Functions of commercial Banks

Functions of commercial banks

1. They accept deposits from the public for custody.
2. They transfer money from one account to another to facilitate transactions on behalf of customers.
3. They lend money; the banks lend at a lower rate of interest.
4. Transferring money from one place to another within the country and also from one city to another by means of cheques, credit transfers, standing orders, bank drafts, discounting bills of exchange etc.
5. They keep valuable articles and documents in safe custody on behalf of customers (clients) e.g. wills, jewellery, title deeds, academic certificates.
6. They exchange currencies with customers.
7. They issue traveller's cheques to traders in foreign trade.
8. They facilitate international trade by selling traveller's cheques, arranging payments and transfer of documents e.g. bills of exchange between importers and exporters, letters of credit etc.
9. They can act as guarantors to others partly when their customers want to borrow money from them or sell goods and services on credit.
10. They act as trustees; a trustee is someone who acts on behalf of another when he or she is absent. When banks make payment or receive money on behalf of their customers, they act as trustees.
11. They give financial advice concerning business and money to their customers.

Problems of commercial banks in Tanzania

1. There are many poor customers who are scattered and it is then difficult to mobilize savings.
2. There are few creditworthy customers. Lending is also limited by lack of collateral securities by most borrowers.
3. The problem of insecurity which necessitates the need to have armed men to protect the bank staff, premises and money in banks.
4. Most customers are illiterate; others do not even keep their accounts and it becomes difficult to assess their credit worthiness.
5. Commercial banks are concentrated in urban areas and hence they compete for business/customers.
6. Inflation; this discourages lending and leads to loss of real value of money.
7. Political instabilities lead to loss of money and properties. Also because of the economic uncertainty, people don't borrow for investment and funds remain idle in the banks.
8. Lack of communication facilities e.g. unreliable telephone and telegraphic equipment.
9. Lack of trained manpower development and staff training.
10. Higher interest rate fixed by government which may be too high and thus discourage borrowers.
11. Foreign commercial banks are at times faced with problem of unfavourable government policies.