Modern Banking In Australian International Context Finance Essay - Free Essay Example

Modern banking depends on the money supply. Money supply can be of two types. Assets that is ready to use for purchasing anything. This is also known as liquid assets. In second type all liquid assets and assets which are not in cash form but anytime can be converted into cash. It can be like market share or funds. Saving funds is also the example of second type of money supply. In this modern world the banking system is becoming modern in different ways. The role of Modern banking in Australian International context: The Modern Banking starts with a survey of the conventional thought of keeping money. A bank is a  ¬Ãƒâ€šÃ‚ nancial  ¬Ãƒâ€šÃ‚ rm which offers advance and store features available, besides coddles the altering liquidity needs of its borrowers and investors. There are numerous different sorts of  ¬Ãƒâ€šÃ‚ nancial foundation, and certain banks offer different items and aids, yet it is the aforementioned two methods which are banks recognizing qualities and demonstrate why banks exist in up to date economies. The role of modern banking is to play a role of intermediaries between borrowers and investors. (Shelagh, 2005) Another role of modern banking is the structure of the bank and their payment system and transaction system. One topic of this part is that banks contrast from other  ¬Ãƒâ€šÃ‚ nancial  ¬Ãƒâ€šÃ‚ rms for the reason that they performing as go-betweens and furnish liquidity. Banks need a framework for handling the charges and credits rolling out from the aforementioned keeping money transactions. The installment framework is a result of intermediation, and aids the exchange of proprietorship claims in the  ¬Ãƒâ€šÃ‚ nancial sector. Credits and charges are exchanged between the related gatherings. Table 1 show that cash payments are very stable in the 20th century. To get of rid this risk modern banking helps a lot in transferring bulk amount online through banking channels. All over the world there more than 1018 million using internet banking, thus the internet banking increase the growth of the customers and it is an effective way of increasing the customer. (Lic htenstein Williamson, 2006) Table 1990 1995 2000 2003 Cash Payments 28023 26270 27910 25859 Cheques 3975 3203 2699 2251 ATM withdrawals 1045 1471 2027 2373 Number of ATM cards 47 55 73 88 Plastic Cards 1741 2413 3914 5317 BACs Clearing 1820** 2476 3527 4060 CHAPS clearing 9** 13 25 33 Cheque Credit 2513** 2314 1981 1660 ** 1992 figures Source: APACS (2003), Payments: Facts and Figures. Figure Source: EMI (2000) Blue Book Addendum BIS (2000) Payments System in the G10 Countries Annual Average Population divided by the Average Number of ATM Cash machines (1995-1999) Credit worthiness of national bank of Abu Dhabi: The national bank of Abu Dhabi is in the top 50 safest bank of the world. Since 2009 the national bank of Abu Dhabi receiving this award (National Bank of Abu Dhabi, n.d.). To measure the credit worthiness of bank its ability to give loan and its long term investment is check. As national bank of Abu Dhabi was the first bank to introduce financial institutions in the Middle East. (Shelagh, 2005). To check the credit worthiness of National Bank of Abu Dhabi, investing the long term planning for that few warning signs must be review as compared to other banks in UAE. Interest Rates and Credit Limit: Higher interest rate thus cause decrease in credit worthiness of the bank, National bank of Abu Dhabi has very low interest rate as compared to other bank in UAE. They offer different rates even 0% for starting any plan. More over the credit limit is 75% and repayment is up to 24 months (National Bank of Abu Dhabi, n.d.).Other bank Figure : Deposit and Loan Market Share Of Top Ten Domestic/Foreign Banks (2003) Figure 2 show the deposit and loan market share. NBAD is with high rate of people depositing and loan market share in the market. (Global Investment House KSCC, 2007) Limitations and Withdrawals: In UAE the limitation on withdrawals and transfers of cheque and funds are increasing due to security check. Every bank is moved on automated system of cheque processing. Companies and distinctive clients are presently encouraged to secure the vital supports in a split second before drafting cheques, as the time-slack between cheque presentation and settlement could be decreased to hours in place of days. Manually it is expensive process. It includes mailing time, handling of receipt and clearing time. The limitations are like scan image of the cheque and on withdrawal cheque signature can be also automatically checked. (Cash Trade , 2012) Irregular, Delayed Incomplete Bank Statements: Irregular delayed or incomplete bank statement affects the credit worthiness of the bank. NBAD has very good repute in this manner. Efficient staff manages all the statements properly and sent them to desire customer on time. Bank Personnel: CRO (Customer Relation officer) are the bank personnel to visit the different companies and organizations to present the national bank of Abu Dhabi. NBAD has changes an little in its personnel to achieve their target goals. Suspicious ownership or takeover issues: Credit worthiness is key role of every bank. Securities also play a vital role in banks. To give loans bank must ensure the ownership. Few issues regarding wrong ownership and takeover is also arising due to threat in the bank market.   Suggestions: Another warning step to check the credit worthiness is donors are not reliable. For this the advice from the financial institutions helps a lot. Modern Cheque Clearing System New developments in Banking Technology: Modern technique of cheque clearing is image cheque clearing system (ICCS). Dubai central bank has implemented this system. It provides a lot of benefits to both banks and customers. It reduces the time. As per the past framework, the mid banks delegates conveyed the cheques physically to the settlement section, where delegates from all banks settle the cheques manually, a long and overwhelming undertaking. Throughout the starting operation of the framework, cheques will clear inside a most extreme of 36 hours. This time could be logically decreased over the nearing months. The framework is equipped for clearing cheques in four hours, the bank stated in an explanation. Undertakings to present the ICCS were launched numerous years prior, however the Central Bank was challenging jumps as the UAE courts did not recognize pictures of records. (Gulf News, 2008) M-banking is the new development in the banking technology. NBAD has also provide an opportunity on Arrow service, it allows customers to transfer payment in any bank in India at lower than federal bank. (AMEinfo, 2012) Risk: Capital and Insolvency Risk. Capital skill has its importance. It can absorb the unexpected lose and safe the report in financial sheets. It protects the insurance funds and other stakeholders. It can also purchase the real investment to provide financial services. (Shelagh, 2005).The bank ascertains capital ampleness degree (CAR) as per UAE Central Bank whats more Basel Accord. The least CAR prerequisite according to UAE Central Bank is 10% (Tier 1) Capital need to be 11% from June 2009 according to Central Bank directives) and according to Base 1 Accord is 8%. The Bank came to be completely agreeable with Basel II guidelines by the finish of 2007. According to UAE Central Bank guidelines, the banks capital sufficiency proportion was 13.71% (Tier 1) -11.81% at the finish of 2008, down from 16.16% (Tier 1) 13.30% in 2007. According to Base l II structure, the banks capital sufficiency proportion was 15.39% (Tier 1) -12.64% at the finish of 2008, down from 16.46% (Tier 1) 13.31% in 2007. Figure NBAD Interest Rate Risk: Unexpected changes in interest rate can cause loss. It greatly affects the profitability of the bank and equity. It can be happen when asset and liabilities are not evaluated at the same time. Banks are specifically target the net interest income or shareholder equity. Asset and liability management committee is monitoring the interest rate risk. (Shelagh, 2005). The aggregate working pay of NBAD arrived at AED 1,224.0 (mn) in 1Q-2009, very nearly unchanged from the comparing period in the past year. Net engage earnings arrived at AED 1,096.7 (mn) in 1 Q-2009 i.e. altogether up 41.2% from AED 776.9 (mn) in the past year. The change in net engage edge throughout the period has donated fundamentally to the development in net engage earnings. Figure The declining premium rate situation throughout the first quarter of the year worked energetic about the bank bringing about higher net premium edge. Apart on a Q of Q successive groundwork, the net investment edge has declined in Q 1-2009 as contrasted with Q 4-2008. This is in light of the fact that yields on holdings having begun responding to the decrease in investment rates. We want net engage edge to decrease in the impending quarters. Market Risk: Market risk is creating due to change in market conditions. It can be measure for short period. It can be measure in term on dollar or any benchmark. Both tables show the valuation of the market risk value. (Alexander et al., 2010) Table Table Credit Risk: Individual Loan Risk Credit Risk on individual loan is the return on loan. It includes the elements like interest payment, risk premium, fees. It can be measure with the help of formula (Joel, 2011) Return = inflow/Outflow. k = (f+ (BR+M)/ (1-{b (1-R]) k= Return on Loan f= the loan starting fees BR= the base compounding rate M=the credit premium R=Fed reserve B= pay off balance Credit Risk: Loan Portfolio and Concentration Risk Credit portfolio of the bank expanded by 96.9% on yearly basis. Successively, net advance book expanded from AED 19.7 billion in second Q 2006 to AED 22.3 billion in third Q 2006, a development of 13.4%. Year-to-date, net advances enlisted solid development of 64.3%. (Anaam, 2007) Off-Balance-Sheet Risk: The off balance sheet risk of NBAD is increased at 9.2% for the period of 2002-05 (Anaam, 2007)Factor which are convertible mainly depend on off balance sheet activities. Foreign Exchange Risk: Foreign Exchange risk is the risk occurs due to losses from the changes in the exchange rate. These changes cause decrease in revenues. All the value of the assets and liabilities also changes which are purchase in foreign currency. Hedging is the way to secure from risk. It accommodates both rates. (Joel, 2011) Sovereign Risk: The sovereign risk channel ampli ¬Ãƒâ€šÃ‚ es the transmission of stuns to total interest, unless money related arrangement devises a workable plan to o ¬Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬set the spillover from sovereign default hazard to private financing costs. O ¬Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬setting higher sovereign hazard premier would commonly need cuts in the arrangement rate. (Giancarlo et al., 2012)   Technology and Other Operational Risks: Technological or operational risk arises from the information or reporting system or internal risks. Any risk direct or indirect cause failure to any internal process. External events can also this risk. (Joel, 2011) Liquidity Risk: Liquidity risk depends on liquid assets like treasury bills or bond. Other asset also suffer if price decline. Liquidity risk doesnt matter in in active market. Like market is stable and volume of sale is normal. It can affect in inactive market in which the volume is low. Bank liquidity depends on interbank lending and borrowing (Joel, 2011)