final project mcb

8/11/2019 Final Project Mcb

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Bank Credit Management

(MCB Bank)

Submitted to: Mr. Ahmad Gillani

Submitted by:

Khalid Imran (8257) Naveed Anjum (8248)

Shakeel Ahmad (8249) Amber Raza (8253)

MBA 4

th

Semester (Morning)

Session 2012-2016

Department of Banking & Finance

G.C. University, Faisalabad


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Certificate by the project supervisor

We certified that the contents and format of project submitted by,

Khalid Imran 8257

Naveed Anjum 8248

Shakeel Ahmad 8249

Amber Raza 8253

Have been found satisfactory and according to the prescribed format.

Supervisor --------------------------

Mr. Ahmed Gillani

Lecturer

Department of Banking And Finance

GC University Faisalabad


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DEDICATION

We would like to dedicate this project to Our parents and Teachers who have always

encourage and guide Us throughout in Our academic career and make possible for Us to

stand where we are today.


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ACKNOWLEDGEMENT

We bow, beg and pray to Almighty Allah, Rehman-o-Rahim, in the name of our beloved

Prophet Muhammad (peace be upon him) for continued showering of His blessing,

Guidance, strength, health, and prosperity to us.

This project is a part of our course Bank Credit management . This has proved to be a

great experience. This project is combine effort of Khalid Imran, Naveed anjum, Shakeel

ahmad, Amber raza. We would like to express our gratitude to our teacher Mr. Syed

Ahmed Gillani who gave us this opportunity to fulfil this project.

We also are very thankful to Mr. Akram (Marketing department at MCB Bank Limited,

Circular road branch, Faisalabad), Mr. Sajjad Sarwar ( Credit Manager), Mr. Zuhaib

Nazir Relationship officer), Mr. Asad Mehmood incharge leasing who all give us

guideline and information to complete this project.


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EXECUTIVE SUMMARY

This Project is required by our department. The purpose of Project is to write down all

the major Credit activities that are done by bank in that particular branch .we have take

different financing sector of bank and their strategies and credit policies for the

advancement of loan to different organizations and individuals . we analyze that bank

always use all kind of defensive weapon to reduce their risk.

It comprise of:

Formal part

Introduction of the organization

Corporate Financing

Small and Medium Enterprise Financing

Consumer Financing


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Sr.

#

Particulars Page

No

Chapter number 1 IntroductionSubject information 8History of MCB Bank Limited 8

Mission Statement of MCB Bank Limited 9

Vision Statement of MCB Bank Limited 9

Board of Directors 9

The Banks core Values 10

Branches of MCB 11

Number of employees 11

Product and services 11

Account 13

MCB Schemes 15Departments of MCB 16

Banks Customers 16

Bankers Investors 17

Bankers Regulators 17

Banks Communities 17

Branch Introduction 18

Hierarchy of MCB Bank Limited 19

Chapter Number 2 Corporate FinancingCorporation finance 20

Target Market 20

Existing Client 20

Facility provided by Corporate banking 21

Funded Facility 21

Non Funded facility 24

Document required for sanction of loan 25

Term and condition 25

Credit proposal process 26

Collateral / Margin 26

Credit Analysis 27

Recovery Process 28Recovery Method 30

Chapter Number 3 SME Financing 32

Categories of SME 32

Target Markets 34

Exciting Client 34

Facility provided by SME 34

Funded Facility 35


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Non Funded Facility 36

Credit proposal preparation process 37

Credit Analysis 39

Term and condition 40Time period of approval 40

Recovery method 40

Chapter Number 4 Consumer FinancingWhat is Consumer Financing 42

Target market 42

Exciting client 42

Products of consumer banking 43

Document required sanction of loan 44

Term and condition 45

Credit proposal process 46Collateral /Margin 46

Payback period 46

Recover method 47

Conclusion 48

Bibliography 49


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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) wasincorporatedby

theAdam jee 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 wasnationalized in 1974 during the

government ofZulfikar 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 amajority 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.
http://en.wikipedia.org/wiki/Incorporation_(business)http://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Nationalizedhttp://en.wikipedia.org/wiki/Zulfikar_Ali_Bhuttohttp://en.wikipedia.org/wiki/Majorityhttp://en.wikipedia.org/wiki/Nishat_Grouphttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Mian_Mohammad_Manshahttp://en.wikipedia.org/wiki/Nishat_Grouphttp://en.wikipedia.org/wiki/Majorityhttp://en.wikipedia.org/wiki/Zulfikar_Ali_Bhuttohttp://en.wikipedia.org/wiki/Nationalizedhttp://en.wikipedia.org/wiki/Adamjee_Grouphttp://en.wikipedia.org/wiki/Incorporation_(business)


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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


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The Bankscore 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.


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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.


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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.

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 of 1200+ 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.


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MCB Islamic Banking:

MCB-Islamic Banking Group (IBG) provides Sarah-compliant solutions to its valued

Customers to full fill their deposits 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.

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.


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MCB Schemes:

MCB introduced following schemes to develop the saving habit in people.

1. Khushali bachat scheme:

Savings are encouraged in people by this scheme. It is introduced in Pakistan for the first

time.

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.

Mahana 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.


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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.

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 Banks Customers:

Knowing their customers and their needs is the key to the banks 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.


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The Banks Investors:

The Bank believes that the bottom line of any business is creating shareholder value. Togain their trust and confidence, they believe in providing their investors timely, regular

and reliable information on their activities, structure, financial situation, and

performance.

The Banks Regulators:

The Bank firmly believes in regulatory discipline and harmony of our corporate

objectives with regulatory framework. Their business methodologies are designed toensure compliance with the directives of all our regulators.

The Banks 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.


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Branch introduction:

This branch is 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


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Branch hierarchy:

Chief Manager

Branch Manager

Department

Foreign ExchAdvance Cash

Cr.officer

RemittanceOperational

Cr.Manager Forex Manger

Forex officer

A/c Officer

GBO

officer Supervisor

Casheir

teller sorter


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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


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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

1.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.


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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.

B.

Funded FacilitiesPak 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.


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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.

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


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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.

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.


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Following Non-Funded facilities are provided by MCB.

Letter Of Credit (Foreign/Inland)

Banks 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

Terms and conditions:

Following terms and conditions are included in approval;

Markup agreement letter.

Promissory note.

Hypothecation

Personal guarantee

Markup agreement letter:

The letter which contain an agreement between bank and its client that

how much interest rate is charged by bank.

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.


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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.

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.


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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 companys goodwill as well as the revenue and if revenue increases then bank at

a safe point to recover his loan.

(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.


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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 clients 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

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.


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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. Account 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 1stof 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.

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


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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.

Recovery method:

From ethical point of view;

1. Recovery letter:

In recovery latter we take these points into account;

Use polite words ,Show courtesy & never show his customer default.

Wait some time for reply

First reminder

In first reminder letter bank send the letter to its just informing thats your

amount of loan is still payable. If customer not reply then they will give


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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:

If customer does not make the payment then bank will file a suit against

customer.


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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;

Small enterprise: (SE)

A small enterprise (SE) is a business entity which meets both the following

parameter.

Number of employees Annual sales turnover

*Up to 20 Up to Rs. 75 million


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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.


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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.


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Credit proposal preparation process:


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


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Explanation :

1. Loan application form:

The loan application form is given by bank to its customer before

granting loan.

1. Existing facilities:

The facilities which are currently available to its customer at the time of giving

loan.

2. Required facilities:

Required facilities means facilities demanded by customer at the time of taking

loan

3. Security detail:

While granting the loan bank check the marketability of the securities provided by

customer

4. Pervious year performance:

The previous year financial performance of the customer also checked by bank

while he is capable of paying their debts or not.

5. Justification of purpose:

The bank verify the purpose of loan said by the customer whether he want to

use money for the purpose or not.

6.

Financial analysis:In financial analysis the bank will check the income statement, balance sheet ,cash

flow statement of the customer in order to secure himself.

7. Mark up history:

What the rate of interest is charged to the customer.


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8. Collateral analysis:

What collateral magin is charged on security while giving loan it vary from

security to security

commercial property 25%

residence property 75%

stock 30& 40% margin is charged.

9. Risk analysis:

Bank always try to secure himself. For the purpose bank will see the liquidity of

security provided by customer. Whether in case of customer default the bank will

collect his amount of debt from customer or not.

10.Account strategy:

What type of account customer wants to open.

11.Customer information:

For granting loan to its customer bank also collect the necessary information

related to its customer just like credit report and credit information be rue (CIB)

report.

12.Recommendation :

After all inspecting all the above stated points then bank will grant

recommendation that the loan is given to that customer or not.

Credit analysis:

Annual revenue

Performance

Income & expense statement, balance sheet

Current ratio

Inventory

Sales comparison with last year

Profit comparison


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Terms and Conditions:

Repayment in equal monthly installments. 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 banks favor is mandatory as per banks

policy.

Legal opinion from banks approved professional lawyers.

Collateral appraisal through banks approved valuation agencies.

Income estimation through banks approved Chartered Accountants.

Time period for approval:

The bank grant approval of loan within 60 days after submission of documents.

Recovery method:


1. Recovery letter:


They use polite words .Show courtesy They never show his default



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First reminder

In first reminder letter bank send the letter to its just informing thats your

amount of loan is still payable. If customer not reply then they will give

2nd

reminder



2. Telephone calls:


3. Personal visits:


at his home.



5. Legal action:

When the customer does not make the payment then bank will take the legal

action against him.


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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 ourday to day needs.

Target Market:

Salaried persons: who have minimum Rs.60000

Business persons: who have bank statement of last two years.

Existing client:

Employees of Massod textile

Employees B.B.Jan

Employees of Madina oil refinery etc.


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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)

It is known as borrowers 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.

Loan application form :(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.


B.B.F (Basic Borrower Fact sheet)

Board Resolution


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Terms and conditions:

Following terms and conditions are included in approval; Markup agreement letter.

Promissory note.

Hypothecation

Personal guarantee

Markup agreement letter:

The letter which contain an agreement between bank and its client thathow much interest rate is charged by bank.

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.


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Credit proposal process:

Credit proposal is made by branch. It includes all type of analysis ofborrowers-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.

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%.


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Recovery method:


1. Recovery letter:


Use polite words ,Show courtesy &never show his customer default.


First reminder

In first reminder give reference of the letter

Then they give

2nd

reminder



2. Telephone calls:


3. Personal visits:


at his home.




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5. Legal action:

When the customer does not make the payment then bank will take the legal

action against him.

Conclusion:

we analyze that bank adopt different strategies for advancement of loan to

different sector of investment like corporative sector, SME sector

,Consumer investment sector .we also fine the documentation requirement

for issuing loan to these sector are also different . All the steps that are

necessary for minimize the risk are bank we have disk in this project.


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Bibliography: