Question

Describe how banks manage their noninterest income and noninterest expense.

Answer 1

Solution :-

Non Interest Income is an income of a Banks or Financial Institutions other than interest income This income is earned through Processing Fees , Transaction fees , ATM Charges , Insufficient Funds in Accounts , Credit Card Charges etc. Non Interest Income helps to maintain liquidity in banks or financial institutions The Non Interest Income is shown by bank or financial institutions as a nn strategic line item When there is low interest rates Non interest income helps banks to maintain Profit margins

Non Interest Expense is an expenses of a Banks or Financial Institutions other than interest expenses These are the operating expenses used for the daily working routine Such as Internet expenses , Salaries , Stationary Expenses , Rental Expenses etc. Also we say the Non Interest Expenses as an expenses which is not related to Depositors fund. These all expenses are classified seperately from interest Expenses and Credit losses Provisions . We can say Non interest Expenses as an Overhead costs and therefore these expenses are managed by the Overhead Ratios.