General Understanding of Banks, Functions, Objectives and Types of Banks


General Understanding of Banks

What is a bank? Definition of Banks is a financial institution that has the authority to raise funds from the public and channel them back to the community in the form of working capital loans to improve the living standards of the general public.
The term “Bank” comes from Italian, namely “Banco” which means bench. In this case, the meaning of the word bench is where bankers operate in the past in serving their customers. The term “Banco” then changed and was more popular with the word BANK.
The bank has several financial service products that can be used by the general public. Some of the Bank’s main products are:
  • Savings
  • Deposit
  • Payment Services (salaries, pensions, etc.)
  • Money Transfer Service (transfer)
  • Deposit Services (payment of electricity, telephone, water, and other bills)
  • Credit card
  • And others


Understanding of Banks According to Experts


In order to better understand the definition of a Bank, we can refer to the opinions of several experts. The following is the definition of the Bank according to experts:
1. Dr. BN Ajuha
According to Dr. BN Ajuha, the definition of a Bank is a place to channel capital from people who cannot use the money profitably to those who can make the money more productive to benefit the community.
2. Pierson
According to Pierson, the definition of a Bank is a business entity that receives credit but does not give credit. In this case, the Bank’s operations are only passive, only accept money.
3. Jerry M. Rosenberg
According to Jerry M. Rosenberg, the definition of a bank is an organization or company that carries out deposits and current accounts that have a period of time, pay interest, provide loans, make discount records, invest in government or other securities.
4. GM. Verryn Stuart
According to GM. Verryn Stuart, the notion of a bank is a business entity aimed at fulfilling credit needs, either by using its own means of payment or with money obtained from other people, as well as circulating new exchange tools in the form of money.
5. T. Gilarso
According to T. Gilarso, the definition of a bank is a financial institution where the main business is to raise funds, provide credit or loans and other services in traffic payments and money circulation.
6. RI Law No. 10 of 1998
According to Republic of Indonesia Law Number 10 Year 1998 dated 10 November 1998 concerning Banking (Article 1 paragraph 2), the definition of a Bank is a business entity that collects funds from the public in the form of deposits and distributes them to the public in the form of loans and other forms the aim to improve the lives of many people.
7. PSAK No. 31
According to the Statement of Financial Accounting Standards (PSAK) No. 31, the definition of a Bank is an institution that acts as a financial intermediary between parties that have excess funds and parties that need funds, as well as institutions that function to facilitate payment traffic.

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General Bank Functions

As mentioned in the Bank’s definition above, the bank’s function is as an institution that has the authority to raise funds from the community and channel them back to the community for various purposes.
In addition, there are 3 specific functions of the Bank, namely:
1. Agent of Trust
Banking activities can run well only if there is trust in the community. If the community has trusted the Bank, they will not hesitate to deposit their funds at the Bank.
The community’s trust that the funds they have deposited at the Bank will always be safe and can be disbursed at any time. Vice versa, in channeling the deposited funds to the community in the form of loans is based on trust and applicable law.
2. Agent of Development
In economic activities, there are two things that cannot be separated, namely the real sector and the monetary sector. Both of them influence each other.
The activities of the Bank to collect and channel public funds open opportunities for the public to carry out investment activities, distribution and other economic activities that cannot be separated from the use of money.
If all these activities can run well, it will have a big impact on improving the economy of the community as a whole.
3. Agent of Service
In addition to collecting and channeling funds, the Bank also has other banking services offered to the community. As stated in the definition of the Bank above, such banking services include money transfer services, payment services, savings, credit cards, and others.
Bank’s Goals
In general, the aim of Indonesian banking is to help implement national development in order to achieve equity, economic growth, and increase public welfare.
Based on these objectives, the Bank in Indonesia must carry out its duties and functions properly based on economic democracy.
Basically economic activities and development in Indonesia are very closely related to banking. So, if you have been thinking that the Bank aims only to get the maximum profit, then you are wrong.

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Types of Banks

In Banking Law, it is stated that Banking activities in Indonesia can be divided into several types. Based on the Bank’s understanding above, the following are types of Banks viewed from various aspects:
1. Types of Banks Based on their Functions
In Law Number 7 of 1992 which was later reaffirmed in the Banking Act No. 10 of 1998, the types of banks are seen from their functions, including:
The Central Bank, which is a state-owned financial body that is responsible for regulating and overseeing various activities in financial institutions and ensuring that the activities of these financial institutions can improve economic stability.
Commercial Banks, namely banks that carry out conventional banking business activities and/or based on Islamic Sharia principles which in their activities provide services in payment traffic.
Rural Credit Banks (BPR), which are banks that run conventional banking activities and Islamic sharia principles wherein their activities they do not provide services in the field of payment. BPR activities only include fundraising and fund distribution. Even in collecting funds, BPRs may not accept deposit accounts, do not conduct clearing and foreign exchange transactions.
2. Type of Bank Based on Ownership
Referring to the definition of the Bank, ownership can be seen from the deed of establishment and mastery. These types of banks include:
State-Owned Bank; for example Bank Negara Indonesia (BNI), Bank Rakyat Indonesia (BRI), Bank Tabungan Negara (BTN), and others.
National Private Owned Bank; for example Bank Central Asia (BCA), Bank Danamon, Bank Muamalat, Bank Permata, and others.
Foreign-Owned Bank; Standard Chartered Bank, Citibank, and others.
Mixed Bank; Sakura Swadarma Bank, Interpacific Bank, Mitsubishi Buana Bank, and others.
3. Types of Banks Based on their Status
The point is a measure of a Bank’s ability to provide services to the community in terms of product quantity, capital and service quality. These types of banks include:
Foreign Exchange Bank, which is a bank that can transact abroad or other activities related to foreign currencies. For example, transfers abroad, traveler’s checks, collect overseas.
Non-Foreign Exchange Banks, namely banks that have the right to conduct transactions as foreign exchange banks with operational areas limited to certain countries.
4. Types of Banks Based on How to Determine Prices
Banks with Conventional Principles, namely the type of bank that uses the pricing method according to the interest rate (spread base) and calculates the necessary costs (free base).
Banks with Sharia Principles, namely banks that apply agreement rules according to Islamic law in depositing funds, financing, or other activities.
Thus a brief explanation of the definition of the Bank, the function of the bank, the purpose of the bank, and the types of banks. Hopefully, this article is useful and adds to your insight.

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