Tag (SQ): Shareholders

Background
Sunrise Bank (the Bank) is a West African clearing bank. It has 500 retail branches. It categorizes its business as retail and corporate. Each category currently accounts for half of the Bank’s revenue.
The Bank defines retail business as “banking for customers in their own right and small businesses where lending would not exceed GH₵1,000,000 in any one year”.
Corporate business is defined as “…where lending would exceed GH₵1,000,000 in any one year”. Corporate lending includes international lending.
Traditionally, corporate lending has been the most profitable business, yielding 70% of profit before taxation. Corporate lending has been carried out by six regional offices and a department at head office in Lagos. The Lagos office is also responsible for international lending. There are 200 staff employed in corporate lending.
Retail banking has operated in the following way.
The number of retail and small business customers at each branch has ranged from 500 to 5,000, although 2,500 is typical. The bank has employed the following Mission statement for its retail banking:
“Our Mission is to deliver a high-quality service to customers based on our managers’ personal knowledge of customers’ affairs.”
The Bank recognized that retail banking was relatively unprofitable. It was willing to operate a policy of cross-subsidization between corporate and retail as it hoped that some retail customers would become corporate ones. It saw its branch managers as assisting in this process because of their financing expertise and deep knowledge of their customers.
The Bank has operated each branch as a cost center. Managers have been provided with a three-monthly expenditure report which compared committed expenditure to budgeted expenditure. The Bank had not operated an accrual accounting system as regards branch expenditures for these three-monthly reports. However, year-end adjustments reconciled committed, actual and budgeted expenditures. These accounting operations were carried out by management accounting staff based at head office.

Required:
(a) The bank’s current mission statement for its retail services states an intention “to deliver a high-quality service to customers based on our managers’ personal knowledge of customers’ affairs”. The emphasis here is on high quality and personal attention. The new philosophy outlined by the managing director is different in several respects. The emphasis is on profitability, to be achieved through low-cost service. And “the days of the bank manager being a personal friend and adviser are over”. Discuss the implications of this change for staff, customers and shareholders.

(b) Until now, the bank has treated its retail branches as cost centers. Discuss the possible advantages and disadvantages for the bank in changing to a system where super branches operate as investment centers.

(c) (i) List the reports that super branch managers might need in order to carry out their new responsibilities.

(ii) Explain THREE qualitative indicators that should be monitored by super branch managers.

(d) Identify the most important stakeholders who should have been consulted about the proposed changes and explain why their involvement is important.