CHAPTER 2 :
INTERNATIONAL COMMERCIAL BANKING

CHAPTER 2 :
INTERNATIONAL COMMERCIAL BANKING

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TYPES OF INTERNATIONAL BANKING OFFICES

Subsidiary and Affiliate Bank

Offshore Banking Centres

Representative office

Foreign Branches

Correspondent Bank

FUNCTION

  1. Provide facilities to effect payments on behalf its customer.
  1. Providing facilities for saving through savings, current and fixed deposit account.
  1. Providing a wide range of other banking services.
  1. Financing government through the purchase of government securities.
  1. Providing credit/loan/advance facilities.

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THE EFFECTS OF INTERNATIONAL FOREIGN COMMERCIAL BANK

Managerial and marketing advantage

Regulatory advantage whereby multinational banks are often not subject to the same regulations as local bank.

Home nation information services

Large multinational banks- (prestige/image/reputation) can be attractive enough to potential clients

Knowledge advantage

INTRODUCTION

NEGATIVE EFFECTS IN INTERNATIONAL COMMERCIAL BANKS

Information asymmetry and hence adverse selection

Moral hazard and rationing can be happened when sovereign forces borrower to extend more credit than is optimal

Problems regarding international regulation for certain countries

Free rider problems in resolution of crises. It is never in the individual bank's interests to give debt

Possible international rescues and further moral hazard

Some international banks rely much more on equity that deposits

TYPES OF BANKING DISTRIBUTION STRATEGIES


FACILITIES OFFERED

Branchless banking

Used for delivering financial services without relying on bank branches.

Example medium of transaction: Internet, ATM, POS device, EFTPOS device and mobile phones.

Compliment an existing bank branch network.

Advantages of mobile phone branchless banking:

  1. Very mobile
  1. Open 24 hours
  1. Almost no paperwork
  1. Reduce transportation cost and time
  1. Very small bank overhead

Retail banking

Also, termed personal banking services.

A bank performs transaction directly with end customers.

Services offered: savings account, mortgages, personal loans, debit and credit cards, ATM cards, deposits and more.

Private banking

Traditionally-private bank were linked to families for several generation.

Consists of banking service, discretionary asset management, brokerage, limited tax advisory services and some basic concierge-type services, offered by a single designated relationship manager.

Banking investment, acquisition and other financial service provided by banks to private individuals(those enjoy high levels of income/invest a huge amount of assets).

Rendered on more personal basis

Example: first banks in Venice- focused on managing personal finance for wealthy families for a specific period of time.

  1. Trade finance

The seller company can feel assured of repaid if it goods to its offshore customers.

By issuing letter of credit (LOC)

  1. Deposit facilities

Checking Account

Savings deposit

Time deposit

Negotiable certificate of deposit

Demand deposit

  1. FOREX/Currency market

Main participants-larger international banks

It assists in the implementation of risk management under hedging exchange rate risk.

The largest market in the world

FOREX arrangement would be in the forms of cross border transactions and foreign investments.

To facilitate international trade and development

  1. Corporate financing

Participating in the international loan syndicate by lending to MNCs.

Participating in the underwriting of Eurobonds and foreign bond issues.

Other banking services (ex: checking accounts, consultancy and advisory).

Venture in project financing and to sovereign government for the sake of economic development.

Also, involves borrowing/lending in the Euro-currency market.

Companies need to borrow money to purchase raw materials, machine parts, inventory, and payroll.

Intermediaries that moves from the capital market to businesses and institution.