What are the Role of Banks in the Economic Development of a Country

Role of Banks in the Economic Development of a Country | CMA Foundation Notes

A bank plays an important part in a country's economic development. In today's economic world, the banking system connects various marketplaces. Depositors' savings and collections are lent to clients in need of funds. This procedure allows money to flow from one sector of the economy to another. As a result, banks make commerce easier.

The following are characteristics of a sound banking system in economics:

Adequate Liquidity: Having a specific amount of liquidity is one of the most important aspects of sound banking. A bank allows its customers to deposit money in a variety of methods, including time deposits, current and savings account deposits, and non-resident ordinary accounts, depending on their preferences.

As a result, banks must have sufficient cash on hand to accommodate depositor withdrawal requests. If a bank fails to meet these requirements, it is deemed insolvent.

Banking Services Expansion: Banking services have an impact on all aspects of a country's economy. As a result, the spread of banking services is critical. Bank services should be available to people from all walks of life. It ensures that money flows freely from all parts of society, rather than being concentrated in a single segment.

Investment and Loan Policies: In order for a bank to achieve its objectives, it must have a good investment policy. It is critical to remember that if a bank's loan or investment fails, the bank may face losses or liquidity difficulties. As a result, a responsible bank carefully considers the composition and nature of its loans and advances in order to maximise earnings without jeopardising its safety and solvency. To achieve the goals of profitability and liquidity, banks must have a sound investment programme.

TAG - sound banking system; cma foundation study material; cma foundation classes and notes; sound banking industry

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