The Importance Of Cost Of Fund

The importance of embody of fund The banks aw areness on the hail of deposits or hail of funds at all timesis basically to evermore identify the terms 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 passing predictable anddividends is paid on yearly basis; the banks deposits drum under ones skin differentchallenges to its management.In early days, banks offer only a few products and many an(prenominal) ope located assingle-branch banks. Added by regulations on the deposit rate ceiling, thebanks management are preferably straightforward. However, nowadays banksbecome major establishments with branches nationwide and overseasoffering a classification of products and operate to their customers. And thebanks are aggressively competing to adduce existing depo sitors andattract newborn clients. Normally, banks resort to offering better services and amplyer(prenominal) pursual rank which effectively increase the cost of deposits.On the former(a) side, the banks shareholders demand higher profit and better dividend payout. The banks profit mete 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 loanword relativelyhigh and identify in high-return investment products. But, this cannot betrue considering that the ban ks also struggle to compete for loan custome! rsespecially 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 progress toed investment income, which wherefore provides thebanks profit. Without a prudent cost of deposits management, the bank could remain 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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