Inter-bank vs. Inter-branch transaction
Transactions that take place between the branches of the same bank is called interbranch transactions and transactions that take place between two different banks is called inter-bank transactions.
Importance of inter-branch transactions
Customers can deposit, withdraw, and transfer cash from on branch to another branch.
Easy to keep record of financial transactions by the concerned branch.
It helps institution to handle multiple transactions.
It helps to maintain strong corporate relationship between branches and head office.
Importance of Inter-bank transactions
It facilitates customers to withdraw and transfer cash from any banks.
It provides great deal of liquidity to the market.
It helps to manage exchange rate and interest rate risk
It saves time and efforts of customers to visit at the bank that maintain their accounts.
Transactions that are included
Withdraw cash from any branches of the same bank without extra service charge.
Withdraw cash from different banks with or without extra service charge.
Remitted fund within branches or from another banks.
Deposit cash or fund in any branches of the same bank.
Use ATM machine of any banks with or without extra service charge to withdraw cash. Inter-branch & inter-branch payment system
Credit risk: BFIs has been facing this risk due to borrowers of the BFIs are failing to meet their contractual agreement.
Operational risk: Due to errors, interruptions or damaged caused by the people, system process BFIs has been facing this risk.
Market risk: Due to changes in market factors BFIs are facing market risk.
Liquidity risk: Due to mismanagement of short-term liabilities and short-term assets, BFIs are facing this liquidity risk.
Interest rate risk: BFIs facing this risk due to fluctuation of interest rate on their assets.
Foreign exchange rate risk: BFIs facing this risk due to fluctuation in local currency compare to foreign currency.
Other risk: Other risks such as legal risk, business risk, political risk etc are being faced by BFIs.
Risks management by BFIs
BFIs manage credit risk by following Directives No. 2, 3&8, setting up ideal credit risk environment, formulating full proof credit granting process, recruiting intelligent human resource, Adoption of proper policies and procedures for managing nonperforming loans etc.
BFIs manage operational risk by formulating operational risk management policy, implementation of IT guideline, establishment of regular and effective monitoring system, and developing effective internal control system and IT system.
BFIs manage market risk by investment risk model that determines the return on portfolios and establishment of middle office for monitoring, measurement, and analysis of market risk and reporting to risk management department.
BFIs manage liquidity risk by classification of assets and liabilities, maintaining CCD ratio within 80%, formulation of contingency fund plan, and regular discussion of liquidity risk report by BOD and top management.
BFIs manage interest rate risk by formulating adequate risk management policy and procedures and risk management, monitoring the trend of interest rate, internal control etc.
BFIs manage foreign exchange rate risk through forward contract and currency hedge, maintaining exchange fluctuation fund, calculate net position in foreign currency and maintain it within 30% of core capital.
BFIs manage other risks by identifying and taking adequate measures to manage reputation risk, strategic risk, AML/CFT risk etc.
