The Commercial Bank Essay
The Commercial Bank
Embrace multifarious functions and services that have been attributed to other types of banks. A savings department, a trust department, and other such departments may be housed in a commercial bank. This report distinguishes the difference between commercial banks and universal bank.
Functions of a Commercial Bank
The most common functions of (KB’s) Commercial Bank are the following: 1. Deposit Function – primarily receives demand deposits which can only be withdrawn by means of checks. Also, receive other types of deposits. 2. Loan Function – advances sums of money for relatively short periods of time to persons engaged in commerce and trade. 3. Exchange Function – refers to the transfer of funds without the physical transfer of cash. Commercial banks deal in offsetting of book entries either domestically or internationally. 4. Trust Function – engage in fiduciary activities such as administrators of estates, guardians of minor’s interest; registrars and transfer agents of stocks and bonds; executors of last wills and testaments. 5. Advisory Function – give expert advices to clients on their business dealings.
1. Rental of safe deposit boxes
2. Sale of drafts and cashier’s checks
3. Sale of traveler’s check
4. Collection Agent
5. Credit Information
Sec. 29. Powers of a Commercial Bank – A commercial bank shall have, in addition to the general powers incident to corporations, all such powers as may be necessary to carry on the business of commercial banking, such as accepting drafts and issuing letters of credit; discounting and negotiating promissory notes, drafts, bills of exchange, and other evidences of debt. Sec. 30. Equity Investments of a Commercial Bank – A commercial bank may, subject to the consitions stated in the succeeding paragraphs, invest only in the equities of allied enterprises as may be determined by the Monetary Board.
Except as the Monetary Board may otherwise prescribe:
30.1 The total investment in equities of allied enterprises shall not exceed (35%) of the net worth of the banks; and 30.2 The equity investment in any one enterprise shall not exceed (25%) of the net worth of the bank. Sec. 31. Equity Investments of a Commercial Bank in Financial Allied Enterprises – A commercial bank may own up to one hundred percent of the equity of a thrift bank or a rural bank. Sec. 32. Equity Investments of a Commercial Bank in Non-Financial Allied Enterprises – A commercial bank may own up to one hundred percent of the equity in a non-financial allied enterprise.
UNIVERSAL BANK (UB)
Is also a commercial bank, A UB exercises the powers and services authorized for a KB. UB’s required minimum capital is P4,950.0 (in million pesos). Hence, a UB is also called an expanded commercial bank (EKB). The Powers of a UB is clearly stipulated in the New Banking Law of 2000, otherwise known as R.A 8791, Under Chapter IV, Article I: Sec. 23. Powers of a Universal Bank – A UB shall have the authority to exercise, in addition to the powers authorized for a commercial bank in Section 29. Sec. 24. Equity Investments of a UB – A UB may, subject to the conditions stated in the succeeding paragraph, invest in the equities of allied and non-allied enterprises as by the Monetary Board. Except as the Monetary Board may otherwise prescribe:
24.1 The total investment in equities of allied and non-allied enterprises shall not exceed (50%) of the net worth of the bank; and 24.2 the equity investment in any one enterprise, whether allied or non-allied, shall not exceed (25%) of the net worth of the bank. Sec. 25. Equity Investments of a UB in Financial Allied Enterprise – A UB can own up to one hundred percent of the equity in a thrift bank, a rural bank, or a financial allied enterprise. A publicly listed UB or KB may own up to 100% of the voting stock of only one other UB or KB. Sec. 26. Equity Investments of a Universal Bank in Non-Financial Allied Enterprises – A Universal Bank may own up to one hundred percent of the equity in a non-financial allied enterprise. Sec.
27. Equity Investments of a Universal Bank in Non-Allied Enterprises – The equity investment of a UB, or of its wholly or majority-owned subsidiaries, in a single non-allied enterprise shall not exceed (35%) of the total equity in that enterprise nor shall it exceed (35%) of the voting stock in enterprise. Sec. 28. Equity Investments in Quasi-Banks – To promote competitive conditions in financial markets, the Monetary Board may further limit to (40%) equity investments of Universal bank in quasi-banks. This rule shall also apply in the case of commercial banks.
NON-FINANCIAL ALLIED UNDERTAKINGS
A bank may acquire up to 100% of the equity of a non-financial allied undertaking. The UBs and KBs may invest in equities of the following non-financial allied undertakings:
1. Warehousing Companies
2. Storage Companies
3. Safe deposit box companies
4. Companies primarily engaged in the management of mutual funds but not in the mutual funds themselves;
5. Management corporation engaged or to be engaged in an activity similar to the management of mutual funds;
6. Companies engaged in providing computer services;
7. Insurance agencies/brokerages;
8. Companies engaged in home building and home development;
9. Companies providing drying and/or milling facilities for agricultural crops such as rice and corn;
10. Service Bureaus organized to perform for and in behalf of banks and non-bank financial institutions the services allowed to be outsourced under Circular No. 268. Provided, that data processing companies may be allowed to invest up to 40% in the equity of Service Bureaus;
11. Philippine Clearing House Corporation and Philippine Deposit Insurance Corporation;
12. Such other similar activities as the Monetary Board may declare as non-financial allied undertakings of banks.
FINANCIAL ALLIED UNDERTAKINGS
With prior BSP approval, banks may invest in equities of the financial allied undertakings;
1. Leasing companies including leasing of stalls and spaces in a commercial establishment
2. Investment houses
4. Financing companies
5. Credit card companies
6. Financial institution catering small to medium scale industries
7. Companies engaged in stock brokerage/securities dealership
8. Companies engaged in foreign exchange dealership brokerage In addition, the UBs (EKBs) may invest the following:
A.) Insurance companies
B.) Holding companies
The commercial bank has different departments that specialize in their numerous function and services. In order for the banking function to be effected with the maximum efficiency and improve service ability of banks. Cash department – the cashier heads this department, which will take care of the deposit function of the bank and allied activities. It may be sub-divided into New accounts, signature control, safe deposit boxes and armored car services Loan and discount department –this department is headed by a loan officer. It sometimes called credit department. It takes care everything connected with loans. It is also conveniently divided into sections which may include that of small loans, bank credit investigation, rediscounting, statistics, loan releases, renewals, collection and others. Trust department – usually headed by a trust officer which is well versed in trust functions. It deals more on a legal officer’s work and a lawyer would be ideal for this job.
The divisions will be in line with fiduciary activities. Foreign department – this department deals in exchanges on the international level, although it also attends to some domestic exchanges. It is devoted to the processing of applications for letter of credit, the buying and selling of foreign exchange, and similar transactions. It also keeps an eye on the movement of the prices of investment securities. Accounting department – it takes care of all the transaction of the bank. Auditing department- this department takes care of seeing to it that disbursements are in order by conducting pre-audits, spot checks on the transactions and physical assets and institutes control on the activities of the bank. Legal department – it duty is to see that bank is amply protected legally for any action that it takes. Administrative department – it now called the Human Resource department. Its more on personnel recruiting and training
FORMS OF BANK CREDIT
Bank credit represent the banks trust and confidence in the borrowers willingness and ability to pay a loan when due. On the other hand, it could also mean the depositors trust in bank which makes him put his money for safekeeping.
It may be form of bank notes, deposits, letter of credit, lines of credit, acceptances and notes payable.
SOURCES OF BANK FUNDS
The major or primary sources of bank funds are the contribution of stockholders and sizeable deposits. The bank also has other sources such as interest from loans and investments, collection and services fees, earnings on trust, monetized depreciation and others.
1. What bank has the same function as the Universal Bank?
a. Rural Bankb. Commercial Bankc. Development bank
2. What is the minimum required capital of Universal Bank?
a. P4,950,000,000b. P5,750,000,000c. P3,550,000,000
3. A Universal Bank can own up to what percent of the equity in a thrift bank?
a. 50%b. 25%c. 100%
4. A bank service that provides travellers a safe medium of exchange.
a. Cashier’s checks b. Sale of Traveller’s checks c. Collection Agent
5. It is the sum of financial records of salaries for an employee, wages, bonuses and deductions.
a. Drafts b. Deposit boxes c. Payrolls
6. The bank that acts as collection agent for a nominal fee.
a. Universal bank b. Commercial bank c. Rural bank
7-10 Functions of Commercial Bank
1. B6. B
2. A7. Deposit Function
3. C8. Loan Function
4. B9. Trust Function
5. C10. Exchange or Advisory Function