Home ›› 29 Nov 2022 ›› Editorial
Banks, whether brick-and-mortar institutions or online, manage the flow of money between people and businesses. More specifically, banks offer deposit accounts that are secure places for people to keep their money. Banks use the money in deposit accounts to make loans to other people or businesses.
In return, the bank receives interest payments on those loans from borrowers. Part of that interest is then returned to the original deposit account holder in the form of interest—generally on a savings account, money market account or CD account. Banks primarily make money from the interest on loans and the fees they charge their customers. Consumers usually view banks as places to keep money or as places to go to borrow money.
If you use check-cashing outlets or the piggy bank, you're missing out on the many benefits of managing your money with a bank account.1. Bank accounts offer convenience: For example, if you have a checking account, you can easily pay by check or through online bill pay. It's also cheaper than buying a money order (and you'll have proof of bank statements that you paid your bills). If you get an Automated Teller Machine (ATM) or debit card for the account, you can withdraw money easily or make payments at stores.
In a bank your money will be protected from theft and fires. Plus, your money will be insured so if your bank or credit union closes, you will get your money back. The maximum amount of money that can be insured is Tk 100,000.
Many banks offer an interest rate when you put your money in a savings account. The interest will help your money grow over time. Be sure to shop around and check what fees are involved - you don't want to wind up paying more in fees than you are gaining in interest. If you have a checking and saving account with the same institution, you can have your money transferred periodically from checking to savings, putting the money aside to help grow your savings.
Banks can help you access credit to acquire a home, a car, student or personal loan, because banks tend to favour existing customers, particularly those who manage their money well. Plus, going to small loan lenders that lend you cash quickly can be quite expensive because they charge lending fees and high interest rate
Different type of conveniences include among others, cashing checks: Using a check cashing outlet really adds up. You can deposit and cash your checks at the institution where you have a bank account for free; Paying bills: Without a bank account, you probably rely on check cashing outlets, telephone bill pay or money orders—all of which have attached fees—to pay your bills. With a checking account, you can write checks for free or pay online at a low cost; Transferring/ wiring money: If you use a money transfer company to wire money to another person’s account, you will pay a fee, usually a percentage of the amount of the transfer. Depending on the amount you want to transfer, this fee can be expensive. If you wire from your bank account to another person’s account, your bank will usually charge a flat rate that is generally lower than the money transfer company.
Accessing cash: When you need cash but don’t have a bank account, you may decide to use a credit card to get a cash advance from an ATM. The credit card company will charge you a transaction fee and interest. If you have a bank account and an ATM or debit card, you can access your money from your own bank’s ATM for free.
While bank accounts are preferred over check cashers and piggy banks, banks will also have fees that you should be aware of. For example, banks will charge you if you use your debit card on an ATM that is not theirs. Also, depending on the type of account you have, you must maintain a minimum balance of a certain amount to avoid being charged. It's always best to shop around for the best product that fits your needs. Increasing usage of smart devices, increased connectivity, and demand for high end-user experience are the key drivers of the digital transformation trend, taking banking solutions to customers’ doorstep. A cashless society is one in which cash in the form of physical banknotes and a coin is not accepted in any financial transaction. Instead, people and businesses transfer money to one another digitally via cards, electronic money transfers, or online and mobile payment services, such as Pay pal and Apple Pay. Although no existing society is cashless, many economists believe that consumer preferences, competitive pressures on businesses, profit seeking by banks, and government policies designed to facilitate cashless transactions will soon lead to at least a few cashless societies.
Proponents of a cashless society argue that digital transactions are more convenient for both customers and businesses and through non cash activities would cut down on many criminal activities. They also maintain that the trend toward cashless scenario is unstoppable, given the increasing digitisation of economies and consumers’ growing preference for conducting daily business with mobile devices.
Switching to the modern digital financial management system has made it easier for banks to stay compliant. Advanced features such as auto auditing helps employees to spend less time on auditing reports and documents. The digital data stays standardised and can be shared on multiple platforms without any error.
Besides, the digital payroll system on cloud gives timely updates which mean the banks do not have to worry about updating regulations. Customer data security is one of the rigid issues that companies and institutions are struggling to overcome. Banks can now protect sensitive data with sophisticated software services and save accounts from scammers, hacker attacks, phishing, etc.
Banking sector is highly regulated and continuously under the supervision of central bank. The standardised approach by the regulatory bodies including Central Bank ensures the safety of depositors’ money. In this line, Central Bank looks at the capital of a bank.
Market discipline is the onus on banks, financial institutions, sovereigns, and other major players in the financial industry to conduct business while considering the risks to their stakeholders. Market discipline is a market-based promotion of the transparency and disclosure of the risks associated with a business or entity. It works in concert with regulatory systems to increase the safety and soundness of the market.
The supervisory review process of the framework is intended not only to ensure that banks have adequate capital to support all the risks in their business, but also to encourage banks to develop and use better risk management techniques in monitoring and managing their risks.
The supervisory review process recognises the responsibility of bank management in developing an internal capital assessment process and setting capital targets that are commensurate with the bank’s risk profile and control environment. In the Framework, bank management continues to bear responsibility for ensuring that the bank has adequate capital to support its risks beyond the core minimum requirements.
The capital adequacy ratio measures a bank's capital in relation to its risk-weighted assets. The capital-to-risk-weighted-assets ratio promotes strong capitalisation and better financial resilience of banks throughout the world to resist economic and financial shocks and crises, such as the global recession that hit in 2008. With higher capitalisation, banks can better withstand episodes of financial stress in the economy. The capital adequacy ratio is calculated by adding tier 1 capital to tier 2 capital and dividing by risk-weighted assets. Tier 1 capital is the core capital of a bank, which includes equity capital and disclosed reserves. This type of capital absorbs losses without requiring the bank to cease its operations; tier 2 capital is used to absorb losses in the event of liquidation.
The robust approach by the regulatory bodies including Bangladesh Bank, Security Exchange Commission towards protection of the depositors’ interests at the foremost is standardised across the globe. We are not exception to it. The key stakeholders including board of directors, management and employees are measured in terms of risk tenacity minimum on quarterly basis.
The ease and benefits of maintaining a bank account alongside the safety of money should work as the primary concern of the consumers. Keeping the hard earned money out of the banking channel will not only pose physical security challenges but may also create an opaque situation for the self. Bank accounts also help transparency and provide solution to the issue of inheritance through putting up nominees of the account holder. Next time, one needs to overcome the fear created through gossips about the security of deposits kept in banks prior withdrawing cash and keeping that in any way of savings other than banking channels.
The writer is MD and CEO of Community Bank. He can be contacted at masihul1811@gmail.com
