First step - About Banking

Banking, so charming word, what does it mean in practice ?

Banking is the business of dealing in money and instruments of credit. Banks were traditionally differentiated from other financial institutions by theri principal functions of making loans and collecting deposits but their services and activities have diversified over the years. The banking environment has become really competitive and most banks offer a wide range of financial services, not just basic banking. Nowdays, they invest in stock markets, and provide counselling, deal with insurance and pension schemes etc.

Where do their profits stem from ?

In a variety of ways: they charge interest on loans, which has a higher rate than the interest they pay on deposits. The difference between these two rates is called interest spread. Besides, banks make investments, trade with securities, foreign currencies. In the course of this process they charge fees and commissions for transactions and other customer services.

Take a look at retail banking

Retail banking provides services for the general public and small-scale businesses. They collect deposits, handle deposit and current accounts, make mortgages, give term loans, offer overdraft facilities, operate cash dispensers, and night safe facilities, transfer money and exchange foreign currency. They also issue cash substitutes: credit cards, cheque book and traveller’s cheques.

The other form of banks is merchant or wholesale banks specialise in services for the corporate sector like large-scale enterprises and governments. Deals with factoring, leasing finance projects that have a promising recovery rate, assess the risk involved, rpovide venture and developement capital, provide corporate advisory services.

Savings Banks

They offer a safe playe for people to deposit small amount of money and earn interest on it. They do not normally have other banking services. Similarly, mutual savings bank are savings banks owned by depositors.

Savings and Loans Associations ( Thrifts [United States] )

They are financial organisations formed to lend money mainly int he form of mortgages for house or flat purchasing and building. Now they have interest bearing account.

Credit Union / Credit Societies

Similarly to Mutual Savings Banks, are owned and operated by their members and usually organised by a union or people living or working at the same place. They are non-profit, member service, depository institutions who make low interest loans. Some of them offer life insurance and chequebooks.

Investment Banks:

They are sternly profit-oriented commercial banks, who lend money and make investments, sell stocks and shares to members of the public. Also offer advice on mergers, takeovers, and have similar services to those of merchant banks.

Brokerage Houses:

They can buy or sell securities, currency, insurance, property and serve with investment advice.

Unit Trust, and Mutual Funds:

They are companies they collect money from small investors, called unit-holders, and invest in stocks and shares of many different companies. Investors recieve interests and dividends.


The major banking services:

- Credit facilities: consumer / personal loans, secured and unsecured loans
- Overdraft, mortgages
- Financing house purchase and improvement
- Payment services: issue credit cards, chequebooks, traveller’s cheques, set up standing orders, direct debits, remittance services, case to case transfers
- Current account, deposit account, savings accounts
- Regular account balance statement
- Insurance and endowment policy
- Cash withdrawal (POS), cash dispenser (ATM)
- Enquiry on account balance
- Collect deposits in domestic and foreign currency
- Manage existing portfolios
- Investment advice
- Mobilebank services – call centres
- Private banking
- Home banking
- Hire purchase
- Leasing
- Lease purchase
- Forfeiting
- Factoring
- Risk analysis
- Foreign currency transfers and exchange
- Pension fund
- Securities trading