Developing a Strategic Plan for Brac Bank Ltd. for 2020

Introduction

ObjectivesBroad Objective:To identify and analyze the Key Performance Indicators and formulate best suited Strategic Plan for 2020

Specific Objectives: To identify the Key Performance Indicators for the bank Determining the desired perceived Identity for the bank Setting specific strategic goals for 2020

MethodologyPrimary sources:

Depth interviews with bank officials, semi-structured questions, 60-90 minutes

Secondary sources: Annual & Half Yearly Reports of peer banks Bangladesh Bank publications Other financial news

Company Overview

Highlights

Launched on July 04, 2001 86 Branches 21 SME Service Centers 48 SME/Krishi Branches 333 ATMs Over 400 SME Unit Offices More than 1,300,000 customers accounts

Vision, Mission and Values

Vision Statement“Building a profitable and socially responsible financial institution focused on Markets and Business with growth potential, thereby assisting BRAC and stakeholders build a "just, enlightened, healthy, democratic and poverty free Bangladesh”.

Vision, Mission and Values

Mission StatementSustained growth in ‘Small & Medium Enterprise’ sectorContinuous low cost deposit growth with controlled growth in Retained AssetsCorporate Assets to be funded through self-liability mobilization. Growth in assets through Syndications and Investment in faster growing sectors.Continuous endeavor to increase fee based income

Vision, Mission and ValuesMission Statement (Cont.)Keep our Debt Charges at 2% to maintain a steady profitable growthAchieve efficient synergies between the bank’s branches, SME unit Offices and BRAC field officers for delivery of Remittance and Bank’s other products and servicesManage various lines of business in a fully controlled environment with no compromise on service qualityKeep a diverse, far flung team fully motivated and driven towards materializing the bank’s vision into reality

Vision, Mission and Values

Core Values Value the fact that are a member of the BRAC family Creating an honest, open and enabling environment Have a strong customer focus and build relationships based on integrity, superior service and mutual benefit Strive for profit & sound growth

Vision, Mission and ValuesCore Values (Cont.) Work as team to serve the best interest of our owners Relentless in pursuit of business innovation and improvement Value and respect people and make decisions based on merit Base recognition and reward on performance To be responsible, trustworthy and law-abiding in all that we do

Industry Analysis

PESTEL Analysis

Political FactorsStrength of Factor: 1 (Strong) Duration of Effect: Mostly Short-term

Political Uncertainties and Unrest Tax and Profit Repatriation policies Entry mode regulations for local banks

PESTEL Analysis

Economic FactorsStrength of Factor: 1 (Strong) Duration of Effect: Long-term

Interest rates Credit accessibility

PESTEL Analysis

Social FactorsStrength of Factor: 2 (Medium) Duration of Effect: Long-term

Population demographics Changes in lifestyles and trends

PESTEL Analysis

Technological FactorsStrength of Factor: 1 (Strong) Duration of Effect: Both Long-term and Short-term

New Innovations in Financial Services Technological Advances and Electronic Platforms

PESTEL Analysis

Environmental FactorsStrength of Factor: 2 (Medium) Duration of Effect: Long-term

Environmental Protection Laws Popular and Government Attitude towards Environmental Safety

PESTEL Analysis

Legal FactorsStrength of Factor: 1 (Strong) Duration of Effect: Both Long-term and Short-term

Employment Regulations Operational Regulations

Porter’s Five Forces

HIGH

LOW

HIGH

HIGH

MODERATE

TRENGTHS

SWOT Analysis

• Young, energetic and dedicated resource pool

• Wide range online distribution channel

• Unique SME model • Strong technological platform

• Strong brand• Diversified Business Model

• Largest customer base among PCBs including Mobile banking

• Organizational flexibility

• Asset quality • Inconsistent customer experience

• Absence of focused technology roadmap

• High CIR (Cost Income Ratio)

• Low Non Funded Income

S

O PPORTUNITIES T HREATS

• Trade Finance • E-commerce • bKash infrastructure • Customer mining from parent & subsidiaries

• Growth in Medium, Emerging and Small sectors

• Derivative and FX products

• Social Networking• Mobile phone based banking

• Agent Banking

• New Competition • Talent Attrition, Staff turnover

• Unstable capital market • Country Image crisis may result withdrawal of facilities like GSP

• Industrial Unrest causing investors’ interest shift to Myanmar, Vietnam, Sri Lanka etc.

SWOT Analysis

Financials

Industry Highlights: December 2012

INDUSTRY SCENARIOOperating Profit PBT FUM CIR NPL

As on 31st December 2012 BDT_M

Growth BDT_M

Growth BDT_M % %

Islami Bank Bangladesh

15,608 10.9%

12,096 16.9%

758,324

36.2% 3.8%

National Bank 3,725

-61.2%

3,275

-65.1%

283,500

69.1% 4.3%

Prime Bank 8,551 15.1%

5,335

-21.1%

342,943

36.6% 3.8%

UCBL 5,762 -3.5%

3,739

-27.7%

306,602

43.4% 3.7%

Southeast Bank 5,434 -6.5%

3,584

-16.9%

280,217

29.5% 4.5%

Pubali Bank 11,511 21.7%

4,317

-20.2%

272,487

46.7% 5.1%

Eastern Bank 8,844 13.5%

5,581 9.3%

188,501

36.9% 3.2%

Dutch Bangla Bank 5,205 0.9%

4,816 5.9%

217,034

81.1% 3.0%

BRAC Bank 5,145 3.5%

1,988

-33.9%

238,271

52.8% 7.4%

AB Bank 8,435 8.9%

3,190 7.9%

246,092

70.4% 3.3%

Dhaka Bank 5,343

-14.2%

1,440

-60.6%

197,567

39.7% 6.3%

Bank Asia 5,052 25.0%

2,723

-20.7%

202,391

48.6% 5.7%

NCC Bank 4,027 -4.5%

2,743

-24.4%

176,866

61.0% 5.5%

The City Bank 4,537 6.3%

1,763

-49.2%

177,432

46.6%

14.9%

Mercantile Bank 6,209 0.6%

3,351 -4.3%

225,705

45.2% 4.4%

Industry Highlights: December 2012

INDUSTRY SCENARIO RankingAs on 31st December

2012Op.

Profit PBT FUM CIR NPL

Islami Bank Bangladesh 1 1 1 14 11National Bank 15 10 4 3 9Prime Bank 4 3 2 13 10UCBL 7 6 3 10 12Southeast Bank 8 8 5 15 7Pubali Bank 2 5 6 7 6Eastern Bank 3 2 13 12 14Dutch Bangla Bank 10 4 10 1 15BRAC Bank 11 14 8 5 2AB Bank 5 11 7 2 13Dhaka Bank 9 16 12 11 3Bank Asia 12 13 11 6 4NCC Bank 14 12 15 4 5The City Bank 13 15 14 8 1Mercantile Bank 6 9 9 9 8

Findings

Desired Perceived Identity

Q & A: Depth Interview What are the main goals for 2020? The main goals for 2020 are to be within top five banks in terms

of Operating Profit and be the 2nd largest bank in terms of Fund under Management.

  What are the main challenges ahead? The major challenges are political unrest, NPL reduction and

cost income ratio reduction  What is the desired growth in the SME sectors? BBL aims to achieve a greater market share at the end of 2020.

Would the loan mix change to focus on Corporate and Retail more? Retail and Corporate must grow but the focus would still be SME.

What is the desired deposit mix? The deposit mix should change with greater focus on CASA.

Q & A: Depth Interview What is the aspired ranking in the industry in terms of Profit? The aspired ranking in the industry in terms of Profit is to remain

within top 5.  What is the aspired ranking in the industry in terms of FUM? The aspired ranking in the industry in terms of FUM is 2nd.

What should be the communication strategy? Effective but efficient (less costly) communication strategy should

be used.

Are there probable going international plans? BBL will focus on internal consolidation first then extend footprints

internationally

What are the technological prospects? Innovation & Technological Advances are continuous processes. BBL

aims to turn its IT into a profit centre through the launching of biTS, BRAC IT Services Ltd.

Q & A: Depth Interview How can you improve the efficiency of the workforce? BBL has a separate Learning & Development Division for

training thus efficiency improvement of their employees.  How can you reduce the costs? Staff cost can be reduced through efficiency and

specialization/ job rotation where relevant.  Are there any plans of leveraging subsidiaries? bKash channel could be used to reduce dependency on

corresponding bank.  What ROE would you like to offer the shareholders? Shareholder wealth maximization thus higher ROE offering

is essential and one of the major goals for 2020.

Analysis & Recommendations

Strategic Objectives : 2020

SME Market Share Present Status: 6% market Share Recommendations:

Focus on the medium segment A 2% increase per year would make the share 20% at the end of 2020

Year 2013 2014 2015 2016 2017 2018 2019 2020 SM E M arket Share 6% 8% 10% 12% 14% 16% 18% 20%

Strategic Objectives : 2020

Operating Profit Present Status: 11th position in 2012

Recommendations: Increase the ranking by 2 from 2014 to 2017 and reach 5th position

Aim for the 2nd position in 2020 Focus on Non-Funded Income such as LC

Strategic Objectives : 2020

Fund Under Management Present Status: 8th position in 2012

Recommendations: Reach 2nd position by 2020 Loans and Advances and Deposits should grow at 30% per year

Deposit mix should increase its share of CASA so that low cost funds are more and net interest margin is higher

Strategic Objectives : 2020 Operating Cost

Present Status: 5th position in 2012 in terms of cost income ratio

Recommendations: A fundamental redesign of the way the bank operates to reduce cost sustainably

Approach: A small team should be formed from various departments of the bank to conduct a series of bottom-up and top- down analyses to develop aggressive goals

Team: Bank’s leadership team must visibly lead the effort and must illustrate both their vision for short-term changes and their long-term view in town hall meetings, electronic newsletters, social- networking sites, and Q&A sessions for small groups

Engagement: The entire organization must be mobilized throughout the process by a systematic change program that ensures the right amount of information is communicated to the right people at the right time.

Strategic Objectives : 2020

Non Performing Loans Present Status: 2nd position in 2012 Recommendations:

The credit division needs to be more careful and obtain relevant trainings if required from experts / organizations.

The collection team also needs to be more aggressive and motivated to reduce the NPL

Strategic Objectives : 2020

Return on Equity Present Status: 5.47% in 2012 Recommendations:

It should be around 10% in 2013 and increase in the following way in the coming years:

Year 2013 2014 2015 2016 2017 2018 2019 2020 ROE 10% 12% 14% 16% 18% 20% 22% 25%

Conclusion Strategic Management is very important to ensure that employees and other stakeholders are working toward common goals

The bank should focus on few specific areas rather than too many targets for achieving their desired position in 2020: SME market share, Profit, FUM, Costs, NPL & ROE

BBL must think ahead of time and act ahead of competitors to retain leadership in innovative banking

Mr Najmul Hoque JewelHead of Business Planning and AnalysisFinance Division, Brac Bank Limited

Mr. Benozeer AhmedSenior Manager, Business Planning and AnalysisFinance Division, Brac Bank Limited

Mr. Salman AhmedSenior Manager, Business Planning and AnalysisFinance Division, Brac Bank Limited

Acknowledgement

Thank you

Q & A