Commercial banks: functions and services

Hello my dear students! Today, we are going to learn about something very important that helps our economy grow – Commercial Banks.

Think of a bank as a special shop where you keep your money safe and can also borrow money when you need it. Commercial banks are everywhere in Nigeria, like First Bank, GTBank, Zenith Bank, UBA, and Access Bank.

They are a very big part of our financial system.

First, let's understand what a commercial bank is.

A commercial bank is a financial institution that accepts deposits from the public, offers loans, and provides other financial services.

This means commercial banks take money from people who want to save (like you or your parents), and then they lend that money to other people or businesses who need it (for example, to start a new business or buy a house). They do this to make a profit.

Now, let's look at the main things these banks do, which we call functions.

Accepting Deposits: This is one of the primary functions of commercial banks.

This simply means that banks keep your money safe for you. You can put your money in different types of accounts, like savings accounts, current accounts, or fixed deposit accounts.

For example, you can open a savings account with Zenith Bank to keep your pocket money safe.

Granting Loans and Advances: Commercial banks provide loans and advances to their customers for various purposes.

When people or businesses need money to do something big, like buying a new car or building a factory, they can borrow from the bank. The bank charges them a fee called 'interest' for borrowing.

Imagine a farmer in Kaduna needing money to buy new farming equipment; GTBank can give him a loan.

Agency Functions: Commercial banks perform various agency services on behalf of their customers.

This means the bank acts like your helper for certain money matters. For instance, they can pay your NEPA bill (now Disco bills) directly from your account or collect money on your behalf.

General Utility Functions: These are a wide range of services that benefit the general public and business community.

These are other helpful things banks do that make life easier. They include issuing ATM cards, providing internet banking, mobile banking, and even giving you a safe place to keep important documents like your land papers (safe deposit lockers).

Think about how you can use your First Bank ATM card to withdraw money from any ATM machine in Nigeria, or use your UBA mobile app to transfer money to your friend in Port Harcourt.

Facilitating Payments (Means of Payment): Banks provide convenient methods for making payments.

Instead of carrying a lot of cash, banks help us pay for things easily. They offer services like cheques, bank transfers, and debit/credit cards. For example, if your parents need to pay school fees, they can write a cheque or do a bank transfer instead of carrying millions of Naira.

Credit Creation: This is a unique function where banks create money through their lending activities.

This is a bit complex, but simply put, when a bank gives out a loan, it doesn't give out physical cash always. It credits the borrower's account. When that money is spent and deposited in another bank, that bank can then lend out a portion of it again, effectively creating more money in the economy. This is a powerful role banks play.

So, commercial banks are not just places for keeping money; they are active partners in our economic development, helping individuals and businesses grow.

Understanding these functions will help you appreciate their importance in Nigeria and globally.

Keep studying, and you will excel in your exams!