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Case Analysis of Abu Dhabi Commercial Bank
Current Situation- Abu Dhabi Commercial Bank, a prime bank in UAE, launched in 1985 with limited liabilities and public share holdings, came into operation at UAE. Abu Dhabi Commercial bank had booked a net profit of AED 4201 million in the year 2014.The representation ADCB in London had been made on January 20th, 2015 by launching representative office. ADCB had celebrated 2nd EMSA GRAND PRIZE of 1 million AED won by Saleh Al Samali, one of the fortunate savings account holder. ADCB and Abu Dhabi terminals signed finance agreement for Landmark Abu Dhabi development at Khalifa Port on 4th January, 2015. ADCB contributed AED 245,000 In March 2015 to environmental efforts of Emirates Wildlife Society to support the movement with constant endeavor from past till date.
Issue- The normal issue faced by any bank or financial institution is the emerging bad or doubtful debts. The loan given to an individual or any organization from the bank is sanctioned upon the credential of the borrower. Apparent observations with track record of the borrower are the main criteria for issuing the loan. If the borrower fails to get return from the investment done by bank loan, the situation of bad or doubtful debts occurs. In the terminology of finance it is named as Non Performing Assets or NPA. The more the NPA of the bank or financial organization, the more profits shrinkage is faced by the bank. The quantum of NPA directly affects the position of the bank. In the process, the share valuation in the stock market goes down. The stake holders are directly affected with this because of the lesser dividend or no dividend declaration demoralizes the share holders. The issue of NPA in case of ADCB had been critical in the last years, but the system of bad debts write off in case of investment properties now decreases had made the bottom line of NPA looked healthier when it reaches to Dh 2.08 billion with 27.1 % to total debts. Since the situation of debt crisis broke in Dubai financial market, there were constraints barring the banks to issue fresh loan. Anyway, the slow recovery of bad debts took place, which was always the sign of relief for the bankers.
Mission- The mission of ADCB, is normal for any banking sector organization. They are more eager to put emphasis on the customer- bank relationship. Bank normally falls under service industry. So the approach of the bank to an individual associated with them should be customized as per the needs of the client. With the catalogue of different type of services – whether it is loan or deposit account, the service is required for keeping the customer updated with the features, the advantages and disadvantages of the respective subject. There should not be any hidden factors been disclosed to the customers during briefing the customer about any product. Moreover, the bank has to invent more innovative products for the customers as per their needs. The products should be tailored and framed in such a manner that the priority of customer needs will get first priority. The banking industry has to frame its products as per the guidelines framed by the Finance Ministry of the country. As in case of ADCB, the Shari’ah compliant guideline is maintained to follow the financial guideline to be followed by the Islamic run governments. This guideline restricts them to offer products which are available in other banks of world. Irrespective of this limitation, ADCB strives hard to provide upgraded and updated standard of banking service to the doorstep of the customers.
Objectives- Launched in the year 1985, ADCB had already crossed a long and successful run of 30 years. The tag line Long Live Ambition clearly depicted their objectives. The launching of products, the making of a strong and loyal customer base, the customization of the products, and providing constant flawless service were the basic objectives of ADCB. In addition , they have constant endeavor to introduce new products properly framed after rigorous exercise of the applicability of the product make them a landmark company in banking sector at UAE. The main or focused objectives of ADCB is to serve customers and to meet the objective, they have come up with different products of banking and other areas of financial activities.including issuance of different bonds. For business and personal banking, ADCB offers some structured products which are conventional and customized with pre package products those are linked to securities, commodities, options, indices, fixed income enabling the customers to get high yield of returns with the value addition of effective portfolio diversification. The ultimate objective now fixed is to achieve the optimum level of business by ensuring the customer satisfaction at its highest standard.
Pest Analysis :-
Political- To find out the political analysis of ADCB, first we have to understand the status of the bank as per proprietorship. ADCB is a bank formed in the year 1985, with the status of public shareholding with limited liability. The main owner is the government of Abu Dhabi with its 65% stake holding through Abu Dhabi Investment Authority. ADCB is one of the largest company as per the conditions of share holding and capitalization of market. As government is the main stake holder, the regular business activities are governed by the government and as the big brother of the investors, the government has to ensure security factor of the investors and the customers. As the political condition of UAE is not volatile ,the stability related to political aspect is comfortable for smooth functioning of ADCB.
Economical – The economic condition of ADCB is strong, as per the records and statistics. The economic condition of any bank can be judged by the capital management of the bank. The Central Bank of UAE controls the economic area of ADCB. They have fixed guidelines depicting the maintenance of capital adequacy and the use of regulatory capital are mandatory techniques to monitor the economic performance of the bank. The benchmark fixed by Central bank of UAE and Basel committee set the ratio of total regulatory capital to risk weighted deposit as 12%. The performance of ADCB so far capital adequacy ratio is concerned showed remarkable achievement of 22.51% in 2011 and 23.05% in 2012 which shows the healthy condition of ADCB. Their profit booking of 2013 and 2014 of 3620 million AED and 4201 million AED also supports the comfortable economic condition of the bank.
Social- The role of ADCB in respect of social responsibilities are concerned, are well attended to. There are so many social activities taken care by ADCB out of which are mentioned herewith- a) The waiver scheme of debt settlement as per the MOU with UAE Nationals defaulted Debt Settlement Fund in 2012, the bank had waived AED 22.7 million for 184 UAE nationals, b) launching of “ADCB The Tree of Hope” charitable program for awareness of breast cancer and sponsorship of the fourth pink polo charity match for the same purpose, c) donations made to Latifa Hospital and on behalf of Emirates Millionaire Savings Account (EMSA) customers to Zakat fund, d) partnership with Emirates Wild Life Society in collabortaion with WWF to raise awareness. These activities surely depicts that ADCB is well aware of their social responsibilities and never ignored that, instead reverted with positive manner.
Technology- The technology used for execution of normal activities of ADCB is Newgen Technologies backed by Data Direct team. They are pioneer of launching sms banking, mobile banking etc.in UAE which are the need of banking business of 21st Century. A good technology backed by a competent team enable them to render service in effective manner.
External Analysis, Porter’s Five Forces:-
Barriers to entry- ADCB is backed by the UAE government and controlled by the Central Bank of UAE. Hence the security part related to barriers to entry is well secured with the existence, the construction, the licensing part and the confirmation of required Capital with Capita Adequacy ratio well above the guide line set by Basel Committee and the Central Bank of UAE.
The bargaining power of suppliers- In the case of ADCB, the suppliers are not conventional like manufacturing units. In banking sector, the biggest supplier are the service provider of technology, who normally enters in a long term agreement for providing the service and solution with trouble shooting so the question of bargaining power of suppliers are minimized.
The bargaining power of buyers- The products , before the launching in the market, are well analyzed keeping in mind of the needs of the buyer, and to ensure their need is to be given the first preference within the limit of flexibility allowed by the authorities. Hence the bargaining power of buyers are also minimized.
Competitive rivalry- Due to its construction and structure, ADCB is ranked as third of the banks of UAE. There is no such big threat for their existence and the rivalry is not so because of their own solid system of implementation and execution.
The threat of substitution- As its not marketing any consumable goods, the treat of substitution may not arise, because the substitution will not arise .
Opportunities- With the introduction of new branches abroad and the new products in the forms of bonds launched in the market, ADCB has ample opportunity to grow more with the basic keeping strict, as ever.
Threat- the only threat to ADCB is the volatile situation of the political scenario of UAE, apart from that there is no such threat.
Overall evaluation of the external environment- As per the past data, the recent activities and the analysis of different factors, it is evident that the condition of ADCB is stable and well guarded by the pre conditions set by the authorities .
Organizational strategy- The organizational structure of ADCB shows the proper alignment of delegation of authority in every level and the strategy of maintaining the same will be the best option. The pyramid contains Board of Directors at the top, keeping Internal Audit, CEO and legal and board secretariats in the second tier and the last tier contains different departments of banking service- is the most ideal hierarchy pyramid for ADCB.
Value chain analysis- With the mission to striver harder for achieving the optimal goal, ADCB started their ‘Towards Excellence’ journey in 2012 which, with the power of constant effort to support the goal of the clients their perfect value chain with human resources and technology works relentlessly.
Strengths- ADCB has the best condition of ownership with government holding as 65% and the guideline framed by the authorities made them the strongest of the banks of UAE.
Weakness- The deficiency of internal capital generation and the regulators decision to make higher provision for bad debts may weaken the health of ADCB.
Market Share- ADCB is placed comfortably in third place behind Emirates NBD Bank and National Bank of Abu Dhabi.
Overall evaluation of internal environment- ADCB , with its perfect position placed third in the UAE banking sector is placed comfortably in the stage from where they can have a flying start heading for mission’ Towards Excellence’ in 2015.
Key success factors- The foundation of ADCB supported by strong base of strategies and the policies taken by the management with the committed human resources are the key success factors.
Criteria Matrix to evaluate alternatives- The evaluation of alternatives as per criteria matrix shows the feasibility as ok for status quo maintained.
Action Plan- The provision for NPA should be logically implemented to avoid the loss of capital, which is the only gray area of operation for ADCB.
Contingency Plan- As per the high quality analytics and forecasting inclusive of proposal of Basel 3 committee recommendations, the provision for contingency funding plan had been implemented since 2009.