Commercial banks

Business studies study module

These are financial institutions that offer banking services with a profit motive. Their activities are regulated by the Central bank.

Functions of commercial banks

  • Accepting deposits: They accept deposit from members of the public inform of current accounts, savings account and fixed deposit accounts. Such accounts help individuals to keep money safely.
  • Provision of safe means of payments: They provide safe and reliable means of payment such as cheques, bank drafts, credit transfers, electronic funds transfers etc.
  • Provision of loan facilities: They provide loans to members in form of short term and long term. These loans are repayable with interests thus income to the banks.
  • Facilitates foreign exchange payments: They provide foreign exchange that is used in international trade. They also make payments on behalf of their customers.
  • Provision of safe keeping of valuables: They provide security for valuables to their customers at a fee
  • Discounting bills of exchange: This is process by which a bank accepts bills of exchange and promissory notes from its customers in exchange of cash less than the face value of the bill or note.
  • Provision of financial information: – They advice their clients on financial matters affecting their businesses such as investment option and wise use of loans.
  • Money transfer:- They provide varied, safe and reliable means of money transfer. Such means include cheques, standing orders, credit transfers, bank drafts, letters of credit, credit cards, travelers cheques etc.
  • Act as guarantors and referees: – They act as guarantors to their customers who want to acquire credit facilities from other financial institutions.
  • Act as intermediaries: – They act as a link between the savers and borrowers.
  • Credit creation: – This is the process of creating money from the customer deposits through lending.
  • Provision of trusteeship: – They can manage a business on behalf of the client especially if the client does not have managerial skills. They can also manage the assets of the deceased client if there was no will.

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