Rural Bank of Suares

Group 3

RURAL BANK OF SUARES

Point of View: Stockholders

Time Frame: 1996-1997

Key Issue

What is the best way for the Rural Bank of Suares to go about their expansion?

The main issue in this case is whether or not the Rural Bank of Suares should open a branch in the capital. Planning their expansion in this direction could lead to a major oversight or achievement in investment, depending on its planning and the factors that would affect the expansion’s components.

Areas for Consideration

First, the Rural Bank of Suares has made most of its profit members of the community who reside within the area. They cater to a specific niche market, almost ruling a banking monopoly in the town.

Second, the bank has only gained profits in the last two years. This provides for very little retained earnings that can be used for the bank’s planned expansion.

Given that the bank’s net income the prior year was only a little over Php 2 million, it is very much necessary to have a cohesive expansion plan as this would be a rather large investment.

Third, existing competition in the capital city is already tight, and these competitors have ruled over the market. Entering into this field of competition may be risky for the Rural Bank of Suares, given its small size and its lack of a good credit background.

Fourth, a large fraction of the bank’s revenues comes from agricultural loans, meaning that most of its clients are farmers.

Fifth, the capital city is commercial center of the province.

Assumptions

1. Given the clientele of the bank, Suares is an agricultural town. This also gives way to a possibility that its neighboring towns are mostly agricultural as well.

2. Businesses in the capital city have already taken their money to the banks currently present in the capital.

3. The Rural Bank of Suares has obtained a source for the Php 8 million loan.

4. Should the Rural Bank of Suares take any loan, it would be able to pay in a...