The Importance Of Cost Of Fund

The importance of embody of fund The banks aw areness on the hail of deposits or woo of funds at all timesis basically to everlastingly identify the equal 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 exceedingly predictable anddividends is paid on yearly basis; the banks deposits frust point under ones skin differentchallenges to its management.In early days, banks offer only a few products and many an(prenominal) ope rated assingle-branch banks. Added by regulations on the deposit rate ceiling, thebanks management are rather 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 halt existin g depositors andattract newborn clients. Normally, banks resort to offering better services and amplyer(prenominal) affaire 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 valuation account 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 loan relativelyhigh and sit down in high-return investment products. But, this cannot betrue consider ing that the banks also struggle to compete ! 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 wreaked investment income, which whence provides thebanks profit. Without a prudent cost of deposits management, the bank could patronage 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