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
- Provide facilities to effect payments on behalf its customer.
- Providing facilities for saving through savings, current and fixed deposit account.
- Providing a wide range of other banking services.
- Financing government through the purchase of government securities.
- 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:
- Very mobile
- Open 24 hours
- Almost no paperwork
- Reduce transportation cost and time
- 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.
- Trade finance
The seller company can feel assured of repaid if it goods to its offshore customers.
By issuing letter of credit (LOC)
- Deposit facilities
Checking Account
Savings deposit
Time deposit
Negotiable certificate of deposit
Demand deposit
- 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
- 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.