chapter 3 : commercial bank

DEFINITION
Under the Banking and Financial
Institutions Act (BAFIA) 1989, a
“bank’ is defined as “a person which
carries on banking business”

SNURAZANI/PB303/JUN 2012

DEFINITION
“Banking business” in turn is defined as:
“ the business of:
(i) receiving deposits on current account, deposit
account, savings account or other similar account;
(ii) paying or collecting cheques drawn by or paid in by
customers; and
(iii) provision of finance; or
such other business as the Central Bank, with the
approval from the Minister of Finance, may prescribe”

DEFINITION
The “provision of finance” under BAFIA includes:
• the lending of money
• leasing business
• factoring business
• the purchase of bills of exchange, promissory
notes, certificates of deposits, debentures or
other negotiable instruments and
• the acceptance of any liability, obligation or duty
of any person.

ROLES AND RESPONSIBILITIES
To actively promote and inculcate the saving habits,
especially among the younger generation. It is also an
important strategy to fight unnecessary inflationary pressures
on the economy of the country.

Commercial banks should also make their interest rates
reasonable enough to make it worthwhile for the average
people to save for the financial well-being of the populace in
the country.
Services and facilities that have been offered by the
commercial banks should be readily available at reasonable
costs.

ROLES AND RESPONSIBILITIES
Banks should educate the users on making the most out of the
services and facilities by giving simple pep talks and publishing
pamphlets and brochures, clarifying on the procedure and
advantages of the various types of services and facilities
available.
As the financial intermediaries between the depositors and
borrowers, banks have to ensure that such funds lent out are
for productive and economically viable purposes and
activities for the betterment of the country as a whole.


FUNCTION OF COMMERCIAL BANK
Retail banking services such as acceptance of deposits, granting of
loans and advances and financial guarantees
Trade financing facilities such as letters of credit, discounting of
trade bills, shipping guarantees, trust receipt and Banker’s
Acceptances (BA)
Treasury services such as foreign exchanges business, money market,
investment and etc.
Cross border payment services such as money transfer service,
international payment facilities
Custody services such as safe deposits and share custody


Commercial banks are also authorized
to deal in foreign exchange i.e. to buy,
sell, borrow and lend in foreign
currencies and are also the only
financial institutions allowed to provide
current account facilities.


Sources and Uses of Fund
Sources
•Capital and reserves
•Debentures and notes
•Deposits of which:
NIDs issued
Repos
•Amount due to financial
institutions and BNM
•Bankers acceptances

Uses
•Cash1 and reserves with BNM
•Amount due from financial
institutions and BNM
•Placement with discount houses
•Marketable securities of which:
Treasury bills
MGS
NIDs held
Cagamas bonds
•Investments
•Loans2 of which: Trade bills


CREDIT DIRECTION
Manufacturing
Real estate
Construction
Purchase of residential
properties and
building
Consumption credit
Purchase of transport
vehicle
Purchase of securities


General commerce
Wholesale
Retail
Hotel & restaurants
Finance, insurance &
business services
Agriculture, hunting,
forestry & fishing
Mining & quarrying
Electricity, gas & water
Transport, storage &
communications
Trade Bill

STATUTORY REQUIREMENTS AND BANK’S
LIQUIDITY
The statutory reserve and liquid asset ratios are
two major tools for monetary management in
Malaysia. These instruments have enabled the
Central Bank to control the volume of liquidity
in the banking system and, hence, credit
creation in the economy.


STATUTORY REQUIREMENTS AND BANK’S
LIQUIDITY
•DECREASE in SRR would raise the volume of resources available to
the commercial banks for granting new credit.
•INCREASE in SRR will make resources available reduce and directly
limit the lending capacity of commercial banks.
•INCREASING the MLR ratio will:
√ reduce the level of reserves available to the banking
institutions.
√ decrease the lending ability of the banking institutions
•DECREASING the MLR ratio will:
√ increase the level of reserves available to the banking
institutions.
√ increase the lending ability of the banking institutions.

Hong
Leong
Bank
Berhad

CIMB
Bank
Berhad

Affin Bank
Berhad

Public
Bank
Berhad

Alliance
Bank
Malaysia
Berhad

Local
Commercial
Banks

RHB Bank
Berhad
AmBank
(M)
Berhad

Malayan
Banking
Berhad

United
Overseas
Bank
(Malaysia)
Bhd.
National
Bank of Abu
Dhabi
Malaysia
Berhad

HSBC Bank
Malaysia
Berhad

Bangkok
Bank Berhad

J.P. Morgan
Chase Bank
Berhad

Foreign
Commercial
Banks

Standard
Chartered
Bank
Malaysia
Berhad

OCBC Bank
(Malaysia)
Berhad

Citibank
Berhad


The Bank of
Nova Scotia
Berhad
Mizuho
Corporate
Bank
(Malaysia)
Berhad

STATUS

MODERN
BANKING
SERVICES

LOANS &
ADVANCE

FINANCIAL
SERVICES
DEPOSITS

REMITTANCE

DEPOSITS:
a. Current account
b. Savings account
c. Fixed account deposit

ADVANCE AND LOANS:
a. Overdraft
b. External cheque purchase
c. Fixed and term loans

STATUS:
a. Credit cards
b. Banker’s guarantee
c. Trust receipts
d. Enquiry status
e. Travellers’ cheques

MONEY REMITTANCES:
a. Demand draft
b. Telegraphic transfer
c. Mail transfer
d. Standing instructions.

OTHER SERVICES:
a. Share trading
b. Insurance
c. Unit trust
d. Will writing


CONTINUE


DEPOSITS






Saving
Current
Fixed
Negotiable Certificates
of Deposit (NCDs)

DEPOSITS

SAVING ACCOUNT
 A deposit account where the account holder
periodically and regularly places a certain amount
of money as saving for his future requirements.
 A saving account may be maintained for various
reasons:
 To meet a certain expenditure
 Investment
 Save for a rainy date

 Interest is accrued on daily basis and generally
payable every 6-month in June and December each
year.

SAVING ACCOUNT

DEPOSITS

• Advantages of a Savings Account
– Most basic account
– Simple Procedures - Photostat IC front and back and be present at
the bank
– Low initial deposit to open an account
(Some banks as low as RM 20)

• Disadvantages of a Savings Account
– Low returns - Negligible
– Troublesome to withdraw money (ATM machine or lineup at
counters)
– If choose to have ATM service for Savings Account, RM 8 annual
fees


SAVING ACCOUNT

DEPOSITS

• Example: CIMB
– Eligibility:
• Individuals aged 18 years and above who are either
residents or non-residents.
• Joint account is allowed.

– Requirements:
• Minimum opening deposit of RM20.NRIC or
passport.
• A copy of utility bill for verification of address.


SAVING ACCOUNT

DEPOSITS

• Some of the common transactions you can
perform as an account holder are:
• Withdraw money, either over the counter or from ATMs
• Deposit money, either over the counter or through machine
such as
–
–
–
–
–
–
–

Cash Deposit Machines (CDM)
Make account enquiries
Transfer funds within the same banking institution
Bill payments
Inter-bank transfers (GIRO)
Online banking
Topup (Touch & Go) and etc


DEPOSITS

CURRENT ACCOUNT
• A form of working account and is operated
through the used of cheques.
• When a current account is opened, the customer is
regularly issued with a cheuqe book, containing a
certain amount of cheque leaves.
– If you have high payment volumes every month, an account that
comes with a chequebook will make things a lot easier.
– Just write a cheque for each transaction you need to make and
send them off. Some current accounts even pay interest or hibah
(profit) if you maintain a balance, so they are as good as savings
accounts.
– This means you only need one account instead of multiple ones. An
overdraft facility can also be added to your current account if you
need additional funds.

DEPOSITS

CURRENT ACCOUNT
• Different banks have different criteria for opening a
current account. Generally, banks would only
consider the application if the applicant is:
– 18 years old or above
– not a bankrupt
– of sound mind and has the mental and physical capacity
to operate the account properly

• For business owners and professional entities, they
must ensure that they are properly registered with
the relevant authorities.
• However, a bank has the discretion to accept or
decline an application to open the account.

DEPOSITS

CURRENT ACCOUNT
• A cheque is an instrument in writing issued by the
customer to his banker to pay out a certain sum of
money against the available balance standing to
the credit of his account.
– If balance insufficient, the banker may return the
cheque with the answer REFER TO DRAWER.
– Banker may offer the customer to do overdraft.

• In the case of stop payment, customer may writing
to the banker to not to pay the cheque and then
the cheque will be return with the answer
PAYMENT STOPPED or PAYMENT
COUNTERMANDED.

DEPOSITS

FIXED ACCOUNT
• Is the form of investment or deposit account where a
certain sum of money is placed with a bank for a fixed
period of time to earn interest.
• The interest rate is higher compare to saving accounts.
• Interest is normally paid on the maturity date.
• Protected from interest rate fluctuations
• An amount may be placed on fixed deposit for 1, 3, 6, 9, 12,
15, 18, 24, 36, 48 and 60 months to earn interest at a fixed
rate.
• In the case of fixed deposits for various periods from 1
month to 12 months, banks may quote appropriate interest
rates. The respective interest rates quoted by an individual
bank however, are required to be prominently displayed in
a special display board within2012
bank premises.
SNURAZANI/PB303/JUN

DEPOSITS

FIXED ACCOUNT
• The rates for fixed deposits for periods exceeding 12
months are negotiable.
• Banks are not required to display, publish or announce the
interest rates on deposits for more than 12 months.
• - As compared to a savings account, generally the interest
rate payable on a fixed deposit account is higher.
• According to the Rules of the Association of Banks in
Malaysia (ABM)
– no interest will be paid on one month fixed deposit which is
uplifted before maturity.


REMITTANCE

Demand Draft
 Telegraphic Transfer
 Mail Transfer
 Standing Instruction


REMITTANCE

DEMAND DRAFT
•It is a payment order in writing issued by an issuing bank
to a payee bank to pay on demand the sum stated in the
draft and to the order of the person specified on the draft.
•A local draft in Malaysia is drawn in Malaysian Ringgit.
•A foreign draft is usually drawn in a foreign currency on an
overseas branch or foreign correspondent bank.
•Example: You are based in Johor, your son is studying in
KL. You need to remit him of RM2000. You may purchase
demand draft from your bank and remit it to your son. Your
son should be able to receive the payment from the
drawee bank upon the presentation of demand draft.

REMITTANCE

DEMAND DRAFT
A Demand Draft or bank draft is a cheque drawn by a bank
on its Head Office, on a branch or on another bank for
payment outside the local area, either domestically or
abroad.

Features and Benefits:
•Transferring funds within and outside the country.
•If funds are to be sent abroad, the draft is drawn on a
bank in a foreign country in the appropriate currency.
•Demand Draft is paid for by the customer at the time of
issue. The customer sends the draft to the payee who
presents it at the drawee bank for payment.
•Types of Demand Draft:Local Demand Draft (RM).
•Foreign Demand Draft (foreign currency).

TELEGRAPHIC TRANSFER

REMITTANCE

•Wire your money in a safe and quick mode of transfer to
anyone and anywhere around the world.
•Also known as “telephonic transfer”

•Where the beneficiary requires the money urgently, it is
possible to request the bank to effect the payment by using
this instrument.
•The remitting bank will instruct its correspondent bank
(branch) to make the payment.

•It make the couple of days to be transferred.
•Based in overseas: within 5 days
•Based on local: within same day

STEP 1
REMITER IN MALAYSIA

Notifies beneficiary
of the remittance

Completes
application to
request his bank to
remit the required
payment

REMITTING BANK IN
MALAYSIA

STEP 2
Instruct by telex,
telephone or SWIFT
to settle payment

STEP 3

BENEFICIARY IN SYDNEY

of the remittance and
to collect payment

STEP 4

BRANCH/CORRESPONDEN
T BANK IN SYDNEY

REMITTANCE

MAIL TRANSFER
• Similar to TT, but transaction is done by mail.
• When you are too busy, you may request the bank to
remit the payment on your behalf.
– You have to fill in the full name, address and telephone
number of the beneficiary.
– The bank will write to its correspondent bank/ branch to make
the payment


STEP 1
CUSTOMER REMITTER

Applies to the bank,
furnishing the
relevant details

REMITTING BANK

STEP 2
of the remittance

Writes with the
necessary details and
authorises to pay the
beneficiary

STEP 3

BENEFICIARY

Contacts the
beneficiary to collect
payment

STEP 4

BRANCH/
CORRESPONDENT BANK

REMITTANCE

STANDING INSTRUCTION
• Also known as Standing Order
• Appropriate when a person has to make periodic
payment i.e insurance premium, monthly installment
of car/house and so on.
• It is possible for the periodically payment to be made by
the issuing standing order from the bank .


STATUS

 Credit Cards
 Bankers
Guarantee
 Trust Receipt
 Status Enquiry
 Travellers’
Cheques


STATUS

CREDIT CARDS
 Master and Visa are two key players for credit cards. Most credit cards
are issued by commercial banks. Credit cards are issued after an account
has been approved by the credit provider.
 If the cardholder uses the credit card for purchases goods or services
from merchant, the transaction process overview is illustrated as
follows:
i) The merchant will submit the ticket electronically to the
bank for payment, via the clearing and settlement systems;
ii) The bank credits the merchant for deposits;
iii) The bank issues bills to the cardholder; and
iv) The cardholder repays the bank for the goods or services originally
purchased from the merchant.

 Apart from the above, the cardholder can also take cash advance from
the car.


STATUS

CREDIT CARDS
 A credit card enables its holder to buy goods and services with a credit
line given by credit card issuer and the amount will be settled at a later
date.
 Cardholders are billed on a monthly basis and cardholders would have
to bear finance charges (interest) on the outstanding amount if full
payment is not made by the due date. For a hefty fee, a credit card can
also be used for cash advances at Automated Teller Machines (ATMs)
and at respective credit card issuers' counters.

 The government is imposing a service tax of RM 50 for each principal
credit card and RM 25 for each supplementary card. ans.


STATUS

BANKER GUARANTEE
 A banker’s acceptance (commonly referred to as BA) is a usance bill of
exchange drawn by the customer in Ringgit to finance an underlying
genuine trade transaction that is accepted by his banker and payable on
a specified future date.
 BA can be used for domestic trade i.e. financing the buyer or seller of
goods or import and export businesses. In its basic form, BA financing
involves three basic steps:
a. The customer draws a bill of exchange on a bank
b. The bank accepts the bill of exchange.
c. The bank, at the request of the customer, discounts the accepted bill, thereby
advancing the discounted proceeds to the customer.


BANKER GUARANTEE

STATUS

 SALIENT FEATURES OF BA’S
 The following are the salient features of BAs:
a. It is payable in Ringgit to the order of the drawer;
b. The tenor is at least 30 days but not later than 200 days from the date of
acceptance;
c. The minimum amount is RM30,000.00;
d. The facility is available for the purpose of financing a genuine commercial or
trade and certain service transactions;
e. In order to facilitate financing of smaller trade transactions, the grouping of
two or more trade transactions is permissible, i.e. bunching is allowed;
f. Extending or creating a new BA to retire an old BA is prohibited;
g. It is payable at the head office of a bank or investment bank in Kuala Lumpur
h. It is enfaced with a statement that is drawn to finance the purchase/sales of
goods, import as well as export of goods. BNM issued a BA guidelines to

describe the detailed procedure on financing under BA.

For more details, check www.bnm.gov.my.

CONTINUE
EXERCISE/DISCUSSION


TRUST RECEIPT

STATUS

 Trust receipts (commonly referred to as TRs) are
granted by a bank to finance domestic trade or the
import of goods on behalf of the customer.

 A trust receipt is a document executed by a
customer, whereby he undertakes to:
a. Take possession of the goods and hold it in trust for the bank,
b. Account for the goods at all times, and
c. Sell the goods and apply the proceeds thereof to settle the TR
outstanding amount plus interest to the bank, normally within a
specified period, e.g. 60, 90 or 120 days.


STATUS

STATUS ENQUIRY
Is the request for a banker's opinion or
report, particularly regarding the financial
standing of customers.
Its provided by banks to their customers


STATUS

TRAVELER”S CHEQUEU
 Traveler’s cheques are cheque issued by financial institutions such as
American Express, Thomas Cook, Barclay Bank etc. to facilitate travel
arrangements.
 They are issued in various currencies, likes US dollars, sterling pound,
Japanese Yen, Hong Kong dollars, Singapore dollars and in various
denominations.
 Traveler’s cheque has no life span i.e. it is not subjected to unclaimed
moneys Act 1965 of Malaysia as in the case of current, fixed deposits
and remittances.
 Traveler’s cheques are easily obtainable from the Malaysian banks by
anyone who wishes to travel abroad.
 The issuer guarantees replacement if the traveler’s cheques are
reported lost or stolen.
 They are convenient & safer means as a traveler does not have to
bother carrying large sums of foreign currencies each time he/she has to
travel abroad either for pleasure or for business.

LOANS & ADVANCE

 Overdraft
 External Cheques
Purchase
 Term & Fixed Loan


LOANS & ADVANCE

OVERDRAFT
• An advance or facility granted under a current account
whereby the customer is authorised to draw on the account
up to an approved limit.
• Overdraft facility is normally extended to customers to
finance working capital or short terms transactions.
• Interest is charged only on the utilised portion of the
overdraft limit. However, a commitment fee is levied on
unutilised overdraft facilities.


LOANS & ADVANCE

EXTERNAL CHEQUE PURCHASE
• Are those which are drawn on banks outside the ‘clearing area’ of the
bank at which the cheques are deposited for clearing.
• Normally banks take a few days to clear outstation or outport cheques,
depending on the locality of the drawee (paying) bank in relation to the
collecting bank.
• However, the businessman needs to use the proceeds of the various
cheques even before the said cheques are cleared in order to improve
his cash flow or liquidity requirements.


LOANS & ADVANCE

TERM & FIXED LOAN
 A facility amortized over a fixed period, with repayment
structured as repayable as monthly, quarterly, semi-annually
or annually.
 With this structure, each repayment consists of loan
principal and interest.
 The repayment can also be structured as balloon or bullet
payment.
 In this case, each repayment consists if only interest and
principal to be repaid in one lump sum at the end of loan
period.
 A fixed loan is commonly usually used to finance CAPEX
 Personal loan, housing loan, car loan.

OTHER SERVICES

 Units Trust
Share Trading
Insurance
Will Writing


OTHER SERVICES

UNIT TRUST
 Unit Trust or Mutual Funds are collective investment
scheme, which pools the savings of investors with similar
investment objectives in a special “trust” fund managed by
professional fund managers.


OTHER SERVICES

UNIT TRUST
 The unit trust fund will invest in equities, fixed income
securities and other assets authorised under the Guidelines.
 Example:





Am Mutual
Affin Fund
Public Mutual
Pacific Mutual


OTHER SERVICES

WILL WRITING
• Will and Wasiat Writing Services are legally effective
arrangements to ensure the disposition of assets in
accordance to ones' personal wishes. It helps to smoothen
the process of estate administration and distribution.

• Will/ Wasiat- A legally binding document by which an
individual signifies his/her wishes as to the distribution of
his/her estate upon death.


OTHER SERVICES

INSURANCE
• Insurance is the equitable transfer of the risk of a loss, from
one entity to another in exchange for payment. It is a form
of risk management primarily used to hedge against the risk
of a contingent, uncertain loss.

• An insurer, or insurance carrier, is a company selling the
insurance; the insured, or policyholder, is the person or
entity buying the insurance policy. The amount to be
charged for a certain amount of insurance coverage is called
the premium.
• Ex: Life Insurance, General Motor Insurance etc


OTHER SERVICES

SHARE TRADING
• A share investing facility that allows you to purchase shares
quoted on Bursa Malaysia using your own funds or via a
Share Margin Financing scheme.
• Example:

Maybank Share Trading Minimum Financing Amount
RM50,000.


CONGRATULATIONS!!!
You Have Completed
Topic Commercial Bank


chapter 3 : commercial bank

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chapter 3 : commercial bank