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 Current account Deposits : payable on demand; can be withdrawn any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 Fixed Deposits: have fixed period of maturity; cannot be withdrawn any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demand and can be withdrawn by cheque (with some restrictions);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 Funds

Payments of various
items

Purchase and sale of

shares and securities

Collection of dividends,
interest on shares and
debentures

Acts as trustee and

executor of property of its
customers

Letter of references

Performing General Utility services

Travellers cheques: bank

issues travelers cheques
and gift cheques

Locker Facility: customers

can keep their ornaments
and important documents

in lockers for safe

custody.

Underwriting securities
issued by government,
public or private bodies.

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 Coefficient

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

controlled by the central
bank
Cash Reserve Ratio: to
fulfill transaction needs of
depositors; to ensure
safety and liquidity of
commercial banks

Leakages: outflow of cash

Business Conditions:
credit creation is
influenced by cyclical
nature of an economy

Availability of Borrowers
and Securities

Types of commercial banks

Universal Commercial Banks

Multiple Service Bank

It does the commercial

bank functions as well as

the investment house

function

Capitalized 4.5 Billion

pesos

Specializes in:

Ordinary Commercial Banks

Simple functions

Commonly to
businessmen

Accepting demand
deposits

Capitalized 2.8 Billion

pesos

Giving short-term
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

Citibank, N.A

Cathay United Bank Co., LTD

Manila Branch

CTBC Bank (Philippines)

Corporation

Maybank Philippines, Inc.

Bangkok Bank Public Co. Ltd.

Shinhan Bank Manila Bank

Bank of America, N.A.

Industrial Bank of Korea

Manila Branch

J.P Morgan Chase Bank, N.A.

KEB Hana Bank Manila Branch

Mega International Commercial

Bank Co., Ltd

The Bank of Tokyo- Mitsubishi

UFJ Ltd.

Sumitomo Mitsui Banking

Corporation- Manila Branch

Commercial Banks in the

Philippines

United overseas Bank Limited,

Manila Branch

BDO Private Bank, Inc.

Philippine Bank of
Communications

Philippine Veterans Bank

Robinsons Bank Corporation

Philippine Veterans Bank

Savings Account
1. Regular Peso Savings
2. Interest Rate = 0.125%
3. For Individuals: 1,000
minimum; 10,000 to earn
interest
4. For Corporate Accounts:
5,000 minimum; 10,000
to earn interest

5. Regular US Dollar
Saving
6. Interest Rate = 0.125%
7. For Individuals: $100
minimum, maintaining
and to earn interest
8. For Corporate Accounts:
$500 minimum,

maintaining and to earn

interest
9. Premium Savings
10.High rate depending on
average daily balance

11.For individuals: 50,000

maintaining balance
12.For Corporate Accounts:
100,000 maintaining
balance

13.
14.Current Account
1. Regular Peso Checking
(Non-interest bearing)
2. For individuals: 5,000
minimum and
maintaining balance
3. For Corporate Accounts:
10,000 minimum and
maintaining balance

5. Interest Rate: 0.125%

6. For Individuals: 10,000
minimum, maintaining
and to earn interest
7. For Corporate Accounts:
50,000 minimum,
maintaining and to earn
interest

4. Special Peso Checking

(Interest Bearing)
8.
9. Fixed Account
1. Peso Time Deposit
2. Terms for
30,60,90,180,271 or 360
days placement
3. For individuals: 5,000
minimum
4. For Corporate Accounts:
10,000 minimum

5. U.S. Dollar Time

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

9.
10.

Treasury Products and Securities

1. Securities Dealership
2. Treasury Bills
5.
6. Trust Services

3. Treasury Bonds
4. $ Dominated Bonds

1. Fund Management
Services
2. Estate Planning

3. Other Trust and Fiduciary

Services

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

development of a country.

Promoting large-scale and small

scale-industry

Promote savings and accelerate

the rate of capital formation

Create credit in depositors

permit

Source of finance and credit for

trade and industry

Help commerce and industry to

expand their field of operation

Promote balanced regional

development

Make optimum utilization of

resources possible

Enables entrepreneurs to
innovate and invest

Sources

http://www.economicsdiscussion.net/banks/commercial-bank-definitionfunction-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-inphilippines/

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

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

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