The Role of Banks in the Economy of a Country
Financial sector development, especially changes in the composition or structure of the banking system in Indonesia, are expected to bring positive changes to the national economy. Why? Because financial institutions, especially banks have a very important role in the movement of the Indonesian economy. When the state is in the process of economic recovery, banks generally are still not optimal in carrying out their main functions as an international financial intermediary institution that illustrates the ratio of the ratio of the amount of credit extended to third parties (Role of community banking in Economic Development).
The intermediary role of banking institutions is very influential on a country's economic growth. When there is a decrease in the amount of credit extended due to caution from the bank, indirectly there will be a slowdown in economic growth in the country concerned.
Now, for more details about the role of banking institutions, particularly in terms of a country's economic growth, the following will be explained briefly about the duties and functions of banks in general. There are several main tasks of banking institutions. First, the bank has the duty to extend credit to business institutions or individuals who need it.
The purpose of lending is for productive activities. Credit itself is divided into three types, namely long-term credit, medium-term credit, and short-term credit. Second, banking has a duty to withdraw money from the public. This means that people may deposit their money in the form of time deposits, demand deposits, or checking accounts, as well as tabanas. Third, distribute services in the field of traffic circulation and payment of money. These services include check issuance services, selling and buying money orders, currency exchange, and many others. Fourth, the bank is tasked with providing bank guarantees and also renting a place for storing valuables.
Meanwhile, there are two types of banking roles, namely domestic roles and foreign roles. The role of domestic means that the bank has a role to meet domestic economic needs such as financial administration, collecting money, using money, exchanging and trading money, controlling money, crediting and sending money, while the role of banking for overseas includes: matters relating to foreign exchange flows, trade relations, and monetary relations between countries.
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The bank is a company engaged in the financial sector, meaning that banking activities are always related to the financial sector.
Understanding commercial banks according to Law No. 10 of 1998: "Commercial Banks are banks that carry out business activities conventionally or based on sharia principles which in their activities provide services in payment traffic."
The functions of commercial banks described below show the importance of the existence of commercial banks in the modern economy, namely: Creating money, Supporting Smooth Payment Mechanisms, Collecting Community Savings Funds, Supporting Smooth International Transactions, Storing Valuables, Providing Services Others
The role of banks is very important for the Indonesian economy and banks also have a role in financial stability, inflation control, payment systems, and monetary authorities.
As many people know, "banks" are known as financial institutions whose main activity is to accept deposits, savings and time deposits. Besides that the bank is also known as a place to borrow money (credit) for people who need it. Also known as a place to exchange money, move money or receive all forms of payments and deposits such as payments for electricity, telephone, water, taxes, tuition and other payments.
"Bank" is a business entity that collects funds from the public in the form of deposits and distributes them to the public in the form of credit and or other forms in order to improve the lives of many people, as stipulated in RI Law No. 10 of 1998 dated November 10, 1998 .
Talking about the Bank certainly can not be separated from financial problems. The first banking activity is to collect funds from the wider community, known by the term in the banking world as activities (Funding). The meaning of raising funds means to collect or find funds by buying from the wider community.