Budget Problem Public Bank

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1.0Analysis of the Business
1.1Core Business Activity
Public Bank Berhad’s core business is to provide wide range of banking and financial services that includes commercial banking, retail wealth management, Islamic banking, investment banking, stock broking and card businesses. Public Bank is a market leader in consumer banking and retail commercial lending to SMEs (Small to Medium Enterprise) in Malaysia, complemented by corporate banking services as well. (Public Bank)

Source: Annual Report 2007 c p29

1.2Stakeholder Analysis
1.2.1Shareholders
As a profit-oriented organization, the Bank is committed to enhance shareholder value through consistent financial performance, efficient capital management in order to generate profits and fair return on their investment. 1.2.2Customers

The banking industry in Malaysia is a matured market. The range of services offered are generally similar in nature. The Bank serves their best to the clients, their major source of income in terms of offering lower financing, preferred rates and investment services due to the highly competitive industry. In addition to that, the customer service, reputation, financial performance of the Bank, location of the outlet and other quantitative and qualitative criteria serve to distinguish the banks in the eyes of the customer. 1.2.3Employees

Good staff morale is pursued through proper staff training, provision of opportunities for career advancement, incentive awards and various perks and benefits that allows the retain of best talent for the Bank. 1.2.4Government

The government plays a role as decision maker and implements policies and projects. Apart from that, the Bank is the major player of the economy, the going concern of the bank is crucial for the government to be alert of. 1.2.5Public

The Bank is a socially responsible corporate citizen in a tangible way. This is important as Public Bank’s client base is extremely wide that all levels of people are their customer; hence the reputation is crucial.

2.0Behavioural Problems
2.1Uncertainties Leads to Budgetary Slacks
One of the major issues faced by Public Bank is the uncertainties it faces in its line of business. Ueno (1992) states that the need for managers to avoid these uncertainties leads them to perform budgetary slacks as a safeguard against future uncertainties. According to Nandan, managers create budgetary slacks in the first place to insulate themselves against the adverse effects of unpredictable events in order to be able to draw upon their additional resources when the occur (1986). Belkaoui and Riahi-Belkaoui (1994) have both described “budgetary slacks as an intentional distortion of information that results from an understatement of budgeted sales or an overstatement of budgeted costs.” Hence, it is safe to assume Public Bank suffers from this behavioural problem which is common with companies whose industries and business are fraught with uncertainties. The turbulence resulting from the ever-changing global and local economy has a strong impact on the bank’s business. In Public Bank’s 2004 annual report, it acknowledges the risks derived from these uncertainties. In the chart portrayed there, it shows that it faces credit risks, operational risks, liquidity risks and market risks which covers the interest rate, foreign currency and equity risks. Therefore, managers of Public Bank would likely use budgetary slacks as a shield against these risks. The competitiveness of the banking and financing sector intensified this trend is expected to continue in the future. Hence, Public Bank need to be constantly vigilant on the competitors’ offerings and responded promptly to the changes and developments in the market place. (Annual Report 2006 p55) Under the Financial Sector Master Plan (FSMP), the consolidation of domestic financial institutions resulted in the emergence of banking groups with larger pool of and balance sheets to aggressively compete...
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