Function of Commercial Banks

 Function of Commercial Banks

According to Orjih John in his “Banking operation in Nigeria commercial banks performs a variety of function which are worthy of note.  These banks provide range of services to satisfy the financial needs of all types of customers from smallest personal account holder to the big corporate and public organization.

After consultation of may texts.  It was observed that commercial banks perform, among many others, the following primary function for the economy namely:

1.       Acceptance of deposit

2.       Granting of loans and overdraft to customers

3.       Transferring of fund on the customer’s instructions

4.       Providing foreign exchange facilities

5.       Providing night safe facilities

6.       Miscellaneous function.

ACCEPTANCE OF DEPOSITS

Precisely, this is the oldest banking function.  Banks can accept deposit in the following forms namely: current deposit account, savings deposit account and fixed deposit account.  The commercial bank accept deposit from household, the business sector, and the government.  These deposits are kept in either of the above mentioned accounts.  The savings so mobilized are employed for development projects in the country.

GRANTING OF LOANS AND OVERDRAFT TO CUSTOMERS

(i)      This can be by means of a loan account.

(ii)     It can equally be by means of overdraft.

Granting of loans and overdraft are the second most important functions of banks after accepting deposit.  Bank can lend money to individual, government, corporations and firms that have liquidity problems or shortage of funds.

TRANSFERRING OF FUNDS ON CUSTOMERS INSTRUCTION

This is a service rendered by the commercial banks, which enable the customer or non-customer to make payments to another person of firm by completing a form and handing over the amount to the banker.  This system is referred to as mainly transfer.

PROVIDING FOREIGN EXCHANGE FACILITIES

Travellers and business men obtain travelers cheques and foreign currencies from their banks.  The banks offering the needed foreign exchange to their customers help to promote foreign trade.

MISCELLANEOUS FUNCTIONS

Under this heading are some of the functions of the banks that are not regarded as primary functions of the commercial banks.

(i)      PROVIDING NIGHT SAFE FACILITIES

The night safe facilities is an arrangement that allows bank customers to deposit their money allows bank customer to deposit their money safely in the bank the normal banking hours.  Night safe deposited with the bank, the depositor has to call the following day after presenting his particulars and which must be verified.  He will be given his money and then go through the normal process of depositing during the banking hours.

(ii)     BUYING AND SELLING OF SHARES FOR CUSTOMERS

The banks may act as issuing houses for the purpose of selling shares on behalf of other customers.  Also the banks buy shares on behalf of their customers.

(iii)    EXECUTORSHIP FUNCTION

Banks may act as executors for deceased persons.  The bank here will have to distribute the estate of the deceased according to the provisions of his will.

(iii)    FACTORING AND EQUIPMENT LEASING

Banks buy equipment and lease them out to customers and business firms who could not afford such large equipment cash outlay.

LENDING PRINCIPLES AND PRACTICES

In banking business, excess or surplus fund of customers, one lodged or deposited in the bank in form of saving or for safe custody.  The understanding of banker – customer relationship will reveal that the bank becomes a debtor on receiving customers demand or according to the terms of the contract.  Study has also shown that banks do not keep these funds lying idle; they still invest them in form of lending.  Banks therefore apply caution in the granting of loans and advances so as to avert the risk of bad debt, bad lending and consequent financial distress.  There are factors, which the bank put into consideration during lending for the purpose of this study these factors are going to be discussed as practices and principles of lending.  Some authors sometimes divide these into practices and principles as well as cannons of lending for proper understanding of this topic, the banker – customer relationship as well as the duties and responsibilities of banks and customers need to be understood.

It has been observed that loan proposal granting and repayment depend principally on the following factors; viz character, capacity, collateral, amount and monitoring other factors that should be discussed as cannons of lending are:  purpose of loan, duration or period of loan, repayment programme.

These factors listed above are to be briefly discussed.

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