How a bank makes money

A bank's income statement looks unfamiliar at first: there is no "revenue" and "cost of sales". Instead a bank earns interest on what it lends and invests, pays interest on what it borrows, and keeps the difference. Lenders, bank analysts and corporate treasurers all need to read this statement, because it tells you what a bank needs from its customers and how it behaves when credit conditions change.

Throughout this track you'll work with Najd Commercial Bank, a fictional bank with a simplified balance sheet and income statement (SAR millions, FY2025). Its figures are built from a few drivers so they tie together exactly. All rates in the track are illustrative — examples are educational, not bank-specific rules.

A commercial bank has three profit engines and two main costs:

1. Net interest income (NII) — interest earned on loans, securities and interbank placements, minus interest paid on deposits and borrowings. For most commercial banks this is the largest source of income.
2. Fee and commission income — account, card, trade-finance, advisory and arrangement fees. Fees use little balance sheet, so investors value them.
3. Other income — foreign-exchange, trading and investment gains; useful but more volatile.
4. Operating expenses — staff, branches, technology.
5. Impairment charges (the cost of risk) — the expected losses on loans that will not be repaid in full.

The gap between these is earned on a thin layer of equity: a bank funds most of its assets with deposits and borrowings, so small margins become meaningful returns — and small losses matter a great deal.