​The Main Parties of Banking




Group of people who have spare, idle cash but have no productive use for it


Financial Institution

The organisation that connects savers and borrowers



Group of people who have productive ideas but have no cash​


Who is a Saver? 

A saver is someone who has idle spare cash with no present need for cash. In return for providing the idle spare cash to the bank, savers are compensated with some returns on their deposits based on prevailing rates.

By safekeeping cash or other financial assets savers deposited in the bank, the bank will also provide other ancillary services to the savers. They include:

  • Transactional services such as General Interbank Recurring Order (GIRO).  

  • Financial advisory related services such as investment and bancassurance.  

The deposits accounts offered by the banks to the savers are classified based on the savers' needs.


Savings Accounts
Current Accounts
Time Deposits / Fixed Deposits
Foreign Currency Accounts​

Who is a Borrower?

A borrower is someone who has some productive ideas but has no spare cash to implement his/her idea. Without banks, he/she would have no access to funds and will have no choice but to delay implementing his idea.

A typical borrower can be one of the following:

  • A business owner who needs cash (business loan) to start or expand his/her business.
  • A married couple who needs cash (home loan/mortgage) to buy their own home. 
  • A student who needs cash (tuition loan) to pay off his tuition fees. 

Types of Banking Loans  

Banks are important source of financing to many business owners and inpiduals. 


Depending on the specific needs of the business owners or consumers, banks typically have appropriate type of loans that meets the borrowers’ needs at a competitive interest rate.

For example, banks provide:

  • Long-term loans to start a business (seed funding) or buy equipment (leases). 
  • Short-term loans to help meet cash needs such as factoring or overdraft.
  • Loans with specific purpose such as properties (mortgage loans), cars (automotive loans) and study loans.
  • Credit card loans or cash loan.

Apart from classifying the loans based on the tenure (long-term or short- term) and purpose, the other widely used classification of the loan is whether the loan is secured or unsecured.

  • Secured loan refers to loans where the banks would require the borrower to provide an asset to the bank. The asset use for this purpose is known as collateral. Should the borrower default on the loan, the bank can seize the asset.

  • Unsecured loan, conversely, refers to loans where the bank does not require collaterals when disbursing a loan. 


The role of banks in Driving Economic Growth

The process of saving and lending is critical for the economic growth of a country. 

For the country to grow, there must be sustained increase in economic activities in the country.

Banks Provide Financing for Economic Activities

These economic activities can be largely classified into these categories:

Government Expenditure
Purchase of goods (e.g. buying cars, clothes, books) and services (dining professional services, transport)
Starting a business, expanding production line or even buying a commercial property
Government spending including items such as buildings and infrastructure
Selling of goods and services to the foreign market. Given that Singapore is a global trade hub, this is especially crucial for Singapore

Healthy Banks are Vital to a Vibrant Economy

These economic activities will lift the income and living standards of the people. It is thus important that banks earn a fair share of returns in order to survive and serve its role to drive economic growth. 

So how does a bank earn money?

Suppose we have a hypothetical bank in Singapore. Let’s call it ABC Bank. ABC Bank’s core business activities include the following: 

  • Accept deposits from the public
  • Disburse loans to businesses and inpiduals
  • Provide financial advisory services such as investment advisory and bancassurance
  • Trade in the financial markets

How does a bank earn money?

A bank earns money in two ways:

Interest-related earnings

Also known as net-interest income (NII), interest-related earnings is the difference between interest income and interest expense

Non-interest-related earnings

Sometimes refered to as trading income and fees, non-interest earnings is the income that is derived from providing financial services to clients, including transaction fees, advisory fees and bancassurance

How does a bank make money?

e.g. Let's see what ABC Bank's consolidated income statement will look like:

 ABC Bank's Consolidated Income Statement
For the year ended 31 December 2021
Interest Income refers to the interest payment from the businesses and inpiduals for borrowing money $m
Interest Income100
Interest Expense88
Net Interest Income12
Interest Expense refers to the interest payment that the bank pays the depositors for the depositsCommission (Trade Finance)39
Commission (Advisory)42 
Net Trading Income
Non-Interest Income86