TYPES OF BANK AND THEIR FUNCTION

TYPES OF BANK AND THEIR FUNCTION

Basically there many types of Bank such as Central Bank, universal bank, mortgage bank, cooperative bank and merchant bank.

1) Central Bank:

It can be define as the only financial institution established and charge with the day to day management and control of nation monetary affairs, supervising and co-ordinating the banking and financial activities of the country.

According to Satera, the central bank “is the organs of government that undertake the major financial operation of the government and by its conduct of his operation by other means.

De lecole, in his word, a central bank is a bank which constitute the apex of the monetary and infrastructure of it country and should perform as best it can in the national economic interest following are function; central banks according to the De lecole accepted by the majority of economist.

i. Regulator of currency: The central bank is the banks issue. It has the monopoly of note render money. It has it issue department which note and coin to universal bank.

ii. Banker: Fiscal agent and adviser to the government. Central Bank every where act as banker, fiscal to the government, the central bank keep the deposit of the central and state government and make payment on behalf of government.

iii. Custody and Management of foreign reserves: Central bank keeps and manages foreign exchange of country. It is an official reservoir of gold currencies.

(2) Universal Banks:

It may be defined as an institution set up purposely to safe keeping of money, valuable good and document. It is also refer to retailer bank. Section 61 of decree no 25 of 1991 defined “banking business to mean the business of receiving deposit on current account, saving account or other similar account, paying or collecting cheques, drawn by or paid by customer; provision of financial or such other business as the government by other published in Gazette, designate as banking business.

The importance of universal banks can be best illustrated by a brief explanation of their major function.

a. Pooling saving: Universal banks perform this very important function of all sector of the economy by making available the facilities for pooling saving through the acceptance of deposit from the public and then making these funds available for economically and socially desirable purpose.

b. Payment Mechanism: One other important role performed by universal bank is the provision of payment mechanism or transfer of funds.

c. Extension of credit: one of the primary function of universal bank is the extension of credit worthy customers or borrower. A universal banks lend a certain percentage of cash lying in deposit on the higher interest rate than it pays on such deposit.

d. Safe Keeping of Valuables: This function evaluate during the gold-smith-banker era when gold smith had the strong safe vault that were difficult to enter even by the best of burglars. This is one of the oldest functions of universal bank.

3. Merchant Banks:

“The concept merchant banking” has it origin in the pioneering activities of British merchant who later become acceptance houses. Merchant banking was pioneered in Nigeria by Philip Hill (Nigeria) Limited which universal operation in the country in 1960. It merged with Nigeria acceptance limited which later change it name to Nal Merchant bank.

Merchant bank can be defined as a financial institution that provide medium and long term loans, accept large deposit, bill and deal in stocks.

In Nigeria, section 61 decree no 25 of 1991 legally defines a merchant banks as “A bank whose business include receiving deposit on account, provision of finance, consulting and advisory service relating to corporate and investment matter, making to or managing investment on behalf of any person.

The major function of merchant banks include:

i. CORPORATE FINANCE: Corporate finance was often been as the glamorous side of merchant banking. It corporate finance department job is to advice to the expert on the rules and commercial law, accounting practice at home and abroad.

ii. BANKING FUNCTION: The banking function of merchant banks is the most understandable function. This involve lending the bank’s money, issuing guarantee, arranging import and export credit needing temporary finance pending. The conclusion of finding arrangement.

iii. Issuing house: Merchant bank act as houses at the Nigeria stock exchange.

4. Mortgage Bank:

It may be defined as a financial institution established for acceptance of fixed disposal member of the public with the aim of encouraging them to build their own houses by offering them longer time loan. According to decree No 9, (1997) the federal mortgage bank of Nigeria (FMBN) took over the asset and liability of Nigeria since inception in 1956.

The bank is charge with the responsibilities of supervising and controlling the mortgage institution in Nigeria providing guarantee for loan from private investment sources for building purpose and carrying our research activities and housing in rural and urban area. It is the apex financial institution for mortgage industries with asset and liabilities of the federal mortgage industries with asset and liabilities of the federal mortgage bank in Nigeria.

The function of mortgage bank in Nigeria include:

i. Provision of long-term credit facilities to other mortgage institution in the country at a rate and on term as may be determined by the board in accordance with government policy.

ii. Encourage and promote the development of mortgage institution at state and national level.

5. COOPERATIVE SOCIETY:

Cooperative society is a firm of proprietors, traders or producer unite to foster their groups and individual business interests. Cooperative societies are business organization undertaken by people who are similar interest in West Africa.

There are three main types of cooperative societies are found namely:

i. Producer co-operative society
ii. Consumer co-operative society
iii. Credit and theft co-operative society
Management / control revenue characteristic of co-operative societies

i. Ownership: Any member or person with concern interest collectively own and bear risk.

ii. Capital: Members is entitled to one share only. Any extra capital is raised from members through loans, only a small rate interest is on such loans.

iii. Members have equal opportunities in the management, profit are share among member according to the society since this have equal visiting however usually some members are expected to see day to day running of the society.

iv. Profit: Profit are share among member according to their purchasing power.

v. They give loan the rural investor to facilitate rural development in the country

6. Rural Banking: Federal environment as part of it effort in implementing its third national development plan introduced the rural banking scheme. The central bank of Nigeria due to the reluctant of some banks especially foreign bank in Nigeria to operate in rural area.

The major objective of rural banking includes:
i. Development of agricultural and agro-allied industry in the rural area with a view of achieving the nation objective a self sufficiency in food production.

ii. Creating of credit through equity and loan for the uplifting of small scale industries.

iii. Mobilization saving from the rural sector for the purpose of channeling them to profitable venture.