Banking and Finance

Basic Functions of Banking


1) Safekeeping of cash

Banking facilitates deposit of cash safely in the savings, current and fixed deposit account



2) Means of making payment

Payment can be made conveniently and safely through the current account, or by way of bank drafts, bank transfers and bills of exchange



3) Financing

Banking also provides or lends funds in the form loans, overdrafts or discounted bills of exchange



4) Advice

Banking also provide advice on financial investments or on credit-worthiness of customers, local or abroad



Types of Banks



There are two types of banks

1. Central Bank

2. Commercial Bank



Central Bank

Central Bank of Brazil

 The Central Bank controls the operation of the whole banking system in the country and carries out its financial policy

 The main functions are

1. To issue, control and supply of money in the country

2. To act as banker and financial adviser to the government

3. To act as banker to the commercial banks

4. To promote monetary stability and a sound financial structure in the country



 However, Brunei Darussalam don’t have their own Central Bank but Brunei Darussalam have the Monetary Authority of Singapore (that Central Bank in Singapore) to act as the Central Bank of Brunei Darussalam



Commercial Banks

 These banks are privately-owned, profit seeking financial institutions

 Examples: Hongkong and Shanghai Banking Corporation (HSBC), Bank Islam Brunei Darussalam (BIBD), Baiduri etc



 They give different types of services:-

o Saving and ATM cards

o Credit and Debit Card

o Remitting services

o Loan and Overdraft

o Safe deposit box

o Standing Orders

o Foreign Currency exchange

o Transfer of money

o Travellers’ cheques

o Telebanking

o Night safe facilities

o Saving, Current and Fixed Deposit Account

o Cheques



Bank services



Saving and ATM (Auto Teller Machine) cards

 Banks provide Saving or ATM card to its customers who have either saving or current account

 The services enable the customers to perform banking transactions anytime in the day at ATM

 Examples of the banking transactions:-Withdraw of money, paying bills, deposit of cash or cheques, transfer of funds between accounts, check bank balance etc

 Some banks like Baiduri have extended services like buying Easi or B.Moblie recharge card at their ATM



Credit Card

 Credit Card enables holders to make credit purchases by the bank at local or overseas businesses (like shops, hotels, restaurant, etc) which accept these cards.

 The most common credit card in Brunei Darussalam are Visa and MasterCard

 Advantage of having a Credit card

1. Travellers don’t have to carry any traveller’s cheques or cash

2. Travellers can charge their expenses to the card and put his cash as reserves for better use

3. The holder is informed by monthly statement of the amount of credit they have taken and the due date for making the payment



Debit Card

 Debit card has the same function as credit card but instead of given credit, Debit card withdrawn the funds directly from the cardholder’s bank account




 Advantage of having a Debit card

1. Anyone who is above 16 years old can get it

2. Its acted like Credit Card

3. The cardholders can only spend what he/she have in his/her account



Remitting services



 Remitting services the sending of money from one place to another without the actual physical movement of cash.

 Example:- Bankers’ cheque, bank draft, mail transfer and telegraphic transfer

1. Banker’s cheque or cashier’s order is a bank’s cheque drawn upon itself. It can be used for payment of any amount within the same town.

2. Bank draft is an unconditional order in writing drawn by one bank on another bank requesting the drawee bank to pay a third party on demand a specified sum of money

3. Mail transfer is a written instruction given by a remitting bank to its brand or agent bank to pay a certain sum of money to a third party

4. Telegraphic is an instruction that is cabled or telexed to a branch or agent bank by the remitting bank to pay a certain sum of money to a third party



Loan



Personal Loan



 Bank may offer personal loans to customers who have an account with the bank

 The loan is discussed with a senior bank official and if the official is satisfied that the customer has a regular and dependable income, the loan is granted

 Example: To buy new car or computer, household repairs or improvement

 The loan is repaid monthly, usually over two or three years but longer in certain cases



Business Loan



 Business Loans are often granted to small traders or self-employed professional people

 This loan might be needed for modify present premises, buy new equipment or start a new business

 Collateral security is required for larger loans

 Collateral security is the name given to items of value, which the business agree to give the bank, if they can’t able to repay the loan.

 Example: Share certificates, jewellery, cars etc



Bank Overdraft



 A bank overdraft is a cheque drawn on the bank itself and not on the individual customer’s account and it usually for large sum of money

 The money is taken out of the customer’s account and put into the bank account before the draft is issued



Safe deposit box

Banks offers security and safe-keeping for documents and valuables, which can be stored in the strong-rooms of the banks



Standing Orders



 The customer can instruct the bank to make monthly payments on his behalf by filling and signing a standing order

 These payment can be

1. Rentals

2. Installments

3. Insurance premiums

4. Subscriptions to trade journals, club, etc



Foreign Currency exchange

 Banks can change their loan currency to foreign currency, for example, Brunei dollar to US dollar, Brunei dollar to Sterling

 Bank can also change foreign currency to local currency, for example, Yen to Brunei dollar, Euro to Brunei dollar



Travellers’ cheques

 Bank can issues traveller’s cheques where these can be exchange for cash when they are signed in other countries

 They are safer to carry then money because its are valueless until they are signed by the person to whom they were issued



Transfer of money



Money can be transfer by this following ways

1. Mail transfer – where the bank sends a letter to the branch or agent requesting it to pay a certain sum to the person stated in the letter

2. Air mail transfer – where the bank send the letter by air

3. Telegraphic transfer where the bank send a telegram to its branch or agent if money is to be sent urgently



Telebanking

 Customers can pay bills or make loan payment, check bank balance, order cheques books and request statement of accounts through the use of their telephones

 Its operates 24 hours a day anywhere using the push-button telephone linked with the bank’s computer centre



Night safe facilities



 This can be used to deposit a trader’s daily takings after banking hours

 The money is put in a locked bag and dropped into the night safe, located outside the bank and goes through a chute leading to the vault



Saving Account



 This is an account which encourages people to save and earn interest

 The saving account holder can withdraw the money when needed



Fixed Deposit Account



 This is an account where the money is deposited in the bank for a period of time so its can earn interest



Current Account



 This is an account from which money can withdrawn for payments by means of cheques

 Other services available to the current account holder are overdraft, standing order, direct debiting and credit transfer services