PROBLEM CASE 1

You are the CFO of ABC Company. Your Treasury Department provided you with the
following information as of May 31, 2024:
Cash in Bank May 31, 2024 50M
Operating Cash In Flow for the month of June 10M
Cash Outflow Before Loan Servicing for the month June 30M
Loan Amortization for the month of June 30M
Credit Line with DBP 100M
Short Term Investment/1 40M

ABC Company needs to procure 20M worth of raw materials for July requirements. As
the CFO, how would you intend to fund the procurement requirement of ABC?

/1 can be converted into cash anytime

 Business case no. 2
• In January 2016, ABC Medical Center was granted by DEF Bank with a P500M Term Loan to finance the
construction of 10-Storey, 100 bed capacity Hospital Building. The loan will be paid within 10 yrs. with 3
years grace period on principal repayment. As post release requirement, the borrower was required to
increase its authorized capital from P50M to P250 M with a minimum paid up capital of P150M within two
years from date of loan approval. Cost overrun shall be shouldered by the Company.
• DEF Bank is the sole creditor bank of ABC Medical Center. The project is expected to be completed by
December 2018. However, due to various revisions made on the design of the proposed hospital, the project
was considerably delayed for two years. The target completion date was moved to Dec. 2020.The
stockholders of ABC Medical Center infused P100M additional funds as advances from stockholders to fund
the additional project cost due to revisions of the project design. The revisions, however, had greatly affected
the liquidity position of the Company as well as the stockholders.
• During the last quarter of 2018, ABC Medical Center received a SOA from DEF Bank reminding the Company
on the upcoming first Principal amortization for the term loans which will be due in March 2019. DEF Bank
also called the attention of ABC Medical Center on the delayed completion of the project which have still an
unavailed amount of P100M.
• The Board of ABC Medical Center immediately convene to discuss the strategic solutions that will address the
Company’s upcoming loan amortization. As the CFO of the Company, what solution/s would you recommend
to the Board to maintain the good credit record of the Company and to enable the Company to still draw the
remaining amount of the loan?
 Business case no. 3
• In January 2019, the President & CEO of DEF Bank received a letter from the Chairman of
the Board of ABC Medical Center requesting for the following:
1. restructuring on the term loans of the Company for a period of 12 years
with 2 years grace period on principal repayment citing as reason the delay on the
completion of the project, hence the project has not been generating revenue to fund the
loan amortization.
2. to provide the Company a7-year Term Loan 2 amounting P100 Million to finance
the procurement of Medical Equipment
•The Company also informed the Bank that the new target date of project completion
would be until December 2020.
• The President and CEO of DEF Bank referred to you the letter-request with a marginal
instruction to evaluate the request of ABC Medical Center and provide appropriate
recommendation.
• As the account officer of ABC Medical Center, what would you recommend?
 Business case no. 4
In the December 2020 Board Meeting of ABC Medical Center, the CFO reported among others the following
pressing concerns relative to the Company’s Hospital project:
• That the completion of the Hospital project would again be delayed by another two years due to various
community quarantines imposed by IATF during the COVID-19 pandemic. The Hospital project is projected
to be completed by December 2022 and operational by the last quarter of 2023.
• The Company needs at least P30 Million working capital to fund the initial operation of the Hospital.
• That the entire loan will be amortized by the Company within the remaining term of 5 years, hence the
projected revenues to be generated from the hospital project would not suffice to service the loan
amortizations for the next three years.
•Questions:
• As the CFO of ABC Medical Center, what strategic solution would you recommend to the Board?
• On the part of the Bank, what could be the best solution that it can possibly implement?
• What are the lessons that we can draw from the given case?
 Business case no. 5
• In 2015 Maharlika Specialist and Medical Center (MSMC)was granted by DEF Bank with the following
Loans:
Term Loan 1 – P400 M to finance the construction of 100 bed hospital building payable in
10 years with 3 years grace period on principal repayment
Term Loan 2- P100 M to finance the acquisition of medical equipment payable in 7 years
Short term loan line – P30 M to augment the working capital requirement of MSMC
• The project was completed in 3 years as scheduled.
• During the height of the pandemic, the revenue streams of the hospital was severely affected that it
could no longer sustain the payment of its loan amortizations.
• The founders of the hospital already made advances to the Corporation in order to sustain the
operations of the hospital including its loan servicing.
• The outstanding balance of the loan as of May 2023 is P300M
• However, the census of the hospital remains very low at an average of 18 to 20%. The hospital’s cash
flow continues to bleed coupled by difficulty to collect its receivables from PhilHealth which has
reached P80M.
• As chairman of the Board, what solution would you recommend to ease the liquidity problem of the
Company?
• What strategic solution would you recommend to improve the census of the Hospital?
 Business case no. 6
• The Provincial Government of Mediatrix requested a meeting with the representatives of DEF
Bank.
• During the meeting, the Governor informed the representatives of DEF Bank that they will secure
a loan from the Bank amounting 2.5 Billion to finance the construction of a government center
and acquisition of furniture and fixtures to be installed in the proposed government center.
• The Governor specifically requested that the loan be amortized for a period of 15 years with
three years grace period on principal repayment and the interest rate should not be more than
4% per annum and they would not take any rate higher than that.
• The prevailing market rate is between 6.0% to 6.25%% and the BSP RRR is 6.25%.
• The LGU is the biggest depositor of DEF Bank with an Average Deposit balance of P8.00 Billion.
Effective cost of fund is 0.25%
• As Manager of DEF Bank, will you propose for the requested loan despite the interest rate is
already below the prevailing market rate and floor rate? Please provide the rationale of your
decision.
 Business case no. 7
Business Case No. 7
• After two decades of engaging the client to avail of the Bank’s lending facilities, the City
Government of Villaluz Espinar finally acceded to access the Bank’s lending facilities and
requested your Bank to finance its Disaster Risk Reduction and Management Resilience
Building with the following credit accommodations:
Loan Amount P500 M
Loan Term 10 years
Grace Period 2 years
Interest Rate 3.50% fixed for 3 years subject to annual repricing thereafter
Loan Security 20% of the National Tax Allocation (NTA)
Prepayment Penalty 2% of the amount to be prepaid

The above request was granted by the Bank subject to the following conditions:
•The Bank shall be the major depository Bank of the LGU;
•The cost of deposit should not be more than 0.25% while the loan is outstanding otherwise the
loan shall be repriced based on market rate; and
•The account shall be reviewed quarterly to check the LGU’s compliance with the covenants.
 Continuation -Business case no. 7
• The project was successfully implemented and operated by the LGU. During the completion stage of the project, the
LGU invited the Bank to lease a portion of the financed Management Resilience building for possible branch expansion
or relocation. The LGU is the biggest depository client of the Bank with an Average Daily Balance of P1.2 Billion.

• After three years of credit relationship, the Bank received a letter from the City’s Finance Committee informing that the
City Mayor was proposing to transfer the loan to other Financial Institution via loan take out owing to the following
offer of the other Bank which the City Mayor deems it more favorable to the LGU:
1. Loan Amount Outstanding balance of the loan P450M
2. Interest rate 3% fixed for 5 years subject to annual re-pricing thereafter
3. Interest on Deposit 2.50% per Annum
4. Loan Security 20% of NTA
5. Loan Condition Transfer of the LGU’s deposit with other Banks
6. Pre-payment Penalty 5% of amount to be prepaid

• The Finance Committee invited the Account Manager and Handling Account Officer of the Bank for a meeting to
present to the Finance Committee Hearing the Bank’s position on the matter.

• If you are the Handling Account Officer of the City Government of Villaluz Espinar, what will be your position and/or
counter proposal. Support your recommendation with a Cost Benefit Analysis showing the LGU’s net gains or benefit if
the LGU considers your proposal/counter offer if any.