Banking Services

As history has it, banking started in ancient Babylonia back in 2000 B.C. In its simplest form, banking involves three primary activities: the acceptance of deposits, the making out of loans (lending using the deposits), and the charging of interest on those loans. As long as banks charge a higher interest rate on the loans they give out than the interest rate they pay on its depositors, banks will make money. This is called in industry parlance as a positive interest spread. Banking practices have gone a long way since it began, when deposits were in the form of cattle, other livestock, grains, and valuable crops (later, precious metals also, like gold and silver, and then transformed to coinage).

Although banking practices have changed much since those times, banking principles are still essentially the same. As long as banks do not engage in risky banking activities, they will make bundles of money. But the charging of interest has been outside the interest of certain Churches. For instance, the early Catholic Church (especially during the Medieval Period) banned the charging of interest on money lent out by the banks. This is the same practice carried over to present times by Islam, which views interest charges as a variant of usury. Islamic banking practice is essentially different, in the sense that their banks require borrowers to make them co-investors, in effect, their business partners. Islamic banks earn money from profits earned by these business endeavors, thereby circumventing the prohibition of fixed percentages on loans as interest payments.

Today, there is a myriad of banking practices and bank products on offer in the market. The more common ones are commercial loans, industrial loans, consumer or personal loans (salary, auto, housing loans), and many others, such as student loans and pension loans. Corporate loans can be short-term loans, long-term loans (usually those over a three-year repayment period), bridge-financing, and receivables financing. Other banking services include capital-raising activities (initial public offerings), venture capital, leveraged buyouts (LBOs), mergers and acquisitions (M&As), securities underwriting, and the issuance of documentary and standby Letter of Credit. Banking has gone a long way since its beginnings. It is an essential part of our modern lives and a country’s economy.