Functions of Commercial Banks

Functions of Commercial Banks A commercial bank provides financial solutions to the general public as well as businesses. These banks provide a wide range of services to ensure their clients’ financial needs are met with confidence.

One of the first services provided by a commercial bank is that they accept deposits. This is an older function with less people heading off to the bank to deposit cash these days, though it is still needed for businesses, especially the smaller business industry. Deposits can accrue interest, but depositing cash in most countries incurs an administrative or deposit fee. These banks will accept a number of deposits from basic savings deposits, where money can be withdrawn or paid out using a check book, or via the internet. The second is a checking account, ideal for business. This allows the funds to be withdrawn. There is no interest on these deposits. Finally you can find term or fixed deposits.

This is for money that isn’t needed for a period, which allows the client to earn interest on their deposit, which goes into a fixed deposit for six months or more. Another of the functions of a commercial bank is to provide loans to business and private clients. The loans offered range from short to medium term loans. Criteria for qualification includes ability to repay, size of the business, nature of the business, profitability, financial status and more. The loans range from business startup loans to working capital loans and more.

Commercial banks provide an agency service to their clients which includes collecting and paying dividends, checks, interest and more. They can be used to pay utilities, insurance and other expenses. These banks will charge a small fee for their agency functions, which can save clients time and energy when it comes to managing their finances effectively.

These banks also provide foreign exchange services and can act as custodians for expensive investments, including jewelry, documents and more.

Commercial banks offer a wide range of loan solutions for their business clients which include bank loans. Bank loans are money offered at a fixed interest rate over an agreed period. The bank will

obtain documentation to approve a client. This can include proof of income, financial statements, business registration, business plan and more. The loan is granted based on collateral, which can be real estate, inventory, machinery, equipment or ownership documentation.

Overdraft facilities / cash credit facility. This facility is provided to a client, which enables them to draw over their bank balance. The credit is advanced for one year and can be extended for up to three years. The money is usually withdrawn using a check and interest is charged based on the amount and duration it is withdrawn from the account.

Commercial bankers will often provide a small business loan solution to help small businesses boost their business and achieve success. Some of these banks offer SBA loans which are supported by the Small Business Administration. These loans help clients secure the funds they need, backed by the government, to reduce interest rates and improve their chances of a successful application approval.

All commercial banks are regulated by a central bank in their own country. The central bank oversees and supervises the commercial bank, ensuring that they adhere to set regulations and rules. The central bank will require the commercial bank to keep some funds in reserve with them, this reduces the risk of the bank going insolvent and potentially losing their clients’ money in the long run.

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