Capital City Bank

Capital City Bank – Case Analysis

Background:

= Capital City Bank (CCB) a medium sized commercial bank owned by a small number of group holders. Company’s poor performance made the owners share their equity to a group of new investors who felt that CCB could be turned around with more aggressive management. The transfer of ownership was followed by basic changes in bank strategy and many changes of key personnel at the top level. The new organization of the bank created two new divisions namely the Corporate Banking Division and the Trust Division.

Corporate Banking Division was given the responsibility in different loan programs of the company to large and multinational corporations as well as medium sized companies who had been the traditional clients of the bank. Trust Division was charged with undertaking trust services for individual and business clients. A major service assigned to the division was the Common Trust Fund. Common Trust Fund involved the pooling of funds drawn from various participants and sharing the returns from the investments among the proportion to the amounts contributed by each.

Bank Management decided to undertake an effort to increase savings and other deposits in the bank aside from selling various lending and trust services of the CCB. The company then launched a deposit drive to increase depositors in the bank. All personnel were entitled to call new depositors to deposit in the bank. The drive will only last for six months.

An account officer of the Banking Division approached Oriental Company to offer a working capital loan. Account officer offered 10M pesos as working capital loan with an 18% rate of interest. Oriental Company then took advantage of the favourable interest rate and availed the loan. The Branch Marketing group offered the Oriental company a 19% return for a 10M pesos 60-day placement with the trust division. Account officer of Oriental was surprised at the disparity between the bank's lending and...