Strategic Management Final Report Bank Al Habib

Bank Al Habib Limited 1

Executive Summary

This report has focused on the Management Style and working of the Bank Al Habib Limited. Aspects like corporate philosophy, organizational structure, training and development and role of technologies in company’s activities have been highlighted.

From management point Bank Al Habib is an organization following centralized planning and controlling. Planning is the responsibilities of the senior management group more particularly the board of directors, and to check any deviation from the prescribed plan, there is head office under them.

Organizational structure has been established in such a way, which has enabled it to decentralize its operations and day-to-day management activities. Delegation of authority and establishment of zones, regions, and branches have helped to manage day-to-day activities. To effectively maintain and develop its human resources Bank Al Habib invest considerable time and finance to polish the skills of its employees.

Hamdard Institute of Management Sciences


Company Overview

DAWOOD HABIB GROUP, which is the sponsor of Bank AL Habib Limited, has a very long track record of banking which dates back to 1920s. They were among the founder members of Habib Bank Limited , which played a major role in meeting the financial, and banking needs of Pakistan, and which was nationalized along with other Banks in Pakistan on December 31, 1973.

Under the privatization policy of Government of Pakistan, the DAWOOD HABIB GROUP was granted permission to set up a commercial bank. Bank AL Habib was incorporated as a Public Limited Company in October 1991 and started banking operations in 1992.

Board of Directors

The Board of Directors of the Bank comprises of the following:

Name Designation Occupation

Ali Raza D. Habib Chairman Businessman

Abbas D. Habib CEO & MD Banker

Anwar Haji Karim Director Industrialist

Faiz N. Abdul Ali Director Businessman

Hasnain A. Habib Director Industrialist

Imtiaz Aalam Hanfi Director

Murtaza H. Habib Director Industrialist

Qumail R. Habib Executive Director Banker

Syed Mazhar Abbas Director Banker

Tariq Iqbal Khan Director

Mahmood S. Allarakhia Company Secretary Banker

Credit Rating

The Bank has been rated as "AA" for long-term rating and "A1+" for short-term rating by the Pakistan Credit Rating Agency (Private) Limited (PACRA).

Consumer Banking

Bank AL Habib Limited offer Consumer Loan facilities to its eligible customers. These facilities are tailored to suit customer requirements with competitive rates and an easy means of payment. We have the solution whether it may be for personal needs, a brand new car or a house (building/renovating a house).

Following are the consumer banking products of Bank Al Habib.

Personal Loan. Auto Loan. Home Loan.



Services

Bank AL Habib Limited offers a wide range of services to the customers and recognizes the importance for efficient business delivery and providing timely solutions to them.

Following are the services provided by Bank Al Habib to its customers:

Online Banking. Safe Deposit Lockers. ATM Card. Debit Card. Tele Banking. Remittances. Cash Management.

The bank also maintains correspondent relations with leading international banks.

These include American Express Bank, USA; Banco Di Roma, Italy; Commerzbank and Dresdner Bank, Germany; Midland Bank, PLC U.K.; The Royal Bank of Canada, Canada; Hong Kong and Shanghai Banking Corporation Ltd., Hong Kong.



Vision and Mission Statement

Vision Statement

“To be a quality financial service provider maintaining the highest standards in banking practices.”

Mission Statement

“To be a strong and stable financial institution offering innovative products and services while contributing towards the National economic and social development.”

Evaluation of Mission Statement

Customers. No.Product/Services. Yes.Markets. No.Technology. No.Concern for Survival, Growth, and Profitability Yes.Philosophy. Yes.Self Concept. Yes.Concern for Public Image. No.Concern for Employee. No.



Strengths and Weaknesses

Strengths

1. Strong brand recognition in the domestic market and niche foreign markets.2. Bank Al Habib provides a complete range of banking products and services including

retail banking, corporate banking, trade finance, consumer finance, debit cards, online banking, tele banking, etc.

3. Focused business strategy supported by appropriate organization structure, operating procedures, and qualified human resource.

4. Strong distribution capability through the 104 branches all over Pakistan.

Weaknesses

1. No massive advertising. 2. Up gradation of technology in all branches not yet complete.3. The potential of overseas branches is not being fully exploited.4. Shortage of trained and specialized staff at lower and officer levels for consumer and

retail banking.5. Communication among the functional areas are some how lacking.



Internal Factor Evaluation (EFU) Matrix

S. No. Key External Factors Weight Rating

Weighted Score

Strengths

1 Strong brand recognition in the domestic market and niche foreign markets.

0.15 4 0.60

2 Bank Al Habib provides a complete range of banking products and services including retail banking, corporate banking, trade finance, consumer finance, debit cards, online banking, tele banking, etc.

0.15 4 0.60

3 Focused business strategy supported by appropriate organization structure, operating procedures, and qualified human resource.

0.10 4 0.40

4 Strong distribution capability through the 104 branches all over Pakistan.

0.10 3 0.30

Weaknesses

1 No massive advertising. 0.15 4 0.602 Up gradation of technology in all branches not yet

complete.0.10 3 0.30

3 The potential of overseas branches is not being fully exploited.

0.10 3 0.30

4 Shortage of trained and specialized staff at lower and officer levels for consumer and retail banking.

0.10 3 0.30

5 Communication among the functional areas are some how lacking.

0.05 3 0.15

Total 1.00 3.55

The total weighted score of 3.55 shows that Bank Al Habib is above average in its efforts to pursue strategies that enhance internal strengths and minimize weaknesses.



Opportunities and Threats

Opportunities

1. Develop value added services combined with corporate banking relationships, cash management services to large and medium sized corporate clients.

2. Large international network, which principally focuses on trade finance with Pakistan, can be utilized to tap trade activities in other markets.

3. Reduction in intermediation costs from 5% to 10% is possible, with improving technology.

4. Profit may increase by 10% to 15% through e-banking operations.5. A wide product portfolio, along with increasing greater hedging of business risks also

significantly increases cross selling opportunities.

Threats

1. Intense competition among the various banks.2. Economic instability such as changing level of disposable income, rates of inflation,

fiscal policy, unemployment etc.3. Political changes affects banking sector seriously. Banks have the funds available for

lending, however, government may restrict up to certain amount for lending.4. Qualified personnel are moving abroad for better living.5. Although hardware prices continue to decline, the cost of service and support of

technology increases exponentially.6. Technology is constantly changing - hard to keep up with limited staff.



External Factor Evaluation (EFU) Matrix

S. No. Key External Factors Weight

Rating Weighted Score

Opportunities

1 Develop value added services combined with corporate banking relationships, cash management services to large and medium sized corporate clients.

0.15 4 0.60

2 Large international network, which principally focuses on trade finance with Pakistan, can be utilized to tap trade activities in other markets.

0.15 4 0.60

3 Reduction in intermediation costs from 5% to 10% is possible, with improving technology.

0.05 3 0.15

4 Profit may increase by 10% to 15% through e-banking operations.

0.10 3 0.30

5 A wide product portfolio, along with increasing greater hedging of business risks also significantly increases cross selling opportunities.

0.10 3 0.30

Threats

1 Intense competition among the various banks. 0.10 4 0.402 Economic instability such as changing level of

disposable income, rates of inflation, fiscal policy, unemployment etc.

0.10 3 0.30

3 Political changes affects banking sector seriously. Banks have the funds available for lending, however, government may restrict up to certain amount for lending.

0.10 3 0.30

4 Qualified personnel are moving abroad for better living.

0.05 2 0.10

5 Although hardware prices continue to decline, the cost of service and support of technology increases exponentially.

0.05 3 0.15

6 Technology is constantly changing - hard to keep up with limited staff.

0.05 1 0.05

Total 1.00 3.25

The total weighted score of 3.25 shows that Bank Al Habib is above average in its efforts to pursue strategies that capitalize on external opportunities and avoid threats.



Competitive Profile Matrix (CPM)

Bank Al Habib Bank Al Falah Saudi Pak Bank

Critical Success Factors

Weight Rating Score Rating Score Rating Score

Advertising 0.10 2 0.20 4 0.40 3 0.30

Service Quality 0.10 3 0.30 4 0.40 2 0.20

Price Competitiveness

0.10 3 0.30 3 0.30 3 0.30

Management 0.10 4 0.40 3 0.30 3 0.30

Financial Position 0.15 3 0.45 4 0.60 2 0.30

Customer Loyalty 0.10 3 0.30 3 0.30 2 0.20

Technological Advantage

0.10 3 0.30 4 0.40 3 0.30

Global Expansion 0.10 2 0.20 2 0.20 2 0.20

Market Share 0.15 2 0.30 3 0.45 2 0.30

Total 1.00 2.75 3.35 2.30

As indicated by the total weighted score of 2.75, Bank Al Habib is stronger than Saudi Pak Bank having score of 2.30 but weaker than Bank Al Falah having score of 3.35.



Threats Opportunities Weaknesses Strengths (TOWS) Matrix

Strengths-S

1. Strong brand recognition.2. Complete range of

banking products and services.

3. Focused business strategy supported by appropriate organization structure, operating procedures, and qualified human resource.

4. Strong distribution capability.

Weaknesses-W

1. No massive advertising.2. Up gradation of

technology in all branches not yet complete.

3. The potential of overseas branches is not being fully exploited.

4. Shortage of trained and specialized staff.

5. Communication among the functional areas are some how lacking.

Opportunities-O

1. Develop value added services.

2. Large international network.

3. Reduction in intermediation costs.

4. E-banking operations.5. A wide product

portfolio, along with increasing greater hedging of business risks also significantly increases cross selling opportunities.

SO Strategies

1. Offer new products and services in retail and consumer banking to increase market share.

2. Increase local distribution capability to exploit in growth banking sector.

WO Strategies

1. Increase branch network to increase market share.

2. Development of Human Resource for online and E-Banking operations.

Threats-T

1. Intense industry competition.

2. Economic instability.3. Political changes.4. Brain drain.5. Cost of service and

support of technology increases exponentially.

6. Technology is constantly changing.

ST Strategies

1. Offer low markup facilities for corporate and retail customers.

2. Constantly monitor and upgrade technologies to get competitive advantage.

WT Strategies

1. Advertise new products and services.

2. Branch network should be upgraded with latest technology.



Strategic Position and Action Evaluation (SPACE) Matrix

Financial Strength (FS)

Return on investments (ROIs) For Year 2005

1. Return on Assets (ROA)

Return on Total Assets (ROA) = Net Income / Total Assets

Rs. In ‘000 Net Income 1,483,165Total Asset 91,501,541

ROA = 1,483,165 / 91,501,541 ROA = 0.016

2. Return on total Stockholder’s Equity

Return on Stockholder’s Equity (ROE) = Net Income / Total Stockholder’s Equity

Rs. in ‘000 Net Income 1,483,165Total Stockholder’s Equity 4,745,795

ROE= 1,483,165 / 4,745,795 ROE = 0.313

Return on investments (ROIs) = 0.016 + 0.313 = 0.329

Operating profit Margin For Year 2005

Operating profit Margin = EBIT / Sales

Rs. in ‘000

Earning before interest and taxes 2,022,008Sales 5,971,690

Operating profit Margin = 2,022,008 / 5,971,690 = 0.34



Working Capital

Working Capital = Current Assets – Current Liabilities= 8,671,552,000 – 7,740,516,000

= 938,776,516

ROIs 0.329 5Operating profit Margin 0.34 4Working Capital 938,776,516 4Cash Flow (in ‘000) 8,671,552 5Net Income (in ‘000) 1,483,165 5Revenue (in ‘000) 5,971,690 5Total 28

Competitive Advantage (CA)

Market Share -2Product and service quality -2Customer loyalty -2Technological know how -3Total -9

Environmental Stability (ES)

Technological Change -3Rate of Inflation -4Demand Variability -3Price change of competing products

-3

Competitive pressure -3Total -16

Industry Strength (IS)

Growth potential 5Profit Potential 5Financial Stability 5Resource utilization 4Total 19



Computation

ES Average = -16/5 = -3.20

IS Average = 19/4 = 4.75

CA Average = -9/4 = -2.25

FS Average = 28/6 = 4.67

Directioal Vector Coordinates

x-axis (CA + IS) = -2.25 + 4.75 = 2.50

y-axis (ES + FS) = -3.20 + 4.67 = 1.47


FS

ES

ISCA

-6 -1 1 6

-6

6

(2.50, 1.47)


Boston Consulting Group (BCG) Matrix

(Rs In ‘000)

Divisions RevenuesPercent Revenu

eProfits/Loss Percent

Profits/Loss

Percent

Market Share

Percent

Growth Rate

1 Mark-up/Return/Interest Earned

4,935,626 82.65 2,716,786 134.36 80 +15

2 Fee, Commission and Brokerage Income.

508,744 8.51 (341136) (18.03) 70 +08

3 Dividend Income

38,820 0.65 (1436.34) (0.08) 60 +05

4 Income from dealing in foreign currencies.

300,795 5.04 (201485.62) (10.00) 65 -10

5 Other Income.

187,705 3.15 (126449.6) (6.25) 40 +13

Total 5,971,690 100 2,022,008 100



Relative Market Share Position


High Medium low 1.0 0.50 0.0

Ind

ustr

y S

ale

s G

row

th R

ate

(%

)

High +20

Medium 0

Low -20

1) 134.36%

2) (18.03%)

3) (0.08%)

4) (10.00%)

5) (6.25%)


Internal External (IE) Matrix

(Rs In ‘000)

Divisions RevenuesPercent Revenu

eProfits/Loss

PercentProfits/Loss

IFE Score

EFE Score

1 Mark-up/Return/Interest Earned

4,935,626 82.65 2,716,786 134.36 3.70 3.60

2 Fee, Commission and Brokerage Income.

508,744 8.51 (341136) (18.03) 3.20 3.30

3 Dividend Income

38,820 0.65 (1436.34) (0.08) 2.65 3.10

4 Income from dealing in foreign currencies.

300,795 5.04 (201485.62) (10.00) 3.10 1.85

5 Other Income.

187,705 3.15 (126449.6) (6.25) 2.50 2.25

Total 5,971,690 100 2,022,008 100


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

4.0 3.0 2.0 1.0

High3.0 to

4.0

Medium2.0 to 2.99

Low1.0 to 1.99

4.0

3.0

2.0

1.0

T

he E

FE T

ota

l w

eig

hte

d S

core

s

1) 134.36%

2) (18.03%)

3) (0.08%)

4) (10.00%)

5) (6.25%)


The IFE Total weighted Scores


WEAK COMPETITIVE POSITION


Grand Strategy Matrix

RAPID MARKET GROWTH

SLOW MARKET GROWTH


Alternative Strategies:

1. Market Penetration2. Market Development3. Product development4. Concentric Diversification5. Horizontal Diversification

STRONGCOMPETITIVEPOSITION


The Quantitative Strategic Planning Matrix (QSPM)

S. No CRITICAL SUCCESS FACTORS MARKET DEVELOPMENTPRODUCT

DEVELOPMENTWEIGHT AS TAS AS TAS

OPPORTUNITIES

1 Develop value added services. 0.15 4 0.60 4 0.602 Large international network. 0.10 3 0.30 3 0.303 Reduction in intermediation costs. 0.05 2 0.10 3 0.154 E-banking operations. 0.10 4 0.40 4 0.405 A wide product portfolio, along

with increasing greater hedging of business risks also significantly increases cross selling opportunities.

0.10 3 0.30 4 0.40

THREATS

1 Intense industry competition. 0.15 4 0.60 4 0.602 Economic instability. 0.10 2 0.20 1 0.103 Political changes. 0.05 1 0.05 1 0.054 Brain drain. 0.10 2 0.20 2 0.20

5Cost of service and support of technology increases exponentially.

0.05 3 0.15 2 0.10

6 Technology is constantly changing. 0.05 2 0.10 3 0.15

STRENGTH

1 Strong brand recognition. 0.05 3 0.15 3 0.15

2 Complete range of banking products and services.

0.15 4 0.60 4 0.60

3

Focused business strategy supported by appropriate organization structure, operating procedures, and qualified human resource.

0.15 3 0.45 4 0.60

4 Strong distribution capability. 0.10 3 0.30 3 0.30

WEAKNESSES

1 No massive advertising. 0.15 4 0.60 4 0.60

2 Up gradation of technology in all branches not yet complete.

0.10 3 0.30 3 0.30

3 The potential of overseas branches is not being fully exploited.

0.15 3 0.45 2 0.30

4 Shortage of trained and specialized staff.

0.10 2 0.20 3 0.30

5Communication among the functional areas are some how lacking.

0.05 2 0.10 3 0.15

Sum Total Attractiveness Score

6.15 6.35

Conclusion



After conducting the comparative study of Bank Al Habib Limited, we concluded that keeping the two strategies of expand the branch network and developing new and innovative products is important for the company on one hand it increases its presence in the market and on the other increase its customer base. For this purpose it is important to understand the organization structure and try to modify according to the requirement.

Economic condition during the year 2005-2006 continued to be influenced by national socio- political developments as well as the state of uncertainty in the peace process particularly in last quarter of the year. Keeping the view customers needs, company launched a number of new products. After brief discussion with company representatives, analyzing the matrixes and considering opinion of group members Bank Al Habib grew in most of its businesses. Bank Al Habib growth philosophy should also concentrate on these key areas i.e. organic growth through branch expansions, launching new products and services for existing as well as for new customers. It is now functional in almost every major cities of the country and their vision is similar as they are acting means they working.


Strategic Management Final Report Bank Al Habib

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