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HOW DO BANKS MAKE MONEY?

HOW DO BANKS MAKE MONEY?

Banks are like any other regulated business; the product they deal with is “Money”. So they borrow money from individual or businesses “who have money”, and lend it to those “who need money”, by adding a mark up, to pay for expenses and profit. The difference between the rates, which banks offer to depositors and lenders, is generally referred to as “Spread”. Understandably,the spread in this business is low; hence increasing the turnover (volume) is the key to making profit. Hence, in practice, banks offer a number of options – often termed as “products” – to both investors and borrowers to meet their different requirements and preferences and thus increase business. They also provide fee-based services such as managing cash for corporate clients, to increase business and improve profit margin.

SERVICE OFFERINGS OF BANKS

Service offerings of banks are organized along following divisions:

• Corporate Banking

o Trade Finance

o Cash Management

• Retail Banking

o Electronic Banking

o Credit Card services

o Retail Lending – Personal Loans, Home Mortgages, Consumer Loans, Vehicle Loans

o Private Banking

o Asset Management

• Investment Banking

o Private Equity

o Corporate Advisory

o Capital Raising

o Proprietary Trading

o Emerging Markets

Sales, Trading & Research


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