ROYAL BANK OF CANADA IN THAILAND Case Study Solution
Background of the company
The bank named Royal Bank of Canada shut down its operations in the 1980s and the bank again planned to reenter the market in 1997. The major stakeholder of the company is the Country Manager of Thailand, Mark Bielarczyk. The company has the ultimate goal to acquire a full branch license as the banks have some kind of limitations on their operations if they are operating as are presentative office in the country. The bank was allowed to enter in Thailand as BIBF after operating as a representative office for some time and then was given the license to operate freely and conduct operations like other banks in the country.
Financial Analysis of the bank
The pretax income from the first year of the country is $595000 and in the year five it has grown to $1550,000 under the BIBF licensing.This income is thought to be a good income under the license as the company’s profits are increasing.But further consideration should be given to the tax rate as the income is the pretax income and the economy of Thailand is not good. This increase is approximately 160% of the total pretax profit in the year 1.
The company’s assets are also increasing and the major increase in the profit is due to the increase in company’s revenue which has grown by approximately 129% and the income from non- interest has increased by 115%.This shows that under the BIBF licensing arrangement the bank is making more money from its main operations.
ROYAL BANK OF CANADA IN THAILAND Harvard Case Solution & Analysis
On the other hand, the bank has 1 experienced staff in the year one and there are 4 local staff members in the bank whereas in the year 5, the bank has still 1 experienced personnel and the 9 other people are local persons who don’t have much experience in the field.If the bank is still reliant on the local staff who is less experienced, then this will result in managing of the operations of the bank with more difficult and the bank might further face problems as now it is facing problems due to the economic pressures or a downturn in the economy.But in future if the strategy is not modified then this might lead to the whole bank operations under the license being shut down.
Business line of RBC in Asia Pacific network
The bank has 10 offices in the Asia Pacific network and the countries include Australia, Hong Kong, Japan, Republic of China, Singapore, South Korea and Taiwan. The bank has been operating in these countries for over 40 years and it is conducting its operations successfully. It has become the first North American bank to trade with China after the revolution.
The employment status of the bank is that the bank has over 400 employees in these 10 countries and the most recent country it has is Thailand.
The bank has 4 product lines namely the financial institutions, trade multinational lending, treasury services, and global private banking. The facilities worth $260 million are being provided by the bank for some locally incorporated groups. See Appendix 1
Limitations of the BIBF licenses
There are several limitations of the BIBF licenses and the major limitations under the licensing are that the bank cannot deal in the local currency and this will lead to the exposure of the exchange rate risk.The bank has to deal in the foreign currency and thus it can face several losses due to the devaluation of the exchange rate and it can further face the appreciation of other country’s currency leading to a decrease in the cash inflows of the bank. This makes it more likely for the bank to have a volatile nature of the cash flows being received and being paid off in the normal course of operations.
The bank would not be able to give the letter of credit to anyone as the letter of credit is used for the bank assuring the receiver that the person who is about to pay will receive the payment if the customer defaults.These restrictions placed upon the activities of the bank will lead to a decrease in the sales revenue and the bank will face competition in the market and it will further make the company’s operations being shut down if the loss increases.
Advantages of possible upgradation
This will lead the company get entry into the market as the license will act against the barriers in the market. This would establish the bank in the market and this will lead to the support being provided to the bank.
The company would have a local presence in the market and this would lead to the company making more effective decisions for the bank regarding the market as a bank operating from another country will always find it difficult to implement a sensible strategy for the future and this might lead to the wrong strategy being pursued in terms of the bank’s operations.
The local presence of the bank will further lead to an increase in the local customer base as the needs of the customers can be identified more easily in the market and the customers will feel closer to the bank if they are dealing with the bank in their home country......................
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