Corporate banking’s role in economic development

Imagine what it would be like if banks did not exist – people did not have a place to save their money, businesses did not have a place to get credit from, Government could only sell its bonds to individuals.

How our lives would have been? Its frightening isn’t it? Because for centuries, banks have been the cornerstone of economic growth and national development.

The contribution of banks to the promotion of economic activity within a country is unparalleled. There is no other institution more key to the financial growth of a country than a bank.

Hence it is in our best interest as a nation to make sure that banks are supported in their endeavours.

Today banks continue to hold a position of strategic importance as providers of vital financial services that fuel the economy. One of the most important financial services is corporate banking.

Most of my past articles were directed towards individual/consumer banking and its role towards the economy. Just like individuals, companies need money to fund their operations and ensure future growth so whether you own a small or large business, there is a high chance you need a bank in order to run your business smoothly.

This article will focus on corporate banking and its importance to the development of the economy. Corporate banking provides banking solutions to businesses of all sizes, such as:

a) Corporate finance services – Includes funding, capital structure, and allocation of finances

b) Credit management services – Covers the entire process of granting the loans

c) Asset management services – Taking care of the money owned by businesses and advise where to invest the money.

d) Cash management services – Includes collection, distribution, and investment of cash

Commercial banks play a decisive role in the development of a country. The general role of commercial banking is to provide financial services to the public and business while ensuring economic and social stability, and sustainable growth of the economy.

To attain sustainable development, there should be a good financial system (banking system) to support the economy. Below are some of the important roles of corporate banking in the development of a country’s economy.

• Capital Formation – One of the main purposes of corporate banking is capital formation.

Capital formation is essential for the economic development of the country. It is impossible to achieve economic development of sizable magnitude unless there is an adequate degree of capital formation.

Corporate banking mobilizes funds through the bank’s network by offering very attractive terms to major savings schemes to encourage the public to save with them.

Then the collected funds are used as a major source of money supply in the economy. The funds are generally used to initiate, sponsor and implement infrastructure projects.

• Ensure Channelling of Funds to Right Projects - Corporate banking helps in the development of the right economic projects by analysing and assessing all projects costs and profits analysis to ensure the project’s profitability.

Corporate baking grants loans and advances to sectors that are connected with economic development and those that the country is focusing on; for example, if the country’s focus is on manufacturing and tourism, corporate banks will channel funds in the form of credit and advances to those sectors.

This will lead to increased production which creates more jobs for people and improves their lives while creating faster economic development. In addition, corporate banks help fund government spending by purchasing bonds/treasury bills issued by the government.

The money spent by corporate banks to purchase the bonds helps the government to finance its operations, social programs, and support budget deficit spending.

To wrap up, corporate banking acts as an agent of economic development for the country.

Its main purpose is to provide financial services to the public and business while ensuring economic and social stability, and sustainable growth of the economy. Corporate banking achieves this by stimulating savings from the public and channelling the funds to productive projects that benefit the public.