We wish to acknowledge our regards and indebtedness to our guide and benevolent Prof, teaching strategic management in University Of Central Punjab (PCBA/PICS) Lahore. Whose kind and precious suggestions enriched our thoughts and helped us to accomplish this strategic analysis of a bank. We also want to thank our families who supported us. Thanks to Almighty ALLAH for giving us such will and power to complete this strategic analysis of Bank Alfalah on time. teaching strategic management in University Of Central Punjab (PCBA/PICS) Lahore. Whose kind and precious suggestions enriched our thoughts and helped us to accomplish this strategic analysis of a bank. We also want to thank our families who supported us. Thanks to Almighty ALLAH for giving us such will and power to complete this strategic analysis of Bank Alfalah on time.
We have chosen this bank Alfalah to make our project on it. We had a good time while doing the survey and gathering the information about the topics, and then analyzing the bank critically and make a strategic plan.
The project is basically about the complete strategic analysis of the bank. We also used the source of internet for gathering information and reference of Mr. Ahsan Sharif the Associate Corporate & Investment banking and also Mr. Hassan Ali Kazmi the MTO who is in the process of training. We think that we have done our job in making the strategic plan & we hope that we have given the complete information required by our teacher, and hope that our hard work pays off.
Bank Alfalah Strategic Management Project – INTRODUCTION
HISTORY OF BANKING SECTOR IN PAKISTAN:
The history of banking system in Pakistan dates back to independence of Pakistan in August 1947 when various banks transferred their Head Quarters and funds to areas likely to fall in India. This trend emerged due to dominant role of Hindus in pre-partitioned Indian banking system.
According to various books there were 3496 branches of Indian scheduled banks in the undivided sub-continent as on 1st March 1947 out of which only 487 branches were located in areas presently constituting Pakistan. However the number of scheduled banks drastically declined to 195 from 487 immediately after partition.
At the time of partition there were only two banks having the honor to be first commercial bank of Pakistan namely Habib Bank Ltd., which was set up in 1941 with its Head Office in India and the Australasia Bank Ltd., which was established in 1944 with its Head Office in Pakistan.
By following the partition, an expert committee was set up and this committee recommended that the Reserve Bank of India being the Central Bank of the undivided India should continue to function as Central Bank of Pakistan and the Indian currency notes would continue to be legal tender in Pakistan till 30th September 1948. Subsequently it was decided to have separate Central Banks and the State Bank of Pakistan was set up and started functioning from 1st July 1948.
Thus the history of banking system in Pakistan started with the establishment of the State Bank of Pakistan which was inaugurated by Quaid-e-Azam Mohammad Ali Jinah on 1st July, 1948. Consequently three banks were established which include Muslim Commercial Bank Ltd. formed in September 1948, Bank of Bahawalpur in October 1948 and National Bank of Pakistan in 1949. Habib Bank also transferred its Head Office from Bombay to Karachi due to partition in August 1947 and it was assisted by the State Bank to finance domestic trade of the country.
Bank Alfalah Limited was incorporated on June 21st, 1997 as a public limited company under the Companies Ordinance 1984. Its banking operations commenced from November 1st, 1997. The bank is engaged in commercial banking and related services as defined in the Banking companies ordinance, 1962. The Bank is currently operating through 280 branches in 88 cities, with the registered office at B.A.Building, I.I.Chundrigar, Karachi.
There were the operations of B.C.C.I (Bank of commerce and credit investment) in Pakistan after which it turned into H.C.E.B (Habib credit exchange bank). Then bank Alfalah was created as the new identity of H.C.E.B after the privatization in 1997, the management of the bank has implemented strategies and policies to carve a distinct position for the bank in the market place.
Strengthened with the banking of the Abu Dhabi Group and driven by the strategic goals set out by its board of management, the Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates their commitment to a culture of innovation and seeks out synergies with clients and service providers to ensure uninterrupted services to its customers.
BANK ALFALAH`S CURRENT STANDING:
Bank Alfalah is a Public limited company. During the past five years, bank has emerged as one of the foremost financial institution in the region endeavoring to meet the needs of tomorrow as well as today. To continually upgrade the quality of service to the customers, training of team members in all the integral aspects of banking, customer service and IT was specially focused.
Abu Dhabi Group ventures in Pakistan include Bank Alfalah, Warid Telecom, United Bank Ltd, Alfalah Insurance Company, Wateen Telecom, Taavun, Alfalah Securities and Alfalah GHP, all amounting to more than $10 billion market in Pakistan.
Along with sound and reliable ownership, the Bank has enjoyed an impeccable reputation from the regulatory standpoint. Its advance-to-deposit ratio has always been at a very healthy position, in full compliance and conformity with the regulatory requirement of the State Bank of Pakistan.
The bank has a great source of competent staff it has more than 8000 people working for it. They have all the best people to work and bank really believes that there current standing is due to the people working in it.
In a span of 11 years, Bank Alfalah has achieved a phenomenal position in the market from the humble beginning with three branches in only three cities. It has 280 branches in over 88 cities with planning of more than 50 branches to be opened by the end of 2009. These include both conventional and Islamic banking branches, other than Pakistan in countries such as Afghanistan, Bangladesh, Bahrain and Abu Dhabi.
PACRA, which is a renowned credit rating agency of Pakistan, has awarded Bank Alfalah a long-term credit rating of ‘AA’ and short-term rating of ‘A1+’. Long-term and short-term ratings are investment grade and denote high credit quality and very low expectation of credit risk. These ratings are applicable to senior unsecured creditors of the bank.
Capital Intelligence, a leading Middle East rating agency, has assigned Bank Alfalah a credit rating of ‘B+’ in the long term and ‘B’ in the short term. The Bank’s SME initiatives will add significantly to the micro finance sector.
WHERE IS THE BANK HEADING:
The portfolio concentrates on all aspects of conventional banking as well as the financial needs of corporate sector which is being constantly enhancing for the future. Dynamic and high value products includes Car Financing, Home Financing, Rupees Traveler’s Cheques, Credits Cards, Debit Cards, Online Banking, ATM and consumer Durables for the future they would be increasing the range of products using innovative ideas. In addition to this, Islamic Banking Division is a recent initiative, which operates as separate branch. It offers Shariah Compliant products through a network of 48 branches, which will increase more then 90 by the coming year.
The bank is committed to combine all its energies and resources to bring high value, security and satisfaction to its customers, employees and shareholder. The Bank has invested in revolutionary technology to have an extensive range of products and services. This facilitates commitment to a culture of innovation and seeks out synergies with client and service providers to ensure uninterrupted services to its customers.
Bank Alfalah ORGANIZATIONAL HIERARCHY:
GH – Group Heads
AM – Area Manager
GM – General Manager
RM – Regional Manager
TL – Team Leads
M CAC – Manager Centralized Admin count
M CACC – Credit Administrator Officer
Bank Alfalah BOARD OF DIRECTORS
- H.E. Sheikh Hamdan Bin Mubarak Al Nahayan – Chairman
- Mr. Abdulla Nasser Hawalileel Al-Mansoori – Director
- Mr. Abdull Khalil Al Mutawa – Director
- Mr.Khalid Mana Saeed Al Otaiba – Director
- Mr. Ikram Ul-Majeed Sehgal – Director
- Mr. Nadeem Iqbal Sheikh – Director
- Mr. Sirajuddin Aziz – Director & CEO
Bank Alfalah Management
- Mr. Sirajuddin Aziz – Director & CEO
- Mr. Parvez A. Shahid – Co-Chairman Central Management Committee
- Mr. Shakil Sadiq – Chief Operating Officer (Branch Banking & SME)
- Mr. Arfa Waheed Malik – Group Head (Corporate & Investment Banking)
- Mr. Ijaz Farooq – Group Head (Islamic Banking)
- Mr. Adil Rashid – Group Head (Consumer Finance)
- Mr. Nadeem Ul Haq – Group Head (Operations)
- Mr. Mohammad Yousuf – Group Head (Credit & Collections)
- Mr. Bakhtiar Khawaja – Group Head (Training & Development)
- Mr. A. Wahid Dada – Group Head (Commercial Banking)
- Mr. Hamid Ashraf – General Manager (Legal Affairs Division & Company Secretary)
- Mr. Zahid Ali H. Jamall – Chief Financial Officer
- Mr. Mohammad Iqbal Saifee – Group Head (Audit & Inspection Division)
- Mr. Talib Rizvi – Group Head (Priority Banking & Wealth Management)
- Mr. Tariq Mir – General Manager (International Business)
- Mr. Ather Shehab – Executive Incharge (Establishment & Administration)
- Mr. Mahmood Ashraf – General Manager (Credit Monitoring Division)
- Mr. Falak Sher -Chief Compliance Officer
- Mr. Imtiaz Ahmad Sheikh – Head of Information Technology
- Mr. M. Mudassar Aqil – General Manager (Human Resource & Quality Assurance)
- Mr. Haroon Khalid – Head of Risk Management
BANK ALFALAH VISION STATEMENT:
“To be the premier organizations operating locally and internationally that provided the complete range of financial services to all segments under one roof”
BANK ALFALAH MISSION STATEMENT:
“To develop and deliver the most innovative products, manage customers experience, deliver quality service that contributes to brand strength, establishes a competitive advantage and enhances profitability, thus providing value to the stakeholders of the bank”
BANK ALFALAH GOALS & OBJECTIVES:
Goals and objectives are factors through which the company’s devotion and commitment to the job can be seen. If the goals are realistic and achievable, than surely that organization is doing its job.
Bank Alfalah also has certain goals and objectives which it is trying to achieve, through its various strategies and operations. The goals and objectives are mentioned below:
- To create a sound base, and through efficient systems achieve modern banking throughout Pakistan.
- By the end of every accounting year there is an increase in deposits. Deposit at 2007 year end were approx 273 Billion a targeted increase of 11% is expected.
- To create unit banking network in all the branches of Bank Alfalah, the end of the year. This means that all the operations of the bank, i.e. deposits to advances, imports, exports, L/C opening, foreign currency and many more aspects under one roof, so that the customer can be facilitated in one visit.
- Islamic Banking is one of the goals of Bank Alfalah though it has been initiated in the previous years and it is very acceptable for general public. However, there is lot of work to be done for successful implementation of the Islamic Banking Plan. In this regard the Bank is opening specific Islamic Banking Branch under the supervision of its Islamic Banking Division.
BANK ALFALAH STRATEGIC AUDIT
Political, Governmental, and Legal Forces
The political and legal environment of Pakistan has been showing great instability for past several years. This turbulence has great impact on the business environment. The instability brings with it changing legislation and poorly developed polices. These changes affect the way businesses plan their course of action. So in case of changing and inconsistent policies; businesses strive to catch up and bear heavy losses at times. Banking sector especially depends on the business activity in the economy and their profitability takes a hit if the economic activity is suffering.
Legal forces also play a crucial role in the banking sector, the laws of conformance to banking ordinance of the domestic country as well compliance to international standards is of critical importance. Thus we can now easily understand that the political, governmental and legal forces should not be under estimated in case any activity is to be carried out.
Economic forces include all the forces that reshape an economy; that can include GNP growth, market activity and impacts of the monetary policy of State Bank of Pakistan. The recent economic survey revealed the Real GDP grew at a rate of 7% in 2007. Agriculture on the other hand showed 5% growth that shows a window of opportunity for banking sector. Similarly, these changes in the economy offer opportunities for the banking sector.
State Bank of Pakistan develops the monetary policy and these affect the primary strategies of banks. SBP has also issued regulations for minimum paid-up capital, number of branches, capital adequacy and other restrictions that are critical to the banking operations. The new policies pursued by SBP encourage banks to start Islamic Banking operations and is also taking an aggressive stance to support mergers and acquisitions in the banking segment. Thus, it is evident that the economic forces also play a vital role and should be closely observed in order to achieve established targets.
Social, Cultural, and Demographic Forces:
Social forces also play an important role in the business environment. In Pakistan, culture defines preferences of the customers and their behavior. In the banking sector, increasing trends of people to opt for personal loans and personal credits have benefited the banks tremendously. Banks were able to net huge profits on personal financing and credit cards. Such customer trends are therefore, of great importance and banks that align their products and offerings according to that can enjoy profits and growth.
Technology is one force that has reshaped every aspect of our lives. It also impacts the banking industry in a great manner. Due to advancements in technology and greater accessibility due to internet, E-commerce has made a huge space for itself in the conventional business environment. Following the trend, E-banking and now more recently mobile banking has changed the way banks used to offer their products and services. Today no bank can maintain its competitive edge without incorporating e-banking and mobile banking in its product portfolio.
Similar changes such as De-centralized banking operations are now more efficiently managed due to the presence of communication systems. Moreover, cases of defaulters are now easy to track due to electronically managed data which is also shared among banks.
Technology has brought the world together as a single community. It has diminished the so-called territorial boundaries. Now banks not only compete in their geographic boundaries but instead have reached to expanded markets. Though globalization presents various growth opportunities; it also poses some managerial threats. Doing business in the global environment means dealing with diverse customer needs and preferences and it takes very critical analysis of these diverse markets to come up with quality products and services. Moreover, going global also means understanding political, legal and social forces that exist in distinct territories. However, above all, globalization is one force that if harnessed properly can bring tremendous growth and prosperity to the banking industry in Pakistan.
PORTER’S FIVE FORCES MODEL
Porter’s five forces model of competitive analysis is providing us a support to develop strategies. Following are the various forces analyzed:
Rivalry among Competitors = High
- Large numbers of competitors
- Other banks have almost equal size and capabilities
- Customer can switch to other banks easily
- Barriers to leave the market are high
- Fixed cost is high
- Mergers and acquisitions are common
Potential Entry of New Entrants = Medium
- Mergers and acquisitions are common
- SBP has restricted commercial banking
- Islamic banking is widely promoted by State Bank of Pakistan
Potential Development of Substitute Products = Medium
- Loaning Institute
- Insurance institute
Bargaining Power of Supplier = High
- Large number of suppliers
- Strength of supplier
Bargaining Power of Buyers = High
- Customers can easily switch to other banks
- Consumers are as important for the bank
- Consumers are well informed about banks’ products, prices and costs
Bank Alfalah BCG MATRIX:
This product portfolio matrix classifies product lines into four categories. The BCG model suggests that organizations should have a healthy balance of products within their range. The Boston Consultancy Group classified these products as following:
- Question Mark/Problem Child
- Cash Cow
BANK ALFALAH SWOT ANALYSIS
Bank Alfalah’s STRENGTHS:
Since, inception of Bank Alfalah, it has moved rapidly in expanding branch network and deposit base, along with making profitable advances and increasing the range of products and services, bank has made a break-through in providing premier services at an affordable cost to our customers.
Bank Alfalah has been awarded an AA (double A) and an A1+ (A one plus) in the long and short term respectively by the PACRA. These rating denote very high credit quality and very low expectation of credit risk.
The main source of a financial institution is public savings in this regard public confidence plays a vital role. So, the confidence of customers is the main strength of Bank Alfalah.
In order to maintain an effective communication of information regarding the need of valued clients, bank has designed its website to be as user-friendly as possible. This facilitates to pursue the path of excellence and customer satisfaction through delivering higher quality of services, thereby adding synergy to our existing management expertise, financial strength and profitability. Hence, it’s a channel of communication for the delivery of quality products and services that enhance value to its stakeholders.
Bank Alfalah’s WEAKNESSES:
As per Bank policy, advertising and publicity is not extensively emphasized. Through advertisement customers could be kept abreast with the products and services.
The main focus of Bank is major cities of Pakistan. It is direly needed to extend its network and people should be educated about the functioning of bank. Since, Bank Alfalah has strong set up in UAE and Middle East, therefore, specifically those areas of Pakistan should be targeted where large numbers of people are working abroad. Hence, bank could avail an excellent deposit rate by using its annual budget specified for network extension.
Bank Alfalah’s EXISTING OPPORTUNITIES:
The life cycle of an organization is comprised of threats as well as opportunities. If we say, today the rates of challenges are too high but simultaneously the rate of opportunities is also high. It is mandatory to try to make progress with consistency as well as to adapt changes with the needs of time, in order to cope up with both conditions.
In the prevailing scenario, Bank Alfalah could penetrate further and could capture various corporate customers in addition to the retail customers by expanding their network. Similarly 5% annual growth in the agriculture sector brings new opportunities for Bank Alfalah. It can offer new products under the umbrella of micro-financing to farmers and harvesters.
In addition to the excellent routine banking, it has earned a good name by offering special products like car financing, home financing and credit card. With the passage of time Bank Alfalah has gained trust and fair reputation among customers therefore, BAL should avail this opportunity and try to penetrate into smaller towns and rural areas where there is an increased demand for commercial banking.
Bank Alfalah has also seen increase in banking operations in its overseas branch, which is due to the fact that increased number of Pakistani residents working abroad send their money home and use various other services. BAL should take pro-active steps to introduce more focused services and better pricing to develop a loyal customer base abroad. This can later help in global expansion of the bank.
Bank Alfalah has also established its Islamic Banking division. This has attracted a large number of customers, who don’t want to deal with interest bearing banking. Therefore, aggressive approach baked by highly favorable policies by State Bank of Pakistan can offer promising results for BAL.
Bank Alfalah’S POTENTIAL THREATS:
While doing business, threats are part of the game. Especially, in this era, most of the financial institutions are working as Private Limited Company and facing or have a fear of threat from their competitor as well as new entrants.
In order to maintain as well as to enhance the market share, banks always try to introduce new products and services. Hence, the environment requires innovative and adaptation to the needs of customers. Though, Bank Alfalah has a strong footing and maintains a good number of loyal customers, still bank has threats in various sectors:
- In Car Financing MCB & UBL are threats.
- In Home Financing Union Bank or to some extent NBP are threats.
- In Credit cards, Bank Alfalah captured the market share of Citi Bank and Standard Chartered Bank. Till yet the bank has no prominent threat. But, the launch of Askari Bank Master Card and Union Bank Card might be threat after some time.
Due to the aggressive policies pursued by State Bank of Pakistan, many new threats have emerged for Bank Alfalah. These include the increase in discount rates; minimum cash reserve requirements and the instructions to improve the Capital Adequacy Ratios.
The threat of foreign banks which are entering the market through mergers and acquisition is also critical in nature. Recently Barclays Bank and RBS started its operations in Pakistan and now followed by Bank Muscat which is consortium of many leading banks in Oman is now entering the Pakistani market through acquisition of Saudi Pak Bank. Such activities should be closely observed and proactive measures should be taken to avoid them.
Listed below are the various strategies that we developed under the light of SWOT Matrix. The findings show a clear strategic decision for Bank Alfalah.
- Market Development
- Acquire other banks
- Develop new products
- New hiring
- New management techniques involvement
- Stay progressive
- More efficient services
- Global Expansion
- Maintain quality/value
- Market expansion in rural areas
EXTERNAL FACTORS EVALUATION (EFE) MATRIX:
|1. SBP encouraging Islamic banking operations in Pakistan.||0.08||4||0.32|
|2. Venture into related businesses can help capture increased market share.||0.04||3||0.12|
|3. Increased demand for mobile and online banking services.||0.05||3||0.15|
|4. Increased transfers of money to Pakistan from residents living abroad.||0.04||2||0.08|
|5. Customers from smaller cities and towns demand increase in bank’s services.||0.06||1||0.06|
|6. SBP policies encouraging mergers and acquisitions.||0.09||2||0.18|
|7. Tremendous growth in agricultural sector in Pakistan opens window for increased business.||0.06||2||0.12|
|8. Banks enjoying abnormal spreads between lending and deposit rates.||0.04||4||0.16|
|9. Local banks pursuing competitive pricing strategies.||0.07||2||0.14|
|10. Entry of foreign banks and strengthening of local banks through acquisitions.||0.09||2||0.18|
|11. Increased competition is pressing commercial banks to meet global standards.||0.06||3||0.18|
|12. Instable political condition affecting trading and business activities.||0.04||3||0.12|
|13. Unprecedented 20% rate of Inflation raising interest rates and affecting business.||0.06||3||0.18|
|14. Highly instable government policies affecting the financial institutes.||0.05||3||0.15|
|15. SBP requirements to increase paid-up capital from 2b to 8b in 2008 and to 23b higher by 2013.||0.06||4||0.24|
|16. Expected increasing in NPLs on account of rising costs of doing business.||0.07||3||0.21|
|17. SBPs directions to bank to increase their Capital Adequacy Ratio by at least 10%.||0.04||3||0.12|
BAL INTERNAL FACTORS EVALUATION (IFE) MATRIX
|1. Good brand image on the back of Group Al-Dhabi.||0.05||4||0.20|
|2. Upward economic growth trend over the years.||0.06||3||0.18|
|3. Sound *PACRA rating of AA and A1+||0.04||4||0.24|
|4. Bank operating through 191 conventional banking branches.||0.06||3||0.16|
|5. Following true mode of Islamic banking under Shariah advisors.||0.07||3||0.21|
|6. Focus on customer service.||0.04||3||0.12|
|7. Money gram facility in more than 40,000 locations world-wide.||0.04||3||0.12|
|8. Efficient internal communication system.||0.06||4||0.24|
|9. Decentralized decision systems increases effectiveness.||0.05||3||0.15|
|10. Reserves & Surplus showing 40% increase.||0.07||4||0.28|
|11. Focus mainly on just major cities.||0.06||2||0.12|
|12. Lack of staff in various departments causing inefficiency in operations.||0.04||1||0.04|
|13. Diminishing morale of employees due to sluggish career development.||0.05||2||0.10|
|14. Capital adequacy ratio showing diminishing trend over the years.||0.07||1||0.07|
|15. Lacking modern management techniques to improve its systems.||0.06||2||0.12|
|16. Conventional product mix as compared to competitors.||0.06||2||0.12|
|17. RoE of BAL are considerably low as compared to industry returns.||0.07||1||0.07|
|18. Income/Expense ratio is declining showing poor expense management.||0.05||2||0.10|
BAL INTERNAL-EXTERNAL (I-E) MATRIX
Bank Alfalah IFE Score: 2.71; Bank Alfalah EFE Score: 2.58
This Score falls in the quadrant V of the I-E Matrix. This quadrant suggests that BAL should ‘hold and maintain’ its current position. The strategies that are usually pursued by organizations falling in this quadrant are:
- Market Penetration
- Product Development
Further in this report we will evaluate these strategies and decide which of these strategies are more feasible for BAL in order to maintain its competitive edge.
COMPETITIVE PROFILE MATRIX (CPM) FOR Bank Alfalah
|Critical Success Factors||Weights||Rating||W. Score||Rating||W. Score||Rating||W. Score||Rating||W. Score||Rating||W. Score|
|1. Market Share||0.13||2||0.26||4||0.52||4||0.52||3||0.39||3||0.39|
|2. Customer Service||0.09||3||0.18||3||0.27||4||0.36||3||0.27||4||0.36|
|3. Branch Network||0.12||3||0.36||4||0.48||4||0.52||4||0.48||3||0.36|
|4. Organization Structure||0.11||2||0.22||3||0.33||3||0.33||3||0.33||4||0.44|
|5. Management Experience||0.10||3||0.30||4||0.40||3||0.30||4||0.40||3||0.30|
|6. IT infrastructure||0.12||4||0.48||3||0.36||4||0.48||4||0.48||4||0.48|
|7. Price Competitiveness||0.09||2||0.18||3||0.27||4||0.36||2||0.18||4||0.36|
|8. Product variety||0.11||3||0.33||3||0.33||4||0.44||3||0.33||4||0.44|
|10. Global Expansion||0.07||2||0.14||4||0.28||3||0.21||2||0.14||4||0.28|
*Key to Bank’s Acronyms:
BAL: Bank Alfalah Limited
HBL: Habib Bank Limited
NBP: national Bank of Pakistan
UBL: United Bank Limited
SCB: Standard Chartered Bank
STRATEGIC POSITIONING AND ACTION EVALUATION (SPACE) MATRIX
The SPACE matrix is providing us an idea about organization’s position in the market. Bank Alfalah is competing fairly well in an unstable and highly competitive industry. It has four quadrants namely: Financial Strength, Environmental Stability, Competitive Advantage and Industry Strength.
Financial Strength(FS) RATINGS
Industry Strength (IS)
Environmental Stability (ES)
Competitive Advantage (CS)
ES Average is -12/3= -4.0
IS Average is 11/3= 3.667
CA Average is -9/3= -3.0
FS Average is 9/3= 3.0
Directional Vector Coordinates x-axis: -3.0+3.6= 0.6
y-axis: -4.0+3.0= -1.0
|Internal Strategic Position||External Strategic Position|
|Financial Strength (FS)· Return on investment||1.04%||Environmental Stability (ES)· Technological changes· Rate of inflation·Demand variability·Price range of competing products·Barriers to entry·Competitive pressure |
·Ease of exit from market
·Risk involved in business
|High11.3%HighLess differentiated |
|Competitive Advantage CA·Market share· Product life cycle·Customer loyalty· Competition’s capacity utilization· Technological know-howControl over suppliers & distributors|| 10%Growth StageSatisfactory HighHigh |
|Industry Strength (IS)·Growth potential· Profit potential· Financial stability· Technological know-how· Resource utilization |
· Ease of entry into market
|HighHighHigh Medium |
GRAND STRATEGY MATRIX
The grand strategy matrix is constructed in the light of market growth trend and the SPACE matrix, we found out that the banking sector is showing great growth opportunities and Bank Alfalah lies in the competitive quadrant of the matrix. This helps us in identifying the quadrant in which BAL will lie in the Grand Strategy Matrix.
Bank Alfalah currently lies in the first quadrant of grand strategy matrix because BAL holds a strong competitive position in the banking sector so we can safely suggest suitable strategies from quadrant I.
Following are the possible strategies for Bank Alfalah:
- Market development
- Market penetration
- Product development
- Horizontal integration
BANK ALFALH’s CORE COMPETENCIES
Bank Alfalah’s KEY SUCCESS FACTORS:
Bank Alfalah has formulated certain sets of strategies to enable it to achieve its goals and objectives. These strategies are its core competencies and the key success factors mentioned below:
- Bank Alfalah is a very aggressive bank. They have shown there large number of expansion with the best services in the market with a large number of branches
- It is a rapidly growing bank and is to be claimed as the 5th largest bank. It is a customer oriented bank and has very high satisfaction level with the customers. That’s why they say that they are the “caring bank”.
- They are increasing there quality of portfolio and making innovative products for the consumers.
- In order to achieve its goals of creating a sound base and presence of efficient modern banking system, Bank Alfalah has started operation of Automated Teller Machines in all the major areas like Karachi, Lahore, Islamabad and other cities of Pakistan.
- Bank Alfalah is committed to building long-lasting relationships through an assertion to service excellence and providing innovative products to meet the changing needs of our valued customers. Although still in its infancy, compared to the exalted banking standards, Bank Alfalah, backed by a strong Abu Dhabi Group and inspired by the vision of its Board and Management, has built up a strong customer base. The Bank provides a full range of banking services to corporate clients, while applying leading technologies. Today the Bank is well-positioned to provide appropriate banking services to customers.
- The main focus is building relationships and being known by the way they do business. Management recognizes that a banking relationship requires compatibility, communication, and cooperation and that each customer deserves nothing less than full attention and available resources to meet their financial objectives.
- Core value and corporate culture is based on the belief that superior personalized service is the most important product. Bank is in the process of getting to know customers by name and understand their business and personal financial needs. This one-on-one, personalized service quality has served as Bank Alfalah’s unique signature since inception and continues to separate it from other financial institutions.
- The Bank Alfalah team comprises of some of the most highly skilled and professional financial experts in banking industry. Managers, lenders and trust advisors offer the unique perspective of knowing and understanding in the local economy. The Management focuses its attention on making informed and feasible economic decisions, bringing better returns and more profitability for investors and customers.
- Keeping in view the unrest among the Islamic Community on the Interest Bearing Banking, Alfalah is in the process of target marketing and gives its full attention to this segment of a large population over the world.
- To acquire the reputation and status of bank which operates on international standard, Alfalah Bank got the credit rating of Pakistan Credit Rating Agency, which gave it the AA and A1+ in the long term and short term respectively.
STRATEGIES AT DIFFERENT LEVELS
- Corporate level
- Business Level
- Functional Level
Like all others banks, bank Alfalah’s main strategies are developed by the higher authorities who are the key players or main brain of the organization normally board of directors. As the bank Alfalah is trying to be centralized in future, all the policies are made in higher authority and then pass on to the lower level. All the main key players/ directors/ group heads are the members of board of director. They are the policy makers and decision makers of the bank Alfalah strategies. Here are the levels where the strategies are made of bank Alfalah.
At bank Alfalah, the corporate units are also trying to change their existing strategies. As earlier, the whole process was decentralized as each branch have their own department like loans sanction, car finance, SME limits, credit card and debit card section, at early stage, each branch offer its own customers different services at their own level without asking the permission from the higher authorities. Each branch has given a target and task so to achieve the target in time and take the lead from other banks, they sometimes involve in unethical acts as well. So many services are giving to customer without proper check and in notice of higher authority. So problem came later when the head office people find so many issues regarding false accounts, car leasing issue in which so many fake transaction came, recovery problem and cost, SBL strict policies of customer account checking and look after. Still a huge amount of bank’s capital was stuck in car leasing, loan sanction and other services. To resolve this issue, bank Alfalah is planning to make a centralized department for that issue. Like no branch is allow to make decision for loan sanction and other services. Like a customer knows that if he want loan from bank, he have to go to bank specific branch or department from where they can go and take the loan. Means all things will happen under one roof. So it will be easy for the bank Alfalah authority to keep track the record, they will know to whom we are dealing, customer profile, decision rather to give or not. So this will help the bank people to resolve the problem which they were facing the past.
Similarly they have declared their account type according to the limit like;
- SME limit = 75 million
- Commercial Limit = 75-150 million
- Corporate Limit above = 150 Million
Bank Alfalah has there 3 levels in accounts SME, Commercial and Corporate. All of the corporate sectors are being separated. They are given priority and with the new division of priority banking. They are hiring people who can give privilege to corporate customers.
That was basically the policies of state bank of Pakistan that from now onward, all the banks have to maintain proper record of all the customers, their transactions regarding deposit, giving loans to small business or larger one. So due to this, the bank Alfalah have declared their loans type and account type as well.
Business Unit Strategies:
Bank alfalah have more than 270 branches nationwide and still they are planning to expand its branches to other parts of the country. They are also planning to go for international branches. Normally in past, all the branches are decentralized like they all make their basic decision and transaction without knowing in the mind of seniors. So mostly HO came to know the issues and problem in quarterly of semi annually reports. To solve this issue, the bank alfalah higher authorities have plan to make all the branches centralized as all the banks are already attached online through networks, but now all the branches are liable to sent a proposal to Head office if they want to release any services or decision at run time. Like now from onward, the branches will send proposal to head office for approval and then later they will proceed if the permission from the HO accepted. All the reports are centralized onward to the HO so that HO people can see any report of any branch. This will help them to see the performance of any branch so that they can change or go through the strategy.
Similarly bank Alfalah is also changing their existing strategies regarding branches functions. Due to centralized decision, this will help the bank Alfalah branches to perform well as now onwards, the senior managers can go through their performance and take corrective actions.
Similarly the functions of every branch are also monitor. They are also trying to improve their functions by implementing some new strategies.
BANK AlFALAH’s MANAGEMENT STRATEGIES
HUMAN RESOURCE MANAGEMENT:
At Bank Al-Falah Ltd, Human resource planning involves decision making in three areas of combined activities
- The bank identifies its organizational needs then starts up with the right kind of human resource accordingly
- Bank motivates the existing and new employees to get better results by giving them job targets according to their job requirements.
- It creates a link between the organizational goals and the goals of employees.
It is descriptive in nature and constitutes a record of existing and additional job facts the order of job description as follows:
- Job identification
- Job summary
- Duties performed
- Supervision given and received
Recruitment and Selection:
Bank Alfalah Limited recruits three kinds of employees:
- Top Level Management
- Trainee Officers
- Contractual Basis Employees
Training and Development:
In Bank Alfalah Ltd. the process of Training and Development/Talent Management practices consists of various other activities like:
- The appraisal form of an employee indicates the areas in which the employee should be trained and developed. It also elaborates the abilities of an employee.
- Management and Organization Development Division of each region timely review the employees and recommend them for training during the operations if they note any discrepancy between the desired and actual performance. This review is performed after every quarter.
- Upon the request of GM (Operation), indicates which sort of training is needed in a particular region regarding the Operation Support and Service.
- Management Skill Training,
- Special Training for Foreign Transferred Employees.
It is a structured discussion between employee and supervisor. It provides an opportunity for the supervisor to recognize an employee’s achievement, offer suggestions for improvement when needed, discuss job responsibilities, define objectives, counsel for career advancement, and justify a pay adjustment. Regarding the performance appraisal, bank adopts both types of approaches.
- Traditional Approach:
The traditional approach is primarily concerned with the overall organization and its past performance. In Bank Alfalah, overall performance is reviewed at branch level. Each branch is liable to show its performance in a positive direction according to set goals.
- Development Approach:
This approach views the employees as individuals and has been forward looking through the use of goal setting. All the employees in the each of the branches are given a Performa. Every employee working in the bank is assigned targets, usually their target are in the form of amount. The performances of all the branches are reviewed at the end of December. Till yet Bank Alfalah, has no computerized system to assess the performance of employees
Performance Appraisal Process:
The performance appraisal process in the Bank Alfalah Ltd. consists of four inter-related steps:
- Establish a common understanding between the manager (evaluator) and employee (evaluate) regarding work expectations, mainly the work to be accomplished and how those work is to be evaluated.
- Establish ongoing assessment of performance and the progress against work expectation.
- Formal documentation of performance through the completion of a performance and development appraisal form appropriate to the job family.
- The formal performance and development appraisal discussion, based on the completed appraisal form and ending in the construction of a development plan.
Reward Management elaborates how people are rewarded in accordance with their value to an organization. It is concerned with both financial and non-financial rewards. A reward system of an organization consist of integrated policies, processes and practices for rewarding its employees in accordance with contribution, skill and competence and their market worth.
In Bank Alfalah the elements of reward management system consists of Basic Pay; the fixed salary or wage which constitutes the rates for the job. This rate is varied in a skill based or competence based system according to the individual’s skill or competence. The rates are fixed by managerial judgment of what is required to recruit and retain the employee.
In Bank Alfalah there is no concept of individual performance related pay except to the Business Development Officer. Business Development Officers are those who are hired at contractual basis. They are assigned different targets. If they exceed to the targets they can enjoy the individual performance related pay.
There is no concept of commission or over time related pay. The official timing of bank is 09.00 AM to 06.00 PM but almost all of the employees have to work till near 08.00 PM. However, for this additional work they are not getting any additional bonuses / over time.
- Aggressive Banking
Bank Alfalah is expanding their network of Islamic Banking. Bank Al Baraka has been serving the Islamic banking sector since 10 years and they have only 5 braches in Pakistan. On the other hand bank Alfalah has established 48 branches.
Bank Alfalah is motivating its employees by giving them comprehensive benefits and professional environment within the organization, which enhances the performance of the employees. Bank motivates their employees by giving 3 bonuses in a year.
- Monitory Benefits
Monitory benefits are given to the employees on the basis of their performance like salary rise, cash prize, and bonuses.
- Grade Promotion
Bank also provides benefit to its employees in the form of grade promotion. Grade promotion motivates the employees to do their work efficiently and effectively.
- Abroad Posting
Bank benefits its employees by sending them on overseas posting where they can enhance their professional skills and get handsome financial benefits in terms of salary or fringe benefits.
Bank has proper setup of controlling the day to day transactions and operational affairs. Bank controls the operations through a proper check and balance system and properly monitor the daily work.
- Internal Control Unit
Bank has an Internal Control Unit that monitors the daily transactions within the organization and keeps informing the management about the rules and policies violation. Internal control unit has a proper check and balance on operations and other bank departments.
- Internal Audit
Internal audit is a tool to have a proper check on daily working in a bank. Internal auditor has to point out the discrepancies found during audit. Internal auditors hand over the audit report to the audit chief and he hands over that to the management. Management overlooks all the discrepancies and tries to reduce the violation and also takes the necessary actions. Internal audit is conducted in a bank twice a year.
- External Audit
External auditors are the representatives of state bank of Pakistan. State bank assigned them to audit the banks to find out the lapse or discrepancies according to the rules and regulations of state bank of Pakistan. State bank imposed penalty on bank if they found any discrepancies related to banking practices or procedures. External auditor hand over the audit report to state bank of Pakistan and SBP handover the report to the management along with the debit advice in form of penalty and management overlook the discrepancies and take necessary actions. External audit is conducted once a year. Bank Al Falah has a Chartered Accountant Company on its panel who prepare and overview the financial reports of the bank Taseer Hadi & Co. is a chartered firm which is on the panel of Bank Alfalah.
BANK ALFALAH MARKET ANALYSIS
Bank Alfalah captures the market by its unique features as shown in the diagram below according to a survey conducted by brand awareness researchers 27 percent of the people are aware of the presence of bank alfalah or recognize its name.
Bank alfalah has a strong brand awareness in the people according to a survey 27 % people are aware of the banks schemes and its programs, while 49% say its affordable to have their account in bank alfalah. People are aware of the presence and quality of the service provided by the bank 17% say that they are providing quality amongst other banks in the market.
Market segmentation can be divided into the following categories which are.
Ages of customers are generally from 18 as this is recognized aged of maturity to as long as the person is employed, married, of which there are housewives, single mothers, and working parents with different income range and are willing to put their savings at a safe custody. The target income group starts from Rs 10000 and above.
Geographically the target is people living in the urban and rural areas that have trend and have their savings to be kept and invested for growth. Branches are established so that they are easily accessible from any area people are coming from.
People are concerned for the safe custody and handsome earning on their investments, bank Alfalah provides a handsome sum of returns on investments and deposits done in its accounts, people want a 24hr access to their money which has been made possible by providing Alfalah cards and ATM machines which provides benefit to the people.
- PSYCHO GRAPHIC:
Psycho graphically people want to invest in a bank which is well known, reputed and is secured by strong baking of investments so that it doesn’t runs away with their precious savings. Bank alfalah with its wide network of branches and presence in almost every city provides strong sense of confidence to its customers of safety and security.
People want to associate with a bank which offers various investment programs which help to develop a strong financial foundation. This looks at the typical behaviors of groups of customers and includes details about frequency of purchase, loyalty to particular products or brands and so on.
Besides this segments are also classified into three main areas which are:
Depositors are the main source of profit generation for the bank. Alfalah offers depositors number of incentive by virtue of which they too make same money. Alfalah relies on depositors & workers to increase their volume every year. This is evident from the fact that the growth rate increased rapidly during 2007-08, as this growth rate is satisfactory it is a must that this environment of deposit growth should not decline.
Advances are basically what Alfalah give to people asking for money. If there shall be more people depositing money. There will be more asking for advances as well. Banks tend to make profit by giving advances at a rate higher than what they owe to the depositors. The difference is the banks profit. If the environment is healthy then more & more people will be asking for advances for business and other options. It is also evident from the fact that during the year 2002-07 the advances growth rate is 71.12%.
Competitors should always be studied with great care, because competitors, can greatly influence an organization position. Bank Alfalah has a lot of competitors because in a short span of 5 year it has achieved what not many banks had achieved. This leads to competitions. Similarly Bank Alfalah should keep a tag on the competitors move or any other new technology it is introducing, because to sustain in the micro environment, a competitor has to be viewed with a lot of care.
BAL adopts a mass marketing strategy thus they are targeting the entire following sectors which are:
- Small and Medium Enterprise
This section includes small businesses starting with a capital upto 75 million. This is a healthy section of the market and mostly bank looks for them as they are the source of revenue generation, a number of programs are developed to target this section of the market.
- Commercial sector
Commercial sector involves personal bank accounts by individuals, households, etc. This segment has savings to be deposited and collectively is a major source of fund raising for the bank.
- Corporate Sector
Corporate sector involves multinationals, local firms, hospitals etc these areas provide deposits which are further used by the bank to lend and generate income.
COMPREHENSIVE AND DIVERSIFIED PRODUCT PORTFOLIO:
With the mission to provide full range of banking services to its customers, Bank Alfalah has a uniquely defined list of financial products. Currently it is one of the most comprehensive and detailed portfolios of personalized financial solutions that are tailored to serve the requirements not only of conventional customers but also to fulfill the needs of the corporate sector.
Following are the area in which Bank Alfalah is providing services to the customers.
- GENERAL BANKING
- FINANCIAL SERVICES
- CONSUMER FINANCE
- ISLAMIC BANKING
General banking includes the following services offered by Bank Alfalah:
- Current Account
Current account is a non interest bearing checking account. Minimum requirement for opening up of an account is Rs. 10,000 only. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. There is no limit on number of withdrawals and deposits per day.
- PLS Savings Account
PLS stands for Profit & Loss Sharing Savings account. The minimum requirement for opening a PLS account is Rs. 5,000 only. Profit on saving accounts is credited to the customer account on semiannual basis. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day.
- Royal Profit
Royal profit account is targeted to customers with high savings, the Higher the deposits the higher is the return. Minimum Deposit requirement is of Rs. 50,000 only. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. Profit is credited to the customer account on monthly basis.
- Basic Banking Account
This type of account is formulated keeping in view the lower income group or the daily wage workers. Initial deposit requirement for account opening is Rs. 1,000 with no minimum balance requirement. This is a non interest bearing checking account, the account holder can operate maximum 2 deposits & 2 withdrawals through cheque. Free debit card can be used to withdraw cash and make purchases at thousands of outlets across Pakistan which provides access to funds 24 hours a day. There is no restriction on ATM withdrawals.
- Alfalah Kifayat
Any Pakistani resident over the age of 18 can open this account. This account is for individual/joint customers only. Other customers like companies, corporate etc are not eligible for opening of this account. Minimum balance requirement for opening this account is Rs. 10,000/- with a maximum of Rs.1, 000,000/. Three debit transactions are allowed in a month either through cheques or Debit Card. There is no restriction on deposit transactions. The bank will issue the first cheque book of 25 leaves and a Debit card free of cost. Profit will be calculated on monthly minimum balance basis and will be credited in the customer’s account.
- Alfalah Education
Alfalah Education is a Term Deposit product with No Additional Cost. It provides education insurance for account holders with school going children. Alfalah Education Account besides offering competitive return on TERM DEPOSIT offers tuition fee reimbursement of children for 15 years of schooling or up to their 20thBirthday in the unfortunate event of the death (either through accident, illness or natural causes) of the account holder (parent).
Bank Alfalah provides locker facility to its customers for safe keeping of their valuables like documents, securities and jewellery etc.
Some Important features of lockers are as follows:
- Various sizes to choose from small, medium & large.
- Annual locker rent ranges from Rs.1, 000/- to Rs.3, 500/-.
- Locker rent is waived for customers maintaining a minimum deposit of Rs.2 million in current account or above US $25,000/- in a current account or US $50,000/- in a savings account.
Bank Alfallah has also started a unique kind of offering by providing help to its valuable customers in making important financial decisions while moving towards their targets.
- Structured Finance Unit
This department comprises of a team of professionals dedicated to syndicated loans and structured products. The teams provide there expertise to public & private sector entities, major financial institutions, multinational corporations & international institutional investors in innovative financing including underwriting & private placements.
The Structured finance teams also provide guidance and assistance on assignments such as privatization, Mergers & Acquisitions domestic listings, IPOs and restructuring.
Some of the value added services offered by SFU include the following:
- Loan syndication
- Public floatation of Term Finance Certificates (TFCs) and equity
- Private placement of Term Finance Certificates (TFCs) and equity underwriting
- Guarantee syndications
- Financial restructuring
- Mergers & Acquisitions (M&As)
- Fostering joint ventures
- Privatization – Sale side and buyers side advisory
- Structuring new financial instruments
Small and Medium Enterprise (SME) means an entity, ideally not a public limited company, which does not employ more than 250 persons (if it is manufacturing / service concern) and 50 persons if its a trading concern and also fulfills the following criteria of either ‘a’ and ‘c’ or ‘b’ and ‘c’ as relevant:
(a) A trading / service concern with total assets at cost excluding land and building up to Rs 50 million.
(b) A manufacturing concern with total assets at cost excluding land and building up to Rs 100 million.
(c) Any concern (trading, service or manufacturing) with net sales not exceeding Rs 300 million as per latest financial statements.
An Individual, if he or she meets the above criteria, can also be categorized as an SME.
Realizing its corporate social responsibility and carrying forward the image of “The Caring Bank”, Bank Alfalah started a separate department at the Head Office level in early 2004. The SME Department was established with a mandate to foster SME finance at BAL, explore opportunities for developing structured product programs for SMEs, introduced the concept of Dedicated SME officers and finding market based solutions to fill the financing gap to this important and under-served business segment.
To accomplish this SME Department is supported by 86 dedicated officers in 57 branches of the bank who are working in building up valuable relationships in the SME sector.
- Lease finance
In modern days leasing has now become an economic and financial reality of primary importance. It is the advantages of leasing which has enabled it to enter the world of industrial investment in Pakistan and on the international scene.
Lease finance provides a significant source of funds for companies to acquire or use assets. Leasing provides additional earning opportunities to acquire assets and to get the inflows simultaneously out of the operations of the same assets. The ownership of the asset is vested with the Bank (lesser) and in return for rental payments; the client (lessee) has full use of the asset. Being a medium to long term mode of financing, it allows the lessee to use the funds for other profitable purposes which otherwise would have been tied up.
In consumer finance section bank alfalah has a wide range of Alfalah cards which facilitate the access of the account holder to the deposits.
Bank Alfalah Credit Card is everywhere and is globally accepted and welcomed at locations displaying the VISA logo. It is accepted at nearly 29 million locations in more than 150 countries around the globe and over 22,000 Bank Alfalah establishments in Pakistan. Alfalah VISA facilitates the customers to pay for shopping, travel, entertainment, meals and much more. Card members are facilitated through a number of promotions from time to time. In addition, there are a number of strategic business partnerships with leading local and international brands for purchase of home appliances at exciting Step-BY-Step (SBS) monthly installment plan with free home delivery at lowest interest rates. Salient features are:
- No Joining / Annual / Renewal fee
- Electricity, Sui Gas, PTCL and Warid bills payment through 24 hour Call Center and Auto Debit instructions
- SMS for card usage, mini statement, payment receipt confirmation, etc.
- Cash withdrawal at all 1LINK ATMs
- Special offer on Warid post paid connections
It is accepted at nearly 29 million locations in more than 150 countries around the globe and at over 22,000 establishments in Pakistan.
Titanium MasterCard is globally accepted and welcomed at locations displaying the MasterCard logo.
Gold & Silver
These cards are targeted for all segments of salaried & professional individuals.
This Card is designed keeping in view the needs of
• a Graduate
• those who have just started their Career.
For the first time in Pakistan, Bank Alfalah has introduced a credit card exclusively for women. This card has its unique features carefully designed keeping in view the needs and wants of women.
Visa Mini is a practical and convenient part of customer’s everyday life – whether they go for shopping, dine out, buy grocery, want to go for holidays.
For the first time in Pakistan, Bank Alfalah introduces a credit card for Students
- On Line Banking
In today`s era of high fast moving world bank Alfalah provides enhanced and value added products to customers and is constantly striving for additional facilities. Bank provides fully automated on-line telephone banking facilities to its customers enabling them to carry out banking transactions like balance inquiries, statement requests, product information and exchange rate.
- Automated Teller Machine (ATM)
Automated Teller Machines are installed on country wide basis to offers 24 hours self service banking facilities to the customers. This system allows the banking facilities such as cash withdrawals, cash deposits, and funds transfer, balance inquiries, account statements. Electronic cash dispensing facilities are available in major cities of Pakistan. All ATMs are linked through a state-of-the-art Satellite Based Communication System which offers 24 hours real time service.
- Car Financing
Car Financing is one of the major renowned product of Bank Alfalah in consumer financing and can be utilized in terms of Financing of Used Vehicles, Loan against Car, Balance Transfer Facility, Refinancing Facility (only for Alfalah Customers) and is characterized in terms of:
- Lowest Mark up
- Lower Insurance
- Quick Processing
- Lower Down Payment
Major features of Home Financing are Lowest Mark-up, Quick Processing, Multiple Repayment Options and Free Valuation. Home financing can be availed for “Home Buyer, Home Construct, Home Improver, Home and Balance Transfer Facility”.
- Financing Limit : upto Rs. 10,000,000/-
- Tenure : upto 20Years
- Equity Participation : 30% Borrower / 70% Bank
Following services are offered under the head of treasury services.
- Short term money market inter-bank trading.
- Active Treasury Bills trading in secondary market.
- Forward – forward inter-bank money market trading.
- Money market linked lending to and borrowing from corporate clients.
Foreign Exchange Market
Bank Alfalah is very active in providing foreign exchange services it offers
- Active trading in ready and forward USD/PKR.
- Active quotations of foreign exchange rates in fifteen major currencies.
- Information in respect of prevailing rates of most of the currencies of the world for corporate clients and individuals.
- Forward – Forward foreign exchange rates of USD/PKR.
- Active swap trading in USD/PKR and other major currencies such as EUR, GBP, JPY and CHF.
Bank Alfalah offers its customers a number of opportunities to invest there precious savings and earn a handsome returns.
- Active Investment in treasury bills (TBs).
- Active Trading in Pakistan Investment Bonds (PIBs).
- Active investment in Certificate of Investment (COIs)
- Active investment in Terms Finance Certificates (TFCs)
Investment in Government securities is also facilitated by Bank Alfallah.
- Efficient service for individuals and corporate clients for buying and selling govt securities on their appropriate requests.
Bank Alfalah also acts as a custodian on behalf of its valuable clients in performing duties as
- Investment Securities Portfolio Accounts of Customers for holding on their behalf Treasury Bills, Pakistan Investment Bonds.
Financial Advisory Services
Bank also provides advisory services to clients in order to help them take safe and timely decisions regarding there investments.
- Briefing on current information available in market in respect of prevailing rates of USD/PKR.
- Briefing on current information available in market in respect of foreign exchange rates of major foreign currencies.
- Future expectations and sentiments on major foreign currencies including Pakistan rupees.
Bank Alfalah has also started Islamic services for the customers which are as follows.
Musharakah is one of the two ideal modes of Islamic financing. The other one being Mudarabah. Musharakah is a contractual relationship formed through mutual consent of the parties for sharing of profits and losses in a joint venture. Assets in the venture are jointly owned in proportion to each partner’s contribution. The profits are shared in a pre-agreed ratio. Losses, however, are incurred in proportion to each partner’s investment. Islamic Bank representing share of its depositors invests funds in the joint venture alongside other investor(s).
Like Musharakah, Mudarabah is also a form of partnership. Whereas all partners in Musharakah contribute capital, under Mudarabah partnership is formed between provider of capital and provider of expertise or human resource. Proportions for sharing profit are decided upfront. Losses are incurred in proportion to each partner’s investment. Islamic Bank representing share of its depositors invests funds in the joint venture alongside other investor(s).
Murabaha is a non-participatory mode of Islamic financing where the bank sells the asset required by its client to the client on cost-plus basis. The asset is first purchased by the bank and the bank incurs the risk of any loss or damage to the asset as long as the asset remains under its ownership. Upon sale of the asset, the Islamic bank is obligated to inform the client of the exact cost incurred in the purchase of the asset and the margin of profit incorporated in the sale price. Payment by the client of the sale price may be deferred in which case it would become Muajjal. The selling price once agreed cannot be changed even when the client fails to pay on the agreed date.
Under this facility a client may take on rent, property, vehicle or any other real asset belonging to the bank. The bank transfers the right of use of the asset to the client, while retaining the ownership of the asset. The client pays periodic rent to the bank for the use of the asset. Basis for rentals can be fixed as well as floating. Any change in rental may be made through mutual consent.
Salam is a contract of advanced payment against deferred delivery of goods. Goods paid for in advance by the buyer are delivered by the seller after an interval of time. The Seller receives in advance fully paid price of the goods at the time of contract undertaking to deliver the goods specified by the buyer at a future date.
Bank Alfalah uses the following modes for promotional activities
Bnners are hanged on different commercial roads to make people aware of the banks new schemes and policies.
Advertising is done through TV ads, Billboards, in the areas like Main Boulevard, Defence, Cantt, Mall Road etc and similarly in other major areas across cities of Pakistan.
Brochures and flyers are distributed amongst people to provide them awareness with the banks services.
Promotional activity is also carried out through Website in order to provide any desired information to the customers at any place they want it.
- Personal selling
High emphasis is also laid on promotion through Sales presentations, Trade shows, Incentive programs etc which provide a clear picture to the clients about the banks services in different areas.
- Sales Promotion
Sales promotional activities are also a majot part of promotional activities these are carried out through lucky draws at main shopping malls of different cities.
- Public relationships
Public relationship department works very efficiently in building up relations with the clients and this is done through Press Conferences, Sponsorships of different sports events, arranging events like concerts, and so on.
- Direct marketing
Direct person to person marketing is also done in promotional activity which is carried out through Telephone, Internet, and Catalogs etc.
Promotion through cards
Promotional activity is also carried out through bank Alfalah cards in which bank provides discounts on different products like watches, exclusive dinning privileges, free Petrol points,Mobile minutes etc.For this bank alfallah has agreements with different multinationals across the world which faciliatete banks customers.
The Bank is fully aware that the branch network has direct implications on the services that it provides to its customers. We offer services through a network of 280 branches and 228 state of the art ATMs in 109 cities.
- Conventional Branches 226
- Islamic Banking Branches 48
- Overseas Branches 8
- ATM machines 228
- Sales and Service Centre 15
Bank Alfalah has a network of 280 branches allover Pakistan, its presence in rural and urban areas starting with big major cities to small villages is something which adds up not only to the physical presence of the bank but also makes its customers feel like home where ever they go with the same level of customer care and services.
- Automated Teller Machines
Bank Alfalah has got a network of ATM machines which is still growing, besides this the bank has installed its debit and credit card swap machines in almost every shopping mall and important place which adds up to the presence of the banks services 24hr a day.
- Branch Environment
Bank Alfalah has invested huge amounts in designing and furnishing of the branches all over its expanding network. Some of its branches are designed and decorated by the top interior designers and architects of the world like SHAHDIN manzil at Mall road Lahore and MM Alam road branch, special attention is given to the environment of each branch so that not only the customers feel relaxed and soothing effect when they come in any but also the employees feel relaxed under stress and high burden of work.
- Interior Of Branches
They have a combination of soothing colors such as navy blue and metallic silver used for the designing of there interiors this color theme is followed in every branch which gives a sense of belonging in every branch the customer visits.a combination of Wooden floors, glazed tiles and carpets adds luxury to the environment of the branches. Besides this Special attention is given to the lighting of the branches warm lights are used in combination with spot lights which brings out the originality effect inside the branches and gives a feeling of day light while sitting inside. Comfortable seats are placed keeping in view the nature of the job of employees so that to save them from problems like backache.
- Presentation for customers
When the customer parks his/her vehicle there is always a security guard to attend them and guide them to car their vehicle. And the customer enters the huge magnificent glass building there is a scanner on the door which ensures security and safety of the customers. Then there is receptionist table right in the start for the guidance of the customer and the greeter routes them to their desired counter and help with any initial inquiry. Besides there are counters for cash, deposits and foreign exchange counters which has tokens so the customer doesn’t have to wait. And there are people to help you with your desired information and providing you with their best possible solution.
Unique selling points
- Bank Alfalah has adopted an aggressive style from the first day of its operations in every area of Banking. They have proved there strength through a wide network of branches and the best services in the market.
- They are continuously increasing there product portfolio and adding a wide range of innovative services for the benefit of customers.
- On there way to the top with presence of efficient modern banking systems Bank Alfalah has a wide spread web of automated teller machines in major cities of Pakistan like Karachi, Lahore, Islamabad, and Sialkot.
- It is the 5th largest bank operating in Pakistan. Have laid a very high importance on customer care.
- With a slogan of “caring bank” They are always ahead in assisting customers in every way possible.
- The main focus is building relationships and being known by the way they do business. Management recognizes that a banking relationship requires compatibility, communication, and cooperation and that each customer deserves nothing less than full attention and available resources to meet their financial objectives.
- superior personalized service is at the core of Bank Alfalah`s corporate culture and values and is considered to be the most important product. Bank is in the process of getting to know customers by name and understand their business and personal financial needs. This one-to-one, personalized service quality has served as Bank Alfalah`s unique signature since inception and continues to separate it from other financial institutions.
- Bank Alfalah is committed to building up long-lasting relationships through laying emphasis on service excellence and providing innovative products to meet the changing needs of there valued customers.
- The Bank provides a full range of banking services to corporate clients, while applying leading technologies. Today the Bank is well-positioned to provide appropriate banking services to customers.
- Bank Alfalah has a team of some of the most highly skilled and professional financial experts in banking industry. Managers, lenders and trust advisors offer the unique perspective of knowing and understanding in the local economy.
- Providing feasible and reliable decisions is an additional unique selling point which brings better returns and more profitability for investors and customers.
- It has a credit rating of AA- and A1+ from Pakistan Credit Rating Agency which means that the bank is operating on high international standards.
- Keeping in view the unrest among the Islamic Community on the issue of Interest Bearing Banking Alfalah is in the process of formulating there operations in a way so that to target this healthy segment of the market as well.
Bank alfalah faces a strong competition from its competitors, following are some indirect competitors of the bank in the field of banking services.
- Post offices
They provide banking services such as money transfer, bills collection, pensions payments etc.
- Mutual fund
Mutual funds are also in the indirect competition with bank alfalah in there financial services by providing funds for different projects.
- Share market
Share market also has got enough o the capital invested in by the people so it’s also a competitor. Insurance companies also provide returns on investments of people after a certain period of time.
- Money lenders
Money lenders are institutions which lend money to people at lower rates than banks for projects to be carried out. There are a number of money lenders in the market due to increased economic activity.
Bank Alfalah is on the fifth number amongst the leading banks of Pakistan in earning profits on its equity which shows the strength and sustainability of the bank in terms of its investments in different projects and lending.
Its major competitors are:
- NBP (National bank of Pakistan)
- HBL (Habib bank limited)
- UBL (United bank limited)
- MCB (Muslim commercial bank)
- ABL (Allied bank limited)
- SCB (Standard charted bank)
- BOP (Bank of Punjab)
- CITI (Citi bank)
- MEEZAN (Meezan bank)
Following graphs shows the banks position in comparison with the other competitor banks.
Advances and Deposits Comparison
It is again in a strong position in case of its advances and deposits, the amount of deposits in bank alfalah till December 2007 were Rs 273173 Million, which made it the fifth bank in Pakistan as far as the deposits are concerned.
The bank marketing profession is very misunderstood in the banking environment. Marketers have been technicians in the past, doing traditional marketing such as placing an ad in the local paper, or supporting the local cricket team, or just running a radio spot. There’s not a lot of strategy involved. Or they’ve done reactionary marketing tailored to their CEO’s needs. A marketer needs to be more of a strategist, and he or she needs to be part of the team of senior management. What bank Alfalah has done is that it has elevated the level of the marketer and helping the marketer also understands what their role is. They educate the CEOs and marketers on the importance of marketing and how they can help the bank achieve its goals. The best marketer is someone who understands marketing and banking. The marketers are the heart but they understand the business of banking as well. A person new to banking who doesn’t understand that there are nuances in banking regarding compliance issues and balance sheet issues and so forth, they need to understand those things and it may take them awhile to ramp up on those issues.
Although consumers are being offered basic banking services from an ever-growing range of providers, the banks have broadened their reach. The major insurers may have attempted to take a slice of the retail banks’ profits with their new ventures, but bank Alfalah has responded by aggressively entering the insurance market, where they have made considerable inroads. Bank Alfalah is now engaged in a multitude of markets – in addition to providing current and saving accounts, loans and mortgages, they have developed as investment managers, insurers and pension’s providers. They have become much more than just a bank – they are financial-services organization aiming to provide their customer with a one-stop-shop for all their financial needs.
However, current trends suggest an alternative route. All sectors of the personal banking market are facing margin pressure, due to the large number of competitors. As a response, joint ventures, which exploit the expertise of insurers as product manufacturers and the skills of the banks as distributors – while minimizing the risks to both – are likely to rise in prominence. The personal banking market has been revolutionized by technological developments. Improvements in back-office systems and the effects of the Internet have both broadened and intensified competition, and expanded the scope of retail banking activities.
By radically reducing cost-barriers to entry, the Internet has facilitated the development of a new wave of online institutions able to provide highly-competitive interest rates on deposit balances and loans. These technologically-advanced companies are responsive and innovative in their approach. All the major banking groups provide their customers with Internet access to their account information, defusing one of the key selling points of the original Internet banks. This has forced the new entrants to compete on price alone – a strategy that continues to win them new customers, but will ultimately limit their capacity for expansion. For customers without large credit or debit balances, attractive interest rates do not compensate for the convenience of a traditional bank which provides branches, call centers and online services. Competition has stimulated technological innovation, and has also encouraged banks to reassess their product ranges. Integrated bank accounts are being offered by an increasing number of competitors, allowing consumers to reduce the interest payable on their mortgages, by offsetting their current and savings balances against the total borrowed.
The pace of development in the personal banking sector is unlikely to slow. However, it is likely to be affected by a weak international economy, an over-inflated housing market, and an ageing population. Insurers face insolvency as a result of falling stock markets, and of investment decisions made on the basis of inadequate calculations of life expectancy. Any significant rise in unemployment or interest rates threatens the stability of the banking system – the Analysts predict that the housing market, which has proved so lucrative for mortgage lenders, will not be able to sustain its upward trajectory much beyond 2008.
Bank Alfalah Strategic Management Project – FINANCIAL STATEMENTS
FINANCIAL POSITION & STRATEGIES
Bank Alfalah is a scheduled commercial bank and is principally engaged in the business of bank as defined in the Banking Companies Ordinance, 1962.
BASIS OF PRESENTATION
In accordance with the directive of the Federal Government regarding the shifting of the Banking system to Islamic modes, the State Bank of Pakistan has issued various circulars from time to time. On permissible form of trade related mode of financing comprises of purchase of goods by the banks from their customers and resale to them at appropriate mark-up in price on deferred payments basis. The purchase and sales arising under these arrangements are not reflected in these accounts as such but are restricted to the amount of facilities actually utilized and the appropriate portion of mark-up thereon.
These accounts have been prepared using the historical cost convention in conformity with the accepted practice of banking institution in Pakistan.
Fixed assets are stated at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the related assets at varying rates and methods depending on the nature of the assets.
The cost of the assets is depreciated on the diminishing balance method, except for vehicles, carpets and renovation costs of leased premises, which are depreciated on a straight-line basis. Depreciation is charged for the full month on purchase/acquisition of assets while no depreciation is charged in the month of disposal of assets.
Maintenance and normal repairs are charged to income as and when incurred. Major renewal and improvements are capitalized. Gains and losses on disposal of fixed assets are taken to the profit and loss account.
Assets held under finance lease are accounted or by recording the assets and the related liabilities at the amounts determined on the basis of lower of fair value of the assets and present value of minimum lease payments. Finance charge is allocated to accounting periods in a manner so as to provide a constant periodic rate of charge on the outstanding liability. Depreciation is charged on leased assets on the basis similar to that of owned assets.
Investments are stated at cost, net off provisions made for diminution in value. Profits and losses on sale of investment are dealt with through the profit and loss account in the year in which they arise.
Advances are stated net off provisions for bad and doubtful debts. Specific and general provisions for bad and doubtful debts are determined by the management keeping in view the requirements of the Prudential Regulations issued by the State Bank of Pakistan.
Assets and liabilities in foreign currencies have been translated into Pak Rupees at the rates of exchange approximating those ruling at the Balance Sheet date except those covered by forward exchange contracts which are converted at contracted rates. Exchange gains and losses are included in income currently.
Provision for tax is based on applicable rates of tax after taking into account tax credit available, if any.
The Bank accounts for deferred taxes , if any, taking into account major timing differences, using the liability method. However, deferred tax is not provided it can be established with reasonable probability that the timing differences will not reverse in the foreseeable future.
Income is recognized on accrual basis.
FINANCIAL PERFORMANCE (FY04-FY07)
In terms of profits, Pakistan’s banking sector ranks amongst the top ten in the world. Bank Alfalah has had its share in the phenomenal profit growth of the banking sector. There has been a change in composition of earnings assets with a shift from advances to higher investments in FY07. This shift is in line with the overall industry trend.
According to Bank Alfalah’s Annual Report 2007, the eight year audited financial summary of the Bank is as follows:
|Profit before Income Tax||400||524||895||3,506||1,654||2,563||2,566||4,536|
|Profit after Taxation||215||311||446||2,123||1,092||1,702||1,763||3,130|
|Advances-Net of provision||15,242||19,131||28,319||49,216||88,931||118,864||149,999||171,199|
|Investments-Net of provision||4,875||11,397||24,470||28,904||35,503||57,416||56,502||88,492|
|Deposits and other accounts||20,482||30,207||51,685||76,698||129,715||222,345||239,509||273,174|
|Profit before tax ratio||%||17.70||15.45||19.67||86.92||29.43||20.93||12.11||17.59|
|Gross Spread Ratio||%||23.78||25.85||31.62||49.71||56.69||41.17||28.12||35.54|
|Return on Equity(ROE)||%||23.94||27.49||29.95||79.08||26.89||30.65||20.37||25.72|
|Return on Assets(ROA)||%||0.89||0.90||0.85||2.59||0.86||0.84||0.67||1.04|
|Advances to Deposits Ratio||%||74.42||63.33||54.79||64.17||68.56||53.46||62.63||62.67|
|Basic Earnings per Share||PKR||3.59||3.65||2.23||8.49||3.90||3.92||2.91||4.82|
|No. of Employees (other than outsourced)||No.||695||959||1,504||2,133||3,352||5,218||6,543||7,371|
Reference: Bank Alfalah Annual Report 2007
REVIEW ON BANK’S FINANCIAL PERFORMANCE (FY04-FY07)
The bank’s performance has generally improved in all segments in FY’07. Bank Alfalah Limited (BAFL) declared profit after tax of PKR 3.1 billion with earnings per share of PKR 4.82 in FY07 compared to profit after tax of PKR 1.7 billion with earnings per share of PKR 2.71 in FY06. A significant growth of 77.6% has been registered during FY07 on the back of capital gain of PKR 1.7 billion on sale of Warid Telecom (Pvt) Limited. The bank also declared a cash dividend of PKR 1.50 per share for FY07 and 23.0% bonus share.
- GROWTH IN NET INTEREST INCOME
Net interest income of the bank registered a growth of 53.8% to PKR 9.1 billion in FY07 compared to PKR 5.9 billion in FY06 mainly on the back of interest earned on the deposits to customers. (Total deposits of the bank grew by PKR 33.6 billion during FY07).
- INCREASE IN NON-INTEREST INCOME
In FY07, the bank sold 48.8 million of its holdings in Warid Telecom (Pvt) Limited out of 316.7 million to Singapore Telecommunication Limited (Singtel) at a price of $37.67m. Due to this, the bank earned PKR 1.7 billion of capital gain during FY07, which resulted in the growth of 87.3% in non-interest income. Non-interest income climbed to PKR 6.0 billion in FY07 as compared to PKR 3.2 billion in FY06.
- IMPROVEMENT IN RETURN ON DEPOSITS (ROD)
A positive growth of deposits has somewhat succeeded in improving the ROD of the bank, which had declined in 2006. The deposits of Bank Alfalah have shown an increase over the years largely due to increase in fixed deposits by customers. Deposits by both customers and financial institutions have seen a growth. The most prominent factor behind this was increase in the market’s liquidity due to increased FDI and remittances inflow. Since 2004, there has been a growth of 131% in the bank’s deposits, which is an indicative of the growth that this bank has seen.
Deposits increased from 239m to 273m an increase of 14% in FY07. The trend of ROD has reversed this year as it has improved from 0.55 in FY06 to 1.28 FY07 mainly because of improved control on costs resulting in improved profits. Due to banks eagerness for raising longer term deposits to match their assets maturity profiles, it is expected that the share of fixed deposits in total deposits of the banking system would continue to further increase in days ahead.
- REASONS FOR BOOST IN PROFITS
The profits have also risen due to increase in advances, investments, and lending to financial institutions (Earning Assets). Only the lending to financial institutions grew by 264% in FY06. But ROD has shown a declining trend. This has been the case because the profits for Alfalah have not risen proportionally with the increase in deposits. In the year 2006, the deposits grew by 7.7%. This significant increase was the result of the excessive reserve growth in the economy. But the corresponding increase in profits was a meager 3.6 %. In FY03 the ROD was 2.77 that have declined to 1.28 in 2007.
- DECLINE IN RETURN ON ASSETS (ROA)
Bank Alfalah’s ROA had shown a significant decline in FY07. Though still better than the industry average the ROA declined from 2.15 in FY03 to 1.07 in FY07. The total assets of the bank have grown by 19% from PKR 248.31 billion to PKR 329 billion in 2007 but the resulting profitability growth has only been 3.6 %.
- TREND IN RETURN ON EQUITY (ROE)
ROE has had a fluctuating trend for the bank. It rose in FY05 on the back of high profits for the year but declined in the subsequent year. The ROE of Alfalah is 21.62 %, which is low compared to the sector average of 25.6 %.
- HIGH NET INTEREST INCOME (NII)
Yield is an indicative of the profitability of the banks assets (advances). The bank’s net interest income (NII) has increased by 53.8% in 2007 whereas the non-interest income rose by 87.3% due to capital gains on sale of Warid Telecom. But in the banking sector the NII contributes the most to the income. The increase in NII is mainly because of the high spread that Bank Alfalah is enjoying.
- GRAPH OF NON-PERFORMING LOANS
The non-performing loans (NPLs) have shown variable character during the period of analysis, first increasing from PKR 2.845 billion in FY03 to PKR 2.935 billion in FY04, then decreasing by almost two thirds of that to PKR 1.06 billion in FY05. Thus there was a drastic cut down in NPLs in this year, which was also reflected in the industry figures, where NPLs decreased from PKR 211 billion in FY03 to PKR 177 billion in FY05. This was the result of extensive measures by the industry in general and this bank in particular to improve the regulation and monitoring of loans and control defaults through more rigorous screening.
The following year, however, once again showed a rapid rise of more than a hundred percent in NPLs to PKR 2.31 billion. This rise in NPLs can be more accurately attributed to the rapid rise in interest rates during this period than to any lapse in the bank’s screening procedures, as the State Bank had taken definite measures to tighten its monetary policy.
- DECLINE IN CAR FINANCING
Due to increasing number of non-performing loans, car financing by the bank has declined by 42.3% in FY07. Car financing covers the major portion of total consumer financing of the bank. The total number of cars financed during FY07 was 12,058, which were of PKR 5.7 billion as compared to 20,012 cars financed during FY06 equal to PKR 9.9 billion.
Bank Alfalah Strategic Management Project – CONTROL PROCEDURES
There are many control levels in Bank alfalah who are trying to control their cost, operation and other things so that they can perform well, efficient and effectively. Some of the control levels are as following.
- MONITORING AND CONTROL
Bank’s management can establish a dedicated internal controls team that will ensure that the banking operations are being conducted in compliance to banking standards. PACRA ratings provide an excellent standard that can be used to gauge bank’s performance. Moreover, the financial performance can be compared with the established goals and short- term objectives in order to check the level of performance.
Incase, there is some deviation from the annual goals, an external and internal analysis can again be conducted in order to understand the changes if any that have took place and then adjust short term and long term goals accordingly.
- Marketing Control procedure
Marketing is one of the most important section and part of any organization. Its main task is to make awareness in public of bank, public dealing, public relationship, future planning, help the bank to achieve its target and task etc.
- Central controlling of targets:
All the branch main targets are deciding centralized, according to the market potential and previous year performance. Targets will be realistic and achievable.
- Production Control Procedure
As bank alfalah is not relating to any production business so this type of control is not seen in bank alfalah. They are working for the maintenance of different sections like branch environment, customer services and banks operation functions. Similarly the bank alfalah is also monitoring the performance of every branch on daily basis.
- Quality control procedure
For every organization, it is very essential to control and improve the quality and performance of organization.
Bank alfalah is very strict and concern about its operations quality and efficiency. They are continuously making improvement and bringing innovation to their services and operations.
- Non performance loan:
Bank alfalah is trying to improve their quality service. For that they are doing different things controlling NPL (non performing loans). Means don’t go for those loans which are not productive and didn’t give benefit in future. As they are involve in Islamic banking as well, so they are also controlling the markup issue which is not allow in Islamic banking.
- Low turnover
Means how much transaction came in and out in any bank. Any bank is run due to its deposits and cash came into the bank. More cash means more opportunity to do business and get more profit.
Bank alfalah main concern is to have low turnover rate so that bank will perform well in future if it will have cash in hand. For that they are giving customers special offers, packages and services for better customer loyalty. This is due to proper monitoring and controlling procedure of bank.
- Finance Control
Main control of the bank regarding finance is to check the issue which SBL have stated to all banks regarding deposits, loans, cash transaction etc. SBP have different regulation regarding different services and packages. So bank alfalah is trying to control the operation and procedure regarding SBP regulation.
Similarly finance department is also monitoring the economic environment and limitation which can hurt the performance of bank in future. Just like now a day’s global economic crisis is the main issue for every bank and so many strategies are changes during this crisis period.
- Deposits and advances:
Main task of financing department is to keep track and control on deposit like from where the customer is coming, its profile, its background, records, how much he is depositing the cash. From where he get the cash etc. similarly same case for the loans like how much they are providing loans, to whom, what are the limits, etc
And too take care of advances at what interest rates are being given and how are the bank generating profits.
Banks have major problems in the following areas which are need to be solved and looked after. The bank has enough capability to improve its deficiencies and prove them self the best bank in every aspect.
- MIS PROBLEMS
- GLOBAL ISSUES
- OPERATIONAL PROBLEMS
- FINANCIAL PROBLEMS
- MARKETING PROBLEMS
- HUMAN RESOURCE PROBLEMS
- CUSTOMER SERVICE PROBLEMS
- ECONOMY & GOVERNMENT ISSUES
- Ineffective Bank smart operations
The computer management software bank smart is not that really good and has problems with the data recognition and multiple MIS related problems which need to be looked for.
The bank smart is outdated banking software to replace it bank should use Temenos T24 which is the one of the best software in the world for banks and is currently used by HBL and it matches the system of bank Alfalah.
- Some international branches like Afghanistan, Jordon are not performing well
International branches are not performing well there have been problems politically and in economics of their countries. That’s why there operations are not much successful.
Banks should expand the branches in Asian countries where there is less political instability and economic crises for example in Bangladesh and start operations in African countries.
- Global image of Pakistan
Last year, Pakistan global image was also damaged internationally. So many foreign investors and investment which are coming in the country stops coming making a huge loss in banking industry. People who send their money in banks stop sending money due to bad reputation of country last year.
The bank has its own reputation and good will it could use that to attract customers and ensure them with their expertise. The bank can establish this by better quality and services
- Decentralized to centralized phase
The management decisions in the banking are being decentralized in the bank now. Which made a chaos for the customers and it was inconvenient for them. The customers had to change the branches for their operations. This disturbs the banks operations as well now every branch has to report in the central head office.
This problem can be solved and made easier if the bank provides some part of all the products in the branch and then it reports to the central head branch this can be convenient for the customers and bank as well
- Liquidity problem
During the last year, rumors about the liquidity problem of BAL negatively affected its image and people withdrew their deposits in large amount. Investors demanded their money back and were hesitant to invest more in the bank. BAL’s reserve was 270 billion at the start of 2008 and because of the rumor it was around 300 billion at the end of 2008. Apparently the reserves have increased but it couldn’t be increased up to the planned ratio.
BAL should design a repositioning strategy to improve its image and to increase the deposits by offering relatively high returns on its liability products. Also looking at the current economic and industrial position of the country, BAL should invest less in the stock exchange and more in other investment opportunities.
- Low ROE ( due to re-investment of capital )
ROE has had a fluctuating trend for the bank. It rose in FY05 on the back of high profits for the year but declined in the subsequent year. The ROE of Alfalah is 21.62 %, which is low compared to the sector average of 25.6 %.
This problem can be solved if the financial status of the bank is improved.
- Recovery problems (NPL)
Bank has a recovery problem especially in car financing and other recovery of loans like in textile industry and loan repayment is real low
This can be solved by an outsourcing company to recover loans this will help the bank and would not damage the image of bank
- Stock exchange crash – no interest of investors in stocks
Last year, Pakistan stock exchange has the worst year in their history. Although this bad phase happen all over the world but especially Pakistan stock exchange has the worst nightmare year. Market falls so many times during last year and mostly small investors were affected. Due to this bad phase, small investors lose so many capitals in market so they go for another medium to invest rather stock exchange. So many foreign investors also discourage after the crisis to invest in the market.
Bank Alfalah is also investing huge capital in stocks and also giving its share in open market. So due to low interest of investor in market, and crisis in stock exchange, bank Alfalah is also facing problem regarding where to invest now and how they can maintain their share value and can gain capital from it. This is a huge threat to them now days.
Issuance of shares must be controlled and bank should try to maintain its value in the market
- Lack of marketing
BAL is an aggressive bank but no aggressive marketing campaign scheme. Due to high competitive environment they are not having aggressive marketing campaign to promote their products and services to public. Initially they start their marketing campaign well but not that in a flow.
Aggressive marketing strategies must be used by the bank to get the consumer familiar with bank services
- Rural area financing
Main focus is in the urban cities of Pakistan not on the rural areas. Mostly Pakistani labor class and lower level people who work in abroad are belonging to lower and rural area of Pakistani. So bank alfalah is not targeting those area from people are went to abroad and have problem to send their cash to their homes back in Pakistan.
Bank should expand its target market and spread its network in rural areas
- Islamic banking marketing
Not promoting Islamic banking as it is a major issue of markup in Pakistan and other Islamic countries. Now a day’s bank Alfalah is going on Islamic banking but they are not exposing and promoting this kind of banking system in the country. From some effort and strategies they can make this banking a successful one and one of the huge profitable system.
Increase the Islamic banking portfolio and provide quality.
HUMAN RESOURCE PROBLEMS
- High employee turnover
Due to growth in banking sector of Pakistan, BAL experienced high job employee turnover during the past few years. New banks have attracted a lot of highly qualified professionals for BAL which became a major problem for BAL.
Bank should focus on employee retention strategies. Pay scale should be revised, lots of attention must be given to employee motivation and incentives should be given to hardworking employees.
- Working Hours
Bank Al Falah although providing the customer service in better way but there is a lot of work to do in a routine banking to the employees due to which they work for long time.
Management should gave relaxation to the employees by hiring new professionals and reduce the working hours.
- Gender discrimination
After thorough analysis of organizational structure, we found that the entire group heads are male, not even single group head is female. This gender biasness is a big issue in the corporate world and BAL should try to eliminate it. At least 30% of the group heads should be female.
BAL should provide EEO (equal employment opportunity) and AA (affirmative action).
- Lack of training
Employees at BAL feel that proper training is only provided for the MTOs at BAL training centers. At other hierarchal levels training programs are conducted but they are not mandatory and few in number. There are only 2-3 workshops / year which are not enough according to the employees.
BAL should arrange training programs and workshops on monthly basis and it should be mandatory for employees to attend it. They should also send competent employees on foreign training programs.
- 3 Year contract
All the MTOs have to sign a three year bond agreeing that they can’t leave the bank for three years. This de motivates fresh graduates and they avoid applying for BAL MTO program because 3 years seems a long time for new graduates.
Bond’s duration should be 1 year so that the MTO program can attract a better pool of candidates.
- Priority to range 6 employees and above
Hr gives high salary to upper authority as compare to other bank. Normally rank 7 to 9 people in bank Alfalah are getting more pays scale as compared to same rank people in others banks. This will make their lower employees from rank 1 to 6 de-motivate and they certainly think that main task are doing by them but the reward and good pay scale are only for higher people.
BAL should provide EEO (equal employment opportunity) and AA (affirmative action).
CUSTOMER SERVICE PROBLEMS
- Priority to corporate consumer
It seems that the priority is given to the corporate customers in Bank Al Falah as the individuals from middle class have to remind the management of certain branch to do the needful for them. Customer is the king and customer always right. Bank is earning profit from the customers. Bank should have a proper relationship with corporate as well as individual customers.
It is recommended that the management should stress on having satisfactory relationship with individual customers because they can also provide the revenue in term of profit.
ECONOMY & GOVERNMENT ISSUES
- SBP new rules, regulation and policies.
As the current economy and politics are changing so the SBP rules and policies are changing which effects the banks reserve ratio and the treasury investments. So the bank needs to coordinate with the SBP regulations and which changes the strategy of banks as the regulation changes.
- Political instability in Pakistan
Last year political environment is not stable in Pakistan. So many incidents happen in Pakistan which was not seen in Pakistan history like economic crisis, incident happen after Benazir Bhutto`s death and many more. All incidents cause so many problems regarding banking sector. Banks faces so many problems like ATM machines damages, building damages, strikes, people withdrawal their cash from banks, so many foreign investors and investment stop coming in Pakistan.
- High inflation rate
So much high inflation was seen during last year in Pakistan. Prices of different product rise so much high that people need so much money to purchase basic necessity goods. So rather to deposit money in banks, people take their income home and invest to purchase those high price goods.
These are the problems that bank faces and generally gets a decline but it`s solution is only possible by effective crisis management team and banks wealth management expertise.
VISION & MISSION STATEMENT
PROPOSED VISION STATEMENT
“To emerge as a dynamic organizations operating locally and internationally that provides innovative solutions and complete range of financial services including Islamic Banking options to all segments under one roof”.
PROPOSED MISSION STATEMENT
“To develop and deliver the most innovative products, manage customers experience, deliver quality service that contributes to brand strength, establishes a competitive advantage and enhances profitability, and we will achieve this by developing and motivating exceptional employees thus providing value to the stakeholders of the bank.
We will also play a proactive role in initiating ways to benefit the society as a whole”.
After comprehensively developing and analyzing the various tools that we used in this strategic audit, we have narrowed down our findings to few strategies that we recommend to Bank Alfalah to pursue. The basis for choosing these strategies were established through certain external analysis such as Porter’ five forces model and PEST-G analysis, the input data was then analyzed using IFE, EFE, CPM matrices and then we were able to develop the organization’s position through IE Matrix and the SPACE Matrix and Grand Strategy Matrix with the banks marketing, financial and human resource analysis. Finally, in the decision stage we used the QSPM to filter out and assess the attractiveness of each strategy.
This strategy can improve the competitive position of Bank Alfalah. Because of the increasing competitive pressures in the commercial banking sector and increasing need for new management techniques, acquisition of existing competitors becomes a highly attractive strategy. This approach ensures greater security from foreign banks entering the market, and will also improve its competitiveness among local banks.
We are now proposing Bank Alfalah to acquire smaller bank from within the existing market. Such a move will improve the bank’s paid-up capital amount as well as increase in number of branches. This strategy will also help in expanding in new locations and areas that are currently not covered by it.
Product development is the second most attractive strategy to pursue. Innovation is the key to success in any business and this holds true in the banking sector as well. The changing nature of banking itself requires development of the products that can facilitate customers in conducting their transactions with bank as well as the products and services that generate higher value to the customer. It’s very easy for customers to switch banking operations due to highly competitive rivals but if a bank keeps on updating its services and products, it can retain customers and gain their trust and loyalty.
Secondly, management of bank Alfalah has been very sluggish in developing new products. They have been followers instead of leaders which is the reason that customers are not much satisfied with their product mix. The proposed strategy of product development will help the Bank in capturing the market share by offering products and services of international standards and capturing the market share.
Market development strategy is just slightly less attractive strategy that product development. If pursued efficiently, it can bring stability and growth to Bank Alfalah.
Thirdly, the strategy of market development has not been of much focus of the management earlier. The market development strategy is very crucial if the bank wants to maintain its distinctive position. This can only be done by extending its branch network to rural areas where people are need of customized banking solutions. The increased accessibility will give the bank to reach out to a larger pool of potential customers.
QUALITATIVE STRATEGY PLANNING MATRIX (QSPM)
|MarketDevelopment||Product Development||Horizontal Integration|
|1. SBP encouraging Islamic banking operations in Pakistan.||0.08||2||0.16||4||0.32||3||0.24|
|2. Venture into related businesses can help capture increased market share.||0.04||–||0||–||0||–||0|
|3. Increased demand for mobile and online banking services.||0.05||1||0.05||4||0.20||1||0.05|
|4. Increased transfers of money to Pakistan from residents living abroad.||0.04||4||0.16||4||0.16||2||0.08|
|5. Customers from smaller cities and towns demand increased accessibility to bank’s services.||0.06||4||0.24||3||0.18||4||0.24|
|6. SBP policies encouraging mergers and acquisitions.||0.09||3||0.27||1||0.09||4||0.36|
|7. Tremendous growth in agricultural sector in Pakistan opens window for increased business.||0.06||3||0.18||4||0.24||3||0.18|
|8. Banks enjoying abnormal spreads between lending and deposit rates.||0.04||2||0.08||1||0.04||3||0.12|
|1. Local banks pursuing competitive pricing strategies.||0.07||1||0.07||2||0.14||1||0.07|
|2. Entry of foreign banks and strengthening of local banks through acquisitions.||0.09||3||0.27||2||0.18||4||0.36|
|3. Increased competition is pressing commercial banks to meet global standards.||0.06||1||0.06||3||0.18||2||0.12|
|4. In-stable political condition affecting trading and business activities.||0.04||3||0.12||1||0.04||2||0.08|
|5. Unprecedented 20% rate of Inflation raising interest rates and affecting business.||0.06||–||0||–||0||–||0|
|6. KIBOR rates increased about 2%||0.05||–||0||–||0||–||0|
|7. SBP requirements to increase paid-up capital from 2b to 8b in 2008 and to 23b higher by 2013.||0.06||2||0.12||2||0.12||4||0.24|
|8. Expected increasing in NPLs on account of rising costs of doing business.||0.07||–||0||–||0||–||0|
|9. SBPs directions to bank to increase their Capital Adequacy Ratio by at least 10%.||0.04||–||0||–||0||–||0|
|1. Good brand image on the back of Group Al-Dhabi.||0.05||3||0.15||1||0.05||2||0.10|
|2. Upward economic growth trend over the years.||0.06||3||0.18||2||0.12||4||0.24|
|3. Sound *PACRA rating of AA and A1+||0.04||2||0.08||1||0.04||2||0.08|
|4. Bank operating through 280 conventional banking branches, 32 Islamic banking branches and 7 overseas branches and 1 Offshore Banking Unit.||0.06||–||0||–||0||–||0|
|5. Following true mode of Islamic banking under Shariah advisors.||0.07||2||0.14||3||0.21||4||0.28|
|6. Focus on customer service.||0.04||–||0||–||0||–||0|
|7. Money gram facility in more than 40,000 locations world-wide.||0.04||–||0||–||0||–||0|
|8. Efficient internal communication system.||0.06||3||0.18||1||0.06||4||0.24|
|9. Decentralized decision systems increases effectiveness.||0.05||3||0.15||2||0.10||3||0.15|
|10. Reserves & Surplus showing 40% increase.||0.07||4||0.28||2||0.14||4||0.28|
|11. Focus mainly on just major cities.||0.06||4||0.24||3||0.18||4||0.24|
|12. Lack of staff in various departments causing inefficiency in operations.||0.04||–||0||–||0||–||0|
|13. Diminishing morale of employees due to sluggish career development.||0.05||–||0||–||0||–||0|
|14. Capital adequacy ratio showing diminishing trend over the years.||0.07||–||0||–||0||–||0|
|15. Lacking modern management techniques to improve its systems.||0.06||1||0.06||3||0.18||3||0.16|
|16. Conventional product mix as compared to competitors.||0.06||1||0.06||4||0.24||3||0.18|
|17. RoE of BAL are considerably low as compared to industry returns.||0.07||2||0.14||3||0.21||2||0.14|
|18. Income/Expense ratio is declining showing poor expense management.||0.05||3||0.15||4||0.20||1||0.05|
|Sum of Total Attractive Score||1.00||3.59||3.62||4.28|
AS: Attractive Score; TAS: Total Attractive Score
Attractive Score: 1=Not Attractive; 2=Somewhat Attractive
3=Reasonably Attractive; 4=Highly Attractive
FINANCIAL DEEPENING AND BROADENING OF ACCESS
For financial deepening and broadening of access, the short to medium term strategic plan is to consolidate and build on the existing initiatives in Agriculture finance, SMEs, Mortgage and Microfinance. The strategy includes strengthening of the exiting microfinance regime and expansion of agriculture credit to small farmers and for livestock. For the SMEs, as an initial step, delivery of credit by banks will be monitored and intermediary/technical support organizations will be encouraged to assist the SMEs in preparing bankable proposals. SME, Housing and Infrastructure Finance Divisions will be strengthened with experts in these areas.
PROMOTE ISLAMIC BANKING AS A PARALLEL AND COMPATIBLE SYSTEM
Islamic Banks are becoming popular not only in Pakistan, but all over the world. The work of
Licensing, supervision, regulation, inspection, Shariah Audit, training of personnel of these Islamic banks or branches are done by the Islamic Banking Department (IBD). And this will be encouraged to grow in bank Alfalah.
HUMAN RESOURCE DEVELOPMENT
The bank plans to increase employee attraction, retention and motivation by reducing recruitment timelines, devising innovative compensation and benefit plans, establishing employee counseling, providing equitable training opportunities and enhancing the Performance Management System (PMS).To develop the capacity to offer market based targeted compensation and benefits packages for the high performers, line managers’ ability to provide performance-based incentives is being enhanced. The bank Alfalah also plans to further enhance the PMS to bring transparency and objectivity to decisions regarding employee career management.
INFORMATION TECHNOLOGY UP-GRADATION
The data analysis requirements of the customers are needed by bank to use it for appropriate business applications. It is the long-term plan of the IT team to keep the quality of application up-dated as per the business needs of the bank to improve its data management capacity. The information technology team further plans to establish an information technology security framework and improve it by applying an appropriate set of security policies.
EFFECTIVE TRANSPARENCY STRATEGY
The bank ensures that it has transparent, comprehensive, and proactive systems of accountability and external reporting. That meets all requests for information within the constraints of the law.
BUSINESS PROCESS RE-ENGINEERING
The focus of Business Process Re-engineering (BPR) is to enhance the operational efficiency and internal controls by removing redundancies in business processes while taking advantage of the skilled management.
The bank acts in the best interests of consumer’s their decisions are made in the best interests of consumers. The bank is accessible and has clear & open channels of communications. Banks policies, systems and behavior are consumer friendly.
Bank Alfalah will launch a social network. It’s a site for small business owners to be part of the online community, where they can share stories with each other, find experts in various topics, and network with each other. This is where business info such as location, website, annual revenue and other information is shared on the profiles. The purpose of this site is to allow Bank Alfalah be that singular resource for small businesses. You don’t need to be a Bank Alfalah user in order to join the site, so what you’ll get once you log on to this community is a network of business people that are sharing their stories with each other, as well as access to articles from industry experts.
SMALL- AND MEDIUM-SCALE ENTREPRENEURS THROUGH STRATEGIC PARTNERSHIPS
Bank should encourage more in the small and medium entrepreneurs for refurnishing the environment through strategic partnerships with them. This will encourage the new business men and SME and it will generate revenue for bank which will give the feeling to the customer and bank as partners.
The bank should be expanding its branches globally as it is an aggressive bank. The bank should develop new markets in other part of the world where the bank could find potential growth.
Although consumers are being offered basic banking services from an ever-growing range of providers, the banks have broadened their reach. The major insurers may have attempted to take a slice of the retail banks’ profits with their new ventures, but the banks have responded by aggressively entering the insurance market, where they have made considerable inroads. Banks are now engaged in a multitude of markets – in addition to providing current and saving accounts, loans and mortgages, they have developed as investment managers, insurers and pension’s providers. They have become much more than just banks – they are financial-services organizations aiming to provide their customer with a one-stop-shop for all their financial needs.
- More emphasizes to current and saving account
- SME portfolio must show growth
- Adopt a cost saving approach to control the operational cost
- Efforts to recover the NPL`s
- Right sizing
- Targets for each branch
- Increase the quality of corporate accounts
- Maintain and try to improve PACRA rating
- Apply Temenos T24
- Increase the deposits of the bank by 11%
- Increase the advances of the bank by 16%
- Improve returns on equity by 5%
- Improve returns on assets to a minimum of 18%
- Add minimum of 10 dedicated Islamic banking branches in year 1.
- Increase the number of branches to 280 in first year.
- To become number one bank in customer services.
- Increase the deposits of the bank by 13%
- Increase the advances of the bank by 18%
- Improve returns on equity ROE by 6% in year 2.
- Improve returns on assets to a minimum ROA of 20% in year 2
- Show effective customer services
- Aggressive Marketing.
- Improving HR policies and emphasize on effective human resource management.
- Gradually shift from existing banking software to the upgraded ones. This transition should be covered in 2 years in phases.
- Take over small banks
- Achieve the PACRA rating of AA+ and AAA by this year.
- Maintain the effective MIS department.
- Add minimum of 20 dedicated Islamic banking branches
- Strengthen effective internal control system
- Develop strong foot-hold globally by opening overseas branches and increasing operations.
- Social network.
- Increase the paid-up capital of the bank to at least Rs. 20 Billion by 2014.
- Increase the deposits of the bank by 16% each year.
- Increase the advances of the bank by 22% each year.
- Expansion to other areas by increasing the number of branches to 800 by year 2014.
- Maintain the effective MIS department.
- Maintain the PACRA rating of AA+ and AAA.
- Improve the customer experience at Bank Alfalah by offering conventional banking and Islamic banking solutions under one roof.
- Improve returns on equity by 9%
- Improve returns on assets to a minimum of 25%
- Prove to be the “Caring bank”
- Maintain quality in HR policies
- Global expansion
Bank Alfalah should improve the quality of its portfolio and broaden its customer base. Bank should increase their market share. The bank should also reduce operating costs and improve profitability. Bank should enhance competitiveness and strengthen professional capability especially in MIS departments and accounting and make more dynamic promotions to grow even more aggressively. Bank Alfalah should improve the quality in human resource department and do right sizing of employees.
REFERENCES & BIBLIOGRAPHY
- Bank Alfalah Annual Report 2006-07
- Bank Afalah First Quarter Report 2008
- Economic Survey of Pakistan 2007-08
- Economic Performance FY 2007
- Banking Ordinance of Pakistan
- PACRA Ratings June 2008
- Strengthening of Capital Requirements for the Banking Industry to Promote Further Growth in Financial Intermediation.
Articles and Literature:
- Title: FPCCI rejects banks demand for increase in interest rate (Source: The Nation August 8, 2008 By Staff Reporter)
- Title: What prompted SBP to fix minimum return on bank deposit? (Source: IN FOCUS June, 2008 By M. Idrees Khawaja)
- Title: Commercial banks directed to enhance paid up capital from Rs 2b to Rs 8b in 2008 (Source: SUNDAY TIMES Sunday, July 01, 2007 By Mushfiq Ahmad)
- Title: Competition compels local banks to meet global standards (Source: THE NEWS INTERNATIONAL 2/21/2008)
- Title: The Banks’ New Clothes By Shujauddin Qureshi
- Title: NPLs emerge as threat to banking sector (Source: The DAWN September 07, 2008 By Khwaja Iqbal)
- Title: Inflation made worse by Pakistan People’s Party government (Source: Pakistan Daily Tuesday, 29 July)
- Title: BankMuscat about to enter Pakistan through acquisition of 35% stake in Saudi Pak Commercial Bank (Source: AME INFO Wednesday, January 23 – 2008)