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COMMERCIAL
BANKING
INTRODUCTION

HISTORY OF
BANK

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TRADITIONAL BANKING
SYSTEM

MODERN
BANKING
SYSTEM

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COMPARISON
BETWEEN
TRADITIONAL
BANKING
SYSTEM AND
MODERN
BANKING
SYSTEM

1. Bank as Service Providers/Introduction to

banking system
COURSE 2. Bank as Business
OUTLINE 3. Deposit Accounts
4. Payments: Cash and Checks
5.Electronic Banking
6.Lending
7. Personal Financial Planning
8. Business and International Banking Services
9. Building Relationships: Marketing, Sales and
Customer Service
10. Safeguarding Customers and the Bank

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TEXTBOOK

• Principles of Banking, 11th ed,

American Banker Association, 2014
• Bank Management & Financial
Services, 8th ed, Peter S. Rose and
Sylvia C. Hudgins

COURSE ASSESSMENT

• Group project and presentation 20%

• Quiz/Attendance 10%
• Mid-term exam 30%
• Final exam 40%

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GROUP PROJECT AND

PRESENTATION
• Form a group – 3 members
• Choosing a COMMERCIAL BANK in
Vietnam
• Research about the activities of the
chosen bank followed the topic of each
week
• Make the presentation weekly
• Submit the consolidated report at the
end of the course

INTRODUCTION
TO BANKING
SYSTEM

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What is a bank?
• A bank can be defined in terms of
1. The economic functions it serves
ü Financial intermediaries – transferring funds from savers to borrowers
ü Paying for goods and services
2. The services it offers its customers
ü Offering the great range of financial services
Ø Checking and debit accounts
Ø Credit cards
Ø Saving plans
Ø Loans for business, consumers and governments
Ø Security underwriting
Ø Insurance protection
Ø Financial planning
Ø Advice for merging companies
Ø Sale of risk-management services to business and consumers
3. The legal basis for its existence

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TYPES OF BANK
• Commercial Banks • Money Center Banks
• Sell deposits and make loans to businesses and • Largest commercial banks based in leading
individuals for profit financial centers
• Central Banks/National banks • Investment Banks
• Function under a federal charter through the • Merchant Banks
comptroller of the currency
• Supply both debt and equity capital to business
• Savings Banks
• Attract savings deposits and make loans to • International Banks
individuals and families • Commercial banks present in more than one
nation
• Cooperative Banks
• Help farmers, ranchers and consumers acquire • Wholesale Banks
goods and services • Larger commercial banks serving corporations
and governments
• Mortgage Banks
• Provide mortgage loans on new houses but do • Retail Banks
not sell deposits • Smaller banks serving primarily households and
small businesses
• Community Banks
• Smaller, locally focused commercial and saving
banks

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TYPES OF BANK
• Limited Purpose Banks • Member Banks
• Offer a narrow menu of services, such as • Belong to the Federal Reserve System
credit card companies and subprime
lenders
• Affiliated Banks
• Wholly or partially owned by a holding
• Bankers’ Banks company
• Supply services (e.g. checking clearing • Virtual Banks
and security trading) to banks
• Offer their services only over the Internet
• Minority Banks
• Focus primarily on customers belonging • Fringe Banks
to minority groups • Offer payday and title loans, cash checks
or operate as pawn shops and rent-to-
• Insured Banks own firms
• Maintain deposits backed by federal
deposit insurance plan
• Universal Banks
• Offer virtually all financial services
available in today’s marketplace

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TYPES OF BANK IN VIETNAM

• Commercial bank - a type of bank which may conduct all banking operations and other
business activities for profit
• State-owned commercial banks
• Joint-stock commercial banks
• Wholly foreign owned banks
• Joint-venture banks
• Cooperative bank - a bank of all people's credit funds established by people's credit funds and
some legal entities by contributing capital for the main purposes of systematic link, financial
support and capital balancing within the system of people's credit funds.
• Policies Bank – a bank which may conduct lending activities to low-income household and
vulnerable people in the society for non-profit
• Foreign bank branch - a foreign bank's subsidiary without legal entity status and the foreign
bank is liable for all of the branch's obligations and commitments in Vietnam

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FUNCTIONS OF BANK

• Intermediation role
• Transforming savings received primarily from households into credit
(loans) for business firms and others in order to make investments in
new buildings, equipment and other goods
• Payment role
• Carrying out payments for goods and services on behalf of
customers (such as by issuing and clearing checks and providing a
conduit for electronic payments)
• Guarantor role
• Standing behind their customers to pay off customer debts when
those customers are unable to pay (such as by issuing letters of
credit)
• Risk management role
• Assisting customers in preparing financially for the risk of loss to
property, person and financial assets
• Investment banking role
• Assisting corporations and governments in marketing securities and
raising new funds

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FUNCTIONS OF BANK

• Savings/investment advisor role

• Aiding customers in fulfilling their long-range goals for a better
life by building and investing savings
• Safekeeping/certification of value role
• Safeguarding a customer’s valuables and certifying their true
value
• Agency role
• Acting on behalf of customers to manage and protect their
property
• Policy role
• Serving as a conduit for government policy in attempting to
regulate the growth of the economy and pursue social goals

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• Credit unions
• Collect deposits from and make loans to their members as nonprofit associations of
individuals sharing common bond (such as same employer)
• Saving institutions
• Provide mortgage loan to customers by taking deposits. Saving institutions may be stock
BANKS companies or mutual companies owned by depositors.

COMPETITORS • Brokage firms

• Arrange contracts for customers to purchase stocks, bonds and mutual funds.
• Finance companies
• Offer small-to medium sized loans to consumers or small businesses using funds
borrowed in the open market or from other financial institutions. These companies
attract the high-risk borrower who may have a negative credit history.

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• Insurance companies
• Protect against risks to persons or property and manage the pension plans of businesses
and the retirement funds of individuals. These companies accumulate funds received
from premiums and place them in relatively risk-free, long-term investment
• Mutual funds (investment companies)
• Sell shares to the public representing an interest in a professionally managed pool of

BANKS
stocks, bonds and other securities
• Money market funds
COMPETITORS • Like mutual funds, but only invest in short-term instruments such as certificate of deposit,
commercial paper, banker’s acceptances and Treasury bills.
• Mortgage companies
• Specialize in financing loans backed by real estate
• Money service business
• Cash check for consumers for a fee and also provide remittance transfer and other money
services

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BANK
REGULATORS
• State bank of Vietnam
• Binding under Law on Credit
Institutions

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WHAT FACTORS • Inflation and volatile interest rates:

HAVE AFFECTED • Rising interest rates caused shorter-term deposit
costs to rise faster than longer-term loans. Also, as
THE OPERATIONS rates rose, the market value of their assets declined,
OF COMMERCIAL and borrowers defaulted on loans with greater
frequency than normal.
BANKS AND • Securitization:
OTHER FINANCIAL • Banks are pooling loans for various kinds and selling
securities with claims on these loans.
SERVICE • Technological advances:
ORGANIZATIONS? • Telecommunications and computers are increasing
economies of scale and economies of scope for
banks.

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WHAT FACTORS • Consumers have become more sophisticated.

HAVE AFFECTED • Capital markets have increased their competition
with banks in attracting firms seeking debt funds.
THE OPERATIONS
• Deregulation:
OF COMMERCIAL • The elimination of laws that placed geographic
BANKS AND limits on banks, their products and services, and
the rates they can pay has stimulated bank
OTHER FINANCIAL mergers and consolidation.
SERVICE • Despecialization and competition among financial
ORGANIZATIONS? institutions with one-stop shopping centers.
• Global integration of financial markets is increasing
competition from foreign financial service firms.

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Bank Sources of Funds:

Deposit accounts: Long-term Sources of Funds:

• Transaction Deposits • Bonds issued by the Bank
• Savings Deposits • Bank Capital
• Time Deposits
• Money Market Deposit Accounts
Borrowed Funds:
• Federal Funds purchased (borrowed)
• Borrowing from the Federal Reserve Banks
• Repurchase agreements
• Eurodollar Borrowings

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USES OF FUNDS BY BANKS

• Cash
• Bank loans
• Investment securities
• Federal Funds Sold
• Repurchase Agreements
• Eurodollar loans
• Fixed Assets
•

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OFF-BALANCE SHEET
ACTIVITIES

• Loan commitments
• Standby letter of credit
• Forward contracts
• Swap contracts

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