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Related Content: MGT604 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Management of Financial Institutions

ROLE OF COMMERCIAL BANKS

A bank is a commercial or state institution that provides financial services, including issuing money in various forms, receiving deposits of money, lending money and processing transactions and the creating of credit

A commercial bank accepts deposits from customers and in turn makes loans, even in excess of the deposits; a process known as fractional-reserve banking. Some banks (called Banks of issue) issue banknotes as legal tender. A commercial bank is usually defined as an institution that both accepts deposits and makes loans; there are also financial institutions
that provide selected banking services without meeting the legal definition of a bank. Many banks offer ancillary financial services to make additional profit; for example, most banks also rent safe deposit boxes in their branches. Currently in most jurisdictions commercial banks are regulated & require permission to operate. Operational authority is granted by bank regulatory authorities who provide rights to conduct the most fundamental banking services such as accepting deposits and making loans.

Purpose of a bank:

Banks have influenced economies & politics for centuries. Historically, the primary purpose of a bank was to provide loans to trading companies. Banks provided funds to allow businesses to purchase inventory, and collected those funds back with interest when the goods were sold.

Commercial Lending:

For centuries, the banking industry only dealt with businesses, not consumers. Commercial lending today is a very intense activity, with banks carefully analyzing the financial condition of their business clients to determine the level of risk in each loan transaction.

Read more: MGT604 - Management of Financial Institutions - Lecture Handout 15

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Related Content: MGT604 - VU Lectures, Handouts, PPT Slides, Assignments, Quizzes, Papers & Books of Management of Financial Institutions

PAKISTAN ECONOMIC AID & DEBT

The Asian Development Bank will provide close to $ 6 billion development assistance to Pakistan during 2006-9. The World Bank unveiled a lending program of up to $6.5 billion for Pakistan under a new four-year, 2006-2009, aid strategy showing a significant increase in funding aimed largely at beefing up the country's infrastructure. Japan will provide $500
million annual economic aid to Pakistan.

The major causes of poverty in Pakistan

• Lack of employment opportunities, which in the rural setting is caused by the absence of rural-urban linkages.
• A slowdown in the pace of economic growth in the 1990s
• With the burgeoning debt obligations, a decline in the public sector development program.

Key challenges facing the Government of Pakistan

1. Restoring economic growth-constrained further by a drought-affected agriculture sector
2. Managing the large debt burden with international financial institutions.
3. Promoting domestic and foreign investors' confidence
4. Increasing exports to generate foreign exchange,
5. Maintaining a level of social development spending to stem the deteriorating social indicators.
6. Law and Order, or Terrorism

Future Prospects for Pakistan's Economy

Pakistan's long term prospects will depend upon the interplay of evolution in political and social developments, economic policies to be pursued, the quality of governance and institutions, and most important investment in the human capital. It has become quite obvious from both Pakistan's own history and the experience of the developing countries that sustained economic growth and poverty reduction cannot take place merely on the strength of economic policies. Political stability, social cohesion, supporting institutions, and good governance are equally important ingredients coupled with both external environments for achieving economic success.

Read more: MGT604 - Management of Financial Institutions - Lecture Handout 13