A bank is a financial institution founded with the aim of making a profit by satisfying the needs of the population in certain financial services. How exactly the financial institution makes a profit depends on its specialization: for example, a universal bank can offer its customers about two hundred products and services. Below we will consider what banks earn on, and indicate the main sources of their income.
HOW BANKS MAKE MONEY
As we have already noted, how banks earn money depends on the types of activities they carry out. But almost all of them advertise their deposits and use the funds received from the population to lend to individuals and legal entities, earning on margin – the difference between the rates on deposits and loans. Along with loans directly, various forms of business financing, including factoring, can become a source of income for financial institutions.
You may have questions: “How banks earn money that do not pay much attention to their deposit line? How do such banks earn money without having free funds to invest in loans, securities or investment products? ”
But it should be understood that even banks with a limited range of deposits receive interest income through lending. At the same time, the main source of funds for issuing loans is not deposits, but deposits of legal entities, customer account balances, loans of the Central Bank of the Russian Federation, loans of other financial institutions, debt securities, etc.
In addition, there are financial institutions for which the lion’s share of the profit is brought by the RKO of corporate clients and remote servicing of their accounts. Almost any transaction with a current account is subject to a commission, since such banks earn money precisely on customer service, and not on a loan business.
Well, what else do banks earn regardless of their specialization, so it is on commissions, of which there are a great many, ranging from fees for cashing out funds and depositing money into a loan account and ending with “fees” for SMS informing.
WHAT BANKS EARN FROM: ADDITIONAL SERVICES
Since banks make money not only on the loan business and RKO, we list other possible sources of their income:
the difference between the purchase and sale price of a currency – with large volumes of foreign exchange transactions, the bank can receive very impressive income
International money transfer fees
guaranteeing activity – this is how banks earn money without any special expenses, simply having vouched for their client in front of their counterparties
Information and consulting services
brokerage service – a financial institution can provide intermediary services to customers who want to access the foreign exchange or stock market.
In addition, operations with securities, including speculative trading in the stock market, can bring profit to financial and credit financial institutions . The exchange rate difference when selling the Central Bank, dividends, interest income on debt obligations – this is what a bank operating in the stock market earns.