Commercial Bank Importance

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A country couldn’t function their economy without commercial banks. Commercial banks are more important for economic development than other financial institution in providing liquidity provision to business companies and individuals because they need to have protection against unexpected needs for cash. Commercial banks act as the main direct provider of liquidity through offering demand deposits and lines of credits. This is because the main tasks of commercial banks are accepting deposits and use the deposit received as the funds to offer loans to its customers. Here, commercial banks get deposits or funds from individuals, businesses, and other financial institutions with surplus funds or savings. Then, commercial banks use those deposits …show more content…

Commercial banks significantly contribute to the economic development so they are the vital institution in facilitating business. Then, they also facilitate the economic development through saving plans and instruments of the government’s monetary strategy among others. Commercial banks provided financing such as long-term credit to government by investing their funds in government securities and short-term finance by purchasing treasury bills, which cannot be done by other financial institutions. Therefore, commercial banks help the government to ensure economic stability through providing funds for government development programs. Thus, commercial banks act an important role in economy development compare to other financial …show more content…

With the help of commercial banks, cash or funds can be transferred easily from one person to another person or from one country to another country. Therefore, commercial banks are able to expand internal and external trade market as well as economic development with their service of facilitating the transaction in distant places. Here, business companies or individuals are free of the risk of carrying cash because commercial banks facilitated the remittance of money through the credit instruments such as checks, bank draft, and credit cards. Then, commercial banks allowed business companies and individuals to take part in the global foreign exchange and commodity market indirectly. In the view of this, for example, a business company is getting into the global currency markets with the aid of commercial banks to provide foreign money to import a vehicle from Germany. As a result, commercial banks make the positive contribution in the process of economy development compare to other financial

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