Banking Management

CHAPTER
An overview of Banks
and the Financial
01 Service Sector Peter S. Rose,
Sylvia C. Hudgins
 BANKING AND THE FINANCIAL SERVICES INDUSTRY

 A bank can be defined in terms of (1) the economic

function it performs (2) the services it offers to its
customers or (3) the legal basis for its existence.
Banks are involved in transferring funds from savers to
borrowers and paying for goods and services.

 A bank is any business offering deposits subject to

withdrawal on demand (such as by writing a cheque or
making an electronic transfer of funds) and making
loans of a commercial or business nature (such as by
granting credit to private businesses seeking to expand
the inventory of goods on their shelves or purchase
new equipment).
 MONEY-CENTER BANKS VS COMMUNITY BANKS

 Money-Center Banks: Money-center banks are giant

industry leaders, spanning whole regions, nations,
offering the widest possible menu of financial services,
and facing tough competition from other giant
financial firms around the globe.

 Community banks, on the other hand, are usually much

smaller and service local communities, towns, and
cities, offering a significantly narrower, but often more
personalized, menu of financial service to public. Few
in numbers but providing tough competition in local
areas they choose to serve.
 TYPES OF BANKS
 Central Bank
A central bank, reserve bank or monetary authority, is an
entity responsible for the monetary policy of its country or of
a group of member states, such as the European Central
Bank (ECB) in the European Union, the Federal Reserve
System in the United States of America, State Bank in
Pakistan. Its primary responsibility is to maintain the
stability of the national currency and money supply, but
more active duties include controlling subsidized-loan
interest rates, and acting as a "bailout" lender of last resort to
the banking sector during times of financial crisis (private
banks often being integral to the national financial system).
 TYPES OF BANKS
 Micro Finance Bank
For the purpose of poverty reduction program, such kind of
banks is working in the different countries with the
contribution of UNO or World Bank. In Pakistan 7 Micro
Finance Banks are providing services under the SBP
prudential regulation.
 Islamic Bank

Islamic banking refers to a system of banking or banking

activity that is consistent with Islamic law (Sharia) principles
and guided by Islamic economics. In particular, Islamic law
prohibits usury, the collection and payment of interest, also
commonly called riba in Islamic discourse.
 SPECIALIZED BANKS
 1. ZTBL The Zarai Taraqiati Bank Limited It is also known
as Agricultural Development Bank of Pakistan (ADBP).
It is the premier financial institution geared towards the development
of the agricultural sector through the provision of financial services and
technical know-how.
 2. IDBP

Industrial Development Bank of Pakistan is one of Pakistan's oldest

developments financing institution created with the primary objective
of extending term finance for investment in the manufacturing sector
and SME Sector of the economy.
 3. SME Bank

SME bank Ltd was established to exclusively cater to the needs of the
SME sector. It was created to address the needs of this niche market
with specialized financial products and services that will help stimulate
SME development and pro poor growth in the country.
 SCHDULED BANKS IN PAKISTAN
1. Al Baraka Bank (Pakistan) Limited. 18. JS Bank Limited.
2. Allied Bank Limited. 19. MCB Bank Limited.
3. Askari Bank Limited. 20. MCB Islamic Bank Limited.
4. Bank Alfalah Limited. 21. Meezan Bank Limited.
5. Bank Al-Habib Limited. 22. National Bank of Pakistan.
6. BankIslami Pakistan Limited. 23. S.M.E. Bank Limited.
7. Citi Bank N.A. 24. Samba Bank Limited.
8. Deutsche Bank A.G. 25. Silk Bank Limited.
9. The Bank of Tokyo-Mitsubishi UFJ 26. Sindh Bank Limited.
10. Dubai Islamic Bank Pakistan Limited. 27. Soneri Bank Limited.
11. Faysal Bank Limited. 28. Summit Bank Limited.
12. First Women Bank Limited. 29. The Bank of Khyber.
13. Habib Bank Limited. 30. The Bank of Punjab.
14. Standard Chartered Bank (Pakistan) 31. The Punjab Provincial Cooperative Bank
Limited. 32. United Bank Limited.
15. Habib Metropolitan Bank Limited. 33. Zarai Taraqiati Bank Limited.
16. Industrial and Commercial Bank of China 34. NIB Bank Limited. (Now merged with
17. Industrial Development Bank of Pakistan. MCB Bank on July 7th, 2017)
 Public Sector Schedule Banks  Private Banks
 National Bank of Pakistan  Askari Bank
 The Bank of Punjab  Allied Bank Limited
 MCB Bank Limited
 Sindh Bank
 Bank Alfalah
 Bank of Khyber
 Bank Al Habib
 First Women Bank  Faysal Bank
 Specialized Schedule banks
 HBL Pakistan
 Industrial Development Bank
 Habib Metropolitan Bank
 SME Bank
 JS Bank
 The Punjab Provincial Cooperative Bank
 NIB Bank
 Zarai Taraqiati Bank Limited
 Samba Bank Limited
 Foreign Banks
 Silkbank Limited
 Deutsche Bank AG
 Standard Chartered Pakistan
 Bank of Tokyo - Mitsubishi UFG
 Soneri Bank
 Citi Bank N.A
 Summit Bank
 Industrial and Commercial Bank of China
 United Bank Limited
 Standard Chartered Pakistan
 Bank of China[1]
 Samba Bank Limited
 Micro-finance Banks
 Khushhali Bank Limited
 NRSP Microfinance Bank
 Apna Microfinance Bank Ltd
 FINCA Microfinance Bank Limited
 Mobilink Microfinance Bank Limited
 Pak-Oman Microfinance Bank Ltd
 Telenor Microfinance Bank
Limited(TMFB)
 The First Microfinance Bank
Ltd(FMFB)
 Sindh MicroFinance Bank Ltd
(SMFB)
 U Microfinance Bank Limited
 Advans Pakistan Microfinance Bank
Limited
 Development Finance Institutions
 House Building Finance Company
Limited
 Pak Brunei investment Company
Limited
 Pak-China Investment Company
Limited
 PAIR Investment Company Limited
 Pakistan Kuwait Investment Company
Limited
 Pak Libya Holding Company Limited
 Pak Oman Investment Company
Limited
 Saudi Pak Industrial & Agricultural
Investment Company Limited
 FUNCTION OF BANKS

 Borrowing and lending of money with or without security.

 Dealing in bills of exchange, promissory notes

 Issue Term Finance TFCs, Musharika, Mudaraba Certificates

 Issue Letter of Credit, Traveler's cheque

 Dealing in foreign exchange transactions

 Underwriting and dealing in stocks

 Providing safe deposit vaults

 General utility services

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ROLE OF MODERN BANK

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 LEADING COMPETITORS WITH BANKS

 Saving associations

 Credit Unions

 Money Market funds

 Mutual funds

 Hedge Funds

 Investment banks

 Finance & Financial Holding companies

 Life & property/casualty insurance companies

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 SERVICES BANKS HAVE OFFERED
THROUGHOUT HISTORY
 Carrying out currency exchanges

 Discounting commercial notes and making business loans

 Offering savings deposits

 Safekeeping of valuables and certification of value

 Supporting government activities with credit

 Offering checking accounts

 Offering trust services

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 SERVICES BANKS HAVE OFFERED MORE
RECENTLY
 Granting consumer loans
 Financial advising
 Managing cash
 Offering equipment leasing
 Making venture capital loans
 Selling insurance policies and retirement plans
 Dealing in securities, investment banking services
 Offering mutual funds and annuities
 Offering merchant banking services
 Offering risk management and hedging services
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KEY TRENDS AFFECTING BANKING FIRMS
(BANKING REVOLUTION)
 Service proliferation

 Rising competition

 Government deregulation

 An increasing interest-sensitive mix of funds

 Technological change and automation (ATMs, POS, etc)

 Consolidation & Geographical expansion

 Convergence (Entering into new products)

 Globalization
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 ORIGIN OF THE WORD BANK
 Banking is the oldest of all financial-service profession.

 Bank word is derived from the words “Bancus” or “Banque” which means a
bench introduced by Jews of Lombardy. Bankrupt also evolved from there.

 Other says that “Bank” is derived from German word “Back” which means
“Joint Stock Fund” Act as a money changer, the merchant at the bancu did
not so much invest money as merely convert the foreign currency into the
legal tender in exchange of fee.

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 HISTORY OF BANKING

 Temples of Babylonians were used as Banks earlier in 2000 B.C.

 Aspects of Loans, interest, pledges, etc introduced by King

Hammurabi (1728 – 1686)

 Also in Greece, the temples of Epheusus and Delphi were biggest

banks of their time.

 The earliest known public bank is said to be Bank of Venice

established in 1157 AD.

 Modern banking originated in 14th Century in Barcelona.

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 MODERN BANKING
 Modern banking structure started in England by providing vault
and exchange services to merchants.

 Goldsmiths taken over the business from Royal exchangers of

England.

 Goldsmiths issue advances on high interest rate from reserves.

 Bank of England formed on 1695 by Goldsmith.

 First bank in America was formed in 1782. Earlier banks were

generally state monopolies due to lack of confidence of public.

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 MODERN BANKING
 The Banking system in U.S.A. has a unique feature of dual
banking which give right to both the state and the federal
government to charter commercial banks. According to this
system banks are classified into:

 Unit Banking, Branch Banking & Group Banking

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 BANKING IN PAKISTAN
 There were 487 offices of scheduled banks in Pakistan’s
territories at the time of independence.
 Reserve Bank of India and Indian notes operated till Sept 30,
1948 due to lack of resources in newly independent state.
 There were only two Pakistani banks till 1948, Habib Bank &
Australasia Banks in Pakistan
 Quaid-e-Azam M.A.J inaugurated the State Bank of Pakistan on
July 01, 1948 which assumed control of banking system in
Pakistan.
 The Pakistani notes were issued in Oct 1948 of Rs. 5, 10 & 100.
 NBP inaugurated in 1949 which take over imperial bank of India
in 1952.
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