1. Time Context The case of National Bank of Borneo happened on November 20, 1986, the date when the sultanate of Brunei announced the closing of the said bank.
2. Viewpoint The viewpoint to be used in solving the case is that of Mr. Abdul Rahman’s, the newly appointed controller of NBB.
3. Major Policy Statement National Bank of Borneo is a bank which is the larger of the two local banks in Borneo.
It has advances of $ 1. 128 billion, deposits of $ 1. 147 billion, total capital and reserves of $ 199. 4 million, and a post tax profit of $ 31. 1 million.
4. Background of the Case
a. The Company National Bank of Borneo is one of local banks in Brunei. Its establishment was indebted to Mr. Khoo Teck Puat the father of the detained Khoo Ban HocK. Mr. Khoo Teck Puat is a son of a rich trader, who in 1933 merged several banks together to form Singapore’s biggest, OCBC or Overseas- Chinese Banking Corporation. After his impeded rise in the position, he left and went to Malaysia. In Malaysia he founded Malayan Banking and very rapidly he was able to open 100 branches in just one year. In six years time, the bank that he founded equal that of OCBC in Singapore, with this he was able to own 60% of Malayan Banking.
Seven years later the Malayan Central Bank or BN Bank of Negara forced Khoo out, alleging excessive lending to his own companies. After leaving Malayan Banking he retained his interest in the bank’s branch in Brunei. This branch was about to be closed in 1962 but with the help of share investment by the royal company, the bank now called National Bank of Borneo prospered.
b. The Industry NBB belongs to the banking industry. As with all the failure in the management of finance and all the controversies NBB is through, we can say that the bank is already on its decline stage. The company has the potential to be competitive internationally but these transactions to foreign banks have been frozen.
c. The Management The bank’s president was Prince Sufri Balkiah and his predecessor is Prince Mohammed both were member of the Government’s cabinet.
5. Environmental Analysis
d. SWOT Analysis Strength
- NBB , being owned by a family that is known to be one of the richest in Asia has loads of sources of cash.
- The experienced management of NBB and so as the connection of NBB to the government.
- Larger of the two local banks.
- Poor allocation of resources.
- Weak financial management.
- The transactions to foreign banks.
- The London Stock brokerage from which Khoo bought large percentage of shares.
- The direct influence of the government to NBB.
- The kind of relationship Khoo family has with the royal family.
6. Present Company Departmental Plans Product Planning and Development Banking transactions has been established and developed not only locally but also to other correspondent banks world wide .
Interest earned from the Khoo related loans were customarily rolled over and appeared on the bank’s accounts as accrued profits. This practice enables the bank to show a profit for marketing. Financial Planning Million shares National (nominees)61. 4 Leo Investment Corp. 9. 0 Taurus Investment Corp. 5. 0 Khoo TecK Puat1. 0 Khoo Family3. 8 80. 2 Shares issued90. 0 Shareholders277 Production Planning Almost all the transactions of NBB were all because of the efforts and connections of Khoo. All its production planning has been due to his experience in banking locally and internationally. Organizational Planning Chairman –Khoo Ban Hock President -Prince Sufri Balkiah Executive Director-Chin Ping Fang
Part II Problem Resolution
1. Background of the case
The problem of NBB surfaced surfaced in June 1985 when another bank went bankrupt , the United National Finance. An investigation showed that it is because of large borrowings from NBB. Then, two months later, a Swiss bank backed out of a U. S. $ 30 milllion Eurobond issue for NBB when it discovered, although it was told government approval was not necessary by NBB, the opposite was true. Also the Swiss had learned that the NBB was not a central bank nor did the sultan or government own shares.
2. Statement of the Problem
How can the management restore NBB considering that it is not bankrupted and there are still potential transactions that could still give them high profit?
3. Statement of Objectives
- Regain the trust of the people in NBB.
- To sort out the financial dilemmas of NBB.
- To resume the business and all the pending transactions of NBB.
4. Areas of Consideration
- The relationship of Khoo to the royal family.
- Kind of government in Borneo.
5. Alternative courses of action.
- Fully detach NBB from the Khoo family and arrange new form of management.
- Settle the dispute between the Khoo family and the Sultan.
- Consult the legislative
- Council and report that it is unjustified to close NBB considering that it has never showed any sign of bankruptcy.
6. Analysis of Alternatives
a. Fully detach NBB from the Khoo family and arrange a new form of management.
1. NBB will be freed from the shadow of bad reputation of the Khoo family.
2. NBB will be reintroduced with refreshed image with new people to manage packed up with plenty of knowledge to run and renew NBB.
3. Detaching from the Khoo family means detaching from one of the biggest shareholders of NBB.
4. NBB may loose one of its founders that has connections to the other banks world-wide.
5. b. Settle the dispute between the Khoo family and the Sultan.
6. The Sultan may have changed his mind with regards to closing NBB.
7. The Sultan may support NBB instead, rather than closing it.
8. Khoo may suppose that what he has done may be tolerable.
9. The same act of Khoo may be repeated once he was forgiven.
c. Consult the legislative Council and report that it is unjustified to close NBB considering that it has never showed any sign of bankruptcy. v. ADVANTAGES
10. NBB will have a better hold of not being ceased.
11. Legislative Council will be a mediator between the personal issues of the Khoo family and the Sultan, weighing all things justifiably and free from any form of biased and personal issues. vi. DISADVANTAGES
12. The Sultan may have the possibility to manipulate the due process.
13. LacK of possible evidences about the personal dispute of Khoo and the Sultan would only add up to the reasons of failure.
7. Decision Statement
Considering all the advantages and disadvantages of all the presented alternatives of action, the best alternative is the first one. With this alternative, NBB will be able to finalize all the business transactions and the frozen transactions of NBB with the foreign banks will be still settled making all the pending transactions functional even after the termination of NBB. Moreover, the management will be able to get rid of the faulty behavior of the Khoo clan but still be able to use all the transactions they had established.
PART 3 IMPLEMENTATION PROGRAM
1. Action Plans
a. Long Term Action Plans
- A year after the specified date of the problem, NBB should plan how to reawaken the business, they should be able to attract more depositors and investors.
- The lost trust of people to NBB may it be locally or internationally should be remedied as part of reviving the business again. b. Short Term Action Plans
- Remedy all the problems that the Khoo family has brought in to NBB, make them recompense for all the damages they had caused NBB.
- Convince the sultan to postpone the closure of NBB.
2. Proposed Company Operational Plans
c. Product Planning and development
A banking institution could plan to make use their money reserves in other businesses so as to generate larger profit.
d. Market Planning Have more transactions with foreign banks. In this way the bank will be able to hold larger foreign currency reserves that could cover up the losses for being detached to one of their largest investors.
e. Financial Planning NBB should wind up all the frozen transactions with the foreign banks.
f. Man Power Planning They should be able to hire professional financial analysts to fix all the fraudulent transactions and misrepretations done by the Khoo family.
g. Organizational Planning The new management should hire trustworthy employees to compose the new organization.
Other Problems and Proposed Solutions
1. How can NBB settle up all the accounts to the depositors?
- Allot all the assets of the bank to all the depositors.
2. How can NBB settle all their borrowings?
- Make the khoo clan compensate.