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EGERTON UNIVERSITY TOWN CAMPUS FACULTY OF COMMERCE DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE
NAME: OCHIENG JARED OPONDO REG NO: GROUP: A FACULTY: COURSE: markets TASK: TITLE: COMMERCE BCOM 330; Financial Institutions and TERM PAPER COMMERCIAL BANKING IN KENYA C12/60275/09
PRESENTED TO:
ABSTRACT:
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COMMERCIAL BANKING IN KENYA Introduction----------------------------------------------------------4 The history and development of commercial banks------------5 Importance of commercial banks---------------------------------9 Roles of commercial banks----------------------------------------10 Regulations of commercial banks---------------------------------13 Contribution of commercial banks to Kenyas economy------14 Summary-------------------------------------------------------------15 References------------------------------------------------------------16
INTRODUCTION
A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.
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A commercial bank is a financial intermediary which collects credit from lenders in the form of deposits and lends in the form of loans. A commercial bank holds deposits for individuals and businesses in the form of checking and savings accounts and certificates of deposit of varying maturities while a commercial bank issues loans in the form of personal and business loans as well as mortgages. A financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term), checking services, credit cards and savings accounts. (Business Dictionaries
Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. )
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REGULATIONS OF COMMERCIAL BANKS Regulations of commercial banks refer to the laid down rules under which the commercial banks operate. These regulations are clearly set out in the banking act chapter 488 of 1st November 1989 and revised recently in 2009.
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Minimum reserves: The Central Bank may prescribe the minimum ratios which shall be maintained by banking institutions as between their core capital and total capital on the one hand and their assets (including their total loans and advances) and off balance sheet items on the other. This minimum holding of liquid assets is determined by the central bank from time to time. Section 19 (b) states that this minimum liquid assets or balances are held at central bank. Accounts and audits: The financial year of every banking institution shall be the period of twelve months ending on the 31st December in each year (section 20A). All entries in any books and all accounts kept by an institution shall be recorded and kept in the English language, using the system of numerals employed in Government accounts. Every institution
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Information and reporting requirements: The Central Bank may require any banking institution and their agencies to furnish to it, at such time and in such manner as it may direct, such information as the Central Bank may reasonably require for the proper discharge of its functions of maintaining supervision and surveillance of the affairs of banking institutions under this Act. Inspection and control of institutions: The Central Bank may, at any time and from time to time, and shall, if so directed by the Minister, cause an inspection to be made by any person authorized by it, in writing, of any banking institution and its agencies and of their books, accounts and records (section 32(1)). known as the Deposit Protection Fund Board. The Board shall consist of: the Governor of the Central Bank who shall be the chairman; the Permanent Secretary to the Treasury; and five members appointed by the Minister in consultation with the Central Bank to represent the interests of institutions. The principal object of the Board shall be to provide a deposit insurance scheme for customers of member institutions and liquidate and wind up the operations of any institution in respect of which the Board is appointed as a liquidator in accordance with this Act or any other written law.
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Restrictions on the increase of bank charges: No institution shall increase its rate of banking or other charges except with the prior approval of the Minister for finance and the central bank of Kenya.
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Banks promote capital formation: Commercial banks accept deposits from individuals and businesses, these deposits are then made available to the businesses which make use of them for productive purposes in the country. The banks are, therefore, not only the store houses of the countrys wealth, but also provide financial resources necessary for economic development. Investment in new enterprises: Businessmen normally hesitate to invest their money in risky enterprises. The commercial banks generally provide short and medium term loans to entrepreneurs to invest in new enterprises and adopt new methods of production. The provision of timely credit increases the productive capacity of the economy. Promotion of trade and industry: With the growth of commercial banking, there is vast expansion in trade and industry. The use of bank draft, check, bill of exchange, credit cards and letters of credit etc has revolutionized both national and international trade. Development of agriculture: The commercial banks particularly in developing countries are now providing credit for development of agriculture and small scale industries in rural areas. The provision of credit to agriculture sector has greatly helped in raising agriculture productivity and income of the farmers. Balanced development of different regions: The commercial banks play an important role in achieving balanced development in different regions of the country. They help in transferring surplus capital from developed regions to the less developed regions. The traders, industrialists etc of less developed regions are able to get adequate capital
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SUMMARY In conclusion, the development of commercial banks to the current ranks is a significant achievement in the economic history of Kenya. the commercial banks play a pivotal role in the economic advancement of Kenya, and we can say without fear of contradiction that is the force behind the recent witnessed widespread investment activities in the country. The importance, therefore of commercial banks to the economic development of a country cannot cannot be overemphasised.
A History of Money (Glyn Davies) "Commercial Banks." 123HelpMe.com. 01 Oct 2011 <http://www.123HelpMe.com/view.asp?id=164261>.
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http://www.slideshare.net/Mustafaseady/role-of-commercial-banks-inthe-economic-development-of-a-country.
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