Commercial banks are a very important portion of the banking system in Nigeria. However, not everyone even knows what commercial banks are and it’s functions. The aim of this article is to cover 10 broad functions of commercial banks but first;
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What are commercial banks?
A commercial bank is a financial institution that performs the duties of accepting deposits from the general public and giving loans for investment with the aim of earning profit.
In clear terms, Commercial banks do banking business to earn profit. A commercial bank is also a regular bank that we go to in regular days to save money (deposit) and withdraw money.
Most people do not even know the functions of these regular banks they go to everyday other than just to deposit and withdraw cash. The purpose of this article is to give you an insight on 10 (ten) functions of a commercial bank.
Examples of commercial banks in Nigeria
There are basically three types of commercial banks in Nigeria. They are:
- Commercial banks with International authorization
- Commercial banks with National authorization
- Commercial banks with Regional authorization
Top 10 Functions Of Commercial Bank
Below are typically 10 (ten) general functions of commercial banks:
- Accepting deposits:
The popular and traditional function of a commercial bank is accepting deposits from the general public. These deposits may be of three types: Saving deposits, Current deposits and fixed deposits. In case of current account, people can withdraw deposits in part or in full at any time he likes without notice.
- Providing loans:
Another very important function of a commercial bank is to provide loans against suitable mortgages to the public to fulfill their needs of money. Loans can be granted in the form of cash credit, demand loans, short- term loan, overdraft, discounting of bills etc.
Under cash credit system, borrower is sanctioned a credit limit up to which he can borrow from the bank. The interest payable by the borrower is calculated on the amount of credit limit actually drawn. Demand loans granted by a bank are those loans which can be recalled on demand by the bank any time.
- Credit Creation:
This is an unique function performed by the commercial banks. A bank has sometimes been called a factory for the manufacture of credit. In the process of acceptance of deposits and granting of loans, commercial banks are able to create credit.
See Also: How To check BVN On Mobile Phone
- Transfer of funds:
Commercial banks are able to transfer funds of a customer to other customer’s account through the cheques, draft, mail transfers, telegraphic transfers etc.
- Agency functions:
In Recent times, commercial banks also act as an agent of the customer. However, banks charge fee or commission for these functions.
- Dealing in foreign exchange:
This as a function of commercial banks allows travelers and businessmen to obtain traveler’s cheques and foreign currency.
- Creation of medium of exchange:
In our modern monetary economy money is the medium of exchange. But banks also create a parallel medium of exchange through cheek. Documents like commercial bank cheek bank draft , bill of exchange, traveler’s cheek etc. are also used as medium of exchange to some extent and known as bank money .
- Provision of safety to valuables:
Banks provide safety to the valuable things like ornaments, deeds of lands etc. By keeping those in its safe custody through locker service.
- Personal services to client:
Commercial banks provide some personal services to the clients. Banks on behalf of the client repay house rent income tax insurance premium , telephone bill electrical bill etc . to the related authority or collect school fees from the client.
- Investment counseling:
Commercial banks provide investment counseling and information to the clients.
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