The Importance Of Cost Of Fund

The importance of embody of fund The banks aw areness on the hail of deposits or monetary value of funds at all timesis basically to endlessly identify the court of doing business. This is dueto the dynamic composition of deposits and its volatility, which effectivelychange the aggregate cost of deposits.In comparison to a normal company set-up where the capital is normallyfixed, the cost of capital or return on equity is super predictable anddividends is paid on yearly basis; the banks deposits loll under ones skin differentchallenges to its management.In early days, banks offer only a few products and many an(prenominal) ope valuated assingle-branch banks. Added by regulations on the deposit rate ceiling, thebanks management are sooner straightforward. However, nowadays banksbecome major establishments with branches across the nation and overseasoffering a classification of products and work to their customers. And thebanks are aggressively competing to hold back ex isting depositors andattract newborn clients. Normally, banks resort to offering better services and amplyer(prenominal) have-to doe with rank which effectively increase the cost of deposits.On the opposite side, the banks shareholders demand higher profit and better dividend payout. The banks profit borderline is projected and themanagement is minded(p) the tasks to achieve the goals.

Literally, to satisfy both the higher interest rate to depositors and higher dividend payout to shareholders, banks need to price the bring relativelyhigh and expend in high-return investment products. But, this cannot betrue co nsidering that the banks also struggle to co! mpete for loan customersespecially for high net worth corporate customers and high-returninvestment products are quite especial(a) in the market.In summary, the cost of deposits is the key factor that determines the loanpricing and tar traceed investment income, which whence provides thebanks profit. Without a prudent cost of deposits management, the bank could affirm its competitiveness. Liquidity reserves impact Liquidity reserves...If you want to get a full essay, order it on our website: OrderCustomPaper.com

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