There are different types of banking in the world, and in Iran we also see the type of Islamic banking that has been implemented in the financial system. Using business models and studying them helps to understand the behaviors of different banks and their differences and similarities. On the other hand, the application of these models can help bank policymakers and decision makers to make the best use of the bank and its financial resources, given the circumstances in which they are unable to control it, and increase the return on investment in the banking industry. Applying these models can also help banking policymakers in estimating the process and path they choose to achieve their goals. The roots of banking in the modern sense of the word can be found in the Italian Renaissance and in its wealthy cities in the north, such as Florence, Venice and Geneva.
Classification of banks based on business model
One of the methods of classifying a bank is in terms of the way they look at shareholders and stakeholders. Banks can be divided into two categories:
Large commercial banks, which are usually formed on the basis of value-shareholder (SHV) structure and focus on different combinations of banking activities.
2. Other financial institutions with a Stakeholder Value Structure (STV) that have different ownership structures, such as public banks, cooperatives, and savings institutions.
These two types of banks coexist in the markets, but if we want to classify banks based on business models, we must identify the factors that distinguish these models from each other. In general, this distinction can be discerned based on the “nature” and scope of the banks’ investment “measures and strategies”. so:
Many retail-oriented banks, which include commercial, savings, and cooperative banks, offer many traditional banking services to the community.
Investment-oriented banks are more focused on business activities and rely on multiple financial resources as well as maintaining their retail network.
Other banks offer their services to clients such as large and medium-sized companies, construction companies, international trade finance centers and other financial institutions.
The following five general indicators are used in research to identify and evaluate the business models of banks:
- Financial activities
- Financial performance
To identify the strengths and weaknesses of these models, they are analyzed in two steps. In the first stage, more accurate indicators have been obtained based on the general indicators mentioned, in order to create specific business models by using cluster analysis. In the second stage, these models are compared based on relative performance, risk and other effective factors. The clustering method will be explained below.
The first mode of banking
Based on the defined tools, these 5 models can be identified:
The first model brings together the largest investment banks and includes the largest European banks. These banks are focused on major business activities. They rely less on traditional, stable sources to finance themselves, and they source their funding from sources such as repurchasing agreements and borrowing commitments, which are severely strained in times of crisis.
The second model, called the major model, includes banks that rely heavily on interbank finance and borrowing. On average, a bank’s liabilities in this group, which include interbank deposits and borrowings, کمتر account for less than half of the bank’s balance sheet. This model has the lowest level of reliance on customer deposits among the obtained models. The number of these banks has also decreased due to the economic crisis of 2008 as well as following other models.
The third model consists of retail-oriented banks that use non-traditional financial resources. Customer loans and borrowing liabilities account for a high percentage of the balance sheets of these banks. Using a strategy of diversifying their financial resources as much as possible, this group of banks has been able to continue to grow even during the financial crisis. This model is called diverse wisdom.
The fourth model, which has many similarities with the third model. The most important similarity to the previous model is that they are formed by micro-banks and on average more than 60% of the balance sheet of both models is allocated to traditional customer loans. Models 3 and 4 cost twice as much for their employees as capital and major banks. The high cost of staffing can indicate the wide geographical area covered by such banks. These two models also have differences with each other, the most important of which is the reliance of the third model on the debt markets and the reliance of this model on customer deposits. This model is called centralized micro.
Diverse investment and micro-banks are the most active models internationally. Banks that follow these business models cover a wider geographical area than banks that use the major and minor concentrated model.
The second type of banking
In another type of banking category, the following groups can be mentioned:
- Branch Banking: Banking activity with a branch establishment license.
- Branch Banking: Banking activity without a branch establishment license.
- Investment Banking: Financial intermediation in the purchase of first-hand securities and supply to investors in the capital market.
- Major Banking: Performing banking operations by one bank for another financial institution or bank.
- Retail Banking: Performing operations by a bank for businesses and individuals.
Due to the importance of micro-banking, more details on this type of banking will be explained below.
These banks are institutions that provide services directly to customers, such as opening and checking accounts, providing bank transfers, providing credit cards, and sometimes loan and retirement services. These banks can be local banks without branches or a branch of commercial or state-owned banks established to provide services to private and local customers. Credit unions and banks providing loans and capital deposits can also be subdivided into micro-banking; Of course, credit unions also generally run investment and business services. Micro-banking in the banking industry is known as the arm for “mass marketing” of banks that offer different services to customers in one place and perform all financial transactions of customers in one bank.
Many retail banks have added small business services such as lending or credit lines to their other services, such as bank account handling, to retain customers who need other banking services in addition to personal account handling. Retail banks usually have a structure that is easily accessible to customers, but virtual and online banks are also developing day by day, offering their services only through the Internet or telephone, and there is no specific place for customers to physically visit them. کردن. Retail banks also offer services such as pension accounts, mutual funds, money market investment funds and certificates of deposit, investment and brokerage services to customers. When a sub-bank offers services such as business loans or investment and retirement services to customers, it may provide these services in the form of a third party provider or parent bank, perhaps due to limited rules and resources.
Investment Bank, which is called Tamin Sarmayeh Company in Iran, is a financial institution that attracts capital for its customers by conducting securities transactions. These transactions include securities trading, trading, mergers and acquisitions (M&A), currency trading, commodity trading, stock and securities trading, and more. The occupations in the investment bank include economic analysts, credit analysts, investor representatives, consultants, and so on. The clients of an investment bank can be individuals, companies and businesses, pension funds or government agencies. Investment banks have three distinct sections;
- Front office or front office
Front Office is the place where all the bank transactions are done, such as buying, selling and various commercial services. This section may include: investment management, global currency transactions, commercial banking, acquisitions and mergers, financial investments, capital increases, commodity trading, and more. The front office also has a section for research. Of course, this research should not be confused with the risk assessment section, which we will explain in the Middle Office section. The activities of the front office research department should be carried out completely separately from the investment activities because the reports related to the bank’s investments affect its business position.
- Mid-level department or middle office
Middle Office is the place that directs all of the bank’s management strategies and activities, including the financial control of the bank’s assets, market presence and profitability. The managers and staff of this department monitor all credit and marketing risks in the bank’s financial situation and ensure that no risks or errors or credit manipulation have occurred.
- Organizational or back office
The back office is where it manages and oversees all of the bank’s information and technology support. It is also responsible for handling transactions and operations performed by the bank. Compliance departments are responsible for overseeing the compliance of all banking operations with the rules and principles and may be located in the back office or middle office because it is, in a way, part of the banking operational risk analysis.
Types of banking in Iran
At present, the types of banking in Iran are defined according to Article 8 of the draft of the Banking Law of Iran as follows. Article 8 Credit institutions are:
- Commercial Bank
- Specialized bank (including Gharz al-Hasna bank)
- Regional Bank
- Credit Cooperative
- Foreign bank branch
In examining the definitions related to each of the mentioned classes of banks, only commercial banks are allowed to carry out all banking activities and have specified restrictions for other banks in terms of the type of activity.
Types of banking in Iran based on activity and mission
Some banks, such as those established by the government, had specific activities and missions:
- Agricultural Bank was established to promote agriculture.
- Bank of Industry and Mines was established in the field of industrial activities.
- The Housing Bank was established in the field of granting housing facilities.
- The Export Development Bank was established to develop the country’s exports.
- Kargshaei Bank was established in order to meet the financial and immediate needs of the people by paying small loans through collateral and certification of movable property.