Royal Bank of Canada in Thailand Essay
Royal Bank of Canada in Thailand
1. What were RBC’s ultimate goals in opening a representative office in Thailand?
When RBC opened a representative office in Thailand in the early 1980’s, its ultimate goal was to obtain a full branch license. RBC felt that Thailand had the potential to become a regional financial center, and they certainly wanted to have an established presence in a country with this sort of opportunity. RBC also had the corporate goal of increasing the amount of its business generated from non-Canadian sources. With RBC locations in Asia already accounting for 16% of their total international earning assets, opening a new branch in Asia seemed likely to help achieve the bank’s corporate goal.
2. How large is the initial staff for the office and what is the estimated pretax profit?
The initial staff of the office was five people; a general manager that was already an experienced banker within the RBC network, and the other four staff members were hired locally. The estimated pretax profit is $170,000.
3. What are RBC’s four major business lines in its Asia Pacific network?
RBC’s four major business lines in its Asia Pacific network are: financial institutions and trade, multinational lending, treasury services, and global private banking.
4. What are the limitations of BIBF licenses?
A BIBG license allows a bank entry into a strictly controlled marketplace with several restrictions in place. Some of these restrictions are: foreign banks are limited to just one office, banks cannot deal in local currency, only certain transactions can be undertaken, and banks making loans need to borrow those funds from overseas.
5. What are the advantages of the possible upgrading of RBC’s operations in Thailand to a branch status?
The advantage of the possible upgrading of RBC’s operations in Thailand to branch status is that some of the BIBF license’s limitations are no longer in place. A bank in Thailand that has achieved branch status can engage in a larger range of business, and can deal in the local currency.
6. What are Thailand’s most important exports?
Thailand’s most important exports are tourism and manufactured products. Manufactured products such as: clothing, electronic parts and components, furniture, and jewelry account for 81% of the nation’s export volume. With seven million people going to Thailand each year, tourism accounts for 13% of the country’s total export revenue.
7. What is the “current” (1997) situation in Thailand?
After a decade of sustained growth, the current situation in Thailand is one of unprecedented economic turmoil. The countries exports have halted, foreign investors have become hesitant with their money due to the account deficit, the stock market plummeted, and big loans made by banks have caused a large accumulation of debt. Typical causes of an economic crisis, such as: high debt, large current account deficit, deregulation of the banking industry without proper controls in place, and a semi-fixed exchange rate are all at the forefront of the nation’s current economic state.
8. What are the highlights of the IMF’s bailout of Thailand?
The IMF’s bailout of Thailand was an agreement that would give the Thai government $16.7 billion in loans in exchange for the country adopting a tough program of economic and financial reforms. These reforms required the closing of 16 finance firms; these 16 firms would either have to merge with other banks, or submit their own rehabilitation plan. This agreement with the IMF allowed Thailand to resume its path of economic growth that it had been enjoying for the previous decade, and to also implement two significant reforms: the restoration of budgetary control, and the restructuring of the country’s rickety and corrupt financial system.
As a result of this arrangement between Thailand and the IMF, the Thai government was required to report its reserves to them every two weeks. This biweekly report was needed to ensure that the Thai government was keeping the minimum required foreign reserve amount laid out by the IMF. Lastly, this agreement did not allow the Thai government to bailout troubled financial institutions by assisting their creditors.
9. As RBC’s representative in Thailand you need to prepare a detailed recommendation for senior management to either: A. Stay in the country and “weather the storm”, which perhaps means to take losses for an extended period of time B. Cut your losses now and have the bank focus its efforts elsewhere, which means forgetting about getting back in the country in the foreseeable future.
As RBC’s representative in Thailand I would recommend to senior management that we stay in the country and “weather the storm,” despite the fact that this decision will likely result in losses in the immediate future. The country of Thailand has great economic potential and could possibly become a regional financial center one day. Prior to the economic crisis of 1997, the country of Thailand had seen a decade of continued economic growth and was even considered the world’s fastest growing economy between 1984 and 1990.
Courtesy of the IMF’s $16.7 billion bailout of Thailand, the bank of Thailand’s governor declared that the country’s economy was headed for recovery in three years. Leaving the county now is not a good idea because should the economy recover and continue to grow, it would be a difficult and long process to reacquire even BIBF status in the country. In order to reenter Thailand in the future the country would have to invite RBC to apply, and then RBC would need to pass the application process.