Finance and Banking

Unit 7
Prof. Dr. Srebren Dizdar

Have you ever heard or been to Siena?

Siena within the Province of Siena and Tuscany, Italy

What is in Siena? .

p. Today it consists of approximately 3. (MPS)  Banca Monte dei Paschi di Siena S. . Italy.A. Founded in 1472 by the Magistrate of the city state of Siena.Banca Monte dei Paschi di Siena S.p. as well as branches and businesses abroad.000 employees and 4.000 branches.A.5 million customers in Italy. 33. it has been operating ever since. (MPS) is the oldest surviving bank in the world.

Perhaps the most famous Italian bank was the Medici bank. set up by Giovanni Medici in 1397.Banking in the modern sense  Banking in the modern sense of the word can be traced to medieval and early Renaissance Italy. Italy. Venice and Genoa. was founded in 1407 at Genoa. to the rich cities in the north like Florence.  The Bardi and Peruzzi families dominated banking in 14th century Florence. The earliest known state deposit bank. George). . establishing branches in many other parts of Europe. Banco di San Giorgio (Bank of St.

Palazzo Medici-Ricardi in Florence .

603 of them in Tuscany. Banca Monte dei Paschi di Siena has 1.Now Italy's seventh largest bank. .478 branches.

Recent operations  Between 1991 and 1996. its share rose to five percent of Italy's mutual funds market. Today it leads the Italian market for total sales of life insurance at bank branches. added a stake in a Parma savings bank and offered 500 million shares to the public. it bought the Banca Agricola Mantovana.  Earlier in 2011. Tuscany's leading bank. . The revenues will be used to improve the retail banking operations. 95 percent of its customers are small.and medium-sized companies.

. counter"."bench. bank . who used to make their transactions atop desks covered by green tablecloths. from Old High German banc.  Benches were used as desks or exchange counters during the Renaissance by bankers from Florence. from Old Italian banca.Origin of the term ‘bank’  The word bank was borrowed in Middle English from Middle French banque.

Firenze Coat of arms Firenze. Italia .

What is the oldest bank in Bosnia and Herzegovina?
 In 1883, the first modern bank with the Austrian capital was established in Bosnia and Herzegovina. It was the branch of Viennese Union Bank. Two more foreign assets bank operated during the period – the Provincial Bank of Bosnia and Herzegovina (Austrian capital) and Bosnian Industrial and Trade Bank (Hungarian capital).

Many turbulent changes in banking system
 At the end of the Austro-Hungarian rule in 1918 in Bosnia and Herzegovina there have been 37 banks, dominantly with the private capital.  The banking system in the country underwent many turbulent changes in the past – from capitalist to state-controlled (socialist/communist) – to capitalist again in 1990s.

The longest bank in operation in Bosnia and Herzegovina?

How many banks operate today in our country?        5 10 15 25 35 45 50 .

Federation of Bosnia and Herzegovina ABS Banka Sarajevo Privredna Banka Bosna Bank Sarajevo International Sarajevo Hypo Hypo Alpe.Investicijska Adria-Bank Banka Mostar Federacije BiH FIMA Banka Sarajevo InvesticionoKomercijalnoKomercijalna Banka Investiciona Zenica Banka V.Kladuša NLB Tuzlanska Banka. Tuzla .Bank list .

. continued Postbank BH Sarajevo Turkish Ziraat Bank Bosnia Sarajevo ProCredit Bank Raiffeisen Sarajevo Intesa Sanpaolo Bank Bank BiH UniCredit Bank Union Banka Sarajevo Vakufska Banka Sarajevo Volksbank BH .List of banks ..

Bank list .Republic of Srpska Balkan Investment Bobar Banka Bank Banja Luka Hypo Alpe-AdriaBank Banja Luka Nova Banjalučka Banka Banja Luka Volksbank Banja Luka Bijeljina Komercijalna Banka Banja Luka Nova Banka Bijeljina EEFC Bank. Banja Luka NLB Razvojna banka Pavlović International Bank + Investment + Central Bank Bank of FBiH of Bosnia and Herzegovina .

.. What country? . the majority of active banking capital is in the hands of banks from .The actual number is:  How many of them are branches of foreign banks?  Any bank with a sole ‘B&H’ capital?  Although most of them happen to be multinational.

What is the most popular bank in Bosnia and Herzegovina? .

What is the most successful bank in B&H? .

. Raiffeisen Bank BiH.What is the most successful bank in B&H? According to official data and statistics.

 The bank was founded on 7th November 1992 and started its operations as Market banka dd Sarajevo. . a stock corporation of private shareholders owning the vast majority of shares (more than 90 per cent).

 On 21st July 2000.71 per cent).  This transaction was followed by an integration of the bank. . now operating as Raiffeisen BANK dd Bosna i Hercegovina. Raiffeisen Zentralbank Österreich AG acquired the majority of the bank’s shares (89. into the RZB Group covering 15 countries throughout Central and Eastern Europe.

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What is a bank? .

.A bank is a financial intermediary and appears in several related basic forms: a central bank issues money on behalf of a government. and regulates the money supply.

commercial bank accepts deposits and channels those deposits into lending activities, either directly or through capital markets. A bank connects customers with capital deficits to customers with capital surpluses on the world's open financial markets.  a savings bank, also known as a building society in Britain, is only allowed to borrow and save from members of a financial cooperative.
a

Banking and Finance
 The banking sector consists of all resident corporations engaged in financial intermediation in any given economy.  Financial intermediation is a productive activity in which these corporations raise funds by incurring liabilities on their own accounts for the purposes of channeling these funds to other institutional units by way of lending – resource allocation from saves to investors.

Some banking terms
 Bond – a document which can be bought and sold and which is produced by a government or organisation, promising that it will pay back money it has borrowed, usually with interest Equity or equities – the capital that a company has from shares rather than from loans; trading equities means trading in companies’ shares on the stock market, rather than trading on other markets.

 Share – one of the parts into which the ownership of a company is divided.More banking terms  Securities – a financial investment such as a bond or share. . or the related certificate to show who owns it. whereby the importer’s bank guarantees payment to the exporter’s bank once it receives the realted shipping documents.  Letter of credit – used to guarantee payment and delivery of goods.

ATM = Automated Teller Machine or cash point (BE) .

A bank teller is an employee of a bank who deals directly with most customers .

g. . Some ATMs provide additional services. e. by sending out statements.  A branch is a retail location  Call centre  Mail: most banks accept check deposits via mail and use mail to communicate to their customers.Banks offer many different channels to access their banking and other services: Channels  ATM is a machine that dispenses cash and sometimes takes deposits without the need for a human bank teller.

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over the Internet .New technologies  Mobile banking is a method of using one's mobile phone to conduct banking transactions  Online banking is a term used for performing transactions. payments etc.

often visiting customers at their homes or businesses  Telephone banking is a service which allows its customers to perform transactions over the telephone without speaking to a human being. .Contemporary attitudes in banking  Relationship Managers mostly for private banking or business banking.

.  Video banking can be performed via purpose built banking transaction machines (similar to an Automated teller machine). or via a videoconference enabled bank branch.Video banking  Video banking is a term used for performing banking transactions or professional banking consultations via a remote video and audio connection.

British (BE) and American (AE) terms for banking and finance services .

Beware – it is not the same!!! British English cheque current account share shareholder stock American English check checking account stock stockholder inventory .

British English Buildings society (or buildings bank merchant bank Unit trust creditors debtors American English Savings and Loans Association (SLA) Investment bank Mutual fund or Mutual savings bank (MSB) Accounts payable Accounts receivable .

and regulates the money supply.Banking Sector  Central Bank: Highest monetary authority in the country that issues money on behalf of a government. .

They are all engaged in allocation of savings to investment opportunities in the interest of profit making. . etc. 4.Credit union.Depository corporations 1. 2. 3.Savings. 5.Rural 6.Merchant banks.Commercial banks.Development banks.

Keeping in touch with business news and information .

security markets.Financial Sector includes:  Banking sector and other financial institutions: 1. insurance. 4. etc. 3. 2. brokers. pension funds. .

and  Undertake actions to ensure financial sector soundness  All of these are geared to creating the enabling environment for financial intermediation. .Central Banks’ objectives are:  Formulate and implement policies to ensure monetary stability.

. savings.  A savings bank. also known as a building society in Britain is only allowed to borrow and save from members of a financial cooperative. and money market accounts and that accepts time deposits. It is a bank that provides transactional.Commercial and savings banks  A commercial bank (or business bank) is a type of financial institution and intermediary.

causing costs to rise steeply ahead of income. and a common cause of failure is rapid growth.Cashflow vs. profitability  All business activity carries a risk. . and any company can fall. Cashflow is not the same thing as profitabilty.

reducing income and cashflow.The causes of failure are complex  Once stable market goes into decline. .

Investors begin to lose confidence. unforeseen costs that eat up profits. the share price falls. Operations problems create large. and it becomes more difficult to borrow. . credit ratings are reduced.

Raising cash?  Profitable parts of the company may be sold to raise cash. this works in the short term. However. but long-term revenue declines. . That is why they need to borrow fresh assets from banks.

in the hope that the new managers will make a difference. . which is known as corporate restructuring.Corporate restructuring  Sometimes the senior management team is changed.

.Some studies of US companies that change their top management in response to crises show that one third make a full recovery.

Good Luck and Good Job Hunting!!!!!!!!!! The French drug maker Sanofi-Aventis continued to reorganize and slash jobs in anticipation of its acquisition of Genzyme. The company disclosed that it would shed another 700 jobs from its European operations. .

The job cuts came amid the company’s reorganization of its units in Austria. Holland. Portugal Spain. Germany. . The goal was to consolidate and reorganize the 30 European subsidiaries into only 10. Switzerland. the Czech Republic and the United Kingdom (basically the entire EU).

Declarations of insolvency and bankruptcy  As a last resort declarations of insolvency and bankruptcy can create a breathing space. .  Not every insolvent company is written off. and compel lenders and investors to come to terms with problems and bear some of the losses. Many recover and return to successful trading.

Bankruptcy  The word bankruptcy is formed from the ancient Latin bancus (a bench or table). etc. fairs. wrote their bills of exchange.  A “bank" originally referred to a bench. etc. in markets. on which they tolled their money. . and ruptus (broken). which the first bankers had in the public places.

he broke his bank. Hence. . to advertise to the public that the person to whom the bank belonged was no longer in a condition to continue his business. when a banker failed.

.Notice of closure attached to the door of a computer store the day after its parent company declared "bankruptcy" in the United Kingdom.

Insolvency  Insolvency exposes deeper problems. with assets sold at auction and staff made redundant. Then the only choice is liquidation. .

Insolvency in Europe  During 2004. . In France. company insolvencies rose by more than 4%. and in Greece by more than 20%. the number of insolvencies reached all time highs in many European countries. in Austria by more than 10%.

does not indicate the total financial impact of insolvencies in each country because there is no indication of the size of each case.  An increase in the number of bankruptcy cases does not also necessarily entail an increase in bad debt write-off rates for the economy as a whole. The increase in the number of insolvencies. however. .

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Size of global banking industry  Assets of the largest 1.8% in the 2008/2009 financial year to a record $96.000 banks in the world grew by 6.  Growth in assets in adverse market conditions was largely a result of recapitalisation.4 trillion while profits declined by 85% to $115bn. .

Fee revenue generated by global investment banking totalled $66. while the share of US banks increased from 11% to 13%.3bn in 2009. 56% in 2008/2009.  Asian banks' share increased from 12% to 14% during the year.EU and Asian banks  EU banks held the largest share of the total. . down from 61% in the previous year. up 12% on the previous year.

Finance sector .

The general areas of finance are business finance. and public finance. The field of finance deals with the concepts of time. money. It also deals with how money is spent and budgeted.  Finance includes saving money and often includes lending money.Finance  Finance is primarily concerned with the way of funds management. . personal finance. risk and how they are interrelated.

Main area of finance industry  Finance is used by individuals (personal finance). by businesses (corporate finance) and by a wide variety of other organizations. the goals of each of the above activities are achieved through the use of appropriate financial instruments and methodologies. . with consideration to their institutional setting. including schools and non-profit organizations.  Finance is one of the most important aspects of business management and includes decisions related to the use and acquisition of funds for the enterprise. by governments (public finance). In general.

. or increasing its income. decreasing its expenses.Financial services  An entity whose income exceeds its expenditure can lend or invest the excess income.  On the other hand. an entity whose income is less than its expenditure can raise capital by borrowing or selling equity claims.

Lender & borrower  The lender can find a borrower. a financial intermediary such as a bank. and the financial intermediary earns the difference for arranging the loan.  The lender receives interest. or buy notes or bonds in the bond market. . the borrower pays a higher interest than the lender receives.

Changes in fashion 3. against a certain eventuality. Different prices at different places . New machinery or technology 5.Insurance is the undertaking of one party to indemnify another. Time lapses between ordering and delivery 4. Uninsured risks: 1. in exchange for a premium. Bad debt 2.

Usually results in more customers than cash trade. 4. People can buy goods and pay for them at a later date. . 2. Gain goodwill and loyalty of customers. Can charge more for goods to cover the risk of bad debt.Advantages of credit trade 1. 3. Farmers can buy seeds and implements. and pay for them only after the harvest. 5.

10. Increase the sales. 7. Stimulates agricultural and industrial production and commerce. Modest rates to be filled. 8.More advantages 6. 9. Can be a marketing tool . Can be used as a promotional tool.

What problems lie ahead? .

5. 3. 4.Disadvantages of credit trade 1. High administration expenses. More working capital needed. Risk of bad debt. Risk of Bankruptcy. . 2. People can buy more than they can afford.

Stocks and securities  Institutions such as stock exchange provide a market for existing securities. which include stocks and bonds .

Personal financial difficulties .

 Living above your own financial means.  Overspending. . or funds  Big bills. Lack of cash.  ‘Ironing’ credit cards.

Corporate financial difficulties .

Reasons?  Slow company response to change in industry  Major technological changes  Troubles with environment in the form of natural or man-caused disasters  Upheavals in the structure of society leading to political unrest and destabilisation of government .

passive Board of Directors members  High administrative costs that include executive salaries ..  Dramatic changes in corporate structure  Weak financial managers  Over diversification  Corruption. bribery.. scandals in business operations  Autocratic Chief Executive officer (CEO).More troubles . or Chairperson of the company vs.

Markets plumetting down! .

How to get out of trouble? .

how much and when to invest.Sound and profitable business  An investment is an acquisition of an asset in the hope that it will maintain or increase its value.  In order to succeed in business one has to decide what. .

A road to success starts with the first step: PLANNING! .

Identify relevant objectives and constraints: institution or individual goals. Identify the appropriate strategy: active v. a company must: 1.To do this. risk aversion and tax considerations. 2. passive – hedging strategy 3. Measure the portfolio performance . time horizon.

The business model 4. The marketing strategy 5. Time frame to commercialization 7.8 tips to getting preparing a business plan for an investor 1. Risks involved 8. Who is involved with the project . The potential market for the concept 3. Explain the concept and competitive advantage 2. The use of funds 6.

Ask yourself many more questions .

1. but only can earn $10. . Higher profit margins allow room for error and changing cost structures.000? It is what you keep that matters. Will the company be able to maintain high profit margins?  Low profit margins are dangerous to your company's survival.  Who cares if your business generates millions of dollars in revenue. If you only have a tenuous 2% net profit margin and prices rise a few percent. you are in trouble.

To make a million dollars means you must sell one million of your product.2. That's a lot of sales. If you are selling a $1. Good Revenue per sale.  Guess which level of sales is an easier to process and fulfill for a smaller company? .  It is difficult to succeed if you are selling a one-dollar product.000 product then to make a million dollars you only need a thousand sales.

This means another company can't just begin producing and selling your product.3.  Patents and copyrights are two ways to secure a proprietary product. A proprietary product. .  A proprietary product is one which your company exclusively controls.

and this will take years. Something that you love to do.  Choose to build a business in a field that you love.4. and you will find yourself enjoying it.  To really make money demands growing a business.  It is difficult to do something well if you don't feel passionate about it. This will help lead to success. Be sure it's something you want to do. Something related to a life-long hobby or interest is ideal. . Never just enter a business because the financial numbers seem to indicate a great business.

You need cash to pay bills. Do a cash flow projection for your start-up business. and yet be losing cash. A cash strapped business is a business that will struggle to grow. .5. Will the business have good cash flow?  It is possible for a business to be generating excellent sales and profits.

. They are often not as happy when they realize that profits have reached the sky.6. What are the growth prospects for your business?  Many entrepreneurs start a business and are happy when they see it making money.

 To grow would require adding a second restaurant.Think how and until when . You can be on top of everything at one location.. but you must be away at least part of the time when you have two restaurants. for example. You will only have so many customers eating at your restaurant in any given year. If you start a restaurant. But you cannot run two restaurants as you do one restaurant.  Think about how you will grow. And what if you had ten? . your profits will certainly level off..

It can be run from one location. .  Yet. Doing more of the same thing in the same way is easier than changing the way you operate. Compare this to a mail-order business. You will need multiple locations.Learn to delegate work and responsibility to others  As you grow you will need to learn to delegate. sales are essentially potentially unlimited with only small structural changes to the business.

such a person could very successfully run a mail-order or Internetbased company.7. Yet.  Needless to say. Each is suited to building different types of businesses. . The business must be something you are psychologically suited to do  This is not the same as loving the area. Other people are more reserved. Some people are more outgoing and social than others. a business that demands much personal selling and personal customer contact might not be ideal for the more reserved person.

How do you imagine yourself? Success or failure? .

study to be the best .Learn to be on top.

2012 17.It starts with ENG401 Midterm test  April 02.00 .30 & 19.30 & 18. 2012 16.00  April 03.

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