1. Intro of bank and role in economic development.

Role of Banks in Economic Development and Growth of Countries?

Customers trust is the important goodwill for a role of bank to sustain in the market. People will deposit money when and only customer trusts a bank which means they will get back money on whenever demanded or else on the date specified in case of fixed deposits. Other factors are also considered important element for a survival or reputation for the bank.

Banking is a business activity of accepting and protecting customer’s money and then lending to the required customer’s with an intension to make profit after calculating various types of risks.  Now a days, role of bank comprise of various diversified services like debit cards / credit cards, insurance, safety lockers, Automated Teller Machine, online fund transfer across countries, etc. It is worth said that banking services plays a silent and crucial role in everyone lives. The banks perform financial by pool of deposits and underway into investments through risk conversion; thereby maintain the economy engine of the nations / countries.

Banking business has given new ways for the growth of world’s economy, at a same time role of banks in economic development and growth has gradually increased.  Role of bank looks straight forward of accepting money from customers and then lending the same funds to the borrowers, banking activities have encouraged lot of people toward investments which in turn is a part of countries economy growth. If banking business was not available then savings would sit idle in your lockers and new business or new ideas would not be in position to raise the funds and common people wouldn’t have big dreams.

Bank capital consist of earnings, debts, equities, etc and difficult task in banking business is how well bank can manage the risk and drive business into profitable atmosphere. Risks like:

  • Credit risk: When borrower fail to make payments as agreed.
  • Liquidity risk: Risk when securities or investment rather turned to grow slowly and cannot prevent to adjust loss rather quickly.
  • Market risk: Risk when investment portfolio turns to decrease with the change in market factors.
  • Operational risk: Risk from business law penalty or capital penalty toward loan borrowed companies.
  • Reputation risk: Risk towards trustworthiness of banking business toward customers.
  • Macroeconomic risk: Risks related with change in regulation now and then towards bank operations. There are sets of framework defined by regulators within which a bank institution must have to manage funds due to which this is considered as high weighed risk.

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