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RURAL BANK OF SUARES A. FACTS OF THE CASE Peter Arguelles is the bank manager of Rural Bank of Suares (RBS).

RBS). RBS financial performance showed substantial growth in profitability and resources as compared to the preceding years. RBS remained as the only banking institution operating in this town of about 45,000 people in Suares. Its stockholders are all from Suares. The bank underwent serious financial difficulties due to unsecured and uncollectable loans. Until recently, the bank had not been able to expand or pay dividends to its stockholders. The stockholders were force to infuse in 1990 another P2 million in fresh equity investments in RBS to beef up its depleted resources. By dint of patient management and careful husbanding of its resources, the RBS management was able to rehabilitate the bank and expand both its deposit value and loan volume. Arguelles proposes to have a branch office open in the capital city. RBS attracts customers from the city even if it is 25 kms away because of its loan program.

B. POINT OF VIEW The point of view of the stock holder will be used.

C. STATEMENT OF THE PROBLEM What will be the decision of the stock holders regarding the proposal of Mr. Arguelles?

D. AREAS OF CONSIDERATION Financial Capability based from the bank statement, it shows that there is an increase in net income from 1994 to 1995. It shows that the company has a potential for growth. Expansion on the city could also mean more competitors wherein banks in Manila also have branches. Also, there are rural banks in the city which offers the same loan program as them. The additional expenses of buying land and constructing a new building should also be considered. Also, without a break-even value, and with all the competitors in the city, the target volume is not determined which may lead to the failure of the plan.

E. ALTERNATIVE COURSES OF ACTION Alternative A Buy land, construct a building Although this may be considered as an additional asset to the company and although it may generate additional income (rental spaces), data for return of investment is incomplete therefore not giving a guarantee that this will really generate income. Also, this alternative will need a huge amount of investment for buying land, constructing building and hiring of additional manpower. Alternative B Rent space for branch office In the same manner with Alternative A, this will incur huge additional cost as it will still need to hire additional manpower. However the investment cost is still lower that Alternative A and in case the plan fails, we could pull out or withdraw. Alternative C Send a sales/marketing representative in the city Since the main objective is to penetrate the market in the city, this could be achieved by hiring and sending a sales representative in the city to attract potential customers. This will incur the least cost when it comes to expenses as it has lesser manpower and no additional spaces to be rented. Also, based from the historical data, it has been proven that no matter the distance of the bank from the city, the customers were still willing to go to the bank for their transactions.

F. RECOMMENDATION Alternative C Send a sales/marketing representative in the city.

G. MANAGEMENT DECISION Apply Alternative C.