EXECUTIVE SUMMARY
Banco de Oro Unibank, Inc. also known as Banco de Oro and BDO, is the second largest bank in the Philippines in terms of assets and is owned by the SM Group of Companies, the group company of SM in terms of industry leading, retail merchandising, shopping mall operations, banking and corporate governance. Its Industry is for Finance and Insurance and its products are its Financial Services (Appendix Illustration 1.1). Its main Headquarters is situated in 12 ABD Avenue Ortigas Center Mandaluyong City Philippines. As a universal bank, BDO provides a wide range of corporate, commercial, retail and investment banking services in the Philippines. These services include traditional loan and deposit products, as well as treasury, trust, cash management, insurance, and credit card services. BDO’s principal market are currently a select niche in the corporate, market and the middle market banking segment, consisting of mid-sized corporations, the small and medium-sized enterprise market and retail/consumer market. After a thorough research primed, the external analysis of BDO shows a figure of 3.15, which confirms that the firm’s strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. The internal analysis on the other hand, shows a figure of 3.67, which dictates that BDO has been busy striving to be the best for its service not only to its investors and customers, but also to its internal system that made them recognized and bagged awards a lot of times
and have been coined as the “transformational year”- it emerged as a bigger, better, and stronger entity after the merger. With the competitive advantages and market leadership records consolidated into the merger entity, the researcher strongly recommends after comprehensive consideration with the Grand Strategy Matrix (GSM), to pursue among these strategies; Horizontal integration, Market development and Product development as these strategies would lay of a claim to a solid foundation and dynamic synergy upon which to build even more vigorous growth in the future.
I. COMPANY PROFILE
BDO had its humble beginnings on January 2, 1968 as it started as a Thrift bank called Acme Savings Bank, having only two branches in Metro Manila. In November of 1976, Acme was acquired by the Sy group, the group of companies currently owned by retail magnate Henry Sy, and renamed Banco de Oro Savings and Mortgage Bank. In December of 1994, BDO became a commercial Bank, and to reflect its new status, BDO is renamed Banco de Oro Commercial Bank, and in September of 1996, BDO became a universal bank, which led to the bank’s name changed to its current, Banco de Oro Universal Bank. BDO is one of the many banks owned by a Chinese-Filipino in the Philippines, including one of its competitors Metrobank and Chinabank. In its quest to explore and strengthen through vision, innovation and value, in 1997, BDO involved in an insurance service by establishing a subsidiary called BDO Insurance Broker, making it a, “bancassurance” firm. In 1999, it expanded its insurance through partnership with Assicurazoni Generali s.p.a., one of the world’s largest insurance firms, and Jerneh Asia Berhad, a member of Malaysia’s Kuok Group. In March of 2000, BDO partnered up with its insurance affiliates, which are Generali Pilipinas Life Assurance Company and Generali Pilipinas Insurance Company. On June 15, 2001, BDO merged with Dao Heng Bank’s Philippine subsidiary. The merger boosted the number of BDO’s branches from 108 branches before the merger to 120 after the merger. It became one of its competitive advantage as it expanded through its branches, and as it reached out to its increasing number of depositors, it further expanded when in April 2005, United Overseas Bank sold 66 out of its Philippine subsidiary’s 67 branches to BDO, and as it set to rationalize its operation from retail to wholesale banking, BDO, on March 22, 2006, after all United Overseas Bank completed its integration into BDO network, it increased the number of its BDO branches to 220. On August 5, 2005, Banco de Oro and an SM subsidiary, SM investments, bought 24.76% of the shares of
Equitable PCI bank, the Philippines’ third-largest bank, and 10% of an Equitable PCI affiliate, Equitable CardNetwork, one of the Philippines’ largest credit card issuers, from the Go Family that founded the bank. On January 6, 2006, Banco de Oro, with the SM Group of Companies, submitted to Equitable PCI a merger offer with Banco de Oro as the surviving entity. Under the proposal, Banco de Oro will swap 1.6 of its shares for every 1 Equitable PCI share and as a second option, Banco de Oro also offered to base the swap ratio on the book values of both banks to be assessed by an independent accounting firm using International Accounting Standards (IAS). To effect the merger, Banco de Oro needs consent of Equitable PCI shareholders representing 67% of Equitable PCI. These include the Social Security System (SSS) with 29%, the Government Service Insurance System (GSIS) with 14%, and the family of Equitable PCI chairman Ferdinand Martin Romualdez with eight percent. On December 27, 2006 both Banco de Oro Universal Bank and Equitable bank agreed to merge producing the Banco de Oro-Equitable PCI bank. As of February 2007, it became known as Banco de Oro Unibank, Inc. As estimated before the merger, their assets as of June 2007 reached about to P608 billion, making them the country’s second biggest bank. Just next to Metrobank with P669.1 billion and the current third biggest bank in the Philippines with P592.6 billion. Now BDO has branches in key business and commercial centers in Metro Manila, Northern and Southern Luzon, Metro Cebu, Iloilo-Bacolod and Mindanao. From 220 branches prior to merger, to the current total of 703 combined branches nationwide, the service have grown accustomed to and more. Now that the personnel force has doubled – with a total count of close to 16,000 employees by year-end 2007.
II. RESEARCH DESIGN AND METHODOLOGY The data requirement of this paper includes recent surveys, projections and operational highlights. It also requires information regarding recent trends regarding the industry under study. For comparative purposes, background of some major competitors in the industry is also needed, especially in the financial and operations aspect. It is also necessary to have enough internal information about Banco De Oro, the objective of this paper. The information required in this paper was obtained primarily through the use of Banco De Oro 2007 annual report. Authorized personnel were asked for a copy of financial highlights and other relevant information. The information regarding competitors was obtained through the use of internet. Certain internal information regarding the company under study was obtained through personal interview with Ma. Teresita M. del Mundo, branch manager, BDO Arranque Manila. Extensive research was made through the use of the internet to look for relevant figures, statistics and projections. This paper is limited only to Banco de Oro which operates solely in the Philippines. Among the different sectors of this industry, this paper focuses on the banking institutions. The focus of this paper is on the company’s performance and position in the banking and finance industry vis a vis its competitors. The annual report for the most recent year (2008) was not yet available when this study was used. It is assumed therefore that the financial statements for the year 2008 were the same as that of the year 2007, which is the most recently available financial statement. The researcher made this assumption with consideration of the global financial crisis but conservative enough for undesirable events this year that affected the company’s financial standing. This annual report was used as a basis for comparison and projections. It is also assumed that there will be no dividend payments in the years within the time frame of the
projections. The projections also assume that no tax holidays or special tax treatments and changes in tax rates will occur in the future. III. VISION/MISSION STATEMENTS A.
Statement of the Current Vision and Mission Statements
CORPORATE VISION MISSION STATEMENT “To be the preferred bank in every market we serve by: Consistently providing innovative products and flawless delivery of services; Proactively re-inventing ourselves to meet market demands; Creating shareholder value through superior returns; Cultivating in our people a sense of pride and ownership; and, Striving to be always better than what we are today…tomorrow”
B. Critiquing the Current Vision-Mission Statements Vision-Mission is a short, concise, and inspiring statement of what the organization intends to become and to achieve at some point in the future and what they will do to achieve it. For some beliefs, these statements are just a waste of time, since they do believe that these statements are just used for nothing but being published in the annual report and displayed in reception areas. But as negated by Warren Bennis, a noted writer on leadership says: “To choose a direction, an executive must have developed a mental image of the possible and desirable future state of the organization. This Image, which we call vision, may be vague as a dream or as precise as a goal or mission”. Mission on the other hand, makes the leader’s view concrete of the direction and purpose of the organization. It is a vital element in any attempt to motivate employees and to give them a sense of priorities.
Nine essential Components of a mission statement. 1. Customers Yes It is not clearly stated but by saying that they want to be the “preferred bank in every market we serve”, it is assumed that since they are a banking institution, their customers are customers who are willing to deposit their money, or make transactions to their company in every means. Therefore, they were able to determine who they will serve and where to focus their efforts on, without making confusion as to whom they will serve. 2. Products or Yes “Consistently providing innovative products and flawless delivery Services
of services” – They were very clear as to what they are going to offer their market/customers, and that is quality service and innovative products. It is very concise, but the whole thought is there. By means of innovation, and giving a variety of service depending on with their customers, makes them attain this statement they have made. Although they did not tell that they offer financial services, as a banking institution, people should already consider it. And for me, its concise statement made it strong and powerful and invulnerable to critiques and creates a
3. Markets
mission to clearly Yes “Proactively re-inventing ourselves to meet market demands” - Again they were able to address the demands of the market through this statement. They were very clear that they will reinvent to be competitive for its global success and growth. Although they were not able to clearly state that they are into financial sector, their mission to re-invent to meet market
demands is more than enough for them to say that they are willing to extend themselves to possibilities, to cater new trends 4. Technology
No
in the market to satisfy their customers/clients. They have not stated into what means they will be able to serve their customers. Although they have addressed the above mentioned concerns, technology was not mentioned in the company’s mission statement, and makes it vulnerable as to how the business will expand through its resources, how its assets are in terms of technology, updated. And what are their plans to further cultivate for the demands in the market with their existing technology and how ones resources through technology will be
maintained as to the manner of purpose and usage. 5.Concern for Yes “Creating shareholder value through superior returns” Survival, Growth
Since BDO is more acquainted of maximizing their shareholder’s and
Profitability
wealth than simply maximizing profit, they have clearly stated their intentions to their shareholders. They are confident in assuring their shareholders, and potential investors that their investment to their company will become profitable through its optimization. In its quest to innovate, it simply implies that their great concerns are their shareholders, that is why they convert their efforts through the quality of their services and products they offer to their customers into opportunities for greater rewards.
6. Philosophy
Yes “Cultivating in our people a sense of pride and ownership” BDO has shared to its shareholders that sense of belongingness that they are safe in the arms of their company. That the
company will cater the needs of its people, and will re-invent, innovate, and explore, to cope with the demands in the market to satisfy their wants and needs for themselves. In this statement, they want to let their employees, shareholders, customers and others that concerns them, feel free as if it’s their own. The reason they want them to make them feel its their own is that generally, we take good care of our personal belongings, and BDO wants that belief to be brought to its company. That feeling that the people working in their company, and the people patronizing their products and services will rise above and beyond excellence, propelled by deep sense of pride in being part of a dynamic team 7.
Self Yes With commitment to serve that shows through the quality of
Concept
service and products they offer, they have considered this component, in being out professionalism in carrying out each and every task, and respect for one another, their competitive advantage rely on to their people. Their commitment that BDO has
instilled
on
them
and
collaboratively
continuously
communicating with their customers in creating financial solutions to match their needs makes it advantageous to them that their 8. Concern for No
customers patronize their products and services. Although they have engaged themselves to activities that
Public image
addresses the environmental concerns and other social and community issues of which are not stated in their mission, it is much better if they have considered it since they are already doing it. They should have stated their commitment to fulfill its
social, ethical, environmental and economic responsibilities, considering this statement would further enhance and expand their market through means of development program for sectors they affect. Eliminating this statement would mean that BDO is only acquainted to its positive image in terms of prioritizing people because they are gaining profit from them, and might stereotype the company’s image that it’s concerns are only for profiteering resources. 9. Concern for Yes They clearly stated that they are committed to the growth of their Employees
employees and development that will nurture into becoming better individuals. If BDO is striving to be its best, in working as a team, professionalism and performance, they are bringing with them their employees as altogether grow as one person, one institution, and one corporation. They are treated as shareholders that as to what services their employees has to offer and offered it is properly compensated with the benefits and rewards that are ready and waiting for them.
Generally speaking, BDO has a positive impact as it includes their concern to their employees, customers and investors. There are lapses in statements in terms of technology and concern for public image; however, it remains clear in its direction and quest for innovation and growth. It strengths for being concise in its statement, makes it more memorable as it includes engaging words. It simplicity has already describe of its bright future with its clear intention to improve along with the people they are working with. But in terms of its achievements, it has not articulated in its statements their recognitions in the field of public service and activities aiming in the development of our country. Being socially aware and socially responsible could be a key strength to influencing their employees and possibly attracting more investors since they benefit
in two ways, one is through their savings, interest and other transactions that would give them profit, second is through the development programs BDO has instilled in the country.
C. Recommendation of Revised Vision and Mission statements
“To be the preferred bank in every market we serve by: Consistently providing innovative products and flawless delivery of services; Advancing towards the future of banking through technological innovation Proactively re-inventing ourselves to meet market demands; Creating shareholder value through superior returns; Living in the virtue of honesty by abiding with the highest ethical standards Cultivating in our people a sense of pride and ownership; and, Striving to be always better than what we are today…tomorrow”
D. Recommend more effective ways of communicating the vision and mission statement
One of the most critical and yet hardest to corporate challenges is through communicating vision and mission statements effectively. Corporations are beginning to realize the value of binding the employees to the company and involving them more in corporate affairs and encouraging them to share company goals. Communication needs to go beyond transmitting information. Beyond putting the vision mission statements of one’s company in the front hallways or in annual reports. It must be more than that. It must be instilled in the hearts of its employees and transform employees behavior that will definitely result to excellence and deep sense of belongingness in terms that they know that they can put their hearts in to what
they are doing, in earning for a living. This can make your employees work as a team, and will lead to a contribution to an overall success. In line with other audiences such as shareholders and investors, they should be demonstrated with its corporate vision mission, setting out stories, finding and creating examples of leaders embodying these in their actions, let them understand its traits and importance. Creating dialogue with anyone involved in the corporation, from its employees to its shareholders, getting feedbacks on how they experience culture and values in practice, and then aligning in them the vision mission of the corporation would help them understand it clearly. Moreover, it is necessary to align and be guided accordingly by the vision mission statements in decision making. Be consistent in the company’s behavior, words and deeds, and bridge that gap between employees to employees, employees to top management, the corporation to its customer and collectively support the vision mission to the reality.
III. EXTERNAL ANALYSIS A. General Environment 1. Socio-cultural, demographic and environmental forces. Philippine society is a unique blend of diversity and homogeneity. The country is culturally strongly Euro-American. Western Rule have left an indelible imprint on the Philippines,
serving as a means for the introduction of Western culture and as the catalyst for the emergence of a sense of Philippine political and cultural unity. The country has experienced some cultural trends such as; health food/diet craze, working women, children as consumers early in life and youth as young investors which has paved a way to the integration of more people to the banking industry. These eventually result to the affection of cultural enterprise, industry development, household behavior, poverty reduction, voice and participation and other Globalizing forces that drive one’s own identity. The population density of the Philippines is high, but the distribution of the population is uneven. Parts of Metro Manila have a population density that is more than 100 times that of some outlying areas such as the mountainous area of northern Luzon. The country’s birth rate remains significantly higher than the world average although there were efforts to slow the overall growth rate in mid-20’s. It had limited success in part because reductions in the birth rate have been offset to some degree by reductions in the death rate. The problem that the banking sector faces due to this over population lies in the fact that almost 7.4% of the population was unemployed.
This meant that an estimated 7.4M
Filipinos were not producing any income and were of no help for the banking system. As for banking and gender, we have seen a great increase in men and women approaching banks for their services such as savings, loans and even insurance due to the growing instability of our economy and the fact that more and more people, not just women, are being driven to work due to the economic crisis the country and the world is facing. Many former stay at home husbands or wives have opted to getting a jobs in order to help sustain their family’s interests and needs.
2. Technology The developments in information collection, storage, processing and transmission and distribution technology have influenced all aspects of banking activity. And was regard as the main driving forces for the changes in banking industry. It has been influencing the competition and the degree of contestability in banking.
Due to the development of technology, bank’s superiority in information is deteriorated. Entry barrier have been declining, new competitor have emerged. Some financial products and services have become more transparent and commodities, customer show willing to unbundled the demand for financial products and services, all these lead to a more competitive market environment. Due to lowered entry and exist and deconstruction, for some sub-financial markets, contestability in banking is also raised. On the other hand, it has also raised the influence on the Economy of scale since Competitive pressure force banks to lower their cost. Bank seeks to get economy of scale in bank procession instead of being a big bank. Bank seeks to secure the optimal business structure, and secure the competitive imperative of economy of scale. There are other options to get economy of scale, including joint venture and confederation of financial firms. Small firms also can get economy of scale by outsourcing, i.e. buy in economy of scale. It has also impacted on the way banking and financial services are delivered. A wide range of alternative delivery mechanism becomes available, Internet, ATM and other means of computerizations and these Reduces the dependence on the branch network as a core delivery mechanism. With the development of technology, the financial systems are substantially over-supplied with delivery system through a duplication of network, bank has to change their delivery strategy and rationalize their branch network strategy. Financial service could not provide the level of service it does without the support of advanced information processing and telecommunication technologies. The creation of a new supply channel has substantially reduced the cost of financial transactions.
3. Economic Environment In 2008, our world experienced high oil prices, which led to drastic high food prices due to the extremely loose monetary policies and low interest rates of the U.S. Federal Reserve, as well as using food crop products such as corn ethanol and biodiesel as an alternative to
petroleum) and global inflation; a substantial credit crisis leading to the drastic bankruptcy of large and well established investment banks as well as commercial banks in various, diverse nations around the world; increased unemployment; and signs of contemporaneous economic downturns in major economies of the world, a global recession. The National Economic and Development Authority (NEDA) and the Board of Investments were created in the late 20th century to help both public and private sectors in planning further economic development. Much of the initial capital investment of many private rural banks was provided by the government, and private development banks have likewise received government assistance. Many commercial and thrift banks have been established since the mid-1990s in response to increased liberalization, privatization, and the lifting of a ban on foreign banks. The Philippine Stock Exchange, though still relatively small, has been growing rapidly since weathering the Asian economic crisis at the end of the 20th century. But nowadays, government is establishing banks in order to tailor economic activities to their wider cultural and spiritual values, so that the operational activity is more directly valuable to the poor themselves. Proposals of interest will be those that analyze recent Bank projects’ record of success, or offer other ways of supporting the ability of the poor to reflect their culture in development processes as it is facilitated by bank activities. Economy speaks out for the poor as they seek help to those who are willing to take stock and draw on their values and strengths in setting priorities and decision-making on project.
4. Political, legal and governmental aspects.
Over a period of time, the banking industry of the Philippines has seen a transformation with the reforms being carried out by both the banking regulator and the government. The
reform process has resulted in improved banking industry, with industry income touching new heights in 2008. Moreover, the Philippine banking industry has been undergoing consolidation that will further strengthen its position as new entities will increase the competition level. Moreover, banks will be geared up in facing the inconsiderate economic outlook, which increases the likelihood of a sharp increase in unemployment or corporate bankruptcies. The importance and benefits of a strong regulatory system with an open and wellregulated financial sector fuels economic growth and a strong financial sector offers stability, making the economy more resilient in the face of external and domestic shocks. In the Philippines, the Bangko Sentral considers the sound supervisory and regulatory environment, as well as the implementation of a broad set of financial reforms, as factors that have helped to foster sustainability and growth in the banking industry. Year-end 2002 figures revealed a steady growth in deposits, the resumption of lending activities, capitalization and bottom line figures.
The important relationship between banks and political, legal and governmental welfare has led researchers and international institutions to develop policy recommendations concerning bank regulation and supervision. According to the National Bureau of Economic Research, the International Monetary Fund, World Bank, and other international agencies have developed extensive checklists of "best practice" recommendations that they urge all countries to adopt. Most influentially, the Basel Committee on Bank Supervision recently revised and extended the 1988 Basel Capital Accord. The first support of these new recommendations develops more extensive procedures for computing minimum bank capital requirements. The second support focuses on enhancing official supervisory practices and ensuring that supervisory agencies have the power to scrutinize and discipline banks. The third pillar envisions greater market discipline of banks through policies that force banks to disclose accurate, transparent information. (NBER Reporter research summary)
Companies are subject to government imposed taxes such as income tax, donor’s tax, estate tax, withholding tax and other percentage taxes which at its normal tax rate is 35 % from July 1, 2005 to December 31, 2008.The amendment for next year will be effective on January 1, 2009 for the 30% Normal tax rate applicable to Domestic Corporation together with the resident and nonresident foreign corporation limited to the sources within the Philippines.
B. Industry and Competitor Analysis PORTER’S FIVE FORCES 1. Threat of New Entrants 2. Rivalry among competitors 3. Threat of substitutes 4. Bargaining powers of suppliers 5. Bargaining power of buyers
LOW INTENSE MEDIUM LOW MEDIUM
1. Threat of New Entrants
New potential competitors are always a threat to any industry, other possible threats include; changing demographics/shifting demands, emergence of cheaper technologies and regulatory requirements. In keeping with the aspect of Economies of scale, threat of new entries would be low since minimum size of operations for banks to keep it profitable is quite high. The threat of new entrants according to Capital Requirements and Access to distribution channels is low since setting up a new business such as a bank needs a lot of capital investment not to
mention the technology required to compete with rivals such as ATM machines and access to distribution channels can be monopolized by other competitors. Brand loyalty of customers also shows a low threat to existing banking firms due to the fact that most banking institutions prioritize customer service among other things. As for Government Policy the threat of a new entrant is also low since there are several legal aspects that cannot be attained easily by new businesses especially in the banking sector. With regards to Scarcity of important resources such as qualified and expert staffing, the playing field is tilted to known banking operations rather than to new banking operations due also to the fact that they control distribution channels and have a higher brand loyalty making them the preferred choice of would be job-seekers. Also, High switching costs for customers such as long term contracts hinders the threat of any new banking institution since it poses great inconvenience for customers.
2. Rivalry among competitors
BDO has been very aggressive and competitive in its field as it offers its best quality service to its depositors, bringing in customers who patronize their products, as it also expands to its quest to explore and strengthen through vision, innovation and value. It has always been a challenge to different companies, what their rival competing firms has to offer. These factors such as to enhance quality, add features, provide services, extending warranties, and increasing advertisements, are one of the primary reasons why BDO has been very aggressive, a threat to all banking firms:
LIST OF OTHER PARTICIPATING BANKS IN THE PHILIPPINES (PSE INC.) 1. AsiaTrust Development Bank, Inc. 2. Banco Filipino Savings and Mortgage Bank 3. Bank of the Philippine Islands (BPI) 4. China Banking Corporations
5.Chinatrust (Phils.) Commercial Bank Corporation 6.Citystate Savings Bank, Inc. 7.Export and Industry Bank, Inc. 8. Metropolitan Bank and Trust company 9. Philippine Bank of Communication 10. Philippine National Bank 11. Philippine Savings Bank 12. Philippines Trust Company 13. Rizal Commercial Banking Corporation 14. Security Bank Corporation 15. Union Bank of the Philippines, Inc. As for rivalry among competitors especially to differentiation of product, the threat is intense since all banking institutions offer the same product which is financial services, whatever it may be; leasing, loaning, savings.etc. With respect to strategies, threat is also intense due to the fact that almost all banking institutions have their own perks and advantages that lure customers in their own way. Whether it’s BDO’s long banking hours, BPI’s Tele-Banking or Metrobank’s convenient credit policy. There is also Low market growth rates in the banking industry meaning that a banking firm can only truly grow with the loss or assimilation of other banking firms as was the case for Banco De Oro Unibank which is comprised of Banco De Oro and Equitable-PCI Bank.
3. Threat of substitutes
In banking institutions, competitive pressures arising from substitute products/services increase as the relative price of substitute/services declines and as consumers’ switch cost decrease. The scale of competitive pressure derived from development of substitute products from competitors is generally evidenced by rivals’ plans for expanding production capacity, as well as their sales and profit growth numbers. BDO, with its keen reading of international
financial trends, it enable themselves to access unique opportunities for increased value for their customers. The threat of substitutes as far as customer brand loyalty is concerned is medium since brand changing in banks is rare. Only poor account management and bad customer relations lead to shifting in banks since banking institutions in our country operate primarily in similar standards set by the government. Every banking establishment keeps a close relationship with their customers so I believe that in this aspect, the threat for substitute is low. As for relative pricing of performance of substitutes, the threat is medium since banking institutions’ rates have only slight discrepancies. It’s only a matter of which bank rate you can afford. Current trends also show that there is a low threat of substitution since it will be unwise to move your savings to another savings institution provided that it is able to stay afloat during this economic crisis.
4. Bargaining of power of Suppliers
With BDO merging to with another organization, they have expanded their networks through branches and means and squeeze out important cost savings for themselves. With these they have managed themselves very well, making them agile in their means, with its quick ability to apply power of information to respond to their customers’ needs amid shifting market conditions. With its, merging two organizations, with their distinct character and cultures, into one cohesive and solid team presented great challenges and complex priorities for Human Resource Management. In order to solidify their team faced with the increased expectations following the merger, they have made corporate culture enhancement programs to ensure that the bank faces the client with a common set of servicing philosophies. Other than that, the speed availability of services of next generation components have widely denomination of
initiatives focused on the harmonization of the benefits and compensation packages of officers and staffs, the resolution of issues between unions, and the administration of the required training and development programs to adequately support the changes in structure, system, and services.
5. Bargaining Power of Buyers
Bargaining power represents a major force affecting the intensity of competition in an industry. With BDO’s inventive mindset, they view banking as a continuous creative process, challenging them to always find ways to better serve their customers. They have special services that gains customer loyalty compared to its rivals, in which they have offered a variety of products and services to their customers. Through Generali pilipinas and BDO insurance Broker, Inc. the bank achieved record expansion in the insurance business in 2007. It grew by 26% in terms of total gross premiums while BDO insurance broker, Inc. sailed to a 156% increase in commission income due to the growth in bancassurance operations and the merger with Equitable Banking Corporation insurance Brokers, Inc. With its list of achievements in the corporate world, customers are attracted by it being the best performing fund manager for the 5th consecutive year. This has achieved the highest growth in assets under management of P274 Billion, representing vigorous 60% increase from the previous year. In consideration with our economy facing a volatile global financial environment, BDO focused on the successful integration of the treasury operations of the merged entity. The combined team, with the years of experience and expertise in the multi fixed-income, foreign exchange, and derivatives in the markets, sought to make adjustments in their strategy to compensate for expected downturn in the US and world economy, and volatility it brings. Gradually, to gain increasing bargaining power, it shifted its portfolio to place more emphasis on spread income and less dependency on trading gains. While more challenges appear on the horizon, particularly the forecast of a US
recession and the newly implemented SEC rules on over-the-counter market trading of securities, BDO remains upbeat on its prospects. Increased volatilities and widened spreads can lead to opportunities.
6. Summary of Porter’s Five Forces of Competition
To sum it up, The threat of new entrants in the banking industry can be considered low since there are many steep requirements that are needed to be meant such as a high capital investment, a share in distribution channels, government policies and of course the presumption of an economy of scale. For the rivalry between competitors, we can clearly see that there are intense threats present since banking institutions use similar strategies, there is low growth rate for companies and not much differentiation between services leaving the choice up to the consumers. Medium was the level of threat given to the threat of substitutes since there is a slight conformity between the prices of the services rendered by banks and this business usually centers itself in customer care and relationship. The threat of substitution is possible but seldom happens. I believe that a clear explanation of why the bargaining power of suppliers is low is the word service. This is why there are plenty of substitutes so banks can accommodate anyone from any social class. As for the bargaining power of buyers it can be classified as medium since banking operations have been always aimed to serve people.
COMPETITOR ANALYSIS
1.) Profile of Competitors Collectively, the Philippine banking industry posted a Compound Annual Growth Rate (CAGR) hike of 8.46% in asset base between 2004 and 2007 of which, Industry deposits in the country grew at a CAGR of 9.82% from 2004 to 2007. The deposit mobilization is concentrated
with universal and commercial banks which some of its key players are Metropolitan Bank and Trust, Bank of the Philippine Islands, Land Bank of the Philippines and Banco de Oro UniBank Inc. which account for the majority of the Philippine banking industry deposit. Financial Intermediation was the largest shareholder of the loan disbursal by banks during 2004-2007. Bancassurance will account for 65% of the total sales of insurance products by 2011. Increasing at a CAGR of 69.78%, micro financing in the Philippines is expected to reach 56.5 Billion Pesos. Increasing mobile penetration will expand the mobile banking user base to more than 11 Million by 2011.
Metropolitan bank and Trust (Metrobank) Metrobank, as the largest Philippine bank, is always trying to stave off competition to stay as the country's largest bank. It is largest in terms of its assets with P669.1 billion ($14.5 billion) (P46=$1) as of June 2007 and is also the largest Philippine bank in terms of overseas presence. It has a total of 8,721 employees. It has a diverse offering of financial services, from regular banking to insurance. Metropolitan Bank & Trust Company (MBT) was incorporated on September 5, 1962 by a group of Filipino businessmen principally to provide financial services to the Filipino-Chinese community. Metrobank eventually expanded its business to provide a broad range of banking and collateral services to all sectors of the Philippine economy. As of August 21, 1981, Metrobank was granted a universal banking license by the Bangko Sentral ng Pilipinas (BSP). This license allowed Metrobank to engage in non-allied undertakings, which include automobile manufacturing, travel services and real estate, as well as finance-related businesses such as insurance, savings and retail banking, credit card services and leasing.
Metrobank offers commercial and investment banking services. Its principal business activities involve borrowing and lending, trade finance, remittances, treasury, investment banking, credit card and savings banking. It is also a major participant in the foreign exchange market in the Philippines, and is accredited by the BSP as a government securities dealer. The company's customer base covers a cross section of the top Philippine corporate market, but has always been particularly strong in the middle market corporate sector of the economy, a significant portion of which consists of Filipino-Chinese businesses. Metrobank provides investment banking services through First Metro Investment Corporation and retail banking through Philippine Savings Bank. Metrobank subsidiaries and affiliates include; Domestic subsidiaries and affiliates •
First Metro Investment Corporation
•
First Metro Securities Brokerage Corporation
•
First Metro Travelex
•
MBTC Technology
•
Metrobank Card Corporation
•
Orix Metro Leasing and Finance Corporation
•
Philippine AXA Life Insurance Corporation
•
Philippine Charter Insurance Corporation
•
Philippine Savings Bank
•
SMBC Metro Investment Corporation
•
Toyota Cubao
•
Toyota Financial Services Philippines Corporation
•
Toyota Manila Bay Corporation
•
Toyota Motor Philippines Corporation
International subsidiaries and affiliates •
First Metro International Investment Corporation Ltd HK
•
MBTC Exchange Service GmbH - Vienna
•
MB Remittance Center HK
•
Metro Remittance Center SA - Spain
•
Metro Remittance (Italia) SpA
•
Metro Remittance Singapore Pte Ltd
•
Metro Remittance (UK) Limited
Ownership •
George S.K. Ty: 18.26%
•
Philippine Depository and Trust Corporation: 17.96% (11.47% Filipino, 6.49% foreign)
•
Federal Homes: 7.53%
•
Philippine Securities Corporation: 7.5%
•
Mary Vy Ty: 6.43%
•
Metrobank directors: 3.75%
•
Metrobank officers: 0.003%
•
Public stock: 37.57%
It continues on its expansion thrusts as it expects to end the year with a total of 552 domestic branches and an automated teller machine (ATM) network reaching 800. The bank will intensify the promotion of its electronic banking services to retail customers, including self-
service channels like phone and Internet banking. While deposit taking is still the key business of branch banking, the bank steadily expanded its other retail businesses like housing and car loans, bancassurance and credit cards. It likewise concluded its roll-out of its sales effectiveness program that helped re-engineer all branches into sales-driven brick-and-mortar outlets. At the start of the last quarter of 2008, Metrobank’s funding was boosted by a 7.6 percent growth in deposits to P541.4 billion. Cost of deposits was almost flat despite rising interest rates, as low cost deposits grew by 10.9 percent, accounting for 45 percent of the total deposit base. The increase in ATM coverage, meanwhile, has led to a corresponding increase in usage. Metrobank registered 85.4 million ATM transactions, with over 30 percent from use of Metrobank ATMs by local and international non-Metrobank cardholders. It boasts of its current record of above average 99 percent service availability, among the highest within the Bancnet consortium. BancNet is one of the country’s three major ATM service providers. Bank of the Philippine Island (BPI) BPI is the oldest bank in the Philippines still in operation and holds the record as the largest bank in terms of market capitalization in the Philippines (P136 billion = US$3.24 billion as of March 2008), and has consistently been the most profitable bank in the Philippines. It is owned by the Ayala Corporation, the largest conglomerate in the Philippines, and is based in Makati City's Central Business District, on the corner of Ayala Avenue and Paseo de Roxas, across from the Philippine headquarters of HSBC. BPI is also the oldest bank in Southeast Asia and has a long and distinguished history that spans over a century. It has either influenced or has been influenced by many nations, including parts of the former Spanish Empire, especially Mexico, and the United States. While it is considered by many as an old institution, BPI is trying, with moderate success, to promote itself as a dynamic institution that caters to its various clients, which hail from various sectors of Philippine society.
The Group's principal activities are corporate banking, consumer banking, investment banking, asset management, corporate finance, securities distribution and insurance services. The Group derives its revenue from three operating business segments namely, Consumer Banking, Investment Banking and Corporate Banking. Their total sale in 2007 is P46, 019,000,000, with a total of 11,925 employees. Consumer Banking covers deposit taking and servicing, consumer lending such as home mortgages, auto loans and credit care finance as well as the remittance business. It includes the entire transaction processing and service delivery infrastructure consisting a network of branches, ATMs and point-of-sale terminals as well as phone and Internet-based banking platforms. Investment Banking provides services covering corporate finance, securities distribution, asset management, trust fiduciary services as well as proprietary trading and investment activities. Corporate Banking consists of the entire lending, leasing, trade and cash management services. BPI also pioneered rural banking in the Philippines, as its countryside banking operations preceded that of many other banks' rural banking operations by many years. Today, it maintains a large rural branch network, with some branches dating bank to the Spanish or American colonial periods. Its branch network of 830 branches is by far the largest branch network of any bank in the Philippines. The bank has received several awards from various financial magazines, such as “Euro money” and the Far Eastern Economic Review. Its most recent award was for the best retail bank in the Philippines in 2005.
Bank of the Philippine Island subsidiaries and affiliates includes: •
1851 Club Inc.
AF Holdings & Mgt. Corp.
•
AF Merchants Inc.
AF Money Brokers Inc.
•
Ayala Life Assurance Inc.
Ayala Plans Inc.
•
BPI Bancassurance Inc.
BPI Capital Corp.
•
BPI Computer Systems Corp.
•
BPI Family Savings Bank
BPI Forex Corp.
•
BPI Foundation, Inc.
BPI International Finance Ltd.
•
BPI Investment Mgt. Inc.
BPI Leasing Corp.
•
BPI Operations Mgt. Corp.
BPI Paseo de Roxas Condominium
•
BPI Rental Corp
BPI Securities Corp.
•
BPI/MS Insurance Corp.
CityTrust Realty Corp
•
CityTrust Securities Corp.
Far East Bank Speed
•
FCP Credit Corp.
FEB Insurance Brokers, Inc
•
FEB Management, Inc.
FEB Savings Bank
•
FEB Stock Brokers Inc.
Filinvest Algo Financial Corp.
•
First FarEast Development Corp.
Greentop Condominium Corp.
•
Santiago Land & Dev't Corp.
Shenton Corp
•
Zodiac Realty Corp
BPI Direct Savings Bank Inc.
Ownership • PCD Nominee Corporation: 35.55% (30.17% Filipino, 5.38% non-Filipino) • Ayala Corporation: 23.28% • Ayala DBS Holdings¹: 21.43% • Roman Catholic Archdiocese of Manila²: 8.51% • BPI directors and officers: 0.08% • Public stock: 11.15% Bank of the Philippine Island is known for its firsts in: • BPI is the first bank in the Philippines, and in Southeast Asia. • BPI is the first bank to issue the Philippine peso
• BPI financed the first rail system, telephone system, electric power utility, and steamship service in the Philippines • BPI established the Philippines' first ATM system, with its ATMs being called Express Tellers. The system eventually evolved into the Expressnet ATM consortium, which has seven members • Expressnet is also known for its Express Payment System (EPS), which was at first the debit card system of the BPI Express Teller ATM card. • BPI pioneered the concept of the banking kiosk in the Philippines, with its kiosks being called Express Banking Centers or EBCs or by its older name, the Convenience Banking Center. EBCs can be found in malls, supermarkets, plazas and other locations and operate beyond normal Philippine banking hours, which are from 9.00 to 15.00 on weekdays. • The first local bank in the Philippines to introduce 24 hour branch banking called BPI Express. • BPI is the first bank in the Philippines to make use of a call center and telephone banking, known as BPI Express Phone • Launched BPI Express Mobile - Mobile Banking facility which enables accountholders to inquire about their deposit, credit card, auto and housing loan and BPI Prepaid Card balances, transfer funds between enrolled deposit accounts, pay bills to over 200 merchants, reload Globe Telecom and Touch Mobile prepaid mobile phones and BPI Prepaid Cards BPI Express Cash, and transfer money to and from Globe GCash wallet. • Launched BPI Express Credit Gold Mastercard with Paysafe System, the country's first EMV (Europay, MasterCard, Visa) compliant chip card. • The first airline co-brand chip credit card issued in the Philippines - BPI WorldPerks MasterCard with its partner Northwest Airlines. • The first local bank in the country to offer most number of third currencies in its products and services - Savings Accounts and Time Deposit Accounts (As of March 2007)
2.)Competitive Profile Matrix (CPM)
Legend: 4= Major Strength; 3= Minor Strength; 2= Minor Weakness; 1= Major Weakness Banco De Oro
Metrobank
BPI
Critical
Success Weight Rating Weighted Rating Weighted Rating
Weighted
Factor
Score
Score
Score
1. Financial
0.10
3
0.30
4
0.40
3
0.30
Position 2. Technology
0.07
4
0.28
3
0.21
3
0.21
3. Customer
0.185
4
0.74
4
0.74
2
0.37
Service 4. Strategic
0.175
4
0.70
4
0.70
3
0.525
Locations 5. Customer
0.05
3
0.15
3
0.15
3
0.15
Loyalty 6. Organization
0.06
4
0.24
4
0.24
4
0.24
7. Management
0.08
4
0.32
4
0.32
4
0.32
8. Human Capital
0.05
4
0.20
4
0.20
3
0.15
9. Innovation
0.08
4
0.32
3
0.24
3
0.24
10. Market Share
0.15
3
0.45
4
0.60
3
0.45
Structure
Total
1.00
3.70
3.80
2.955
In the Banking industry, the determined critical success factors are financial position, technology, customer service, strategic locations, customer loyalty, organizational structure, management, human capital, innovation, and market share. The highest weight is given to customer service simply because the customers are the bread and butter of any banking institution. Following the merger last May, there has been a tremendous surge of numbers in the organization of BDO- 15,000 people, 700 branches, and 1,200 ATMs. With these, there is an increase in customer numbers and with higher expectations to fulfill. That’s why BDO was given the highest rating together with Metrobank as far as customer service is concerned. With an
increase in numbers of personnel, the company now tends to a higher number of customers. Banks needs to cater to time-conscious depositors without sacrificing their services. Considering the extent of competition in the banking industry, one should not only put a branch in any location but in a strategic location. That’s why strategic location is the second factor given the highest weight. Putting up branches in strategic locations like mall and urban areas will give an advantage over its competitors. Metrobank and BDO were given the highest rating for their branches were located strategically. Almost anywhere you can see their branches. Their ATM machines are highly accessible. The next factor is market share. Being the market leader in an industry is a certain advantage. Comparing the net assets of the Big three in the banking industry, Metrobank shadows over the rest. BDO being the second largest is trailing behind while BPI follow suit. The next factor with a given weight of 10% is financial position. The Big three in the industry are Metrobank, BDO and BPI having a net assets of P669,100,000, P60,540,628, 136,000,000 respectively. Having the same weight at 8%, the next factors are management and innovation. Everyone was given the highest rating in management due to their sheer expertise in managing their own respective organizations. Being in an industry that adheres in servicing the customers with utmost importance, innovation is needed. With new age at hand, industries should adhere and cater to time-conscious consumers with fast and state of the art technology. Early preparation for business growth and capacity required to put the necessary adjustments in place and move towards a smooth implementation. The next factor is Organizational Structure. Having the mall magnate, Henry Sy, as the Chairman Emeritus and Teresita Sy-Coson, as the Chairperson, we can say that BDO has a good organizational structure. The last two factors are Customer Loyalty and Human Capital. Merging two organizations, with their distinct characters and cultures, into one cohesive and solid team presented great challenges and complex priorities for Human Resource Management. BDO considers human resource integration and organizational development a continuing primary trust. With such a huge manpower, they provide training and development programs to
adequately support the changes in structure, systems, and services. Everyone was given a rating of 3 in the customer loyalty.
3.) Summary and Conclusion The Philippine economy is buoyant but it is projected to have a slowdown due to threatening crisis. Although GDP and GNP increased drastically in the past years due to the appreciation of peso against the US dollar and a huge surge of OFW remittances, the Philippine economy will feel the domino effect of the crisis in the upcoming months. Mass layoffs, decrease in consumer spending, withdrawal of investments and deposits. With the decrease in spending of households, the industry will take a sudden turn. With every country feeling the effect of the sudden turn of events, very few businessmen will invest in our country to conduct business. In this matter, capital sources will drastically decrease. A strong peso, increase in remittances, and slight improvement of GDP-GNP will give the economy a shield to lessen the impact of the ‘tsunami’ crisis. The improving technological conditions brought about a change in the lifestyles of Filipinos. As a result, this brings an increase in production which provides for a higher capital and higher borrowings. While bottom line numbers may not be as impressive, the industry is clearly building for the future, putting a lot of emphasis on asset quality, governance and transparency, and sound business strategies with clear accountabilities.
EXTERNAL FACTOR EVALUATION MATRIX (EFE)
Opportunities:
Weight 0.10
Rating 4
Weighted Score 0.40
incomes. Inflation is expected
0.08
3
0.24
to depreciate Upturn in Investments
0.10
4
0.60
0.10
3
0.30
Trade and industry expansion that will generate a desired multiplier effect on
elevating it to become the largest trust business in the country. Benign inflation and an improved fiscal position served as key factors that held interest rates at their lowest levels.
Record-High
0.10
3
0.30
0.07
2
0.14
0.06
2
0.12
0.07
2
0.14
recession. Market Volatility and
0.07
3
0.21
Shifting Investors Global Financial
0.15
4
0.60
Crisis Confidence Over the
0.05
2
0.10
0.05
2
0.10
Remittances through extensive distribution networks coupled with robust market base and overseas networks Building business’ confidence through increased government spending, increased volatilities and widened spreads by means of expansion. Rapid Technological Advancement to meet heightened demands in the market and administrative centers. Threats: Projected Increase in Inflation due to US
Country’s Solid Fundamentals Viruses and various forms of damaging software Total
1.00
3.25
The External Factor Evaluation Matrix (EFE) is concerned solely with external factors. These factors are ones that are subjected to the will of social, economic, political, and legal forces. The firm’s strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats. The opportunities and threats here are the critical success factors in the external environment that can help position the industry to be profitable. The chief opportunities identified include the favorable economic environment that fosters mergers and acquisitions. Furthermore, the banking industry themselves have a unique window of opportunity to merge or acquire other banking institutions which in turn promotes globalization. The weight given to each factor implies the relative importance of each factor. The range of weight is from 0.0 which is ‘not important’ and 1.0 which is ‘very important.’ A rating of 1 is given for poor response and a rating of 4 for superior response. Responsiveness to threats is measured by the degree to which the company minimizes the incurrence or impact of threats. Responsiveness to opportunities is measured by the degree to which company efforts take advantage of opportunities. Among seven opportunities, the improvement in investments was given the highest rating. BDO was given the highest responsiveness rate. A big sudden upturn in investment gave BDO the second largest bank in the Philippines. With the recent growth of the economy and increase in tax impositions, there was a huge pour of investments coming from foreign businessmen giving thousands of jobs which in turn provide an increase in consumer spending and investments. It augmented the purchasing power of the consumers, furthering the economy’s consumption-led growth and boosting the deposits, investments and capital borrowings. With this at hand, banks fight for market leadership through formalization of unique strategies, innovation of services, improved banking and intermediation activities, and expansion. In recent years, the Philippines experienced its strongest economy and its best performance yet. With an ever increasing remittances from overseas Filipino workers, an improved financial condition after suffering its record high of almost 12% in inflation due to
weekly oil price hike and food shortage, and industry expansion which brought forth globalization. They were given equal weight with the industry expansion having a superior response and record high remittances and low inflation environment having the same ratings of three. With good economic environment, it is a proper time for expansion and globalization. The industry should learn to expand whether domestically or internationally. The move of expansion will reflect both challenges and the rewards of that process. The power of synergy will serve to reinforce the potential for sustainable growth. The opportunity with the lowest weights are the increased in government spending and rapid technological advancement. This enabled the government to channel more resources to productive spending, the first time it has done so in recent years. With the technological wars at hand, the industry should adhere to such changes for business growth, BDO supports Branch Banking’ conversion, relocation, and opening requirements. Further, it conducted a series of retooling and team-building activities to reinforce the staff’s capability to rise to heightened demand and expectations for IT support in the bank. Compared to opportunities, there are only four threats for BDO with Global Financial Crisis as the biggest threat and with the highest weight as well. With the stable economy, there is a projection of a shift in economic conditions. Investors believed that the crisis will bring a big swing in market conditions and withdrawal of investments. Investor confidence will decline amidst the country’s solid fundamentals. Having an economy and market so volatile, depositors and investors alike will think about of spending and depositing. Less borrowing, less spending, high projection of inflation, bankruptcy of trust funds and other lending institutions will cripple the industry without a strong foundation. Faced with this type of environment, the bank doubled its efforts to build on the contemporary strengths and enhanced its risk management system to meet the demands of the bank. Credit policies, procedures and guidelines were the first to be harmonized. A common set of approval authorities and processes, including the risk rating system and a credit committee approval process, were rolled out. BDO management has closely monitored and directly managed the bank’s Non Performing Loans (NPL) and past-due
accounts, ensuring the implementation of appropriate strategies to maximize collection and recovery of assets. Taking this approach fine-tuned the bank’s recovery efforts, thus making progress in terms of a more proactive strategy and improved NPL levels over time. These efforts suggest the company’s attempt to eliminate if not, lessen the impact of the threats mentioned, thus giving it a rate of four.
IV. INTERNAL ANALYSIS For BDO, the commitment towards the building for the future extends well beyond the Bank and its network; it reaches far higher than the business targets for the year. Building for the future is given real meaning in the profound, continued fulfillment of the Bank’s corporate social responsibility objectives and programs. The bank’s endeavors hewed closely to a longstanding track record of support to social development, reflecting a clear vision of a future built on a foundation of excellence, self-determination, and fearless initiative.
A.Management There are thirteen duly elected board of directors for Banco De Oro. Henry Sy, Sr., 84, Filipino, is the Chairman Emeritus of BDO. He is the Founder and Chairman of SM Group of Companies, he is known as the visionary of Philippine retail because of his innovations in the industry. the shoe store he founded in 1958 as since evolved into a dynamic group of companies, with retail merchandising and shopping centers as core businesses and complementary ventures in banking, real estate, and leisure tourism development. Teresita T. Sy-Coson, 57, Filipino is the Chairperson of BDO. Concurrently, she sits as Chairperson and/or Director of various BDO subsidiaries such as BDO Private Bank, BDO Leasing and Finance, Inc. (formerly PCI Leasing & Finance, Inc.), and BDO Capital & Investment Corporation. Ms. Sy-Coson is also the Vice Chairperson of SM Investments Corporation, Chairperson of Supervalue, Inc. and a director of SM Prime Holding, Inc. Shoemart, Inc., multi-Realty Development Corporation, and First Asia Realty Development Corporation.
Corazon S. De la Paz-Bernardo, 66, Filipino, assumed the post of Vice Chairperson of BDO in July 2007. Prior to that, she served as the Chairperson of Equitable PCI Bank from February 2006 to June 2007. She is currently the President and CEO of SSS. Jesus A. Jacinto, Jr., 60, Filipino, was elected Vice Chairman of the Bank in May 1996, and is concurrently the Chairman and President of BDO Insurance Brokers, Inc. He is likewise a Director and Treasurer of BDO Realty Corporation. Mr. Jacinto is currently a Director and Vice President of the Bankers Association of the Philippines. Christopher A. Bell-Knight, 63, Canadian, was appointed Director of BDO in May 2005. He was formerly a Director of Solidbank Corp. from 1990 to 1998, and Vice President and Country Head of the Bank of Nova Scotia. He has had over 40 years of banking experience in England, Canada, and Asia. Nazario S. Cabuquit, Jr., 74, Filipino, was elected Director of EPCIBank on July 2005. he had also been elected to the board of several EPCIB subsidiaries as well as various board committees in both EPCIB and some of its subsidiaries. He currently serves on the BDO Board as a nominee of the SSS, where he is Special Assistant to the President and CEO. Terence Ong Sea Eng, 58, Singaporean, was appointed BDO Director in July 2006. He is also presently a Senior Executive Vice President of United Overseas Bank Ltd. and a Director of United Overseas Bank-Philippines. He holds a Bachelor’s degree in accountancy from the then University of Singapore and was previously the Deputy General Manager of the Board of Commissioners of Currency in Singapore. Henry T. Sy, Jr., 54, Filipino, was elected BDO Director in July 2007. he is the Vice Chairman of SM Investments Corporation, SM Development Corporation, and Highlands Prime, Inc., and a Director of SM Prime Holdings, Inc., and San Miguel Corporation. He is chiefly responsible for the real estate acquisitions and development activities of the SM Group of Companies and holds Board positions in several companies within the SM Group.
Josefina N. Tan, 62, Filipino, is a director of BDO. Concurrently, she serves as Director and President of BDO Private Bank and a Director of BDO Realty Corp. Ms. Tan is also the Vice Chairperson of Miriam College, the President of Regal Properties, Inc., and a trustee in the Development Center for Finance and Laura Vicuna Foundation. Nestor V. Tan, 50, Filipino, was elected President and Director of BDO in July 1998. He concurrently sits as Director of various subsidiaries of BDO including BDO Capital and Investment Corp., BDO Realty Corp., General Pilipinas Insurance Corp., BDO Leasing and Finance, Inc., and Generali Pilipinas Life Insurance Corp. Teodoro B. Montecillo, 73, Filipino, was appointed as an independent Director in August 2004. He is concurrently an Independent Director in PDS Holdings Corp., Philippine Dealing Exchange Corp., Philippines Securities & Settlement Corp., and Philippinne Depository & Trust Corp. Jimmy T. Tang, 72, Filipino, has served as Director of the Bank since 1984. He is also the President of Avesco Marketing Corp. and presently the Honorary President of the Federation of Filipino-Chinese Chambers of Commerce & Industry, Inc. Edmund L. Tan, 62, Filipino, was appointed Corporate Secretary of BDO-EPCIBank on July 2007. He is currently Chairman of EBC Investments, Inc. He was likewise appointed Chairman and President of EBC Strategic Holdings Corp. He serves as Director and Corporate Secretary of APC Group, Inc., Philippine Global Communications, Inc., PhilCom Corp., and Aragorn Power & Energy Corp.
Corporate Governance The Bank enforced strict accountability and transparency while, at the same time, maintaining operational efficiency and pursuing dynamic innovations to deliver increased value to the banking public. This Pro-active and long-term view of corporate governance was translated into concrete actions and results by the Bank’s various working committees. The
committees reaffirmed in their respective areas how the Bank interprets corporate governance as a conscious and methodical effort, reinforced in an active and day-to-day advocacy of financial responsibility, integrity, and commitment to service.
Executive Committee The Executive committee is headed by Teresita T. Sy-Coson with Nestor V. Tan; Jesus A. Jacinto, Jr.; Corazon S. De la Paz-Bernardo; Josefina N. Tan as members. They are the ones authorized to act on behalf of the Board of Directors on matters affecting the operations of the bank subject to legal limits and by laws of the bank, and such ceilings that may be imposed by the Board of Directors. It has the authority to approve within set limits, for instance, technology-related project or such other initiatives for enhancing the Bank’s operating and service delivery capabilities; operating policies and/ or manuals; and the establishment of branches and/or extension offices as well as domestic or foreign subsidiaries. The Executive Committee meets as necessary to pass upon matters referred to it and is comprised of at least three directors appointed/designated by the Board.
Audit Committee The Audit committee is headed by Teodoro B. Montecillo with Corazon S. De la PazBernardo; Henry T. Sy, Jr.; Jimmy T. Tang; Christopher A. Bell-Knight as members and Nazario S. Cabuquit, Jr.; and Jesus G. Tirona as advisers. They act on behalf of the Board and provides oversight of the Bank’s financial reporting and control as well as internal and external audit functions. It reviews and assesses the Bank’s annual audit plan, its system of internal controls, and regular financial and audit reports. It further reviews strategic issues relating to plans and policies, financial and system controls, and methods of operation, seeing to their adequacy and pinpointing possible improvements.
Compensation Committee Headed by Teresita T. Sy-Coson with Corazon S. De la Paz-Bernardo; Josefina N. Tan; Teodoro B. Montecillo as members. They provide oversight on director’s compensation and senior management and other key personnel’s remuneration. It ensures consistency of compensation policies and practices with the corporate culture, strategy, and control environment as well as with peer institutions and designed to attract and retain qualified and competent individuals. It evaluates and recommends to the Board incentives and other equitybased plans for directors and senior management.
Corporate Governance Committee Headed by Teodoro B. Montecillo wih Jesus A. Jacinto, Jr.; Nazario S. Cabuquit, Jr.; Jimmy T. Tang; and Christopher A. Bell-Knight as members and Antonio C. Pacis as adviser. They assist the Board in shaping the Bank’s corporate governance policies and practice. Besides reviewing and assessing these policies and practices, it recommends applicable guidelines,
monitors
compliance,
and
recommends
needed
adjustments
to
ensure
effectiveness. It also oversees the annual performance self-evaluation of the Board, its committees, and executive management, as well as conducts an annual self-evaluation of its own performance.
Credit Committee The credit committee takes charge of the review and approval of the Bank’s loans and investments as well as other credit related issues. It assesses the viability of credit and investment proposals or related party, with specific attention of the appropriateness of the credit extension and risks involved. Proposals beyond its approving authority are endorsed to the Executive Committee. It also sees to regular credit reviews on a per account and portfolio basis,
as well as assessments of credit policies and procedures, risk standards, and, where required, dissemination of credit manuals.
Nomination Committee The nomination committee provides oversight on the qualifications of all nominees to the Board as well as to other Bank positions requiring Board appointment. It recommends to the Board the state of nominees for election to the Board during the Bank’s annual stockholders’ meeting. In case of Board seat vacancies, it seeks to qualified nominees and recommends these to the Board for appointment.
Risk Management Committee The risk management committee is responsible for policy development and oversight over the Bank’s credit, market and operating risk exposures. It oversees the system of limits of discretionary authority that the Board delegates to management, ensuring that these are observed and any breaches are immediately corrected. It establishes the framework for reporting risk to the Board including the assessment on the probability and potential impact of each identified risk exposure of the Bank. These reports include information on portfolio concentrations, value at risk measurements, and breaches on limits.
Trust Committee The trust committee, acting within Board-set limits, is authorized to review and approve transactions between trust and/or fiduciary accounts, to accept and close trust and other fiduciary accounts and to approve the investment, reinvestment, and disposition of funds or property. It evaluates trust and other fiduciary accounts at least once yearly to determine
compliance with the instrument creating the trust or other fiduciary relationship, as well as the advisability of retaining or disposing of the trust or fiduciary assets.
B.Marketing Over the course of 10 years, BDO – via a combination of organic growth and acquisitions – has steadily increased its market position, from being the 16th largest Philippine bank by assets in 1997, when it was first granted a universal banking license, to second largest in 2007.This transformation has been funded and managed by the Sy Family’s SM Group, which plays a dominant role in retail marketing in the Philippines because of its shopping malls, department stores and supermarkets.
Banco de Oro’s marketing division is headed by Mr. Rafael G. Besa who is Senior Vice President and Group head of Marketing Communications for Banco De Oro. This group is made up of several marketing communicators and marketing communication managers who practice advertising, branding, direct marketing, marketing promotions and public relations for the sake of BDO.
Their marketing unit’s task is to broaden its market thru advertising and commercials showing the different services that BDO can offer. Another one is their continued publication of their different promos with companies such as SMART Telecommunications and PLDT. As for the distribution of their services, BDO currently has 665 branches and over 1.253 ATM’s nationwide.
C.Finance/Accounting Profitability The strength, quality and consistency of BDO's underlying earnings are important elements underpinning its sound profitability. To enhance earnings, the bank improved its funding mix in 2007 as it shifted away from high-cost deposits. This helped to support an increase in net interest income for the year. However, operating costs also rose as a result of the merger and there were declines in trust fees. As a result, net profitability, as measured by returns on average assets, was flat. Following the merger with EPCI, a moderate dilution in overall profitability -- with the incurrence of integration expenses and EPCI's higher operating expenses – is expected. But this situation should improve in time through the realization of revenue synergies. Liquidity BDO is unlikely to experience any funding pressure for at least the next 12 months. Should unexpected liquidity needs materialize, the bank's comfortable level of liquid assets (at end2007, liquid assets accounted for 42% of total assets) - comprising mostly government securities - could be swiftly converted into cash. Capital Adequacy The bank’s capital position has come under downward pressure from both a shift in its asset mix in favor of higher risk-weighted assets and the emergence of one-off changes associated with Basel II. It has maintained its regulatory capital ratios through the issuance of subordinated
debt. However, from a ratings perspective, these instruments are ratings neutral, as such capital retains fixed charges and provides limited loss-absorption capacity. Therefore, downward pressure on the bank’s ratings could emerge if it does not additionally increase its Tier 1 capital. Over the past year, BDO has shifted away from liquid, lower-risk securities in favor of increased consumer and corporate loans. This shift should help to improve its earnings profile, but it also entails taking on more credit risks, as evidenced by the faster growth in its risk-weighted assets relative to total assets. Following implementation of Basel II in the Philippines and implementation of a new capital charge for operational risk, BDO – like other Philippine banks – experienced a decline in its Tier 1 capital ratio. The bank has offset this reduction in part through the issuance of new shares and subordinated debt. BDO issued 31.4 million in new common shares to the International Finance Corporation (IFC) on August 31, 2007, pursuant to IFC's conversion of its remaining US$10 million convertible loan to BDO.
Financial Performance Indicators Return on average
2007 11.5%
2006 10.9%
2005 13.9%
equity Return on average
1.0%
0.9%
1.2%
assets Net interest margin Capital to risk
4.0% 15.2%
3.0% 15.0%
3.8% 17.5%
assets ratio
Resources
Capital Funds
Gross Customer Loans
Deposit Liabilities
Net Income
D. Production/Operations Banco de Oro’s banking services can be classified into 4 categories: Personal banking, Business banking, Investment banking and Wealth management.
Personal banking deals with:
Wealth Management:
•
Branch Banking
•
Private banking
•
Consumer Loans
•
Investment & Advisory Services
•
Credit Cards, Insurance
•
Personal Trust Services
•
Remittance
•
Unit Investment Trust funds
•
Electronic Banking
•
Investment & Advisory Services
•
Unit Investment and Trust Fund
For Business banking:
Investment banking: •
Equity & Quasi Equity
•
Underwriting and Management
•
Cash Management
•
Direct Equity Investment
•
Merchant Acquiring
•
Fixed- Income Underwriting
•
Insurance Loans
•
Packaging and Syndication
•
Trade Facilities
•
Securitization
•
Corporate Trust Services
•
Financial Advisory
E.Research and Development Every company needs research and development. In the banking industry, there is a need for research and development. These changes and development will bring increased service and customer satisfaction. It will bring enhance intermediation and financing activities. As far as banking industry is concern, the research and development falls under innovation and technology. BDO tackled the challenges of operational integration while ensuring minimal impact on client servicing. BDO strive to achieve one bank/ one face/ one service to its client base in the shortest possible time. While integration is clearly a priority, the Bank did not lose sight of the need to maintain and grow the business. The results reported by different operating units showed equally impressive results attesting to the value and business case for the Bank.
Attesting to innovation and IT, BDO in its early preparation for business growth and capacity required as a result of the merger enabled Information Technology to put to the necessary adjustments in place and move towards a smooth implementation. It successfully completed the interconnection of the Makati and Benguet Networks, as well as upgraded the Bank’s main computers and other servers. It is also relocated the Business Continuity Centers (BCC) of the Parent Bank and its subsidiaries to cluster around Benguet Center in Ortigas and the Makati Corporate Center offices.
F.Summary and Conclusion: BDO’s management is composed of great leaders and thinkers with a vast experience in banking and finance. All of the Directors and managers are well educated and has the capacity
to lead and with a great deal of expertise. BDO is composed of different committees that will address the different issues the firm has to face on the daily basis. Every committee has a big part to the profitability and growth of not only the whole organization but the whole country as well. They should have integrity, honesty, and dedication to work, responsibility, honesty and transparency in their chosen field of work or expertise. They are the decision makers of the firm. They decide on what is best for the company. They decide on certain issues to address the dayto-day operations of the Bank. With a wide spectrum of human capital or workforce, BDO adheres to customer service and customer satisfaction. BDO should find different ways aside from the conventional banking practice. The firm should explore to uncharted lands of opportunities and minimize threats. Being the second largest bank in the Philippines, BDO boast a high amount of capital or net assets. BDO shares a place with Metrobank and BPI as one of the market leaders in banking industry. The firm should never pass the chance for the innovation of their services and adding up state of the art technologies to adhere to the increasing number of customers and investors.
INTERNAL FACTOR EVALUATION MATRIX (IFE)
Key Internal Strength Strength: Escalating Fiscal
Weight
Rating
Weighted Score
0.10
3
0.30
Position Reputation
0.15
4
0.60
BDO Information
0.05
3
0.15
Performance and reliable Financial
Technology as
merged banks Human Resource
0.10
4
0.40
development Positive net present
0.10
4
0.40
value ventures Risk Management
0.07
4
0.28
0.15
1
0.15
0.10 0.10 0.08
2 2 1
0.20 0.20 0.08
Integration and Organizational
responsible for flagging adverse trends Weaknesses: Total earnings per share is 2.86 in 2007 compared to 2006 P3.08 Pecuniary Wealth Employee Benefits Lesser volume of branches compared to top competitors Total
1.00
3.76
The Internal Factor Evaluation Matrix (IFE) found above lists nine key internal factors. Six of these factors are considered strengths of BDO while three are weaknesses. The rate suggests whether internal factors are major strength/weakness and minor strength/weakness. For strength, the rate of four suggests major strength while three a minor strength. For weaknesses, a rate of one suggests a major weakness while the rate of two implies minor
weakness. The weights used determine the importance of the factor identified in determining success in the industry. The higher the weight, the more important it is.
Reputation has the highest weight amongst six major strengths. One important strength of Banco De Oro is its reputation. When two industry leaders and models of excellence merge, the result is an outstanding scorecard of proven and recognized distinction overall as well as in specific areas of the business. This was evident in awards received by the Bank in 2007, which displayed its pacesetting as an institution and as dominant player in the fields of investment banking, trade finance, trust banking, and countryside development. Building for the future means taking inspiration from these achievements and forging ahead to set new records. BDO outperformed other Philippine banks to garner the coveted Best Bank title, made more significant by the fact that the Bank won during what was described as its “transformational year”- it emerged as a bigger, better, and stronger entity after the merger. Awarded by the prestigious international publication, Euromoney, BDO was cited for its excellent management, impressive fiscal performance, and continuing business expansion. BDO proved itself as a major force to reckon with in the highly competitive Philippine banking industry. That’s why it was given the highest rating for its upstanding nature in the industry and its good reputation not only in the eyes of the consumers but also in international setting. The next factor with the highest given weight was Positive Net Present Value Ventures which was also given the highest rating. BDO focuses on intermediation activities. Business lending, Leasing, Consumer Lending, Branch Banking, and Treasury was the major intermediation activities of BDO. The Bank’s funding, lending, and investing activities strong growth on the back of superior execution abilities, innovative products, and expansion into new markets. Emphasis on client relationships continues to be the mantra as the Bank strives to bring more value to more people with its improved reach and servicing capabilities. Branch Banking heralded an unparalleled expansion of the BDO branch network, from 250 branch
licenses prior to the merger to the staggering current total of 703 combined branches nationwide. The priority was the integration of the former EPCIBank branches into the BDO system to assure the banking public of the continued excellent service they have grown accustomed to and more. Branch servicing areas have been upgraded and expanded, office hours now reflect the needs of its client base, and products now include the offerings of the combined entity. The next major strengths are the strong Financial Performance and Stable Financial Position and Human Resource Integration. They were given the same weight but given different ratings, a three rating and four rating respectively. Although after the merge, BDO boost a total of P617, 421, 476 resources, compared to the biggest bank which is Metrobank they still lack some figures to topple the reigning king of banking industry. That’s why it was given a rating of three. But in terms of workforce, BDO shadows over the rest of the other competitors in the industry, with a staggering 15,000+ personnel nationwide. The group ironed out adjustments in the technical and operational areas, including the Human Resource Information System (HRIS) and other technology-driven systems, policies, and procedures. Now that the personnel force has doubled- with a total count of close to 16, 000 employees- the Bank considers human resource integration and organizational development a continuing primary thrust. Following suit is the Risk Management with a rating of four. One of the programs or policy that BDO can really boast is their Risk Management. It is very timely to have a very good risk management due to ‘tsunami crisis.’ The team doubled its effort to build on the complementary strengths of BDO and EPCI and enhanced its risk management system to meet the demands of the merged Bank. There’s Credit and Remedial Management, Market and Liquidity Risk Management, Operating Risk Management, and Asset Management that they offered. The factor that was given the lowest rating was Information Technology. In terms of IT, BDO was only subpar. Their main goal after the merger was not about Information Technology
but the integration of both banks and its eventual ‘harmonization.’ Although there was some move to integrate IT in the operations of the firm but it was still in the premature stage without utmost importance. Certain moves was conducted for retooling and team-building activities to reinforce the capabilities of the staffs to rise to heightened demand and expectations for IT support in the merged Bank. The Bank’s earnings per share, which is one of the profitability indicators, declined from P3.08 in the year 2006 to P2.86 in the year 2007. That’s why it was given a high weight and a rating of 1. Although the firm’s net income doubled, so does its common shares outstanding which brought forth a decline in the earnings per share. This means that a stock holder will earn less from his or her investment this year compared to last year. BDO carries a minimal cash balances on hand and other cash items. Carrying excessive cash on hand may prove unwise for some but in banking parlance, it is somewhat appropriate to hold a sufficient amount of cash. We don’t know what depositors think. Having P320 billion savings deposits liabilities compared to P20 billion cash on hand is somewhat unwise. With the looming crisis and recent event that brought the bankruptcy of many finance institutions, depositors may immediately withdraw their investments in fear of losing their money. Also BDO did not declare any dividends. With a huge amount of resources and a huge number of workforce, they lack to compensate their employees very well.
V. STRATEGY FORMULATION A. STRENGTHS-WEAKNESSES-OPPORTUNITIES-THREATS (SWOT) Matrix
The following are the strategies formulated from the SWOT analysis; Product development – seeking increased sales through innovation, of developing new services
SWOT
Opportunities-O 1.) Trade and industry expansion that will generate a desired multiplier effect on incomes. 2.) Inflation is expected to depreciate. 3.) Upturn in Investments elevating it to become the largest trust business in the country. 4.) Benign inflation and an improved fiscal position served as key factors that held interest rates at their lowest levels. 5.) Record-High Remittances through extensive distribution networks coupled with robust market base and overseas networks. 6.) Building business’ confidence through increased government spending, increased volatilities and widened spreads by means of expansion. 7.) Rapid Technological Advancement to meet heightened demands in the market and administrative centers. Threats-T 1.) Projected Increase in Inflation due to US recession. 2.) Market Volatility and Shifting Investors 3.) Global Financial Crisis 4.) Confidence Over the Country’s Solid Fundamentals 5.)Viruses and various forms of damaging software that can damage company technology
Strengths-S 1.) Escalating Fiscal Performance and reliable Financial Position 2.) Reputation 3.) BDO Information Technology as merged banks 4.) Human Resource Integration and Organizational development 5.) Positive net present value ventures 6.) Risk Management responsible for flagging adverse trends SO Strategies
Weaknesses-W 1.) Total earnings per share is 2.86 in 2007 compared to 2006 P3.08 2.) Pecuniary Wealth 3.) Employee Benefits • Ranked 3rd in volume of branch networks (compared to BPI and Metrobank)
1.) Invest on research and development and technology for the enhancement of customer service and transactions. (S3,O7) 2.) Increase revenue growth through expansion of electronic banking by means of ATM networks and phone banking. (S1, S2, S3, O1, O3, O4, O5, O7) 3.) Amplify advertising to clients and potential investors by means of websites. S1, S2, S3, O1, O3, O4, O5, O7)
1.) Increase salaries and develop new employee package through increase income. (W3, O1, O3, O5, O6) 2.) Increase borrowings. (WI, O2, O4) 3.)Expected increase in profit can lead to expansion of additional branches (W4,O1,O5)
ST Strategies 1.) Double the effort of the Risk Management Group to build on the complementary strength of BDO and enhance its risk management system to meet the demands of the merge bank. (S6, T1, T3, T4) 2.) Product development (S1, S2, S3, O1, O2, O3) 3.) Develop and add more bank intermediation activities; funding, lending and investing. (S1,S2,S3,S6,T2,T4) 4.) Retrenchment to decrease cost (S1, S4, T3)
WO Strategies
WT Strategies 1.) Invest on unrelated diversification to minimize the risk of bankruptcy. (W1,W2,W3,S1,S2,S3,S4) 2.) Terminate employees or moderate salaries (W1,W2,W3,S1,S2,S3,S4) 3.) Set-up adept computer systems in new branches to efficiently protect the bank’s technological structure. (W4,T5)
by means of the rapid technological advancement in our generation, Market development – Ascertain BDO’s services by means of amplification of its strengths, Unrelated diversification – by adding new services to cater the demands of the market, Horizontal integration – by controlling the market by means of BDO’s business confidence and upsurge in investments elevating it to become the largest trust business in the country and Retrenchment – benefits of decreasing assets and cost to reverse declining market shares and sales.
B. Strategic Position and Action Evaluation Matrix (SPACE) It is also one of the Stage 2 matching tools. It has a four-quadrant framework that indicates whether aggressive, conservative, defensive, or competitive strategies are most appropriate for a given organization. The x-axis represents two internal dimensions (financial strength [FS] and competitive advantage [CA]) while the y-axis represents two external dimensions (environmental stability [ES] and industry strength [IS]). 1
Internal Strategic Position Financial Strength (FS) Fiscal performance Responsible Risk Management Upturn in Investments average Competitive Advantage (CA) Market Share Reputation Customer Loyalty Innovation
Ratings 4 5 4 4.33 Ratings -1 -1 -4 -3
average
-2.25
External Strategic Position Environmental Stability (ES) Technological Advancement Stable Inflation Record High-Remittances Increased Government Spending Barrier to Entry average Industry Strength (IS) Expansion and Diversification Financial Stability Potential for Growth Utilization of Resources average
Ratings -3 -1 -2 -3 -2 -2.2 Ratings 6 4 6 4 5
Directional Vector Coordinates: x-axis: -2.25 + (5) = 2.75 y-axis: -2.2 + (4.33) = 2.13
The SPACE Matrix shows that BDO should pursue competitive strategies. The directional vector points to the upper right quadrant which is the Aggressive quadrant. BDO is in an excellent position to use its internal strengths to take advantage of external opportunities, overcome internal weaknesses, and avoid external threats. Integration and Intensive strategies should be use by the company in this kind of situation.
C. BOSTON CONSULTING GROUP MATRIX (BCG) Boston Consulting Group Matrix is also called business portfolio. It is designed specifically to enhance a multidivisional firm’s efforts to formulate strategies. It
graphically portrays differences among divisions in terms of relative market share position and industry growth rate. The BCG Matrix allows a multidivisional organization to manage its portfolio to businesses by examining the relative market share position and the industry growth rate of each division relative to all other divisions in the organization.
Having an annual growth rate of 8.46% and relative market share of 84%, BDO is considered as Stars in the Boston Consulting Group (BCG) Matrix. (See appendix) Being in a division with a high relative market share and a high industry growth rate, the firm should receive substantial investment to maintain or strengthen their dominant positions. The appropriate strategies are Forward, backward, and horizontal integration; market penetration, market development, and product development that the organization should consider.
D. THE INTERNAL – EXTERNAL (IE) MATRIX
The IE Matrix is based on two key dimensions: The IFE total weighted scores on the x-axis and the EFE total weighted scores on the y-axis. It has nine grids (starting on the first grid in the top-left side and moving to the right) which can be divided into three major regions. The three major regions of the matrix are: grow and build grids (grids I, II, IV), hold and maintain grids (grids III, IV and VII) and harvest or divest grids (grids VI,
VIII and IX). The total weighted scores derived from the divisions allow construction of the corporate-level IE Matrix.1
As seen, BDO garnered a score of 3.75 in the EFE matrix which suggests that the external environment the company is stable and also shows that the external threats are leveled out by external opportunities that the company can utilize. In the IFE matrix, BDO accumulated a score of 3.25 which shows that its strengths also level out its weaknesses making a one of the strongest banks in the country.
In plotting the scores BDO obtained in both the EFE and IFE matrix it was plotted at Region I, or the “grow and build” region. This would suggest that BDO should pursue intensive strategies (i.e. market penetration, market development and product development) or integrative strategies (backward integration, forward integration and horizontal integration).
E. GRAND STRATEGY MATRIX (GSM) Another alternative tool in formulating strategies is the GSM. It has also four quadrants just like the SPACE Matrix but GSM is base of two evaluative dimensions: competitive position and market growth.
Looking at the GSM, BDO is located in the quadrant I. They are in an excellent strategic position. The perfect strategies are market penetration, market development, and product development. Being in the quadrant I, they can afford to take advantage of external opportunities in several areas. They can take risks aggressively when necessary.
F. THE QUANTITATIVE STRATEGY PLANNING MATRIX (QSPM) The QSPM objectively indicates which alternative strategies are best. It is a tool that allows strategists to evaluate alternative strategies objectively, based on previously identified external and internal critical success factors. Taking into account both the external and internal factors that would affect the company, the QSPM matrix suggests that BDO should engage in Horizontal integration as seen in their acquisition of Equitable-PCI. The QSPM also shows that BDO can also apt to engage in Market Development. Intense marketing strategies should be employed by BDO such as promos using their ties with SM and SMART to reel in potential customers.
VI. STRATEGIC OBJECTIVES AND RECOMMEND STRATEGIES A. Strategic and Financial Objectives: SWOT
SPACE
BCG
IEM
GSM
TOTAL
FORWARD INTEGRATION
4
BACKWARD INTEGRATION
4
HORIZONTAL INTEGRATION
5
MARKET PENETRATION
4
MARKET DEVELOPMENT
5
PRODUCT DEVELOPMENT
5
RELATED DIVERSIFICATION
1
UNRELATED DIVERSIFICATION
1
RETRENCHMENT
1
DEVESTITURE JOINT VENTURES
1
MERGER/ ACQUISITION CONGLOMERATE DIVERSIFICATION
1
CONCENTRIC DIVERSIFICATION
1
HORIZONTAL DIVERSIFICATION
1
TOTAL
34 1.) To increase or maintain its market share in the industry.
Being in a high growth rate industry, BDO should remain vigilant for possible takeover of competitors. They should increase or retain their market share to maintain their sphere of influence and dominance in the industry. They should never be complacent because with tough competition and being in a high growth rate industry, competitors may take advantage and have an equal or if not, a greater market shares in just a short span of time. To prevent this, BDO should increase their network branches. Comparing with other tough competitors in the industry (Metrobank and BPI), BDO is only third in terms of branches all over the country. They should put branches and ATM networks in key strategic location. They should not only focus in Metro Manila but nationwide as well. 2.) Increase its deposits by encouraging investors and probable depositors. The deposits have declined by 5.25% which indicates relatively poor banking programs to attract probable depositors and retain existing ones. They should increase their deposits because it is their source of funds which they can invest on certain portfolios to earn money. With an increase in deposits, the firm can grab external opportunities and minimize threats when they come around. A low deposit indicates poor management and they should address it immediately to prevent future problems. 3.) Invest highly on Technology to increase customer transactions and to give them convenience and satisfaction. Nowadays, people are so busy that they can’t find time to go to the bank, if they have, the banks are now close. To ease this problem, the company should invests on this kind of high
end technologies like cash-less transaction, debit cards, cash cards and other innovative ideas. The company can implement an online banking system. This online banking system will be able to give customers and depositors alike a much greater convenience than before which in return, the customers will be more willing to transact with the bank. 4.) To have an increasing growth rate on loans, receivables and interest income. One of the chief operating revenue of a bank is the interest on loans. That’s why to increase the performance and income of the bank, loans should also increase. One way to address it is an online loan application. The customers may avail the application online provided that he or she has a good credit terms. Another way is attracting new and potential investors. Advertisement is a good way in attracting investors. Giving out loan packages with special features is a good catch. BDO should have a 10% increase in its loans for the next year and increase of 5% in the succeeding years for its improving market share and enhanced service.
B. Recommended Business and Organizational Strategies Given below are the following strategies that Banco De Oro may pursue to increase their market share and take a competitive advantage over its competitors using the given internal strength and weaknesses and external opportunities and threats stated before:
1.) Horizontal Integration To lessen the competition in the industry, BDO must acquire some of its competitors to increase its relative market share and to be the market leader in the banking industry. It is hard for BDO to acquire its main competitors (Metrobank and BPI) but the bank may acquire the other banks. They may also want to purchase their stocks just to gain control, if they don’t want them to integrate it to their organization, to broaden their influence in the industry. BDO should look at their internal weakness and address it by acquiring other banks with internal strength
that BDO lacks. By doing so, the firm can increase its market share and can become the number one bank in the country. Seeking stock control is almost the same as the acquisition but in a different aspect. BDO will not have any problem with this, given the fact that it has a strong financial position.
2.) Market Development BDO is a well known established bank in the country especially in Metro Manila and other key cities. It is known for its service and dedication. But in some part of the country, in the rural areas and some provinces, people tend to transact with rural banks. One move should BDO make is to establish a market in that specific area to have an increase in transaction which equals an increase in income. Rural banks offer less interest rate than those well established banks but they are more prone to the global crisis that is happening. Another way is to integrate those rural banks as part of the BDO conglomerate or acquire them to lessen the competition in the rural areas.
3.) Product Development BDO may be investing and inventing new ideas and programs but that’s also what their competitors are doing. To differentiate their intermediation programs from the rest of the group, the firm should think of a unique program that the competitor’s program has not. Since there is a record high dollar remittances from OFWs, the firm may take the idea of money transfer business firms. They may provide also such service but in a different way. Product development means increasing the reliability and dependency of the customers on the bank. More than the demand itself, the firm must be able to respond urgently. By improving BDO’s product quality, or service, in terms of reliability and dependency, it will be able to have a proactive stand on the perceived problems of the customers which will make the company, the preferred bank.
The firm does not have a research and development team which could take advantage of available technology to initiate innovation in the banking industry. The team must invest on this and conduct studies, surveys, and research how to carry out their service without interruptions and delay.
C. Financial Projections and Overall Evaluation of the Strategies Proposed Banco De Oro has been performing well in its operation for the past years. Its main operation is all in the Philippines and its transactions are denominated in Philippine peso except for foreign currency transactions but they are denominated in Philippine peso at the current exchange rate. The Financial statements of BDO attest to the claim that it is in an excellent condition and good financial performance and position. As presented in the table below, the figures have all increased significantly since the merger took place with EPCIB. Financial Highlights
(Bn PhP) 2006 Resources 628.88 Gross Customer
2007 617.42
% Change -1.8%
Loans
257.96
297.03
15.1%
Deposit Liabilities
470.08
445.40
-5.3%
Capital Funds
52.42
60.54
15.5%
Net Income
6.39
6.52
2.0%
The recommended strategies for BDO are expected to maximize the company’s strength and competitive advantage while minimizing the impact of threats and eliminating
its present weaknesses. These strategies have financial effects to the company and the following are the financial projections considering the impact of these strategies
Projected Income Statement Actual
2008
2009
2010
(2007)
10% increase
15% increase
20% increase
Interest Income On Loans and other receivables Investment and
21, 414, 488
23, 555, 937
27, 089, 327
32, 507, 193
Trading
11, 743, 428
12, 917 771
14, 855, 436
17, 826, 524
2, 958, 340 2, 665, 078 47, 568, 181 16, 648, 863**
3, 550, 008 3, 198, 094 57, 081, 819 19, 978, 637** 37, 103, 182
Securities Due from other banks Others Total Interest Expense Net Interest
2, 338, 609 2, 106, 781 37, 603, 306 16, 166, 574
2, 572, 470 2, 317, 459 41, 363, 637 16, 545, 455*
Income 21, 436, 732 24, 818, 182 *expense to sales ratio is 40% **expense to sales ratio is 35%
30, 919, 318
Increasing its income would lead to an increase in the market share. Increasing income would mean that there are more customer transactions, more investors investing, more loan applications which would lead to expansion and establishment of more branches and eventually
an increase in the market share. To enhance these projections and to fully fulfill the strategies, the firm should decrease their expenses by reducing their bills payable and other liabilities. We cannot decrease the interest in the deposits liabilities which would to decrease in customer deposits. That would affect the recommended strategy. Due to recommended retrenchment in the SWOT analysis (see SWOT analysis) expenses would decrease. BDO has over 15, 00 employees. Decreasing it would decrease the salaries and wages. 34% of the total other operating expenses of BDO is for salaries and wages. (See financial statements)
Projected Balance Sheet Actual 2007
2008 (10% increase)
Projected 2009 (15% increase)
2010 (20% increase)
Total Assets
617, 421, 476
679, 163, 626
781, 038, 170
937, 245, 804
Total Liabilities
556, 880, 848
612, 568, 933
704, 454, 273
845, 345, 128
60, 540, 628
66, 594, 691
76, 583, 895
91, 900, 674
617, 421, 476
679, 163, 624
781, 038, 168
937, 245, 801
Total Stockholders' Equity Total Liabilities and Equity
The increase in income and decrease in the operating expense would subsequently lead to an increase in the net assets of BDO. The branch expansion network and advertising will increase transactions and will eventually lead to an increase in market share. The combination of these factors will result in an increase in BDO clients, as a result, an increase in business transactions.
The increase in liabilities is a result of increase in deposits for the succeeding years. Increase in liabilities will likewise increase the asset. These deposits may belong on the cash balance and major part of it will be invested in different investments like trading securities and bonds. Increase in deposits will increase the loans and receivables of the bank thereby increasing the income. The total equity of BDO will also follow the increasing trend. The projected income statement of the Bank resulted into an increase in the net income every year, following the year 2007. These are then transferred to the Retained Earnings section, which forms part of the Stockholders’ Equity of BDO. The acquisition of assets, mainly the increase in the number of branch networks, which increases total assets, will also result in the increase in the Stockholders’ Equity.
VII. Action Plans and Departmental Programs Based upon the internal and external analysis which are the basis of the matching tools used for the formulation of strategies, three strategies stands out the company can use to increase the market share and for better improvement. These strategies are: Horizontal Integration, Market and Product Development. Of the three, horizontal integration is the most appropriate. BDO has a high market share but in an industry with a high relative growth rate. There are numerous players in the banking industry which only means competition. The top three are Metrobank, BDO and BPI. Doing so would increase the market share of the company.
Activities
Expected Output
Timetable
Unit(s) Responsible
Opportunity Analysis Increase in Capital regarding investment and resources and strategic asset acquisitions acquisitions
Continuous
Accounting and Finance Department, Treasury Department, Strategic Planning Group, Property Management Group
Advertising company
Continuous
Marketing Department, Branches
of
the Increase in the number of clients and market share
Regular Planning and Development of better Evaluation Meetings plans and strategies for the company, assessment of whether objectives are met by all parts of the organization
Quarterly
All Departments
Maintaining balance between total deposits and total loans and receivables
Better management and allocation of funds, greater profit from net interest income
Employee Training and Development for new processes, standards, or updates in technology
Motivated employees and improvement in their skills and competencies
Updating technologies of Greater competitive the company advantage for the company, higher efficiency of operations, greater quality of services rendered
Continuous
Semiannually
Once a year
Accounting and Finance Department, Treasury Department Human Resource Management
Technology Management Group
VIII. Strategy Evaluation, and Monitoring and Control Proposed Strategy
Key Result Areas
Performance Indicators
Department in Charge Time Frame
Horizontal Integration
An increase in number of branch networks and increase in market share in the banking industry
Industry 2 to Ranking based Years on total branch networks
3 Individual branches, Strategic Management Group
Market Development
Market share in the rural areas and certain provinces
Establishment of branches in key strategic locations on the said areas
3 to years
4 Marketing, Finance/Accounting, Production, and Operations Group
Product Development
Efficient operations increase in Net Income, technology advancement
Loans and receivables, Due from other banks, and net income
2 Years
Marketing Department, Strategic Planning Group, Technology Management Group and Research and Development Group
Balanced Scorecard for Banco De Oro Area of Objectives
Scorecard
Measurement
Timetable
Clients
Customer Transactions
Increase by 30 to 60%
3 years
Customer Satisfaction
Increase customer referrals by 20%
2-3 years
Other Operating Income (Services, Fees, Commissions)
Increase by 15%
2 years
Financial
Return on Investment
Increase by 15% to 25%
3 to 5 years
Operations
Development and implementation of online banking
Marketing
Market Share
Management
Management recognitions and awards
Learning and Growth
Less than 1 year
Increase by 10%
2 years
Employee turnover
Decrease by 40%
1 year
Employee Absenteeism
Decrease by 40%
1 year
BIBLIOGRAPHY •
BDO Annual Report 2007
•
Human Resources Policy Manual
•
http://www.mobilephonebanking.org
•
http://www.wikipedia.com
•
http://bdo.com.ph
•
David Dollar, the World’s Bank’s Director of Development Policy
•
NEDA updates on the economy
•
www.metrobank.com.ph
•
Fred R. David. Strategic Management: Concepts and Cases, 11th Edition.
