Module 3:

Bank Accounts and Deposits

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 Table of Contents
Module 3: Bank Accounts and Deposits
Introduction................................................................................................................................1
Importance..............................................................................................................................1
Module Overview...................................................................................................................1
Learning Objectives...................................................................................................................1
Definition of a Bank:..................................................................................................................2
Responsibilities of the customer:...............................................................................................5
Types of Banks...........................................................................................................................6
Investment Banks...................................................................................................................6
Retail Banks...........................................................................................................................6
A- Commercial Banks:...........................................................................................................6
C) Islamic Banks:...................................................................................................................7
Type of Accounts:....................................................................................................................10
SWIFT......................................................................................................................................35
Incoming & Outgoing transfers:..........................................................................................35
Foreign Exchange “FOREX”:..................................................................................................37
Summary..................................................................................................................................41

Participant Guide
 Principles of Banking Certificate
Module 3: Bank Accounts and Deposits
Introduction
This module covers the fundamentals of banking operations including the definitions,
products main features, operations methodologies with the target to qualify for
quality and profitable operations

Importance
The Banking operations are developing throughout the time on a very rapid manner.
Such development has been reflected on many if not all banking activities for the
purpose of better quality of customer service, better bank's profitability, & more
controls. As methodologies keep on changing world wide we need to coop with all
development and master the means and ways of modern banking operations.

Module Overview

 The importance of bank deposits

 Types of bank accounts.
 Current accounts
 Savings
 Time deposits
 Demand accounts
 Bank transfers
o Correspondent relationships
o Foreign exchange
o Foreign exchange – buying and selling
o Incoming and outgoing transfers
o Bank drafts and traveler’s checks

Learning Objectives
Upon the completion of this module, you will be able to:

 Describe the importance of bank deposits.

 List the type of bank accounts.
 Explain the process of bank transfers.

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Definition of a Bank:
 A financial institution that accepts deposits and channels the money into
lending activities.
 A business establishment in which money is kept for saving or commercial
purposes or is invested, supplied for loans, or exchanged.
 A commercial institution licensed as a receiver of deposits. Banks are
mainly concerned with making and receiving payments as well as
supplying short-term loans to individuals & corporate.
 According to Britannica.com, a bank is: an institution that deals in money
and its substitutes and provides other financial services. Banks accept
deposits and make loans and derive a profit from the difference in the
interest rates paid and charged, respectively.

 Banks are critical to our economy. The primary function of banks is to put
their account holders‘ money to use by lending it out to others who can
then use it to buy personal needs, businesses, ... etc

Organization, usually a corporation, that accepts deposits, makes loans, pays

checks, and performs related services for the public. A bank is as any depository
financial institution that accepts checking accounts (checks) or makes commercial
loans. A bank acts as a middleman between suppliers of funds and users of funds,
substituting its own credit judgment for that of the ultimate suppliers of funds,
collecting those funds from three sources: checking accounts, savings, and time
deposits; short-term borrowings from other banks; and equity capital. A bank earns
money by reinvesting these funds in longer-term assets.

A bank generates a profit from the differential between what level of interest it pays
for deposits and other sources of funds, and what level of interest it charges in its
lending activities. This difference is referred to as the spread between the cost of
funds and the loan interest rate. Historically, profitability from lending activities has
been cyclic and dependent on the needs and strengths of loan customers. In recent
history, investors have demanded a more stable revenue stream and banks have
therefore placed more emphasis on transaction fees, primarily loan fees but also
including service charges on array of deposit activities (International Banking,
Foreign Exchange, Insurance, Investments, Wire Transfers, etc.).

References:
http://www.investopedia.com, http://www.wikipedia.org/, http://www.answers.com

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Circulation of funds
 When you deposit your money in the bank, your money goes into a big
pool of money along with everyone else's, and your account is credited
with the amount of your deposit. When you write checks or make
withdrawals, that amount is deducted from your account balance. Interest
you earn on your balance is also added to your account.
 Banks create money in the economy by making loans. The amount of
money that banks can lend is directly affected by the reserve requirement
set by the Central Bank.

Examples for services which typically offered by banks:

 Accepting deposits from customers and issuing Checking and Saving
Accounts to individuals and corporate.
 Extending loans to individuals and corporate.
 Cashing checks.
 Facilitating money transactions such as wire transfers and cashier’s
checks.
 Issuing credit cards, prepaid cards and debit cards.
 Storing valuables.
 Issuing L/G’s & opening L/C’s
 Checks collection.
 Electronic Services (E-banking, Phone Banking, Internet Banking ……….)

Who is the customer?

A customer is someone who makes use of or receives the products or services of

an individual or organization. The word historically derives from "custom," meaning
"habit"; a customer was someone who frequented a particular shop, who made it a
habit to purchase goods there, and with whom the shopkeeper had to maintain a
relationship to keep his or her "custom," meaning expected purchases in the future.
Customer needs may be defined as the goods or services a customer requires to
achieve specific goals. Different needs are of varying importance to the customer.
Customer expectations are influenced by cultural values, advertising, marketing, and
other communications, both with the supplier and with other sources.

What is the bank account?

A bank account is a monetary account with a banking institution recording the

balance of money for a customer. Bank accounts may have a positive or credit
balance where the bank holds money on behalf of the customer; or a negative or
debit balance where the customer owes the bank money. Some accounts are
defined by their function rather than nature of the balance they hold. Bank
accounts designed to process large numbers of transactions may offer credit and
debit facilities. These transactional accounts are called by different names in
different countries: in the U.S. and Canada, they are checking accounts, in the UK
current accounts.

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The relationship between banker & customer:

Previously the relationship between banker & customer was looked upon as custody.
The customer trusts the banker to take care of his/her funds.

But the relationship now is considered as "a contract" with duties & responsibilities
on both the bank & the customer.

Duties of the banker:

1. To perform all transactions that the customer requires in timely & professional
way. The banker should act fairly & reasonably when dealing with customer.
2. Secrecy: Is a very important duty in banker's relationship with customer. A
bank must not disclose any details of customer transactions even after the
customer no longer maintains any accounts with the bank.
There are certain conditions where the bank can disclose information as:
 When disclosure is by law or legal case or tax authority.
 When disclosure is made with customer consent.
Guidelines to maintain confidentiality:
A. Not to discuss confidential matters in lifts, corridors…etc
B. Not to leave confidential documents lying unattended on your desk,
particularly overnight or at lunchtime
C. Preliminary draft documents not being retained should be placed in paper
shredders.
3. Another duty a banker owes a customer is to provide when requested bankers
opinions, in terms of investing his money, better utilization of bank's different
products facilities, credit lines…etc.
4. Banker should be dressed appropriately to convey a sense of
professionalism.
5. Banker shouldn’t be rude or argue with the customer
6. Each employee shall assure that bank assets are used only for proper bank
purposes and are protected from loss or damage. For example, buildings,
equipment and supplies are covered as are money, computer software, data
held on computers and the goodwill of the bank.

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Responsibilities of the customer:

1. To maintain regular accounts with sufficient funds to cover his financial

obligations otherwise the client will be considered as a “Bad Credit”.
2. Not to miss-use his bank accounts.
3. Not to proceed with any illegal transactions.

Why does banking work?

Banking is all about trust. We trust that the bank will have our money for us when
we go to get it. We trust that it will honor the checks we write to pay our bills. The
thing that's hard to grasp is the fact that while people are putting money into the bank
every day, the bank is lending that same money and more to other people every day.
Banks consistently extend more credit than they have cash. That's a little scary; but if
you go to the bank and demand your money, you'll get it.

However, if everyone goes to the bank at the same time and demands their
money (a run on the bank), there might be problem.

Even though the Central Bank requires that banks keep a certain percentage of
their money in reserve, if everyone came to withdraw their money at the same time,
there wouldn't be enough. In the event of a bank failure, your money is protected
within the Central Banks Controls & Supervision.

The key to the success of banking, however, still lies in the confidence that
consumers have in the bank's ability to grow and protect their money. Because
banks rely so heavily on consumer trust, and trust depends on the perception of
integrity, the banking industry is highly regulated by the government.

How do banks make money?

Banks are just like other businesses. Their product just happens to be
money. Other businesses sell services; banks sell money -- in the form of loans,
certificates of deposit (CDs) and other financial products. They make money on
the interest they charge on loans because that interest is higher than the interest
they pay on depositors' accounts.

The interest rate a bank charges its borrowers depends on both the number of
people who want to borrow and the amount of money the bank has available to lend.
As we mentioned in the previous section, the amount available to lend also depends
upon the reserve requirement the Central bank has set. At the same time, it may
also be affected by the funds rate, which is the interest rate that banks charge each
other for short-term loans to meet their reserve requirements.

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Types of Banks
Investment Banks

A financial institution that deals primarily with raising capital, corporate

mergers and acquisitions, and securities trades.

Moreover they are considered as a financial intermediary that performs a

variety of services. This includes underwriting, acting as an intermediary between an
issuer of securities and the investing public, facilitating mergers and other corporate
reorganizations, and also acting as a broker for institutional clients. The role of the
investment bank begins with pre-underwriting counseling and continues after the
distribution of securities in the form of advice.

Retail Banks

Retail banking is typical mass-market banking where individual customers use

local branches of larger commercial banks. Services offered include: savings and
checking accounts, mortgages, personal loans, debit cards, credit cards, and so
forth.

A- Commercial Banks:

It is a financial institution that provides services such as a accepting deposits

and giving business loans. State bank or National Bank owned by stockholders,
which accepts demand deposits, makes loans, and performs other banking services
for the public. The term commercial bank is synonymous with Full Service Bank
because many commercial banks supply foreign exchange, trade financing, and
international banking.

It is a bank that makes loans to businesses, consumers, and non-business

institutions. Early commercial banks were limited to accepting deposits of money or
valuables for safekeeping. By the 17th century most of the essentials of modern
banking, including Foreign Exchange, the payment of Interest, and the granting of
loans, were in place. Because a commercial bank is required to hold only a fraction
of its deposits as cash reserves, it can use some of the money deposited by its
customers to extend loans.

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B- Specialized Banks:
- Industrial: Banks which grant loans to finance industrial projects.
Example: Industrial Development Bank of Egypt
- Real Estate: Banks which grant loans against real estates mortgage.
Example for Real Estate: Buildings, Lands, Apartments, Malls, Industrial Parks,
Gas Stations, Convenience Stores and Office Towers.
Example: Egyptian Arab Land Bank - Housing & Development Bank
- Agricultural: Banks which grant loans to finance agricultural projects
Example: Principle Bank for Development & Agricultural Credit.

C) Islamic Banks:

It is a banking system that is based on the principles of Islamic law (also

known as Sharia, or Shariah) and guided by Islamic economics. Two basic principles
behind Islamic banking are the sharing of profit and loss and, significantly, the
prohibition of the collection and payment of interest. Islamic law prohibits the
collection of interest, commonly called riba, although revenue-sharing arrangements
are generally permitted. With increased trade between western nations and Islamic
nations in the Middle East, Citibank, Deutsche Bank, and other western banks have
been opening Islamic banking units since 1996. Because modern Islamic banking is
relatively new, rules for financial accounting, bank governance, and lending
standards are continually evolving as business practices become more refined. The
Institute of Islamic Banking and Insurance, a London organization, says Islamic
banks are structured to retain a clearly differentiated status between shareholders'
capital and clients' deposits to ensure correct profit sharing according to Islamic law.
Islamic banking has the same purpose as conventional banking except that it
operates in accordance with the rules of Shariah. Amongst the common Islamic
concepts used in Islamic banking are profit sharing (Mudaraba), safekeeping
(Wadiah), joint venture (Musharakah), cost plus (Murabahah), and leasing (Ijarah).

Here's an example of how the Islamic banking system uses methods of

profit/loss sharing to facilitate financial transactions: for some types of loans, the
borrower only needs to pay back the amount owed to the lender, but
the borrower can choose to pay the lender a small amount of money to serve as a
gratuity. 
Since this system of banking is grounded in Islamic principles, all the undertakings
of the banks follow Islamic morals. Therefore, it could be said that financial
transactions within Islamic banking are a culturally-distinct form of ethical investing
(for example, investments involving alcohol, gambling, pork, etc. are prohibited).

Refer to: http://www.alislami.ae/en/shariaboard_boardrules.htm

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Main Islamic Banking Terminologies:

Ijara:

A type of leasing agreement whereby the bank buys an asset such as a car or
factory equipment and then leases it to a customer at a fixed price for a set duration.
The lessee benefit from the immediate use of the asset – which can be used to
generate income – while the bank retains ownership of the item and takes it back at
the end of the lease .

Mudaraba:

A profit – and loss- sharing agreement between a bank and an entrepreneur

in which, the bank provides the funds and the entrepreneur provides the skills and
management. Any profits made are shared between the two "partners" according to
an agreed ratio. The arrangement continues until the borrower pays off the loan.

Murabaha:

A" rent-to-own" contract in which the bank purchases a product such as a car
or computer equipment on behalf of the individual and resells it to them with an
agreed upon profit margin. This allows the individual to make a major purchase on
installments without having to take out a loan or pay interest. Simply, they are
making a purchase from the bank, which owns the item until it is fully paid off. As late
fees are prohibited, the bank relies on the integrity of the borrower.

Musharaka:

A joint venture between a bank and its depositors to provide venture capital to
a project. All partners share in the risk and rewards. While the profit ratio between
parties can be distributed according to any agreement, losses must be distributed in
proportion to the initial investments.

Riba:

A return on money for lending money in which, the borrower bears all the risk.
Riba is strictly forbidden in Islam.

Sukuk:

A financial certificate often referred to as an Islamic bond. The main difference

between Sukuk and traditional bonds is that the issuer must have assets that cover
their full value. This in essence makes the buyer of the Sukuk a partial owner of
these assets, which are leased to the buyer to yield the return.

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Takaful:

A form of insurance based on the principals of shared responsibility,

cooperation and, common interest that provides mutual protection of assets and
property in the event of a loss by one of its members. Takaful members function as
insurers as well as the insured.

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Type of Accounts:
Accounts could be segregated according to:

a) Legal Form
b) Allocation within Balance sheet

General Notes:

1. All accounts – current and saving- under the liability side could be one
of the following:
 Joint Accounts
 Dormant Accounts
 Minor accounts
 Frozen accounts
 Deceased accounts
 Conditional Bequest accounts

2. Basic Bank forms:

 Account opening form
 Signature cards
 KYC form (know your client)

3. Customer’s ID is to be national ID, Passport, and Military ID or Gun license.

4. All copies of required documents are to be signed “Original Seen “by the
concerned officer.
5. All clients’ signatures are to be” Attested By “the concerned account officer.
6. Client has to be informed by the bank officer with all bank commission and
tariff
7. Each authorized signor is to sign two signature cards from which one is kept
in the client’s file & the second one is to be delivered to Cash Unit against
Simplex stamp & officer’s signature.
8. All clients’ files have to be kept in fire proof cabinet under dual control.
9. KYC form is to be updated every 3 years.
10. In case of any irregularities related to opening of the account branch
manager / deputy approval should be fulfilled

Signatures scanning:
 Upon opening an account, 2 signature cards should be obtained per client.
Every card should bear client signature with signature status (One or two
signatures required).
 Account officer has to scan the signature to activate the account (not in all
banks).
 One signature card has to be delivered to cash area against receiving
simplex stamp & cash head’s signature.

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 In case of cancellation of any signature cards, dummy card has to be

delivered to cash area instead of the original card.
 After activation of the account, account officer has to return back the original
signature card to the cash area and withdraw the dummy card.
 In case of closing the account, signature cards have to be withdrawn from
cash area and all signature cards to be kept on client file and kept under dual
control

Signatures amendments:

In case of signature amendments for individual account, the following steps should
take place:
 Signature amendment has to be against written instruction from the client.
 Instruction should be stamped by simplex upon received.
 If the client is not available, client can sign and verify his signature through a
first class bank or through Egyptian embassy to be authenticated from
Ministry of Foreign Affairs.
 After amendments, account officer has to ensure deletion of old signature and
scanning of the new signature card.
 In case of current account, client has to confirm cashing checks signed with
his old signature.
 Written balance confirmation is to be obtained from the client upon receiving
the signature amendment request.

Account Closure:

1- A written request is to be received from the customer to close the account.

2- Client is to withdraw all available funds prior account closure.

3- Client is to deliver his ATM, credit card, check book... etc. to the bank.

4- Ensure the client does not maintain any time deposits, certificates of deposits,
loans… etc.

Closing clients accounts upon bank discretion:

Account could be closed with a written approval from the branch manager or his
deputy for the following reason:

 Checks withdrawn on clients accounts with insufficient funds. Client with

Bad Credit.

 Legal action.

 Client’s signs signature different than his specimen more than once.

 Many stop payments placed on checks without accepted clarification.

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 Involvement of accounts in any transaction related to money laundry

restriction.

What is a Power of Attorney?

P/A is a document that allows someone to act as your legal agent

i.e.: to act on your behalf

There are two main types of Power of Attorney:

1. Official Power of Attorney:

a) General Powers:

Which allows the person you name (your agent) to proceed with any and all
transactions.

b) Limited Powers:

A limited Power of Attorney list a particular acts that the agent is authorized to do
and limits the agent to those acts.

Notes: General Power of Attorney

 Account officer has to ensure that all data stated in the official general Power
of Attorney is valid and client signature is verified and authenticated from
public notary.

 Copy of ID should be obtained from the holder of the POA

 Before effecting any transaction a copy of the POA should be obtained with
declaration from the holder that client is alive and the Power of Attorney is
valid till date of transaction.

 If the POA is issued abroad, verification from embassy and authentication

from Ministry of Foreign Affair is requested.

2. Internal Power of Attorney:

 Client has to sign the Power of Attorney using bank forms in front of the
account officer.

 Two signature cards should be obtained from the person given the Power of
Attorney as well as the customer.

 Signature is to be scanned with clear declaration that client has a Power of

Attorney on the account.

 No amendments are accepted on the internal Power of Attorney’s text without

prior approval from the legal department.

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Cancellation of Internal POA:

 It is accepted from either the account holder or from the delegate & in this
case, letter is to be issued to account holder asking for balance confirmation
within 15 days.

 In case of not responding, this will be considered as a balance confirmation.

This letter is to be sent by registered mail.

Opening under formation company account:

Documents required:

 All basic forms

 Copy of contract

 Official person in charge to open the account and complete registration

procedures delegated from the shareholders ‫وكيل المؤسسين‬

 Copy from general power of attorney from all shareholders.

 ID’s copies of shareholders

 Account officer has to set blocking on amount deposited in the account.

 Request for certificate issuance should be signed by the official person stating
the following (name of authority/ percentage of shares/ shareholders/ currency
of payment).

 After registration, amount on hold is to be released upon receipt of original

commercial register.

 Release of blocked amount differs according to the company type.

 Account officer has to ensure that all documents signed by the official person
are cancelled.

 All basic forms required for opening an account should be obtained.

 In case of incompletion of registration or formation of the company, all shares

should be disbursed to all shareholders, or the official person ‫ وكيل المؤسسين‬in
charge against proper documents proofs cancellation of all certificates issued
by the bank.

 For capital increase, all said process should take place, only the blocked
amount will be the amount of increase only.

 Hold amount could be released immediately after proper registration.

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A- Liability Side:

1- Current Account

It is a deposit account which is offering various flexible payment methods; allowing

the customers to distribute money directly to others.

Features:

 It can be opened for individuals and corporate.

 A current account offers check books; offer the facility to arrange standing
orders, direct debits and payment via a debit cards.
 Current accounts may also allow borrowing via an overdraft facility.
 It could be also either INTEREST BEARING (IB) or NON – INTEREST
BEARING (NIB)

2- Saving Account

Accounts maintained by commercial banks ,savings and loan associations, credit

unions, and mutual savings banks that pay interest but cannot be used for writing a
check.

Features:

 Savings accounts require funds to be kept on deposit for a minimum length of

time. Interest is calculated based on minimum balance during the whole
month (Calendar days).
 Savings accounts do not offer check writing privileges.
 All savings accounts offer itemized lists of all financial transactions. Clients
can ask for a mini statement in which the last transactions are showed
 Savings accounts are opened for individuals ONLY.
 Saving accounts do not permit an overdrawn balance.
 Saving accounts offer processing standing orders, direct debits & issuing
debit cards or ATM cards.
 Interest Calculation:

Amount (min. balance during the month) x no. of days / 365 x interest
rate %

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Comparison between: Current Accounts & Saving Accounts

Current Accounts Saving Accounts

1. The main purpose is to pay & settle The main purpose is to save, not for
transactions to others. financial payments

2. Used for commercial purposes Not used for commercial purposes

3. Can be opened for individuals or Only for individuals & not for
corporate commercials business associations

4. No interest is paid on account Interest is paid on the minimum balance

balance (exception cases) during the month

5. The account holder can get a loan Not applicable

or overdraft

6. Allow issuance of check book No check books are allowed

7. Other facilities like standing orders, Other facilities like standing orders,
check for collections transfers in/out Check for collections transfers in/out

8. Monthly, quarterly , semi-annually or Monthly, quarterly, semi-annually or

annually statement with list of all annually statement with list of all
transactions transactions

9. Interest frequency: Monthly, Interest frequency: Monthly, quarterly,

quarterly, semi-annually or annually. semi-annually or annually.

10. Not Applicable Could be used for minors over 18 years

old.

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Time Deposit:

A time deposit is an agreement between the bank and his client to fix a certain
amount for a period of time and an interest rate. Deposits can be issued in local and
foreign currencies.

The dealing room provides the bank branches with interest rates to be applied
on foreign currencies. These rates differ according to prevailing interest rates.

Breaking a time deposit in Egyptian Pounds before maturity date allows the
bank to charge his clients a penalty in interest amount due at minus 2% from the rate
of actual period of the deposit.

Deposits’ tenor can vary from week, two weeks, month, 2 months, 3 months,
6 months, year….etc. For a week time deposit, amount deposited should not be less
than L.E. 100000 to gain interest.

Customer can borrow up to 90% of time deposit value but with higher interest
rate (2% over); which is the common practice.

To open a deposit:

DR: Customer account (current or saving)

CR: Time deposit account

To close a deposit:

DR: Time deposit account

CR: Customer account (current or saving)

To break a deposit:

DR: Time deposit account

DR: Accrued interest

CR: customer account

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Certificates of Deposit (CD's):

This is a certificate issued by a bank that indicates a specified sum of money

has been deposited. A CD has a maturity date and a specified interest rate and can
be issued in any denomination. The duration can be up to ten years.

The CD’s restrict holders from withdrawing funds on demand. Although it is

still possible to withdraw the money, this action will often incur a penalty as most of
them permit withdrawal after minimum 6 months (This is to be applied as per CBE
approval).

The CD interest can be calculated monthly, quarterly, semi annually, yearly or

at the maturity date.

Common practice: Customer can borrow up to 90% of CD value but with

higher interest rate. (2% over the credit granted interest).

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Joint Account
An account that could be held under more than one name (Wife & husband,
brothers, partners…..etc). Originally, each holder owes an equal share in the joint
account. Otherwise, all parties should write an agreement stating the required
classification and sign. The customer service officer should ensure that all parties
are fully aware of the withdrawal process, as they may require withdrawing jointly or
separately from the joint account. It could also be restricted to a certain amount for
each partner. Two sets of signature cards must be signed by each partner.
In case of receiving a written notification from any one of the joint account
holders of the existence of disputes, the customer service officer must block the joint
account with equal amount to the share of joint account holder to suspend
withdrawals till receiving notification of resolving disputes.
In case of amendment of the joint account holders by adding or removing one
or more partners, this requires attendance of all account holders to sign on the
amendment form.
Deceased accounts:
Upon receipt of notice of a customer’s death in the newspaper/ informed by
inheritors themselves/ informed by any of bank staff, CSO should immediately take
necessarily action to change title of account in the name of (Inheritors of).

The following should be applied immediately:

 Received notice of customer death should be kept in client’s file

 All clients accounts should be blocked
 Both client’s signature cards and file should be kept under dual control
 Client signature card should be marked (deceased account) and withdrawn
from cash area and deleted from the system
 Client’s statement of account or any other correspondence should not be
sent to client address after receipt of death evidence
 From date of receipt of death evidence, all bank tariff should not be
applied
 Legal department should be notified for handling the account
 If client’s accounts maintains certificate of deposit or time deposit, the
bank has to keep them till maturity , unless otherwise the inheritors
requested to break them, at this point all inheritors should sign indemnity
to break said CD or TD according to the redemption schedule

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 Once the CD or TD matured, it should be credited to client’s account and

not to be renewed even if the inheritors requested
 If the inheritors showed on banks counter to receive their shares, the
account should be closed after running the interest and pay all shares
 For all interest bearing accounts, bank should open non bearing interest
account to transfer the balances to it until distribution of all funds
 In case the account is overdrawn, the branch has to cover the overdrawn
balances with all related commission and interest due
 In case of check withdrawn on an estate account and the check was dated
before the death date, the beneficiary has the right to cash it

In case of joint accounts:

 In case of death of one of the account holders in a joint account, any

transaction on the account should be stopped until clarification
 The bank has to differentiate between shares of the accounts holder
according to the original agreement between the client and the bank. If not
stated it is 50% of account balance
 Bank officer should ensure that the other party share is not included in the
distribution, also the other account party can act normally on his share with no
restriction

Minor accounts

 These are accounts opened for individuals under the age of 21 years. Until
the minor reaches 21 years old, the account should be handled through
himself (saving account), his guardian or others according to submitted
documents.
 The bank officer should ensure that the word "Minor" is stated in the
application form, signature cards signed by the person who opened the
minor account.

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Documents required for opening minor saving accounts:

 Basic documents to be signed by the guardian ( father, mother…etc) in

addition to birth certificate
 Majority should be written on client’s specimen signature cards
 When minor reaches age 21, the following steps should take place by
CSO:
1- CSO should block all type of accounts and cancel all signature applied on
the account and withdraw all specimen signatures from cash area
2- CSO should send a letter to the client regarding majority date to show on
branch counter as soon as possible
3- All power of attorney on the account should be cancelled unless the minor
states otherwise. Minor may open an account for himself from age 18
years old after declaring that funds in his accounts are from his own
resources. It is forbidden to open current account for minors and no
overdraft facility, no check book can be granted until he reaches 21 years
old.

Dormant Account

An account is classified as dormant when there has been no client generated

activity on the account for a period exceeding 12 months.

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The following procedures should take place:

 Customer service unit to receive system generated report of inactive

accounts on monthly basis
 Customer service to determine the new dormant accounts added to the
report during the last month
 Customer service officer to review accounts with nil or below minimum
balance for possible account closure
 Standard letter to be sent to clients requesting them to contact the branch,
copy of letters of notification to be added to client’s file
 CSO will remove all new dormant file from the active, to a separate fire
proof cabinet under dual control
 Signature cards to be deleted from the system and CSO to ensure
removing signature cards from cash area

In case of activation of a dormant account:

 CSO has to ensure that the client himself is the one to activate the
account against proper ID
 Transactions to be verified by the branch manager / deputy
 Signature cards to be delivered back to cash area and once more
scanned on the system

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Frozen Account

 An account to which no withdrawals or purchases can be

charged. This usually occurs when the account holder fails to pay
promptly for purchases charged to the account. For example, cash
accounts are frozen for 90 days until the full purchase price of the
intended order is paid in full.
 In other words, when your bank account is frozen, it's because you owe
money to someone. Any creditor that has a judgment against you can
have your bank account frozen. The creditor can actually freeze your
account for up to twice the amount you owe.
  If you receive a notice from your bank stating that your account has
been frozen, look for the lawyer and his phone number that is listed on
the notice. If you didn't receive a notice after your account was frozen,
call your bank and ask for the lawyer's name and phone number so you
can settle the account.

Conditional Bequest

 An account owned by a donor until death and then owned by donee

 Parents can open this type of accounts to underage children who lost
their father or mother or who did not have an income source.

B. Asset side

Overdrawn Account

 An agreement between the bank and his client allowing him to withdraw
funds, based on a granted line of credit. An interest amount should be paid on
the exceeded debit balance than the account balance.

Loan Account

 Amount granted to the customer for a certain time to be repaid with additional
interest.
 Loan account could be granted against a time deposit, credit balances, shares
and bonds, goods…etc. In case of deposit cover, interest rate is calculated at
2% over the deposit rate.
 Debit interest is calculated on a daily basis on the client debit balance.

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Safe Deposit Boxes

Clients may put their precious jeweler and documents in rented safe boxes.
Banks hold different sizes (large – medium- small) and clients pay an annual rental
fee according to safe box size. Every visit to open the safe box should be recorded in
the concerned register (date and time).
Clients may sign an internal power of attorney to a delegate enabling him/her
to use the safe box.
The bank is responsible for keeping the master key under dual control. Each
key holder should sign in the register whenever the key is used. Each safe box could
be opened by using both keys together: master key and client key. A spare key is
kept under dual control to be used upon the client request in case of loss, stolen…
etc

Cash Area

Cash area is a very important department generally located in the bank entrance.
This area is divided into the following:
1. Vault: Strong room where cash is kept
2. Head cash located behind tellers
3. Tellers dealing with customers for deposit and withdrawal of cash.
Staff working in this area should be very honest and capable to deal with different
types of customers.

Daily procedures:

At the beginning of the day, tellers receive cash from the head cashier
Every transaction should be posted in the computer system to be reflected on
customer's accounts.
 At the end of the day, all transactions should be reconciled with head cashier
 After bundling cash, it is kept into the vault.
Each bank has his own regulations regarding cash kept into the central vault and
cash kept into his branches.
The head cashier is responsible to handle large amounts of cash – whether deposit
or withdrawal- exceeding the tellers limits.

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Shipment of cash:

In case of surpassing maximum cash, it should be shipped to Central Bank or any

correspondent bank requesting cash through a cash courier.
In case of cash shortage to meet customer’s need, a check should be issued drawn
on Head Office account held with the Central Bank of Egypt or any other
correspondent who has cash surplus. A swift message should be issued for foreign
currencies after agreeing on value date and exchange rate

Stop & Recap:

 Different Types of Accounts

 Saving Account
 Current & Joint Accounts
 Overdrawn Accounts
 Loan Accounts
 Time Deposit
 Certificate of Deposits (CD's)
 Conditional Bequest
 Dormant Account
 Frozen Account
 Safe Deposit Boxes
 Cash Area

Payment Methods:
 Checks - Paper based promise to pay.
 Standing orders - Automated payments instructed by the account holders.
 Plastic Cards - Electronic instruction requiring a plastic card or a personal
number.
 ATM – Automated teller machine
 SWIFT – Society for Worldwide Interbank Financial Telecommunications
 Transfers – Incoming & outgoing

Checks

Checks are negotiable instruments instructing a financial institution to pay a specific

amount of a specific currency from a specific demand account held in the
maker/depositor's name with that institution. Both the maker and payee may be
natural persons or legal entities. Checks that were bought from libraries are no
longer regarded as checks.

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Checks generally contain:

1. Place of issue

2. Check number

3. Account number

4. Date of issue

5. Payee (beneficiary)

6. Amount must be written in both letters and figures

7. Signature of the drawer

8. Currency

Statement for nonpayment of a check

1. Irregular signature

2. Account closed

3. Insufficient funds

4. Stop payment

5. Crossed check and post dated

6. Governmental check and post dated

7. Refer to drawer

8. Missing value of check in letters or figures

These reasons should be added to "without any responsibility on the bank

part and signed by 2 of the authorized signatures.

A check can always be endorsed. However, the drawer can prevent the check
from being endorsed. This can be done by explicitly instructing non-endorsement on
the face of the check by using one of the following expressions:

1- Checks payable to the first beneficiary OR

2- Not to the order of OR
3- Not to be endorsed

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A check is always payable on the date it is presented for payment and at sight. If a
check is presented for payment before the date of drawing appearing on the check, it
is still payable at sight. There are two exceptions to the above rule:

1- Checks drawn by the Government

2- Crossed checks

These two types of checks are payable on the date appearing on the checks as the
date of drawing. If any of these types are presented for payment before the date
appearing on the check, they should be returned without cashing. The bank
statement’s for nonpayment of check must indicate that it may not be cashed
because it is a check drawn by Government or it is a crossed check and both are
post- dated.

The new rules regulating checks require the drawer’s signature to be legible
or can easily identify the person who signed it in terms of the person’s name and
family name.

Traveler's Check

Is a preprinted, fixed-amount check designed to allow the person signing it to make

an unconditional payment to someone else as a result of having paid the issuer
(usually a bank) for that privilege. To buy a traveler check, the person goes to a
bank and pays for example $100 and receives a traveler check for this amount with a
receipt.

The issuing bank registers the person's name. Wherever he goes, he can present
the traveler check and cash it in $ or equivalent currency. At this stage, the bank
checks the person’s ID, reviews the purchase invoice and makes sure that he is the
buyer.

As traveler’s checks can usually be replaced if lost or stolen, they are often used by
people on vacation in place of cash .In case the traveler check is lost, the person can
report to the bank and after legal procedures, take his money back.

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Draft Check

A check written by a financial institution on its own funds. It is then signed by

a representative of the financial institution and made payable to a third party. A
customer who purchases a draft's check pays for the full face value of the check and
usually also pays a small premium for the service. These checks are secured by the
funds of the issuer - usually a bank - and include the name of a payee (the entity to
which the check is payable), and the name of the remitter (the entity that paid for the
check).

An individual could use a draft check instead of a personal check to guarantee

that his or her funds for payment are available. A draft's check is secured because
the amount of the check must first be deposited by the individual into the issuing
institution's own account. The person or entity to whom the check is made out is then
guaranteed to receive the money when cashing the check.

Draft's checks differ from certified checks in that the funds owing on a draft's
check are taken from the issuer's account, while the funds owing on a certified check
are taken from the remitter's account.

Accounting entries:

- To issue:

DR: customer a/c OR cash (check amount + commission)

CR: cover draft checks

Commission

- To settle (when presented):

DR: cover draft checks

CR: beneficiary

(Correspondent bank, cash, or customer a/c)

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Certified Check

A type of check where the issuing bank guarantees the recipient of the check that

there is enough cash available in the holder's account to be transfered when the
check is used and also that the account holder's signature on the check is genuine.
Certified checks are typically used in situations where the recipient is unsure about
the creditworthiness of the account holder and doesn't want to the check to bounce.

After verifying the client balance, the bank certifies the check by stamping it with
authorized signatures.

Since certified checks become the issuing bank's liability, banks will typically set the

amount of money listed on the certified check aside from the holder's account so
that there will always be an amount of money for the check. There are some
downsides to using certified checks. For example, banks will usually charge a fee for
certifying checks

Accounting entries:

- To issue:

DR: customer a/c (check amount + commission)

CR: cover certified checks

Commission

- To settle (when presented):

DR: cover certified checks

CR: beneficiary

(Correspondent bank or cash)

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Crossed Check

Any check that is crossed with two parallel lines, either across the whole
check or through the top left hand corner of the check. This symbol means that the
check can only be deposited directly into a bank account and cannot be immediately
cashed by a bank or any other credit institution.

These checks allow payment on the date appearing as that of drawing.

A general crossed check is one with 2 parallel lines and the space in between is left
blank or the word bank is inserted. A special crossed check is one with the name of
a particular bank written between the parallel lines.

A general crossed check can be transformed to a special crossed check, but a

special crossed check cannot be transformed to a general one.

A bank upon which a general crossed check is drawn can only pay the value of
such check to one of its customers or to another bank.

A bank upon which a special crossed check is drawn can only pay the value of such
check to the bank whose name appears between the parallel lines.

Collection of Checks

Collection of checks may include the following:

1- Accepting checks from bank customers and requesting the bank to proceed for
collection. This will be followed by crediting the checks values to beneficiaries after
deduction of collection fees.
2- Receiving checks drawn on the bank customer account. This action pertains: a-
Verifying availability of balance

b- Verifying client’s signature

This will be followed by deducting the checks amounts from the client’s available
balance.

Checks in Egyptian pounds are collected through / outside CBE clearing house.
CSO will receive checks submitted for collection and issue deposit slip identifying
check number, amount, and client name & account number. CSO will sort received
checks according to the clearing house area .All checks received for collection
should be endorsed by the bank stamp.
CBE has divided Egypt into 2 zones:
D+ 1 Zone
Checks will be cleared at next day following presentation at CBE. This group
includes branches in greater Cairo clearing
D+2 Zone
Checks will be cleared three days following presentation at CBE. This group includes
branches outside Greater Cairo

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Stop Payment

Customer can ask his bank to place a stop payment on a check he has already
issued and delivered to a beneficiary due to many reasons: stolen, lost, conflicts
between issuer and beneficiary. Upon presentation, the bank will do the following:

1- If the client's balance permits to deduct the check amount, the bank
will block the value in the name of both issuer and beneficiary till
notification that any problem has been resolved.

2-If the client's balance is not enough, the bank will return the check as
refer to drawer due to stop payment placed upon the client's
request.

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Plastic Cards

Credit Cards Charge Cards Debit Cards Prepaid Cards

Some types of companies:

 Visa

 MasterCard

 American Express

 Diners Club International

Credit Cards

A card allowing someone to make a purchase on borrowed money.

Grace period

A credit card's grace period is the time the customer has to pay the balance, before
interest is charged to the balance. Grace periods vary, depending on the type of
credit card and the issuing bank.

Credit cards have higher interest rates than most consumer loans or
lines of credit, so try your hardest to pay off your credit card each
month

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Charge Cards

Cards that charge no interest but require the user to pay his/her balance in full upon
receipt of the statement, usually on a monthly basis. While it is similar to a credit
card, the major benefit offered by a charge card is that it has much higher, often
unlimited, spending limits.

Costs associated with a charge card will often be a set fee for the card along
with large penalties on any unpaid balances. This type of card does not allow
cardholders to carry a balance from one month to the next as they would with a
credit card.

Debit Cards

An electronic card issued by a bank which allows bank clients access to their

account to withdraw cash or pay for goods and services. This removes the need for
bank clients to go to the bank to remove cash from their account as they can now
just go to an ATM or pay electronically at merchant locations. 

This type of card, as a form of payment, also removes the need for checks as
the debit card immediately transfers money from the client's account to the business
account.

Example:

Visa Electron
 The major benefits to this type of cards are convenience
and security, along with the convenience of accessing
account funds at anytime.

 It also removes the hassles associated with having to write checks as

payment like showing ID & associated fees

 Debit cards are also considered to be a safer form of payment as a code is

required to access the account funds, while checks can be easily stolen

Prepaid Cards

A payment tool which gives cardholders control over their funds loaded in the card
itself. Prepaid cards can be issued as physical cards or virtual accounts and can be
disposable or reloaded depending on the market requirements. Prepaid cards may
be issued with the cardholder's name or a product identifier (wording such as Gift
Card, Travel Card)

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Stop & Recap:

 Various types of plastic cards

 Credit Cards

 Debit Cards

 Differences between debit cards & credit cards

 Charge cards

 Prepaid cards

ATMs

An automated teller machine or Automatic Teller Machine” ATM” is a

computerized telecommunications device that provides a financial institution's
customers a secure method of performing financial transactions in a public space
without the need for a human clerk or bank teller.

The machine contains 4 drawers for banknote & 1 drawer for rejected cash. Cash
replenishment could be done internally within the bank or could be outsourced.

Cash count is to be done on periodical schedules to make sure that all controls are
in place.

ATM Cards:

Used for deposits, withdrawals, account information, and other types of transactions,
often through interbank networks .

Captured Cards (debit / credit cards):

Due to different reasons, a plastic card may be captured in the machine (Network
Failure, Wrong Password… etc). Each bank has its own internal procedures to get
back the card. Some banks return the captured card with a letter to the issuer bank
to deliver it to his customer. Others return it shredded and notify the issuer.

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Benefits:

 Allowing 24 hours access to accounts (checking and saving) 7 days a week

 Allowing balance inquiries

 Deposit funds (not all ATM’s)

 Transfer funds from one account to another

 Print account mini statements

 Order checks

 Pin change

 Order statements

Withdrawal limit

Banks may set whether per day or per transaction withdrawal limits for many
reasons:

1- Protecting their customers balances in case of stolen

2- Ensuring availability of cash in their ATM’s to fulfill the majority of clients
requests

In Egypt, most of banks are members of 123 networks (Egyptian Banks Co. for
Technological Advancements) which allow each ATM card holder to use any ATM
whether it belongs to his bank or another bank.

Egyptian Banks Co. Provides shared payment and clearing services to the financial
community in Egypt including infrastructure databases and ATM sharing.

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SWIFT
Society for Worldwide Interbank Financial Telecommunication (SWIFT)

Nonprofit, cooperative organization that facilitates the exchange of payment

messages between Financial Institutions around the world. SWIFT was organized in
1973 by a group of European bankers who wanted a more efficient method than
telegraph wire (telex) or mail to send payment instructions to correspondent banks.

Recent changes in SWIFT rules gave multinational corporations and Broker-Dealer

securities firms’ direct access (but nonvoting membership) to confirmations of foreign
exchange and money market securities trades, and derivative securities
transactions. In 2005, the SWIFT network boasted 7,600 member institutions
operating in 200 countries.

Payments between SWIFT members take place on domestic funds clearing systems.

Benefits:

 More Efficient
 Reduce Transaction Costs
 Reduce Transaction Errors
 Provide More Security
 Faster & Simply More Reliable

Incoming & Outgoing transfers:

It is the movement of funds from & to banks in all currencies.

Incoming:

Amount credited to customer account by order another party whether in the same
bank or through correspondent bank.

Outgoing:

Amount transferred – as per the client request – to another account, either in the
same bank/ branch or to another bank.

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What is a value date?

It is the official date when money is transferred, that is, becomes good funds to the
depositor. The value date differs from the entry date when items are received from
the depositor, since the items must then be forwarded to the paying bank or
otherwise collected.

The term is used mainly with reference to foreign accounts, either maintained in a
domestic bank or maintained by a domestic bank in foreign banks.

Moreover, Value date is the date when the entry to an account is considered
effective.

For Example:

Value Date / Currency Cash Transactions Non-Cash transactions

EGP Next working day Same day
USD 2 working days Same day
Euro 3 working days Same day

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Foreign Exchange “FOREX”:

Currency-literally foreign money-used in settlement of international trade
between countries.

Trading in foreign exchange is the means by which values are established for
commodities and manufactured goods imported or exported between countries.

Creditors and borrowers settle the resulting international trade obligations,

such as bank drafts, bills of exchange, bankers' acceptances, and letters of credit, by
exchanging different currencies at agreed upon rates.

The result of all this international trade is that financial institutions accumulate
surpluses of different currencies from loan repayments by foreign borrowers, and
also from import-export trade financing on behalf of bank customers.

The interbank foreign exchange market is an over-the-counter market, a

network of commercial banks, central banks, brokers, and customers who
communicate with each other by telex and telephone throughout the world's major
financial centers.

Top 6 Most Traded Currencies:

Rank Currency ISO 4217 Code Symbol

1 United States Dollars USD $
2 Euro zone Euro EUR €
3 Japanese Yen JPY ¥
4 British Sterling Pound GBP £
5–6 Swiss franc CHF -
5-6 Australian Dollar AUD $

Different Terminologies for “RATE” used in Banks:

1. Buying rate
2. Selling rate
3. Staff rate
4. Special rate

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Base Currency versus Quoted (or Variable) Currency:

The USD is the base currency The EGP is the quoted currency

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Correspondent Relationship

It could be represented in a bank that holds deposits for other banks and performs
services, such as check clearing. The deposit balance is a form of payment for
services.

Many community banks clear checks drawn on out-of-town banks through Reserve
Accounts at a larger bank.

Correspondent banks also buy participations in loans exceeding the Legal Lending
Limit of a smaller bank, called the Respondent and give these banks access to
financial markets, such as the foreign exchange market or financial futures market,
that are ordinarily beyond the reach of smaller financial institutions.

Benefits:

Correspondent banking, essentially, enables respondent banks to participate in

image exchange without having to bear the cost of building the infrastructure
themselves.

 Liquidity management by investing surplus of money (Money Market

deals)
 Purchasing & selling of all foreign currencies (foreign exchange deals)
 Attending training courses in all bank’s functions
 Enable banks to perform the banking activities and services efficiently
such as:

o Collections of checks
o Issuance of letters of credit / guarantee
o Issuance of funds transfers

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Examples of services provided by correspondent banks:

 Payments
 Collections Services
 Trade Services
 Trade and Cash Management Outsourcing Services
 Currency Risk Management/ FX
 Corporate and Investment Banking Services
 Investment Management and Custody Services
 Account information & inquiry services.

How do banks choose their correspondent?

 Analyzing balance sheet and financial statement

 Study the bank rating & solid existence
 International banks with wide network worldwide
 Comparisons between different bank’s terms and conditions

Correspondent account statement can be obtained through:

Mail

These types of statements are used for non active correspondent a/c’s. Usually
they are issued monthly or quarterly.

SWIFT

Used for active a/c’s as they can issue daily statements of a/c’s

Internet

Very effective method as it enables the bank to access its statement of a/c any
time of the day to resolve any arising discrepancies on the spot.

Importance of correspondent account statement:

 Determination of a/c movement.

 Determination of a/c balance at end of period.
 These statements show the following:
1. Opening balance
2. Closing balance
3. Total transactions: (debit & credit)

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Summary
In this module, you learned how to:

o Describe the importance of bank deposits.

o List the types of bank accounts.
o Explain the process of bank transfers

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