BAISCS OF BANKING AND COMMERCIAL BANKING Baber Afridi Yasin Shakeri Akif Ali Mahwish Musharraf Hina Ilyas

INTRODUCTION A bank or a banker is a dealer in capital, or more properly a dealer in money. He is an intermediary party between the borrower and lender. (Gilbert) “A bank is a financial institution which acts as an intermediary that accepts deposits and invests them and put them in lending activities”.

FUNCTIONS OF A BANK Fundamental duties Advisory duties

TYPES OF RISK THAT BANK FACES Credit risk Liquidity risk Market risk Operational risk.

ECNOMIC BASED ACTIVITIES Bank also performs a number of economic based activities like credit intermediation credit quality improvement netting settlements of payments and others.

TYPES OF BANKS There are 2 broad types of banks. Retail banks Investment banks

T HE STATE BANK OF P AKISTAN Bank of Pakistan is the Central Bank of the country The State Bank of Pakistan Act 1956, with subsequent amendments, forms the basis of its operations today. State banks make regulations for the banks and under that umbrella the banks perform their duties.

T HE STATE BANK OF P AKISTAN The types of the regulations which are applicable to the corporate and commercial banks are: Risk Management (Denoted by R) Corporate Governance (Denoted by G) KYC & Anti Money Laundering (Denoted by M) Operations (Denoted by O)

COMMERCIAL BANKS A commercial bank is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits.

COMMERCIAL BANKS Commercial banks are an important type of banks and it is what people normally refer to as “bank”. Its basically called commercial so as to differentiate it from an investment bank. It works like an ordinary bank.

THE ROLE OF COMMERCIAL BANKS processing of payments by way of telegraphic transfer, internet banking, or other means issuing bank drafts and bank cheques accepting money on term deposit lending money by overdraft, installment loan, or other means providing documentary and standby letter of credit, guarantees, performance bonds, securities underwriting commitments and other forms of off balance sheet exposures safekeeping of documents and other items in safe deposit boxes

CONT cash management and treasury services merchant banking and private equity financing traditionally, large commercial banks also underwrite bonds, and make markets in currency, interest rates, and credit-related securities, but today large commercial banks usually have an investment bank arm that is involved in the mentioned activities.

TYPES OF LOANS ISSUED BY COMMERCIAL BANKS Secured loans Mortgage loans Unsecured loans

MAJOR SOURCES OF FUNDS FOR A BANK Bank needs deposits and funds to run its day to day operations, to make investments and to grant loans and other multiple purposes. The major sources of fund for a bank are: DEPOSIT ACCOUNT BORROWED FUNDS LONG TERM CAPITAL

DEPOSIT ACCOUNT It can be a current account, saving account or other type of a bank account that allows the money to be deposited and withdrawn by the accountholder. The transactions are recorded at the bank’s books and are recorded as a liability by the bank. Some of its major types are: Time deposits Saving deposits Transaction deposits

BORROWED FUNDS It’s a term for funds loaned to a bank by another bank usually on short term basis FED FUNDS EURODOLLAR BORROWING REPOS FEDERAL RESERVE BORROWING

LONG TERM CAPITAL Long term capital is used for the financing longer term assets. Long term capital borrowings include the financial instruments such as: BONDS BANK CAPITAL

THE PRUDENTIAL REGULATIONS OF THE STATE BANK OF PAKISTAN FOR CORPORATE AND COMMERCIAL BANKING State bank of Pakistan has provided a complete set of regulations under the head of prudential regulations that are specially meant for the corporate and commercial banking. mented. The four major categories of regulations are: Risk Management (Denoted by R) Corporate Governance (Denoted by G) KYC & Anti Money Laundering (Denoted by M) Operations (Denoted by O)