bank management chp 1

7/25/2019 bank management chp 1

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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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*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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*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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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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>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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+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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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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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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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

bank management chp 1

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