Qadin.NET / How does the bank earn income? - DESCRIPTION

How does the bank earn income? - DESCRIPTION

Banks' profits are provided not only from interest, but also from operating income and commission fees.
The statement came from Ilgar Tagiyev, a leading adviser to the World Bank and the European Bank for Reconstruction and Development.
Some people think that they repay the loan on time and avoid paying interest without delay. So how does the bank make a profit in this case?
Ilgar Tagiyev said that first of all, banks sell credit cards to customers for a certain amount, on the other hand, the bank earns a commission every time a customer performs a certain transaction:
"When withdrawing money from e-commerce transactions or ATMs, the customer pays a certain commission. In fact, some banks give their customers a delay of 30-40 days. Sometimes, the bank is able to compensate itself, as the amount of commission withdrawn from ATMs is close to one percent per month.

That is, the customer is actually told that you do not pay any interest when you use the loan for 30 days. However, when you use these loans, you carry out certain operations and the bank charges a commission for these operations. This is sometimes more than or equal to a month's interest. In other words, the customer does not feel it or this amount remains a hidden expense for him. On the bank side, this is a profit. Even if the customer does not delay the payment of the amount, it should be borne in mind that the bank's profit is not only interest. The bank's profit is also provided by operating income and commissions from operations.

He added that on the other hand, there are installments, in which case the banks receive the commission from the other side:

"That is, not from a customer, but from a store where the customer is shopping. The process is as follows: The bank directs the customer to the store and receives a certain income in return. Figuratively speaking, he puts money in the customer's pocket and sends it to the store. Since the customer actually buys cash from the store, this sale is considered cash for the store. Thus, the store pays a certain amount to the bank and the bank receives income from it.

It should be noted that Azerbaijani banks have been implementing the installment card system since 2012.

2 October 2020
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