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par Silas HABARUREMA
National University of Rwanda – A0 2011
2.1.6. Great things about commercial bank tasks when it comes to economy
The deposit and loan solutions supplied by commercial banking institutions benefit an economy in a variety of ways. First, checking records, simply because they behave like cash, allow it to be is much simpler to get products or services and so assist both consumers and companies, who does think it is inconvenient to transport or deliver through the mail a large amount of money. Second, loans make it possible for consumers to enhance their total well being by borrowing cash to shop for automobiles, houses, along with other costly customer products they otherwise could perhaps perhaps not manage. Third, loans assist companies finance plant expansion and manufacturing of new goods, and so increase employment and growth that is economic. Finally, since commercial banking institutions want loans paid back, they choose borrowers very carefully and monitor performance of a business’s supervisors extremely closely. It will help make sure that just the most useful tasks have financed and that organizations are run effectively. This produces a healthier, efficient economy. In addition, since the owners (stockholders) of an organization getting financing want their business become profitable and handled effectively, bankers behave as surrogate monitors for stockholders whom can not be present on a regular basis to view the business’s managers.
The bank checking account services provided by commercial banking institutions offer an additional advantage to your economy. The checking accounts offered by commercial banks are functionally equivalent to real money, that is, currency and coin because checks are widely accepted as payment for goods and services. They, in effect, create money without the federal government having to print more currency when they issue checking accounts. Under government regulations in a lot of nations, commercial along with other banking institutions must hold a book of paper money and coin corresponding to at the least 10 percent of these bank account deposits.
Because commercial banks attract large amounts of savings from depositors, they can make numerous loans to many various clients in several quantities as well as for different maturities (dates when loans are due). Banking institutions can thus diversify their loans, and also this in change implies that a bank reaches less danger if a person of its clients does not repay that loan. The decreasing of risk makes bank deposits safer for depositors. Security encourages more bank deposits and therefore more loans. This movement of cash from savers through banking institutions towards the borrower that is ultimate called monetary intermediation because cash flows with an intermediary that is, the lender (James, M. J., 2009:6).
2.1.7. Commercial banking institutions in Developing Countries
The sort of nationwide economic system that characterizes developing countries plays a vital role in determining the type for the commercial bank system in those nations. A system of private enterprise in banking prevails in capitalist countries. In state-managed economies, banking institutions have already been nationalized. Other nations have actually patterned on their own following the social-democracies of European countries; in Egypt, Peru, and Kenya, by way of example, government-owned and privately owned commercial banking institutions coexist. The banking system developed payday loans Ohio under colonialism, with banks owned by institutions in the parent country in many countries. This heritage continued, although modified, after decolonization in some, such as Zambia and Cameroon. In other countries, such as for example Nigeria and Saudi Arabia, the increase of nationalism resulted in mandates for majority ownership by the native population.
Commercial Banks in developing nations act like their counterparts in developed countries. They accept and transfer deposits and therefore are active loan providers, specifically for short-term purposes. Other economic intermediaries, particularly government-owned development banking institutions, organize long-term loans. Commercial banking institutions can be used to fund government expenses. The bank operating system might also play a role that is major funding exports (James, M. J., 2009:12).