Banking system


 

Development of banking

We differentiate central bank and commercial banks.

Commercial banks are public limited companies, owned by shareholders that accepts deposits from individuals and corporations in the form of checking and saving accounts. They use some of these funds to give loans to their customers, which they have to pay for in form of an interest. Commercial banks make profit from the difference known as the margin between the interest rate they charge the borrowers, and the rates they pay to depositors.

 

Specialized banks only have certain functions:

 

Universal banks do all kinds of financial business. Today, many large international companies offer a complete range of financial services, so individuals and companies can use a single financial institution for all their financial needs. (e. g. Tatrabanka, SLSP, VÚB, ČSOB, UniCredit...)

 

Services of commercial banks

 

Passive operations of banks

1. Demand deposit means that money is available on demand from the depositor.

2. Saving accounts are used for savings and do not offer a cheque-book. Interest is offered to encourage people to save, but a notice of withdrawal has to be given to the bank. The most common form of saving account is called a passbook savings account. Depositors get a passbook where all turnovers and the total balance are recorded.

3. Time deposits are represented mainly by cetificate of deposit that earns an interest rate, which is given to the depositor when the saving period ends. The depositor agrees not to withdraw any of the funds in the account until the end of this period, which can be from 1 month up to 5 years.

 

Active operations of banks

Short-term loans to consumers and businesses have to be repaid within 1 year. We distinguish:

 

Long-term loans are given to individuals, corporations and domestic or foreign governments. They have to be repaid typically in 2-5 year,s but could be extended for longer periods of time up to 20 or 30 years.

 

Central bank

The nation´s central bank (National Bank of Slovakia) stands at the centre of the banking system.