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How Do Banks Make Their Money?

Though, i'm not a journey-just-come to the activities of the banking sub-sectors,

but i believe two heads are better than one.

Actually, I'm an investor, and I'm about buying a bank's stock.

           Meanwhile, I think it's a wise decision to know how this sub-sectors of the economy make their money before risking my hard-earned income with them(particularly in this time of reccession) .

I know we have a lot of INFORMED and EFFIKOS(learned ones) in the house.

Please, I want you to be sincere in your responses, your responses are priceless to me

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19 answers

naija banks?

they fit sell someone

in order to make profit

if possible!

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banks make their money in lots of ways: charges and commissions, differential between lending rates and deposit rates, investing in various businesses etc.

The problem with most Nigerian is that we hardly read the little print. We are eager to collect loans and do not take care/time to read about the other charges often called loan management fees/servicing charges etc but are just interested in the ineterest rate on the principal. Its the same everywhere. In UK, banks also charge for some text messages (not the free weekly ones that tell you of your account balance but do not tell you of debits/overdrafts to your account). Try and get an unplanned overdraft in UK and you'll pay £20 quid per month. And if you've been in the UK for less than one year forget getting a credit card or a planned OD.

Nigerian banks have however found ingenious ways of generating charges. The CBN allows that ATM withdrawals are not free. It now leaves each bank with the modus operandi for charging customers. which is why First Bank charges NGN100 or so per month while banks like Oceanic/UBA/Zenith charge more than NGN5 even for using their own ATMs per transaction. UBA goes further by charging what is called a withdrawal from another branch or system charge if you use an ATM not resident in the branch where you opened your account.

Talking of investments, your best choice would be banks. They earn steady income though the issue of bad debts is a worrying one. The minimum amount to withdraw over the counter is often above NGN40,000.00 and yet the maximum amount you can often withdraw from each machine is often NGN20,000.00. Which means each person wishing to withdraw more than NGN40,000 will need to use the same ATM machine more than once and thus generate more income for the bank.

Those who say banks do not give out loans should be wary of such comments. What of those buy generator/laptop/car/fridge-freezer promos? Or is their tendency to loan to people with steady income a crime? Will anyone loan out funds to a butcher in Bodija market or a bus conductor in Iyana Ipaja? Is the present boom in the Nigerian property market not being fuelled by mortgages from banks? The only issue is that a teacher in a secondary might not be able to access the loans.

Afterall even in the West, the fact that you have a good credit record in US is of no matter if you move to UK or Germany. You need to start afresh.

But going back to the real issue, investing in bank stocks is a wise choice. Take your time to analyse the stocks. The charges turn to more profits for the banks and thus more dividends for the investor

In banking stocks i would recommend:

First Bank,

GTB Plc

and to a lesser extent

Zenith bank.

Talking of charges, how come a manufacturing company's stock price rises when it lays off?

The first two have a track record of good corporate benefits performance, steady even if small growth.

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Banks make money from depositors funds, loans, arranged Over draft, Interest on bank funds, Draft,Bank cheques,COT, treasury bills,safe keeping, forex, and other ''hidden'' charges.

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I am very glad somebody is asking this question. \for quite some time, I have been musing over this issue.

We all know the low productive potential of the economy - a mono cultural , low industrial ( by way of volume and technology),

comatose ,energy starved , import based affair with the attendant consequences- low grade production below established capacity

and mass unemployment. we cannot refine out crude for local use, our steel industry cannot produce flat sheets, the textile industry

is in coma. The GSM is the only thriving sector, followed by the flour mills with their flour, spaghetti,indomie and gala!!!!! and of course pure water.

I AM ALWAYS AMAZED WHEN THESEI READ THE FOLLOWING STATEMENT ON POINTBLANKNEWS:-

' Share and earnings falsification, manipulation of growth and stability indicators are being manipulated as the reason for the removal of some Nigeria’s

high profile banking operators at the weekend, ''

THIS IS ENOUGH TO PUT ALL THOSE SUPER MANAGING DIRECTORS IN JAIL, IF NIGERIA IS WORKING

THEY DECLARE FANTASTIC PROFITS EVERY YEAR FROM AN ECONOMY THAT IS ON ITS KNESS, GOD HELP US.[size=8pt][size=8pt][size=8pt][size=8pt][/size][/size][/size][/size]

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They simply makes it from us. Chikena!

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Banks make their money by robbing depositors, especially, 9ja banks.

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Richybank,

Almost everyone is right.

It depends on the kind of account you operate; savings or current. If you operate savings account, no charges will be made on your money instead you receive interest-which amounts to nothing- on your money. However, if you receive text messages and emails from your bank, there are fees charged to it - though very little.

If you operate current accounts, you rather pay some charges to the bank instead. With your current account, you make use of cheque books which has been overridden ATM. If you withdrew with cheques then be ready to pay charges too.

If you collect loan(s) you will be charged.

Overall, either savings or current, a charge (COT) is deducted from our account if your cash a certain amount of thousands (N5 per a thousand).

However, banks do deduct some hidden costs/charges which will be known to the customer after a thorough check on the statement of account.

Most Nigerians do not pick up their bank statement from their banks, so how would they know what is happening to their monies.

Example; I collected loan to run an international business, i was told what i will be charged but i wasnt told about other charges which later cropped up in my bank statement. What do you call that? Normal banking operation? I asked my banker and he told me that those monies were necessary. Well, I have collected the loan, what do I do. Another thing I looked at foolishly was that it was a little money (N200, N20,etc) put together amounts to about N500 or less. But this happens monthly and imagine if it happens to about 5000 nigerian, how much will that be monthly.

Well, lets hope someone will come to really sweep corruption out of Nigerian system.

Regards!

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Do you have a bank account in Nigeria ?

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The aggressive pursuit of bank deposits has always amused.

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NIGERIAN BANKS ARE NOT DOING BANKING.

THEY ARE JUST TRADERS WHO SPECIALIZE IN ROUND TRIPPING (ILLEGAL SALES OF FOREX THROUGH BLACK MARKET)

AND EVERY OTHER DUBIOUS WAY OF FLEESING CUSTOMERS.

HOW MANY FOREIGN BANKS GO OUT SEEKING MILLIONS IN DEPOSITS?

THEY DEVELOP PRODUCTS INSTEAD TO HELP PEOPLE AND THEIR BUSINESSES GROW.

NIGERIAN BANKS WILL NEVER GIVE LOANS TO PEOPLE WHO NEED THEM.

INSTEAD THEY CONNIVE WITH ROBBERS IN GOVERNMENT, GIVE THEM LOANS WHICH THEY NEVER REPAY.

SEE WHAT HAS HAPPENED TO AFRIBANK, OCEANIC AND THE REST.

I GOOD EXAMPLE OF THE FALSEHOOD BANKING IN NIGERIA HAS BECOME.

DISGUSTING!!!

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Waleluv,

I am afraid I am not very informed on how the Banks in Nigeria make their money.

From the scratch, in a normal setting, the basis of the income of banks comes from Borrowing and Lending.

See how much interest you receive on your funds if you deposit at the Bank and compare this with the interest rate you pay if you borrow money from the bank. The gap / margin/spead which of these you might want to call it.

On a bit higher level, you have banks that have financial experts in service who looks at the needs of individual clients and come up with specific financial solutions to the clients problems i.e. Clients who might have exposures in Foreign exchange due to international trade or client who might have exposures in the areas of interest rates fluctuation. This sort of tailored transactions are called OTC (Over the counter). These Banks will close a deal with the client, and close another back-2-back deal with another Bank, so they will not be left with an open position and exposure.

Further, you have investment Banks who have investment Bankers in service, they advice companies on M&A (Mergers & acquisition), they also guide companies that wants to generate fund from the public arena by enlisting on the stock exchange i.e. IPO / PO.

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My bank does not charge me for any of those items in bold.

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nigerian banks and cot charges, just criminal if you ask me , so much round tripping and hidden charges they hit you with,thats how they make their crazy profits every year.

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@Boldvoice

You are correct. Nigerian banks' major loan customers are government

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Hey,

People just say things that they are not sure of. Ideal situation banks make money from interest on loan, COT charges for those using current accounts, treasury bills, management fees, security charges for safe keeping your valuable like will,gold etc, issuing of bank draft and guaranty and so on. But in Nigeria banks earn their money from hidden and ridiculous charges, forex, roundtripping, illegal funds transfer abroad and middle man for traders and importers.

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Banks usually make their money through interest from loans. However in Nigeria, banks make their money through HIDDEN CHARGES!!!!

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Like Bank PHB their major source of making money is from QUARTERLY CHARGES they illegally charge any one that eat their so called SALAD.

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they make their money with ur money and ur time---------lol

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Like Bank PHB their major source of making money is from QUARTERLY CHARGES they illegally charge any one that eat their so called SALAD.[/b]

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