Commercial Bank of Dubai: Strategic Audit Report

Introduction

The purpose of the given strategic audit report is to describe the current performance and mission of Commercial Bank of Dubai (CBD) and analyze external and internal factors using EFAS matrix, IFAS matrix, and SFAS matrix. Based on the findings, the report will produce TOWS table to suggest strategic alternatives for the smooth functioning of the financial system and provide recommendations for the future development of this bank.

CBD is a public joint stock company formed in 1969 through an Emiri Decree. The bank offers a variety of conventional and Islamic commercial banking services, such as deposits, loans, credit cards, investment advisory services and so on (Irish Stock Exchange 15). People of the United Arab Emirates hold 80% of its share and Investment Corporation of Dubai owns the remaining part; however, this bank converted into a national Public Shareholding Company in 1982 and established itself as a progressive and modern banking institution.

Current Performance and Mission

The performance review of CBD illustrated that the net profit in the last year has decreased by 11.3% in comparison to the previous year while operating income raised by 5%, net interest income jumped by 3.6% and non-interest income boosted to 8.3% along with an increase of 22.9% from fees and commission. Although the bank has increased its operational expenses by 13.8%, this was the result of an enhanced retail distribution network. Therefore, the company is now improving its corporate and personal banking products by focusing on the strategic initiatives of CBD.

Due to the concurrent turndown of the financial service sector, the top management of the bank continued its careful approach to the corporate and SME sector and focused on boosting its market share in the diversified segments along with attractive digital capabilities (Kassem). The major achievements during the year pointed to launching four new outlets fully equipped with innovative digital technologies that gained customer attention for its unique mobile apps. As a part of the corporate social responsibility, the bank sponsored ‘World’s Elite Cyclists’ teams and “National Olympic Committee” while it is ready to get hold of a corporate loan portfolio of the Royal Bank of Scotland (RBS) operating in the UAE and issue a five-year bond. With an array of diversified product and funding base, the bank upholds its mission “to be loved for our passion and excellence.”

EFAS Matrix

Opportunities

CBD concentrates on the diversification of its products and services considering market demand, customer choice, economic and cultural factors; for instance, in 2008, CBD introduced sharia-compliant banking, which known as ‘Attijari Al-Islami.’ Furthermore, this bank established the first digital-only bank in the UAE to target digitally connected clients to manage their finances using technology; customers of this bank will get all financial services through their smartphone. Current performance of CBD represents that it has a financial capacity to expand business with new products and services in new and existing markets.

CBD was established through mergers of three banks; thus, the focus on this strategy will enhance the business opportunities to expand the banking services in the prospective domestic and international market (Irish Stock Exchange 15).

Threats

According to the annual report 2016 of CBD, the operating environment in the UAE remained competitive; however, the activities of the direct competitors, for example, PNC Financial Services Group, First Gulf Bank, Emirates NBD (UAE), BankDhofar, Abu Dhabi Commercial Bank, and Pacific Capital Bancorp, have created an overall challenging environment for trade (Commercial Bank of Dubai 19).

In the era of technology, ensuring cybersecurity is one of the biggest challenges faced by the management of the bank because CBD could suffer serious financial losses due to fraudulent transactions of hackers. Most common risks, for instance, include worms, Trojans, keystroke loggers, apps, software vulnerabilities, and web-based spyware, which are mainly created to collect customer information. In order to mitigate this threat, CBD needs to take different measures to proactively detect network vulnerabilities and prevent attacks. Therefore, it would require considerable funds to build a strong system.

External Factor Analysis Summary (EFAS)

IFAS Matrix

Strengths

• Brand value: From the last four decades, CBD is providing financial services with trusts to the customers; thus, it has a strong brand image in the banking sector of the UAE.
• Customer satisfaction: As nationals of the United Arab Emirates owned 80% of its share, the prime intention of this bank is to design product and service line that will consider the needs of the clients.
• Market growth: At the initial stage, CBD had only one branch, but now it is a highly profitable institution, which has about 24 outlets.
• Financial position: According to the annual report 2016, this bank has enough financial strength to implement new strategic options to decrease expenses and increase revenue; however, the following table 1 provides more information about the financial capabilities of CBD.

Table 1: Financial position. Source: CBD (2).

• Performance of the employees: CBD has started its operation with only ten employees, but now it has more than 1200 efficient workers;
• Technology: According to the annual report 2016 of CBD, this bank introduced the ‘Active Saver’ mobile app, a first-of-its-kind app, and the first digital-only bank in the United Arab Emirates to offer differentiated products, and innovative service and maintained its competitive edge.
• Long experience: From the last four decades, CBD has provided reliable and high-quality services to the clients to build trusted relationships;

Weakness

Operating Costs: According to the annual report 2016, CBD has failed to reduce operating expenses, which adversely affects its financial position, and overall performance of the bank (table 2).

Table 2: Financial position. Source: CBD (62).

• Higher charges: As the clients of the bank need to pay more for the services than traditional bank accounts, CBD focuses more on the purchasing power of the customers

Internal Factor Analysis Summary (IFAS).

SFAS Matrix

Strategic Factor Analysis Summary (SFAS)

The core constituents of this matrix have been derived from the exhaustive analysis of the above two matrices; the following table contains the details:

Analysis on Findings

The result of EFAS matrix of the bank shows that CBD scored 4.35, which indicates that Commercial Bank of Dubai is performing well in protecting the business from external challenges by means of using key advantages. At the same time, IFAS matrix is utilized to scrutinize the strengths and weaknesses of the functional sector of this bank. A total weighted score of CBD is 4.3, which shows this bank is responding to the internal business environment in an exceptional manner.

TOWS Table

The following table demonstrates the TOWS Matrix of CBD, which suggests strategic plans for its future development.

TOWS Matrix

Strategic Alternatives

It has been reported that in the current year CBD has experienced a turndown of 5.9% in its annual profit due to the challenging operating atmosphere in the UAE, diminishing from the corporate and commercial banking along with the higher level of debt defaults for reducing oil price. At the same time, the bank has raised its income from personal banking, online banking, and non-net interest income, which ultimately indicates the success of diversification strategy of the CBD (Kassem).

The Commercial Bank of Dubai has introduced its three years strategic plan from 2016 to 2018 to attain a higher growth and profitability and ensure diversified income sources from new business segments rather than the traditional ones (Irish Stock Exchange 77). Due to the associated risks and uncertain business environment, CBD is required to evaluate and assess the existing strategies, and design and choose the strategic alternatives. The following table contains the strategic alternatives for CBD:

Strategy 1: Significantly Emphasis on Personal Banking Business

Strategy 2: Introducing Digital Banking

Strategy 3: Attention to the Islamic Banking Business

Strategy 4: Merger

Recommendation

This strategic audit report suggests to put a stronger emphasis on the digital banking system to meet long and short-term goals of CBD as this strategy scored 32 out of 35. To implement this strategy, the management of CBD needs to focus more on the cybersecurity to avoid fraudulent transaction. The following table gives more suggestions for each strategy-

Conclusion

From the result of EFAS, IFAS, and SFAS matrix, it can be concluded that CBD holds a highly profitable and stable position in the financial institutions. CBD faces several external and internal challenges to ensure cybersecurity, satisfy the customer, and gain a competitive advantage over the competitors; however, this bank has excellent brand awareness and financial strengths to make a profit in the adverse business environment. At the same time, the board of directors and employees of this bank are highly qualified, well trained, skilled, and specialized; therefore, high performance of the human resources make it easy to hold a strong market position in the UAE. However, this strategic report recommends this bank to reform personal banking business and give more attention to Islamic banking and merger in order to reduce high operating costs and provide more benefits to the customers through innovative banking services.

Works Cited

Commercial Bank of Dubai. “Commercial Bank of Dubai Investor Presentation – 9M 2015.” CBD, Web.

Irish Stock Exchange. “Base Prospectus.” ISE, Web.

Kassem, Mahmoud. “CBD Profit Dips on Bad Debts and Expenses.” The National, 2017, Web.