PIM MBA: Commercial Bank of Ceylon Business Strategy Analysis

This report provides a comprehensive analysis of the business strategies employed by Commercial Bank of Ceylon PLC (CBC). It begins with an introduction highlighting the importance of a well-defined strategy for long-term success and then provides an overview of CBC, including its history, size, an...Read More

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UNDERSTANDING BUSINESS STRATEGIES OF
COMMERCIAL BANK OF CEYLON PLC
1. Introduction
This report aims at part fulfilment of PIM MBA course subject MBA 517 Business Strategy
of PIM MBA and includes an analysis of business strategies applied by a chosen company.
The author has selected M/s Commercial Bank of Ceylon PLC (CBC) in Sri Lank for this
purpose. Secret of continuous success of a company to stand out as top performers in
comparison to its rivals even in cases of economic downturn and turbulences is mainly due to
carefully and cleverly crafted strategy followed by persistent application of it in the
execution. In essence a company’s strategy is “its action plan for outperforming its
competitors and achieving superior profitability” (Thompson, Peteraf, Gamble, Strickland
III, & Jain, 2014, p 3). Therefore a well-defined strategy is an essential tool for a company to
be successful in the long-run. Accordingly, the author in the rest of this report has analysed
the extent of strategies applied by CBC to be a top performing bank in Sri Lanka over the
years.
2. Overview of CBC
CBC’s origins date back to 1920’s and operations have been carried out under its present
name over the last 50 years. The Bank presently serves over 3 million customers with
involvement of 5027 employees through a wide local and international network of branches,
subsidiaries, agency arrangements, Business Promotional Offices located in the Middle East
countries, and correspondent banking relationships. CBC is the largest private sector
commercial bank and 3 rd largest bank in Sri Lanka by total assets, which stand at LKR 1,303
trillion as at the end of 2018. CBS is a systemically important bank in the country and
accounts for circa 11.1% of sector assets. (“Commercial Bank of Ceylon PLC Annual Report
2018”, n.d.).
The Bank offers diversified set of financial services in the four main business segments of
personal banking, corporate banking, treasury, and international operations. CBC is being
treated as a benchmark in the banking sector in Sri Lanka as it has set standards, formed
identity and trend unsurpassable. CBS has become the leader of private banking owning to its
use of state-of-the-art technology and dealt by highly motivated and dedicated staff
(www.combank.net/newweb/en/about-us. n.d.)

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3. CBC vision, mission, and core values
Strategic vision statement of a company pronounces management’s long-term expectations
and emphasizes the strategic course and future direction (where we are heading). On the
other hand, strategic mission statement elaborates the company’s current actions and purpose
of its existence (who we are, what we do, and why we are here). The values of a company
shall be the ethical aspects, behavioural standards qualities which are aligned to achieve the
mission and vision. It is important that such strategic aspects are communicated effectively
down the line in order to inspire and energize every employee of the company towards its
direction. (Thompson et al, 2015)
3.1 CBC Vision.
“To be the most technologically advanced, innovative and customer friendly financial
services organisation in Sri Lanka, poised for further expansion in South Asia”
The relevance of a vision statement can be evaluated based on “Five F” checklist.
Table 1: Evaluation of CBC Vision on 5F Checklist
Checklist Score
(1 to 5)
Comments
1. Focused 5 Focused, plainly state what the bank wants to be in the future
2 Flexible 4 It allows to accommodate emerging trends in the sector
3. Feasible 4 It is an attainable statement with dedication
4. Fathomable 4 It is understandable
5. Friendly 4 It addresses to all the stakeholders
Source: Author
Analysis included in Table 1 indicates that the CBC’s vision statement expresses clearly its
future aspirations for the employees to act in that perspective.
3.2 CBC Mission.
“Providing reliable, innovative, customer friendly financial services, utilizing cutting edge
technology and focusing continuously on productivity improvement whilst developing our
staff and acquiring necessary expertise to expand locally and regionally”
The relevance of a mission statement can be evaluated based on “Five C” checklist.

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Table 2: Evaluation of CBC Mission on 5C Checklist
Checklist Score Comments
1. Clear 3.5 Clarity is there to a reasonable extent
2 Comprehensive 4 It includes all aspects of its purpose
3. Connected 4 It discusses all stakeholders, vision and values
4. Cherished 4 It is appreciated and valued by all stakeholders
5. Concise 3.5 It is reasonably brief whilst providing all aspects of the bank
Source: Author
3.3 CBC Values.
According to the Annual Report 2018, CBC’s core values are inbuilt in the Bank's Code of
Ethics – honesty, integrity, fairness, responsible citizenship and accountability. CBC
employees are required to adhere on daily basis to these core values in doing the business and
accomplishment of strategic vision and mission.
As included in CBC website www.combank.net business ethics can be defined as “the
process of evaluating decisions, with respect to the moral standards of society”. In other
terms, business ethics means “choosing the good over the bad, the right over the wrong, the
fair over the unfair and the truth over the untruth”.
The Bank insists practicing very high ethical standards in line with professional requirements
which are beyond obeying the applicable law. Paying close attention to moral concerns and
upholding of an ethical culture is of height importance to the Bank and the employees in
making the correct ethical decisions on daily basis. Benefits that would be extended to all the
CBC stakeholders by practicing ethics based core values are highlighted in Table 3.
Table 3: Benefits of practicing ethics based core values
Source: Adapted from Commercial Bank of Ceylon (2019)

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4. CBC Business Model
A company’s business model is fundamental in setting up of its strategy. According to
Thompson el al (2014) business model is a plot setup by company’s management to deliver
its products or services by creating value to attract customers and there by generate revenue
in order to recover the cost including a satisfactory profit margin. There are two basic
elements of a company’s business model:
i) Customer value proposition: delivering value (V) through product or services for
money that spent by customer (i.e. price – P) to satisfy his or her wants and needs –
i.e. value proposition will be more attractive to the customer in case of greater the V
provided and lower the P charged by the company.
ii) Profit formula: the basis that will create satisfactory profit margin to the company on
top of its cost (C) whist pricing is aligned to customer value proposition – i.e. highly
profitable business can be run in case of lower the company cost (C) and greater the
customer value proposition (V – P)
CBC Business Model is included in Appendix 1. It expresses the view that CBC’s strategy
centred on creating value through delivering value (i.e. customer value proposition) to the
stakeholders in return of deriving value (i.e. profit formula) from stakeholders.
4.1 Customer value proposition.
CBC is primarily focusing on two processes of the bank, i.e. financial intermediations, and
maturity transformation, in order to deliver value to the stakeholders.
Financial intermediaries refers to the role that CBC plays between various stakeholders such
as depositors – borrowers, importers – exporters, money remitters – beneficiaries,
entrepreneurs – investors, tax authorities – tax payers, and so on and so forth. Maturity
transformations include the processes of transforming short-term capitals into long-term
investments and lending.
The Bank has been delivering value to its shareholders for nearly hundred years in operation.
Over this period CBC has been able to build a strong base of loyal stakeholders whom the
Bank calls “capitals” due to the reason that such stakeholders tend to take longer-term view
of the Bank. Accordingly, the terminology used in CBC for such stakeholders includes;
financial capital, manufactured capital, intellectual capital, human capital, social and network
capital, and natural capital. Even though the Bank has no ownership to such capitals, the

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inputs are provided by them for the CBCs activities. A summary of value added under each
capital during the year is included in Appendix 2.
Four business lines, i.e. Personal Banking, Corporate Banking, Treasury and International
Operations work in collaboration with each other and various service units of the Bank to
create the capitals and improve growth. The performance of such business sectors is included
in Appendix 3. Accordingly, CBC’s best performance in the sector of Personal Banking then
followed by Corporate Banking is due to adaption of the Bank’s customer value propositions
of a) prudent growth, b) customer centricity, c) digital leadership, and d) operational
excellence. These are titled as “strategic imperatives” in the CBC business model (Appendix
1) and the Bank’s strategies to propel the 4 imperatives are highlighted in Appendix 3.
Continuous application of such customer value propositions helped the Bank to become the
largest private sector bank in Sri Lanka and 3 rd largest listed entity (by market capitalization)
in Colombo Stock Exchange. Further the Bank is placed 3rd (by profitability) amongst 9
foreign banks in Bangladesh. As a result, CBC has won 4 awards at Asian Banking and
Finance Awards 2018, one in retail banking and 3 for wholesale banking. Further, CBC
declared the Best Bank in Sri Lanka by FinanceAsea for the record 8 th time, which is a great
achievement.
4.2 Profit Formula.
CBC’s main income is based on the loans provided to customers in personnel banking and
facilities and fees charged in the corporate sector. Despite increased taxations levied on
financial services due to the withdrawal of concessions the Bank has been able to increase
volumes of business in all sectors and net loans to customer up by 16.86%. The loan book
and deposit book indicates substantial growth. The Bank’s strict adherence to prudent
financing initiatives has enabled it to improve on economies of scale, which in turn
increased profit margins. In addition CBC’s initiatives on greener and cost effective
sustainable banking practices has resulted in 8% saving in energy usage in 2018, which is
possible through green banking channels, waste disposal systems, use of solar power,
reduced paper usage through digitisation of processes and development of green buildings.
Increased overseas banking activities and remittances through CBC’s global branches and
partners’ network has created economies of scope and thereby reduced the Bank’s costs on
shared services. “Adopting digital solutions to provide efficient service to customers and to
streamline internal operations has enabled CBC to reduce its fixed costs.”

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5. Porter’s five forces analysis
This is a very useful tool to analyze the impact of competitive forces in a given industry.
Appendix 4 provides Porter’s five forces analysis done for the financial industry, in which
CBC is involved in business. The analysis highlights strong forces from bargaining power
of consumers and rivalry among competing institutions. On the other hand moderate forces
are indicated from the rest of the fronts which include bargaining power of suppliers, threat
of new entrants, and threat of substitutes. Given these indicators of the five forces, the
attractiveness of financial services industry can be predicted as moderate. Hence, the firms
involved in the banking industry usually plan for a reasonable range of profit margins as
well as return on investment. In this context, CBC has been able to carry out an attractive
business by offering strong commitment towards its customer as explained in Section 4 of
this report.
6. Strategic group map and competitive position
Strategic group mapping is applied to identify the diverse market position of a given
company in comparison to its competitors in the respective industry, and to reveal the group
of competitors who are placed in the same cluster.
Therefore, strategic group mapping is very useful tool to comparatively identify CBC’s
position in the Sri Lanka’s banking industry. Figure 1 depicts the main competitors in the
banking sector of Sri Lanka in 2018 placed in a strategic group map in terms of geographical
coverage and perceived quality/image. CBC’s quality of service and the brand name is
perceived as the highest. In terms of assets owned, CBC placed in third place (11%) when
compared to Bank of Ceylon in first place (15%) and Peoples Bank in the (13%) followed by
Hatton National Bank (9%) and Sampath Bank (8%) in 4th and 5th places respectively.
Peoples Bank has the highest branch network followed by Bank of Ceylon and CBC placed
in third place with 285 branches, but it topped in terms of the number of ATM machines
(850) deployed country wide. Further, CBC provides the best digital and internet banking
facilities for both private and corporate sector enabling the customers to carry out the
banking activities virtually from any location in the globe. Hatton National Bank can be
treated as CBC’s closest rival in terms of service quality and geographical coverage with 255
branches. State owned Bank of Ceylon is also a serious contender to CBC as it has a higher
Fitch rating, bigger geographical coverage and recently improved internet banking facilities
and service quality. Some data gathered from the Central Bank of Sri Lanka and annual

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reports of the banks in this respect are given in Appendix 4, which were the basis for
preparing this strategic group map.
Figure 1: Strategic group map for major banks in Sri Lanka
Source: Author
7. VRIN testing
VRIN (stands for Valuable, Rare, Inimitable, and Non-substitutable) test can be used to
assess a company’s capabilities by analysing competitive power of its resources, i.e. whether
the resource is valuable, rare, hard to copy (inimitable by others), and not easily substitutable
(non-substitutable)
Table 4: VRIN test for CBC
Source: Author
Having a century old legacy together with strong brand name, loyal and reliable customer
base who has kept faith in the Bank to maintaining high value long term deposits are the
sustainable competitive advantages of CBC over the other private banks and to be the
number one private bank in Sri Lanka and won several awards over the years as the best
bank.

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8. SWOT analysis
SWOT analysis is a very useful tool to evaluate and understand strategic situation of a
company relevant to its competitive market environment. The analysis will recognize the
company’s strengths and weaknesses (internal factors – controllable) and opportunities and
threats (external factor - uncontrollable) which are affecting the performance. Clear
understanding of strengths will allow the company to capture the opportunities available in
the market to maximize the business. Similarly, awareness of the company weaknesses will
be helpful it to mitigate the threats and minimize the negative impact on business.
Figure 2: SWOT analysis illustrates the CBC qualities assessed in the form of Strengths and
Weaknesses whereas the competitive environment is covered in the form of opportunities and
threats. The bank can visualize through this analysis to formulate its strategies and course of
actions to achieve set goals, objectives, mission in its approach to reach vision in the longer
run by making informed and proactive decisions to capitalize the market situation.
Figure 2: SWOT analysis – Commercial Bank of Ceylon PLC
Source: Author

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9. Financial analysis
Financial analysis is a useful quantitative appraisal to measure the performance of a firm’s
strategy and to see whether such strategies are satisfactory or not. This provides the firms
strengths and internal achievements which can be bench marked against the industry best
performance levels. If the strategy crafted for the company is robust and fitting to its purpose
then that company should be making better results in terms of financial achievements. CBC’s
financial performance as extracted from the Annual Report 2018 is included in Appendix 5.
The healthy and growing financial ratios on a) Profitability – Return on equity (ROE) and
Return of assets (ROA), b) Liquidity, and c) Solvency indicates the robustness of strategies
being applied by the bank over the years.
10. Generic competitive strategies
According to Michal Porter in order to be stand out from the industry competitors a company
should be deliberately choosing to perform its activities differently. Therefore, competitive
strategy means being different to its rivals to deliver a unique mix of value.
“In order to gain a competitive edge over rivals, a firm can select a strategy from the five
generic competitive strategic choices (refer Figure 3), which are built on the factors of the
target market – i.e. broad or narrow, and style of competitive advantage – i.e. lower cost or
differentiation that the firm intend to follow (Thompson et al, 2014).
Figure 3: Five generic competitive strategies
Source: Thompson et al, 2014

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Over the years CBC has acted to create a broader cross-section of customers on personal as
well as corporate banking sectors, where the majority of the revenue generated. The Banks
customer base includes very loyal premier customers who have been with the bank for years.
Further, the Bank has continuously developed its branch network and ATM locations
country-wide - added to that is bank-on-wheel to reach many rural areas, digital banking,
micro-financing etc. which has enabled the Bank to create a wider customer base covering
every walk of life when compared to its rivals. On the other hand the bank has been very
successful in differentiation of its services through product innovation, automation, digital
banking, trustworthiness and customer centric approach, and operational excellence to
provide the customers the best banking experience in local context in an era where banking is
important than the bank. Therefore it can be stated that CBC has selected a broad
differentiation strategy to be competitive in the Sri Lanka’s financial market to stand out
from its rivals. This is evident from many awards received by CBC from local and
international institutions over the years which includes best domestic bank, best commercial
bank and raked to be the only Sri Lankan Bank within the best 1000 banks globally for the
eighth’s consecutive year are to mention few.
11. Diversification strategies
Bank has applied a balanced diversification strategy primarily across its main four business
segments – personal banking, corporate banking, treasury, and international operations.
CBC’s principal business activities, nature of operations of its Group, and ownership by the
Bank in its subsidiaries as illustrated in Appendix 7 confirms that the Bank has implemented
a related business diversification strategy.
Current international operations, which is a major step towards diversification strategy of the
Bank, includes operations in Maldives, Bangladesh, Italy and Myanmar together account for
10.55% assets and 20.14% profit before tax. In the Middle East market through partnering
CBC has reached out to expatriate customers in order to facilitate foreign remittances, which
has increased the Bank operations and capabilities and reserves in foreign currencies and to
mitigate the currency conversion risk.
Diversification is also extended across the Bank’s funding mix, products and customers
segments, rates, and tenancy (leased and freehold facilities) aspects as well. Geographical
diversification lets CBC to reduce the risk in situations like extreme weather which can

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otherwise be devastating in case of sectors like agriculture. All in all such diversification has
benefited the Bank to wider the opportunities and growth in investment arena.
CBC’s approach to minimize the risks and increase the growth is through diversification
strategies applied across industry sectors, counter parties, products and geographies.
Although the Bank’s primary source of funding are customer’s deposits it has applied
diversification to funding sources through products such as terms deposits, switching
deposits, current account balances, borrowings etc.
12. Blue ocean strategy
CBC has adopted blue ocean strategy widely as a tool of strategic planning through business
units, product innovation, and management aspects. The bank has created a culture to
develop new products and innovations especially in the technology and internet applications
in the local context whereby taking the first mover advantage to capture the market and attain
high growth. There is a specialized team setup in the Bank to apply blue ocean strategy,
where they conduct related seminars and apply planning methodologies to create sustainable
growth in customer centric approach in an era of VUCA world.
13. Recommendations
The author’s recommendations are given below based on the foregoing analysis produced to
understand CBC’s strategy in order for the Bank to increase effectiveness of such strategies
and achieve sustainable growth and remain as a key player in the future financial market in
Sri Lanka and increase international footprint.
a) Achieve further cost efficiency through innovation and extended novel product portfolio.
This is applicable in particular to areas such as operational efficiency, technical
infrastructure, innovative culture, technical support, professional development and
training, stakeholder involvement, resource and financial support, strategic planning and
governance, project management, effective administration, incentive schemes, quality
reliable and flexible technology, perceived value and customer experience, and ease of
use.
b) The bank can also look in to the development of bank infrastructure and assets to
facilitate customer convenience by installing more 24/7 automated banking services at
strategic locations and improve customer service through improved recruitment process
and quality training and development given to existing staff.

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c) CBC should look into achieve synergy through centralization; certain core business
functions, achieve reduced turnaround time in identified customer related functions,
marketing and recovery team functions.
14. Conclusion
The foregoing analysis of CBC’s strategy indicates that although the financial market is
highly competitive with several key rivals trying to capture more market share, the Bank’s
operation has been profitable and stable in the domestic and overseas markets. The Bank has
created a strong brand name and increased trust amongst the stakeholders, which is an
excellent opportunity to achieve further growth and capture more market share. All in all
CBC has placed itself in an excellent position in the Island’s banking industry practicing the
Mission to achieve set goals and objectives and in the right course of realizing the Vision.
However, there is a concern in terms of comparatively higher operational cost which can be
mitigated by creating further cost efficiencies through innovations as highlighted in the
recommendations. CBC is geared to synchronize with the future which will be an era where
banking matters rather than bank and many emerging trends challenge the conventional
business models of banks.
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References
Commercial Bank of Ceylon PLC. (2019). About-us. Retrieved from
https://www.combank.net/newweb/en/about-us
Commercial Bank of Ceylon PLC. (n.d.) Annual Report 2018. Retrieved from
http://combank2018.annualreports.lk/
Discover Financial Services Porter Five Forces Analysis report retrieved from
http://fernfortuniversity.com/term-papers/porter5/analysis/927-discover-financial-
services.php
Sanjeepan N., (2017) Research article on strategic analysis and strategic planning for
commercial banking an analysis based on a commercial bank operating in Sri Lanka.
Retrieved from https://www.omicsonline.org/open-access/
Thompson, A.A., Peteraf, M. A., Gamble, J. E., Strickland III, A. J., & Jain A. K. (2014),
Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and
Cases (19th ed): Chennai: McGraw Hill Education
Top banks in Sri Lanka. Retrieved from https://corporatefinanceinstitute.com

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Appendices
Appendix 1: Business Model – Commercial Bank of Ceylon PLC
Source: Annual Report 2018 - Commercial Bank of Ceylon PLC

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Appendix 2: Value derived under capitals as of 31 December 2018
Source: Annual Report 2018 - Commercial Bank of Ceylon PLC

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Appendix 3: CBC Performance (by sector) and Customer Value Propositions
Banking Sector Contributing to profit
before tax
Contribution to total
assets.
Personal Banking 45.08% 42.28%
Corporate Banking 22.06% 24.47%
Treasury 11.26% 21.74%
International Operation 21.60% 11.51%
CBC Strategic Imperatives (Customer Value Propositions)
Source: Annual Report 2018 - Commercial Bank of Ceylon PLC

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Appendix 4: Porter’s five forces analysis
Source: Author

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Appendix 5: Comparison of top banks in Sri Lanka – Assets, Fitch Rating, Loans, Deposits

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Appendix 6: Core Financial Soundness Indicators
Source: Annual Report 2018 - Commercial Bank of Ceylon PLC

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Appendix 7: Principal business activities. Nature of operations of the Group, and ownership
by the Bank in its subsidiaries