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The businesses that belong to the same sector all offer products or services that are comparable to one another. For instance, the agricultural sector comprises businesses that provide a variety of agricultural services. The telecommunications industry comprises businesses that offer mobile or cellular telephone service to its customers. This article takes a look at the financial services industry, which is widely regarded as one of the most significant parts of the economy.
International Labour Organisation (ILO)
Recent work conducted by the International Labour Organisation (ILO) in the areas of financial services and professional services has concentrated on the employment effects of mergers and acquisitions in banking and financial services, as well as the impact of the financial crisis on workers in the finance sector.
Bank doing commercial transactions
The money that customers of the bank deposit in their savings accounts, checking accounts, money market accounts, and certificates of deposit serves as the source of the bank’s funds (CDs). The bank gives the depositors an annual interest rate on the money they keep there. Nevertheless, the interest rate that is charged to borrowers is higher than the interest rate that is paid to depositors. Personal loans, mortgage loans, loans for businesses, and loans for automobiles are all examples of the types of loans that a commercial bank can provide.
Activities Performed by Commercial Banks
The provision of financial services to organisations like businesses and corporations is one of the primary functions of commercial banks. Banks also maintain economic stability and contribute to the expansion of an economy in a way that is sustainable. The following are some of the functions that are performed by commercial banks:
1. Being Willing to Take Deposits
One of the first and most essential functions of a commercial bank is the acceptance of deposits. When banks first began, they would collect a fee for the service of holding money on behalf of the general people. Because of the developments that have taken place in the banking sector over the course of the years and the success of the business, financial institutions today offer a negligible amount of interest to customers who retain their money in deposit accounts with them. Nevertheless, depositors are responsible for paying administrative fees to keep their accounts active.
The second kind of deposit is known as a current account, and it is designed for those who own businesses and want the flexibility to access their money at any moment without prior warning. The majority of the time, banks do not award interest on deposits that are held in current accounts. Instead, a minimal cost is assessed against the account holders for the provision of the aforementioned services.
The term deposit, sometimes known as a fixed deposit, is the final kind of deposit. Customers who have money sitting around that they won’t need for at least the next half a year can put it in a fixed account and earn interest on it. The term of the fixed deposit is correlated to an increase in the interest rate paid on the deposit. Customers have till the end of the agreed-upon period to submit a written request to the bank in order to withdraw their money.
2. Increasing Available Credit Facilities
Lending money to people is one of the most important things that banks do because it accounts for the greatest proportion of the money they make each year. The majority of the loans that banks provide are either short-term or medium-term loans, and the interest rates on these loans are typically rather high.
Due to the need that they must always keep their assets liquid, they do not offer funding on a long-term basis. When deciding whether or not to make loans to customers, banks look at a number of factors, including the borrower’s financial situation, the profitability of the business, the nature and size of the firm, and the borrower’s ability to repay the loan without defaulting.
Conclusion
Balanced growth is necessary for economic development, and this can be accomplished by simultaneously fostering expansion across all relevant sectors. The savings that people have are directed into investment channels with the help of the financial system. It helps in both the mobilisation of savings and the making of better use of these funds by allowing investments in a variety of different economic sectors. Tax increases during a period of economic contraction only serve to make people’s lives more difficult and compel them to spend even less money. As a result, one of the primary objectives of financial systems is to maintain economic stability. The primary responsibility of central banks is to either maintain economic steadiness or to restore economic balance in the event that economic conditions deteriorate.
