ROLE OF BANKS

Banks play very important roles as financial intermediaries in trade and commerce. They bring the savers and the lenders together, i.e. funds are transferred from the savers to those who wish to borrow or invest the funds. To encourage the savers to deposit funds with them, the banks pay them a certain rate of interest on their deposits. On the other hand, the bank charges those who wish to make use of these funds at a higher rate of interest. This charge is to cover the cost of the funds (interest paid to the savers), administrative and operational expenses and to earn some profits for the shareholders.

MAIN FUNCTIONS OF BANKS

With the expansion of trade and commerce, banks began to play more important roles to facilitate trade and commerce. Their functions are as follows:

(a)  To provide safe keeping for cash deposited in the current, savings and fixed deposit accounts

(b)  To provide a convenient and safe means of making payments through the current account or by way of bank drafts, bank transfers and bills of exchange

(c)   To provide finance by way of loan, overdraft, or discounting bills of exchange

(d)  To provide finance in foreign trade by way of documentary credit or discounting foreign bills of exchange

(e)  To give advice on financial investment or on the credit standing of the customers

SERVICES OF COMMERCIAL BANKS

1. Accepting deposits

2. Providing a convenient means of making payments

3. Lending to customers

4. Other services