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Rural Bank of Suares

MGT 201 Case Study
by

Jeffrey Morales

on 21 September 2012

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Transcript of Rural Bank of Suares

Presented by Jeff, Joby, John and Renan Case Study: Rural Bank of Suares The point of view of the controlling stockholder is considered in the case. Normally, controlling stockholders, by virtue of their description, are imbued with tipping point decision influences either by virtue of their majority or overwhelming capital outlay or they head the controlling bloc of policy makers in the board. They are usually the most active participants and generally provide the direction of policies. They have the sway in the management decisions and, decidedly break any impasse in implementing necessary actions. They usually decide based on a wider perspective taking to considerations general environment influences as well as internal factors putting these into alignment to the current mission and goals of the company. I. POINT OF VIEW
What is the best expansion strategy that RBS should implement in the Capital City? II. PROBLEM STATEMENT C. Rent a small office/satellite office in the City and Hire a Sales Representative who will transact with the customers. IV. ALTERNATIVES (cont.) Population in the capital city is more than 10x that of Suarez, also it is the financial and commercial centre of the province thus market for loans and deposits was perceive to be larger in this area.

Opening a branch in the capital city already has sure borrowers. These borrowers are residents of the capital city that transact with the main branch in Suarez. They could capitalize on their current client niche and better serve these clients by opening a branch in the city.

There are several government and Central bank activities which main goal is to rehabilitate the conditions of the Rural Bank in the Philippines. Activities and efforts include the combination of capital infusion and rescheduling of past due obligations with the Central Bank. This efforts help to give the leeway for the rural bank to recover from past financial difficulties. OPPORTUNITIES B. Rent a building for a complete branch bank operation expansion. IV. ALTERNATIVES (cont.) V. IMPLEMENTATION (cont.) E. Rent a building for an extension counter expansion only. IV. ALTERNATIVES (cont.) D. No physical main branch in the Capital City but will hire Sales Arm that will transact with the customers and tie up with institutions for loans and deposit. IV. ALTERNATIVES (cont.) DECISION CRITERIA V. IMPLEMENTATION RA 8435 Agriculture and fisheries modernization act of 1997. Nafc.da.gov.ph/afma/ra8435-1.php

PD717 The Agri-Agra law. A review of its performance. Www.acpc.gov.ph/acpc%20monitors/2003/PD717%20monitor.pdf

Cruz,jm and kraft,nws. Policy options in agricultural and rural finance:the eperience of the philippines and other asian countries.www.acpc.gov.ph/acpcpaper/policy options in agriculture %26 Rural finance.pdf VII. REFERENCES Loans-to-assets ratio and total debt to asset ratio of the bank is quite high. This means that the bank is loaned up and the liquidity is low. This is risky for the bank to have high loans-to-asset ratio. It may negatively affect how lending companies may approve their proposal to loan if they will pursue buying lot and building (1995- 77.6%, 1994-75.94%)

Return on assets is quite low indicating that the assets are not fully used to generate income for the company.

RBS has limited capital to fund any aggressive expansion plan. If expansion pushes through it would require to orrow from a commercial bank 80% its expansion capital. Its deposit base is virtually allocated to loans, meaning, if the bank opens a branch in the city it has to find a way to obtain fresh infusion of capital for its expanded operation.

The information provided by Mr Arguelles is incomplete. It has no estimate of the break-even volume to compensate for its investments and operations. In the absence of any guarantee of optimism the investment faces incalculable uncertainty over its limited resource. It makes also the proposal less palatable to stockholders who given an optimistic state of nature might be induced to infuse more capital.

RBS has a limited diversity with its investment portfolio. Most of its capital is already out as loans, it has no bonds, only very limited real property assets. WEAKNESSES A. Buy a lot and building for the branch bank expansion. IV. ALTERNATIVES The bank is profitable as shown by the operating profit margin, net profit margin and return on equity.

RBS has a competent management group with GM Peter Arguelles and its stockholders who by “dint of patient management and careful husbanding of its resources was able to rehabilitate the bank and expand both its deposit base and loan volume. RBS has resilient stockholders, they infuse another 2million in fresh equity investments to beef up its depleted resources or face closure by the central bank.

RBS attracts people to make loans even though it is located 25 kms. Away. This suggests that its loan package has enough pull and attractive enough to gain customers from the city.

RBS is currently in good health with an asset to liabilities ratio 0f 110%, deriving 19.3 % interest from its loan exposure up from previous year 18.9%. Its savings account base increased by 18%, and time deposit by 40%. STRENGTHS If things do not go the way it is planned, then RBS should close the satellite office to lessen the expenses of putting up a physical presence in the Capital City and hire or retain the Sales Representative to continually tap the market and increase the banking activities in the area. VI. CONTINGENCY PLAN Large commercial bank branches from Manila are establishing their presence in the City.

There are two operating rural banks in the City that caters to small loan borrowers.

Govt regulation that mandates banks to commit certain percentage of their loanable capital to its agricultural programs which most are not guaranteed by any collateral.

City folks may be lukewarm to the idea of putting their money in rural banks as compared to branches of large commercial banks. Rural banks also are constrained with limited services in terms of money repatriations of which many city folks may be using. THREATS III. CASE FACTS We hope you enjoyed the case presentation! Have a nice day and....... Based on the Decision Criteria, the most effective and efficient way to expand in the Capital City is to rent a small office/satellite office in the City and hire a Sales Representative who will transact with the customers. This strategy requires least capital but with greater penetration in the market to increase their lending and deposit activities. It is important to put high consideration on the monetary cost of the project since the company has small amount of capital and is just beginning to recover from the past unprofitable transactions. Expansion in the Capital City, however, is important to tap new potential market that could increase their deposit activities as well as commercial and industrial loans. Also, the move to put up an office in the Capital City is a good strategy to serve better the existing client base. Last but not the least, it is a well-known strategy for smaller banks to first try out new places by either setting-up satellite offices first or extension counters. After they have gathered enough customer and environment information this is the time when they can decide to actually build a branch to offer more diverse banking services. The following will be the steps to implement the said expansion strategy: Thank You!
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