Which best explains why banks consider interest on loans to be important?

Which best explains why banks consider interest on loans to be important?

a. Interest helps them cover business costs.

b. Interest enables them to control the economy.

c. Interest helps them to satisfy customers.

d. Interest enables them to stockpile money.

Answer: a. Interest helps them cover business costs.

On the balance sheet, interest on loans is indeed an important factor that needs to be considered. Banks’ main source of income arises from extending credit because lending is a way through which they are able to recover the interested amount, is used to cater for operational costs and ensure profitability. Such costs encompass employees and wages, construction and capital, computer and networks, and the law and standards. Secondly, interest assists the bank in recovering it loses in the more often than not evident inability of borrowers to pay back the money they were lent. It also helps the banks to offer an attractive return on investments in terms of an interest earned on saving accounts. Indeed, although banks are involved in the economy, though they do not control these fields, their goal is not to accumulate vast sums of money. It is imperative to notice that satisfying the customers is significant, but it does not explain why they receive interest charges for their services. Therefore, interest is an essential aspect of banking that ensures that banks function effectively and generate revenue to meet their operations and financially assist the individuals and organizations.