Capital City Financial institution (CCB) was a medium sized industrial bank owned by a select few of investors. Its total employee push numbered almost 1, 500 personnel. As a result of company’s poor performance in recent years, the owners decided to offer their collateral to a number of new shareholders who sensed that CCB could be overturn with more hostile management. The transfer of ownership from the bank was followed by fundamental changes in traditional bank strategy and changes in many key workers, many of them towards the top level.
The basic adjustments implemented by the new administration of CCB included an even more active quest for foreign auto financing activities as well as a heightened emphasis on lending actions to significant corporate accounts. To better implement these within basic approach, CCB was reorganized.
The reorganization in the bank involved the creation of two new sections, namely, the organization Banking Split and the Trust Division (See Exhibit A).
The Corporate Banking Division was handed the responsibility of marketing the different loans of the company to huge domestic corporations, multinational companies, as well as to the medium sized companies which was the traditional clients of the lender.
A wide range of credit lines had been offered to these accounts including Direct Advance Line, Import Letters of Credit, Export Bill Acquisitions Line, Export Packing Line of credit, Domestic Charges Purchase Range, and others. Mr. Vicente Torres, a new sponsor from the same department within bank in Metro Manila, headed this new division.
The Trust Split was incurred with starting trust solutions for individual and business clientele. A major services assigned for this division was your Common Trust Fund. This involved the pooling of funds drawn from various members, investing this fund in safe and high containing investments, andsharing the comes back from the opportunities among the participants in proportion to the amounts contributed by every. The Trust Division was however to accomplish only the purchase function. The marketing on this service to corporate and business and specific accounts was entrusted towards the Branch Department. The latter as well marketed the services of ten branches of the financial institution located about Metro Manila.
THE FIRST DEPOSIT DRIVE
As a corollary to aggressive selling the various financing and trust services from the CCB, lender management as well decided to take on an effort to improve savings and also other deposits inside the bank. A deposit drive premiered involving all of the employees from the company. A couple of rules was drawn up so that all departments and parts of the bank, whether or not they performed marketing capabilities or not, were given factors for new deposit brought in to the bank. The drive was to last pertaining to six months and the winners can be awarded appealing prizes and bonuses.
THE ORIENTAL CONSIDERATION
Towards the end of the season, one of the bank account officers with the Banking Department approached Asian Company with an offer intended for working capital loan. Because Oriental had been bank with CCB for nearly 12 months, the bank account officer provided a P10 million seed money loan to Oriental for 18% interest rate ” during the time considered a “good rate for popular accounts. Oriental considered to take advantage of the favorable interest rate offered and availed of the money.
Shortly afterwards, the Part Marketing group decided to solicit the same take into account the Common Trust Fund of the Trust Division. To attract Oriental to be involved in the finance, they provided Oriental a 19% returning for a P10 million 60-day placement together with the Trust Department. The Fund Manager of Oriental was surprised on the disparity between bank’s financing and put in rates but decided to take advantage of the Branch Promoting Group’s offer by making the P10 , 000, 000 placement with all the Trust Section.
It was not really until afterwards in the year that Vicente Torres discovered the odd condition with Asian. He known as the manager of the Part Marketing Group and asked “How can you allow your investors to offer a higher rate than our financing rate to Oriental? All of us not only generate losses but all of us also appearance very unreasonable to our consumers! The Branch Marketing Group Director replied that neither she nor her traders recognized that the Bank Division had lent to Oriental at 18%.
What were the causes of the “odd scenario in the case?
THE NUMBER ONE CAUSE FOR THE “ODD SCENARIO IN THIS CASE IS THAT BRANCH ADVERTISING GROUP SOLICITED A CORPORATE ACCOUNT FOR A SELLING ACCOUNT. IF THEY HAD WANTED TO SUPPLY THE PRODUCT COMMON TRUST PAY FOR TO THE CLIENT, IT SHOULD HAD BEEN COURSED THROUGH THE BANKING SECTION WHO GENERALLY TAKES CARE AND HANDLES CORPORATE CLIENTS.
THE ERROR TOOK PLACE WHEN FULL BANKING SOLICITED A CORPORATE CONSUMER.
THIS SHOULD HAD BEEN REFERRED TO THE ACCOUNT OFFICER HANDLING THIS PARTICULAR CORPORATE CONSUMER.
What should CCB supervision do to avoid similar problems down the road?
THERE SHOULD BE DELINEATION OF DEPARTMENTS AND THEIR SCOPE. RETAIL FINANCIAL DIVISION WHICH IS PRIMARILY THE BRANCH, MUST NOT SOLICIT ACCOUNTS BEING TAKEN CARE OF BY THE BUSINESS DIVISION (BANKING DIVISION).
FULL BANKING SECTION SHOULD COMPLETELY FOCUS PRIMARILY ON RETAIL CONSUMERS EVEN IF A COMPANY CLIENT HAS A ACCOUNT IN THE BRANCH. CORPORATE CLIENTS ARE HANDLED BY ACCOUNT OFFICIALS.
A CIRCULAR/MEMO SHOULD BE GRANTED STRESSING THE HANDLING OF CORPORATE AND
PRICE TAG CLIENTS.
FRESH ORGANIZATION OF CAPITAL TOWN BANK