Allied Bank Limited

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Allied Bank Limited: A strategic Management Case Study

Allied Bank Limited: A strategic Management Case Study

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  • 1. Allied Bank LimitedStrategic Management Case Study
  • 2. Presented by: Rizwan Qamar M. Phil Fellow at Faculty of Contemporary Studies, National Defence University, Islamabad
  • 3. Outline• INTRODUCTION • External Assessment • Pakistani Banking Industry • Interest Rates • Industry Overview Comparison • ABL‟s Introduction • List of Competitors • ABL Today • External Industry Comparison• Mission, Vision Statements • EFE Matrix • Existing • Competitive Profile Matrix • Why change? • Porters Five Forces • Proposed Model• INPUT STAGE • MATCHING STAGE• Internal Assessment • SWOT Matrix • Map Locating ABL‟s • BCG Matrix Operations • SPACE Matrix • Size of Financial Position • The IE matrix • Investments • Grand Strategy Matrix • Profit and Loss • Strategy Analysis Composition • DECISION STAGE • ROE & ROI • QSPM • Shareholder‟s equity • Possible Alternative • Cash Flows Analysis Strategies • Profitability Analysis • Recommendations • Strengths and Weakness • References • IFE Matrix
  • 4. Pakistani Banking Industry At present there are 41 scheduled banks, The Commercial Banks comprise of 3 nationalized banks,3 privatized banks, 15 private sector banks, 14 foreign banks, 2 provincial scheduled banks, and 4 specialized banks. There are 17 Listed and 4 unlisted Banks Banking Industry still remains the most favorite in Pakistan Domestic Banks are in surplus liquidity The Largest 5 local Banks (Also knows as Big-5) includes, HBL,UBL, MCB, ABL and NBP Out of them NBP is a State Owned Bank
  • 5. Pakistan Banking Industry inBrief
  • 6. Pakistan Banking Industry inBrief
  • 7. Pakistan Banking Industry inBrief
  • 8. ABL Introduction Allied Bank with its Registered Offices in Karachi and Lahore is one of the largest banks within the country It has 830 branches connected to an online network. It was the first Muslim Bank Established in Pakistan before Partition (1942) with the name of Australasia Bank at Lahore. Australasia Bank was the only fully functional Muslim Bank on Pakistan territory on 14th August At the time of independence all the branches in India, (Amritsar, Batala, Jalandhar, Ludhaina, Delhi and Angra (Agra)) were closed down. New Branches were opened in Karachi, Rawalpindi, Peshawar, Sialkot, Sargodha, Jhang, Gujranwala and Kasur By the end of 1970 it had 101 branches but unfortunately it lost 51 branches in the separation of East Pakistan which became Bangladesh.
  • 9. ABL Introduction……………….Cont‟d The bank did well in despite losing lot of its assets and by the end of 1973 the bank had 186 branches in West Pakistan In 1974, the Board of Directors of Australasia Bank was dissolved and the bank was renamed as Allied Bank of Pakistan. Same year Sarhad Bank Ltd, Lahore Commercial Bank Ltd and Pak Bank Ltd were also merged in it From 1974-91 (Nationalization), bank made a rapid progress and branches network increased to 748 with three branches in UK As a result of privatization in September 1991, Allied Bank entered in a new phase of its history, as the world’s first bank to be owned and managed by its employees
  • 10. ABL Today Now a days ABL has the largest network of online branches in Pakistan which counts over 800 and located in almost 150 cities and towns. The bank offers a full range of retail, commercial and corporate banking services with a focus on service delivery through technology. Additionally, it also provides general banking services to agricultural, industrial and individual customers throughout Pakistan. Almost 89% of banks deposit base is composed of deposits from the urban areas. The banks fundamental strength lies in its strong lending capability, as well as providing a variety of financial services The bank also conducts international operations in UK whereby it caters to the needs of the banks domestic corporate and other customers in financing import and export transactions.
  • 11. ABL Today…………………………Cont‟d ABL has highest number of ATMs, which increased to 601 at December 31, 2011 covering 145+ cities whereby, making it the widest geographical coverage for ATM-based service amongst all the banks in Pakistan. It has a completely online network of 830 branches. This accounts for 12% of the market share amongst the online branches in the country. Allied Bank has also been adjudged as "best bank" of 2009 by CFA Association of Pakistan in its 7th Annual Excellence Awards. It has also been ranked 1st in Pakistan and 9th globally by the Banker Magazine, UK for yielding best profits on capital.
  • 12. Financial Highlights in 2011
  • 13. ABL VISIONActual Proposed“To become a dynamic “To become a leadingand efficient bank and efficient Financialproviding integrated Institution providingsolutions in order to be integrated solutions inthe first choice bank for order to be the firstthe customers” choice of customers”
  • 14. ABL‟s Mission Statement (Actual) To provide value added services to our customers To provide high tech innovative solutions to meet customers‟ requirements To create sustainable value through growth, efficiency and diversity for all stakeholders To provide a challenging work environment and reward dedicated team members according to their abilities and performance To play a proactive role in contributing towards the society
  • 15. Characteristics of ABL‟s MissionCharacteristics of Mission Statement ABL Mission StatementBroad in scope YesLess than 250 words YesInspiring YesIdentify the utility of a firm‟s product NoReveal that a firm is socially responsible YesReveal that the firm is environmentally friendly NoInclude nine components of mission statements NoEnduring No
  • 16. Components of ABL‟s MissionComponents of Mission Statement ABL Mission1) Customer Yes2) Product No3) Market No4) Technology Yes5) Concern for survival , growth and profitability Yes6) Philosophy Yes7) Self Concept No8) Concern for public Image Yes9) Concern for employee Yes
  • 17. ABL‟s Mission Statement (Proposed)“We are committed to provide withefficient high tech innovative FinancialSolutions to our customers in Pakistanand create sustainable value throughgrowth, efficiency and diversity for allstakeholders. We provide a challengingwork environment and reward accordingto their abilities and performance and toplay a proactive role in contributing
  • 18. Input StageInternal Assessment Internal Factor Evaluation (IFE) MatrixExternal Assessment External Factor Evaluation (EFE) Matrix Competitive Profile Matrix (CPM)
  • 19. INTERNAL ASSESSMENT
  • 20. Map Showing Operations of ABL inPakistan
  • 21. Internal Assessment
  • 22. Internal Assessment
  • 23. Internal Assessment
  • 24. Internal Assessment
  • 25. Internal Assessment
  • 26. Internal Assessment
  • 27. Internal Assessment
  • 28. Internal Assessment
  • 29. Internal Assessment
  • 30. Internal Assessment
  • 31. Internal Assessment
  • 32. Internal Assessment
  • 33. Internal Assessment
  • 34. Internal Assessment
  • 35. Internal AssessmentRevenue DivisionsPKR „000‟ Income Category 2011 2010Interest Income 25,171,039 22,565,044Fee, Commission and Brokerage Income 2,730,686 2,491,200Dividend Income 2,681,218 1,118,270Income from dealing in Foreign Currencies 643,058 418,524Total………………………. 31,226,001 26,593,038
  • 36. Revenue Divisions30,000,00025,000,00020,000,000 15,000,000 2011 10,000,000 2010 5,000,000 0 Interest Income Fee, Commision and Brokrage Income Dividend Income Income from dealing in Foreign Currencies
  • 37. Internal AssessmentGrowth in Revenue Divisions 2011(%) Growth (%) Income Category Growth 140 120 100Interest Income 11.54881 80 60Fee, Commission and 40Brokerage Income 9.613279 20 0Dividend Income 139.7648Income from dealing inForeign Currencies 53.64901
  • 38. Internal AssessmentSTRENGTHS ABL is the first Muslim Bank of the world, which is owned and managed by its own employs. Strength is the high motivation of employees to their work because they know that what so ever they do, it will be in their own benefit. Salaries are very reasonable, so the employees are not financially disturbed and they devote their selves fully to their work. They have wide area network in all over the Pakistan, so that they cover a lot of portion of cash transactions and make customer satisfied. The banks fundamental strength lies in its strong lending capability, as well as providing a variety of financial services ABL has highest number of ATMs, which increased to 601 at December 31, 2011 (14% of the industry ABL covers 145+ cities whereby, making it the widest geographical coverage for ATM-based service amongst all the banks in Pakistan.
  • 39. Internal AssessmentSTRENGTHS………….. Cont’d It has also been ranked 1st in Pakistan and 9th globally by the Banker Magazine, UK for yielding best profits on capital. Deposits of the bank grew by 17.2% and stood at Rs 372,254 million as at March 31, 2011 compared to deposits of Rs 317,742 million at March 31, 2010 Gross Advances, keeping in line with prudent lending strategy were Rs 257,249 million as at March 31, 2011, a growth of 7% over the gross advances of Rs 240,359 million as at March 31, 2010. The balance sheet size stands at Rs 450,308 million as at March 31, 2011, while the equity of the Bank as at March 31, 2011 registered a growth of 30.7% over March 31, 2010 level to reach Rs 39,547 million. Profit before tax of ABL increased by 43.5% to reach Rs 3,851 million during three months period ended March 31, 2011 as compared to Rs 2,683 million in the corresponding period of previous year. Profit after tax also rose by 41.3% to Rs 2,511 million compared
  • 40. Internal AssessmentWEAKNESS No entertainment facilities are available in the Bank when customer goes to the Bank and wait for a longer time. These facilities can be the newspaper, magazines, TV etc. Advertisement of ABL is not such goods as of other banks. Outlook of the ABL branches is not attractive to the people. The non-interest expenses of the bank increased by 22.7% due to the increase in all the expenses including the administrative expenses, provisions and other charges. The cost of funding also increased by 6%. The earning assets to deposits ratio has declined. Less staff in branches which leads to a long wait for their turn of customers. Nonperforming loans to the Govt. sector due to Govt. influence on the bank. There is no consumer banking services offered by the bank.
  • 41. Internal Factor Evaluation (IFE) Matrix Weigh Rate Weighted Key Success Factors t ScoreSTRENGTHSLargest Online braches network 0.09 4 0.36Largest Nation-wide ATM network 0.06 4 0.24Strong lending ability 0.08 3 0.24Ranked 1st in Pakistan and 9th globally by theBanker Magazine, UK 0.04 3 0.12Higher employee motivation in comparison withCompetitors 0.05 4 0.2Over 17% growth in Deposits where as industrystands at 13% 0.06 3 0.18Profit after tax has increased by 41.3% in last 0.06year 4 0.24Employee training and development 0.05 3 0.15ABL covers 86% of the Countrys urban area 0.08 4 0.32Owned and managed by its employees 0.04 3 0.12
  • 42. Internal Factor Evaluation (IFE)Matrix Weigh Rate Weighted Key Success Factors t ScoreWEAKNESSNo entertainment facility for the customers 0.05 1 0.05Very Less Advertisement 0.05 2 0.1No consumer banking services offered by the 0.07bank 2 0.14Limited coverage of rural areas (Only 14%) 0.04 1 0.04Outlook of the branches 0.03 2 0.06High non-performing loans 0.08 2 0.16The cost of funding also increased by 6%. 0.03 1 0.03Less customer service care 0.04 2 0.08Total………………………. 1.00 2.83 IFE Matrix Score of ABL is 2.83 which is higher than the bench mark of 2.50
  • 43. EXTERNAL ASSESSMENT
  • 44. External Assessment
  • 45. External AssessmentList of Major CompetitorsABL’s Major Competitors includes: Habib Bank Limited (HBL) United Bank Limited (UBL) MCB Bank Limited (MCB) National Bank of Pakistan (NBP)
  • 46. External AssessmentExternal Industry Comparison ABL has 13% share of the ATM Market 12% market share among the online branches The increase in the net interest income of the company is higher than the average for industry, which was 8%. Deposits grew by almost 13%, which equals the industry average of the banking sector The advances grew by 7.5 % as compared to FY09, which was way higher than the industry average of just 1%. Allied Banks deposits account for 7.3% of the total deposits of all the banks whereas its advances account for 7.6%. ABLs total assets constitute 6.6% of the total assets of the banking industry. Despite of economic issues in the country ABL has been able to maintain its profitability.
  • 47. External AssessmentOPPORTUNITIES The policies of the new government to uplift the economy and pursue financial sector reforms are expected to yield positive results in the banking industry of the country. As a result of the different steps taken by the Government regarding the betterment of the economy, small borrowers are attracted to get the financing and start small businesses. So, the ABL has an opportunity to attract the customers by giving them attractive schemes. They have wide area network in all over the Pakistan, if ABL can make it possible the fast delivery of fund from abroad through online banking, it can cover the major market of Pakistan which still is capturing by Hundi. Diversification towards Islamic Banking Services Provide Privileged or Preference banking like MCB and UBL
  • 48. External AssessmentTHREATS First threat is that of political influence. Three boards of directors are of government. So that they can influence on the decisions of the ABL. The biggest threat in the banking sector is the continuous downfall of the country‟s economy since the last few years. New Privates Bank coped with emerging new Technology of IT and with huge investments. Increase in the withholding tax by the Govt. on transactions. The higher discount rates offered by the SBP The Law and order situation disturb the economic situation and hence the Banking Industry Power shortage brutally hinders the performance of Industrial sector which get loans from Banks. Tight monetary policy and high interest of 15% by the SBP reduce the interest of people to get expensive loans from Banks. The high inflation rate due to deficit financing by the Govt. is also a big threat to ABL.
  • 49. External Factor Evaluation (EFE)Matrix Weigh Rate Weighted Key Success Factors t ScoreOPPORTUNITIESGovt. reforms to up lift economy 0.10 4 0.40Can Capture Hundi market by providing fastcash transfer 0.07 3 0.21Diversification towards Islamic Banking Services 0.06 4 0.24Provide Privileged or Preference banking likeMCB and UBL 0.07 3 0.20Micro Finance to the farmers and house holdIndustry 0.07 3 0.21SME Financing 0.05 4 0.20Personal loans and consumer banking 0.04 3 0.12Expansion in the rural area of the country 0.06 4 0.24International expansion through joint ventures or
  • 50. External Factor Evaluation (EFE)Matrix Weigh Rate Weighted Key Success Factors t ScoreTHREATSPolitical influence on the Bank‟s activities 0.07 1 0.07Continuous downfall of the economy 0.08 2 0.16The higher discount rates offered by the SBP 0.05 1 0.05Law & order situation damaging economicactivities 0.08 2 0.16Tight monetary policy and high interest of 15%by the SBP 0.06 2 0.12The high inflation rate due to deficit financing bythe Govt. 0.04 1 0.04Power shortage brutally hinders theperformance of Industrial sector 0.06 2 0.12 EFE Matrix Score of ABL is 2.66 which is higher than the bench mark ofTotal……………………………. 2.50 1.00 2.66
  • 51. Competitive Profile Matrix (CPM)Competitors HBL ABL MCBCritical Success Factors W Rate WS Rate WS Rate WSFinancial Position 0.16 4 0.64 4 0.64 4 0.64Service Quality 0.14 3 0.42 3 0.42 3 0.42Market Share 0.09 4 0.36 2 0.18 3 0.27Customer Loyalty 0.10 2 0.2 4 0.4 4 0.4Bank Charges/ Fees 0.12 2 0.24 4 0.48 3 0.36Advertising and Promotion 0.08 3 0.24 2 0.16 2 0.16Work force motivation 0.07 2 0.14 3 0.21 3 0.21Online/ATM Services 0.11 3 0.33 4 0.44 4 0.44Geographic Coverage 0.13 4 0.52 3 0.39 4 0.52Total…………….. 1.0 0 3.09 3.32 3.42 The CPM value of ABL is 3.32 which shows good competitive position
  • 52. Porter‟s Five Forces Model
  • 53. # Forces Intensity 1 Rivalry among competing High firms 2 Entry of New Competitor Low 3 Development of Substitute LowPorter’s Five Products 4 Bargaining Powers of LowForces SuppliersModel 5 Bargaining Power of High ConsumersExternal Assessment
  • 54. Matching StageSWOT MatrixBCG MatrixSPACEIE MatrixG S Matrix
  • 55. STRENGTHS WEAKNESS SWOT 1. 2. Strong lending position Largest online branches 1. 2. No entertainment Non performing loans 3. Largest ATM network 3. Increasing lending cost Matrix 4. 5. Solid Financial position Fastest growth rate 4. 5. Urban area focus only No branch 6. Motivated workforce attractiveness 7. High profit Margin 6. No consumer Banking 7. No Customer Care SystemOPPORTUNITIES SO STRATEGIES WO STRATEGIES1. Micro Financing 1. Use Strong financial 1. Take offer any Islamic2. Islamic Banking and lending position to Bank and reduce and3. Govt. reliefs for capture SME and Micro lending NPL (W2, W3, O2, O1) Economy Financing (S1, S, S6, 2. Benefit from Govt. relief4. SME Sector O1, O4) and start focus on SME,5. Preference Banking 2. Use its network for Micro and preference6. Rural economy Islamic, preference banking with attractive banking (S2, S3. S5, setup (W1, W5, W6, O3, O2, O5, O6) O4, )5)THREATS ST STRATEGIES WT STRATEGIES1. Foreign Banks 1. Invest in Power sector 1. Prudent lending to avoid2. Power shortage to boost economy (S1, NPL (W2, W3, W6, T5,
  • 56. BCG Matrix (Table) PKR „000‟ % % % Revenue Division Revenues Revenu Market Growth es Share Rate 13.7%Interest Income 25,171,039 80.60923 11.54881Fee, Commission and 15.6%Brokerage Income 2,730,686 9.744911 9.613279 17.3%Dividend Income 2,681,218 9.586492 139.7648Total 31,226,001 100%
  • 57. BCG Matrix Relative market share position in the High 1.0 industry Medium .50 Low 0.0 Low -3 High +20 Dividen d IncomeIndustry growth rate Fee, Com mission Medium 0
  • 58. Boston Consulting Group (BCG) Matrix Relative Market Share • Dividend • Fee, Ban Income k ChargesMarket Growth • Interest Income
  • 59. Space Matrix (Score Table)Financial Strength Rating Environmental RatingReturn on Asset 3 StabilityLeverage/Debt 2 Inflation Rate -4Net Income 3 Technological Changes -3Earnings Per Share 4 Competitive Pressure -4Net Profit Margin 2 Barriers of Entry -2Total 14 SBP Policy -3 Total -16Industry Strength Rating Competitive Advantage RatingGrowth Potential 3 Market Share -1Financial Stability 3 Service Quality -2Ease of Entry in the 3 Customer Loyalty -4industry Technological -2Resource Utilization 5 KnowledgeProfit Potential 2 Online Network/ATMS -4Total 16 Total -13
  • 60. x-axis = IS + CA = 3.10 - 2.60 = 0.50 y-axis = FS + ES = 2.80 - 3.20 = -0.40 SPACE Matrix FS Conservative Aggressive +6 +5 +4 +3 +2 +1CA IS -6 -5 -4 -3 -2 -1 -1 +1 +2 +3 +4 +5 +6 -2 -3 -4 -5 Defensive Competitive -6 ES
  • 61. The Internal-External Matrix IFE Score is 2.83 and EFE Score is 2.66 hence ABL lies in Quadrant VNote: IE Matrix is constructed on the basis of IFE and EFE Score only due to less available date
  • 62. Grand Strategy Matrix Rapid Market Growth Quadrant 2 Quadrant 1 Weak ABL StrongCompetitive Competitive Position Position Quadrant 3 Quadrant 4 Slow Market Growth
  • 63. Alternative Strategies SPAC BCG IE Matrix INT B/Co Div GS Count E m s Forward Integration X X 2 Backward Integration X 1 Horizontal Integration X X 2Matrix Analysis Market Penetration X X X X 4 Market Development X X X X X X 6 Product Development X X X X X X 6 Diversification X X X X 4 Joint Venture X 1 Retrenchment X 1 Divestiture X 1 Liquidation 0 Mergers & Acquisition X 1 STRATEGY ANALYSIS
  • 64. Decision StageQuantitative Strategic Planning MatrixAlternative StrategiesRecommendations
  • 65. Quantitative Strategic Planning Matrix Key Factors Weight Strategy-I Strategy-IIINTERNAL FACTORS AS TAS AS TASGovt. Intervention in bank‟s matters 0.12 4.00 0.48 3.00 0.36High Growth rate 0.14 4.00 0.56 3.00 0.42Trained and motivated work force 0.09 3.00 0.27 4.00 0.36Strong financial and lending capability 0.11 2.00 0.22 3.00 0.33Largest online and ATM networks 0.10 4.00 0.40 2.00 0.20EXTERNAL FACTORSSBP Monetary Policy and Regulations 0.08 3.00 0.24 2.00 0.16High Inflation Rate 0.06 3.00 0.18 4.00 0.24Power Crisis in the country 0.10 4.00 0.40 3.00 0.30Law and Order Situation 0.07 3.00 0.21 2.00 0.14High discount rates and lendingrestrictions 0.08 4.00 0.32 2.00 0.16Less savings of the people 0.05 3.00 0.15 4.00 0.20Total……………………….. 1.00 3.43 2.87
  • 66. Possible Alternative Strategies Strategy-I (Product Development)  Introduce new services within existing set up of the bank  Provide consumer Banking services  Take initiative of Islamic Banking  Fast and innovative & secure methods of Cash transfer  Diversify and enhance Bank A/C types and other services Strategy-II (Market Development)  Expand banks operations geographically  Banking services may be provided in rural areas  Those customers must be identified and attracted who have capacity but never used bank services
  • 67. Possible Alternative Strategies…….Cont‟d Strategy-I has 3.43 Total Attractiveness Score (TAS) And Strategy-II has 2.87 TAS So Strategy-I is recommended for the Bank according to QSPM Strategy-I is the product development. Hence Bank should diversify its services and introduce new innovative, secure and high tech methods of Financial Transitions with the convenience of the customers SME sector may be focused more for lending
  • 68. Recommendation Internal & External Audits (concept of financial discipline, accountability, good corporate governance, professionalism and impartiality) Communications Skills. No ambiguity should be left. Clear and comprehensive instructions at all levels of hierarchy Transparency in all matters especially in financing, lending, recovery etc. Lending focus must be on private sector instead of public sector SME sector must be given priority in all financial matters Aggressive marketing strategies in retail and commercial banking Institutionalization of Human Resource Management (best man should be posted to best assignment, refreshing courses, seminar on emerging banking and
  • 69. Recommendation…………..Cont‟d Research and Development facilities (Domestic market research, economic analysis, strategic insight of major economic and financial accords, international markets knowledge, rigorous planning and development, loss & prevention mechanism) There should be central compliant cell in ABL in order to reduce people‟s complaints and foster the ratios of productivity. Commonness of E-commerce with the help of Internet banking should allow flourishing in all branches. Scope of Investment Banking is very much there and bright as said by finance minister. Concrete efforts should be made to initiate investment-banking operations.
  • 70. References David, Fred, R “Strategic Management” Concepts and Cases´ 10th and 13th Edition. Prentice Hall International 2009. www.abl.com.pk (Accessed on May 14, 2012) http://www.mediamonitors.net/biopakbymuhkhan. html (Accessed on May 14, 2012) www.sbp.gov.pk (Accessed on May 14, 2012) Retrieved May 15, 2012 www.yahoo.com/images Retrieved May 15, 2012 http://www.google.com.pk/imghp?hl=en&tab=wi www.finance.gov.pk (Retrieved May 15, 2012) ABL Retrieved May 15, 2012 http://en.wikipedia.org/wiki/Allied_Bank_Limited
  • 71. Questions and Further Discussion ?
  • 72. Have a nice weekend