BUS307: Based on the Financial Data Given, Evaluate Central National Bank’s Profit Performance over the Last Three Years: Commercial Banking Case Study, MU, Singapore

Part A: An Analysis of Central National Bank

REQUIREMENTS / QUESTIONS:

1. Based on the financial data given, evaluate Central National Bank’s profit performance over the last three years.

2. Evaluate the risks Central National Bank has taken to obtain this profit performance. Specifically evaluate the bank’s liquidity risk, credit risk, interest rate risk, and capital risk. Be sure to include an appraisal of management discussion and analysis contained in the 1987 annual report.

3. Summarize the strengths and weaknesses of Central National Bank at the end of 1987.

4. Make specific recommendations for the management of Central National Bank to follow in 1988.

Part B: How banks can ease the pain of negative interest rates

Review Greenbaum, Thakor, and Boot (2016) Chapter 5 — “Interest Rate Risk” and discuss how low interest or negative interest rates environment impact the management of risks faced by the bank. In your discussion or analyses explain how a low or negative interest rate environment impacts other risks? Be specific and refer to other articles to support your claim.

Quality is the most appropriate determinant of the grade awarded but it is suggested that approximately 1,500 words be a suitable length.

Central National Bank

Central National Bank (CNB) was the largest independent bank in the state. At the end of 1987, the bank had total resources of $2.6 billion, and its staff of about 1,90Q officers and employees operated 80 offices, primarily located in the state’s metropolitan areas.

The senior management of CNB had recently, decided that there was an increasing need for more long-range planning, given the many signifi-cant changes in the competition, structure, and regulatory environment of all financial institutions, especially banks.

Accordingly, Mr. Wilson Harwood was appointed to the newly created position of director, strategic planning. In past years there had been very little longer-range planning beyond the annual budget and profit planning cycle. It had been concluded, however, that CNB’s size and expected future growth required more attention to shifting competitive trends and the bank’s need to adapt to change.

Harwood, age 38, had been employed at CNB for 7 years and recently had been promoted to senior vice-president. His prior experience with the bank had involved primarily the accounting and controllership areas. Harwood had no prior experience with long-range planning concepts and procedures; however, he was regarded as a good number man.

CNB’s banking offices were located in highly competitive markets. There were 337 banks in the state, operating over 2,600 full-service branches. CNB’s offices also competed with thrifts, finance companies, and other financial institutions. Additionally, out-of-state banks and nonbank providers of financial services were becoming more important competitors in CNB’s major metropolitan markets.

CNB’s branches were grouped into three geographic regions, each headed by an executive vice-president. The bank’s organizational philosophy was to afford each region strong local autonomy for operations in its respective communities, coupled with rigorous centralized financial controls. Over the past five years, CNB’s total resources had grown from $1.1 to $2.6 billion, an annual growth rate of about 19 percent.

Much of this growth had been achieved through the purchase of smaller banks. Most of these acquisitions involved the exchange of common stock. It was CNB’s policy to use its common stock for acquisitions so that equity was increased in proportion to the assets acquired.