Internal and external

environmental scanning
of
Strength, Weakness,
Opportunities and
Threats
For
Meezan Bank Limited
Application
of
Internal factor evaluation Matrix
&
External Factor Evaluation Matrix

Ali Akbar Karim
Asad Ali Minhas
Ayesha Saleem
Maryam Shamim
Muzmil Riaz






Executive summary
In this term project of Strategic management we had environmental analysis for Meazan Bank Limited
listed in Karachi Stock Exchange with ticker MEBL. In environmental analysis we had asses the internal
environment by scanning the strength and weakness where as external environment is assessed through
available opportunities and threats. Environment has been assessed though analyzing the industry
reports, annual reports of MEBL, reports of international and independent bodies, another important
source used is previously conducted internal and external audit reports conducted by academic
institutions. Our audit was then feed to Internal factor evolution matrix and external evolution matrix
the results indicates MEBL is performing above average with scores of 2.89 and 3.35 on IFE and EFE
respectively.







Corporate Profile
Meezan Bank, Pakistans first and largest Islamic bank. It is one of the fastest growing financial
institutions in the banking sector of the country. The Bank commenced operations in 2002,
after being issued the first ever Islamic commercial banking license by the State Bank of
Pakistan. Meezan Bank is a publicly listed company sponsored by leading financial institutions
from Pakistan and the Middle East. Shares of Meezan bank are traded in KSE with ticker of
MEBL. The Bank offers a wide range of Islamic banking products and services through a retail
banking network of 351 branches in 103 cities, which is the 8th largest banking network in
Pakistan. Meezan Bank has a strong Shariah-compliance setup that comprises of a dedicated
Product Development and Shariah Compliance Department, an in-house Shariah Advisor and a
Shariah Supervisory Board comprising of internationally renowned Shariah scholars.
The Bank is well-recognized for its product development capability, Islamic banking research,
and advisory services, at both national and international levels. The Consumer finance products
offered by the Bank include car
finance, housing finance, laptop
finance and financing for Haj and
Umrah. Backed by a state-of-the
art T-24 core banking system,
the branch network is supported
by 24/7 banking services that
include over 280 ATMs, Meezan
VISA Debit Cards, Internet
Banking, SMS alerts and a 24-
hour Call Center. According to
financial reports of MEBL's profit after tax increased to Rs. 3.96 billion from Rs. 3.51 billion in
the previous year, reflecting an increase of Rs. 448 million while the Bank's total assets reached
Rs. 330 billion, up 20% from Rs. 274 billion in 2012. Deposit of the Bank grew by 26%, closing
the year at Rs. 289 billion from Rs. 230 billion a year ago; this is significantly higher than the
banking industry that grew by only 13% during 2013. This performance is especially impressive
in light of the fact that the average cost of deposits for the year has been contained at 4.52%.
Deposit mix also improved with CASA contributing 68% to the mix as against 66% last year. The
investment portfolio remained constant at Rs. 152 billion. The Bank has used its resources
aggressively to grow its financing portfolio, which jumped by 44% to Rs. 128 billion from Rs. 89
billion last year. This growth is significantly higher than the banking industry's financing growth
of 6%. The Bank has achieved this growth despite challenging economic circumstances and

2013 2012
Percentage
change
Branch Network 351 310 13%
Presence 103 90 14%
Deposits
Billion
289 230 26%
Total Assets 330 274 20%
Profit After Tax 3.96 3.51 13%
Equity 17.9 15.5 15%
Trade Finance Business
(Import and Export)
315 201 57%
EPS 3.95 3.5 13%


crowding out of private sector financing due to government borrowing. The Banks focus has
been on building a high quality and well diversified portfolio. The Bank also made substantial
recovery efforts during the year on its non-performing financing portfolio. These efforts
resulted in cash recoveries of Rs. 358 million, as a result of which, NPL charge for the year was
only Rs. 93 million, compared to Rs. 451 million provided in the previous year. The ratio of
nonperforming financings to total financing (NPL ratio) fell from 5.3% to 3.6% in 2013. The Bank
maintains a comfortable level of provisions against non-performing financings with a coverage
ratio of 121%. The Bank's total revenues increased to Rs. 26.7 billion from Rs. 24.2 billion, a
growth of 10%. Funded revenues increased from Rs. 21.8 billion in 2012 to Rs. 23.2 billion in
2013, a growth of 6%. This increase is mainly due to incremental earning assets, although profit
rates have been lower than previous years. Non Fund based income increased by 46% from Rs.
2.4 billion to Rs. 3.5 billion, mainly due to higher volume of ancillary business handled during
the year. The Trade Finance business volume handled by the Bank also grew by 57% to Rs. 315
billion in 2013. The Trade business is supported by the Bank's growing network of
correspondent banking relationships around the world. The income from core banking business
grew to Rs. 14.1 billion from Rs. 12.4 billion, posting an increase of 13%, mainly on account of
concerted efforts by the Bank to increase its asset portfolio without compromising on quality.
Administrative and operating expenses increased to Rs. 8.4 billion from Rs. 7.2 billion, a rise of
17%. The rise in expenses is primarily due to higher staff expenses, rent and costs associated
with branch expansion - an investment which has borne fruit for the Bank, as is evident from
the strong growth in deposits and profits over the years. The Bank has already met its minimum
capital requirement of Rs.10 billion during the year by issuance of 11% bonus shares. Capital
base of the Bank is also very strong with a Capital Adequacy Ratio of 12.48% compared to the
minimum 10% prescribed by SBP. The Bank's equity increased to Rs. 17.9 billion from Rs. 15.5
billion a year earlier, notwithstanding the fact that a healthy cash dividend of Rs. 1.5 billion
during the year.

Internal Factor Evaluation Matrix
For conducting the internal audit of MEBL we had used the financial reports, news from
business recorder and previously conducted audit reports while analyzing these resource we
observe that, The strength for MEBL are strong diversified sponsors generating synergies which
help MEBL to accept new challenges of dynamic industry especially in customizing the products
of commercial banker in accordance with Shariah and forming syndicates. Structurally they
have their own Shariah Board; this board comprises of highly qualified and experienced
members from financial sector this in turns give a strong base for customer satisfaction and
helps in innovating new products. Another competitive advantage of MEBL is excellent


relationship with the regulators; this means MEBL could have extra favors. MEBL has been
continuously been promoted in credit rating and financial position is also indicating the regular
incremental change of stock holders wealth with these two feature we may see MEBL going for
big deals like launching international sukuks. One of the major weaknesses is the limited
opportunities available in for money market operations because of absence of Shariah
compliance in government securities. Another major issue is the ability to provide exactly fixed
rate of return. Although financial position of MEBL is strengthening but still lacks ability to
finance the big volume deals. The internal factor evolution matrix scores MEBL 2.89, representing
MEBL to be above average in terms of internal strengths and weakness.



















Key Internal factors Weight Rating Weighted Score
Strength 3-4

Largest market share of Pakistan's
Islamic banking sector
3 0.12 0.36
Strong diversified sponsors
generating synergies.
4 0.09 0.36
Highly qualified and financial sector
experienced members of the Shariah
Board; they have their own Shariah
Board.
4 0.08 0.32
Excellent relationship with the
regulators.
3 0.15 0.45
Credit rating and financial position 4 0.20 0.8
Weakness 1-2

Limited money market operations
due to lack of Shariah compliant
government securities.
2 0.10 0.2
Inability to fixed rates of return on
deposits, due to Shariah constraint.
2 0.01 0.02
Small capital base limits ability to
deal with multi-nationals/large
corporate.
2 0.01 0.02
Limited opportunities for investment
of surplus liquidity
2 0.12 0.24
Limited availability of human
resources with Islamic banking
knowledge
1 0.12 0.12

1.00 2.89
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External Factor Evaluation Matrix
International Finance Corporation has highlighted several of growth opportunities for Islamic
banking in its report Islamic banking opportunities across small and medium enterprises in
MENA, this study reveals that, there is a potential gap of $8.63 billion to $13.20 billion for
Islamic SME financing, with a corresponding deposit potential of $9.71 billion to $15.05 billion
across these countries, while explaining the regulatory environment, IFC categories Islamic
Regulatory framework of Pakistan to be well defined. According to IFC,
There is a cumulative SME funding potential opportunity of between $8.63 billion to $13.20
billion across countries in the MENA region. Saudi Arabia, Pakistan and Egypt are the countries
with the largest potential for SME financing. The sector with the most potential is
manufacturing, due to its capital intensity, high degree of value added, significant export
potential, and capacity to generate employment.
Report of IFC reveals a potential growth for Pakistan in SME especially in Trade and commerce,
Hotel industry and manufacturing sector.
The survey conducted By State Bank of Pakistan, Knowledge, Attitude and Practices of Islamic
Banking in Pakistan, Highlights new opportunities for the growth of Islamic banks in Pakistan.
The survey has a nation-wide representation of 9,000 households (banked and non-banked)
and 1,000 corporate. According to the survey there is an overwhelming demand for Islamic
banking in the country that is evenly distributed amongst rural and urban areas, varied income
strata and education levels. According to the analysis pent-up demand for Islamic banking is
higher amongst retail (95 percent) than businesses (73 percent). The study indicates that
individuals in rural areas or in low income brackets have relatively limited access to financial
services. This highlights a huge opportunity for Islamic microfinance in rural areas. The study
recommends that the role of Shariah scholars needs to be further enhanced and made more
public in promoting Islamic banking and finance. Lack of general awareness about Islamic
banking has emerged as one of the key challenges confronted by the industry. The study
indicates that rural markets, SME, agriculture and microfinance sectors have got huge financing
needs and are potential markets for Islamic banking. It can also be inferred from findings of the
study that Islamic banks are desired to significantly improve their investments in expanding
their outreach to 2nd and 3rd tier cities both to improve their visibility across the country and
also to increase their interaction with local businesses and trading communities. According to
survey findings, given the supply-demand gaps, there is huge potential for further development
of Islamic banking in Pakistan.
In Banking Review 2013, Sidra farkuhk in her article Saving Mortgage Finance had declared
Mortgage to be an underdeveloped but lucrative segment of banking sector. A potential threat


of the industry is of other commercial banks plans to enter in the industry, in an interview CEO
MR Husain Lawai of summit has highlighted to enter to have their share in banking sector
because of observed lucrative growth of 10% on average which is higher than commercial
banks, on one hand it seems to be a threat this shows the potential of industry. On a question
whether the customer base anticipation for Summit banks future Islamic operation he referred
to the survey done by their research team and reflected the number to 95% of all the customer
who had showed their willingness to shift from commercial bank and he had also anticipation
for new customer, Lawais this statement further highlights the potential for the Islamic banks.
Another threat to industry is that its only ten year old, thus can be assumed as a new born to
the financial sector it cant give guarantee to many of its costumer banking history for more
than 6 years.
EFE matrix analysis ranks MEBL to be above average response to the available opportunities
and threats.
EFE Matrix on next page
















Key External factors Weight Rating
Weighted Score
Opportunity

Microfinance in ruler areas 0.1 2.00 0.2
A Considerable pie of population willingness to
shift
0.07 4.00 0.28
Mortgage industry 0.01 2.00 0.02
Gap available for Product development 0.12 4.00 0.48
Government Patronage for the industry 0.25 4.00 1
International expansion 0.03 1.00 0.03
Threats

New entrants 0.13 3.00 0.39
Point of differentiation 0.17 4.00 0.68
Old record history of Conventional banks 0.09 2.00 0.18
Limits for product development 0.03 3.00 0.09

1 3.35
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