FINMA 2000 / FINANCIAL MANAGEMENT

Prepared by: Ms. HAZEL JADE E. VILLAMAR

E-mail Address: _hazeljade.villamar@clsu2.edu.ph________

Central Luzon State University

Science City of Muñoz 3120
Nueva Ecija, Philippines

Instructional Module for the Course

FINMA 2000 / FINANCIAL MANAGEMENT

Module 9
COMMERCIAL BANK MANAGEMENT

Overview

This course is designed to help the student understand our present

monetary standard including the structure of the Philippine financial system.
It teaches the student how our monetary and financial system works. It is
designed to teach students on the different kinds of financial markets and
their functions, the different kinds of mutual funds, the classifications of
options and types of options commonly traded over the counter.

I. Objectives

At the end of the module, the following are expected:

A. Define commercial bank.

B. Discuss the organization and structure of commercial banks.

C. Determine the number of commercial banks and commercial banking offices.

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II. Learning Activities

OVERVIEW OF THE COMMERCIAL BANK MANAGEMENT

A commercial bank is a type of financial institution that provides services such

as accepting deposits, making business loans, and offering basic investment products.
Management is the act or skill of controlling and making decisions about a business
entities and deciding how to use something. Commercial Bank Management refers
on how collectively body of those who manage or supervise the banks by doing their
duties and responsibilities to their different departments or committees.
Banks are managed by the Board of Directors and the set of officers of the bank.
Board of Directors is a group of individuals that are elected as, or elected to act as,
representatives of the stockholders to establish corporate management related policies
and to make decisions on major company issues.
The Stockholders elect the Board of Directors by virtue of their right to vote. The
Board of Directors elect from among themselves the Chairman of the Board, the
President, he Vice President, the Secretary, Treasurer, Comptroller and Senior and
Junior officers of the bank.

MANAGING A BANK

Risk management

Risks are an integral part of every business activity. An informed and transparent
approach to risk management is a central component of our socially responsible
business model. In line with the risk strategy of the entire group, ProCredit Bank in
Germany takes a conservative approach to risk management.

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The basic principles of our approach to risk management include

 a focus on our core business,

 transparency and simplicity in all of our procedures and services, and

 careful recruitment of staff followed by intensive training.

Compliance and anti-money laundering

The broad range of illegal or suspicious practices in the financial industry has
recently reignited the discussion of compliance issues. As part of the international group
of banks, we see ourselves as holding a position of particular responsibility with regard
to supporting international efforts to fight money laundering, terrorist financing and
other acts punishable by law; adhering to all legal regulations (compliance); and
ensuring that staff act in accordance with our internal code of conduct.

Remuneration

As transparency is one of our key values, and also in compliance with the
Ordinance on the Supervisory Requirements for Institutions’ Remuneration
Systems. Remuneration for all staff is based on the standard principles established for
group. The amount of remuneration is agreed when concluding the employment
contract and is adjusted individually on a case basis. Our remuneration system does not
provide any incentive to take undue risks. In addition, it does not create any incentives
that could interfere with the monitoring duties of employees performing a controlling
function.

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THE MANAGEMENT

Management is important for banks because banking is a service industry.

Management of people and management of risk are two key challenges facing banks.
How you manage the people and how you manage the risks determines your success
in the banking business. Efficient risk management may not be possible without efficient
and skilled manpower. Banking has been and will always be a "People Business". Though
pricing is important, there may be other valid reasons why people select and stay with
a particular bank. Banks must try to distinguish themselves by creating their own niches
or images, especially in transparent situations with a high level of competitiveness. In
coming times, the very survival of the banks would depend on customer satisfaction.
Those who do not meet the customer expectations will find survival difficult. Banks must
articulate and emphasize the core values to attract and retain certain customer
segments. Values such as "sound", "reliable", "innovative", "international", "close",
"socially responsible", "Indian", etc. need to be emphasized through concrete actions
on the ground and it would be the bank’s human resource that would deliver this.

THE SHAREHOLDERS

The shareholders of a company are its financial supporters; they provide finance
to a company by purchasing shares in it, and through this become shareholders. This
gives them certain rights as shareholders; they also have roles and duties to adhere to,
which are set out in the Companies Act 2006 (or Companies Act relevant to the date
that the company was formed). As shareholders of a company, they are protected from
liabilities as the company is ‘limited’. Shareholders may or may not be directors of the
company also. Whilst directors are in charge of running the day to day business of the
company and making decisions, the shareholders have a few specific roles and duties
to ensure they ultimately have control over the company.

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Roles of the Shareholders

Major decisions which would have an effect on the shareholders’ rights are
usually required, through the Companies Act 2006, to be approved by the shareholders
at a general meeting called by the directors of the company.

Only certain acts can be done by the shareholders such as; removing a director from
office, changing the name of the company, or authorising a service contract for a
director which gives him job security for more than two years. In general, shareholders
have little power over the directors and how they run the company, but their main role
is to attend meeting and discuss whatever is on the agenda to ensure the directors do
not go beyond their powers.

 Amending by-law

One of the transactions do frequently is amending the Articles of Incorporation

(AOI) and By-laws of the company. Most of the time, it is just a minor change, like
changes in address.

The law requires that these changes are reflected in their records. Complying
with them might be a hassle, but it is a requirement if you do not want any bad
marks in your soon-to-be business enterprise. Here is a detailed list of requirements
and procedure for the entire process

 Amending the article of Incorporation

Amended Articles of Incorporation – Prepare four sets of Amended Articles

of Incorporation or Amended By-laws.

The power to amend the articles of incorporation is one of the powers expressly
granted by law to corporation. There are many reasons why a corporation may want
to amend the articles of incorporation. The corporation may want to change its
name or add a new purpose or change its principal place of business.

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 Increasing and decreasing Stock

Stock prices change every day as a result of market forces. By this we mean that
share prices change because of supply and demand. If more people want to buy a
stock (demand) than sell it (supply), then the price moves up. Conversely, if more
people wanted to sell a stock than buy it, there would be greater supply than
demand, and the price would fall.

Understanding supply and demand is easy. What is difficult to comprehend is

what makes people like a particular stock and dislike another stock. This comes down
to figuring out what news is positive for a company and what news is negative. There
are many answers to this problem and just about any investor you ask has their own
ideas and strategies.

 Approving annual or special meeting

Minutes drafted ahead of time aren’t the official minutes until the members
approve them. Today's technology has made its mark on meeting minutes. The
secretary can now draft the minutes and easily send copies to the members for them
to read before the meeting; then members can come to the meeting prepared with
any corrections.

You can still read the minutes aloud to the members in the meeting, if you want
to, but if time is precious, distribute the draft of the minutes in advance.

Because changes may be made in the minutes before they’re approved, it’s good
practice for the secretary to note somewhere on the distribution copy that it’s a
“draft for approval” at the next regular meeting.

 Examining and approving or disapproving the operations for the year

ending

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 Approving budget as presented by the president

At the beginning of the budget preparation year, the Department of Budget and
Management (DBM) issues the National Budget Call to all agencies.

The Budget Call contains budget parameters (including macroeconomic and fiscal
targets and agency budget ceilings) as set beforehand by the Development Budget
Coordination Committee (DBCC); and policy guidelines and procedures in the
preparation and submission of agency budget proposals.

 Electing the Board of Directors

Many private companies have a board of directors. The board might be the
owner's family and might rarely, if ever, meet, or it might be a formal, independent
board that consists primarily of directors who are not the owners or operators of the
business. An independent board can help manage and build the company by lending
diverse perspectives, offering experience and knowledge, monitoring finances,
increasing transparency and helping set policies and goals. Whereas directors are
elected by the shareholders in publicly traded companies, a private company decides
for itself how board members are chosen.

 Distribute earnings as dividends

Dividends are funds generated by profitable operations that are distributed

directly to share owners, typically just after the end of a financial reporting period.

After a profitable period, a company can (at the discretion of its board of
directors) pay some of its income to shareholders as dividends, and keep the
remainder as retained earnings. Note that either action (declaring dividends or
retaining earnings) meets the textbook definition of a profit-making company's
highest objective: increase owner value.

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THE BOARD OF DIRECTORS

A group of individuals that are elected as, or elected to act as, representatives of
the stockholders to establish corporate management related policies and to make
decisions on major company issues. Every public company must have a board of
directors. Some private and nonprofit companies have a board of directors as well.

In general, the board makes decisions on shareholders’ behalf as a fiduciary and

looks out for the financial wellbeing of the company. Such issues that fall under a board's
purview include the hiring and firing of executives, dividend policies, options policies,
and executive compensation. In addition to those duties, a board of directors
is responsible for helping a corporation set broad goals, support executives in their
duties, while also ensuring the company has adequate resources at its disposal and that
those resources are managed well.

In recent years some boards of directors for publicly held companies have shifted
focus from considering their fiduciary duty entailing watching after just the financial
wellbeing of the corporation to a more broad goal of working to “promote the success
of the company for the benefit of its members as a whole,” as the 2006 U.K. companies
act lays out.

Duties & Responsibilities of a Board of Directors of a Bank

Most banks, like many large businesses, are run as corporations, with the
leadership of the business delegated among different parties. While the day-to-day
operation of most banks is left to its managers, a board of directors is usually appointed
by shareholders to monitor and govern the bank's operations, thereby safeguarding the
shareholders' investments. The duties and responsibilities of this board are numerous
and broad.

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 Elects one of their members as a chairman of the board

A member may be elected to be the chairman of a general meeting by

a resolution of the company passed at the meeting. On a vote on a resolution at
a meeting on a show of hands, a declaration by the chairman that the resolution-
has or has not been passed, or passed with a particular majority,
is conclusive evidence of that fact without proof of the number or proportion of
the votes recorded in favour of or against the resolution.

 Elects the president and chief executive

The highest ranking executive in a company whose main responsibilities

include developing and implementing high-level strategies, making major
corporate decisions, managing the overall operations and resources of a
company, and acting as the main point of communication between the board of
directors and the corporate operations. The CEO will often have a position on the
board, and in some cases is even the chair.

 Elects the heads of various committees

 Elects an executive secretary

 Appoints upon the recommendation of the chairman and president

A Committee is a body of one or more persons appointed or elected by an

assembly or society to consider, or investigate, or take action in regard to, certain
matters or subjects, or to do all of these things. Committees may be divided into
two distinct classes:
(1) Boards of Managers or Directors, Boards of Trustees, Executive Committees,
etc.
(2) Ordinary Committees, Special or Standing, and Committee of the Whole and
its substitutes.

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 Approves the compensation to be paid

Companies are required to provide an advisory shareholder vote on the

compensation of the top executives of the company – typically, the CEO, the
Chief Financial Officer (CFO), and at least three other named executive officers.
Companies are not required to use any specific language in asking for shareholder
approval. Instead, each company has the flexibility to craft the exact language
of the non-binding resolution that its shareholders will vote on.

 Determines the loaning limitations of each administrative officer

 Approves the amount of surety bonds

A surety bond is a document signed by the contractor and the surety

company that assures the project owner the contract will be completed.
Contractors obtain surety bonds from surety companies or agents representing
surety companies. Most public construction contracts and many private contracts
require one, so if you’re a construction or service contractor bidding on a project,
you’ll probably need a surety bond.

 Determines the loan and investment policy

Banks are generally free to determine the interest rate they will pay for
deposits and charge for loans, but they must take the competition into account,
as well as the market levels for numerous interest rates.

 Approves all matter involving changes in Capital

 Authorize the maintenance of bank account

 Approves all loans

 Reviews and approves or disapprove the action of various committees

 Appoints an auditor

 Formulates policies

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COMMITTEES OF THE BANK APPOINTED BY BOARD OF DIRECTORS

The Board has constituted several committees to deal with specific matters as
well as delegated powers to them for carrying out various activities for effective
functioning of the company. The Audit Committee and Stakeholders Relationship
Committee have been constituted in accordance with the guidelines issued.

 Executive Committee

To oversee the implementation and execution of the bank's strategies.

 Loans and Discount Committee

The lending or management committee of a bank or other lending

institution that analyzes and subsequently approves or rejects any loan that the
initial loan officer does not have the authority to approve. First, the committee
ensures that the loan meets standard lending policy. Assuming the loan meets
this criteria, the committee can agree to fund and disburse the loan with a binding
commitment.

 Investment Committee

 Trust Committee

The Trust Committee duly constituted and authorized by the board of

directors shall act within the sphere of authority as provided by the pertinent
rules and regulations in the exercise fiduciary powers.

 Examination Committee

The Audit and Examination Committee (the "Committee") is appointed by

the Board of Directors, on the recommendation of the Governance and
Nominating Committee, to assist the Board in fulfilling its responsibilities to
oversee activities related to accounting and financial reporting policies, internal

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controls, auditing practices, and legal and regulatory compliance. The

Committee's primary duties and responsibilities are to:

 Monitor the quality and integrity of the Corporation's financial reporting

process and systems of internal controls regarding finance, accounting and
regulatory compliance.
 Review the qualifications and independence of the Corporation's independent
auditors and monitor the performance of the independent auditors and
internal auditing function.
 Provide an avenue of communication among the independent auditors,
management, the internal auditing function, and the Board of Directors.
 Review the findings of any examination by regulatory agencies such as the
Board of Governors of the Federal Reserve System, the Office of the
Comptroller of the Currency, or the Securities and Exchange Commission.
 Perform the Audit and Examination Committee function for such subsidiaries
of the Corporation as determined by the Board of Directors to the extent
required under applicable law.
 To effectively perform his or her role, each Committee member will obtain an
understanding of the detailed responsibilities of Committee membership.

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OFFICERS OF A BANK

 Chairman of the Board

The chairman or chairwoman, or simply the chair, sometimes known

as chairperson, is the highest officer of an organized group such as a board, a
committee, or a deliberative assembly. The person holding the office is typically
elected or appointed by the members of the group. The chair presides
over meetings of the assembled group and conducts its business in an orderly
fashion.[2] When the group is not in session, the officer's duties often include
acting as its head, its representative to the outside world and its spokesperson.

 President

The Bank President is one of the most important persons in the bank. He
is responsible for overseeing all banking activities and establishing the bank's
policies, strategies and objectives. He is also in charged with developing new
products and services and make sure they meet the client's needs and
expectations. The Bank President is obligated to present regular reports about
the bank's operations to the CEO.

 Vice President

 Assistant Vice President

 Executive Secretary

The Executive Secretary is responsible for providing administrative and

secretarial support to senior management executives including, but not limited
to greeting visitors and answering the telephone; receiving and distributing mail
and correspondence; gathering data and compiling various reports for

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management; conducting projects and assignments; photocopying materials;

maintaining files; ordering supplies; and issuing correspondence. The position of
Executive Secretary requires by nature of the superiors' positions, involvement
with high-level contacts and exposure to sensitive information necessitating
considerable use of tact, diplomacy, discretion and judgment.

 Cashier

Bank cashiers are the first point of contact for anyone coming into the
bank, so it’s a very customer-focused and sales-based role.

 Comptroller

 Auditor

Bank auditors are the individuals who inspect, analyze and rate the
financial operations and practices of banks. Generally, bank auditors hold at least
an undergraduate degree in accounting or a related field, such as finance. Many
bank auditors go on to earn a master's degree, which some employers may
require.

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DEPARTMENTS IN BANK

As soon as it becomes necessary, on account of volume of business, to divide the

work in a bank into divisions, each employing a group of clerks, such division is
organized into a department having a department head who is usually a teller, a head
bookkeeper, or perhaps a junior officer. In the very large banks the executive staff is
itself organized into groups, and there may be a vice - president and one or two assistant
cashiers in charge of each important department.
The work of a department in a large bank is nothing more nor less than the work
of a single man in a small bank, apportioned among several men. For example, the
receiving teller in a five-man bank will take the deposit, count the cash, examine the
checks, assort them as to place payable, enter them upon the proper records and make
a settlement or proof at the end of the day. In a large bank each of these operations is
performed by a different man or group of clerks under the direction of the receiving
teller, who is head of the department. It may be that he himself will do very little if any
of the detail work. He becomes the manager. Frequently we find a department within a
department
 Cash Department  Branches Department

 Credit Department  Human Resources and

Development Department
 Foreign/International
Department  Legal Department

 Trust Department  General Services Department

 Investment Department  Administrative Department

 Money Market Department  Accounting Department

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REFERENCE:
Laman, et.al.(2014). Financial System, Market & Management The Basics. Manila,
Philippines: GIC Enterprises & Co.,INC.

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