Monday, October 21, 2013

Sources of Revenue & Areas of Expense for Banks



Sources of Revenue: Bank

·         Interest income on loans and advances and discount income on bills: Banks charge interest on almost all types of loans and advances, which comprise the largest source of income. Banks also discount certain types of bills and realize income. 
·         Income from investment in securities: Banks realize dividend and interest income earned from its investment portfolio in government securities and capital market exposure.  
·         Income from deposits in other institutions and money market investment: Banks keep deposits in Bangladesh Bank and other financial institutions and earn interest on them. They also have exposure in money market investment, which is a short-term source of income.   
·         Fee income from miscellaneous services sold: Banks provide miscellaneous services to the customer and earn a handsome amount every year like as issuing TT, DD, Pay Order, online fund transfer, account maintenance, payment services etc.
·         Other Income: Commission, exchange, and brokerage income, Profit/loss on sale of investment, profit on exchange transactions, income earned by subsidiaries etc.   

Areas of Expense: Bank

·         Interest paid on deposits: A huge amount of interest has to pay a bank for its different categories of deposits collected from public or institutions.  
·         Interest paid on other non-deposit borrowings: Interest paid on interbank borrowings, interests paid on any refinance scheme etc. are included under this head.
·         Other interest expenses: Sometimes banks are to pay interest on subordinated debt or such types of debt instruments issued.  
·         Operating & Administrative expenses: For salary and wages, director’s fees and allowances, rent and establishments, repairs and maintenance, printing & stationary, insurance and legal charges, auditor’s fees and expenses, advertisement and publicity, etc. a bank has to pay a huge amount every year.      
·         Provision for loan losses and contingencies: Provisions aside for loan losses, diminution in the value of investments etc. will be included in this head.  
·         Taxes: Tax on income is a huge area of banks’ expense.
·         Other miscellaneous expenses: Any other expenses beside mentioned above.    

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