Contents

Introduction to MCB 4Introduction to Consumer Banking 4Analysis of the mission statement 6

External audit Key external forces 7 Competitive Analysis: Porters five forces 10 Industry Analysis: EFE matrix 11 CPM 12

Internal AuditCulture of MCB 13

Human Resource department 14 Marketing department 16

Operations department 18 Finance department 21 IFE matrix 27

Strategy Formulation Framework 28 TOWS matrix 29 SPACE matrix 30 BOSTON matrix 33 IE matrix 34 Grand Strategy matrix 35 QSPM 36

MCB Bank Ltd

Introduction

“MCB Bank Ltd”, formerly known as Muslim Commercial Bank, was the first bank in Pakistan to be privatised following the privatisation policies outlined by the government of Prime Minister Shaukat Aziz.

After Mr. Mian Mansha took over as Chairman, the bank revised all of its previous policies, aiming towards higher profits as he himself is an industrialist and those instincts are the driving force behind his zealous efforts for the financial well being of the organisation. Thus, the bank under his chairmanship has improved a lot, aiming to provide quality services to its clients and standing up to the intense competition in the banking sector. They now understand that cutting edge technology is vital for any modern organisation. MCB continuously designs products and services that harness the best

technology for the sole benefit of its customers. It is all concerned with changing the conservative and anti progressive slant adopted by the previous management at MCB.

Introduction to Consumer Banking

MCB is a huge organisation, with various divisions. We have particularly chosen Commercial/consumer banking as our major area of interest, thus, our research is only related to the Consumer banking sector of MCB.

MCB is a large financial intermediary, with a network of over 900 branches, serving in bringing lenders and borrowers together. Initially, when technology was not available, MCB was not able to make a large number of transactions and dealt with only well-known customers.

Gradually, more banks and less demand resulted into products being commoditized. As products became commoditized, the ability to obtain margins decreased and the ability to invest came down. Hence, banking becomes a riskier proposition; to counter that risk MCB looked for an alternative avenue and launched their Consumer Asset Division to help make better use of its huge deposit base.

The ultimate goal of the Consumer Asset Division is to provide reliable secure profitable and responsible installment/revolving credit access to meet a customer’s financial

needs in a prudent manner The Consumer Asset Division’s strategy is built on leveraging the advantages of a retail banking group to create the best value for, and with, our clients. MCB Consumer Banking will primarily focus on the following five areas:

Increasing market share in existing locations Capitalize on MCB’s existing customer relationships Establishing the best human resource practices Intensifying customer satisfaction efforts (Sales will be driven by Service) Focus on expanding into areas with fast local GDP growth

Consumer banking in the next 3 years will be all about high volume, understanding the underlying techniques to obtain the best margins, and catering to the customer. It requires lots of investment in systems (human and technical) to ensure that the experience is error free, timely, and wonderful at every point in time. In essence, the key is to manage all three of the aforementioned factors together.

Aided by technology, the media, and consumer need, consumer banking is on a high growth path. Obtaining market share on this path is a science; a complex mixture of consumer marketing and working through corporate banking techniques. Since the

underlying product is finance, lots of planning and designing is involved. Speed, response, and experience are critical. Otherwise, consumers have other banks to fall on. In consumer banking to have any meaningful operations, for the first two or three years money has to be poured into the operation and then profits are made. Consumer banking is a classic high fixed cost, high contribution business. MCB is currently in its second year of formal consumer banking (as of 11/2005).

MCB’s growth strategy involves investing in:

A system capable of supporting volumes and product innovation Hiring the best in the market Training and development Establishing credit controls to achieve sustained income as well as growth

In accordance to the above elements of the growth strategy followed by MCB, it also happens to have a divisional structure.

MCB is a gigantic organization, which has many different branches to it, for example, consumer banking, corporate banking, investment banking and Islamic banking. Also it is spread out across the country, thus, following a flatter organizational structure which proves to be a lot easier to manage as per its vast geographical coverage, variety of different products and services and a substantially diverse customer base.

Mission Statement

As put forward by MCB

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

 

Analysis of the Mission Statement

They aspire to be the leading banking services provider in Pakistan. Their goal is to provide quality financial services to individuals and corporate consumers in Pakistan.

MCB was the first bank to be privatized in Pakistan. As per its excellent reputation in the provision of banking services coupled with sound financial products and advice has allowed them to strengthen their position in the service industry. MCB has been winning the esteemed Euro money award for “Best bank in Pakistan” for the past 4 years. MCB Bank Ltd understands well the direct relationship modern banking has with modern technology; henceforth it plans to invest heavily into up gradation of technology. MCB also plans to develop a pension fund for their trusted employees and hopes to maximize its shareholders wealth through well planned and managed investment programs. Their duty is not only the provision of quality financial services but also to regulate the money markets of Pakistan in a responsible manner.

External Audit

Key External Forces:

Economic

If the economy goes into a recession, there will be massive unemployment; therefore the hiring pattern of MCB will change. Similarly in a boom situation there will be higher rates of employment, again the hiring pattern will automatically change.

Economic conditions will determine how easy it will be for the bank to raise its finances and when the opportunity is right to capitalize on the market conditions. Finance department will have to decide when that time comes. Therefore product development and improvement and other revision will have to be done by the finance department when needed.

Economic conditions will help determine when a promotional campaign is most likely to be successful. It will be the marketing department’s job to determine when the economic conditions are right for that kind of marketing campaign.

Socio-Cultural

Changes in the cultural norms and values of the society affect the HR department of MCB as they have to hire individuals and manage those individuals according. If for example there is a massive drive towards extremism in the society, HR will have to take steps accordingly.

In Pakistan, there is a general culture in banks that whenever external auditors come to the bank the finance people manipulate their accounts to give a better picture. MCB has to be very careful not to go through the same process as this has a negative effect on the bank in the long run.

Since the Marketing Department’s job is to understand its consumers and attract them towards their products, any shifts in the way they think or the way they perceive things will obviously affect the way any marketing strategy is devised. Cultural changes, norms and values of the general masses changing will have an impact on the sales figures. Hence the marketing department will have to forecast these trends and take actions accordingly.

As per our interview of Mr. Zulfiqar, he informed us how there have been recent arguments amongst his colleagues working for an advertisement related to “CAR 4 U”, as most “men” working at MCB thought that their product would do well in the market if a woman was used in the advertisement, although it doesn’t make any sense. Thus, such conflicts occur as far as social issues are concerned.

Legal-political

The Human Resource department will be directly influenced by the legal-political scenario. They have to make sure that they maintain a hiring policy which is strictly in line with the legal framework of the country. They also have to manage the employees currently in MCB according to the current laws and regulations. When there is a lot of political activity going on in the country politicians start to lean on the corporate sector, getting their friends and family members employed where normally they wouldn’t qualify on merit. This creates a problem as those newly employed individuals are not even qualified to do what they have been hired for. Changes that are made in the regulations have to be studied in great detail to see how they might affect the bank. Therefore the finance department will have to tread carefully and study the changes made by the State Bank thoroughly.

New political changes may mean a shift in the country’s economic scene as well, which would in turn mean that MCB would have to change its credit policy or some other counter measure to offset the external pressure.

All the promotional activities undertaken at MCB are within the legal boundaries that have been set for them. Often is the case that careless advertisements end up giving reason to other companies to create massive law suits.

Government Agencies MCB will have to train the new or fresh employees according to the international standards. According to the new rules and regulations every bank needs to have a Risk Asset Review (RAR) department which MCB has recently developed. HR department will have to train new employees so that the RAR department is run without any difficulties as the international standards need to be met or MCB might face a fine.

The Finance department faces a lot of surprise visits from auditors instructed by the State Bank of Pakistan to review their internal accounts. If the accounts are not in compliance with their rules and regulations the bank is fined by the State Bank and the fine can easily range from Rs. 1 million to a 100 million. Only recently UBL was fined by the State Bank for Rs. 70 million.

Technological

MCB already has major technological issues as far as its networking is concerned which makes the HR department’s job much more difficult. As communication becomes harder, the management of employees and hiring of new employees becomes next to impossible.Technology makes matters a lot different as advancements and up gradations can lead to a much faster and more efficient operations department. MCB is much behind its competitors in the market as far as technology is concerned.

Technological changes in the market will mean that MCB will have to keep itself regularly updated or else fear losing consumers to other banks in the market. Finance Department will have to adjust accordingly as they have already done so. Since majority of the people weren’t comfortable with using computers for data entry and cross checking of balances. The work was previously done manually which was at the end of the month entered in computers.

As far as technological issues are concerned, an organisation operating in Pakistan will always face massive problems, because it is harder for our people to actually introduce new technology into the current working environment. Thus, it will take time for the people working for this department to get used to working with newer concepts.

Competitors

The most dangerous thing for any organization is that their experienced employees leave the organization and join one of their competitors. That is exactly the same situation MCB is facing right now. Retention has become an extremely critical thing for the HR department. The main competitor, UBL, has been poaching many of MCB’s old employees. Only recently have MCB realized that this kind of thing is very bad for the business’ overall running.

Competition will make the finance department’s job difficult. As they will have to make sure the bank is running at minimum cost possible, then they will have to develop products which will steal as much market share from the competitors as possible and finally they will have to maintain a good profitability standard so that the cost cutting does not create problems for the bank.

The marketing department will have to come with appropriate marketing campaigns to fight off the competition. UBL being the main competitor for MCB, the marketing department has to develop aggressive strategies to fight off the competition and steal the title of “market leader” from UBL.

Competitive Analysis: Porter Analysis

Rivalry

MCB is facing fierce competition and has been battling continuously for significant market share, with names like UBL, Habib Bank, Allied Bank and Union Bank, keep snatching away from MCB.

Bargaining Power of Customers

MCB has to convince its customers that they are not being conned into a debt trap and that leasing and other forms of financing are in their best interests. The customer should believe that the quality of the service outweighs the expense.

Bargaining Power of Suppliers

The supplier (which is the investor: consumer and corporate) has many options to choose from and may shift to another bank, which might offer a better alternative. Since the investors have more to choose from. Also they have other investment opportunities such as property and the stock market. Any deviations in supplies may force MCB into a situation where it may not have enough resources available to carry out its services.

Threat of New Entrants

There are many new banks entering the market and the State Bank is willing to grant a license to any reputable bank as a result, banks like ABN Amro, Standard Chartered, PICIC etc., have entered the market and are offering more or less exactly the same products and are targeting the exact same customers. Thus, MCB has to make it a point to offer substantially good quality services in order to maintain its customer loyalty as well as widen its customer base so as to eliminate any threat from the new entrants.

Threat of Substitute Products or Services

Since there are numerous investment opportunities coupled with the massive economic growth in Pakistan in the recent years, it has become increasingly hard for any commercial institution to ward off the threat of substitutes. The same dilemma is being faced by MCB as there are so many substitutes offering the same or sometimes even better and more lucrative opportunities making MCB’s life a tough one.

Industry Analysis: External Factor Evaluation MatrixKey External Factors Weight Rating Weighted ScoreOpportunities

1. Attract foreign investors

0.075 2 0.15

2. Political stability 0.025 2 0.053. Online banking 0.05 1 0.054. Widen customer base 0.10 2 0.205. Market share 0.10 3 0.306. Boom in economy 0.05 3 0.157. Bank service awareness amongst masses

0.05 2 0.10

Threats

1. International level competition

0.10 2 0.20

2. Credit policies 0.10 2 0.203. Unnecessary duty on imports and exports

0.025 1 0.025

4. Multinational banks 0.10 3 0.305. Domestic competition amongst banks offering the same services

0.175 3 0.525

6. Instability in import policies-LCs

0.025 2 0.050

7. Bank squares 0.025 2 0.050

TOTAL 1.00 2.35

The sum of our weighted score is 2.35, which represents that MCB is responding on an average basis to its strengths and opportunities.

Competitive Profile MatrixCRITICAL SUCCESS FACTORS

WEIGHT

RATING SCORE RATING SCORE RATING SCORE RATING SCORE

Advertising 0.05 3 0.15 3 0.15 3 0.15 4 0.2Service quality

0.15 3 0.45 3 0.45 3 0.45 3 0.45

Interest rates 0.1 3 0.3 2 0.2 3 0.3 3 0.3Management 0.3 2 0.6 4 1.2 4 1.2 4 1.2Financial position

0.05 2 0.1 3 0.15 3 0.15 3 0.45

Customer loyalty

0.15 3 0.45 3 0.45 3 0.45 4 0.60

Domestic expansion

0.1 4 0.4 3 0.3 3 0.3 4 0.4

Market share

0.1 4 0.4 4 0.4 4 0.4 4 0.4

TOTAL 2.85 3.30 3.40 3.80

United Bank Ltd. Habib Bank Ltd. Union Bank Ltd. Allied Bank Ltd.

Internal Audit

Culture of MCB

Over the years MCB has developed strong relationships with its customers by understanding their needs and treating them with respect, dignity and importance. The driving force behind its commitment and services is its focus on customers, ensuring that it not only meets, but exceeds their expectations.

MCB strives to achieve excellence by ensuring that every moment of their time is spent in adding value, making sure that things are done right, first time, every time. With this quest for quality, MCB has always taken initiatives in bringing banking into a new arena; from cash to the convenience of plastic; from branch banking to internet banking and from face-to-face customer interaction to online accessibility.

It encourages diversity and treats each of its employees with fairness, giving constructive feedback for their continuous development and seeking suggestions from all employees for further improvement. It ensures that quality performance is acknowledged and rewarded and exercise utmost responsibility in decision-making with regards to their employees. Integrity of their employees is the strength of their performance.

MCB believes that banking today is all about understanding; the contemporary and localized markets. It is about talking to the consumers; reaching out to them; giving them quality time; its about focused approach and targeted results. Its about communication to foster lasting relationships. Its about working as a team having no barriers, no boundaries. At MCB, everything done is rooted in its values and a true understanding of this diversified market. At the core of it lies not only achieving successful results, but the curiosity to delve into consumer's insights for a better and simpler lifestyle.

Departments under Consumer banking at MCB

Human Resource department Marketing department Operations department Finance department

Human Resource Department

MCB, falling under the tertiary sector of the Pakistan economy, providing banking services throughout the country also needs to manage its human resources efficiently; especially with the current level of competition it faces not only domestically but from international payers in the market as well.Human resource department is the most important department of the bank, as it basically deals with all the employees providing their services in other departments. Thus, an interdependency of various departments occurs with the Human Resource department.At present, the Human resource manager of consumer banking for Lahore region, Mr. Imran Mansur, alone is trying his level best to manage everything and everyone in accordance to the span of control provided to him.

The organisational chart for this department is extremely basic as MCB is still in the process of establishing its consumer banking base.

Director Human ResourceVP

Manager HR FTE IssuesOG-I

Manager HR Contractual Issues

OG-II

HR CoordinatorCoordinator

HR CoordinatorContract

The human resource manager at MCB is officially appointed to plan the human resources. For example, how many people will be required to perform a particular job in the near future? Or whether there is a demand for more employees in any other department? Etc.The human resource manager at MCB has a number of tasks to perform in order to efficiently run the organisation as it is a service oriented organisation which requires the best employees in order to achieve its goals and objectives.

The following are the few examples to which the HR manager has to cater to: Hiring or staffing of fresh employees (either full time employees or contractual

employees) Training employees in order to achieve organisational goals Developing skills of employees Evaluating performances Compensation to be provided to employees in the form of salaries and other

benefits Maintaining effective relationships so that competitors are unable to attract MCB

employees

The human resource manager, Mr. Imran Mansur, suggests that he plays a very interpersonal role as far as his job is concerned. He stands up as a figurehead, a leader and a liaison for his employees. Human resource department has to perform symbolic duties of a legal and social nature; they try to build a trustworthy relationship with other subordinates and colleagues. Human resource department has to motivate them, and make them work without pushing them off the edge.The human resource department works as a team, training freshly hired subordinates, acting as a disturbance handler by maintaining good relationships with other bankers. It is a difficult task to make sure that the employees are happy and satisfied. With the rapidly increasing level of competition it is becoming more and more difficult to maintain employee loyalties for MCB, who would resign for a higher salary offered to them elsewhere. Thus, human resource department works towards providing its employees with job assurity as well as job security.To sum it all up, the human resource department has managers and subordinates who have excellent communication skills which are extremely crucial for the success of this organisation. The setback to this department currently is the lack of people working for it, as the human resource manager as per the interview, is over burdened with the volume of work as his reporting manager got transferred and his subordinate working under him resigned. Therefore he alone is trying to cover as much work as possible till the AVP hires new employees to work with him.

Marketing Department

Marketing plays an extremely important role in determining the success of a bank. As Pakistan is going through massive economic changes and demand for consumer goods is sky rocketing, the demand for consumer banking services is rising at exponential rates as well. This kind of a development can never remain unnoticed and there was definitely a dire need for more banks in the consumer banking sector.As MCB got into the field where UBL and other multinational banks were already operating, others also started diversifying into this field. Therefore the competition as far as consumer banking is concerned is fierce. Competition can only be tackled by efficiency, productivity and good service at your bank, and a killer marketing strategy to destroy your competitors and increase your marketing share. That is the situation MCB is in right now.Therefore, the marketing department is one of the most important weapons in MCB’s arsenal. The marketing department is responsible for developing promotional campaigns; identifying trends and consumer behaviour, relay information about how the market will change to the concerned departments and maintaining a clean communication channel with them. MCB’s Consumer Banking Division has a marketing department which is headed by Mr. Zulifiqar. Currently MCB is trying to strengthen its already quite strong relationship with its customer base.The organizational chart for the marketing department is very basic and simple to improve communication between employees so that a constant flow of ideas is created at all times.

Head of Product Management

Product Manager-Autos

Product Manager-Personal Loans

Product Manager-Mortgages

The marketing manager’s job is to remain aware of what is going on in the consumer banking market. The marketing team is supposed to monitor and forecast all the changes in the market as well as maintain a file on any shifts in the competitor’s stance. They also need to develop appropriate promotional strategies. The marketing manager gives his feedback on how the consumers reacted to the particular interest rates the bank is offering them on their products or how much the credit card users are satisfied with the way their billing is done. These things, after collecting, he communicates later to the particular departments which need that information.

Product wise profitability (forecasted statement for 2006 was unavailable, thus, only the line items were available and not the figures)

Description Net Interest IncomeNon Fund IncomeTotal Income Total ExpensesPersonnel ExpensesSalariesBonusOthers Occupancy Expenses Other Operating ExpensesAdvertisingCommissionsStampingTravelOthers Trading ProfitNCLNet Profit Cost / Income Ratio

It is against MCB’s policy to give out confidential information forecasted for the following year which is reported in their annual report. The marketing manager is required to forecast the profitability according to the products. For a bank, the income is obviously the interest on any loan it gives out. The net interest income is the amount which represents the revenue of the bank. The non fund income is the general income the bank receives for example the deposit fee that an individual has to hand in when he makes a deposit. The marketing team has to meet the forecasted Trading Profit. They

have to create such an environment that automatically there are enough customers coming in to meet that specified target. The marketing team has to be very creative in its approach and needs to create such an atmosphere which breeds inspiration. The reason for this is that marketing itself is a very creative process. . The marketing team acts as an information forwarder. They have to keep tell the other departments what is going on in the market and whether the time is right for a particular product to be launched or there is an opening in the market which the bank can exploit. Mr. Zulfiqar said this information is so crucial for other departments that without it they would have no direction of where they are going or working for.He felt that the current behavioural traits of the market and the masses limited his ideas and also kept influencing the way he developed any promotional plan for MCB. The advertisement for MCB’s product “Car 4 U” he said had been developed while he had been working there. In the survey he conducted, about 95% of the individuals felt the advertisement would not work without a female personality in it. He felt that this mentality of the masses is restricting him and his team in developing stronger marketing strategies.

Operations Department

The operations department’s basic job is to make sure everything is up and running and all sorts of problems that the organization faces are smoothened out. The kind of job this department has is extremely crucial for the rest of the departments as the operations department is responsible for creating a flow of activities which is essential for the running of an organization. The operations department is slightly more efficient than the other three departments in MCB. The system works in a different manner. CIU, which is the Credit Initiation Unit, develops projects, tasks and regulations and it is the operations departments’ job to see that they are implemented. In a nutshell, the operations department exists to implement anything and everything the CIU tells it to do and at the same time develop methods to streamline processes in the organization to eliminate inefficiency and monitor all processes that take place. The organization chart shows that the operations department is quite large in comparison to the rest of the department dues to the amount of activities needed to be regulated in the bank.

VP & Head of Operations & Technology

OG-II & Supervisor Mortgages

OG-III & Supervisor Data Entry & Post

Disbursal Functions

OG-III & System Coordinator

OG-II & Supervisor Auto

MCB/SBP Reporting

ProcessorRepayment Processor

Data Entry Processor

Data Entry Authorizer Processor

Repayment Processor

Data Entry Processor

Repayment Processor

Asst. System Coordinator

Asst. Coordinator

OG-III Insurance Related Activities

Pre Disbursement Functions Officer

Pre Disbursement Functions Officer

Processor

Processor

Pre Disbursement Functions Officer

The Operations Manager at MCB is required to manage and monitor all kinds of operations taking place in the concerned sector of the bank, for example, how should the bank keep a check on how many employees come on time? Is the control mechanism of another department as suitable for it as it should be? All these factors are crucial to be taken into consideration by the operations manager.

On the whole the operations manager is required to: Monitor and supervise the section of the bank designated to the manager Enforcing the rules and regulations of the organization Developing control mechanisms and process management systems for other

departments Evaluating overall efficiency of the section of the bank allotted Collect feedback on current policies and regulations to be reported to the CIU

The operations department requires employees who possess an awful lot of analytical and critical skills. Analyzing every process in the consumer banking division and providing professional critique on it, then develop an alternative for anything lacking. The operations department acts as overlords for the rest of the bank keeping things going without delays, making sure there is no wastage in the bank. The operations team gives professional opinion whether certain policies do not contradict each other or certain regulations are a hindrance rather than a helpful element. At the same time they have to coordinate between departments as well especially when managing projects and other such activities are taking place and tasks are to be communicated from one department to another. The problem as far as this department is concerned is that at lower levels, elements of the old bank bureaucracy are still there. Personal grudges and differences create work environment issues.

Finance Department

The finance department is responsible for a lot of activities as far as MCB is concerned. First of all it has to develop and maintain a credit policy for the Consumer Bank, at the same time develop most of the products as all the products of a bank are finance related, test the profitability and feasibility of current products or new projects and most importantly, make sure MCB does not run out of funds and reserves. Therefore, finance department does most of the actual banking.At MCB, the finance department in the consumer banking division is the largest out of all the departments. The reason for this is due to the kind of job this department has, there is a need for a lot of trained professionals to be working to maintain a decent level of control over things. Since banking is all about finance related activities, this department plays a pivotal role in the success or failure of any decision the bank has to make.The organizational chart shows that the finance department has many hierarchical levels, which means that if an accounts officer has to convey his message to the Unit Head he would to have to travel up three levels to reach him.

Unit Head Financial Controller

Manager AccountsAVP

Assistant Manager Accounts OG-I

OG-II Senior Accounts Officer Auto, Mortgages & Personal Finance

OG-II Senior Accounts Officer Payments

Senior Accounts Officer Payroll, Fixed Assets, Reportings to Head Office

Accounts Officer

Accounts Officer

Accounts Officer

Accounts Officer

OG-III Accounts Officer

The finance manager’s job is to make sure that all the bank’s accounts and inflows and outflows are regulated according to the standards that have been set by MCB and the State Bank as well. To achieve that, the manager has to manage his team and his department by the book. Any activity which may seem out of the ordinary or which may lead to a banking disaster needs to be cut short or even better, avoided at all cost. The manager needs to be an experienced individual since his experience in the field will help him in determining what best course of action should be taken when in a situation where a decision has to be taken promptly.

The Finance Manager is required to:

Manage all the inflows and outflows of the bank Manage the team at the finance department responsible for the banks other

activities Siphon funds where needed Identify areas where cost cutting is possible and needed

Ratios are calculated for serving different purposes and drawing conclusions from them.

Liquidity Ratios

Current Ratio

It tells the extent to which a firm can meet its short-term obligations, the higher the ratio the better it is. The current ratio of MCB was 1.027 in 2003. This is a good figure and MCB has been successful in maintaining its liquidity position, as the figure of 2004 came out to be 1.028.

2004

Current ratio = Current assets = 251285014 = 1.028 Current Liabilities 244223665

2003

Current ratio = Current assets = 267740796 = 1.027Current Liabilities 260507620

Leverage Ratios

Debt to total assets ratio:

It tells the percentage of total funds that are provided by creditors, the lower the ratio the better it is because higher debt leads to higher risk. MCB depends a lot on debt as its debt to total assets ratio for 2003 was 0.95, it shows that almost all the assets are

financed through debt. MCB has tried to lower its dependence on debt as the figure for 2004 is 0.9. But still it needs to be lowered.

2004

Debt to total asset ratio = Total debt = 244537819 = 0.9 Total assets 259284835

2003

Debt to total asset ratio = Total debt = 261214926 = 0.95 Total assets 272323619

Debt to equity:

It tells the percentage of total funds provided by lenders versus owners, the lower the ratio the better it is because higher debt leads to higher risk. MCB depends a lot on debt as its debt to equity ratio for 2003 was 33.8, it clearly shows that debt financing is much higher than equity financing. MCB has tried to lower its dependence on debt as the figure for 2004 is 26.03. But still debt financing needs should be reduced.

2004

Debt to equity = Total Debt = 244537819 = 26.03 Total Stockholders equity 9392693

2003

Debt to equity = Total Debt = 261214926 = 33.8 Total Stockholders equity 7726164

Times interest earned ratio:

It tells the extent to which earnings can decline without the firm becoming unable to meet its annual interest costs, the higher the ratio the better it is. In 2003 its value was 1.47 which shows that the earnings of MCB are higher than the interest expense, this goes in its favor. In 2004 the value has increased to 1.504, this is beneficial for MCB.

2004

Times interest earned ratio = Profits before interest and taxes = 11007536 =1.504Total interest charges 7317945

2003

Times interest earned ratio = Profits before interest and taxes = 11188031 =1.47Total interest charges 7575107

Activity Ratios

Fixed asset turnover:

It tells the sales productivity and plant and equipment utilization, the higher the ratio the better it is. It was 4.06 in 2003 and in 2004 it decreased to 2.28. This figure remains some what insignificant for MCB as it offers a service.

2004

Fixed asset turnover = Sales = 18297143 = 2.28 Fixed assets 7999821

2003

Fixed asset turnover = Sales = 18625332 = 4.06 Fixed assets 4582823

Total Asset turnover:

It shows whether a firm is generating a sufficient volume of business for the size of its asset investment, the higher the ratio the better it is. It was 0.068 in 2003 and in 2004 it increased to 0.07. This shows that more assets are being utilized to generate lesser sales. In 2004 MCB has tried to improve its asset utilization, but still it is not sufficient. MCB should try to increase its sales of its products and services through efficient utilization of its assets.

2004

Total Asset Turnover = Sales = 18297143 = 0.07 Total Assets 259284835

2003

Total Asset Turnover = Sales = 18625332 = 0.068 Total Assets 272323619

Accounts receivable turnover:

It tells the average length of time it takes a firm to collect credit sales (in percentage terms), the lower the ratio the better it is. In 2003 it was 1.79 and in 2004 it decreased to 1.67. This is a good figure, as it depicts that MCB does not take it very long to collect its receivables, which indicates its strong credit policy offered to debtors.

2004

Accounts Receivable = Annual Credit Sales = 18297143 = 1.67 Turnover Accounts receivable 10965297

2003

Accounts Receivable = Annual Credit Sales = 18625332 = 1.79 Turnover Accounts receivable 10430450

Average collection period:

It states the average length of time a firm takes to collect its credit sales (in days), the lower the ratio the better it is. In 2003 its value was 204 days which increased to 218 days in 2004, this is not a good figure.. MCB has become inefficient in collecting its receivables in 2004, as it is now taking longer to do so. This might have occurred due to bad debts. MCB should find out that why this figure has increased and take proper action in accordance to it.2004

Average Collection Period = Accounts receivable = 10965297 = 218 daysTotal credit sales/365 18297143 365

2003

Average Collection Period = Accounts receivable = 10430450 = 204 daysTotal credit sales/365 18625332 365

Profitability Ratios

Gross profit margin:

It is the total margin available to cover operating expenses and yield a profit, the higher the ratio the better it is. MCB is a service providing company, so it does not have any cost of goods sold. That is why gross profit margin for MCB is not calculated.

Gross profit margin = Sales – Cost of Goods sold Sales

Net profit margin:

It is the after-tax profit per dollar of sales, the higher the ratio the better it is. It was 15.4% in 2003 and in 2004 it increased to 15.5%. This shows that MCB is managing its expenses well which increased this figure. They should keep maintaining their expenses, whether interest related or operating to sustain this position.

2004

Net Profit Margin = Net Income = 2847469 = 15.5% Sales 18297143

2003

Net Profit Margin = Net Income = 2877142 = 15.4% Sales 18625332

Return on stockholder’s equity:

It is the after-tax profit per dollar of stockholder’s investment in the firm, the higher the ratio the better it is. It has decreased from 37.2% in 2003 to 30.3% in 2004. The figure has decreased due to a decrease in Net Income as well as stockholder’s equity. MCB should try to increase this ratio in order to assure their share holders that they have invested their money in the right organization.

2004

Return on stockholders equity =Net income = 2847469 = 30.3% Total Stockholders 9392693

Equity

2003

Return on stockholders equity =Net income = 2877142 = 37.2% Total Stockholders 7726164

Equity

Earnings per share: It shows the earnings available to the owners of common stock, the higher the ratio the better it is. The earnings have increased from 6.61 in 2003 to 7.53 in 2004. This shows that the financial position of MCB has improved in 2004, as it is giving more earnings to its shareholders to satisfy them.(taken from the annual report of MCB)2004

Earnings per share = Net Income = 7.53 No. of shares of common stock outstanding

2003

Earnings per share = Net Income = 6.61 No. of shares of common stock outstanding

Strengths Weights Ratings Weighted ScoreCoverage 0.1 4 0.4Reputation 0.1 3 0.3Goodwill 0.1 3 0.3Diverse customer base

0.05 4 0.2

Easy loan facility 0.05 3 0.15Highest ATM’s 0.05 4 0.2Growth rate up 0.025 3 0.0755 year Euro money strength

0.1 4 0.4

Online payment facility

0.025 3 0.075

WeaknessesPoor credit collection

0.05 1 0.05

Dissatisfied customers

0.1 1 0.1

Poor decisions 0.05 2 0.1MCB a market follower

0.025 2 0.05

Communication gap 0.025 2 0.05Inefficient customer service department

0.1 2 0.2

Master credit card 0.025 2 0.05Technical issue 0.025 1 0.025Total 1.00 2.725

INTERNAL FACTOR EVALUATION

Strategy Formulation Framework

Stage I: The Input StageIt consists of the EFE, CPM and IFE which have been covered before

Stage II: The matching Stage It consists of the TOWS matrix, SPACE matrix, BCG matrix, IE matrix, GRAND Strategy.

Stage III: The decision StageIt comprises of the QSPM

Stage I has been covered in the Internal and External audit for our organization, thus, we will be covering Stage II and Stage III.

TOWS MATRIX

SO Strategies

1. MCB can use its reputation which can attract foreign investors to invest in the bank.

2. MCB can use its goodwill(established in all sectors of the mkt)to target the masses that have been previously ignored.

3. They can further increase their market share by exploiting their diverse customer base which includes local as well as foreigners.

4. A boom in the economy has resulted in an increase in consumer spending. MCB will benefit from this as consumers tend to use ATM cards at a higher rate.

WO Strategies

1. MCB can satisfy its customers by providing them efficient service through online banking. The standard of online banking in Pakistan is not excellent, thus MCB can manipulate this sector and satisfy its customers at the same time.

2. MCB can attract foreign investors to invest, which can strengthen its position in the market and change it from a market follower to a market leader.

3. The awareness of banking services has increased, which has resulted in more individuals requiring quality banking services. In order to keep their customers satisfied MCB should improve its inefficient customer service department.

ST Strategies

1. MCB being a local bank has an edge over multinational banks. It has a well established network and with over 35 branches all over Pakistan.

2. MCB has a diverse customer base which secures its positioning in the market and leads MCB to dominate the domestic competition amongst banks which are offering the same services as MCB.

3. MCB can outweigh MNC’s changing their credit policies as it has an easy loan facility where any individual can get a loan without the unnecessary paperwork and waiting period which is usually associated with a bank loan.

WT Strategies

1. MCB should have more control over its vast network which will help it make decisions promptly and also enable it to compete with international level competitors. This will also help it to overcome the communication gap and manage control over their diverse consumer base.

2. Although MCB is a market follower it can change its position to a market leader by creating its own bank squares in different cities of Pakistan .This will help enhance the image of MCB as a bank.

SPACE Matrix

Financial Strengths: Current Ratio: The current ratio of MCB was 1.027 in 2003 and it increased to 1.028 in 2004. 4 It is a good figure and MCB has been successful in maintaining its Liquidity position.

Receivable Turnover: In 2003 it was 1.79 and in 2004 it decreased 1 to 1.67. It depicts that MCB does not take it very long to collect its receivables, which indicates its strong credit policy offered to debtors.

Earnings per share The earnings have increased from 6.61 in 2003 to 6 7.53 in 2004. This shows that the financial position of MCB has improved in 2004. ___ 11 Industry Strengths:

Growth potential: Because the economy of Pakistan has become 4 more service oriented, there is a lot of growth potential in this industry.

Profit potential: Banks are in demand nowadays; people are 3becoming aware of this service which has increased the customer base. Due to this the profit potential in this industry is very high.

Political stability: Pakistan has attained political stability in 3recent years, this has helped banking sector. As the new policiesintroduced, go in favor of banking sector.

Technological know-how: Banking sector has become 4technologically advanced, new multinational banks coming toPakistan have introduced new technology which also helped ____the domestic banks. 16

Competitive Advantage:

Diverse customer base: It includes not only local but foreign -2 bank accounts, thus, catering for a widespread customer base.

Control over suppliers and distribution networks: MCB -3gets its loans from the state bank of Pakistan and it has its own vast distribution network of more than 760 branches in 35 cities all over Pakistan.

Highest ATM’s: MCB has more than 210 ATMs which is -2quite a large number; this gives a lot of convenience to its customers.

Reputation: Today MCB is a leader in continuously acquiring -1and utilizing modern banking technology for setting new standards in the baking industry. MCB is getting a 5 year Euro money award since the last 4 years which hasincreased its goodwill. ___ -8Environmental Stability:

Technological changes: In this modern era technology is -3 changing everyday because of the multinational banks whichhave opened their branches in Pakistan. This has led to instability in technology.

Rate of inflation: Inflation is going up on a steady pace, -3 so we can say that the rate of inflation is somewhat stable.

Demand variability: Demand has become very unstable -2 due to the entrance of new banks, which include domestic as well as multinational banks.

Price range of competing products: The price range of -2competing products is unstable, as every bank has its own policies and strategies.

Competitive pressure: Competitive pressure has become -2somewhat stable now, but it still growing.

Price elasticity of demand: It is very unstable, because -5new banks have come into the market and consumers have more options now. ___ -17

ES average : -17/6 = -2.83CA average : -8/4 = -2IS average : 16/4 = 4FS average : 11/3 = 3.66

Directional vector coordinates ; X axis : {CA+IS} -2+4 = 2 Y axis : {ES+FS} -2.83+3.66 =0.83

MCB should follow a more aggressive strategy, which ought to be market penetration.

Boston Matrix

STAR

M NetSmart Card365MCB cardCirrusKhushali bachatBusiness sarmaya

QUESTION MARK

Online MCB mobile bankingMCB call centreMCB lockersIslamic bankingInstant financing

CASH COW

CAR 4 UPyara GharCorporate financing

DOGS

Master Credit CardRupee Travellers Cheque

The IFE Total weighted scores

Strong 3.0 to 4.0Average 2.0 to 2.99 Weak 1.0 to 1.99

4 3 2 1High            

3.0 to 4.0  I    II

o III  

The EFE 3          Total Medium            

weighted 2.0 to 2.99  IV    V    VI  

scores 2            Low            

1.0 to 1.99  VII    VIII    IX  

1            IE matrix

MCB falls into cell II, so it should follow a growth and build policy. MCB should follow intensive strategies which include market penetration and market development. Integrative strategies would not be very suitable for MCB.

GRAND STRATEGY

Rapid market growth

Weak StrongCompetitive Competitive

Position Position

Slow market growth

MCB falls in Quadrant I, which is why they should proceed with the three strategies mentioned.

Quadrant II Quadrant I1. Market

development2. Product

development3. Market

penetrationQuadrant III Quadrant IV

Stage III: The decision Stage

QSPM

Key Factors Weight AS TAS AS TASOpportunities1. Attract foreign investors 0.025 3 0.075 1 0.0252. Political stability 0.075 - - - -3. Online banking 0.05 3 0.15 1 0.054. Widen customer base 0.10 3 0.30 2 0.205. Market share 0.10 3 0.30 2 0.206. Boom in economy 0.05 3 0.15 3 0.157. Bank service awareness amongst masses

0.05 2 0.10 2 0.10

Threats1. International level competition 0.10 2 0.20 2 0.20

2. Credit policies 0.10 3 0.30 3 0.303. Unnecessary duty on imports and exports

0.025 - - - -

4. Multinational banks 0.10 3 0.30 3 0.305. Domestic competition amongst banks offering the same services

0.175 4 0.70 3 0.525

6. Instability in import policies-LCs

0.025 - - - -

7. Bank squares 0.025 - - - -1.0

StrengthsCoverage 0.10 4 0.40 4 0.40Reputation 0.10 3 0.30 3 0.30Goodwill 0.10 - - - -Diverse customer base 0.05 3 0.15 3 0.15Easy loan facility 0.05 4 0.20 1 0.05Highest ATM’s 0.05 - - - -Growth rate up 0.025 2 0.05 2 0.055 year Euro money strength 0.10 - - - -Online payment facility 0.025 1 0.025 1 0.025

Priority BankingLaunch New Credit

Cards

WeaknessesPoor credit collection 0.05 1 0.05 4 0.20Dissatisfied customers 0.10 4 0.40 4 0.40Poor decisions 0.05 1 0.05 4 0.20MCB a market follower 0.025 3 0.075 3 0.075Communication gap 0.025 - - - -Inefficient customer service department

0.10 4 0.40 2 0.20

Master credit card 0.025 1 0.025 4 0.025Technical issue 0.025 - - - -

Sum Total Attractiveness Score1.0 4.7 4.125

Alternative #1 of starting priority banking is much more attractive according to the QSPM matrix, with a score of 4.7, compared to launching a new credit card, which has a score of 4.125.

Priority banking is simply the catering of individuals who either work for, or own corporate firms, by having separate branches to serve their every need. This is much more profitable in the long run because the individuals have to place a deposit of at least Rs.100,000 to open up an account in these types of bank.