what are the loan activities of bank
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Loan activities of the bank
Let us see what the banks do with the deposits they receive.
1) Banks keep a small proportion of their deposits as cash with themselves to pay the depositors who might come to withdraw money from the bank on any given day.
2) Banks use the major portion of the deposits to extend loans. In this way, banks mediate between those who have surplus funds (the depositors) those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
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Loan activities of the bank
Let us see what the banks do with the deposits they receive.
1) Banks keep a small proportion of their deposits as cash with themselves to pay the depositors who might come to withdraw money from the bank on any given day.
2) Banks use the major portion of the deposits to extend loans. In this way, banks mediate between those who have surplus funds (the depositors) those who are in need of these funds (the borrowers). Banks charge a higher interest rate on loans than what they offer on deposits. The difference between what is charged from borrowers and what is paid to depositors is their main source of income.
I hope it will help you ✌️✌️✌️✌️
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Acting as a provider of loans is one of the main activities of financial institutions such as banks and credit card companies. For other institutions, issuing of debt contracts such as bonds is a typical source of funding.
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