Commercial banks are financial institutions that are established as a joint-stock company with the aim of making a profit. It is a financial institution that accepts deposits, valuables from the public for safekeeping and it creates credit by granting advancing term loans and short term loans to all eligible customers.
Examples of commercial banks are First Bank, GTBank, Skye Bank, Access bank, Diamond Bank, etc.
The instruments that commercial banks use to grant loans are as follows
- Credit cards
- Call loans
- Discounting bills of exchange etc.
Functions of Commercial Banks
1. Acceptance of deposit for safekeeping: They accept deposit from the customer for safe custody. Deposit slips, withdrawal slips, cheque booklets are given to customers who deposit money with the bank. The customer’s money are kept in any of the three types of account
i. Time deposit/Fixed Account
ii. Savings Account
iii. Current Account
2. Lending of Money: They make loans available, overdrafts, and discount bills of exchange to their customers.
3. They provide facilities for domestic and foreign remittances and such transfers can be done through ordinary mail or through travellers’ cheques.
4. They provide facilities for safe keeping of valuable e.g. Certificate, will, gold etc.
5. They provide trust services for individuals and organisations. Trust services include management trust funds
6. They provide agency services: They act as agents for their customers in the purchase and sale of securities.
7. Money creation services: Deposits received can be given out as credit to customers.
8. They offer advisory services to customers and financing foreign trade.
9. They also provide project finance to their customers etc.
10. Equipment leasing: By financing purchases of fixed assets by their customers. They allow the repayment over an agreed period of time.