Commercial banks are the principal financial institution which is directly concerned in the finance of the real estate. The real estates they are involved have activities involving short term loans disbursement. Commercial banks also act as a mediator between an issuer of securities, the investing clients; facilitate mergers and other business reorganizations. The banks can also act as a broker for clients.
They are what people normally called the banks. Though it used to differ from investment banks but today both are no longer separated in terms of what they do.The commercial bank sole aim is to accept deposits and makes business loans available to the clients and also offer some other forms services. The functions of commercial banks are basically categorized into two; primary and secondary functions. The primary functions can also be grouped into two; accepting deposits and granting of loans and advances to the customer.
Accepting deposits from the customers is usually in form of current deposits, fixed deposits, recurring deposits, savings deposits and miscellaneous deposits.The granting of loans is usually done through the short time financial assistance to customers in the form of cash credit, over draft, loans and discounting bills. Secondary functions; ? Issuing letters of credit and travelers cheques ? Help keep valuables and important documents through provisions of safe deposit vaults. ? Foreign exchange services for customers ? Local and international money transfer. ? Standing guarantee on customers’ behalf in order for the customers to make payment for goods ? They also help collect and supply business information They also function by issuing demand drafts and pay orders.
Credit Union Is an institution created with the sole purpose of serving the low income earners of the community who are far from the banks. It’s usually formed by group of people with a common goal which is to save their money together and make low cost loans to each member. This short term loans are mainly given to the member to purchase automobiles, household needs, medical needs and emergencies. The loans from credit union are quite important in developing world because it may serves as the only source of credit to many individual.
The loans are also use for agricultural production and small scale business. The unions normally operate under the government directive and supervision and the members at of the board of director are usually elected by the members of the credit unions. The various committees are usually appointed or elected by the same procedure. “The first credit union was established in 1884 by a group of farmer in the German Rhineland. The movement was later introduced to North America. The first Canadian credit union was founded in Quebec in 1900 and first in United States was founded in 1909”.
Encarta Microsoft Student 2008) Similarities between commercial banks and the credit unions Savings; both institution allows the people to save and lend money. Product; Both financial institution offers mortgages and checking of credit cards Source of funds; commercial banks and the credit union rely on the deposits from the public as their primary source of income. Customers; The two institution compete for the same pool of customers The difference between the commercial banks and credit unions are Profit Making; commercial banks are basically established to generate profit for the shareholders while the credit union is basically a non profit making establishment?Decision making; commercial banks make decision based on what is will give the stockholders the maximum value for their investment while the credit union make decision on what is finest for it members. ? Owner; Investors in the banks stock owns the commercial bank while all members are equal in the credit union. ? Service; the service of the commercial banks is meant for the general public while those of the credit union is only for it members. Directors; board directors in the commercial banks are paid for their services while those in the credit union are from the volunteers who don’t get paid for their services.
? Managers; the election into various offices of the board of directors is only performed by the shareholders and not the client of the bank while those of the credit union is by the members of the union?Dividend; the gain of the investors is via the dividends distributed by the bank while the profits of the credit union is distributed to the members in form of better saving interest rate, low fee or no fee for services and low loan rates. Taxes; commercial banks do pay tax to the government while those credit union don’t pay tax to government. The balance sheet Balance sheet help to indicate the aggregate claims and liabilities of the commercial banks and this is generally considered in two forms; Net foreign reserves and Net domestic assets. It usually presents the position of the banks at a particular point in time.
The accounting system in the bank differs from those of cooperate accounting in that those of the bank are balanced daily and this help gives an ongoing statement of condition and providing verification.The information of balance sheet is reported to the shareholders quarterly and this is also reported to the public and regulatory bodies. This is sometimes refer to as “Call Report” Daily is usually stressful to the board members hence most boards meet monthly to conduct a review. Challenges in commercial banks The challenges of the commercial bank are; competition, risk, renovation and credit. Some other forms of challenges include the effect of the regulatory bodies, changing economic environments, management of banks assets portfolios, aging ownership group, pressure from shareholders.It may also include financial modernization, rise of new financial institutions, consolidation in the banking sector, deregulation of the banking sector, a change in trend in borrowing and lending, advancement in technology and globalization.
Challenges in credit union The most important issue in credit union includes the competitions from other financial institution, advancement in technology and the effect of the regulatory bodies. Having more residential mortgage can also pose a stronger challenge against the development of the credit union. Branding and education is another form of challenge faced by the credit union.
