Banking Services & activities

1. Banking Services & activities Chapter 2 Main features of commercial and investment bankingDevelopment of financial service conglomeratesWidespread acceptance of Universal bankingMain types of banks engaged in Commercial banking activityProducts and services offered to personal and corporate banking customersNon interest based Islamic banking

2. Retail or Personal Banking Traditional banking vs Modern banking • Products and services • Income sources • Competitive environment • Strategic Focus • Customer Focus

3. Retail banking services • Payment Services – enable customers to make payments • Cheques • Credit Transfers • Standing orders • Direct debits • Plastic cards ( debit / credit) • Travellers cheques • Pension payment

4. Retail banking services • Deposit and Lending services • Current or checking accounts • Savings deposit • Time savings deposit • Mortgages / housing loans • facilities • Hire purchase • Foreign exchange

5. Retail banking services • Online banking services • Internet banking • Phone banking • e-money

6. Retail or Personal Banking • Financial services provided to consumers • Small scale in nature • Types of banks offer personal banking • Commercial banks • Savings banks • Co-operative banks • Building societies • Credit unions • Finance houses

7. Commercial Banks • Major financial intermediary in any economy • Main providers of credit to household & corporate • Owned by public (public listed) • Privately owned • Diversified deposit and lending products • Exp: Citibank, HSBC, Standard & Chartered

8. Known as Savings & Loans Associations Owned by members or shareholders who are depositors and borrowers Mainly financed by household deposits and lent retail mortgages Business is more diversified nowadays Objective to maximise shareholders wealth / profits Business focus on retail customers and small business Savings Banks

9. Co-operative banks Owned by cooperatives Mutual ownership Typically offers retail and small business banking services Recently co-operatives banks merge into big entity

10. Building societies Similar to savings and co-operatives banks Also known as building societies Mutual ownership Primary business retail deposit taking and mortgage lending Exp: UK Building society Association

11. Credit Unions Another type of mutual deposit institution Non profit institutions Owned by members Members deposits used to offer loans to the members Growing importance in US and Ireland

12. Finance houses Provide finance to individuals and companies Consumer, commercial loans They do not take deposits Raise funds thru money market and capital market Sometimes known as hire purchase firms

13. Private Banking Provide range of financial services to • Wealthy clients • Individuals & families • Products offered • Payment & account facilities • Market investment related services

14. Essence of Private Banking • Services to individual client requirements • Anticipation of client needs • Long term relationship orientation • Personal contact • discretion

15. Market for Private Banking Targeted by many large banks Growing wealth of individuals Profitability of private banking business Markets for high net worth individuals

16. Best Global Banks

17. Corporate Banking Banking services provided to companies Relatively to large firms Difference between business banking and corporate banking Corporate banking – services provided to large firms Business banking – services provided to small and large companies.

18. Banking services used by small Firms Payment services • Cash and cheque deposit facilities • Cheque writing facilities • Cheque and clearing company ltd. – process majority of cheques. • Banks automated clearing system – clearing electronic payments between banks • Process direct debit, direct credits and standing orders

19. Debt finance for small Firms • Asset based finance – Hire purchase and leasing • Factoring and invoice discounting – usually for immediate cash • Shareholders and partners – provide personal finance to the firm • Trade credit – credit given to firms by trading partners allowing to delay payment. • Venture capital – long term external equity provided by venture capital firms & provide expertise, experience & contacts to develop business. • Others – Various government grants for small business

20. Banking service for mid-market & large corporate clients Cash management & transaction services • Controlled reconciliation accounts – up to date of their net cash positions. • Account reconciliation services – record of firms cheques that have been paid by bank • Wholesale facilities – centralised collection service to reduce delay in cheque payments • Electronic funds transfer – payments to different countries. • Online corporate advisory and management services • Others – Various government grants for small business

21. Banking service for mid-market & large corporate clients Credit and other financing • Short term financing – overdraft, negotiate term loans, • Commercial paper - An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories and meeting short-term liabilities. • Euronotes -

22. Foreign exchange and interest rate services • Forward foreign exchange transactions – future payments • Currency futures – deliver of foreign currency at future date • Currency options – contract to exchange currency in future. • Interest rate options – lock pre-determined interest rate in future • Interest rate and currency swaps – currency swaps contract to exchange cash flows

23. Investment banking Investments bank subsidiaries of commercial banks Mainly deals with companies and large institutions Never deals with retail customers (except private banking) Function – help companies and governments raise funds in capital market i.e. stocks, debt - bonds etc Main business – issuing new debt and equity Providing advisory services on mergers and acquisitions Corporate restructuring

24. Investment banking • Financial advisory • Underwriting securities issues ( guaranteeing a price a new equity or bond issue wills ell for) • Trading and investing in securities on behalf of bank or clients • Asset management - managing wholesale investments • Other securities services – brokerage, financing services and securities lending.

25. Islamic banking • Non interest principles • Shariah law prohibits payment of riba ( interest) • Encourages entrepreneurial activities • Develop products and services that do not charge or pay interest. • Depositors earn return instead interest • Repay loans based on profits generated from the project.

26. Islamic banking • Non interest principles • Shariah law prohibits payment of riba ( interest) • Encourages entrepreneurial activities • Develop products and services that do not charge or pay interest. • Depositors earn return instead interest • Repay loans based on profits generated from the project.

27. Islamic banking PROFIT SHARING ARRAGEMENT IS KNOWN AS MUSHARAKAH Bai' al-Inah (Sale and Buy Back Agreement) Bai' Bithaman Ajil (Deferred Payment Sale) Bai muajjal (Credit Sale) Mudarabah (Profit Sharing) Murabahah (Cost Plus) Musawamah Bai salam Hibah (gift) Ijarah (lease./rent/wage) Qard Hassan ( Good loan) Sukuk ( Islamic bonds) Takaful ( Islamic insurance) Wadiah ( safekeeping) Wakalah (Agency)