Tuesday, October 9, 2012

Functions of Commercial Banks



  • Acceptance of money on deposit (current deposit, savings deposit and time deposit) from the public.
  • Grant of credit to all sectors of the economy (loans and advances, discounting of bills, and investment in open-market securities).
  • Collection of checks, draft, bills, and other instruments for their depositors and customers.
  • Issue of performance and financial guarantees.
  • Provision of remittance facilities by issue of drafts, Electronic Money Transfer, Telephonic Transfer.
  • Provision of facilities of safe custody of deeds and securities and safe deposit volts.
  • Purchase and sale of securities for their constituents.
  • Granting consumer loans.
  • Providing financial advisory services (helping to prepare financial plans for individuals, consulting about marketing opportunities at home and abroad).
  • Offering equipment leasing (the bank buys the equipment and rents it to the customer).
  • Making venture capital loans (financing the start-up costs of new companies, particularly in high-tech industries, generally done through a subsidiary company of a bank).
It should be noted that most banks offering a wide array of financial services today, the bankers’ service menu is growing rapidly. Now, commercial banks arc considered as ‘financial super markets for the economy and assist to explore new business opportunity.

Equity Characteristics



Ordinary shareholders have the following characteristics:
  • Are the owner of the business.
  • They have limited liability regarding their business.
  • They hold an equity interest and residual claim on cash flows of their business.
  • They have voting rights to elect business agent to run their business.
Preferred shareholders have the following characteristics:
  • Shares that make take priority over ordinary shares in regards to individual shares on common shareholders.
  • They have right to get specified dividends.
  • They have characteristic of both fixed dividends and equity dividends.
  • They have no voting privileges to elect business agent to run their business.