The banking sector has grown considerably in the past few decades and more Kenyans are able to benefit from the wide range of financial products and services offered. Today, we have several types of banks, each of which has its own segment of clients – individual and institutional – that it serves. However, not many people know the difference between the banks, especially commercial and investment ones. Other types include central banks, retail banks, cooperative/mutual banks and private banks.

You are probably already familiar with commercial banks. In fact, chances are you have an account in one or more commercial banks. Investment banks, on the other hand, are not as ubiquitous. While you may have heard the term before, what they do may still be a mystery. This means that you may be missing out on very essential services, which could improve your financial wellbeing.

For this reason, today we delve into the difference between commercial and investment banks.

The core business of commercial banks is to accept and safekeep deposits for individuals and small to medium-sized enterprises and to offer loans. In fact, this is how most of them make their profit. The interest charged on loans is usually much higher than the interest paid to a depositor. The difference, which is called the spread, belongs to the bank as profit. The list of services offered typically includes checking and savings services, loans and mortgages. Some commercial banks offer extras such as safety deposit services, money telegraph transfer and forex transaction services. Essentially, a commercial bank offers you various financial products so that it can make a profit for itself.

On the other hand, an investment bank is designed to act as a financial intermediary between the issuer of a security (company owner) and the investing public. To this end, investment banks facilitate large and complex transactions such as underwriting, financial advisory, mergers and acquisitions, and IPOs. They also offer investment management services to their clients, often trading in forex, stock indices, commodities and stocks on behalf of their clients.

On top of that, investment banks specialize in financial risk management and research, which informs advice they offer clients or actions they take on their account.

So, when should you seek out the services of an investment bank? If you are an individual wanting to invest, such institutions would be a good place to start. Aside from getting expert advice on what assets to invest in, you will also benefit from their risk-management approach when handling your investment. If you are part of an institution considering a major restructuring or simply wants to invest, you would find the services of an investment bank useful.

As one of the indigenous investment banks in Kenya, Standard Investment Bank (SIB) offers trading and securities brokerage for equity capital markets, fixed income solutions for the debt capital markets, corporate finance advisory (IPOs, M&As, & LBOs) advanced financial markets research and global markets investment solutions for investor portfolio diversification. Through its flagship offering, Mansa X Fund, SIB also lets clients enjoy safe exposure to global markets through a wide variety of asset classes such as forex, precious metals, commodities, stock indices, single stocks, cash, and cash equivalents.

For more information on SIB products and services, contact clientservices@sib.co.ke

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