Start networking and exchanging professional insights

Register now or log in to join your professional community.

Follow

How a banker, will make significant profits with short-term deposits and long-term loans?

user-image
Question added by Nadjib RABAHI , Freelancer , My own account
Date Posted: 2016/01/27
Idris Muhammad Idris Al-Isay
by Idris Muhammad Idris Al-Isay , Economic Researcher , Nigeria Deposit Insurance Corporation

For a banker to use short-term deposit to finance long-term loans and make profit the bank must have a robust risk management framework that will take care of short-term financial obligations. This will help the bank from falling into liquidity problem and the risk of confidence in the market. However, the bank should only use this type of investment once in a while but not at all time since market fluctuations can always change the bottom line. 

Kabeer Jan
by Kabeer Jan , Auditor , Rydges lakeside

Short-term loan is, as the name suggests, a loan that must be repaid within a year or less, with interest. It is not revolving in nature; has a fixed repayment period. Companies will usually find this form of debt financing useful if liquidity is a concern, in particular short-term working capital requirements.In a contrast long term loan is used to finance its investments that have longer payback periods. Which can be used by the banker to draw their competitives and attract more customers

More Questions Like This