Part of the topic of Treasury Management that give a short descriptive of banking activities

1. Chapter 2:
Banking Activities
Treasury Management

2. Financial Institution
In financial economics, a financial institution acts as an
agent that provides financial services for its clients.
Financial institutions generally fall under financial
regulation from a government authority.

3. Types of Financial Institutions
Depository Institutions
Non-depository Institutions

4. Types of Financial Institutions
Depository Institutions
Accept deposits from surplus units and provide credit to deficit
units through loan and purchase of securities.
They accept risk on loans provided.
They provide the liquidity, size and maturity desired.
They have more expertise.
They diversify loans in order to minimize risk.
Examples: Banks, saving institutions and credit unions.
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5. Types of Financial Institutions
Non-Depository Institutions
Generate funds from sources other than deposits.
They sell securities to firms.
Examples: Mutual funds, finance companies, insurance
companies, pension funds and securities firms.
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6. Banks
A bank is a commercial or state institution that provides
financial services, including issuing money in various
forms, receiving deposits of money, lending money and
processing transactions and the creating of credit.

7. 1. Central Bank
• A central bank, reserve bank or monetary authority, is an entity
responsible for the monetary policy of its country or of a group of member
states, such as the European Central Bank (ECB) in the European Union, the
Federal Reserve System in the United States of America, State Bank in
Pakistan.

8. 1. Central Bank
Its primary responsibility is to maintain the stability of
the national currency and money supply, but more active
duties include controlling subsidized-loan interest rates,
and acting as a “lender of last resort” to the banking
sector during times of financial crisis

9. 2. Commercial Banks
 A commercial bank accepts deposits from customers and in turn makes loans,
even in excess of the deposits; a process known as fractional-reserve banking.
Some banks (called Banks of issue) issue banknotes as legal tender.
 Commercial banks are the major financial intermediary in any economy.They
are the main providers of credit to the household and corporate sector and
operate the payments mechanism.
 Commercial banks are typically joint stock companies and may be either publicly
listed on the stock exchange or privately owned.
 Commercial banks deal with both retail and corporate customers, have well
diversified deposit and lending books and generally offer a full range of financial
services.
 The largest banks in most countries are commercial banks and they include
household names such as CIMB, Maybank, Hong Leong Bank etc.

10. 3. Investment Banks
• Investment banks help companies and governments and
their agencies to raise money by issuing and selling securities
in the primary market. They assist public and private
corporations in raising funds in the capital markets (both
equity and debt), as well as in providing strategic advisory
services for mergers, acquisitions and other types of financial
transactions.

11. 4. Saving Banks
A savings bank is a financial institution whose primary purpose is
accepting savings deposits. It may also perform some other
functions.
Savings banks are similar in many respects to commercial banks
although their main difference (typically) relates to their ownership
features – savings banks have traditionally had mutual ownership,
being owned by their ‘members’ or ‘shareholders’ who are the
depositors or borrowers.
Also known as Savings and Loans Association (S&Ls or thrifts).
In Malaysia we have Bank Simpanan Nasional or National Savings
Bank.

12. 5. Micro Finance Banks
Microfinance refers to an array of financial services, including
loans, savings and insurance, available to poor entrepreneurs and
small business owners who have no collateral and wouldn't
otherwise qualify for a standard bank loan.
For the purpose of poverty reduction program, such kind of banks
are working in the different countries with the contribution of UNO
orWorld Bank.

13. 6. Islamic Banks
Islamic banking refers to a system of banking or banking
activity that is consistent with Islamic law (Sharia) principles
and guided by Islamic economics.
In particular, Islamic law prohibits usury, the collection and
payment of interest, also commonly called riba in Islamic
discourse.
In Malaysia, example is Bank Islam Malaysia Berhad (BIMB).

14. 7. Specialized Banks
Specialized banks as those banks that specialize in
financing certain economic sectors.
Most important types are specialized banks,
industrial banks, agricultural banks and banks of real
estate.
Examples are Agrobank and EXIM Bank Malaysia.

15. 8. Non-banking financial company
Non-bank financial companies (NBFCs) also known as a
non-bank or a non-bank bank, are financial institutions
that provide banking services without meeting the legal
definition of a bank, i.e. one that does not hold a banking
license.
Non-bank institutions frequently acts as suppliers of loans
and credit facilities, supporting investments in property,
providing services relating to events within peoples lives
such as funding private education, wealth management and
retirement planning.

16. 8. Non-banking financial company (con’t)
however they are typically not allowed to take deposits
from the general public and have to find other means of
funding their operations such as issuing debt instruments.
Examples are pension funds and insurance companies.

17. 9. Investment company
Generally, an "investment company" is a company (corporation,
business trust, partnership, or limited liability company) that issues
securities and is primarily engaged in the business of investing in
securities.
An investment company invests the money it receives from
investors on a collective basis, and each investor shares in the
profits and losses in proportion to the investor’s interest in the
investment company.

18. 10. Leasing Companies
A lease or tenancy is the right to use or occupy personal property or
real property given by a lessor to another person (usually called the
lessee or tenant) for a fixed or indefinite period of time, whereby the
lessee obtains exclusive possession of the property in return for paying
the lessor a fixed or determinable consideration (payment).Types are:
Operating lease
Finance lease

19. 11. Insurances Companies
Insurance is a contract, represented by a policy, in which an individual or
entity receives financial protection or reimbursement against losses
from an insurance company.The company pools clients' risks to make
payments more affordable for the insured.
Insurance companies may be classified as
1. Life insurance companies, which sell life insurance, annuities and
pensions products.
2. Non-life or general insurance companies, which sell other types of
insurance.

20. 12. Mutual Fund
A mutual fund is an investment vehicle made up of a
pool of funds collected from many investors for the
purpose of investing in securities such as stocks, bonds,
money market instruments and similar assets.
Mutual funds are operated by money managers, who
invest the fund's capital and attempt to produce capital
gains and income for the fund's investors.
A mutual fund's portfolio is structured and maintained to
match the investment objectives stated in its
prospectus.

21. 12. Brokerage Houses
A brokerage firm, or simply brokerage, is a financial
institution that facilitates the buying and selling of financial
securities between a buyer and a seller.
Brokerage firms serve a clientele of investors who trade
public stocks and other securities, usually through the firm's
agent stockbrokers
Stock brokers assist people in investing, online only
companies are called 'discount brokerages', companies with a
branch presence are called 'full service brokerages' or 'private
client services.

22. Financial Institution Functions
Financial institutions provide a service as intermediaries of
the capital and debt markets.
They are responsible for transferring funds from investors
to companies, in need of those funds.
The presence of financial institutions facilitate the flow of
cash through the economy.
To do so, savings accounts are pooled to mitigate the risk
brought by individual account holders in order to provide
funds for loans. Such is the primary means for depository
institutions to develop revenue.

23. Role of A Bank:Transformation
Banks bridge the gap between the needs of lenders and
borrowers by performing a transformation function.
a)Size transformation: Banks collect funds from savers in the
form of small-size deposits and repackage them into larger
size loans.
b)Maturity transformation: Banks transform funds lent for a
short period of time into medium- and long-term loans.
c)Risk transformation: Banks are able to minimise the risk of
individual loans by diversifying their investments, pooling risks,
screening and monitoring borrowers and holding capital and
reserves as a buffer for unexpected losses.
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24. Banking Services & Products
Modern banks offer a wide range of financial services,
including:
1. Payment services
2. Deposit and lending services
3. Investment, pensions and insurance services
4. E-banking
5.Treasury operations 24

25. 1. Payment services
A payment system can be defined as any organized arrangement
for transferring value between its participants.
Facilitates the transfer of ownership of claims in the financial sector.
These payment flows reflect a variety of transactions: for goods and
services as well as financial assets.
Payments services can be either paper-based or electronic and an
efficient payments system forms the basis of a well-functioning
financial system. 25

26. 2. Deposit and Lending Services
• Current or checking accounts that typically pay no (or low) rates of
interest and are used mainly for payments.
• Time or savings deposits involve depositing funds for a set period of time
for a pre-determined or variable rate of interest. Deposits that can be
withdrawn on demand pay lower rates than those deposited in the bank
for a set period.
• Consumer loans and mortgages. Consumer loans can be unsecured (no
collateral is requested; short to medium time period) or secured on property
and interest rates are mainly variable (but can be fixed). 26

27. 3. Investment, Pensions and Insurance Services
• Investment products offered include various securities-related products including mutual
funds (known as unit trusts), investment in company stocks and various other securities-
related products (such as savings bonds).
• Pensions and insurance services
• Pension services provide retirement income (in the form of annuities) to those
contributing to pension plans.
• Insurance products protect individuals (policyholders) from various adverse events.
Policyholders pay regular premiums and the insurer promises compensation if the
specific insured event occurs.
• Two types of insurances are life insurance and general insurance.

28. 4. E-banking
Rapid technological progress and financial market
development.
Increasing proportion of the volume and value of domestic and
cross-border retail payments.
Mainly, we can refer to two categories of payment products:
• E-money includes reloadable electronic money instruments in the
form of stored value cards and electronic tokens stored in
computer memory.
• Remote payments are payment instruments that allow (remote)
access to a customer’s account.
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29. 5.Treasury operations
Buying and selling of bullion. Foreign exchange
Acquiring, holding, underwriting and dealing in shares,
debentures, etc.
Purchasing and selling of bonds and securities on behalf of
constituents.
The banks can also act as an agent of the Government or local
authority. They insure, guarantee, underwrite, participate in
managing and carrying out issue of shares, debentures, etc.

30. Common Banking Products Available
Credit Card: Credit Card is “post paid” or “pay later” card that draws from a credit
line-money made available by the card issuer (bank) and gives one a grace period to
pay. If the amount is not paid full by the end of the period, one is charged interest
Debit Cards: Debit Card is a “prepaid” or “pay now” card with some stored value.
 Debit Cards quickly debit or subtract money from one’s savings account, or if one
were taking out cash.
 Every time a person uses the card, the merchant who in turn can get the money
transferred to his account from the bank of the buyers, by debiting an exact
amount of purchase from the card.
 To get a debit card along with a Personal Identification Number (PIN).

31. Automatic Teller Machine: The ATM’s are used by banks for making the
customers dealing easier. ATM card is a device that allows customer who has an
ATM card to perform routine banking transaction at any time without interacting
with human teller. It provides exchange services. This service helps the customer
to withdraw money even when the banks ate closed. This can be done by
inserting the card in the ATM and entering the Personal Identification Number
and secret Password. It allows the customers:
To transfer money to and from accounts.
To view account information.
To order cash.
To receive cash.

32. Electronic Funds Transfer (EFT):. The system called electronic
fund transfer (EFT) automatically transfers money from one
account to another.
This system facilitates speedier transfer of funds electronically
from any branch to any other branch.
Telebanking: Telebanking refers to banking on phone services.
A customer can access information about his/her account
through a telephone call and by giving the coded Personal
Identification Number (PIN) to the bank. Telebanking is
extensively user friendly and effective in nature.

33. Mobile Banking: A new revolution in the realm of e-banking is the emergence of
mobile banking.
 On-line banking is now moving to the mobile world, giving everybody with a
mobile phone access to real-time banking services, regardless of their location.
 It provides a new way to pick up information and interact with the banks to carry
out the relevant banking business.
Internet Banking: Internet banking involves use of internet for delivery of banking
products and services.
 In internet banking, any inquiry or transaction is processed online without any
reference to the branch (anywhere banking) at any time.