What Is Commercial Banking? (With Types and Functions)

By Indeed Editorial Team

Published 30 April 2022

Commercial banking is a service offered to borrowers and depositors and focuses on products and services customised for businesses, institutions and government corporations. Banks lend money to investors they believe can pay back and take deposits from those who want to save their cash. Learning more about this field can help aspiring commercial bankers gain a deeper understanding of what the role entails.

In this article, we answer the question 'What is commercial banking?', describe the types of commercial banks, explore a commercial banker's primary functions, discuss the requirements of this role and list the core skills and speciality areas of a commercial banker.

What is commercial banking?

Understanding the answer to 'What is commercial banking?' can help you make relevant decisions when searching for a banking career. Commercial banking is a service provided to depositors and borrowers by commercial banks. These banks provide financial services to corporations, institutions and government organisations. Large commercial banks provide fund management and planning to their customers.

Commercial bankers may work in smaller or larger commercial banks. For instance, they attend to a wide variety of clients in a smaller bank, but specialise as mortgage officers, loan officers, credit analysts, branch managers and trust officers in a larger bank.

Related: What Is Corporate Banking? Definition and Comparisons

Types of commercial banks

The National Australia Bank (NAB), Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group Limited (ANZ) and Wespac are the big four banks that dominate the Australian market. But there are other types of commercial banks in Australia, as explained below:

  • Community: These are financial institutions that operate locally throughout Australia. Customers or community members own these banks.

  • Regional: These banks are larger than community banks, but still operate below the state level. They offer their services in a limited area of a country.

  • Foreign: These are banks established outside Australian borders, such as Citigroup Bank or Bank of China. Foreign banks conduct their operations through an Australian branch.

  • Building societies and credit unions: The owners of these banks can be members of the community or union. They control their operation democratically by involving every member in decision-making.

Functions of commercial bankers

The following are some functions of a commercial banker:

Accepting deposits

As a commercial banker, you can receive customers' deposits on behalf of the bank. This might involve giving customers information regarding savings options and types of deposits. For instance, you can explain to customers that savings deposits can attract interest. You may also explain the difference between fixed and current deposits for customers without banking knowledge.

Providing loans

As a banker, one of your responsibilities involves educating customers on the types of loans, terms and procedures. Commercial bankers may work in organisations offering lending services as loans. Bankers may therefore facilitate the processing of both short-term and long-term loans.

Acting as an agent

Commercial bankers act as agents to their customers in various ways. For instance:

  • collecting bills, drafts and cheques

  • making insurance, rent and loan payment

  • acting as intermediaries between customers and the stock market

  • working as an administrator or executor of the estate for a customer

  • ensuring tax compliance by preparing income tax and claiming a tax refund for their customers

Issuing traveller's cheques

As a commercial banker, you might issue a traveller's cheque to customers and print a new one if they misplace the original copy. A traveller's cheque is a medium of exchange you offer tourists or travellers as an alternative to hard currency. People travelling to foreign countries and other vacations can use this document to settle their bills. Tourists with travellers' cheques can travel overseas freely without carrying cash.

Issuing credit cards

Commercial bankers prepare and issue credit cards to their customers that might allow them to purchase items or access services on credit from certain retailers. Customers can withdraw money up to a specific limit daily from Automated Teller Machines (ATMs). Besides issuing credit cards, you might also cancel cards or putting them on probation when you suspect fraudulent activities.

Facilitating foreign trade financing

As a commercial banker, having expert knowledge of foreign markets can be vital when working with customers with international trade interests. This is because, as a representative of the bank, you may provide services such as advising customers on foreign markets, facilitating credit services and enabling customers to access foreign currencies.

Your other functions may include:

  • linking customers and lenders

  • marketing bank products to attract new clients

  • offering other services to customers such as branding, financial planning, development of products, and business marketing to grow their businesses

  • tailoring financial services for sectors such as aviation financing, real estate investment loans and car dealer services

Related: 18 Highest Paying Trades Australian (Plus Primary Duties)

Requirements for a commercial banker

The following are requirements for a commercial banker:

Bachelor's degree

A bachelor's degree in business or any other relevant degree can give you a competitive advantage when pursuing a career in the commercial banking industry. Consider selecting a bachelor's program with significant studies in banking, which can include a bachelor's degree in commerce, finance, accounting, economics and business. You might also consider supplementing your banking knowledge with legal knowledge to make commercial banks consider your application. For instance, a Bachelor of Finance/Law can make you more appealing to a recruiter.

Certifications

If you are interested in commercial banking, but prefer not to get a bachelor's degree, you can consider a Certificate IV in Financial Services. This qualification can help you gain financial and administration skills useful in your commercial banking career. Completing a Certificate IV in Financial Services can give you a background to thrive in the commercial banking career, because it provides you with a nationally accredited qualification that recruiters might value. For instance, with a Certificate IV in Finance and Mortgage Broking, you may apply for a position in a commercial bank and work towards becoming a mortgage officer.

Related: What Is an Investment Banker?

Skills for commercial bankers

Following are the skills to become a successful commercial banker:

Problem-solving

As a commercial banker, you may design strategies that best suit your customer's financial needs. Problem-solving skills can help you analyse a situation and work through a solution. Customers might approach you with financial problems, including issues with bank accounts, miscalculation of loan interests or technical issues that may lead to disbursement delays. You may listen to customers' problems and evaluate necessary steps to overcome them.

Numeracy

A commercial banker works with numerical and graphical information. Having numeracy skills can help you analyse figures, mathematical data and draw conclusions. Your potential employer may test your ability to manipulate data during recruitment to find out if you have excellent numeracy skills. Numerical ability can be a vital skill, because banking requires the handling of cash transactions meticulously.

Time management

Working as a commercial banker may require you to work simultaneously on several accounts, manage complaints and respond to inquiries. Seamlessly completing these duties on time, without neglecting others, requires time management skills. The skill can help you plan and perform your duties effectively by meeting deadlines and avoiding costly mistakes. Project management skills can also help you learn how to work within a schedule to ensure you serve every customer efficiently within a reasonable time.

Specialisations of a commercial banker

The following are some specialisations for a commercial banker:

Loan officer

The capacity of a loan officer may require you to assess customers' creditworthiness. The process may involve interviewing loan applicants to determine their financial eligibility. Depending on the financial institution, you may have the discretion to set loan limits for customers or follow predetermined bank policies.

Mortgage banker

As a mortgage banker, you can originate real estate loans and choose to fund them using your own money. You may decide to keep this mortgage or sell them out to another person or organisation. You can also contact credible appraisals of customers' financial statements, like bank and cash flows statements and find out whether they qualify for this mortgage.

Credit analyst

A credit analyst processes and evaluates loan or credit applications. You can set loan limits and payment conditions after analysing their financial information. This role may require great financial analysis and communication skills to engage the applicant professionally. Credit analysts may work in different institutions offering credit and loans, such as investment companies, credit card companies and commercial banks.

Trust officer

As a trust officer, your duties may include communicating with real estate agents about trust and estate issues, such as laws governing trust assets. You can also assist customers in making financial decisions on real estate investments by ensuring the property is in recommended standards, payment of taxes and insurance are all taken care of.

Please note that none of the companies, institutions or organisations mentioned in this article are affiliated with Indeed.