether it contributed in success of failure of banks.

Post Nationalization Phase

  • In 1990 the government decided to denationalize all the nationalized institutes. For this purpose, amendments were made to Nationalization Act 1974 and two nationalized banks were privatized. Along with this a permission to open banks in private sector was also granted. The rules regarding establishment of new banks and for incoming foreign banks were also relaxed.

Introduction of MCB Bank Limited

MCB is one of the top banks of Pakistan with a deposit base of Rs. 368 Billion and total assets over Rs.500 Billion. Incorporated in 1947, MCB soon earned the reputation of a solid and unadventurous financial institution managed by emigrant executives. In 1974, MCB was nationalized along with all other private sector banks. The Bank has a customer base of approximately 4 million, a nationwide distribution network of over 1,000 branches and over 450 ATMs in the market.

Vision Statement

  • To be the leading financial services provider, partnering with our customers for a more prosperous and secure future.

Mission Statement

  • We are a team of committed professionals, providing innovative and efficient financial solutions to create and nurture long-term relationships with our customers. In doing so, we ensure that our shareholders can invest with confidence in us.

Values of MCB Bank

Integrity

  • We are the trustees of public funds and serve our community with integrity. We believe in being the best at always doing the right thing. We deliver on our responsibilities and commitments to our customers as well as our colleagues.

Respect

  • We respect our customer’s values, beliefs, culture and history. We value the equality of gender and diversity of experience and education that our employees bring with them. We create an environment where each individual is enabled to succeed.

Excellence

  • We take personal responsibility for our role as leaders in the pursuit of excellence. We are a performance driven, result oriented organization where merit is the only criterion for reward.

Customer Centricity

  • Our customers are at the heart of everything we do. We thrive on the challenge of understanding their needs and aspirations, both realized and unrealized. We make every effort to exceed customer expectations through superior services and solutions.

Innovation

  • We encourage and reward people who challenge the status quo and think beyond the boundaries of the conventional. Our teams work together for the smooth and efficient implementation of ideas and initiatives.

Business Volume Corporate Information

MCB Bank Limited is Public Limited Company listed on Karachi, Lahore & Islamabad Stock Exchanges in Pakistan, under license number BCD (1) 17-66 dated 8th December 1966 and its external Auditors KPMG Taseer Hadi & Co. (Chartered Accountants) total number of shareholders - as of December31-12-2009 is 691,104,527.

Historical Overview

Formation:

  • MCB (formally Muslim commercial bank limited) Bank Limited completed his 64 years in the field of banking quite successfully. MCB was formed in 1946 in Calcutta. The registered office of the bank transferred to Karachi in 1948.

Achievements:

  • MCB Bank Limited won Best Bank in Pakistan Euro money awards seven times in 2000, 2001, 2003, 2004, 2005, 2006 and 2008, Best Domestic Bank in Pakistan five times 2004, 2005, 2006, 2008 and 2009, Asset award Best Domestic Bank in Pakistan 2009 and Euro money awards Best Bank in Asia 2008.

Change of Name:

  • The name of bank has been changed from Muslim Commercial Bank Ltd to MCB Bank Ltd.


Shifting of Head Office:

  • In 2008 the head office of MCB was shifted to Lahore in a newly constructed building, namely MCB House, located at Jail Road, from Karachi.

Products and Services

During my stay I observer that a large verity of products and services are offer by the MCB Bank and I will explain in detail these services and product as functioning of commercial bank.

Main Products and Services

Deposit

  • Bank accepts deposits which are maintain by the bank in different kinds of accounts. MCB bank offers these accounts for depositing the funds.

Current Account

  • MCB Bank offers a variety of current accounts to cater to the everyday transactional needs of various customers.

Savings Account

  • MCB savings accounts offer attractive profit rates as well as flexibility to transact.

Terms Deposit

  • MCB Term Deposits offer attractive short to mid-term investment options with flexibility, convenience and security.

Loans and Advances

  • Banks grant loans to the spenders so MCB bank also grant different kids of loan to different customers

Consumers Loans:

  • MCB bank offer loans for personal use to the individuals or group of people it will be granted on the incomes of the desired individuals.

Commercial and Corporate:

  • MCB also offer commercial loans to the individual and group of people it will granted on the in three ways as under:
  • Hypothecation: In this case ownership and possession in names and hands of client.
  • Pledge: In this case ownership and possession in names and hands of bank.
  • Mortgage: In this caseownershipin names of bank but possession in hand of client.

Running Finance:

  • It will be issue on hypo bases and personal guaranty is required for it.

Running Finance Instant:

  • It will be issue on pledge bases and personal guaranty is required for it.

Cash Finance:

  • It will also issue on pledge base pledge and personal guaranty is also required for it.

Cash for Cash:

  • It will also issue on pledge bases but in this case pledge assets must be liquid and personal guaranty is also required for it.

Demand Finance:

  • It will be issue on mortgage bases and personal guaranty is also required for it.

Others Products and Services

MCB Visa Credit Card

  • MCB offers a complete suite of Classic, Gold and Platinum Visa Credit Cards focusing on providing, superior service, travel privileges & shopping pleasure.

MCB Smart Card

  • MCB Smart Card is the key that enables access to convenient banking services.

MCB Rupee Travelers Cheque

  • Rupee Travelers Cheque, being the market leader, is the most widely accepted way to pay cash for travel-related purposes.

MCB ATMs

  • MCB has one of the nation's largest ATM networks with over 450 ATMs and still growing.

MCB Mobile ATM

  • MCB Mobile ATM not only provides world class banking service but also provide convenience.

MCB SMS Banking

  • SMS anytime to get information regarding balance, mini statements and credit card related information once your card is linked.

MCB Mobile

  • MCB Mobile is a quick easy and secure way to recharge mobile phones, transfer money, pay bills and do much more.

MCBCallCenter

  • There’s no easier way to bank than the new enhanced 24/7 MCBCallCenter, which blends innovation and convenience to provide Banking Services that go beyond expectations.

MCB Investment Services

  • MCB Investment Services offer distribution of mutual funds managed by the leading fund managers of Pakistan

MCB Advisory Services

  • MCB also provide financial advisory services, commercial structuring support and access to capital resources to help companies successfully finance their business/project.

MCB Lockers

  • Lockers of different capacities are available nationwide.

MCB Banc assurance

  • MCB Banc assurance has created a one-stop shop for all your financial and insurance needs.

MCB Local Rupee Drawing Arrangement

  • Transaction Banking Department at MCB provides Local Rupee Drawing Arrangement, a product for small banks and financial institutions.

MCB Home Remittance

  • MCB Home Remittance provides a faultless inflow of foreign remittances credited in the beneficiary’s account within minutes.

MCB Quasi Equity/Hybrid Instruments

  • MCB places a group of debt that has some uniqueness of equity such as being unsecured, subordinated or with a budding equity upside.

MCB Equity Capital Raising

  • MCB offer capital for their clients by offering common or preferred equity to public or private investors, through initial public offers, offers for sale, rights issues and private equity placements

MCB Islamic Banking

  • MCB Islamic Banking provides Reba Free and Sarah Compliance services to a variety of customer segments

Functions of MCB Bank Limited

Finance system of the bank:

  • The financial system of MCB Bank primarily consist of two pillars which are also may be components of other commercial banks financial system.
  • A Simple Chart of finance system is as under:

Accepting Deposits:

  • The main primary function is to accepting the deposits from customer it is also main source of funds for bank. There are different types of accounts on which deposits are accepted by bank.
  • These are the component of financial system which termed as severs or lender in finance system of MCB Bank:
  • Households
  • Partnership firms
  • Public/Private Companies
  • Financial Institutions/ Banks
  • Foreigner
  • Government/ SBP

Granting Loans:

  • The another function is to granting loans to borrower or spender for use it is also main source of income for the MCB Bank like other commercial bank. There are different types of loans which granted by the bank.
  • These are also components of financial system of MCB Bank and termed as borrower or spender:
  • Households
  • Partnership firms
  • Public/Private Companies
  • Financial Institutions/ Banks
  • Foreigner
  • Government/public project financing

A broader approach of MCB Bank Limited financial system can also include source of funds and allocation of funds. This approach is more prominent then above one. Here under is a chart is given:

Sources of Funds

Depositors:

  • Like all commercial bank deposits are main source of MCB Bank and recently in 2009 total amount of deposits are 363,258,355, 000 rupees. There are different types of deposits which as under:

Types of Deposits In Rupees

Fixed deposits 62,651,531, 000

Saving deposits 173,797,078, 000

Current accounts 123,898,324, 000

Margin accounts 2,910,655, 000

Others 767, 000

Total amount 363,258,355, 000

Shareholders:

  • Equity is also main source of funds for MCB Bank and recently in 2009 equity is rupees 6,911,045, 000.

Financial Institutions:

  • MCB Bank another sources of fund is financial institutions and in recently 2009 total amount of financial institutions deposits are rupees 4,346,356, 000. Interbank transactions are also a valuable source under the head of financial institutions.

State Bank of Pakistan:

  • SBP remains the source of funds for all commercial bank and MCB Bank can also can utilizes the funds from SBP which is lender of last resorts for all commercial bank.

Allocation of Funds

Loans:

  • MCB bank allocate the funds for profit generation it is also proved to be the best items in funds allocation and recently in 2009 total markup earns through it is rupees 36,212,097, 000.

Advances:

  • Short-term loans are also a valuable source of incomes so MCB Bank also allocating the funds in it. These may include:
  • Cash Credit
  • Overdraft
  • Discounting of bills

Securities:

  • MCB Bank also makes investment in securities and in recently 2009 total earning from investing in securities are rupees 13,894,162, 000.

Others:

  • MCB Bank also allocates his funds many other activities for generating revenue these may include:
  • Repurchase agreement
  • Interbank transactions
  • Project Financing

Electronic Data for Decision Making

MCB Bank has good IT based information system which is used for decision making so it enhance the overall capabilities by providing information timely and accurate. MCB use different MIS and KMS software for communication purpose all over the Pakistan within its branches and with SBP Bank.

  • Examples
  • During my stay I observe that such activities are made on the base of electronic data which are maintained by the branches or CRCD officer.
  • Granting loans
  • Blocking limits
  • Removal of discrepancies

Organizational Structure

Introduction

  • To the best of my knowledge and from different sources here under structure of Management of MCB Bank is explained below.

Chairman

  • Mian Mohammad Mansha

Vice Chairman

  • Mr. S. M. Muneer

President / CEO

  • Mr. M.U.A. Usmani

Chief Financial Officer:

  • Mr.Salman Zafar Siddiqi

Principal Office:

  • MCB 15 Main Gulberg, Lahore

Registrars and Share Registration Office:

  • MCB 15 Main Gulberg, Lahore

M/s. THK Associates (Pvt.) Limited

StateLifeBuilding No.3,

Dr. Ziauddin Ahmed Road, Karachi

Hierarchy of Management

Here under hierarchy of MCB Bank Limited is listed in downward integration (from upper to lower chain of command)

Corporate Profile

Names / Designations
Board of Directors
Mian Mohammad Mansha / Chairman
Mr. S. M. Muneer / Vice Chairman
Mr. M.U.A. Usmani / CEO / President and Member
Mr. Tariq Rafi / Member
Mr. Shahzad Saleem / Member
Mr. Sarmad Amin Member / Member
Dr. Muhammad Yaqub / Member
Mian Raza Mansha / Member
Dato' Mohammed Hussein / Member
Mr. Aftab Ahmad Khan / Member
Mr. Abdul Farid Bin Alias / Member
Mian Umer Mansha / Member
Mr. Muhammad Ali Zeb / Member
Audit Committee
Mr. Tariq Rafi / Chairman
Dr. Muhammad Yaqub / Member
Dato' Mohammed Hussein / Member
Mr. Aftab Ahmad Khan / Member
Mr. Muhammad Ali Zeb / Member
Mr. Malik Abdul Waheed / Member
Human Resources Committee
Mian Mohammad Mansha / Chairman
Dr. Muhammad Yaqub / Member
Mian Raza Mansha / Member
Mr. Shahzad Saleemn / Member
Mr. M.U.A. Usmani / Member
Risk Management & Portfolio Review Committee
Mr. Shahzad Saleem / Chairman
Mr. Tariq Rafi / Member
Mr. Sarmad Amin / Member
Mian Raza Mansha / Member
Mian Umer Mansha / Member
Committee on Physical Planning, IT System & Contingency Arrangements
Mr. Sarmad Amin / Chairman
Mr. S. M. Muneer / Member
Mr. Tariq Rafi / Member
Mian Raza Mansha / Member
Mr. Abdul Farid Bin Alias / Member
Mr. M.U.A. Usmani / Member
Business Strategy & Development Committee
Mian Mohammad Mansha / Chairman
Mr. S. M. Muneer / Member
Mr. Shahzad Saleem / Member
Mian Raza Mansha / Member
Dr. Muhammad Yaqub / Member
Dato' Mohammad Hussein / Member
Mian Umer Mansha / Member
Mr. M.U.A. Usmani / Member

Critical Analysis

Risk framework:

  • MCB Bank has good risk framework a Risk Management & Portfolio Review Committee is in place which has five members including chairman of the committee. This committee is responsible for developing risk frame work according to the guidelines of SBP.
  • Currently a centralized framework is apply by the MCB which is comply with the guidelines of SBP I will discuss in detail where it applied for risk mitigation of all types of risk faced by the bank in this dynamic environment. Here under all types of risk which faced by the bank.

Risks faced by the bank

Systematic Risk:

  • In finance terms systematic risk are market risk, aggregate risk, or un-diversifiable risk, is the risk associated with aggregate market returns. This risk should not be confused with systemic risk because risk of loss from some shattering event that collapses the entire financial system.

Unsystematic Risk:

  • In Finance terms unsystematic risk are specific risk, idiosyncratic risk, residual risk, and diversifiable risk these are the company specific risk in a portfolio which is uncorrelated with aggregate market returns. Here under some of these risk are as under:

Credit Risk:

  • MCB face credit risk it arises from dealings with individuals, corporate, financial institutions, sovereigns etc.
  • Market Risk:
  • MCB face market risk which arises from changes in market rates such as Interest Rates, Foreign Exchange Rates and Equity Prices etc.

Liquidity Risk: