Introduction to Banking

History of Banking
Commodity Metallic Symbolic
Barter trade
money money money
 What is meant by Bank??

 Service selling institution

 Banks’ clients can be of two kinds.
One kind-Supply funds in the
form of deposit
Other kind -Take loan as debt
under the promise of repayment
Top banks in the world
List of Banks (BD) by profit
 Banking system in Bangladesh

Bangladesh
Bank

Specialized Nationalized Private Foreign

Banks Commercial Banks commercial Bank commercial bank
EXHIBIT 1-1 The Many Different Kinds of Financial-Service Firms
Calling Themselves Banks

7
Banking Industry in Bangladesh
 Central Bank of Bangladesh
(Bangladesh Bank)
• Regulates credit & money supply with a view
to maintain economic stability
• Lender of last resort
– It protects individual depositors (Deposit
insurance system, click link on next slide)
– It offers loans other banks to overcome financial
crisis
– Helps Government to raise capital
 How Central Banks Controls The Supply of
Money
• Currency Deposit Ratio
The currency deposit ratio (CDR) is the ratio of money held by the
public in currency to that they hold in bank deposits.
– CDR = CU/DD
• Reserve Deposit Ratio: Banks hold a part of the money as reserve
money and loan out the rest to various investment projects.
– Cash Reserve Ratio (CRR) specifies the fraction of their deposits
that banks must keep with BB. (6.5%)
– Statutory Liquidity Ratio (SLR) requires the banks to maintain a
given fraction of their total demand and time deposits in the form
of specified liquid assets.
 Demand deposit - Deposit of money that can be withdrawn without
prior notice
 Time deposit - Deposit in a bank account that cannot be withdrawn
before a set date or for which notice of withdrawal is required
• List of Merchant banks:
http://www.secbd.org/List%20of%20Registere
d%20Merchant%20Banks.pdf
• Deposit insurance systems (Bangladesh Bank):
• https://www.bb.org.bd/fnansys/did/did.php
 1-12
The Financial Service Competitors of Banks
 Savings Associations (saving deposit, household credit)
 Credit Unions (Collect the savings of the cooperative societies and
attempts to invest them among the members; Dhaka Mercantile Co-
operative Bank ltd.)
 Fringe banks (small loans at high interest rates)
 Money Market Funds (DWS investment; Money market funds are a
subset of mutual funds. While mutual funds invest in long-term
securities, money market funds are restricted to investment in
government treasuries and other low-risk, liquid investments.)
 Mutual Funds (ICB Mutual fund:
http://icb.org.bd/portfolio_mutual_fund.php)
 Hedge Funds (assets include; commodities, real estate, loans to new
companies)
 Security Brokers and Dealers
 Investment Banks
 Finance Companies
 Financial Holding Companies
 Life and Property-Casualty Insurance Companies
 Reading Tasks

• ICB Mutual Fund:

http://icb.org.bd/portfolio_mutual_fund.php
• Must read:
• Non-banks offer higher rates for deposits (can be accessed at:
http://www.thedailystar.net/business/non-banks-offer-higher-
rates-deposits-783460)
• Issues and Challenges of Non-Bank Financial Institutions in
Bangladesh
(can be accessed at: http://oaji.net/articles/2014/800-
1398831705.pdf)
 1-14

Traditional Services Offered By Banks

• Carrying Out Currency Exchange

• Discounting Commercial Notes and Making
Business Loans (Pledging A/R)
• Offering Savings Deposits
• Safekeeping of Valuables
• Supporting Government Activities with Credit
• Offering Checking Accounts/Demand Deposit
• Offering Trust Services
 1-15

More Recent Services Offered by Banks

• Granting Consumer Loans

• Providing Financial Advice (Financial planning)
• Managing Cash
• Offering Equipment Leasing
• Making Venture Capital Loans
• Selling Insurance Policies (Cross industry
merger & acquisition)
• Selling Retirement Plans
 1-16

Trends Affecting Banks and Other Financial

Service Firms Today

• Service Proliferation
• Rising Competition
• Government Deregulation
• Increased Interest Rate Sensitivity
• Technological Change and Automation
• Consolidation and Geographic Expansion
• E-Banking and E-Commerce
• Convergence
• Globalization