Question

List an explain two strategies that a bank could use to decrease its non interest expense. for each give at least one specific example of something thr bank could do that was consistent with that strategy

Answer 1

Expenses of Bank

The bank is the financial institution in the economy that accepts deposits and lends money to the customer. Like all Businesses, the bank also pays for dayy to day activity of the organisation.

Type of Expenses

• Interest(Non-Operating) Expense
• Non-Interest(Operating) Expense

1. Interest (Non-Operating Expenses)

Interest expenses are the expenses of the bank, that bank needs to pay to their depositors for depositing money in the bank. Every Depositor wants the return of their deposit, this return is interest income for the depositor but interest expenses for the Bank. Because of banks use this deposit and lend money and get a higher rate of interest. These expenses are non-operating in nature because this not spend on the daily expenses of the business.

Example: Interest on Bonds and Debentures, Interest on Saving Deposit, Interest on Fix Deposit.

2,Non-Interest(Operating) Expenses

Non-Interest Expenses are those expense which bank spend on their daily operating activity, which helps to manage the basic activity of the business. This expense is not related to any interest payment, these expenses are relating to the expenses of the operating banking.

Example: Cost of Stationary, Staff Salary, and Commissions

Two strategies: Decrease Non-Interest Expense

Decrease the Non-Interest Expenses for a bank is a very challenging task but it will help to reduce the cost of Transaction. This helps to utilize funds to improve in Technology. Two Strategies to reduce the Cots of Non-Interest Expenses with the example.

1. Employee Layoff

Employee playoff is the process of removing the non-productivity employee from the bank. This helps to reduce the cost of Non-Interest Expenses of the Bank. That gives the result to improve the profit of the Business for the better utilization of funds and increase the market value of the share

Example: HSBC Cut 4,000 Job in 2019 to Reduce cost

2. Outsourcing Back Office Operations

Outsourcing is one of the best ways to reduce the cost of the Bank, by outsourcing banking operations to the third party which helps to focus the bank on important work as well as reduce the cost of transactions per unit. There are lots of activities in the bank, the bank should choose the thing which is less risky to outsource to the third party. Like Customer care Center, Marketing and Acquisition Team which third party company can do it most less price than the bank cost.

Example: Bank of America create Indian Outsourcing Subsidiary for Back Office operations in 2004

All the best, have a great day