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Fees including late payment fees and penalties charged are a good source of income for the banks. Interest income on loans issued and income from investments are also important. Do you believe in the following information ? The main source of expenses for a bank are Paying expenses for insurance , overheads and salaries. Paying interest on savings account and fixed deposits Finance investments to make more money Keep an amount with the central bank which is mandatory
No there are many other much much better source of incomes for the banks, mainly Interest earned, etc.
Yes, you are right Fees income is one of the major source of income for all banks on various services includeing trade finance, issuance of LC, bonds and guarantees, Referral and advisory fees for investment bank..
Similarly the bank is to pay fees and commission to the card service providers, audit and professional fees
.
I don't think that bank service or incidental fees are major portion of a bank's profit. Such charges are dependent because if a customer fails to make payment of his consumer loan or running finance within the payment due date then he will be charged with Late Payment Fee or if a customer fails to maintain required minimum balance in his bank account then bank service fee is imposed. However, Mark-ups, Interests and profit on saving account investments are main sources of a bank's profit.
Bank fees which includes, Processing fees, closure fees is an immediate indicator of branch profitability and helps to calculate when the branch will break even, based on loan disbursals.
For eg a new branch has opened, where manpower(10 employees)+admin+overheads+other expenses are say100,000$/pm. Suppose, the branch has disbursed1,000,000$ with an average processing fees of1%, then income in the first month itself is10,000$. This indicates that the branch is at a90,000$ loss. but then the next month, with the same cost, disbursals will increase, and PF collected will increase, and an extra component, interest income is added to branch revenue.
So techmically fees is a fantastic source of income for the banks.
I also do agree with this thread and comments added thereto. But besides that I am also of the opinion that a bank can earn more by refining its services criteria especially in the sector of cross-border transactions subject to prudent banking and most particularly in the transactions of Bank Guarantees where the bank does not invest even a single penny.
Pakistan is not an export oriented country, its much consumable items are based on the import of raw material of latest and scientific technology and finished goods. The importers must be advised to enter into a transaction of bulk import preferably against furnishing of a Bank Guarantee by the supplier through a local bank because LC may contain contestable clauses where the importers have to pay despite their dissatisfaction with the commodity they have imported. In such instances the local bank may issue its Bank Guarantee or Standby Letter of Credit against the Counter Guarantee or Standby Letter of Credit duly issued by its foreign correspondents of satisfactory ratings. This act is deemed as Non-Fund Based Credit (Finance) which is considered as fully secured risk provided always that while issuing a Bank Guarantee the local bank should analyze the wordings of Counter Guarantee or Standby Letter of Credit in conjunction with the wordings of its own local guarantee in the light of prevailing laws and international rules and practices. The bank may earn a lot without any investment.
Credit Risk has a vast meaning and its explanation may book a number of pages. However to observe its commons effects we may safely say that "Credit Risk is hidden by Statistical Jugglery", which should be looked into being a prudent banker.
However, it should be the point to follow that a bank can not earn without exposing itself at risk. You may say “Maximum Risk Maximum Profit”. There are two types of business, a bank always run. First Domestic and Second Overseas (Overseas business is engaged with its own foreign representation in the form of its branches and subsidiaries as well as its correspondent banks/institutions and non-correspondents banks/FIs and DFIs).
Domestic banking always encounters with political and bureaucratic (internal/external) pressure/threats which generally links with corporate customers at higher level and the financial assistance schemes with certain discriminations which the bank can not set aside. Whilst the Overseas business mostly encounters with geo-political situation and diplomatic environment. In both the situations a bank can easily keep itself away from exposing to a risk by analyzing net weight of tangible collaterals, values of commitments and the effective tenure of a transaction within the purview of business relationship in conjunction with local and international rules and practices. In such process it should be pertinent to care that the commitments between the bank and its counterpart should not contain arrows of opponent dimensions also keeping in view that a bank can not afford any charge of a lake in its commitments. Theory and Practice must be in consonance with each other because any lapse in analyzing the facts on ground and underground may entail in any dire situation for bank and its counterpart and entire benefit may go to the third party behind the transaction.
Muhammad Hussain
Ex.Habibian
Indeed, it is, but to what extend it can be allowed to charging fees for its services. There should be a balance between services and charge otherwise it might be a bad policy in front of the eyes of customers.
yes it is, processing fee, LC opening / discounting, bill discounting, late payment charges, foreclosure charges, issuance of bank guarantee / certificate, attestation of documents, although it is reduced due Govt controlling but still it is major source of income for banks
I do not agree on it
It is secondary sources and can be dispensed with
The Bank's work should be interested in investing
And Partnership
In good economic feasibility of economic projects
Disagree , banking fees like admin. fees , printing statement fees , onlie fees , cards renewal fees , ..ect majore portion of it just to cover the cost of service provided to costumers , at the end it should cover related product expenses and the rest can consider as part of the banking income however, it will not be the good source of income , the actual source of income for the banks are mainly debit interst , commisions , trade finance commissions , FX deals ..ect
