Rural Bank of Suares

MGT 101

Concepts and Dynamics of Management

Case on Planning

RURAL BANK OF SUARES

In a stockholders’ meeting of the Rural Bank of Suares (RBS), Peter Arguelles, the bank general manager, reported on the financial performance of the rural bank in the past year (see Exhibits 1 and 2). The stockholders were pleased with the report since it showed substantial growth in both profitability and resources as compared to the preceding years. They were however surprised by Arguelles’ proposal that the bank should embark on the opening of a branch in the capital city, the first branch ever to be opened by RBS, as its expansion move for 1997.

Company History

RBS was incorporated in 1974 by a small group of stockholders from the town of Suares located 25 kilometers away from the capital city in a province in Southern Mindanao. Since its founding, RBS remained the only banking institution operating in this town of about 45,000 people. After its founding, the bank immediately found patronage among the townfolk so that its stockholders, who were all townspeople of Suares had high hopes for their bank. Within a few years, however, the bank came into serious financial difficulties. Whether because of lack of foresight or because of pressure from government agencies during the Marcos regime, RBS, like nearly all rural banks in the country at that time, assumed heavy exposure in the government’s disastrous countryside lending program called Masagana 99 which resulted in millions of pesos of unsecured and uncollectable loans to rice and corn farmers for the bank.

For nearly two decades, the bank, burdened by these uncollectable loans, eked out a survival existence as the Central Bank authorities allowed the bank to carry these uncollectable accounts in its books and gradually write these off against whatever operating income the bank earned from its regular lending activities through the years. Until recently, therefore, the bank had not been able to...