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Introduction To Commercial Banking

This document provides an introduction to commercial banks and banking systems. It defines commercial banks as key financial intermediaries that accept deposits from surplus units and provide loans to deficit units. It also outlines the main functions of banks, including obtaining funds through various deposit and borrowing products and distributing those funds through loans, investments, and other activities. Finally, it notes that banks engage in traditional lending as well as off-balance sheet activities like loan commitments and various derivative contracts.

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Doãn Vy
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131 views16 pages

Introduction To Commercial Banking

This document provides an introduction to commercial banks and banking systems. It defines commercial banks as key financial intermediaries that accept deposits from surplus units and provide loans to deficit units. It also outlines the main functions of banks, including obtaining funds through various deposit and borrowing products and distributing those funds through loans, investments, and other activities. Finally, it notes that banks engage in traditional lending as well as off-balance sheet activities like loan commitments and various derivative contracts.

Uploaded by

Doãn Vy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Introduction to Commercial Bank

and Banking system

1
 Full name: DƯƠNG TẤN KHOA
 Mobile phone: 0909243600
 Email: tankhoa@ueh.edu.vn

 Qualifications:
• Master of Commerce – Finance
(Honours) – The University of
Melbourne
• Bachelor of Banking (Honours) –
The University of Economics Ho
Chi Minh city
 Current Postion:
• Vice Dean – School of Banking –
University of Economics Ho Chi
Minh City
• Manager – Investment Banking
Program - UEH
Chapter Content

1. Financial Intermediaries
2. What is a commercial bank
3. What do banks do?
4. Banking system

3
Financial Intermediaries

 A financial intermediary is an institution that acts


as the middleman between two parties in a
financial transaction, such as:
– Commercial banks
– Investment banks
– Mutual funds and pension funds
– ….

4
Financial Intermediaries (cont.)

 Financial intermediaries offer a number of


benefits to the average consumer and the
economy, including safety, liquidity, and
economies of scale

5
Types of Financial intermediary

1. Depository Financial Institution:


• Commercial banks
• Credit Unions…
2. Non – Depository Financial Institution:
• Investment banks
• Securities firms
• Funds
• Insurance companies

6
Depository Financial Institutions

 A Financial institution that obtains its funds


mainly through deposits from the public. This
includes commercial banks and credit unions.
 In Vietnam, depository financial institutions also
include:
– Finance companies
– Leasing companies
– And micro finance companies
– But these FI can only obtain deposits through
7 institution clients.
Non-Depository Financial Institutions

 Institutions that act as intermediary between


savers and borrowers, but does not accept time
deposits.
 Such institutions fund their lending activities
either by selling securities (bonds, notes,
stock/shares) or insurance policies to the public.
 These includes: Investment banks, Mutual
funds, Hedge funds, Securities firms, Insurance
companies
8
Non-Depository Financial Institutions

 Investment banks:
– Underwriting. Ex: IPO, SEO
– Advisory services: Mergers and Acquisitions (M&A),
restructuring, researching,…
– Wealth management
 Securities firms: Brokerage services
 Mutual funds, Hedge funds: investment
products
 Insurance companies: insurance products (life
9
and non-life insurance products)
What is a commercial bank

 Commercial banks represent a key financial


intermediary because they serve all types of
surplus and deficit units.
 They offer deposit accounts with the size and
maturity characteristics desired by surplus units.
 They repackage the funds received from
deposits to provide loans of the size and
maturity desired by deficit units.
10
What is a commercial bank (cont.)

 Why bank, but not depositors, can make loan to


deficit units?
– They have the ability to assess the creditworthiness
of deficit units that apply for loans
– So they can limit their exposure to credit (default) risk
on the loans they provide.

11
What do banks do?
Bank sources of funds

 Deposit Accounts
– Different types of deposit products to obtain funds s
 Borrowed Funds
– Borrowing from interbank market
– Borrowing from the Central bank (Ex: The State Bank
of Vietnam)
– Repurchase agreements
 Long-Term Sources of Funds
– Bonds issued by the bank
12
– Bank capital (issuing shares to public)
Distribution of Bank Sources of Funds

 Cash
 Bank loans
 Investment in securities
 Repurchase agreements
 Fixed assets
 Proprietary trading

13
Off-Balances sheet activities

 Banks commonly engage in off–balance sheet


activities, which generate fee income without
requiring an investment of funds.
 However, these activities do create a contingent
obligation for banks.
– Contingent Obligation: Also known as contingent
liability.
– An obligation that is not presently fixed and absolute,
but which will become so on the happening of some
14 future and uncertain event.
Off-Balances sheet activities

 The following are some of the more popular off–


balance sheet activities:
– Loan commitments
– Standby letters of credit
– Forward contracts on currencies
– Interest rate swap contracts
– Credit default swap contracts

15
Vietnamese Banking systems

16

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