Ukrainian Academy of Banking Department Course Banking Lecture

Ukrainian Academy of Banking Department Course: Banking Lecture 1 Banking and banking activity Anna Vladimirovna Buriak

Game: “Banking words” 2 groups of people with their leaders

Agenda 1. The essence of banking 2. Functions of banks 3. Bank product, bank service and types of banking activities 4. Some basic questions about banking

1. The essence of banking Banking is: one of the most important activity in the modern economic world it is necessary for trade and industry is very helpful to the economic activity and industrial progress of a country private sector banks play a significant role in the financial system and the real economy. They intermediate between all sectors of the economy and other financial intermediaries and institutions The provision of deposit and loan products normally distinguishes banks from other types of financial firms. The core activity is to act as intermediaries between depositors and borrowers. For this reason, banks are the most regulated intermediaries. In most countries the central bank regulates and supervises the banks, and they are obliged to have large departments and skilled persons to carry out this function.

How do financial intermediaries work? Lenders Surplus economic units Borrowers deficit economic units

1. The essence of banking What is bank? Bank is a financial intermediary

1. The essence of banking A commercial bank is: a profit-seeking business firm, dealing in money and credit (in money - it accepts deposits of money from the public to keep them in its custody for safety; in credit - it creates credit by making loans out of the funds received as deposits to needy people) q q financial institution which accepts money from the public for the purpose of lending or investment repayable on demand or otherwise fill the gap between the savers and borrowers. Banks are unique financial intermediaries. They are the only intermediaries that intermediate between all ultimate lenders and borrowers q

How does bank work?

How does bank work? 2. Functions of banks Commercial banks have to perform a variety of functions which are common to both developed and developing countries. These functions can be broadly divided into two categories: (a) Primary functions and (b) Secondary functions.

How does bank work? 2. Functions of banks A. Primary Functions Primary banking functions of the commercial banks include: 1. Acceptance of deposits 2. Advancing loans 3. Providing settlements and remittance of funds

How does bank work? 2. Functions of banks A. Primary Functions Primary banking functions of the commercial banks include: 1. Acceptance of deposits Accepting deposits is the primary function of a commercial bank mobilise savings of the household sector. Banks generally accept three types of deposits (a) Current Deposits (demand deposits). (b) Savings Deposits(time deposits), and (c) Fixed Deposits.

How does bank work? 2. Functions of banks A. Primary Functions Primary banking functions of the commercial banks include: 2. Advancing Loans To make loans and advances to all types of persons, particularly to businessmen and entrepreneurs. Loans are made against personal security: Overdraft Cash credit Consumer credits

How does bank work? 2. Functions of banks A. Primary Functions Primary banking functions of the commercial banks include: 3. Providing settlements and remittance of funds To provide to their customers a cheap medium of exchange like cheques and provide facilities to remit funds from one place to another for their customers by issuing bank drafts, mail transfers etc

How does bank work? 2. Functions of banks B. Secondary Functions Secondary banking functions of the commercial banks include: Agency Services and General Utility Services when banks also perform certain agency functions for and on behalf of their customers (like purchase and sale of Securities, consultancy)

3. Bank product, bank service and How does work? types of banking activities

3. Bank product, bank service and 1. The meaning of „banking”, „banking types of banking activities activity”, „bank service” and „bank product”. The banking product is characterized by the following features: • has no material expression, it is abstract; • involves the use of money in various forms; • the specific nature of the product is reflected in the treatyrelations; • is non-transportable, can not be stored for the first time; • has no constant quality.

3. Bank product, bank service and 1. The meaning of „banking”, „banking types of banking activities activity”, „bank service” and „bank product”.

3. Bank product, bank service and 1. The meaning of „banking”, „banking types of banking activities activity”, „bank service” and „bank product”.

3. Bank product, bank service and 2. The essence of banking activities. types of banking activities Types Primary: - acceptance of deposits; - settlements (open and serving customer accounts); - credit and investment ensuring. of bank activities Secondary: -currency activity; -issuance; -securities activity (buying and selling on behalf of customers, activity on the security market); -guarantee and surety activity; -factoring; -leasing; -custody services; -payment instrument issue (cheques); -consulting and informational services; -collection services

3. Bank product, bank service and types of banking activities 2. The essence of banking activities. Types of bank activities fund forming activity (deposit activity; issuance (own debt securities issue), interbank credit (credit receiving from other banks) - fund allocation activity: investment (securities holdings); forming (bank participation in the business); credit; deposit (reserves creation on the other banks accounts). Commission-intermediary activity: activity on behalf of customers for specific charge – commission or interest). commission-settlement activity relating to the internal and foreign trade settlements; trade-commission – securities, precious metal, currency buying and selling on behalf of customers, shares and bonds intermediation, accountind and consulting services; others – traditional financial and exchange services (share portfolio management, budget and tax planning).

3. Bank product, bank service and types of banking activities 2. The essence of banking activities. In the context of the statement reflection sense off-balance activity. - activity reflecting in the asset part of statement; activity reflecting in the liabilities part of statement;

3. Bank product, bank service and 3. Banking activities in Ukraine types of banking Article 47. Banking activities (The law “Banks and Banking”) The Bank is entitled to provide banking and other financial services (except insurance). The Bank has the right to carry out banking activities under banking license by providing banking services. Banking services include: 1) attracting deposits in the form of funds and bank metals from an unlimited number of businesses and individuals; 2) opening and maintenance of current (correspondent) accounts of customers, including precious metals; 3) deposits allocation, including into current accounts, funds and precious metals on its behalf, own terms and at their own risk. Banking services authorized to provide only by the bank.

3. Bank product, bank service and 3. Banking activities in Ukraine types of banking Article 47. Banking activities Bank, in addition to providing financial services has the right to do: 1) investment; 2) issue of equity securities; 3) lotteries production and distribution; 4) deposit box or in the provision of property lease (rent) individual safe deposit box; 5) cash collection and transportation of currency values; 6) maintain registers of registered securities (except own shares); 7) provision of consulting and information services relating to banking and other financial services.

3. Bank product, bank service and 3. Banking activities in Ukraine types of banking Article 47. Banking activities The Bank operates, provides banking and other financial services in local currency, and with the appropriate license National Bank of Ukraine - in foreign currency. Bank not later than one month before the start of a new activity or providing a new type of financial services (excluding banks) must notify the National Bank of Ukraine in accordance with requirements and in the manner prescribed by the National Bank of Ukraine. Bank independently sets interest rates and commission remuneration for services.

4. Some basic questions about 3. Banking activities banking in Ukraine q Are banks necessary for banking? q Is banking necessary for banks?

4. Some basic questions about 3. Banking activities banking in Ukraine 1. Are banks necessary for banking? Banking is essential, banks are not. Bill Gates said it more than 15 years There is now little that banks do that could not equally be done by markets, non-bank financial institutions or non-financial banking institutions.

4. Some basic questions about 3. Banking activities banking in Ukraine 1. Are banks necessary for banking? 1. Alternative firms can and do provide some traditional banking services. Some life assurance companies have recently obtained banking licences and offer a range of banking services. For instance, the Scottish Widows life assurance offers four savings deposit accounts (including an instant access account).

4. Some basic questions about 3. Banking activities banking in Ukraine 2. Is banking necessary for banks? banks need not be restricted to ‘banking’ business any more. Just as insurance companies have diversified into banking, so banks have diversified into insurance. The dominant trend is that banks have diversified considerably into a wide range of financial services.