Money, Banking & Finance
Lecture No. 7
Prepared by: Khalilullah Zubair
Contact info: khalilzubiar1@[Link] or 0770311681
prepared by Khalilullah zubair
Objective
After completion of this lecture students will be able to
know:
Objective 1: Classifications of Banks
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Classification of Banks
Banks are classified:
1. (a) On the basis of Functions
2. (b) On the basis of Ownership
3. (c) On the basis of Registration
4. (d) On the basis of Domicile
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Classification on the basis of Functions
In terms of what banks do, they are classified as follows:
1. Central Bank:
2. Commercial Banks:
3. Industrial Banks:
4. Agriculture Banks:
5. Mortgage Banks:
6. Exchange Banks:
7. Investment Banks:
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1. Central Bank
o Central bank is the most important bank of any country. The central bank is the
leader of all other banks.
o Functions:
o It does not compete for profit.
o It has a right to issue note. It controls the operations of other banks for monetary
and economic stability in country. The central bank represents the government
in International conferences.
o The central bank of Afghanistan is called DAB (Da Afghanistan Bank).
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2. Commercial Banks
The most popular kind of banks is the commercial bank.
The main commercial banks of Afghanistan are Afghanistan International Bank (AIB), Arian Bank,
Azizi Bank, Bank Alfalah Limited, Bank-e- Millie Afghan, Development Bank of Afghanistan, Export
promotion Bank, First Micro finance Bank, Habib Bank Limited, Kabul Bank, Pashtany bank.
The main commercial banks of Pakistan are National Bank, Habib Bank, Allied Bank, United Bank,
MCB etc.
These banks play a vital role in economic development.
Functions:
Accept deposits and advance loans. The bank collects cheques, Bill of exchange etc for customers .
Its transfers money from one place to another.
The purpose of a commercial bank is to earn profit.
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o 3. Industrial Banks
o Functions:
o The industrial banks mainly provide, medium and long-term
loan to the industries.
o These banks are established for industrial development.
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o 4. Agriculture Banks
o Functions:
o Agricultural banks are set up to provide financial assistance to the
agriculturists.
o They advances short-term and long-term loan to the farmers for
purchasing seeds, tractors and introducing modern techniques in
farming.
o Example: Agricultural Development Bank (ADB) in Kabul.
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5. Mortgage Banks
o These banks provide loans to people against moveable
and immovable property.
o Such banks mortgage land, houses and other property and
advance loans. Some commercial banks also perform such
activates.
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6. Exchange Banks
o Exchange banks mainly deal with international trade.
o These banks take the responsibility of settlement of foreign
exchange and arrange the foreign business.
o In Pakistan all the commercial banks have been allowed to do
this functions as well.
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7. Investment Banks:
These banks provide funds for long-term projects. They can raise
their funds by getting deposits or selling share/stocks, issuing bonds
or commercial paper (for short term loan).
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Classification on the base of ownership
Public sector Bank:
Such banks are owned by government and works under the
direct control of the government.
The chief executive of such banks is appointed by federal
government. Ex.: Bank-e- Mellie Afghan.
Private Sector Bank:
These banks are under the direct ownership of the private
organization.
The banks are controlled by the individuals or Pvt. Organization
EX.: Azizi Bank.
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Classification on the base of Domicile
Domestic Bank:-
The banks which are registered and incorporated with in the country are
called domestic bank.
These banks provide financial assistance domestically.
E.g.: Azizi Bank, etc.
Foreign Bank:-
The bank which have their origin and head offices in foreign country are called
foreign bank.
Foreign banks are the branches of the banks incorporated abroad.
E.g.: Al-Falah Bank Ltd is an example of foreign bank of Pakistan inside
Afghanistan.
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Classification on the base of registration
Scheduled Bank:-
These are the banks which are registered in the list of central
bank. They are bound to follow the instruction and policies of
central bank.
Non Scheduled Banks:-
These are the banks which are not registered in the list of central
bank. They do not have to follow the instruction and policies of
central bank.
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Conclusion
Topic 1: Classifications of Banks
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References
1. Reference 1 : Money, Banking and Finance Hand Book of JIHE
2. Reference 2 : Money, Banking and Finance by Professor. Dr. Said
Nasir
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