Faysal Bank Limited (FBL) started its operations in 1995 as a local bank of Pakistan. On January 1, 2002, Al Faysal Investment Bank Limited, another group entity in Pakistan, merged into Faysal Bank Limited which resulted in a larger institution. The majority share holding of Faysal Bank Limited is held by Ihtmaar Bank B. S. C an investment bank listed in Bahrain, while it has one subsidiary i. e. Faysal Management Services (Pvt. ) Limited (FMSL).
Until 2005, FBL’s growth was very impressive, but from year 2006, its profits are declining, and currently it is in big trouble and facing problems like deteriorating profits, decreasing EPS, liquidity problems, increasing provisioning for Non Performing Loans (NPLs), etc In order to know, why FBL is going downward, and what can be done in order to put it on track of growing bank again, its strategic audit, situational analysis, performance audit has been conducted in this assignment, and finally recommendations and implementation have been given. Strategic Posture
Mission: “To excel in providing innovative, value-based banking solutions to meet the changing needs of customers”. Objectives: Faysal Bank Limited, (2007). Annual Report. Karachi. The objectives set for year 2008 are as under: • Target of opening of 24 branches in year 2008. • Prudent growth & Cost efficiencies. • Continued investment in technology & infrastructure. • Further deepening of the culture of diligence and corporate responsibility. Strategies: FBL’s mostly strategies are totally confidential, because of severe competition in themarket.
But few strategies stated by top management in annual report are as under: •To offer banking products and services which are needed, convenient and marketable. •To grow as an institution with prudence and profitability in view. •To base relationships on trust and mutual benefit with customers and shareholders. •To maintain highly efficient and motivated employee base. External Environment: Opportunities and Threats Societal Environment Following are the forces which are currently affecting Faysal Bank and the Banking Industry: a)Economic
The main things affecting Faysal Bank and the banking industry are increase interest rates, and the rising inflation rate in the economy, for example, currently KIBOR which is benchmark for industry lending is at highest ever point. b) Technological Developments like introduction of oracle financial systems, symbols, and different application are increasing productivity of the Faysal Bank as well as the banking industry, but on the other its initial implementation costs are causing increased administrative cost to FBL. c) Socio cultural Socio cultural forces like values, demographic characteristics, etc.
are also affecting FBL as well as the banking sector. Because of these values some professionals don’t want to join banking sector, and some people don’t keep their money in the banks, because of religious believes. But on the other hand such believes are also helping banks to introduce Islamic products. FBL has lost various customers because of this reason due to shift from Islamic Banking to conventional banking. d) Political-legal These include the forces like political conditions in country, SBP regulations, etc are also affecting FBLas well as banking sector.
For example, SBP is increasing discount rates, Minimum Capital Requirement (MCR), cash reserve ratio, etc. which is causing liquidity problems for FBL as well as banking sector. Due to MCR, various mergers took placed in the banking sector, and few mergers are also expected inner future. B. Task Environment (Industry) Many forces in the industry are causing competition, these include, technology i. e. communication system like Symbols, Sun, Oracle, etc, larger branch network, ATM locations, unique products, entry of foreign banks, etc.
Task environment of FBL can be discussed through following Porter Model: a) Threat of new entrants Opening of braches by Barclays (which in international reputable bank), threat of entering of Bank of China (BOC) by acquiring SME Bank, and Industrial Development Bank of Pakistan (IDBP), while BOC is also planning to acquire 26% stakes in National Bank of Pakistan. b) Bargaining power of buyers Due to increase in interest rates, small firms are not in a position to take loan from banks, while number of corporations in Pakistan, is limited.
Therefore, key customers/buyers (corporate customers) of banks have gained substantial power and now they can bargain the spread with the relationship manager’s due of availability of the large number of the banks. c) Threat of Substitute products or Service As such there is no significant threat of substitute products or service, but few services like investment related services are offered by various Mutual Funds, and Security Dealers, but these services are limited to big cities.
While, on deposits side, National Saving Organization, is providing substitute products to the depositors of the banks through attractive packages, at very attractive rates. d) Bargaining power of suppliers Currently this is big problem for FBL as well as industry, because of liquidity crisis and Pakistan’s poor international financial rating, all fund suppliers are avoiding to supply credit to Pakistani industry, moreover depositors bargaining power has also been increase due to high mark up rate offered by various banks, and due to dearth of deposits with bank e) Rivalry among competing firms
Banking sector is facing severe competition, due to availability of many national and international banks in the industry. Currently HBL bank, is leading with 40% market share, while MCB with highest profits and National Bank of Pakistan with largest deposits. But many other banks like UBL, Meezan, and Alfalah are also emerging and are causing competition for Faysal Bank. Moreover, foreign banks like Citi Bank, RBS Bank (previously ABN Amro), Saudi-Pak Bank, Al Barakah Bank, etc. are also creating competition in the banking sector..