Interestingly enough and different from the popular knowledge the bank`s main asset is currency. Commercial banks, buy from a lower interest rate from the central bank paying low interest rates and sell`s its assets to firms and individuals with higher interest rates. Their profitability comes from the difference in the interest rates existent between the supplier of the currency and the demander of currency. Furthermore, inflation causes the central bank`s and the commercial banks`currently held currency to proportionally increase their values therefore, in theory, not affecting the profit of the commercial banks. In practice, when inflation happens, businesses lose confidence and individuals sell their investments and borrow less money. This would eventually cause a lower profit to the commercial banks because of the lower demand for currency.
How can marketing solve this problem? The more powerful and positive advertisement the government and private companies invest in to show how the country and the economy are doing well, the more minimized will be the effect of the inflation on the businesses` and peoples` confidence, and therefore minimizing the loss of profits for the commercial banks.
A simple idea that also is noteworthy is that when commercial banks lend money for buying houses the interest rates should be lower because land can easily turned into money and, unless the government takes the property, you have the certainty that that wealth will always be there. It is a less risky investment (the risk is only in the depreciation on the market value of the land, which generally does not happen, especially in developing countries). The exception of the rule! Contrastingly, lending to small businesses which rely in ideas, the interest rates for borrowing money must be higher for being a risky investment of the bank of maybe not receiving back their currency with the principal and the interest. Therefore, the reason why the demander demands must be considered before setting the price (interest rate) for which you will lend your money. How much can you trust your borrower?
That is where marketing comes in. The initial level of asymmetry of information between the borrower and how well how well the borrower will market itself from that point onwards will result in the level of trust that the lender will have. Considering that the bank assumes that It must know something before lending, if the borrower critically thinks about the information that It has about itself that will give him credibility, it can trick the lender in thinking that he is trustful and therefore get a lower interest rate when finalizing the borrowing contract.
