PRESENTATION ON

COMMERCIAL BANKS

Presented by:RUPESH NYAUPANE

Apex COLLEGE.

The Bank

• Bank is a financial institution which collects money as deposits from customers and uses the same to grant loans to other customers.

• It acts as a bridge between people who have surplus cash and pass it

on to people who are in need of it.

• It pays an interest to deposit customers and receives an interest from loan customers and makes a profit through a difference in both.

Functions

• Receive deposits - take money in from individuals and businesses (called depositors)

• Disburse payments - make payments upon the direction of its depositors, such as honoring a check

• Collections - a bank will act as your agent to collect funds from another bank payable to you, such as when someone pays you by check drawn on an account from a different bank

• Invest funds in securities for a return• Safeguard money - banks are considered a safe place to store your

wealth

Conted…..• Maintain and service savings and checking accounts of its depositors

• Lend money

The Bank Balance Sheet

• Balance sheet a list of the bank’s assets and liabilities.• Total assets = Total liabilities + capital• Liabilities are sources of funds• Assets are uses of funds• Deposit liabilities are the major items in the liabilities• Loans and advances are the major items in the composition of assets

• Liabilities: A bank acquires funds by issuing ( selling ) liabilities, such as deposits, which are the sources of funds the bank uses. The funds obtained from issuing liabilities are used to purchase income earning assets.

• Assets: A bank uses the funds that it has acquired by issuing liabilities to purchase income earning assets i.e. loan, securities and other assets of the bank such as land building, furniture, computers etc.

Stylized Balance Sheet of Commercial Bank

Liabilities Assets

Capital Cash

Reserves Bank Balance

Deposits Investment

Borrowings Loans and Advances

Other Liabilities Other Assets

Condensed Balance Sheet of BFIsAs of mid July 2015/ Asar 2072)

Rs in billionLiabilities Amount Assets Amount

Paid up Capital 98.3 Cash and bank 203.9

Reserves 63.6 Investment 248.7

Deposits 1146.1 Loans 1130.7

Borrowings 3.3 Others 170.5

Others 442.5

Total 1753.8 Total 1753.8

Liabilities of Commercial Bank

98.363.6

1146.1

3.3

442.5

capitalreservesdepositsborrowingothers

Assets of Commercial Bank

cash and bank12%

investment14%

loans64%

others10%

cash and bankinvestmentloansothers

General Principles of Bank Management

• Liquidity management

• Assets management

• Liabilities management

• Capital adequacy management

Liquidity Management

• Make sure that the bank has enough ready cash to pay its depositors when there are deposit outflows. As per NRB guidelines A class bank needs to deposit 5% of their deposit in NRB, B-4.5%,C-4%, Similarly, SLR-12%,9%,8% to manage in crises period

• Manage cash reserve ratio

• Manage excess reserve

Assets Management

• Mix of different assets High risk/high return such as loans and low risk/low return

such as Treasury bills Short term and long tem assets

• Assets diversification• Maximize return and minimize risk• Make adequate provisions for liquidity

Liability Management

• Deposits and its different mix• Borrowings (from central banks and inter-bank)• Issue of bonds, debentures and certificate of deposits (CDs)• Cost of fund

Capital Adequacy Management

• Help prevent bank failure and to lessen the chance of insolvency.

• Minimum amount of bank capital is required by the regulatory authority

THANK YOU