This is the third part of our Singapore Banking series.

As discussed in the last post, the main driver of earnings for banks are interest income (or specifically net interest income).

Net interest income = Interest income – interest expense

And profitability of these loans are dictated by net interest margins.

If you were to add up all their loans, you get their “loan book” which is simply the collective value of all their loans added up together.

Thinking more about loan books

Going back to our example of a money lender – you could choose to lend your money to different groups of people.

Each group of person would have a different characteristic which would impact their ability to repay the interest and principal back.

Ideally you want a reasonably diversified loan book so that you are not overly exposed to one type of customer.

If you lend to …