bank management chp 1
TRANSCRIPT
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BANK MANAGEMENTBANK MANAGEMENT
CHAPTER 1INTRODUCTION
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What is a Bank?What is a Bank?
Can be defined in terms of: The economic functions it serves
The services it offers its customers
The legal basis for its existence
A bank is any business offering deposits
subect to !ithdra!al on demand andmaking loans of a commercial or business
nature"
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BAFIA (1989BAFIA (1989
$ank a person !hich carries on bankingbusiness
banking business" means
i% &eceiving deposits on current account'
deposit account' savings account or othersimilar account
ii% (aying or collecting che)ues dra!n by orpaid in by customers
iii% (rovision of finance or
iv% *uch other business as the $ank' !ith theapproval of the +inister' may prescribe
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Th! "#$ani%ati"n an&Th! "#$ani%ati"n an&
st#'t'#! ") *anksst#'t'#! ") *anks
*ignificant factors that affect banks
organi-ation: $ank functions
$ank si-e
.overnment regulations
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Cont0Cont0
$ank si-e
1ifferences in bank si-e !ill lead to greater
differences'
in the !ay banks are organi-ed n the types and variety of financial services
each bank offers in the markets that it
serves
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Cont0Cont0
*mall banks: 4eavily committed to attracting smaller'
consumer5oriented deposits and making
consumer installment and small business
loans
4eavy involvement in consumer loans and
deposits
6ften called as retail bank
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Cont0Cont0
*mall banks 8community banks9
Close contact bet!een top management and
the management 8and staff of each division9
*ignificantly impacted by changes in the localeconomy
imited opportunity for advancement or for the
development of ne! banking skills
4ave close relationship !ith their customers
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Cont0Cont0
arge banks The organi-ation chart is more complex
+ost banks are o!ned and controlled by a
holding company !hose stockholders elect a
board of directors to oversee the bank and
nonbank businesses allied !ith the same
holding company
*elected members of the holding company
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Cont0Cont0
>ey problem span of control +ore diversified 8geographical and by product9
to !ithstand the risks of a fluctuating economy
&arely dependent on the economic fortunes of a
single industry or even single nation
+ore stable due to their greater capacity to
accept the risks of entering ne! markets and
their potentially greater access to capital andmanagerial talent
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R!!nt t#!n&s in *ankR!!nt t#!n&s in *ank
"#$ani%ati"n"#$ani%ati"n
+ore complex organi-ations
+ore services and facilities
+ore departments and divisions Technology based
Convergence
Consolidation and geographic expansion
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Cont0Cont0
+ost banks today are: +arket driven and sales oriented
+ore alert to the changing service
demands of their customers and to thechallenges posed by bank and nonbank
competitors
orced bank managers to become
more concerned !ith service marketingactivities and the reactions of their
stockholders
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Cont0Cont0
Computer5based systems and electronic
service delivery
.ro!ing numbers of people !ith
computer skills $ank operations are more efficient
.reater opportunity for planning ne!
services and ne! service deliveryfacilities
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Convergence
service proliferation and greater competitive
rivalry among financial institutions have led to apo!erful trend convergence
Convergence movement of businesses across
industry lines
$anks broaden their business by venturing intoother product lines
Consolidation geographic expansion
fe!er number of banks' but much larger serviceproviders%
example' the number of bank declines but the
si-e of assets and deposits increases%
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?,
the geographic expansion of banking
institutions have reached !ell beyond theboundaries of a single nation to encompass
the !hole planet
Called as globalisation
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BANK MARKETINGBANK MARKETING
+arketing 5 refers to the need satisfaction ofthe institution
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$ank marketing consists of
identifying the most profitable markets no!
and in the futureB
assessing the present and future needs of
customersB
setting business development goals and
marketing plans to meet them managing the various services and promoting
them to achieve the plans
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?7
O#$ani%ati"na+ F"#, ") th! Bankin$O#$ani%ati"na+ F"#, ") th! Bankin$
In&'st#-In&'st#-
Unit Bankin$
5 6ne of the oldest kinds
5 6ffer all services from one office
5 *till common in %*% banking today
5 6ne reason for the comparatively large number
of units banks is the rapid formation of ne!
banks5 +any customers still prefer small banks' !hich
get to kno! their customer !ell
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C"nt.C"nt.
5 B#anh Bankin$5 6ffer full range of services from several
locations
Bank H"+&in$ C",/ani!s5 A corporation chartered for the purpose of
holding the stock of one or more banks
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B#anh Bankin$ O#$ani%ati"nsB#anh Bankin$ O#$ani%ati"ns
As unit bank gro!s larger in si-e establish
branch banking
6ffer the full range of banking services from
several locations' including a head office and
one or more full service branch offices
ikely to offer limited services through a
supporting net!ork of drive5in !indo!s'AT+s' computer electronically linked to the
bank
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Dach branch may have their o!n management
team !ith limited authority to make decisions oncustomer loan application and other facets of
daily operations
Dx: branch bank manager may be authori-edto approve a customer loan of up to
&+?@@'@@@% arger loan re)uests must be
referred to the head office for final decisions
*enior management of a branch banking isusually located at the head office
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O#$ani%ati"na+ 0t#'t'#!O#$ani%ati"na+ 0t#'t'#!
B#anhB#anh
Branch Manager
Assistant Manager
Bank Officer
Deposit Remittance Account Credit
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O#$ani%ati"na+ 0t#'t'#!O#$ani%ati"na+ 0t#'t'#!
H!a& O))i!H!a& O))i!
Board of Directors
Chief Executive Officer
Head of Department
Departments*
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6rgani-ational *tructure6rgani-ational *tructure
Dxample of departments:
slamic $anking Corporate $anking
&etail $anking
Dlectronic $anking nternational $anking
nformation technology and managementinformation system
inance and administration &isk +anagement
$ranch $anking
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A&anta$!s ") B#anh Bankin$A&anta$!s ") B#anh Bankin$
.reater operating efficiency
ncreases the availability and convenience of
services
*timulates faster economic gro!th as branch bankstend to make more loans available
eads to fe!er bank failures as a branch bank is
less dependent on the volume of business from asingle industry or single local market area
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Disa&anta$!s ") B#anh Bankin$Disa&anta$!s ") B#anh Bankin$
4igher operating costs
*etting up ne! full5service branches seems to
be a costly !ay to gro!
$ranch banks do not seem to earn higher
average profits than other banks
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Bank H"+&in$ C",/an-Bank H"+&in$ C",/an-
O#$ani%ati"nsO#$ani%ati"ns
A corporation chartered for the purpose of
holding the stock 8e)uity shares9 of at least one
bank
A bank holding company is a company thatcontrols one or more banks
+any holding companies hold only a small
minority of the outstanding shares of one ormore banks' thereby escaping government
regulation
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Organizational StructureOrganizational Structure
Bank Hoding Companies
Hoding Corporation
Main Bank
Bank !u"sidiaries Associated $usiness
Eon5bank *ubsidiaries
Wh H +&i C i HWh H +&i C i H
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Wh- H"+&in$ C",/ani!s Ha!Wh- H"+&in$ C",/ani!s Ha!
G#"2n?G#"2n?
.reater ease of access to capital markets in
raising funds
Ability to use higher leverage 8more debt capital
relative to e)uity capital9 than nonaffiliated bankingfirms
Tax advantages in being able to offset offset profits
from one business !ith losses generated by other
firms that are part of the same company
Ability to expand across state lines and national
boundaries
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On!3Bank H"+&in$ C",/ani!sOn!3Bank H"+&in$ C",/ani!s
$ank holding companies controlled stock in ust
one bank
The one bank companies fre)uently o!ned and
operated one or more nonbank business These nonbank businesses must offer services
closely related to banking" that also yield public
benefits" such as availability of financial services
or lo!er service prices
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The principal advantage for bank holding
companies entering non5bank lines of business
is the prospect of diversifying sources of
revenue and profits 8reduce risk exposure9 The holding company form permits the legal
separation bet!een banks and non5bank
businesses having greater risk' allo!ing these
different firms to be o!ned by the same group ofstockholders
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M'+ti*ank H"+&in$ C",/ani!sM'+ti*ank H"+&in$ C",/ani!s
$ank holding companies controlled stock in
more than one bank
$anks ac)uired by holding companies arereferred to as affiliated banks
$anks that are not o!ned by holding companies
are kno!n as independent banks
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A&anta$!s an& Disa&anta$!s ")A&anta$!s an& Disa&anta$!s ")
H"+&in$ C",/an- Bankin$H"+&in$ C",/an- Bankin$
A&anta$!s4
(romote greater efficiency in banking by
increasing a banking firm
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Cont0Cont0
Disa&anta$!4
&educe or eliminate competition bet!een
banks
6vercharging the customers $eing indifferent to local community needs
Take excessive risks
C"n+'si"ns "n!#nin$C"n+'si"ns "n!#nin$
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C"n+'si"ns "n!#nin$C"n+'si"ns "n!#nin$
"#$ani%ati"n t-/! an& si%!"#$ani%ati"n t-/! an& si%!
?% The profitability of a bank is not determinedprimarily by ho! it is organi-edB the )uality of its
management and the economic conditions in its
market area appear to be far more important to
its success2% *mall banks of any organi-ational type can
compete successfully !ith large banks' provided
they aggressively seek to preserve their profits
and market share% Dconomies of scale from bank
gro!th appear ton be limited to banks of
relatively modest si-e
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#% $ranch banks and banks affiliated !ith holding
companies have greater protection againstfailure than small unit banks% They also tend tooffer more services than unit banks andoperate more offices per unit of population'
thus providing more convenient services,% The prices charged and deposit interest rates
paid by banks do not appear to depend greatlyon ho! each bank is organi-ed but rather on
the amount of competition the bank faces' thestrength of market demand for bank services'and the rate of inflation%
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Cont0Cont0/% The public receives about the same )uality of
banking services and pays about the same forthem under branching' holding company' or
independent unit banking systems
3% The types of banking organi-ations serving the
public do not appear to be a key factor in the
gro!th and development of the economy'
though greater branching activity seems to
accelerate economic gro!th
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O#$ani%ati"na+ F"#, ") th! Bankin$O#$ani%ati"na+ F"#, ") th! Bankin$
In&'st#- in Ma+a-siaIn&'st#- in Ma+a-sia
2 organi-ational forms commonly
applied in +alaysia are:
?% $ranch banking
2% $ank holding companies
5 A corporation that controls' through share
o!nership' /@F or more of one or more banks%
5 Dxample: $umiputra Commerce 4oldings$erhad controls C+$ $ank' C+$ slamic
$ank' C+$ nvestment $ank' etc%
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THE IMPACT OF 5IBERA5I6ATION 7THE IMPACT OF 5IBERA5I6ATION 7
G5OBA5I6ATION ON BANKING 0ECTORG5OBA5I6ATION ON BANKING 0ECTOR
5i*!#a+i%ati"n relaxation of previous
government restrictions' usually in areas of
social or economic policy%
G+"*a+i%ati"n gradual evolution of markets
and institutions such that geographic
boundaries do not restrict financial
transactions%
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5i*!#a+isati"n ") Ma+a-sian Finania+5i*!#a+isati"n ") Ma+a-sian Finania+
0!t"#0!t"#
ssuance of Ee! icences
ncreases in foreign e)uity limits 6perational flexibilities
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Cont0
?% Competition
2% Technology transfer virtual banking
#% Dliminates trade restrictions
,% *tandardi-ed basic product designs
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The banking institutions today has to adopt many
roles to remain competitive and responsive to
public needs% Among the principal roles includeB
The intermediation role
Transforming savings into loans
The payment role
Carrying out payments for goods andservices on behalf of customers
The guarantor role
*tanding behind their customers to pay offcustomer debts !hen those customers are
unable to pay
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The risk management role
Assisting customers in preparing financially for
the risk of loss to property' persons andfinancial assets
The investment banking role
Assisting corporations and governments inraising ne! funds' pursuing ac)uisitions and
exploring ne! markets
The savingsGinvestment adviser role
Aiding customers in fulfilling their long5rangegoals for a better life by building and investing
savings
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The safekeepingGcertification of value role
*afeguarding a customer