Commercial banks

Business studies study module

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



(Visited 13 times, 1 visits today)
Share this on:

Leave a Reply

Your email address will not be published.