Passive Operations

18.1. Resources of commercial banks:

Own resources,

Attracted resources

Credit potential of a commercial bank

Active Operations

18.3. The essence of active operations of a commercial bank.

18.4. Commercial bank asset management

18.5. Credit operations of a commercial bank

18.5.1. Forms of loan provision

18.5.2. Organization and procedure for lending

18.5.3. Determining the borrower's creditworthiness

18.5.4. Early lending

18.5.5. Loan agreement.

18.5.6. Types of collateral

18.5.7. Material forms of loan security

18.6. Off-balance sheet transactions (financial services of commercial banks)

18.7. Agency (commission) operations of commercial banks.

18.8. Interbank settlements

18.9. Foreign exchange operations of a commercial bank

18.10. Investment activities of commercial banks.

Resources of commercial banks: own, attracted

Own resources of commercial banks

Bank resources circulate as a result of banks conducting passive operations, which are reflected in the liability side of the bank’s balance sheet. The bank's funds include: own, borrowed, attracted, the totality of which is used to carry out active operations. Therefore, active and passive operations are interrelated.

The structure of liabilities largely determines the bank's ability to conduct active operations. At the same time, changes in the bank's lending policy affect the nature of the resources.

Sources of equity capital are:

1) share capital;

2) reserve capital;

3) insurance reserves;

4) undistributed profit;

5) issue of long-term securities of various types.

In the structure of the bank's liabilities, the share own funds insignificant, however, the bank's own capital must be sufficient to fulfill the obligations assumed by the bank. Therefore, the Central Bank sets a capital adequacy standard.

Own capital is only the starting point for organizing banking and, depending on the form of the bank, the formation of the management company occurs differently. If the bank is organized in the form of a joint-stock company, then the charter capital is formed in the amount of the nominal value of the shares, which are distributed either in the form of an open subscription, or in the order of distribution of shares between the founders. If the bank is created as an LLC, then the entire capital is divided into shares, the size of which is determined by the constituent documents. Regardless of the bank’s organizational and legal form, its charter capital is formed entirely from its own funds. The formation of a management company at the expense of a loan is not allowed.

A further increase in the authorized capital is carried out by decision of the general meeting through an additional issue of shares, either at the expense of profits, or through an increase in the share for the LLC.

In Western countries, very important importance is attached to share capital and its growth. The share capital can be increased through the reserve fund. In this case, the volume of the bank's own funds does not change. Sometimes the increased share capital is replaced by shareholders granting a subordinate loan or permission to issue a bond, with the bond eventually being converted into shares.

Subordination loan is a perpetual loan under which resources are attracted from the loan capital market. It is equal to your own funds. The loan is carried out by issuing securities, which legally occupy an intermediate position between bonds and shares. Subordinated securities are perpetual debt obligations, and at the same time evidence of participation in capital. They are repaid in the event of liquidation of the enterprise, but claims on them are carried out last.

Reserve capital The bank is formed by deductions from profits. The amount of deductions is determined by the charter. It is intended to compensate for losses and serves as a source of interest payments on bonds and stocks. When a certain amount is reached, the reserve fund is capitalized and re-accrued.

A special component of own funds is insurance reserves, which are formed when performing specific operations. These include:

Reserves for possible impairment of securities;

Reserves for possible losses on active operations;

Insurance is mandatory.

retained earnings- this is the part of the profit that remains after payment and contributions to the reserve fund. It is retained earnings that form the bank's liabilities and form funds that go towards its existence and other purposes.

A distinction is made between net equity and gross equity. Capital-gross– the sum of all bank funds and retained earnings on the balance sheet. Net capital– part of the bank’s own funds that can be used as credit resources, i.e. this capital can be put into circulation. Each commercial bank determines the amount of its own funds independently, but the amount of its own funds depends on many factors.

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The bank's own resources are bank capital and items equivalent to it. The role and amount of equity capital of commercial banks has a special specificity, which differs from enterprises and organizations engaged in other types of activities in that banks cover less than 10% of the total need for funds with their own capital. The importance of the bank's own resources is primarily to maintain its stability. At the initial stage of creating a bank, it is the own funds that cover the primary expenses (land, buildings, equipment, salaries), without which the bank cannot begin its activities. Using their own resources, banks create the reserves they need. Finally, own resources are the main source of investment in long-term assets.

The structure of own funds of different banks is heterogeneous. They include: authorized capital; Extra capital; reserve fund, special purpose funds, etc., as well as retained earnings.

Equity capital performs three functions: protective, operational and regulating.

Protective function means protection of depositors and creditors, i.e. the possibility of paying them compensation in the event of losses or bankruptcy of the bank; maintaining its solvency through the created reserves; continuation of the bank's activities, regardless of the threat of losses. This is the main function of equity capital.

Operational function

Providing a financial basis for the bank’s activities is of secondary importance, since the main resources for active operations are raised funds. In this function, the bank’s own capital provides an adequate basis for the growth of active operations, i.e. Maintains the volume and nature of banking operations in accordance with the bank's objectives.

Regulatory function equity capital is associated exclusively with the special interest of society in the successful functioning of banks, as well as with laws and regulations that allow central banks to exercise control over the activities of commercial banks and other credit institutions. These rules require compliance with the minimum amount of authorized capital required to obtain a banking license; maximum loan amount (risk) per borrower. Thus, a bank's equity capital is of paramount importance to ensure the bank's sustainability and operational efficiency. In the form of equity (share) capital, it is necessary at the initial stages of the bank’s activities, when the founders make a number of priority expenses, without which the bank cannot begin its work.

The bank's own capital is a combination of fully paid elements of various purposes that ensure economic independence, stability and sustainable operation of the bank. A prerequisite for inclusion of certain funds in the equity capital is their ability to act as an insurance fund to cover unforeseen losses that arise in the course of the bank’s activities, thereby allowing the bank to continue current operations should they occur. However, not all elements of equity capital have such protective properties to the same extent. Many of them have their own unique characteristics that affect the element's ability to recover extraordinary unforeseen expenses. This circumstance necessitated the allocation of two levels in the structure of the bank’s own capital: fixed capital, representing first-tier capital, and additional capital, or second-tier capital.

In particular, the sources of the bank's fixed capital include:

authorized capital of a joint-stock commercial bank in terms of ordinary shares, as well as shares that are not classified as cumulative;

authorized capital of a commercial bank created in the form of a limited liability company;

commercial bank funds (reserve and others), formed from the profits of previous years and the current year (based on data confirmed by an audit organization);

share premium of a bank created in the form of a joint stock company;

share premium of a bank created in the form of a limited liability company;

profit of previous years and the current year, reduced by the amount of distributed funds for the corresponding period, the data of which is confirmed by the auditor’s report, i.e. retained earnings;

part of the reserve for impairment of investments in securities, shares and participation interests.

Fixed capital includes funds, the use of which does not reduce the value of the bank's property.

The bank's sources of additional capital are:

increase in property value due to revaluation;

part of the reserve for possible loan losses;

funds formed in the current year, profit of the current year;

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Passive operations are aimed at generating bank resources necessary to provide services

Resources of commercial banks can be formed at the expense of their own, attracted and issued funds

Own resources include authorized capital, reserve and special funds, insurance reserves and retained earnings.

The bank's authorized capital is formed from the participants' own funds and serves to ensure its liquidity. The size of the minimum authorized capital is determined by the Central Bank of Russia and from July 1, 1999, for a newly created foreign bank, in addition to a subsidiary bank, it is set at no less than an amount equivalent to 1 million euros, for subsidiary banks of foreign banks - 10 million euros. The upper limit of the bank's authorized capital is set by its founders. The authorized capital can be created either through share contributions by the founders (share banks), or through the issue of shares and their subsequent redemption by the founders of the bank (joint-stock banks). When organizing a bank, the authorized capital can be formed from funds in Russian currency and tangible assets, which must be assessed and reflected in the balance sheet of the credit organization. After they are included in the authorized capital of a credit organization, they become its property. When forming the authorized capital, raised funds, as well as funds from the federal budget and state extra-budgetary funds, cannot be used. Free funds and other property at the disposal of federal government bodies of constituent entities of the Russian Federation and local governments (except for local budget funds and municipally owned land plots) can be used to form the authorized capital in accordance with current legislation. When adding tangible assets to the authorized capital, their maximum size should not exceed 20% of the authorized capital

The reserve fund of banks is formed through deductions from profits and serves to cover losses incurred during its main activities. The volume of the reserve fund is 25% of the authorized capital. If, with annual contributions, it reaches the amount of the authorized capital, then the reserve fund is transferred to the authorized capital, and its formation is carried out anew

Commercial banks may form special funds for economic stimulation or production purposes, in accordance with the procedure developed by internal banking regulations. Special funds can be formed from funds received as a result of the revaluation of fixed assets carried out by government decision, as well as the actual difference between the national currency and the currencies of other countries and depreciation charges. Insurance reserves are created for possible depreciation of investments in securities and losses on issued loans, are mandatory and are included in the cost of banking services provided. Retained earnings - part of the profit remaining after contributions to reserve capital, special funds and dividend payments

Raised funds include funds transferred for temporary use to banks by business entities and the population. The basis of attracted resources are deposits - this is a bank service related to attracting temporarily free funds of legal entities and individuals into deposits. A characteristic feature of deposit operations is that banks act as borrowers and, accordingly, they pay interest to lenders, and the owners of available funds act as lenders

Depending on the terms of use, deposits are divided into: ? demand deposits; ? time deposits; Demand deposits are funds that are deposited by bank clients into special bank accounts and can be withdrawn by them at any time without prior notice to the bank. This circumstance requires banks to maintain liquidity by constantly having an operational reserve available to satisfy the requirements of their clients. Typically, client funds are used for this purpose in settlement, current, loan, budget and other accounts. Funds in these accounts either earn very low interest rates, or clients receive free cash settlement services from the bank. In domestic banking practice, since the late 80s, they began to use a current account called a current account, which is an account that records all settlement and credit transactions of the bank with the client. It is opened to especially reliable clients who enjoy great trust from the bank. The credit of this account reflects the client’s own funds, and the bank accrues interest on them in his favor, the debit records the loans received, and the interest is paid by the client. Based on the principles of banking, the interest received by the bank for loans provided is higher than the interest accrued by the bank to the client. Demand deposits also include funds in correspondent accounts opened with a given bank (loro accounts). The availability of funds in these accounts is a necessary condition for making settlements and payments on behalf of clients, and the free balance can be used by the correspondent bank as borrowed funds

Time deposits are funds attracted by the bank for a specific period. They are drawn up in agreements that clearly define the period for which funds are transferred for temporary use to the bank. On time deposits, banks pay increased interest, the amount of which depends on the term and size of the resources transferred for use. The deposit can be withdrawn by the depositor upon expiration. Early termination of the contract entails a reduced interest rate, or its absence, as well as certain penalties. The sources of time deposits are the free funds of business entities. Deposits attracted from the population are separated into a separate independent group and in banking practice are called savings deposits. They play an important role in the formation of bank resources, and their volumes depend on the income received by the population. The higher the standard of living of the population, the higher the potential for banks to increase the amount of loan capital. Savings deposits are made by opening savings accounts and issuing a savings book or check book, or plastic cards. Raised funds also include those resources that are attracted by this bank from other commercial banks and the Central Bank of the Russian Federation in the form of an interbank loan. The interest accrued on them is lower than the interest on loans issued, and, as a rule, is at the level of the discount rate of the Central Bank of the Russian Federation, and the terms for their provision are 1 day or more

Raised funds constitute a significant part of the resources of commercial banks, therefore the Central Bank of the Russian Federation regulates the volume of attracted resources through standards, which are expressed by the ratio between equity capital and the amount of attracted resources. Issued funds include monetary resources attracted by the bank as a result of the issue of certificates, bills, shares, bonds

The certificate is a written certificate from the issuing bank about the transfer of funds to the bank and certifies the right of the owner or his successor to receive, at the end of the established period, the amount of the deposit and the interest due on it. There are certificates of deposit (issued to business entities) and savings certificates (issued to the public). In fact, certificates are a type of time deposit, but unlike it, they are issued on special forms that indicate the required details: ? name “deposit (savings) certificate”, ? an indication of the reason for issuing the certificate (making a deposit or savings deposit); ? date of deposit; ? the amount of the deposit or savings deposit (in words and figures); ? unconditional obligation of the bank to return the amount deposited or deposited; ? date of claim by the beneficiary of the amount under the certificate; ? interest rate for using a deposit or contribution; ? the amount of interest due; ? name and addresses of the issuing bank and beneficiary, if the certificate is personal; ? signatures of two persons authorized by the bank to sign such obligations, sealed by the bank’s seal. The absence of any mandatory details in the text of the certificate form makes this certificate invalid

The main advantage of the certificate is that it can be sold on the secondary market, and the sale price includes income due to the previous owner for the actual period of transfer of funds for use by the bank, and the subsequent owner, upon expiration of its circulation period, receives income for the originally established period, regardless of the date acquisitions. In addition, the circulation of certificates on the secondary market does not affect the change in the volume of resources of commercial banks

A bank bill is a debt obligation of the drawer, giving its owner the right to demand payment of the amount of money fixed in the bill upon the expiration of its term and in a certain place

The advantages of a bank bill include the possibility of using it as a means of payment and collateral. In addition, the process of issuing bills does not require its registration with financial authorities, which also creates preferable conditions for their release into circulation

Active operations are those operations of banks that are associated with the placement of their own and borrowed resources in order to generate profit and ensure liquidity

The basis of active operations is credit operations. They are the most highly profitable, but at the same time the most risky. Therefore, when issuing a loan, the bank requires from the potential borrower a set of documentation characterizing the material guarantee of the loan and its legal eligibility. Such documents include constituent documents, a feasibility study (business plan), on the basis of which it is possible to determine the possibility of repaying the loan, the payback period, a contract or a copy thereof, fixing the purpose of obtaining a loan in the business plan, a balance sheet and some annexes to it, loan agreements with other banks, a pledge or guarantee agreement, an urgent obligation-instruction to repay the loan in accordance with the terms established in the loan agreement, an application for a loan indicating the amount, term and purpose of the loan. In addition, the bank may require other documents confirming the legal competence, creditworthiness and security of the borrower

Currently, in Russian practice, the bulk of loans issued are short-term in nature. A blank loan is issued without collateral to clients who enjoy special confidence from the bank. They usually charge higher interest rates.

Bill loans are divided into two types: accounting of bills and issuing loans secured by them.

Discounting of bills is an operation for the bank to purchase them from business entities before the maturity date. In this case, the bank pays the seller a certain amount of money immediately, that is, it actually issues him a loan and therefore charges a certain percentage, which is called discount interest or discount

Unlike accounting for bills of exchange, when issuing a loan secured by bills of exchange, they do not become the property of the bank, but serve as collateral for the loan. The collateral value of bills is valued below par and in case of non-repayment of the loan they are the source of loan repayment, interest and fines. In addition to bills of exchange, other securities (bonds, shares, certificates) can also serve as collateral.

A mortgage loan is a loan issued against real estate. Residential and industrial premises, land plots can act as collateral, and only the owner of the collateral can pledge land and real estate. The development of mortgage lending is negatively impacted by the insufficient resource base of banks, high inflation, lack of effective demand for industrial facilities and other factors. A mortgage loan is a long-term loan and this increases the risk of non-repayment, therefore the interest rates on it are higher than on short-term loans

Active lending operations also include factoring operations. It is possible to eliminate the need of a business entity to immediately convert receivables into real money using a factoring operation. The bank, carrying out such an operation, acquires the client’s payment claims to the debtors, i.e. the right to collect debt from debtors. At the same time, debtors are informed of the need to pay previously issued invoices to the bank. In this case, the bank assumes all the risk associated with non-payment of previously purchased bills, despite the fact that it knowingly checks the solvency of clients. The result of this operation is that the client receives a kind of loan from the bank, and the bank collects funds due to the client from the debtors. At the same time, the amount of the loan provided is reduced by the amount of commissions and interest for using the bank’s resources

Commission transactions are transactions that the bank performs on behalf of its clients, while charging a commission fee. Such operations include services such as settlement and cash services for clients, trust operations, transactions with foreign currency, information and consulting services, issuance of guarantees and sureties, rental of safes for individual storage of valuables and others

Cash settlement operations Cash settlement operations of banks are associated with maintaining accounts in rubles and foreign currency, making settlements and payments to the client, as well as receiving and crediting funds transferred to him to the account in non-cash form, issuing cash from the account, depositing it into the account , storage and transportation. They are drawn up in appropriate banking service agreements, which take into account the amount of a certain commission. Trust operations In our country, they are at an initial stage and are carried out mainly in such areas as investment consulting, purchase, sale and storage of client securities, maintaining a register of shareholders. In developed countries, the basis of trust services are operations related to the management of client capital and have a broader focus: transfer to trust management of securities (shares, bonds), including their portfolios; ? disposal of inheritance; ? acting as a guardian; ? agency functions related to property management and legal services; ? payment functions related to payment of income on coupons and redemption of bonds; ? asset management of pension and investment funds

Transactions with foreign currency These include bank operations for the exchange of foreign currency, which are carried out both in cash and non-cash forms. Banks buy foreign currency in two ways: ? spot, meaning immediate implementation; ? forward (forward) - carrying out an operation on a predetermined date in the future

In addition, banks pay and issue cash letters of credit, buy and pay for traveler's checks of foreign banks, issue and service plastic cards, and carry out international payments. Participants in transactions can be legal entities and individuals

Information and consulting services Banks, for a fee, can provide their clients with information of both a commercial and non-commercial nature, as well as financial and economic advice related to the activities of business entities