BankOp M1-2

Nature of Banking

• Banking is the business of accepting deposits & extending credit

• Banks act as financial intermediaries that channel funds from savers to borrowers

• provide safe place for people to keep their money & offer services like checking accounts, savings accounts, loans, & payment systems

• contribute to economic growth by ensuring that money flows efficiently within the economy.

Commercial Banks

• accept deposits from individuals & businesses, & extend loans for commercial & personal purposes

• usually focused on profit & operate on a larger scale compared to other types of banks

Rural Banks

cater mainly to farmers & small-scale businesses in rural areas

Thrift Banks

focus on encouraging savings & providing mortgage loans

Cooperative Banks

serve cooperative members & provide credit facilities for agriculture

Universal Banks

offer commercial banking & investment banking services

Basic Principles of BankOp

1. Safety

2. Liquidity

3. Profitability

4. Solvency

5. Compliance

Safety

protecting depositor’s funds

Liquidity

ensuring the bank can meet withdrawal demands anytime

Profitability

generating earnings to sustain operations

Solvency

maintaining a strong capital base

Compliance

adhering to regulations of the BSP

Requirements for Organizing a Bank

1. Minimum capital requirement set by BSP

2. Articles of Incorporation and by-laws

3. Approval from BSP and SEC

4. Qualified incorporators and directors

This is to ensure the bank is financially sound and legally compliant before it starts.

Manual of Regulations for Banks (MORB)

compilation of regulations governing banks under the supervision of the BSP

Republic Act No. 8791

act providing for the regulation of the organization and operations of banks, quasi-banks, trust entities, and for other purposes

Internal Organization and Management (Basic Considerations)

1. BOD

2. Executive Management

3. Departments/Units

BOD

sets overall direction and approves major policies

Executive Management

handles daily operations

Departments/Units

loans, deposits, treasury, operations, & compliance

Clear organization ensures

efficiency, accountability, and risk control

Qualifications of the BOD

1. Must have integrity

2. Competence

3. Relevant banking or financial experience

Duties of BOD

1. Approve policies

2. Review bank performance

3. Ensure compliance with laws

Liabilities of BOD

Board members can be held accountable for mismanagement or violation of banking laws

Role of Executives

Executives (President, VP, Managers) implement board policies, oversee bank operations, manage risks, and ensure customer satisfaction. They are the link between the board and the staff.

Staffing

• success of a bank also depends on its people

• recruitment should focus on hiring competent, trustworthy, & service-oriented employees

• training & professional development are essential

Policy Formulations (Its Importance)

• policies serve as the guiding framework for bank operations (credit policies, risk management policies, compliance guidelines)

• without clear policies, banks may face operational risks & regulatory issues

Banks are the backbone of the economy

as they help businesses grow & allow individuals to reach their financial goals

Why banks exist?

• to act intermediaries between savers and borrowers, stimulating economic growth

• to provide secure place for individuals and businesses’ money

• to facilitate transfer of money

• to offer financial services

• to manage monetary policy and ensure economic stability by controlling money supply and inflation

• to make a profit

• to support everyone in investing and providing job

How banks operate?

• accepts deposits

• create demand deposits and savings products

• deposited funds to make loans and earn interest income

• act as payment facilitators

• maintain reserves

• manage risks by diversifying loan portfolios

• channel funds from savers to borrowers