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CHAPTER 2 : INTERNATIONAL COMMERCIAL BANKING (Types of International…
CHAPTER 2 : INTERNATIONAL COMMERCIAL BANKING
BANKING DISTRIBUTION STRATEGIES :<3:
BRANCHLESS
BANKING
Definition:
-Distribution channel strategy used for delivering financial services without relying on bank branches
-Complement an existing bank branch network
Example medium of transaction:
:check:Internet
:check:ATM
:check:POS devices
:check: EFTPOS devices
:check:Mobile Phone
Advantages of mobile phone branchless banking:
:star: Very mobile
:star: Open 24 hours a day
:star: Almost no paper work
:star:Suitable for people low income
PRIVATE BANKING
Definition:
-It is banking, investment, acquisition & other financial services provided by bank (those who enjoy high level of income)
-Rendered on more personal basis
Consists of:
:check:Banking services
:check:Discretionary asset mgt
:check:Brokerage
:check:Limited tax advisory services
Example:
First banks in Venice-focused on managing personal finance for wealthy families for a specific period of time
RETAIL BANKING
-Also termed as personal banking services
-A bank performs transactions directly with end customers
Services offered:
:lock:Saving account
:lock:Mortgages
:lock:Personal loans
:lock:Debit cards
:lock:ATM cards
The Effect of International Foreign Commercial Banks
:star: Managerial and marketing knowledge developed at home can be used abroad with low marginal costs
:star: Home nation information services may able to obtain more complete / advance information on trade & financial markets in the multinational banks home nation.
:star: Very large multinational banks have high perceived prestige/image/reputation which can be attractive enough to potential clients.
:star: Transaction costs of multinational banks may be able to circumvent gov. currency controls.
:star: Foreign markets may offer opportunities to growth not found domestically.
:star: Risk reduction and greater stability of earnings due to diversification.
:star: Diverse choices of consumer banking and financial products/services.
Advantage made through International Transaction
:
:green_cross:
Risk Sharing
= Currency & interest rate swaps reduce customers' exposure to exchange rate.
:green_cross:
Liquidity
= Bank's participation in FOREX
markets provides liquidity and reduces transaction costs.
:green_cross:
Information
= Reduce info. costs in international credit transaction.
Negative Effects in International Transaction
:red_cross: Information asymmetry (e.g. on overall indebtedness and susceptibility to penalties) & hence adverse selection.
:red_cross: Moral hazard and rationing can be happened when sovereign forces borrower to extend more credit than optimal.
:red_cross: Possible international rescues and further moral hazard.
:red_cross: Free rider problem in resolution of crises.
:red_cross:Some international banks rely much more equity than deposits.
:red_cross: Problems regarding international regulation for certain countries.
Types of International banking offices
🍀
3. Foreign branches
:explode: Operate like a local bank but is legally part of the parent bank, not a separate entity.
:explode: Subject to both the banking regulations of Home Country & Foreign Country
:explode: Reason for foreign branches
:red_circle: offer more extensive range of services
:red_circle: internationalizing bank operations
:red_circle: compete with host country banks at the local level
:red_circle: To take advantage on the situations not subject to local reserve requirement/deposit insurance
4. Subsidiary & affiliate bank
Subsidiary bank
:unlock: locally incorporated bank that is either wholly owned / owned in major part by a foreign parent.
:unlock: Engages in full banking activities as permitted by host country regulations
Affiliate bank
:unlock: partially owned but not controlled by its foreign parent
:unlock: Both allowed to underwrite securities
2. Representative office
:pen: Establishes a physical presence in the foreign market but has very limited function
:pen: They assist MNC clients with information about local business practices, economic information, credit evaluation of customers etc.
5.Offshore banking centers
:star: A country whose banking system is organized to permit external accounts beyond the normal scope of local economic activity
:no_entry:
Reasons for offshore banks:
:check: Low / no taxes
:check: Services provided for non-resident clients
:check: Few / no FOREX controls
:check: Legal regime that upholds bank secrecy
Branchless Banking
:star: Used for delivering financial services without relying on bank branches
:star: Complement an existing bank branch network
:star: Example mediums of transactions:
:red_cross: Internet
:red_cross: ATM
:red_cross: Mobile phone
:no_entry:
Advantages of mobile phone branchless banking
:warning: Very mobile
:warning: Open 24 hours a day
:warning: Small fees for the agents
Private Banking
:star: Banking, investment, acquisition & other financial services provided by banks to private individuals (those enjoy high levels of income / invest a huge amount of assets)
:star: Consists of banking services, discretionary asset management, brokerage, limited tax advisory services & some basic concierge-type services, offered by a single designated relationship manager.
:star: Traditionally – private banks were linked to families for several generations
Retail banking
:star: Also termed as personal banking services
:star: A bank performs transactions directly with end customers
:star: Services offered: savings account, mortgages, personal loans, debit cards & credit cards, current accounts, ATM cards, traveller check, home equity loan & certificates of deposit/term deposits
1. Correspondent bank
:fire: Considered as the lowest possible of banking exposure to the foreign market
:fire: Provide trade-related & FOREX services fro its MNC customers in the foreign market without to establish its own physical presence
Facilities by International Commercial Banks
Forex
Consider as a larger market in the world based on its volume
involving hundred of millions of dollar
When a company doing business in another country it paid on the local currency (Host Country)
Deposit Facilities
-
Demand deposit
A deposit that the owner is entitle to receive via fund
Checking account
Serve as a medium of exchange in the economy amounting about half of the total money.
Saving Account
A comment type of banking facility which when the fund were deposited. the owner will be supplied with passbook and bank statement
Time Deposit
Unlike demand deposit this deposit has a fixed maturity date and the fund cannot be transferred to another party.
Negotiable Certificates
Commonly deposit in large amount and used by wealthy individual and corporate company.
Corporate Finance
Euro bond issuance
Trading where bearer bond issued in markets other than the country of issue
Miscellaneous Banking Services
Corporate checking account, currency specific credit card and lock boxes held foreign trade possible for corporation
Provide consultancy and advisory on managing race/hedging, Interest rate and currency swap financing also international cash management .
Loan
Deal with credit facilites offered simultaneously by number of banks from many country who signed the same loan agreement
It use a large set of documentation and agreement.
Trade Finance
Bank act as intermediaries between customers and company located in different countries.
By issuing letter of credit (LOC) company can feel assured of being paid for its goods.
without LOC company would face expenses that used to investigate foreign customer credit worthiness
Functions of international commercial banks
providing facilities for saving through saving, current and fixed deposit account & other financial instrument :pencil2:
providing facilities to effect payments on behalf of its customer :pencil2:
providing credits / loan / advances facilities :pencil2:
providing a wide range of other banking services such as remittances :pencil2:
financing government through the purchase of government securities and T-Bills :pencil2:
Past Semester
Jan 18
2(a) Explain any (2) types of facilities offered by the international commercial bank (10m)
-Trade Finance
-Deposit Facilities
-Corporate Finance
-Foreign Exchange (FOREX)
(b) Discuss any (4) effects of going global from the point of view of the international foreign commercial bank (10m)
-Liberalization and technological innovation
Rapid growth
-Managerial and marketing strategies
Types of banking distribution strategies
👩🏻🎓
