2009

[COMMERCIAL BANK]

Group Members:

Anak Agung Istri Kalvika Ariviranti

(007200800004)

Evan Dewabrata (007200800011)

Imam Adi Nugraha(0072008000013)

Indra Prasetyo (007200800014)

Wirdy Leonarsan (007200800033)

 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
 Definition
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

History

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 5th 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.

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 Bank

According 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 / BPR

Bank 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.
 Functions
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 deposits
The 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, 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 advances

The 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 deposits
and the rate charged on the Loans is the main source of a bank’s income.
i) Loans
A 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) Advances
An 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 assistance

 Banks grant short-term financial assistance by way of cash credit, overdraft
and bill discounting.
a) Cash Credit
Cash 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) Overdraft
Overdraft 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 Bills
Banks 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 functions
Besides 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

Banks
Primary Functions Secondary Functions

 These are the main activities  These are the secondary activities
of the bank.
  These are the main sources
 These are not the main sources of
income of the banks

 These are obligatory on part  These are not obligatory on the

of bank to perform. part of bank to perform. But
generally all commercial banks
perform these activities.

Type of Bank
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

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.
 Features
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.

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.

System
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 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).
 Study Case

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.

• 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 Activities
2004
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

- 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
2007 - 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 Product
In 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

Conclusion
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.
 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