Professional Documents
Culture Documents
CHAPTER 1
INTRODUCTION
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
BAFIA (1989)
Cont
Bank size
Differences in bank size will lead to greater
differences,
in the way banks are organized
In the types and variety of financial services
each bank offers in the markets that it
serves
Cont
Small banks:
Heavily committed to attracting smaller,
consumer-oriented deposits and making
consumer installment and small business
loans
Heavy involvement in consumer loans and
deposits
Often called as retail bank
Cont
Small banks (community banks)
Close contact between top management and
the management (and staff of each division)
Significantly impacted by changes in the local
economy
Limited opportunity for advancement or for the
development of new banking skills
Have close relationship with their customers
Cont
Large banks
The organization chart is more complex
Most banks are owned and controlled by a
holding company whose stockholders elect a
board of directors to oversee the bank and
nonbank businesses allied with the same
holding company
Selected members of the holding companys
board of directors serve on the banks board
as well
8
Cont
Key problem span of control
More diversified (geographical and by product)
to withstand the risks of a fluctuating economy
Rarely dependent on the economic fortunes of a
single industry or even single nation
More stable due to their greater capacity to
accept the risks of entering new markets and
their potentially greater access to capital and
managerial talent
10
Cont
Cont
Computer-based systems and electronic
service delivery
Growing numbers of people with
computer skills
Bank operations are more efficient
Greater opportunity for planning new
services and new service delivery
facilities
12
Convergence
service proliferation and greater competitive
rivalry among financial institutions have led to a
powerful trend convergence
Convergence movement of businesses across
industry lines
Banks broaden their business by venturing into
other product lines
Consolidation geographic expansion
fewer number of banks, but much larger service
providers.
example, the number of bank declines but the
size of assets and deposits increases.
13
14
BANK MARKETING
Marketing - refers to the need satisfaction of
the institutions clients.
Involves
identifying the needs of the customers
developing products to suit their needs or
modifying the existing products accordingly.
the need for foreseeing wants of the customers in
future and developing suitable products of their
requirement.
15
Cont
Bank marketing consists of
identifying the most profitable markets now
and in the future;
assessing the present and future needs of
customers;
setting business development goals and
marketing plans to meet them
managing the various services and promoting
them to achieve the plans
16
Cont
- Branch Banking
- Offer full range of services from several
locations
18
Cont
Each branch may have their own management
team with limited authority to make decisions on
customer loan application and other facets of
daily operations
Ex: branch bank manager may be authorized
to approve a customer loan of up to
RM100,000. Larger loan requests must be
referred to the head office for final decisions
Senior management of a branch banking is
usually located at the head office
20
Organizational Structure
Branch
Branch Manager
Assistant Manager
Bank Officer
Deposit
Remittance
Account
Credit
21
Organizational Structure
Head Office
Board of Directors
Chief Executive Officer
Head of Department
Departments*
22
Organizational Structure
Example of departments:
Islamic Banking
Corporate Banking
Retail Banking
Electronic Banking
International Banking
Information technology and management
information system
Finance and administration
Risk Management
Branch Banking
23
24
25
Organizational Structure
Bank Holding Companies
Holding Corporation
Main Bank
Associated Business
Bank Subsidiaries
Non-bank Subsidiaries
27
29
Cont
The principal advantage for bank holding
companies entering non-bank lines of business
is the prospect of diversifying sources of
revenue and profits (reduce risk exposure)
The holding company form permits the legal
separation between banks and non-bank
businesses having greater risk, allowing these
different firms to be owned by the same group of
stockholders
30
31
Cont
Disadvantage:
Reduce or eliminate competition between
banks
Overcharging the customers
Being indifferent to local community needs
Take excessive risks
33
Conclusions concerning
organization type and size
1. The profitability of a bank is not determined
primarily by how it is organized; the quality of its
management and the economic conditions in its
market area appear to be far more important to
its success
2. Small banks of any organizational type can
compete successfully with large banks, provided
they aggressively seek to preserve their profits
and market share. Economies of scale from bank
growth appear ton be limited to banks of
relatively modest size
34
Cont
3. Branch banks and banks affiliated with holding
companies have greater protection against
failure than small unit banks. They also tend to
offer more services than unit banks and
operate more offices per unit of population,
thus providing more convenient services
4. The prices charged and deposit interest rates
paid by banks do not appear to depend greatly
on how each bank is organized but rather on
the amount of competition the bank faces, the
strength of market demand for bank services,
and the rate of inflation.
35
Cont
5. The public receives about the same quality of
banking services and pays about the same for
them under branching, holding company, or
independent unit banking systems
6. The types of banking organizations serving the
public do not appear to be a key factor in the
growth and development of the economy,
though greater branching activity seems to
accelerate economic growth
36
38
39
Cont
1.
2.
3.
4.
Competition
Technology transfer virtual banking
Eliminates trade restrictions
Standardized basic product designs
40
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