FIMA 351 Bank Operations, Management and Marketing PDF

Republic of the Philippines POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY AND FINANCE DEPARTMENT OF FINANCIAL MANAGEMENT Learning Material FIMA 351...

Republic of the Philippines POLYTECHNIC UNIVERSITY OF THE PHILIPPINES COLLEGE OF ACCOUNTANCY AND FINANCE DEPARTMENT OF FINANCIAL MANAGEMENT Learning Material FIMA 351 (Bank Operations, Management and Marketing) Prof. Gem B. Galupar, CLSSGB Welcome Welcome to the Class Let us review: What is a Bank? A bank is a government-regulated business whose main purpose is to act as an intermediary between people with capital and those who want to borrow it. As of 2021, more than 4,200 banks insured by the Federal Deposit Insurance Corp. (FDIC) operated in the U.S. These banks held deposits exceeding $18.4 trillion. Although there are several kinds of banks, most people deal with retail banks, which do business primarily with consumers and small businesses. A bank is a By USA TODAY: John Egan and Taylor Tepper financial institution Updated 12:04 p.m. UTC March 27, 2024 licensed to receive deposits and make loans. Banks may also Banks and other financial institutions offer provide products and services to help you manage your money, but do you know how they work?| Various financial services such as wealth If you have a checking account, savings account, credit card, or loan, banks are integral to your financial life. Banks and management, currency exchange, and the financial services industry are an important part of the safe deposit boxes. There are several economy because they provide the means for people to types of banks including commercial borrow money, make investments, save for the future and handle smaller tasks (like making deposits and paying bills). banks, investment banks, and central FORBES: By Rebecca Lake (Banking Expert) and Doug Whiteman (Personal banks. Finance Editor) References Photo by thestrategywatch.com 1. Mishkin, Frederic S. "The Economics of Money, Banking, and Financial Markets." | What is a Bank? Bank Definition and Types 11th ed., Pearson, 2018. 2. Saunders, Anthony, and Marcia Millon Cornett. "Financial Institutions Management: Property and Material of Gem B. Galupar Classifications of Banks according to BSP’s MORB as of Dec 2021 (latest) Property and Material of Gem B. Galupar Classifications of Banks Defined Universal banks are financial Commercial banks are financial institutions that offer a wide range institutions that provide services of banking services, including such as accepting deposits, commercial and investment offering checking and savings banking. They can engage in accounts, and providing loans to various activities such as retail individuals and businesses. They banking, corporate banking, asset earn revenue primarily through management, investment interest on loans and fees for services, insurance, and other services. Commercial banks are financial services. Universal often involved in both retail banks are often large institutions banking (serving individual that serve diverse customer consumers) and corporate bases. banking (serving businesses). Property and Material of Gem B. Galupar Classifications of Banks Defined Thrift banks, also known as savings and loan associations or savings banks, focus on accepting savings deposits and making mortgage and other loans to individuals. Thrift banks are typically more community-focused and aim to promote homeownership and personal savings. Stock savings and loan Private development banks are Mortgage banks specialize in associations are similar to financial institutions that provide originating and servicing thrift banks but are structured long-term financing for economic mortgage loans. They provide as corporations with development projects. They focus financing for the purchase of stockholders. They accept on funding infrastructure, industrial, residential or commercial savings deposits and provide agricultural, and other development property and may sell the loans, primarily for real estate projects that promote economic mortgages to investors in the purposes. They focus on growth. These banks can be secondary market. Mortgage serving the financial needs of privately owned or partially funded banks do not take deposits; their local communities and by the government. instead, they rely on borrowing or promoting homeownership. selling mortgages to fund their lending activities. Property and Material of Gem B. Galupar Classifications of Banks Rural banks are financial Cooperative banks are institutions that operate in rural member-owned financial areas, providing banking institutions that operate on a services to agricultural and cooperative basis. They provide rural communities. They offer a range of banking and various financial products, financial services to their including savings accounts, members, who are also their loans for agricultural purposes, customers and owners. and microfinance services to Cooperative banks focus on support local economic serving the financial needs of activities. their communities and promoting mutual benefits. Property and Material of Gem B. Galupar Classifications of Banks Defined Islamic banks operate in Digital banks, also known as accordance with Islamic law neobanks or online banks, operate (Sharia). They provide banking primarily through digital platforms and financial services that without physical branches. They comply with Islamic principles, offer a range of banking services, such as the prohibition of including opening accounts, interest (riba) and engaging in making transactions, and providing ethical investments. Islamic loans, all through online or mobile banks offer products like profit- applications. Digital banks leverage sharing accounts, leasing, and technology to provide convenient partnership-based financing. and often lower-cost banking services. Property and Material of Gem B. Galupar Powers and Scope of Authorities of Banks by BSP's MORB as of Dec. 21, 2021 (latest) Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks accepting or creating Demand deposits are bank account balances that can be withdrawn on demand without any advance notice. Examples include checking accounts, which allow the account holder to access their funds at any time through various means such as writing checks, using debit cards, or withdrawing cash. Other Types of Deposits and Deposit Substitutes This category includes: Time deposits: Also known as term deposits or fixed deposits, these are funds deposited in a bank for a fixed period of time, which cannot be withdrawn before the maturity date without incurring a penalty. Savings deposits: Accounts that pay interest on the balance but may have limitations on the number of withdrawals. Certificates of deposit (CDs): Time deposits with a specific maturity date and interest rate. Deposit substitutes: Financial instruments that serve as alternatives to traditional deposits, such as repurchase agreements and certain types of securities that banks issue. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Issuing, Accepting, Discounting and Negotiation of A promissory note is a written, legally binding document in which one party (the maker or issuer) promises to pay a specific sum of money to another party (the payee) either on demand or at a specified future date. Key characteristics include: Unconditional promise: It clearly states the obligation to pay without any conditions. Specific amount: The exact amount of money to be paid is mentioned. Payment terms: The date or conditions under which payment must be made are specified. Signatures: It must be signed by the maker. Promissory notes are often used in loan agreements and can be transferred to others, making them negotiable instruments. Types of Promissory Notes: 1. Demand Promissory Note: Payable on demand by the payee. Example: A short-term loan between friends with no fixed repayment schedule. 2. Term Promissory Note: Payable at a specified future date. Example: A loan taken out for a car purchase, repayable in 5 years. 3. Secured Promissory Note: Backed by collateral. Example: A mortgage note where the property is the collateral. 4. Unsecured Promissory Note: Not backed by any collateral. Example: A personal loan based on the borrower's creditworthiness. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Issuing and Accepting er) y o n e p arty (the draw Type s a n g e) is a written ord e r b s u m of money to a 1. S of Drafts: il l o f e xc h ya s p e c ifi c ight D A draft (or b a rt y (th e drawee) to pa re d a te. Key features r a f t: P p tu directing anoth e r e it h e r on demand or at a fu 2. T E xamp ayable on y e e ) ime D le de third party (th e p a raft: P : A check. mand (up ft. Exam ayable at on pr include: o n w h o c reates the dra y. ac c ep p le: A a esent ation) Drawer: The p e rs n tity w h o is ordered to pa 3. T tance. bi l l o f s p e c ified f. Drawee: The p erson or e l re c e iv e the payment. rade D excha nge p uture d e p e rson or entity who w il is c le arly stated. busin raft: Use ayabl ate. e : T h p a id e s s es d in c e 60 d Pa ye o u n t: T h e a mount to b e h p ay m e n t m ust be made. omme ays a Specific am wh ic Exam rcial t fter s : T h e c o n ditions under paym ent o ple: A ransac Payment term 4. B fg ank D oods deliv ft issued dra tions betwe. are defined. fe rred to others nts r af t : I ered. by a s en il it y : D ra ft s c a n b e tra n s l tra d e to fa cilitate payme Exam s s u e e l l e r to a Negotia b n ly used in intern ation a ple: A d by a ba buyer c o m m o c as hi n k, gua for Drafts are er's c e e n b u y e rs and sellers. heck. ranteeing betw paym ent. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Discounting and Negotiation of A bill of exchange is similar to a draft and is a written, Types of Bills of Exchange: Inland Bill of Exchange: Drawn and payable within the same country. unconditional order by one party (the drawer) to another Example: A bill of exchange used for a domestic transaction between two parties within the party (the drawee) to pay a specified sum of money to a same country. Foreign Bill of Exchange: Drawn in one country and payable in another. third party (the payee) on demand or at a predetermined Example: A bill of exchange used for international trade between a US exporter and a future date. Key characteristics include: European importer. Documentary Bill of Exchange: Accompanied by documents, such as shipping or title Drawer: The party that creates the bill. documents. Drawee: The party who is ordered to make the payment. Example: A bill of exchange used in international trade, accompanied by a bill of lading and Payee: The party to whom the payment is to be made. invoice. Accommodation Bill of Exchange: Drawn and accepted without consideration, to help a Specific amount: The amount of money to be paid is friend or relative. Example: A bill of exchange drawn by one party to provide financial assistance to another, stated. without any goods or services exchanged. Unconditional order: The payment order is not subject to any conditions. Payment terms: The terms of payment, including the due date, are specified. Negotiability: Bills of exchange are negotiable instruments and can be endorsed and transferred to others. Bills of exchange are widely used in international trade transactions as a method of ensuring payment and can serve as a form of credit. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Types of Letters of Credit 1. Commercial Letter of Credit (Documentary Credit) Issuing and Accepting Example: A US company imports electronics from a Japanese supplier. The US company's bank issues a commercial letter of credit in favor of the Japanese supplier. The supplier ships the goods and provides the necessary shipping documents to its bank, which forwards them to the US company's bank. Once the documents are verified, A letter of credit is a the US company's bank releases the payment to the Japanese supplier. 2. Standby Letter of Credit Example: A construction company needs to provide a performance guarantee to a client. The company's bank issues a standby letter of credit. If the construction company fails to meet the project deadlines or specifications, the client can draw on the standby letter of credit to recover its losses. financial instrument issued 3. Revolving Letter of Credit Example: A retailer has an ongoing arrangement to purchase goods from a supplier every month for a year. Instead by a bank guaranteeing a buyer's payment to a seller of issuing a new letter of credit for each transaction, the retailer's bank issues a revolving letter of credit that automatically renews up to a specified amount and period. 4. Traveler's Letter of Credit Example: An individual traveling abroad for an extended period can obtain a traveler’s letter of credit from their bank. This letter assures foreign banks and businesses that the traveler has the financial backing of their home bank, will be received on time facilitating transactions and withdrawals. 5. Confirmed Letter of Credit and for the correct amount. In the event that Example: A small exporter from Brazil is selling goods to a buyer in Germany but is concerned about the creditworthiness of the German bank. The exporter's Brazilian bank confirms the letter of credit issued by the German bank, adding its guarantee to pay if the German bank defaults. 6. Transferable Letter of Credit Example: A trading company (middleman) arranges for the sale of goods between a manufacturer and a buyer. The the buyer is unable to buyer's bank issues a transferable letter of credit to the trading company, which then transfers the credit to the manufacturer. This allows the manufacturer to receive payment directly. make the payment, the 7. Red Clause Letter of Credit Example: An exporter needs advance funds to purchase raw materials for fulfilling an order. The importer's bank issues a red clause letter of credit, allowing the exporter to receive an advance payment before shipping the goods. bank will cover the full or 8. Green Clause Letter of Credit Example: Similar to the red clause, but in addition to the advance for raw materials, the green clause letter of credit remaining amount. also allows for advance payment for warehousing and pre-shipment processing. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Buying and Selling of Foreign exchange, or forex, Gold or silver bullion refers to precious is the conversion of one metals in bulk form, typically bars or country's currency into ingots, which are traded in the market another. based on their weight and purity Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Acquiring Marketable bonds are debt securities that can be easily bought or sold in the financial markets. They are typically issued by governments or corporations and have a fixed interest rate and maturity date. Other debt securities include instruments like treasury bills, commercial paper, and corporate bonds. These are financial instruments that represent a loan made by an investor to a borrower, with the terms of the loan, including interest and maturity date, specified. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of Commercial Banks Creating and Extending Credit in banking refers to the trust that allows one party to provide money or resources to another party, with the understanding that the payment will be made in the future. Credit can take various forms, including loans, credit cards, and lines of credit, and involves the assessment of the borrower's ability to repay. Property and Material of Gem B. Galupar  Let us discuss and define the powers and scope of Commercial Banks and may also exercise or perform any or all of the following: (a) invest in the equities of allied enterprises as provided in Sections 31 and 32 of R.A. No. 8791; (b) purchase, hold and convey real estate as specified under Sections 51 and 52 of R.A. No. 8791; (c) receive in custody funds, documents and valuable objects; (d) act as financial agent and buy and sell, by order of and for the account of their customers, shares, evidences of indebtedness and all types of securities; (e) make collections and payments for the account of others and perform such other services for their customers as are not incompatible with banking business; (f) upon prior approval of the Monetary Board, act as managing agent, adviser, consultant or administrator of investment management/advisory/consultancy accounts; (g) rent out safety deposit boxes; Property and Material of Gem B. Galupar  Let us discuss and define the powers and scope of UNIVERSAL Banks Universal Bank can do whatever a Commercial Bank does, plu 1 2 3 4 the powers of the power to the power to in case of an investment invest in own up to one publicly‐listed house (IH) as non‐allied hundred percent UBs, the power provided under enterprises; (100%) of the to own up to existing laws; equity in a TB, 100% of the an RB, a voting stock of financial allied only one (1) enterprise, or a other UB or KB. non‐financial allied enterprise; Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of UNIVERSAL Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of THRIFT Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of THRIFT Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of RURAL Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of RURAL Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of COOPERATIVE Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of ISLAMIC Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of ISLAMIC Banks Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of ISLAMIC Banks Finally, the foregoing powers of an IB shall also be applicable to IBUs. Property and Material of Gem B. Galupar Let us discuss and define the powers and scope of DIGITAL Banks Property and Material of Gem B. Galupar