Noncredit services

Noncredit services,

Definition of Noncredit services:

  1. Noncredit services are fee-based services that do not involve the extension of credit that a lending institution offers to customers. Non-interest income generated from noncredit services can be a significant source of revenue for banks, and will limit the erosion of profitability when net interest margins are squeezed in a declining interest rate environment.

  2. Historically, the basic profitability model of a bank has been lending to customers at X% and paying Y% on deposits held at the bank. X-Y% is the spread that brings money to the bottom line. However, another pillar of profitability has developed for banks that does not involve using the balance sheet to generate income. Various noncredit services for retail and corporate customers are routinely offered by banks. For retail customers, aside from checking and savings accounts, such services could include debit card processing, stock trading brokerage and asset management. For small businesses and larger corporate entities, noncredit services include cash management, payroll processing, merchant transactions, merger and acquisition advisory or other corporate finance services, loan syndication and agency, and insurance underwriting. Collectively, these services produce commissions and fees for a bank. Not a single dollar needs to be loaned out to capture this type of income.

  3. A fee-based service that is offered to corporate organizations that do not require the extension of credit or financial charges payment, which lending institutions and banks provide to its business customers or other banks. The services include- the provision of account summary either via telephone or email, cash management, foreign currency exchange and trust services. Noncredit services act as a source of finance for business with the income that it generates.

Meaning of Noncredit services & Noncredit services Definition