B A N K I N G

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Created by
Jane Sumagang

Cards (55)

  • Core banking functions:
    deposits
    loans
    payments
  • Deposits: This involves accepting deposits from customers into their accounts. These deposits 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. 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. This can be done through various channels such as online banking, mobile banking, ATMs, and in- branch transactions.
  • Banking services encompass a wide range of offerings designed to meet the financial needs of individuals, businesses, and institutions.
  • Two key banking services are electronic banking and 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:
    1. Online Banking
    2. Mobile Banking
    3. ATM Services (Automated Teller Machine
    4. Electronic Funds Transfer
  • 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: Similar to online banking, mobile banking allows customers to access banking services and perform transactions using a mobile device such as a smartphone or tablet. This often includes features such as mobile check deposit, fund transfers, bill payments, and account management.
  • 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): EFT allows for the electronic transfer of funds between different accounts, financial institutions, or individuals. This includes services like wire transfers, Automated Clearing House (ACH) payments, and electronic bill payments.
  • 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:
    1. Letter of Credit
    2. trade finance loans
    3. export and import financing
    4. trade risk mitigation
  • Letters of Credit (LC): 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. LCs help mitigate the risk of non-payment in international trade transactions.
  • Trade Finance Loans: Banks provide financing to support trade-related activities such as purchasing inventory, fulfilling orders, or financing production cycles. 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 and importers, 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. The primary goal of ALM 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.
  • Here's how asset-liability management typically works:
    1. identification of risk
    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 in ALM is to identify and quantify the various risks faced by the bank, including interest rate risk, liquidity risk, credit risk, and market risk. 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. 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. 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: ALM involves aligning the maturity, interest rate, and liquidity characteristics of the bank's assets and liabilities to minimize risk and optimize returns. 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.
  • Asset and Liability Matching: ALM involves aligning the maturity, interest rate, and liquidity characteristics of the bank's assets and liabilities to minimize risk and optimize returns. 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. 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:
    BanksarerequiredtodiscloseinformationabouttheirALMpracticesand the risks they face in their financial statements and regulatory filings. This helps investors, regulators, and other stakeholders assess the bank's risk profile and financial soundness.
  • Technology in banking operations
    1. Digital Banking platform
    2. AI and Machine Learning
    3. Blockchain and distributed ledger technology
    4. robot process automation
    5. Cloud computing
    6. cybersecurity solution
  • 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. These platforms enable customers to check account balances, transfer funds, pay bills, apply for loans, and perform other transactions electronically.
  • Artificial Intelligence (AI) and Machine Learning:
    AI and machine learning technologies are being used in various aspects of banking operations, including customer service, fraud detection, credit scoring, and risk management. AI-powered chatbots and virtual assistants help banks provide personalized assistance to customers and streamline routine inquiries. Machine learning algorithms analyze large volumes of data to identify patterns and trends, enabling banks to make better-informed decisions and improve operational efficiency.
  • Blockchain and Distributed Ledger Technology (DLT):
    Blockchain and DLT are revolutionizing banking operations by providing secure, transparent, and tamper-resistant systems for recording and verifying transactions. Banks are exploring the use of blockchain technology for cross-border payments, trade finance, identity verification, and digital asset management, among other applications. These technologies have the potential to reduce costs, minimize settlement times, and enhance trust and transparency in financial transactions.
  • Blockchain and Distributed Ledger Technology (DLT):
    Blockchain and DLT are revolutionizing banking operations by providing secure, transparent, and tamper-resistant
    systems for recording and verifying transactions.
  • Robotic Process Automation (RPA): RPA involves the use of software robots to automate
    repetitive tasks and manual processes in banking operations, such as data entry, document
    processing, and account reconciliation.
  • These technologies have the potential to reduce costs, minimize settlement times, and enhance trust and transparency in financial transactions.
    Blockchain and Distributed Ledger Technology
  • Cloud Computing: Cloud computing allows banks to access computing resources, such as
    storage and processing power, over the internet on a pay-as-you-go basis.
  • Cybersecurity Solutions: With the growing threat of cyber attacks and data breaches,
    banks are investing in advanced cybersecurity solutions to protect their systems, networks, and customer data. These solutions include firewalls, intrusion detection systems,
    encryption technologies, biometric authentication, and security analytics tools, among others. Banks also conduct regular security assessments and employee training to enhance
    cyber resilience and mitigate security risks.
  • Types of risks in banking:
    1. credit risk,
    2. market risk,
    3. operational risk
  • Credit Risk:
    Credit risk refers to the risk of loss arising from the failure of a
    borrower or counterparty to fulfill their contractual obligations to repay a loan or meet other credit-related obligations.
  • Credit Risk :
    This risk arises from lending activities and can result from factors such as borrower default, bankruptcy, insolvency, or deterioration in credit quality.
  • Credit Risk:Banks manage credit risk through credit analysis, underwriting standards, collateral requirements, loan diversification, and the use of credit derivatives and risk mitigation techniques.