Banking Finance

The process of Internet banking is much similar to conventional banking. The major difference is that online bank is more convenient and processes take place by means of your computer and an Internet connection. Account and details is accessed, payments are made, and statements are reconciled online. Internet banks have been competent in giving consumers more agreeable interest rates on savings accounts and credit cards, too

Internet Banking versus Conventional Banking

The many days of waiting in line at banks to settle bills and transfer money are now a faint memory to billions of people all over the world. Internet banking or e-banking became a phenomenal hit from the time when it materialized in the later years of 1990s. Since then, its reputation and draw did not dwindle a bit. In fact, millions of consumers are making the switch to online banking annually.

The process of Internet banking is much similar to conventional banking. The major difference is that online bank processes take place by means of your computer and an Internet connection. Account and details is accessed, payments are made, and statements are reconciled online. This is more convenience than using the phone or paper to accomplish business transactions. Banking through the Internet can have you carry out multiple tasks and business deals with just a few clicks. For corporate operations, there are more than a few services and products from international banks that can assist in making progress of the market rivalry. These depend on the type of business the company operates.

Advantages of Internet Banking

Internet banking is hastily becoming more widely held as clients are aware of the benefits and assistance it has to deliver. For example, the majority of banks demand smaller number of transaction fees if you avail of their banking services using the Net. When you benefit from the Internet banking, you can discontinue receiving statements that are paper-based. Some Advantages of Internet Banking also include:

?Virtual access of your account 24/7.

?Transactions are secured with the utilization of sophisticated encryption systems supported with a password and client’s number

?Capacity to transfer money to anywhere in the world

Functions of Internet Banking

Ease and practicality are not the only lure of online banks. They have been very competent in providing consumers more agreeable interest rates on savings accounts and credit cards, too. Internet banks pulled of and led the rivalry in the banking world by setting off the zero percent interest on credit cards as well as better rates on current accounts interest. These decent offerings are possible because Internet banking require lesser expenditures and thus have been capable of dispatching the savings to its clients.

Internet banks also manage clients’ money and loan it to others. These banks handle loans well and help clients monitor their own investments. There’s a great possibility that the conventional bank where you have an account also extends some sort of online banking systems. You can inquire from them regarding their online services offered. Once begin to do banking on the Internet, you may no longer want to return to conventional banking.

If you are one of those who are having difficulties with recording paper statements, online banking can immensely assist you. This system is profitable for people who travels a lot and ought to check on their finances from overseas.

Internet Banking Glitches

While it’s true that Internet banking gives countless rewards compared to the conventional banking, it is not free from blunders. Apparently, there have been a number of instances when technical malfunctions caused computer systems to shut off. That is why Internet banking functions at its best in combination with other media like the telephone and software.

In the dawn period, there were stories that Internet banking wasn’t secure. However nowadays we barely hear as regards to security risks. In truth, online banking is most likely safer than conventional system because it’s practical and effective. Bank transactions that are based on paper can get caught or folks can overhear you.

Microfinance: NGO vs Banking
Sadaket Malik**
The role of non-governmental organisations (NGOs) in microfinance (MF) needs reviewing from an operational perspective. Based on research of selective studies and experts’ opinion, selected literature on microfinance, and the author’s own experience over the last decade, this paper seeks to establish two main points. First, it asserts that with a few notable exceptions, the record of NGOs in mainstreaming microfinance is a modest one viewed from the context of NGOs as microfinance institutions (mFIs). When judged by the two criteria of success that much of the microfinance world has adopted – outreach to the poor and financial sustainability – the results are not encouraging [Nair 2001]. NGOs as mFIs have thus far had trouble achieving both objectives simultaneously. There is also little evidence of any aggregate impact on poverty reduction as the result of mFIs’ forays. The success of NGOs has however been laudable where facilitating and social intermediation criteria are applied. It is here that the author feels that the strategic partnership between banks and NGOs is poised to change the developmental intervention map of India. Second, the essay suggests that banks, for all their laudable work, will be making a strategic error in focusing on financial intermediation while ignoring partnership with NGOs. While microfinance is never easy for other types of institutions trying to practise it (e g, NGOs or credit unions), it is not, as will be explained, a field where a banker has natural advantages.
Why Partnership?
To the extent that banks incorporate NGOs’ activities in mainstreaming their self-help group (SHG) portfolios, they stand to gain. To the extent NGOs reorient their mission, vision and personnel towards the microfinance agenda, as a large number have done in the last decade, they risk drawing themselves away from work they are uniquely suited to do. Some of this work, moreover, would play a critical role in preparing the ground for mF among poor people. In other words, NGOs have to move away from pure financial intermediation to investing in human and social capital at the grass roots and bankers have to tap this invaluable experience of NGOs in mobilising, graduating and enabling rural communities. This will prepare the ground by enhancing credit absorption capacity of SHGs and enhancing their creditworthiness. The following account will explain how.In 1997, the World Bank’s Sustainable Banking for the Poor (SBP) project completed an ambitious survey. Until then those interested in microfinance had an intuitive sense of the movement’s growth, but no systematic attempt had yet been made to gauge its dimensions, nor look comprehensively at its results. The findings were unambiguous: NGOs acting as mFIs did not have any significant outreach vis-à-vis other financial institutions purveying microcredit.
Interestingly, commercial banks accounted for 78 per cent of the total number of outstanding microloans, and credit unions 11 per cent. NGOs accounted for only 9 per cent, and savings banks (which are not primarily in the credit business) just 2 per cent. Also, commercial banks accounted for 68 per cent of the total outstanding loan balance, savings banks 15 per cent, credit unions 13 per cent and NGOs 4 per cent. In terms of numbers of clients, commercial banks and credit unions showed significantly greater overall outreach than NGOs. While NGOs’ outreach, on average, was deeper, it was also narrow – NGOs reach some very poor people, but they do not reach many. On the other hand, credit unions and commercial banks also serve some wealthier clients so that their average outreach to the poor is not as deep. Still, the indications are that overall, credit unions and commercial banks serve more under-served poor clients than do NGOs.
This is not to rule out the role of NBFCs, NGOs with inchoate mFI activities or pure mFIs. The demand for financial services is high and as stated by the High Level Task Force on mF: “At least 25,000 bank branches, 4,000 NGOs and 2,000 federations of SHGs involving over 1,00,000 personnel of these institutions would have to be associated for scaling up and bank linkage of one million SHGs. Many of these NGOs will transform themselves into mFIs and will not only facilitate microfinancing, but will also themselves do the necessary financial intermediation. Similarly, many federations of SHGs will take on financial intermediation and act as mFIs.”
Indian TaleWe shift the focus to India.In the current context with over 4,60,000 SHGs credit-linked with banks, the SHG-bank linkage programme of microfinance has emerged as the biggest in the world. But besides banks, the major role played by NGOs in facilitating this transformation cannot be overemphasised. The National Bank for Agriculture and Rural Development (NABARD) which plays a role in promoting and facilitating bank linkages while networking and coordinating the activities of all players in the field has underscored the crucial role played by NGOs as facilitators in purveying bank credit to SHGs..
The writing is on the wall. The success story has been to a great extent co-scripted by both banks and NGOs. However, it is pertinent to draw attention here to the vast network of rural banking outlets that precludes the necessity of a new breed of mFIs which as per experts’ opinion are ‘slow and expensive to develop’ [Harper 2002]. In fact as aptly put by Harper “the SHG system uses existing marketing channels, the banks, to bring formal financial services to a new market segment, the poor and particularly women”.
Relationship Banking vs Parallel Banking
The distinct bloodline of mF in India can be traced to this genre that is indigenously developed and called ‘Relationship Banking’ as opposed to the Grameen model of ‘Parallel Banking’ [Chavan and Ramkumar 2002]. The ground truth for SHG financing on a sustainable basis in India is that bank-linkage is the bottom line with exceptions proving the rule. Inherent to this success story but understated is the fact that NGOs have played a major role in effecting SHG-bank linkages. Relationship banking is the result of NGO-bank interface to leverage funds for SHGs. NGOs have achieved significant success as promoters (helping and enabling SHGs to access bank credit) and not as providers (direct purveyors of credit). This writer would juxtapose the SBP study’s evidence against NGOs in mF with their success as facilitators in India to make a case for NGOs as social scientists or change agents rather than financial intermediaries. The latter role is arguably the banker’s domain. Moreover, there are compelling institutional and regulatory factors which counsel against any such misadventures.
First and foremost there are legal constraints to NGOs acting as mFIs as noted by the Task Force: “Many NGO-mFIs are mobilising savings from their clients/ borrowers with the sole objective of inculcating a habit of thrift and savings among the poor and for enabling the use of such resources for acquisition of assets or linkage with credit from mFIs or banks. In the context of the amended Section 45 S of the RBI Act, the appropriateness of NGO-mFIs in mobilising savings is questioned. Although NGO-mFIs provide very useful financial services to the poor, including the opportunity to keep their very small savings safe, almost at their own doorsteps, they cannot convert themselves into other modes of constitution like NBFCs, banks or cooperatives due to various intrinsic constraints. Hence, NGO-mFIs may have to be given a special dispensation in regard to Section 45 S of the RBI Act. Accordingly, it is recommended that they be allowed to mobilise savings only from their poor clientele as part of the financial services provided to them and the same may not be treated as violation of Section 45 S of the RBI Act.”
The ‘intrinsic constraints’ noted above are not difficult to guess. Moreover, some NGOs that are mobilising savings purely may also face other risks. The problem for NGOs in dealing with savings is that from a risk-bearing standpoint, savings mobilisation and microcredit are not the same. That is why the law treats them differently. From the client’s point of view, the risks of saving with an NGO are masked by their growing confidence as NGOs show that they are here to stay. But NGOs are not in most cases operating in regulatory environments that permit them to mobilise deposits; they do not benefit from deposit insurance nor can their operations be controlled by bank supervision agencies. And when covariant risk is high, as it is when group members are all from the same sector and necessarily from the same community or locality, the tenuousness of the NGO position is even more dangerous to the saver. Besides propriety and prudence, savings custodianship necessitates statutory provisioning and creation of reserves to cover liquidity and other risks.
Credit MinimalismWhile ‘savings only’ is a limited disaster story, the other side of the tale relates to NGOs who are employing ‘credit first’ or minimalist credit principles. When savings form part of the basis for credit in a financial institution, that institution does not have to take a problematic, often tortured, path to sustainability; it starts out on a more naturally sustainable path. But, NGOs have gone into microcredit with donor monies, and aim towards sustainability without, in most cases, the enormous benefit of voluntary savings mobilisation. In short, sustainability in NGO-run programmes is hobbled from the start. It looks as if the poor want its product (credit) less than they want savings, and all by itself, credit does little for productive asset creation.
The one-shot single dose attack on poverty is the sustainable development planner’s biggest nightmare. A case in point is CARE’s Credit and Savings for Household Enterprises (CASHE) project in India which is more of a lending programme than a sustainable financial institution. Unfortunately the credit and non-credit financial needs of the clientele community are expected to outlive the six year shelf-life of one of the most ambitious projects in micro-lending to hit Indian shores. The flawed-in-conception status is palpable from the fact that the CASHE budget does not include an income generating component for skill-building. The best intentions are to give a shove across the poverty line without imparting financial sustainability to households or providing for repeat finance.
The incompatibility between the tendency of NGOs to upscale (for sake of grant continuance) and financial sustainability is aptly summed up by William F Steel, World Bank consultant, according to whom, “Grant-based methodologies are poorly suited for financial intermediation, especially providing credit funds (for which recovery, not disbursement is most critical)”. The other type of NGOs turned MFIs with both credit and savings services have a limited success which as the SBP study has shown is nothing to write home about in terms of outreach or sustainability. Many are facing teething problems while a few have folded up.
These dysfunctional aspects are further highlighted by Kanta Singh (WISE Development Authority) during a CARE-sponsored case study of its CASHE programme: “Low size of loan and long cycle time for loan disbursement are reported to be the largest irritants. Many groups that have successfully managed loans in the past lose energy when they do not get subsequent (credit) linkages.” Absence of training and handholding on income generating programmes are felt to be a major gap in the CASHE design by SHGs. This need is also felt by (partner) NGOs who are trying to increase loan demand and the ability of SHGs to handle larger loans.In India the demand of the poor for safe and liquid savings instruments is very high. In fact, NGOs, with their sensitivity to the poor and intimacy with individuals, overcome the trepidation that illiterate and destitute villagers harbour about bank personnel (not known for their civility). The World Bank’s Consultative Group to Assist the Poorest (CGAP), part of whose mandate is to help microfinance institutions improve performance, has concluded “…most microfinance clients want to save all the time, while most want to borrow only some of the time.”
However, NGOs face a dilemma when savings overstrip credit demand, i e, interest paid out drastically cuts the margin from interest income. Their limited expertise and avenues for investing elsewhere compound this problem. CARE/Guatemala’s Village Banking Programme fuelled by donor monies, expanded lending outreach heavily in 1994. As a result outstanding loan balance grew at an annual rate of 78 per cent between 1993 and 1995. By contrast, voluntary savings mobilisation grew during the same period at an annual increase of 215 per cent.
Trade-Off TribulationsThe record from the SBP cases (a score of which were NGOs) suggests that as NGOs in microfinance, often encouraged by donors, come to accept the two goals of sustainability (subject to tough measurements) and outreach, (measured increasingly by loan size as a per cent of GNP per capita) the following trade-offs and adjustments are observed:(1) Concentrating portfolio growth in high population density areas (thus focusing less on rural areas).(2) Emphasising rapid initial loan volume growth, leading to poor portfolio quality.(3) Keeping field staff salaries low (or alternatively raising the number of clients per loan officer) in order to control costs, thus tending to high turnover and low morale.(4) Moving towards the retail trade and service sectors with high cash flow that enable high repayment rates, thus tending away from manufacturing and fixed asset lending.(5) Emphasising short-term loans as a strategy for high repayment and loan size growth, thus eliminating cyclical sectors like agriculture.(6) Tending to move up the poverty scale away from the very poorest in order to maintain loan demand and repayment rates (75 per cent of the SBP NGO cases showed this ‘upward creep’).Competitive Advantage of NGOsNGOs have a crucial role in group formation, nurturing SHGs in the pre-microenterprise stage, capacity building and enhancing credit absorption capacities. Group-based forms of lending (e g, solidarity groups, village banking) originated mainly for the benefit of the lender as solutions to two problems faced by microcredit organisations: (i) the problem of lack of collateral, and (ii) the problem of high transaction costs involved in loan appraisal, monitoring and enforcement. In theory, the group serves as a set of co-guarantors operating through peer pressure and the group members’ incentive to keep each other solvent so that they themselves do not lose the opportunity to receive a loan. The group serves also as a way to get around imperfect information, since members of the group know each other. Thus the transaction costs involved in loan appraisal are reduced if not eliminated.
It is here that NGOs play the crucial role in transforming the atypical destitute village woman with two children to fend for into a responsible individual with group commitments and group resources. This is a fact repeated in village after village. Whether NGOs empower women in thrift and credit groups is a moot question but it is an empirical fact that such groups provide effective ‘coping mechanisms’. Peer pressure is the best collateral. The banker in India needs to recognise that high repayment rates of SHGs is not an inherent structural feature of SHGs but a commitment to group values. The role of NGOs in investing groups with values through human capital is an undeniable specialisation. In the words of economist Jagdish Bhagwati: “Those values (of civil society and of democracy) are better advanced…by the political and financial support of the numerous and growing NGOs, both here and abroad, that work ceaselessly to nudge the world in the right direction.” The banker must accept that this is a role which the NGO, as a committed social engineer, is better suited to execute. This is not to deny qualities of empathy, humanism, social engineering to bankers. But the stark truth is that there is a need for a sensible division of labour. If bankers want to reach the poorest with financial services, they need to face certain realities. First, what they are doing is poverty lending and not economic development or enterprise development. Second, they should realise what the likely impacts may be. Changes in people’s lives will be immediate in terms of lightening the burdens of poverty, but small loans to the poorest will not bring them permanently out of poverty.Arguably, banking is more of a system than an art. Unarguably, working to facilitate the productivity of small businesses is really an art. And again, because of their grass roots orientation, because of their commitment, because they are less bureaucratic and encumbered than large development assistance organisations, NGOs are capable of overcoming a subtle but important barrier to successful facilitation – the ‘packaging of knowledge and skills’.
Once again, this is no case for discouraging NGOs from mF but to emphasise the role of emotional capital which will bring in an element of quality. The more NGOs, who are in microfinance, face the challenge of helping to bring about an increased articulation of the parts and the players in a local economy, the more they may need to get involved in such non-financial services. The effects of such services are difficult to measure in the short run. But NGOs can take on such tasks, many already do so.Thus, NGOs will fill up an important void in quality at the grass roots level which will help the poor not only to borrow but also to become good investments for banks. This will help boost business at rural branch level and cover up inadequacies and constraints that might hamper a banker with the conflicting demands of his workload. Many banks and FIs have recognised the role of NGOs and have effected suitable policy initiatives. A larger recognition of this need is reflected in the statistical evidence on linkage patterns, which we have cited earlier (see the table), which establishes NGO-bank partnership over the Indian mF spectrum. A truer recognition at individual banker level might lead to business sense replacing customary scepticism for NGOs. This will be the strategic turning point in making India’s relationship banking a showpiece and paradigm for the world’s NGOs and bankers.
The author is a freelance columnist based in Jammu and Kashmir***and can be contacted at sadaketmalik@rediffmail.com

As the banking industry continued to hemorrhage in 2008, 25 U.S. banks failed. Among them were Washington Mutual and IndyMac, the first- and third-largest bank failures in U.S. history, respectively, but there were also scores of smaller regional banks throughout the nation.

According to the American Bankers Association, 98% of the nation’s 8,500 banks are considered well capitalized, making the chance of any one bank going bankrupt highly unlikely. Still, bank failures increased markedly in 2008 and will likely continue in 2009 under current economic stresses.

Most U.S. banks are insured by the Federal Deposit Insurance Corporation (FDIC), so in the case of a bank failure, any one individual’s bank deposits, up to $250,000 at any individual institution, are protected by the FDIC. (The coverage limit, which Congress increased last year due to the banking crisis, will remain in force at least through December 31, 2009, but may then revert back to $100,000 if Congress takes no further action.)

But what happens to your mortgage, car loan or credit card account if the bank that loaned you that money goes out of business? Could their loss be your gain?

Unfortunately, you are still on the hook for any and all debt you have incurred. If your bank fails, you’ll need to pay close attention to how you handle your loan payments in the ensuing months.

Here’s what to do:

1. Continue making your monthly payments on time, and as usual. Don’t fool yourself into thinking that the upheaval of a bank failure is an excuse to skip payments. Doing so will only hurt your credit, as late payments will be reported to the credit bureaus; if you skip payments on a credit card account, late payments could also increase your interest rate.

In the event of a bank bankruptcy, the FDIC will assume control of the bank until it finds a stronger bank willing to buy the assets of the failed bank. Because your loan is a legal contract, neither the FDIC nor any bank that buys the failed bank can change the terms of your loan, and you, as borrower, are still bound by the same terms to repay the loan as originally agreed

Credit card account terms, however, are not fixed like a house or car loan. If another bank purchases a failed bank’s credit card accounts, the new bank is not required to honor the interest rate or other terms of the original account, like annual fees, over-limit fees or late fees. Still, it’s in the new bank’s interests not to reshuffle the deck, because making radical changes could trigger an exodus as the old bank’s credit card customers reject the new terms en masse

In short, most credit card holders won’t notice any changes in how they can use their cards, but if you could be considered a borderline credit risk by the takeover bank, it’s possible they’ll change your account terms or even close it. Cardholders with a high credit score have the least to worry about.

Financial planner and author Suzie Orman advises keeping copies of your cancelled checks and loan payments for at least six months following the takeover of your bank to avoid potential problems if your payments aren’t recorded during the transition. (If that were to happen, you would then need to check your credit report to ensure the takeover bank has not reported your payments as late or delinquent.)

If you’re already delinquent on your mortgage payments, there’s a chance that bank foreclosure proceedings will be temporarily stopped, giving you a chance to negotiate an agreement on payments that help you stay in your home.

2. Read your mail and any correspondence concerning your bank’s failure. It’s important to be aware of any changes regarding to whom you write your checks and where you mail them, but continue writing your checks and mailing payments to the same address until you are notified otherwise. Be careful, bank failures represent another opportunity for scammers looking to steal money from unsuspecting bank customers by concocting bogus emails or websites redirecting your payments.

Check the FDIC website for specific details on how accounts and loans at each of the banks that failed in 2008 are being handled.

Although the FDIC insures bank accounts, experiencing a bank failure when your personal savings are involved is still unsettling, and most customers would prefer to avoid that possibility altogether. To protect yourself:

1. Be sure your bank is FDIC-insured.
2. Be sure that your deposits at any one bank, whether they’re certificates of deposit, money market accounts or savings and checking accounts, don’t exceed the $250,000 FDIC coverage limit.
3. Be cautious about opening any one-year or longer-term CDs that exceed $100,000 before December 31, 2009. Unless Congress acts to continue the extension of the FDIC coverage limit to $250,000, a CD over $100,000 may not be fully insured after that date.
4. Check the strength of any institution with which you’re considering banking by visiting an online bank rating service. Although many bank failures can’t be anticipated, understanding the overall strength of your bank can be helpful in assessing the risks.

THE CHALLENGES AHEAD OF BANKS

                                                                     *G.JAYALAKSHMI., Ph.D Research Scholar

INTRODUCTION 

India’s banking industry is at a watershed. Evidence from across the world suggests that a sound and evolved banking system is required for   sustained economic development. India has a better banking system in place Vis a Vis other developing countries, but there are several issues that need to be ironed out.

A strong performance in the current year, strengthening the positive trends of the past, will certainly improve the short-term risk perception but focus must rest on key structural changes that have to occur if Indian banking is to be a positive force and not a drag on the rest of the economy.

It has met and successfully overcome several challenges over the last decade. But bigger challenges lie ahead. In this paper, we try and look into the challenges that the banking sector in India faces.

Interest rate risk

The first and most obvious challenge will come from rising interest rates. The current perception is that interest rates have stopped falling and are likely to remain steady, but if demand for resources picks up as firms start to invest in new capacity and boom conditions fuel consumption demand, then there may be a tightening of liquidity and upward pressure on interest rates.

Interest rate risk can be defined as exposure of bank’s net interest income to adverse movements in interest rates. A bank’s balance sheet consists mainly of rupee assets and liabilities. Any movement in domestic interest rate is the main source of interest rate risk.

            Over the last few years the treasury departments of banks have been responsible for a substantial part of profits made by banks.

Now as yields go up (with the rise in inflation, bond yields go up and bond prices fall as the debt market starts factoring a possible interest rate hike), the banks will have to set aside funds to mark to market their investment. This will make it difficult to show huge profits from treasury operations. This concern becomes much stronger because a substantial percentage of bank deposits remain invested in government bonds.

Banking in the recent years had been reduced to a trading operation in government securities. Recent months have shown a rise in the bond yields has led to the profit from treasury operations falling. The latest quarterly reports of banks clearly show several banks making losses on their treasury operations. If the rise in yields continues the banks might end up posting huge losses on their trading books. Given these facts, banks will have to look at alternative sources of investment.

Non-performing assets

The best indicator of the health of the banking industry in a country is its level of NPAs. Given this fact, Indian banks seem to be better placed than they were in the past. A few banks have even managed to reduce their net NPAs to less than one percent (before the merger of Global Trust Bank into Oriental Bank of Commerce, OBC was a zero NPA bank). But as the bond yields start to rise the chances are the net NPAs will also start to go up.

This will happen because the banks have been making huge provisions against the money they made on their bond portfolios in a scenario where bond yields were falling.

Reduced NPAs generally gives the impression that banks have strengthened their credit appraisal processes over the years. This does not seem to be the case. With increasing bond yields, treasury income will come down and if the banks wish to make large provisions, the money will have to come from their interest income, and this in turn, shall bring down the profitability of banks.

Capital adequacy norms

            A third and a key challenge will be the introduction of Basle II capital adequacy norms. These will make two demands on banks.

They will have to measure the risks they bear much better. For this they will need to overhaul their management information systems so that they have a clear and quantifiable idea of their risks.

            Then they will have to look for capital to back that risk and ultimately earn enough to be able to service that capital. R Ravimohan, managing director of Crisil, feels that the future is all about technology and risks.

There is a huge potential for undertaking risk assessment by using technology. It is imperative for banks to grow but the key issue is deciding where and how.

            New ways or managing risk and asset-liability mismatches, like asset securitization, which unlocks resources and spreads risk, are likely to be increasingly used.

Competition in retail banking

            The entry of new generation private sector banks has changed the entire scenario. Earlier the household savings went into banks and the banks then lent out money to corporate. Now they need to sell banking. The retail segment, which was earlier ignored, is now the most important of the lot, with the banks jumping over one another to give out loans.

The consumer has never been so lucky with so many banks offering so many products to choose from. With supply far exceeding demand it has been a race to the bottom, with the banks undercutting one another. A lot of foreign banks have already burnt their fingers in the retail game and have now decided to get out of a few retail segments completely.

The nimble footed new generation private sector banks have taken a lead on this front and the public sector banks are trying to play catch up. The PSBs have been losing business to the private sector banks in this segment. PSBs need to figure out the means to generate profitable business from this segment in the days to come.

Conclusion

Over the last few years, the falling interest rates, gave banks very little incentive to lend to projects, as the return did not compensate them for the risk involved. This led to the banks getting into the retail segment big time. It also led to a lot of banks playing it safe and putting in most of the deposits they collected into government bonds.

Now with the bond party over and the bond yields starting to go up, the banks will have to concentrate on their core function of lending.

The banking sector in India needs to tackle these challenges successfully to keep growing and strengthen the Indian financial system.

            Furthermore, the interference of the central government with the functioning of PSBs should stop. A fresh autonomy package for public sector banks is in offing.  The package seeks to provide a high degree of freedom to PSBs on operational matters. This seems to be the right way to go for PSBs.

            The growth of the banking sector will be one of the most important inputs that shall go into making sure that India progresses and becomes a global economic super power.

In China, the private banking service objects in Chinese funded banks are the customers whose financial assets are above 8 million Yuan (1.17 million USD) or 10 million Yuan (1.46 million USD). According to the conservative estimation, there are at least 500 thousand people whose financial assets are above 1 million USD by the end of the first quarter of 2009 in China, the total financial assets of them exceeding 5 trillion USD.

In order to occupy more shares of the private banking, the banks in China include the private banking in their key development strategy in droves. At present, they set up the private banking branches in domestic large cities so as to open up the high-income group market.

In the battle of attracting more private banking customers, the joint stock banks and foreign funded banks are more popular. When Chinese customers choose the private banks, they are likely to choose the joint stock banks and foreign funded banks. The state owned commercial banks, however, are slightly inferior because of service quality and so on.

By the end of 2008, China Merchants Bank had opened seven private banking centers in Shenzhen, Beijing, Shanghai, Tianjin and Harbin with the customers reaching to 6,398, up by 36% year on year, and the scale of asset management of the private banking customers reaching to 129.9 billion Yuan (18.56 billion USD), up by 34% year on year.

On 1st April 2009, Agricultural Bank of China announced that it would engage in propelling the strategic transformation of the retail business and integrating the retail business. Therefore, it will establish 5 private banks, 15 gold key wealth management centers and 500 gold key money-managing centers. Besides, Agricultural Bank of China will initially set up private banking department in Shanghai and set up the private banking headquarters and divisions in the branch banks in Beijing, Shenzhen, Ningbo and Tianjin etc, where have abundant high-end customer resources, directly extending and maintaining the private banking customers.

On the afternoon of 2nd April, the private banking center of China Citic Bank gathered a group of macro-economic experts and initially set up the macro-economic expert consultant group. China Citic Bank expressed that to establish the macro-economic expert consultant group is to provide the value added services of macro-economic trend analysis, business investment and personal investment analysis for the private banking customers.

There is huge potential for the private banking market in China, but there still exist shortcomings. Chinese private banks are short in establishment time, short of experiences and basically similar in the customer positioning and services and devoid of distinct characteristics.

As far as the foreign funded banks are concerned, their services and experiences are hard to reflect in short time in China because of the serious strikes from the international financial crisis and supervision policy limitation in China’s banking industry.

Apart from the careful advantage and the advantages from the financial crisis, Chinese funded banks also have emotional and policy advantages.

The foreign funded banks are hard to compare with Chinese funded banks in the field of establishing close personal relationship with the customers, owing to the differences in the cultural backgrounds and communications.

In January 2009, Citi Bank, the first bank of setting up the private banking in China, closed its private banking department, which had been set up for about three years. The original customers were all integrated into the retail business department. However, the private banking department of Chartered Bank announced that its private banking customers were two folds by the end of 2008 compared with those in 2007.

Besides, Chinese funded banks have policy advantage, less service limitation compared with the foreign funded banks. Chinese funded banks have internet resource advantage within China, which can cover more cities and provide inter-bank convenient cross region business for the customers.

Under the influences of international financial crisis, the private banks are heavily stricken regardless of the brand or the assets. However, for the private banking in China, it is an opportunity. China has become the comparatively safe place for investment.

It is predicted that the private banking among Chinese local banks and the foreign funded banks will be much fiercer in recent years.

Get more information, please visit http://www.shcri.com/reportdetail.asp?id=251

Again about investment financing of the banks. As practice shows, long-termed financing of programs doesn’t take place spontaneously, but it means analyzing and control of current activities of the enterprises. For satisfaction of such requests, unfortunately, not every enterprise appeared to be ready. There, where all these requests are satisfied, banks become active participants in processing plans of strategy and financial provision of investment activities of the enterprises.

A special attention is required by such direction of the activities of commercial banks, as project financing is, which, to our mind, requires administration and financial support from the government, we mean the condition, that for effective salvation of investment problems it is necessary to create finance-industrial groups, and holding unions, which, in its turn, represents initial form of forming thick financial capital at the market and confluence of bank capital to the industrial one.1 This will give rise to the growth of investment volume in the economy and growth of effectiveness of capital investments. Of course, creation of such unions will be actually supported by commercial banks, but this is interrupted by such condition, that groups created today provide this activity in unregistered form and nobody is interested in their registration. This is supported by incomplete logistic, slow development rates of the institute of private property, interruptions in realization of agrarian reforms, provision of accounting calculations of financial structures in incomplete form and existence of separate statements working opposite to the creation of holding unions in the low about industry. All mentioned above may be solved immediately, by processing special low about investment activity and on the basis of its setting by the parliament in a short period of time.

It must be mentioned, that there are enough conditions for widening financial investments in the economy from the bank side because of the existence of free cash means. It is important, that these financial resources were influxed and to create a system of rational organization of purposeful usage, which must be expressed by processing of the investment policy. Here an important meaning belongs to the investment policy and correct definition of tactics.

What problems are there in front of the banks? It is also to be mentioned, that commercial banks have numbers of problems while realization of their investment activities, which prevent their normal functioning. We mean the banks, working on financing investment projects, in fact, represent only one unit in the system of private institutions. We consider following to be preventing conditions of their activities:

· Existence of marketing center of the investment projects, a coordinating organ in the country scale, which would play a function of regulator in the financial provision of the investment projecting;

· Unacceptability o the information about position of a potential borrower or investment institution;

· Refusal of creation of deposit web;

· Low level of development of the investment funds existed today;

· Absence of state investment bank, total specific organ of financing investment activity and, consequently, spontaneous distribution of the functions of investment banks working abroad under the conditions of market economics among Georgian commercial banks.

It must be also mentioned, that there are many economical factors, which may influence negatively upon realization of investment processed by the banks and nobody can define beforehand nontransiency of expected risk danger of these factors. Herewith, widening of working sphere in the investment activity of commercial banks objectively requires: giving more independence and rights to the commercial banks, growth of effectiveness of long-term investments and growth of incomes, relatively with those received from short-term financial operations, fastening of this process, ll kinds of supports from the side of the government and finally, further statement of trustfulness and firmness of the activities of banking system.

About necessities of providing structure institutional reforms in the country. For guaranteeing firmness of banking activities structure-institutional reforms, min goal of which is preparation for new stage of development of banking field, come to the first place. Necessity of the mentioned reforms is conditioned by the position of financial market of the country. New institutions, as mentioned in the works of D. Nort – the laureate of Nobel Premium, are formed in the case when the society sees the possibility of making profit, which is impossible during active institutional system. Maximal investment activities of banks are possible during many-fielded system o a financial market. This is a result of logical development of competition, as it solves problems of optimal usage of financial resources. Exactly this many-fielded character reduces and stops crisis in the country.

Many-fielded character of the banking system is characteristic to the most part of developed countries (the USA, countries of western Europe, Japan) and also for the countries having transitional economics, which applied for firm economical growth in the last decimal (China, Poland, Brazil and others). Exactly this many fielded banking system gives possibilities for using various types and forms of financial service in economics by credit department.

In this system the state creates various mechanisms of artificial reduction of competition among financial organizations. An evident example of this is separation of credit institutions into commercial and investment-credit institutions in the USA, also reduction of the bans of countries in the sphere of realization of many year credit investments and separation of state bank into separate category.

About development of small-scale business in Georgia. Creation of advantage regime for small-scaled business, in the first place, regulates creation of competition able outer conditions of the investment activity, which must be definitely foreseen in the activities of the country’s banking system. It must also be mentioned, that according to the development and improvement of the economy in the future, perhaps, such activities may not be needed, but under the conditions of transitive economics their importance may not be specially noticed. It is natural, that many-fielded financial sector is formed only under the equal conditions of competition, as there is reason-resulted, reverse-influencing relation. Mentioned relation between many-fielded financial sector and competition is expressed by that it helps creation of advantage regime for the investment activity being in the position of an embryo and its further development.

Briefly about state regulation of the investment process. According to the many-fielded principle of the financial market, the state must work out such a system of regulating investment activity, which guarantees “peaceful” coexistence of various financial institutions notwithstanding their size and specialization. Banks of every category must “act” in their marketing “sphere”, while regulation of banks of different levels from the state is stated according to the rules of regulation. Privately, to our mind, it is important to point out and regulate activity spheres of those banks, which use a capital of governmental organs. Under the conditions of many-fielded system of a financial market competition carries “fair” character and this is why such system is much firmer. Privately, in case of many-fielded system, under the conditions of concrete fight, while financing concrete state programs by forming a system of specialized state banks usage of state resources is possible more effectively. In this case objective usage of lobbing of state resources from the side of commercial banks is not allowed. For example, in Germany realization of state projects of ecological, agrarian, building and other fields are provided by specialized commercial banks. There are specialized credits in the banking system of other developed countries (Japan, Italy, France and so on) too. Such practice significantly reduces danger of incorrect usage of state resources under the conditions of competition fight.

One of the most important factors, which degrade effective development of real sector of the economy, is the irrelevance of the needed financial capital for the regional services. Basic volume of financial resources from the enterprises is accumulated in the center. Such situation is in a way justified for the state, but it is absolutely insoluble in relation with the private companies.

According to the various estimations, regional banks control not more, than 20-30% of inflow of financial resources of the regional enterprise, and this seriously degrades development of the local banks and enterprises. Thus, for solving problems about lack of resources for crediting real sector of a small economics of regional banks, question related with it, must be discussed in relation with outflow of financial resources from the region. Solving of these problems by administrative activities is impossible, processing of appropriate economical activities is needed. We mean the condition, that together with the growth of the share of local budgetary tax income, it is important to define responsibilities of the budgets of municipal creations in the development of regional economics. Thus, financial federalism is that necessary condition, which guarantees, from one side, formation of balanced market of financial service, and, from nother, further development of the investment activities on the basis of appropriate legislative base.

What does a financial federalism bring to the financial market? Creation of equal conditions for the competition under the conditions of financial federalism will naturally lead us to the formation of many-fielded system of the financial market. Such process also gives rise to the creation of thick financial centers on the basis of the existed and newly formed banks. Thus, development of regional banks within the bounds of the conception of banking industry development, gives rise to the growth of financial potential o regional economics. At the modern stage conditions of development of bank branch sphere are being widened more and more. Today banks mostly provide sources of basic financial capital inflow in the way of “region-center”, after transition to the real federalism many-fielded banks transform into the banks providing sources for financial capital outflow among the regions.

It also must be mentioned, that it is important to grow the importance of banking business, which must be expressed by forming town and country credit relations, mutual crediting and insurance societies, and loan-constructing associations. All these must be foreseen in Georgia in the process of banking system development and, accordingly, an adequate logistic must be prepared for advantage conditions for development of small and middle banking businesses, because formation of effective financial system in the regional scale is absolutely impossible. Therewith, if we take into account the fact, that the investment portfolio in the structure of joint assets of Georgian commercial banks did not overcome 1% for the first of January of 1999, and 4% for the first of January of 2005, this speaks for the tendencies of growing portfolio investments.

Attraction of foreign investments. Globalization and internationalization of the world’s industrial relations gives rise to the growth of the role of foreign investments, as financing investment activities.

Essence and types of foreign investments. Foreign investments are hose capital resources, which are taken out of one country and invest abroad in this or that industrial activity, for the purpose of making industrial profit or receiving percents. Foreign investments may be realized in various forms. While analyzing this form we can use distinguished methods of approach for classification of the investments, which men their separation from each-other according to the objects, purposes, terms of investments, forms of property on the investment resources, risks and other signs. Herewith, the necessity of specific of foreign investments defines statement of number of classification features for the investments of this type.

For example, foreign investments may be state, private and combined according to the property forms on the investment resources.

State investments are those resources of state budget, which are directed abroad by decision of the government or inter governmental organizations. These resources may have the face of state resources, credits, grants ot support.

Private (nongovernmental) investments are resources of private investors placed into those objects, which are placed out of the bounds of given country.

They call combined investments joint placement abroad of the resources of the private investors and the government.

According to the character of usage, foreign investments may be industrial and loan.

Industrial investments are direct or indirect ones placed into the business of this or that type for taking some rights for making profit of dividend kind. Loan investments are related with the distribution of resources under the loan condition, for the purpose of receiving percent.

While analyzing foreign investments, apportioning of straight, portfolio and other investments is of a great importance. Movement of foreign investments according to the international currency funds and methodology of the countries’ taxation balances are reflected in this section.

Briefly about legislative situation of the foreign investments in Georgia.  As shown in the chapters above, “investments” conceptually express long-term placement of the capital of solid quantity for the purpose of making profit. According to the Georgian low “about support and guarantees of the investment activities” investment is considered to be the valuable of every property and intellectual kind or the right, which is invested for the purpose of making possible profit and is used in the industrial activities provided on the Georgian territory. It may lean upon as inner (inside country), so outer (foreign) sources.

Here a great attention is paid to the investment surrounding (climate), which means real conditions existed in the country for the investments. It defines intensive attraction or declining foreign capital for the long-term investments. I.e. according to the concrete condition, investment surrounding may be as advantage, so in advantage, which is foreseen by every investor before making concrete step. Fundamental analyzing of the investment climate existed in the country and foreseeing risk factors are the basic goal f every investor.

Thus, it is definitely difficult to say, is present situation in Georgia good or bad. It would be more correct if we say that there are as advantage (stimulating), so preventing conditions in the country.

Foreign investments in Georgia are prevented by constitution, by the low “about support and guarantees of the investment activities” and by two-side agreement about investment encouragement and protection. Today Georgia has signed agreements with more then 23 countries about mutual support and protection and with 111 countries – about avoiding two-side taxation.

Legislative foundations and guarantees of their protection of realization of local and foreign investments in Georgia are defined by the low about guarantees and support of the investment activities, according to which foreign and local investors use equal rights. Privately, while realization of investment and industrial activities rights and guarantees of the foreign investors must not be less then those of the local juridical and physical persons.

According to the same low, physical and juridical person, also international organization, which provide investments in Georgia are considered to be the subject of the investment activity.

It must be mentioned, that after paying taxation and compulsory payments, a foreign investor gains right for unreduced repatriation abroad of the profit received from investments and other cash resources, and this may reduced only on the basis of the low – according to the court decision in case of bankrupting, crime or not fulfillment of civil obligations. Herewith, foreign investor has right to take abroad the property being under his/her property.

Georgian low “about supporting and guarantees of the investment activity”. Positive and negative sides. Georgian low “about supporting and guarantees of the investment activity” foresees as preventing and reductions in the sphere of providing investments, also the guarantee of protecting them, which means untouchable character of the investments and compensation in case of taking away investments within the bounds of the mentioned low. The compensation, which is given to the investor in case of taking investments off him/her, must conform to the real market value of the taken investments for that moment, when the taken off takes place. The compensation must be granted without any hamper and it must concern that loss of the investor from the moment of taking off till paying of the compensation mount.

It must be mentioned, that a new legislative act, which somehow worsens conditions of investments stated by this low, isn’t spread on already realized investments, ten years after its setting. In such case the investor realizes his/her activity according to the actual low until the new one is put down to the action.

A quarrel between foreign investor and state organ, if the method of its decision is not defined by dual agreement, is solved at Georgian court or in the international center of the investment quarrel. In the case, if the quarrel is not discussed in the international center of investment quarrel, the foreign investors have right to apply for the additional institute of the center or any other international arbitrageur organ, which is founded according to the rules set by the arbitrageur and international agreements of the commission of international trade low of the United Nations. Arbitrageur court of international trade palate in Georgia functions from December 11, in 2000.

According to the statistical showing, the most attractive sectors for the foreign investors were production of oil and gas, energetic, telecommunications and food industry according to the statistic showings during last years. Among largest investors there are such companies as Frontera Resources Corporation (USA), which has invested more then 30 million US dollars into Georgian oil production; Metromedia international – 40 million US dollars of investments in telecommunication; Pernod Ricard (France) – with the investments in alcohol production; AES (USA) – investments in distribution and generation of electro power.

By comparing showings we learn, that according to the hydro energetic potential, Georgia significantly overcomes such countries rich in the so-called “White Coal”, as France, Italy, Spain, Sweden, Romania and others. Though practically, less then 15% of real possibilities are used, and this gives large perspectives to the foreign investments in Georgia.

The fact is to be mentioned, that the foreign companies are interested in the process of privatization of state property, which is one of the most important part of the realized economical reform in Georgia. The fact, that foreign capital is invested in more then 100 Georgian companies proves this.

For influxing foreign capital into Georgia a positive surrounding is created by the existence of advantage conditions for development of such reduced fields, as oil production, black and colored metallurgy, separate kinds of mechanical engineering, mountain chemical industry, bottling of fresh and mineral water, production of building and decorating materials, tea, wine, fruit, citrus, wool, tobacco, industry of their refining and others.

Though foreign companies provide capital investments into these fields, for example, in agrarian and food industries, but it is provided in a very little quantity.

Factors of disadvantage surrounding in Georgia. Among those factors, which give rise to the disadvantage climate for influxing foreign investments in Georgia following are to be mentioned:

· Political strain and not quite seldom facts of lobbing business with unacceptable methods by the representatives of executive and legislative government, this takes away the basis of healthy competition as in common, so among the investors;

· Violation of the territorial integrity of the country, ethno conflicts, Not controlling of Abkhazia and South Alania (Smachablo), difficulties with protecting state boards, which spreads widely the door to contraband and prevents growth of risk factors of  influxing of as native, so foreign investments;

· From the beginning of 90s of last year, analogue to the countries of post soviet space, sharp economical, financial, energetic, food, ecological and other crises developed in Georgia for not ordinal conditions, gave rise to the backwardness of our country’s economy for some decimals. It would be enough to say, that a level of whole European product consisted only 36.8% in 1999, compared with 1991. This was the lowest showing in whole post Soviet space. Such destroying of economical functioning, evidently, reduces requests on foreign investments and significantly restricted their influxing;

For the purpose of statement of the level of spreading negative occasions mentioned above and processing appropriate recommendations World Bank and European bank of reconstruction and development provided joint research, where they learned 22 countries having transitional economics. According to these researches they made a conclusion, that a showing of “state obedience” (of corrupting, taking into hands) in these countries consists average 21%. It must be mentioned, that same showing consists 24% in Georgia. What about average level of administrative corruption, it reaches up to 3%, while in Georgia – 4.3%.Iit is natural, that created situation fears foreign investors and prevents influxing of their capital in a large quantity in our countries.

According to the experience of last years, giving state guarantees to the foreign investments is more difficult. Though, if it were easy to achieve, it would not be enough for the foundation, as Georgian state doesn’t stand on the firm positions, for making n investor sure in stability of the country. For comparing let’s discuss investment surrounding of Czech Republic, privately, that part, according to which investment logistic of the country foresees from April 1998 such scheme of advantages, which concerns taxation, custom and those of definite regions, also, grants for creation working places and so on . According to the mentioned analyze following is cleared out, that equal priorities in using advantages are given as to the foreign investors, so to the local ones. At the same time, if we pay attention to the showing of inflow of straight foreign investments into Czech Republic by years, we’ll see, that after the quantity of straight foreign investments had been reduced in 1997 (1300 billion USD) relatively to 1996 (1428 billion USD), in 1998 it was doubled and consisted 2720 billion USD, and in 1999 equaled to 5108 billion USD. One of the stimulating factors of the mentioned progress must be considered involving a system of advantages activated in Czech Republic from 1998.

Unfortunately, there is not a firm system of foreign investments and insurance yet in Georgia, which would significantly help the process of making investment surrounding healthy and inflow of a large amount of investments from abroad.

Factors preventing development of the country economy – significantly wide scales of shadow economics and corruption, so-called distribution of influence spheres by clans, setting of a barrier in this or that spheres of business especially prevent, from one side, development of local business and, from another – influxing of large-scale international investments.

How to use international legislative norms in the Georgian investment activities. Thus, a lot of problems (complex of problems) are formed in the process of attracting and using of foreign investments, and they are regulated by legislative norms.

Whole logistic regulating foreign investments may be grouped in the following way:

1.  special norms;

2.  total civil norms;

3.  norms of international agreement.

To special logistic in the first place belong special logistic and its following acts of quite large quantity.

Civil logistic regulates and conditions relations of foreign capital and enterprises participating with numerous counteragents. We mean various kinds of agreements, questions of representation, researching questions and so on. Thus, civil logistic is used in the case, when regulation of the activities of foreign investors is not provided with the special one, for its tight direction.

Norms of international agreements is the part of the country’s legislative system. International agreement gains special importance during international economical relations. Activation of the mentioned norm is basically spread on attracting and usage of foreign investments; following legislative acts belong to this sphere:

1. International dual agreement of mutual protection and encouragement of the investments. Dual agreements of foreign investments are discussed in this sphere as additional guarantees of the norms foreseen in national lows. Capital exporting countries and their investors consider that protection of foreign investment is more effectively solved in the way of inter-protection and encouragement of investments.

2.  International two-sided agreement for avoiding double taxation. Such agreement usually defines sources of income – profit and property, which is taxed in the country without any reduction. It is being set, which incomes (profit) and property may be taxed in the country – with some reductions and what source of incomes may be set free from taxations;

3. Many-sided conventions. From those international conventions, which regulate relations related with the investments, two are important – Seoul Convention about stating many-sided agencies of protecting investment guaranties (1985) and Washington Convention about solving quarrels (1965).

Involving of many-sided system of investment guarantees was outrun by creation and development of state system of insuring capital export in the developed countries.

Before making decision about placement of sources by the foreign investor, one of the important conditions is – guarantees of security and protection of capital investments in that country, where investments are inflown, the state takes obligations – to guarantee protecting of foreign property, guarantee of rights and interests of the foreign investor, guarantee privacy of realization of investment activity of the country territory. Thus, under the conditions of strict competition, state forms as much liberal regime for foreign investors as possible.

What difficulties are there in Georgia from the point of attracting foreign investments? Difficulties of definite kind are expressed today in the developing countries and, accordingly, in Georgia in the affair of attracting foreign capital and its effective usage. We my name following reasons for this:

· Regulation of the activities of foreign investors is getting difficult with the absence of stabile legislative base;

· Worsening of material position of the most part of the country population gives rise o the growth of social tension;

· There still are criminal and corruption in some sectors of industrial activities;

· Inappropriate level of infrastructure development; also of transport, communications, system of telecommunication, hotel services, roads and so on;

· High level of unsteadiness of total politics, privately, instability of logistic and court system;

· Absence of joint state investment policy in the business of attracting foreign investments;

Herewith, notwithstanding the difficulties named above, the country owns great potential, what may be the subject for interesting foreign investors. Privately:

· Rich and comparatively cheap resort and tourist resources;

· A large inner undeveloped market;

· Richest reserves of mineral and curing waters;

· Comparatively cheap qualified labor  force;

· Quite high staff of marketing development, which can master new technologies of production successfully and fast;

· Absence of serious competition by Georgian producers;

· Current process of privatization and possibilities of foreign investors in it;

· Possibility for making high profit very fast.

Thus, we can make a conclusion that, compared with the countries of Western Europe, notwithstanding large economical backwardness, Georgia can develop total investment activity comparatively faster, with the help of correct and effective usage of native and foreign investments.

Lamara Qoqiauri

Real member of the Academy of Economical Sciences of Georgia and New-York Academy of Science, Doctor of Economics, Professor

There are certain things you should know before opening an offshore bank account – things that can save you a lot of time and frustration. The following 7 facts about offshore banking offer a useful insight and a good starting point to the process.

1. The Most Important Benefits of an Offshore Account

WG Hill, the author of the underground classic PT (The Perpetual Tourist), was quoted as saying: “Get your money out of country, before your country gets the money out of you!” And this strikes at the core of what offshore banking is about.

Give you one example. Let’s say you owe a tax bill which you are contesting. Now, in most of the modern Western democracies, it’s a simple matter for the government to seize the funds from your domestic account. One day you have $10,000 in there – and the next day you don’t. And such nations also get the banks to do their tax collecting for them. This is done by the practice of automatically deducting a withholding of tax on any interest earned. In this way your domestic banks are tax agents and put the government’s interests above your own – the client.

Opening an offshore bank account puts your funds out of harm’s way. If you had $10,000 in an offshore account, your own government could not siphon it off automatically. And if you are banking in a place where there is no tax charged on interest, then your funds are growing quicker – without any withholding taxes being applied at source.

An offshore bank account also gives you more financial privacy – something in great demand in this increasingly regulated world.

Then there’s the flexibility that comes with having more than one bank account ? in more than one country. This strategy allows you to hedge your bets and keep your cash in dispersed locations.

2. Choose Your Jurisdiction Wisely

Not all jurisdictions (countries) are equal. Every bank is governed by the laws of the country it is licensed to operate in. It is also governed by a plethora of internationally-applicable financial oversight regulations.

While some typical offshore tax havens appear ideal as banking jurisdictions, the truth is that often they aren’t – precisely because they have been, or are being, targeted in some way by anti-money laundering laws or other financial restrictions on how they conduct business. You don’t want to end up in the middle of such a financial conflict.

Another factor to take into consideration is the geographical area in which the bank operates and the existence of any information sharing treaties or tax-collecting agreements between the countries in that area.

Where you currently live in the world impacts on where you can bank offshore. For remember, offshore simply means somewhere other than where you currently reside.

3. The Truth About Privacy and Anonymity

Swiss banking has always been held up as the pinnacle of banking privacy, and that largely holds true – even though they are under increasing pressure to comply with international norms. The Swiss, however, have a vested interest in maintaining their USP (unique selling proposition), that they provide the most secure and private banking in the world.

But privacy in an offshore bank is conditional. Most offshore banks will be covered by privacy protection measures, which could include such things as it being a criminal offence for a bank employee to disclose the details of any client’s financial affairs. However, these laws can usually be breached by the presentation of a court order issued on the basis of suspected criminal activity.

This is all well and good for those of us who are not criminals, and usually means our privacy is pretty well assured. The trouble is in the definition of the word ?crime?.

It’s well known that certain banking jurisdictions have now succumbed to pressure to include tax avoidance as a criminal offence – meaning your account information could be disclosed under such an assertion if part of a court order from another country.

So you may as well accept the fact that truly bullet-proof private banking is hard to come by – and anonymous banking is a thing of the past.

4. The Impact of KYC and FATF

Offshore banking has become a lot more restrictive since 9/11 – as the US enforces stringent regulations aimed at combating what it terms money laundering. This catchall approach means that straight-up, honest people find themselves having to jump through hoops just to get started. Unfortunately, there seems to be no end in sight to this process – so all you can do is bite the bullet and proceed.

When you first apply to open an offshore bank account you will immediately feel the impact of KYC (know your customer) regulations. Banks have a way of making this requirement sound as if its in your best interest, but that’s just them trying to sweeten a bitter pill.

In effect, the bank will want to know a lot more about you than they would have a few years back. They will want not only to sight your valid ID, proof of address and business, banking or personal references, but they will also want to know what you do and what type of account activity to expect.

5. What You Need to Open an Offshore Account

Opening an offshore bank account needn’t be traumatic – if you know what to expect and what you’re in for. You need to carefully consider your banking requirements. Do you want a personal or corporate account? In most cases a personal account is sufficient – and is usually easier to open. Some offshore banks will only open corporate accounts in person ? not on the internet or by mail.

Of course you’ll need to have valid passport, and will have to get it notarized by a Notary Public (which you’ll usually find in large legal firms). This process involves making an appointment with the Notary and having him sight your passport, then make a copy and add his Notary seal and signature, stating he personally viewed your passport. You will also need one or two utility bills as proof of residence.

The good news is, once you have gone through the mill and opened your account, you’ll find the bank (like any company wanting to make a profit) will want to retain your business and keep you happy! A good banking relationship is like gold ? so hang on to it.

6. The Facts About Offshore Credit Cards

Most offshore banks will readily offer you a debit card – you know, a plain ATM card like you have from your domestic bank. These are usually Cirrus and Maestro branded, although in EURO countries Visa Electron is quite popular. Now while these cards are very useful, the main function (when issued by an offshore bank) is to withdraw cash from ATM machines.

This is where the desire and need for a full-blown credit card comes in. However, due to rules laid down by Visa and MasterCard International – such cards are usually only available to residents in the country the bank operates from. So, for example, if you have a bank account in an offshore jurisdiction, their Visa card may only be available to local residents – not you.

A good alternative is a Visa or MasterCard debit card – which is directly linked to your offshore bank account. When you spend money using it, the funds are immediately withdrawn from your current account. You can’t get credit with this card, but you do get full Visa and MasterCard functionality when travelling internationally – like hotel check-ins, airline bookings etc. These types of cards are not readily available offshore, but a few major offshore banks issue them to their international clients.

7. The Advantages of Accounts in Various Currencies

One of the benefits of banking offshore is the ready availability of multi-currency accounts – where you can open more than one account at the same bank, each denominated in a different currency.

Now, why would you want to do that? The answer is simple – for hedging. In this volatile world currencies are always changing value. And as I write this, the USD is deemed to be heading downwards in value over time.

Most offshore banks that provide multiple currency accounts will allow you to move funds quite easily between them, as and when you see fit. So if you have a substantial amount of cash on deposit, then spreading your cash risk by holding different currencies is a sound financial decision – one made a lot easier by having an offshore bank account.

Conclusion

Opening an offshore bank account could be the best thing you ever do. However, many people find the process daunting – not least because they need to overcome the irrational fear that somehow their money won’t be as safe as banking at home. Of course the truth turns out to be the opposite. If you bank with a reputable offshore bank, then your money is much safer than before!