Financial Services and Commercial Banks

Introduction

Commercial banks have a great role in developing the countries’ business infrastructure because they mediate the central bank and the people. The commercial banks also provide the business players with the opportunity to make transactions easy and within the reach because they are spread in various areas. The paper discusses the significance of commercial banks in terms of their utilities, credit advancement and financial mediation.

Commercial banks are known to contribute to societal development in collaboration with the business fraternity. Those financial institutions play the following roles to the community in the areas of deposit and lending business, asset management, security issues, and foreign exchange trading. In terms of its financial services, commercial banks provide its customers with several accounts to suit the consumer needs; for example, savings, checking and fixed deposit.

Meaning of a Commercial Bank

The definition of commercial bank goes beyond the mere financial provision to include its role as an advisory body. A commercial is defined as a financial institution that allows its customers to make deposits, borrow money at a given interest rate and offers financial services to its clients (Collins & Baker 2004, p. 3). Other scholars also define a commercial bank as a profit-making financial institution that serve the monetary need of its customers and connect the business community to the central bank.

Utilities of Commercial Bank

The utilities of commercial banks do not have significant variations because such financial institutions usually have similar objectives, but target specific groups of people. Therefore, commercial banks play the following roles to the community in the areas of deposit and lending business, asset management, security issues, and foreign exchange trading.

Deposit and Lending Business

This is the first and most significant role of commercial banks. Here, the banks exist to provide saving facilities to the people employed and those undertaking different businesses in the community (Heffernan 2005, p. 27). The saving facilities are designed to meet the requirements of the clients, depending on one’s income and the size of business. Second, the commercial banks provide their clients with the opportunity to withdraw the savings depending on the type of account that the person holds. The withdrawal could be daily, monthly or after a defined period, in case the saving is in fixed deposit account. Moreover, the withdrawal could be either through the counter or across the various ATMs. Third, the commercial banks provide loan facilities to their clients at individual, group or corporate levels.

Asset Management

The banks also act as custodian to vital documents such as Land Title Deeds, Motor Vehicle Log Books, Portfolio Management, Investment Advisory, Article of Association, and Memorandum of Understanding on behalf of the clients (Heffernan 2005, p. 31).

Securities Issue

Commercial banks also issue security bonds to their corporate clients, thus making the transactions of huge capital financing easy (Stowell 2010, p. 40). Notably, the security facilities that the commercial banks offer target the high income businesses and corporations because such investments are capital intensive.

Foreign Exchange Trading

Commercial banks provide the clients with foreign exchange facilities to promote regional and international trade. In this regard, the banks set an exchange rate for the currencies and charge a commission for conducting the currency conversion (Heffernan 2005, p. 36). In foreign trade, a lot of currencies exchange on daily basis and this is facilitated by the commercial banks.

Precautions for Granting Loan and Advances

Before the commercial bank issues loans and advances to the applicants, it has to consider a number of issues. For example, the bank has to certify that the client have positive record of consistency in saving and withdrawals because this would serve as an evidence that the account is active (Kolari & Gup 2004, p. 21). The bank might risk lending money to people who are bankrupt or those whose accounts have gone dormant. Secondly, the bank has to ascertain that the person seeking loan and advance facilities have the ability to repay the loan. This is an attempt to reduce the rate and amount of financial loss.

Commercial Banks as Financial Intermediaries

As a financial institution that acts as an intermediary between the Central Bank, SACOS’s and the general consumers, commercial banks have a critical role in promoting economic and social growth of the community. It should facilitate the accessibility of finance for the individual, small and large business organizations to promote the growth of trade and financial circulation in the community.

Similarly, the commercial banks should facilitate the transfer of finance and monetary information to the business community (Madura 2011, p. 84). In this regards, the bank might succeed in transforming the financial risks, money and maturities, thus creates a stable business environment for emerging and existing entrepreneurs. As a result, this might reduce the financial burden in terms of access and transfer. The commercial bank could create economic utility through its by-products such as the loans, money transfers and commission on transactions at the counter or through ATM (Stowell 2010, p. 58).

Case Study

In this case study, the focus is on a commercial bank in Oman, the Abu Dhabi Islamic Bank, which is situated along Muroor Road in Abu Dhabi town. The efficient service of the bank has made it very successful in the region. The Abu Dhabi Islamic Bank provides its customers with several accounts, which suit the interests of its clients (ADIB 2012, p. 1). Some of them include Ghina and Banoon Children’s Savings Account, Current Account, Savings Account, Electron Account, Adib UAE-Egypt Account, and Recurring Investment Account. These accounts serve the various needs of the clients according to his or her choice.

On financial solutions for its customers, Abu Dhabi Islamic Bank provides car, home, education, shares, tamweel, boat, travel, and Al Khair Liabilities Settlement Finance (ADIB 2012, p. 1). Indeed, this caters for the different categories of the clientele. For example, an employee who would like to own a house, but does not have sufficient funds could approach the bank, open an account and later seek for home finance. Moreover, the amount that the bank advances to the applicant has to meet the entire cost of the product the customer wanted.

The bank also provides its clients with Takaful products to protect the clients from unpredictable occurrences. Importantly, the products must be provided according to Shari’a Principles. The Takaful come in several varieties, including motor, Covered Card, Cash Cover, and Al Khair Tadawul (ADIB 2012, p. 1).

Abu Dhabi Islamic Bank also provides a group of its clients with private banking facilities. This facility is called ADIB Private Bank to cater for the needs of the clients from a higher social status, prominent business personalities and large corporations. The application of this facility has yield remarkable success for the financial institution.

Abu Dhabi Islamic Bank has various business accounts for emerging and merchant businesses. Such accounts include ADIB Business One, Business Premium, and Business Elite (ADIB 2012, p. 1). These different accounts encourage various business deposits. Also, the other significant attribute about the bank to mention is the fact that it operates on a 24 hours basis, seven days a week because the locations is a very busy place, with most of the businesses functioning in the same manner. In addition, the individual, business, and multinational corporations’ account holders get the best services from the bank (Aamir 2009, p. 34).

It is also significant to stress that in terms of transactional services, the banks understands the importance of safety and confidentiality. In this regards, the services such as deposits, withdrawals and making payments are designed in an appropriate manner to provide the clients with secure, fast and appropriate services, at the most competitive rates in the region (ADIB 2012, p. 1). This attribute make the bank to be more preferable in the region than others.

Some of the remittance services, which the bank offers include outward, inward and interbank transfers. The bank is so efficient that transferring money from one bank account to another takes only a day. It also offers foreign exchange services to its account holders at very competitive rates (Aamir 2009, p. 47). Noting that the region attract many business people, the banks has taken this advantage and positioned itself to provide flexible services and facilitates transferring, buying and selling foreign currencies from one account to the other. Finally, the bank provides cheque processing and clearing facilities for the post-dated cheques to all its ADIBusiness customers and account holders (ADIB 2012, p. 1).

On corporate banking, the institution provides several banking solutions, which are compliant to Sheri’a Law since it is an Islamic Bank. Some of the corporate banking services include Murabaha, Ijara and Istisnaa products (ADIB 2012, p. 1). Furthermore, the corporate banking customers are divided into public and government sector. The bank’s team of dedicated and experienced staff is also critical for providing a focused, value-added and transparent customer relationship to remain outstanding.

As an international bank, it provides Global Transaction Services that support, build and deliver various efficient and cheap financial management solutions for its clients in the regions. Some of the services include account management, financial collections and receivables, corporate actions, liquidity management, procurement cards and payment & disbursements.

Conclusion

In summary, commercial banks are significant engines for economic development in the community where they operate. The study evidenced that Commercial banks are recognized as the major contributors of financial transactions to business, thus enhance societal development. The institutions play the following roles to the community in the areas of deposit and lending business, asset management, security issues, and foreign exchange trading.

In terms of its financial services, commercial banks provide its customers with several accounts to suit the consumer needs; for example, savings, checking and fixed deposit. In addition, the commercial banks are expected to issue loans and advances to the applicants after considering the financial position of the client applying for credit facility. This is an attempt to prevent the bank from accumulating financial losses.

References

Aamir, R 2009, Gulf Capital and Islamic Finance: The Rise of the New Global Players, McGraw-Hill, New York.

ADIB, 2012, Banking as it should be. Web.

Collins, M & Baker, M 2004, Commercial Banks and Industrial Finance in England and Wales, Oxford University Press, New York.

Heffernan, S 2005, Modern Banking, Wiley, New York.

Kolari, J & Gup, B 2004, Commercial Banking: The Management of Risk, Wiley, New York.

Madura, J 2011, International Financial Management, South-Western College Publishers, Boston.

Stowell, D 2010, An Introduction to Investment Banks, Hedge Funds, and Private Equity, Academic Press, London.

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