Main purpose of this report is to analysis Strategic Management Process in Dhaka Bank Limited. Other objectives are finding out the level of awareness of the strategic management process of the bank among the employees and finding out the impact of the level of awareness existent among the employees. Finally developing an ideal strategic management process/framework which both a startup local PCB or an existing PCB can use.
The broad objective of this report is the stock-taking of the awareness level of strategic management process in Dhaka Bank Ltd. It also has the following specific objectives:
- Finding out the level of awareness of the strategic management process of the bank among the employees
- Finding out the impact of the level of awareness existent among the employees
- Applying several different management models and tools to the local PCB’s business mold
- Developing an ideal strategic management process/framework which both a startup local PCB or an existing PCB can use.
Extensive literature review was undertaken prior to the preparation of the report. However, we could not find any secondary information of any research on strategic management of Bangladeshi banks in the literature.
In addition, we conducted extensive probing interviews in the bank stated in the paper. Therefore, the banks themselves are our sources of primary information. We also conducted KII with the central bank to acquire the regulatory point of view.
Background of the Banking Industry
The banking industry has been developing steadily over the years by keeping in tandem with the overall growth of the economy. The importance of this sector has amplified due to globalization and increased integration of all the economies into one single body resulting due to international trade. The Bangladeshi economy is mainly dependent upon Readymade garments (RMG) and remittance for its currency inflow.
The banking sector plays a sophisticated role in ensuring proper channeling of funds to and from the two parties of transaction. The banks also help to provide a safe haven for the rich middle and upper class to set aside their surplus funds. The financial institutions play a vibrant role to secure loans for businesses so that they can expand their capacity and increase gross domestic products of the country. Finally, the central bank can influence various aspects of the economy through the commercial banks by issuing guidelines and by changing the SLR, CRR etc.
Background of Dhaka Bank Limited
History of the Bank – Dhaka Bank Limited
The importance of financial intermediaries in the development of the overall economy of country cannot be described in short. From the inception of the civilization the banking sector dominate the economic development of a country by mobilizing the saving from the general people and channeling those saving for investment and thus economic development and growth.
The importance of commercial banks after the ravage of the liberation war to develop a better economy was severally needed and it is needed now and will be required in future also. In time to time Government of Bangladesh agreed to permit the private commercial banking in the country.
The Dhaka Bank was incorporated as a public limited company on April 06, 1995 under the Companies Act. 1994. The Bank started its commercial operation on July 05, 1995 with an authorized capital of Tk. 1,000 million and paid up capital of Tk. 100 million. The paid up capital of the Bank stood at Tk. 663.836 million as on 31 December, 2004. The total equity (capital and reserves) of the Bank as on 31 December, 2003 stood at Taka 1209.97 million.
Aiming at offering commercial banking service to the customers’ door around the country, Dhaka Bank Limited established 23 branches up-to this year. This organization achieved customers’ confidence immediately after its establishment in domestic and international markets.
Dhaka Bank is one of the few banks permitted by the Bangladesh bank in the early 90s, the other banks permitted earlier were Dutch-Bangla Bank, Al-Arafah Islami Bank, Prime Bank, Dhaka Bank, Eastern Bank. These banks are known as the second generation banks and fortunate to remain immune from the bad loan culture. However, the performance of these banks are not the same, the Dhaka Bank Limited remained as one of the top performers among them. Its performance also has been reflected in its good loan being the 3.5 percent as against the national average of 33 percent in the private banking sector.
The emergence of Dhaka Bank Limited at the junction of liberation of global economic activities, after the URUGUAY ROUND has been an important event in the financial sector of Bangladesh. The experience of the prosperous economies of Asian countries and in particular of South Asia has been the driving force and the strategies behind operational policy option of the Bank. The Company Philosophy – “Excellence in Banking” has been preciously the essence of the legend of bank’s success.
Dhaka Bank Limited has been licensed by the Government of Bangladesh as a Scheduled Bank in the private sector in pursuance of the policy of liberalization of banking and financial services and facilities in Bangladesh. In view of the above, the Bank within a period of 6 years of its operation achieved a remarkable success and met up capital adequacy requirement of Bangladesh bank.
It has been growing faster as one of the leaders of the new generation banks in the private sector in respect of business and profitability as it is evident from the financial statements for the last 5 years.
Special Features of the Bank
- It has been performing conventional commercial banking activity and introduced Islamic Banking functions.
- It is the pioneer in introducing and launching different customer friendly deposit schemes to tap the savings of the people for canalizing the same to the productive sectors of the economy.
- For uplifting the standard of living of the limited income group of the population the Bank has introduced Consumer Credit Schemes by providing financial assistance in the form of loan to the consumers for procuring household durables, which have had encouraging responses.
- The Bank is committed to continuous research and development so as to keep pace with modern banking.
- The operations of the Bank are fully computerized so as to ensure quick, prompt flawless and services to the customers.
- The Bank has introduced camera monitor system (CCTV) to strengthen the security services inside the Bank premises.
Mission of the Bank
To be the premier financial institution in the country providing high quality products and services backed by latest technology and a team of highly motivated personnel to deliver Excellence in Banking.
Vision of the Bank
“At Dhaka Bank, we draw our inspiration from the distant stars. Our team is committed to assure a standard that makes every banking transaction a standard that makes every banking transaction a pleasurable experience. Our endeavor is to offer you razor sharp sparkle through accuracy, reliability, timely delivery, cutting edge technology, and tailored solution for business needs, global reach in trade and commerce and high yield on your investments.
Our people, products and processes are aligned to meet the demand of our discerning customers. Our goal is to achieve a distinction like the luminaries in the sky. Our prime objective is to deliver a quality that demonstrates a true reflection of our vision- Excellence in Banking.”
So the motto itself is self-explanatory to deliver the vision of the bank. Dhaka Bank limited is prepared to meet the challenge of the 21st century well ahead of time. To cope with the challenge of the new millennium it hired experienced and well-reputed banker of the country from the inception. The bank has efficient and dedicated professional and equipped with modern technology to provide the best service in the need of the people and thus to realize its vision. So the vision of the bank is to provide the best service in an efficient way that will fulfill the need of the client and bring the latest global financial services at the doorsteps of the client feel them the difference of the services with that of other banks.
Dhaka bank has the following department. The basic departments are:
- Human resource
- International division
- Corporate banking
- Consumer banking
- Credit administration, monitoring and compliance
- Audit Compliance
- Public Relations
- Islamic Banking
- Merchant Banking
- Loans And Advances
- SME & Retail/Consumer
- Branch Support
- Legal And Recovery Division
- Card Division
- Training Division
- Central Accounts Division
- Lease Finance Division
Product and Services
If the memorandum and articles of association of the Dhaka Bank Limited is revised its area of operation is clearly written. The product of DBL is targeted to fulfill that aim. The product and services that are currently available are given below:
Besides Fixed Deposits, Savings Bank Deposits and Current Account Deposits, the Bank has introduced the following customer friendly deposit schemes:
- Pension Savings Scheme (PSS)
- Education Savings Scheme (ESS)
- Marriage Savings Scheme (MSS)
- Savers Benefit Deposit Scheme (SBDS)
- Fixed Deposits ( 1, 2, 3, 6 & 12 months and 2, 3 years)
- General Loan Scheme
- Consumer Credit Scheme
- House Building Loan / Apartment Loan Scheme
- Advance against Shares
- Loans against Imports
- Post import finance
- Export Credit
- Loan Syndication
- Project Finance
Products Offered By Personal Banking
Dhaka Bank offers the following key personal banking products:
Excel Account is the first of its kind in Bangladesh. A unique blend of all the flexibilities of a current account and provision for interest on daily balance. Excel Account also offers an overdraft facility to meet client’s urgent cash need. Designed exclusively for the salaried executives, Excel Account offers a packaged solution to companies and organizations to process employee salaries and funding employee loans. Excel Account is yet another addition to our commitment-Excellence in Banking.
E-Cash ATM Card:
Dhaka Bank E-Cash ATM Card enables clients to withdraw cash and do a variety of banking transactions 24 hours a day. E-Cash ATMs are conveniently located covering major shopping centers, business and residential areas in Dhaka. There are 16 ATM Booths in Dhaka, 2 ATM Booths in Chittagong & 2 ATM Booths in Sylhet and in other cities it will soon be introduced. The network will expand to cover the whole country within a short span of time.
Convenience is the key feature of DBL Personal Banking program. DBL’s aim is to provide every customer easy access to his/her account from any branch and ultimately from any where. Recognizing customers need DBL has recently networked all of its branches in Dhaka, Narayanganj, Chittagong and Sylhet to permit its valued customers to carry out transactions from any branch. Cash withdrawal or deposit or any type of personal banking transactions can be performed using the Any Branch Banking service. All transactions under Any Branch Banking are absolutely free of charge.
The following services are available under Any Branch Banking:
- Cash withdrawal from your account from any branch of the Bank.
- Cash and Cheque deposit into your account from any branch of the Bank.
- Transfer of money from your account with any branch of the Bank.
- Cash withdrawal by self (any amount subject to availability of balance.)
- Cash withdrawal by third party/bearer (Per transaction Tk. 100,000 only.)
- Cash deposit/ transfer (unlimited.)
Dhaka Bank Credit Card:
Dhaka Bank Limited brings Everyday Credit Card in the shortest possible time. DBL recognize that clients need card every day. That is why it has developed processes to guarantee delivery of their card in just 7 days when they apply for a fully secured card; for an unsecured card it will be ready in just 10 days. Otherwise DBL will give the card free- the subscription fee completely waived!
Personal Secured Loan:
Personal Secured Loan facility offers installment loan or overdraft limit against client’s deposit or investments. When a person requires cash to finance purchase of consumer durables, house renovations, marriages in the family, advance rental payments, emergency medical needs, travel or higher education in abroad he/she does not have to break his/her savings – let it continue to earn the interest whilst the Personal Secured Loan / Overdraft facility will provide him/her the required cash flow to meet his/her needs.
For the purchase of a passenger car (unregistered reconditioned or brand new) to be used for personal transport purposes by the obligor. The vehicle will be registered in the bank’s name and the obligor will be issued a authority letter by the bank to use it for his personal purpose.
For the purchase of household appliances, computers, marriage, medical treatment and education for self or dependents etc.
- For the purchase of household appliances, furnishings, for household refurbishment, marriage, medical treatment, education.
- Maximum BDT 500K but not less than BDT 75K per loan.
- Consumer Loan to be disbursed through the savings account to be opened with Dhaka Bank.
- Repayment in 12, 24, 36, 48 monthly installments. Prepayments are allowed anytime at his/ her convenience.
For taking an overseas vacation, purchase of tickets, purchase of TC’s etc.
- Purchase of Air ticket(s) in the name of the obligor and family and purchase of FX for hotel and other expenses as allowed by the BBFX Manual.
- Maximum amount BDT 500K but not less than BDT 75K.
- Repayment in 24, 36 and 48 monthly installments. Prepayments allowed anytime at his/ her convenience.
- FX to be purchased from our bank branches.
- Ticket bookings are required to be done from any of our enlisted Travel Agents.
- Consumer Loan to be disbursed through the savings account to be opened with Dhaka Bank.
Safety Locker Services:
Clients could use the locker facility of Dhaka Bank Limited and thus have the option of covering their valuables against any unfortunate incident. DBL offers security to its locker service as afforded to the Bank’s own property at a very competitive price. DBL would be at the client’s service from Saturday through Thursday from 9:00 am to 4:00 pm.
Utility Bills Services:
Dhaka Bank Limited offers a multi-mode utility bill payment facility for its customers. Whether it is cellular phone bill, telephone bill, electricity bill or water bill, DBL offers various modes and convenient ways to make bill payment easy for its clients. Clients can use DBL E-Cash ATM to pay bills at their convenience or visit DBL branches to make payment for bills. Currently, Grameen Phone and City Cell mobile phone bills are accepted at all DBL branches. More utility providers will soon be added to this service for the client’s convenience.
Foreign Currency Accounts:
Most branches of Dhaka Bank Limited have Authorized Dealers license to deal in transactions in foreign currency and open private foreign currency accounts. Current or Fixed Term accounts in US Dollar or Pound Sterling accounts may be opened in the name of:
- Bangladeshi nationals residing abroad.
- Bangladeshi nationals ordinarily reside in Bangladesh.
- Foreign nationals residing abroad or in Bangladesh.
- Foreign firms registered abroad and operating in Bangladesh or abroad.
- Foreign missions and their expatriate employees.
Communication Flow in Dhaka Bank
The Dhaka Bank practices different styles of communication flow. Factors such as organizational structure, level of technology incorporated etc. affects the flow of communication.
Communication flow can be top down, bottom up or two ways. In Dhaka Bank questioned mostly a formal chain is maintained, irrespective of the direction of communication. In banks a greater sense of control is required, thus the requirement of a formal chain is obvious.
Dhaka Bank has incorporated technology to speed up the communication process. Intranet is one form through which information is exchanged instantaneously. Intranet is actively used for bottom up communication in most of the banks. In most formalized banks circulars are dispatched to send information to the lower tier employees. Some respondents used the annual business review meetings and social meetings as the way to communicate from bottom to top. Circulars are the most widely used top to bottom communication method.
Communication is extremely important in two aspects: decision making in branch expansion and decision making in lunching of a new product.
Communication Flow in Launching a Product
Before understanding the communication flow regarding the decision making process Dhaka Bank follows a reactive strategy in terms of designing and launching a new product. They try to track the movement of competitors’ portfolio and adopt thereby. When they are copying an existing product of the market, they try to modernize it according to their resources. Dhaka Bank do not have R&D department or a product designing department and they try to design new products measuring the market needs. For Dhaka Bank, products are brought in to the market with Management Committee or Managing Director or Board of Directors’ approval and without pre-testing it. Dhaka Bank is strongly dependent on IT resources, and they try to include IT department in terms of developing a product. For very few, this entire process is a Top-Down approach. That is, Management Committee or even Board of Directors brings in the concept of launching a new product. One important point to be noted is that irrespective of the approach, a feasibility test is carried out before launching a product.
Communication in Branch Expansion Decision
Some banks have annual expansion plan whereas for others, expansion is completely need based. Banks having annual expansion plan, go for research and business monitoring of any geographic area of interest and then propose the management committee for the expansion. With the further approval of Board of Directors’, they approach Bangladesh Bank for License. For banks believing in Need Based Expansion, the R&D or General Services wing tries to track the need and business of all the regions having no presence of their own. Out of which, some lucrative places are selected and the expansion proposal is sent to the management committee for approval in the aforesaid sequence. There are few exceptions as well. There are PCBs who deploy HR team to plan for expansion. However, for almost half of the PCBs, expansion is NOT a part of its Strategic Planning.
Strategic Management Models
Product-Market (Ansoff) Matrix
SME and Agriculture
Bonds and Derivatives
Table 1: Product-Market (Ansoff Matrix) (Source: Adopted from “Strategies for Diversification” by Igor Ansoff)
The Ansoff growth matrix depicts the alternative growth strategies that a firm can exercise by leveraging its present and potential products and markets. Market penetration involves increasing market share in present markets using existing products. This is the least risky since the firm’s existing resources and capabilities are generally sufficient. In market development, the bank will try to grow by selling existing services in new markets. Despite the proliferation of retail banking products, consumers’ awareness is very low. Therefore consumer awareness has to be cultivated to develop the market.
The development of new markets for the product may be a good strategy if the firm’s core competencies are product-specific rather than in a specific market segment. However, the firm’s strengths may be its ability to operate in a particular market segment rather than a specific product. In this situation, it can engage in product development which is the launch of new products targeted to existing customers. A diversification growth strategy is adopted by firms launching new products in new markets and willing to undertake the high risk involved. A bond market is in the development stages and bond trading and underwriting have the potential to be a lucrative source of revenue.
Customized Porter’s Diamond for Dhaka Bank
The porter’s diamond tries to identify the variables that can Impact the position of the banking industry and contributes to its competitiveness. The model identifies four major dynamic segments namely: Central bank, firm’s strategy, depositors-borrowers and factor conditions. The depositors and borrowers are the lifeblood of the whole industry and they contribute to the dynamism of the overall model. The depositors and borrowers are affected by consumer and business confidence. The level of optimism in the economy influences the level of savings, while consumer confidence triggers higher loans for credit purposes or expansion of existing production facilities. The socio-cultural aspects may encourage or deter borrowing or savings. This includes the religious sentiments associated with receiving or paying interest as a return for lending or borrowing money.
The central bank plays a major role in the whole model. The vigilance and proactiveness of the apex body defines the extent of discipline that can be attained in the sector as a whole. The Bangladesh bank usually provides a free hand to the commercial banks although their activities are bound by well defined guidelines issued by the central bank. The central bank has the authority and ability to influence other economic variables of the economy through the commercial banks. This is signified by their interconnection with all the other major factors as seen in the model.
The factor conditions are defined as those variables that can influence the overall functionality of the whole sector. The factors include condition of the capital market, overall economic and political atmosphere and level of foreign savings and investment. The stock market is a crucial indicator for the economic well being of the economy. A bullish stock market can help to add vigor to the consumer and business optimism. Banks can also cash in by making wise and sound investment in the market. A stock market downturn may dent business and consumer confidence leading to negative repercussions to the sector as whole. Sound economic outlook will usually lead to flurry of investment resulting in rise in the level of loans taken out by business and consumers. Higher spending in the economy will have multiplier effects contributing to higher growth in the economy.
The banking industry is directly impacted by the call money market which it uses to retrieve loan on a short term basis. However, the call money market is monitored by the central bank which ensures prevalence of market discipline.
Customized Porter’s Five Forces Dhaka Bank
The Porter’s five forces model can be customized to explain the reality in the banking industry in Bangladesh. The five forces shaping and reshaping the industry are namely: central bank, Depositors, borrowers, substitute capital market sources and potential entrants as shown in the diagram above. The depositors and the borrowers are two main components of the model. Their importance lies in the fact that they provide the necessary dynamics in the banking flow. The deposits kept by small and medium savers are used to disburse off loans to borrowers which include business, government or consumers. The depositors have minimal power because they are not unified, therefore cannot dictate interest rates for their deposits. Borrowers have gained some power over the years, mainly due to increased competition in the industry as a whole. Borrowers taking out larger loans have more power than smaller ones because they enjoy the benefit of bulk.
There are several substitutes of the banking industry for both depositors and borrowers which include capital market, non-bank financial institutions (NBFI), and public commercial banks. Higher return on these options will encourage depositors to move. Borrowers can also shift to these options if these turn out to be viable in terms of cost.
The central bank plays a passive role in the operation of banking industry although they have the capacity to exert significant influence on all the stakeholders. They have great influence in deciding whether new banks will be given license to operate in the market. New entrants may pose as a big threat for incumbents but for the last seven years Bangladesh bank hasn’t issued a single license.
The relative powers of the five stakeholders define the way the banking industry will behave. The balance of power among stakeholders is of paramount importance to ensure effective functioning of the banking industry.
Opportunities of and Threats to Dhaka Bank
Consolidation: There is awareness that there are too many banks relative to the local market size. Therefore acquisitions by established second-generation banks and mergers between third generation banks may benefit the overall industry.
Shariah compliant products: Our research indicates that there is awareness that Islamic banking is a thriving area of finance. With multinationals like HSBC and Standard Chartered launching sharia compliant financial products, local PCBs have much to gain from considering this opportunity.
Human Resources: Many of the second and third generation banks place a great deal of emphasis on training employees. This is a very positive development for the industry’s future. It is likely to foster efficiency and innovation among these banks and establish them as industry leaders in the future. PCBs have not been affected by the global financial crisis and the downturn represents an opportunity to draw talent away from adversely affected multinational banks.
Lack of Awareness: The lack of awareness and practice of strategic management reduces the private commercial banks’ ability to compete with the multinational banks. The local PCBs are catching up to multinational firms regarding services and technology but the lack of focus on relationship management and strengthening their brand equity is detrimental to their competitiveness.
Lack of innovation: Local PCBs are mostly reactive rather than proactive regarding product design. They rarely take the initiative to determine customer needs and forecast changes in the environment. Although BRAC Bank is a third generation bank it has surpassed many first and second generation banks in consumer banking and is perceived as an industry leader by many. For many of the local PCBs, product design merely involves copying the attractive features of a popular product launched by a competitor.
Expansion: Some banks judge their success on the rate of expansion. It can take as much as a year to recover the fixed costs of a new branch opening. Some locations turn out to be unprofitable due to the high concentration of existing banks in the area. PCBs need to be careful to avoid rapid expansion that reduces shareholder value.
Ethics: Some respondents raised concerns that the severe competition in the industry results in ethical infractions. Banks are less upfront with customers about fees and charges and key product features are buried in the fine print.
Technology: Most banks have identified depositors as their most important stakeholder. However some PCBs have been slow to adopt technology thereby alienating young, tech-savvy depositors. Banks which are focused on older customers and are not taking any steps to gain the loyalty of customers through product innovation and customer-friendly solutions are limiting their long term growth.
Centralized decision-making process: In many PCBs, the decision to make large loans ultimately rests with the Board. Banks which fail to curb the issuance of non-performing loans at the behest of special-interest groups will find it difficult to survive in the increasing tough regulatory and competitive environment.
Suggested Strategic Management Procedure for Dhaka Bank
The first step for a bank embarking on the strategic management process is stating the mission and vision. To achieve the vision, the bank must analyze the environment and take stock of available resources and determine future resource requirements and constraints. This would lead the bank to recognize its core competencies. The core competencies of the bank would have to be aligned with the bank’s mission and vision statements as well as resource requirements, availabilities and constraints.
Then, the bank would define the strategically important activities based on its core competencies and then focus on successfully performing these activities. In the process, the firm will be able to identify the critical success factors that are essential to thriving in the industry and achieving its business objective.
Then the bank would undertake a strategic planning process. This involves anticipating different possible scenarios and the possible outcomes in each case. This would provide the bank with a framework to plan around. Then the bank would formulate the overall strategic direction for itself: prospector, analyzer, defender and reactor. The role that the bank would choose for itself would depend on the following: the bank’s mission and vision, core competencies and resource constraints.
At this stage the bank is ready to accumulate resources. It will then allocate these resources as needed based on its role decision and strategically important activities that it had identified in step 4.
At this stage, the bank is ready to develop its competitive advantage. These should be derived from the bank’s core competency, since there is a high possibility that the bank will perform these tasks or activities better than its competitors. However, a core competency does not automatically translate into a competitive advantage, since anything a bank does better than its rivals (and possibly even the market) can become a competitive advantage for itself. For example, a bank might have corporate banking as its core competency, but it might also cite customer satisfaction as its competitive advantage.
Once the bank has built competitive advantage over its rivals, it can differentiate itself and deliver superior value to its customers. This would ideally lead to customer satisfaction, retention and consequently, profitability.
The last step would be the continuous and regular monitoring, evaluation and revision of the bank’s strategic management processes and decisions to reflect sudden or anticipated changes in the environment and other factors.