STRATEGIC MANAGEMENT FINAL PROJECT strategic analysis of Bank Alfalah Limited

7/27/2019 STRATEGIC MANAGEMENT FINAL PROJECT strategic analysis of Bank Alfalah Limited

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Acknowledgment:

We would like to pay profound gratitude to all the people including our resource person Mr. Aly

Raza and Mr. Salman Bajwa, Relationship Manager-Credits Bank Alfalah without whose

support and guidance the successful compilation of this report was certainly not possible.

At this point we would also like to extend our thankfulness to all the concerned staff of Bank

Alfalah and UMT for their support, coordination and help.


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Executive Summary:

This project is related to the strategic analysis of an organization. For performing it we first had

to select an industry and an organization in that industry. So, we selected the Bank Alfalah

Limited, in the Banking industry.

This whole project was divided into three sections. In section 1 of this project, we first of allgave the introduction of Bank Alfalah Limited and then identified the major trends in the

banking industry over last three years and performed a Deep-List analysis for extracting the main

opportunities and threats related to the industry. Then finally for this section we developed a 5

Forces Model for the industry environment, constructed an EFE Framework and with the help of

the Deep-List analysis performed; identified the major key success factors.

In the Section 2, which was related to the internal analysis of the company; we analyzed Bank

Alfalah Limited, which included the analysis of the Banks mission and vision, identification of

its long term goals and key stake holders and also included the actions that the bank is taking in

terms of the Corporate Social Responsibility. Then we analyzed the strategic groups of thebanking industry competitors and identified the group to which Bank Alfalah Limited belonged

to. After that we constructed the CPM by using the KSFs identified in Section 1 of the project.

In part 2 of this section we analyzed the tangible and intangible resources using the VRIN

framework, identified the competitive advantage, performed value chain analysis, basic financial

analysis and the IFE analysis and analyzed the SBUs that the firm had.

Coming towards the Section 3, the final section of the project, we analyzed the organizational

structure of Bank Alfalah, analyzed the firms strategies at Corporate, Strategic Business Unit and

Functional level and presented the Strategic Framework constructing the SWOT, Ansoff matrix,SPACE matrix, IE matrix and the Grand Strategy matrix. After it we performed the detailed

financial analysis of the Bank and identified the major problems and opportunities for the bank.

Finally we constructed the QSPM Framework and came up with the strategy that could resolve

the issues the bank was facing and then prepared an implementation plan for that strategy.


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ContentsOrganizational Structure of Bank Alfalah Limited ......................................................................................... 4

Strategic Analysis: ......................................................................................................................................... 5

Corporate level strategies ......................................................................................................................... 5

Business level strategies ........................................................................................................................... 7

Functional level strategies ........................................................................................................................ 8

Strategic Frameworks ................................................................................................................................. 10

SWOT ...................................................................................................................................................... 10

TOWS MATRIX ......................................................................................................................................... 13

(Ansoff) BCG Matrix ................................................................................................................................ 14

BCG Matrix .............................................................................................................................................. 15

Space Matrix ........................................................................................................................................... 16

Space Matrix ........................................................................................................................................... 17

IE Matrix .................................................................................................................................................. 18

Grand Strategy Matrix ............................................................................................................................ 19

Detailed Financial Analysis .......................................................................................................................... 21

Horizontal Financial Analysis .................................................................................................................. 23

Index Number Trend Analysis ................................................................................................................. 24

Ratios Analysis ........................................................................................................................................ 25

Major Problems and opportunities ............................................................................................................. 27

QSPM to recommend strategies ................................................................................................................. 29

Implementation Plan .................................................................................................................................. 32

Control Plan ............................................................................................................................................ 32

Timelines, Gantt Charts ........................................................................................................................... 33

Financial Requirements to implement this strategy ............................................................................... 33

Resource Utilization ................................................................................................................................ 34


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Organizational Structure of Bank Alfalah Limited

Bank Alfalah follows functional structure, with head of the departments are directly responsible

to answer CEO. There are six board of directors at the top of the structure, who are responsible

for making crucial decisions then come the CEO and under CEO there are various Head of the

Departments, responsible for the work of their department.

Bank Alfalah

ltd.

Board OfDirector

Cheif Exctiveofficer

CheifCompilance

Officer

CheifInformatioan Officer

CheifOperating

Officer

GHOperations

CheifFinancialOfficer

CheifRisk

Officer

GMRisk

Mangement

GM legal&

Companysecretary

GMCredit

Division

GHAdministart

orTechnology

GH Audit&

Inspection

GHCorporate &Investment

Banking

GHHumanResourc

e

GHIslamicBanking

GHTresasury

&Financail

Instituatio

n


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Strategic Analysis:

Corporate level strategies

Growth

Abu Dhabi group follows growth strategy and its network is increasing day by day and it istargeting different markets of the world as well as local markets of different countries.

The growth of bank Alfalah is pretty impressive, with the sixth largest bank of Pakistan

announcing an increase of 30% for the year 2012. The net income of the bank for 2012 is

recorded Rs. 4.6 billion as compared to Rs. 3.5 billion for the year 2011. The deposit base of the

bank grew at par with overall banking sector up 13.9% to reach Rs 457 billion as compared to

the overall 13.8% growth in the industrys base.1

1http://tribune.com.pk/story/515778/corporate-results-bank-alfalah-earnings-rise-but-outlook-remains-uncertain/
http://tribune.com.pk/story/515778/corporate-results-bank-alfalah-earnings-rise-but-outlook-remains-uncertain/http://tribune.com.pk/story/515778/corporate-results-bank-alfalah-earnings-rise-but-outlook-remains-uncertain/http://tribune.com.pk/story/515778/corporate-results-bank-alfalah-earnings-rise-but-outlook-remains-uncertain/http://tribune.com.pk/story/515778/corporate-results-bank-alfalah-earnings-rise-but-outlook-remains-uncertain/


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Business level strategies

Business level strategies are formulated by the top management. At this level chief managers

also play crucial role in formulating these strategies and technical planning which is very helpful

in completing the jobs on time and thus following the best way to settle things in a better way.

They are very handy at this level in defining, interpreting objectives and goals and formulate

policies to achieve them.

Integration strategies

As bank Alfalah is dealing with the services sector so there is not much involvement of forward

and backward integration as the services are produced at the spot and delivered at the spot. As

the basic input of banking industry are the individual consumers so there is less involvement of

forward and backward integration.

Horizontal integration

Bank Alfalah is planning for the acquisition of IGI Investment Bank. Bank Alfalah and IGIInvestment Bank are in negotiations for a possible takeover of IGI Investment Bank along with

two wholly owned subsidiaries. The officials of Bank Alfalah claim that the implementation

would be done by the way of merger in terms of a scheme amalgamation under section 48 of

banking companies ordinance, 1962.

Intensive strategies

Market penetration

Bank Alfalah is spreading its network by creating awareness and by promoting it by advertising

and arranging different kind of events like bank Alfalah cricket cup and spreading its branch

network.

Market development

From 1992 onwards bank Alfalah limited is very much successful in serving different markets

not in Pakistan but also spreading its footprints globally as well by having 7 branches in

countries like Afghanistan, Bangladesh and Bahrain.

Product development

Bank Alfalah is very much focused to provide new and innovative product and services for its

customers. Right now bank Alfalah and Warid Telecom have join hands together to solve theproblem of people who are linked with banking operations. Both the companies are coming up

with innovative solution of branchless banking.

6

6http://www.economyage.com/2012/04/exclusive-bank-alfalah-planning-to-takeover-igi-investment-bank/
http://www.economyage.com/2012/04/exclusive-bank-alfalah-planning-to-takeover-igi-investment-bank/http://www.economyage.com/2012/04/exclusive-bank-alfalah-planning-to-takeover-igi-investment-bank/http://www.economyage.com/2012/04/exclusive-bank-alfalah-planning-to-takeover-igi-investment-bank/http://www.economyage.com/2012/04/exclusive-bank-alfalah-planning-to-takeover-igi-investment-bank/


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Diversification

Related diversification

Abu Dhabi group has recently diversified its activities (2003) further in the banking sector

through its already established Bank Alfalah, now they are also providing Islamic Banking

services, compliance with Shariah. It currently has over 100 branches operating under the

Islamic Banking structure, providing services like Musharka, Mudarba, Murabha, Ijarah , Salam

etc.

Functional level strategies

Head of the departments at this stage formulate functional strategies. Keeping in view the branch

setup and environment of the branch and the organization every branch manager formulates the

policies accordingly because he/she is responsible for the activities of the employees and

management as well. In the presence of head of the departments regular meetings are called for

the implementation of the policies to get the desired outcome behind these policies.

Marketing Strategy

The marketing department of bank Alfalah is very smart and its efficiency has enabled the bank

to serve a large customer base by using market penetration pricing strategy. The bank is very

much successful and it is the only largest credit and debit card issuer than any issuer in Pakistan.

Bank Alfalah launched its free forever credit card and the strategy worked. Despite being a

later entrant, Bank Alfalah soon became the market leader.

Human resource

Bank Alfalah considers its humans as most valuable asset. It is very much focused to improve

the staffs professional proficiency and quality. In order to enhance competencies of its

employees there are in house seminars / courses, on job training programs etc. There is a training

academy and it is equipped with the latest audio-visual training aids. The academy facilitate in

the discrimination of knowledge and skills. The bank Alfalah Limited inducted third

management trainees; they go through a six month training program. The bank intends to

continue, on a need basis, such program each year. Human resource is one of the core

competences of Bank Alfalah Limited.

789

7http://www.slideshare.net/abidi512/bank-alfalah-12915984

8http://www.hrmars.com/admin/pics/311.pdf
http://books.google.com.pk/books?id=cRsxku7O06UC&pg=PA268&lpg=PA268&dq=marketing+strategy+of+bank+alfalah&source=bl&ots=HGbMr9-a3C&sig=tRtqyXHFoFykMBro3BszrpHOgfg&hl=en&sa=X&ei=k9ahUb6yDIWxOdvEgZAK&redir_esc=y#v=onepage&q=marketing%20strategy%20of%20bank%20alfalah&f=falsehttp://books.google.com.pk/books?id=cRsxku7O06UC&pg=PA268&lpg=PA268&dq=marketing+strategy+of+bank+alfalah&source=bl&ots=HGbMr9-a3C&sig=tRtqyXHFoFykMBro3BszrpHOgfg&hl=en&sa=X&ei=k9ahUb6yDIWxOdvEgZAK&redir_esc=y#v=onepage&q=marketing%20strategy%20of%20bank%20alfalah&f=falsehttp://books.google.com.pk/books?id=cRsxku7O06UC&pg=PA268&lpg=PA268&dq=marketing+strategy+of+bank+alfalah&source=bl&ots=HGbMr9-a3C&sig=tRtqyXHFoFykMBro3BszrpHOgfg&hl=en&sa=X&ei=k9ahUb6yDIWxOdvEgZAK&redir_esc=y#v=onepage&q=marketing%20strategy%20of%20bank%20alfalah&f=falsehttp://www.slideshare.net/abidi512/bank-alfalah-12915984http://www.slideshare.net/abidi512/bank-alfalah-12915984http://www.slideshare.net/abidi512/bank-alfalah-12915984http://www.hrmars.com/admin/pics/311.pdfhttp://www.hrmars.com/admin/pics/311.pdfhttp://www.hrmars.com/admin/pics/311.pdfhttp://www.hrmars.com/admin/pics/311.pdfhttp://www.slideshare.net/abidi512/bank-alfalah-12915984http://books.google.com.pk/books?id=cRsxku7O06UC&pg=PA268&lpg=PA268&dq=marketing+strategy+of+bank+alfalah&source=bl&ots=HGbMr9-a3C&sig=tRtqyXHFoFykMBro3BszrpHOgfg&hl=en&sa=X&ei=k9ahUb6yDIWxOdvEgZAK&redir_esc=y#v=onepage&q=marketing%20strategy%20of%20bank%20alfalah&f=false


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Strategic Frameworks

SWOT

Strengths of Bank AlFalah:-

Strong Financial Position- The financial position of the organization is very sound and itsprofitability is in increasing. The Earning per share has been increased on a rate of about

50%, which is a very positive sign

Professional and Committed workforce- Bank invests heavily on the development andcapacity building of their employees and on retention programs to produce committed

workforce.

Conducive Environment-The management of the bank is very much concerned with thedevelopment and improvement of the working environment. The bank has state of the art

and purpose built branches where all the modern technologies are provided to get the

efficiency of the workforce and the customer satisfaction

Islamic Banking services- The bank differentiates itself by providing Islamic bankingservices, Halal services compliances with Shariah, Islamic law.

Fastest Growing Financial Institution-Due to its successful business policies and thestrong financial position the bank has achieved the reputation of fastest growing financial

institution in the country. It has greatly increased the customers confidence in the bank

Huge Expansion Plan-Due to its strong financial position the bank has undergone a hugeexpansion plan to compete with the existing bank all over the country and with the

passage of time the branch network is expanding at a very good pace.

Weaknesses of Bank AlFalah:-

Less Branches & ATM compared to competitors- Competitors have more branches andATM machines than Bank AlFalah, and because of this they are still a little behind in

capturing more customers

Not enough Advertisement- Bank spends less on promotion and advertisement ascompared to its arch rivals, UBL, MCB, and HBL.

Slow in introducing new products/services- Bank AlFalah is a bit slower in launchingnew products, whereas it focuses more on the following strategy rather than innovation

and leading

Overload of work on employees- Usually staff has to sit till 8 or even 9 pm to finish theirtasks Lagging in Technological development- Bank does not have efficient MIS as compared

to its competitors.


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Opportunities for Bank AlFalah:-

High scope of Islamic Banking- Islamic Banking is an emerging concept and a preferredchoice for many consumers. So its a growth opportunity for banks to take full advantage

of the prevailing circumstances in this regard. Islamic banking is an emerging concept its

share has improved in 2010 to 6.1% from 5.1% of 2009. Sign of growth in financial sector of Pakistan- Financial sector dominated the

performance of service sector with a stable growth rate of 6.53% last year 2011-12. Bank

AlFalah is launching new branches to avail this opportunity.

High profit margins- Assets of banking system in Pakistan are growing at a rapid pace of15% since 2009.Higher returns in banking started in 2002, since then banks are gaining

excellent profits. The figure rose to $1.1 billion in 2006Assets are growing with rapid

pace, returns are high and so are the profits, (PBT of Rs 9.7 billion for year 2011, total

asset increased by 13.78%, 15.78% increase in shareholders equity).

Technological advancements- Over the last few years, banking sector has seen immenseuse of technology to provide faster and convenient solutions to their customers, such as;

ATM machines, online banking, mobile banking, Easy Paisa, Debit/Credit cars etc. The

trend continues to grow and provide ample opportunities for firms to create competitive

advantage. There are now many ATM machines (3500 ATM machines of bank AlFalah

all over the country) and other technological facilities like SMS alerts, exciting discounts,

and 24 hour customer service are being provided.

Reduced Corporate Taxes- The government is supporting the financial sector and in thisregard government has already reduced the corporate tax rate on banks from 58% to 35%

during the last six years.

Growing Population of educated youth-As the younger population of Pakistan isenhancing, trends and living patterns are also changing with them. Now the youth is more

educated, aware and constitutes a major proportion of labor force. Banks need to

capitalize this situation and target this segment with appropriate products and services.

Keeping in mind the growing population of youth, Bank AlFalah is putting some efforts

to attract this segment.

High Government borrowings-Over the last few years, especially in the tenure of therecent government it has been observed that government borrowings have increased

drastically. SBP, alone cannot handle this debt burden so government often has to turn

towards private banks.


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Threats to Bank AlFalah:-

Revised Monitory Policy- SBP has recently launched a new monitory policy according towhich, interest rates have decreased to a maximum limit of 9.5%. The decision was made

keeping in mind the high inflation rate. Reduce interest rates mean slow movement and

flow of money which will discourage investors to borrow more money. This threat isdiscouraging the investors to borrow money.

Drastic growth in consumption pattern-Collectively the consumption pattern of bothpublic and private has reached to 88% of GDP in 2011-12, which is an alarming sign for

banks as consumers are left with little disposable income to save and consume so it is a

threat to AlFalah Bank and no possible effort is been made in this regard.

Decrease in savings and Investment- In the last year radical decline has been seen in bothfix investment and national savings. It is not a good sign for banks that are looking for

consistent and high growth.

Devaluation of Currency- Pakistani Rupee has seen a tremendous decline in the lastcouple of years, which makes it difficult for foreign banks to efficiently operate in

Pakistan.

Strong emerging competitors- There are an intense rivalry among competing banks inPakistan. With the presence of names like; MCB, HBL, NBP, SCB the banking industry

becomes less attractive, especially for new entrants. Bank AlFalah is striving to improve

its current market share and has taken several steps in this regard.

Social unrest- Pakistani society is partially divided among various groups, ranging fromliberals to extremists. At times due to political or social issues social unrest is seen, which

cause immense capital loss to almost every industry.

Weak political situation-Countrys political situation is not quite favorable for thebusiness environment as inconsistent and unfavorable policies are formulated and

implemented. Government is not providing enough infrastructures to the banking

industry either. Energy crisis is at its worst and the country is heading towards new

elections.

Economic Turmoil- The country is not going through the best period with respect toeconomic conditions, there is high inflation CPI, less disposable income, high taxes and

tariffs, low GDP growth rate and Bank has not taken any serious counter measures

against this situation. However they are trying to adapt with the current economic

situation.


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TOWS MATRIX

STRENGTHS-S1. Strong Financial Position2. Professional and

Committed workforce3. Conducive Environment4. Islamic Banking services5. Fastest Growing

Financial Institution

6. Huge Expansion Plan

WEAKNESESS-W1. Less Branches & ATM

compared to competitors

2. Not enoughAdvertisement

3. Slow in introducing newproducts/services

4. Overload of work onemployees

5. Lagging inTechnologicaldevelopment

OPPORTUNITIES-O1. High scope of Islamic

Banking

2. Sign of growth infinancial sector ofPakistan

3. High profit margins4. Technological

advancements

5. Reduced CorporateTaxes

6. Growing Population ofeducated youth

7. High Governmentborrowings

SO STRATIGIES

S5, O4-As bank is financialgrowing so it has the opportunityto use this strength intechnological advancement, S6,O1-With the expansion plan theycan further open Islamic banks.S2, O3-Having professional andcommitted workforce will helpthem gain more profit.S1, O2-Having strong financial positioncan be used as a sign of growthin financial sector of Pakistan.

WO STRATIGIES

W5W1, O2-With Sign of growthin financial sector and high profitmargins technologicaldevelopment can be done andmore branches and ATMmachines can be made.W4, O6By hiring growing population ofeducated youth the overload ofwork on employees can bereduced.W2W5, O7 With highgovernment borrowingstechnology can be increased andwith high profit margins moreadvertisement can be done.

THREATS-T1. Revised Monitory Policy2. Drastic growth in

consumption pattern

3. Decrease in savings andInvestment

4. Devaluation of Currency5. Strong emerging

competitors

6. Social unrest7. Weak political situation8. Economic turmoil

ST STRATIGIES

S6, T5-With expansion planemerging competitors can bereduced.S1S2, T8-Throughstrong financial position andcommitted workforce economicturmoil can be reduced. S5,T3T4As bank is fastest growing

institution so there can bevaluation of currency andincrease in savings andinvestments.

WT STRATIGIES

More branches and ATM shouldbe made, more advertisementshould be done, they should befast in introducing new productand services, technology shouldbe enhanced, this way savingsand investments will increase,

valuation of currency will occur,emerging competitors willbecome weak, economic turmoilwill increase.


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(Ansoff) BCG Matrix

Star:

The star has a large market share and rapidly growing industry. Bank AlFalah is a star for

Abu Dhabi Group because it has a large market share in a rapidly growing industry.

Cash Cow:

The cash cow for Abu Dhabi Group is Warid, because Warid is generating much larger cash

for the parent company.

Question Mark:

Wateen is a question mark for Abu Dhabi Group because it has a small share of market and

further it is striving for its success in Pakistan. The product in question mark can either fail or

become a star.

Dog:

The dog for Abu Dhabi Group is Taavun, because it has not been much successful in

Pakistan in the real estate industry.


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BCG Matrix

Stars

Bank-AlFalah

Question Marks

Wateen

Cash Cows

Warid

Dogs

Taavun

Relative Market Share

(Cash Generation)

High Low

MarketGrowthRate

(ash

sae)

ih

Strategies for Stars:

Backward, Forward or Horizontal Integration Market Penetration Market Development Product Development

Bank AlFalah pursues the above mentioned strategies according to their relative market

share and industry growth rate of banking sector.


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Space Matrix

Competitiveadvantage (CA)

Rating Industry Strength(IS)

Rating

(-1 to -6),-6Worst,-1 Best

(+1 to +6), +6Best,+1 Worst

Product Quality -2 Barriers to newentrants

5

Market Share -2 Growth Potential 6

Brand Image -2 ResourceUtilization

5

Customer Service -1 Financing Access 3

Customer Loyalty -3 TechnologyKnow How

3

Control over

depositors

-4 Profits 5

Average -2.333333333 Average 4.5

Total X-Axis 2.166666667

FinancialStrength (FS)

Rating EnvironmentStability (ES)

Rating

(+1 to +6), +6Worst,+1 Best

(-1 to -6),-6Worst,-1 Best

Return On Equity 1 Inflation -6

Revenue Increase 1 Taxation -5

Liquidity 3 Technology

changes

-4

Earnings PerShare

2 DemandElasticity

-3

Cash Flows 2 Competitionpressures

-4

Efficiency Ratios 2 Price ofcompetingproducts

-4

Average 1.833333333 Average -4.333333333

Total Y-Axis -2.5


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SSPPAACCEE MMaattrriixxFS

+6

+1

+5

+4

+3

+2

-6-5

-4

-3

-2

-1-6 -5 -4 -3 -2 -1 +1 +2 +3 +4 +5 +6

ES

CA IS

Conservative Aggressive

Defensive Competitive

(2.16,-2.5)

Space Matrix

Space matrix illustrates that Bank AlFalah lies in competitive quadrant.

Strategies for Competitive:

Backward, Forward or Horizontal Integration Market Penetration Market Development Product Development

According to the results of SPACE matrix, Bank AlFalah falls in

competitive quadrant and can follow the above mentioned strategies.


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IE Matrix

EFE

Score

4.00

IGrow

IIAnd

IIIBuild

IVHold

VAnd

VIMaintain

VIIHarvest

VIIIAnd

IXDivest

1.00

4.00 2.9 1.00 IFE Score

By looking at the IE matrix our company lie in 5

th

cell. 5

th

cell suggests hold and maintainstrategy. In this case, our tactical strategies should focus on market penetration and product

development.

Quadrant V:

Hold and Maintain;

Strategies:

Market Penetration

Product Development

According to the result of IE matrix, Bank AlFalah falls in Quadrant V and can use the two

above mentioned strategies. Either to penetrate in the existing market or develop a new product.

High

Medium

Low

Strong Average Weak

2.59


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Detailed Financial Analysis

This statement shows that the markup or interest earned by the bank in 2011 has increased a lot

as compared to previous years and the percentage of the markup expensed is less as compared to

the total markup, than previous years resulting in a higher net markup. The figure for bad debts

written off directly has also decreased much in 2011, contributing to the overall markup.

As a result of all the major changes in 2011, especially in the amount of markup and interest

earned, the profit is 7.91% of the total markup or interest earned which is far more as compared

to previous years.

On one the major expenses covered under the Non Markup Interest Expense is theAdministrative Expenses and if we analyze the statement, the bank has much admin expenses as

compared to the level of markup earned and it has been proved by the performance in 2011 that

the bank can earn more with almost the same level of admin expenses.

The note 16 from the financial statement proofs that the increase in the total markup earned is

mainly due to the increase in the number of deposits. The point that there had not been such

increase in the markup expensed can also be proved through this note because it shows that there

has been a decrease in the amount of the fixed deposits, on which the bank is required to pay


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preferably a high markup and the current deposits have increased a lot, on which the bank do not

require to pay markup.

This statement provides information regarding the apportionment of assets, liabilities and equity.

The 42% of the total assets are covered by the advances, 36% by the investments made, 11% by

the cash and balance with treasury banks, and the rest by others in 2011.Compares to 2010, in

2011 more amount has been allocated to the investments and less in advances.

In the same way the 86% of the bank liabilities are the sum of the deposits made by the

customers and the amount held in other accounts. Overall this statement provides help in

knowing that the major proportion of the assets is backed up by the money generated through the

deposits and other accounts and that the equity only contribute to 5% to the total assets of Bank

Alfalah.


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Markup or Interest Earned 44,298,178 18.03% 37,530,256 5.54% 35,561,312 14.84%

Markup or Interest Expensed 25,687,485 7.68% 23,855,448 -3.24% 24,654,180 20.30%Net Markup/interest income 18,610,693 36.09% 13,674,808 25.37% 10,907,132 4.15%

Provision against loan and advances 1,864,510 -16.90% 2,243,687 -39.27% 3,694,546 81.46%

Provision for diminution 2,459,294 23.51% 1,991,192 527.81% 317,164 -78.56%

Bad debt written off directly 5,696 -77.67% 25,504 -57.36% 59,817 111.38%

4,329,500 1.62% 4,260,383 4.64% 4,071,527 14.91%

Net Markup/after provisions 14,281,193 51.69% 9,414,425 37.73% 6,835,605 -1.35%

Non Markup interest inome 5,367,713 14.01% 4,708,161 -9.15% 5,182,253 7.45%

Non Markup interest expenses 14,215,188 11.46% 12,753,841 15.93% 11,001,542 10.49%

Profit before Taxation 5,433,718 296.99% 1,368,745 34.68% 1,016,316 -41.92%

Taxation 1,930,588 382.29% 400,293 235.59% 119,281 -75.83%Profit after Taxation 3,503,130 261.72% 968,452 7.96% 897,035 -31.07%

Horizontal Analysis of Profit and Loss statement

2011 Rs.(000) 2010 Rs.(000) 2009 Rs.(000)

Horizontal Financial Analysis

The statement present the percentage changes in the profit and loss statement from 2009 to 2011.

Taking the markup or the interest earned the increase in 2011 is far more than the increase in

2010. The increase in the net markup is also noticeable as it has increases a lot in 2011 as

compared to in 2010 and 2009 but overall it shows an increasing trend.

Coming towards the provisions part, there has been a huge reduction in the level of the

provisions, which is good for the company. Overall the provision increased by 4.64% in 2010 as

compared to 14.91% in 2009 and in 2011 it has just increased by 1.62%.The non-markup interest

income which was decreased by 9.15% in 2010 has increased by 14.01% in 2011, which is

favorable for the company. On the other hand the increase in the non-markup interest expenses is

less as compared to that in 2010, which shows that the bank has the capacity to increase its profit

by bringing in fewer changes to the non-markup interest expenses which covers the

administrative expenses.

Finally due to overall increase it the financials of the Bank Alfalah in 2011, it has an increase of

261.72% in net profit as compared to 7.96% of increase in 2010 and 31.07% of decrease in 2009.


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2011 2010 2009

Markup/interest earned 124.5685 105.5368 100

Net Markup 208.9236 137.7263 100

Assets 120.3315 105.7609 100

Liabilities 120.5649 106.0614 100

Reserves 114.2781 106.4428 100

Surplus on Revaluation 124.2892 109.133 100

Deposits and other Accounts 123.5522 109.0084 100

Borrowings 87.96866 66.33183 100

Investments 167.9426 114.3868 100

Fixed Assets 92.38548 98.01521 100

Index number Trend Analysis

Index Number Trend Analysis

The Index Trend Analysis shows the changes in the particular figure across the years, taking

2009 as the base year we have found out that the increase in the net markup in 2011 is far more

than the increase in 2010. Same pattern has been seen in case of interest or markup earned,

assets, liabilities, reserves, surplus on revaluation, deposits and other accounts and investments

but the changes are not much as compared to the net markup.

Coming toward the borrowings and the fixed assets, there has been a fall in both as compared to

that in 2009. The fall in the percentage of borrowings in 2011 is much more than that of others.


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Ratios Analysis

Capital Adequacy

Capital Adequacy is expressed as the percentage of Bankss risk weighted credit exposure. It is

used to protect the interest of depositors and to promote the stability and efficiency of the

financial system. It decreased in 2010 and then again increased to 11.6% in 2011.

Profit before tax ratio

This is the profit earned before tax as a percentage of the gross markup income. This hasincreased to 12.27% in the 2011 and this is mainly due to the increase in the number of non-

interest expense deposits.

Gross Spread Ratio

It is the net markup earned as a percentage of the gross markup earned. This has also increased

much in 2011 and that is because of the more increase in the gross markup earned as compared

to the markup expensed.

Income/Expense Ratio

It is the times the expense is to the income. It has almost remained the same from 2009 to 2011.

Ratios Unit 2009 2010 2011

Capital Adequacy % 12.46% 10.53% 11.60%

Profit before tax ratio % 2.86% 3.65% 12.27%

Gross Spread Ratio % 30.67% 36 .44% 42.01%

Income/Expense ratio Times 3.70 3.31 3.49

ROE % 5.22% 4.90% 16.46%

ROA % 0.24% 0.24% 0.80%

Advances/Deposits Ratio % 57.90% 58.52% 49.46%

Non Interest income/total income % 509.91% 343.98% 98.79%

Non Interst Expense/total markup earned % 30.94% 33.98% 32.09%

Investment/Deposits Ratio % 30.53% 32.04% 41.50%

Basic Earnings per share Rs. 0.71 0.72 2.6


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Return on Equity

It is the amount of the net income generated by each rupee of the shareholders equity. It has

increased to 16.46% in 2011 as compared to 4.90% in 2010 due to the increase in the total net

profit. Its good to have more ROE.

Return on AssetsIt is the amount of the net income generated by each rupee of the total assets. It has also

increased in 2011 due to the increase in the net profit.

Advances/Deposits Ratio

It is the amount utilized into advances, as a percentage of the deposits. As compared to 2009 and

2010, in 2011 less amount of the money is allocated for advances.

Non-interest income/total income

It is the percentage of the contribution made by the non-interest income into the total income. Its

too much in 2009 and 2010 showing that the income from the interest cant cover the non-

interest expenses. In 2011 it has decreased and it is good signal that the banks non-interest

expenses can be covered through its income generated from markup.

Non-interest expense/total markup earned

It is the non-interest expense as a percentage of the total/gross markup earned. This needs to be

paid attention because the control over to the non-interest expenses will directly contribute to the

net profit.

Investment/Deposits ratio

It is the percentage of the deposits utilized as investments. In 2011 more part of the deposits is

utilized for investments than for advances.

Basic Earnings per share

It is the amount of profit earned by each share. The total number of the shares is 1,349,156,000.

It has increased to 2.6 in 2011 due to increase in the net profit. It is a good signal and will attract

more investors.


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Major Problems and opportunities

Problems

1. Bank Alfalah currently has less number of branches and ATM machines as compared toits arch rivals, MCB and HBL. Bank currently holds 471 branches which are significantly

less in comparative terms.

2. Less advertisement and promotional activities. Bank Alfalah has less spending power outof their total budget on advertisement and promotions due to which there is less

awareness regarding their products and services among the customers.

3. Bank Alfalah is a bit slow in responding to the changes that occur in externalenvironment relative to its competitors and slow in introducing new products and

services.

4. Bank Alfalah is lagging behind its competitors in terms of technological advancementsand Research and Development activities.

5.

Weak political situation. Pakistan has weak and unstable political conditions which arenot suitable for the progress and growth of any bank.

6. Bank Robbery. Bank robbery is becoming a serious issue and recently crime rate andspecifically bank robbery has increased in Pakistan, which is again unfavorable and

unsecure for any bank to operate successfully.

7. Social Unrest. Often protestors and mob hit and damage the land and property of banks.Opportunities

1. High scope of Islamic Banking- Islamic Banking is an emerging concept and a preferredchoice for many consumers. So its a growth opportunity for banks to take full advantage

of the prevailing circumstances in this regard. Islamic banking is an emerging concept itsshare has improved in 2010 to 6.1% from 5.1% of 2009.

2. Sign of growth in financial sector of Pakistan- Financial sector dominated theperformance of service sector with a stable growth rate of 6.53% last year 2011-12. Bank

Alfalah is launching new branches to avail this opportunity.

3. High profit margins- Assets of banking system in Pakistan are growing at a rapid pace of15% since 2009.Higher returns in banking started in 2002, since then banks are gaining

excellent profits. The figure rose to $1.1 billion in 2006Assets are growing with rapid

pace, returns are high and so are the profits, (PBT of Rs 9.7 billion for year 2011, total

asset increased by 13.78%, 15.78% increase in shareholders equity).

4. Technological advancements- Over the last few years, banking sector has seen immenseuse of technology to provide faster and convenient solutions to their customers, such as;

ATM machines, online banking, mobile banking, Easy Paisa, Debit/Credit cars etc. The

trend continues to grow and provide ample opportunities for firms to create competitive

advantage. There are now many ATM machines (3500 ATM machines of bank AlFalah

all over the country) and other technological facilities like SMS alerts, exciting discounts,

and 24 hour customer service are being provided.


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5. Reduced Corporate Taxes- The government is supporting the financial sector and in thisregard government has already reduced the corporate tax rate on banks from 58% to 35%

during the last six years.

6. Growing Population of educated youth-As the younger population of Pakistan isenhancing, trends and living patterns are also changing with them. Now the youth is more

educated, aware and constitutes a major proportion of labor force. Banks need to

capitalize this situation and target this segment with appropriate products and services.

Keeping in mind the growing population of youth, Bank Alfalah is putting some efforts

to attract this segment.

7. High Government borrowings-Over the last few years, especially in the tenure of therecent government it has been observed that government borrowings have increased

drastically. SBP, alone cannot handle this debt burden so government often has to turn

towards private banks.


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QSPM to recommend strategies

Results

Result of matching stage clearly demonstrates that Bank Alfalah stands in Intensive group of

strategies. Various strategies for intensive group are; Market penetration, Market development

and Product development. Bank Alfalah scores highest in Product Development followed byMarket Penetration.


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We have chosen two set of alternative strategies; Product Development and Market Penetration.

Our actual strategies are as follow; for product development we have proposed Launching

Islamic Agriculture Financing and regarding market penetration our proposed strategy is To

increase advertisement and promotion. Why we have chosen these two strategies are because of

their existing scope and demand in the market. Islamic Agriculture Financing is an emerging

concept providng small loan, product (pesticides, and other medicines), tractors and other

machinery and other such services to the small and large farmer. Because farmers and related

people in agriculture face main difficulty in gaining access to capital. This concept is highly in

demand and only Mezan Islamic Bank has done some efforts to launch this strategy. Whereas,

regarding their conventional banking Bank Alfalah currently lacks its awareness among common

people and masses. To enhance its presence with same products/services in the existing market,


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bank needs to invest heavily in advertisement and promotional activities. Results of our QSPM

demonstrate that we should go with the Islamic Agriculture Financing as its score is higher 4.79

as compared to 3.75 of increasing advertisement and promotion.

Implementation PlanIn order to implement our proposed strategy we will follow the following comprehensive plan.

Control Plan

Once we have implemented the strategy we need to carefully analyze and evaluate our

implemented strategy, whether we have achieved the objectives or not. In order to do so we will

take help from control charts, statistical tool used to monitor and evaluate the progress. We will

measure the actual performance and compare it with the prescribed performance standards, based

on our objectives mentioned earlier. If we feel we are meeting the standards we will continue the

existing strategy as it is to maintain the status quo. However if any discrepancy occur we will try

to identify the root cause and change the structure, system or strategy to make sure we meet the

standards defined by our objectives.


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Timelines, Gantt Charts

Based on our intuitive judgment we feel we will be able to implement this project within fifty

days and it will be fully operational and working in about two month time. We will start

working on the project from the first week of June 2013 and based on our early planning

discussions we will follow the plan with little modifications if required.

Financial Requirements to implement this strategy

The financial requirements for introducing Islamic Agri Financing may not be too much as this

facility will be provided under the same umbrella of Islamic banking in which other facilities are

being provided. The cost may incur for research and development (around 3 million Rs) but that

will also be less because they will not be the first mover as the Meezan Bank is already working

onto it. The financing will be totally based on Murabaha in which the bank will buy the required

inputs that includes seeds, pesticides, urea etc. and will sell them to the farmers. On the other

hand for financing the movable property or equipment, like tractors and harvesting machines the

financing will be based on Ijarah. The bank is already providing facilities based on these

financings in form of Car Ijarah and Murabaha so introducing Islamic Agri Financing will

mainly be to provide a mixture of these financing to a farmer.


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STRATEGIC MANAGEMENT FINAL PROJECT strategic analysis of Bank Alfalah Limited

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