SA Affordable Housing January - February 2020 // ISSUE: 80 | Page 34

FINANCE MATTERS
Pricing of a loan from a
Commercial Bank
By Pierre Venter
Banks contribute positively to society by enabling simple, safe and
efficient management of money.
B
anks are profit orientated businesses which strive to
provide both investors and shareholders alike with a
reasonable return on their money. The vast majority
of the loans which they provide to customers are financed
by depositors’ money.
They therefore strive to balance the risk they incur on
lending these monies as they have a fiduciary responsibility
to safeguard a depositor’s funds. For a bank to attract
investors and shareholders to place their money with them,
so that this money can in turn be lent out to customers, banks
are required to pay these investors a return on their
investment and depositors’ interest on their deposits. This is
referred to as the cost of funding.
Banks are also required to cover the cost of maintaining
the infrastructure (such as computer systems, premises and
staff) required to enable a bank to fulfil its role as a bank,
Figure 1: An example of an income and expenses flow that can be considered.
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JANUARY - FEBRUARY 2020
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