Chapter Four Commercial Banking

Retail Banking Money banking services: Deposits : Current accounts Deposit accounts Payments Loans: Overdraft Personal loans Mortgage Credit cards

Retail Banking (cont.) Other services include: Securities purchases Securities custody Mutual funds Advice Safe deposits Foreign exchange Insurance

Retail Banking (cont.) Delivery Channels include: Branch networks ATMS Electronic Funds Transfer at the Point of Sale (EFTPOS) terminals (examples include swipe machines in supermarkets and fuel stations) Telephone banking Internet banking

Retail Banking (cont.) The clearing system in the world Fedwire and CHIPS in the U.S. SIT in France CHAPS in the U.K. TIPANET for a group of European Cooperative banks S InterPay for European savings banks Eurogiro for Giro clearing organizations

Key Retail Banking Issues Capital strength – have they got enough to back their business? Liquidity – can they meet predictable and unpredictable cash requirements? Risk management – can they manage risk properly? Executive pay – do they pay too much? Competition – can they price competitively? Cost control – can they be efficient? Sales of non-banking products – what products to offer? Use of IT – how can IT help in reducing costs in front and back office operations?

Wholesale Banking Uncommitted facilities Overdrafts Lines of credit Bankers’ acceptances

Wholesale Banking (cont.) Committed facilities Term loans (up to 5 years) Standby credits Revolving credits Project finance Syndicated facilities Loans NIFs and RUFs (Note Issuance and Revolving Underwriting Facilities) MOFs (Multiple Option Facilities)

Loan Agreement The loan agreement will typically have four sections: Introduction: The amount of the loan and its purpose, conditions of drawdown and particulars of the participating banks Facilities: The loan may be drawn down in separate tranches with different terms on interest and repayment. The procedures for drawing down will be covered Payment: This covers the interest calculations, calculation of the interbank rate, repayment arrangements, fees, or any similar charges Provisions: To protect the bank there will be covenants, events of default, procedures if basic circumstances change

Loan Agreement (cont.) The key issues for a Loan Agreement includes: Covenant Events of default Negative pledge Assignment Sub-participation Transfer or assignment