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Analysis: Vancity - Case Study Example

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Name: Instructor: Course: Date: Case Analysis: Vancity Vancity is a community based, member owned financial institution that has over $13 billion assets and serves about 360,000 British Columbia residents in Great Vancouver, Squamish, Victoria, and Fraser Valley…
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Case Analysis: Vancity
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Download file to see previous pages Its community leadership committee is tasked, with the responsibility, to oversee and develop implementation of the institution’s strategy for community leadership. This paper aims to do a case analysis on Vancity and its problem that relates to its re-pricing of loans. Case Overview Vancity is an institution recognized for its social justice commitment and for community values that it cultivates. However, the financial crisis has forced the institution to consider the re-pricing of its offerings on line of credit. This move was expected to prove unpopular with the institution’s customers who also doubled up as the institutions owners, since Vancity has a corporative structure. Implementation of this decision was not possible without undoing the trust in the institution that the members had. If the board decided against re-pricing the loans, there would be a problem covering the $24 million shortfall. Vancity thus aims to balance the expectations of its members and the financial viability of the institution. While the immediate problem involves the re-pricing of loans, broader questions about the strategy that Vancity was to take going forward were also of concern. It was important for Vancity to be different from the rest of the financial institutions. Another question that the institution has to deal with is to what extent the institution should focus on profit making against sticking to its roots in the cooperative movement (Husted & David 218). Measures for the institution’s success going forward were also a concern. The financial crisis of late 2008 ended a speculative bubble that had been driven by prices of real estate exponential increase in most major markets. Together with shoddy practices of lending and financial engineering, the crisis undermined the whole financial system’s stability. Lenders, in the belief that the prices of real estate were on a never-ending upward trajectory, began offering consumers mortgage loans, even though some of them would be unable to make payments on interest on the exhaustion of initial discounts. The turmoil began in late 2008, in financial markets, globally and began to affect world economies. The bank of Canada, in response, dropped interest rates to 0.25%. Prime Canadian interest rates dropped to 2.25% by mid 2009, while other rates were pinned on the prime rate. Vancity’s interest rates were charged at prime minus or plus percentage points on credit lines. As lending rates went down, margins on loans outstanding also declined. The institution’s credit portfolio was approximated at $2.3 billion, with some $1.8 as secured debt. 83% was, however, debt that was either at or below prime rate. While most of the other financial institutions had re-priced their customer’s loans via raising by one percent all interest rates across the board, Vancity stood to loose $24 million at the end of the year if they did not go by this practice. There was a risk that if customers drew down, to the allowed maximum, their lines of credit, the institution would face a $45 million annualized loss. In this scenario, Vancity would be forced to fund these loans at other member’s needs expense. While the total number of affected customers was 80,000, 5,500 were considered to be a high priority since they were in possession of eighty percent of loans outstanding (Husted & David 2 ...Download file to see next pagesRead More
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