Question

Customer loans are classified on the Commercial Banks’ (CB) balance sheet as    A. liabilities, because...

Customer loans are classified on the Commercial Banks’ (CB) balance sheet as

  

A.

liabilities, because the customer may default on the loan
B.

liabilities, since the CB must transfer funds to the borrower at the initiation of the loan.
C.

Assets, because CBs originate and monitor loan portfolios as a part of their revenue generation process.
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Answer #1

Answer: Assets, because CBs originate and monitor loan portfolios as a part of their revenue generation process.

The core business of CBs are accepting deposits from and lending loan to its custmers. Deposits accepted are liabilities( need to payback by CB), while loan granted are assets(since they are repayable by cutomers in future). When interest rates are compared, interest on deposit is lower than interest on loan. So the bank accept deposits which is the source for funding loan. They pay lower interest on deposits and charge high interest on loan, thereby generate income.

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