Why Aren’t Hong Kong’s Virtual Banks Profitable?
<p>It seems counterintuitive for a bank to be unprofitable. Afterall, banks are the mother of all industries. In theory, banks should be profitable because they pay a lower interest rate to depositors and in turn lend out the acquired capital to borrowers at a higher interest rate. At its essence, a bank’s business model is simple and proven — buying (capital) low and selling (capital) high. Of course, there are much more complexities to it, such as composing the mix of the loan book, managing the duration mismatch between assets and liabilities, running additional businesses such as investment banking, and more. Occasionally, a bank may fall prey to episodes of misfortune, such as an unrecoverable bank-run, over-exposure to bad debts, or outsized speculative bets that go awry. But normally, even small community banks should be profitable.</p>
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