National University of Modern Languages,

Islamabad
Strategic Audit of a Corporation

Faysal Bank Ltd

Group Members

Sajid Iqbal (13177)

Kamran Tahir (13171)

Submitted to

Dr. Fauzia Mubarik

I. CURRENT SITUATION
A. Current Performance:
As part of its strategy of profitable growth, Faysal bank has acquired controlling interest of
Pakistan Operations of The Royal Bank of Scotland Limited (RBS Pakistan) on October 15,
2010. RBS Pakistan consist of of Retail, Corporate, Commercial and Islamic businesses
spread across the country. This is a significant landmark for the bank as it counterparts their
determined growth plans. RBS Pakistan provided a solid client franchise and an admirable fit
to Faysal Bank’s existing businesses. The combined entity had an asset base in excess of Rs.
488.02 billion with a network of over 421 branches, making FBL one of the top ten banks in
Pakistan.

Last year, Faysal Bank Limited (FBL) performed well. Compared to the past two years. The
table below shows the performance of the modern FBL. Looking at the table, we found that
after tax and earnings per share (EPS) rose in 2017 by 2.25% and 4.9% respectively,
compared to 2016. According to its financial results, the bank's earnings fell to Rs. 1.217
billion during the period from January to March 2018 compared to Rs. To $ 1.867 billion in
the same period last year. The decrease in profitability resulted from a decrease in margins
from non-interest income (commissions and brokerage income), which fell to Rs 1.5 billion
from Rs. 2 billion. The Bank has earned Rs. 3.69 billion of revenue related to interest during
the same period, which fell from last year's income of Rs. 3.79 billion.

In general, Faysal Bank Limited's revenues fell to Rs. 5.21 billion in the first quarter of 2018
compared with Rs. 5.82 billion recorded in the same period last year. Earnings per share per
share also fell to Rs 0.92 from 1.42.
B. Strategic posture
a. Vision

“Excellence in all that we do.”

b. Mission

“Achieve leadership in providing financial services in chosen markets through innovation.”

c. Objectives:
Faysal Bank Limited, (2017). Annual Report. Karachi. The objectives set for year 2018 are as
under:
 Target of opening of 50 branches in year 2018.
 Prudent growth & Cost efficiencies.
 Continued investment in technology & infrastructure.
 Further deepening of the culture of diligence and corporate responsibility.

d. Strategies:

Most FBL’s strategies are highly confidential, due to intense competition in the market.
However, some of the strategies mentioned by senior management in the annual report are as
follows:
• Providing banking products and services that are necessary, convenient and marketable.
• To grow as an enterprise with wisdom and profitability in supply.
• Establish relationships of trust and mutual benefit with customers and shareholders.
• Maintaining and motivating staff base.
• Continuing to be a socially conscious organization

II. CORPORATE GOVERNANCE

A. Board of Directors

Mr. Farooq Rahmatullah Khan Chairman/Non-Executive

Director
Mr. Ahmed Abdulrahim Mohamed Abdulla Bucheery Vice Chairman/Non-Executive
Director
Mr. Yousaf Hussain President & CEO
Mian Muhammad Younis Independent Director
Mr. Imtiaz Ahmad Pervez Non-Executive Director
Mr. Juma Hasan Ali Abul Non-Executive Director
Mr. Abdulelah Ebrahim Mohamed AlQasimi Non-Executive Director
Mr. Abdulla Abdulaziz Ali Taleb Non-Executive Director
Mr. Fuad Azim Hashimi Independent Director
Mr. Ali Munir Independent Director

COMPANY INFORMATION
Established in 1994 External auditors: A.F. Ferguson & Co.
Chartered Accountants
Public Limited Company Chairman of the Board: Mr. Farooq
Rahmatullah
Key Shareholders (with stake 5% or more): CEO: Mr. Yousaf Hussain
Ithmaar Bank & Subsidiaries – 66.8%
General Public – 14.9%
Foreign Investors – 6.4%
Public Sector Companies & Corporations – 5.4%

B. Top management

FBL Senior management includes: BoD, Head Office Management, Southern Region
Management, Central Region Management and Northern Region Management. Mr. Hussain
Hussain, current CEO and current President of FBL, has over 23 years of professional
experience, primarily in ABN AMRO, where he held several senior management positions
including jobs including corporate / credit and banking. He has worked with Faisal Bank
Limited since August 2008, with a significant contribution to excellence in his previous
positions as Head of Risk, Head of Corporate Banking in the Northern Region and Head of
Private Asset Management Group. His experience also includes a senior position with Samba
Bank and previous duties with Mashreqbank and Mobilink / Motorola. Current senior
management is very professional compared to the past management of sealed rubber
representation (mostly operating / temporary in nature).

III. EXTERNAL ENVIRONMENT: OPPORTUNITIES AND

THREATS

A. Societal Environment
Following are the forces, which are currently affecting Faysal Bank and the Banking
Industry:
a. Economic

The most important things affecting Faisal Bank and the banking industry are increasing
interest rates, high inflation in the economy, for example, KIBOR is currently the standard
for industrial lending is at the highest point ever.

b. Technological

Developments such as the introduction of Oracle financial systems, symbols and applications
increase the productivity of Faisal Bank as well as the banking industry, but on the other
hand, the initial implementation costs increase the administrative cost of FBL.

c. Socio cultural

Social cultural forces such as values, demographic characteristics, etc. also affect the FBL as
well as the banking sector. Because of these values, some professionals do not want to join
the banking sector, and some people do not keep their money in banks because of religious
faith. On the other hand, these ideas also help banks to offer Islamic products. FBL lost two
different clients because of this reason because of the shift from Islamic banking to
conventional banks.

e. Political-legal

These include such forces as the country's political conditions, SBP regulations, etc. also
affect the FBL as well as the banking sector. For example, SBP increases discount rates,
minimum capital requirements (MCR), cash reserve ratio, etc., causing liquidity problems
with Faysal Bank and the banking sector. Because of MCR, many mergers have taken place
in the banking sector, and a few mergers are expected in the near future.

B. Task Environment (Industry)

Many of the forces in the industry compete, including technology such as Symbols, Sun,
Oracle, etc., the larger branch network, ATM sites, unique products, foreign bank access, and
so on. The FBL task environment can be discussed by following the Porter model:

a. Threat of new entrants

The opening of Barclays (the reputed World Bank), the threat of the entry of the Bank of
China (BOC) through the acquisition of SME Bank and the Industrial Development Bank of
Pakistan (IDBP), while BOC plans to acquire 26% stake in National Bank of Pakistan .

b. Bargaining power of buyers

Due to the increase in interest rates, small businesses cannot get loans from banks, while the
number of companies in Pakistan is limited. Therefore, key customers (corporate customers)
from banks have gained a great deal of power, and now they can bargain with the relationship
managers because of the large number of banks.
c. Threat of Substitute products or Service

As such, there is no significant threat of alternative products or services, but various

investment funds, security dealers provide little services such as investment-related services,
but these services are limited to large cities. While, on the side of deposits, the National
Savings Organization, offering alternative products to bank depositors through attractive
packages, at very attractive prices.

d. Bargaining power of suppliers

Currently, this is a big problem for FBL. In addition to the industry, due to the liquidity
crunch and weak international financial rating in Pakistan, all fund suppliers avoid providing
credit to the Pakistani industry. The increased bargaining power of depositors has increased
because of the high profit rate offered by different banks, Due to the scarcity of deposits with
the bank.

e. Rivalry among competing firms

The banking sector is facing stiff competition, due to the availability of many national and
international banks in the industry. Currently, MCB is leading the National Investment Bank
(NIB) with higher profits.

IV. INTERNAL ENVIRONMENT: STRENGTHS AND

WEAKNESSES

A. Corporate Structure

In 2016, FBL has made several changes in the structure of the company. Now there is a
combination of central and decentralized power structure. FBL has centralized all activities
and processes that require management experience and SBP requirements, for example.
Account opening, credit management, letter of credit, exchange approval, etc. The central
objective of decentralization is to increase specialization, improve efficiency and address the
threats posed by competition. For example, before the centralization, all branches
implemented credit management activities (which are highly technical) separately, so there
were no experts in each branch and these activities were a burden on the branch manager.
Therefore, in this way FBL increased efficiency and specialization by focusing activities in
the regional branch with the help of Symbols. The current structure is not clearly understood
by everyone in the company, because of the complexities of operations. However, in a
specific section, unit, etc. Everyone clearly understands his duties, responsibilities,
procedures, and about the structure of the entire circle and area.

B. Corporate Culture

The current culture of the FBL is the ideal one. There is a strong interaction between staff in
the unit, because of the same kitchen and dining table for officers and staff, with staff and
their superiors having lunch, tea parties, etc. in an informal way. These informal groupings
allow staff to adapt to changing circumstances and increase productivity and quality.
Moreover, because of attractive salary packages, employees are stimulated, but the heavy
workload causes frustration not only for employees, but for officers as well.
C. Corporate Resources

1. Marketing
Current marketing objectives, strategies, and policies, which are not clearly stated, rather than
being highly confidential. FBL offers very attractive products and very competitive prices, in
almost all branches. However, the problem lies in promotional activities, and FBL does not
take any serious steps in this regard. FBL ads are very weak; in fact, is nothing on the
electronic media as well as printing. It only advertises its products through brochures,
signage, etc. in its branches and ATMs. This is one reason why the consumer finance
department is losing money despite attractive products. One can predict that if this marketing
practice continues, you will lose many FBL customers, because if people are not aware of
products, places, etc., there is no need to offer such products. From FBL marketing, one can
conclude that it has no competitive advantage in marketing, in addition to the lack of
appropriate marketing techniques, so that the proposal card is not presented to improve or
evaluate product performance, performance is evaluated only through profits generated
through the product.

2. Finance
FBL is a financial institution and therefore, its financial objectives are clear such as EPS
increase, increase in stock prices, dividend distribution, high yield holders. FBL Finance
Officers are committed to the rules and regulations of the Securities and Exchange
Commission of Pakistan (SECP), SBP, and International Accounting Standards.
3. Research and Development (R & D)
There is no official R & D department in FBL, because of the industry nature.

4. Information System (IS)

The information system of FBL is very good and very effective. The company uses the
information system for a variety of purposes, for products, for the financial sector, for credit
approval, communications, human resources, etc. In this regard, FBL implemented the code
system, which is close to the full implementation of Oracle Financials. FBL has an online
presence and offers electronic banking facilities as well. The FBL information system is
highly competitive compared to direct competitors such as Meezan Bank and Al Falah Bank,
as these banks do not use systems such as HRMS at present.

5. Human Resources Management (HRM)

FBL's current human resource management policies and strategies are highly confidential.
However, implicit practices can be. The HRM Administration at FBL announces the MTO
Group twice a year. The Human Resources Department also monitors the policy of direct
recruitment of experienced persons from other banks. FBL's Human Resources Department
manages diversity very well. It has appropriate training programs for MTO and TO (Trainee).
In the past several years, FBL has not seen any strikes, etc. Quality of working life is very
good. There is no FBL staff union. However, the main problem encountered is to increase
staff turnover, which is more than 41%, Human Resources Department, Department. In the
past, the FHR department of FBL has provided a competitive advantage to the bank, but now
its policies are bothering the company as a whole, because of the rapid increase in staff
turnover and direct recruitment.
 V. ANALYSIS OF STRATEGIC FACTORS (SWOT)

A. Situational Analysis

SWOT Analysis

Here is the SWOT analysis of the Faysal BankLimited

 Strength
• Based on superior financial strength and performance, Faysal Bank Limited was
appointed in the short term rating of A1 + (A One Plus) and AA (Double A) in the long
term by JCR-VIS.
• Better technology such as Symbols, Oracle Financial Execution, HRMS.
• Pay packages are very attractive to employees.
• Heavy domestic finance - any of the deposits that are growing significantly.
Attracting large companies such as SNGPL, Attock Group of Companies, Zaver
Petroleum, etc.
 Weaknesses
• A weak subnet across the country.
• Employee turnover.
• Low number of ATMs.
•Attracting customers from the upper and middle class only.
• Market share decreases from new competition.
 Aborting staff due to excessive workload
 Opportunities
• The agricultural market can be captured by providing innovative agricultural financing
products.
• The impressive print and electronic advertising campaign that highlights FBL's role in
Pakistan's rural economy can give it a competitive edge over its competitors.
• By re-branching, FBL can capture a lot of new customers.
• Merger with Barclays Bank or Bank of China to become part of a larger international
banking network and increase profits.
 Threats
• The trend in the banking sector has declined, which can affect it largely because of its
large corporate clients, which are few in number.
• The arrival of new banks such as Barclays Bank and Bank of China in Pakistan, which
may increase competition in the banking sector.
• Low trend in earnings per share and stock prices.
• Transfer of key personnel, for example. Managers of institutional relationships, which
means transferring corporate clients to other banks.
VI. STRATEGIC ALTERNATIVES AND RECOMMENDED STRATEGY

A. Strategic Alternatives Available to FBL

FBL's current objectives can not be met by implementing the strategies currently in use, due
to the continued poor performance, the liquidity crisis and recent business in Pakistan. In
addition, objectives should also be reviewed in order to stop the downward trend in
profitability and address current challenges.
Feasible Alternative Strategy available to FBL Corporate Strategy:
Taking into account the urgency of the circumstances, FBL must follow the Retrenchments
strategy for the current year. This strategy has been justified on the grounds that it should
eliminate the weaknesses of Faysal Bank and convert bad debt losses into profits by focusing
on current issues and challenge rather than creating new challenges for the already troubled
bank. In this regard, FBL should follow the transition strategy to improve operational
efficiency, because the problems are widespread but not critical. In addition, FBL must
follow a deflation strategy to reduce unnecessary costs. Although these strategies will affect
profits to some extent, it is better to guess short-term benefits to achieve long-term benefits.

B. Recommendations to improve the financial health of FBL & Implementation

Management should focus on collection of arrears / rated loans in order to reduce provisions
and increase profitability, for example, in 2017 gross non-performing loans Rs. 3199581
million compared with Rs. (Faisal Bank, 2017). If FBL offers a discount of 10% to 22%,
taking into consideration the NPL status, which is below the level and without doubt and loss,
for many defaulters, this approach will solve the following problems:
i. Many defaulters will return loans in order to avoid legal consequences.
ii. Instead of the direct write-off of bad debts, it's better to collect something rather than get
something.
iii. FBL can get the "time value of money" advantages, for example, if FBL receives a portion
of non-performing loans after many years by incurring legal expenses, this approach will
enable the funds to be used in a profitable manner.
2) Rise in deposits will also help to bring deposits/advances ratio to 70% from 90%, which is
condition of SBP.
3) FBL must introduce a new short-term product in order to obtain deposits, for example.
FBL can offer a one-year profit rate higher than that of other banks. In this way, FBL can
provide 2 to 4% in addition to the spread on lending advances. Therefore, this will contribute
to FBL profitability.
4) Credit policy should be tightened in order to reduce non-performing loans. In this regard,
loans extended to individual customers should be extended solely on the basis of basic
monetary guarantees such as defence saving certificates, national savings certificates, term
financing certificates, etc. In the case of SME customers, the maximum of collateral and
security should be obtained, due to increased risk of default in Pakistan due to increased
production costs.
5) FBL should contact its holding company, such as Ihtmaar B.S.C. (Its international
financial rating is AA) in order to obtain funds at a cheap price compared to domestic
markets. Due to the low financial rating of Pakistan by Standard & Moody, IFIs avoid
lending to Pakistani institutions, which cause problems in foreign exchange accounts. In this
way, FBL can solve its dollar problems, which other banks cannot solve at low rates.
VII. IMPLEMENTATION:
The President and CEO, Mr. Yousuf Hussein, in collaboration with senior management,
should take the initiative to adopt a reduction strategy for a specified period. For the financial
recommendations, the head of the Treasury, Head of Risk Department, is assisted by the
Head of Strategic Development, Mr. Ahmed Zahid Ahmed, to implement the above options,
except for the recommendations of the increase in deposits and collection, because these
activities must be carried out by the Head of Commercial Banking, Mr. Taher Yaqoub, Head
of Retail Banking and Mr. Aniq Malik, assisted by the Head of Strategic Development, Mr.
Mohammed Zahid Ahmed.
Recommendations related to Administrative System
1) In order to support the retrenchment strategy and constriction of credit policy, the process
of credit approval should be centralize to excessive extent. It means that the current credit
limits i.e. Rs. 2,500,000 to Rs.50, 000,000 allowed to the RCC (regional credit committee)
should be reduce and Country Credit Committee (CCC) should monitor each credit approval.
This thing will slow down process to some extent, but it is justifiable on the ground that now
a day’s bank is receiving very low number of credit requests from customers, so this will not
increase burden of CCC.
2) Credit Risk Management (CRM) Department should be centralize, because it will help to
detect inconsistencies at provincial level by the central CRM, in this way probabilities of
deceptions should also be minimalized.
3) To further support the tight credit policy, procedure of Risk Approval (RA) Sheet should
be changed. It means it should be made obligatory for each RA above the limit of Rs. 25mn
to be go through by CCC. This should only be done for the SME and corporate customers not
for individual clients, whose low loan amount need not to be supervised by CCC.
Implementation:
The above-mentioned recommendations should be implemented by Head of Risk and CCM,
Mr. Mian Salman Ali, with the help of Head of Services, Mr. Aneeq Malik.
Other Performance Related Recommendations
1) Instead of expanding branches of traditional branches, FBL should open separate Islamic
banking branches, in which FBL has core competencies. This is justified on the grounds that
FBL also incurs expenses to open new branches, so why not open Islamic banking branches.
Moreover, FBL currently incurs expenses on a separate Islamic banking department, which
will not incur additional administrative costs. In addition, it will strengthen the confidence of
customers who assert that FBL will open branches of Islamic banking.
2) Currently due to a crisis in the financial industry and rumours of downsizing the banking
industry creates fear in the minds of employees. ((PERSONAL COMM)) until this problem is
resolved automatically. Moreover, because of low banking activities, FBL needs its labour
rights.
3) As for cultural transformation, there is no need to take action, because everything is going
well, as there is no single case of strike. Moreover, most employees are committed and
happy; therefore, there is no employees union in the FBL.
4) FBL should publicise its consumer products and it should establish events on periodical
basis.
Implementation:
The DCEO and Head of Islamic Banking, Mr. Faisal Shaikh with the support from top
management, should implement the above-mentioned recommendations.
VIII. EVALUATION AND CONTROL
The current information system is capable of providing adequate feedback on implementation
and performance activities, because the codes are widely used by leading financial
institutions in the world. Therefore, it can meet the needs of evaluation and control FBL.
Conclusion:
In short, although the current situation of the FBL is not good, but it is not uncontrollably
negative, if the management follows the recommendations suggested above, it is expected
that most of the problems will be resolved, but it will take time and requires commitment all
the staff of Faysal Bank.
 EXHIBIT 1
Internal Factors Analysis Summary (IFAS)
Strengths Weight Rating Weighted Score
S1 Short-term & Long-term rating 0.10 4.5 0.45
S2 Better technology like Symbols, implementation of Financial Oracle,
HRMS 0.10 3.5 0.35
S3 Attractive salary packages 0.07 4 0.28
S4 Heavy internal financing i.e. from heavily growing deposits 0.09 3 0.27
S5 Attracted big corporations like SNGPL, Attock Group of Companies,
Zaver Petroleum, etc. 0.06 3.5 0.21
S6 Fit with regulation 0.05 2.5 0.125
S7 Top Management 0.08 3.5 0.28
S8 Brand Name 0.10 4 0.4
Subtotal 0.65 2.365

Weaknesses Weight Rating Weighted Score

W1 Weak branch network across the country 0.05 2 0.1
W2 High employee turnover 0.06 2 0.12
W3 Low number of ATMs 0.03 2 0.06
W4 Attracting only upper and middle class customers 0.03 1.5 0.045
W5 Market share is declining from new competition 0.04 1.5 0.06
W6 R&D 0.08 2 0.16
W7 Employees’ frustration due to excessive work burden 0.06 2.5 0.15
Subtotal 0.35 0.695
Total 1.00 3.06

EXHIBIT 2
External Factors Analysis Summary (EFAS)
Weighted
Opportunities Weight Rating Score
O1 International Drivers 0.07 2 0.14
O2 Online Banking Services 0.10 4.5 0.45
O3 Increased Demand for Banking services 0.08 4.5 0.36
O4 Merger with other Bank 0.07 4 0.28
O5 Impressive print and electronic media campaign 0.05 3.5 0.175
O6 Capture agriculture market by offering innovative agri finance products 0.07 3 0.21
Subtotal 0.44 1.615

Weighted
Threats Weight Rating Score
T1 Decreasing trend in Earning per share and stock prices 0.08 3 0.24
T2 Moving of key employees 0.07 3 0.21
T3 Arrival of new banks 0.10 4 0.4
T4 Declining trend in banking sector 0.05 3.5 0.175
T5 Increase demand for Islamic Banking 0.08 4 0.32
T6 Uncertain Economy 0.10 2.5 0.25
T7 Cyber Risk 0.08 3 0.24
Subtotal 0.56 Subtotal 1.835
Total 1.00 3.45
 EXHIBIT 3

SFAS Table
Weighted Short Intermediate Long
Key Strategic Factors Weight Rating Score Duration Duration Duration Comments
S2 Better technology like
Symbols, implementation
of Financial Oracle,
HRMS 0.1 3.5 0.35 X
T3 Arrival of new banks 0.1 4 0.4 X
S8 Brand Name 0.1 4 0.4 X
They have
clear vision,
mission
S7 Top Management along with
strong
organization
0.08 3.5 0.28 X X structure
S4 Heavy internal
financing i.e. from
heavily growing deposits 0.09 3 0.27 X
There is no
economic
W6 R&D
research
0.08 2 0.16 X dept.
W2 High employee
turnover 0.06 2 0.12 X
Find New
O2 Online Banking way to serve
Services customer
0.1 4.5 0.45 X X virtually
Bank can
S6 Fit with regulation cop with
0.05 2.5 0.125 X X Laws
S5 Attracted big
corporations like
SNGPL, Attock Group of
Companies, Zaver
Petroleum, etc. 0.06 3.5 0.21 X X
Less ability
O3 Increased Demand
for saving.
for Banking services
0.08 4.5 0.36 X Less income
T6 Uncertain Economy 0.1 2.5 0.25 X
Total 1.00 3.38
 EXHIBIT 4

Implementation, Evaluation, and Control Plan for FBL

Priority How
Strategic Who Will Who Will Criteria
Action Plan System Often
Factor Implement Review Used
(1-5) Review
Financial collection of collection of
senior
health of overdue/classified 5 CEO Monthly arrears / rated
management
FBL loans loans
The Credit approval Regional Group Retrenchment
retrenchment should be 4 Quarterly
Heads Heads strategy
strategy centralize
As per branch
Branch Deployment of Regional Group
2 Daily business and
operations staff Heads Heads
requirement
Publicize its Advertising,
RM G.M
Marketing consumer 3 Daily awareness to
(Branches) Marketing
products client

separate
Branches Open Islamic Group Head Group Islamic
1 Yearly
Expansion banking branches HR Chief HR banking
department,