Externet Posted January 6, 2012 Share Posted January 6, 2012 (edited) Hi. This is NOT a trick question, just came up on a discussion among friends and would appreciate opinions. What is the rentability in percentage of a bank that pays 2% to depositors and gets 8% from loaners ? Perhaps the terminology am using in this post is not the precise one, but it is not my forte. Edited January 6, 2012 by Externet Link to comment Share on other sites More sharing options...
imatfaal Posted January 6, 2012 Share Posted January 6, 2012 Not sure about "rentability" - but if you are talking about potential profitability and chance of getting finance to constitute such an enterprise then possible investors would also need to know the basis of those numbers and the likely volume. If you could reasonably expect a million in investment and a thousand in borrowing then you are making a loss, if you can guarantee parity between deposits and loans then you are in profit, at what rate can you borrow if your need for cash exceeds your funding - but even then any investor would immediately ask "why is no one already doing this?" On the numbers you have given you cannot work out a profitability or a rate of return on investment as you have no investment - how much capital do you need to put forward in order to run the bank on these terms, what are the running costs, how are the risks balanced.... You are making a fair revenue iff you can guarantee the same level of borrowing as investment - but you need to put against that your staff costs, insurance costs, statutory banking costs, bad debts, taxes etc ... you have only provided the income stream not the cost basis, and you need both to evaluate a business plan Link to comment Share on other sites More sharing options...
Externet Posted January 9, 2012 Author Share Posted January 9, 2012 Hi. If a bank gets say $10,000 from a depositor funds, and pays $200 in interest to such in a year for a 2% rate ; If a loaner got those $10,000 , and paid the bank $800 in interest in a year for a 8% rate ; The bank invested $200 and got $800. ----> What is the percentage the bank earned in such operation ? Is it 200% ? [ The administrative costs of the bank, the parties and dinners and CEOs incentives being not part of this subject, those would be deducted to get a profit figure in $ ] Link to comment Share on other sites More sharing options...
swansont Posted January 10, 2012 Share Posted January 10, 2012 Hi. If a bank gets say $10,000 from a depositor funds, and pays $200 in interest to such in a year for a 2% rate ; If a loaner got those $10,000 , and paid the bank $800 in interest in a year for a 8% rate ; The bank invested $200 and got $800. ----> What is the percentage the bank earned in such operation ? Is it 200% ? [ The administrative costs of the bank, the parties and dinners and CEOs incentives being not part of this subject, those would be deducted to get a profit figure in $ ] I have no qualifications in finance, but it seems to me that the number of merit is 6%. $600 on $10,000 is the gross profit, so 6% is the return on the capital. Link to comment Share on other sites More sharing options...
Externet Posted January 10, 2012 Author Share Posted January 10, 2012 Thanks. Same with me about qualifications in finances. The capital does not belong to the bank. The bank is just trafficking on it, what makes me believe the investment is not $10,000. The bank invested only the $200 as far as I can see. Opinions, please ? Link to comment Share on other sites More sharing options...
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