Group Assignment

Group Members : Naveen Frnando Kasun Nanayakara

Arinda Jayawardena

Lecture Name : Mario Fonseka Course No : MGT Term : Summer 2008

Nations Trust Bank

Nations Trust Bank Ltd. is a Sri Lankan based company, which provides a range of financial services encompassing personal, commercial, investment and private banking, trade services, leasing, factoring, treasury and capital market services. Its segments comprise Banking, Investment Banking and Others.

History

Nations Trust commenced business after acquiring Overseas Trust Bank Ltd., Colombo Branch,

in July 1999. The high point of our entry was the significant over-subscription of the Initial

Public Offering (IPO). Expansion of their branch network to 31 branches and the strategic

acquisition of the following portfolios have ensured the rapid expansion of client base.

1. Acquisition of Waldock Mackenzie Ltd.

2. Acquisition of Kandy branch of the Standard Chartered Bank.

3. Acquisition of the Personal Banking portfolio of Deutsche Bank.

4. Acquisition of the Commercial Banking Business and Foreign Exchange Business of

American Express Bank in Colombo.

5. Merger with Mercantile Leasing Company in January 2006.

The ability to offer customers a whole gamut of products ranging from tailor made Treasury

products, to Retail products, from Leasing to American Express Cards has ensured the rapid

growth of the Bank while maintaining a stable position in the market boasting of one of the

lowest NPL figures among Banks and Financial Institutions in Sri Lanka.

More about Nations Trust Bank

Nations Trust Bank PLC is one of the fastest growing banks in Sri Lanka today. Its’ market

positioning of “One Bank Many Solutions” is now being supported by a host of financial

services products and services that cater to the needs of the individual, corporate or institutional

clients. The Bank has 34 branches, 11 leasing centers, 42 ATMs as well as Internet Banking.

The bank's wide branch network of 34 branches is spread throughout the country. With twelve

branches situated within Colombo city, the other branches are situated in Kandy, Wellawatte,

Negombo, Mahabage, Battaramulla, Kurunegala, Maharagama, Moratuwa, Kiribathgoda,

Panadura, Gampaha, Wattala, Mount Lavinia, Nugegoda, Kohuwala, Kotahena, Kadawatha,

Dehiwala Galle, Matara, Nawala, and Peradeniya. The bank also has an offsite ATM network

which consists of ATM's mainly in IOC Filling Stations within the Colombo city and suburbs.

Through this offsite ATM network the bank has tried to provide easier access to ATM machines

to customers.

Mercantile Leasing Limited a name synonymous with leasing in this country has merged with

Nations Trust Bank one of the more enterprising and fastest growing banks in the country with

effect from 01st January 2006. The resultant merger brings with it enormous benefits to the

clients and other stakeholders of both institutions. The business of leasing would operate under

the new brand of “Nations Leasing” which will bring out the combined resources and synergies

of the two organizations.

Nations Trust Bank who pioneered 365 days commercial banking in Sri Lanka has grown quite

significantly since its incorporation in 1999, with a current branch network of 34, an ATM

network of 42 and Total Assets of the Bank in excess of LKR. 25 billion. They are also the sole

issuers and acquirers of the American Express cards in Sri Lanka. With the merger, the Bank will

own a very viable lease portfolio and have the services of a group of professionals with

considerable industry experience, while bringing in the financial expertise and the funding

resources, which will facilitate faster growth and greater profitability.

The two main shareholders of the Bank will continue to be John Keells Group, Sri Lanka’s

premier blue chip conglomerate with 20% and Central Finance, one of the leading financial

institutions in the country, holding 10%.

Top Ten Shareholders of NTB

The future augers well for the combined entity in terms of financial strength and the ability to

cater to different financial needs of the customer. “Nations Trust” is bound to be a force to

reckon with, in the future

As one of the leading young private banks in the country, Nations Trust Bank PLC has indeed

had a successful journey since its inception in July 1999, emerging a strong player in the Sri

Lankan Banking Industry within a relatively short period of time.

Their value proposition of 'One Bank, Many Solutions' has seen the Bank becoming synonymous

with innovative customer-led financial solutions, exceptional service and dynamism as a

corporate entity.

Their commitment and vision to deliver world class financial services supported by exceptional

customer service have remained steadfast and has resulted in exceptional performance and

results. they are poised to grow even faster in the next few years and will continue to re-invent

Company Secretary

Board Supervisory Committee

Board of Directors Board Audit

Review Committee

CEO/Director

Credit Risk

Management

RetailBanking

CorporateBanking

Treasury/Inves .

Banking

Marketing &

Communication

American Excess

Franchises

Credit Risk

Management

HR Managem

ent

Finance & Corporate Planning

Operation Information Technology

Legal & Secretarial

their selves to serve customers the way they want to be served. Bank may still not be the biggest,

but it will be the best.

They trust that their website as well as their online banking services will be of assistance and

great convenience to customers.

Organization Structure

~ Vision ~

 To be the premium retail focused Sri Lankan Bank, committed to superlative quality in all our dealings

 

~ Mission ~

Guided by a conservative risk-taking regime, we will endeavor to achieve a 20% return on equity and a cost income ratio of 55% by the year 2008. Persistently and consistently be innovative in strategy whilst benchmarking excellent customer Service standards to reach the pinnacle in our industry. Creating a positive working environment and an open culture supportive of professionalism and fair play, we will strategically develop our people to be the best in the industry.

 ~ Values ~

Committed to change that will give us a strategic advantage

Inspirational leadership

Superior customer service

Extreme focus on targets

Integrity in all our dealings

Premium market perception

Benchmarking to international standards

Bold to be innovative

Conservative risk taking

Learning focused

Product Base

The Nations Trust Bank mainly offers products based on four categories, namely

- Deposits

- Loans,

- Leasing

- Credit cards.

Deposits

Under deposits current accounts, fixed deposits, Nations saver account, Kidz, call deposit,

millionaire plus, inner circle, business plus, repurchase agreements, money market savings and

money market fixed deposits are provided. By segmenting the market by mainly age and income,

the bank has managed to cover all aspects of the market, providing deposit account facilities

from the small child (Kidz) to the adult, and the average income earner to the millionaire

(millionaire plus).

Nation Trust bank offers there saving holders additional advantages linked with their banking

services. Those are,

1. For Kidz saving account,

Higher interest rate than a standard savings account interest

Attractive gifts for the balance in the account

 Amount Balance  Gift

 1. LKR 10,000/- to LKR

24,999/- Soft toy / Auto scan Radio

 2. LKR 25,000/- to LKR

49,999/- Toy / Crosswords Game / Palm top Video game

 3. LKR 50,000/- to LKR

99,999/-

 Gift voucher from Sarasavi book Shop /  Monopoly Game, Spell

Down Game

 4. Above LKR 100,000/-  Gift voucher from Sarasavi book Shop / English study computer

   TV game set /  Kodak KB 10 Camera

Semi-annual savings targets achieved will be rewarded with gift coupons / vouchers

Insurance cover for both child and parent

Insurance Cover

Benefits for child

Critical illness cover up to a maximum of Rs 250,000/- and Hospitalization Cash benefit of up to

Rs 2,000/- per day.

Benefits for the parent 

Life cover of up to Rs 500,000/-, including total and partial disability cover.

2. Nations Trust Millionnaire plus (M+)

Millionaire Plus is the only one of its kind in Sri Lanka. It gives a guaranteed sum at the end of

the agreed period, plus life insurance cover for the pledged amount. With Millionaire Plus, a

customer can,

Have a million Rupees or more on a given date

Save for children's education, marriage or any other future requirement

Buy a car or household items

Take an overseas holiday

In case a customer finds it hard to make a monthly deposit; an automatic overdraft facility will

credit the required amount to account. In case a customer needs a quick loan the Millionaire Plus

account can be pledged as collateral.

3. For Inner Circle holders

ATM card with local & international acceptability with higher withdrawal limits issued free

of charge.

Automatic management of funds through a linked Current and Savings accounts with higher

interest rates.

overdraft facility given within 24 hours of request

Personal Loans within 24 hours

4. Nations Lifestyle Plan

It is a life insurance plan with an attractive investment element. In addition to the life cover, it

also comes with many optional benefits that you can choose from to suit your individual needs,

making it an even more flexible plan. Special features of this plan are,

You can choose a plan to suit your income

Your basic life cover increases by 10% annually but the premium you get to pay remains

unchanged during the policy period

You can choose the period of cover from 10, 15, 20, or 25 years making certain you get

more flexibility

In case of your sudden demise, this will pay double the increased sum assured to your

dependants.

Your maturity benefit will be equal to the increased sum assured

All females and non-smokers can avail themselves to a reduced premium

Nations Trust Bank is the first bank in Sri Lanka to provide 365 day banking with extended

banking hours to their customers. This has resulted in Nations Trust Bank to be considered as

one of the most customer centric financial institutions today.

It Continuously compare their banking activities with competitors and try to give attractive

interest rates along with bonus interest rates and tiered interest rates to acquire new customers

and also to increase the amount transacted with the existing customers.

Following is an example for such attractive interest rates offered by NTB to their potential

customers.

Personal savings Accounts –

LKR 5,001 to LKR 100,000/-         - 5.00% p.a

LKR 100,001 to LKR 1,000,000/-  - 6.00% p.a

Above LKR 1,000,001/-                - 7.00% p.a

When considering Inner Circle, Nations Trust Bank understands the numerous demands on

lifestyles and has developed an exclusive all in one banking package that recognizes exceptional

individuals. With Inner Circle customers are entitled to exclusive privileges and facilities and a

host of services to ensure that they can control their finances easily and efficiently. And also they

provide a preferential interest rate of +0.5% for each balance in addition to the interest rate

which appear above for Inner circle customers.

As Interest is not be paid for balances below LKR 5,000/- customers try to deposit more than

5000/= and increase there balances more and more to gather large interest. By establishing this

kind of perception on customer’s mind, Nations Trust Bank tries to increase their banking

activities.

All banks in Sri Lanka provide numerous services to their customers to retain their customers

and attract new customer or competitor’s customers. By getting use of new technologies they

provide their services customer friendly. Nation trust bank also provides Teller Cards (ATM

cards), Tele banking and Internet banking facilities to their customers for provide their services

in an attractive manner.

Every customers of any product or service try to acquire more for amount they pay. If they

receive more for what they pay for anyone will like to connect with them. Considering banking

activities it is also the same. Bankers in Sri Lanka understand this situation and try to give more

benefits to their customers to retain them or attract new customers to succeed in their business.

Loans

Home loans and personal loans are the two main types of loans offered. Home loans are provided

for all things from buying a land and constructing a new house to Renovating, completing or

extend an existing house. Personal loans on the other hand promises to make their customers

dreams come true with the catchy caption, "In just 24 hours we can make your dreams come true.

Personal Loans from Nations Trust Bank, fulfills all your life aspirations in double quick time."

Leasing

Nations Trust Bank has merged with Mercantile Leasing Limited a name nearly synonymous

with leasing in this country with effect from 01st January 2006 in order to provide enormous

benefits to the clients and other stakeholders of both institutions through "Nations Leasing”.

Nations Leasing provides leasing products suitable to the prevalent economic environment and

designed to suit customer needs. They offer a range of leasing products including the Nations

Fixed Term Lease, Nations Professional Lease for executives and professionals, Nations Hire

Purchase, and the Nations Variable Lease. With exclusive Leasing branches in Negombo,

Bandarawela and Kuliyapitiya as well as Leasing Counters within the Nations Trust Bank

branches in Kandy, Kohuwala, Kiribathgoda, Kurunegala and Panadura.

Credit Card

In addition to these products Nations Trust Bank has been the Sole Issuer of Amex Credit Cards

in Sri Lanka since 2001. Under American Express five Cards are provided to the customers to

suit their various needs. Gold, green and blue credit cards are issued for personal card users

based on their income. Travel services such as Travellers Cheques, and ATM locater services are

provided specially through American Express for travelers. Two special corporate cards, along

with a customized solution based on various sizes of companies are issued for business users.

Financial Performance

The objective here is to analyze the financial performance and the financial status of Nations

Trust Bank. An analysis of financial statements of the bank for the period 2001 to 2005 was

carried out and the observations are given below. The analysis is structured under the following

areas.

1. Profitability

2. Asset Utilization

3. Liquidity

4. Growth Rates

5. Returns

Profitability

According to the financial statements, the worst year of operation for the Bank was witnessed in

2001, In which, the Bank has recorded the lowest turnover along with a net operational profit of

Rs. 33 million.

However in the following year, the company was able to record a significant increase in turnover

(64%) but failed to turn around the company’s poor performance substantially.

A remarkable improvement was seen in the performance of the company during 2003. The

turnover increased by Rs.967 million to record at Rs. 2115 million, resulting in an operational

profit of Rs. 310 million which is the highest level recorded over the 5 years that was analyzed.

However in the latest financial years although the turnover has increased the net profit of the

Bank showed a decline compared to the year 2003. This shows that the Bank is required to be

monitored very closely as to maintain the profitability at the current levels.

Profitability is improving towards the betterment but needs more attention.

Assets Utilization

The Asset Utilization of the Bank is at high levels. There is an improvement in the asset

utilization of the Bank and it implies that the Bank uses its assets efficiently and effectively.

Liquidity and Gearing

The Liquidity position of the Bank has improved in the years and when compared to previous

years. Both the current ratio and the quick asset ratio are at satisfactory levels.

With the improvement of Equity capital, there is a significant improvement on the gearing of the

Bank.

Growth

The Growth of the net assets and the turnover are concerned, the Bank is experiencing an

irregular trend with unusual fluctuations.

Returns

Return of Investment and the investment on Equity also shows fluctuations.

Conclusion

The performance of the bank over the 5 years shows an improvement trend coupled with strong

fundamentals. It would be advisable to make an investment in a company of this nature as it has

greater potentials to grow and many other investors would not have seen such potentials in this

Bank. Therefore this can be an ideal candidate to consider as long term investment.

Ratio Calculations

2001 2002 2003 2004 2005

Profitability Ratios

Return on Average

Shareholders’ Funds (%) 3.85% 7.29% 25.34% 3.37% 8.92%

Return on Equity (%) 3.78% 7.03% 18.88% 3.36% 8.54%

Asset Utilization Ratios

Turnover 701mn 1,148mn 2,115mn 2,374mn 3,086mn

Assets 263mn 297mn 323mn 381mn 414mn

2.66mn 3.86mn 6.54mn 6.23mn 7.45mn

Liquidity Ratios

Current Assets 4,973mn 15,501mn 18,373mn 21,264mn 24,939mn

Current Liabilities 4,627mn 15,244mn 17,438mn 20,374mn 23,949mn

Current Ratio 1.07 : 1 1.02 : 1 1.05 : 1 1.04 : 1 1.04 : 1

Growth Rates

Income Growth (%) 13.35% 63.77% 84.23% 12.25% 37.63%

Strategy 

A unique characteristic of Nation’s Trust Bank (NTB) not much found in other banks is that

always they are on the lookout for various strategic opportunities rising in the market place.

Proving this true in the year 2007 the bank took part in an Asset and Liability Management

(ALM) competition organized by The Netherlands Development Finance Company (FMO).

 

The objective of the competition was to offer the participants a chance to increase their ALM

skills and to create opportunities for exchanging experience, ideas and networking among

banking personnel internationally. During the competition the participants ran their own "virtual"

bank in a simulated and changing online business environment and the teams decided their own

strategy and took decisions with regard to asset management, liability management, investment

decisions, funding, and marketing. After intense final-round competition, NTB was announced

the winner among 5 final-round participants.

 

However the bank has much space for its development in the area of Risk Management since it

could not outperform the other participants in this area. This is to be given serious attention in

the future.

 

The bank continues to invest in expansion policies to reach customers effectively in a lesser time.

NTB is on the thinking that it must be as close to customers as possible to get a sustainable edge.

With this in mind it opened several off-site ATM’s at crucial customer locations/points including

Asiri Surgical Hospital Ltd, Asiri Hospital Ltd Complex, JKH Ltd and several IOC Filling

Stations. In years to come the bank wants to dedicate more of its investment funds to this area.

 

The bank has a comprehensive financial strategy for effectively combating their rivals and as a

part of it the bank carries out a competitor analysis periodically. Within the banking sector NTB

has executed a moderate policy as far as the 1 month, 3 months and 6 months savings FD rates

are concerned. However it has offered the highest rates for 1 year and 5 years FD savings

compared to other banks. But still the entire finance sector taken as a whole, the finance

companies offer the highest prevailing rates for all periods.

 

NTB has a comprehensive HR strategy covering many areas such as policies on promotion,

complains handling, training, loans for MBAs, foreign travel, staff loans, recruitment, overtime,

leave entitlement, induction, educational assistance in detail. These policies are laid down in the

procedures manual on which the employees are educated during the induction.

 

The marketing strategy of NTB has been successful over the years in attracting customers to its well balanced product portfolio consisting of several products such as the FX Trading Product, Nations Life, Money Market Savings, Money Market FD, Empower Salary Planner, Home Loans, Nations Leasing, Savings Accounts, Current Accounts, Fixed Deposits, Call Deposits, KIDZ, REPOs, Inner Circle, Millionaire Plus (M+), Personal Loans and Pre Opened Accounts. The customer base has grown significantly as a result of this

SWOT Analysis

SWOT Analysis, is a strategic planning tool used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective.

Strengths

* Technology From its inception, NTB has adopted a policy of selecting internationally proven and specialized Packaged Systems for its technology.

* Preference given for young blood* Centralized operation system* Career progression* Aggressive Marketing NTB is known for its aggressive marketing of its products

* 365 days banking

* Extended working hours. (Open till 6pm)* Sole Acquirer & issuer of American Express Credit Cards* John Keells Group synergy* Diversified Portfolio

Weaknesses

* Transaction CostNTB charges high cost for its transactions. Through our data analysis we have find out that most of the small companies prefer nationalized banks only because of this cost factor. Also the group has found out that there are companies which are going for multi bank system eg. they are using only those facilities of NTB which are provided at cheaper rates (Salary Account) and for other services they are going to nationalize banks and MNCs (Forex). So there exists a huge potential for NTB if they are ready to make their transaction cost flexible.

* Focus only high end customersThe bank targets only the top bracket of clients and does not cater to the needs of small customers. Due to this reason the bank may sometimes loose good clients.

* Defensive approach in lendingBank has a defensive approach in lending. Mainly to small companies

Opportunities

* Customer segmentation (Individuals/IC/PB)* Dissatisfied Customers of Other BanksThe group from its survey and analysis of IT companies have found out that there are many companies which are not satisfied with its current bank, so ICICI with its superior service quality and long working hours can capture those customers.

* Innovative thinking & product development* Expansion of branch network.

Threats

* Advent of MNC & Local banksLarge numbers of foreign & local banks in the Sri Lankan market, this can increase the level of competition and prove a potential threat for the market share of

* Low level of interest rates offered for TDs* Staff joining competitors.

Strategic objectives generation

“Without a strategy the organization is like a ship without a rudder, going around in circles “ Joel Ross and Michal Cami

Strategy is defined as a commitment to undertake one set of actions rather than another. According to porter strategy should be viewed in line with industrial competitive situation and formulation of a strategy should based on the competitive advantage where it could be sustainable. Further company should identify the core competencies and strengths the company possesses and based on that, position itself in the external environment in such a way that it could achieve its sole objective.In any case irrespective of the definition used by different scholars, strategy formulation is imperative in strategic management and spells out what actions the company should take in order to accomplish its objectives.

With regard to Nations Trust Bank it’s, vision is to make life simple by being the Benchmark of Convenience

The mission of Nations trust bank could be summarized as followsBe innovative in continuously developing customer centric solutions Unleash the talent of our team to be the best in the industry Consistently grow market share and be the most profitable and respected Sri Lankan Bank by 2015

The objectives are……………..( Navins statment)

Our objectives clearly spells out that NTB intends to become the pioneer in the banking arena while being the most cutomer friendly bank. .Further, the bank focusses to position it self as a provider of total financial solutions to the optimum satisfaction, to it’s customers Applying Porter’s Generic Strategies to Nations Trust BankWith regard to Porter’s advocation on competitive adavntage, either it should be a cost leader or a differentiator, As an Institute which provides financial solutions to customers the easiest way it could develop startegy is throug differntiation

Porter’s model is developed based on the following

1. Compettive Scope

This involves identifying the nature of the market based on the size. When a firm decides to operate considering a broader market then there will be a higher competitive scope .

A broader competitive scope means company’s target market is broad. For example Commercial bank & Hatton National bank could be considered as banks which cater to a broader market, in terms of providing financial solutions to the people.

However if a firm decides to operate in a narrow market (niche market) it’s strategy adaptation is completely different to a broad market strategy adaptation .Therefore appropriate strategy should be used The segmentation could be based on several basis. In the case of NTB the following segmentation could be seen

Target Scope Advantage

Low Cost Product Uniqueness

Cost Leadership Strategy

Differentiation Strategy

Focus Strategy(Low Cost)

Focus Strategy(Differentiation)

Broad( Industry Wide )

Narrow(Market Segment)

1.Product

11.Geographical Area

Since NTB’s Operations are limited to 31 branches and 8 leasing centers, it could be considered as a niche marketing practitioner based on geographical segmentation ,where most of the operations are concentrated in Colombo and suburbs. So its clearly evident that the NTB has a huge untapped market in other areas like Anuradapura, Polonnaruwawhere micro finance and related loan facilities are growing

2.Competitive Advantage

This is where Porter elaborates, the ways in which company could gain competitive advantage. .Mainly there are 2 ways

1.Low Cost

11.Diffrentiation

Lower Cost :

Achieving the “ Lowest delivered cost to customer” A firm can be the cost leader by applying economies of scale in developing a standard product.This is not a very suitable strategy for a company like NTB which is in the service sector as the strategy can only be directly applied to a manufacturing company where standard products are manufactured .Despite its inappropriateness the company could use Cost benefit analysis and value chain analysis to identify ,whether each cost of the activity reaps the intended value and eliminate non value adding activities.

Differentiation

This involves creating a difference in the market place,. based on a unique competence that should be built in order to be successful and also considered as premium perceived in the eyes of the customerNTB could position itself as either a broad differentiator or a focused differentiator depending on the way market is segmented. This ambiguity is one of the main draw backs of the Porter’s generic strategies.

Based on product wise segmentation following products can be considered as unique products offered by NTB as opposed to its competitors, where company could gain competitive adavntage. In Porter’s words the following are the sustainable competitive advantages where a company could capitalize on ,as far as the focused differentiation is concerned..

1. Nations Trust Millionnaire plus (M+)

Millionaire Plus is the only one of its kind in Sri Lanka. It gives a guaranteed sum at the end of the agreed period, plus life insurance cover for the pledged amount. With Millionaire Plus, a customer can, Have a million Rupees or more on a given date Save for children's education, marriage or any other future requirement Buy a car or household items Take an overseas holidayIn case a customer finds it hard to make a monthly deposit; an automatic overdraft facility will credit the required amount to the account. In case a customer needs a quick loan the Millionaire Plus account can be pledged as collateral.

2. Inner Circle.

This is a unique product developed by the company by revolutionizing the entire banking industry. The following benefits could be seen for inner circle customers

ATM card with local & international acceptability with higher withdrawal limits issued free of charge. Automatic management of funds through a linked Current and Savings accounts with higher interest rates. Overdraft facility given within 24 hours of requestPersonal Loans within 24 hours Red carpet banking –This is where the bank would come to customer’s place and perform banking activities. Functions such as depositing ,withdrawing etc can be done through door step banking.When considering Inner Circle, Nations Trust Bank understands the numerous demands on lifestyles and has developed an exclusive all in one banking package that recognizes exceptional individuals. With Inner Circle customers are entitled to exclusive privileges and facilities and a host of services to ensure that they can control their finances easily and efficiently. And also they provide a preferential interest rate of +0.5% for each balance in addition to the interest rate which appear above for Inner circle customers.As Interest is not paid for balances below LKR 5,000/- customers try to deposit more than 5000/= and increase their balances more and more to gather large interest. By establishing this kind of perception on customer’s mind, Nations Trust Bank tries to increase their banking activities.

3. Nations Lifestyle Plan

It is a life insurance plan with an attractive investment element. In addition to the life cover, it also comes with many optional benefits that you can choose from to suit your individual needs, making it an even more flexible plan. Special features of this plan are,You can choose a plan to suit your incomeYour basic life cover increases by 10% annually but the premium you get to pay remains unchanged during the policy periodYou can choose the period of cover from 10, 15, 20, or 25 years making certain you get more flexibility

In case of your sudden demise, this will pay double the increased sum assured to your dependants.Your maturity benefit will be equal to the increased sum assuredAll females and non-smokers can avail themselves to a reduced premium

Nations Trust Bank is the first bank in Sri Lanka to provide 365 day banking with extended banking hours to their customers. This has resulted in Nations Trust Bank to be considered as one of the most Customer Centric Financial Institutions today.It continuously compares it’s banking activities with competitors and try to give attractive interest rates along with bonus interest rates and tiered interest rates to acquire new customers and also to increase the amount transacted with the existing customers.

All banks in Sri Lanka provide numerous services to their customers to retain their customers and attract new customer or competitor’s customers. By getting use of new technologies they provide their services customer friendly. Nation trust bank also provides Teller Cards (ATM cards), Tele banking and Internet banking facilities to their customers for providing their services in an attractive manner.All customers of any product or service try to acquire more for the amount they pay. If they receive more from a place for what they pay they will definitely like to connect with them. Considering banking activities, the same thing applies.. Bankers in Sri Lanka understand this situation and try to give more benefits to their customers to retain them or attract new customers to succeed in their business.

The above mentioned products are very unique products offered by NTB, Its therefore ts very crucial to capitalize on that products by popularizing among the public at large rather than concentrating only on cities and suburbs.

Following products can be categorized under Broad differentiators ,in terms of products since competitors too have similar products

LOANS

Home loans and personal loans are the two main types of loans offered. Home loans are provided for all things from buying a land and constructing a new house to Renovating, completing or extend an existing house. Personal loans on the other hand promises to make their customers dreams come true with the catchy caption, Differentiation is done through positioning. The "In just 24 hours we can make your dreams come true”. “Personal Loans from Nations Trust Bank, fulfills all your life aspirations in double quick time." etc

LEASING

Nations Trust Bank has merged with Mercantile Leasing Limited a name nearly synonymous with leasing in this country with effect from 01st January 2006 in order to provide enormous benefits to the clients and other stakeholders of both institutions through "Nations Leasing”.

Nations Leasing provides leasing products suitable to the prevalent economic environment and designed to suit customer needs. They offer a range of leasing products including the Nations Fixed Term Lease, Nations Professional Lease for executives and professionals, Nations Hire Purchase, and the Nations Variable Lease. With exclusive Leasing branches in Negombo, Bandarawela and Kuliyapitiya as well as Leasing Counters within the Nations Trust Bank branches in Kandy, Kohuwala, Kiribathgoda, Kurunegala and Panadura.

CREDIT CARD

In addition to these products Nations Trust Bank has been the Sole Issuer of Amex Credit Cards in Sri Lanka since 2001. Under American Express five Cards are provided to the customers to suit their various needs. Gold, green and blue credit cards are issued for personal card users based on their income. Travel services such as Travellers Cheques, and ATM locater services are provided specially through American Express for travellers. Two special corporate cards, along with a customized solution based on various sizes of companies are issued for business users.

Porters diamond theory

Porter developed diamond Theory based on the publications‘Competitive advantage of nations after four years Research’ Porter identified 10 different countries which contributed more than 50% to Global Trade in 1985. United States, UK, Italy, Japan, are a few of these countries

Porter emphasized that national competitive advantage is not inherited. A country should check its own advantage based on commitment, inspiration and knowledge. This would result in developing world class businesses and industries.

The National competitive Advantage should be created from the following variables

Government

Firm Strategy Structure and Rivalry

Factor Conditions Demand Conditions

Related and Supporting Industries

This model can be applied to NTB as well though it’s meant to apply to an Industry in a particular country

1.Demand Conditions

Porter indicated that the fundamental beginning for National Competitive Advantage is through demand Conditions. This is the sophisticated home Demand Condition of people based on a particular product or service.

In the case of Banking Industry there is a huge demand for Financial service. This has led NTB to create sophisticated products to cater to the existing Market. Demand for Credit and Investments both are very high. Customers are demanding and due to this NTB has to provide a quality service. Hence it’s directly linked with the Mission and Vision by becoming number 1 in the financial sector in terms of customer service. Innovation and variety of requirements encouraged NTB to develop new and sophisticated products such as money market linked FD’s and Savings and creation of the Inner Circle This demand creates a requirement for the development of the Industry and business to become world class.

2. Factor Conditions

Factor Conditions could be divided into two

Basic Factors These are tangible resources such as men money material etc. With regard to NTB tangible resources could be used.

Advance Factors These are the factors required to sustain basic factors Training and development could be seen as one ( According to Porter these are roots of a truly sustainable competitive advantage). If a Bank’s basic factor is men that is Human Resource in order to have and maintain human resource NTB should focus on training the employees and infuse fresh blood to the system

NTB could be proud of their human resource as they are young & energetic who could be proud of their achievements.

Factor disadvantage is not having any resources. If there are resources people tend to ignore and use resources inefficiently NTB shouldn’t take it’s human resources for grant but try to further improve it.

3.Firm Structure strategy and Rivalry

This emphasizes that the strategy structure and rivalry creates a national competitive advantage. Porter emphasized rivalry as a key reason for firms to develop domestically and thereby compete effectively and dominate the world.

In the case of the Banking Industry competition is very high and industry rivalry is so intense. Each tries to outperform the other. Since Sri Lankan market is limited and target customer base is less than 15 Million, Bank’s compete to provide world class service to retain existing customers and to woo new customers

Strategy, Structure and Internal Resources are as essential as developing Strategies. When it comes to Strategy implementation NTB has a flexible and a customer Oriented Organizational Structure which has enabled NTB to provide a world class service to other Organizations

4.Related and Supported Industries

Porter emphasized that national competitive advantage can be generated based on integrating different Industries by sharing knowledge and technology. In the case of NTB the integration and development supporting created industry is a must

For eg; the Newly introduced product leasing could only thrive if the related Industry such as Importation of vehicles Increase.A product such as a loan could increase if the business is developing or has a potential to develop.

Thus the development of supported and related industry is same as the development of the industry itself. The Banking Industry caters to the financial requirements of all Industries .The growth of the Banking Industry is therefore directly linked to the growth of all other Industrial sectors

Porter emphasized that to develop a national competitive advantage all four should integrate as one system.

The role played by the Government is very important Especially in countries like Sri lanka policies & controls that pertain to the financial sector is not very conducive. Government policy should be constructive & regulation should not be very stringent

Porters strategic prescription is to identify which cluster gives a competitive advantage and if these advantages are world class company should go global and compete. With regard to NTB there is much more potential domestically than a foreign soil. Company can focus on areas that are developing and earmarked for development specially in southern province Eg. Hambantota and recently liberated eastern province where massive development could take place. Since NTB has a lot of innovative products that would give an edge it would not be very difficult for penetrate the markets through existing resources.

Further following ways are also possible in order to company to expand and are some of the strategies are explained by the Lynch’s matrix

1.Internal development

This is where company tries to expand on its own by using own resources, the main drawback in this method is company can’t go very quickly and not a very aggressive strategy.

Apart from internal growth there are other way business could develop with the support of external parties following are some of those..

Merging

NTB could merge with a bank in similar size such as Pan Asia Bank. This would lead to a synergy where both the parties could pool the resources. The restructuring needs to be handle very carefully

The most vital and effective strategy is to form a strategic alliance with another company ,in this regard following strategic alliances could be imperative to accomplish the long term objectives

1.Tie up with supermarkets such as Cargils ,Arpico and Keels enabling American express card holders to purchase on and off line. Install ATMs or put up mini banks to perform necessary transactions since super markets are the places where people more often go.

2.Strike a deal with any commercial bank which has a higher number of branches and penetrated most of the parts of the island ,enabling NTB card holders to withdraw money from using its ATM. NTB has already sign an agreement with Commercial bank plc enabling NTB

cardholders to withdraw money from commercial banks ATMs.similer arrangements could be made with other bank as well3.The recent pact signed with Singer Sri Lanka enabling American express card holders to purchase of furniture ,electronic and home appliances is another way of popularizing the American express card . Further marketing strategies could also be used to penetrate the market.

4.Tie up with telecommunication providers such as Dialog, Sri Lanka Telecom and Mobitel to communicate customers about their account balances, latest financial transactions and more details. Pay more attention to promote products through M-commerce and E-Commerce since the company has only 31 branches and reach is far below the industry average

Financial Controls-Ratio Analysis

The most critical aspect of strategic control is control of a firm’s financial resources. Money is

the driving force of any organization. So organizations should utilize these resources wisely in

order to maximize their payoffs for the firm and its shareholders. Financial ratios will indicate

the organizations financial performance and the areas which needs high controls,

NTB is into banking business. So the financial ratios used here are industry specific. We divide

the ratios into five broad groups:

Profitability & Cost Management Ratios

Liquidity Management Ratios

Interest Rate Risk Management Ratios

Credit Risk Management Ratios

Capital Account Management Ratios

The above five are the critical management variables in bank financial management; any bank

which successfully manages these five critical variables will be able to achieve success in

profitability management. In this study we use these ratios to explain NTB’s current performance

and the expected performance in the forthcoming years after implementing the new strategies.

Profitability & Cost Management Ratios

Profitability Ratios

For the purpose of studying profitability the study uses the DuPont Model.

Return on Equity = Net Profit Margin × Asset Turnover × Equity Multiplier

The DuPont model expresses profitability as a percentage of total assets and total shareholders’

equity. This is very useful to evaluate how a bank is doing over time.

Net profit margin

Profit Margin is arrived at by dividing Profit after Tax by Total Income. Where total income

(also called total operating income) is net interest income plus other income. To arrive at Profit

after tax from Total Income the major items to be deducted are staff & administration expenses,

depreciation and provision for bad and doubtful provision. Profit Margin is influenced by a

bank’s cost management and credit risk management practices. A bank which is able to control

its non-interest cost and which is able to keep loan losses low will show high profit margin.

Asset Turnover

The asset turnover ratio is a measure of how effectively a company converts its assets to generate

income. It is calculated as follows:

Asset Turnover = Total Income ÷ Assets

Asset turnover is influenced by the banks interest rate risk management practices and liquidity

management practices and asset mix.

Equity Multiplier

Equity multiplier is a measure of financial risk. The equity multiplier is calculated as follows:

Equity Multiplier = Assets ÷ Shareholders’ Equity.

The bank which decides to maintain a higher equity multiplier would be able to report a higher

ROE and would be rewarding it shareholders more, while at the same time financial risk is

higher.

Cost Management Ratios

Cost management refers to issues related to management of non – interest expenses like staff

expenses and administration expenses. Good cost management helps a bank in improving its

long run profitability. If a bank manages to control its costs, it can become a low cost producer of

financial services and therefore has the ability to follow aggressive pricing strategies. Further

lower costs reduce the overhead risk and improve the bank’s ability to withstand periods of low

business turnover and periods of heavy competition.

In this two measures of cost management are used:

1. Overhead burden Ratio(OBR) (%) = (Non interest expenses-Other income) / Net Interest

Income

2.Productivity Ratio (%) = Non interest expenses/ (Net Interest Income + Other Income)

Profitability & Cost Management Ratio Analysis

Forecasted Ratios

Ratios 2006 2007 2008 2009 2010

ROE 9.888 % 21.470 % 22.1% 22.72% 23.05%

NP Margin 10.355 % 16.708 % 19.3% 23.7% 26.89%

Asset T/O 5.877 % 6.655 % 7.23 % 7.74% 8.12 %

Equity

Multiplier

16.245

times

19.309 times 18.72 times 18.16 times 17.83 times

ROA 0.608 % 1.112 % 1.24 % 1.35% 1.421%

OBR 57.33267 %

Productivity

Ratio

75.71362 %

In year 2007 NTB has showing a better financial performance when considering the economic

instability in the country. The ROE shows a high percentage. But to achieve this high return the

bank has taken a very high risk, the high equity multiplier of 19.309 times shows the financial

risks undertaken by the bank is very high and it can lead to speculative positions.

The NP margin is also very attractive. But the most worrying factor for NTB is the high

overhead burnout ratio of 57.33%, indicating that most of the non-interest expenses were taken

care by the interest income which made the bank ineffective and unable to match the aggressive

pricing strategies of the competitors. The productivity ratio is also a problem for NTB. It shows

the cost involved in producing one Rupee of income. In year 2007 NTB the banks productivity

ratio is at 75.71%, this figure indicates that to produce one rupee of income the bank spent 76

cents. This shows the bank is not very much productive and the main reason for these higher

costs comes from other operating costs. This shows the bank has the potential to increase the

profitability by focusing on cost cutting activities on the non value adding activities.

Forecasted Profitability & Cost management ratios

The capital plan is expected to infuse over Rs. 3.000 Bn. by way of equity over the next four

years. Which means it will impact ROE and the ROA more significantly. But it is expected the

NTB’s strategies to improve the net interest margin will offset this impact. So in the next 3 years

we can expect lesser changes in the ROE. And with the inclusion of this new capitol and

successful implementation of the initiatives identified in the Strategic Plan will further strengthen

the Bank's position in the industry and have a material impact on its future performance. It is

expected the Inflationary pressures, increased business volumes and costs on new strategic

initiatives will contribute towards the increases in operating expenses in the future.So it is

expected that the non interest costs will rise.

Liquidity Management Ratios

Liquidity risk management refers to the ability of a bank to strike the right balance between

avoiding the problem of “excess cash” while at the same time ensuring that the bank does not run

into a problem of “deficit cash”. The word cash here means “currency held with the banks” plus

balances with CB. The following ratios can be used to analyze the liquidity management.

1. Liquid Assets Ratio =( Total Cash Resources / Assets) * 100

(Where Total Cash Resources = Cash + Treasury Bills + Placements with Banks)

2. Loans to Deposit Ratio = Loans / Deposits * 100

2006 2007 2008 2009 2010

Liquid Assets

Ratio

32.607 % 29.864 % 28.73% 29.12% 28.87%

Loans to

Deposit Ratio

84.002 % 74.514 % 72.34 % 70.12 % 68.92%

Liquid Assets Ratio indicates what percentage of assets a bank maintains in the form of liquid

assets which are available to meet any possible shortage of cash. The ratio is based on the

concept that a bank facing cash problems can easily convert the T-Bills into cash or draw down

on amounts lent to other banks in the inter-bank market.NTB at present having a 29.864% of

liquidity ratio which is very high and shows there will be no cash problems for the year. This is

mainly because the present high interest rates, which allows the banks to earn high returns by

investing in the T-Bills which is less risky than other investments.

Loan to Deposit ratio is an indicator of the ability of the bank to convert deposits into loans.

NTB is having a 74.514%of loan to deposit ratio which is very low compared to the industry

average. This is mainly because of the bank’s policy on liquidity management where they are

maintaining high liquid assets, and also due to the high interest rates the chances of default is

very high so this shows the bank’s appetite towards risks.

Forecasted liquidity management ratios

It is expected that NTB will maintain the liquid asset ratio for the next 3 years around the high

20’s due to manage the liquidity position in the highly risky environment it operates. Loans to

deposit ratio is expected to come down due to the strategies formulated to attract customer

deposits.

Interest Rate Risk Management Ratios

Interest rate risk management refers to a managing risk posed by changing interest rates which

have a direct impact on the interest earned on loans and investments and the interest paid on

deposits. For banks operating in an environment of changing interest rates, which is the situation

in Sri Lanka over the last few years, interest rate risk management becomes a key issue. The

following ratios can be used to analyze the interest rate risk management.

1. Asset Interest Yield = Interest Revenue as % of Assets*

2. Break Even Yield = Interest Expense as % Assets*

3. Net Interest Margin = Net Interest Income as % of Assets*

* Average Assets (= average of previous year and current year figures)

2007 2008 2009 2010

Asset

Interest

Yield

15.312% 17.321 18.36% 18.941 %

Break Even

Yield

11.156 % 12.669 % 13.21 % 13.318 %

Net Interest

Margin

4.155 % 4.652% 5.15 % 5.623 %

Asset Interest Yield gives us information about the average interest earned per Rupee of assets

deployed by the bank while the Break Even Yield gives information about the average interest

expense the bank has to pay for generating funds for one Rupee of assets deployed. Net Interest

Margin shows net interest income per Rupee of assets and is arrived at by deducting Break Even

Yield from Asset Interest Yield. A bank’s ability at managing interest rates is revealed by

looking at the Net Interest Margin. As interest rates go up Asset Interest Yield as well as Break

Even Yield would also go up but not necessarily together as this depends on the maturity and

reprising profile of the assets and liabilities. In year 2007 NTB has a very high interest yield of

15.312%. However NTB bank also has a high interest expense as shown by the Break Even

Yield (11.156 %) indicating that it could not take advantage of its high interest earning yield. But

still the net interest margin of 4.15% is a very attractive compared to the industry average and the

heavy fluctuations in of the interest rates in the recent past.

Forecasted Interest Rate Risk Management Ratios

Interest rates are expected to be high due to the high inflationary pressures, asset interest yield

will be expected to increase. Despite the expected increase in deposits NTB can reduce its

interest rate expenses significantly due to the equity finance which is expected to inject in the

future. Therefore it is expected that the net interest margin will increase.

Capitol Account Management Ratios

Capital account management refers to the ability of the bank to ensure that there is enough

capital both to satisfy the regulations as well as to provide an adequate base for asset growth.

The following ratios are used for this analysis

1. Equity Multiplier = Assets as a % of Capital

* Where capital is same as Shareholders funds or equity

Also called Asset to Equity Ratio

2. Capital Adequacy Ratio = Total Capital Base as a % of Risk weighted assets

3. Capital Assets Ratio = Capital as a % of Assets

2006 2007 2008 2009 2010

Equity

Multiplier

16.245 times 19.309 times 18.72 times 18.16 times 17.83 times

Capital

Adequacy

Ratio

11.89% 11.28% 11.72 % 12.08 % 12.35%

Capitol Asset

Ratio

6.154 % 5.179 % 5.133 % 5.121 % 4.998%

Capital helps a bank to withstand the impact of bad times when a bank faces losses. To the extent

a bank is heavily capitalized its ability to withstand the pressure of bad years is much more than

a bank which is thinly capitalized. Equity multiplier indicates the extent to which the bank is

capitalized.NTB is having a very high equity multiplier this improves profitability, and also cost

of equity is high compared to cost of deposits and therefore a bank’s management would prefer

to be high on deposits and low on equity. However, a low equity implies a high gearing ratio

which is risky.

NTB’s capital adequacy ratios had been declining in 2007.This is a worrying factor . These ratios

imply that NTB have room for rapid asset growth without facing a capital constraint problem.

However NTB might face a capital constraint problem very soon and may have to restrict asset

growth unless it is able to increase capital either through external financing or retention of

profits.

The capitol asset ratio is well managed by NTB which is slightly above the international banks

average of around 5. This shows NTB uses financial leverage to their advantage which helps the

bank to improve profitability and reduce spreads

Forecasted Ratios

With the expected injection of equity capital NTB will increase the capital adequacy ratio which

is a significant constraint hindering the growth at NTB. And this will reduce the equity multiplier

as well.

Credit Risk Management Ratios

Credit risk is an important part of bank management. Credit risk is the risk that a financial

contract will not be honored according to the original set of terms or expectations. Credit risk

occurs whenever a bank lends money or invests in securities.

The following ratios can be used here

1. Total Loan Loss Provisions as % of Loans

2. Net Non-performing Advances Ratio % (Net of Interest In Suspense and Provisions)

2006 2007 2008 2009 2010

Total Loan

Loss

Provisions as

1.24 % 1.02 % 0.985 % 0.969 % 0.956 %

% of Loans

Net Non-

performing

Advances

Ratio %

1.37% 1.61% 1.54 % 1.45 % 1.38%

Total loan loss provisions as a percentage of loans and reflects the credit risk of the bank. Net

Non-performing Advances Ratio % is a similar measure of credit risk.NTB has managed to

maintain lower level of loan loss provisions % and non performing advances ratio. This shows

NTB that NTB is having a very reliable group of customers and also the internal processes in

credit management is very superior than its competitors.

Forecasted Ratios

With careful selection of loan candidates with its excellent credit management process NTB

expects to follow the similar trend in credit management ratios.

Conclusion

The performance of the bank over the 5 years shows an improvement trend coupled with strong

fundamentals. With the expected infuse of Rs.3000 billion equity capital and the successful

implementation of the initiatives identified in the Strategic Plan will further strengthen the

Bank's position in the industry and have a material impact on its future performance.

Strategic option evaluation

SAF Model

The objective of this analysis is to evaluate a particular option based on organizational framework of decision making. This will evaluate the appropriateness of a particular option against organizational strategy and objective.The following are the strategies which are considered under this analysis

Open up offsite ATM’s in crucial customer locations. Merge with a bank in similar size to expand into the untapped geographical areas Strategic alliances with super markets which are having a very good distribution channel all

around the island Merging with other mercantile organizations which are having a competitive advantage through

their product range (NTB merged with mercantile leasing Ltd) Unique product range (Nations life style plan, Millionaire+, Inner circle ) Loans within 24 hours American Express sole issuer Introducing innovative banking products through the use of advanced technology Provide the highest rate for the common products to attract the competitors customers

Jhonson and Scholes identified the following 3 strategy tests inorder to generate a rational choice1. Suitability2. Acceptability3. Feasibility

Suitability

This will critically evaluate the above options based on organizational policy of decision making. This will identify a particular option based on the mission & the objective of the organization considering appropriateness. The option should be within the philosophy & corporate strategy of the organization in order to be selected.

At the moment the expansion strategies are the most suited strategies for NTB, because this is the only area where the bank has laid back from their stated mission of “Consistently grow market share and be the most profitable and respected Sri Lankan Bank by 2015”. At present NTB operates with only 34 branches, 11 leasing centers and 42 ATMs .And most of its operations are concentrated in Colombo and suburbs. So merging with another similar size bank will help NTB to get in to the untapped geographical areas within a short period of time.

Merging with another organization to acquire the product is not an attractive option, since it is distracting NTB from their mission statement of” Being innovative in continuously developing customer centric solutions”. This will provide a negative signal to the market.

The strategic alliances with the local super markets will allow NTB to enter into the local market more efficiently through the established super markets without making a very heavy investment. But NTB will have to face heavy competition from other banks in allying with the established super markets. The influence of JKH is strength for NTB which they can use to utilize the opportunity by allying with Keells super which is owned by JKH.

NTB at present has a quite a few unique products in their portfolio. But these products are marketed only in Colombo and other suburban areas. So investing in popularizing these among the public at large will help NTB to reach the urban areas easily. And also this is important since in a highly competitive industry the competitors will also follow NTB with a similar range of products, so to ensure the 1st mover advantage NTB should make some investment in marketing these products.

Pricing strategy by providing the highest rate for the common products is not a suitable strategy since this will lead to price wars and this can turn out to be a disadvantage in the long term.

Acceptability

This will evaluate the strategic options based on the acceptability of stakeholders considering a particular business. This will identify the response of stakeholders and the ability to ensure the successful implementation of the options. The stakeholders should approve on their capacityThe above selected options based on the suitability will provide benefits for the customers, shareholders, Management, employees.

Customers will welcome these strategies because this will allow them to satisfy their banking needs more efficiently and provide flexibility based on locations. But NTB should take extra care when they introduce their products in rural areas which are not

improved technologically. So they should focus more common products at the beginning before introducing the technological products.

Shareholders will accept these strategies because these strategies have the potential to maximize the shareholder wealth in a very short period of time.

The management will like this move since these strategies will help them to achieve the objectives and also by operating throughout the country the bank will get more recognition which in turn gives recognition to the management.

These strategies will provide more career opportunities to the existing staff.Therefore they will support these strategies.

Feasibility

This will evaluate the ability of the specific options to generate the intended return based on the organizational expectation. This will indicate the expected financial return based on organizational policy.NTB currently expects to achieve a 20% return on equity and a cost income ratio of 55% by the end of year 2008. To achieve this NTB has to implement these new strategies immediately. The NTB can make use of their excess cash to invest in mergers and developing the ATM network. Strategic alliances are more effective since it doesn’t need heavy investments. So these strategies will help NTB to achieve the stated objectives and also will help them to sustain the advantage for longterm.

Monitoring & Controlling

Balance scorecard and its applications

Balanced scorecard is a tool to execute and monitor the organizational strategy by using a combination of financial and non financial measures. It is designed to translate vision and strategy into objectives and measures across four balanced perspectives: financial, customers, internal business process and learning and growth. It gives a framework ensuring that the strategy is translated into a coherent set of performance measures. Nations trust bank’s balance scorecard has four perspectives:

Financial perspective; Customer perspective; Internal process perspective; Learning and growth perspective.

In the early part of strategic planning we have developed goals and objectives for NTB which we should achieve in the next 3 years. Balance scorecard will help the management to monitor the

implementations of the strategies to achieve the above stated objectives and also to correct the possible deviations.

The following are the objectives & measurements which were developed to NTB for the next 3 years.

Customer perspective;

Goals

To be the highest rated bank in Sri Lanka for customer satisfaction Increase the market share by 12%

Measures

No. of new customers acquired No. of customer complaints Customer satisfaction rate Customer loyalty Customer retention

Internal process perspective;

Goals

To be the highest quality service provider in the banking industry in SL To improve the efficiency of the processes to satisfy the customer needs Excellence in IT solutions. Effective service

Measures

Process time and cost (efficiency) Customer opinions in service quality Opportunity Success Rate No. of New products introduced through the advanced technology 1st time resolvement %

Financial Perspective;

Goals

To earn a profit after tax of Rs.1 billion by 2010 Achieve a ROE of 25 % by 2010 To increase the deposits to Rs.40 billion by 2010

Measures

Cash flow Financial Result Return on capital employed Return on equity Learning and growth perspective.

Learning and Growth perspective

Goals

Recruit highest quality of people To maintain a low employee turnover ratio of skilled staff To cut down the Operating downtimes by 50 %

Measures

Investment Rate Employee Turnover ratio Internal Promotions % process time

The above goals and objectives will provide a framework for control to NTB. These measures should be monitored on a constant basis to identify possible deviations in advance which will help the management to correct the deviations and ensure the achievement of the objectives.

The BSC will help NTB to monitor the achievement of the objective by frequently assessing the measures.For example if NTB wants to be the highest rated bank for customer service by the next 3 years the no.of customer complaints should be kept in a very lower level.

Role of Corporate Governance in Strategic Planning

The objective of corporate governance is to ensure the maintenance of shareholder interest

within the decision making. In the recent past there have been situations where the decision

makers have violated ethical & common objective with personal interest (Agency

problem).Therefore the objective of corporate governance is to establish share holder focus. In

NTB the Board of Directors places a great emphasis on good governance and works hard to

enhance stakeholder value whilst ensuring that proper internal control systems are in place to

govern the day-to-day affairs of the Bank, in a manner which is ethical and law abiding.

Principles of fairness, transparency, Responsibility and accountability are the pillars supporting

the performance of the Bank.

The Board of Directors The Board of Directors has control of the affairs of the Bank and is also accountable to

the stakeholders.

All Directors are professional and experienced leaders of high repute, from the corporate,

finance and legal sectors

Board meets quarterly as a matter of routine. Additional meetings are held as and when

necessary.

A Board Supervisory Committee (Sub-Committee of the Board) which meets every

month has been delegated the necessary powers to attend to matters which require more

frequent attention of the Board.

Three Directors out of a total of ten are Independent Directors. Two Directors are

Executive Directors one of whom is the CEO. The remaining Directors numbering five

are Non-Executive Directors.

The Chairman and the Board establish the strategies and key policies of the Bank and set

the goals and objectives for the CEO..

CEO’s performance is assessed by the Board

Board has delegated appropriate authority to the Management to implement the strategies

adopted by the Board.

Monthly meetings are held with senior management staff to review performance against

budget and the level of achievement of both financial and non-financial targets.

The Board Audit Review Committee

The Committee which is headed by an independent Director consists of five Non-

Executive Directors majority of whom are independent.

The CEO and the Deputy CEO attend the meetings by invitation.

The Committee independently examines and evaluates the activities of the Bank.

It advises all levels of management and the Board of Directors on the Bank’s system of

internal controls and on management of risk

The Head of Internal Audit reports directly to the Chairman of the Committee, a practice

that strengthens the independence of the position.

Review financial reporting and judgment

Disclosure

Names of the board members (executive directors, non executive directors)

the Chairman and the Chief Executive Officer (CEO) are kept separate

Statement on how the board operates

Conclusion

The performance of the bank over the 5 years shows an improvement trend coupled with strong

fundamentals. With the expected infuse of Rs.3000 billion equity capital and the successful

implementation of the initiatives identified in the Strategic Plan will further strengthen the

Bank's position in the industry and have a material impact on its future performance.