Royal Bank of Canada In Thailand Case Study
The Royal Bank of Canada (RBC) moved back to Thailand on June 16,1997, which they offered corporate and correspondent banking services from there office located on wireless road. On July 2, the government reacted to the financial and property collapse of the economy by floating the baht (domestic currency) for the first time in thirteen years. Then the bleeding of the collapse of the market was finally sealed when the International Monetary Fund (IMF) intervened and started a 16.7 billion dollar bailout funding program to help Thailand recover from the financial crisis. This was the largest bailout fund since the Mexican peso crisis in 1992. Mark Bielarczyk, Country Manager for the RBC knew that opening an office in an emerging market, such as Asia, required patience and persistence. Some of the challenges in emerging markets especially in Asia are: volatility in economic growth, poor information quality, political instability, and barriers to entry. Mark Bielarczyk knew that to fail in Thailand would affect the RBC’s chance to grow its commodity trade finance business, service multinationals, and produce solid returns from trading activities. Mark Bielarczyk having a strong work experience background had to present a strategy about how the company should react to the financial crisis and provide an update to the Senior Vice-President Phil Brewster.
Based on history the RBC actually opened a representative office in Bangkok with limited operations in the early 1980s. The RBC tried to emerge in the financial sector and develop a strong presence in Thailand, but there was no change in the regulatory environment with other less developed countries (LDC) portfolio problems, the bank had to close its office in 1986. After eleven years in May 23, 1997, the Canadians returned back to Thailand’s financial market. This was largely due to many opportunities available in Thailand’s market with the mining sector, energy sector opportunities, and trade financing sector. The RBC coming back into Thailand made a strong commitment to Thailand and believed that the Kingdom has potential to grow in the financial sector. Having a forward-thinking psychology they set an ultimate goal to achieve a full branch license to operate in Thailand. This was the ultimate goal because gaining access to the license would enable the bank to extend loans within Thailand and abroad using money borrowed from overseas. Also, when Royal bank can upgrade to a full branch status it would provide advantages such as being permitted a larger range of businesses, and being allowed on-shore lending in the local currency.
The bank’s intent was to build this full branch by hiring locally. The initial staff would be composed of 5 people, with the general manager being an experienced banker from the network. In this local staff the base would be individuals with account management, credit, and analysis skills, whose experience and familiarity with the marketplace would be important in building clients. They hired from Thai university and train them in Canada before they could return to Bangkok to work. The Pretax Profit for building the full branch in the first year would be $595,000 and for the second year would be $1,550,000.
The Canadian banking system for the past 70 years has been considered one of the most stable systems in the world. Since 1923, Canada had experienced only two bank failures (compared to 17,000 bank failures in the United States since 1921), and in both cases the deposit holders and the bond holders experienced no loss in money. The Canadian Bank Act required a bank to maintain adequate capital as well as adequate and appropriate forms of liquidity, and empowered the Office of the Superintendent of Financial Institutions (OSFI) to direct a bank to increase its capital or to provide additional liquidity. Subsequently...
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