The Structure Of Banking Systems in several countries do differ from one another, sometimes in quite material respects. The problems that face banks are much the same all over the world, after all, they are in the business of collecting deposit and issuing out loans, however, there is considerable verity in the solution proffered for them.
Thus it is in the details of firm, company or organisation of certain broad categories which can actually state their differences as stated. These categories include Unit banking, branch banking and hybrid system.
Unit banking describes the system whereby banking operations are carried through a single banking office rather than through a network of branches. Each banking company is a separate unit, separate licensed, with its own capital board of directors and stockholders. Ordinarily, it has only place of operation. Exceptionally, it may also operate branches within a strictly limited area. Unit banking is fairly practiced in the United State of America on an extensive basis.
Branch banking describes the banking system or the Structure Of Banking Systems as a situation whereby every bank is a single entity having one board of director, and group of stockholders, operates through a network of branches throughout the country. England and Wales are typical example where branch banking is practiced extensively. Certain factors favour the adoption of branch banking for instance.
- Economic growth evidenced by the rapid growth in the population which is aggregated in industrial centers and then we have
- The development of adequate transport and communications facilities. Without efficient communication, it will be difficult for banks to clear checks draws on other banks and effect their remittance, easily and quickly goods communications is also a prerequisite for controlling branches located at far distance.
Hybrid banking system differs from the concept of unit banking and branch banking system. They are characterized by a small number of banks with branches throughout the country that hold the larger part of total deposit, the balances of deposits are lodged in a relatively large number of small banks.
There are three other types of banks identified. These are the group the chain and correspondent banks. Group banking refers to where two or more separately corporate bank are brought under he control of a holding company which may or may not be a banking company. The banks so united may be unit banks or bank branch or both.
Chain banking takes place when separately incorporated banks being dissectors of two are more banking companies or some groups of persons owning them. Under the correspondent Structure Of Banking Systems, banks have been linked together through deposit by smaller banks of some of their cash reserve with bigger banks.
The bigger banks receiving the deposit are referred to as correspondent banks. The correspondent banks have experts consultants whose services can be utilized by other banks or other depositing cash. They also transfer balance of banks. Examples of community bank liaising with bigger banks like first bank as is the case with Afikpo community bank or Ngodo community bank, Abakaliki liaising with Union bank Abakaliki main branch.
Advantages Of Branch Banking (Structure Of Banking Systems)
Proper distribution of capital – The branch banking system with its network of branches all over the country is able to transfer capital from area which have surplus to those areas that requires capital. To that extent it helps to put capital to its use in most productive way, this helps to increase output and national income of the country. Again such transfers have the tendency to make interest rates uniform throughout the country, it further enhances the Structure Of Banking Systems.
Diversification of deposits and Assets – Since a wide geographical area is covered under branch banking, greater possibilities exist for diversification of both deposits and assets. Deposits are received from all area particularly the saving surplus area. At the same time loans and advances are made in those areas where there is scarcity of funds and where the interest rate will be high. Diversification in this context then means that the banks need not specialise in any particular area of the industry. This is always the situation in Unit banking. If a particular region or area should experience some difficulties of social kind, it will not affect the branch banking system since the assets of the kind, it will not affect the branch banking system since assets of the entire bank are behind every branch. Structure Of Banking Systems happens to accommodate risks of all sort, risk are also spread over a number of concerns and over area.
Large Financial Resources – This is a big advantage in branching. It assures the availability of large financial resources such that the branch banking system can easily handle the requirement of large customers. Loans and advances on a more liberal basis can be made. Additionally, the failure of borrowers in any area need not lead to the failure if the bank due to the bank or the financial strength and ability to meet any crisis.
Efficient Loan administration – In a branch banking system, loans and advances are made mostly on merit rather than other consideration, personal and local consideration do not constitute a significant influence on the branch manager in granting loans and the refusal of a loan to an influential but less credit worthy customer can always be explained away as head officer directives without serious consequences.
Efficient in management And Economic of Scale in operations – Branch banking gives impetus to the hiring of highly skilled and qualified manpower for top management. Branch managers can be carefully trained and supervised with greater opportunity for promotion for those who distinguish themselves. Moreover, the advantages of the first class business efficiency at the headquarters will be available all to branches.
The branch banking system also assures greater economy in working since capital can be made available in large amounts and at cheaper rates, internal and even small isolated towns and villages where no independent banks can survive, can be provided with adequate banking facilities.
Effective central bank control – Central bank control is more effective with the branch banking system than if it is with unit banking, in the sense that in branch banking central bank deals with a few big banks represented by the principal officer whereas in unit banking, innumerable directives do not easily find unanimous acceptance of comprehensive.
Disadvantage Of Branch Banking
Everything that has an advantage invariably has its disadvantage. Thus the critics of branch banking readily points to some unrealized advantages of the system such as;
- They contend that in branch banking, there is too much red tapism and delay due to lack of sufficient authority on the part of the branch manager. Thus for instance any large loan, the branch manager must refer to head office and this often results into delay of request by the customer.
- It is also alleged that because in branch banking officers and managers can be moved around from one location to another, sometimes branch managers may not be familiar with the local conditions and with the special problems and difficulties of local borrowers contrary to what happens with the unit banking system,
- Funds of particular locality may not be available for the development of that area and may be transferred to be used elsewhere.
- Branch banking system also has the potential to create monopoly power since there is concentration of enormous financial resources in the hands of a small number of men. Such monopoly power is a constant source of danger to the community.
Merit and Demerit Of Unit Banking (Structure Of Banking Systems)
- In terms of merit, first the resources of the locality are likely to be used for the economic development of the locality and will not be transferred to other areas secondly.
- The unit banker has specialized knowledge of the local industries and occupations, custom and prejudices of the locality and thus can serve local needs of the small communities in an effective manner.
- Thirdly, since the affairs of the bank are not scattered far and wide, there are very few possibilities for fraud and irregularities. Management and supervision do not pose serious problem.
- Finally, unit banking does not suffer the diseconomies of large scale operations found in the branch banking system
Among the disadvantages, the prominent ones include the following;
- The fact that the unit banking has limitation of financial resources as well as other resources that helps banking operation run smoothly, hence it cannot stand a business depression or a run on a bank or during economic recession. Note that unit bank suffer from lack of diversification of deposit and assets, and specialisation in those industries located within their areas thus lands them in difficulties once these industries are established near them, we already know that the diversification of bank assets in investment helps the bank to spread its risks.
- Another criticism is that unit banking is unable to provide full and adequate banking facilities to small communities because limitation of its area of operations and it does not command adequate resources, this leads to inefficient management sometimes, this is understandable since the resources at their disposal is limited.
- Lastly the unit banker may sometimes follow considerations other than strict economic principles in granting loans and advances which can endanger the position of the bank, such occasions arise when the bank decides to patronise some of the powerful and influential persons or local businessman who may not be so credit worthy, and yet whose denial of a loan can endanger the goodwill of the bank as a result of rumour piffling against the bank from the man and such like activities.