Banking CH 1 Power Point

Chapter one: an overview of banks and their functions
Introduction
You know people earn money to meet their day to

day expenses on food, clothing, education of children .
They also need money to meet future expenses on
marriage, higher education of children, housing and
social functions.
 These are heavy expenses, which can be met if
some money is saved out of the present income.
Cont,d
• With this practice, savings were available for use

whenever needed, but it also involved the risk of loss by
theft, robbery and other accidents.
• Thus, people were in need of a place where money could

be saved safely and would be available when required.
• Banks are such places where people can deposit their

savings with the assurance that they will be able to with
draw money from the deposits whenever required.
Cont,d
• Bank is a lawful organization which accepts
deposits that can be withdrawn on demand.
Definitions of Bank
1. Dictionary meaning of the Word ‘Bank’ -The

oxford dictionary defines a bank as “an
establishment for custody of money received from
or on behalf of its customers”.
Cont,d
2. The Webster’s Dictionary Defines a bank as “an

institution which trades in money, establishment for
deposit, custody and issue of money, as also for making
loans and discounts and facilitating the transmission of
remittances from one place to another”.
3. According to Prof. Kinley, “A bank is an establishment
which makes to individuals such advances of money as may
be required and safely made, and to which individuals
entrust money when it required by them for use”.
Types of Banks
• There are various types of banks which operate in

different country to meet the financial requirements
of different categories of people engaged in
agriculture and business. on the basis of functions,
the banking institution may be divided into
following types:
1. central bank
• A central bank functions as the apex controlling
institution in the banking and financial system of the
country. Its functions as the controller of credit,
banker’s bank and also enjoys the monopoly of
issuing currency on behalf of the government. A
central bank is usually control and quite often
owned, by the government of a country. The
national bank of Ethiopia is such a bank within our
2. Commercial Banks
• Commercial bank operates for profit. This bank accepts

deposits from the general public and extends loans to the
households, the firms and the government. The essential
characteristics of commercial banking are as follows:
- Acceptance of deposits from public
 lending or investment
 Repayable on demand.
 Withdrawal by means of an instrument, whether a cheque or
otherwise.
Cont,d
• Another distinguish feature of commercial bank is

that a large part of their deposits are demand
deposits withdrawable and transferable by cheque.
3. Development Banks
• It is considered as a hybrid institution which
combines in itself the functions of a finance
corporation and a development corporation.
Cont,d
• They also act as a catalytic agent in promoting balanced and
viable development by assuming promotional role of discovering
project ideas, undertaking feasibility studies and also provide
technical, financial and managerial assistance for the
implementation of project.
• In Ethiopia development bank of Ethiopia is the unique example
of this bank. It has been designated as the principal institution of
the country for coordinating the working of the institutions
engaged in financing, promoting or development of industry.

4. Co-operative Banks
 The main business of co-operative banks is to

provide finance to agriculture. They aim at
developing a system of credit. Agriculture finance is
a special field. The co-operative banks play a useful
role in providing cheap exit facilities to the farmers.
• In different countries there are three wings of co-operative
credit system namely - (i) Short term, (ii) Medium-term,
(iii) Long term credit.

Cont’d
 The former has a three tier structure consisting of
state co-operative banks at the state level( regional
level). At the intermediate level (district level) these
are central co-operative banks, which are generally
established for each district.
 At the base of the pyramid there are primary
agricultural societies at the village level.

5. Specialised Banks
• These banks are established and controlled under

the special act of parliament. These banks have got
the special status. One of the major bank is
‘National Bank for Agricultural and Rural
development’ (NABARD) established in 1982, as an
apex institution in the field of agricultural and other
economic activities in rural areas.
6. Indigenous Banks
• Unorganized unit which provides productive,

unproductive, long term, medium term and short
term loan at higher interest rate are known as
indigenous bankers. These banks can be found
everywhere in cities, towns and villages.
7. Rural Banks
• A set of financial institution engaged in financing of

rural sector is termed as ‘Rural Banking’. The
polices of financing of these banks have been
designed in such a way so that these institution can
play catalyst role in the process of rural
development.
9. Export - Import Bank
• These banks have been established for the purpose

of financing foreign trade. They concentrate their
working on medium and long-term financing.
10. Foreign Exchange Banks
• These banks finance mostly to the foreign trade of a

country. Their main function is to discount, accept and
collect foreign bills of exchange. They also buy and sell
foreign currencies and help businessmen to convert
their money into any foreign currency they need.
 Over a dozen foreign exchange banks branches are
working in every countries have their head offices in
foreign countries.
Types of Banking
• Banking is described as the business carried on by an

individual at a bank. Today, several forms of banking
exist, giving consumers a choice in the way they manage
their money most people do a combination of at least
two banking types. However, the type of banking a
consumer uses normally based on convenience.
• These are different types of banking through which
consumer can attach to it-
(A)Walk-in-Banking
• It is still a popular type of banking. As, in the past, it

still involves bank tellers and specialized bank
officers. Consumers must walk into a bank to use
this service normally, in order to withdraw money or
deposit it; a person must fill out a slip of paper with
the account and specific monetary amount and show
a form of identification to a bank letter.
Cont,d
• The advantage of walk in Banking is the face to face
connection between the banker and a letter. Also
unlike ATM banking, a person can apply for a loan
and invest money during a walk in.
Cont,d
(B) ATM Banking
 It is very popular because it gives a person 24 hour access to his bank
account. Walk in banking does not offer this perk. In order to use an
ATM, a person must have an ATM card with personal identification
number (PIN) and access to an ATM machine.
 Any ATM machine can be used, but charges apply if the ATM machine
is not affiliated with the bank listed on the ATM card.
• By sliding an ATM card into an ATM machine, it is

activated and then through touching buttons on the
machine, a consumer is able to withdraw.
Cont,d
(C) Online Banking
• It allows a person to get on the internet and sign into their

bank. This process is achieved with the use of a PIN,
different from the one used for the ATM card. By going
website of a bank and entering it, a consumer can get into
his account, withdraw money, deposit money, pay bills,
request loans and invest money. Online banking is
growing in popularity because of its convenience.
Cont,d
• These different types of banking give a consumer
the power of choice and also give them a
comfortable banking system that gives them a
convenient choice.
(E)Debit Card
• Debit card is a card issued by a bank allowing the holder to

transfer electronically to another bank account when making a
purchase. Debit cards are also known as check cards. Debit
cards look like credit cards or ATM (automated teller machine)
cards, operate like cash or a personal check.
• Debit cards are different from credit cards. While a credit card
is a way to "pay later," a debit card is a way to "pay now."
When you use a debit card, your money is quickly deducted
from your checking or savings account.
(D) E-Cheque
• An e-Cheque is the electronic version or
representation of paper cheque. The Information
and Legal Framework on the E-Cheque is the same
as that of the paper cheque’s.
• It can now be used in place of paper cheques to do
any and all remote transactions.
• An E-cheque work the same way a cheque does, the
cheque writer "writes" the e-Cheque using one of
many types of electronic devices and "gives" the e-
Cheque to the payee electronically.

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Banking CH 1 Power Point

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Chapter one: an overview of banks and their functions

You know people earn money to meet their day to

• With this practice, savings were available for use

• Thus, people were in need of a place where money could

• Banks are such places where people can deposit their

1. Dictionary meaning of the Word ‘Bank’ -The

2. The Webster’s Dictionary Defines a bank as “an

• There are various types of banks which operate in

• Commercial bank operates for profit. This bank accepts

• Another distinguish feature of commercial bank is

• In Ethiopia development bank of Ethiopia is the unique example

of this bank. It has been designated as the principal institution of

the country for coordinating the working of the institutions

engaged in financing, promoting or development of industry.

 The main business of co-operative banks is to

credit system namely - (i) Short term, (ii) Medium-term,

(iii) Long term credit.

 The former has a three tier structure consisting of

state co-operative banks at the state level( regional

level). At the intermediate level (district level) these

are central co-operative banks, which are generally

established for each district.

 At the base of the pyramid there are primary

agricultural societies at the village level.

• These banks are established and controlled under

• Unorganized unit which provides productive,

• A set of financial institution engaged in financing of

• These banks have been established for the purpose

• These banks finance mostly to the foreign trade of a

• Banking is described as the business carried on by an

• It is still a popular type of banking. As, in the past, it

• By sliding an ATM card into an ATM machine, it is

• It allows a person to get on the internet and sign into their

• Debit card is a card issued by a bank allowing the holder to

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