chapter 3 : commercial bank


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chapter 3 : commercial bank

  1. 1. SNURAZANI/PB303/JUN 2012
  2. 2. DEFINITION Under the Banking and Financial Institutions Act (BAFIA) 1989, a “bank’ is defined as “a person which carries on banking business” SNURAZANI/PB303/JUN 2012
  3. 3. DEFINITION “Banking business” in turn is defined as: “ the business of: (i) receiving deposits on current account, deposit account, savings account or other similar account; (ii) paying or collecting cheques drawn by or paid in by customers; and (iii) provision of finance; or such other business as the Central Bank, with the approval from the Minister of Finance, may prescribe” SNURAZANI/PB303/JUN 2012
  4. 4. DEFINITION The “provision of finance” under BAFIA includes: • the lending of money • leasing business • factoring business • the purchase of bills of exchange, promissory notes, certificates of deposits, debentures or other negotiable instruments and • the acceptance of any liability, obligation or duty of any person. SNURAZANI/PB303/JUN 2012
  5. 5. ROLES AND RESPONSIBILITIES To actively promote and inculcate the saving habits, especially among the younger generation. It is also an important strategy to fight unnecessary inflationary pressures on the economy of the country. Commercial banks should also make their interest rates reasonable enough to make it worthwhile for the average people to save for the financial well-being of the populace in the country. Services and facilities that have been offered by the commercial banks should be readily available at reasonable costs. SNURAZANI/PB303/JUN 2012
  6. 6. ROLES AND RESPONSIBILITIES Banks should educate the users on making the most out of the services and facilities by giving simple pep talks and publishing pamphlets and brochures, clarifying on the procedure and advantages of the various types of services and facilities available. As the financial intermediaries between the depositors and borrowers, banks have to ensure that such funds lent out are for productive and economically viable purposes and activities for the betterment of the country as a whole. SNURAZANI/PB303/JUN 2012
  7. 7. FUNCTION OF COMMERCIAL BANK Retail banking services such as acceptance of deposits, granting of loans and advances and financial guarantees Trade financing facilities such as letters of credit, discounting of trade bills, shipping guarantees, trust receipt and Banker’s Acceptances (BA) Treasury services such as foreign exchanges business, money market, investment and etc. Cross border payment services such as money transfer service, international payment facilities Custody services such as safe deposits and share custody SNURAZANI/PB303/JUN 2012
  8. 8. Commercial banks are also authorized to deal in foreign exchange i.e. to buy, sell, borrow and lend in foreign currencies and are also the only financial institutions allowed to provide current account facilities. SNURAZANI/PB303/JUN 2012
  9. 9. Sources and Uses of Fund Sources •Capital and reserves •Debentures and notes •Deposits of which: NIDs issued Repos •Amount due to financial institutions and BNM •Bankers acceptances Uses •Cash1 and reserves with BNM •Amount due from financial institutions and BNM •Placement with discount houses •Marketable securities of which: Treasury bills MGS NIDs held Cagamas bonds •Investments •Loans2 of which: Trade bills SNURAZANI/PB303/JUN 2012
  10. 10. CREDIT DIRECTION Manufacturing Real estate Construction Purchase of residential properties and building Consumption credit Purchase of transport vehicle Purchase of securities SNURAZANI/PB303/JUN 2012 General commerce Wholesale Retail Hotel & restaurants Finance, insurance & business services Agriculture, hunting, forestry & fishing Mining & quarrying Electricity, gas & water Transport, storage & communications Trade Bill
  11. 11. STATUTORY REQUIREMENTS AND BANK’S LIQUIDITY The statutory reserve and liquid asset ratios are two major tools for monetary management in Malaysia. These instruments have enabled the Central Bank to control the volume of liquidity in the banking system and, hence, credit creation in the economy. SNURAZANI/PB303/JUN 2012
  12. 12. STATUTORY REQUIREMENTS AND BANK’S LIQUIDITY •DECREASE in SRR would raise the volume of resources available to the commercial banks for granting new credit. •INCREASE in SRR will make resources available reduce and directly limit the lending capacity of commercial banks. •INCREASING the MLR ratio will: √ reduce the level of reserves available to the banking institutions. √ decrease the lending ability of the banking institutions •DECREASING the MLR ratio will: √ increase the level of reserves available to the banking institutions. √ increase the lending ability of the banking institutions. SNURAZANI/PB303/JUN 2012
  13. 13. Hong Leong Bank Berhad CIMB Bank Berhad Affin Bank Berhad Public Bank Berhad Alliance Bank Malaysia Berhad Local Commercial Banks RHB Bank Berhad AmBank (M) Berhad SNURAZANI/PB303/JUN 2012 Malayan Banking Berhad
  14. 14. United Overseas Bank (Malaysia) Bhd. National Bank of Abu Dhabi Malaysia Berhad HSBC Bank Malaysia Berhad Bangkok Bank Berhad J.P. Morgan Chase Bank Berhad Foreign Commercial Banks Standard Chartered Bank Malaysia Berhad OCBC Bank (Malaysia) Berhad Citibank Berhad SNURAZANI/PB303/JUN 2012 The Bank of Nova Scotia Berhad Mizuho Corporate Bank (Malaysia) Berhad
  16. 16. DEPOSITS: a. Current account b. Savings account c. Fixed account deposit ADVANCE AND LOANS: a. Overdraft b. External cheque purchase c. Fixed and term loans STATUS: a. Credit cards b. Banker’s guarantee c. Trust receipts d. Enquiry status e. Travellers’ cheques MONEY REMITTANCES: a. Demand draft b. Telegraphic transfer c. Mail transfer d. Standing instructions. OTHER SERVICES: a. Share trading b. Insurance c. Unit trust d. Will writing SNURAZANI/PB303/JUN 2012
  18. 18. DEPOSITS     Saving Current Fixed Negotiable Certificates of Deposit (NCDs) SNURAZANI/PB303/JUN 2012
  19. 19. DEPOSITS SAVING ACCOUNT  A deposit account where the account holder periodically and regularly places a certain amount of money as saving for his future requirements.  A saving account may be maintained for various reasons:  To meet a certain expenditure  Investment  Save for a rainy date  Interest is accrued on daily basis and generally payable every 6-month in June and December each year. SNURAZANI/PB303/JUN 2012
  20. 20. SAVING ACCOUNT DEPOSITS • Advantages of a Savings Account – Most basic account – Simple Procedures - Photostat IC front and back and be present at the bank – Low initial deposit to open an account (Some banks as low as RM 20) • Disadvantages of a Savings Account – Low returns - Negligible – Troublesome to withdraw money (ATM machine or lineup at counters) – If choose to have ATM service for Savings Account, RM 8 annual fees SNURAZANI/PB303/JUN 2012
  21. 21. SAVING ACCOUNT DEPOSITS • Example: CIMB – Eligibility: • Individuals aged 18 years and above who are either residents or non-residents. • Joint account is allowed. – Requirements: • Minimum opening deposit of RM20.NRIC or passport. • A copy of utility bill for verification of address. SNURAZANI/PB303/JUN 2012
  22. 22. SAVING ACCOUNT DEPOSITS • Some of the common transactions you can perform as an account holder are: • Withdraw money, either over the counter or from ATMs • Deposit money, either over the counter or through machine such as – – – – – – – Cash Deposit Machines (CDM) Make account enquiries Transfer funds within the same banking institution Bill payments Inter-bank transfers (GIRO) Online banking Topup (Touch & Go) and etc SNURAZANI/PB303/JUN 2012
  23. 23. DEPOSITS CURRENT ACCOUNT • A form of working account and is operated through the used of cheques. • When a current account is opened, the customer is regularly issued with a cheuqe book, containing a certain amount of cheque leaves. – If you have high payment volumes every month, an account that comes with a chequebook will make things a lot easier. – Just write a cheque for each transaction you need to make and send them off. Some current accounts even pay interest or hibah (profit) if you maintain a balance, so they are as good as savings accounts. – This means you only need one account instead of multiple ones. An overdraft facility can also be added to your current account if you need additional funds. SNURAZANI/PB303/JUN 2012
  24. 24. DEPOSITS CURRENT ACCOUNT • Different banks have different criteria for opening a current account. Generally, banks would only consider the application if the applicant is: – 18 years old or above – not a bankrupt – of sound mind and has the mental and physical capacity to operate the account properly • For business owners and professional entities, they must ensure that they are properly registered with the relevant authorities. • However, a bank has the discretion to accept or decline an application to open the account. SNURAZANI/PB303/JUN 2012
  25. 25. DEPOSITS CURRENT ACCOUNT • A cheque is an instrument in writing issued by the customer to his banker to pay out a certain sum of money against the available balance standing to the credit of his account. – If balance insufficient, the banker may return the cheque with the answer REFER TO DRAWER. – Banker may offer the customer to do overdraft. • In the case of stop payment, customer may writing to the banker to not to pay the cheque and then the cheque will be return with the answer PAYMENT STOPPED or PAYMENT SNURAZANI/PB303/JUN 2012 COUNTERMANDED.
  26. 26. DEPOSITS FIXED ACCOUNT • Is the form of investment or deposit account where a certain sum of money is placed with a bank for a fixed period of time to earn interest. • The interest rate is higher compare to saving accounts. • Interest is normally paid on the maturity date. • Protected from interest rate fluctuations • An amount may be placed on fixed deposit for 1, 3, 6, 9, 12, 15, 18, 24, 36, 48 and 60 months to earn interest at a fixed rate. • In the case of fixed deposits for various periods from 1 month to 12 months, banks may quote appropriate interest rates. The respective interest rates quoted by an individual bank however, are required to be prominently displayed in a special display board within2012 bank premises. SNURAZANI/PB303/JUN
  27. 27. DEPOSITS FIXED ACCOUNT • The rates for fixed deposits for periods exceeding 12 months are negotiable. • Banks are not required to display, publish or announce the interest rates on deposits for more than 12 months. • - As compared to a savings account, generally the interest rate payable on a fixed deposit account is higher. • According to the Rules of the Association of Banks in Malaysia (ABM) – no interest will be paid on one month fixed deposit which is uplifted before maturity. SNURAZANI/PB303/JUN 2012
  28. 28. REMITTANCE Demand Draft  Telegraphic Transfer  Mail Transfer  Standing Instruction SNURAZANI/PB303/JUN 2012
  29. 29. REMITTANCE DEMAND DRAFT •It is a payment order in writing issued by an issuing bank to a payee bank to pay on demand the sum stated in the draft and to the order of the person specified on the draft. •A local draft in Malaysia is drawn in Malaysian Ringgit. •A foreign draft is usually drawn in a foreign currency on an overseas branch or foreign correspondent bank. •Example: You are based in Johor, your son is studying in KL. You need to remit him of RM2000. You may purchase demand draft from your bank and remit it to your son. Your son should be able to receive the payment from the drawee bank upon the presentation of demand draft. SNURAZANI/PB303/JUN 2012
  30. 30. REMITTANCE DEMAND DRAFT A Demand Draft or bank draft is a cheque drawn by a bank on its Head Office, on a branch or on another bank for payment outside the local area, either domestically or abroad. Features and Benefits: •Transferring funds within and outside the country. •If funds are to be sent abroad, the draft is drawn on a bank in a foreign country in the appropriate currency. •Demand Draft is paid for by the customer at the time of issue. The customer sends the draft to the payee who presents it at the drawee bank for payment. •Types of Demand Draft:Local Demand Draft (RM). •Foreign Demand Draft (foreign currency). SNURAZANI/PB303/JUN 2012
  31. 31. TELEGRAPHIC TRANSFER REMITTANCE •Wire your money in a safe and quick mode of transfer to anyone and anywhere around the world. •Also known as “telephonic transfer” •Where the beneficiary requires the money urgently, it is possible to request the bank to effect the payment by using this instrument. •The remitting bank will instruct its correspondent bank (branch) to make the payment. •It make the couple of days to be transferred. •Based in overseas: within 5 days •Based on local: within same day SNURAZANI/PB303/JUN 2012
  32. 32. STEP 1 REMITER IN MALAYSIA Notifies beneficiary of the remittance Completes application to request his bank to remit the required payment REMITTING BANK IN MALAYSIA STEP 2 Instruct by telex, telephone or SWIFT to settle payment STEP 3 BENEFICIARY IN SYDNEY Notifies beneficiary of the remittance and to collect payment STEP 4 SNURAZANI/PB303/JUN 2012 BRANCH/CORRESPONDEN T BANK IN SYDNEY
  33. 33. REMITTANCE MAIL TRANSFER • Similar to TT, but transaction is done by mail. • When you are too busy, you may request the bank to remit the payment on your behalf. – You have to fill in the full name, address and telephone number of the beneficiary. – The bank will write to its correspondent bank/ branch to make the payment SNURAZANI/PB303/JUN 2012
  34. 34. STEP 1 CUSTOMER REMITTER Applies to the bank, furnishing the relevant details REMITTING BANK STEP 2 Notifies beneficiary of the remittance Writes with the necessary details and authorises to pay the beneficiary STEP 3 BENEFICIARY Contacts the beneficiary to collect payment STEP 4 SNURAZANI/PB303/JUN 2012 BRANCH/ CORRESPONDENT BANK
  35. 35. REMITTANCE STANDING INSTRUCTION • Also known as Standing Order • Appropriate when a person has to make periodic payment i.e insurance premium, monthly installment of car/house and so on. • It is possible for the periodically payment to be made by the issuing standing order from the bank . SNURAZANI/PB303/JUN 2012
  36. 36. STATUS  Credit Cards  Bankers Guarantee  Trust Receipt  Status Enquiry  Travellers’ Cheques SNURAZANI/PB303/JUN 2012
  37. 37. STATUS CREDIT CARDS  Master and Visa are two key players for credit cards. Most credit cards are issued by commercial banks. Credit cards are issued after an account has been approved by the credit provider.  If the cardholder uses the credit card for purchases goods or services from merchant, the transaction process overview is illustrated as follows: i) The merchant will submit the ticket electronically to the bank for payment, via the clearing and settlement systems; ii) The bank credits the merchant for deposits; iii) The bank issues bills to the cardholder; and iv) The cardholder repays the bank for the goods or services originally purchased from the merchant.  Apart from the above, the cardholder can also take cash advance from the car. SNURAZANI/PB303/JUN 2012
  38. 38. STATUS CREDIT CARDS  A credit card enables its holder to buy goods and services with a credit line given by credit card issuer and the amount will be settled at a later date.  Cardholders are billed on a monthly basis and cardholders would have to bear finance charges (interest) on the outstanding amount if full payment is not made by the due date. For a hefty fee, a credit card can also be used for cash advances at Automated Teller Machines (ATMs) and at respective credit card issuers' counters.  The government is imposing a service tax of RM 50 for each principal credit card and RM 25 for each supplementary card. ans. SNURAZANI/PB303/JUN 2012
  39. 39. STATUS BANKER GUARANTEE  A banker’s acceptance (commonly referred to as BA) is a usance bill of exchange drawn by the customer in Ringgit to finance an underlying genuine trade transaction that is accepted by his banker and payable on a specified future date.  BA can be used for domestic trade i.e. financing the buyer or seller of goods or import and export businesses. In its basic form, BA financing involves three basic steps: a. The customer draws a bill of exchange on a bank b. The bank accepts the bill of exchange. c. The bank, at the request of the customer, discounts the accepted bill, thereby advancing the discounted proceeds to the customer. SNURAZANI/PB303/JUN 2012
  40. 40. BANKER GUARANTEE STATUS  SALIENT FEATURES OF BA’S  The following are the salient features of BAs: a. It is payable in Ringgit to the order of the drawer; b. The tenor is at least 30 days but not later than 200 days from the date of acceptance; c. The minimum amount is RM30,000.00; d. The facility is available for the purpose of financing a genuine commercial or trade and certain service transactions; e. In order to facilitate financing of smaller trade transactions, the grouping of two or more trade transactions is permissible, i.e. bunching is allowed; f. Extending or creating a new BA to retire an old BA is prohibited; g. It is payable at the head office of a bank or investment bank in Kuala Lumpur h. It is enfaced with a statement that is drawn to finance the purchase/sales of goods, import as well as export of goods. BNM issued a BA guidelines to describe the detailed procedure on financing under BA. For more details, check SNURAZANI/PB303/JUN 2012
  42. 42. TRUST RECEIPT STATUS  Trust receipts (commonly referred to as TRs) are granted by a bank to finance domestic trade or the import of goods on behalf of the customer.  A trust receipt is a document executed by a customer, whereby he undertakes to: a. Take possession of the goods and hold it in trust for the bank, b. Account for the goods at all times, and c. Sell the goods and apply the proceeds thereof to settle the TR outstanding amount plus interest to the bank, normally within a specified period, e.g. 60, 90 or 120 days. SNURAZANI/PB303/JUN 2012
  43. 43. STATUS STATUS ENQUIRY Is the request for a banker's opinion or report, particularly regarding the financial standing of customers. Its provided by banks to their customers SNURAZANI/PB303/JUN 2012
  44. 44. STATUS TRAVELER”S CHEQUEU  Traveler’s cheques are cheque issued by financial institutions such as American Express, Thomas Cook, Barclay Bank etc. to facilitate travel arrangements.  They are issued in various currencies, likes US dollars, sterling pound, Japanese Yen, Hong Kong dollars, Singapore dollars and in various denominations.  Traveler’s cheque has no life span i.e. it is not subjected to unclaimed moneys Act 1965 of Malaysia as in the case of current, fixed deposits and remittances.  Traveler’s cheques are easily obtainable from the Malaysian banks by anyone who wishes to travel abroad.  The issuer guarantees replacement if the traveler’s cheques are reported lost or stolen.  They are convenient & safer means as a traveler does not have to bother carrying large sums of foreign currencies each time he/she has to travel abroad either for pleasure or for business. SNURAZANI/PB303/JUN 2012
  45. 45. LOANS & ADVANCE  Overdraft  External Cheques Purchase  Term & Fixed Loan SNURAZANI/PB303/JUN 2012
  46. 46. LOANS & ADVANCE OVERDRAFT • An advance or facility granted under a current account whereby the customer is authorised to draw on the account up to an approved limit. • Overdraft facility is normally extended to customers to finance working capital or short terms transactions. • Interest is charged only on the utilised portion of the overdraft limit. However, a commitment fee is levied on unutilised overdraft facilities. SNURAZANI/PB303/JUN 2012
  47. 47. LOANS & ADVANCE EXTERNAL CHEQUE PURCHASE • Are those which are drawn on banks outside the ‘clearing area’ of the bank at which the cheques are deposited for clearing. • Normally banks take a few days to clear outstation or outport cheques, depending on the locality of the drawee (paying) bank in relation to the collecting bank. • However, the businessman needs to use the proceeds of the various cheques even before the said cheques are cleared in order to improve his cash flow or liquidity requirements. SNURAZANI/PB303/JUN 2012
  48. 48. LOANS & ADVANCE TERM & FIXED LOAN  A facility amortized over a fixed period, with repayment structured as repayable as monthly, quarterly, semi-annually or annually.  With this structure, each repayment consists of loan principal and interest.  The repayment can also be structured as balloon or bullet payment.  In this case, each repayment consists if only interest and principal to be repaid in one lump sum at the end of loan period.  A fixed loan is commonly usually used to finance CAPEX  Personal loan, housing loan, car loan. SNURAZANI/PB303/JUN 2012
  49. 49. OTHER SERVICES  Units Trust Share Trading Insurance Will Writing SNURAZANI/PB303/JUN 2012
  50. 50. OTHER SERVICES UNIT TRUST  Unit Trust or Mutual Funds are collective investment scheme, which pools the savings of investors with similar investment objectives in a special “trust” fund managed by professional fund managers. SNURAZANI/PB303/JUN 2012
  51. 51. OTHER SERVICES UNIT TRUST  The unit trust fund will invest in equities, fixed income securities and other assets authorised under the Guidelines.  Example:     Am Mutual Affin Fund Public Mutual Pacific Mutual SNURAZANI/PB303/JUN 2012
  52. 52. OTHER SERVICES WILL WRITING • Will and Wasiat Writing Services are legally effective arrangements to ensure the disposition of assets in accordance to ones' personal wishes. It helps to smoothen the process of estate administration and distribution. • Will/ Wasiat- A legally binding document by which an individual signifies his/her wishes as to the distribution of his/her estate upon death. SNURAZANI/PB303/JUN 2012
  53. 53. OTHER SERVICES INSURANCE • Insurance is the equitable transfer of the risk of a loss, from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss. • An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium. • Ex: Life Insurance, General Motor Insurance etc SNURAZANI/PB303/JUN 2012
  54. 54. OTHER SERVICES SHARE TRADING • A share investing facility that allows you to purchase shares quoted on Bursa Malaysia using your own funds or via a Share Margin Financing scheme. • Example: Maybank Share Trading Minimum Financing Amount RM50,000. SNURAZANI/PB303/JUN 2012
  55. 55. CONGRATULATIONS!!! You Have Completed Topic Commercial Bank SNURAZANI/PB303/JUN 2012