Commercial Banking in Kenya

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  • Topic: Bank, Banks, Cheque
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EGERTON UNIVERSITY TOWN CAMPUS

FACULTY OF COMMERCE

DEPARTMENT OF ACCOUNTING, FINANCE & MANAGEMENT SCIENCE

NAME:OCHIENG JARED OPONDO

REG NO:C12/60275/09

GROUP:A

FACULTY:COMMERCE

COURSE:BCOM 330; Financial Institutions and markets

TASK: TERM PAPER

TITLE: COMMERCIAL BANKING IN KENYA

PRESENTED TO: MRS. BOSIRE MARY

PRESENTED ON: 19TH October 2011

ABSTRACT:

This term paper analyses the commercial banking system in Kenya. In particular it focuses on the history of commercial banks from a general perspective then narrows down to Kenya’s context. It looks at the importance of commercial banks in Kenya, the roles/functions of commercial banks. It then focuses on the regulations that govern the commercial banks. Lastly it looks at the contribution of commercial banks to Kenya’s economy.

TABLE OF CONTENTS

Abstract2

Table of contents3

Introduction4

The history and development of commercial banks5

Importance of commercial banks9

Roles of commercial banks10

Regulations of commercial banks13

Contribution of commercial banks to Kenya’s economy14

Summary15

References16

INTRODUCTION

A commercial bank is a type of financial intermediary and a type of bank. It raises funds by collecting deposits from businesses and consumers via checkable deposits, savings deposits, and time deposits. It makes loans to businesses and consumers. It also buys corporate bonds and government bonds. Its primary liabilities are deposits and primary assets are loans and bonds.

Banks work with short term funds. Their working capital consists mainly of moneys deposited by customers and withdrawable by them on demand or on short notice. If a bank lends such moneys for long periods or keeps them blocked in any other way, it will be unable to meet the demands of its depositors for withdrawal of cash, and will be forced to go into liquidation.

Banks are the main financial institutions operating in financial systems and are important as they facilitate the flow of funds between surplus units and deficit units. Banks offer a full range of financial services, both balance-sheet transactions and off-balance sheet transactions. Balance-sheet transactions are represented by assets, liabilities and shareholders’ funds while off-balance sheet transactions are contingent liabilities.

The following definitions have been advanced for commercial banks:

I. A commercial bank is a financial intermediary which collects credit from lenders in the form of deposits and lends in the form of loans. A commercial bank holds deposits for individuals and businesses in the form of checking and savings accounts and certificates of deposit of varying maturities while a commercial bank issues loans in the form of personal and business loans as well as mortgages.

II. A financial institution authorized to provide a variety of financial services, including consumer and business loans (generally short-term), checking services, credit cards and savings accounts. (Business Dictionaries Copyright c 2006, 2000, 1997, 1993, 1990 by Barron's Educational Series, Inc. )

THE HISTORY AND DEVELOPMENT OF BANKING

A: GENERAL CONTEXT

The invention of banking preceded that of coinage. Banking originated in Ancient Mesopotamia where the royal palaces and temples provided secure places for the safe-keeping of grain and other commodities. Receipts came to be used for transfers not only to the original depositors but also to third parties. Eventually private houses in Mesopotamia also got involved in these banking operations and laws regulating them were included in the code of Hammurabi. In Egypt too the centralization of harvests in state warehouses also led to the development of a system of banking. Written orders for the withdrawal of separate lots of grain...
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