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Banco Lusitano is examining the profitability of its premier account to its private customers segment. The bank earns an interest rate spread of 2% (the
Banco Lusitano is examining the profitability of its premier account to its private customers segment. The bank earns an interest rate spread of 2% (the difference between the rate at which it lends Money and the rate it pays depositors) by lending money for home loan purposes at 6% while customers receive 4% on their average balance. Thus, the bank gain 40 E on the interest spread if a depositor has an average premier account balance of 2,000 E (2,000E X 0.02 = 40 E). The premier account allows depositors unlimited use of services such as deposits, withdraws, checking accounts, and foreign currency drafts. Depositors with balances of 1,000 E or more receive unlimited free use of services. Depositors with average balances of less than 1,000 E pay a fee of 15E/month. The bank recently has implemented activity-based costing to compute the cost of its services. Last year, the use of these services by three customers is as follows: Account usage Activity cost per driver Almeida Barbosa Cardoso Deposits/withdraws in the branch 1.80 E Deposits/withdraws with ATM 0.60 E Bank checks written 6.00 E Foreign currency drafts 9.00 E Inquiries about account balance 0.75 E Average premier account balance 1,200 E 800 E 25,000 E Assume Almeida e Cardoso always maintain a balance above 1,000 C, whereas Barbosa has a balance below 1,000 E during 10 months of the year. Compute the profitability of each account for last year. Comment the results and advise Banco Lusitano regarding its account
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