Money and credit - Ivanov V.М.

23.3. Revenues, expenses and profits of banks

One of the main goals of commercial banks is to receive profit, which is the source of dividend payments to shareholders, the creation of bank funds, the basis for improving the welfare of bank employees, etc. The profit of the bank is the difference between its gross income and expenses.

The gross income of a bank depends primarily on the volume of its loan investments and investments, the interest rate on loans to be issued, and the size and structure of the bank's assets.

The main source of income of most commercial banks are interest, levied from borrowers for the use of loans.

Significant income banks receive from conducting operations with foreign currency. This is facilitated by the fact that Ukraine does not have its own freely convertible currency. Another reason for banks to receive high returns from foreign exchange transactions is the high demand for freely convertible foreign currency from individuals and legal entities in order to protect their funds from depreciation.

Banks can also receive income from operations with securities. But since the securities market in Ukraine is only beginning to form, the incomes of banks from these operations are still insignificant.

Banks render their clients a wide range of services: provision of guarantees and sureties; Settlement, cash service; Trust, consulting, auditing, leasing, factoring services, etc. These operations bring the bank income in the form of commission and other types of payment for services.

Many banks charge a fee from their customers for performing settlement operations - transfer, credit, collection. This fee should cover the bank's expenses for conducting settlement operations, including the bank's fee to the regional clearing house for electronic payments and the cash and regional center of the regional administration of the NBU for maintaining its correspondent account with the bank and other transactions.

Many banks charge a fee for cash transactions with cash - the receipt of cash and its issuance.

The costs of commercial banks, as in any other business sector, can be divided into relatively constant and variable.

Relatively constant are the expenses of banks on wages and charges on it, forms and stationery, maintenance of premises, security, security and fire alarm, depreciation and some others. True, in the long run, these costs are variable.

Variable expenses include payment of interest on deposits, deposits and interbank loans, on balances on current accounts. They depend both on the volume of borrowed credit resources, and on their value. These charges also include payments for services of the regional clearing house and the regional settlement and cash center for settlement operations, cash security. Variable can be the bank's expenses for advertising, travel, postal and telegraph costs, etc.

In accordance with the current methodology, commercial banks determine the profit or loss from their activities on a quarterly basis, on the last business day of the quarter.

Depending on the tax legislation, banks pay taxes to state and local budgets from profit or from income.

After payment of taxes and fines imposed by the tax inspectorate, the National Bank of Ukraine and other bodies, deductions to its reserve fund in the amount not less than 5% of the profit remaining at the bank's disposal are made from the bank's profit. Then, deductions are made to the economic incentive funds of the bank, to charity and sponsorship events, to pay compensation to the bank's management. Out of the remaining amount, dividends are paid to shareholders.

Losses of the bank based on the results of activities for the year are covered by the reserve fund, and if it is insufficient - due to a decrease in the statutory fund. In case of unprofitable activity of the bank, the shareholders or the National Bank of Ukraine decides whether it should be continued, that is, to preserve it, reorganize or liquidate it.

Profit is the most important indicator of the evaluation of banks. It is used by analysts to determine the ratings of banks based on their balances.

Correctly defined ratings of banks allow clients to choose those of them, into which it is possible to place and invest their capital without risk.