commercial banks and functions

COMMERCIAL BANKS. Commercial banks are financial institutions which accept deposits and other valuables from the public for safe keeping, with the sole aim of making profit.

 In other words, commercial banks are financial institutions that perform the services of holding people’s money and accounts and using such money to make; loans and other financial services available to Customers. The loans are usually for short and ‘medium terms.

 They are owned by private individuals, institutions or governments. Commercial banks are limited liability companies.

List of commercial banks in Nigeria

Some commercial banks in Nigeria are:

First Bank of Nig. Plc., Union Bank of Nig. Plc., Zenith Bank Plc., Access Bank Plc., Diamond Bank Plc., First City Monument Bank Plc., Guaranty Trust Bank Plc., Oceanic Bank Plc., United Bank of Nig. Plc. and Wema Bank Plc.

CHARACTERISTICS OF COM­MERCIAL BANKS

  1. Commercial bank is a limited liability company.
  2. The motive of its establishment is profit making.
  3. They are members of the money market
  4. Commercial banks are incorporated
  5. They accept deposits and other valuables.

FUNCTIONS OF COMMERCIAL BANKS

Acceptance of deposit: Commercial banks accept deposits from the public for safe
keeping. This is the oldest function of commercial banks, which helps in taking
care of people’s money. Money can be kept in current, fixed and savings
accounts.

Lending of money: This is perhaps the most profitable function of commercial


banks. Deposits from different customers are pooled together and given out as loans
and overdrafts with interest to people and firms for profitable investment.

Agent of payment: Commercial banks can act as agent of payment on behalf of
their customers. They encourage and permit customers to have current
accounts in which they can draw by cheque without notice. Money can also be transferred from one account to  another, e.g. credit transfer.

 Safe keeping of valuables: One of the functions of commercial banks is to keep customers’ valuables such as jewellery, certificates, will, etc.

 Discounting bill of exchange: Creditors can be paid by the bank immediately by discounting bill of exchange for their customers. This enables the creditors to be paid instantly, and the debtor is allowed a period of credit.

 Issuance of bank statement: At regular intervals, the banks will prepare and send bank statements to their customers to show their transactions with them.

 Investment and stock exchange transactions: Banks act as agents for the customers in the purchase or sale of securities, e.g. shares in the stock exchange.

 Issuance of travelers cheque: Travelers cheques are often issued to those traveling overseas in order to facilitate their commercial transactions.

 Foreign exchange transaction: Commercial banks make foreign currencies available to their customers. They participate in foreign exchange market and help in solving any problem relating to foreign exchange.

 Provision of financial advice: Commercial banks encourage and advise businessmen on the type of projects they should invest their money in.

 Facilitate international trade: Commercial banks provide credits to exporters, and this facilitates payment in foreign trade.

 Act as executor for their customers: Commercial banks can act in the capacity to execute the will of their customers.

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