COMMERCIAL BANK

Mahealani P. Saligumba

Meaning of commercial bank

Financial institution which performs the functions of Accepting deposits

from the general public and Giving loans for investment with the aim of earning
profit.

Commercial Banks do their banking business to earn profit.

Generally finance trade and commerce with loans.

Charge high rate of interest from borrowers but pay less rate of interest to
depositors.

Functions of commercial banks

Acceptance of deposits collection of savings from public

1. Current account Deposits : payable on demand; can be withdrawn any

number of times; no interest ; with cheque facilities

2. Fixed Deposits: have fixed period of maturity; cannot be withdrawn any

time; neither payable on demand nor enjoy cheque facilities; high
interest rate
3. Savings account Deposits: main objective is to save; payable on
demand and can be withdrawn by cheque (with some restrictions);
lesser interest rate

Gives loans and advances major function and major source of income of
commercial banks.

1. Cash Credit: with credit limit and security; withdrawing power depends
on borrowers current assets; interest is charged by the bank on the
utilised portion of credit.

1. Demand Loans: can be recalled on demand; no stated maturity; paid in

lump sum

1. Short-term Loans: given against some security or collateral; personal

loans to finance working capital or priority sector advances; can be
repaid by installments over a period of loan.

Discounting bills of exchange or bundles represents a promise to pay a

fixed amount of money at a specific point of time in future.

Can also be encashed earlier through discounting process

 A document acknowledging an amount of money owed in consideration
of goods received.

Paper asset signed by the debtor and the creditor for a fixed amount
payable on fixed date

Overdraft Facility An advance given by allowing customer keeping current

account to overdraw his current up to an agreed limit.

An arrangement between the depositor and bank that incase a cheque

has been drawn by them which are not covered by the deposit, then
the bank should grant overdraft and honour the cheque.

Security is generally financial assets

Can be paid on a daily balance.

Agency functions of the bank the bank acts as an agent of its customers
and gets commission for performing agency functions.

Transfer of Funds Collection of dividends,

interest on shares and
Collection of Funds
debentures
Payments of various
Acts as trustee and
items
executor of property of its
Purchase and sale of customers
shares and securities
Letter of references

Performing General Utility services

Travellers cheques: bank in lockers for safe

issues travelers cheques custody.
and gift cheques
Underwriting securities
Locker Facility: customers issued by government,
can keep their ornaments public or private bodies.
and important documents
Purchase and sale of
foreign exchange

Credit creation by commercial bank

Credits are created by advancing loans and purchasing securities.

STEPS:

1. Accept deposits from public 2. Keep a portion as reserve

3. Lend the rest of the deposits

4.

5. Formulae for Credit Creation

6. Total Credit Creation = Original Deposit * Credit Multiplier Co-

efficient

7. Credit Multiplier Co-efficient= 1/r (r = cash reserve requirement / Cash

Reserve Ratio)

8. Process of deposits and credit creation continues till the reserves of

commercial banks reduces to zero.

Limitations of Credit Creation Process

Amount of Cash: can be Leakages: outflow of cash

controlled by the central
Business Conditions:
bank
credit creation is
Cash Reserve Ratio: to influenced by cyclical
fulfill transaction needs of nature of an economy
depositors; to ensure
Availability of Borrowers
safety and liquidity of
and Securities
commercial banks

Types of commercial banks

Universal Commercial Banks

Multiple Service Bank the investment house

function
It does the commercial
bank functions as well as Capitalized 4.5 Billion
pesos

Ordinary Commercial Banks

Simple functions Specializes in:

Commonly to Accepting demand

businessmen deposits

Capitalized 2.8 Billion Giving short-term

pesos loans

Expanded Commercial Banks

 May invest in equity of a non-allied undertaking or may own majority or
all of the equity of a financial intermediary provided that:

Total investments in equity shall not exceed 50% of total

networth of the bank

Equity investment in one enterprise whether allied or non-allied

shall not exceed 25%

Commercial Banks in the Philippines

Bank of Commerce CTBC Bank (Philippines)

Corporation
Citibank, N.A
Maybank Philippines, Inc.
Cathay United Bank Co., LTD
Manila Branch Bangkok Bank Public Co. Ltd.

Shinhan Bank Manila Bank Bank of America, N.A.

Industrial Bank of Korea J.P Morgan Chase Bank, N.A.

Manila Branch
KEB Hana Bank Manila Branch
United overseas Bank Limited,
Mega International Commercial
Manila Branch
Bank Co., Ltd
BDO Private Bank, Inc.
The Bank of Tokyo- Mitsubishi
Philippine Bank of UFJ Ltd.
Communications
Sumitomo Mitsui Banking
Philippine Veterans Bank Corporation- Manila Branch

Robinsons Bank Corporation Commercial Banks in the

Philippines

Philippine Veterans Bank

Savings Account

1. Regular Peso Savings 5. Regular US Dollar

Saving
2. Interest Rate = 0.125%
6. Interest Rate = 0.125%
3. For Individuals: 1,000
minimum; 10,000 to earn 7. For Individuals: $100
interest minimum, maintaining
and to earn interest
4. For Corporate Accounts:
5,000 minimum; 10,000 8. For Corporate Accounts:
to earn interest $500 minimum,
 maintaining and to earn 11.For individuals: 50,000
interest maintaining balance

9. Premium Savings 12.For Corporate Accounts:

100,000 maintaining
10.High rate depending on
balance
average daily balance

13.

14.Current Account

1. Regular Peso Checking 5. Interest Rate: 0.125%

(Non-interest bearing)
6. For Individuals: 10,000
2. For individuals: 5,000 minimum, maintaining
minimum and and to earn interest
maintaining balance
7. For Corporate Accounts:
3. For Corporate Accounts: 50,000 minimum,
10,000 minimum and maintaining and to earn
maintaining balance interest

4. Special Peso Checking

(Interest Bearing)

8.

9. Fixed Account

1. Peso Time Deposit 5. U.S. Dollar Time

Deposit
2. Terms for
30,60,90,180,271 or 360 6. Terms for
days placement 30,60,90,180,271 or 360
days placement
3. For individuals: 5,000
minimum 7. For individuals: $1,000
minimum
4. For Corporate Accounts:
10,000 minimum 8. For Corporate Accounts:
$5,000 minimum

9.

10. Treasury Products and Securities

1. Securities Dealership 3. Treasury Bonds

2. Treasury Bills 4. $ Dominated Bonds

5.

6. Trust Services
 1. Fund Management 3. Other Trust and Fiduciary
Services Services
2. Estate Planning

4.

5. Investment Banking- works with client to help them determine the

appropriate capital structure in running business, make acquisitions,
and plan for their financial future.

6.

7. Significance of Commercial Banks

Plays a big role in the economic Promoting large-scale and small

development of a country. scale-industry

Promote savings and accelerate Create credit in depositors

the rate of capital formation permit

Source of finance and credit for Help commerce and industry to

trade and industry expand their field of operation

Promote balanced regional Make optimum utilization of

development resources possible

Enables entrepreneurs to
innovate and invest


Sources

http://www.economicsdiscussion.net/banks/commercial-bank-definition-
function-credit-creation-and-significances/607

http://www.businessdictionary.com/definition/commercial-bank.html

http://www.Investopedia.com/terms/c/commercialbanks.asp

http://www.globalbrandsmagazine.com/list-of-commercial-banks-in-
philippines/

http://www.economicsdiscussion.net/banks/credit-creation-by-commercial-
banks-and-its-limitations/4155

http://www.veteransbank.com.ph/investment_banking.html

http://www.bsp.gov.ph/about/charter_14.asp