Saved Recents Uploads My Answers Account Products Home Essays Drive Answers Texty About Company Legal Site Map Contact Us Advertise ©2016 StudyMode. com Home > Bank > Bank Essay Bank Essay Bank, Bank run, Banking By bongbang151 May 11, 2013 5818 Words 129 Views Page 1 of 15 1. What are the pros and cons of banking regulations stipulated by the central bank? Comment on the statement that regulations imposed on banks should be based on a strategic regulatory framework so as to be disclosed, transparent, equitable and predictable.
-Pros and cons of banking regulations stipulated by the central bank: Pros: Central bank is one of the organizations which is in charge of making and maintaining bank regulation. Regulation helps to protect the public against loss through some of ways. First, gathering and evaluating information needed to assess the true condition of banks and other financial firms. Secondly, it requires the cameras and guards to reduce risk of loss due to theft. Periodic examination and audits is also help to reduce losses.
Moreover, Government agencies stand ready to loan funds to financial firms faced with unexpected shortfalls of spendable reserves so the public savings are protected. In addition, Regulation assist the control of money supply, control the volume of money created by banks and competing financial firms appear to be closely correlated with economic conditions in order to achieve a nation’s broad economic goals such as high employment and low inflation. Another advantage is the preventing discrimination in granting credit or in other word, ensuring equal opportunity and fairness in the public’s access to credit and other financial services.
It also help to provide the government with credit, tax revenues and other services, assist the conduct of monetary policy. Besides, public confidence’s promotion in the financial system which then lead to saving flow smoothly into productive investment and payments for goods and services are made speedily and efficiently is considered a pro of regulation as well. Moreover, through regulation, government can also help sector of the economy that have special credit need such as housing, small business and agriculture.
Finally, It ensures that banks will be treated fairly by individual states and local communities as their activities are expanded across state lines Cons: Apart from the advantages, bank regulations show some shortcoming. As a matter of fact, it may encourage monopoly due to the conditional entry. Additionally, it doesn’t prevent bank from failure because there are many other factor that affect banks to which it can not be said that bank can avoid failure by applying regulation. It also can not eliminate economic
risk and guarantee that bank management will make good decisions, but create a struggle between regulators and banks going on definitively. One more disadvantages of strict regulation is that less regulated business win customers away from more-regulated banks. -Comment on the statement that regulations imposed on banks should be based on a strategic regulatory framework so as to be disclosed, transparent, equitable and predictable: This statement may express the idea that regulation should be disclosed, transparent, equitable and predictable. Disclosed can bring the meaning of being publiced. All regulations should be available at all time.
Regulator should issue and make available to the public final regulatory actions and the basis for those actions to enhance public understanding. They can protect themselves thanks to the right and knowledge that regulation provides them as well as conform to the regulation. Everyone should have the chance to access to the regulation which imposed on banks to gain knowledge about bank, its operation and activities under the regulation. This helps banks to clearly understand what they can or can’t do within their authorities and provide necessary knowledge to comply with the law and regulation. Transparent is clear and understandable.
In term of banking regulation, all regulations need to be made in a clear, comprehensive way and in an attempt to avoid misunderstanding or confusing that may create opportunities for bad behaviors or tax loopholes. Ambiguous regulations and rulings create uncertainty among investors and market participants. Equitable means that regulation is fair. The adoption of new regulations or changes to existing regulations if open to a member of the public, should be open to all members of the public. Regulation and regulators should not discriminate but carried to protect public interest, the safe and sound of banking systems.
The fairness create the floor to prevent interest conflicts and disputes among parties. Through accessible and transparent operation of regulators and by treating foreign and domestic licensed market participants fairly and equitably, governments, regulators and international financial institutions will promote the best markets for investors throughout the world A law is considered as predictable if it adheres rules of law. Regulation should suit with the environment base on the current situation. Predictability facilitates both investors and banking managers
better in management process to forecast some problems and find relevant solutions All of the characteristics above make the regulations which base on strategic regulatory framework becomes clear, accessible, fair and predictable which improve operation, environment in banking, enhance working efficiency, increase public trust and confidence. This kind of regulatory systems is the ground for market integrity and investor protection and reducing systemic risk. That is necessary for the development of banking sectors in specific and all the economy in general 2)-Sources of deposits:
Sources of bank deposits comes from the private sector- individuals, partnerships, and corporations. Brokers can be a source of deposits when they deposit large sums of money on the behalf of investors. The next deposit owner is state and local governments, representing the funds accumulated by counties, cities, and other local units of government. These deposits are often highly volatile, rising sharply when tax collections roll in or bonds are sold, falling precipitously when local government payrolls must be met or construction begins on a new public building.
Another source of deposits is the government deposits. Besides, deposits are also held by foreign governments, businesses and individuals, many of which are received in offshore offices. Foreign deposits began to grow due to the availability of higher yielding foreign investments, the continued expansion of several foreign economies (especially in Asia). The final major deposit ownership category is deposits of other banks, which include correspondent deposits, representing funds that depository institutions hold with each other to pay for correspondent services.
For some specific types of deposits, most noninterest-bearing demand deposits are held by business firms. With interest bearing transaction deposits, NOWs can be held only by individuals and nonprofit institutions, Money market deposit accounts held by businesses and individuals as well as Super NOWs held by individuals and nonprofit institutions . Saving or thrift deposits attract funds from customers who wish to set aside money in aniticipation of future expenditures or financial emergencies. Passbook saving deposits were sold to household customers.
Besides, individuals, non-profit organizations,and government , business firm can hold saving deposits. Especially, wealthier individuals and businesses are engaged in time deposits , in form of negotiable certificates of deposit. Nonnegotiable form is normally acquired by individuals. One more type is retirement saving deposits which contributed by wage earners and salaried individuals. -Objectives bank should aim at while managing its deposits: In managing deposits, bank should target to get the deposits which can be raised at lowest cost or can generate considered return comparing to the cost of achieving it.
Bank should offer the price high enough to attract depositors as well as avoid costly interest rat to protect potential profit margin. Banks are price takers not price makers so that bank must to decide to pay market-determined price to attract and hold depositors or lose funds. In addition, Bank should estimate the amount in which it can ensure the institution always has enough deposits to support lending and other services the public demands. It comes from the reason that the volume of fund can affect the liquidity position of the banks in the eyes of customers and regulators.
The inability to provide credit to all credit demand can send a message to customers that banks are struggle with liquidity problem. Both cost and amount of deposits that depository institutions sell to the public are heavily influenced by the pricing schedules and competitive maneuvering of other financial institutions offering similar services. Therefore, financial –service managers must stay abreast of changes in their competitors’ deposit pricing and marketing programs especially in the decade of innovation in the new form of new types of deposits, new service delivery methods and new pricing schemes is increasing today.
Financial institutions have to examine how customers behave and what motivates them. Then, banks must leverage that knowledge to attract and retain a more profitable, stable deposit base. At the same time, it’s important to make cash portfolios more efficient. -Assess the current trend of bank deposit in Vietnam: As of September 20, 2012, the total outstanding loans of local credit institutions grew about 2. 35 percent over the end of 2011, while their total deposits rose 11. 23 percent over the same period, according to SBV report at the meeting.
The deposit shoot up this year but credit show a moderate rise reflect the stuck in business, investment, real estate,etc. The low inflation rate, plus the continued ceiling deposit interest rate reductions in recent days, along with the prediction about the possible further one percent interest rate reduction–in the time to come, all seem to back the downward trend of the deposit interest rate. In fact, state bank keep idle for this interest reduction. However, banks still have been joining the race of raising deposit interest rates, striving to mobilize more capital, especially long term one.
As for short term deposits, some joint stock banks still pay higher than the ceiling rate of 9 percent per annum as stipulated by the State Bank. Especially, depositors and banks still negotiate about the interest rates. In general, those who deposit over one billion dong would be able to enjoy the interest rate than the deposits worth 500 million. Since the beginning of August, medium and long term deposit interest rates have been raised to 10-12 percent per annum. The explaining the decisions to raise deposit interest rates is due to the need of restructuring the capital.
In the past, when the government tightened the monetary policies, people preferred making short term deposits (90 percent). This has led to the fact that banks have short term capital in excess, but lack long term capital for lending. In 2012, deposits from business firms and consumers increase and mainly concentrate on big banks. Meanwhile, deposits from financial institutions tend to decline. Foreign deposits go up due to the increase in the imported goods stored for the coming NewYear 2013. There are many types of deposits offered by Vietnam bank, but currently, ATM is becoming more popular
3)Discuss the role of credit analysis in credit operation of banks. What are possible methods can be adopted to analyze borrowers? Comment on the execution of credit analysis -Role of credit in credit operation of bank: Credit analysis is part of lending process that attempts to evaluate the desirability of a particular loan request based on estimated reliability and profitability, reduce as much as possible the probability of losses from late and delinquent payments. Loan repayment considered as a supply of liquidity.
When the borrowers are unable to pay off the debt, the bank loses a source for liquidity. It then damage the profitability of the bank not only because of interest income loss, but also loss of opportunities to reinvestment in other earning assets to gain yielding in future. It causes the bad debt situation, the declined in liquidity position. As a matter of fact, Banks which face this situation normally get trouble in operation and are easy to become collapsed. Therefore, the credit analysis is crucial to prevent banks from the following consequences.
Moreover, bank with good quality of loans, strong liquidity position will be less examined. It is also assist bank to assess the customers’ creditworthiness. Reducing risks like default and credit by assisting banks to set up of a comfortable schedule for payment for borrowers and a careful agreement that includes covenants which can contribute to restrict borrowers from doing bad damaging fund recovered, increase the probability of bank to be received payments. The credit analysis also helps banks to get good quality collateral which also guarantee for the debt and compensate for banks in case of default.
It reduces the losses and effect of those losses on bank operation to enhance bank’s performance as well as bank operation in a profitable manner. This process forecast the tendencies in its future development because it connected with the financial, accounting analysis of loan applicant’s current and future activity and financial situation in a specific economic environment. Not only do they help a lender decide whether or not to issue credit, they also influence payment terms, credit limit, and if there are additional assurances that need to be made.
The credit inspector can work out a correct stand during the decision-taking process about the credit applied for on the basis of a comprehensive credit analysis. A great use of the information gathered during the credit analysis is to accurately structure credit, which would contribute to lowering the credit risk. This information can also useful if restructuring the extended credit arises in a way that brings higher profits to the borrower from utilizing the resources and the profitability of the bank-creditor.
To sum up, a good credit analysis will help banks gain good loans, reduce the credit risk, operate less struggled and more profitably. -Possible method to analyze borrowers: Individual, business customers, government and other depository institutions can be borrowers. In fact, government is one has tax power to recover the loan so that the default risk is minor. It is also the reason why government can easy to access to the loan. As a result, the rest three types of borrowers are the major participants who will be analyzed more. The first
method to analyze is base on reputation only but only large and good reputation already borrowers can enjoy that advantage. The second method is base on 6Cs system or sometimes 5Cs. This is the tool to check the borrower creditworthy and involves a detail study of the critical aspects of a loan application: character, capacity, cash, collateral, condition and the last C- control which make the different between 6Cs and 5Cs. Character: specific purpose of loan and serious intent to repay loan Capacity: legal authority to sign binding contract
Cash: ability to generate enough cash to repay loan Collateral: adequate assets to support the loan Conditions: economic conditions faced by borrower Control: check whether loan meet written loan policy and how loan be affected by changing laws and regulations. Base on documents provided by customers such as financial statement or banks can even make a visit and have a direct conversation with borrowers to assess their serious intension, their sincere, responsibility, quality of property and location and can assign point to each of the characteristic above.
Banks may choose to develop this assessment by themselves or outsource it. The other method is that banks base on the rating from rating agencies, but it makes sense for business borrowers or other depository institution customers only. -Comment on the current management of credit analysis in Vietnam commercial banks. Although loan service is opened more, the credit analysis process is rebuilt which make it more clearly and objectivity, it has to admit that the execution of credit analysis is still not effective.
Credit analysis system has not been fully established, some criteria is not completely suitable which create the chance for borrowers cheat on this weakness. Internal control system has not been complied seriously through the whole branches of credit institutions. Even there is a factual problem that the bank stuff even help the customers to play trick in order to pass the standard because customers don’t have enough knowledge but they do to know the legal cheating ways. In addition, In Vietnam, relationship still strongly affect the business work which
makes the analyzing become less accurately due to the favor of bank staff of whom have close relationship and benefit with them. The beneficial factor that the analysts can receive, for example, some amount of money from a loose assessment is also a reason for a weak credit analysis. To get higher profit, some banks is recklessness to accept risks by bypass some customers’ sub-standards. They are the motivation for bank and its staffs to do wrong during the credit analysis.
There isn’t a clear distinction between loan officers and appraisal customers department. The lack of transparency and the poor management in managing bank system create chance for banks to execute credit analysis ineffectively. Another problem is that Vietnam doesn’t have enough innovative technologies and really qualified personnel to support for preparing an accurate credit analysis. Employee usually get difficulty in assessing the financial condition because of the lack of borrowers financial situation‘ assessment process.