MIOR SAIFUL AZWAN BIN MIOR SAFIAN

Objectives

The completion of such module, the purpose is for:• Identify and diagnose the problems of such

organization• Areas that are problematic will be identify in the

areas of strategic management, marketing, operation, and finance

• Organization performance will be put into summarized and the future prospect will be identify

Company Overview

• Affin Bank Berhad (AFFINBANK) is an established banking and financial institution in Malaysia and fully operated as Bumiputra company

• The company are involves in providing services to public and private sector in terms of financial intermediate and investor. Since its incorporation in 2001, AFFINBANK has provided Malaysia with vast services in various banking sector such as Enterprise Banking, Consumer Banking, Debt and Capital Markets and Hire Purchase.

Vision

• A premier partner for financial growth and innovative services

Mission

• To provide innovative financial solutions and services to target customers in order to generate profits and create value for our shareholders and other stakeholders.

Company Background

• Affin Bank Berhad (AFFINBANK) commenced and incorporated in 2001 following the sequence of event, a merger between the former Perwira Affin Bank Berhad and BSN Commercial (M) Berhad in August 2000.

• In June 2005, it merged with the former Affin-ACF Finance Berhad. Affin Bank Berhad is the wholly own sunsidiary of Affin Holdings Berhad.

Company Registration Name Affin Bank Berhad

Company Registration No. 25046-T

Date of Incorporation 23rd October 1975

Company address Head Office, Menara Affin 80, Jalan Raja Chulan, 50200, Kuala Lumpur, Wilayah Persekutuan Malaysia

Authorized Share Capital RM 2,000,000,000

Paid Up Capital RM 1,518,336,765

No. of Shares 1,518,336,765

External Auditors PriceWaterHouseCoopers

Board of DirectorsName Position

Ybhg. Jen (B) Tan Sri Dato’ Sri Ismail Hj. Omar

Chairman / Non-Independent Non-Executive Director

Ybhg. Dato’ Zulkiflee Abbas bin Abdul Hamid

Managing Director / Chief Executive Officer

Ybhg. Tan Sri Dato’ Lodin Wok Kamaruddin

Non-Independent Non-Executive Director

YM. Dr. Raja Abdul Malek Raja Jallaludin Independent Non-Executive Director

Mr. Aubrey K.S. Li Non-Independent Non-Executive Director

Mohd Suffian Haji Haron Independent Non-Executive Director

Ybhg. Tan Sri Dato’ Sri Mohamed Jawhar Independent Non-Executive Director

Senior ManagementName Position

Ybhg. Dato’ Zulkiflee Abbas bin Abdul Hamid

Managing Director / Chief Executive Officer

En. Shariffudin Mohamad Executive Director, Operations

En. Amirudin Abdul Halim Director, Business Banking

En. Idris Abd. Hamid Director, Consumer Banking

Mr. Tan Kok Toon Director, Treasury

Mr. Ee Kok Sin Chief Financial Officer

Mr. Kasinathan T. Kasipillai Group Chief Risk Officer

Pn. Khatimah Mahadi Group Chief Internal Auditor

Pn. Nor Rozita Nordin Chief Human Resource Officer

En. Nazlee Khalifah Chief Corporate Strategist

Macro Analysis: Real GDP by Expenditure

• Economy performed better than expected in 2012, with a higher growth of 5.6% (2011: 5.1%). The strong growth was supported by resilient domestic demand.

• Banking and financial institution, it also experienced good economic and financial environment whereby, it been supported through competitive capital spending.

• Consumption activity are strong throughout the economic period. This was the result from significant expansion in household income, low inflation, and supportive financing conditions

Macro Analysis: Retrenchment by Sector

• Employment growth in 2012 amounting to 3.6% as compared to 2011, 3.2%. In which, it have accumulated a total number of new job opportunities to 438,800.

• Services and agriculture industry had gain the most registered numbered of workforce, and the unemployment rate had drop slightly to 3% as compared in 2011 3.1%.

Micro Analysis: Malaysia Population

• The total population in Malaysia was last recorded at 28.9 million people in 2011 from 8.1 million in 1960, changing 255% during the last 50 years.

Macro Analysis: Savings-Investment Gap of Private Sector

• Prior to the global financial crisis, the surplus of the private sector was attributable to both the increasing savings rate and low growth of investment. However, in 2012, as investment growing while savings declined, the savings-investment surplus of the private sector narrowed.

Macro Analysis: Savings-Investment Gap of Public Sector

• Registered a small surplus, averaging 3.2% of growth national income, in 2003-2008.

• Deficit in 2009, when public expenditure increased significantly following the introduction of the two economic stimulus packages by the Federal Government .

• The sustained capital spending by public enterprises have also contributed to the expansion in public investment.

Correlation of Malaysia Economic Overview to AFFINBANK

• Stable economic growth and profound income with low inflation and supportive public and private investment, it provide vast opportunities for AFFINBANK to gain advantage by catering their existing and potential customers with products that suits their needs

• Low inflation rate and also the increasing number of population, complement with, salary growth, it means that the peoples will spend more not just on necessity products and goods, but, the increasing number and trend for peoples to purchase and consume luxurious products and goods

• Come out with well-planned and structured credit facilities by introducing attractive rate for credit card holder or extensive marketing campaign that are able to create amazing rewards for their customers in using or applying their credit card.

• Increase number of population reflects the massive potential of employees that AFFINBANK can capitalize

PESTLE Analysis PESTLE Analysis for AFFIN BANK Berhad

Political 1) Political stability can influence the finance and banking industry of a nation in terms of monetary rate, investment, loan pay-offs

2) Rules and regulations that embodied the industry in terms of licensing, connection with Ministry of Finance, and BNM

Economic 1) Moderation in economic growth2) The declining rate of inflation3) Expansion of private consumption and business spending4) Expected continuous income growth5) Monetary Policy Committee (MPC) forecast the climbing numbers

for loan demand especially in domestic oriented industries and Economic Transformation Programme (ETP) project related.

6) Overnight Policy Rate (OPR) expected to remain constant at 3% until early 2014

PESTLE Analysis

Social 1) The increased demand for fast banking and financing services2) Increased financial transaction via online with the threat of

security breach.3) The needs for younger generation for banking and financial

products that suits with their lifestyle, such as, rewards and freebies.

4) The increased rate of young couple that constitute for more demand in loan, especially, housing and car loan

5) Individuals that are seeking for profitable investment package such as Gold Investment

Technology 1) Internet Banking2) Phone Banking3) Cash Deposit Machine (CDM)

Legal1) Rules and regulations that govern banking and financial

institution such as Banking and Financial Act 1989 (BAFIA), Hire Purchase Act 1967, Islamic Banking Act 1983

2) The potential evaluation of transforming the KL Regional Centre for Arbitration into a global arbitration centre.

Environment1) ASEAN central banks have made major headway in

support of economic integration through the ASEAN Economic Community (AEC). The central bank has endorsed a high level framework to advanced economic and financial integration.

2) Investment banking is anticipated to maintain strong growth of 15 per cent per annum throughout 2010-2015, before moderating to 10 per cent in 2016-2020.

3) The commercial banking segment is projected to maintain an annual growth rate of seven per cent over the next 10 years.

4) The asset and wealth management industries are expected to achieve an average growth of 8% in 2010-2020.

SWOT Analysis SWOT Analysis for AFFINBANK

Strengths Weaknesses

1) Catering to various products segmentation.

2) Vast pool of capital for further company growth.

3) Years of financial experience for proven credibility and reliability as a sound banking and financial institution.

4) Great degree of appeal to government sector.

5) Have strong current ratio in meeting short term financial obligations

1) Competing with identical products to other banking entities.

2) Weaker brand name as compared to bigger industry player.

3) Limited facilities in terms of branch opening and the placement of ATM in strategic locations.

4) Customer focus orientation, more on government sector rather than creating balance target market.

5) Depending on debt to financed their assets.

6) Conservative in terms of using its resources to gain and generate more profitable income.

SWOT Analysis Opportunities Threats

1) Rise of private banking, especially from high earners group where they appreciate a certain privileged when doing financial transactions.

2) Positive salary growth of Malaysian and the big spending habits that they can gain advantage.

3) The increase number of young population as executives and technocrats that desire for banking facilities that suits their lifestyle such as debit card and loyalty programs.

4) Mass home development, particularly, luxurious homes that potential customer needs for loan financing.

5) New target market segment that can be venture into.

1) World economic volatility that may cause economic depression such as increase in financing rates, the pluming of monetary currency, significant withdrawal of investment and etc.

2) Intense rivalry between banking entities that may cause burden to the bank operating cost that may contribute to industry downfall

3) Cyber-crime that can inflict significant impact to the banking industry such as fraud, identity theft, and etc.

Industry Analysis (5 Porters Forces) Industry Analysis (5 Porters Forces) on AFFINBANK

Rivalry Among Existing Competitors

1) Large numbers of banking entities to compete with. Hence, AFFINBANK has to compete in the same market with identical products and services for similar target customers.

2) Low switching cost for customers and clients to move on to other banking and financial organizations due to identical range of products and nearly similar products and services features.

3) Brand awareness is marginal as compared to as rivalry institution such as CIMB, Maybank, RHB

Threat of Substitute Products and Services

1) The advent of technological development, most importantly, internet and phone banking has present cost threats to banking industry. Nowadays, banking and financial transactions over the counter are been replacing by virtual banking services

Industry Analysis (5 Porters Forces) Bargaining Power of Suppliers

1) Central Bank strict enforcement of regulations that monitor and limit the power of banking sector movements. Apart from that, Central Bank is responsible in determining the rates and the supply of money. Thus, banking entities have low control over bargaining due to Central Bank dictates the industry.

Bargaining Power of Buyers/Customers

1) The bargaining powers of consumers in this particular industry are very significant due to low switching cost and vast existence of other banking and financial entities.

2) Products and services that are been offered to the public between institutions are identical, thus, create an advantage for customers to demand and be selective in choosing their service providers.

Threat of New Entrants 1) In this particular industry, the emerging of new entrants into the market is low due to highly restrictions and regulations in awarding banking license to any party.

Comparative Financial Statements

AFFINBANK BERHAD COMPARATIVE INCOME STATEMENT FOR THE YEARS ENDED DECEMBER 31, 2012, 2011, 2010, 2009 and 2008 IN RINGGIT MALAYSIA (RM)

2012

RM ‘0002011

RM ‘0002010

RM ‘0002009

RM ‘0002008

RM ‘0002007

RM ‘000Total

Assets 41,676,054 40,070,290 35,453,667 30,333,116 27,730,474 26,233,528

Total Liabilities 37,881,600 36,718,892 32,340,867 27,522,350 25,150,332 23,824,187

Total Equity 3,794,454 3,351,398 3,112,800 2,810,776 2,580,142 2,409,341

Net Income 1,072,539 981,253 989,591 973,084 919,377 857,952

Earnings Per Share

(sen)30.0 27.0 24.1 20.05 20.8 14.0

Liquidity ratio

Year 2007 2008 2009 2010 2011 2012Current

Ratio1.1 1.1 1.1 1.09 1.09 1.1

Current Ratio

As from the results, from the year 2007 until 2012, AFFINBANK experienced a stable current ratio position whereby, it able to established numerical statistic greater than 1 even though in the year of 2010 and 2011 only a marginal decreased that were not significant to affect AFFINBANK position in meeting its short term financial obligations. Overall, AFFINBANK financial conditions in this perspective are sufficient and adequate.

Liquidity ratio

Year 2007 2008 2009 2010 2011 2012

Working Capital

2,409,341 2,580,142 2,810,766 3,112,800 3,351,398 3,794,454

Working Capital

As from the results above, AFFINBANK shows remarkable working capital statistical values whereby it able to indicate to pay off its short term liabilities in an instance. Furthermore, the statistical numerical data also shown that from the year 2007 until 2012, AFFINBANK net working capital has increased from RM 2,409,341 up to RM 3,794,454 in 2012. This will provide them with ample financial resources to expand and improves their operations.

Liquidity ratio

Year 2007 2008 2009 2010 2011 2012

Debt Ratio 0.91 0.91 0.90 0.91 0.92 0.90

Debt Ratio

As from the chart above, it clearly indicates that AFFINBANK debt ratio is almost at 1 and above than 0.5. Thus, it signifies that AFFINBANK company’s assets are mostly financed through debt. In the perspective of creditors, the lower the debt ratio is the safer for their options.

Measures of Profitability

Year 2007 2008 2009 2010 2011 2012

ROA 2.13% 2.28% 2.41% 2.45% 2.43% 2.66%

Return on Assets

Since the year of 2007 and until 2012, AFFINBANK has recorded a consistent in terms of return on assets. In the same sense too, it also reflects that AFFINBANK is conservative in using their assets to grab opportunities that may contribute to larger and significant profits.

Measures of Profitability

Year 2007 2008 2009 2010 2011 2012

ROE 7.51% 11.62% 10.50% 11.14% 11.59% 11.87%

Return on Equity

The results above shows that AFFINBANK managed to used their shareholder’s funds relatively moderate to generate profit. However, despite the consistency that AFFINBANK shows from 2008 up until 2012, in 2007, AFFINBANK recorded a much lower percentage of profit against the shareholder’s contributions.

Measures of Profitability

Year 2007 2008 2009 2010 2011 2012

NIM 2.42% 2.44% 2.45% 2.15% 2.24% 1.96%

Net Interest Margin

In the range of year 2007 until 2011, AFFINBANK recorded a very consistent net interest margin whereby it able to decently make good of their investment decisions. Unfortunately, by the year 2012, AFFINBANK had experienced a sudden declined in terms of using their interest expense to gain financial returns due to not optimal decisions making.

Problematic Areas: Strategic MarketingAREAS ISSUES

PROMOTION 1) The marketing or promotion strategy that AFFINBANK strategize can be considered as weak as compared to other financial institutions, in this case:

• promotional efforts are only focus on advertising through their official website and the placing of bunting at AFFINBANK’s various branch. Thus, the communication of such promotions are not made in large scale

• The web design is also an important tool in marketing AFFINBANK brand awareness. The issue that lies in its web design are too simple and dull

• Loyalty programs or rewards especially debit card users

Problematic Areas: Strategic Marketing

AREAS ISSUES

STRATEGIC BRAND MANAGEMENT 2) In the case for AFFINBANK, its brand awareness or exposure as compared to other local banking institutions can be regard as weak. The reasons is as below:• Promotion efforts that are weak• Low market reachability due to lack of

branches and ATM machines at strategic locations

• AFFINBANK market priority mainly for government sectors

• Customers perception on AFFINBANK as a small banking institution

Problematic Areas: Strategic Marketing

AREAS ISSUES

MARKETS AND COMPETITIVE SPACE 1.1)Customer Focus• AFFINANK main focus lies with government

sectors. This is mostly probably its political connection and attractive rates that AFFINBANK provides to the government sector. Political connection here means that, AFFINBANK major shareholder is LEMBAGA TABUNG ANGKATAN TENTERA (LTAT) which might benefits AFFINBANK in serving for government sectors

• However, this one side focus by neglecting other institutions such as private sectors would prevent AFFINBANK to be widely recognised in corporate banking and will not be the brand to be considered when private sectors doing transactions such as fixed deposit placing or investment.

Problematic Areas: Strategic Marketing

AREAS ISSUES

MARKETS AND COMPETITIVE SPACE 1.2)Competitors• Due to its nature of business where other

banking institutions are also offering to individual and corporate customers similar products and services have create intense rivalry among banks.

• The existence of many banking institutions have also established vast options for clients to choose which service provider that they will prefer and normally they will go for a well-established and strong brand image.

• Large marketing efforts by rivals has overshadowed AFFINBANK position in the industry

Problematic Areas: Operations Management

AREAS ISSUES

BRANCH/CHANNEL OF NETWORKS 1) In the case for AFFINBANK:• The lack of adequate and sufficient network

of branch has cost this banking institution its brand equity in this particular industry. As for example, AFFINBANK branch nationwide is 100, CimB Bank is 362 and Maybank is 401. Thus, we can see the difference in total size of networks of AFFINBANK relative to its competitors.

• AFFINBANK ATM machines are also limited in its reachability. As for comparison, AFFINBANK ATM locations in the federal territory are only located at 18 places, but as for other banks such as Maybank, it has 52 location of ATM in federal territory and for CiMB Bank are 48

Problematic Areas: Operations Management

AREAS ISSUES

STRATEGIC MANAGEMENT 1) Based on financial ratios that have been calculated earlier, AFFINBANK can be summarizing as a moderate risk taker in using their assets in generating profits. As the calculation for Return on Assets signifies the uses of AFFINBANK assets has been consistently in the range of 2% from 2007 until 2012. There are no sign that AFFINBANK been aggressive in making optima decisions to gain more economic performance.2) Apart from numerical data, other factors that resemble such similarities of moderate risk taker is the investment that AFFINBANK made in expanding their business operations or increased their market penetration despite having large total assets and revenue growth on yearly basis.

Conclusion

• In the short term, I am optimistic with the healthy expansion of Malaysia economic growth complement with the increased number of high earners and low inflation that can provide AFFINBANK a thrust to move on in expanding their business operations

• In the long term, I am skeptical on how AFFINBANK will continues to grow and build up its brand name with other banking institutions if AFFINBANK still adopt to its current environment