If you're asked this question, you will mention interest on loans, bank charges, and account maintenance fees on ATM cards and current accounts. If that is your reply, you are correct. This article explains how banks make money in the context of their income statement in the annual report. We looked at the Access Bank 2022 statement of comprehensive income to provide the necessary answer to this question.

Eight ways banks make money

Below are seven sources of income for banks in Nigeria.

1. Interest income

This is the main source of income for banks. They make money through interest income from their clients. If a bank cannot accumulate the highest income from interest earned, then it means it is not doing its main business. Interest income from Access Bank's annual report includes:

Cash and balances with banks
Loans and advances to banks
Loans and advances to customers
Modification gain/ (loss) on loans
Investment securities
Available for sale Financial assets at FVOCI
Held to maturity Financial assets at amortized cost

Access banks keep saving deposits with other banks. As a result, they will earn interest from such deposits such as when you keep your money in a savings account and receive interest from it. It also makes money from interest earned from the loans and advances it gives out to other banks and customers. Interests are earned from investments in securities such as treasury bills and bonds. As well as other financial assets either calculated based on amortized cost or fair value through other comprehensive income (FVOCI).

2. Fees and commission income

Fees and commissions are a second major source of income for banks. This is where the bank charges on your account are included as well as card maintenance fees. In the Access Bank annual report, the followimakekes up fees and commission income:

Commission on bills and letters of credit
Account maintenance charge and handling commission
Commissions on collections
Retail account charges
Commission on other financial services
Channels and other E-business income
Commission on virtual products
Credit-related fees and commissions
Commission on foreign currency denominated transactions

Fees and commission income such as bills and letters of credit arises from international trade. Letter of credit serves as a guarantee on behalf of an importer, promising the exporter that the payment will be done. Others such as E-business income relates to card and other online business fees and commission earned by the bank.

3. Gains from financial instrument

This includes gains arising from trading of financial instruments. Also, interest earned from equity investment also falls into this category. More so, gains on derivatives such as Forward, swap, and future contracts from normal business activities of the bank are part of

4. Gains from foreign exchange

This arises from the Bank’s involvement in foreign exchange transactions. This includes the trading of dollars, pounds among others.

5. Disposal of non-current assets

Non-current assets that have completed their wear and tear are normally disposed of by a company. When this is done, any gain that is realized from it, forms part of income.

6. Gains from hedge instruments

Transactions that are hedged by the bank and the income derived from the hedging instrument are presented under this line item in the statement of profit or loss. This is another way banks make money.

7. Share of profit from investment in associate

This income is earned from the entity investment in other entities referred to as associates.

8. Other operating income

Here we have dividends on equity securities and income from asset management for clients. According to Access Bank's income report.

In conclusion, we cannot assert the competing items of income for banks. However, in information provided shows how banks earned income from various sources of their normal business activities and extra activities.