Commercial Banking

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Commercial Banking
This Course Guide has been taken from the most recent presentation of the course. It would be useful for reference purposes but please note that there may be updates for the following presentation.

FIN B381
Commercial Banking



Introduction

Welcome to FIN B381 Commercial Banking. FIN B381 is a 10-credit, higher-level elective course. This course is recommended for those who would like to expand their knowledge and understanding of what a commercial bank does -- and of the financial products and services it offers -- for their professional and self-development. As the banking industry is one of the largest employers and fastest-growing industries in the economy, it is always beneficial and advantageous to know more about the banking business. In addition to career and professional development opportunities, the knowledge can help you make more informed choices about banking products and services in relation to your own daily financial matters.

The advisory prerequisite of the course is FIN B388 Banking Systems. FIN B388 provides a basic framework and the relevant materials to expand your knowledge and understanding of financial systems -- to know their purpose and learn how they work. To be more specific, FIN B388 introduces the local banking activities at the macro level and the types and functions of financial institutions and markets in Hong Kong. Although FIN B388 is not a compulsory prerequisite for this course, it is assumed that students enrolled in this course have already taken it.

What this course helps you do

This course concentrates on both the practical and analytical aspects of commercial banking. It examines the roles, economic functions and operation of commercial banks, with emphasis on the products and services provided by commercial banks in Hong Kong. As lending is among the major services of commercial banks, the process of credit risk identification, assessment and management is covered in detail. A distinction is also made between commercial banking and investment banking, although the differences between the two are becoming indistinct. The banking industry, which is predominant in our financial system, is continuously undergoing great changes. Financial innovations, new developments in technology and regulation are among the major factors responsible for the changes. The course also covers the development of electronic banking and its effects on the market practice.

Course aims

FIN B381 Commercial Banking aims to provide learners with advanced knowledge of what commercial banks do. It explains the mechanisms of the key banking services and their recent developments. It also reviews the techniques of credit assessment and risk analysis in loan management.

Course learning outcomes

Upon completion of this course, you should be able to:

  • Review critically the general practice and operation of the commercial banks in Hong Kong.

  • Elaborate on the banking system and regulatory framework for commercial banks in Hong Kong.

  • Distinguish between various types of banking products and services, and evaluate the product features and mechanisms.

  • Apply a complete process of bank lending that includes identifying the borrowing cause, credit assessment and loan management.

  • Identify the specific banking needs of corporate clients and formulate suitable treasury management strategies.

  • Pinpoint the specific banking needs of wealthy clients and formulate appropriate financial solutions.

  • Analyse the major challenges in the banking industry in respect of technology advancements, regulatory change and globalization.

Working through this course

Materials

In addition to this Course Guide, the course has the following important components. Please ensure that you have all of these materials available.

Study units

The ten study units in this course are as follows:

  • Unit 1 Basic commercial banking setting

  • Unit 2 Banking system and regulation in Hong Kong

  • Unit 3 Banking practice in Hong Kong

  • Unit 4 Finance of international trade

  • Unit 5 Bank lending and loan management

  • Unit 6 Personal lending

  • Unit 7 Commercial lending

  • Unit 8 Corporate banking

  • Unit 9 Private banking

  • Unit 10 Other commercial banking services

Units 13 deal with the general concept of commercial banking and the general banking environment in Hong Kong. Unit 4 discusses the banking services in trade finance. Units 57 cover lending-related services. Units 810 deal with special topics in banking, including corporate banking, private banking and electronic banking.

Set textbook

There is one compulsory textbook for FIN B381 Commercial Banking:

Rose, P S and Hudgins, S C (2013) Bank Management and Financial Services, 9th edn, New York: Irwin/McGraw-Hill.

Audiovisual materials/software

You will need access to a computer with Microsoft Windows XP/Vista/7 or equivalent and an Internet browser.

Assignment File

The Assignment File (available from the Online Learning Environment, OLE) provides you with guidelines for working on your assignments. You can refer to the Course Guide section on assessment that follows, and to the Assignment File itself for more information.

Presentation Schedule

The Presentation Schedule (available from the OLE) is included in the course materials. This schedule provides you with the dates for completing assignments, attending tutorials and surgeries, and so on.

Assessment

There are two parts to the assessment for the course: a three-hour final examination, and four assignments. Assignments serve as the continuous assessment component within the study period and contribute 40% to the total course mark. The other 60% comes from performance on a final examination. To pass this course, students must pass both parts of the assessment process. That is, students must attain a mark of at least 40% for the final exam, and they must receive at least 40% on average for the assignments.

This course is designed to assist you in moving easily from the subject material to the assignments and examination. You are expected to apply concepts and techniques introduced during the course in attempting the assignments and examination. Most problems require qualitative and narrative responses.

Assignments

During the period of learning, the continuous assessment of your performance in the course is carried out through the submission of four assignments. The assignments are contained in the Assignment File. Assignments serve three purposes:

  • Assignments provide a mechanism for you to maintain your progress.

  • Assignments test your understanding of the topics and require you to demonstrate your achievement of the course's learning outcomes.

  • Assignments also provide an opportunity for you to apply what you have learned via applications and case studies.

After being marked by the assigned tutor, your assignments are returned to you so that you are aware of your mistakes and can clarify any misunderstandings. In addition, you can broaden your perspectives through the tutor's feedback. The four compulsory assignments are equally weighted:

  • Assignment 1 will cover the materials from Units 1 and 2.

  • Assignment 2 will cover the materials from Units 3 and 4.

  • Assignment 3 will cover the materials from Units 57.

  • Assignment 4 will cover the materials from Units 8 and 9.

The assignments will draw on the relevant units of the course and will contain both computational and discursive elements.

How to submit assignments

You must use word processing software (such as Microsoft Word) to prepare the assignments, and submit the assignments via the Online Learning Environment (OLE). All assignments must be uploaded to the OLE by the due date.

Failure to upload an assignment in the required format to the OLE may result in the score of the assignment being adjusted to zero.

Assignment extension policy

The assignment policy of the University as stated in the Student Handbook should be observed. You are required to submit assignments for this course in accordance with the dates communicated by your course coordinator. You may apply for a submission extension on the grounds of illness, accident, disability, bereavement or other compassionate circumstances (with good justifications and documented proof).

Applications for extensions of up to seven days should be submitted to the tutor. The tutor shall consider valid and unexpected emergencies on an individual basis. Normally, documented proof of the extenuating circumstances is not required for extensions of up to seven days. The tutor shall decide and advise you of the revised date for submission.

For extensions of over seven days, you should note the following:

  1. If you require an extension of more than seven days on the grounds of illness, accident, disability, bereavement or other compassionate circumstances, you are required to submit your application to the Course Coordinator.

  2. Supporting documents must be submitted along with the application for extension of over seven days to justify the claim.

  3. Applications for extension should normally be lodged before or on the due date.

  4. Applications are considered by:

    • the Course Coordinator for extensions of 8 to 21 days; and

    • the Dean for extensions of over 21 days.

After an assignment is submitted via the OLE, it is your responsibility to check that the assignment has been successfully submitted. Extension applications due to any problem with uploading will not be accepted. The University cannot accept any responsibility for assignments that are not received by your tutor due to any problem with submission via the OLE. As a precaution, you are advised to keep a copy of each assignment you submit.

According to the University's policy, no extension of the due date will be allowed for the final assignment. This policy will be strictly enforced. Any late submission of the final assignment will result in the score of the assignment being adjusted to zero.

Final examination and grading

The examination paper will cover material from all units. It will contain both computational and discursive elements. The final examination mainly includes open-ended questions and workout problems. Open-ended questions assess students' understanding of theories and concepts, as well as their ability to apply them in analysing realistic cases. Workout problems gauge students' mastery of financial problem-solving techniques and skills. Before the final examination, the OUHK will send you a specimen examination similar in format to the final examination, but with different questions. You will also be advised of examination arrangements one month before the date of the examination.

Course marking scheme

The structure of the course marking scheme is summarized in the following table.

Assessment Course area covered Weighting
Assignment 1 Units 1–2 10%
Assignment 2 Units 3–4 10%
Assignment 3 Units 5–7 10%
Assignment 4 Units 8–9 10%
Examination Units 1–10 60%
Total 100%
Students are required to pass both the continuous assessment component and the final examination to obtain a pass in this course.
Course overview

The following table gives a general overview of the course structure. It suggests the amount of time you should allow for completing units and provides a broad schedule for you to plan your work. These times are intended as a guide only and should be adjusted to fit your personal needs more closely. This estimation includes time for reading the units, completing activities, self-tests and assignments, attending tutorials and surgeries, and preparing for your final examination.

Unit Title Weeks of work Assessment activity
(end of unit)
1 Basic commercial banking setting 3  
2 Banking system and regulation in Hong Kong 3 Assignment 1
3 Banking practice in Hong Kong 3  
4 Finance of international trade 3 Assignment 2
5 Bank lending and loan management 3  
6 Personal lending 3  
7 Commercial lending 3 Assignment 3
8 Corporate banking 3  
9 Private banking 3 Assignment 4
10 Other commercial banking services 3  
  Revision 2  
  Total 32  
How to get the most from this course

The course materials include a printed Course Guide, study units and the Assignment File. You do not have to subscribe to other additional materials, though we do suggest that you keep up-to-date on this topic by reading newspapers often.

There are a total of ten units in this course. Each of the ten units consists of between three to four weeks of work and includes specific objectives, directions for study, commentaries on the activities, and summaries of key concepts and techniques. The units direct you to work on exercises and activities related to the material covered. They can both help you gauge your progress and reinforce your understanding of the material covered in the unit. More importantly, they give examples to help you fully understand the concepts presented in the text, and can assist you in applying these concepts and techniques in the working environment. Together with the assignments, these activities will assist you in achieving the learning objectives of the individual units of the course. Also, you can read quality journals, websites and newspapers on related issues and events in banking to keep pace with the latest developments.

Please note that the biggest temptation that students face, when they are short of time, is just to read the course materials. When they get to a learning activity or self-test, they flip straight to the back of the study unit to see the suggested answer. This saves time, and students still know the correct answer, right? Wrong! Terribly wrong! Many contemporary educationists believe that learning is not a process that happens when people listen to a lecture or read a book passively. They think that learning takes place as people actively construct the knowledge. Do not take a shortcut that compromises your learning. Attempt the learning activities and self-tests presented in the study units.

When done properly, working with fellow students on difficult learning activities or assignments can be beneficial. However, doing so without acknowledging the contributions of other students in your own work is plagiarism. It has happened in the past that after enough cosmetic changes had been made, the act of cheating may not be caught by the tutor who is marking the assignment. But in this case, the student's learning will suffer and it will show in the final examination. Be an honest and virtuous student.

Tutors and tutorials

A tutor is assigned to assist you in studying this course. The tutor, in addition to conducting tutorials and surgeries, is responsible for marking your assignments and answering any questions that you may have throughout this course. You are encouraged to contact the tutor during consultation hours whenever you have a question or problem with the course materials. Please contact your tutor should any of the following arise:

  1. You do not understand any part of the study units or the assigned readings.

  2. You have any difficulty with self-tests.

  3. You have a question or problem with the assignment, or with your tutor's comments on or grading of an assignment.

Your assignments will be marked and commented on by your tutor, who will keep an eye on your progress and assist you if you encounter problems during the course. Marked assignments will be returned to you as soon as possible.

It is good practice to keep a copy of each assignment submitted for marking, so that you can always refer to queries with the tutor during discussion.

Apart from self-study, tutorials and surgeries will also be organized to assist you in your learning process. Details of the dates, times and location of the tutorials and surgeries, as well as the name, email address and phone number of your tutor, will be sent to you in due course.

It is strongly recommended that you attend all the tutorials and the surgeries, which will provide considerable assistance in your study of this course. Moreover, you will have the chance to meet fellow students and be with other distance learners who are studying at the OUHK.

Compared to the mega classes attended by hundreds of students in a typical university, the tutorials with 30 students or so at OUHK provide a good opportunity for you to meet your classmates and to get to know your tutor. You will find that support and encouragement from classmates and tutors are very helpful.

Attendance at tutorials is optional, but you are urged to take advantage of them. You can get the most from tutorials by pre-studying the relevant materials, making comments and asking questions. Remember that learning does not happen passively. Your active participation in tutorials is crucial.

While you may think you are studying on your own, it doesn't need to be that way. You can be in regular contact with your tutor and, once you've met for the first tutorial, you can be in contact with your fellow students. Make a point, when you meet fellow students, to exchange phone numbers or email addresses. In this way, you will be well on the way to developing a learning network of your own.

Tutorials and surgeries will be held throughout the course. They will be based on the major course units and tutors may also introduce further explanation, examples and readings. Full details are given in the Presentation Schedule.

Online Learning Environment

This course is supported by the Online Learning Environment (OLE). You can find course materials and the latest course information from the OLE. Through the OLE, you can also communicate with your tutors, the Course Coordinator and other students. For details about the OLE and how to access it, please refer to the Online Learning Environment User Guide.

Use of case studies

Case studies are a useful and increasingly popular form of learning and assessment in the OUHK's School of Business and Administration. In this section we will look at why case studies are used and then suggest some learning strategies that you can use to approach case studies. We will also briefly discuss some problems that you may encounter as you learn from case studies.

What is a case study approach to learning?

One main purpose of a case study is to explore an issue or a number of issues in relation to an organization. The intention is to get you to carefully diagnose an organization; to focus on key problems, and to suggest how these might be resolved. Often the case is a real-life account of an organization which you are required to analyse in order to focus on a problem. Usually, the information that is provided is incomplete and you are often expected to observe developments in the organization over a period of time. The case study approach is an excellent opportunity to actively apply material that you have read and conceptual knowledge to the reality of an organization.

At the OUHK, case studies may be used as part of TMAs, exams, study units, or day-school exercises. You normally are given some information about a company (this could be both text and graphical information, such as figures and tables). You are then asked to think about some problems related to the company and to use concepts and apply theories that you have learned in your course to propose possible solutions for the company.

Let's have a look at two kinds of case study questions that you might be asked to work through in your courses. The first example is quite structured, while the second is much more open-ended.

Two examples of case study questions

  1. Read the case study entitled 'ABC Consultants' and consider the following issues:

    • Using your understanding of the resource-based model, what measures could be taken to improve ABC's returns?

    • Drawing on your broad understanding of the consultancy industry, assess ABC's relative competitiveness and its profit potential.

    • To what extent do internal factors account for ABC's financial weaknesses?

    • Based on your assessment of ABC's financial weaknesses, formulate a new strategic intent and develop a mission statement for ABC.

  2. Read the case study entitled 'XYZ Industries'.

    • Identify the key problems that are currently faced by XYZ's management.

    • Propose viable solutions to these problems.

Why case studies?

As you can see from the above examples, a case study approach to learning requires a great deal of thinking and often will not easily yield a quick 'wrong' or 'right' answer. However, case studies are also good preparation for dealing with real-life business problems. Cases may be short and relatively simple, or longer and complex. The purpose is the same for both types: to give you an opportunity to develop your skills in analysing the strengths and weaknesses of the organization under examination, to consider the processes at work within the organization, and to make decisions about future actions.

Case studies are not meant to replace textbooks, but rather to ask you to draw connections between theories and practice and to apply abstract ideas, concepts, and principles to specific concrete situations. Consequently, case analysis develops a number of skills that are crucial in business. In particular, they help you to:

  • analyse complex, unstructured, sometimes ambiguous situations;

  • identify critical issues and problems;

  • question your own and others' assumptions;

  • improve your problem-solving skills;

  • develop your ability to find alternatives and make informed decisions;

  • make decisions with incomplete information and think strategically;

  • self-educate yourself and draw on a broad range of resources and knowledge; and

  • present and justify recommendations in writing.

You may find that there are many possible 'right' answers to the questions in a case study. This illustrates that there is often no single best way to responsibly manage and solve real-life business problems.

Some guidelines for analysing case studies

The following strategies should help you to successfully analyse case studies:

1 Read the case and become familiar with the facts

First, skim read the case to obtain a general understanding of the main point(s). Highlight or underline the pertinent points as you read.

Read the case again, and this time note down critical facts (such as names, time sequences, and where events occurred). Try to understand how events have influenced decisions. Identify the important individuals or stakeholders, and try to assess the importance of supporting information in the case. How reliable is this supporting information? Are there any gaps in the information that is given?

Make a note of any questions that you have as you read the case.

2 Assess the context of the case

Try to understand the environment of the organization and the wider context of the case.

Ask yourself questions about:

  • The state of the organization: What is the state of this organization: good, bad or in-between? Usually this involves thinking about interpersonal relationships, and assessing production or financial problems.

  • Key players and systems: How do systems and people operate in this organization? Why do they operate like this? Are the systems undergoing change? How successful are the changes? Is there someone who could sabotage any future strategy? Is there someone who can ensure the success of a future strategy?

  • Significant trends: How does this industry operate? What are the main or unique characteristics of the industry? What were they five or ten years ago, and what are they likely to be in the future? What impact are trends likely to have on the organization under investigation? How does this organization's performance compare with that of competitors?

  • Constraints: Clearly identify all constraints in the case. A constraint may be viewed as anything (usually beyond the control of the organization) that may prevent an otherwise feasible course of action from becoming a success. What is outside the control of individuals in the case study? For example, it is unlikely that any company or individual in Hong Kong could prevent a foreign government from imposing tariff barriers on imports.

A SWOT analysis is a good way to get a better understanding of the organization and the context or environment in which it is operating.A SWOT analysis considers the Strengths and Weaknesses of the organization, and the Opportunities and Threats which the organization faces in the external environment.

3 Recognize the case's symptoms

Read the case again and as you read, try listing all the symptoms of the case. The symptoms of a case are not the problems, but they may help you to identify the problems. Symptoms are all the things that are undesirable or that are not as expected. For example, falling sales could be a symptom of several problems such as poor market segmentation, poor product quality, or problems in a supply chain. At this stage of your analysis, you should just try to observe all the symptoms, and avoid prematurely identifying problems or suggesting solutions. Like a doctor who consults a patient, you first need to observe and note all the symptoms before you can give a definite diagnosis of the problem. Think about how the symptoms may be interrelated. Relationship diagrams, like the one below, may help you to see the relationships between symptoms.

4 Diagnose the case's problems

After you have a good sense of the symptoms, you're ready to determine key issues that need to be analysed more closely. You are now diagnosing the situation, like a doctor diagnosing a patient's symptoms. Ask yourself 'what seems to be the trouble in this organization?' and make a list of what you now perceive to be the key problem(s). You will probably need to go back to the details of the case and as you do this, you may add to or refine your list of potential problems.

If there are several problems, you need to order and prioritize them. You might want to number problems according to how you perceive their importance, or make a matrix, like the one below, which shows relationships between various criteria and each problem.

Criteria Problem #1 Problem #2 Problem #3
Importance: what will happen if the problem is not addressed?      
Urgency: how quickly must this problem be solved?      
Centrality: To what extent does this problem cause others?      
Solvability: Can this problem actually be solved?      

Also try to establish if there are relationships or themes in common among the various problems. Perhaps different problems in your list are actually variations of a broader central problem.

Ask yourself what assumptions you have made about the case. Are these assumptions reasonable, and are they supported by the facts? Would other people objectively suggest the same problems, based on the facts that you have? Are you suggesting problems that are not supported by the facts of the case?

After you have considered and put into order the possible problems and questioned your assumptions relating to these problems, you should write a statement of the problems as you perceive them. Avoid suggesting solutions at this stage.

Once you have a problem statement, you need to find evidence in the case to support your problem diagnosis. Also, try to identify ideas, concepts and theories from your textbook and course units which help to explain what is happening in the case.

5 Formulate criteria for a 'good' solution and identify possible constraints to solutions

Before you propose a solution, you need to consider the characteristics of a 'good' solution. Obviously, your solution should bring benefits such as improved productivity, reduced costs or greater profits. However, it also needs to be viable and to accommodate the constraints that you have already identified, i.e. Is the solution legal? Is there a budget for this solution? Does it conflict with the organization's culture?

Try to brainstorm alternative solutions. Aim to generate a broad and creative range of options and then try to rate each according to various criteria.

The following matrix demonstrates how this can be done.

  Cost Ease of implementation Impact on organization culture Impact on profits
Option 1 *** * * **
Option 2 * *** *** **
Option 3 ** * * ***

Also refer to ideas, concepts and theories from your course materials as you consider and assess each possible solution.

It's often wise to propose a solution that allows for plausible alternatives if it should fail. Managers use the term satisfice when they are considering acceptable alternative solutions, that is, the solution is able to satisfy the situation while also making some realistic sacrifices to existing constraints. Therefore, it is a satisficing rather than a maximizing solution.

Finally, don't forget to consider the possibility of taking no action. What will actually happen if no action is taken? Are any (or all) of the solutions less viable than taking no action at all?

6 Recommend a viable solution

After you have assessed the merits and pitfalls of each alternative solution, select the best solution for the situation.

Remember that the solution needs to be viable. Can the recommended solution be introduced? Are there the resources and the willingness to implement it? Be realistic about what may work. Explain why it is the best solution within the constraints of the existing context and explain how it can be applied to the organization. Suggest a time-frame for the solution's implementation.

Outline possible strategies for implementing your solution, either partially or completely. As many feasible courses of action as possible should be considered before you choose the one that seems the most likely to succeed. The more ideas you have, the greater your chance will be of finding a solution that will work well. The complexity of most organizational problems means that it is highly unlikely that one idea alone will correct the situation. Usually a combination of actions is required, and these need to be funded differently, timed carefully and staffed as necessary.

7 Present your solution as a written recommendation

Review your final solutions and then prepare a set of written recommendations. These should clearly outline your proposed solution in relation to the problems that you have identified. Your recommendations should also include details of why these solutions are the most appropriate given the circumstances and constraints of the case. Finally, you need to clearly state how and when your proposals will be implemented.

Your tutor and your course Assignment File can provide some guidelines on how to present your recommendations.

Some mistakes to avoid as you analyse cases

When you first tackle case studies, you should be careful to guard against the following mistakes:

  1. One of the most common mistakes made in case analysis is repeating or simply summarizing the facts of the case. Your tutor is already very familiar with the case details, so you do not have to restate them. You are required to use and analyse the facts, not repeat them. Your analysis should contain only enough case material to support your arguments. Therefore, be analytical!

  2. You may often be tempted to just deal with symptoms and ignore the causes of the problem. It is very important to analyse the background of the case (and the climate in which the events of the case unfold).

  3. Avoid discussing problems in isolation and do not overlook their interrelatedness. If you try to think in terms of 'systems' rather than in terms of individual problems, you are more likely to avoid this pitfall.

  4. Students often fail to state the assumptions underlying their analysis. If any important assumptions have been made, have you questioned them and are they reasonable and appropriate? Avoid selectively using and interpreting case material in order to justify a preconceived solution.

  5. Practical limitations and constraints may sometimes be overlooked. For example, a recommendation that a whole team be fired is probably unrealistic.

  6. A very common mistake is poor integration of the facts in the case with the concepts, principles, and theories in the textbook. Such integration is vital. Ask yourself if relevant theories from your course have been fully and constructively applied.

  7. Finally, recommendations are too often not spelled out in detail or are unrealistic. A timetable for implementing them is also often not given.

Analysing cases poses many challenges, and this is one reason the case study method is so rewarding. It is a very active form of learning. It offers you a risk-free opportunity to gain managerial and organizational experience and should greatly increase your confidence to make informed decisions in the real world.

Good luck and we hope you enjoy working through the cases that you encounter!

Summary

FIN B381 Commercial Banking provides learners with a firm foundation in the understanding of the functions and practices of a commercial bank, as well as its products and services to different types of clients. The course also emphasizes the importance of risk management and describes the lending and loan management processes. In view of the revolution of new technology in the banking industry, the course also covers the development of electronic banking and its implications on market practice.

Deferment of studies

If you wish to defer your studies of this course until a later date, you should apply for deferment of studies. For the regulations governing deferment of studies, please refer to Section 14, 'Regulations for Admission, Registration and Maintenance of Status', in the 'Academic Rules and Regulations'. If you have applied for deferment of studies you should continue with your studies of this course and submit the required assignments until formal approval is given by the University. Should you have difficulties in submitting an assignment, you are advised to liaise with your Course Coordinator and apply for an assignment extension. Students who have been granted deferment of studies will not be allowed to submit assignments due before the date that their application for deferment of studies is received by Registry.

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