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What is the Role of commercial banks in a country’s economy?

      

What is the Role of commercial banks in a country’s economy?

  

Answers


Wilfred
i) Exchange and trade: commercial banks facilitate the process of exchange through lending; commercial banks create additional deposits, which form part of the total money supplies in the economy. By use of cheques, holders of demand deposits accounts are able to transact business and exchange goods and services. By providing overdraft facilities, and letters of credit, commercial banks facilitate and increase the speed of commercial and industrial activities. International exchange is similarly enhanced.

ii) Intermediaries: commercial banks connect savers of surplus funds to borrowers. They (banks) play the role of “middlemen” in the lending -borrowing cycle. By so doing, commercial banks relieve savers of the risk of loss, which may result when borrowers default in paying their loans. If savers were to lend individually and directly to borrowers, they would have to carry the risk of possible loss personally.

iii) Economies if scale: Commercial banks provide the necessary savings and investment economies of scale. By aggregating individual savings into commercial banks. Large enterprises like hotels, heavy machinery, like shipping lines, oil drilling and many more would have been very difficult if investors were to rely on personal savings. It can be said therefore, that commercial banks play an important role in the process of capital formation. It can be said that commercial banks harness society?s saving potential and direct these savings to infrastructure and capital assets, they become key agents of capital formation and economic development.

iv) Safety: Commercial banks are also used as “strong boxes” for keeping valuable assets in safety. Many rich people deposit jewelry, documents and other valuables with commercial banks for safety. Money is sometimes deposited into banks for no other objective than safekeeping. Sometimes, it is the main consideration in the minds of users of banks.
Wilfykil answered the question on March 8, 2019 at 12:24


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