Report Mcb Bank Credit Analysis cooperative banking.
Content
MCB bank credit Analysis Corporate bank
Submitted by:
Naveed Anjum 8248
Class: MBA Banking and finance
Roll number 8248
2012-2016
GC university FSD
1
Subject Introduction:
The main purpose of credit management is to provide comprehensive information about a
customer in terms of their business and loan record. The credit management system helps
the banks and financial institutions to estimate that what type of advances should
provided to the customers and how to control excess amount of debts to minimize NPLs.
It is one of the important tasks to manage the credit. You should make a credit portfolio
which will help in obtaining better loan rates, lower interest rates and reduces the fees
linked with credit cards. If credit is not managed properly it leads to the repossessions
and bankruptcy. It is necessary for the credit worthiness and daily financial functioning of
a bank and financial institution. It is not necessary that if a business is successfully
creates sales, it is also successfully paying its financial obligation. Credit management
comprises several functions that contribute the financial health of the business.
History Of MCB Bank
MCB Bank Limited (Formerly Muslim Commercial Bank) was incorporated by
the Adamjee Group on July 9, 1947, under the Indian Companies Act, VII of 1913 as a
limited company. The bank was established with a view to provide banking facilities to
the business community of the South Asia. The bank was nationalized in 1974 during the
government of Zulfikar Ali Bhutto. This was the first bank to be privatized in 1991 and
the bank was purchased by a consortium of Pakistani corporate groups led by Nishat
Group. As of June 2008, the Nishat Group owns a majority stake in the bank. The
president of the bank is M.U.A Usmani.
Founded in 1948, Nishat Group is one of the leading and most diversified business
groups in Pakistan. The group has strong presence in the most important business sectors
of the country such as banking, textile, cement and insurance. Mian Mohammad
Mansha is the Chairman of the group (and also MCB).
Now the shares are held by Mian Mohammad Mansha is 51% and remaining 49% are
held by govt. of Pakistan and other publics.
2
Mission Statement of MCB Bank
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.
Vision
To be the leading financial services provider, partnering with our customers for a more
prosperous and secure future.
Board of Directors
Chairman
Mian Mohammad Mansha
Vice chairman
S. M. Muneer
Director
Tariq Rafi .
Director
Shahzad Saleem
Director
Sarmad Amin
Director
Mian Raza Mansha
Director
Aftab Ahmad Khan
Director
Mian Umer Mansha
Director
Ahmad Alman Aslam
3
The Bank’s core Values
Values of MCB:
Values are essential for any organization. Values of MCB are following;
Trust:
MCB is the trustee of public funds. It shows full commitment and integrity. MCB gives
strong importance to ethical behavior. It adopts full cooperation with internal and
external policies and procedures and operating with the legal framework.
Customer focus:
MCB always focus on developing long term relationship with its customers. It always
tries to retain its customers by fulfilling their expectations.
Innovation:
MCB always try hard to lead market in innovation of product and service offering.
Teamwork:
Our strength is the variety of our people. For achieving cooperative interaction among the
groups we work together and challenge and inspire each other.
Achievement:
Our most valuable assets are our people. Our commitment is our Result oriented culture.
Goals are very clear to us. Merit is an only criterion of rewards.
Social responsibility:
As a responsible citizen we contribute to the social welfare community.
4
Branches of MCB:
There are 3 types of braches MCB
1.
Corporate branches
20
2.
Consumer branches
637
3.
Commercial branches 383
Number of employees:
For its customer and employees MCB has more potential bank. With the passage of time
MCB increases its volume and its employees in this way MCB offering great working
opportunities for people who are interested to do job in MCB. MCB motivate its
employees with higher salaries according to their work and experience. Round about
9946 employees including permanent and contractual are working in MCB.
Product and services:
MCB provide following product and services;
MCB ATM card:
ATM network of MCB is very large and most advanced all over in the country. It
provides convenience to customers. It suits to the requirements of people. It is operated
globally.
Card categories;
MCB ATM regular card:
The MCB ATM card allows withdrawal of up to Rs.10, 000 per day and maximum of 3
withdrawals per day per card.
5
MCB ATM gold card:
MCB ATM hold card allows withdrawal up to Rs.25, 000 per day and maximum of 6
withdrawals per day per card. The card holder has to make at least two transactions to
withdraw the full amount of Rs.25, 000.
Bill payments:
MCB easy bill pay offers convenience to pay utility bills and mobile phone bills or
recharge pre-paid mobile phone accounts.
MCB Online Banking:
MCB has a fast growing network of1200+ online branches in the country providing
customers real-time online transaction facilities.
MCB Mother land Account:
The Mother land account allows Non-Resident Pakistani's to open accounts in their home
country while residing abroad.
MCB Advisory Services:
Financial and Capital Raising Advisory provides our clients with financial advisory
services, Commercial structuring support and access to capital resources to help
companies successfully finance their business/project.
MCB Islamic Banking:
MCB-Islamic Banking Group (IBG) provides Sarah-compliant solutions to its valued
Customers to full fill their deposit’s as well as financing needs. Customers’ needs on
deposit side are being satisfied keeping in view of their business, short term and long
term investment requirements; whereas on financing side, the Working Capital, Capital
Expenditures, Trade Business and Consumer requirements are being satisfied through
available sharia compliant financing products.
6
MCB Salary Club:
A payroll solution designed to make life easy; it simplifies all the monthly payroll related
banking needs of employers and opens the door to a world of special offers for
employees.
MCB Lockers:
MCB Lockers are the best protection for your valuables. Lockers of different capacities
are available nationwide.
MCB Full-Day Banking:
Enjoy the convenience of extended banking hours from 9 am to 5pm,including Saturday
MCB Full-Day Banking branches across the country.
ACCOUNTS:
Saving Account:
Most convenient way of saving rupees is saving account of MCB. Its basic features are as
follows;
Low average balance required.
Profit is paid on customer account on half yearly basis.
Withdraw cash through Pakistan’s largest ATM network.
Customer can use an account to pay bills 24 hours a day, 7 days a
week through virtual banking.
Current account:
Discover the quick, easy and convenient way to manage and use your money with an
MCB current account.
7
Features;
Low minimum balance is required.
U limited cash withdrawals and deposits.
Use MCB smart card to shop at thousands of merchants.
Affordable lockers.
Term deposit:
It is very valuable scheme. Customer can avail on choice of 1 month, 3 month, 1 year, 2
year, 3 year, 4 year, 5 year term deposit. Profit is provided on half yearly basis. Customer
can avail the credit facility up to 75% of total deposit.
Foreign currency account:
Through foreign currency account customer can earn attractive rates on foreign currency
investment. In these currencies customer can open foreign currency account;
US Dollar, UK Pound Sterling and Euro.
Traveler’s cheques:
In 1993 MCB introduced traveler’s cheque for the first time as safe cash for traveling and
travel related purposes. This product has been very popular. Customer prefers it over cash
for traveling and for all walks of life.
MCB Schemes:
MCB introduced following schemes to develop the saving habit in people.
1. Khushali bachat account:
Savings are encouraged in people by this scheme. It is introduced in Pakistan for the first
time.
8
8% rate of return is given per annum. Return is calculated on daily basis and paid half
yearly. Through this facility customer can pay their utility bills (electricity, gas and
telephone) without making any queues and delay.
2. Mahan Khushali scheme:
To encourage investment by paying profit month after month MCB introduced this
scheme.
Features:
Any individual can purchase khushali certificate (singly or jointly) proprietorship/
partnership concerns or companies etc.10, 000 shall be the minimum amount of
investment and maximum can be 1000,000. Maturity of Khushali certificate is 5 years.
14.70% profit is paid monthly.
It is reviewed in 6 month
3. Capital growth scheme:
Half year profit is paid on this scheme but it is not paid to customer or credited to his
account.
The amount of profit is reinvested on the intervals of six month.In other words profit is
provided half yearly on a cumulative basis and remains with the bank, until final payment
on maternity or open completion of the period set out for Haj Mubarak Account.
Zakat and tax calculations:
Profits are paid only on the time of encashment in Capital Growth Certificate. So Zakat
is applicable on the total amount of encashment (face value plus accumulated profit) at
2.5%. Tax is recovered on the accumulated profits at the applicable rate.
4. Khanam Bachat Account Scheme:
Rs.1000 is deposited by the customer on monthly basis for ten years. Rate of profit is
14.77% declared for 5 years normally. It can be change according to market situations.
9
Departments of MCB:
Following departments situated in MCB;
1. Cash department
2. Operations department
3. Customer service department
4. Remittances department
5.Clearing department
6.Trade department
7.Advance department
The Bank’s Customers
Knowing their customers and their needs is the key to the bank’s business success. Their
products and services are as diverse as their market segments. Their client relationship
managers are well equipped and well trained to provide the most efficient and
personalized service to the customers.
The Bank’s Investors
The Bank believes that the bottom line of any business is creating shareholder value. To
gain their trust and confidence, they believe in providing their investors timely, regular
and reliable information on their activities, structure, financial situation, and
performance.
10
The Bank’s Regulators
The Bank firmly believes in regulatory discipline and harmony of our corporate
objectives with regulatory framework. Their business methodologies are designed to
ensure compliance with the directives of all our regulators.
The Bank’s Communities
The Bank fully recognizes their corporate social responsibility, and their contributions to
different areas of the social sector are aimed to help improve the quality of life in the
Country.
Branch introduction:
This branch is a corporative located at circular road, Faisalabad. In this branch total
numbers of employees 45 And Branch Code 0326.
Management of the branch;
Chief manager :
Asif Awan
Branch manager
Ifkhtar Ahmad
Advance department
Naveed Akhtar
Foreign exchange department
Adnan Zafar
Cash department
Rashad Ali
Remittance department
Ashar Ali
Cashier
Wajid Ali
Peon
Muddassar
Security guard
Muhammad Waris
11
Chief Manager
Branch Manager
Department
Advance
Foreign Exch
Operational
Remittance
Cash
Cr.Manager
Forex Manger
A/c Officer
officer
Supervisor
Cr.officer
Forex officer
GBO
Casheir
teller
sorter
12
Chapter No. 2
Corporate Financing
Financial services specifically offered to corporations, such
as cash management, financing, underwriting, and issuing of stocks, bonds, or other
instruments. Financial institutions often maintain specific divisions for handling the
needs of corporate clients, separate from consumer or retail banking activities for
individual accounts.
Target Market:
Target Market of circular Branch, Faisalabad is corporations, mills etc.
In these corporations following industries are included;
Textile industry
Sugar industry
Beverage industry
Electronic industry
Chemical industry
Rice industry
FESCO
Existing Client:
Existing corporate clients of our branch are as follows;
Nishat textile
MTM
B.B.Jaan
Crescent textile
Madina Group of industries
13
Facilities provided by corporate banking:
Two types of facilities are provided in corporate banking.
These are as follows;
1. Funded facilities
2. Non funded facilities
In Funded Facilities funds/cash of bank is directly involved.
While in Non-Funded facilities Undertaking of bank is involved. In Non-Funded facilities
A. Funded Facilities-Foreign Currency:
These facilities are funded only in foreign currencies.
These are as under:
Foreign Currency Import Financing
Foreign Currency Export Financing
Foreign Currency Bills Discounting
1. Foreign Currency Export Financing
This product is offered to prime customers, who are already availing credit facilities with
a good record and have sufficient earnings.
In this product bank provides financing in foreign currency normally in US Dollars
against import purchases.
2. Foreign Currency bills discounting (FCBD)
Bank will provide financing in foreign currency, normally in US Dollars. Product will
normally be offered to the prime customers of bank who are having a good record.
14
B. Funded Facilities – Pak Rupees:
Following are the funded facilities in corporate banking in Pakistani
currency.
Finance against trust receipt (FATR)
Finance against foreign bills (FAFB)
Demand Finance/Term Finance
Payment against documents (PAD)
Finance against Packing Credit
Finance against imported merchandise (FIM)
Running Finance
Cash Finance
1. Finance against Trust Receipt
In this facility title goods against Sight letter of credit are released to customers after they
sign “Trust Receipt”.
Trust receipt is an evidence that customer is getting custody of goods as “Trustees” of the
bank but not as an owner.
Bank has lien on the goods released to customer because goods are released by the bank
due to its trust on the client
2. Financing against Foreign Bills
FAFB is a Post-Shipment finance facility which is allowed against export bills drawn
under LC or Firm Contract.
FAFB is primarily secured by a lien over the export bills drawn by exporter on importer
after effecting shipment..
3. Demand Finance/Term Finance
Under this facility finance is available to borrow for a fix period exceeding One Year,
and is repayable on the maturity date either in Lump sum or Installments at a future date.
15
Primary purpose of this facility is to finance Plant and Machinery, Land, Building etc.
3. Payment against Documents
It is not a regular lending facility it only arises when bank receives documents under a
Letter of Credit issued by the banks and makes payment against the documents.
Importer enters in buy back agreement with bank at the time of submitting request for
opening of LC.
Retirement occurs when importer receives the documents from the bank and pays the bill
amount along with markup.
4. Finance against Packing Credit (FAPC)
FAPC is Pre-Shipment Finance which is provided to exporters against valid Letter of
Credit.
FAPC is provided to exporters to meet the expenses listed below:
Freight Charges
Export Duty etc.
Handling Charges
Purchase of Goods
5.Finance Against Imported Merchandise (FIM)
The imported goods are to be pledged with MCB and the borrower is required to get each
consignment released within a specific period. But not exceeding more than 120 days.
FIM may be allowed in the following cases:
Financing of custom duties and government dues should be discouraged and FIM
should be allowed to finance the imported goods preferably at invoice price rather
than at landed cost.
However, in case if client requests for financing at inland cost, specific approval
must be obtained from relevant authority.
16
6.Running Finance
Running finance facility is provided to a customer, allowing withdrawals from the current
account in excess of the credit balance maintained by the customer with the bank.
This account is allowed to be operated freely allowing multi transactions but only in case
If the sanctioned limit is not violated and account is operated in accordance with
approved terms and conditions.
7.Cash Finance
It is a facility in which amount is disbursed against pledge of a merchandise. The amount
after retaining the prescribed percentage on stocks is transferred in a separate cash flow
account of customer.
2. Non Funded Facilities:
In Non-Funded facilities funds of bank are not directly involved. Bank is involved
because bank provides its Undertaking/Guarantee in these facilities.
Liability of bank in such facilities is contingent liability which arises only on the
happening of certain event.
Following Non-Funded facilities are provided by MCB.
Letter Of Credit (Foreign/Inland)
Bank’s Guarantee
Documents required for sanction of loan:
MCB require following documents from customer for the purpose of sanction of loan;
Loan application form
B.B.F (Basic Borrower Fact sheet)
Board Resolution
17
Terms and conditions:
Following terms and conditions are included in approval;
Markup agreement letter.
Promissory note.
Hypothecation
Personal guarantee
Promissory note:
It is a written agreement, Signed by two parties. It is unconditional promise by the maker
of agreement to pay a specific amount of money to payee on demand or at some future
date.
Hypothecation:
It is a weakest form of security. It is based on inventories.
The possession of security or inventory with the borrower. Ownership is also with the
customer. Bank only sign a letter from customer that borrower cannot sale the whole
property. He can sale only a specific limit of inventory equals or more than the loan
amount.
Personal guarantee:
Borrower can give the guarantee of third party. Guarantor cannot charge any fee from the
borrower other than the charges of documentation. Borrower will pay the charges to
guarantor.
Credit proposal process:
Credit proposal is made by branch. It includes all type of analysis of borrower.
i-e. History of customer, risk analysis of manufacturer and trader. It is different for both.
It also includes market analysis. It is approved by management committee.
18
Collateral / Margin:
Collateral means secondary nature. The security which is obtained for the purpose of loan
is secondary in nature. The main purpose of the bank is not to sell the property. Main
purpose of the bank is to recover the loan amount. Bank recovers the payment from the
cash flows of client. If borrower cannot make payments then bank sale the property to
recover the amount of loan.
Commercial property 25%
Residential property
75%
Stock margin
30% to 40%
They give preference to residential property.
Credit Analysis
The bank does qualitative as well as quantitative analysis of client before sanctioning of
loan.
1. Qualitative Analysis:
(i) Industry Analysis:
Industry analysis is conducted by the bank that if the condition of that industry is good
than give loan in that industry
(ii) Business Analysis:
Bank while sanctioning of loan analyze its business position by personal visits and
estimate their sales and may contact to their suppliers to know their transactions with the
client and their customers and consumers. Age of business is also important for
sanctioning of loan.
(iii) Management Analysis:
Bank always analyze the management coordination and communication within the
company and outside the company. If the coordination is good it shows that every
department is interlinked with other one and they doing the task within time which
increase company’s goodwill as well as the revenue and if revenue increases then bank at
a safe point to recover his loan.
19
(iv) Relation with the Bank:
If the bank has a strong relationship or good relationship with that firm or client then
bank is comfortable to give him the loan.
(v) Credit Worthiness:
If that firm has taken loan from any other bank in the past then check his credit
worthiness if it is good then it is easy to give him the loan.
2. Quantitative Analysis:
(i) Financial Analysis:
Take financials such as income statement and balance sheet of the business of clients to
check the financial position of the business.
(ii) Ratio Analysis:
The Bank does ratio analysis of the client’s business to check the position of business.
Interest Rate on Loan:
All loans are sanctioned on KIBOR plus the margin of the bank which varies according
to the nature of clients and their relationship with the bank which is mostly 2 or 3% etc.
And it also different for different products offered by the bank. Bank margin depends
upon risk .If risk is high margin will be high.
Recovery process:
The recovery process in MCB is deals by a department named as SMP (special asset
management).When a customer is default the matter is sent to SMP only if the amount is
more than 2 million. In case of recovery the bank not charges SMR (standard mark up)
but also charge COF (cost of fund).
The default situation is lies on 3 categories
20
1. Substandard
When a customer not pays amount after 90 days of due date the bank considered 25% of
outstanding amount as loss
2. Doubtful
In this case if customer not pays amount of his debt after spending the 180 days of due
date the bank considered 50% of outstanding amount as loss.
3. Loss
In case of spending the 365 days after the due date the whole amount (100%) is
considered as loss.
The following documents will be seen in case of customer default.
1.Acount opening form
This is the form which is given by bank at the time of account opening. It has terms and
conditions relating to account. when a customer default then bank 1st of all see the a/c
opening form of customer.
2. CNIC
CNIC stand for computerized national card.
3.Account statement purpose
Its contain the statement in which the purpose of loan taken is mentioned.
4. IB forms
IB-02 promissory note
It is a written agreement, Signed by two parties. It is unconditional promise by the
maker of agreement to pay a specific amount of money to payee on demand or
at some future date.
21
IB-06 mark up
Simple means bank profit. Its difference b/w the rate of interest at which loan
taken and at the rate at which loan is given to customer.
IB-25A letter of hypothecation (primary security)
The bank pledge the stock of customer and issue the loan the ownership is remain
with customer and the bank has right to seize possession in case of customer
default
IB-29 guarantee
guarantee vary from customer to customer.
5. Margin
The customer has to pay /deposit security over and above the loan
amount the bank normally 30% margin in order to in order to cover
the credit default risk. Its means bank require RS:100 security for
granting RS:70 loan.
6. Security
Primary (hypothecation )
Its weakest form of security in which bank pledge an asset normally stock and
grant loan. The ownership is remain with customer. . Bank only sign a letter from
customer that borrower cannot sale the whole property. He can sale only a
specific limit of inventory equals or more than the loan amount.
secondary
The bank require land and building as a security.
22
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
2. Telephone calls:
Make two or three calls.
3. Personal visits:
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
23
Chapter No. 3
Small Medium Enterprise
SME financing:
MCB Bank has created a special area of activity in providing customized financial
solutions for SMEs. MCB as your bank for life we understand the success of your
business what derives you. We have variety of financial products, flexible rates and
expert advice; your business can become competitively edged in the market place.
There are above 100 MCB branches which are providing services to SMEs
SME is further divided into two following categories;
SE: Small enterprise:
A small enterprise (SE) is a business entity which meets both the following
parameter.
Number of employees
*Up to 20
Annual sales turnover
Up to Rs. 75 million
24
ME. Medium Enterprise:
Medium enterprise (ME) is a business entity, ideally not a public limited company
which meets both the following parameters:
*No.
Entity
Manufacturing
service MEs
of
Annual sales
employees
turnover
21-250
Above Rs. 75 million
&
and up to Rs. 400
million
(All types of MEs)
Trading MEs
21-50
*Including contract employees.
25
Target market:
SME financing is mostly provided to those clients who are professionally traders or
manufacturers. In market, MCB provides SME financing to the traders of:
Electric appliances
Yarn
Medicine
Sugar
Cotton
Wheat
Financing is required by all of them.
Existing client:
Chenab market
Medicine distributers
Traders
Pepsi distributers
Al nafeh supply chain
All target clients are monitoring.
Products of SME banking:
Products are categorized into two following types;
1. Funded facilities
2. Non-Funded facilities
26
1. Funded facilities:
Following are the funded facilities;
Running finance
Running finance facility is provided to a customer, allowing withdrawals from the current
account in excess of the credit balance maintained by the customer with the bank.
This account is allowed to be operated freely allowing multi transactions but only
in case If the sanctioned limit is not violated and account is operated in
accordance with approved terms and condition
Cash finance
It is a facility in which amount is disbursed against pledge of a merchandise. The amount
after retaining the prescribed percentage on stocks is transferred in a separate cash flow
account of customer.
Export Running Finance (ERF)
ERF stands for Export Running Finance. These are for pre-shipment and
post-
shipment.
Finance against Trust Receipt (FATR)
It is stands for Finance against Trust Receipt. It is provided after the use of L.C.
Finance against Importer Merchant (FIM)
It is stands for Finance against Importer Merchant.
Foreign Currency Export Finance (FCEF)
It is stands for Foreign Currency Export Finance. It is provided in foreign currency.
Foreign Bills Purchased (FBP)
It is stands for Foreign Bills Purchased.
27
Bill of Lending
(BL)
It is stands for Bill of Lending.
B. Non-Funded facilities:
In these facilities risk is not directly involved. These are the major facilities of MCB.
letter of credit (L.C)
It is stands for letter of credit. Importer uses these facilities. It is non-collateral. It is
document basis.
Bank Guarantee
(BG)
It is stands for Bank Guarantee. For this facility bank take any security from customer
and issue bonds to him.
Documents delivered against Acceptance (DDAA)
It is stands for Documents delivered against Acceptance. It is Usunce basis. Days are
involved in this. Collateral is used in it. Payment is received after 90 to 120 or 180 days.
28
Credit proposal preparation process:
Loan application form
Existing facilities
Required facilities
Securities detail
Previous year performance
Justification for purpose
Financial analysis
Mark up history
Collateral analysis
Risk analysis
Account strategy
Customer information
Recommendations
29
Credit analysis:
Annual revenue
Performance
Income & expense statement, balance sheet
Current ratio
Inventory
Sales comparison with last year
Profit comparison
Terms and Conditions:
•
Repayment in equal monthly installments (EMI).
•
Title search of property documents is mandatory.
•
Information regarding availed loans from other banks should be authentic.
•
Personal information should be valid.
•
Mandatory verification checks of borrowers and collateral.
•
Bureau reports regarding repayment history of all borrowers wherever
applicable should be unambiguous, positive and satisfactory.
•
Property insurance is mandatory.
•
Equitable/Token registered mortgage/registered mortgage based on legal
opinion.
•
Noting of mortgage charge in bank’s favor is mandatory as per bank’s
policy.
•
Legal opinion from bank’s approved professional lawyers.
• Collateral appraisal through bank’s approved valuation agencies.
• Income estimation through bank’s approved Chartered Accountants.
30
Time period for approval:
They start before 60 days.
Payback period:
For short period of time. They decide any three continuous days of a year for
payback.
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
2. Telephone calls:
Make two or three calls.
3. Personal visits:
31
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
32
Chapter No. 4
Consumer Financing
“Consumer financing is the segment of financial service industry that lends
money to individual consumer. Its include credit cards, car financing and
mortgage loans”.
Many banks in Pakistan provide the consumer financing facility to consumer. By
using this facility consumer meet our day to day needs, expenses and fulfill our
day to day needs.
Target Market:
Salaried persons: who have minimum Rs.60000
Business persons: who have bank statement oflast two years.
Existing client:
Massod textile
B.B.Jan
Madina oil refinery etc.
Products of consumer banking:
MCB is providing following products for our consumers;
1. Credit card
2. Personal loan
3. Auto loan
4. House financing
5. Debit card
33
6. Business sarmaya
1.
Credit card:
MCB mostly focus on this product
They charge no mark up on this facility. Interest rate is fixed on this facility.
Interest is 0.25%.
2. Personal loan:
This facility is temporary. For this facility MCB do qualitative analysis of
client.
3. Auto loan:
For this facility MCB focus on the physical security of client i-e Car.
From this facility bank save 50%. MCB mostly work on this facility.
4. House Financing:
It is also a temporary facility in MCB. In this facility plot is receive as
security.
5. Debit card:
MCB pay attention on this product also. No interest is charged on this facility.
6. Business sarmaya:
It is closed in our branch.
Interest rate:
It is vary from client to client. 3 month KIBOR plus interest charged.
Documents required for sanction of loan:
MCB require following documents from customer for the purpose of sanction
of loan;
Copy of valid CNIC
Salary slip
Basic Borrower Fact Sheet (BBFS)
34
It is known as borrower’s basic fact sheet. It is according to the format given by SBP. It is
a type of request letter provided by the client to the bank for loan.
LAF:
It is the loan application form which a customer has to submit with the bank for
sanctioning of the loan in which he has to mention his personal information and purpose
of loan.
Income Certificate:
The client must have to provide the bank his income certificate through which the bank
check his daily cash flows of income and judge whether that person is eligible for
advancing the loan or not and he will be able to repay the loan and through it they can
easily estimates the risk criteria of client.
Others:
Other formalities or documents are also required by the bank while sanctioning a
personal loan to customer which may includes a copy of valid CNIC of the client and if
he is a salaried person attached his salary slip and the salary cheque he is given by the
firm or organization where he works with the other documents.
Loan application form
B.B.F (Basic Borrower Fact sheet)
Board Resolution
Terms and conditions:
Following terms and conditions are included in approval;
Markup agreement letter.
Promissory note.
Hypothecation
Personal guarantee
35
Promissory note:
It is a written agreement, Signed by two parties. It is unconditional promise by the
maker of agreement to pay a definite sum of money to payee on demand or at
some future specified date.
Hypothecation:
It is a weakest form of security. It is based on inventories.
The possession of security or inventory with the borrower. Ownership is also with
the customer. Bank only sign a letter from customer that borrower cannot sale the
whole property. He can sale only a specific limit of inventory equals or more than
the loan amount.
Personal guarantee:
Borrower can give the guarantee of third party. Guarantor cannot charge any fee
from the borrower other than the charges of documentation. Borrower will pay the
charges to guarantor.
Credit proposal process:
Credit proposal is made by branch. It includes all type of analysis of borrower’s-e.
History of customer, risk analysis of manufacturer and trader. It is different for
both. It also includes market analysis. It is approved by management committee.
Collateral / Margin:
Collateral means secondary nature. The security which is obtained for the purpose
of loan is secondary in nature. The main purpose of the bank is not to sell the
property. Main purpose of the bank is to recover the loan amount. Bank recovers
the payment from the cash flows of client. If borrower cannot make payments
then bank sale the property to recover the amount of loan.
36
Commercial property 25%
Residential property
75%
Stock margin
30% to 40%
They give preference to residential property.
Payback period:
In case of default for S.E (small enterprises) it is 90 days.
For M.E (Medium Enterprises) it is 180 days.
For substandard it is 90 days and provision is 25%.
For doubtful it is 180 days and provision 50%.
In case off loss it is one year plus and provision will 100%.
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
37
2. Telephone calls:
Make two or three calls.
3. Personal visits:
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
38
Submitted by:
Naveed Anjum 8248
Class: MBA Banking and finance
Roll number 8248
2012-2016
GC university FSD
1
Subject Introduction:
The main purpose of credit management is to provide comprehensive information about a
customer in terms of their business and loan record. The credit management system helps
the banks and financial institutions to estimate that what type of advances should
provided to the customers and how to control excess amount of debts to minimize NPLs.
It is one of the important tasks to manage the credit. You should make a credit portfolio
which will help in obtaining better loan rates, lower interest rates and reduces the fees
linked with credit cards. If credit is not managed properly it leads to the repossessions
and bankruptcy. It is necessary for the credit worthiness and daily financial functioning of
a bank and financial institution. It is not necessary that if a business is successfully
creates sales, it is also successfully paying its financial obligation. Credit management
comprises several functions that contribute the financial health of the business.
History Of MCB Bank
MCB Bank Limited (Formerly Muslim Commercial Bank) was incorporated by
the Adamjee Group on July 9, 1947, under the Indian Companies Act, VII of 1913 as a
limited company. The bank was established with a view to provide banking facilities to
the business community of the South Asia. The bank was nationalized in 1974 during the
government of Zulfikar Ali Bhutto. This was the first bank to be privatized in 1991 and
the bank was purchased by a consortium of Pakistani corporate groups led by Nishat
Group. As of June 2008, the Nishat Group owns a majority stake in the bank. The
president of the bank is M.U.A Usmani.
Founded in 1948, Nishat Group is one of the leading and most diversified business
groups in Pakistan. The group has strong presence in the most important business sectors
of the country such as banking, textile, cement and insurance. Mian Mohammad
Mansha is the Chairman of the group (and also MCB).
Now the shares are held by Mian Mohammad Mansha is 51% and remaining 49% are
held by govt. of Pakistan and other publics.
2
Mission Statement of MCB Bank
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.
Vision
To be the leading financial services provider, partnering with our customers for a more
prosperous and secure future.
Board of Directors
Chairman
Mian Mohammad Mansha
Vice chairman
S. M. Muneer
Director
Tariq Rafi .
Director
Shahzad Saleem
Director
Sarmad Amin
Director
Mian Raza Mansha
Director
Aftab Ahmad Khan
Director
Mian Umer Mansha
Director
Ahmad Alman Aslam
3
The Bank’s core Values
Values of MCB:
Values are essential for any organization. Values of MCB are following;
Trust:
MCB is the trustee of public funds. It shows full commitment and integrity. MCB gives
strong importance to ethical behavior. It adopts full cooperation with internal and
external policies and procedures and operating with the legal framework.
Customer focus:
MCB always focus on developing long term relationship with its customers. It always
tries to retain its customers by fulfilling their expectations.
Innovation:
MCB always try hard to lead market in innovation of product and service offering.
Teamwork:
Our strength is the variety of our people. For achieving cooperative interaction among the
groups we work together and challenge and inspire each other.
Achievement:
Our most valuable assets are our people. Our commitment is our Result oriented culture.
Goals are very clear to us. Merit is an only criterion of rewards.
Social responsibility:
As a responsible citizen we contribute to the social welfare community.
4
Branches of MCB:
There are 3 types of braches MCB
1.
Corporate branches
20
2.
Consumer branches
637
3.
Commercial branches 383
Number of employees:
For its customer and employees MCB has more potential bank. With the passage of time
MCB increases its volume and its employees in this way MCB offering great working
opportunities for people who are interested to do job in MCB. MCB motivate its
employees with higher salaries according to their work and experience. Round about
9946 employees including permanent and contractual are working in MCB.
Product and services:
MCB provide following product and services;
MCB ATM card:
ATM network of MCB is very large and most advanced all over in the country. It
provides convenience to customers. It suits to the requirements of people. It is operated
globally.
Card categories;
MCB ATM regular card:
The MCB ATM card allows withdrawal of up to Rs.10, 000 per day and maximum of 3
withdrawals per day per card.
5
MCB ATM gold card:
MCB ATM hold card allows withdrawal up to Rs.25, 000 per day and maximum of 6
withdrawals per day per card. The card holder has to make at least two transactions to
withdraw the full amount of Rs.25, 000.
Bill payments:
MCB easy bill pay offers convenience to pay utility bills and mobile phone bills or
recharge pre-paid mobile phone accounts.
MCB Online Banking:
MCB has a fast growing network of1200+ online branches in the country providing
customers real-time online transaction facilities.
MCB Mother land Account:
The Mother land account allows Non-Resident Pakistani's to open accounts in their home
country while residing abroad.
MCB Advisory Services:
Financial and Capital Raising Advisory provides our clients with financial advisory
services, Commercial structuring support and access to capital resources to help
companies successfully finance their business/project.
MCB Islamic Banking:
MCB-Islamic Banking Group (IBG) provides Sarah-compliant solutions to its valued
Customers to full fill their deposit’s as well as financing needs. Customers’ needs on
deposit side are being satisfied keeping in view of their business, short term and long
term investment requirements; whereas on financing side, the Working Capital, Capital
Expenditures, Trade Business and Consumer requirements are being satisfied through
available sharia compliant financing products.
6
MCB Salary Club:
A payroll solution designed to make life easy; it simplifies all the monthly payroll related
banking needs of employers and opens the door to a world of special offers for
employees.
MCB Lockers:
MCB Lockers are the best protection for your valuables. Lockers of different capacities
are available nationwide.
MCB Full-Day Banking:
Enjoy the convenience of extended banking hours from 9 am to 5pm,including Saturday
MCB Full-Day Banking branches across the country.
ACCOUNTS:
Saving Account:
Most convenient way of saving rupees is saving account of MCB. Its basic features are as
follows;
Low average balance required.
Profit is paid on customer account on half yearly basis.
Withdraw cash through Pakistan’s largest ATM network.
Customer can use an account to pay bills 24 hours a day, 7 days a
week through virtual banking.
Current account:
Discover the quick, easy and convenient way to manage and use your money with an
MCB current account.
7
Features;
Low minimum balance is required.
U limited cash withdrawals and deposits.
Use MCB smart card to shop at thousands of merchants.
Affordable lockers.
Term deposit:
It is very valuable scheme. Customer can avail on choice of 1 month, 3 month, 1 year, 2
year, 3 year, 4 year, 5 year term deposit. Profit is provided on half yearly basis. Customer
can avail the credit facility up to 75% of total deposit.
Foreign currency account:
Through foreign currency account customer can earn attractive rates on foreign currency
investment. In these currencies customer can open foreign currency account;
US Dollar, UK Pound Sterling and Euro.
Traveler’s cheques:
In 1993 MCB introduced traveler’s cheque for the first time as safe cash for traveling and
travel related purposes. This product has been very popular. Customer prefers it over cash
for traveling and for all walks of life.
MCB Schemes:
MCB introduced following schemes to develop the saving habit in people.
1. Khushali bachat account:
Savings are encouraged in people by this scheme. It is introduced in Pakistan for the first
time.
8
8% rate of return is given per annum. Return is calculated on daily basis and paid half
yearly. Through this facility customer can pay their utility bills (electricity, gas and
telephone) without making any queues and delay.
2. Mahan Khushali scheme:
To encourage investment by paying profit month after month MCB introduced this
scheme.
Features:
Any individual can purchase khushali certificate (singly or jointly) proprietorship/
partnership concerns or companies etc.10, 000 shall be the minimum amount of
investment and maximum can be 1000,000. Maturity of Khushali certificate is 5 years.
14.70% profit is paid monthly.
It is reviewed in 6 month
3. Capital growth scheme:
Half year profit is paid on this scheme but it is not paid to customer or credited to his
account.
The amount of profit is reinvested on the intervals of six month.In other words profit is
provided half yearly on a cumulative basis and remains with the bank, until final payment
on maternity or open completion of the period set out for Haj Mubarak Account.
Zakat and tax calculations:
Profits are paid only on the time of encashment in Capital Growth Certificate. So Zakat
is applicable on the total amount of encashment (face value plus accumulated profit) at
2.5%. Tax is recovered on the accumulated profits at the applicable rate.
4. Khanam Bachat Account Scheme:
Rs.1000 is deposited by the customer on monthly basis for ten years. Rate of profit is
14.77% declared for 5 years normally. It can be change according to market situations.
9
Departments of MCB:
Following departments situated in MCB;
1. Cash department
2. Operations department
3. Customer service department
4. Remittances department
5.Clearing department
6.Trade department
7.Advance department
The Bank’s Customers
Knowing their customers and their needs is the key to the bank’s business success. Their
products and services are as diverse as their market segments. Their client relationship
managers are well equipped and well trained to provide the most efficient and
personalized service to the customers.
The Bank’s Investors
The Bank believes that the bottom line of any business is creating shareholder value. To
gain their trust and confidence, they believe in providing their investors timely, regular
and reliable information on their activities, structure, financial situation, and
performance.
10
The Bank’s Regulators
The Bank firmly believes in regulatory discipline and harmony of our corporate
objectives with regulatory framework. Their business methodologies are designed to
ensure compliance with the directives of all our regulators.
The Bank’s Communities
The Bank fully recognizes their corporate social responsibility, and their contributions to
different areas of the social sector are aimed to help improve the quality of life in the
Country.
Branch introduction:
This branch is a corporative located at circular road, Faisalabad. In this branch total
numbers of employees 45 And Branch Code 0326.
Management of the branch;
Chief manager :
Asif Awan
Branch manager
Ifkhtar Ahmad
Advance department
Naveed Akhtar
Foreign exchange department
Adnan Zafar
Cash department
Rashad Ali
Remittance department
Ashar Ali
Cashier
Wajid Ali
Peon
Muddassar
Security guard
Muhammad Waris
11
Chief Manager
Branch Manager
Department
Advance
Foreign Exch
Operational
Remittance
Cash
Cr.Manager
Forex Manger
A/c Officer
officer
Supervisor
Cr.officer
Forex officer
GBO
Casheir
teller
sorter
12
Chapter No. 2
Corporate Financing
Financial services specifically offered to corporations, such
as cash management, financing, underwriting, and issuing of stocks, bonds, or other
instruments. Financial institutions often maintain specific divisions for handling the
needs of corporate clients, separate from consumer or retail banking activities for
individual accounts.
Target Market:
Target Market of circular Branch, Faisalabad is corporations, mills etc.
In these corporations following industries are included;
Textile industry
Sugar industry
Beverage industry
Electronic industry
Chemical industry
Rice industry
FESCO
Existing Client:
Existing corporate clients of our branch are as follows;
Nishat textile
MTM
B.B.Jaan
Crescent textile
Madina Group of industries
13
Facilities provided by corporate banking:
Two types of facilities are provided in corporate banking.
These are as follows;
1. Funded facilities
2. Non funded facilities
In Funded Facilities funds/cash of bank is directly involved.
While in Non-Funded facilities Undertaking of bank is involved. In Non-Funded facilities
A. Funded Facilities-Foreign Currency:
These facilities are funded only in foreign currencies.
These are as under:
Foreign Currency Import Financing
Foreign Currency Export Financing
Foreign Currency Bills Discounting
1. Foreign Currency Export Financing
This product is offered to prime customers, who are already availing credit facilities with
a good record and have sufficient earnings.
In this product bank provides financing in foreign currency normally in US Dollars
against import purchases.
2. Foreign Currency bills discounting (FCBD)
Bank will provide financing in foreign currency, normally in US Dollars. Product will
normally be offered to the prime customers of bank who are having a good record.
14
B. Funded Facilities – Pak Rupees:
Following are the funded facilities in corporate banking in Pakistani
currency.
Finance against trust receipt (FATR)
Finance against foreign bills (FAFB)
Demand Finance/Term Finance
Payment against documents (PAD)
Finance against Packing Credit
Finance against imported merchandise (FIM)
Running Finance
Cash Finance
1. Finance against Trust Receipt
In this facility title goods against Sight letter of credit are released to customers after they
sign “Trust Receipt”.
Trust receipt is an evidence that customer is getting custody of goods as “Trustees” of the
bank but not as an owner.
Bank has lien on the goods released to customer because goods are released by the bank
due to its trust on the client
2. Financing against Foreign Bills
FAFB is a Post-Shipment finance facility which is allowed against export bills drawn
under LC or Firm Contract.
FAFB is primarily secured by a lien over the export bills drawn by exporter on importer
after effecting shipment..
3. Demand Finance/Term Finance
Under this facility finance is available to borrow for a fix period exceeding One Year,
and is repayable on the maturity date either in Lump sum or Installments at a future date.
15
Primary purpose of this facility is to finance Plant and Machinery, Land, Building etc.
3. Payment against Documents
It is not a regular lending facility it only arises when bank receives documents under a
Letter of Credit issued by the banks and makes payment against the documents.
Importer enters in buy back agreement with bank at the time of submitting request for
opening of LC.
Retirement occurs when importer receives the documents from the bank and pays the bill
amount along with markup.
4. Finance against Packing Credit (FAPC)
FAPC is Pre-Shipment Finance which is provided to exporters against valid Letter of
Credit.
FAPC is provided to exporters to meet the expenses listed below:
Freight Charges
Export Duty etc.
Handling Charges
Purchase of Goods
5.Finance Against Imported Merchandise (FIM)
The imported goods are to be pledged with MCB and the borrower is required to get each
consignment released within a specific period. But not exceeding more than 120 days.
FIM may be allowed in the following cases:
Financing of custom duties and government dues should be discouraged and FIM
should be allowed to finance the imported goods preferably at invoice price rather
than at landed cost.
However, in case if client requests for financing at inland cost, specific approval
must be obtained from relevant authority.
16
6.Running Finance
Running finance facility is provided to a customer, allowing withdrawals from the current
account in excess of the credit balance maintained by the customer with the bank.
This account is allowed to be operated freely allowing multi transactions but only in case
If the sanctioned limit is not violated and account is operated in accordance with
approved terms and conditions.
7.Cash Finance
It is a facility in which amount is disbursed against pledge of a merchandise. The amount
after retaining the prescribed percentage on stocks is transferred in a separate cash flow
account of customer.
2. Non Funded Facilities:
In Non-Funded facilities funds of bank are not directly involved. Bank is involved
because bank provides its Undertaking/Guarantee in these facilities.
Liability of bank in such facilities is contingent liability which arises only on the
happening of certain event.
Following Non-Funded facilities are provided by MCB.
Letter Of Credit (Foreign/Inland)
Bank’s Guarantee
Documents required for sanction of loan:
MCB require following documents from customer for the purpose of sanction of loan;
Loan application form
B.B.F (Basic Borrower Fact sheet)
Board Resolution
17
Terms and conditions:
Following terms and conditions are included in approval;
Markup agreement letter.
Promissory note.
Hypothecation
Personal guarantee
Promissory note:
It is a written agreement, Signed by two parties. It is unconditional promise by the maker
of agreement to pay a specific amount of money to payee on demand or at some future
date.
Hypothecation:
It is a weakest form of security. It is based on inventories.
The possession of security or inventory with the borrower. Ownership is also with the
customer. Bank only sign a letter from customer that borrower cannot sale the whole
property. He can sale only a specific limit of inventory equals or more than the loan
amount.
Personal guarantee:
Borrower can give the guarantee of third party. Guarantor cannot charge any fee from the
borrower other than the charges of documentation. Borrower will pay the charges to
guarantor.
Credit proposal process:
Credit proposal is made by branch. It includes all type of analysis of borrower.
i-e. History of customer, risk analysis of manufacturer and trader. It is different for both.
It also includes market analysis. It is approved by management committee.
18
Collateral / Margin:
Collateral means secondary nature. The security which is obtained for the purpose of loan
is secondary in nature. The main purpose of the bank is not to sell the property. Main
purpose of the bank is to recover the loan amount. Bank recovers the payment from the
cash flows of client. If borrower cannot make payments then bank sale the property to
recover the amount of loan.
Commercial property 25%
Residential property
75%
Stock margin
30% to 40%
They give preference to residential property.
Credit Analysis
The bank does qualitative as well as quantitative analysis of client before sanctioning of
loan.
1. Qualitative Analysis:
(i) Industry Analysis:
Industry analysis is conducted by the bank that if the condition of that industry is good
than give loan in that industry
(ii) Business Analysis:
Bank while sanctioning of loan analyze its business position by personal visits and
estimate their sales and may contact to their suppliers to know their transactions with the
client and their customers and consumers. Age of business is also important for
sanctioning of loan.
(iii) Management Analysis:
Bank always analyze the management coordination and communication within the
company and outside the company. If the coordination is good it shows that every
department is interlinked with other one and they doing the task within time which
increase company’s goodwill as well as the revenue and if revenue increases then bank at
a safe point to recover his loan.
19
(iv) Relation with the Bank:
If the bank has a strong relationship or good relationship with that firm or client then
bank is comfortable to give him the loan.
(v) Credit Worthiness:
If that firm has taken loan from any other bank in the past then check his credit
worthiness if it is good then it is easy to give him the loan.
2. Quantitative Analysis:
(i) Financial Analysis:
Take financials such as income statement and balance sheet of the business of clients to
check the financial position of the business.
(ii) Ratio Analysis:
The Bank does ratio analysis of the client’s business to check the position of business.
Interest Rate on Loan:
All loans are sanctioned on KIBOR plus the margin of the bank which varies according
to the nature of clients and their relationship with the bank which is mostly 2 or 3% etc.
And it also different for different products offered by the bank. Bank margin depends
upon risk .If risk is high margin will be high.
Recovery process:
The recovery process in MCB is deals by a department named as SMP (special asset
management).When a customer is default the matter is sent to SMP only if the amount is
more than 2 million. In case of recovery the bank not charges SMR (standard mark up)
but also charge COF (cost of fund).
The default situation is lies on 3 categories
20
1. Substandard
When a customer not pays amount after 90 days of due date the bank considered 25% of
outstanding amount as loss
2. Doubtful
In this case if customer not pays amount of his debt after spending the 180 days of due
date the bank considered 50% of outstanding amount as loss.
3. Loss
In case of spending the 365 days after the due date the whole amount (100%) is
considered as loss.
The following documents will be seen in case of customer default.
1.Acount opening form
This is the form which is given by bank at the time of account opening. It has terms and
conditions relating to account. when a customer default then bank 1st of all see the a/c
opening form of customer.
2. CNIC
CNIC stand for computerized national card.
3.Account statement purpose
Its contain the statement in which the purpose of loan taken is mentioned.
4. IB forms
IB-02 promissory note
It is a written agreement, Signed by two parties. It is unconditional promise by the
maker of agreement to pay a specific amount of money to payee on demand or
at some future date.
21
IB-06 mark up
Simple means bank profit. Its difference b/w the rate of interest at which loan
taken and at the rate at which loan is given to customer.
IB-25A letter of hypothecation (primary security)
The bank pledge the stock of customer and issue the loan the ownership is remain
with customer and the bank has right to seize possession in case of customer
default
IB-29 guarantee
guarantee vary from customer to customer.
5. Margin
The customer has to pay /deposit security over and above the loan
amount the bank normally 30% margin in order to in order to cover
the credit default risk. Its means bank require RS:100 security for
granting RS:70 loan.
6. Security
Primary (hypothecation )
Its weakest form of security in which bank pledge an asset normally stock and
grant loan. The ownership is remain with customer. . Bank only sign a letter from
customer that borrower cannot sale the whole property. He can sale only a
specific limit of inventory equals or more than the loan amount.
secondary
The bank require land and building as a security.
22
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
2. Telephone calls:
Make two or three calls.
3. Personal visits:
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
23
Chapter No. 3
Small Medium Enterprise
SME financing:
MCB Bank has created a special area of activity in providing customized financial
solutions for SMEs. MCB as your bank for life we understand the success of your
business what derives you. We have variety of financial products, flexible rates and
expert advice; your business can become competitively edged in the market place.
There are above 100 MCB branches which are providing services to SMEs
SME is further divided into two following categories;
SE: Small enterprise:
A small enterprise (SE) is a business entity which meets both the following
parameter.
Number of employees
*Up to 20
Annual sales turnover
Up to Rs. 75 million
24
ME. Medium Enterprise:
Medium enterprise (ME) is a business entity, ideally not a public limited company
which meets both the following parameters:
*No.
Entity
Manufacturing
service MEs
of
Annual sales
employees
turnover
21-250
Above Rs. 75 million
&
and up to Rs. 400
million
(All types of MEs)
Trading MEs
21-50
*Including contract employees.
25
Target market:
SME financing is mostly provided to those clients who are professionally traders or
manufacturers. In market, MCB provides SME financing to the traders of:
Electric appliances
Yarn
Medicine
Sugar
Cotton
Wheat
Financing is required by all of them.
Existing client:
Chenab market
Medicine distributers
Traders
Pepsi distributers
Al nafeh supply chain
All target clients are monitoring.
Products of SME banking:
Products are categorized into two following types;
1. Funded facilities
2. Non-Funded facilities
26
1. Funded facilities:
Following are the funded facilities;
Running finance
Running finance facility is provided to a customer, allowing withdrawals from the current
account in excess of the credit balance maintained by the customer with the bank.
This account is allowed to be operated freely allowing multi transactions but only
in case If the sanctioned limit is not violated and account is operated in
accordance with approved terms and condition
Cash finance
It is a facility in which amount is disbursed against pledge of a merchandise. The amount
after retaining the prescribed percentage on stocks is transferred in a separate cash flow
account of customer.
Export Running Finance (ERF)
ERF stands for Export Running Finance. These are for pre-shipment and
post-
shipment.
Finance against Trust Receipt (FATR)
It is stands for Finance against Trust Receipt. It is provided after the use of L.C.
Finance against Importer Merchant (FIM)
It is stands for Finance against Importer Merchant.
Foreign Currency Export Finance (FCEF)
It is stands for Foreign Currency Export Finance. It is provided in foreign currency.
Foreign Bills Purchased (FBP)
It is stands for Foreign Bills Purchased.
27
Bill of Lending
(BL)
It is stands for Bill of Lending.
B. Non-Funded facilities:
In these facilities risk is not directly involved. These are the major facilities of MCB.
letter of credit (L.C)
It is stands for letter of credit. Importer uses these facilities. It is non-collateral. It is
document basis.
Bank Guarantee
(BG)
It is stands for Bank Guarantee. For this facility bank take any security from customer
and issue bonds to him.
Documents delivered against Acceptance (DDAA)
It is stands for Documents delivered against Acceptance. It is Usunce basis. Days are
involved in this. Collateral is used in it. Payment is received after 90 to 120 or 180 days.
28
Credit proposal preparation process:
Loan application form
Existing facilities
Required facilities
Securities detail
Previous year performance
Justification for purpose
Financial analysis
Mark up history
Collateral analysis
Risk analysis
Account strategy
Customer information
Recommendations
29
Credit analysis:
Annual revenue
Performance
Income & expense statement, balance sheet
Current ratio
Inventory
Sales comparison with last year
Profit comparison
Terms and Conditions:
•
Repayment in equal monthly installments (EMI).
•
Title search of property documents is mandatory.
•
Information regarding availed loans from other banks should be authentic.
•
Personal information should be valid.
•
Mandatory verification checks of borrowers and collateral.
•
Bureau reports regarding repayment history of all borrowers wherever
applicable should be unambiguous, positive and satisfactory.
•
Property insurance is mandatory.
•
Equitable/Token registered mortgage/registered mortgage based on legal
opinion.
•
Noting of mortgage charge in bank’s favor is mandatory as per bank’s
policy.
•
Legal opinion from bank’s approved professional lawyers.
• Collateral appraisal through bank’s approved valuation agencies.
• Income estimation through bank’s approved Chartered Accountants.
30
Time period for approval:
They start before 60 days.
Payback period:
For short period of time. They decide any three continuous days of a year for
payback.
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
2. Telephone calls:
Make two or three calls.
3. Personal visits:
31
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
32
Chapter No. 4
Consumer Financing
“Consumer financing is the segment of financial service industry that lends
money to individual consumer. Its include credit cards, car financing and
mortgage loans”.
Many banks in Pakistan provide the consumer financing facility to consumer. By
using this facility consumer meet our day to day needs, expenses and fulfill our
day to day needs.
Target Market:
Salaried persons: who have minimum Rs.60000
Business persons: who have bank statement oflast two years.
Existing client:
Massod textile
B.B.Jan
Madina oil refinery etc.
Products of consumer banking:
MCB is providing following products for our consumers;
1. Credit card
2. Personal loan
3. Auto loan
4. House financing
5. Debit card
33
6. Business sarmaya
1.
Credit card:
MCB mostly focus on this product
They charge no mark up on this facility. Interest rate is fixed on this facility.
Interest is 0.25%.
2. Personal loan:
This facility is temporary. For this facility MCB do qualitative analysis of
client.
3. Auto loan:
For this facility MCB focus on the physical security of client i-e Car.
From this facility bank save 50%. MCB mostly work on this facility.
4. House Financing:
It is also a temporary facility in MCB. In this facility plot is receive as
security.
5. Debit card:
MCB pay attention on this product also. No interest is charged on this facility.
6. Business sarmaya:
It is closed in our branch.
Interest rate:
It is vary from client to client. 3 month KIBOR plus interest charged.
Documents required for sanction of loan:
MCB require following documents from customer for the purpose of sanction
of loan;
Copy of valid CNIC
Salary slip
Basic Borrower Fact Sheet (BBFS)
34
It is known as borrower’s basic fact sheet. It is according to the format given by SBP. It is
a type of request letter provided by the client to the bank for loan.
LAF:
It is the loan application form which a customer has to submit with the bank for
sanctioning of the loan in which he has to mention his personal information and purpose
of loan.
Income Certificate:
The client must have to provide the bank his income certificate through which the bank
check his daily cash flows of income and judge whether that person is eligible for
advancing the loan or not and he will be able to repay the loan and through it they can
easily estimates the risk criteria of client.
Others:
Other formalities or documents are also required by the bank while sanctioning a
personal loan to customer which may includes a copy of valid CNIC of the client and if
he is a salaried person attached his salary slip and the salary cheque he is given by the
firm or organization where he works with the other documents.
Loan application form
B.B.F (Basic Borrower Fact sheet)
Board Resolution
Terms and conditions:
Following terms and conditions are included in approval;
Markup agreement letter.
Promissory note.
Hypothecation
Personal guarantee
35
Promissory note:
It is a written agreement, Signed by two parties. It is unconditional promise by the
maker of agreement to pay a definite sum of money to payee on demand or at
some future specified date.
Hypothecation:
It is a weakest form of security. It is based on inventories.
The possession of security or inventory with the borrower. Ownership is also with
the customer. Bank only sign a letter from customer that borrower cannot sale the
whole property. He can sale only a specific limit of inventory equals or more than
the loan amount.
Personal guarantee:
Borrower can give the guarantee of third party. Guarantor cannot charge any fee
from the borrower other than the charges of documentation. Borrower will pay the
charges to guarantor.
Credit proposal process:
Credit proposal is made by branch. It includes all type of analysis of borrower’s-e.
History of customer, risk analysis of manufacturer and trader. It is different for
both. It also includes market analysis. It is approved by management committee.
Collateral / Margin:
Collateral means secondary nature. The security which is obtained for the purpose
of loan is secondary in nature. The main purpose of the bank is not to sell the
property. Main purpose of the bank is to recover the loan amount. Bank recovers
the payment from the cash flows of client. If borrower cannot make payments
then bank sale the property to recover the amount of loan.
36
Commercial property 25%
Residential property
75%
Stock margin
30% to 40%
They give preference to residential property.
Payback period:
In case of default for S.E (small enterprises) it is 90 days.
For M.E (Medium Enterprises) it is 180 days.
For substandard it is 90 days and provision is 25%.
For doubtful it is 180 days and provision 50%.
In case off loss it is one year plus and provision will 100%.
Recovery method:
From ethical point of view;
1. Recovery letter:
In recovery latter we take these points into account;
They use polite words .Show courtesy They never show his default
Wait some time for reply
First reminder
In first reminder give reference of the letter
Then they give
2nd reminder
In this reminder give reference of the letter and first reminder
When aging of account increase we make
37
2. Telephone calls:
Make two or three calls.
3. Personal visits:
They try to go at his work place. They never go his personal place means never go
at his home.
4. Recovery agencies:
If these processes fail then they hire strong persons at commission for recovery.
5. Legal action:
We file suit
38
