2009

Group Members:

Anak Agung Istri Kalvika Ariviranti (007200800004)

Evan Dewabrata (007200800011)

Imam Adi Nugraha(0072008000013)

Indra Prasetyo (007200800014)

Wirdy Leonarsan (007200800033)

[COMMERCIAL BANK]

Content

Cover………………………………………………………………………………………………..1

Content……………………………………………………………………………………………..2

Introduction………………………………………………………………………………………3

Findings…………………………………………………………………………………………….4

Definition of Commercial Bank ...………………………………………..…………….4

History of Commercial Bank…..…………….………………………………..…………….4

Functions of Commercial Ban k…………….………………………………..…………….5

Types of Bank …………….……………….………..…...……………………..………………7

Features ………………………………………………………………..……..………………………..8

System of Commercial Bank..……………………………………………………………9

Study Case: City Bank………………………………………………………………………………….11

Conclusion………………………………………………………………………………………13

Bibliography……………………………………………………………………………………15

Introduction

Bank is one of the most common monetary institutions used by millions of people in the words. Thus a

basic knowledge of the banking system is essential to an understanding of how money works. This paper

is made for giving better understanding to commercial bank and also provides study case which allows

the reader to read the real example of commercial bank. There are two type of bank: commercial bank

and investment bank. Commercial banking is the commercial banking systems in most nations are

dominated by a few large banks, each of which has many branches.

The commercial banking systems in most nations are dominated by a few large banks, each of which has

many branches. More and more commercial bank develops along with the development of technology.

It is very necessary to know what commercial banking is and how it works. Thus, in the future the reader could be

able to know how commercial banking work chose the best bank and compare their feature, such as: interest

rates, convenience, FDIC membership, size, and minimum deposit. Compare services like direct deposit,

ATMs, online banking, credit cards and debit cards.

The writers hope this paper could be the bridge to gain well understanding about commercial banking,

its feature, systems, etc.

Best regards,

Writers

A commercial bank is An institution which accepts deposits, makes business loans, and offers related services. Commercial banks also allow for a variety of deposit accounts, such as checking, savings, and time deposit. It is a type of financial intermediary and a type of bank. Commercial banking is also known as business banking. It is a bank that provides checking accounts, savings accounts, and money market accounts and that accepts time deposits. Actualy, Commercial bank is the term used for a normal bank to distinguish it from an investment bank. This is what people normally call a "bank". The term "commercial" was used to distinguish it from an investment bank. Since the two types of banks no longer have to be separate companies, some have used the term "commercial bank" to refer to banks that focus mainly on companies.

The example of commercial bank in indonesia :

Bank Central Asia Bank Dagang Negara Bank Danahutama Bank Duta Bank BNI - Bank Negara Indonesia Bank Niaga Citibank Indonesia Lippo Bank

As Information, Indonesia knows about banking is our colonizer, NETHERLANDS. Because of that, the history of banking in Indonesia is not far from the influent of the country who colonize us, whether that government bank or private bank.

In the period of our freedom, the banking in Indonesia is going up and growing up during the time. Some of Netherlands banks are controlled by Indonesia government. In the july 5 th 1946 , Indonesia build Bank Negara Indonesia or we famous called it by BNI’46. This is the first bank which built and owned by Indonesia Government.

In Indonesia, there are two bank according to their function :

Central Bank

According to UU No.3 Tahun 2004, Central bank is an institute which has authority for issue or publish legal payment tool from a country, setting and perform monetary policy, manage and keep the smooth flow of system of payment, manage and control the bank.

Definition

History

Bank Indonesia is an independent institution in doing their task and their authority, free from interfering from government and another party, except for something that already clears in this regulation.

The purpose of Bank Indonesia according to UU RI No. 3 Tahun 2004 Pasal 7, is to reach and keep the stability of Rupiah value. For achieve that purpose, Bank Indonesia do monetary policy continually, consistent, transparent, and have to consider the common policy of government in the economic side.

Kind activity that doing by Central Bank : 1. Maintain monetary stability 2. Maintain the financial sustainability of the Bank of Indonesia 3. Strengthen the effectiveness of monetary management 4. Create a sound and effective banking system and financial system stability 5. Maintain the security and effectiveness of the payment system 6. Increase the effectiveness of Good Governance implementation

Commercial BankAccording to bank regulation No. 9/7/PBI/2007, commercial bank is a bank which do any kind work activity conversional or based on Principle of Syariah which in their activity give service in payment . Service which given by commercial bank has common characteristic, it is mean that they given all of banking service are there.

Bank Perkreditan Rakyat / BPRBank Perkeditan Rakyat is a supporting bank which has limit authority in operation and the limit fund with limit service also like give loan credit with limit amount, saving accounts, provide defrayal with divide result service in SBI ( Sertifikat Bank Indonesia), measure deposit, and etc.

The functions of commercial banks are divided into two categories Primary Functions and Secondary Functions.

Primary functions:The primary functions of a commercial bank include:

a) Accepting depositsThe most important activity of a commercial bank is to mobilize deposits from the public. People who have surplus income and savings find it convenient to deposit the amounts with banks. Depending upon the nature of deposits, funds deposited with bank also earn interest. Thus, deposits with the bank grow along with the interest earned. If the rate of interest is higher,

Functions

public are motivated to deposit more funds with the bank. There is also safety of funds deposited with the bank.

b) Grant of loans and advancesThe second important function of a commercial bank is to grant loans and advances. Such loans and advances are given to members of the public and to the business community at a higher rate of interest than allowed by banks on various deposit accounts. The rate of interest charged on loans and advances varies depending upon the purpose, period and the mode of repayment. The difference between the rate of interest allowed on depositsand the rate charged on the Loans is the main source of a bank’s income.

i) LoansA loan is granted for a specific time period. Generally, commercial banks grant short-term loans. But term loans, that is, loan for more than a year, may also be granted. The borrower may withdraw the entire amount in lumpsum or in instalments. However, interest is charged on the full amount of loan. Loans are generally granted against the security of certain assets. A loan may be repaid either in lumpsum or in instalments.

ii) AdvancesAn advance is a credit facility provided by the bank to its customers. It differs from loan in the sense that loans may be granted for longer period, but advances are normally granted for a short period of time. Further the purpose of granting advances is to meet the day to day requirements of business. The rate of interest charged on advances varies from bank to bank. Interest is charged only on the amount withdrawn and not on the sanctioned amount.

Modes of short-term financial assistanceBanks grant short-term financial assistance by way of cash credit, overdraft and bill discounting.

a) Cash CreditCash credit is an arrangement whereby the bank allows the borrower to draw amounts upto a specified limit. The amount is credited to the account of the customer. The customer can withdraw this amount as and when he requires. Interest is charged on the amount actually withdrawn. Cash Credit is granted as per agreed terms and conditions with the customers.

b) OverdraftOverdraft is also a credit facility granted by bank. A customer who has a current account with the bank is allowed to withdraw more than the amount of credit balance in his account. It is a temporary arrangement. Overdraft facility with a specified limit is allowed either on the security of assets, or on personal security, or both.

c) Discounting of BillsBanks provide short-term finance by discounting bills, which is, making payment of the amount before the due date of the bills after deducting a certain rate of discount. The party gets the funds without waiting for the date of maturity of the bills. In case any bill is dishonored on the due date, the bank can recover the amount from the customer.

Secondary functionsBesides the primary functions of accepting deposits and lending money, banks perform a number of other functions which are called secondary functions. These are as follows :

a) Issuing letters of credit, travelers cheques, circular notes etc.b) Undertaking safe custody of valuables, important documents, and securities by

providing safe deposit vaults or lockers;c) Providing customers with facilities of foreign exchange.d) Transferring money from one place to another; and from one branch to another branch

of the bank.e) Standing guarantee on behalf of its customers, for making payments for purchase of

goods, machinery, vehicles etc.f) Collecting and supplying business information;g) Issuing demand drafts and pay orders; and,h) Providing reports on the credit worthiness of customers.

Difference between Primary and Secondary Functions of Commercial BanksPrimary Functions Secondary Functions

W These are the main activities

W These are the main sources

W These are obligatory on part of bank to perform.

W These are the secondary activities of the bank.

W These are not the main sources of income of the banks

W These are not obligatory on the part of bank to perform. But generally all commercial banks perform these activities.

There are four types of commercial bank in Indonesia:

Private Bank Foreign Exchange

A private bank that can do the international transaction or related to the foreign currency, the

examples of the transaction are: Transaction to another country, cashing check to a foreign

currency, travelers check, account and pay the letter of credit (LOC) and another foreign

transaction. Examples for this bank are: BCA, Bukopin, Danamon, Century, etc.

Private Bank Non-Foreign Exchange

Type of Bank

A private bank that doesn’t have the permission to do foreign transaction like Foreign exchange

bank; so their job just in the domestic area (bank to bank in the same country, etc). Examples for

this bank are: Index selindo, Syariah Mega Indonesia, Akita.

Banks Mixed

Bank that have two kind of ownership: one from domestic and the other one from foreign

company. They mix the bank into a private bank that have a domicile in one country.

Usually ,the bank’s name different with the bank ownership name. Examples for this bank are:

Panin, Commonwealth, OCBC Indonesia, etc.

Foreign Private Bank

Bank that has a foreign ownership, example for this bank are: ABN Amro, Bank of China limited,

RBS, etc.

There are several features offer by commercial bank in Indonesia:

1. ATM (Automatic Teller Machine)

ATM is one kind of feature that commercial bank have (but not the specific feature because

every bank whether government or commercial bank have it). Nowadays people use ATM

everywhere and every time because it’s very simple. The purpose for this feature is not only

to withdraw the money, but also to pay bill (electricity, water, etc), buy a cell phone load,

etc.

2. Mobile banking

Mobile banking is one kind of feature that uses the cell phone. Mobile banking comprise of

3 parts. The first one is mobile banking that uses SMS, this feature is very simple and can

use to do some transaction, and the limitation of this feature is the amount of the

characteristic. The second one is Mobile web based, which the part of internet banking also,

but group in here because this feature must use cell phone as the media, the disadvantage

for this feature is no “off-line” system, if you are out of the area you can’t use this feature.

The last part of mobile banking is Mobile client application, is the part of mobile banking

that use software and must install them, this feature usually required the java program, and

the disadvantage of this program is too hard to understand because different device means

different application that people should install to the device.

Features

3. Internet Banking

Part of Electronic banking which is an umbrella term for the process by which a customer

may perform banking transactions electronically without visiting a brick-and-mortar

institution.

4. Debit Card

Debit card is one of the features that every bank has especially for commercial bank. Debit

card is very useful to do the payment or to withdraw some money, because this card now

not only uses in ATM, but nowadays you can use this debit card to withdraw money from

the cashier (debit BCA).

5. Credit Card

Credit card is the general feature that every bank has. This card is used to pay the charge if

customer doesn’t have cash money. Every credit card have a limited amount per month

(silver +- 1 million rupiahs, Gold +- 7,5 Million rupiahs, Platinum depend on the banks), every

month the bank will charge you up to the use of the customer.

6. E-money (Flazz card)

Nowadays, one of the banks in Indonesia has this feature. This feature is the fastest

multifunction payment tools to make the payment become easier. This is different with the

credit or debit card because the customer doesn’t need to come to ATM to do the

transaction, customer can directly come to the counter that have logo for the flazz card

itself. For the payment, Flazz card use like a cell phone that you must charge the load to use

it. The range for this charges is around one hundred thousand rupiahs until I million rupiahs.

REGULATIONS OF COMMERCIAL BANKING

For most developed countries the late 20th century was marked by a notable easing of regulations and restrictions in the banking industry. In the United States, for example, many regulations had originated in response to problems experienced during the Great Depression, especially in 1933, when the federal government closed the country’s banks and permitted only those deemed solvent to reopen. By the end of the century the risk of widespread economic failure, such as that experienced in the Great Depression, had grown increasingly unlikely. Banking remains a heavily regulated business, however. Contemporary bank regulations are intended to limit bank failures and to protect bank depositors from

System

losses stemming from such failures. Numerous other regulations apply to concerns such as the privacy of bank customers, fair lending practices, and the prevention of money laundering.

Payment System

Only commercial banks and the post office system (PT POS) provide payment services in Indonesia. The post office system provides payment services by means of Giro Book, but this is not included in the payment systems of banks. The payment systems provided by commercial banks are explained below.

Cash The denominations of Rupiah bank notes in circulation are 1.000, 2.000, 5.000, 10.000, 20.000, 50.000, and 100.000, and coins come in 100, 200, 500, and 1,000 Rupiah Denominations.

Funds Transfer Banks provide transfers between accounts of the same bank and between branches, clearing between banks, transfers between regions through network of correspondent banks, and transfers within a same region and between regions using the central bank’s Real Time Gross Settlement (RTGS).

Check Checks may be drawn by opening checking accounts. According to the rules of the central bank, if checks for small amounts are unpaid three times in 6 months, or a check for a large amount is unpaid once, the drawer’s name appears on a blacklist, resulting in the suspension of banking transactions for one year.

Direct Debit Prior to February 2004, there was no inter-bank electronic payment system (like Zengin-Net) available in Indonesia. On February 2004, an interbank electronic payment system was launched by PT Artajasa for its 26 members. For payments of public utility charges, direct debits from the accounts of users are widely used by arrangement between utilities companies and specific commercial banks.

Payment Cards A variety of cards are used for payments. ATM cards are generally used for the withdrawal and deposit of cash. There are five local inter-bank ATM networks (ALTO,ATM BERSAMA, CAKRA, FLASH, and BCA) and two international networks (CIRRUS and PLUS). Debit cards (EFTPOS) are available in Jakarta and some larger cities. Other cards in use include credit cards and prepaid cards (“smart cards,” issued by telephone companies and other entities).

A. What is Citibank? Citibank is a major international bank, founded in 1812 as the City Bank of New York,

later First National City Bank of New York. Citibank is now the consumer banking arm of financial services giant Citigroup, one of

the largest companies in the world. As of June 2009[update], Citigroup is the third largest bank holding company in the United States by total assets. Now is operated in more than 100 country around the world.

Citibank, N.A., Indonesia Branch (“Citibank”) is a full branch of Citibank, N.A. with its head office in New York, U.S.A. Citigroup Inc. (“Citigroup”) fully owns Citibank, N.A.

Citibank was first established in Indonesia in 1918 through its predecessor company, The International Banking Corporation in Batavia and Surabaya. While those branches were closed in the late 1920s, Citibank returned to Jakarta in 1968 and established a full range of banking activities.

B. History of Citibank Founded in 1812 as the City Bank of New York, ownership and management of the bank was

taken over by Moses Taylor, a protégé of John Jacob Astor and one of the giants of the business world in the 19th century.

In 1863, the bank joined the U.S.'s new national banking system and became The National City Bank of New York. By 1868, it was considered one of the largest banks in the United States, and in 1897, it became the first major U.S bank to establish a foreign department.

Following its merger with the First National Bank, the bank changed its name to The First National City Bank of New York in 1955, and then shortened it to First National City Bank in 1962.

During the mid-1970s, under the leadership of CEO Walter Wriston, First National City Bank (and its holding company First National City Corporation) was renamed Citibank, N.A. (and Citicorp, respectively). By that time, the bank had created its own "one-bank holding company" and had become a wholly owned subsidiary of that company, Citicorp (all shareholders of the bank had become shareholders of the new corporation, which became the bank's sole owner).

The company organically entered the leasing and credit card sectors, and its introduction of USD certificates of deposit in London marked the first new negotiable instrument in market since 1888. Later to become part of MasterCard, the bank introduced its First National City Charge Service credit card - popularly known as the "Everything Card" - in 1967.

Study Case

Citibank has been in Indonesia in one form or another since 1918, when its precursor, The International Banking Corporation, set up branches in Batavia and Surabaya. The International Banking Corporation withdrew from Indonesia in the late 1920’s, but Citibank reopened in Jakarta in 1968.

C. Timeline of Citibank Indonesia

Time Activities2004

Citibank launches Citifinancial

2006 Citibank ranked Best Bank On Service Quality, by a banking sector customer service poll conducted by Infobank magazine in collaboration with the Institute of Service Management Studies

2007

- Received the Indonesia Bank Loyalty Award in the Savings Account and Credit Card Category from InfoBank

- Received the Best Internet Bank Award from Global Finance- Received the eCompany Award from Warta Ekonomi- Received the Best Financial Performance Award from Infobank- Received the Best Foreign Bank from Finance Asia- Received the Indonesia Most Admired Company 2006 (for 2 consecutive years)

from Business Week and FrontierMarketing Research- Received the Best Wealth Management and Retail Bank & Service Satisfaction

Index from Marketing Magazine & CCSLService Satisfaction Index from Marketing Magazine & CCSLReceived the Best Corporate PR Program award from Mix Magazine

2008 Received the Banking Service Excellence Award from InfoBank

D. Citibank ProductIn the development of Citibank, they have four key businesses that concern to financial service for customer markets such as:1. Retail Banking Citibank retail banking in Indonesia operates 19 branch offices and 102 ATMs in six major

Indonesian cities: Jakarta, Surabaya, Bandung, Medan, Semarang and Denpasar. Their core expertise in wealth management area where they provide financial advisory

services to grow and protect customer’s wealth. They help customers to formulate a customized financial solution to help customers.

To complement ATM Network, customers can also withdraw cash from 11,000 ATM in Indonesia using Plus Network. On top of that, They also provide state–of–the–art access

channels that include Citibank Online (Internet Banking), Citi Mobile (Mobile Banking), and our latest innovation, Citibank Web Cam Service that provides face–to–face video service.

2. Credit Card Citibank credit card business started in 1989. Citibank is considered as the pioneer of credit

card business in Indonesia by continuously providing innovative and value added programs to our customers.

Citibank Credit Cards cover a wide and differentiated market segment with metals and value proposition cards. Currently we have 9 types of credit cards namely: Citibank Ultima Card, Citibank Platinum Card, Citibank Gold Card, Citibank Silver Card, Citibank Choice Card, Citibank Clear Card, Citibank Cash Back Card, Garuda Indonesia Citibank Card, and Citibank Telkomsel Card.

Beyond credit card as a payment method, Citibank focus on fulfilling customer’s life–style needs by introducing value proposition credit cards such as Clear Card for young professionals, Cash Back for people who wish to earn their rewards in cash, Garuda Indonesia Citibank Card for frequent travelers, and Citibank Telkomsel Card for people with intensive usage of mobile phone.

3. Citibank Personal Loan Citibank introduced Citibank Personal Loan as part of its strategic business decision in 2003.

Citibank Personal Loan is directed to serve customers’ planned financial needs by providing easy and convenient multipurpose cash loan.

The loan is available for customers with no collateral requirement and competitive interest rate. With fixed monthly installment and flexible terms, customers could prepare their cash flow better. In addition, Citibank will provide convenient service by transferring the loan directly to customer’s bank account.

Citibank offers Personal Loan from IDR 4 to 200 million with maximum tenor of 36 months. Personal loan is often used for education, travel, home improvement, wedding, and any

other lifestyle needs.

4. CitiFinancial • In August 2004, Citibank launched CitiFinancial, a neighborhood branch based lending

business, to fulfill the growing needs of loan without collaterals for low–middle class.

• The range of product includes unsecured personal loans, installment loans, insurance, secured loans, with flexible terms up to 48 months.

• This neighborhood approach allows CitiFinancial officers to do face–to–face interaction with customers. When it comes to providing loans, CitiFinancial always emphasizes on budgeting and cash flow analysis process. This way, we educate our customers and prospects to manage their financial responsibly by taking unsecured personal loan as per their capacity.

• Currently CitiFinancial has 56 branches in six major cities of Jakarta, Bandung, Semarang, Surabaya, Medan, and Denpasar.

• Since 2007, CitiFinancial collaborates with PT. Pos Indonesia to expand the distribution of

CitiFinancial in the Indonesian market by leveraging strong post office distribution.E. OwnerShip Of Citibank

36.0 % - United States Government

11.1 % - Government of Singapore Investment Corporation (GIC)

6.0 % - Kuwait Investment Authority

4.9 % - Abu Dhabi Investment Authority (ADIA)

4.3 % - Kingdom Holding Company /Saudi Arabia

Commercial bank is one of the most important financial institutions which is closely related to the economical situation among people, whether individual or group (firm, organization etc.). It is the backbone of money circulation in every country in the world. Commercial Bank has been developed so fast since the establishment of the history. Nowadays, there are many features provide to make the customers convenient and easy to access their account, transferring and doing other banking activities. Every day, billion people use commercial banking to accommodate the transactions. Since there are many Commercial Bank established in the world, people should be selective in choosing bank.

Conclusion

Bibliography

Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle

River, New Jersey 07458: Pearson Prentice Hall. pp. 511. ISBN 0-13-063085-3.

De Albuquerque, Martim (1855). Notes and Queries. London: George Bell. pp. 431.

Matyszak, Philip (2007). Ancient Rome on Five Denarii a Day. New York: Thames &

Hudson. pp. 144. ISBN 050005147X.

http://en.wikipedia.org/wiki/Commercial_bank

http://en.wikipedia.org/wiki/Citibank http://www.citibank.co.id/ http://www.citibank.co.id/APPS/portal/loadPage.do?

tabNo=home&htmlPageName=info/det/about_us.htm&locale=en_ID http://chestofbooks.com/finance/banking/Banking-Principles-And-Practice-2/Functions-

Of-Commercial-Banks.html