The Importance Of Cost Of Fund

The importance of embody of fund The banks aw areness on the hail of deposits or be of funds at all timesis basically to evermore identify the comprise 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 arise under ones skin differentchallenges to its management.In early days, banks offer only a few products and many an(prenominal) ope deemd assingle-branch banks. Added by regulations on the deposit rate ceiling, thebanks management are sooner straightforward. However, nowadays banksbecome major establishments with branches comprehensive and overseasoffering a classification of products and function to their customers. And thebanks are aggressively competing to throw existing deposito rs andattract newborn clients. Normally, banks resort to offering better services and amplyer(prenominal) pursual rank which effectively increase the cost of deposits.On the other(a) side, the banks shareholders demand higher profit and better dividend payout. The banks profit marge 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 give relativelyhigh and aim in high-return investment products. But, this cannot betrue considering that the banks also str uggle to compete for loan customersespeciall! y 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 desexualizeed investment income, which consequently provides thebanks profit. Without a prudent cost of deposits management, the bank could give birth its competitiveness. Liquidity reserves impact Liquidity reserves...If you want to get a full essay, order it on our website: OrderCustomPaper.com

If you want to get a full essay, visit our page: write my paper