Banking Ops SZABIST Lec-1 Intro to Banking

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    Banking Operations

    Lecture 01 - Introduction to Banking

    Banking Ops (SZABIST) - Lecture 01 (Muhammad Ali Jangda)

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    We will Cover

    What is a bank ?

    Fractional Reserve Banking (Multiplier Effects)

    Evolution of Banking

    Modern Banking

    Banking in Pakistan

    Services offered

    Banker-Customer Relationship

    Accounts of Customers

    Banking Instruments (Negotiable Instrument Act)

    Career Opportunities in Banking and FinancialServices.

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    What is a bank?

    Banking

    Oldest and most important industry

    Largest business firms ever created

    Which nation has the largest number of commercial banks?

    Definition of Money

    Measure of monetary aggregates (M0, M1, M2, M3 etc)

    Composition of monetary aggregates in Pakistan

    Role of Money (Medium of Exchange, Unit of Account, Storeof Value)

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    What is bank? Continued ..

    What is a bank?

    Economic functions it serves

    The Services it offers

    Legal basis of its existence

    Bank definition (1)Abank is any business offering deposits subject to withdrawal and

    demand (such as by writing a cheque or making an electronic transfer)and making loans of a commercial or business nature (eg granting credit

    to private business seeking to expand the inventory of goods on their

    shelves or to purchase new equipment).

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    What is bank? Continued ..

    Bank definition (2)as defined in the BankingCompanies Ordinance 1962;(a) banking means the accepting, for the purpose of lending or

    investment, of deposits of money from the public, repayable on demand

    or otherwise, and withdrawable by cheque, draft, order or otherwise;

    (b) banking company means any company which transacts the business

    of banking in Pakistan and includes their branches and subsidiariesfunctioning outside Pakistan of banking companies incorporated in

    Pakistan;

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    The many different roles banks play in the economy:

    Intermediation role

    Payment role

    Guarantor role

    Risk management role

    Savings role/investment advisor loan

    Safekeeping /certification of value

    Policy role

    Role of the banks

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    Top banks in the world 2013

    Worldstop 10 banks:

    Combined assets of over US$ 25.0 trillion

    World GDP (current prices):$74.171 trillion

    Top 10 banks assets are 34% of the total world

    GDP Industrial and Commercial Bank of China (ICBC) is

    the world's largest bank with assets of CNY18.743trillion (US$ 3.068 trillion)

    - HSBC Holdings is the second largest financialinstitution in the world with assets of US$2.723

    trillion

    - Four of the top 11 banks are Chinese financial

    institutions.

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    Top Investment banks by Volume 2013

    Refer to the file

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    Pakistan Financial Industry Landscape as at

    Dec 2012

    BANKS PERFORMANCE AT A GLANCE Total assets of the sector grew from Rs. 8.3 trillion

    in CY11 to Rs. 9.9 trillion in CY12 (increase of19.3%)

    Profit before taxation increased by 6.7% in CY12over CY11

    Investment grew by 32.1 percent while grossadvances by 12.2 percent in CY12

    Lending to financial institutions decreased by Rs36.9 billion or 17.8 percent in CY12 over CY11

    In case of Pakistani banks, the lending decreased by25.7 percent in CY12, however, in case of foreign

    banks, it increased by 64 percent

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    Pakistan Financial Industry Landscape as at

    Dec 2012

    BANKS PERFORMANCE AT A GLANCE

    Banks advances increased to Rs 4.3 trillion in CY12showing an increase of 12.2 percent over CY11

    NPLs increased to Rs 600.2 billion in CY12compared to Rs 573.1 billion in CY11

    NPLs to advances ratio decreased to 13.9 percent inCY12 as compared to 14.9 percent in CY11.

    NPL to total equity reduced from 73.9 percent inCY11 to 71.3 percent in CY12

    NPLs provision to NPLs increased to 71 percent inCY12 from 70 percent in CY11.

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    Pakistan Banking Landscape 2012

    There is steady increase over 2008 to 2012 (from 22M to 36M)

    CASA constitute a major junk of the total accounts

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    Pakistan Banking Landscape 2012

    There is steady growth in deposits (about 72% from 2008 to 2012)

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    Fractional Reserve Banking

    What is fractional reserve banking? (play the video) Reserve Ratio

    Money Multiplier Effects

    Reserve Requirements for Pakistani Banks

    Prudential Measure Tool for Liquidity Management

    Statutory Liquidity Reserve (SLR) is governed under Section 29of the BCO, 1962

    It is being monitored at 20% of the Total Demand & Time

    Liabilities of a Scheduled Bank This 20% is comprised of 5% on account of Cash Reserve

    Requirement and 15% on account of Statutory LiquidityRequirement.

    SLR and Interest Rate operating procedures

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    Services Offered By the Banks

    Historically

    Currency Exchange

    Lending Saving Deposits

    Safe keeping of Valuables

    Supporting Government Activities with Credit

    Post Industrial Period (USA, Europe) offering Demand Deposits

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    Services offered by the Banks

    More Recently Granting Consumer loans

    Financial Advising

    Managing Cash (cash collection and disbursement for the clients,invest surplus in short term interest bearing assets)

    Equipment Leasing

    Making Venture Capital

    Selling Insurance Services

    Mutual Funds and Annuities

    Merchant Banking Services

    Convenience: The Sum Total of All Banking and Financial Services Specialized service delivery channels (ATM, call Centers, Internet

    Banking)

    Trend towards universal banking (banking, fiduciary, insurance,security brokerage under one roof)

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    Banker-Customer Relationship

    Definition of the term Customer and Banker Functions of the Banker

    Special Nature of the Relationship

    Rights, Secrecy, Confidentiality

    Accounts of Customers Account Relationship Opening; Legal & Operational

    aspects

    Types of Accounts

    Termination of Relationship etc

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    Banking Instruments

    Negotiable Instruments Act Types

    Essential Elements

    Parties to the Instrument

    Payment of the Instrument Endorsements

    Payments Methods (Bankers Cheques, Demand Drafts)

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    Loan officer

    Tellers

    Customer Service Officers

    Credit Analyst Branch Managers

    System analyst

    Auditing and control

    personnel Compliance Officers

    Relationship Officers /Managers (RMs)

    Teller

    Security Analyst and Trader

    Marketing / SalesResources

    Investment Bankingspecialist

    HR Acquisition / TalentDevelopment Resources

    Career opportunities in Banking