What is a captives bank in simple terms.

There are many financial institutions in the world. For example, a captive bank. It operates on the principle of a regular bank but for a specific type of companies (clients). However, to understand what a captive bank is, it is easier for many companies. After all, such a bank will be beneficial for them. 

Moreover, what a captive bank is should be understood within a certain industry. The main task of such a bank is to support the business of its owner, rather than working with a broad range of clients. It is also better to understand in simple terms what it is and how it works. 

What should you know about a captive bank?

When discussing the topic of a captive bank, it should be understood that unlike regular commercial banks, captive banks are not oriented toward the mass market and primarily work with a narrow circle of related clients. Therefore, it is not necessary for all clients of the bank to understand such terminology. 

By what criteria can a bank be considered captive: 

1. The bank serves one company or a small group. A captive bank is created to finance projects or provide financial services for a specific business.

2. Such a bank is closed. These banks rarely provide services to third-party clients.

3. The operations of the bank are targeted. The main focus is on supporting the business of the parent company.

4. Typically, the companies served by the bank are related to a particular industry. Captive banks are often created in sectors where a large number of loans or other financial instruments are required (for example, in the automotive industry).

That is, not every bank can be captive. 

Who needs such a bank and why? 

Captive banks have their own characteristics and purposes. They can help only in a number of cases: 

1. Providing access to financing. The owner company can obtain loans on favorable terms.

2. Reducing costs. Captive banks allow reducing the costs of financial operations.

3. Controlling financial flows. This simplifies financial management within a group of companies.

4. Supporting clients. Often, these banks finance the clients of the owner company, providing loans, for example, for purchasing vehicles.

Thus, such banks have very narrow areas of application. They are not suitable for everyone. To understand how this works, one can use a simple example. Let's imagine that a large automotive corporation creates its own captive bank. This bank:

1. Issues auto loans to buyers of the corporation's vehicles.

2. Finances dealers for purchasing vehicles from the manufacturer.

3. Provides leasing services to clients.

4. Maintains accounts for the corporation itself and its subsidiaries.

Such a bank has its significant advantages. What are they: 

1. They are quite flexible in their terms. A captive bank can quickly adapt to the needs of the owner company.

2. It allows for reducing risks. Managing finances within a group of companies reduces the likelihood of financial problems.

3. Moreover, it can significantly improve the client experience because of this bank. Providing financial services to the company's clients increases their loyalty.

4. The bank will help optimize taxes. Sometimes captive banks help the company reduce its tax burden.

Along with this, such a bank has its drawbacks. What are they: 

1. Such banks have significant limitations on their client base. The bank depends on the success of the owner company.

2. There are also significant concentration risks. Issues at the parent company can negatively affect the bank.

3. There are also specific regulatory peculiarities. Such banks are subject to strict oversight from regulators, including the National Bank of Ukraine.

Therefore, it is not possible to call such banks universal or maximally effective. 

As for captive banks in Ukraine, they can also be found. In Ukraine, captive banks are most commonly found among large industrial and trade companies. Why they will gain popularity: 

1. The development of leasing. Especially in the automotive and agricultural sectors.

2. Increasing volumes of corporate lending. Companies prefer to use their own financial institutions to meet their needs.

3. Economic issues. In conditions of economic instability, companies try to centralize finance management.

It is also essential to understand what type of bank can become captive. For instance, the bank is often mentioned in conjunction with a specific company. Its primary type of activity supports a specific industry. Such a bank must have a limited circle of clients, primarily associated with one company.

In general, a captive bank is an effective tool for companies that want to centralize finance management, reduce costs, and provide their clients with additional services. In Ukraine, such banks play an important role in supporting large businesses and industries requiring significant financial investments. It is crucial to understand that a captive bank does not compete with regular commercial banks, but acts as an auxiliary element for its parent company.