Different parameters for the management of a commercial bank. The Price Effect
Category: Bank Management
The net Income derived from margins on interests is sensitive to the variations of interest rates
On the credit side, the debit interest rates register the variations immediately; on the resources side, the credit interest rates register the variations slowly.
So, in a period of rising interest rates, the margin tends to increase, whereas, in a period of falling interest rates, it decreases.
Fees
Fees pay for services and do not depend on interest rates; that is why they are very important to counterbalance decreasing margins.
The effect of the Volume of credit
An intense activity can compensate a decreasing margin due to an unfavourable evolution of interest rates.
Because operations have a different profitability, progress in the most profitable operations can compensate other unfavourable trends
Structure effect
Modifications of the structure of the assets and liabilities will influence the net product of a Bank; if for example they lower the costs of the resources and appreciate liabilities.
The sessions effect
Overhead expenses can represent a large percentage of the net product (60 % to 70 %); that is why their progression should be inferior to that of the net product which is very volatile.