The term ‘Bank’ is originated from different sources such as Germanic word ‘banck’, the French word ‘beque’ and the Italian word ‘banco’. In German, the word ‘bank’ means a bundle of anything or shared stock fund. The Italian word ‘banco’ refers to a bench at which the money changers used to change one kind of money into another and transact their banking business. Thus, in olden days, banking was associated with the business of money changing or lending. Definition of Bank Oxford Dictionary defines ‘bank’ as a financial establishment that uses money deposited by customers for investment, pays it out when required, makes loans at interest, and exchanges currency.
A Bank is a financial institution that monitors the banking activity. It deals with deposits and advances and other related services such as lending money to grow the economy. Bank acts as bridge between people who save and people who want to borrow money. It receives money from the people who want to save as deposits and it lends money to those who want to borrow it.
A bank can be defined through three methods. Firstly, it can be defined by its business entity. Generally, a bank is chartered by a federal or state government. The business entity must include the word “bank” or “trust” in the name of business entity such as Hong Leong Bank, Public Bank and Bank Simpanan Nasional. Secondly, it can be defined by the services offered. Generally, a bank accepts deposits and makes loans. However, it may also provide other services. The example of bank which can be defined by this method is Skim Simpanan Pendidikan Nasional (SSPN).
Thirdly, it can also be defined by its economic function. Banks are financial intermediary which allows diversification, economies of scale, expertise on transactions, convert illiquid investments to liquid ones, and a safe place to store money. The examples of bank which can be defined by this way are KWSP, Bursa Saham Malaysia and Tabung Haji. History of Banking Industry in Malaysia The banking industry in Malaysia grows rapidly as a result of thriving profits from rubber plantations and the tin industry since early 1900s. In 1913, Malaysia’s first domestic bank was set up, named Kwong Yik (Selangor)
Banking Corporation (now known as Malayan Banking Berhad). Since 1913, the banking system and industry has continued its steady growth and expansion until eventually there was a need for a governing body to oversee the activities and operations of the numerous banks in the country. This led to the establishment of Bank Negara Malaysia, the Central Bank. It is a statutory body which is wholly-owned by the Federal Government. In the 1980’s, the introduction of Automated Teller Machine (ATM) can be considered as the first and the most visible piece of evidence of the emerging electronic banking in Malaysia.
It was then followed by the introduction of tele-banking and online banking in1990’s. Types of Banks There are numerous types of banks in Malaysia. They are central bank, commercial bank, merchant bank, Islamic bank and foreign bank. The central bank of Malaysia is Bank Negara Malaysia. It is the monetary authority that oversees Malaysia’s financial system and economy. The constitutions, functions and powers of Bank Negara are set out in the Central Bank of Malaysia Act 1958.
The objectives of Bank Negara are to promote monetary stability and a sound financial structure, to act as a banker and financial adviser to the Government, to issue currency and keep reserves safeguarding the values of the currency, and to influence the credit situation to the advantage of the country. Commercial bank is a bank conducting business based on conventional or Islamic principles in its activities to provide services in payment traffic. Banking experts in developed countries defines a commercial bank as a profit-oriented financial institution. In order to obtain the profit, a commercial bank performs the inter mediation function.
A commercial bank is also known as depository financial institution because it permits raise funds in the form of deposits. Based on its ability to create money, a commercial bank may also be known as the creator of commercial bank demand deposits. Retail Banking, Business Banking, Private Banking and Investment Banking are the four operation of Commercial Banking. The examples of Commercial Bank in Malaysia are Bank Islam Malaysia, CIMB Bank and Public Bank. A merchant bank is a financial institution which provides capital to companies in the form of share ownership instead of loans.
It also provides advisory on corporate matters to the firms they lend to. The examples of merchant bank in Malaysia are AmMerchant Bank, Public Merchant Bank Berhad and Affin Merchant Bank Berhad. An Islamic bank is a financial institution that all its functions are adhered to the Islamic law. It is made compulsory to carry all banking activities without having any motto of earning interest which is forbidden in the religion of Islam. The example of Islamic bank in Malaysia is Bank Islam (M) Berhad. The examples of foreign bank in Malaysia are Bank of America (M) Berhad, Bank of China (M) Berhad and Citibank Berhad.
Principles of Islamic Bank The purpose of Islamic banking is same as that of conventional banking but the principle on which it operates differs a lot from others. Islamic banks don’t take interest for the service they provide to their customers. To avoid the prohibition as per Islamic law, they use the basic technique of sharing of profit and loss via terms like profit sharing, safekeeping, joint venture, cost plus etc. In nutshell, it can be said that Islamic banking is good example of full-reverse banking, with banks reaching to 100% reserve ratio though it is not practical.
With all its principles, the Islamic banks make a very small share of the global banking system though they are growing consistently over the period of time. References http://www. bankall. org/origin-of-the-word/ http://subramoneyplanning. blogspot. com/2012/05/what-is-bank-and-banking-introduction. html http://www. bankinginfo. com. my/04_help_and_advice/0404_general_information/bank_negara_malaysia. php http://www. expatforum. com/banking/banking-in-malaysia. html http://www. onlinebankwatch. com/types-of-banks/islamic-banks/