Banking operations unit1

1. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
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Banking Operations

2. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
LEARNING OBJECTIVES
By the end of this module, the students should be able to:
• Define the terms customer and banker
• To thoroughly understand the nature of the banker/customer
relationship
• Detail the duties of the banker and customer
• Recognize when the bank’s duty of secrecy may be ignored
• Understand account opening and closing procedures and types of
accounts
• Understand in general common banking services and products
offered
• Understand the importance of Know Your Customer (KYC) principle
• Explain the elements of the Code of Banking Practice and good
banking ethics
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3. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Banker - Customer Relationships
Outline of Bank Services
Types of Accounts
Know Your Customer (KYC)
Savings and Fixed Deposit Accounts
Cheques, Money Transmission, and Other Payment Mechanisms
MODULE COVERAGE
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Code of Banking Practice
Plastic Cards and Electronic Banking

4. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
What is the nature of a bank-customer relationship?
• Definition of a Bank
The general definition of a bank is that it is a financial institution that deals with
deposits and advances and related services. Alternatively it’s defined as an
establishment for custody of money which it pays out on customer’s order. It
receives money from those who want to save as deposits and lends it to those
who need it.
• In practice, however, the above definitions are unsatisfactory since there are so
many financial institutions in Uganda and indeed all over the World today that
accept money and pay it out on a customer’s orders and yet they are not banks.
• To be known as a bank and use the name bank in Uganda you must be licensed by
Bank of Uganda under the banking act after fulfilling certain stringent criteria
including minimum capital requirements.
• Definition of a customer
In Banking, a customer is a person who maintains an account with the bank or who
has a business relationship with the bank.
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5. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Categories of Banker-Customer Relationships
General Relationship
• Debtor-Creditor: When a customer has a net credit balance on his account he is a
creditor and the bank is a debtor. However, if a customer has a net debit balance
with the bank then the bank is a creditor and the customer is the debtor
Special Relationships
• Bank as a Trustee: Sometimes Banks are appointed under a will as executors and
therefore trustees for the beneficiaries.
• Bailee – Bailor: customers sometimes entrust the banks with valuables for safe
custody. In this case the bank will be known as bailee and the customer bailor.
• Agent -Principal: an agent is a person employed to represent another in dealings
with third parties. For instance a customer may instruct the bank to buy shares on
his behalf. If the bank buys on his behalf the bank becomes an agent while the
customer becomes the principal.
• Mortgagor – mortgagee: if a customer mortgages property to the bank as security
for a debt, the bank becomes mortgagee while the customer becomes mortgagor.
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6. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Fundamental characteristics of banker-customer relationships
• Trust-based relationship –Trust plays an important role in building healthy
relationship between a banker and customer. The bank must therefore
ensure that the relationship is strengthened and retained.
• A fiducially relationship – A fiduciary relationship is one that is based on
trust. The customer entrusts the banker with his money trusting that the
bank will at all times act in his best interests and benefit ensuring that
funds deposited with it are safe and in some cases grow in value.
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7. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Key elements for banker-customer relationships
In dealing with the customers, banks have to ensure that basic/ fundamental
issues of relationships are adhered to:
i. Listen to the needs of the customer and provide solutions
ii. Maintain high levels of credibility by delivering on their promises
iii. Where need arises, fully educate and sensitize customers about new
products, charges, situations and other related aspects.
iv. Communicate to the customer clearly any changes in the terms and
conditions of operating the account and any charges introduced
v. Ensure that staff are well trained and handle customers in the most
professional manner
vi. Always leave the customer with an impression that will encourage him
to return to the bank and to talk nicely about you
vii. Good customer relations - never leave a customer feeling negative
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8. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Common duties of a bank to its customers
The following are the common duties and obligations of a bank to the
customer, whether or not they are included in any service
agreements:
• Duty to maintain secrecy/confidentiality of customer’s account and
affairs.
• To receive customers cash and cheques for collection
• To repay money on demand in accordance with customers written
instructions
• To give reasonable notice before closing a customer’s credit account
• To advise a customer immediately a forgery of customer’s signature
is detected or brought to the bank’s attention
• To provide a customer with a statement of account within
reasonable time or provide balance of account on request.
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9. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Instances when a bank’s duty of secrecy can be ignored:
• Under compulsion of law – an example is when there is a court order to
attach the balance on the customer’s account arising out of a judgment
debt (garnishee order),fraud or payment of taxes(URA Distress orders)
• Under normal established banking practices
• For protecting national or public interest – such as prevention of
terrorism, money laundering
• For protecting bank’s own interest such as in a writ when suing the
customer for loan default
• Under directive by the regulatory authority such as Bank of Uganda
• Under express or implied consent of the customer
If a bank is negligent and fails to adhere to its duty of secrecy, it may find
itself liable to pay damages to the customer and risk damaging its image
and reputation
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10. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
If a bank is negligent and
fails to adhere to its duty
of secrecy, it may find itself
liable to pay damages to
the customer and risk
damaging its image and
reputation
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11. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Duties of the customer
The customer has five main duties:
• To exercise reasonable care when drawing cheques so as not to
mislead the bank or facilitate fraud and forgery
• To notify the bank of known / suspected forgeries or misuse of the
account
• To use the account for legal and lawful purposes (e.g. avoid money
laundering, willful forgery or fraudulent transactions on or with the
use of the account)
• To pay all the dues, charges, interest, loan repayment installments,
commissions and other agreed fees to the bank for services
rendered
• To only issue cheques when there is sufficient credit balances or
unutilized overdrafts on his account
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12. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
Termination of a banker - customer Relationship
The relationship ceases on:
• Death, bankruptcy or permanent mental impairment (lunacy) of a
customer or the bank.
• The customer closing the account i.e. voluntary termination
• The Bank closing the account after giving due notice.
• Liquidation of the company (for corporate customers)
• The completion of the contract or the specific transaction.
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13. THE UGANDA INSTITUTE
OF BANKING &
FINANCIAL SERVICES
UIBFS
ISO 9001:2008 CERTIFIED
• If a bank wants to close a troublesome account such as when a
customer is in the habit of issuing cheques when there are no
sufficient funds on the account, it should send him written notice
with the following information:
• State the last date on which credits/debits will be accepted by the
bank and effective date of closure
• Request return of unused cheques and plastic cards
• Request customer on how to dispose of the credit balance on the
account(a bank cheque for the balance is normally prepared)
• One month’s written notice is considered reasonable although for a
business account a period longer than a month may be required.
Once the account is closed any cheques presented will be returned
marked ‘account closed’. Credits coming in after closure should be
suspensed and thereafter returned to the customer
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