Commercial Banks’ Challenges in the Next 5 Years Essay (Critical Writing)

Introduction

Commercial banks are financial intermediaries in the form of banks only that they carry different duties from investment banks. Commercial banks have the following functions to accomplish. Issuing cheques and bank drafts, protection of important documents, processing salaries or other transfer payments, accepting and keeping customer’s money, lending out money in form of loans.

Analysis

Due to this nature of business transactions, commercial banks are faced with many challenges in the course of their business transactions. Within the next five years we expect commercial banks to face some of the following challenges.

Firstly, we expect commercial banks to experience reduced profits or even losses as a result of sub-prime lending. This challenge has already taken its toll especially in the United States since 2006.

Another challenge that we expect commercial banks to experience is the loss of revenue through dividend payouts. This may or will result if commercial banks fail to categorize their loans properly, a problem that is present in many countries around the world.

Another challenge we expect to face commercial banks is the existence of an inadequate legal framework that is supposed to oversee the valuation of securities that are supposed to be collaterals for non-performing loans.

In addition to this there is also another challenge to be faced by commercial banks in the next five years. This will be in the form of increased competition from other financial institutions as well as states in the provision of loans, either domestically or abroad. In addition, forex bureaus and international money transfer organizations will also limit the workload that commercial banks will have to work with.

References

Costantino Bresciani. The Economics of Inflation. London: George Allen & Unwin, 1937.

Mankiw, N. G. (2004), Principles of economics (3rd Ed.), Chicago, ILLIOIS: Thomson South-Western.

Philip Hardwick (1982), an Introduction to Modern Economics, Longman, U.K.

Weatherford, Jack. The History of Money. Three Rivers Press, 1997.