Essentials of Commercial banking: Functions and Career paths

A commercial bank is a financial institution that grants loans, accepts deposits and offers basic financial products like savings accounts and certificates of deposits to individuals and businesses. The bank’s funds or revenue comes from money deposited by the bank’s customers into savings accounts, current accounts, and certificates of deposits. Commercial banks play such an important role in the economic development of a country that modern industrial economy cannot exist without them.

Commercial Banking Career Path and Roles

A commercial banking career path has you helping clients secure loans, cash management services and financial products. As a credit analyst or account manager, you deliver financial advice and solutions that are tailored to your clients’ needs, such as growing their business, buying new equipment, funding working capital, and day-to-day banking.

To thrive in a career in commercial banking, a few traits and habits must be shown. Some of them are;

- Friendly: As you will be interacting with clients on a daily basis, you must be friendly at all times so as to make the client feel calm.

- Relationship Oriented: You must be able to build strong and solid professional relationships with your clients. You must come out as a person that wants the best for the client.

- Focused: You must not lose focus as the job of a commercial banker is a fast paced one. You must give full attention at all times when working.

- Self-motivated: This is very key for a commercial banker. You should always motivate yourself to do more and improve as a commercial banker.

- Team work: You should have the ability to work with a team. You should be a good team player and lead when it deems fit to.

The typical entry level job role for a person with a university degree in any field in commercial banking is Credit Analyst. A person with an MBA typically goes to the role of an Accounts Manager. As a Credit Analyst you will be tasked with analyzing a clients’ financial statements, competitive position, industry and management team. The Credit Analyst prepares an “application for credit” that determines the structure and pricing of a financing request.

An Account Manager is focused on business development and is a more client facing role. Your job is to find new clients for the bank and maintain relationships with existing ones. You work closely with colleagues on the credit side to deliver results to your clients. After some years as a credit analyst you will decide on a niche in commercial banking to pursue a long term career in. Some of the higher roles in commercial banking are:

- Loan Manager: Loan Officers often solicit loans for the bank, meet with customers, ensure loan applications are filled out correctly and perform credit analysis on loan applicants. They may analyze credit reports for individuals or more complex financial statements for businesses.

- Branch Manager: A Branch Manager in a commercial bank is perceived as a high role. A branch managers job is to make sure the bank is being run effectively on a day to day basis. They are also tasked to making sure the bank is in compliance to banking rules and regulations.

The work hours for a commercial banker is typically between the hours of 8am — 5pm.

How does a commercial bank make money?

A commercial bank makes money by getting funds from customers and paying the customers a portion of interest. It then lends money to other customers and charges them a portion of interest. The spread between the amount of money the commercial bank pays the deposit customers and the amount that it charges the borrowing customers is the spread and the money that it makes which is called interest income. This is the main way commercial banks make money. They also charge fees such as convenience fees or transaction fees that allow them to earn money as well.

Functions of commercial banks

A commercial bank accepts deposits in the form of savings accounts, current accounts or term deposits, that means they take money from the customers that want to store and earn some interest. Commercial banks create credit facilities which are short term and medium term loans that customers can use to invest in diverse ventures. They have credit creation ability which arises from deposit accounts which borrowers can draw funds from and they also serve important agency functions for their customers which include paying checks and dividends as well as insurance and trading accounts for investments and other securities.

Type of loans offered by commercial banks

Bank loan: This is a standard bank loan where the amount of money offered by the bank to a borrower has a defined interest rate and a fixed period of time.

Cash credit: In this case, the bank lends the borrower money to go beyond their account limit.

Bank overdraft: In this situation, the client can extend for a certain period of time beyond the limit of their account.

Credit cards: This is a form of spending where customers can purchase goods or services and pay for them later with the actual cash in their accounts.

Regulation by Central Banks

Commercial banks are regulated by Central banks and other government organizations in their respective countries. They require the commercial banks to operate within certain rules and limits. These include capital reserves that help the bank prevent insolvency or bankruptcy- this means the bank will run out of cash and will be unable to pay back their customers.

In summary the main function of a commercial bank is to accept deposits and lend money out to individuals and companies that need the money to grow the economy.

By Kehinde Agboola, for THE FINANCE HUB