ROLE OF FINANCE IN BANKING 

ABSTRACT 

Finance is a key aspect in the growth of any business. It plays an effective role in achieving higher goals  and aims for any business. Finance helps a business in planning and decision making. It colonizes the  business in two parts e.g. big business and small business, same is the role of finance in banking. Banks  are the ultimate help and guidance provider to businesses. If a bank is financially stable the chance  of giving a loan increases. This discussion focus on role of finance in banking.

INTRODUCTION 

The environment in which businesses operate can change quickly. The finance function monitors  changes happening internally, within the business, and externally, outside the business. It then observes  the impact of these changes on the finances of the business. 

There are two main reasons of finance in banking 

• To provide the financial information that other business functions require to operate effectively  and efficiently 

• To support business planning and decision-making 

Smaller businesses do not usually have the resources to support a separate finance function. However,  larger businesses can afford to employ specialists to oversee how the business spends its money and  controls its finances. 

PROVIDING FINANCIAL INFORMATION  

One of the most important roles of the finance function is to ensure that all financial records are  accurate and kept up to date. If managers use information which is not accurate and up to date, they  may make poor decisions. 

The range of financial information can be vast, especially in larger businesses. However, the most  common forms are: 

• Costs – knowing how much the business pays its suppliers, and whether these costs are being  controlled, helps a business to make a profit 

• Revenue – knowing how much money the business is generating, and whether this is increasing  or decreasing, is important in decision-making 

• Cash flow – monitoring and forecasting the amount of cash in the business is vital to ensure it  does not run out of money 

• Break-even point – knowing the point at which a business starts to make a profit can influence a  number of business decisions 

• Profit and loss – knowing whether the business is making a profit or loss is vital when making  business decisions

• Business performance – measuring the performance of a business can inform future decisions  about where improvements are required. 

SUPPORTING BUSINESS DECISIONS  

Businesses may require financial information relating to many different issues and decisions. These may  include: 

• A marketing campaign – the finance function may set a budget for the marketing function to  ensure that it does not spend money that the business cannot afford. During and after the  campaign, the finance function may provide sales and profit information to review whether it  was a success. 

• Business growth – when they make decisions about the best way for a business to expand,  managers will rely upon the finance function to provide information. This information may cover  sources of finance as well as costs, break-even point and any forecasted changes in sales. 

• Economic change – a change in the external environment, such as a recession, may require  advice from the finance function about how the business can reduce its costs or improve its cash  flow to ensure that it is able to survive. 

Each of these decisions – along with many others – highlight the importance of all functional areas of a  business working together. They show the interdependent nature of business. 

BANKING AND FINANCE 

Banking and Finance explores the dynamic, fast-paced world of money, shares, credit and  investments. Finance is an essential part of our economy as it provides the liquidity in terms of money  or assets required for individuals and businesses to invest for the future. 

When you choose to major in Banking and Finance you will explore the systemized movement and  management of money. In firms, the finance function ensures that activities are funded with equity or  debt and the firms can choose value-enhancing projects and manage cash flows, risk and liquidity in the  interest of their stakeholders. Financial markets are very important and understanding the pricing of  assets and derivative securities is vital. Financial intermediaries such as banks are key players in these financial markets. Banking is also a global  industry with over 60 banks operating across Australia and thousands of institutions and investment  houses across the world dealing with money circulation, credit, investments, financing, superannuation  and more. Finance is continuously changing which makes this subject a fascinating area to study.