THE BANKING SECTOR IN UNITED KINGDOM AND PAKISTAN

The banking sector in the United Kingdom is the 3rd largest militias in the universe after the United States and Japan. In add-on to holding one of the largest banking industries, United Kingdom is besides a major international lope for investing and private banking services. The UK banking sector ‘s strong international orientation is reflected in the important foreign being and significant assets of foreign Bankss in London. UK banking sector being a extremely developed banking system with big figure of domestic and transnational corporations offer far more advanced corporate banking services. UK banking comprises Bank of England as cardinal bank and many other UK and foreign owned Bankss.

2.1.1 Bank of England:

Bank of England serves as a cardinal bank for the UK. One of the most of import duties of the Bank of England is to keep overall stableness of the fiscal system as a whole. Since its duties for oversing single Bankss were transferred to the Financial Services Authority ( FSA ) . “ The fiscal stableness function of the Bank has been to concentrate on identifying and restricting systemic fiscal hazard. This involves close monitoring of the fiscal system substructure, peculiarly payment systems. The Bank besides keep an oculus on economic and fiscal market development, as portion of an overview of the system as a whole. Since May 6th 1997 the Bank of England has had operational independency over pecuniary policy, and its function as the Government ‘s agent for debt direction and hard currency direction was transferred to the Debt Management Office ” . ( www.ifsl.gov.uk )

Decisions on involvement rate policy are made by the Monetary Policy Committee, chaired by the Governor of the Bank of England and composed of top Bank functionaries and outside members. There is a Memorandum of Understanding between the FSA, HM Treasury and the Bank of England which explains how the three governments will work together towards the common aim of fiscal stableness. The Memorandum established, among other things, a Standing Committee which meets monthly to discourse single instances of significance and other developments relevant to fiscal stableness and banking industry.

2.1.2 Banks in United kingdom:

The figure of authorised Bankss in the UK totalled 686 in September 2010 ( www.ifsl.gov.uk ) . Although the figure of UK integrated Bankss declined over the past decennary there was a important addition in their mean size and fiscal strength. The entire figure of authorised Bankss increased mostly due to the turning presence of European Economic Area ( EEA ) Bankss. Many of these do non hold a physical presence in the UK but can accept sedimentations on a cross-border footing. Table below shows inside informations of Bankss in UK.

Table 2.1 BANKS IN UK

1995

2000

2005

2010

Incorporated in UK ( 1 )

224

200

184

185

United kingdoms owned

142

121

94

95

Foreign OWNED

82

79

90

90

Incorporated outside UK ( 2 )

301

449

490

501

EAIs with UK subdivisions

102

109

93

94

Other EAIs

44

205

284

304

Outside EEA

155

135

113

103

Entire authorised Bankss in UK ( 1 + 2 )

525

610

674

686

Beginning: International Financial Services London

United kingdom integrated Bankss consist of both UK and foreign owned Bankss authorized by the Financial Services Authority ( FSA ) under the Financial Services and Markets Act 2000 ( FSMA ) . These chiefly include commercial Bankss, investing Bankss, foreign owned Bankss and Bankss operated by retail companies. The figure of UK incorporated Bankss cut down between 1995 and 2003 from 224 to 185 due to a autumn in the figure of UK owned Bankss. Foreign owned Bankss incorporated in the UK increased somewhat during this period.

The autumn in the entire figure of UK integrated Bankss was chiefly a consequence of amalgamations and the resignation of licences by little establishments in response to altering market conditions.

During this period there was a considerable addition in the mean size and fiscal strength of these Bankss. London is one of the most of import Centres for international banking and a batch of foreign Bankss have positioned subdivisions and representative offices at that place. Foreign Bankss in the UK are authorized by the Financial Services Authority ( FSA ) or their place state within the EEA. In 2003 there were 501 Bankss incorporated outside the UK that were authorized to transport out concern in the UK. A big figure of these were European Authorized Institutions ( EAIs ) without a physical presence in the UK but permitted to accept sedimentations on a cross-border footing. In entire, 287 foreign Bankss were physically located in the UK, with the bulk of these located in the City of London.

The UK has one of the most competitory, efficient and unafraid banking systems in the universe. Banking represents about half of UK based fiscal services ‘ GDP and employment and merely over a half of revenue enhancement paid. UK Bankss operate 150 million current, sedimentation and nest eggs histories deserving about ?7 trillion, safeguarding money for persons and companies. Bank clients progressively use their histories without sing a subdivision: 46 million clients have registered for telephone banking and 33 million for on-line banking. The outstanding value of UK Bankss ‘ domestic loaning totalled ?4.9bn at the terminal of 2009. ( International Financial Services London ) .

2.1.3 UK Banks Used For Research:

The Major British Banking Groups ( MBBG ) have shown a better advancement comparison to last period in profitableness and capitalisation. Harmonizing to fiscal stableness reappraisal August 2010 of Bank of England the MBBG are Abbey National bank, Alliance & A ; Leicester bank, Bank of Scotland, Barclays, Halifax, Lloyds TSB, Royal Bank of Scotland, NatWest and Woolwich. As there are big figure of Bankss working in the UK and it is non possible to include all these Bankss for the research intent. Merely four major Bankss out of Major British Banking Groups ( MBBG ) will be used to compare corporate services, which are Barclays, Nat west, HSBC and The Royal Bank of Scotland.

Barclays is a UK based fiscal service group involved in banking for over 300 old ages and operates in over 60 states with more than 78,800 lasting employees allover the universe out of which 40,700 are entirely working in UK banking. It is chiefly engaged in commercial banking, investing banking and investing direction. In footings of market capitalisation Barclays is one of the largest fiscal services companies in the universe. In footings of net incomes for half twelvemonth ended 30th June 2010, group achieved a pre revenue enhancement net income of ?3.95 billion, which is 9 % more than same period in 2009. UK corporate/business banking provides services to about 182,000 big and average sized concerns through web of relationship and industry sector specializer directors.

NatWest Bank ( National Westminster ) came into being as a consequence of amalgamation of National Provincial Bank and Westminster Bank in 1968. In 2000 NatWest was acquired by The Royal Bank of Scotland Group for ?21 billion, which is the largest return over in British history. NatWest bank offer full scope of concern services to over 850,000 concern clients through 1,640 subdivisions all over UK. In term of net income NatWest earned pre revenue enhancement net income of ?211 million for first half of 2010, which is an addition of 11 per centum from the twelvemonth 2009.

HSBC is one of the largest banking and fiscal services organisations with 9,800 subdivisions in 77 states of Europe, Asia, America, Middle East and Africa. HSBC portions are listed on major stock exchanges like London, New York, Hong Kong, Paris, etc. Shares in HSBC are held by over 200,000 stockholders in over 100 states. In footings of net income HSBC made ?7.1 billionpre revenue enhancement net income for first half of 2010 which is about a dual from the twelvemonth 2009.

The Royal bank of Scotland is one of the oldest Bankss of UK, founded in Edinburgh in 1727. The Royal Bank of Scotland offer full scope of banking and related fiscal services to 3.5 million personal and concern clients through 650 subdivisions all about Great Britain. In footings of net income RBS made ?1,157 million pre revenue enhancement net income for first half of 2010.

2.2 PAKISTANI Banking Sector:

Pakistani banking system is one of the universe ‘s fast developing banking system in the universe. The overall macroeconomic environment of Pakistan is continuously bettering, which provide the important support to the Pakistani banking system to execute outstandingly.

Due to the positive developments in Numberss and activities of domestic and transnational corporations in the preceding old ages, the economic growing is deriving a strong impulse.

The economic system witnessed a GDP growing of 1.2 % for the first half of 2010, much higher than the growing mark of 0.5 % for twelvemonth 2010. A figure of factors contributed to set the economic system in the top cogwheel. Important one is the fast growing in the service sector, which is the largest subscriber to the Pakistani economic system. Service sector showed the growing at 0.8 % during first half of twelvemonth 2010. Turning activities in telecommunication sector coupled with important growing in the fiscal establishments has given a encouragement to the services sector public presentation. Figure below shows the sector-wise per centum portion in GDP.

Beginning: Banking System Review 2010

The consistent public presentation and strength of corporate sector holds particular importance for the banking system as corporate sector is largest finish of bank loans. Pakistani banking sector comprises the State Bank of Pakistan as the cardinal bank and many other Pakistani and foreign owned Bankss.

2.2.1 State Bank of Pakistan:

The encouragement of fiscal stableness has been the most of import subject regulating operations of cardinal Bankss in recent times. State Bank of Pakistan ( SBP ) is a statutory organic structure formed under the State Bank of Pakistan Act 1956. In its capacity as the defender of pecuniary and fiscal stableness, the State Bank of Pakistan is wholly cognizant of the importance of this issue and its possible effects for the overall economic system. As cardinal bank of the state, the State Bank of Pakistan has a figure of policies, regulative and fiducial duties aimed at beef uping the fiscal system of the state and supplying a model for the fiscal industry that Fosters economic growing. These duties include ordinance of the domestic pecuniary and recognition system through an efficient pecuniary policy, procuring pecuniary and exchange rate stableness and guaranting fiscal stableness through effectual ordinance and supervising of the banking sector in peculiar and the fiscal industry in general.

Over the old ages, State Bank of Pakistan has evolved through the phases of being an organisation owned partially by the private Bankss, to be state-owned in 1974 and so to hold seen bit by bit more independency since 1994. However, with the recent blessing of an Regulation by the Federal Cabinet, which provides for amendments in the State Bank Act of 1956 associating to allow of enhanced liberty for the establishment, State Bank of Pakistan has now accomplished far superior administrative and functional independency than at any phase since it was established.

Like a cardinal bank in any underdeveloped state, State Bank of Pakistan performs primary, secondary every bit good as developmental maps. Primary maps are usually performed by about all cardinal Bankss which include issue of notes, preparation of pecuniary policy, ordinance and supervising of the fiscal system, moving as a bankers. bank, loaner of the last resort, and banker to the Government. Secondary maps include bureau maps such as supervising of public debt and foreign exchange militias, reding the Government on policy affairs and keeping close relationships with international fiscal establishments. In add-on to these, the State Bank besides carry out of import developmental maps such as the proviso of models for the institutionalization of nest eggs and investing in the economic system, making an environment offering capacity constructing chances to the banking sector in association with the Institute of Bankers Pakistan and the National Institute for Banking and Finance to back up the Government in advancing the growing of sectors such as SMEs, Housing and IT. State Bank has besides been actively involved in the publicity of the agribusiness sector and encouraging ingestion of locally manufactured machinery in industrial projects through policy model.

Furthermore, it is concentrating on the development of an Islamic banking system and fiscal instruments toward conformity of the Supreme Court ‘s opinion for gradual debut of an alternate fiscal system in Pakistan that accommodates the demands of this market.

( Annual public presentation reappraisal 2008-2009 )

2.2.2 Banks in Pakistan:

Commercial Bankss in Pakistan represent the bosom of the fiscal system, keeping approximately 90 % of sedimentations and supplying more than two tierces of entire funding. At present, there are 25 domestic commercial Bankss ( with 8,718 subdivisions ) , 1 micro finance bank, 17 foreign Bankss ( with 78 sub subdivisions ) and 13 investing Bankss. Table below shows the inside informations of these:

Table 2.2 BANKS IN PAKISTAN

Nationalized Banks 2

Denationalized Banks 4

Specialized Schedule Bankss 4

Private Banks 13

Provincial Banks 2

Micro Finance Bank 1

Foreign Banks 17

Investing Bankss 13

Entire Banks 56

Beginning: State Bank of Pakistan

In 1975, the banking system was nationalized, with a figure of private Bankss merged into a few larger province owned establishments. Since the early 1990s, the Government has under taken banking sector reforms and sought private sector engagement in the banking system through the denationalization of the province owned commercial Bankss and the constitution of new in private owned Bankss. The IMF and the World Bank who are non ever really generous in their congratulations had this to state about the Banking sector in Pakistan after transporting out a comprehensive and through reappraisal in early 2006, .The far making reforms have resulted in more efficient and competitory banking system. In peculiar, the pre dominantly province owned banking system has been transformed into 1 that is preponderantly under the control of private sector. The legislative model and province bank of Pakistan ‘s supervisory capacity has been improved well. As a consequence fiscal sector is sounder and exhibits an increased trust to dazes. ( Husain 2007 )

Pakistan has introduced Islamic banking system to run in correspondence with the conventional banking supplying a pick to the consumers. A big figure of Pakistanis have remained withdrawn from commercial banking because of their strong Islamic beliefs against riba-based ( involvement ) banking. These persons and houses are largely in-between and low category, who will hold the opportunity to put in trade and concerns by availing loans from Muslim Bankss and therefore enlarge economic activities and employment. A complete Islamic bank has already opened the doors for concern and quite a few commercial Bankss have subdivisions entirely dedicated to Islamic banking merchandises and services. The State Bank of Pakistan has set up a wholly separate Islamic Banking Department and a Shariah Advisory Board to assist it in the publicity of Islamic banking in the state.

There is huge rush amongst the Bankss including state-owned commercial Bankss to better their engineering and online banking services. During the last three old ages at that place has been a great development in the ATMs and at present about 700 Standard atmospheres are working throughout the Pakistan. Development in making automated or online subdivisions of Bankss has been rather important until now and it is predictable that in 2010 about all the bank subdivisions will be online or automated. Utility measures payment and remittals would be handled through ATMs and personal computing machines cut downing both clip and cost.

2.2.3 Pakistani Banks Used For Research:

Although there are a big figure of domestic and foreign Bankss runing in Pakistan, due to clip and word restraints merely four will be used to compare current corporate banking services, which are Muslim commercial bank limited, Habib bank limited, Union bank and Bank Alfalah limited.

Muslim Commercial Bank Limited ( MCB ) has a solid foundation of over 50 old ages in

Pakistan and was the first privatized bank of Pakistan. Now after ten old ages of denationalization MCB have a web of over 900 subdivisions, 225 ATMs in 41 metropoliss and a web of 12 Bankss on the MNET ATM exchange all over the Pakistan. MCB is the lone bank to have Euromoney award and Best Bank in Pakistan for 4th clip in last five old ages. In the country of fiscal merchandises and advice, MCB offer full scope for personal and corporate clients. In footings of net income for half twelvemonth ended 30th June 2010, MCB made a pre revenue enhancement net income of Pakistani rupees Rs. 4,227 million, which is Rs 2,538 million more than the net income for same period in twelvemonth 2009.

Habib Bank Limited ( HBL ) is a major participant of Pakistan ‘s services industry with extended subdivision web of 1480 ( 1425 domestic and 55 international subdivisions ) and using over 18,625 qualified professional bankers. In footings of net income HBL earned a pre revenue enhancement net income of Pakistani rupees Rs. 4,883 million during first half of 2010, which is Rs. 2,671 million more than the net income for the same period in twelvemonth 2009.

Union Bank was established in 1991 and is backed by a major Middle Eastern Group. Union bank is one of the fast growth private Bankss with 42 subdivisions in 19 metropoliss all over Pakistan and a web of over 300 Bankss in 85 states. In footings of net income it is demoing fast turning tendencies as pre revenue enhancement net income for 2009 was Pakistani rupees Rs. 1,410 million, which was Rs. 845 million more than for twelvemonth 2008.

Bank Alfalah Limited ( BAL ) was incorporated on June 21st, 1997 as public limited company and commenced its operation on November 1st, 1997. BAL is presently runing through 104 commercial banking subdivisions and 15 Islamic banking subdivisions in 36 metropoliss throughout Pakistan. During the half twelvemonth ended 30th June 2010 bank ‘s pre revenue enhancement net income stood at Pakistani rupees Rs. 1,275 million, which is Rs. 422 million more than net income for same period in 2009.

2.3 RECENT TRENDS AND MARKET DEVELOPMENTS IN Banking:

The banking sector in UK and Pakistan is undergoing rapid transmutation during the last decennary or so. Some of the of import issues that might impact the banking sector in future are: Restructuring of bank concern, which is going more planetary and is helped by decrease in barriers to come in the international trade and technological promotions.

Differentiation between the Bankss and other fiscal service suppliers has fallen well in the recent old ages. Competition degree has increased due to the entry of other participants like internet Bankss and proviso of banking services by establishments whose primary concern is non banking.

Off shoring or distant concern processing is a turning tendency in the international concern in the recent clip. Technological promotion and decrease in telecommunication costs have allowed more independency of operations in footings of location. Most popular finishs for off shoring are India, China, Sri Lanka, Philippines, Malaysia, etc. and this market is projected to turn at 30 % to 40 % yearly. In footings of distribution channels, it is widely believed that because of technological promotions cyberspace, nomadic telephone banking and Television banking will be some of the most of import signifier in the hereafter UK banking. In malice of these anticipations, subdivision banking will go on to hold an of import function in the proviso of banking services. Liberalization of banking and other fiscal services is one of the popular planetary tendencies particularly in the development states.

Chapter – 3

Corporate Banking SERVICES 1: FINANCIAL SERVICES

Every company requires at least one bank, but recent surveies reveal that merely 8 % of companies use merely one bank. Large-scale concern may cover with 100s of Bankss. The figure of Bankss dealt with depends on the concern size, complexness and geographical spread. Whilst it makes sense to hold more than one bank, excessively many can do it hard to advance strong relationships. Turnbull ( 1983 ) was among the first research workers who studied the perceptual experiences of corporate clients towards their Bankss. He examined the relationship between 44 corporate clients in UK and their bankers and found that size of the corporate client played an of import function in keeping multi banking patterns.

Another of import determination of Turnbull ( 1983 ) was that larger corporations tend to prefer foreign Bankss than the local Bankss. Turnbull and Gibbs ( 1989 ) carried out a survey utilizing lager and really big companies in South Africa. The aims of their survey were to happen factors that were considered important among corporate clients in choosing their bank and to happen information conditions companies have banking relationship with one bank or more. The determination by and large showed that the corporate clients perceived that quality of service was the most important factor in set uping a banking relationship. Other important factors were quality of staff, bank director ‘s attitude and service charges. Although really big companies considered quality of service as the most of import factor, both monetary value and quality of staff were every bit of import. Multi banking relationship pattern was common among the corporate clients and physically visual aspect of the Bankss had no impact on their choice procedure.

The existent significance of good banking relationship is discovered when things get tough and when continued bank support is required. A healthy banking relationship requires the company to cover openly, candidly and on a regular basis with the bank, maintaining it informed of development and ensuring there are no awful surprises. Many Banks had made legion attempts to develop dealingss with the concern community, yet despite their attempts, Bankss are frequently criticised for their deficiency of support in hard times. Regardless of such jobs, Bankss remain the most of import beginning of external finance for the concerns, supplying approximately 60 % of their external finance. In this chapter we will analyze the nature and features of fiscal services by and large provided by Bankss in both UK and Pakistan to their corporate clients.

3.1 BANK CREDIT FACILITIES:

Banks in UK and Pakistan offer broad assortment of recognition installations, runing from short term overdrafts to long term loans of varying footings. The involvement rate by and large rises with the term of the loan, the existent rate being linked with the bank ‘s base rate, which in bend depends on the base rate set by Monetary Policy Committee in UK and State Bank of Pakistan in Pakistan.

Over a one tierce of UK bank loaning was targeted towards abroad clients and two 3rd towards domestic clients in 2009. This is non surprising given the important presence of foreign Bankss in the UK. Entire loaning or progresss reached ?2,608 billion at the terminal of 2009, which is 6 % more than the old twelvemonth 2008. Figure below shows the division of bank loaning to domestic client and foreign clients as a per centum of entire loaning by UK Bankss in several old ages.

Figure 3.1 Finish of UK Lending

Percentage of Entire Lending

Beginning: City Business Series Feb, 2010.

Corporate loaning has doubled over the past decennary. This was paralleled by a varying form in bank loaning to companies both in the way and adulthood of loaning. Financial services increased its portion of bank loaning typically at the disbursal of fabrication, sweeping and retail trade. Bank adoption is the major beginning of external finance for all concerns and particularly for little houses, which have less capacity to publish bonds or to pull equity finance. Between 2000 and 2005 bank borrowing amounted to 52 % of external finance for UK SMEs ( Small and Medium Enterprises ) , in front of renting at 25 % , factorization and stockholders both around 6 % , and venture capital 3 % .

Over the past decennary the ratio of medium to long term loaning to concerns has improved somewhat while during the same period there has been a significant lessening in the usage of overdrafts. The overall ratio of loaning to concerns for footings of at least one twelvemonth, increased from 33 % in 1999 to 35 % in 2009, chiefly due to increase in loans with a adulthood period of over five old ages. Most lending nevertheless remains short term reflecting the primary demands of clients in pull offing hard currency flow, working capital and other short term funding demands. During the same period the ratio of concern loaning on overdrafts decreased from 28 % to 16 % of entire loaning while other short term loaning unto 1 twelvemonth rose from 39 % to 49 % .Diagram below shows the inside informations of funding type and its per centum of entire loaning.

Figure 3.2 Type of Loan and Percentage Share

Beginning: City Business Series Feb, 2010.

In Pakistan the corporate sector ( including large corporations, little and average endeavors ) is the biggest finish of bank loaning. During the past twelvemonth 2009 the corporate sector took the bulk of the entire progresss made by the schedule Bankss of Pakistan, which is about 71.4 % of the entire loans ( large corporation 53.90 % and SME.s 17.5 % ) . Figure below shows the inside informations of the progresss made by schedule Bankss of Pakistan by type of borrowers for twelvemonth 2009.

Figure 3.3 Percentage of Progresss by Type of Borrowers

Beginning: Banking System Review Feb, 2010

Progresss made by schedule Bankss of Pakistan up to the month of June in 2010 were Pakistani ( rupees ) Rs. 1,752,074 million, which were 36.77 % more than in May 2009 i.e. Rs.1,281,062 million. Table below shows the inside informations of the monthly progresss made by schedule Bankss in Pakistan.

Table 3.1 Sum ADVANCES BY SCHEDULE BANKS IN PAKISTAN

Entire ADVANCES BY SCHEDULE BANKS IN PAKISTAN

Million Sri lanka rupees

As on last hebdomad of

2007

2008

2009

March

960,988

1,002,414

1,211,241

June

970,112

1,069,259

1,324,522

September

930,871

1,051,184

1,396,430

December

1,000,331

1,169,986

1,589,870

Beginning: Economic Data

Banks exist to impart money at involvement for doing net income. Both personal and corporate clients require fiscal aid from clip to clip. This aid is normally given in the signifier of bank recognition installation. Following are few recognition installations normally offered by Bankss to their corporate clients in both UK and Pakistan:

3.1.1 Overdrafts:

The most first-class known signifier of short term bank recognition in both UK and Pakistan is the overdraft installation offered to corporate clients for period such as six months or a twelvemonth. There is no pre-determined lower limit or maximal degree of borrowing on an overdraft and is determined by Bank ‘s relationship director. Overdraft bound and proviso of security depends upon the corporate client ‘s concern nature and association with the bank.

Interest rate varies with the Bankss base rate and merely collectible on the negative balance or sum used at any clip instead than the maximal agreed bound.

As pointed out in Bank of England quarterly bulletin summer 2010, the overdraft finance was one time once more quoted as the most common signifier of debt instrument used, with 62 % of little companies admiting they have an overdraft installation. Harmonizing to British Banker ‘s Association, overdraft adoption made by little companies entirely amount ?9.652 billion up to 2nd one-fourth of 2010.

Figure 3.4 Overdraft Harmonizing to Size of Company

Beginning: Bank of England Quarterly Bulletin Summer 2010.

Figure above shows the relationship between the sizes of the company and usage rate of overdraft installation as mentioned in a study conducted by Bank of England that the bigger the size of the company in term of figure of employees employed the more it uses overdrafts to finance its short term fiscal demands.

3.1.2 Term Loans:

Business loans with adulthood longer than one twelvemonth are called term loans. Term loans could be for short ( 1- 5 old ages ) , medium ( 6-10 old ages ) and long term ( more than 10 old ages ) .These loans are structured on the footing of primary undertaking features and hard currency flows of the concern. Like old surveies current study by Bank of England finds much greater use of short term bank loans than medium and particularly long term. Short-run and medium-term loans are more likely amongst bigger, profitable and more constituted companies. Long-run loans seem to be uniformly rare amongst all types of concerns, even though they are most common at old-established companies. This can be seen in the diagram below:

Figure 3.5 Term Loans Harmonizing to Size of Company

Beginning: Bank of England Quarterly Bulletin Summer 2010.

As apparent from above figure that popularity of term loan decreases with the addition of continuance of the loan i.e. short term loans are most popular among the concern community as compared to medium and loan term loans.

3.1.3 Revolving Credit Facility:

Revolving recognition installation permits the borrower to borrow, refund and re-borrow during the period of loan proviso. It is frequently protected on the borrower ‘s on the job capital e.g. utilizing stock as security. However, large companies holding good relationship with bank may non be required to supply any signifier of security for loan.

3.1.4 Credit Card games:

Recognition cards are an of import method of imparting money used by Bankss all over the universe. The chief 1s offered by Bankss are those transporting Visa and MasterCard symbols. Recognition cards are usually aimed at persons and are charged with really high involvement rate. However, company cards are the recognition cards given to the employees of the company typically commercial travelers, managerial staff to pay for travel disbursals etc. and cost is charged to the company. Biggest advantage is the control over the disbursals made by company ‘s employees. In recent old ages recognition cards have become the individual most important manner of payments in the day-to-day life both for persons and corporate employees. Diagram below shows the prevalence of recognition cards in the UK market and that important proportion of clients hold multiple recognition cards:

Figure 3.6 Prevalence of Credit Cards in UK

Beginning: Financial Stability Review June 2010

3.1.5 Mortgages:

In the word of Clark ( 1999 ) .mortgage is a transportation of legal papers to a belongings as a signifier of protection for the colony of a debt.. As the loan is secured against the belongings and hazard associated with the loan is less, the bank by and large charges low involvement on mortgages. Corporate clients are by and large offered commercial mortgages against commercial belongingss. Table below list down the top 10 Bankss publishing mortgages to the UK clients in 2010:

Table 3.2 TOP 10 MORTGAGE LENDERS FOR 2010 IN UK

Top 10 Mortgage Lenders FOR 2010 IN UK

Rank

Name of Bank

? in one million millions

1

Abbey

193.0

2

Halifax

90.9

3

Countrywide

80.1

4

Northern Rock

78.2

5

Woolwich

64.5

6

Bradford and Bingley

57.5

7

HSBC

49.0

8

Royal Bank of Scotland

32.4

9

Lloyds TSB

27.9

10

Alliance & A ; Leicester

23.6

Beginning: Council of Mortgage Lenders ( www.mortgageguideuk.co.uk )

State bank of Pakistan permitted schedule Bankss of Pakistan to progress residential lodging loans in 1998 in its round no. 10, in which it made alterations in recognition policy of lodging finance and permitted agenda Bankss to forward mortgage loans maintaining in position the ordinances for loaning set by province bank of Pakistan. Since so bulk of schedule Bankss of Pakistan are send oning mortgage loans to the citizens of Pakistan.

3.2 Factorization AND INVOICE DISCOUNTING:

Factoring and invoice discounting, together known as bill finance, are chiefly used as a signifier of short-run working capital finance. Both invoice discounting and factoring affect the assignment by a seller to its moneyman of the returns due on outstanding bills ( receivables ) , in return for an instant payment of up to around 85 % of the bills. Face values and the balance ( less fees and finance charges ) upon payment of the debts by the seller ‘s clients. Therefore, the finance is extended for the length of the trade debt. The chief difference between factoring and invoice discounting is that in the latter the seller retains control of its gross revenues leger and remains responsible for roll uping debts, whereas factoring involves the transportation of this map to the moneyman ( banker ) . For this ground, bigger companies tend to utilize invoice discounting, whereas factorization is more suited for smaller companies. This relationship is discussed in bank of England quarterly bulletin summer 2010, where it argues that as the size of the company increases it tends to favor the usage of bill discounting as shown in the figure below:

Figure 3.7 Invoice Discounting and Size of Company

Beginning: Bank of England Quarterly Bulletin Summer 2010.

3.3 LEASING AND HIRE PURCHASE:

Renting and engage purchase are fiscal installations that permit a concern to use an plus over a fixed period, in return for regular payments. The concern chooses the equipment it requires and the bank buys it on behalf of the concern. Most concern equipment may be obtained this manner. There are basically two signifiers of rental in both the United Kingdom and Pakistan: the finance rental and the operating rental. Finance rentals confer upon the leaseholder all the economic hazards and wagess of ownership of the plus, because the leaseholder repays largely the full plus ‘s cost to the lease giver. At the terminal of the rental, the lease giver may sell the plus and pay to the leaseholder most of the returns. On the other manus, the leaseholder may go on to rent the plus at a nominal lease. Under an operating rental, the lease giver keeps some or all of the economic hazards and wagess of ownership. This is by and large because the economic life of the plus is expected to be longer than the length of the rental.

When an operating rental terminates, the plus is merely returned to the lease giver, who may rent it out once more. Assetss capable to engage purchase agreements are recorded on the lessee.s balance sheet in about the same manner as if it were a finance rental, provided that the cost to the leaseholder of exerting the option to buy the plus is undistinguished. The huge bulk of instances in the United Kingdom are of this nature. Harmonizing to bank of England quarterly bulletin 2010 rental and engage purchase are much more to a great extent used by concerns than bill discounting. Diagram below shows the fact that with the addition in the size of the concern usage of rental and hire purchase besides increases.

Figure 3.8 Lease & A ; Hire Purchase and Size of Conpany

Beginning: Bank of England Quarterly Bulletin Summer 2010.

3.4 INTERNATIONAL Trade Financing:

Banks both domestic and foreign drama an of import function in the smooth executing of the international trade between to parties by and large known as exporter and importer. When covering with less dependable or new clients based in other parts of the universe more formal processs are required to over come the fright of default by a client in a foreign state, the exporter enlists the aid of a well respected bank to move as intermediary. Banks offer different services to finance the foreign trade which are as follows:

3.4.1 Letter of Credit:

Letter of recognition is an project by an publishing bank to the donee to do payment within a specified clip, against the presentation of paperss which comply purely with the footings of the recognition. Therefore, the hazard to the marketer, of non-payment by the purchaser is transferred to the publishing bank ( and the corroborating bank if the missive of recognition is confirmed ) every bit long as the exporter presents the paperss in rigorous conformity with the recognition. It is imperative to maintain in head that all parties in the missive of recognition dealing trade with paperss, non goods. Letter of recognition makes possible for the exporter to have the payment for goods in its state of beginning once the cargo has taken topographic point.

Valdez ( 2000 ) has identified following few types of missive of recognition. A revokable missive of recognition can be amended or cancelled at any clip without the donee ‘s understanding ( unless paperss have been taken up by the nominative bank ) . Small protection is offered to the donee with a revokable recognition and they are seldom seen. An irrevokable missive of recognition can neither be amended nor cancelled without the understanding of all parties to the recognition. An unconfirmed missive of recognition is forwarded by the reding bank straight to the exporter without adding its ain project to do payment or accept duty for payment at a hereafter day of the month, but corroborating its genuineness. A confirmed missive of recognition is one in which the reding bank, on the instructions of the publishing bank, has added a verification that payment will be made every bit long as compliant paperss are presented. This promise holds even if the publishing bank or the purchaser fails to do payment.

A standby missive of recognition is used as support where an option, less secure, method of payment has been agreed. If the exporter fails to have payment from the purchaser he can claim under the standby missive of recognition. Certain paperss are likely to be required to obtain payment including: the standby missive of recognition itself ; a sight bill of exchange for the sum due ; a transcript of the unpaid bill ; cogent evidence of despatch and a signed declaration from the beneficiary stating that payment has non been received by the due day of the month and hence reimbursement is claimed by missive of recognition. The International Chamber of Commerce publishes regulations for operating standby letters of recognition. The revolving missive of recognition is used for regular cargos of the same trade good to the same purchaser. It can go around in relation to clip or value. If the recognition is clip go arounding one time utilised it is re-instated for farther regular cargos until the recognition is to the full drawn. Revolving letters of recognition are utile to avoid the demand for repetitive agreements for gap or amending letters of recognition. A movable missive of recognition is one in which the donee has the right to bespeak the paying, or negociating bank to do either portion, or all, of the recognition value available to one or more 3rd parties. This type of missive of recognition is utile for those moving as jobbers particularly where there is a demand to finance purchases from 3rd party providers. A back-toback missive of recognition can be used as an option to the movable missive of recognition. Rather than reassigning the original missive of recognition to the provider, one time the missive of recognition is received by the exporter from the gap bank, that missive of recognition is used as security to set up a 2nd missive of recognition drawn on the exporter in favour of his provider. Many Bankss are hesitating to publish consecutive letters of recognition due to the degree of hazard to which they are exposed.

3.4.2 Bill of Exchange:

Bill of exchange is a signifier of commercial recognition instrument used in international trade. In Britain, a measure of exchange is defined by the Bills of Exchange Act 1882 as an unconditioned order in composing addressed by one individual to another, signed by the individual giving it, necessitating the individual to whom it is addressed to pay on demand or at a fixed or determinable future clip a certain amount of money to or to the order of a specified individual, or to the carrier.

3.4.3 Forfaiting:

Forfaiting is a signifier of fixed-rate trade finance, which involves the purchase of an exporter.s debt by a fiscal establishment or banks- the forfaiter. These debts are normally in the form of bank measures of exchange or promissory notes and have been accepted by the exporter as deferred payment for goods sold to foreign purchasers. The exporter sells the measures or notes at a price reduction, for hard currency, and passes all commercial and political hazards and duties for aggregation to the forfaiter. The exporter protects himself by including the words ‘without resort ‘ in backing the measure. Forfaiting is normally used in Europe, Latin America, North Africa and the Far East.

3.4.4 Factorization:

Valdez ( 2000 ) defines export factoring as.buying export trade on a non-recourse footing to help hard currency flow.. Export factorization is similar in kernel to domestic factorization, with the added benefit that the factor normally assumes the foreign exchange hazard and therefore may be expensive.