Banking · CASA and Bank Profitability
A key advantage of a Current Deposit Account for a bank is that it provides a significant source of CASA (Current Account Savings Account) funds. How do these funds primarily contribute to the bank's profitability?
Verified Solution4 OptionsUpdated: October 2026👁️1 View
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- 1Current Account balances are a stable, zero-cost source of liability that significantly boosts the bank's Net Interest Margin (NIM).✓
- 2Current Account balances are classified as Tier 1 Capital, enhancing the bank's Capital Adequacy Ratio (CAR).
- 3The high frequency of transactions in Current Accounts generates substantial annual commission income.
- 4Current Accounts attract a lower interest rate than Savings Bank Accounts, thus reducing the bank's Cost of Funds (CoF).
Correct answer
Current Account balances are a stable, zero-cost source of liability that significantly boosts the bank's Net Interest Margin (NIM).
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