STRATEGIC PLANNING & DECISION MAKING

Spring Semester 2012

PROJECT REPORT ON UBL

Submitted to Mr. Atif Siddiqui

Submitted by Sarah Akber Sahar Parveen

Table of Contents 1 Company & Industry Background...............................................................................................1 I

1.1 Vision....................................................................................................................................1 1.2 mission..................................................................................................................................1 1.3 Core Values...........................................................................................................................1 1.4 Strategic Thrust.....................................................................................................................2 1.5 The leader in innovative banking ........................................................................................2 2 Internal Environment Analysis....................................................................................................6 2.1 Analysis of Vision, Mission and Value Statements.............................................................6 2.2 Analysis of Strategic Management Process.........................................................................6 2.3 Functions at ubl.....................................................................................................................7 2.4 Functional Analysis..............................................................................................................7 2.4.1 Marketing.......................................................................................................................7 2.4.2 Human Resource Management.....................................................................................8 2.4.3 Risk Mitigation and Management.................................................................................9 2.4.4 Information Technology..............................................................................................10 2.4.5 Treasury.......................................................................................................................10 2.4.6 Analysis of Core Business Activities..........................................................................11 2.5 Financial Performance Analysis.........................................................................................12 3 External Environment Analysis.................................................................................................12 II

3.1 Economic Forces.................................................................................................................12 3.2 Demographic, Social, Cultural and Environmental forces................................................13 3.3 Legal, Governmental and Political Factors........................................................................14 3.4 Human Resource Management...........................................................................................14 4 Porters Five Forces Model.......................................................................................................14 4.1 Competition amongst Rival Firms................................................................................14 4.2 Bargaining Power of Customers/ Customer Relations.................................................15 4.3 Bargaining Power of Suppliers/ Supplier Relations.....................................................15 4.4 Threat of Substitutes......................................................................................................15 4.5 Threat of New Entrants..................................................................................................16 5 SWOT Analysis.........................................................................................................................16 Appendix V Mission, Vision & Core Values Analyses..........................................................xix V-1 Analysis...........................................................................................................................xix Glossary..........................................................................................................................................a Bibliography...................................................................................................................................b

III

1 COMPANY & INDUSTRY BACKGROUN D

Since privatization in 2002, UBL have established new standards of excellence that have progressively optimized performance across the network, benefiting its customers and other stakeholders. This is why today UBL stand tall, as one of Pakistans largest private banks with a potent, global outlook. . 1 . 1 V ISI ON UBL Vision is A World Class Bank Where You Come First, meaning that we believe that our customers needs comes first, which is why we provide them with world-class services & products. 1.2
MIS SI ON

1. Set the highest industry standard for quality across all areas of operation, on a sustained basis 2. Optimize people, processes and technology to deliver the best possible financial solutions to our customers 3. Become the most sought after investment, and be recognized as the employer of choice 1 . 3 C O RE V ALUE S

Honesty and integrity

Commitment and dedication Fairness and meritocracy Humility and mutual respect Caring and socially responsibility Teamwork and collaborative spirit

1 . 4 S TRATE GIC T H RU ST

What makes UBLs vision to become a world-class bank a reality, is the strategic thrust that drives its impetus from People, Premises, Products and Processes. UBL continues its journey towards these four pillars by hiring & developing a world-class team, investing in new premises, launching customer-focused products and continuously improving our processes.

1 . 5 T HE

LE ADE R IN IN NOVATI VE BAN KI NG

UBL has emerged as a market leader in Retail Banking and has attracted numerous customers to its appealing and facilitating products and services. Their Corporate Banking Group (CBG) stands hand in hand with us in this march towards success which has redefined our exemplary services based on a one window concept. Apart from diversifies corporate dealing, UBL has managed to enhance its reach into every household in a short span of time, providing them with better quality choices at a much facilitated base.

All this has been made possible by our extensive branch network and is evident from the successes of deposit mobilization. Their Investment Banking Group specializes in providing innovative and unique products and advisory services to our prestigious clients marking UBL among Lead Advisors Arrangers. Treasury, with all its expertise, has been instrumental in transforming innovative ideas into profitable investments for the Bank. With the advent of Corporate Treasury Business, the Banks trade volume and revenue has grown significantly. Their In-house technology and systems provide the best possible solutions to the Bank, which has enhanced and facilitated our overall standard of service both within the Bank as well as for our customers. UBL has incorporated IT into every sphere of its working environment and this integration has enhanced our performance tenfold. UBL is an exception as it has embarked on the path to realizing the benefits of Contact Centre empowerment, providing its customers with 24 hours service through dedicated Call center agents. UBL Ameen being UBLs Islamic Banking initiative has the mission to strive to attain the premier position in the Islamic Banking Industry by providing our customers with personalized services, exceptional value and a sense of security by catering to all their financial needs through Shariah compliant products and services.

PRODUCTS& SERVICES OFFERED BY UBL

Consumer Loans: UBL Address (Home Loan Facility)

UBL Businessline (Business Financing Loan) UBL Cashline (Running Financing Facility) UBL Drive (Auto loan)

Priority Banking: UBL's Priority Banking service is uniquely designed to meet the highest expectations of rheir high potential, high net-worth clients;. Launched as an independent brand, Signature offers focused and personalized Wealth Management Services for selected, high net-worth individuals in a completely secure and congenial atmosphere. Being preferred customers, clients will be given exclusive benefits, free services and a range of value added facilities. Corporate Banking: The Corporate Banking Group focuses on attracting and servicing large portfolio customers. Branchless Banking: UBL Omni Dukaans are located in more than 600+ cities and towns across Pakistan. This is a major milestone in the evolution of banking that will reshape the traditional banking model by offering basic banking services across urban and rural Pakistan, well beyond the regular branch networks of banks.

Card Products: UBL Wiz UBL Mega Wallet etc

Retails Asset Products:

UBL offers a diverse mix of agriculture based financial products. Financing is available for all seasonal crops across Pakistan. UBL Agriculture Finance aims to facilitate farmers via production and development loans-with flexible tenors and large amounts. There are also available Non-Farm loans for livestock and fisheries financing. UBL also provides loans under the Small Business Scheme to individuals who wish to set up their own small business. Investment Banking: Established in 2002, UBL Investment Banking Group is one of the largest and most experienced investment banking groups in Pakistan. UBL is the only Pakistani commercial bank with an investment-banking desk in the GCC region. A dedicated specialist team of 19 investment bankers, with diversified academics and experience in Pakistan and UAE, has the expertise to cater to the needs of both domestic and regional clientele. UBL Net Banking: UBL netbanking offers a simple, convenient and secure way to manage bank accounts 24/7 from anywhere in the world. UBL netbanking is the most trusted Internet Banking portal in the country primarily because of its uniquely strong security features and an attractive list of transactions and activities available.

Deposit Products: UBL deposit product portfolio offers an eclectic mix for all types of financial requirements for example UBL Business Partner UBL Business Partner Plus UBL UniFlex

UBL Unisaver Certificate of Deposit etc.

Retail Products: BL has taken progressive steps towards introducing innovative products and services to provide its customers as varied a range as there are financial needs. The UBL product portfolio is diverse and caters to the financial requirements of customers at all stages of the spectrum. Treasury & Capital Banking: The UBL TCM (Treasury & Capital Markets) has developed a reputation as a proven market leader in converting innovative ideas into profitable ventures for the bank and for its customers. TCM, in the last few years, has developed core competencies in the newly evolved areas of Derivatives and Structured Solutions.

INTERNAL ENVIRONMENT ANALYSIS

2 . 1 A NALY SI S
OF

V I SION , M I SSI ON

AN D

V ALU E S T ATE ME N TS

UBL seems to have a good vision and mission as per the evaluation criteria (See Appendix for details). However core values are not clearly supported by these statements. Vision by itself is too broad and seems as the defacto vision for any top bank to be best the surpass customer expectations. Strategic management process analysis also points to the fact that vision/mission is not translated into measurable objectives and goals for lower level employees. 2 . 2 A N ALYS IS S T RATE GIC M AN AGE ME N T P RO CE SS

OF

The company conducts an annual business review involving senior managers and their direct reports as part of a standard process. This allows them to formalize organizational and financial (forecasts and targets for revenue, expenses, headcounts and losses) plans for the next year. These objectives are realized as performance goals (for the purpose of appraisals) of line management and units. While at the top level there is a general agreement and buy-in to this process, the same targets and objectives do not make their way to lower levels of the organization, and feedback/followup on whether operational staffs objectives are aligned with those agreed for top management is weak. This leads to a mission-practice gap and delivering on committed targets becomes difficult. 2 . 3 F UNCT ION S

AT U BL

2 . 4 F UNCT ION AL A N ALYS IS

2.4.1 Marketing

Over the last 5 years, Pakistan witnessed a phenomenal growth of consumer banking. This unprecedented development has followed privatization of nationalized banks, banking reforms brought about by the State Bank of Pakistan and an increasingly marketing-oriented approach primarily aimed by banks at a large urban consumer base. Be they large or small bank, multinational or local, each one of them is geared towards making its mark in an already competitive environment that is the outcome of consumer banking. Multinational have the support of the knowledge base and funds of their foreign principals which made them first to introduce products, services and innovative technologies to their consumer base. And where the local lack in technology, they make up by offering similar services at a much lower costs in our urban centers.
2.4.2 Human Resource Management

UBL has a large setup of Human Resource department which has a total headcount of 47 employees. Their HR has been divided into the following sub functions, which work independently supporting the other areas as well.

Keeping in view the current dynamics of the market and increasing competition, HR Department at UBL has set certain objectives in order to cope up with the overall business

strategy. As you can see from below, the HR Strategy is very well integrated with the overall Business Strategy. This shows how well the role of HR has emerged from a Personal Division to Business Partner and now Talent Management.

There was seen a strategic back flaw occurred when management decided to forcefully lay off senior, experienced employees to inject fresh blood into the organization. However, this strategy has backfired since branches (even PROXIMA branches) have under-experienced and under-trained employees. There is no feedback mechanism in place to evaluate the candidates trained and deployed in the branches.
2.4.3 Risk Mitigation and Management

Risk Management Framework augments the entire financial control unit of the bank. UBL has an elaborate credit and market risk division. Different risks that the banks are exposed to are Credit Risk, Market Risk, Operational Risk and Liquidity Risk. The credit risk department comes in parallel to CAD while the market risk department works in parallel of the treasury department. UBL has been aggressive on the risk management front where by an evolving framework has been laid down in light of the BASEL II framework as stated by Annexure 8 and Annexure 12 of SBP (State Bank of Pakistan). Other risks that are monitored closely and report to management include liquidity risk, maturity mismatch risk. The Capital Adequacy Requirement till June 2008 was 8% of total risk weighted assets and has

recently been raised to 10%. Although the risk weighted assets have increased primarily on the credit side, due to high non performing loan and market risk movements, the bank has managed to maintain adequate capital against its market, credit and operational risk weighted assets.
2.4.4 Information Technology

In November 2006, UBL embarked on the PROXIMA initiative. This was based on their motto of Restructuring through Excellence .The PROXIMA initiative aims towards converting the branches from a purely deposits-backed profit center to selling points for all their products. So the bank is integrating consumer and commercial business at a branch level introducing the concept of Retail Banking. A secondary objective of this strategy is centralization of branch processing. Currently branch banks have siloed processing servers that synch with the main datacenters at the end of the day and at batched intervals during the day (Masood, 2008), thus further unburdening branches from data processing for them to focus on their primary task of product promotion/selling. This idea is based on the logic that UBL has 1139 branches in all, and this is their largest avenue for customer interaction and has became prime locations for cross sell.
2.4.5 Treasury

UBL has one of the most active treasuries in the market managing a diversified portfolio on traditional and derivative instruments. Traditional instruments include local sovereign bonds, term finance certificates, mutual funds, foreign securities and euro bonds as well as derivative instruments like forward rate agreements, options, forwards and cross currency exposure. Although the treasury operations have slowed in recent past due to high volatility in capital market and lower lock on Karachi Stock exchange, but the diversification of investment portfolio allows UBL to compensate for this slow growth.

2.4.6 Analysis of Core Business Activities

2.4.6.1 RETAIL BANKING

The retail portfolio comprises a full range of consumer lending products. These are: UBL Drive (Auto loans), UBL Address (Mortgage backed home & business financing), UBL Credit Cards, UBL Money (Personal loans) and UBL Cashline (running finance). Key differentiators in UBL consumer products have been innovation (chip-cards, picture-cards Galleria) as well as loyalty programmes with other consumer brands and automobile manufacturers. With trying economic conditions and threats of deteriorating asset quality on the rise, the focus of the consumer bank has shifted to strengthening controls, risk management and collections efforts, taking away from the leading and innovative spirit of product management.
2.4.6.2 CORPORATE BANKING

The CBG department of UBL defines corporate banking in Pakistan. Amongst the local banks UBL CBG is the pioneer in providing innovative solutions to its diversified and satisfied customer base. UBL CBG is considered to be a major player in the financial market of Pakistan. The Corporate Banking Group focuses on attracting and servicing large portfolio customers. Our forte is providing exemplary customer service using the "Single Window" concept and product superiority. The Relationship Management team manned by highly qualified individuals from the industry has steadily expanded our customer base and continues to enhance our cordial relations with our esteemed clients.
2.4.6.3 INVESTMENT BANKING

UBL has the largest investment bank setup in Pakistan. IBG provides innovative and unique solutions to its clients enabling them to meet the challenges of an ever- changing market.

It has dedicated specialist team investment bankers and is supported by over 50 relationship managers in six different locations in Pakistan alone. 2 . 5 F INANCI AL P E RFO RMAN CE A N ALYS IS UBL has been a very profitable bank and has proved itself to be among top 5 local banks. With a stable credit long term rating of AA+ and short term rating of A1+ , it is considered to one foundation stone of banking sector of Pakistan.

3 EXTERNAL ENVIRONME NT ANALYSIS

3 . 1 E CON OMIC F O RCE S Pakistan has historically exhibited rapid growth in terms of GDP a sustained growth rate of about 6% for several years and is currently gone down to 4.2%. The main causes for this were rapid accumulation of physical capital, positive contribution of labor force growth, increased competition from external trade and general policy of economic liberalization since 1978. Pakistan continued to run large fiscal deficits during this period, and in the pre-privatization era bank deposits were mainly used for government financing and loans to government corporations. Large scale privatization of banks in the late 90s, along with SBP banking reforms (corporate governance, capital strengthening, consumer financing, e-banking & payment systems) strengthened the banking system and helped fuel economic growth. Consumer-driven demand necessitated expansion in many industries, especially the Telecom sector and automobile

industry. Consumer banking witnessed exponential growth, and loan penetration has also rose increasing the competition among banks. 3 . 2 D E MOG RAPH IC , S OCI AL , C U LT URAL E N VI RO NME NT AL

AN D

FO RCE S

During the past decade, social perceptions of Pakistanis towards banking have changed a great deal. Tendency towards Islamic Banking (Riba-free) has increased. Banking transactions made over the Internet (e-Banking) are rapidly getting common amongst businesses entities and masses and has seen a growth in volume when compared with the last fiscal year. At the retail level, most transactions use paper-based instruments. Another new trend on the horizon is mobile banking, where both the banking industry and the mobile phone industry are working to remove barriers and develop workable systems (SBP has published a guidelines framework for this purpose), so that the huge unbanked population of the country (in which mobile phone use is spreading rapidly) can benefit. Pakistan is moving with impressive speed to cut red tape and link the banking and telecom industries in ways that could have a major impact on commerce, especially for small businesses and ordinary individuals. Increasing consumer awareness about investment avenues and asset management, brokerage, investment advisory, wealth management companies opening up, the consumer has a wider array of products to choose from. The culture of saving versus borrowing is also emerging, with consumers preferring to invest for the future rather than living on credits & loans. Demographics show a favorable change. The population has increased which gives the industries a bigger market to target. With majority of people in the age bracket of 15-64, education increasing and government addressing the employment rate, things look bright for many industries. Income per capita is now higher and this gives an opportunity for banking to thrive. The socio-cultural analysis of the environment points towards an increasing acceptance

and preference of credit-based products. Another trend is the penetration of commercial banks in rural areas. 3 . 3 L E GAL , G OVE RN ME N TAL P O LI TIC AL F AC TORS

AN D

Increase in reserve requirements by SBP (State Bank of Pakistan) is aimed at reducing the money supply and to curb inflation. This coupled by a high trade deficit and drastic reduction in foreign remittances has caused a liquidity crunch pressurizing banks and limiting their profit making avenues. The reserve requirements have been kept low in the last 6-7 years following an expansionary monetary policy allowing an increase in the money supply. 3 . 4 H UMAN R E SOURCE M ANAGE ME NT The influx of multinational firms and globalization via communication have led to an enhancement in the Human Resource structure of the local organizations as they are attempting to emulate the policies implemented on an international level. Human Resource department in all major banks like HBL, NBP and UBL are going about revamping their HR functions by trainings, updated HR policies and automating their process by using systems like Oracle HRMS (UBL currently under implementation).

4 PORTERS FIVE FORCES MODEL

4.1 Competition amongst Rival Firms

Until 1990, there were only seven domestic banks, all owned by the government, operating in the country along with seventeen foreign banks. After the introduction of laws aimed at liberalization of Pakistans financial sector, the number of domestic banks slowly started increasing. A number of already existing government owned banks were also denationalized, UBL being one of them. During the 1990s, new banks have been entering into the industry,

thus leading to a number of active competitors. Owing to increasing competition in general, and among each other in particular UBL, MCB, HBL, NBP and ABL have been offering innovative products and attractive interest rates to attract customers.
4.2 Bargaining Power of Customers/ Customer Relations

Increased customer awareness and education has resulted in customers demanding more innovative products. Customer service has become one of the most important needs of customers as evident through numerous state of the art call centers opening for every major bank. Due to the wide spread between the borrowing and lending interest rates all the banks are now under increasing pressure from the State Bank to increase the deposit interest rates and pass on some of their spectacular profit numbers minimum guaranteed return of 5% on branch banking deposits. However, UBL does have a large asset base, so it can control large-size investors by being one of the few in the market who can fulfill large capital investment projects.
4.3 Bargaining Power of Suppliers/ Supplier Relations

A bank is supplied with money by its depositors. UBL with its huge branch network across the country commands a strong position with its suppliers. In cities other banks may give UBL competition, but in rural areas where most of the population still resides, UBL may be the only bank present.
4.4 Threat of Substitutes

The banking sector in Pakistan has largely uniform product offerings across banks. Nearly every product offered by one is available in one form or the other as part of some other banks product portfolio as well. Similarly, traditional interest-based credit offerings face competition from substitute Islamic banking products. On the whole however, product features are largely

the same and therefore the chief differentiator for UBL must be in its innovative product design. Also, UBL was the first bank to offer a complete suite of consumer financing services (Auto, Home financing, business & running finances, credit cards and personal loans) in the market. The one-bank proposition of integrated financial services is the way to go for UBL to stay competitive in the substitute products arena.
4.5 Threat of New Entrants

Government has made it difficult for any further banks entering the markets by raising the capital requirements each year. Therefore, the threat is from foreign banks buying out local ones such as SCB buying out Union Bank, or the surge in Islamic banking in the country with Dubai Islamic Bank and Emirates Global Islamic Bank. Many other foreign banks are also SWOT Analysis

5 SWOT ANALYSIS

Strengths S The second largest bank in Pakistan in terms of number of branches. Large deposit base translate into low cost of funds for lending Pioneer of branchless banking in Pakistan UBL Omni (First mover advantage)

Weaknesses W Rising provisioning expense Weak retention policy resulting in high employee turnover. Lack of effective upward downward corporate communication. and

Failure to effectively communicate new corporate strategies down the line to the International Operations Base provides sales front. leverage and risk diversification as Lack of effective horizontal well as translation gains as Pakistan communication between departments with rupee depreciates. each working in an operational silo. Most elaborate IT operations in the banking industry of Pakistan supporting in-house developments Portfolio Diversification on treasury front in traditional and non traditional

instruments as well as derivatives. Non Interest Income with major contributions from recurring commissions on loans, dividend income and income from bank subsidiaries. Threats T Global economic recession resulting liquidity crunch Rising interest rates High credit risk due to the current macroeconomic scenario Political and Social uncertainty and insecurity Rapidly declining Investor confidence Capital flight and

Opportunities O Un tapped rural market in terms of micro financing More product offering through Branchless banking initiative converting non bankers to bankers Expanding consumer base due to increasing population of professional especially the women sector. Thriving scenario. International banking

Strategies SO To capitalize on its strong infrastructure and branch spread by extending complete financial solutions to consumers of all sectors. This includes providing more features through branchless banking UBL Omni and entering into new market segments. Tap onto the growth in professional population especially women sector by creating customized offerings to cater to their specific needs. Increase presence in the international banking market taking advantage of its stable international operations.

Strategies WT Revisit the existing salary structure on competitive terms to retain skilled workforce as far as sales team is concerned including the branchless banking team. Develop and administer comprehensive training and orientation programs for newly recruited workforce especially the sales front in the branchless banking area and proxima implementation. Devise strategies to increase coordination amongst the various organizational functions so that duplication of efforts and conflicts do not rise.

APPENDIX V MISSION, VISION & CORE VALUES ANALYSES

V-1 A N ALYS IS Criteria Narrow or broad Everybody should relate to it Customer orientation Declaration of attitude Imbued with emotion Inspiring Philosophy Clarity, cogent Declaration of social policy Technology Quality Products and Services Markets Growth, survival and profitability Self concept Concern for employees Core values Honesty and Integrity Commitment and dedication Fairness and meritocracy Humility and mutual respect Caring and Socially responsible Teamwork and collaborative Spirit Vision Broad Y Y Y Y Y Y Y N N Y N Y Y Y Y Vision N Y N Y/N Y/N Y Mission Specific N Y Y Y/N Y Y Y Y/N Y Y Y Y Y Y Y Mission Y/N Y Y N N Y

Appendix VIII | [xix]

GLOSSARY
CAD Genesis iMAL PROXIMA RTGS SOA SYMBOLS UBL Address UBL Business Line UBL Cards UBL Cash Line UBL Drive UNIBANK VaR Corporate Asset Division Core Banking Project Initiative Islamic Banking System Branch restructuring and centralization project Real time Gross Settlement Service Oriented Architecture Core Banking Product by SUNGARD Home Loans Product Business Loans Product Credit Cards Product Personal Loan Product Credit Cards Product UBLs legacy core banking system Value at Risk

References | [a]

BIBLIOGRAPHY
State Bank of Pakistan. (n.d.). Retrieved April 24, 2011, from SBP: www.sbp.org.pk UBL. (2010). Annual Report 2007. UBL official website (http://www.ubl.com.pk) UBL Financial Statements: o 20010 https://www.ubl.com.pk/aboutus/financial_report/report_2010/ o 2009 https://www.ubl.com.pk/aboutus/financial_report/report_2009/ o 2008 https://www.ubl.com.pk/aboutus/financial_report/report_2008/ o 2007 https://www.ubl.com.pk/aboutus/financial_report/report_2007/ o 2006 https://www.ubl.com.pk/aboutus/financial_report/report_2006/

References | [b]