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9 Basic Principles that Commercial Banks

Follow

Commercial banks follow certain principles to

serve the maintain some principles which are very important for banks to remain in the
competition in modem days.
The bank which deals with money and money a worth with a view to earning prom is
known as the commercial bank.
Commercial banks must maintain some principles which are very important for banks to
remain in the competition in modem days.
9 principles that commercial banks follow;

1. Liquidity.

2. Solvency.

3. Profitability.

4. Loan and Investment.

5. Savings.

6. Services.

7. Secrecy.

8. Efficiency.
9. Location.

Some principles are discussed below;

1. Principle of Liquidity
The principle of liquidity is very important for the commercial bank. Liquidity refers to
the ability of an asset to convert into cash without loss within a short time.
Paying the deposited money on demand of’ customers is called liquidity in sense of
banking.

2. Principle of Solvency
Solvency means the financial capability or sufficiency in the capital. To stay in these
competitive market commercial banks must have sufficient capital. If the funds are not
sufficient the bank cannot run his business.
The main source of fund of the commercial bank is the deposited money by the
depositors’ through the different type of account.
Depositors keep cash in the bank, especially for safety. So commercial bank must ensure
the safety of deposited fund.

3. Principle of Profitability
The main objective of the commercial bank is to earn a profit. For earning profit
commercial bank have to make the investment by providing short-term loan, before
providing loan commercial bank have to compensate a certain amount of money as
liquidity.

4. Principle of Loan and Investment

The main source of profit of bank is granting loans to any individual or organization.
Investment is the profitable and sound source of income. Commercial banks invest in
business and investment sector.

5. Principle of Savings
Commercial banks collect fund by creating savings facilities. Commercial banks try to
collect savings from society surplus.
The commercial bank makes the investment from this savings to generate profit. So,
more savings, more investment, and more profit.
6. Principle of Services
Commercial bank ensures best services to their customers. The success of a bank
depends on the services provided by the bank. Customer chooses those banks that
provide improved services.

7. Principle of Secrecy
Customers want to keep secret about their valuable assets and money. So banks must
have to keep secret about their customer’s account. If a commercial bank does not
maintain secrecy the customer will be dissatisfied.

8. Principle of Efficiency
The commercial bank should operate their business efficiently. So that they can succeed
at the objective.
In this competitive market, there is no alternative way without efficiency in management.
So commercial bank must train their employees to increase the efficiency in
management.

9. Principle of Location
Commercial banks must have to locate their branches in the commercial area where
many customers are available. The location must be safe for the customers and easy
communication system must exist.
Other principles;

▪ The principle of goodwill.

▪ The principle of the economy.

▪ The principle of technology.

▪ The principle of publicity.

These are the basic principles of the commercial bank. The commercial bank must follow
these principles.
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