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 AssessmentPakistani Banking Industry Interest RatesIndustry OverviewComparisonABLs Introduction List of CompetitorsABL Today External IndustryComparison 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 ABLs 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 Shareholders equity Possible Alternative Cash Flows AnalysisStrategies 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 3nationalized banks,3 privatized banks, 15 privatesector banks, 14 foreign banks, 2 provincialscheduled banks, and 4 specialized banks. There are 17 Listed and 4 unlisted Banks Banking Industry still remains the most favorite inPakistan 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 andLahore is one of the largest banks within the countryIt has 830 branches connected to an online network. It was the first Muslim Bank Established in Pakistanbefore Partition (1942) with the name of AustralasiaBank at Lahore. Australasia Bank was the only fully functional MuslimBank on Pakistan territory on 14th August At the time of independence all the branches in India,(Amritsar, Batala, Jalandhar, Ludhaina, Delhi andAngra (Agra)) were closed down. New Branches were opened in Karachi, Rawalpindi,Peshawar, Sialkot, Sargodha, Jhang, Gujranwala andKasur By the end of 1970 it had 101 branches butunfortunately it lost 51 branches in the separation ofEast Pakistan which became Bangladesh. 9. ABL Introduction.Contd The bank did well in despite losing lot of its assetsand by the end of 1973 the bank had 186 branches inWest Pakistan In 1974, the Board of Directors of Australasia Bankwas dissolved and the bank was renamed as AlliedBank of Pakistan. Same year Sarhad Bank Ltd, Lahore CommercialBank Ltd and Pak Bank Ltd were also merged in it From 1974-91 (Nationalization), bank made a rapidprogress and branches network increased to 748 withthree branches in UK As a result of privatization in September 1991, AlliedBank entered in a new phase of its history, as theworlds first bank to be owned and managed by itsemployees 10. ABL Today Now a days ABL has the largest network of onlinebranches in Pakistan which counts over 800 and locatedin almost 150 cities and towns. The bank offers a full range of retail, commercial andcorporate banking services with a focus on service deliverythrough technology. Additionally, it also provides general banking services toagricultural, industrial and individual customers throughoutPakistan. Almost 89% of banks deposit base is composed ofdeposits from the urban areas. The banks fundamental strength lies in its strong lendingcapability, as well as providing a variety of financialservices The bank also conducts international operations in UKwhereby it caters to the needs of the banks domesticcorporate and other customers in financing import andexport transactions. 11. ABL TodayContd ABL has highest number of ATMs, which increased to601 at December 31, 2011 covering 145+ citieswhereby, making it the widest geographical coveragefor ATM-based service amongst all the banks inPakistan. It has a completely online network of 830 branches. This accounts for 12% of the market share amongstthe online branches in the country. Allied Bank has also been adjudged as "best bank" of2009 by CFA Association of Pakistan in its 7th AnnualExcellence Awards. It has also been ranked 1st in Pakistan and 9thglobally by the Banker Magazine, UK for yielding bestprofits on capital. 12. Financial Highlights in 2011 13. ABL VISIONActualProposedTo become a dynamicTo become a leadingand efficient bankand efficient Financialproviding integratedInstitution providingsolutions in order to beintegrated solutions inthe first choice bank for order to be the firstthe customerschoice of customers 14. ABLs Mission Statement (Actual) To provide value added services to our customers To provide high tech innovative solutions to meetcustomers requirements To create sustainable value through growth,efficiency and diversity for all stakeholders To provide a challenging work environment andreward dedicated team members according totheir abilities and performance To play a proactive role in contributing towardsthe society 15. Characteristics of ABLs MissionCharacteristics of Mission Statement ABL Mission StatementBroad in scope YesLess than 250 wordsYesInspiringYesIdentify the utility of a firms product NoReveal that a firm is socially responsible YesReveal that the firm is environmentally friendly NoInclude nine components of mission statementsNoEnduring No 16. Components of ABLs MissionComponents of Mission StatementABL Mission1) CustomerYes2) Product No3) MarketNo4) TechnologyYes5) Concern for survival , growth and profitability Yes6) PhilosophyYes7) Self ConceptNo8) Concern for public ImageYes9) Concern for employeeYes 17. ABLs 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 AssessmentExternal Factor Evaluation (EFE) MatrixCompetitive 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 000Income Category2011 2010Interest Income 25,171,039 22,565,044Fee, Commission and Brokerage Income 2,730,6862,491,200Dividend Income2,681,2181,118,270Income from dealing in Foreign Currencies 643,058418,524Total. 31,226,001 26,593,038 36. Revenue Divisions30,000,00025,000,00020,000,000 15,000,0002011 10,000,000 2010 5,000,0000Interest IncomeFee, Commision and Brokrage Income Dividend Income Income from dealing in Foreign Currencies 37. Internal AssessmentGrowth in Revenue Divisions 2011(%)Growth (%)Income CategoryGrowth140120100Interest Income11.5488180 60Fee, Commission and40Brokerage Income 9.613279200Dividend Income139.7648Income from dealing inForeign Currencies 53.64901 38. Internal AssessmentSTRENGTHS ABL is the first Muslim Bank of the world, which is owned andmanaged by its own employs. Strength is the high motivation of employees to their workbecause they know that what so ever they do, it will be in theirown benefit. Salaries are very reasonable, so the employees are notfinancially disturbed and they devote their selves fully to theirwork. They have wide area network in all over the Pakistan, so thatthey cover a lot of portion of cash transactions and makecustomer satisfied. The banks fundamental strength lies in its strong lendingcapability, as well as providing a variety of financial services ABL has highest number of ATMs, which increased to 601 atDecember 31, 2011 (14% of the industry ABL covers 145+ cities whereby, making it the widestgeographical coverage for ATM-based service amongst all thebanks in Pakistan. 39. Internal AssessmentSTRENGTHS.. Contd It has also been ranked 1st in Pakistan and 9th globally by theBanker Magazine, UK for yielding best profits on capital. Deposits of the bank grew by 17.2% and stood at Rs 372,254million as at March 31, 2011 compared to deposits of Rs 317,742million at March 31, 2010 Gross Advances, keeping in line with prudent lending strategywere Rs 257,249 million as at March 31, 2011, a growth of 7%over the gross advances of Rs 240,359 million as at March31, 2010.The balance sheet size stands at Rs 450,308 million as at March31, 2011, while the equity of the Bank as at March 31, 2011registered a growth of 30.7% over March 31, 2010 level to reachRs 39,547 million. Profit before tax of ABL increased by 43.5% to reach Rs 3,851million during three months period ended March 31, 2011 ascompared to Rs 2,683 million in the corresponding period ofprevious 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 whencustomer 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 theadministrative 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 theirturn of customers. Nonperforming loans to the Govt. sector due to Govt.influence on the bank. There is no consumer banking services offered by thebank. 41. Internal Factor Evaluation (IFE) MatrixWeigh Rate Weighted Key Success Factorst ScoreSTRENGTHSLargest Online braches network0.09 40.36Largest Nation-wide ATM network 0.06 40.24Strong lending ability0.08 30.24Ranked 1st in Pakistan and 9th globally by theBanker Magazine, UK 0.04 30.12Higher employee motivation in comparison withCompetitors 0.05 4 0.2Over 17% growth in Deposits where as industrystands at 13% 0.06 30.18Profit after tax has increased by 41.3% in last 0.06year 40.24Employee training and development 0.05 30.15ABL covers 86% of the Countrys urban area0.08 40.32Owned and managed by its employees0.04 30.12 42. Internal Factor Evaluation (IFE)Matrix WeighRateWeighted Key Success Factors t ScoreWEAKNESSNo entertainment facility for the customers0.05 10.05Very Less Advertisement0.05 2 0.1No consumer banking services offered by the0.07bank20.14Limited coverage of rural areas (Only 14%) 0.04 10.04Outlook of the branches0.03 20.06High non-performing loans0.08 20.16The cost of funding also increased by 6%.0.03 10.03Less customer service care 0.04 20.08Total.1.00 2.83 IFE Matrix Score of ABL is 2.83 which is higher than the bench mark of2.50 43. EXTERNAL ASSESSMENT 44. External Assessment 45. External AssessmentList of Major CompetitorsABLs 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 ishigher than the average for industry, which was 8%. Deposits grew by almost 13%, which equals the industryaverage of the banking sector The advances grew by 7.5 % as compared to FY09, whichwas way higher than the industry average of just 1%. Allied Banks deposits account for 7.3% of the totaldeposits of all the banks whereas its advances account for7.6%. ABLs total assets constitute 6.6% of the total assets of thebanking industry. Despite of economic issues in the country ABL has beenable to maintain its profitability. 47. External AssessmentOPPORTUNITIES The policies of the new government to uplift the economyand pursue financial sector reforms are expected to yieldpositive results in the banking industry of the country. As a result of the different steps taken by the Governmentregarding the betterment of the economy, small borrowersare attracted to get the financing and start smallbusinesses. So, the ABL has an opportunity to attract the customers bygiving them attractive schemes. They have wide area network in all over the Pakistan, ifABL can make it possible the fast delivery of fund fromabroad through online banking, it can cover the majormarket of Pakistan which still is capturing by Hundi. Diversification towards Islamic Banking Services Provide Privileged or Preference banking like MCB andUBL 48. External AssessmentTHREATS First threat is that of political influence. Three boards of directorsare of government. So that they can influence on the decisions ofthe ABL. The biggest threat in the banking sector is the continuousdownfall of the countrys economy since the last few years. New Privates Bank coped with emerging new Technology of ITand 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 andhence the Banking Industry Power shortage brutally hinders the performance of Industrialsector which get loans from Banks. Tight monetary policy and high interest of 15% by the SBPreduce the interest of people to get expensive loans from Banks. The high inflation rate due to deficit financing by the Govt. is alsoa big threat to ABL. 49. External Factor Evaluation (EFE)MatrixWeigh Rate Weighted Key Success Factorst ScoreOPPORTUNITIESGovt. reforms to up lift economy0.10 40.40Can Capture Hundi market by providing fastcash transfer 0.07 30.21Diversification towards Islamic Banking Services0.06 40.24Provide Privileged or Preference banking likeMCB and UBL 0.07 30.20Micro Finance to the farmers and house holdIndustry0.07 30.21SME Financing 0.05 40.20Personal loans and consumer banking 0.04 30.12Expansion in the rural area of the country0.06 40.24International expansion through joint ventures or 50. External Factor Evaluation (EFE)MatrixWeigh Rate Weighted Key Success Factorst ScoreTHREATSPolitical influence on the Banks activities0.07 10.07Continuous downfall of the economy0.08 20.16The higher discount rates offered by the SBP0.05 10.05Law & order situation damaging economicactivities0.08 20.16Tight monetary policy and high interest of 15%by the SBP0.06 20.12The high inflation rate due to deficit financing bythe Govt. 0.04 10.04Power shortage brutally hinders theperformance of Industrial sector0.06 20.12 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 Position0.164 0.644 0.644 0.64Service Quality 0.143 0.423 0.423 0.42Market Share0.094 0.362 0.183 0.27Customer Loyalty0.102 0.2 4 0.4 4 0.4Bank Charges/ Fees0.122 0.244 0.483 0.36Advertising and Promotion 0.083 0.242 0.162 0.16Work force motivation 0.072 0.143 0.213 0.21Online/ATM Services 0.113 0.334 0.444 0.44Geographic Coverage 0.134 0.523 0.394 0.52Total.. 1.0 03.093.32 3.42The CPM value of ABL is 3.32 which shows good competitive position 52. Porters Five Forces Model 53. # ForcesIntensity1 Rivalry among competing Highfirms2 Entry of New CompetitorLow3 Development of SubstituteLowPorters Five Products4 Bargaining Powers of LowForcesSuppliersModel 5 Bargaining Power of HighConsumersExternal Assessment 54. Matching StageSWOT MatrixBCG MatrixSPACEIE MatrixG S Matrix 55. STRENGTHSWEAKNESS SWOT 1.2. Strong lending position Largest online branches1.2. No entertainment Non performing loans3. Largest ATM network3. Increasing lending cost Matrix 4.5. Solid Financial position Fastest growth rate4.5. Urban area focus only No branch6. Motivated workforce attractiveness7. High profit Margin 6. No consumer Banking7. No Customer Care SystemOPPORTUNITIESSO STRATEGIESWO STRATEGIES1. Micro Financing1. 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 SectorO1, 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)THREATSST STRATEGIESWT STRATEGIES1. Foreign Banks1. Invest in Power sector 1. Prudent lending to avoid2. Power shortageto boost economy (S1, NPL (W2, W3, W6, T5, 56. BCG Matrix (Table)PKR 000%% %Revenue Division Revenues Revenu MarketGrowthes ShareRate 13.7%Interest Income25,171,039 80.6092311.54881Fee, Commission and15.6%Brokerage Income 2,730,6869.7449119.613279 17.3%Dividend Income2,681,2189.586492139.7648Total31,226,001 100% 57. BCG Matrix Relative market share position in theHigh 1.0 industryMedium .50Low 0.0 Low -3 High +20 Dividend IncomeIndustry growth rateFee, Com mission Medium 0 58. Boston Consulting Group (BCG) MatrixRelative Market Share Dividend Fee, Ban Income kChargesMarket Growth Interest Income 59. Space Matrix (Score Table)Financial Strength Rating Environmental RatingReturn on Asset3StabilityLeverage/Debt2Inflation Rate-4Net Income 3Technological Changes -3Earnings Per Share 4Competitive Pressure-4Net Profit Margin2Barriers of Entry -2Total14 SBP Policy-3Total -16Industry StrengthRating Competitive Advantage RatingGrowth Potential 3Market Share-1Financial Stability3Service Quality -2Ease of Entry in the 3Customer Loyalty-4industryTechnological -2Resource Utilization 5KnowledgeProfit Potential 2Online Network/ATMS -4Total16 Total -13 60. x-axis = IS + CA = 3.10 - 2.60 = 0.50y-axis = FS + ES = 2.80 - 3.20 = -0.40SPACE Matrix FSConservative Aggressive+6+5+4+3+2+1CA IS -6-5 -4 -3 -2 -1 -1+1 +2 +3+4 +5 +6-2-3-4-5DefensiveCompetitive-6ES 61. The Internal-External MatrixIFE 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 MatrixRapid Market GrowthQuadrant 2Quadrant 1WeakABL StrongCompetitive Competitive PositionPositionQuadrant 3 Quadrant 4Slow Market Growth 63. Alternative Strategies SPAC BCG IE MatrixINTB/Co Div GS Count E m sForward Integration X X2Backward IntegrationX1Horizontal IntegrationX X2Matrix AnalysisMarket PenetrationXX XX4Market DevelopmentXX X XX X6Product Development XX X XX X6Diversification XX XX4Joint Venture X1Retrenchment X 1DivestitureX 1Liquidation0Mergers & Acquisition X1 STRATEGY ANALYSIS 64. Decision StageQuantitative Strategic Planning MatrixAlternative StrategiesRecommendations 65. Quantitative Strategic PlanningMatrixKey Factors Weight Strategy-I Strategy-IIINTERNAL FACTORS AS TAS AS TASGovt. Intervention in banks matters 0.124.000.48 3.000.36High Growth rate 0.144.000.56 3.000.42Trained and motivated work force 0.093.000.27 4.000.36Strong financial and lending capability 0.11 2.000.22 3.000.33Largest online and ATM networks0.104.000.40 2.000.20EXTERNAL FACTORSSBP Monetary Policy and Regulations0.083.000.24 2.000.16High Inflation Rate0.063.000.18 4.000.24Power Crisis in the country0.104.000.40 3.000.30Law and Order Situation0.073.000.21 2.000.14High discount rates and lendingrestrictions 0.084.000.32 2.000.16Less savings of the people 0.053.000.15 4.000.20Total.. 1.003.43 2.87 66. Possible Alternative Strategies Strategy-I (Product Development) Introduce new services within existing set up of thebank Provide consumer Banking services Take initiative of Islamic Banking Fast and innovative & secure methods of Cashtransfer Diversify and enhance Bank A/C types and otherservices 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.Contd Strategy-I has 3.43 Total Attractiveness Score(TAS) And Strategy-II has 2.87 TAS So Strategy-I is recommended for the Bankaccording to QSPM Strategy-I is the product development. HenceBank should diversify its services and introducenew innovative, secure and high tech methods ofFinancial Transitions with the convenience of thecustomers SME sector may be focused more for lending 68. Recommendation Internal & External Audits (concept of financialdiscipline, accountability, good corporate governance,professionalism and impartiality) Communications Skills. No ambiguity should be left.Clear and comprehensive instructions at all levels ofhierarchy Transparency in all matters especially in financing,lending, recovery etc. Lending focus must be on private sector instead ofpublic sector SME sector must be given priority in all financialmatters Aggressive marketing strategies in retail andcommercial banking Institutionalization of Human Resource Management(best man should be posted to best assignment,refreshing courses, seminar on emerging banking and 69. Recommendation..Contd Research and Development facilities (Domesticmarket research, economic analysis, strategic insightof major economic and financial accords, internationalmarkets knowledge, rigorous planning anddevelopment, loss & prevention mechanism) There should be central compliant cell in ABL in orderto reduce peoples complaints and foster the ratios ofproductivity. Commonness of E-commerce with the help of Internetbanking should allow flourishing in all branches. Scope of Investment Banking is very much there andbright as said by finance minister. Concrete effortsshould be made to initiate investment-bankingoperations. 70. References David, Fred, R Strategic Management Conceptsand Cases 10th and 13th Edition. Prentice HallInternational 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, 2012http://www.google.com.pk/imghp?hl=en&tab=wi www.finance.gov.pk (Retrieved May 15, 2012)ABL Retrieved May 15, 2012http://en.wikipedia.org/wiki/Allied_Bank_Limited 71. Questions and Further Discussion ? 72. Have a nice weekend