A commercial bank is a credit institution with universal functions, which is created to attract funds with the subsequent allocation of funds. In addition, banks in their activities carry out other operations.
After obtaining a license for certain activities from the parent bank, a commercial bank can start working as a credit institution, as well as perform certain types of operations, the right to which is obtained by a license. Banks are forbidden to carry out production, trade and insurance activities.
The activities of banks are characterized by a dual nature. In addition to a commercial institution, banks are important social institutions. Based on the commercial component, banks are primarily interested in obtaining the maximum income from their activities, and as social institutions, they serve as important components of the financial infrastructure and should provide conditions for the development of the state economy, as well as to increase the welfare of the population. The state of the economy largely depends on the activities of banks. Without a strong banking sector operating on a commercial basis, there is no way to create an effective market mechanism.
Operations of commercial banks are divided into passive and active. And they are interdependent.
The basis of the fact that bank operations are divided into passive and active is the principle of the formation and allocation of banking resources. Liabilities are the free resources of the bank that are available and are used to carry out active operations. By issuing loans and buying securities, that is, by carrying out active operations, banks constantly monitor the volume of liabilities by analyzing the timing of next payments on deposit obligations.
As part of the resources of banks, equity, as a rule, occupies an insignificant share. Its main part is formed with the help of borrowed funds.
As attracted liabilities, commercial banks use:
- deposits on a variety of conditions;
- funds raised by issuing and distributing issued securities, which include a bond, bill, certificate;
- funds received on the basis of interbank agreements, including credit funds of central and foreign banks.
Deposit operations of commercial banks are one of the traditional banking services that make up the bulk of the bank's liabilities and serve as the main source of active banking operations.
Active operations of banks - actions to place passive funds of a bank for profit acquisition. Active operations are carried out on a commercial basis at a predetermined percentage and / or commission. When carrying out active operations by a commercial bank, an important role is played by an analysis of the financial condition of the borrower in order to identify the ability to repay borrowed funds and interest on time. The profitability and financial reliability of the bank depend on the quality of conducting active operations.
Intermediary operations have long been closely intertwined with credit operations and have formed a comprehensive form of banking services, which include factoring and leasing.
The basis of factoring operations is the resale of the right to collect debts related to the implementation of industrial or commercial activities.
Leasing operations of commercial banks are a specific form of a long-term lease agreement for vehicles, equipment, machinery, in which the lessor retains ownership of the leased entity.
As you can see, the operations of commercial banks are quite diverse and designed to provide not only the requirements of interested parties, but also contribute to the development of a market economy as a whole.