BANKING PRODUCTS CHAPTER 3

AND FACILITIES
CHAPTER OUTLINE
At the end of this chapter students should be able to understand:
3.1 Introduction
3.1.1 Concept of interest
3.1.2 Interest income and non-interest income products
3.2 Basic Bank Operations
3.2.1 Deposits activities
3.2.2 Loan activities
3.2.3 Other banking activities
3.1 INTRODUCTION
ROLES AND
RESPONSIBILITIES
To promote and inculcate saving habits

Make their interest rate reasonable enough for the average people to save for the financial
well being

The service and facilities offered by the commercial bank should be readily available at
reasonable coast.

Bank should educate users on making the most out of facilities by making simple pep talk,
publishing pamphlets, brochures etc.

Bank have to ensure fund lent out are for productive and economically viable purposes and
activities for betterment of the country as a whole.
HOW BANK GENERATE
INCOME???

NON-
INTEREST
INTEREST
INCOME
PRODUCT
3.1.1 CONCEPT OF INTEREST
Interest is payment from a borrower or deposit-taking financial institution to a 
lender or depositor of an amount above repayment of the principal sum (that is, the
amount borrowed), at a particular rate.
For example, a customer would usually pay interest to borrow from a bank, so they
pay the bank an amount which is more than the amount they borrowed; or a
customer may earn interest on their savings, and so they may withdraw more than
they originally deposited.
In the case of savings, the customer is the lender, and the bank plays the role of the
borrower.
The rate of interest is equal to the interest amount paid or received over a particular
period divided by the principal sum borrowed or lent (usually expressed as a
percentage).
Compound interest means that interest is earned on prior interest in addition to the
principal. Due to compounding, the total amount of debt grows exponentially, and its
mathematical study led to the discovery of the number.
In practice, interest is most often calculated on a daily, monthly, or yearly basis, and
its impact is influenced greatly by its compounding rate.
3.1.2 NON INTEREST INCOME
PRODUCT
Non-interest income is bank and creditor income derived primarily from fees
including deposit and transaction fees, insufficient funds (NSF) fees, annual fees,
monthly account service charges, inactivity fees, check and deposit slip fees, and so
on.
Credit card issuers also charge penalty fees, including late fees and over-the-limit
fees.
Institutions charge fees that generate non-interest income as a way of increasing
revenue and ensuring liquidity in the event of increased default rates.
FINANCIAL SYSTEM
3.2 BASIC BANK OPERATIONS

Deposit

Other Advance
Services Banking and Loans
Services
&
Facilities

Remitting
Status and
Enquiry Transferrin
g Money
3.2.1 DEPOSITS

 Saving
 Current
 Fixed
 Negotiable
Certificates of Deposit
(NCDs)
 CURRENT
• ACCOUNT
A cheque is an instrument in writing issued by the
customer to his banker to pay out a certain sum of
DEPOSITS 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
 FIXED
• Is the form of ACCOUNT
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
DEPOSITS
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 within bank premises.
 FIXED
• ACCOUNT
The rates for fixed deposits for periods exceeding 12
months are negotiable.
• Banks are not required to display, publish or
announce the
DEPOSITS
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.
3.2.2 LOANS & ADVANCE
 Overdraft
 External Cheques
Purchase
 Term & Fixed
Loan
 OVERDRA
FT
• An advance or facility granted under a current account whereby the

LOANS & ADVANCE

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.
• The bank assesses the overdraft application just like any other
normal loan application, and if the bank’s lending requirement,
terms and conditions are met by the approved applicant, the
limit will be keyed into the applicant’s account.
• From then on, he can use or overdraw his current account.
• Interest is charged only on the utilised portion of the overdraft
limit. However, a commitment fee is levied on unutilised overdraft
facilities.
 OUTSTATION OR OUTPORT
•
CHEQUE PURCHASE (OCP)
Are those which are drawn on banks outside the ‘clearing area’ of the bank at
which the cheques are deposited for clearing.

LOANS & ADVANCE

• 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.
• Example: A businessman in Klang may receive a cheque drawn on a bank in Penang.
In view o of the distance involved, the businessman would pay this cheque into his
account with his bank in Klang and this would take five days for the cheque to be
cleared. To this businessman this is outstation cheque.
• 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.
• To overcome this this problem, it is possible for the businessman to arrange with
his banker to purchase outstation cheque by crediting his account immediately
with the proceeds and pending clearance.
• This known as “outstation cheque purchased” or OCP in short.
• The banker will debit the businessman’s current account with the equivalent
account. Until approve limit given reached, say $50,000 and the banker would
purchase outstation cheques up to this limit outstanding at one time.
 TERM & FIXED
LOAN
 A facility amortized over a fixed period, with repayment

LOANS & ADVANCE

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
personal loan, housing loan, car loan and other fixed
assets.
  Units Trust
3.2.3 OTHER SERVICES Share Trading
Insurance
Will Writing
 UNIT
TRUST
 Unit Trust or Mutual Funds are collective investment
scheme, which pools the savings of investors with similar
OTHER SERVICES investment objectives in a special “trust” fund managed
by
professional fund managers.
 UNIT
TRUST

 The unit trust fund will invest in equities, fixed income

OTHER SERVICES securities and other assets authorised under the Guidelines.
 Example:
 Am Mutual
 Affin Fund
 Public Mutual
 Pacific Mutual
 WILL WRITING
• Will and Wasiat Writing Services are legally effective
arrangements to ensure the disposition of assets in
OTHER SERVICES 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.
 INSURAN
CE
• Insurance is the equitable transfer of the risk of a loss, from
one entity to another in exchange for payment. It is a form
OTHER SERVICES 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

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

Maybank Share Trading Minimum Financing Amount

RM50,000.
THE END