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The Main Functions of Commercial Banks

One of the most regulated industries in the world in the banking sectors. Every country has a regulator that helps in formulation and implantation of policies to do with banking. At a global level, the legislation is done by the IMF and the World Bank. Banks have to observe both the international and domestic standards. Let us look at some of the primary functions of the commercial banks.

Accepting deposits

making cash deposits This is no doubt one of the primary functions of a commercial bank. Commercial banks accept credit from the public and also the government. People can make deposits in the bank as individuals or as groups or society. This explains why we have different types of bank account to take care of the various needs of individuals.

Individuals who are salaried can have a salary account whereas those who plan to save can open a saving account. A fixed deposit account is ideal for people who have vast sums of money and do not want to use it at a given time. They, therefore, keep them in the fixed deposit account to earn interest.

Giving loans

Another primary role of the banks is issuing the loans to its customers. Whenever the customers take the loans, they are usually charged an interest. The interest that is charged by the banks is one of how the banks make money. The banks give the customers loans based on their account deposits.

They also give advance loans based on the money that is deposited on account of the individuals. For banks to give you a loan, you must be their customer and must have some security and guarantors.

Foreign exchange

Another critical function of the banks is that they offer foreign exchange. If you have foreign currency and you would like to get a local currency merely walk into the bank and have the exchange of the same done.

You can also exchange from local currency to an international currency. Banks typically offer better rates than some of the forex bureaus. So you may need to compare the two before you decide on the same.

Agency functions

paying checksLast but not least, banks offer what is referred to as the agency functions. Banks act as representatives of their clients on various fronts. For example, banks collect dividends, bills of exchange, drafts, and cheques on behalf of their customers.

They may also make specific payments on behalf of their customers. Watch the video below for the major functions of the commercial banks.

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