4/9/2019

Learning Outcomes
At the end of this chapter students will be able to:
1. Explain why banks are so important for the
well- being of a country’s economy.
2. Describe the definition of banking business as
given under the Financial Service Act (FSA) 2013.

Chapter 1
3. Explain who the banker is.
4. Explain what constitutes a bank’s customer.
5. Describe the structure of banking business.
Bank & The Business of Banking 6. Describe banking evolution, nature of competition
in banking & strategies for growth and survival.

Leading Banks, 2019

Banks Country Assets in USD Bank
1 Industrial & Comm. China $3.62 trillion
Bank of China Temple: Temple of Babylon (Iraq) &
Temple of Greek (Rome)
2 China Cons Bank China $2.94 trillion
3 Agric. Bank of China China $2.82 trillion Latin: Banco, Banca (Italian) Banque
(French) & Bank (now)
4 Bank of China China $2.63 trillion
5 HSBC Holdings H. Kong $2.57 trillion Meaning: Bench of money
(British) changer
6 JPMorgan Chase USA $2.45 trillion

Basic Knowledge about

Banks’ Owners & Bank & The Economy
Agents
Party Status Main Duty Receive Reward
Data As at 31 July 2016 RM (million) %
Shareholders Owners Contribute or -Dividend
supply capital -Capital Gain
Gross Domestic Product 540,139 100
(GDP)
Total Liabilities of Banking 1,110,340.4 205.6
CEO, Agents Maximize -Salary
of System
Officers & Shareholders’ -Perks (house, car, driver,
Staf owners Wealth entertainment
allowances, etc.)
-Bonus
-Promotion

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Why Bank Is Importance? Why Bank Is Importance?

• Fund mobilization by financial sectors.

• Facilitate • Acts as • Government

Financial system
Internal to bank

Corporate responsibility
trade/comme fiscal agent uses banks
rce of to manage
• Payment & government economy:
settlement • Interest
system rate
• Foreign • Money
exchange & supply
derivatives • Moral
suasion

Credit Creation
Multiplier
Amount Assume: Remaining Increases
deposited SRR = deposit lent in amount
Banking transaction in bank 10%, out to public of money &
Liq. credit • Money Multiplier 1_
Hold =
(A) 20% = SRR + Liquidity
(B) (D) (B) + (D)
(C) Holding
Customer A holds CASH of RM100 0 0 0 0
Customer A deposits RM100 in her RM100 RM30 RM70 RM70
= RM100
bank, MBB (to Borrower 1)
Borrower B deposits RM70 in his RM70 RM21 RM49 RM49 RM10 +
bank, CIMB (to Borrower 2) RM20
Borrower C deposits RM49 in his RM49 RM14.70 RM34.30 RM34.30 = RM333.3
bank, RHB (to Borrower 3) 3
After just 3 transactions, total money & credit in the economy has RM153.30
increased to: RM253.30 (100+RM153.30)

Why Bank Is Importance? Definition of Banking

• Government - implement monetary policy by way of
Open Market Operation – selling & buying securities to Business
decrease & increase amount of money in the economy.
• FSA 2013:
Type Features
Malaysian Treasury Bills Short-term securities issued by Bank Negara Malaysia
• The business of accepting various kinds of
(MTB) (BNM) for the government's working capital deposits, collecting and paying various kinds of
requirements. MTB are issued with original maturities of
3-month, 6-months 1-year. bills of exchange (cheques, drafts, notes, etc.),
providing various types of financing (more of
Government Investment Long-term non-interest bearing securities issued by the
Issues (GII) Government of Malaysia based on Islamic principles.
commercial banks), and
Malaysian Islamic Short-term non-interest bearing securities issued by the • Providing the financial advisory services
Treasury Bills (MITB) Government of Malaysia based on Islamic principles. (investment banks), and
BNM Monetary Notes Issued by BNM with maximum maturity of 3 years in • Providing any other business that the government
(BNMN) order to mop-up excess liquidity in the financial system.
may allow from time to time.
Malaysian Government Long-term bonds issued by the Government of Malaysia
Securities (MGS) with an original maturity of more than one year.

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