CHAPTER 8
Deposits from customers
main source of funds
defined as the placement of excess funds by
the surplus units in the financial system for the
purpose of either investment or temporary
placement
Can be short, medium or long term deposits
Types of deposits
Examples of deposits
products
Depends on sources of deposits
Savings account - Children savings, teenage
savings, senior citizens savings, women
savings
Fixed deposits (Investment account for Islamic
bank) – with unique characteristics and
attractive interest rates/profit rates
Current account deposits (more for daily
usage not for safekeeping/investment) -
some banks pay interest for credit balance
Savings account
for individuals/societies/clubs/associations to
place money for their savings and daily
withdrawals
majority are individuals account holders and
some have their salary credited into this account
comes with a free ATM card
interest is credited for credit balance in a
conventional bank
for Islamic banks it is for safe keeping only (al-
wadiah), where customers can withdraw any
time
to encourage placement customers are paid a small
profit based on the mudharabah concept
Current account
for individuals, with or without a business, partnerships and
corporations - for daily usage
receipt of funds credit; payment debit
for businesses for their working capital
Basic features ATM card, cheque book facility and monthly
statement
opened to individuals (aged 18 and above – for personal and joint
account), associations, societies and clubs
minimum initial deposit - normally RM 500 (individuals) , RM 1,000
(non-individuals)
an introducer is required to open account (who is an existing
current account holder)
For the Islamic banks the activities must not be prohibited by
syariah and the Malaysian law
Fixed deposits/
Investment account (Islamic banks)
for the placement of excess funds by
individuals or corporations to obtain return
have specific tenor (period of placement) - 1,
3, 6, 9, 12 months and more than 12 months
it is called fixed because the account holders
cannot withdraw the funds until it matures
and it has fixed rates
the interest or profit is paid when the
withdrawals are made at the maturity date
Loans and Advances
the main uses of funds by commercial banks
amounting to more than 1/3 of total uses of
funds
In 2004 the percentage was 37.2 % followed
by 37.8% in 2005 and 36.6% in 2006
Definition: an arrangement whereby a
borrower obtains financing from a lender in
exchange for an agreement to repay the funds
at a later date normally on an installment
basis, with interest or finance charges
Uses of loans
For corporations to finance business - buy
machinery, equipment; working capital;
acquire other business; expand business;
settle loans etc
For individuals to set up small business, to
purchase of furniture, equipment, financial
securities such as stocks or unit trust,
marriage, education etc
Private sector loan is the dominant – 95% of
total loans
Two broad categories of
loans
Categories of loans
Home loan
Purpose is to purchase houses, apartment
can be either conventional or Islamic, fixed or
flexi loan
‘refinancing’ is also offered by most banks
very competitive – varieties of interest rates
or financing rates
Personal loan
For specific purpose, for example ASB loan,
computer loan, education loan, marriage
loan, etc
Highly demanded
Very competitive
Varieties of rate structure
Business Loan
Financing for business purposes
Among the focus of many banks
Tailored to specific sector
Examples: overdraft facility, contract
financing, factoring facility, fixed assets loan,
hire purchase, industrial hire purchase, joint-
venture, leasing, plant and machinery loan,
project financing, revolving credit facility,
syndicated loan, term loan
…continue (Business Loan)
For property sector bridging loan or end-
financing
for the automobile sector floor stocking
For exporters and importers trade finance
facilities such as the bankers’ acceptance,
export credit financing, letter of credit, trust
receipt, shipping guarantee and bank
guarantee
Overdraft facility
a facility where a customer is allowed to write a
cheque on an account (current account) which
has insufficient fund
banks will cover for this insufficiency by
providing a specific amount of financing (limit)
for working capital requirement; subject to
periodic review; a commitment fee on
unutilized portion; can be unsecured overdraft
(clean) or secured overdraft.
Term Loan
a single loan for a stated period of time or
series of loan on specified dates
the purpose of loan is to acquire machinery or
equipment, renovation and even for debt
refinancing (not to finance daily operation)
If for the purchase of an asset, the asset
purchased will be the collateral
Card services - types
Card services – how it
works
card holders have the convenient of making
payment on a non-cash basis at selected outlets
card holders are given limits (specified for credit
card) as a form of advance for any purchased made
once the card is ‘swipe’ on to a readable card
machine to identify card holder details and to
confirm the authenticity, the payment is
considered made
the outlet will claim payment (reimburse) from the
card issuing bank
Credit Card
Card holder is given a financing limit and this
limit is revolving
when card holder pays part or full amount of the
limit, the card holder can reutilize the paid
amount together with the balance not utilized
partial payment of the amount used, normally 5
% of the outstanding amount is allowed
Banks calculate the amount outstanding and
charged interest on the unpaid amount
interest income for banks
Charge Card
facilities given to customers without any specified
credit limit; for purchases without the use of
immediate cash
the main feature card holder must pay the amount
outstanding in full
non-payment for 2 months suspension of facilities
suitable for customers who want to make purchases
on credit but able to avoid debt
Examples: AMEX, Diners Club, HSBC Amanah
Mastercard
Debit Card
a facility whereby when the card is ‘swipe’ or used,
the account of the card holder is debited
immediately
provides conveniences to customers for making
purchases
card holder must ensure the amount available in
the savings or current account is sufficient
the ‘limit’ is actually the amount that he has in the
account
suitable for customers who want to avoid debt
Electronic banking (E-
banking)
involves the electronic interchange of data
and funds between customers and the
banking institutions
E-banking services offered by banks:
Self-service Terminals (SSTS),
Phone Banking
Internet banking
Mobile banking
Self-service Terminals
(SSTS)
facilities in the form of machines being
located at strategic places for the public to do
banking transactions.
Automated Teller Machines (ATMs), cash
deposit machines, cheque deposit machines
the location of SSTS are in public places such
as a business/shopping complex or large
office complex
ATMs
ATMs provide services such as withdrawal
facilities, balance inquiries, fund transfers, bill
payments, FD placements, loan or credit card
payments, IPO share applications, credit card
cash withdrawals and reload services - Touch 'n
Go, mobile prepaid value
can be part of the SSTS or it can be on its own
located at many strategic places
Cash and cheques deposit
machine
cash deposit machines will provide facilities
to deposit money to own account, third party
accounts and cash payment to credit cards or
term loan
the cheques deposit machines will allow
customers to deposit cheques to own
accounts, third party accounts or to pay loans
or credit card
Phone Banking
allows customers to perform banking
transactions through telecommunication
devices
using a dialing a touch-tone telephone or
mobile communication unit connected to an
automated system of the bank
functions available almost similar to the
(ATMs) except withdrawal and deposit of
cash
Internet banking
defined as performing transactions and
payment through a bank’s secure website
requires no special software or hardware
all licensed banking institutions in Malaysia
are allowed to establish informational
websites, thus are allowed to offer Internet
Banking services
Internet banking services
balance enquiries, statement and transaction listing
enquiries, fund transfers to own account or third
party accounts, loan and bills payment, credit card
payments, share trading, fixed deposit placements,
stop payment of cheques and reload services
for businesses online trade finance, foreign
exchange and money market enquiries, employees’
salaries payment, EPF contribution payment,
income tax and zakat payment and SOCSO
contributions payment
Advantages of internet
banking
Disadvantages
