Functions of commercial banks, Managerial Economics

Functions of Commercial Banks

In modern economy, commercial banks have the following functions:

i.     They provide a safe deposit for money and other valuables.

ii.    They lend money to borrowers partly because they charge interest on the loans, which is a source of income for them, and partly because they usually lend to commercial enterprises and help in bringing about development.

iii.    They provide safe and non-inflationary means for debt settlements through the use of cheques, in that no cash is actually handled.  This is particularly important where large amounts of money are involved.

iv.    They act as agents of the central banks in dealings involving foreign exchange on behalf of the central bank and issue travellers' cheques on instructions from the central bank.

v.     They offer management advisory services especially to enterprises which borrow from them to ensure that their loans are properly utilized.

Some commercial banks offer insurance services to their customers eg. The Standard Bank (Kenya) which offers insurance services to those who hold savings accounts with it.

Some commercial banks issue local travellers' cheques, e.g. the Barclays Bank (Kenya).  This is useful in that it guards against loss and theft for if the cheques are lost or stolen, the lost or stolen numbers can be cancelled, which cannot easily be done with cash.  This also safe if large amounts of money is involved.

Posted Date: 11/29/2012 4:55:48 AM | Location : United States

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