Banking & F. I. (Midterm)

• Core banking functions typically include:

  • Deposits

  • Loans

  • Payments
• Deposits


  This involves accepting deposits from customers into their accounts.
• Deposits


  These can include savings accounts, current accounts, fixed deposits, etc.
• Loans


  Providing various types of loans to customers such as personal loans, home loans, business loans, etc.
• Loans


  This involves assessing the creditworthiness of the borrower and disbursing funds accordingly.
• Payments


  Facilitating various types of payments including transfers between accounts, bill payments, online purchases, etc.
• Payments


  This can be done through various channels such as online banking, mobile banking, ATMs, and in- branch transactions.
• Two key banking services are:

  1. Electronic banking
  2. Trade Finance
• Electronic Banking


  Also known as e-banking or online banking, refers to the provision of banking services and transactions over electronic channels such as the internet, mobile devices, ATMs, and other electronic delivery channels.
• Some common electronic banking services include:

  • Online Banking

  • Mobile Banking

  • ATM Services

  • Electronic Funds Transfer (EFT)
• Online Banking


  Customers can access their bank accounts, view balances, transaction history, transfer funds between accounts, pay bills, and perform other banking activities through a secure website or mobile application.
• Mobile Banking


  This often includes features such as mobile check deposit, fund transfers, bill payments, and account management.
• Mobile Banking


  Similar to online banking, this allows customers to access banking services and perform transactions using a mobile device such as a smartphone or tablet.
• ATM Services / Automated Teller Machines (ATMs)


  Enable customers to conduct various transactions such as cash withdrawals, deposits, balance inquiries, fund transfers, and bill payments.
• Electronic Funds Transfer (EFT)


  Allows for the electronic transfer of funds between different accounts, financial institutions, or individuals.
• Trade Finance


  Involves financial services and products that facilitate international trade transactions and mitigate the risks associated with cross-border trade.
• Key components of trade finance include:

  • Letters of Credit (LC)

  • Trade Finance Loans

  • Export and Import Financing

  • Trade Risk Mitigation
• Letters of Credit (LCs)


  LCs help mitigate the risk of non-payment in international trade transactions.
• Letters of Credit (LCs)


  Are financial instruments issued by banks on behalf of importers to guarantee payment to exporters once certain conditions (such as the delivery of goods) are met.
• Trade Finance Loans


  Banks provide financing to support trade-related activities such as purchasing inventory, fulfilling orders, or financing production cycles.
• Trade Finance Loans


  These loans are often secured by the underlying trade transactions or collateral.
• Export and Import Financing


  Banks offer various financing solutions tailored to the needs of exporters andbimporters, including pre-shipment and post-shipment financing, export credit, and import/export factoring.
• Trade Risk Mitigation


  Banks provide services such as trade credit insurance, foreign exchange hedging, and risk assessment to help mitigate the risks associated with currency fluctuations, political instability, and non-payment in international trade.
• Asset-liability Management (ALM)


  Is a strategic approach used by financial institutions, particularly banks, to manage the risks arising from the mismatch between their assets and liabilities.
• Asset-liability Management (ALM)


  Its primary goal is to ensure that a bank's assets (such as loans and investments) generate enough income to cover its liabilities (such as deposits and other funding sources) while maintaining an acceptable level of risk.
• Steps on how Asset-liability Management typically works:

  1. Identification of Risks
  2. Setting Objectives and Constraints
  3. Asset and Liability Modeling
  4. Asset and Liability Matching
  5. Monitoring and Control
  6. Reporting and Disclosure
• Identification of Risks


  The first step is to identify and quantify the various risks faced by the bank, including interest rate risk, liquidity risk, credit risk, and market risk.
• Identification of Risks


  This involves analyzing the bank's balance sheet, cash flows, and other financial data to understand the nature and magnitude of these risks.
• Setting Objectives and Constraints


  Based on the identified risks, the bank sets specific objectives and constraints for its ALM strategy.
• Setting Objectives and Constraints


  These may include targets for interest rate sensitivity, liquidity levels, capital adequacy, and profitability measures.
• Asset and Liability Modeling


  Banks use sophisticated modeling techniques to simulate different scenarios and assess the impact of various factors on their balance sheet.
• Asset and Liability Modeling


  This may involve modeling interest rate movements, changes in deposit behavior, credit losses, and other factors that could affect the bank's financial position.
• Asset and Liability Matching


  Involves aligning the maturity, interest rate, and liquidity characteristics of the bank's assets and liabilities to minimize risk and optimize returns.
• Asset and Liability Matching


  This may include matching the duration of assets and liabilities, using derivatives to hedge interest rate risk, and diversifying funding sources to reduce reliance on volatile sources of funding.
• Monitoring and Control


  Once the ALM strategy is implemented, banks continuously monitor and evaluate the performance of their assets and liabilities relative to their objectives and constraints.
• Monitoring and Control


  This involves tracking key metrics such as net interest margin, liquidity coverage ratio, and duration gap, and taking corrective actions as needed to stay within risk tolerance levels.
• Reporting and Disclosure


  This helps investors, regulators, and other stakeholders assess the bank's risk profile and financial soundness.
• Technology in banking operations:

  1. Digital Banking Platforms
  2. Artificial Intelligence and Machine Learning
  3. Blockchain and Distributed Ledger Technology (DLT)
  4. Robotic Process Automation (RPA)
  5. Cloud Computing
  6. Cybersecurity Solutions
• Digital Banking Platforms


  Banks are investing heavily in digital banking platforms, including mobile banking apps and online banking portals, to provide customers with convenient access to banking services anytime, anywhere.
• Digital Banking Platforms


  These platforms enable customers to check account balances, transfer funds, pay bills, apply for loans, and perform

  other transactions electronically.