LEARNING

OBJECTIVES:

Define the functions, structure

and size of a commercial bank.

Analyze the wisdom behind the

trend toward deregulation and
how it is supervise.
 DEFINITION OF A BANK

A Bank is a Financial Institution

which accepts money from the public for
the purpose of lending or investment
repayable on demand or otherwise
withdrawable by cheques, drafts or order
or otherwise.
 A Commercial bank is a profit-based financial institution
that grants loans, accept deposits, and offers other financial
services, such as overdraft facilities and electronic transfer of
funds.

Commercial banks are of three types, which are as follows:

Public Sector Banks

Private Sector Banks
Foreign Banks
TYPES OF COMMERCIAL BANKS
PUBLIC SECTOR BANKS refer to a type of commercial
banks that are nationalized by the government of a country.

PRIVATE SECTOR BANKS refer to a kind of Commercial

banks in which major part of share capital is held by private
businesses and individuals.

FOREIGN BANKS refer to commercial banks that are

headquartered in a foreign country, but operate branches in
different countries.
T H E F UN C TI ONS OF C OM M E RCIAL BA N KS A RE BROA DLY
C LA SSI FIED I N TO P RI M A RY F UN C T IONS A N D SE C ON DARY
F UN C TI ONS, W H I C H A RE SH OW N I N F I G URE - 1 :
DIFFERENCE BET WEEN PRIMARY AND SECONDARY
FUNCTIONS OF COMMERCIAL BANKS

Primary Functions Secondary Functions

These are the main These are the secondary
activities of the bank activities of the bank
These are not the main
These are the main sources of income of the
sources of income of the banks
bank These are not obligatory on
These are obligatory on the part of bank to perform.
But generally all
the part of bank to commercial banks perform
perform theses activities.
 AC C E PTANCE OF
PRIMARY FUNCTIONS DE P OSI T S

GRANT OF LOANS AND

ADVANCES
 ACCEPTANCE OF DEPOSITS
Implies that commercial banks are mainly dependent on public
deposits.
There are two types of deposits, which are discussed as follows :
a. Demand Deposits- Refers to kind of deposits that can be easily
withdrawn by individuals without any prior notice to the bank.
b. Time Deposits- Refers to deposits that are for certain period of
time. These deposits can be withdrawn only after a specific
time period is completed by providing a written notice to the
bank.
 GRANT OF LOANS AND ADVANCES

Loans and Advances are given to members of

the public and to the business community at a higher
rate of interest than allowed by banks of various
deposit accounts. The rate of interest charged on
loans and advances varies depending upon the
purpose, period and the mode of repayment.
 SECONDARY FUNCTIONS

1. Agency Functions- Implies that commercial banks act as

agents of customers by performing various functions.

2. General Utility Functions

3. Other Functions- Includes creating money and electronic

banking.
 Agency Functions
C o l l e c t i n g C h e c ks
The bank collect checks and bills of exchange on the behalf of
their customers through clearing house facilities provided by the central
bank.

Collecting Income
Commercial banks collect dividends, pension, salaries, rents, and
i n t e r e s t s o n i n v e s t me n t s o n b e h a l f o f t h e i r c u s t o m e r s .

P a y i n g E x p e ns es
Implies that commercial banks make the payments of various
obligations of customers such as telephone bills, insurance premium,
school fees, and rents.
 General Utility Functions:

Providing locker facilities

Imlies that commercial banks provide locker facilities

to its customers for safe keeping of jewellry, shares,
debentures , and other valuable items.

Issuing Travelers checks

Implies that banks issue travelers checks to

individuals for travelling outside the country.
 General Utility Functions:

Dealing in Foreign Exchange

Implies that commercial banks help in providing

foreign exchange to businessmen dealing in exports and
imports.

Transferring Funds

Refers to transferring of funds from one bank to

another.
 Other Functions

Creating Money
Refers to one of the important functions of commercial
banks that help in increasing money supply.

E l e c t ro ni c B a n ki n g
Includes services such as debit cards, credit cards, and
Internet banking.
 T YPES OF BANK CREDIT
Bank Loan- B a nk l oa n m a y b e d ef i ned a s t he a m ou nt of m oney g r a nt ed
b y t he b a nk a t a s p ec if ied r a t e of i nt er est f or a f i x ed p er i od of t i m e.

Cash Credit- C a s h c r ed i t c a n b e d ef i ned a s a n a r r a ng ement m a d e b y t he

b a nk f or t he c l i ents t o w i t hd r aw c a s h ex c eedi ng t hei r a c c ount l i m i t .

Discounting of Bills- D i s c ou nti ng of b i l l i s a p r oc ess of s et t l ing t he b i l l

of ex c ha ng e b y t he b a nk a t a v a l u e l es s t ha n t he f a c e v a l u e b ef or e
m a t u ri ty d a t e.

Bank Overdraf t- B a nk ov er d r af t i s t he q u i c k est m ea ns of t he s hor t - ter m

f i na nci ng p r ov i d ed b y t he b a nk .
BANKING SUPERVISION
IN THE PHILIPPINES
NEW CENTRAL BANK ACT OF 1993

Authorized the Bangko Sentral ng Pilipinas

to exercise supervision over the operations of
banking institutions and quasi-banks including
their subsidiaries and affiliates engaged in allied
activities.
 GENERAL BANKING LAW OF 2000

The law generally governs the regulation,

organization and operation of banks, quasi-banks,
and other quasi-entities. It primarily governs
Universal Banks and Commercial Banks, and has
suppletory application to Thrift Banks, Rural Banks,
and Cooperative Banks.
 TRENDS IN BANKING
Technology Transformation

Midsize and larger banks are making large investments to

transform their businesses into digital service providers .

Resource Allocation

Resource allocation will shift to more disciplined and

quantitative assessments of market opportunities for growth .
 TRENDS IN BANKING

Global Banking

Companies will look for expertise to help them navigate an

increasingly complex environment with rapidly changing rules.

Foundations on Security

Increasingly sophisticated hacking and fraud schemes

force companies to manage their exposure by limiting the number
of financial services partners that have access to sensitive
information flows.
 TRENDS IN BANKING

Banking Competency

Highly skilled advisors that help clients through

uncertain times with complex solutions will become more
difficult to find and retain .