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Banking & Financing | Lalin Law Office

Well, how does it work in Serbia?

Banking & Financing

Existence of money and lending possibilities represent important factors in the reproduction of industry of a country. In this cycle, banks have a special position and role because they are specialised institutions whose primary function is to provide necessary loans and money supply to industry and its reproduction. For this reason banking as a whole, as a specific industry, is determined by the type and contents of banking operations. Pursuant to the Act on banks and other financial institutions, banks are incorporated as joint stock companies on the basis of articles of incorporation and upon provision of the funds for the bank’s foundation capital. The other financial institutions, apart from savings and loan associations, are incorporated as joint stock companies on the basis of articles of incorporation and upon provision of the funds for foundation capital.

The functions of banks are:

The function of a credit intermediary – The first and the most important function of a bank is to serve as a credit intermediary by taking loans (from CB and other commercial banks or money from deposits and savings) on one hand and to offer the collected money as loans to the clients on the other hand. The bank’s function of a credit intermediary is reflected clearly and completely in its balance sheet. Deposit operations, which provided the funds to the bank, are reported in the bank’s balance sheet as liabilities and credit operations are reported as assets. The difference between the interests that the bank offers to its clients for deposit operations and the interests charged to the clients on the basis of credit operations (so-called negative and positive interest rates or borrowing and lending interest rates) is called interest spread and makes a significant share of the bank’s profit.

The function of financial settlement – Acting as an intermediary enables settlement of payments to creditors not only within financial meaning but also with regard to space and time.

The function of providing services – Banks also perform different services for their clients, where they act neither as a debtor nor as a creditor, such as payment system, and other services of neutral character, such as foreign exchange business, saving entrusted money and the function of an intermediary in payment system.

Entrepreneurial function – The bank acts as the other traders and also performs its own business operations aimed at making profit, such as buying and selling objects on the exchange or over-the-counter, buying and selling of foreign currency, issuing business on its own behalf etc.

Types of banking operations:

Banking credit operations – Banking credit operations are the operations in which the institution acts as a creditor of its client (debtor). The following fall within the scope of credit operations: loan agreement, lombard, relombard, discount and rediscount.

Banking deposit operations – Banking deposit operations are the operations in which the institution acts as a debtor of its creditors. The following fall within the scope of deposit operations: issuing operations, issuing bonds, issuing collateral securities, issuing bills, issuing depository receipts and saving deposits.

Neutral banking operations – Neutral operations include banking operations in which the bank is neither the creditor nor the debtor. Neutral banking operations include the following: deposit agreement, vault agreement, foreign currency operations, clearing operations and bank guarantees.