Commercial Banking

Business Finance II

Presented by: Abdul Hameed Baloch Mahad Mohamod 

 Definition of Commercial Banking  Objectives of Commercial Banks  Mission Statements of Commercial Banks  Functions of Commercial Banks  Modes of Short-term Financial Assistance  Modes of Deposit  Forms of lending money  Types of Credit Facilitates  Merchandize Loan

 Categories  Regulation

of Commercial Banks in Pakistan of Commercial Banks

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Financial System

BANK

Any Institution that hold license from regulatory authority providing privilege of operations

Services of Bank 

Deposits



Providing loans

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Enchasing the Cheques

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Facilitating Money Transactions such as wire transfers and cashier checks (Inter bank, intra Bank, Inter/ Intra country)

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Issuing Credit Cards and ATM Cards

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Storing valuables in the safe Deposit box

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Paying utility bills

Commercial Bank

It is a financial institution that borrow (Deposits) and lends (Loans) Money



Maintain higher profitability by maintaining from customers and the lenders.

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Contribute to the economic cycle.

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Lend money to the economic agents..

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To have a diversified and satisfied customer base.

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To serve the market through innovative banking solutions.

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To offer high rate of return to shareholders.

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To create a good work environment for employees.

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To operate ethically and maintain transparency in operations

 Primary functions  Secondary functions

 Accepting

deposits

 Loans  Advances

Granting of Loans and Advances



Providing customers with facilities of foreign exchange.

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Issuing letters of credit, traveler’s cheques and circular notes etc.

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Undertaking safe of valuables, and providing safe deposit vaults or lockers.

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Transferring money from one place to another

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Collecting and supplying business information.

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Issuing demand drafts and pay orders;

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Providing reports on the credit worthiness of customers.

 Current deposit  Saving deposit  Fixed deposit  Recurring deposit  Miscellaneous deposits



Loans



Bank overdraft

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Discounting of Bills

Supplement Function

1. Agency services

2. General utility services.

Agency Services Agency services are those services which are rendered by commercial banks as agents of their customers. They include: 

Collection and payment of cash



Collection of dividends and interest

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Purchase and sell of securities and shares

General Utilities General utility services are those services which are rendered by Commercial banks not only to the customers but also to the general Public. Those include: 

Underwriting of shares, debentures, etc.

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Safe-keeping of valuables in safe deposit locker

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Supplying trade information and statistical data useful to customers

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Undertaking foreign exchange business.

Credit creation Credit creation is the multiple expansions of banks demand deposits Formula m=1/r M= money multiplier R= reserve Ratio

The Commercial Bank extends various types of loans and advances to the following business sectors:  Domestic trade  Import and export trade  Agriculture  Hotels and tourism  Manufacturing

 Manufacturing  Construction  Transport  Services (education, health, etc), and  Others.

 Commercial

Bank offers the following credit

products:  Cash credit  Term Loan ▪ Short-term loan ▪ Medium- and long-term loans (Project Loan)  Overdraft  Merchandise loan  Agricultural loan.  

 A cash credit is an arrangement whereby

the bank agrees to lend money to the borrower up to a certain limit.

 Interest is charged only on the amount

actually drawn and not on the amount placed to the credit of borrower’s account.

 A term loan is a loan granted to

customers to be repaid with interest within a specific period of time.  The loan can be repaid in periodic installments or in a lump sum on the due date of the loan, as the case may be.  This loan is granted in three forms, i.e., short-term, medium-term and long-term loan.

 An overdraft (OD) is a credit facility by which a

customer can withdraw in excess of her/his/its current account balance up to the limit approved by the Bank.  The purpose of loan is to finance the day-to-day operational needs of a viable business.    An Overdraft facility is approved only for a period of six months and, in some cases, for a year. \

 Is

a credit facility provided by the Bank against which the merchandise is held as collateral for the loan?  The purpose of the loan is to overcome the

cash-flow problem of customers when money is tied up in merchandise.  The loan is approved for a period of three months (90 days) or it may be approved on a renewal basis. 

 This is a merchandise loan which will be granted for a    

specified short period of time This type of merchandise loan has a limit that is renewable every six months. Customers have to forward their renewal request in writing two months before the expiry date. In this type of loan, customers' account is credited when he/she stores the merchandise. Merchandise is released upon the request of the borrower.  

 Eligibility:  Any individuals, enterprises and associations

involved in the agricultural sector can apply for this loan.  For investment-related agricultural loans, customers have to submit: ▪ ▪ ▪ ▪

Land-holding certificate Investment license Project feasibility study Equity contribution.

 The loan may be repaid monthly,

quarterly, semi-annually or annually.  The Bank provides a grace period for

investment-related agricultural loans.