Banking Industry Benchmarking

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Banking Benchamrking

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  • 1. Banking Industry Benchmarkingfor National Bank of Fujairah Group no 9 Navin Bafna GMBA08A125 Pratik Mehta GMBA08B129 Punit Biyani GMBA08B131Yashesh Thakkar GMBA08A147 June 2008

2. Forward TogetherAcknowledgementsWe take this opportunity to thank National Bank of Fujairah for providing us an insight in the UAE banking industry. Our mentors, Mr. Adnan Anwar and Mr. Ali Asif Sheikh have given their valuable time and industry related inputs in making this project successful.Secondly, we are grateful to SP Jain Center of Management for widening our knowledge horizons and practical skills in the industry.Lastly, the project would not have been possible without the support of Dr. Vijay Sethi, Dr. Shilpa Dalvi, Prof. Arindam Banerjee and Prof. Uday Bhate. We appreciate their efforts and enthusiastic spirit.2 3. Forward TogetherDeclaration This is to certify that the project titled Banking Industry Benchmarking for National Bank of Fujairah submitted in partial fulfillment of the requirement for the award of degree Global Masters in Business Administration comprises of the researchers original work and has not been taken from any other college, university, or educational institution.Date: 8th June 2008 Navin Bafna GMBA08A125 Pratik Mehta GMBA08B129 Punit Biyani GMBA08B131 Yashesh Thakkar GMBA08A1473 4. Forward TogetherDisclaimer This document is prepared as a part of the researchers educational requirement and must not be taken as an indicator to the industry happenings. This report is sourced from publicly available information deemed accurate for the purpose of this study. While enough care has been taken on the groundwork of this research, researchers make no representation or warranty, expressed or implied as to the accuracy, timelines or completeness of any information in the report. The information provided in the report represents the views of the researchers and they will not be liable for any loss incurred by users of this report.Date: 8th June 2008 Navin Bafna GMBA08A125 Pratik Mehta GMBA08B129 Punit Biyani GMBA08B131 Yashesh Thakkar GMBA08A147 4 5. Forward TogetherExecutive SummaryNational Bank of Fujairah (NBF) was incorporated in 1982. Fujairah government and Dubai government currently hold a 43.23% and 10.76% stake in NBF respectively. HE - Issa Saleh Al Gurg holds 21.39% personal stake in the bank. NBF offers corporate banking (with an expertise in trade finance), retail banking, wealth management, small and medium enterprise (SME) banking, treasury and financial institutional services. Its wholly owned subsidiaries are NBF Financial Services FZC and NBF Securities LLC. Last year NBFs profits jumped to AED 323.8 million (growth of 36.3% as compared to 2006). NBF is listed on the Abu Dhabi stock exchange under the ticker quot;NBFquot;.NBF is considering expansion in retail and SME activities. In addition, it is planning to restructure its business operations. Therefore, NBF needs to be aware of its overall positioning in the banking sector.The study involves reviewing the industry trends, analyzing financial ratios, comparing industry-wide disclosures and benchmarking NBF with respect to its local peers. We have included seventeen local banks in the study (due to availability of data). A Hypothetical Best Bank has been created based on certain parameters provided by NBF. They include cost and prices, competitive position, customers and profit pool and simplicity (sourced from HBR case study titled The new leaders guide to diagnosing the business). Based on the same parameters relevant ratios have been allocated and analyzed. Consequently, NBF has been benchmarked against the best bank.5 6. Forward TogetherA Data Envelopment Analysis (DEA) has been conducted to measure the relative efficiencies of twelve banks (biggest banks based on asset size). Measuring the efficiencies of banks is difficult because banks have multiple output and input variables. The input variables are equity, deposits and borrowings whereas the output variables are loans and advances, investments and net profits.In order to validate the study and understand the industry dynamics, primary research was carried across seven different bankers.The main findings of the study are: UAE is an over banked economy National banks benefit due to name lending In 2005 and 2006, overall profitability of the major banks saw a rise due to thevolume of IPO activity Islamic banking growth is a key focus for the national banks Most of the banks are into the business of mortgage financing and real estate leasingthrough their subsidiaries. UAE has witnessed a real estate boom over the pastthree-four years UAE banking sector will witness consolidation in the next three-five years Bank of Sharjah and RAK bank have expanded their reach in the retail marketsthrough credit cards and investment products ENBD is outperforming the industry on asset size and loan book Mashreq bank is outperforming the industry in wealth creation. Its book value pershare has been the highest (over the last three years)Through this report, NBF will be able to map out a plan in terms of its expansion and product development. It will also be able to gauge the opportunities and get a sense of direction in the banking space.6 7. Forward TogetherTable of Contents 1.Introduction .................................................................................................................. 12 1.1 Benchmarking:........................................................................................................... 121.1.1 Why Benchmarking? ........................................................................................... 121.1.2 Benchmarking Process........................................................................................ 131.1.3 Against whom or what should the comparison be made? .................................... 13 1.2 Background of the research ....................................................................................... 131.2.1 UAE Economy..................................................................................................... 131.2.2 Overview Key Developments............................................................................ 141.2.3 Favorable demographic profile ............................................................................ 141.2.4 UAE Banking Sector............................................................................................ 141.2.5 Islamic Banking Future of UAE banking............................................................ 211.2.6 Consolidation - Need of the hour ......................................................................... 21 1.3 Need for the study...................................................................................................... 21 1.4 Research Problem ..................................................................................................... 22 1.5 Research Objectives.................................................................................................. 22 1.6 Brief Methodology ...................................................................................................... 22 1.7 Limitations ................................................................................................................. 222.Literature Review ......................................................................................................... 23 2.1 Case Study Analysis - The new leaders guide to diagnosing the business ............. 232.1.1 Cost and Prices almost always decline................................................................ 242.1.2 Competitive position determines options ............................................................. 242.1.3 Customers and profit pools dont stand still ......................................................... 242.1.4 Simplicity gets results .......................................................................................... 25 2.2 Ratio Analysis ............................................................................................................ 25 2.3 DuPont Analysis ........................................................................................................ 26 7 8. Forward Together 2.4 Data Envelopment Analysis: ...................................................................................... 272.4.1 How DEA Works.................................................................................................. 272.4.2 Conceptually Working.......................................................................................... 272.4.3 Formula ............................................................................................................... 282.4.4 Other relevant literature....................................................................................... 282.4.4 Other relevant literature....................................................................................... 293.Research Design.......................................................................................................... 30 3.1 Methods of data collection and validation................................................................... 303.1.1 Secondary research ............................................................................................ 303.1.2 Primary research ................................................................................................. 30 3.2 Tools for data analysis ............................................................................................... 313.2.1 HBR Case Study - The new leaders guide to diagnosing the business ............... 31 3.2.1.1 Cost and Prices almost always decline .........................................................31 3.2.1.2 Your Competitive position determines your Options...................................... 34 3.2.1.3 Custome