Citizen act ang_basic_banking_knowledge

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Citizen act ang_basic_banking_knowledge

  1. 1. Pour personnaliser l’image: Supprimer le visuel existant Insertion / Image / À partir d’un fichier Disposer votre image en arrière plan Saisir la classification sur la page CITIZEN ACT - season 2011-2012 Basic Banking Knowledge CITIZEN ACT – SEASON 2011-2012
  2. 2. INTRODUCTION <ul><li>The word “bank” comes from the Italian word “banca” which referred to a wooden bench upon which the Middle-Age money-changers carried out their activity. Banks as we know them were developed in the 19th century. Merchant banks were created, aimed at financing businesses at the height of the industrialisation period: Société Générale was founded at this time. Only later did banks generalise the collection of dormant savings of the general public. </li></ul><ul><li>The objective of this training are To find out about the role, operation and obligations of banking establishments </li></ul>
  3. 3. CONTENTS <ul><li>What are banks for? </li></ul><ul><li>How does a bank operate? </li></ul><ul><li>Risk management </li></ul>CITIZEN ACT – SEASON 2011-2012
  4. 4. CHAPTER 01 <ul><li>What are banks for? </li></ul>CITIZEN ACT – SEASON 2011-2012
  5. 5. What are Banks for? <ul><li>Financing the economy </li></ul><ul><ul><li>Banks remunerate deposits from governments, households, businesses </li></ul></ul><ul><ul><li>They grant loans to finance projects and develop businesses The money deposited can be used by the banks to transfer to applicants in the form of credit. Credit is essential in the economy; Both granting and withdrawing credit have serious and immediate consequences on the life of a business. Credit encourages investment, growth of businesses and consumption in households. Therefore, banks are granted an important power: when banks grant loans with reduced rates, it has consequences on the economy (economic agents are more inclined to borrow). The opposite effect is also possible. Banks therefore have a real power over economic agents. Customers of the bank often find themselves both depositing and borrowing money at the same time or successively. </li></ul></ul><ul><li>They make payment methods available . These vary greatly, but the majority of these payment methods are the following; Transfer, direct debit, cheque, bank card. More than one third of transactions carried out in Europe in 2009 were made by card (37%). </li></ul><ul><ul><li>Therefore, banks have a role of intermediary ( link between shareholders and customers) </li></ul></ul><ul><ul><li>They participate in the growth of the economy </li></ul></ul>
  6. 6. What are Banks for? Households Businesses with a surplus cash flow Institutional investors: Insurances, pension funds, private health insurance, asset management bodies… Households Businesses in need of finance The government (financing its deficits) Banks themselves Banks are the link Those who have liquid assets Those who need liquid assets Guarantees the circulation of liquid assets
  7. 7. What are Banks for? Transforming deposits into loans The bank collects resources from its customers ( short term deposits ) It transforms these deposits into medium and long term loans Hence the need to respect the liquidity ratio , in order to be able to pay RISQ NB liquidity ratio = relation between liquid and mobilisable assets and short term commitments This ratio must always be above 100%.
  8. 8. CHAPTER 02 <ul><li>How does a bank operate? </li></ul>HOW DOES A BANK OPERATE ?
  9. 9. <ul><li>The bank makes a turnover (known as Net Banking Income) through: </li></ul><ul><ul><li>deposit margin (difference between the rate provided to a customer and the rate at which the bank can invest the funds on the money market) </li></ul></ul><ul><ul><li>credit margin (difference between the rate applied to a customer and the rate at which the bank can refinance on the market for the same duration) </li></ul></ul><ul><ul><li>bank commission (Sum collected by a bank in payment for a service provided to its customer) </li></ul></ul><ul><ul><li>financial commission (Sum received by the bank and associated with a financial product) </li></ul></ul>HOW DOES A BANK OPERATE ?
  10. 10. <ul><li>On the following slide, try to create a bank’s profit and loss account by placing the and defining the elements. </li></ul><ul><li>Preparation time 10’ </li></ul>Exercise HOW DOES A BANK OPERATE ?
  11. 11. Gross Operating Profit Operating Profit Place these elements and explain how they are calculated Charges Products = Net Banking Income (NBI) HOW DOES A BANK OPERATE ?
  12. 12. Interests paid Commission paid Other Overheads (salaries, depreciation, taxes, other) Gross Operating Profit Cost of risk Operating Profit Interest received Bank commission received Financial commission received Other Let’s discover a simplified profit and loss account Charges Products = Net Banking Income (NBI) NB: NBI= products-charges Gross Operating Profit= NBI– Overheads Operating profit= Gross operating profit – cost of risk Operating ratio = overheads/ NBI HOW DOES A BANK OPERATE ?
  13. 13. CHAPTER 03 <ul><li>Risk management </li></ul>RISK MANAGEMENT
  14. 14. Different types of risq must be managed into a financial institution. In the following slides, we will discover and define them. RISK MANAGEMENT
  15. 15. Exchange rate risk Interest rate risk Liquidity risk Counterpart risk Market risk Operational risk Risk of loss associated with the inability of a customer or a counterpart to meet their financial obligations Risk of loss associated with the volatile nature of financial instruments or currency rates Risk of loss resulting from an inadequacy or failure attributable to procedures, staff or internal systems, or to external occurrences <ul><ul><ul><li>Risk of loss associated with variations of exchange rates. </li></ul></ul></ul>Risk of the bank’s financial conditions being exposed to unfavourable interest rates Risk of inability to meet the commitment of repaying debts to their maturity or of paying off a debt liability (financing of the bank’s activity). RISK MANAGEMENT
  16. 16. <ul><li>Bank risks (1) </li></ul><ul><ul><li>Counterpart risk , specific to the banking activity </li></ul></ul><ul><ul><ul><li>Risk of loss associated with the inability of a customer or a counterpart to meet his financial obligations. It can for example, come into play when a company goes bankrupt or when an individual has a debt burden. </li></ul></ul></ul><ul><ul><li>Market Risk </li></ul></ul><ul><ul><ul><li>Risk of loss associated with the volatile nature of financial instruments or currency rates. Tus, any change in share rates, the price of raw materials, or rates, has an impact on market positions and portfolios. </li></ul></ul></ul>RISK MANAGEMENT
  17. 17. <ul><li>Bank risks (2) </li></ul><ul><ul><li>Operational risk </li></ul></ul><ul><li>It is inherent in all of the Group’s products, activities, procedures and systems. The ethical aspects, computer security and anti-money laundering struggle are linked to it. It concerns everybody, regardless of their position and responsibilities . It is a strategic stake. </li></ul><ul><ul><ul><li>It is the risk of loss resulting from an inadequacy or failure attributable to procedures, staff or internal systems, or to external occurrences , including events that are unlikely to occur, but that have a high risk of loss. </li></ul></ul></ul><ul><ul><ul><ul><li>-The definition of operational risk provided by the SG Group excludes the strategic risk but includes reputational risk. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>-Non-compliance risk is also included in the definition of operational risk. </li></ul></ul></ul></ul><ul><ul><ul><li>It can damage the bank’s image. </li></ul></ul></ul><ul><ul><ul><li>Examples of OR: OR caused by employees (fraud, damages, sabotage,…), the internal management procedure (operational risk, liquidity risk,…), the system (risks linked to technological investment, violation,…) and by external events (legal aspects, natural disasters,…) </li></ul></ul></ul>RISK MANAGEMENT
  18. 18. <ul><li>Bank risks (3) </li></ul><ul><li>The exchange rate risk </li></ul><ul><li>Exchange rate fluctuations can directly influence the purchasing and sale price, and therefore the margin. If the bank has claims and debts in currency, it leads to gains or losses in the event of variations in the rates of the currency. </li></ul><ul><li>The interest rate risk </li></ul><ul><li>Risk of the bank’s financial conditions being exposed to unfavourable interest rates. If a bank’s long term fixed-rate loans are partially financed by resources with a floating rate, it risks seeing the rate of the resources reaching or exceeding the rate of the loans if there is a rise in the money market rates. That would damage its profitability. </li></ul><ul><li>The liquidity risk </li></ul><ul><li>Risk of inability to meet the commitment of repaying debts to their maturity or of paying off a debt liability (financing of the bank’s activity). Banks mainly receive short term deposits from their customers, and give medium and long term loans. Therefore a gap can grow between the amount lent and the amount available (deposits), with the latter possibly being insufficient. This is known as a lack of liquid assets. </li></ul>RISK MANAGEMENT
  19. 19. <ul><li>A strategic stake for banks </li></ul><ul><ul><li>The bank must continuously assess risks and act cautiously. The Banker must analyse the potential risk of each application and find the right balance between expansion, sales and caution. </li></ul></ul><ul><ul><li>Covering risks means safeguarding the long-term survival of the system by guaranteeing a sufficient level of shareholders’ equity and by an effective risk management policy. </li></ul></ul><ul><ul><li>It is a regulatory requirement and is necessary to improve the efficiency and profitability of the bank . (less risky bank =>increase in investors’ trust =>increasing NBI) </li></ul></ul>RISK MANAGEMENT

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